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
June 30, 1997
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 September 8, 1997, 3,078,385 shares of the registrant's common stock
were outstanding.
Traditional Small Business Disclosure Format (check one)
YES [x] NO [ ]
1
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
The following financial statements are furnished:
Balance sheet for the period December 31, 1996 to June 30, 1997
Statement of Operations for the six months ended June 30, 1997 and 1996
Statement of Shareholder's Equity (Deficit)
Statement of Cash Flow for the six months ended June 30, 1997 and 1996
Notes to Financial Statements (unaudited)
2
<PAGE>
CREATIVE HOST SERVICES, INC.
BALANCE SHEET
December 31, 1996 and June 30, 1997
<TABLE>
December 31, 1996 June 30, 1997
----------------------------------------
<S> <C> <C>
Cash 1,000 1,000
Receivable, net of allowance of $24,000 349,298 339,044
Inventory 214,287 249,234
Prepaid expenses 18,263 7,261
----------------------------------------
Total current assets 582,848 596,539
Property and equipment, net of accumulated
depreciation 1,984,779 3,328,610
Deposits and other assets 219,551 594,696
Intangible assets 44,277 34,311
----------------------------------------
Total assets 2,831,455 4,554,157
----------------------------------------
Accounts payable and accrued expense 648,393 668,437
Deferred income 17,500 --
Current maturities of note payable 415,746 156,597
Current maturities of leases payable 297,433 334,709
Line of credit -- 24,929
Preferred dividend payable 142,000 209,500
----------------------------------------
Total current liabilities 1,521,072 1,394,172
Note payable, less current maturities 179,261 155,965
Lease payable, less current maturities 1,075,422 928,572
Convertible redeemable 9% 722,635 722,635
Shareholder's equity
Common stock 621,875 621,875
Paid in surplus 857,537 857,537
8% convertible preferred stock -- 2,030,763
Accumulated deficit (2,146,347) (2,157,361)
----------------------------------------
Total shareholder's equity (666,935) 1,352,813
----------------------------------------
Total liabilities and shareholder's equity 2,831,455 4,554,157
----------------------------------------
</TABLE>
3
<PAGE>
CREATIVE HOST SERVICES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
3 months 6 months 3 months 6 months
ended ended ended ended
6/30/96 6/30/96 6/30/97 6/30/97
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Concessions 877,554 1,769,396 1,858,247 3,726,522
Food preparation center sales 132,575 328,179 152,316 307,313
Franchise royalties 38,157 72,522 24,790 57,299
---------------------------------------------------------------------------
Total revenues 1,048,286 2,170,097 2,035,353 4,091,134
---------------------------------------------------------------------------
Cost of goods sold 322,853 698,684 644,225 1,320,492
---------------------------------------------------------------------------
Gross profit 725,433 1,471,413 1,391,128 2,770,641
---------------------------------------------------------------------------
Operating costs and expense:
Payroll and other employee benefits 234,620 573,209 744,520 1,444,164
Occupancy 213,065 449,349 358,967 716,079
Selling, general and administrative 167,553 307,070 192,351 431,268
----------------------------------------------------------------------------
Total operating expense 615,238 1,329,628 1,295,838 2,591,510
Net operating income 110,195 141,785 95,290 179,131
Interest expense (32,160) (66,715) (63,235) (128,563)
Other income 308 308 5,917 5,917
----------------------------------------------------------------------------
Net income 78,343 75,378 37,972 56,486
============================================================================
Net income (loss) applicable to common stock $ 57,628 38,163 972 (11,014)
============================================================================
Net income (loss) per share $ 0.03 0.02 0.00 (0.01)
============================================================================
Weighted average number of shares outstanding 1,736,000 1,736,000 1,760,281 1,760,281
============================================================================
</TABLE>
4
<PAGE>
CREATIVE HOST SERVICES, INC.
