UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 8-K/A
AMENDMENT NO. 2
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): October 9, 2000
--------------------
Creative Host Services, Inc.
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(Exact name of registrant as specified in its charter)
California
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(State or other jurisdiction of incorporation)
O00-22845 33-1069494
---------------------- --------------------------------
(Commission File Number) (IRS Employer Identification No.)
6335 Ferris Square, Suite G-H
San Diego, California 92126
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(Address of principal executive offices) (Zip Code)
(619) 587-7300
-----------------
Registrant's telephone number, including area code:
Not applicable
---------------------------------
(Former name, address and telephone number)
1
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
(a) On October 9, 2000, Creative Host Services, Inc. ("CHST") completed the
closing of the acquisition of Gladco Enterprises, Inc. ("Gladco"), a company
located in Pittsburgh, Pennsylvania that currently manages concessions in four
airports.
CHST completed the acquisition of Gladco in accordance with the terms of a
Purchase Agreement (the "Purchase Agreement"). In accordance with the Purchase
Agreement, CHST acquired 100% of the stock of Gladco, HLG Acquisition
Corporation, a Pennsylvania corporation and an affiliate of Gladco and HLG
Franchise Marketing Company, a Pennsylvania limited partnership and an affiliate
of Gladco, from Edwin L. Klett, Louis Coccoli, Jr., Herbert H. Gill and the
Virgil A. Gladieux Marital Trust (collectively, the "Sellers") in consideration
for an aggregate amount equal to $7,000,000 (subject to adjustments as set forth
in the Purchase Agreement), payable as follows: (i) $300,000 in cash which had
been prepaid as a deposit, (ii) the payment of all outstanding principal and
accrued interest of, or assumption of obligations under, liabilities as set
forth in the Purchase Agreement which were not in excess of $2,500,000;
(iii) the issuance of shares (the "Shares") of CHST common stock equal to
$500,000 divided by the average of the closing prices of CHST Stock on the
Nasdaq Small Cap exchange for each of the thirty trading days ending two days
prior to closing of the transaction (this resulted in an average price of $7.18,
which resulted in 69,638 shares issued); and approximately $3.7 million in cash.
CHST agreed to register the Shares on Form S-3. The total issued shares
to the Sellers was approximately 0.1% of the issued and outstanding stock of
CHST immediately after the acquisition.
CHST also agreed to permit the Sellers to elect, by written notice to CHST,
to require CHST to repurchase the shares when they are freely tradeable and
registered at a price equal to the per share issuance price times the number of
shares repurchased.
CHST also agreed to adjust the purchase price at any time up to one year
from closing by (i) $280,000 upon execution of a definitive lease, sub-lease or
other operating agreement with respect to each of the two retail sites and
commercial operations at the Newark, New Jersey International Airport; (ii)
$295,000 upon execution of a definitive lease, sub-lease or other operating
agreement with respect to each of the two retail sites and commercial operations
at the Harrisburg, Pennsylvania International Airport; and $120,000 upon
execution of a definitive lease, sub-lease or other operating agreement with
respect to each of the two retail sites and commercial operations at the
Rensselaer Railroad Station in Albany, New York.
CHST agreed to employ Coccoli in an executive capacity and as President of
Gladco.
The consideration exchanged pursuant to the Acquisition Agreement was
negotiated between Gladco and CHST.
In evaluating Gladco as a candidate for the acquisition, CHST Services used
criteria such as the value of the airport concession assets of Gladco, its
airport relationships, cash flows, potential growth and its history with the
various airport operations. Creative Host Services determined that the
consideration for the merger was reasonable.
CHST obtained the funds for the acquisition of Gladco by the sale of
approximately $2,500,000 in 7% Convertible Debentures due September 26, 2003
(the "Debentures") to GCA Strategic Investment Fund Limited. The purchase price
of the Debentures was 95% of the principal amount, or $2,375,000. The
Debentures are convertible at the lower of 110% of the volume weighted average
sales price of CHST common stock on the day immediately preceding closing or 85%
of the five lowest volume weighted average sales prices of the CHST common stock
during the 25 days immediately preceding the date of a notice of conversion.
