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RDNK -- Redneck Foods, Inc.
Com ($0.001)
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15 (d) of
Securities Exchange Act of 1934
For Quarter ended July 1, 2001
Commission File Number 0-24093
REDNECK FOODS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 58-2035983
----------------- ----------------
(State of Incorporation) (I.R.S. Employer ID No.)
5515 W. Rosecrans Ave., Suite 1137, Los Angeles, CA 90250
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(Address of Principal Executive Offices) (Zip)
(310) 491-3488
(Registrant's telephone, including area code)
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
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Indicate the number of shares outstanding of each of the issuer's classes of common stock at the latest practicable date.
As of August 2, 2001, the registrant had 60,925,000 shares of common stock, $.001 par value, issued and outstanding.
Redneck Foods, Inc.
10Q
Quarter 3 2001
For the three months and nine months ending September 30, 2001
Overview
Redneck Foods, Inc. is a Development Stage company. The Company was organized in February 1997 under the laws of the State of Delaware. The Company intends to own, franchise and operate restaurants, primarily, but not exclusively, under the Jeff Foxworthy's BBQ brand name. In addition, the Company intends to market a line of BBQ sauces to consumers through traditional retail outlets.
The Company began selling Jeff Foxworthy's BBQ sauces through grocery, mass merchandisers and retailers in December 1997. Wal*Mart stores were the initial purchasers of the line of Jeff Foxworthy's BBQ sauces.
On September 4, 2001, the Company acquired the Love's BBQ chain from its President, William E. Eskew. The Company paid $800,000 in notes and 4,000,000 shares of Company common stock for all the outstanding shares of Custom Food Franchise Group, Inc., Mission Valley Love's BBQ, Inc., and Love's BBQ Reno, Inc. Custom Food Franchise Group, Inc. is the owner of the trademarks and rights of Love's BBQ and is the franchisor of the Love's BBQ chain of restaurants. Mission Valley Love's BBQ, Inc. operates a Love's restaurant in San Diego, CA. Love's BBQ Reno, Inc. was a "shell" corporation designed to acquire a Love's restaurant in Nevada.
On August 15, 2001, the Company acquired a Love's Restaurant in Reno, NV along with a master territory consisting of the States of Nevada, Arizona, Colorado, New Mexico and Florida. The Company paid a total of $325,000 for the assets. The payment consisted of a cash payment of $200,000, and the Company gave the sellers a note and assumed certain liabilities for total of $125,000.
In July 2001, the Company entered into an agreement with Ora Enterprises, Ltd. for bulk of the financing for the acquisition of the Love's restaurant in Reno and the associated territories. Ora Enterprises, Ltd. purchased a $200,000 6% convertible debenture from the company. $150,000 of the proceeds went toward the purchase of the Love's BBQ restaurant in Reno, NV and the associated territories.
In July 2001, the Company also entered into an Agreement with Ora Enterprises, Ltd. for a $3,000,000 Equity Credit Line financing commitment. Under the terms of the agreement with Ora Enterprises, Ltd., subject to various conditions, limitations, and volume restrictions, Ora Enterprises, Ltd. has agreed to purchase, at a discount from market price, up to $3,000,000 of Company common stock over the next eighteen months.
The September 11 terrorist attack in New York and Washington, DC had a significant impact on the Company's business. Restaurants having large tourist and/or business traveler sales, suffered major declines in business. These included Love's company-owned restaurants in San Diego, CA and Reno, NV; and a franchised restaurant in Garden Grove, CA -near the entrance to Disneyland. The San Diego restaurant experienced a sales decline of 35% after the 9/11 attacks. The Reno, NV restaurant showed declines of up to 65% from its opening weeks' sales in 2000. Restaurants that serve the residents within the restaurant trading area haven't been impacted. In fact, most of these restaurants show sales gains versus last year.
In October 2001, the Company moved to its present offices in West Los Angeles. Under the terms of prior management agreement with Love's, Love's furnished office space, telephone service, and other administrative functions to the Company. This enabled the Company to operate with a minimum of Selling, General & Administrative Expense.
Results of Operations
For the three month periods July 2, 2001 - September 30, 2001 and July 3, 2000 - October 1, 2000.
