<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 27, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) EXCHANGE ACT For the
transition period from____________to_________________
Commission file number 0-17975
REDHEADS, INC.
(Exact name of business issuer as specified in its charter)
Delaware 95-4169432
(State or other jurisdiction of incorporation or organization
(IRS Employer Identification No.)
Fifty South Buckhout Street, Irvington, New York 10533
(Address of principal executive offices)
(914) 591-4444
(Issuer's telephone number)
(Former name, former address and formal fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days. Yes.X . No...
APPLICATION ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15 (d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes...No...
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 2,456,756 as of November 19, 1998.
Page 1 of 13
<PAGE> 2
Redheads, Inc, AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION
Page No.
--------
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheet as of September 27, 1998 (unaudited)
and September 28, 1998 (Unaudited)....................................................3
Consolidated Statement of Operations for the thirteen weeks ending
September 27, 1998 (unaudited) and September 28, 1997 (unaudited)......................4
Consolidated Statement of Operations for the thirty-nine weeks ending
September 27, 1998 (unaudited) and twenty-one weeks ending May 30, 1997 and
eighteen weeks ending September 28, 1997 (unaudited)..................................5
Consolidated Statement of Cash Flows as of September 27, 1998 (unaudited)..............6
Notes to Consolidated Financial Statements
(unaudited)..........................................................................7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................................................................... 8-11
PART II OTHER INFORMATION
Item 1. Legal Proceedings.....................................................................12
Item 2. Changes in Securities.................................................................12
Item 3. Defaults Upon Senior Securities.......................................................12
Item 4. Submission of Matters To A Vote Of Security Holders...................................12
Item 5. Other Information.....................................................................12
Item 6. Subsequent Events.....................................................................12
Item 7 Exhibits and Reports on Form 8-K................................................... 12
Signature Page ......................................................................................13
</TABLE>
Page 2 of 13
<PAGE> 3
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REDHEADS, INC, AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 27, 1998 September 28, 1997
(Unaudited) (Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash 0 190,990
Accounts Receivable - Credit Cards 68,366 1
Inventory 72,208 80,192
Subscription Receivable 200,000 1,400,000
OTHER CURRENT ASSETS 270,652 178,296
------------------------- -----------------------
TOTAL CURRENT ASSETS 611,226 1,849,478
FIXED ASSETS 2,403,775 2,026,052
OTHER ASSETS 555,158 417,392
LONG TERM NOTE RECEIVABLE 673,017 680,862
------------------------- -----------------------
TOTAL LONG TERM ASSETS 3,631,950 3,124,306
TOTAL ASSETS 4,243,176 4,973,784
========================= =======================
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES
OVERDRAFT 136,443
TRADE ACCOUNTS 1,000,971 398,969
NOTES PAYABLE 493,938 214,718
SALES AND PAYROLL TAXES PAYABLE 247,878 66,471
CURRENT PORTION OF LONG-TERM DEBT 117,650 200,000
RESERVES FOR LIABILITIES 185,072 270,957
ACCRUED EXPENSES 50,241 622,887
------------------------- -----------------------
TOTAL CURRENT LIABILITIES 2,232,193 2,155,606
LONG-TERM DEBT 284,918 381,605
STOCKHOLDERS' DEFICIT
8% PREFERRED STOCK - $.001 PAR VALUE; 5,333 ISSUED 40,000 40,000
AND OUTSTANDING AS OF DEC. 28, 1997 AND SEPTEMBER 27,
8% PREFERRED STOCK LEV- $.001 PAR VALUE; 11,333 SHARES 85,000 85,000
OUTSTANDING AS OF DEC. 28, 1997 AND SEPTEMBER 27, 1998
