AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 12, 2001
REGISTRATION NO. 333-____________
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM S-8
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
____________________
CREATIVE HOST SERVICES, INC.
(Exact Name of Registrant as Specified in Its Charter)
California
(State or Other Jurisdiction of
Incorporation or Organization)
33-1069494
(I.R.S. Employer
Identification No.)
6335 Ferris Square, Suites G-H
San Diego, California 92126
(619) 587-7300
(Address of Principal Executive Offices, Including Zip Code)
____________________
Legal Services Agreement
(Full Title of the Plans)
____________________
Sayed Ali, President
Creative Host Services, Inc.
6335 Ferris Square, Suite G-H
San Diego, California 92126
(619) 587-7300
(Name, Address, and Telephone Number of Agent for Service)
COPIES TO:
M. Richard Cutler, Esq.
Cutler Law Group
610 Newport Center Drive, Suite 800
Newport Beach, California 92660
(949) 719-1977
CALCULATION OF REGISTRATION FEE
Title of Securities Amount to be Proposed Maximum Proposed Maximum Amount of
to be Registered Registered Offering Price per Share(1) Aggregate Offering Price Registration Fee
- ----------------------- ------------- ---------------------------- ------------------------- -----------------
Common Stock 20,000 $2.125 $ 42,500 $10.63
- ----------------------- ------------- ---------------------------- ------------------------- -----------------
TOTAL REGISTRATION FEE $10.63
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(c). Based on the average closing price of the
Company's for the twenty days ending February 28, 2001.
EXPLANATORY NOTE
Creative Host Services, Inc. ("CHST") has prepared this Registration Statement
in accordance with the requirements of Form S-8 under the Securities Act of
1933, as amended (the "1933 Act"), to register certain shares of common stock
issued to one selling shareholder. Under cover of this Form S-8 is a Reoffer
Prospectus RTEK prepared in accordance with Part I of Form S-3 under the 1933
Act. The Reoffer Prospectus may be utilized for reofferings and resales of up
to 20,000 shares of common stock acquired by the selling shareholder.
PART I
INFORMATION REQUIRED IN THE SECTION 10(A) PROSPECTUS
CHST will send or give the documents containing the information specified in
Part 1 of Form S-8 to employees or consultants as specified by Securities and
Exchange Commission Rule 428 (b) (1) under the Securities Act of 1933, as
amended (the "1933 Act"). CHST does not need to file these documents with the
commission either as part of this Registration Statement or as prospectuses or
prospectus supplements under Rule 424 of the 1933 Act.
REOFFER PROSPECTUS
CREATIVE HOST SERVICES, INC.
20,000 SHARES OF COMMON STOCK
The shares of common stock, $0.0001 par value per share, of Creative Host
Services, Inc. ("CHST" or the "Company") offered hereby (the "Shares") will
be sold from time to time by the individual listed under the Selling
Shareholders section of this document (the "Selling Shareholder"). The Selling
Shareholder acquired the Shares pursuant to a legal services agreement for
legal services that the Selling Shareholder provided to CHST.
The sales may occur in transactions on the over-the-counter market maintained by
Nasdaq at prevailing market prices or in negotiated transactions. CHST will not
receive proceeds from any of the sale the Shares. CHST is paying for the
expenses incurred in registering the Shares except that the Selling Shareholder
has agreed to complete the legal work required for this Registration without
additional charge to CHST.
The Shares are "restricted securities" under the Securities Act of 1933 (the
"1933 Act") before their sale under the Reoffer Prospectus. The Reoffer
Prospectus has been prepared for the purpose of registering the Shares under the
1933 Act to allow for future sales by the Selling Shareholder to the public
without restriction. To the knowledge of the Company, the Selling Shareholder
has no arrangement with any brokerage firm for the sale of the Shares. The
Selling Shareholder may be deemed to be an "underwriter" within the meaning of
the 1933 Act. Any commissions received by a broker or dealer in connection with
resales of the Shares may be deemed to be underwriting commissions or discounts
under the 1933 Act.
CHST's common stock is currently traded on the NASDAQ small cap market under
the symbol "CHST."
This investment involves a high degree of risk. Please see "Risk Factors"
beginning on page 10.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED WHETHER
THIS REOFFER PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
________________________
April 12, 2000
1
TABLE OF CONTENTS
Where You Can Find More Information 2
Incorporated Documents 2
The Company 4
Risk Factors 10
Use of Proceeds 12
Selling Shareholders 13
Plan of Distribution 13
Legal Matters 14
Experts 14
________________________
You should only rely on the information incorporated by reference or provided in
this Reoffer Prospectus or any supplement. We have not authorized anyone else
to provide you with different information. The common stock is not being
offered in any state where the offer is not permitted. You should not assume
that the information in this Reoffer Prospectus or any supplement is accurate as
of any date other than the date on the front of this Reoffer Prospectus.
WHERE YOU CAN FIND MORE INFORMATION
CHST is required to file annual, quarterly and special reports, proxy statements
and other information with the Securities and Exchange Commission (the "SEC") as
required by the Securities Exchange Act of 1934, as amended (the "1934 Act").
You may read and copy any reports, statements or other information we file at
the SEC's Public Reference Rooms at:
450 Fifth Street, N.W., Washington, D.C. 20549;
Seven World Trade Center, 13th Floor, New York, N.Y. 10048
Please call the SEC at 1-800-SEC-0330 for further information on the Public
Reference Rooms. Our filings are also available to the public from commercial
document retrieval services and the SEC website (http://www.sec.gov).
INCORPORATED DOCUMENTS
The SEC allows CHST to "incorporate by reference" information into this Reoffer
Prospectus, which means that the Company can disclose important information to
you by referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this Reoffer
Prospectus, except for any information superseded by information in this Reoffer
Prospectus.
2
CHST's Report on Form 8-K dated October 25, 2000 and Form 8-K/A filed on
February 28, 2001 are incorporated herein by reference. CHST's Form 10-KSB as
filed with the Commission on April 13, 2000, CHST's Form 10-KSB/A as filed on
June 6, 2000, CHST's Form 10-QSB as filed on May 15, 2000, CHST's Form 10-QSB as
filed on August 8, 2000, CHST's Form 10-QSB as filed on November 20, 2000 and
CHST's Definitive Proxy Statement filed on January 17, 2001 are incorporated
herein by reference. In addition, all documents filed or subsequently filed by
the Company under Sections 13(a), 13(c), 14 and 15(d) of the 1934 Act, before
the termination of this offering, are incorporated by reference.
The Company will provide without charge to each person to whom a copy of this
Reoffer Prospectus is delivered, upon oral or written request, a copy of any or
all documents incorporated by reference into this Reoffer Prospectus (excluding
exhibits unless the exhibits are specifically incorporated by reference into the
information the Reoffer Prospectus incorporates). Requests should be directed to
the Chief Executive Officer at CHST's executive offices, located at 6335 Ferris
Square, Suite G-H, San Diego, CA 92126. CHST's telephone number is (858)
587-7300.
3
THE COMPANY
THE CONCESSION BUSINESS
The Company is primarily engaged in the business of acquiring and operating
food, beverage and other concessions at airports throughout the United States.
