U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                  Form 10-KSB/A
                                (Amendment No. 1)

[X]   ANNUAL  REPORT  UNDER  SECTION  13  OR  15(d)  OF  THE  SECURITIES
      EXCHANGE ACT OF 1934 (FEE REQUIRED)

For the fiscal year ended                 May 31, 2001
                          -----------------------------------------
                                      OR
[ ]   TRANSITION  REPORT  UNDER  SECTION  13 OR 15(d) OF THE  SECURITIES
      EXCHANGE
              ACT OF 1934 (NO FEE REQUIRED)

For the transition period from                  to
                               ----------------    ----------------

Commission file number         0-1744
                       ------------------------

Ambassador Food Services Corporation
---------------------------------------
(Name of small business issuer in its charter)

Delaware                                44-0656199
-----------------------------------------------------
(State or other jurisdiction of    (IRS Employer Identification No.)
 incorporation or organization)

5-30 54th Avenue Long Island City, New York 11101
-------------------------------------------------------
(Address of principal executive offices)  (Zip Code)

Issuer's  telephone  number:  718-361-2512
                            ----------------

Securities registered pursuant to Section 12(b) of the Act: None

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

Common Stock (Par Value $1)  ---------------------------  (Title of Class) Check
whether the Issuer (1) filed all  reports  required to be filed by Section 13 or
15 (d) of the Exchange Act during the past 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_____

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will 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. [X]

Issuer's revenues for its most recent fiscal year are $ 11,268,662

At November 8, 2001, there were 735,056 shares of the Registrant's  common stock
outstanding.  Based on the average of the highest  bid and lowest  asked  prices
reported on the national  over-the-counter  market  (NASDAQ  Symbol  AMBF),  the
aggregate  market value of the shares held by  non-affiliates  of the Registrant
was $ 257,375.

Exhibit Index is on page 37.

Transitional Small Business Disclosure Format:    YES___   NO  _X_

                                       1
<PAGE>


                                     PART I



Item 1.    Description of Business

  (a)  Business Development

      The  Registrant  (hereinafter  "Company"  or  "Ambassador") is a  Delaware
      corporation  incorporated in 1963. It is engaged,  through divisions and a
      subsidiary, in the food service and janitorial  industries in New York and
      New Jersey.

      The  principal  business  activity of the Company is the  servicing of its
      customer  accounts,  which  are  primarily  governmental,  social  service
      agencies,  and not-for profit organizations  through the use of cafeterias
      and prepared  meals  delivered  from Company  commissaries.  On August 19,
      2000, the Company sold all operating  assets of its Kansas City,  Missouri
      location.  On January 12, 2001,  the Company sold all operating  assets of
      its Des Moines,  Iowa and Lawton,  Oklahoma  locations.  As a result,  the
      Company  no longer  services  its  customer  accounts  through  the use of
      vending machines.  The Company currently  operates in the food service and
      janitorial industries in New York and New Jersey.

      In March 2001,  the Company sold its  corporate  headquarters  building in
      Kansas  City and moved its  principal  executive  offices  to its New York
      location at 5-30 54th Avenue, Long Island City, New York 11101.

      On August 1, 1989,  the name of the Company was changed from  Automatique,
      Incorporated to Ambassador Food Services Corporation.

  (b) Business of Issuer

      (1)           Description  of Business Done  by the Registrant in its Food
                    Segment

      (i and ii)    During  Fiscal  2001,  the Company sold all of the assets of
                    its vending machine operations and a substantial  portion of
                    its  food  service  operations.  Revenues  for the  disposed
                    operations were 47.1% and 61.8% of total revenues for FY2001
                    and FY2000,  respectively.  The Company continues to operate
                    its food service operation in New York.  Business with local
                    government   social  service  agencies  and   not-for-profit
                    agencies  is  obtained  through  competitive  bidding and is
                    serviced  by  producing  meals in a central  commissary  and
                    delivering   them   to   various   designated   points   for
                    consumption.

      (iii)         No new products  have been  developed by this  segment.  The
                    Company,  in  general,  markets  products  developed  by its
                    suppliers.

      (iv)          The  practice in the  industry is to operate  under  written
                    agreements  with the  locations  served.  In the market area
                    where the Company is located, it has national, regional, and
                    local competition,  some of which have substantially greater
                    total  sales and  assets.  Competition  in the food  service
                    industry  normally  comes  in the  form  of  pricing  and in
                    quality of service and product.

      (v)           Raw   materials,   consisting   of  packaged   products  and
                    commodities,  are purchased from manufacturers and purveyors
                    and are  warehoused or processed by the Company in the local
                    market.  There is an adequate  supply of raw materials  from
                    normal sources.

                                       2
<PAGE>



      (vi)          During the year ended May 31,  2001,  this  segment  had one
                    customer whose sales were equal to 10 percent or more of the
                    Company's consolidated revenues.

      (vii)         The  distinctive  logo  associated with the Company has been
                    registered  under the laws of the United States  relating to
                    trade names and trademarks. The Company regards such logo as
                    valuable and will  maintain the  registration  in effect for
                    continuing use in connection with the Company's business. In
                    addition,  the  segment  is a party to the  following  labor
                    agreements:


                      Bargaining Unit              Market        Expiration Date
                      United Service Employees
                      Union #377                  New York          12/31/03

      (viii)        The Company does not have a material portion of its business
                    subject to  renegotiation  or termination at the election of
                    the Government.

      (ix)          The  Company  does not  believe  that  existing  or probable
                    government   regulations  have  a  material  effect  on  its
                    operation.


  (b) (2)           Description  of  Business  Done  by  the  Registrant  in its
                    Janitorial Segment

      (i and ii)    The  janitorial  and  maintenance  service  division  of the
                    Company's  business consists  primarily of providing various
                    types of routine  cleaning  services as an added service for
                    existing food service customers.

                    The Company has elected to exclude segment reporting for the
                    janitorial and  maintenance  division  because it represents
                    less than 10% of the Company's  total  revenues,  assets and
                    profit or loss.

      (iii)         No new products have been introduced by this segment.

      (iv)          The janitorial  segment is limited to New York  metropolitan
                    areas.  Competition  for janitorial  contracts  comes in the
                    form of pricing  and  quality  of  service.  Competition  in
                    general is from regional and local companies.

      (v)           The  sources  and  availability  of raw  materials  for this
                    segment are adequate.

                                       3

<PAGE>



      (iv)          During  fiscal  2001,  this  segment had no single  customer
                    whose  sales  were  equal  to 10  percent  or  more  of  the
                    Company's consolidated revenues.

                    This  segment is not  subject to  material  fluctuations  in
                    sales volume resulting from seasonality.

                    Sales  in  this  segment  are on open  accounts  receivable.
                    Inventory levels are not significant.

      (v)           This segment is operating without  registered  trademarks or
                    patents.  The segment is a party to a labor  agreement  with
                    the  United  Service  Employees  Union #377 in New York that
                    expires December 31, 2003.

      (vi)          The Company does not have a material portion of its business
                    subject to  renegotiation  or termination at the election of
                    the Government.

      (vii)         The  Company  does not  believe  that  existing  or probable
                    government   regulations  have  a  material  effect  on  its
                    operations.


  (b) (1 and 2)

      (x) Through (xii) with Respect to the Registrant's Business in General

      (viii)        The Company has not  incurred  any expense for  research and
                    development activities during any of its last two (2) fiscal
                    years.

      (ix)          Compliance   with  federal,   state,   and  local  laws  and
                    regulations involving the protection of the environment will
                    not have a material effect.

      (x)           As of May 31, 2001, the Company and its subsidiary  employed
                    approximately 86 persons.

Item 2.    Description of Properties

      The Company leases all real estate for office,  warehouse,  and commissary
      facilities.  Annual  rentals are  approximately  $187,640  less $31,800 of
      sublease  income.  The  suitability of the leased  properties is adequate;
      such properties are described below:

                                       4
<PAGE>




                                              Type of        Size    Expiration
      Location                                Property     (Sq. Ft.)    Date

      5-30 54th Ave., Long Island City, NY   Office/Whse     8,000      Mo/Mo
      41-43 24th St., Long Island City, NY   Office/Whse     2,500      3/01
      9100 Santa Fe Dr., Overland Park, KS   Restaurant-     1,800      2/04
                                             (Subleased)
      162 Closter Dock Rd., Closter, NJ      Office/Whse     1,200      Mo/Mo

      The major portion of the physical  properties  used by the Company is made
      up of inventory and food service  equipment.  The Company owns most of the
      equipment  used.  Subsequent  to May 31,  2001,  the  Company  vacated the
      Closter, NJ facility in September 2001. The Company operates approximately
      23 vehicles in the conduct of its business. The annual rentals on all such
      leased real estate properties and equipment approximate $ 134,000.

