UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended June 30, 1996 Commission File Number 0-26838
RED HOT CONCEPTS, INC.
(Exact name of registrant as specified in its charter)
Delaware 52-1887105
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6701 Democracy Boulevard
Suite 300
Bethesda, Maryland 20817
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (301) 493-4553
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 15(d) of the Securities and Exchange Act of 1934
during the preceding 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
As of August 1, 1996, 7,762,347 shares of common stock par value, $.01 per share
were outstanding.
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES
FORM 10-QSB
QUARTERLY REPORT
For the Period April 1, 1996 to June 30, 1996
INDEX
Part I: FINANCIAL INFORMATION
Item 1 : Financial Statements
Condensed Consolidated Balance Sheet [Unaudited] 1
Condensed Consolidated Statements of Operations for the period
April 1, 1996 to June 30, 1996 and for the period April 3, 1995
to July 2, 1995[Unaudited] 2
Condensed Consolidated Statement of Stockholders' Equity for the
six month period January 1, 1996 to June 30, 1996 [Unaudited] 3
Condensed Consolidated Statements of Cash Flows for the period
January 1, 1996 to June 30, 1996 and for the period January 2,
1995 to July 2, 1995 [Unaudited] 4
Notes to Condensed Consolidated Financial Statements 5
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations 6-7
Part II: OTHER INFORMATION 8
SIGNATURES 9
o o o o o o o o o o
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET [UNAUDITED]
<TABLE>
<CAPTION>
As of As of
June 30, 1996 December 31, 1995
<S> <C> <C>
Assets:
Current Assets:
Cash and Cash Equivalents $ 1,423,770 1,764,969
Accounts Receivable and Other Receivables 718,503 547,072
Inventories 417,779 194,035
Prepaid Expenses and Accrued Income 453,230 65,378
Other Current Assets 47,888 --
----------- -----------
Total Current Assets 3,061,170 2,571,454
----------- -----------
Furniture and Equipment - Net 5,420,160 2,012,343
----------- -----------
Other Assets:
Development and License Agreements - Net 474,341 476,935
Restaurant Development and Start-Up Costs - Net 977,194 745,418
Loan to Officers 31,000 51,000
----------- -----------
Total Other Assets 1,482,535 1,273,353
----------- -----------
Total Assets 9,963,865 5,857,150
----------- -----------
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable and Accrued Expenses 3,756,226 2,230,670
Current Notes Payable 100,000 100,000
Obligations under Capital Leases 47,243 16,009
Due to Related Parties 1,579,565 273,344
----------- -----------
Total Current Liabilities: 5,483,034 2,620,023
Long Term Liabilities:
Long Term Debt 1,161,692 100,000
Obligations under Capital Leases 45,596 25,880
----------- -----------
Total Long Term Liabilities 1,207,288 2,745,903
----------- -----------
Shareholders Equity
Common Stock, $.01 Par Value,
20,000,000 Shares Authorized,
7,762,347 Shares Issued and Outstanding 77,623 47,623
Additional Paid-in Capital 5,864,702 4,749,700
Retained Loss (2,690,099) (1,398,326)
Cumulative Foreign Currency Translation Adjustment 21,317 (14,416)
----------- -----------
Total Stockholders' Equity 3,273,543 3,384,581
----------- -----------
Total Liabilities and Stockholders' Equity $ 9,963,865 $ 8,750,507
----------- -----------
</TABLE>
The Accompanying Notes are an Integral Part of these Condensed Consolidated
Financial Statements.
1
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS.
[UNAUDITED]
<TABLE>
<CAPTION>
For the Three Months For the Six Months
April 1, April 3, January 1, January 2,
1996 to 1995 to 1996 to 1995 to
June 30, July 2, June 30, April 2,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues $ 2,187,521 $13,016 $ 3,733,818 $13,016
Cost of Sales 1,898,131 -- 3,173,730 --
----------- ----------- ----------- -----------
Gross Profit 289,390 13,016 560,088 13,016
Expenses:
Fixed and Administrative Expenses 1,179,734 163,973 1,857,916 278,186
----------- ----------- ----------- -----------
Operating Loss (890,345) (150,957) (1,297,826) (265,170)
Interest Income 1,536 -- 6,053 --
----------- ----------- ----------- -----------
Net Loss (888,808) (150,957) (1,291,773) (265,170)
----------- ----------- ----------- -----------
Net Loss Per Share $ (0.18) $ (0.03) $ (0 .27) $ (0.06)
----------- ----------- ----------- -----------
Weighted Average Number of
Shares Outstanding 4,929,014 4,383,333 4,844,314 4,383,333
----------- ----------- ----------- -----------
</TABLE>
The Accompanying Notes are an Integral Part of these Condensed Consolidated
Financial Statements.
