Sonnet BioTherapeutics 10K 2016 Annual report

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, 2016

Commission File Number 001-35570

CHANTICLEER HOLDINGS, INC.

(Exact name of registrant as specified in the charter)

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

7621 Little Avenue, Suite 414, Charlotte, NC 28226

(Address of principal executive offices) (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

Common Stock Warrants, $5.00 exercise price

(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. [X] Yes [ ] 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). [X] 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. [X] Yes [ ] No

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

Large accelerated filer [ ] Accelerated filer [ ]

Non-accelerated filer [ ] Smaller reporting company [X]

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

The aggregate market value of the voting stock held by non-affiliates was $9.3 million based on the closing sale price of the Company’s Common Stock as reported on the NASDAQ Stock Market on June 30, 2016.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. There were 21,999,507 shares of common stock issued and outstanding as of March 23, 2017.

Chanticleer Holdings, Inc.

Form 10-K Index

		Page

Part I

Item 1:	Business	5
Item 1A:	Risk Factors	9
Item 2:	Properties	21
Item 3:	Legal Proceedings	21
Item 4:	Mine Safety Disclosures	22

Part II

Item 5:	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	22
Item 6:	Selected Financial Data	23
Item 7:	Management’s Discussion and Analysis of Financial Condition and Results of Operation	23
Item 7A:	Quantitative and Qualitative Disclosures about Market Risk	33
Item 8:	Financial Statements and Supplementary Data	34
Item 9:	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	35
Item 9A:	Controls and Procedures	35
Item 9B:	Other Information	37

Part III

Item 10:	Directors, Executive Officers and Corporate Governance	37
Item 11:	Executive Compensation	37
Item 12:	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	37
Item 13:	Certain Relationships and Related Transactions, and Director Independence	37
Item 14:	Principal Accounting Fees and Services	37

Part IV

Item 15:	Exhibits and Financial Statement Schedules	38
Signatures		39
Exhibit Index		40

Part I

Forward-Looking Statements

This Annual Report on Form 10-K contains forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. These statements include projections, predictions, expectations or statements as to beliefs or future events or results or refer to other matters that are not historical facts. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from those contemplated by these statements. The forward-looking statements contained in this Annual Report are based on various factors and were derived using numerous assumptions. In some cases, you can identify these forward-looking statements by the words “anticipate”, “estimate”, “plan”, “project”, “continuing”, “ongoing”, “target”, “aim”, “expect”, “believe”, “intend”, “may”, “will”, “should”, “could”, or the negative of those words and other comparable words. You should be aware that those statements reflect only the Company’s predictions. If known or unknown risks or uncertainties should materialize, or if underlying assumptions should prove inaccurate, actual results could differ materially from past results and those anticipated, estimated or projected. You should bear this in mind when reading this Annual Report and not place undue reliance on these forward-looking statements. Factors that might cause such differences include, but are not limited to:

	●	The quality of Company and franchise store operations and changes in sales volume; Our ability to operate our business and generate profits. We have not been profitable to date;

	●	Inherent risks in expansion of operations, including our ability to acquire additional territories, generate profits from new restaurants, find suitable sites and develop and construct locations in a timely and cost-effective way;

	●	Inherent risks associated with acquiring and starting new restaurant concepts and store locations;

	●	General risk factors affecting the restaurant industry, including current economic climate, costs of labor and food prices;

	●	Intensive competition in our industry and competition with national, regional chains and independent restaurant operators;

	●	Our rights to operate and franchise the Hooters-branded restaurants are dependent on the Hooters’ franchise agreements;

	●	Our ability, and our dependence on the ability of our franchisees, to execute on our and their business plans effectively;

	●	Actions of our franchise partners or operating partners which could harm our business;

	●	Failure to protect our intellectual property rights, including the brand image of our restaurants;

	●	Changes in customer preferences and perceptions;

	●	Increases in costs, including food, rent, labor and energy prices;

	●	Our business and the growth of our Company is dependent on the skills and expertise of management and key personnel;

	●	Constraints could affect our ability to maintain competitive cost structure, including, but not limited to labor constraints;

	●	Work stoppages at our restaurants or supplier facilities or other interruptions of production;

	●	Our food service business and the restaurant industry are subject to extensive government regulation;

	●	We may be subject to significant foreign currency exchange controls in certain countries in which we operate;
	●	Inherent risk in foreign operations and currency fluctuations;

	●	Unusual expenses associated with our expansion into international markets;

	●	The risks associated with leasing space subject to long-term non-cancelable leases;

	●	We may not attain our target development goals and aggressive development could cannibalize existing sales;

	●	Current conditions in the global financial markets and the distressed economy;

	●	A decline in market share or failure to achieve growth;

	●	Negative publicity about the ingredients we use, or the potential occurrence of food-borne illnesses or other problems at our restaurants;

	●	Breaches of security of confidential consumer information related to our electronic processing of credit and debit card transactions;

	●	Unusual or significant litigation, governmental investigations or adverse publicity, or otherwise;

	●	Our debt financing agreements expose us to interest rate risks, contain obligations that may limit the flexibility of our operations, and may limit our ability to raise additional capital;

	●	Adverse effects on our results from a decrease in or cessation or clawback of government incentives related to investments; and

	●	Adverse effects on our operations resulting from certain geo-political or other events.

You should also consider carefully the Risk Factors contained in Item 1A of Part I of this Annual Report, which address additional factors that could cause its actual results to differ from those set forth in the forward-looking statements and could materially and adversely affect the Company’s business, operating results and financial condition. The risks discussed in this Annual Report are factors that, individually or in the aggregate, the Company believes could cause its actual results to differ materially from expected and historical results. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider such disclosures to be a complete discussion of all potential risks or uncertainties.

The forward-looking statements are based on information available to the Company as of the date hereof, and, except to the extent required by federal securities laws, the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. In addition, the Company cannot assess the impact of each factor on its business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

Item 1: Business

Chanticleer Holdings, Inc. (“Chanticleer” or the “Company”) is in the business of owning, operating and franchising fast casual dining concepts domestically and internationally. The Company was organized October 21, 1999, under its original name, Tulvine Systems, Inc., under the laws of the State of Delaware. On April 25, 2005, Tulvine Systems, Inc. formed a wholly owned subsidiary, Chanticleer Holdings, Inc., and on May 2, 2005, Tulvine Systems, Inc. merged with, and changed its name to, Chanticleer Holdings, Inc.

The consolidated financial statements include the accounts of Chanticleer Holdings, Inc. and its subsidiaries presented below (collectively referred to as the “Company”):

Name	Jurisdiction of Incorporation	Percent Owned			Name	Jurisdiction of Incorporation	Percent Owned
CHANTICLEER HOLDINGS, INC.	DE, USA		100	%
Burger Business					Just Fresh
American Roadside Burgers, Inc.	DE, USA		100	%	JF Franchising Systems, LLC	NC, USA		56	%
ARB Stores					JF Restaurants, LLC	NC, USA		56	%
American Burger Ally, LLC	NC, USA		100	%
American Burger Morehead, LLC	NC, USA		100	%	West Coast Hooters
American Roadside McBee, LLC	NC, USA		100	%	Jantzen Beach Wings, LLC	OR, USA		100	%
American Roadside Southpark LLC	NC, USA		100	%	Oregon Owl’s Nest, LLC	OR, USA		100	%
American Roadside Burgers Smithtown, Inc.	DE, USA		100	%	Tacoma Wings, LLC	WA, USA		100	%
American Burger Prosperity, LLC	NC, USA		100	%
BGR Acquisition, LLC	NC, USA		100	%	South African Entities
BGR Franchising, LLC	VA, USA		100	%	Chanticleer South Africa (Pty) Ltd.	South Africa		100	%
BGR Operations, LLC	VA, USA		100	%	Hooters Emperors Palace (Pty.) Ltd.	South Africa		88	%
BGR Arlington, LLC	VA, USA		100	%	Hooters On The Buzz (Pty) Ltd	South Africa		95	%
BGR Cascades, LLC	VA, USA		100	%	Hooters PE (Pty) Ltd	South Africa		100	%
BGR Dupont, LLC	DC, USA		100	%	Hooters Ruimsig (Pty) Ltd.	South Africa		100	%
BGR Old Keene Mill, LLC	VA, USA		100	%	Hooters SA (Pty) Ltd	South Africa		78	%
BGR Old Town, LLC	VA, USA		100	%	Hooters Umhlanga (Pty.) Ltd.	South Africa		90	%
BGR Potomac, LLC	MD, USA		100	%	Hooters Willows Crossing (Pty) Ltd	South Africa		100	%
BGR Springfield Mall, LLC	VA, USA		100	%
BGR Tysons, LLC	VA, USA		100	%	European Hooters
BGR Washingtonian, LLC	MD, USA		100	%	Chanticleer Holdings Limited	Jersey		100	%
Capitol Burger, LLC	MD, USA		100	%
BGR Mosaic, LLC	VA, USA		100	%	West End Wings LTD	United Kingdom		100	%
BGR Michigan Ave, LLC	DC, USA		100	%
BGR Chevy Chase, LLC	MD, USA		100	%
BGR Acquisition 1, LLC	NC, USA		100	%	Inactive Entities
BT Burger Acquisition, LLC	NC, USA		100	%	Hoot Surfers Paradise Pty. Ltd.	Australia		60	%
BT's Burgerjoint Biltmore, LLC	NC, USA		100	%	Hooters Brazil	Brazil		100	%
BT's Burgerjoint Promenade, LLC	NC, USA		100	%	DineOut SA Ltd.	England		89	%
BT's Burgerjoint Rivergate LLC	NC, USA		100	%	Avenel Financial Services, LLC	NV, USA		100	%
BT's Burgerjoint Sun Valley, LLC	NC, USA		100	%	Avenel Ventures, LLC	NV, USA		100	%
LBB Acquisition, LLC	NC, USA		100	%	Chanticleer Advisors, LLC	NV, USA		100	%
Cuarto LLC	OR, USA		100	%	Chanticleer Investment Partners, LLC	NC, USA		100	%
LBB Acquisition 1 LLC	OR, USA		100	%	Dallas Spoon Beverage, LLC	TX, USA		100	%
LBB Green Lake LLC	OR, USA		50	%	Dallas Spoon, LLC	TX, USA		100	%
LBB Hassalo LLC	OR, USA		80	%	American Roadside Cross Hill, LLC	NC, USA		100	%
LBB Platform LLC	OR, USA		80	%	Chanticleer Finance UK (No. 1) Plc	United Kingdom		100	%
LBB Progress Ridge LLC	OR, USA		50	%
Noveno LLC	OR, USA		100	%
Octavo LLC	OR, USA		100	%
Primero LLC	OR, USA		100	%
Quinto LLC	OR, USA		100	%
Segundo LLC	OR, USA		100	%
Septimo LLC	OR, USA		100	%
Sexto LLC	OR, USA		100	%

Restaurant Brands

Better Burgers Fast Casual

We operate and franchise a system-wide total of 39 fast casual restaurants specializing the “Better Burger” category of which 27 are company-owned and 12 are owned and operated by franchisees under franchise agreements.

American Burger Company (“ABC”) is a fast-casual dining chain consisting of 9 locations in North Carolina, South Carolina and New York, known for its diverse menu featuring fresh salads, customized burgers, milk shakes, sandwiches, and beer and wine.

BGR: The Burger Joint (“BGR”) was acquired in March 2015 and consists of 10 company-owned locations in the United States and 12 franchisee-operated locations in the United States and the Middle East.

Little Big Burger (“LBB”) was acquired in September 2015 and consists of 8 company-owned locations in the Portland, Oregon area.

We plan to accelerate expansion of our better burger business through a combination of company-owned stores, franchising and partnerships primarily in the United States. Within the Burger group, we plan to focus the majority of our resources on growing Little Big Burger, where we are realizing industry-leading margins and returns on capital from our current store locations. We are also considering opportunities to expand the better burger business internationally, primarily focusing on those regions where we operate Hooters restaurants to leverage our local infrastructure and management teams across multiple brands. For our BGR and American Burger Company brands, we intend to open new stores in 2017, albeit at a slower pace than for our Little Big Burger Brand.

Just Fresh Fast Casual

We operate Just Fresh, our healthier eating fast casual concept with 7 company owned locations in Charlotte, North Carolina. Just Fresh offers fresh-squeezed juices, gourmet coffee, fresh-baked goods and premium-quality, made-to-order sandwiches, salads and soups. We currently hold a 56% controlling interest in Just Fresh.

Our plans for Just Fresh include maximizing cash flow from our current locations while we evaluate the optimal growth strategy for the brand. As we have allocated the majority of our current internal and financial resources on growing Little Big Burger, we do not anticipate opening new Just Fresh locations in the near term. However, we believe the Just Fresh tradename and operating model provides significant untapped potential for future growth as a company or franchise model and intend to formalize the longer-term growth strategy for this brand over the coming year.

Hooters Full Service

Hooters restaurants are casual beach-themed establishments featuring music, sports on large flat screens, and a menu that includes seafood, sandwiches, burgers, salads, and of course, Hooters original chicken wings and the “nearly world famous” Hooters Girls.

We own and operate 9 Hooters full service restaurants in the United States, South Africa, and the United Kingdom. Chanticleer started initially as an investor in Hooters of America and, subsequently evolved into a franchisee operator. We continue to hold a minority investment stake in Hooters of America and operate Hooters restaurants in our regions. However, we do not currently intend to invest in growing the Hooters segment and instead plan to utilize the cash flows from this segment to support growth in our other fast casual brands.

Restaurant Geographic Locations

United States

We currently operate ABC, BGR and LBB restaurants in the United States as our Better Burger Group. ABC is located in North Carolina, South Carolina and New York. BGR operates company restaurants in the mid-Atlantic region of the United States, as well as franchise locations in the US and internationally. LBB operates in the Portland and Eugene, Oregon areas.

We operate Just Fresh restaurants in the Charlotte, North Carolina area.

We operate Hooters restaurants in Tacoma, Washington and Portland, Oregon (“Hooters Pacific NW”). We also operate gaming machines in Portland, Oregon under license from the Oregon Lottery Commission.

South Africa

We currently own and operate 6 Hooters locations in South Africa: Durban, Pretoria, Port Elizabeth and Johannesburg (3 locations).

Europe

We currently own 100% of West End Wings, Ltd, the entity that holds the franchise rights and operates the Hooters restaurant in Nottingham, England (“Hooters Nottingham”).

Competition

The restaurant industry is extremely competitive. We compete with other restaurants on the taste, quality and price of our food offerings. Additionally, we compete with other restaurants on service, ambience, location and overall customer experience. We believe that we compete primarily with local and regional sports bars and national casual dining and quick casual establishments, and to a lesser extent with quick service restaurants in general. Many of our competitors are well-established national, regional or local chains and many have greater financial and marketing resources than we do. We also compete with other restaurant and retail establishments for site locations and restaurant employees.

Proprietary Rights

We have trademarks and trade names associated with Just Fresh, American Burger, BGR and Little Big Burger. We believe that the trademarks, service marks and other proprietary rights that we use in our restaurants have significant value and are important to our brand-building efforts and the marketing of our restaurant concepts. Although we believe that we have sufficient rights to all of our trademarks and service marks, we may face claims of infringement that could interfere with our ability to market our restaurants and promote our brand. Any such litigation may be costly and divert resources from our business. Moreover, if we are unable to successfully defend against such claims, we may be prevented from using our trademarks or service marks in the future and may be liable for damages.

We also use the “Hooters” mark and certain other service marks and trademarks used in our Hooters restaurants pursuant to our franchise agreements with Hooters of America.

Government Regulation

Environmental regulation.

We are subject to a variety of federal, state and local environmental laws and regulations. Such laws and regulations have not had a significant impact on our capital expenditures, earnings or competitive position.

Local regulation.

Our locations are subject to licensing and regulation by a number of government authorities, which may include health, sanitation, safety, fire, building and other agencies in the countries, states or municipalities in which the restaurants are located. Opening sites in new areas could be delayed by license and approval processes or by more requirements of local government bodies with respect to zoning, land use and environmental factors. Our agreements with our franchisees require them to comply with all applicable federal, state and local laws and regulations.

Each restaurant requires appropriate licenses from regulatory authorities allowing it to sell liquor, beer and wine, and each restaurant requires food service licenses from local health authorities. Our licenses to sell alcoholic beverages may be suspended or revoked at any time for cause, including violation by us or our employees of any law or regulation pertaining to alcoholic beverage control. We are subject to various regulations by foreign governments related to the sale of food and alcoholic beverages and to health, sanitation and fire and safety standards. Compliance with these laws and regulations may lead to increased costs and operational complexity and may increase our exposure to governmental investigations or litigation.

Franchise regulation.

We must comply with regulations adopted by the Federal Trade Commission (the “FTC”) and with several state and foreign laws that regulate the offer and sale of franchises. The FTC’s Trade Regulation Rule on Franchising (“FTC Rule”) and certain state and foreign laws require that we furnish prospective franchisees with a franchise disclosure document containing information prescribed by the FTC Rule and applicable state and foreign laws and regulations. We register the disclosure document in domestic and foreign jurisdictions that require registration for the sale of franchises. Our domestic franchise disclosure document complies with FTC Rule and various state disclosure requirements, and our international disclosure documents comply with applicable requirements.

We also must comply with a number of state and foreign laws that regulate some substantive aspects of the franchisor-franchisee relationship. These laws may limit a franchisor’s ability to: terminate or not renew a franchise without good cause; interfere with the right of free association among franchisees; disapprove the transfer of a franchise; discriminate among franchisees with regard to charges, royalties and other fees; and place new stores near existing franchises. Bills intended to regulate certain aspects of franchise relationships have been introduced into the United States Congress on several occasions during the last decade, but none have been enacted.

Employment regulations.

We are subject to state and federal labor laws that govern our relationship with our employees, such as minimum wage requirements, overtime and working conditions and citizenship requirements. Many of our employees are paid at rates which are influenced by changes in the federal and state wage regulations. Accordingly, changes in the wage regulations could increase our labor costs. The work conditions at our facilities are regulated by the Occupational Safety and Health Administration and are subject to periodic inspections by this agency. In addition, the enactment of recent legislation and resulting new government regulation relating to healthcare benefits may result in additional cost increases and other effects in the future.

Gaming regulations.

We are also subject to regulations in Oregon where we operate gaming machines. Gaming operations are generally highly regulated and conducted under the permission and oversight of the state or local gaming commission, lottery or other government agencies.

Other regulations.

We are subject to a variety of consumer protection and similar laws and regulations at the federal, state and local level. Failure to comply with these laws and regulations could subject us to financial and other penalties.

Seasonality

The sales of our restaurants may peak at various times throughout the year due to certain promotional events, weather and holiday related events. For example, our restaurants in South Africa generally peak in our winter months during their summer holidays. In contrast, our domestic fast casual restaurants tend to peak in the Spring, Summer and Fall months when the weather is milder. Quarterly results also may be affected by the timing of the opening of new stores and the closing of existing stores. For these reasons, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.

Corporate Information

Our principal executive offices are located at 7621 Little Avenue, Suite 414, Charlotte, NC 28226. Our web site iswww.chanticleerholdings.com.

Employees

At December 31, 2016, our locations had approximately 957 employees, including 306 in South Africa, 48 in the United Kingdom, and 603 in the United States. Approximately 70 of our South African employees are represented by a labor union. We have experienced no work stoppage and believe that our employee relationships are good.

Available information

We make available free of charge through our website,www.chanticleerholdings.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and amendments to those reports and statements filed pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after we file such material with, or furnish it to, the SEC. The public may read and copy any materials we file with or furnish to the Securities and Exchange Commission (“SEC”) at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549, on official business days during the hours of 10:00 am to 3:00 pm. The public may also obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Furthermore, the SEC maintains a free website (www.sec.gov) which includes reports, proxy and information statements, and other information regarding us and other issuers that file electronically with the SEC. Our website and the information contained therein or connected thereto are not intended to be incorporated into this Annual Report on Form 10-K. Additionally, we make available free of charge on our internet website: our Code of Ethics; the charter of our Nominating Committee; the charter of our Compensation Committee; and the charter of our Audit Committee.

Item 1A: Risk Factors

Investing in our common stock involves risks. Prospective investors in our common stock should carefully consider, among other things, the following risk factors in connection with the other information and financial statements contained in this Report. We have identified the following factors that could cause actual results to differ materially from those projected in any forward looking statements we may make from time to time.

We operate in a continually changing business environment in which new risk factors emerge from time to time. We can neither predict these new risk factors, nor can we assess the impact, if any, of these new risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those projected in any forward looking statement. If any of these risks, or combination of risks, actually occurs, our business, financial condition and results of operations could be seriously and materially harmed, and the trading price of our common stock could decline. All forward-looking statements in this document are based on information available to us as of the date hereof, and we assume no obligations to update any such forward-looking statements.

Risks Related to Our Company and Industry

We have not been profitable to date and operating losses could continue.

We have incurred operating losses and generated negative cash flows since our inception and have financed our operations principally through equity investments and borrowings. Future profitability is difficult to predict with certainty. Failure to achieve profitability could materially and adversely affect the value of our Company and our ability to effect additional financings. The success of the business depends on our ability to increase revenues to offset expenses. If our revenues fall short of projections or we are unable to reduce operating expenses, our business, financial condition and operating results will be materially adversely affected.

Our financial statements have been prepared assuming a going concern.

Our financial statements as of December 31, 2016, were prepared under the assumption that we will continue as a going concern for the next twelve months from the date of issuance of these financial statements. Our independent registered public accounting firm has issued a report that includes an explanatory paragraph referring to our losses from operations and expressing substantial doubt in our ability to continue as a going concern without additional capital becoming available. Our ability to continue as a going concern is dependent upon our ability to obtain additional financing, re-negotiate or extend existing indebtedness, obtain further operating efficiencies, reduce expenditures and ultimately, create profitable operations. We may not be able to refinance or extend our debt or obtain additional capital on reasonable terms. Our financial statements do not include adjustments that would result from the outcome of this uncertainty.

The prior year acquisitions, as well as future acquisitions, may have unanticipated consequences that could harm our business and our financial condition.

Any acquisition that we pursue, whether or not successfully completed, involves risks, including:

	●	material adverse effects on our operating results, particularly in the fiscal quarters immediately following the acquisition as the acquired restaurants and bar concepts are integrated into our operations;

	●	risks associated with entering into markets or conducting operations where we have no or limited prior experience;

	●	problems retaining key personnel;

	●	potential impairment of tangible and intangible assets and goodwill acquired in the acquisition;

	●	potential unknown liabilities;

	●	difficulties of integration and failure to realize anticipated synergies; and

	●	disruption of our ongoing business, including diversion of management’s attention from other business concerns.

