SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 29, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to___________________ Commission file number
1-13818
THE RATTLESNAKE HOLDING COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1369616
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
439 East 82nd Street, New York, NY 10028
(Address of principal executive offices) (Zip Code)
(212) 452-2359
Registrant's telephone number, including area code
_________________________________________________________________________
Former name, former address and former fiscal year, if changed since last
report.
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 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 _ No_X_
APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding
of each of the issuer's classes of common equity, as of the latest practicable
date: 11,303,564
<PAGE>
FORM 10-QSB
THE RATTLESNAKE HOLDING COMPANY, INC.
March 29, 1998
INDEX
Page No.
Part I - Financial Information
Item 1: Financial Information
Consolidated Balance Sheet March 29, 1998 3
(Unaudited)and June 29, 1997
Consolidated Statements of Operations 4
nine months ended March 29, 1998
(Unaudited) and March 30, 1997 (Unaudited)
Consolidated Statements of Cash Flows 5
nine months ended March 29, 1998
(Unaudited) and March 30, 1997 (Unaudited)
Consolidated Statements of Operations 6
three months ended March 29, 1998
(Unaudited) and March 30, 1997 (Unaudited)
Notes to Consolidated Financial Statements 7
(Unaudited)
Management's Discussion and Analysis 11
Liquidity 13
Safe Harbor 16
Part II - Other Information
Item 1: Legal Proceedings 18
Item 2: Changes in securities and Use of Proceeds 19
Item 3: Defaults Upon Senior Securities 19
Item 4: Submission of Matters 20
Item 5: Other Information 20
Item 6: Exhibits and Reports on Form 8-K 20
Signatures 21
2
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<TABLE>
<CAPTION>
THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
March 29, June 29,
ASSETS 1998 1997
------------ ------------
Current Assets:
<S> <C> <C>
Cash $ 3,977 $ 68,022
Accounts receivable, net 31,654 13,287
Notes Receivable 230,000
Inventory 41,900 42,119
Prepaid expenses and other current assets 68,625 23,272
Assets held for sale 0 679,544
------------ ------------
Total current assets $ 376,156 $ 826,244
Property and equipment, net 718,035 1,007,092
Intangible assets, net 1,047,838 299,102
Other assets, net 99,093 129,457
------------ ------------
$ 2,241,122 $ 2,261,895
============ ============
LIABILITIES AND STOCKHOLDER' EQUITY
Current liabilities:
Current maturities of notes payable $ 1,080,223 $ 835,335
Accounts payable 665,174 280,528
Liabilities related to assets held for sale 519,717 1,133,257
Accrued expenses 360,145 357,407
Dividends payable 0 103,818
Other current liabilities 218,709 218,220
------------ ------------
Total current liabilities $ 2,843,968 $ 2,928,565
Notes payable, net of current maturities 219,519 545,006
------------ ------------
Stockholders' equity
Preferred stock, $.10 par value, 5,000,000 shares
authorized, 56,000 issued and outstanding, at
March 29, 1998 and June 29, 1997 respectively 5,650 5,650
Common Stock, $.001 par value -20,000,000 shares
authorized, 7,675,227 and 2,650,227 issued and
outstanding, at March 29, 1998 and
June 29, 1997, respectively 7,675 2,651
Additional paid-in capital 12,469,609 11,072,857
Accrued Dividends 0 (103,818)
Accumulated deficit (13,305,299) (12,189,016)
------------ ------------
(822,365) (1,211,676)
$ 2,241,122 $ 2,261,895
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
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<TABLE>
<CAPTION>
THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine months ended
----------------------------------
March 29, March 30,
1998 1997
----------- -----------
Cash Flow from operating activities:
<S> <C> <C>
Net Loss ($ 864,507) ($2,577,561)
Adjustment to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 290,321 616,767
Restaurant closing costs 392,765
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (18,367) 48,178
Decrease (increase) in inventory 219 23,391
(Increase) decrease in prepaids and other assets (14,989) 55,642
(Increase) decrease accounts payable and accrued expenses 453,388 (108,446)
(Decrease) increase in other current liabilities 489 218,688
----------- -----------
Net cash used in operating activities (153,446) (1,330,576)
Cash Flow from investing activities
Capital expenditures 0 (240,458)
Payments for acquisitions of leaseholds 0 (206,515)
----------- -----------
Net cash used in investing activities 0 (446,973)
----------- -----------
Cash flow from financing activities:
Net proceeds from issuance of convertible notes 0 500,000
Proceeds from issuance of preferred stock 0 1,272,387
Deferred financing costs (230,000) 0
Proceeds from borrowings 750,000 0
Principal repayment of borrowings (415,854) (261,013)
