-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SOMhqnI28Uvi/Y7D/meGqzbfG55ykDyDOE9OoNF7sPUqgYXLR7VprMX4B1jsGS3z l11edY0LraRYiP1wnAPOAg== 0000889297-98-000031.txt : 19980518 0000889297-98-000031.hdr.sgml : 19980518 ACCESSION NUMBER: 0000889297-98-000031 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CREATIVE HOST SERVICES INC CENTRAL INDEX KEY: 0000933098 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 330169494 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-22845 FILM NUMBER: 98622014 BUSINESS ADDRESS: STREET 1: 6335 FERRIS SQUARE STREET 2: STES G-H CITY: SAN DIEGO STATE: CA ZIP: 92126 BUSINESS PHONE: 6195877300 MAIL ADDRESS: STREET 1: 6335 FERRIS SQUARE STREET 2: STES G-H CITY: SAN DIEGO STATE: CA ZIP: 92126 10QSB 1 CREATIVE HOST SERVICES, INC. 10QSB SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 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, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 000-22845 --------- CREATIVE HOST SERVICES, INC. (Exact name of registrant as specified in its charter) California 33-0169494 (State or other jurisdiction (I.R.S. Employer of organization) Identification No.) 6335 Ferris Street, Suite G-H San Diego, CA 92126 (Address of principal executive offices) (619) 587-7300 (Issuer's telephone number, including area code) Not Applicable (Former name, address and fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 [ ] State the number of shares outstanding of each of the issuer's classes of common equity as of the latest practicable date. As of May 8, 1998, 3,098,492 shares of the registrant's common stock were outstanding. Traditional Small Business Disclosure Format (check one) YES [x] NO [ ] 1 Part I - Financial Information Item 1. Financial Statements The following financial statements are furnished: Balance sheet as of March 31, 1998 Statement of Operations for the three months ended March 31, 1998 and 1997 Statement of Cash Flows for the three months ended March 31, 1998 and 1997 Notes to Financial Statements (unaudited) 2 CREATIVE HOST SERVICES, INC. BALANCE SHEET AS OF MARCH 31, 1998 ASSETS Current assets: Cash $ 629,618 Receivables 538,932 Inventory 344,899 Prepaid & Other 96,377 --------- Total current assets $1,609,826 Net Property Plant and Equipment 5,392,755 Deposits and other assets 109,074 Net Intangible Assets 19,359 ---------- Total Assets $7,131,014 ========== LIABILITIES AND SHAREHOLDER'S EQUITY Current liabilities: Accounts payable and accrued $ 1,321,971 Current maturities of notes payable 33,686 Current maturities of leases payable 380,472 ----------- Total current liabilities $1,736,129 Notes payable, less current maturities 111,907 Leases payable, less current maturities 667,836 Shareholder's equity: Common stock 5,820,514 Additional paid-in capital 857,539 Deficiency (2,062,909) ------------ Total shareholder's equity $4,615,142 ------------ Total Liabilities and Stockholder's Equity $7,131,014 ============
See accompanying independent auditors' report and notes to financial statements. 3 CREATIVE HOST SERVICES, INC. STATEMENT OF INCOME AND OPERATIONS Three Months Ended Thee Months Ended March 31, 1997 March 31, 1998 -------------------------------------------------- Revenues: Concessions $1,868,275 $3,276,590 Food Preparation Center Sales 154,998 165,023 Franchise Royalties 32,509 14,301 -------------------------------------------------- Total revenues 2,055,782 3,455,914 Cost of goods sold 676,268 1,054,327 -------------------------------------------------- Gross profit 1,379,514 2,401,587 -------------------------------------------------- Operating costs and expenses: Payroll and other employee benefits 666,063 1,047,977 Occupancy 308,450 529,955 General and administrative 321,160 660,342 -------------------------------------------------- Total operating costs and expenses 1,295,673 2,238,274 -------------------------------------------------- Income from operations 83,841 163,313 -------------------------------------------------- Interest expense - net 65,327 37,734 Other income 0 (272) -------------------------------------------------- Net income $ 18,514 $ 125,307 ================================================== Net income per share, basic and diluted 0.02 0.04 ==================================================
See accompanying notes to financial statements. 