2
<PAGE>
RED HOT CONCEPTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
[UNAUDITED]
<TABLE>
<CAPTION>
Cumulative
Common Stock Foreign
Number of Additional Accumulated Currency Total
Shares Paid-in Deficit Translation Shareholders'
Amount Capital Adjustments Equity
<S> <C> <C> <C> <C> <C> <C>
Balance as of
December 31, 1995 4,762,347 47,623 4,749,702 (1,398,326) (14,416) 3,384,583
Additional Offering Costs
in Connection with Sale (55,000) (55,000)
of Stock
Net Loss for the period
January 1, 1996 to June
30, 1996 (1,291,773) (1,291,773)
Issuance of Common Stock 3,000,000 30,000 1,170,000 1,200,000
Foreign Currency
Translation Adjustment 35,733 35,733
----------- ----------- ----------- ----------- ----------- -----------
Balance - June 30, 1996 7,766,347 $ 77,623 $ 5,864,702 $(2,269,099) $ 21,317 $ 3,273,543
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
Foreign Currency Translation
The functional currency for the Company's United Kingdom subsidiary and
Australian subsidiary is the British pound sterling and Australian dollar,
respectively. The translation from British pound sterling and Australian dollars
into U.S. dollars is performed for balance sheet accounts using current exchange
rates in effect at the balance sheet date and for revenue and expense accounts
using a weighted average exchange rate during the period. The gains or losses
resulting from such translation are included in stockholders' equity. Equity
transactions denominated in British pound sterling and Australian dollars have
been translated into U.S. dollars using the effective rate of exchange at date
of issuance.
The Accompanying Notes are an Integral Part of these Condensed Consolidated
Financial Statements.
3
<PAGE>
RED HOT CONCEPTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
<TABLE>
<CAPTION>
For the Six Months
January 1, 1996 to January 2, 1995 to
June 30, 1996 July 2, 1995
<S> <C> <C>
Operating Activities:
Net Cash - Operating Activities 1,100,462 849,817
----------- -----------
Investing Activities:
Purchase of Furniture, Fixtures and Intangible Assets (3,662,760) (482,236)
Repayment of Loan by Officer 20,000
----------- -----------
Net Cash - Investing Activities (3,642,760) (482,236)
----------- -----------
Financing Activities:
Proceeds from Loan 1,077,707
Repayment of Debt (35,805)
Proceeds from Sale of Common Stock 1,145,000 379,587
----------- -----------
Net Cash - Financing Activities 2,186,902 3,059
----------- -----------
Effect of Exchange Rate Changes on Cash 4,587 7,535
----------- -----------
Net (Decrease) in Cash and Cash Equivalents (341,199) (4,471)
Cash and Cash Equivalents - Beginning of Periods 1,764,969 5,716
(including restricted cash deposits)
----------- -----------
Cash and Cash Equivalents - End of Periods $ 1,423,770 $ 1,245
----------- -----------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the periods for:
Interest Paid 12,710 5,599
Taxes Paid -- --
Supplemental Disclosures of Non-Cash Financing and Investing Activities:
Total offering costs during the period January 1, 1996 to June 30, 1996 55,000
Fixed Assets acquired under Capital leases 50,030 --
</TABLE>
The Accompanying Notes are an Integral Part of these Condensed Consolidated
Financial Statements.
4
<PAGE>
RED HOT CONCEPTS INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
[UNAUDITED]
[A] Significant Accounting Policies
Significant accounting policies of Red Hot Concepts, Inc. and Subsidiary
[the "Company"] are set forth in the Company's Form 10-KSB for the year
ended December 31, 1995, as filed with the Securities and Exchange
Commission.
