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 26, 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.
Item 1. Financial Statements
Consolidated Balance Sheet as of March 26, 2000
(unaudited) and December 26, 1999 (Audited) 3
Consolidated Statement of Operations for the thirteen
weeks ending March 26, 2000 (unaudited) and
March 28, 1999 (unaudited) 4
Consolidated Statement of Cash Flows for the
thirteen weeks ending March 26, 2000 (unaudited) 5
Consolidated Statement of Stockholders Equity
(Deficit) (unaudited) 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 7-10
PART II OTHER INFORMATION 12
Item 1. Legal Proceedings 12
Item 2. Changes in 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 26 December 26
2000 1999
Unaudited Audited
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash 0 0
Accounts Receivable - Credit Cards 59,151 26,497
Inventories 84,538 92,012
Other Current Assets 141,588 34,793
-------------------------
TOTAL CURRENT ASSETS 285,277 153,302
Fixed Assets 1,137,937 1,189,667
Other Assets 314,840 357,557
Loans receivable - stockholders 102,272 99,293
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TOTAL LONG TERM ASSETS 1,555,048 1,646,516
TOTAL ASSETS 1,840,325 1,799,819
=========================
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES
Cash Overdraft 47,491 53,753
Trade accounts 1,162,362 1,078,147
Deferred Compensation 46,277 46,277
Sales and payroll taxes payable 2,985,512 2,373,377
Loans Payable - Taxes 544,702 509,723
Reserves 101,539 101,539
Accrued Expenses 280,948 273,074
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TOTAL CURRENT LIABILITIES 5,168,831 4,435,891
Long Term Debt 1,681,861 1,415,661
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TOTAL LIABILITIES 6,850,692 5,851,552
STOCKHOLDERS' EQUITY (DEFICIT)
8% Cumulative Exchangeable $.001 par value;
authorized-1,017,000 shares;
issued and outstanding - 16,666
shares as of March 26, 2000
and December 26, 1999 125,000 125,000
12% Preferred stock-$.001 par value;
authorized-5,000,000 shares;
issued and outstanding - 44,775
shares as of March 26, 2000
issued and outstanding - 44,775
shares as of 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 March 26, 2000
issued and outstanding - 2,457,759
shares as of 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 (958,634) (3,014,538)
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TOTAL STOCKHOLDERS' EQUITY (5,010,367) (4,051,733)
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 1,840,325 1,799,819
=========================
</TABLE>
Redheads, Inc. and Subsidiaries
Consolidated Statement of Operations
<TABLE>
<CAPTION>
13 Weeks Ending 13 Weeks Ending
Mar 26, 2000 Mar 28, 1999
(unaudited) (unaudited)
<S> <C> <C> <C>
SALES 1,942,552 100.00% 1,889,650 100.00%
COST OF SALES 598,079 30.79% 515,270 27.25%
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GROSS PROFIT 1,344,473 69.21% 1,374,380 72.75%
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OPERATING EXPENSES
Labor costs 898,015 46.23% 909,836 48.15%
Occupancy costs 303,748 15.64% 283,332 14.99%
Other Operating Expense 505,548 26.02% 519,785 27.51%
Depreciation 103,042 5.30% 120,700 6.39%
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TOTAL OPERATING EXPENSES 1,810,353 93.19% 1,833,653 97.04%
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LOSS FROM RESTAURANT OPERATIONS (465,880) -23.98% (459,273) -24.29%
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General and administrative expenses 348,509 17.94% 165,078 8.74%
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LOSS FROM OPERATIONS (814,389) -41.92% (624,351) -33.02%
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OTHER INCOME (EXPENSE)
Interest expense (150,824) -7.76% (105,348) -5.57%
Other income (expense) net 6,579 0.34% 44,370 2.35%
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TOTAL OTHER INCOME (EXPENSE) (144,245) -7.43% (60,978) -3.23%
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NET LOSS (958,634) -49.35% (685,329) -36.25%
========= =========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 2,457,759 2,457,759
INCOME (LOSS) PER COMMON SHARE (0.96) (0.41)
</TABLE>
Redheads, Inc. and Subsidiaries
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
13 Weeks Ended
March 26, 2000
<S> <C>
CASH FLOW FROM OPERATING ACTIVITY
Net Income (Loss) (958,634)
Depreciation Amortization 103,042
Decrease (Increase) In Inventory 7,474
Decrease (Increase) In Other Current Assets And Accts. Rec. (139,450)
Decrease (Increase) In Other Assets 42,716
Loss on conversion of asset 0
Restructuring Expense 0
Forgivness Of Debt 0
Increase (Decrease) In Trade Accounts And Notes Payable
And Accrued Expenses 92,089
Increase (Decrease) In Loans Payable 34,979
Increase (Decrease) In Sales And Payroll Taxes Payable 612,136
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NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (205,646)
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CASH FLOW FROM INVESTING ACTIVITY
(Increase) Decrease In C.I.P. And Fixed Assets (51,313)
(Increase) Decrease In Notes Receivable (2,979)
Increase (Decrease) In Cash Due To/From Affiliated Co'S 0
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NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (54,292)
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CASH FLOW FROM FINANCINIG ACTIVITY
Increase (Decrease) In Long Term Debt 266,200
Increase (Decrease) In Cash Overdraft (6,262)
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 259,938
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Increase (Decrease) In Cash (0)
Cash Beginning 0
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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
Equtiy Stock Stock/MRI Stock Stock Capital Stock subs. Earnings
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DEC 26, 1999 (4,051,733) 0 460,815 2,581,813 2,458 681,614 0 (7,778,433)
=============================================================================================
0
0
NET INCOME DEC. TO MARCH 2000 (958,634) (958,634)
0
0
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BALANCE AT MARCH 26, 2000 (5,010,367) 0 460,815 2,581,813 2,458 681,614 0 (8,737,066)
=============================================================================================
</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 26,
2000 and March 28,1999, the results of operations for the thirteen weeks ended
March 26, 2000, thirteen weeks ending March 28,1999, and the cash flows for
the thirteen weeks ended March 26, 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 thirteen weeks ended March 26, 2000. The Company's
federal state and city tax returns have not yet been filed for fifty two week
periods 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"
3 Restatement of prior period Financial Statements
Due to the effects of the 1999 audit the company's consolidated
financial statements for March 28, 1999 were restated. In order to present
prior period amounts on a basis consistent with those of the current period,
the balance sheet, results of operations and cash flows have been restated.
