SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20559

                                   FORM 10-KSB

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

                   For the fiscal year ended December 31, 1997

                                       or

(  )               Transition Report Under Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

                        Commission file number 000-22845

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



                 California                             33-1069494
          (State of Incorporation)         (I.R.S. Employer Identification No.)

           6335 Ferris Square, Suites G-H, San Diego, California 92126
               (Address of principal executive offices) (Zip Code)

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


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


                                              Name of Each Exchange On Which
             Title of Each Class                       Registered
                Common Stock                             NASDAQ


         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes x No

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

         Revenues for fiscal year 1997 were $9,802,529

         The aggregate  market value of voting stock held by  non-affiliates  of
the registrant was $5,406,168 as of March 26, 1998 (computed by reference to the
last  sale  price of a share of the  registrant's  Common  Stock on that date as
reported by NASDAQ).

         There were  3,098,492  shares  outstanding of the  registrant's  Common
Stock as of March 26, 1998.






<PAGE>



                                     PART I

ITEM 1.           BUSINESS

The Concession Business

         The  Company is  primarily  engaged in the  business of  acquiring  and
operating food, beverage and other concessions at airports throughout the United
States.  The Company  currently  has 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.

         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  Carl's Jr.,  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:

                                        2

<PAGE>



         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.

         "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

                                        3

<PAGE>



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.

         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:



                                        4

<PAGE>



                    Existing and Awarded Concession Locations
<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)
-----------------------------------------------------------------------------------------------------------------------------------
<S>                            <C>                                <C>              <C>                <C>              <C>

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
</TABLE>


                                        5

<PAGE>

<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)
-----------------------------------------------------------------------------------------------------------------------------------
<S>                          <C>                       <C>             <C>                      <C>                   <C>

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

</TABLE>

-----------

(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 Library.



                                        6

<PAGE>




         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.

<TABLE>
                                                                     Year Ended December 31, 1997 Revenue
                                                     --------------------------------------------------------------


                                                          Previous            The Company         Total Pro Forma
                     Location                            Operator(1)           Owned(10)              Revenue
--------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>                  <C>                 <C>


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)..............            1,680,170                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
</TABLE>

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

(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.

                                        7

<PAGE>



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.


                                        8

<PAGE>



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 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

                                        9

<PAGE>



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.

         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 hiring DBE
employees,  purchasing  provisions from DBE suppliers,  contracting for services
from DBEs or  subcontracting  a portion of the  concession  to a DBE in order to
meet this requirement. When the Company entered the airport concession business,
its Common Stock was owned entirely by Mr. Sayed Ali, 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 hiring or  contracting  with other DBEs.  The
Company believes that it will retain its existing  locations and can continue to
secure new  concessions  on the basis of the products and services it offers and
its industry reputation. To the extent the Company's historic rate of success in
securing  airport  concessions is attributable to its clear status as a DBE, its
growth rate may decline.

         The restaurant  industry and food  manufacturing  businesses are highly
regulated by federal,  state and local governmental  agencies.  Restaurants must
comply with health and sanitation  regulations,  and are periodically  inspected
for  compliance.  Labor  laws apply to the  employment  of  restaurant  workers,
including  such  matters as minimum  wage  requirements,  overtime  and  working
conditions.  The  Americans  With  Disabilities  Act  applies  to the  Company's
facilities prohibiting discrimination on the basis of disability with respect to
accommodations and employment. Food preparation

                                       10

<PAGE>



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.

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.

ITEM 2.           PROPERTIES

         The Company's executive offices and food preparation center are located
in a 8,334 square foot  facility at 6335 Ferris  Square,  Suites G-H, San Diego,
California.  The combined  facility is covered by a five-year lease  terminating
April 15, 2002 with  monthly  payments  of $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.

ITEM 3.           LEGAL PROCEEDINGS

         There were no material legal proceedings to which the Company or any of
its subsidiaries was a party in the fiscal year ended December 31, 1997.

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

         There were no matters submitted to a vote of securityholders during the
fourth quarter of Fiscal 1997.