Future acquisitions of restaurants or other businesses, which may be accomplished through a cash purchase transaction, the issuance of our equity securities or a combination of both, could result in potentially dilutive issuances of our equity securities, the incurrence of debt and contingent liabilities and impairment charges related to goodwill and other intangible assets, any of which could harm our business and financial condition.

There are risks inherent in expansion of operations, including our ability to generate profits from new restaurants, find suitable sites and develop and construct locations in a timely and cost-effective way.

We cannot project with certainty the number the number of new restaurants we and our franchisees will open. In addition, our franchise agreements with Hooters of America (“HOA”) provide that we must exercise our option to open additional restaurants within each of our territories by a certain date set forth in the development schedule and that each such restaurant must be open by such date. If we fail to timely exercise any option or if we fail to open any additional restaurant by the required restaurant opening date, all of our rights to develop the rest of the option territory will expire automatically and without further notice.

Our failure to effectively develop locations in new territories would adversely affect our ability to execute our business plan by, among other things, reducing our revenues and profits and preventing us from realizing our strategy. Furthermore, we cannot assure you that our new restaurants will generate revenues or profit margins consistent with those currently operated by us.

The number of openings and the performance of new locations will depend on various factors, including:

	●	the availability of suitable sites for new locations;

	●	our ability to negotiate acceptable lease or purchase terms for new locations, obtain adequate financing, on favorable terms, required to construct, build-out and operate new locations and meet construction schedules, and hire and train and retain qualified restaurant managers and personnel;

	●	managing construction and development costs of new restaurants at affordable levels;

	●	the establishment of brand awareness in new markets; and

	●	the ability of our Company to manage expansion.

Additionally, competition for suitable restaurant sites in target markets is intense. Restaurants we open in new markets may take longer to reach expected sales and profit levels on a consistent basis and may have higher construction, occupancy or operating costs than restaurants we open in existing markets, thereby affecting our overall profitability.

New markets may have competitive conditions, consumer tastes and discretionary spending patterns that are more difficult to predict or satisfy than our existing markets. We may need to make greater investments than we originally planned in advertising and promotional activity in new markets to build brand awareness. We may find it more difficult in new markets to hire, motivate and keep qualified employees who share our vision, passion and culture. We may also incur higher costs from entering new markets if, for example, we assign regional managers to manage comparatively fewer restaurants than in more developed markets.

We may not be able to successfully develop critical market presence for our brand in new geographical markets, as we may be unable to find and secure attractive locations, build name recognition or attract new customers. Inability to fully implement or failure to successfully execute our plans to enter new markets could have a material adverse effect on our business, financial condition and results of operations.

Not all of these factors are within our control or the control of our partners, and there can be no assurance that we will be able to accelerate our growth or that we will be able to manage the anticipated expansion of our operations effectively.

We have debt financing arrangements, some of which are in default, which could have a material adverse effect on our financial health and our ability to obtain financing in the future, and may impair our ability to react quickly to changes in our business.

Our exposure to debt financing could limit our ability to satisfy our obligations, limit our ability to operate our business and impair our competitive position. For example, it could:

	●	increase our vulnerability to adverse economic and industry conditions, including interest rate fluctuations, because a portion of our borrowings are at variable rates of interest;

	●	require us to dedicate future cash flows to the repayment of debt, reducing the availability of cash to fund working capital, capital expenditures or other general corporate purposes;

	●	limit our flexibility in planning for, or reacting to, changes in our business and industry; and

	●	limit our ability to obtain additional debt or equity financing due to applicable financial and restrictive covenants contained in our debt agreements.

We may also incur additional indebtedness in the future, which could materially increase the impact of these risks on our financial condition and results of operations.

We may not be able to refinance our current debt obligations which are currently due and in default. Failure to successfully recapitalize the business could have a material adverse effect on our business, financial condition and results of operations.

Litigation and unfavorable publicity could negatively affect our results of operations as well as our future business.

We are subject to potential for litigation and other customer complaints concerning our food safety, service and/or other operational factors. Guests may file formal litigation complaints that we are required to defend, whether or not we believe them to be true. Substantial, complex or extended litigation could have an adverse effect on our results of operations if we incur substantial defense costs and our management is distracted. Employees may also, from time to time, bring lawsuits against us regarding injury, discrimination, wage and hour, and other employment issues. Additionally, potential disputes could subject us to litigation alleging non-compliance with franchise, development, support service, or other agreements. Additionally, we are subject to the risk of litigation by our stockholders as a result of factors including, but not limited to, performance of our stock price.

In certain states we are subject to “dram shop” statutes, which generally allow a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person. Some dram shop litigation against restaurant companies has resulted in significant judgments, including punitive damages. We carry liquor liability coverage as part of our existing comprehensive general liability insurance, but we cannot provide assurance that this insurance will be adequate in the event we are found liable in a dram shop case.

In recent years there has been an increase in the use of social media platforms and similar devices that allow individuals’ access to a broad audience of consumers and other interested persons. The availability of information on social media platforms is virtually immediate in its impact. A variety of risks are associated with the use of social media, including the improper disclosure of proprietary information, negative comments about our Company, exposure of personally identifiable information, fraud or outdated information. The inappropriate use of social media platforms by our guests, employees or other individuals could increase our costs, lead to litigation, or result in negative publicity that could damage our reputation. If we are unable to quickly and effectively respond, we may suffer declines in guest traffic, which could materially affect our financial condition and results of operations.

Food safety and foodborne illness concerns could have an adverse effect on our business.

We cannot guarantee that our internal controls and training will be fully effective in preventing all food safety issues at our restaurants, including any occurrences of foodborne illnesses such as salmonella, E. coli and hepatitis A. In addition, there is no guarantee that our franchise restaurants will maintain the high levels of internal controls and training we require at our company-operated restaurants.

Furthermore, we and our franchisees rely on third-party vendors, making it difficult to monitor food safety compliance and increasing the risk that foodborne illness would affect multiple locations rather than a single restaurant. Some foodborne illness incidents could be caused by third-party vendors and transporters outside of our control. New illnesses resistant to our current precautions may develop in the future, or diseases with long incubation periods could arise, that could give rise to claims or allegations on a retroactive basis. One or more instances of foodborne illness in any of our restaurants or markets or related to food products we sell could negatively affect our restaurant revenue nationwide if highly publicized on national media outlets or through social media.

This risk exists even if it were later determined that the illness was wrongly attributed to us or one of our restaurants. A number of other restaurant chains have experienced incidents related to foodborne illnesses that have had a material adverse effect on their operations. The occurrence of a similar incident at one or more of our restaurants, or negative publicity or public speculation about an incident, could have a material adverse effect on our business, financial condition and results of operations.

We operate in the highly competitive restaurant industry. If we are not able to compete effectively, it will have a material adverse effect on our business, financial condition and results of operations.

We face significant competition from restaurants in the fast casual dining and traditional fast food segments of the restaurant industry. These segments are highly competitive with respect to, among other things, taste, price, food quality and presentation, service, location and the ambience and condition of each restaurant. Our competition includes a variety of locally owned restaurants and national and regional chains offering dine-in, carry-out, delivery and catering services. Many of our competitors have existed longer and have a more established market presence with substantially greater financial, marketing, personnel and other resources than we do. Among our competitors are a number of multi-unit, multi-market, fast casual restaurant concepts, some of which are expanding nationally. As we expand, we will face competition from these restaurant concepts as well as new competitors that strive to compete with our market segments. These competitors may have, among other things, lower operating costs, better locations, better facilities, better management, more effective marketing and more efficient operations. Additionally, we face the risk that new or existing competitors will copy our business model, menu options, presentation or ambience, among other things.

Any inability to successfully compete with the restaurants in our markets and other restaurant segments will place downward pressure on our customer traffic and may prevent us from increasing or sustaining our revenue and profitability. Consumer tastes, nutritional and dietary trends, traffic patterns and the type, number and location of competing restaurants often affect the restaurant business, and our competitors may react more efficiently and effectively to those conditions. Several of our competitors compete by offering menu items that are specifically identified as low in carbohydrates, gluten-free or healthier for consumers. In addition, many of our traditional fast food restaurant competitors offer lower-priced menu options or meal packages, or have loyalty programs. Our sales could decline due to changes in popular tastes, “fad” food regimens, such as low carbohydrate diets, and media attention on new restaurants. If we are unable to continue to compete effectively, our traffic, sales and restaurant contribution could decline which would have a material adverse effect on our business, financial condition and results of operations.

Our rights to operate and franchise Hooters-branded restaurants are dependent on the Hooters’ franchise agreements.

Our rights to operate and franchise Hooters-branded restaurants, and our ability to conduct our business are derived principally from the rights granted or to be granted to us by Hooters in our franchise agreements. As a result, our ability to continue operating in our current capacity is dependent on the continuation and renewal of our contractual relationship with Hooters.

In the event Hooters does not grant us franchises to acquire additional locations or terminates our existing franchise agreements, we would be unable to operate and/or expand our Hooters-branded restaurants, identify our business with Hooters or use any of Hooters’ intellectual property. As the Hooters brand and our relationship with Hooters are among our competitive strengths, the failure to grant or the expiration or termination of the franchise agreements would materially and adversely affect our business, results of operations, financial condition and prospects.

Our business depends on our relationship with Hooters and changes in this relationship may adversely affect our business, results of operations and financial condition.

Pursuant to the franchise agreements, Hooters has the ability to exercise substantial influence over the conduct of our business. We must comply with Hooters’ high quality standards. We cannot transfer the equity interests of our subsidiaries without Hooters’ consent, and Hooters has the right to control many of the locations’ daily operations.

Notwithstanding the foregoing, Hooters has no obligation to fund our operations. In addition, Hooters does not guarantee any of our financial obligations, including trade payables or outstanding indebtedness, and has no obligation to do so. If the terms of the franchise agreements excessively restrict our ability to operate our business or if we are unable to satisfy our obligations under the franchise agreements, our business, results of operations and financial condition would be materially and adversely affected.

We do not have full operational control over the businesses where we control less than 100% ownership.

We are and will be dependent on our partners to maintain quality, service and cleanliness standards, and their failure to do so could materially affect our brands and harm our future growth. We do not presently have formal written agreements in place with any of our partners regarding these types of matters. Although we intend to exercise significant control over partners through written agreements in the future, our partners will continue to have some flexibility in the operations, including the ability to set prices for our products in their restaurants, hire employees and select certain service providers. In addition, it is possible that some partners may not operate their restaurants in accordance with our quality, service and cleanliness, health or product standards. Although we intend to take corrective measures if partners fail to maintain high quality service and cleanliness standards, we may not be able to identify and rectify problems with sufficient speed and, as a result, our image and operating results may be negatively affected.

A failure by Hooters to protect its intellectual property rights, including its brand image, could harm our results of operations.

The profitability of our Hooters business depends in part on consumers’ perception of the strength of the Hooters brand. Under the terms of our franchise agreements, we are required to assist Hooters with protecting its intellectual property rights in our jurisdictions. Nevertheless, any failure by Hooters to protect its proprietary rights in the world could harm its brand image, which could affect our competitive position and our results of operations.

Our business could be adversely affected by declines in discretionary spending and may be affected by changes in consumer preferences.

Our success depends, in part, upon the popularity of our food products. Shifts in consumer preferences away from our restaurants or cuisine could harm our business. Also, our success depends to a significant extent on discretionary consumer spending, which is influenced by general economic conditions and the availability of discretionary income. Accordingly, we may experience declines in sales during economic downturns or during periods of uncertainty. A continuing decline in the amount of discretionary spending could have a material adverse effect on our sales, results of operations, and business and financial condition.

Increases in costs, including food, labor and energy prices, will adversely affect our results of operations.

Our profitability is dependent on our ability to anticipate and react to changes in our operating costs, including food, labor, occupancy (including utilities and energy), insurance and supplies costs. Various factors beyond our control, including climatic changes and government regulations, may affect food costs. Specifically, our dependence on frequent, timely deliveries of fresh meat and produce subject us to the risks of possible shortages or interruptions in supply caused by adverse weather or other conditions which could adversely affect the availability and cost of any such items. In the past, we have been able to recover some of our higher operating costs through increased menu prices. There have been, and there may be in the future, delays in implementing such menu price increases, and competitive pressures may limit our ability to recover such cost increases in their entirety.

Our ability to maintain consistent price and quality throughout our restaurants depends in part upon our ability to acquire specified food products and supplies in sufficient quantities from third-party vendors, suppliers and distributors at a reasonable cost. We do not control the businesses of our vendors, suppliers and distributors, and our efforts to specify and monitor the standards under which they perform may not be successful. If any of our vendors or other suppliers are unable to fulfill their obligations to our standards, or if we are unable to find replacement providers in the event of a supply or service disruption, we could encounter supply shortages and incur higher costs to secure adequate supplies, which would have a material adverse effect on our business, financial condition and results of operations.

Furthermore, if our current vendors or other suppliers are unable to support our expansion into new markets, or if we are unable to find vendors to meet our supply specifications or service needs as we expand, we could likewise encounter supply shortages and incur higher costs to secure adequate supplies, which could have a material adverse effect on our business, financial condition and results of operations.

Changes in employment laws and minimum wage standards may adversely affect our business.

Labor is a primary component in the cost of operating our restaurants. If we face labor shortages or increased labor costs because of increased competition for employees, higher employee turnover rates, increases in the federal, state or local minimum wage or other employee benefits costs (including costs associated with health insurance coverage), our operating expenses could increase and our growth could be negatively impacted.

In addition, our success depends in part upon our ability to attract, motivate and retain a sufficient number of well-qualified restaurant operators and management personnel, as well as a sufficient number of other qualified employees, including customer service and kitchen staff, to keep pace with our expansion schedule. In addition, restaurants have traditionally experienced relatively high employee turnover rates. Although we have not yet experienced significant problems in recruiting or retaining employees, our ability to recruit and retain such individuals may delay the planned openings of new restaurants or result in higher employee turnover in existing restaurants, which could have a material adverse effect on our business, financial condition and results of operations.

Various federal and state labor laws govern the relationship with our employees and impact operating costs. These laws include employee classification as exempt or non-exempt for overtime and other purposes, minimum wage requirements, unemployment tax rates, workers’ compensation rates, immigration status and other wage and benefit requirements. Significant additional government-imposed increases in the following areas could have a material adverse effect on our business, financial condition and results of operations:

	●	minimum wages;

	●	mandatory health benefits;

	●	vacation accruals;

	●	paid leaves of absence, including paid sick leave; and

	●	tax reporting.

We could also become subject to fines, penalties and other costs related to claims that we did not fully comply with all recordkeeping obligations of federal and state immigration compliance laws. These factors could have a material adverse effect on our business, financial condition and results of operations.

We are subject to all of the risks associated with leasing space subject to long-term non-cancelable leases.

We lease substantially all of the real property and we expect the new restaurants we open in the future will also be leased. We are obligated under non-cancelable leases for our restaurants and our corporate headquarters. Our restaurant leases generally require us to pay a proportionate share of real estate taxes, insurance, common area maintenance charges and other operating costs. Some restaurant leases provide for contingent rental payments based on sales thresholds, although we generally do not expect to pay significant contingent rent on these properties based on the thresholds in those leases. Additional sites that we lease are likely to be subject to similar long-term non-cancelable leases.

If an existing or future restaurant is not profitable, and we decide to close it, we may nonetheless be committed to perform our obligations under the applicable lease including, among other things, paying the base rent for the balance of the lease term. In addition, as each of our leases expires, we may fail to negotiate renewals, either on commercially acceptable terms or at all, which could cause us to pay increased occupancy costs or to close restaurants in desirable locations. These potential increased occupancy costs and closed restaurants could have a material adverse effect on our business, financial condition and results of operations.

Our business and the growth of our Company are dependent on the skills and expertise of management and key personnel.

During the upcoming stages of our Company’s anticipated growth, we will be entirely dependent upon the management skills and expertise of our management and key personnel, including Michael Pruitt, our current Chairman and Chief Executive Officer. Mr. Pruitt also sits on HOA’s board of directors. The loss of services of Mr. Pruitt or other executive officers would dramatically affect our business prospects. Certain of our employees are particularly valuable to us because:

	●	they have specialized knowledge about our company and operations;

	●	they have specialized skills that are important to our operations; or

	●	they would be particularly difficult to replace.

In the event that the services of Mr. Pruitt or any key management personnel ceased to be available to us, our growth prospects or future operating results may be adversely impacted.

Our food service business, gaming revenues and the restaurant industry are subject to extensive government regulation.

We are subject to extensive and varied country, federal, state and local government regulation, including regulations relating to public health, gambling, safety and zoning codes. We operate each of our locations in accordance with standards and procedures designed to comply with applicable codes and regulations. However, if we could not obtain or retain food or other licenses, it would adversely affect our operations. Although we have not experienced, and do not anticipate experiencing any significant difficulties, delays or failures in obtaining required licenses, permits or approvals, any such problem could delay or prevent the opening of, or adversely impact the viability of, a particular location or group of restaurants.

We may be subject to significant foreign currency exchange controls in certain countries in which we operate.

Certain foreign economies have experienced shortages in foreign currency reserves and their respective governments have adopted restrictions on the ability to transfer funds out of the country and convert local currencies into U.S. dollars. This may increase our costs and limit our ability to convert local currency into U.S. dollars and transfer funds out of certain countries. Any shortages or restrictions may impede our ability to convert these currencies into U.S. dollars and to transfer funds, including for the payment of dividends or interest or principal on our outstanding debt. In the event that any of our subsidiaries are unable to transfer funds to us due to currency restrictions, we are responsible for any resulting shortfall.

Our foreign operations subject us to risks that could negatively affect our business.

Most of our Hooters restaurants and some of our franchisee-owned restaurants operate in foreign countries and territories outside of the U.S. As a result, our business is exposed to risks inherent in foreign operations. These risks, which can vary substantially by market, include political instability, corruption, social and ethnic unrest, changes in economic conditions (including wage and commodity inflation, consumer spending and unemployment levels), the regulatory environment, tax rates and laws and consumer preferences as well as changes in the laws and policies that govern foreign investment in countries where our restaurants are operated.

In addition, our results of operations and the value of our foreign assets are affected by fluctuations in foreign currency exchange rates, which may adversely affect reported earnings. More specifically, an increase in the value of the United States Dollar relative to other currencies, such as the British Pound and the South African Rand could have an adverse effect on our reported earnings. There can be no assurance as to the future effect of any such changes on our results of operations, financial condition or cash flows.

We may not attain our target development goals and aggressive development could cannibalize existing sales.

Our growth strategy depends in large part on our ability to increase our net restaurant count. The successful development of new units will depend in large part on our ability and the ability of our franchisees to open new restaurants and to operate these restaurants on a profitable basis. We cannot guarantee that we, or our franchisees, will be able to achieve our expansion goals or that new restaurants will be operated profitably. Further, there is no assurance that any new restaurant will produce operating results similar to those of our existing restaurants. Other risks that could impact our ability to increase our net restaurant count include prevailing economic conditions and our, or our franchisees’/partners’, ability to obtain suitable restaurant locations, obtain required permits and approvals in a timely manner and hire and train qualified personnel.

Our franchisee operators also frequently depend upon financing from banks and other financial institutions in order to construct and open new restaurants. If it becomes more difficult or expensive for our franchisees/partners to obtain financing to develop new restaurants, our planned growth could slow and our future revenue and cash flows could be adversely impacted.

In addition, the new restaurants could impact the sales of our existing restaurants nearby. It is not our intention to open new restaurants that materially cannibalize the sales of our existing restaurants. However, as with most growing retail and restaurant operations, there can be no assurance that sales cannibalization will not occur or become more significant in the future as we increase our presence in existing markets over time.

Changing conditions in the global economy and financial markets may materially adversely affect our business, results of operations and ability to raise capital.

Our business and results of operations may be materially affected by conditions in the financial markets and the economy generally. The demand for our products could be adversely affected in an economic downturn and our revenues may decline under such circumstances. In addition, we may find it difficult, or we may not be able, to access the credit or equity markets, or we may experience higher funding costs in the event of adverse market conditions. Future instability in these markets could limit our ability to access the capital we require to fund and grow our business.

Changes to accounting rules or regulations may adversely affect the reporting of our results of operations.

Changes to existing accounting rules or regulations may impact the reporting of our future results of operations or cause the perception that we are more highly leveraged. Other new accounting rules or regulations and varying interpretations of existing accounting rules or regulations have occurred and may occur in the future. For instance, accounting regulatory authorities have indicated that they will require lessees to capitalize operating leases in their financial statements. Such a change would require us to record significant lease obligations on our balance sheet and make other changes to our financial statements. This and other future changes to accounting rules or regulations could have a material adverse effect on the reporting of our business, financial condition and results of operations. In addition, many existing accounting standards require management to make subjective assumptions, such as those required for stock compensation, tax matters, franchise accounting, acquisitions, litigation, and asset impairment calculations. Changes in accounting standards or changes in underlying assumptions, estimates and judgments by our management could significantly change our reported or expected financial performance.

We may not be able to adequately protect our intellectual property, which could harm the value of our brand and have a material adverse effect on our business, financial condition and results of operations.

Our intellectual property is material to the conduct of our business. Our ability to implement our business plan successfully depends in part on our ability to further build brand recognition using our trademarks, service marks, trade dress and other proprietary intellectual property, including our name and logos and the unique ambience of our restaurants. While it is our policy to protect and defend vigorously our rights to our intellectual property, we cannot predict whether steps taken by us to protect our intellectual property rights will be adequate to prevent misappropriation of these rights or the use by others of restaurant features based upon, or otherwise similar to, our restaurant concept. It may be difficult for us to prevent others from copying elements of our concept and any litigation to enforce our rights will likely be costly and may not be successful. Although we believe that we have sufficient rights to all of our trademarks and service marks, we may face claims of infringement that could interfere with our ability to market our restaurants and promote our brand. Any such litigation may be costly and could divert resources from our business. Moreover, if we are unable to successfully defend against such claims, we may be prevented from using our trademarks or service marks in the future and may be liable for damages, which in turn could have a material adverse effect on our business, financial condition and results of operations.

In addition, we license certain of our proprietary intellectual property, including our name and logos, to third parties. For example, we grant our franchisees and licensees a right to use certain of our trademarks in connection with their operation of the applicable restaurant. If a franchisee or other licensee fails to maintain the quality of the restaurant operations associated with the licensed trademarks, our rights to, and the value of, our trademarks could potentially be harmed. Negative publicity relating to the franchisee or licensee could also be incorrectly associated with us, which could harm our business. Failure to maintain, control and protect our trademarks and other proprietary intellectual property would likely have a material adverse effect on our business, financial condition and results of operations and on our ability to enter into new franchise agreements.

