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 thirteen weeks ended March 30, 1997 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 April 30, 1997, 10,262,347 shares of common stock par value, $0.01 per
share were outstanding.
<PAGE>
RED HOT CONCEPTS, INC.
FORM 10-QSB
QUARTERLY REPORT
For the Period December 30, 1996 to March 30, 1997
INDEX
Part I: FINANCIAL INFORMATION
Item 1 : Financial Statements
Condensed Consolidated Balance Sheets as of March 30, 1997
[Unaudited] 1-2
Condensed Consolidated Statements of Operations for the three
months ending March 30, 1997 [Unaudited] and January 1, 1996 to
March 31, 1996 [Unaudited] 3
Condensed Consolidated Statement of Stockholders' Equity for the
year ended December 29, 1996 and the three months ended March 30,
1997 [Unaudited] 4
Condensed Consolidated Statements of Cash Flows for the three
months ended March 30, 1997 [Unaudited] and January 1, 1996 to
March 31, 1996 [Unaudited] 5
Notes to Condensed Consolidated Financial Statements 6-7
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-11
Part II: OTHER INFORMATION 12
SIGNATURES 13
o o o o o o o o o o
<PAGE>
RED CONCEPTS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET AS OF MARCH 30, 1997
March 30, 1997 December 29, 1996
[Unaudited]
Assets:
Current Assets:
Cash and Cash Equivalents $466,225 $534,145
Restricted Cash 110,000 110,000
Due From Related Party -- 29,785
Accounts Receivable 13,978 34,545
Inventories 190,118 201,755
Prepaid Expenses and Accrued Income 222,378 224,630
Deposits 369,860 380,718
---------- ----------
Total Current Assets 1,372,559 1,515,578
---------- ----------
Furniture and Equipment - Net 4,570,908 4,302,773
Other Assets:
Development and License Agreement - Net 659,793 670,281
Store Development and Unit Preopening Costs 568,027 662,000
Deferred Lease Guarantees 472,322 472,322
Loan to Officers 134,183 134,183
---------- ----------
Total Other Assets 1,834,325 1,938,786
---------- ----------
Total Assets $7,777,793 $7,757,137
---------- ----------
The Accompanying Notes are an Integral Part of these Condensed Consolidated
Financial Statements.
<PAGE>
RED HOT CONCEPTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF MARCH 30, 1997.
<TABLE>
<CAPTION>
March 30, 1997 December 29, 1996
[Unaudited]
<S> <C> <C>
Liabilities and Stockholders' Equity:
Current Liability:
Accounts Payable and Accrued Expenses $3,046,706 $3,553,078
Current Portion of Long-Term Debt 1,253,691 937,051
Accrued Interest Payable - Related Party 259,046 125,065
----------- -----------
Total Current Liabilities 4,559,443 4,615,194
----------- -----------
Long-Term Liabilities:
Notes Payable 1,491,024 717,180
Obligations under Capital Leases 356,743 --
Due to Related Parties 102,881 1,195,302
----------- -----------
Total Long-Term Liabilities 1,950,648 1,912,482
----------- -----------
Minority Interest (12,851) (3,123)
----------- -----------
Shareholders' Equity
Common Stock, $0.01 Par Value,
2,000,000 Shares Authorized, Issued and Outstanding
4,762,347 Shares Issued and Outstanding $102,623 $92,623
Preferred Stock, $1.00 Par Value,
100,000 Shares Authorized, Issued and Outstanding 100,000 --
Additional Paid-in-Capital 9,524,040 8,884,040
Retained Earnings (8,340,462) (7,693,155)
Cumulative Foreign Currency Translation Adjustment (105,648) (57,170)
----------- -----------
Total Stockholders' Equity 1,280,553 1,226,338
----------- -----------
Total Liabilities and Stockholders' Equity $7,777,793 $7,757,137
----------- -----------
</TABLE>
The Accompanying Notes are an Integral Part of these Condensed Consolidated
Financial Statements.
<PAGE>
RED HOT CONCEPTS, INC.
CONDENSED STATEMENTS OF OPERATIONS.
