<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB/A-1
(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, 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 May 8, 2000 was 3,998,177 shares.
<PAGE>
SOULFOOD CONCEPTS, INC.
FORM 10-QSB
FOR PERIOD ENDING MARCH 31, 2000
PAGE
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 2000 (unaudited)
and December 31, 1999 ............................................ 3
Consolidated Statements of Operations (unaudited) for the three
Months ended March 31, 2000 and March 31, 1999 ................... 5
Consolidated Statement of Stockholders' Deficit .................. 6
Consolidated Statements of Cash Flows (unaudited) for the
period ended March 31, 2000 and March 31, 1999 ................... 7
Notes to Consolidated Financial Statements ....................... 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ................... 17
Part II OTHER INFORMATION ............................................... 19
Item1 Legal Proceedings ............................................. 19
Item 3 Defaults Upon Senior Securities ................................ 19
Item 5 Other Informatio ................................................ 19
Signatures .................................................................. 20
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 82,041 $ 9,216
Accounts receivable 11,562 56,894
Inventory 68,418 69,120
Prepaid expenses and other current assets 20,771 26,288
----------- -----------
TOTAL CURRENT ASSETS 182,792 161,518
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $1,445,931 and $1,406,060, respectively 1,414,369 1,448,036
SECURITY DEPOSITS 104,374 90,874
----------- -----------
TOTAL ASSETS $ 1,701,535 $ 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 (UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft $ - $ 60,849
Accounts payable 338,810 404,339
Accrued expenses 901,623 821,113
Obligation under capital lease 29,991 31,695
Current portion of long-term debt 615,000 615,000
----------- -----------
TOTAL CURRENT LIABILITIES 1,885,424 1,932,996
DUE TO RELATED PARTY 878,383 878,383
OBLIGATIONS UNDER CAPITAL LEASE - LONG-TERM 25,842 32,376
LONG-TERM DEBT - -
----------- -----------
TOTAL LIABILITIES 2,789,649 2,843,755
----------- -----------
COMMITMENTS AND CONTINGENCIES - -
MINORITY INTEREST 97,179 81,392
----------- -----------
STOCKHOLDERS' DEFICIT
Common stock, par value $.003; authorized
14,500,000 shares; issued and outstanding
3,998,177 shares11,995 11,995
Additional paid-in capital 980,949 980,949
Accumulated deficit (2,178,237) (2,217,663)
----------- -----------
TOTAL STOCKHOLDERS' DEFICIT (1,185,293) (1,224,719)
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT $ 1,701,535 $ 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 Three Months Ended
March 31,
------------------------------
2000 1999
----------- -----------
<S> <C> <C>
SALES $ 1,624,699 $ 2,224,872
RESTAURANT OPERATING COSTS 1,515,848 2,232,625
----------- -----------
INCOME LOSS FROM OPERATIONS 108,851 (7,753)
OTHER EXPENSES
Interest Expense 46,179 32,144
----------- -----------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES AND MINORITY INTEREST 62,672 (39,897)
PROVISION FOR INCOME TAXES 7,459 4,220
----------- -----------
INCOME (LOSS) BEFORE MINORITY INTEREST 55,213 (44,117)
MINORITY INTEREST IN THE INCOME OF
CONSOLIDATED SUBSIDIARY (15,787) (5,397)
----------- -----------
NET INCOME (LOSS) $ 39,426 $ (49,514)
=========== ==========
INCOME (LOSS) PER COMMON SHARE:
BASIC AND DILUTED $ .01 $ (.01)
=========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-5-
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Total
-------------------- ------------------------ Paid-in Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Deficit
-------- -------- ----------- -------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1997 125,000 $ 375 3,373,177 $ 10,120 $ 982,449 $(1,167,163) $ (174,219)
Conversion of preferred stock (125,000) (375) 625,000 1,875 (1,500) -- --
Partner Distributions -- -- -- -- -- -- (16,394)
Net loss -- -- -- -- -- (80,572) (80,572)
----------- --------- ----------- ---------- ---------- ----------- ------------
Balance - December 31, 1998 -- -- 3,998,177 11,995 980,949 (1,264,129) (271,185)
Partner Distributions -- -- -- -- -- -- (64,985)
Net loss -- -- -- -- -- (888,549) (888,549)
----------- --------- ----------- ---------- ---------- ----------- ------------
Balance - December 31, 1999 -- -- 3,998,177 11,995 980,949 (2,217,663) (1,224,719)
Net income -- -- -- -- -- 39,426 39,426
----------- --------- ----------- ----------- ----------- ----------- ------------
Balance - March 31, 2000 -- -- 3,998,177 $ 11,995 $ 980,949 $(2,178,237) $(1,185,293)
=========== ========= =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-6-
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
For The Three Months Ended
March 31,
--------------------------
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 39,426 $ (49,514)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 38,371 95,200
Loss attributed to minority interest 15,787 5,397
