Creative Host Services Inc · POS AM · On 6/17/98

Filed On 6/17/98   ·   SEC File 333-06722   ·   Accession Number 889297-98-49

Post-Effective Amendment
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Document/Exhibit                   Description                      Pages   Size 

 1: POS AM      Post-Effective Amendment to Registration Statement    56    335K 

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 As filed with the Securities and Exchange Commission on June 17, 1998

 Registration No. 333-6722

 U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

POST-EFFECTIVE AMENDMENT NO. 1
TO
 FORM SB-2

 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

CREATIVE HOST SERVICES, INC.
(Exact name of registrant as specified in their charter)

California
(State or other jurisdiction of incorporation or organization of registrant)

33-1069494
 (I.R.S. employer identification number)

6335 Ferris Square, Suites G-H
 San Diego, California 92126
(619) 587-7300
 (Address, including zip code, and telephone number,
including area code, of registrants' principal executive office)

Sayed Ali, President
Creative Host Services, Inc.
 6335 Ferris Square, Suite G-H
 San Diego, California 92126
(619) 587-7300
 (Name, address, including zip code, and telephone number,
including area code, of agent for service)

 With copies to:

 James A. Mercer III, Esq.
 Luce Forward Hamilton & Scripps LLP
 600 West Broadway, Suite 2600
 San Diego, California 92101
(619) 699-2447
(619) 645-5340 (fax)

Approximate date of commencement of proposed
 sale to the public: From time to time after the
effective date of this Registration Statement.

If any of the  securities  being  registered  on  this  form  are to be  offered
pursuant to dividend or interest  reinvestment plans, please check the following
box. [ ]                                                                        

If any of the  securities  being  registered on this form are to be offered on a
delayed or continuous  basis  pursuant to Rule 415 under the  Securities  Act of
1993, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ X ]                              

If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the  Securities  Act  registration  statement  number of the  earlier  effective
registration statement for the same offering. [ ] _____.                        

If this Form is a  post-effective  amendment filed pursuant to Rule 462(c) under
the  Securities  Act,  check  the  following  box and  list the  Securities  Act
registration  statement number of the earlier effective  registration  statement
for the same offering. [ X ] Registration No. 333-6722.                         

If delivery  of the  prospectus  is  expected  to be made  pursuant to Rule 434,
please check the following box. [ ]                                             

         The Registrant hereby amends this  Registration  Statement on such date
or dates as may be necessary to delay its  effective  date until the  Registrant
shall file a further amendment which specifically  states that this Registration
Statement shall  thereafter  become effective in accordance with Section 8(a) of
the  Securities  Act of 1933 or until the  Registration  Statement  shall become
effective on such date as the Commission,  acting pursuant to said Section 8(a),
may determine.                                                                  

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 SUBJECT TO COMPLETION DATED JUNE 17, 1998

PROSPECTUS                                                                      

CREATIVE HOST SERVICES, INC.

 572,650 Shares Common Stock
 462,500 Redeemable Common Stock Purchase Warrants
462,500 Shares of Common Stock
 Underlying Common Stock Purchase Warrants

         This  Prospectus  relates to 572,650  shares of Common  Stock  ("Common
Stock") of Creative Host Services, Inc. (the "Company"),  the 462,500 Redeemable
Common Stock Purchase  Warrants  ("Warrants"),  issued to certain investors (the
"Selling  Securityholders")  upon the  conversion  of  warrants  issued  to such
Selling  Securityholders  in private  placements  by the  Company  completed  in
January and February,  1997  (collectively,  the "Private  Placement"),  and the
462,500 shares of Common Stock  underlying the Warrants.  Each Warrant  entitles
the holder to purchase one share of Common  Stock at an exercise  price of $5.40
subject  to  adjustment,  until  July 21,  2000.  The  Warrants  are  subject to
redemption  by the  Company at a price of $.05 per  Warrant  on 45 days  written
notice if the last sale price of the Common  Stock  exceeds  150% of the Warrant
exercise price for at least 20 of the 30 trading days immediately  preceding the
notice of redemption.                                                           

         The securities offered by this Prospectus may be sold from time to time
by the Selling Securityholders, or by their transferees. The distribution of the
securities  offered hereby may be effected in one or more  transactions that may
take  place  in  the  over-the-counter   market,   including  ordinary  brokers'
transactions,  privately negotiated transactions or through sales to one or more
dealers for resale of such securities as principals, at market prices prevailing
at the time of sale, at prices  related to such  prevailing  market prices or at
negotiated prices. Usual and customary or specifically negotiated brokerage fees
or commissions may be paid by the Selling Securityholders.                      

         The  Selling  Securityholders  and  intermediaries  through  whom  such
securities  are sold may be deemed  "underwriters"  within  the  meaning  of the
Securities Act of 1933, as amended (the "Securities  Act"),  with respect to the
securities  offered,  and any profits  realized or  commission  received  may be
deemed  underwriting  compensation.  The  Company  has agreed to  indemnify  the
Selling Securityholders against certain liabilities, including liabilities under
the Securities Act.                                                             

         The  Company  will not  receive  any of the  proceeds  from the sale of
securities by the Selling  Securityholders.  In the event the Warrants are fully
exercised, the Company will receive gross proceeds of $2,497,500.               

         The  Common  Stock of the  Company  is traded on the  NASDAQ  Small Cap
Market  under the symbol  "CHST." On June 15,  1998,  the last bid price and ask
price for the Common  Stock as  reported on the NASDAQ  Small Cap was 1.94.  The
Company has applied to have the  Warrants  listed on the NASDAQ Small Cap Market
under the symbol  "CHSTW."  There has been no public  market  for the  Warrants.

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

         THE SECURITIES  OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 8.                                                   

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
 BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
 COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
 OF THIS PROSPECTUS. ANY REPRESENTATION TO
 THE CONTRARY IS A CRIMINAL OFFENSE.

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

The date of this Prospectus is _____________, 1998

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ADDITIONAL INFORMATION

         This  Prospectus  is  part of a  Registration  Statement  on Form  SB-2
(together  with  all  amendments  and  exhibits   thereto,   the   "Registration
Statement")  which has been filed by the  Registrants  with the  Securities  and
Exchange  Commission  (the  "Commission")  under the  Securities Act of 1933, as
amended (the "Securities Act"),  relating to the securities offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement,  certain parts of which are omitted in accordance  with the rules and
regulations of the Commission. For further information, reference is made to the
Registration  Statement  and to  the  exhibits  filed  therewith,  which  may be
examined without charge at the Washington,  D.C. office of the Commission at 450
Fifth Street, N.W.,  Washington,  D.C. 20549, and at the regional offices of the
Commission  located at Seven World Trade Center,  13th Floor, New York, New York
10048 and at 500 Madison (Suite 1400), Chicago, Illinois 60661. Copies of all or
any part  thereof  may be  obtained  from the  Public  Reference  Section of the
Commission  upon payment of the fees  prescribed by the  Commission.  Statements
contained  in this  Prospectus  as to the  contents  of any  contract  or  other
document  referred to are not  necessarily  complete,  and in each instance such
statement is qualified by reference to each such contract or document.          

         The  Company  is  subject  to  the  informational  requirements  of the
Securities  Exchange  Act of  1934  (the  "Exchange  Act")  and,  in  accordance
therewith,  files  reports,  proxy  statements  and other  information  with the
Commission.  Such  reports,  proxy  statements  and  other  information  may  be
inspected at public  reference  facilities of the Commission at Judiciary Plaza,
450 Fifth Street N.W., Washington D.C. 20549;  Northwest Atrium Center, 500 West
Madison Street,  Suite 1400, Chicago,  Illinois 60661; 7 World Trade Center, New
York, New York,  10048;  and 5670 Wilshire  Boulevard,  Los Angeles,  California
90036. Copies of such material can be obtained from the Public Reference Section
of the Commission at Judiciary  Plaza, 450 Fifth Street N.W.,  Washington,  D.C.
20549   at   prescribed   rates.   The   Commission   maintains   a   Web   site
(http://www.sec.gov) that contains reports, proxy and information statements and
other  information  regarding  registrants  that  file  electronically  with the
Commission.                                                                     

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SUMMARY PROSPECTUS

         The following summary is qualified in its entirety by the more detailed
information and financial  statements  appearing  elsewhere in this  Prospectus.
Each prospective investor should carefully read this Prospectus in its entirety,
including the section titled "RISK FACTORS."                                    

 The Company

         Creative Host  Services,  Inc.  (together  with its  subsidiaries,  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 30 operating concession  facilities at 16 airports,  29 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,
California; Madison and Appleton, Wisconsin;  Lexington, Kentucky; Asheville and
Greensborough  (Piedmont  Triad),  North  Carolina;   Allentown,   Pennsylvania;
Roanoke,  Virginia;  Columbia,  South Carolina;  Sioux Falls,  South Dakota; and
Cedar Rapids and Des Moines,  Iowa.  In  addition,  the Company has been awarded
contracts  for  the  construction  of  six  additional  concession   facilities,
including two locations at Ontario,  California; one location at John F. Kennedy
International Airport, in New York City; one location at Midland, Texas; and two
additional  locations  at Des  Moines,  Iowa.  The  Company  expects to commence
operations  at each of these six  additional  facilities  in 1998.  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.  See "BUSINESS --
The Concession Business."                                                       

         According   to   recent   reports   by  the   Federal   Department   of
Transportation,  there are over 400  commercial  airports in the United  States.
While revenue numbers for the airport  concessionaires  are difficult to obtain,
the  Department  of  Transportation  estimates  that in 1992  domestic  airports
received revenues in excess of $2.4 billion from  concessionaires and concession
activities.  The airport  concession  business is  currently  dominated by a few
large  competitors  such  as  Host  Marriott  Services  Corporation  and  CA One
Services,  Inc.  Both of  these  competitors  have,  over a period  of  decades,
established a marketing  strategy of providing  turnkey  concession  services to
airport authorities, bidding for the concession on an entire airport or terminal
complex. Frequently, those competitors bring a nationally-known franchise to the
airport as part of their bid.  The  Company has  historically  focused on medium
sized airports, competing with a number of other competitors,  such as Fine Host
and Air Host. In order for the Company to continue to grow, however,  management
believes that it will  increasingly  need to focus on larger  airports  where it
will  necessarily   compete  with  the  industry   leaders.   See  "BUSINESS  --
Competition."                                                                   

         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 in
determining  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 in forming a projection for revenues.  As a result
of 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  period.
Generally  concessions  are resubmitted for proposals at the end of the term and
the Company would have to 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 a specific  airport's needs,  offering a unique selection of quality food and
beverages, and a distinctive decor. In its proprietary                          

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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 Little Caesar's Pizza and TCBY
Yogurt.  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
intends to  continue  to develop  relationships  with a number of  national  and
regional  food and  beverage  companies,  which it expects  will  provide it the
flexibility to tailor product offerings to meet a particular  airport's desires.
See "BUSINESS -- The Concession Business."                                      

          The Company has historically used a variety of restaurant  designs and
decors in bidding for airport concessions,  including Cafe and Spirits, Creative
Croissants Bakery/Deli,  Panache Coffees, Creative Juices, Haute Dogma, and food
court concepts. Existing airport locations include mini-libraries,  lounges and,
in  Sioux  Falls,  a  casino.  Depending  on the  size of the  contract  and the
circumstances  of  each  location,   the  Company  may  bid  to  be  the  master
concessionaire to develop and manage all concession  services at an airport,  or
it may bid for specific locations with customized themes.                       

         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 of the change
in  control.  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.  See "BUSINESS -- The
Concession Business."                                                           

         The Company operates a 4,635 square foot food preparation center in San
Diego,  California  in which it prepares  bakery food items  including  muffins,
croissants and pastries.  The food  preparation  center  supplies  frozen bakery
goods to each of the  Company's  airport  concessions  as well as baked goods to
franchise  restaurants  (described  below) and to other  restaurants  in the San
Diego area. The bakery foods are made from the Company's proprietary recipes and
shipped frozen in dough form to all facilities on a periodic basis, allowing for
consistency in quality and easy on-site baking and serving.                     
See "BUSINESS -- Food Preparation Center."                                      

         Finally,  the Company  franchises  restaurants under the name "Creative
Croissants."  There are  currently 11  operating  Creative  Croissant  franchise
restaurants.  Franchisees  are required to purchase all of their baked  products
from  the  Company's  food  preparation  center.  Historically,   the  Company's
franchise  restaurant business has operated at a loss. For the nine month period
ended September 30, 1997,  franchise  royalties were  approximately  1% of total
revenues.  The Company anticipates  revenues from franchise operations to remain
unchanged or decline over time as the Company  continues to focus its efforts on
the growth of its Company-owned  concession business. See "BUSINESS -- Franchise
Operations" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS."                                                         

         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.  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 now
operates  two  facilities  and  anticipates  opening a third  food and  beverage
location in 1998. In 1996,  the Company was awarded its first master  concession
contract, which is for the airport in Cedar Rapids, Iowa, where it has the right
to install and manage all food, beverage, news, gift and other services.        

         The Company was  incorporated  in  California  in 1986.  The  Company's
executive offices and food preparation center are located at 6335 Ferris Square,
Suites G-H,  San Diego,  California.  The  Company's  telephone  number is (619)
587-7300.                                                                       

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The Offering

Securities Offered by the Selling                                               
Securityholders.......................  572,650 shares of Common Stock, 462,500 
                                        Warrants  and  462,500  shares of Common
                                        Stock  issuable  upon  exercise  of  the
                                        Warrants.   Each  Warrant  entitles  the
                                        holder to  purchase  one share of Common
                                        Stock at an  exercise  price  of  $5.40,
                                        subject to adjustment, at any time until
                                        July 21, 2000.  The Warrants are subject
                                        to redemption  in certain  circumstances
                                        on   45   days   written   notice.   See
                                        "DESCRIPTION  OF  SECURITIES,"  "SELLING
                                        SECURITYHOLDERS"     and     "PLAN    OF
              DISTRIBUTION."

Offering Price........................  Prevailing market price Securities      

Outstanding...........................  3,098,492 shares of Common Stock(1)     
                                        462,500 Redeemable Common Stock Purchase
                Warrants

NASDAQ Small Cap Market Symbols:                                                
Common Stock.....................  CHST                               
Warrants.........................  CHSTW (as applied for with NASDAQ) 

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

(1)      Does not include (i) up to 462,500 shares of Common Stock issuable upon
         exercise of the Warrants;  (ii) the possible issuance of 100,000 shares
         of Common Stock in connection with the repurchase of concession  rights
         from the  Company's  franchisee  at the Denver  International  Airport;
         (iii) up to 35,000  shares of Common Stock  issuable  upon  exercise of
         outstanding  vested  options;  and (iv) the  issuance  of up to 115,000
         shares of Common Stock  issuable upon exercise of the  Representative's
Warrant.                                                      

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Summary Financial Data

         The  financial  data for the years  ended  December  31,  1996 and 1997
presented  below is derived  from the  Company's  audited  financial  statements
included  elsewhere in this Prospectus.  The following  selected  financial data
should be read in conjunction with the consolidated financial statements and the
related notes thereto included in this Prospectus.                              

