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 24, 2000 _________
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) EXCHANGE ACT
For the transition period from __________ to __________
Commission file number 0-17975
Redheads, Inc.
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(Exact name of business issuer as specified in its charter)
Delaware 95-4169432
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(State or other jurisdiction of (IRS Employer
incorporation or organization Identification No.)
Fifty South Buckhout Street, Irvington, New York 10533
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(Address of principal executive offices)
(914) 591-4444
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(Issuer's telephone number)
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(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 [X] 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:
2,457,759 as of December 26, 1999.
Redheads, Inc, AND SUBSIDIARIES
INDEX
Page No.
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as of September 24, 2000
(unaudited) and December 26, 1999 (Audited) 3
Consolidated Statement of Operations for the thirteen
weeks ending September 24, 2000 (unaudited) and
September 26, 1999 (unaudited) 4
Consolidated Statement of Operations for the
thirty-nine weeks ending September 24, 2000 (unaudited)
and September 26, 1999 (unaudited) 5
Consolidated Statement of Stockholders Equity (Deficit) 6
Consolidated Statement of Cash Flows for the thirty-nine
weeks ending September 24, 2000 (unaudited) 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9-12
PART II OTHER INFORMATION 13
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 4. Submission of Matters To A Vote Of Security Holders 13
Item 5. Other Information 13
Item 6. Subsequent Events 13
Item 7 Exhibits and Reports on Form 8-K 13
Signature Page 14
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
REDHEADS, INC, AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 24 December 26
2000 1999
Unaudited Audited
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash 21,366 0
Accounts Receivable - Credit Cards 50,717 26,497
Inventories 88,362 92,012
Other Current Assets 37,629 34,793
------------------------
TOTAL CURRENT ASSETS 198,074 153,302
Fixed Assets 1,048,979 1,189,667
Other Assets 338,714 357,557
Loans receivable - stockholders 125,312 99,293
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TOTAL LONG TERM ASSETS 1,513,006 1,646,516
TOTAL ASSETS 1,711,080 1,799,819
========================
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES
Cash Overdraft 0 53,753
Trade accounts 1,427,384 1,078,147
Deferred Compensation 46,277 46,277
Sales and payroll taxes payable 3,716,438 2,373,377
Loans Payable - Taxes 589,047 509,723
Reserves 101,539 101,539
Accrued Expenses 391,313 273,074
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TOTAL CURRENT LIABILITIES 6,271,998 4,435,891
Long Term Debt 1,905,261 1,415,661
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TOTAL LIABILITIES 8,177,258 5,851,552
STOCKHOLDERS' EQUITY (DEFICIT)
8% Cumulative Exchangeable $.001 par value;
authorized - 1,017,000 shares;
issued and outstanding - 16,666
shares as of June 25, 2000
and December 26, 1999 125,000 125,000
12% Preferred stock - $.001 par value;
authorized - 5,000,000 shares;
issued and outstanding - 44,775
shares as of June 25, 2000
and December 26, 1999 335,815 335,815
Common stock - $.001 par value;
authorized - 23,024,000 shares;
issued and outstanding - 2,457,759
shares as of June 25, 2000
and December 26, 1999 2,458 2,458
Additional paid-in capital 3,263,426 3,263,426
Accumulated deficit (7,778,432) (4,763,894)
Accumulated deficit Current (2,414,446) (3,014,538)
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TOTAL STOCKHOLDERS' EQUITY (6,466,179) (4,051,733)
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 1,711,080 1,799,819
========================
</TABLE>
REDHEADS, INC, AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
13 Weeks Ending 13 Weeks Ending
Sep 24, 2000 Sep 26, 1999
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
SALES 1,740,671 100.00% 1,870,739 100.00%
COST OF SALES 559,043 32.12% 734,884 39.28%
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GROSS PROFIT 1,181,628 67.88% 1,135,855 60.72%
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OPERATING EXPENSES
Labor costs 753,646 43.30% 751,790 40.19%
Occupancy costs 274,141 15.75% 265,365 14.19%
Other Operating Expense 466,884 26.82% 517,120 27.64%
Depreciation 63,655 3.66% 140,486 7.51%
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TOTAL OPERATING EXPENSES 1,558,326 89.52% 1,674,760 89.52%
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LOSS FROM RESTAURANT OPERATIONS (376,698) -21.64% (538,905) -28.81%