The Company currently has 70 operating concession facilities at 23 airports, 38
of which are Company owned and one of which is franchised, including concessions
at Los Angeles International Airport, Denver International Airport, Portland
International Airport, and the airports in Aspen, Colorado; Orange County and
Ontario, California; Madison and Appleton, Wisconsin; Lexington, Kentucky;
Asheville and Greensboro (Piedmont Triad), North Carolina; Allentown,
Pennsylvania; Roanoke, Virginia; Columbia, South Carolina; Sioux Falls, South
Dakota; Cedar Rapids and Des Moines, Iowa, Midland, Texas, and Shreveport,
Louisiana. In addition, the Company has been awarded contracts for the
construction of two additional concession facilities; two locations at Baton
Rouge Metropolitan Airport, in Baton Rouge, Louisiana; and two locations at
Shreveport Regional Airport, in Shreveport, Louisiana. The Company expects to
commence operations at these facilities in December 2000. The airport contracts
include concessions that range from a concession to operate single and multiple
food and beverage outlets to a master concession to operate all food and
beverage, as well as news and gift and merchandise, locations at an airport.
The Company's airport concession business is complemented by inflight catering
contracts awarded to it by United Airlines, US Air and Delta at the airports
located in Allentown, Pennsylvania, Cedar Rapids, Iowa and Columbia, South
Carolina. The Company currently utilizes its existing facilities at airports to
provide fresh meals to airlines. The Company is currently seeking and
evaluating additional concession opportunities at several other airports in the
United States.
Concessions to operate food and beverage and other retail operations at
domestic airports are generally granted by an airport authority pursuant to a
request for proposal process. Proposals generally contain schematic drawings
for the concession layout, a commitment to make capital improvements at the
concession location, and sample menus. Rent is paid to the airport authority on
the basis of a percentage of sales, with a minimum amount of rent guaranteed by
the concessionaire. For airport locations with a history of operations, the
Company evaluates information concerning historical revenues for the location to
determine the amount to bid for both percentage and minimum rent. For locations
which are newly constructed, the Company evaluates projections for the number of
passengers expected to use the airport and amounts to be spent per person at
airport concessions to form a revenues projection. Given the requirement to
make capital improvements, the Company makes large capital outlays at the
beginning of a concession term, which it seeks to recover during the remaining
term. Concessions are usually awarded for a ten year term. Generally
concessions are resubmitted for proposals at the end of the term and the Company
must resubmit a bid to secure an additional ten year term.
The Company has secured nearly all of its existing airport concessions
through the request for proposal process. The Company believes its success in
securing concessions through this process is attributable to tailoring its bids
to each specific airport's needs, offering a unique selection of quality food
and beverages, and a distinctive decor. In its proprietary menu items the
Company strives to provide foods which are healthy and higher quality than
typical fast food or cafeteria style products, while maintaining value pricing.
The Company's Bakery/Deli style restaurants feature a selection of croissant
sandwiches and a selection of vegetable, fruit and pasta salads. At locations
which are anticipated to have higher revenues, the Company's strategy is to
secure franchise relationships with nationally recognized food and beverage
companies as part of its proposals. The Company has entered into agreements
with several such companies, including Carl's Jr., Pizza and Mrs. Fields. Under
these arrangements, the Company owns the concession rights from the airport
authority and the Company's employees operate the location. The Company then
pays franchise fees under a franchise agreement. The Company's strategy is to
continue to develop relationships with a number of national and regional food
and beverage companies, which it expects will provide the Company with the
flexibility to tailor product offerings to meet a particular airport's desires.
4
While the Company has seriously pursued the submission of proposals only
since 1995, it has been successful in a significant number of the proposals it
has submitted. Management attributes this success in winning airport proposals
principally to its efforts to customize each bid, striving to make creative
proposals that address local preferences and distinguish the Company from its
competitors in its offering of decor as well as food products. The following
are examples of the Company's approaches to the concession business:
MASTER CONCESSION: The Company will generally seek to become the master
concessionaire for all airport services, including food and beverage, lounge and
bar, specialty retail, news and gifts, and other services at airports with at
least 400,000 enplanements per year. The Company currently serves as the master
concessionaire at the Cedar Rapids, Iowa airport and at the Ashville, North
Carolina airport
CAFE AND SPIRITS: If the opportunity for a master concession is not
available, then the Company submits bids utilizing specific food and beverage
concepts, or other service concepts depending on the nature of the concession.
One such concept is "Cafe and Spirits" which features various branded and
nonbranded food and beverages, such as Creative Croissants, along with a bar,
lounge and mini library. The Company currently operates Caf and Spirits
formats at approximately 20 Creative Croissants locations that serve liquor.
CREATIVE CROISSANTS-Registered Trademark- BAKERY DELI: The Company can
implement its bakery/deli concept, Creative Croissants, either as a stand alone
concession or as part of a food court, depending on the preference of the
airport authority and the available concession category. The Company currently
operates Creative Croissants at every airport it currently services, with the
exception of the airport at Ontario, California.
ATTAINING FRANCHISE RIGHTS: For larger concessions, where the airport
desires branded food products, the Company attempts to secure franchise rights
from nationally or regionally recognized food and beverage companies. The
Company has entered into Franchise Agreements with Carl's Jr./Green Burrito to
operate franchises at its two Ontario, California concession facilities which
opened in October 1998. The Company may in the future purchase and operate
franchises from other major food or beverage franchisors to include in its bid
proposals.
ACQUISITION OF OTHER CONCESSIONAIRES: The Company has also sought to
expand its physical presence at airports by acquiring numerous existing
concessionaires with one or more airport locations. Generally, the airport
authority overseeing the operations at the airport will have the right under the
existing concession agreement to approve the change in control. The strengths
the Company demonstrates in the request for proposal process are used to secure
the consent of an airport authority to a transfer of concession rights in an
acquisition of an existing location. The Company has typically negotiated for
an extension of the concession term in exchange for additional capital
improvements or additional facilities or menu items to be offered at the
concession location as part of securing the airport authority's consent to the
transfer.
The Company's strategy is to expand its concession business to more
airports in the United States, and eventually to other public venues. The
Company also intends to seek to expand the types of concession services which it
provides, and to be awarded more multiple and master concession contracts such
as the one it has been awarded for the Cedar Rapids, Iowa airport. While the
Company has historically focused on the food and beverage segment, it intends to
seek concession awards to provide news stands, gift shops, specialty stores and
other services to augment the Company's food and beverage business at airports
and other venues. The Company has previously operated news and gift venues.
Prior to the Company's initial public offering in July 1997, the Company
qualified as a Disadvantaged Business Enterprise ("DBE") based on Mr. Ali's
ownership of all of the Company's common stock. The Company's historical
success in securing concession locations may have been partially attributed to
its DBE status. The impact of the initial public offering on the Company's
status as a DBE and the impact of any such potential loss of DBE status on its
ability to secure new concession locations is unclear. To the extent that the
Company's historic rate of success in securing new airport concessions was
attributable to its status as a DBE, that growth rate may decline if the Company
is not recognized as a DBE or if DBE programs are eliminated or curtailed.