[B] Basis of Reporting
The condensed consolidated balance sheet as of June 30, 1996, the condensed
consolidated statements of operations for the six months ended June 30,
1996 and July 2, 1995, the condensed consolidated statement of
stockholders' equity from January 1, 1996 to June 30, 1996, and the
condensed consolidated statements of cash flows for the six months ended
June 30, 1996 and July 2, 1995 have been prepared by the Company without
audit. The accompanying interim condensed consolidated unaudited financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
requirements of Regulation SB and Form 10-QSB for condensed financial
statements. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the management of the Company, such
statements include all adjustments [consisting only of normal recurring
items] which are considered necessary for a fair presentation of the
financial position of the Company at June 30, 1996, and the results of its
operations and cash flows for the periods then ended. It is suggested that
these unaudited financial statements be read in conjunction with the
financial statements and notes contained in the Company's Form 10-KSB for
the year ended December 31, 1995 as amended by the notes set out below.
[C] Stock Transactions
On May 1, 1995, in anticipation of filing a post-effective amendment to its
Registration Statement changing the offering price for its shares in its
initial public offering from $5 to $6, Woodland Limited Partnership, the
holder of all the shares of common stock of the Company, at the time,
contributed back to the Company 950,000 shares of common stock.
On August 7, 1995, the Company completed its initial Public Offering. In
connection with the Offering, the Company sold 1,012,347 Units at $6 per
Unit. Each Unit consists of one share of common stock and two common stock
purchase warrants. The net proceeds received by the Company from the
Offering were $5,228,320 after deducting underwriting discounts and expense
reimbursements to the underwriter totaling $758,158 and offering costs paid
at the closing of $87,703.
On June 24, 1996, the Company completed a Regulation S share offering. In
the Offering, the Company sold 3,000,000 shares of common stock at $.40 per
share.
5
<PAGE>
[D] Acquisitions
On November 9, 1995 the Company, through a wholly-owned subsidiary, entered
into a Development and Franchise Agreement with Brinker International, Inc.
("Brinker") which grants the Company the exclusive right to own and operate
Chili's Restaurants in Australia and New Zealand (the "Pacific Development
Agreement"). The Pacific Development Agreement has an initial term of 10
years and is renewable at the Company's discretion for an additional 10
year period if a combined minimum of 40 Chili's Restaurants are opened
between the two countries.
Also on November 9, 1995, the Company acquired from Brinker all of the
stock of Chili's Texas Grill Pty Limited, an Australian company ("Chili's
Texas Grill"). Chili's Texas Grill operates two Chili's Restaurants near
Sydney, Australia. The purchase price for the acquisition of Chili's Texas
Grill is payable in three equal installments on November 9, 1995, 1996 and
1997. The purchase agreement also required Chili's Texas Grill to pay a
management fee to Brinker by November 30, 1995.
o o o o o o o o o
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Plan of
Operation
General
The Company was incorporated on June 14, 1994 and has a limited operating
history. The Company was in the development stage until October 1995 when
operations commenced. The Company has spent significant time focusing its
efforts on various activities including selecting sites, hiring and training
management personnel, establishing administrative and financial policies and
procedures and undertaking other activities necessary to operate new restaurants
in United Kingdom and Australia. To date, the Company has five restaurants
operating.
The Company was formed to develop Chili's Bar & Grill Restaurants ["Chili's
Restaurants"], a full service restaurant concept created by Brinker
International, Inc. ["Brinker"]. The Company has the exclusive right to own and
operate Chili's Bar & Grill Restaurants in the United Kingdom, Australia and New
Zealand pursuant to development and license agreements [the "Chili's Development
Agreements"] with Brinker. The Company has the option to terminate the Chili's
Development Agreement, without further obligation to Brinker by November 1,
1996.
The Company initially intends to concentrate the opening of restaurants in the
United Kingdom in central London and the south of England, where the
demographics, site characteristics and proximity to retail/office complexes will
generate high volumes. In Australia, the Company intends to concentrate
restaurants in the large metropolitan areas such as Melbourne and Sydney. In
general, a Chili's Restaurant will average approximately 5,800 to 7,000 square
feet in size with seating capacity of 210-250 people. The decor of a Chili's
restaurant consists of booth seating, tile-top tables, hanging plants, and wood
and brick walls covered with interesting memorabilia. The Company intends to
lease all the restaurant sites. The Company expects the total cost in the United
Kingdom to be approximately $1.2 million (including design, leasehold
improvements. purchase of equipment and fixtures and start-up costs) excluding
leasing costs and license fees. In Australia, the Company expects the cost to be
approximately $815,000.
