RED HOT CONCEPTS INC, 10KSB40, 1999-04-22

RED HOT CONCEPTS INC
10KSB40, 1999-04-22
EATING PLACES

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-KSB

--- ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
/ X / SECURITIES EXCHANGE ACT OF 1934
---

For the fiscal year ended December 27, 1998

--- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
/ / SECURITIES EXCHANGE ACT OF 1934
---

For the transition period from ____________ to ____________

Commission File No. 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 identification
incorporation or organization) No.)

6701 Democracy Boulevard
Suite 300
Bethesda, MD 20817
(Address of principal executive offices) (Zip Code)

(301) 493-4553
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

NONE

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value
<PAGE>
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities 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

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Yes X No

State issuer's revenues for its most recent fiscal year.
$0.00

As of April 1, 1999, the aggregate market value of the Registrant's Common
Stock held by non-affiliates of the Registrant was $1,424,430.

As of April 1, 1999, there were 3,420,725 shares outstanding of the
Registrant's Common Stock.

2
<PAGE>
TABLE OF CONTENTS

ITEM PAGE
PART I

1. Business................................................................ 4
2. Properties.............................................................. 6
3. Legal Proceedings....................................................... 6
4. Submission of Matters to a Vote of
Security Holders........................................................ 6

PART II

5. Market for the Registrant's Common
Equity and Related Stockholder
Matters................................................................. 8
6. Management's Discussion and Analysis
of Financial Condition and Results
of Operations........................................................... 9
7. Financial Statements....................................................13
8. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure..............................................................13

PART III

9. Directors and Executive Officers
of the Registrant.......................................................14
10. Executive Compensation..................................................15
11. Security Ownership of Certain Beneficial
Owners and Management...................................................16
12. Certain Relationships and Related
Transactions............................................................17
13. Exhibits and Reports on Form 8-K........................................19
Signatures..............................................................21

3
<PAGE>
Item 1. Business

General

Red Hot Concepts, Inc. ("the Company") was incorporated in the state of Delaware
on June 14, 1994. The Company was formed to operate and develop the Chili's
Grill & Bar restaurant concept owned by Brinker International, Inc. ("Brinker")
outside the United States.

From incorporation until December 15, 1997, the Company, through its wholly
owned United Kingdom subsidiary, Restaurant House Limited ("Restaurant House"),
had the exclusive right to own and operate Chili's Grill & Bar restaurants
("Chili's Restaurants") in the United Kingdom.

From November 1995 until December 18, 1997, the Company, through its wholly
owned Australian subsidiary, Red Hot Pacific ("Red Hot Pacific") had the
exclusive rights to own and operate Chili's Restaurants in Australia and New
Zealand.

During 1997, the Company operated five Chili's Restaurants, three in Australia
and two in the United Kingdom. The Company opened its first Chili's Restaurant
in the United Kingdom, in London, in October 1995 and opened two additional
restaurants in March and May 1996. At the end of 1996, the Company closed one of
its restaurants. In November 1995, the Company acquired its first two Chili's
Restaurants in Australia through the purchase of a wholly-owned subsidiary of
Brinker that owned the operating rights to those restaurants, one which was
opened in August 1994 and the second in February 1995. The Company opened a
third restaurant in Australia in September 1996.

On December 15, 1997 the Company merged its wholly owned United Kingdom
subsidiary, Restaurant House, with and into The Celebrated Group Plc
("Celebrated") pursuant to the Agreement dated November 18, 1997 by and between
the Company and Celebrated ("the "Merger Agreement"). Pursuant to the Merger
Agreement, the Company sold all of the issued and outstanding stock of
Restaurant House to Celebrated in exchange for 28,000,000 shares of Celebrated.
Upon consummation of the Merger, the Company owns approximately 45.6% of
Celebrated. As part of the Merger, the Company received options to purchase an
additional 6,000,000 shares of Celebrated. Upon the exercise of these options
the Company would own approximately 50.51% of the outstanding shares of
Celebrated. Celebrated is publicly traded on the Alternative Index Market (AIM)
of the London Stock Exchange.

On December 18, 1997 the Company sold to Brinker the assets of its Australian
subsidiary, Chili's Texas Grill Plc., for $2.68 million. The Company used $1.25
million of the proceeds from the sale to repay a short-term loan to Brinker
dating from February 1997. An additional $700,000 was used primarily for the
payment of a related party debt. The Company purchased the Australian operations
from Brinker in November 1995.

As a result of the above transactions, the Company is a holding company the sole
operation of which consists of the owning of approximately 46% of the
outstanding equity of Celebrated which is recorded under the equity method. The
Company is currently the single largest shareholder of Celebrated. The Company's
common stock is owned 36% by Woodland Limited Partnership and 64% by the public.
Woodland Limited Partnership owns 100% of Class A Convertible Preferred Stock,
as well as, 100% of Class B Non Convertible Preferred Stock. Upon amendment and
restatement of the Series A Convertible Preferred Stock and exchange of Class B
Non-Convertible Preferred Stock into the Class A Convertible Preferred Stock, as
discussed further in item 12, Woodland would own 56.94% of the common shares.

The Celebrated Group Plc

Celebrated was incorporated in September 1988 in Berkshire, England, as Elegant
Leisure Ltd. The Company was initially formed to develop and operate mid-priced
hotels. Since that time, Celebrated has expanded its business operations to
include several restaurant chains operating throughout Great Britain. Celebrated
is a public company, 45.6 % of which is owned by the Company and 54.4% by other
public

<PAGE>

shareholders. Celebrated's shares trade on the Alternative Investment Market of
the London Stock Exchange.

As of December 27, 1998, Celebrated's business interests included Chili's
Restaurants, Starvin' Marvin' American diners, J.W. Johnson's theme
bar-restaurants and the Llyndir Hall Hotel, a 3-star country house near the
Welsh border in England. In late 1998 Celebrated decided to divest itself of its
hotel business to enable it to focus its financial resources on developing its
newly acquired Chili's concept. The hotel was being held for sale with an asking
price of approximately $3.3 million. As of year end 1998, Celebrated owned and
operated 10 restaurants.

The following is a brief description of Celebrated's restaurant operations
during 1998:

Starvin' Marvin's - Starvin' Marvin's is an American diner brand
restaurant. The first of these American-style diners was opened in May 1993 and
the business chain was purchased by Celebrated in August 1994. These restaurants
are open from early in the morning until late at night, offering American-style
deli food either as snacks or full meals. The restaurants are manufactured in
the traditional diner style, out of stainless steel cladding that is
pre-fabricated in the United States and shipped to the UK for final assembly. As
of December 29, 1998, Celebrated owned and operated six (6) of these restaurants
in the London, Manchester and Liverpool areas.

During 1998, Celebrated introduced significant changes in menu and
upgraded staff training, operating standards and personnel in its Starvin'
Marvin's diners in an effort to reverse losses, improve sales and increase
operational efficiencies. Positive sales trends were realized in 1998. No new
openings occurred in 1998. To further reduce losses, the company sold one under
performing unit and closed another.

J.W. Johnson's - Celebrated acquired this all-day theme bar-restaurant
from receivership in December 1993. The design incorporates a large bar area in
front, with a restaurant in back, serving casual, international cuisine. At
year-end 1998, Celebrated operated one (1) of these units, located in
Manchester, England.

In December 1997, a dispute with the landlord over trading patterns
prompted the company to modify its operations of the business. Restaurant sales
at the site fell off abruptly. Once resolved the business improved from June
1998 until the year end with average weekly sales of approximately $35,000.
Celebrated does not intend to expand the concept.

Chili's Grill & Bar Restaurants- Celebrated acquired the development
rights for Chili's Restaurants in the United Kingdom through its acquisition of
Restaurant House, the entity which owned the exclusive rights to own and operate
Chili's Restaurants in the United Kingdom pursuant to an amended development and
license agreement with Brinker.

Chili's Restaurants are full service restaurants featuring a casual
atmosphere and a limited menu of freshly prepared appetizers, chicken, beef and
seafood entrees, hamburgers and other sandwiches, salads, barbecue ribs, fajitas
and other southwestern and Mexican-style cuisine, desserts and a full-service
bar. Emphasis is placed on serving substantial portions of high quality food at
modest prices and providing excellent service. Chili's Restaurants consist of
booth seating, tile-top tables, hanging plants and wood and brick walls covered
by interesting memorabilia. Chili's Restaurants are generally open between 12
and 14 hours a day, seven days a week, for lunch, dinner and late-night meals,
and feature quick, efficient table service designed to minimize customer waiting
time and facilitate customer turnover.

5
<PAGE>
Celebrated's exclusive development rights for these restaurants in the
United Kingdom are governed by the terms of the Chilis' Development and
Licensing Agreement ("the UK Development Agreement"). The UK Development
Agreement grants the exclusive right until November, 2006 to develop and operate
Chili's restaurants within a defined period so long as Celebrated has open and
operating a minimum number of restaurants in accordance with a development
schedule during the term of the agreement. Celebrated was required to have open
and operating a minimum number of four Chili's restaurants by November 1, 1998.
If Celebrated falls behind the development schedule by more than one restaurant
in any given year, Celebrated could lose its exclusive development rights. If at
the end of the term of the UK Development Agreement Celebrated is in compliance
with the agreement, it may be renewed for any additional ten year period. At
year end 1998, Celebrated had open and operating three Chili's Restaurants. In
February 1999, Celebrated opened its fourth Chili's restaurant. Celebrated has
begun negotiating on two additional restaurant sites upon which it intends to
develop restaurants during 1999. Celebrated expects to open these facilities
prior to the end of this year and anticipates having 11 restaurants open by the
end of the year 2000.

Average weekly sales in the Cambridge Chili's for 1998 are $63,000, as compared
to 1997 weekly sales of $62,000. Average weekly sales for the Canary Wharf
Chili's for 1998 are $57,700, as compared to $49,000 for 1997.

Celebrated did not pay a dividend in 1998 but used the cash for reinvestment and
the expansion of Chili's.

Item 2. Properties

The Company also subleases its US office from a related party on a
month-to-month lease. The total for this facility is $768.00 per month.

Item 3. 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 4. Submissions of Matters to a Vote of Security Holders

A special meeting of stockholders was held November 3, 1997 to vote on a
proposal to reverse split outstanding shares three-to-one. Total number of votes
cast was 10,587,442, with 10,305,887 For, 256,020 Against, and 25,535
Abstaining.

No matters were submitted to a vote of the holders of the Company's Common Stock
during the fourth quarter of the Company's fiscal year ended December 27, 1998.

6
<PAGE>

Item 4A. Executive Officers of the Registrant

The executive officers of the Company are as follows:

Name Age Position

Colin Halpern 62 President
H. Michael Bush 44 Chief Financial Officer and Secretary

Colin Halpern has served as President and Director of the Company since June
1994. He also currently serves as a member of the Board of Directors of the
Celebrated Group Plc, President, Secretary, Treasurer and Director of Crescent
Capital, Inc., and President, Chief Executive Officer and Chairman of the Board
of Directors of NPS Technologies Group, Inc., all of which are public companies.
He has held these positions since July 1994 and August 1983, respectively. Mr.
Halpern also serves as the Chairman of the Board of International Franchise
Systems Inc., a company operating certain restaurants in the United Kingdom.
From 1985 to the present, Mr. Halpern has also served as the Chairman of
Universal Service Corp. Mr. Halpern was formerly the President and Chief
Executive Officer of DRC Industries, Inc., a company that, from November 1975
through October 1985, had a Budget Rent-A-Car master license agreement for the
New York metropolitan area, including LaGuardia and John F. Kennedy Airports.

