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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ____to____
Commission File Number 33-39231
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SOULFOOD CONCEPTS, INC.
(Name of small business issuer in its charter)
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Delaware 13-3585743
(State of Incorporation) (I.R.S. Employer Identification No.)
630 Ninth Avenue, Suite 310
New York, N.Y., 10036
(Address of principal executive office, including zip Code)
(212) 262-8333
(Issuer's telephone number, including area code)
Securities registered under Section 12(b) of the Act:
NONE
Securities registered under Section 12(g) of the Act:
NONE
Check whether the issuer (1) Filed all reports required to be filed by section
13 or 15 (d) of the securities exchange act during the preceding 12 months (or
for such a 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_
Check if there is no disclosure of delinquent filers in response to item
405 of regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this form 10-KSB
or any amendment to this form. [ X ]
The aggregate market value on December 31, 1998 of voting stock held by
non-affiliates computed by reference to the last sale price on that date was
approximately $4,238,067.
The issuer's revenues for the year ended December 31, 1998 were $9,689,207.
As of December 31, 1998 3,998,177 shares of common stock, par value $.003 per
share were issued and outstanding.
Documents incorporated by reference
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NONE
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PART I
ITEM 1. BUSINESS
General
Soulfood Concepts Inc. a Delaware corporation ("The Company"), wholly
owns and operates four full service, upscale soul food restaurants under the
name of The Shark Bar(R) Restaurant. The Company is also the holder of 62%
interest in one other full service, soul food restaurant operating under the
name of Mekka(R) Restaurant. The flagship Shark Bar Restaurant and Mekka are
located in Manhattan, New York; the other three are located in Chicago,
Illinois, Atlanta, Georgia and Los Angeles, California.
The original Shark Bar Restaurant, which was opened in New York City in
1990, is a full service 95-seat restaurant. In March 1997, the Company opened a
three-floor 9,000 square foot Shark Bar(R) Restaurant in Chicago. In September
1997, the Company opened a third Shark Bar(R) Restaurant in Los Angeles in a
6,000 square foot facility located at 826 N. La Cienaga Boulevard. In March
1998, the Company opened a fourth Shark Bar Restaurant in a 5,000 square foot
location in Atlanta.
The corporate expansion during 1997 was financed by the Company through
various financing transactions as well as loans from an officer of the Company.
See "Business-Financing Transactions".
Corporate Strategy
The Company intends to build the first national "Soul Food Restaurant"
company throughout major urban areas in the United States with the expansion of
its two concepts - The Shark Bar Restaurant and Mekka Restaurant. The Company is
dedicated to excellence in the quality of its' food offerings, and to the
creation of value for its' customers. The Company believes that it
differentiates its restaurants by emphasizing the following strategic elements:
o Positioning itself as the first national company to target the Soul Food
category, which offers a fine dining experience with casual dining prices.
o Offering upscale Soul Food and New Southern Cuisine which provides a unique
and enduring attraction to a broad and diverse demographic and
socio-economic mix of customers
o Serving generous "Southern" portions accompanied by side orders offered at
affordable prices
Recent Developments
On November 3, 1999, Mr. Brian Hinchcliffe resigned as the Chief
Executive Officer and President of the Company. Mark Campbell was elected to
serve as a director of the Company and to serve as Chief Executive Officer and
President of the Company.
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. The Company will sell the Los Angeles unit and
engage a turnaround plan to reopen the Chicago location in the spring of 2000.
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Restaurant Concept and Menus
The Shark Bar
The Shark Bar Restaurants were developed to appeal to a 35-50 year
old, predominantly African-American customer base. Each has a separate bar area
along with dinning rooms with table cloth settings. The Shark Bar restaurant
serves dinner 7 days a week and lunch and brunch when appropriate. The
distribution between food and beverage sales is 65% food and 35% beverages.
During 1998, the average guest check at the Shark Bar was approximately $23
(including beverages).
During 1997 and 1998, The New York Shark Bar Restaurant received a
designation from Forbes Magazine as an "All-Star Eatery", while the Chicago
restaurant was awarded "Two Stars" from the Chicago Sun-Times. The Los Angeles
restaurant was also named by the Los Angeles Times as one of the best new
restaurants in LA for 1997.
The menu at The Shark Bar Restaurants features both upscale Soulfood
and New Southern Cuisine at affordable prices. The menu is organized so that
diners may choose an entree with two accompanying side orders. The entrees
featured on the menu include Blackened Catfish, Honey Dipped Fried Chicken,
Shrimp Etoufe, and Grilled Salmon in a Herb Citrus Butter Sauce. The Shark Bar
has established a reputation of quality and consistency in its food,
particularly with its side orders, which includes black eyed peas, collard
greens, macaroni and cheese, candied yams and mashed potatoes.
Mekka
The Company is also the General Partner, holding a 60% general partner
interest and a 2% limited partner interest, of a 55 seat soul food restaurant
known as Mekka. The menu at Mekka is also based on soul food and New Southern
cooking, but also offers a selection of Caribbean dishes. Mekka was designed
with slightly lower price points than The Shark Bar and is targeted towards a
predominantly African-American customer in the 20-40 age demographic. Mekka
serves dinner seven days a week, does not serve lunch during the week but does
offer a brunch on Sunday. The distribution between food and beverages sales is
approximately 65% for food and 35% for beverages. In 1998, the average guest
check in Mekka was approximately $20 (including alcoholic beverages). Mekka also
has an outdoor cafe space that offers an additional 30 seats in the warmer
months.
Reorganization of the Company
The Company was initially organized on August 23rd, 1984 in the State
of Delaware under the name Empire Ventures, Inc. On December 14, 1992, the
Company entered into an ("agreement") and plan of re-organization with Soul To
Go, Inc. for 5,031,250 shares of the common stock of Empire Ventures, Inc. As a
result of the transactions consummated pursuant to the agreement, Soul to Go,
Inc. has become the wholly owned subsidiary of Empire Ventures, Inc. and
shareholders of Soul To Go, Inc. became the owners of approximately 92% of the
issued and outstanding shares of common stock of Empire Ventures, Inc.
Soul to Go, Inc. was a New York based holding Company controlling a
group of operating subsidiaries consisting of the Shark Restaurant Corp., which
operated a 90 seat restaurant called the Shark Bar and Shark Catering Corp.,
which operated a quick service business called Soul To Go. On January 25th 1993,
Empire Ventures Inc. changed its name to STG International Inc. Subsequent to
the
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re-organization, STG International Inc. opened a second Soul to Go operation in
Jamaica Queens, and through its wholly owned subsidiary 7 West Rest. Corp.
became the General Partner of "Mekka". See "Business-General". Due to operating
losses, both Soul to Go stores were closed in 1995.
During 1996, the Company changed its name from STG International Inc.
to Soulfood Concepts, Inc., reorganized its Board of Directors, effected a
one-for-three reverse stock split and adopted an expansion campaign for 1997 and
1998.
Restaurant Expansion
At this time, the Company intends to expand its business through the
development and "branding" of its full service restaurants, namely The Shark Bar
Restaurant and Mekka Restaurant. The Company believes that its overall business
objectives will be better met through the expansion of full service units in the
larger urban markets within the United States. These large markets can
accommodate 125 seat plus establishments which in turn will help build the
company's cash flow and establish the name brands of our restaurants in the
important US markets.
