UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K





ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF


THE
SECURITIES AND EXCHANGE ACT OF 1934





For
the Fiscal Year Ended December 31, 2009





Commission
File Number    000-29507





CHANTICLEER HOLDINGS,
INC.


(Exact
name of registrant as specified in the charter)





Delaware
                20-2932652(State or other jurisdiction of
                (I.R.S. Employerincorporation or organization)
                Identification Number)





11220 Elm Lane, Suite 103,
Charlotte, NC  28277


(Address
of principal executive offices, including zip code)





Registrant's
telephone number, including area
code:                    (704) 366-5122





Securities
registered pursuant to Section 12(g) of the Act:





Common
Stock, $0.0001 par value


(Title of
Class)





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  ̈
Yes x
No.





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.  ̈
Yes x
No.





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
past 12 months (or for such shorter period that 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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  ̈





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 definition of “large accelerated filer,” “accelerated
filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.  (Check one):


Large
accelerate 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 x
No.





State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant’s most recently completed second fiscal
quarter ($5.40 per share) (636,447 of 946,376 shares): $3,436,814 as of June 30,
2009.





Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date.  There were 1,246,376 shares
of common stock issued and 984,911 shares outstanding as of March 25,
2010.





DOCUMENTS
INCORPORATED BY REFERENCE:  No documents are incorporated by reference
into this Report except those Exhibits so incorporated as set forth in the
Exhibit index.








Chanticleer
Holdings, Inc.


Form 10-K
Index





PagePart IItem 1:
                    Business
                    3Item 1A:
                    Risk
      Factors
                    7Item 2:
                    Properties
                    7Item 3:
                    Legal
      Proceedings
                    8Item 4:
                    Submission
      of Matters to a Vote of Security Holders(Disclosure
      eliminated February 28, 2010)
                    8Part IIItem 4:
                    Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                    8Item 5:
                    Selected
      Financial Data
                    9Item 6:
                    Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operation
                    9Item 6A:
                    Quantitative
      and Qualitative Disclosures about Market Risk
                    16Item 7:
                    Financial
      Statements and Supplementary Data
                    17Item 8:
                    Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                    50Item 8A(T):
                    Controls
      and Procedures
                    50Item 8B:
                    Other
      Information
                    52Part IIIItem 9:
                    Directors,
      Executive Officers and Corporate Governance
                    53Item 10:
                    Executive
      Compensation
                    56Item 11:
                    Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                    58Item 12:
                    Certain
      Relationships and Related Transactions, and Director
      Independence
                    59Item 13:
                    Principal
      Accountant Fees and Services
                    62Part IVItem 14:
                    Exhibits
      and Financial Statement Schedules
                    63Signatures
                    64


2


PART
I





FORWARD
LOOKING STATEMENTS





This
Annual Report contains forward-looking statements within the meaning of the
federal securities laws that involve a number of risks and uncertainties. Our
future results may differ materially from our historical results and actual
results could differ materially from those projected in the forward-looking
statements as a result of certain risk factors.  These factors are
described in the “Risk Factors” section below.  Among the factors that
could cause actual results to differ materially from those expected are the
following: business conditions and general economic conditions; competitive
factors, such as pricing and marketing efforts; and the pace and success of
product research and development. These and other factors may cause expectations
to differ.





ITEM
      1:
            BUSINESS





GENERAL
DEVELOPMENT OF BUSINESS


Chanticleer
Holdings, Inc. filed an election to be treated as a business development company
under the Investment Company Act of 1940 (the “1940 Act”) on May 23, 2005. In
connection with this election, we adopted corporate resolutions and operated as
a closed-end, non-diversified management investment company and as a business
development company (a “BDC”) until this election was revoked, as described
below.





The
consolidated financial statements include the accounts of Chanticleer Holdings,
Inc. and its wholly owned subsidiaries, Chanticleer Advisors, LLC, (“Advisors”),
Avenel Ventures, LLC ("Ventures"), Avenel Financial Services, LLC ("AFS"),
Chanticleer Holdings Limited ("CHL") and DineOut SA Ltd. ("DineOut")
collectively referred to as “the Company,” “we,” “us,” or “the
Companies”.




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 (For additional
      information, see
www.chanticleeradvisors.com.);


·
            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
      was formed as a Limited Liability Company in Jersey on March 24, 2009 and
      was intended to be used to raise capital in Europe, but has not been
      activated;




3


·
            DineOut
      was formed as a Private Limited Liability Company in England and Wales on
      October 29, 2009 to own the Company's 50% interest in Hooters SA, GP, the
      general partner of the Hooters restaurant franchises in South
      Africa.




On April
18, 2006, the Company formed Chanticleer Investors LLC (“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. (“Hooters”),
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 owned $1,250,000 (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.





On July
31, 2006, the Company formed Investors II.  Investors II began raising
funds in January 2007 for the purpose of investing in publicly traded value
securities and has now completed its third year of operations with $1,244,765
under management at December 31, 2009.





On July
21, 2008, we filed Form N-54C with the Securities and Exchange Commission
(“SEC”) to notify the SEC of the withdrawal of our previous election to be
regulated as a BDC under applicable provisions of the 1940 Act.  After
careful consideration of the 1940 Act requirements applicable to BDCs,
evaluation of the Company’s ability to operate as a going concern in an
investment company regulatory environment, the costs associated with complying
with the 1940 Act and a thorough assessment of potential alternative business
models, our Board of Directors determined that continuation as a BDC was not in
the best interests of the Company or our stockholders.  With the
approval of more than a majority of the voting power of our common stock, we
proceeded to file Form N-54C and thereby revoking our BDC status.





Pursuant
to Regulation S-X, Rule 6, the Company operated on a non-consolidated basis
until July 21, 2008.  Operations of the portfolio companies were
reported at the portfolio company level and only the appreciation or impairment
of these investments was included in the Company’s financial
statements.  Subsequent to July 21, 2008, as noted above, we ceased
operating as a BDC and prepared consolidated financial statements with our
wholly owned subsidiaries.





SEGMENTS
OF BUSINESS





The
Company is organized into three business segments as of the end of 2009, two of
which were added during 2009 and have not had any revenues as of December 31,
2009.  See Note 11.


4





Management
and consulting services


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


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)


The
Company formed DineOut to own the Company's 50% general partner interest in
Hooters S.A., GP, the general partner of the Hooters' restaurant franchises in
South Africa.  The initial restaurant opened December 2009 in Durban,
South Africa and operations will commence in January 2010.  In the
initial restaurant DineOut has a 15.56% interest in restaurant cash flows until
the limited partners receive payout and a 41.39% interest in restaurant cash
flows after limited partner payout.  The second location is planned to
open in Johannesburg in April 2010 with a third location planned to open in
Pretoria before the end of the second quarter, in time for the 2010 FIFA World
Cup events.  DineOut sold its LP interest in the Durban restaurant
effective February 28, 2010 and will have a 10% and 40% interest, before and
after LP payout, respectively after February 28, 2010.





NARRATIVE
DESCRIPTION OF BUSINESS





NEW
BUSINESS MODEL





We intend
to pursue a business model whereby we acquire ownership in restaurant-related
companies, principally the Hooters brand and concept.  We also intend
to continue to provide business management and consulting services to clients
who need assistance in becoming publicly traded.  We have also 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.





DineOut
will own our share of the Hooters locations in South Africa.  Each
restaurant is being organized as a limited partnership.  In the first
location in Durban, South Africa, the Hooters Durban, LP is structured as
follows.  DineOut owns 50% of the general partner ("GP") interest and
owns a 5.56% limited partner ("LP") interest.  The LP interest is
allocated 80% of the restaurant cash flow until they have received a return of
their capital and a pre-tax compounded return on that capital of
20%.  After the LP interest has received its return, the LP interest
share will reduce to 20% and the GP interest will increase to
80%.  DineOut initially has a 10% GP interest and a 5.56% LP interest
which will convert to 40% GP interest and 1.39% LP interest after the LP
payout.  The Company sold its LP interest in the Durban location
effective February 28, 2010.


5





Under our
new business model, we will at all times conduct our activities in such a way
that we will not be deemed an “investment company” subject to regulation under
the 1940 Act.  Thus, we will not hold ourselves out as being engaged
primarily in the business of investing, reinvesting or trading in
securities.  In addition, we will conduct our business in such a
manner as to ensure that we will at no time own or propose to acquire investment
securities having a value exceeding 40% of our total assets at any one
time.





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 will 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 acquisition.





In
addition, the commitment letters from certain financial institutions to provide
one or more related entities of the Company the 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.





Texas
Wings





On July
8, 2008, the Company entered into an Asset Purchase Agreement ("APA") to acquire
substantially all of the assets of Texas Wings Incorporated and its 45 related
Hooters branded restaurants for total consideration of approximately $106
million.  On May 13, 2009, the Company received written notification
terminating this APA, because one or more of the conditions to closing could not
be timely satisfied.





EMPLOYEES





At
December 31, 2009 and 2008, we had 6 and 4 full-time employees,
respectively.





Our
employees are not represented by a labor union.  We have experienced
no work stoppage and believe that our employee relationships are
good.


6




OPERATION
AS A BDC





Under our
election to be governed as a BDC under the 1940 Act, we engaged in the business
of providing investors with the opportunity to participate, with a modest amount
of venture capital, in investments that are generally not available to the
public and that typically require substantially larger financial
commitments.  In addition, we provided professional management and
administration that might otherwise be unavailable to investors if they were to
engage directly in venture capital investing.  When regulated as a BDC
under the 1940 Act, we operated as a non-diversified company as that term is
defined in Section 5(b)(2) of the 1940 Act.  We could not cease to be,
or withdraw our election as, a BDC without the approval of the holders of a
majority of our outstanding and voting stock as defined under the 1940
Act.





As a BDC,
we were required to invest at least 70% of our total assets in qualifying
assets, which, generally, are securities of companies that are not investment
companies and that:





·
            do
      not have a class of securities registered on an exchange or included in
      the Federal Reserve Board’s over-the-counter margin
  list;


·
            are
      actively controlled by a BDC and have an affiliate of a BDC on their board
      of directors; or


·
            meet
      such other criteria as may be established by the
  SEC.





Qualifying
assets also include cash, cash equivalents, U.S. Government securities and
high-quality debt investments maturing within one year or less from the date of
investment.  We also were required to offer to provide significant
managerial assistance to our qualifying portfolio companies.  We could
invest the remaining 30% of our total assets in non-qualifying assets, including
debt and/or equity securities of companies that may be larger or more stabilized
than target portfolio companies.





ITEM
      1A:
            RISK
      FACTORS





Not
applicable.





ITEM
      2:
            PROPERTIES





Effective
August 1, 2009, the Company entered into a new office lease agreement for a
period of one year at a monthly rental of $2,100, for its office located at
11220 Elm Lane, Suite 103, Charlotte, NC  28277.





Our
office facilities are suitable and adequate for our business as it is presently
conducted.


7





ITEM
      3:
            LEGAL
      PROCEEDINGS





We are
not currently subject to any legal proceedings, nor, to our knowledge, is any
legal proceeding threatened against us. However, from time to time, we may be a
party to certain legal proceedings in the ordinary course of
business.





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





Disclosure
eliminated effective February 28, 2010.





Part
II





ITEM
      4:
            MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES





Our
common stock is currently listed on the electronic quotation and reporting
service maintained by the National Association of Securities Dealers (“NASD”)
and known as the “OTC Bulletin Board” or “OTCBB” system and currently trades
under the symbol "CCLR".





The
market closing, high and low prices during each quarter for the two years ended
December 31, 2009, are as follows:





QUARTER
      ENDED
                  
                  CLOSING
                  
                  
                  HIGH
                  
                  
                  LOWMarch
      31, 2009
                  
                  $
                  4.50
                  
                  
                  $
                  5.75
                  
                  
                  $
                  1.01June
      30, 2009
                  
                  
                  5.40
                  
                  
                  
                  5.55
                  
                  
                  
                  3.00September
      30, 2009
                  
                  
                  3.99
                  
                  
                  
                  5.40
                  
                  
                  
                  2.25December
      31, 2009
                  
                  
                  4.00
                  
                  
                  
                  5.50
                  
                  
                  
                  2.05March
      31, 2008
                  
                  
                  6.50
                  
                  
                  
                  8.00
                  
                  
                  
                  5.40June
      30, 2008
                  
                  
                  7.00
                  
                  
                  
                  7.00
                  
                  
                  
                  5.10September
      30, 2008
                  
                  
                  7.00
                  
                  
                  
                  7.00
                  
                  
                  
                  5.75December
      31, 2008
                  
                  
                  5.75
                  
                  
                  
                  7.00
                  
                  
                  
                  5.50





Number
of Shareholders and Total Outstanding Shares





As of
February 10, 2010, there were 1,246,376 shares of common stock issued and
984,911 shares of common stock outstanding, held by approximately 46
shareholders of record.





Dividends
on Common Stock





We have
not previously declared a cash dividend on our common stock and we do not
anticipate the payment of dividends in the near future.


8





Options





None.





Securities
Authorized for Issuance under Equity Compensation Plans





None.





