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

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

                                 FORM 10-KSB

(Mark One)

[X]   ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
      OF THE SECURITIES EXCHANGE ACT OF 1934

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

          For the period from December 29 1997 to December 27, 1998
                       Commission File Number 0-17975

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

                               REDHEADS, INC.
      (Exact name of small business issuer as specified in its charter)

              Delaware                               95-4169432
   (State or other jurisdiction of                (I.R.S. employer
   incorporation or organization)              identification number)

      50 South Buckhout Street
         Irvington, New York                            10533
(Address of principal executive offices)              Zip Code

                               (914) 591-4444
                       (Registrant's telephone number)

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

        Securities registered under Section 12(b) of the Act:   None
            Securities registered under Section 12(g) of the Act:
                               Title of Class
                  Common Stock, par value $0.001 per share

      Check whether the issuer (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  [ ]

      Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will 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-KSB or any amendment to this Form 10-KSB.  [ ].

      Registrant's revenues for the most recent calendar year:  $ 9,137,825.

      The aggregate market value of the voting stock held by non-affiliates
of the registrant as of December 27, 1998 was $1,086,808 (based on 869,447
shares held by non-affiliates and the closing price of the stock at
December 27, 1998.)

      Check whether the issuer has filed all documents and reports required
to be filed by Section 12, 13, or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes  [X]  No  [ ]

      As of March 17, 2000, the Registrant had 2,457,759 shares of its
$0.001 par value common stock issued and outstanding.

      Documents Incorporated by Reference:  None.


                           Magic Restaurants, Inc.
                           -----------------------
                                (Former Name)

                              July 1 to June 30
                            --------------------
                            (Former Fiscal Year)


                              TABLE OF CONTENTS
                              -----------------

<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----

<S>                                                                          <C>
PART I                                                                        3

Item 1.  Description of the Business                                          3

Item 2.  Description of Properties                                           11

Item 3.  Legal Proceedings                                                   12

Item 4.  Submission of Matters to a Vote of Security Holders                 13


PART II                                                                      14

Item 5.  Market for Common Equity and Related Stockholder Matters            14

Item 6.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations                                           18

Item 7.  Financial Statements                                                30

Item 8.  Changes in And Disagreements With Accountants on Accounting
         And Financial Disclosure                                            31


PART III                                                                     31

Item 9.  Directors and Executive Officers of the Registrant                  32

Item 10. Executive Compensation                                              35

Item 11. Security Ownership of Certain Beneficial Owners and Management      37

Item 12. Certain Relationships and Related Transactions                      38

Item 13. Exhibits, Financial Statement Schedules, and Reports on
         Form 8-K                                                            39


SIGNATURES                                                                   41
</TABLE>

                                   PART I
                                   ------

      This document contains certain forward looking information about the
Company, its business and its anticipated future performance.  When used in
this document, the words "anticipate," "believe," "expect," "estimate,"
"project," and similar expressions are intended to identify forward-looking
statements.  Such statements are subject to certain risks, uncertainties,
and assumptions by the management of the Company and may not prove to be
correct.  Should one or more of these risks or uncertainties materialize,
or should underlying assumptions prove incorrect, actual results may vary
materially from those anticipated, believed, expected, estimated, or
projected.  These assumptions include: (i) the receipt of adequate
additional capital on a timely basis to enable the Company to implement its
business plans; (ii)  the availability of suitable restaurant leaseholds
and the Company's ability to successfully negotiate and enter into binding
lease agreements;  (iii) the successful conversion and integration of
existing Red Robins and other  restaurants into the Company's current
business operations; and (iv) the continuation of favorable economic
conditions.

      All of these assumptions are inherently subject to significant
uncertainties and contingencies, many of which are beyond the control of
the Company.  Accordingly, there can be no assurance that actual results
will meet expectations or will not be materially lower than the results
contemplated in this document.

1.    Description of the Business

Introduction

      The Company owns and operates four casual dining, table service
restaurants in New York and New Jersey under the name "Redheads
Bistro/Bar."

      The Redheads Bistro/Bar concept is based upon the uniqueness, flair
and style associated with being a redheaded person.  Redheads are honored
as a"breed apart" from the ordinary; a group of people with a flair for
life and unpredictable nature.  These elements are presented in homage to
famous Redheads from celebrities to animated characters depicted  in
hundreds of posters, photographs and sculptures which reflect the redheads
state of mind.   Guest are encouraged to  "expect the unexpected" and to
absorb some of the fun, irreverence and unpredictable nature of being a
redhead.

General Business Developments During The Last Fiscal Year

      The Company and all of its subsidiaries filed petitions for relief
under Chapter 11 of Title 11 of the United States Code (the "Bankruptcy
Code") on April 6, 1995 (the "Petition Date"), and all operated as debtors
and debtors-in-possession through the entirety of their Chapter 11 cases.

      On May 30, 1997 (the "Plan Effective Date"), the Second Amended Plan
of Reorganization for the Company and its subsidiaries (the "Plan"), which
was confirmed by court order dated December 30, 1996, became effective.  In
connection with its reorganization, the Company caused its name to be
changed to "Redheads, Inc." and its Certificate of Incorporation and By-
Laws to be amended and restated.  In addition, the Plan caused all equity
securities issued prior to the Plan Effective Date to be canceled and
extinguished.  Under the Plan, the Company issued on the Plan Effective
Date a total of 2,235,743 shares of Common Stock and 28,775 shares of
Series A 12% Cumulative Convertible Preferred Stock to certain claimants
entitled to distributions under the Plan.  Pursuant to the Plan certain
subsidiaries also issued preferred stock to certain claimants.  See "Item
5--Market for Common Equity and Related Stockholder Matters."

      Subsequently, in June, 1997, the Company purchased the "Redheads
Bistro/Bar" concept and one operating Redheads Bistro/Bar restaurant
located in Middletown, New Jersey.  For additional discussion of the terms
of the purchase of the Redheads concept and the Plan, see "Item 1.
Business--The Redheads Purchase" and "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations" included
elsewhere in this report.

      As of the time of the filing of its Chapter 11 petition for relief,
the Company operated and managed 15 restaurants in the New York and
Washington, D.C. metropolitan areas.  In the New York metropolitan area, as
of the Petition Date, the Company operated six "Red Robin Burger and
Spirits Emporium" restaurants pursuant to franchise agreements under which
Red Robin International, Inc. licensed to the Company certain proprietary
operating systems, trade dress, and other specialized property.  In the
Washington, D.C. metropolitan area the Company operated nine "The American
Cafe" restaurants, which had been purchased in March, 1994 from Monolith
Enterprises, Inc., a subsidiary of W.R. Grace & Co.

      In November 1997 after having closed the last American Cafe
operations at the end of 1996, agreement was reached by which Ruby Tuesday,
Inc., a Georgia corporation, purchased the American Cafe trademarks and all
rights and interest therein for $100,000.

      While operating under Chapter 11 the Company ceased operations at all
of its restaurants in the Washington, D.C. metropolitan area and two of its
restaurants in the New York metropolitan area.  At the end of 1998 the
Company the company owned and operated five restaurants under the name
"Redheads Bistro/Bar."  On January 10, 1999, the Company halted operations
of the Redheads Bistro/Bar restaurant located in Levittown, New York.  The
company currently owns and operates four "Redheads Bistro/Bar" locations.
During 1998 the company was pursuing negotiations for the purchase of
another restaurant, currently operating as  a Redheads, whose gross sales
were estimated at $60,000 weekly.  During 1998 the Company ended the
negotiations due to lack of financing to complete the transaction.

      In September of 1996, the Company began redirecting its strategic
focus towards development, ownership, and operation of a multi-unit, mid-
scale, casual dining concept operating under the name Redheads Bistro/Bar.
The company acquired rights to the Redheads Bistro/Bar concept in June,
1997.  See "The Redheads Purchase." Pursuant to an agreement with Red Robin
International entered into in connection with consummation of the Plan, the
Company was required to cease operating its three restaurants in Yonkers,
New York, Secaucus, New Jersey, and Brooklyn, New York as Red Robin
restaurants by no later than December 31, 1997.  As of December 27, 1998
the Company had completed conversion of  all Red Robin restaurants to
Redheads Bistro/Bar.  See "Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operation--The Reorganization
Proceedings; Confirmation and Effectiveness of the Company's Reorganization
Plan."

The Redheads Restaurant Concept and Menu

      The Company believes that the trend in eating out is toward casual,
moderately priced, full-menu table service restaurants serving well-
prepared, high quality foods.  The Company's restaurants offer large
portions of high quality, fresh food at moderate prices.  The per person
check average  at the Company's "Redheads" restaurants is approximately
$9.75 for lunch and $12.75 for dinner, with an average per restaurant
seating capacity of approximately 250.

      The Company believes that its restaurants are distinguishable from
many other casual, moderately priced full-menu table service restaurants by
its theme, decor and its menu.  The theme, decor and menu are intended to
appeal to a varied clientele, including families, business patrons, casual
diners, and shoppers.

      The restaurants are sophisticated yet comfortable and casual, with
lively colors, natural woods, plants, and brass fixtures.  The bar area has
several large and small video screens, electronic and non-electronic games,
various entertainment features, caters to singles, couples, informal
groups, and late night dinner and drink crowds in an entertainment driven
atmosphere that often features live musical entertainment.  Bars are well
stocked with selections from microbrewerys and boutique wineries along with
a full liquor offering.   The restaurants also have a satellite dish and
multiple television screens throughout the bar and dining facilities.

      Casually dressed redheaded mannequins are playfully placed throughout
the restaurant, and the walls are extensively adorned with photos and
prints featuring all varieties of redheaded people, models, and
personalities, of all ages.  Local patrons are encouraged to post photos of
their own favorite redhead friend, relative, or personality along the thin
strip boards that traverse much of the seating area.

      The international menu is diverse in its offering, catering to a
variety of tastes and budgets.  In addition to the daily featured specials,
the menu offers unique dishes in every category.  Coffees, including
espressos, and desserts are also offered.   The menu's breadth, coupled
with  specials, caters to lunch, early-bird, evening dinner, and late night
appetites.  The portions are generous, and menu items range from $4.95 for
appetizers to $16.95 for certain steak and seafood entree selections.

      Three of the  restaurants offer a prominently displayed sushi bar,
staffed by sushi chefs. The Company believes the trend in casual restaurant
dining is moving to eclectic menus accented by ethnicity of taste.  The
Company addresses this trend through the addition of certain new design
elements known as modular dining.  Menus are adjusted to reflect the needs
and dining preferences of the individual restaurant market trade areas.

      The service staff dresses casually, wearing Redheads-styled red polo
shirts and dark or khaki slacks or shorts, depending on the season.

      The Company believes that the success of the Redheads Bistro/Bar
concept depends on a number of factors including location, management,
operating practices, and employees.

      The Company attempts to capture a significant portion of the market
share for food and beverage services in the immediate business area where
its restaurants are located.  To this end, each restaurant provides take-
out service and has fax machines through which it accepts orders.  The
Company also caters special events in its restaurants, and offers catering
sales and events planning managers to develop additional business in this
area.

      The Company's restaurants make extensive use of computerization,
providing management with precise information on hourly sales and labor
costs.  In addition to the tight labor controls this minimizes the need to
carry large quantities of food inventory and generally results in a higher
quality of food inventory.  Each of the Company's restaurants uses a
computerized point-of-sale system that tracks all food and drink orders and
expeditiously fulfills them.  This enables the servers and managers to
remain on the restaurant floor and be available to serve patrons.

Suppliers

      The Company purchases food and other supplies for its restaurants
from various wholesalers on a daily basis.  The Company's ability to
maintain a consistent quality of its products depends upon acquiring
quality food products and related items from reliable sources.  While the
Company believes that there are multiple sources for most food products in
the greater New York metropolitan area, the Company is still subject to the
common risks associated with restaurant supply relationships, such as those
relating to freshness, quality, selection, price and availability.

      The cost of the Company's supplies depends upon the extent to which
the Company is able to negotiate satisfactory arrangements with suppliers
and the availability of and demand for various items.  The combined unit
volume of purchases by each of its restaurants has enabled the Company to
obtain volume discounts and negotiating leverage in certain instances.

      The Company may be materially adversely affected by external events,
such as local weather conditions affecting the price and supply of various
items, as well as strikes within the food or transportation industries,
which may limit the ability of suppliers to furnish food to the Company on
a timely and cost-effective basis.  Generally, however, all essential food
and beverage products are available, or upon short notice can be made
available, from alternative qualified suppliers.

      Because of the relatively rapid turnover of perishable food products,
inventories in the restaurants, consisting primarily of food, beverages,
and supplies, have a modest aggregate dollar value relative to revenues.

Marketing

      The Company primarily targets the 18 to 49 year old age group, which
constitutes slightly less than half of the United States population.
Members of this population segment generally grew up frequenting fast food
restaurants but the Company believes that, with increasing maturity, they
prefer a broader, more adult, casual dining and bar experience.  To attract
this target group, the Company has used various types of advertising and
promotions.  Marketing programs are regionalized to address the specific
requirements of each trade area.  Marketing programs consist primarily of
public relations campaigns, advertisements in local newspapers, radio
commercials, distributing flyers, and sponsoring local activities.  The
Company  expects to rely primarily on targeted marketing efforts and
positive word-of-mouth endorsements from existing customers.

Seasonality

      The Company's business is seasonal in nature, with revenues and, to a
greater degree, operating incomes lower in the winter and fall (excluding
the year-end holiday shopping period) than in the spring and summer.  This
seasonal effect is largely caused by colder and more inclement weather that
keeps people at home, and by reduced overall consumer spending in the fall
in advance of the year-end holiday season.  Free-standing restaurant sales
are higher in the late spring and early summer months; sales at mall-based
restaurants generally reach their highest level during the year-end holiday
season.

Competition

      The retail food and beverage service industry is intensely
competitive, especially within the New York-Northern New Jersey
metropolitan area.  The Company competes with other full menu table service
restaurants and fast food restaurants for location, service, personnel,
perceived quality, variety, and value of the food and ambiance offered.
The Company competes with food service operations, with locally-owned
operations, and with national and regional chains, like T.G.I.Friday's,
Applebee's, Bennigan's, Chili's, Houlihan's, and Lone Star Steakhouse,
among others, several of whom have greater financial and other resources,
longer operating histories, substantially more facilities, and greater name
recognition than Redheads.  Barriers to entry are not substantial in the
restaurant industry.  Generally, however, locations and restaurants
comparable to the Company's restaurants require substantial capital to open
and operate.

      The Company has no control over the number of competitive restaurants
that may open in the proximity of the Company's restaurants.  Many of these
restaurants may enjoy much broader consumer recognition.  Increasing
competitive pressure may require additional advertising and promotional
expenditures, the amount and timing of which may be determined in part by
the need to respond to the advertising of competitors.

Government Regulation

      The Company's restaurants are subject to licensing and regulation by
various government agencies, including those dealing with alcohol control,
health, sanitation, fire, building, planning, on-site dancing and live
entertainment, and local traffic patterns.  Delays in obtaining, or denials
of, necessary licenses or approvals could have a material adverse impact
upon the Company's development of new restaurants and, consequently, the
Company's prospects.  The Company is also subject to Federal and state laws
pertaining to fair labor standards, which govern such matters as working
conditions and minimum wages.

      The Company has obtained liquor licenses for all of its present
locations, and does not anticipate any difficulty in obtaining liquor
licenses in the future.  In New Jersey, the number of liquor licenses which
may be granted in any one municipality is limited and subject to local
regulation.  For this reason, the acquisition of a liquor license may be
time-consuming, difficult and expensive, and the loss of a liquor license
could have a materially adverse impact upon the Company's prospects.  In
connection with the maintenance of its liquor licenses, the Company is
required to notify a local regulatory authority in the event of certain
changes in stock ownership of the licensed corporation and changes in
management of its New Jersey restaurants.

      Sales of alcoholic beverages represent approximately 20% of the
Company's food and beverage revenues.  The temporary suspension or
permanent loss of any liquor license, or the inability to obtain a liquor
license, could have a materially adverse effect on the Company's sales and
results of operations.

