<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 June 30, 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
------------------------------------ -----
(Address if Principal Executive Offices) (Zip Code)
Issuer's telephone number, including area code: (212) 262-6247
----------------------------------------------------
(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 August 5, 1998 was 3,373,172 shares.
<PAGE>
Notes to the Second Quarter
Soulfood Concepts Inc. reports that sales for the second quarter of 1998
increased by 65% to $2,578,292 from 1997-second quarter sales of $1,564,538.
Sales for the first six months ending June 30th, 1998 increased by
approximately 85% to $4,755,411 from the figure of $2,572,970 for the first
six months of 1997. Net income was $22,639 for the second quarter and $135,530
for the six months ending June 30th, 1998. Depreciation, amortization and
pre-opening expenses were $120,272 for the second quarter and $200,807 for the
six months ending June 30th, 1998.
The newly opened Shark Bar Restaurant in Atlanta recorded sales of $609,423
for the second quarter. During the same quarter, The Shark Bar River Cafe was
opened in Chicago in conjunction with a program run by The City of Chicago.
The Company has identified its next restaurant locations and plans to open 2
to 3 more locations before the end of 1998. The Company is also pleased to
announce that its activities were featured in the July issue of Restaurant
Hospitality.
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET - ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSET
CURRENT ASSETS
Cash and Cash Equivalents $ 228,142 $ 49,469
Accounts Receivable 81,548 69,387
Inventory 112,449 67,149
Prepaid Expenses and Other Current Assets 168,351 134,390
------------ ------------
Total Current Assets 590,490 320,395
PROPERTY AND EQUIPMENT, Net of Accumulated
Depreciation of $527,100 and $391,332, respectively 1,482,748 1,023,901
ORGANIZATION COSTS, Net of Accumulated Amortization
of $31,150 and $28,189, respectively 21,215 24,167
COST OF LEASEHOLD, Net of Accumulated Amortization
of $373,988 and $357,114, respectively 373,539 290,413
Other Assets 235,260 75,182
------------ ------------
TOTAL ASSETS $ 2,703,252 $ 1,734,058
============ ============
</TABLE>
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)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank Overdraft $ - $ 88,640
Accounts Payable & Accrued Expenses 1,137,279 657,322
Obligation Under Capital Lease - 15,348
Current Portion of Long-Term Debt 5,478 10,956
----------- -----------
Total Current Liabilities 1,142,757 772,266
DUE TO RELATED PARTY 803,388 615,367
OBLIGATIONS UNDER CAPITAL LEASE LONG-TERM 56,912 51,068
LONG-TERM CONVERTIBLE DEBENTURE AND NOTES 715,909 450,909
----------- -----------
TOTAL LIABILITIES 2,718,966 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 39,369 18,667
Accumulated Deficit (1,048,027) (1,167,163)
----------- -----------
Total Stockholders' Equity (Deficit) (15,714) (155,552)
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 2,703,252 $ 1,734,058
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
- 2 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
----------------------- -----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
SALES $4,755,411 $2,572,970 $2,578,292 $1,564,538
COST OF SALES 1,363,480 722,396 762,331 456,886
---------- ---------- ---------- ----------
GROSS PROFIT 3,391,931 1,850,574 1,815,961 1,107,652
Restaurant Operating Expenses 2,637,079 1,328,184 1,456,636 786,591
---------- ---------- ---------- ----------
Income from Operating Restaurants 754,852 522,390 359,325 321,061
Corporate G & A 309,351 242,202 163,682 143,425
---------- ---------- ---------- ----------
Income from Operations 445,501 280,188 195,643 177,636
OTHER INCOME (EXPENSES)
Interest Income -- 301 -- 113
Interest Expense (80,930) (43,704) (43,041) (28,709)
Pre-Opening Expenses (57,893) (74,612) (40,070) (40,627)
Depreciation and Amortization (142,914) (85,375) (80,202) (49,683)
---------- ---------- ---------- ----------
INCOME BEFORE PROVISION FOR
INCOME TAXES AND MINORITY
INTEREST 163,764 76,798 32,330 58,730
PROVISION FOR INCOME TAXES 7,532 5,372 2,780 4,752
---------- ---------- ---------- ----------
NET INCOME BEFORE
MINORITY INTEREST 156,232 71,426 29,550 53,978
MINORITY INTEREST (20,702) -- (6,911) --
---------- ---------- ---------- ----------
NET INCOME $ 135,530 $ 71,426 $ 22,639 $ 53,978
========== ========== ========== ==========
EARNINGS PER SHARE:
Primary $ .03 $ .01 $ .01 $ .01
========== ========== ========== ==========
Fully Diluted $ .03 $ .01 $ .01 $ .01
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
- 3 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------------
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 135,530 $ 71,426
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided by Operating Activities:
Depreciation and Amortization 142,914 85,375
(Increase) Decrease In:
Accounts Receivable (12,161) (34,327)
Prepaid Expenses (33,961) (12,194)
Inventory (45,300) (15,034)
Escrow Advance - 33,500
Loans and Exchange - 13,812
Security Deposits - (3,050)
Other Assets (160,078) (138,442)
(Decrease) Increase In:
Accounts Payable & Accrued Expenses 513,339 101,517
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 540,283 102,583
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property and Equipment (694,615) (584,419)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in Debt 458,865 797,429
Repayment of Debt (109,466) (10,287)
Increase in Additional Paid-in Capital 219,100
Partner Distributions (16,394) -