We may incur costs resulting from breaches of security of confidential consumer information related to our electronic processing of credit and debit card transactions.

The majority of our restaurant sales are by credit or debit cards. Other restaurants and retailers have experienced security breaches in which credit and debit card information has been stolen. We may in the future become subject to claims for purportedly fraudulent transactions arising out of the actual or alleged theft of credit or debit card information, and we may also be subject to lawsuits or other proceedings relating to these types of incidents. In addition, most states have enacted legislation requiring notification of security breaches involving personal information, including credit and debit card information. Any such claim or proceeding could cause us to incur significant unplanned expenses, which could have a material adverse effect on our business, financial condition and results of operations. Further, adverse publicity resulting from these allegations may have a material adverse effect on our business and results of operations.

We rely heavily on information technology, and any material failure, weakness, interruption or breach of security could prevent us from effectively operating our business.

We rely heavily on information systems, including point-of-sale processing in our restaurants, for management of our supply chain, payment of obligations, collection of cash, credit and debit card transactions and other processes and procedures. Our ability to efficiently and effectively manage our business depends significantly on the reliability and capacity of these systems. Our operations depend upon our ability to protect our computer equipment and systems against damage from physical theft, fire, power loss, telecommunications failure or other catastrophic events, as well as from internal and external security breaches, viruses and other disruptive problems. The failure of these systems to operate effectively, maintenance problems, upgrading or transitioning to new platforms, or a breach in security of these systems could result in delays in customer service and reduce efficiency in our operations. Remediation of such problems could result in significant, unplanned capital investments.

Adverse weather conditions could affect our sales.

Adverse weather conditions, such as regional winter storms, floods, severe thunderstorms and hurricanes, could affect our sales at restaurants in locations that experience these weather conditions, which could materially adversely affect our business, financial condition or results of operations.

The uncertainty surrounding the implementation and effect of Brexit may impact our UK operations.

The uncertainty surrounding the implementation and effect of Brexit, including the commencement of the exit negotiation period, the terms and conditions of such exit, the uncertainty in relation to the legal and regulatory framework that would apply to the UK and its relationship with the remaining members of the EU (including, in relation to trade) during a withdrawal process and after any Brexit is effected, has caused and is likely to cause increased economic volatility and market uncertainty globally. It is too early to ascertain the long term effects. To date, the only measurable impact is attributable to the decline in the pound sterling as measured against the U.S. dollar.

Negative publicity could reduce sales at some or all of our restaurants.

We may, from time to time, be faced with negative publicity relating to food quality and integrity, the safety, sanitation and welfare of our restaurant facilities, customer complaints or litigation alleging illness or injury, health inspection scores, integrity of our or our suppliers’ food processing and other policies, practices and procedures, employee relationships and welfare or other matters at one or more of our restaurants. Negative publicity may adversely affect us, regardless of whether the allegations are valid or whether we are held to be responsible. The risk of negative publicity is particularly great with respect to our franchised restaurants because we are limited in the manner in which we can regulate them, especially on a real-time basis and negative publicity from our franchised restaurants may also significantly impact company-operated restaurants. A similar risk exists with respect to food service businesses unrelated to us, if customers mistakenly associate such unrelated businesses with our operations. Employee claims against us based on, among other things, wage and hour violations, discrimination, harassment or wrongful termination may also create not only legal and financial liability but negative publicity that could adversely affect us and divert our financial and management resources that would otherwise be used to benefit the future performance of our operations. These types of employee claims could also be asserted against us, on a co-employer theory, by employees of our franchisees. A significant increase in the number of these claims or an increase in the number of successful claims could materially adversely affect our business, financial condition, results of operations and cash flows.

The interests of our franchisees may conflict with ours or yours in the future and we could face liability from our franchisees or related to our relationship with our franchisees.

Franchisees, as independent business operators, may from time to time disagree with us and our strategies regarding the business or our interpretation of our respective rights and obligations under the franchise agreement and the terms and conditions of the franchisee/franchisor relationship or have interests adverse to ours. This may lead to disputes with our franchisees and we expect such disputes to occur from time to time in the future as we continue to offer franchises. Such disputes may result in legal action against us. To the extent we have such disputes, the attention, time and financial resources of our management and our franchisees will be diverted from our restaurants, which could have a material adverse effect on our business, financial condition, results of operations and cash flows even if we have a successful outcome in the dispute.

In addition, various state and federal laws govern our relationship with our franchisees and our potential sale of a franchise. A franchisee and/or a government agency may bring legal action against us based on the franchisee/franchisor relationships that could result in the award of damages to franchisees and/or the imposition of fines or other penalties against us.

We are in default under certain of our notes payable and convertible debt obligations. Our ability to operate as a going concern are contingent upon successfully obtaining additional financing and renegotiating terms of existing indebtedness in the near future. Failure to do so would adversely affect our ability to continue operations.

If capital is not available or we are not able to agree on reasonable terms with our lenders, we may then need to scale back or freeze our organic growth plans, sell assets under unfavorable terms, reduce expenses, and/or curtail future acquisition plans to manage our liquidity and capital resources. We may not be able refinance or otherwise extend or repay our current obligations which could impact our ability to continue to operate as a going concern

Risks Related to Our Common Stock

Our stock price has experienced price fluctuations and may continue to do so, resulting in a substantial loss in your investment.

The current market for our common stock has been characterized by volatile prices. As a result, investors in our common stock may experience a decrease in the value of their securities, including decreases unrelated to our operating performance or prospects. The market price of our common stock is likely to be highly unpredictable and subject to wide fluctuations in response to various factors, many of which are beyond our control. These factors include:

	●	quarterly variations in our operating results and achievement of key business metrics;

	●	changes in the global economy and in the local economies in which we operate;

	●	our ability to obtain working capital financing, if necessary;

	●	the departure of any of our key executive officers and directors;

	●	changes in the federal, state, and local laws and regulations to which we are subject;

	●	changes in earnings estimates by securities analysts, if any;

	●	any differences between reported results and securities analysts’ published or unpublished expectations;

	●	market reaction to any acquisitions, joint ventures or strategic investments announced by us or our competitors;

	●	future sales of our securities;

	●	announcements or press releases relating to the casual dining restaurant sector or to our own business or prospects;

	●	regulatory, legislative, or other developments affecting us or the restaurant industry generally; and

	●	market conditions specific to casual dining restaurant, the restaurant industry and the stock market generally.

Our common stock could be further diluted as the result of the issuance of additional shares of common stock, convertible securities, warrants or options.

In the past, we have issued common stock, convertible securities (such as convertible notes) and warrants in order to raise capital. We have also issued common stock as compensation for services and incentive compensation for our employees and directors. We have shares of common stock reserved for issuance upon the exercise of certain of these securities and may increase the shares reserved for these purposes in the future. Our issuance of additional common stock, convertible securities, options and warrants could affect the rights of our stockholders, could reduce the market price of our common stock or could result in adjustments to exercise prices of outstanding warrants (resulting in these securities becoming exercisable for, as the case may be, a greater number of shares of our common stock), or could obligate us to issue additional shares of common stock to certain of our stockholders.

Shares eligible for future sale may adversely affect the market.

From time to time, certain of our stockholders may be eligible to sell all or some of their shares of common stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144 promulgated under the Securities Act, subject to certain limitations. In general, pursuant to Rule 144, stockholders who have been non-affiliates for the preceding three months may sell shares of our common stock freely after six months subject only to the current public information requirement. Affiliates may sell shares of our common stock after six months subject to the Rule 144 volume, manner of sale, current public information and notice requirements. Any substantial sales of our common stock pursuant to Rule 144 may have a material adverse effect on the market price of our common stock.

While our public warrants are outstanding, it may be more difficult to raise additional equity capital.

We have warrants that are publicly traded on NASDAQ under the symbol “HOTRW”. During the term that the public warrants are outstanding, the holders of the public warrants will be given the opportunity to profit from a rise in the market price of our common stock. We may find it more difficult to raise additional capital while these public warrants are outstanding. At any time during which these public warrants are likely to be exercised, we may be able to obtain additional capital on more favorable terms from other sources. These warrants expire in June 2017.

We do not expect to pay cash dividends in the foreseeable future and therefore investors should not anticipate cash dividends on their investment.

Our board of directors does not intend to pay cash dividends in the foreseeable future but instead intends to retain any and all earnings to finance the growth of the business. To date, we have not paid any cash dividends and there can be no assurance that cash dividends will ever be paid on our common stock.

We may issue additional shares of our common stock, which could depress the market price of our common stock and dilute your ownership.

Market sales of large amounts of our common stock, or the potential for those sales even if they do not actually occur, may have the effect of depressing the market price of our common stock. In addition, if our future financing needs require us to issue additional shares of common stock or securities convertible into common stock, the amount of common stock available for resale could be increased which could stimulate trading activity and cause the market price of our common stock to drop, even if our business is doing well. Furthermore, the issuance of any additional shares of our common stock, or securities convertible into our common stock could be substantially dilutive to holders of our common stock.

Director and officer liability is limited.

As permitted by Delaware law, our bylaws limit the liability of our directors for monetary damages for breach of a director’s fiduciary duty except for liability in certain instances. As a result of our bylaw provisions and Delaware law, stockholders may have limited rights to recover against directors for breach of fiduciary duty.

Failure to establish and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price.

As a publicly traded company, we are required to comply with the SEC’s rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act, which requires management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of controls over financial reporting. We have identified internal control weaknesses and may need to undertake various actions, such as implementing new internal controls, new systems and procedures and hiring additional accounting or internal audit staff, which could increase our operating expenses. In addition, we may identify additional deficiencies in our internal control over financial reporting as part of that process.

In addition, if we are unable to resolve internal control deficiencies in a timely manner, investors could lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected.

We have been notified by NASDAQ of its intent to delist our Common Shares. We intend to implement a reverse stock split of our common stock in order to regain compliance with Nasdaq’s continued listing requirements.

The Nasdaq Listing Qualifications Department (“Staff”) notified us on February 18, 2016 that the bid price of our common stock had closed at less than $1 per share over the previous 30 consecutive business days, and, as a result, did not comply with Listing Rule 5550(a)(2). Therefore, in accordance with Listing Rule 5810(c)(3)(A), we were provided 180 calendar days, or until August 16, 2016, to regain compliance with the Rule. Subsequently, on August 17, 2016, we were provided an additional 180 calendar day compliance period, or until February 13, 2017, to demonstrate compliance.

We did not regain compliance with Listing Rule 5550(a)(2) and received a delisting determination from Nasdaq on February 14, 2017. We appealed the Staff’s determination to a Hearings Panel (the “Panel”), pursuant to the procedures set forth in the Nasdaq Listing Rule 5800 Series. The hearing request stayed the suspension of our securities and the filing of the Form 25-NSE (which Form would remove our securities from listing and registration on The Nasdaq Stock Market) pending the Panel’s decision. As part of its plan to regain compliance, our Board of Directors has approved an anticipated reverse stock split at a ratio of up to 1-for-10, which will be placed on the proxy for vote at the Company’s upcoming shareholder meeting expected in May.

Item 2: Properties

The Company, through its subsidiaries, leases the land and buildings for our five restaurants in South Africa, one restaurant in Nottingham, United Kingdom, and thirty-six restaurants in the U.S. The terms for our leases vary from two to twenty years and have options to extend. We lease some of our restaurant facilities under “triple net” leases that require us to pay minimum rent, real estate taxes, maintenance costs and insurance premiums and, in some instances, percentage rent based on sales in excess of specified amounts. We also lease our corporate office space in Charlotte, North Carolina.

We own one commercial real estate property in Port Elizabeth, South Africa.

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

Item 3: Legal proceedings

On March 26, 2013, our South African operations received Notice of Motion filed inn the Kwazulu-Natal High Court, Durban, Republic of South Africa, filed against Rolalor (PTY) LTD (“Rolalor”) and Labyrinth Trading 18 (PTY) LTD (“Labyrinth”) by Jennifer Catherine Mary Shaw (“Shaw”). Rolalor and Labyrinth were the original entities formed to operate the Johannesburg and Durban locations, respectively. On September 9, 2011, the assets and the then-disclosed liabilities of these entities were transferred to Tundraspex (PTY) LTD (“Tundraspex”) and Dimaflo (PTY) LTD (“Dimaflo”), respectively. The current entities, Tundraspex and Dimaflo are not parties in the lawsuit. Shaw is requesting that the Respondents, Rolalor and Labyrinth, be wound up in satisfaction of an alleged debt owed in the total amount of R4,082,636 (approximately $480,000). The two Notices were defended and argued in the High Court of South Africa (Durban) on January 31, 2014. Madam Justice Steryi dismissed the action with costs on May 5, 2014. Ms. Shaw appealed this decision and in December 2016, the Court dismissed the Labyrinth case with costs payable to the Company, and allowed the Rolalor case to proceed to liquidation. The Company did not object to the proposed liquidation of Rolalor as the entity has no assets and the Company does not expect there to be any material impact on the Company. No amounts have been accrued as of December 31, 2016 or 2015 in the accompanying consolidated balance sheets.

On January 28, 2016, our Just Fresh subsidiary was notified that it had been served with a copyright infringement complaint, Kevin Chelko Photography, Inc. f. JF Restaurants, LLC, Case No. 3:13-CV-60-GCM (W.D. N.C.). The claim was filed in the United States District Court for the Western District of North Carolina Charlotte Division and seeks unspecified damages related to the use of certain photographic assets allegedly in violation of the United States copyright laws. On January 19, 2017, the case was dismissed with no damages being awarded and no amounts have been reflected in the accompanying consolidated balance sheets as of December 31, 2016, or December 31, 2015.

Prior to the Company’s acquisition of Little Big Burger, a class action lawsuit was filed in Oregon by certain current and former employees of Little Big Burger asserting that the former owners of Little Big Burger failed to compensate employees for overtime hours and also that an employee had been wrongfully terminated. The plaintiffs and defendants agreed to enter into a settlement agreement pursuant to which the former owners of Little Big Burger will pay a gross settlement of up to $675,000, inclusive of plaintiffs’ attorney’s fees of $225,000. This settlement was approved by the court and all settlement payments were distributed by the sellers and this matter closed prior to September 30, 2016.

In connection with our acquisition of Little Big Burger, the sellers agreed that the 1,619,646 shares of the Company’s common stock certain of the sellers received from the Company and an additional $200,000 in cash would be held in escrow until such time as the litigation was fully resolved. The Company reflected the $675,000 settlement amount in accrued liabilities, with an offsetting asset in other current assets, in the accompanying consolidated balance sheets as of December 31, 2015. As of December 31 2016, the lawsuit had been fully resolved and all amounts paid by the sellers. Accordingly, no amounts are reflected in the Company’s balance sheet as of December 31, 2016.

From time to time, the Company may be involved in legal proceedings and claims that have arisen in the ordinary course of business.

Item 4: mine safety disclosures

Not applicable.

PART II

Item 5: Market for Registrant’s Common Equity, Related Stockholder Matters AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is listed on the NASDAQ Capital Market under the symbol “HOTR”.

The market high and low prices on the NASDAQ for the years ending December 31, 2016 and 2015 are as follows:

QUARTER ENDED	HIGH		LOW

December 31, 2016	$	0.90	$	0.38
September 30, 2016	$	0.64	$	0.36
June 30, 2016	$	0.64	$	0.41
March 31, 2016	$	1.02	$	0.64

December 31, 2015	$	1.32	$	0.75
September 30, 2015	$	2.73	$	1.03
June 30, 2015	$	4.18	$	2.17
March 31, 2015	$	3.07	$	1.65

Number of Shareholders and Total Outstanding Shares

As of March 20, 2017, there were 21,999,507 shares issued and outstanding, respectively, held by approximately 185 shareholders of record.

Reverse Split

Our Board of Directors has approved an anticipated reverse stock split at a ratio of up to 1-for-10, which will be placed on the proxy for vote at the Company’s upcoming shareholder meeting expected in May 2017. If a reverse split is implemented as anticipated, the number of outstanding shares will be reduced by the split ratio (up to 1-for 10). All information contained in this Annual Report has been presented on a historical basis without adjustment to reflect a potential reverse split.

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.

Recent Sales of Unregistered Securities

Sales of our common stock during the first three quarters of 2016 were reported in Item 2 of Part II of the Form 10-Q filed for each quarter. There were no sales of common stock during the fourth quarter of 2016 to be reported.

The Company believes that the foregoing transactions were exempt from the registration requirements under Rule 506 of Regulation D promulgated under the Securities Act of 1933, as amended (the “1933 Act”) or Section 4(2) under the 1933 Act, based on the following facts: in each case, there was no general solicitation, there was a limited number of investors, each of whom was an “accredited investor” (within the meaning of Regulation D under the 1933 Act, as amended) and/or was (either alone or with his/her purchaser representative) sophisticated about business and financial matters, each such investor had the opportunity to ask questions of our management and to review our filings with the Securities and Exchange Commission, and all securities issued were subject to restrictions on transfer, so as to take reasonable steps to assure that the purchasers were not underwriters within the meaning of Section 2(11) under the 1933 Act.

Item 6: Selected Financial Data

Not applicable.

Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion of our results of operations and financial condition together with the Selected Financial Data and our audited consolidated financial statements as of and for the year ended December 31, 2016 including the notes thereto, included in this Report. The discussion below contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in Item 1A. “Risk Factors”. Actual results may differ materially from those contained in any forward-looking statements. Forward-looking statements speak only as of the date they are made. We undertake no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur, and you are urged to review and consider disclosures that we make in this and other reports that discuss factors germane to our business.

Management’s Analysis of Business

We are in the business of owning, operating and franchising fast casual and full service dining concepts in the United States and internationally.

We own, operate and franchise a system-wide total of 39 fast casual restaurants specializing the “Better Burger” category of which 27 are company-owned and 12 are operated by franchisees under franchise agreements. American Burger Company (“ABC”) is a fast casual dining chain consisting of nine locations in New York and the Carolinas, known for its diverse menu featuring, customized burgers, milk shakes, sandwiches, fresh salads and beer and wine. BGR: The Burger Joint (“BGR”), consists of 10 company-owned locations in the United States and 12 franchisee-operated locations in the United States and the Middle East. Little Big Burger (“LBB”) consists of 8 locations in Oregon.

We also own and operate Just Fresh, our healthier eating fast casual concept with 7 company owned locations in Charlotte, North Carolina. Just Fresh offers fresh-squeezed juices, gourmet coffee, fresh-baked goods and premium-quality, made-to-order sandwiches, salads and soups.

We own and operate 9 Hooters full service restaurants in the United States, South Africa, and the United Kingdom. Hooters restaurants are casual beach-themed establishments featuring music, sports on large flat screens, and a menu that includes seafood, sandwiches, burgers, salads, and of course, Hooters original chicken wings and the “nearly world famous” Hooters Girls.

As of December, 31, 2016, our system-wide store count totaled 55 locations, consisting of 43 company-owned locations and 12 franchisee-operated locations.

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2016 COMPARED TO THE YEAR ENDED DECEMBER 31, 2015

Our results of operations are summarized below:

	Year Ended
	December 31, 2016						December 31, 2015
	Amount			% of Revenue*			Amount			% of Revenue*			% Change

Restaurant sales, net	$	40,640,159					$	34,201,668						18.8	%
Gaming income, net		441,620						367,666						20.1	%
Management fee income		100,000						424,829						-76.5	%
Franchise income		520,222						359,424						44.7	%
Total revenue		41,702,001						35,353,587						18.0	%

Expenses:
Restaurant cost of sales		13,392,078			33.0	%		11,754,515			34.4	%		13.9	%
Restaurant operating expenses		22,641,951			55.7	%		19,677,617			57.5	%		15.1	%
Restaurant pre-opening and closing expenses		145,130			0.4	%		505,098			1.5	%		-71.3	%
General and administrative		5,801,033			13.9	%		6,798,642			19.2	%		-14.7	%
Depreciation and amortization		2,341,697			5.6	%		1,697,514			4.8	%		37.9	%
Total expenses		44,321,889			106.3	%		40,433,386			114.4	%		9.6	%
Operating loss from continuing operations	$	(2,619,888	)				$	(5,079,799	)					-48.4	%

* Restaurant cost of sales, operating expenses and pre-opening and closing expense percentages are based on restaurant sales, net ..

Other percentages are based on total revenue.

Revenue

Total revenue increased 18.0% to $42.0 million for the year ended December 31, 2016 from $35.4 million for the year ended December 31, 2015.

Revenues by concept, revenue type and store count are summarized below for each period:

	Year Ended December 31, 2016													Store Count, end of period
Revenue	Restaurant		Gaming		Franchise		Mgmt Fee		Total		% of Total			Company		Franchise		Total
Better Burgers Fast Casual	$	22,068,336	$	-	$	520,222	$	-	$	22,588,558		54.2	%		27		12		39
Just Fresh Fast Casual		5,684,635		-		-		-		5,684,635		13.6	%		7		-		7
Hooters Full Service		12,887,188		441,620		-		-		13,328,808		32.0	%		9		-		9
Corporate and Other		-		-		-		100,000		100,000		0.2	%		-		-		-
Total Revenue	$	40,640,159	$	441,620	$	520,222	$	100,000	$	41,702,001		100.0	%		43		12		55

	Year Ended December 31, 2015													Store Count, end of period
Revenue	Restaurant		Gaming		Franchise		Mgmt Fee		Total		% of Total			Company		Franchise		Total
Better Burgers Fast Casual	$	14,182,670	$	-	$	359,424	$	-	$	14,542,094		41.1	%		27		13		40
Just Fresh Fast Casual		5,498,790		-		-		-		5,498,790		15.6	%		7				7
Hooters Full Service		14,520,208		367,666		-		-		14,887,874		42.1	%		9				9
Corporate and Other		-		-		-		424,829		424,829		1.2	%		-		-		-
Total Revenue	$	34,201,668	$	367,666	$	359,424	$	424,829	$	35,353,587		100.0	%		43		13		56

	% Change in Revenues Year over Year
Revenue	Restaurant			Gaming			Franchise			Mgmt Fee			Total
Better Burgers Fast Casual		55.6	%		-			44.7	%		-			55.3	%
Just Fresh Fast Casual		3.4	%		-			-			-			3.4	%
Hooters Full Service		-11.2	%		20.1	%		-			-			-10.5	%
Corporate and Other		-			-			-			-76.5	%		-76.5	%
Total Revenue		18.8	%		20.1	%		44.7	%		-76.5	%		18.0	%

Total restaurant revenues increased 18.0% to $40.6 million for the year ended December 31, 2016 from $34.2 million for the year ended December 31, 2015. Revenue increased primarily due the inclusion of operations acquired during 2015 for a full year in 2016 as compared to partial year revenues from those acquired operations in 2015. The increase in revenue from acquisitions was partially offset by the unfavorable impact of a stronger US dollar on the translation of the South Africa and United Kingdom local currency results into US dollars for financial reporting.

