Creative Host Services Inc · 10KSB · For 12/31/99

Filed On 4/13/00   ·   SEC File 0-22845   ·   Accession Number 912057-0-17884

Annual Report -- Small Business   ·   Form 10-KSB
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10KSB       Annual Report -- Small Business                       36    147K 
 2: EX-27       Financial Data Schedule                                2      4K 

10KSB   ·   Annual Report -- Small Business
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20559

 FORM 10-KSB

(Mark One)                                                                      
(x)                   Annual Report Under Section 13 or 15(d) of                
 the Securities Exchange Act of 1934

 For the fiscal year ended December 31, 1999

or

( )                 Transition Report Under 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                                33-1069494  
    (State of Incorporation)            (I.R.S. Employer Identification No.)

       6335 FERRIS SQUARE, SUITES G-H, SAN DIEGO, CALIFORNIA 92126
           (Address of principal executive offices)           (Zip Code)

(619) 587-7300
Registrant's telephone number, including area code

 Securities registered pursuant to Section 12(b) of the Act:

                                          Name of Each Exchange On
 Title of Each Class                              Which Registered

COMMON STOCK                                       NASDAQ 

         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                             
                   ---   ---

       Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,  
to the best of registrant's knowledge, in definitive proxy or information       
statements incorporated by reference in Part III of this Form 10-KSB or any     
amendment to this Form 10-KSB. / /                                              

Revenues for fiscal year 1999 were $18,176,951                

      The aggregate market value of voting stock held by non-affiliates of
the registrant was $59,896,809 as of March 29, 2000 (computed by reference to   
the last sale price of a share of the registrant's Common Stock on that date as 
reported by NASDAQ).                                                            

    There were 5,704,458 shares outstanding of the registrant's Common
Stock as of March 29, 2000.                                                     

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PART I

ITEM 1.   BUSINESS                                                              

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 40 operating concession facilities at 21      
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 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 major airlines at certain airports. 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., Little Caesar's Pizza, TCBY       
Yogurt, Mrs. Fields, and Taco Bell. 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.                                            

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     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.                               

     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 TCBY Yogurt and Creative Croissants,     
along with a bar, lounge and mini library. The Company currently operates Cafe  
and Spirts formats at all 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.                                

   "PANACHE COFFEES": The Company has entered into an agreement with
Panache Coffees to meet the growing demand for coffee beverages at airports.    
This concept enables the Company to service smaller areas on a more dispersed   
basis. The Company has presented this concept in a kiosk format and as part of  
other food and beverage facilities. The Company currently has Panache Coffee    
outlets at all locations.                                                       

       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 (i) TCBY Yogurt to operate   
TCBY franchises at its Lexington, Roanoke, Columbia and Cedar Rapids concession 
facilities; (ii) Carl's Jr./Green Burrito to operate franchises at its two      
Ontario, California concession facilities which opened in October 1998; (iii)   
ICBY to operate ICBY franchises at its Greensboro, Des Moines, Allentown,       
Asheville and Sioux Falls concession facilities; (iv) Taco Bell to operate a    
franchise at its Greensboro concession facility; and (v) Little Caesars to      
operate Little Caesars franchises at some of its concession facilities. 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 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                                                       

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provide news stands, gift shops, specialty stores and other services to augment 
the Company's food and beverage business at airports and other 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.                                                  

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   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. The       
potential for direct sales of bakery items from the Company's food preparation  
center to the major airlines is also being pursued. The Company intends to      
continue to bid on direct inflight catering contracts with airlines as it       
expands into new airport locations. There can be no assurance that the Company  
will be successful in this market.                                              

CONCESSION LOCATIONS                                                            

        WITH THE EXCEPTION OF HISTORICAL MATTERS, THE MATTERS DISCUSSED HEREIN
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 COMPANY'S ACTUAL RESULTS COULD DIFFER       
MATERIALLY FROM THE RESULTS DISCUSSED IN SUCH FORWARD LOOKING STATEMENTS.       

The following table identifies the Company's existing airport 
concessions and those which have been awarded and are expected to be in         
operations in 2000:                                                             

 EXISTING AND AWARDED CONCESSION LOCATIONS
Year Ended December 31, 1999

                                                        [Enlarge/Download Table]


                                                                  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) North   (three locations)                                                                
Carolina                                                                                                  

Ashenville, 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, Iowa(3)      Food and Beverage      July 1997       November 1998  July 2007(3)      1,508,399
                         (four locations)                                                                 

Allentown, Pennsylvania  Food and Beverage      July 1996       January 1998   July 2006         1,430,347
                         (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, Iowa(1)    Master Concession;     November 1996   October 1997   March 2004(5)     1,412,915
                         Food and Beverage                                                                
                         (two locations); News                                                            
                         & Gifts (one                                                                     
                         location); Specialty                                                             
                         Stores (one                                                                      
                         location); Inflight                                                              
                         Catering                                                                         

Lexington, Kentucky(1)   Food and Beverage      July 1996       February 1997  July 2006           767,321
                         (two locations);                                                                 
                         Inflight Catering                                                                

Roanoke, Virginia(1)     Food and Beverage      June 1996       January 1997   June 2006           590,552
                         (two locations);                                                                 
                         Inflight Catering                                                                

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Appleton, Wisconsin(1)   Food and Beverage      January 1996    January 1996   July 2005           320,204
                         (one location)                                                                   

Madison, Wisconsin (1)   Food and Beverage      January 1996    July 1996      January 2006        873,404
                         (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, Colorado(1)       Food and Beverage      May 1994        May 1994       September 1999      325,900
                         (one location)                                                                   

Denver International     Food and Beverage      February 1995   Two            June 2003 and     1,009,799
                         (three locations)                      completed      November 2006              
                                                                February                                  
                                                                1995; one                                 
                                                                completed                                 
                                                                December 1997                             

Orange County            Food and Beverage      September 1990  Completed      February 2001(5)  N.A      
                         (one location)                                                                   

Baton Rouge              Food and Beverage      July, 1999      July 2000      July 2010           508,980
                         (two Locations)                                                                  

Shreveport, Louisiana    Food and Beverage      May 2000        February       November 2009     N.A.     
                         (two locations)                        1996 & May                                
                                                                1999                                      

-----------------------------------------                                       

(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.       

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 and at franchise restaurants,       
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 food preparation center to restaurants and other food outlets in
the San Diego area. These outside customers include hotels, institutions and    
mobile food carriers. 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                                                                          

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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. See "MANAGEMENT'S DISCUSSION AND      
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." The Company         
continues to have franchise relationships with 11 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, currently 8 of 9 franchises are in default on their  
monthly royalty payment obligations to the Company. This default amounts to     
approximately $3,000 per month in lost royalties.                               

        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.                         

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                                                                         

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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., Little  
Caesar's Pizza, Taco Bell 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.          

PROPOSED ACQUISITION                                                            

    On March 8, 2000, the Company entered into a non-binding letter of
intent with Cafe Diva Group, Ltd., an unaffiliated company engaged in the       
business of operating coffee kiosks, roasting and selling coffee beans on a     
wholesale basis and preparing and selling baked goods on a retail basis in the  
Northwestern and Western United States. Under the letter of intent, the Company 
indicated that it would acquire 100% of the assets of Cafe Diva Group, Ltd. in  
consideration for the issuance of a sufficient number of shares of the Company's
Common Stock to result in Cafe Diva Group, Ltd. Owning 50% of the total issued  
and outstanding shares of the Company's Common Stock after the closing. The     
Company and Cafe Diva Group, Ltd. are currently in the due diligence phase and  
have not yet executed a definitive asset purchase agreement. The letter of      
intent is non-binding and there is no assurance that the acquisition will occur.
Management is also evaluating other potential acquisition candidates in the same
industry as the Company, but there is no assurance that the Company will acquire
any new businesses. The Company plans to grow through acquisitions as well as   
submitting bids to other airports and other concessions.                        

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.                                                                

     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.                                                            

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     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.                                                    

      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                                                             

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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 546 employees, including 12 in administration and
534 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.                                                     

ITEM 2.   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 which 
it assigns to operators in connection with franchise operations.                

ITEM 3.   LEGAL PROCEEDINGS                                                     

         There were no material legal proceedings to which the Company or any of
its subsidiaries was a party in the fiscal year ended December 31, 1999.        

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                   

         There were no matters submitted to a vote of securityholders during the
fourth quarter of Fiscal 1999.                                                  

 PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED                      
STOCKHOLDER MATTERS                                         

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         The Company's Common Stock trades on the NASDAQ Market under the symbol
CHST. The Company completed its initial public offering on July 22, 1997 and its
stock began trading on the Exchange at that time. The number of recordholders of
the Common Stock was 109 on March 29, 2000. The Company believes that there are 
a significant number of beneficial owners of its Common Stock whose shares are  
held in "street name." The closing sales price of the Common Stock on March 29, 
2000 was $10.50 per share. The following chart sets forth, for the fiscal period
indicated, the high and low closing sales prices for the Company's Common Stock.