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General and administrative expenses 332,023 19.07% 281,846 15.07%
LOSS FROM OPERATIONS (708,721) -40.72% (820,751) -43.87%
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OTHER INCOME (EXPENSE)
Interest expense (193,500) -11.12% (36,106) -1.93%
Other income (expense) net (17,951) -1.03% (38,998) -2.08%
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TOTAL OTHER INCOME (EXPENSE) (211,451) -12.15% (75,104) -4.01%
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NET LOSS (920,172) -52.86% (895,855) -47.89%
========= =========
BASIC AND DILUTED LOSS PER SHARE OF
COMMON STOCK (0.37) (0.37)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 2,457,759 2,426,292
</TABLE>
REDHEADS, INC, AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
39 Weeks Ending 39 Weeks Ending
Sep 24, 2000 Sep 26, 1999
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
SALES 5,639,995 100.00% 5,795,021 100.00%
COST OF SALES 1,769,772 31.38% 1,800,639 31.07%
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GROSS PROFIT 3,870,223 68.62% 3,994,382 68.93%
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OPERATING EXPENSES
Labor costs 2,291,484 40.63% 2,389,695 41.24%
Occupancy costs 819,991 14.54% 804,883 13.89%
Other Operating Expense 1,432,950 25.41% 1,569,028 27.08%
Depreciation 190,966 3.39% 421,457 7.27%
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TOTAL OPERATING EXPENSES 4,735,392 83.96% 5,185,063 89.47%
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LOSS FROM RESTAURANT OPERATIONS (865,169) -15.34% (1,190,681) -20.55%
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General and administrative expenses 1,104,367 19.58% 788,608 13.61%
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LOSS FROM OPERATIONS (1,969,536) -34.92% (1,979,289) -34.15%
--------- ---------
OTHER INCOME (EXPENSE)
Interest expense (407,607) -7.23% (92,681) -1.60%
Other income (expense) net (37,532) -0.67% (72,020) -1.24%
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TOTAL OTHER INCOME (EXPENSE) (445,139) -7.89% (164,702) -2.84%
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NET LOSS (2,414,675) -42.81% (2,143,991) -37.00%
========= =========
BASIC AND DILUTED LOSS PER SHARE OF
COMMON STOCK (0.98) (0.88)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 2,457,759 2,426,292
</TABLE>
REDHEADS, INC, AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY (DEFICIT)
FOR THE THIRTY-NINE WEEKS ENDED SEPTEMBER 24, 2000
<TABLE>
<CAPTION>
TOTAL PIC
Stockholder Preferred Preferred Common Paid-in Retained
Equity Stock/MRI Stock Stock Capital Earnings
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DEC 26, 1999 (4,051,733) 460,815 2,581,813 2,458 68,614 (7,778,433)
NET LOSS FOR THE THIRTY-NINE
WEEK PERIOD ENDING SEP 24, 2000 (2,414,446) (2,414,446)
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BALANCE AT SEP 24, 2000 (6,466,179) 460,815 2,581,813 2,458 68,614 (10,192,879)
==========================================================================
</TABLE>
REDHEADS, INC, AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THIRTY-NINE WEEKS ENDED SEPTEMBER 24, 2000
<TABLE>
<S> <C>
CASH FLOW FROM OPERATING ACTIVITY
Net Income (Loss) (2,414,446)
Depreciation Amortization 190,966
Decrease (Increase) In Inventory
Decrease (Increase) In Other Current Assets And Accts. Rec. (27,058)
Decrease (Increase) In Other Assets 18,842
Increase (Decrease) In Trade Accounts And Notes Payable
And Accrued Expenses 467,477
Increase (Decrease) In Loans Payable 79,324
Increase (Decrease) In Sales And Payroll Taxes Payable 1,343,062
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NET CASH USED IN OPERATING ACTIVITIES (338,182)
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CASH FLOW FROM INVESTING ACTIVITY
(Increase) Decrease In C.I.P. And Fixed Assets (50,280)
(Increase) Decrease In Notes Receivable (26,019)
NET CASH USED IN INVESTING ACTIVITIES (76,300)
----------
CASH FLOW FROM FINANCINIG ACTIVITY
Increase (Decrease) In Long Term Debt 489,600
Increase (Decrease) In Cash Overdraft (53,753)
NET CASH PROVIDED BY FINANCING ACTIVITIES 435,847
----------
Increase (Decrease) In Cash 21,366
Cash Beginning 0
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Cash Ending 21,366
==========
</TABLE>
Redheads, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
September 24, 2000 and September 26, 1999
(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 24, 2000 and September 26, 1999, the results of operations for
the thirteen and thirty-nine weeks ended September 24, 2000, thirteen and
thirty-nine weeks ending September 26, 1999, and the cash flows for the
thirty-nine weeks ended September 24, 2000. 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 26, 1999.