The first expansion outside the New York market was The Shark Bar in
Chicago ("Shark Bar Chicago") which opened in March of 1997. On January 10,
1997, the Company completed the purchase of the lease, restaurant assets and
licenses of the Affair Restaurant Inc. in Chicago, Ill. from Affair, L.P. and
all of the issued and outstanding shares of capital stock of Affair Restaurant,
Inc. for the aggregate purchase of approximately $335,000 (the "Chicago
Acquisition"). The Shark Bar Chicago is a 9,000 square foot unit, of which 6,000
square feet can be used for sales space on three floors, with a 2,500 square
foot outside adjoining deck. At this time, the main dining floor contains 130
seats plus a small bar area, while the second floor offers the larger bar space
and seating for up to an additional 75 persons, if so required. The second floor
is also able to accommodate larger private parties and catering events.
In the summer of 1997, the Company acquired for $375,000, the lease and
equipment of the 6,500 square foot 826 N. La Cienega Boulevard premises,
formerly the "La Mer Restaurant" (the "Los Angeles Acquisition"). This
acquisition was financed through the proceeds of a convertible debenture and a
small bridge loan from Mr. Hinchcliffe for $105,000. The Shark Bar(R)
Restaurant Los Angeles has a main dining room with 110 seats, a lounge area
which can accommodate 30 persons and a 600 square foot garden and patio area.
In the first quarter of 1998, the Company acquired a lease, together
with furniture and fixtures thereon, of a 10,000 square foot, two level
restaurant located in mid-town Atlanta for a purchase price of $250,000. The
Company opened these premises into the fourth Shark Bar(R) Restaurant during
the first quarter of 1998.
In addition, the Company has had continuing discussions with brokers,
agents and landlords regarding new sites for additional Shark Bars in major
urban markets. However, there can be no assurance that additional restaurants
will be opened.
Financing Transactions
During 1997, in order to finance the Company's acquisition and to
facilitate its expansion strategy, the Company was required to enter into
various financing transactions:
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During January 1997, the Company issued 100,000 unregistered shares of
Common Stock for an aggregate purchase price of $20,000.
During 1997, the Company issued 100,000 unregistered shares of its
Common Stock and a warrant to purchase up to 10,000 shares of Common Stock to an
institutional investor for an aggregate purchase price of $100,000.
During February, 1997, the Company borrowed $100,000 pursuant to the
terms of a promissory note bearing interest at the rate of 8%, payable
semi-annually until February 4, 1999.
During May, 1997, the Company entered into a note purchase agreement,
pursuant to which the Company issued 8% convertible secured notes (the "Notes")
to institutional investors, in the aggregate principal amount of $350,000
together with warrants to purchase up to 35,000 shares of Common Stock. The
Notes bear interest at 8% and are due on May 21, 1999. The Notes provide that
the holder is entitled at any time to convert any or all of the original
principal amount of the Note into shares of Common Stock. The shares of Common
Stock underlying the Notes and the warrants bear certain demand and "piggyback"
registration rights. The maturity of this Note was subsequently extended to
September 15th, 2000.
On June 6, 1997, the Company issued 100,000 unregistered shares of its
Common Stock and a warrant to purchase up to 10,000 shares of Common Stock to an
institutional investor for an aggregate purchase price of $100,000.
During 1997, in order to help finance the Company's acquisitions, among
other things, Mr. Brian Hinchcliffe, the Company's Chief Executive Officer,
loaned the Company approximately $476,038, which loan bears interest at the rate
of 10% per annum.
Subsequent to the year end, during February 1998, the Company entered
into a note purchase agreement, pursuant to which the Company issued 8%
convertible secured notes ("1998 Notes") to institutional investors, in the
aggregate principal amount of $265,000, together with warrants to purchase
shares of Common Stock. The Notes provide that the holder is entitled at any
time to convert any or all of the original principal amount of the Note into
shares of Common Stock. The Shares of Common Stock underlying the Note and the
warrants bear certain demand and "piggyback" registration rights. The Company
repaid $100,000 in February 1999, which "paid off" the February 1997 Notes.
Site Selection and Design
The Company is seeking to locate its new restaurants in locations that
offer demographic and economic factors that can support a profitable operation.
The Company has established parameters with respect to "Sales vs. Investment
ratios" and "rent as a percentage of sales" that it will use in order to
evaluate the feasibility of additional sites. At this time, the Company intends
to use the design, methods and mode of operations developed at "The Shark Bar"
and "Mekka" restaurants in New York as models for additional sites in other
locations.
Restaurant Management and Systems
Each sales unit is headed by a General Manager, who is assisted by a
Head Chef. Food products and other supplies are purchased from various
unaffiliated suppliers by the personnel in each unit. During 1998, the company
started to centralize with certain vendors the purchasing of required
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products. Beverage and kitchen units each have specific targets to meet, as part
of each unit's budget. Financial and management control is maintained through
the use of POS systems, which the Company is in the process of standardizing
throughout the various units.
Employees
As of December 31, 1998, the Company employed 350 persons. Of the
Company's employees, 210 are full time and 140 are employed on a part time
basis. None of the Company's employees are covered by a collective bargaining
agreement. The Company has not experienced any work stoppages and considers its'
employee relationship to be good.
Trademark
The Company filed a Trademark application with the United States Patent
and Trademark Office for The Shark Bar(R) on September 25,1996 and for Mekka(R)
on or about October 16, 1996. The Company has been granted trademarks for both
The Shark Bar(R) and Mekka(R).
In addition, The United States Patent and Trademark office has issued a
Certificate of Registration on the Supplemental Register for SOUL TO GO(R). A
trademark registered on the Supplemental Register is not considered to be
inherently distinctive but is considered to be "capable" of becoming
distinctive. Once the trademark becomes distinctive (acquired secondary
meaning), it can be transferred to the Principal Register.
Trade Secrets
The Company has developed and currently owns trade secrets with respect
to its food products, its preparation and sources. There is no assurance that
confidentiality relating to the protection of the Company's trade secrets can or
will be obtained or that such trade secrets will afford the Company meaningful
competitive advantages.
Competition
The restaurant business throughout the United States, and particularly
in Manhattan (New York), is intensely competitive and involves a high degree of
risk. The Company believes that a large number of new restaurants open each year
in the New York city metropolitan area and the other urban markets that the
Company owns restaurants, a significant number of which do not succeed. Even
successful restaurants can rapidly lose popularity due to changes in customer
tastes, economic conditions, population and traffic patterns. The Company
competes with locally-owned restaurants and bars as well as with national and
regional restaurant chains, which have substantially greater financial and
marketing resources and longer operating histories than the Company. There is
active competition for management personnel and attractive commercial real
estate sites suitable for restaurants.
The Company in the past generally has not incurred significant expenses
for advertising and promotion, relying instead on word-of-mouth to bring its
restaurant establishments to the attention of new customers.
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Government Regulations
The Company is subject to various federal, state and local laws
affecting its employees and guests, its owned and leased properties and the
operation of its restaurants. The restaurants are subject to licensing and/or
regulations by various fire, health, sanitation and safety agencies in the
applicable state and/or municipality. In particular, the Company has adopted
extensive procedures designed to meet the requirements of applicable food
handling and sanitation laws and regulations. To date, the Company has not
experienced any material problems resulting from its sanitation and food
handling procedures.
The Company's restaurants are subject to state and local licensing and
regulations with respect to the sale and service of alcoholic beverages.
Typically, alcoholic beverage licenses must be renewed annually and may be
revoked or suspended for cause. Alcoholic beverage control regulations relate to
numerous aspects of the daily operations of the purchasing, inventory control
and the handling, storage and dispensing of alcoholic beverages. The Company has
not encountered material problems relating to alcoholic beverage licenses to
date, but the failure of a restaurant to obtain or retain a liquor license would
adversely affect that restaurant's operations.
In certain states, the Company is subject to "dram shop" statutes,
which generally give a person injured by an intoxicated person the right to
recover damages from the establishment that wrongfully served alcoholic
beverages to the intoxicated person. The Company carries liquor liability
coverage as part of its existing comprehensive general liability insurance.