                                       11

<PAGE>
                                     PART II

ITEM 5.           MARKET FOR REGISTRANT'S 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 130 on March 30, 1998. The Company  believes that there are
a significant  number of beneficial  owners of its Common Stock whose shares are
held in "street  name." The closing sales price of the Common Stock on March 26,
1998 was $2.50 per share.

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


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

September 30, 1997                      $    3.81         $   4.75
December 31, 1997                       $    1.81         $   2.37


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

         With the exception of historical matters, the matters discussed in this
commentary are forward looking  statements that involve risks and uncertainties.
Forward  looking  statements  include,   but  are  not  limited  to,  statements
concerning  anticipated trends in revenues,  the future mix of Company revenues,
the ability of 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

                                       12

<PAGE>



center.  These revenue  categories  comprise a  fluctuating  percentage of total
revenues from year to year. Over the past three 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 December 31,
                                        ---------------------------------------
                                            1995         1996         1997
                                        ---------------------------------------
Revenues:
   Concessions                                   59%          85%          92%
   Food Preparation Center Sales                 33           13            7

                                                  8            2            1
   Franchise Royalties                  ---------------------------------------
      Total Revenues                            100%         100%         100%

                                                 31           31           32
Cost of Goods Sold                      ---------------------------------------
Gross Profit                                     69           69           68
Operating Costs and Expenses:
   Payroll and Employee Benefits                 33           31           36
   Occupancy                                     20           19           18
   General and Administrative                    22           12           11
Interest Expense                                  3            2            2
                                                 19            0            0
Other (Income) Loss                     ---------------------------------------
Net Income (Loss)                               (28)%          4%           0%
                                        ---------------------------------------



        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%

                                       13

<PAGE>



in 1996 and 32% 1997.  Costs of goods sold is typically  high for a newly opened
concession facility as the Company gathers information  concerning  requirements
for the  specific  location.  Since the product is  perishable,  adjustments  to
production  level effects both sales and costs of sales. As the Company improves
accuracy of production and reduces the waste problem  created by training,  cost
of sales will improve.  As a result,  the Company expects costs of goods sold to
decline slightly as a percentage of sales as newly added stores obtain operating
data.

Operating  Costs and Expenses.  Operating costs and expenses for the fiscal year
ended December 31, 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

                                       14

<PAGE>



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

                                       15

<PAGE>



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 December 31, 1997,  the Company had working  capital of $178,285.
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.

Application of Proceeds from Initial Public Offering

         The Company  completed an intitial  public offering of Common Stock and
Warrants in July 1997. The net proceeds received by the Company from the sale of
securities  pursuant to its  initial  public  offering  were  $4,177,250,  after
deducting the underwriter's discounts and nonaccountable expense allowance,  and
the other offering expenses paid by the Company.  The table below sets forth the
Companys anticipated and actual use of proceeds from that offering.


                                            Estimated Use of      Actual Use of
           Application of Proceeds              Proceeds             Proceeds
-------------------------------------------------------------------------------

Acquisition of Concession Facilities
 Denver International Airport . . . . . . .      250,000             250,000
 Sioux Falls Airport . . . . . . . . . . .       120,000             153,706
Capital Improvements
 Allentown Airport. . . . . . . . . . . . .      300,000             277,094


                                       16

<PAGE>




 Columbia Airport . . . . . . . . . . . . .      150,000             382,800(1)
 Cedar Rapids Airport. . . . . . . . . . . .     150,000             197,201
 Denver International Airport. . . . . . . .  . .600,000             275,457
 Ashville Airport . . . . . . . . . . . . . .          0             100,165
 Des Moines Airport . . . . . . . . . . . . .          0              81,810
 Greensborough Airport . . . . . . . . . . .           0             150,491
Redemption of 8% Preferred Stock       . . .   1,096,200           1,096,200
Redemption of 9% Preferred Stock   . . . . .     917,135             917,135
Repayment of SBA Loan    . . . . . . . . .. .    150,000                   0
Working Capital. . . . . . . . . . . . . . .     443,915             295,191
                                             ---------------------------------

Total. . . . . . . . . . . . . . . . . . . .   4,177,250           4,177,250

-----------

(1)       Up to $289,000 spent on capital  improvements at the Columbia  Airport
          are subject to reimbursement by the Airport Authority.