Item 3.    Legal Proceedings

      None.

Item 4.    Submission of Matters to a Vote of Security Holders

      No matters were submitted to a vote of security  holders during the fourth
      quarter of the fiscal year of the Company.



                                     PART II

Item 5.    Market for Common Equity and Related Stockholder Matters

  (a) Price Range of Common Stock

      The principal market in which the common stock of the Company is traded is
      the  national  over-the-counter  market  (NASDAQ  symbol  AMBF).  The  bid
      quotations  for the Company's  common stock for each quarter during fiscal
      years ended May 31, 2001 and June 1, 2000 are shown below:



                                      2001           2000
                                  Bid Quotation  Bid Quotation
                                  High     Low   High     Low
                                  ----     ---   ----     ---
       First Quarter              $.35    $.29  $.875   $.3125
       Second Quarter            $.375    $.35 $.3125     $.25

       Third Quarter              $.37    $.27 $.3125     $.28
       Fourth Quarter             $.27    $.27  $.375     $.26


      The quotations  above reflect  interdealer  prices without retail mark-up,
      mark-down, or commission and may not represent actual transactions.

                                       5
<PAGE>



  (b) Number of Equity Security Holders

      As of  November  8, 2001 there were 680  record  holders of the  Company's
      common stock.

(c)   Dividends

      The Company has never paid cash dividends on its common stock.  Payment of
      dividends  will  be  within  the  discretion  of the  Company's  Board  of
      Directors  and  will  depend,  among  other  factors,  on  earnings,  debt
      agreements,   capital  requirements,   and  the  operating  and  financial
      condition of the Company.

  Item 6. Management's Discussion and Analysis of Financial Condition
                            and Results of Operations

      2001 Results
      ------------

                    Several  major  events  occurred  during  Fiscal  2001 which
          complicated a comparison  analysis of the operating results for Fiscal
          2001 and Fiscal 2000. These events are as follows:

        o      In August  2000,  the Company  sold the assets of its Kansas City
               vending  machine and cafeteria  operation  resulting in a loss of
               $129,000 of which  $110,000 was  recognized  in FY2000 as a write
               down of carrying  value of intangible  assets  resulting  from an
               impairment of these  intangible  assets.  The  remaining  loss of
               $19,000 that  resulted from the sale of equipment was recorded as
               a non-operating  loss on the sale of property and equipment in FY
               2001.  Because  of  declining  sales in the  vending  operations,
               intense  competition  and  the  capital-intensive  nature  of the
               business,   management   decided  to  exit  the  vending  service
               business.

        o      In January,  2001, the Company sold its remaining vending machine
               and cafeteria assets in Oklahoma and Iowa. The sale of the assets
               resulted in a gain of $1,052,000.

        o      In March, 2001, the Company sold its corporate office building in
               Kansas  City  realizing  a gain of $116,000 in the sale and moved
               its principal executive offices to its Long Island City, New York
               facility.  The  proceeds  from the sale of the  vending/cafeteria
               service  operations  and the office  building were used to reduce
               debt and pay trade creditors.

        o      In January  2001,  the Company  restructured  a  $1,400,000  note
               payable to an individual  investor.  The  restructure  included a
               reduction  of interest  from 12% of 10% per annum and a reduction
               of principal from  $1,400,000 to $1,050,000 with interest only to
               be paid the first six months.  A gain of $51,243 net of taxes was
               realized from the debt restructure.

      Sales for the food  segment for Fiscal 2001  decreased  by  $5,547,205  or
      35.0%  less than  Fiscal  2000  because  of the sale of the  assets of the
      Missouri,  Iowa and Oklahoma  operations.  Sales of the janitorial segment
      for Fiscal 2001  decreased  by $319,382 or 24.3% less than Fiscal 2000 due
      to the loss of several customers to competition.

      Cost of food products sold  increased  from 49.5% of food sales for FY2000
      to 50.5% of food sales for FY2001.  This  increase in product cost was due
      primarily to an unfavorable change in sales mix in the vending operations.

      Operating  costs increased from 37.4% of total sales in FY2000 to 41.4% of
      total sales in FY2001.  Declining  sales and increased labor and operating
      costs in the vending  operations caused management to sell the vending and
      food  operations in the Midwest.  The operating  costs for the  janitorial
      division,

                                       6
<PAGE>


      which  are  included  in  the  operating  expenses  of the  Statements  of
      Operations,  were 83.9% of revenues  for Fiscal 2001  compared to 77.7% of
      revenues for Fiscal 2000 due to supply expense exceeding the prior year by
      34.2%. The janitorial  operations were discontinued in August 2001 because
      of a major decline in sales and resulting operating losses.

      Selling and administrative expenses were slightly less in dollars spent in
      FY2001  compared to FY2000;  however,  due to the  substantial  decline in
      sales and the  fixed  nature of most of these  costs the  expense  rose to
      20.2% of total  sales  for  FY2001  compared  to 13.7% of total  sales for
      FY2000.

      Depreciation and amortization  expense decreased by $195,015 or 39.5% less
      in FY2001 than in FY2000  because of the sale of assets in Missouri,  Iowa
      and Oklahoma.

      The operating loss for FY2001 was $1,153,492 compared to income of $62,281
      for  FY2001.  The  vending and food  operations  in the  Midwest  suffered
      operating losses of $687,000  compared to income of $133,000 for the prior
      year,  which  prompted  management  to  exit  the  vending  business.  The
      janitorial  operations  had an  operating  loss of $16,000 in Fiscal  2001
      compared to income of $116,000 for Fiscal 2000.  The remaining  decline in
      operating  income of  $264,000  consisted  of a  decline  of  $172,000  in
      operating income of the New York food service operation and an increase in
      corporate expenses of $92,000.

      Interest expense  decreased by $96,355 or 31.6% less in FY2001 compared to
      FY2000  because the majority of the proceeds  from the sale of assets were
      applied to debt.

      The  Company  realized a gain of  $1,033,878  on the sale of the assets in
      Iowa and  Oklahoma  and a gain of  $116,000  on the sale of its  corporate
      office  facility in Kansas  City.  An  extraordinary  gain net of taxes of
      $112,689 was realized on the settlement of vendor debt and the restructure
      of a long-term note payable.

      The net loss for FY2001 was $18,637. The loss for FY2000 was $179,859.

          Liquidity and Capital Resources
          -------------------------------

    The  Company's  working  capital  increased  from a deficit of $1,148,951 in
    FY2000 to a surplus  of  $73,737 in FY2001.  The  deferred  receivable  of $
    507,899  resulting  from  the  sale of the  Iowa  and  Oklahoma  assets  was
    collected in August 2001.  The  proceeds  from the asset sale reduced  total
    liabilities approximately $2,660,000. In February 2002, the Company received
    and recorded $100,000 of a $150,000, net of a reserve of $50,000, contingent
    gain from the sale of assets which wasn't due until January,  2003.  Another
    $100,000 with the same contingency is due January 2004. The Company has very
    good relationships with all of its current vendors.

      On October 29, 2001, the Company  restructured  its note payable through a
      reduction of interest payable from 10% to 8% per annum effective  December
      16, 2001.  Payment of interest only, will commence on January 15, 2002 for
      a period of six months.  Thereafter,  payment  consisting of principal and
      interest  will be made in the  amount  of  $16,267  monthly,  with a final
      payment date of January 2007.

      The Company's  credit line of $1,000,000 was extended to December 31, 2002
      and the minimum equity covenant of the loan was decreased from $550,000 to
      $300,000.

       Although the Company's  financial  position improved in Fiscal 2001, cash
      flow will,  in the opinion of  management,  be slightly  less than ongoing
      expenses.  There is no guarantee of future  performance  as actual results
      may differ materially because of competition, risks and uncertainties.


                                       7
<PAGE>



Item 7.    Financial Statements

      The response to this item is included as a separate section of this report
      commencing on page F-1

Item  8.  Changes  in and  disagreements  with  accountants  on  accounting  and
      financial disclosure.

      On July 13, 2001,  the Company filed a current report on Form 8 - K, under
      Item 4,  reporting  the  change in its  certifying  accountant  from Grant
      Thornton,  LLP to  Withum  Smith & Brown  of New  Brunswick,  New  Jersey.
      Response to this item is incorporated from that filing.

Item  9. Directors and Executive Officers of the Registrant;  Compliance with 16
      (a) of the Exchange Act.

  (a), (b) The  Executive  Officers and Directors of the Company are as follows:

               Name             Age     Principal Occupation      Director
                                                                   Since
        Robert A. Laudicina(1)   60    President, Treasurer(2)      1986
        Arthur D. Stevens(1)     76    Chairman of the Board(3)     1963
        Ann W. Stevens           59    Real Estate Broker           1996
        John A. Makula(1)        52    Vice President/ Secretary(4) 2000

      (1)   Member of Executive Committee of Board of Directors

      (2)   Mr.  Laudicina was elected  President in March 1998 and Treasurer in
            May  1998.  He  served  as  Executive  Vice  President  beginning in
            February  1989 and  Vice President  prior  to that time beginning in
            January 1982.

