RED HOT CONCEPTS INC, 10KSB, 2000-08-25

RED HOT CONCEPTS INC
10KSB, 2000-08-25
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 26, 1999

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, 2000, the aggregate market value of the Registrant's
Common Stock held by non-affiliates of the Registrant was $746,296.

As of April 1, 2000, there were 3,420,725 shares outstanding of the
Registrant's Common Stock.

2
<PAGE>

TABLE OF CONTENTS

ITEM PAGE
PART I

<S> <C> <C>
1. Business......................................................................... 4
2. Properties....................................................................... 5
3. Legal Proceedings................................................................ 5
4. Submission of Matters to a Vote of
Security Holders................................................................. 5

PART II

5. Market for the Registrant's Common
Equity and Related Stockholder
Matters.......................................................................... 6
6. Management's Discussion and Analysis
of Financial Condition and Results
of Operations.................................................................... 7
7. Financial Statements............................................................. 12
8. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure....................................................................... 12

PART III

9. Directors and Executive Officers
of the Registrant................................................................ 13
10. Executive Compensation........................................................... 14
11. Security Ownership of Certain Beneficial
Owners and Management............................................................ 15
12. Certain Relationships and Related
Transactions..................................................................... 16
13. Exhibits and Reports on Form 8-K................................................. 18
Signatures....................................................................... 20
</TABLE>

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 became a holding company, the
sole operation of which consisted of the owning of approximately 46% of the
outstanding equity of Celebrated which is recorded under the equity method. On
August 27, 1999 Celebrated obtained an Administration Order to effect a
financial restructuring and/or disposal of its various businesses. Ernst and
Young were appointed as Administrators. On or about March 27, 2000 the
Administrators decided to liquidate all the remaining assets of Celebrated.
After completion of liquidation of Celebrated, the company will have no
operations.

As of December 26, 1999 Celebrated's businesses consisted of one Starvin Marvin
American diner and the Chili's Grill & Bar Restaurants. The remaining businesses
had been either closed or sold during the year. As previously discussed it was
decided by the Administrators to dispose of the operating businesses in March
2000.

4
<PAGE>

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

Celebrated did not pay a dividend in 1999.

Item 2. Properties

The Company 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 26, 1999.

5
<PAGE>

Item 4A. Executive Officers of the Registrant

The executive officers of the Company are as follows:

Name Age Position

Colin Halpern 63 President
H. Michael Bush 45 Chief Financial Officer and Secretary

Colin Halpern has served as President and Director of the Company since June
1994. He served as a member of the Board of Directors of the Celebrated Group
Plc until August 1999. He also serves as 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 served as Chief Financial Officer and Secretary of the Company
since November 1995. Mr. Bush also served as Chief Executive Officer of the
Celebrated Group Plc, from February 1998 to October 1999. 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.

6
<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:

2000*
-----
Common Units
High Low High Low

First Quarter $0.3438 $0.1875 Unit Not Traded

1999*
Common Units
High Low High Low

First Quarter $1.1875 $0.4062 Unit Not Traded
Second Quarter 0.625 0.5000 Unit Not Traded
Third Quarter 0.5625 0.5200 Unit Not Traded
Fourth Quarter 0.6875 0.1875 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

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

7
<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.

Number of Stockholders
As of April 1, 2000, there were 88 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
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.

8
<PAGE>

As a result of the above transactions, the Company was a holding company, the
sole operation of which consisted of owning of approximately 46% of the
outstanding equity of Celebrated which is recorded under the equity method. The
Company is the single largest shareholder of Celebrated. 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
shareholders. Celebrated's shares trade on the Alternative Investment Market of
the London Stock Exchange.

On August 27, 1999 Celebrated obtained an Administration Order to effect a
financial restructuring and/or disposal of its various businesses. Ernst and
Young were appointed as Administrators. On or about March 27, 2000 the
Administrators decided to liquidate all the remaining of assets of Celebrated.
Upon the liquidation of Celebrated the Company will have no business operations.
Management is actively seeking a new active business venture. The venture will
require funds which the company will seek from outside sources. No commitment
for these funds are currently available.

