UNITED
STATES SECURITIES AND EXCHANGE COMMISSION





WASHINGTON,
DC  20549





FORM
10-Q





Quarterly
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934





For
Quarter
Ended:                             March 31, 2010





Commission
File Number:
                  000-29507





CHANTICLEER HOLDINGS,
INC.


(Exact
name of registrant as specified in its charter)





Delaware
              20-2932652(State
      or Jurisdiction of
              (IRS
      Employer ID No)Incorporation
      or Organization)





11220 Elm Lane, Suite 203,
Charlotte, NC  28277


(Address
of principal executive office) (zip code)





(704)
366-5122


(Issuer’s
telephone number)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter periods as the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes x  No  ̈.





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).  Yes  ̈ No  ̈.





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See definitions of “large accelerated filer,” accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.  (Check one):





Large
accelerated filer  ̈
Accelerated filer  ̈
Non-accelerated filer  ̈ Smaller reporting
company x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes  ̈ No x.





The
number of shares outstanding of registrant’s common stock, par value $.0001 per
share, as of April 30, 2010, was 984,911 shares.





Chanticleer
Holdings, Inc. and Subsidiaries





INDEX





PageNo.Part
      I
                  Financial
      Information (unaudited)
                  3Item
      1:
                  Condensed
      Consolidated Financial Statements
                  3Balance
      Sheets as of March 31, 2010 and December 31, 2009
                  3Statements
      of Operations – For the Three Months Ended March 31, 2010 and
      2009
                  4Statements
      of Cash Flows – For the Three Months Ended March 31, 2010 and
      2009
                  5Notes
      to Financial Statements
                  6Item
      2:
                  Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                  19Item
      3:
                  Quantitative
      and Qualitative Disclosure about Market Risk
                  22Item
      4:
                  Controls
      and Procedures
                  22Part
      II
                  Other
      Information
                  24Item
      1:
                  Legal
      Proceedings
                  24Item
      1A:
                  Risk
      Factors
                  24Item
      2:
                  Unregistered
      Sales of Equity Securities and Use of Proceeds
                  24Item
      3:
                  Defaults
      Upon Senior Securities
                  24Item
      4:
                  Submission
      of Matters to a Vote of Security Holders
                  24Item
      5:
                  Other
      Information
                  24Item
      6:
                  Exhibits
                  24


2





PART
1:  FINANCIAL INFORMATION


ITEM
1:  CONDENSED FINANCIAL STATEMENTS





Chanticleer
Holdings, Inc. and Subsidiaries


Consolidated
Balance Sheets


March
31, 2010 (Unaudited) and December 31, 2009





2010
                                
                                
                                2009ASSETSCurrent
      assets:Cash
      and cash equivalents
                                
                                $
                                118,844
                                
                                
                                $
                                2,374Accounts
      receivable
                                
                                
                                14,184
                                
                                
                                
                                -Due
      from related parties
                                
                                
                                32,806
                                
                                
                                
                                32,806Prepaid
      expenses
                                
                                
                                14,952
                                
                                
                                
                                25,000Total
      current assets
                                
                                
                                180,786
                                
                                
                                
                                60,180Property
      and equipment, net
                                
                                
                                33,020
                                
                                
                                
                                32,125Available-for-sale
      investments at fair value
                                
                                
                                115,893
                                
                                
                                
                                83,286Other
      investments accounted for under the equity method
                                
                                
                                56,797
                                
                                
                                
                                82,500Other
      investments accounted for under the cost method
                                
                                
                                1,091,598
                                
                                
                                
                                1,191,598Deposits
                                
                                
                                3,980
                                
                                
                                
                                3,980Total
      assets
                                
                                $
                                1,482,074
                                
                                
                                $
                                1,453,669LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable
                                
                                $
                                205,443
                                
                                
                                $
                                190,482Accrued
      expenses
                                
                                
                                12,784
                                
                                
                                
                                2,496Notes
      payable
                                
                                
                                412,250
                                
                                
                                
                                412,250Deferred
      revenue
                                
                                
                                9,625
                                
                                
                                
                                20,833Due
      to related parties
                                
                                
                                110,090
                                
                                
                                
                                109,590Total
      current liabilities
                                
                                
                                750,192
                                
                                
                                
                                735,651Convertible
      notes payable
                                
                                
                                275,000
                                
                                
                                
                                -Total
      liabilities
                                
                                
                                1,025,192
                                
                                
                                
                                735,651Commitments
      and contingenciesStockholders'
      equity:Common
      stock, $.0001 par value. Authorized 200,000,000 shares; issued 1,246,376
      shares and outstanding 984,911 shares at March 31, 2010 and at December
      31, 2009, respectively
                                
                                
                                125
                                
                                
                                
                                125Additional
      paid in capital
                                
                                
                                5,290,997
                                
                                
                                
                                5,255,749Non-controlling
      interest
                                
                                
                                7,287
                                
                                
                                
                                -Unrealized
      loss on available-for-sale securities
                                
                                
                                (121,507
                                )
                                
                                
                                (84,000
                                )Accumulated
      deficit
                                
                                
                                (4,184,017
                                )
                                
                                
                                (3,917,853
                                )Less
      treasury stock, 261,465 shares at both dates
                                
                                
                                (536,003
                                )
                                
                                
                                (536,003
                                )Total
      stockholders' equity
                                
                                
                                456,882
                                
                                
                                
                                718,018Total
      liabilities and stockholders' equity
                                
                                $
                                1,482,074
                                
                                
                                $
                                1,453,669





See
accompanying notes to condensed consolidated financial
statements.