12% PREFERRED STOCK $.001 PAR VALUE; 44,775 ISSUED AND 335,815 315,815
OUTSTANDING AS OF DEC. 28, 1997 AND SEPTEMBER 27,1998
COMMON STOCK - $.001 PAR VALUE; AUTHORIZED - 23,024,000 2,458 2,236
2,456,756 ISSUED AND OUTSTANDING AT DEC. 28, 1997 AND
ISSUED AND OUTSTANDING AT JUNE 29, 1998
ADDITIONAL PAID-IN CAPITAL 3,172,341 1,501,813
ACCUMULATED DEFICIT (2,109,549) (426,685)
------------------------- -----------------------
1,526,065 1,418,178
------------------------- -----------------------
PLUS: SUBSCRIPTIONS RECEIVABLE 200,000 1,400,000
TOTAL STOCKHOLDERS' EQUITY 1,726,065 2,818,178
------------------------- -----------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 4,243,176 4,973,784
========================= =======================
</TABLE>
Page 3 of 13
<PAGE> 4
REDHEADS, INC, AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
13 WEEKS ENDED 13 WEEKS ENDED
SEPTEMBER 27, 1998 SEPTEMBER 28,1997
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
SALES 2,093,681 2,553,576
COST OF SALES 624,902 29.8% 766,366 30.0%
----------------------- --------- ---------------------------------
GROSS PROFIT 1,468,779 70.2% 1,787,210 70.0%
----------------------- --------- ---------------------------------
OPERATING EXPENSES
LABOR COSTS 717,787 34.3% 874,028 34.2%
OCCUPANCY COSTS 341,263 16.3% 335,392 13.1%
OTHER OPERATING EXPENSE 623,012 29.8% 635,666 24.9%
DEPRECIATION AND AMORTIZATION 204,460 9.8% 86,229 3.4%
----------------------- --------- ---------------------------------
TOTAL OPERATING EXPENSES 1,886,523 90.1% 1,931,315 75.6%
----------------------- --------- ---------------------------------
INCOME (LOSS) FROM RESTAURANT (417,742) (20.0%) (144,105) (5.64%)
----------------------- --------- ---------------------------------
GENERAL AND ADMINISTRATIVE EXPENSES 171,206 8.2% 156,396 6.1%
----------------------- --------- ---------------------------------
INCOME (LOSS) FROM OPERATIONS (588,949) (28.2%) (300,501) (11.8%)
----------------------- --------- ---------------------------------
OTHER INCOME (EXPENSE)
INTEREST INCOME (EXPENSE) (11,925) (.6%) 0 0.0%
OTHER INCOME (EXPENSE) NET 9,017 .4% (59,476) (2.3%)
----------------------- --------- ---------------------------------
TOTAL OTHER INCOME (EXPENSE) (2,909) (1.4%) (59,476) (2.3%)
----------------------- --------- ---------------------------------
REORGANIZATION EXPENSE 27,754 1.3% 32,268 1.3%
----------------------- --------- ---------------------------------
NET INCOME (LOSS) (619,612) (29.6%) (392,245) (15.4%)
======================= ========= =================================
OUTSTANDING 2,456,756 2,235,743
LOSS FROM OPERATIONS ($0.25) ($0.18)
</TABLE>
Page 4 of 13
<PAGE> 5
REDHEADS, INC, AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
39 WEEKS ENDED 21 WEEKS ENDED 18 WEEKS ENDED
SEPTEMBER 27, 1998 MAY 25,1997 MAY 25,1997
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
SALES 6,898,698 3,735,855 3,492,885
COST OF SALES 2,046,096 29.7% 1,077,107 28.8% 1,028,823 29.5%
---------------------------------- ------------------ ------------------------------------------
GROSS PROFIT 4,852,602 70.3% 2,658,747 71.7% 2,464,062 70.4%
---------------------------------- ------------------ ------------------------------------------
OPERATING EXPENSES
LABOR COSTS 2,238,958 32.5% 1,174,177 31.4% 1,167,505 33.4%
OCCUPANCY COSTS 985,291 14.3% 506,279 13.6% 436,661 12.5%
OTHER OPERATING EXPENSE 1,721,334 25.0% 840,281 22.5% 846,985 24.3%
DEPRECIATION 493,090 7.1% 139,027 3.7% 114,163 3.3%
---------------------------------- ------------------ ------------------------------------------
TOTAL OPERATING EXPENSES 5,438,673 78.8% 2,659,763 71.2% 2,565,313 73.4%
---------------------------------- ------------------ ------------------------------------------
INCOME (LOSS) FROM RESTAURANT (586,070) (8.5%) (1,015) (0.0%) (101,251) (2.9%)
---------------------------------- ------------------ ------------------------------------------
GENERAL AND ADMINISTRATIVE
EXPENSES 747,731 10.8% 610,489 16.3% 214,068 6.1%
---------------------------------- ------------------ ------------------------------------------
INCOME (LOSS) FROM OPERATIONS (1,333,802) (19.3%) (611,505) (16.4%) (315,319) (9.0%)
