U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   Form 10-KSB

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

For the fiscal year ended                   May 30, 2002
                          ----------------------------------------------
                                       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:  None

                                         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 $ 6,375,687

At May 30, 2002,  there were  734,956  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 $ 198,438.12.

Exhibit Index is on page 11.

Transitional Small Business Disclosure Format: YES                 NO   X
                                                  -----               -------

                                        1
<PAGE>


                                Table of Content


Part I........................................................................1

Item 1     Description of Business............................................1
Item 2.    Description of Properties..........................................3
Item 3.    Legal Proceedings..................................................3
Item 4.    Submission of Matters to a Vote of Security Holders................3

Part II.......................................................................3

Item 5.    Market for Registrant's Common Equity and Related Stockholder
           Matters............................................................3
Item 6.    Management's Discussion and Analysis of Financial Condition
           and Results of Operations..........................................4
Item 7.    Financial Statements .............................................10
Item 8.    Changes in and Disagreements with Accountants on Accounting
           and Financial Disclosure..........................................10

Part III.....................................................................10

Item 9.    Directors and Executive Officers of the Registrant; Compliance
           with 16 (a) of the Exchange Act...................................10
Item 10.   Executive Compensation............................................10
Item 11.   Security Ownership of Certain Beneficial Owners and Management....11
Item 12.   Certain Relationships and Related Transactions....................12

Part IV......................................................................13

Item 13.   Exhibits and Reports on Form 8-K..................................13


                                       2
<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 in
          providing  contract food service and janitorial  services in New York.
          On  August  1,  1989,  the  name  of  the  Company  was  changed  from
          Automatique, Incorporated to Ambassador Food Services Corporation. .

          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.
          Formerly,  the Company  serviced its customers in the Midwest  through
          the use of vending  machines  but sold all the vending  operations  in
          fiscal year 2001. The Company also operated in the janitorial business
          in New York and New Jersey but  discontinued  its New Jersey operation
          in fiscal year 2001. Its New York  janitorial  services is confined to
          the New York City area and to providing  routine  janitorial  services
          for its current food service  customers.  The Company does not solicit
          janitorial services outside its food service customer base.

          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.


   (b)    Business of Issuer

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

         (i and ii) During  fiscal year 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% of total  revenues for fiscal year 2001. The Company's
               remaining food service operation is confined to the New York City
               area and consists of providing  contract  food services for local
               government social service agencies and  not-for-profit  agencies.
               Business 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) This segment has  developed  no new  products.  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.

                                       3
<PAGE>


         (vi)  During the year ended May 30, 2002,  the Company had one 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.

         (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 a labor  agreement  with the United Service
               Employees Union #377 in New York that expires  December 31, 2003.
               As of May 30, 2002, eight employees were members of the union.

         (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  is  confined  to the New York  City area and
               consists primarily of providing various types of routine cleaning
               services as an added service for existing food service customers.
               The Company  discontinued its janitorial service in New Jersey in
               August 2001.

         (iii) This segment has introduced no new products.

         (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

         (vi)  During  fiscal year 2002,  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.

         (vii) 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.  As of May 30, 2002,  three  employees  were
               members of the union.

         (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 operations.

  (b)    (1 and 2)

                                       4
<PAGE>


         (x) THROUGH (xii) WITH RESPECT TO THE REGISTRANT'S BUSINESS IN GENERAL

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

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

         (xii) As of  May  30,  2002,  the  Company  employed  approximately  80
               persons.

Item 2.  Description of Properties

         The  Company  leases  all  real  estate  for  office,   warehouse,  and
         commissary  facilities.  Annual rentals are approximately $193,000 less
         $31,800 of sublease  income.  The suitability of the leased  properties
         is adequate; such properties are described below:

                                                          Size    Expiration
Location                             Type of 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    Commissary/Whse  2,500       6/05
24-1 Bridge Plaza, Long Island
     City, NY                           Whse             2,000      11/06
9100 Santa Fe Dr., Overland Park, KS    Restaurant-
                                        (Subleased)      1,800       2/04

          The above physical  properties are used for office,  food  preparation
          and warehousing of food product items and equipment.  The Company owns
          all of the  equipment  used.  The Company  operates  approximately  13
          vehicles in the conduct of its business.The  annual rental on all such
          leased equipment approximates $ 13,000.

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 Registrants 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 year ended May 30, 2002 is shown below:


                                       5
<PAGE>


                                              2002                2001
                                          Bid Quotation      Bid Quotation
                                          High      Low      High      Low
                                          ----     ----     -----     ----
          First Quarter                   $.27     $.27      $.35     $.29
          Second Quarter                  $.27     $.25     $.375     $.35
          Third Quarter                   $.27     $.27      $.37     $.27
          Fourth Quarter                  $.27     $.27      $.27     $.27


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

  (b)     Number of Equity Security Holders

          As of February 21, 2002 there were 676 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

The  reader  should  read  the  following  discussion  in  conjunction  with the
Company's  historical  consolidated  financial  statements and the  accompanying
notes included elsewhere in this Form 10-K

Disclosure Regarding Forward-Looking Statements
-----------------------------------------------

This Form 10KSB, including,  but not limited to the "Management's Discussion and
Analysis of  Financial  Condition  and  Results of  Operations"  and  "Business"
sections,  contains  "forward-looking  statements"  within  the  meaning  of the
Private Securities Litigation Reform Act of 1995, which can be identified by the
use of forward-looking  terminology,  such as "may," "intend," "will," "expect,"
"anticipate,"  "should,"  "plans to,"  "estimate"  or "continue" or the negative
thereof or other variations  thereon or comparable  terminology.  In particular,
any statement,  express or implied,  concerning  future operating results or the
ability to generate revenues,  income or cash flow to service the Company's debt
are  forward-looking   statements.   Although  the  Company  believes  that  the
expectations will prove to have been correct, all forward-looking statements are
expressly qualified by such cautionary statements, and the Company undertakes no
obligation to update such forward-looking statements.

Critical Accounting Policies
----------------------------

The Company's  consolidated  financial  statements and related public  financial
information  are  based on the  application  of  generally  accepted  accounting
principles ("GAAP"). GAAP requires the use of estimates; assumptions,  judgments
and subjective  interpretations of accounting  principles that have an impact on
the assets,  liabilities,  revenue and expense amounts reported. These estimates
can also affect supplemental  information  contained in the external disclosures
of the Company including information regarding contingencies, risk and financial
condition.  The Company believes its use of estimates and underlying  accounting
assumptions  adhere  to  generally  accepted   accounting   principles  and  are
consistently  and  conservatively  applied.  Valuations  based on estimates  are
reviewed for reasonableness and conservatism on a

                                       6
<PAGE>


consistent  basis   throughout  the  Company.   Primary  areas  where  financial
information of the Company is subject to the use of estimates,  assumptions  and
the  application  of judgment  include  receivables,  inventories,  accruals and
valuation of long-lived  assets. We base our estimates on historical  experience
and on various  other  assumptions  that we believe to be  reasonable  under the
circumstances.  Actual results may differ  materially from these estimates under
different assumptions or conditions.

