<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
Commission File Number: 33-39231
Soulfood Concepts, Inc.
- --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 13-3585743
- -------------------------------------------------------------------------------
(State of Incorporation) (IRS Employer Identification No.)
630 Ninth Avenue, New York, New York 10036
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(Address if Principal Executive Offices) (Zip Code)
Issuer's telephone number, including area code: (212) 262-8333
--------------
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act of 1934 during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes No X
-------- -------
The number of shares outstanding of the issuer's only class of common stock, par
value $.003 per share, as of May 11, 1998 was 3,373,177 shares.
<PAGE>
Soulfood Concepts, Inc. ("The Company") was formed as a Delaware corporation and
has seven subsidiaries. The Company intends to build the first national "Soul
Food Restaurant" company throughout major urban areas in the United States with
the expansion of its two concepts - The Shark Bar Restaurant and Mekka
Restaurant.
The Company currently wholly owns and operates four full service, upscale soul
food restaurants under the name The Shark Bar Restaurant. These restaurants are
located in the cities of New York, Chicago, Los Angeles and Atlanta. The 10,000
sq. foot, two floor Atlanta location was opened in March of 1998. The Company is
also the holder of 62% interest in one other full service, soul food restaurant
operating under the name of Mekka Restaurant, which is located in Manhattan's
Greenwich Village.
The Company is dedicated to excellence in the quality of its food and to the
creation of value for its customers. The Shark Bar Restaurants were developed to
appeal to a 35-50 year old, predominantly African-American customer base. Each
has a separate bar area along with dining rooms with tablecloth settings. The
Shark Bar restaurant serves dinner 7 days a week and lunch and brunch when
appropriate. The distribution between food and beverage sales is 65% food and
35% beverages. During 1997, the average guest check at the Shark Bar was
approximately $23 (including beverages).
During 1997, The New York Shark Bar Restaurant received a designation from
Forbes Magazine as an "All-Star Eatery", while the Chicago restaurant was
awarded "Two Stars" from the Chicago Sun-Times. The Los Angeles restaurant was
also named by the Los Angeles Times as one of the best new restaurants in LA for
1997.
The Company plans to continue its expansion plans to the other major urban
markets in the Unites States.
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET - ASSETS (UNAUDITED)
March 31, December 31,
1998 1997
---------- ------------
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents ........................ $ 125,666 $ 49,469
Accounts Receivable .............................. 138,684 69,387
Inventory ........................................ 109,569 67,149
Prepaid Expenses and Other Current Assets ........ 147,295 134,390
---------- ----------
Total Current Assets .......................... 521,214 320,395
PROPERTY AND EQUIPMENT, Net of Accumulated
Depreciation of $447,618 and $391,332, respectively . 1,417,148 1,023,901
ORGANIZATION COSTS, Net of Accumulated Amortization
of $29,392 and $28,189, respectively ............... 22,964 24,167
COST OF LEASEHOLD, Net of Accumulated Amortization
of $363,556 and $357,114, respectively ........... 385,190 290,413
Other Assets ......................................... 240,520 75,182
---------- ----------
TOTAL ASSETS .................................. $2,587,036 $1,734,058
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
- 1 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET - LIABILITIES AND
STOCKHOLDERS' EQUITY (UNAUDITED)
March 31, December 31,
1998 1997
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank Overdraft ............................. $ -- $ 88,640
Accounts Payable & Accrued Expenses ........ 932,098 657,322
Obligation Under Capital Lease ............. 15,348 15,348
Current Portion of Long-Term Debt .......... 10,956 10,956
----------- -----------
Total Current Liabilities ............... 958,402 772,266
DUE TO RELATED PARTY ........................... 861,661 615,367
OBLIGATIONS UNDER CAPITAL LEASE LONG-TERM ...... 80,034 51,068
LONG-TERM DEBT ................................. 715,909 450,909
----------- -----------
TOTAL LIABILITIES ....................... 2,616,006 1,889,610
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock, par value $.003; Authorized
500,000 shares; issued and outstanding
125,000 shares ............................ 375 375
Common Stock, par value $.003; Authorized
14,500,000 shares; issued and outstanding
3,373,177 shares .......................... 10,120 10,120
Additional Paid-in Capital ................. 982,449 982,449
Minority Interest .......................... 32,458 18,667
Accumulated Deficit ........................ (1,054,372) (1,167,163)