3





Chanticleer
Holdings, Inc. and Subsidiaries


Consolidated
Statements of Operations


For
the Three Months Ended March 31, 2010 and 2009


(Unaudited)





2010
                                
                                
                                2009Management
      and consulting revenueAffiliate
                                
                                $
                                6,625
                                
                                
                                $
                                25,000Other
                                
                                
                                21,708
                                
                                
                                
                                78,41728,333
                                
                                
                                
                                103,417Expenses:General
      and administrative expense
                                
                                
                                264,221
                                
                                
                                
                                205,004Acquisition
      related costs
                                
                                
                                -
                                
                                
                                
                                279,050264,221
                                
                                
                                
                                484,054Loss
      from operations before income taxes
                                
                                
                                (235,888
                                )
                                
                                
                                (380,637
                                )Income
      taxes
                                
                                
                                -
                                
                                
                                
                                -Loss
      from operations
                                
                                
                                (235,888
                                )
                                
                                
                                (380,637
                                )Other
      income (expense)Realized
      gain from sales of investments
                                
                                
                                36,728
                                
                                
                                
                                -Equity
      in earnings of investments
                                
                                
                                11,797
                                
                                
                                
                                11,500Other
      than temporary decline in available-for-sale securities
                                
                                
                                (40,386
                                )
                                
                                
                                (64,282
                                )Interest
      income
                                
                                
                                11,500
                                
                                
                                
                                -Interest
      expense
                                
                                
                                (49,550
                                )
                                
                                
                                (3,866
                                )Total
      other income (expense)
                                
                                
                                (29,911
                                )
                                
                                
                                (56,648
                                )Net
      loss before non-controlling interest
                                
                                
                                (265,799
                                )
                                
                                
                                (437,285
                                )Non-controlling
      interest
                                
                                
                                (365
                                )
                                
                                
                                -Net
      loss
                                
                                
                                (266,164
                                )
                                
                                
                                (437,285
                                )Other
      comprehensive loss:Unrealized
      loss on available-for-sale securities
                                
                                
                                (37,507
                                )
                                
                                
                                -Net
      comprehensive loss
                                
                                $
                                (303,671
                                )
                                
                                $
                                (437,285
                                )Net
      loss per share, basic and diluted
                                
                                $
                                (0.27
                                )
                                
                                $
                                (0.46
                                )Weighted
      average shares outstanding
                                
                                
                                984,911
                                
                                
                                
                                946,376





See
accompanying notes to condensed consolidated financial statements.





4





Chanticleer
Holdings, Inc. and Subsidiaries


Consolidated
Statements of Cash Flows


For
the Three Months Ended March 31, 2010 and 2009


(Unaudited)





2010
                    
                    
                    2009Cash
      flows from operating activitiesNet
      loss
                    
                    $
                    (266,164
                    )
                    
                    $
                    (437,285
                    )Adjustments
      to reconcile net loss to net cash used inoperating
      activities:Other
      than temporary decline in available-for-sale securities
                    
                    
                    40,386
                    
                    
                    
                    64,282Depreciation
                    
                    
                    2,734
                    
                    
                    
                    3,000Equity
      in (earnings) loss of investments
                    
                    
                    (11,797
                    )
                    
                    
                    (11,500
                    )Beneficial
      conversion feature of convertible notes payable
                    
                    
                    35,248
                    
                    
                    
                    -Investment
      received in exchange for management services
                    
                    
                    (10,500
                    )
                    
                    
                    -Realized
      gains from sales of investments
                    
                    
                    (36,728
                    )
                    
                    
                    -Acquisition
      related costs
                    
                    
                    -
                    
                    
                    
                    279,050Non-controlling
      interest
                    
                    
                    365
                    
                    
                    
                    -Change
      in other assets and liabilities:(Increase)
      decrease in accounts receivable
                    
                    
                    (14,184
                    )
                    
                    
                    (1,657
                    )(Increase)
      decrease in prepaid expenses and other assets
                    
                    
                    -
                    
                    
                    
                    4,255Increase
      (decrease) in accounts payable and accrued expenses
                    
                    
                    25,248
                    
                    
                    
                    16,169Advances
      from related parties for working capital, net
                    
                    
                    501
                    
                    
                    
                    48,250Increase
      (decrease) in deferred revenue
                    
                    
                    (11,208
                    )
                    
                    
                    (72,917
                    )Net
      cash used in operating activities
                    
                    
                    (246,099
                    )
                    
                    
                    (108,353
                    )Cash
      flows from investing activitiesPurchase
      of fixed assets
                    
                    
                    (3,628
                    )
                    
                    
                    (850
                    )Purchase
      of investments
                    
                    
                    (13,861
                    )
                    
                    
                    -Distributions
      from equity investments
                    
                    
                    -
                    
                    
                    
                    11,500Proceeds
      from sale of investments
                    
                    
                    105,058
                    
                    
                    
                    111,371Net
      cash provided by operating activities
                    
                    
                    87,569
                    
                    
                    
                    122,021Cash
      flows from financing activitiesLoan
      proceeds
                    
                    
                    275,000
                    
                    
                    
                    -Net
      cash provided by financing activities
                    
                    
                    275,000
                    
                    
                    
                    -Net
      increase in cash and cash equivalents
                    
                    
                    116,470
                    
                    
                    
                    13,668Cash
      and cash equivalents, beginning of period
                    
                    
                    2,374
                    
                    
                    
                    14,151Cash
      and cash equivalents, end of period
                    
                    $
                    118,844
                    
                    
                    $
                    27,819Supplemental
      cash flow informationCash
      paid for interest and income taxes:Interest
                    
                    $
                    15,503
                    
                    
                    $
                    3,866Income
      taxes
                    
                    
                    -
                    
                    
                    
                    -Non-cash
      investing and financing activities:Investments
      received for management consulting contracts
                    
                    
                    10,500
                    
                    
                    
                    375,000-





See
accompanying notes to condensed consolidated financial
statements.


5





Chanticleer
Holdings, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


(Unaudited)





NOTE
      1:
            NATURE
      OF BUSINESS





(1)
            Organization – The
      consolidated financial statements include the accounts of Chanticleer
      Holdings, Inc. (“Holdings”) and its wholly owned subsidiaries Chanticleer
      Advisors LLC (“Advisors”), Avenel Ventures LLC ("Ventures"), Avenel
      Financial Services LLC ("Financial"), Chanticleer Holdings Limited ("CHL")
      and DineOut S.A. Ltd. ("DineOut") (during the quarter ended March 31,
      2010, the Company sold approximately 1.1% of its DineOut shares)
      (collectively the “Company”, "Companies," “we”, or “us”).  All
      significant intercompany balances and transactions have been eliminated in
      consolidation.  Holdings was organized October 21, 1999, under
      the laws of the State of Delaware.  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.