----------- -----------
Net cash provided by financing activities 104,146 1,511,374
Net decrease in cash and cash equivalents (49,300) (266,175)
Cash, beginning of period 68,022 684,414
----------- -----------
Cash, end of period $ 18,722 $ 418,239
=========== ===========
Cash paid during the period for:
Interest $ 7,599 $ 62,359
=========== ===========
Income taxes $ 6,891 $ 31,963
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
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<TABLE>
<CAPTION>
THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited) (Unaudited)
Three months ended Nine months ended
------------------------------------------------------------------------
March 29, March 30, March 29, March 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Restaurant sales $ 857,926 $ 1,919,641 2,989,049 6,742,981
Less: promotional sales 41,628 119,548 107,307 343,084
----------- ----------- ----------- -----------
Net restaurant sales 816,298 1,800,093 2,881,742 6,399,897
Costs and expenses:
Cost of food and beverage sales 266,849 544,790 932,746 2,021,991
Restaurant salaries and benefits 283,145 603,029 949,877 2,298,194
Occupancy and other 186,066 493,412 712,449 1,696,245
Depreciation and amortization 91,667 168,078 275,001 567,999
----------- ----------- ----------- -----------
expense
Total restaurant costs
and operating expenses 827,727 1,809,309 2,870,073 6,584,429
General and administration 83,205 476,644 686,803 1,849,031
Restaurant closing costs 0 149,547 0 392,765
Interest expense, net 81,988 42,564 179,335 110,653
Miscellaneous expenses 2,907 25,943 10,038 40,580
----------- ----------- ----------- -----------
Net loss (179,529) (703,914) (864,507) (2,577,561)
=========== =========== =========== ===========
Basic and diluted
Net loss per common share ($ 0.07) ($ 0.27) ($ 0.33) ($ 0.97)
Weighted average number of common
and common equivalent shares
outstanding 2,650,227 2,643,734 2,650,227 2,643,734
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
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<TABLE>
<CAPTION>
THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
THREE OPERATING STORES ONLY
(Unaudited) (Unaudited)
Three months ended Six months ended
---------------------------------------------------------------------
March 29, March 30, March 29, March 30,
1998 1998 1997
----------- ----------- -----------
<S> <C> <C> <C> <C>
Restaurnt sales $ 857,926 $ 1,083,734 2,724,984 3,368,551
Less: promotional sales 41,628 63,096 101,192 157,431
----------- ----------- ----------- -----------
Net restaurant sales 816,298 1,020,638 2,623,792 3,211,120
Costs and expenses:
Cost of food and beverage sales 266,849 287,527 843,237 973,989
Restaurant salaries and benefits 283,145 325,365 851,082 1,085,445
Occupancy and other 171,332 228,616 583,099 683,303
Depreciation and amortization expense 91,667 70,910 275,001 231,628
----------- ----------- ----------- -----------
Total restaurant costs
and operating expenses 812,993 912,418 2,552,419 2,974,365
General and administration 50,475 396,379 721,424 1,612,350
Restaurant closing costs 0 0 0 0
Interest expense, net 47,113 29,447 140,240 82,632
Miscellaneous expenses 2,909 25,268 9,800 24,812
----------- ----------- ----------- -----------
Net loss (97,192) (342,874) (800,091) (1,483,039)
=========== =========== =========== ===========
Basic and diluted
Net loss per common share ($ 0.04) ($ 0.13) ($ 0.30) ($ 0.56)
Weighted average number of common
and common equivalent shares
outstanding 2,650,227 2,643,734 2,650,227 2,643,734
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE>
THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 29, 1998
(Unaudited)
1. Principles of consolidation
The consolidated financial statements include the accounts of The
Rattlesnake Holding Company, Inc. and subsidiaries (the "Company"). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
2. Consolidated financial statements
The accompanying unaudited consolidated financial statements as shown in
the index were prepared in accordance with generally accepted accounting
principles and include all adjustments which, in the opinion of management, are
necessary to present fairly the consolidated financial position of the Company
as of March 30, 1998 and March 30, 1997, and the results of operations and cash
flows for the periods ended March 29, 1998 and March 30, 1997. In the opinion of
management, all necessary adjustments that were made are of a normal recurring
nature.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed, reclassified or omitted. It is suggested that these
consolidated financial statements be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-KSB for fiscal year end June 29, 1997. The results of operations for
the period ended March 29, 1998 are not necessarily indicative of the operating
results that may be achieved for the full year.