The Company's common stock is owned 36% by Woodland Limited Partnership and 64%
by the public. Woodland Limited Partnership owns 100% of both Class A and Class
B Convertible Preferred Stock. Upon conversion of the Class A and B Convertible
Preferred Stock, Woodland would own 56.94% of the common shares.

Results of Operations

The Company realized a net loss of approximately $3.5 million for the fifty-two
week period ended December 26, 1999. This was attributable to a $3.3 million
loss on the write off of its investment of Celebrated and continuing general
administrative expenses of the company of approximately $.2 million. The
Company's net loss for the fifty-two week period ended December 27, 1998 was
approximately $2.6 million. This was attributable to a $2.1 million loss from
the Celebrated Group and continuing general administrative expenses of the
company of $.5 million.

At the present time the company is actively seeking a new business venture.

9
<PAGE>

United Kingdom

No annual revenue and expense information for the United Kingdom operations of
Celebrated is available as Celebrated is no longer required to file quarterly or
annual reports.

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 actively
seek a new business venture. The Company has reduced its administrative expenses
currently, and has an administrative headcount of one.

The Company anticipates its cash requirements to be approximately $200,000. 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 to finance any new ventures whether it is bank financing or
another equity transaction.

10
<PAGE>

The Company

The Company's negative working capital as of December 26, 1999 was approximately
$155,000 as compared to negative working capital of $146,000 on December 27,
1998. Total current assets were $2,093 on December 26, 1999 and $68,693 on
December 27, 1998. Current liabilities decreased by approximately $58,000 in
1999 to $157,000 from $215,000 in 1998.

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

December 28, 1998 December 29, 1997
to to
December 26, 1999 December 27, 1998
In Thousands In Thousands
Net cash (used) in operating activities $ (238) $ (641)
Cash (used) in investing activities ( 0) ( 0)
Cash provided by financing activities 228 544

During the fiscal year ended December 26, 1999, the company used approximately
$238,000 for operating activities and for the year ended December 27, 1998, the
Company used approximately $641,000 for operating activities.

Cash provided by financing activities for the year was approximately $228,000 of
which all funds were advanced from related parties.

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.

11
<PAGE>

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 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, the Company will no longer be able to continue business.

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.

12
<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 63, 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. Mr. Halpern
also serves as President, Chief Executive Officer and Chairman of the Board of
Directors of NPS Technologies Group, Inc., all of which are/were public
companies. He has held these positions since July 1994, January 1998 and August
1983, respectively. Mr. Halpern also served as a member of the Board of
Directors of the Celebrated Group Plc from December 1997 to August 1999. Mr.
Halpern also served as President, Secretary, Treasurer and Director of Crescent
Capital from December 1993 to October 1998. 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 45, Mr. Bush resigned in October 1999. Prior to that date
he served as Chief Financial Officer and Secretary since joining the Company in
November 1995. Mr. Bush also served as Chief Financial Officer and Secretary of
International Franchise Systems, Inc., the UK licensee of Domino's Pizza. Since
May 1996, Mr. Bush had 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.

13
<PAGE>

Aaron L. Lebedow, age 64, 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 26, 1999 to those executive
officers whose salary and bonus exceeded $100,000 and the Chief Executive
Officer.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Long-Term Compensation
Annual Compensation Awards
----------------------------------- ------------------------------------
Other Restricted Securities
Name and Salary Annual Stock Underlying All Other
Principal Compensation Bonus Compensation Award (s) Options Compensation
Position Year ($) ($)(1) ($)(2) ($) (#) ($)

Colin Halpern 1999(3) 66,000 0 27,238 0 0 0
President(3) 1998(3) 72,000 0 27,238 0 0 0
1997 72,000 10,000 27,238 0 3,332 0
H. Michael Bush 1999 9,800 0 0 0 0 0
Chief Financial Officer, 1998 37,333 0 0 0 0 0
Secretary 1997 66,667 10,000 0 0 0 0
</TABLE>
(1) Represents amounts paid under the Company bonus plan.

(2) For 1999, 1998 and 1997, Colin Halpern's compensation includes $15,840 car
allowance and $7,443 for insurance. 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.

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 1999 and held at the end of fiscal year 1999.

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

14
<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.