      (3)   Mr.   Stevens  has   been   Chairman  of  the  Board of Directors of
            Ambassador since February 15, 1963. He was also the first  President
            and   Treasurer  of   Ambassador   beginning   on  April  19,  1963,
            relinquishing  those  positions  in  April  1978 and  October  1969,
            respectively.   He  again  assumed  the  position  of  President  on
            January 1, 1987, serving in that capacity through March 1998. He was
            Chief  Executive  Officer  from  April 11, 1963 through May 1998 and
            Treasurer  from January 26, 1972 through May 1998.

      (4)   Mr. Makula was  elected Assistant  Secretary  on April 12,  2000 and
            elected Vice President, Secretary, Director in May 2000.



  (c) Arthur D. Stevens,  Chairman,  and Ann W. Stevens,  Director,  are husband
      and wife. No other family relationship exists between any of the executive
      officers and directors listed above.

      Each  Officer  holds his office at the  pleasure of the Board of Directors
      until the next annual  meeting of the Directors and until his successor is
      duly elected and qualified.

      The Executive Officers and Directors  listed above were not involved in or
      part of any legal proceedings, as is described in Item 401(d).

Item 10.     Executive Compensation

(a),(b) The  following  table sets  forth  information  as  to the  remuneration
        accrued by  Ambassador  Food  Services  Corporation  and its  subsidiary
        during the fiscal year ended May 31, 2001, for each Director and Officer
        whose aggregate remuneration for the year exceeded $100,000.

                                       8
<PAGE>




             Names of Individuals,                          Fiscal       Base
           Number of Persons in Group                        Year      Salary
         and Capacities in which Served
       Arthur D. Stevens,                                    2001       $0.00
       Chairman of the Board of Ambassador and Director      2000       $0.00
       of its  subsidiary                                    1999     $51,868

       Robert A. Laudicina,                                  2001    $176,706
       President and Treasurer                               2000    $174,769
                                                             1999    $166,905

d)    Stock Options

      Robert Laudicina,  President and Treasurer hold options to purchase 25,000
      shares of Ambassador common stock at $1.37 exercisable anytime before June
      1, 2003, effective June 1, 1999.

      John Makula, Vice President and Secretary, hold options to purchase 25,000
      shares of Ambassador common stock at $1.37 exercisable anytime before June
      1, 2003, effective June 1, 1999.

g)    Consulting Agreement


      During fiscal year 1999, the Company entered into  a consulting  agreement
      with  Arthur  D. Stevens,  Chairman and former  President.  The  agreement
      called for weekly payments totaling $100,482 per year   beginning  in  May
      1999 through May 2009.

      Subsequent to June 3,  1999,  Mr.  Stevens  agreed to defer the consulting
      agreement  until  January  2001 if  equivalent  payments  were  made on  a
      certain  note  payable  to him. At May 31, 2001 and June 1, 2000,  amounts
      outstanding on the note were $0 and $47,395 respectively.




                                       9
<PAGE>


Item 11. Security Ownership of Certain Beneficial Owners and Management

  (a) Security Ownership of Certain Beneficial Owners

      The following table sets forth,  as of May 31, 2001, the information  with
      respect to common  stock  ownership of each person known by the Company to
      own beneficially more than 5% of the shares of the Company's common stock,
      and of all Officers and Directors as a group.


                                                  Amount     Percent of
                                               Beneficially  Outstanding
      Name and Address of Beneficial Owner(s)      Owned       Shares

      Arthur D. Stevens
      1901 W. 69th Street
      Mission Hills, KS  66205                   191,444 (1)     26.0%

      Thomas G. Berlin
      800 Superior Avenue, Suite 2100
      Cleveland, Ohio 44114                      124,218 (3)     16.8%

      George T. Terris
      104 S. Warbler
      Sarasota, FL 34236                          54,000 (2)      7.3%

      George F. Crawford
      10110 Fontana Lane
      Overland Park, KS  66207                    51,761          7.0%




      (1)  Does not include  60,000 shares  beneficially  owned by Mr.  Stevens'
           adult children, in which shares he disclaims any beneficial interest.

      (2)  Does not include 4,000 shares owned by Mr. Terris'  immediate family,
           in which shares he disclaims any beneficial interest.

      (3)  Includes 12,800 shares owned by Mr. Berlin's wife.





                                       10


<PAGE>



  (b) Security Ownership of Management

                                                Shares of Stock
                                              Beneficially Owned
                                                 May 31, 2001
                                                 ------------
                                              Number          Percent
      Name                                  of Shares         of Stock
      Arthur D. Stevens
      1901 W. 69th Street
      Mission Hills, KS  66205               191,444  (1)       26.0%

      Robert A. Laudicina
      303 Cedar Court
      Norwood, NJ  07648                      51,265  (2)        6.7%

      John Makula
      5 Pittsford Way
      Nanuet, NY 10954                        34,750 (3)         4.6%

      Ann W. Stevens
      1901 W. 69th Street
      Mission Hills, KS 66205                  1,000             0.1%

      All Directors and Officers             278,459  (4)       35.5%
         as a Group (4 persons)


     (1) Does not include 60,000 shares beneficially owned by Mr. Stevens' adult
         children,  in  which  shares  he  disclaims  any  beneficial  interest.
         Additionally,  does not include 200,000 shares,  which may be issued in
         the  event  of  conversion   of  certain  debt  under  its   conversion
         provisions, which are effective from April 30, 1998 to May 1, 2006.

     (2) Includes  12,500 shares,  which Mr.  Laudicina could purchase for $1.37
         per share under a stock option exercisable anytime before June 1, 2003.

     (3) Includes  12,500 shares,  which Mr. Makula could purchase for $1.37 per
         share under a stock option exercisable anytime before June 1, 2003.

     (4) Includes  25,000 shares,  which could be purchased by certain  officers
         and directors under stock options.

   (c)Changes in Control

      The  Company  knows  of  no  contractual  arrangements  which  may,  at  a
      subsequent date, result in a change in control of the Company.


                                       11
<PAGE>


Item 12. Certain Relationships and Related Transactions

  (a) Certain Business Relationships

      In  connection  with  the  issuance  of the  credit  line,  the  Company's
      President  entered into an agreement with the lender whereby the President
      has purchased and accepted from the lender a junior  participation  in the
      amount of  $100,000 in the loans and  advances  made to the Company by the
      lender. The arrangement expires in December 2001.

Item 13. Exhibits and Reports on Form 8-K

  (a) Exhibit No.:

         3A  Articles of Incorporation of the Registrant              (1)

         3B  By-Laws of the Registrant                                (1)

          6  1984 Incentive Stock Option Plan Dated January 31, 1984  (2)

         10  Material Contracts Agreement with Paul F. Leathers       (1)

         23  Subsidiary of the Registrant.                            (3)

         24  Sale of the remaining vending and cafeteria assets in
             Iowa and Oklahoma                                        (4)


         25 Change in certifying accountant                           (4)

      (1) This exhibit  was filed with  Ambassador's  10-KSB for the fiscal year
          ended  May  28,  1981.  A copy  of the  Certificate  of  Amendment  of
          Certificate of Incorporation  changing the Company's name was filed as
          a supplement to said exhibit for the fiscal year ended June 1, 1989.

      (2) This exhibit was filed with the  Company's  10-KSB for the fiscal year
          ended May 31, 1984.

      (3) Exhibit attached as part of filing.

      (4) Exhibit attached as part of filing.

Exhibit No. 22

Subsidiary of the Registrant

Ambassador  Food  Services  Corporation  (a  Delaware  Corporation),  the parent
Company,  has the following  subsidiary,  which is included in the  consolidated
financial statements.


                                       12






<PAGE>


                                                           % of Voting
Name of Subsidiary              State of Incorporation   Securities Owned
------------------              ----------------------   ----------------

Ambassador Fast Services, Inc.        New York                 100%
d/b/a Squire Maintenance Services

Note: The Company will provide,  on the written  request of any  stockholder,  a
      copy of any  exhibit to this Form  10-KSB at a rate of $.15 per page.  The
      minimum fee is $5.00.  Requests should be directed to Robert A. Laudicina,
      President,  Ambassador Food Services  Corporation,  5-30 54th Avenue, Long
      Island City, New York 11101.