In June 1991, the SEC sought and received, and NPS Technologies Group, Inc.
("NPS") consented to the entering of, an order against NPS and its officers and
employees that required NPS to file certain periodic reports with the SEC that
had not been timely filed and permanently restrained and enjoined NPS and such
officers and employees from failing to file in proper form with the SEC accurate
and complete reports required to be filed by NPS pursuant to the rules and
regulations of the SEC. Mr. Halpern is the President and Director of NPS, which
is currently inactive. Since June 1991, certain of NPS' reports have not been
timely filed by NPS and other reports have not been filed in proper form. The
SEC has taken no further action against NPS or any of its officers and
employees.

H. Michael Bush has served as Chief Financial Officer and Secretary of the
Company since November 1995. Mr. Bush also currently serves as Chief Executive
Officer of the Celebrated Group Plc, since February 1998. Mr. Bush served as
President and Chief Financial Officer of International Franchise Systems, Inc.
from December 1995 through October 1998. Prior to joining the Company, Mr. Bush
worked at Mobil Oil Corporation. He served at Mobil in various financial
capacities from 1980 through November 1995, including Manager of Financial
Analysis, Controls and Joint Venture Reporting and Senior Tax Planning Advisor.
From 1976 through 1980, Mr. Bush worked for Unisys. Mr. Bush is a certified
public accountant.

7
<PAGE>
PART II

Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters

Market Information

The Company's Common Stock is traded separately and as part of a unit
(a "Unit") which includes one share of Common Stock, one warrant to purchase one
share of stock through November 3, 2000 at $36.00* per share (a "Class B
Warrant"). The Company's Units and Common Stock are quoted on the NASDAQ
Small-Cap Market System under the symbols RHCSU and RHCS, respectively. The
Company's Class B Warrant is currently not traded.

The high and low sale prices of the Common Stock and Units as reported
by NASDAQ were as follows:

1999*
-----
Common Units
High Low High Low

First Quarter $1.1875 $0.4062 Unit Not Traded

1998*
-----
Common Units
High Low High Low

First Quarter $3.125 $2.25 Unit Not Traded
Second Quarter 2.75 1.25 Unit Not Traded
Third Quarter 2.625 1.45 Unit Not Traded
Fourth Quarter 2.75 0.50 Unit Not Traded

1997*
-----
Common Units
High Low High Low

First Quarter $9.375 $3.5625 $8.625 $3.00
Second Quarter 4.3125 1.125 3.00 2.25
Third Quarter 4.125 1.125 Unit Not Traded
Fourth Quarter 6.00 1.875 Unit Not Traded

1996*
-----
Common Units
High Low High Low

First Quarter Common Stock Not Traded $12.00 $3.75
Second Quarter Common Stock Not Traded 8.25 4.875
Third Quarter $9.375 $6.75 12.75 4.50
(Common beginning October 18, 1996)
Fourth Quarter 11.25 7.125 12.00 6.00

*Prices listed reflect effect of November 1997 three-for-one reverse stock
split.

<PAGE>

Dividends
The Company has not paid any cash dividends on its Common Stock and does not
intend to pay cash dividends on its Common Stock for the foreseeable future. The
Company intends to retain future earnings to finance future developments. The
Company's ability to pay dividends in the future is dependent upon the receipt
of dividends from Celebrated. The Company does not anticipate that Celebrated
will pay dividends in 1999.

Number of Stockholders
As of April 1, 1999, there were 82 record holders of the Company's Common Stock
and 60 record holders of the Class B Warrants. The Company believes there are
approximately 1500 beneficial owners of the Company's Common Stock.

Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations

Introduction

9
<PAGE>

under the equity method. The Company is currently the single largest shareholder
of Celebrated. The Company's common stock is owned 36% by Woodland Limited
Partnership and 64% by the public. Woodland Limited Partnership owns 100% of
Class A Convertible Preferred Stock, as well as, 100% of Class B Non Convertible
Preferred Stock. Upon amendment and restatement of the Series A Convertible
Preferred Stock and exchange of Class B Non-Convertible Preferred Stock into the
Class A Convertible Preferred Stock, as discussed further in item 12, Woodland
would own 56.94% of the common shares.

Since the merger in December 1997 Celebrated opened its third Chili's restaurant
in October 1998 and opened its fourth Chili's restaurant in February 1999.
Celebrated Group is currently negotiating two additional stores which will be
open and operating before the year end of 1999. That will bring the total number
of Chili's restaurants operated by Celebrated Group to six.

Results of Operations

The Company realized a net loss of approximately $2.6 million for the fifty-two
week period ended December 27, 1998. This was attributable to a $2.1 million
loss from the Celebrated Group and continuing general and administrative
expenses of the company of $0.5 million including interest expense. The company
net income for 1997 was approximately $2.1 million. The main reason for the
reduction in income is that in 1997 the company sold the Australian Chili's to
Brinker realizing a $1.5 million gain, as well as merging Restaurant House with
Celebrated Group for a net gain of $3.4 million.

At the present time the company is evaluating its assets to determine the best
way to increase shareholder value. The following table sets forth expenses as a
percentage of total revenue earned at Chili's Grill and Bar restaurants for the
period ended December 27, 1998 and for the period ended December 28, 1997.

1998 1997
---- ----
CHILI'S CHILI'S
UK UK
Revenues 100% 100%
Costs and Expenses
Food & Beverage 31% 32%
Restaurant Labor 19% 19%
Restaurant Expense 12% 12%
Royalties 2% 2%
Fixed Restaurant Expense 11% 11%
----- -----
Total Costs and Expenses 75% 76%
Gross Margin (Loss) 25% 27%
General & Administrative 10% 23%
Depreciation/Amortization 7% 7%
Operating Income (Loss) 8% ( 6%)
Other Income (Expense) 0% (2%)
----- -----
Net Income Before Sale
Of Subsidiary/(Loss) 8% (8%)

10
<PAGE>

Comparison of the Fifty-Two Week Period Ended December 27, 1998 and December 28,
1997.

1998 1997
Revenues $6,316,365 $5,102,299
Operating Income/(Loss) 505,560 (312,147)

United Kingdom

Revenues
Revenues for the three restaurants as of December 27, 1998 totaled $6.3 million
as compared to $5.1 million in 1997. The significant increase in revenue of
approximately $1.2 million was principally related to operational improvements
in the restaurants. During 1998, and the opening of the third Chili's restaurant
in October 1998. The Company emphasized adherence to Brinker standards and
procedures, training, customer awareness and implemented a market plan focusing
on food shots to create brand identity of Chili's Grill & Bar. All of the
changes, in complement with a new menu rollout, resulted in an increase in
average weekly sales for 1998 of approximately 15%.

Cost and Expenses
Restaurant cost of food, labor, variable and fixed expenses totaled $4.7 million
for the period ended December 27, 1998. This is an increase of $0.5 million for
the year ended December 27, 1998. The increase was principally related to
increase revenues in 1998 versus 1997. Food costs as a percentage of revenue
fell from 32% in 1997 to 31% in 1998 as the Company improved purchasing power
through economics of scale and sourcing more products locally. Labor costs as a
percentage of revenue remained the same 19% in 1998 as the Company maintained
its level of work productivity. Restaurant expense and fixed costs as a
percentage of revenue remain constant at 23% for 1998. In 1998, percentage of
fixed cost remained 11% due to the opening of the new restaurant. The fixed cost
of the new location offset a reduction in the original locations.

General and Administrative Expense
The total cost of general and administrative expenses for the fifty-two weeks
ended December 27, 1998 were $630,000 or approximately 10% of revenues. General
and administrative costs in 1997 were $1.1 million or 23% of revenues. The
administrative costs to run the three restaurants were reduced significantly in
an effort to achieve overall profitability in the United Kingdom. In 1997,
significant costs were incurred to develop the brand, hire and train personnel.

Merger with Celebrated
The Company's basis in Restaurant house at December 15, 1997 was $1,996,270. The
value of the shares in Celebrated were $5,375,790. Therefore, the gain of
$3,379,250 was realized on this transaction.

Liquidity and Capital Resources
As the Company no longer has operations on a going forward basis, the Company
will no longer have revenues, but will continue to have expenses and reflect the
equity portion of the earnings of Celebrated. The Company has reduced its
administrative expenses through the transfer of the CFO to the Celebrated Group,
and currently, has an administrative headcount of two.

The Company anticipates its cash requirements to be approximately $700,000. In
the short-term, the Company will rely on short-term advances from a related
party to finance the requirements. The Company is investigating alternative
sources of capital whether it is bank financing or another equity transaction.

11
<PAGE>

The Company

The Company's negative working capital as of December 27, 1998 was approximately
$146,000 as compared to negative working capital of $168,000 on December 28,
1997. Total current assets were $68,693 on December 27, 1998 and $368,454 on
December 28, 1997. Current liabilities decreased by approximately $322,000 in
1998 to $215,000 from $537,000 in 1997. The primary decrease in current assets
and liabilities was attributed to the merger of the UK operations into
Celebrated and the sale of the Australian operations.

The following chart represents the net funds raised and/or used in operating,
financing and investment activities for both periods.

December 29, 1997 December 30, 1996
to to
December 27, 1998 December 28, 1997
In Thousands In Thousands
Net cash (used) in operating activities $ (641) $ (1,709)
Cash (used) in investing ( 0) ( 21)
Cash provided by financing 544 1,414

During the fiscal year ended December 27, 1998, the company used approximately
$641,000 for operating activities and for the year ended December 28, 1997, the
Company used approximately $1.7 million for operating activities. The Company
had a net gain of approximately $2.1million which was reduced by non-cash
adjustments of $3.6 million. Accounts receivable decreased by approximately
$20,000, inventories decreased by $23,000 and an increase of prepaid expenses of
$6,000. The accounts payables, accrued liabilities, and other payables decreased
by approximately $185,000.

Cash used in investing activities of approximately $21,000 is primarily
attributed to furniture and fixtures for the new restaurants in Australia.

Cash provided by financing activities for the year was approximately $1.4
million which includes the net proceeds from the sale of the assets in Australia
of approximately $2.65 million. Advances from a related party were $265,000 with
repayments of approximately $1,507,000. The repayment terms on the intercompany
advances have been extended to January 1999.

The Company has a month to month lease for its U.S. corporate office.

In Australia, Brinker has assumed obligation for the existing leases and Company
commitments on new restaurants sites. The Company's only obligation in Australia
is to pay the trade payables of approximately $30,000.

On December 27, 1998 the company converted $1,500,000 of loans and accrued
interest from a related party, into 100,000 shares of Series A Convertible 8%
Preferred Stock. The Company's Board of Directors approved this agreement.

<PAGE>
The company intends to amend and restate the Series A Preferred Stock terms. The
company will authorize an additional 1,900,000 shares. The then total of
2,000,000 shares will be changed to $2.00 par value. The agreed dividend will be
8% and will be cumulative. The shares will have a liquidation preference of
$2.00 plus an amount equal to an imputed dividend of 8% per annum. In addition,
the shares will be convertible into 1.1 common shares for each preferred share.

After amendment of the Series A Preferred Stocks, Woodland has agreed to
exchange its 725,000 shares of Series B Non-Convertible Preferred Stocks for
725,000 shares of Series A Preferred Stocks. In addition, 100,000 shares of
Series A Convertible Preferred Stocks will be amended to 750,000 shares of $2.00
par value Series A Preferred Stocks.

The Company has improved short term liquidity through a number of different
steps including the reduction of administrative expenses and headcount and the
rescheduling of payment terms on the advances from Woodland Limited Partnership.
The Company believes that additional capital or borrowing will be necessary to
finance working capital in the short term. The Company does not anticipate that
Celebrated will pay dividends in 1999. 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 holdings in Celebrated.

Inflation

To date, inflation has not had a material effect on the Company's operations.

Item 7. Financial Statements

See the Financial Statements data listed in the accompanying Index to Financial
Statements on Page F-1 herein. Information required by other schedules called
for under Regulation S-X is either not applicable or is included in the
financial statements or notes thereto.

Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures

Moore Stephens, P.C. were previously the principal accountants for Red Hot
Concepts, Inc. On April 9, 1999, that firms appointment as principal accountants
was terminated. The decision to terminate was approved by the board of directors
on April 6, 1999. In connection with the audits of the fiscal years ended
December 28, 1997 and the subsequent interim period, there were no disagreements
with Moore Stephens, P.C. on any matter of accounting principles or practices,
financial statement disclosures, or auditing scope or procedures, which
disagreements if not resolved to their satisfaction would have caused them to
make reference in connection with their opinion to the subject of the
disagreement.

The audit reports of Moore Stephens, P.C. on the consolidated financial
statements of Red Hot Concepts, Inc. and subsidiaries as of and for the years
ended December 28, 1997 and December 29, 1996, did not contain any adverse
opinion or disclaimer of opinion, nor were they qualified or modified as to
uncertainty, audit scope, or accounting principles other than the uncertainty as
to the ability of the company to continue as a going concern.

On April 6, 1999, Red Hot appointed Wayne P. Hickey, P.C. to replace Moore
Stephens, P.C. as their independent auditors of Red Hot for the fiscal year
ended December 27, 1998.

The company has agreed to provide indemnification to Moore Stephens, P.C.
subject to certain conditions, for legal and other costs that might be incurred
in defending itself in the event of threatened or actual litigation in
connection with the resources of its auditors report on the financial statement
of the company.

13
<PAGE>
PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act

The Directors and Executive Officers, their ages, their principal occupations
during the past five years or more, and directorships of each in public
companies in addition to the Company are as follows:

Colin Halpern, age 62, has served as Chairman of the Board since June 1994, and
served as President of the Company from June 1994 until August 1996 and again
from May 1997 to present. He serves as Chairman of the Board of International
Franchise Systems, Inc., a position he has held since December 1993. He served
as President of International Franchise Systems, Inc. from December 1993 until
May 1996. He also currently serves as President, Secretary, Treasurer and
Director of Crescent Capital, Director of Celebrated Group Plc., and President,
Chief Executive Officer and Chairman of the Board of Directors of NPS
Technologies Group, Inc., all of which are public companies. He has held these
positions since July 1994, January 1998 and August 1983, respectively. Mr.
Halpern also served as Executive Vice President of Lafayette Industries from
January 1992 to December 1996. From 1985 to the present, Mr. Colin Halpern has
also served as the Chairman of Universal Services Group, Inc. Mr. Colin Halpern
was formerly the Chairman and Chief Executive Officer of DRC Industries, Inc., a
company that, from November 1975 through October 1985, had a Budget Rent-A-Car
master license agreement for the New York metropolitan area, including LaGuardia
and John F. Kennedy Airports.

In June 1991, the SEC sought and received, and NPS Technologies Group, Inc.
("NPS") consented to the entering of, an order against NPS and its officers and
employees that required NPS to file certain periodic reports with the SEC that
had not been timely filed and permanently restrained and enjoined NPS and such
officers and employees from failing to file in proper form with the SEC accurate
and complete reports required to be filed by NPS pursuant to the rules and
regulations of the SEC. Mr. Colin Halpern is the President and Director of NPS,
which is currently inactive. Since June 1991, certain of NPS' reports have not
been timely filed by NPS and other reports have not been filed in proper form.
The SEC has taken no further action against NPS or any of its officers and
employees.

H. Michael Bush, age 44, has served as Chief Financial Officer and Secretary
since joining the Company in November 1995. Mr. Bush also serves as Chief
Financial Officer and Secretary of International Franchise Systems, Inc., the UK
licensee of Domino's Pizza. Since May 1996, Mr. Bush has served as Acting
President of International Franchise Systems, Inc. In addition, Mr. Bush is
currently serving as Chief Executive Officer of the Celebrated Group Plc, the
company that merged with Red Hot Concepts, Inc. in December 1997. Prior to
joining the Company, Mr. Bush worked at Mobil Oil Corporation. He served at
Mobil in various financial capacities from 1980 through November 1995, including
Manager of Financial Analysis, Accounting Manager and Senior Tax Planning
Advisor. From 1976 through 1980, Mr. Bush worked at Unisys. Mr. Bush is a
certified public accountant.

Robert Pace Flack, age 61, has served as a director of the Company since
December 1995. Since December 1995, he has served as Chief Executive Officer,
President and Director of Kona Restaurant Group, Inc. He is also currently
serving as a management consultant for business development and for the food
service industry as a director of Business Development Services, a private
company. From June 1989 to December 1994, Mr. Flack has held several positions
and most recently served as the President and Chief Executive Officer of Sonic
Industries, a NASDAQ listed, fast food service, drive-in restaurant chain with
over 1,300 outlets, 90% of which are franchised. He has served in senior
management positions with several restaurant companies including El Chico
Corporation (NASDAQ), Pizza Inn, Inc. (AMEX) and Village Kitchen Foods, Inc. Mr.
Flack is a member of the National Restaurant Association and the International
Franchise Association. Mr. Flack is also a director of International Franchise
Systems, Inc. and of Lincoln National Bank, Oklahoma.

14
<PAGE>

Aaron L. Lebedow, age 63, has served as a director of the Company since January
1998. Mr. Lebedow is founder and President of Global MarkeTactics, a market
planning consulting firm, and a position he has held since 1994. From 1966 to
1993, Mr. Lebedow served as Chairman and co-founder of Technomic Consultants
International, a strategic marketing consulting firm with offices globally. Mr.
Lebedow serves as a director for the Council of Jewish Elderly, a position he
has held since 1987.

Item 10. Executive and Director Compensation

Summary Compensation Table

The following table sets forth the aggregate cash compensation paid by the
Company for the fifty-two weeks ended December 27, 1998 to those executive
officers whose salary and bonus exceeded $100,000 and the Chief Executive
Officer.
<TABLE>
<CAPTION>
Long-Term Compensation
Annual Compensation Awards
-------------------------------- --------------------------------
Other Restricted Securities
Name and Salary Annual Stock Underlying All Other
Principal Compensation Bonus Compensation Award (s) Options Compensation
Position Year ($) ($)(1) ($)(2) ($) (#) ($)
- ------------ ---- ------------ ------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Colin Halpern 1998(3) 72,000 0 27,238 0 0 0
President(3) 1997(3) 72,000 10,000 27,238 0 3,332 0
1996 72,000 0 15,840 0 1,666 0

H. Michael Bush 1998 37,333 0 0 0 0 0
Chief Financial Officer, 1997 66,667 10,000 0 0 0 0
Secretary 1996 50,000 10,000 0 0 30,000 0

<FN>
(1) Represents amounts paid under the Company bonus plan.

(2) For 1998, Colin Halpern's compensation includes $15,840 car allowance and
$7,443 for insurance and for 1997 includes $15,840 car allowance and $7,443 for
insurance and for 1996 includes $15,840 car allowance. Where no amount is given,
the dollar value of perquisites paid to the named executive officer does not
exceed the lesser of $50,000 or 10% of the total of annual salary and bonus
reported for the named executive officer.

(3) Colin Halpern has served as President since May 1997.
</FN>
</TABLE>

The following tables set forth, as to the executive officers, certain
information relating to options for the purchase of Common Stock granted and
exercised during fiscal year 1998 and held at the end of fiscal year 1998.

Option Grants in Last Fiscal Year

Individual Grants

Name Options % of Total Options Granted Exercise or Expiration Date
Granted to Employees in Fiscal Year Base Price(1)
(#)(1)
None

15
<PAGE>

(1) Reflects three-for-one reverse split, which occurred on November 28, 1997.

(2) Represents options granted under the Company's 1996 Non-Employee Director
Plan. Mr. Colin Halpern was not an executive officer of the Company at the time
of grant. Such options are exercisable after the first anniversary of the grant
until ten years from the date of grant.

Aggregated Option Exercises in Last
Fiscal Year and FY-End Option Values
<TABLE>
<CAPTION>
# of Securities # of securities Value of Value of
Underlying underlying unexercised unexercised
Unexercised unexercised in-the-money in-the-money
Shares Value Options at options at option at option at
acquired on Realized FY-End FY-End FY-End (1) FY-End (1)
Name exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ --- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Colin Halpern 0 0 3,332 1,666 $ -- $ --
H. Michael Bush 0 0 19,999 10,001 $ -- $ --

<FN>
(1) Represents the difference between the option exercise price and the closing
market price for the Company's Common Stock.
</FN>
</TABLE>

Director Compensation

Directors who are officers or employees of the Company receive no additional
compensation for service as members of the Board of Directors or committees
thereof. Directors who are not officers or employees of the Company receive such
compensation for their services as the Board of Directors may from time to time
determine. Non-employee directors receive an annual fee of $5,000 and a fee of
$1,000 for each board, committee, and shareholder meeting attended. During
fiscal year 1998, non-employee directors participated in the 1996 Non-Employee
Directors Stock Option Plan (See Note 16A of Notes to Financial Statements),
which plan was adopted by the shareholders at the 1997 annual meeting of
shareholders. During fiscal year 1998, Mr. Melvin Lazar was granted options to
acquire 6,664 shares of common stock (reflecting the November 28, 1997
three-for-one reverse stock split) at an exercise price of $8.25, $3.9375, $1.50
and $4.03 (1,666 shares at each price) under the plan. These options have
expired. In addition, Mr. Franklin Abelman was granted options to acquire 3,332
shares of common stock at an exercise price of $8.25 and $3.9375 (1,666 shares
at each price) under the plan. These options have also expired.

Item 11. Security Ownership of Certain Beneficial Owners and Management

The table below sets forth certain information as of April 1, 1999 regarding the
beneficial ownership, as defined in regulations of the Securities and Exchange
Commission, of Common Stock of (i) each person who is known to the Company to be
the beneficial owner of more than 5% of the outstanding shares of the Company's
Common Stock, (ii) each director of the Company, and (iii) all directors and
executive officers as a group. On April 1, 1999, there were 3,420,725 shares of
the Company's Common Stock and options outstanding. Unless otherwise specified,
the named beneficial owner has sole voting and investment power. The information
in the table below was furnished by the persons listed. "Beneficial Ownership"
as used herein has been determined in accordance with the rules and regulations
of the Securities and Exchange Commission and is not to be construed as a
representation that any of such shares are in fact beneficially owned by any
person.

<PAGE>

Names and Address of Amount and Nature of Percentage of
Beneficial Owner Beneficial Ownership Class

Woodland Limited Partnership(1) 1,245,833 36%
1301 K Street, NW, Suite 1100
Washington, DC 20005

Colin Halpern 23,332(2) *

Robert P. Flack 21,666(2) *

Aaron L. Lebedow 20,000 *

All directors and officers
as a group (3 persons) 64,998(2) *

* Less than 1%

(1) From December 1993, Woodland Limited Partnership, a limited partnership of
which Woodland Group is the General Partner, owns approximately 36% of Red Hot
Concepts issued and outstanding shares of Common Stock. Woodland Group is owned
one-third by Mr. Jay Halpern, one-third by Ms. Nancy Gillon and one-third by
Mrs. Gail Halpern. Gail Halpern is the wife of Colin Halpern. Jay Halpern and
Nancy Gillon are the children of Gail and Colin Halpern. By reason of their
indirect ownership of approximately 100% of the outstanding stock of Woodland,
Mr. Jay Halpern, Ms. Gillon and Mrs. Halpern may be deemed to have a beneficial
interest in the shares owned by Woodland Limited Partnership. Messrs. Halpern,
Ms. Gillon and Mrs. Halpern disclaim beneficial ownership of such securities.

(2) Represents options to purchase shares of Common Stock exercisable within 60
days of April 1, 1999.