For the three months ended September 30, 2001, the Company's sales were $114,000, with royalty revenues of $82,820. Total Company revenues were $196,820 with a Net Loss of $7,766. In the prior year for the quarter ended October 1, 2000, sales were $7,204, total revenues were $46,904 with a Net Income of $22,520.
Costs and Expenses
Cost of Goods Sold (COGS) and Selling, Administrative and General (SG&A) expenses were $80,170 and $82,730, respectively, for the three month period ended September 30, 2001. For the three month period ended October 1, 2000, COGS Expenses and SG&A Expenses were $0.
Other Expenses
Company restaurants paid royalties of $7,980 during the 2001 quarter. Interest Expense for the Convertible Debentures was $18,165 for the three months ended September 30, 2001, compared to $17,180 for the comparable quarter of the prior year. Interest Expense for other Long term debt was $14,861 in 2001 vs no comparable expense in 2000. Interest Expense on Short Term debt in 2001 was $720 vs $0 for the comparable period in 2000.
For the nine months ended September 30, 2001 and October 1, 2000
Sales and Revenues
The Company's sales were $114,000 and total revenues were $245,187 for the six months ended September 30, 2001 with a Net Loss of $30,219. For the first nine months of 2000, sales were $7,204, total revenues were $44,904 with a Net Loss of $15,197.
Costs and Expenses
Cost of Goods Sold (COGS) and Selling General and Administrative (SG&A) expenses were $80,170 and $116,885 for the nine month period ending September 30, 2001. For the nine month period ending October 1, 2000, SG&A expenses were $10,561.
Other Expenses
Interest Expense for the Convertible Debentures amounted to $54,790 for the nine months ended September 30, 2001, compared to $51,540 for the comparable period of 2000. In the first nine months of 2001, Interest expense on Short term notes was $720 and interest expense on Long term notes was $14,861. There were no comparable expenses in 2000.
Liquidity and Capital Resources
Historically, the Company has required capital to fund the operations and capital expenditure requirements of its business.
The Company operated from the cash flow of the operations during the three month period ended July 1, 2001.
Results of Operations
Redneck Foods, Inc.
(A Development Stage Company)
Statement of Operations
September 30, 2001 and October 1, 2000
3 Months ended 3 Months ended
September 30, 2001 October 1, 2000
--------------- ----------------
Net Sales 114,000 7,204
Royalty Income 82,820
Share of Love's Income 39,700
Total Revenues 196,820 46,904
Cost of Goods Sold 80,170 -
Gross Profit 116,650 46,904
Royalty Expenses 7,980
Selling, General & Admin 82,730 -
Income/(Loss) from Operations 25,940 46,904
Other Income/(Expense)
Miscellaneous Income - -
Interest Income/(expense) (33,706) (17,180)
Royalty Income -
Insurance Proceeds - -
Loss on equipment theft
Loss on equipment disposal
Total Other income (33,706) (17,180)
Net Income/(Loss) ( 7,766) 22,520
Net Income/(Loss) per Share ($0.0001) $0.0007
9 Months ended 9 Months ended
Sept. 30, 2001 Oct.1, 2000
--------------- ----------------
Net Sales 114,000 7,204
Royalty Income 131,187
Share of Love's Income 39,700
Total Revenues 245,187 44,904
Cost of Goods Sold 80,170 -
Gross Profit 165,017 44,904
Royalty Expenses 7,980
Selling, General & Admin 116,885 10,561
Income/(Loss) from Operations 40,152 36,343
Other Income/(Expense)
Miscellaneous Income - -
Interest Income (70,371) (51,540)
Royalty Income -
Insurance Proceeds - -
Loss on equipment theft
Loss on equipment disposal
Total Other income (70,371) (51,540)
Net Income/(Loss) (22,453) (15,157)
Income/(Loss) per share ($0.0007) ($0.0005)
Notes to Financial Statements
September 30, 2001 and October 1, 2000
1, Organization
Nature of Operations - Redneck Foods, Inc. (the "Company") is a development stage company that was organized in January 1997 in the State of Delaware. It intends to acquire and operate barbecue restaurants to be known as "Foxworthy's Smoke House Grill" or "Foxworthy's Bar- B-Q." The Company intends to initially acquire existing barbecue restaurants for conversion to one of the two restaurant concepts. The Company also intends to produce, market, and distribute food products using the "Foxworthy" name.