Information
      regarding the Company's subsidiaries is as
  follows:




·
            Advisors
      was formed as a Nevada Limited Liability Company on January 18, 2007 to
      manage an affiliate company, Chanticleer Investors II, LLC ("Investors
      II") and other investments owned by the
Company;




·
            Ventures
      was formed as a Nevada Limited Liability Company on December 24, 2008 to
      provide business management and consulting services to its
      clients;




·
            AFS
      was formed as a Nevada Limited Liability Company on February 19, 2009 to
      provide unique financial services to the restaurant, real estate
      development, investment advisor/asset management and philanthropic
      organizations.  AFS's business operation is currently being
      organized and is expected to initially include captive insurance, CHIRA
      and trust services;




·
            CHL
      is wholly owned and was formed as a Limited Liability Company in Jersey on
      March 24, 2009 and owns our 50% interest in Chanticleer & Shaw Foods
      Pty. Ltd., a Republic of South Africa corporation, which holds the
      franchise rights for the Republic of South Africa with Hooters of America,
      Inc. ("HOA");




·
            DineOut
      was formed as a Private Limited Liability Company in England and Wales on
      October 29, 2009 to finance growth activity for the Company around the
      world.  DineOut's common stock is listed on the Frankfort stock
      exchange and during the quarter ended March 31, 2010, the Company sold
      approximately 1.1% of its shares for proceeds of
  $50,232.




On July
31, 2006, the Company formed Chanticleer Investors II, LLC (“Investors
II”).  Investors II began raising funds in January 2007 for the
purpose of investing in publicly traded value securities and is managed by
Advisors.


6





(2)
            General - The financial
      statements included in this report have been prepared by the Company
      pursuant to the rules and regulations of the Securities and Exchange
      Commission 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 financial
      statements have not been audited.





Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America 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 financial statements and notes thereto included in the
Company’s Annual Report for the period ended December 31, 2009, which is
included in the Company’s Form 10-K.





In
preparing the accompanying unaudited condensed consolidated financial
statements, the Company has reviewed, as determined necessary by the Company's
management, events that have occurred after March 31, 2010, up until the
issuance of the financial statements, which occurred on May 14,
2010.





(3)
            Going Concern - At March
      31, 2010 and December 31, 2009, the Company had current assets of $180,786
      and $60,180; current liabilities of $750,192 and $735,651; and a working
      capital deficit of $569,406 and $675,471, respectively.  The
      Company incurred a loss of $266,164 during the three months ended March
      31, 2010 and had an unrealized loss from available-for-sale securities of
      $37,507 resulting in a comprehensive loss of
  $303,671.





The
Company's general and administrative expenses were approximately $264,000 during
the March 2010 quarter.  The Company expects quarterly cost to remain
relatively constant in 2010 with probable increases in AFS and DineOut to be
offset by expected revenues from the insurance and financial service products of
AFS and Hooters restaurants in South Africa of DineOut,
respectively.  In addition, the Company has a note for $250,000 owed
to its bank and another note for $162,250 owed to an individual which are due in
2010.  The Company expects to be required to invest approximately
$350,000 for each new restaurant opened in 2010.  (3
planned).  The Company used limited partner investors for $300,000 of
their requirement for the restaurant opened in December and sold their limited
partner interest in March 2010 for its cost of $37,500.





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





·
            The
      Company holds 4,000,000 shares in DineOut which are free-trading on the
      Frankfort Exchange and are currently trading at approximately €1.43
      ($1.86) per share.  The Company plans to sell some of these
      shares to meet its short-term capital requirements and realized proceeds
      of $50,232 and realized a gain of $33,263 from sales during the quarter
      ended March 31, 2010;


7


·
            The
      Company currently receives interest income and management fees for its
      investment in Investors LLC of $18,125 per quarter.  The note
      held by Investors LLC matures in November
2010;


·
            The
      Company currently is receiving its share of earnings from the Durban,
      South Africa restaurant which commenced operations on January 1, 2010 and
      expects at least two more restaurants to be opened during
      2010;


·
            Extend
      a portion of its existing line of credit and note payable;
    and


·
            The
      Company expects to raise the majority of its cash requirements for the
      South Africa restaurants from limited
partners.





If the
above events do not occur or if the Company does not raise sufficient capital,
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.





(4)
            Reclassifications -Certain reclassifications have been made in the financial
      statements at December 31, 2009 and for the periods ended March 31, 2009
      to conform to the March 31, 2010 presentation.  The
      reclassifications had no effect on net
loss.





(5)
            Fair value measurements -For financial assets and liabilities measured at fair value on a
      recurring basis, fair value is the price we would receive to sell an asset
      or pay to transfer a liability in an orderly transaction with a market
      participant at the measurement date.  In the absence of active
      markets for the identical assets or liabilities, such measurements involve
      developing assumptions based on market observable data and, in the absence
      of such data, internal information that is consistent with what market
      participants would use in a hypothetical transaction that occurs at the
      measurement date.





Observable
inputs reflect market data obtained from independent sources, while unobservable
inputs reflect our market assumptions.  Preference is given to
observable inputs.  These two types of inputs create the following
fair value hierarchy:





Level
      1
            Quoted
      prices for identical instruments in active
  markets.


Level
      2
            Quoted
      prices for similar instruments in active markets; quoted prices for
      identical or similar instruments in markets that are not active; and
      model-derived valuations whose inputs are observable or whose significant
      value drivers are observable.


Level
      3
            Significant
      inputs to the valuation model are
unobservable.


8





We
maintain policies and procedures to value instruments using the best and most
relevant data available.  Our investment committee reviews and
approves all investment valuations.





Our
available-for-sale equity securities are all valued using Level 1 inputs (quoted
prices in active markets for identical assets).





Our other
investments are in private entities which are valued, using Level 3 inputs, on a
recurring basis using significant unobservable inputs.




(6)
            New accounting pronouncements
      -There
      are several new accounting pronouncements issued by the Financial
      Accounting Standards Board (“FASB”) which are not yet
      effective.  Each of these pronouncements, as applicable, has
      been or will be adopted by the Company.  Below is a listing of
      those pronouncements which may impact the Company when
      adopted.





In
February 2010, the FASB issued Accounting Standards Update 2010-09 (ASU
2010-09), "Subsequent Events (Topic 855)."  The amendments remove the
requirements for an SEC filer to disclose a date, in both issued and revised
financial statements, through which subsequent events have been
reviewed.  Revised financial statements include financial statements
revised as a result of either correction of an error or retrospective
application of U.S. GAAP.  ASU 2010-09 is effective for interim or
annual financial periods ending after June 15, 2010.  The Company does
not expect the provisions of ASU 2010-09 to have a material effect on the
financial position, results of operations or cash flows of the
Company.