Item 12. Certain Relationships and Related Transactions

Woodland Limited Partnership ["Woodland"] is a partnership controlled by members
of Mr. Colin Halpern's family. Mr. Halpern is the President and Chairman of the
Board of the company. As of December 28, 1997, the balance due to Woodland for
funds advanced to the company was $1,011,317, which included accrued interest
payable of $230,065. This note was due in June 1998. In May 1998 the due date
was extended to January 1999. During 1998, additional funds were advanced to the
company from Woodland of $488,683 including accrued interest for the current
period. The total of these amounts for 1997 and 1998, totaling $1,500,000 were
converted to 100,000 shares of Series A Convertible 8% Preferred Stock at
December 27, 1998.

The company intends to amend and restate the Series A Preferred Stock terms. The
company will authorize an additional 1,900,000 shares. The then total of
2,000,000 shares will be changed to $2.00 par value. The agreed dividend will be
8% and will be cumulative. The shares will have a liquidation preference of
$2.00 plus an amount equal to an imputed dividend of 8% per annum. In addition,
the shares will be convertible into 1.1 common shares for each preferred share.

17
<PAGE>

In June 1996, as partial consideration for the conversion of short-term advances
to a note payable loan, the Company issued a common stock purchase warrant
entitling Woodland to purchase 166,667 shares of the Company's common stock at
$7.50 per share for a period of 24 months commencing on the date of the loan.
The warrants will be redeemable at $.01 per share if the closing bid price of
the Company's common stock exceeds $30 for 10 consecutive trading days ending
within five days of the notice of redemption. In December 1996, Woodland agreed
to extend the note due until June 1998 and the shares of the Company's common
stock at $5.25 per share for a term expiring December 31, 1999. As of December
29, 1996, the note was recorded net of the fair value of these stock warrants at
$694,556 [See Note 6]. Interest expense amortized on purchase warrants for the
52 week period ended December 28, 1997 is $130,000.
The warrants were cancelled with conversion of the notes to equity.

In March 1997, the Company agreed with Woodland Limited Partnership to convert
$750,000 of long-term debt to 100,000 $1.00 par value Series A convertible
preferred shares. On September 25, 1997, Woodland agreed to exchange its $1.00
par value Series A non-convertible preferred shares to 375,000 $2.00 par value
Series B non-convertible preferred shares.

On September 25, 1997, Woodland agreed to convert an additional $700,000 of
notes payable into 350,000 $2.00 par value Series B non-convertible preferred
shares. The agreed dividend is 8% and is cumulative. The preferred shares hold
the same voting rights as the common shares. The warrants issued in connection
with notes payable were valued at $145,522 and was accounted for as a discount
to the notes payable to Woodland. At December 28, 1997, the Company amortized
$116,000 as interest expense.

On December 27, 1998, Woodland agreed to convert $1,500,00 working capital loans
and accrued interest, as well as, 725,000 shares of $2.00 Par Value Series B
Non-Convertible 8% Preferred Stock into 1,475,000 shares of $2.00 Par Value
Series B Convertible 8% Preferred Stock. The agreed dividend is 8% and is
cumulative.

At December 27, 1998, dividends in arrears on the Series B Non-Convertible
Preferred Stock amounted to $174,000 or $0.24 per share.

Mr. Halpern also is the Chairman of the Board of International Franchise
Systems, Inc. ["IFS"]. IFS charged a management fee to the Company for
administrative services for the year ended December 28, 1997 of $45,000. IFS and
one of its wholly-owned subsidiaries sublease a facility to the Company in the
United Kingdom. For the year ended December 28, 1997, the Company paid $133,449
for this facility. The remaining amount was assumed by Celebrated Group.

The Company has advanced funds to and paid various expenses on behalf of Mr.
Halpern. During 1996, the total amount advanced to Mr. Halpern was $15,148 with
repayments of $35,000. At December 27, 1998 and December 28, 1997, the total
amount due to the Company is $31,149.

Mr. Halpern's son is an attorney with a law firm that provides legal services to
the Company. Legal expense incurred with this firm for the fifty-two weeks ended
December 27, 1998 was $32,000. At December 27, 1998 there was a balance of
$94,500 due and owing by the Company to this firm.

The Chief Financial Officer of the Company was also the Chief Financial Officer
of IFS until October 1998. For the year ended December 28, 1997 the charge for
his services was $130,000 and was allocated between the two companies. The Chief
Financial Officer of the company is also is Chief Financial Officer and the
Chief Executive Officer of the Celebrated Group, Plc.

<PAGE>

Item 13. Exhibits and Reports on Form 8-K

(a) Exhibits
1(A)(2) Underwriting Agreement

(B)(1) Form of Selected Dealers Agreement

(C)(2) Warrant Agreement

3(A)(2) Certificate of Incorporation

(C)(2) Bylaws of Registrant

4(A)(3) Form of Common Stock Certificate

(B)(3) Class B Common Stock Purchase Warrant Specimens

10(A)(2) Development Agreement dated July 15, 1994 between
Brinker International, Inc. and Restaurant House
Limited

10(A)(i)(4) License Agreement dated January 27, 1995 between
Brinker International, Inc. and Restaurant House
Limited

10(A)(ii)(4) Letter Agreement dated January 9, 1995 by
Brinker International, Inc.

(B)(2) Employment Agreement between Registrant and
Colin Halpern

(C)(2) Unit Purchase Option

(D)(2) Escrow Agreement among the Company, the
Underwriter, Jersey Transfer and Trust Co., and
United Jersey Bank

(E)(4)(**) Form of Incentive Stock Option Plan

21(2) Subsidiaries of the Registrant

10(F)(5) Development Agreement between Brinker
International, Inc. and Red Hot Concepts-Pacific,
Inc. dated November 8, 1995

10(G)(5) Share Sale Agreement between Red Hot
Concepts-Pacific, Inc. and Brinker Australia, Inc.
dated November 8, 1995

11(**) 1996 Non-Employee Directors Stock Option Plan

10(H)(6) Merger Agreement between Celebrated Group Plc and
Red Hot Concepts, Inc. dated December 16, 1997

10(I)(6) Sale Agreement between Brinker International, Inc.
and Red Hot Concepts, Inc. dated December 19, 1997

- ---------------------

<PAGE>

(*) Filed herewith.
(**) Denotes Compensatory Plans
1 Incorporated by reference, filed as an exhibit to Registrant's
Post-Effective Amendment No. 1 to SB-2 filed with the Securities and
Exchange Commission on November 8, 1994.
2 Incorporated by reference, filed as an exhibit to Registrant's
Registration Statement on Form SB-2, filed with the Securities and
Exchange Commission on November 8, 1994.
3 Incorporated by reference, filed as an exhibit to Registrant's
Pre-Effective Amendment No. 1 to SB-2, filed with the Securities and
Exchange Commission on November 8, 1994.
4 Incorporated by reference previously filed as an exhibit to
Registrant's Pre-Effective Amendment No. 2 to SB-2 filed with the
Securities and Exchange Commission on November 8, 1994.
5 Incorporated by reference filed as Exhibit to Registrant's 8-K, filed
with the Securities and Exchange Commission on November 28, 1995.
6 Incorporated by reference filed as Exhibit to Registrant's 8-K, filed
with the Securities and Exchange Commission on December 19, 1997

(b) Reports on Form 8-K

March 26, 1997 Extension of Class A Common Stock Purchase Warrant

May 13, 1997 Naming New President

August 27, 1997 Letter of Intent to Merge with Celebrated
Group Plc

October 28, 1997 Continued Listing on Nasdaq SmallCap Market

November 28, 1997 Reverse Split of Common Stock

December 19, 1997 Merger with Celebrated Group Plc and
Sale of Australian Subsidiary to Brinker
International, Inc.

December 30, 1997 Amendment to December 19, 1997 8-K

20
<PAGE>
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

By:/s/Colin Halpern
--------------------------
Colin Halpern, President

Date: April 21, 1999

In accordance with the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the date indicated.

/s/Colin Halpern President and Director April 21, 1999
- ---------------------- (Chief Executive Officer)
Colin Halpern

/s/H. Michael Bush Chief Financial Officer April 21, 1999
- ---------------------- and Secretary (Principal
H. Michael Bush Financial and Accounting
Officer

/s/Robert Pace Flack Director April 21, 1999
- ----------------------
Robert Pace Flack

/s/Aaron L. Lebedow Director April 21, 1999
- ----------------------
Aaron L. Lebedow

<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------

INDEX TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

Page

Independent Auditor's Report..........................................F-1...F-2

Consolidated Balance Sheet as of December 27, 1998....................F-3...F-4

Consolidated Statements of Operations for the fifty-two weeks ended
December 27, 1998 and December 28, 1997...............................F-5

Consolidated Statements of Stockholders' Equity for the period
December 28, 1997 to December 27, 1998................................F-6

Consolidated Statements of Cash Flows for the fifty-two weeks ended
December 27, 1998 and December 28, 1997...............................F-7...F-8

Notes to Consolidated Financial Statements............................F-9...F-22

. . . . . . . . . . . . . . . .

<PAGE>

INDEPENDENT AUDITOR'S REPORT

To the Stockholders and Board of Directors of
Red Hot Concepts, Inc.

We have audited the accompanying consolidated balance sheet of Red Hot
Concepts, Inc. and its subsidiaries as of December 27, 1998, and the related
consolidated statement of operations, stockholders' equity, and cash flows for
the fifty-two week period ended December 27, 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Red Hot Concepts, Inc. and its subsidiaries as of December 27, 1998, and the
consolidated results of their operations and their cash flows for the fifty-two
week period ended December 27, 1998, in conformity with generally accepted
accounting principles.

The accompanying consolidated financial statements have been prepared
assuming that Red Hot Concepts, Inc. and its subsidiaries will continue as a
going concern. As discussed in Note 3 to the consolidated financial statements,
Red Hot Concepts, Inc. and its subsidiaries have suffered recurring losses from
operations; have utilized $641,144 in cash for operations; and have a working
capital deficit of $146,373 that raise substantial doubt about Red Hot Concepts,
Inc. and its subsidiaries' ability to continue as a going concern. Management's
plans in regard to these matters are described in Note 3. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

WAYNE P. HICKEY, P. C.
Certified Public Accountant.

Bohemia, New York
April 10, 1999

F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT

To the Stockholders and Board of Directors of
Red Hot Concepts, Inc.

We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of Red Hot Concepts, Inc. and its
subsidiaries for the fifty-two week period ended December 28, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of operations
and cash flows of Red Hot Concepts, Inc. and its subsidiaries for the fifty-two
week period ended December 28, 1997, in conformity with generally accepted
accounting principles.

The accompanying consolidated financial statements have been prepared
assuming that Red Hot Concepts, Inc. and its subsidiaries will continue as a
going concern. The December 28, 1997 consolidated financial statements of Red
Hot Concepts, Inc. and its subsidiaries reflect recurring losses from
operations; utilization of $1,709,064 in cash for operations; and a working
capital deficit of $168,676 that raise substantial doubt about Red Hot Concepts,
Inc. and its subsidiaries' ability to continue as a going concern. Management's
plans in regard to these matters are described in Note 3. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

MOORE STEPHENS, P.C.
Certified Public Accountant.

Cranford, New Jersey
May 22, 1998

F-2
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------

CONSOLIDATED BALANCE SHEET AS OF DECEMBER 27, 1998
- --------------------------------------------------------------------------------

December 27,
Assets: 1998
-------------
Current Assets:
Cash $ 12,293
Restricted Cash 30,000
Due from Celebrated Group 26,400
Prepaid Expenses 0
Accrued Interest Receivable 0
-----------

Total Current Assets $ 68,693
-----------

Property and Equipment:
Furniture and Fixtures $ 10,861
Less: Accumulated Depreciation (6,164)
-----------

Property and Equipment - Net $ 4,697
-----------

Other Assets:
Officer Loan Receivable $ 31,149
Investment in Celebrated Group 3,257,096
-----------

Total Other Assets $ 3,288,245
-----------

Total Assets $ 3,361,635
===========

The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.