[UNAUDITED]
<TABLE>
<CAPTION>
For the Thirteen Weeks
December 30, January 1,
1996 to March 1996 to March
30, 1997 31, 1996
<S> <C> <C>
Revenues $2,820,687 $1,546,297
Cost of Revenues:
Cost of Revenues 858,160 501,246
Restaurant Expense 1,378,962 774,353
------------ ------------
Total Cost of Revenues
2,237,122 1,275,599
------------ ------------
Gross Profit
583,565 270,698
Fixed Restaurant Expense 461,984 157,294
General and Administrative Expenses
554,578 466,812
Depreciation and Amortization 137,326 54,076
------------ ------------
Operating Income (Loss) (570,323) (407,484)
Minority Interest in Net Income of Subsidiary 9,728 --
Other Income (Expense):
Interest Income 2,902 4,517
Interest Expense (89,614) --
------------ ------------
Net Income (Loss) $(647,307) $(402,965)
------------ ------------
Net Income (Loss) Per Share [Note E] $(0.07) $(0.09)
------------ ------------
Weighted Average Number of Shares
Outstanding [Note E] 10,013,458 4,762,347
------------ ------------
</TABLE>
The Accompanying Notes are an Integral Part of these Condensed Consolidated
Financial Statements.
<PAGE>
RED HOT CONCEPTS, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
[UNAUDITED]
<TABLE>
<CAPTION>
Cumulative
Common Stock Additional Preferred Preferred Foreign Total
Number of Paid-in Stock Stock Accumulated Currency Stockholders'
Shares Amount Capital # of Shares Amount Deficit Translation Equity
Adjustment
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance -
December 29, 1996 9,262,347 $ 92,623 $8,884,040 $(7,693,155) $(57,170) $1,226,338
Issuance of Stock 1,000,000 10,000 (10,000)
First Quarter Loss (647,307) (647,307)
CTA First Quarter -- -- -- -- (48,478) (48,478)
Issuance of Preferred
Stock -- -- 650,000 100,000 100,000 750,000
---------- ------- --------- ------- ------- ----------- --------- ----------
Balance -
March 30, 1997 10,262,347 102,623 9,524,040 100,000 100,000 $(8,340,462) $(105,648) $1,280,553
---------- ------- --------- ------- ------- ----------- --------- ----------
</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 the current
exchange rate 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 translations 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
<PAGE>
RED HOT CONCEPTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
<TABLE>
<CAPTION>
For the Thirteen Weeks
December 30, 1996 to January 1, 1996
March 30, 1997 to March 31, 1996
<S> <C> <C>
Net Cash - Operating Activities (828,165) 900,129
Investing Activities:
Purchase of Furniture, Fittings, Leasehold Improvements (132,802) (1,427,046)
Store Development and Unit Preopening Costs (58,045) (785,431)
----------- -----------
Net Cash - Investing Activities (190,847) (2,212,477)
----------- -----------
Financing Activities:
Proceeds from Issuance of Stock -- (33,954)
New Loans 1,000,000 --
Repayment of Loans (39,409) --
----------- -----------
Net Cash - Financing Activities
960,591 (33,954)
----------- -----------
Effect of Exchange Rate Changes on Cash (9,499) 3,798
----------- -----------
Net (Decrease) in Cash and Cash Equivalents (67,920) (1,346,302)
Cash and Cash Equivalents - Beginning of Periods 644,145 1,764,969
----------- -----------
Cash and Cash Equivalents - End of Periods $576,225 $418,667
----------- -----------
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Period for:
Interest Paid $27,143 $ --
Taxes Paid $ -- $ --
</TABLE>
The Accompanying Notes are an Integral Part of these Condensed Consolidated
Financial Statements.
<PAGE>
RED HOT CONCEPTS, INC.
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 29, 1996, as filed with the Securities and
Exchange Commission.
[B] Basis of Reporting
The balance sheet as of March 30, 1997, the statements of operations
for the period December 30, 1996 to March 30, 1997, and for the period
January 1, 1996 to March 31, 1996, the statement of stockholders'
equity for the period December 30, 1996 to March 30, 1997, and the
statements of cash flows for the period December 30, 1996 to March 30,
1997 and for the period January 1, 1996 to March 31, 1996 have been
prepared by the Company without audit. The accompanying interim
condensed unaudited financial have been prepared in accordance with
generally accepted accounting principles for interim financial
information and with the instructions of Form 10-QSB and Regulation SB.
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 March 30, 1997, and the
results of its operations and cash flows for the three months 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 29, 1996.
Certain reclassifications may have been made to the 1996 financial
statements to conform to classification.
[C] Due To Related Parties
Woodland Limited Partnership is a partnership controlled by members of
the Colin Halpern family. At March 30, 1997, Woodland owns
approximately 34% of the Company's outstanding stock.
At December 30, 1996, the total amount due to Woodland was $1,940,342,
consisting of short-term advances of $940,342, and a short-term note
payable of $1,000,000.
