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 June 25, 2000
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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)
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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.
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Redheads, Inc, AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION
Page No.
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Item 1. Financial Statements
Consolidated Balance Sheet as of June 25, 2000
(unaudited) and December 26, 1999 (Audited) 3
Consolidated Statement of Operations for the thirteen
weeks ending June 25, 2000 (unaudited) and
June 27, 1999 (unaudited) 4
Consolidated Statement of Operations for the
twenty-six weeks ending June 25, 2000 (unaudited)
and June 27, 1999 (unaudited) 5
Consolidated Statement of Stockholders Equity (Deficit) 6
Consolidated Statement of Cash Flows for the
twenty-six weeks ending June 25, 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>
June 25 December 26
2000 1999
Unaudited Audited
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash 0 0
Accounts Receivable - Credit Cards 57,239 26,497
Inventories 91,517 92,012
Other Current Assets 86,084 34,793
-------------------------
TOTAL CURRENT ASSETS 234,840 153,302
Fixed Assets 1,101,724 1,189,667
Other Assets 344,995 357,557
Loans receivable - stockholders 121,416 99,293
-------------------------
TOTAL LONG TERM ASSETS 1,568,135 1,646,516
TOTAL ASSETS 1,802,975 1,799,819
=========================
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES
Cash Overdraft 61,653 53,753
Trade accounts 1,236,178 1,078,147
Deferred Compensation 46,277 46,277
Sales and payroll taxes payable 3,346,105 2,373,377
Loans Payable - Taxes 541,453 509,723
Reserves 101,539 101,539
Accrued Expenses 334,146 273,074
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TOTAL CURRENT LIABILITIES 5,667,350 4,435,891
Long Term Debt 1,681,861 1,415,661
-------------------------
TOTAL LIABILITIES 7,349,211 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 (1,494,502) (3,014,538)
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TOTAL STOCKHOLDERS' EQUITY (5,546,235) (4,051,733)
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 1,802,975 1,799,819
=========================
</TABLE>
REDHEADS, INC, AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
13 Weeks Ending 13 Weeks Ending
Jun 25, 2000 Jun 27, 1999
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
SALES 1,956,772 100.00% 2,037,536 100.00%
COST OF SALES 612,650 31.31% 550,802 27.03%
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GROSS PROFIT 1,344,122 68.69% 1,486,734 72.97%
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OPERATING EXPENSES
Labor costs 764,162 39.05% 833,474 40.91%
Occupancy costs 274,511 14.03% 276,600 13.58%
Other Operating Expense 468,442 23.94% 574,020 28.17%
Depreciation 24,269 1.24% 140,486 6.89%
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TOTAL OPERATING EXPENSES 1,531,384 78.26% 1,824,579 89.55%
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LOSS FROM RESTAURANT OPERATIONS (187,262) -9.57% (337,845) -16.58%
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General and administrative expenses 273,176 13.96% 276,792 13.58%
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LOSS FROM OPERATIONS (460,438) -23.53% (614,637) -30.17%
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OTHER INCOME (EXPENSE)
Interest expense (63,283) -3.23% (31,317) -1.54%
Other income (expense) net (12,148) -0.62% (65,526) -3.22%
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TOTAL OTHER INCOME (EXPENSE) (75,431) -3.85% (96,843) -4.75%
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NET LOSS (535,869) -27.39% (711,480) -34.92%
========= =========
BASIC AND DILUTED LOSS PER SHARE OF
COMMON STOCK (0.22) (0.29)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 2,457,759 2,457,759
</TABLE>
REDHEADS, INC, AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
26 Weeks Ending 26 Weeks Ending
Jun 25, 2000 Jun 27, 1999
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
SALES 3,899,324 100.00% 3,924,282 100.00%
COST OF SALES 1,210,729 31.05% 1,065,755 27.16%
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GROSS PROFIT 2,688,595 68.95% 2,858,527 72.84%
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OPERATING EXPENSES