F-3
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------

CONSOLIDATED BALANCE SHEET AS OF DECEMBER 27, 1998
- --------------------------------------------------------------------------------

December 27,
1998
------------
Liabilities and Stockholders' Equity:
Current Liabilities
Accounts Payable and Accrued Expenses $ 215,066
-----------

Long-Term Liabilities:
Accrued Interest Payable - Related Party 0
Due to Related Party $ 55,500
-----------

Total Long-Term Liabilities $ 55,500
-----------

Commitments and Contingencies [16] 0

Stockholders' Equity:
Series A Convertible 8% Preferred Stock, $1.00 Par Value
100,000 Shares Authorized, Issued and Outstanding 1,500,000

Series B Non-Convertible 8% Preferred Stock, $2.00 Par Value
725,000 Shares Authorized, Issued and Outstanding 1,450,000

Common Stock, 12,000,000 Shares Authorized,
3,420,782 Shares Issued and Outstanding 34,207

Additional Paid-in Capital 8,443,416

Accumulated Deficit (8,213,359)

Accumulated Other Comprehensive Income (123,195)
-----------

Total Stockholders' Equity $ 3,091,069
-----------

Total Liabilities and Stockholders' Equity $ 3,361,635
===========

The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.

F-4
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Fifty-Two Weeks Ended
December 27, December 28,
1 9 9 8 1 9 9 7
------- -------

<S> <C> <C>
Revenues $ 0 $ 11,111,274
------------ ------------

Cost of Revenues:
Cost of Revenues 0 3,517,890
Restaurant Expense 0 6,044,690
------------ ------------

Total Cost of Revenues 0 9,562,580
------------ ------------

Gross Margin 0 1,548,694

General and Administrative Expenses 451,402 2,966,720

Depreciation and Amortization 1,524 777,833
------------ ------------

Operating Loss (452,926) (2,195,859)
------------ ------------

Net (Loss) of Unconsolidated Investee (2,118,694) 0
------------ ------------

Other Income [Expense]:
Other Income 0 15,383
Interest Income 5,409 46,052
Interest Expense - Related Party (75,886) (613,219)
Gain on Merger of UK Subsidiary into Celebrated 0 3,379,520
Gain on Sale of Rights in Chili's Restaurants 0 1,490,016
------------ ------------

Other Income [Expense] - Net (70,477) 4,317,752
------------ ------------

Income [Loss] Before Income Tax Expense (2,642,097) 2,121,893

Federal and State Income Tax Expense 0 0
------------ ------------

Net Income [Loss] (2,642,097) 2,121,893

Preferred Stock Dividends (116,000) (58,000)
------------ ------------

Net Income [Loss] Available to Stockholders $ (2,758,097) $ 2,063,893
============ ============

Net Income [Loss] Per Common Share:
Basic $ (.81) $ .58
============ ============

Weighted Average Number of Shares Outstanding 3,420,725 3,585,713
============ ============
</TABLE>

The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.

F-5
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY

<TABLE>
<CAPTION>
Series B
Non-Convertible
Common Stock [11E] Additional Preferred Stock
Number of Paid-in Number of
Shares Amount Capital Shares Amount
------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C>
Balance - December 29, 1996 3,087,449 30,874 8,945,789 -- --

Issuances of Common Stock [9C] 333,333 3,333 (3,333) -- --
Convertible Debt to Preferred Stock [9D] -- -- -- 725,000 1,450,000
Adjustment for Unamortized Value of
Warrants Cancelled [7] -- -- (499,040) -- --
Comprehensive Income;
Net Income for the fifty-two week
period ended December 28, 1997 -- -- -- -- --
Other Comprehensive Income;
Foreign Currency Translation
Adjustment -- -- -- -- --

Comprehensive Income -- -- -- -- --
--------- ------- ---------- ------- ----------

Balance - December 28, 1997 3,420,782 $34,207 $8,443,416 725,000 $1,450,000

Issuances of Common Stock [9C] -- -- -- -- --
Non-Convertible Preferred Stock Converted -- -- -- -- --
To Convertible Preferred Stock

Notes Payable Converted to Convertible -- -- -- -- --
Preferred Stock [9D]
Comprehensive income;
Net [Loss] for the fifty-two week
period ended December 27, 1998 -- -- -- -- --

Comprehensive Income -- -- -- -- --
--------- ------- ---------- ------- ----------

Balance - December 27, 1998 3,420,782 $34,207 $8,443,416 725,000 $1,450,000
========= ======= ========== ======= ==========
</TABLE>

<TABLE>
<CAPTION>
Series A
Convertible Accumulated
Preferred Stock Compre- Other Total
Number of hensive Accumulated Comprehensive Stockholders'
Shares Amount Income [Deficit] Income Equity
------ ------ ------ --------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance - December 29, 1996 -- -- -- (7,693,155) (57,170) 1,226,338

Issuances of Common Stock [9C] -- -- -- -- -- --
Convertible Debt to Preferred Stock [9D] -- -- -- -- -- 1,450,000
Adjustment for Unamortized Value of
Warrants Cancelled [7] -- -- -- -- -- (499,040)
Comprehensive Income;
Net Income for the fifty-two week
period ended December 28, 1997 -- -- 2,121,893 2,121,893 -- 2,121,893
Other Comprehensive Income;
Foreign Currency Translation
Adjustment -- -- (66,025) -- (66,025) (66,025)
-----------
Comprehensive Income -- -- 2,055,868 -- -- --
------- ---------- =========== ----------- --------- ----------

Balance - December 28, 1997 -- -- $(5,571,262) $(123,195) $4,233,166

Issuances of Common Stock [9C] -- -- -- -- -- --
Non-Convertible Preferred Stock Converted -- -- -- -- -- --
To Convertible Preferred Stock

Notes Payable Converted to Convertible 100,000 1,500,000 -- -- -- 1,500,000
Preferred Stock [9D]
Comprehensive income;
Net [Loss] for the fifty-two week
period ended December 27, 1998 -- -- (2,642,097) (2,642,097) -- (2,642,097)
-----------
Comprehensive Income -- -- (2,642,097) -- -- --
------- ---------- =========== ----------- --------- ----------

Balance - December 27, 1998 100,000 $1,500,000 $(8,213,359) $(123,195) $3,091,069
======= ========== =========== ========= ==========
</TABLE>
Foreign Currency Translation:
Prior to December 28, 1997, the functional currency for the Company's United
Kingdom subsidiary and Australian subsidiary was the British pound sterling and
Australian dollar, respectively. The translation from British pound sterling and
Australian dollars into U.S. dollars was 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. For the period December 27, 1998 the translation from
British pound sterling into U.S. dollars for the investment in the Celebrated
group was done using current exchange rates in effect at year end.

The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.

F-6
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fifty-Two Weeks Ended
December 27, December 28,
1 9 9 8 1 9 9 7
------- -------
Operating Activities:
<S> <C> <C>
Net Income [Loss] $(2,642,097) $ 2,121,893
----------- -----------
Adjustments to Reconcile Net Income [Loss] to
Net Cash [Used for] Provided by Operating Activities:
Depreciation and Amortization 1,524 777,833
Loss on Sale of Fixed Assets 0 6,295
Loss on Writeoff of Intangible Assets 0 78,515
Offset of Officer Loan Receivable Against Consulting Agreement 0 78,398
Net Loss of Unconsolidated Investee 2,118,694 0
Amortization of Warrant Cost 0 246,000
Gain on Sale of Assets of CTG and Rights in Chili's Restaurants 0 (1,490,016)
Gain on Merger of UK Subsidiary into Celebrated 0 (3,379,520)

Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable 165,586 19,740
Inventories 0 23,425
Prepaid Expenses and Other Current Assets 37,213 (6,552)

Increase [Decrease] in:
Accounts Payable (322,064) (282,959)
Accrued Expenses 0 105,000
Other Payables and Accrued Interest 0 (7,116)
----------- -----------

Total Adjustments $ 2,000,953 $(3,830,957)
----------- -----------

Net Cash - Operating Activities $ (641,144) $(1,709,064)
----------- -----------

Investing Activities:
Purchase of Furniture and Fixtures 0 (20,965)
----------- -----------

Net Cash - Investing Activities $ 0 $ (20,965)
----------- -----------

Financing Activities:
Advances from Related Parties 544,182 965,184
Payments to Related Parties 0 (859,715)
Repayment of Loan 0 (1,347,100)
Net Proceeds from Sale of Assets of CTG and
Rights in Chili's Restaurants 0 2,655,141
----------- -----------

Net Cash - Financing Activities $ 544,182 $ 1,413,510
----------- -----------

Effect of Exchange Rate Changes on Cash $ 0 $ (108,374)
----------- -----------

Net [Decrease] in Cash - Forward $ (96,962) $ (424,893)
</TABLE>

The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.

F-7
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Fifty-Two Weeks Ended
December 27, December 28,
1 9 9 8 1 9 9 7
------- -------
<S> <C> <C>
Net [Decrease] in Cash - Forwarded $ (96,962) $ (424,893)

Cash - Beginning of Periods 109,255 534,148
----------- -----------

Cash - End of Periods $ 12,293 $ 109,255
=========== ===========

Supplemental Disclosures of Cash Flow Information:
Cash paid during the periods for:
Interest $ 0 $ 613,219
Income Taxes $ 0 $ 0

Supplemental Disclosures of Non-Cash Investing and Financing Activities:
Conversion of Related Party Debt to Preferred Stock $ 1,500,000 $ 1,450,000

Cancellation of Warrants $ 0 $ 499,040
</TABLE>

The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.

F-8
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

[1] Organization and Nature of Business

Corporate Structure - Red Hot Concepts, Inc. ["Red Hot"] was incorporated in
Delaware on June 14, 1994. Its principal offices are located in Bethesda,
Maryland. Until December 15, 1997, Red Hot owned 100% of the stock of Restaurant
House Limited ["Restaurant House"], a United Kingdom corporation headquartered
in Milton Keynes, England. On December 15, 1997, Red Hot exchanged its shares in
Restaurant House for shares in Celebrated Group Plc ["Celebrated"], a publicly
traded company in the United Kingdom ["UK"] [See Note 19].

Red Hot Concepts - Pacific, Inc., ["Red Hot Pacific"] a Delaware corporation,
was formed in September 1995 and is owned 95% by Red Hot. In November 1995, Red
Hot Pacific acquired all of the stock of Chili's Texas Grill Pty Ltd. ["CTG"],
an Australian company. On December 19, 1997, Red Hot Pacific sold the assets of
CTG and the Chili's Concept Australia and New Zealand development rights to
Brinker International, Inc. ["Brinker"] [See Note 18].

Description and Nature of Business - The Company had the exclusive right to own
and operate Chili's Grill and Bar restaurants ["Chili's Restaurants"] pursuant
to development and license agreements, in the UK, Australia and New Zealand. On
December 15 and December 19, 1997, Red Hot sold the exclusive rights for the UK
and Australia/New Zealand restaurants, respectively. As a result, the Company is
a holding company, the sole operation of which consists of its ownership of
Celebrated recorded using the equity method. Celebrated was initially formed to
develop and operate mid-priced hotels. Celebrated has expanded its business
operations to include several restaurants chains operating throughout Great
Britain. Celebrated is a public company, 45.6% of which is owned by the Company
and 54.5% by other public shareholders. Celebrated's shares trade on the
Alternative Investment Market of the London Stock Exchange. Celebrated owns the
exclusive rights for Chili's Restaurants in the UK, along with other concepts.

[2] Summary of Significant Accounting Policies

Principles of Consolidation - The consolidated financial statements include the
accounts of Red Hot and its wholly-owned and majority-owned subsidiaries until
the date of divestiture. All significant intercompany accounts and transactions
have been eliminated. The Company has used the equity method to account for the
holdings in Celebrated. The Company has an option to acquire more than 50% of
the outstanding shares of Celebrated. If exercised, the Company will report on a
consolidated basis.