                                                                [Download Table]


                                                     Low              High  
                                                     ---              ----  

                                                                            
    Fiscal 1997                                                             
         July 22, 1997 to September 30, 1997         3 13/16          4 7/16
         Fourth Quarter                              1 7/8            4 3/16

    Fiscal 1998                                                             
         First Quarter                               2 1/32           2 3/4 
         Second Quarter                              1 3/4            3     
         Third Quarter                               1 3/8            2 3/16
         Fourth Quarter                              13/16            2     

Fiscal 1999                                                                 
         First Quarter                               1 1/4            1 7/8 
         Second Quarter                              1                1 7/16
         Third Quarter                               1 1/8            1 5/8 
         Fourth Quarter                              7/8              6 1/4 

         Pursuant to a Private Placement Memorandum dated December 21, 1998, the
Company sold 12% Secured Convertible Promissory Notes, together with warrants to
purchase 240,000 shares of Common Stock, for an aggregate amount of $3,000,000  
in cash. The principal underwriter in this offering was EBI Securities          
Corporation. The Notes and warrants sold in this offering were offered only to  
"accredited investors" as defined in the Securities Act of 1933, as amended. The
underwriter received (i) 3% of the proceeds of sales of the securities to       
non-institutional investors purchasing less than $1,500,000 of Notes, (ii) 2% of
the proceeds of sales of securities to institutional investors purchasing       
$1,500,000 or more of the securities, and (iii) 40,000 warrants to purchase     
Common Stock on the same terms as the warrants sold in this offering. These     
securities were sold pursuant to Rule 506 of Regulation D under the Securities  
Act of 1933, as amended. The Notes are convertible at the option of the holder  
thereof, in whole or in part, at any time on or after March 21, 1999, at $2.625 
per share of Common Stock. The warrants are exercisable until December 21, 2003 
at an exercise price equal to the 30-calendar day trailing average of the       
closing bid price of the Common Stock as of December 21, 1998, not to exceed    
$2.00.                                                                          

    Commencing in December, 1999, the holders of the outstanding Notes
began converting the outstanding balance of the Notes into Common Stock, and    
exercising the outstanding warrants on a "cashless" basis. By March 2000, all of
the outstanding Notes had been converted into Common Stock at a rate of $2.625  
per share, and all of the outstanding warrants had been exercised at an exercise
price of $1.48 per share. The shares issued upon the conversion of the Notes and
the exercise of the warrants were registered on a Form S-3 registration         
statement declared effective by the Securities and Exchange Commission on March 
13, 2000.                                                                       

    In January, 2000, the Company commenced a private placement of its
Common Stock to accredited investors only for a price of $5.00 per share        
pursuant to which the Company raised approximately $1,200,000 of total capital. 
The Company agreed to register the shares on Form S-3, and the shareholders     
agreed to hold their stock for at least six months.                             

ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL                     
CONDITION AND RESULTS OF OPERATIONS                         

         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                                                                  

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THE COMPANY TO REDUCE CERTAIN OPERATING EXPENSES AS A PERCENTAGE OF TOTAL       
REVENUES, THE ABILITY OF THE COMPANY TO REDUCE GENERAL AND ADMINISTRATIVE       
EXPENSES AS A PERCENTAGE OF TOTAL SALES, AND THE POTENTIAL INCREASE IN NET      
INCOME AND CASH FLOW THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM  
THE RESULTS DISCUSSED IN SUCH FORWARD LOOKING STATEMENTS. FACTORS THAT COULD    
CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THE INABILITY TO OBTAIN THE     
SUBSTANTIAL ADDITIONAL CAPITAL NECESSARY TO COMPLETE CONSTRUCTION OF CAPITAL    
IMPROVEMENTS AWARDED UNDER EXISTING CONCESSION AGREEMENTS, POSSIBLE EARLY       
TERMINATION OF EXISTING CONCESSION CONTRACTS, POSSIBLE DELAY IN THE COMMENCEMENT
OF CONCESSION OPERATIONS AT NEWLY AWARDED CONCESSION FACILITIES, THE NEED AND   
ABILITY TO ATTRACT AND RETAIN QUALIFIED MANAGEMENT TO MANAGE OPERATIONS, THE    
NEED TO OBTAIN CONTINUING APPROVALS FROM GOVERNMENT REGULATORY AUTHORITIES, THE 
TERM AND CONDITIONS OF ANY POTENTIAL MERGER OR ACQUISITION OF EXISTING AIRPORT  
CONCESSION OPERATIONS.                                                          

OVERVIEW                                                                        

  The Company commenced business in 1987 as an owner, operator and
franchisor of French style cafes featuring hot meal croissants, fresh roasted   
gourmet coffee, fresh salads and pastas, fruit filled pastries, muffins and     
other bakery products. The Company currently has 9 restaurant franchises which  
operate independently from its airport concession business. The restaurant      
franchise business has never been profitable for the Company. Although the      
Company maintains a current offering circular on file with the FTC and various  
state authorities, the Company has not sold a new franchise since 1994.         

       In 1990, the Company entered the airport food and beverage concession
market when it was awarded a concession to operate a food and beverage location 
for John Wayne Airport in Orange County, California, which is currently operated
by a franchisee. In 1994, the Company was awarded its first multiple concession 
contract for the Denver International Airport, where it was awarded a second    
concession in 1994 and two subsequent concessions in 1996. The success of the   
franchisees operating the Orange County and Denver International Airport        
concessions prompted the Company to enter into the airport concession business. 
Since 1994, the Company has opened 40 concession locations at 21 airports. In   
1996, the Company was awarded its first master concession contract for the      
airport in Cedar Rapids, Iowa, where it has the right to install and manage all 
food, beverage, news, gift and other services.                                  

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 five years,       
revenues from concession operations have grown from 59% of total revenues in    
1995 to 98.6% of total revenues in 1999.                                        

         The Company had working capital for the fiscal year ending December 31,
1999 of $(1,343,912) compared to $(1,034,572) for the fiscal year ending        
December 31, 1998. Capital improvement costs incurred to meet the requirements  
of new airport concession contracts have placed substantial demands on the      
Company's working capital. Subsequent to year end this negative working capital 
is now resolved through private placement of the Company's common stock and     
satisfaction of obligations through the conveyance of equity securities. As of  
March 31, 2000 the Company has reduced its debt from approximately $7,000,000 to
$4,000,000 thus increasing its equity position from approximately $5,000,000 to 
$8,000,000. Additionally, the Company has raised $1,200,000 through the sale of 
private placement. The 462,000 outstanding warrants issued during this initial  
public offering are now being exercised at $5.40. The management believes all   
the warrants will be exercised which will result in additional capital of       
$2,494,800. As of March 29, 2000 approximately 300,000 warrants have been       
exercised resulting in capital contribution of $1,620,000. However, there is no 
assurance regarding the actual amount of warrants exercised.                    

  The Company may have capital requirements in 2000 to finance the
construction of new airport concessions, restaurants and other concession       
related businesses such as news & gifts, specialty, inflight catering and other 
services. In this regard                                                        

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the Company may have additional capital requirements to the extent that it wins 
additional contracts from its current and future airport concession bids.       

RESULTS OF OPERATIONS                                                           

        The following table sets forth for the period indicated selected items
of the Company's statement of operations as a percentage of its total revenues. 

                                                                [Download Table]

                                          FISCAL YEAR ENDED DECEMBER 31,  
                                          ------------------------------  
                                        1997           1998           1999
                                        ----           ----           ----

                                                                          
Revenues:                                                                 
         Concessions                     92%            95%            98%
         Food Preparation Center Sales    7              4              1 
         Franchise Royalties              1              1              1 
                                        ---            ---            --- 
         Total Revenues                 100%           100%           100%

         Cost of Goods Sold             32             30             32  
                                        ---            ---            --- 
         Gross Profit                   68             70             68  

Operating Costs and Expenses:                                             
         Payroll and Employee Benefits  36             34             33  
         Occupancy                      15             16             16  
         Depreciation                    3              3              5  
         General and Administrative     11             12             12  
         Interest Expense               2              1              5   
         Provision for Income Taxes     0              0              0   
         Other (Income) Loss            0              0              0   
                                        ---            ---            --- 
         Net Income (Loss)              1%             4%             (3)%
                                        ---            ---            --- 
                                        ---            ---            --- 

   FISCAL YEAR ENDED DECEMBER 31, 1999 COMPARED TO FISCAL YEAR ENDED
DECEMBER 31, 1998                                                               

  REVENUES. The Company's gross revenues for the fiscal year ended
December 31, 1999 were $18,176,951 compared to $14,720,350, for the fiscal year 
ended December 31, 1998. Revenues from concession activities increased          
$3,931,842 ($17,917,858 compared to $13,986,016) and food preparation center    
sales decreased $488,117 ($188,683 compared to 676,800) while franchise         
royalties increased $12,876 ($70,410 compared to $57,534). Substantially all of 
the increase in concession activities is attributable to full year operations   
for the concession locations opened during fiscal 1998 and partial year         
operations for an additional three concession locations which opened during     
fiscal 1999.                                                                    

       COST OF GOODS SOLD. The cost of goods sold for the fiscal year ending
December 31, 1999 was $5,764,769 compared to $4,446,203 for the fiscal year     
ending December 31, 1998. As a percentage of total revenues, the cost of goods  
sold was 32% in 1999 and 30% 1998. Costs of goods sold is typically high for a  
newly opened concession facility as the Company gathers information concerning  
requirements for the specific location. Since the product is perishable,        
adjustments to production level effects both sales and costs of sales. As the   
Company improves accuracy of production and reduces the waste problem created by
training, cost of sales will improve. As a result, the Company expects costs of 
goods sold to decline slightly as a percentage of sales as newly added stores   
obtain operating data.                                                          

    OPERATING COSTS AND EXPENSES. Operating costs and expenses for the
fiscal year ended December 31, 1999 were $12,002,547 compared to $9,692,476 for 
the fiscal year ended December 31, 1998. Payroll expenses increased from        
$5,054,800 in 1998 to $5,913,200 in 1999. As a percentage of total revenues,    
payroll expense was 34% in 1998 and decreased to 33% in 1999.                   

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The Company expects payroll expenses to increase in total dollar amounts with   
the addition of new concession facilities, but to decrease modestly as a        
percent of revenues as newly opened facilities operate more efficiently and     
the Company reaps the benefits of recently implemented cost control measures.   
General and administrative expenses increased from $1,826,168 in 1998 to        
$2,199,910 in 1999, and remained the same as a percentage of total revenues     
at 12%. The Company will continue to add additional administrative staff        
commensurate with its growth but expected general and administrative expenses   
to continue to decline as a percentage of total revenues.                       

       INTEREST EXPENSE. Interest expense for the fiscal year ended December
31, 1998 was $84,839 compared to $977,612 for the fiscal year ended December 31,
1999. As a percentage of total revenues, interest expense was 1% in 1998 and    
increased to 5% in 1999 due to interest related to concession improvements.     