Statements of Operations Data:                                                  

                                    Year Ended        Three Months Ended
                               December 31,             March 31
                                 -----------------------------------------------
                                 1996       1997        1997        1998
                                 -----------------------------------------------
                                                        (Unaudited)  (Unaudited)
Total Revenues.................  $5,691,645  $9,802,529  $2,055,782  $3,455,914 
Cost of Goods Sold.............   1,752,541   3,126,711     676,288   1,054,327 
Gross Profit...................   3,939,104   6,675,818   1,379,514   2,401,587 
Operating Costs and Expenses...   3,556,410   6,438,863   1,295,673   2,238,274 
Income from Operations.........     382,694     236,955      83,841     163,313 
Interest Expense...............    (195,120)   (205,965)    (65,327)    (37,734)
Income Before Taxes............     187,574      37,631      18,514     125,307 
Net Income.....................     187,574      37,631      18,514     125,307 

Balance Sheet Data:                                                             

                                         December 31,      March 31,
                                         1997             1998
                                         -----------------------------
                                                           (Unaudited)

Working Capital..........................        $178,285        $(126,303)     
Total Assets.............................      $7,109,821       $7,131,014      
Long Term Debt...........................        $907,951         $779,743      
Total Shareholder's Equity (Deficit).....      $4,489,835       $4,615,142      

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RISK FACTORS

         The following  factors  should be carefully  considered in evaluating a
potential investment in the Company.                                            

         Forward-Looking  Statements.  The following  cautionary  statements are
made pursuant to the Private  Securities  Litigation Reform Act of 1995 in order
for the Company to avail itself of the "safe harbor" provisions of that Act. The
discussions  and  information in this Prospectus may contain both historical and
forward-looking   statements.   To  the  extent  that  the  Prospectus  contains
forward-looking statements regarding the financial condition, operating results,
business  prospects or any other  aspect of the Company,  please be advised that
the  Company's  actual  financial  condition,  operating  results  and  business
performance  may differ  materially  from that  projected  or  estimated  by the
Company in forward-looking statements. The Company has attempted to identify, in
context,  certain of the factors  that it  currently  believes  may cause actual
future experience and results to differ from the Company's current expectations.
The differences may be caused by a variety of factors, including but not limited
to  adverse  economic  conditions,  general  decreases  in air  travel,  intense
competition,  including entry of new competitors,  increased or adverse federal,
state and local government  regulation,  inadequate  capital,  unexpected costs,
lower revenues and net income than forecast,  loss of airport concession bids or
existing  locations,  price  increases for supplies,  inability to raise prices,
failure to obtain new  concessions,  the risk of litigation  and  administrative
proceedings  involving the Company and its  employees,  higher than  anticipated
labor costs, the possible  fluctuation and volatility of the Company's operating
results and financial condition,  adverse publicity and news coverage, inability
to carry out  marketing  and sales  plans,  loss of key  executives,  changes in
interest  rates,  inflationary  factors,  and other  specific  risks that may be
alluded to in this Prospectus.                                                  

         Need  for  Substantial   Additional  Capital.   The  Company  does  not
anticipate that the cash flow from its current  operations will be sufficient to
permit it to acquire  additional  locations  at its historic  growth  rate.  The
Company will be required to raise substantial  additional  capital in the future
in order to have  sufficient  funds to build out  capital  improvements  for any
newly  awarded  concession  locations.   No  assurances  can  be  provided  that
additional  capital to sustain such growth will be available on terms acceptable
to the Company or at all. Failure to secure adequate capital to bid, win, retain
or service concession contracts, will hinder the Company's growth or force it to
franchise valuable locations that it would otherwise prefer to operate directly.
In addition, the Company presently utilizes equipment leasing to finance some of
its operations.  Additional lease financing with rates acceptable to the Company
may not be  available,  in which  case the  Company  will be  required  to raise
additional  capital  or cease its  expansion  program  until such  financing  or
capital is made available, if ever. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION" and "BUSINESS."                   

         Dependence  on Airport  Concession  Business.  The Company is currently
dependent  on the  airport  concession  business  for  substantially  all of its
revenues and expects such dependence to continue for the foreseeable future. The
concession  business is highly  competitive and subject to the  uncertainties of
the bidding and proposal  process.  Sophisticated  bid  packages and  persuasive
presentations  are required in order to have an  opportunity  to win  concession
contracts  at airports  and other public  venues.  While there are  thousands of
airport concessions nationwide, the majority of those concessions are located in
the largest 125  airports,  resulting in a  relatively  small market for airport
concessions.  Concession business operators,  such as the Company, must maintain
their  reputations  with the various airport  authorities and other  government,
quasi  government  and  public  agencies  in order  to  remain  eligible  to win
contracts.  The terms and  conditions of concession  contracts must be carefully
analyzed  to ensure that they can be  profitable  for the  Company.  Preliminary
results for the fiscal year ended December 31, 1997 indicated that the Company's
locations  at  Allentown  and  Portland   operated  at  an  aggregate   loss  of
approximately  $130,000.  Because the Company's  concession  agreements  contain
minimum rent guarantees,  the Company is constrained in its ability to terminate
under-performing  locations.  In addition,  the failure of any single concession
could have a material  adverse impact on the Company's  reputation  with airport
authorities  generally,  and hinder  the  Company's  ability  to renew  existing
concessions  or secure new ones.  There is no  assurance  that the Company  will
continue to be awarded  concession  contracts by airports or by any other public
venue,  that the concession  contracts  will be profitable,  or that the Company
will not lose contracts that it has been awarded. See "BUSINESS."               

         Concessions  Subject  To Set  Asides and  Special  Requirements.  Rules
issued by the  Federal  Aviation  Administration  ("FAA")  require a portion  of
airport  concession  contracts  to be awarded to certain  classes of entities or
persons designated as disadvantaged  business enterprises ("DBEs"). The rules do
not specify the method in which the DBEs                                        

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must participate, whether through owning the concession, employment or providing
services.  Competitors in the industry have relied on  combinations of using DBE
employees or vendors to meet this  requirement.  Prior to the Company's  initial
public offering in July 1997, Mr. Sayed Ali, a native of Pakistan,  owned all of
the Company's  Common Stock,  thereby  satisfying FAA rules.  As a result of the
change in ownership  resulting from the initial public  offering,  the Company's
status as a DBE is less clear.  Certain existing concession  contracts designate
the Company as a DBE and may have to be  reaffirmed.  Management  believes  that
even  if Mr.  Ali's  current  equity  ownership  of  the  Company  is no  longer
sufficient to qualify as a DBE, the Company would be able to maintain all of its
contracts  and can continue to satisfy DBE rules by hiring or  contracting  with
minority parties or other entities qualifying as DBEs, if required.  However, it
has not discussed with any airport  authority the possible  impact of its change
in status; nor has the Company attempted to reaffirm any existing contract.  The
Company's  status as a DBE  assisted it in  securing  concessions  with  several
airports.  The Company believes it can continue to secure new concessions on the
basis of the products and  services it offers and its industry  reputation.  The
Company has secured  concessions  to operate 7  additional  locations  after its
initial public  offering and the resultant  dilution of ownership,  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.  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.  See  "BUSINESS--Governmental
Regulation."                                                                    

         Possible Early Termination of Concessions.  Certain airport authorities
or  airlines  that  operate  concession  locations  provide in their  concession
agreements  for the right to reacquire the  concession  from the  concessionaire
upon reimbursement of equipment and build out costs and, sometimes, a percentage
of anticipated profits during the balance of the concession term. Certain of the
Company's significant concession contracts, including Los Angeles International,
Des Moines, Iowa,  Columbia,  South Carolina and Cedar Rapids, Iowa, provide for
such early termination.  See "BUSINESS -- The Concession Business." To date, the
Company has not had any of its concessions  terminated,  and the Company has not
received  notice  that  any  airport   authority  is  contemplating   the  early
termination of any of the Company's concessions.  No assurances can be provided,
however,  that these airport  authorities  will not exercise  their  contractual
right to early termination of the concession contracts in the future.           

         Possible   Delay  in   Commencement   of  Concession   Operations   The
commencement of the Company's concession  operations at any airport location are
subject  to a number  of  factors  which  are  outside  the  Company's  control,
including  construction delays and decisions by airport authorities to delay the
opening of  concessions.  The Company  has, in the past,  experienced  delays in
commencing operations because of decisions by airport authorities. The Company's
franchisee  had  completed  capital  improvements  for a facility  at the Denver
International  Airport,  only to have the airport  authority close the concourse
when a major airline withdrew its operations from that airport.  The Company has
also been asked to delay  commencement  of its  operations at JFK  International
Airport  in New York.  Consequently,  the  Company  bears the risk that  after a
concession  has been  awarded,  the  completion of capital  improvements  or the
commencement  of operations  at completed  facilities  may be delayed.  Any such
delay or  requirement  by an airport  authority  for the  Company  to  construct
facilities  during peak travel  periods  would  adversely  impact the  Company's
financial  projections and cash flow planning,  and may have a material  adverse
impact on the Company's financial position.                                     

         Dependence on Key Personnel and Need to Attract  Qualified  Management.
The Company's success will depend largely upon the Company's  management.  While
management has had previous experience in concession and restaurant  operations,
there can be no assurance  that the  Company's  operations  will be  successful.
Sayed Ali,  Chairman of the Board,  President and Chief Executive Officer of the
Company,  has entered  into a five-year  employment  agreement  with the Company
which  commenced  on January 1, 1997.  In the event of a loss of the services of
Mr. Ali, the Company could be materially  adversely affected because there is no
assurance  that the Company  could obtain  successor  management  of  equivalent
talent and  experience.  The Company is  currently  listed as  beneficiary  of a
$220,000 key man life insurance  policy which is owned by Mr. Ali and is pledged
as security for a Small Business  Administration  ("SBA") loan. In addition, the
Company has  obtained a  $1,000,000  key man policy on Mr. Ali which the Company
owns.  Given the Company's stage of  development,  the Company is dependent upon
its ability to  identify,  hire,  train,  retain and motivate  highly  qualified
personnel,  especially  management personnel which will be required to supervise
the Company's expansion into various geographic areas. There can be no assurance
that  the  Company  will be able to  attract  qualified  personnel  or that  the
Company's current                                                               

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employees  will  continue  to work for the  Company.  The  failure  to  attract,
assimilate and train key personnel  could have a material  adverse effect on the
Company's  business,   financial  condition  and  results  of  operations.   See
"MANAGEMENT."                                                                   

         Highly  Competitive  Industry  Dominated  by  Larger  Competitors.  The
Company competes with certain national and several regional  companies to obtain
the rights from airport and other authorities to operate food,  beverage,  news,
gift,  merchandise and inflight  catering  concessions.  The airport  concession
market is  principally  serviced by several  companies  which are  significantly
larger than the Company,  including, but not limited to, Host Marriott Services,
Inc., CA One Services, Concessions International,  and Ogden Food Services. Each
of these well established competitors possesses substantially greater financial,
marketing,  administrative  and other  resources  than the Company.  Many of the
Company's   competitors  have  achieved   significant  brand  name  and  product
recognition. They engage in extensive advertising and promotional programs, both
generally  and in response  to efforts by  additional  competitors  to enter new
markets or introduce  new products.  There can be no assurance  that the Company
will   be  able  to   compete   successfully   in  its   chosen   markets.   See
"BUSINESS--Competition."                                                        

         Dependence  Upon  Continuing   Approvals  from  Government   Regulatory
Authorities.  The food and  beverage  service  industry  is  subject  to various
federal,  state and local  government  regulations,  including  those related to
health,  safety,  wages  and  working  conditions.  While  the  Company  has not
experienced  difficulties in obtaining necessary  government  approvals to date,
the  failure  to obtain  and  retain  food  licenses  or any other  governmental
approvals  could  have a  material  adverse  effect on the  Company's  operating
results.  Moreover,  the Company's failure to meet government  regulations could
result in the  temporary  closure of one or more of its  concession  facilities,
restaurants or the food preparation  center,  any of which would have a material
adverse impact on the Company's financial condition and result of operations. In
addition,  operating costs are affected by increases in the minimum hourly wage,
unemployment  tax rates,  sales taxes and similar matters over which the Company
has no control. The Company is also subject to federal and state laws, rules and
regulations   that   govern   the   offer   and   sale   of   franchises.    See
"BUSINESS--Government Regulations."                                             

         No Assurance of  Enforceability  of  Trademarks.  The Company  utilizes
trademarks  in its  business  and  has  registered  its  Creative  Croissants(R)
trademark. While the Company intends to file federal trademark registrations for
certain  of its  other  trademarks,  it has not yet  done  so.  There  can be no
assurance that the Company will be granted  registration  for such trademarks or
that the Company's  trademarks do not or will not violate the proprietary rights
of others,  that the Company's  trademarks would be upheld if challenged or that
the Company will not be prevented from using its trademarks,  any of which could
have a material  adverse effect on the Company.  Should the Company believe that
its  trademarks  are  being  infringed  upon  by  competitors,  there  can be no
assurance  that the  Company  will have the  financial  resources  necessary  to
enforce or defend its trademarks and service marks. See "BUSINESS--Trademarks." 

         Seasonality.  Because  the  Company's  airport  concession  business is
dependent on pedestrian  traffic at domestic airports,  the Company  experiences
some seasonality  consistent with enplanements and general air traffic patterns.
Accordingly,  the  Company's  revenues and income are  generally  expected to be
lowest  in the  first  quarter  of the year and  become  progressively  stronger
through the fourth  quarter,  which  includes the holiday  travel  periods.  See
"BUSINESS -- Seasonality." See "BUSINESS--Seasonality."                         

         Control by Principal  Shareholder.  The  principal  shareholder  of the
Company,  Mr.  Sayed Ali,  beneficially  owns 30% of the  outstanding  shares of
capital stock of the Company.  Accordingly,  Mr. Ali has  significant  influence
over the outcome of all matters  submitted  to the  shareholders  for  approval,
including   the  election  of  directors   of  the   Company.   See   "PRINCIPAL
STOCKHOLDERS."                                                                  

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 USE OF PROCEEDS

         The Company will not receive any  proceeds  from the sale of the shares
offered hereby by the Selling Securityholders.                                  

CAPITALIZATION

         The following table sets forth the  capitalization of the Company as of
March 31, 1998.  The  financial  data in the  following  table should be read in
conjunction  with the  Company's  financial  statements  and the  notes  thereto
contained elsewhere in this Prospectus.                                         

                                                                  March 31, 1998
                                                                ----------------
ndebtedness:                                                                    
 Long-term indebtedness(1).........................                  779,743
Stockholders' Equity:                                                           
Preferred Stock, no par value, 2,000,000 shares authorized,               
      -0- shares issued and outstanding............                        0
Common Stock, no par value, 20,000,000 shares authorized,                 
    3,098,492 issued and outstanding(2)............                5,820,514
Additional Paid-In Capital...........................                  857,537  
Accumulated Deficit..................................               (2,062,909) 
Total Shareholders' Equity (deficit).................                4,615,143  
Total Capitalization.................................                5,394,886  

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

(1)      Includes capital lease obligations of $667,836.                        