<TABLE>
<CAPTION>
Aggregated Option Exercises in Last
Fiscal Year and FY-End Option Values

# 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 $ -- $ --
</TABLE>

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

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, 2000 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, 2000, 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.

15
<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) *

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, 2000.

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.

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.

16
<PAGE>

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 $1,500,000 working capital
loans and accrued interest, to 100,000 shares of $1.00 Par Value Series A
Convertible 8% Preferred Stock. The agreed dividend is 8% and is cumulative.

At December 26, 1999, dividends in arrears on the Series A convertible preferred
stock are $120,000. Dividends in arrears on the Series B non-convertible
preferred stock amounted to $290,000 or $0.32 per share.

Mr. Halpern also is the Chairman of the Board of International Franchise
Systems, Inc. ["IFS"].

The Company has advanced funds to and paid various expenses on behalf of Mr.
Halpern. At December 26, 1999 and December 27, 1998, the total amount due to the
Company was $41,149 and $31,149 respectively.

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 26, 1999 was approximately $22,000. At December 26, 1999 there was a
balance of $93,778 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. The Chief Financial Officer of the company was also
Chief Financial Officer and the Chief Executive Officer of the Celebrated Group,
Plc.

17
<PAGE>

Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
<S> <C> <C>
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
---------------------

18
<PAGE>

<FN>
(*) 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
</FN>
</TABLE>

(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

19
<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: August 25, 2000
-------------------

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 August 25, 2000
---------------- (Chief Executive Officer)
Colin Halpern

/s/Aaron L. Lebedow Director August 25, 2000
-------------------
Aaron L. Lebedow

<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES
-------------------------------------------------------------------------------
INDEX TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

Page

<S> <C>
Independent Auditor's Report............................................................................ F-1

Consolidated Balance Sheets as of December 26, 1999 and December 27, 1998............................... F-2...F-3

Consolidated Statements of Operations for the fifty-two weeks ended
December 26, 1999 and December 27, 1998................................................................. F-4

Consolidated Statements of Stockholders' Equity for the period December 27, 1998
to December 26, 1999.................................................................................... F-5

Consolidated Statements of Cash Flows for the fifty-two weeks ended
December 26, 1999 and December 27, 1998................................................................. F-6...F-7

Notes to Consolidated Financial Statements.............................................................. F-8...F-22

</TABLE>

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

<PAGE>

INDEPENDENT AUDITOR'S REPORT

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

We have audited the accompanying consolidated balance sheets
of Red Hot Concepts, Inc. and its subsidiaries as of December 26, 1999 and
December 27, 1998, and the related consolidated statement of operations,
stockholders' equity, and cash flows for the two fifty-two week periods ended
December 26, 1999 and 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 26, 1999
and December 27, 1998, and the consolidated results of their operations and
their cash flows for the two fifty-two week periods ended December 26, 1999, 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 $237,926 and $641,144 in cash for
operations; have working capital deficits of $154,957 and $146,373, and that the
company major asset, its in vestment in Celebrated Group has been written off
due to the liquidation of Celebrated, 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
August 22, 2000

F-1
<PAGE>

RED HOT CONCEPTS, INC. AND SUBSIDIARIES
-------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 26, 1999 AND DECEMBER 27, 1998
-------------------------------------------------------------------------------

December 26, December 27,
Assets: 1999 1998
----------- -----------
Current Assets:
Cash $ 2,093 $ 12,293
Restricted Cash 0 30,000
Due from Celebrated Group 0 26,400
Prepaid Expenses 0 0
Accrued Interest Receivable 0 0
----------- -----------

Total Current Assets $ 2,093 $ 68,693
----------- -----------

Property and Equipment:
Furniture and Fixtures $ 10,861 $ 10,861
Less: Accumulated Depreciation (7,688) (6,164)
----------- -----------

Property and Equipment - Net $ 3,173 $ 4,697
----------- -----------

Other Assets:
Officer Loan Receivable $ 41,149 $ 31,149
Investment in Celebrated Group 0 3,257,096
Loan Receivable - Other 28,000 0
----------- -----------

