<PAGE>
UNITED STATES
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, 2000
---------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to __________________________
Commission File Number: 0-30301
------------
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 and zip code)
(212) 262-8333
--------------
(Issuer's telephone number, including area code)
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 [X] No [ ]
The number of shares outstanding of the issuer's only class of common stock, par
value $.01 per share, as of August 11, 2000 was 5,180,177 shares.
<PAGE>
SOULFOOD CONCEPTS, INC.
FORM 10-QSB
FOR PERIOD ENDING SEPTEMBER 30,2000
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I FINANCIAL INFORMATION
------ ---------------------
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 2000 (unaudited)
and December 31, 1999 ................................................ 3
Consolidated Statements of Operations (unaudited) for the nine
Months ended September 30, 2000 and September 30 1999 & for the
three Months ended September 30, 2000 and September 30, 1999 ......... 5
Consolidated Statements of Cash Flows (unaudited) for the
Nine Months ended September 30, 2000 and
September 30, 1999 ................................................... 6
Notes to Consolidated Financial Statements ........................... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ..........................17
Part II OTHER INFORMATION .....................................................18
------- -----------------
Item 6 Exhibits and Reports on Form 8-K ......................................18
Signatures .........................................................................19
</TABLE>
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 146,470 $ 9,216
Accounts receivable 14,304 56,894
Inventory 62,879 69,120
Prepaid expenses and other current assets 17,665 26,288
----------- -----------
TOTAL CURRENT ASSETS 241,318 161,518
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $1,519,040 and $1,406,060, respectively 1,354,820 1,448,036
SECURITY DEPOSITS 103,374 90,874
----------- -----------
TOTAL ASSETS $ 1,699,512 $ 1,700,428
=========== ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
- 3 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Bank overdraft $ -- $ 60,849
Accounts payable 425,576 404,339
Accrued expenses 821,720 821,113
Obligation under capital lease 28,609 31,695
Current portion of long-term debt 123,000 615,000
----------- -----------
TOTAL CURRENT LIABILITIES 1,398,905 1,932,996
DUE TO RELATED PARTY 580,680 878,383
OBLIGATIONS UNDER CAPITAL LEASE - LONG-TERM 6,569 32,376
LONG-TERM DEBT -- --
----------- -----------
TOTAL LIABILITIES 1,986,154 2,843,755
----------- -----------
COMMITMENTS AND CONTINGENCIES -- --
MINORITY INTEREST 115,776 81,392
----------- -----------
STOCKHOLDERS' DEFICIT
Common stock, par value $.003; authorized
14,500,000 shares; issued and outstanding 5,080,177 and
3,998,177 shares, respectively 15,241 11,995
Treasury stock (3,200) --
Additional paid-in capital 1,815,403 980,949
Accumulated deficit (2,229,862) (2,217,663)
----------- -----------
TOTAL STOCKHOLDERS' DEFICIT (402,418) (1,224,719)
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT $ 1,699,512 $ 1,700,428
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
- 4 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Nine Months Ended For the Three Months Ended
September 30, September 30,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SALES $ 4,679,891 $ 6,005,746 $ 1,540,211 $ 1,651,030
RESTAURANT OPERATING COSTS 4,525,609 6,492,092 1,513,367 1,873,489
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS 154,282 (486,346) 26,844 (222,459)
OTHER EXPENSES
Interest Expense 100,505 108,384 37,125 32,895
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES AND MINORITY INTEREST 53,777 (594,730) (10,281) (255,354)
PROVISION FOR INCOME TAXES 12,738 4,345 2,316 125
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE MINORITY INTEREST 41,039 (599,075) (12,597) (255,479)
MINORITY INTEREST IN THE INCOME OF
CONSOLIDATED SUBSIDIARY (34,384) (23,439) (13,563) 12,065
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 6,655 $ (622,514) $ (26,160) $ (267,544)
=========== =========== =========== ===========
INCOME (LOSS) PER COMMON SHARE:
BASIC AND DILUTED $ .01 $ (.16) $ (.01) $ (.07)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
- 5 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For The Nine Months Ended
September 30,
--------------------------
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 6,654 $(622,514)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 112,980 252,185
Income attributed to minority interest 34,384 23,439
(Increase) Decrease in:
Accounts receivable 42,588 6,518
Inventory 6,241 49,882
Prepaid expenses and other current assets 8,624 (6,394)
Security Deposits (12,500) --
(Decrease) Increase in:
Accounts payable & accrued expenses 21,844 479,593
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 220,815 182,709
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (19,909) (49,231)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Bank overdraft (60,849) (93,440)
Partner distributions (18,707) (22,553)
Repayment of debt (492,000) (101,826)
Additional capital leases -- 15,870
Repayment of capital leases (28,893) (28,765)
(Decrease) Increase in due to related party (297,703) 96,826
Increase in additional paid-in-capital 834,454 --
Additional stock issued 3,546 --
Stock converted to treasury stock (3,500) --
--------- ---------
NET CASH (USED) BY FINANCING ACTIVITIES (63,652) (133,888)
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 137,254 (410)
CASH AND CASH EQUIVALENTS - January 1, 9,216 32,321
--------- ---------
CASH AND CASH EQUIVALENTS - September 30, $ 146,470 $ 31,911
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid:
Interest $ 27,471 $ --
========= =========
Taxes $ 9,775 $ 4,345
========= =========
</TABLE>
NON-CASH INVESTING AND FINANCING ACTIVITIES:
On June 30, 2000, several notes payable to outside parties (See Notes 6 and 9)
were converted to 1,182,000 shares of stock.
The accompanying notes are an integral part of the consolidated financial
statements.
- 6 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
a) Nature of Operations
The accompanying consolidated financial statements include the accounts
of Soulfood Concepts, Inc. ("the Company"), organized under the laws of
the state of Delaware on December 14, 1992 and its subsidiaries. The
Company operates restaurants in New York, NY, Los Angeles, CA, Chicago,
IL and Atlanta, GA, specializing in Southern cuisine.
b) Basis of presentation
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As of September
30, 2000, the Company has a working capital deficit of $1,157,587 and
an accumulated deficit of $2,229,862. These matters raise substantial
doubt about the Company's ability to continue as a going concern.
Management believes that funding will be sufficient to support its
operations during the year through September 30, 2000.
c) Earnings Per Share
The computation of primary earnings per share is based on the weighted
average number of outstanding common shares during the period.
d) Unaudited Interim Information
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB, and therefore, do not
include all the information necessary for a fair presentation of
financial position, results of operations and cash flows in conformity
with generally accepted accounting principles.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine-month period ended
September 30, 2000 are not necessarily indicative of the results that
may be expected for the year ended December 31, 2000. The unaudited
condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and footnotes
thereto included in the Company's December 31, 1999 annual report
included in SEC Form 10-KSB.
NOTE 2 - INVENTORY
Inventory consisted of the following at:
September 30, December 31,
2000 1999
--------- ---------
Food $ 12,814 $ 18,059
Beverage 50,065 51,061
--------- ---------
$ 62,879 $ 69,120
========= =========
- 7 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 3 - PROPERTY AND EQUIPMENT
Property and Equipment is summarized as follows:
September 30, December 31,
2000 1999
----------- -----------
Furniture, Fixtures & Equipment $ 2,128,640 $ 2,108,876
Leasehold Improvement 745,220 745,220
----------- -----------
2,873,860 2,854,096
Accumulated Depreciation (1,519,040) (1,406,060)
----------- -----------
$ 1,354,820 $ 1,448,036
=========== ===========
Depreciation and amortization expense of property and equipment for the
nine months ended September 30, 2000 and 1999 was $112,980 and
$252,185, respectively, and for the three months ended September 30,
2000 and 1999 was $37,304 and $62,064, respectively.
NOTE 4 - ACCRUED EXPENSES
Accrued expenses consists of the following:
September 30, December 31,
2000 1999
---------- ----------
Payroll, Sales and Other Taxes $ 453,167 $ 323,839
Professional 182,067 200,076
Other Operating Expenses 84,028 197,353
Penalties 62,531 30,865
Interest 39,927 68,980
---------- ----------
$ 821,720 $ 821,113
========== ==========
NOTE 5 - RELATED PARTY TRANSACTION
Due to related parties consists of the following:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---------- ----------
<S> <C> <C>
Advances from a major stockholder and 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. $ 543,383 $ 543,383
Advances from a major stockholder and officer of the Company.