CHST also issued 125,000 warrants to purchase CHST common stock to GCA Strategic
Investment Fund at an exercise price of 102% of the closing bid price on the day
immediately preceding the Closing Date. CHST agreed to register the shares of
common stock issuable upon conversion of the Debentures and the shares issuable
upon exercise of the warrants on Form S-3. The agreements provide certain
negative covenants requiring compliance with terms by CHST and are adjustable
upon certain events.
As part of the financing by GCA Strategic Investment Fund, CHST negotiated
for and obtained the right to pay off the GCA investment through alternative
financings. CHST presently intends to seek to repay the GCA investment no later
than the end of October 2001.
(b) CHST intends to continue the historical businesses and proposed
businesses of Gladco.
Gladco Enterprises, Inc. ("Gladco") is a Pittsburgh-based hospitality and
service company with $10.5 million in annual revenues, that operates food and
beverage concessions in four international airports, including Pittsburgh
International; Atlantic City International; Albany International, in New York;
and M.B.S. International in Freeland, Michigan. The Company operates 22
individual concessions within those airports. Those concessions, combined with
CHST's current concessions, give the combined companies locations in a total of
25 airports nationally, and approximately 95 overall concessions within those
airports. The Gladco acquisition also improves each company's available
co-branding product mix.
The Creative Host/Gladco business combination is both strategic and
synergistic, providing an experienced management team, heightened East Coast
presence, and creates an infrastructure that provides efficient management,
setting the stage for additional growth both internally and through acquisition.
With the Company's ability to raise equity, combined with years of experience of
Mr. Coccoli and Mr. Ali, it may open up the doors for further opportunities.
Upon completion of the acquisition, GladCo became a wholly-owned subsidiary
of CHST, with no noticeable change to any of GladCo's storefronts, method of
operation or GladCo's current management team, led by 30-year industry veteran,
Louis Coccoli, Jr., who will remain President of GladCo. Through the
acquisition, CHST quickly enhanced its presence on the East Coast through
representation by GladCo's corporate office in Pittsburgh.
GladCo currently manages concessions in four airports, including Pittsburgh
International; Atlantic City International; Albany International, in New York;
and M.B.S. International, located in Freeland, Michigan. The Company has also
signed a letter of intent for two store locations in the Newark, New Jersey
International Airport, with projected annual sales of more than $3.7 million. In
addition to its own signature facilities, GladCo operates several national
brands, including Schlotzky's Deli, Hot Licks Bar & Grill and Samuel Adams Brew
Pub, and has an exclusive agreement with Yuengling Brewery, the oldest brewery
in the United States.
The combined Companies will realize the benefits of having East Coast and
West Coast offices, providing geographically appealing management, operations
consolidation, additional industry contacts and clout, and creativity
enhancements from combined co-branding and airport concessions experience. As a
Company, Gladco has focused its bids to include bar and lounge services that
return higher margins than typical food service concessions, which compliments
CHST's existing operations.
Creative Host Services, Inc./ Gladco Enterprises, Inc. are engaged in the
business of acquiring, managing and operating airport concessions such as food
and beverage, news and gift, and other concessions throughout the United
States. In addition, the Company also provides in-flight catering to certain
national airlines at 9 of its airport locations and also manages Airline Clubs.
Six of the Company's 95 operating concessions are food-courts, each consisting
of several food and beverage restaurants that are located within each court. If
the various food courts were separated and counted as individual concessions,
Creative Host/Gladco operate approximately 95 concessions overall. To simplify
accounting, the Company counts these food-courts as one concession. Creative
Host Services, Inc. enjoys co-branding relationships with several national and
regional companies such as Carl's Jr., Schlotzky's Deli, TCBY Yogurt, Samuel
Adams Brew Pubs, Mrs. Fields Cookies, Pretzelmaker, Nathan's Famous Hotdogs, and
Hot Licks Bar & Grill.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP
Not applicable
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
Not applicable.
8
ITEM 5. OTHER EVENTS
Not applicable.