2. Basis of Presentation
The accompanying unaudited financial statements were prepared in accordance with instructions for Form 10-QSB and, therefore, do not included all disclosures necessary for a complete presentation of the balance sheet, statements of operations, and statements of cash flows in conformity with generally accepted accounting principles. However, all adjustments which are, in the opinion of management, necessary for the fair presentation of the audited financial statements have been included. All such adjustments are of a normal recurring nature. The statement of operations for the interim periods are not necessarily indicative of the results which may be expected for the entire year.
In the third quarter of 1998, the Company changed to a fiscal calendar based on a 52-53 week year with the fiscal year ending on the Sunday closest to December 31 of each year. Management does not believe this effects the comparability of the financial statements.
It is suggested that these unaudited financial statements be read in conjunction with the audited financial statements and notes thereto for the Company for the year ended December 31, 2000.
3. Income Taxes
The Company files its federal and State income tax returns on a calendar year basis. Now provision for income tax benefit has been provided for in the accompanying audited statements of operations because of the Company's uncertainty regarding the utilization of its operating losses.
4. Joint Venture
In March 1998, the Company entered into a joint venture agreement to own and operate the first barbecue restaurant under the "Foxworthy's Bar-B-Q" concept. The Company contributed $50,000 to the joint venture for its 10% interest. The company planned to acquire the remaining interest in the joint venture I the fourth quarter of 1998 pursuant to an agreement with its joint venture partner whereby common shares will be issued after completion of an audit. The Company has agreed to manage the operations until the final audit is complete and the shares of the common stock have been issued.
5. Prepaid Expenses and Other Assets
Prepaid expenses and other assets consist of the following at January 3, 1999.
Deposits -- CFFG $ 6,437
Earnest Money deposit 870,930
for business acquisition
____________
$ 877,367
On September 11, 1998, the Company obtained an extension relating to its ongoing negotiations to acquire all the stock of Woody's Bar-B-Q Holdings, Inc. ("Woody's"), a 33 unit chain of barbecue restaurants based in Jacksonville, Florida. To obtain this extension, the Company agreed to release to the selling shareholders of Woody's $870,930, representing the net funds held in escrow at that time. The parties have verbally extended the agreement until December 31, 1998 to give the Company additional time to raise the necessary funding. The parties have also verbally agreed to have the Company manage the business of Woody's under certain prudent industry practices guidelines. The Company has agreed with its independent auditor to write-off the Ernest Money Deposit if funds are recovered by the end of FY2001.
6. Secured Convertible Debentures
In order to fund the cash portion of the proposed acquisition of Woody's, the
Company authorized the issuance of up to $3 million in aggregate principal amount of Series 1 Convertible Debentures due 2001 (the "Debentures"). The Debentures bear interest at 5% per annum, payable quarterly, and are redeemable after 2 years at 125% of the principal amount sold. The Debentures are convertible, subject to certain adjustments, at the lower of (1) $2.51 per share or (2) 70% of the average of the closing bid price of the stock for the previous five (5) trading days. As of January 3, 1999, $1,275,000 in Debentures have been sold.
7. Other Transactions In June 1998, the 2,500,000 shares of convertible preferred stock were converted into 2,904,722 shares of common stock in accordance with the preferred stock agreement.
During the year ended January 3, 1999, the Company issued 233,333 shares of common stock under an asset purchase agreement with a fair market value of $670,000 to the owners of a barbecue restaurant in Asheville, North Carolina.
The stock issued was in consideration for a five year non-compete agreement, valued at $70,000, goodwill valued at $500,000, and various restaurant equipment valued at $100,000. The company anticipated completing the acquisition of the land, building and improvements. As of January 3, 1999, the Company had deposited with the sellers $42,352 toward the purchase price of the real property. This deposit is presented in other assets on the accompanying balance sheet.
During the year, the Company sold 428,500 additional shares of common stock for net proceeds of $775,000 and issued 110,436 shares in exchange for services which have been expensed at fair market value of the shares on the date of the Issuance.