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 333,005 1,006,242
----------- -----------
Net Increase in Cash During the Period 178,673 524,406
Cash - January 1, 49,469 76,902
----------- -----------
Cash - June 30, $ 228,142 $ 601,308
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash Paid During the Period:
Interest $ 9,126 $ 5,416
=========== ===========
Taxes $ 8,552 $ 4,595
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
- 4 -
<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
Distributions -- -- -- -- --
Net Income -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance - June 30, 1998 125,000 $ 375 3,373,177 $ 10,120 $ 982,449
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<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)
Distributions -- (16,394) (16,394)
Net Income 20,702 135,530 156,232
----------- ----------- -----------
Balance - June 30, 1998 $ 39,369 $(1,048,027) $ (15,714)
=========== =========== ===========
</TABLE>
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:
June 30, December 31,
1998 1997
---------- ----------
Food $ 24,154 $ 23,709
Beverage 88,295 43,440
---------- ----------
$ 112,449 $ 67,149
========= ==========
NOTE 3 - PROPERTY AND EQUIPMENT
Property and Equipment consisted of the following:
Cost
------------
June 30, 1998
-------------
Furniture, Fixtures & Equipment $ 1,202,350
Leasehold Improvement 807,498
------------
2,009,848
Accumulated Depreciation 527,100
------------
$ 1,482,748
============
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 six months ended June 30, 1998 was $142,914.
- 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:
June 30, December 31,
1998 1997
----------- -----------
Advances from an officer 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. $ 468,388 $ 214,207
Advances from an officer of the
Company. These advances are
convertible 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
----------- -----------
$ 803,388 $ 615,367
=========== ===========
NOTE 5 - LONG-TERM DEBT
Long-term debt consists of the following:
June 30, 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. $ 6,387 $ 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)
June 30, December 31,
1998 1997
----------- -----------
The Company also received a $350,000
convertible debenture note in May 1997
from the Aton 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. The conversion price to
common shares is $3.00 per share. 350,000 350,000
The Company has also received a
$265,000 convertible debenture 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. The conversion
price to common shares is $ 2.25 per
share 265,000 -
----------- -----------
Total 721,387 461,865
Less: Current Portion 5,478 10,956
----------- -----------
Long-Term Debt $ 715,909 $ 450,909
=========== ===========
NOTE 6 - INCOME TAXES
The provision for income taxes is summarized as follows:
June 30, December 31,
1998 1997
---------- ----------
Federal Income Tax $ - $ -
State and Local 7,532 (1,333)
---------- ----------
7,532 (1,333)
Tax Benefit of Net Operating Loss
Carryfowards - -
---------- ----------
Provision for Income Taxes $ 7,532 $ (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 approximately $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 Six Months Ended June 30, 1998 and 1997 and Three
Months ended June 30 1998 and 1997
---------------------------------------------------------------------------
Sales for the six months ended June 30, 1998 increased by approximately 85% to
$4,755,411 from sales of $2,572,970 during the six months ended June 30, 1997.
The principal reasons were a 16.5% sales increase at three existing locations,
as well as two new restaurant locations which contributed $1,750,283 to six
month sales. Sales for the three months ended June 30, 1998 of $2,578,292,
were approximately 65% more than sales for the three months ended June 30,
1997 of $1,564,538. On-site operating profits, before corporate G&A, taxes and
depreciation, remained the same at Shark Bar New York (26% of sales) for the
six months ending June 30, 1998 and 1997. Cost of sales was 26.5% for both
periods.
At the corporate level, income before depreciation, amortization, other income
(expenses) and provision for income taxes increased to $445,501 from $280,188
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 June 30, 1998 was $228,142 which increased from $(39,171) at December
31, 1997 due to new locations providing additional cash flow and additional
borrowings. Assets increased by $116,216 to $2,703,252 mainly due to the
acquisitions and opening of two new restaurant locations in Los Angeles and
Atlanta. Total liabilities increased by $102,001 to $2,718,007 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: August 6, 1998 By: /s/ Brian A. Hinchcliffe
------------------------------
Brian A. Hinchcliffe,
Chief Executive Officer,
President and Director
(Principal Accounting Officer)
Date: August 6, 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> JUN-30-1998
<CASH> 228,142
<SECURITIES> 0
<RECEIVABLES> 81,548
<ALLOWANCES> 0
<INVENTORY> 112,449
<CURRENT-ASSETS> 590,490
<PP&E> 168,351
<DEPRECIATION> 527,100
<TOTAL-ASSETS> 2,703,252
<CURRENT-LIABILITIES> 1,141,798
<BONDS> 0
0
375
<COMMON> 10,120
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,703,252
<SALES> 4,755,411
<TOTAL-REVENUES> 0
<CGS> 1,363,480
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,946,430
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 80,930
<INCOME-PRETAX> 156,232
<INCOME-TAX> 7,532
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 135,530
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
