<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 June 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.
SOULFOOD CONCEPTS, INC.
FORM 10-QSB
FOR PERIOD ENDING JUNE 30,2000
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
PAGE
Consolidated Balance Sheets as of June 30, 2000 (unaudited)
and December 31, 1999 ....................................... 3
Consolidated Statements of Operations (unaudited) for the six
Months ended June 30, 2000 and June 30 1999 & for the three
Months ended June 30, 2000 and June 30, 1999 ................ 5
Consolidated Statements of Cash Flows (unaudited) for the
Six months ended June 30, 2000 and June 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 ........................................... 19
Item 1. Legal Proceedings ........................................... 19
Item 3. Defaults Upon Senior Securities ............................. 19
Item 5 Other Information ........................................... 19
Signatures ................................................................ 20
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------- ----------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 86,914 $ 9,216
Accounts receivable 11,561 56,894
Inventory 69,019 69,120
Prepaid expenses and other current assets 18,385 26,288
---------- ----------
TOTAL CURRENT ASSETS 185,879 161,518
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $1,482,435 and $1,406,060, respectively 1,382,461 1,448,036
SECURITY DEPOSITS 99,374 90,874
---------- ----------
TOTAL ASSETS $1,667,714 $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>
June 30, December 31,
2000 1999
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
CURRENT LIABILITIES
<S> <C> <C>
Bank overdraft $ -- $ 60,849
Accounts payable 310,817 404,339
Accrued expenses 878,233 821,113
Obligation under capital lease 29,291 31,695
Current portion of long-term debt 123,000 615,000
----------- -----------
TOTAL CURRENT LIABILITIES 1,341,341 1,932,996
DUE TO RELATED PARTY 580,680 878,383
OBLIGATIONS UNDER CAPITAL LEASE - LONG-TERM 16,091 32,376
LONG-TERM DEBT -- --
----------- -----------
TOTAL LIABILITIES 1,938,112 2,843,755
----------- -----------
COMMITMENTS AND CONTINGENCIES -- --
MINORITY INTEREST 102,213 81,392
----------- -----------
STOCKHOLDERS' DEFICIT
Common stock, par value $.003; authorized
14,500,000 shares; issued and outstanding 5,180,177 and
3,998,177 shares, respectively 15,541 11,995
Additional paid-in capital 1,815,403 980,949
Accumulated deficit (2,203,555) (2,217,663)
----------- -----------
TOTAL STOCKHOLDERS' DEFICIT (372,611) (1,224,719)
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT $ 1,667,714 $ 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 Six Months Ended For the three Months Ended
June 30, June 30,
----------------------------- -----------------------------
2000 1999 2000 1999
-------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
SALES $ 3,139,680 $ 4,354,716 $ 1,514,981 $ 2,129,844
RESTAURANT OPERATING COSTS 3,012,242 4,618,603 1,496,394 2,385,978
-------------- ----------- ------------- -----------
INCOME (LOSS) FROM OPERATIONS 127,438 (263,887) 18,587 (256,134)
OTHER EXPENSES
Interest Expense 63,380 75,489 17,201 43,345
-------------- ----------- ------------- -----------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES AND MINORITY INTEREST 64,058 (339,376) 1,386 (299,479)
PROVISION FOR INCOME TAXES 10,422 4,220 2,963 -
-------------- ----------- ------------- -----------
INCOME (LOSS) BEFORE MINORITY INTEREST 53,636 (343,596) (1,577) (299,479)
MINORITY INTEREST IN THE INCOME OF
CONSOLIDATED SUBSIDIARY (20,821) (11,374) (5,034) (5,977)
-------------- ----------- ------------- -----------
NET INCOME (LOSS) $ 32,815 $ (354,970) $ (6,611) $ (305,456)
============== =========== ============= ===========
INCOME (LOSS) PER COMMON SHARE:
BASIC AND DILUTED $ .01 $ (.09) $ (.001) $ (.08)
============== =========== ============= ===========
</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 Six Months Ended
June 30,
-------------------------
2000 1999
---------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 32,815 $ (354,970)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 75,676 190,121
Loss attributed to minority interest 20,821 11,374
(Increase) Decrease in:
Accounts receivable 45,332 37,141
Inventory 101 43,995
Prepaid expenses and other current assets 7,903 (16,346)
Other Assets (8,500) -
(Decrease) Increase in:
Accounts payable & accrued expenses (36,402) 308,009
---------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 137,746 219,324
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (10,800) (44,391)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Bank overdraft (60,849) (27,670)
