<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 September 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 of 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 November 3, 1998 was 3,998,172 shares.
<PAGE>
Notes to the Third Quarter
Soulfood Concepts Inc.("The Company") was formed as a Delaware corporation and
has seven subsidiaries. The company is building a national restaurant company
throughout major urban areas with expansion of its chief concept, The Shark
Bar Restaurant. The original Shark Bar Restaurant opened in New York city in
1990, and there are now locations in Chicago, Los Angeles and Atlanta.
Soulfood Concepts Inc. reports that sales for the third quarter of 1998
increased by 60% to $2,542,489 from 1997 third quarter sales of $1,517,216.
Sales for the first nine months ending September 30th, 1998 increased by 56%
to $7,296,900 from the figure of $4,090,186 for the first nine months of 1997.
Net income was $40,817 for the third quarter and $176,347 for the nine months
ending September 30th, 1998. Depreciation, amortization and pre-opening
expenses were $157,753 for the second quarter and $358,580 for the nine months
ending September 30th.
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET - ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 140,747 $ 49,469
Accounts Receivable 60,721 69,387
Inventory 106,882 67,149
Prepaid Expenses and Other Current Assets 164,438 134,390
----------- ------------
Total Current Assets 472,788 320,395
PROPERTY AND EQUIPMENT, Net of Accumulated
Depreciation of $582,582 and $391,332, respectively 1,445,805 1,023,901
ORGANIZATION COSTS, Net of Accumulated Amortization
of $32,644 and $28,189, respectively 19,712 24,167
COST OF LEASEHOLD, Net of Accumulated Amortization
of $384,525 and $357,114, respectively 363,002 290,413
Other Assets 162,689 75,182
------------ -------------
TOTAL ASSETS $ 2,463,996 $ 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>
September 30, December 31,
1998 1997
---- ----
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank Overdraft $ -- $ 88,640
Accounts Payable & Accrued Expenses 831,211 657,322
Obligation Under Capital Lease 15,348 15,348
Current Portion of Long-Term Debt 452,739 10,956
------------ -----------
Total Current Liabilities 1,299,298 772,266
DUE TO RELATED PARTY 823,275 615,367
OBLIGATIONS UNDER CAPITAL LEASE LONG-TERM 43,116 51,068
LONG-TERM DEBT 265,000 450,909
------------ -----------
TOTAL LIABILITIES 2,430,689 1,889,610
------------ -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock, par value $.003; Authorized
500,000 shares; issued and outstanding
0 shares -- 375
Common Stock, par value $.003; Authorized
14,500,000 shares; issued and outstanding
3,998,172 shares 11,995 10,120
Additional Paid-in Capital 980,949 982,449
Minority Interest 49,121 18,667
Accumulated Deficit (1,008,758) (1,167,163)
------------- -----------
Total Stockholders' Equity (Deficit) 33,307 (155,552)
-------------- ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 2,463,996 $ 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>
Nine Months Ended Three Months Ended
September 30, September 30,
----------------------------- ---------------------------
1998 1997 1998 1997
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
SALES $ 7,296,900 $ 4,090,186 $ 2,541,489 $1,517,216
COST OF SALES 2,118,199 1,143,898 754,719 421,502
----------- ----------- ------------ -----------
GROSS PROFIT 5,178,701 2,946,288 1,786,770 1,095,714
Restaurant Operating Expenses 4,046,869 2,194,335 1,409,790 866,151
----------- ----------- ------------ -----------
Income from Operating Restaurants 1,131,832 751,953 376,980 229,563
Other Corporate Expenses 436,922 436,835 127,571 194,633
----------- ----------- ------------ -----------
Income from Operations 694,910 315,118 249,409 34,930
OTHER INCOME (EXPENSES)
Interest Income -- 322 -- 21
Interest Expense (122,100) (84,613) (41,170) (40,909)
Pre-Opening Expenses (135,464) (135,496) (77,571) (60,884)
Depreciation and Amortization (223,116) (135,846) (80,202) (50,471)
----------- ----------- ------------ -----------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES AND MINORITY
INTEREST 214,230 (40,515) 50,466 (117,313)
PROVISION FOR INCOME TAXES 7,429 7,692 (103) 2,320
----------- ----------- ------------ -----------