    NET INCOME (LOSS). Net loss for the fiscal year ended December 31,
1999 was $(579,758) compared to net income of $480,532 for the fiscal year      
ended December 31, 1998. Operating income decreased in 1999 to $409,635         
compared to $581,671 in 1998. Management attributes the decrease in net         
income mainly due to the following factors (a) costs incurred due to the        
conversion of $3,000,000 note, (b) the original unamortized costs that were     
incurred due to the conversion of related debt, and (c) penalties, interest     
and other fees. As a result of this the Company has reduced its debt by 43%     
and interest expense by 39%. Other factors that contributed to the net loss     
are (1) the costs of opening a number of new concessions, (2) management has    
adopted a change in reporting to comply with changes in its' application of     
FASB rules regarding the capitalization of certain expenses incurred during     
the start up of new concessions. The company no longer capitalizes Training     
Expenses, Food Costs related to training, and other expansion items and (3)     
Management retained a Firm to renegotiate a pool of a number of small leases    
(totaling $885,542) with comparatively high interest rates into larger,         
singular master leases with comparatively lower interest rates. A one time      
charge has been incurred for this service.                                      

       SAME STORE SALES. The Company operated thirteen locations during both
the full fiscal years ended December 31, 1998 and December 31, 1999. Sales for  
those locations were $12,151,747 for the fiscal year ended December 31, 1998 and
$13,484,790 for the fiscal year ended December 31, 1999, representing an        
increase of $1,333,042, or 9.9%.                                                

   FISCAL YEAR ENDED DECEMBER 31, 1998 COMPARED TO FISCAL YEAR ENDED
DECEMBER 31, 1997                                                               

  REVENUES. The Company's gross revenues for the fiscal year ended
December 31, 1998 were $14,720,350, compared to $9,802,529, for the fiscal year 
ended December 31, 1997. Revenues from concession activities increased          
$4,950,209 ($13,986,016 compared to $9,035,807) and food preparation center     
sales increased $17,792 (from $659,008 to $676,800) while franchise royalties   
declined $50,180 (from $107,714 to $57,534). Substantially all of the increase  
in concession activities is attributable to full year operations for the        
concession locations opened during fiscal 1997 and partial year operations for  
an additional 2 concession locations which opened during fiscal 1998. COST OF   
GOODS SOLD. The cost of goods sold for the fiscal year ending December 31, 1998 
was $4,446,203 compared to $3,126,711 for the fiscal year ending December 31,   
1997. As a percentage of total revenues, the cost of goods sold was 32% in 1997 
and 30% 1998. Costs of goods sold is typically high for a newly opened          
concession facility as the Company gathers information concerning requirements  
for the specific location. Since the product is perishable, adjustments to      
production level effects both sales and costs of sales. As the Company improves 
accuracy of production and reduces the waste problem created by training, cost  
of sales will improve. As a result, the Company expects costs of goods sold to  
decline slightly as a percentage of sales as newly added stores obtain operating
data.                                                                           

    OPERATING COSTS AND EXPENSES. Operating costs and expenses for the
fiscal year ended December 31, 1998 were $9,692,476, compared to $6,438,863 for 
the fiscal year ended December 31, 1997. Payroll expenses increased from        
$3,524,001 in 1997 to $5,054,800 in 1998. As a percentage of total revenues,    
payroll expense was 36% in 1997 and decreased to 34% in 1998. Management        
believes that increased start-up costs and other inefficiencies as a result of  
the opening of a number of new                                                  

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concession locations contributed to the higher payroll costs, the Company       
expects payroll expenses to increase in total dollar amounts with the addition  
of new concession facilities, but to decrease modestly as a percent of revenues 
as newly opened facilities operate more efficiently and the Company reaps the   
benefits of recently implemented cost control measures. General and             
administrative expenses increased from $1,124,556 in 1997 to $1,826,168 in 1998,
and increased as a percentage of total revenues from 11% in 1997 to 12% in 1998.
The increase was attributable primarily to increases in administrative salaries.
The Company will continue to add additional administrative staff commensurate   
with its growth but expected general and administrative expenses to continue to 
decline as a percentage of total revenues.                                      

       INTEREST EXPENSE. Interest expense for the fiscal year ended December
31, 1997 was $205,965 compared to $84,839 for the fiscal year ended December 31,
1998. As a percentage of total revenues, interest expense was 2% in 1997 and    
decreased to 1% in 1998 due to capitalization of interest related to concession 
improvements.                                                                   

      NET INCOME (LOSS). Net income for the fiscal year ended December 31,
1998 was $480,532 compared to $37,631 for the fiscal year ended December 31,    
1997. Operating income increased from $236,955 in 1997 to $581,671 in 1998.     
Management attributes the increase in net income to the increase in the number  
of operating facilities.                                                        

      SAME STORE SALES. The Company operated ten locations during both the
full fiscal years ended December 31, 1998 and December 31, 1997. Sales for those
locations were $8,286,842 for the fiscal year ended December 31, 1998 and       
$7,651,314 for the fiscal year ended December 31, 1997, representing an increase
of $635,528 or 8.3%.                                                            

LIQUIDITY AND CAPITAL RESOURCES                                                 

        In December 1998 the Company made a private placement of $3,000,000 of
12% Secured Notes due December 21, 2003, the proceeds of which were utilized to 
finance the construction and capital improvements for new airport concessions,  
and to repay outstanding indebtedness. During 1999 the Company continued to need
additional financing to establish its airport facilities, which was met         
primarily with equipment lease financing and two small private placements of    
Common Stock to accredited investors only pursuant to which approximately       
$467,000 of equity capital was raised. The Company's working capital position   
improved in December, 1999 when the holder of $1,495,000 outstanding amount of  
12% Secured Notes converted the entire balance held by him into Common Stock at 
a rate of $2.625 per share. In January and March, 2000, the remaining $1,505,000
of outstanding 12% Secured Notes were converted into Common Stock at the rate of
$2.625 per share. The exercise of the outstanding warrants that were issued at  
the same time as the Notes did not improve the Company's liquidity because they 
were exercised on a "cashless" basis, resulting in the issuance of shares       
without a capital contribution to the Company. The cashless exercise did,       
however, result in less dilution in the outstanding number of shares than if the
warrants had been exercised for cash.                                           

    The Company's liquidity and working capital improved significantly
commencing in January, 2000 as a result of (a) the exercise of outstanding      
warrants to purchase the Company's Common Stock for an exercise price of $5.40  
per share, pursuant to which approximately $1,768,500 of capital had been raised
as of March 29, 2000, with approximately 135,000 remaining $5.40 warrants yet to
be exercised as of that date, and (b) the private placement of approximately    
240,000 shares of the Company's Common Stock for a price of $5.00 per share,    
pursuant to which approximately $1,200,000 of gross capital and approximately   
$1,080,000 of net capital had been raised as of March 29, 2000. The Company     
ceased the private placement of its Common Stock at $5.00 per share and expects 
that the remaining outstanding warrants will be exercised at $5.40 per share,   
although there is no assurance as to it or when those warrants will be          
exercised. Assuming that the remaining 135,000 warrants with the $5.40 per share
exercise price are exercised, the Company would realize approximately $729,000  
of additional capital. While the Company believes that the capital raised from  
the private placement of Common Stock and the exercise of the $5.40 warrants    
will be adequate to meet facility construction needs in 2000 and eliminate or   
substantially reduce the need for equipment lease financing, the Company intends
to seek at least an additional $1,400,000 of equity capital in 2000             

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to finance the acquisition of other business, if suitable candidates can be     
found, and for general working capital purposes. There is no assurance regarding
the availability of additional capital to the Company, or the availability of   
suitable acquisition candidates.                                                

   The leases guaranteed by Mr. Ali are the equipment leases for the
Company's food and beverage facilities at Lexington, Kentucky (approximately    
$150,000), and the airports in Madison and Appleton, Wisconsin (approximately   
$300,000). The equipment leases each have a term of 60 months, are payable in   
equal monthly installments and have an interest rate of approximately 17.5%.    
Upon payment of the last installment on each lease, the Company will own the    
equipment.                                                                      

        When the Company is awarded a new concession facility, it is generally
committed to expend a negotiated amount for capital improvements to the         
facility. In addition, the Company is responsible for acquiring equipment       
necessary to conduct its operations. As a result, the Company incurs substantial
expenses for capital improvements at the commencement of a concession term.     
Generally, however, the term of the concession grant will be for a period of 10 
years, providing the Company an opportunity to recover its capital expenditures.
Substantially all of the Company's concession locations have been obtained in   
the past 3 years, which has resulted in significant capital needs. As a result, 
the Company has been required to seek capital, and to apply capital from        
operations, for the construction of capital improvements at newly awarded       
concession locations. The Company intends to continue to bid for concession     
locations, including bidding on larger proposals. Anticipated cash flows from   
operations will not be sufficient to finance new acquisitions at the level of   
growth that the Company has experienced over the past 2 years. Accordingly, to  
the extent the Company is successful in securing new concession contracts, the  
Company may continue to need additional capital, in addition to cash flow from  
operations, in order to finance the construction of capital improvements.       

As of December 31, 1999, the Company had working capital of   
$(1,343,912). Subsequent to year end this negative working capital is now       
resolved through private placement of the Company's common stock and            
satisfaction of obligations through the conveyance of equity securities. As of  
March 30, 2000 the Company has reduced its debt from approximately $7,000,000 to
$4,000,000 thus increasing its equity position from approximately $5,000,000 to 
$8,000,000. Additionally the Company has raised $1,200,000 through the sale of  
private placement. The 462,000 outstanding warrants issued during this initial  
public offering are now being exercised at $5.40. Management believes all the   
warrants will be exercised which will result in additional capital of           
$2,494,800. As of March 29, 2000, approximately 327,500 warrants have been      
exercised resulting in capital contribution of $1,768,500. However, there is no 
assurance regarding the actual amount of warrants exercised.                    

  The Company anticipates capital requirements of approximately $1
million in Fiscal 2000 to complete the construction of improvements at          
concession facilities which it has already been awarded in Louisiana.           