---------------------------------- ------------------ ------------------------------------------
OTHER INCOME (EXPENSE)
INTEREST INCOME (EXPENSE) (30,995) (0.4%) (323,864) (8.7%) 11,789 (.3%)
OTHER INCOME (EXPENSE) NET 11,267 0.2% (22,158) (0.6%) (65,990) (1.9%)
---------------------------------- ------------------ ------------------------------------------
TOTAL OTHER INCOME (EXPENSE) (19,728) (0.3%) (346,022) (9.3%) (54,201) (1.6%)
---------------------------------- ------------------ ------------------------------------------
REORGANIZATION EXPENSE (43,965) (1.3%)
PROFESSIONAL FEES 39,784 0.6% (478,116) (12.8%) 0 0.0%
INCOME ON SALE OF RESTAURANT 8,014 .2% (13,200) (0.4%)
FORGIVENESS OF DEBT 16,072,400 430.2% 0 0.0%
---------------------------------- ------------------ ------------------------------------------
TOTAL REORGANIZATION EXPENSE 39,784 (0.6%) 15,602,298 417.6% (57,165) (1.6%)
NET INCOME (LOSS) (1,393,314) (20.2%) 14,644,771 392.0% (426,685) (12.2%)
================================== ================== ==========================================
OUTSTANDING 2,456,756 7,209,930 2,235,743
LOSS FROM OPERATIONS ($0.57) $2.03 ($0.19)
</TABLE>
Page 5 of 13
<PAGE> 6
REDHEADS, INC, AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<S> <C>
CASH FLOW PROVIDED FROM OPERATING ACTIVITIES
NET INCOME (LOSS) (619,612)
DEPRECIATION & AMORTIZATION 204,460
DECREASE (INCREASE) IN INVENTORY 3,670
DECREASE (INCREASE) IN OTHER CURRENT ASSETS AND ACCTS. REC. 10,039
INCREASE (DECREASE) IN TRADE ACCOUNTS AND OVERDRAFT 277,714
INCREASE (DECREASE) IN SALES AND PAYROLL TAXES PAYABLE 183,823
INCREASE (DECREASE) IN DEFERRED INCOME & ACCRUED EXPENSES 3,482
--------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 63,178
CASH FLOW FROM INVESTING ACTIVITY
DECREASE (INCREASE) IN C.I.P. AND FIXED ASSETS (51,615)
DECREASE (INCREASE) IN CASH DUE TO/FROM AFFILIATED CO'S 0
-
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (51,615)
CASH FLOW FROM FINANCING ACTIVITY
CHANGE TO NOTE PAYABLE 55,507
CHANGE TO PAID IN CAPITAL 0
CHANGE TO CUMULATIVE PREFERRED 0
CHANGE TO PREFERRED STOCK SUBSCRIBED 0
--------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 55,507
INCREASE (DECREASE) CASH 67,070
CASH AT BEGINNING OF PERIOD (67,070)
--------
CASH AT END OF PERIOD 0
========
</TABLE>
Page 6 of 13
<PAGE> 7
REDHEADS, INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Statement of Information Furnished
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Form 10-QSB instructions and in the opinion of
management contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of September 27,
1998 and September 28, 1997, the results of operations for the thirteen and
thirty-nine weeks ended September 27, 1998, thirteen and twenty-one week periods
ending September 27, 1998, and the cash flows for the thirteen weeks ended
September 27, 1998. These results have been determined on the basis of generally
accepted accounting principles and practices applied consistently with those
used in the preparation of the Company's Annual Consolidated Financial
Statements included in the Company's Form 10-KSB for the year ended December 28,
1997.
Certain information and footnote disclosures normally included in the
financial statements presented in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that the accompanying
consolidated financial statements be read in conjunction with financial
statements and notes thereto incorporated by reference in the Company's Form
10-KSB for the year ended December 28, 1997.
Interim results of operations are not necessarily indicative of the
results to be expected for a full year.
2. Income Taxes
The company files a consolidated federal income tax return and certain
combined state and city returns. There are no significant temporary differences
for the thirteen weeks ended September 27, 1998. The Company's federal state and
city tax returns have not yet been filed for the fifty two week period ending
December 28, 1997, the twenty six weeks ended December 29, 1996, the fifty two
weeks ended June, 30 1996 and July 2, 1995.
As of December 28, 1997 the Company had approximately $15,300,000 of
net operating loss carry forwards expiring through 2011, available to face
future federal income taxes.