3. Basis of presentation
The accompanying consolidated financial statements have been prepared on a
going concern basis that contemplates the realization of assets and the
satisfaction of liabilities and commitments in the normal course of business.
However, due to the matters discussed below, its continuation as a going concern
cannot be reasonably assured.
The Company has incurred aggregate losses since inception of $13,305,299,
inclusive of a net loss for the quarter ended March 29, 1998 of $179,529. Based
upon interim financial information prepared by management, the Company has
continued to incur losses in fiscal 1998. Additionally, $303,749 of Series C
subordinated notes payable matured on August 6, 1997, of which note holders with
principal balances aggregating $62,499 have extended the repayment date to
December 15, 1997. The Series C notes may be
7
<PAGE>
converted to common stock or repaid at the time of a future private placement of
securities by the Company. Also, $500,000 of convertible subordinated notes
payable matured September 4, 1997, of which $400,000 was repaid from an interim
financing on December 8, 1997. The remaining $150,000 (which includes accrued
interest of $50,000) is payable $50,000 on or before March 15, 1998 or earlier
in certain events, $50,000 on or before May 1, 1998 and $50,000 on or before
July 1, 1998. In addition, a $425,000 note payable associated with the
acquisition of the Fairfield restaurant matured on January 2, 1997. The
restaurant was sold on March 24, 1998 and the note has been restructured to
provide for interest payments of $5,500.44 monthly through June 24, 1998, with
the remaining principal and any unpaid interest due on June 24, 1998. The
outstanding principal balance is $440,035. The noteholder has taken a $230,000
note due the company and received on the sale of the restaurant as additional
collateral for the $440,035 note. It is anticipated that the difference between
the outstanding balance due and the note due the company assigned will be repaid
from a private placement anticipated by the Company.
4. Financing Arrangements
Between April 1998 and July 1998, the Company sold approximately $750,000
of common stock (at $.15 per share) and issued notes with warrants for
approximately $50,000.
The Company is seeking to consummate a significant private placement, which
will permit it to consummate several pending restaurant acquisitions and further
develop its business. It is expected to try to consummate the private placement
during August 1998.
On December 8, 1997, the Company entered into a refinancing arrangement in
which it raised $500,000. Four hundred thousand dollars of the proceeds
therefrom were applied to reduce the approximately $550,000 of indebtedness
(including accrued interest) resulting from a financing the company conducted in
March 1997. The $150,000 balance from the March refinancing was restructured as
follows: $50,000 shall be payable on or before March 15, 1998 or earlier in
certain events, $50,000 payable on or before May 1, 1998 and $50,000 payable on
or before July 1, 1998. If the private placement is closed prior to March 15,
1998 and if the price is $.50 or less per share, the Company, at it's option,
may pay the $50,000 due March 15, 1998 in cash or may satisfy the entire
$150,000 obligation in stock at a price per share equal to eighty percent (80%)
of the per share price sold in the private placement. If the private placement
price is more than fifty cents ($.50) per share the note holders may request
payment of the remaining two installments in stock rather than cash at 100% of
the per share price sold at the proposed private placement.
5. Restaurant closing costs
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In fiscal 1997 the Board of Directors authorized the closing of the
Rattlesnake Southwestern Grill Restaurant located in Fairfield Connecticut. The
facility was closed on January 4, 1997. The fixed assets, leasehold improvements
and intangibles at the facility have been written off. The building is reflected
at the estimated realizable value and is currently accounted for in the
financial statements in "assets held for sale." The restaurant was sold on March
24, 1998 and the note has been restructured to provide for interest payments of
$5,500.44 monthly through June 24, 1998, with the remaining principal and any
unpaid interest due on June 24, 1998. The outstanding principal balance is
$440,035. The noteholder has taken a $230,000 note due the company and received
on the sale of the restaurant as additional collateral for the $440,034.81 note.