      The Company may have additional capital requirements during 2000 and
2001 if the Company wins additional bids or acquires additional airport         
concession facilities, or if the Company finds other suitable acquisition       
candidates. 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.                 

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ITEM 7.   FINANCIAL STATEMENTS                                                  

CREATIVE HOST SERVICES, INC.

FINANCIAL STATEMENTS

YEAR ENDED DECEMBER 31, 1999

                                                                [Download Table]


                                    CONTENTS                                 

                                                                             
INDEPENDENT AUDITORS' REPORT                                             F-1 

FINANCIAL STATEMENTS:                                                        
  Balance Sheet                                                          F-2 
  Statements of Income and Operations                                    F-3 
  Statement of Shareholders' Equity                                      F-4 
  Statements of Cash Flows                                               F-5 
  Notes to Financial Statements                                        F6-F15

INDEPENDENT AUDITORS' REPORT

Board of Directors                                                              
Creative Host Services, Inc.                                                    
San Diego, California                                                           

We have audited the accompanying balance sheet of Creative Host Services, Inc.  
as of December 31, 1999, and the related statements of income and operations,   
shareholders' equity and cash flows for each of the years ended December 31,    
1998 and 1999. These financial statements are the responsibility of the         
Company's management. Our responsibility is to express an opinion on these      
financial statements based on our audit.                                        

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable 
assurance about whether the financial statements are free of material           
misstatement. An audit includes assessing the accounting principles used and    
significant estimates made by management, as well as evaluating the overall     
financial statement presentation. We believe that our audits provide a          
reasonable basis for our opinion.                                               

In our opinion, the financial statements referred to above present fairly, in   
all material respects, the financial position of Creative Host Services, Inc. at
December 31, 1999, and the results of its operations and cash flows for the     
years ended December 31, 1998 and 1999, in conformity with generally accepted   
accounting principles.                                                          

/s/ STONEFIELD JOSEPHSON, INC.                                                  

CERTIFIED PUBLIC ACCOUNTANTS                                                    

Santa Monica, California                                                        
March 17, 2000                                                                  

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CREATIVE HOST SERVICES, INC.

 BALANCE SHEET - DECEMBER 31, 1999

ASSETS

                                                                [Download Table]


CURRENT ASSETS:                                                                     
                                                                                    
  Cash                                              $       190,023                 
  Receivables, net of allowance of $9,659                   584,156                 
  Inventory                                                 357,470                 
  Prepaid expenses and other current assets                 104,637                 
                                                    ---------------                 
          Total current assets                                       $     1,236,286

PROPERTY AND EQUIPMENT, net of accumulated                                          
  depreciation and amortization                                           12,139,994

DEPOSITS AND OTHER ASSETS                                                    172,459

OTHER ASSETS, principally debt issue costs, net of                                  
  accumulated amortization of $276,793                                       134,990
                                                                     ---------------
                                                                     $    13,683,729
                                                                     ---------------
                                                                     ---------------

                                                        [Enlarge/Download Table]

                                LIABILITIES AND SHAREHOLDERS' EQUITY                                   
                                                                                                       
CURRENT LIABILITIES:                                                                                   
  Accounts payable and accrued expenses                               $     1,620,156                  
  Line of Credit                                                               56,664                  
  Loan payable, officer-shareholder                                            31,900                  
  Current maturities of notes payable                                          47,619                  
  Current maturities of leases payable                                        823,859                  
                                                                      ---------------                  
          Total current liabilities                                                     $     2,580,198

NOTES PAYABLE, less current maturities                                                          151,231

LEASES PAYABLE, less current maturities                                                       3,069,257

13.3% CONVERTIBLE NOTE PAYABLE (see note 8 and note 15)                                       1,478,348

SHAREHOLDERS' EQUITY:                                                                                  
  Common stock; no par value,                                                                          
    20,000,000 shares authorized, 4,369,887 shares                                                     
    issued and outstanding                                                  7,769,665                  
  Additional paid-in capital                                                  922,472                  
  Accumulated deficit                                                      (2,287,442)                 
                                                                      ---------------                  
          Total shareholders' equity                                                          6,404.695
                                                                                        ---------------
                                                                                        $    13,683,729
                                                                                        ---------------
                                                                                        ---------------

See accompanying independent auditors' report and notes to financial statements.

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                                                        [Enlarge/Download Table]


                           CREATIVE HOST SERVICES, INC.                                           

                        STATEMENTS OF INCOME AND OPERATIONS                                       

                                                                Year ended          Year ended    
                                                             December 31, 1998  December 31, 1999 
                                                             -----------------  ----------------- 
REVENUES:                                                                                         

                                                                                                  
  Concessions                                                $     13,986,016      $ 17,917,858   
  Food preparation center sales                                       676,800           188,683   
  Franchise royalties                                                  57,534            70,410   
                                                             ----------------    ---------------- 
          Total revenues                                           14,720,350        18,176,951   
COST OF GOODS SOLD                                                  4,446,203         5,764,769   
                                                             ----------------     --------------- 
GROSS PROFIT                                                       10,274,147        12,412,182   
                                                             ----------------      ---------------

OPERATING COSTS AND EXPENSES:                                                                     
  Payroll and other employee benefits                               5,054,800         5,913,200   
  Occupancy                                                         2,811,508         3,889,437   
  General, administrative and selling expenses                      1,826,168         2,199,910   
                                                             ----------------      ---------------
          Total operating costs and expenses                        9,692,476        12,002,547   
                                                             ----------------      ---------------

INCOME FROM OPERATIONS                                                581,671           409,635   
                                                             ----------------      ---------------

INTEREST EXPENSE                                                      (84,839)         (977,612)  
                                                             ----------------      ---------------

INCOME (LOSS) BEFORE INCOME TAXES                                     496,832          (567,977)  

PROVISION FOR INCOME TAXES, all current                                16,300            11,781   
                                                             ----------------      ---------------

NET INCOME (LOSS)                                            $        480,532      $   (579,758)  
                                                             ----------------      ---------------
                                                             ----------------      ---------------

NET INCOME (LOSS) PER SHARE BASIC AND DILUTED:                                                    
  Basic                                                      $           0.15      $      (0.18)  
                                                             ----------------      ---------------
                                                             ----------------      ---------------
  Diluted                                                                0.15             (0.18)  
                                                             ----------------      ---------------
                                                             ----------------      ---------------

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:                                                    
  Basic                                                             3,114,477         3,295,843   
                                                             ----------------      ---------------
                                                             ----------------      ---------------
  Diluted                                                           3,135,166         3,295,843   
                                                             ----------------      ---------------
                                                             ----------------      ---------------

See accompanying independent auditors' report and notes to financial statements.

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                                                        [Enlarge/Download Table]

                         CREATIVE HOST SERVICES, INC.                                                                 

                  STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)                                                        

                                                                                                             Total    
                                                       Common stock         Additional                   shareholders'
                                                --------------------------   paid-in       Accumulated      equity    
                                                 Shares           Amount     capital        deficit        (deficit)  
                                                 ------           ------    ----------      -------        ---------  

                                                                                                                      
Balance at January 1, 1998                      3,099,705      $ 5,820,514  $  857,537   $ (2,188,216)    $ 4,489,835 

Net income for the year                                                                                               
  ended December 31, 1998                                                                     480,532         480,532 

Common stock issued as partial                                                                                        
  consideration for rights to food                                                                                    
  concessions at Denver Airport                   100,000          137,500                                    137,500 

Common stock issued for settlement                                                                                    
  of dispute                                       10,000           13,750                                     13,750 

Issuance of warrants in connection                                                                                    
  with financing                                                                80,125                         80,125 
                                                ---------      -----------  ----------    ------------     -----------

Balance at December 31, 1998                    3,209,705        5,971.764     937,662     (1,707,684)      5,201,742 

Net loss for the year ended                                                                                           
  December 31, 1999                                                                          (579,758)       (579,758)

Net proceeds from issuance of common stock        140,000          112,000                                    112,000 

Net proceeds from issuance of common stock        355,000          355,000                                    355,000 

Warrants exercised in exchange for common                                                                             
  stock                                            94,572           15,190     (15,190)                               

Conversion of convertible debt                    570,610        1,315,711                                  1,315,711 
                                                ---------      -----------  ----------     -----------     -----------

Balance at December 31, 1999                    4,369,887     $  7,769,665  $  922,472     $(2,287,442)   $ 6,404,695 
                                                ---------      -----------  ----------     -----------     -----------
                                                ---------      -----------  ----------     -----------     -----------

See accompanying independent auditors' report and notes to financial statements.

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                         CREATIVE HOST SERVICES, INC.                                                

                           STATEMENTS OF CASH FLOWS                                                  

               INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                      

                                                                    Year ended          Year ended   
                                                                 December 31, 1998  December 31, 1999
                                                                 -----------------  -----------------

CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES:                                              
                                                                                                     
  Net income (loss)                                                $   480,532         $  (579,758)  
                                                                   -----------         -----------   

 ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH                                              
  PROVIDED BY OPERATING ACTIVITIES:                                                                  
      Depreciation and amortization                                    617,129           1,027,100   
      Bad debt expense in excess of provision                                -               4,850   
      Amortization of bond discount                                          -              13,848   

 CHANGES IN ASSETS AND LIABILITIES:                                                                  
  (INCREASE) DECREASE IN ASSETS:                                                                     
      Accounts receivable                                              (67,179)            (97,650)  
      Inventory                                                       (112,018)             81,952   
      Prepaid expenses and other current assets                        (42,376)            (23,571)  

  INCREASE (DECREASE) IN LIABILITIES:                                                                
      Accounts payable and accrued expenses                             73,916             254,427   
      Income taxes payable                                              11,758                   -   
                                                                   -----------         -----------   

          Total adjustments                                            481,230           1,260,956   
                                                                   -----------         -----------   

          Net cash provided by operating activities                    961,762             681,198   
                                                                   -----------         -----------   