Revenue from the Company’s Better Burger Group increased 55.3% to $22.6 million for the year ended December 31, 2016 from $14.5 million for the year ended December 31, 2015. The growth in our Better Burger Group was primarily due to the 2015 acquisitions of Little Big Burger, BGR The Burger Joint and BT’s Burger Joint which generated a full 12 months of revenue in 2016. In addition, same store revenues from American Burger locations open in both periods increased 4.0% and the Company opened one new BGR location at Springfield Mall in Virginia and closed one American Burger location in Colombia, South Carolina during mid-2015.

Revenue from the Company’s Just Fresh Group increased 3.4% to $5.7 million for the year ended December 31, 2016 from $5.5 million for the year ended December 31, 2015. Revenue growth resulted from primarily the addition of one new location in early 2016, partially offset by a decrease in same store revenue of 0.7%

Revenue from the Company’s Hooter’s restaurants decreased 10.5% to $13.3 million for the year ended December 31, 2016 from $14.8 million for the year ended December 31, 2015. The decline in Hooters revenue was largely the result of fluctuations in foreign currency rates on the translation of local currency results to US dollars for financial reporting. Revenue declined 14.1 % in United Kingdom on a US dollar basis (as compared with 3.1% on a local currency basis), and were negatively impacted by economic and currency rate trends following the recent “Brexit” vote in that region. Excluding Port Elizabeth which opened in 2016, same store sales at our South Africa locations decreased 19.1% on a US dollar basis currency basis (as compared with 6.8% on a local currency basis) and were impacted by soft local economic conditions which effected local consumer spending and exchange rates.

Gaming revenue increased 20.1% to $442 thousand for the year ended December 31, 2016 from $368 thousand for the year ended December 31, 2015 due to increased play resulting from upgrades to the gaming equipment and furniture in late 2015 and early 2016.

Management fee income decreased 76.5% to $100 thousand for the year ended December 31, 2016 from $425 thousand for the year ended December 31, 2015. The Company derives management fee income from serving as general partner for its investment in HOA LLC and as compensation for the Company’s CEO serving on the board of Hooters of America In the current year, the Company recognized $0.1 million in management fees from HOA board fees and did not receive distribution from Hooters of America. In the prior year, the Company received a cash distribution totaling $0.5 million on its interest in HOA LLC, of which $0.3 million was reflected in management fee income (along with $0.1 million in board fees from HOA) and $0.2 million was reflected in interest and other income.

Franchise income increased 44.7% to $0.5 million for the year ended December 31, 2016 from $0.4 million for the year ended December 31, 2015. The Company commenced its franchise operations in March 2015 with the acquisition of BGR and recognized a full year of franchise income in 2016 as compared with a partial year in 2015.

Restaurant cost of sales

Restaurant cost of sales increased 13.9% to $13.4 million for the year ended December 31, 2016 from $11.8 million for the year ended December 31, 2015. By comparison, related restaurant revenues increased by 18.8% over the same period.

	Year Ended
	December 31, 2016					December 31, 2015
Cost of Restaurant Sales	Amount		% of Restaurant Net Sales			Amount		% of Restaurant Net Sales			% Change
Better Burgers Fast Casual	$	7,126,736		32.3	%	$	4,770,460		33.6	%		49.4	%
Just Fresh Fast Casual		1,980,099		34.8	%		1,946,550		35.4	%		1.7	%
Hooters Full Service		4,285,243		33.3	%		5,037,505		34.7	%		-14.9	%
	$	13,392,078		33.0	%	$	11,754,515		34.4	%		13.9	%

As a percentage of restaurant sales, net, restaurant cost of sales decreased to 33.0% for the year ended December 31, 2016 from 34.4% for the year ended December 31, 2015.

Cost of sales improved in all three operating segments with the Better Burger group improving from 33.6% to 32.3%, Hooters improving from 34.7% to 33.3% and Just Fresh improving from 35.4% to 34.8%. These improvements are attributable to several factors, including price reductions and other efficiencies as a result of our increased scale and purchasing power, menu price increases which have been implemented at most locations during the first half of 2016, and the favorable impact of reductions in beef and other commodity prices during the past year.

Restaurant operating expenses

Restaurant operating expenses increased 15.1% to $22.6 million for the year ended December 31, 2016 from $19.7 million for the year ended December 31, 2015.

Our restaurant operating expenses as well as the percentage of cost of restaurant sales to restaurant revenues for each region of operations is included in the following table:

	Year Ended
	December 31, 2016					December 31, 2015
Operating Expenses	Amount		% of Restaurant Net Sales			Amount		% of Restaurant Net Sales			% Change
Better Burgers Fast Casual	$	12,176,518		55.2	%	$	8,272,412		58.3	%		47.2	%
Just Fresh Fast Casual		2,959,597		52.1	%		2,975,085		54.1	%		-0.5	%
Hooters Full Service		7,505,836		58.2	%		8,430,120		58.1	%		-11.0	%
	$	22,641,951		55.7	%	$	19,677,617		57.5	%		15.1	%

As a percent of restaurant revenues, operating expenses improved to 55.7% for the year ended December 31, 2016 from 57.5% for the year ended December 31, 2015. Operating expenses as a percent of revenue improved in the Better Burger group from 58.3% to 55.2%, and in the Just Fresh business from 54.1% to 52.1%. Operating expenses in our Hooters group remained consistent at 58.2% from 58.1%.

The most significant driver of improved overall operating expenses was in our Better Burger group, where lower operating costs inherent in Little Big Burger’s more efficient operating model created improved operating leverage for the overall group. Operating expense comparisons also benefited from the closure of the American Burger Company’s Columbia South Carolina location in 2015 which carried higher fixed operating costs than our other stores. Just Fresh improved due to increased focus on controlling costs.

Restaurant pre-opening and closing expenses

Restaurant pre-opening and closing expenses decreased 71.3% to $0.1 million for the year ended December 31, 2016 compared with $0.5 million for the year ended December 31, 2015. During 2015, the Company incurred costs related to closure of the American Burger Company Colombia, South Carolina location and the opening of the Hooters Port Elizabeth location in South Africa. During 2016, the Company incurred costs related to three Little Big Burger stores that are currently under construction and expected to open in early 2017.

General and Administrative Expense (“G&A”)

G&A decreased 14.7% to $5.8 million for the year ended December 31, 2016 from $6.8 million for the year ended December 31, 2015. Significant components of G&A are summarized as follows:

	Year Ended
	December 31, 2016		December 31, 2015
Audit, legal and other professional services	$	1,004,429	$	1,399,072
Salary and benefits		2,798,247		2,499,450
Consulting and other fees		370,631		1,459,532
Travel and entertainment		337,944		342,025
Shareholder services and fees		80,291		85,960
Advertising, Insurance and other		1,209,491		1,012,603
Total G&A Expenses	$	5,801,033	$	6,798,642

As a percentage of total restaurant revenue, G&A decreased to 13.9% for the year ended December 31, 2016 from 19.2% for the year ended December 31, 2015.

For the current year, approximately $2.8 million, or 48% of total G&A, is attributable to the cost of operating our Corporate office, including salaries, travel, audit, legal and other public company and transaction related costs. Approximately $3.0 million, or 52% of total G&A, is attributable to managing the operations of our restaurants, including regional management, franchising operations, marketing and advertising within the Better Burger group, Hooters, and Just Fresh.

In the prior year, approximately $4.1 million, or 61% of total G&A, was attributable to Corporate and public company costs, while approximately $2.7 million, or 39% of total G&A, was attributable to regional management, franchising operations, marketing and advertising within the Better Burger group, Hooters, and Just Fresh.

The improvement in overall G&A expense is primarily due reduced audit, legal, professional and consulting fees at the corporate level. Fees paid to third party professionals were a significant portion of the Company’s expenses in 2015 due to the nature of the acquisition and financing transactions occurring last year. During the current period, the Company did not incur significant fees related to acquisitions or financing initiatives. In addition, the Company reduced its public company and corporate operating costs from prior levels through increased focus on cost reduction and rationalization of back office operations, while also leveraging the Company’s overhead over a larger business which favorably impacted G&A as a percent of revenue.

These reductions were partially offset by increased G&A and marketing expenses in our regional company store and franchising operations.

Depreciation and amortization

Depreciation and amortization expense increased 37.9% to $2.3 million for the year ended December 31, 2016 from $1.7 million for the year ended December 31, 2015. The increase in depreciation and amortization is due to increased depreciable property and equipment and intangible assets associated with acquired and newly opened restaurants.

Other income (expense)

Other income (expense) consisted of the following:

	Year Ended
Other Income (Expense)	December 31, 2016			December 31, 2015			% Change
Interest expense	$	(2,347,019	)	$	(3,466,554	)		-32.3	%
Change in fair value of derivative liabilities		1,231,608			868,592			41.8	%
Loss on extinguishment of debt		-			(315,923	)		0.0	%
Other income (Expense)		(412,272	)		99,399			-514.8	%
Total Other Income (Expense)	$	(1,527,683	)	$	(2,814,486	)		-45.7	%

Other expense, net decreased to $1.5 million for the year ended December 31, 2016 from $2.8 million for the year ended December 31, 2015.

The decrease in other expenses, net was primarily due to favorable changes in non-cash interest amortization, derivative liability adjustments and other largely non-cash charges arising from our convertible and other debt obligations.

Interest expense decreased 32.3% to $2.4 million for the year ended December 31, 2016 from $3.5 million for the year ended December 31, 2015. The reduction in interest are primarily due to lower average outstanding debt balances due to debt conversions occurring in 2015, combined with lower amortization of debt discount. This reduction was partially offset by higher interest rates on certain of our debt obligations that were in default and accrued interest at higher effective rates in the current year.

The Company recognized changes in the fair value of derivative liabilities totaling $1.2 million for the year ended December 31, 2016 as compared with $0.9 million for the year ended December 31, 2015. The liability is a non-cash income or expense associated with our convertible debt and is adjusted quarterly based on the change in the fair value of the price of the Company’s common stock.

Loss on extinguishment of debt was zero in the current period and $0.3 million for the year ended December 31, 2015. During 2015, several of the Company’s convertible notes and one of the Company’s term debt instruments were converted by the holders into shares of the Company’s common stock. In connection with the conversions, the Company recognized a loss on extinguishment of convertible debt, related accrued interest, penalties and derivative liabilities. The Company did not have any debt conversions or loss on extinguishments in the current year.

Other expense was $0.4 million for the year ended December 31, 2016 compared to income of $0.1 million for the prior year period. In the current year, the Company wrote down certain marketable securities and investments included in other loss.

LIQUIDITY, CAPITAL RESOURCES AND GOING CONCERN

As of December 31, 2016, our cash balance was $0.3 million, our working capital was negative $10 million and we have significant near term obligations. The level of additional cash needed to fund operations and our ability to conduct business for the next twelve months will be influenced primarily by the following factors:

	●	our ability to access the capital and debt markets to satisfy current obligations and operate the business;

	●	our ability to obtain waivers and refinance or otherwise extend maturities of current debt obligations;

	●	the level of investment in acquisition of new restaurant businesses and entering new markets;

	●	our ability to manage our operating expenses and maintain gross margins as we grow:

	●	popularity of and demand for our fast-casual dining concepts; and

	●	general economic conditions and changes in consumer discretionary income.

We have typically funded our operating costs, acquisition activities, working capital requirements and capital expenditures with proceeds from the issuances of our common stock and other financing arrangements, including convertible debt, lines of credit, notes payable, capital leases, and other forms of external financing.

Our operating plans for the next twelve months contemplate moderate organic growth, opening 6-10 new stores within our current markets and restaurant concepts, the majority of which will be funded by funds already committed from outside investors. As we execute our growth plans over the next 12 months, we intend to carefully monitor the impact of growth on our working capital needs and cash balances relative to the availability of cost-effective debt and equity financing.

We have obligations that are currently past due or otherwise payable within the next twelve months from date of issuance of these financial statements. In the event that capital is not available or we are unable to refinance our debt obligations or obtain waivers, we may then have to scale back or freeze our organic growth plans, sell assets on less than favorable terms, reduce expenses, and/or curtail future acquisition plans to manage our liquidity and capital resources. We may also incur financial penalties or other negative actions from our lenders if we are not able to refinance or otherwise extend or repay our current obligations or obtain waivers.

In addition, our business is subject to additional risks and uncertainties, including, but not limited to, those described in Item 1A. “Risk Factors”.

RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 “Revenue from Contracts with Customers” which provides a single, comprehensive accounting model for revenue arising from contracts with customers. This guidance supersedes most of the existing revenue recognition guidance, including industry-specific guidance. Under this model, revenue is recognized at an amount that a company expects to be entitled to upon transferring control of goods or services to a customer. The new guidance also requires additional disclosures about the nature, timing and uncertainty of revenue and cash flow arising from customer contracts, including significant judgments and changes in judgments. The new guidance will be effective for the Company beginning in calendar 2018 and may be applied retrospectively to all prior periods presented or through a cumulative adjustment to the opening retained earnings balance in the year of adoption. The Company is currently evaluating the effect of this update on its consolidated financial statements, but believes this will not have a material impact on operations.

In April 2015, FASB issued ASU No. 2015-03 “Simplifying the Presentation of Debt Issuance Costs” which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability consistent with the presentation of debt discounts, however debt issuance costs related to revolving credit agreements may be presented in the balance sheet as an asset. This guidance was adopted in the first quarter of 2016 and had no effect on the Company’s consolidated financial statements.

In November 2015, the FASB issued ASU No. 2015-07 “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes” related to the presentation of deferred income taxes. The guidance requires that deferred tax assets and liabilities be classified as non-current in a consolidated balance sheet. This guidance is effective for us in the first quarter of 2017 and is not expected to materially affect the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02 “Leases,” which supersedes ASC 840 “Leases” and creates a new topic, ASC 842 “Leases.” This update requires lessees to recognize a lease liability and a lease asset for all leases, including operating leases, with a term greater than 12 months on its balance sheet. The update also expands the required quantitative and qualitative disclosures surrounding leases. This update is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, with earlier adoption permitted. This update will be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company has not completed its evaluation of effect of this update will have on its consolidated financial statements, but does expect there could be a material increase in both assets and liabilities reflect on its consolidated balance sheets as a result of adoption.

In March 2016, the FASB issued ASU No. 2016-09 “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”. The amendments in this update simplify several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. This update will be effective for the Company in fiscal year 2017, but early adoption is permitted. The Company is currently evaluating the effect of this update on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04 “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” The new guidance simplifies the test for goodwill impairment. Currently, the fair value of the reporting unit is compared with the carrying value of the reporting unit (identified as “Step 1”). If the fair value of the reporting unit is lower than its carrying amount then, the implied fair value of goodwill is calculated. If the implied fair value of goodwill is lower than the carrying value of goodwill an impairment is recognized (identified as “Step 2”). The new standard eliminates Step 2 from the impairment test; therefore, a goodwill impairment will be recognized as the difference of the fair value and the carrying value of the reporting unit. The new standard becomes effective on January 1, 2020 with early adoption permitted. The Company is currently evaluating the effect of this update on its consolidated financial statements.

There are several other new accounting pronouncements issued by FASB, which are not yet effective. Each of these pronouncements has been or will be adopted, as applicable, by the Company. At December 31, 2016, other than the adoption of ASU No. 2016-02 “Leases,” none of these pronouncements are expected to have a material effect on the financial position, results of operations or cash flows of the Company.

Critical Accounting Policies

The preparation of consolidated financial statements requires management to use judgment and estimates. The level of uncertainty in estimates and assumptions increases with the length of time until the underlying transactions are completed. Significant estimates include deferred tax asset valuation allowances, valuing options and warrants, goodwill and intangible asset valuations and useful lives, depreciation and uncollectible accounts and reserves. Actual results could differ from those estimates. The accounting policies that are most critical in the preparation of our consolidated financial statements are those that are both important to the presentation of our financial condition and results of operations and require significant judgment and estimates on the part of management. 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. Our critical accounting policies are reviewed periodically with the Audit Committee of the Board of Directors.

Revenue recognition

Revenue is recognized when all of the following criteria have been satisfied:

	●	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.

Restaurant Net Sales and Food and Beverage Costs

The Company records revenue from restaurant sales at the time of sale, net of discounts, coupons, employee meals, and complimentary meals and gift cards. Sales, value added tax (“VAT”) and goods and services tax (“GST”) collected from customers and remitted to governmental authorities are presented on a net basis within sales in our consolidated statements of operations. Restaurant cost of sales primarily includes the cost of food, beverages, and merchandise and disposable paper and plastic goods used in preparing and selling our menu items, and exclude depreciation and amortization. Vendor allowances received in connection with the purchase of a vendor’s products are recognized as a reduction of the related food and beverage costs as earned.

Management Fee Income

The Company receives revenue from management fees from certain non-affiliated companies, including from managing its investment in Hooters of America.

Gaming Income

The Company receives revenue from operating a gaming facility adjacent to its Hooters restaurant in Jantzen Beach, Oregon. The Company also previously received gaming revenue from gaming machines located in Sydney, Australia. Revenue from gaming is recognized as earned from gaming activities, net of taxes and other government fees.

Franchise Income

The Company accounts for initial franchisee fees in accordance with FASB ASC 952, Franchisors. The Company grants franchises to operators in exchange for initial franchise license fees and continuing royalty payments. Franchise license fees are deferred when received and recognized as revenue when the Company has performed substantially all initial services required by the franchise or license agreement, which is generally upon the opening of a store. Continuing fees, which are based upon a percentage of franchisee revenues, are recognized on the accrual basis as those sales occur.

Leases

Restaurant Operations lease certain properties under operating leases. Many of these lease agreements contain rent holidays, rent escalation clauses, and/or contingent rent provisions. Rent expense is recognized on a straight-line basis over the expected lease term, including cancelable option periods when failure to exercise such options would result in an economic penalty. We use a time period for straight-line rent expense calculation that equals or exceeds the time period used for depreciation. In addition, the rent commencement date of the lease term is the earlier of the date when they become legally obligated for the rent payments or the date when they take access to the grounds for build out. Accounting for leases involves significant management judgment.

Intangible Assets

Goodwill and indefinite lived intangibles

Generally accepted accounting principles in the United States require the Company to perform goodwill and indefinite lived intangible asset impairment tests annually and more frequently when negative conditions or a triggering event arise. In September 2011, the FASB issued amended guidance that simplified how entities test goodwill for impairment. After an assessment of certain qualitative factors, if it is determined to be more likely than not that the fair value of a reporting unit is less than its carrying amount, entities must perform the quantitative analysis of the goodwill impairment test. Otherwise, the quantitative test(s) become optional. As allowed under the amended guidance, the Company chose not to assess the qualitative factors of its reporting units and, instead, performed the quantitative tests.

Trade name/trademark

Franchise Cost

Intangible assets are recorded for the initial franchise fees for our Hooters restaurants. The Company amortizes these amounts over a 20-year period, which is the life of the franchise agreement.

COMMITMENTS AND CONTINGENCIES

The Company, through its subsidiaries, leases the land and buildings for our 6 restaurants in South Africa, 1 restaurant in Nottingham, United Kingdom, and 36 restaurants in the U.S. The terms for our restaurant leases vary from two to twenty years and have options to extend. We lease some of our restaurant facilities under “triple net” leases that require us to pay minimum rent, real estate taxes, maintenance costs and insurance premiums and, in some instances, percentage rent based on sales in excess of specified amounts.

We also lease our corporate office space in Charlotte, North Carolina.

TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

The following table presents a summary of our contractual operating lease obligations, long-term debt and other contractual commitments as of December 31, 2016:

Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Long-Term Debt Obligations	$	6,459,094	$	6,171,649	$	157,524	$	16,799	$	113,122
Convertible Debt Obligations		3,678,064		-		3,678,064		-		-
Operating Lease Obligations		25,890,003		3,887,253		7,464,567		5,950,967		8,587,216
Capital Lease Obligations		18,449		18,449		-		-		-
Purchase Obligations		1,746,479		1,746,479		-		-		-
Total	$	37,792,089	$	11,823,830	$	11,300,155	$	5,967,766	$	8,700,338

Item 7A: Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 8: Financial Statements and Supplementary Data

CHANTICLEER HOLDINGS, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	F-1
Consolidated Balance Sheets at December 31, 2016 and 2015	F-2
Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2016 and 2015	F-3
Consolidated Statements of Stockholders’ Equity at December 31, 2016 and 2015	F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 2016 and 2015	F-5
Notes to Consolidated Financial Statements	F-7

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Audit Committee of the

Board of Directors and Shareholders

of Chanticleer Holdings, Inc.and Subsidiaries

We have audited the accompanying consolidated balance sheets of Chanticleer Holdings, Inc. and Subsidiaries (the “Company”) as of December 31, 2016 and 2015 and the related consolidated statements of operations and comprehensive loss, stockholders’ equity and cash flows for the years then ended. 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 audit to obtain reasonable assurance about whether the 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 audit 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 financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall 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 financial position of Chanticleer Holdings, Inc. and Subsidiaries, as of December 31, 2016 and 2015 and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company incurred net losses during the year ended December 31, 2016 and 2015 of approximately $9.4 million and $14.5 million and the Company has working capital deficits of approximately $10.3 million and $12.4 million as of December 31, 2016 and 2015, respectively. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 1. The consolidated financial statements do not include any adjustments with respect to the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

/s/ Cherry Bekaert LLP

Charlotte. North Carolina

March 31, 2017

F-1

Chanticleer Holdings, Inc. and Subsidiaries

Consolidated Balance Sheets

	December 31, 2016			December 31, 2015
ASSETS
Current assets:
Cash	$	268,575		$	1,224,415
Accounts and other receivables		524,481			862,935
Inventories		539,550			569,545
Prepaid expenses and other current assets		461,074			568,251
Assets of discontinued operations, current		-			593,430
TOTAL CURRENT ASSETS		1,793,680			3,818,576
Property and equipment, net		11,513,693			12,144,064
Goodwill		12,405,770			12,702,139
Intangible assets, net		6,530,243			6,776,936
Investments		800,000			800,000
Deposits and other assets		442,737			574,192
Assets of discontinued operations		-			5,389,300
TOTAL ASSETS	$	33,486,123		$	42,205,207

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	5,553,068		$	4,740,131
Current maturities of long-term debt and notes payable, net of discount of of $0 and $171,868, respectively		6,171,649			5,383,003
Current maturities of convertible notes payable, net of debt discount of $0 and $914,724, respectively		-			2,810,276
Current maturities of capital leases payable		18,449			39,303
Due to related parties		194,350			12,963
Deferred rent		173,775			683,793
Derivative liabilities		-			1,231,608
Liabilities of discontinued operations, current		-			1,279,955
TOTAL CURRENT LIABILITIES		12,111,291			16,181,032
Long-term debt, less current portion		287,445			1,098,641
Convertible notes payable, net of debt discount of $46,936 and $0, respectively		3,678,064			-
Redeemable preferred stock: no par value, 19,050 shares and 0 issued and outstanding, respectively		257,175			-
Capital leases payable, less current maturities		-			15,969
Deferred rent		1,961,751			1,740,012
Liabilities of discontinued operations		-			58,648
Deferred tax liabilities		1,485,554			1,353,771
TOTAL LIABILITIES		19,781,280			20,448,073
Commitments and contingencies (Note 15)
Common stock subject to repurchase obligation, 562,900 shares issued and outstanding		349,000			-
Stockholders' equity:
Preferred stock: no par value; authorized 5,000,000 shares; 19,050 and 0 issued and outstanding, respectively		-			-
Common stock: $0.0001 par value; authorized 45,000,000 shares; issued and outstanding 21,394,247 and 21,337,247shares, respectively		2,140			2,134
Additional paid in capital		55,924,269			55,365,597
Accumulated other comprehensive loss		(1,155,658	)		(987,695	)
Accumulated deficit		(42,206,325	)		(33,012,712	)
Total Chanticleer Holdings, Inc, Stockholder's Equity		12,564,426			21,367,324
Non-Controlling Interests		791,417			389,810
TOTAL STOCKHOLDERS' EQUITY		13,355,843			21,757,134
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	33,486,123		$	42,205,207

See accompanying notes to consolidated financial statements

F-2

Chanticleer Holdings, Inc. and Subsidiaries

Consolidated Statements of Operations and Comprehensive Loss

	Year Ended
	December 31, 2016			December 31, 2015
Revenue:
Restaurant sales, net	$	40,640,159		$	34,201,668
Gaming income, net		441,620			367,666
Management fee income		100,000			424,829
Franchise income		520,222			359,424
Total revenue		41,702,001			35,353,587
Expenses:
Restaurant cost of sales		13,392,078			11,754,515
Restaurant operating expenses		22,641,951			19,677,617
Restaurant pre-opening and closing expenses		145,130			505,098
General and administrative expenses		5,801,033			6,798,642
Depreciation and amortization		2,341,697			1,697,514
Total expenses		44,321,889			40,433,386
Operating loss from continuing operations		(2,619,888	)		(5,079,799	)
Other (expense) income
Interest expense		(2,347,019	)		(3,466,554	)
Change in fair value of derivative liabilities		1,231,608			868,592
Loss on extinguishment of debt		-			(315,923	)
Other income (expense)		(412,272	)		99,399
Total other (expense) income		(1,527,683	)		(2,814,486	)
Loss from continuing operations before income taxes		(4,147,571	)		(7,894,285	)
Income tax expense		(198,463	)		(187,568	)
Loss from continuing operations		(4,346,034	)		(8,081,853	)
Discontinued operations
Loss from operation of discontinued operations, net of tax		(1,304,627	)		(1,884,747	)
Loss on write down of net assets, net of tax		(3,762,253	)		(4,489,043	)
Consolidated net loss		(9,412,914	)		(14,455,643	)
Less: Net loss (income) attributable to non-controlling interest of continuing operations		75,417			(9,088	)
Less: Net loss (income) attributable to non-controlling interest of discontinued operations		260,925			2,328,206
Net loss attributable to Chanticleer Holdings, Inc.	$	(9,076,572	)	$	(12,136,525	)

Net loss attributable to Chanticleer Holdings, Inc.:
Loss from continuing operations	$	(4,270,617	)	$	(8,090,941	)
Loss from discontinued operations		(4,805,955	)		(4,045,584	)
Net loss attributable to Chanticleer Holdings, Inc.	$	(9,076,572	)	$	(12,136,525	)

Other comprehensive loss:
Unrealized loss on available-for-sale securities, net of tax	$	(24,501	)	$	(4,039	)
Reclassification of loss on available-for-sale securities recognized in net loss, net of tax		223,743			-
Foreign currency translation		(271,452	)		(963,528	)
Total other comprehensive loss		(72,210	)		(967,567	)
Comprehensive loss	$	(9,148,782	)	$	(13,104,092	)

Net loss attributable to Chanticleer Holdings, Inc. per common share, basic and diluted:
Continuing operations attributable to common stockholders, basic and diluted	$	(0.20	)	$	(0.57	)
Discontinued operations attributable to common stockholders, basic and diluted	$	(0.22	)	$	(0.28	)
Weighted average shares outstanding, basic and diluted		21,695,030			14,245,437

See accompanying notes to consolidated financial statements

F-3

Chanticleer Holdings, Inc. and Subsidiaries

Consolidated Statements of Stockholders' Equity

										Accumulated
							Additional			Other			Non-
	Common Stock						Paid-in			Comprehensive			Controlling			Accumulated
	Shares			Amount			Capital			Loss			Interest			Deficit			Total

Balance, January 1, 2015		7,249,442		$	725		$	32,601,400		$	(1,657,908	)	$	4,904,471		$	(20,876,187	)	$	14,972,501
Common stock and warrants issued for:
Cash proceeds, net		9,508,659			951			14,920,952			-			-			-			14,921,903
Business combinations		2,985,600			299			4,062,018			-			-			-			4,062,317
Consulting services		104,000			11			279,351			-			-			-			279,362
Convertible debt		1,389,546			138			2,658,395			-			-			-			2,658,533
Settlement of long-term debt		100,000			10			194,990			-			-			-			195,000
Warrants issued in connection with convertible debt		-			-			1,002,688			-			-			-			1,002,688
Adjustment related to discontinued operations		-			-			(376,572	)		-			-			-			(376,572	)
Amortization of warrants		-			-			22,375			-			-			-			22,375
Foreign currency translation											(963,528	)								(963,528	)
Available-for-sale securities		-			-			-			(4,039	)		-			-			(4,039	)
Reclassifications related to Australia transactions		-			-			-			1,637,780			(2,543,653	)		-			(905,873	)
Non-controlling interest contribution		-			-			-			-			348,109			-			348,109
Net loss		-			-			-			-			(2,319,117	)		(12,136,525	)		(14,455,642	)

Balance, December 31, 2015		21,337,247		$	2,134		$	55,365,597		$	(987,695	)	$	389,810		$	(33,012,712	)	$	21,757,134
Common stock and warrants issued for:
Consulting services		57,000			6			24,505			-			-			-			24,511
Interest		562,900			56			348,944			-			-			-			349,000
Share based compensation		-			-			9,167			-			-			-			9,167
Foreign currency translation		-			-			-			(271,452	)		-			-			(271,452	)
Available-for-sale securities		-			-			-			199,242			-			-			199,242
Reclassifications related to discontinued operations		-			-			-			(95,753	)		335,979			-			240,226
Reclassification of shares subject to redemption		(562,900	)		(56	)		(348,944	)		-			-			-			(349,000	)
Non-controlling interest contribution		-			-			525,000			-			401,970			(117,041	)		809,929
Net loss		-			-			-			-			(336,342	)		(9,076,572	)		(9,412,914	)

Balance, December 31, 2016		21,394,247		$	2,140		$	55,924,269		$	(1,155,658	)	$	791,417		$	(42,206,325	)	$	13,355,843

See accompanying notes to consolidated financial statements

F-4

Chanticleer Holdings, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

	December 31, 2016			December 31, 2015
Cash flows from operating activities:
Net loss	$	(9,412,914	)	$	(14,455,643	)
Net loss from discontinued operations		5,066,880			6,373,790
Net loss from continuing operations		(4,346,034	)		(8,081,853	)
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities:
Depreciation and amortization		2,341,697			1,697,514
Loss on extinguishment of debt		-			315,923
Loss on disposal of property and equipment		-			514,522
Loss (gain) on sales of investments		-			169,639
Common stock and warrants issued for services		24,510			279,362
Common stock and warrants issued for interest		349,000			-
Amortization of debt discount		1,039,656			2,379,951
Amortization of warrants		-			22,375
Change in assets and liabilities:
Accounts and other receivables		(336,546	)		96,261
Prepaid and other assets		113,633			(78,236	)
Inventory		33,217			6,016
Accounts payable and accrued liabilities		1,540,463			(235,283	)
Change in amounts payable to related parties		194,350			(198,669	)
Derivative liabilities		(1,231,608	)		(868,592	)
Deferred income taxes		131,783			94,527
Deferred rent		(288,279	)		(300,259	)
Net cash used in operating activities from continuing operations		(434,158	)		(4,186,802	)
Net cash used in operating activities from discontinued operations		(75,000	)		(1,064,363	)
Net cash used in operating activities		(509,158	)		(5,251,165	)

Cash flows from investing activities:
Purchase of property and equipment		(1,191,174	)		(1,798,221	)
Cash paid for acquisitions, net of cash acquired		(72,215	)		(9,022,791	)
Proceeds from sale of investments		8,902			330,361
Net cash used in investing activities from continuing operations		(1,254,487	)		(10,490,651	)

Cash flows from financing activities:
Proceeds from sale of common stock and warrants		-			14,921,903
Proceeds from sale of preferred stock		257,175			-
Loan proceeds		275,000			2,813,074
Loan repayments		(513,523	)		(891,529	)
Capital lease payments		(40,636	)		(52,807	)
Contribution of non-controlling interest		823,671			-
Net cash provided by financing activities from continuing operations		801,687			16,790,641
Effect of exchange rate changes on cash		6,118			(4,944	)
Net increase (decrease) in cash		(955,840	)		1,043,881
Cash, beginning of period		1,224,415			180,534
Cash, end of period	$	268,575		$	1,224,415

See accompanying notes to consolidated financial statements

F-5

Chanticleer Holdings, Inc. and Subsidiaries

Consolidated Statements of Cash Flows, continued

	December 31, 2016		December 31, 2015

Supplemental cash flow information:
Cash paid for interest and income taxes:
Interest	$	581,072	$	1,068,383
Income taxes		51,100		79,228

Non-cash investing and financing activities:
Purchase of equipment using capital leases	$	-	$	50,087
Issuance of stock in connection with business combinations		-		4,062,317
Debt discount for fair value of warrants and conversion feature issued in connection with debt		-		1,781,588
Convertible debt settled through issuance of common stock		-		2,275,000
Long-term debt settled through issuance of common stock		-		100,000

Purchases of businesses:
Current assets excluding cash	$	1,611	$	1,148,334
Property and equipment		-		5,387,283
Goodwill		70,604		4,579,666
Trade name/trademarks/franchise fees		-		4,300,000
Liabilities assumed		-		(2,330,175	)
Common stock issued		-		(4,062,317	)
Cash acquired		-		253,638
Cash paid for acquisitions	$	72,215	$	9,276,429

See accompanying notes to consolidated financial statements

F-6

Chanticleer Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

1.Nature of Business

Organization

Chanticleer Holdings, Inc. (the “Company”) is in the business of owning, operating and franchising fast casual dining concepts domestically and internationally. The Company was organized October 21, 1999, under its original name, Tulvine Systems, Inc., under the laws of the State of Delaware. On April 25, 2005, Tulvine Systems, Inc. formed a wholly owned subsidiary, Chanticleer Holdings, Inc., and on May 2, 2005, Tulvine Systems, Inc. merged with, and changed its name to, Chanticleer Holdings, Inc.

The consolidated financial statements include the accounts of Chanticleer Holdings, Inc. and its subsidiaries presented below (collectively referred to as the “Company”):

Name	Jurisdiction of Incorporation	Percent Owned	Name	Jurisdiction of Incorporation	Percent Owned
CHANTICLEER HOLDINGS, INC.	DE, USA	100%
*Burger Business*			*Just Fresh*
American Roadside Burgers, Inc.	DE, USA	100%	JF Franchising Systems, LLC	NC, USA	56%
ARB Stores			JF Restaurants, LLC	NC, USA	56%
American Burger Ally, LLC	NC, USA	100%
American Burger Morehead, LLC	NC, USA	100%	*West Coast Hooters*
American Roadside McBee, LLC	NC, USA	100%	Jantzen Beach Wings, LLC	OR, USA	100%
American Roadside Southpark LLC	NC, USA	100%	Oregon Owl’s Nest, LLC	OR, USA	100%
American Roadside Burgers Smithtown, Inc.	DE, USA	100%	Tacoma Wings, LLC	WA, USA	100%
American Burger Prosperity, LLC	NC, USA	100%
BGR Acquisition, LLC	NC, USA	100%	*South African Entities*
BGR Franchising, LLC	VA, USA	100%	Chanticleer South Africa (Pty) Ltd.	South Africa	100%
BGR Operations, LLC	VA, USA	100%	Hooters Emperors Palace (Pty.) Ltd.	South Africa	88%
BGR Arlington, LLC	VA, USA	100%	Hooters On The Buzz (Pty) Ltd	South Africa	95%
BGR Cascades, LLC	VA, USA	100%	Hooters PE (Pty) Ltd	South Africa	100%
BGR Dupont, LLC	DC, USA	100%	Hooters Ruimsig (Pty) Ltd.	South Africa	100%
BGR Old Keene Mill, LLC	VA, USA	100%	Hooters SA (Pty) Ltd	South Africa	78%
BGR Old Town, LLC	VA, USA	100%	Hooters Umhlanga (Pty.) Ltd.	South Africa	90%
BGR Potomac, LLC	MD, USA	100%	Hooters Willows Crossing (Pty) Ltd	South Africa	100%
BGR Springfield Mall, LLC	VA, USA	100%
BGR Tysons, LLC	VA, USA	100%	*European Hooters*
BGR Washingtonian, LLC	MD, USA	100%	Chanticleer Holdings Limited	Jersey	100%
Capitol Burger, LLC	MD, USA	100%
BGR Mosaic, LLC	VA, USA	100%	West End Wings LTD	United Kingdom	100%
BGR Michigan Ave, LLC	DC, USA	100%
BGR Chevy Chase, LLC	MD, USA	100%
BGR Acquisition 1, LLC	NC, USA	100%	*Inactive Entities*
BT Burger Acquisition, LLC	NC, USA	100%	Hoot Surfers Paradise Pty. Ltd.	Australia	60%
BT’s Burgerjoint Biltmore, LLC	NC, USA	100%	Hooters Brazil	Brazil	100%
BT’s Burgerjoint Promenade, LLC	NC, USA	100%	DineOut SA Ltd.	England	89%
BT’s Burgerjoint Rivergate LLC	NC, USA	100%	Avenel Financial Services, LLC	NV, USA	100%
BT’s Burgerjoint Sun Valley, LLC	NC, USA	100%	Avenel Ventures, LLC	NV, USA	100%
LBB Acquisition, LLC	NC, USA	100%	Chanticleer Advisors, LLC	NV, USA	100%
Cuarto LLC	OR, USA	100%	Chanticleer Investment Partners, LLC	NC, USA	100%
LBB Acquisition 1 LLC	OR, USA	100%	Dallas Spoon Beverage, LLC	TX, USA	100%
LBB Green Lake LLC	OR, USA	50%	Dallas Spoon, LLC	TX, USA	100%
LBB Hassalo LLC	OR, USA	80%	American Roadside Cross Hill, LLC	NC, USA	100%
LBB Platform LLC	OR, USA	80%	Chanticleer Finance UK (No. 1) Plc	United Kingdom	100%
LBB Progress Ridge LLC	OR, USA	50%
Noveno LLC	OR, USA	100%
Octavo LLC	OR, USA	100%
Primero LLC	OR, USA	100%
Quinto LLC	OR, USA	100%
Segundo LLC	OR, USA	100%
Septimo LLC	OR, USA	100%
Sexto LLC	OR, USA	100%

All significant inter-company balances and transactions have been eliminated in consolidation.

The Company operates on a calendar year-end. The accounts of one of the Company’s subsidiaries, Hooters Nottingham (“WEW”), are consolidated based on either a 52- or 53-week period ending on the Sunday closest to each December 31. No events occurred related to the difference between the Company’s reporting calendar year end and the Company’s subsidiary year end that materially affected the company’s financial position, results of operations, or cash flows.

F-7

LIQUIDITY, CAPITAL RESOURCES AND GOING CONCERN

	●	our ability to access the capital and debt markets to satisfy current obligations and operate the business;

	●	our ability to obtain waivers and refinance or otherwise extend maturities of current debt obligations;

	●	the level of investment in acquisition of new restaurant businesses and entering new markets;

	●	our ability to manage our operating expenses and maintain gross margins as we grow:

	●	popularity of and demand for our fast-casual dining concepts; and

	●	general economic conditions and changes in consumer discretionary income.

The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

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, deferred tax asset valuation allowances, valuing options and warrants using the Binomial Lattice and Black Scholes models, intangible asset valuations and useful lives, depreciation and uncollectible accounts and reserves. Actual results could differ from those estimates.

F-8

REVENUE RECOGNITION

Revenue is recognized when all of the following criteria have been satisfied:

	●	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.

Restaurant Net Sales and Food and Beverage Costs

The Company records revenue from restaurant sales at the time of sale, net of discounts, coupons, employee meals, and complimentary meals and gift cards. Sales, value added tax (“VAT”) and goods and services tax (“GST”) collected from customers and remitted to governmental authorities are presented on a net basis within sales in our consolidated statements of operations and comprehensive loss. Restaurant cost of sales primarily includes the cost of food, beverages, and merchandise and disposable paper and plastic goods used in preparing and selling our menu items, and exclude depreciation and amortization. Vendor allowances received in connection with the purchase of a vendor’s products are recognized as a reduction of the related food and beverage costs as earned.

Management Fee Income

The Company receives revenue from management fees from certain non-affiliated companies, including from managing its investment in Hooters of America.

Gaming Income

Franchise Income

Business combinations

For business combinations, the assets acquired, the liabilities assumed, and any non-controlling interest are recognized at the acquisition date, measured at their fair values as of that date. In a business combination achieved in stages, the identifiable assets and liabilities, as well as the non-controlling interest in the acquiree, are recognized at the full amounts of their fair values. In a bargain purchase in which the total acquisition-date fair value of the identifiable net assets acquired exceeds the fair value of the consideration transferred plus any non-controlling interest in the acquiree, that excess would be recognized in earnings as a gain attributable to the Company.

Long-lived Assets

The Company accounts for long-lived assets in accordance with Accounting Standards Codification (“ASC”) 360, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“ASC 360”), which requires that long-lived assets be evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable or the useful life has changed. Some of the events or changes in circumstances that would trigger an impairment test include, but are not limited to;

	●	significant under-performance relative to expected and/or historical results (negative comparable sales growth or operating cash flows for two consecutive years);

	●	significant negative industry or economic trends;

	●	knowledge of transactions involving the sale of similar property at amounts below the company’s carrying value; or

	●	the company’s expectation to dispose of long-lived assets before the end of their estimated useful lives, even though the assets do not meet the criteria to be classified as “held for sale”.

F-9

Long-lived assets are grouped for recognition and measurement of impairment at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets. The impairment test for long-lived assets requires us to assess the recoverability of our long-lived assets by comparing their net carrying value to the sum of undiscounted estimated future cash flows directly associated with and arising from the company’s use and eventual disposition of the assets. If the net carrying value of a group of long-lived assets exceeds the sum of related undiscounted estimated future cash flows, the Company would be required to record an impairment charge equal to the excess, if any, of net carrying value over fair value.

When assessing the recoverability of our long-lived assets, which include property and equipment and finite-lived intangible assets, the company makes assumptions regarding estimated future cash flows and other factors. Some of these assumptions involve a high degree of judgment and also bear a significant impact on the assessment conclusions. Included among these assumptions are estimating undiscounted future cash flows, including the projection of comparable sales, operating expenses, capital requirements for maintaining property and equipment and residual value of asset groups. The Company formulates estimates from historical experience and assumptions of future performance, based on business plans and forecasts, recent economic and business trends, and competitive conditions. In the event that our estimates or related assumptions change in the future, the company may be required to record an impairment charge.

The Company evaluates the remaining useful lives of long-lived assets and identifiable intangible assets whenever events or circumstances indicate that a revision to the remaining period of amortization is warranted. Such events or circumstances may include (but are not limited to): the effects of obsolescence, demand, competition, and/or other economic factors including the stability of the industry in which the Company operates, known technological advances, legislative actions, or changes in the regulatory environment. If the estimated remaining useful lives change, the remaining carrying amount of the long-lived assets and identifiable intangible assets would be amortized prospectively over that revised remaining useful life.

RESTAURANT PRE-OPENING and closing EXPENSES

Restaurant pre-opening and closing expenses are non-capital expenditures, and are expensed as incurred. Restaurant pre-opening expenses consist of the costs of hiring and training the initial hourly work force for each new restaurant, travel, the cost of food and supplies used in training, grand opening promotional costs, the cost of the initial stocking of operating supplies and other direct costs related to the opening of a restaurant, including rent during the construction and in-restaurant training period. Restaurant closing expenses consists of the costs related to the closing of a restaurant location and include write-off of property and equipment, lease termination costs and other costs directly related to the closure. Pre-opening and closing expenses are expensed as incurred.

LIQUOR LICENSES

The costs of obtaining non-transferable liquor licenses that are directly issued by local government agencies for nominal fees are expensed as incurred. The costs of purchasing transferable liquor licenses through open markets in jurisdictions with a limited number of authorized liquor licenses are capitalized as indefinite-lived intangible assets and included in other assets. Liquor licenses are reviewed for impairment annually or when events or changes in circumstances indicate that the carrying amount may not be recoverable. Annual liquor license renewal fees are expensed over the renewal term.

F-10

ACCOUNTS AND OTHER RECEIVABLES

The Company monitors its exposure for credit losses on its receivable balances and the credit worthiness of its receivables on an ongoing basis and records related allowances for doubtful accounts. Allowances are estimated based upon specific customer and other balances, where a risk of default has been identified, and also include a provision for non-customer specific defaults based upon historical experience. The majority of the Company’s accounts are from customer credit card transactions with minimal historical credit risk. As of December 31, 2016 and 2015, the Company has not recorded an allowance for doubtful accounts. If circumstances related to specific customers change, estimates of the recoverability of receivables could also change.

INVENTORIES

Inventories are recorded at the lower of cost (first-in, first-out method) or market, and consist primarily of restaurant food items, supplies, beverages and merchandise.