(Increase) Decrease in:
Accounts receivable 45,332 37,141
Inventory 701 36,671
Prepaid expenses and other current assets 5,518 (8,675)
Other Assets (13,500) --
(Decrease) Increase in:
Accounts payable & accrued expenses 14,980 36,130
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 146,615 152,350
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (6,204) (27,596)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Bank overdraft (60,849) 3,766
Partner distributions -- (21,165)
Repayment of debt -- (100,000)
Additional capital leases -- 15,870
Repayment of capital leases (6,737) (11,434)
Increase in due to related party -- 12,353
--------- ---------
NET CASH (USED) BY FINANCING ACTIVITIES (67,586) (100,610)
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 72,825 24,144
CASH AND CASH EQUIVALENTS - January 1, 9,216 32,321
--------- ---------
CASH AND CASH EQUIVALENTS - March 31, $ 82,041 $ 56,465
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid:
Interest $ 4,806 $ 1,953
========= =========
Taxes $ 7,459 $ 4,220
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-7-
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 March 31,
2000, the Company has a working capital deficit of $1,702,632 and an
accumulated deficit of $2,178,237. Additionally, the Company has
defaulted on certain notes; however, the note holder has agreed to not
seek relief as the Company attempts to restructure the debt. These
matters raise substantial doubt about the Company's ability to continue
as a going concern.
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 three month period ended March
31, 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:
March 31, December 31,
2000 1999
----------- -----------
Food $ 14,549 $ 18,059
Beverage 53,869 51,061
----------- -----------
$ 68,418 $ 69,120
=========== ===========
-8-
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 3 - PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Property and Equipment is summarized as follows:
March 31, December 31,
2000 1999
----------- -----------
<S> <C> <C>
Furniture, Fixtures & Equipment $ 2,115,080 $ 2,108,876
Leasehold Improvement 745,220 745,220
----------- -----------
2,860,300 2,854,096
Accumulated Depreciation 1,445,931 (1,406,060)
----------- -----------
$ 1,414,369 $ 1,448,036
=========== ===========
</TABLE>
Depreciation and amortization expense of property and equipment
for the three months ended March 31, 2000 and 1999 was $38,372
and $95,200, respectively.
NOTE 4 - ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- -----------
<S> <C> <C>
Payroll and sales taxes $ 435,952 $ 323,839
Professional fees 198,896 200,076
Other operating expenses 134,562 197,353
Interest 109,348 68,980
Penalties 22,865 30,865
----------- -----------
$ 901,623 $ 821,113
=========== ===========
</TABLE>
NOTE 5 - RELATED PARTY TRANSACTION
Due to related parties consists of the following:
<TABLE>
<CAPTION>
March 31, 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. 335,000 335,000
----------- -----------
$ 878,383 $ 878,383
=========== ===========
</TABLE>
-9-
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 6 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
March 31, 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 $100,000 note was due by December
31, 1999 and the $250,000 note is due by September 1, 2000. The
$100,000 note was not repaid. Interest is due semi-annually and
any unpaid amounts have been accrued (see Notes 9, 10 and 12). $ 350,000 $ 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. The notes were not repaid. Interest is due
semi-annually and any unpaid amounts have been accrued (see
Notes 9, 10 and 12). 265,000 265,000
----------- -----------
Total 615,000 615,000
Less: Current Portion (615,000) (615,000)
----------- -----------
Long-Term Debt $ - $ -
=========== ===========
</TABLE>
NOTE 7 - INCOME TAXES
The components of the provision for income taxes is as follows:
<TABLE>
<CAPTION>
March 31,
----------------------
2000 1999
--------- ---------
<S> <C> <C>
Current tax expense
U.S. federal $ - $ -
State and local 7,459 4,220
--------- ---------
Total current 7,459 4,220
Tax benefit of net operating loss carry-forwards - -
--------- ---------
Provision for income taxes 7,459 4,220
--------- ---------
Deferred tax expense
U.S. federal - -
State and local - -
--------- ---------
Total deferred - -
--------- ---------
Total provision from continuing operations $ 7,459 $ 4,220
========= =========
</TABLE>
-10-
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 March 31, 2000, the Company had net carryforward losses of
approximately $1,125,000. 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 $ 597,814 $ 31,782
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 $ 6,019,439 61,827
===========
Less: Amounts representing interest (5,994)
----------
Present value of future minimum lease payments 55,833
Less: Current maturities (29,991)
----------
Total $ 25,842
==========
Rent expense under operating leases for the three months ended March
31, 2000 and 1999, was $143,558 and $108,602, respectively.