(2)      Does not include (i) up to 462,500 shares of Common Stock issuable upon
         exercise of the Warrants;  (ii) the possible issuance of 100,000 shares
         of Common Stock in connection with the repurchase of concession  rights
         from the  Company's  franchisee  at the Denver  International  Airport;
         (iii) up to 35,000  shares of Common Stock  issuable  upon  exercise of
         outstanding  vested  options;  and (iv) the  issuance  of up to 115,000
         shares of Common Stock  issuable upon exercise of the  Representative's
Warrant.                                                      

 DIVIDEND POLICY

         The Company has not  declared or paid any cash  dividends  and does not
intend to pay cash dividends in the  foreseeable  future on shares of its Common
Stock.  Cash  dividends,  if any,  that may be paid in the  future to holders of
Common Stock will be payable  when, as and if declared by the Board of Directors
of the Company,  based upon the Board's assessment of the financial condition of
the Company, its earnings and its need for funds. The Company is currently party
to an SBA loan agreement which prohibits it from paying  dividends on its Common
Stock or Preferred Stock without the lender's prior consent.  See  "MANAGEMENT'S
DISCUSSION  AND  ANALYSIS  OF  RESULTS  OF  OPERATIONS   Liquidity  and  Capital
Resources."                                                                     

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 SELECTED FINANCIAL DATA

         The  financial  data for the years  ended  December  31,  1996 and 1997
presented  below is derived  from the  Company's  audited  financial  statements
included   elsewhere  in  this  Prospectus.   Interim  financial  data  for  the
three-month  periods  ended March 31, 1997 and March 31, 1998 were  derived from
the  Company's  unaudited  financial   statements  included  elsewhere  in  this
Memorandum. The results for the three-month period ending March 31, 1998 are not
necessarily  indicative  of the results to be expected for the entire year.  The
following  selected  financial  data  should  be read in  conjunction  with  the
Company's   financial   statements  and  the  related  notes  included  in  this
Prospectus.                                                                     

Statements of Income and Operations:                                            

                                                        · Enlarge/Download Table

                                                         Year Ended                     Three Months Ended     
                                                         December 31,                         March 31,        
                                               ----------------------------------------------------------------
                                                   1996              1997              1997             1998   
                                               ----------------------------------------------------------------
                                                                                                               
Revenues:                                                                                                      
     Concessions                               $4,822,804         $9,035,807       $1,868,275       $3,276,590 
     Food preparation center sales                742,434            659,008          154,997          165,023 
     Franchise royalties                          126,407            107,714           32,509           14,301 
                                               ----------------------------------------------------------------
         Total revenues                         5,691,645          9,802,529       $2,055,782       $3,455,914 
     Cost of goods sold                         1,752,541          3,126,711          676,288        1,054,327 
                                               ----------------------------------------------------------------
     Gross profit                               3,939,104          6,675,818        1,379,514        2,401,587 
                                               ----------------------------------------------------------------
Operating costs and expenses:                                                                                  
     Payroll and other employee benefits        1,771,720          3,524,001          666,063        1,047,977 
     Occupancy                                  1,101,593          1,790,306          308,450          529,955 
     General, administrative and selling                                                                       
     expenses                                     683,097          1,124,556          321,160          660,342 
                                               ----------------------------------------------------------------
         Total operating costs and expenses     3,556,410          6,438,863        1,295,673        2,238,274 
                                               ----------------------------------------------------------------
Income from operations                            382,694            236,955           83,841          163,313 
                                               ----------------------------------------------------------------
Interest, net                                    (195,120)          (205,965)         (65,327)         (37,734)
Other income                                           --              6,641               --             (272)
                                               ----------------------------------------------------------------
                                                 (195,120)          (199,324)          65,327                  
                                               ----------------------------------------------------------------
Net income                                       $187,574            $37,631          $18,514         $125,307 
                                               ----------------------------------------------------------------
Net income (lose) applicable to common stock     $121,574           $(41,869)        $(11,986)        $125,307 
                                               ----------------------------------------------------------------
Net income (loss) per share                          $.10             $(.02)          $(0.01)            $0.04 
                                               ----------------------------------------------------------------
Weighted average number of shares outstanding   1,200,000          2,004,596        1,200,000        3,098,492 
                                               ----------------------------------------------------------------
Number of Company owned airport concession                                                                     
     facilities operating at period end                13                 29               17               29 
                                               ----------------------------------------------------------------


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Balance Sheet Data:                                                             

                                                  Actual
                                                     ---------------------------
                                                   As of
                                                  March 31, 1998
                                                     ---------------------------

Working Capital.............................                 $(126,303)         
Total Assets................................                $7,131,014          
Long-Term Debt..............................                  $779,743          
Shareholder's Equity (Deficit)..............                $4,615,142          

 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 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 28 concession  locations at 13 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 three             

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years, revenues from concession operations have grown from 59% of total revenues
in 1995 to 92% of total revenues in 1997.                                       

         As of December 31, 1996, the Company had working capital of $(938,224).
As of December 31, 1997,  the Company had working  capital of $178,285.  Capital
improvement  costs incurred to meet the  requirements of new airport  concession
contracts have placed substantial  demands on the Company's working capital.  In
February  1997,  the  Company  completed  a  private  placement  of  Convertible
Preferred Stock and private  warrants,  which raised  proceeds of  approximately
$2,031,000 from these offerings.  In July 1997, the Company completed an initial
public  offering of its Common Stock,  raising gross  proceeds of  approximately
$5.2 million.  Nearly all of the proceeds were used to redeem the  reconvertable
Preferred  Stock and to  complete  capital  improvements  at awarded  concession
locations.                                                                      

         The  Company   expects  to  continue   to  have   significant   capital
requirements  in 1997 to finance the  construction  of new airport  concessions,
restaurants  and  other  concession  related  businesses  such as news &  gifts,
specialty,  inflight  catering and other  services,  including  the ones already
awarded  in New York,  Pennsylvania,  South  Carolina,  Iowa,  South  Dakota and
Colorado.  Furthermore, the Company will 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. 

                                        Fiscal Year Ended     Three Months Ended
                                        December 31,             March 31,
                                     -----------------------  ------------------

                                     1995   1996   1997       1997      1998
                                     -----------------------  ------------------
Revenues:                                                                       
 Concessions                         59%     85%    92%       91%        95%
 Food Preparation Center Sales        33      13      7         7          4
 Francise Royalties                    8       2      1         2          1
                                     -----------------------  ------------------
    Total Revenues                   100%    100%   100%     100%       100%
Cost of Goods Sold                      31      31     32       33         31 
                                     -----------------------  ------------------
Gross Profit                             69      69     68       67         69  
Operating Costs and Expenses:                                                   
 Payroll and Employee Benefits         33      31     36       32         30
 Occupancy                             20      19     18       15         15
 General and Administrative            22      12     12       16         19
Interest Expense                          3       3      2        3          1  
Other (Income) Loss                      19       0      0        0          0  
                                     ------------------------  -----------------
Net Income (Loss)                      (28)%      4%     0%       1%        4%  
                                     ------------------------  -----------------

         Three Months Ended March 31, 1998  Compared to Three Months Ended March
31, 1997                                                      

         Revenues. The Company's gross revenues for the three months ended March
31, 1998 were $3,455,914 compared to $2,055,782 for the three months ended March
31, 1997, an increase of $1,400,132 or 68%. Revenues from concession  activities
increased   $1,408,315   ($3,276,590  as  compared  to  $1,868,275)  while  food
preparation  center revenues increased slightly by $10,025 ($165,023 as compared
to $154,998),  and franchise  royalty revenues  decreased by $18,208 ($14,301 as
compared to  $32,509).  The  increase in  concession  revenues  was  principally
attributable  to the completion of newly awarded airport  locations.  Same store
sales for  concession  locations  that were open for the full three month period
ended March 31, 1997  increased 9.6% from  $1,827,906 to  $2,004,292.  Franchise
royalty revenues declined  principally as a result of the Company's  acquisition
of a Denver franchise.                                                          

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         Cost of Goods Sold.  The cost of goods sold for the three  months ended
March 31, 1998 were  $1,054,327  compared to $676,268 for the three months ended
March  31,  1997.  As a  percentage  of total  revenue,  the cost of goods  sold
decreased to 30.5% from 32.9%.  The Company's  costs of goods sold are primarily
food costs.  Those costs are generally higher as a percentage of revenues on the
opening of a new  facility  until the  Company  establishes  stable  patterns of
demand for its products.  The relatively  high costs of goods sold for the three
month period ended March 31, 1997 was  attributable  to expanded  operations  of
newly remodeled  facilities which opened during the period. The Company believes
that  costs  of goods  sold of 30% of total  revenues  represents  a  relatively
sustainable level.  Management hopes to be able to reduce costs of goods sold as
a percentage of sales  slightly from this figure  through  increased  purchasing
power, distribution efficiencies and operating efficiencies.                    

         Operating  Costs and  Expenses.  Operating  costs and  expenses for the
three months ended March 31, 1998 were $2,238,271 compared to $1,295,673 for the
three months ended March 31, 1997.  Payroll expenses  increased from $666,063 to
$1,047,977 in 1998. As a percentage of total revenue,  payroll expense  declined
from  32.4% for the three  months  ended  March 31,  1997 to 30.4% for the three
months ended March 31, 1998.  The increase in payroll  dollar  amounts is due to
the addition of new concession facilities while the decrease in labor percentage
shows the maturing phase as was seen in costs of goods sold  percentage.  As the
Company continues to grow the affects during startup of new operations will have
a smaller impact on the financial performance of the entire Company.            

         General and  administrative  expenses  increased  from $321,160 for the
three  months  ended March 31, 1997 to $660,342 for the three months ended March
31, 1998. This increase is related to the expense of placing management into new
store  locations,  the travel  associated with rapid growth and costs associated
with  operating  as  a  publicly  traded  corporation.  This  should  reduce  as
operations   continue  to  mature.   The  Company  intends  to  hire  additional
administrative  staff  commensurate with its growth.  Consequently,  general and
administrative  expenses should continue to increase in dollar amount but should
not represent a greater percentage of total revenue.                            

         Interest  Expense.  Interest  expense net decreased from $65,327 in the
quarter ended March 31, 1997 to $37,734 in the quarter ended March 31, 1998 as a
result  of  reduced  debt due to  proceeds  from the  Company's  initial  public
offering.                                                                       

         Net Income.  Net income for the three  months  ended March 31, 1998 was
$125,307  compared  to  $18,514  for the three  months  ended  March  31,  1997.
Management  attributes  this  increase  to  income  derived  from  newly  opened
concession  locations  and to  increased  revenues  from  locations  which  were
remodeled  during the interim period.  The Company  anticipates  that net income
from  existing  operations  will  continue  to increase  commensurate  with cost
savings  that result from  economics of scale and  efficiencies  obtained at the
operating level. The Company expects to open additional  concession locations in
1998 and has already  committed to open an additional 8 locations under existing
contracts.  While  management does not expect newly opened  locations to operate
with the efficiency of more established locations,  it does hope to diminish the
effect  of start up costs  through  its  increased  experience  in  opening  new
locations and other operating efficiencies.                                     

         The Company does not believe that  inflation has had an adverse  affect
on its revenues and earnings.                                                   

         Fiscal  Year Ended  December  31,  1997  Compared  to Fiscal Year Ended
December 31, 1996                                             

         Revenues.  The  Company's  gross  revenues  for the  fiscal  year ended
December 31, 1997 were $9,802,529,  compared to $5,691,645,  for the fiscal year
ended  December  31,  1996.  Revenues  from  concession   activities   increased
$4,212,003 ($9,035,807 compared to $4,822,804) and food preparation center sales
decreased $83,426 (from $742,434 to $659,008) while franchise royalties declined
$18,693  (from  $126,407  to  $107,714).  Substantially  all of the  increase in
concession activities is attributable to full year operations for the concession
locations  opened  during  fiscal  1996  and  partial  year  operations  for  an
additional 7 concession locations which opened during fiscal 1997.              

         Cost of Goods  Sold.  The cost of goods sold for the fiscal year ending
December  31, 1997 was  $3,126,711  compared to  $1,752,541  for the fiscal year
ending December 31, 1996. As a percentage of total  revenues,  the cost of goods
sold was 31% in 1996 and 32% 1997.  Costs of goods sold is typically  high for a
newly opened concession facility as the                                         

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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, 1997 were $6,438,863,  compared to $3,556,410 for
the fiscal  year ended  December  31,  1996.  Payroll  expenses  increased  from
$1,771,720 in 1996 to  $3,524,001  in 1997.  As a percentage of total  revenues,
payroll  expense  was 31% in  1996  and  increased  to 36% in  1997.  Management
believes that increased  training costs and other  inefficiencies as a result of
the opening of a number of new  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  $683,097  in  1996  to
$1,124,556 in 1997,  but decreased as a percentage of total revenues from 12% in
1996 to 11% in 1997.  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, 1996 was $195,120  compared to $205,965  for the fiscal year ended  December
31, 1997. As a percentage of total revenues, interest expenses remained the same
at 2%.                                                                          

         Net Income  (Loss).  Net income for the fiscal year ended  December 31,
1997 was $37,631  compared to $187,574  for the fiscal year ended  December  31,
1996.  Operating  income  decreased  from  $382,694 in 1996 to $236,955 in 1997.
Management  attributes  the decline in net income to the  increase in  operating
expenses  attributable to opening seven new concessions  locations during fiscal
1997.                                                                           

         Same Store Sales.  The Company operated three locations during both the
full fiscal years ended December 31, 1996 and December 31, 1997. Sales for those
locations  were  $2,098,015  for the fiscal  year ended  December  31,  1996 and
$2,232,972  for the fiscal  year ended  December  31,  1997,  for an increase of
$134,957 or 6%.                                                                 

          Fiscal  Year Ended  December  31,  1996  Compared to Fiscal Year Ended
December 31, 1995                                                               

         Revenues.  The  Company's  gross  revenues  for the  fiscal  year ended
December 31, 1996 were  $5,691,645,  compared to $2,059,607  for the fiscal year
ended  December  31,  1995.  Revenues  from  concession   activities   increased
$3,595,943  ($4,822,804 as compared to $1,226,861),  and food preparation center
sales increased  $72,527 (from $669,907 to $742,434)  while franchise  royalties
declined $36,432 (from $162,839 to $126,407).  Substantially all of the increase
in concession sales is attributable to the increase in concession  revenues as a
result of the opening of a significant  number of new concessions at airports in
the United  States during the year,  and a full year's  operation of Company and
franchise owned airport  concessions which had opened during fiscal 1995. At the
beginning  of 1995,  the Company  operated  only the Aspen  Airport  concession.
Consequently  the 1995 figures  reflect  operations from the Aspen Airport for a
full year as well as partial  year  operations  of the Los Angeles and  Portland
concessions.  The revenue figures for 1996 include eleven additional concessions
which opened during the fiscal year.                                            

         Cost of Goods  Sold.  The cost of goods sold for the fiscal year ending
December 31, 1996 was $1,752,541 compared to $639,091 for the fiscal year ending
December 31, 1995.  As a percentage  of total  revenues,  the cost of goods sold
remained consistent at 31% in 1995 and 1996.                                    

         Operating  Costs and  Expenses.  Operating  costs and  expenses for the
fiscal year ended December 31, 1996 were $3,536,410,  compared to $1,534,919 for
the fiscal  year ended  December  31,  1995.  Payroll  expenses  increased  from
$670,049 in 1995 to  $1,771,720  in 1996.  As a  percentage  of total  revenues,
payroll expense was 33% in 1995 and 31% in 1996, representing a modest decrease.
The Company expects payroll expenses to increase in total dollar amounts with   

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the addition of new concession facilities, and to decrease modestly as a percent
of revenues as the Company  implements  certain  control  measures.  General and
administrative  expenses  increased  from  $462,960 in 1995 to $683,097 in 1996,
decreased as a percentage of total revenues from 22% in 1995 to 12% in 1996. The
decline in the  general  and  administrative  expenses  from 1995 to 1996,  as a
percentage of total  revenues,  results from an increase of gross revenues while
administrative expenses were held relatively constant.                          

