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 March 28, 1999
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) EXCHANGE ACT
For the transition period from to
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Commission file number 0-17975
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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)
-------------------------------------------
(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:
2,457,759 as of December 27, 1998.
----------------------------------
Redheads, Inc, AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements
Consolidated Balance Sheet as of March 28, 1999
(unaudited) and December 27, 1998 (Unaudited) 3
Consolidated Statement of Operations for the
thirteen weeks ending March 28, 1999 (unaudited)
and March 29, 1998 (unaudited) 4
Consolidated Statement of Cash Flows as of
March 28, 1999 (unaudited) 5
Consolidated Statement of Stockholders Equity
(Deficit) as of March 28, 1999 (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
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Redheads, Inc, and subsidiaries
consolidated balance sheet
<TABLE>
<CAPTION>
March 28, 1999 December 27, 1998
(unaudited) (unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash 0 0
Accounts Receivable - Credit Cards 47,087 26,036
Inventories 81,920 84,812
Other Current Assets 142,660 60,682
----------------------------
TOTAL CURRENT ASSETS 271,667 171,531
Fixed Assets 1,286,584 1,349,017
Other Assets 387,297 365,674
Long Term Note Receivable 0 0
----------------------------
TOTAL LONG TERM ASSETS 1,673,881 1,714,691
TOTAL ASSETS 1,945,548 1,886,222
============================
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES
Cash Overdraft 56,311 210,955
Trade accounts 1,121,014 674,556
Deferred Liabilities 40,062 32,766
Sales and payroll taxes payable 787,192 562,803
Postpetition senior securred notes 0 0
Loans Payable - Taxes 443,237 443,237
Reserves 101,539 101,539
Accrued Expenses 104,136 103,921
----------------------------
TOTAL CURRENT LIABILITIES 2,653,492 2,129,776
Notes Payable 865,907 793,641
----------------------------
TOTAL LIABILITIES 3,519,399 2,923,417
STOCKHOLDERS' EQUITY (DEFICIT)
8% Cumulative Exchangeable $.001 par 125,000 125,000
value; authorized - 1,017,000 shares;
issued and outstanding - 16,666
shares as of March 28, 1999
and December 27, 1998
12% Preferred stock - $.001 par value;
authorized - 5,000,000 shares; 335,815 335,815
issued and outstanding - 44,775
shares as of March 28, 1999
issued and outstanding - 44,775
shares as of December 27, 1998
Common stock - $.001 par value;
authorized - 23,024,000 shares; 2,458 2,458
issued and outstanding - 2,457,759
shares as of March 28, 1999
issued and outstanding - 2,457,759
shares as of December 27, 1998
Additional paid-in capital 3,263,426 3,263,426
Accumulated deficit (4,763,894) (715,837)
Accumulated deficit Current (536,656) (4,048,058)
----------------------------
(1,573,851) (1,037,195)
----------------------------
Plus: subscriptions receivable 0 0
Total Stockholders Equity (1,573,851) (1,037,195)
----------------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY 1,945,548 1,886,222
============================
</TABLE>
Redheads, Inc, and Subsidiaries
Consolidated Statement of Operations
<TABLE>
<CAPTION>
13 Weeks Ending 13 Weeks Ending
March 28, 1999 March 29, 1998
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
SALES 1,886,746 100.00% 2,389,652 100.00%
COST OF SALES 514,953 27.29% 730,166 30.56%
--------- ---------
GROSS PROFIT 1,371,792 72.71% 1,659,486 69.44%
--------- ---------
OPERATING EXPENSES
Labor costs 804,431 42.64% 729,151 30.51%
Occupancy costs 262,918 13.94% 307,751 12.88%
Other Operating Expense 477,888 25.33% 573,141 23.98%
Depreciation 140,486 7.45% 151,530 6.34%
--------- ---------
TOTAL OPERATING EXPENSES 1,685,723 89.35% 1,761,573 73.72%
--------- ---------
LOSS FROM RESTAURANT OPERATIONS (313,931) -16.64% (102,088) -4.27%
--------- ---------
General and administrative
expenses 229,970 12.19% 204,619 8.56%