Total Other Assets $ 69,149 3,288,245
----------- -----------

Total Assets $ 74,415 $ 3,361,635
=========== ===========

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

F-2
<PAGE>

<TABLE>
<CAPTION>
<S> <C> <C>
December 26, December 27,
1999 1998
------------ ------------
Liabilities and Stockholders' Equity:
Current Liabilities
Accounts Payable and Accrued Expenses $ 157,050 $ 215,066
------------ ------------

Long-Term Liabilities:
Accrued Interest Payable - Related Party 0 0
Due to Related Party $ 321,226 $ 55,500
------------ ------------

Total Long-Term Liabilities $ 321,226 $ 55,500
------------ ------------

Commitments and Contingencies [16] 0 0
------------ ------------

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

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

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

Additional Paid-in Capital 8,443,416 8,443,416

Accumulated Deficit (11,708,289) (8,213,359)

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

Total Stockholders' Equity $ (403,861) $ 3,091,069
------------ ------------

Total Liabilities and Stockholders' Equity $ 74,415 $ 3,361,635
============ ============
</TABLE>

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

F-3
<PAGE>

RED HOT CONCEPTS, INC. AND SUBSIDIARIES
-------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Fifty-Two Weeks Ended
December 26, December 27,
----------- -----------
1999 1998
----------- -----------

<S> <C> <C>
Revenues $ 0 $ 0
----------- -----------

Cost of Revenues:
Cost of Revenues 0 0
Restaurant Expense 0 0
----------- -----------

Total Cost of Revenues 0 0
----------- -----------

Gross Margin 0 0

General and Administrative Expenses 215,829 451,402

Depreciation and Amortization 1,524 1,524
----------- -----------

Operating Loss (217,353) (452,926)
----------- -----------

Net (Loss) of Unconsolidated Investee (3,283,496) (2,118,694)
----------- -----------

Other Income [Expense]:
Interest Income 14 5,409
Interest Expense - Related Party 0 (75,886)
Gain [Loss] on Disposal of Subsidiary 5,905 0
----------- -----------

Other Income [Expense] - Net 5,919 (70,477)
----------- -----------

Income [Loss] Before Income Tax Expense (3,494,930) (2,642,097)

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

Net Income [Loss] (3,494,930) (2,642,097)

Preferred Stock Dividends (236,000) (116,000)
----------- -----------

Net Income [Loss] Available to Stockholders $(3,730,930) $(2,758,097)
=========== ===========

Net Income [Loss] Per Common Share:
Basic $ (1.09) $ (.81)
=========== ===========

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

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

F-4
<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 28, 1997 3,420,782 $34,207 $8,443,416 725,000 $1,450,000

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

Comprehensive income;
Net [Loss] for the fifty-two week
period ended December 26, 1999 -- -- -- -- --
Comprehensive Income -- -- -- -- --
--------- ------- ---------- ------- ----------

Balance - December 26, 1999 3,420,725 $34,207 $8,443,416 725,000 $1,450,000
========= ======= ========== ======= ==========

Series A
Convertible Accumulated
Preferred Stock Compre- Other Total
Number of hensive Accumulated Comprehensive Stockholders'
Shares Amount Income [Deficit] Income Equity
------ ------ ------ --------- ------ ------

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

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
======= ========== =========== ========= ==========

Comprehensive income;
Net [Loss] for the fifty-two week
period ended December 26, 1999 -- -- (3,494,930) (3,494,930) -- (3,494,930)
Comprehensive Income -- -- (3,494,930) -- -- --
------- ---------- =========== ----------- --------- ----------
Balance - December 26, 1999 100,000 $1,500,000 $(11,708,289) $(123,195) $(403,861)
======= ========== =========== ========= ==========

</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-5
<PAGE>

RED HOT CONCEPTS, INC. AND SUBSIDIARIES
-------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Fifty-Two Weeks Ended
December 26, December 27,
------------ ------------
1 9 9 9 1 9 9 8
------- -------

Operating Activities:
<S> <C> <C>
Net Income [Loss] $ (3,494,930) $ (2,642,097)
---------------- ----------------
Adjustments to Reconcile Net Income [Loss] to Net
Cash [Used for] Provided by
Operating Activities:
Depreciation and Amortization 1,524 1,524
Net Loss of Unconsolidated Investee 3,257,096 2,118,694
Gain on Sale of Assets of CTG and Rights in Chili's Restaurants 0 0
Gain on Merger of UK Subsidiary into Celebrated 0 0

Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable 56,400 165,586
Inventories 0 0
Prepaid Expenses and Other Current Assets 0 37,213

Increase [Decrease] in:
Accounts Payable (58,016) (322,064)
Accrued Expenses 0 0
Other Payables and Accrued Interest 0 0
--------------- ---------------

Total Adjustments $ 3,257,004 $ 2,000,953
-------------- --------------

Net Cash - Operating Activities $ (237,926) $ (641,144)
--------------- --------------

Investing Activities:
Purchase of Furniture and Fixtures 0 0
--------------- ---------------

Net Cash - Investing Activities $ 0 $ 0
-------------- --------------

Financing Activities:
Advances from Related Parties 265,726 544,182
Payments to Related Parties (38,000) 0
---------------- ---------------

Net Cash - Financing Activities $ 227,726 $ 544,182
-------------- --------------

Effect of Exchange Rate Changes on Cash $ 0 $ 0
-------------- --------------

Net [Decrease] in Cash - Forward $ (10,200) $ (96,962)

</TABLE>

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

F-6
<PAGE>

<TABLE>
<CAPTION>
Fifty-Two Weeks Ended
December 26, December 27,
------------ ------------
1 9 9 9 1 9 9 8
------- -------

<S> <C> <C>
Net [Decrease] in Cash - Forwarded $ (10,200) $ (96,962)

Cash - Beginning of Periods 12,293 109,255
--------------- ---------------

Cash - End of Periods $ 2,093 $ 12,293
=============== ===============

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

Supplemental Disclosures of Non-Cash Investing and Financing Activities:
Conversion of Related Party Debt to Preferred Stock $ 0 $ 1,500,000

Cancellation of Warrants $ 0 $ 0
</TABLE>

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

F-7
<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.
On August 27, 1999 the Celebrated Group plc ("Celebrated") obtained an
administration order to effect a financial restructuring and/or disposal of its
various businesses. Ernest & Young was appointed as the Administrator of
Celebrated and its subsidiaries. On March 20, 2000 the Joint Administrators, in
compliance with insolvency Rules gave notification that they intended to apply
to the courts to become Joint Liquidators of Celebrated, and thereby liquidate
Celebrated Group and its subsidiaries.

[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.

On December 26, 1999, Red Hot Concepts, Inc. disposed of its interest in Red Hot
Pacific, Inc. its only remaining subsidiary. 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 26, 1999 and
December 27, 1998 was $1,524 and $1,524, respectively.

F-8
<PAGE>

RED HOT CONCEPTS, INC. AND SUBSIDIARIES
-------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2
-------------------------------------------------------------------------------

[2] Summary of Significant Accounting Policies [Continued]

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.

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

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 26, 1999 and December 27, 1998, 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 periods ended December 26, 1999 and
December 27, 1998, the investment in Celebrated Group has been translated into
US dollars, from British Pound Sterling using year end exchange rates in effect
at that date.

F-9
<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 26, 1999, management has written down
these assets to their fair value.

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 $217,353 and $523,403 for the fifty-two week periods ended
December 26, 1999 and December 27, 1998, respectively. In addition the losses
incurred on the write down of the company's investment in the Celebrated Group
plc to no value and Celebrated pending liquidation, significantly impairs its
ability to continue in business. The company had a working capital deficit of
$154,957 and an accumulated deficit of $11,708,289 at December 26, 1999. The
company has been funded through December 26, 1999 through loans from related
parties and affiliated entities.

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.

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 continue with related party advances or seek
additional equity financing.

There can be no assurances that management's plans to reduce operating expenses,
start a new business venture 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.

F-10
<PAGE>

RED HOT CONCEPTS, INC. AND SUBSIDIARIES
-------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4
-------------------------------------------------------------------------------

[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. At December 26, 1999 the
company no longer had funds on deposit in Australia. The restricted cash has
been used to satisfy outstanding obligations

[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. Upon the final liquidation of
Celebrated this risk will be eliminated.

[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 26, 1999 and December
27, 1998 was $9,096 and $9,096, 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-11

<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.

