<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 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 andMarch 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
- ------- -----------------
Item 1 Legal Proceedings ..................................................19
Item 3 Defaults Upon Senior Securities ....................................19
Item 5 Other Information ..................................................19
Signatures
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- -----------
(Unaudited)
<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
OTHER ASSETS 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.
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<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- -----------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft $ - $ 60,849
Accounts payable & accrued expenses 1,240,433 1,225,452
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 shares 11,995 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.
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<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
COST OF SALES 413,449 675,032
------------ -----------
GROSS PROFIT 1,211,250 1,549,840
RESTAURANT OPERATING EXPENSES 878,143 1,254,727
------------ -----------
INCOME FROM OPERATING RESTAURANTS 333,107 295,113
OTHER CORPORATE EXPENSES 185,885 207,666
------------ -----------
INCOME FROM OPERATIONS 147,222 87,447
OTHER EXPENSES
Interest Expense 46,179 32,144
Depreciation & Amortization 38,371 95,200
------------ -----------
Total other expenses 84,550 127,344
------------ -----------
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)
(LOSS) ATTRIBUTED TO MINORITY INTEREST (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
(UNAUDITED)
<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> <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) -- --
Distributions -- -- -- -- -- (16,394) (16,394)
Net loss -- -- -- -- -- (80,572) (80,572)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance - December 31, 1998 -- -- 3,998,177 11,995 980,949 (1,264,129) (271,185)
Distributions -- -- -- -- -- (64,985) (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:
Bank overdraft (60,849) 3,766
Accounts payable & accrued expenses 14,980 36,130
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 85,766 156,116
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (6,204) (27,596)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
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 (6,737) (104,376)
--------- ---------
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. (See Note 10):
1) Shark Restaurant Corp. ("SRC"), incorporated under the laws of
New York on June 7, 1990 (owned 100% by the Company);
2) Shark Restaurant California, Inc. ("LA"), incorporated under the
laws of California on June 23, 1997 (owned 100% by the Company);
ceased operations in June 1999.
3) Affair Restaurant, Inc. ("Chicago"), d/b/a Shark Bar Restaurant
Chicago, purchased on January 10, 1997 (owned 100% by the
Company); temporarily ceased operations in July 1999.
4) Shark Bar, Inc. ("Atlanta"), incorporated under the laws of
Georgia on January 29, 1998 (owned 100% by the Company);
5) 7 West Restaurant Corp. ("7 West"), incorporated under the laws
of New York on February 1, 1994 (owned 100% by the Company);
6) Avenue A Restaurants Associates, L.P. ("Avenue A"), organized as
a limited partnership under the laws of New York on September 22,
1994 (owned 62% by 7 West);
7) Shark Catering Corp. ("Catering"), incorporated under the laws of
New York on May 14, 1992 (owned 100% by the Company); currently
inactive; and
8) TWS Restaurant Corp. ("TWS"), incorporated under the laws of New
York on May 1, 1995 (owned 100% by the Company); currently
inactive.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
-8-
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (cont'd)
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.
The Company's near and long-term operating strategies focus on an
administrative restructuring, aggressive closing of under-performing
locations, debt-restructuring and seeking additional equity financing.
Several completed and ongoing initiatives are as follows:
o The Company closed its Los Angeles operation in June 1999. LA experienced
an operating loss in 1999 approximating $111,000 before any corporate
overhead burden. Negotiations are in process to sell the lease and fixed
assets for this location.
o The Company temporarily closed its Chicago operation in July 1999. Chicago
experienced an operating loss in 1999 approximating $222,000 before any
corporate overhead burden. It is anticipated that Chicago will re-open in
the second or third quarter of 2000 with more qualified restaurant
personnel.
o The Company, in late 1999, effectuated a change in senior management
personnel and its Board of Directors.
o The Company is presently in negotiations with its majority shareholder
whereby certain debt will be converted to equity, as well as certain debt
being forgiven. Additionally, the Company is presently negotiating its
current portion of long-term debt with two principal investors and a
majority stock holder.
o The Company is pursuing an equity financing via a private placement; if
successful proceeds which will be used to pay off certain current
obligations.
o The Company has and is pursuing aggressive cost cutting of general and
administrative expenses with a goal of an overall 30% reduction.
Management believes that the aforementioned plan to revise the Company's
operations will provide the opportunity to continue as a going concern.
-9-
<PAGE>
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.