NET INCOME (LOSS)BEFORE MINORITY
INTEREST 206,801 (48,207) 50,569 (119,633)
MINORITY INTEREST (30,454) -- (9,752) --
----------- ----------- ------------ -----------
NET INCOME (LOSS) $ 176,347 $ (48,207) $ 40,817 $ (119,633)
=========== =========== ============ ===========
EARNINGS PER SHARE:
Primary $ .04 $ (.01) $ .02 $ (.01)
=========== =========== ============ ===========
Fully Diluted $ .04 $ (.01) $ .02 $ (.01)
=========== =========== ============ ===========
</TABLE>
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>
Additional Total
Preferred Stock Common Stock Paid-in Minority Accumulated Stockholders'
Shares Amount Shares Amount Capital Interest Deficit Equity (Deficit)
-------- ------- ---------- ------- ----------- ------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1995 -- $ -- 5,468,776 $ 5,469 $ 14,837 $ -- $ (695,235) $ (674,929)
Issuance of Common Stock in
Conversion of Stockholder Loan -- -- 2,750,690 2,751 547,387 -- -- 550,138
Reverse 1 for 3 Stock Split -- -- (5,479,627) -- -- -- -- --
Issuance of Common Stock in
Conversion of Stockholder Loan -- -- 400,000 1,200 78,800 -- -- 80,000
Issuance of Preferred Stock in
Conversion of Stockholder Loan 125,000 375 -- -- 124,625 -- -- 125,000
Distributions -- -- -- -- -- -- (16,881) (16,881)
Net Income -- -- -- -- -- -- 63,971 63,971
------- ------ ----------- ------- --------- ------- ----------- --------------
Balance - December 31, 1996 125,000 375 3,139,839 9,420 765,649 -- (648,145) 127,299
Issuance of Common Stock -- -- 300,000 900 219,100 -- -- 220,000
Return of Stock Issued -- -- (66,667) (200) (2,300) -- -- (2,500)
Distributions -- -- -- -- -- -- (6,697) (6,697)
Net Income (Loss) -- -- -- -- -- 18,667 (512,321) (493,654)
-------- ------ ------------ ------- --------- ------- ----------- --------------
Balance - December 31, 1997 125,000 375 3,373,172 10,120 982,449 18,667 (1,167,163) (155,552)
Distributions -- -- -- -- -- -- (17,942) (17,942)
Conversion of Preferred Stock (125,000) (375) 625,000 1,875 (1,500) -- -- --
Net Income -- -- -- 30,454 176,347 206,801
-------- ------ ----------- ------- --------- ------- ----------- --------------
Balance - September 30, 1998 -- $ -- 3,998,172 $11,995 $ 980,949 $49,121 $(1,008,758) $ 33,307
======== ====== =========== ======= ========= ======= ============ ==============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
- 4 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income(Loss) $ 176,347 $ (48,207)
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided by Operating Activities:
Depreciation and Amortization 223,116 135,846
(Increase) Decrease In:
Accounts Receivable 8,666 (33,730)
Prepaid Expenses and Other Current Assets (30,048) (3,460)
Inventory (39,733) (24,498)
Other Assets (144,193) (592,513)
(Decrease) Increase In:
Accounts Payable & Accrued Expenses 173,889 206,211
----------- ------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 368,044 (360,351)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property and Equipment (713,154) (853,276)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in Debt 587,535 1,078,957
Repayment of Debt (131,705) (34,374)
Increase in Additional Paid-in Capital (1,500) 219,100
Partner Distributions (17,942) (5,000)
----------- ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 436,388 1,258,683
----------- ------------
Net Increase in Cash During the Period 91,278 45,056
Cash - January 1, 49,469 76,902
----------- ------------
Cash - September 30, $ 140,747 $ 121,958
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash Paid During the Period:
Interest $ 35,750 $ 6,904
============= ============
Taxes $ 8,950 $ 4,595
============= ============
</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:
September 30, December 31,
1998 1997
---- ----
Food $ 33,738 $ 23,709
Beverage 73,144 43,440
---------- ----------
$ 106,882 $ 67,149
========== ==========
NOTE 3 - PROPERTY AND EQUIPMENT
Property and Equipment consisted of the following:
Cost
----
September 30, 1998
------------------
Furniture, Fixtures & Equipment $ 1,211,105
Leasehold Improvement 817,282
-------------
2,028,387
Accumulated Depreciation 582,582
-------------
$ 1,445,805
=============
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 nine
months ended September 30, 1998 was $223,116.