The Company is subject to federal and state fair labor standards,
statutes and regulations that govern such matters as minimum wages, overtime,
tip credits, child labor and other working conditions. A good number of the
Company's food service personnel are paid at rates based on applicable federal
and state minimum wages.
Item 2. Description of Property
The following tables sets forth certain information with respect to the
Company's facilities currently in operation (unless otherwise noted):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Date Restaurant Seating Lease
Name and Location Opened Size Capacity Expiration
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
The Shark Bar
305-307 Amsterdam Ave. 11/90 2,500 sq. ft. 90 2009
New York, N.Y
(Bet.74th & 75th Street)
- ---------------------------------------------------------------------------------------------------------------------------
Mekka
14 Avenue A 12/94 1,500 sq. ft. 65 10/2002(1)
New York, New York
- ---------------------------------------------------------------------------------------------------------------------------
The Shark Bar Chicago
212 North Canal Street 3/97 9,000 sq. ft. 200 2003(2)
Chicago, Illinois
- ---------------------------------------------------------------------------------------------------------------------------
The Shark Bar Los Angeles 9/97 6,500 sq. ft. 130 (3)
826 N. La Cienaga Blvd.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Los Angeles, California
- ---------------------------------------------------------------------------------------------------------------------------
The Shark Bar Atlanta 9/97 10,000 sq. ft. 355 2007
571 Peachtree Street NW
Atlanta, Georgia
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Exercise of 5 year option will extend term to 2007.
(2) This lease provides two five year options.
(3) This lease has a conditional 5 year option
The Company's headquarters are located in an office building located in
New York, New York, where the Company leases approximately 2,500 sq. ft. the
lease expires in August 2000. The Company believes that the space is adequate
for its present projected needs for at least the next year.
Item 3. Legal Proceedings
The Company is not a party to any pending material legal proceeding. In
1997 a court granted summary judgment against the Company regarding liability in
an action brought against the Company in the approximate amount of $48,000 with
respect to a stolen automobile that the plaintiff has alleged, among other
things, is due to the negligence of the Company. The Company appealed the
judgment and lost the appeal.
Item 4. Submission of matters to vote of Security Holders.
None during the fourth quarter of the year ended December 31, 1998.
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PART II
Item 5. Market for Common Equity and Related Stockholder Matters
On June 12, 1997 the Company's common stock commenced trading on the
OTC Bulletin Board under the symbol "SLFD". Set forth below are the range of
reported high and low bid and ask quotations for the Company's Common Stock for
each of the quarters indicated as reported on the OTC Bulletin Board. All
over-the-counter market price quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission, and may not necessarily represent
actual transactions.
Year ended December 31, 1998
Price Per Share of Common Stock
-------------------------------------------
Second Third Fourth
Quarter Quarter Quarter
------- ------- -------
High . . . $2.75 $1.62 $1.18
Low . . . $2.37 $1.31 $1.00
Holders. As of December 31, 1998, the Company, to its knowledge, had
approximately 57 shareholders of record of its Common Stock
Dividends. The Company has not paid dividends on its Common Stock since
its inception and has no intention to pay any dividends to its shareholders in
the foreseeable future. The company currently intends to reinvest earnings, if
any, in the development and expansion of its business. The declaration of
dividends in the future will be at the election of the Board of Directors, and
will depend upon the earnings, capital requirements and financial position of
the Company, plans for expansion, general economic conditions and other
pertinent factors.
During 1998, the Company issued securities, including convertible
debentures, common stock and warrants in connection with various financing
transactions. See "Business--Financing Transactions". The issuance of such
securities was exempt from the registration provisions of the Securities Acct of
1933, as amended, pursuant to Section 4(2) thereof and the rules promulgated
thereunder, and the securities issued in connection therewith were deemed to be
restricted securities. No underwriter was engaged in connection with such sales
of the securities.
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Item 6. Management's Discussion and Analysis of Financial Condition and Review
Results of Operations.
General
The following discussion and analysis should be read in conjunction
with the Company's Financial Statements and Notes thereto included elsewhere in
the Form 10-KSB.
As of December 31, 1998, the Company operated five full service
restaurants, three of which were opened in March 1997, September 1997, and March
1998. The company is engaged in developing full service "Soul Food" restaurants
in the major urban markets of the United States. The Company currently has
locations in New York City, Los Angeles, Chicago and Atlanta. The Company has
traditionally funded its growth through sales of equity, convertible notes and
debt financing.
In June and July respectively the Company closed two under performing
stores, Los Angeles and Chicago, and intends to sell the Los Angeles unit and
reopen the Chicago unit.
Results of Operations
Year Ended December 31, 1998
During the year ended December 31, 1998, the company recorded net sales
of $9,689,207, which included net sales of $2,392,307 from the fourth quarter.
The Company incurred a net loss of $80,572 for the year ending December 31, 1998
or $.02 per share. During the year ended December 31, 1997, the company recorded
net sales of $6,137,315 and had a net loss of $512,321 or $.15 per share.
The Company's revenue was generated from the sale of food (67% of total
revenue) and beverages (33% of revenue) in its five restaurants. Sales revenue
for the year ending December 31, 1998 increased 57% from 1997 and fourth quarter
revenue increased by 14% from fourth quarter sales in 1997 of $2,047,129.
During the year ended December 31, 1998, the Company recorded a Cost of
Sales, primarily food and beverage, of $2,850,042 or 29.4% of sales, increasing
from 28.2% Cost of Sales figure for 1997.
The Company's Gross Profit increased from $4,384,743 for the year
ending December 31, 1997 to $6,839,165 for the year ending December 1998. This
increase is directly related to the opening of a new restaurant during 1998. The
Company's restaurant operating expenses for the year ending December 31, 1998
were $ 5,565,041 compared to $3,413,055 for 1997, which represents 57% and 55%
respectively. This increase is directly related to the opening of a new
restaurant during 1998. Income from operating restaurants for 1998 was
$1,274,124 or 13% of sales. For the fourth quarter of 1998,the Company had an
operating loss of $15,468. For 1997 and the fourth quarter of 1997, the
comparable amounts were $971,688 or 15.8% of sales and $219,725 or 11% of sales
respectively.
The Company's G&A decreased from $749,669, or 12% of sales in 1997 to
$594,682 or 6.1% of sales in 1998. In 1997 the company incurred additional legal
and other expenses in it's national expansion program and in the listing of the
stock on a public exchange.
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The Company writes off the pre-opening expense portion of the capital
required to open a restaurant during the calendar year that the restaurant was
opened. Thus in 1998 total pre-opening expenses of $212,261 were expensed in
addition to $320,685 of depreciation and amortization expense for a total of
$532,946 versus the 1997 total of $560,957 for pre-opening expenses, and
depreciation and amortization.
Profile of Unit Sales
During 1998, the Company opened one additional restaurant, investing
$581,610 in The Shark Bar Atlanta. The Company seeks to build restaurants where,
after a unit is established, it's annual sales will be greater than two- three
times unit investment.
A review of the 1998 sales and a comparison to the previous year is
shown below
1997 1998 Year Opened
---- ---- ------------
The Shark Bar Restaurant NY $2,723,191 $2,681,064 Nov. 1990
Mekka Restaurant $1,131,064 $1,181,570 Nov. 1994
The Shark Bar Restaurant Chicago $1,677,683 $2,110,756 April 1997
The Shark Bar Restaurant LA $ 606,377 $1,723,305 Sept. 1997
The Shark Bar Restaurant Atlanta - $1,992,512 March 1998
Financial Condition and Liquidity
The following is a discussion of the Company's recent and future
sources of and demands on liquidity as well as an analysis of liquidity levels.