8. New Accounting Pronouncement
In April 1998, the American Institute of Certified Public Accountants issued a Statement of Position ('SOP") 98-5, "Reporting on the Cost of Start-up
Activities." This SOP requires that the cost of start-up activities, or one-time activities that relate to the opening of a new facility and organizational cost be expensed as incurred instead of being capitalized. This
SOP must be implemented by no later than the first quarter of 1999 at which time the write-off of any unamortized pre-opening costs or organization cost will be reported as a cumulative effect of a change in accounting principle in the statement of operations.
9. Commitments and Contingencies
The agreement with Mr. Foxworthy provided that if the Company had not raised $2.5 million of initial capital by June 30, 1998, Mr. Foxworthy had the right to withdraw the use of his name and likeness. As of June 7, 1998, the initial capital had been raised and, accordingly, this contingency was removed.
10. Forward Looking Statements
This financial report may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Sections 21E of the Securities Exchange Act of 1934, and are subject to the safe harbor created by those sections. Such forward-looking statements, particularly as related to the business plans of the Company, expectations of strategic relationships, business opportunities related to electronic document delivery and related applications and voice, data and internet access telecommunications services, and the Company's ability to gain market share, the size of the market, the ability of the Company to develop new technologies, the ability of the Company to compete effectively in the marketplace, and the future product opportunities of the Company are based on current expectations that involve a number of risks and uncertainties.
Actual results may differ materially from the Company's expectations and estimates.
NOTES TO FINANCIAL STATEMENT
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Nature of Operations
The Company is a development stage company that operates, franchises and licenses restaurants under the Jeff Foxworthy's BBQ and Love's BBQ & Grill tradenames. In addition, the Company markets a line of Jeff Foxworthy's BBQ sauces to retail, grocery and mass merchandiser customers.
Use of Estimates
Management uses estimates and assumptions in preparing financial statements.
Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from these estimates.
Investments
The Company classifies its marketable debt and equity securities as available for sale. Securities classified as available for sale are carried in the financial statements at fair value. Realized gains and losses, determined using the first-in, first-out (FIFO) method, are included in earnings; unrealized holding gains and losses are reported in other comprehensive income.
Inventory
The Company's inventory is valued at the lower of cost (first-in, first-out) or
market using the retail method.
Depreciation
The Company's equipment and leasehold improvements are depreciated using primarily the straight-line method.
Amortization
Franchise Agreements are amortized on a straight-line basis over the number of years (usually 20 years) for which each franchise is granted.
Advertising
-----------The Company expenses advertising costs as they are incurred. Advertising expenses for the years ending December 31, 1997, January 3, 1999, January 2, 2000 and December 31, 2000 were $40,679, $25,064, $10,032, $ 1,425, respectively.
Income Taxes
The Company plans to file its federal and state income tax returns of a calendar year basis. No provision for income tax benefit has been provided for in the accompanying statements of operation because of the Company's uncertainty regarding the utilization of its operating losses.
NOTE B - RELATED PARTY TRANSACTIONS
Effective June 1, 2000, the Company entered into an agreement to manage and operate the Love's BBQ chain of restaurants. Under the terms of the agreement, the Company will receive 50% of the adjusted cash flow of the Love's BBQ chains during the time the Company manages Love's. In May 2000, the Love's BBQ chain was purchased by four individuals, all of whom are shareholders of the Company, including William E. Eskew, President and CEO of the Company. In consideration for executing the agreement, the Company agreed to pay the selling Love's shareholders 1,250,000 shares of Redneck common stock, and pay 1,000,000 shares and 750,000 shares, respectively, to the two principal shareholders who purchased Love's. On April 3, 2001, Company President William E. Eskew acquired controlling interest in Love's BBQ. William E. Eskew did not receive any consideration from the Company for his involvement with the Love's BBQ chain.