----------- -----------
Total Stockholders' Equity (Deficit) .... (28,970) (155,552)
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) ......... $ 2,587,036 $ 1,734,058
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
- 2 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Three Months Ended
March 31,
-------------------------------
1998 1997
------------ -------------
SALES $ 2,177,119 $ 1,008,432
COST OF SALES 601,149 265,510
------------ ------------
GROSS PROFIT 1,575,970 742,922
Restaurant Operating Expenses 1,180,443 526,751
------------ ------------
Income from Operating Restaurants 395,527 216,171
Other Corporate Expenses 145,669 113,619
------------ ------------
Income from Operations 249,858 102,552
OTHER INCOME
Interest Income -- 188
Interest Expense (37,889) (14,995)
Pre-Opening Expenses (17,823) (35,692)
Depreciation & Amortization (62,712) (33,985)
------------ ------------
INCOME BEFORE (PROVISION) BENEFIT FOR
INCOME TAXES AND MINORITY INTEREST 131,434 18,068
(PROVISION) BENEFIT FOR INCOME TAXES 4,852 620
------------ ------------
NET INCOME BEFORE MINORITY INTEREST 126,582 17,448
MINORITY INTEREST (13,791) --
------------ ------------
NET INCOME $ 112,791 $ 17,448
============ ============
EARNINGS PER SHARE:
Basic $ .03 $ .01
============ ============
Diluted $ .03 $ .01
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
- 3 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
------------------------ -------------------------- Paid-in
Shares Amount Shares Amount Capital
-------- ------- --------- ------- ------------
<S> <C> <C> <C> <C> <C>
Balance - December 31, 1995 -- $ -- 5,468,776 $ 5,469 $ 14,837
Issuance of Common Stock in
Conversion of Stockholder Loan -- -- 2,750,690 2,751 547,387
Reverse 1 for 3 Stock Split -- -- (5,479,627) -- --
Issuance of Common Stock in
Conversion of Stockholder Loan -- -- 400,000 1,200 78,800
Issuance of Preferred Stock in
Conversion of Stockholder Loan 125,000 375 -- -- 124,625
Distributions -- -- -- -- --
Net Income -- -- -- -- --
----------- --------- ---------- -------- ----------
Balance - December 31, 1996 125,000 375 3,139,839 9,420 765,649
Issuance of Common Stock -- -- 300,000 900 219,100
Return of Stock Issued -- -- (66,662) (200) (2,300)
Distributions -- -- -- -- --
Net Income (Loss) -- -- -- -- --
----------- --------- ---------- -------- ----------
Balance - December 31, 1997 125,000 375 3,373,177 10,120 982,449
Net Income -- -- -- -- --
----------- --------- ---------- -------- ----------
Balance - March 31, 1998 125,000 $ 375 3,373,177 $ 10,120 $ 984,449
========== ======== ========== ======= ==========
<CAPTION>
Total
Minority Accumulated Stockholders'
Interest Deficit Equity (Deficit)
-------- ---------- ----------------
<S> <C> <C> <C>
Balance - December 31, 1995 $ -- $ (695,235) $ (674,929)
Issuance of Common Stock in
Conversion of Stockholder Loan -- -- 550,138
Reverse 1 for 3 Stock Split -- -- --
Issuance of Common Stock in
Conversion of Stockholder Loan -- -- 80,000
Issuance of Preferred Stock in
Conversion of Stockholder Loan -- -- 125,000
Distributions -- (16,881) (16,881)
Net Income -- 63,971 63,971
----------- ------------ ------------
Balance - December 31, 1996 -- (648,145) 127,299
Issuance of Common Stock -- -- 220,000
Return of Stock Issued -- -- --
Distributions -- (6,697) (6,697)
Net Income (Loss) 18,667 (512,321) (493,654)
----------- ------------ ------------
Balance - December 31, 1997 18,667 (1,167,163) (155,552)
Net Income 13,791 112,791 126,582
----------- ------------ ------------
Balance - March 31, 1998 $ 32,458 $(1,054,372) $ (28,970)
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Three Months Ended
March 31,
----------------------
1998 1997
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 112,791 $ 17,448
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided by Operating Activities:
Depreciation and Amortization 62,712 35,692
(Increase) Decrease In:
Accounts Receivable (69,297) (24,907)
Inventory (40,182) (10,542)
Prepaid Expenses and Other Current Assets (12,905) 31,868
Other Assets (165,338) (186,680)
(Decrease) Increase In:
Cash Overdraft (88,640) --
Accounts Payable & Accrued Expenses 274,776 112,286
--------- ---------
NET CASH PROVIDED BY (USED FOR) OPERATING
ACTIVITIES 73,917 (24,835)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property and Equipment (449,815) (507,745)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in Debt 515,000 542,430
Repayment of Debt (62,905) (4,880)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 452,095 537,550
--------- ---------
Net Increase in Cash and Cash Equivalents
During the Period 76,197 4,970
Cash - January 1, 49,469 76,902
--------- ---------
Cash - March 31, $ 125,666 $ 81,872
========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash Paid During the Period:
Interest $ -- $ 2,614
========== =========
Taxes $ 4,852 $ 4,595
========== =========
The accompanying notes are an integral part of the consolidated financial
statements.