The Company's critical accounting policies are as follows:

REVENUE RECOGNITION
-------------------

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

INVENTORIES
-----------
Inventories, which consist of food and supplies, are stated at the lower of cost
(first-in, first-out) or market. The Company reviews its inventory valuation and
writes down the inventory for unusable inventory.

CONCENTRATION OF CREDIT RISK
----------------------------
Financial  instruments that potentially  expose the Company to concentrations of
credit risk, as defined by Financial Accounting Standards Board (FASB) Statement
No. 105, consist primarily of cash and cash equivalents and accounts receivable.

Cash and Cash Equivalents
-------------------------
The Company  places  operating  cash and temporary  cash  investments  with high
quality  financial  institutions.  At times  these  amounts  exceed the  Federal
Deposit Insurance Corporation limits of $100,000,  however,  management monitors
the soundness of these institutions and considers the Company's risk negligible.

Accounts Receivable
-------------------
All of the Company's accounts receivable are with customers located in New York.
The Company  grants  credit to customers  such as  governmental  social  service
agencies and other  nonprofit  organizations.  Credit terms are generally  30-60
days.  Collateral  is not  required.  Doubtful  receivables  continue to be very
insignificant.

As of May 30, 2002 and May 31, 2001,  two  customers  represented  approximately
32.7 and 33.0 percent,  respectively of total accounts receivable.  One of these
customers also represented 29.6 and 15.5 percent of total consolidated net sales
for the years ended May 30, 2002 and May 31, 2001, respectively.

FINANCIAL INSTRUMENTS
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.

Effects of Recent Accounting Pronouncements
-------------------------------------------
In August  2001,  the FASB issued SFAS No. 144,  Accounting  for  Impairment  or
Disposal  of  Long-Lived  Assets.  This  statement   supercedes  SFAS  No.  121,
Accounting for the Impairment of Long-Lived  Assets and or Long-Lived  Assets to
Be  Disposed  Of and  amends  Accounting  Principles  Board  Opinion  No.  30, ,
Reporting Results of  Operations-Reporting  the Effects of Disposal of a Segment
of a Business, and Extraordinary, Unusual and In frequently Occurring Events and
Transactions.  SFAS  144  retains  the  fundamental  provisions  of SFAS 121 for
recognition  and  measurement  of  impairment,  but  amends the  accounting  and
reporting

                                       7
<PAGE>


standards  for  segments of a business to be disposed  of. SFAS 144 is effective
for fiscal years  beginning  after December 15, 2001, and interim periods within
those fiscal years,  with early application  encouraged.  The provisions of SFAS
144 generally  are to be applied  prospectively.  The Company  believes that the
adoption of SFAS 144 will not have a material impact on the Company's  financial
position or results of operations.

Overview
--------

Ambassador  Food  Services  Corporation  provides  contract  food  services  for
government  social-service agencies and not-for-profit  organizations in the New
York City  area.  This  service  is  provided  in the form of  managing  on-site
cafeterias and delivery of meals prepared in the Company's  central  commissary.
The Company  also  provides  basic  janitorial  services for several of its food
service customers.  The Company does not provide janitorial services outside its
food service  customer  base.  Although the majority of the business is obtained
through  public  bids,  the Company  has  provided  food  service to most of its
clients in excess of five years.

Results of Operation
--------------------

Total sales for fiscal year 2002 of $6,375,687 were $4,892,975 (43.4%) less than
fiscal year 2001 as the result of the sale of the assets of the vending and food
service operations in the Midwest in fiscal year 2001 (Note 2).

For discussion and comparison purposes, the operating results for 2002 and 2001,
by line of business and in total  excluding the Midwest vending and food service
operations in fiscal 2001, are presented in the table below:

       2002             Food                Janitorial        Total

Sales                   $5,732,687  100.0%  $643,000  100.0%  $6,375,687 100.0%
Cost of Product Sold     2,593,982   45.2%         -    0.0%  $2,593,982  40.7%
Operating Expense        1,968,361   34.3%   589,136   91.6%  $2,557,497  40.1%
Depreciation Expense        82,101    1.4%         -    0.0%    $ 82,101   1.3%
Administrative Expense   1,220,167   21.3%    20,420    3.2%  $1,240,587  19.5%

Operating Loss           (131,924)   -2.3%    33,444    5.2%  $ (98,480)  -1.5%

       2001                  Food                Janitorial        Total

Sales                   $4,968,290  100.0%  $992,886  100.0%  $5,961,176 100.0%
Cost of Product Sold     2,222,008   44.7%         -    0.0%  $2,222,008  37.3%
Operating Expense        1,733,327   34.9%   833,172   83.9%  $2,566,499  43.1%
Depreciation Expense        74,706    1.5%     3,304    0.3%    $ 78,010   1.3%
Administrative Expense   1,166,108   23.5%   176,647   17.8%  $1,342,755  22.5%

Operating Loss           (227,859)   -4.6%  (20,237)   -2.0%  $(248,096)  -4.2%

Sales for the continuing food service segment of $5,732,687 exceeded fiscal year
2001 by $764,397  (15.4%).  Sales for the  janitorial  segment of $643,000  were
$349,886  (35.2%) less than fiscal year 2001.  Due to the loss of its janitorial
customer  base in New  Jersey,  operations  in New Jersey were  discontinued  in
August 2001. The Company continues to provide basic janitorial services to a few
of its existing  food service  customers in New York City.  The Company does not
pursue janitorial sales outside of its food service customer base.

Cost of food products  sold for fiscal year 2002 was 45.2% of sales  compared to
44.7% for fiscal year 2001. This slight decrease in gross profit resulted from a
reduction of selling  prices to remain  competitive  in the bidding  process for
governmental food service contracts.

                                       8
<PAGE>


Operating  expenses for the food service segment for fiscal year 2002 were 34.3%
of sales  compared 34.9% of sales for fiscal year 2001.  Operating  expenses for
the janitorial  segment increased to 91.6% of sales compared to 83.9% for fiscal
year 2001.  Janitorial  sales for fiscal 2002  consist  primarily  of  auxiliary
janitorial  services  for current  food  service  customers  and carry a smaller
margin.

Administrative  expenses  for the food  segment  decreased to 21.3% of sales for
fiscal year 2002  compared to 23.5% of sales for fiscal year 2001 due  primarily
to the increase in customer base and resulting sales increase.