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LOSS FROM OPERATIONS (543,900) -28.83% (306,706) -12.83%
--------- ---------
OTHER EXPENSE
Interest income (expense) (25,258) -1.34% (6,820) -0.29%
Other income (expense) net 32,503 1.72% (35,447) -1.48%
--------- ---------
TOTAL OTHER INCOME (EXPENSE) 7,245 0.38% (42,267) -1.77%
--------- ---------
REORGANIZATION EXPENSE
Professional fees 0 0.00% (88,116) -3.69%
Gain (loss) on disposal of assets 0 0.00% (405) -0.02%
0 0.00% 0 0.00%
--------- ---------
TOTAL REORGANIZATION EXPENSE 0 0.00% (88,522) -3.70%
--------- ---------
LOSS BEFORE EXTRAORDINARY ITEM (536,656) -28.44% (437,495) -18.31%
EXTRAORDINARY ITEM
Forgiveness of Debt 0 0.00% 0 0.00%
NET LOSS (536,656) -22.46% (437,495) -18.31%
========= =========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 2,457,759 2,386,439
========= =========
INCOME (LOSS) PER COMMON SHARE (0.22) (0.18)
========= =========
</TABLE>
Redheads, Inc, and Subsidiaries
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
dec 27 98 mar 28 99
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) (536,656)
Depreciation Amortization 140,486
Decrease (Increase) In Inventory 2,892
Decrease (Increase) In Other Current Assets And Accts. Rec. (103,028)
Decrease (Increase) In Other Assets (21,623)
Loss on conversion of asset 0
Restructuring Expense 0
Forgiveness Of Debt 0
Increase (Decrease) In Trade Accounts And Notes Payable
And Accrued Expenses 453,970
Increase (Decrease) in Loans Payable 0
Increase (Decrease) In Sales And Payroll Taxes Payable 224,390
--------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 160,430
--------
CASH FLOWS FROM INVESTING ACTIVITY
(Increase) Decrease in C.I.P. And Fixed Assets (78,052)
Increase (Decrease) In Cash Due To/From Affiliated Co'S 0
--------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (78,052)
--------
CASH FROM FINANCING ACTIVITY
Increase (Decrease) In Long Term Debt 72,266
Increase (Decrease) In Cash Overdraft (154,644)
Change To Paid In Capital 0
Change To Preferred Cumulative Preferred 0
Change To Preferred Stock Subscribed 0
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (82,378)
--------
Increase (Decrease) in Cash 0
Cash Beginning 0
--------
Cash Ending 0
========
</TABLE>
Redheads, Inc, and Subsidiaries
Consolidated Statement of Stockholders Equity (Deficit)
<TABLE>
<CAPTION>
TOTAL PIC
Stockholder Preferred Preferred Preferred Common Paid-in Preferred Retained
Equity Stock Stock 12% Stock Stock Capital Stock subs. Earnings
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 28, 1997 3,029,026 125,000 315,815 2,401,813 2,386 499,849 400,000 (715,836)
STOCK FOR DEBT SETTLEMENT 176,587 68 176,519
STOCK FOR DEBT SETTLEMENT 5,250 4 5,246
EQUITY PLACEMENT FEES 0
RECORD PREFERRED STOCK TO
TELEFERSCOT 0 20,000 180,000 (200,000)
NET INCOME JAN. TO Dec 1998 (4,048,058) (4,048,058)
Converted to debt (200,000) (200,000)
0
0
---------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 27, 1998 (1,037,194) 125,000 0 335,815 2,581,813 2,458 681,614 0 (4,763,894)
============================================================================================
0
0
NET INCOME JAN. TO MARCH 1999 (536,656) (536,656)
0
0
---------------------------------------------------------------------------------------------
BALANCE AT MARCH 28, 1999 (1,573,851) 125,000 0 335,815 2,581,813 2,458 681,614 0 (5,300,550)
============================================================================================
</TABLE>
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 March 28,
1999 and March 29, 1998, the results of operations for the thirteen weeks
ended March 28, 1999, and thirteen weeks ending March 28, 1999. 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 March 28, 1999. The Company's
federal state and city tax returns have not yet been filed for the fifty two
week period ending December 27, 1998. As of December 27, 1998 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"
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 March 28, 1999
as compared with the thirteen weeks ended March 29, 1998.