In analyzing a concession opportunity, particularly in the airport
industry, the Company evaluates the following factors, among others: (1) the
estimated rate of return on the investment in the facilities, (2) the historical
performance of the location, (3) the historical and estimated future number of
annual enplanements at the airport, (4) the competition in the vicinity of the
proposed facility, (5) the rent and common area maintenance charges for the
proposed facilities and (6) the length of the proposed concession term. In
customizing the design proposal and theme for a concession opportunity, the
Company analyzes the character of the community and the expected preferences of
the patrons (for example, whether they are primarily tourists or business
persons) to determine the most attractive facility. The scope of the contract
and the size and shape of the site are other elements considered in the
analysis.
As part of any proposal or acquisition, the Company receives information
concerning any historical operations conducted at the specific location.
Generally, an airport authority will provide three years of historical
information for a location with its request for proposal. Similarly, in an
acquisition transaction, the Company will review a target operator's historical
performance as part of its due diligence review. In either scenario, the Company
then evaluates the estimated impact on revenues and gross margins that will
result from any remodeling, capital improvements and menu changes. Where the
concession location is to be newly constructed, such as at the Ontario,
California, airport, the Company reviews estimates of passenger enplanements for
the new terminals and amounts typically spent per passenger at concessions.
Once the Company has been awarded a concession contract at an airport, it
is generally scheduled to assume the management of the existing facilities
within 90 to 120 days after the award, or to commence construction of an
entirely new facility within three to six months after the award. The Company
is generally required to place three types of bonds with an airport authority
before it may take over operations at a concession. In connection with its bid,
it is required to post a bond for the amount of capital improvements it is
committed to make at the airport. During commencement of construction for any
specific construction project, the Company is required to post a construction
bond for the specific facilities to be constructed. This bond terminates upon
completion of each specific project and the bond for all of the capital
improvements expires upon completion of all capital improvements for the
airport. In addition, the Company is required to post a performance bond to
cover some specified percentage of the Company's minimum rent obligations. This
bond remains in place during the term of the concession. To date the Company
has not experienced significant difficulty in securing bonds for its obligations
to various airport authorities. The Company's bonding capacity is limited by
its size, and has therefore limited the projects on which it could bid. If the
Company continues to grow, it anticipates increasing its bonding capacity and
the ability to bid for larger projects at the largest domestic airports.
Typically the Company operates an existing facility for two to three months
before beginning the remodeling of the site according to the specifications in
its airport bid proposal. During the remodeling phase of an existing facility,
which usually takes 45 to 60 days, the facility is either closed or serves at
minimal levels. Once the remodeling is completed, the facility opens for full
service, generally for most hours during which the airport is actively operating
(only two of the Company's facilities are open 24 hours a day, 7 days a week).
The Company often is required to refurbish a project every five years.
Inflight catering has traditionally generated higher gross profit margins
than the Company's airport concession business. Consequently, management
intends to expand its inflight catering services. The Company currently has
inflight catering contracts with several major airlines at specific airports,
including Delta Airlines, U.S. Air, United Airlines and Northwest Airlines. The
Company also provides inflight catering services for charter flights.
5
EXISTING AND AWARDED CONCESSION LOCATIONS
Dated of
Completion
Date or Expected
Name/Location of . . . . . Description of Commenced Completion Expiration Date 1999
Concession . . . . . . . . Concession Operations of Remodeling of Contract Revenue
- -------------------------- --------------------- -------------- ------------- ---------------- ---------
Midland, Texas . . . . . . Food and Beverage January 1999 January 1999 September 2007 892,043
(one location)
Ontario, California. . . . Food and Beverage September 1998 September July 2008 1,506,880
(two locations) 1998
John F. Kennedy. . . . . . Food and Beverage October 1999 July 1999 May 2008 (2) N.A.
International. . . . . . . (one location)
Greensborough. . . . . . . Food and Beverage December 1997 November 1998 May 2008 2,297,463
(Piedmont Triad) . . . . . (three locations)
North Carolina
Asheville, North . . . . . Food and Beverage November 1997 November 1998 November 2007 447,401
Carolina . . . . . . . . . (one location); News
& Gift (one location)
Sioux Falls, South . . . . Food and Beverage August 1997 March 1999 August 2007 850,311
Dakota . . . . . . . . . . (two locations);
Inflight Catering
Des Moines,. . . . . . . . Food and Beverage July 1997 November 1998 July 2007(3) 1,508,399
Iowa (3) . . . . . . . . . (four locations)
Allentown, . . . . . . . . Food and Beverage July 1996 January 1998 July 2006 1,430,347
Pennsylvania . . . . . . . (one location);
Inflight Catering
Columbia, South. . . . . . Food and Beverage October 1996 October 1997 October 2006(4) 1,188,799
Carolina(1). . . . . . . . (two locations);
Inflight Catering
Cedar Rapids,. . . . . . . Master Concession; November 1996 October 1997 March 2004(5) 1,412,915
Iowa (1) . . . . . . . . . Food and Beverage
(two locations); News
& Gifts (one
location); Specialty
Stores (one
location); Inflight
Catering
Lexington, . . . . . . . . Food and Beverage July 1996 February 1997 July 2006 767,321
Kentucky (1) . . . . . . . (two locations);
Inflight Catering
Roanoke, . . . . . . . . . Food and Beverage June 1996 January 1997 June 2006 590,552
Virginia(1). . . . . . . . (two locations);
Inflight Catering
6
[continued]
Appleton,. . . . . . . . . Food and Beverage January 1996 January 1996 July 2005 320,204
Wisconsin(1) . . . . . . . (one location)
Madison, . . . . . . . . . Food and Beverage January 1996 July 1996 January 2006 873,404
Wisconsin (1). . . . . . . (two locations)
Portland . . . . . . . . . Food and Beverage October 1995 October 1995 June 2005 838,501
International(1) . . . . . (one location)
Los Angeles. . . . . . . . Food and Beverage June 1995 September June 2005(6) 1,094,721
International(6) . . . . . (one location) 1995
Aspen, . . . . . . . . . . Food and Beverage May 1994 May 1994 September 1999 325,900
Colorado(1). . . . . . . . (one location)
Denver . . . . . . . . . . Food and Beverage February 1995 Two June 2003 and 1,009,799
International. . . . . . . (three locations) completed November 2006
February
1995; one
completed
December 1997
Orange County. . . . . . . Food and Beverage September 1990 December 2000 February 2001(5) N.A
(one location)
Baton Rouge. . . . . . . . Food and Beverage July, 1999 December 2000 July 2010 1,100,000
(two Locations)
Shreveport,. . . . . . . . Food and Beverage May 1999 Completed November 2009 800,000
Louisiana. . . . . . . . . (two locations)
Charleston . . . . . . . . Food and Beverage July 2000 December 2000 December 2000 1,900,000
S.C. . . . . . . . . . . . (three locations)
- -----------------------------------------
(1) The Company is currently the sole food and beverage concessionaire at this
airport.
(2) Delta Airlines, the owner of the airport terminal, has reserved the right
under its concession agreement with the Company to recapture the premises upon
30 days notice and payment for the Company's improvements.