ITEM 7.           FINANCIAL STATEMENTS


                                       17

<PAGE>




                          CREATIVE HOST SERVICES, INC.

                               (FORMERLY KNOWN AS
                       ST. CLAIR DEVELOPMENT CORPORATION)

                              FINANCIAL STATEMENTS

                          YEAR ENDED DECEMBER 31, 1997






                                    CONTENTS

                                                                        Page

Independent Auditors' Report                                             20

Financial Statements:
         Balance Sheet                                                   21
         Statements of Income and Operations                             22
         Statement of Shareholder's Equity                               23
         Statements of Cash Flows                                        24
         Notes to Financial Statements                                25-31


                                       18

<PAGE>



                          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

                                       19

<PAGE>



                          CREATIVE HOST SERVICES, INC.

                        BALANCE SHEET - DECEMBER 31, 1997


<TABLE>
                                     ASSETS

<S>                                                             <C>               <C>
Current assets:
     Cash                                                     $ 1,109,229
     Receivables, net of allowance of $8,807                      424,177
     Inventory                                                    327,404
     Prepaid expenses and other current assets                     29,510
                                                               ----------

          Total current assets                                                    $ 1,890,320
Property and equipment, net of accumulated depreciation and
amortization                                                                        5,056,100
Deposits and other assets                                                             138,984
Intangible assets, less accumulated amortization                                       24,417
                                                                                  -----------
                                                                                  $ 7,109,821
                                                                                  ===========

                      LIABILITIES AND SHAREHOLDER'S EQUITY

Current liabilities:
     Accounts payable and accrued expenses                    $ 1,297,877
     Current maturities of notes payable                           33,686
     Current maturities of leases payable                         380,472
                                                              -----------

          Total current liabilities                                               $ 1,712,035
Notes payable, less current maturities                                                144,317
Leases payable, less current maturities                                               763,634
Shareholder's equity:
     Common stock; no par value, 20,000,000 shares authorized,
     3,098,492 shares issued and outstanding                    5,820,514
     Additional paid-in capital                                   857,537
     Deficiency                                                (2,188,216)
                                                              ------------

          Total shareholder's equity                                                4,489,835
                                                                                  ------------
                                                                                  $ 7,109,821
                                                                                  ============

</TABLE>




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

                                       20

<PAGE>



                          CREATIVE HOST SERVICES, INC.

                       STATEMENTS OF INCOME AND OPERATIONS


<TABLE>
                                                     Year ended              Year ended
                                                 December 31, 1996       December 31, 1997
                                                 -----------------------------------------
<S>                                              <C>                     <C>
Revenues:
   Concessions                                      $4,822,804              $9,035,807
   Food preparation center sales                       742,434                 659,008
   Franchise royalties                                 126,407                 107,714
                                                 -----------------------------------------
        Total revenues                               5,691,645               9,802,529
   Cost of goods sold                                1,752,541               3,126,711
                                                 -----------------------------------------
   Gross profit                                      3,939,104               6,675,818
Operating costs and expenses:
   Payroll and other employee benefits               1,771,720               3,524,001
   Occupancy                                         1,101,593               1,790,306
   General, administrative and selling expenses        683,097               1,124,556
                                                  ----------------------------------------
        Total operating costs and expenses           3,556,410               6,438,863
                                                  ----------------------------------------
Income from operations                                 382,694                 236,955
                                                  ----------------------------------------
Interest expense                                      (195,120)               (205,965)
Other income                                                --                   6,641
                                                  ----------------------------------------
                                                      (195,120)               (199,324)
                                                  ----------------------------------------
Net income                                            $187,574                 $37,631
                                                  ----------------------------------------
Net income (lose) applicable to common stock          $121,574                $(41,869)
                                                  ----------------------------------------
Net income (loss) per share                               $.10                  $(.02)
                                                  ----------------------------------------
Weighted average number of shares outstanding        1,200,000               2,004,596
                                                  ========================================
</TABLE>




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








                                       21

<PAGE>

                          CREATIVE HOST SERVICES, INC.