For the year ending December 31, 1998 the Company incurred a net loss of
$80,572. At this time, during 1999 the Company is planning to continue its
national expansion through amongst other alternatives, partnership programs that
do not require the Company to fund the expansion.
Cash and Cash Equivalents as of December 31, 1998 decreased by $17,148
to $32,321 from $49,469 as of December 31, 1997. Overall, Total Current Assets
decreased by $86,922 as of December 31, 1998 to $233,473 from $320,395 as of
December 31, 1997. The decrease in cash and increase in all other assets was
caused by the expansion of one new restaurant during 1998.
To finance the expansion and cash flow needs due to the corporate
growth, current liabilities increased by $187,999 as of December 31, 1998 to
$960,265 from $772,266 as of December 31, 1997
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-KSB that are not historical facts,
including, but not limited to, statements found in this Item 6, 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-KSB 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,
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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-KSB
Item 7. Financial Statements.
The information required under this item is set forth on pages F-1 through F-12
of this Annual Report on Form 10-KSB.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
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Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of Exchange Act
The name, age, principal occupation, other business affiliations and
other information (relating to the past five or more years) concerning each
director, and, where applicable, the year each was first elected a director of
the Company, are set forth below:
Brian Hinchcliffe, Director, 43, was the financial founder of the
Company in 1990 and assumed management responsibility in 1995. Mr. Hinchcliffe
was a Vice President at Goldman Sachs for ten years before launching an
entrepreneurial career 10 years ago. Mr. Hinchcliffe also serves as a Director
of Jordex Resources, Inc. which he founded.
Michael Vann, 42, Director, was co-founder of the company in 1990 and
has served as a director of the Company since 1992 and has served as the
Company's Vice President from 1992 through November 1996. Mr. Vann graduated
from Western Michigan University in April 1979, earning a Bachelor's degree in
marketing and retail.
Keith T. Clinkscales, 35, has served as a director of the Company since
January 1997. Mr. Clinkscales was the former President and CEO of VIBE Ventures,
the urban music magazine and television show, since its inception in September
1993. Mr. Clinkscales is a magna cum laude graduate of Florida A&M University.
He was the first student speaker for the prestigious School of Business and
Industry Forum series, and the President of Kappa Alpha Psi fraternity.
Mark Campbell, 39, was appointed President, CEO and Director on
November 3, 1999. Mr. Campbell spent eight years on Wall Street as an investment
banker. Mr. Campbell was previously the Managing Partner of Kova Capital, LLC, a
venture capital concern he started that provided strategic advisory services to
entrepreneurs, and financed properties in the entertainment industry. Mr.
Campbell began his foray in the food industry as the co-founder and General
Partner of Soul Cafe, a full service restaurant in mid-town Manhattan.
Compliance with Section 16(a) of the Exchange Act
Not Applicable.
Item 10: Executive Compensation
(a) Cash Compensation.
The following table sets forth all compensation in excess of $100,000
awarded to, earned by or paid to the Company's Chief Executive Officer and the
four other most highly compensated executive officers (the "named executive
officers") of for the years ended December 31, 1997, 1996, and 1995. None of the
executive officers of the Company had total compensation in excess of $100,000
in any fiscal year.
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SUMMARY COMPENSATION TABLE
Fiscal
Name and Principal Position Year Annual Salary
- --------------------------- ---- ------ ------
Brian Hinchcliffe 1998 $135,000
President and Chief Executive Officer 1997 $130,000
Directors' Fee and Other Remuneration
Directors receive no compensation for services as a member of the Board
of Directors or of any committee of the Board of Directors in respect of 1998.
However, at this time, the Company has established a stock option plan which
will allow both directors, employees and consultants to participate.
Stock Options. No options were granted by the Company during Fiscal
1998.
1997 Stock Incentive Plan
Administration and Eligibility. The Company has adopted the 1997 Stock
Incentive Plan (the "1997 Plan") for officers, directors, employees, and
consultants of the Company or any of its subsidiaries. The 1997 Plan, as
originally adopted, authorizes the issuance of up to 500,000 shares of Common
Stock upon the exercise of stock options or in connection with the issuance of
restricted stock. The 1997 Plan authorizes the granting of stock options and
restricted stock to employees, officers, directors and consultants of the
Company and its subsidiaries and non-discretionary automatic awards of stock
options to non employee directors of the Company. The 1997 Plan provides for its
administration by either a committee of two or more outside directors or the
Board of Directors (the "Administrator"). In general, the Administrator, in its
sole discretion, determines which eligible employees, officers, directors and
consultants of the Company and its subsidiaries may participate in the 1997 Plan
and the type, extent and terms of the equity-based awards to be granted to them.
In the event of a change in control, as defined in the 1997 Plan, all options
will become immediately vested and exercisable and the restrictions with regard
to restricted stock will lapse unless the Administrator provides otherwise.
Options. Options granted to employees may either be ISOs or non-ISOs.
Each option has a maximum term of ten years from the date of the grant, subject
to early termination. The Administrator may determine the exercise price
provided that such price may not be less than the fair market value of the
Common Stock on the date of grant. At the discretion of the Administrator, the
exercise price of the options may be paid in cash, by tendering of shares of
Common Stock having a fair market value equal to the exercise price of such
option.
Restricted Stock. The Administrator may make grants of restricted stock
for cash or other consideration, as the Administrator determines. The number of
shares of Common Stock granted to each grantee will be determined by the
Administrator. Grants of restricted stock will be made subject to such
restrictions and conditions as the Administrator may determine in its sole
discretion, including periods of restriction on transferability (the
"Restriction Period") during which time the grant may be required to be
deposited with an escrow agent, if the Administrator so determines. During the
Restriction Period, if any, a grantee may be given the right, at the discretion
of the Administrator, to vote the shares subject to the grant and the right to
receive any regular cash dividends paid thereon. If a grantee's employment or
service for the Company terminates, or in the event of the occurrence of certain
other events determined by the Administrator, the grant will terminate with
respect to all shares as to which the restrictions have not lapsed and those
shares must be returned to the Company.
13
<PAGE>
Amendment. The Board has the right to amend, suspend or terminate the
1997 Plan at any time, provided, however, that unless approved by the Company's
stockholders in general, no amendment or change in the 1997 Plan will be
effective: (i) materially increasing the total number of shares of Common Stock
which may be issued under the 1997 Plan; (ii) changing the minimum option
exercise price; (iii) extending the term of the 1997 Plan or the period during
which any option may be granted or exercised; or (iv) altering in any way the
class of persons eligible to participate in the 1997 Plan.
Item 11: Security Ownership of Certain Beneficial Owners and Management
Security ownership of Management
The following table sets forth certain information, as of December 1,
1998, regarding the beneficial ownership of Common Stock, which is the Company's
only class of outstanding voting securities, by each Shareholder who owns more
than 5% of outstanding shares, by each director and nominee for election as
director, by each of the named executive officers of the company and by all
directors and executive officers of the Company as a group. The information set
forth in the table and accompanying footnotes has been furnished by the named
beneficial owners. Since the table reflects beneficial ownership determined
pursuant to the applicable rules of the Securities and Exchange Commission, the
information is not necessarily indicative of beneficial ownership for any other
purpose.
Name and Address Amount and Nature of
of Beneficial Owner Beneficial Ownership(1)(2) Percent of Class
------------------- -------------------------- ----------------
Brian A. Hinchcliffe 2,547,523(3)
Michael D. Vann 176,666
Keith Clinkscales 100,000
----------------------------------------------------------------------
All Executive Officers
and Directors as a group
(4 persons) 2,824,189(3)
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting and investment power
with respect to the shares shown as beneficially owned. Shares of Common
Stock subject to options currently exercisable or exercisable within 60
days are deemed outstanding for computing the percentage ownership of the
person holding such options. But are not deemed outstanding for computing
the percentage ownership of any other person.