It is anticipated that the difference between the note due and the note
receivable assigned will be paid from a private placement anticipated by the
Company. The accompanying March 29, 1998 consolidated balance sheet includes in
"Liabilities related to assets held for sale" the replacement note in the amount
of $440,035.
6. Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement
128, "Earnings Per Share" (Statement 128). Statement 128 replaces the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Basic earnings per share excludes any dilution. It
is based upon the weighted average number of common shares outstanding during
the period. Dilutive earnings per share reflects the potential dilution that
would occur if securities or other contracts to issue common stock were
exercised or converted into common stock. Adoption of Statement 128 did not have
any effect on the Company's December 28, 1997 earnings per share or previously
reported earnings per share because all common stock equivalents were
antidilutive in those periods.
7. Recent Accounting Pronouncements
The Financial Accounting Standards Board has issued Statement 130
"Reporting Comprehensive Income". This Statement requires that companies
disclose comprehensive income, which includes net income, foreign currency
translation adjustments, minimum pension liability adjustments, and unrealized
gains and losses on marketable securities classified as available-for-sale. The
provisions of Statement 130 are effective for financial statements issued for
fiscal years beginning after December 15, 1997. In the opinion of management,
adoption of Statement 130 will not have a material effect on the Company because
the Company does not have any foreign currency translation adjustments, minimum
pension liability adjustments, or unrealized gains or losses on marketable
securities classified as available-for-sale.
9
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8. Dividends in arrears
The Company's preferred stock bears a dividend rate of 7 1/2% per annum.
These dividends are payable semi-annually in arrears on May 15 and November 15
of each year, commencing November 15, 1996. At March 29, 1998 all accrued
dividends in arrears were waived by the preferred shareholders.
10
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MANAGEMENT DISCUSSION and ANALYSIS
The following discussion of the results of operations and financial
condition should be read in conjunction with the Company's audited consolidated
financial statements and notes thereto.
OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED MARCH 29, 1998 AS COMPARED
WITH MARCH 30, 1997
Gross restaurant sales decreased 55.3% to $857,926 for the quarter ended
March 29, 1998 from $1,919,641 for the quarter ended March 30, 1997. Likewise,
net restaurant sales decreased 54.7% to $816,298 in 1998 from $1,800,093 in
1997. The decrease in restaurant sales resulted from a decrease in the number of
restaurants operating during the period. Three restaurants were operating for
the entire quarter ended March 29, 1998 as compared to six during the quarter
ended March 30, 1997. For the three restaurants operating for both periods, same
store sales declined 20.0% from $1,020,638 in 1997 to $816,298 in 1998. The
decrease in sales resulted from the decrease in the number of restaurants
operating during the period. For the nine months ended March 29, 1998 as
compared to the nine months ended March 30, 1997 same store sales declined 18.3%
from $3,211,120 in 1997 to 2,623,792 in 1998.
Promotional sales decreased as a percentage of gross sales from 6.2% for
the three months ended March 30, 1997 to 4.9% for the quarter ended March 29,
1998. No new units were opened during the third quarter ended March 29, 1998.
Also contributing to this slight decline is a concentrated focus to reduce
manager complimentary sales at the units. Promotional sales decreased as a
percentage of gross sales from 5.1% for the nine months ended March 30, 1997 to
3.6% for the nine months ended March 29, 1998.
For the three months ended March 29, 1998, the Company's cost of food and
beverage sales increased slightly as a percentage of gross sales. As a
percentage of net sales for the quarter ended March 29, 1998 cost of sales was
32.7% as compared to March 30, 1997 cost of sales which was 30.3%. The cost of
food and beverage sales decreased to $266,849 for the three months ended March
29, 1998 from $544,790 for the three months ended March 30, 1997. The increase
in cost of food and beverage sales as a percentage of gross and net sales is due
to higher food costs for various items and also due to inflation trends. The
Company has continued to attempt to diminish the effect of these increased
prices through changes to the Company's menu,
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centralized purchasing and low food cost specials. As a percentage of net sales
for the nine months ended March 29, 1998 cost of sales was 32.4% as compared to
March 30, 1997 cost of sales which was 31.6%.
