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 twenty-six weeks ended June 29, 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 August 1, 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 Ended June 29, 1997
INDEX
Part I: FINANCIAL INFORMATION
Item 1 : Financial Statements
Condensed Consolidated Balance Sheets as of June 29, 1997
[Unaudited] 1 - 2
Condensed Consolidated Statements of Operations for the
thirteen weeks periods March 31, 1997 to June 29, 1997
and April 1, 1996 to June 30, 1996 and for the twenty-six
weeks period December 30, 1996 to June 30, 1997 3
[Unaudited]
Condensed Consolidated Statement of Stockholders' Equity
for the twenty-six weeks period December 30, 1996 to June
29, 1997 and the thirteen weeks ended June 29, 1997
[Unaudited] 4
Condensed Consolidated Statements of Cash Flows for the
twenty-six weeks period December 30, 1996 to June 29,
1997 [Unaudited] 5
Notes to Condensed Consolidated Financial Statements 6-7
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-13
Part II: OTHER INFORMATION 14
SIGNATURES 15
o o o o o o o o o o
<PAGE>
RED CONCEPTS, INC. AND SUBSIDIARY
- - --------------------------------------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 29, 1997
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
June 29, 1997 December 29, 1996
<S> <C> <C>
Assets:
Current Assets:
Cash and Cash Equivalents $ 1,340 $ 534,145
Restricted Cash 484,388 490,718
Due From Related Party -- 29,785
Accounts Receivable 13,650 34,545
Inventories 165,535 201,755
Prepaid Expenses and Accrued Income 243,910 224,630
---------- ----------
Total Current Assets 908,823 1,515,578
---------- ----------
Furniture and Equipment - Net 4,487,719 4,302,773
Other Assets:
Development and License Agreement - Net 674,790 670,281
Store Development and Unit Pre-opening Costs 738,139 662,000
Deferred Lease Guarantees 472,322 472,322
Loan to Officers 109,546 134,183
---------- ----------
Total Other Assets 1,994,797 1,938,786
---------- ----------
Total Assets $7,391,339 $7,757,137
---------- ----------
</TABLE>
The Accompanying Notes are an Integral Part of the Condensed Consolidated
Financial Statements.
1
<PAGE>
RED HOT CONCEPTS, INC.
- - --------------------------------------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 29, 1997.
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
June 29, 1997 December 29, 1996
<S> <C> <C>
Liabilities and Stockholders' Equity:
Current Liability:
Accounts Payable and Accrued Expenses $ 3,191,478 $ 3,553,078
Current Portion of Long-Term Debt 1,251,906 937,051
Accrued Interest Payable - Related Party 217,448 125,065
----------- -----------
Total Current Liabilities 4,660,832 4,615,194
----------- -----------
Long-Term Liabilities:
Notes Payable 1,465,579 717,180
Obligations under Capital Leases 508,455 --
Due to Related Parties 276,860 1,195,302
----------- -----------
Total Long-Term Liabilities 2,250,894 1,912,482
----------- -----------
Minority Interest (20,453) 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 (9,143,727) (7,693,155)
Cumulative Foreign Currency Translation Adjustment (82,870) (57,170)
----------- -----------
Total Stockholders' Equity 500,066 1,226,338
----------- -----------
Total Liabilities and Stockholders' Equity $ 7,391,339 $ 7,757,137
----------- -----------
</TABLE>
The Accompanying Notes are an Integral Part of these Condensed Consolidated
Financial Statements.
2
<PAGE>
RED HOT CONCEPTS, INC.
- - --------------------------------------------------------------------------------
CONDENSED STATEMENTS OF OPERATIONS.
[UNAUDITED]
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Thirteen Weeks For the Twenty-Six Weeks
March 31, April 1, December 30, January 1,
1997 to 1996 to 1996 to 1996 to
June 29, 1997 June 30, 1996 June 29, 1997 June 30, 1996
<S> <C> <C> <C> <C>
Revenues $ 2,934,375 $ 2,187,521 $ 5,755,062 $ 3,733,818
Cost of Revenues:
Cost of Revenues 906,999 722,881 1,765,159 1,233,865
Restaurant Expense 1,027,337 1,131,500 2,349,886 1,865,189
------------ ------------ ------------ ------------
Total Cost of Revenues 1,934,336 1,854,381 4,115,045 3,099,054
------------ ------------ ------------ ------------
Gross Profit
1,000,039 333,140 1,640,018 634,764
Fixed Restaurant Expense 741,567 370,034 1,259,965 616,723
General and Administrative Expenses
818,001 711,240 1,372,579 1,078,849
Depreciation and Amortization 152,385 142,211 289,711 237,018
------------ ------------ ------------ ------------
Operating Income (Loss) (711,914) (890,345) (1,282,238) (1,297,826)
Minority Interest in Net Income of Subsidiary 10,726 -- 20,454 --
Other Income (Expense):
Interest Income 2 1,536 2,904 6,053
Interest Expense 102,078 -- 191,692 --
------------ ------------ ------------ ------------
Net Income (Loss) (803,264) $ (888,808) (1,450,572) $ (1,291,773)
------------ ------------ ------------ ------------
Net Income (Loss) Per Share [Note E] $ (0.07) $ (0.18) $ (0.14) $ (0.27)
------------ ------------ ------------ ------------
Weighted Average Number of Shares Outstanding [Note E]
10,262,347 4,929,014 10,137,903 4,834,314
------------ ------------ ------------ ------------
</TABLE>
The Accompanying Notes are an Integral Part of these Condensed Consolidated
Financial Statements.