Management and Other Employees

      As of December 27, 1998, the Company employed 292 persons, of whom 12
were executive and administrative personnel, 25 were managerial employees
involved in restaurant operations, 96 were kitchen personnel, and 171 were
restaurant service personnel.  All of the restaurant service personnel are
part-time employees.  All non-managerial restaurant employees are paid on
an hourly basis.  The Company  believes that it enjoys generally good
relationships with its employees.  None of the Company's employees are
covered by a collective bargaining agreement.

      The Company seeks to attract and retain high caliber restaurant
managers by providing them with an appropriate balance of autonomy,
direction and attractive financial incentives. To those incentives, the
Company has developed a management incentive program under which new
general managers will work with senior management to prepare quarterly
budgets and performance plans for their restaurants. More experienced
general managers, who have demonstrated the ability to achieve planned
objectives, may be promoted to the district manager level. The Company
believes that by providing its general managers and district managers with
short and long-term financial incentives, it will continue to attract and
retain high caliber personnel. Company policy strongly favors promoting
existing non-management employees into management positions. Management
trainees must demonstrate their ability in every area of restaurant
operations before being considered for promotion.

Trademarks

      The Company is endeavoring to secure federal trademark and service
mark rights to the name and mark of "Redheads."  A third party has an
existing federal service mark registration for "The Redhead" for "nightclub
and cocktail lounge services," which could preclude a registration by the
Company.  It  appears, however that the Company made "prior use," and may
have a basis to bring a cancellation  proceeding with respect to the
registered mark.  The Company is advised that its prior use of the name and
mark protects its use of the name for those restaurants which made such
prior use. The Company may be precluded, however, from use of the name and
mark in the Chicago, Illinois market for as long as the registrant conducts
business there under "The Redhead" name.  The Company's current plan is to
concentrate growth on the East Coast, and in the Middle Atlantic states in
particular, where the first use of the trademark and service mark have been
established.

      In November 1997, after having closed the last American Cafe
operations at the end of 1996, agreement was reached by which Ruby Tuesday,
Inc., a Georgia corporation, purchased the American Cafe trademarks and all
rights and interest therein for $100,000.

Environmental Compliance

      Compliance with federal, state, and local laws and regulations which
have been enacted or adopted regulating the discharge of materials into the
environment, or otherwise relating to the protection of the environment, is
not expected to have a material affect upon the capital expenditures,
earnings, or competitive position of the Company.

Item 2.  Description of Properties

      All of the Company's restaurant locations are held under long term
leases.  The Company's leases generally provide for a fixed base rent plus
additional rent based on the level of sales generated by the restaurant.
Most of the Company's leases require the Company to pay all or a portion of
the costs of owning and operating the premises, including the cost of
insurance, taxes and maintenance.

Restaurant Locations

      The following chart sets forth the restaurants as of December 27,
1998 that are currently owned and/or operated by the Company through its
wholly-owned corporate subsidiaries, as listed below:

<TABLE>
<CAPTION>
   Location        Present Concept     Est. Seating     Sq. Footage            Term(1)
   --------        ---------------     ------------     -----------            -------

<S>                   <C>                  <C>             <C>          <C>
Brooklyn, NY          Redheads             250             6,500        May 1986 - Jan. 2005
Yonkers, NY           Redheads             260             8,400        July 1988 - June 2012
Middletown, NJ        Redheads             210             6,000        Apr. 1991 - Mar. 2006
Secaucus, NJ          Redheads             220             8,250        Oct. 1989 - Sept. 2009

<FN>
--------------------
(1)   Assumes that the Company exercises all of its extension options.
</FN>
</TABLE>

      The Company's administrative headquarters are located at Fifty South
Buckhout Street, Irvington, New York 10533, where the Company leases
approximately 4,000 square feet of office space under a five year lease.
The monthly lease payment is approximately $2,000, net of taxes, insurance,
and maintenance.  The Company has been operating from this space since
1997.

      The Company believes that its current facilities are adequate for
their present and future intended uses and that its properties are in good
condition, well maintained, and adequately insured.

Item 3.  Legal Proceedings

General

      Pursuant to the Plan, the Bankruptcy Court retained jurisdiction to
hear and determine any objections to claims.  Certain prepetition unsecured
claims against the Company, subject to resolution and discharge in the
Chapter 11 cases, have not been resolved.  However pursuant to the Plan,
125,000 shares of the Company's Common Stock are allocated for distribution
to all such claimants, and no other stock or assets of the Company may be
claimed by such claimants.  As a result, the resolution of such disputed
claims will not affect the Company.

      The Company is also presently appealing an order of the Bankruptcy
Court requiring the Company to pay approximately $100,000 to Bowie Produce,
Inc., a prepetition produce vendor, pursuant to the Perishable Agricultural
Commodities Act ("PACA").  The resolution of these matters is not expected
to become final until the early part of fiscal year 2000.  The Company
believes that an adverse decision to the Company in each of these matters
will not materially affect the Company's operations, and further that it
will have sufficient cash available to pay any judgments that may be
entered with finality against the Company.

      On October 7, 1998, Keybro Enterprises, the holders of 8% Cumulative
Preferred Stock of R.B.B. of Levittown, Inc.(see Dividends) brought on a
motion before the United States Bankruptcy Court for the conversion of the
instant cases to Chapter 7 of the Bankruptcy Code; and the Company, and its
affiliated entities and subsidiaries, the reorganized debtors interposed
opposition to the motion.

      On November 12, 1998, Keybro and the Company agreed to immediately
put up the restaurant located on Hempstead Turnpike, Levittown, NY up for
sale.  The debtors would operate the Levittown restaurant until the date of
sale.  The proceeds of the sale of the Levittown restaurant, net of the
actual costs of the sale including brokers fees would be applied as
follows: First, $50,000 will be applied to reimburse the Company for
operational losses incurred; second, up to $250,000 to be paid to Keybro;
the balance of the proceeds would be paid to the Company.

      The Company agreed to continue to operate the Levittown restaurant
under the terms of the Stipulation through and including Sunday, January
10, 1999.  In the event that a sale had not closed by that date, then: The
Company's  agreement to operate the restaurant would expire; the Company
would deliver to Keybro the common stock of RBB of Levittown, Inc.; the
Company shall deliver to Keybro peaceful possession of the restaurant;
Keybro shall reimburse the Company for any actual operational losses
incurred during the period following the Stipulation up to the amount of
$37,500.

      On January 10, 1999, without the sale of the restaurant occurring and
in accordance with the Stipulation, The Company delivered peaceful
possession of the restaurant to representatives of Keybro at the
restaurant.  Additionally, the Company delivered the common stock of RBB of
Levittown, Inc.(which Keybro rejected), and discontinued the operations of
the restaurant known as Redheads.

      In August 1999, Keybro commenced an action against the Company, Inc.
and R.B.B. of Levittown, Inc, seeking damages in excess of $850,000,
together with punitive damages in excess of $2,000,000, alleging, inter
alia, breach of the stipulation between Keybro and the Company entered into
during the Magic Restaurants reorganization, fraud, and corporate waste.
The Company and R.B.B. answered, albeit belatedly, asserting defenses based
upon the reorganization plan, the stipulation, defendants attempt to
deliver the common stock of R.B.B. to Keybro and defendants' attempts to
sell the Levittown restaurant.  Keybro moved for a default judgment, and
the Company and R.B.B. opposed the motion.  That motion has been pending
since the end of October 1999.  The Company maintains it has meritorious
defenses to the action that was brought.

      Other than as discussed in this Item 3, there are no other legal
proceedings to which the Company is a party that are material to the
Company's business.

Potential Dram Shop Liability

      All restaurants in New Jersey and New York are subject to dram shop
legislation which imposes liability on licensed alcoholic beverage servers
for injuries or damages caused by their negligent service of alcoholic
beverages to a visibly intoxicated person or to a minor, if such service is
the proximate cause of the injury or damage and such injury or damage is
reasonably foreseeable.  Additional restaurants established or acquired by
the Company in the future are likely to be subject to similar potential
liability in New Jersey and New York or elsewhere.  While the Company
maintains insurance which it believes is adequate to protect against such
liability, there can be no assurance that it will not be subject to a
judgment in excess of its insurance coverage or that it will be able to
continue to obtain insurance coverage at reasonable costs or at all.  The
imposition of a judgment substantially in excess of the Company's insurance
coverage would have a material adverse effect on the Company.  The failure
or inability of the Company to maintain insurance coverage could materially
and adversely affect the Company.

Item 4.  Submission of Matters to a Vote of Security Holders

      None.

                                   PART II
                                   -------

Item 5.  Market for Common Equity and Related Stockholder Matters

      The Common Stock issued pursuant to the Plan began trading on the
NASDAQ Bulletin Board in the third quarter of 1998 under the symbol RDHD.

      The following table sets forth the quarterly high and low sales
prices for the then issued Common Stock of the Company for the two quarters
ended December 27, 1998.  The source of these quotations is the National
Quotations Bureau.  These quotations reflect inter-dealer prices, without
retail mark-up, mark-down, or commission and may not represent actual
transactions.

<TABLE>
<CAPTION>
                          Low      High
                          ---      ----

      <S>                <C>       <C>
      1998
      ----
      Third quarter      $0.75     $2.25
      Fourth quarter     $0.25     $2.25
</TABLE>

Holders

      As of December 27, 1998, there were approximately 85 holders of
record of the Company's Common Stock.

Dividends

      Common Stock.  No dividends have been declared in respect of the
Company's  Common Stock since the April 6, 1995 Petition Date.  The Company
is not prohibited or restricted from paying dividends on the Common Stock,
but the Company does not anticipate paying any dividends to holders of the
Company's Common Stock in the foreseeable future.

      Series A 12% Cumulative Convertible Preferred Stock.  The Company is
obligated to pay dividends to the holders of the Series A 12% Cumulative
Convertible Preferred Stock ("Series A Preferred Stock") that was issued
under the Plan at a rate equal to twelve percent (12%) per annum on the $75
stated value.  The dividends are payable annually through the issuance of
shares of Common Stock of the Company at a price equal to 80% of the
average bid price for the Common Stock during the preceding 12 months.  To
the extent these funds are legally available, beginning May 30, 2000, the
Company has the option to purchase, at a cash price equal to $75. Per
share, plus accrued and unpaid dividends, portions of Series A Preferred
Stock, so that the stock would be retired within seven years.  For the
first three years after the issuance, at the election of the holders and
with the consent of the Company, the Series A Preferred Stock is
exchangeable for shares of common stock.  After this time the stock is not
exchangeable at the holders option. As of December 27, 1998, a total of
44,775 shares of the Series A Preferred Stock was outstanding, and all of
such shares were held by Teleferscot International, Ltd., ("Teleferscot").
Any newly issued Series A Preferred Stock will be entitled to dividends on
the same terms as the currently outstanding shares of Series A Preferred
Stock.  See "Item 6.  Management's Discussion and Analysis of Financial
Condition and Results of Operations--The Reorganization Proceedings;
Confirmation and Effectiveness of the Company's Reorganization Plan" for
further discussion of the nature and terms of the Series A Preferred Stock.

      As of December 27, 1998 the Company has $495,000 of dividends in
arrears for Series 12% Cumulative Convertible Preferred Stock.  Based upon
the common stock dividend formula the cumulative dividend would total
approximately 468,000 shares of common stock.

      R.B.B. of Secaucus and R.B.B. of Yonkers Preferred Stock.  Pursuant
to the Plan, R.B.B. of Secaucus, Inc. and R.B.B. of Yonkers, Inc. issued 8%
Cumulative Exchangeable Preferred Stock (the "Subsidiary Preferred Stock")
in exchange for a release of prepetition liability of approximately
$400,000.  Each issuing subsidiary owns and operates the restaurant unit
located in the city designated in the corporate name of the particular
issuing subsidiary.

      Dividends are payable on the Subsidiary Preferred Stock at a rate of
8% per annum based on  the liquidation preference of $75 per share.  The
dividends are payable semi-annually, to the extent funds are legally
available therefor.  At the election of the issuing subsidiary such
dividends may be paid by issuance of shares of Common Stock of the Company,
valued for this purpose at the closing price as of the 10th business day
preceding declaration of the dividend.  Further, to the extent funds are
legally available therefor, on May 30, 2000, May 30, 2001, and May 30,
2002, each issuing subsidiary will offer to purchase, at a cash price equal
to $75 per share, plus accrued and unpaid dividends, one-sixth, one-third,
and one-half, respectively of the Subsidiary Preferred Stock issued under
the Plan; provided, however, that if at any time the closing bid price of
the Common Stock exceeds $5 per share for 40 consecutive trading days, any
such mandatory repurchase obligation shall expire.

      Levittown Preferred Stock.  R.B.B. of Levittown, Inc. has also issued
its own 8% Cumulative Exchangeable Preferred Stock (the "Levittown
Preferred Stock").  On May 25,1997 the company issued 13,111 shares of 8%
Levittown Preferred Stock. Dividends are payable on the Levittown Preferred
Stock in cash at a rate of 8% per annum based on the liquidation preference
of $75 per share.  The dividends are  payable semi-annually, to the extent
funds are legally available therefore.  Further, to the extent funds are
legally available therefore, beginning on May 30, 1998, and monthly
thereafter, the Levittown subsidiary will offer to purchase one forty-
eighth (1/48) of the shares of the Levittown Preferred Stock issued under
the Plan to the holder.  The purchase price for such repurchase is equal to
the liquidation preference of $75 per share, plus accrued and unpaid
dividends.  For the first three years after issuance, at the election of
the holders and with the consent of the Company, Levittown Preferred Stock
and the Subsidiary Preferred Stock is exchangeable for shares of common
stock.  After this time, the stock is not exchangeable at the holders
option.

      As of December 27, 1998 the Company has $158,000 of dividends in
arrears for 8% Cumulative Exchangeable Preferred Stock.

      For further discussion of certain material terms of the Subsidiary
Preferred Stock and the Levittown Preferred Stock, see "Item 6.
Management's Discussion and Analysis of Financial Condition and Results of
Operation--The Reorganization Proceedings; Confirmation and Effectiveness
of the Company's Reorganization Plan and Item 3. Legal Proceedings."

Certain Rights of Preferred Shareholders

      The Company's charter provisions forbid mergers or consolidations in
which the Company is not the survivor, and certain asset sales, without the
consent of holders of a majority of the shares of the Series A Preferred
Stock, voting as a single class.

      The Subsidiary Preferred Stock and the Levittown Preferred Stock each
provide that if the issuing subsidiary of the preferred stock fails to pay
three consecutive semiannual dividends or fails to make one mandatory
repurchase, then the holders of such stock in such subsidiary, voting as a
single class, shall be entitled to elect one director to the Board of
Directors of the issuing subsidiary.  Such director will serve until all
accrued dividend and mandatory repurchase payments are brought current.

      The certificates of incorporation of the subsidiaries issuing the
Subsidiary Preferred Stock each provide that the subsidiary may not create,
incur, assume, or otherwise become or be liable for any indebtedness for
borrowed money or for the deferred purchase price of property (except to
the Company or another subsidiary of the Company).

      The certificate of incorporation of R.B.B. of Levittown provides that
it may not create, incur, assume, or otherwise become or be liable for any
indebtedness for borrowed money or for the deferred purchase price of
property.  Further, the charter provides that the issuing subsidiary will
not sell, transfer, or dispose of the assets of the subsidiary, except for
cash in the ordinary course of business at then fair market value.

      The certificate of incorporation of R.B.B. of Levittown also provides
it may not enter into mergers or consolidations in which R.B.B. of
Levittown is not the survivor, or into certain asset sales, without the
consent of holders of a majority of the shares of the Levittown Preferred
Stock, voting as a single class.

      Holders of the Levittown Preferred Stock also have the right, if a
default in payment of dividends or mandatory repurchase is uncured for 60
days or if the covenant on incurrence of indebtedness or ownership of the
subsidiary assets is breached, to require the Company to deliver to the
holder all outstanding shares of common stock of R.B.B. of Levittown, Inc.
in exchange for the Levittown Preferred Stock.

