UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A No. 1
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended September 29, 1996 Commission File Number 33-86166
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 November 15, 1996, 9,262,347 shares of common stock par value, $.01 per
share were outstanding.
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARY
FORM 10-QSB/A No. 1
QUARTERLY REPORT
For the Period July 1, 1996 to September 29, 1996
INDEX
Part I: FINANCIAL INFORMATION
Item 1: Financial Statements
Condensed Consolidated Balance Sheet as of September 29, 1996
[Unaudited] 1
Condensed Consolidated Statements of Operation for the thirteen
week periods July 1, 1996 to September 29, 1996 and July 3,
1995 to October 1, 1995 and for the thirty-nine week periods
January 1, 1996 to September 29, 1996 and January 2, 1995 to
October 1, 1995 [Unaudited] 2
Condensed Consolidated Statement of Stockholders' Equity
[Deficit] for the thirty-nine week period January 1, 1996 to
September 29, 1996 3
Condensed Consolidated Statements of Cash Flows for the
thirty-nine week periods January 1, 1996 to September 29, 1996
and January 2, 1995 to October 1, 1995 [Unaudited] 4
Notes to Condensed Consolidated Financial Statements 5-6
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-10
Part II: OTHER INFORMATION 11
SIGNATURES 12
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 29, 1996 [UNAUDITED]
<TABLE>
<CAPTION>
As of As of
September 29, December 31,
1996 1995
[Audited]
<S> <C> <C>
Assets:
Cash and Cash Equivalents 308,644 1,764,969
Accounts Receivable and Other Receivables 737,341 547,072
Inventories 318,172 194,035
Prepaid Expenses and Accrued Income 386,075 65,378
---------- ----------
Total Current Assets 1,750,233 2,571,454
---------- ----------
Furniture and Equipment - Net 5,436,370 2,012,343
---------- ----------
Other Assets:
Restaurant Development and Start-Up Costs 1,246,610 745,410
Development and License Agreements - Net 496,964 476,935
Loan to Officers 131,149 51,000
---------- ----------
Total Other Assets 1,743,574 1,273,345
---------- ----------
Total Assets 9,061,324 5,857,142
---------- ----------
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable and Accrued Expenses 3,296,822 1,957,326
Current Notes Payable 100,000 100,000
Obligations under Capital Leases 18,007 16,009
Due to Related Parties 1,177,037 273,344
---------- ----------
Total Current Liabilities 4,591,866 2,346,679
Long Term Liabilities:
Long Term Debt 1,051,076 100,000
Obligations under Capital Leases 45,596 25,880
---------- ----------
Total Long Term Liabilities 1,096,672 125,880
---------- ----------
Stockholders' Equity:
Common Stock, $.01 Par Value,
20,000,000 Shares Authorized,
9,262,347 Shares Issued and Outstanding 92,623 47,623
Additional Paid-in Capital 7,246,450 4,749,702
Retained Loss (3,961,842) (1,398,326)
Cumulative Foreign Currency Translation Adjustment (4,445) (14,416)
Total Stockholders' Equity 3,372,786 3,384,583
---------- ----------
Total Liabilities and Stockholders' Equity 9,061,324 5,857,142
---------- ----------
</TABLE>
The Accompanying Notes are an Integral Part of these Condensed Consolidated
Financial Statements.
1
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF OPERATIONS.