During 1996 funds were advanced on a short-term basis and repayments
were made to Woodland. The balance due to Woodland for these advances
at December 29, 1996 was $940,342 plus accrued interest payable of
$63,911. On December 29, 1996, Woodland agreed to convert these
advances into a note payable due June 30, 1998, at 8% interest per
annum. As partial consideration for the loan, the Company issued a
common stock purchase warrant entitling Woodland to purchase 300,000
shares of common stock at $1.75 per share for a term expiring December
31, 1999. The note was recorded at a discount, net of fair value of the
stock warrant, on the 1996 financial statements at $794,820.
In June 1996, Woodland accepted a note payable of $1,000,000 at 12% per
annum to finance the opening of the Company's third U.K. restaurant. As
partial consideration for the loan, the Company issued a common stock
purchase warrant entitling Woodland to purchase 500,000 shares of the
Company's common stock at $2.50 per share for a period of 24 months
commencing on the date of the loan. The warrants will be redeemable at
$0,01 per share if the closing bid price of the Company's common stock
exceeds $10 for 10 consecutive trading days ending within five days of
the notice of redemption. On December 28, 1996, Woodland agreed to
extend the note until June 1998. In further consideration, the Company
issued a common stock purchase warrant at $1.75 per share for a term
expiring December 31, 1999 on the note. The note value was recorded at
a discount, net of the fair value of these stock warrants, on the 1996
financial statements at $400,482.
During the period ended March 30, 1997, the Company paid $342,421
towards the loans. In addition, Woodland converted $750,000 of the loan
to convertible preferred shares.
At March 30, 1997, $102,881 is due to Woodland for the loans.
<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
instalments 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.
[E] Stock Transactions
In June, August, November and December 1996, the Company had Regulation
S share offerings and incurred offering costs of $103,252. In these
offerings, the Company sold 3,000,000 shares of common stock at $0.40
per share, 1,500,000 hares common stock at $1.00 per share, 1,000,000
shares of common stock at $0.50 per share and 600,000 shares of common
stock at $0.50 per share, respectively. At December 26, 1996, 1,600,000
shares had not been issued.
On January 23, 1997, the Company issued 1,000,000 shares of the 1.6
million unissued shares of stock.
On March 30, 1997, the Company had not issued the remaining 600,000
shares of stock. The Company is in dispute with the stock subscriber
regarding the price to be paid. For financial reporting purposes, the
Company has calculated the earnings per share with the assumption that
the shares had been issued.
In March, the Company agreed with Woodland Limited Partnership to
convert $750,000 of long-term debt to convertible preferred shares. The
coupon rate was agreed at 7% with a conversion rate at $1.25 per share.
Stock Transactions of Subsidiary
In September 1996, Red Hot Pacific issued 53 shares of common stock to
Brinker in connection with a guaranty agreement valued at $1.
The above issuance reduced Red Hot ownership of Red Hot Pacific from
100% to 95%. As a result of this stock transaction and related
liability for the guaranty agreement Red Hot reduced its additional
paid-in-capital by $2,497 in consolidation.
[F] Subsequent Event
In May 1997, Norman Abdallah resigned as President and Director of the
Company. Colin Halpern, Chairman of the Board, has been appointed by
the Company Board of Director's to handle the duties of President.
o o o o o o o o o o
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Result
of Operations
Overview -
The Company was incorporated on June 14, 1994. 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 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, ["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 closed the restaurant in
Central London in December 1996 because management believes it would require a
significant investment of management time to achieve the returns consistent with
management expectations.
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 three restaurants under development in Australia.
Results of Operations -
The following table sets forth expenses as a percentage of total revenue for the
thirteen weeks ended March 30, 1997 and for the same period ended March 31,
1996.
<TABLE>
<CAPTION>
January 1,1996
For the Period Ended March 30, 1997 to March 31, 1996
Consolidated Consolidated
UK Australia USA Total Total
<S> <C> <C> <C> <C>
Revenues 100% 100% 100% 100%
Costs and Expenses
Food & Beverage (31%) (30%) (30%) (32%)
Restaurant Labor (28%) (33%) (31%) (33%)
Restaurant Expense (17%) (14%) (15%) (15%)
Royalties (2%) (2%) (2%) (2%)
Fixed (18%) (16%) (17%) (12%)
Restaurants
Expense
---------------- ----------------- ------------------ ----------------- ------------------
Total Costs and Expenses (96%) (95%) (95%) (94%)
Gross Margin (Loss) 4% 5% 5% 6%
General & Administrative (8%) (11%) (10%) (20%) (29%)
Depreciation/Amortization (4%) (5%) -- (5%) (3%)
Operating Loss (8%) (11%) (10%) (20%) (26%)
Other Income (Expense) (3%) (1%) (1%) (3%) --
---------------- ----------------- ------------------ ----------------- ------------------
Net Income/(Loss) (11%) (12%) (11%) (23%) (26%)
</TABLE>
<PAGE>
Comparison of the thirteen week periods December 30, 1996 to March 30, 1997 and
January 1, 1996 to March 31, 1996
<TABLE>
<CAPTION>
1997 1996
(US Dollars) United Kingdom Australia Consolidated United Kingdom Australia Consolidated
<S> <C> <C> <C> <C> <C> <C>
Revenue 1,225,352 1,595,335 2,820,687 445,940 1,100,357 1,546,297
Operating
Income/(Loss) (134,961) (184,831) (319,792) (287,975) 45,781 (242,194)
</TABLE>
For the thirteen week period ended March 30, 1997, the Company had 65 restaurant
operating weeks. In the comparable period for 1996, the total restaurant
operating weeks were 41. Average weekly sales for the thirteen week period in
1997 were $43,395 as compared to $ 37,715 for the same period in 1996 or an
improvement of 15%.