LEASES

The Company leases certain property under operating leases. The Company also finances certain property using capital leases, with the asset and obligation recorded at an amount equal to the present value of the minimum lease payments during the lease term.

Many of these lease agreements contain rent holidays, rent escalation clauses and/or contingent rent provisions. Rent expense is recognized on a straight-line basis over the expected lease term, including cancelable option periods when failure to exercise such options would result in an economic penalty. The Company also may receive tenant improvement allowances in connection with its leases, which are capitalized as leasehold improvements with a corresponding liability recorded in the deferred rent liability line in the consolidated balance sheet. The tenant improvement allowance liability is amortized on a straight-line basis over the lease term. The rent commencement date of the lease term is the earlier of the date when the Company becomes legally obligated for the rent payments or the date when the Company takes access to the property or the grounds for build out. Certain leases contain percentage rent provisions where additional rent may become due if the location exceeds certain sales thresholds. The Company recognizes expense related to percentage rent obligations at such time as it becomes probable that the percent rent threshold will be met.

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, other receivables, accounts payable, accrued expenses, other current liabilities, convertible notes payable and notes payable approximate their estimated fair value due to the short-term maturities of these financial instruments and/or because related interest rates offered to the Company approximate current rates.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation. Depreciation and amortization, which includes amortization of assets held under capital leases, are recorded generally using the straight-line method over the estimated useful lives of the respective assets or, if shorter, the term of the lease for certain assets held under a capital lease. Leasehold improvements are amortized over the lesser of the expected lease term, or the estimated useful lives of the related assets using the straight-line method.

The estimated useful lives used to compute depreciation and amortization are as follow:

Leasehold improvements	5-15 years
Restaurant furnishings and equipment	3-10 years
Furniture and fixtures	3-10 years
Office and computer equipment	3-7 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, 2016 and 2015.

F-11

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.

Goodwill

The Company reviews goodwill for impairment annually or more frequently if indicators of impairment exist. Goodwill is not subject to amortization and has been assigned to reporting units for purposes of impairment testing. The reporting units are our segments.

A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others: a significant decline in the Company’s expected future cash flows; a sustained, significant decline in our stock price and market capitalization; a significant adverse change in legal factors or in the business climate; unanticipated competition; the testing for recoverability of a significant asset group within a reporting unit; and slower growth rates. Any adverse change in these factors could have a significant impact on the recoverability of these assets and could have a material impact on the Company’s consolidated financial statements.

The goodwill impairment test involves a two-step process. The first step is a comparison of each reporting unit’s fair value to its carrying value. The Company estimates fair value using the best information available, including market information and discounted cash flow projections (also referred to as the income approach). The income approach uses a reporting unit’s projection of estimated operating results and cash flows that is discounted using a weighted-average cost of capital that reflects current market conditions. The projection uses management’s best estimates of economic and market conditions over the projected period including growth rates in sales, costs and number of units, estimates of future expected changes in operating margins and cash expenditures. Other significant estimates and assumptions include terminal value growth rates, future estimates of capital expenditures and changes in future working capital requirements. The Company validates its estimates of fair value under the income approach by comparing the values to fair value estimates using a market approach. A market approach estimates fair value by applying cash flow and sales multiples to the reporting unit’s operating performance. The multiples are derived from comparable publicly traded companies with similar operating and investment characteristics of the reporting units.

If the fair value of the reporting unit is higher than its carrying value, goodwill is deemed not to be impaired, and no further testing is required. If the carrying value of the reporting unit is higher than its fair value, there is an indication that impairment may exist and the second step must be performed to measure the amount of impairment loss. The amount of impairment is determined by comparing the implied fair value of reporting unit goodwill to the carrying value of the goodwill in the same manner as if the reporting unit was being acquired in a business combination. Specifically, fair value is allocated to all of the assets and liabilities of the reporting unit, including any unrecognized intangible assets, in a hypothetical analysis that would calculate the implied fair value of goodwill. If the implied fair value of goodwill is less than the recorded goodwill, the Company would record an impairment loss for the difference. The Company’s Hooters Full Service segment has a goodwill balance of approximately $4.5 million assigned to this reporting unit. A significant reduction in future revenues for the Hooters unit could potentially impair goodwill. As of December 31, 2016, goodwill is not impaired at any of our reporting units.

InTANGIBLE ASSETS

Trade Name/Trademark

The fair value of trade name/trademarks are estimated and compared to the carrying value. The Company estimates the fair value of trademarks using the relief-from-royalty method, which requires assumptions related to projected sales from its annual long-range plan; assumed royalty rates that could be payable if the Company did not own the trademarks; and a discount rate. Certain of the Company’s trade name/trademarks have been determined to have a definite-lived life and are being amortized on a straight-line basis over estimated useful lives of 10 years. The amortization expense of these definite-lived intangibles is included in depreciation and amortization in the Company’s consolidated statement of operations and comprehensive loss. Certain of the Company’s trade name/trademarks have been classified as indefinite-lived intangible assets and are not amortized, but instead are reviewed for impairment at least annually or more frequently if indicators of impairment exist.

F-12

Franchise Cost

Intangible assets are recorded for the initial franchise fees for our Hooter’s restaurants. The Company amortizes these amounts over a 20-year period, which is the life of the franchise agreement.

DERIVATIVE LIABILITIES

In connection with the issuance of a secured convertible promissory note, the terms of the convertible note included an embedded conversion feature; which provided for the settlement of the convertible promissory note into shares of common stock at a rate, which was determined to be variable. The Company determined that the conversion feature was an embedded derivative instrument pursuant to ASC 815 “Derivatives and Hedging”.

The accounting treatment of derivative financial instruments required that the Company record the conversion option and related warrants at their fair values as of the inception date of the agreements and at fair value as of each subsequent balance sheet date. Any change in fair value was recorded as a change in the fair value of derivative liabilities in the statement of operations. The Company reassesses the classification at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification. As of December 31, 2016, the conversion feature expired.

ACQUIRED ASSETS AND ASSUMED LIABILITIES

Pursuant to ASC No. 805-10-25, if the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, but during the allowed measurement period not to exceed one year from the acquisition date, the company retrospectively adjusts the provisional amounts recognized at the acquisition date by means of adjusting the amount recognized for goodwill.

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. The Company has provided a valuation allowance for the full amount of the deferred tax assets.

As of December 31, 2016 and 2015, the Company had no accrued interest or penalties relating to any income tax obligations. The Company currently has no federal or state examinations in progress, nor has it had any federal or state tax examinations since its inception. The last three years of the Company’s tax years are subject to federal and state tax examination.

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.

F-13

LOSS PER COMMON SHARE

The Company is required to report both basic earnings per share, which is based on the weighted-average number of shares outstanding and diluted earnings per share, which is based on the weighted-average number of common shares outstanding plus all diluted shares outstanding.

The following table summarizes the number of common shares potentially issuable upon the exercise of certain warrants, convertible notes payable and convertible interest as of December 31, 2016 and 2015, which have been excluded from the calculation of diluted net loss per common share since the effect would be antidilutive.

	December 31, 2016		December 31, 2015
Warrants -Weighted avg exercise price $4.93		9,222,032		9,506,304
Convertible notes -Weighted avg conversion price $1.05		3,725,000		3,757,188
Accrued interest on convertible notes		458,762		123,526
Total		13,405,794		13,387,018

ADVERTISING

Advertising costs are expensed as incurred. Advertising expenses which are included in restaurant operating expenses in the accompanying consolidated statement of operations, totaled $0.7 million and $0.7 million for the years ended December 31, 2016 and 2015, respectively. Advertising expense primarily includes local advertising.

AMORTIZATION OF DEBT DISCOUNT

The Company has issued various debt with warrants and conversion features for which total proceeds were allocated to individual instruments based on the relative fair value of each instrument at the time of issuance. The value of the debt was recorded as discount on debt and amortized over the term of the respective debt. For the year ended December 31, 2016 and 2015 amortization of debt discount was $1.0 million and $2.4 million, respectively.

FOREIGN CURRENCY TRANSLATION

Assets and liabilities denominated in local currency are translated to U.S. dollars using the exchange rates as in effect at the balance sheet date. Results of operations are translated using average exchange rates prevailing throughout the period. Adjustments resulting from the process of translating foreign currency financial statements from functional currency into U.S. dollars are included in accumulated other comprehensive loss within stockholders’ equity. Foreign currency transaction gains and losses are included in current earnings. The Company has determined that local currency is the functional currency for each of its foreign operations.

Comprehensive Income (LOSS)

Standards for reporting and displaying comprehensive income (loss) 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 (loss) 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 (loss) by their nature in financial statements, and (b) display the accumulated balance of other comprehensive income (loss) separately in the equity section of the balance sheet for all periods presented. Other comprehensive income (loss) items include foreign currency translation adjustments, and the unrealized gains and losses on our marketable securities classified as held for sale.

concentration of credit risk

The Company maintains its cash with major financial institutions. Cash held in U.S. bank institutions is currently insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 at each institution. No similar insurance or guarantee exists for cash held in South Africa or the United Kingdom bank accounts. There was approximately $35 thousand and $165 thousand in aggregate uninsured cash balances at December 31, 2016 and 2015, respectively.

F-14

RECLASSIFICATIONS

Certain reclassifications have been made in the financial statements at December 31, 2015 and for the period then ended to conform to the December 31, 2016 presentation, including the reclassification of discontinued operations. The reclassifications had no effect on net loss.

RECENT ACCOUNTING PRONOUNCEMENTS

In February 2016, the FASB issued ASU No. 2016-02 “Leases,” which supersedes ASC 840 “Leases” and creates a new topic, ASC 842 “Leases.” This update requires lessees to recognize a lease liability and a lease asset for all leases, including operating leases, with a term greater than 12 months on its balance sheet. The update also expands the required quantitative and qualitative disclosures surrounding leases. This update is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, with earlier adoption permitted. This update will be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company has not completed its evaluation of effect this update will have on its consolidated financial statements, but does expect there could be a material increase in both assets and liabilities reflect on its consolidated balance sheets as a result of adoption.

F-15

3. ACQUISITIONS

The Company’s acquisitions were accounted for using the purchase method of accounting in accordance with ASC 805 “Business Combinations” and, accordingly, the condensed consolidated statements of operations include the results of these operations from the dates of acquisition. The assets acquired and the liabilities assumed were recorded at estimated fair values based on information currently available and based on certain assumptions as to future operations.

In connection with the acquisition of the restaurants, the Company analyzed each acquisition to determine the purchase price allocation in consideration of all identifiable intangibles. Based on our evaluation, there were no marketing related assets, customer related intangibles or contract based arrangements for which the purchase price would be required to be allocated. For marketing related assets, the Company did not acquire any trademarks or trade names (for Hooters acquisitions) or enter into any non-compete agreements. The Company is however required to pay royalties based on future sales. For acquisitions other than Hooters restaurants, the value of any trademark/tradename, was calculated using a relief of royalty method considering future franchise opportunities, and the value was determined to be de minimus. With respect to customer related intangibles, the Company did not acquire any customer lists or enter into any customer contractual arrangements nor did the Company enter into any licensing or royalty arrangements requiring a further allocation of the purchase price. The premium paid for the businesses represents the economic value that is not captured by other assets such as the reputation of the businesses, the value of its human capital, its future growth potential and its professional management. The acquisition of these businesses will help the Company expand its domestic operations and presence.

During the years ended December 31, 2016 and 2015, the Company acquired several businesses to complement and expand its fast casual restaurant businesses. In connection with these acquisitions, the Company acquired strategic opportunities to expand its scale and presence in the geographic markets where it operates, to expand into new markets, and to strengthen the Company’s full service and fast casual restaurant businesses.

2016 Acquisition

The Company completed one acquisition during 2016, which was the acquisition of a restaurant location in the Harris YMCA in Charlotte, N.C. to expand our Just Fresh business. The Company allocated the purchase price as of the date of acquisition based on the estimated fair value of the acquired assets and assumed liabilities. In consideration of the purchased assets, the Company paid a purchase price totaling $72,215 in cash, of which $1,611 was allocated to acquired inventory and $70,604 to goodwill. The equipment and other assets used in the operation of the business are property of the YMCA and no other tangible or identifiable intangible assets other than inventory were acquired, with the balance being allocated to goodwill.

No proforma information was included as the proforma impact of the acquisition is not material.

2015 Acquisitions

During the year ended December 31, 2015, the Company acquired three businesses to complement and expand its current operations in the Better Burger fast casual restaurant category. In connection with these acquisitions, the Company acquired strategic opportunities to expand its scale and presence in the Better Burger category.

F-16

Acquisition of BGR: The Burger Joint

The Company completed the acquisition of BGR: The Burger Joint effective March 15, 2015. The Company allocated the purchase price as of the date of acquisition based on appraisals and estimated the fair value of the acquired assets and assumed liabilities. In consideration of the purchased assets, the Company paid a purchase price consisting of $4.0 million in cash, 500,000 shares of the Company’s common stock valued at $1.0 million, and a contractual working capital adjustment of $276,429. The fair value of the shares was the closing stock market price on the date the acquisition was consummated.

Acquisition of BT’s Burger Joint

On July 1, 2015, the Company completed the acquisition with BT’s Burgerjoint Management, LLC, a limited liability company organized under the laws of North Carolina (“BT’s”), including the ownership interests of four operating restaurant subsidiaries engaged in the fast casual hamburger restaurant business under the name “BT’s Burger Joint”. In consideration of the purchased assets, the Company paid a purchase price consisting of $1.4 million in cash and 424,080 shares of the Company’s common stock valued at $1.0 million. The fair value of the shares was the closing stock market price on, the date the deal acquisition was consummated.

Acquisition of Little Big Burger

On September 30, 2015, the Company completed the acquisition of various entities operating eight Little Big Burger restaurants in Oregon. In consideration of the purchased assets, the Company paid a purchase price consisting of $3.6 in cash and 1,874,063 shares of the Company’s common stock valued at $2.1 million. The fair value of the shares was the closing stock market price on the date the acquisition was consummated.

The acquisitions were accounted for using the purchase method of accounting in accordance with ASC 805 “Business Combinations” and, accordingly, the consolidated statements of operations and comprehensive loss include the results of these operations from the dates of acquisition. The assets acquired and the liabilities assumed were recorded at estimated fair values based on information currently available and based on certain assumptions as to future operations as follows:

	2015 Acquisitions
	BGR: The Burger Joint			BT’s Burger Joint			Little Big Burger			Total
Consideration paid:
Common stock	$	1,000,000		$	1,000,848		$	2,061,469		$	4,062,317
Cash		4,276,429			1,400,000			3,600,000			9,276,429
Total consideration paid	$	5,276,429		$	2,400,848		$	5,661,469		$	13,338,746

Cash acquired		11,000			8,000			234,638			253,638
Property and equipment		2,164,023			1,511,270			1,711,990			5,387,283
Goodwill		663,037			1,040,542			2,938,279			4,641,858
Trademark/trade name/franchise fee		2,750,000			-			1,550,000			4,300,000
Inventory, deposits and other assets		296,104			103,451			73,779			473,334
Accounts held in escrow to satisfy acquired liabilities		-			-			675,000			675,000
Total assets acquired, less cash		5,884,164			2,663,263			7,183,686			15,731,113
Liabilities assumed		(607,735	)		(262,415	)		(949,857	)		(1,820,007	)
Deferred tax liabilities		-			-			(572,360	)		(572,360	)
Total consideration paid	$	5,276,429		$	2,400,848		$	5,661,469		$	13,338,746

F-17

4. INVESTMENTS

Investments at cost consist of the following at December 31, 2016 and 2015:

	2016		2015

Chanticleer Investors, LLC	$	800,000	$	800,000

Chanticleer Investors LLC –The Company invested $800,000 during 2011 and 2012 in exchange for a 22% ownership stake in Chanticleer Investors, LLC., which in turn holds a 3% interest in Hooters of America, the operator and franchisor of the Hooters Brand worldwide.

In November 2015, the Company received a cash distribution totaling $543,130 on its 3% equity interest in Hooters of America, of which $324,054 is included in management fee income and $219,076 in other income in the accompanying consolidated statements of operations and comprehensive loss. Hooters of America did not make distributions in 2016, instead retaining its cash flow for investment in additional company store locations.

5. DISCONTINUED OPERATIONS

In June 2016, the Company approved a plan to exit the Australia and Eastern Europe markets, authorizing management to sell or close its five Hooters stores in Australia and its one store in Budapest.

The Company completed the sale of the Hooters Australia and Budapest stores during the third quarter of 2016, transferring substantially all of the assets and liabilities of those operations to the local operating groups. In both cases, the Company did not receive any proceeds from the transfer, although in the case of Hooters Australia, the Company retained a five-year option to repurchase a 20% interest in the stores for $1.

The carrying amount of major classes of assets and liabilities included as part of discontinued operations are as follows:

	December 31, 2016		December 31, 2015
Cash	$	-	$	303,471
Accounts receivable		-		19,328
Inventory		-		157,079
Property, plant and equipment		-		4,497,168
Goodwill and intangible assets		-		505,138
Other assets		-		500,546
Valuation allowance		-		-
Total		-		5,982,730

Accounts payable and accrued liabilites		-		889,177
Due to affiliates		-		390,779
Deferred rent		-		58,647
Total		-		1,338,603

Net Assets of discontinued operations	$	-	$	4,644,127

F-18

The major line items comprising the loss of discontinued operations are as follows:

	Year Ended
	December 31, 2016			December 31, 2015

Revenue	$	3,427,928		$	7,043,222
Restaurant cost of sales		1,196,734			2,281,649
Restaurant operating expenses		2,780,441			5,137,605
Restaurant pre-opening and closing expenses		-			258,850
General and administrative expenses		296,343			616,740
Depreciation and amortization		436,144			667,453
Other		22,893			(34,328	)
Loss of discontinued operations		(1,304,627	)		(1,884,747	)
Loss on write-down of net assets		(3,762,253	)		(4,489,043	)
Total pretax loss of discontinued operations		(5,066,880	)		(6,373,790	)
Income tax		-			-
Loss on discontinued operations	$	(5,066,880	)	$	(6,373,790	)

6. PROPERTY AND EQUIPMENT

Property and equipment consists of the following at December 31, 2016 and 2015:

	December 31, 2016			December 31, 2015
Leasehold improvements	$	10,363,996		$	10,094,130
Restaurant furniture and equipment		6,716,926			6,243,196
Construction in progress		582,265			-
Office and computer equipment		68,303			5,470
Land and buildings		826,664			708,020
Office furniture and fixtures		108,030			104,406
		18,666,184			17,155,222
Accumulated depreciation and amortization		(7,152,491	)		(5,011,158	)
	$	11,513,693		$	12,144,064

Depreciation and amortization expense was $2,029,804 and $1,468,144 for the years ended December 31, 2016 and 2015, respectively.

F-19

7. INTANGIBLE ASSETS, NET

GOODWILL

Goodwill consist of the following at December 31, 2016 and December 31, 2015:

	December 31, 2016		December 31, 2015
Hooters Full Service	$	4,461,167	$	4,890,332
Better Burgers Fast Casual		7,448,848		7,386,656
Just Fresh Fast Casual		495,755		425,151
	$	12,405,770	$	12,702,139

The changes in the carrying amount of goodwill are summarized as follows:

	December 31, 2016			December 31, 2015
Beginning Balance	$	12,702,139		$	8,325,979
Acquisitions		70,604			4,579,666
Adjustments		62,192			-
Foreign currency translation (loss) gain		(429,165	)		(203,506	)
Ending Balance	$	12,405,770		$	12,702,139

An evaluation was completed effective December 31, 2016 at which time the Company determined that no impairment was necessary for any of the Company’s goodwill balances.

F-20

OTHER INTANGIBLE ASSETS

Franchise and trademark/tradename intangible assets consist of the following at December 31, 2016 and December 31, 2015:

	Estimated Useful Life	December 31, 2016			December 31, 2015
Trademark, Tradenames:
Just Fresh	10 years	$	1,010,000		$	1,010,000
American Roadside Burger	10 years		1,786,930			1,786,930
BGR: The Burger Joint	Indefinte		1,430,000			1,430,000
Little Big Burger	Indefinte		1,550,000			1,550,000
			5,776,930			5,776,930
Franchise fees:
Hooters South Africa	20 years		322,258			286,732
Hooters Pacific NW	20 years		88,826			90,000
BGR: The Burger Joint	Indefinite		1,320,000			1,320,000
Hooters UK	20 years		30,848			-
			1,761,932			1,696,732
Total Intangibles at cost			7,538,862			7,473,662
Accumulated amortization			(1,008,619	)		(696,726	)
Intangible assets, net		$	6,530,243		$	6,776,936

	Year Ended
	December 31, 2016		December 31, 2015
Amortization expense	$	311,893	$	229,370

F-21

8. LONG-TERM DEBT AND NOTES PAYABLE

Long-term debt and notes payable are summarized as follows.

	December 31, 2016		December 31, 2015

Note Payable, due January 2017, net of discount of $0 and $171,868, respectively (a)	$	5,000,000	$	4,828,132

Note Payable, due April 2017 (b)		725,231		942,918

Note Payable, due October 2018 (c )		85,974		132,596

Mortgage Note, South Africa, due July 2024 (d)		215,962		208,131

Bank overdraft facilities, South Africa, annual renewal (e )		124,598		180,377

Equipment financing arrangements, South Africa (f)		145,430		189,490

Receivable financing facilities (g)		161,899		-

Total long-term debt	$	6,459,094	$	6,481,644
Current portion of long-term debt		6,171,649		5,383,003
Long-term debt, less current portion	$	287,445	$	1,098,641

(a) The Company has a note payable of $5 million with Florida Mezzanine Fund. The note obligation was assumed in connection with Company’s acquisition of Hooter’s Australia, which the Company subsequently discontinued. The note, which bears interest at an annualized rate of 12%, was originally due and payable effective December 31, 2016. In connection with the Company’s agreement to conduct capital raise and apply a portion of the proceeds to the note, the lender has agreed to waive defaults and extend the note maturity by eighteen months. The Company is continuing to negotiate with the lender for changes to the current payment and other terms. While the lender has not demanded repayment, discussions are ongoing and it is unclear if the lender agrees that the Company met all terms of the extension as of December 31, 2016; therefore, the note continues to be reflected as a current liability on the December 31, 2016 balance sheet.