Signatures


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


                             AMBASSADOR FOOD SERVICES CORPORATION
                             ------------------------------------
                                  (Registrant)


                             By                       Date
                               ------------------         ------------
                                Arthur D. Stevens
                                Chairman of the Board




                             By                       Date
                               ------------------         ------------
                                 John A. Makula
                                Vice President and Secretary



                                       13
<PAGE>


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



                             Chairman of the Board              Date
------------------           -----------------------------          --------
Arthur D. Stevens                 Title


                               President and Chief
                             Executive Officer/Director         Date
------------------           -----------------------------          --------
Robert A. Laudicina               Title


                             Director                           Date
------------------           --------------------                   --------
Ann W. Stevens                    Title


                             Vice President/Secretary, Director  Date
------------------           ----------------------------------      ---------
John A. Makula                    Title



                                       14


<PAGE>


INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders,
Ambassador Food Services Corporation and Subsidiary:

We have audited the accompanying  consolidated  balance sheet of Ambassador Food
Services  Corporation  and  Subsidiary  as of May  31,  2001,  and  the  related
consolidated statements of operations, changes in stockholders' deficit and cash
flows for the year then ended. 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 auditing standards  generally accepted
in the  United  States of  America.  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 examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also 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  audit  provides  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the consolidated  financial position of Ambassador Food
Services  Corporation  and Subsidiary as of May 31, 2001,  and the  consolidated
results  of their  operations  and their  cash  flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America.




August 29, 2001, except for Note 18,
as to which the date is October 31, 2001




                                      F-1
<PAGE>



               AMBASSADOR FOOD SERVICES CORPORATION AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                          MAY 31, 2001 AND JUNE 1, 2000

    ASSETS                                                  2001        2000
                                                            ----        ----
Current Assets:
  Cash                                                  $   20,240   $  232,775
  Accounts receivable, net of allowance for doubtful
   accounts of $23,337 in 2001 and $32,500 in 2000         720,585    1,199,560
  Deferred receivable                                      507,899        --
  Inventories                                              124,906      537,655
  Prepaid expenses                                          11,828      109,494
  Current portion of note receivable                          --         28,473
                                                        ----------   -----------

    Total Current Assets                                 1,385,458    2,107,957

Property and Equipment, Net                                175,033    1,611,249

Other Assets:
  Location contracts, net of accumulated amortization
   of $-0- in 2001 and $166,963 in 2000                       --        147,477
  Note receivable, less current portion                       --        263,339
  Excess of purchase price over net assets acquired,
   net of accumulated amortization of $-0- in 2001
   and $23,722 in 2000                                        --          2,430
  Deferred expenses                                           --         45,829
  Deposits                                                  33,016       68,617
  Other assets                                                --         25,628
                                                        ----------   -----------

    Total Other Assets                                      33,016      553,320
                                                        ----------   -----------

    TOTAL ASSETS                                        $1,593,507   $4,272,526
                                                        ==========   ===========

    LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
  Line of credit agreement                              $  236,529   $  770,969
  Accounts payable                                         462,639    1,549,304
  Accrued expenses                                         380,826      439,342
  Current maturities of long-term debt                     231,727      497,293
                                                        ----------   -----------
   Total Current Liabilities                             1,311,72     3,256,908

Long-Term Liabilities:
  Projected benefit obligation                                --         89,641
  Subordinated note payable to stockholder                    --         47,395
  Long-term debt, less current maturities                 847,031     1,420,856
  Other liabilities                                        36,251        40,585
                                                        ----------   -----------
   Total Liabilities                                    2,195,003     4,855,385

Stockholders' Deficit:
  Common stock, par value $1.00 per share; authorized
   2,000,000 shares; issued and outstanding 1,009,230
   shares                                               1,009,230     1,009,230
  Additional paid-in capital                              718,291       718,291
  Accumulated deficit                                  (1,999,506)   (1,980,869)
                                                       -----------   -----------
                                                         (271,985)     (253,348)
  Less treasury stock - 273,774 shares                    329,511       329,511
                                                       -----------   -----------
    Total Stockholders' Deficit                          (601,496)     (582,859)
                                                       -----------   -----------

   TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT         $1,593,507    $4,272,526
                                                       ===========   ===========


The Notes to  Consolidated  Financial  Statements  are an integral part of these
statements.

                                      F-2
<PAGE>


          AMBASSADOR FOOD SERVICES CORPORATION AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF OPERATIONS
           FOR THE YEARS ENDED MAY 31, 2001 AND JUNE 1, 2000

                                                            2001        2000
                                                            ----        ----
Net Sales:
  Food                                                 $10,275,776  $15,822,981
  Janitorial                                               992,886    1,312,268
                                                       ------------ ------------
                                                        11,268,662   17,135,249
Cost and Expenses:
  Cost of food products sold                             5,186,039    7,832,824
  Operating                                              4,667,144    6,402,466
  Selling and administrative                             2,270,654    2,344,346
  Depreciation and amortization                            298,317      493,332
                                                       ------------  -----------
   Total Costs and Expenses                             12,422,154   17,072,968
                                                       ------------  -----------

Operating Income (Loss)                                 (1,153,492)      62,281

Other Income (Expense):
  Interest income                                           20,927       26,008
  Interest expense                                        (208,042)    (304,397)
  Loss on collection of net receivables                    (22,981)     (20,842)
  Gain on settlement of pension                              3,114       46,777
  Gain on sale of property and equipment                   107,674       10,314
  Gain on sale of assets                                 1,033,878         --
                                                       ------------  -----------
   Total Other Income (Expense), Net                       934,570     (242,140)
                                                       ------------  -----------

Loss Before Income Tax Benefit
and Extraordinary Item                                    (218,922)    (179,859)

Income Tax Benefit                                          87,596         --
                                                       ------------  -----------

Loss Before Extraordinary Item                            (131,326)    (179,859)

Extraordinary Item - Gain on Extinguishment/
  Settlement of Debt, Less Income Taxes of $87,596         112,689         --
                                                       ------------  -----------

Net Loss                                               $   (18,637)  $ (179,859)
                                                       ============  ===========

Basic and Diluted Income  (Loss) Per
  Common Share:

Loss Before Extraordinary Item                         $      (.18)  $     (.24)

Extraordinary Item                                             .15         --
                                                       ------------  -----------

Net Loss                                               $      (.03)  $     (.24)
                                                       ============  ===========

Weighted Average of Common
  Shares Outstanding                                       735,536      735,536
                                                       ============  ===========

The Notes to  Consolidated  Financial  Statements  are an integral part of these
statements.

                                      F-3
<PAGE>


          AMBASSADOR FOOD SERVICES CORPORATION AND SUBSIDIARY
      CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
           FOR THE YEARS ENDED MAY 31, 2001 AND JUNE 1, 2000

<TABLE>
<CAPTION>



                                                        Common Stock
                              -------------------------------------------------------

                                       Issued                      Treasury             Additional                         Total
                              ------------------------   ----------------------------     Paid-in      Accumulated     Stockholders'
                                Shares        Amount        Shares        Amount          Capital        Deficit          Deficit
                              ----------   -----------   -----------    ----------     ------------   --------------   -------------
<S>                            <C>         <C>             <C>        <C>               <C>           <C>               <C>
Balance as of June 3, 1999     1,009,230   $1,009,230      273,674     $ (329,455)       $ 718,291    $(1,801,010)      $ (402,944)

Net Loss                          --           --            --             --               --          (179,859)         (179,859)

Purchase of Treasury Stock        --           --              100            (56)           --             --                  (56)
                              ----------   ----------   -----------   --------------   ------------   --------------   -------------

Balance as of June 1, 2000     1,009,230    1,009,230      273,774       (329,511)         718,291     (1,980,869)         (582,859)

Net Loss                          --           --            --           --                 --           (18,637)          (18,637)
                              ----------   ----------   -----------   --------------   ------------   -------------    -------------

Balance as of May 31, 2001     1,009,230   $1,009,230      273,774     $ (329,511)       $ 718,291    $(1,999,506)      $  (601,496)
                              ==========   ==========   ===========   =============    ============   =============    =============

</TABLE>


The Notes to the Consolidated Financial Statements are an integral part of these
statements.