-11-
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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
and matured on May 21, 1999 (maturity of $250,000 of the 10% note was
extended to September 1, 2000). Interest is 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) $3.00 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 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 and
matured on January 26, 2000. Interest is 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) $2.20 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. The 8% Notes were not repaid.
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.
-12-
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 10- WARRANTS
The Company has issued outstanding warrants to purchase up to 289,741
shares of common stock.
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 is exercisable on or before June 6, 2000 an exercise price of
$1.00 per share (subject to customary anti-dilution adjustments).
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
are exercisable on or before May 21, 2000 an exercise price of $1.00
per share (subject to customary anti-dilution adjustments).
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 material.
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 at an exercise price of $.01 per share. Fair value
attributable to the warrants using the Black Scholes option pricing
model was deemed material.
These warrants are summarized as follows:
Number Exercise Price Expiration Date
------ -------------- ---------------
10,000 $ 1.00 February 4, 2000
10,000 1.00 June 6, 2000
35,000 1.00 May 21, 2000
26,500 2.20 January 26, 2000
208,241 0.01 July 31, 2003
-13-
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 Three Months Ended
March 31,
------------------------
2000 1999
---------- ----------
Sales:
SRC $ 669,620 $ 641,549
LA - 367,019
Chicago - 312,299
Atlanta 626,103 612,169
7 West - -
Avenue A 328,976 291,836
---------- ----------
Total sales $1,624,699 $2,224,872
========== ==========
Cost of sales:
SRC $ 170,438 $ 170,082
LA - 111,280
Chicago - 113,988
Atlanta 156,262 197,359
7 West - -
Avenue A 86,748 82,323
---------- ----------
Total cost of sales $ 413,449 $ 675,032
========== ==========
Restaurant operating expenses:
SRC $ 332,901 $ 300,314
LA 36,357 210,296
Chicago 37,823 237,236
Atlanta 285,157 323,112
7 West - -
Avenue A 185,907 183,769
Corporate - -
---------- ----------
Total restaurant operating expenses $ 878,143 $1,254,727
========== ==========
-14-
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 11 - SEGMENT INFORMATION (Continued)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
---------------------------
2000 1999
----------- -----------
<S> <C> <C>
Other corporate expenses:
SRC $ -- $ --
LA -- --
Chicago -- --
Atlanta -- --
7 West -- --
Avenue A -- --
Corporate 185,883 207,666
----------- -----------
Total other corporate expenses $ 185,883 $ 207,666
=========== ===========
Depreciation and amortization expense:
SRC $ 4,879 $ 4,507
LA -- 17,806
Chicago -- 32,321
Atlanta 26,771 31,722
7 West -- --
Avenue A 6,428 5,518
Corporate 294 3,326
----------- -----------
Total depreciation and amortization expense $ 38,372 $ 95,200
=========== ===========
Income (loss) from operations:
SRC $ 161,402 $ 166,646
LA (36,357) 27,636
Chicago (37,823) (71,246)
Atlanta 157,913 59,977
7 West -- --
Avenue A 49,893 20,226
Corporate (186,177) (210,992)
----------- -----------
Income from operations $ 108,851 $ (7,753)
=========== ===========
Identifiable assets:
SRC $ 117,861 $ 110,224
LA 487,626 544,670
Chicago 385,603 454,283
Atlanta 503,076 601,366
7 West 60 60
Avenue A 165,844 148,838
Corporate 41,465 108,838
----------- -----------
Total assets $ 1,701,535 $ 1,968,279
=========== ===========
</TABLE>
-15-
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 12 - SUBSEQUENT EVENTS
The Company is in the process of negotiating the sale of the L.A.
store's lease, inventory and fixed assets. As of the date of this
report, there has been no commitment received by the Company for a
purchase.
The Company intends to reopen Chicago in the second or third quarter of
2000, once a restructuring of the Company's debt is finalized and new
personnel have been properly trained.
The Company is presently negotiating a restructuring of its short-term
debt with two principle investors. The parties connected to the
short-term debt have agreed not to move against the Company for
non-payment of these loans in the year 2000. The related party debt
will be satisfied by the issuance of common stock to the major
stockholder for $543,383 along with forgiveness of debt of
approximately $335,000.
-16-
<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[ ]Restaurant. We also hold a 62% interest in one other full service, soul
food restaurant operating under the name of Mekka[ ]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(R) restaurant in Chicago. In September
1997, we opened a third Shark Bar(R) 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 will be reopened in second quarter 2000 under the name The Shark
Bar[ ]Restaurant, Chicago.
RESULTS OF OPERATIONS
The Company's revenue is generated from the sale of food and beverage in
its units. Sales for the three months ended March 31, 2000 decreased by
approximately 27% to $1,624,699 from sales of $2,224,872 during the three months
ended March 31, 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 and
re-open the Chicago location in the second quarter 2000.
