<PAGE>
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, 1999
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 SQUARE, 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 / /
As of July 10, 1999, 3,351,033 shares of the registrant's common
stock were outstanding
<PAGE>
PART I - FINANCIAL INFORMATION
<TABLE>
<S> <C>
Item 1. Financial Statements (unaudited)
The following financial statements are furnished:
Balance sheet as of June 30, 1999
Statement of Operations for the three months and six months ended June
30, 1999 and 1998
Statement of Cash Flows for the three months and six months ended June
30, 1999 and 1998
Notes to Financial Statements (unaudited)
</TABLE>
<PAGE>
CREATIVE HOST SERVICES, INC.
BALANCE SHEET
AS OF JUNE 30,1999
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
Current assets:
Cash $ 675,996
Receivables 665,839
Inventory 463,943
Prepaid & Other 197,949
--------------
Total current assets $ 2,003,726
Net Property Plant and Equipment 12,078,206
Deposits and other assets 230,094
Net Intangible Assets 309,603
---------------
Total Assets $ 14,621,629
===============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable and accrued $ 1,944,515
Taxes Payable 289,147
Current maturities of notes payable 12,485
Current maturity of leases payable 927,946
--------------
Total current liabilities $ 3,174,093
Notes payable, less current maturities 2,946,716
Leases payable, less current maturities 3,309,780
Shareholder's equity:
Common Stock $ 6,083,764
Additional paid-in capital 937,662
Deficiency (1,830,385)
--------------
Total shareholder's equity $ 5,191,040
---------------
Total Liabilities and Stockholder's Equity $ 14,621,629
===============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CREATIVE HOST SERVICES
Statement of Operations
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
----------------------------------- --------------------------------
1998 1999 1998 1999
--------------- ---------------- ---------------- -------------
<S> <C> <C> <C> <C>
REVENUES:
Concessions $ 3,494,775 $ 4,428,938 $ 6,771,365 $ 8,507,977
Food Preparation Center Sales 170,142 30,891 335,165 115,093
Franchise Royalties 17,977 16,878 32,278 31,732
-------------- -------------- -------------- -------------
Total Revenues $ 3,682,894 $ 4,476,706 $ 7,138,808 $ 8,654,802
Cost of goods sold 1,104,914 1,417,409 2,159,241 2,659,797
-------------- -------------- -------------- -------------
Gross Profit $ 2,577,980 $ 3,059,298 $ 4,979,567 $ 5,995,005
OPERATING COSTS AND EXPENSES:
Payroll and other employee benefits $ 1,202,783 $ 1,380,119 $ 2,421,906 $ 2,815,455
Occupancy 571,539 724,837 1,101,494 1,380,019
General, Administrative and Selling Expenses 572,488 790,574 1,061,684 1,573,190
-------------- -------------- -------------- -------------
Total operating costs and expenses $ 2,346,810 $ 2,895,530 $ 4,585,084 $ 5,768,663
INCOME FROM OPERATIONS $ 231,170 $ 163,767 $ 394,483 $ 226,342
INTEREST EXPENSE - NET $ 44,938 $ 163,383 $ 82,944 $ 349,043
OTHER INCOME - -
-------------- -------------- -------------- -------------
INCOME BEFORE TAXES $ 186,232 $ 384 $ 311,539 $ (122,701)
INCOME TAXES $ 2,186 $ - $ 2,186 $ -
NET INCOME $ 184,046 $ 384 $ 309,353 $ (122,701)
============== ============== ============== =============
NET INCOME PER SHARE, BASIC AND DILUTED $ 0.06 $ 0.00 $ 0.10 $ (0.04)
============== ============== ============== =============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CREATIVE HOST SERVICES, INC
STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Three Months Ended June 30
-----------------------------------------------------------------
1998 1999
------------------------------ -----------------------------
<S> <C> <C> <C> <C>
Cash flows provided by or (used for) operating
activities:
Net income $ 184,046 $ 384
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 225,448 212,378
Change in operating assets and liabilities:
Accounts Receivable 72,166 (7,987)
Inventory 36,646 (7,291)
Prepaid expenses and other current assets (79,586) (83,430)
Taxes payable - 288,739
Accounts payable and accrued expenses (96,271) 554,019
----------- ----------
Net cash provided by operating activities $ 342,449 $ 956,812
Cash flows provided by (used for) investing activities
Acquisition of furniture and equipment (562,911) (426,818)
(Increase) decrease in deposits (37,499) (16,135)
(Increase) decrease in intangible assets 1,549 9,491
----------- ----------
Net cash used for investing activities $(598,861) $(433,462)
Cash flows provided by (used for) financing activities