                  STATEMENTS OF SHAREHOLDER'S EQUITY (DEFICIT)
<TABLE>

                                                                                  8% convertible                          Total
                                              Common stock         Additional     preferred stock                     Shareholder's
                                              ------------          paid-in                           Accumulated        equity
                                       Shares           Amount     capital     Shares       Amount     deficit          (deficit)
                                       --------------------------------------------------------------------------------------------
<S>                                    <C>            <C>          <C>         <C>         <C>        <C>               <C>
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
                                        ===========================================================================================
</TABLE>



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

                                       22

<PAGE>



                          CREATIVE HOST SERVICES, INC.

                            STATEMENTS OF CASH FLOWS

                INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

<TABLE>
                                                                             Year ended                 Year ended
                                                                           December 31, 1996         December 31, 1997
<S>                                                                   <C>                       <C>

Cash flows provided by (used for) operating activities:
   Net income                                                                 $     187,574             $       37,631
                                                                              -------------             --------------
Adjustments to reconcile net income to net cash provided
by operating activities:
   Depreciation and amortization                                                    157,383                    291,372
   Provision for doubtful accounts                                                   17,722                      6,000
Changes in assets and liabilities:
(Increase) decrease in assets:
   Accounts receivable                                                            (273,766)                   (60,136)
   Inventory                                                                      (130,083)                  (113,117)
   Prepaid expenses and other current assets                                          2,921                   (11,247)
Increase (decrease) in liabilities:
   Accounts payable and accrued expenses                                            320,078                    622,352
   Deferred income                                                                        -                   (17,500)
                                                                        -------------------            ---------------
        Total adjustments                                                            94,255                    718,075
                                                                             --------------             --------------
        Net cash provided by operating activities                                   281,829                    755,706
                                                                              -------------             --------------
Cash flows provided by (used for) investing activities:
   Intangible assets                                                                (4,294)                          -
   Property and equipment                                                       (1,413,302)                (3,343,709)
   Deposits and other assets                                                              -                     57,642
   Other assets                                                                   (200,803)                          -
                                                                             --------------      ---------------------
        Net cash used for investing activities                                  (1,618,399)                (3,286,067)
                                                                            ---------------             --------------
Cash flows provided by (used for) financing activities:
   Net proceeds from leases payable                                                 871,954                     90,687
   (Proceeds from notes payable                                                     334,566                     27,133
   Issuance of capital stock                                                              -                  5,198,639
   Proceeds from redemption of preferred stock                                            -                  (724,933)
   Repayment of notes payable                                                             -                  (417,004)
   Repayment of leases payable                                                            -                  (319,436)
   Cash dividends on preferred stock                                                      -                  (216,496)
                                                                      ---------------------           ----------------
        Net cash provided by financing activities                                 1,206,520                  3,638,590
                                                                             --------------            ---------------
Net increase (decrease) in cash                                                   (130,050)                  1,108,229
Cash, beginning of year                                                             131,050                      1,000
                                                                             --------------          -----------------
Cash, end of year                                                           $         1,000              $   1,109,229
                                                                            ===============              =============
</TABLE>



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

                                       23

<PAGE>


                          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.


                                       24

<PAGE>


                          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.





                                       25

<PAGE>


                          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
                                                          ============



                                       26

<PAGE>


                          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.


                                       27

<PAGE>


                          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   further   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                                           $     --
                                                                      --------



                                       28

<PAGE>


                          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 concessionnaire  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

                                       29

<PAGE>



         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:

<TABLE>
                                                      1996                    1997
                                            ---------------------------------------------
                                                           Average                Average
                                                           Exercise              Exercise
                                                 Number     Price      Number      Price
<S>                                              <C>        <C>       <C>        <C>
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
</TABLE>

         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.