As a result of the change in control of the company is subject to
limitations on the future utilization of its federal net operating loss carry
forwards. These limitations, described in Section 382 of the Internal Revenue
Code, limit the amount of future taxable income which may be offset by
pre-change net operating loss and capital loss carry forwards. This limitation
is calculated by reference to the value the Company immediately before the
change date, multiplied by a discount factor, known as the "long term tax-exempt
rate"
Page 7 of 13
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
(B) Results of Operations
Results of Operations -The thirteen weeks ended September 27, 1998 as compared
with the thirteen weeks ended September 28, 1997.
Total revenues decreased $459,895 or 18.0% to $2,093,681 for the thirteen
weeks ended September 27, 1998, from $2,553,573 for the thirteen weeks ended
September 28, 1997. The decrease was attributable to the loss of dinner trade
throughout the Redheads Bistro/Bar locations.
During the month of September the company introduced a new menu and new
steps of service at its Yonkers, New York location to address the loss in dinner
trade.
Food and beverage expense decreased $141,464 or 18.5% to $624,902 for the
thirteen weeks ended September 27, 1998 from $766,366 for the thirteen weeks
ended September 28, 1997. The decrease is attributable to the system-wide
decrease in same store sales.
Restaurant labor and related expenses decreased $156,241 or 17.9% to
$717,787 for the thirteen weeks ended September 27, 1998, from $874,028 for the
thirteen weeks ended September 28, 1997. The decrease is attributable to the
system-wide decrease in same store sales.
Restaurant occupancy expenses increased $5,871 or 1.8% to $341,263 for
the thirteen weeks ended September 27, 1998, from $335,392 for the thirteen
weeks ended September 28, 1997. This was attributable to the increase in base
rent at the Levittown location. Restaurant occupancy expenses as a percentage of
food and beverage revenues increased 3.2 percentage points to 16.3% from 13.13%,
in the respective periods. The 3.2% increase was an increase of 24.1%.
Other operating expenses decreased $12,654 to $623,012 for the thirteen
weeks ended September 27, 1998, from $635,666 for the thirteen weeks ended
September 28, 1997. This was partially attributable to the system-wide drop in
same store sales. Other operating expenses consist mainly of fixed costs such as
utilities, royalties, insurance, repair & maintenance and other variable costs
such as supplies and promotional items. Other operating expenses as a percentage
of food and beverage revenues increased 4.9% percentage points to 29.76% from
24.89%, in the respective periods. The 4.9% increase was an increase of 19.5%.
Depreciation and Amortization increased $118,231 or 137.1% to $204,460
for the thirteen weeks ended September 27, 1998, from $86,229 for the year ended
September 28, 1997. The increase is attributable to the amortization of opening
cost and the depreciation of fixed asset additions in connection with the
conversion of Redheads Yonkers, New York and Redheads Secaucus, New Jersey.
General and administrative expenses increased $14,810 to $171,206 for the
thirteen weeks ended September 27, 1998, from $156,396 for the thirteen weeks
ended September 28, 1997.
Page 8 of 13
<PAGE> 9
The increase is partially attributable to the addition of a human resource
department. General and administrative expenses consist of, among other things,
executive salaries, other administrative compensation, corporate office rent and
corporate overhead expenses. General and administrative expenses as a percentage
of revenues increased to 8.18% from 6.12%, in the respective periods.
The Company's net loss from operations increased $227,367 or 58.0% to
($619,612) for the thirteen weeks ended September 27, 1998, from ($392,245) for
the thirteen weeks ended September 28, 1997. Net operating loss as a percentage
of revenues increased 14.2 percentage points to 29.59% from 15.36%, in the
respective periods. The increase in the loss can be attributable to a number of
factors namely the loss in same store sales.
Results of Operations -The thirty-nine weeks ended September 27, 1998 as
compared with the twenty-one weeks ended May 30, 1997 and eighteen weeks ended
September 28, 1997.
Total revenues decreased $330,042 or 4.6% to $6,898,698 for the
thirty-nine weeks ended September 27, 1998, from $7,228,740 for the twenty-one
weeks ended May 30, 1997 and eighteen weeks ended September 28, 1997. The
decrease was attributable to the net effect the acquisition of the Middletown,
New Jersey, Redheads Bistro/Bar location and declining company-wide same store
sales in the third quarter.
