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Hooters Looks to Catch Wife's Eye as Tight Shorts Rule


Parsad
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Chanticleer released an 8-K saying that they fired their South African CFO, as the financials for the properties had not been audited as the company was led to believe.  Preliminary reviews show revenues were accurate and there was no misappropriation.  A detailed review and audit is being conducted.  They need to learn from this, tighten and implement better accounting controls for all of their properties.  Cheers!

 

http://biz.yahoo.com/e/120910/hotr8-k.html

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Several years ago, I thought about investment in Chanticleer fund since it is a value fund and did some background research on Mr. Pruitt. I concluded that Mr. Pruitt’s business involvements and his records made me uncomfortable and I did not invest. I still think so about Mr. Pruitt and investment in his company today.

 

Businesses that Mr. Pruitt has involved come to the market to raise capital periodically, but the operations continue to accumulate substantial losses. “These conditions raise substantial doubt about Chanticleer Holdings, Inc. and Subsidiaries’ ability to continue as a going concern.” The auditor of the company concluded in 10K of 2011.

 

One early company that Mr. Pruitt involved was Resource Capital Group. He was CEO. The company later changed name to RCG companies INC; and again changed its name to oneTravel Group. Eventually, oneTravel group went bankrupt. This is what I find from sec docs at that time.

The Hooter venture by Chanticleer may be promising, but I see no different than other start-up ventures. There is no certainty for success. There is no margin of safety.

 

10 K auditor reports:

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

 

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This is Joe from Chanticleer. As you might expect, I can’t comment too much on things, but I did want to make a couple of points. On the stuff in the 8-K, it is kind of a weird situation, but as was mentioned in the filing, we believe “this matter should have no effect on any of the current stores in operation, stores under construction, or it's development schedule.”

 

As we learned from Buffett the importance of jumping on any negative news right away, our CFO here in the U.S. was on a plane to South Africa the morning after we found out about this to investigate ourselves and, as Sanjeev also mentioned and one might expect, look into tightening up the accounting controls. My guess is that Mike will release much more detail as he and Eric get everything sorted out.

 

As fuluvu mentioned the start-up nature of things, I wanted to link to part of an interview we did with The Manual of Ideas that is a good description for anyone who might be new to the company:

 

“At this point, second round venture capital stage is probably a better description of Chanticleer Holdings the public company than Berkshire Hathaway! The main drivers of the business are the restaurant operations and the asset management business. We think we’ve figured out what works and what we can do well, but we still need additional scale on both sides of the business. And we’re not sure a precise value can be put on those businesses at this point because they are still much smaller than we hope they will ultimately become, but the basic valuation process would be to look at the potential earnings stream of the two sides of the business in addition to the assets on our balance sheet. Most of the shareholders that we keep a more ongoing dialogue with have really invested with us because they wanted to make a bet on Mike and the team he’s assembled. We hope we are still in the early stages of what turns out to be a long and successful journey.”

 

As Sanjeev has much more eloquently described on this Board before, we were very close in 2008 to having a substantial deal done that would have brought profitability and free cash flow to invest in other places. The credit crisis brought that deal down and nearly brought us down too. As Sanjeev has also mentioned, very few people would have put personal guarantees and done what Mike did to keep the business alive during that time. We’ve progressed since then but certainly still have a long way to go.

 

It was the RCG/OneTravel merger that freed Mike up to start Chanticleer. From what I understand, it was an extremely difficult business (online travel) that was made even more difficult after 9/11. Mike agreed to the merger to try and give the business a chance with the bigger scale that was necessary and try and give RCG shareholders a chance to exit if they wished. As a result of that deal, he agreed to step down and let the other management team take over. Whether its eventual fate was the result of being too small of a player in a tough industry or the new management’s ineptitude, I don’t know, though it could have been a little of both. Matt and I joined Mike to help him get Chanticleer going, so I don’t really know much about the people and business involved with OneTravel.

 

As of today, there are basically two main businesses: 1) restaurants; and 2) investment management. Mike spends most of his time on the restaurant businesses, and Matt and I spend most of our time looking for cheap stocks and trying to grow the investment management business, though there is plenty of overlap in between.

 

I hope some of that helps. For those that might be new to the company, the Chanticleer fund mentioned by fuluvu might have sounded like the same thing as Chanticleer Holdings the publicly-traded company. But the fund is managed by a subsidiary, one of several subsidiaries of the holding company in which the main lines of business are either restaurants or investment management operations.

 

And here’s a link to The Manual of Ideas interview for anyone new to the company that wants a better overview of its beginnings: http://www.chanticleeradvisors.com/files/107293/the%20manual%20of%20ideas%20-%20chanticleer%20interview.pdf

 

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Businesses that Mr. Pruitt has involved come to the market to raise capital periodically, but the operations continue to accumulate substantial losses. “These conditions raise substantial doubt about Chanticleer Holdings, Inc. and Subsidiaries’ ability to continue as a going concern.” The auditor of the company concluded in 10K of 2011.

 

Hi Fuluvu,

 

Any auditor worth his salt would require a "going concern" disclosure in the notes in the audited financials when a business is stretched for cash and is burning through existing assets.  In 2011, Chanticleer was still in the process of raising capital to continue to build out its restaurants.  It went through a successful $11M raise in 2012, and you will probably not see such a disclosure in 2012.  Auditors put them in, as they can be held liable for not disclosing such issues to shareholders.  Chanticleer has enough cash for 2012 and 2013.