Partner distributions (18,707) (22,553)
Repayment of debt (492,000) (101,826)
Additional capital leases - 15,870
Repayment of capital leases (17,989) (23,496)
(Decrease) in due to related party (297,703) (6,174)
Increase in additional paid-in-capital 834,454 -
Additional stock issued 3,546 -
---------- -----------
NET CASH (USED) BY FINANCING ACTIVITIES (49,248) (165,849)
---------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 77,698 9,084
CASH AND CASH EQUIVALENTS - January 1, 9,216 32,321
---------- -----------
CASH AND CASH EQUIVALENTS - June 30, $ 86,914 $ 41,405
========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid:
Interest $ 27,471 $ 1,953
========== ===========
Taxes $ 7,459 $ 4,220
========== ===========
</TABLE>
NON-CASH INVESTING AND FINANCING ACTIVITIES:
June 30, 2000
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
JUNE 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 June 30, 2000, the Company has a working
capital deficit of $1,155,462 and an accumulated deficit of
$2,203,555. 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 six
month period ended June 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:
June 30, December 31,
2000 1999
---------- ----------
Food $ 16,535 $ 18,059
Beverage 52,484 51,061
---------- ----------
$ 69,019 $ 69,120
========== ==========
- 7 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
NOTE 3 - PROPERTY AND EQUIPMENT
Property and Equipment is summarized as follows:
<TABLE>
<CAPTION>
June 30, March 31,
2000 1999
----------- -----------
<S> <C> <C>
Furniture, Fixtures & Equipment $ 2,119,676 $ 2,108,876
Leasehold Improvement 745,220 745,220
----------- -----------
2,864,896 2,854,096
Accumulated Depreciation 1,482,435 (1,406,060)
----------- -----------
$ 1,382,461 $ 1,448,036
=========== ===========
Depreciation and amortization expense of property and equipment
for the six months ended June 30, 2000 and 1999 was $75,676 and
$190,121, respectively, and for the three months ended June 30,
2000 and 1999 was $37,304 and $94,921, respectively.
NOTE 4 - ACCRUED EXPENSES
Accrued expenses consists of the following:
June 30, December 31,
2000 1999
-------------- -------------
Payroll, Sales and Other Taxes $ 428,084 $ 323,839
Professional 217,162 200,076
Other Operating Expenses 151,041 197,353
Penalties 62,531 30,865
Interest 19,415 68,980
-------------- -------------
$ 878,233 $ 821,113
============== =============
NOTE 5 - RELATED PARTY TRANSACTION
Due to related parties consists of the following:
June 30, December 31,
2000 1999
-------------- -------------
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. 37,297 335,000
------------- ------------
$ 580,680 $ 878,383
============= ============
</TABLE>
- 8 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
NOTE 6 - LONG-TERM DEBT
Long-term debt consists of the following:
June 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. They were 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 $ - $ -
=========== ===========
NOTE 7 - INCOME TAXES
The components of the provision for income taxes is as follows:
June 30,
-----------------------------
2000 1999
----------- -----------
Current tax expense
U.S. federal $ - $ -
State and local 10,422 4,220
----------- -----------
Total current 10,422 4,220
Tax benefit of net operating loss carry-forwards - -
----------- -----------
Provision for income taxes 10,422 4,220
----------- -----------
Deferred tax expense
U.S. federal - -
State and local - -
----------- -----------
Total deferred - -
----------- -----------
Total provision from continuing operations $ 10,422 $ 4,220
=========== ===========
</TABLE>
- 9 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 June 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:
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
----------- ------------
<S> <C> <C>
2000 $ 298,907 $ 22,031
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 $ 5,720,532 52,076
===========
Less: Amounts representing interest (5,994)
------------
Present value of future minimum lease payments 46,082
Less: Current maturities (29,991)
------------
Total $ 16,091
============
</TABLE>
Rent expense under operating leases for the six months ended
June 30, 2000 and 1999, was $290,329 and $217,204,
respectively.
- 10-
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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)
$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 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)
$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. On June 30, 2000, $150,000 of the
notes were converted for 324,000 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
JUNE 30, 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.
