1.

Nature of Business

 

 

Chanticleer Holdings, Inc. (the “Company”) was organized October 21, 1999, under its original name, Tulvine Systems, Inc., under the laws of the State of Delaware. The Company previously had limited operations and was considered a development stage company until July 2005. On April 25, 2005, the Company formed a wholly owned subsidiary, Chanticleer Holdings, Inc. On May 2, 2005, Tulvine Systems, Inc. merged with and changed its name to Chanticleer Holdings, Inc.

  

The consolidated financial statements include the accounts of Chanticleer Holdings, Inc. and its subsidiaries, Chanticleer Advisors, LLC, (“Advisors”), Avenel Ventures, LLC ("Ventures"), Avenel Financial Services, LLC ("AFS"), Chanticleer Holdings Limited ("CHL"), Chanticleer Holdings Australia Pty, Ltd. (“CHA”), Chanticleer Investment Partners, LLC (“CIP”), DineOut SA Ltd. ("DineOut”), Chanticleer and Shaw Foods (Pty) Ltd. (“C&S”), Kiarabrite (Pty) Ltd (“KPL”), Dimaflo (Pty) Ltd (“DFLO”), Tundraspex (Pty) Ltd (“TPL”), Civisign (Pty) Ltd (“CPL”) and Dimalogix (Pty) Ltd (“DLOG”) (collectively referred to as “the Company,” “we,” “us,” or “the Companies”). On July 11, 2013, the names of DFLO, CPL and DLOG were changed in South Africa to Hooters Umhlanga (Pty.) Ltd., Hooters CapeTown (Pty.) Ltd., Hooters Emperors Palace (Pty.) Ltd., respectively. All significant inter-company balances and transactions have been eliminated in consolidation.

 

Effective May 11, 2012, the Company's common stock was reverse split, 1 share for each 2 shares issued, pursuant to a majority vote of the Company's shareholders. All share references have been adjusted as if the split occurred in all periods presented.

 

Further detailed information regarding the Company's subsidiaries can be found in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

 

The accompanying condensed consolidated financial statements included in this report have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim reporting and include all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation. These condensed consolidated financial statements have not been audited. The results of operations for the three and six months ended June 30, 2013 are not necessarily indicative of the operating results for the full year.

Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations for interim reporting. The Company believes that the disclosures contained herein are adequate to make the information presented not misleading. However, these financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report for the year ended December 31, 2012, which is included in the Company’s Form 10-K. Certain amounts for the prior year have been reclassified to conform to the current year presentation. These reclassifications had no effect on previously reported results of operations.

 

GOING CONCERN

 

The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. At June 30, 2013, the Company had current assets of $3,670,833, current liabilities of $4,602,935, and a working capital deficit of $932,102. The Company incurred a loss of $1,444,777 during the six months ended June 30, 2013 and had an unrealized loss from available-for-sale securities of $36,966 and foreign currency translation gains of $54,916, resulting in a comprehensive loss of $1,426,827.

 

The Company's corporate general and administrative expenses averaged approximately $675,000 per quarter in the first six months of 2013 and averaged approximately $650,000 per quarter during 2012. In March 2013, the Company closed its investment management business. Effective October 1, 2011, the Company acquired majority control of the restaurants in South Africa and began consolidating these operations. In August 2012, the Company opened a restaurant in Budapest, Hungary, and earns 80% of the profits with our operating partner earning 20%. The Company also earns 49% of the profits with our operating partner earning 51% in its Hooters restaurant which was opened in January 2012 in Campbelltown, Australia, a suburb of Sydney. 

 

In addition, the Company has a note with a balance at June 30, 2013 of $232,194 owed to its bank which is due on August 10, 2013 and is currently being negotiated for an extension. In April 2013, the Company secured a $500,000 line of credit which is due in April 2014. As of June 30, 2013 the balance on the line of credit is $342,000.

 

The Company also has $2,750,000 of advances from investors and corresponding restricted cash as of June 30, 2013, which is earmarked for our purchase of the Hooters Nottingham (United Kingdom) purchase.On August 2, 2013, the Company entered into an agreement with seven individual accredited investors, whereby the Company issued separate 6% Secured Subordinate Convertible Notes for a total of three million dollars ($3,000,000) in a private offering. The funding from the private offering is being used exclusively for the acquisition of the Nottingham, England Hooters restaurant location (complete details of the transaction are included in the Company’s Form 8-K filed with the Securities and Exchange Commission on August 5, 2013). See Note 16, “Subsequent Events”, for further information.

 

The Company’s South African subsidiaries have bank overdraft and term facilities of $210,814. The Company plans to continue to use limited partnerships or other financing vehicles, if necessary, to fund its share of costs for additional Hooters restaurants.

 

On January 31, 2013, the Company settled outstanding liabilities of approximately $170,000 from a South African bank, previously presented in our consolidated balance sheets in “other liabilities.” Upon making a payment of approximately $99,000, the Company received a release from all other bank liabilities, resulting in a total gain on extinguishment of debt of approximately $71,000, which is presented in our financials as other income.

 

The Company expects to meet its obligations in 2013 with some or all of the following:

 

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The Company received $100,000 in January 2013 as a fee for its CEO to be a board member of Hooters of America and expects to continue to receive this fee for the next three years based on the current agreement;

 

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Borrow, if and to the extent available, additional funds;

 

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Form joint ventures or other financing vehicles.

 

There is no assurance that these events will occur or the Company will be able to raise sufficient capital. Therefore, substantial doubt about the Company’s ability to continue as a going concern exists. These consolidated financial statements do not reflect any adjustments that might result from the outcome of these uncertainties.