Net proceeds from notes payable 726,408 $ (3,082)
Net proceeds from leases payable (77,984) (134,792)
Issuance of capital stock - 112,000
----------- ----------
Net cash provided by (used for) financing activities $ 648,424 $ (25,874)
------------ -----------
Net increase (decrease) in cash $ 392,012 $ 497,476
============ ===========
Cash, beginning of the period $ 629,618 $ 178,519
============ ===========
Cash, ending of the period $1,021,630 $ 675,995
============ ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CREATIVE HOST SERVICES
STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Six Months Ended June 30
------------------------------------------------------------------
1998 1999
------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Cash flows provided by or (used for) operating
activities:
Net income $ 309,353 $(122,701)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 331,891 500,375
Change in operating assets and liabilities:
Accounts Receivable (42,590) (174,482)
Inventory 19,151 (24,521)
Prepaid expenses and other current assets (146,453) (116,883)
Taxes payable - 277,389
Accounts payable and accrued expenses (72,177) 590,546
----------- ----------
Net cash provided by operating activities $ 399,175 $ 929,723
Cash flows provided by (used for) investing activities
Acquisition of furniture and equipment (1,006,009) (2,995,894)
(Increase) decrease in deposits (7,589) (24,891)
(Increase) decrease in intangible assets 6,607 22,274
----------- ----------
Net cash used for investing activities $ (1,006,991) $(2,998,511)
Cash flows provided by (used for) financing activities
Net proceeds from notes payable 693,998 $ (6,087)
Net proceeds from leases payable (173,781) 2,499,128
Issuance of capital stock - 112,000
----------- ----------
Net cash provided by (used for) financing activities $ 520,217 $ 2,605,041
------------ -----------
Net increase (decrease) in cash $ (87,599) $ 536,253
============ ===========
Cash, beginning of the period $ 629,618 $ 139,743
============ ===========
Cash, ending of the period $ 1,021,630 $ 675,996
============ ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CREATIVE HOST SERVICES, INC.
Notes to Financial Statements
The accompanying unaudited 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 financial statements and
related footnotes for the year ended December 31, 1998, included in the
Company's Annual Report on Form 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 June 30,
1999 and the results of operations and cash flows for the six-month period
ended June 30, 1999 have been included.
The results of operations for the six-month period ended June 30,
1999 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, for the six month period ended June 30, 1999,
because of their antidilutive 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 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, AND THE TERMS 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 41 concession locations at 20 airports, and has
focused on expansion solely through an increase in airport concessions.
<PAGE>
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 four years, revenues from
concession operations have grown from 59% of total revenues in 1995 to 98% of
total revenues in 1999.
Since its inception, the Company's capital needs have primarily been
met from the proceeds of (i) capital contributions of $1,300,000 made by
Sayed Ali, the principal shareholder, Chairman and Chief Executive Officer of
the Company, (ii) a Small Business Administration loan obtained by the
Company in September 1992 in the original principal amount of $220,000,
guaranteed by Mr. Ali and secured by certain of his personal assets and a key
man life insurance policy, (iii) a private placement of 9% Convertible
Redeemable Preferred Stock made by the Company in 1994 which raised gross
proceeds of approximately $722,000, (iv) equipment lease financing on
specific airport facilities which are guaranteed by Mr. Ali, (v) certain
short term borrowings, (vi) a private placement of 8% Convertible Preferred
Stock which raised net proceeds of approximately $2.0 million in February
1997, (vii) an initial public offering of Common Stock which raised net
proceeds of approximately $5.2 million in July 1997, (viii) a private
placement of 12% Secured Convertible Notes, together with Warrants to
purchase Common Stock, which raised gross proceeds of $3.0 million in
December 1998, and (ix) lease financing on specific airport facilities of
approximately $2.8 million during the first quarter of 1999.