In
October 2009, the FASB issued Accounting Standards Update 2009-13, Revenue
Recognition (Topic 605): Multiple-Deliverable Revenue
Arrangements.  This update addressed the accounting for
multiple-deliverable arrangements to enable vendors to account for products or
services (deliverables) separately rather than a combined unit and will be
separated in more circumstances that under existing US GAAP.  This
amendment has eliminated that residual method of
allocation.  Effective prospectively for revenue arrangements entered
into or materially modified in fiscal years beginning on or after June 15,
2010.  Early adoption is permitted. The Company does not expect the
provisions of ASU 2009-13 to have a material effect on the financial position,
results of operations or cash flows of the Company.


9


NOTE
2:                INVESTMENTS





Available
for sale securities consist of the following at March 31, 2010 and December 31,
2009:





2010
                  
                  
                  2009North
      American Energy Resources, Inc.
                  
                  $
                  136,500
                  
                  
                  $
                  126,000Vought
      Defense Systems
                  
                  
                  100,000
                  
                  
                  
                  -Remodel
      Auction Incorporated
                  
                  
                  900
                  
                  
                  
                  40,000Syzygy
      Entertainment, Ltd.
                  
                  
                  -
                  
                  
                  
                  1,286Cost
      less non-temporary impairment
                  
                  
                  237,400
                  
                  
                  
                  167,286Unrealized
      loss
                  
                  
                  (121,507
                  )
                  
                  
                  (84,000
                  )Total
                  
                  $
                  115,893
                  
                  
                  $
                  83,286





North American Energy Resources, Inc.
- During the quarter ended June 30, 2009, the Company exchanged its oil
& gas property investments for 700,000 shares of North American Energy
Resources, Inc. ("NAEY") which were valued at $126,000 based on the closing
price of NAEY on the date of the trade.  The Company initially
classified the NAEY as a trading security when it was acquired based on the
Company's intent to begin selling the shares before the end of
2009.  In November 2009 the Company decided that it would not plan to
sell the stock in the near term and determined that the investment should be
reclassified as an available-for-sale security and classified as non-current,
due to uncertainties about when it would be sold.  At the time of the
decision to reclassify the investment as available-for-sale, the trading price
and value were approximately equal to the cost.  Accordingly, upon the
transfer at fair value, the shares were transferred at $126,000, the original
cost to the Company.  On February 24, 2010, the Company received
150,000 shares of NAEY which were valued at $10,500, based on the trading price
at that time, for a twelve month management services contract.  At
March 31, 2010, the stock had declined to $0.04 per share and the Company
recorded an additional unrealized loss of $18,500 (total of $102,500), based on
the Company's determination that the price decline was temporary.  It
is the Company's understanding that there are certain transactions which are
expected to happen which could enhance the value of the Company's
investment.  Accordingly, the Company determined that the decline was
temporary.





Vought Defense Systems Corp. -
On May 31, 2006, we acquired debt owed by Vought Defense Systems Corp. ("VDSC")
(formerly, Lifestyle Innovations, Inc.) with a face value of $1,177,395 for
$100,000 in cash.  Lifestyle has traded under the symbol LFSI and has
only had a deminimus amount of income from a royalty during the last three
years.  LFSI is not currently a reporting company.  The debt
was converted into a note with interest at 12% on July 1, 2008.  We
owned approximately 28% of the debt of LFSI at December 31,
2009.  LFSI was valued at approximately $400,000 as a shell, ($100,000
for the Company's interest) based on estimates provided by an attorney
knowledgeable in the area.


10





On
February 16, 2010, a majority of the shareholders of LFSI approved a name change
to Vought Defense Systems Corp. and a 1 for 545 reverse stock split of the
issued shares of common stock.  On February 17, 2010, VDSC acquired
100% of RedTide Defense Group, Inc. ("RedTide") which has created a solution to
a growing worldwide demand for the manufacturing of Unmanned Aerial Vehicles
("UAVs").  RedTide owns and operates
www.redtidedefense.com.  The Company's debt was converted into 449,959
shares of VDSC common stock with a March 31, 2010 price of $0.18 per
share.  VDSC has a number of plans for acquisitions and
expansions.  Accordingly, the Company considers the decline of $19,007
to be temporary.





Remodel Auction Incorporated -Remodel Auction Incorporated was formed to launch and operate an online
listing service for remodeling projects.  The Company received 500,000
shares of Remodel Auction common stock in exchange for providing management
services for one year, effective January 1, 2009.  We valued our
initial investment of 500,000 shares at 50% of the price Remodel was receiving
from third parties for its stock, $125,000.  Remodel Auction began
trading under the symbol REMD on August 10, 2009, and the Company received an
additional 500,000 shares of Remodel common stock pursuant to its management
agreement.  We recorded the additional 500,000 shares at the trading
price of the stock on that date of $0.30 per share and recognized $150,000 in
management income.  Since the market price of Remodel Auction was now
readily determinable, the Company transferred this investment from investments
accounted for by the cost method to available-for-sale
securities.  The market value of Remodel Auction was approximately the
same as the original cost at the time of the transfer.  Accordingly,
the transfer was recorded at the original cost.  At December 31, 2009,
the common stock had decline to $0.04 per share and the Company determined that
the loss was other-than temporary and recorded a loss of $235,000 on its
investment in Remodel Auction common stock.  At March 31, 2010, the
value of the stock had decline further to $900 and was determined to be other
than temporary.  Accordingly, the Company recognized an additional
loss of $39,100 at March 31, 2010.





Syzygy Entertainment, Ltd. -
During 2007, the Company acquired 342,814 shares of Syzygy in exchange for a
management services contract which covered a one-year period commencing April 1,
2007.  The shares were valued at $1.50 per share, a discount to the
listed price at that time.  Also during 2007, Mr. Pruitt contributed
300,000 shares of Syzygy Entertainment, Ltd. to the Company, which was valued by
the investment committee at $600,000 on the dates contributed.  Mr.
Pruitt did not receive additional compensation as a result of the
transfers.