STATEMENT OF SHAREHOLDER'S EQUITY (DEFICIT)
<TABLE>
8% Convertible Preferred Total
Common Stock Additional Stock Shareholder's
----------------------- paid in ------------------------ Accumulated Equity
Shares Amount Capital Shares Amount Deficit (Deficit)
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at 12/31/96 1,200,000 621,875 857,537 800,000 2,030,762 (2,146,347) 1,363,827
Net income for the 6 months
ended 6/30/97 56,486 56,486
Dividends payable to preferred
shareholders (67,500) (67,500)
Net proceeds from issuance of
preferred stock
-----------------------------------------------------------------------------------------------
Balance at 6/30/97 1,200,000 621,875 857,537 800,000 2,030,762 (2,157,361) 1,352,813
===============================================================================================
</TABLE>
5
<PAGE>
CREATIVE HOST SERVICES, INC.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
Six Months Ended
---------------------------------------
June 30, 1996 June 30, 1997
---------------------------------------
<S> <C> <C>
Cash flows provided by operating activities:
Net income 75,378 56,486
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization 61,476 106,069
Provision for doubtful accounts 6,000 6,000
Changes in operating assets and liabilities:
Accounts receivable (36,054) 4,254
Inventory (24,388) (34,947)
Prepaid expenses and other current asset 6,457 11,002
Accounts payable and accrued expenses 97,656 20,043
Deferred income -- (17,500)
---------------------------------------
Net cash provided by (used for) operating activities 186,525 151,407
---------------------------------------
Cash flows provided by (used for) investing activities:
Purchased of intangible assets 8,688 0
Acquisition of furniture and equipment (596,566) 1,439,934)
(Increase) decrease in deposit and other asset (72,207) (375,145)
----------------------------------------
Net cash provided by (used for) investing activities (660,085) (1,815,079)
----------------------------------------
Cash flows provided by (used for) financing activities:
Net (payment) proceed from notes payable (23,920) (282,445)
Net (payment) proceed from leases payable 468,319 (109,574)
Sale of preferred stock -- 2,030,762
Line of credit -- 24,929
----------------------------------------
Net cash provided by (used for) financing activities 444,399 1,663,672
----------------------------------------
Net increase (decrease) in cash (29,161) (0)
Cash, beginning of period 131,050 1,000
----------------------------------------
Cash, ending of period 101,889 1,000
----------------------------------------
</TABLE>
6
<PAGE>
CREATIVE HOST SERVICES, INC.
Notes to Interim Condensed Financial Statements
Results of Operations
Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996
Revenues. The Company's gross revenues for the three months ended June
30, 1997 were $2,035,353 compared to $1,048,286 for the three months ended June
30, 1996, an increase of $987,067 or 94%. Revenues increased in 1997 as a result
of the opening of new concessions at airports in the United States in the second
and fourth quarters of 1996 and in the second quarter of 1997. Revenues from
concession activities increased $980,693 ($1,858,247 as compared to $877,554)
while food preparation revenues increased $19,738 ($152,316 as compared to
$132,575), offsetting a slight decrease in franchise royalties of $13,367
($24,790 as compared to $38,157).
Cost of Goods Sold. The cost of goods sold for the six months ended
June 30, 1997 were $644,225 compared to $322,853 for the three months ended June
30, 1996. As a percentage of total revenue, the cost of goods increased from
30.7% to 31.6%. This increase is attributable to the Company's requirement to
purchase additional food product from outside vendors to meet certain airport
requirements that arise when a new concession is operated "as is" until
build-out to a Creative Host store.
Operating Costs and Expenses. Operating costs and expenses for the
three months ended June 30, 1997 were $1,103,487 compared to $447,685 for the
three months ended June 30, 1996. Payroll expense increased from $234,620 to
$744,520 in 1997. As a percentage of total revenue, payroll expense was 22% in
1996 and 37% in 1997. The increase in payroll expense is attributed to extensive
store management replacement required by a loss of certain payroll controls.
Management believes that proper controls are now in place and that payroll
expense will decrease significantly in the second half of 1997. The Company
expects payroll costs to increase in total dollar amounts with the addition of
new concession facilities and to decrease as a percentage of revenues as new
concessions mature and more advanced control measures are put in place. General
and administrative expenses increased from $167,553 in 1996 to $192,351 in 1997,
but decreased as a percentage of revenues from 16% in 1996 to 9% in 1997. The
Company intends to hire additional administrative staff commensurate with its
growth. Consequently, general and administrative expenses should be higher in
the last six months of 1997, and may represent a greater percentage of total
revenues.