3
<PAGE>
RED HOT CONCEPTS, INC.
- - --------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
[UNAUDITED]
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Cumulative
Foreign
Common Stock Additional Preferred Preferred Currency Total
Number of Paid-in Stock Stock Accumulated Translation Stockholders'
Shares Amount Capital # of Shares Amount Deficit Adjustment Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - December 30, 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)
Net Loss 12/30/96 - 06/29/97 (1,450,572) (1,450,572)
CTA 12/30/96 - 06/29/97 -- -- -- -- (25,700) (25,700)
Issuance of Preferred Stock -- -- 650,000 100,000 100,000 750,000
----------- -------- --------- ---------- ------- ----------- ----------- -----------
Balance - June 29, 1997 10,262,347 102,623 9,524,040 100,000 100,000 $(9,143,727) $ (82,870) $ 500,066
----------- -------- --------- ---------- ------- ----------- ----------- -----------
</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
4
<PAGE>
RED HOT CONCEPTS, INC.
- - --------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Twenty-six weeks
December 30, 1996 to January 1, 1996
June 29, 1997 to June 30, 1996
<S> <C> <C>
Net Cash - Operating Activities (1,256,760) 1,100,462
Investing Activities:
Purchase of Furniture, Fittings, Leasehold Improvements (284,946) (3,662,760)
Store Development and Unit Pre-opening Costs (80,648) 20,000
----------- -----------
Net Cash - Investing Activities (365,594) (3,642,760)
----------- -----------
Financing Activities:
Proceeds from Issuance of Stock -- 1,145,000
New Loans 1,177,278 1,077,707
Repayment of Loans (77,224) (35,805)
----------- -----------
Net Cash - Financing Activities
1,100,054 2,186,902
----------- -----------
Effect of Exchange Rate Changes on Cash (16,835) 14,197
----------- -----------
Net (Decrease) in Cash and Cash Equivalents (539,135) (341,199)
Cash and Cash Equivalents - Beginning of Periods 1,024,863 1,764,969
----------- -----------
Cash and Cash Equivalents - End of Periods $ 485,728 $ 1,423,770
----------- -----------
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Period for:
Interest Paid $ 27,143 $ 12,710
Taxes Paid $ -- $ --
Preferred Shares Issues in Exchange for Related Party Debt 750,000 --
</TABLE>
The Accompanying Notes are an Integral Part of these Condensed Consolidated
Financial Statements.
5
<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 June 29, 1997, the statements of operations for the
period December 30, 1996 to June 29, 1997, and for the period January 1,
1996 to June 30, 1996, the statement of stockholders' equity for the period
December 30, 1996 to June 29, 1997, and the statements of cash flows for
the period December 30, 1996 to June 29, 1997 and for the period January 1,
1996 to June 30, 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 June 29, 1997, and the results of its
operations and cash flows for the thirteen weeks 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 June 29, 1997, Woodland owns approximately 36% 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,
6
<PAGE>
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 June 29, 1997, the Company paid $168,442 towards
the loans. In addition, Woodland converted $750,000 of the loan to
convertible preferred shares.
At June 29, 1997, $276,860 is due to Woodland for the loans.
[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 June 29, 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
7
<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 one restaurant under development in Australia that fulfills its
obligation under the Development Agreement with Brinker.
Results of Operations -
The following table sets forth expenses as a percentage of total revenue for the
twenty-six weeks ended June 29, 1997 and for the same period ended June 30,
1996.