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

         None.

                                       30

<PAGE>




                                    PART III

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

    NAME                   AGE       POSITION

Sayed Ali                  50       Chairman of the Board of Directors,
                                    President and Chief Financial Officer
Booker T. Graves(1)        59       Director
John P. Donohue, Jr.(1)(2) 67       Director
Paul A. Karas(2)           45       Director

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

         Sayed Ali is the founder, Chairman of the Board of Directors, President
and Chief  Financial  Officer of the Company.  Mr. Ali has served as Chairman of
the Board of  Directors  and  President  since  1986.  Mr.  Ali  served as Chief
Financial  Officer from December 1986 to February  1997,  and since August 1997.
Mr. Ali served as the Secretary of the Company from 1986 to December 1996. Prior
to  founding  the  Company,  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.



                                       31

<PAGE>



ITEM 10.          EXECUTIVE COMPENSATION

DIRECTOR COMPENSATION

         Directors  receive  no cash  compensation  for  their  services  to the
Company as  directors,  but are  reimbursed  for expenses  actually  incurred in
connection with attending meetings of the Board of Directors.  In addition, each
outside  director  is  entitled  to receive  options as approved by the Board of
Directors  under the Company's 1997 Stock Option Plan.  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.

EXECUTIVE OFFICER COMPENSATION

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

         The  following  table and notes set forth the annual cash  compensation
paid to Sayed Ali, Chairman of the Board and President of the Company.  No other
person's  compensation  exceeded  $100,000 per annum during the Company's fiscal
year ended December 31, 1997.

                           Summary Compensation Table


<TABLE>
                                   Annual Compensation                      Long Term Compensation
                          ---------------------------------------------------------------------------------------------------------
                                                                             Awards                Payouts
                                                                 ------------------------------------------------------------------
                                                                                  Securities
                                                      Other        Restricted     Underlying                     All Other
                                                      Annual         Stock         Options/          LTIP         Compen-
Name/Title                  Salary       Bonus         Comp.         Awards          SARs          Payouts        sation
Year                           $           $             $             $             #(1)             $              $
-----------------------------------------------------------------------------------------------------------------------------------
<S>                         <C>           <C>          <C>         <C>             <C>              <C>           <C>

Sayed Ali
     President              96,000          --            --              --          75,000            --               --
        1997                71,000          --            --              --              --            --               --
        1996

</TABLE>

-----------

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



                                       32

<PAGE>



         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

<TABLE>
                                     Individual Grants
--------------------------------------------------------------------------------------------------
                                              Percent of                                          Potential Realizable
                                                 Total                                              Value at Assumed
                           Number of         Options/SARs                                        Annual Rates of Stock
                           Securities         Granted to         Exercise                        Price Appreciation for
                           Underlying        Employees in        or Base                              Option Term
                          Options/SARs          Fiscal            Price         Expiration   ---------------------------
         Name             Granted (#)           Year(%)           ($/Sh)           Date        5% ($)         10% ($)
------------------------------------------------------------------------------------------------------------------------
<S>                       <C>                 <C>                <C>            <C>            <C>            <C>
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
</TABLE>


         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

<TABLE>
                                                      Number of Securities                  Value of Unexercised
                                                     Underlying Unexercised                 In-the-Money Options
                                                      Option at FY-End (#)                    at FY-End ($)(1)
                                              -----------------------------------------------------------------------
                    Name                         Exercisable       Unexercisable       Exercisable      Unexercisable
---------------------------------------------------------------------------------------------------------------------
<S>                                              <C>               <C>                 <C>              <C>
Sayed Ali                                          5,000              70,000           0                    0
-----------------------
</TABLE>

(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

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.


ITEM 11.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  MANAGEMENT

         The following table sets forth certain information known to the Company
with respect to the  beneficial  ownership of the  Company's  Common Stock as of
March  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

                                       33

<PAGE>



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.
(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.


ITEM 12.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

                  None.