Depreciation increased $7,395 for the food service segment because of an upgrade
of several delivery vehicles.

Interest expense  decreased  $146,394 (70.4%) because a majority of the proceeds
from the sale of the assets of vending  machine and food service  operations  in
Missouri,  Iowa and Oklahoma were used to reduce debt.  Declining interest rates
also  contributed  to the decrease.  In addition,  in January 2001,  the Company
restructured  a note payable with a primary lender by reducing the interest rate
(See Note 6).

The  Company  received  and  recorded  $100,000  of a $200,000  contingent  gain
provided in the Asset Purchase Agreement for the Midwest vending operations (See
Note 2).

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

The Company's  working  capital on May 30, 2002 decreased to a surplus of $4,280
compared  to a surplus  of $73,737 on May 31,  2001.  Cash and cash  equivalents
increased  from  $20,240  on May 31,  2001 to  $251,023  on May 30,  2002.  This
increase is the result of the  collection  of the deferred  receivable  from the
sale of assets in fiscal year 2001.  The Company used  $100,000 for a collateral
deposit required by the credit line lender.

Net cash provided by operating  activities for the year ended May 30, 2002 was a
deficiency of $227,107, compared to a deficiency of $309,877 for the prior year.
Receivables  increased a gross of $ 113,832  because of  increased  sales in the
food service  segment.  Account  Payable  increased  $58,402,  however,  accrued
expenses  decreased  $236,647,  prepaid  expenses  decreased  $16,939  and other
liabilities decreased $17,401.

Net Cash provided by investing  activities  decreased  $1,092,504 from the prior
year because the prior year included the proceeds from the sale of the assets of
the vending machine and cafeteria operations in Iowa, Missouri and Oklahoma.

Net cash  provided by  financing  activities  for fiscal year 2002 was  $122,487
compared to a deficiency of  $1,330,565  for fiscal year 2001,  which  contained
payment of debt with the proceeds of the sale of assets.  The net cash  provided
by financing  activities for fiscal year 2002 contained a reduction of long-term
debt of $132,067 and additional  credit line borrowing of $254,644.  Contractual
obligations are shown in the table below:


                                     Less than    1 - 3       4 - 5     After 5
CONTRACTUAL OBLIGATIONS    Total      1 year      years       years      years
Long Term Debt          $  946,691   $ 68,562   $364,756    $383,726   $129,647
Net Operating Leases    $  830,416   $237,672   $433,323    $159,421
                        --------------------------------------------------------
         Total          $1,777,107   $306,234   $798,079    $543,147   $129,647

The Company continues to have a good relationship with its vendors. Although the
credit facility was to expire on December 31, 2002, the lender extended the line
of credit agreement to December 31, 2003, while requiring an additional $100,000
be  deposited  in a  restricted  savings  account.  The lender also  reduced the
tangible net worth covenant from $300,000 to $200,000, reduced the interest rate
..25 percent to prime plus 3.75 percent,  and increased the maximum borrowings to
85 percent of eligible accounts receivable.

                                       9
<PAGE>

Management believes that the available cash, cash flows from operations and cash
available under the line of credit will marginally fund the Company's operating,
capital expenditure and debt requirements through May 29, 2003.

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

Several  major events  occurred  during  fiscal year 2001,  which  complicated a
comparison  analysis of the  operating  results for fiscal  years 2001 and 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 fiscal year 2000 as
                a write down of carrying value of intangible assets.  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 $1,033,878.

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

Cost of food  products sold  increased  from 49.5% of food sales for fiscal year
2000 to 50.5% of food sales for fiscal year 2001.  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 fiscal year 2000 to 41.4%
of total  sales in fiscal year 2001.  Declining  sales and  increased  labor and
operating costs in the vending  operations caused management to sell the vending
and food operations in the Midwest.

Selling and  administrative  expenses  were  slightly  less in dollars  spent in
fiscal year 2001 compared to fiscal year 2000;  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 fiscal  year 2001  compared to 13.7% of total sales for
fiscal year 2000.

Depreciation  and  amortization  expense  decreased by $195,015 or 39.5% less in
fiscal  year  2001 than in fiscal  year  2000  because  of the sale of assets in
Missouri, Iowa and Oklahoma.

                                       10
<PAGE>

The  operating  loss for fiscal year 2001 was  $1,153,492  compared to income of
$62,281  for fiscal  year 2000.  The losses  sustained  in the  vending and food
operations in the Midwest prompted management to exit the vending business.

Interest expense decreased by $96,355 or 31.6% less in fiscal year 2001 compared
to fiscal year 2000 because the majority of the proceeds from the sale of assets
was 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.

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

The Company's  working capital  increased from a deficit of $1,148,951 in fiscal
year 2000 to a surplus of $73,737 in fiscal year 2001.  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.  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.

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.

                                    PART III

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)       61   President, Treasurer (2)         1986
    Arthur D. Stevens (1)         77   Chairman of the Board (3)        1963
    Ann W. Stevens                60   Real Estate Broker               1996
    John A. Makula (1)            53   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

                                       11
<PAGE>
          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 30,  2002,  for each  Director  and
          Officer whose aggregate remuneration for the year exceeded $100,000.

                      NAMES OF INDIVIDUALS,             FISCAL         BASE
                    NUMBER OF PERSONS IN GROUP           YEAR         SALARY
                  AND CAPACITIES IN WHICH SERVED
         Robert A. Laudicina,                            2002        $148,936
         President, CEO and Treasurer                    2001        $176,706
                                                         2000        $174,769

      d)  Stock Options

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

          On April 8, 2002, the Board of Directors,  terminated the Stock Option
          Agreement.  Mr.  Laudicina and Mr. Makula consented to the termination
          of the agreement.

      g)  Consulting Agreement

          The Company entered into a consulting agreement with a stockholder and
          former  officer.  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.  The expense  relating to that  agreement at May 30, 2002
          and May 31, 2001 was $ 102,000 and $ 29,500, respectively.

Item 11. Security Ownership of Certain Beneficial Owners and Management

  (a)     Security Ownership of Certain Beneficial Owners

                                       12
<PAGE>

          The following  table sets forth,  as of May 30, 2002, 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  91,400  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.

  (b)   Security Ownership of Management

                                                     SHARES OF STOCK
                                                   BENEFICIALLY OWNED
                                                      MAY 30, 2002
                                                   ------------------
                                               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
        310 Prospect Avenue
        Hackensack, NJ 07061                    26,265                  3.6%

        John Makula
        5 Pittsford Way
        Nanuet, NY 10954                         9,750                  1.3%

                                       13
<PAGE>

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

        All Directors and Officers             228,459                 31.0%
           as a Group (4 persons)

    (1)   Does not include  91,400  shares  beneficially  owned by Mr.  Stevens'
          adult children, in which shares he disclaims any beneficial interest.