[UNAUDITED]
<TABLE>
<CAPTION>
For the Thirteen Weeks For the Thirty-Nine Weeks
July 1, 1996 July 3, 1995 January 1, January 2,
to September to October 1, 1996 to 1995 to
29, 1996 1995 September 29, October 1,
[Audited] 1996 1995
[Audited]
<S> <C> <C> <C> <C>
Revenues 2,500,136 7,138 6,233,954 20,154
Cost and Expenses
Cost of Sales 885,244 -- 2,119,110 --
Restaurant Expenses 1,730,013 -- 4,211,924 --
Depreciation and Amortization 252,238 -- 489,257 --
General and Administrative 884,641 232,612 1,925,150 505,194
Interest Expense 24,250 2,501 62,589 8,100
Interest Income (4,507) (23,946) (10,560) (24,119)
---------- ---------- ---------- ----------
Net Loss 1,271,743 204,029 2,563,516 469,026
Primary Net Loss Per Share $(0.15) $(0.05) $(0.42) $(0.11)
Primary Weighted Average Shares Outstanding 8,685,424 4,424,898 6,129,994 4,397,188
</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 Additional Accumulated Currency
of Paid-in Deficit Translation
Shares Amount Capital Adjustments Total
<S> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1995 4,762,347 47,623 4,749,702 (1,398,326) (14,416) 3,384,581
Additional Offering Costs in (55,000) (55,000)
Connection with Sale of Stock
Foreign Currency Translation (9,971) (9,971)
Adjustment
Net Loss for the period January 1, (2,563,516) (2,563,516)
1996 to September 29, 1996
Issuance of Common Stock 4,500,000 45,000 2,551,748 2,551,748
---------- ---------- ---------- ---------- ---------- ----------
Balance - September 29, 1996 9,262,347 92,623 7,246,450 (3,961,842) (4,445) $3,372,786
---------- ---------- ---------- ---------- ---------- ----------
</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
in to 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 Thirty-Nine For the Thirty-Nine
Weeks January 1, Weeks January 2,
1996 to September 1995 to October 1,
29, 1996 1995
<S> <C> <C>
Operating Activities:
Net Cash - Operating Activities (1,527,941) (184,597)
----------- -----------
Investing Activities:
Purchase of Furniture, Fixtures and Leasehold Improvements (3,484,470) (207,455)
Store Development and Unit Preopening Costs (714,665) (1,387,742)
Development and License Agreement (40,000) (40,000)
Loan to Officer - Net (80,149)
Net Cash - Investing Activities (4,319,284) (1,635,197)
----------- -----------
Financing Activities:
Loans from Related Parties 903,693
Proceeds from Loan 1,008,046 --
Repayment of Debt (72,558) --
Proceeds from Sale of Common Stock 2,541,748 5,228,320
Deferred Opening Costs -- (530,995)
----------- -----------
Net Cash - Financing Activities 4,380,929 4,697,325
----------- -----------
Effect of Exchange Rate Changes on Cash 9,971 12,563
----------- -----------
Net [Decrease]/Increase in Cash and Cash Equivalents (1,456,325) 2,890,094
Cash and Cash Equivalents - Beginning of Periods 1,764,969 5,716
----------- -----------
Cash and Cash Equivalents - End of Periods 308,644 2,895,810
----------- -----------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the periods for:
Interest Paid $8,100
Taxes Paid
Supplemental Disclosures of Non-Cash Financing
and Investing Activities:
Total offering costs during the period January 1, 1996
to September 29, 1996 158,252
Fixed Assets acquired under Capital Leases 19,716
</TABLE>
The Accompanying Notes are an Integral Part of these Condensed Consolidated
Financial Statements
4
<PAGE>
RED HOT CONCEPTS INC. AND SUBSIDIARIES
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 September 29,. 1996, the
condensed consolidated statements of operations for the thirteen weeks
and thirty-nine weeks ended September 29, 1996 and October 1, 1995, the
condensed consolidated statement of stockholders' equity for the period
January 1, 1996 to September 29, 1996, and the condensed consolidated
statements of cash flows for the thirty-nine weeks ended September 29,
1996 and October 1, 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 September 29, 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 Transaction
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>
On August 4, 1996, the Company completed a Regulation S share offering.
In the Offering, the Company sold 1,500,000 shares of common stock at
$1.00 per share.
In September, 1996, the Company sold 5% of their Australian subsudiary
to Brinker International. Brinker will underwrite Company bank
guarantees used to secure restaurant sites in Australia.
[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.
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 the United Kingdom and Australia. To date, the Company has six
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, ["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 opened its first Chili's Restaurant at Canary Wharf 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, 1995 (see Note [D]). The Company opened
its first restaurant in Melbourne on September 2, 1996. The Company has other
restaurants under development in Australia.