Food and beverage expense decreased $59,834 or 2.8% to $2,046,096 for the
thirty-nine weeks ended September 27, 1998 from $2,105,930 for the thirty-nine
weeks ended September 28, 1997, principally due to the difference in food cost
inherent in the Redheads Bistro/Bar concept as compared to the food cost
inherent in the Red Robin concept and partially attributable to the acquisition
of the Middletown location.
Restaurant labor and related expenses decreased $102,724 or 4.4% to
$2,238,958 for the thirty-nine weeks ended September 27, 1998, from $2,341,682
for the thirty-nine weeks ended September 28, 1997. This was attributable to
decrease in same store sales during the third quarter and the acquisition of the
Middletown location.
Restaurant occupancy expenses increased $42,351 or 4.5% to $985,291 for
the thirty-nine weeks ended September 27, 1998, from $942,940 for the
thirty-nine weeks ended September 28, 1997. This was attributable to the
combined effect of (1) the acquisition of the Middletown Redheads Bistro/Bar
location and the increase in base rent at the Levittown location. Restaurant
occupancy expenses as a percentage of food and beverage revenues increased 1.3
percentage points to 14.3% from 13.0%, in the respective periods. The 1.2%
increase was an increase of 9.5%.
Other operating expenses increased $34,068 or 2.0% to $1,721,334 for the
thirty-nine weeks ended September 27, 1998, from $1,687,266 for the thirty-nine
weeks ended September 28, 1997. This was attributable to the acquisition of the
Middletown Redheads Bistro/Bar location. Other operating expenses consist mainly
of fixed costs such as utilities, royalties, insurance, repair & maintenance and
other variable costs such as supplies and promotional items. Other operating
expenses as a percentage of food and beverage revenues increased 1.6 percentage
points to 24.9% from 23.3%, in the respective periods. The 1.6 percentage point
increase was an increase of 6.9%.
Page 9 of 13
<PAGE> 10
Depreciation increased $239,900 or 94.8% to $493,090 for the thirty-nine
weeks ended September 27, 1998, from $253,190 for the year ended September 28,
1997. The increase is attributable to the depreciation of fixed asset additions
and amortization of pre-opening costs in connection with the conversion of
Redheads Yonkers, New York, Redheads Secaucus and acquisition of the Middletown,
New Jersey restaurant.
General and administrative expenses decreased $76,826 or 9.3% to $747,731
for the thirty-nine weeks ended September 27, 1998, from $824,557 for the
thirty-nine weeks ended September 28, 1997. The decrease is attributable to a
number or cost cutting programs implemented by management. General and
administrative expenses consist of, among other things, executive salaries,
other administrative compensation, corporate office rent and corporate overhead
expenses. General and administrative expenses as a percentage of revenues
decreased to 10.8% from 11.41%, in the respective periods.
The Company's net loss from operations increased $406,977 or 43.9% to
($1,333,802) for the thirty-nine weeks ended September 27, 1998, from ($926,825)
for the thirty-nine weeks ended September 28, 1997. Net operating loss as a
percentage of revenues increased 6.5 percentage points to 19.33% from 12.82%, in
the respective periods. The increase in loss is attributed to the shut down of
Secaucus during conversion to a Redheads and the declining company-wide same
store sales in the third quarter.
(C) Liquidity And Capital Resources
Operating Activities. Since inception, the Company has incurred losses
from operations. As of May 25, 1997, the Company had an accumulated deficit of
$36,864,531. This was all eliminated through the use of "fresh-start"
accounting. During the period December 29, 1997 through September 27, 1998
operations resulted in a loss of $1,393,314 and the net decrease in cash totaled
$180,082. This was primarily the result the net cash provided from operations of
$111,963; net cash used in investing activities of $438,303, mostly from
construction in the Secaucus unit conversion and net cash used in financing
activities of $146,258 from the receipt of $200,000 of Preferred Stock
Subscribed, payment of private placement financing fees and debtfinancing. As of
September 27, 1998, the Company had a cash balance of ($0).
As of September 27, 1998, the Company had negative working capital of
$1,620,967, as compared to negative working capital of $306,128 as of September
28, 1997.
The Company has, upon the effectiveness of its confirmed Plan, accounted
for the reorganization using "fresh-start" reporting. Accordingly, all assets
and liabilities are restated to reflect their reorganization value, which
approximates fair value at the date of reorganization. Application of the
principles of "fresh-start" reporting resulted in elimination of the
stockholders' deficit and caused $22,435,338 of total liabilities to be
extinguished, as provided specifically in the Plan itself. See"-- The
Reorganization Proceedings; Confirmation and Effectiveness of the Company's
Reorganization Plan" for further discussion of the consequences of the Plan's
confirmation and effectiveness.