(3) The airport retains the right under the concession to recapture the premises
upon payment for the Company's improvements.
(4) After the initial year of the term, the airport authority has the right to
terminate the concession upon payment to the Company of its "remaining business
interest" in the concession.
(5) Can be terminated by the airport on 90 days notice.
(6) After June 2001 can be terminated by the airport upon 90 days notice.
7
FOOD PREPARATION CENTER
The Company has contracted its 4,635 square foot food preparation center
located at 6335 Ferris Square, Suites G-H, San Diego, California which is
adjacent to its corporate headquarters to an outside firm to manufacture its
bakery products. The center is currently operating at approximately 35%
capacity. Using its proprietary recipes, the Company prepares several bakery
items sold at the Creative Host concessions, including regular croissants,
croissants filled with meat, cheeses and vegetables, pastries, muffins and other
bakery foods. The bakery foods are prepared, frozen in dough form and regularly
shipped to concessions and franchisees where they are baked and served on a
daily basis.
In addition to supplying the airport concessions, inflight catering and
franchise restaurant business, the Company also sells finished bakery foods
produced at its bakery/food preparation center to restaurants and other food
outlets in the San Diego area. While not presently a substantial component of
our business, these outside customers include hotels, institutions and mobile
food carriers. Since the existing bakery does not supply all outlets, the
Company may establish and operate additional food preparation centers in the
future to the extent that it expands geographically and increases the number of
concessions. There is no assurance that the Company's sales to outside
customers will maintain their present levels or grow in the future.
The Company has entered into an agreement with Sysco Food Services
Corporation ("Sysco"). All of the purchasing for the concession locations,
except for certain perishable items such as dairy and produce, is done through
Sysco resulting in uniform cost of goods and centralized costs controls.
FRANCHISE OPERATIONS
From 1986 through 1994, the Company was actively engaged in the business of
franchising restaurants under the "Creative Croissant" name. The Company's
restaurant franchise business was not successful, and, in 1990, the Company
began the transition to company-owned airport concessions that is the major
focus of its current business plan. The Company continues to have franchise
relationships with 9 restaurant franchisees, excluding the Orange County
airport concession which is operated by a franchisee.
Creative Croissant franchise restaurants are generally located in regional
malls, specialty centers, high rise office buildings and other areas with heavy
pedestrian traffic. All of the Company's franchise operated restaurants are
located in California, in the following cities: San Diego, Laguna Niguel,
Mission Viejo, Orange, Laguna Hills, Martinez, Ventura, San Francisco, and
Walnut Creek. Although all franchisees remain current in their purchase of food
products, the Company neither books or collects royalty revenues from the
franchises.
The Company expects its revenues from franchising (approximately 0.25% of
total revenues for the twelve month period ended December 31, 1999) to remain
unchanged or decline over time as the Company concentrates on expanding its
concession business and establishing more Company owned facilities at airports
and other public venues. If the Company is able to establish a greater national
brand name presence, through its airport and other concession business, then it
may devote some resources to the development of the franchising segment of its
business. In the meantime, it may continue to sell franchises in special
situations when a franchise would be more advantageous to the Company than a
Company owned facility, when financing is not otherwise available, or generally
in situations that do not involve concession contracts with an airport
faciliity.
MARKETING AND SALES
The Company's marketing strategy involves two fundamental components: (i)
securing the concession and (ii) increasing sales once the concession has been
granted. The Company plans to continue to concentrate its marketing and sales
efforts on acquiring high volume concessions at airports and evaluating other
public venues with high, captive pedestrian traffic such as sports stadiums,
public libraries, zoos and theme parks throughout the United States. For the
near future, the Company intends to focus on the approximately 123 airports in
the United States with over 400,000 enplanements per year. In those smaller
regional airports, the Company, whenever possible, will seek to be the master
concessionaire for all concession operations conducted at such airports.
The Company targets the airport concession business through its presence at
airport authority association meetings and trade shows, its network of existing
relationships in the airport business community, and its submission of bids in
response to requests for proposals ("RFPs") by airports. By continually
monitoring the availability of RFPs at airports throughout the nation, the
Company seeks to be involved in every RFP that is economically feasible for it.
In bidding for concessions, the Company focuses on those airports with locations
indicating that the concession will earn annual gross revenues of $500,000 to
$2,000,000. Once a concession has been targeted, the Company develops a
customized bid tailored to address a theme or culture specific to the concession
location. Management is currently working with airport managers to design
unique and exciting food court areas with a variety of food choices, comfortable
seating and self-serve options without the inconveniences of traditional
restaurants. The Company's proposals for airports include children's play
areas, reading areas, mini-libraries and computer services.
The Company has developed several marketing techniques for its Creative
Host concession locations to encourage sales and to provide additional sources
of revenues. To compete within an airport, the Creative Host approach is to
combine aroma and showmanship with high quality fresh and nutritious foods at
value prices to attract customers. The Company's food and beverage facilities
have traditionally been designed with a European flair for fresh, healthy and
nutritious gourmet and specialty foods, served quickly and at value prices. The
desired atmosphere has been one of a European sidewalk cafe with carved wood
display cases and the use of brass, wood, marble and glass. Depending on their
size, the facilities feature European style hot meal croissants filled with
meats, cheeses and vegetables, gourmet coffees, fresh salads, nondairy fresh
fruit shakes and other foods and beverages. Low fat, low cholesterol
ingredients are utilized whenever possible, consistent with maximizing flavor.
No artificial flavors or preservatives are used in any of the baked goods. A
large bakery oven and brass eagle domed espresso machine create an inviting,
aromatic atmosphere. Several of the concession facilities have an espresso bar,
a variety of coffee selections or a juice bar. While maintaining its philosophy
of offering healthy foods, value pricing and quick service, the Company is
diversifying into agreements with renowned food and beverage suppliers such as
Carls Jr. and and TCBY Yogurt. The food and beverage concessions sell gourmet
coffee beans as gift packages, colorful sports bottles and thermal coffee mugs
featuring the "Creative Croissants-Registered Trademark-" logo and key menu
items, custom gift baskets and other promotional merchandise.
RECENT ACQUISITION
On October 9, 2000, the Company completed the closing of the acquisition
of Gladco Enterprises, Inc. ("Gladco"), a company located in Pittsburgh,
Pennsylvania that currently manages concessions in four airports.
The Company completed the acquisition of Gladco in accordance with the
terms of a Purchase Agreement (the "Purchase Agreement"). In accordance with
the Purchase Agreement, the Company 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, 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 of the Company's common stock equal
to $500,000 divided by the average of the closing prices of Company's common
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 and 69,638 shares issued); and approximately $3.7 million in
cash.
The Company also agreed to permit the Sellers to elect, by written notice
to the Company, to require the Company to repurchase the shares of common stock
i8ssued when they are freely tradeable and registered at a price equal to the
per share issuance price times the number of shares repurchased.
The Company 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. The Company intends to utilize
a portion of the proceeds from this offering for these potential adjustments.
See "Use of Proceeds."