In connection with the payment of past due interest, the Company issued 562,900 shares of its common stock to the lender. Concurrently, the Company entered into a put agreement with Florida Mezzanine Fund during 2016 which provides the lender the right to require the Company to repurchase those shares at a price of $0.62 cents per share. This put right originally expired in January 2017 and was subsequently extended to March 31, 2017, and may likely be extended beyond that date in connection with other discussion with the lender. The shares subject to the repurchase obligation have been reflected as a redeemable temporary equity on the accompanying consolidated balance sheet as of December 31, 2016.

(b) The Company has a $1 million term note payable with Paragon Bank with a current balance of $0.7 million. The note bears interest at 5.0%, and is payable in monthly installments of principal and interest of $8,500 with a $392,325 balloon payment due at maturity. Paragon’s note is collateralized by substantially all of the Company’s assets and guaranteed by an officer of the Company. The notes matured in January 2017 and Paragon has extended the maturity through April 2017.

(c) The Company has a note payable with Paragon due on October 10, 2018, bearing interest at a 5% annual rate, with principal and interest monthly payments of $11,532. Paragon’s note is collateralized by substantially all of the Company’s assets and guaranteed by an officer of the Company.

(d) In April 2014, our South African subsidiary entered into a mortgage note with a South African bank for the purchase of the building in Port Elizabeth for our Hooters location. The 10-year note as originally entered into for $330,220 with an annual interest rate of 2.6% above the South African prime rate (prime currently 9.25%). Monthly principal and interest payments are approximately $4,600. The mortgage note is personally guaranteed by our CEO and South African COO and secured by the assets of the Port Elizabeth building.

F-22

(e) The Company’s South African subsidiary has local bank financing in the form of term and overdraft facilities, which are payable on demand and renew annually.

(f) The Company’s South African subsidiary has three local equipment financing arrangements in the form of term loans. The obligations bear interest at South African Prime plus 3.0% with monthly payments through maturity are various dates in 2018 and 2019.

(g) The Company entered into two Receivables Financing Agreements during 2016. During the third calendar quarter of 2016, in consideration for proceeds to the Company of $125,000, the Company agreed to remit a total of $156,250 from the merchant accounts of two of its restaurant locations directly to the lender over an estimated nine-month period. The daily amounts to be remitted to the lender, and the resulting term under which the borrowings will ultimately be outstanding, are based on remitting approximately 5% of the total daily credit card receipts of the two restaurant locations resulting the in $156,250 being paid in full approximately nine months from inception.

During the fourth quarter of 2016, in consideration for additional proceeds of $150,000, the Company added this amount to the aforementioned agreement and agreed to remit a total of $270,773 from the merchant accounts of one of its restaurant locations directly to a lender. The Company agreed to make payments of $1,547 per day for 175 business days.

The Company granted a security interest in the credit card receivables of the specified restaurants in connection with the Receivables Financing Agreements.

9. cONVERTIBLE NOTEs PAYABLE

Convertible Notes payable are summarized as follows:

	December 31, 2016			December 31, 2015

6% Convertible notes payable issued in August 2013 (a)	$	3,000,000		$	3,000,000
Discounts on above convertible note		-			(583,341	)
Discounts on above convertible note		-			-
8% Convertible notes payable issued in Nov/Dec 2014 (b)		100,000			100,000
Discounts on above convertible note		-			-
8% Convertible notes payable issued in January 2015 (c )		150,000			150,000
Discounts on above convertible note		(46,936	)		(93,231	)
8% Convertible notes payable issued in January 2015 (d)		475,000			475,000
Discounts on above convertible note		-			(238,152	)
Total Convertible notes payable		3,678,064			2,810,276
Current portion of convertible notes payable		-			(2,810,276	)
Convertible notes payable, less current portion	$	3,678,064		$	-

(a) On August 2, 2013, the Company entered into an agreement with seven individual accredited investors, whereby the Company issued separate 6% Secured Subordinate Convertible Notes for a total of $3,000,000 in a private offering and is collateralized by the assets of the Hooters Nottingham restaurant and a subordinate position to all other assets of the Company. The funding from the private offering was used exclusively for the acquisition of the Nottingham, England Hooters restaurant location. The Notes, which had reached maturity on December 31, 2016, contained the following principal terms:

	●	the principal amount of the Note shall be repaid within 36 months of the issuance date at a non-compounded 6% interest rate per annum;

	●	the Note holders shall receive 10%, pro rata, of the net profit of the Nottingham, England Hooters restaurant, paid quarterly for the life of the location, and 10% of the net proceeds should the location be sold;

F-23

	●	the consortium of investors received a total of 300,000 three-year warrants, exercisable at $3.00 per share;

	●	the Note holder may convert his or her Note into shares of the Company’s common stock (at 90% of the average closing price ten days prior to conversion, unless a public offering is pending at the time of the conversion notice, which would result in the conversion price being the same price as the offering). The conversion price is subject to a floor of $1.00 per share;

	●	the Note holder has the right to redeem the Note for a period of sixty days following the eighteen-month anniversary of the issuance of the Note, unless a capital raise is conducted within eighteen months after the issuance of the Note. In connection with the issuance of the Note, the Company also issued warrants for the purchase of 300,000 shares of the Company’s common stock at an exercise price of $3.00 per share through August 2, 2016.

In connection with the Company’s agreement to conduct capital raise and apply a portion of the proceeds to the notes, the lenders agreed to waive defaults and extend the note maturity by eighteen months (to June 30, 2018). The notes were classified as current liabilities as of December 31, 2015. The notes have been reflected as a non-current liability on the December 31, 2016 balance sheet as the waiver and extension was received prior to the issuance of the consolidated financial statements.

(b) During November and December 2014, the Company entered into agreements whereby the Company issued 3-year convertible notes in the amounts of $250,000 and $100,000, respectively. The notes accrue annualized interest of 8% until the date the notes are converted. The notes are convertible into the Company’s common stock (at 85% of lowest three (3) trading prices for the common stock during the ten (10) trading day period ending on the last complete Trading Day prior to the Conversion Date. The Company also issued 5 year warrants of 62,500 and 25,000, respectively, with an exercise price of $2.50 per share. In March 2015, the debt holder converted $250,000 principal plus accrued interest into 168,713 shares of the Company’s common stock. In connection with the conversion, the Company recognized a loss on extinguishment of convertible debt, related accrued interest, penalties and derivative liabilities totaling $88,724.

In March 2017, subsequent to the date of these financial statements, the Company and the lenders agreed to exchange the convertible notes for a new note with a 2-year term (due March, 2019), interest at 2%, and a $0.30 conversion price (see Note 16 - Subsequent Events). The notes have been reflected as a non-current liability on the December 31, 2016 balance sheet as the waiver and extension was received prior to the issuance of the consolidated financial statements.

(c) In January 2015, the Company issued a convertible promissory note for a total of $150,000. The note accrues interest at 8% per annum until the date the notes are converted. The notes are convertible into the Company’s common stock at 85% of the average of the lowest three closing trading prices over ten days prior the conversion date. The conversion price is subject to a floor of $1.00 per share and a ceiling of $2.00. If not converted, the note matures three years from the issuance date. The Company also issued warrants to purchase 37,500 shares of common stock, exercisable at $2.50 per share for a period of up to 5 years from the note’s original issuance date. The fair value of the embedded conversion feature and the warrants was $108,600 and $30,314, respectively. The resulting debt discount is being amortized over the earlier of (i) the term of the debt or (ii) conversion of the debt, using the straight-line method which approximates the interest method. The amortization of debt discount is included as a component of interest expense in the consolidated statements of operations and comprehensive loss. The embedded conversion feature is accounted for as a derivative liability in the accompanying condensed consolidated balance sheet, with its carrying value marked to market at each balance sheet date.

In March 2017, subsequent to the date of these financial statements, the Company and the lenders agreed to exchange the convertible notes for a new note with a 2-year term due March, 2019, interest at 2%, and a $0.30 conversion price (see Note 16 - Subsequent Events). The notes have been reflected as a non-current liability on the December 31, 2016 balance sheet as the waiver and extension was received prior to the issuance of the consolidated financial statements.

F-24

(d) In January 2015, the Company issued convertible promissory notes for $1,000,000. The notes accrue interest at 8% per annum until the date the notes are converted. The notes are convertible into the Company’s common stock at 85% of the average of the lowest three closing trading prices over ten days prior the conversion date. The conversion price is subject to a floor of $1.00 per share and a ceiling of $2.00. If not converted, the notes mature three years from the issuance date. The holder could demand payment in full after one year from the issuance date. The Company also issued warrants to purchase 250,000 shares of common stock, exercisable at $2.50 per share for a period of up to 5 years from the note’s original issuance date. The fair value of the embedded conversion feature and the warrants was $670,300 and $202,358, respectively. The resulting debt discount is being amortized over the earlier of (i) the term of the debt or (ii) conversion of the debt, using the straight-line method which approximates the interest method. The amortization of debt discount is included as a component of interest expense in the condensed consolidated statements of operations and comprehensive loss. The embedded conversion feature is accounted for as a derivative liability in the accompanying consolidated balance sheet, with its carrying value marked to market at each balance sheet date. $525,000 of the $1,000,000 note has been converted into common stock during 2015. In connection with the conversions, the Company recognized a loss on extinguishment of convertible debt, related accrued interest, penalties and derivative liabilities totaling $145,833 during 2015.

In addition, in March 2015, the Company issued a convertible promissory note for $1,000,000. During June 2015, this $1,000,000 million note was converted into 500,000 shares of common stock at the $2.00 per share contractual conversion price. The note accrued interest at 9% per annum until the date the note was converted. The note was convertible into the Company’s common stock at $2.00 per share. If not converted, the note matured two years from the issuance date. The Company also issued warrants to purchase 320,000 shares of common stock, exercisable at $2.50 per share for a period of up to 5 years from the note’s original issuance date. The fair value of the embedded conversion feature and the warrants on the date of issuance was $455,008 and $315,008, respectively. The resulting debt discount was being amortized over the earlier of (i) the term of the debt or (ii) conversion of the debt, using the straight-line method which approximates the interest method. The amortization of debt discount is included as a component of interest expense in the consolidated statements of operations and comprehensive loss. The embedded conversion feature is accounted for as a component of additional paid-in capital in the accompanying consolidated balance sheet. On the date of conversion, $643,371 of unamortized debt discount was accelerated and recognized as interest expense in the accompanying condensed consolidated statement of operations and comprehensive loss.

10. ACCOUNTS PAYABLE AND ACCRUED Expenses

Accounts payable and accrued expenses are summarized as follows:

	December 31, 2016		December 31, 2015

Accounts payable and accrued expenses	$	3,807,880	$	3,547,174
Accrued taxes (VAT, Sales Payroll)		988,056		784,842
Accrued income taxes		71,713		27,709
Accrued interest		685,419		380,406
	$	5,553,068	$	4,740,131

F-25

11. INCOME TAXES

The breakout of the loss from continuing operations before income taxes between domestic and foreign operations is below:

	2016			2015
Income (Loss) from continuing operations before income taxes
United States	$	(4,155,057	)	$	(7,828,941	)
Foreign		7,486			(65,346	)
	$	(4,147,571	)	$	(7,894,285	)

The Income Tax (benefit) provision from continuing operations consists of the following:

Foreign
Current	$	66,680		$	93,037
Deferred		55,670			135,280
Change in Valuation Allowance		(55,670	)		(135,280	)
U.S. Federal
Current		-			-
Deferred		(1,614,833	)		(1,838,235	)
Change in Valuation Allowance		1,734,224			1,922,815
State & Local
Current		-			-
Deferred		(167,597	)		(216,263	)
Change in Valuation Allowance		179,989			226,214
	$	198,463		$	187,568

The (benefit) provision for income tax, from continuing operations, using statutory U.S. federal tax rate of 34% is reconciled to the company’s effective tax rate as follows:

	2016			2015
Computed “expected” income tax benefit	$	(1,410,174	)	$	(2,684,057	)
State income taxes, net of federal benefit		(146,357	)		(315,771	)
Foreign rate differential		-			87,657
Prior year true-ups other deferred tax balances		(337,713	)		322,936
Permanent Items		27,219			11,698
Capital loss expiration		-			333,837
Convertible Debt Issuances and conversions		-			482,018
Foreign Tax Expense		66,680			93,037
Other		140,265			(157,536	)
Change in valuation allowance		1,858,543			2,013,749
Effective Rate	$	198,463		$	187,568

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting and the amounts used for tax purposes. Major components of deferred tax assets for continuing operations at December 31, 2016 and 2015 were:

	2016			2015
Net operating loss carryforwards	$	9,291,804		$	8,612,906
Capital loss carryforwards		152,772			154,700
Section 1231 loss carryforwards		111,506			15,080
Charitable contribution carryforwards		33,998			16,815
Derivative liability		0			468,011
Other		260,086			190,551
Restaurant startup costs		89,159			137,893
Accrued Expenses		686,321			36,182
Deferred occupancy liabilities		261,181			290,500
Total deferred Tax Assets		10,886,827			9,922,638

Property and equipment		(765,187	)		(978,583	)
Convertible debt		(17,611	)		(811,177	)
Investments		(80,246	)		(90,200	)
Intangibles and Goodwill		(536,891	)		(282,547	)
Total deferred tax liabilities		(1,399,935	)		(2,162,507	)

Net deferred tax assets		9,486,892			7,760,131
Valuation Allowance		(10,972,446	)		(9,113,900	)
	$	(1,485,554	)	$	(1,353,771	)

F-26

Excluded from the above table of deferred tax assets are approximately $2,940,000 and $3,213,000 for net operating loss carryforwards and related valuation allowances for discontinued operations at December 31, 2016 and 2015, respectively.

As of December 31, 2016 and 2015, the company has U.S. federal and state net operating loss carryovers of approximately $32,893,000 and $29,635,000 respectively, which will expire at various dates beginning in 2031 through 2036, if not utilized. As of December 31, 2016 and 2015 the company has foreign net operating loss carryovers of approximately $1,352,000 (for South Africa) and $2,284,000 ($701,000 for Hungary, $1,175,000 for South Africa, and $408,000 for Australia) respectively. Depending on the jurisdiction, some of these net operating loss carryovers will begin to expire within 5 years, while other net operating losses can be carried forward indefinitely as long as the company is trading. The company has a capital loss carryforward of $407,000 which expires between 2016 and 2017 if not utilized. In accordance with Section 382 of the internal revenue code, deductibility of the company’s U.S. net operating loss carryovers may be subject to an annual limitation in the event of a change of control as defined under the Section 382 regulations. Quarterly ownership changes for the past 3 years were analyzed and it was determined that there was no change of control as of December 31, 2016.

In assessing the realization of deferred tax assets, Management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. After consideration of all of the information available, Management believes that significant uncertainty exists with respect to future realization of the deferred tax assets and has therefore established a full valuation allowance. For the years ended December 31, 2016 and December 31, 2015 the change in valuation allowance related to continuing operations was approximately $1,858,543 and $2,013,749, respectively.

The company evaluated the provisions of ASC 740 related to the accounting for uncertainty in income taxes recognized in their financial statements. ASC 740 prescribes a comprehensive model for how a company should recognize, present, and disclose uncertain positions that the company has taken or expects to take in its return. For those benefits to be recognized, a tax position must be more-likely-than- not to be sustained upon examination by taxing authorities. Differences between two positions taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits”. A liability is recognized for an unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing-authority for a tax position that was not recognized as a result of applying the provisions of ASC 740.

Interest related to uncertain tax positions are required to be calculated, if applicable, and would be classified as “interest expense” in the two statements of operations. Penalties would be recognized as a component of “general and administrative expenses”. As of December 31, 2016 and 2015 no interest or penalties were required to be reported.

F-27

No provision was made for U.S. or foreign taxes on approximately $1,267,000 of undistributed earnings of the Company as such earnings are considered to be permanently reinvested. Such earnings have been, and will continue to be, reinvested, but could become subject to additional tax if they were remitted as dividends, loaned to the Company, or if the Company should sell its interests in the foreign entities. It is not practicable to determine the amount of additional tax, if any, that might be payable on the undistributed earnings or on any book-tax basis differences. Earnings from the U.K. subsidiary are no longer considered to be permanently reinvested. Therefore, for deferred tax purposes only, the company has deemed the earnings to be repatriated to the parent company as a dividend. This deemed dividend is fully offset by the company’s net operating losses, so there is no deferred tax expense on the deemed repatriation.

12. STOCKHOLDERS’ EQUITY

The Company had 45,000,000 shares of its $0.0001 par value common stock authorized at both December 31, 2016 and December 31, 2015. The Company had 21,394,247 and 21,337,247 shares issued and outstanding at December 31, 2016 and December 31, 2015, respectively.

The Company has 5,000,000 shares of its no par value preferred stock authorized at both December 31, 2016 and December 31, 2015.

Beginning in December 2016, the Company conducted a rights offering of units, each unit consisting of one share of 9% Redeemable Series 1 Preferred Stock (“Series 1 Preferred”) and one Series 1 Warrant (“Series 1 Warrant”) to purchase 10 shares of common stock. Holders of the Series 1 Preferred are entitled to receive cumulative dividends out of legally available funds at the rate of 9% of the purchase price per year for a term of seven years, payable quarterly on the last day of March, June, September and December in each year in cash or registered common stock. Shares of common stock issued as dividends will be issued at a 10% discount to the five-day volume weighted average price per share of common stock prior to the date of issuance. Dividends will be paid prior to any dividend to the holders of common stock. The Series 1 Preferred in non-voting and has a liquidation preference of $13.50 per share, equal to its purchase price. Chanticleer is required to redeem the outstanding Series 1 Preferred at the expiration of the seven-year term.. The redemption price for any shares of Series 1 Preferred will be an amount equal to the $13.50 purchase price per share plus any accrued but unpaid dividends to the date fixed for redemption.

As of December 31, 2016, 19,050 shares of preferred stock were issued pursuant to the Preferred Stock Units rights offering. In addition, 43,826 additional shares were issued following in February 2016 for a total of 62,876 issued and outstanding as the date of this report (See Note 16 Subsequent Events).

In connection with the payment of past due interest on its $5 million note payable, the Company issued 562,900 shares of its common stock to the lender. Concurrently, the Company entered into a put agreement with Florida Mezzanine Fund during 2016 which provides the lender the right to require the Company to repurchase those shares at a price of $0.62 cents per share. This put right originally expired in January 2017 and was subsequently extended to March 31, 2017, and may conceivably be extended beyond that date in connection with ongoing discussion with the lender. The shares subject to the repurchase obligation have been reflected as a redeemable temporary equity on the accompanying consolidated balance sheet as of December 31, 2016.

Options and Warrants

The Company’s shareholders have approved the Chanticleer Holdings, Inc. 2014 Stock Incentive Plan (the “2014 Plan”), authorizing the issuance of options, stock appreciation rights, restricted stock awards and units, performance shares and units, phantom stock and other stock-based and dividend equivalent awards. Pursuant to the approved 2014 Plan, 4,000,000 shares have been approved for grant.

As of December 31, 2016, the Company had issued 325,340 restricted and unrestricted shares on a cumulative basis under the plan pursuant to compensatory arrangements with employees, board members and outside consultants. No employee stock options have been issued or are outstanding as of December 31, 2016 and December 31, 2015. The Company issued 150,000 restricted stock units to employees during 2016. Approximately 3,674,660 shares remained available for grant in the future.

F-28

The Company also has issued warrants to investors in connection with financing transactions. Fair value of any warrant issuances is valued utilizing the Black-Scholes model. The model includes subjective input assumptions that can materially affect the fair value estimates. The expected stock price volatility for the Company’s warrants was determined by the historical volatilities for industry peers and used an average of those volatilities.

A summary of the warrant activity during the years ended December 31, 2016 and 2015 is presented below:

	Number of Warrants			Weighted Average Exercise Price			Weighted Average Remaining Life

Outstanding January 1, 2016		9,506,304		$	4.93			1.5
Granted		190,500			1.35			7.0
Exercised		-			-
Forfeited		(474,772	)		(2.63	)		-
Outstanding December 31, 2016		9,222,032		$	4.98			1.7

Exercisable December 31, 2016		9,222,032		$	4.98			1.7

Exercise Price	Outstanding Number of Warrants		Weighted Average Remaining Life in Years		Exerciseable Number of Warrants


> $4.00		7,439,631		1.5		7,439,631
$3.00-$3.99		499,901		2.6		499,901
$2.00-$2.99		779,500		3.1		779,500
$1.00-$1.99		503,000		4.3		503,000
		9,222,032				9,222,032

13. 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, 2016 and 2015 are as follows:

	December 31, 2016		December 31, 2015

Hoot SA I, LLC	$	-	$	12,963
Chanticleer Investors, LLC		194,350		-
	$	194,350	$	12,963

The amount from Chanticleer Investors LLC is related to cash distributions received from Chanticleer Investors LLC’s interest Hooters of America which is payable to the Company’s co-investors in that investment.

F-29

14. SEGMENTS OF BUSINESS

The Company is in the business of operating restaurants and its operations are organized by geographic region and by brand within each region. Further each restaurant location produces monthly financial statements at the individual store level. The Company’s chief operating decision maker reviews revenues and profitability at the individual restaurant location level, as well as for Full Service Hooters, Better Burger Fast Casual and Just Fresh Fast Casual level, and corporate as a group.

The following are revenues and operating income (loss) from continuing operations by segment as of and for the years ended December 31, 2016 and 2015. The Company does not aggregate or review non-current assets at the segment level.

	Year Ended
	December 31, 2016			December 31, 2015
Revenue:
Hooters Full Service	$	13,328,809		$	14,887,874
Better Burgers Fast Casual		22,588,557			14,542,094
Just Fresh Fast Casual		5,684,635			5,498,790
Corporate and Other		100,000			424,829
	$	41,702,001		$	35,353,587

Operating Income (Loss):
Hooters Full Service	$	116,843		$	(194,442	)
Better Burgers Fast Casual		(372,401	)		(1,356,984	)
Just Fresh Fast Casual		(33,529	)		(33,248	)
Corporate and Other		(2,330,801	)		(3,495,125	)
	$	(2,619,888	)	$	(5,079,799	)

Depreciation and Amortization
Hooters Full Service	$	534,210		$	541,799
Better Burgers Fast Casual		1,481,005			969,331
Just Fresh Fast Casual		323,108			182,173
Corporate and Other		3,374			4,211
	$	2,341,697		$	1,697,514

The following are revenues and operating income (loss) from continuing operations and non-current assets by geographic region as of and for the years ended December 31, 2016 and 2015.