ITEM 6. RESIGNATIONS OF DIRECTORS AND EXECUTIVE OFFICERS
Not applicable.
ITEM 7. FINANCIAL STATEMENTS
GLADCO ENTERPRISES, INC.
------------------------
Pittsburgh, Pennsylvania
C O N T E N T S
PAGE
----
For the years ended December 31, 1999 and 1998
INDEPENDENT AUDITORS' REPORT 1
Balance Sheets, December 31, 1999 and 1998 2
Statements for the years ended December 31, 1999 and 1998:
Operations 3
Changes in Shareholders' Equity 4
Cash Flows 5
Notes to Financial Statements 6-9
For the period ended September 30, 2000
Consolidated Balance Sheet (unaudited) 10
Statement of Operations (unaudited) 11
Statement of Cash Flows (unaudited) 12
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
GladCo Enterprises, Inc.
Pittsburgh, Pennsylvania
We have audited the accompanying balance sheets of GladCo Enterprises, Inc. as
of December 31, 1999 and 1998, and the related statements of operations,
shareholders' 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 audits 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 financial statements referred to above present fairly, in
all material respects, the financial position of GladCo Enterprises, Inc. as of
December 31, 1999 and 1998, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
Pittsburgh, Pennsylvania
January 24, 2000
F-1
GLADCO ENTERPRISES, INC.
BALANCE SHEETS
December 31
1999 1998
------------ -----------
ASSETS
CURRENT ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . . . $ 193,652 $ 359,341
Accounts receivable. . . . . . . . . . . . . . . . 81,209 72,247
Inventories. . . . . . . . . . . . . . . . . . . . 161,444 166,320
Other current assets . . . . . . . . . . . . . . . 32,427 123,879
------------ -----------
Total Current Assets . . . . . . . . . . . . . 468,732 721,787
PROPERTY AND EQUIPMENT - AT COST
Leasehold improvements . . . . . . . . . . . . . . 4,379,062 4,013,453
Furniture, fixtures and equipment. . . . . . . . . 3,193,860 3,157,866
------------ -----------
7,572,922 7,171,319
Less - Accumulated depreciation. . . . . . . . . (4,147,304) (3,273,133)
------------ -----------
3,425,618 3,898,186
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . 96,877 162,001
------------ -----------
$ 3,991,227 $ 4,781,974
============ ===========
LIABILITIES
CURRENT LIABILITIES
Current portion of long-term debt. . . . . . . . . $ 802,006 $ 868,148
Accounts payable . . . . . . . . . . . . . . . . . 206,962 259,417
Accrued liabilities. . . . . . . . . . . . . . . . 368,882 357,849
------------ -----------
Total Current Liabilities. . . . . . . . . . . . 1.377,850 1,485,414
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . 2,089,572 2,526,263
SHAREHOLDERS'EQUITY
COMMON STOCK
Par value $1 per share - authorized, 1,000 shares,
issued and outstanding, 1,000 shares . . . . . . . 1,000 1.000
ADDITIONAL PAID-IN CAPITAL . . . . . . . . . . . . . 706,034 706,034
ACCUMULATED (DEFICIT) RETAINED EARNINGS. . . . . . . (183,229) 63,263
------------ -----------
523,805 770,297
------------ -----------
$ 3,991,227 $ 4,781,974
============ ===========
See notes to financial statements.
F-2
GLADCO ENTERPRISES, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,1999 AND 1998
1999 1998
------------ -----------
SALES . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,512,661 $ 9,775,924
COST OF SALES . . . . . . . . . . . . . . . . . . . . . (2,311,313) (2,330,592)
------------ -----------
Gross Profit. . . . . . . . . . . . . . . . . . . . 7,201,348 7,445,332
EXPENSES
General, administrative and operating . . . . . . . . 6,897,133 6,869,809
Interest, net . . . . . . . . . . . . . . . . . . . . 268,382 314,197
Write-off of leasehold improvements . . . . . . . . . - 81,733
Loss on abandonment of mall restaurant (See Note 10.) 282,325 -
------------ -----------
7,447,840 7,265,739
------------ -----------
Net (Loss) Income . . . . . . . . . . . . . . . . . $ (246,492) $ 179,593
============ ===========
See notes to financial statements.