These advances are convertible into preferred stock. Interest
has been accrued on these advances at 10% per annum. On June 30,
2000, $300,000 of these advances were forgiven by the major
stockholder and officer, and contributed to capital. 37,297 335,000
---------- ----------
$ 580,680 $ 878,383
========== ==========
</TABLE>
- 8 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 6 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---------- -----------
<S> <C> <C>
The Company received $350,000 from the sale of convertible
secured notes to two entities on May 21, 1997 with interest
payable at 8% per annum. The notes were converted in June 2000.
Interest was due semi-annually and any unpaid amounts had been
accrued (see Notes 9, 10 and 12). $ - $ 350,000
The Company received $265,000 from the sale of three convertible
secured notes to two entities and an individual in January 1998
with interest payable at 8% per annum. The notes were due January 26,
2000. $142,000 of these notes was converted in June 2000. Interest
is due semi-annually and any unpaid amounts have been accrued
(see Notes 9, 10 and 12). 123,000 265,000
---------- -----------
Total 123,000 615,000
Less: Current Portion (123,000) (615,000)
---------- -----------
Long-Term Debt $ - $ -
=========== ===========
</TABLE>
NOTE 7 - INCOME TAXES
The components of the provision for income taxes is as follows:
<TABLE>
<CAPTION>
September 30,
-------------------------
2000 1999
---------- ----------
<S> <C> <C>
Current tax expense
U.S. federal $ -- $ --
State and local 12,738 4,345
---------- ----------
Total current 12,738 4,345
Tax benefit of net operating loss carry-forwards -- --
---------- ----------
Provision for income taxes 12,738 4,345
---------- ----------
Deferred tax expense
U.S. federal -- --
State and local -- --
---------- ----------
Total deferred -- --
---------- ----------
Total provision from continuing operations $ 12,738 $ 4,345
========== ==========
</TABLE>
- 9 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 7 - INCOME TAXES (Continued)
The reconciliation of the effective income tax rate to the Federal
statutory rate is as follows:
Federal income tax rate (34.0)% (34.0)%
Deferred tax charge (credit) -- --
Effect on valuation allowance 34.0 % 34.0 %
State income tax, net of federal benefit -- --
--------- ---------
Effective income tax rate 0.0 % 0.0 %
========= =========
At September 30, 2000, the Company had net carryforward losses of
approximately $1,200,000. Because of the current uncertainty of
realizing the benefit of the tax carryforward, a valuation allowance
equal to the tax benefit for deferred taxes has been established. The
full realization of the tax benefit associated with the carryforward
depends predominantly upon the Company's ability to generate taxable
income during the carryforward period.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company's future minimum annual aggregate rental payments required
under operating and capital leases that have initial or remaining
non-cancelable lease terms in excess of one year are as follows:
Operating Capital
Leases Leases
---------- ----------
2000 $ 149,454 $ 11,127
2001 601,118 23,016
2002 594,271 7,029
2003 512,055 --
2004 512,055 --
2005 and thereafter 3,202,126 --
---------- ----------
Total minimum lease payments $5,571,079 41,172
==========
Less: Amounts representing interest (5,994)
----------
Present value of future minimum lease payments 35,178
Less: Current maturities (28,609)
----------
Total $ 6,569
==========
Rent expense under operating leases for the nine months ended September
30, 2000 and 1999, was $439,783 and $325,806, respectively.
- 10 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 9 - CONVERTIBLE NOTES PAYABLE
On May 21, 1997, Chicago sold an aggregate of $350,000 of 10%
Convertible Secured Notes (the "10% Notes"). The 10% Notes bear
interest at the rate of 10% per annum on the principal sum outstanding.