  (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.


Item 12. Certain Relationships and Related Transactions

The Company  entered into a consulting  agreement with a stockholder  and former
officer.  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. The expense relating to
that  agreement  at May 30,  2002 and May 31,  2001 was $ 102,000  and $ 29,500,
respectively.

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.  The  note  was  paid in full and  payments  for the  consulting  agreement
commenced in January 2001.

In  connection  with the issuance of the credit line (see Note 5), 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 expired in December 2001. Subsequently,  the Company was required to
place a $100,000 collateral deposit with the lender. (See Note 3).

                                    PART IV

Item 13. Exhibits and Reports on Form 8-K

  (a)    Exhibit No.:

            10      Sale of the remaining vending and
                    cafeteria assets in Iowa and Oklahoma      (2)

            16      Change in certifying accountant            (3)

            21      Subsidiary of the Registrant.              (1)

            99      Certification pursuant to Section 906
                    of the Sarbenes-Oxley Act of 2002          (1)

        (1)     Exhibit attached as part of filing.

        (2 & 3) These exhibits were filed with the Company's 10-KSB for the
                fiscal year ended May 31, 2001.

                                       14
<PAGE>



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.



                                       15
<PAGE>



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 /s/  Robert A. Laudicina     Date  September 10, 2002
                         ---------------------------         ------------------
                         Robert A. Laudicina
                         President and CEO


                       By /s/  John Makula             Date  September 10, 2002
                         ----------------------------        ------------------
                         John A. Makula
                         Vice President and Secretary


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.



/s/  Arthur D. Stevens      Chairman of the Board        Date September 10, 2002
------------------------------------------------------        ------------------
Arthur D. Stevens           Title


                            President and Chief
/s/  Robert A. Laudicina    Executive Officer/Director   Date September 10, 2002
------------------------------------------------------        ------------------
Robert A. Laudicina         Title


/s/   Ann W.  Stevens       Director                     Date September 10, 2002
------------------------------------------------------        ------------------
Ann W. Stevens              Title

                            Vice President/
/s/   John A. Makula        Secretary/Director           Date September 10, 2002
------------------------------------------------------        ------------------
John A. Makula              Title

                                       16
<PAGE>
                                  CERTIFICATION

I,  Robert A.  Laudicina,  Chief  Executive  Officer  (and  principal  financial
officer), certify that:

1.   I have  reviewed  this  annual  report on Form  10-KSB of  Ambassador  Food
     Services Corporation.

2.   Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report; and

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report.

Date: September 10, 2002


/s/ Robert A. Laudicina
----------------------------
Robert A. Laudicina
Chief Executive Officer

<PAGE>


               AMBASSADOR FOOD SERVICES CORPORATION AND SUBSIDIARY
                  CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS
                                  MAY 31, 2001


                                                                         Page
                                                                         ----

Independent Auditors' Report                                              F-1


Consolidated Balance Sheets
May 30, 2002 and May 31, 2001                                             F-2


Consolidated Statements of Operations
For the Years Ended May 30, 2002 and May 31, 2001                         F-3


Consolidated Statements of Changes in Stockholders' Deficit
For the Years Ended May 30, 2002 and May 31, 2001                         F-4


Consolidated Statements of Cash Flows
For the Years Ended May 30, 2002 and May 31, 2001                         F-5


Notes to Consolidated Financial Statements                           F-6 - F-15




<PAGE>


INDEPENDENT AUDITORS' REPORT


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

We have audited the accompanying  consolidated balance sheets of Ambassador Food
Services Corporation and Subsidiary as of May 30, 2002 and May 31, 2001, and the
related consolidated statements of operations,  changes in stockholders' deficit
and cash flows for the years 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 audits.

We conducted our audits 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  audits  provide  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 30, 2002 and May 31, 2001, and the
consolidated  results  of its  operations  and its cash flows for the years then
ended in conformity with accounting  principles generally accepted in the United
States of America.


/s/ WithumSmith+Brown
WithumSmith+Brown
New Brunswick, New Jersey
July 19, 2002, except for the second paragraph of Note 5 as to which the date is
August 29, 2002


                                      F-1
<PAGE>

               AMBASSADOR FOOD SERVICE CORPORATION AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                          MAY 30, 2002 AND MAY 31, 2001


     ASSETS                                         2002             2001
                                                    ----             ----
Current Assets:
   Cash and cash equivalents                        $ 251,023         $ 20,240
   Accounts receivable, net of allowance
    for doubtful accounts of $7,189 in
    2002 and $23,337 in 2001                          834,417          720,585
   Deferred receivable                                     --          507,899
   Inventories                                        115,028          124,906
   Prepaid expenses                                    28,767           11,828
                                                      -------          -------
     Total Current Assets                           1,229,235        1,385,458

Property and Equipment, Net                           166,183          175,033

Other Assets:
   Restricted cash                                    103,531               --
   Deposits                                            29,830           33,016
                                                      -------          -------
     Total Other Assets                               133,361           33,016
                                                     --------          -------

     TOTAL ASSETS                                  $1,528,779       $1,593,507
                                                  ===========      ===========

     LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities:
   Line of credit payable                           $ 491,173        $ 236,529
   Current maturities of long-term debt                68,562          231,727
   Accounts payable                                   521,041          462,639
   Accrued expenses                                   144,179          380,826
                                                     --------         --------
     Total Current Liabilities                      1,224,955        1,311,721

Long-Term Debt, Less Current Maturities               878,129          847,031
Other Liabilities                                      18,850           36,251

Stockholders' Deficit:
   Common stock, $1.00 par value                    1,009,230        1,009,230
   Additional paid-in capital                         718,291          718,291
   Accumulated deficit                             (1,991,075)      (1,999,506)
                                                   -----------      -----------
                                                     (263,554)        (271,985)
   Less treasury stock at cost                       (329,601)        (329,511)
                                                     ---------        ---------
     Total Stockholders' Deficit                     (593,155)        (601,496)
                                                     ---------        ---------

     TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT   $1,528,779       $1,593,507
                                                   ===========      ===========

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

                                      F-2
<PAGE>
               AMBASSADOR FOOD SERVICE CORPORATION AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                FOR THE YEARS ENDED MAY 30, 2002 AND MAY 31, 2001


                                                        2002         2001
                                                        ----         ----

Sales                                                $ 6,375,687  $ 11,268,662

Costs and Expenses:
   Cost of food products sold                          2,593,982     5,186,039
   Operating                                           2,557,497     4,667,144
   Administrative                                      1,240,587     2,270,654
   Depreciation and amortization                          82,101       298,317
                                                         -------      --------
     Total Costs and Expenses                          6,474,167    12,422,154
                                                      ----------   -----------