Recent
Sales of Unregistered Securities





Sales of
our common stock during the first three quarters of the fiscal year were
reported in Item 2 of Part II of the Form 10-Q filed for each
quarter.  The Company issued 261,465 shares of its common stock valued
at $2.05 per share based on the trading price on the issuance date, October 29,
2009, to DineOut for 4,000,000 shares of DineOut common
stock.  DineOut is a wholly owned subsidiary at December 31, 2009 and
the value of these shares of $536,003 is included in treasury stock at December
31, 2009 upon consolidation.





Repurchase
of Equity Securities by the Issuer and Affiliated Purchasers





There
were no repurchase transactions to report for our fiscal year ended December 31,
2009.





ITEM
      5:
            SELECTED
      FINANCIAL DATA





Not
applicable.





ITEM
      6:
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS





FORWARD-LOOKING
STATEMENTS





Certain
statements contained in this report that are not historical fact are
"forward-looking statements" as that term is defined in the Private Securities
Litigation Reform Act of 1995. The words or phrases "will likely result," "are
expected to," "will continue," "is anticipated," "believes," "estimates,"
"projects" or similar expressions are intended to identify these forward-looking
statements. These statements are subject to risks and uncertainties beyond our
reasonable control that could cause our actual business and results of
operations to differ materially from those reflected in our forward-looking
statements. The safe harbor provisions provided in the Securities Litigation
Reform Act do not apply to forward-looking statements we make in this report.
Forward-looking statements are not guarantees of future performance. Our
forward-looking statements are based on trends which we anticipate in our
industry and our good faith estimate of the effect on these trends of such
factors as industry capacity, product demand and product pricing. The inclusion
of projections and other forward-looking statements should not be regarded a
representation by us or any other person that we will realize our projections or
that any of the forward-looking statements contained in this prospectus will
prove to be accurate.


9





Management’s
Analysis of Business





We intend
to pursue a business model whereby we acquire ownership in restaurant-related
companies, principally the Hooters brand and concept.  We also intend
to continue to provide business management and consulting services to clients
who need assistance in becoming publicly traded.  We have also 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.





DineOut
will own our share of the Hooters locations in South Africa.  Each
restaurant is being organized as a limited partnership.  In the first
location in Durban, South Africa, the Hooters Durban, LP is structured as
follows.  DineOut owns 50% of the general partner ("GP") interest and
owns a 5.56% limited partner ("LP") interest.  The LP interest is
allocated 80% of the restaurant cash flow until they have received a return of
their capital and a pre-tax compounded return on that capital of
20%.  After the LP interest has received its return, the LP interest
share will reduce to 20% and the GP interest will increase to
80%.  DineOut initially has a 10% GP interest and a 5.56% LP interest
which will convert to 40% GP interest and 1.39% LP interest after the LP
payout.





Under our
new business model, we will at all times conduct our activities in such a way
that we will not be deemed an “investment company” subject to regulation under
the 1940 Act.  Thus, we will not hold ourselves out as being engaged
primarily in the business of investing, reinvesting or trading in
securities.  In addition, we will conduct our business in such a
manner as to ensure that we will at no time own or propose to acquire investment
securities having a value exceeding 40% of our total assets at any one
time.





While
operating as a BDC, the Company provided equity and debt investment capital to
fund growth, acquisitions and recapitalizations of small market companies in the
United States.





LIQUIDITY
AND CAPITAL RESOURCES





At
December 31, 2009 and 2008, the Company had current assets of $60,180 and
$23,556; current liabilities of $735,651 and $686,125; and a working capital
deficit of $675,471 and $662,569, respectively.  The Company incurred
a loss of $813,696 during the year ended December 31, 2009 and had an unrealized
loss from available-for-sale securities of $84,000 resulting in a comprehensive
loss of $897,696.





The
Company's general and administrative expenses averaged approximately $200,000
per quarter during 2009, including initial costs in AFS and
DineOut.  The Company expects 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
$162,500 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.


10




The
Company expects to meet its obligations in 2010 with some or all of the
following:





·
            New
      convertible notes - $150,000 raised in January
  2010;


·
            The
      Company holds 4,000,000 shares in DineOut which are free-trading on the
      Frankfort Exchange and are currently trading at approximately €2.00
      (approximately $2.80) per share.  The Company plans to sell some
      of these shares to meet its short-term capital
    requirements;


·
            The
      Company currently receives interest income and management fees for its
      investment in Investors LLC of $18,125 per
  quarter;


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


·
            The
      Company expects to raise at least a portion of its cash requirements for
      the South Africa restaurants from limited partners;
  and


·
            DineOut
      IPO - In February 2010, the Company began selling a portion of its DineOut
      shares in an IPO on the Frankfort Exchange.  The Company expects
      to use these proceeds to fund their financial commitment in South Africa
      and for other corporate purposes.





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.





BUSINESS
SEGMENTS





The
Company is organized into three business segments as of the end of 2009, two of
which were added during 2009 and have not had any revenues as of December 31,
2009.  The financial information about these business segments is
included in Note 11.





RESULTS
OF OPERATIONS





Revenue





Revenue
amounted to $602,978 in 2009 and $234,055 in 2008.  Cash revenues were
$74,250 in 2009 and $105,500 in 2008.  Non-cash revenues from
management fees include $504,167 in 2009 and include $128,555 in 2008 which was
recognized from the receipt of securities for our services.  In
addition, 2009 included revenues from a related party of $24,000 which had not
been collected at December 31, 2009.  The majority of our cash
revenues are management fees from Investors LLC.  Investors LLC has
one principal asset, a $5,000,000 convertible note with HOA, which was extended
until November 2010.


11





The fair
value of the equity instruments received was determined based upon the stock
prices as of the date we reached an agreement with the third
party.  The terms of the securities are not subject to adjustment
after the measurement date.  See Note 3 for details.





General and Administrative
Expense (“G&A”)





G&A
amounted to $816,198 in 2009 and $1,131,830 in 2008.  The more
significant components of G&A are summarized as follows:





2009
                  
                  
                  2008Professional
      fees
                  
                  $
                  106,379
                  
                  
                  $
                  275,456Payroll
                  
                  
                  385,320
                  
                  
                  
                  374,435Travel
      and entertainment
                  
                  
                  57,120
                  
                  
                  
                  106,203Accounting
      and auditing
                  
                  
                  59,675
                  
                  
                  
                  76,100Other
      G&A
                  
                  
                  207,704
                  
                  
                  
                  299,636$
                  816,198
                  
                  
                  $
                  1,131,830





The
majority of the decrease in professional fees, travel and entertainment and
accounting and auditing are a result of the planned acquisition of HI and Texas
Wings which was active during 2008.





G&A
costs are expected to continue at approximately the same level as 2009, $200,000
per quarter, with the costs associated with the activities of Ventures, AFS and
DineOut increasing.  Revenue is expected to exceed this increase in
expense.





Asset
Impairment





In 2009,
the Company recorded an impairment of our equity investment in Confluence
Partners of $50,000 due to the uncertain SPAC market.  In 2008, we
recorded an impairment loss of $52,216 on our investment in two gas wells,
primarily due to a reduction in gas prices from which the estimated future cash
flow was calculated.





Deferred acquisition
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 and 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.


12





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.





OTHER
INCOME (EXPENSE)





Other
income (expense) consisted of the following at December 31, 2009 and
2008:





2009
                
                
                2008Other
      income (expense):Equity
      in earnings (losses) of investments
                
                $
                23,000
                
                
                $
                (123,111
                )Realized
      gains from sale of investments
                
                
                58,697
                
                
                
                -Unrealized
      gains (losses) of marketable equity securities
                
                
                -
                
                
                
                5,000Interest
      expense
                
                
                (33,914
                )
                
                
                (20,486
                )Interest
      income
                
                
                23,000
                
                
                
                -Miscellaneous
      income
                
                
                50
                
                
                
                -Other
      than temporary decline in available-for-sale securities
                
                
                (342,259
                )
                
                
                (1,150,025
                )$
                (271,426
                )
                
                $
                (1,288,622
                )





Equity in Earnings (Losses)
of Investments





Equity in
earnings of investments includes our share of earnings (losses) from investments
in which we own at least 20% and are being accounted for using the equity
method.  This included income from Investors of $23,000 and $46,000 in
2009 and 2008, respectively, and a loss from First Choice Mortgage, which was
closed at the end of 2008, of $169,111 in 2008.





Realized Gains from Sale of
Investments





Realized
gains are recorded when investments are sold and include transactions in
marketable equity securities in 2009 for $8,697 and a $50,000 gain from the
exchange of our oil and gas property investment for marketable equity
securities.





Unrealized Gains (Losses) of
Marketable Equity Securities





The
Company recorded an unrealized gain from trading securities of $5,000 in
2008.





Interest
Expense





Interest
expense increased in 2009 from 2008 primarily due to the higher interest rate on
a portion of the debt which was added in 2009.


13





Interest
Income





Interest
income includes our earnings from Investors in 2009, after we sold 1/2 of our
23% investment in May 2009.


14





Other than Temporary Decline
in Available-for-Sale Securities





The
Company determined that its investment in available-for-sale securities had an
other than temporary decline in value and recorded a realized loss in the amount
of $342,259 and $1,150,025 in 2009 and 2008, respectively.  Valuations
were determined based on the quoted market price for the stock on December 31,
2009 and 2008, respectively.





RECENT
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.  Management does not believe any of these accounting
pronouncements has had or will have a material impact on the Company’s financial
position or operating results.  See Note 2.





CRITICAL
ACCOUNTING POLICIES




The SEC
has suggested companies provide additional disclosure and commentary on their
most critical accounting policies, which they defined as the ones that are most
important to the portrayal of a company’s financial condition and operating
results, and require management to make its most difficult and subjective
judgments, often as a result of the need to make estimates of matters that are
inherently uncertain.  Based on this definition our most critical
accounting policy is the valuation of our investments.  The methods,
estimates and judgments we use in applying this accounting policy has a
significant impact on the results we report in our financial
statements.





We
determine fair value to be the amount for which an investment could be exchanged
in an orderly disposition over a reasonable period of time between willing
parties other than in a forced or liquidation sale.  Our evaluation
process is intended to provide a consistent basis for determining the fair value
of our available-for-sale investments.  In summary, for individual
securities classified as available-for-sale securities, an enterprise shall
determine whether a decline in fair value below the amortized cost basis is
other than temporary.  If the decline in fair value is judged to
be  other than temporary, the individual security shall be written
down to fair value as a new cost basis and the amount of the write-down shall be
included in earnings (accounted for as a realized loss).  The new cost
basis shall not be changed for subsequent recoveries in fair
value.  Subsequent increases in the fair value of available-for-sale
securities shall be included in other comprehensive income and subsequent
decreases in fair value, if not an other-than-temporary impairment, also shall
be included in other comprehensive income.





The first
step in the analysis is to determine if the security is impaired.  All
of our available-for-sale securities were listed and we use the closing market
price to determine the amount of impairment if any.  The second step,
if there is an impairment, is to determine if the impairment is other than
temporary.  To determine if a decline in the value of an equity
security is other than temporary and that a write-down of the carrying value is
required, we considered the following:


15


·
            The
      length of the time and the extent to which the market value has been less
      than the cost;


·
            The
      financial condition and near-term prospects of the issuer, including any
      specific events which may influence the operations of the issuer such as
      changes in technology that may impair the earnings potential of the
      investment or the discontinuance of a segment of the business that may
      affect the future earnings potential;
or


·
            The
      intent and ability of the holder to retain its investment in the issuer
      for a period of time sufficient to allow for any anticipated recovery in
      market value.





Unless
evidence exists to support a realizable value equal to or greater than the
carrying value of the investment in equity securities classified as
available-for-sale, a write-down to fair value accounted for as a realized loss
should be recorded.  Such loss should be recognized in the
determination of net income of the period in which it occurs and the written
down value of the investment in the issuer becomes the new cost basis of the
investment.





Investments
in which the Company has the ability to exercise significant influence and that,
in general, are at least 20 percent owned are stated at cost plus equity in
undistributed net earnings (loss), less distributions received.  An
impairment loss would be recorded whenever a decline in the value of an equity
investment or investment carried at cost below its carrying amount is determined
to be other than temporary.  In judging “other than temporary,” the
Company considers the length of time and extent to which the fair value of the
investment has been less than the carrying amount of the investment, the
near-term and long-term operating and financial prospects of the investee, and
the Company’s long-term intent of retaining the investment in the
investee.





OFF-BALANCE
SHEET ARRANGEMENTS





Effective
August 1, 2009, the Company entered into a new office lease agreement for a
period of one year at a monthly rental of $2,100, for its office located at
11220 Elm Lane, Suite 103, Charlotte, NC  28277.





TABULAR
DISCLOSURE OF CONTRACTUAL OBLIGATIONS





Not
applicable.





ITEM
      6A:
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK




Not
applicable.