4 CREATIVE HOST SERVICES, INC. STATEMENTS OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS Three Months Ended March 31 ----------------------------------------------------------------- 1997 1998 ----------------------------------------------------------------- Cash flows provided by (used for) operating activities: Net income $ 18,514 $ 125,307 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 49,360 106,443 Change in operating assets and liabilities: Accounts Receivable 18,692 (114,756) Inventory 24,766 (17,495) Prepaid expenses and other current assets 1,746 (66,867) Accounts payable and accrued expenses 32,335 24,094 ------------------------------------------------------------------ Net cash provided by operating activities 145,413 56,726 Cash flows provided by (used for) investing activities: Acquisition of furniture and equipment (794,883) (443,098) (Increase) decrease in deposit (11,031) 29,910 Decrease in intangible assets 21,250 5,058 ------------------------------------------------------------------ Net cash used for investing activities (784,664) (408,130) Cash flows provided by (used for) financing activities: Net proceeds from leases payable -- (95,797) Payments on notes payable (313,143) (32,410) Issuance of capital stock 2,117,637 Dividend paid (30,500) Review/audit adjustments (322,622) ------------------------------------------------------------------- Net cash provided by (used for) financing activities 1,451,372 (128,207) ------------------------------------------------------------------- Net increase (decrease) in cash 812,121 (479,611) Cash, beginning of the year 75,549 1,109,229 ------------------------------------------------------------------- Cash ending of the period $ 887,670 $ 629,618 ===================================================================
See accompanying notes to financial statements. 5 CREATIVE HOST SERVICES, INC. Notes Condensed Financial Statements The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principals for interim financial statements. Accordingly, they do not include all of the information and disclosures required for annual financial statements. These financial statements should be read in conjunction with the consolidated financial statements and related footnotes for the year ended December 31, 1997, included in the Creative Host Services, Inc. 10-KSB. In the opinion of the Company's management, all adjustments (consisting of normal recurring accruals) necessary to represent fairly the Company's financial position as of March 31, 1998 and the results of operations and cash flows for the three month period ended March 31, 1998 and 1997 have been included. The results of operations for the three month period ended March 31, 1998 are not necessarily indicative of the results to be expected for the full fiscal year. Net Income per share amounts have been calculated using the weighted average number of common shares outstanding. Stock options have been excluded as common stock equivalents because of their antidilutive or non-material effect. 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. Item 2. Management's Discussion and Analysis or Plan of Operation With the exception of historical matters, the matters discussed in this commentary are forward looking statements that involve risks and uncertainties. Forward looking statements include, but are not limited to, statements concerning anticipated trends in revenues, the future mix of Company revenues, the ability of the Company to reduce certain operating expenses as a percentage of total revenues, the ability of the Company to reduce General and Administrative Expenses as a percentage of total sales, and the potential increase in net income and cash flow The Company's actual results could differ materially from the results discussed in such forward looking statements. Factors that could cause or contribute to such differences include the inability to obtain the substantial additional capital necessary to complete construction of capital improvements awarded under existing concession agreements, possible early termination of existing concession contracts, possible delay in the commencement of concession operations at newly awarded concession facilities, the need and ability to attract and retain qualified management to manage operations, the need to obtain continuing approvals from government regulatory authorities, the term and conditions of any potential merger or acquisition of existing airport concession operations. Overview The Company commenced business in 1987 as an owner, operator and franchisor of French style cafes featuring hot meal croissants, fresh roasted gourmet coffee, fresh salads and pastas, fruit filled pastries, muffins and other bakery products. The Company currently has 9 restaurant franchises which operate independently from its airport concession business. Since 1994, the Company has opened 28 concession locations at 13 airports. As a result of this transition in its business, the Company's historical revenues have been derived from three principal sources: airport concession revenues, restaurant franchise royalties and wholesale sales from its food preparation center. These revenue categories comprise a fluctuating percentage of total revenues from year to year. Over the past three 6 years, revenues from concession operations have grown from 59% of total revenues in 1995 to 92% of total revenues in 1997. Capital improvement costs incurred to meet the requirements of new airport concession contracts have placed substantial demands on the Company's working capital. In February 1997, the Company completed a private placement of Convertible Preferred Stock and private warrants, which raised proceeds of approximately $2,031,000 from these