Operating Loss                                           (98,480)   (1,153,492)

Other Income (Expense):
   Interest income                                        16,664        20,927
   Interest expense                                      (61,648)     (208,042)
   Contingent gain                                       100,000            --
   Loss on collection of net receivables                      --       (22,981)
   Gain on settlement of pension                              --         3,114
   Gain on sale of property and equipment                  1,100       107,674
   Gain on sale of assets                                     --     1,033,878
   Other income                                           52,727            --
                                                      ----------   -----------
     Total Other Income (Expense), Net                   108,843       934,570
                                                      ----------   -----------
Income (Loss) Before Income Tax Expense
(Benefit) and Extraordinary Item                          10,363      (218,922)

Income Tax Expense (Benefit)                               1,932       (87,596)
                                                      ----------   -----------

Income (Loss) Before Extraordinary Item                    8,431      (131,326)

Extraordinary Item - Gain on Restructure
   /Settlement of Debt, Net of $87,596
   in Income Taxes                                            --       112,689
                                                      ----------   -----------

Net Income (Loss)                                        $ 8,431     $ (18,637)
                                                      ==========   ===========

Basic and Diluted Income (Loss) Per Common Share:
   Income (Loss) Before Extraordinary Item                $ 0.01     $   (0.18)

   Extraordinary Item                                         --          0.15
                                                      ----------   -----------

   Net Income (Loss)                                      $ 0.01     $   (0.03)
                                                      ==========   ===========

Weighted Average of Common Shares Outstanding            734,991       735,256
                                                      ==========   ===========


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

                                      F-3
<PAGE>
               AMBASSADOR FOOD SERVICE CORPORATION AND SUBSIDIARY
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
                FOR THE YEARS ENDED MAY 30, 2002 AND MAY 31, 2001


<TABLE>
<CAPTION>
                                           Common Stock
                         --------------------------------------------------------------  Additional                        Total
                         Authorized    Issued                  Treasury                   Paid-in      Accumulated     Stockholders'
                           Shares      Shares       Amount      Shares       Amount       Capital        Deficit          Deficit
                           ------      ------       ------      ------       ------

<S>                        <C>         <C>        <C>           <C>          <C>          <C>          <C>               <C>
Balance, June 1, 2000      2,000,000   1,009,230  $ 1,009,230   (273,974)    $(329,511)   $ 718,291    $ (1,980,869)     $ (582,859)

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

Balance, May 31, 2001      2,000,000   1,009,230    1,009,230   (273,974)     (329,511)     718,291      (1,999,506)       (601,496)

Net Income                        --          --           --         --            --           --           8,431           8,431

Purchase of Treasury             --          --           --        (300)          (90)          --              --             (90)
Stock                      ---------   ---------  -----------   --------     ---------    ---------    ------------      ----------

Balance, May 30, 2002      2,000,000   1,009,230  $ 1,009,230   (274,274)    $(329,601)   $ 718,291    $ (1,991,075)     $ (593,155)
                           =========   =========  ===========   =========    ==========  ==========    =============     ===========
</TABLE>

The Notes to  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 30, 2002 AND MAY 31, 2001

                                                       2002           2001
                                                       ----           ----
Cash Flows from Operating Activities:
   Net income (loss)                                $   8,431     $  (18,637)
   Extraordinary item                                      --       (200,285)
   Adjustments to reconcile net income (loss) to
    net cash used in operating activities:
    Depreciation and amortization                      82,101        298,317
    Gain on sale of assets                                 --     (1,033,878)
    Gain on sale of property and equipment             (1,100)      (107,674)
    Bad debt (recovery) expense                       (16,148)         9,163
    Loss on collection of net receivables                  --         22,981
    Gain on settlement of pension                          --         (3,114)
    Changes in operating assets and liabilities,
     net of effects from assets sold:
     Accounts receivable                              (97,684)       469,812
     Inventories                                        9,878        101,776
     Prepaid expenses                                 (16,939)        97,666
     Accounts payable                                  58,402        247,224
     Accrued expenses                                (236,647)       (58,516)
     Other liabilities                                (17,401)        (4,335)
     Benefit obligations                                  --        (130,377)
                                                    ---------     ----------
      Net Cash Used in Operating Activities          (227,107)      (309,877)

Cash Flows from Investing Activities:
   Purchase of property and equipment                 (73,251)      (991,738)
   Proceeds from sale of property and equipment         1,100        295,038
   Proceeds from sale of assets                            --      1,793,113
   Change in restricted cash                         (103,531)            --
   Collection of note receivable                           --        268,831
   Collection of deferred receivable                  507,899             --
   Change in deposits                                   3,186         62,663
                                                    ---------     ----------
     Net Cash Provided by Investing Activities        335,403      1,427,907

Cash Flows from Financing Activities:
   Principal payments on long-term debt              (132,067)      (748,730)
   Payments on subordinated note payable                   --        (47,395)
   Purchase of treasury stock                             (90)            --
   Net proceeds (payments) under line of credit       254,644       (534,440)
                                                    ---------     ----------
     Net Cash Provided by (Used in)
     Financing Activities                             122,487     (1,330,565)
                                                    ---------     ----------

Net Change in Cash and Cash Equivalents               230,783       (212,535)

Cash and Cash Equivalents, Beginning of Year           20,240        232,775
                                                    ---------     ----------

Cash and Cash Equivalents, End of Year              $ 251,023     $   20,240
                                                    =========     ==========

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

                                      F-5
<PAGE>


               AMBASSADOR FOOD SERVICES CORPORATION AND SUBSIDIARY
                  CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
---------------------------------------------------
         Significant  accounting  policies  followed by Ambassador Food Services
         Corporation and its wholly-owned subsidiary,  Ambassador Fast Services,
         Inc. (hereinafter collectively known as the Company) in the preparation
         of the accompanying  consolidated  financial  statements are summarized
         below:

         BASIS OF PRESENTATION
         The Company conducts  operations in New York 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.  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 2002 and 2001 contained 52 weeks.

         RECLASSIFICATIONS
         Certain amounts from 2001 have been reclassified to conform to the 2002
         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, which consist of food and supplies, is stated at the lower
         of cost (first-in, first-out) or market.

         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.

                                      F-6
<PAGE>


               AMBASSADOR FOOD SERVICES CORPORATION AND SUBSIDIARY
                  CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS

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

         CONCENTRATION OF CREDIT RISK
         Financial   instruments  which   potentially   expose  the  Company  to
         concentrations  of credit  risk,  as  defined by  Financial  Accounting
         Standards Board (FASB) Statement No. 105, consist primarily of cash and
         cash equivalents and accounts receivable.