(2) The amount of ownership takes into effect the reverse stock split of the
Company's outstanding Common Stock of the Company as of November 6, 1996.
(3) Includes 625,000 shares of Common Stock, which can be obtained through the
conversion of 125,000 shares of Class A Preferred Stock of the Company.
14
<PAGE>
Item 12: Certain relationship and Related Transactions
On December 31, 1992, Mr. Brain Hinchcliffe ("Hinchcliffe"), a director and
officer of the Company, loaned the Company the aggregate sum of $400,100,
together with accrued interest thereon (hereinafter referred to as the
"Hinchcliffe Loan"). In connection therewith, in order to evidence the
Hinchcliffe Loan the Company issued to Hinchcliffe a Convertible Note in the
aggregate principal amount $400,100, together with accrued interest thereon
which note bore interest at the rate of 8% per annum. The Convertible Note
provided Hinchcliffe with the right to convert said note into that number fully
paid and non assessable shares of Common Stock of the Company as shall be equal
to the aggregate principal amount of the Note, and interest accrued thereon,
multiplied by (5). During November 1996, Mr. Hinchcliffe requested that the Note
be converted. In December, 1996, such note was converted into 2,750,690 shares
of Common Stock (after taking into effect a Reverse Stock Split).
Pursuant to an arrangement between the Company and Hinchcliffe, during
the period of 1993 through end of 1996, the Company borrowed in excess of
$285,266 from Hinchcliffe at an interest rate of 10% per annum. On December 30,
1996 it was determined by the Board of Directors of the Company to be in the
best interest of the Company that the Company accept Hinchcliffe's offer to (I)
convert $125,000 of said loans ino 125,000 shares of Series A Convertible
Preferred Stock, which stock contains the designations, rights and preferences
which were filed in the Certificate of Designations with the Secretary of State
of the State of Delaware and (ii) to convert an additional $80,000 of loans into
400,000 shares of Common Stock. See "Financial Statements and Notes Thereto."
In addition during January, 1997, in order to finance the Company's
acquisitions, among other things, Mr. Hinchcliffe loaned the Company
approximately $476,038, which loans bear interest at the rate of 10% per annum.
See "Business - Financing Transactions."
15
<PAGE>
Item 13. Exhibits and reports on Form 8-K
(a) Exhibits.
The following documents heretofore filed by the Company with the Securities and
Exchange Commission ("SEC") are hereby incorporated by reference:
Exhibit No. Document
- ----------- --------
2.1 (2) Agreement and plan of Reorganization
3.1 (1) Certificate of Incorporation
3.2 (1) By-Laws of the Company
3.3 (4) Amended Certificate of Incorporation
3.4 (4) Amended and Restated by-Laws of the company
3.5 (4) Amended Certificate of Incorporation
3.6 (4) Certificate of Designation relating to the Series A
Convertible Preferred Stock
10.1(1) Escrow Agreement between the Company and New Jersey
National Bank
10.2(2) Warrant Agreement between the Company and Interest Transfer
Co., Inc.
10.3(3) Lease Agreement relating to the New York Shark Bar
Restaurant
10.7(3) Sublease Agreement for Mekka
10.8(4) Cancelled Convertible Note issued to Brian Hinchcliffe in
the principal amount of $400,100.
16
<PAGE>
- ----------
(1) Incorporated by reference from registrants registration statements on Form
S-18, File No. 22-382321-N.Y
(2) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1992.
(3) Incorporated by reference to the Company's Quarterly Report on Form for the
quarter ended September 30, 1994.
(4) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1996.
(b) Reports on Form 8-K. The Company did not file any Current Reports on
Form 8-k during the fourth quarter ended December 31, 1997.
17
<PAGE>
Signatures
In accordance with section 13 or 15(d) of the Exchange act, the registrant
caused this report to be signed on its' behalf by the undersigned, thereunto
duly authorized.
Soulfood Concepts Inc.
Date: February, 2000 By: _____________________________
Mark Campbell, Chief Executive Officer
and President
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Signature and Title Date
- ------------------- ----
____________________________________ February, 2000
Mark Campbell, Chief
Executive Officer, President,
Director and Accounting Officer
____________________________________ February, 2000
Brian A. Hinchcliffe, Director
____________________________________ February, 2000
Michael D. Vann, Director
____________________________________ February, 2000
Keith Clinkscales, Director
18
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
INDEX
-----
PAGE
----
Independent auditors' report 1
Consolidated balance sheets 2 - 3
Consolidated statements of operations 4 - 5
Consolidated statement of stockholders' equity (deficit) 6
Consolidated statements of cash flows 7 - 8
Notes to consolidated financial statements 9 - 23
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
SOULFOOD CONCEPTS, INC.
We have audited the accompanying consolidated balance sheets of SOULFOOD
CONCEPTS, INC. AND SUBSIDIARIES as of December 31, 1998 and 1997 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of SOULFOOD CONCEPTS,
INC. AND SUBSIDIARIES as of December 31, 1998 and 1997 and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
As discussed in Note 1(s) to the consolidated financial statements, SOULFOOD
CONCEPTS, INC. AND SUBSIDIARIES changed its method of accounting for
organization costs effective January 1, 1998.
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
Certified Public Accountants
New York, New York
November 4, 1999
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
-----------------------
1998 1997
---------- ----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 32,321 $ 49,469
Accounts receivable 49,804 69,387
Inventory 120,775 67,149
Prepaid expenses and other current assets 30,573 134,390
---------- ----------
TOTAL CURRENT ASSETS 233,473 320,395
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $1,070,857 and $748,446, respectively 1,727,176 1,314,314
ORGANIZATION COSTS, net of accumulated
amortization of $0 and $28,198,
respectively - 24,167
OTHER ASSETS 90,874 75,182
---------- ----------
TOTAL ASSETS $2,051,523 $1,734,058
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
- 2 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
--------------------------
1998 1997
----------- -----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Bank overdraft $ 137,825 $ 88,640
Accounts payable and accrued expenses 591,682 657,322
Obligation under capital lease 28,932 15,348
Current portion of long-term debt 201,826 10,956
----------- -----------
TOTAL CURRENT LIABILITIES 960,265 772,266
DUE TO RELATED PARTY 747,116 615,367
OBLIGATIONS UNDER CAPITAL LEASE - LONG-TERM 54,492 51,068
LONG-TERM DEBT 515,000 450,909
----------- -----------
TOTAL LIABILITIES 2,276,873 1,889,610
----------- -----------
COMMITMENTS AND CONTINGENCIES - -
MINORITY INTEREST 45,835 18,667
----------- -----------
STOCKHOLDERS' DEFICIT
Preferred stock, par value $.003; authorized
500,000 shares; issued and outstanding 0 and
125,000 shares, respectively - 375
Common stock, par value $.003; authorized
14,500,000 shares; issued and outstanding
3,998,177 and 3,373,177 shares, respectively 11,995 10,120
Additional paid-in capital 980,949 982,449
Accumulated deficit (1,264,129) (1,167,163)
----------- -----------
TOTAL STOCKHOLDERS' DEFICIT (271,185) (174,219)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT $ 2,051,523 $ 1,734,058
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
- 3 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Year Ended
December 31,
--------------------------
1998 1997
----------- -----------
SALES $ 9,689,207 $ 6,137,315
COST OF SALES 2,850,042 1,752,572
----------- -----------
GROSS PROFIT 6,839,165 4,384,743
RESTAURANT OPERATING EXPENSES 5,565,041 3,413,055
----------- -----------
INCOME FROM OPERATING RESTAURANTS 1,274,124 971,688
OTHER CORPORATE EXPENSES 594,682 749,669
----------- -----------
INCOME FROM OPERATIONS 679,442 222,019
----------- -----------
OTHER INCOME (EXPENSE)
Interest income - 347
Interest expense (161,371) (108,396)
Pre-opening expenses (212,261) (366,755)
Depreciation and amortization (320,685) (194,202)
Other expense - (48,000)
----------- -----------
Total other expense (694,317) (717,006)
----------- -----------
LOSS BEFORE INCOME TAXES, CUMULATIVE
EFFECT OF ACCOUNTING CHANGES AND
MINORITY INTEREST (14,875) (494,987)
(PROVISION) BENEFIT FOR INCOME TAXES (10,331) 1,333
----------- -----------
LOSS BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGES AND MINORITY INTEREST (25,206) (493,654)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE,