         Interest  Expense.  Interest expense for the fiscal year ended December
31, 1996 was $195,120 compared to $63,548 for the fiscal year ended December 31,
1995. As a percentage of total revenues,  interest expenses decreased from 3% to
2%.                                                                             

         Net Income  (Loss).  Net income for the fiscal year ended  December 31,
1996 was $187,574 compared to a net loss of $(578,962) for the fiscal year ended
December 31, 1995.  Operating  losses  declined  from  $(114,403)  in 1995 to an
operating  income  of  $382,694  in  1996.  The  improvement  of  the  operating
performance  in 1996 reflects the  Company's  operating  cost control  measures,
increased sales at Company owned airport concessions, and royalty and fee income
from the Denver International Airport franchise concession. The Company incurred
a nonrecurring  loss of $(403,738) in 1995 for costs of a private  placement and
an attempted public offering of the Company's stock during 1995 which caused the
overall  net loss of the  Company to be  significantly  greater in 1995 than its
operating loss.                                                                 

         Same Store Sales.  The Company  operated only one location  during both
the fiscal  years ended  December  31, 1995 and  December  31,  1996,  at Aspen,
Colorado.  Sales for the Aspen  location were $333,062 for the fiscal year ended
December 31, 1995 and $327,651 for the fiscal year ended  December 31, 1996, for
a decrease of $5,411 or 1.6%.                                                   

Liquidity and Capital Resources                                                 

         Since its  inception,  the Company's  capital needs have primarily been
met from the proceeds of (i) capital  contributions  of $1,300,000 made by Sayed
Ali, the  principal  shareholder,  Chairman and Chief  Executive  Officer of the
Company,  (ii) a Small Business  Administration  loan obtained by the Company in
September 1992 in the original  principal amount of $220,000,  guaranteed by Mr.
Ali and secured by certain of his personal  assets and a key man life  insurance
policy,  (iii) a private placement of 9% Convertible  Redeemable Preferred Stock
made by the  Company  in 1994  which  raised  gross  proceeds  of  approximately
$722,000,  (iv) equipment lease financing on specific  airport  facilities which
are  guaranteed  by Mr. Ali, (v) certain short term  borrowings,  (vi) a private
placement of 8%  Convertible  Preferred  Stock which raised net proceeds of $2.0
million in February 1997,  and (vii) an initial public  offering of Common Stock
which raised net proceeds of $5.3 million in July 1997.                         

         The loan  guaranteed  by Mr. Ali consists of the SBA loan made by North
County Bank to the Company in September 1992 in the original principal amount of
$220,000 with an  outstanding  balance of $134,261 as of December 31, 1997.  The
SBA loan bears interest at the rate of prime plus 2.75% per annum and is payable
in monthly  installments  of principal  and interest  equal to $2,770,  with all
principal and accrued but unpaid  interest due on October 5, 2002.  The SBA loan
is secured by all of the Company's machinery, equipment, furniture, fixtures and
inventory,  and junior deeds of trust on two residential properties owned by Mr.
Ali. The lender must approve any redemption of securities or the declaration and
payment of dividends by the Company.  The Company is current on its debt service
of the SBA loan. The leases  guaranteed by Mr. Ali are the equipment  leases for
the Company's food and beverage facilities at Los Angeles  International Airport
(approximately   $200,000),   Portland   International  Airport   (approximately
$180,000), the airport 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 ten
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 two years,  which has  resulted  in  significant  capital  needs.  As a
result, the Company has been                                                    

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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 two years. Accordingly,  to the extent the Company
is successful in securing new concession contracts, the Company will continue to
need additional capital,  in addition to cash flow from operations,  in order to
finance the construction of capital improvements.                               

         As of March 31, 1998,  the Company had working  capital of  $(126,303).
The Company expects to continue to have significant capital requirements in 1998
and  1999  to  finance  the  construction  of  new  airport  food  and  beverage
concessions  and  other  concessions  related  businesses  (i.e.,  news & gifts,
inflight  catering  and  other  services).   The  Company   anticipates  capital
requirements  of  approximately  $4.9  million in Fiscal  1998 to  complete  the
construction of improvements at concession  facilities which it has already been
awarded in California,  Iowa, New York, North Carolina,  South Dakota and Texas.
The  Company  has  an  immediate  need  for  additional   capital  to  fund  the
construction of capital  improvements at several of those airports.  The Company
is  actively  evaluating  potential  financing  arrangements  with a  number  of
commercial  banks as well as  possible  placements  of debt or  equity,  or some
combination of those financings in order to meet its capital needs. On March 13,
1998, the Company  borrowed  $250,000 from an  unaffiliated  third party to fund
construction of capital  improvements  under the terms of a Promissory Note. The
Note is due the earlier of December 15,  1998,  or the date on which the Company
completes  the sale of debt or  equity.  The  Company  estimates  that  existing
capital and cash flow will be sufficient to continue construction  scheduled for
the next four to six weeks.  While management  believes,  based on the status of
discussions with various  commercial banks and investment  bankers,  that it has
several financing  alternatives available to it, the Company has not yet secured
a  commitment  for such  funding,  and neither the  ultimate  amount of any such
financing nor the terms of such financing are known at this time. If the Company
fails to secure  additional  funding it will have to delay  construction and may
lose airport concessions previously awarded to it.                              

         The Company will have additional capital  requirements  during 1998 and
1999  if the  Company  wins  additional  bids  or  acquires  additional  airport
concession  facilities.  The Company is  continually  evaluating  other  airport
concession  opportunities,  including  submitting  bid  proposals  and acquiring
existing concession owners and operators.  The level of its capital requirements
will depend upon the number of airport  concession  facilities which are subject
to bid, as well as the number and size of any potential  acquisition  candidates
which arise. There is no assurance that the Company will have sufficient capital
to finance  its growth and  business  operations  or that such  capital  will be
available on terms that are favorable to the Company or at all.                 

 BUSINESS OF THE COMPANY

The Concession Business                                                         

         The  Company is  primarily  engaged in the  business of  acquiring  and
operating food, beverage and other concessions at airports throughout the United
States.  The Company  currently  has 30 operating  concession  facilities  at 16
airports,  29 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, California; Madison and Appleton, Wisconsin; Lexington, Kentucky;
Asheville  and  Greensborough  (Piedmont  Triad),  North  Carolina;   Allentown,
Pennsylvania;  Roanoke,  Virginia;  Columbia, South Carolina; Sioux Falls, South
Dakota; and Cedar Rapids and Des Moines, Iowa. In addition, the Company has been
awarded contracts for the construction of six additional concession  facilities,
including two locations at Ontario,  California; one location at John F. Kennedy
International Airport, in New York City; one location at Midland, Texas; and two
additional  locations  at Des  Moines,  Iowa.  The  Company  expects to commence
operations  at each of these six  additional  facilities  in 1998.  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.                                                                       

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         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 in
determining  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 in forming a projection for revenues.  As a result
of 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  period.
Generally  concessions  are resubmitted for proposals at the end of the term and
the Company would have to 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 a 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  Little  Caesar's Pizza and TCBY Yogurt.  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 it the  flexibility  to
tailor product offerings to meet a particular airport's desires.                

         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"  featuring 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 serving liquor with the exception
of Los Angeles International Airport and Portland International Airport.        

         Creative  Croissants(R) Bakery Deli: Depending on the preference of the
airport authority and the available concession category,  the Company can submit
proposals for the bakery/deli concept either on a stand alone basis or in a food
court. The Company currently operates Creative Croissants, either stand alone or
a part of a food court at every airport it currently services.                  

         "Panache  Coffees":  For smaller areas on a more dispersed  basis,  the
Company has entered into an agreement  with Panache  Coffees to meet the growing
demand for coffee beverages at airports.  The Company has presented this concept
in a kiosk format and as part of other food and beverage facilities. The Company
currently  has four Panache  Coffee  outlets at four  airports with plans to add
additional locations at four existing airport concession locations.             

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         "Creative  Juices":  Fresh fruit juices and fruit  smoothies seem to be
growing in  popularity,  resulting in the demand for small areas with juice bars
at airports. The Company has successfully implemented its Creative Juice concept
at its  airport  facilities  at Denver  International  Airport  and plans to add
additional facilities at Des Moines and Piedmont Triad airports.                

         "Haute Dogma": The Company has developed a concept for gourmet hot dogs
which can be implemented in a built-out  concession,  as part of a food court or
as a  free-standing  cart.  The Company  operates a built-out  concession at the
Denver International  Airport under the "Haute Dogma" concept, and plans to open
additional facilities at Des Moines,  Piedmont Triad,  Asheville and Sioux Falls
airports.                                                                       

         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 of the change
in control.  As a result,  the  strengths  the Company  demonstrates  in the RFP
process are used to secure the consent of an airport  authority to a transfer of
concession  rights in an  acquisition of an existing  location.  The Company has
typically  negotiated  for an extension of the  concession  term in exchange for
additional  capital  improvements  or additional  facilities or menu items to be
offered at the concession  location as part of securing the airport  authority's
consent to the transfer.                                                        

         The  Company's  strategy is to expand its  concession  business to more
airports in the United  States,  and  eventually  to other  public  venues.  The
Company also intends to seek to expand the types of concession services which it
provides,  and to be awarded more multiple and master concession  contracts such
as the one it has been awarded for the Cedar  Rapids,  Iowa  airport.  While the
Company has historically focused on the food and beverage segment, it intends to
seek concession awards to provide news stands, gift shops,  specialty stores and
other services to augment the Company's  food and beverage  business at airports
and other venues.                                                               

         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.                                                                       

         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 of the award,  or to commence  construction of an entirely
new facility  within three to six months of 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.                                      

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         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 will either
be closed or will serve at minimal levels. Once the remodeling is completed, the
facility opens for full service business,  generally for most hours during which
the airport is actively operating.                                              

         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                                                            

         The  following  table   identifies  the  Company's   existing   airport
concessions  and  those  which  have  been  awarded  and are  expected  to being
operations in 1998:                                                             

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 Existing and Awarded Concession Locations

                                                        · Enlarge/Download Table
                                                                                     Date of                                        
                                                                                    Completion                                      
                                                                                    or Expected                        Year Ended   
                                                                 Date Commenced    Completion of      Expiration Date  December 31  
Name/Location of Concession    Description of Concession           Operations       Remodeling         of Contract   1997 Revenue(7)
----------------------------------------------------------------------------------------------------------------------------------- 
                                                                                                                                    

Midland, Texas                 Food and Beverage (one location)    Not Yet Opened  October 1998       September 2007           N.A. 
Ontario, California            Food and Beverage (two locations)   Not Yet Opened  October 1998       July 2008                N.A. 
John F. Kennedy International  Food and Beverage (one location)    Not Yet Opened  September  1998    May 2008(2)              N.A. 
Greensborough (Piedmont Triad) Food and Beverage (three            December 1997   July 1998          May 2008             $123,349 
North Carolina                 locations)                                                                                           
Asheville, North Carolina      Food and Beverage (one location);   November 1997   June 1998          November 1997          72,408 
                               News & Gift (one location)                                                                           
Sioux Falls, South Dakota      Food and Beverage (two              August 1997     July 1998          August 2007           358,077 
                               locations); Inflight Catering                                                                        
Des Moines, Iowa               Food and Beverage (four locations   July 1997       Two in April 1998; July 2007(3)          545,110 
                               -- two existing and two to be newly                 two in June 1998                                 
                               constructed)                                                                                         
Allentown, Pennsylvania        Food and Beverage (one location);   July 1996       January 1998       July 2006           1,119,926 
                               Inflight Catering                                                                                    
Columbia, South Carolina(1)    Food and Beverage (two              October 1996    October 1997       October 2006(4)       944,344 
                               locations); Inflight Catering                                                                        
Cedar Rapids, Iowa(1)          Master Concession, Food and         November 1996   October 1997       March 2004(5)       1,191,285 
                               Beverage (two locations), News &                                                                     
                               Gifts (one location), Specialty                                                                      
                               Stores (one location); Inflight                                                                      
                               Catering                                                                                             
Lexington, Kentucky(1)         Food and Beverage (two              July 1996       February 1997      July 2006             699,939 
                               locations); Inflight Catering                                                                        
Roanoke, Virginia(1)           Food and Beverage (two              June 1996       January 1997       June 2006             489,035 
                               locations); Inflight Catering                                                                        
Appleton, Wisconsin(1)         Food and Beverage (one location)    January 1996    January 1996       July 2005             238,095 
Madison, Wisconsin(1)          Food and Beverage (two locations)   January 1996    July 1996          January 2006          735,716 
Portland International         Food and Beverage (one location)    October 1995    October 1995       June 2005             468,225 
Los Angeles International      Food and Beverage (one location)    June 1995       September 1995     June 2005(6)        1,419,629 
Aspen, Colorado(1)             Food and Beverage (one location)    May 1994        May 1994           September 1999        345,118 

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                                                        · Enlarge/Download Table
                                                                           Date of                                                 
                                                                        Completion of                                              
                                                                          Expected                                    Year Ended   
                                                       Date Commenced   Completion of           Expiration Date       December 31  
Name/Location of Concession  Description of Concession   Operations      Remodeling               of Contract      1997 Revenue (7)
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                   

Denver International         Food and Beverage (four   February 1995   One completed February   June 2003 and              171,153 
                             locations)                                1995; one completed      November 2006                      
                                                                       December 1997; third                                        
                                                                       expected to open June                                       
                                                                       1998; one completed and                                     
                                                                       anticipated to open upon                                    
                                                                       terminal opening                                            
Orange County                Food and Beverage         September 1990  Completed - Franchisee   February 2001(5)              N.A. 
                             (one location)            Renewed         Owned                                                       
                                                       February 1996                                               ________________
                                                                                                           TOTAL         8,921,409 

-----------                                                                     

(1)      The Company is currently the sole food and beverage  concessionaire  at
this airport.                                                 

(2)      Delta  Airlines,  the owner of the airport  terminal,  has reserved the
         right under its concession  agreement with the Company to recapture the
         premises   upon  30  days  notice  and   payment   for  the   Company's
improvements.                                                 

(3)      The airport  retains the right under the  concession  to recapture  the
premises upon payment for the Company's improvements.         

(4)      After the initial year of the term, the airport authority has the right
         to  terminate  the  concession  upon  payment  to  the  Company  of its
"remaining business interest" in the concession.              

(5)      Can be terminated by the airport on 90 days notice.                    

(6)      After June 2001 can be terminated by the airport upon 90 days notice.  