The following table presents the impact of the prior period restatement
on the consolidated statement of operations for the fiscal period ending March
28, 1999
<TABLE>
<CAPTION>
Amounts
Previously Restated
Reported Amounts
---------- --------
<S> <C> <C>
March 28, 1999
Sales $1,886,746 $1,889,651
Net loss $ (566,656) $ (685,012)
Net loss per share $ (0.22) $ (0.41)
</TABLE>
The impact of the restatement also resulted in changes to the balance
sheet and consolidated statement of cash flows for the fiscal quarter ending
March 28, 1999.
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 26, 2000 as
compared with the thirteen weeks ended March 28,1999.
Total revenues increased $52,902 or 2.8% to $1,942,552 for the thirteen
weeks ended March 26, 2000, from $1,889,650 for the thirteen weeks ended March
28,1999. The increase is attributable to new menus introduced in 1999.
Food and beverage expense increased $82,808 or 16% to $598,079 for the
thirteen weeks ended March 26, 2000 from $515,270 for the thirteen weeks ended
March 28,1999. Food and beverage expense as a percent of total sales increased
to 30.8% from 27.3% in the respective periods.
Restaurant labor and related expenses decreased $11,821 or 1.3% to
$898,015 for the thirteen weeks ended March 26, 2000, from $909,836 for the
thirteen weeks ended March 28,1999. Restaurant labor and related expense as
a percent of total sales decreased to 46% from 48% in the respective periods.
Restaurant occupancy expenses increased $20,415 or 7.2% to $303,748 for
the thirteen weeks ended March 26, 2000, from $283,332 for the thirteen weeks
ended March 28,1999. The decrease is attributable to the natural escalation
in lease terms. Restaurant occupancy expense as a percent of total sales
increased to 15.6% from 15.% in the respective periods.
Other operating expenses decreased $14,236 or 2.7% to $505,548 for the
thirteen weeks ended March 26, 2000, from $519,785 for the thirteen weeks
ended March 28,1999. Other operating expense as a percent of total sales
decreased to 26% from 27.5% in the respective periods. The decrease is
attributable to economies related 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 $17,658 or 15% to $103,042 for
the thirteen weeks ended March 26, 2000, from $120,700 for the year ended
March 28,1999. The decrease represents the continuing ageing of corporate
assets. Depreciation and Amortization as a percent of total sales decreased
to 5.3% from 6.4% in the respective periods.
General and administrative expenses increased $183,431 or 111% to
$348,509 for the thirteen weeks ended March 26, 2000, from $165,078 for the
thirteen weeks ended March 28,1999. General and administrative expense as a
percent of total sales increased to 17.9% from 8.7% 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 $45,476 or 43% to $150,824 for the thirteen
weeks ended March 26, 2000, from $105,348 for the thirteen weeks ended March
28,1999. 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 7.8% from 5.6% in the respective periods.
The Company's net loss increased $273,305 or 40% to $958,634 for the
thirteen weeks ended March 26, 2000, from $685,329 for the thirteen weeks
ended March 28,1999. Net operating loss as a percentage of revenues increased
40 percentage points to 49% from 36%, in the respective periods. The increase
in the loss can be attributable to a number of factors namely increased food
cost, labor, 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 March
26, 2000 operations resulted in a loss of $958,634. 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 26, 2000, the Company had negative working capital of
$4,883,554, as compared to negative working capital of $4,282,586 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 March 26, 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: June 21, 2000 By: s/ Charles O. Olson, Jr.
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Charles O. Olson, Jr.
Chief Executive Officer
Chief Financial Officer