16


ITEM
      7:
            FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA




CHANTICLEER
HOLDINGS, INC. AND SUBSIDIARIES


INDEX TO
CONSOLIDTED FINANCIAL STATEMENTS





PageReport
      of Independent Registered Public Accounting Firm
              18Consolidated
      Balance Sheets at December 31, 2009 and 2008
              19Consolidated
      Statements of Operations for the Years Ended December 31, 2009 and
      2008
              20Consolidated
      Statements of Stockholders’ Equity at December 31, 2009 and
      2008
              21Consolidated
      Statements of Cash Flows for the Years Ended December 31, 2009 and
      2008
              22Notes
      to Consolidated Financial Statements
              24




17




CREASON
& ASSOCIATES, P.L.L.C.


7170
S. Braden Ave., Suite 100


Tulsa,
Oklahoma  74136





REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM





To the
Board of Directors and Stockholders


Chanticleer
Holdings, Inc.:





We have
audited the accompanying consolidated balance sheets of Chanticleer Holdings,
Inc. and Subsidiaries (the "Company") as of December 31, 2009 and 2008, and the
related consolidated statements of operations and comprehensive income,
stockholders’ equity and cash flows for the years ended December 31, 2009 and
2008.  These consolidated financial statements are the responsibility
of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting.  Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting.  Accordingly, we express no
such opinion.  An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Chanticleer
Holdings, Inc. and Subsidiaries as of December 31, 2009 and 2008, and the
consolidated results of their operations and their cash flows for the years
ended December 31, 2009 and 2008, in conformity with accounting principles
generally accepted in the United States of America.





The
accompanying consolidated financial statements have been prepared assuming that
Chanticleer Holdings, Inc. and Subsidiaries will continue as a going
concern.  As discussed in Note 1 to the consolidated financial
statements, Chanticleer Holdings, Inc. has planned expansion of business for
2010 which will require substantial financing.  In addition, the
Company has incurred substantial net losses and negative cash flows from
operations for the past two years, along with negative working
capital.  There can be no assurance that the Company will be able to
obtain sufficient funding to complete its business expansion plan or will have
sufficient revenues to fund its operations and commitments.  These
conditions raise substantial doubt about Chanticleer Holdings, Inc. and
Subsidiaries’ ability to continue as a going concern.  Management’s
plans regarding these matters are also described in Note 1.  The
consolidated financial statements do not include any adjustments that may result
from the outcome of these uncertainties.





/s/Creason & Associates,
P.L.L.C.


Tulsa,
Oklahoma


March 30,
2010


18





Chanticleer
Holdings, Inc. and Subsidiaries


Consolidated
Balance Sheets


December
31, 2009 and 2008





2009
                        
                        
                        2008ASSETSCurrent
      assets:Cash
      and cash equivalents
                        
                        $
                        2,374
                        
                        
                        $
                        14,151Due
      from related parties
                        
                        
                        32,806
                        
                        
                        
                        5,150Prepaid
      expenses
                        
                        
                        25,000
                        
                        
                        
                        4,255Total
      current assets
                        
                        
                        60,180
                        
                        
                        
                        23,556Property
      and equipment, net
                        
                        
                        32,125
                        
                        
                        
                        36,161Available-for-sale
      investments at fair value
                        
                        
                        83,286
                        
                        
                        
                        108,545Investments
      accounted for under the equity method
                        
                        
                        82,500
                        
                        
                        
                        1,241,371Investments
      accounted for under the cost method
                        
                        
                        1,191,598
                        
                        
                        
                        442,598Deferred
      acquisition costs
                        
                        
                        -
                        
                        
                        
                        279,050Deposits
      and other assets
                        
                        
                        3,980
                        
                        
                        
                        93,980TOTAL
      ASSETS
                        
                        $
                        1,453,669
                        
                        
                        $
                        2,225,261LIABILITIESNotes
      payable
                        
                        $
                        412,500
                        
                        
                        $
                        500,000Accounts
      payable
                        
                        
                        190,482
                        
                        
                        
                        178,325Accrued
      expenses
                        
                        
                        2,246
                        
                        
                        
                        500Due
      to related parties
                        
                        
                        109,590
                        
                        
                        
                        7,300Deferred
      revenue
                        
                        
                        20,833
                        
                        
                        
                        -TOTAL
      LIABILITIES
                        
                        
                        735,651
                        
                        
                        
                        686,125Commitments
      and contingenciesSTOCKHOLDERS'
      EQUITYCommon
      stock: $0.0001 par value; authorized 200,000,000
    shares;issued
      1,246,376 shares and 946,376 shares; and outstanding984,911
      and 946,376 shares at December 31, 2009 and2008,
      respectively
                        
                        
                        125
                        
                        
                        
                        95Additional
      paid in capital
                        
                        
                        5,255,749
                        
                        
                        
                        4,643,198Other
      comprehensive loss
                        
                        
                        (84,000
                        )
                        
                        
                        -Accumulated
      deficit
                        
                        
                        (3,917,853
                        )
                        
                        
                        (3,104,157
                        )Less
      treasury stock, 261,465 shares at December 31, 2009
                        
                        
                        (536,003
                        )
                        
                        
                        -718,018
                        
                        
                        
                        1,539,136TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                        
                        $
                        1,453,669
                        
                        
                        $
                        2,225,261





See
accompanying notes to consolidated financial statements.


19





Chanticleer
Holdings, Inc. and Subsidiaries


Consolidated
Statements of Operations


For
the Years Ended December 31, 2009 and 2008





2009
                
                
                2008Revenue:Management
      fee incomeNon-affiliates
                
                $
                504,167
                
                
                $
                -Affiliates
                
                
                98,811
                
                
                
                234,055Total
      revenue
                
                
                602,978
                
                
                
                234,055Expenses:General
      and administrative expense
                
                
                816,198
                
                
                
                1,131,830Deferred
      acquisition costs
                
                
                279,050
                
                
                
                -Asset
      impariment
                
                
                50,000
                
                
                
                52,216Total
      expenses
                
                
                1,145,248
                
                
                
                1,184,046Earnings
      (loss) from operations
                
                
                (542,270
                )
                
                
                (949,991
                )Other
      income (expense)Equity
      in earnings (losses) of investments
                
                
                23,000
                
                
                
                (123,111
                )Realized
      gains from sales of investments
                
                
                58,697
                
                
                
                -Unrealized
      gains (losses) of marketable equity securities
                
                
                -
                
                
                
                5,000Interest
      income
                
                
                23,000
                
                
                
                -Miscellaneous
      income
                
                
                50
                
                
                
                -Interest
      expense
                
                
                (33,914
                )
                
                
                (20,486
                )Other
      than temporary decline in available-for-sale securities
                
                
                (342,259
                )
                
                
                (1,150,025
                )Total
      other income (expense)
                
                
                (271,426
                )
                
                
                (1,288,622
                )Net
      loss before income taxes
                
                
                (813,696
                )
                
                
                (2,238,613
                )Provision
      for income taxes
                
                
                -
                
                
                
                -Net
      loss
                
                
                (813,696
                )
                
                
                (2,238,613
                )Other
      comprehensive income (loss):Loss
      on available-for-sale securities
                
                
                (84,000
                )
                
                
                -Other
      comprehensive loss
                
                $
                (897,696
                )
                
                $
                (2,238,613
                )Net
      earnings (loss) per share, basic and diluted
                
                $
                (0.84
                )
                
                $
                (2.46
                )Weighted
      average shares outstanding
                
                
                964,100
                
                
                
                911,162





See
accompanying notes to consolidated financial statements.


20





Chanticleer
Holdings, Inc. and Subsidiaries


Consolidated
Statements of Stockholders' Equity


Years
ended December 31, 2009 and 2008





AccumulatedOtherAdditional
                  
                  
                  ComprehensiveCommon Stock
                  
                  
                  Paid-in
                  
                  
                  Income
                  
                  
                  Accumulated
                  
                  
                  TreasuryShares
                  
                  
                  Par
                  
                  
                  Capital
                  
                  
                  (Loss)
                  
                  
                  Deficit
                  
                  
                  Stock
                  
                  
                  TotalBalance,
      December 31, 2007
                  
                  
                  833,232
                  
                  
                  $
                  83
                  
                  
                  $
                  3,850,517
                  
                  
                  $
                  (242,005
                  )
                  
                  $
                  (865,544
                  )
                  
                  $
                  -
                  
                  
                  $
                  2,743,051Common
      stock issued for:Cash
      proceeds
                  
                  
                  111,994
                  
                  
                  
                  11
                  
                  
                  
                  784,689
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  784,700Services
                  
                  
                  1,150
                  
                  
                  
                  1
                  
                  
                  
                  7,992
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  7,993Available-for-sale
      securities:Current
      year decline
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (908,020
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (908,020
                  )Other
      than temporary decline
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,150,025
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,150,025Net
      loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (2,238,613
                  )
                  
                  
                  -
                  
                  
                  
                  (2,238,613
                  )Balance,
      December 31, 2008
                  
                  
                  946,376
                  
                  
                  
                  95
                  
                  
                  
                  4,643,198
                  
                  
                  
                  -
                  
                  
                  
                  (3,104,157
                  )
                  
                  
                  -
                  
                  
                  
                  1,539,136Common
      stock issued for:Cash
      proceeds
                  
                  
                  38,535
                  
                  
                  
                  3
                  
                  
                  
                  76,575
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  76,578Acquisition
      of DineOut, SA
                  
                  
                  261,465
                  
                  
                  
                  27
                  
                  
                  
                  535,976
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (536,003
                  )
                  
                  
                  -Available-for-sale
      securities:Current
      year decline
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (426,259
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (426,259
                  )Other
      than temporary decline
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  342,259
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  342,259Net
      loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (813,696
                  )
                  
                  
                  -
                  
                  
                  
                  (813,696
                  )Balance,
      December 31, 2009
                  
                  
                  1,246,376
                  
                  
                  $
                  125
                  
                  
                  $
                  5,255,749
                  
                  
                  $
                  (84,000
                  )
                  
                  $
                  (3,917,853
                  )
                  
                  $
                  (536,003
                  )
                  
                  $
                  718,018





See
accompanying notes to consolidated financial statements.


21





Chanticleer
Holdings, Inc. and Subsidiaries


Consolidated
Statements of Cash Flows


For
the Years Ended December 31, 2009 and 2008





2009
                      
                      
                      2008Cash
      flows from operating activities:Net
      loss
                      
                      $
                      (813,696
                      )
                      
                      $
                      (2,238,613
                      )Adjustments
      to reconcile net loss to net cash used inoperating
      activities:Other
      than temporary decline in value of available-for-sale
      securities
                      
                      
                      342,259
                      
                      
                      
                      1,150,025Change
      in unrealized appreciation of investments
                      
                      
                      -
                      
                      
                      
                      (5,000
                      )Consulting
      and other services rendered in exchange forinvestment
      securities
                      
                      
                      (150,000
                      )
                      
                      
                      -Depreciation
                      
                      
                      11,481
                      
                      
                      
                      11,198Equity
      in (earnings) losses of investments
                      
                      
                      (23,000
                      )
                      
                      
                      123,111Asset
      impairment
                      
                      
                      50,000
                      
                      
                      
                      52,216Common
      stock issued for services
                      
                      
                      -
                      
                      
                      
                      7,993(Gain)
      loss on sale of investments
                      
                      
                      (58,697
                      )
                      
                      
                      -Expense
      previously deferred acquisition costs
                      
                      
                      279,050
                      
                      
                      
                      -(Increase)
      decrease in amounts due from affiliate
                      
                      
                      (24,907
                      )
                      
                      
                      6,000(Increase)
      decrease in accounts receivable
                      
                      
                      (750
                      )
                      
                      
                      -(Increase)
      decrease in prepaid expenses and other assets
                      
                      
                      (20,745
                      )
                      
                      
                      15,306Increase
      in accounts payable and accrued expenses
                      
                      
                      26,404
                      
                      
                      
                      149,120Increase
      (decrease) in deferred revenue
                      
                      
                      (354,167
                      )
                      
                      
                      (128,555
                      )Advance
      from related parties for working capital
                      
                      
                      100,291
                      
                      
                      
                      7,300Net
      cash used by operating activities
                      
                      
                      (636,477
                      )
                      
                      
                      (849,899
                      )Cash
      flows from investing activities:Proceeds
      from sale of investments
                      
                      
                      685,197
                      
                      
                      
                      50,000Investment
      distribution
                      
                      
                      64,371
                      
                      
                      
                      51,047Purchase
      of investments
                      
                      
                      (94,000
                      )
                      
                      
                      (120,000
                      )Purchase
      of property and equipment
                      
                      
                      (7,446
                      )
                      
                      
                      (1,822
                      )Deferred
      acquisition costs
                      
                      
                      -
                      
                      
                      
                      (279,050
                      )Net
      cash provided (used) by investing activities
                      
                      
                      648,122
                      
                      
                      
                      (299,825
                      )Cash
      flows from financing activities:Proceeds
      from sale of common stock
                      
                      
                      76,578
                      
                      
                      
                      784,700Loan
      proceeds
                      
                      
                      400,000
                      
                      
                      
                      404,728Loan
      repayment
                      
                      
                      (500,000
                      )
                      
                      
                      -Bank
      overdraft
                      
                      
                      -
                      
                      
                      
                      (25,736
                      )Net
      cash provided (used) by financing activities
                      
                      
                      (23,422
                      )
                      
                      
                      1,163,692Net
      increase (decrease) in cash and cash equivalents
                      
                      
                      (11,777
                      )
                      
                      
                      13,968Cash
      and cash equivalents, beginning of year
                      
                      
                      14,151
                      
                      
                      
                      183Cash
      and cash equivalents, end of year
                      
                      $
                      2,374
                      
                      
                      $
                      14,151




(Continued)


See
accompanying notes to consolidated financial statements.