Net of income taxes of $0 (28,198) -
----------- -----------
NET LOSS BEFORE MINORITY INTEREST (53,404) (493,654)
MINORITY INTEREST (27,168) (18,667)
----------- -----------
NET LOSS $ (80,572) $ (512,321)
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
- 4 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For The Year Ended
December 31,
--------------------
1998 1997
------ ------
<S> <C> <C>
LOSS PER COMMON SHARE
BASIC:
Loss before cumulative effect of accounting change $(0.01) $(0.15)
Cumulative effect of accounting change (0.01) -
------ ------
Net loss $(0.02) $(0.15)
====== ======
DILUTIVE:
Loss before cumulative effect of accounting change $(0.01) $(0.15)
Cumulative effect of accounting change (0.01) -
------ ------
Net loss $(0.02) $(0.15)
====== ======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
- 5 -
<PAGE>
<TABLE>
<CAPTION>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock Common Stock Additional Total
-------------------- -------------------- Paid-in Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Equity (Deficit)
------ ------ ------ ------ ------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1996 125,000 $ 375 3,139,839 $ 9,420 $765,649 $ (648,145) $ 127,299
Issuance of common stock - - 300,000 900 219,100 - 220,000
Return of stock issued - (66,662) (200) (2,300) - (2,500)
Distributions - - - - - (6,697) (6,697)
Net loss - - - - - (512,321) (512,321)
---------- --------- --------- ------- -------- ----------- ---------
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)
========== ========= ========= ======= ======== =========== =========
</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
<TABLE>
<CAPTION>
For The Year Ended
December 31,
------------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(80,572) $ (512,321)
Adjustments to reconcile net loss to
Net cash provided (used) by operating activities:
Depreciation and amortization 320,685 194,202
Cumulative effect of accounting change 28,198 -
Minority interest 27,168 18,667
Cancellation of stock issued - (2,500)
(Increase) Decrease in:
Accounts receivable 19,583 (24,094)
Inventory (53,626) (36,660)
Prepaid expenses and other current assets 103,817 (62,500)
Organization costs - (28,225)
Other assets (15,692) (25,825)
(Decrease) Increase in:
Increase in bank overdraft 49,185 84,789
Accounts payable & accrued expenses (65,640) 399,613
-------- -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 333,106 5,146
-------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (737,578) (1,205,691)
-------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in debt 254,961 439,039
Increase in capital lease payable 17,008 60,883
Due to related party 131,749 456,038
Partner distributions (16,394) (6,697)
Contribution to capital - 220,000
-------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 387,324 1,169,263
-------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (17,148) (31,282)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 49,469 80,751
-------- -----------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 32,321 $ 49,469
======== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
- 7 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Year Ended
December 31,
---------------------
1998 1997
------- ------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest expense $98,621 $7,835
======= ======
Income taxes $ 5,240 $2,752
======= ======
NON-CASH INVESTING AND FINANCING ACTIVITIES:
December 31, 1998
On September 30, 1998, a preferred stockholder of the Company converted 125,000
shares of preferred stock for 625,000 shares of common stock.
As of December 31, 1998, the Company incurred a $28,198 expense relating to a
cumulative effect of an accounting change as to the treatment of organization
costs. See Note 1(s).
December 31, 1997
As of December 31, 1997, the Company cancelled 66,662 shares of its common
stock. The common stock was originally issued for consulting services. These
services were never performed.
The accompanying notes are an integral part of the consolidated financial
statements.
- 8 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
a) Basis of presentation
The accompanying financial statements have been prepared in
accordance with generally accepted accounting principles and
with the instructions to Form 10-KSB and Regulation S-B.
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:
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);
3) Affair Restaurant, Inc. ("Chicago"), d/b/a Shark Bar
Restaurant Chicago, purchased on January 10, 1997 (See
Note 8), (owned 100% by the Company);
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.
b) Line of business
The Company operates restaurants in New York, NY, Los Angeles,
CA, Chicago, IL and Atlanta, GA, specializing in Southern
cuisine. (See Note 15).
- 9 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (continued)
c) Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
d) Reclassifications
Certain prior year amounts have been reclassified to conform
with current year presentation.
e) Cash and cash equivalents
The Company considers all highly liquid investments purchased
with original maturities of three months or less to be cash
equivalents.
f) Accounts receivable
Accounts receivable consist of charges due from credit card
companies and others. As of December 31, 1998 and 1997, no
allowance for doubtful accounts is necessary.
g) Inventory
Inventory is valued at the lower of cost or market under the
FIFO method of costing.
h) Property and equipment
Property and equipment is valued at cost and is depreciated
over the assets estimated useful lives, utilizing the straight
line method. Leasehold improvements are amortizable over the
life of the lease.
i) Concentration of credit risk
The Company places its cash in what it believes to be
credit-worthy financial institutions. However, cash balances
exceed FDIC insured levels at various times during the year.
j) Advertising costs
Advertising costs are expensed as incurred and included in
restaurant operating expenses. For the years ended December
31, 1998 and 1997, advertising expense amounted to $62,001 and
$46,231.
- 10 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (continued)
k) Pre-Opening expenses
Pre-opening expenses consist of various expenses relating to
the opening of Chicago, LA and Atlanta prior to their opening
to the general public and have been expensed.
l) Income taxes
Income taxes are provided for based on the liability method of
accounting pursuant to Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes". The
liability method requires the recognition of deferred tax
assets and liabilities for the expected future tax
consequences of temporary differences between the reported
amount of assets and liabilities and their tax basis.
m) Fair value of financial instruments
The Company's financial instruments consist of cash, accounts
receivable, inventory, accounts payable and accrued expenses,
and long-term debt. The carrying amounts of cash, accounts
receivable and accounts payable and accrued expenses
approximate fair value due to the highly liquid nature of
these short-term instruments. The fair value of long-term
borrowings was determined based upon interest rates currently
available to the Company for borrowings with similar terms.
The fair value of long-term borrowings approximates the
carrying amounts as of December 31, 1998 and 1997.
n) Long-lived assets
SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" requires
that long-lived assets be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The Company has
adopted this statement and has determined that recognition of
an impairment loss for applicable assets of continuing
operations is not necessary.
o) Stock-based compensation
SFAS No. 123, "Accounting for Stock-Based Compensation",
encourages, but does not require companies to record
compensation cost for stock-based employee compensation plans
at fair value. The Company has chosen to continue to account
for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and related
Interpretations. Accordingly, compensation cost for stock
options is measured as the excess, if any, of the quoted
market price of the Company's stock at the date of the grant
over the amount an employee must pay to acquire the stock.
- 11 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (continued)
p) Loss per share
During 1997, SFAS No. 128, "Earnings Per Share" was issued,
which requires presentation of basic loss per share ("Basic
LPS") and diluted loss per share ("Diluted LPS").
The computation of basic earnings per share is computed by
dividing loss available to common stockholders by the weighted
average number of outstanding common shares during the period.