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

Introduction

      The Company owns and operates four casual dining, table service
restaurants in New York and New Jersey under the name "Redheads
Bistro/Bar."  The Company was originally organized as a Delaware
corporation on July 14, 1988 under the name Wetherly Ventures Associates,
Inc., which name was subsequently changed to Magic Restaurants, Inc. on
October 28, 1988.

      Each of the Company's five (the Levittown location was closed on
January 10, 1999) restaurants is operated through a separate wholly-owned
subsidiary of the Company.  Those subsidiaries are R.B.B. of Brooklyn,
Inc.; R.B.B. of Yonkers, Inc.; R.B.B. of Levittown Inc.; R.B.B. of
Secaucus, Inc.; and  R.B.B. of Middletown, Inc.

The Reorganization Proceedings; Confirmation and Effectiveness of the
Company's Reorganization Plan

      Generally.  On April 6, 1995, the Company (then Magic Restaurants,
Inc.) and its 17 wholly-owned subsidiaries filed petitions for relief under
Chapter 11 of Title 11 of the United States Code in the Bankruptcy Court
for the District of Delaware (the "Bankruptcy Court"), thereby commencing
their Chapter 11 cases (the "Reorganization Cases").  While under the
protection of Chapter 11, actions to collect on all claims against the
Company that were in existence prior to the filing of the petitions for
relief, whether secured or unsecured, were stayed while the Company and its
subsidiaries reorganized their businesses as debtors and debtors-in-
possession.  These claims are reflected in the Company's December 29, 1996
audited balance sheet as "liabilities subject to compromise." Additional
claims may arise subsequent to the petition date from rejection of
executory contracts and unexpired leases and from determination by the
Bankruptcy Court (or otherwise agreed by the claimant) of allowed claims
for contingencies and other disputed amounts.  The Company received
Bankruptcy Court approval to pay or otherwise honor certain of its
prepetition obligations, including employee wages, which the Company did
primarily in the last quarter of the fiscal year ended July 2, 1995.

      The lack of liquidity that precipitated the Company's Chapter 11
filing stemmed from under-capitalization, the collapse of its stock price,
the concomitant inability to obtain equity or debt financing through the
public capital markets, rising interest costs of nearly $1 million
annually, mounting amortization and accelerations of nearly $4 million in
notes payable, high level of general and administrative expenses, and
delays in closing several unprofitable restaurant locations.

      Postpetition Financing.  Pursuant to several orders of the Bankruptcy
Court following commencement of the Reorganization Cases, the Company was
authorized to continue to use "cash collateral" in the ordinary course of
its business.  Pursuant to these Orders, and as protection of certain
secured creditors' interests in such cash collateral, these secured
creditors were granted replacement liens on the postpetition accounts and
inventory of the Company and its subsidiaries to the extent of their use of
the cash collateral.

      On the Petition Date, the Company filed a motion for an order
authorizing it to obtain up to $1.5 million in credit through the issuance
of certain debt securities (the "Postpetition Senior Secured Notes").  The
Bankruptcy Court entered an order authorizing such debt.  The order was
subsequently amended to authorize the issuance of up to $2.520 million in
Postpetition Senior Secured Notes.  A total of $2.520 million was advanced
during the Company's reorganization through the issuance of these
Postpetition Senior Secured Notes.

      The Postpetition Senior Notes, among other things, (a) carried an
interest rate of 12 percent (12%) per annum; (b) allowed for the payment of
up to a ten percent commission on- borrowings to "finders" or broker
representatives of -note holders; (c) constituted administrative
superpriority claims; and (d) liens on all the Company's assets, junior
only to valid preexisting liens existing as of the Petition Date.

      Operational Restructuring of the Business.  The operational problems
encountered by the Company prior to filing Chapter 11 increased in the
first several months following the filing.  Once the Company filed for
Chapter 11 relief, sales dropped significantly.  In addition, some of the
Company's employees left the Company and were hired by the Company's direct
competition.  Finding replacements for these employees took substantial
time, and generally required training and promotion of in-house talent.  As
a result of these problems, same store sales for the Red Robin restaurants
were nearly 17% lower in 1995 than the prior year's sales levels.
Similarly, same store sales for The American Cafe restaurants were down in
1995 approximately 8% from the prior year's sales levels.

      To turn around the Company's operating business, the new management
team implemented hundreds of corrective changes at both the corporate and
unit levels, including:  food cost factors, training and personnel factors,
service improvements, staff and overhead reductions, outsourcing of certain
service needs, point-of-sale equipment upgrades, and new marketing efforts.
As a result, same store sales at several of the Red Robin locations by the
end of fiscal year ended June 30, 1996 were even with, or ahead of, the
previous year's sales.

      Selection and Purchase of the Redheads Concept.  In September of 1996
the Company began redirecting its strategic focus towards development,
ownership, and operation of a multi-unit, mid-scale, casual dining concept
operating under the name Redheads Bistro/Bar.  In furtherance of this
strategic redirection, during the twenty-six week transition period ended
December 29, 1996, the Company ceased all restaurant operations under The
American Cafe concept, closed down two marginal Red Robin restaurants in
Smithhaven and Staten Island New York, and caused the restaurant in
Levittown, New York, formerly operating as a Red Robin restaurant, to be
converted to a Redheads Bistro/Bar.  Pursuant to an agreement with Red
Robin International, entered into in connection with consummation of the
Plan, the Company is required to cease operating its three restaurants in
Yonkers, New York, Secaucus, New Jersey, and Kings Plaza Brooklyn, New York
as Red Robin restaurants by no later than December 31, 1997.  The Company
intends to cause each of these three restaurants to be converted to a
Redheads Bistro/Bar in accordance with that agreement.  Failure to remove
the trade dress as required by the Bankruptcy Court order could result in
litigation and the grant of injunctive relief against the Company, and the
imposition of unspecified monetary damages against the Company.  The
Company is proceeding with the conversions as directed by the court.  As of
January 1998 the Yonkers location had been successfully converted, the
Secaucus unit was closed for conversion and only the Kings Plaza location
was in violation of this order.

      On June 11, 1997 the Bankruptcy Court overseeing the Chapter 11 cases
of Red One, Inc., and Mr. Gallagher entered an order authorizing the sale
of the Redheads Bistro/Bar concept and the Middletown Redheads Bistro/Bar
facility to the Company.  The Company purchased the trade name, trade dress
elements, and all related intellectual property rights in the Redheads
Bistro/Bar concept for $100,000, and purchased the Middletown Redheads
Bistro/Bar for $175,000 cash, plus assumption of the underlying lease.  The
closing of this sale occurred on June 23, 1997, and ownership of the
Redheads concept and the Middletown Redheads Bistro/Bar transferred to the
Company.  No appeals of the order authorizing the sale were filed, and the
property was transferred, by the Bankruptcy Court order, free and clear of
all liens, claims, and encumbrances.

      The Reorganization Plan.  By order of the Bankruptcy Court entered on
December 30, 1996, the Bankruptcy Court confirmed the Company's Second
Amended Plan of Reorganization.  The Plan became effective by its terms on
May 25, 1997.  Prior to such date the Company's name was changed to
Redheads, Inc.  The Plan addressed the treatment of all claims against and
equity interests in the Company through the Plan Effective Date in the
following manner:

      Postpetition Series A Notes.  The holders of $2,520,000 of the
Postpetition Series A Notes received 1,896,983 shares of the Company's
Common Stock in exchange for their notes and interest due of approximately
$325,000. $35,000 of series A senior secured notes remained intact.

      Postpetition Series B Notes.  Teleferscot, the holder of $1,700,000
in Postpetition Series B Notes received 23,442 shares of the Company's
newly issued 12% Series A Preferred Stock (MRI) in exchange for the notes
and interest due of approximately $58,150.  The holder of the Series A
Preferred Stock is authorized under the terms thereof to exchange one share
of Series A Preferred Stock for (a) 5 shares of Common Stock through May
30, 1998, (b) 3.75 shares of Common Stock from May 31, 1998 through May 30,
1999, and (c) 3 shares of Common Stock from May 31, 1999 through May 30,
2000.  The Series A Preferred Stock carries a $75 liquidation preference
per share (plus accrued and unpaid dividends) and is callable by the
Company at any time at the liquidation preference price.  The 12% Series A
Preferred Stock also grants the Company an option to repurchase a
percentage of the Series A Preferred Stock, each year, at $75 per share
commencing on May 30, 2000.  If the Company exercised all such options it
would retire the Series A Preferred Stock by May 30, 2004.

      Postpetition Liabilities.  Approximately $1,882,000 of postpetition
liabilities were exchanged for 5,333 shares of newly issued 8% Subsidiary
Preferred Stock and 213,760 shares of newly issued Common Stock.  The
holders of the Subsidiary Preferred Stock are authorized under the terms
thereof (with the Company's consent), to exchange one share of Preferred
Stock for (a) 5 shares of Common Stock through May 30, 1998, (b) 3.75
shares of Common Stock through May 30, 1999, and (c) 3 shares of Common
Stock through May 30, 2000.  The Subsidiary Preferred Stock carries a $75
liquidation preference per share (plus accrued and unpaid dividends) and is
callable by the Company at any time at the liquidation preference price.
The present holder of all Subsidiary Preferred Stock is Red Robin
International, which holds 1,778 shares of Subsidiary Preferred Stock of
R.B.B. of Secaucus, Inc., 1,777 shares of R.B.B. of Yonkers, Inc. and 1,777
shares of R.B.B. of Levittown, Inc.

      Secured Claims.  Secured claims of approximately $1,207,000
(including interest of approximately $197,000) were exchanged for payables
of $209,000 in cash, and 11,333 shares of Levittown Preferred Stock.  The
present holder of this 8% Levittown Preferred Stock is Keybro Enterprises,
Inc., with 11,333 shares.

      Trade and Other Miscellaneous Claims.  The holders of approximately
$13,456,000 of trade and miscellaneous claims received 125,000 shares of
Common Stock of the Company, to be shared pro rata among certain of the
claimants.  Approximately $26,000 of these liabilities remained intact.

      Pre-Plan Effective Date Equity Interests.  All equity interests
outstanding prior to the Plan Effective Date were canceled and extinguished
without compensation.

      The Company is presently appealing an order of the Bankruptcy Court
requiring the Company to pay approximately $100,000 to Bowie Produce, Inc.,
a prepetition produce vendor, pursuant to the Perishable Agricultural
Commodities Act ("PACA").  The resolution of these matters is not expected
to become final until the early part of fiscal year 2000.  The Company
believes that an adverse decision to the Company in this  matter will not
materially affect the Company's operations, and further that it will have
sufficient cash available to pay any judgments that may be entered with
finality against the Company.

Commitments and Contingencies

       (a) The Company operates its restaurants under various operating
leases expiring through July 2012.  The executive offices are located in
Irvington, New York.  Rent expense for the fifty two weeks ending December
27, 1998, December 28, 1997 was $1,047,760 and $968,545 respectively.

Future minimum rent payments


<TABLE>
<CAPTION>
      Fifty-Two/Fifty-Three Weeks
            Ending December
      ---------------------------

              <S>                     <C>
                 1999                 $  767,958
                 2000                    794,133
                 2001                    801,169
                 2002                    791,435
                 2003                    766,535
              Thereafter               4,471,246
                                      ----------
                                      $8,392,476
                                      ==========
</TABLE>

The Redheads Purchase

      Central to the Company's restructuring strategy was acquisition of
the Redheads Bistro/Bar concept from its owners, Red One, Inc., a New
Jersey corporation and J. Michael Gallagher.  Red One, Inc. and Mr.
Gallagher were operating under Chapter 11.  On June 11, the Bankruptcy
Court overseeing the Chapter 11 cases of Red One, Inc., and Mr. Gallagher
entered an order authorizing the sale of the Redheads concept and the
Middletown Redheads Bistro/Bar in Middletown, New Jersey, to the Company.
The Company purchased the trade name, trade dress elements, and all related
intellectual property rights in the Redheads concept for $100,000, and
purchased the Middletown Redheads Bistro/Bar for $175,000 cash, plus
assumption of the underlying lease.  The sale closed on June 23, 1997, and
ownership of the Redheads Bistro/Bar concept and the Middletown Redheads
Bistro/Bar were transferred to the Company.  No appeals of the order
authorizing the sale were filed, and the property was transferred, by Court
order, free and clear of all liens, claims, and encumbrances.

Summary of Historical Results of Operations

      The table that follows sets forth for the periods indicated the
Company's statements of operations, with operating expenses, loss, and
other income or expense items listed as a percentage of total revenues for
such periods:

<TABLE>
<CAPTION>
                                                      (audited)                   (audited)
                                                      52 weeks                    52 weeks
                                                    Dec. 27, 1998               Dec. 28, 1997
                                                    -------------               -------------

<S>                                                  <C>            <C>          <C>           <C>
SALES                                                 9,137,825      100.00%      9,679,825     100.00%
COST OF SALES                                         2,697,661       29.52%      2,827,958      29.21%
                                                     ----------                  ----------
GROSS PROFIT                                          6,440,164       70.48%      6,851,867      70.79%
                                                     ----------                  ----------

OPERATING EXPENSES
  Labor costs                                         3,617,833       39.59%      3,108,513      32.11%
  Occupancy costs                                     1,398,164       15.30%      1,251,869      12.93%
  Other Operating Expense                             2,915,966       31.91%      2,301,864      23.78%
  Loss on Impairment                                  1,111,931       12.17%                      0.00%
  Depreciation and Amortization                         647,366        7.08%        379,663       3.92%
                                                     ----------                  ----------

    TOTAL OPERATING EXPENSES                          9,691,260      106.06%      7,041,909      72.75%
                                                     ----------                  ----------

LOSS FROM RESTAURANT OPERATIONS                      (3,251,096)     -35.58%       (190,042)     -1.96%
                                                     ----------                  ----------
  General and administrative expenses                   632,192        6.92%        961,200       9.93%

LOSS FROM OPERATIONS                                 (3,883,288)     -35.58%     (1,151,242)     -1.96%
                                                     ----------                  ----------
  Interest expense                                     (172,093)      -1.88%       (325,090)     -3.36%
  Other income (expense) net                              7,323        0.08%        (68,802)     -0.71%
                                                     ----------                  ----------

    TOTAL OTHER EXPENSE                                (164,770)      -1.80%       (393,892)     -4.07%
                                                     ----------                  ----------

REORGANIZATION EXPENSE
  Professional fees                                           0        0.00%       (522,081)      0.08%
  Gain on disposal  of asset                                  0        0.00%          8,014      -5.39%
                                                              0        0.00%              0       0.00%
                                                              0        0.00%              0       0.00%
                                                     ----------                  ----------
    TOTAL REORGANIZATION EXPENSE                              0        0.00%       (514,067)     -5.31%
                                                     ----------                  ----------

LOSS BEFORE EXTRAORDINARY ITEM                       (4,048,058)    -150.06%     (2,059,201)    -72.82%
 EXRTAORDINARY ITEM
  Forgivness of Debt                                          0        0.00%     15,988,136     165.17%
                                                     ----------                  ----------

    NET INCOME (LOSS)                                (4,048,058)     -44.30%     13,928,935     143.90%
                                                     ==========                  ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
 OUTSTANDING                                          2,426,292                   4,258,722
                                                     ==========                  ==========

BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE
  Loss from operations                                    (1.94)                      (0.48)
  Extraordinary                                            0.00                        3.75
                                                     ----------                  ----------
                                                     $    (1.94)                 $     3.27
                                                     ==========                  ==========

RESTAUTANTS OPEN AT BEGINNING OF PERIOD                       5                           4
RESTAUTANTS OPENED IN PERIOD                                  0                           1
RESTAUTANTS CLOSED IN  PERIOD                                 0                           0
RESTAUTANTS OPEN AT END OF PERIOD                             5                           5
</TABLE>


Comparison of the Fiscal Year Ended December 27, 1998 to the Fiscal Year
Ended December 28, 1997

      Total revenues decreased $542,000 or 6% to $9,137,825 in fiscal year
ended December 27, 1998 ("Fiscal Year 1998") from $9,679,825 in the fiscal
year ended December 28, 1997 ("Fiscal Year 1997").  Total Operating expense
increased $2,649,352 or 38% to $9,691,260 in Fiscal Year 1998 from
$7,041,909 in the Fiscal Year 1997.  Loss from operations increased
$2,732,046 or 237% to $3,883,288 in Fiscal Year 1998 from $1,151,242 in the
Fiscal Year 1997.  The decrease in sales were primarily attributed to
decline in same store sales.  The increase in operating expenses can be
attributed to due to the write down of certain note receivables, the
closure of the Levittown restaurant and costs associated with new menu
design.