As a
result of the above transactions, the Company owns 642,814 shares of Syzygy with
a cost of $1,114,221 and a fair value of zero at March 31, 2010.  The
fair value is based on Syzygy discontinuing its public filing requirement and
there being no market for the stock.  The Company considers this
decline in value to be other than temporary and has recognized the additional
loss of $1,286 in 2010.


11





Investments
accounted for using the equity method at March 31, 2010 and December 31, 2009
follows:





2010
                  
                  
                  2009Investments
      using the equity method:Balance,
      beginning of period
                  
                  $
                  82,500
                  
                  
                  $
                  1,241,371Equity
      in earnings (loss)
                  
                  
                  11,797
                  
                  
                  
                  23,000Sale
      of investment
                  
                  
                  (37,500
                  )
                  
                  
                  (575,000
                  )Transfer
      to investments at cost
                  
                  
                  -
                  
                  
                  
                  (575,000
                  )Transfers
      from deposits
                  
                  
                  -
                  
                  
                  
                  82,500Investment
      impairment
                  
                  
                  -
                  
                  
                  
                  (50,000
                  )Distributions
                  
                  
                  -
                  
                  
                  
                  (64,371
                  )Balance,
      end of period
                  
                  $
                  56,797
                  
                  
                  $
                  82,500





Equity
investments consist of the following at March 31, 2010 and December 31,
2009:





2010
                    
                    
                    2009Carrying
      value:Chanticleer
      & Shaw Foods Pty. Ltd. (50%)
                    
                    $
                    56,797
                    
                    
                    $
                    82,500$
                    56,797
                    
                    
                    $
                    82,500





Activity
from equity investments during the three months ended March 31, 2010 and 2009
follows:


2010
                  
                  
                  2009Equity
      in earnings (loss):Chanticleer
      Investors, LLC
                  
                  
                  N/A
                  
                  
                  $
                  11,500Hoot
      S.A. I, LLC (20%)
                  
                  
                  11,797
                  
                  
                  
                  N/A$
                  11,797
                  
                  
                  $
                  11,500Distributions:Chanticleer
      Investors, LLC
                  
                  
                  N/A
                  
                  
                  $
                  11,500Hoot
      S.A. I, LLC (20%)
                  
                  
                  -
                  
                  
                  
                  N/A$
                  -
                  
                  
                  $
                  11,500





Chanticleer & Shaw Foods Pty.
Ltd. ("C&S") -The Company through its wholly owned subsidiary owns
50% of C&S.  C&S holds the franchise rights for the Republic
of South Africa with HOA.


12





Hoot S.A. I, LLC ("Hoot I") -The Company is financing its share of cost for each Hooters restaurant in
South Africa in a limited partnership ("LP").  Hoot I receives the 50%
share of profits from the Durban, South Africa restaurant which opened in
December 2009 and began operations on January 1, 2010.  At March 31,
2010, the Company owns 20% of the LP and the limited partners ("LPs") own 80% of
the LP until the LPs receive a 20% return on their investment
("Payout").  After Payout the LPs interest will be reduced to 20% and
the Company through CA will have 80%.





Investments
accounted for using the cost method at March 31, 2010 and December 31, 2009
follow:





2010
                  
                  
                  2009Investments
      at cost:Edison
      Nation, LLC (FKA Bouncing Brain Productions)
                  
                  $
                  250,000
                  
                  
                  $
                  250,000Vought
      Defense Systems (fka Lifestyle Innovations, Inc.)
                  
                  
                  -
                  
                  
                  
                  100,000BreezePlay,
      Inc.
                  
                  
                  250,000
                  
                  
                  
                  250,000Chanticleer
      Investors LLC
                  
                  
                  575,000
                  
                  
                  
                  575,000Chanticleer
      Investors II
                  
                  
                  16,598
                  
                  
                  
                  16,598Total
                  
                  $
                  1,091,598
                  
                  
                  $
                  1,191,598





Chanticleer Investors LLC -The Company sold 1/2 of its investment in Investors LLC in May 2009,
which reduced its ownership from 23% to 11.5%.  Accordingly, in May
2009, the Company discontinued accounting for this investment using the equity
method and began to account for the investment using the cost
method.





On April
18, 2006, the Company formed Investors LLC and sold units for
$5,000,000.  Investors LLC’s principal asset is a convertible note in
the amount of $5,000,000 with Hooters of America, Inc. (“HOA”), collateralized
by and convertible into 2% of Hooters common stock.  The original note
included interest at 6% and was due May 24, 2009.  The note was
extended until November 24, 2010 and included an increase in the interest rate
to 8%.





The
Company invested $1,250,000 and owned (23%) of Investors LLC at December 31,
2008 and until May 29, 2009 when it sold 1/2 of its share for
$575,000.  Under the original arrangement, the Company received 2% of
the 6% interest as a management fee ($25,000 quarterly) and 4% interest on its
investment ($11,500 quarterly).  Under the extended note and revised
operating agreement, the Company receives a management fee of $6,625 quarterly
and interest income of $11,500 quarterly.





The
Company and its new partner in Investors LLC have made extensive reviews of
HOA's financial status and continued strong performance and expects to
ultimately receive a premium for its investment.


13





EE Investors, LLC -On January
26, 2006, we acquired an investment in EE Investors, LLC with cash in the amount
of $250,000.  We acquired 1,205 units (3.378%) in EE Investors, LLC,
whose sole asset is 40% of Edison Nation, LLC (formerly Bouncing Brain
Productions, LLC).  Edison Nation was formed to provide equity capital
for new inventions and help bring them to market.  The initial
business plan included developing the products and working with manufacturers
and marketing organizations to sell the products.  This has evolved
into a less hands-on program which involves selling products with patents to
other larger companies and retaining royalties.  Edison Nation has now
reached cash flow break-even, and in addition has been retained by a number of
companies for which they do product searches to supplement its
business.  The managing member of EE Investors, LLC has had
discussions with another company that would acquire up to 50% of the ownership
of EE Investors at a price which would allow the initial investors to get all of
their money back while retaining a smaller interest on a go-forward
basis.  Based on the current status of this investment, the Company
does not consider the investment to be impaired.