                                      F-4
<PAGE>


               AMBASSADOR FOOD SERVICES CORPORATION AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE YEARS ENDED MAY 31, 2001 AND JUNE 1, 2000


                                                            2001       2000
                                                            ----       ----

Cash Flows from Operating Activities:
  Net loss                                             $  (18,637)  $(179,859)
  Extraordinary item                                     (200,285)      --
  Adjustments to reconcile net loss to net cash
    used in operating activities:
    Depreciation and amortization                         298,317     493,332
    Sale of assets                                     (1,033,878)      --
   Impairment of long-lived assets                          --        110,460
   Sale of property and equipment                        (107,674)    (10,314)
   Provision for bad debts                                  9,163     (16,017)
   Loss on collection of net receivables                   22,981      20,842
   Gain on settlement of pension                           (3,114)    (46,777)
   Changes in operating assets and liabilities, net of
    effects from assets sold:
    Accounts receivable                                   469,812    (246,010)
    Inventories                                           101,776      30,019
    Prepaid expenses                                       97,666     (60,791)
    Accounts payable and accrued expenses                 188,708    (558,592)
    Other liabilities                                      (4,335)
          --
    Benefit obligations                                  (130,377)      --
                                                        ----------   ---------
      Net Cash Used in Operating Activities              (309,877)   (463,707)

Cash Flows from Investing Activities:
  Purchase of property and equipment                     (991,738)   (219,031)
  Proceeds from sale of property and equipment            295,038      10,314
  Proceeds from sale of assets                          1,793,113       --
  Collection of note receivable                           268,831      21,016
  Change in deposits and other assets                      62,663     (77,842)
                                                        ----------   ---------
    Net Cash Provided by (Used in) Investing
     Activities                                         1,427,907    (265,543)

Cash Flows from Financing Activities:
  Proceeds from issuance of long-term debt                    --    1,086,150
  Principal payments on long-term debt                   (748,730)   (594,795)
  Payments on subordinated note payable                   (47,395)   (121,163)
  Purchase of treasury stock                                --            (56)
  Net (payments) proceeds under line of credit           (534,440)    353,479
                                                        ----------  ----------
    Net Cash Provided by (Used in) Financing
     Activities                                        (1,330,565)    723,615
                                                       -----------  ----------
Net Decrease in Cash                                     (212,535)     (5,635)

Cash at Beginning of Year                                 232,775     238,410
                                                       -----------  ----------

Cash at End of Year                                    $   20,240   $ 232,775
                                                       ==========   ==========



The Notes to the Consolidated Financial Statements are an integral part of these
statements.

                                       F-5


<PAGE>



          AMBASSADOR FOOD SERVICES CORPORATION AND SUBSIDIARY
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 1 - Summary of Significant Accounting Policies:
----------------------------------------------------

        Significant   accounting   policies   followed  by  the  Company and its
        subsidiary in the preparation of the accompanying consolidated financial
        statements are summarized below:

        Basis of Presentation
        The Company and its  subsidiary  conduct  operations in New York and New
        Jersey in two operating  segments:  food (meal preparation and delivery,
        cafeteria  and  catering)  and  janitorial  services.  The  Company  had
        previously operated vending machine and cafeteria operations in its food
        segment, which were located in Missouri,  Iowa and Oklahoma. The Company
        sold  substantially all of its assets in these operations in August 2000
        and January 2001 (see Note 2).

        Principles of Consolidation
        The consolidated financial statements include the accounts of Ambassador
        Food Services  Corporation and its wholly-owned  subsidiary,  Ambassador
        Fast Services, Inc. (hereinafter collectively known as the Company). All
        intercompany   balances  and   transactions   have  been  eliminated  in
        consolidation.

        Reporting Periods
        The Company has a fiscal  year (52 or 53 weeks)  ending on the  Thursday
        nearest May 31. Fiscal years 2001 and 2000 contained 52 weeks.

        Reclassifications
        Certain amounts from 2000 have been  reclassified to conform to the 2001
        financial statement presentation.

        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 amounts reported in the financial statements
        and accompanying notes. Actual results may differ from those estimates.

        Inventories
        Inventories  are stated at the lower of cost  (first-in,  first-out)  or
        market.

        Location Contracts and Excess of Purchase Price Over Net Assets Acquired
        Location contracts and excess of purchase price over net assets acquired
        arise from the  purchase of various  companies  and are carried at cost.
        Location  contracts  represent  the  amount  paid for  customer  vending
        relationships   in   existence  at  the  time  of   acquisition.   These
        relationships  were  generally  cancelable  by either party with limited
        notice. Such amounts are amortized on the straight-line method over 5 to
        40 years.

        The  remaining  carrying  value of location  contracts  of $138,155  and
        excess  purchase  price over net assets of $932 were written off as part
        of the disposition of the Iowa and Oklahoma operations (see Note 2).

        Amortization  expenses for the years ended May 31, 2001 and June 1, 2000
        amounted to $9,322 and $15,980, respectively.




                                      F-6
<PAGE>


               AMBASSADOR FOOD SERVICES CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1 - Summary of Significant Accounting Policies (Continued):

        Income Taxes Income taxes are accounted for under Statement of Financial
        Accounting  Standards  No. 109  Accounting  for Income  Taxes.  Deferred
        income  taxes  reflect  the net tax  effects  of  temporary  differences
        between the carrying  amounts of assets and  liabilities  for  financial
        reporting  purposes  and the  amounts  used  for  income  tax  purposes.
        Deferred tax balances are  determined  using tax rates expected to be in
        effect  when the taxes  will  actually  be paid or refunds  received.  A
        valuation  allowance  is recorded  when the  expected  recognition  of a
        deferred tax asset is considered to be unlikely.

        Financial Instruments and Concentration of Credit Risk
        Accounts Receivable
        -------------------
        Substantially  all  of  the  Company's  accounts   receivable  are  with
        customers located in New York and New Jersey.  The Company grants credit
        to customers  such as  governmental  social  service  agencies and other
        nonprofit organizations. Collateral is not required.

        As of May 31, 2001,  two customers  each  represented  approximately  16
        percent  of  total  accounts  receivable.  One of these  customers  also
        represented  15  percent  of total  consolidated  net sales for the year
        ended May 31, 2001.

        Short-Term  Financial  Instruments
        ----------------------------------
        The carrying amount of short-term financial instruments,  including cash
        and cash  equivalents,  trade  accounts  receivables  and  payables  and
        certain  accrued  liabilities,  approximates  their  fair  value  in the
        financial statements because of the short maturity of such instruments.

        Notes  Payable and  Long-Term  Debt
        -----------------------------------
        The carrying  amount of the line of credit  approximates  its fair value
        because the currently effective rates reflect market rates. The carrying
        amount of fixed rate notes payable  approximates its fair value based on
        the Company's estimated current  incremental  borrowing rate for similar
        obligations with similar terms.

        Stock Based  Compensation
        The  Company  accounts  for  stock-based  awards to  certain  employees,
        consultants  and board  members  using  the  intrinsic  value  method in
        accordance with Accounting  Principles Board Opinion No. 25,  Accounting
        for Stock Issued to Employees.  Stock options are generally granted with
        exercise prices  equivalent to fair market value, and  consequently,  no
        compensation cost is recognized in the financial statements.  When stock
        options are  granted  with  exercise  prices  below fair  market  value,
        employee stock-related  compensation expense is recognized  accordingly.
        The Company provides  additional pro forma disclosures as required under
        Statement of  Financial  Accounting  Standards  No. 123  Accounting  for
        Stock-Based Compensation (see Note 16).

        Effects of Recent  Accounting  Pronouncements
        In June 1998,  1999, and 2000, the FASB issued SFAS No. 133,  Accounting
        for  Derivative  Instruments  and  Hedging  Activities,  SFAS  No.  137,
        Accounting for Derivative Instruments and Hedging Activities-Deferral of
        the  Effective  Date of FASB  Statement  No.  133,  and  SFAS  No.  138,
        Accounting  for  Certain  Derivative  Instruments  and  Certain  Hedging
        Activities,  respectively.  These statements require companies to record
        derivatives  on the balance sheet as assts or  liabilities,  measured at
        fair  value.  Gains or losses  resulting  from  changes in the values of
        those  derivatives  would be accounted  for  depending on the use of the
        derivative and whether it qualifies for hedge  accounting.  SFAS No. 133
        will be effective as of June 1, 2001, the first day of fiscal year 2002.
        The adoption of these statements will have no significant  impact on the
        Company's financial position or results of operations.


                                      F-7
<PAGE>



               AMBASSADOR FOOD SERVICES CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1 - Summary of Significant Accounting Policies (Continued):
----------------------------------------------------------------

        Effects of Recent Accounting Pronouncements (Continued)
        In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB
        101"),  Revenue Recognition in Financial  Statements.  SAB 101m provides
        guidance on the recognition, presentation, and disclosure of revenues in
        financial statements of all public registrants. In October 2000, the SEC
        issued a Frequently  Asked Questions  document  related to SAB 101 which
        provides  interpretive  guidance.  The Company adopted SAB 101 in fiscal
        year 2001, and the adoption of SAB 101 did not have a significant impact
        on the Company's financial position or results of operations.

        In June 2001, the FASB issued SFAS No. 141, Business Combinations.  SFAS
        No 141 addresses the initial recognition and measurement of goodwill and
        other intangible assets acquired in a business combination.  SFAS No 141
        is  applicable  to business  combinations  beginning  July 1, 2001.  The
        adoption  of this  statement  will  have no  significant  impact  on the
        Company's financial position or results of operations.