F-3
GLADCO ENTERPRISES, INC.
STATEMENTS OF SHAREHOLDERS'EQUITY
FOR THE YEARS ENDED DECEMBER 31,1999 AND 1998
Retained Total
Common Stock Paid-In Earnings Shareholders'
Shares Par Value Capital (Deficit) Equity
------ --------- -------- --------- ---------
BALANCE, December 31, 1997 1,000 $1,000 $706,034 $(10,692) $696,342
Distributions to shareholders (105,698) (105,698)
Net income. . . . . . . . . - - - 179,653 179,653
------ --------- -------- --------- ---------
BALANCE, December 31, 1998. . 1,000 1,000 706,034 63,263 770,297
Net income. . . . . . . . . - - - (246,492) (246,492)
------ --------- -------- --------- ---------
BALANCE, December 31, 1999. . 1,000 $1,000 $706,034 $(183,229) $523,805
====== ========= ======== ========= =========
See notes to financial statements.
F-4
GLADCO ENTERPRISES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,1999 AND 1998
1999 1998
----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . $ (246,492) $ 179,653
Adjustments to reconcile net (loss) income to net
cash flows provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . 967,192 951,548
Write-off of leasehold improvements . . . . . . . . . . . . - 81,733
Loss on abandonment of mall restaurant,
net of cash payments. . . . . . . . . . . . . . . . . . . 189,673 -
Changes in assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . (8,962) 5,935
Inventories . . . . . . . . . . . . . . . . . . . . . . . . 4,876 (10,352)
Other current assets. . . . . . . . . . . . . . . . . . . . 91,452 178,161
Accounts payable. . . . . . . . . . . . . . . . . . . . . . (52,455) (126,688)
Accrued liabilities . . . . . . . . . . . . . . . . . . . . 11,033 (83,547)
----------- ------------
Net Cash Flows Provided by Operating Activities . . . . . 956,317 1,176,443
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment, net. . . . . . . . . . . (644,270) (1,378,713)
Proceeds from sale of property and equipment. . . . . . . . . - 55,615
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . 25,097 (57,054)
----------- ------------
Net Cash Flows Used In Investing Activities . . . . . . . (619,173) (1,380,152)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on long-term debt. . . . . . . . . . . . . . . . . 419,000 1,102,071
Payments on long-term debt. . . . . . . . . . . . . . . . . . (921,833) (746,981)
Distributions to shareholders . . . . . . . . . . . . . . . . - (105,698)
----------- ------------
Net Cash Flows (Used In) Provided By Financing Activities _(502,833) 249,392
----------- ------------
Net (Decrease) Increase In Cash . . . . . . . . . . . . . (165,689) 45,683
CASH, BEGINNING OF YEAR . . . . . . . . . . . . . . . . . . . . 359,341 313,658
CASH, END OF YEAR . . . . . . . . . . . . . . . . . . . . . . . $ 193,652 $ 359,341
=========== ============
SUPPLEMENTAL DATA
Cash payments for interest. . . . . . . . . . . . . . . . . . $ 278,000 $ 317,000
=========== ============
See notes to financial statements.
F-5
GLADCO ENTERPRISES, INC.
------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1999 AND 1998
--------------------------
NOTE 1 - ORGANIZATION
GladCo Enterprises, Inc. (the Company) owns and operates retail food and
beverage outlets located in the Pittsburgh International Airport, Albany
International Airport, Atlantic City International Airport, MBS International
Airport and a franchised restaurant located in a suburban shopping mall near the
Pittsburgh International Airport, which was discontinued during 1999 (see Note
10).
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies applied by management in the
preparation of the accompanying financial statements follows.
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.
Cash - The Company's cash balance may at times exceed federally insured
limits.
Inventories - Inventories consist primarily of purchased food, beverages
and supplies and are stated at the lower of cost (first-in, first-out method) or
market.