Interest was payable semi-annually on June 30 and December 31. The
holders of the 10% Notes are entitled, at their option at any time, to
convert any or all of the original principal amount of the 10% Notes
into Common Stock of the Company at a conversion price equal to the
lessor of i) $0.408 or ii) 70% of the offering price per share of the
Company's Common Stock as established in a public offering of the
Company's Common Stock. On June 30, 2000, the notes were converted for
858,000 shares of common stock.
On January 26, 1998, Atlanta sold an aggregate of $265,000 of 8%
Convertible Secured Notes (the "8% Notes"). The 8% Notes bear interest
at the rate of 8% per annum on the principal sum outstanding. Interest
was payable semi-annually on June 30 and December 31. The holders of
the 8% Notes are entitled, at their option at any time, to convert any
or all of the original principal amount of the 8% Notes into Common
Stock of the Company at a conversion price equal to the lessor of i)
$0.2212 or ii) 70% of the offering price per share of the Company's
Common Stock as established in a public offering of the Company's
Common Stock. On June 30, 2000, $142,000 of the notes were converted
for 642,000 shares of common stock.
Following a public offering of the Company's Common Stock, if, at the
end of any rolling thirty (30) consecutive trading day period (the
"Measuring Period") the Common Stock has traded for each trading day
during the Measuring Period at 140% of the Public Offering price per
share or higher, the Company may, in its sole discretion, give notice
to a Note Holder of a mandatory conversion. The Holder shall, upon
receipt of such notice, surrender its Note to the Company and receive
in exchange those that number of shares of Common Stock as determined
by dividing the principal amount converted by the Conversion Price then
in effect at the time of conversion. No fractional shares or scrip
representing fractions of shares will be issued on such a conversion,
but the number of shares issuable shall be rounded to the nearest whole
share, with the fraction paid in cash at the discretion of the Company.
The Notes are secured by all assets held by Chicago and Atlanta, with
the exception of the point of sale computer systems.
- 11-
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 10 - WARRANTS
The Company had issued outstanding warrants to purchase up to 289,741
shares of common stock. As of September 30, 2000, the only outstanding
warrants were issued to Commonwealth Associates as described below.
On June 6, 1997, the Company sold 100,000 shares of Common Stock,
along with a warrant to purchase up to 10,000 shares of Common Stock.
The warrant was exercisable on or before June 6, 2000 at an exercise
price of $1.00 per share (subject to customary anti-dilution
adjustments). The warrants were not exercised.
On May 21, 1997, in connection with the sale of $350,000 of 10%
Convertible Secured Notes described in Note 5, the Company issued
warrants to purchase up to 35,000 shares of Common Stock. The warrants
were exercisable on or before May 21, 2000 at an exercise price of
$1.00 per share (subject to customary anti-dilution adjustments). The
warrants were not exercised.
On January 28, 1998, in connection with the sale of $265,000 of 8%
Convertible Secured Notes described in Note 5, the Company issued
warrants to purchase up to 26,500 shares of Common Stock. The warrants
were exercisable on or before January 26, 2000 at an exercise price of
$2.20 per share (subject to customary anti-dilution adjustments). The
warrant was not exercised. Fair value attributable to the warrants
using the Black Scholes option pricing model was deemed immaterial.
The warrants were not exercised.
Pursuant to the terms of an Engagement Letter dated February 5, 1997,
between the Company and Commonwealth Associates ("CA"), whereby CA was
engaged to render corporate finance and other financial service
matters, the Company granted to CA warrants to purchase 208,241 shares
of Common Stock. The warrants are exercisable on or before July 31,
2003 at an exercise price of $.01 per share. Fair value attributable
to the warrants using the Black Scholes option pricing model was
deemed immaterial.