The Company intends to continue the historical businesses and proposed
businesses of Gladco. 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 the
Company's current concessions, give the combined companies locations in a total
of 25 airports nationally, and approximately 95 overall concessions within those
airports.
The Company 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 Company's common stock during the 25 days immediately preceding the
date of a notice of conversion. The Company also issued 125,000 warrants to
purchase the Company's 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. The Company 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 registration statement has
been filed). The agreements provide certain negative covenants requiring
compliance with terms by the Company and are adjustable upon certain events.
COMPETITION
The concession industry is extremely competitive and there are numerous
competitors with greater resources and more experience than the Company. The
dominant competitors in the airport concession market are Host Marriott Services
Corporation ("Host Marriott") and CA One Services, Inc. ("CA One Services"),
which have been serving the airport concession market for decades. Host
Marriott and CA One Services have established a marketing strategy of offering
comprehensive concession services to airport authorities in which they submit a
bid on an entire airport or terminal complex, and often provide a well known
franchise such as McDonalds or Burger King as part of their package. They
generally operate large airport master concessions with annual sales in excess
of $2.2 million.
The Company believes that with its recent Gladco acquisition, it ranks
third in number of airports among the competitive companies. Other formidable
competitors in the concession business, especially food and beverage, include
Service America Corporation, Anton Food, Concession International, Air Host,
Inc., ARA Services, Canteen Corporation, Morrison's Hospitality Group, Gardner
Merchant Food Services, Seiler Corporation, and Service Master Food Management
Services. Other competitors such as Paradies and W.H. Smith compete with the
Company in the airport retail concession services market. Dobbs International
and Sky Chefs, LSG dominate the inflight catering business.
The Company is focusing initially on smaller airport concessions where
competition from large competitors is less intense. However, there are a
limited number of concession opportunities domestically. If the Company
achieves greater penetration in regional airports, it will be required to enter
into larger domestic airports, or other venues to sustain its growth. Entry
into larger domestic airports will necessarily involve direct competition with
Host Marriott and CA One Services.
The Company strives to differentiate itself in all markets with the design
and product mix it offers to each particular airport. The Company designs its
concession bids and facilities around unique themes or concepts that it develops
for each location. In this manner, the Company seeks to appeal to airport
authorities that are seeking individual bidders with interesting and creative
food concepts, both to boost the airport's income from percentage rents and to
enhance the look and reputation of the airport and the cities it serves. The
Company also offers a variety of food concepts with an emphasis on fresh foods
and high quality, while maintaining a value-oriented prices.
GOVERNMENT REGULATION
The airport concession business is subject to the review and approval of
government or quasi government agencies with respect to awarding concession
contracts. In addition, food and beverage concessions are subject to the same
rigorous health, safety and labor regulations that apply to all restaurants and
food manufacturing facilities. Concession businesses are also subject to labor
and safety regulations at the local, state and federal level. Concessions
granted by airport authorities and other public agencies may also be subject to
the special rules and regulations of that agency, including rules relating to
architecture, design, signage, operating hours, staffing and other matters.
Failure to comply with any of these regulations could result in fines or the
loss of a concession agreement.
The Federal Aviation Administration requires airports receiving federal
funds to award contracts for concession facilities producing at least 10% of
total airport concession revenue to certain designated categories of entities
that qualify as Disadvantaged Business Enterprises ("DBE"). The federal
requirements do not specify the nature or manner in which the DBE must
participate. Historically, companies in the industry have relied on hiring DBE
employees, purchasing provisions from DBE suppliers, contracting for services
from DBEs or subcontracting a portion of the concession to a DBE in order to
meet this requirement. When the Company entered the airport concession
business, its Common Stock was owned entirely by Mr. Sayed Ali. As a result,
the Company qualified as a DBE. The Company's status as a DBE assisted it in
securing concession awards with several airports, and some of the Company's
concession agreements specify that it will retain its DBE status. As a result
of the Company's initial public offering, Mr. Ali's ownership in the Company
decreased to approximately 30%. It is unclear what impact this will have on the
Company's status as a DBE. The Company has succeeded in securing airport
concession contracts at 8 additional locations since its initial public
offering, although the Company is not aware of the extent to which the Company's
DBE status, or lack thereof, was a factor in the airport authorities' decisions
to award such contracts to the Company. The federal rules do not specify a
required percentage ownership for DBE status, so the Company will have to
address the issue on an airport by airport basis. If necessary, the Company
will comply with a particular airport's request for additional DBE participation
through the industry practice of hiring or contracting with other DBEs. The
Company believes that it will retain its existing locations and can continue to
secure new concessions on the basis of the products and services it offers and
its industry reputation. To the extent the Company's historic rate of success
in securing airport concessions is attributable to its clear status as a DBE,
its growth rate may decline.
8
The restaurant industry and food manufacturing businesses are highly
regulated by federal, state and local governmental agencies. Restaurants must
comply with health and sanitation regulations, and are periodically inspected
for compliance. Labor laws apply to the employment of restaurant workers,
including such matters as minimum wage requirements, overtime and working
conditions. The Americans With Disabilities Act applies to the Company's
facilities prohibiting discrimination on the basis of disability with respect to
accommodations and employment. Food preparation facilities must comply with the
regulations of the United States Department of Agriculture, as well as state and
local health standards.
Franchising is regulated by the Federal Trade Commission and by certain
state agencies, including the California Department of Corporations. In
addition, the California Franchising Law contains specific restrictions and
limitations on the relationship between franchisors and franchisees.
Franchisors such as the Company must file an annual Franchise Offering Circular
with the Federal Trade Commission and certain states (many states do not
regulate the offer and sale of franchises) every year.
EMPLOYEES
The Company has over 650 employees, including 12 in administration and 638
in operations. As the Company expands and opens more concessions, the Company
anticipates hiring additional personnel including administrative personnel
commensurate with growth. The Company does not have a collective bargaining
agreement with its employees and is not aware of any material labor disputes.
SEASONALITY
The Company's concession operations are expected to experience moderate
seasonality during the course of each year, corresponding with traditional air
travel patterns which generally increase from the first quarter through the
fourth quarter.
TRADEMARKS
The Company has one registered trademark with the United States Patent and
Trademark Office on the Principal Register, registered as "Creative
Croissants-Registered Trademark-." In addition, the Company is in the process
of filing trademark applications to register the names "Creative Host Services,
Inc." and "Haute Dogma," and as its business develops, the Company plans to
continue to develop merchandising of trademark products, such as clothing,
drinking bottles, mugs and other similar products, utilizing its service marks
and trademarks in order to generate additional revenues. The Company's policy
is to pursue registrations of its marks wherever possible. The Company is not
aware of any infringing uses that could materially affect its business or any
prior claim to the trademarks that would prevent the Company from using such
trademarks in its business.
PROPERTIES
The Company's executive offices and food preparation center are located in
a 8,334 square foot facility at 6335 Ferris Square, Suites G-H, San Diego,
California. The combined facility is covered by a five-year lease terminating
April 15, 2002 with monthly payments of $5,044 plus common area maintenance
charges. The Company has one option to extend the term for an additional
five-year period. The Company believes its facilities will be adequate to
accommodate production of two to three times its current levels.