CASH FLOWS PROVIDED BY (USED FOR) INVESTING ACTIVITIES:                                              
  Property and equipment                                            (5,053,508)         (3,511,217)  
  Deposits and other assets                                            (67,851)             27,853   
  Loan costs                                                          (391,029)                  -   
  Other assets                                                          (5,008)                  -   
                                                                   -----------         -----------   
          Net cash used for investing activities                    (5,517,396)         (3,483,364)  
                                                                   -----------         -----------   

CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES:                                              
  Net proceeds from leases payable                                     999,021           3,239,762   
  Proceeds from notes payable                                        2,932,847             178,527   
  Issuance of capital stock                                            151,250             442,956   
  Proceeds from redemption of preferred stock                           80,125                   -   
  Repayment of notes payable                                          (172,566)            (12,119)  
  Repayment of leases payable                                         (404,529)         (1,085,244)  
  Proceeds from line of credit                                               -              56,664   
  Proceeds from loan payable, officer-shareholder                            -              31,900   
                                                                   -----------         -----------   

          Net cash provided by financing activities                  3,586,148           2,852,446   
                                                                   -----------         -----------   

NET INCREASE (DECREASE) IN CASH                                       (969,486)             50,280   
CASH, beginning of year                                              1,109,229             139,743   
                                                                   -----------         -----------   

CASH, end of year                                                  $   139,743         $   190,023   
                                                                   -----------         -----------   
                                                                   -----------         -----------   

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                                                    

  Interest paid                                                    $   218,588         $   993,813   
                                                                   -----------         -----------   
                                                                   -----------         -----------   
  Income taxes paid                                                $     4,542         $     7,847   
                                                                   -----------         -----------   
                                                                   -----------         -----------   

SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:                                            

  Notes payable converted to common stock                          $         -         $ 1,495,000   
                                                                   -----------         -----------   
                                                                   -----------         -----------   

See accompanying independent auditors' report and notes to financial statements.

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CREATIVE HOST SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS 

YEAR ENDED DECEMBER 31, 1999

(1)     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:                             

ORGANIZATION AND BASIS OF PRESENTATION:                         

      Creative Host Services, Inc. was formed in 1986 to acquire the
           operating assets of Creative Croissants, Inc., which consisted of a
       food preparation center in San Diego and two French-style cafes
            featuring hot meal croissants, muffins, pastas and salads. The cafes
     were acquired in May 1987 and the food preparation center was
      acquired in April 1988 in transactions accounted for using the
     purchase method of accounting. In 1989, the Company commenced
          franchising operations, licensing its trademarks to third parties,
  who agreed to purchase baked goods from the Company's food
         preparation center under franchise arrangements with the Company,
            and earned an initial franchise fee, a royalty based upon sales, and
       in some cases advertising and marketing fees as a percentage of
            gross sales. In 1995, the Company began operating company owned food
            and beverage concessions at airports and commenced certain in-flight
        catering sales. The Company also sells baked goods from its food
       preparation center directly to restaurants, hospitals and other
     institutional clients in the San Diego area. The accompanying
    financial statements include the operations of Company-owned
          concessions (mainly at various airports across the United States),
          revenues earned from franchisees and operations from its wholesale
food preparation activities.                            

REVENUE RECOGNITION:                                            

          Concession revenues are recorded as the sales are made; sales from
           the food preparation center are recorded upon shipment and revenues
         from in-flight catering are recorded upon delivery. Revenues from
           the initial sale of individual franchises are recognized, net of an
          allowance for uncollectible amounts and any commissions to outside
           brokers, when substantially all significant services to be provided
by the Company have been performed.                     

USE OF ESTIMATES:                                               

            The preparation of financial statements in conformity with generally
            accepted accounting principles requires management to make estimates
      and assumptions that affect the reported amounts of assets and
          liabilities and disclosure of contingent assets and liabilities at
        the date of the financial statements and the reported amounts of
         revenues and expenses during the reporting period. Actual results
could differ from those estimates.                      

FAIR VALUE:                                                     

          Unless otherwise indicated, the fair values of all reported assets
            and liabilities which represent financial instruments (none of which
         are held for trading purposes) approximate the carrying values of
such amounts.                                           

INVENTORY:                                                      

        Inventory, consisting principally of foodstuffs and supplies, is
    valued at the lower of cost (first-in, first-out) or market.

See accompanying independent auditors' report.                                  

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CREATIVE HOST SERVICES, INC.

 NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEAR ENDED DECEMBER 31, 1999

(1)     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):                 

PROPERTY AND EQUIPMENT:                                         

          Property and equipment are recorded at cost, including interest on
       funds to finance the construction of concession locations. Such
           interest amounted to approximately $24,000 and $144,000 during 1999
 and 1998, respectively. For financial statement purposes,
           depreciation is computed primarily by the straight-line method over
the estimated useful lives of the assets, as follows:   

                                                                [Download Table]
                                                                 
Office equipment                                         10 years
Restaurant concession and commissary equipment           10 years
Excess of cost over fair value assigned to net assets     5 years

         Leasehold improvements are amortized over the useful lives of the
   improvements, or terms of the leases, whichever is shorter.

DEBT WITH STOCK PURCHASE WARRANTS:                              

           The proceeds received from debt issued with stock purchase warrants
      is allocated between the debt and the warrants, based upon the
         relative fair values of the two securities and the balance of the
    proceeds is accounted for as additional paid in capital. The
            resulting debt discount is amortized to expense over the term of the
   debt instrument, using the interest method. In the event of
           settlement of such debt in advance of the maturity date, an expense
         is recognized based upon the difference between the then carrying
          amount (i.e., face amount less unamortized discount) and amount of
payment.                                                

DEBT ISSUE COSTS:                                               

        Legal and accounting fees and other expenses associated with the
        issuance of the 12% convertible notes payable (Note 8) are being
            amortized using the straight-line method over the term of the notes.

INCOME TAXES:                                                   

           Deferred income taxes arise from temporary differences in the basis
      of assets and liabilities reported for financial statement and
income tax purposes.                                    

COMPREHENSIVE LOSS:                                             

Comprehensive loss consists of net loss only.           

See accompanying independent auditors' report.                                  

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CREATIVE HOST SERVICES, INC.

 NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEAR ENDED DECEMBER 31, 1999

(1)     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):                 

EARNINGS PER SHARE:                                             

      Earnings per share is computed based upon the weighted average
        number of shares of common stock outstanding during each period.
            Diluted earnings per share reflect per share amounts that would have
        resulted if diluted potential common stock had been converted to
            common stock. Common stock equivalents have not been included in the
           earnings per share computation for the year ended December 31, 1999
          as the amounts are anti-dilutive. The following reconciles amounts
reported in the financial statements:                   

                                                        [Enlarge/Download Table]
                                                               1998                      
                                         ------------------------------------------------
                                                                              Per share  
                                              Income           Shares           Amount   
                                          ------------       ----------      ----------  
                                                                                         
Net income - basic earnings per share     $    480,532        3,114,477      $      .15  
                                                                             ----------- 
                                                                             ----------- 

Effect of dilutive securities:                                                           

Warrants                                             -           20,689                  
                                          ------------       ------------                
Net income - diluted earnings per share   $    480,532        3,135,166      $     0.15  
                                          ------------       ------------    ----------- 
                                          ------------       ------------    ----------- 

CASH EQUIVALENTS:                                               

     For purposes of the statement of cash flows, cash equivalents
           include all highly liquid debt instruments with original maturities
    of three months or less which are not securing any corporate
obligations.                                            

CONCENTRATION OF CREDIT RISK:                                   

   The Company sells its bakery products to food distributors,
         retailers, franchisees and various airlines throughout the United
           States primarily through its own concession operations and does not
         require collateral. Over 90% of the Company's sales are on a cash
       basis. One location accounts for more than 10% of the Company's
          revenues. Allowances have been provided for uncollectible amounts,
      which have historically been within management's expectations.

See accompanying independent auditors' report.                                  

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CREATIVE HOST SERVICES, INC.  

 NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEAR ENDED DECEMBER 31, 1999  

(1)     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):                 

RECENT PRONOUNCEMENTS EFFECTIVE SUBSEQUENT TO 1998:             

            In April 1998, Statement of Position 98-5 "Reporting on the Costs of
       Start-Up Activities" ("SOP 98-5") was issued. SOP 98-5 provides
 guidance on the financial reporting of start-up costs and
         organization costs. The SOP is effective for financial statements
           for fiscal years beginning after December 15, 1998. The adoption of
      this statement did not have a material effect on the Company's
financial statements.                                   

   In June 1998, the FASB issued SFAS No. 133, "Accounting for
          Derivative Instruments and Hedging Activities", the effective date
           for which was deferred by SFAS No. 137 until fiscal years beginning
            after June 15, 1999. The Company anticipates that due to its limited
            use of derivative instruments, the adoption of SFAS No. 133 will not
have a material effect on its financial statements.     

(2)     PROPERTY AND EQUIPMENT:                                                 

A summary at December 31, 1999 is as follows:                   

                                                                [Download Table]

                                                                
Food and beverage concession equipment          $     13,814,775
Food preparation equipment                               352,932
Leasehold improvements                                   133,198
Office equipment                                         113,512
                                                ----------------

                                                      14,414,417
Less accumulated depreciation and amortization         2,274,423
                                                ----------------
                                                $     12,139,994
                                                ----------------
                                                ----------------

      Depreciation and amortization expense (related to property and
         equipment only) totaled $953,912 and $547,153 for the years ended
December 31, 1999 and 1998, respectively.               

(3)     OTHER ASSETS:                                                           

A summary at December 31, 1999 is as follows:                   

                                                                [Download Table]
                                               
Loan fees                      $        321,480
Franchise costs                          90,304
                               ----------------

                                        411,784
Less accumulated amortization           276,794
                               ----------------
                               $        134,990
                               ----------------
                               ----------------

(4)     ACCOUNTS PAYABLE AND ACCRUED EXPENSES:                                  

            Purchases from one supplier amounted to approximately $2,546,000 for
       the year ended December 31, 1999. Approximately $193,000 of the
       accounts payable was due to this supplier at December 31, 1999.