(7)      Does not include  discontinued  operations  at the Los  Angeles  Public
Library.                                                      

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         The following  table shows location  sales for each airport  concession
location  operated by the  Company in fiscal  1997.  The total pro forma  annual
concession revenues as represented below for 1997, consist of the sum of (i) the
actual  Company  revenues for each location and,  (ii) the  historical  revenues
(unaudited)  at each of those  locations  for the  portion  of 1997 in which the
location was under previous ownership.                                          

                                          Year Ended December 31, 1997 Revenue
                                         ---------------------------------------
                                          Previous   The Company Total-Pro-Forma
                 Location            Operator(1)  Owned(10       Revenue
---------------------------------------  ---------------------------------------
Allentown, PA..........................   $     --   $ 1,119,926   $ 1,119,926  
Appleton, WI...........................         --       238,095       238,095  
Asheville, NC(2).......................    441,308        72,408       513,716  
Aspen, CO..............................         --       345,118       345,118  
Cedar Rapids, IA.......................         --     1,191,285     1,191,285  
Columbia, SC...........................         --       944,344       944,344  
Denver, CO(3)..........................    771,516       171,153       942,669  
Des Moines, IA(4)......................    562,438       545,110     1,107,548  
New York (JFK), NY(5)..................          -            --            --  
Greensborough (Piedmont Triad), NC(6)..   ,680,170       123,349     1,803,519  
Los Angeles, CA........................         --     1,419,629     1,419,629  
Lexington, KY..........................         --       699,939       699,939  
Madison, WI............................         --       735,716       735,716  
Midland, TX(7).........................         --            --            --  
Ontario, CA(8).........................         --            --            --  
Portland, OR...........................         --       468,225       468,225  
Roanoke, VA............................         --       489,035       489,035  
Sioux Falls, SD(9).....................    545,729       358,077       903,806  
                                         ---------------------------------------
       TOTAL                         $ 4,001,161   $ 8,921,409   $12,922,570

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

(1)      These  figures  represent  the  estimated,  unaudited  revenues  of the
         previous  operator  of the  location  for the  portion of the 1997 year
         prior to  acquisition of the location by the Company.  The  information
         concerning  revenues  received  by prior  operators  of the  concession
         location has been provided by airport authorities or the prior operator
         for the concession location. While the Company has no reason to believe
         there are any  inaccuracies  in such  information,  the Company has not
independently verified the information provided to it.        
(2)      The Company began operations in November 1997.                         
(3)      The Company began  operations at one location in November 1997; and one
         location in December 1997 and expects to open one more location in June
1998 and one more location to open upon terminal opening.     
(4)      The Company began operations in July 1997.                             
(5)      The Company expects to open the location in September 1998.            
(6)      The Company began operation in December 1997.                          
(7)      The Company expects to open the location in October 1998.              
(8)      The Company expects to open the location in October 1998.              
(9)      The Company began operations in August 1997.                           
(10)     Does not include  discontinued  operations  at the Los  Angeles  Public
Library.                                                      

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Food Preparation Center                                                         

         The  Company  operates  a 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.  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 (described below),  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"), to provide distribution services.  Under the arrangement,
Sysco picks the food items  produced at the food  preparation  center and stores
them in Sysco's  facilities.  Sysco then distributes those food items as well as
certain  other  food  and  related  supplies  to each of the  Company's  airport
concession locations. All of the purchasing for the concession locations, except
for certain  perishable  items such as dairy and produce,  is done through Sysco
resulting in uniform cost of goods and centralized costs controls.              

Franchise Operations                                                            

         From 1986  through  1994,  the  Company  was  actively  engaged  in the
business of franchising  restaurants  under the "Creative  Croissant"  name. The
Company's  restaurant  franchise  business was not successful,  and in 1990, the
Company began the transition to  company-owned  airport  concessions that is the
major  focus  of its  current  business  plan.  The  Company  continues  to have
franchise  relationships  with 9 restaurant  franchisees,  excluding  the Orange
County airport concession which is operated by a franchisee.                    

         Creative  Croissant  franchise  restaurants  are  generally  located in
regional malls,  specialty  centers,  high rise office buildings and other areas
with  heavy  pedestrian  traffic.   All  of  the  Company's  franchise  operated
restaurants  are located in  California,  in the  following  cities:  San Diego,
Laguna Niguel,  Mission Viejo, Orange,  Laguna Hills,  Martinez,  Torrance,  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 $3,500 per month in lost royalties.                               

         The Company expects the revenues from franchising  (approximately 1% of
total  revenues  for the nine month  period  ended  December 31, 1997) 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 to evaluate
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                    

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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 from $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 the Creative
Host  concession  locations to  encourage  sales at  concessions  and to provide
additional sources of revenues.  To compete within an airport, the Creative Host
approach  is to  combine  aroma  and  showmanship  with high  quality  fresh and
nutritious  foods at value prices to attract  customers.  The Company's food and
beverage  facilities have  traditionally been designed with a European flair for
fresh, healthy and nutritious gourmet and specialty foods, served quickly and at
value prices.  The desired  atmosphere has been one of a European  sidewalk cafe
with carved wood  display  cases and the use of brass,  wood,  marble and glass.
Depending  on  their  size,  the  facilities  feature  European  style  hot meal
croissants  filled with meats,  cheeses and vegetables,  gourmet coffees,  fresh
salads, nondairy fresh fruit shakes and other foods and beverages.  Low fat, low
cholesterol   ingredients  are  utilized  whenever  possible,   consistent  with
maximizing flavor. No artificial flavors or preservatives are used in any of the
baked goods. A large bakery oven and brass eagle domed espresso  machine creates
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 Ceasar's Pizza 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(R)" logo and
key menu items, custom gift baskets and other promotional merchandise. Currently
the Company is test  marketing  fresh fruit juice bars  operated  under the name
"Creative Juices", which it recently introduced at the Los Angeles International
Airport.                                                                        

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  and CA One  Services,  Inc.,  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,  are Service  America  Corporation,  Anton Food,  Concession
International,  Air Host, Inc., ARA Services,  Canteen  Corporation,  Morrison's
Hospitality Group, Gardner Merchant Food Services,  Seiler Corporation,  Service
Master Food Management Services and others. Other competitors such as Fine Host,
Inc.,  Paradies  and W.H.  Smith  compete  in the market  for  providing  retail
concession services to airports. Dobbs International and Sky Chefs, LSG dominate
the inflight catering business.                                                 

         The Company is focusing  initially on the 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 the 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  differentiates  itself in all  markets  in the design and
product  mix  it  offers  to a  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 price.                     

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 a  Disadvantaged  Business  Enterprise  ("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 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, a native of  Pakistan.  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 recent 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 7 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  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 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.  The  Company  believes  that its
franchise  agreement is consistent with California law. The Company is currently
registered as a franchisor  in  California,  Arizona and Colorado,  and sells in
certain other states such as Nevada which do not require franchise registration.

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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 $4,506  plus common area  maintenance
charges.  The  Company  has one  option  to  extend  the term for an  additional
five-year  period.  The Company  believes its new 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.                

Employees                                                                       

         The Company has over 300 employees,  including 15 in food preparations,
12 in  administration  and 275 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.                                                        

Trademarks                                                                      

         The Company has one registered  trademark with the United States Patent
and  Trademark  Office  on  the  Principal  Register,  registered  as  "Creative
Croissants(R)."  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.      

Executive Offices                                                               

         The Company was  incorporated  in  California  in 1986.  The  Company's
executive offices and food preparation center are located at 6335 Ferris Square,
Suites G-H,  San Diego,  California.  The  Company's  telephone  number is (619)
587-7300.                                                                       

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, 1997.        

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MANAGEMENT

Directors and Executive Officers                                                

Name                   Age                  Position              
------------------------------------------------------------------------------  

Sayed Ali                     50        Chairman of the Board of Directors,     
                                     President and Chief Financial Officer
Booker T. Graves              59        Director                                
John P. Donohue, Jr.          67        Director                                
Paul A. Karas                 45        Director                                

         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,  Mr. Ali was the  Director of  Operations  of Steffa
Control Systems,  a manufacturer of energy  management  systems from May 1985 to
September  1987,  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.                                                                

         Paul A. Karas has been a director of the Company since March 1997. From
1993 to the  present,  Mr.  Karas  has  been  President  and  Founder  of  Grove
Management  Company,  an  infrastructure  management  consulting  firm.  He  has
consulted  on the $6  billion  airport  in  Hong  Kong,  and  the  $375  million
renovation  and expansion of the Cleveland  Public Power  Electric  Distribution
System  among  other  projects.  From 1991 to 1993,  Mr.  Karas was Senior  Vice
President  and  Director  of Public  Works  Sector for  Morse-Diesel/Amec  whose
business  activities  included  consulting  for a  proposed  third  airport  for
Chicago, program management for the British Airways terminal at the JFK Airport,
and program  management for the United Airlines  Terminal at La Guardia Airport.
From 1988 to 1991,  Mr. Karas worked for the Port  Authority of New York and New
Jersey  and  was  director  of  the  John  F.  Kennedy   International   Airport
Redevelopment   Program   responsible   for  program   management,   design  and
construction  of the $3.2 billion  renovation  of the JFK Airport.  From 1985 to
1988,  Mr. Karas was  Commissioner  of Public Works for the City of Chicago with
responsibilities  for the  design  and  construction  of major  public  projects
including  projects  affecting  O'Hare,  Midway and Meigs Airport.  From 1980 to
1985, Mr. Karas was Corporate Development Projects Manager for Santa Fe Southern
Pacific  Corporation,  a $7 billion  enterprise  engaged in the  transportation,
national resources, real estate, construction and financial service businesses. 

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Limitation on Liability and Indemnification of Directors                        

         Under the California  Corporations  Code and the Company's  Amended and
Restated  Articles  of  Incorporation,  the  Company's  directors  will  have no
personal  liability  to the Company or its  shareholders  for  monetary  damages
incurred  as the  result of the breach or  alleged  breach by a director  of his
"duty of care".  This  provision  does not apply to the  directors'  (i) acts or
omissions  that  involve  intentional  misconduct  or  a  knowing  and  culpable
violation of law, (ii) acts or omissions that a director believes to be contrary
to the best interests of the corporation or its shareholders or that involve the
absence  of good  faith  on the  part of the  director,  (iii)  approval  of any
transaction from which a director  derives an improper  personal  benefit,  (iv)
acts or omissions that show a reckless  disregard for the director's duty to the
corporation  or its  shareholders  in  circumstances  in which the  director was
aware,  or should  have been  aware,  in the  ordinary  course of  performing  a
director's  duties,  of a risk  of  serious  injury  to the  corporation  or its
shareholders,  (v) acts or omissions that  constituted  an unexcused  pattern of
inattention  that  amounts  to an  abdication  of  the  director's  duty  to the
corporation  or its  shareholders,  or (vi)  approval of an  unlawful  dividend,
distribution,  stock  repurchase or redemption.  This provision  would generally
absolve  directors of personal  liability for  negligence in the  performance of
duties, including gross negligence.                                             

         The effect of this  provision  in the  Company's  Amended and  Restated
Articles  of  Incorporation  is to  eliminate  the rights of the Company and its
shareholders (through  shareholder's  derivative suits on behalf of the Company)
to recover  monetary damages against a director for breach of his fiduciary duty
of care as a director  (including  breaches  resulting from negligent or grossly
negligent  behavior)  except in the situations  described in clauses (i) through
(vi)  above.  This  provision  does not limit nor  eliminate  the  rights of the
Company or any shareholder to seek non-monetary  relief such as an injunction or
rescission  in the event of a breach of a director's  duty of care. In addition,
the Company's Restated Articles of Incorporation provides that if California law
is amended to authorize the future elimination or limitation of the liability of
a director, then the liability of the directors will be eliminated or limited to
the fullest extent permitted by the law, as amended. The California Corporations
Code grants  corporations  the right to  indemnify  their  directors,  officers,
employees and agents in accordance  with  applicable  law. The Company's  Bylaws
provide for  indemnification  of such persons to the full extent allowable under
applicable law.                                                                 

         Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors,  officers or persons  controlling the Company
pursuant to the foregoing provisions,  the Company has been informed that in the
opinion of the  Securities  and Exchange  Commission,  such  indemnification  is
against public policy as expressed in the Act and is therefore unenforceable.   

Compensation and Benefits                                                       

         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.                                                           

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.  During Fiscal 1997, each
outside  director was issued an aggregate of 15,000 options,  of which 2,500 are
now vested and the balance of 12,500 will vest over the next two years, provided
the director remains a director of the Company.                                 

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Executive Officer Compensation                                                  

         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, 1997.                                                   

                                                        · Enlarge/Download Table
                                            Summary Compensation Table                                                        

                               Annual Compensation                       Long Term Compensation                               
                      ------------------------------------------------------------------------------                          
                                                                          Awards                 Payouts                      
                                                             -------------------------------------------                      
                                                                                 Securities                     All Other     
                                                   Other       Restricted        Underlying                      Compen-      
                                                  Annual          Stock           Options/         LTIP           satio       
Name/Title              Salary        Bonus        Comp.         Awards             SARs         Payouts            $         
Year                       $            $            $              $               #(1)            $                         
---------------------------------- ------------------------------------------ ------------------------------ -----------------
                                                                                                                              
Sayed Ali                                                                                                                     
     President                                                                                                                
        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, 1997.                              

 Option/SAR Grants in Last Fiscal Year

                                                        · Enlarge/Download Table
                                      Individual Grants                                                                     
-------------------------------------------------------------------------------------------------  Potential Realizable     
                                                Percent of                                           Value at Assumed       
                             Number of             Total                                           Annual Rates of Stock    
                            Securities         Options/SARs       Exercise                         Price Appreciation for   
                            Underlying          Granted to         or Base                              Option Term         
                           Options/SARs        Employees in         Price        Expiration        -------------------------
         Name               Granted (#)       Fiscal-Year(%)       ($/Sh)           Date         5%($)         10%($)       
------------------------------------------------------------------------------ --------------- ----------- -----------------
                                                                                                                            
Sayed Ali                     60,000               51.5             3.30           1/1/02        31,730.68   91,891.80      
                              15,000               12.9             4.26           11/1/02       10,246.36   29,673.39      

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         The following table  summarizes the number and value of all unexercised
options  granted  to and held by Mr.  Ali at the end of 1997.  No  options  were
exercised by Mr. Ali during 1997.                                               

 Fiscal Year-End Option Values

                                                        · Enlarge/Download Table
                                                     Number of Securities                   Value of Unexercised         
                                                 Underlying Unexercised Option              In-the-Money Options         
                                                         at FY-End (#)                       at FY-End ($)(1)            
                                             -------------------------------------- -------------------------------------
                    Name                        Exercisable       Unexercisable       Exercisable       Unexercisable    
-------------------------------------------------------------------------------------------------------------------------
                                                                                                                         
Sayed Ali                                         5,000             70,000             0                 0               

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

(1)       Based on the closing bid price for the  Company's  Common Stock at the
close of market on December 31, 1997 as reported by NASDAQ  

Board Compensation Committee Report on Executive Compensation                   

         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.                                                                    

          Compensation  Committee  Interlocks  and  Insider  Participation.  The
Committee currently consists of Messrs. Donohue and Graves.                     

         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.                                                              

         Discussion. At present, the Company has only one executive officer, Mr.
Ali, who has an Employment  Agreement  with the Company as discussed  above.  In
fiscal 1997, the Company did not achieve  significant pretax income, and no cash
bonuses were awarded to Mr. Ali.  Nonetheless,  the Committee  believed that the
Company had achieved  significant  performance  in effecting the initial  public
offering,  taking on the  additional  duties of Chief  Financial  Officer  for a
portion of the year and securing additional concession agreements, the Committee
believed additional  compensation to Mr. Ali was appropriate.  Accordingly,  Mr.
Ali received 15,000 options to purchase Common Stock, 5,000 of which have vested
and an  additional  10,000  of  which  vest  5,000  per  year  over the next two
anniversaries  of  the  date  of  the  grant.  The  Company  anticipates  adding
additional  executive  officers  in  the  current  fiscal  year.  The  Company's
compensation  structure is designed with the fundamental philosophy of providing
executives  with  an  interest  in  both  the  Company's  short  and  long  term
profitability.  The Company's executive officer compensation program consists of
three components,  (i) a base salary component,  (ii) an annual bonus component,
and (iii) an equity component.  The Committee intends to establish base salaries
for executive  officers at a modest level  sufficient to attract and retain such
executives.  The  annual  bonus  components  may be paid  in  cash  or  options.
Presently  annual bonus awards are made in the discretion of the Committee.  The
Committee  believes that the dynamic  nature of the Company in its current stage
may render  formula based bonuses  inequitable  from either the Company's or the
employees  perspective,  depending on  circumstances  outside of the  employee's
control.  In making such awards, the Committee will review the Company's overall
performance but also the individual's  contribution to overall  success.  Annual
bonus  awards  may  be  given  in  instances   where  the  Committee  feels  the
contribution of long-term  benefit to the Company,  even if it did not result in
directly accountable revenues or income. The Company's stock option             

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awards are designed to compliment the annual incentive program,  by providing an
interest in long-term  profitability.  Option  Grants may also be awarded at the
inception of employment as an inducement to attract key employees.              