The Company also leases space as part of its airports concession
operations. In addition, the Company occasionally leases restaurant space (such
as at the Greensborough, SC airport) which it assigns to operators in connection
with franchise operations.
9
RISK FACTORS
The securities offered hereby are speculative and involve a high degree of
risk. Prospective investors should carefully consider the possibility of the
loss of their entire investment in the Company's securities and, along with each
of the following factors, consider the information set forth elsewhere in this
Prospectus.
NEED FOR ADDITIONAL CAPITAL. We may not have sufficient cash flow from our
current operations to enable us to acquire and build additional locations at our
historic growth rate. We may be required to raise additional capital in the
future to build out capital improvements for any newly awarded concession
locations. In July 2000, we obtained $1,500,750 from the sale of 207,000 shares
of common stock at $7.25 per share to Generation Capital Associates pursuant to
Rule 506 of Regulation D of the Securities Act of 1933, as amended. In
September 2000 we also obtained $1,813,000 from the sale of $2,000,000 in 7%
convertible debentures sold to GCA Strategic Investment Fund Limited which we
used for the acquisition of Gladco Enterprises, Inc. The convertible debentures
sold to GCA Strategic Investment Fund are convertible at the lower of (i) 110%
of the volume weighted average sales price of our common stock on the day
preceding closing of the sale of those debentures or (ii) 85% of the average of
the five lowest volume weighted average sales prices of our common stock during
the twenty-five trading days immediately preceding the date of notice of
conversion. Failure to secure adequate capital to bid, win, retain or service
concession contracts will hinder our growth. In addition, we presently utilize
equipment leasing to finance some of our operations. Additional equipment lease
financing with rates acceptable to us may not be available, in which case we
will be required to raise additional capital or cease our expansion program
until such financing or capital is made available, if ever.
DEPENDENCE ON AIRPORT CONCESSION BUSINESS. We are currently dependent on
the airport concession business for substantially all of our revenues. We
expect such dependence to continue for the foreseeable future. The concession
business is highly competitive and subject to the uncertainties of the bidding
and proposal process. Sophisticated bid packages and persuasive presentations
are required in order to have an opportunity to win concession contracts at
airports and other public venues. While there are thousands of airport
concessions nationwide, the majority of those concessions are located in the
largest 125 airports. Concession business operators, such as CHST, must
maintain their reputations with the various airport authorities and other
government, quasi government and public agencies in order to remain eligible to
win contracts. The terms and conditions of concession contracts must be
carefully analyzed to ensure that they can be profitable for us. Certain of our
locations have incurred and may in the future incur net operating losses.
Because our concession agreements contain minimum rent guarantees, we are
constrained in our ability to terminate under-performing locations. Our menus
are generally set at street prices plus 10%, although we generally have the
ability to vary that formula where appropriate. In addition, the failure of any
single concession could have a material adverse impact on our reputation with
airport authorities generally, and hinder our ability to renew existing
concessions or secure new ones. There is no assurance that we will continue to
be awarded concession contracts by airports or by any other public venue, that
the concession contracts will be profitable, or that we will not lose contracts
that we have been awarded.
CONCESSIONS SUBJECT TO SET ASIDES AND SPECIAL REQUIREMENTS. Rules issued
by the Federal Aviation Administration ("FAA") require a portion of airport
concession contracts to be awarded to certain classes of entities or persons
designated as disadvantaged business enterprises ("DBEs"). The rules do not
specify the method in which the DBEs must participate, whether through owning
the concession, employment or providing services. Competitors in the industry
have relied on combinations of using DBE employees or vendors to meet this
requirement. Prior to CHST's initial public offering in July 1997, Mr. Sayed
Ali, a native of Pakistan, owned all of the Company's Common Stock, thereby
satisfying FAA rules. As a result of the change in ownership resulting from the
initial public offering and from subsequent private placements, CHST's status as
a DBE is less clear. Certain existing concession contracts designate CHST as a
DBE and may have to be reaffirmed. We believe that in general there are two
types of contracts relating to DBE's: contracts which require the Company to be
a DBE and contracts which require that a portion of the services be completed by
a DBE. In the event we are determined not to be a DBE, we can satisfy the
contracts requiring DBE participation through third parties. We believe that
even if Mr. Ali's current equity ownership of CHST is no longer sufficient to
qualify as a DBE, we would be able to maintain all of our contracts and continue
to satisfy DBE rules by hiring or contracting with minority parties or other
entities qualifying as DBEs, if required. However, we have not discussed with
any airport authority the possible impact of our change in status, nor have we
attempted to reaffirm any existing contract. Our status as a DBE assisted us in
securing concessions with several airports. We believe we can continue to
secure new concessions on the basis of the products and services we offer and
our industry reputation. We have secured concessions to operate more than 25
additional locations after our initial public offering and the resultant
dilution of ownership, although we are not aware of the extent to which CHST's
DBE status, or lack thereof, was a factor in the airport authorities' decisions
to award such contracts to us. To the extent that our historic rate of success
in securing new airport concessions was attributable to our status as a DBE,
that growth rate may decline if we are not recognized as a DBE or if DBE
programs are eliminated or curtailed.
POSSIBLE EARLY TERMINATION OF CONCESSIONS. Certain airport authorities or
airlines that operate concession locations provide in their concession
agreements for the right to reacquire the concession from the concessionaire
upon reimbursement of equipment and build out costs and, sometimes, a percentage
of anticipated profits during the balance of the concession term. Certain of
the Company's significant concession contracts, including Los Angeles
International, Des Moines, Iowa, Columbia, South Carolina, Cedar Rapids, Iowa,
and others, provide for such early termination. To date, we have not had any of
our concessions terminated, and we have not received notice that any airport
authority is contemplating the early termination of any of our concessions. No
assurances can be provided, however, that these airport authorities will not
exercise their contractual right to early termination of the concession
contracts in the future.
10
POSSIBLE DELAY IN COMMENCEMENT OF CONCESSION OPERATIONS. The commencement
of our concession operations at any airport location are subject to a number of
factors which are outside our control, including construction delays and
decisions by airport authorities to delay the opening of concessions. CHST has,
in the past, experienced delays in commencing operations because of decisions by
airport authorities.
CHST'S RISKS UNDER PRIOR NOTE. CHST was obligated to pay the outstanding
original principal amount of $3,000,000 of 12% Secured Convertible Notes issued
on December 21, 1998 (collectively, the "Notes"). The Notes were payable
interest only on a monthly basis, with all principal and accrued but unpaid
interest due in full on December 21, 2003. The Notes also contained
requirements for maintenance of coverage and cash flow ratios, as well as other
restrictions. During 1999 CHST was in technical default on certain of those
covenants, triggering the accrual of default interest equal to an additional 3%
per annum, raising the overall interest rate on the Note during that period to
15% per annum. Restrictions in the Note also contributed to preventing us from
submitting bid proposals for three airport locations that we otherwise would
have sought in 1999. The entire outstanding balance of the Note was converted
into shares of the Company's Common Stock in accordance with its terms in late
1999 and early 2000, and all shares issued to the Noteholders were registered
with the Securities and Exchange Commission on March 13, 2000, as required by
the terms of the Notes. We tendered the default interest payments to the
Noteholders, one of which accepted the payment with respect to $1,495,000
original principal amount of Note. The other Noteholder which previously held
$1,505,000 original principal amount of Note has received the default interest
payment of approximately $39,000, but is claiming that we agreed to issue
approximately 106,000 warrants to the Noteholder in lieu of the cash payment for
default interest. The Noteholder has filed a complaint claiming that the
warrants would entitle it to purchase our common stock at prices prevailing in
October or November of 1999 (approximately $3.00 to $6.25 per share, which we
dispute). We vigorously deny the Noteholder's claims and do not believe that we
agreed to issue any warrants to the Noteholder. Nevertheless, there is no
assurance regarding the outcome of the litigation which could force us to incur
significant costs.