        In June  2001,  the  FASB  issued  SFAS  No.  142,  Goodwill  and  Other
        Intangible  Assets.  SFAS No.  142  addresses  the  recognition  and the
        measurement of goodwill and other  intangible  assets  subsequent to and
        measurement  of  intangible   assets  acquired  outside  of  a  business
        combination  whether  acquired  individually  or with a group  of  other
        assets.  Goodwill and  intangible  assets  previously  recorded,  in the
        Company's  financial  statements,  will be affected by the provisions of
        SFAS No. 142. This statement provides that intangible assets with finite
        useful lives be amortized  and that  intangible  assets with  indefinite
        lives and goodwill will not be  amortized,  but will rather be tested at
        least  annually for  impairment.  SFAS No. 142 will be effective for the
        Company's fiscal year 2003,  however  management is assessing the impact
        that SFAS No.  142 will have on the  Company's  financial  position  and
        results  of  operations  and  investigating  the  possibility  of  early
        adoption,  as allowed by the  statement,  in the first quarter of fiscal
        2002.

        Revenue Recognition
        Revenue from customer  contracts are recognized at the time products and
        services  are  provided  to  the  customer  in  accordance   with  those
        contracts.

        Property and Equipment
        Property and equipment are stated at cost.  Depreciation  is provided in
        amounts   sufficient  to  relate  the  cost  of  depreciable  assets  to
        operations  over  their  estimated  useful  lives  on the  straight-line
        method.  The estimated  lives used in  determining  depreciation  are as
        follows:

              Description                                 Years
              -----------                                 -----

        Vending Equipment                                  4-8
        Cafeteria and Commissary Equipment                3-10
        Building and Leasehold Improvements               3-22
        Vehicles and Other                                3-10

        Income (Loss) Per Common Share
        Income (loss) per common share is computed using the weighted average of
        common  shares  outstanding  during the  period.  Certain  options  were
        outstanding  during the reporting periods but were not considered in the
        net loss per share calculation, as the effect is antidilutive.


                                      F-8

<PAGE>


               AMBASSADOR FOOD SERVICES CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 2 - Sale of Assets:
------------------------
        During  the  fiscal  year  ended  May  31,   2001,   the  Company   sold
        substantially  all of its  assets  in the  Missouri,  Iowa and  Oklahoma
        vending   machine  and  cafeteria   operations.   The  Company  has  not
        discontinued its remaining food operations located in New York. Revenues
        for the disposed  operations were 47.1 percent and 61.8 percent of total
        revenues for 2001 and 2000, respectively. The total net adjusted selling
        price  amounted to  $3,621,772 in the form of cash,  direct  payments to
        vendors and a deferred  receivable.  The sale  resulted in a net gain of
        $1,033,878, which is included in other income.

        The  following  is a summary  of assets  sold as of the  "Dates of Sale"
        (August 2000 for Missouri  and January 2001 for Iowa and  Oklahoma)  and
        June 1, 2000:

                                          Dates of Sale     June 1, 2000
                                          -------------     ------------

        Cash Change Funds                $  140,345        $  214,558
        Accounts Receivable                  --               163,530
        Prepaid Expenses                     --                23,683
        Inventory                           310,973           400,482
        Equipment and Vehicles, Net       1,951,596         1,240,656
        Location Contracts                  138,155           147,477
        Other Assets                         46,825            57,098
                                          ---------         ---------

        Total Assets                     $2,587,894        $2,247,484
                                         ==========        ==========

        In connection with the sale of the Iowa and Oklahoma vending machine and
        cafeteria operations,  the Company recorded a receivable of $508,000 net
        of an estimate of $72,000 for potential adjustments for claims.

        In its third quarter Form 10QSB filed with the  Securities and Exchanges
        Commission on July 20, 2001,  the Company  recognized a gain on disposal
        of discontinued  operations which included  $150,000  ($200,000 net of a
        $50,000 reserve) of a deferred  receivable from the sale of the Iowa and
        Oklahoma vending machine and cafeteria  operation  assets,  due in equal
        installments of $100,000 each on July 12, 2003 and 2004. In management's
        opinion,  this  gain  was  realizable  since  the  assessment  was  that
        collection of the deferred  receivable  net of the  established  reserve
        would be imminent.  In  addition,  management  classified  the sale as a
        disposal of  discontinued  operations.  Subsequent  to the third quarter
        filing,  management  concluded  that  the sale  constituted  a sale of a
        portion of its food segment business.  In addition,  although management
        of  the  Company  continues  to  be  confident  that  the  net  deferred
        receivable  will be collected,  it concluded that based on certain terms
        of the Asset Purchase Agreement, the $150,000 deferred receivable should
        be  considered a gain  contingency  and not be recorded in the financial
        statements  until  received.  Accordingly,  the Company has reversed the
        effect  of the  portion  of the gain in the  amount of  $150,000  in its
        fourth quarter ended May 31, 2001 financial statements.  Therefore, this
        $150,000 is not included in the $507,899 deferred receivable.


                                      F-9
<PAGE>


               AMBASSADOR FOOD SERVICES CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 3 - Property and Equipment:
-------------------------------
       Property and equipment consists of the following:
                                                      2001            2000
                                                      ----            ----
       Vending Equipment                           $   --         $4,920,500
       Cafeteria and Commissary Equipment            386,254       1,116,833
       Building and Leasehold Improvements            17,342         761,037
       Vehicles                                      165,578         394,106
       Janitorial Equipment                          147,357         147,357
       Warehouse Equipment                            22,189          92,581
       Office Equipment                               89,484         365,469
       Other                                          21,661           9,477
                                                     -------       ---------
                                                     849,865       7,807,360
       Less Accumulated Depreciation                 674,832       6,196,111
                                                     -------       ---------

       Property and Equipment, Net                 $ 175,033      $1,611,249
                                                     ========     ==========

       Depreciation  of property and  equipment for the years ended May 31, 2001
       and June 1, 2000 amounted to $288,995 and $477,352, respectively.

Note 4 - Note Receivable:
------------------------
       Note receivable consisted of the following:
                                                     2001                2000
                                                     ----                ----
       Note receivable from BVI, due in monthly
       installments of $12,300, including
       interest at 8.5 percent through April 2001  $  --           $  291,812

       Less Current Portion                           --               28,473
                                                   --------        ----------

       Long-Term Portion                           $  --           $  263,339
                                                   ========        ==========

       The note was fully  paid  during the year  ended May 31,  2001,  net of a
       $22,981 discount.

Note 5 - Current Liabilities:
----------------------------
       Accrued expenses consisted of the following:

                                                       2001              2000
                                                       ----              ----
       Legal and Other Professional Fees           $  20,199       $    4,925
       Vacation Pay                                   30,752           63,328
       Taxes                                          15,560           47,880
       Salaries                                       59,835          149,616
       Current Portion of Benefit Obligation            --             43,850
       Medical Insurance                              44,980           73,472
       Reserve for Pension Withdrawal Liability       90,000             --
       Reserve for Settlements                        30,000             --
       Non-Compete Clause Liability                   36,504             --
       Accrued Sales Tax Costs                        20,596           29,612
       Other                                          32,400           26,659
                                                     -------          -------
        Total Accrued Expenses                       $380,826        $439,342
                                                     ========        ========


                                      F-10
<PAGE>


               AMBASSADOR FOOD SERVICES CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 6 - Line of Credit Agreement:
---------------------------------
        In December  1999, the Company  entered into a line of credit  agreement
        with a lender,  which  provides for maximum  borrowings  of  $1,000,000,
        limited to 80 percent  of  eligible  accounts  receivable.  Interest  is
        payable monthly at prime (7 percent at May 31, 2001) plus 4 percent. The
        amount is collateralized by a first priority perfected security interest
        in all the Company's  assets  excluding real estate and  equipment,  for
        which the lender has a second priority perfected security interest.  The
        agreement,  which  expires in  December  2001,  contains  a  restrictive
        covenant that the Company was not in compliance with as of May 31, 2001.
        The lender has issued a waiver of the default as of May 31, 2001 through
        October 31, 2001.

        The balance of the credit line was  $236,529  and $770,969 as of May 31,
        2001 and June 1, 2000, respectively.