Compensation Committee. John P. Donohue and Booker T. Graves. 

PRINCIPAL SHAREHOLDERS

         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
January  15,  1998  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 92126.                                                        

  Name and Address of Owner                     Shares Beneficially Owned(1)
------------------------------------------------------------------------------- 
                                                Number              Percent(2)
                                           -----------------------------------
Sayed Ali                                        960,000(3)           30.2%     

David H. Sugerman                                155,000               5.0%     
17408 Superior Avenue                                                           
Northridge, CA 91325                                                            

Booker T. Graves                                   3,525(4)               *     

John P. Donahue, Jr.                               2,500(5)               *     

Paul A. Karas                                      2,500(5)               *     

Tasneem Vakharia                                  25,000(6)               *     

All officers and directors as a group                                           
(6 persons)                                     993,525(7)           30.5%  

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

*      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 warrants currently  exercisable or convertible,  or
          exercisable  or  convertible  within 60 days of January 15, 1998,  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.                                         
(2)       Does not include  (i) 577,500  shares of Common  Stock  issuable  upon
          exercise of outstanding warrants, or (ii) the 100,000 shares of Common
          Stock issuable in connection with the repurchase of certain concession
rights at the Denver International Airport.                 
(3)       Includes   25,000  shares   issuable  upon  the  exercise  of  options
          outstanding  under the  Company's  1997 Stock  Option  Plan.  Does not
          include 50,000 shares issuable upon exercise of invested options which
     vest over the two year  period  subsequent  to January 15,  1998.
(4)       Includes   2,500  shares   issuable   upon  the  exercise  of  options
          outstanding  under the  Company's  1997 Stock  Option  Plan.  Does not
          include 12,500 shares issuable upon exercise of invested options which
 vest over the two year period subsequent to January 15, 1998.

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(5)      Consists  solely  of  shares  issuable  upon the  exercise  of  options
         outstanding  under the  Company's  1997  Stock  Option  Plan.  Does not
         include 12,500 shares issuable upon exercise of invested  options which
vest over the next two years.                                 
(6)      Consists  solely  of  shares  issuable  upon the  exercise  of  options
         outstanding  under the  Company's  1997  Stock  Option  Plan.  Does not
         include 10,000 shares issuable upon exercise of invested  options which
vest January, 1999.                                           
(7)      Includes   57,500   shares   issuable  upon  the  exercise  of  options
         outstanding  under the  Company's  1997  Stock  Option  Plan.  Does not
         include 97,500 shares  issuable upon exercise of unvested stock options
     which vest over the two year period subsequent to January 15, 1998.

 SELLING SECURITYHOLDERS

         An aggregate  of 572,650  shares of Common  Stock  ("Common  Stock") of
Creative Host Services, Inc. (the "Company") and 462,500 Redeemable Common Stock
Purchase Warrants ("Warrants") may be offered by the Selling Securityholders who
received  their shares of Common Stock and Warrants in  connection  with private
placements by the Company completed in January and February, 1997 (collectively,
the "Private Placement"). Each Warrant entitles the holder to purchase one share
of Common Stock at an exercise price of $5.40 subject to adjustment,  until July
21, 2000.  The Warrants are subject to  redemption  by the Company at a price of
$.05 per Warrant on 45 days written  notice if the last sale price of the Common
Stock  exceeds  150% of the  Warrant  exercise  price  for at least 20 of the 30
trading days immediately preceding the notice of redemption.                    

         The following table sets forth certain information with respect to each
Selling Securityholder for whom the Company is registering securities for resale
to the  public.  Beneficial  ownership  of the  Common  Stock  by  such  Selling
Securityholders  after  this  offering  will  depend on the  number of shares of
Common  Stock  sold  by  each  Selling  Securityholder.  There  are no  material
relationships  between any of the Selling  Securityholders and the Company,  nor
have any such relationships existed within the past three years.                

                                                        · Enlarge/Download Table
                                                    Number of Shares                                         
                                                Beneficially Owned as of                                     
            Selling Securityholder                 March 31, 1998(1)        Shares Offered   Warrants Offered
-------------------------------------------------------------------------------------------------------------
                                                                                                             
Jim L. Biddix                                           11,700                6,700              5,000       
Frederick C. Boos                                       11,700                6,700              5,000       
Theodore A. Buder                                       11,700                6,700              5,000       
Jeannette Ward Bugge                                    23,400                13,400            10,000       
Caribou Capital Bridge Fund LLC                         17,550                10,050             7,500       
Victor L. Chinn                                         11,700                6,700              5,000       
John Chrabasz                                            7,500                5,000              2,500       
Robert Cohen                                            11,700                6,700              5,000       
Coombs & Company                                        11,700                6,700              5,000       
James E. Dean                                            5,850                3,350              2,500       
Norman M. Dean                                          11,700                6,700              5,000       
David W. Dennin                                         11,700                6,700              5,000       
Dennis Erickson                                         11,700                6,700              5,000       
Joel T. Feldman                                          5,850                3,350              2,500       
S. Marcus Finkle                                        58,500                33,500            25,000       
Michael B. Gray                                          5,850                3,350              2,500       
Harden Retirement Plan, John C. Harden and              11,700                6,700              5,000       
     Margaret D. Harden, Trustees, dtd 7/1/86                                                                
Bill R. Hay                                             11,700                6,700              5,000       
Richard C. Jelinek                                      70,200                40,200            30,000       
Berkeley D. Johnson                                     11,700                6,700              5,000       
Samuel L. Johnson & Margaret R. Johnson JTWROS          11,700                6,700              5,000       
Kearney Investments                                     11,700                6,700              5,000       
Allen E. Knutson & Mary P. Knutson                      11,700                6,700              5,000       
JTWROS                                                                                                       
Michael Lee                                             11,700                6,700              5,000       
Rudy Dan Luther                                         11,700                6,700              5,000       
Carolyn B. MacRossie                                    23,400                13,400            10,000       
MIN Computer Consultants, Inc.                          11,700                6,700              5,000       
Thomas A. Moore & Carolyn W. Moore, JTWROS              11,700                6,700              5,000       


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                                                        · Enlarge/Download Table
                                                    Number of Shares                                                
                                                Beneficially Owned as of                                            
            Selling Securityholder                 March 31, 1998(1)        Shares Offered   Warrants Offered       
-------------------------------------------------------------------------------------------------------------       
                                                                                                                    
Alexander Neel                                          11,700                6,700              5,000              
Alan Rosenbaum                                           9,360                5,360              4,000              
Jeffrey Rubin                                           11,700                6,700              5,000              
Gerald R. Sensabaugh Jr. and Elizabeth J. Sensabaugh,   11,700                6,700              5,000              
     JTWROS                                                                                                         
Lee E. Schlessman                                       11,700                6,700              5,000              
C. Gary Skartvedt                                       11,700                6,700              5,000              
Robert D. Smith                                         11,700                6,700              5,000              
Swedbank (Luxembourg) S.A.                              117,000               67,000            50,000              
John M. Tonani                                          23,400                13,400            10,000              
Kristina B. Weller                                      23,400                13,400            10,000              
Richard Wham and Julie K. Wham JTWROS                    5,850                3,350              2,500              
Robert J. Zappa                                         11,700                6,700              5,000              
Stephen M. Walker                                       11,700                6,700              5,000              
Don Stephen Aron                                        11,700                6,700              5,000              
CORD Investment Company                                 30,420                17,420            13,000              
Al Blum & Co. Restated Employee Retirement Plan         23,400                13,400            10,000              
     DTD 8/19/94                                                                                                    
Felix & Joyce Campos JTWROS                             11,700                6,700              5,000              
Stanley & Barbara Chason JTWROS                         11,700                6,700              5,000              
Ronald H. Feltenstein                                   11,700                6,700              5,000              
Alan W. George                                          11,700                6,700              5,000              
Gerald Gray                                              8,190                4,690              3,500              
W.B. Lindley                                            23,400                13,400            10,000              
Nicholas R. Mellilo, James J. Mellilo                   16,380                9,380              7,000              
     and Stella F. Mellilo JTWROS                                                                                   
Wayne Saker                                             11,700                6,700              5,000              
Scott Richter                                           11,700                6,700              5,000              
Henry R. Robinson                                       11,700                6,700              5,000              
RWM, Inc. Defined Benefit Plan                          11,700                6,700              5,000              
Roger W. McKinney, Trustee                                                                                          
Richard Baldwin Small                                   11,700                6,700              5,000              
Scott Thornock                                           5,850                3,350              2,500              
U.S. Transportation                                     62,500                                  62,500              
David Sugarman                                          155,000               35,000                                
                                               ---------------------------------------------------------------------
                                               ---------------------------------------------------------------------

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

(1)      Includes  shares  of  Common  Stock  which  will be  received  upon the
         exercise  of  Warrants  held  by  the  Selling  Securityholders,  which
Warrants are exercisable as of the date of this Prospectus.   

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 DESCRIPTION OF SECURITIES

Common Stock                                                                    

         The Company is authorized to issue  20,000,000  shares of Common Stock,
no par value, of which 1,200,000  shares are currently  outstanding.  Holders of
Common Stock are entitled to dividends  when, as and if declared by the Board of
Directors out of funds available therefor, subject to loan agreement limitations
and  priority  as to  dividends  for  Preferred  Stock that may be  outstanding.
Holders of Common Stock are entitled to cast one vote for each share held at all
stockholder meetings for all purposes,  including the election of directors. The
holders of more than 50% of the Common Stock issued and outstanding and entitled
to vote,  present in person or by proxy,  constitute a quorum at all meetings of
stockholders.  The vote of the  holders  of a  majority  of  Common  Stock  (and
Preferred  Stock voting as Common  Stock)  present at such a meeting will decide
any question  brought  before such meeting,  except for certain  actions such as
amendments to the Company's  Articles of Incorporation,  mergers or dissolutions
which  require the vote of the holders of a majority of the  outstanding  Common
Stock. Upon liquidation or dissolution,  the holder of each outstanding share of
Common  Stock will be  entitled  to share  equally in the assets of the  Company
legally  available for  distribution  to such  stockholder  after payment of all
liabilities and after distributions to preferred  stockholders  legally entitled
to such  distributions.  Holders  of  Common  Stock do not have any  preemptive,
subscription or redemption rights. They are entitled to cumulative voting rights
for the election of directors under  California  law. All outstanding  shares of
Common Stock are fully paid and nonassessable.                                  

The Warrants                                                                    

         The Company currently has outstanding  462,500  Warrants.  Each Warrant
grants  its holder the right to  purchase  one share of the Common  Stock of the
Company for a purchase price equal to $5.40 or 120% of the public offering price
for the  Common  Stock  offered  hereby at any time  until  July 21,  2000.  The
Warrants include customary  antidilution  protection for the  Warrantholders and
are  governed  by the terms of a Warrant  Agreement  between the Company and the
holders of the  Warrants.  The  Warrants  are  redeemable  upon 45 days  written
notice, at the option of the Company, commencing one year after the date of this
Prospectus, in the event that the last sale price for the Company's Common Stock
exceeds 150% of the then current Warrant exercise price for 20 out of 30 trading
days prior to the Company's mailing of the notice of election to redeem.        

 MARKET FOR COMMON STOCK
 AND RELATED STOCKHOLDER MATTERS

         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 ___ on June 15, 1998. The Company  believes that there is 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 May 18,
1998 was $2.75 per share.                                                       

         The high and low stock  closing  sales  prices for  quarters  since the
Company's initial public offering as follows:                                   

                                             Low                      High
                                   -------------------------------------------

September 30, 1997                            $ 3.81                    $4.75   
December 31, 1997                             $ 1.86                    $4.25   
March 31, 1998                                $ 2.00                    $2.88   

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PLAN OF DISTRIBUTION

         Sales of the shares of Common  Stock,  the  Warrants  and the shares of
Common  Stock  underlying  the  Warrants by the Selling  Securityholders  may be
effected   from  time  to  time  in   transactions   (which  may  include  block
transactions)  in  the  over-the-counter  market,  in  negotiated  transactions,
through  the  writing of options on the Common  Stock or a  combination  of such
methods  of sale,  at  fixed  prices  that  may be  changed,  at  market  prices
prevailing  at  the  time  of  sale,  or  at  negotiated   prices.  The  Selling
Securityholders  may  effect  such  transactions  by selling  the Common  Stock,
Warrants or Common Stock  underlying  the  Warrants  directly to  purchasers  or
through broker-dealers that may act as agents or principals. Such broker-dealers
may receive  compensation  in the form of discounts,  concessions or commissions
from the Selling Securityholders and/or the purchasers of shares of Common Stock
or Warrants for whom such broker- dealers may act as agents or to whom they sell
as  principals,  or both (which  compensation  as to a particular  broker-dealer
might be in excess of customary commissions).                                   

         The  Selling   Securityholders  and  any  broker-dealers  that  act  in
connection  with the sale of the shares of Common  Stock,  the  Warrants  or the
shares of Common Stock underlying the Warrants as principals may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act and any
commissions  received  by them and any  profit on the  resale  of the  shares of
Common Stock, the Warrants or the shares of Common Stock underlying the Warrants
as principals might be deemed to be underwriting  discounts and commission under
the  Securities  Act. The Selling  Securityholders  may agree to  indemnify  any
agent, dealer or broker-dealer that participates in transactions involving sales
of the  shares of Common  Stock,  the  Warrants  or the  shares of Common  Stock
underlying the Warrants against certain liabilities, including liabilities under
the  Securities  Act. The Company will not receive any proceeds from the sale of
shares of Common  Stock,  Warrants  or shares  of Common  Stock  underlying  the
Warrants by the Selling Securityholders.  The Company will receive proceeds from
the exercise of the Warrants; if all of the Warrants are exercised,  the Company
will receive gross proceeds of $2,497.500.  Sales of the shares of Common Stock,
the  Warrants  and the shares of Common  Stock  underlying  the  Warrants by the
Selling Securityholders,  or even the potential of such sales, would likely have
an adverse impact on the market price of the Common Stock.                      

         The shares of Common Stock, the Warrants and the shares of Common Stock
underlying the Warrants are offered by the Selling  Securityholders on a delayed
or continuous  basis pursuant to Rule 415 under the Securities  Act. The Company
has agreed to pay all expenses  incurred in connection with the  registration of
the  shares  and  warrant  offered  by the  Selling  Securityholders;  provided,
however, that the Selling Securityholders shall be exclusively liable to pay any
and all commissions,  discounts and other payments to broker-dealers incurred in
connection with their sale of the shares and Warrants.                          

 LEGAL MATTERS

         The validity of the Common Stock offered hereby will be passed upon for
the Company by Luce,  Forward,  Hamilton & Scripps LLP, 600 W.  Broadway,  Suite
2600, San Diego, California 92101.                                              

 EXPERTS

         The  financial  statements  of the Company as of December  31, 1996 and
December  31,  1997 have  been  audited  by  Stonefield  Josephson,  independent
certified  public  accountants,  as set forth in their report appearing with the
financial statements,  have been so included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.          

36

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CREATIVE HOST SERVICES, INC.