UK
Revenues
Revenues for the period ended March 30, 1997 totalled $1.2 million as compared
to $0.4 million for the same period in 1996. The significant increase in revenue
was principally related to two restaurants operating during the thirteen week
period in 1997 versus one restaurant operating during the same period in 1996.
Restaurant operating weeks for the period in 1997 totalled 26 as compared to 15
weeks in 1996. In September 1996, the Company implemented a market plan to
increase revenues at its restaurants by changing the brand identity to Chili's
"Texas" Grill & Bar. The Company believes that the name change, in complement
with a new menu rollout, increased the average weekly sales. Same store sale for
the Canary Wharf restaurant are up approximately 30% year on year.
Cost and Expenses
Restaurant cost of food, labor, variable and fixed expenses totalled $1.0
million for the period ended March 30, 1997. This is an increase of $0.6 million
for the period ended March 31, 1996. For the thirteen week period, food costs as
a percentage of revenue fell from 39% in 1996 to 31% for the same period in 1997
as the Company improved purchasing power through economies of scale and sourcing
more products locally. Labor costs as a percentage of revenue fell from 33% to
28% in the period ended March 30, 1997 as the Company reduced restaurant staff
after store grand openings, and implemented programs to improve staff training
and work productivity. During the thirteen week period ended March 30, 1997,
food costs and labor costs as a percentage of revenues decreased to 59% from 72%
for the same period in 1996. Restaurant expense and fixed costs as a percentage
of revenue increased in 1997 to 35% from 30% in 1996 reflecting a higher cost
structure for the restaurants..
General and Administrative Expense
The total cost of general and administrative expenses for the thirteen weeks
ended March 30, 1997 were $99,500 or 8% of revenues. General and administrative
costs for the same period in 1996 were $220,000 or 49% of revenues. The
administrative costs to run the two restaurants were reduced significantly in an
effort to achieve overall profitability in the United Kingdom by reducing
administrative headcount from thirteen to two. In 1996, significant costs were
incurred to develop the brand, hire and train personnel, and build the
administrative infrastructure.
AUSTRALIA
Revenues
Total revenues for the thirteen weeks ended March 30, 1997 were $1.6 million as
compared to $1.1 million for the same period in 1996. The increase in revenues
was attributed to more restaurant operating weeks (39 in 1997 versus 26 in
1996). The same store sales for the two restaurants open more than one year were
up approximately 5% from the previous year.
<PAGE>
Cost and Expenses
For the thirteen weeks ended March 30, 1997, the total cost of food, labor,
variable and fixed restaurant expenses were $1.2 million as compared to $0.9
million for the same period in 1996. The cost of food sales as a percentage of
revenue remains the same as last year at 30%. Labor costs as a percentage of
revenue also remained the same at 33%. Other restaurant variable and fixed costs
were 30% of revenue as compared to 28% for the same period in 1996. Other
variable and fixed costs were higher in 1997 as a result of opening a third
restaurant at the end of 1996 which increased the fixed costs.
General and Administrative Expenses
The total cost of general and administrative expenses for the thirteen weeks
period ending March 30, 1997 was approximately $185,000 or 12% of revenue. This
compares to administrative expenses of $81,000 in the same period for 1996 or 7%
of revenues. The increase in general and administrative expenses were attributed
to an increase in headcount to support new store growth and higher office cost
associated with maintaining headquarters in Sydney.
US
The Company's administrative costs were $285,000 compared to $135,000 for the
same period in 1996. The costs are abnormally high as a percentage of revenues
for the period ended March 30, 1997 as significant time was focused on improving
the operations in the UK and Australia.