In March 2001, the Company purchased three corporations-Love's BBQ chain-from its President and CEO, William E. Eskew. The Company paid Mr. Eskew $666,150 in the form of a one year note bearing 10% interest and 4,000,000 shares of Company common stock, valued at $40,000 on the date of purchase. Love's had a note payable to Mr. Eskew's wife, Judith E. Eskew, in the amount of $133,850 at the time of the purchase. Mrs. Eskew agreed to a new promissory note from the company for a term of one year. This promissory note bears interest of 10% per annum. The promissory notes, and accrued interest, are payable to William E. Eskew and Judith E. Eskew on September 4, 2002. In addition, the Company's President and CEO loaned the Company $82,500. Proceeds from these loans were used to pay the Company's SEC attorney and independent auditor, and to help finance the purchase of the Love's restaurant in Reno, NV. These promissory notes, and accrued interest, are due February 28, 2002. At the time of purchase the Combined Net Equity of the three corporations purchased from Mr. Eskew was $662,000. In addition, the companies had an EBDITA of nearly $300,000 in 2000. The outside directors and one of the convertible debenture holders independently determine the price the Company would pay for these businesses.
The Company has an employment agreement with William E. Eskew, President and CEO, providing for a salary at a rate of $150,000 per year for 1999 and 2000.
Thereafter, Mr. Eskew will receive a salary of $175,000 per year. The agreement also provides for Mr. Eskew's salary to increase in relation to the total system sales of the Redneck system.
In addition, Mr. Eskew is to receive certain benefits, including health insurance, vacation, reimbursement of business expenses, the use of a company automobile and other benefits usually provided CEO's of chain restaurant companies.
The employment agreement calls for Mr. Eskew to work for the Company as President and CEO through 2003.
There were no other significant transactions between the Company and related parties during 1998, 1999, 2000, and 2001.
NOTE C - MARKETABLE DEBT AND EQUITY SECURITIES
The Company does not possess any Marketable Debt and/or Equity Securities.
NOTE D - EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following:
1998 1999 2000 2001
---------- ---------- ---------- ----------
Furniture Fixtures &
Equipment $ 184,684 $ 175,837 $166,990 $374,808
Leasehold Improvements 325,000
Accumulated Depreciation $ 9,851 $ 18,698 $27,545 $ 61,795
NOTE E - DEBT
The Company's long-term debt consists of the following:
1998 1999 2000 2001
---------- ---------- ---------- ----------
Notes payable at 10% $ 150,000 $ 0 $ 0 $ 822,900
Interest, due 366 days
after date made
Notes payable at 10%
Interest, due Feb. 28, 2003 $ 82,500
Convertible Debentures
Due 2001, interest at 5% $1,275,000 $1,275,000 $1,275,000 $1,275,000
---------- ---------- ---------- ----------
Total long-term debt $1,425,000 $1,275,000 $1,275,000 $2,097,900
Total short-term note $ 82,500
The interest payments due under the notes payable and convertible debentures are
as follows.
1998 1999 2000 2001
---------- ---------- ---------- ----------
Interest - Long-term notes $15,000 $ 33,659
Interest - short-term notes $ 3,061
Interest - Convertible
Debentures $8,460 $ 65,386 $ 68,717 $ 74,172
---------- ---------- ---------- ----------
$23,460 $ 65,386 $ 68,717 $110,892
NOTE F - DESCRIPTION OF LEASING ARRANGEMENTS
The company leases its office space on a month-to-month basis. The company plans to lease its company-operated restaurants under noncancelable operating leases. The Company also leases certain restaurant equipment, i.e., dish machines, ECR's, etc.
NOTE G - RETIREMENT PLANS
The company has agreed to pay William E. Eskew, President and CEO, a sum of $4,000 per month for 120 months, beginning on the first day of the month after Mr. Eskew's employment terminates. Under this agreement, the company will pay Mr. Eskew $48,000 per year in 2004, 2005, 2006, 2007, 2008, 2009, 2010, 2011, 2012 and 2013.
The Company has no other retirement plans or agreements.
NOTE H - INOME TAXES
The provision (benefit) for income taxes consists of the following components:
1997 1998 1999 2000
The income tax provision differs from the expense that would result from applying federal statutory rates to income before income taxes because certain expenses are not deductible for tax purposes.
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.
REDNECK FOODS, INC.
Date: December 28, 2001
/s/ William E. Eskew, CEO
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William E. Eskew, CEO |