Total revenues decreased $502,906 or 21.05% to $1,886,746 for the
thirteen weeks ended March 28, 1999, from $2,389,652 for the thirteen weeks
ended March 29, 1998. The decrease was attributable to the closure of the
Levittown location.
Food and beverage expense decreased $215,213 or 29.47% to $514,953 for
the thirteen weeks ended March 28, 1999 from $730,166 for the thirteen weeks
ended March 29, 1998. The decrease is attributable to the closure of the
Levittown location.
Restaurant labor and related expenses increased $75,280 or 10.32% to
$804,431 for the thirteen weeks ended March 28, 1999, from $729,151 for the
thirteen weeks ended March 29, 1998. The increase is attributable to the
increase associated with the hiring of corporate chefs to upgrade the menu
offerings.
Restaurant occupancy expenses decreased $44,833 or 14.57% to $262,918
for the thirteen weeks ended March 28, 1999, from $307,751 for the thirteen
weeks ended March 29, 1998. The decrease is attributable to the closure of
the Levittown location.
Other operating expenses decreased $95,253 to $477,888 for the
thirteen weeks ended March 28, 1999, from $573,141 for the thirteen weeks
ended March 29, 1998. The decrease is attributable to the closure of the
Levittown 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.
Depreciation and Amortization decreased $11,045 or 7.29% to $140,486
for the thirteen weeks ended March 28, 1999, from $573,141 for the thirteen
weeks ended March 29, 1998. The decrease is attributable to the closure of
the Levittown location.
General and administrative expenses increased $25,351 to $229,970 for
the thirteen weeks ended March 28, 1999, from $204,618 for the thirteen
weeks ended March 29, 1998. The increase is attributable to the hiring of
a team of marketing professionals. General and administrative expenses
consist of, among other things, executive salaries, other administrative
compensation, corporate office rent and corporate overhead expenses.
The Company's net loss from operations increased $99,161 or 22.67% to
($536,656) for the thirteen weeks ended March 28, 1999, from ($437,495) for
the thirteen weeks ended March 29, 1998. The increase in the loss can be
attributable to a number of factors namely the increase in labor and
administrative expenses.
(C) Liquidity And Capital Resources
Operating Activities. During the period December 28, 1998 through
March 28, 1999 operations resulted in a loss of $536,656. The change in
cash was $0. The company continued to operate utilizing current payables
and debt financing in the form of 12% senior secured notes as financing.
As of March 28, 1999, the Company had negative working capital of
$2,3841,825, as compared to negative working capital of $1,958,245 as of
December 27, 1998.
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. 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.
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 tc \l1 "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 March 28, 1999:
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: March 21, 2000 By: s/ Charles O. Olson, Jr.
-------------- ------------------------
Charles O. Olson, Jr.
Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-26-1999
<PERIOD-END> MAR-28-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 47,087
<ALLOWANCES> 0
<INVENTORY> 81,920
<CURRENT-ASSETS> 271,667
<PP&E> 3,824,353
<DEPRECIATION> (2,537,769)
<TOTAL-ASSETS> 1,945,548
<CURRENT-LIABILITIES> 2,653,492
<BONDS> 0
0
460,815
<COMMON> 2,458
<OTHER-SE> 3,263,426
<TOTAL-LIABILITY-AND-EQUITY> 1,945,548
<SALES> 1,886,746
<TOTAL-REVENUES> 1,886,746
<CGS> 514,953
<TOTAL-COSTS> 514,953
<OTHER-EXPENSES> 1,883,190
<LOSS-PROVISION> (536,656)
<INTEREST-EXPENSE> 25,258
<INCOME-PRETAX> (536,656)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (536,656)
<EPS-BASIC> (.22)
<EPS-DILUTED> (.22)
</TABLE>