      Food and beverage expense decreased $130,297 or 5% to $2,697,661 for
Fiscal Year 1998 from $2,827,958 for Fiscal Year 1997, principally as a
result of the decreased sales volumes.  Food and beverage expenses as a
percentage of food and beverage revenues were 29.5% in Fiscal Year 1998
compared with 29.2% in Fiscal Year 1997.

      Restaurant labor and related expenses increased $509,320 or 16% to
$3,617,833 in Fiscal Year 1998 from $3,108,513 in Fiscal Year 1997
primarily due to a change in management's allocation of general and
administrative payroll.

      Restaurant occupancy expenses increased $146,294 or 12% to $1,398,163
in Fiscal Year 1998 from $1,251,869 in Fiscal Year 1997, primarily due to
the natural escalating costs of the operating leases.

      Other Operating expenses increased $614,103 or 27% to $2,915,966 in
Fiscal Year 1998 from $2,301,864 in Fiscal Year 1997, primarily due to the
write off of certain note receivables. Other Operating expenses as a
percentage of revenues increased to 31.9% in Fiscal Year 1998 from 23.8% in
Fiscal Year 1997.

      Loss on Impairment expense increased $1,111,931 or 100% to $1,111,931
in Fiscal Year 1998 from $0 in Fiscal Year 1997.  This came as a result of
the Company's planned divestiture of the Levittown location.

      Depreciation and amortization expense increased $267,703 or 71% to
$647,366 in Fiscal Year 1998 from $379,663 in Fiscal Year 1997, primarily
as a result of the conversion to the Redheads Bistro Bar concept throughout
Fiscal 1998.

      General and administrative expenses decreased $329,009 or 34% to
$631,192 in Fiscal Year 1998 from $$961,200 in Fiscal Year 1997.  This
decrease is partially due to a one time $228,136 stock compensation paid
May 1997.  General and administrative expenses as a percentage of revenues
decreased to 7% in Fiscal Year 1998 from 9.3% in Fiscal Year 1997.  The
decrease is partially due to a change in management's allocation of general
and administrative payroll.

      Interest expense-net decreased $152,996 or 47% to $172,093 in Fiscal
Year 1998 from $325,090 in Fiscal Year 1997, principally as a result of the
pay down of certain secured loans and the reduction in DIP financing as a
result of the emergence from Chapter 11 proceedings.  Interest expense-net
as a percentage of revenues decreased to 1.8% in Fiscal Year 1998  from
3.4% in Fiscal Year 1997.

      Other income (expense) decreased $76,125 or 111% to $7,323 in Fiscal
Year 1998 from $(68,802) in Fiscal Year 1997.  Other income (expenses) as a
percentage of revenues increased to .1% in the 1997 Period from .7% in the
1996 Period.

      Reorganization Fees decreased $514,067 or 100% to $0 in Fiscal Year
1998 from $514,067 in Fiscal Year 1997, primarily  as a result of the
emergence from Chapter 11 proceedings and due to a reduction in legal fees
associated with the Chapter 11 cases.

      The Company recognized a loss on the closing of The American Cafe
Restaurants of  $8,014 in Fiscal Year 1997, this represented .1% of
revenue.

      The Company recognized an extraordinary gain of $15,988,136 from the
forgiveness of debt upon the emergence from its Chapter 11 cases. In Fiscal
Year 1997 this represents 165% of revenue.

      The Company's net income (loss) in Fiscal Year 1998 was $(4,048,058)
as compared to a net loss of $13,928,935 in Fiscal Year 1997.  This
represents a decrease of $17,976,994 or 129% in net income

Financial Condition and Capital Resources

      Operating Activities.  Since inception, the Company has incurred
losses from operations.  As of December 27, 1998 and December 28, 1997, the
Company had an accumulated deficit of $4,763,894 and $715,836 respectively.
During the Fifty-Two weeks ended December 27, 1998, net cash flow used in
operations totaled $842,797.  During the Fifty-Two Weeks ended December 28,
1997, net cash flow used in operations totaled $1,820,628.

      As of December 28, 1997, the Company had negative working capital of
$435,226 as compared to negative working capital of $1,958,245 as of
December 27, 1998.

      The Company has, upon the effectiveness of its confirmed Plan,
accounted for the reorganization using "fresh-start" reporting.
Accordingly, all assets and liabilities are restated to reflect their
reorganization value, which approximates fair value at the date of
reorganization.  Application of the principles of "fresh-start" reporting
resulted in elimination of the stockholders' deficit and caused $22,435,338
of total liabilities to be extinguished, as provided specifically in the
Plan itself.  See"-- The Reorganization Proceedings; Confirmation and
Effectiveness of the Company's Reorganization Plan" for further discussion
of the consequences of the Plan's confirmation and effectiveness.

      The Company does not have trade accounts receivable, since sales are
for cash or by credit card receipts, which are usually paid within one
week.  The Company does not maintain substantial inventories due to the
relatively brief shelf life and frequent turnover of food products and
liquor.  The restaurants receive deliveries of food and liquor no less
frequently than every other day.  Additionally, the Company has been able
to obtain modest amounts of trade credit for purchasing food, liquor, and
restaurant supplies.

      Increases in food and labor costs and interest rates can have a
direct affect on the Company's operations.  The Company believes it has
responded appropriately to such increases, some of which are passed through
to the consumer.  The federal minimum wage required to be paid to employees
has increased, however many of the Company's employees are paid hourly
rates higher than the federal minimum wage.

      The Company's current leases require, and future leases may require,
the Company to pay taxes, maintenance, insurance, repairs and utility costs
which are also subject to inflation, and in addition, some leases contain,
and future leases may contain, escalations of annual rentals based upon
limited increases in specific cost-of-living indices, none of which are
controllable by the Company.

      Increases in interest rates will adversely affect the Company's
ability to obtain financing necessary for the establishment of additional
restaurants and additional working capital needs.

      Investing Activities.  In March, 1998, the Company caused its Red
Robin restaurant unit in Secaucus, New York to be converted to a Redheads
Bistro/Bar.  This second  unit conversion by the Company to the Redheads
Bistro/Bar concept cost the Company approximately $50 per square foot or
approximately $350,000.

      Financing Activities.  To fund these units' conversion to the
Redheads Bistro/Bar concept and costs associated with the emergence from
bankruptcy, as well as other costs, the Company obtained a funding
commitment from Teleferscot to provide up to $3.3 million.  Through
December 27, 1998 the Company received $3,100,000 of the committed funding.
As of March, 1998 the Company had drawn down on the remaining amount
available under commitment in order to fund the Secaucus unit conversion to
the Redheads Bistro/Bar concept.  In exchange for each $75 drawn down under
the funding commitment, Teleferscot will receive 1 additional share of the
Company's Series A Preferred Stock.

      During fiscal year 98 the Company received financing in the form of
12% Debt instruments.  The amount of loans from these instruments for the
year totaled $793,641.

      It is management's belief that profitability will be achieved by
acquiring additional restaurants to provide an expanding revenue base to
absorb fixed corporate overhead charges.  The Company anticipates that
revenues will exceed the increased expenditures associated with the
acquisition of additional restaurants.

      The poor performance of any one restaurant could have a materially
adverse effect upon the financial condition of the Company.  However, the
Company  believes, although there can be no assurance, that the adverse
effect of the results of any one restaurant will diminish as the number of
restaurants operated by the Company increases.  While the Company believes
that management efficiencies and marketing strategies will limit declines
in existing store revenues, there can be no assurance that future declines
in existing restaurant revenues will not occur and adversely affect the
Company.

      As of December 27, 1998, the company's working capital deficit was
$1,958,245.  The company anticipates that it will require additional
working capital to fund operations.   The Company believes that it will
have sufficient capital to meet these obligations through the improvement
of current operations, the shut down of the non-performing unit in
Levittown, NY, and financing in the form of debt from a major shareholder
of the company.  However, there can be no assurance that the Company will
have sufficient capital to support operations and implement its business
plans.

Item 7.  Financial Statements

                 Index to Consolidated Financial Statements


Report of Independent Certified Public Accountants

Consolidated Balance Sheet

Consolidated Statement of Operations

Consolidated Statement of Cash Flows

Consolidated Statement of Changes in Stockholders' Equity

Notes to Consolidated Financial Statements


Item 8.  Changes in And Disagreements With Accountants on Accounting And
Financial Disclosure

      None.


                       REDHEADS, INC. AND SUBSIDIARIES

                      CONSOLIDATED FINANCIAL STATEMENTS

                              DECEMBER 27, 1998

                                     AND

                              DECEMBER 28, 1997


                       REDHEADS, INC. AND SUBSIDIARIES


                               C O N T E N T S
                               ---------------

<TABLE>
<CAPTION>
                                                  PAGE
                                                  ----


<S>                                             <C>
INDEPENDENT AUDITORS' REPORT                       F-1


CONSOLIDATED BALANCE SHEETS                        F-2


CONSOLIDATED STATEMENTS OF OPERATIONS              F-3


CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
 EQUITY (DEFICIT)                                  F-4


CONSOLIDATED STATEMENTS OF CASH FLOWS           F-5 to F-6


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     F-7 to F-18
</TABLE>



                        INDEPENDENT AUDITORS' REPORT


To the Stockholders and Board of Directors
Redheads, Inc.
Irvington, New York

We have audited the accompanying consolidated balance sheets of Redheads,
Inc. and Subsidiaries as of December 27, 1998 and December 28, 1997 and the
related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for the fifty-two weeks ended December 27, 1998
and the period May 26, 1997 (emergence date) to December 28, 1997 and the
period December 30, 1996 to May 25, 1997 (Predecessor).  The consolidated
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on the 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 financial statements are free
of material misstatement.  An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to in the
first paragraph present fairly, in all material respects, the consolidated
financial position of Redheads, Inc. and Subsidiaries  as of  December 27,
1998 and December 28, 1997 and the results of their operations and cash
flows for the fifty-two weeks ended December 27, 1998 and the period May
26, 1997 (emergence date) to December 28, 1997 and the period December 30,
1996 to May 25, 1997 (Predecessor), in conformity with generally accepted
accounting principles.

The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern.  As discussed
in Note 1, the Company has incurred recurring losses from operations and at
December 27, 1998 has a working capital deficit of $1,958,245 and a
stockholders' deficit of $1,037,195. Also as discussed in Note 14, an
action was commenced against the Company related to the Levittown
restaurant, the outcome of which is uncertain. Continuation of the Company
as a going concern is dependent upon future successful operations and the
ability to generate sufficient cash flows from operations and
capital/financing sources to meet its obligations.  These matters raise
substantial doubt about the Company's ability to continue as a going
concern.  Management's plans in regard to these matters are also described
in Note 1.  The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.


                                       COGEN SKLAR LLP

Bala Cynwyd, Pennsylvania
March 10, 2000


                       REDHEADS, INC. AND SUBSIDIARIES
                         CONSOLIDATED BALANCE SHEETS
                   DECEMBER 27, 1998 AND DECEMBER 28, 1997

<TABLE>
<CAPTION>
                                                                 December 27,     December 28,
                                                                     1998             1997
                                                                 ------------     ------------

<S>                                                              <C>               <C>
                           ASSETS
CURRENT ASSETS
  Cash                                                           $         -       $  180,082
  Inventory                                                           84,812           83,376
  Subscription receivable                                                  -          400,000
  Other current assets                                                86,719          336,202
                                                                 ----------------------------

TOTAL CURRENT ASSETS                                                 171,531          999,660

PROPERTY AND EQUIPMENT - NET                                       1,349,017        2,321,494

NOTES RECEIVABLE - Long-term, net of provision for losses of
 $       and $33,312                                                       -          673,017

OTHER ASSETS                                                         365,674          469,771
                                                                 ----------------------------

TOTAL ASSETS                                                     $ 1,886,222       $4,463,942
                                                                 ============================

       LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
  Cash overdraft                                                 $   210,955       $        -
  Accounts payable and accrued expenses                              912,781          967,944
  Sales tax payable                                                  495,414           71,224
  Prepetition taxes payable                                          443,238          395,748
  Payroll tax liabilities                                             67,388                -
                                                                 ----------------------------

TOTAL CURRENT LIABILITIES                                          2,129,776        1,434,916

LONG-TERM DEBT                                                       793,641                -
                                                                 ----------------------------

TOTAL LIABILITIES                                                  2,923,417        1,434,916
                                                                 ----------------------------

COMMITMENTS AND CONTINGENCIES

      STOCKHOLDERS' EQUITY (DEFICIT)

PREFERRED STOCK
  Series A 12% Cumulative Convertible - $0.001 par value;
   5,000,000 shares authorized; 44,775 shares issued and
   outstanding in 1998; 42,109 shares issued and outstanding
   in 1997                                                           335,815          315,815
  Series A 8% Cumulative Exchangeable - $0.001 par value;
   1,017,000 shares authorized; 16,666 shares issued and
   outstanding in 1998 and 1997                                      125,000          125,000

ADDITIONAL PAID-IN CAPITAL                                         2,581,812        2,401,812

COMMON STOCK - $0.001 par value; 23,024,000 shares
 authorized; 2,457,759 shares issued and outstanding in
 1998; 2,386,439 issued outstanding in 1997                            2,458            2,386

ADDITIONAL PAID-IN CAPITAL                                           681,614          499,849

12% PREFERRED STOCK SUBSCRIBED                                             -          400,000

ACCUMULATED DEFICIT                                               (4,763,894)        (715,836)
                                                                 ----------------------------

TOTAL STOCKHOLDERS' EQUITY (DEFICIT)                              (1,037,195)       3,029,026
                                                                 ----------------------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)             $ 1,886,222       $4,463,942
                                                                 ============================
</TABLE>


            The accompanying notes are an integral part of these
                     consolidated financial statements.

                       REDHEADS, INC. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                             Predecessor
                                                                                             -----------
                                                            Fifty-Two        Thirty-One      Twenty-One
                                                           Weeks Ended      Weeks Ended      Weeks Ended
                                                           December 27,     December 28,       May 25,
                                                               1998             1997            1997
                                                           ------------     ------------     -----------

<S>                                                        <C>               <C>             <C>
SALES                                                      $ 9,137,825       $5,943,970      $ 3,735,855

COST OF SALES                                                2,697,661        1,750,851        1,077,107
                                                           ---------------------------------------------

GROSS PROFIT                                                 6,440,164        4,193,119        2,658,748
                                                           ---------------------------------------------

OPERATING EXPENSES
  Labor costs                                                3,617,833        1,934,336        1,174,177
  Occupancy costs                                            1,398,164          745,590          506,279
  Other operating expenses                                   2,149,880        1,461,583          840,281
  Depreciation and amortization                                647,366          240,636          139,027
  Write off of uncollectible receivables                        86,224                -                -
  Write off of notes receivable                                679,862                -                -
  Loss on impairment of assets of Levittown restaurant       1,111,931                -                -
                                                           ---------------------------------------------
                                                             9,691,260        4,382,145        2,659,764
                                                           ---------------------------------------------

LOSS FROM RESTAURANT OPERATIONS                             (3,251,096)        (189,026)          (1,016)

GENERAL AND ADMINISTRATIVE
 EXPENSES                                                      632,192          350,711          610,489
                                                           ---------------------------------------------

LOSS FROM OPERATIONS                                        (3,883,288)        (539,737)        (611,505)
                                                           ---------------------------------------------

OTHER INCOME (EXPENSE)
  Interest expense                                            (172,093)          (1,226)        (323,864)
  Other income (expense), net                                    7,323          (46,644)         (22,158)
                                                           ---------------------------------------------
                                                              (164,770)         (47,870)        (346,022)
                                                           ---------------------------------------------

REORGANIZATION EXPENSES
  Professional fees                                                  -          (43,965)        (478,116)
  Gain on disposal                                                   -                -            8,014
                                                           ---------------------------------------------
                                                                     -          (43,965)        (470,102)
                                                           ---------------------------------------------

LOSS BEFORE EXTRAORDINARY ITEM                              (4,048,058)        (631,572)      (1,427,629)

EXTRAORDINARY ITEM - Gain (loss) from
 extinguishment of debt, no applicable income
 tax benefit (expense)                                               -          (84,264)      16,072,400
                                                           ---------------------------------------------

NET INCOME (LOSS)                                          $(4,048,058)      $ (715,836)     $14,644,771
                                                           =============================================

BASIC AND DILUTED EARNINGS (LOSS)
 PER SHARE OF COMMON STOCK
  Loss from operations                                     $     (1.94)      $    (0.36)     $     (0.20)
  Extraordinary                                                      -            (0.04)            2.22
                                                           ---------------------------------------------

NET INCOME (LOSS)                                          $     (1.94)      $    (0.40)     $      2.02
                                                           =============================================

WEIGHTED AVERAGE SHARES
 OUTSTANDING OF COMMON STOCK                                 2,426,292        2,236,437        7,244,000
                                                           =============================================
</TABLE>


            The accompanying notes are an integral part of these
                     consolidated financial statements.