(5)      LINE OF CREDIT:                                                        

            The Company has a $100,000 revolving line of credit with a bank. The
            line incurs an interest rate of 2.975% of the bank's reference rate.
          Principal and interest payments of $4,809 are due through December
31, 2000.                                               

(6)      LOAN PAYABLE, OFFICER-STOCKHOLDER:                                     

      The loan is uncollaterialized, non-interest bearing and due on
      demand. Total payments of $21,000 have been made subsequent to
year-end.                                               

See accompanying independent auditors' report.                                  

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CREATIVE HOST SERVICES, INC.

 NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEAR ENDED DECEMBER 31, 1999

(7)     NOTES PAYABLE:                                                          

A summary is as follows:                                        

                                                                [Download Table]

                                                                                   
Note payable to equipment finance company, interest at 26% per                     
  annum, due in monthly installments of $2,896 through June 2000;                  
  $4,325 through December 2000; $4896 through December 2003,                       
  secured by equipment                                             $        130,492
Note payable to landlord of former franchisee, interest                            
  at the greater of 10% or bank prime rate plus 1%,                                
  due in monthly installments of $1,264 through 2001                         19,958
Note payable to shareholder, interest at 8% per annum, due in                      
  monthly installments of $2,277 through November 2001. The note                   
  can be converted to shares of the Company's common stock any                     
  time on or before November 2001 at a conversion rate of $1.00                    
  per share based on the outstanding balance of principal                          
  and interest due                                                           48,400
                                                                   ----------------

                                                                            198,850
Less current maturities                                                      47,619
                                                                   ----------------
                                                                   $        151,231
                                                                   ----------------
                                                                   ----------------

    The following is a summary of the principal amounts payable over the
next four years and thereafter:                                 

                                                                [Download Table]
                      
2000  $         47,619
2001            60,628
2002            39,435
2003            51,168
      ----------------

      $        198,850
      ----------------
      ----------------

        Interest expense for all corporate borrowings (including leases)
        totaled approximately $1,008,000 and $220,000 for 1999 and 1998,
     respectively. Interest costs of $24,463 incurred in 1999 were
          capitalized in connection with concession improvements. Additional
           interest costs of $13,848 were incurred during 1999 relating to the
discount on notes issued during 1998.                   

(8)         13.3% CONVERTIBLE NOTES PAYABLE:                                    

   In December 1998, the Company conducted a private placement
        offering. The Company sold 3,000 units. Each unit consisted of a
        $1,000 note payable with interest of 12% per annum and 80 common
            stock purchase warrants. Each warrant entitles the holder to buy one
         share of common stock at an exercise price of $1.48. The warrants
           expire on December 31, 2003. A payment of interest only was payable
      monthly commencing January 1999 until January 2001. Commencing
          January 2001, a payment of total principal and interest of $43,041
         was payable monthly until December 2003, at which time all unpaid
        principal and interest was due. The notes were collateralized by
       substantially all assets of the Company and shares owned by the
        president and major stockholder of the Company. Commencing March
           1999, each note could be converted, at the option of the holder, to
      shares of the Company's common stock at the price per share of
       $2.625 (up to the outstanding balance of principal and interest
            due). The fair value of the associated warrants was determined based
           on the put price per the Black Scholes pricing method. The value of
     the warrants amounted to $24,240 and were included in paid-in
            capital in 1998. Net proceeds raised from the notes in the amount of
          approximately $2,600,000 were used to pay for certain improvements
to concessions operated by the Company.                 

    In December 1999, $1,495,000 of the outstanding note, net of
         unamortized discounts and related costs of original issuance, was
           converted to 570,610 shares of the Company's common stock at $2,625
         per share. In March 2000, the balance of $1,478,348 was converted
(see Note 15).                                          

See accompanying independent auditors' report.                                  

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  CREATIVE HOST SERVICES, INC.

   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

  YEAR ENDED DECEMBER 31, 1999

(9)     LEASES PAYABLE:                                                         

A summary is as follows:                                        

                                                        [Enlarge/Download Table]

                                                                                         
Equipment leases payable, finance company, approximate average interest                  
  at 15.6%, due in monthly installments through the                                      
  year 2004, secured by food and beverage concession equipment           $      3,893,116

Less current maturities                                                           823,859
                                                                         ----------------
                                                                         $      3,069,257
                                                                         ----------------
                                                                         ----------------

    The following is a summary of the principal amounts payable over the
next five years:                                                

                                                                [Download Table]
                      
2000  $        823,859
2001           846,444
2002           915,961
2003           825,449
2004           481,403
      ----------------
      $      3,893,116
      ----------------
      ----------------

(10)    INCOME TAXES:                                                           

     For federal income tax return purposes, the Company has available net
      operating loss carryforwards of approximately $2,507,000, which expire
       through 2019 and are available to offset future income tax liabilities.
Due to the completion of an initial public offering, there are  
significant limitations on the Company's ability to utilize this
operating loss carryforward.                                    

Temporary differences which give rise to deferred tax assets and
liabilities at December 31, 1999 are as follows:                

                                                                [Download Table]
                                                    
Net operating loss carryforwards  $       1,002,800 
Valuation allowance                      (1,002,800)
                                  ----------------- 

          Net deferred taxes      $               - 
                                  ----------------- 
                                  ----------------- 

See accompanying independent auditors' report.                                  

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                  CREATIVE HOST SERVICES, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                  YEAR ENDED DECEMBER 31, 1999

(11)    COMMITMENTS AND CONTINGENCIES:                                          

   The Company leases its office facility, food preparation center and
    concession locations under various lease agreements expiring through
  2006. Rental expense under operating leases totaled $2,885,545 and
    $2,269,023 for 1999 and 1998, respectively. As of December 31, 1999,
future minimum rental payments required under operating leases, 
     exclusive of additional rental payments based on concession sales and
numbers of enplanements, are as follows:                        

                                                                [Download Table]

                                          
Year ending December 31,                  
    2000                  $      2,309,880
    2001                         2,312,380
    2002                         2,270,375
    2003                         2,258,040
    2004                         2,061,268
    Thereafter                   4,922,143
                          ----------------

                          $     16,134,086
                          ----------------
                          ----------------

In connection with its franchising operations, the Company has  
guaranteed the lease obligations of two franchisees. Based upon 
       historical operations of the franchisees and the remaining terms of the
        lease guarantees, management does not believe that any lease assumptions
will result therefrom.                                          

     In connection with the concessionaire agreements with various airport
  authorities, the Company has obtained surety bond coverage for the
     guarantee of lease payments in the event of non-performance under the
  agreements, in the aggregate amount of approximately $425,000. The
      insurer may seek indemnification from the Company for any amounts paid
under these bonds.                                              

See accompanying independent auditors' report.                                  

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    CREATIVE HOST SERVICES, INC.

     NOTES TO FINANCIAL STATEMENTS (CONTINUED)

    YEAR ENDED DECEMBER 31, 1999

(12)    COMMON STOCK:                                                           

        In November 1999, 120,000 purchase warrants were issued to an individual
     for consulting services. Each warrant entitles the holder to purchase
      one share of the Company's common stock at an exercise price of $1.375
per share. The warrants are exercisable immediately and expire  
November 19, 2004.                                              

      In December 1999, a note holder exercised 150,400 warrants to purchase
    common stock. The note holder exercised the warrants on a "cashless"
      basis and as a result was issued 94,572 shares of the Company's common
stock.                                                          

(13)    STOCK OPTIONS:                                                          

     The Company has adopted the 1997 Stock Option Plan (the "1997 Plan").
        The 1997 Plan authorizes the issuance of an additional 280,000 shares of
      the Company's common stock pursuant to the exercise of options granted
thereunder. The Compensation Committee of the Board of Directors
        administers the Plan, selects recipients to whom options are granted and
        determines the number of shares to be awarded. Options granted under the
   1997 Plan are exercisable at a price determined by the Compensation
     Committee at the time of grant, but in no event less than fair market
value.                                                          

        The number and weighted average exercise prices of options granted under
    the 1997 plan, for the years ended December 31, 1998 and 1999 are as
follows:                                                        

                                                        [Enlarge/Download Table]


                                                  1998                            1999            
                                      -------------------------------  ---------------------------
                                                           Average                        Average 
                                                           Exercise                       Exercise
                                        Number               Price        Number            Price 
                                       --------           ----------     --------      -----------

                                                                                                  
Outstanding at beginning of the year    161,500            $  4.05        171,500      $     3.94 
Outstanding at end of the year          171,500               3.94        220,000            3.26 
Exercisable at end of the year                -                  -        203,000            2.79 
Granted during the year                  10,000               2.13         65,000            2.25 
Expired during the year                       -                  -         16,500            2.82 

     The Company has elected to follow Accounting Principles Board Opinion
       No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
        interpretations in accounting for its employee stock options because the
       alternative fair value accounting provided for under FASB Statement No.
      123, "Accounting for Stock-Based Compensation," requires use of option
    valuation models that were not developed for use in valuing employee
        stock options. Under APB 25, because the exercise price of the Company's
      employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.    

    Proforma information regarding net loss and loss per share under the
      fair value method has not been presented as the amounts are immaterial
        for the year ended December 31, 1999. Proforma information regarding net
      loss and loss per share for the year ended December 31, 1998 under the
fair value method is as follows:                                

                                                                [Download Table]


                                          Historical        Proforma  
                                          ----------       ---------- 

                                                                      
Net loss                                  $ (579,758)      $ (628,058)
                                          ----------       ---------- 
                                          ----------       ---------- 

Net loss per share - basic and diluted    $    (0.18)      $    (0.19)
                                          ----------       ---------- 
                                          ----------       ---------- 

See accompanying independent auditors' report.                                  

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CREATIVE HOST SERVICES, INC.    

NOTES TO FINANCIAL STATEMENTS (CONTINUED)   

YEAR ENDED DECEMBER 31, 1999    

(14) WARRANTS:                                                                  

     At December 31, 1999, the Company had warrants outstanding that allow
 the holders to purchase up to 1,072,693 shares of common stock at
exercise prices ranging from $1.38 to $5.40. The warrants may be
exercised any time prior to November, 2004.                     