                                       34

<PAGE>




ITEM 13.          EXHIBITS AND REPORTS ON FORM 8-K

         (a)      Exhibits


  Exhibit No.                  Description

     3.1       Amended and Restated Articles of Incorporation*
     3.2       Bylaws*
     4.1       Specimen Certificate for Common Stock*
     4.3       Warrant Agreement (including form of Warrant Certificate)*
     10.1      1997 Stock Option Plan*
     10.2      Employment Agreement between the Company and Sayed Ali*
     10.3      Lease Space In The Cedar Rapids  Municipal  Airport  Terminal For
               The Purpose of Operating  Food/Beverage,  News/Gift,  And Airline
               Catering  Concessions  dated as of September 16, 1996 between the
               Company and Cedar Rapids Airport Commission.*
     10.4      Food And  Beverage  Concession  Agreement  And Lease  dated as of
               October 4, 1996  between  the  Company  and  Richland  -Lexington
               Airport District.*
     10.5      Agreement between the Company and Delta Airlines.*
     10.6      Concession And Lease  Agreement  dated as of May 24, 1996 between
               the Company and Lehigh-Northhampton Airport Authority.*
     10.7      Food  And  Beverage  Concession  Agreement  And  Lease  Bluegrass
               Airport  between the Company and  Lexington-Fayette  Urban County
               Airport Board.*
     10.8      Food And Beverage Concession  Agreement dated as of July 26, 1995
               between the Company and Outagamie County.*
     10.9      Food And Beverage Lease And Concession  Agreement dated as of May
               17,  1996  between  the  Company  and  Roanoke  Regional  Airport
               Commission.*
     10.10     Food And Beverage  Concession  Agreement  dated as of October 24,
               1995 between the Company and the County of Dane.*
     10.11     Food And Beverage Concession Lease Agreement dated as of June 10,
               1994 between the Company and the Port of Portland.*
     10.12     Concession  Agreement  dated as of March  25,  1995  between  the
               Company and City of Los Angeles.*
     10.13     License  And Use  Agreement  Food/Beverage  Service  Aspen/Pitkin
               County  Airport  1994 Through 1999 dated as of April 1994 between
               the  Company  and Board of County  Commissions  of Pitkin  County
               Colorado.*
     10.14     Food Court  Agreement  dated as of November  14, 1996 between the
               Company and City and County of Denver.*
     10.15     Agreement  between  the Company and the City and County of Denver
               as of November 19, 1996.*
     10.16     Agreement  dated as of February  8, 1996  between the Company and
               the County of Orange.*
     10.17     Concession  Agreement for Food and Beverage Operations at the Des
               Moines International  Airport between the Company and the City of
               Des Moines, Iowa dated as of June 2, 1997.
     10.18     Concession Agreement and Lease between the Piedmont Triad Airport
               Authority and the Company.
     10.20     Form of Franchise Agreement.*
     10.21     TCBY  Franchise  Agreement  dated  October 29, 1996  between TCBY
               Systems, Inc., and St. Clair Development Corporation.*


                                       35

<PAGE>


  Exhibit No.                             Description

     10.22     Industrial  Real Estate Lease between the Company and WHPX-S Real
               Estate Limited Partnership.*
     23.2      Consent of Stonefield Josephson, independent accountants
     27.       Financial Data Schedule

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

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

         (b) The following is a list of Current Reports on Form 8-K filed by the
Company  during or  subsequent  to the last  quarter  of the  fiscal  year ended
December 31, 1997.

                  None.

                                   SIGNATURES

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

Dated:  March 31, 1998                            CREATIVE HOST SERVICES, INC.


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

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


/s/ Sayed Ali             Chairman of the Board and President    March 31, 1998
------------------------
Sayed Ali

/s/ Booker T. Graves      Director                               March 31, 1998
------------------------
Booker T. Graves

/s/ John P. Donohue, Jr.  Director                               March 31, 1998
------------------------
John P. Donohue, Jr.

/s/ Paul A. Karas         Director                               March 31, 1998
------------------------
Paul A. Karas



                                       36