 

I have not had a difficult time putting my trust in Mike, even though I always wondered how the heck he was going to keep the company afloat after the credit crisis and the deal collapsed.  He managed to do so by selling off certain assets; raising capital publically and privately; putting up his own assets as collateral through loans to the company; and finally taking virtually any consulting gig he could get to keep cash flowing through the doors to make payroll and keep the company solvent.  Often that meant taking an executive role with small startups where success may be elusive.  But he did it.  He always found a way to keep the company's head above water.  You can't teach that!

 

While the longer term returns to shareholders have not been terribly desireable after the credit crisis, I cannot fault the man's ethics, credibility or honesty.  Mike works very hard, and he's had particularly little to show for it until the last year and a half after consummating the HOA deal, getting an HOA board seat, and then finally raising the capital necessary to get the company cash flow positive on a regular basis.  We've happily bought more shares in the company and will remain long-term shareholders.  Cheers!

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Thanks for Joe and Parsad's comments. I have enjoyed reading Joe's quarterly investment letters and leaned a lot from it. Thank you very much.  Sorry that I did not make clear differentiation between Chanticleer Fund and Chanticleer holdings (stock) in my comment.

 

There is no doubt that  Mr. Pruitt may be a great entrepreneur and smart value investor, but I have not seen it in term  of track record.  He started Chanticleer after his early business endeavor went into bankrupt. Chanticleer Holdings has only accumulated losses so far. I do hope that the next decade of Chanticleer will be dramatically different from last decade, but I do  not invest my own money based on "hope".

 

Buffett's first principle is "never loss". This should be applied to stock investment as well as business endeavors. A shrewd business man should have the ability to pick his spot that he has high possibility of success and makes good return on his investment.  A lost decade is difficult to make-up on the road to wealth-building by the rule of compounding.

 

 

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Without going into too much detail, Hooters was a large client of the company I used to work for (managed by the department I was in), and was probably the single worst business we had to work with. Hooters' management has a history of refusing to pay their bills, trying to nickle & dime all their vendors, and treating their employees like shit.

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Thanks for Joe and Parsad's comments. I have enjoyed reading Joe's quarterly investment letters and leaned a lot from it. Thank you very much.  Sorry that I did not make clear differentiation between Chanticleer Fund and Chanticleer holdings (stock) in my comment.

 

There is no doubt that  Mr. Pruitt may be a great entrepreneur and smart value investor, but I have not seen it in term  of track record.  He started Chanticleer after his early business endeavor went into bankrupt. Chanticleer Holdings has only accumulated losses so far. I do hope that the next decade of Chanticleer will be dramatically different from last decade, but I do  not invest my own money based on "hope".

 

Buffett's first principle is "never loss". This should be applied to stock investment as well as business endeavors. A shrewd business man should have the ability to pick his spot that he has high possibility of success and makes good return on his investment.  A lost decade is difficult to make-up on the road to wealth-building by the rule of compounding.

 

I agree...a lost decade is difficult to make-up on the road to wealth-building.  But if Buffett didn't look at the big picture and put away fears of interim losses, he would never have bought The Washington Post, Netjets or Geico, let alone invested in property-casualty insurance businesses.  Cheers! 

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Chanticleer is not in the same league of Geico, Washington post or Netjet in terms of business moat and Mr. Pruitt is not in the same league of the CEOs of the mentioned companies, in my humble opinion.

 

Michael D. Pruitt became the RCG's Chief Executive Officer and President on November 8, 2000. The last 10K filed by RCG was for the year 2005.  In this report, RCG had accumulated loss of $115 million, but also listed additional paid-in capital of $121 million. Some of the losses may be from the years before his becoming CEO, but the company continues to bleed heavily after he took the leadership. In 2005, the company changed name to oneTravel and the same year Mr. Pruitt started to operate Chanticleer holdings. OneTravel group never filed a 10K and was sold in bankruptcy court for several millions. The investors of the $121 million will never see their money.

 

Since the operation of Chanticleer holdings, the company has several rounds of capital raises (and dilutions) and a reverse split. It has raised $16.5 million, but only has managed to lose about half of it (accumulated loss of $7.3 million).

 

If a business man is judge by the ability to raise capital, Mr. Pruitt’s has good record. However, if it is judged by the ability to grow capital, Mr. Pruitt has not proved it. I hope the future for Chanticleer will be bright. However, restaurant business is tougher than online travel business. Furthermore, international expansion has additional challenges.

 

 

 

I agree...a lost decade is difficult to make-up on the road to wealth-building.  But if Buffett didn't look at the big picture and put away fears of interim losses, he would never have bought The Washington Post, Netjets or Geico, let alone invested in property-casualty insurance businesses.  Cheers!

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Chanticleer is not in the same league of Geico, Washington post or Netjet in terms of business moat and Mr. Pruitt is not in the same league of the CEOs of the mentioned companies, in my humble opinion.

 

I wasn't saying even remotely that this was the case.  I was arguing your comment regarding Buffett:

 

Buffett's first principle is "never loss". This should be applied to stock investment as well as business endeavors.

 

Cheers!

 

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