Diluted loss per share gives effect to all dilutive potential
common shares outstanding during the period. The computation
of diluted LPS does not assume conversion, exercise or
contingent exercise of securities that would have an
anti-dilutive effect on losses.
The shares used in the computation were as follows:
December 31,
---------------------------
1998 1997
--------- ---------
Basic 3,530,711 3,353,994
========= =========
Diluted 3,530,711 3,353,994
========= =========
q) Comprehensive income
SFAS No. 130, "Reporting Comprehensive Income", establishes
standards for the reporting and display of comprehensive
income and its components in the financial statements. As of
December 31, 1998, the Company has no items that represent
comprehensive income, and therefore has not included a
schedule of comprehensive income in the financial statements.
r) Impact of year 2000 issue
During the year ended December 31, 1998, the Company conducted
an assessment of issues related to the Year 2000 and
determined that it was necessary to modify or replace portions
of its software in order to ensure that its computer systems
will properly utilize dates beyond December 31, 1999. The
Company expects to complete any Year 2000 systems
modifications and conversions by the beginning of 1999.
Currently, the Company does not expect costs associated with
becoming Year 2000 compliant to be material. At this time, the
Company cannot determine the impact the Year 2000 will have on
its key customers or suppliers. If the Company's customers or
suppliers don't convert their systems to become Year 2000
compliant, the Company may be adversely impacted. The Company
is addressing these risks in order to reduce the impact on the
Company.
- 12 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
s) Recent accounting pronouncements
Additionally, during 1998, SFAS No. 131, "Disclosure About
Segments of an Enterprise and Related Information" was issued,
which changes the way public companies report information
about segments. SFAS No. 131, which is based on the selected
segment information, requires quarterly and entity-wide
disclosures about products and services, major customers, and
the material countries in which the entity holds assets and
reports revenues. This statement is effective for the
Company's 1998 fiscal year.
SFAS No. 132, "Employers' Disclosures about Pension and Other
Post Employment Benefits," was issued in February 1998 and
specifies amended disclosure requirements regarding such
obligations. SFAS No. 132 does not effect the Company as of
December 31, 1998.
In March 1998, Statement of Position No. 98-1 was issued,
which specifies the appropriate accounting for costs incurred
to develop or obtain computer software for internal use. The
new pronouncement provides guidance on which costs should be
capitalized, and over what period such costs should be
amortized and what disclosures should be made regarding such
costs. This pronouncement is effective for fiscal years
beginning after December 15, 1998, but earlier application is
acceptable. Previously capitalized costs will not be adjusted.
The Company believes that it is already in substantial
compliance with the accounting requirements as set forth in
this new pronouncement, and therefore believes that adoption
will not have a material effect on financial condition or
operating results.
In April 1998, Statement of Position No. 98-5 was issued which
requires that companies write-off previously defined
capitalized start-up costs including organization costs and
expense future start-up costs as incurred. The Company had
capitalized certain organization costs in prior periods.
Effective January 1, 1998, the Company recorded a non-cash
charge of $28,198 to reflect the cumulative effect of the
accounting change.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and for Hedging Activities". This new
pronouncement requires that certain derivative instruments be
recognized in balance sheets at fair value and for changes in
fair value to be recognized in operations. Additional guidance
is also provided to determine when hedge accounting treatment
is appropriate whereby hedging gains and losses are offset by
losses and gains related directly to the hedged item. While
the standard, as amended, must be adopted in the fiscal year
beginning after June 15, 2000, its impact on the Company's
consolidated financial statements is not expected to be
material as the Company has not historically used derivative
and hedge instruments.
- 13 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 2 - INVENTORY
Inventory consisted of the following:
December 31,
--------------------
1998 1997
-------- -------
Food $ 31,862 $23,709
Beverage 88,913 43,440
-------- -------
$120,775 $67,149
======== =======
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
1998 1997
----------- ----------
<S> <C> <C>
Furniture, Fixtures and Equipment $ 2,052,813 $1,415,233
Leasehold Improvement 745,220 647,527
----------- ----------
2,798,033 2,062,760
Less: Accumulated Depreciation (1,070,857) (748,446)
----------- ----------
Property and equipment, net $ 1,727,176 $1,314,314
=========== ==========
</TABLE>
Depreciation expense for the years ending December 31, 1998
and 1997 was $320,685 and $194,202, respectively.
NOTE 4 - RELATED PARTY TRANSACTION
Due to related parties consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1997
-------- --------
<S> <C> <C>
Advances from an officer of the Company,
payable on demand. It is intended that
these advances will be repaid in more than
one year. Interest has been accrued on
these advances at 10% per annum. $405,463 $214,207
Advances from an officer of the Company.
These advances are convertible into preferred
stock. (See Note 8). Interest has been
accrued on these advances at 10% per annum. 335,000 335,000
Partner loans to Avenue A Restaurant
Associates, L.P. Interest is being accrued
at 10% per annum to the limited partners. 6,653 66,160
-------- --------
$747,116 $615,367
======== ========
</TABLE>
- 14 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 5 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1997
--------- --------
<S> <C> <C>
Working capital loan from Citibank, bearing interest at 11.5%
per annum on the outstanding balance, payable in monthly
installments of $913 principal only with interest accrued,
maturing in January, 1999. $ 1,826 $ 11,865
The Company received a $100,000 note from an outside investor
in February 1997, with interest payable at 10% per annum. The
note was due, and paid, February 4, 1999. Interest is due
semi-annually and any unpaid amounts have been accrued. 100,000 100,000
The Company also received $350,000 from the sale of
convertible secured notes to two entities in May 1997 with
interest payable at 10% per annum. The notes are due $100,000
by December 31, 1999 and $250,000 by May 21, 2001. Interest
is due semi-annually and any unpaid amounts have been
accrued.
(See Note 11) 350,000 350,000
The Company also 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 are due January 26, 2000. Interest is due semi-annually
and any unpaid amounts have
been accrued. (See Note 11) 265,000 -
--------- --------
Total 716,826 461,865
Less: Current Portion (201,826) (10,956)
--------- --------
Long-Term Debt $ 515,000 $450,909
========= ========
</TABLE>
- 15 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 6 - INCOME TAXES
The components of the provision (benefit) for income taxes is
as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1998 1997
------- -------
<S> <C> <C>
Current tax expense
U.S. federal $ - $ -
State and local 10,331 (1,333)
------- -------
Total current 10,331 (1,333)
Tax benefit of net operating loss carryforwards - -
------- -------
Provision (benefit) for income taxes 10,331 (1,333)
------- -------
Deferred tax expense
U.S. federal - -
State and local - -
------- -------
Total deferred - -
------- -------
Total provision (benefit) from continuing operations $10,331 $(1,333)
======= =======
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%
======= =======
</TABLE>
At December 31, 1998, the Company had net carryforward losses
of approximately $1,250,000. 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.
- 16 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 6 - INCOME TAXES (continued)
Deferred tax assets and liabilities reflect the net tax effect
of temporary differences between the carrying amount of assets
and liabilities for financial reporting purposes and amounts
used for income tax purposes. Significant components of the
Company's deferred tax assets and liabilities at December 31,
1998 are as follows:
Deferred tax assets
Loss carryforwards $ 425,000
Less: Valuation allowance (425,000)
---------
Net deferred tax assets $ -
=========
Net operating loss carryforwards expire starting in 2008
through 2013. Per year availability is subject to change of
ownership limitations under Internal Revenue Code Section 382.