In August, the Company hired Norman Abdallah as the President of Red Hot
Concepts, Inc. Norman Abdallah was the former Vice President of Franchise
Operations for Brinker International. We believe Mr. Abdallah's comprehension of
the Chili's concept and his industry contacts will be a tremendous asset to the
Company. In addition, the Company has restructured the headquarters staffing in
the UK to significantly reduce the headcount and overhead expenses. The Company
believes these changes will have positive results on the UK income.
Comparison of the thirteen week periods July 1, 1996 to September 29, 1996 and
July 2, 1995 to October 1, 1995.
(US Dollars) United Kingdom Australia Consolidated
Revenue 1,186,188 1,313,979 2,500,136
The Company recognized only consulting revenues in the third quarter 1995. In
the third quarter 1996, the six restaurants generated revenues of $2,500,136.
Average weekly sales were $35,716.
UK
Revenues
The three restaurants in the United Kingdom achieved average weekly sales of
$30,415. The Company implemented new sales building activities in the third
quarter which has resulted in sales trends improvements at the end of the
quarter. Average weekly sales at the end of the quarter were $32,250. At the end
of the quarter, the Company implemented a marketing plan designed to change the
brand identity to Chili's "Texas" Bar & Grill.
Cost and Expenses
Food and labor costs were reduced as a percentage of revenue to 34% and 33%,
respectively. The food costs were lower as the Company was able to improve its
purchasing power through the economies of scale. Labor costs fell dramatically
from the previous quarter as the Company was not staffing for store openings.
The general and administrative expenses fell by 2% from the previous quarter.
The general and administrative costs included one time expenses associated with
a significant reduction in head office personnel.
7
<PAGE>
AUSTRALIA
Revenues
The three restaurants in Australia averaged $42,385 per week in the third
quarter. The same store sales increased by 8% over last year when the
restaurants were under difference ownership.
Cost and Expenses
The food and labor costs are consistent with the Company's target of 30% for
food and 31% for labor. The Company's administrative costs are abnormally high
in the period as the Company consolidated staffs in Sydney. The Company
anticipates a decrease in administrative costs as a percentage of revenue as
more restaurants are opened.
US
The Company's administrative costs are abnormally high as significant time has
focused on improving the operations in the UK and Australia.
Comparison of the thirty-nine week period January 1, 1996 to September 29, 1996
and January 2, 1995 to October 1, 1995.
(US Dollars) United Kingdom Australia Consolidated
Revenue 2,713,107 3,520,847 6,233,954
The Company recognized only consulting revenues in the first three quarters of
1995. In the thirty-nine weeks in 1996, the six restaurants generated revenues
of $6,233,954. Average weekly sales were $36,456.
UK
Revenue
The three restaurants in the United Kingdom achieved average weekly sales of
$30,484. The sales at the two new restaurants trended downward from the opening
sales rate consistent with the honeymoon period experience. The sales trends
trended up at the end of the third quarter. For the first seven months, sales at
the Canary Wharf Restaurant were impacted by the IRA bombing activities. At the
end of the third quarter, the Company implemented a marketing plan designed
increase sales at its restaurants by changing the brand identity to Chili's
"Texas" Grill & Bar.
Cost and Expenses
Food costs as a percentage of revenue came down 4% during the year, from 40% to
36%. Labor costs as a percentage of revenue have fallen 5%.
AUSTRALIA
Revenues
The three restaurants in Australia averaged $42,937 per week in the third
quarter. The same store sales increased by 8% over last year when the
restaurants were under difference ownership.
8
<PAGE>
Cost and Expenses
The food and labor costs are consistent with the Company's target objectives.
The food costs as a percentage of revenue has remained constant at 30% for the
year and labor costs have moved between 31 and 32%. The Company's administrative
costs as a percentage of revenue have averaged 10% and the Company anticipates a
decrease of the percentage as more restaurants are opened.
Liquidity and Capital Resources
The Company's cash and cash equivalents decreased by $1,115,126 in the quarter.