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
- 12 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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:
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
---------------------------------
2000 1999
-------------- -----------
<S> <C> <C>
Sales:
SRC $ 1,349,312 $ 1,299,387
LA - 631,034
Chicago - 643,672
Atlanta 1,133,314 1,170,207
7 West - -
Avenue A 657,054 610,416
------------- -------------
Total sales $ 3,139,680 $ 4,354,716
============= ===========
Cost of sales:
SRC $ 341,892 $ 347,355
LA (11,856) 190,791
Chicago (26,062) 235,983
Atlanta 293,919 379,245
7 West - -
Avenue A 171,658 170,573
------------- -------------
Total cost of sales $ 769,551 $ 1,323,947
============= ===========
Restaurant operating expenses:
SRC $ 664,570 $ 636,835
LA 68,357 455,269
Chicago 74,681 499,230
Atlanta 550,512 709,653
7 West - -
Avenue A 400,678 386,659
Corporate - -
-------------- -----------
Total restaurant operating expenses $ 1,758,798 $ 2,687,646
============== ===========
</TABLE>
- 13 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
NOTE 11 - SEGMENT INFORMATION (Continued)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Other corporate expenses:
SRC $ - $ -
LA - -
Chicago - -
Atlanta - -
7 West - -
Avenue A - -
Corporate 408,217 416,889
----------- -----------
Total other corporate expenses $ 408,217 $ 416,889
=========== ===========
Depreciation and amortization expense:
SRC $ 9,759 $ 9,013
LA - 35,612
Chicago - 64,642
Atlanta 53,591 63,444
7 West - -
Avenue A 11,739 10,758
Corporate 587 6,652
----------- -----------
Total depreciation and amortization expense $ 75,676 $ 190,121
============ ==========
Income (loss) from operations:
SRC $ 333,091 $ 306,184
LA (56,501) (50,638)
Chicago (48,619) (156,183)
Atlanta 235,292 17,865
7 West - -
Avenue A 72,979 42,426
Corporate (408,804) (423,541)
----------- -----------
Income (Loss) from operations $ 127,438 $ (263,887)
=========== ==========
Identifiable assets:
SRC $ 122,108 $ 53,529
LA 482,128 503,415
Chicago 385,603 408,706
Atlanta 428,110 549,790
7 West 60 60
Avenue A 154,066 158,799
Corporate 95,639 84,273
----------- -----------
Total assets $ 1,667,714 $ 1,758,572
=========== ===========
</TABLE>
- 14 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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 third or fourth
quarter of 2000, once a restructuring of the Company's debt is
finalized and new personnel have been properly trained.
- 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 (R) Restaurant. We also hold a 62% interest in one other full service,
soul food restaurant operating under the name of Mekka (R) 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 (R) 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 (R) Restaurant, Chicago.
RESULTS OF OPERATIONS
The Company's revenue is generated from the sale of food and beverage
in its units. Sales for the six months ended June 30, 2000 decreased by
approximately 28% to $3,139,680 from sales of $4,354,716 during the six months
ended June 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 and re-open
the Chicago location by third or fourth quarter 2000.
There was a reduction in restaurant operating costs, to $3,012,242 the
six months ended June 30, 2000 from $4,353,716 for the same period in 1999 as a
result of the loss of operations for the two units.
Net income for six month period ended June 30, 2000 was $32, 815 or 1%
of revenue compared with a net loss of $354, 970 or (8%) for six month period
ended June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities decreased to $137,746 for the
six month period ended June 30, 2000 from $219,324 for the six month period
ended June 30, 1999, primarily due to a decrease in depreciation and
amortization from $190,121 for period ended June 30, 1999 to $75,676 for the
same period 2000.. Investing activities used $10,800, a 75% reduction for the
period ended June 30, 2000 compared to $44,391 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 $49,248 for the period ended March 31, 2000 from $165,849 for the
same period last year primarily because of an additional paid in capital amount
of $834,454 during the six month period ended June 30, 2000.
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Cash at June 30, 2000 was $86,914 which increased from $41,405 at June
30, 1999 due to unit and G&A cost reductions and an increase in net profit
margins providing additional cash flow. Total assets were $1,667,714 for the
six-month period ended June 30, 2000 were reduced from $1,700428 due to a
reduction in property and equipment. Total liabilities decreased $905,643 to
$1,938,112 from $2,843,755 as a result of the restructuring of long-term debt
and the forgiveness of related party debt.
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 fees 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. EXHIBITS AND REPORTS ON FORM 8-K
The following Exhibit is filed as past of this Quaterly 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
----------------------------- --------------------------------
Mark Campbell President and Director
Chief Executive Officer, (principal accounting officer)
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