       The number and weighted average exercise prices of the warrants for the
years ended December 31, 1998 and 1999 are as follows:          

                                                        [Enlarge/Download Table]


                                                    1998                              1999              
                                      -------------------------------  ---------------------------------
                                                            Average                            Average  
                                                           Exercise                           Exercise  
                                        Number               Price        Number                Price   
                                      ---------            --------     ---------            -----------

                                                                                                        
Outstanding at beginning of the year    577,500            $   5.40     1,103,093            $   3.58   
Outstanding at end of the year        1,103,093                3.58     1,072,693                3.36   
Exercisable at end of the year        1,103,093                3.58     1,072,693                3.36   
Granted during the year                 525,593                1.57       120,000                1.38   
Exercised during the year                     -                -          150,400                1.48   

(15)    SUBSEQUENT EVENT:                                                       

        In March, 2000, the balance of the note payable for $1,478,348 (Note 8),
        net of unamortized discounts and related costs of original issuance, was
       converted to 574,427 shares of the Company's common stock using a share
valuation of $2.625.                                            

See accompanying independent auditors' report.                                  

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ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS                         
ON ACCOUNTING AND FINANCIAL DISCLOSURE.                     

None.                                                                 

PART III

ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL                  
PERSONS; COMPLIANCE WITH SECTION 16(a) OF EXCHANGE ACT      

                                                                [Download Table]


NAME                        AGE  POSITION                             
----                        ---  --------                             

                                                                      
Sayed Ali                   51   Chairman of the Board of Directors,  
                                 President and Chief Financial Officer
Booker T. Graves(1)         60   Director                             
John P. Donohue, Jr.(1)(2)  68   Director                             
Charles B. Radloff          70   Director                             

-----------                                                                     
(1) Member of Compensation Committee                                            
(2) Member of Audit Committee                                                   

         SAYED ALI is the founder, Chairman of the Board of Directors, President
and Chief Financial Officer of the Company. Mr. Ali has served as Chairman of   
the Board of Directors and President since 1986. Mr. Ali served as Chief        
Financial Officer from December 1986 to February 1997, and since August 1997.   
Mr. Ali served as the Secretary of the Company from 1986 to December 1996. Prior
to founding the Company, from May 1985 to September 1987, Mr. Ali was the       
Director of Operations of Steffa Control Systems, a manufacturer of energy      
management systems, which had annual sales of $30 to $35 million. From March    
1980 until May 1985, Mr. Ali was the Director of Operations for Oak Industries, 
Inc., a telecommunications equipment manufacturer.                              

       BOOKER T. GRAVES has been a director of the Company since March 1997.
Since 1993, Mr. Graves has been president of Graves Airport Concession          
Consultants, a consulting company located in Denver, Colorado, which provides   
consulting services to airports and other businesses. From 1993 to 1996, Mr.    
Graves was the principal food and beverage consultant to the Denver             
International Airport. From 1990 through 1993, Mr. Graves was General Manager of
CA One Services, Inc. (formerly Sky Chefs) at Denver Stapleton International    
Airport. From 1980 until 1990, Mr. Graves was the General Manager of CA One     
Services, Inc. of Phoenix Sky Harbor Airport.                                   

     JOHN P. DONOHUE, JR. has been a director of the Company since March
1997. From 1990 to the present, Mr. Donohue has been a private investor. Prior  
to that time for 25 years, Mr. Donohue was employed by Oak Industries, Inc., a  
NYSE listed company, in various capacities. From 1985 to 1990, Mr. Donohue      
served as President of Oak Communications, Inc., a division of Oak Industries,  
Inc. which manufactured communications equipment for the cable television       
industry. From 1982 to 1985, he served as Vice President of Manufacturing       
overseeing up to 6,000 manufacturing employees. From 1977 to 1982, Mr. Donohue  
served as Vice President of Operations for the Oak Switch division of Oak       
Industries, Inc.                                                                

       CHARLES B. RADLOFF has served as a business advisor and member of the
board of directors of DB Products, Inc. a privately owned company engaged in the
design, manufacture, and sale of electronic components for the communications   
and aerospace industries. From 1987 to 1991, Mr. Radloff was President and Chief
Executive Officer of AKZO Electronic Materials Company, an electronics          
manufacturer and                                                                

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wholly-owned subsidiary of AZKO, which is a Dutch multi-national corporation    
with annual sales of approximately $12 billion. From 1965 to 1987, Mr. Radloff  
served in various executive positions with Oak Industries, Inc., including his  
position as President and Chief Executive Officer of Oak Communications and     
Chief Executive Officer of Oak Technology. Mr. Radloff has also served on the   
board of directors of Comstream, Inc.                                           

ITEM 10.  EXECUTIVE COMPENSATION                                                

DIRECTOR COMPENSATION                                                           

  Directors receive no cash compensation for their services to the
Company as directors, but are reimbursed for expenses actually incurred in      
connection with attending meetings of the Board of Directors. In addition, each 
outside director is entitled to receive options as approved by the Board of     
Directors under the Company's 1997 Stock Option Plan. No new options were issued
to outside directors during the fiscal year 1998. During fiscal year 1997, each 
outside director was issued an aggregate of 15,000 options, all of which are now
vested. During the fiscal year 1999 each outside director was issued 15,000     
options, all of which are now vested. The Company may propose a new stock option
plan to the shareholders in 2000.                                               

EXECUTIVE OFFICER COMPENSATION                                                  

     The compensation and benefits program of the Company is designed to
attract, retain and motivate employees to operate and manage the Company for the
best interests of its constituents. Executive compensation is designed to       
provide incentives for those senior members of management who bear              
responsibility for the Company's goals and achievements. The compensation       
philosophy is based on a base salary, with opportunity for significant bonuses  
to reward outstanding performance, and a stock option program. The Compensation 
Committee is responsible for setting base compensation, awarding bonuses and    
setting the number and terms of options for the executive officers. None of the 
current Committee members are employees of the Company. The Committee currently 
consists of Messrs. Donohue and Graves.                                         

      The following table and notes set forth the annual cash compensation
paid to Sayed Ali, Chairman of the Board and President of the Company. No other 
person's compensation exceeded $100,000 per annum during the Company's fiscal   
year ended December 31, 1999.                                                   

                                                        [Enlarge/Download Table]

                  SUMMARY COMPENSATION TABLE                                                                        

                              ANNUAL COMPENSATION                       LONG TERM COMPENSATION                      
                     ------------------------------------   -----------------------------------------               
                                                                       AWARDS                PAYOUTS                
                                                            ----------------------------     --------               
                                                                             SECURITIES                             
                                                 OTHER      RESTRICTED        UNDERLYING                  ALL OTHER 
                                                ANNUAL         STOCK          OPTIONS/          LTIP       COMPEN-  
 NAME/TITLE           SALARY       BONUS         COMP.        AWARDS            SARS           PAYOUTS     SATION   
 YEAR                   $            $             $             $              #(1)            $           $       
----------------      --------     ---------     ---------   ----------    --------------      --------  -----------
                                                                                                                    
 Sayed Ali                                                                                                          
      President                                                                                                     
           1999        120,000           --                          --            10,000                      --   
           1998        108,000           --            --                              --         --           --   
           1997         96,000           --            --            --            75,000         --           --   
           1996         71,000           --            --            --                --         --           --   

--------------------------------------                                          
(1)      Consists of options granted under the Company's 1997 Stock Option Plan.

      The following table sets forth the options granted to Mr. Ali during
the Company's fiscal year ended December 31, 1999.                              

                                                        [Enlarge/Download Table]

                      OPTION/SAR GRANTS IN LAST FISCAL YEAR                                                 

                                INDIVIDUAL GRANTS                                                           

                                    PAGE 32                                                                 

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--------------- ------------------------- ----------------- --------------------- ------------- ------------
                  Potential Realizable       Number of        Percent of Total                              
                Value at Assumed Annual      Securities         Options/SARS                                
                  Rates of Stock Price       Underlying          Granted to       Exercise or               
                Appreciation for Option     Options/SARS    Employees in Fiscal    Base Price   Expiration  
     Name               Term (a)            Granted (#)           year (%)           ($/SH)        Date     
--------------- ------------------------- ----------------- --------------------- ------------- ------------

                                                                                                            
Sayed Ali             $ 69,600                10,000             10,000             $ 1.02      10/18/2004  

(a)      For the purpose of this table the stock price is assumed to increase at
the rate of 5% per year.                                      

        The following table summarizes the number and value of all unexercised
options granted to and held by Mr. Ali at the end of 1999. No options were      
exercised by Mr. Ali during 1999.                                               

                                                                [Download Table]

                   FISCAL YEAR-END OPTION VALUES                                    

                             Number of Securities    Value of Unexercised           
                             Underlying Unexercised  In-the-Money Options           
                             Option at FY-End (#)    at FY-End ($)(1)               
                    ------------------------------   ----------------------------   
     Name           Exercisable      Unexercisable   Exercisable      Unexercisable 
-----------------   ------------      -------------  ------------      -------------

                                                                                    
Sayed Ali              85,000             0          $ 259,300                 0    

------------                                                                    
(1)      Based on the closing bid price for the Company's Common Stock at the   
close of market on December 31, 1999 as reported by NASDAQ.   

EMPLOYMENT AGREEMENT                                                            

    The Company has entered into a five year employment agreement with
Sayed Ali, the Company's President. The term of the agreement commenced January 
1, 1997 and provides for annual base compensation of $96,000 and $108,000 over  
each of the calendar years 1997 and 1998 and $120,000 thereafter. The agreement 
also calls for Mr. Ali to receive 60,000 options to purchase Common Stock under 
the Company's 1996 Stock Option Plan, exercisable at $3.30 per share, which vest
20,000 per year over the first three anniversaries of the date of grant. In     
addition, Mr. Ali is eligible to receive annual cash bonuses as well as         
additional option grants at the discretion of the Board of Directors. Finally,  
the agreement provides that upon a termination of employment, Mr. Ali will be   
entitled to a severance payment equal to his annual base compensation. The      
Company's Board of Directors and Sayed Ali are discussing possible amendments to
Mr. Ali's employment agreement, which may be effective as of January 1, 2000.   
The terms of the amendment have not yet been agreed upon and no definitive      
amendment to the employment agreement have been executed.                       