offerings. In July 1997, the Company completed an initial public offering of its Common Stock, raising gross proceeds of approximately $5.2 million. Nearly all of the proceeds were used to redeem the reconvertable Preferred Stock and to complete capital improvements at awarded concession locations. The Company expects to continue to have significant capital requirements in 1998 to finance the construction of new airport concessions, restaurants and other concession related businesses such as news & gifts, specialty, inflight catering and other services, including the ones already awarded in California, Colorado, New York, North Carolina, Iowa, South Dakota and Texas. Furthermore, the Company will have additional capital requirements to the extent that it wins additional contracts from its current and future airport concession bids. Result of Operations The following tables sets forth for the period indicated selected items of the Company's statement of operations. Fiscal Year Ended Three Months Ended December 31, March 31, 1995 1996 1997 1997 1998 --------------------------------------------------------------------- Revenues: Concessions 59% 85% 92% 91% 95% Food Preparation Center Sales 33 13 7 7 4 Franchise Royalties 8 2 1 2 1 -------------------------------------------------------------------- Total Revenues 100% 100% 100% 100% 100% Cost of Goods Sold 31 31 32 33 31 -------------------------------------------------------------------- Gross Profit 69 69 68 67 69 Operating Costs and Expenses: Payroll and Employee Benefits 33 31 36 32 30 Occupancy 20 19 18 15 15 General and Administrative 22 12 12 16 19 Interest Expense 3 3 2 3 1 Other (Income) Loss 19 0 0 0 0 -------------------------------------------------------------------- Net Income (Loss) (28)% 4% 0% 1% 4% ====================================================================
7 Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997 Revenues. The Company's gross revenues for the three months ended March 31, 1998 were $3,455,914 compared to $2,055,782 for the three months ended March 31, 1997, an increase of $1,400,132 or 68%. Revenues from concession activities increased $1,408,315 ($3,276,590 as compared to $1,868,275) while food preparation center revenues increased slightly by $18,845 ($165,023 as compared to $154,997), and franchise royalty revenues decreased by $18,208 ($14,301 as compared to $32,509). The increase in concession revenues was principally attributable to the completion of newly awarded airport locations. Same store sales for concession locations that were open for the full three month period ended March 31, 1997 increased 9.6% from $1,827,906 to $2,004,292. Franchise royalty revenues declined principally as a result of the Company's acquisition of a Denver franchise. Cost of Goods Sold. The cost of goods sold for the three months ended March 31, 1998 were $1,054,327 compared to $676,268 for the three months ended March 31, 1997. As a percentage of total revenue, the cost of goods sold decreased to 30.5% from 32.9%. The Company's costs of goods sold are primarily food costs. Those costs are generally higher as a percentage of revenues on the opening of a new facility until the Company establishes stable patterns of demand for its products. The relatively high costs of goods sold for the three month period ended March 31, 1997 was attributable to expanded operations of newly remodeled facilities which opened during the period. The Company believes that costs of goods sold of 30% of total revenues represents a relatively sustainable level. Management hopes to be able to reduce costs of goods sold as a percentage of sales slightly from this figure through increased purchasing power, distribution efficiencies and operating efficiencies. Operating Costs and Expenses. Operating costs and expenses for the three months ended March 31, 1998 were $2,241,274 compared to $1,295,673 for the three months ended March 31, 1997. Payroll expenses increased from $666,063 to $1,050,977 in 1998. As a percentage of total revenue, payroll expense declined from 32.4% for the three months ended March 31, 1997 to 30.4% for the three months ended March 31, 1998. The increase in payroll dollar amounts is due to the addition of new concession facilities while the decrease in labor percentage shows the maturing phase as was seen in costs of goods sold percentage. As the Company continues to grow the affects during startup of new operations will have a smaller impact on the financial performance of the entire Company. General and administrative expenses increased from $321,160 for the three months ended March 31, 1997 to $660,342 for the three months ended March 31, 1998. This increase is related to the expense of placing management into new store locations, the travel associated with rapid growth and costs associated with operating as a publicly traded corporation. This should reduce as operations continue to mature. The Company intends to hire additional administrative staff commensurate with its growth. Consequently, general and