Property and Equipment - Property and equipment are stated at cost. Depreciation
on equipment is computed primarily using the straight-line method over the
estimated useful lives of the assets, which range from 3 to 7 years. Leasehold
improvements were amortized over the lesser of the useful life of the
improvements or the lease term, which averaged 20 years. The Company began to
record depreciation of its assets in October 1995, when operations commenced.
Depreciation expense for the fifty-two week periods ended December 27, 1998 and
December 28, 1997 was $1,524 and $529,850, respectively.

Deferred Lease Guaranty - The Company had entered into an agreement to have
guaranteed, under certain circumstances, a minimum of 5 and up to 12 of its
operating leases for properties. These guarantees were to be amortized over 5
years under the straight-line method [See Note 16C]. This agreement was
terminated upon the sale of CTG and the Chili's Concept Australia/New Zealand
development rights.

F-9
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2
- --------------------------------------------------------------------------------

[2] Summary of Significant Accounting Policies [Continued]

Revenue Recognition - The Company recognizes revenue at the point of sale to the
customer.

Advertising and Promotion Expense - In accordance with development and license
agreements [See Notes 15A and 15B], the Company is required to spend a minimum
of 1/2 of 1% of the prior year's average annual gross receipts on advertising
and promotion. Advertising and promotion costs are expensed as incurred.
Advertising and promotion costs for the fifty-two week periods ended December
27, 1998 and December 28, 1997 were $0 and $472,786, respectively.

Earnings [Loss] Per Share - The Financial Accounting Standards Board has issued
Statement of Financial Accounting Standards ["SFAS"] No. 128, "Earnings per
Share"; which is effective for financial statements issued for periods ending
after December 15, 1997. Accordingly, earnings per share data in the financial
statements for the year ended December 27, 1998 and December 28, 1997, have been
calculated in accordance with SFAS No. 128.

SFAS No. 128 supersedes Accounting Principles Board Opinion No. 15, "Earnings
per Share," and replaces its primary earnings per share with a new basic
earnings per share representing the amount of earnings for the period available
to each share of common stock outstanding during the reporting period. SFAS No.
128 also requires a dual presentation of basic and diluted earnings per share on
the face of the statement of operations for all companies with complex capital
structures. Diluted earnings per share reflects the amount of earnings for the
period available to each share of common stock outstanding during the reporting
period, while giving effect to all dilutive potential common shares that were
outstanding during the period, such as common shares that could result from the
potential exercise or conversion of securities into common stock.

The computation of diluted earnings per share does not assume conversion,
exercise, or contingent issuance of securities that would have an antidilutive
effect on earnings per share [i.e., increasing earnings per share or reducing
loss per share]. The dilutive effect of outstanding options and warrants and
their equivalents are reflected in dilutive earnings per share by the
application of the treasury stock method which recognizes the use of proceeds
that could be obtained upon exercise of options and warrants in computing
diluted earnings per share. It assumes that any proceeds would be used to
purchase common stock at the average market price during the period. Options and
warrants will have a dilutive effect only when the average market price of the
common stock during the period exceeds the exercise price of the options or
warrants.

Potential common shares of 2,699,847 are not currently dilutive, but may be in
the future.

Foreign Currency Translation - For the period prior to December 28, 1997,
balance sheet amounts denominated in British pound sterling and Australian
dollars have been translated into U.S. dollars using the year end rate of
exchange. Operational results denominated in British pound sterling and
Australian dollars have been translated into U.S. dollars using the average
yearly rate of exchange. For the period ended December 27,1998 the investment in
Celebrated Group has been translated into U.S. dollars using the current rates
at year end.

F-10
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3
- --------------------------------------------------------------------------------

[2] Summary of Significant Accounting Policies [Continued]

Impairment - Certain long-term assets of the Company are reviewed at least
annually as to whether their carrying value has become impaired, pursuant to
guidance established in Statement of Financial Standards ["SFAS"] No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." Management considers assets to be impaired if the carrying
value exceeds the future projected cash flows from related operations
[undiscounted and without interest charges]. If impairment is deemed to exist,
the assets will be written down to fair value or projected discounted cash flows
from related operations. As of December 27, 1998, management expects these
assets to be fully recoverable.

Stock Options Issued to Employees - The Company adopted SFAS No. 123 "Accounting
for Stock-Based Compensation" on January 1, 1996 for financial note disclosure
purposes and will continue to apply the intrinsic value method of Accounting
Principles Board ["APB"] Opinion No. 25 "Accounting for Stock Issued to
Employees" for financial reporting purposes.

Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Reclassification - Certain items in the prior year's financial statements have
been reclassified to conform to the December 27, 1998 presentation.

[3] Going Concern

The accompanying financial statements have been prepared on a going concern
basis which contemplates the realization of assets and the satisfaction of
liabilities and commitments in the normal course of business.

Since the Company's operations commenced in October 1995, revenues have not been
sufficient to cover the Company's fixed administrative costs resulting in
operating losses of $510,926 and $2,195,859 for the fifty-two week periods ended
December 27, 1998 and 1997, respectively. The Company had a working capital
deficit of $146,373 and an accumulated deficit at December 27, 1998 of
$8,213,359. The Company has been funded through December 27, 1998 through loans
from related parties and affiliated entities, equity transactions and the sale
of operations in Australia and UK.

In December 1997, the Company sold the assets of CTG and the Chili's Concept
Australia/New Zealand development rights [See Note 18].

The Company reached agreement in December 1997 with Celebrated to exchange stock
in its UK subsidiary for shares of Celebrated. Under the arrangement, Celebrated
owns the exclusive development rights to Chili's Grill & Bar in the UK and has
the capital obligation to build restaurants consistent with the development
schedule. The Company is the single largest shareholder of Celebrated. The
Company does not anticipate receiving a dividend distribution in 1998 from
Celebrated.

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 or if the
Company is unable to raise more funds through equity or debt financing, the
Company will reduce its holdings in Celebrated.

F-11
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4
- --------------------------------------------------------------------------------

[3] Going Concern (Continued)

The Company has also taken steps to further reduce its administrative expense
for its monthly corporate operating activities. To meet these corporate
expenses, the Company intends to seek bank financing and continue with related
party advances or seek additional equity financing.

There can be no assurances that management's plans to reduce operating expenses
and obtain additional financing to fund operations will be successful. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event the Company
cannot continue in existence.

[4] Significant Risks and Uncertainties

[A] Concentrations of Credit Risk - Cash - At December 27, 1998, the Company had
approximately $30,000 on deposit in Australia. Australia does not have federal
insurance on balances maintained in banks. There is no collateral in relation to
deposits. At December 27, 1998, one letter of credit in the amount of $30,000
had been issued on the Company's behalf and is secured by a cash account, which
is reflected as restricted on the balance sheet.

[B] Operations in Foreign Countries - The Company is subject to numerous factors
relating to conducting business in a foreign country [including, without
limitation, economic, political and currency risks] any of which could have a
significant impact on the Company's operations.

[C] Economic Dependency - Due to the nature of the licenses granted pursuant to
the development agreements with Brinker [See Note 16], the success of the
Company was in part dependent upon the overall success of Brinker and Chili's
Restaurants, including Brinker's financial condition, management and marketing
success. As of December 27, 1998, the Company has no outstanding obligations
with Brinker, however, the Brinker obligation was transferred to Celebrated
which could have a material adverse effect on the Celebrated's financial
condition.

[5] Leases
Red Hot subleases its U.S. office from a related party for approximately $800 a
month. The lease is month to month. Restaurant House subleased office facilities
for approximately $400 a month from a wholly owned subsidiary of a related
company. This obligation was transferred to Celebrated as of December 15, 1997.

The Company had 5 operating leases for restaurant sites ranging from 2 to 25
years. Two of these leases, one with a 5 year term and one with a 11 year term,
had renewal options, exercisable at the

Company's option, for successive five year terms through 2012. All operating
leases have been transferred to either Celebrated or Brinker in December 1997.

Rent expense for the fifty-two week periods ended December 27, 1998 and December
28, 1997 was $9,096 and $932,489, respectively.

[6] Fair Value of Financial Instruments
Generally accepted accounting principles require disclosing the fair value of
financial instruments to the extent practicable for financial instruments which
are recognized or unrecognized in the balance sheet. The fair value of the
financial instruments disclosed herein is not necessarily representative of the
amount that could be realized or settled, nor does the fair value amount
consider the tax consequences of realization or settlement.

F-12

<PAGE>

RED HOT CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5
- --------------------------------------------------------------------------------

[6] Fair Value of Financial Instruments [Continued]

In assessing the fair value of financial instruments, the Company uses a variety
of methods and assumptions, which are based on estimates of market conditions
and risks existing at the time. For certain instruments, including cash and cash
equivalents, accounts receivable and accounts payable, it was assumed that the
carrying amount approximated fair value because of the short maturities of these
instruments. The fair value of long-term debt due to a related party of $55,500
is based on current rates at which the Company could borrow funds with similar
remaining maturities.

[7] Related Party Transactions

Woodland Limited Partnership ["Woodland"] is a partnership controlled by members
of Mr. Colin Halpern's family. Mr. Halpern is the President and Chairman of the
Board of the Company. As of December 27, 1998, there is no balance due to
Woodland. As of December 28, 1997 the balance due to Woodland for funds advanced
to the Company was $1,011,317, which includes accrued interest payable of
$230,065. This obligation was originally due in May 1998 and was extended by
Woodland to January 1999. This loan was exchanged for convertible preferred
stock discussed below on December 27, 1998. During 1997 funds received from the
sale of the Australian subsidiary of $2,060,000 were received by the Company and
were transferred to Woodland. Woodland returned $1,347,100 to the Company to be
utilized for the payment of the outstanding note to Brinker. The balance of
$712,900 was treated by the Company as a reduction to the amount owed to
Woodland. In addition, approximately $1,000,000 was advanced to the Company by
Woodland for working capital purposes.

In June 1996, as partial consideration for the conversion of short-term advances
to a note payable loan, the Company issued a common stock purchase warrant
entitling Woodland to purchase 166,667 shares of the Company's common stock at
$7.50 per share for a period of 24 months commencing on the date of the loan.
The warrants will be redeemable at $.01 per share if the closing bid price of
the Company's common stock exceeds $30 for 10 consecutive trading days ending
within five days of the notice of redemption. In December 1996, Woodland agreed
to extend the note due until June 1998 and, the Company issued a common stock
purchase warrant entitling Woodland to purchase an additional 166,667 shares of
the Company's stock at $5.25 per share for a term expiring December 31, 1999. As
of December 29, 1996, the note was recorded net of the fair value of these stock
warrants at $694,556 [See Note 6]. Interest expense amortized on purchase
warrants for the 52 week period ended December 28, 1997 is $130,000. The
warrants were cancelled when conversion of the notes to equity.

In March 1997, the Company agreed with Woodland Limited Partnership to convert
$750,000 of long-term debt to 100,000 shares of $1.00 par value Series A
convertible preferred shares. On September 25, 1997, Woodland agreed to exchange
its $1.00 par value Series A convertible preferred shares to 375,000 $2.00 par
value Series B non-convertible preferred shares.

On September 25, 1997, Woodland agreed to convert an additional $700,000 of
notes payable into 350,000 $2.00 par value Series B non-convertible preferred
shares. The agreed dividend is 8% and is cumulative. The preferred shares hold
the same voting rights as the common shares. Warrants issued in connection with
notes payable were valued at $145,522 and was accounted for as a discount to the
notes payable to Woodland. At December 28, 1997, the Company amortized $116,000
as interest expense. At December 27, 1998, no additional amortization was
charged to operations, as the warrants were cancelled upon conversion to
preferred shares.

On December 27, 1998 Woodland agreed to convert $1,500,000 of loans and accrued
interest into 100,000 shares of Series A Convertible 8% Preferred Stock. The
Company's Board of Directors approved this agreement.