       Note 7 - Long-Term Debt:
       -----------------------

       Long-term  debt consists of the following:
                                                       2001            2000
                                                       ----            ----
         Notes  payable  -  equipment,  payable  in
       monthly   installments  of   approximately
       $25,500,  including  interest at 8 percent
       in 2001,  and rates ranging from 9 percent
       to  19.3  percent  in  2000,  due  through
       October 2002, collateralized by equipment    $  45,107      $   411,230


       Notes  payable  to  vendors,   payable  in
       varied  monthly  installments,   including
       interest at 8 percent,  due through August
       2001                                             2,271           11,479

       Notes payable to  stockholders  at 10 per-
       cent,  payable in monthly  installments of
       $5,681,  due  through  December  2000.             --            45,915

       Note  payable  to  Bassman  Vending,  Inc.
       (BVI) payable in monthly  installments  of
       $5,150, including interest at 8.5 percent,
       due through March 2001,  collateralized by
       certain location  contracts and equipment.         --            49,525

       Note payable to an  individual  at 12 per-
       cent,  payable in monthly  installments of
       interest only through  October  2000.  The
       note was restructured on January 15, 2001,
       reducing  the  original   note  amount  of
       $1,400,000 to $1,050,000  plus interest at
       10 percent per annum.  Interest only to be
       paid the first six months,  and a $250,000
       payment   was  paid  in   February   2001.
       Thereafter, principal plus interest in the
       amount  of  $17,102  to  be  paid  monthly
       through June 30, 2005 with a final payment
       of $9,056 on July 15, 2006, collateralized
       by a security  interest in all  commissary
       equipment and a  subordinated  interest in
       accounts receivable  (A)                     1,031,380        1,400,000
                                                    ---------        ---------

       Total Long-term Debt                         1,078,758        1,918,149

       Less Current Maturities                        231,727          497,293

       Long-Term Portion                             $847,031       $1,420,856
                                                    =========       ==========

                                      F-11
<PAGE>


               AMBASSADOR FOOD SERVICES CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 7 - Long-Term Debt (Continued):
-----------------------------------

       Aggregate  annual  principal  payments  applicable to long-term  debt due
       subsequent to May 31, 2001 are as follows:

                   Year                         Amount
                   ----                         ------

                   2002                        $231,727
                   2003                         205,218
                   2004                         205,218
                   2005                         205,218
                   2006                         205,218
                   Thereafter                    26,159
                                             ----------
                    Total                    $1,078,758
                                             ==========

      (A) In accordance  with  generally  accepted  accounting  principles,  the
          effective interest rate on the debt from the restructure date has been
          reduced to zero  because the future  interest  expense of $259,339 has
          been added to the principal amount of $1,050,000.

Note 8 - Related Party Transactions:
-----------------------------------
        The Company  previously  borrowed $250,000 from a stockholder.  The note
        which had a balance  outstanding of $47,395 as of June 1, 2000,  accrued
        interest  at 10  percent,  payable  quarterly,  was fully  repaid to the
        stockholder as of May 31, 2001.

        The Company  had notes  payable to two  officers,  which at June 1, 2000
        totaled $45,915.  The notes were fully repaid to the officers during the
        fiscal year ended May 31, 2001.

        During  2000,  the Company  forgave a note  receivable  in the amount of
        $20,842 due from the Company's President.

        During fiscal year 1999, the Company entered into a consulting agreement
        with a  stockholder.  The  agreement  originally  requiring  payments of
        $100,482 per annum, was informally  amended in April 2001 to a total per
        annum consulting fee of $91,000.  The consulting agreement terminates in
        May 2009.

        In  connection  with the  issuance  of the credit line (see Note 6), the
        Company's  President  entered into an agreement  with the lender whereby
        the  President  has  purchased  and  accepted  from the  lender a junior
        participation  in the amount of $100,000 in the loans and advances  made
        to the Company by the lender. The arrangement  expires in December 2001.
        See also Note 17.

Note 9 - Extraordinary Items:
----------------------------
       Gain from Restructure of Debt
       -----------------------------
       On January 15,  2001, a note payable to an  individual  was  restructured
       through reduction of the original principal amount due of $1,400,000,  to
       $1,050,000  and a reduction of interest from 12 percent to 10 percent per
       annum.  Per  terms  of the  new  agreement,  payments  are to be  made as
       stipulated in Note 7 to the financial statements. The aggregate gain from
       restructure  amounted  to  $51,243,  net of  applicable  income  taxes of
       $39,418. See also Note 17.


                                      F-12

<PAGE>


               AMBASSADOR FOOD SERVICES CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 9 - Extraordinary Items (Continued):
----------------------------------------

      Gain From Settlement with Vendors
      ---------------------------------
      In  connection  with the sale of assets of the Iowa and  Oklahoma  vending
      machine and cafeteria operations (see Note 2), the Company settled amounts
      due and outstanding to certain vendors. The transaction resulted in a gain
      of $61,446, net of applicable income taxes of $48,178.

      Collectively,   the  gains  from   extinguishment/settlement  of  debt  of
      $112,689,  net of applicable income taxes of $87,596,  have been reflected
      in the statement of operations for the year ended May 31, 2001.

Note 10 - Leases:
----------------
       Future minimum lease payments under all non-cancelable  operating leases,
       as of May 31, 2001 are as follows:

          Fiscal year       Real
            Ending         Estate      Equipment       Total          Sublease
          ----------      --------     ---------       -----          --------

            2002          $155,840     $ 12,804       $168,644         $31,800
            2003           113,458       12,054        125,512          31,800
            2004           113,360        6,280        119,640          31,800
            2005           102,238        1,256        103,494           5,300
            2006            86,940        --            86,940            --
                          --------     --------        -------        --------
                          $571,836     $ 32,394       $604,230        $100,700
                          ========     ========       ========        ========

       Net rental expense charged to operations  (rented expense net of sublease
       rental  income of  $31,800  in 2001 and 2000)  was  $344,864  in 2001 and
       $493,715 in 2000.

Note 11 - Employee Benefit Plans:
--------------------------------
       The Company had a nonqualified  defined-benefit pension plan covering two
       former officers and two key employees of the Company.

       On January 1, 2000, the Company  implemented a settlement of the plan for
       the two key  employees  covered  under  the plan.  The two key  employees
       relieved  the  Company  of any  obligation  for past and  future  pension
       benefits.  A gain on  settlement of $46,777 was recorded in the June 2000
       consolidated financial statements. On April 10, 2001, the Company settled
       its pension  liability  with the remaining  two former  officers and paid
       $105,000 as a final settlement amount. A gain on settlement of $3,114 has
       been included in the May 31, 2001 consolidated financial statements.  The
       following sets forth the computation of settlement gains:

                                                              2001       2000
                                                              ----       ----

       Projected benefit obligations beginning of year       $92,988   $142,484

       Service cost                                            7,112      6,073
       Interest cost                                           8,014      6,614
                                                            ---------  --------
       Projected benefit obligation at settlement date       108,114    155,171
       Unrecognized prior service asset at settlement date  (105,000)  (108,394)
                                                            ---------  --------

       Gain on pension settlement                            $ 3,114   $ 46,777
                                                            =========  ========



                                      F-13
<PAGE>


               AMBASSADOR FOOD SERVICES CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 11 - Employee Benefit Plans (Continued):
--------------------------------------------
       The  following  table sets forth the change in benefit  obligation in the
       Company's consolidated financial statements:
                                                              2001       2000
                                                              ----       ----

       Projected benefit obligation, beginning of year     $ 133,491  $ 318,891
       Service cost                                             --        6,073
       Interest cost                                            --       18,174
       Benefits paid                                         (25,377)   (54,476)
       Settlement of projected benefit obligation           (108,114)  (155,171)
                                                            ---------  --------

       Projected benefit obligation, end of year           $    --     $133,491
                                                            ========== ========

       Net accrued  pension  cost is included in the  accompanying  consolidated
       financial statements as follows:

                                                              2001       2000
                                                              ----       ----

       Current portion included in accrued expenses        $    --    $  43,850
       Long-term portion of obligation                          --       89,641
                                                            ---------  --------
                                                           $    --    $ 133,491
                                                            =========  ========

       The  weighted-average  discount rate used was 8.0 percent in  determining
       the actuarial present value of the projected benefit obligation in 2000.

       Net periodic  pension cost for 2001 and 2000  consisted of the  following
       components:

                                                              2001       2000
                                                              ----       ----

       Service cost-benefits earned during the period           --    $   6,073
       Interest cost on projected benefit obligation            --    $  18,174
                                                            ---------  --------

       Net periodic pension cost                           $    --    $  24,247
                                                            =========  ========

       The Company  contributed  $31,359  and  $51,600 in fiscal  years 2001 and
       2000, respectively, to several multi-employer pension plans for employees
       covered  by  collective  bargaining  agreements.  These  plans  were  not
       administered  by  the  Company,  and  contributions  were  determined  in
       accordance  with  provisions of negotiated  labor  contracts.  During the
       fiscal year ended May 31, 2001, the Company terminated these plans.