22





Chanticleer
Holdings, Inc. and Subsidiaries


Consolidated
Statements of Cash Flows, continued


For
the Years Ended December 31, 2009 and 2008





2009
                        
                        
                        2008Supplemental
      cash flow information:Cash
      paid for interest and income taxes:Interest
                        
                        $
                        19,668
                        
                        
                        $
                        20,850Income
      taxes
                        
                        
                        -
                        
                        
                        
                        -Non-cash
      investing and financing activities:Rescind
      acquisition of investment for note payable
                        
                        $
                        -
                        
                        
                        $
                        70,000Accrued
      interest paid with increase in note payable
                        
                        
                        12,500
                        
                        
                        
                        -Reclassification
      of trading security as available-for-sale security
                        
                        
                        126,000
                        
                        
                        
                        -Reclassification
      of investment accounted for under the cost method asavailable-for-sale
      security
                        
                        
                        275,000
                        
                        
                        
                        -Investments
      acquired as compensation for management agreements
                        
                        
                        525,000
                        
                        
                        
                        -Exchange
      of oil and gas property investment for equity securitiesclassified
      as trading securities
                        
                        
                        126,000
                        
                        
                        
                        -Deposit
      transferred to investment accounted for using the equity
      method
                        
                        
                        20,000
                        
                        
                        
                        -





See
accompanying notes to consolidated financial statements.


23


Chanticleer
Holdings, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements





1.
            NATURE
      OF BUSINESS





ORGANIZATION





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 wholly owned subsidiaries, Chanticleer Advisors, LLC, (“Advisors”),
Avenel Ventures, LLC ("Ventures"), Avenel Financial Services, LLC ("AFS"),
Chanticleer Holdings Limited ("CHL") and DineOut SA Ltd. ("DineOut")
collectively referred to as “the Company,” “we,” “us,” or “the Companies”. All
significant inter-company balances and transactions have been eliminated in
consolidation.




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
      was formed as a Limited Liability Company in Jersey on March 24, 2009 and
      was intended to be used to raise capital in Europe, but has not been
      activated;




·
            DineOut
      was formed as a Private Limited Liability Company in England and Wales on
      October 29, 2009 to own the Company's 50% interest in Hooters SA, GP, the
      general partner of the Hooters restaurant franchises in South
      Africa.  The first restaurant opened in December 2009 and will
      commence operations in January
2010.




24


On July
31, 2006, the Company formed Investors II.  Investors II began raising
funds in January 2007 for the purpose of investing in publicly traded value
securities.





INVESTMENT
COMPANY





On May
23, 2005, the Company filed a notification on Form N54a with the U.S. Securities
and Exchange Commission (the “SEC”) indicating its election to be regulated as a
business development company under the Investment Company Act of 1940 (the “1940
Act”).  In connection with this election, the Company adopted
corporate resolutions and operated as a closed-end management investment company
as a business development company (a “BDC”).  Under this election, the
Company was organized to provide investors with an opportunity to participate,
with a modest amount in venture capital, in investments that are generally not
available to the public and that typically require substantially larger
financial commitments.  In addition, the Company provided professional
management and administration that might otherwise be unavailable to investors
if they were to engage directly in venture capital investing.  The
Company could not change the nature of its business so as to cease to be, or
withdraw its election as, a BDC without the approval of the holders of a
majority of its outstanding voting stock as defined under the 1940
Act.





On July
21, 2008, the Company filed Form N-54C with the SEC to notify the SEC of the
withdrawal of its previous election to be regulated as a BDC under applicable
provisions of the 1940 Act.  After careful consideration of the 1940
Act requirements applicable to BDCs, evaluation of the Company’s ability to
operate as a going concern in an investment company regulatory environment, the
costs associated with complying with the 1940 Act and a thorough assessment of
potential alternative business models, the Company’s Board of Directors
determined that continuation as a BDC was not in the best interests of the
Company or its stockholders.  With the approval of more than a
majority of the voting power of its common stock, the Company proceeded to file
Form N-54C and thereby revoked its BDC status.





GOING
CONCERN





At
December 31, 2009 and 2008, the Company had current assets of $60,180 and
$23,556; current liabilities of $735,651 and $686,125; and a working capital
deficit of $675,471 and $662,569, respectively.  The Company incurred
a loss of $813,696 during the year ended December 31, 2009 and had an unrealized
loss from available-for-sale securities of $84,000 resulting in a comprehensive
loss of $897,696.





The
Company's general and administrative expenses averaged approximately $200,000
per quarter during 2009, including initial costs in AFS and
DineOut.  The Company expects 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
$162,500 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.


25





The
Company expects to meet its obligations in 2010 with some or all of the
following:





·
            New
      convertible notes - $150,000 raised in January
  2010;


·
            The
      Company holds 4,000,000 shares in DineOut which are free-trading on the
      Frankfort Exchange and are currently trading at approximately €2.00
      (approximately $2.80) per share.  The Company plans to sell some
      of these shares to meet its short-term capital
    requirements;


·
            The
      Company currently receives interest income and management fees for its
      investment in Investors LLC of $18,125 per
  quarter;


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


·
            The
      Company expects to raise at least a portion of its cash requirements for
      the South Africa restaurants from limited
  partners;


·
            DineOut
      IPO - In February 2010, the Company began selling a portion of its DineOut
      shares in an IPO on the Frankfort Exchange.  The Company expects
      to use these proceeds to fund their financial commitment in South Africa
      and for other corporate purposes.  (Note
  15)





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.





2.
            SIGNIFICANT
      ACCOUNTING POLICIES





USE
OF ESTIMATES




The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes.  Significant estimates include the
valuation of the investments in portfolio companies and deferred tax asset
valuation allowances.  Actual results could differ from those
estimates.


26





CASH
AND CASH EQUIVALENTS




For
purposes of the statements of cash flows, the Company considers all highly
liquid investments purchased with an original maturity of three months or less
to be cash equivalents.





REVENUE
RECOGNITION




The
Company's current source of revenue is from management fees from both affiliated
companies and non-affiliated companies.  Our revenue recognition
policy provides that revenue is generally realized or realizable and earned when
all of the following criteria have been met:


·
            Persuasive
      evidence of an arrangement exists;


·
            Delivery
      has occurred or services have been
rendered;


·
            The
      seller's price to the buyer is fixed or determinable;
  and


·
            Collectability
      is reasonably assured.


We may
collect revenue in both cash and in the equity securities of the company to whom
we are providing services.  Typically when we are paid cash for
services, it is based on a monthly fee and is recorded when
earned.  When we receive equity securities for our management
services, we generally receive the securities in advance for our services to be
earned over the life of the contract, generally one year.  We value
these securities and defer recognition of the revenue over the life of the
management contract.





The fair
value of the equity instruments received was determined based upon the stock
prices as of the date we reached an agreement with the third
party.  The terms of the securities are not subject to adjustment
after the measurement date.





MARKETABLE
EQUITY SECURITIES





Trading
securities


The
Company's investment in marketable equity securities are carried at fair value
and are classified as current assets in the consolidated balance
sheets.  Unrealized gains and losses, net of tax, are reported in the
statement of operations as unrealized gain (loss) on marketable equity
securities.  Gains and losses are reported in the consolidated
statements of operations when realized, based on the disposition of specifically
identified investments, using a first-in, first-out method.





Available-for-sale
securities


The
Company’s investments in marketable equity securities which are classified as
available-for-sale are carried at fair value.  Investments available
for current operations are classified in the consolidated balance sheets as
current assets; investments held for long-term purposes are classified as
non-current assets.  Unrealized gains and losses, net of tax, are
reported in other comprehensive income as a separate component of shareholders’
equity.  Gains and losses are reported in the consolidated statements
of operations when realized, determined based on the disposition of specifically
identified investments, using a first-in, first-out method.


27





Investments
identified by the Company as being potentially impaired are subject to further
analysis to determine if the impairment is other than
temporary.  Other than temporary declines in market value from
original costs are charged to investment and other income, net, in the period in
which the loss occurs.  In determining whether investment holdings are
other than temporarily impaired, the Company considers the nature, cause,
severity and duration of the impairment.





OTHER
INVESTMENTS





Investments
in which the Company has the ability to exercise significant influence and that,
in general, are at least 20 percent owned are stated at cost plus equity in
undistributed net earnings (loss), less distributions received.  An
impairment loss would be recorded whenever a decline in the value of an equity
investment or cost investment is below its carrying amount and is determined to
be other than temporary.  In judging “other than temporary,” the
Company considers the length of time and extent to which the fair value of the
investment has been less than the carrying amount of the investment, the
near-term and long-term operating and financial prospects of the investee, and
the Company’s long-term intent of retaining the investment in the
investee.





FAIR
VALUE OF FINANCIAL INSTRUMENTS





The
Company is required to disclose fair value information about financial
instruments when it is practicable to estimate that value.  The
carrying amounts of the Company’s cash, accounts receivable, accounts payable
and notes payable approximate their estimated fair value due to the short-term
maturities of these financial instruments and because related interest rates
offered to the Company approximate current rates.





FIXED
ASSETS




Fixed
assets are stated at cost, less accumulated
depreciation.  Depreciation is recorded using the straight-line method
over the estimated useful lives of the respective assets (generally five and
seven years).  The carrying amount of all long-lived assets is
evaluated periodically to determine if adjustment to the depreciation and
amortization period or the unamortized balance is warranted.  Based
upon its most recent analysis, the Company believes that no impairment of
property and equipment exists at December 31, 2009 and
2008.  Maintenance and repairs are charged to operations when
incurred.  Betterments and renewals are capitalized.  When
property and equipment are sold or otherwise disposed of, the asset account and
related accumulated depreciation account are relieved, and any gain or loss is
included in operations.





INCOME
TAXES




Deferred
income taxes are provided on the liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences.  Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax
basis.  Deferred tax assets are reduced by a valuation allowance when,
in the opinion of management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized.  Deferred tax
assets and liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment.  Due to its limited operations, the
Company has provided a valuation allowance for the full amount of the deferred
tax assets.


28




STOCK-BASED
COMPENSATION




The
compensation cost relating to share-based payment transactions (including the
cost of all employee stock options) is required to be recognized in the
financial statements.  That cost is measured based on the estimated
fair value of the equity or liability instruments issued. A wide range of
share-based compensation arrangements including share options, restricted share
plans, performance-based awards, share appreciation rights and employee share
purchase plans are included.  The Company’s financial statements would
include an expense for all share-based compensation arrangements granted on or
after January 1, 2006 and for any such arrangements that are modified, cancelled
or repurchased after that date based on the grant-date estimated fair
value.





As of
December 31, 2009 and 2008, there were no options outstanding.





EARNINGS
(LOSS) PER COMMON SHARE





The
Company is required to report both basic earnings per share, which is based on
the weighted-average number of common shares outstanding, and diluted earnings
per share, which is based on the weighted-average number of common shares
outstanding plus all potentially dilutive shares outstanding.  At
December 31, 2009 and 2008, there are no exercisable common stock
equivalents.  Accordingly, no common stock equivalents are included in
the earnings (loss) per share calculations and basic and diluted earnings per
share are the same for all periods presented.




COMPREHENSIVE
INCOME




Standards
for reporting and displaying comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. We are required to (a) classify items of other
comprehensive income by their nature in financial statements, and (b) display
the accumulated balance of other comprehensive income separately in the equity
section of the balance sheet for all periods presented.




CONCENTRATION
OF CREDIT RISK





Cash is
maintained at financial institutions, which at times, may exceed the FDIC
insurance limit.


29





RECLASSIFICATIONS





Certain
reclassifications have been made in the financial statements at December 31,
2008 and for the periods then ended to conform to the December 31, 2009
presentation.  The reclassifications had no effect on net
loss.





RECENT
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 2010-10 (ASU
2010-10), "Consolidation (Topic 810)."  The amendments to the
consolidation requirements of Topic 810 resulting from the issuance of Statement
167 are deferred for a reporting entity's interest in an entity (1) that has all
the attributes of an investment company or (2) for which it is industry practice
to apply measurement principles for financial reporting purposes that are
consistent with those followed by investment companies.  An entity
that qualifies for the deferral will continue to be assessed under the overall
guidance on the consolidation of variable interest entities in Subtopic 810-10
(before the Statement 167 amendments) or other applicable consolidation
guidance, such as the guidance for the consolidation of partnerships in Subtopic
810-20.  The deferral is primarily the result of differing
consolidation conclusions reached by the International Accounting Standards
Board ("IASB") for certain investment funds when compared with the conclusions
reached under Statement 167.  The deferral is effective as of the
beginning of a reporting entity's first annual period that begins after November
15, 2009, and for interim periods within that first annual reporting period,
which coincides with the effective date of Statement 167.  Early
application is not permitted.  The provisions of ASU 2010-10 are
effective for the Company beginning in 2010 and are not expected to have a
material effect on the financial position, results of operations or cash flows
of the Company.