Restaurant salaries and fringe benefits, which consist of direct salaries
of restaurant managers, hourly employee wages and related fringe benefits,
decreased to $283,145 for the three months ended March 29, 1998 as compared to
$603,029 for the three months ended March 30, 1997. As a percentage of net
restaurant sales, these costs increased to 34.7% in 1998 as compared to 33.5% in
1997. This decrease is attributed to a reduction in restaurant managers and
other personnel. As a percentage of net restaurant sales, these costs decreased
to 33.0% for the nine months ended March 29, 1998 as compared to 35.9% for the
nine months ended March 30, 1997.
Occupancy and other related expenses, which include linen, repairs,
maintenance, utilities, rent, insurance and other occupancy related expenses,
decreased to $186,066 for the three months ended March 29, 1998 from $493,412
for the three months ended March 30, 1997. As a percentage of net restaurant
sales, these costs decreased to 22.8% in the three months ended March 29, 1998
from 27.4% in the three months ended March 30, 1997. The decrease was due to
occupancy costs relating to the closed units. As a percentage of net restaurant
sales, these costs decreased to 24.7% in the nine months ended March 29, 1998
from 26.5% in the nine months ended March 30, 1997.
Depreciation and amortization expenses, decreased to $91,667 or 11.2% of
net restaurant sales for the three months ended March 29, 1998 from $168,078 or
9.3% for the three months ended March 30, 1997. This decrease is attributed to
fewer units in operation as compared to the prior period. Depreciation and
amortization expenses, decreased to 9.5% of net restaurant sales for the nine
months ended March 29, 1998 from 8.9% for the nine months ended March 30, 1997.
General and administrative expenses decreased as a percentage of net sales
from 26.5% for the three months ended March 30, 1997 to 10.2% for the three
months ended March 29, 1998. General and administrative expenses decreased to
$83,205 for the three months ended March 29, 1998 from $476,644 for the three
months ended March 30, 1997. General and administrative expenses decreased as a
percentage of net sales from 28.9% for the nine months ended March 30, 1997 to
23.8% for the nine months ended March 29, 1998. General and administrative
expenses decreased to $686,803 for the nine months ended March 29, 1998 from
$1,849,031 for the nine months ended March 30, 1997. The
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decrease is primarily attributed to reduction it the number of management
employees as part of the Company's implementation of its cost reduction plan.
The Company has implemented cost reduction measures, which should further reduce
general and administrative costs at both the corporate and unit levels.
Interest expense increased to $81,988 for the three months ended March 29,
1998 from $42,564 for the three months ended March 30, 1997. Interest expense
increased to $179,335 for the nine months ended March 29, 1998 from $110,653 for
the nine months ended March 30, 1997. The increase in interest expense is
attributable to the Company's additional financing arrangements.
The net loss as a percentage of net sales decreased from 39.1% for the
three months ended March 30, 1997 to 21.9% for the three months ended March 29,
1998. The net loss as a percentage of net sales decreased from 40.3% for the
nine months ended March 30, 1997 to 30.0% for the nine months ended March 29,
1998. This improvement in net loss is primarily due to the decrease in general
and administrative costs at the unit level, reduction of the restaurant salaries
and benefits, and reduced occupancy costs.
LIQUIDITY
At March 29, 1998, the Company had a working capital deficit of $2,467,812.
At such date (but after giving effect to the December 1997 Refinancing described
herein) (i)$500,000 of notes payable (inclusive of $50,000 of accrued interest)
had been declared in default, (ii)$303,749 of notes payable (inclusive of
$72,140 of accrued interest) had become due and payable but had not yet been
declared in default (note holders with principal balances aggregating $62,499
have extended the repayment date to December 15, 1997), (iii)$270,740 of notes
or similar obligations becomes due in the period ending September 27, 1998, and
(iv)$366,673 was owed or owing to the Company's suppliers. A $425,000 note
payable associated with the acquisition of the Fairfield Rattlesnake restaurant
matured on January 2, 1997. The restaurant was sold on March 24, 1998 and the
note has been restructured to provide for interest payments of $5,500.44 monthly
through June 24, 1998, with the remaining principal and any unpaid interest due
on June 24, 1998. The outstanding principal balance is $440,035. The $440,035
note is included in other current liabilities.