(FORMERLY KNOWN AS
ST. CLAIR DEVELOPMENT CORPORATION)

FINANCIAL STATEMENTS

YEAR ENDED DECEMBER 31, 1997

CONTENTS

                                                                        Page

Independent Auditors' Report                                              F-2   

Financial Statements:                                                           
      Balance Sheet                                                    F-3
      Statements of Income and Operations                              F-4
      Statement of Shareholder's Equity                                F-5
      Statements of Cash Flows                                         F-6
      Notes to Financial Statements                                    F-7

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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, 1997,  and the related  statements of income and  operations,
shareholder's  equity and cash flows for each of the years  ended  December  31,
1996  and  1997.  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, 1997,  and the results of its  operations and cash flows for the
years ended December 31, 1996 and 1997, in conformity  with  generally  accepted
accounting principles.                                                          

CERTIFIED PUBLIC ACCOUNTANTS                                                    

Santa Monica, California                                                        
February 20, 1998                                                               

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CREATIVE HOST SERVICES, INC.

 BALANCE SHEET

ASSETS

                                                               Three Month
                                      Fiscal Year Ended         Period Ended
                                       December 31,            March 31,
                                         1997                   1998
                                       ---------------------------------------
Current assets:                                                                 
 Cash                                  $1,109,299              $ 629,618
 Receivables                              424,177                538,932
 Inventory                                327,404                344,899
 Prepaid & Other                           29,510                 96,377
                                        --------------------------------------
      Total current assets             $1,890,320             $1,609,826
Net Property Plant and Equipment            5,056,100              5,392,755    
Deposits and other assets                     138,984                109,074    
Net Intangible Assets                          24,417                 19,359    
                                        --------------------------------------
Total Assets                               $7,109,821             $7,131,014    
                                        --------------------------------------

LIABILITIES AND SHAREHOLDER'S EQUITY

Current liabilities:                                                            
Accounts payable and accrued            $ 1,297,877            $ 1,321,971
Current maturities of notes payable          33,686                 33,686
Current maturities of leases payable        380,472                380,472
                                        --------------------------------------
       Total current liabilities         $1,712,035             $1,736,129
Notes payable, less current maturities         144,317                111,907   
Leases payable, less current maturities        763,634                667,836   
Shareholder's equity:                                                           
  Common stock                            5,820,514              5,820,514
  Additional paid-in capital                857,537                857,539
   Deficiency                             (2,188,216)            (2,062,909)
                                        --------------------------------------
       Total shareholder's equity        $4,489,835             $4,615,142
                                        --------------------------------------

Total Liabilities and Stockholder's Equity  $7,109,821             $7,131,014   
                                        --------------------------------------

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

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CREATIVE HOST SERVICES, INC.

STATEMENT OF INCOME AND OPERATIONS

                                                        · Enlarge/Download Table
                                                               Years Ended                   Three Months Ended                  
                                                              December 31,                        March 31,                      
                                                   ------------------------------------------------------------------------------
                                                         1996             1997             1997             1998                 
                                                   ------------------------------------------------------------------------------
                                                                                                                                 
Revenues:                                                                                                                        
     Airport Concessions                                 $4,822,804       $9,035,807       $1,868,275       $3,276,590           
     Food Preparation Center Sales                          742,434          659,008          154,997          165,023           
     Franchise Royalties                                    126,407          107,714           32,509           14,301           
                                                   ----------------------------------------------------------------------------- 
          Total revenues                                  5,691,645        9,802,529       $2,055,782       $3,455,914           
     Cost of goods sold                                   1,752,541        3,126,711          676,288        1,054,327           
                                                   ----------------------------------------------------------------------------- 
     Gross profit                                         3,939,104        6,675,818       $1,379,514       $2,401,587           
                                                   ----------------------------------------------------------------------------- 
Operating costs and expenses:                                                                                                    
     Payroll and other employee benefits                  1,771,720        3,524,001          666,063        1,047,977           
     Occupancy                                            1,101,593        1,790,306          308,450          529,955           
     General, administrative and selling expenses           683,097        1,124,556          321,160          660,342           
                                                   ----------------------------------------------------------------------------- 
          Total operating costs and expenses              3,556,410        6,438,863        1,295,673        2,238,274           
                                                   ----------------------------------------------------------------------------- 
Income from operations                                  $   382,694       $  236,955         $ 83,841        $ 163,313           
                                                   ----------------------------------------------------------------------------- 
Interest expense - net                                     (195,120)        (205,965)         (65,327)         (37,734)          
Other income                                                      0            6,641                0             (272)          
                                                   ----------------------------------------------------------------------------- 
Net income                                                  187,574           37,631           18,514          125,307           
Net income (loss) applicable to common stock                121,574          (41,869)         (11,986)         125,307)          
                                                   ----------------------------------------------------------------------------- 
Net income per share                                           0.10           (0.02)           (0.01)             0.04           
                                                   ----------------------------------------------------------------------------- 
Weighted average number of shares outstanding             1,200,000        2,004,596        1,200,000        3,098,492           
                                                   ----------------------------------------------------------------------------- 

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

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CREATIVE HOST SERVICES, INC.

STATEMENTS OF SHAREHOLDER'S EQUITY (DEFICIT)

                                                        · Enlarge/Download Table

                                                                               8% convertible                          Total    
                                           Common stock         Additional     preferred stock                     Shareholder's
                                           ------------          paid-in                           Accumulated        equity    
                                    Shares           Amount     capital     Shares       Amount     deficit          (deficit)  
                                    --------------------------------------------------------------------------------------------
                                                                                                                                
Balance at January 1, 1996           1,200,000     $  621,875   $ 857,537               $          $(2,191,921)      $ (712,509)
Net income for the year ended                                                                          187,574          187,574 
 December 31, 1996                                                                                                              
Dividends payable to preferred                                                                                                  
 shareholders                                                                                         (142,000)        (142,000)
                                     -------------------------------------------------------------------------------------------
Balance at December 31, 1996         1,200,000        621,875     857,537                           (2,146,347)        (666,935)
Net income for the year ended                                                                                                   
 December 31, 1997                                                                                      37,631           37,631 
Dividends payable to preferred                                                                                                  
 shareholders                                                                                         (79,500)          (79,500)
Net proceeds from issuance of 8%                                                                                                
 redeemable convertible preferred                                                                                               
 stock                                                                       800,000      2,030,762                   2,030,762 
Redemption of preferred stock                                               (800,000)    (2,030,762)                 (2,030,762)
Net  proceeds  from  issuance                                                                                                   
 of common  stock and effect of                                                                                                 
 redemption  of 9% preferred stock                                                                                              
 and conversion of 8% convertible                                                                                               
 preferred shares                    1,898,492      5,198,639                                                         5,198,639 
                                     -------------------------------------------------------------------------------------------
Balance at December 31, 1997         3,098,492    $ 5,820.514   $ 857.537        --     $       --  $(2,188,216)    $ 4,489,835 
                                     ===========================================================================================

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

                                                        · Enlarge/Download Table
                                                                  Years Ended                  Three Months Ended            
                                                                 December 31,                       March 31,                
                                                       --------------------------------------------------------------------- 
                                                             1996             1997            1997            1998           
                                                       --------------------------------------------------------------------- 
                                                                                                                             
Cash flows provided by (used for) operating activities:                                                                      
     Net income                                               $ 187,574        $  37,631       $  18,514       $ 125,307     
Adjustments to reconcile net income (loss) to net                                                                            
cash provided by operating activities:                                                                                       
     Depreciation and amortization                              157,383          291,372          49,360         106,443     
Change in operating assets and liabilities:                                                                                  
     Accounts Receivable                                      (273,766)         (60,136)          18,692       (114,756)     
     Inventory                                                (130,083)        (113,117)          24,766        (17,495)     
     Prepaid expenses and other current assets                    2,921         (11,247)           1,746        (66,867)     
     Accounts payable and accrued expenses                      320,078          622,352          32,335          24,094     
                                                       ----------------------------------------------------------------------
     Net cash provided by (used for) operating                                                                               
     activities                                                 281,829          755,706         145,413          56,726     
Cash flows provided by (used for) investing                                                                                  
activities:                                                                                                                  
     Acquisition of furniture and equipment                 (1,413,302)      (3,343,709)       (794,883)       (443,098)     
     (Increase) decrease in deposit                           (200,803)           57,644        (11,031)          29,910     
     (Increase) decrease in intangible assets                   (4,294)                0          21,250           5,058     
                                                       ----------------------------------------------------------------------
     Net cash used for investing activities                 (1,618,399)      (3,286,067)       (784,664)       (408,130)     
Cash flows provided by (used for) financing                                                                                  
activities:                                                                                                                  
     Net proceeds from leases payable                           871,954           90,687                        (95,797)     
     Payments on notes payable                                  334,566           27,133       (313,143)        (32,410)     
     Issuance of capital stock                                        0        5,198,639       2,117,637               0     
     Cash dividends on preferred stock                                0        (216,496)        (30,500)               0     
     Sale of convertible redeemable preferred stock                   0                0       (322,622)               0     
     Proceeds from redemption of preferred stock                      0        (724,933)               0               0     
     Repayment of notes payable                                       0        (417,004)               0               0     
     Repayment of leases payable                                      0        (319,436)               0               0     
                                                       --------------------------------------------------------------------- 
     Net cash provided by (used for) financing                                                                               
     activities                                               1,206,520        3,638,590       1,451,372       (128,207)     
                                                       --------------------------------------------------------------------- 
Net increase (decrease) in cash                               (130,050)        1,108,229         812,121       (479,611)     
Cash, beginning of the year                                     131,050            1,000          75,549       1,109,229     
                                                       --------------------------------------------------------------------- 
Cash ending of the period                                       $ 1,000       $1,109,229       $ 887,670       $ 629,618     
                                                       --------------------------------------------------------------------- 

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, 1997

(1)      Summary of Significant Accounting Policies:                            

Organization and Basis of Presentations:                      

         Creative Host Services,  Inc.  formerly known as St. Clair  Development
         Corporation)  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.         

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CREATIVE HOST SERVICES, INC.

 NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEAR ENDED DECEMBER 31, 1997

Property and Equipment:                                       

         Property and  equipment are recorded at cost.  Intangible  assets arose
         from the excess of  purchase  price over the  underlying  fair value of
         assets  acquired,  and from the  repurchase of marketing  rights within
         certain  geographic  territories that had previously been sold to third
         parties.   For   financial   statement   purposes,   depreciation   and
         amortization is computed primarily by the straight-line method over the
estimated useful lives of the assets, as follows:             

        Office equipment                                              10 years
        Restaurant concession and commissary equipment                10 years
        Excess of cost over fair value assigned to net assets          5 years
        Marketing rights                                               5 years

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

Income Taxes:                                                 

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

Earnings Per Share:                                           

         Earnings per share is computed  based upon the weighted  average number
         of shares of common stock outstanding  during each period,  adjusted to
         reflect  an  approximate  1.7 to 1 stock  split in 1996.  Common  stock
         equivalents have been excluded from the earnings per share  calculation
because their effect is either antidilutive or immaterial.    

         In February 1997, the Company sold 800,000 units of 8% preferred shares
         and common stock purchase  warrants in a private  placement.  In August
         1997, the Company sold 1,150,000 shares of common stock from an initial
         public  offering,  raising net  proceeds to  approximately  $5,200,000.
         242,461  shares of  preferred  stock were  redeemed  and the  remaining
    553,539 shares were converted into 553,539 shares of common stock.

         The Company issued 265,000 common shares to two  individuals in 1996 in
         exchange for services rendered primarily in 1995 and prior. Such shares
         are treated as outstanding  for all reporting  periods for earnings per
share purposes.                                               

         Management has adopted Financial  Accounting  Standards Board statement
         No. 128, which requires companies to report "basic" earnings per share,
         which will exclude options,  warrants and other convertible securities.
         The  accounting  and  disclose   requirements  of  this  statement  are
         effective for financial  statements  for fiscal years  beginning  after
         December 15, 1997, with earlier adoption encouraged.  The effect of the
         adoption  of this  pronouncement  was  not  material  to the  Company's
financial statements.                                         

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CREATIVE HOST SERVICES, INC.

 NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEAR ENDED DECEMBER 31, 1997

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. No single 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.                             

(2)      Property and Equipment:                                                

A summary at December 31, 1997 is as follows:                 

     Food and beverage concession equipment                  $ 5,333,071
     Food preparation equipment                                  352,932
     Leasehold improvements                                      133,198
     Office equipment                                             30,490
                                                                --------------
                                                               5,849,691
     Less accumulated deprecation and amortization               793,591
                                                                --------------
                                                             $ 5,056,100
                                                                --------------

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CREATIVE HOST SERVICES, INC.

 NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEAR ENDED DECEMBER 31, 1997

(3)      Intangible Assets:                                                     

A summary at December 31, 1997 is as follows:                 

     Marketing rights                                           $ 77,174
     Franchise costs                                              85,296
                                                                ----------
                                                                 162,470
     Less accumulated amortization                               138,053
                                                                ----------
                                                                $ 24,417
                                                                ----------

(4)      Notes Payable:                                                         

A summary is as follows:                                      

Note payable, bank, interest at prime                         
plus 2.75%, due in monthly installments                       
of $2,770  through  2002,  secured by                         
all of the assets of the Company,                             
personally guaranteed by the president                        
and major  shareholder  including a second                    
      and third trust deed on personal residences                 $134,261

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                           43,742
                                                                 -----------
                                                                   178,003
      Less current portion                                          33,686
                                                                 -----------
                                                                  $144,317
                                                                 -----------

The following is a summary of the principal  amounts  payable over the next five
years and thereafter.                                                           

       1998                                                       $ 33,686
       1999                                                         36,908
       2000                                                         40,441
       2001                                                         35,240
       2002                                                         31,728
                                                                  ------------
                                                                  $178,003
                                                                  ------------

Interest  paid  for  all  corporate   borrowings   (including   leases)  totaled
approximately $206,000 and $195,000 for 1997 and 1996, respectively.            

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CREATIVE HOST SERVICES, INC.

 NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEAR ENDED DECEMBER 31, 1997

(5)      Leases Payable:                                                        

A summary is as follows:                                      

Equipment  leases payable,  finance                           
company,  approximate  average  interest                      
at 17.5%, due in monthly installments                         
through the year 2001, secured by food and                    
       beverage concession equipment                              $1,144,106

Less current portion                                                   380,472  
                                                                  ------------
                                                                    $763,634
                                                                  ------------

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

        1998                                                     $   380,472
        1999                                                         411,227
        2000                                                         276,226
        2001                                                          76,181
                                                                   -----------
                                                                  $1,144,106
                                                                   -----------

(6)      Income Taxes:                                                          

         For federal income tax return  purposes,  the Company has available net
         operating loss  carryforwards of approximately  $1,936,000 which expire
         through 2008 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.                                  

         Effective  January 1, 1993, the Company adopted  Statement of Financial
         Accounting Standards No. 109, "Accounting for Income Taxes." The effect
         of  adopting  SFAS  109 was not  material  to the  Company's  financial
statements.                                                   

          Temporary  differences  which  give rise to  deferred  tax  assets and
liabilities at December 31, 1997 are as follows:            

        Allowance for doubtful accounts                             $  3,500
        Net Operating loss carryforwards                             774,400
                                                                    ----------
                                                                     777,900
         Valuation allowance                                         (777,900)
                                                                    ----------
         Net deferred taxes                                           $     --
                                                                    ----------

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CREATIVE HOST SERVICES, INC.

 NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEAR ENDED DECEMBER 31, 1997

(7)      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  $1,501,057 and
         $929,444  for 1997 and 1996,  respectively.  As of December  31,  1997,
         future  minimum  rental  payments  required  under  operating  leases ,
         exclusive of additional  rental payments based on concession  sales and
numbers of enplanements, are as follows:                      

Year ending December 31,                                    
       1998                                                     $1,578,275
       1999                                                      1,586,805
       2000                                                      1,635,409
       2001                                                      1,640,409
       2002                                                      1,557,455
       Thereafter                                                5,336,917
                                                                ----------
                                                               $13,335,270
                                                               ===========

         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.                                            

(8)      Common Stock:                                                          

         In February 1997, the Company sold 800,000 units of 8% preferred shares
         and common stock purchase  warrants in a private  placement.  In August
         1997, the Company sold 1,150,000 shares of common stock from an initial
         public offering,  raising net proceeds of approximately $5,200,000. All
         of the Company's 9% convertible  preferred  stock and 246,461 shares of
         the  8%  preferred  stock  were  redeemed.  The  remaining  553,539  8%
      preferred shares were converted into 553,539 shares of common stock.

(9)      Stock Options:                                                         

         During 1996, the Company  granted options for the purchase of 35,000 of
         its  shares at $1.00  per  share,  to an  individual  who had  rendered
         services  in 1995  and  prior  in  connection  with an  initial  public
offering that was discontinued.                               

         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                                        

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         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 both granted
         during  1996 and  granted  under the 1997  plan,  for the  years  ended
December 31, 1996 and 1997 are as follows:                    

                                                        · Enlarge/Download Table
                                      1996                                                 1997           
                                      --------------------------------------------------------------------
                                                              Average                              Average
                                                             Exercise                             Exercise
                                            Number             Price             Number             Price 
                                            ------           ---------           ------           --------
                                                                                                          
Outstanding at beginning of the year            --            $--                35,000             $ 1.00
Outstanding at end of the year              35,000             1.00             161,500               4.05
Exercisable at end of the year              35,000             1.00             119,000               3.89
Granted during the year                     35,000             1.00             161,500               4.05
Exercised during the year                       --             --                35,000               1.00

         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 income and earnings per share under
         the  fair  value  method  has not been  presented  as the  amounts  are
immaterial.                                                   

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No dealer,  salesman  or any other                                
person has been  authorized  by the                                             
Company to give any information or to make                                      
any representations  other than those                                           
contained in this Prospectus in connection                                      
with the offering made hereby, and if                                           
given or made, such information or                CREATIVE HOST SERVICES, INC.  
representations may not be relied upon.                                         
The Prospectus does not constitute an offer                                     
to sell or the solicitation of an offer to                                      
buy any securities other than those                                             
specifically offered hereby or an offer to                                      
sell, or a solicitation of an offer to buy,                                     
to any person in any jurisdiction in which                                      
such offer or sale would be unlawful.                                           
Neither the delivery of this Prospectus nor                                     
any sale made hereunder shall under any                                         
circumstances create any implication that                                       
there has been no change in the affairs of                                      
the Company since any of the date as of                                         
which information is furnished or since the                                     
date of this Prospectus.                                                        

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

                                                --------------------
TABLE OF CONTENTS                              PROSPECTUS 
                                                --------------------
  Page

Summary Prospectus........................3                                     
Risk Factors..............................7                                     
Use of Proceeds..........................10                                     
Dividend Policy..........................11                                     
Management's Discussion and Analysis of                                         
Financial Condition and Results of                                    
Operations..........................12                                
Business of the Company..................17                                     
Management...............................28                                     
Principal Shareholders...................32                                     
Selling Securityholders..................33                                     
Description of Securities................35             ____________, 1998      
Market for Common Stockand Related                                              
Stockholder Matters.................35                                
Plan of Distribution.....................36                                     
Legal Matters............................36                                     
Experts..................................36                                     
Index to Financial Statements...........F-1                                     

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 PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24.  Other Expenses Of Issuance And Distribution                           

         The following table sets forth the expenses other than any underwriting
discounts or  commissions,  payable in connection  with the  distribution of the
shares  being   registered.   All  expenses  incurred  in  connection  with  the
registration.                                                                   
All amounts shown are estimates except for SEC Registration fee.                

                                                              Amount
SEC registration fee.......................................         $8,609      
NASD registration fee......................................          3,341      
Nasdaq fee.................................................         10,000      
Printing and engraving.....................................         85,000      
Legal fees and expenses....................................        135,000      
Accounting fees and expenses...............................         45,000      
Blue Sky filing fees and expenses..........................         20,000      
Transfer agent's fees and expenses.........................         10,000      
Miscellaneous..............................................          8,050      
                                                             -------------
   TOTAL.............................................       $325,000
                                                             -------------

ITEM 25.  Indemnification Of Directors And Officers                             

         Under the California  Corporations  Code and the Company's  Amended and
Restated  Articles  of  Incorporation,  the  Company's  directors  will  have no
personal  liability  to the Company or its  shareholders  for  monetary  damages
incurred  as the  result of the breach or  alleged  breach by a director  of his
"duty of care".  This  provision  does not apply to the  directors'  (i) acts or
omissions  that  involve  intentional  misconduct  or  a  knowing  and  culpable
violation of law, (ii) acts or omissions that a director believes to be contrary
to the best interests of the corporation or its shareholders or that involve the
absence  of good  faith  on the  part of the  director,  (iii)  approval  of any
transaction from which a director  derives an improper  personal  benefit,  (iv)
acts or omissions that show a reckless  disregard for the director's duty to the
corporation  or its  shareholders  in  circumstances  in which the  director was
aware,  or should  have been  aware,  in the  ordinary  course of  performing  a
director's  duties,  of a risk  of  serious  injury  to the  corporation  or its
shareholders,  (v) acts or omissions that  constituted  an unexcused  pattern of
inattention  that  amounts  to an  abdication  of  the  director's  duty  to the
corporation  or its  shareholders,  or (vi)  approval of an  unlawful  dividend,
distribution,  stock  repurchase or redemption.  This provision  would generally
absolve  directors of personal  liability for  negligence in the  performance of
duties, including gross negligence.                                             

         The effect of this  provision  in the  Company's  Amended and  Restated
Articles  of  Incorporation  is to  eliminate  the rights of the Company and its
shareholders (through  shareholder's  derivative suits on behalf of the Company)
to recover  monetary damages against a director for breach of his fiduciary duty
of care as a director  (including  breaches  resulting from negligent or grossly
negligent  behavior)  except in the situations  described in clauses (i) through
(vi)  above.  This  provision  does not limit nor  eliminate  the  rights of the
Company or any shareholder to seek non-monetary  relief such as an injunction or
rescission  in the event of a breach of a director's  duty of care. In addition,
the Company's Restated Articles of Incorporation provides that if California law
is amended to authorize the future elimination or limitation of the liability of
a director, then the liability of the directors will be eliminated or limited to
the fullest extent permitted by the law, as amended. The California Corporations
Code grants  corporations  the right to  indemnify  their  directors,  officers,
employees and agents in accordance  with  applicable  law. The Company's  Bylaws
provide for  indemnification  of such persons to the full extent allowable under
applicable law.                                                                 

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         Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors,  officers or persons  controlling the Company
pursuant to the foregoing provisions,  the Company has been informed that in the
opinion of the  Securities  and Exchange  Commission,  such  indemnification  is
against public policy as expressed in the Act and is therefore unenforceable.   

ITEM 27.  Exhibits                                                              

Exhibit No.                            Description                        

1.1          Form of Underwriting Agreement.(1)                     
1.2          Form of Representative's Share Option Agreement.(1)    
1.3          Form of Representative's Warrant Option Agreement.(1)  
3.1          Amended and Restated Articles of Incorporation(1)      
3.2          Bylaws(1)                                              
4.1          Specimen Certificate for Common Stock(1)               
  4.2          Certificate of Determination for 8% Convertible Preferred
Stock.(1)                                 
      4.3          Warrant Agreement (including form of Warrant Certificate).(1)
  4.4          Form of Mandatory Sale and Lock Up Agreement with Selling
Securityholders.(1)                       
5.1          Opinion of Luce, Forward, Hamilton & Scripps.(1)       
10.1         1997 Stock Option Plan(1)                              
  10.2         Employment Agreement between the Company and Sayed Ali(1)
   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.(1)
     10.4         Food And Beverage Concession Agreement And Lease dated as of
                October 4, 1996 between the Company and Richland-Lexington
Airport District.(2)                      
10.5         Agreement between the Company and Delta  Airlines.(1)  
10.6         Concession And Lease Agreement dated as of May 24, 1996
         between the Company and Lehigh-Northhampton Airport
Authority.(1)                             
   10.7         Food And Beverage Concession Agreement And Lease Bluegrass
           Airport between  the  Company  and  Lexington-Fayette
Urban  County Airport Board.(1)           
10.8         Food And Beverage Concession  Agreement dated as of    
                July 26, 1995 between the Company and Outagamie County.(1)
     10.9         Food And Beverage Lease And Concession Agreement dated as of
                   May 17, 1996 between the Company and Roanoke Regional Airport
Commission.(1)                            
      10.10        Food And Beverage  Concession  Agreement  dated as of October
             24, 1995 between the Company and the County of Dane.(1)
      10.11        Food And Beverage Concession Lease Agreement dated as of June
               10, 1994 between the Company and the Port of Portland.(1)
    10.12        Concession Agreement dated as of March 25, 1995 between the
Company and City of Los Angeles.(1)       
      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.(1)                       
      10.14        Food Court  Agreement  dated as of November  14, 1996 between
   the Company and City and County of Denver.(1)
 10.15        Agreement between the Company and the City and County of
Denver as of November 19, 1996.(1)        
   10.16        Agreement dated as of February 8, 1996 between the Company
and the County of Orange.(1)              

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Exhibit No.                                Description                      

      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.(1)
      10.18        Concession   Agreement   between   the  City  of  Los  Angles
                   Department of Airports and the Company 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.(1)     
10.20        Form of Franchise Agreement.(1)                        
     10.21        TCBY Franchise Agreement dated October 29, 1996 between TCBY
              Systems, Inc., and St. Clair Development Corporation.(1)
    10.22        Industrial Real Estate Lease between the Company and WHPX-S
Real Estate Limited Partnership.(1)       
23.1         Consent of Luce,  Forward,  Hamilton  & Scripps  LLP   
(contained  in Exhibit 5.1).              
    23.2         Consent of Stonefield Josephson, independent accountants(1)
24           Power of Attorney.                                     

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

(1)      Filed previously.                                                      

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UNDERTAKINGS

The Registrant hereby undertakes:                             

         (1) To file, during any period in which offers or sales are being made,
a post-effective  amendment to this registration  statement:  (i) to include any
prospectus  required by Section  10(a)(3) of the Securities Act; (ii) to reflect
in the  prospectus  any facts or events  arising after the effective date of the
registration  statement (or the most recent  post-effective  amendment  thereof)
which,  individually or in the aggregate,  represent a fundamental change in the
information in the registration  statement;  and (iii) to include any additional
or changed material information with respect to the plan of distribution.       

         (2) For the purpose of determining  any liability  under the Securities
Act, each  post-effective  amendment that contains a form of prospectus shall be
deemed to be a new  registration  statement  relating to the securities  offered
therein,  and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.                                         

         (3) To remove from  registration by means of  post-effective  amendment
any of the securities being registered which remain unsold at the termination of
the offering.                                                                   

         (4) To provide  to the  underwriter  at the  closing  specified  in the
underwriting  agreements  certificates in such  denominations  and registered in
such names as  required by the  underwriter  to permit  prompt  delivery to each
purchaser.                                                                      

         (5)  Insofar  as  indemnification  for  liabilities  arising  under the
Securities Act may be permitted to directors,  officers and controlling  persons
of the  registrant  pursuant to the  foregoing  provisions,  or  otherwise,  the
registrant  has been advised that in the opinion of the  Securities and Exchange
Commission  such  indemnification  is against  public policy as expressed in the
Securities Act and is, therefore,  unenforceable.  In the event that a claim for
indemnification  against  such  liabilities  (other  than  the  payment  by  the
registrant of expenses  incurred or paid by a director,  officer or  controlling
person of the  registrant  in the  successful  defense  of any  action,  suit or
proceeding in connection with the securities being  registered),  the registrant
will,  unless in the  opinion of its  counsel  the  matter  has been  settled by
controlling  precedent,  submit  to a  court  of  appropriate  jurisdiction  the
question  whether  such  indemnification  by  it is  against  public  policy  as
expressed in the Securities  Act and will be governed by the final  adjudication
of such issue.                                                                  

(6) The undersigned Registrant hereby undertakes that it will:

                  (a) For  determining  any liability  under the Securities Act,
         treat the information omitted from the form of prospectus filed as part
         of this Registration Statement in reliance upon Rule 430A and contained
         in a form  of  prospectus  filed  by the  Registrant  pursuant  to Rule
         424(b)(1)  or (4), or 497(h) under the  Securities  Act as part of this
  Registration Statement as of the time it was declared effective.

                  (b) For  determining  any liability  under the Securities Act,
         treat each post-effective  amendment that contains a form of prospectus
         as a new  registration  statement  for the  securities  offered  in the
         registration  statement,  and the offering of such  securities  at that
time as the initial bona fide offering of those securities.   

         (7) The Registrant hereby undertakes to provide disclosure in the event
that the underwriters in this offering enter into  transactions  with any of the
selling  security  holders  in  the  following   manner,   under  the  following
circumstances:  involving from 5% up to 10% of the registered  selling  security
holders'  securities - to file  "sticker"  supplements  pursuant to Rule 424(c);
involving over 10% of the registered  selling security holders'  securities - to
file post-effective amendment to the Registration Statement.                    

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SIGNATURES

         Pursuant  to the  requirements  of the  Securities  Act  of  1933,  the
Registrant certifies that it has reasonable grounds to believe that it meets all
of  the  requirements  for  filing  on  Form  SB-2  and  has  duly  caused  this
Registration Statement to be signed on its behalf by the undersigned,  thereunto
duly authorized in San Diego, State of California, on June 17, 1998.            

                                      CREATIVE HOST SERVICES, INC.

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

         Pursuant  to the  requirement  of the  Securities  Act  of  1933,  this
Registration  Statement  has  been  signed  by  the  following  persons  in  the
capacities and on the dates indicated.                                          

Signature                         Title                         Date

/s/ Sayed Ali                President, Chief Executive Officer  June 17, 1998  
----------------------       and Director                                       
Sayed Ali                                                                       

/s/  BOOKER T. GRAVES*       Director                            June 17, 1998  
----------------------                                                          
Booker T. Graves                                                                

/s/  JOHN P. DONOHUE, JR.*   Director                            June 17, 1998  
--------------------------                                                      
John P. Donohue, Jr.                                                            

/s/  PAUL A. KARAS*          Director                            June 17, 1998  
-------------------                                                             
Paul A. Karas                                                                   

* By Sayed Ali, Attorney in fact.                                               

II-5

Dates Referenced Herein   and   Documents Incorporated By Reference

				Referenced-On Page
This POS AM Filing		Date		First		Last			Other Filings
		1/1/93		48
		6/10/94		53
		3/25/95		53
		7/26/95		53
		10/24/95		53
		12/31/95		16		17
		2/8/96		53
		5/17/96		53
		5/24/96		53
		9/16/96		53
		10/4/96		53
		10/29/96		54
		11/14/96		53
		11/19/96		53
		12/31/96		7		50
		1/1/97		9		32
		3/31/97		12		15
		6/2/97		54					SB-2/A
		7/22/97		36					424B4
		9/30/97		5		36			10QSB
		12/15/97		45
		12/31/97		7		50			10KSB
		1/15/98		33		34
		2/20/98		39
		3/13/98		18
		3/31/98		11		36			10KSB, 10QSB
		5/18/98		36
		6/15/98		2		36
Filed On / Filed As Of		6/17/98		1		56
		6/18/98
		12/15/98		18
		12/31/98		49					10KSB, 10KSB/A
		7/21/0		2		36
		4/15/2		28
		10/5/2		17
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