         Cash and Cash Equivalents
         -------------------------
         The Company places  operating cash and temporary cash  investments with
         high quality financial institutions.  At times these amounts exceed the
         Federal  Deposit  Insurance  Corporation  limits of $100,000,  however,
         management  monitors the soundness of these  institutions and considers
         the Company's risk negligible.

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

         As of May  30,  2002  and  May  31,  2001,  two  customers  represented
         approximately  32.7 and 33.0 percent,  respectively,  of total accounts
         receivable.  One of  these  customers  also  represented  29.6 and 15.5
         percent  of total  consolidated  net sales for the years  ended May 30,
         2002 and May 31, 2001, respectively.

         FINANCIAL INSTRUMENTS
         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.

         EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS
         In August 2001, the FASB issued SFAS No. 144, Accounting for Impairment
         or Disposal of Long-Lived  Assets.  This statement  supercedes SFAS No.
         121,  Accounting  for  the  Impairment  of  Long-Lived  Assets  and  or
         Long-Lived  Assets to Be Disposed Of and amends  Accounting  Principles
         Board Opinion No. 30,  Reporting  Results of  Operations-Reporting  the
         Effects of  Disposal  of a Segment of a  Business,  and  Extraordinary,
         Unusual and Infrequently  Occurring Events and  Transactions.  SFAS 144
         retains the  fundamental  provisions  of SFAS 121 for  recognition  and
         measurement  of  impairment,  but amends the  accounting  and reporting
         standards  for  segments of a business  to be disposed  of. SFAS 144 is
         effective  for fiscal years  beginning  after  December  15, 2001,  and
         interim  periods  within those  fiscal  years,  with early  application
         encouraged.  The  provisions  of SFAS 144  generally  are to be applied
         prospectively.  The Company believes that the adoption of SFAS 144 will
         not have a  material  impact on the  Company's  financial  position  or
         results of operations.

         REVENUE RECOGNITION
         Revenue from customer  contracts is recognized at the time services are
         provided to the customer in accordance with those contracts.

                                      F-7
<PAGE>


               AMBASSADOR FOOD SERVICES CORPORATION AND SUBSIDIARY
                  CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS

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

         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                   3-7
            Leasehold Improvements                   Lessor of Estimated Life or
                                                       Term of Lease
            Vehicles                                             3-5
            Janitorial Equipment                                 3-7
            Office Equipment                                     3-7
            Warehouse Equipment                                  3-7

         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  2001 but were not  considered  in the net loss per
         share  calculation,  as the effect  was  antidilutive.  In 2002,  those
         options were all canceled by year end,  therefore,  there was no effect
         on a per share basis.

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  of  total
         revenues for 2001.  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):

                                                       Dates of Sale

         Cash Change Funds                             $    140,345
         Inventory                                          310,973
         Equipment and Vehicles, Net                      1,951,596
         Location Contracts                                 138,155
         Other Assets                                        46,825
                                                       ------------

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

         In connection  with the sale of the Iowa and Oklahoma  vending  machine
         and cafeteria operations, the Company recorded a deferred receivable of
         $507,899 net of an estimate of $72,000 for  potential  adjustments  for
         claims.  During the year ended May 31, 2002, the Company  collected the
         entire deferred receivable.


                                      F-8
<PAGE>


               AMBASSADOR FOOD SERVICES CORPORATION AND SUBSIDIARY
                  CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SALE OF ASSETS (CONTINUED):
-----------------------------------
         In addition to the deferred receivable, based on the terms of the Asset
         Purchase  Agreement  the Company had with the buyer,  $200,000 was held
         from  the  purchase  price  by the  buyer  contingent  upon  the  buyer
         retaining  certain  customers.  This  $200,000  was not recorded by the
         Company  for the  year  ended  May 31,  2001  as it was  deemed  a gain
         contingency.  The Asset  Purchase  Agreement  called for the Company to
         receive the $200,000 in various  intervals  through 2003.  For the year
         ending May 30, 2002, the Company received and recorded  $100,000 of the
         $200,000 contingent gain.

NOTE 3 - RESTRICTED CASH:
------------------------
         Restricted cash of $103,531  represents a $100,000  collateral  deposit
         required by the lender (see Note 5) plus interest earned of $3,531. The
         restriction was in connection with the renewal of the line of credit in
         December  2001.  Interest  on the  deposit  is earned at the prime rate
         (4.75  percent at May 30, 2002).  The cash is to be restricted  for the
         life of the line of credit agreement.

NOTE 4 - PROPERTY AND EQUIPMENT:
-------------------------------
         Property and equipment consists of the following at May 30 and 31:

                                                        2002             2001
                                                        ----             ----
         Cafeteria and Commissary Equipment         $  444,545        $432,915
         Leasehold Improvements                         19,832          17,342
         Vehicles                                      116,704         165,578
         Janitorial Equipment                               --         147,357
         Office Equipment                               60,213          64,484
         Warehouse Equipment                            22,189          22,189
                                                      --------        --------
                                                       663,483         849,865
         Less Accumulated Depreciation                 497,300         674,832
                                                       -------         -------
           Property and Equipment, Net                $166,183        $175,033
                                                      ========        ========

         Depreciation  expense  amounted to $82,101 and  $288,995  for the years
         ended May 30, 2002 and May 31, 2001, respectively.

NOTE 5 - LINE OF CREDIT PAYABLE:
-------------------------------
         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  as  defined by the  lender.
         Interest is payable  monthly at prime (4.75 percent and 7.00 percent at
         May 30, 2002 and May 31, 2001, respectively) plus 4 percent. The amount
         is  collateralized by a first priority  perfected  security interest in
         all the Company's assets excluding equipment,  for which the lender has
         a second priority  perfected security  interest.  The agreement,  which
         expires in December 2002,  contains a tangible net worth  covenant,  as
         defined by the lender,  that the Company was in  compliance  with as of
         May 30, 2002.  In addition,  the  agreement  requires  that the Company
         deposit with the lender  $100,000 in a restricted  savings account (see
         Note 3).

         On August 29, 2002, the lender extended the line of credit agreement to
         December 31, 2003, while requiring an additional  $100,000 be deposited
         in a restricted  savings account.  The lender also reduced the tangible
         net worth covenant from $300,000 to $200,000, reduced the interest rate
         .25  percent to prime plus 3.75  percent,  and  increased  the  maximum
         borrowings to 85 percent of eligible accounts receivable.

         The balance of the credit line was  $491,173 and $236,529 as of May 30,
         2002 and May 31, 2001, respectively.