F-30

	Year Ended
	December 31, 2016			December 31, 2015
Revenue:
United States	$	33,374,791		$	25,528,468
South Africa		5,409,648			6,430,524
Europe		2,917,562			3,394,595
	$	41,702,001		$	35,353,587

Operating Income (Loss):
United States	$	(2,712,766	)	$	(5,114,687	)
South Africa		(114,971	)		(162,228	)
Europe		207,849			197,116
	$	(2,619,888	)	$	(5,079,799	)

Non-current Assets:	December 31, 2016		December 31, 2015
United States	$	26,812,062	$	33,417,290
South Africa		2,519,135		2,186,644
Europe		2,361,246		2,782,697
	$	31,692,443	$	38,386,631

15. COMMITMENTS AND CONTINGENCIES

The Company, through its subsidiaries, leases the land and buildings for our 6 restaurants in South Africa, 1 restaurant in Nottingham, United Kingdom, and 36 restaurants in the U.S. The South Africa leases are for five-year terms and include options to extend the terms. The terms for our U.S. restaurant leases vary from two to ten years and have options to extend. We lease some of our restaurant facilities under “triple net” leases that require us to pay minimum rent, real estate taxes, maintenance costs and insurance premiums and, in some instances, percentage rent based on sales in excess of specified amounts. We also lease our corporate office space in Charlotte, North Carolina.

Rent obligations for are presented below:

	Total
12/31/2017	$	3,887,253
12/31/2018		3,782,172
12/31/2019		3,682,395
12/31/2020		3,239,564
12/31/2021		2,711,403
thereafter		8,587,216
	$	25,890,003

Rent expense for the years ended December 31, 2016 and December 31, 2015 was $3.4 million and $3.0 million respectively. Rent expense for the years ended December 31, 2016 and 2015 for the Company’s restaurants was $3.3 million and $3.0 million, respectively, and is included in the “Restaurant operating expenses” of the Consolidated Statements of Operations and Comprehensive Loss. Rent expense for the years ended December 31, 2016 and 2015 for the non-restaurants was $50 thousand and $35 thousand, and is included in the “General and administrative expense” of the Consolidated Statements of Operations and Comprehensive Loss.

F-31

On March 26, 2013, our South African operations received Notice of Motion filed in the Kwazulu-Natal High Court, Durban, Republic of South Africa, filed against Rolalor (PTY) LTD (“Rolalor”) and Labyrinth Trading 18 (PTY) LTD (“Labyrinth”) by Jennifer Catherine Mary Shaw (“Shaw”). Rolalor and Labyrinth were the original entities formed to operate the Johannesburg and Durban locations, respectively. On September 9, 2011, the assets and the then-disclosed liabilities of these entities were transferred to Tundraspex (PTY) LTD (“Tundraspex”) and Dimaflo (PTY) LTD (“Dimaflo”), respectively. The current entities, Tundraspex and Dimaflo are not parties in the lawsuit. Shaw is requesting that the Respondents, Rolalor and Labyrinth, be wound up in satisfaction of an alleged debt owed in the total amount of R4,082,636 (approximately $480,000). The two Notices were defended and argued in the High Court of South Africa (Durban) on January 31, 2014. Madam Justice Steryi dismissed the action with costs on May 5, 2014. Ms. Shaw appealed this decision and in December 2016, the Court dismissed the Labyrinth case with costs payable to the Company, and allowed the Rolalor case to proceed to liquidation. The Company did not object to the proposed liquidation of Rolalor as the entity has no assets and the Company does not expect there to be any material impact on the Company. No amounts have been accrued as of December 31, 2016 or 2015 in the accompanying consolidated balance sheets.

In connection with our acquisition of Little Big Burger, the sellers agreed that the 1,619,646 shares of the Company’s common stock certain of the sellers received from the Company and an additional $200,000 in cash would be held in escrow until such time as the litigation was fully resolved. The Company reflected the $675,000 settlement amount in accrued liabilities, with an offsetting asset in other current assets, in the accompanying consolidated balance sheets as of December 31, 2015. As of December 31, 2016, the lawsuit had been fully resolved and all amounts paid by the sellers. Accordingly, no amounts are reflected in the Company’s consolildated balance sheet as of December 31, 2016.

From time to time, the Company may be involved in legal proceedings and claims that have arisen in the ordinary course of business. These actions, when ultimately concluded and settled, will not, in the opinion of management, have a material adverse effect upon the financial position, results of operations or cash flows of the company.

16. SUBSEQUENT EVENTS

Rights Offering and Preferred Units

As of December 31, 2016, the Company had issued 19,050 units, each unit consisting of one share of Series 1 Preferred Stock and one Series 1 warrants to purchase 10 shares of Common Stock at a strike price of $1.35 and a 7-year term. The preferred stock is presented as a liability as it is subject to mandatory redemption on the accompanying consolidated balance sheet as of December 31, 2016 (see Note 12 “Stockholder’s Equity).

Subsequent to December 31, 2016 the Company continued its rights offering through February 10, 2017. The total subscription proceeds received by the Company amounted to $848,826 before payment of the dealer-manager and placement agent fees and other offering expenses and the Company issued a total of 62,875 units representing 62,875 shares of Series 1 Preferred Stock and 62,875 warrants which entitle the holders to purchase 628,750 shares of common stock at a price of $13.50 with a 7-year term.

F-32

Receivables Financing Facilities

During February 2017, in consideration for proceeds of $330,000, the Company agreed to remit a total of $412,500 from the merchant accounts of eight of its restaurant locations directly to a lender. The Company agreed to make payments of $1,965 per day for 210 days. The Company has the option to payoff the loan early by remitting a total of $372,900 by the 120^th day.

During March 2017 in consideration for proceeds of $150,000, the Company agreed to remit a total of $205,500 from the merchant accounts of three of its restaurant locations directly to the lender. The Company agreed to make payments of $856.25 per day for 240 days.

The Company granted a security interest in the credit card receivables of the specified restaurants in connection with the Receivables Financing Agreements.

Convertible Note Exchanges

Pursuant to exchange agreements dated and effective March 10, 2017 by and between the Company and four existing note holders, the Company exchanged its 8% convertible notes (see Note 9 - Convertible Debt) in the aggregate principal amount of $725,000, which notes were in default, for new two-year 2% notes, in the aggregate principal amount of $820,107, representing principal and unpaid accrued interest. The original convertible notes were canceled and the new convertible notes may be converted to common stock of the Company, at the option of the holder, at a conversion price of $0.30 per share and may be called by the holder after the one-year anniversary of the exchange date.

F-33

Item 9: Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9A: Controls and Procedures

Evaluation of disclosure controls and procedures

Under the PCAOB standards, a control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit the attention by those responsible for oversight of the company’s financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

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, 2016. Our management has determined that, as of December 31, 2016, the Company’s disclosure controls and procedures were ineffective.

Management’s report on internal control over financial reporting

Management Responsibility for Internal Control over Financial Reporting. Management 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.

Management’s Evaluation of Internal Control over Financial Reporting. Management evaluated our internal control over financial reporting as of December 31, 2016. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission inInternal Control — Integrated Framework. As a result of this assessment and based on the criteria in this framework, management has concluded that, as of December 31, 2016, our internal control over financial reporting was ineffective.

Material Weaknesses

A material weakness is a control deficiency, or a combination of control deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Management identified the following deficiencies in its internal controls over financial reporting:

	●	As the Company recently completed multiple acquisitions in a short period of time, it operated multiple accounting systems using disparate charts of accounts and inconsistent financial close procedures and timetables for a large portion of the current year. The lack of consistency makes it more difficult to ensure that the consolidated financial records are completed timely and on a consistent basis each reporting period, which increases the risk of undetected errors.

	●	The Company’s financial close procedures are not formally documented across the organization with the degree of consistency necessary to ensure that financial statements are prepared consistently and accurately each reporting period.

	●	The Company’s information systems, as well as the organization and storage of critical financial records, were not deemed adequate to ensure the timely ability to recover from a disaster or prevent the accidental loss of critical financial records.

	●	The Company’s financial statements include complex transactions and financial instruments that are subject to extensive technical accounting standards that increase the risk of undetected errors and where the Company’s internal resources do not possess deep technical specialization.

	●	The Company performs extensive reconciliation and manual review procedures to ensure that the financial statements results are accurately presented, however, there is inconsistent and informal documentation of those review procedures.

Management determined that the deficiencies, evaluated in the aggregate, could potentially result in a material misstatement of the consolidated financial statements in a future annual or interim period that would not be prevented or detected. Therefore, the deficiencies constitute material weaknesses in internal control. Based on that evaluation, management determined that our internal controls over financial reporting were not effective as of December 31, 2016,

Remediation Plans

We have initiated several steps and plan to continue to evaluate and implement measures designed to improve our internal control over financial reporting in order to remediate the control deficiencies noted above.

While our evaluation of the appropriate remediation plans is still ongoing, efforts to date have included recruiting additional qualified personnel with experience in financial reporting and internal controls. We have also migrated substantially all of our operations to a common accounting system during 2016 and are now utilizing a common chart of accounts and improved accounting close and review procedures throughout many of our operations.

As of January 1, 2017, the Company continued the remediation process by transitioning the majority of its accounting functions to a more robust central accounting system, consolidated its Burger operations to a common point of sale platform, and automated many of the underling transactional processes to further standardize, streamline and enhance consistency in preparing financial reports. While these changes were not in place in time to have any impact on our assessment as of December 31, 2106, management expects internal controls over financial reporting to improve during 2017 as a result of these actions.

Changes in Internal Control over Financial Reporting — As a result of the acquisitions, the Company has been evaluating additional changes to processes and policies to further standardize the internal control over financial reporting with respect to the monitoring, reporting and consolidation of the financial results of the acquired operations into the Company’s financial statements. Except for the activities described above, there were no changes in the Company’s internal control over financial reporting that occurred during the year ended December 31, 2016, that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B: Other Information

Not applicable.

PART III

ITEM 10. Directors, Executive Officers and Corporate Governance.

Information called for by this item may be found in our definitive Proxy Statement in connection with our 2016 Annual Meeting of Shareholders to be filed with the SEC under the headings “Board of Directors and Management,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Corporate Governance Matters” and is incorporated herein by reference.

ITEM 11. Executive Compensation.

Information called for by this item may be found in our definitive Proxy Statement in connection with our 2016 Annual Meeting of Shareholders to be filed with the SEC under the headings “Executive Compensation” and “Corporate Governance Matters” and is incorporated herein by reference.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Information called for by this item may be found in our definitive Proxy Statement in connection with our 2016 Annual Meeting of Shareholders to be filed with the SEC under the headings “Equity Compensation Plan Information” and “Security Ownership of Certain Beneficial Owners and Management” and is incorporated herein by reference.

ITEM 13. Certain Relationships and Related Transactions, and Director Independence.

Information called for by this item may be found in our definitive Proxy Statement in connection with our 2016 Annual Meeting of Shareholders to be filed with the SEC under the headings “Related Person Transactions” and “Corporate Governance Matters” and is incorporated herein by reference.

ITEM 14. Principal Accountant Fees and Services.

Information called for by this item may be found in our definitive Proxy Statement in connection with our 2016 Annual Meeting of Shareholders to be filed with the SEC under the headings “Independent Registered Public Accounting Firm Fee Information” and “Audit Committee Pre-Approval Policy” and is incorporated herein by reference.

Part IV

Item 15: Exhibits and Financial Statement Schedules

(a)(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, 2016 and 2015

	●	Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2016 and 2015

	●	Consolidated Statements of Stockholders’ Equity at December 31, 2016 and 2015

	●	Consolidated Statements of Cash Flows for the years ended December 31, 2016 and 2015

	●	Notes to the Consolidated Financial Statements

(a)(2) Financial Statements Schedules.

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

(a)(3) Exhibits Filed.

The exhibits listed in the accompanying Exhibit Index are filed as a part of this report.

(b) Exhibits.

See Exhibit Index.

(c) Separate Financial Statements and Schedules.

None.

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 31, 2017.

	CHANTICLEER HOLDINGS, INC.

	By:	/s/ Michael D. Pruitt
		Michael D. Pruitt, Chairman
		and Chief Executive 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)	Signature

March 31, 2017	Chairman, Chief Executive Officer,	/s/ Michael D. Pruitt
	and Principal Executive Officer	Michael D. Pruitt

March 31, 2017	Chief Financial Officer and Principal	/s/ Eric S. Lederer
	Accounting Officer	Eric S. Lederer

March 31, 2017	Director	/s/ Greg Kraut
		Greg Kraut

March 31, 2017	Director	/s/ Russell J. Page
		Russell J. Page

March 31, 2017	Director	/s/ Neil Kiefer
		Neil Kiefer

March 31, 2017	Director	/s/ Keith Johnson
		Keith Johnson

EXHIBIT INDEX

Exhibit		Description

2.1		Purchase Agreements for Australian Entities dated June 30, 2014 (Incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K, filed with the SEC on July 3, 2014)

3.1		Certificate of Incorporation (Incorporated by reference to the Exhibit 3.1.A to our Registration Statement on Form 10SB-12G, filed with the SEC on February 15, 2000 (File No. 000-29507)

3.2		Certificate of Merger, filed May 2, 2005 (Incorporated by reference to Exhibit 2.1 filed with our Quarterly Report on Form 10-Q, filed with the SEC on August 15, 2011)

3.3		Certificate of Amendment, filed July 16, 2008 (Incorporated by reference to Exhibit 3.1 filed with our Registration Statement on Form S-1/A (Registration No. 333-178307), filed with the SEC on February 3, 2012)

3.4		Certificate of Amendment, filed March 18, 2011 Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K, filed with the SEC on March 18, 2011)

3.5		Certificate of Amendment, filed May 23, 2012 (Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K, filed with the SEC on May 24, 2012)

3.6		Certificate of Amendment, filed February 3, 2014 (Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K, filed with the SEC on February 4, 2014)

3.7		Certificate of Amendment, filed October 2, 2014 (Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K, filed with the SEC on October 2, 2014)
3.8		Form of Certificate of Designation of the Series 1 Preferred Stock (Incorporated by reference to Exhibit 3.8 to Registration Statement on Form S-1 (Registration No. 333-214319, as filed December 5, 2016)

3.8		Bylaws (Incorporated by reference to Exhibit 3.II.A to our Registration Statement on Form 10SB-12G, filed with the SEC on February 15, 2000 (File No. 000-29507))

4.1		Form of Common Stock Certificate (Incorporated by reference to Exhibit 4.1 to our Registration Statement on Form S-1 (Registration No. 333-178307), filed with the SEC on December 2, 2011)

4.2		Form of Unit Certificate dated June 2012 (Incorporated by reference to Exhibit 4.2 to our Registration Statement on Form S-1/A (Registration No. 333-178307), filed with the SEC on May 30, 2012)

4.3		Form of Warrant Agency Agreement dated June 2012 with Form of Warrant Certificate with $6.50 Exercise Price (Incorporated by reference to Exhibit 4.4 to our Registration Statement on Form S-1/A (Registration No. 333-178307), filed with the SEC on May 30, 2012)

4.4		Form of 6% Secured Subordinate Convertible Note dated August 2013 (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed with the SEC on August 5, 2013)

4.5		Form of Warrant for August 2013 Convertible Note with $3.00 Exercise Price (Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K, filed with the SEC on August 5, 2013).

4.6		Form of Warrant for September 2013 Merger Agreement with $5.00 Exercise Price (Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K, filed with the SEC on October 1, 2013)

4.7		Form of Warrant for September 2013 Subscription Agreement with $5.00 Exercise Price (Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K, filed with the SEC on October 10, 2013)

4.8		Form of Warrant for November 2013 Subscription Agreement with $5.50 and $7.00 Exercise Price (Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K, filed with the SEC on November 13, 2013)

4.9		Form of Warrant for January 2015 Subscription Agreement with $2.50 Exercise Price (Incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K/A, filed with the SEC on January 9, 2015)

10.1		Form of Franchise Agreement between the Company and Hooters of America, LLC (Incorporated by reference to Exhibit 10.2 to our Registration Statement on Form S-1 (Registration No. 333-178307), filed with the SEC on December 2, 2011)

10.2*		Chanticleer Holdings, Inc. 2014 Stock Incentive Plan effective February 3, 2014 (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed with the SEC on February 4, 2014)

10.3		Debt Assumption Agreements, dated July 1, 2014 (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed with the SEC on July 3, 2014)

10.4		Gaming Assignment, dated July 1, 2014 (Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K, filed with the SEC on July 3, 2014)

10.5		Asset Purchase Agreement by and between Chanticleer Holdings, Inc., The Burger Company, LLC and American Burger Morehead, LLC dated September 9, 2014 (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed with the SEC on September 10, 2014)

10.6		Asset Purchase Agreement by and between Chanticleer Holdings, Inc., Dallas Spoon, LLC and Express Working Capital, LLC d/b/a CapRock Services dated December 31, 2014 (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed with the SEC on January 6, 2015)

10.7		Form of Subscription Agreement dated January 2015 (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K/A, filed with the SEC on January 9, 2015)

10.8		Form of Note dated January 2015 (Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K/A, filed with the SEC on January 9, 2015)

10.9		Form of Registration Rights Agreement dated January 2015 (Incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K/A, filed with the SEC on January 9, 2015)

10.10		Asset Purchase Agreement by and between Chanticleer Holdings, Inc., BGR Holdings, LLC and BGR Acquisition LLC, dated February 18, 2015 (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed with the SEC on February 18, 2015)

10.11		Membership Interest Purchase Agreement dated July 31, 2015 (Incorporated by reference to exhibit 10.1 to our Current Report on Form 8-K, filed with the SEC on August 3, 2015)

10.12		Form of Leak Out Agreement dated September 30, 2015 (Incorporated by reference to exhibit 10.2 to our Current Report on Form 8-K, filed with the SEC on October 5, 2015)

10.13		Form of Securities Account Control Agreement dated September 30, 2015 (Incorporated by reference to exhibit 10.3 to our Current Report on Form 8-K, filed with the SEC on October 5, 2015)

10.14		Stock Pledge and Security Agreement dated September 30, 2015 (Incorporated by reference to exhibit 10.4 to our Current Report on Form 8-K, filed with the SEC on October 5, 2015)

10.15		Asset Purchase Agreement by and between Chanticleer Holdings, Inc., BT’s Burgerjoint Management, LLC and BT Burger Acquisition, LLC dated March 31, 2015 (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed with the SEC on March 31, 2015)

10.16		Amendment No. 1 to Asset Purchase Agreement by and between Chanticleer Holdings, Inc., BT’s Burgerjoint Management, LLC and BT Burger Acquisition, LLC dated May 31, 2015 (incorporated by reference to Exhibit 10.7 to Amendment No. 1 to Form S-3, Registration No. 333- 203679, as filed June 3, 2015)

10.17		Form of Securities Purchase Agreement by and between the Company and Carl Caserta dated February 11, 2015 (Incorporated by reference to Exhibit 10.1 to our Registration Statement on Form S-3 filed with the SEC on April 27, 2015)

10.18		Agreement dated April 24, 2015 by and among the Company, AT Media Corp. and Aton Select Fund, Ltd. (Incorporated by reference to Exhibit 10.2 to our Registration Statement on Form S-3 filed with the SEC on April 27, 2015)

10.19		Registration Rights Agreement by and between the Company and Carl Caserta dated February 11, 2015 (Incorporated by reference to Exhibit 10.3 to our Registration Statement on Form S-3 filed with the SEC on April 27, 2015)

10.20		Membership Interest Purchase Agreement dated July 31, 2015 (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K as filed with the SEC on August 3, 2015)

10.21		Form of Leak out Agreement (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K as filed with the SEC on October 5, 2015)

10.22		Form of Securities Account Control Agreement Form of Leak out Agreement (incorporated by reference to Exhibit 10.3 to Current Report on Form 8-K as filed with the SEC on October 5, 2015)

10.23		Stock Pledge and Security Agreement dated September 30, 2015 (incorporated by reference to Exhibit 10.4 to Current Report on Form 8-K as filed with the SEC on October 5, 2015)

10.24		Business sale agreement to purchase the assets of Hoot Campbelltown Pty Ltd and Hoot Penrith Pty Ltd for the purchase price of $390,000 AUD dated August 12, 2015 (Incorporated by reference to Exhibit 10.24 to Annual Report on Form 10K for the period ending December 31, 2015, as filed March 30, 2016)

10.25		Business sale agreement to purchase the assets of Hoot Gold Coast Pty Ltd and Hoot Townsville Pty Limited dated August 12, 2015 (Incorporated by reference to Exhibit 10.25 to Annual Report on Form 10K for the period ending December 31, 2015, as filed March 30, 2016)

10.26		Business sale agreement to purchase the assets of Hoot Parramatta Pty Ltd dated August 13, 2015 (Incorporated by reference to Exhibit 10.26 to Annual Report on Form 10K for the period ending December 31, 2015, as filed March 30, 2016)

10.27		Second Amendment to Assumption and Assignment Agreement dated October 22, 2016 by and between the Company and Florida Mezzanine Fund, LLLP (Incorporated by reference to Exhibit 10.27 to Registration Statement on Form S-1 (Registration No. 333-214319, as filed October 28, 2016)

10.28		Form of Exchange Agreement dated March 10, 2017 by and between the Company and certain note holders+

10.29		Form of 2% Convertible Promissory note issued March 10, 2017+

10.30		Amendment to 6% Secured Subordinated Convertible Note by and between the Company and certain note holder.

21		Subsidiaries of the Company+

23.1		Consent of Cherry Bekaert LLP, Independent Registered Public Accounting Firm+

31.1		Certification of Periodic Report by Michael D. Pruitt, as Chief Executive Officer, pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002+

31.2		Certification of Periodic Report by Eric S. Lederer, as Chief Financial Officer, pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002+

32.1		Certification of Periodic Report by Michael D. Pruitt, as Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002+

32.2		Certification of Periodic Report by Eric S. Lederer, as Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002+

101		The following financial information from our Annual Report on Form 10-K for the year ended December 31, 2014, formatted in XBRL (eXtensible Business Reporting Language) includes: (i) the Consolidated Balance Sheets at December 31, 2015 and December 31, 2014, (ii) the Consolidated Statements of Operations for the years ended December 31, 2015 and December 31, 2014, (iii) the Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2015 and December 31, 2014, (iv) the Consolidated Statements of Cash Flows for the years ended December 31, 2015 and December 31, 2014, and (v) the Notes to the Financial Statements.

* Denotes an executive compensation plan or agreement

+ Filed herewith

Our SEC file number reference for documents filed with the SEC pursuant to the Securities Exchange Act of 1934, as amended, is 001-35570. Prior to June 7, 2012, our SEC file number reference was 000-29507.

Name		Jurisdiction of Incorporation		Percent Owned		Name		Jurisdiction of Incorporation		Percent Owned

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. freshman Avg

Sonnet BioTherapeutics (SONN) 10-K2016 FY Annual report

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