Management has used the equity raised and the sale of the Fairfield
Restaurant to meet these liquidity and capital resource shortfalls. In the
future, management anticipates additional equity or debt financing, deferment of
payment of accounts payable, the conversion of certain indebtedness
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into equity, and the implementation of certain cost containment steps including
reducing the general and administrative expenses at the corporate and unit
levels in fiscal 1998 to meet any future liquidity and capital shortfalls. No
assurance can be given that any or all of such steps will be accomplished or
that they will be sufficient to overcome these financial problems. The failure
to address these shortfalls would have a material adverse effect on the Company.
Additional funds may be required in connection with the Ottomanelli transaction
and the transactions contemplated thereby. No assurance can be given that such
funds will be available.
The Company's cash position decreased by $ 16,144 during the three months
ended March 29, 1998, principally as a result of the net cash used in operating
activities exceeded the borrowing proceeds.
Net cash used in operating activities was $153,446, principally relating to
the Company's net loss, increases in prepaids and other assets offset by
depreciation and amortization expenses and an increase in accounts payable and
accrued expenses. The Company generated $89,401 from financing activities
principally relating to the receipt of proceeds from bridge financing
borrowings, offset by repayments of outstanding indebtedness.
In August 1997 the Company entered into a reorganization agreement with
Nicolo and Joseph Ottomanelli ("Ottomanellis"). That agreement was amended on
several occasions, and closed in March of 1998. At such time, the Ottomanelli
caused the merger with newly formed subsidiaries of the Company of Ottomanelli's
Cafe Franchising Corp., the franchisor of Ottomanelli's Cafe (R) restaurants,
and Garden State Cafe Corp., the operator of two restaurants at the Macys
department store in Paramus, New Jersey. The consideration was approximately
5,000,000 shares of common stock of the Company. Nicolo Ottomanelli became a
director and Chief Executive Officer of the Company. Joseph Ottomanelli became a
Vice President. Each of the Ottomanelli entered into an employment agreement
with the company. An affiliate of Ottomanelli licensed the Ottomanelli's Cafe(R)
trademark to the Company.
During September 1997, the Company entered into a private financing
arrangement to provide $250,000 of bridge financing at 10% interest per annum
and with a due date of December 31, 1997 or earlier, under certain
circumstances. At March 29, 1998 this financing has not been repaid. It is
anticipated that these amounts will be repaid from future financing activity.
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On December 8, 1997, the Company entered into a refinancing arrangement in
which it raised $500,000. Four hundred thousand dollars of the proceeds
therefrom were applied to reduce the approximately $550,000 of indebtedness
(including accrued interest) resulting from a financing the Company conducted in
March 1997. The $150,000 balance from the March refinancing was restructured as
follows: $50,000 is to be paid on or before March 15, 1998 or earlier in certain
events, $50,000 on or before May 1, 1998 and $50,000 on or before July 1, 1998.
On July 2, 1998 The Company signed an agreement to purchase some of the assets
of a 1562 Restaurant Corp. located at 1562 2nd Avenue, New York City.
Rattlesnake has the right to assign the contract to a subsidiary. The purchase
price is $425,000 payable $20,000 on contract, $105,000 at closing, and a
$300,000 promissory note at 8.5% payable in 72 payments of $5,332.52. The first
payment is due thirty days after closing, and may be prepaid at any time without
penalty. The note is secured by a security interest in the fixtures and
equipment purchased, as well as by a re-assignment of the lease to the seller.
In the event of a subsequent sale of the restaurant by Rattlesnake, the note
shall become due at the option of the seller. The sale is subject to Rattlesnake
obtaining a temporary liquor permit and the consent of the landlord to an
assignment of the lease to Rattlesnake. The closing shall take place 10 days
after the issuance of the liquor permit.