Property and Equipment - Depreciation is provided on the straight-line
method over estimated useful lives. Leasehold improvements are amortized over
the term of the related lease. Repairs and maintenance, which do not extend the
lives of the applicable assets, are charged to expense as incurred. Gain or
loss from the disposition of assets is included in income.
Other Assets - Debt issuance costs are amortized over the life of the
related obligation.
Revenue Recognition - Concession revenues are recorded as the sales are
made
Income Taxes - The shareholders of the Company have elected for it to be
taxed as a Subchapter S Corporation. Accordingly, the Company is not liable for
either federal or state income taxes, and no provision for such taxes has been
made in these financial statements. It is the Company's general policy to make
distributions to its shareholders, as required, in order for them to make
payments of the personal income taxes resulting from the Company's operations.
NOTE 3 - RELATED PARTY TRANSACTIONS
The Company has retained the legal counsel of a firm in which one of the
shareholders of the Company is a partner. Payments to this law firm were
approximately $31,000 and $38,000 for the years ended December 31, 1999 and
1998, respectively.
The Company is the franchisee of two restaurants of which the franchisor is
a related entity. Total franchise fees paid to the related entity were
approximately $72,000 and $91,000 for the years ended December 31, 1999 and
1998, respectively.
F-6
NOTE 3 - RELATED PARTY TRANSACTIONS (Continued)
During 1999, the Company began leasing its corporate office building from
its president. The lease agreement specifies monthly payments of $3,000 through
December 31, 2003. Rent expense related to this agreement totaled $36,000 for
the year ended December 31, 1999.
During 1999, the Company entered into a consulting agreement with a related
entity owned by its president. Under the terms of the agreement, the Company
agreed to pay the related entity a fee of $30,000 for consulting services in
lieu of officer compensation for the same amount. The agreement provided for
termination upon payment in full, which occurred during 1999.
NOTE 4 - LONG-TERM DEBT
Long-term debt at December 31, 1999 and 1998 consists of the following:
December 31
1999 1998
---------- ----------
Term loan, payable in monthly installments of $54,100 plus interest
at prime (8.50% at December 31, 1999) plus .50% through
January 2003 (monthly principal payments increase in
subsequent years); collateralized by substantially all of the
Company's assets and guaranteed by the shareholders of
the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,414,344 $3,059,657
Term loan, payable in monthly installments of $6,660 plus interest
at prime (8.50% at December 31, 1999) plus .50% through
February 2004 (monthly principal payments increase in
subsequent years); collateralized by substantially all of the
Company's assets and guaranteed by the shareholders of
the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . 370,560
Equipment note, interest at 7%, due in monthly installments of
$1,742, including interest through April 2001, with the remaining
outstanding balance due in May 2001, secured by the assets
purchased under this note . . . . . . . . . . . . . . . . . . . . 106,674 119,610
Subordinated note payable to shareholder, interest at prime, due in
monthly installments of $18,400, including interest. Note paid in
full during 1999. . . . . . . . . . . . . . . . . . . . . . . . . - 215,144
---------- ----------
2,891,578 3,394,411
Less - Current portion. . . . . . . . . . . . . . . . . . . . . 802,006 868,148
---------- ----------
$2,089,572 $2,526,263
========== ==========
F-7
NOTE 4 - LONG-TERM DEBT (Continued)
Future maturities of long-term debt are as follows:
2001 $ 863,000
2002 1,042,000
2003 173,000
2004 11,572
----------
$2,089,572
==========
The Company's term loan agreements require that the Company maintain
minimum net worth and debt service coverage levels, among other restrictions.
The Company has obtained waivers on the requirements for which it was not in
compliance as of December 31, 1999.
The prime rate at December 31, 1999 was 8.50%.
NOTE 5 - OTHER ASSETS
Other assets consist of the following:
1999 1998
---------- ----------
Loan costs and deferred charges,
net of accumulated amortization $ 35,977 $ 87,945
Refundable security deposits 60,900 74,056
---------- ----------
$ 96,877 $ 162,001
========== ==========
NOTE 6 - WRITE-OFF OF LEASEHOLD IMPROVEMENTS
During 1998, the Company wrote off leasehold improvements with a net book
value of approximately $82,000, since they were considered to have no continuing
value.