                                      F-9
<PAGE>


               AMBASSADOR FOOD SERVICES CORPORATION AND SUBSIDIARY
                  CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 - LONG-TERM DEBT:
-----------------------
         Long-term debt consists of the following at May 30 and 31:

                                                        2002            2001
                                                        ----            ----
         Notes payable - equipment,
         payable in monthly
         installments of approximately  $1,791,
         including interest at 8 percent,
         due through March 2003, collateralized
         by equipment                             $ 17,978       $       45,107

         Notes payable - equipment,  payable
         in monthly installments,  including
         interest at 8 percent, due August 2002         --                2,271

         Note  payable to an  individual
         at 8  percent,  payable in
         monthly  installments  of interest
         only through June 2002,
         after June 2002  payments of
         $4,980 are to be paid  monthly
         until June 2003,  thereafter,
         principal  plus  interest in
         the  amount  of  $16,267  are
         to be  paid  monthly  through
         January  2008,  collateralized
         by a security  interest  in
         all  commissary  equipment and
         a  subordinated  interest in
         accounts  receivable. The note
         is  subordinated  to  the
         line of credit.                           928,713            1,031,380
                                               -----------          -----------

         Total Long-Term Debt                      946,691            1,078,758

         Less Current Maturities                    68,562              231,727
                                               -----------          -----------


         Long-Term Portion                     $   878,129             $847,031
                                               ===========          ===========

         Aggregate  maturities  of  long-term  debt due  within  the five  years
         subsequent to May 30, 2002 are as follows:

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

                           2003                   $     68,562
                           2004                        175,788
                           2005                        188,968
                           2006                        190,892
                           2007                        192,834
                           Thereafter                  129,647
                                                  ------------
                            Total                 $    946,691
                                                  ============

NOTE 7 - RELATED PARTY TRANSACTIONS:
-----------------------------------
         The Company entered into a consulting  agreement with a stockholder and
         former officer. 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.  The expense  relating to that  agreement at May 30, 2002 and May
         31, 2001 was $102,000 and $29,500, respectively.

         In  connection  with the  issuance of the credit line (see Note 5), 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 expired in December 2001.
         At May 30, 2002 and May 31,  2001,  the Company had $9,990 and $12,393,
         respectively,  due to officers  and  directors  of the  Company.  These
         amounts have been included with accounts payable on the balance sheet.

                                      F-10
<PAGE>


               AMBASSADOR FOOD SERVICES CORPORATION AND SUBSIDIARY
                  CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - 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 6 to the financial  statements.  The aggregate  gain
         from  restructure  amounted to $51,243,  net of  applicable  income tax
         benefit of $39,418 for the year ended May 31, 2001.

         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 tax benefit of
         $48,178 for the year ended May 31, 2001.

         Collectively,   the  gains  from   restructure/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 9 - COMMITMENTS:
--------------------
         Future  minimum  lease  payments  under  all  non-cancelable  operating
         leases, as of May 30, 2002 are as follows:

            Fiscal Year         Real
              Ending           Estate     Equipment         Total       Sublease

              2003         $   224,862    $    12,810   $  237,672    $   31,800
              2004             230,403          6,739      237,142        31,800
              2005             194,821          1,360      196,181         5,300
              2006             136,111            --       136,111            --
              2007              23,310            --        23,310            --
                           -----------    -----------   ----------    ----------
                           $   809,507    $    20,909   $  830,416    $   68,900
                           ===========    ===========   ==========    ==========

         Rental expense  charged to operations was $180,832 in 2002 and $344,864
         in 2001.

NOTE 10 - EMPLOYEE BENEFIT PLANS:
--------------------------------
         The Company had a  nonqualified  defined-benefit  pension plan covering
         two former officers of the Company.

         On April 10, 2001, the Company  settled its pension  liability with the
         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 the settlement gain:

         Projected Benefit Obligations Beginning of Year             $   92,988

           Service cost                                                   7,112
           Interest cost                                                  8,014
                                                                     ----------

         Projected Benefit Obligation at Settlement Date                108,114
         Unrecognized Prior Service Asset at Settlement Date           (105,000)
                                                                     ----------

         Gain on Pension Settlement                                  $    3,114
                                                                     ==========

                                      F-11
<PAGE>


               AMBASSADOR FOOD SERVICES CORPORATION AND SUBSIDIARY
                  CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 - EMPLOYEE BENEFIT PLANS (CONTINUED):
--------------------------------------------
         The following table sets forth the change in benefit  obligation in the
         Company's consolidated financial statements at May 30 and May 31:
                                                          2002         2001
                                                          ----         ----
         Projected Benefit Obligation,
         Beginning of Year                           $       --    $  133,491
           Service cost                                      --            --
           Interest cost                                     --            --
           Benefits paid                                     --       (25,377)
           Settlement of projected benefit
             obligation                                      --      (108,114)
                                                     ----------    ----------

         Projected Benefit Obligation,
         End of Year                                 $      --     $       --
                                                     =========     ==========

         The Company  contributed  $9,810 and  $31,359 in fiscal  years 2002 and
         2001,  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 30, 2002, 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 30, 2002, the Company became subject to
         a pension plan  withdrawal  liability for  termination of the plans. At
         May 31,  2001,  the  Company  recorded  a  $90,000  liability  which is
         included in accrued  expenses as an  estimated  termination  withdrawal
         liability.  During  the year  ended  May 30,  2002,  the  Company  paid
         $100,000 as a termination fee and settled this liability.

NOTE 11 - INCOME TAXES:
----------------------
         Deferred income taxes consisted of the following at May 30 and May 31:

                                                         2002          2001
                                                         ----          ----

        Deferred Tax Asset                            $ 845,477     $ 773,166
        Less Valuation Allowance                       (776,798)     (709,945)
                                                      ----------    ----------
        Net Deferred Tax Asset                           68,679        63,221

        Deferred Tax Liability                          (68,679)      (63,221)
                                                      ----------    ----------

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

         The approximate tax effect of each temporary  difference giving rise to
         the deferred tax liability and asset was as follows:
                                                         2002          2001
                                                         ----          ----
         Accrued Costs                                $      --     $  27,460
         Pension Costs                                   12,202            --
         Vacation Accrual                                 2,876        12,301
         Allowance for Bad Debts                         15,452         9,335
         Other                                               --        15,830
         Net Operating Loss Carryforwards               814,947       575,981
         AMT Credit Carryforward                             --       106,504
         Investment Tax Credit Carryforward                  --        25,755
                                                      ----------    ----------
         Deferred Tax Asset                           $ 845,477     $ 773,166
                                                      ==========    ==========

         Amortization of Location Contracts           $      --     $  (3,729)
         Accelerated Depreciation                       (68,679)      (59,492)
                                                      ----------    ----------
         Deferred Tax Liability                       $ (68,679)    $ (63,221)