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.


30


In
January 2010, the FASB issued Accounting Standards Update 2010-06 (ASU 2010-06),
Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about
Fair Value Measurements.  This amendment to Topic 820 has improved
disclosures about fair value measurements on the basis of input received from
the users of financial statements.  This is effective for interim and
annual reporting periods beginning after December 15, 2009, except for the
disclosures about purchases, sales, issuances, and settlements in the roll
forward of activity in Level 3 fair value measurements.  Those
disclosures are effective for fiscal years beginning after December 15, 2010,
and for interim periods within those fiscal years.  Early adoption is
permitted.  The Company does not expect the provisions of ASU 2010-06
to have a material effect on the financial position, results of operations or
cash flows of the Company.





In
January 2010, the FASB issued Accounting Standards Update 2010-02, Consolidation
(Topic 810): Accounting and Reporting for Decreases in Ownership of a
Subsidiary.  This amendment to Topic 810 clarifies, but does not
change, the scope of current US GAAP.  It clarifies the decrease in
ownership provisions of Subtopic 810-10 and removes the potential conflict
between guidance in that Subtopic and asset derecognition and gain or loss
recognition guidance that may exist in other US GAAP.  An entity will
be required to follow the amended guidance beginning in the period that it first
adopts FAS 160 (now included in Subtopic 810-10).  For those entities
that have already adopted FAS 160, the amendments are effective at the beginning
of the first interim or annual reporting period ending on or after December 15,
2009. The amendments should be applied retrospectively to the first period that
an entity adopted FAS 160.  The Company adopted the provisions of ASU
2010-02 on December 31, 2009 with no effect on the financial position, results
of operations or cash flows of the Company.





In
January 2010, the FASB issued Accounting Standards Update 2010-01, Equity (Topic
505): Accounting for Distributions to Shareholders with Components of Stock and
Cash (A Consensus of the FASB Emerging Issues Task Force).  This
amendment to Topic 505 clarifies the stock portion of a distribution to
shareholders that allows them to elect to receive cash or stock with a limit on
the amount of cash that will be distributed is not a stock dividend for purposes
of applying Topics 505 and 260. Effective for interim and annual periods ending
on or after December 15, 2009, and would be applied on a retrospective
basis.  The Company adopted the provisions of ASU 2010-01 on December
31, 2009 with no effect on the financial position, results of operations or cash
flows of the Company.





In
December 2009, the FASB issued Accounting Standards Update 2009-17,
Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises
Involved with Variable Interest Entities.  This Accounting Standards
Update amends the FASB Accounting Standards Codification for Statement 167. In
June 2009, the FASB issued SFAS No. 167 (ASC Topic 810), “Amendments to FASB
Interpretation No. 46(R) (“SFAS 167”).   SFAS 167 amends the
consolidation guidance applicable to variable interest entities. The provisions
of SFAS 167 significantly affect the overall consolidation analysis under FASB
Interpretation No. 46(R).  SFAS 167 is effective as of the beginning
of the first fiscal year that begins after November 15, 2009. SFAS 167 will be
effective for the Company beginning in 2010. The Company does not expect the
provisions of SFAS 167 to have a material effect on the financial position,
results of operations or cash flows of the Company.


31





In
December 2009, the FASB issued Accounting Standards Update 2009-16, Transfers
and Servicing (Topic 860): Accounting for Transfers of Financial
Assets.  This Accounting Standards Update amends the FASB Accounting
Standards Codification for Statement 166. In June 2009, the FASB issued SFAS No.
166, (ASC Topic 860) “Accounting for Transfers of Financial Assets—an amendment
of FASB Statement No. 140” (“SFAS 166”). The provisions of SFAS 166, in part,
amend the derecognition guidance in FASB Statement No. 140, eliminate the
exemption from consolidation for qualifying special-purpose entities and require
additional disclosures. SFAS 166 is effective for financial asset transfers
occurring after the beginning of an entity’s first fiscal year that begins after
November 15, 2009. The Company does not expect the provisions of SFAS 166 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.





In
September 2009, the FASB issued Accounting Standards Update 2009-12, Fair Value
Measurements and Disclosures (Topic 820): Investments in Certain Entities That
Calculate Net Asset Value per Share (or Its Equivalent).  This update
provides amendments to Topic 820 for the fair value measurement of investments
in certain entities that calculate net asset value per share (or its
equivalent).  It is effective for interim and annual periods ending
after December 15, 2009.  Early application is permitted in financial
statements for earlier interim and annual periods that have not been issued. The
Company adopted the provisions of ASU 2009-12 on December 31, 2009 with no
effect on the financial position, results of operations or cash flows of the
Company.


32





3.           INVESTMENTS





Investments
are summarized as follows at December 31, 2009 and 2008:





2009
                  
                  
                  2008Trading
      securities:Balance,
      beginning of year
                  
                  $
                  -
                  
                  
                  $
                  -Shares
      acquired from a related party
                  
                  
                  31,500
                  
                  
                  
                  -Exchange
      oil and gas property
                  
                  
                  126,000
                  
                  
                  
                  -Transfer
      to available-for-sale securities
                  
                  
                  (126,000
                  )
                  
                  
                  -Cost
      of securities sold
                  
                  
                  (31,500
                  )
                  
                  
                  -Balance,
      end of year
                  
                  $
                  -
                  
                  
                  $
                  -Proceeds
      from sale of trading securities
                  
                  $
                  40,197
                  
                  
                  $
                  -Gain
      from sale of trading securities
                  
                  $
                  8,697
                  
                  
                  $
                  -





2009
                      
                      
                      2008Available
      for sale securities:Cost
                      
                      $
                      108,545
                      
                      
                      $
                      1,258,570Transfer
      from trading securities
                      
                      
                      126,000
                      
                      
                      
                      -Transfer
      from investments accounted for by the cost method
                      
                      
                      275,000
                      
                      
                      
                      -Realized
      loss
                      
                      
                      (342,259
                      )
                      
                      
                      (1,150,025
                      )Unrealized
      loss
                      
                      
                      (84,000
                      )
                      
                      
                      -Total
                      
                      $
                      83,286
                      
                      
                      $
                      108,5452009
                      
                      
                      2008Investments
      using the equity method:Balance,
      beginning of year
                      
                      $
                      1,241,371
                      
                      
                      $
                      1,410,482Equity
      in earnings (loss)
                      
                      
                      23,000
                      
                      
                      
                      (123,111
                      )General
      partnership formed
                      
                      
                      82,500
                      
                      
                      
                      -Sale
      of investment
                      
                      
                      (575,000
                      )
                      
                      
                      -Transfer
      to investments at cost
                      
                      
                      (575,000
                      )
                      
                      
                      -Asset
      impairment
                      
                      
                      (50,000
                      )
                      
                      
                      -Distributions
      received
                      
                      
                      (64,371
                      )
                      
                      
                      (46,000
                      )Balance,
      end of year
                      
                      $
                      82,500
                      
                      
                      $
                      1,241,371


33





2009
                  
                  
                  2008Investments
      at cost:Balance,
      beginning of year
                  
                  $
                  442,598
                  
                  
                  $
                  499,860Impairment
                  
                  
                  -
                  
                  
                  
                  (52,216
                  )Distributions
                  
                  
                  -
                  
                  
                  
                  (5,046
                  )Exchange
      for marketable equity securities
                  
                  
                  (76,000
                  )
                  
                  
                  -Investment
      transferred from equity investments
                  
                  
                  575,000
                  
                  
                  
                  -Investment
      transferred to available-for-sale securities
                  
                  
                  (275,000
                  )
                  
                  
                  -Investments
      acquired pursuant to management agreements
                  
                  
                  525,000
                  
                  
                  
                  -Total
                  
                  $
                  1,191,598
                  
                  
                  $
                  442,598





Available
for sale securities





We have
investments in the common stock of four companies which comprise the total of
our available-for-sale securities, as follows:





Realized
                          
                          
                          UnrecognizedHolding
                          
                          
                          Holding
                          
                          
                          FairCost
                          
                          
                          Loss
                          
                          
                          Losses
                          
                          
                          ValueDecember 31, 2008Special
      Projects Group
                          
                          $
                          144,350
                          
                          
                          $
                          (112,943
                          )
                          
                          $
                          -
                          
                          
                          $
                          31,407Syzygy
      Entertainment, Ltd.
                          
                          
                          1,114,220
                          
                          
                          
                          (1,037,082
                          )
                          
                          
                          -
                          
                          
                          
                          77,138$
                          1,258,570
                          
                          
                          $
                          (1,150,025
                          )
                          
                          $
                          -
                          
                          
                          $
                          108,545December 31, 2009Special
      Projects Group
                          
                          $
                          31,407
                          
                          
                          $
                          (31,407
                          )
                          
                          $
                          -
                          
                          
                          $
                          -Syzygy
      Entertainment, Ltd.
                          
                          
                          77,138
                          
                          
                          
                          (75,852
                          )
                          
                          
                          -
                          
                          
                          
                          1,286Remodel
      Auction
                          
                          
                          275,000
                          
                          
                          
                          (235,000
                          )
                          
                          
                          -
                          
                          
                          
                          40,000North
      American Energy
                          
                          
                          126,000
                          
                          
                          
                          -
                          
                          
                          
                          (84,000
                          )
                          
                          
                          42,000$
                          509,545
                          
                          
                          $
                          (342,259
                          )
                          
                          $
                          (84,000
                          )
                          
                          $
                          83,286





Special Projects Group - The
transaction in which Special Projects Group was involved to acquire an operating
company was cancelled and Special Projects is currently a shell
company.  During 2009, Special Projects was dropped from the Pink
Sheets and the Company determined it was an other than temporary impairment and
wrote off its remaining investment in 2009.





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.


34





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 as of December 31, 2009 of
$1,286.  The fair value is based on the trading price of Syzygy on
December 31, 2009.  The Company considers this decline in value to be
other than temporary and has recognized the additional loss in
2009.





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.





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.  At December 31, 2009, the stock had declined to
$0.06 per share and the Company recorded an unrealized loss of $84,000, based on
the Company's determination that the price decline was
temporary.  Subsequent to December 31, 2009, the stock traded as high
as $0.12 per share.  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.


35





Investments
accounted for using the equity method





Equity
investments consist of the following at December 31, 2009 and 2008:





2009
                          
                          
                          2008Carrying
      value:Hooters
      S.A., GP (50%)
                          
                          $
                          82,500
                          
                          
                          $
                          -Chanticleer
      Investors, LLC (23% in 2008)
                          
                          
                          -
                          
                          
                          
                          1,150,000First
      Choice Mortgage (33 1/3% in 2008) (a)
                          
                          
                          -
                          
                          
                          
                          41,371Confluence
      Partners, LLC (50%)
                          
                          
                          -
                          
                          
                          
                          50,000$
                          82,500
                          
                          
                          $
                          1,241,371Equity
      in earnings (loss):Chanticleer
      Investors, LLC
                          
                          $
                          23,000
                          
                          
                          $
                          46,000First
      Choice Mortgage
                          
                          
                          -
                          
                          
                          
                          (169,111
                          )$
                          23,000
                          
                          
                          $
                          (123,111
                          )Distributions:Chanticleer
      Investors, LLC
                          
                          $
                          23,000
                          
                          
                          $
                          46,000Undistributed
      losses included in accumulated deficit
                          
                          $
                          -
                          
                          
                          $
                          (208,629
                          )(a)
      liquidated in January 2009.





The
summarized financial data for Chanticleer Investors LLC, of which we owned 23%
until May 2009, follows:





2009
                  
                  
                  2008(6 months)Revenue
      (interest income)
                  
                  $
                  150,000
                  
                  
                  $
                  300,000Gross
      profit
                  
                  
                  150,000
                  
                  
                  
                  300,000Income
      from continuing operations
                  
                  
                  99,940
                  
                  
                  
                  199,506Net
      income
                  
                  
                  99,940
                  
                  
                  
                  199,506





Hooters S.A., GP -The Company
formed DineOut to own the Company's 50% general partner interest in Hooters
S.A., GP, the general partner of the Hooters' restaurant franchises in South
Africa.  The initial restaurant opened December 2009 in Durban, South
Africa and operations will commence in January 2010.  In the initial
restaurant DineOut has a 15.56% interest in restaurant cash flows until the
limited partners receive payout and a 41.39% interest in restaurant cash flows
after limited partner payout.  The second location is planned to open
in Johannesburg in April 2010 with a third location planned to open in Pretoria
before the end of the second quarter, in time for the 2010 FIFA World Cup
events.  DineOut sold its LP interest in the Durban restaurant
effective February 28, 2010 and will have a 10% and 40% interest, before and
after LP payout, respectively after February 28, 2010.


36





Chanticleer Investors LLC -
the Company reduced its interest in Investors LLC during 2009 and transferred
the remaining investment to investments accounted for under the cost method at
that time.  The Company recorded $23,000 in earnings from equity
investments and received a distribution of $23,000 before it sold 1/2 of its
interest for book value of $575,000.  See Investments accounted for
under the cost method below for additional details.