NOTE 7 - 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:
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
------ ------
<S> <C> <C>
1999 $ 434,407 $ 40,020
2000 348,262 40,020
2001 351,566 23,016
2002 357,903 7,029
2003 302,055 -
2004 and thereafter 2,896,604 -
---------- --------
Total minimum lease payments $4,690,797 110,085
==========
Less: Amounts representing interest (26,661)
---------
Present value of future minimum lease payments 83,424
Less: Current maturities (28,932)
---------
Total $ 54,492
=========
</TABLE>
Rent expense under operating leases for the years ended
December 31, 1998 and 1997 was $511,848 and $313,572,
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 $30,000, and
accordingly, has established a reserve included in accounts
payable and accrued expenses.
- 17 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 8 - ACQUISITION
On January 10, 1997, the Company purchased the "Affair Club"
in Chicago, Ill. from Affair, L.P. for $335,000. The President
of the Company has financed this purchase with a loan at 10%
interest to the Company which will be convertible into
Preferred Stock. (See Note 4). The purchase was for the lease,
restaurant assets and licenses of the Affair Club. The Affair,
L.P. partners have no connection to the new club.
NOTE 9 - MINORITY INTEREST
The Company, through its subsidiary 7 West, is the general
partner in Avenue A. 7 West owns a 60% general partnership
interest and a 2% limited partnership interest. Accordingly,
the minority interest represents a 38% limited partnership
interest. As of December 31, 1998 and 1997, the minority
interest equals $45,835 and $18,667, respectively.
NOTE 10 - STOCKHOLDERS' EQUITY
Preferred stock
On December 30, 1996, the Board of Directors of the Company
approved the issuance of 125,000 shares of non-voting
preferred stock in exchange for a reduction in the amount owed
to a stockholder. Beginning January 1, 1997, the holder of the
preferred stock may convert each share of Preferred Stock into
five shares of common stock. On September 30, 1998, that
stockholder converted his preferred stock for 625,000 shares
of common stock.
Common stock
The Stock Certificate issued to Onyx Financial Group, Inc. for
200,000 shares of Common Stock (representing 66,667 shares
after the December 1996 1 for 3 reverse split) was cancelled
on July 24, 1997.
NOTE 11 - CONVERTIBLE NOTES PAYABLE
On May 21, 1997, Chicago sold an aggregate of $350,000 of 10%
Convertible Secured Notes (the "Notes"). The notes bear
interest at the rate of 10% per annum on the principal sum
outstanding and mature on May 21, 1999 (maturity of this note
was extended to September 15, 2000). Interest is payable
semi-annually on June 30 and December 31. The holders of the
Notes are entitled, at their option at any time, to convert
any or all of the original principal amount of the 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.
-18 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 11 - CONVERTIBLE NOTES PAYABLE (continued)
On January 26, 1998, Atlanta sold an aggregate of $265,000 of
8% Convertible Secured Notes (the "Notes"). The notes bear
interest at the rate of 8% per annum on the principal sum
outstanding and mature on January 26, 2000. Interest is
payable semi-annually on June 30 and December 31. The holders
of the Notes are entitled, at their option at any time, to
convert any or all of the original principal amount of the
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.
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 12 - WARRANTS
The Company has issued outstanding warrants to purchase up to
243,000 shares of common stock.
On February 4, 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 February
4, 2000 exercise price of $1.00 per share (subject to
customary anti-dilution adjustments). The warrant was not
exercised.
- 19 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 12 - WARRANTS (continued)
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). The warrant was not
exercised.
On May 21, 1997, in connection with the sale of $350,000 of
10% Convertible Secured Notes described in Note 5, the Company
issued warrants to purchase up to 35,000 shares of Common
Stock. The warrants are exercisable on or before May 21, 2000
an exercise price of $1.00 per share (subject to customary
anti-dilution adjustments). The warrant was not exercised.
On January 28, 1998, in connection with the sale of $265,000
of 8% Convertible Secured Notes described in Note 5, the
Company issued warrants to purchase up to 26,500 shares of
Common Stock. The warrants are 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.
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.
NOTE 13 - OPTIONS
The Avenue A Restaurant Associates partners have options to
purchase 1 share of the Company's Common Stock at $1.00 per
share for each $6.00 invested.
NOTE 14 - SEGMENT INFORMATION
During 1998 and 1997, the Company had six reportable
restaurant segments and one management company;
a) SRC
b) LA
c) Chicago
d) Atlanta
e) Avenue A
f) 7 West (management company)
- 20 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 14 - SEGMENT INFORMATION (continued)
Soulfood Concepts, Inc. and Subsidiaries:
<TABLE>
<CAPTION>
Year Ended
December 31,
-------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Sales:
SRC $ 2,681,064 $ 2,723,191
LA 1,723,305 605,377
Chicago 2,110,756 1,677,683
Atlanta 1,992,512 -
7 West - -
Avenue A 1,181,570 1,131,064
----------- -----------
Total sales $ 9,689,207 $ 6,137,315
=========== ===========
Cost of sales:
SRC $ 714,708 $ 725,725
LA 557,569 202,282
Chicago 659,816 518,089
Atlanta 584,838 -
7 West - -
Avenue A 333,111 306,476
------------ -----------
Total cost of sales $ 2,850,042 $ 1,752,572
============ ===========
Gross profit:
SRC $ 1,966,356 $ 1,997,466
LA 1,165,736 403,095
Chicago 1,450,940 1,159,594
Atlanta 1,407,674 -
7 West - -
Avenue A 848,459 824,588
----------- -----------
Gross profit $ 6,839,165 $ 4,384,743
=========== ===========
Restaurant operating expenses:
SRC $ 1,260,038 $ 1,293,362
LA 1,076,597 394,861
Chicago 1,316,579 1,078,017
Atlanta 1,140,267 -
7 West 69,864 -
Avenue A 719,262 646,815
Corporate (17,566) -
----------- -----------
Total restaurant operating expenses $ 5,565,041 $ 3,413,055
=========== ===========
</TABLE>
- 21 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 14 - SEGMENT INFORMATION (continued)
<TABLE>
<CAPTION>
Year Ended
December 31,
-------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Other corporate expenses:
SRC $ - $ -
LA - -
Chicago - -
Atlanta - -
7 West - -
Avenue A - -
Corporate 594,682 749,669
----------- -----------
Total other corporate expenses $ 594,682 $ 749,669
=========== ===========
Income (loss) from operations:
SRC $ 706,318 $ 704,104
LA 89,139 8,234
Chicago 134,361 81,577
Atlanta 267,407 -
7 West (69,864) -
Avenue A 129,197 177,773
Corporate (577,116) (749,669)
----------- -----------
Income from operations: $ 679,442 $ 222,019
=========== ===========
Identifiable assets:
SRC $ 162,083 $ 246,576
LA 553,143 625,914
Chicago 510,174 609,578
Atlanta 575,322 -
7 West 60 -
Avenue A 136,814 175,691
Corporate 113,927 76,299
----------- -----------
Total assets $ 2,051,523 $ 1,734,058
=========== ===========
Depreciation and amortization expense:
SRC $ 52,752 $ 56,871
LA 53,449 17,660
Chicago 101,769 90,034
Atlanta 76,294 -
7 West - -
Avenue A 27,091 28,191
Corporate 9,330 1,446
----------- -----------
Total depreciation and amortization expense $ 320,685 $ 194,202
=========== ===========
</TABLE>
- 22 -
<PAGE>
SOULFOOD CONCEPTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 15 - SUBSEQUENT EVENTS
On June 30, 1999, the Company permanently closed the
operations of its LA restaurant. This closure was a result of
the Company's efforts to reorganize their operations. The
Company is currently in negotiations to sell its LA lease
space.
Additionally, also on July 30, 1999, the Company temporarily
closed the operations of its Chicago restaurant. Employees
have been retained as the Company is in the process of
redeveloping its concept. Chicago should be opened during the
first quarter of 2000.
In July 1999 an officer/stockholder loaned the Company an
additional $100,000 payable on demand with interest at 8%.
- 23 -