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 26, 1999.
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 thirty-nine weeks ended September 24, 2000. The
Company's federal state and city tax returns have not yet been filed for
the fifty-two week period ending December 26, 1999.
As of December 26, 1999 the Company had approximately $22,400,000 of net
operating loss carry forwards expiring through 2014, 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"
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 24, 2000 as
compared with the thirteen weeks ended September 26, 1999.
Total revenues decreased $130,068 or 6.95% to $1,740,671 for the thirteen
weeks ended September 24, 2000, from $1,870,739 for the thirteen weeks
ended September 26, 1999. The decrease is partly attributable to
discontinued advertising campaign.
Food and beverage expense decreased $175,841 or 23.93% to $559,043 for the
thirteen weeks ended September 24, 2000 from $734,884 for the thirteen
weeks ended September 26, 1999. Food and beverage expense as a percent of
total sales decreased to 32.12% from 39.28% in the respective periods.
Restaurant labor and related expenses increased $1,856 or .25% to $753,646
for the thirteen weeks ended September 24, 2000, from $751,790 for the
thirteen weeks ended September 26, 1999. Restaurant labor and related
expense as a percent of total sales increased to 43.3% from 40.19% in the
respective periods.
Restaurant occupancy expenses increased $8,775 or 3.31% to 274,141 for the
thirteen weeks ended September 24, 2000, from $265,365 for the thirteen
weeks ended September 26, 1999. Restaurant occupancy expense as a percent
of total sales increased to 15.75% from 14.19% in the respective periods.
Other operating expenses decreased $50,236 or 9.71% to $466,884 for the
thirteen weeks ended September 24, 2000, from $517,120 for the thirteen
weeks ended September 26, 1999. Other operating expense as a percent of
total sales decreased to 26.82% from 27.64% in the respective periods. The
decrease is partly attributable to the discontinuing of the advertising
campaign. 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.
General and administrative expenses increased $50,177 or 17.8% to $332,023
for the thirteen weeks ended September 24, 2000, from $281,846 for the
thirteen weeks ended September 26, 1999. General and administrative
expense as a percent of total sales increased to 19.07% from 15.07% in the
respective periods. General and administrative expenses consist of, among
other things, other administrative expenses, general insurance and
corporate overhead expenses. G&A increased primarily due to penalties
associated with unpaid sales and payroll taxes.
Interest expense increased $157,394 or 435.92% to $193,500 for the thirteen
weeks ended September 24, 2000, from $36,106 for the thirteen weeks ended
September 26, 1999. The increase is wholly attributable to interest due on
unpaid sales and payroll taxes. Interest expense as a percent of total
sales increased to 11.12% from 1.93% in the respective periods.
The Company's net loss increased $24,317 or 2.71% to $920,173 for the
thirteen weeks ended September 24, 2000, from $895,855 for the thirteen
weeks ended September 26, 1999. Net operating loss as a percentage of
revenues increased to 52.86% from 47.89%, in the respective period.
Results of Operations - The thirty-nine weeks ended September 24, 2000 as
compared with the thirty-nine weeks ended September 26, 1999.