       The  Multi-employer  Pension  Plan  Amendments  Act  of  1980  (the  Act)
       significantly  increased the pension  responsibilities  of  participating
       employers. Under the provisions of the Act, if the plans terminate or the
       Company  withdraws,  the  Company  could  be  subject  to  a  substantial
       withdrawal liability. As of May 31, 2001, the Company became subject to a
       pension  plan   withdrawal   liability  for  termination  of  the  plans.
       Consequently,  $90,000  has been  reserved  and is  included  in  accrued
       expenses  in  the  accompanying  May  31,  2001  consolidated   financial
       statements.


                                      F-14
<PAGE>


               AMBASSADOR FOOD SERVICES CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 12 - Income Taxes:
----------------------
       Deferred income taxes consisted of the following:

                                                              2001       2000
                                                              ----       ----

       Deferred tax liability                              $  63,221  $ 192,896
       Deferred tax asset                                   (773,166)  (957,841)

         Less valuation allowance                            709,945    764,945
                                                            ---------  --------

       Net Deferred Income Taxes                           $    --    $   --
                                                            =========  ========

       The  approximate tax effect of each temporary  difference  giving rise to
       the deferred tax liability and asset was as follows:

                                                              2001       2000
                                                              ----       ----
       Amortization of location contracts                  $   3,729  $   6,432
       Accelerated depreciation                               59,492    186,464
                                                            ---------  --------
       Deferred tax liability                              $  63,221  $ 192,896
                                                            =========  ========

       Accrued costs                                       $ (27,460) $ (20,935)
       Pension costs                                             --     (53,396)
       Vacation accrual                                      (12,301)   (25,331)
       Allowance for bad debts                                (9,335)   (13,000)
       Other                                                 (15,830)   (32,314)
       Net operating loss carryforwards                     (575,981)  (631,055)
       AMT credit carryforward                              (106,504)  (106,504)
       Investment tax credit carryforward                    (25,755)   (75,306)
                                                            ---------  --------
       Deferred tax asset                                  $(773,166) $(957,841)
                                                            =========  =========

       The valuation  allowance was established to reduce the deferred tax asset
       to zero. The reduction is necessary because of prior operating losses and
       uncertainty  about the  Company's  ability to utilize  tax credit and net
       operating loss carryforwards  before they expire. The valuation allowance
       decreased by $145,223  and  increased by $45,268 in fiscal years 2001 and
       2000, respectively.

       The  income tax  benefit  reflected  in the  consolidated  statements  of
       operations  differs from the amounts computed at federal statutory income
       tax rates. The principal differences are as follows:

                                                              2001       2000
                                                              ----       ----
       Federal income tax benefit computed at
         statutory rate                                    $ (74,433) $ (61,152)
       State income tax benefit                              (13,135)   (10,792)
       Tax effect of nondeductible expenses                    5,204      8,857
       Increase (decrease) in valuation allowance            (55,000)    45,268
       Expiration of investment tax credit carryforward       49,551     25,168
       Other, net                                                217     (7,349)
                                                            ---------  --------
                                                           $ (87,596) $    --
                                                            =========  ========

       The  Company  had  available  at May  31,  2001,  investment  tax  credit
       carryforwards of $25,755, which expire in 2002.

       In addition,  the Company had net operating loss carryforwards  available
       at May 31, 2001 which amounted to $1,118,164 and expire from 2008 through
       2020.


                                      F-15
<PAGE>


               AMBASSADOR FOOD SERVICES CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 13 - Supplemental Disclosures of Cash Flow Information:
-----------------------------------------------------------

                                                              2001       2000
                                                              ----       ----
        Cash paid during the year for:
         Income taxes                                     $     --    $   --
         Interest                                         $  207,635  $ 305,215


        Supporting   Schedule  of  Non-Cash   Investing   and  Financing
        Activities:
         Sale of assets (see Note 2):
         Inventory                                            $  310,973
         Equipment and vehicles                                1,951,596
         Location contracts                                      138,155
         Other assets                                             46,825
         Gain on sale of assets                                1,033,878
                                                               ---------
                                                               3,481,427

        Less Direct payments to vendors for accounts payable  (1,180,415)
              Deferred receivable assumed                       (507,899)
                                                               ---------

             Cash Proceeds Received                           $1,793,113
                                                              ==========

        Also,  the  Company  had  certain  transactions  that  resulted  in  the
        forgiveness of debt (see Note 9).

Note 14 - Operating Expenses:
----------------------------
        Operating  expenses  in  the  accompanying  consolidated  statements  of
        operations consisted of the following:

                                                              2001       2000
                                                              ----       ----
        Payroll and related costs                      $ 3,206,144   $4,964,013
        Equipment rental costs                             133,696      260,396
        Other                                            1,327,304    1,178,057
                                                         ---------    ---------
                                                       $ 4,667,144   $6,402,466
                                                         =========    =========

Note 15 - Self-Insurance Liabilities:
------------------------------------
        Prior to January 12, 2001,  the Company was partially  self-insured  for
        health claims for its employees and their eligible dependents. Under the
        plan, the Company is liable for claims up to $25,000 per participant per
        plan year.  The  Company  has  accrued  estimated  claims of $44,980 and
        $73,472 as of May 31, 2001 and June 1, 2000, respectively.

                                      F-16
<PAGE>


               AMBASSADOR FOOD SERVICES CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 16 - Collective Bargaining Agreement:
-----------------------------------------
        Substantially all of the Company's  nonmanagement  employees are covered
        by collective  bargaining  agreements.  The agreement  with the food and
        janitorial  workers is  scheduled  to expire in  December  2003.  If the
        Company and the United Service  Employees Union #377  representing  such
        workers are unable to agree on a new contract prior to expiration of the
        current contract,  a work stoppage may occur that could adversely affect
        results of operations.

Note 17 - Common Stock Options:
------------------------------
        The  Company  previously  granted  $100,000  options  to certain of it's
        officers,  directors and key employees. All options vested as of June 1,
        2000.

        The Company  accounts for stock options in  accordance  with APB Opinion
        No. 25 and related interpretations. Accordingly, no compensation expense
        has been  recorded  for the years  ended May 31,  2001 and June 1, 2000.
        However,  the Company has computed,  for pro-forma  disclosure purposes,
        the value of all options using the Black-Scholes  option-pricing  model.
        The  following   weighted   average   assumptions   were  used  in  this
        calculation:

                                          Weighted Average
                                             Assumptions
                                          ----------------

            Expected dividend yield            0%
            Risk-free interest rate           5.18%
            Assumed forfeiture                 0%
            Expected holding period          4 years

        The  following  summarizes  the activity in the  Company's  stock option
        plan:


                                                                     Weighted
                                                                     Average
                                      Number of shares               Exercise
                                  ----------------------------         Price
                                  Outstanding      Exercisable       Per Share
                                  -----------      -----------       ---------
        Outstanding June 3, 1999       50,000        50,000          $ 1.37
        Granted                        50,000        50,000            1.37
                                  -----------      -----------      ----------
        Outstanding, June 1, 2000     100,000       100,000            1.37
        Granted                         --            --                --
        Exercised                       --            --                --
                                  -----------      -----------      ----------
        Outstanding, May 31, 2001     100,000       100,000           $1.37
                                  ===========      ===========      ==========

        Had  compensation  cost for the plan been  determined  based on the fair
        value of the options at the grant  date,  the  Company's  net loss would
        have increased by approximately $31,250 in 2000, resulting in a net loss
        for the year ended June 1, 2000 in the amount of $211,109.  Net loss per
        share would have been $0.29 for the year ended June 1, 2000.

        The following table summarizes  information about options outstanding at
        May 31, 2001:

                  Options Outstanding                      Options Exercisable
-------------------------------------------------------  -----------------------
                                Weighted-
                                Average       Weighted-               Weighted-
        Range of                Remaining     Average                  Average
        Exercise    Number      Contractual   Exercise     Number    Exercisable
        Prices    Outstanding      Life       Price      Exercisable     Price
        --------  -----------   -----------   --------   -----------  ----------
        $  1.37     100,000      2 years      $  1.37     100,000      $  1.37


                                      F-17
<PAGE>


               AMBASSADOR FOOD SERVICES CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 18 - Subsequent Events:
---------------------------
        Effective  October 31, 2001,  in connection  with the Company's  line of
        credit agreement (see Note 6), the lending institution extended the line
        of credit until  December  2002.  In addition,  the lending  institution
        reduced the Tangible Net Worth  covenant from $550,000 to $300,000.  All
        other terms and conditions remain the same.

        As of October 29, 2001,  the note payable to an individual  (see Note 7)
        was restructured through a reduction of interest payable from 10 percent
        to 8 percent per annum which will become  effective  December  16, 2001.
        Payment of interest only, will commence on January 15, 2002 for a period
        of six months. Thereafter,  payment consisting of principal and interest
        will be made in the amount of $16,267 monthly, with a final payment date
        of January 2007.


                                      F-18
<PAGE>