administrative expenses should continue to increase in dollar amount but should not represent a greater percentage of total revenue. Interest Expense. Interest expense net decreased from $65,327 in the quarter ended March 31, 1997 to $37,734 in the quarter ended March 31, 1998 as a result of reduced debt due to proceeds from the Company's initial public offering. Net Income. Net income for the three months ended March 31, 1998 was $126,307 compared to $18,514 for the three months ended March 31, 1997. Management attributes this increase to income derived from newly opened concession locations and to increased revenues from locations which were remodeled during the interim period. The Company anticipates that net income from existing operations will continue to increase commensurate with cost savings that result from economics of scale and efficiencies obtained at the operating level. The Company expects to open additional concession locations in 1998 and has already committed to open an additional 8 locations under existing contracts. While management does not expect newly opened locations to operate with the efficiency of more established locations, it does hope to diminish the effect of start up costs through its increased experience in opening new locations and other operating efficiencies. The Company does not believe that inflation has had an adverse affect on its revenues and earnings. 8 Liquidity and Capital Resources Substantially all of the Company's concession locations have been obtained in the last two years, which has resulted in significant capital needs. As a result, the Company has been required to seek capital, and to apply capital from operations, for the construction of capital improvements at newly awarded concession locations. The Company intends to continue to bid for concession locations, including bidding on larger proposals. Anticipated cash flows from operations will not be sufficient to finance new acquisitions at the level of growth that the Company has experienced over the past two years. Accordingly, to the extent the Company is successful in securing new concession contracts, the Company will continue to need additional capital, in addition to cash flow from operations, in order to finance the construction of capital improvements. As of March 31, 1998, the Company had working capital of $(126,303). The Company expects to continue to have significant capital requirements in 1998 and 1999 to finance the construction of new airport food and beverage concessions and other concessions related businesses (i.e., news & gifts, inflight catering and other services). The Company anticipates capital requirements of approximately $4.9 million in Fiscal 1998 to complete the construction of improvements at concession facilities which it has already been awarded in California, Colorado, Iowa, New York, North Carolina, South Dakota and Texas. The Company has an immediate need for additional capital to fund the construction of capital improvements at several of those airports. The Company is actively evaluating potential financing arrangements with a number of commercial banks as well as possible placements of debt or equity, or some combination of those financings in order to meet its capital needs. On March 13, 1998, the Company borrowed $250,000 from an unaffiliated third party to fund construction of capital improvements under the terms of a Promissory Note. The Note is due the earlier of December 15, 1998, or the date on which the Company completes the sale of debt or equity. The Company estimates that existing capital and cash flow will be sufficient to continue construction scheduled for the next four to six weeks. While management believes, based on the status of discussions with various commercial banks and investment bankers, that it has several financing alternatives available to it, the Company has not yet secured a commitment for such funding, and neither the ultimate amount of any such financing nor the terms of such financing are known at this time. If the Company fails to secure additional funding it will have to delay construction and may lose airport concessions previously awarded to it. Part II- Other Information Item 1. Litigation and Contingencies In the ordinary course of business, the Company may become involved in disputes or litigation. On the basis of information available, management does not believe that such contingencies would have a material adverse impact on the Company's financial position or results of operations. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CREATIVE HOST SERVICES, INC. Date: May 15, 1998 /s/ Sayed Ali ------------------------------------- Sayed Ali, President and Chief Financial Officer 9 EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1996 MAR-31-1998 629,618 0 547,744 8,807 344,899 1,609,826 6,291,253 898,498 7,131,014 1,736,129 0 0 0 6,678,053 (2,062,908) 7,131,014 0 3,455,914 1,054,327 2,238,274 272 0 37,734 125,308 0 125,308 0 0 0 125,308 .04 0
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