The Company opened its first Chili's Restaurant at Canary Wharf, London on
October 9, 1995 and opened additional restaurants on March 20,1996 and May 1,
1996 in Cambridge and central London respectively. The Company purchased two
restaurants in Australia in November (See Note [D]). The Company intends to open
2 more in Australia before the end of the year.
Comparison of the three month period April 1 to June 30,1996, and April 3 to
July 2, 1995.
The Company recognized only consulting revenues in the second quarter 1995. In
the second quarter 1996, the five restaurants generated revenues of $2,187,521 .
Average weekly sales were $35,861.
The three restaurants in the United Kingdom achieved average weekly sales of $
30,885. The sales at the two new restaurants trended downward from the opening
sales rates consistent with the honeymoon period experience. The sales trends
stabilized at the end of the second quarter. The Company has implemented a
marketing plan designed to increase sales at its restaurants. The third
restaurant, Canary Wharf, averaged $21,300 per week in revenues for the second
quarter. This average was lower than the previous quarter as the tourist trade
has stayed away from the Canary Wharf Complex because of heightened security as
a result of the recent IRA activity. Food costs as a percentage of revenue came
down 5% in the second quarter, from 40% to 35%, and are closer to the Company's
objectives of total food and labor costs of 60% or below.
The two restaurants in Australia averaged $42,560 per week in the second
quarter. The same store sales increased by 8% over last year when the
restaurants were under different ownership. The food and labor costs as a
percentage of revenue are consistent with the Company's objectives of 60% or
less.
The general and administrative costs are primarily in connection with salaries
and office costs, travel and professional fees and fixed costs directly
attributable to the restaurants. The general and administrative costs are
abnormally high as a percentage of revenue and the Company anticipates a
decrease as a percentage of revenue as more restaurants are opened.
Liquidity and Capital Resources
The Company cash and cash equivalents increased by $1,005,103 in the quarter as
the Company obtained financing. For the first six months, the Company's cash
position has decreased by $341,199. The Company has financed new restaurant
construction and store development costs with the remaining proceeds of the
Initial Public Offering and the financing arrangements detailed below. In March
1996, the Company obtained an approximately $1 million fixed rate 7 year term
loan with National Westminster Bank in the United Kingdom. The Company received
a commitment from the National Australian Bank for an asset lease arrangement.
Under the terms, the bank will purchase the furniture/fittings/equipment for the
restaurants and lease them to the Company under a five year term. The Company
will have the right to acquire the assets at the end of the term at a bargain
price.
In June 1996, the Company obtained an additional $1 million loan from Woodland
Limited Partnership. This loan is a six month loan repayable in December. The
Company also raised $1,145,000 through the sale of common shares [Note C].
The Company believes that the anticipated future cash flow generated from
operations, and the financing that has been secured will be sufficient to
construct and commence operations at two to three restaurants over the next 12
months. If the Company's plans change or assumptions or estimates prove to be
inaccurate, the Company may require additional funds to achieve anticipated
7
<PAGE>
increased sales or, if such funds are unavailable, the Company will have to
reduce its operations to a level consistent with its available funding.
Impact of Inflation
Inflation is not expected to have a material impact on the Company's operations.
8
<PAGE>
Part II OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not a party to any litigation or governmental
proceedings that management believes would result in judgments or fines
that would have a material adverse effect on the Company.
Item 2. Changes in Securities
Not Applicable.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holder
Not Applicable.
Item 5. Other Information
Not Applicable.
Item 6. Exhibits
(a) Reports on Form 8-K
No reports on Form 8-K were filed during the period covered by
this report.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RED HOT CONCEPTS, INC.
Date: August 14, 1996 By: /s/ H. Michael Bush
H. Michael Bush, Chief Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000932623
<NAME> RET HOT CONCEPTS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,423,770
<SECURITIES> 0
<RECEIVABLES> 718,503
<ALLOWANCES> 0
<INVENTORY> 417,779
<CURRENT-ASSETS> 3,061,170
<PP&E> 5,420,160
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,963,865
<CURRENT-LIABILITIES> 5,483,034
<BONDS> 0
0
0
<COMMON> 77,623
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 9,963,865
<SALES> 2,187,521
<TOTAL-REVENUES> 2,187,521
<CGS> 1,898,131
<TOTAL-COSTS> 1,898,131
<OTHER-EXPENSES> 1,179,734
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (888,808)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