At December 27, 1998 dividends in arrears on the Series B non-convertible
preferred stock amounted to $174,000 or $.24 per share.

F-13
<PAGE>

RED HOT CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6
- --------------------------------------------------------------------------------
[7] Related Party Transactions [Continued]

At December 27, 1998, Woodland owns approximately 36% of the Company's
outstanding common stock. Woodland also owns 100 % of the Class A Convertible
Preferred Stock, as well as, 100% of Class B Non-Convertible Preferred Stock.
Upon amendment and restatement of the Series A Convertible Preferred Stock and
exchange of the Class B Preferred Stock into Class A Preferred Stock Woodland
would own 1,475,000 shares of Series A Convertible Preferred Stock. Upon
Conversion of the Series A Convertible Preferred Shares Woodland would own
approximately 57% of the Company's outstanding common stock.

Mr. Halpern also is the Chairman of the Board of International Franchise
Systems, Inc. ["IFS"]. IFS charged a management fee to the Company for
administration services of $45,000 for the year end of December 28, 1997. There
were no amounts charged for services in the year end of December 27, 1998. IFS
and one of its wholly-owned subsidiaries subleased a facility to the Company in
the United Kingdom. For the year ended December 28, 1997, the Company paid
$133,449 for this facility. No amounts were charged to the company for the year
ended December 27, 1998.

The Company has advanced funds to and paid various expenses on behalf of Mr.
Halpern. At December 27, 1998 and December 28, 1997 the total amount due to the
Company is $31,149.

Mr. Halpern's son is an attorney with a law firm that provides legal services to
the Company. Legal expense incurred with this firm for the fifty-two weeks ended
December 27, 1998 was $32,000. At December 27, 1998 there was a $94,500 balance
due and owing by the Company to this firm.

In September 1996, the Company hired a new President. At that time, he received
advances from the Company of $3,014 and a loan of $100,000 from the Company for
a term of two years at 6% interest.

At December 29, 1996, accrued interest receivable and interest income on this
loan was $1,000. In 1997, approximately $25,000 of the loan was repaid and the
balance of approximately $78,000 was applied to his consulting agreement.

The Chief Financial Officer of the Company is also the Chief Financial Officer
of IFS. The Company paid the Chief Financial Officer for his employment $205,000
during 1997, however, $130,000 was allocated to IFS. On February 11, 1998 the
Chief Financial Officer of the company became the Chief Financial Officer and
Chief Executive Officer of the Celebrated Group, Plc. No amount was allocated to
IFS or Celebrated of his salary of $37,333 for 1998.

[8] Provision for Income Taxes

Pursuant to United States tax laws, if the Company's subsidiaries organized
under the laws of the UK or Australia are not engaged in business in the United
States, profits of such subsidiaries will not be subject to United States
taxation, until distributed as dividends. However, the Company would receive a
credit against federal income tax liability that would otherwise result from any
distributions from its subsidiaries for any UK or Australian corporate taxes
paid by its UK or Australian subsidiaries on these distributions, as well as for
any UK or Australian dividend and royalty withholding taxes imposed directly on
the Company.

The Company had approximately $5,921,000 of net operating losses, which can be
used to offset future UK taxable income, arising in the same trade. Under UK tax
provisions, there is no time limit for the utilization of net operating losses.
These net operating losses were transferred to Celebrated.

Australia tax provisions are recorded under the liability method of Australian
tax effect accounting, whereby income tax expense is based on the operating
profit before income tax adjusted for any permanent differences between
financial reporting and taxable income. At December 28, 1997, the Australian
subsidiary had recorded a deferred tax asset based on timing differences between
financial reporting and taxable income of approximately $534,000, which was
offset by a valuation allowance of approximately $534,000.

F-14
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #7
- --------------------------------------------------------------------------------

[8] Provision for Income Taxes [Continued]

Red Hot files a consolidated United States federal income tax return with one of
its related companies, Red Hot Pacific. There is no income tax provision as Red
Hot and its subsidiary, Red Hot Pacific, incurred a net loss for 1998.
Therefore, no loss carryforward was used during 1998. In 1997, Red Hot incurred
capital gains tax of approximately $1,364,000 on the sale and merger of its
subsidiaries. This amount was offset against its utilization of operating loss
carryforwards. At December 27, 1998, Red Hot had a deferred tax asset
attributable to its United States net operating loss carryforwards of
approximately $1,279,000, which was offset by a valuation allowance of
approximately $1,279,000. The change in the valuation allowance during the
fiscal year ended December 27, 1998 was approximately $105,000.

The following summarizes the operating tax loss carryforwards by year of
expiration.
Expiration Date of
Amount in Consolidation Tax Loss Carryforward
----------------------- ---------------------
$ 49,379 December 31, 2009
$ 437,510 December 31, 2010
$ 1,408,452 December 31, 2011
$ 1,384,173 December 31, 2012
$ 510,926 December 31, 2013

[9] Stock Transactions

[A] Related Party Contribution - In May 1995, in connection with the filing of a
post-effective amendment to its Registration Statement changing the offering
price for the shares in its initial public offering from $15 to $18, Woodland,
the holder of all the shares of common stock of the Company, at the time,
contributed back to the Company 316,667 shares of common stock.

[B] Initial Public Offering of Units - In August 1995, the Company completed its
initial public offering [the "IPO"]. In connection with the IPO, the Company
sold 1,012,347 Units, each Unit consisting of one share of common stock and two
common stock purchase warrants, at $6 per Unit. Each Unit holder is entitled to
exercise the two stock purchase warrants to purchase shares of common stock for
an eighteen month and a five year period commencing November 1995 at $18.00 and
$36.00 per share, respectively. As of December 29, 1996, 1,012,347 warrants
exercisable at $18.00 and $36.00 per share through December 1997 and November
2000, respectively were outstanding. Additionally, the underwriter of the IPO
received options to purchase 66,667 shares of common stock at $24.75 per share
exercisable for a four year period commencing February 1996. The net proceeds
received by the Company from the IPO were $4,697,325 after deducting
underwriting discounts and expense reimbursements to the underwriter totaling
$758,158 and offering costs of $618,599. Additional offering costs of $55,000
relating to this IPO were paid in 1996.

[C] Regulation S Offering - 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 1,000,000 shares of common stock
at $1.20 per share, 500,000 shares of common stock at $3.00 per share, 333,333
shares of common stock at $1.50 per share and 200,000 shares of common stock at
$1.50 per share, respectively. In 1996, the Company issued 1,500,000 shares of
common stock for net proceeds of $2,596,748.

F-15
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #8
- --------------------------------------------------------------------------------

[9] Stock Transactions (Continued)

In December of 1996, the Company received $800,000 for stock to be issued in
1997 for 1996 stock subscriptions. On January 23, 1997, the Company issued
333,333 shares of the 533,333 unissued shares of stock sold under a Reg. S share
offering. As of December 27, 1998, the Company has not issued the remaining
200,000 shares of stock to two entities because the Company is currently in
dispute with the subscribers regarding the price to be paid. For financial
reporting purposes, the Company has calculated the earnings per share with the
assumption that the 200,000 disputed shares had been issued.

[D] Conversion of Related Party Debt to Preferred Stock - In March 1997, the
Company agreed with Woodland Limited Partnership to convert $750,000 of
long-term debt to 100,000 shares of $1.00 par value Series A convertible
preferred shares. On September 25, 1997, Woodland agreed to exchange its $1.00
par value convertible preferred shares to 375,000 $2.00 par value Series B
non-convertible preferred shares.

On September 25, 1997, Woodland agreed to convert an additional $700,000 of
notes payable into 350,000 $2.00 par value Series B non-convertible preferred
shares. The agreed dividend is 8% and is cumulative. The preferred shares hold
the same voting rights as the common shares. Warrants issued in connection with
notes payable were valued at $145,522 and was accounted for as a discount to the
notes payable to Woodland. At December 28, 1997, the Company amortized $116,000
as interest expense. For the year ended December 27, 1998, no amounts have been
amortized, as the warrants were canceled after conversion to preferred stock.

At December 27, 1998 dividends in arrears on the Series B non-convertible
preferred stock amounted to $174,000 or $.24 per share.

[E] Reverse Stock Split - On November 26, 1997, the Company's Board of Directors
approved a 3 for 1 reverse stock split. The par value of the shares remained at
$.01 per share. The financial statements have been retroactively adjusted for
this split.

[10] 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 $2,488 in
consolidation.

F-16
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #9
- --------------------------------------------------------------------------------

[11] Stock Options and Warrants

[A] Stock Options - The 1996 Non-Employee Directors Stock Options Plan was
amended January 1, 1997. The 1995 Stock Plan was terminated effective December
31, 1996 and replaced by the 1996 Stock Incentive Plan which was adopted
effective August 1, 1996.

Pursuant to the Stock Plan, officers and key employees of the Company, are
eligible to receive awards of stock options [with or without limited stock
appreciation rights]. Options granted under the Stock Plan may be "incentive
stock options" ["ISO"], or non-qualified stock options ["NQSO"]. Limited Stock
Appreciation Rights ["LSARs"] may be granted simultaneously with the grant of an
option or [in the case of NQSOs] at any time during its term.

The Company has reserved 266,666 shares [in reflection of the three-for-one
reverse stock split] of its common stock for issuance of awards under the 1996
Stock Plan and 100,000 shares of common stock under the Director Plan [subject
to anti-dilution and similar adjustments]. Under the Director Plan, any
non-employee member of the Board of Directors is automatically granted a NQSO
for 1,666 shares [in reflection of the three-for-one reverse stock split] on the
first business day of January, April, July and October of each year. These
options vest after one year. Under the Consultants Plan, either stock or NQSO's
can be granted to eligible consultants and advisors.

The 1996 Stock Plan, Director Plan [as amended] and the Consultants Plan are
administered by a committee [the "Committee"], established by the Company's
Board of Directors. Subject to the provisions of the 1996 Stock Plan and the
Consultants Plan, the Committee determines the type of award, when and to whom
awards will be granted, and the number of shares covered by each award, the
terms, provisions and kind of consideration payable [if any], with respect to
awards under these two Plans. In addition, the Committee has sole discretionary
authority to interpret all three Plans and to adopt rules and regulations
related thereto.

An option may be granted under the 1996 Stock Plan and the Consultants Plan on
such terms and conditions as the Committee may approve, and generally may be
exercised for a period of up to 10 years from the date of grant. Generally,
options will be granted under the Stock Plan with an exercise price equal to the
"Fair Market Value" [as defined in the Plan] on the date of grant. The exercise
price for options granted under the Consultants Plan may not be less than 60%
"Fair Market Value" [as defined in the Plan] on the date of grant. In the case
of ISOs granted under the Stock Plan, certain limitations will apply with
respect to the aggregate value of option shares which can become exercisable for
the first time during any one calendar year, and certain additional limitations
will apply to "Ten Percent Stockholders" [as defined in the Stock Plan]. The
Committee may provide for the payment resulting from the exercise of the option
in cash, by delivery of other common stock having fair market value equal to
such option price or by a combination thereof.

An option granted under the 1996 Stock Plan or the Consultants Plan shall be
exercisable at such time or times as the Committee, in its discretion, shall
determine, except that no stock option shall be exercisable after the expiration
of ten years [five years in the case of an incentive stock option granted to a
"Ten Percent Employee", as defined in the Stock Plan] from the date of the
grant. The Stock Plan contains special rules governing the time of exercise in
the case of death, disability or other termination of employment and also
provides for acceleration of the exercisability of options upon certain events
involving a change in control of the Company. Options granted under the Director
Plan are exercisable one year after the grant is made for a period of nine
years. The Director Plan also contains special exercise rules in the event of
death or other termination.