BreezePlay, Inc. -BreezePlayTM
LLC (“BreezePlay”), headquartered in Charlotte, NC, is an energy solutions
provider serving the needs of residents and utilities via partnership programs
with major utilities. BreezePlay offers a proprietary monitoring system called
EnviroScapeTM, which is the only residential consumer energy management product
on the market that monitors residential energy consumption 24/7 to provide
actual usage and rate data, and that enables customers the ability to
automatically adjust systems to effect consumption and automate
savings.  We valued the 250,000 shares we received in BreezePlay at
$250,000, the price at which BreezePlay was selling its common stock to
unrelated parties.  We received the shares in exchange for management
services which were provided from February 1, 2009 through January 31,
2010.  We recognized eleven months of income in 2009 and recognized
the remaining month in 2010.





Chanticleer Investors II -The
Company paid $16,598 in professional services to form this
partnership.  Chanticleer Advisors, LLC acts as the managing general
partner and receives a management fee based on a percentage of
profits.





NOTE
3:                CONVERTIBLE
NOTES PAYABLE





During
the three months ended March 31, 2010, the Company issued convertible notes
payable with a total principal balance of $275,000.  The convertible
notes include interest at 10% per annum, which is payable quarterly beginning on
April 1, 2010 until maturity on January 4, 2012.  The convertible
notes are convertible into our common stock at the rate of $3.50 per
share.  The conversion price was below the market price of our common
stock on the dates the convertible notes were issued.  Accordingly,
$35,248 of the proceeds were allocated to the intrinsic value of the conversion
feature by crediting additional paid in capital and charging interest expense,
since the notes were immediately convertible.





NOTE
4:                NOTES
PAYABLE





On July
15, 2009, the Company repaid its $500,000 line of credit using $250,000 of its
cash balance and a new loan in the amount of $250,000.  The new loan
is due July 10, 2010; includes interest at Wall Street Journal Prime + 1%
(minimum of 5.5%) payable monthly; is collateralized by substantially all of the
assets of the Company; and is guaranteed by Mr. Pruitt.


14





On April
3, 2009, the Company received loan proceeds from an individual in the amount of
$100,000 which was due June 30, 2009, together with interest at 18% per
annum.  On December 8, 2009, the individual loaned the Company an
additional $50,000 and added accrued interest of $12,250 to the note, which was
re-written with a balance of $162,250 and a due date of June 30,
2010.  Chanticleer Holdings, Ltd is the borrower and the Company has
guaranteed the loan.





NOTE
5:                RELATED
PARTY TRANSACTIONS





The
Company had non-interest bearing advances in the amount of $110,090 and $109,590
at March 31, 2010 and December 31, 2009, respectively, from a company partly
owned by Mr. Pruitt and $12,000 from a personal colleague of Mr.
Pruitt.





At March
31, 2010 and December 31, 2009, the Company had $32,806 due from related
parties, which consisted primarily of a receivable of $24,907 from Green St.
Energy, Inc. for whom the Company provided management and accounting services
and for whom Mr. Pruitt is a director and $7,150 from Investors
LLC.





Michael
D. Pruitt, the Company’s Chief Executive Officer, was CFO and the sole director
of Syzygy Entertainment, Ltd until he resigned effective June 1,
2009.





The
Company realized a gain of $3,465 on sale of marketable securities acquired from
a related party for $13,861.





NOTE
6:                COMMITMENTS
AND CONTINGENCIES





PENDING
ACQUISITION


Hooters,
Inc.





On March
11, 2008, the Company entered into a Stock Purchase Agreement for the purchase
of Hooters, Inc., Hooters Management Corporation and their related restaurants
(collectively “HI”) from the nine current individual HI shareholders, many of
whom would continue to stay involved in the ongoing operation as shareholders of
Chanticleer.  The transaction is valued at approximately $55.1
million.





The
termination date for the Company’s pending acquisition of the stock of HI and
certain of its related entities has passed.  Although the sellers have
not, to date, exercised their rights to terminate the agreements and the Company
continues to seek to consummate these transactions, there is no assurance that
the Company will be able to close the pending acquisitions.





In
addition, the commitment letters from certain financial institutions to provide
one or more related entities of the Company the $85,000,000 Senior Secured
Credit have expired, primarily due to the inability of the Company to raise the
necessary equity portion of the financing at acceptable terms in today’s
financial environment.  The Company continues to communicate with the
financial institutions that agreed to provide the credit facility; however,
there can be no assurance that the Company will be successful in obtaining any
financing or that the terms of any credit facility in the future will be
acceptable to the Company.


15


Lease





Effective
August 1, 2009, the Company entered into an office lease agreement for its
office with a term of one year and monthly lease payments of
$2,100.





Hooters
South Africa





On April
23, 2009, the Company's wholly owned subsidiary CHL through its 50% ownership of
Chanticleer & Shaw Pty, Ltd. entered into a franchise agreement with HOA to
open and operate Hooters restaurants in the Republic of South
Africa.  The current plan calls for four restaurants in the first
phase with three additional locations to be added later.  The first
restaurant opened in December 2009 in Durban and commenced operations effective
January 1, 2010.  Two locations in Johannesburg are scheduled to open
during the second and third quarters of 2010, respectively, and a fourth
location in either Cape Town or Pretoria is also planned for late 2010 or early
2011.  The majority of the Company's financial commitments have been
and will be covered with limited partner commitments.





NOTE
7:                ACQUISITION
RELATED COSTS





FASB ASC
805-10-25-23 replaced prior guidance and became effective January 1,
2009.  Acquisition-related costs are defined as costs the acquirer
incurs to effect a business combination.  The paragraph further
provides that the acquirer shall account for acquisition-related costs as
expenses in the periods in which the costs are incurred and the services
received.  Pursuant to the Company's planned acquisition of HI, the
Company incurred $279,050 in acquisition-related costs which were capitalized in
2008 pursuant to accounting guidance in effect at that time.





FASB ASC
805-10-25-23 applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning after December 15, 2008.  Accordingly, on January 1,
2009 the Company charged its previously capitalized acquisition costs to expense
on that date.





NOTE
8:                DEFERRED
REVENUE





The
Company receives equity securities from companies for which it provides
management services.  Generally the securities are issued in advance
of the period over which the service is to be provided, generally one
year.  The Company values the equity instruments received based upon
the stock prices as of the date we reached an agreement with the third party and
defers the related revenue.  The revenue is then recognized over the
period earned.  Deferred revenue consists of the following at March
31, 2010 and  December 31, 2009.