Labor costs 1,537,838 39.44% 1,637,905 41.74%
Occupancy costs 545,850 14.00% 539,518 13.75%
Other Operating Expense 966,066 24.78% 1,051,908 26.81%
Depreciation 127,311 3.26% 280,971 7.16%
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TOTAL OPERATING EXPENSES 3,177,066 81.48% 3,510,303 89.45%
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LOSS FROM RESTAURANT OPERATIONS (488,471) -12.53% (651,776) -16.61%
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General and administrative expenses 772,344 19.81% 506,762 12.91%
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LOSS FROM OPERATIONS (1,260,814) -32.33% (1,158,538) -29.52%
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OTHER INCOME (EXPENSE)
Interest expense (214,107) -5.49% (56,575) -1.44%
Other income (expense) net (19,581) -0.50% (33,023) -0.84%
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TOTAL OTHER INCOME (EXPENSE) (233,688) -5.99% (89,598) -2.28%
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NET LOSS (1,494,502) -38.33% (1,248,136) -31.81%
========== ==========
BASIC AND DILUTED LOSS PER SHARE OF
COMMON STOCK (0.61) (0.51)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 2,457,759 2,457,759
</TABLE>
REDHEADS, INC, AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY (DEFICIT)
FOR THE TWENTY-SIX WEEKS ENDED JUNE 25, 2000
<TABLE>
<CAPTION>
TOTAL PIC
Stockholder Preferred Preferred Common Paid-in Retained
Equtiy 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 TWENTY-SIX
WEEK PERIOD ENDING JUNE 25, 2000 (1,494,502) (1,494,502)
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BALANCE AT JUNE 25, 2000 (5,546,235) 460,815 2,581,813 2,458 68,614 (9,272,935)
=============================================================================
</TABLE>
REDHEADS, INC, AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE TWENTY-SIX WEEKS ENDED JUNE 25, 2000
<TABLE>
<S> <C>
CASH FLOW FROM OPERATING ACTIVITY
Net Income (Loss) (1,494,502)
Depreciation Amortization 127,311
Decrease (Increase) In Inventory 495
Decrease (Increase) In Other Current Assets And Accts. Rec. (82,034)
Decrease (Increase) In Other Assets 12,561
Increase (Decrease) In Trade Accounts And Notes Payable
And Accrued Expenses 219,103
Increase (Decrease) In Loans Payable 31,730
Increase (Decrease) In Sales And Payroll Taxes Payable 972,729
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NET CASH PROVIDED BY OPERATING ACTIVITIES (212,607)
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CASH FLOW FROM INVESTING ACTIVITY
(Increase) Decrease In C.I.P. And Fixed Assets (39,369)
(Increase) Decrease In Notes Receivable (22,123)
NET CASH USED IN INVESTING ACTIVITIES (61,493)
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CASH FLOW FROM FINANCINIG ACTIVITY
Increase (Decrease) In Long Term Debt 266,200
Increase (Decrease) In Cash Overdraft 7,899
NET CASH PROVIDED BY FINANCING ACTIVITIES 274,099
----------
Increase (Decrease) In Cash (0)
Cash Beginning 0
----------
Cash Ending 0
==========
</TABLE>
REDHEADS, INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 25, 2000 AND JUNE 27, 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 June 25,
2000 and June 27, 1999, the results of operations for the thirteen and
twenty-six weeks ended June 25, 2000, thirteen and twenty-six weeks ending
June 27, 1999, and the cash flows for the twenty-six weeks ended June 25,
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 twenty-six weeks ended June 25, 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 June 25, 2000 as compared
with the thirteen weeks ended June 27, 1999.
Total revenues decreased $80,764 or 3.9% to $1,956,772 for the
thirteen weeks ended June 25, 2000, from $2,037,536 for the thirteen weeks
ended June 27, 1999. The decrease is partly attributable to discontinued
advertising campaign.
Food and beverage expense increased $61,848 or 11.23% to $612,650 for
the thirteen weeks ended June 25, 2000 from $550,802 for the thirteen weeks
ended June 27, 1999. Food and beverage expense as a percent of total sales
increased to 31.3% from 27.0% in the respective periods.
Restaurant labor and related expenses decreased $69,312 or 8.3% to
$764,162 for the thirteen weeks ended June 25, 2000, from $833,474 for the
thirteen weeks ended June 27, 1999. Restaurant labor and related expense as
a percent of total sales decreased to 39.1% from 40.9% in the respective
periods.