                       REDHEADS, INC. AND SUBSIDIARIES
          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
            FOR THE PERIOD DECEMBER 29, 1996 TO DECEMBER 27, 1998

<TABLE>
<CAPTION>
                                                                                                           12%
                             Series A Preferred Stock                       New    Old                  Preferred
                             ------------------------ Preferred  Paid-In   Common Common    Paid-In       Stock    Accumulated
                                 12%         8%         Stock    Capital   Stock  Stock     Capital    Subscribed    Deficit
                                 ---         --       ---------  -------   ------ ------    -------    ----------  -----------

<S>                            <C>        <C>           <C>     <C>        <C>    <C>     <C>          <C>         <C>
BALANCE AT DECEMBER 29, 1996   $      -   $      -      $ 107   $        - $    - $ 7,244 $ 13,887,520 $         - $(35,437,302)

Recapitalization upon
 emergence from bankruptcy      175,815    125,000       (107)   1,141,812  2,236  (7,244) (13,877,520)  1,800,000   20,792,531

Net income for the
 twenty-one weeks ended
 May 25, 1997                         -          -          -            -      -       -            -           -   14,644,771

Issuance of 18,666 shares
 of 12% Preferred Stock
 for partial receipt of
 subscription receivable        140,000          -          -    1,260,000      -       -            -  (1,400,000)           -

Issuance of 150,696 shares
 of Common Stock for
 settlement of unpaid legal
 fees                                 -          -          -            -    150       -      499,849           -            -

Net loss for the thirty-one
 weeks ended December 28,
 1997                                 -          -          -            -      -       -            -           -     (715,836)

BALANCE AT DECEMBER 28, 1997    315,815    125,000          -    2,401,812  2,386       -      499,849     400,000     (715,836)

Issuance of 2,666 shares of
 12% Preferred Stock for
 partial receipt of
 subscription receivable         20,000          -          -      180,000      -       -            -    (200,000)           -

Proceeds of subscription
 receivable converted to
 debt                                 -          -          -            -      -       -            -    (200,000)           -

Issuance of 67,819 shares of
 Common Stock for settlements
 of unpaid legal fees                 -          -          -            -     68       -      176,519           -            -

Issuance of 3,500 shares of
 Common Stock for settlement
 of unpaid expenses                   -          -          -            -      4       -        5,246           -            -

Net loss for the fifty-two
 weeks ended December 27,
 1998                                 -          -          -            -      -       -            -           -   (4,048,058)
                               ------------------------------------------------------------------------------------------------

Balance at December 27, 1998   $335,815   $125,000      $   -   $2,581,812 $2,458 $     - $    681,614 $         - $ (4,763,894)
                               ================================================================================================
</TABLE>


            The accompanying notes are an integral part of these
                     consolidated financial statements.


                       REDHEADS, INC. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                       Predecessor
                                                                                                       ------------
                                                                   Fifty-Two          Thirty-One        Twenty-One
                                                                  Weeks Ended         Weeks Ended      Weeks Ended
                                                               December 27, 1998     Dec. 28, 1997     May 25, 1997
                                                               -----------------     -------------     ------------

<S>                                                               <C>                 <C>              <C>
CASH FLOWS FROM OPERATING EXPENSES
  Net income (loss)                                               $(4,048,058)        $  (715,836)     $ 14,644,771
  Adjustment to reconcile net loss to net cash
   used in operating activities
    Depreciation                                                      398,539             206,149           134,941
    Amortization                                                      248,829              34,487             4,104
    Provision for loss on notes receivable                                  -              20,000          (523,736)
    Gain from extinguishment of debt                                        -                   -       (16,072,400)
    Loss on write off of uncollectible receivables                     86,224                   -                 -
    Loss on write off of notes receivable                             679,862                   -                 -
    Loss on disposal of property and equipment                          4,847               7,919                 -
    Loss on impairment of assets of Levittown restaurant            1,111,931                   -                 -
    Issuance of stock for settlement of expenses                        5,251                   -                 -
    (Increase) decrease in assets
      Inventories                                                      (1,436)            (11,052)            8,516
      Other current assets                                            (66,852)             88,071             1,620
      Other assets                                                     77,575            (463,632)           (1,292)
    Increase (decrease) in liabilities
      Liabilities subject to compromise                                     -                   -           115,829
      Accounts payable and accrued expenses                           121,423              59,855           655,187
      Sales taxes payable                                             424,190              17,675           (45,947)
      Prepetition taxes payable                                        47,490              14,143                 -
      Payroll taxes payable                                            67,388                   -                 -
                                                                  -------------------------------------------------

  Net cash used in operating activities                              (842,797)           (742,221)       (1,078,407)
                                                                  -------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES
  Capital acquisitions                                               (541,881)           (592,166)         (135,371)
  Decrease in notes receivable                                              -               4,915                 -
                                                                  -------------------------------------------------

  Net cash used in investing activities                              (541,881)           (587,251)         (135,371)
                                                                  -------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES
  Principal repayments on long-term debt                              (82,500)                  -                 -
  Proceeds from long-term debt                                        876,141                   -                 -
  Payment of postpetition senior secured notes
   payable                                                                  -             (35,000)                -
  Proceeds from postpetition senior secured notes
   payable                                                                   -                  -         1,300,000
  Proceeds from subscription receivable                                200,000          1,400,000                 -
  Cash overdraft                                                       210,955                  -                 -
                                                                  -------------------------------------------------

  Net cash provided by financing activities                          1,204,596          1,365,000         1,300,000
                                                                  -------------------------------------------------

INCREASE (DECREASE) IN CASH                                           (180,082)            35,528            86,222

CASH - BEGINNING OF PERIOD                                             180,082            144,554            58,332
                                                                  -------------------------------------------------

CASH - END OF PERIOD                                              $          -        $   180,082      $    144,554
                                                                  =================================================

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
 INFORMATION
  Cash paid during the period for:
    Interest                                                      $          -        $         -      $          -
                                                                  =================================================

SUPPLEMENTAL DISCLOSURE OF NON-CASH
 INVESTING AND FINANCING ACTIVITIES

Issuance of Preferred Stock for Preferred Stock subscribed        $    200,000        $ 1,400,000      $          -
                                                                  =================================================

Conversion of  Subscription receivable                            $    200,000        $         -      $          -
                                                                  =================================================

Conversion of liabilities to Preferred and Common Stock
  Accounts payable and accrued expenses                           $    176,586        $   499,999      $  1,511,000
  Liabilities subject to compromise                                          -                  -         1,680,000
  Postpetition senior secured notes payable                                  -                  -         4,603,625
                                                                  -------------------------------------------------

Preferred and Common Stock                                        $    176,586        $   499,999      $  7,794,625
                                                                  =================================================

Reclassification of liabilities subject to compromise to:
  Accounts payable and accrued expenses                           $         -         $         -      $    234,612
  Prepetition taxes payable                                                 -                   -           381,605
                                                                  -------------------------------------------------

  Liabilities subject to compromise                               $         -         $         -      $    616,217
                                                                  =================================================

Elimination of debt and equity against accumulated
 deficit upon emergence from bankruptcy                           $         -         $         -      $ 36,720,480
                                                                  =================================================
</TABLE>


            The accompanying notes are an integral part of these
                     consolidated financial statements.



                       REDHEADS, INC. AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   DECEMBER 27, 1998 AND DECEMBER 28, 1997


NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

History and Nature of the Business
----------------------------------
Redheads, Inc. and Subsidiaries (the "Company") are engaged in the
development, ownership and operation of restaurants that offer an upscale
alternative to fast food restaurants by providing high quality, moderately
priced food, and quick convenient full-menu table service. The Company
operated nine American Cafe restaurants located in the Washington, D.C.,
Maryland and Virginia areas. The Company also operated six Red Robin Burger
and Spirits Emporiums ("Red Robin"), in the New York metropolitan area
pursuant to a franchise granted by Red Robin International, Inc., serving
American  style food with international specialties.  Additionally, the
Company operated five Carmella Cafe restaurants and two Spiga Italian-style
family restaurants.  In March 1995, the Company divested itself of
ownership of the Carmella Cafe and Spiga restaurants.  On April 6, 1995 the
Company filed a voluntary petition for relief under Chapter 11 of Title II
of the Federal Bankruptcy Code. During the twenty-six week period ended
December 29, 1996 the Company ceased operations of  all American Cafe
restaurants and two Red Robin restaurants, located in Smithhaven, New York
and Staten Island, New York.  On May 30, 1997, the Bankruptcy Court
confirmed the Company's plan of reorganization, effective May 25, 1997 for
accounting purposes.  Upon confirmation, the Company's name was changed to
Redheads, Inc.  Upon emergence, the Company had four restaurants in
operation, located in Kings Plaza, New York; Levittown, New York; Yonkers,
New York and Secaucus, New Jersey.  The Company has converted these
restaurants, with the exception of Kings Plaza into the Redheads Bistro/Bar
concept as of December 27, 1998.

Management's Future Plans
-------------------------
The Company's consolidated financial statements have been prepared on the
basis that it is a going concern which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of
business.  As reflected in the financial statements, since May 26, 1997,
the Company has incurred  net losses of $4,048,058 and $715,836 for the
fifty-two weeks ended December 27, 1998 and the thirty-one weeks ended
December 28, 1997 and at December 27, 1998 had a working capital deficit of
$1,958,245.  Additionally, as of December 27, 1998, a substantial portion
of the $495,414 sales tax liability is delinquent.

The Company anticipates that it will require additional working capital to
fund operations.  The Company believes that it will have sufficient capital
to meet these obligations through the improvements of current operations,
the shut down of the non-performing unit in Levittown, NY, and financing in
the form of debt from a major shareholder of the Company.  However, there
can be no assurance that the Company will have sufficient capital to
support operations and implement its business plans.

Consolidated Financial Statements
---------------------------------
The accompanying consolidated financial statements include the accounts of
Redheads, Inc. and its subsidiaries at December 27, 1998 and the fifty-two
weeks then ended and at December 28, 1997 and for the period May 26, 1997
(emergence date under the confirmed plan of reorganization) to December 28,
1997. The accompanying consolidated financial statements include the
accounts of Magic Restaurants, Inc. and Subsidiaries as Debtor-in-
Possession (Predecessor) for the twenty-one weeks ended May 25, 1997. All
material intercompany transactions have been eliminated in consolidation.

Effective July 1, 1993, the Company adopted a fiscal year of fifty-two or
fifty-three weeks.  Effective July 1, 1996, the Company changed its fiscal
year end to the last Sunday of December.

Comprehensive Income
--------------------
The Company adopted Statement of Financial Accounting Standard (SFAS) No.
130, "Reporting Comprehensive Income," beginning December 28, 1997.
Comprehensive income is a more inclusive financial reporting methodology
that includes disclosure of certain financial information that historically
has not been recognized in the calculation of net income.  Since the
company has no items of other comprehensive income, no separate statement
of comprehensive income has been presented.

Fair Value of Financial Statements
----------------------------------
The Company's financial instruments consist of cash, short-term
receivables, payables and accrued expenses.  The carrying values of cash,
short-term receivables, payables and accrued expenses approximate fair
value because of their short maturities.

The carrying value of the fixed rate noncurrent notes receivable
approximates fair value since the interest rate associated with the debt
approximates the current market interest rate.

Concentration of Credit Risk Involving Cash
-------------------------------------------
The Company maintains cash balances at several financial institutions.
Accounts at each institution are insured by the Federal Deposit Insurance
Corporation up to $100,000.  During the year, the Company may have cash
balances in these financial institutions in excess of these limits.  At
December 27, 1998 there were no balances in excess of insurable amounts.

Depreciation
------------
The cost of property and equipment is depreciated over the estimated useful
lives of the related assets.  The cost of leasehold improvements is
amortized over the lesser of the length of the related leases or the
estimated useful lives of the assets.  Depreciation is computed using the
straight line method.

Inventory
---------
Inventory consists of food, liquor, bar and other supplies and is stated at
the lower of cost (determined by the first-in, first-out method) or market.

License Fees and Deferred Leasing Expenses
------------------------------------------
License fees and deferred leasing expenses are amortized on a straight-line
method over the related license or lease.

Preoperating Cost
-----------------
Preoperating costs, consisting primarily of training personnel, are
amortized on a straight-line method over one year.

Income Taxes
------------
The Company accounts for income taxes on an asset and liability approach to
financial accounting.  Deferred income tax assets and liabilities are
computed annually for temporary differences between the financial statement
and tax bases of assets and liabilities that will result in taxable or
deductible amounts in the future based on enacted tax laws and rates
applicable to the periods in which the differences are expected to affect
taxable income.  Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized.  Income
tax expense is the tax payable or refundable for the period plus or minus
the change during the period in deferred tax assets and liabilities.

Estimates
---------
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates based on
management's knowledge and experience.  Accordingly, actual results could
differ from those estimates.

Recoverability of Long Lived Assets
-----------------------------------
Effective July  1, 1996 the Company adopted SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of."  The Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may
not be recoverable.  The Company is not aware of any events or
circumstances, other than the Levittown location (Note 3), which indicate
the existence of an impairment which would be material to the Company's
annual financial statements.

Accounting for Stock-Based Compensation
---------------------------------------
Compensation costs attributable to stock option and similar plans are
recognized based on any difference between the quoted market price of the
stock on the date of the grant over the amount the employee is required to
pay to acquire the stock (the intrinsic value method under Accounting
Principles Board Opinion 25).  Such amount, if any, is accrued over the
related vesting period, as appropriate.

Effective July 1, 1996 the Company implemented SFAS No. 123, "Accounting
for Stock-Based Compensation." The Statement encourages employers to
account for stock compensation awards based on their fair value on their
date of grant. Entities may choose not to apply the new accounting method
but instead, disclose in the notes to the financial statements the pro
forma effects on net income and earnings per share as if the new method had
been applied.  The Company has adopted the disclosure-only approach of the
Standard.

Earnings (Loss) Per Share
-------------------------
Effective year ended December 28, 1997, the Company adopted SFAS No. 128,
"Earnings Per Share" (EPS).  This statement establishes standards for
computing and presenting EPS, replacing the presentation of currently
required primary EPS with a presentation of Basic EPS.  For entities with
complex capital structures, the statement requires the dual presentation of
both Basic EPS and Diluted EPS on the face of the statement of operations.
Under this new standard, Basic EPS is computed based on weighted average
shares outstanding and excludes any potential dilution; Diluted EPS
reflects potential dilution from the exercise or conversion of securities
into common stock or from other contracts to issue common stock and is
similar to the currently required fully diluted EPS.  SFAS 128 was
effective for financial statements issued for periods ending after December
15, 1997 and requires restatement of the prior years' earnings per share.