The Company expects to have capital requirements in 1999 to finance
the construction of new airport concessions for airports already awarded in
Louisiana. The Company will have additional capital requirements to the
extent that it is awarded additional contracts from its current and future
airport concession bids.
RESULTS OF OPERATIONS
The following tables set forth for the period indicated selected
items of the Company's statement of operations as a percentage of total
revenues.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
DECEMBER 31 JUNE 30
------------------------------------------------------------------
1996 1997 1998 1998 1999
----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Concessions 85% 92% 95% 95% 98%
Food Preparation Center Sales 13 7 4 4 1
Franchise Royalties 2 1 1 1 1
------- ------- ------- ------- -------
Total Revenues 100% 100% 100% 100% 100%
Cost of Goods Sold 31 32 30 30 31
------- ------- ------- ------- -------
Gross Profit 69 68 70 70 69
Operating Cost and Expenses
Payroll and Employee Benefits 31 36 34 34 33
Occupancy 19 18 19 15 16
Depreciation 3 3 4 3 6
General and Administrative 9 9 8 12 12
Interest Expense 3 2 1 1 3
Other (Income) Loss 0 0 0 0 0
------- ------- ------- ------- -------
Net Income (Loss) 4% 0% 4% 5% (1)%
======= ======= ======= ======= =======
</TABLE>
<PAGE>
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
REVENUES. The Company's gross revenues for the six months ended June 30, 1999
were $8,654,802 compared to $7,138,808 for the six months ended June 30,
1998, an increase of $1,515,994 or 21%. Revenues from concession activities
increased $1,736,612 ($8,507,977 as compared to $6,771,365) while food
preparation center decreased by $220,072 ($115,093 as compared to $335,165)
and franchise royalty revenue decreased slightly by $546 ($31,732 as compared
to $32,278). The increase in concession revenues was principally attributable
to the operation of concessions awarded in 1998 for a full six month period
as well as completion of a newly awarded airport location in 1999. The
decrease in food preparation center sales is related to the method of
distribution. In 1998 the food preparation center products were distributed
through a third party, whereas in 1999 the products were distributed directly
to the stores through intercompany sales which are eliminated in
consolidation. Same store sales for concession locations that were open for a
full six month period ended June 30, 1998 increased 8% to $7,323,961 from
$6,760,591.
COST OF GOODS SOLD. The cost of goods sold for the six months ended June 30,
1999 was $2,659,797 compared to $2,159,241 for the six months ended June 30,
1998. As a percentage of total revenue, the cost of goods sold increased to
30.7% from 30.2%. The Company's cost of goods sold are primarily food and
paper costs. Those costs are generally higher as a percentage of revenues on
the opening of a new facility until the Company establishes a stable patterns
of demand for its products. 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 six months
ended June 30, 1999 were $5,768,663 compared to $4,585,084 for the six months
ended June 30, 1998. Payroll expenses increased to $2,815,455 for the six
months ended June 30, 1999 from $2,421,906 for the six months ended June 30,
1998. As a percentage of total revenue, payroll decreased to 32.5% for the
six months ended June 30, 1999 from 33.9% for the six months ended June 30,
1998. The increase in payroll dollar amounts is due to the addition of new
concession facilities. General and administrative expenses increased to
$1,572,190 for the six months ended June 30, 1999 from $1,061,684 for the six
months ended June 30, 1998. This increase is related to depreciation expense
on previously operated facilities that were remodeled during 1998.
Depreciation expense increased to $500,375 for the six months ended June 30,
1999 from $331,891 for the six months ended June 30, 1998. The remainder of
the increase is mostly associated with increased royalties on branded
concepts. As the Company continues to follow branded concepts, general and
administrative expenses should continue to increase in dollar amount.
However, Management expects general and administrative expenses to decline as
a percentage of total revenue.
INTEREST EXPENSE. Interest expense net increased to $349,043 for the six
months ended June 30, 1999 from $82,944 for the six months ended June 30,
1998. The increase in interest expense is related to the debt necessary to
facilitate the Company's rapid expansion. The amount will increase slightly
but will reduce as a percentage of sales as the year progresses.