Restaurant occupancy expenses decreased $2,089 or .07% to $274,511 for
the thirteen weeks ended June 25, 2000, from $276,600 for the thirteen weeks
ended June 27, 1999. Restaurant occupancy expense as a percent of total
sales increased to 14.0% from 13.6% in the respective periods.
Other operating expenses decreased $105,758 or 18.4% to $468,442 for
the thirteen weeks ended June 25, 2000, from $574,020 for the thirteen weeks
ended June 27, 1999. Other operating expense as a percent of total sales
decreased to 23.9% from 28.2% in the respective periods. The decrease is
partly attributable to the discontinuing of the advertising campaign begun
in 1999. 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 decreased $3,616 or 1.3% to
$273,176 for the thirteen weeks ended June 25, 2000, from $276,792 for the
thirteen weeks ended June 27, 1999. General and administrative expense as a
percent of total sales increased to 14.0% from 13.6% in the respective
periods. General and administrative expenses consist of, among other things,
other administrative expenses, general insurance and corporate overhead
expenses.
Interest expense decreased $20,412 or 22.1% to $75,431 for the
thirteen weeks ended June 25, 2000, from $96,843 for the thirteen weeks
ended June 27, 1999. Interest expense as a percent of total sales increased
to 3.9% from 4.8% in the respective periods.
The Company's net loss decreased $175,611 or 24.8% to $535,869 for the
thirteen weeks ended June 25, 2000, from $711,480 for the thirteen weeks
ended June 27, 1999. Net operating loss as a percentage of revenues
decreased to 27.4% from 34.9%, in the respective periods.
Results of Operations -The twenty-six weeks ended June 25, 2000 as compared
with the twenty-six weeks ended June 27, 1999.
Total revenues decreased $24,958 or .63% to $3,899,324 for the twenty-
six weeks ended June 25, 2000, from $3,924,282 for the twenty-six weeks
ended June 27, 1999.
Food and beverage expense increased $144,974 or 13.6% to $1,210,729
for the twenty-six weeks ended June 25, 2000 from $1,065,755 for the twenty-
six weeks ended June 27, 1999. Food and beverage expense as a percent of
total sales increased to 31.05% from 27.16% in the respective periods.
Restaurant labor and related expenses decreased $100,067 or 6.1% to
$1,537,838 for the twenty-six weeks ended June 25, 2000, from $1,637,905 for
the twenty-six weeks ended June 27, 1999. Restaurant labor and related
expense as a percent of total sales decreased to 39.44% from 41.74% in the
respective periods.
Restaurant occupancy expenses increased $6,332 or 1.2% to $545,850 for
the twenty-six weeks ended June 25, 2000, from $539,518 for the twenty-six
weeks ended June 27, 1999. The decrease is attributable to the natural
escalation in lease terms. Restaurant occupancy expense as a percent of
total sales increased to 14.0% from 13.75% in the respective periods.
Other operating expenses decreased $85,842 or 8.01% to $966,066 for
the twenty-six weeks ended June 25, 2000, from $1,051,908 for the twenty-six
weeks ended June 27, 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 24.78% from 26.81% 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 $153,660 or 54.6% to $127,311
for the twenty-six weeks ended June 25, 2000, from $280,971 for the year
ended June 27, 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 3.26% from 7.16% in the respective periods.
General and administrative expenses increased $265,583 or 52.6% to
$772,344 for the twenty-six weeks ended June 25, 2000, from $506,762 for the
twenty-six weeks ended June 27, 1999. General and administrative expense as
a percent of total sales increased to 19.81% from 12.91% 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 $144,090 or 160.8% to $233,688 for the
twenty-six weeks ended June 25, 2000, from $89,598 for the twenty-six weeks
ended June 27, 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 5.99% from 2.28% in the respective
periods.
The Company's net loss increased $246,366 or 19.7% to $1,494,502 for
the twenty-six weeks ended June 25, 2000, from $1,248,136 for the twenty-six
weeks ended June 27, 1999. Net operating loss as a percentage of revenues
increased to 38.33% from 31.81%, 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 June
25, 2000 operations resulted in a loss of $1,494,502. 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 June 25, 2000, the Company had negative working capital of
$4,883,554, 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. 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. 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 June 25, 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: August 22, 2000 By: s/ Charles O. Olson, Jr.
------------------------
Charles O. Olson, Jr.
Chief Executive Officer
Chief Financial Officer