Total revenues decreased $155,026 or 2.68% to $5,639,995 for the thirty-
nine weeks ended September 24, 2000, from $5,795,021 for the thirty-nine
weeks ended September 26, 1999.
Food and beverage expense decreased $30,867 or 1.71% to $1,769,772 for the
thirty-nine weeks ended September 24, 2000 from $1,800,639 for the thirty-
nine weeks ended September 26, 1999. Food and beverage expense as a
percent of total sales increased to 31.38% from 31.07% in the respective
periods.
Restaurant labor and related expenses decreased $98,211 or 4.11% to
$2,291,484 for the thirty-nine weeks ended September 24, 2000, from
$2,389,695 for the thirty-nine weeks ended September 26, 1999. Restaurant
labor and related expense as a percent of total sales decreased to 40.63%
from 41.24% in the respective periods.
Restaurant occupancy expenses increased $15,108 or 1.88% to $819,991 for
the thirty-nine weeks ended September 24, 2000, from $804,883 for the
thirty-nine weeks ended September 26, 1999. The decrease is attributable
to the natural escalation in lease terms. Restaurant occupancy expense as
a percent of total sales increased to 14.54% from 13.89% in the respective
periods.
Other operating expenses decreased $136,078 or 8.67% to $1,432,950 for the
thirty-nine weeks ended September 24, 2000, from $1,569,028 for the thirty-
nine weeks ended September 26, 1999. The decrease is partly attributable
to the discontinuing of the advertising campaign begun in 1999. Other
operating expense as a percent of total sales decreased to 25.41% from
27.08% in the respective periods. 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.
Depreciation and Amortization decreased $230,491 or 54.69% to $190,966 for
the thirty-nine weeks ended September 24, 2000, from $421,457 for the year
ended September 26, 1999. The decrease is attributable to amortization of
pre-opening costs in previous year. Depreciation and Amortization as a
percent of total sales decreased to 3.39% from 7.27% in the respective
periods.
General and administrative expenses increased $315,759 or 40.04% to
$1,104,367 for the thirty-nine weeks ended September 24, 2000, from
$788,608 for the thirty-nine weeks ended September 26, 1999. General and
administrative expense as a percent of total sales increased to 19.58% from
13.61% in the respective periods. The increase is attributable an increase
in penalties associated with unpaid sales and payroll taxes. General and
administrative expenses consist of, among other things, other
administrative expenses, general insurance and corporate overhead expenses.
Interest expense increased $314,926 or 339.79% to $407,607 for the thirty-
nine weeks ended September 24, 2000, from $92,681 for the thirty-nine weeks
ended September 26, 1999. The increase is attributable an increase in
interest charges associated with unpaid sales and payroll taxes. Interest
expense as a percent of total sales increased to 7.23% from 1.60% in the
respective periods.
The Company's net loss increased $270,684 or 12.63% to $2,414,675 for the
thirty-nine weeks ended September 24, 2000, from $2,143,991 for the thirty-
nine weeks ended September 26, 1999. Net operating loss as a percentage of
revenues increased to -138.72% from -37.0%, in the respective periods. The
increase in the loss can be attributable to a number of factors namely
increased food cost, interest and late fee charges on unpaid taxes and the
inability of the four remaining stores to absorb the General and
administrative costs.
(C) Liquidity And Capital Resources
Operating Activities. During the period December 26, 1999 through
September 24, 2000 operations resulted in a loss of $2,414,675. The change
in cash was $21,336. The company continued to operate utilizing current
payables and debt financing in the form of 12% senior secured notes as
financing.
As of September 24, 2000, the Company had negative working capital of
$6,073,924, as compared to negative working capital of $5,432,510 as of
December 26, 1999.
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
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. 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.
Financing Activities. 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. If the company does not
obtain additional capital it will not be able to maintain current
operations.
Part II OTHER INFORMATION
Item 1. Legal Proceedings.
General
There are no 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
None
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 24, 2000:
None
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 13, 2000 By: s/ Charles O. Olson, Jr.
-------------------------------
Charles O. Olson, Jr.
Chief Executive Officer
Chief Financial Officer