16





2010
                  
                  
                  2009Balance
      at beginning of year
                  
                  $
                  20,833
                  
                  
                  $
                  -Additions:North
      American Energy common stock
                  
                  
                  10,500
                  
                  
                  
                  -Remodel
      Auction common stock
                  
                  
                  -
                  
                  
                  
                  125,000BreezePlay,
      Inc. common stock
                  
                  
                  -
                  
                  
                  
                  250,000Amortization
                  
                  
                  (21,708
                  )
                  
                  
                  (354,167
                  )Balance
      end of year
                  
                  $
                  9,625
                  
                  
                  $
                  20,833





NOTE
9:                SEGMENTS
OF BUSINESS





The
Company is organized into three segments as of the end of March 31, 2010, two of
which were added at the end of 2009 and have not recorded any revenue as of
December 31, 2009.





Management
and consulting services ("Management")


The
Company provides management and consulting services for small companies which
are generally seeking to become publicly traded.  The Company also
provides management and investment services for Investors II.





Insurance
and specialized financial services ("Insurance")


We have
formed AFS to provide unique financial services to the restaurant, real estate
development, investment advisor/asset management and philanthropic
organizations.  AFS's business operation is currently being organized
and is expected to initially include captive insurance, CHIRA and trust
services.





Operation
of restaurants (South Africa) ("Restaurants")


The
Company owns 50% of C&S which holds the franchise for the Republic of South
Africa with HOA.  The Company is funding its 50% capital requirement
for the cost of each restaurant with limited partnerships in which it retains a
20% interest and the LPs are allocated an 80% interest in revenues until the LPs
receive a 20% return on their investment ("Payout").  After Payout,
the Company's share of revenue reverts to 80% and the LPs to 20% of the 50%
interest.


17





Financial
information regarding the Company's segments is as follows for
2010.  In 2009, the Company operated in only one segment, management,
until the fourth quarter of 2009.





Management
                                                  
                                                  
                                                  Insurance
                                                  
                                                  
                                                  Restaurants
                                                  
                                                  
                                                  TotalRevenues
                                                  
                                                  $
                                                  28,333
                                                  
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  $
                                                  28,333Interest
      expense
                                                  
                                                  $
                                                  49,550
                                                  
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  $
                                                  49,550Depreciation
      and amortization
                                                  
                                                  $
                                                  2,734
                                                  
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  $
                                                  2,734Profit
      (loss)
                                                  
                                                  $
                                                  (285,438
                                                  )
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  $
                                                  11,432
                                                  
                                                  
                                                  $
                                                  (274,006
                                                  )Investments
      and other
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  $
                                                  7,842$
                                                  (266,164
                                                  )Assets
                                                  
                                                  $
                                                  217,786
                                                  
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  $
                                                  56,797
                                                  
                                                  
                                                  $
                                                  274,583Investments
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  $
                                                  1,207,491$
                                                  1,482,074Liabilities
                                                  
                                                  $
                                                  996,192
                                                  
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  $
                                                  29,000
                                                  
                                                  
                                                  $
                                                  1,025,192Expenditures
      for non-current assets
                                                  
                                                  $
                                                  3,628
                                                  
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  $
                                                  3,628




18




ITEM
      2:
            MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS





The
following discussion should be read in conjunction with our financial statements
and notes thereto included elsewhere in this Form 10-Q.  This Form
10-Q contains forward-looking statements regarding the plans and objectives of
management for future operations.  This information may involve known
and unknown risks, uncertainties and other factors which may cause our actual
results, performance or achievements to be materially different from future
results, performance or achievements expressed or implied by any forward-looking
statements.  Forward-looking statements, which involve assumptions and
describe our future plans, strategies and expectations, are generally
identifiable by use of the words “may,” “will,” “should,” “expect,”
“anticipate,” “estimate,” “believe,” “intend,” “project” or the negative of
these words or other variations on these words or comparable
terminology.  These forward-looking statements are based on
assumptions that may be incorrect, and we cannot assure you that the projections
included in these forward-looking statements will come to pass.  Our
actual results could differ materially from those expressed or implied by the
forward-looking statements as a result of various factors.





Critical
Accounting Policies and Estimates





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements.  Critical accounting policies are those that are both
important to the presentation of our financial condition and results of
operations and require management’s most difficult, complex, or subjective
judgments.  Our most critical accounting policy relates to the
valuation of our investments.





Liquidity
and capital resources





At March
31, 2010 and December 31, 2009, the Company had current assets of $180,786 and
$60,180; current liabilities of $750,192 and $735,651; and a working capital
deficit of $569,406 and $675,471, respectively.  The Company incurred
a loss of $266,164 during the three months ended March 31, 2010 and had an
unrealized loss from available-for-sale securities of $37,507 resulting in a
comprehensive loss of $303,671.





The
Company's general and administrative expenses were approximately $264,000 during
the March 2010 quarter.  The Company expects quarterly cost to remain
relatively constant in 2010 with probable increases in AFS and DineOut to be
offset by expected revenues from the insurance and financial service products of
AFS and Hooters restaurants in South Africa, respectively.  In
addition, the Company has a note for $250,000 owed to its bank and another note
for $162,250 owed to an individual which are due in 2010.  The Company
expects to be required to invest approximately $350,000 for each new restaurant
opened in 2010.  (3 planned).  The Company used limited
partner investors for $300,000 of their requirement for the restaurant opened in
December and sold their limited partner interest in March 2010 for its cost of
$37,500.


19





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





·
            The
      Company holds 4,000,000 shares in DineOut which are free-trading on the
      Frankfort Exchange and are currently trading at approximately €1.43
      ($1.86) per share.  The Company plans to sell some of these
      shares to meet its short-term capital requirements and realized proceeds
      of $50,232 and realized a gain of $33,263 from sales during the quarter
      ended March 31, 2010;


·
            The
      Company currently receives interest income and management fees for its
      investment in Investors LLC of $18,125 per quarter.  The note
      held by Investors LLC matures in November
2010;


·
            The
      Company currently is receiving its share of earnings from the Durban,
      South Africa restaurant which commenced operations on January 1, 2010 and
      expects at least two more restaurants to be opened during
      2010;


·
            Extend
      a portion of its existing line of credit and note payable;
    and


·
            The
      Company expects to raise the majority of its cash requirements for the
      South Africa restaurants from limited
partners.