F-17
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #10
- --------------------------------------------------------------------------------

[11] Stock Options and Warrants [Continued]

The Company's Board of Directors may at any time and from time to time suspend,
amend, modify or terminate the Plans. However, to the extent required by the
Securities Exchange Act of 1934 or other applicable law, no such amendment shall
be effective unless approved by the holders of a majority of the issued and
outstanding securities of the Company entitled to vote. In addition, no such
change may adversely affect any option previously granted, except with the
written consent of the optionee to be made to extent inconsistent with the
Securities laws or other applicable law.

Information pertaining to stock options as of December 27, 1998 and December 28,
1997 for the Company and for the years then ended is as follows:

<TABLE>
<CAPTION>
Weighted
Average
Weighted Exercisable Remaining
Common Average Stock Contractual
Shares Exercise Price Options Life
------ -------------- ------- ----
<S> <C> <C> <C> <C>
Options Outstanding - December 29, 1996* 197,699 5.82 -- --

Options Granted - Directors Plan 20,000 4.98 -- 8.5 years
Options Granted - Stock Plan 19,333 3.38 -- 8.6 years
Options Granted - Non-Qualified 7,000 5.62 -- 8.6 years
Options Exercised -- -- -- --
Options Canceled (186,361) -- -- --
-----------

Options Outstanding -December 28, 1997 57,671 3.53
=========== =========

Options Granted - Directors Plan 11,662 2.07 -- 9.5 years
Options Granted - Stock Plan 0 0 -- --
Options Granted - Non-Qualified 0 0 -- --
Options Exercised 0 0 -- --
Options Canceled (4,333) 0 -- --
-----------

Options Outstanding -December 27, 1998 65,000 4.53
=========== =========
</TABLE>

* As adjusted to reflect three-for-one reverse stock split.

F-18
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #11
- --------------------------------------------------------------------------------

[11] Stock Options and Warrants [Continued]

No compensation cost was recognized in income under any of the stock option
plans.

Had compensation cost been determined on the basis of fair value pursuant to
SFAS No. 123, net income and earnings per share would have been as follows:

<TABLE>
<CAPTION>
Years ended
December 31,
1 9 9 8 1 9 9 7
------- -------
<S> <C> <C>
Net Income [Loss]:
As Reported $ (2,642,097) $ 2,121,893
=============== ===============

Pro Forma $ (2,700,751) $ 2,077,340
=============== ===============

Net Income [Loss] Per Share:
As Reported $ (.81) $ .58
================ ================

Pro Forma $ (.81) $ .58
================ ================
</TABLE>

At the grant dates, the weighted average fair value of the above options under
the Director Plan, Stock Plan and Non-Qualified Stock Plan for the fifty-two
week period ended December 27, 1998 were $.35, $.91 and $.93, respectively.

The fair value used in the pro forma data was estimated by using an option
pricing model which took into account as of the grant date, the exercise price
and the expected life of the option, the current price of the underlying stock
and its expected volatility, expected dividends on the stock and the risk-free
interest rate for the expected term of the option. The following is the weighted
average of the data used for the following items.

Risk-Free Expected Expected Expected
Interest Rate Life Volatility Dividends

5.86% 5 Years 81.99% --

[B] Common Stock Purchase Warrants - As of December 27, 1998, there were
1,012,347 Class B warrants outstanding, which were issued in August 1995 as part
of a public offering. Holders of 1,012,347 Class A warrants, also issued as part
of the public offering, were entitled to purchase one share of common stock at
$18.00 per share until December 31, 1997. The Class A warrants expired without
exercise. Holders of each Class B warrant are entitled to purchase one share of
common stock at $36.00 per share until November 30, 2000 [See Note 9]. No
warrants were exercised during the fifty-two week period ended December 27, 1998
or December 28, 1997.

F-19
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #12
- --------------------------------------------------------------------------------

[12] Operations by Geographic Area

The summary of financial information for the Company's operations by geographic
area is as follows:

For the fifty-two weeks ended December 27, 1998:

<TABLE>
<CAPTION>
United United
States Kingdom Australia Eliminations Consolidated
------ ------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 0 $ 0 $ 0 $ 0 $ 0
Gross Margin [Loss] $ 0 $ 0 $ 0 $ 0 $ 0
Net Income [Loss] $ (523,403) $ (2,118,694) $ 0 $ 0 $ (2,642,097)
Assets $ 3,361,635 $ 0 $ 0 $ 0 $ 3,361,635
Liabilities $ 270,566 $ 0 $ 0 $ 0 $ 270,566
Company's Investment in
Foreign Subsidiaries $ 3,257,096 $ 0 $ 0 $ 0 $ 3,257,096

For the fifty-two weeks ended December 28, 1997:

United United
States Kingdom Australia Eliminations Consolidated
------ ------- --------- ------------ ------------

Revenues $ 0 $ 5,102,299 $ 6,008,975 $ 0 $ 11,111,274
Gross Margin [Loss] $ (1,175,659) $ 2,152,653 $ 1,318,687 $ 0 $ (2,244,954)
Net Income [Loss] $ (2,095,750) $ (403,754) $ (700,380) $ 0 $ 2,110,849
Assets $ 6,664,605 $ 0 $ 314,638 $ 0 $ 5,781,614
Liabilities $ 885,002 $ 0 $ 1,457,320 $ 0 $ 1,548,447
Company's Investment in
Foreign Subsidiaries $ 5,375,790 $ 0 $ 0 $ 0 $ 5,375,790
</TABLE>

[13] Commitments

[A] Guaranty Agreement - In September 1996, the Company entered into an
agreement with Brinker pursuant to which Brinker agreed to guaranty, under
certain circumstances, a minimum of five and up to 12 leases for properties in
the Territory developed as Chili's Restaurants.

Brinker was issued 53 shares of stock of the Company's subsidiary [representing
5% of the outstanding shares] in connection with the Guaranty Agreement. The
Guaranty Agreement was valued at $497,181, which was the net present value of
the obligation under the Guaranty Agreement. The unamortized balance at December
19, 1997 was $447,463 [See Note 5].

The Guaranty Agreement was terminated with the Company upon the sale of the
Australia/New Zealand development rights to Brinker on December 19, 1997.

[B] Employment Agreements - In 1996, the Company had entered into an employment
agreement with one officer. The agreement was for a 2 year term with aggregate
compensation of $144,000, including incentive stock options. This agreement
expired at December 31, 1997.

[C] Letter of Credit - At December 28, 1997, a letter a credit in the amount of
$110,000 had been issued on the Company's behalf, and is secured by a cash
account, which is restricted on the balance sheet. At December 27, 1998 this
amount has been reduced to $30,000.

F-20
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #13
- --------------------------------------------------------------------------------

[13] Commitments [Continued]

[D] Rental Guaranty - The National Australia Bank had a bank guarantee covering
the lease on one restaurant in the amount of approximately $105,000. This was in
turn covered by a stand-by letter of credit from Brinker. If the bank calls in
payment for this guaranty, the bank would call upon the Australian subsidiary
first, and then the Brinker letter of credit. Red Hot was released of this
obligation in December 1997.

[E] Consulting Agreement - On May 1, 1997, the Company entered into a consulting
agreement with the former president of the Company for a period of six months
for $30,000. This agreement expired upon the sale of the assets in Australia
[See Note 18]. The Company had the right to offset any compensation owed to this
individual against a note with a balance of $81,212 owed to the Company.

[14] New Authoritative Accounting Pronouncements

The Financial Accounting Standards Board ["FASB"] has issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 was effective for fiscal years
beginning after December 15, 1997. Reclassification of financial statements for
earlier periods provided for comparative purposes was required. The company has
adopted SFAS No. 130 in the preparation of December 27, 1998 financial
statement.

The FASB has issued SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information." SFAS No. 131 changes how operating segments are
reported in annual financial statements and requires the reporting of selected
information about operating segments in interim financial reports issued to
shareholders. SFAS No. 131 is effective for periods beginning after December 15,
1997, and comparative information for earlier years is to be restated. SFAS No.
131 need not be applied to interim financial statements in the initial year of
its application. SFAS No. 131 is not expected to have a material impact on the
Company. The company has adopted SFAS No. 131 in the preparation of December 27,
1998 financial statement.

[15] Sale of Rights in Chili's Restaurants

From November 1995 until December 18, 1997, the Company had the exclusive right
to own and operate Chili's Restaurants in Australia and New Zealand pursuant to
a Development and Franchise Agreement with Brinker. On December 18, 1997, the
Company sold the assets of CTG and the Chili's Concept in Australia and New
Zealand to Brinker International, Inc. ["Brinker"] for $2,680,000. The Company's
counsel advised the Company that this transaction did not require Red Hot
Concepts' shareholder approval. The Company used $1,347,100 of proceeds to repay
the Brinker loan and used approximately $700,000 to pay a related party debt.

The obligation under this agreement was transferred to Brinker on December 19,
1997, therefore, the Company no longer has the exclusive rights to operate
Chili's restaurants in the UK or Australia.

The Company's net value of these assets on December 18, 1997 was $1,189,984.
Therefore, a gain of $1,490,016 was recognized on this transaction.

The parent company has agreed not to withdraw support by way of loans to the
detriment of the Australian's economic entity's solvency or other creditors.

F-21

<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #14
- --------------------------------------------------------------------------------

[16] Merger with Celebrated

The Company had the exclusive right to own and operate Chili's Restaurants in
the UK pursuant to an amended development and license agreement with Brinker.
During 1997, the Company operated two Chili's restaurants in the UK. On December
15, 1997, the Company completed the merger of its wholly-owned United Kingdom
subsidiary, Restaurant House Limited with and into the Celebrated Group Plc.
pursuant to an agreement dated November 18, 1997. Company counsel advised the
Company that the transaction did not require Red Hot Concepts shareholder
approval. Pursuant to the merger agreement, the Company sold all of the issued
and outstanding stock of Restaurant House to Celebrated in exchange for
28,000,000 shares of Celebrated. Upon consummation of the merger, the Company
owns approximately 45.6% of Celebrated and is accounted for on the equity method
as the Company does not have financial or operational control of Celebrated.
This investment was valued at $5,375,790 at December 28, 1997. At December 27,
1998 the investment was valued at $3,257,096. As part of the merger, the Company
received options to purchase an additional 6,000,000 shares of Celebrated upon
exercise of which the Company would own approximately 50.51% of the outstanding
shares of Celebrated. At December 28, 1997, the Company did not have the
financial resources to exercise the options for the 6,000,000 shares of
Celebrated for a total cost of approximately $1,200,000 nor did the Company have
viable plans to obtain the financial resources necessary to exercise these
options. In 1998, the Celebrated Group share price did not exceed the option
price and the company did not exercise its option.

The Company's exclusive development rights for Chili's restaurants in the UK
transferred to Celebrated in the merger. As of December 28, 1997, the Company
has no obligation under the Agreement. Celebrated Group still has exclusive
development rights for Chili's restaurant in the UK at December 27, 1998.

The Company's basis in Restaurant House Limited at December 15, 1997 was
$1,996,270, therefore, a gain of $3,379,250 was realized on this transaction.

[17] Subsequent Events

[A] Amendment and Restatement of Series A Convertible Preferred Stock Terms -

[B] Additional Related Party Advances - In the first quarter of 1999, the
Company received additional cash advances from a related party of $93,400.

. . . . . . . . . . .

F-22

<ARTICLE> 5
<CIK> 0000932623
<NAME> Red Hot Concepts, Inc.

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-START> DEC-29-1997
<PERIOD-END> DEC-27-1998
<CASH> 12,293
<SECURITIES> 0
<RECEIVABLES> 56,400
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 68,693
<PP&E> 4,697
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,361,635
<CURRENT-LIABILITIES> 215,066
<BONDS> 0
<COMMON> 34,207
0
2,950,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,361,635
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 452,926
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 75,886
<INCOME-PRETAX> (2,642,097)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,642,097)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,758,097)
<EPS-PRIMARY> (0.81)
<EPS-DILUTED> (0.81)

</TABLE>