Interest Expense. Interest expense increased from $32,160 in the
quarter ended June 30, 1996, to $62,235 in the quarter ended June 30, 1997. As a
percentage of total revenues, interest expense remained constant at 3%.
Net Income (Loss). Net income for the three months ended June 30, 1997
was $37,972 compared to $78,343 for the three months ended June 30, 1996. Income
from operations decreased from $110,195 in 1996 to $95,290 in 1997. Management
attributes this decrease to the start-up and training costs related to the
opening of two new airport facilities in May and June of 1997.
7
<PAGE>
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Revenues. The Company's gross revenues for the six months ended June
30, 1997 were $4,091,134 compared to $2,170,097 for the six months ended June
30, 1996, an increase of $1,921,037 or 88%. Revenues from concession activities
increased $1,957,126 ($3,726,522 as compared to $1,769,396) for the six month
period ended June 30, 1997, offsetting a slight decrease in food preparation
center sales of $20,866 ($307,313 as compared to $328,179) and franchise
royalties of $15,223 ($57,299 as compared to $72,522).
Cost of Goods Sold. The cost of goods sold for the six months ended
June 30, 1997 were $1,320,492 compared to $698,684 for the six months ended June
30, 1996. As a percentage of total revenue, the cost of goods sold remained
constant at 32%.
Operating Costs and Expenses. Operating costs and expenses for the six
months ended June 30, 1997 were $2,160,243 compared to $1,022,558 for the six
months ended June 30, 1996. Payroll expense increased from $573,209 in 1996 to
$1,444,164 in 1997. As a percentage of total revenue, payroll expense was 35% in
the six-month period ended June 30, 1997 and 26% in the same period last year.
General and Administrative expense increased from $307,070 in 1996 to $431,268
in 1997. As a percentage of total revenue, general and administrative expenses
decreased from 14% in the six month period ended June 30, 1996 to 11% in the
six-month period ended June 30, 1997.
Interest Expense. Interest expense for the six-month period ended June
30, 1977 was $128,563 as compared to $66,715 for the six-month period ended June
30, 1996. As a percentage of total revenues, interest expense remained constant
at 3%.
Net Income (Loss). Net income for the six months ended June 30, 1997
was $56,486 compared to $75,378 for the six months ended June 30, 1996. Income
from operations increased from $141,785 in 1996 to $179,131 in 1997.
The Company does not believe the inflation has had a material adverse
effect on its revenues and earnings.
Liquidity and Capital Resources
The registrant believes funds provided from the completion of its
public offering of July 22, 1997, and funds from operations will be sufficient
for its immediate needs for working capital and to build out new airport
concessions under contract to open in 1997. The Company's anticipated major
financial commitments relate to the cost of building and
8
<PAGE>
equipping new airport concession facilities as they are obtained. In September
of 1997, the Company was awarded three new airport concession locations and
plans to be operating at these locations within the next nine months. The
Company believes that it has sufficient capital from cash flow and the proceeds
of its public offering to meet its capital requirements to open its 1997
contracted concessions. However, as the Company continues to win additional
airport concessions awards, it does anticipate the need for additional
construction financing.
Litigation
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.
9
<PAGE>
Part II- Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) No exhibits are filed herewith.
(b) There were no reports on Form 8-K filed during the quarter ended
February 28, 1997.
10
<PAGE>
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: September 8, 1997 By: /s/ Sayed Ali
-------------------------
Sayed Ali, President
As Principal Financial Officer
and on behalf of the Registrant
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 1,000
<SECURITIES> 1,760,281
<RECEIVABLES> 363,044
<ALLOWANCES> 24,000
<INVENTORY> 249,234
<CURRENT-ASSETS> 596,539
<PP&E> 3,328,610
<DEPRECIATION> 96,103
<TOTAL-ASSETS> 4,554,157
<CURRENT-LIABILITIES> 1,394,172
<BONDS> 0
0
2,030,762
<COMMON> 621,875
<OTHER-SE> 1,352,813
<TOTAL-LIABILITY-AND-EQUITY> 4,554,157
<SALES> 0
<TOTAL-REVENUES> 4,091,134
<CGS> 1,320,492
<TOTAL-COSTS> 2,591,510
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 128,563
<INCOME-PRETAX> 56,486
<INCOME-TAX> 0
<INCOME-CONTINUING> 179,131
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 56,486
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