F-12
<PAGE>

RED HOT CONCEPTS, INC. AND SUBSIDIARIES
-------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6
-------------------------------------------------------------------------------

[7] Related Party Transactions [Continued]

At December 26, 1999 dividends in arrears on the Series A convertible preferred
stock amounted to $120,000. Dividends in arrears on the Series B non-convertible
preferred stock amounted to $290,000 or $0.32 per share.

At December 26, 1999, 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 Conversion of the Series A and B 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"]. No management fees have been charged to the company for
the years ended December 26, 1999 and December 27, 1998.

The Company has advanced funds to and paid various expenses on behalf of Mr.
Halpern. At December 26, 1999 and December 27, 1998 the total amount due to the
Company from Mr. Halpern is $41,149 and $31,149, respectively.

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 26, 1999 was $22,000. At December 26, 1999 there was a $93,778 balance
due and owing by the Company to this firm.

The Chief Financial Officer of the Company was also the Chief Financial Officer
of 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 salaries of $9,800 for
1999 and $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-13
<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 1999.
Therefore, no loss carryforward was used during 1999. 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 26, 1999, Red Hot had a deferred tax asset
attributable to its United States net operating loss carryforwards of
approximately $1,345,000, which was offset by a valuation allowance of
approximately $1,345,000. The change in the valuation allowance during the
fiscal year ended December 26, 1999 was approximately $66,000.

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
$ 211,434 December 31, 2014

[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-14
<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 26, 1999 dividends in arrears on the Series A convertible preferred
stock amounted to $120,000. The dividends on Series B non-convertible preferred
stock amounted to $290,000 or $.32 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.

F-15

<PAGE>

RED HOT CONCEPTS, INC. AND SUBSIDIARIES
-------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #9
-------------------------------------------------------------------------------

[10] 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-16
<PAGE>

RED HOT CONCEPTS, INC. AND SUBSIDIARIES
-------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #10
-------------------------------------------------------------------------------

[10] 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 26, 1999 and December 27,
1998 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 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
-------------------------------------- =========== =========

Options Granted - Directors Plan 0 0 -- 8.5 years
Options Granted - Stock Plan 0 0 -- --
Options Granted - Non-Qualified 0 0 -- --
Options Exercised 0 0 -- --
Options Canceled 0 0 -- --
-----------

Options Outstanding -December 26, 1999 65,000 4.53
-------------------------------------- =========== =========
</TABLE>

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

F-17
<PAGE>

RED HOT CONCEPTS, INC. AND SUBSIDIARIES
-------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #11
-------------------------------------------------------------------------------

[10] 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:

Years ended
December 31,
1 9 9 9 1 9 9 8
------- -------
Net Income [Loss]:
As Reported $ (3,494,930) $ (2,642,097)
=============== ================

Pro Forma $ (3,572,452) $ (2,700,751)
=============== ================

Net Income [Loss] Per Share:
As Reported $ (1.09) $ (.81)
================ ==================

Pro Forma $ (1.11) $ (.81)
================ ==================

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 26, 1999 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 26, 1999
or December 27, 1998.

F-18
<PAGE>

RED HOT CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #12

[11] 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 26, 1999:
<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] $ (211,434) $ (3,283,496) $ 0 $ 0 $ (3,494,930)
Assets $ 74,415 $ 0 $ 0 $ 0 $ 74,415
Liabilities $ 478,276 $ 0 $ 0 $ 0 $ 478,276
Company's Investment in
Foreign Subsidiaries $ 0 $ 0 $ 0 $ 0 $ 0

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

United United
States Kingdom Australia Eliminations Consolidated

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
</TABLE>

[12] 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 - The company has no employment agreement with its
employees at this time.

[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. At December 26, 1999 this amount has been
reduced to 0.

F-19
<PAGE>

RED HOT CONCEPTS, INC. AND SUBSIDIARIES
-------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #13
-------------------------------------------------------------------------------

[12] 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 - The Company has no consulting agreement with any
parties at this time.

[13] 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.

[14] 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-20
<PAGE>

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

[15] 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.

[16] Subsequent Events

[A] Additional Related Party Advances - In the first quarter of 2000, the
Company received additional cash advances from a related party of $4,000.

. . . . . . . . . . .

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