- 5 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
a. Basis of Presentation
The accompanying financial statements have been prepared in
accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form
10-QSB and Regulation S-B. Accordingly, they do not include all of
the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting only of normal
recurring adjustments) considered necessary for a fair
presentation have been included.
For further information refer to the financial statements and
footnotes included in the Company's report for the year ended
December 31, 1997.
The results of Operations for any interim period are not
necessarily indicative of the results to be expected for the year
ended December 31, 1998.
The accompanying consolidated financial statements include the
accounts of Soulfood Concepts, Inc. ("The Company"), a holding
company organized under the laws of the state of Delaware on
December 11, 1992 and its subsidiaries:
1) Shark Restaurant Corp., ("SRC") incorporated under the laws
of the State of New York on June 7, 1990 (owned 100% by the
Company);
2) Affair Restaurant, Inc. ("Shark Bar Chicago"), purchased on
January 10, 1997 from Affair, L.P. (See Note 5), (owned 100%
by the Company); and
3) Shark Restaurant California Corp. ("Shark Bar L.A."),
incorporated under the laws of the State of California on
June 23, 1997 (owned 100% by the Company);
4) Avenue A Restaurant Associates, L.P. ("Avenue A"), organized
as a limited partnership pursuant to a limited partnership
under the laws of New York September 22, 1994 (owned 62% by
7 West);
5) 7 West Restaurant Corp. ("7 West"), incorporated under the
laws of the State of New York on February 1, 1994 (owned
100% by the Company);
6) Shark Catering Corp., ("SCC"), incorporated under the laws
of the State of New York on May 14, 1992 (owned 100% by the
Company); currently inactive.
7) TWS Restaurant, Corp. ("TWS"), incorporated under the laws
of the State of New York on May 1, 1995 (owned 100% by the
Company); currently inactive.
8) Shark Bar, Inc. ("Shark Bar Atlanta"), incorporated under
the laws of the State of the State of Georgia on October 30,
1997 (owned 100% by the Company).
All significant intercompany accounts and transactions have been
eliminated in consolidation.
- 6 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (cont'd)
b. Earnings Per Share
The computation of primary earnings per share is based on the
weighted average number of outstanding common shares during the
period. Fully diluted earnings per share additionally assumes the
conversion of outstanding Preferred Stock.
NOTE 2 - INVENTORY
Inventory consisted of the following at:
March 31, December 31,
1998 1997
---------- ------------
Food $ 27,299 $ 23,709
Beverage 79,157 43,440
---------- ------------
$ 106,456 $ 67,149
========== ============
NOTE 3 - PROPERTY AND EQUIPMENT
Property and Equipment consisted of the following:
Cost
------
March 31, 1998
--------------
Furniture, Fixtures & Equipment $ 1,093,005
Leasehold Improvement 771,761
-----------
1,864,766
Accumulated Depreciation (447,618)
-----------
$ 1,417,148
===========
December 31, 1997
-----------------
Furniture, Fixtures & Equipment $ 789,637
Leasehold Improvement 625,596
-----------
1,415,233
Accumulated Depreciation (391,332)
-----------
$ 1,023,901
===========
Depreciation and amortization expense of property and equipment
for the three months ended March 31, 1998 was $56,286.
- 7 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - RELATED PARTY TRANSACTION
Due to related parties consists of the following:
March 31, December 31,
1998 1997
--------- ------------
Advances from an officerf of the
Company, payable on demand. It
is intended that these advances
will be repaid in more than one
year. Interest has been accrued
on these advances at 10% per annum. $ 460,501 $ 214,207
Advances from an officer of the
Company. These advances are
convertable into preferred stock.
Interest has been accrued on these
advances at 10% per annum. 335,000 335,000
Partner loans to Avenue A. Interest
is being accrued at 10% per annum
to the limited partners. 66,160 66,160
--------- ----------
$ 861,661 $ 615,367
========== ==========
NOTE 5 - LONG-TERM DEBT
Long-term debt consists of the following:
March 31, December 31,
1998 1997
--------- ------------
Working capital loan from Citibank,
bearing interest at 11.5% per annum
on the outstanding balance, payable
in monthly installments of $913
principal only with interest accrued,
maturing in January, 1999. $ 11,865 $ 11,865
The Company received a $100,000 note
from an outside investor in February
1997, with interest payable at 10% per
annum. The note is due February 4,
1999. Interest is due semi-annually,
and any unpaid amounts have been
accrued. 100,000 100,000
- 9 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - LONG-TERM DEBT (continued)
March 31, December 31,
1998 1997
--------- ------------
The Company also received a $350,000
note in May 1997 from the Aton Fund
Balance Fund Interest Group with
interest payable at 10% per annum due.