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
========= =========
NOTE 3 - PROPERTY AND EQUIPMENT
Property and Equipment is summarized as follows:
Cost
----
March 31, 2000
--------------
Furniture, Fixtures & Equipment $ 2,115,080
Leasehold Improvement 745,220
------------
2,860,300
Accumulated Depreciation 1,445,931
------------
$ 1,414,369
============
December 31, 1999
-----------------
Furniture, Fixtures & Equipment $ 2,108,876
Leasehold Improvement 745,220
------------
2,854,096
Accumulated Depreciation (1,406,060)
------------
$ 1,448,036
============
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.
-10-
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 4 - RELATED PARTY TRANSACTION
<TABLE>
<CAPTION>
Due to related parties consists of the following:
March 31, December 31,
2000 1999
-------- --------
<S> <C> <C>
Advances from an officer of the Company,
payable on demand. It is intended that
these advances will be repaid in more than
one year. Interest has been accrued on
these advances at 10% per annum $543,383 $543,383
Advances from an officer of the Company
These advances are convertible into preferred
stock. Interest has been accrued on these
advances at 10% per annum 335,000 335,000
-------- --------
$878,383 $878,383
======== ========
NOTE 5 - CURRENT PORTION OF LONG-TERM DEBT
Current portion of Long-term debt consists of the following:
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 10% 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 8 and 10) $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 8 and 10) 265,000 265,000
-------- --------
$615,000 $615,000
======== ========
</TABLE>
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<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 6 - COMMITMENTS AND CONTINGENCIES
(a) 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.
(b) The Company is a party to claims and lawsuits arising in the normal
course of operations. Management is of the opinion that these claims
and lawsuits will not have a material effect on the financial position
of the Company. The Company believes these claims and lawsuits should
not exceed $50,000, and accordingly, has established a reserve included
in accounts payable and accrued expenses.
NOTE 7 - 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 December 31, 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 lesser 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
-12-
<PAGE>
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 lesser 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
(see Note 10).
-13-
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 8 - CONVERTIBLE NOTES PAYABLE (Continued)
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.
NOTE 9 - 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 THREE
MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
----------- -----------
<S> <C> <C>
Sales:
SRC $ 669,620 $ 641,549
LA 0 367,019
Chicago 0 312,299
Atlanta 626,103 612,169
7 West 0 0
Avenue A 328,970 291,836
----------- -----------
Total sales $ 1,624,699 $ 2,224,872
=========== ===========
-14-
<PAGE>
Cost of sales:
SRC $ 170,438 $ 170,082
LA 0 111,280
Chicago 0 113,988
Atlanta 156,262 197,359
7 West 0 0
Avenue A 86,748 82,323
----------- -----------
Total cost of sales $ 413,449 $ 675,032
=========== ===========
Gross profit:
SRC $ 499,182 $ 471,467
LA 0 255,738
Chicago 0 198,311
Atlanta 469,841 414,811
7 West 0 0
Avenue A 242,227 209,513
----------- -----------
Gross profit $ 1,221,250 $ 1,549,840
=========== ===========
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 0 0
Avenue A 185,907 183,769
Corporate 0 0
----------- -----------
Total restaurant operating expenses $ 878,143 $ 1,254,727
=========== ===========
FOR THE THREE
MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
----------- -----------
Other corporate expenses:
SRC $ -- $ --
LA -- --
Chicago -- --
Atlanta -- --
7 West -- --
Avenue A -- --
Corporate 185,885 207,666
----------- -----------
Total other corporate expenses $ 185,885 $ 207,666
=========== ===========
-15-
<PAGE>
Income (loss) from operations:
SRC $ 166,281 $ 171,153
LA (36,357) 45,442
Chicago (37,823) (38,925)
Atlanta 184,684 91,699
7 West 0 0
Avenue A 56,321 25,744
Corporate (185,885) (207,666)
----------- -----------
(Loss) income from operations: $ 147,222 $ 87,447
=========== ===========
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
=========== ===========
Depreciation and amortization expense:
SRC $ 4,879 $ 4,507
LA 0 17,806
Chicago 0 32,321
Atlanta 26,771 31,722
7 West - -
Avenue A 6,428 5,518
Corporate 293 3,326
----------- -----------
Total depreciation and amortization expense $ 38,371 $ 95,200
=========== ===========
</TABLE>
NOTE 10. 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 is presently negotiating a restructuring of its current
portion of long-term debt with two principle investors and the major
stockholder. All parties connected to this debt have agreed not to move
against the Company for non-payment of these loans in the year 2000.
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.
-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(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 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.
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 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.
-17-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
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.
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. (Section)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 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.
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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: May 10, 2000 By: /s/ Mark Campbell
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Mark Campbell
Chief Executive Officer,
President and Director
(principal accounting officer)
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