- 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:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---- ----
<S> <C> <C>
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. $ 488,275 $ 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.
-- 66,160
-------------- -----------
$ 823,275 $ 615,367
============== ===========
<CAPTION>
NOTE 5 - LONG-TERM DEBT
Long-term debt consists of the following:
September 30, December 31,
1998 1997
---- ----
<S> <C> <C>
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. $ 2,739 $ 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
</TABLE>
- 8 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - LONG-TERM DEBT (continued)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---- ----
<S> <C> <C>
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 717,739 461,865
Less: Current Portion 452,739 10,956
--------------- -----------
Long-Term Debt $ 265,000 $ 450,909
=============== ===========
<CAPTION>
NOTE 6 - INCOME TAXES
The provision for income taxes is summarized as follows:
September 30, December 31,
1998 1997
---- ----
<S> <C> <C>
Federal Income Tax $ -- $ --
State and Local 7,429 (1,333)
--------------- -----------
Provision for Income Taxes $ 7,429 $ (1,333)
=============== ===========
</TABLE>
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 approximately $973,024.
- 9 -
<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:
1. 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.
2. On June 23, 1998, the holder of the preferred stock
converted his shares into common stock at a rate of 5 shares
of common stock for each share of preferred stock.
- 10 -
<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 Nine Months Ended September 30, 1998 and 1997, and
Three Months Ended
September 30, 1998 and 1997
----------------------------------------------------------------
Sales for the nine months ended September 30, 1998 increased by approximately
78% to $7,296,900 from sales of $4,090,186 during the nine months ended
September 30, 1997. The principal reasons were a 12% sales increase at three
existing locations, as well as two new restaurant locations which contributed
$2,782,046 to nine month sales. Sales for the three months ended September 30,
1998 of $2,541,489 were approximately 67.5% more than sales for the three
months ended September 30, 1997 of $1,517,216. On-site operating profits,
before corporate G&A, taxes and depreciation, remained the same at Shark Bar
New York ( 25.4% of sales) for the nine months ending September 30, 1998 and
1997. Cost of sales was 26% for both periods.
At the corporate level, income before depreciation, amortization, other income
(expenses) and provision for income taxes increased to $694,910 from $249,409
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 September 30, 1998 was $140,747 which increased from $(39,171) at
December 31, 1997 due to new locations providing additional cash flow and
additional borrowings. Assets increased by $729,938 to $2,463,996 mainly due
to the acquisitions and opening of two new restaurant locations in Los Angeles
and Atlanta. Total liabilities increased by $541,079 to $2,430,689 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.
- 11 -
<PAGE>
PART II. OTHER INFORMATION
NONE
- 12 -
<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: November 6, 1998 By: /s/ Brian A. Hinchcliffe
------------------------
Brian A. Hinchcliffe,
Chief Executive Officer,
President and Director
(Principal Accounting Officer)
Date: November 6, 1998 By: /s/ Keith Clinkscales
---------------------
Keith Clinkscales, Director
- 13 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 140,747
<SECURITIES> 0
<RECEIVABLES> 60,721
<ALLOWANCES> 0
<INVENTORY> 106,882
<CURRENT-ASSETS> 472,788
<PP&E> 2,028,387
<DEPRECIATION> 582,582
<TOTAL-ASSETS> 2,263,996
<CURRENT-LIABILITIES> 1,342,414
<BONDS> 0
0
0
<COMMON> 11,995
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,463,996
<SALES> 7,296,900
<TOTAL-REVENUES> 0
<CGS> 2,118,199
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,829,007
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 122,100
<INCOME-PRETAX> 214,230
<INCOME-TAX> 7,429
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 176,347
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