The note is due May 21, 1999. Interest
is due semi-annually, and any unpaid
amounts have been accrued. 350,000 350,000
The Company has also received a
$265,000 note in February 1998 from
institutional investors, with
interest payable at 10% per annum.
The note is due in February 2000.
Interest is due semi-annually and
any unpaid amounts have been accrued. 265,000 --
------- --------
Total 726,865 461,865
Less: Current Portion 10,956 10,956
-------- ---------
Long-Term Debt $715,909 $450,909
======== =========
NOTE 6 - INCOME TAXES
The provision for income taxes is summarized as follows:
March 31, December 31,
1998 1997
--------- ------------
Federal Income Tax $ -- $ --
State and Local 4,860 (1,333)
--------- ----------
4,860 (1,333)
Tax Benefit of Net Operating Loss
Carryfowards -- --
--------- ----------
Provision for Income Taxes $ 4,860 $ (1,333)
========= ==========
The Company has net carryforward losses substantially in excess of
their profits. Because of the uncertainty of future profits, a
valuation allowance has been established equal to the tax benefit
of the loss carryforwards.
The loss carryforwards expire starting in 2008 through 2011 and
total net carryforward losses is approximatey $973,024.
- 10 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Company's future minimum annual aggregate rental payments
required under operating leases that have initial or remaining
non-cancelable lease terms in excess of one year are as follows:
1998 $ 368,374
1999 335,429
2000 245,324
2001 248,628
2002 250,848
2003 and thereafter 2,111,000
NOTE 8 - STOCKHOLDERS' EQUITY
During the fiscal year 1998, the Company has entered into the
following transactions involving the issuance of securities:
Pursuant to the terms of a Note Purchase Agreement dated February
16, 1998, the Company received $265,000 in exchange for the
Company's 10% Convertible Secured Note in the aggregate principal
amount of $265,000 and warrants to purchase shares of Common
Stock. The Note provides that the holder is entitled at any time
to convert any or all of the original principal amount of the note
into shares of Common Stock. The Shares of Common Stock underlying
the note and the warrants bear certain demand and "piggyback"
registration rights.
- 11 -
<PAGE>
SOULFOOD CONCEPTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial position and operating
results during the periods included in the accompanying consolidated financial
statements and information relating to the new restaurant that opened on March
9, 1998 (Atlanta).
Results of Operations for Three Months Ended March 31, 1998 and 1997
Sales for the three months ended March 31, 1998 increased by approximately 115%
to $2,168,662 from sales of $1,008,432 during the three months ended March 31,
1998. The principal reasons were a 48% sales increase at three existing
locations, as well as two new restaurant locations which contributed $1,169,856
to three month sales. On-site operating profits, before corporate G&A, taxes and
depreciation, increased at Shark Bar New York from $177,540 (26% of sales) for
the three months ending March 31, 1998 to $185,085 (26% of sales) for the 1998
corresponding period, an increase in percentage terms of approximately 4%. Cost
of sales was 25.6% for both periods.
At the corporate level, income before depreciation, amortization, other income
(expenses) and provision for income taxes increased to $249,858 from $102,552 in
the previous year. This increase is due to higher sales and lower operating
expenses as a percentage of sales at existing stores.
Liquidity and Capital Resources and Subsequent Acquisitions
Cash at March 31, 1998 was $125,666 which increased from $(39,171) at December
31, 1997 due to new locations providing additional cash flow and additional
borrowings. Assets increased by $852,978 to $2,587,036 mainly due to the
acquisitions and opening of two new restaurant locations in Los Angeles and
Atlanta. Total liabilities increased by $726,396 to $2,616,006 in large part due
to loans raised in acquiring the two new restaurants.
The Company believes that its cash flow from operations will provide adequate
resources to meet its capital requirements and operational needs for the
foreseeable future.
- 12 -
<PAGE>
PART II. OTHER INFORMATION
NONE
- 13 -
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SOULFOOD CONCEPTS, INC.
Date: May 13, 1998 By: /s/ Brian A. Hinchcliffe
------------------------
Brian A. Hinchcliffe,
Chief Executive Officer,
President and Director
(Principal Accounting Officer)
Date: May 13, 1998 By: /s/ Keith Clinkscales
---------------------
Keith Clinkscales, Director
- 14 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 125,666
<SECURITIES> 0
<RECEIVABLES> 138,684
<ALLOWANCES> 0
<INVENTORY> 109,569
<CURRENT-ASSETS> 574,471
<PP&E> 147,295
<DEPRECIATION> 447,618
<TOTAL-ASSETS> 2,587,036
<CURRENT-LIABILITIES> 958,402
<BONDS> 0
0
375
<COMMON> 10,120
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,587,036
<SALES> 2,177,119
<TOTAL-REVENUES> 0
<CGS> 601,149
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,326,112
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,889
<INCOME-PRETAX> 131,434
<INCOME-TAX> 4,852
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 112,791
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