On July 3, 1998 Rattlesnake Greenwich, Inc. signed an agreement to purchase
some of the assets of Max Water Street, LLC located at 2 South Water Street,
Greenwich, Connecticut. The purchase price is $400,000 payable $20,000 on
contract, $155,000 at closing, and a $225,000 promissory note at 8% payable in
60 payments of $2,729.88 based on a 10 year pay out and a five year balloon. The
first payment is due thirty days after closing, and may be prepaid at any time
without penalty. The note is secured by a security interest in the fixtures and
equipment purchased, as well as by a conditional assignment of the lease to the
seller. In the event of a subsequent sale of the restaurant by Rattlesnake, the
note shall become due at the option of the seller. The sale is subject to the
consent of the landlord to an assignment of the lease to the Company. The
Company also executed a management agreement under the terms of which,
Rattlesnake is presently managing the restaurant. The management agreement will
terminate at the closing of the sale of the assets.
Management of the Company is continuing the implementation of its cost
reduction plan, which addresses the restaurant operating losses. Such plan
included the
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closing and sale of the Yorktown Heights and White Plains, New York and
Fairfield, Connecticut locations as well as the sale of its New York City
property. In September 1997 the Company closed its Lynbrook, New York location.
The Company has reduced its work force and is implementing other cost
containment measures designed to reduce operating expenses and improve
restaurant-operating performance. The sales of the above mentioned locations
were completed in the fourth quarter of fiscal year 1997 and first and third
quarters of fiscal year 1998; therefore the Company anticipates recognizing the
impact of these reductions in the third and fourth quarters of fiscal 1998 and
the first quarter of fiscal 1999.
Between April 1998 and July 1998, the Company sold approximately $750,000
of common stock (at $.15 per share) and issued notes with warrants for
approximately $50,000.
SAFE HARBOR STATEMENT
Certain statements in this Form 10-QSB, including information set forth
under "Management's Discussion and Analysis" constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Act"). The Company desires to avail itself of certain "safe
harbor" provisions of the Act and is therefore including this special note to
enable the Company to do so. Forward-looking statements included in this Form
10-QSB or hereafter included in other publicly available documents filed with
the Securities and Exchange Commission, reports to the Company's stockholders
and other publicly available statements issued or released by the Company
involve known and unknown risks, uncertainties, and other factors which could
cause the Company's actual results, performance (financial or operating) or
achievements to differ from the future results, performance (financial or
operating) achievements expressed or implied by such forward looking statement.
Such future results are based upon management's best estimates based upon
current conditions and the most recent results of operations. These risks
include, but are not limited to, risks associated with potential acquisitions,
successful implementation of the Company's cost containment plan and new
operating strategy, immediate need for additional capital, competition, and
other risks detailed in the Company's Securities and Exchange Commission
filings, including its Annual Report on Form 10-KSB for the fiscal year 1997,
each of which could adversely affect the Company's business and the accuracy of
the forward looking statements contained herein.
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PART II
Item 1: - Legal Proceedings
South Norwalk, Connecticut
An action was commenced in 1996 by Ellen Peck against Rattlesnake Ventures,
Inc. ("RVI"), a wholly owned subsidiary of the Company (and the tenant of the
RVI Rattlesnake restaurant), a former chief executive officer of the Company
(the "Former CEO"), and the landlord of the RVI Rattlesnake restaurant in South
Norwalk, Connecticut (the "Landlord"). The action was based on an allegation of
excessive noise from the restaurant. A jury verdict was rendered on August 4,
1998 against RVI for $425,000, against the Former CEO for $200,000 and against
the Landlord for $250,000. The Company has an indemnity agreement with the
Former CEO and RVI has an indemnity agreement with the Landlord. The Company
believes that the verdicts are excessive in that the plaintiff did not show or
offer evidence of loss of work, medical treatment or any injury. The verdicts
are being appealed on that and other legal bases. RVI had three different
insurance policies covering the period of the alleged offensive behavior and
although the insurance carriers have or may disclaim or reserve as to liability,
RVI will vigorously pursue its rights under said policies. If claimed, the
Company will resist indemnification of the Former CEO, since his alleged actions
were wrongful. In view of the above, the Company does not believe that the
verdicts will have a material adverse effect on the Company or RVI.
Danbury, Connecticut
A foreclosure action was commenced in 1998 by Union Savings Bank (the
"Bank") against the landlord of The Rattlesnake Southwestern Grill (closed for
renovations) in Danbury, Connecticut based on the landlords mortgage arrears.