Basic earnings (loss) per share include the weighted average number of
shares outstanding during the year.  Diluted earnings (loss) per share
include the weighted average number of shares outstanding and dilutive
potential common shares, such as warrants and convertible securities.
Assumed conversion of the warrants and convertible securities would be
either immaterial or antidilutive, therefore, basic and diluted earnings
(loss) per share are the same.

Net loss applicable to common stockholders for the fifty-two weeks ended
December 27, 1998 and thirty-one weeks ended December 28, 1997 has been
increased by $653,000 and $181,000 of preferred dividends in arrears.

Recently Issued Accounting Pronouncements
-----------------------------------------
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities."  This statement requires start-up costs such as preopening
costs to be expensed as incurred and is effective for financial statements
for fiscal years beginning after December 15, 1998.  The Company presently
intends to comply with this statement for its year ended December 26, 1999.

Reclassifications
-----------------
Certain reclassifications have been made to the 1997 financial statements
to conform to the 1998 presentation.


NOTE 2 - PLAN OF REORGANIZATION

The Company's confirmed plan of reorganization provided for the following:

      Priority Tax Claims - Federal and state payroll, withholding and
      other taxes of approximately $382,000 are payable in equal periodic
      installments over a period ending six years after the date of
      assessment in an aggregate amount equal to the amount of such allowed
      claim plus interest from the effective date on the unpaid portion.

      Secured Claims - The secured claims of approximately $1,207,000
      (including interest of approximately $197,000) were exchanged for
      payables of $209,000 and 11,333 shares of 8% preferred stock of the
      Levittown subsidiary

      Trade and Other Miscellaneous Claims - The holders of approximately
      $13,456,000 of trade and miscellaneous claims received 125,000 shares
      of the new common stock of the Company.  $26,000 of claim liabilities
      remained intact.

      Postpetition Series A Senior Secured Notes - The holders of
      $2,520,000 of Series A Senior Secured Notes received 1,896,983 shares
      of the new common stock in exchange for their notes and interest due
      of approximately $325,000.  $35,000 of Series A Senior Secured Notes
      remained intact.

      Postpetition Series B Senior Secured Notes - The holders of
      $1,700,000 of Series B Senior Secured Notes received 23,442 shares of
      new 12% preferred stock of parent corporation in exchange for their
      notes and interest due of approximately $58,000.

      Postpetition Liabilities - Approximately $1,882,000 of postpetition
      liabilities were exchanged for 5,333 shares of new 8% subsidiary
      preferred stock and 213,760 shares of new common stock.
      Approximately $1,227,000 of postpetition liabilities remained intact.
      Included in this amount was approximately $500,000 due to certain
      professionals retained in the bankruptcy case, which was exchanged
      for 150,696 shares of common stock of the Company by December 28,
      1997.  No interest will accrue on the outstanding unpaid balances due
      these professionals.

      Other Disputed Postpetition Claims - The Company is a party to
      certain litigation pending before the Bankruptcy Court.  The first,
      Magic Restaurants, Inc., et al. v. Nicolo and Joseph Ottomanelli,
      objects to the $75,000 administrative claim filed by the Ottomanellis
      and seeks damages of $250,000 by way of counterclaim.  The Company is
      also presently appealing an order of the Bankruptcy Court requiring
      the Company to pay approximately $100,000 to Bowie Produce, Inc., a
      prepetition produce vendor, pursuant to the Perishable Agricultural
      Commodities Act ("PACA").  The resolution of these matters is not
      expected to become final until the latter part of the fiscal year
      1999.  The Company believes that an adverse decision to the Company
      in each of these matters will not materially affect the Company's
      operations, and further that it will have sufficient cash available
      to pay any judgements that may be entered with finality against the
      Company.

      The Company accounted for the reorganization using fresh-start
      reporting because holders of existing voting shares immediately
      before filing and confirmation of the plan received less than 50% of
      the voting shares of the emerging entity and its reorganization value
      is less than its postpetition liabilities and allowed claims, as
      shown below:

<TABLE>

      <S>                                                         <C>
      Postpetition current liabilities                            $ 4,458,202
      Liabilities deferred pursuant to Chapter 11 proceedings      19,855,378
                                                                  -----------

      Total postpetition liabilities and allowed claims            24,313,580

      Reorganization value                                          5,123,105
                                                                  -----------

      Excess of liabilities over reorganization value             $19,190,475
                                                                  ===========
</TABLE>

It was determined that the Company's reorganization value approximated the
net book value of the assets immediately before May 25, 1997, the date of
the plan confirmation.

The following table ("Plan of Reorganization Recovery Analysis") summarizes
the adjustments required to record the reorganization and the issuance of
the various securities in connection with the implementation of the plan.

                       REDHEADS, INC. AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  PLAN OF REORGANIZATION RECOVERY ANALYSIS

<TABLE>
<CAPTION>
                                                                     RECOVERY
                               ------------------------------------------------------------------------------------
                                  Account
                                  Balances
                                Immediately       Elimination                                     Preferred Stock
                                  Prior to        of Debt and       Surviving        Tax        -------------------
                               Reorganization       Equity             Debt         Claims        %         Amount
                               --------------     -----------       ---------       ------        -         ------

<S>                             <C>               <C>               <C>            <C>          <C>        <C>
Postpetition liabilities        $  4,458,202      $ (3,037,064)     $1,227,025     $      -      13.3%     $ 40,000
                                -----------------------------------------------------------------------------------

Claim Interest

Series A secured notes             3,004,229        (2,967,332)         35,000            -         -             -
Series B secured notes             1,806,888          (964,986)              -            -      58.4       175,815
Priority tax claim                   381,605                 -               -      381,605         -             -
Secured claim                      1,206,656          (591,218)        208,612            -      28.3        85,000
Trade and other
 miscellaneous claims             13,456,000       (13,429,875)         26,000            -         -             -
                                -----------------------------------------------------------------------------------
                                  19,855,378
                                ------------

Preferred stock                    1,980,000        (1,980,000)              -            -         -             -
Common stock                           7,000            (7,000)              -            -         -             -
Additional paid-in capital        13,743,005       (13,743,005)              -            -         -             -
Preferred stock subscribed         1,800,000                 -               -            -         -             -
Deficit                          (36,720,480)       36,720,480               -            -         -             -
                                -----------------------------------------------------------------------------------
                                 (19,190,475)                -               -            -         -             -
                                -----------------------------------------------------------------------------------

                                $  5,123,105      $         -       $1,496,637     $381,605     100.0%     $300,815
                                ===================================================================================


<CAPTION>
                                                                RECOVERY
                               ---------------------------------------------------------------------------
                               Additional
                                Paid-In
                                Capital       Preferred        Common Stock             Total Recovery
                               Preferred        Stock        -----------------     ----------------------
                                 Stock        Subscribed        %       Amount       Amount          %
                               ----------     ----------        -       ------       ------          -

<S>                            <C>            <C>            <C>        <C>        <C>            <C>
Postpetition liabilities       $  153,899     $        -       9.5%     $  214     $1,421,138      31.88%
                               -------------------------------------------------------------------------

Claim Interest

Series A secured notes                  -              -      84.9       1,897         36,897       1.23
Series B secured notes            666,087              -         -           -        841,902      46.59
Priority tax claim                      -              -         -  -        -        381,605     100.00
Secured claim                     321,826              -         -           -        615,438      51.00
Trade and other
 miscellaneous claims                   -              -       5.6         125         26,125       0.19
                               -------------------------------------------------------------------------

Preferred stock                         -              -         -           -              -          -
Common stock                            -              -         -           -              -          -
Additional paid-in capital              -              -         -           -              -          -
Preferred stock subscribed              -      1,800,000         -           -      1,800,000     100.00
Deficit                                 -              -         -           -              -          -
                               -------------------------------------------------------------------------
                                        -              -         -           -              -          -
                               -------------------------------------------------------------------------

                               $1,141,812     $1,800,000     100.0%     $2,236     $5,123,105
                               =========================================================================
</TABLE>


                       REDHEADS, INC. AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   DECEMBER 27, 1998 AND DECEMBER 28, 1997


NOTE 3 - LOSS ON IMPAIRMENT OF ASSETS OF LEVITTOWN RESTAURANT

As a result of the closing of the Levittown restaurant, effective January
10, 1999, the Company wrote-off the net carrying value of the fixed assets
and intangible assets of the Levittown restaurant as of December 27, 1998
and recorded an impairment loss of $1,111,931.


NOTE 4 - ACQUISITION

On June 23, 1997, the Company purchased a Redheads Bistro/Bar located in
Middletown, New Jersey together with the related intellectual property
rights in the Redheads concept, trade name and trade dress for $302,000
cash and the assumption of the underlying lease.  The acquisition has been
accounted for by the purchase method of accounting and the purchase price
approximated the fair value of the net assets required.

Unaudited proforma consolidated results of operations were not presented
since there was no historical financial information available that
corresponded to the periods presented.


NOTE 5 - OTHER CURRENT ASSETS

Other current assets consist of the following:

<TABLE>
<CAPTION>
                                                                  December 27,     December 28,
                                                                      1998             1997
                                                                  ------------     ------------

      <S>                                                           <C>              <C>
      Preoperation costs - net of accumulated amortization of
       $241,776 in 1998 and $18,799 in 1997                         $62,074          $145,991
      Current portion of notes receivable                                 -             6,845
      Prepaid expenses                                                    -            26,167
      Credit card receivables                                        20,613            90,309
      Escrow deposits                                                     -            50,000
      Other receivables                                               4,032            16,890
                                                                    -------------------------
                                                                    $86,719          $336,202
                                                                    =========================
</TABLE>


NOTE 6 - PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
                                            December 27,     December 28,
                                                1998             1997
                                            ------------     ------------

      <S>                                    <C>              <C>
      Leasehold improvements                 $1,027,983       $1,486,580
      Restaurant fixtures and equipment          21,092          212,115
      Computer software                         261,025          273,152
      Furniture and fixtures                    556,874          520,438
                                             ---------------------------
                                              1,866,974        2,492,285
      Less: Accumulated depreciation            517,957          206,149
                                             ---------------------------
                                              1,349,017        2,286,136
      Construction in progress                        -           35,358
                                             ---------------------------
                                             $1,349,017       $2,321,494
                                             ===========================
</TABLE>


NOTE 7 - NOTES RECEIVABLE - LONG-TERM

At December 28, 1997, notes receivable consist of three notes, with
interest rates ranging from 5.0% to 9.75%, maturing through January 2018,
collateralized by property.  The current portion of notes receivable has
been included in other current assets.  During 1998, the notes were
considered uncollectible and were written-off.

NOTE 8 - OTHER ASSETS

Other assets consist of the following:

<TABLE>
<CAPTION>
                                          December 27,     December 28,
                                              1998             1997
                                          ------------     ------------

      <S>                                   <C>              <C>
      Liquor license - net                  $233,470         $250,000
      License fees - net                      84,167           90,622
      Deposits                                15,958           32,777
      Deferred leasing expenses - net          6,677            7,311
      Deferred legal expenses - net            4,360            4,762
      Acquisition costs - net                 21,042           23,542
      Other receivables                            -           60,757
                                            -------------------------
                                            $365,674         $469,771
                                            =========================
</TABLE>


Liquor license, license fees, deferred leasing expenses, deferred legal
expenses and acquisition costs are net of accumulated amortization of
$117,616 and $140,669 as of December 27, 1998 and December 28, 1997.


NOTE 9 - LONG-TERM DEBT

The Long-term debt consists of notes payable to investors, with principal
and accrued interest, at 12%, due on June 30, 2003.  The notes are
collateralized by all of the assets of the Middleton and Kings Plaza
subsidiaries.


NOTE 10 - COMMITMENTS

The Company leases its executive office and remaining restaurant premises
under various operating leases expiring through July 2012.  Rent expense
for the fifty-two weeks ended December 27, 1998 and the thirty-one weeks
ended December 28, 1997 and twenty-one weeks ended May 25, 1997 was
$1,047,760, $582,563, and $385,982.

Future minimum annual rentals are as follows:


<TABLE>
<CAPTION>
      FIFTY-TWO/FIFTY-THREE WEEKS
           ENDING DECEMBER,             AMOUNT
      ---------------------------       ------

              <S>                     <C>
              1999                    $  767,958
              2000                       794,133
              2001                       801,169
              2002                       791,435
              2003                       766,535
              Thereafter               4,471,246
                                      ----------
                                      $8,392,476
                                      ==========
</TABLE>


NOTE 11 - CAPITAL STOCK

Series A 12% Cumulative Preferred Stock
---------------------------------------
The Company's management is authorized to issue 5,000,000 shares of $0.001
par value preferred stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including dividend
rights, dividend rates, conversion rights, voting rights, terms of
redemption, redemption prices, liquidation preferences and the number of
shares constituting any series or the designation of such series, without
further vote or action by the stockholders.  The issuance of preferred
stock may have the effect of delaying, deferring or preventing a change in
control of the Company without further action by the stockholders. The
issuance of preferred stock with voting and conversion rights may adversely
affect the voting power of the holders of common stock, including the loss
of voting control of others.  During 1997, the Company accepted the
subscription for the purchase of 46,667 shares of Series A 12% Cumulative
Convertible Preferred Stock ("Series A Preferred Stock") at approximately
$75 per share, for a total of $3,500,000.  As of December 28, 1997,
$3,100,000 had been received and 42,109 shares of Series A Preferred Stock
had been issued. The stock was valued at the maximum exchange rate of five
shares of Common Stock for every one share of series A Preferred Stock.
The Common Stock was valued at $1.50 per share.  The balance of the
proceeds of $400,000 was received by April 8, 1998.

During April 1998, $200,000 of the proceeds from the $400,000 subscription
receivable was converted to a debt instrument,  resulting in a reduction of
the total subscription to $3,300,000, for which 44,775 shares of Series A
Preferred Stock was issued.

The Company is obligated to pay dividends to the holders of the Series A
Preferred Stock that was issued at a rate equal to 12% per annum on the $75
stated value.  The dividends are payable annually through the issuance of
shares of Common Stock of the Company at a price equal to 80% of the
average bid price for the Common Stock during the preceding 12 months.  To
the extent funds are legally available, beginning on May 30, 2000, the
Company has the option to purchase, at a cash price equal to $75 per share,
plus accrued and unpaid dividends, portions of the Series A Preferred
Stock, so that the stock would be retired within seven years.  For the
first three years after issuance, at the election of the holders and with
the consent of the Company, the Series A Preferred Stock is exchangeable
for shares of Common Stock.  After this time the stock is not exchangeable
at the holders' option.

As of December 27, 1998, the Company has $495,000 of dividends in arrears
for Series A 12% Cumulative Convertible Preferred Stock, which would equate
to a stock dividend of approximately 468,000 shares of Common Stock.

Series A 8% Cumulative Exchangeable Preferred Stock
---------------------------------------------------
On May 25, 1997, the Company issued 1,778 shares of Series A 8% Cumulative
Exchangeable Preferred Stock of both Secaucus and Levittown subsidiaries
and 1,777 shares of Series A 8% Cumulative Exchangeable Preferred Stock of
Yonkers subsidiary ("Subsidiary Preferred Stock") in exchange for a release
of a prepetition liability of approximately $400,000.  The stock was valued
at the maximum exchange rate of five shares of Common Stock for every one
share of Subsidiary Preferred Stock.  The Common Stock was valued at $1.50
per share.

Dividends are payable on the Subsidiary Preferred Stock at a rate of 8% per
annum based on the liquidation preference of $75 per share.  The dividends
are payable semi-annually, to the extent funds are legally available.  At
the election of the issuing subsidiary such dividends may be paid by
issuance of shares of Common Stock of the Company, valued for this purpose
at the closing price as of the 10th business day preceding declaration of
the dividend.  Further, to the extent funds are legally available, on May
30, 2000, May 30, 2001, and May 30, 2002, each issuing subsidiary will
offer to purchase, at a cash price equal to $75 per share, plus accrued and
unpaid dividends, one-sixth, one-third, and one-half, respectively of the
Subsidiary Preferred Stock issued under the Plan; provided, however, that
if at any time the closing bid price of the Common Stock exceeds $5 per
share for 40 consecutive trading days, any such mandatory repurchase
obligation shall expire.