RISKS OF DECLINE IN STOCK PRICE. Our stock price has recently been
volatile. There is no assurance that the price of our stock on the NASDAQ
market will not decline because of the availability of the Common Stock for
potential sale, and for other reasons. CHST may register more shares of its
stock in the future, potentially increasing the supply of free trading shares
and possibly exerting downward pressure on our stock price.
RISK OF DILUTION THROUGH ADDITIONAL ISSUANCES OF SHARES. We may issue more
shares of our common or preferred stock in the future in order to raise capital
and make acquisitions of other businesses. Outstanding warrants and stock
options may be exercised, causing more dilution in the outstanding shares of our
capital stock. We are generally permitted to issue additional shares of our
capital stock with the approval of our Board of Directors and without the
consent of CHST's shareholders.
DEPENDENCE ON KEY PERSONNEL AND NEED TO ATTRACT QUALIFIED MANAGEMENT. Our
success will depend largely upon CHST's management. While management has had
previous experience in concession and restaurant operations, there can be no
assurance that our operations will be successful. Sayed Ali, Chairman of the
Board, President and Chief Executive Officer of CHST, entered into a new
five-year employment agreement with CHST which commenced as of January 1, 2000.
The new employment agreement provides for an annual salary for Mr. Ali of
$140,000 in 2000, $155,000 in 2001, $171,000 in 2002, $189,000 in 2003 and
$208,000 in 2004. Mr. Ali is also entitled to begranted 60,000 additional stock
options, vesting 20,000 upon grant, 20,000 in January 2001 and 20,000 in January
2002. The exercise price will be 110% of the fair market value of the stock on
the date of grant, and the exercise period will be three years from the date the
warrants become exercisable. Mr. Ali's employment agreement provides that upon
a termination of employment, Mr. Ali will be entitled to a severance payment
equal to his annual base compensation and immediate vesting of options. In the
event of a loss of the services of Mr. Ali, CHST could be materially adversely
affected because there is no assurance that CHST could obtain successor
management of equivalent talent and experience. CHST has obtained a $1,000,000
key man policy on Mr. Ali which CHST owns. Given our stage of development, we
are dependent upon our ability to identify, hire, train, retain and motivate
highly qualified personnel, especially management personnel which will be
required to supervise our expansion into various geographic areas. There can be
no assurance that we will be able to attract qualified personnel or that our
current employees will continue to work for us. The failure to attract,
assimilate and train key personnel could have a material adverse effect on our
business, financial condition and results of operations.
RISKS OF LITIGATION. We are and may in the future become subject to
litigation that could have a material adverse impact on our operating results
and financial condition. Besides the threat of litigation from one of our
former lenders regarding warrants (see "Risk Factors--CHST's Risks Under Prior
Note"), CHST and Sayed Ali have been named as defendants in lawsuits for breach
of contract and related claims by Amplicon Financial Company, a prior lessor of
equipment to CHST. Amplicon is claiming that additional payments are due to it
under an equipment lease, while we believe that we terminated the lease. CHST
and Mr. Ali, who purportedly executed a personal guarantee of the lease, intend
to vigorously defend against Amplicon's claims. We have also been served with
litigation relating to a claim for additional warrants to purchase our Common
Stock from an investor relations firm alleging that in early 1998 we entered
into a consulting agreement with it. We do not believe that the firm provided
any services for us and we intend to defend the claim. While we do not believe
the potential for success of this claim is material, we have provided up to
$106,000 in reserves against our pending litigation. There is no assurance
regarding the outcome of these threatened and pending lawsuits.
11
HIGHLY COMPETITIVE INDUSTRY DOMINATED BY LARGER COMPETITORS. We compete
with certain national and several regional companies to obtain the rights from
airport and other authorities to operate food, beverage, news, gift, merchandise
and inflight catering concessions. The airport concession market is principally
serviced by several companies which are significantly larger than CHST,
including, but not limited to, Host Marriott Services, Inc., CA One Services,
Concessions International, and Ogden Food Services. Each of these well
established competitors possesses substantially greater financial, marketing,
administrative and other resources than CHST. Many of our competitors have
achieved significant brand name and product recognition. They engage in
extensive advertising and promotional programs, both generally and in response
to efforts by additional competitors to enter new markets or introduce new
products. There can be no assurance that we will be able to compete
successfully in our chosen markets.
DEPENDENCE UPON CONTINUING APPROVALS FROM GOVERNMENT REGULATORY
AUTHORITIES. The food and beverage service industry is subject to various
federal, state and local government regulations, including those related to
health, safety, wages and working conditions. While CHST has not experienced
difficulties in obtaining necessary government approvals to date, the failure to
obtain and retain food licenses or any other governmental approvals could have a
material adverse effect on the Company's operating results. Moreover, our
failure to meet government regulations could result in the temporary closure of
one or more of our concession facilities, restaurants or the food preparation
center, any of which would have a material adverse impact on our financial
condition and result of operations. In addition, operating costs are affected
by increases in the minimum hourly wage, unemployment tax rates, sales taxes and
similar matters over which we have no control. We are also subject to federal
and state laws, rules and regulations that govern the offer and sale of
franchises.
NO ASSURANCE OF ENFORCEABILITY OF TRADEMARKS. We utilize trademarks in our
business and have registered our Creative Croissants(R) trademark. While we
intend to file federal trademark registrations for certain of our other
trademarks, we have not yet done so. There can be no assurance that we will be
granted registration for such trademarks or that our trademarks do not or will
not violate the proprietary rights of others, that our trademarks would be
upheld if challenged or that we will not be prevented from using our trademarks,
any of which could have a material adverse effect on us. Should we believe that
our trademarks are being infringed upon by competitors, there can be no
assurance that we will have the financial resources necessary to enforce or
defend our trademarks and service marks.
SEASONALITY. Because our airport concession business is dependent on
pedestrian traffic at domestic airports, we experience some seasonality
consistent with enplanements and general air traffic patterns. Accordingly, our
revenues and income are generally expected to be lowest in the first quarter of
the year and become progressively stronger through the fourth quarter, which
includes the holiday travel periods.
CONTROL BY PRINCIPAL SHAREHOLDER. The principal shareholder of the
Company, Mr. Sayed Ali, beneficially owns approximately 16.5% of the outstanding
shares of capital stock of CHST. Accordingly, Mr. Ali has significant influence
over the outcome of all matters submitted to the shareholders for approval,
including the election of directors of the Company.