NOTE 7 - OPERATING LEASES AND FRANCHISE AGREEMENTS
Operating Leases - The Company rents certain facilities and equipment under
operating leases that expire on various dates through February 2011. These
leases provide for rental payments based upon revenues generated in the leased
facilities. Certain leases include provisions for payments of minimum rental
charges, taxes associated with the real property, and expenditures for
improvements of the leased facilities.
The approximate future minimum payments and expenditures due under these
noncancelable leases are as follows:
2000 $ 418,000
2001 423,000
2002 428,000
2003 420,000
2004 384,000
Thereafter 1,153,000
------------
$ 3,226,000
============
F-8
NOTE 7 - OPERATING LEASES AND FRANCHISE AGREEMENTS (Continued)
Rent expense was approximately $1,402,000 and $1,443,000 for the years
ended December 31, 1999 and 1998, respectively.
Franchise Agreements - The Company has agreements with two franchisers (one
of which is an affiliated entity - see Note 2) which provide for rights to
operate certain facilities as franchises. These agreements provide for fees
ranging from 3.5% to 5.0% of revenues generated at the franchise facilities.
Franchise fee expense was approximately $113,000 and $125,000 for the years
ended December 31, 1999 and 1998, respectively.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims and litigation incidental to its
business. In the opinion of management, the ultimate resolution of these issues
will not have a significant adverse effect on the financial position of the
Company.
NOTE 9 - EMPLOYEE RETIREMENT PLAN
The Company maintains a noncontributory 401(k) plan covering all full-time
employees who have completed one year of service. Employees may elect to
contribute up to 15% of their salary into the plan.
NOTE 10 - ABANDONMENT OF MALL RESTAURANT
During 1999, the Company made the decision to abandon the operations of its
franchised restaurant located in a suburban shopping mall near the Pittsburgh
International Airport. On November 2, 1999, the Company entered into an
agreement with SPG Enterprises, Inc. in which certain assets of the Company were
exchanged for the release and termination of the Company's lease agreement at
the location. The abandonment loss and operating loss amounted to $456,775.
The following is a summary of the related losses:
1/1/99 - 11/2/99
----------------
Sales $319,967
Cost of sales 113,319
--------
Gross Profit 206,648
Operating expenses 381,098
--------
Loss From Operations (174,450)
Loss on abandonment (282,325)
--------
$(456,775)
========
F-9
GLADCO ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEET - SEPTEMBER 30, 2000 - UNAUDITED
ASSETS
CURRENT ASSETS:
Cash. . . . . . . . . . . . . . . . . . . . . . . . . $ 313,701
Receivables . . . . . . . . . . . . . . . . . . . . . 67,009
Inventory . . . . . . . . . . . . . . . . . . . . . . 142,767
Prepaid expenses and other current assets . . . . . . 28,288
----------
Total current assets. . . . . . . . . . . . . $ 551,766
PROPERTY AND EQUIPMENT, net of accumulated
depreciation and amortization . . . . . . . . . . . . 2,902,139
Other assets. . . . . . . . . . . . . . . . . . . . . . 87,657
----------
$3,541,562
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses . . . . . . . . $ 801,654
Current maturities of notes payable . . . . . . . . . 935,278
----------
Total current liabilities . . . . . . . . . . $1,736,933
NOTES PAYABLE, less current maturities. . . . . . . . . 1,356,708
SHAREHOLDERS' EQUITY:
Common stock; no par value, 20,000,000 shares
authorized, 7,504,815 shares issued and outstanding 1,000
Additional paid-in capital. . . . . . . . . . . . . . 270,747
Retained Earnings . . . . . . . . . . . . . . . . . . 176,174
----------
Total shareholders' equity. . . . . . . . . . 447,921
----------
$3,541,562
==========
F-10
GLADCO ENTERPRISES, INC.
