Share price of San Diego's Creative Host Services rides an updraft
Don Bauder (SanDiego Tribune)
June 21, 2000
San Diego's Creative Host Services operates concessions at airports -- but that isn't the reason its stock took off like a jet beginning late last year.
From a fundamentals perspective, the up-swoosh is baffling.
The company hired a firm with a somewhat questionable reputation to promote its stock, but separately, apparently, a Denver entrepreneur, John Stewart Jackson IV, has accumulated more than 40 percent of it since last fall.
That's twice the number that the company's founder, one-time Oak Industries executive Sayed Ali, has, but Ali says he is not afraid of a hostile takeover. "He (Jackson) is an engineer, very levelheaded. He doesn't even want to be on the board. We call, we chat," Ali says.
"It's difficult to get a quality lease in a restaurant," Jackson says. "It's a captive audience. Ali has done a marvelous job," and is working on acquisitions at other airports, Jackson says.
From 1986 through 1994, the company unsuccessfully franchised Creative Croissant restaurants, and in 1990 moved heavily into company-owned airport concessions. The barely profitable company went public at $4.50 in 1997.
Then, as the company showed promise but struggled, the stock dropped to 82 cents on Oct. 29 of last year.
Then, shortly, it zoomed heavenward, hitting $26.38 in early June before settling back to $23.561/4 yesterday, down 811/4 cents.
The company lost $579,758 in 1999 and was in technical default on certain of its loan covenants, although Ali says that the lender did not complain. Its same-store sales (sales in outlets open a year) are doing well, however.
The company lost $71,790 in the first quarter of this year, although it reduced its debt from $7 million to $4 million by selling stock (much of it well below the prevailing market price at the time). Also, it raised $1.2 million through a private placement -- overall, putting its working capital nicely in the black.
There is a legal issue overhanging Creative Host. The Federal Aviation Administration (FAA) requires that a portion of airport concessions go to disadvantaged business enterprises (DBEs). As long as Ali, a native of Pakistan, owned all the stock, the company clearly qualified.
But with Ali owning only one-fifth of the stock, it is not clear if the company still qualifies. However, there are other ways -- such as through hiring practices -- that it can maintain its DBE status.
This month, shareholders representing 933,723 of the 5.75 million outstanding shares filed a registration statement that they might sell those shares. Among them are 260,700 shares representing those who bought in at $5 in the March private placement.
Other potential sellers represent people who have provided services to the firm and got their shares at a relatively low price, and one company that got warrants to purchase the stock for $3.03 until March 1 2002 as a result of a settlement.
Creative Host hired Florida-based Continental Capital & Equity to promote its stock. In 1996, the company and its owner, John R. Manion, reached a settlement with the Securities and Exchange Commission, which objected to the way Continental prepared "tout sheets" for a client, and then did not truthfully disclose the full nature of its relationship with the client.
"I did not work through Manion," Ali says. Jackson is unaware of the SEC woes. Continental did not return phone calls for comment.
Jackson is a client of a Denver broker named Steven Muth, who was suspended for 10 days in 1991 by the National Association of Securities Dealers for allegedly abetting a scheme to manipulate a stock; he denied wrongdoing. He has also had more than one bankruptcy.
"The bankruptcies don't bother me," Jackson says. "He went through, and he came out."
Muth, who could not be reached for comment, has been putting his clients into stocks of Chinese companies; at one point, Jackson had more than half of Bonso Electronics, another stock that ran up sharply, but that percentage was reduced as more shares went out.
Early this month, when an Internet tout service said that Creative Host stock would soar to $70 a share, the company sent out a news release saying it did not endorse such projections. "We have hired counsel who is investigating the matter," Ali says. "We want to be conservative."
"I think it might well go to $70," says Jackson, who doesn't know the Internet tout service. "They (Creative Host) are being conservative and humble."
With his balance sheet in good order, "internally, operationally, we feel optimistic," Ali says.
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