Liquidity and Capital Resources
On January 27, 1997, the Company and Brinker entered into a letter agreement
extending the payment of the initial license fee until April 30, 1998, and the
Company waived its right to terminate the Development and License Agreement
effective October 31, 1996. Brinker also agreed to the closure of one of three
of the restaurants and set terms on opening a replacement restaurant. This
letter agreement also amended the development schedule, whereas the timing of
when the Company will open and operate each restaurant was modified.
The Company's working capital as of March 30, 1997 was approximately ($3.1)
million as compared to working capital of ($3.1) million on March 31, 1996.
Total current assets were $1.5 million on March 30, 1997 and $1.5 million on
March 31, 1996. Current liabilities remained at $4.6 million level with the
previous year.
The following chart represents the net funds raised and/or used in operating,
financing and investment activities for both periods.
December 30, 1996 January 1, 1996
to to
March 30, 1997 March 31, 1996
In Thousands In Thousands
Net cash (used) in operating activities (828) $(900)
Cash (used) in investing (191) (2,212)
Cash provided by financing 960 (34)
During the thirteen weeks ended March 30, 1997, the Company used approximately
$828,000 for operating activities. The Company had a net loss of approximately
$0.6 million which was reduced by non-cash adjustments of $200,000. Accounts
receivable decreased by approximately $20,000 and inventories decreased by
$10,000. The accounts payables, accrued liabilities, and other payables remained
unchanged from the previous year.
Cash used in investing activities of approximately $191,000 is primarily
attributed to leasehold improvements, furniture and fixtures for the new
restaurant in Australia.
<PAGE>
Cash generated by financing activities for the year was approximately $960,000
which include the proceeds from a loan from Brinker International for $1.0
million and repayments on loans of $39,000.
To finance the construction and opening of the second and third restaurants in
the U.K., the Company obtained debt financing and financing from related party.
The Company has signed a Fixed Rate Loan Agreement for 650,000 British Pounds
(approximately $1 million) with the National Westminster Bank PLC. The terms of
the loan are for seven years at an interest rate of the U.K. base rate plus
three percent. The Company currently is not in compliance with certain loan
covenant provisions. The Company has implemented sales building and cost
reduction programs which should enable it to satisfy the operating profitability
guidelines and other covenants. Based on management discussions with the bank,
management believes the bank is satisified that the loan is fully secured. To
date, the bank has not expressed intentions to demand repayment of the loan.
The Company secured a short term loan of $1.6 million from Brinker in February
1997. The interest rate is 8% and the monies are to be repaid either in August
1997 or March 1998 depending on certain conditions. These monies will be used
for short term working capital purposes.
In Australia, the landlord has committed to finance the three restaurants that
will start construction before the end of June 1997. The Company has also agreed
on heads of terms with an investment management company to finance land purchase
and restaurant construction. This agreement will be used in lieu of landlord
financing in each case possible. The Company is responsible for financing the
interior decor, furniture, equipment and pre-opening costs. The Company will use
each cash flow from local operations and bank financing to pay for its
responsibilities. The Company does not have a bank commitment at this time for
future equipment leases. The Company used one guaranty provided by Brinker to
secure the Ringwood lease.
The Company has improved short term liquidity through a number of different
steps including the reduction of administrative expenses and headcount; sales
building in the restaurants; the rescheduling of payment terms on the advances
from Woodland Limited Partnership; and securing a working capital loan from
Brinker. The Company is also analyzing the cost to construct restaurants and
incur pre-opening expenses to identify ways to eliminate cost. The Company
believes that anticipated revenues and additional capital or borrowing will be
necessary to achieve the Company's development schedule and satisfy future
construction obligations and amounts due to Brinker. The Company does not
currently have any commitments to secure financing and there is no assurance
that the Company will be able to secure financing in the future and that even if
the Company is able to obtain financing, such financing will be available on
terms acceptable to the Company. If the Company's plans change, or if the
assumptions or estimates prove to be inaccurate, of it the Company is unable to
raise more funds, the Company will reduce its operations to a level consistent
with its available funding.
Impact of Inflation
Inflation is not expected to have a material effect on the company's operations.
<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 judgements 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. Other Information
Not Applicable.
Item 5. Exhibits
(a) Exhibits
None.
(b) Reports on Form 8-K
During the thirteen week ended March 30, 1997 the following Form 8-K's
were filed by the Company:
(i) On February 11, 1997, the Company filed a report on Form 8-K
reporting on a Regulation S transaction.
<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: May 19, 1997 /s/ Colin Halpern
Colin Halpern, President
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000932623
<NAME> Red Hot Concepts, Inc.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-29-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> MAR-30-1997
<CASH> 466,225
<SECURITIES> 0
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0
0
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