NET INCOME/LOSS. Net loss for the six months ended June 30, 1999 was $122,701
compared to income of $309,353 for the six months ended June 30, 1998.
Management attributes this decrease to increased depreciation and interest
charges relating to newly remodeled facilities. The Company anticipates that
net income from existing operations will increase commensurate with cost
savings that result from economies of scale and efficiencies obtained at the
operating level and full twelve months operation of newly opened locations.
EBITDA. EBITDA increased to $726,717 for the six months ended June 30, 1999
from $726,374 for the six months ended June 30, 1998. This decrease is
related to corresponding reductions in COGS and payroll expenses. The Company
anticipates this trend to continue improving.
<PAGE>
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
REVENUES. The Company's gross revenues for the three months ended June 30,
1999 were $4,476,706 compared to $3,682,894 for the three months ended June
30, 1998, an increase of $793,812 or 22%. Revenues from concession activities
increased $934,163 ($4,428,938 as compared to $3,494,775) while food
preparation center decreased by $139,251 ($30,891 as compared to $170,142)
and franchise royalty revenue decreased slightly by $1,190 ($16,878 as
compared to $17,977). The increase in concession revenues was principally
attributable to the operation of concessions awarded in 1998 for a full three
month period as well as completion of a newly awarded airport location in
1999. The decrease in food preparation center sales is related to the method
of distribution. In 1998 the food preparation center products were
distributed through a third party, whereas in 1999 the products were
distributed directly to the stores through intercompany sales which are
eliminated in consolidation. Same store sales for concession locations that
were open for a full three month period ended June 30, 1998 increased 7% to
$3,732,707 from $3,483,988.
COST OF GOODS SOLD. The cost of goods sold for the three months ended June
30, 1999 was $1,417,409 compared to $1,104,914 for the three months ended
June 30, 1998. As a percentage of total revenue, the cost of goods sold
increased to 31.7% from 30.0%. The Company's cost of goods sold are primarily
food and paper 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 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 June 30, 1999 were $2,895,530 compared to $2,346,810 for the
three months ended June 30, 1998. Payroll expenses increased to $1,380,119
for the three months ended June 30, 1999 from $1,202,783 for the three months
ended June 30, 1998. As a percentage of total revenue, payroll decreased to
30.8% for the three months ended June 30, 1999 from 32.7% for the three
months ended June 30, 1998. The increase in payroll dollar amounts is due to
the addition of new concession facilities. General and administrative
expenses increased to $790,574 for the three months ended June 30, 1999 from
$572,488 for the three months ended June 30, 1998. This increase is
associated with increased royalties on branded concepts. As the Company
continues to follow branded concepts, general and administrative expenses
should continue to increase in dollar amount. However, Management expects
general and administrative expenses to decline as a percentage of total
revenue.
INTEREST EXPENSE. Interest expense net increased to $163,383 for the three
months ended June 30, 1999 from $44,938 for the three months ended June 30,
1998. The increase in interest expense is related to the debt necessary to
facilitate the Company's rapid expansion. The amount will increase slightly
but will reduce as a percentage of sales as the year progresses.
NET INCOME/LOSS. Net income for the three months ended June 30, 1999 was
$384 compared to income of $184,046 for the three months ended June 30, 1998.
Management attributes this decrease to increased depreciation and interest
charges relating to newly remodeled facilities. The Company anticipates that
net income from existing operations will increase commensurate with cost
savings that result from economies of scale and efficiencies obtained at the
operating level and full twelve months operation of newly opened locations.
The Company does not believe that inflation has had an adverse affect on it's
revenues and earnings.
<PAGE>
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 selectively
bid for concession locations, including bidding on larger proposals, provided
it can secure adequate funding for such bids. 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 June 30, 1999, the Company had a working capital of $(1,170,367). The
Company expects to continue to have significant capital requirements in 1999
and 2000 to finance the construction of new airport food and beverage
concessions and other concession related businesses(i.e., news & gifts,
inflight catering and other services). The Company anticipates capital
requirements of approximately $850 thousand in the remainder of 1999 and 2000
to complete the construction of improvements at concession facilities which
it has already been awarded in Louisiana. If the Company fails to secure
additional funding it will have to delay construction and may lose airport
concessions previously awarded to it.