- 12 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 11 - SEGMENT INFORMATION
During 2000 and 1999, the Company had six reportable restaurant
segments and one management company:
a) SRC
b) LA (ceased operations - July 1999)
c) Chicago (ceased operations - July 1999)
d) Atlanta
e) Avenue A
f) 7 West (management company)
Soulfood Concepts, Inc. and Subsidiaries:
For the Nine Months Ended
September 30,
-------------------------
2000 1999
---------- ----------
Sales:
SRC $2,007,384 $1,918,282
LA -- 666,516
Chicago -- 747,527
Atlanta 1,666,377 1,746,233
7 West -- --
Avenue A 1,006,130 927,188
---------- ----------
Total sales $4,679,891 $6,005,746
========== ==========
Cost of sales:
SRC $ 521,540 $ 512,349
LA (11,856) 210,647
Chicago (26,062) 279,766
Atlanta 449,497 558,323
7 West -- --
Avenue A 265,516 259,070
---------- ----------
Total cost of sales $1,198,635 $1,820,155
========== ==========
Restaurant operating expenses:
SRC $ 975,462 $ 956,530
LA 94,300 521,792
Chicago 101,032 677,008
Atlanta 828,768 1,064,845
7 West -- --
Avenue A 607,808 572,053
Corporate -- --
---------- ----------
Total restaurant operating expenses $2,607,370 $3,792,228
========== ==========
- 13 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 11 - SEGMENT INFORMATION (Continued)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
-------------------------
2000 1999
----------- -----------
<S> <C> <C>
Other corporate expenses:
SRC $ -- $ --
LA -- --
Chicago -- --
Atlanta -- --
7 West -- --
Avenue A -- --
Corporate 606,624 627,324
----------- -----------
Total other corporate expenses $ 606,624 $ 627,324
=========== ===========
Depreciation and amortization expense:
SRC $ 14,638 $ 13,946
LA -- 31,073
Chicago -- 85,881
Atlanta 80,412 95,167
7 West -- --
Avenue A 17,050 16,141
Corporate 880 9,977
----------- -----------
Total depreciation and amortization expense $ 112,980 $ 252,185
=========== ===========
Income (loss) from operations:
SRC $ 495,744 $ 435,457
LA (82,444) (96,996)
Chicago (74,970) (295,127)
Atlanta 307,700 27,898
7 West -- --
Avenue A 115,756 79,924
Corporate (607,504) (637,302)
----------- -----------
Income (Loss) from operations $ 154,282 $ (486,146)
=========== ===========
Identifiable assets:
SRC $ 128,859 $ 96,432
LA 482,137 488,627
Chicago 385,603 385,603
Atlanta 415,582 508,251
7 West 60 60
Avenue A 197,223 138,780
Corporate 86,350 82,676
----------- -----------
Total assets $ 1,695,514 $ 1,700,429
=========== ===========
</TABLE>
- 14 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 12 - SUBSEQUENT EVENTS
The Company intends to reopen Chicago in the second quarter of 2001,
once a restructuring of the Company's debt is finalized and new
personnel have been properly trained.
Management is presently negotiating with the major shareholder and
director of the Company to finalize a convertible promissory note
regarding the related party debt which will include a specific payback
period beginning in February 2002, over several years.
- 15 -
<PAGE>
ITEM 2. 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.
GENERAL
-------
Soulfood Concepts, Inc., a Delaware corporation (the "Company"), owns and
operates full service, upscale soul food restaurants under the name of The Shark
Bar(Registered Trademark) Restaurant. We also hold a 62% interest in one other
full service, soul food restaurant operating under the name of Mekka(Registered
Trademark) restaurant.
The original Shark Bar restaurant, which was opened in New York City in
1990, is a full service 95-seat restaurant. In March 1997, we opened a
three-floor 9,000 square foot Shark Bar(Registered Trademark) restaurant in
Chicago. In September 1997, we opened a third Shark Bar(Registered Trademark)
restaurant in Los Angeles in a 6,500 square foot facility. In March 1998, we
opened a fourth Shark Bar restaurant in a 10,000 square foot location in
Atlanta.
As of March 31, 2000 we operated three full service restaurants in
locations in New York City, and Atlanta. The Los Angeles and Chicago units were
closed in June and July 1999 respectively, primarily due to unsatisfactory
management performance and subsequent decline in sales. We intend to sell the
Los Angeles unit and engage a turnaround plan to reopen the Chicago location,
which showed high receptivity to the concept and produced overwhelming initial
trial. Chicago's reopening has been delayed to second quarter 2001and will
reopen under the name The Shark Bar(Registered Trademark) Restaurant, Chicago.