First Choice Mortgage - this
partnership discontinued operations at the end of 2008 and a final distribution
of $41,371 was received in 2009.





Confluence Partners -the
Company formed a partnership in which it owned 50% and its partner owned
50%.  Each partner contributed $50,000 and the resulting $100,000 was
invested with a group that raises funds for a SPAC.  The SPAC was
delayed due to the current market conditions and the Company elected to fully
impair its investment due to these uncertainties.





Investments
accounted for using the cost method





Investments
at cost consist of the following at December 31, 2009 and 2008:





2009
                  
                  
                  2008Chanticleer
      Investors, LLC
                  
                  $
                  575,000
                  
                  
                  $
                  -Edison
      Nation LLC (FKA Bouncing Brain Productions)
                  
                  
                  250,000
                  
                  
                  
                  250,000BreezePlay,
      Inc.
                  
                  
                  250,000
                  
                  
                  
                  -Lifestyle
      Innovations, Inc.
                  
                  
                  100,000
                  
                  
                  
                  100,000Chanticleer
      Investors II
                  
                  
                  16,598
                  
                  
                  
                  16,598Oil
      and gas investment
                  
                  
                  -
                  
                  
                  
                  76,000$
                  1,191,598
                  
                  
                  $
                  442,598





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%.


37





The
Company owned $1,250,000 (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.





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 will
recognize the remaining month in 2010.





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.


38





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 2010 price of $0.51 per
share.





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.





4.           PROPERTY
AND EQUIPMENT





Property
and equipment consists of the following at December 31, 2009 and
2008:





2009
                  
                  
                  2008Office
      and computer equipment
                  
                  $
                  26,337
                  
                  
                  $
                  25,488Furniture
      and fixtures
                  
                  
                  46,203
                  
                  
                  
                  39,60772,540
                  
                  
                  
                  65,095Accumulated
      depreciation
                  
                  
                  (40,415
                  )
                  
                  
                  (28,934
                  )$
                  32,125
                  
                  
                  $
                  36,161





5.           NOTES
PAYABLE





At
December 31, 2009 and 2008, the Company had notes payable as
follows:





2009
                
                
                2008Line-of
      credit with a bank with interest at Wall Street Prime +1% (minimum of
      5.5%) payable monthly; due July 10, 2010; collateralized by substantially
      all assets of the Company; guaranteed by Mr. Pruitt
                
                $
                250,000
                
                
                $
                -Line-of
      credit with a bank with interest at 4% at December 31, 2008, payable
      monthly; due June 3, 2009 and paid in full; guaranteed by Mr. Pruitt and
      collateralized by substantially all assets of the Company
                
                
                -
                
                
                
                500,000Note
      payable to an individual with interest at 18%; due June 30,
      2010
                
                
                162,500
                
                
                
                -$
                412,500
                
                
                $
                500,000


39





6.           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 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.





7.           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 during the
years ended December 31, 2009 and 2008.





2009
                  
                  
                  2008Balance
      at beginning of year
                  
                  $
                  -
                  
                  
                  $
                  128,555Additions:Remodel
      Auction common stock
                  
                  
                  125,000
                  
                  
                  
                  -BreezePlay,
      Inc. common stock
                  
                  
                  250,000
                  
                  
                  
                  -Amortization
                  
                  
                  (354,167
                  )
                  
                  
                  (128,555
                  )Balance
      end of year
                  
                  $
                  20,833
                  
                  
                  $
                  -





8.           INCOME
TAXES





During
the years ended December 31, 2009 and 2008, the provision for income taxes (all
deferred) differs from the amounts computed by applying the U.S. Federal income
tax rate of 34% to income before provision for income taxes as a result of the
following:


40





2009
                  
                  
                  2008Computed
      "expected" income tax expense (benefit)
                  
                  $
                  (276,700
                  )
                  
                  $
                  (761,100
                  )State
      income taxes, net of federal benefit
                  
                  
                  (32,500
                  )
                  
                  
                  (89,500
                  )Travel,
      entertainment and other
                  
                  
                  (8,900
                  )
                  
                  
                  7,400Valuation
      allowance
                  
                  
                  318,100
                  
                  
                  
                  843,200Income
      tax expense (benefit)
                  
                  $
                  -
                  
                  
                  $
                  -





Significant
components of net deferred income tax assets are as follows:





2009
                    
                    
                    2008Investments
                    
                    $
                    461,700
                    
                    
                    $
                    431,400Net
      operating loss carryforwards
                    
                    
                    1,003,300
                    
                    
                    
                    728,700Foreign
      losses
                    
                    
                    16,500
                    
                    
                    
                    -Capital
      loss carryforwards
                    
                    
                    13,000
                    
                    
                    
                    16,300Total
      deferred tax assets
                    
                    
                    1,494,500
                    
                    
                    
                    1,176,400Valuation
      allowance
                    
                    
                    (1,494,500
                    )
                    
                    
                    (1,176,400
                    )Net
      deferred tax assets
                    
                    $
                    -
                    
                    
                    $
                    -





The
Company has a net operating loss carryforward of approximately $2,640,000, which
will expire at various dates beginning in 2024 through 2029, if not
utilized.  The Company has a capital loss carryforward of $34,000
which expires in 2010 if not utilized.  The tax basis of investments
exceeds their book cost by approximately $1,215,000.





9.           STOCKHOLDERS’
EQUITY





The
Company has 200,000,000 shares of its $0.0001 par value common stock authorized
and 984,911 and 946,376 shares issued and outstanding at December 31, 2009 and
2008, respectively.  There are no warrants or options
outstanding.





The
Company determined that the amounts previously reported for the par value of its
common stock was based on a $0.001 par value rather than $0.0001 par
value.  To correctly report the par value, $851 was reclassified at
December 31, 2008 to additional paid in capital and an additional $270 was
reclassified from common stock to additional paid in capital at December 31,
2009.


41





2009
Transactions





During
the year ended December 31, 2009, the Company sold 38,535 shares of its common
stock for proceeds in the amount of $76,578.  In addition, the Company
issued 261,465 shares of its common stock to form a new subsidiary, DineOut,
which was valued at $536,003 and has been included in treasury stock upon
consolidation.





2008
Transactions





During
the year ended December 31, 2008, the Company sold 111,994 shares of its common
stock pursuant to its Offering Circular under Regulation E promulgated under the
Securities Act of 1933 for proceeds in the amount of $784,700 and issued 1,150
shares for services valued at $7,993.





10.         RELATED
PARTY TRANSACTIONS





Due
to related parties





The
Company has received non-interest bearing loans and advances from related
parties.  The amounts owed by the Company as of December 31, 2009 and
2008 are as follows:





2009
                  
                  
                  2008Tyler
      Industrial Group, a company partially owned by Mr. Pruitt
                  
                  $
                  58,590
                  
                  
                  $
                  7,300Chanticleer
      Investors, LLC
                  
                  
                  6,000
                  
                  
                  
                  -Avenel
      Financial Group, a company owned by Mr. Pruitt
                  
                  
                  33,000
                  
                  
                  
                  -Personal
      friend of Mr. Pruitt
                  
                  
                  12,000
                  
                  
                  
                  -$
                  109,590
                  
                  
                  $
                  7,300





Due
from related parties





The
Company has earned income from and made advances to related
parties.  The amounts owed to the Company at December 31, 2009 and
2008 is as follows:





2009
                  
                  
                  2008Green
      St. Energy, Inc.
                  
                  $
                  24,907
                  
                  
                  $
                  -Chanticleer
      Investors, LLC
                  
                  
                  7,149
                  
                  
                  
                  5,150Other
                  
                  
                  750
                  
                  
                  
                  -$
                  32,806
                  
                  
                  $
                  5,150


42





Management
income from affiliates





The
Company had management income from its affiliates in 2009 and 2008, as
follows:





2009
                  
                  
                  2008Green
      St. Energy, Inc.
                  
                  $
                  24,000
                  
                  
                  $
                  -Chanticleer
      Investors, LLC
                  
                  
                  63,250
                  
                  
                  
                  100,000Syzygy
      Entertainment, Ltd.
                  
                  
                  11,000
                  
                  
                  
                  134,055$
                  98,250
                  
                  
                  $
                  234,055





Syzygy
Entertainment, Ltd. ("Syzygy")





Mr.
Pruitt was a director of Syzygy until his resignation on June 1,
2009.





Revenue
in 2009 included $11,000 in cash management fees and revenue in 2008 included
cash management fees of $5,500 and the amortization of deferred revenue in the
amount of $128,555 for the balance of the Company's management contract with
Syzygy.





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.





The
Company owns 642,814 shares of Syzygy with a cost of $1,114,221 and a fair value
as of December 31, 2009 of $1,286.





Green
St. Energy, Inc. ("Green St.")





Mr.
Pruitt is a director of Green St.  During 2009, the Company billed
Green St. $24,000 for management services and has advanced $907 for Green St.
expenses.  At December 31, 2009, Green St. owes the Company $24,907,
which is included in due from related parties.





Chanticleer
Investors LLC





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. (“Hooters”),
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 includes an
increase in interest rate to 8%.





The
Company owned $1,250,000 (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.


43





The
Company received management income of $63,250 and $100,000 in 2009 and 2008,
respectively, for its management services, which is included in management
income from affiliates.  The Company recorded earnings from its equity
investment of $23,000 and $46,000 in 2009 and 2008,
respectively.  After the Company sold 1/2 of its investment in May
2009, the Company's earnings of $23,000 was included in interest
income.





Chanticleer
Investors II LLC





The
Company manages Investors II and received management income of $561 in 2009 and
none in 2008.





Other





The
Company acquired trading securities from a related party for $31,500 which were
sold for $40,197.


44





11.         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.





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 and are summarized as
follows:





Private
                    
                    
                    Convertible
                    
                    
                    Oil
      & gasEquity
                    
                    
                    Debt
      (a)
                    
                    
                    Property
                    
                    
                    SPAC
                    
                    
                    Other
                    
                    
                    TotalBeginning
      balance
                    
                    $
                    291,371
                    
                    
                    $
                    1,250,000
                    
                    
                    $
                    76,000
                    
                    
                    $
                    50,000
                    
                    
                    $
                    16,598
                    
                    
                    $
                    1,683,969Total
      gain (loss) included in net loss
                    
                    
                    
                    
                    
                    
                    46,000
                    
                    
                    
                    
                    
                    
                    
                    (50,000
                    )
                    
                    
                    561
                    
                    
                    
                    (3,439
                    )Other
      transactions:Purchases
                    
                    
                    250,000
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    250,000Sales
                    
                    
                    
                    
                    
                    
                    (575,000
                    )
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (575,000
                    )Exchange
      for available-for-sale securities
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (76,000
                    )
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (76,000
                    )Distributions
                    
                    
                    (41,371
                    )
                    
                    
                    (46,000
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (561
                    )
                    
                    
                    (87,932
                    )Ending
      balance
                    
                    $
                    500,000
                    
                    
                    $
                    675,000
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    16,598
                    
                    
                    $
                    1,191,598





(a)           Includes
directly held convertible debt and our investment in an LLC whose only asset is
convertible debt.


45





12.         SEGMENTS
OF BUSINESS





The
Company is organized into three segments as of the end of 2009, two of which
were added during 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 formed DineOut to own the Company's 50% general partner interest in
Hooters S.A., GP, the general partner of the Hooters' restaurant franchises in
South Africa.  The initial restaurant opened December 2009 in Durban,
South Africa and operations will commence in January 2010.  In the
initial restaurant DineOut has a 15.56% interest in restaurant cash flows until
the limited partners receive payout and a 41.39% interest in restaurant cash
flows after limited partner payout.  The second location is planned to
open in Johannesburg in April 2010 with a third location planned to open in
Pretoria before the end of the second quarter, in time for the 2010 FIFA World
Cup events.  DineOut sold its LP interest in the Durban restaurant
effective February 28, 2010 and will have a 10% and 40% interest, before and
after LP payout, respectively after February 28, 2010.





Financial
information regarding the Company's segments is as follows for
2009.  In 2008, the Company operated in only one segment,
management.