The Company does not have trade accounts receivable, since sales are for
cash or by credit card receipts, which are usually paid within one week. The
Company does not maintain substantial inventories due to the relatively brief
shelf life and frequent turnover of food products and liquor. The
Page 10 of 13
<PAGE> 11
restaurants receive deliveries of food not less frequently than every other day
and deliveries of liquor several times each week.
The Company's current leases require, and future leases may require, the
Company to pay taxes, maintenance, insurance, repairs and utility costs which
are also subject to inflation, and in addition, some leases contain, and future
leases may contain, escalations of annual rentals based upon limited increases
in specific cost-of-living indices, none of which are controllable by the
Company.
The Company anticipates that it may continue to incur losses in the near
term as it continues to integrate operating margin improvement programs into its
existing restaurants. Additionally, the Company believes an anticipated private
placement will provide the necessary capital to acquire additional locations to
achieve profitability. However, the Company believes, although there can be no
assurance, that these programs will achieve profitability and/or anticipated
financing occur thereby and enhancing the Company's profitability and working
capital position.
Investing Activities. The Company is required by an order of the
Bankruptcy Court, entered into in connection with the Plan, to remove all Red
Robin trade dress from its restaurant location in Secaucus, New Jersey, Yonkers,
New York, and Kings Plaza, Brooklyn, on or before December 31, 1997. Failure to
remove the trade dress as required by the Bankruptcy Court order could result in
litigation and the grant of injunctive relief against the Company, and the
imposition of unspecified monetary damages against the Company. The Company has
proceeded with the conversions as directed by the court. As of November 19, 1998
all locations have been successfully converted
Financing Activities. It is management's belief that profitability will
be achieved by opening or acquiring additional restaurants to provide an
expanding revenue base to absorb fixed corporate overhead charges. The Company
anticipates that revenues will exceed the increased expenditures associated with
the construction and acquisition of additional restaurants.
The poor performance of any one restaurant could have a materially
adverse effect upon the financial condition of the Company. However, the Company
believes, although there can be no assurance, that the adverse effect of the
results of any one restaurant will diminish as the number of restaurants
operated by the Company increases. While the Company believes that management
efficiencies and marketing strategies will limit declines in existing store
revenues, there can be no assurance that future declines in existing restaurant
revenues will not occur and adversely affect the Company.
The Company anticipates that it will require substantial additional debt
or equity capital to fund the Company's expansion plans, which contemplate the
opening of at least one new Redheads Bistro/Bar restaurant each quarter. The
inability of the Company to obtain such additional financing will result in the
curtailment by the Company of its expansion activities and further restructuring
or downsizing of the Company's operations.
Page 11 of 13
<PAGE> 12
Part II OTHER INFORMATION
Item 1. Legal Proceedings.
General
Other than as discussed in this Item 3, there are no other legal
proceedings to which the Company is a party that are material to the Company's
business.
Submission of Matters to a Vote of Security Holders
Item 2. Changes in Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information
None
Item 6. Subsequent Events
During November 1998 the Kings Plaza Brooklyn, New York Red Robin was
successfully converted to a Redheads Bistro/Bar.
Item 7. Exhibits and Reports on Form 8-K
(A) Exhibits Filed
None
(B) The Company filed the following currents reports of Form 8-K and
8-K/A during the quarter ended September 27, 1998:
None.
Page 12 of 13
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant had duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Redheads, Inc,
Date: November 20, 1998 By: s/ Charles O. Olson, Jr.
------------------ ------------------------------
Charles O. Olson, Jr.
Chief Executive Officer
Page 13 of 13
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000837596
<NAME> REDHEADS, INC.
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1998
<PERIOD-START> DEC-29-1997
<PERIOD-END> SEP-27-1998
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 68,366
<ALLOWANCES> 0
<INVENTORY> 72,208
<CURRENT-ASSETS> 611,226
<PP&E> 3,631,950
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,243,176
<CURRENT-LIABILITIES> 2,232,193
<BONDS> 0
0
460,815
<COMMON> 2,458
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<INTEREST-EXPENSE> (11,975)
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</TABLE>