For the first thirty-nine weeks, the Company's cash position has decreased by
$1,456,325. During the thirty-nine week period, the Company used $1,527,941 for
operating activities. The Company had a net loss of $2,563,516, an increase in
accounts receivable of $190,269, increase of inventories of $124,137, and an
increase of prepaid expenses of $320,697. The loss was offset by an increase in
accounts payable of $1,339,496.
Cash used in investing activities of $3,484,470 is primarily attributable to
leasehold improvements and furniture and fixtures for new restaurants in the
United Kingdom and Australia. Additionally, $754,665 has been spent on
capitalized store opening costs and licensing fees. Cash provided by financing
activities for the year include the increase of new capital by $2,541,748,
intercompany financing of $903,693 and bank debt of $1,008,046.
UK
The Company was obligated under the UK Development Agreement to decide by
November 1 whether to terminate the Development Agreement with Brinker
International. The Company has elected to proceed with the development of the
United Kingdom and is required to pay $225,000 for the development rights. The
Company is not obligated to open any additional restaurants in 1997 and is
obligated to open 2 restaurants in 1998. The Company believes the capital
requirements will be approximately $1.2 million which amounts include leasehold
improvements, furniture and fixtures, equipment, opening inventories, hiring and
training staff. In addition, the Company must pay a license fee of $20,000 for
each restaurant it opens.
AUSTRALIA
In Australia, the Company's capital requirements are significantly less than the
UK. The Company plans to work with developers who will provide construction
financing of the restaurants. In addition, the Company has obtained a commitment
from National Australian Bank to provide 100% lease financing on the acquisition
of restaurant equipment and furniture fittings. Under the terms of the Pacific
Development Agreement, the Company is to open two (2) restaurants in 1997 and
three (3) in 1998. The Company believes that its capital requirements will be
approximately $300,000 per restaurant.
Management Plans
The Company believes that in addition to anticipated revenues, additional
capital or borrowings will be necessary to achieve the Company's development
schedule and satisfy future construction obligations, amounts due to Brinker and
amounts due to related parties. Other than described above, the Company does not
have any bank commitments at this time. There are no assurances that the Company
will be successful in obtaining additional financing or that it will be
successful in attracting new capital. If the Company plans change or assumptions
or estimates prove to be inaccurate, or, if the Company is unable to raise more
funds, the Company will have to reduce its operations to a level consistent with
its available financing.
9
<PAGE>
The Company has and will continue to take action to improve its viability as a
going concern. The Company believes it has built a strong management team and is
committed to continue to build a management team that is familiar with the
Chili's concept. In Australia, as part of the Company's expansion plan, the
Company will attempt to work with "market partners" which have experience with
the Chili's concept. The Company believes that by building a team and working
with others familiar with the concept, the Company will be able to successfully
develop and expand the concept throughout the United Kingdom and Australia.
The Company is also committed to work closely with Brinker. Brinker provides the
Company with support in site selection, menu design and pricing, local store
marketing and brand awareness and product procurement. The Company believes that
by working with Brinker, the Company has a competitive edge in the marketplace
in the territories in which the Company operates.
Impact of Inflation
Inflation is not expected to have a material impact on the Company's operations.
10
<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) Exhibits
None.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the period covered by
this report.
11
<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: November 15, 1996 By: /s/ H. Michael Bush
H. Michael Bush, Chief Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000932623
<NAME> Red Hot Concepts, Inc.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-1-1996
<PERIOD-END> SEP-29-1996
<CASH> 308,644
<SECURITIES> 0
<RECEIVABLES> 737,341
<ALLOWANCES> 0
<INVENTORY> 318,172
<CURRENT-ASSETS> 1,750,370
<PP&E> 5,436,370
<DEPRECIATION> 252,238
<TOTAL-ASSETS> 9,061,324
<CURRENT-LIABILITIES> 4,591,866
<BONDS> 0
0
0
<COMMON> 92,623
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 9,061,324
<SALES> 2,500,136
<TOTAL-REVENUES> 2,500,136
<CGS> 885,244
<TOTAL-COSTS> 885,244
<OTHER-EXPENSES> 817,282
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