46





Management
                                                              
                                                              
                                                              Insurance
                                                              
                                                              
                                                              Restaurants
                                                              
                                                              
                                                              TotalRevenues
                                                              
                                                              $
                                                              602,978
                                                              
                                                              
                                                              $
                                                              -
                                                              
                                                              
                                                              $
                                                              -
                                                              
                                                              
                                                              $
                                                              602,978Interest
      expense
                                                              
                                                              $
                                                              33,914
                                                              
                                                              
                                                              $
                                                              -
                                                              
                                                              
                                                              $
                                                              -
                                                              
                                                              
                                                              $
                                                              33,914Depreciation
      and amortization
                                                              
                                                              $
                                                              11,481
                                                              
                                                              
                                                              $
                                                              -
                                                              
                                                              
                                                              $
                                                              -
                                                              
                                                              
                                                              $
                                                              11,481Profit
      (loss)
                                                              
                                                              $
                                                              (702,734
                                                              )
                                                              
                                                              $
                                                              (15,000
                                                              )
                                                              
                                                              $
                                                              (43,451
                                                              )
                                                              
                                                              $
                                                              (761,185
                                                              )Investments
      and other
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              $
                                                              (52,511
                                                              )$
                                                              (813,696
                                                              )Assets
                                                              
                                                              $
                                                              71,285
                                                              
                                                              
                                                              $
                                                              -
                                                              
                                                              
                                                              $
                                                              107,500
                                                              
                                                              
                                                              $
                                                              178,785Investments
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              $
                                                              1,274,884$
                                                              1,453,669Liabilities
                                                              
                                                              $
                                                              708,651
                                                              
                                                              
                                                              $
                                                              -
                                                              
                                                              
                                                              $
                                                              27,000
                                                              
                                                              
                                                              $
                                                              735,651Expenditures
      for non-current assets
                                                              
                                                              $
                                                              7,446
                                                              
                                                              
                                                              $
                                                              -
                                                              
                                                              
                                                              $
                                                              62,500
                                                              
                                                              
                                                              $
                                                              69,946





13.        COMMITMENTS
AND CONTINGENCIES





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.





On April
23, 2009, the Company through its 50% joint venture agreement with Shaw Holdings
(Chanticleer & Shaw Pty, Ltd.) entered into a franchise agreement with HOA
to open and operate Hooters restaurants in the Republic of South
Africa.  The initial 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 will commence operations
effective January 1, 2010.  Locations in Johannesburg and Pretoria are
scheduled to open the second quarter of 2010 and a fourth location in either
Cape Town or Bloemfontein is also planned for 2010.  The majority of
the Company's financial commitments have been and will be covered with limited
partner commitments.





14.        HOOTERS,
INC. AND TEXAS WINGS





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 will 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.


47





In
addition, the commitment letters from certain financial institutions to provide
one or more related entities of the Company the 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.





Texas Wings -On July 8, 2008,
the Company entered into an Asset Purchase Agreement ("APA") to acquire
substantially all of the assets of Texas Wings Incorporated and its 45 related
Hooters branded restaurants for total consideration of approximately $106
million. On May 13, 2009, the Company received written notification terminating
this APA, because one or more of the conditions to closing could not be timely
satisfied.


48





15.        SUBSEQUENT
EVENTS





DineOut
sold its LP interest in its Durban, South Africa restaurant effective February
28, 2010 for its cost of $37,500.





The
Company has issued its convertible notes payable in the amount of $250,000 since
December 31, 2009.





The
Company has received $36,048, net from the sale of 26,113 shares of its
investment in DineOut common stock during the month of February
2010.


49





ITEM
      8:
            CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE





None.





ITEM
      8A(T):
            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.


50





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 December 31,
2009.  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.





Management's
report on internal control over financial reporting





Management
of the Company is responsible for establishing and maintaining effective
internal control over financial reporting, as defined in Rule 13a-15(f) under
the Exchange Act.  The Company's internal control over financial
reporting is designed to provide reasonable assurance to the Company's
management and Board of Directors regarding the preparation and fair
presentation of published financial statements in accordance with the United
States' generally accepted accounting principles (US GAAP), including those
policies and procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
disposition of the assets of the Company, (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in accordance with US GAAP and that receipts and expenditures are
being made only in accordance with authorizations of management and directors of
the Company, and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition of the
Company's assets that could have a material effect on the financial
statements.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation.





Under the
supervision and with the participation of our management, including our chief
executive officer and our chief financial officer, we conducted an evaluation of
the effectiveness of our internal control over financial reporting based on the
framework established by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) as set forth in its Internal Control - Integrated
Framework.  Based on our evaluation under the framework in Internal
Control - Integrated Framework, and including the material weaknesses discussed
above, our management has concluded that our internal control over financial
reporting was not effective as of December 31, 2009.


51





This
annual report does not include an audit or attestation report of our registered
public accounting firm regarding our internal control over financial
reporting.  Our management's report was not subject to audit or
attestation by our registered public accounting firm pursuant to temporary rules
of the SEC that permit us to provide only management's report in this annual
report.





The
Company has expanded its quarterly review of investments to include an
evaluation of accounting treatment to mitigate the likely-hood of utilizing an
incorrect accounting method.  There were no other significant changes
in internal controls or in other factors that could significantly affect these
controls during the quarter ended December 31, 2009, including any other
corrective actions with regard to significant deficiencies and material
weaknesses.





ITEM
      8B:
            OTHER
      INFORMATION





Not
applicable.





52


PART
      III





ITEM
      9:
            DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE





The
following section sets forth the names, ages and current positions with the
Company held by the Directors, Executive Officers and Significant Employees as
of December 31, 2009; together with the year such positions were
assumed.  There is no immediate family relationship between or among
any of the Directors, Executive Officers or Significant Employees, and the
Company is not aware of any arrangement or understanding between any Director or
Executive Officer and any other person pursuant to which he was elected to his
current position.  Each Executive Officer will serve until he or she
resigns or is removed or otherwise disqualified to serve, or until his or her
successor is elected and qualified.





Each
Director will serve until he or she resigns or is removed or otherwise
disqualified to serve or until his or her successor is elected.  The
Company currently has four Directors.





NAME
            AGE
            POSITIONMichael
      D. Pruitt
            49
            President,
      CEO and Director since June 2005Michael
      Carroll
            61
            Independent
      Director since June 2005Brian
      Corbman
            34
            Independent
      Director since August 2005Paul
      I. Moskowitz
            53
            Independent
      Director since April 2007Keith
      Johnson
            52
            Independent
      Director since November 2009





Michael D.
Pruitt


Michael
Pruitt, a long-time entrepreneur with a proven track record, possesses the
expertise to evaluate potential investments, form key relationships and
recognize a strong management team.  Mr. Pruitt founded Avenel Financial
Group, a boutique financial services firm concentrating on emerging technology
company investments.  The business succeeded immediately, and in order to
grow Avenel Financial Group to its full potential and better represent the
company's ongoing business model, he formed Avenel Ventures, an innovative
technology investment and business development company.  In the late 1980s,
Mr. Pruitt owned Southern Cartridge, Inc., which he eventually sold to
MicroMagnetic, Inc., where he continued working as Executive Vice President and
a Board member until Southern Cartridge was sold to Carolina Ribbon in
1992.  From 1992 to 1996, Mr. Pruitt worked in a trucking firm where he was
instrumental in increasing revenues from $6 million to $30 million.  The
firm was sold in 1996 to Priority Freight Systems.  Between 1997 and 2000,
Mr. Pruitt assisted several public and private companies in raising capital,
recruiting management and preparing companies to go public or be
sold.  He was the CEO, President and Chairman of the Board of
Onetravel Holdings, Inc. (formerly RCG Companies), a publicly traded holding
company formerly listed on the AMEX.  Mr. Pruitt received a
Bachelor of Arts degree from Coastal Carolina University in Conway, South
Carolina, where he sits on the Board of Visitors of the Wall School of
Business.   Mr. Pruitt is currently a director of Green St. Energy,
Inc.


53





Michael
Carroll


Michael
Carroll currently owns and operates a sales and training consulting firm based
in Richmond, Virginia.  Mr. Carroll has also served as a director for
OneTravel Holdings, Inc., formerly RCG Companies Incorporated, since January of
2004.  He previously spent 22 years in the distribution business, 19
of which were in computer products distribution.  In 1978, Mr. Carroll
founded MicroMagnetic, Inc., a computer supply distribution company that he sold
to Corporate Express in 1997.  From 1997 to 1999, he was a division
president at Corporate Express, a publicly traded business-to-business office
products and service provider.  He holds a Bachelor’s Degree in
Business Management from The College of William & Mary in Williamsburg,
Virginia, and a Master’s Degree in Business Administration from Virginia
Commonwealth University.





Brian
Corbman


Brian
Corbman is the managing director of Ardent Advisors, a consulting company he
co-founded in 2003, that specializes in business strategy and corporate advisory
services for emerging growth companies.  Mr. Corbman is in the process
of becoming an Officer of Supervisory Jurisdiction under the Westor Capital
broker dealer umbrella and services buy-side institutional investors via equity
research, institutional trading execution and investment banking
activities.  Previously, he was an institutional salesman at Fulcrum
Global Partners and Banc of America Securities.  Prior to that, he
gained valuable corporate experience working for GSI Commerce, a publicly traded
company, where he was the sole corporate development analyst.  A Magna
Cum Laude graduate of George Washington University in Washington, DC, he holds a
Bachelor’s degree in Business Administration.  Mr. Corbman has also
attained the NASD general securities principal Series 24, Series 7 and Series 63
licenses.





Paul I.
Moskowitz


Paul
Moskowitz is a Phi Beta Kappa of Vassar College and Cardozo Law
School.  Mr. Moskowitz was a co-founder and partner of a successful
New York law firm specializing in corporate and real estate law.  He
became affiliated with The World Travel Specialist Group/The Lawyers’ Travel
Service (“WTSG/LTS”) in 1988 and served as corporate counsel, representing the
growing travel agency network in legal, real estate, and other business
activities.  In 1989, he joined WTSG full time as President and Chief
Operating Officer until March 2003, with his primary responsibilities including
day-to-day operations which encompassed WTSG’s airline relationships and sales
and marketing.  Mr. Moskowitz led the growth of WTSG to one of the top
20 U.S. travel management firms with more than 90 offices throughout the
U.S.  Mr. Moskowitz is currently engaged as a consultant for another
travel organization.





Keith
Johnson


Mr.
Johnson has been the President and Chief Executive Officer of YRT2 (Your
Residential Technology Team) in Charlotte, North Carolina, since
2004.  Mr. Johnson served as Executive Vice President and Chief
Financial Officer of The Telemetry Company in Dallas, Texas (1997-2004), Senior
Vice President - Finance and Administration of Brinks Home Security in Dallas,
Texas (1995-1997), and Chief Financial Officer of BAX Global in London, England
(1992-1995).  Mr. Johnson has a BS in accounting from Fairfield
University in Fairfield, Connecticut.


54





AUDIT
COMMITTEE





The Board
of Directors has determined that Michael Carroll meets the requirements of a
financial expert and serves as Chairman of the Audit Committee.  Mr.
Carroll is independent as specified in Item 7 (d)(3)(iv) of Schedule 14A under
the Exchange Act.





We have a
separately designated standing audit committee established in accordance with
Section 3 (a)(58)(A) of the Exchange Act, which is currently made up of Mr.
Carroll and Mr. Corbman.





The
primary responsibility of the Audit Committee is to oversee our financial
reporting process on behalf of the Board of Directors and report the result of
their activities to the Board. Such responsibilities shall include, but shall
not be limited to, the selection and, if necessary, the replacement of our
independent auditors and review and discussion with such independent auditors of
(i) the overall scope and plans for the audit, (ii) the adequacy and
effectiveness of the accounting and financial controls, including our system to
monitor and manage business risks, and legal and ethical programs, and (iii) the
results of the annual audit, including the financial statements to be included
in our annual report on Form 10-K.  In this regard, the Audit
Committee has:


·
            Reviewed
      and discussed the audited financial statements with
      management;


·
            Discussed
      with the independent auditors the matters required to be discussed by the
      statement on Auditing Standards No. 61, as amended and as adopted by the
      Public Company Accounting Oversight Board in Rule
  3200T;


·
            Received
      the written disclosures and the letter from the independent accountant
      required by applicable requirements of the Public Company Accounting
      Oversight Board regarding the independent accountant's communications with
      the audit committee concerning independence, and has discussed with the
      independent accountant the independent accountant's independence;
      and


·
            Based
      on the review and discussions referred to in the first three items, has
      recommended to the board of directors that the audited financial
      statements be included in the Company's annual report on Form 10-K for the
      last fiscal year for filing with the
Commission.





COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT




Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our executive
officers, directors and persons who own more than ten percent of our common
stock to file initial reports of ownership and changes in ownership with the
SEC.  Additionally, SEC regulations require that we identify any
individuals for whom one of the referenced reports was not filed on a timely
basis during the most recent fiscal year or prior fiscal years.  To
the best of our knowledge, based solely on a review of reports furnished to us,
each of the Directors timely filed any required Form 4’s during fiscal
2009.  Mr. Johnson did not timely file his Form 3 when he became a
director in November 2009.


55





CODE
OF ETHICS





The Board
of Directors of the Company adopted a Code of Ethics which was effective May 23,
2005, which was filed as Exhibit 14 to the Company’s Form 10-K/A dated December
31, 2007.





The Code
of Ethics in general prohibits any officer, director or advisory person
(collectively, "Access Person") of the Company from acquiring any interest in
any security which we (i) are considering a purchase or sale thereof, (ii) are
being purchased or sold by us, or (iii) are being sold short by us. The Access
Person is required to advise us in writing of his or her acquisition or sale of
any such security.





NOMINATING
COMMITTEE





We do not
currently have a standing nominating committee, or a committee performing
similar functions.  The full Board of Directors currently serves this
function.