The Company will have additional capital requirements during 1999 and 2000 if
the Company wins additional bids or acquires additional airport concession
facilities. The Company is continually evaluating other airport concession
opportunities, including submitting bid proposals and acquiring existing
concession owners and operators. The level of its capital requirements will
depend upon the number of airport concession facilities which are subject to
bid, as well as the number and size of any potential acquisition candidates
which arise. There is no assurance that the Company will have sufficient
capital to finance its growth and business operations or that such capital
will be available on terms that are favorable to the Company or at all.
<PAGE>
YEAR 2000 COMPLIANCE
Historically, most computer databases, as well as embedded microprocessors in
computer systems and industrial equipment, were designed with date data
fields which used only two digits of the year. Most computer programs,
computers, and embedded microprocessors controlling equipment were programmed
to assume that all two digit dates were preceded by "19", causing "00" to be
interpreted as the year 1900. This formerly common practice now could result
in a computer system or embedded microprocessor which fails to recognize
properly a year that begins with "20", rather than "19". This in turn could
result in computer system miscalculations or failures, as well as failures of
equipment controlled by date-sensitive microprocessors, and is generally
referred to as the "Year 2000 problem." The company has performed an
assessment of it's information technology systems and expects that all
necessary modifications and/or replacement will be completed prior to
December 1999. Additionally, the Company is currently considering the
purchase of a financial accounting software program, which consideration
includes the Year 2000 Compliance status of the software program. Based on
current expenditures and estimates, the costs of addressing this issue are
not expected to have a material adverse effect on the Company's financial
position, results of operations or liquidity. The potential impact of the
Year 2000 issue in regard to significant vendors and suppliers cannot be
reasonably estimated at this time. However, the Company may be adversely
impacted if its suppliers and franchises do not ensure Year 2000 compliance
on their own systems in a timely manner.
Additionally, the Company may be affected by the impact of the Year 2000
problem on air travel. In particular, air traffic control systems at airports
throughout the country are being updated and reviewed for compliance with
Year 2000 standards. Moreover, modern aircraft are complex and may contain
embedded logic within their computerized systems. Computerized reservation
systems are interconnected and may experience problems if participant systems
are not Year 2000 compliant. While extensive efforts are being undertaken by
the Federal Aviation Administration and the airline companies to bring all
computer systems into Year 2000 compliance, no assurances can be made that
those efforts will be successful. Moreover, it is probable that different
airports or airlines will have varying degrees of success in remedying their
systems depending upon the amount of time and resources devoted to the
repair, and the age or complexity of their computer systems. To the extent
that airports and airlines are unable to adequately review and remedy any
Year 2000 problems they may have, air travel may be significantly impaired.
Any significant decline in air travel at the airports where the Company
conducts business will have a material adverse impact on the Company's
business and finances. Moreover, even if the airports and airlines adequately
prepare for the year 2000, public perception of the risks associated with air
travel at that time may cause a decline in enplanements, with a corresponding
decline in the Company's business.
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.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On June 17, 1999, the Company sold 140,000 shares of common stock to a single
private investor for cash at a purchase price of $.80 per share, for an
aggregate purchase price of $112,000. This private sale to a single
sophisticated investor, without the use of any general solicitation, was
exempt from registration pursuant to section 4(2) of the Securities Act of
1933.
<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: August 14, 1999 /s/ Sayed Ali
------------------------------------------------
Sayed Ali, President and Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 675,996
<SECURITIES> 0
<RECEIVABLES> 665,839
<ALLOWANCES> 0
<INVENTORY> 463,943
<CURRENT-ASSETS> 2,003,726
<PP&E> 12,078,206
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,621,629
<CURRENT-LIABILITIES> 3,174,093
<BONDS> 0
0
0
<COMMON> 6,083,764
<OTHER-SE> 5,191,040
<TOTAL-LIABILITY-AND-EQUITY> 14,621,629
<SALES> 8,654,802
<TOTAL-REVENUES> 8,654,802
<CGS> 2,659,797
<TOTAL-COSTS> 5,768,663
<OTHER-EXPENSES> 0
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<NET-INCOME> (122,701)
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</TABLE>