STATEMENT OF OPERATIONS - UNAUDITED
Nine Months ended
September 30, 2000
-------------------
REVENUES:
Concessions. . . . . . . . . . . . . . . . $ 7,293,349
COST OF GOODS SOLD . . . . . . . . . . . . . 1,718,875
-------------------
GROSS PROFIT . . . . . . . . . . . . . . . . 5,574,474
-------------------
OPERATING COSTS AND EXPENSES:
Payroll and other employee benefits. . . . 1,915,979
Occupancy. . . . . . . . . . . . . . . . . 1,154,963
Selling expenses . . . . . . . . . . . . . 708,962
Depreciation and amortization. . . . . . . 586,071
General and administrative expenses. . . . 653,373
-------------------
Total operating costs and expenses 5,019,348
-------------------
INCOME FROM OPERATIONS . . . . . . . . . . . 555,126
INTEREST EXPENSE, net. . . . . . . . . . . . 195,723
-------------------
NET INCOME BEFORE INCOME TAXES . . . . . . . 359,403
INCOME TAXES . . . . . . . . . . . . . . . . -
-------------------
NET INCOME . . . . . . . . . . . . . . . . . $ 359,403
===================
F-11
GLADCO ENTERPRISES, INC.
STATEMENT OF CASH FLOWS - UNAUDITED
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Nine Months ended
September 30, 2000
--------------------
CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . $ 359,403
--------------------
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization . . . . . . . . . . 586,022
CHANGES IN ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ASSETS:
Inventory . . . . . . . . . . . . . . . . . . . . . . . 18,678
Prepaid expenses and other current assets . . . . 18,338
INCREASE (DECREASE) IN LIABILITIES -
Accounts payable and accrued expenses . . . . . . (10,903)
Accrued and other liabilities . . . . . . . . . . 236,713
--------------------
Total adjustments . . . . . . . . . . . . . . 848,848
--------------------
Net cash provided by operating activities . . 1,208,251
--------------------
CASH FLOWS PROVIDED BY (USED FOR) INVESTING ACTIVITIES:
Property and equipment. . . . . . . . . . . . . . . . (53,323)
--------------------
Net cash used for investing activities. . . . (53,323)
--------------------
CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
Repayment on notes payable. . . . . . . . . . . . . . (599,592)
Dividends paid. . . . . . . . . . . . . . . . . . . . (435,287)
--------------------
Net cash used by financing activities . . . . (1,034,879)
--------------------
NET INCREASE IN CASH. . . . . . . . . . . . . . . . . . 120,049
CASH, beginning of period . . . . . . . . . . . . . . . 193,652
--------------------
CASH, end of period . . . . . . . . . . . . . . . . . . $ 313,701
====================
F-12
ITEM 8. CHANGE IN FISCAL YEAR
Not applicable.
EXHIBITS
*2.1. Purchase Agreement between Creative Host Services, Inc. and Edwin L.
Klett, Louis Coccoli, Jr., Herbert H. Gill and the Virgil Gladieux
Marital Trust dated as of September 28, 2000
*4.1 Securities Purchase Agreement, dated as of September 26, 2000, between
Creative Host Services, Inc. and GCA Strategic Investment Fund Limited
*4.2 Convertible Debenture, dated as of September 26, 2000, issued by
Creative Host Services, Inc. to GCA Strategic Investment Fund Limited
*4.3 Warrant, dated as of September 26, 2000, issued by Creative Host
Services, Inc. to GCA Strategic Investment Fund Limited
*4.4 Registration Rights Agreement, dated as of September 26, 2000, between
Creative Host Services, Inc. and GCA Strategic Investment Fund Limited
*4.5 Escrow Agreement, dated as of September 26, 2000, between Creative Host
Services, Inc., GCA Strategic Investment Fund Limited and The Law
Offices of Kim T. Stephens.
---------
*Previously filed
SIGNATURES
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 hereunto duly authorized.
CREATIVE HOST SERVICES, INC.
By /s/ Sayed Ali
----------------------------------
President
Date: October 8, 2000