RESULTS OF OPERATIONS
---------------------
RESULTS OF NINE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 2000
The Company's revenue is generated from the sale of food and beverage in
its units. Sales for the nine months ended September 30, 2000 decreased by
approximately 22% to $4,679,891 from sales of $6,005,746 during the nine months
ended September 30, 1999. This reduction in sales is due to the closing of two
of our units, the Los Angeles Shark Bar and the Chicago Shark Bar, in June and
July of 1999 respectively. The Company intends to sell the Los Angeles unit by
end of fourth quarter 2000, and re-open the Chicago location by second quarter
2001.
There was a reduction in restaurant operating costs, to $4,525,609 for the
nine months ended September 30, 2000 from $6,492,092 for the same period in 1999
as a result of the loss of operations for the two units.
Net income for nine month period ended September 30, 2000 was $6,655 or
1.6% of revenue compared with a net loss of $622,514 or (9.5%) for nine month
period ended September 30, 1999.
RESULTS OF THREE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 2000
Sales for the three months ended September 30, 2000 decreased by
approximately 18% to $1,540,211 from sales of $1,873,489 during the three months
ended September 30, 1999. This reduction in sales is due to the loss of revenue
from the month of July, from the closing of two of our units, the Los Angeles
Shark Bar and the Chicago Shark Bar.
There was a reduction in restaurant operating costs, to $1,513,367 for the
three months ended September 30, 2000 from $1,873,489 for the same period in
1999 as a result of the loss of operations for the two units.
Net loss for the three month period ended September 30, 2000 was ($26,160)
or (1.7)% of revenue compared with a net loss of ($267,544) or (14.3%) for the
three month period ended September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Net cash provided by operating activities increased to $220,815 for the
nine month period ended September 30, 2000 from $182,709 for the nine month
period ended September 30, 1999, primarily due to an increase in accounts
receivables from $6,518 for the period ended September 30, 1999 to $42,588 for
the same period in 2000, and a decrease in accounts payables from $479,593 for
the period ended September 30, 2000 to $21,844 for the same period 2000.
Investing activities used $19,909, a 59% reduction for the period ended
September 30, 2000 compared to $49,231 for the same period last year, which
reduction is due to the reduction in operating units and consequently a
reduction in the purchase of property and equipment. Financing activities were
reduced to $63,652 for the period ended September 30, 2000 from $133,888 for the
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<PAGE>
same period last year primarily because of an additional paid in capital amount
of $834,454 during the nine month period ended September 30, 2000.
Cash at September 30, 2000 was $146,470 which increased from $31,911 at
September 30, 1999 due to unit and G&A cost reductions and an increase in net
profit margins providing additional cash flow. Total assets were $1,699,512 for
the nine-month period ended September 30, 2000 were reduced from $1,700,428 due
to a reduction in property and equipment. Total liabilities decreased $857,601
to $1,986,154 from $2,843,755 as a result of the restructuring of long-term debt
and the forgiveness of related party debt.
The effect of inflation has not been a factor upon either the operations or
the financial condition of the company. The Company's business is not seasonal
in nature.
FORWARD-LOOKING INFORMATION
---------------------------
Statements contained in this Form 10-QSB that are not historical facts,
including, but not limited to, statements found in this Item 2, Management's
Discussion and Analysis of financial Condition and Results of Operations, are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995 that involve a number of risks
and uncertainties. The actual result of the future events described in this Form
10-QSB could differ materially from those stated in such forward-looking
statements. Among the factors that could cause actual results to differ
materially are: the Company's ability to operate existing restaurants
profitably, changes in economic conditions are concentrated, increasingly
intense competition in the restaurant industry, increases in food, labor, and
employee benefits and similar costs, as well as the risks and uncertainties
discussed in this form 10-QSB
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<PAGE>
PART II. OTHER INFORMATION
ITEM. 6 EXHIBITS AND REPORTS ON FROM 8-K
The following exhibit is filed as part of this quarterly report on Form 10-QSB
Exhibit
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27 Financial Data Schedule
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<PAGE>
SIGNATURES
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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 13, 2000 By: /s/ Mark Campbell
------------------------ ------------------------------
Mark Campbell
Chief Executive Officer,
President and Director
(principal accounting officer)
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