DIVIDENDS. The Company does not intend to declare or pay any dividends on
its outstanding shares of Common Stock in the foreseeable future. See "Terms of
the Offering" and "Description of Securities."
IN ADDITION TO THE FOREGOING RISKS, BUSINESSES ARE OFTEN SUBJECT TO RISKS THAT
ARE NOT FORESEEN OR FULLY APPRECIATED BY MANAGEMENT. POTENTIAL INVESTORS SHOULD
KEEP IN MIND THAT OTHER IMPORTANT RISKS COULD ARISE.
USE OF PROCEEDS
CHST will not receive any of the proceeds from the sale of shares of common
stock by the Selling Shareholders.
12
SELLING SHAREHOLDERS
The Shares of the Company to which this Reoffer Prospectus relates are being
registered for reoffers and resales by the Selling Shareholder, who acquired
the Shares for legal services provided to CHST. The Selling Shareholder may
resell all, a portion or none of such Shares from time to time.
The table below sets forth with respect to the Selling Shareholder, based upon
information available to the Company as of February 28, 2001, the number of
Shares owned, the number of Shares registered by this Reoffer Prospectus and the
number and percent of outstanding Shares that will be owned after the sale of
the registered Shares assuming the sale of all of the registered Shares.
NUMBER OF NUMBER OF % OF SHARES
SHARES SHARES NUMBER OF OWNED BY
SELLING OWNED REGISTERED BY SHARES OWNED SHAREHOLDER
SHAREHOLDERS BEFORE SALE PROSPECTUS AFTER SALE AFTER SALE
- ----------------- ------------- ------------- ------------ ------------
M. Richard Cutler 24,000 20,000 4,000 *
*less than 1%
PLAN OF DISTRIBUTION
The Selling Shareholders may sell the Shares for value from time to time under
this Reoffer Prospectus in one or more transactions on the Over-the-Counter
Bulletin Board maintained by Nasdaq, or other exchange, in a negotiated
transaction or in a combination of such methods of sale, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at prices otherwise negotiated. The Selling Shareholders may effect
such transactions by selling the Shares to or through brokers-dealers, and such
broker-dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the Selling Shareholders and/or the purchasers
of the Shares for whom such broker-dealers may act as agent (which compensation
may be less than or in excess of customary commissions).
13
The Selling Shareholders and any broker-dealers that participate in the
distribution of the Shares may be deemed to be "underwriters" within the meaning
of Section 2(11) of the 1933 Act, and any commissions received by them and any
profit on the resale of the Shares sold by them may be deemed be underwriting
discounts and commissions under the 1933 Act. All selling and other expenses
incurred by the Selling Shareholders will be borne by the Selling Shareholders.
In addition to any Shares sold hereunder, the Selling Shareholders may, at the
same time, sell any shares of common stock, including the Shares, owned by him
or her in compliance with all of the requirements of Rule 144, regardless of
whether such shares are covered by this Reoffer Prospectus.
There is no assurance that the Selling Shareholders will sell all or any portion
of the Shares offered.
The Company will pay all expenses in connection with this offering and will
not receive any proceeds from sales of any Shares by the Selling Shareholders.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by the Cutler Law Group, Newport Beach, California. M. Richard Cutler,
the sole shareholder of Cutler Law Group, PC, holds 24,000 shares of the
Company's Common Stock.
EXPERTS
The financial statements and the related supplemental schedules
incorporated in this Prospectus by reference from CHST's Annual Report on
Form 10-KSB/A for the year ended December 31, 1999 have been audited by
Stonefield Josephson, independent certified public accountants, as set forth
in their report appearing with the financial statements, and have been so
included in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
14
PART II
INFORMATION NOT REQUIRED IN THE REGISTRATION STATEMENT
ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE.
The following documents are hereby incorporated by reference in this
Registration Statement:
1. The Company's Annual Report on Form 10-KSB/A for the year ended
December 31, 1999.
2. The Company's Quarterly Report on Form 10-QSB for the quarterly
period ended March 31, 2000.
3. The Company's Quarterly Report on Form 10-QSB for the quarterly
period ended June 30, 2000.
4. The Company's Quarterly Report on Form 10-QSB for the quarterly
period ended September 30, 2000.
5. The Company's Report on Form 8-K/A filed on February 28, 2001.
6. The Company's Definitive Proxy Statement dated January 17, 2001
7. All other reports and documents subsequently filed by the
Registrant after the date of this Registration Statement pursuant
to Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange
Act of 1934 and prior to the filing of a post-effective amendment
which indicates that all securities offered hereby have been sold
or which deregisters all securities then remaining unsold, shall
be deemed to be incorporated by reference and to be a part hereof
from the date of the filing of such documents.
ITEM 4. DESCRIPTION OF SECURITIES.
Not applicable.
ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL.
Certain legal matters with respect to the Common Stock offered hereby will be
passed upon for the Company by Cutler Law Group, counsel to the Company.
M. Richard Cutler, the sole shareholder of Cutler Law Group, PC, holds
24,000 shares of the Company's Common Stock.
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Corporation Laws of the State of California and the Company's Bylaws
provide for indemnification of the Company's Directors for liabilities and
expenses that they may incur in such capacities. In general, Directors and
Officers are indemnified with respect to actions taken in good faith in a manner
reasonably believed to be in, or not opposed to, the best interests of the
Company, and with respect to any criminal action or proceeding, actions that the
indemnitee had no reasonable cause to believe were unlawful. Furthermore, the
personal liability of the Directors is limited as provided in the Company's
Articles of Incorporation.
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED.
The Shares were issued for legal services rendered. These sales were
made in reliance of the exemption from the registration requirements of the
Securities Act of 1933, as amended, contained in Section 4(2) thereof covering
transactions not involving any public offering or not involving any "offer" or
"sale".
ITEM 8. EXHIBITS
Exhibit No. Description
----------- -----------
3.1 Amended and Restated Articles of Incorporation*
3.2 Bylaws*
5 Opinion of Cutler Law Group with respect to legality of the
securities of the Registrant being registered
23.1 Consent of Stonefield Josephson, independent accountants
23.1 Consent of Cutler Law Group (contained in opinion to be filed
as Exhibit 5)
_______________________
*Previously filed.
ITEM 9. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to include any material
information with respect to the plan of distribution not previously disclosed in
the Registration Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's Annual Report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that is meets all of the
requirements for filing on Form S-8 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Diego, State of California, on April 10,
2001.
CREATIVE HOST SERVICES, INC.
By: /s/ SAYED ALI
-----------------------------------
Sayed Ali, President
Signature Title Date
/s/ SAYED ALI President, Chief Financial December 7, 2000
- - ------------------------------ Officer and Director
Sayed Ali
/s/ BOOKER T. GRAVES Director December 7, 2000
- - ------------------------------
Booker T. Graves
/s/ JOHN P. DONOHUE, JR. Director December 7, 2000
- - ------------------------------
John P. Donohue, Jr.
/s/ CHARLES B. RADLOFF Director December 7, 2000
- - ------------------------------
Charles B. Radloff