On May 25, 1997, the Company issued 13,111 shares of 8% Cumulative
Exchangeable Preferred Stock of Levittown subsidiary ("Levittown Preferred
Stock") in exchange for a release of a secured claim liability of
approximately $850,000.  The stock was valued at the maximum exchange rate
of five shares of Common Stock for every one share of Levittown Preferred
Stock.  The Common Stock was valued at $1.50 per share.

Dividends are payable on the Levittown Preferred Stock in cash at a rate of
8% per annum based on the liquidation preference of $75 per share.  The
dividends are payable semi-annually, to the extent funds are legally
available.  Further, to the extent funds are legally available, beginning
on May 30, 1998, and monthly thereafter, the Levittown subsidiary will
offer to purchase one forty-eighth of the shares of the Levittown Preferred
Stock issued under the Plan to the holder.  The purchase price is equal to
the liquidation preference of $75 per share, plus accrued and unpaid
dividends.  For the first three years after issuance, at the election of
the holders and with the consent of the Company, the Subsidiary Preferred
Stock and the Levittown Preferred Stock is exchangeable for shares of
Common Stock.  After this time, the stock is not exchangeable at the
holders' option.

The Company's authorized and issued outstanding shares of Series A 8%
Cumulative Exchangeable Preferred Stock is as follows:

<TABLE>
<CAPTION>
                       Shares        Shares Issued
      Subsidiary     Authorized     and Outstanding
      ----------     ----------     ---------------

      <S>            <C>                <C>
      Yonkers        1,000,000           1,777

      Levittown         15,000          13,111

      Secaucus           2,000           1,778
                     -------------------------

                     1,017,000          16,666
                     =========================
</TABLE>

As of December 27, 1998, the Company has $158,000 of dividends in arrears
for Series A 8% Cumulative Exchangeable Preferred Stock.

      Common Stock
      ------------

      On May 25, 1997, the Company issued shares of Common Stock as
      follows:

            1,896,983 shares of Common Stock in exchange for the release of
            $2,520,000 of series A Senior Secured Notes and interest due of
            approximately $325,000.

            125,000 shares of Common Stock valued at $187,500 for the
            settlement of approximately $13,456,000 of trade and other
            miscellaneous claims.

            213,260 shares of Common Stock valued at $319,890 for the
            settlement of approximately $1,111,000 of postpetition
            liabilities.

      On May 30, 1997, the Company issued 500 shares of Common Stock in
      exchange for consulting services.

      On December 28, 1997, the Company issued 150,696 shares of Common
      Stock for the settlement of $500,000 of unpaid legal fees.

      On May 20, 1998, the Company issued 67,819 shares of Common Stock for
      settlement of unpaid legal fees.

      In December 1998, the Company issued 3,500 shares of Common Stock for
      settlement of unpaid expenses.

      Warrants
      --------
      From time to time, the Company may issue warrants to purchase its
      Common Stock to parties other than employees and directors.  Warrants
      may be issued as an incentive to help the Company achieve its goals,
      or in consideration for cash or services rendered to the Company, or
      a combination of the above.

      Effective July 1, 1996, the Company adopted FASB Statement 123,
      "Accounting for Stock-Based Compensation," which requires
      compensation cost associated with warrants issued to other than
      employees to be valued based on the fair value of the warrants.

      Prior to May 25, 1997, as part of the subscription for 46,667 shares
      of Series A Preferred Stock, the Company issued three year warrants
      to purchase 1,500,000 shares of its Common Stock at a price of  $2.00
      per share and five year warrants to purchase 1,500,000 shares of its
      Common Stock at a price of $5.00 per share.  The Black-Scholes model
      valued these warrants at zero based on the following assumptions: no
      dividend yield, expected volatility of 0%, and a risk-free interest
      rate of 5.5%.


NOTE 12 - INCOME TAXES

There is no income tax benefit for operating losses for the fifty-two weeks
ended December 27, 1998, the thirty-one weeks ended December 28, 1997,
twenty-one weeks ended May 25, 1997, due to the following:

      Current tax benefit - the operating losses cannot be carried back to
      earlier years.

      Deferred tax benefit - the tax benefit of the net operating losses
      described above were offset by a 100% valuation allowance.
      Management believes that a valuation allowance is considered
      necessary since it is more likely than not that the deferred net
      asset will not be realized through future taxable income.

There is no income tax provision for operating income for the twenty-one
weeks ended May 25, 1997 due to the utilization of the net operating loss
carryforwards.

The reconciliation of the statutory federal rate to the Company's effective
income tax rate is as follows:

<TABLE>
<CAPTION>
                                                    December 27,     December 28,       May 25,
                                                        1998             1997            1998
                                                    ------------     ------------       -------

<S>                                                  <C>              <C>             <C>
Statutory tax (benefit) provision                    $1,417,000       $(215,000)      $ 5,126,000
Utilization of net operating loss carryforwards               -               -        (5,126,000)
Increase in valuation allowance                       1,416,800         251,000                 -
                                                     --------------------------------------------
                                                     $        -       $       -       $         -
                                                     ============================================
</TABLE>


Under SFAS No. 109, Accounting for Income Taxes, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases.  Deferred tax assets
and liabilities are measured using enacted tax rates.

The tax effect of temporary differences that give rise to deferred income
taxes is as follows:

<TABLE>
<CAPTION>
                                                    December 27,     December 28,       May 25,
                                                        1998             1997            1997
                                                    ------------     ------------       -------

<S>                                                 <C>              <C>             <C>
Deferred tax assets
  Accruals and reserves                             $   389,000      $         -     $         -
  Net operating loss carryforwards                  $ 6,401,000        5,355,000       5,636,000
  Valuation allowance on deferred tax asset          (6,790,000)      (5,355,000)     (5,636,000)
                                                    --------------------------------------------
                                                    $         -      $         -     $         -
                                                    ============================================
</TABLE>


As a result of the change in control described in Note 2, the Company is
subject to limitations on the future utilization of its federal net
operating loss carryforwards.  These limitations, described in Section 382
of the Internal Revenue Code, limit the amount of future taxable income
which may be offset by pre-change net operating loss and capital loss
carryforwards.  This limitation is calculated by reference to the value of
the Company immediately before the change date, multiplied by a discount
factor, known as the "long term tax-exempt rate".

The Company files a consolidated federal income tax return and certain
combined state and city returns.

The Company's federal, state and local tax returns have not been filed for
the fifty-two weeks ended December 27, 1998, the thirty-one weeks ended
December 28, 1997, twenty-one weeks ended May 25, 1997, twenty-six weeks
ended December 29, 1996 and the fifty-two weeks ended June 30, 1996.

As of December 27, 1998, the Company had approximately $18,288,000 of net
operating loss carryforwards expiring through 2012, available to offset
future federal income taxes.


NOTE 13 - RELATED PARTY TRANSACTIONS

In 1995, the Bankruptcy Court overseeing the Company's Chapter 11 case, in
connection with the employment of Mr. Charles Olson, Jr. as President and
Chief Executive Officer, approved a consulting agreement between the
Company and Rye Management, Inc. ("Rye"), that was extensively negotiated
between the Company and the Creditors' Committee.  Rye is a corporation
owned and controlled by Mr. Olson.  The consulting agreement called for a
reorganization bonus to be paid to Rye upon the confirmation of the Plan.
The consulting agreement assigns various "Success Factors" that are based
on the actual recovery (as a percentage of Allowed Claims) realized by
general unsecured creditors in the Chapter 11 cases.

This reorganization bonus will be paid through the issuance of the Company
Common Stock.  Under the confirmed Plan, the number of shares issued will
be based on the sustained trading prices achieved for the Common Stock over
the three year period following the Plan Effective Date.  The
reorganization bonus will be calculated based upon the highest average
trading price achieved by the Common Stock over the course of ten
consecutive trading days during the three years following the Effective
Date (with average share volumes traded per day in excess of 10,000
shares).  The Company estimates that, on average, a total of 18,000 shares
would be issuable for each $1.00 of sustained price realized up to $53 per
share during the three year period.

Mr. Olson also has a controlling interest in two companies and a
partnership that owns shares of Redheads, Inc. Common Stock. At December
27, 1998, $57,500 of the total long-term debt is due to the partnership
controlled by Mr. Olson.


NOTE 14 - CONTINGENCY

On October 7, 1998, Keybro Enterprises filed on a motion before the United
States Bankruptcy Court for the conversion of the instant cases to Chapter
7 of the Bankruptcy Code; and Redheads, Inc. and its affiliated entities
and subsidiaries, the reorganized debtors, interposed opposition to the
motion.

On November 12, 1998, Keybro and Redheads agreed to immediately put up for
sale the restaurant located on Hempstead Turnpike, Levittown, NY.  The
debtors would operate the Levittown restaurant until the date of sale.  The
proceeds of the sale of the Levittown restaurant, net of the actual costs
of the sale including brokers fees would be applied as follows:

      1)  $50,000 will be applied to reimburse Redheads for operational
          losses incurred;

      2)  up to $250,000 to be paid to Keybro;

      3)  the balance of the proceeds would be paid to Redheads.

Redheads agreed to continue to operate the Levittown restaurant under the
terms of the Stipulation through and including Sunday, January 10, 1999.
In the event that a sale had not closed by that date, then Redheads'
agreement to operate the restaurant would expire.  Redheads would deliver
to Keybro the common stock of R.B.B. of Levittown, Inc. and Redheads will
deliver to Keybro  possession of the restaurant; Keybro shall  reimburse
Redheads for any actual operational losses incurred during the period
following the Stipulation up to the amount of $37,500.

On January 10, 1999, without the sale of the restaurant occurring and in
accordance with the Stipulation, Redheads delivered possession of the
restaurant to representatives of Keybro at the restaurant.  Additionally,
Redheads delivered the common stock of R.B.B. of Levittown, Inc. which
Keybro rejected, and discontinued the operations of the restaurant known as
Redheads.

In August 1999, Keybro commenced an action against Redheads, Inc. and
R.B.B. of Levittown, Inc. seeking damages in excess of $850,000, together
with punitive damages in excess of $2,000,000, alleging, inter alia, breach
of the stipulation between Keybro and Redheads entered into during the
Magic Restaurants reorganization, fraud, and corporate waste.  Redheads and
R.B.B. answered, albeit belatedly, asserting defenses based upon the
reorganization plan, the stipulation, defendants attempt to deliver the
common stock of R.B.B. to Keybro and defendants' attempts to sell the
Levittown restaurant.  Keybro moved for a default judgment, and Redheads
and R.B.B. opposed the motion.  That motion has been pending since the end
of October 1999.  The Company maintains it has meritorious defenses to this
action.


                                  PART III
                                  --------

Item 10.  Directors and Executive Officers of the Registrant

      The executive officers and directors of the Company are as follows:

<TABLE>
<CAPTION>
Name                               Age     Position
----                               ---     --------

<S>                                <C>     <C>
Charles O. Olson, Jr.(2)           42      President, Chief Executive Officer,
                                           Chief Financial Officer & Director
Pierpaolo Matteuzzi(2)             47      Director
John E. McConnaughy, Jr.(1)(2)     69      Director
Julio Pasini(1)                    45      Director

<FN>
--------------------
(1)   Member of the Compensation Committee
(2)   Member of the Audit Committee
</FN>
</TABLE>

      Charles O. Olson, Jr.  Mr. Olson was elected a director of the
Company at its annual meeting held on July 21, 1994 and has served as its
President since April 6, 1995, the Petition Date.  He has been, since
January 1994, a principal of RehCam Investments, a private Houston, Texas
investment firm.  He has also been, since 1987, the sole principal of Rye
Management, Inc., a financial consulting firm.  Until October 1993, Mr.
Olson served for more than five years as President of Capital Holdings,
Inc., a private financial management firm in Houston.  Mr. Olson received a
B.A. (Accounting) from the University of Houston in 1981.  He is currently
on the Board of Directors of SLB Snacks Corporation.

      Pierpaolo Matteuzzi.  Mr. Matteuzzi became a director of the Company
in 1997.  Mr. Matteuzzi has served since 1987 as managing director of
Sogevalor, S.A., a Swiss portfolio managing company.  In the 12 years prior
to joining Sogevalor, Matteuzzi ascended to senior management of an
international finance department in a major Swiss bank.

      John E. McConnaughy, Jr.  Mr. McConnaughy became a director of the
Company in 1997.  Until 1994, Mr. McConnaughy was Chairman of the Board and
Chief Executive Officer of GEO International Corporation, a New York Stock
Exchange company specializing in graphic systems, quality laboratories, and
oil field equipment and services.  He remains a director of GEO
International Corporation.  From 1969 until 1985, Mr. McConnaughy served as
Chairman of the Board and Chief Executive Officer of Peabody International
Corporation.  During his tenure at Peabody, the company's sales grew from
approximately $23 million to $850 million.  He was named outstanding Chief
Executive Officer for his industry group (Environmental Control) by
Financial World Magazine in 1975, 1976, and 1978.  He is currently on the
Board of Directors of Mego Corporation, Transact International, Inc., Pets
Choice, Ltd., Cryptologics International, Inc., Pantopec International,
Inc., Oxi-Gene, Inc., and Riddell, Inc.  He also serves on the Board of
Trustees of Strang Cancer Prevention Center and the Harlem School for the
Arts.  Mr. McConnaughy has been a director of the Company since the Plan
Effective Date.

      Julio M.V. Pasini.  Mr. Pasini became a director of the Company in
1997.  Mr. Pasini has been Chief Executive Officer of Dumont Investments,
Inc. since its inception in January 1996.  Dumont Investments, Inc. is a
money management company with investments in the USA.  Prior to joining
Dumont  Mr. Pasini was at Swiss Bank Corporation holding a variety of
positions in Financial Institutions and Capital Markets, culminating with
the global responsibility of developing and servicing relationships with
Italian banks and investment funds.

      Executive officers are appointed by the Board of Directors and serve
at the pleasure of the Board of Directors.  All directors hold office until
the next annual meeting of stockholders or until their successors are
elected and qualified.

Board Committees

      Audit Committee.  The Audit Committee of the Board of Directors (i)
review the results and scope of the annual audit and other services
provided by the Company's independent auditors, (ii) reviews and evaluates
the Company's internal audit and control functions and (iii) monitors
transactions between the Company and its employees, officers and directors.
Charles Olson, Jr., Pierpaolo Matteuzzi and John McConnaughy, Jr. are
members of the Audit Committee.

      Compensation Committee.  The Compensation Committee of the Board of
Directors administers the Company's stock option and stock purchase plans
and designates compensation levels for the Company's executive officers and
directors.  Julio Pasini and John McConnaughy, Jr. are members of the
Compensation Committee.

Compliance with Section 16(a) of the Exchange Act

      Section 16(a) of the Exchange Act requires the Company's directors
and officers, and persons who own more than ten percent of the Company's
Common Stock or the Company's Preferred Stock, to file reports of ownership
and changes in ownership with the Commission.  During the entire Transition
Period the Company was operating under Chapter 11 and none of the persons
serving as officers and directors filed any reports under Section 16(a) of
the Exchange Act.

Compensation of Directors

      Until otherwise authorized, the directors of the Company are not paid
or reimbursed for out-of-pocket expenses for each Board meeting attended by
such director.  During the period from July 1, 1995 to December 31, 1995
none of the directors were compensated for any service provided as a
director.

Limitation of Directors' Liability; Indemnification of Directors and
Officers

      The Restated Certificate of Incorporation of the Company, as amended,
provides that no director of the Company shall be liable to the Company for
monetary damages for breach of fiduciary duty or care as a director except
for liability for breach of the director's duty of loyalty, for acts not in
good faith, intentional misconduct or knowing violations of law, for
unlawful payment of dividends or stock purchases or redemptions or for
transactions in which the directors derived an improper personal benefit.
The By-Laws of the Company provide for the indemnification of officers and
directors to the fullest extent permitted by Delaware law.

      Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Company of expenses incurred or paid by a
director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) in connection with the
securities being registered, the Company will, unless in the opinion of
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Securities Act and will
be governed by the final adjudication of such issue.

Item 10.  Executive Compensation

Compensation of Executive Officers

      The following table sets forth information, concerning the annual and
long-term compensation of the Company's chief executive officer and other
individuals acting in a similar capacity for the past three fiscal years.
No information is included regarding compensation paid to other executive
officers during such three year period because no such executive officer
earned annual or long-term compensation in excess of $100,000.  Except as
set forth in the tables below, no bonus, other annual compensation, long-
term compensation (in the form of restricted stock awards, options, stock
appreciation rights, long-term incentive plans, or other-wise), or other
forms of compensation were paid to the Company's chief executive officer,
any other individuals acting in a similar capacity, or any other executive
officer of the Company at any time during such periods as are reflected in
the tables set forth below.

                         SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                 Annual Compensation
                                Fiscal Year     ----------------------      Stock       All Other
Name and Principal Position      or Period      Salary($)     Bonus($)      Award      Compensation
---------------------------     -----------     ---------     --------      -----      ------------

<S>                               <C>            <C>             <C>       <C>
Charles Olson, Jr                 1998           $67,000         $0        $     0
  President/CEO                   1997           $66,000         $0        $     0
                                  1996-T         $33,500         $0        $27,000
                                  1996           $99,500         $0        $54,000

David Sederholt                   1998           $78,846         $0
  EVP/COO                         1997           $50,000         $0        $33,000

Steven R. Jakubowski              1996-T         $     0         $0        $60,000
  Chief Operating Officer         1996           $80,000         $0        $40,000
                                  1996           $30,000         $0        $     0
</TABLE>


Employment Contracts

      The Company has no employment contract with any of its executive
officers.

      During 1998 Mr. Sederholt left employment of the Company.  The
Company retained Mr. Sederholt as consultant for two months following his
termination of employment.

      The Company has no compensatory plan or arrangement with any of its
executive officers in the event of (i) that officer's resignation,
retirement, or termination in any other manner, (ii) a change-in-control of
the Company, or (iii) a change in such officer's responsibilities following
a change-in-control of the Company

The Fiscal Year 1997 Stock Option Plan

      On the Plan Effective Date, as approved in the Confirmation Order of
the Bankruptcy Court, the Company adopted a long-term incentive plan (the
"Incentive Plan") providing for the issuance of stock options (the
"Options") to purchase shares of Common Stock, thereby entitling the holder
thereof, upon exercise, to receive the value or the increase in value of
the shares of Common Stock subject thereto.

      The Options shall constitute either "incentive stock options" within
the meaning of Section 422A of the Internal Revenue Code ("ISO's") or
"nonqualified stock options" ("NQSO's").  All Options granted to non-
employee directors and consultants will constitute NQSO's.  The Company
believes that the Incentive Plan will provide the Company with significant
advantages in attracting, retaining, and motivating key employees,
officers, and directors of the Company by providing such persons with
incentives that are linked directly to increases in stockholder value.

      The Incentive Plan is administered by a committee (the "Compensation
Committee") of the Company's Board of Directors, consisting of no fewer
than two directors, none of whom may be employees of the Company and each
of whom serves at the pleasure of the Board of Directors.  Currently the
Compensation Committee is composed of Messrs. Pasini  and McConnaughy.
This Board Committee has full power to administer and to make all
determinations as it deems necessary or advisable for the proper
administration of the Incentive Plan, including, without limitation, the
power to select from among the employees, consultants, and directors
eligible for awards, those individuals to whom awards will be granted and
the number of awards to be granted to such persons.  The Compensation
Committee is authorized to interpret the Incentive Plan and may at any time
adopt such rules and regulations as it deems advisable.

      Under the Incentive Plan, the Compensation Committee is authorized to
issue, pursuant to Options granted pursuant to the Incentive Plan, shares
of Common Stock representing, in the aggregate, up to 250,000 shares of
Common Stock.  The eligible persons to whom options are actually granted
under the Incentive Plan and the number of shares subject to each such
option shall be determined by the Compensation Committee in its sole
discretion in accordance with the terms and conditions of the Incentive
Plan.

      Options awarded pursuant to the Incentive Plan shall vest and become
exercisable (subject to the other provisions of the Incentive Plan) at any
time over a four year period commencing the date issued.  The Compensation
Committee or the Board of Directors, as the case may be, in its sole
discretion, may determine that a different vesting period should apply.  At
the time an Option is granted under the Incentive Plan, the Compensation
Committee may establish one or more terms or conditions which are
applicable to such Option and which are not inconsistent with any provision
of the Incentive Plan; provided that if such Option is an incentive stock
option, such terms and conditions shall not be inconsistent with Section
422 of the Internal Revenue Code or any successor provision.

      The exercise price per share to be purchased pursuant to any Option
shall be fixed by the Compensation Committee at the time the Option is
granted and may be less than, equal to, or greater than the fair market
value of one share on the date such Option is granted, depending, in part,
on the nature of the Option granted.  The duration of any Option granted
under the Incentive Plan shall be for a period fixed by the Compensation
Committee, in its sole discretion, but generally not longer than between
five and ten years, depending on the nature of the Option granted.

      The Incentive Plan may not be amended to effect the following changes
unless such amendment shall have been approved by the Board of Directors
and, within one year of such amendment, by the stockholders of the
Corporation:  (i) increase the number of shares of stock which may be
issued under the Incentive Plan, except for changes in capitalization; (ii)
materially modify the requirements as to eligibility for participation;
(iii) extend the duration beyond that approved by the stockholders; or (iv)
materially increase the benefits accruing to participants under the
Incentive Plan.

      The Board of Directors may terminate or suspend the Incentive Plan at
any time, but without the consent of the participant, such termination or
suspension shall not affect any Options then outstanding.  The Board of
Directors may amend the Incentive Plan, but may not, without the prior
approval of its stockholders, make any amendment that would, in accordance
with the principles of Rule 16b-3 promulgated under the Securities Exchange
Act of 1934, require the approval of the holders of the Common Stock issued
and outstanding.

      The Incentive Plan has a term of ten (10) years through May 30, 2007.

Item 11.  Security Ownership of Certain Beneficial Owners and Management

      The following table sets forth certain information, as of August 31,
1997, regarding beneficial ownership of the Company Stock of each executive
officer or director of the Company, and all executive officers and
directors  as a group, and each stockholder who is known by Company to
beneficially own more than five percent of the Common Stock of the Company.

<TABLE>
<CAPTION>
                                                          Number of
                                                          Shares of        Percentage
Name and Address (if required) of Beneficial Owner     Common Stock(3)      of Total
--------------------------------------------------     ---------------     ----------

<S>                                                       <C>                <C>
Charles O. Olson, Jr.(1)                                  1,039,048          41.8%

Mohammedali Hassanali                                       151,886           6.1%

Bellaty N.V(1)                                              668,705          26.9%

RehCam Investments L.P(1)                                   153,698           6.1%

Chillington Corporation N.V(1)                              190,246           7.6%

Ali Khin                                                    156,550           6.3%

John E. McConnaughy, Jr.                                    363,251          14.6%

Teleferscot International Limited(2)                      1,787,750          41.9%

David C. Sederholt                                           10,000           0.4%

Andrews & Kurth LLP                                         151,515           6.4%

A. Keith Hebert                                               9,324           0.4%

All Officers and Directors as a Group
 (6 Persons)                                              1,421,623          57.3%

<FN>
--------------------
(1)   Charles Olson, Jr. is the president of Rye Management, Inc., (Rye)
      the general partner of RehCam Investments Limited Partnership
      (RehCam).  Additionally Mr. Olson is a limited partner in RehCam.
      RehCam owns 153,698 shares.  Mr Olson is the attorney in fact for
      Chillington Corporation N.V. which owns 190,246 shares.  Mr. Olson
      exercises voting and investment power over the shares held by this
      entity, but disclaims beneficial ownership.  Mr. Olson is the
      attorney in fact for Bellaty N.V. which owns 668,705 shares.  Mr.
      Olson exercises voting and investment power over the shares held by
      this entity, but disclaims beneficial ownership.  Mr. Olson owns
      26,399 shares personally.  Does not include shares, if any, available
      to Rye Management, Inc. under the terms of the consulting agreement
      to be paid to Rye as a reorganization bonus. (see Certain
      Relationship and Related Transactions)
(2)   Represents warrants, exercisable within 60 days, to purchase 750,000
      shares at $4.00 per share and 750,000 shares at $10.00 per share.
      The remaining 287,750 represents the right of Teleferscot (with the
      Company's consent), as the owner of all outstanding Series A 12%
      Cumulative Convertible Preferred Stock, to exchange one share of
      Preferred Stock for (a) 5 shares of Common Stock through May 30,
      1998, (b) 3.75 shares of Common Stock through May 30, 1999, and (c) 3
      shares of Common Stock through May 30, 2000.
(3)   Beneficial ownership is determined in accordance with the rules of
      the Securities and Exchange Commission.  In computing the number of
      shares beneficially owned by a person and the percentage ownership of
      that person, shares of Common Stock subject to options held by that
      person that are currently exercisable or exercisable within 60 days
      of May 25, 1997 are deemed outstanding.
</FN>
</TABLE>

Item 12.  Certain Relationships and Related Transactions

      In 1995, the Bankruptcy Court overseeing the Company's Chapter 11
case, in connection with the employment of Mr. Olson as President and Chief
Executive Officer, approved a consulting agreement between the Company and
Rye Management, Inc. ("Rye"), that was extensively negotiated between the
Company and the Creditors' Committee.  Rye is a corporation owned and
controlled by Mr. Olson.  The consulting agreement called for a
reorganization bonus to be paid to Rye upon the confirmation of the Plan.
The consulting agreement assigns various "Success Factors" that are based
on the actual recovery (as a percentage of Allowed Claims) realized by
general unsecured creditors in the Chapter 11 cases.  The Success Factors
range from 0, for a 0% recovery level, to 10.5, for a 50% recovery level,
to 20 for a 100% recovery level.  The total reorganization bonus due Rye
will be equal to the aggregate in each Chapter 11 case, of (x) the
applicable Success Factor (taken as a percentage) times (y) the total
consideration paid to all claimants in the case under the Plan.

      This reorganization bonus will be paid through the issuance of the
Company's Common Stock.  Under the confirmed Plan, the number of shares
issued will be based on the sustained trading prices achieved for the
Common Stock over the three year period following the Plan Effective Date.
The reorganization bonus will be calculated based upon the highest average
trading price achieved by the Common Stock over the course of ten
consecutive trading days during the three years following the Effective
Date (with average share volumes traded per day in excess of 10,000
shares).  The Company estimates that, on average, a total of 18,000 shares
would be issuable for each $1.00 of sustained price realized up to $53 per
share during the three year period.

Item 13.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K

       (a)(1)  Financial Statements

      The following financial statements and the Report of Independent
Accountants are filed as a part of this report.


Report of Independent Public Accountants

Consolidated Balance Sheets as of December 27, 1998, December 28, 1997

Consolidated Statements of Operations for the Fifty-Two weeks ended
 December 27, 1998, and Fifty-Two Weeks Ended December 28, 1997.

Consolidated Statements of Stockholders' Equity for Period December 29,
 1997 to December 27, 1998

Consolidated Statements of Cash Flows for the Fifty-Two weeks ended
 December 27, 1998, and Fifty-Two weeks ended December 28, 1997.

Notes to Consolidated Financial Statements

       (a)(2)  Financial Statements Schedules

      Not applicable.

       (a)(3)  Exhibits

      The exhibits to this report have been included only with the copies
of this report filed with the Securities and Exchange Commission.  All
previously filed documents are incorporated by reference.  Copies of
individual exhibits will be furnished to stockholders upon written request
to Treasurer, Redheads, Inc., 50 S. Buckhout Suite #105 Irvington, NY 10533
and payment of a reasonable fee.


<TABLE>
<CAPTION>
Exhibit No.*    Description
------------    -----------

   <C>          <S>
    2.1         Second Amended Plan of Reorganization and Order Confirming
                the Second Amended Plan of Reorganization (December 30,
                1996)
    2.2         Statement of Immaterial Modifications to the Plan and Order
                Approving Immaterial Modifications to the Plan (January 28,
                1997)
    3.1         Amended and Restated Certificate of Incorporation (May 30,
                1997)
    3.2         Amended and Restated Bylaws (May 30, 1997)
    4.1         Form of Certificate representing shares of Common Stock
    4.2         Form of Certificate representing shares of Series A 12%
                Cumulative Convertible Preferred Stock
   10.1         Lease dated October, 1985 between Kings Plaza Shopping
                Center of Flatbush Avenue, Inc. and Kings Plaza Shopping
                Center of Avenue, U., Inc., as lessor, and Registrant, as
                lessee
   10.2         Lease dated March 23, 1988 between Hartz Mountain
                Development Corp., as lessor, and Registrant, as lessee
   10.3         Lease dated September 19, 1986 between Robert Martin
                Company, as lessor, and Registrant, as lessee
   10.4         Lease dated December 23, 1992 between Crescent Land
                Development Associates, as lessor, and Registrant, as
                lessee, plus amendment thereto dated March 1, 1996
   10.6         Commitment Letter dated as of May 30, 1997 between
                Teleferscot International Limited and Registrant
   10.7         Asset Purchase Agreement among Red One, Inc., J. Michael
                Gallagher (collectively, the owners of the Redheads concept
                and the Middletown Redheads Bistro/Bar restaurant facility)
                and Registrant dated May, 1997 and Order of the Court
                authorizing this acquisition
   10.8         Employment Agreement dated July, 1997 between David C.
                Sederholt, Executive Vice President and Chief Operating
                Officer, and Registrant
   11.1         Statement regarding computation of per share earnings
   21.1         List of Subsidiaries
   24.1         A power of attorney, pursuant to which amendments to this
                Report may be filed, is included on the signature page
                contained in Part IV of this Report
   99.1         The Fiscal Year 1997 Stock Option Plan of Redheads, Inc.,
                as approved by the Bankruptcy Court in connection with
                confirmation of the Registrant's plan of reorganization

<FN>
--------------------
*     Previously filed and incorporated by reference.
</FN>
</TABLE>


       (a)(4)  Reports on Form 8-K

      The Company did not file any Current Reports on Form 8-K during 1997.


                                 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, in the
City of Yonkers, State of New York on March 21, 2000.

                                       Redheads, Inc.


                                   By: /s/ CHARLES O. OLSON, JR.
                                       -------------------------
                                       Charles O. Olson, Jr.
                                       President, Chief Executive Officer
                                       and Chief Financial Officer

      KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers
and directors of Redheads, Inc. (the "Company") hereby constitutes and
appoints Charles O. Olson, Jr., his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and on
his behalf and in his name, place and stead, in any and all capacities, to
sign, execute and file this report under the Securities Exchange Act of
1934, as amended, and any or all amendments (including, without limitation,
post-effective amendments), with all exhibits and any and all documents
required to be filed with respect thereto, with the Securities and Exchange
Commission or any regulatory authority, granting unto such attorneys-in-
fact and agent full power and authority to do and perform each and every
act and thing requisite and necessary to be done in and about the premises
in order to effectuate the same, as fully to all intents and purposes as he
himself might or could do if personally present, hereby ratifying and
confirming all that such attorney-in-fact and agent, or his substitute, may
lawfully do or cause to be done.

      Pursuant to the requirements of the Securities Exchange Act of 1934,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signature                                 Title                      Date
---------                                 -----                      ----

<S>                           <C>                               <C>
/s/ CHARLES O. OLSON, JR.     President & CEO/CFO, Director     March 21, 2000
-------------------------
Charles O. Olson, Jr.

/s/ JOHN E. McCONNAUGHY       Director                          March 21, 2000
-----------------------
John E. McConnaughy

/s/ PIERPAOLO MATTEUZZI       Director                          March 21, 2000
-----------------------
Pierpaolo Matteuzzi

/s/ JULIO PASINI              Director                          March 21, 2000
----------------
Julio Pasini
</TABLE>