Use of EBITDA. This discussion includes, among other factors, an analysis
of operating income before depreciation and amortization ("EBITDA") in order
toeliminate the effect on the operating performance of the business of
significant amounts of amortization. Financial analysts generally consider
EBITDA to be an important measure of comparative operating performance for the
business, and when used in comparison to debt levels or the coverage of interest
expense, as a measure of liquidity. However, EBITDA should be considered in
addition to, not as a substitute for, operating income, net income, cash flow
and other measures of financial performance and liquidity reported in accordance
with generally accepted accounting principles.
There was a reduction in cost of goods sold ("COGS"), to $413,449 for the
period ending March 31, 2000 from $675,032 for the same period in 1999 as a
result of the loss of operations for the two units. COGS expense margin,
however, was reduced 5% to 25% for the first quarter 2000 from 30% for the same
period 1999. Unit EBITDA increased 12.9% for the period ended March 31, 2000 to
$333,107 from $295,113 for the same period in 1999. Unit EBITDA, with the
exclusion of costs for the closed
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units, increased 28% for the period ended March 31, 2000 to $407,286 from
$295,113 primarily due to tighter operational controls and management of costs.
Unit EBITDA margins for first quarter 2000 was 20% compared to 13% for first
quarter 1999.
Net income for period ended March 31, 2000 was $39,426 or 2.4% of revenue
compared with a net loss of $49,514 or (2.2%) for period ended March 31, 1999.
With the exclusion of costs for the closed units, net income for the period
ended March 31, 2000 was $117,770 or 7.2% of sales.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities decreased to $146,615 for the
period ended March 31, 2000 from $152,350 for the period ended March 31, 1999,
primarily due to a decrease in depreciation and amortization from $95,200 for
period ended march 1999 to $38,371 for the same period 2000. Investing
activities used $6,204 for the period ended March 31, 2000 compared to $27,596
for the same period last year, which reduction is due to a lack of expansion
activities and the purchase of property and equipment associated with such
activities. Financing activities were significantly reduced to $67,586 for the
period ended March 31, 2000 from $100,610 for the same period last year
primarily because repayment of long term debt and capital distribution payments
were made in 1st quarter 1999.
Cash at March 31, 2000 was $82,041 which increased from $9,216 at December
31, 1999 due to unit and G&A cost reductions and an increase in net profit
margins providing additional cash flow. Total assets were $1,701,535 for period
ended March 31, 2000 remaining virtually unchanged from period ending December
31, 1999 at $1,700428. Total liabilities decreased $54,106 to $2,789,649 from
$2,843,755.
Accounts payable expenses are primarily due to the closing of the Chicago
and the Los Angeles units. Arrangements have been made with vendors to settle
outstanding amounts or, in the case of Chicago to wait until the reopening of
the store, to work out terms and payment. In all cases, there has been no action
taken against the company and there have been no adverse effects on operations.
Accrued expenses include payroll, sales, other taxes with penalties and
interest, professional and other operating expenses. A settlement for all tax
liabilities is being negotiated with each taxing authority relative to the
claim. All outstanding payable are being negotiated and/or paid down from
operating funds.
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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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not a party to any pending material legal proceeding. However, on January
20, 2000 Kevin Starkes commenced an action against the Company in the United
States District Court for the Southern District of New York, Kevin Starkes v.
Soulfood Concepts, Inc., 00 Civ. 0427. In the action, Mr. Starkes alleges, among
other things that the company discriminated against him on the basis of his race
(African-American) in violation of 42 U.S.C. ss.1981, the New York State Human
Rights Law and the New York City Human Rights Law by terminating his employment
in January 1998 and by failing and refusing to deliver certificates to him for
50,000 shares of stock which he claims were promised to him. The Company served
and filed an answer in this matter on March 1, 2000. The Company intends to
vigorously defend against this action.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company did not repay approximately $365,000 to holders of convertible
secured notes in the aggregate principal amount of $365,000 issued by the
Company, which are now due. The Company is presently negotiating a restructuring
of this debt with its investors. All parties connected to this debt (short-term
and related party) have agreed not to move against the Company for non-payment
of these loans in the year 2000.
ITEM 5. OTHER INFORMATION
On April 12, 2000, the Company registered its common stock pursuant to Section
12 (g) of the Securities Exchange Act of 1934 pursuant to a Form 8-A.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following Exhibit is filed as part of this Quarterly Report on Form 10-Q:
Exhibit
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27 Financial Data Schedule.
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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 14,, 2000 By: /s/ Mark Campbell
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Mark Campbell
Chief Executive Officer,
President and Director
(principal accounting officer)
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