Rattlesnake Danbury, Inc., the lessee of the restaurant, has been joined as a
defendant. The Bank has obtained an order of strict foreclosure, and unless the
mortgage debt of $1,177,000 is paid off or restructured with the Bank, the
restaurant will become a tenant at will, and will be subject to eviction. The
Company, however, has a letter of intent with the landlord owner, which is
believed to be acceptable to the Bank, whereby some or all of the arrearage to
the bank, totaling approximately $350,000, will be brought up to date by a new
entity consisting of the present owner and the Company. The letter of intent
provides that the Company supply all necessary arrearage funds and that the
Company and the present owner each have a one-half interest in the new owner
entity and that the current lease amount payments will amortize the mortgage.
Binding agreements have not been entered into with respect to such transaction.
In the event that such agreements are not entered into, the Company's Danbury
restaurant may be evicted if title is transferred to an owner-user, or may be
subjected to a renegotiation of its lease on terms less favorable to the Company
than the present lease. The Company may also choose to not enter into binding
agreement based on the letter of intent.
Lynbrook, New York
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The Company is defending an action brought by Jack Ciotti Trust, the
landlord of a former restaurant in Lynbrook New York leased by a subsidiary of
the Company. The action against the Company is based on an alleged guaranty of
the lease payments due from the subsidiary of the Company. The Company is of the
position that the landlord waived the guarantee at the time of the surrender of
the premises in September 1997. The action seeks the sum of approximately
$200,000.
Collection Actions
The Company is defending a series of collection actions, under which the
aggregate sum sought is approximately not more than $100,000. The Company
believes it has full or partial defenses to a number of such actions and
believes it can settle all or most of the others for a sum which, in the
aggregate, is lower than that set forth above.
Judgments
The Company was subject to a judgment for $150,000 granted to the holder of
certain notes issued in March 1997. However, the Company has a written agreement
with the judgment holder to convert the sum due into Common stock at the time of
the Offering at prices ranging form $0.25 to $0.225 per share. The Company is
subject to another note holder judgment for approximately $50,000, and is
discussing a similar conversion with the judgment holder. There can be no
assurance that such conversions will be effected.
Item 2 - Changes in Securities and Use of Proceeds
None.
Item 3. - Defaults upon Senior Securities
$303,749 of Series C subordinated notes payable matured on August 6, 1997,
of which note holders with principal balances aggregating $62,499 have extended
the repayment date to December 15, 1997. These Series C notes and accrued
interest of $60,749 are in default for non-payment. The Series C noteholders
have waived the accrued interest on their notes in return for $500,000
convertible subordinated notes dated March 4, 1997, matured September 4, 1997.
These notes were in default for non-payment, but were restructured on December
8, 1997, and are no longer in default.
A $425,000 note payable associated with the acquisition of the Fairfield
restaurant matured on January 2, 1997. The restaurant was sold on March 24, 1998
and the note has been restructured to provide for interest payments of $5,500.44
monthly through June 24, 1998, with the remaining principal and any unpaid
interest due on June 24, 1998. The outstanding principal balance is $440,035.
The noteholder has taken a $230,000 note due the company and received on the
sale of the restaurant, as additional collateral for the $440,035 note.
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The Company is currently prohibited from paying cash dividends by virtue of
the Delaware General Corporation Law.
Item 4. - Submission of Matters to A Vote of Security Holders
None.
Item 5. - Other Information
The Company's Common Stock was delisted from the NASDAQ SmallCap Market in
September 1997 and as of November 4, 1997 was suspended from trading on the
Boston Stock Exchange (the "BSE"). The BSE has applied for the delisting of the
Company common stock from such exchange pursuant to Rule 12d-2f2.
The Company securities are quoted on the "pink sheets" or the NASD's
Electronic Bulletin Board. Due to the nature of such markets and the "penny
stock" rules to which the common stock trades (Rule 15g-9 promulgated under the
SEC Act) there may not be a liquid trading market in the common stock.
Item 6. - Exhibits and Reports on Forms 8-K.
During the quarter ended March 29, 1998, the Company filed no reports on Form
8-K.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
THE RATTLESNAKE HOLDING COMPANY, INC.
(Registrant)
Date October 15, 1998 /s/ Nicolo Ottomanelli
------------------- ------------------------
Nicolo Ottomanelli
Chief Executive Officer
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