<TABLE>
<CAPTION>
January 1,1996
For the Twenty-Six Weeks Ended June 29, 1997 to June 30, 1996
Consolidated Consolidated
UK Australia USA Total Total
<S> <C> <C> <C> <C> <C>
Revenues 100% 100% -- 100% 100%
Costs and Expenses:
Food & Beverage 30.9% 30.5% -- 30.7% 33.0%
Restaurant Labor 28.0% 32.4% -- 30.5% 35.6%
Restaurant Expense 15.1% 12.6% -- 13.7% 14.4%
Royalties/Advertising 6.0% 6.0% -- 6.0% 6.0%
Fixed Restaurants Expense 14.0% 11.4% -- 12.5% 10.5%
------- ------- ------ ------- -------
Total Costs and Expenses 94.0% 92.9% -- 93.4% 99.5%
Gross Margin (Loss) 6.0% 7.1% -- 6.6% 0.5%
General & Administrative 7.9% 14.2% 12.4% 23.8% 28.9%
Depreciation/Amortization 5.4% 4.7% -- 5.0% 6.3%
Operating Loss (7.3%) (11.8%) (12.4) (22.2%) (34.7%)
Other Income (Expense) (2.9%) (0.2%) (1.6%) (2.9%) 0.2
------- ------- ------ ------- -------
Net Income/(Loss) (10.2%) (12.0%) (14.0%) (25.1%) (34.5%)
</TABLE>
8
<PAGE>
Comparison of the thirteen week periods March 30, 1997 to June 29, 1997 and
April 1, 1996 to June 30, 1996
<TABLE>
<CAPTION>
1997 1996
(US Dollars) United Kingdom Australia Consolidated United Kingdom Australia Consolidated
<S> <C> <C> <C> <C> <C> <C>
Revenue 1,299,753 1,634,622 2,934,375 1,080,980 1,106,541 2,187,521
Net Income/(Loss) (123,543) (203,792) (327,335) (708,189) 36,553 (671,636)
</TABLE>
For the thirteen week period ended June 29, 1997, the Company had 65 restaurant
operating weeks. In the comparable period for 1996, the total restaurant
operating weeks were 61. Average weekly sales for the thirteen week period in
1997 were $45,144 as compared to $36,606 for the same period in 1996 or an
improvement of 26%.
UK
Revenues
Revenues for the thirteen week period ended June 29, 1997 totalled $1.3 million
as compared to $1.1 million for the same period in 1996. The significant
increase in revenue was principally related to the improvement in same store
sales at the two operating restaurants. Same store sales for the Canary Wharf
restaurant are up approximately 45% year on year and same store sales at
Cambridge are up approximately 15%. 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.
Cost and Expenses
Restaurant cost of food, labor, variable and fixed expenses totalled $1.2
million for the period ended June 29, 1997. This is a decrease of $0.1 million
from the same period ended June 30, 1996. For the thirteen week period, food
costs as a percentage of revenue fell from 37% 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 45% to 28% in the period ended June 29, 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 June
29, 1997, food costs and labor costs as a percentage of revenues decreased to
59% from 82% for the same period in 1996. Restaurant expense, royalties,
advertising, and fixed costs as a percentage of revenue decreased in 1997 to 34%
from 40% in 1996 reflecting a lower cost structure for the restaurants.
General and Administrative Expense
The total cost of general and administrative expenses for the thirteen weeks
ended June 29, 1997 were approximately $122,000 or 9% of revenues. General and
administrative costs for the same period in 1996 were $314,000 or 29% 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 June 29, 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.
9
<PAGE>
Cost and Expenses
For the thirteen weeks ended June 29, 1997, the total cost of food, labor,
variable and fixed restaurant expenses were $1.5 million as compared to $1.0
million for the same period in 1996. The cost of food sales as a percentage of
revenue remains the same as last year at 31%. Labor costs as a percentage of
revenue reduced from approximately 31% to 26% in 1997. Other restaurant variable
and fixed costs were 34% of revenue as compared to 27% 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 June 29, 1997 was approximately $274,000 or 17% of revenue. This
compares to administrative expenses of approximately $79,000 in the same period
for 1996 or 7% of revenues. The increase in general and administrative expense
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 approximately $429,000 compared to
$219,000 for the same period in 1996. The costs are abnormally high as a
percentage of revenues for the period ended June 29, 1997 as significant time
was focused on improving the operations in the UK and Australia.
Comparison of the twenty-six weeks periods December 30, 1996 to June 29, 1997
and January 1, 1996 to June 30, 1996
<TABLE>
<CAPTION>
1997 1996
(US Dollars) United Kingdom Australia Consolidated United Kingdom Australia Consolidated
<S> <C> <C> <C> <C> <C> <C>
Revenue 2,525,105 3,229,957 5,755,062 1,526,920 2,206,898 3,733,818
Net Income/(Loss) (258,504) (388,623) (647,127) (996,135) 82,334 (913,801)
</TABLE>
For the twenty-six weeks period ended June 29, 1997, the Company had 130
restaurant operating weeks. In the comparable period for 1996, the total
restaurant operating weeks were 102. Average weekly sales for the twenty-six
week period in 1997 were $44,270 as compared to $36,606 for the same period in
1996 or an improvement of 21%.