ITEM
      10:
            EXECUTIVE
      COMPENSATION





The
Compensation Committee of the Board of Directors deliberates executive
compensation matters to the extent they are not delegated to the Chief Executive
Officer.




a.
            Summary
      Compensation Table




The
following table shows the compensation of the Company’s Chief Executive Officer
and each executive officer whose total cash compensation exceeded $100,000 for
the three years ended December 31, 2008.





ANNUAL
COMPENSATION





Name and Principal Position
                          
                          Year
                          
                          Salary
                          
                          
                          Bonus
                          
                          
                          TotalMichael
      D. Pruitt (CEO since
                          
                          2009
                          
                          $
                          171,000
                          
                          
                          $
                          -
                          
                          
                          $
                          171,000June
      2005) (1)
                          
                          2008
                          
                          $
                          136,148
                          
                          
                          $
                          -
                          
                          
                          $
                          136,1482007
                          
                          $
                          41,917
                          
                          
                          
                          -
                          
                          
                          $
                          41,917





(1)
                The2009
      compensation includes $11,000 in consulting fees during the time Mr.
      Pruitt had temporarily discontinued his salary.  The 2008
      compensation includes $8,000 in consulting fees after Mr. Pruitt
      temporarily discontinued his
salary.





Required
columns for stock awards, option awards, non-entity incentive plan compensation,
change in pension value and nonqualified deferred compensation earnings and all
other compensation are omitted from the table above as the amounts are all
zero.


56





Mr.
Pruitt did not receive compensation during our initial start-up phase as a
BDC.  His compensation commenced in February 2007.  Our
compensation for Officers and Directors is based on comparative compensation
levels for similar positions and time requirements.





b.
            Options/SAR
      Grants Table





There
were no grants of options or SARs during the year for the named
individual.





c.
            Aggregated
      option/SAR exercises and fiscal year-end option/SAR value
      table.





There
were no option/SAR exercises or any options/SARs outstanding at fiscal year-end
for the named individual.





d.
              Long-term
      incentive plan ("LTIP") awards
table





There
were no LTIP awards during the year for the named individual.





e.
            Compensation
      of directors





Directors
are generally compensated $1,500 for each meeting during the
year.  There were no formal meetings during the year, and no directors
were paid director fees.  Mr. Pruitt and Mr. Corbman do not currently
receive director fees.





f.
            Employment
      contracts and termination of employment and changes in control
      arrangements





The
Company does not have any current employment agreements with its officers and
directors. The Company intends to pay its Executives and Directors salaries,
wages, or fees commensurate with experience and industry standards in
relationship to the success of the company.





The
Company does not have any changes in control arrangements.





g.
            Report
      on repricing of options/SARs





The
Company has no options or SARs outstanding during 2009 or 2008, accordingly,
none were repriced.





h.
            Compensation
      committee





The
outside directors make up the compensation committee.  The
compensation committee does not currently have a charter.





The
Company intends to pay its Executives and Directors salaries, wages or fees
commensurate with experience and industry standards in relationship to the
success of the Company.


57





The
compensation committee sets the compensation for executive officers and
directors.  The compensation of employees may be delegated to the
CEO.





i.
            Compensation
      committee interlocks and insider
participation





The
outside Directors serve on the compensation committee.  There is no
relationship between the CEO and any of the outside directors or the companies
for whom they work.





j.
            Compensation
      committee report





Based on
the Compensation Discussion and Analysis required by Item 402(b) between the
compensation committee and management, the compensation committee recommended to
the Board of Directors that the Compensation Discussion and Analysis be included
in the 10-K.





ITEM
      11:
              SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS





SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS





The
following table indicates all persons who, as of February 10, 2010, the most
recent practicable date, are known by us to own beneficially more than 5% of any
class of our outstanding voting securities. As of February 10, 2010, there were
984,911 shares of our common stock outstanding. Except as otherwise indicated
below, to the best of our knowledge, each person named in the table has sole
voting and investment power with respect to the securities beneficially owned by
them as set forth opposite their name.





Name and Address of
                            
                            Amount and Nature ofTitle of Class
                            
                            Beneficial Owner
                            
                            Beneficial Owner
                            
                            
                            %of ClassCommon
                            
                            Palisades
      Master Fund, LP
                            
                            
                            136,164
                            
                            
                            
                            13.83
                            %Harbour
      House, 2nd
      FloorWaterfront
      Drive, P.O. Box 972Road
      Town, Tortola D8





SECURITY
OWNERSHIP OF MANAGEMENT




The
following table indicates the beneficial ownership of our voting securities of
all Directors of the Company and all Executive Officers who are not Directors of
the Company, and all officers and directors as a group, as of February 10, 2010,
the most recent practicable date.  As of February 10, 2010, there were
984,911 shares of our common stock outstanding. Except as otherwise indicated
below, to the best of our knowledge, each person named in the table has sole
voting and investment power with respect to the securities beneficially owned by
them as set forth opposite their name.  All options are currently
exercisable, unless otherwise indicated.


58





Name and Address of
                                          
                                          Amount and Nature ofTitle of Class
                                          
                                          Beneficial Owner
                                          
                                          Beneficial Owner
                                          
                                          
                                          %of ClassCommon
                                          
                                          Michael
      D. Pruitt
                                          
                                          
                                          170,715
                                          
                                          
                                          
                                          17.33
                                          %11220
      Elm Lane, Suite 203Charlotte,
      NC  28277Common
                                          
                                          Michael
      Carroll
                                          
                                          
                                          2,500
                                          
                                          
                                          
                                          *11220
      Elm Lane, Suite 203Charlotte,
      NC  28277Common
                                          
                                          Paul
      I. Moskowitz
                                          
                                          
                                          100
                                          
                                          
                                          
                                          *11220
      Elm Lane, Suite 203Charlotte,
      NC  28277Common
                                          
                                          Brian
      Corbman
                                          
                                          
                                          2,550
                                          
                                          
                                          
                                          *11220
      Elm Lane, Suite 203Charlotte,
      NC  28277Common
                                          
                                          Keith
      Johnson
                                          
                                          
                                          -
                                          
                                          
                                          
                                          *11220
      Elm Lane, Suite 203Charlotte,
      NC  28277Common
                                          
                                          All
      officers and directors as a
                                          
                                          
                                          175,865
                                          
                                          
                                          
                                          17.86
                                          %Group
      (5 persons)





*
            Less
      than 1%.




EQUITY
COMPENSATION PLAN INFORMATION





We do not
currently have an equity compensation plan.





ITEM
      12:
              CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE





Due
to related parties





The
Company has received non-interest bearing loans and advances from related
parties.  The amounts owed by the Company as of December 31, 2009 and
2008 are as follows:


59





2009
                  
                  
                  2008Tyler
      Industrial Group, a company partially owned by Mr. Pruitt
                  
                  $
                  58,590
                  
                  
                  $
                  7,300Chanticleer
      Investors, LLC
                  
                  
                  6,000
                  
                  
                  
                  -Avenel
      Financial Group, a company owned by Mr. Pruitt
                  
                  
                  33,000
                  
                  
                  
                  -Personal
      friend of Mr. Pruitt
                  
                  
                  12,000
                  
                  
                  
                  -$
                  109,590
                  
                  
                  $
                  7,300





Due
from related parties





The
Company has earned income from and made advances to related
parties.  The amounts owed to the Company at December 31, 2009 and
2008 is as follows:





2009
                  
                  
                  2008Green
      St. Energy, Inc.
                  
                  $
                  24,907
                  
                  
                  $
                  -Chanticleer
      Investors, LLC
                  
                  
                  7,149
                  
                  
                  
                  5,150Other
                  
                  
                  750
                  
                  
                  
                  -$
                  32,806
                  
                  
                  $
                  5,150





Management
income from affiliates





The
Company had management income from its affiliates in 2009 and 2008, as
follows:





2009
                  
                  
                  2008Green
      St. Energy, Inc.
                  
                  $
                  24,000
                  
                  
                  $
                  -Chanticleer
      Investors, LLC
                  
                  
                  63,250
                  
                  
                  
                  100,000Syzygy
      Entertainment, Ltd.
                  
                  
                  11,000
                  
                  
                  
                  134,055$
                  98,250
                  
                  
                  $
                  234,055





Syzygy
Entertainment, Ltd. ("Syzygy")





Mr.
Pruitt was a director of Syzygy until his resignation on June 1,
2009.





Revenue
in 2009 included $11,000 in cash management fees and revenue in 2008 included
cash management fees of $5,500 and the amortization of deferred revenue in the
amount of $128,555 for the balance of the Company's management contract with
Syzygy.


60





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.





The
Company owns 642,814 shares of Syzygy with a cost of $1,114,221 and a fair value
as of December 31, 2009 of $1,286.





Green
St. Energy, Inc. ("Green St.")





Mr.
Pruitt is a director of Green St.  During 2009, the Company billed
Green St. $24,000 for management services and has advanced $907 for Green St.
expenses.  At December 31, 2009, Green St. owes the Company $24,907,
which is included in due from related parties.





Chanticleer
Investors LLC





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. (“Hooters”),
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 includes an
increase in the interest rate to 8%.





The
Company owned $1,250,000 (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 received management income of $63,250 and $100,000 in 2009 and 2008,
respectively, for its management services, which is included in management
income from affiliates.  The Company recorded earnings from its equity
investment of $23,000 and $46,000 in 2009 and 2008,
respectively.  After the Company sold 1/2 of its investment in May
2009, the Company's earnings of $23,000 was included in interest
income.





Chanticleer
Investors II LLC





The
Company manages Investors II and received management income of $561 in 2009 and
none in 2008.





Other





The
Company acquired trading securities from a related party for $31,500 which were
sold for $40,197.


61





Director
Independence





We
undertook a review of the independence of our directors and, using the
definitions and independence standards for directors provided in the rules of
The Nasdaq Stock Market, although not required as the standard for the Company
as it is traded on the Over-the-Counter Market considered whether any director
has a material relationship with us that could interfere with his ability to
exercise independent judgment in carrying out his
responsibilities.  As a result of this review, we determined that
Michael Carroll, Brian Corbman, Paul Moskowitz and Keith Johnson are
"independent directors" as defined under the rules of The Nasdaq Stock
Market.





ITEM
      13:
            PRINCIPAL
      ACCOUNTANT FEES AND SERVICES





AUDIT
FEES: For the fiscal years ended December 31, 2009 and 2008, Creason &
Associates, P.L.L.C. billed the Company for services rendered through March 23,
2010, for the audit of the Company’s financial statements included in its report
on Form 10-K and the reviews of the financial statements included in its reports
on Form 10-Q filed with the SEC as follows (the 2009 period will not include all
billings for the audit):





2009
                  
                  
                  2008Audit
      and review services
                  
                  $
                  41,200
                  
                  
                  $
                  40,950





AUDIT
RELATED FEES: None.





TAX FEES:
Not applicable.





OTHER
FEES: None.


62


PART
IV





ITEM
      14:
            EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES





(a)
            The
      following documents are filed as part of this
  report:


1.
            Financial
      Statements – The following financial statements of Chanticleer Holdings,
      Inc. are contained in Item 8 of this Form
10-K:


·
            Report
      of Independent Registered Public Accounting
Firm


·
            Consolidated
      Balance Sheets at December 31, 2009 and
2008


·
            Consolidated
      Statements of Operations – For the years ended December 31, 2009 and
      2008


·
            Consolidated
      Statements of Stockholders’ Equity at December 31, 2009 and
      2008


·
            Consolidated
      Statements of Cash Flows – For the years ended December 31, 2009 and
      2008


·
            Notes
      to the Consolidated Financial
Statements





2.
            Financial
      Statement Schedules were omitted, as they are not required or are not
      applicable, or the required information is included in the Financial
      Statements.





3.
            Exhibits
      – The following exhibits are filed with this report or are incorporated
      herein by reference to a prior filing, in accordance with Rule 12b-32
      under the Securities Exchange Act of
1934.





Exhibit
              
              Description31.1
              
              Certification
      of the Chief Executive Officer and Chief Financial Officer pursuant to
      Rule 13a-14 of the Securities Exchange Act of 193432.1
              
              Certification
      of the Chief Executive Officer and Chief Financial Officer pursuant to
      Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
      1350


63


SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) 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 on March 30, 2010.





CHANTICLEER
      HOLDINGS, INC.By:
              /s/
      Michael D. PruittMichael
      D. Pruitt, Chairman,Chief
      Executive Officer andChief
      Financial Officer





Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has been
signed below by the following persons on behalf of the Registrant in the
capacities and on the dates indicated.





Date
              
              Title
      (Capacity)
              
              SignatureMarch
      30, 2010
              
              Chairman,
      Chief Executive Officer
              
              /s/ Michael D. Pruittand
      Chief Financial Officer
              
              Michael
      D. PruittMarch
      30, 2010
              
              Director
              
              /s/ Michael CarrollMichael
      CarrollMarch
      30, 2010
              
              Director
              
              /s/ Brian CorbmanBrian
      CorbmanMarch
      30, 2010
              
              Director
              
              /s/ Paul I. MoskowitzPaul
      I. MoskowitzMarch
      30, 2010
              
              Director
              
              /s/ Keith JohnsonKeith
      Johnson


64