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT        

         The following table sets forth certain information known to the Company
with respect to the beneficial ownership of the Company's Common Stock as of    
March 29, 1999 by (i) each person who is known by the Company to own            
beneficially more than 5% of the Company's Common Stock, (ii) each of the       
Company's directors and executive officers, and (iii) all officers and directors
of the Company as a group. Except as otherwise listed below, the address of each
person is c/o Creative Host Services, Inc. 6335 Ferris Square, Suites G-H, San  
Diego, California 92121.                                                        

                                                        [Enlarge/Download Table]

Name and Address of Owner                              Shares Beneficially Owned(1)   
--------------------------------------                --------------------------------

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                                             Number                Percent(2)         
                                             ---------------       -----------        

                                                                                      
Sayed Ali                                    1,010,000(3)          17.9%              

Booker T. Graves                             25,000(4)               *                

John P. Donahue, Jr.                         25,000(4)               *                

Paul A. Karas                                10,000(4)               *                

Tasneem Vakharia                             45,000(5)             .8%                

Charles B. Radloff                           15,000                  *                

All officers and directors as a group        1,130,000(6)          19.8%              
  (5 persons)                                                                         

--------------------                                                            
*  Less than one percent.                                                   

(1)    Beneficial ownership is determined in accordance with the rules of the   
 Securities and Exchange Commission and generally includes voting or
 investment power with respect to securities. Shares of Common Stock
      subject to options and warrants currently exercisable or convertible, or
     exercisable or convertible within 60 days of March 29, 2000, are deemed
 outstanding for computing the percentage of the person holding such
option or warrant but are not deemed outstanding for computing the
percentage of any other person. Except as pursuant to applicable  
 community property laws, the persons named in the table having sole
    voting and investment power with respect to all shares of Common Stock
      beneficially owned. For purposes of the calculation of the percentage of
  outstanding shares owned, the total issued and outstanding number of
    shares on March 29, 2000, not including unexercised warrants and stock
options, is utilized.                                             

(2)    Does not include 630,600 shares of Common Stock issuable upon exercise of
outstanding warrants.                                             

(3)    Includes 85,000 shares issuable upon the exercise of options outstanding 
under the Company's 1997 Stock Option Plan.                       

(4)    Includes 10,000 shares issuable upon the exercise of options outstanding 
       under the Company's 1997 Stock Option Plan. Does not include 5,000 shares
    issuable upon exercise of unvested options which vest in January 2000.

(5)    Consists solely of shares issuable upon the exercise of options          
outstanding under the Company's 1997 Stock Option Plan.           

(6)    Includes 115,000 shares issuable upon the exercise of options outstanding
 under the Company's 1997 Stock Option Plan. Does not include 40,000
     shares issuable upon exercise of unvested stock options which vest over
the one year period subsequent to December 31, 1999.              

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.                       

None.                                                       

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K                                      

                                                        [Enlarge/Download Table]

         (a)  Exhibits                                                                    

Exhibit No.                                 Description                           Page No.
------------                                -----------                           --------

                                                                                          
   3.1        Amended and Restated Articles of Incorporation*                             
   3.2        Bylaws*                                                                     
   4.1        Specimen Certificate for Common Stock*                                      

                                    PAGE 34                                               

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   4.3        Warrant Agreement (including form of Warrant                                
              Certificate)*                                                               
   10.1       1997 Stock Option Plan*                                                     
   10.2       Employment Agreement between the Company and Sayed                          
              Ali*                                                                        
   10.3       Lease Space In The Cedar Rapids Municipal Airport Terminal For The          
              Purpose of Operating Food/Beverage, News/Gift, And Airline                  
              Catering Concessions dated as of September 16, 1996 between the             
              Company and Cedar Rapids Airport Commission.*                               
   10.4       Food And Beverage Concession Agreement And Lease dated                      
              as of October 4, 1996 between the Company and Richland                      
              -Lexington Airport District.*                                               
   10.5       Agreement between the Company and Delta Airlines.*                          
   10.6       Concession And Lease Agreement dated as of May 24,                          
              1996 between the Company and Lehigh-Northhampton                            
              Airport Authority.*                                                         
   10.7       Food And Beverage Concession Agreement And Lease                            
              Bluegrass Airport between the Company and Lexington-                        
              Fayette Urban County Airport Board.*                                        
   10.8       Food And Beverage Concession Agreement dated as of                          
              July 26, 1995 between the Company and Outagamie                             
              County.*                                                                    
   10.9       Food And Beverage Lease And Concession Agreement dated                      
              as of May 17, 1996 between the Company and Roanoke                          
              Regional Airport Commission.*                                               
   10.10      Food And Beverage Concession Agreement dated as of October 24,              
              1995 between the Company and the County of Dane.*                           
   10.11      Food And Beverage Concession Lease Agreement dated as of June 10,           
              1994 between the Company and the Port of Portland.*                         
   10.12      Concession Agreement dated as of March 25, 1995                             
              between the Company and City of Los Angeles.*                               
   10.13      License And Use Agreement Food/Beverage Service Aspen/Pitkin                
              County Airport 1994 Through 1999 dated as of April 1994 between             
              the Company and Board of County Commissions of Pitkin County                
              Colorado.*                                                                  
   10.14      Food Court Agreement dated as of November 14, 1996 between the              
              Company and City and County of Denver.*                                     
   10.15      Agreement between the Company and the City and County                       
              of Denver as of November 19, 1996.*                                         
   10.16      Agreement dated as of February 8, 1996 between the                          
              Company and the County of Orange.*                                          
   10.17      Concession Agreement for Food and Beverage Operations                       
              at the Des Moines International Airport between the                         
              Company and the City of Des Moines, Iowa dated as of                        
              June 2, 1997.**                                                             
   10.18      Concession Agreement between the City of Los Angles                         
              Department of Airports and the Companing Covering the                       
              Operation and Management of the Food and Beverage                           
              Package #3 Concession at Ontario International                              
              Airport.**                                                                  
   10.19      Concession Agreement and Lease between the Piedmont                         
              Triad Airport Authority and the Company.**                                  
   10.20      Form of Franchise Agreement.*                                               
   10.21      TCBY Franchise Agreement dated October 29, 1996                             
              between TCBY Systems, Inc., and St. Clair Development                       
              Corporation.*                                                               
   10.22      Industrial Real Estate Lease between the Company and                        
              WHPX-S Real Estate Limited Partnership.*                                    
   10.23      Indenture and Related Documents for the 12% Secured                         
              Convertible Notes Due December 21, 2003.***                                 
---------                                                                                 

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* Incorporated by reference from the exhibits included with the Company's       
Registration Statement (No. 333-6722) on Form SB-2 filed with the SEC on April  
3, 1997.                                                                        

** Incorporated by reference from the exhibits included with the Company's      
Annual Report (No. 000-22845) on Form 10-KSB filed with the SEC on March 31,    
1998.                                                                           

*** Incorporated by reference from the exhibits included with the Company's     
Report Form 8-K, dated December 21, 1998.                                       

        (b)The following is a list of Current Reports on Form 8-K filed by the
Company during or subsequent to the last quarter of the fiscal year ended       
December 31, 1999.                                                              

None.                                       

SIGNATURES

       Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to 
be signed on its behalf by the undersigned, thereunto duly authorized.          

Dated:  March 31, 2000              CREATIVE HOST SERVICES, INC.                

           By:   /s/ Sayed Ali
                ------------------------
            Sayed Ali, President

         Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.                

                                                                [Download Table]

                                                                             
  /s/ Sayed Ali             Chairman of the Board and          March 31, 2000
----------------------      President                                        
 Sayed Ali                                                                   

  /s/ Booker T. Graves      Director                           March 31, 2000
----------------------                                                       
 Booker T. Graves                                                            

  /s/ John P. Donohue, Jr.  Director                           March 31, 2000
----------------------                                                       
 John P. Donohue, Jr.                                                        

  /s/ Charles B. Radloff    Director                           March 31, 2000
----------------------                                                       
 Charles B. Radloff                                                          

                                                                [Download Table]

                          CREATIVE HOST SERVICES, INC.                    
                                INDEX TO EXHIBITS                         

                                                             SEQUENTIALLY 
EXHIBIT NO.                       EXHIBIT                    NUMBERED PAGE
-----------                       --------                   -------------

                                                                          
   27                        Financial Data Schedule                      

PAGE 36 

Dates Referenced Herein   and   Documents Incorporated By Reference

				Referenced-On Page
This 10KSB Filing		Date		First		Last			Other Filings
		6/10/94		35
		3/25/95		35
		7/26/95		35
		10/24/95		35
		2/8/96		35
		5/17/96		35
		5/24/96		35
		9/16/96		35
		10/4/96		35
		10/29/96		35
		11/14/96		35
		11/19/96		35
		1/1/97		33
		4/3/97		36
		6/2/97		35					SB-2/A
		7/22/97		11					424B4
		12/31/97		14		15			10KSB
		3/31/98		36					10KSB, 10QSB
		12/15/98		25
		12/21/98		11		36
		12/31/98		12		30			10KSB/A, 10KSB
		3/21/99		11
		3/29/99		33
		6/15/99		25
For The Period Ended		12/31/99		1		36			NT 10-K, 10KSB/A
		1/1/00		33
		3/8/00		8					S-3/A
		3/13/00		11
		3/17/00		17
		3/29/00		1		34			NT 10-K
		3/30/00		16
		3/31/00		12		36			10QSB, 4, S-8
Filed On / Filed As Of		4/13/00
		12/31/00		25		28			NT 10-K, 10KSB/A, 10KSB
		4/15/02		10
		12/21/03		11		35
		12/31/03		26					10-K
		11/19/04		29
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