UK
Revenues
Revenues for the period ended June 29, 1997 totalled $2.5 million as compared to
$1.5 million for the same period in 1996. The significant increase in revenue
was principally related to the improvement in same store sales at the two
operating restaurants. 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 sales for the Canary Wharf restaurant are up approximately 45% year on
year and same store sales at Cambridge are up approximately 15%.
Cost and Expenses
Restaurant cost of food, labor, variable and fixed expenses totalled $2.3
million for the period ended June 29, 1997. This is an increase of $0.5 million
for the period ended June 30, 1996. For the twenty-six week period, food costs
as a percentage of revenue fell from 38% in 1996 to 31% for the same period in
1997 as the Company improved purchasing power through economies of scale and
10
<PAGE>
sourcing more products locally. Labor costs as a percentage of revenue fell from
41% to 28% in the period ended June 29, 1997 as the Company reduced restaurant
staff after store grand openings, and implemented programs to improve staff
training and work productivity. During the twenty-six week period ended June 29,
1997, food costs and labor costs as a percentage of revenues decreased to 59%
from 79% for the same period in 1996. Restaurant expense, royalties,
advertising, and fixed costs as a percentage of revenue decreased in 1997 to 35%
from 38% in 1996 reflecting a lower cost structure for the restaurants.
General and Administrative Expense
The total cost of general and administrative expenses for the twenty-six weeks
ended June 29, 1997 were approximately $200,000 or 8% of revenues. General and
administrative costs for the same period in 1996 were $536,000 or 35% 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 twenty-six weeks ended June 29, 1997 were $3.2 million as
compared to $2.2 million for the same period in 1996. The increase in revenues
was attributed to more restaurant operating weeks (78 in 1997 versus 52 in
1996). The same store sales for the two restaurants open more than one year were
up approximately 5% from the previous year.
Cost and Expenses
For the twenty-six weeks ended June 29, 1997, the total cost of food, labor,
variable and fixed restaurant expenses were $3.0 million as compared to $1.9
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 approximately 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 twenty-six weeks
period ending June 29, 1997 was approximately $460,000 or 14% of revenue. This
compares to administrative expenses of approximately $160,000 in the same period
for 1996 or 7% of revenues. The increase in general and administrative expense
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 approximately $714,000 compared to
$384,000 for the same period in 1996. The costs are abnormally high as a
percentage of revenues for the period ended June 29, 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.
11
<PAGE>
The Company's working capital as of June 29, 1997 was approximately ($3.8)
million as compared to working capital of ($3.1) million on December 29, 1996
and $(2.4) million at June 30, 1996. Total current assets were $0.9 million on
June 29, 1997 as compared to $3.1 million on June 30, 1996. Current liabilities
decreased to $4.7 million from $5.5 million at June 30, 1996.
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
June 29, 1997 June 30, 1996
In Thousands In Thousands
Net cash (used) in operating activities $(1257) $1100
Cash (used) in investing (366) (3643)
Cash provided by financing 1100 2187
During the twenty-six weeks ended June 29, 1997, the Company used approximately
$1,257,000 for operating activities. The Company had a net loss of approximately
$1.45 million, which was reduced by non-cash adjustments of $354,000. Accounts
receivable decreased by approximately $20,000 and inventories increased by
$36,000. The accounts payables, accrued liabilities, and other payables
decreased from the previous year as a portion of the accounts payable were
converted to a note with Brinker.
Cash used in investing activities of approximately $366,000 is primarily
attributed to leasehold improvements, furniture and fixtures for the new
restaurant in Australia.
Cash generated by financing activities for the year was approximately $1.1
million, which include the proceeds from a loan from Brinker International for
$1.2 million and repayments on loans of $78,000.
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 that should enable it to satisfy the operating profitability
guidelines and other covenants. Based on management discussions with the bank,
management believes the bank is satisfied 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 January 1998 depending on certain conditions. These monies have been
used for short-term working capital purposes. The Company believes the
conditions will be satisfied by the end of August and the repayments on the note
will be extended to January 1998.
In Australia, the landlord has committed to finance one restaurant that will
start construction before the end of August 1997. The Company has also agreed
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
12
<PAGE>
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.
13
<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 twenty-six week period ended June 29, 1997 Form 8-K's
were filed by the Company on:
(i) February 11, 1997
(ii) April 3, 1997
(iii) May 15, 1997
14
<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 5, 1997 By: /s/ Colin Halpern
Colin Halpern, President
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