If the
above events do not occur or if the Company does not raise sufficient capital,
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.





Comparison
of three months ended March 31, 2010 and 2009





Revenues
amounted to $28,333 ($6,625 from Investors LLC) in the three months ended March
31, 2010, as compared to $103,417 ($25,000 from Investors LLC) in the year
earlier period.  The Company received cash from Investors LLC and was
compensated with shares of common stock for the other revenue
earned.





General
and administrative expense amounted to $264,221 in the 2010 quarter as compared
to $205,004 in the 2009 quarter.  The principal increase was payroll
of $79,655.  Payroll increased due to hiring two employees to assist
in raising capital for the Company.  In addition, the Company's CEO
was taking a reduced salary in the 2009 period and he received his normal salary
in the 2010 period.





Other
income (expense) consists of the following for the three months ended March 31,
2010 and 2009.


20





2010
                  
                  
                  2009Realized
      gain from sale of investments
                  
                  $
                  36,728
                  
                  
                  $
                  -Equity
      in earnings of investments
                  
                  
                  11,797
                  
                  
                  
                  11,500Other
      than temporary decline in available-for-sale securities
                  
                  
                  (40,386
                  )
                  
                  
                  (64,282
                  )Interest
      income
                  
                  
                  11,500
                  
                  
                  
                  -Interest
      expense
                  
                  
                  (49,550
                  )
                  
                  
                  (3,866
                  )$
                  (29,911
                  )
                  
                  $
                  (56,648
                  )





The
Company realized a gain of $33,263 from sales of DineOut shares during the 2010
quarter and realized a gain of $3,465 from marketable securities acquired from a
related party.





As a
result of the sale of 50% of its interest in Chanticleer Investors, LLC, the
Company reduced its ownership to 11.5% and now accounts for this investment on
the cost method.  Under the cost method, earnings are now included in
interest income.





Interest
expense increased during the 2010 quarter primarily due to the amortization of
the beneficial conversion feature on new convertible notes of $35,248 and to the
higher amount of debt during the 2010 period as compared to the 2009
period.


21





ITEM
      3:
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





Not
applicable.





ITEM 4:
            CONTROLS
      AND PROCEDURES





Evaluation
of disclosure controls and procedures





Under the
PCAOB standards, a significant deficiency is a control deficiency, or
combination of control deficiencies, that , in the Company's judgment, would
adversely affect the ability to initiate, authorize, record, process, or report
external financial data reliably in accordance with generally accepted
accounting principles such that there is more than a remote likelihood that a
misstatement of the annual or interim financial statements that is more than
inconsequential will not be prevented or detected.  A material
weakness is a significant deficiency, or combination of significant
deficiencies, that, in our judgment, results in more than a remote likelihood
that a material misstatement of the annual or interim financial statements will
not be prevented or detected.





The
material weaknesses identified were:


·
            Due
      to the limited number of accounting employees, the Company is unable to
      segregate all noncompatible duties, which would prevent one person from
      having significant control over the initiation, authorization and
      recording of transactions.  This condition is characteristic of
      all companies except those with large numbers of accounting
      personnel.  A mitigating control is the personal involvement of
      the members of the Board of Directors in the analysis and review of
      internal financial data, as well as the consultant retained by the Company
      to serve the functions of a controller for assistance and preparation of
      financial reporting.


·
            An
      effective Audit Committee is an integral part to the integrity of the
      Company's financial reporting.  The responsibilities of the
      Audit Committee should be detailed in the Committee's charter and provided
      to its members.  These responsibilities should, at a minimum,
      require inquiry and awareness of current Company transactions, analysis of
      interim and annual financial data and review of minutes of the Board of
      Directors.  The Audit Committee's oversight and periodic
      investigation can serve as a mitigating control to the lack of segregation
      of duties inherent to companies with a limited number of
      personnel.  The current practices of the Company's Audit
      Committee do not fulfill these
criteria.





Our
management has discussed these material weaknesses with our board of directors
and has commenced the following remediation efforts to ensure that the
significant deficiencies are mitigated.  The board of directors has
reviewed the lack of segregation of duties issue and has determined it is not
practical to add personnel merely to allow for segregation of noncompatible
duties.  The Company already retains a third party consultant who acts
as controller for the Company, who has no check signing authority and no access
to assets, to oversee its reporting responsibilities.  In addition, as
discussed below, the Company plans on expanding the duties of its Audit
Committee, which will also further mitigate any perceived weakness due to a lack
of segregation of duties.


22





The board
of directors is updating the Audit Committee procedures and responsibilities and
will require active participation from the Audit Committee.  This is
expected to be completed during 2010.





Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of our disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities
Exchange Act of 1934, as amended (Exchange Act), as of March 31,
2010.  Based on the information set forth above, our management has
determined that, as of the date of this report, we do not have effective
disclosure controls and procedures.





Changes in internal control
over financial reporting





There
have been no significant changes in internal controls or in other factors that
could significantly affect these controls during the quarter ended March 31,
2010, including any corrective actions with regard to significant deficiencies
and material weaknesses.


23


PART II – OTHER
INFORMATION




ITEM
1:              LEGAL
PROCEEDINGS




Not
applicable.





ITEM
1A:           RISK
FACTORS




Not
applicable.




ITEM
2: UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS




None.




ITEM
3:              DEFAULTS
UPON SENIOR SECURITIES




Not
applicable.




ITEM
4: SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS




Not
applicable.




ITEM
5:             OTHER
INFORMATION




Although
the Company does not currently employ a Chief Financial Officer, Michael D.
Pruitt, President and Chief Executive Officer, is also the principal accounting
officer.




ITEM
6:              EXHIBITS





The
following exhibits are filed with this report on Form 10-Q.





Exhibit
      31
              Certification
      pursuant to 18 U.S.C. Section 1350Section
      302 of the Sarbanes-Oxley Act of
2002





Exhibit
      32
              Certification
      pursuant to 18 U.S.C. Section 1350Section
      906 of the Sarbanes-Oxley Act of
2002


24


SIGNATURE





Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.





CHANTICLEER
      HOLDINGS, INC.Date:
      May 14, 2010
              By:
              /s/ Michael D. PruittMichael
      D. Pruitt,Chief
      Executive Officer andChief
      Financial Officer




25