                                      F-12
<PAGE>


               AMBASSADOR FOOD SERVICES CORPORATION AND SUBSIDIARY
                  CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 - INCOME TAXES (CONTINUED):
----------------------------------
         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  increased by $66,853 and  decreased by $55,000 in
         fiscal years 2002 and 2001, 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 at May 30
         and 31:
                                                             2002         2001
                                                             ----         ----

         Federal Income Tax Benefit Computed at
           Statutory Rate                                $   3,523   $ (74,433)
         State Income Tax Benefit                              622     (13,135)
         Tax Effect of Nondeductible Expenses                   --       5,204
         Increase (Decrease) in Valuation Allowance             --     (55,000)
         Expiration of Investment Tax Credit
          Carryforward                                          --      49,551
         Other, Net                                         (2,213)        217
                                                         ---------   ----------

         Income Tax Expense (Benefit)                    $   1,932   $ (87,596)
                                                         =========   ==========

         The Company had net operating loss  carryforwards  available at May 30,
         2002 which amounted to $2,037,367 and expire from 2008 through 2020.

Note 12 - Supplemental Disclosures of Cash Flow Information:
                                                             2002         2001
                                                             ----         ----
         Cash paid during the year for:
             Income taxes                                $   5,242   $      --
             Interest                                    $  57,677   $ 207,635

         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)
             Holdback receivable assumed                    --         (507,899)
                                                    -----------     -----------
                  Cash Proceeds Received             $      --      $ 1,793,113
                                                    ===========     ===========

         Also,  for the  year  ended  May 31,  2001,  the  Company  had  certain
         transactions that resulted in the forgiveness of debt (see Note 8).


                                      F-13
<PAGE>


               AMBASSADOR FOOD SERVICES CORPORATION AND SUBSIDIARY
                  CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 - OPERATING EXPENSES:
----------------------------
         Operating  expenses  in the  accompanying  consolidated  statements  of
         operations consisted of the following at May 30 and 31:

                                                    2002                2001
                                                    ----                ----

         Payroll and Related Costs         $      1,895,573          $3,206,144
         Equipment Rental Costs                      --                 133,696
         Other                                      661,924           1,327,304
                                               ------------         -----------

         Total Operating Expenses          $      2,557,497          $4,667,144
                                           ================         ===========

NOTE 14 - COMMON STOCK OPTIONS:
------------------------------
         The  Company  previously  granted  100,000  options  to  certain of its
         officers, directors and key employees. All options vested as of May 31,
         2000.

         The Company  accounts for stock options in accordance  with APB Opinion
         No. 25 and  related  interpretations.  Since no  options  were  granted
         during 2002 and 2001, no compensation expense has been recorded.

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

<TABLE>
<CAPTION>

                                                                                   Weighted
                                                                                    Average
                                                  Number of shares                 Exercise
                                          --------------------------------           Price
                                           Outstanding        Exercisable          Per Share
                                          -------------       ------------      ---------------

<S>                                             <C>                <C>          <C>
         Outstanding June 1, 2000               75,000             75,000       $      1.37
         Granted                                --                  --                  --
         Exercised                              --                  --                  --
         Canceled                              (25,000)           (25,000)              --
                                          ------------        -----------       -----------
         Outstanding, May 31, 2001              50,000             50,000              1.37
         Granted                                --                  --                  --
         Exercised                              --                  --                  --
         Canceled                              (50,000)           (50,000)              --
                                          ------------        -----------       -----------
         ----------------------
         Outstanding, May 30, 2002              --                  --          $      1.37
                                          ============        ===========       ===========
</TABLE>

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

<TABLE>
<CAPTION>
                          Options Outstanding                                 Options Exercisable
           ----------------------------------------------------------    ------------------------------

                                            Weighted-
                                             Average       Weighted-                        Weighted-
                                            Remaining       Average                          Average
             Exercise       Number         Contractual     Exercise          Number         Exercisable
                Price     Outstanding         Life           Price         Exercisable         Price
           -----------    -----------      -----------     ---------     ---------------    -----------

<S>        <C>              <C>              <C>           <C>               <C>            <C>
           $    1.37        50,000           1 year        $   1.37          50,000         $   1.37

</TABLE>
         As of April 8, 2002,  the Board of  Directors in  conjunction  with the
         consent of the plan's members, canceled the above plan.


                                      F-14
<PAGE>


               AMBASSADOR FOOD SERVICES CORPORATION AND SUBSIDIARY
                  CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 - SEGMENT INFORMATION:
-----------------------------
         The Company has adopted Financial  Accounting  Standards Board SFAS No.
         131  Disclosures  about  Segments of a Business  Enterprise and Related
         Information.  SFAS No. 131 requires  companies to report  financial and
         descriptive   information  about  its  reportable  operating  segments,
         including segment profit or loss,  certain specific revenue and expense
         items and segment  assets,  as well as  information  about the revenues
         derived from the  Company's  products and  services,  the  countries in
         which the Company earns revenues and holds assets, and major customers.
         The  Company's  businesses  are  organized and managed as two operating
         segments  based on the  differences  in products  and  services.  These
         segments are Food and  Janitorial.  Selected  information  by operating
         segment is presented below for the years ending May 30and 31:
<TABLE>
<CAPTION>

                           2002                 Food       Janitorial    Eliminations           Total
         ------------------------------  -------------   ------------   ----------------  ------------------

<S>      <C>                                <C>             <C>            <C>               <C>
         Sales                           $   5,732,687   $   643,000    $        --       $  6,375,687
         Operating Income (Loss)         $    (131,924)  $    33,444    $        --       $    (98,480)
         Assets                          $   1,454,150   $   139,410    $   (64,781)      $  1,528,779
         Depreciation and Amortization   $      82,101   $        --    $        --       $     82,101
         Capital Expenditures            $      73,251   $        --    $        --       $     73,251

                           2001                 Food       Janitorial    Eliminations           Total
         ------------------------------  -------------   ------------   ----------------  ------------------

         Sales                           $  10,275,776   $   992,886    $        --       $ 11,268,662
         Operating Loss                  $  (1,133,255)  $   (20,237)   $        --       $ (1,153,492)
         Assets                          $   2,162,348   $   927,913    $ (1,496,754)     $  1,593,507
         Depreciation and Amortization   $     295,013   $     3,304    $        --       $    298,317
         Capital Expenditures            $     991,738   $        --    $        --       $    991,738
</TABLE>

         A reconciliation  of the totals reported for the operating  segments to
         income (loss) before income tax benefit and  extraordinary  item are as
         follows at May 30 and 31:

<TABLE>
<CAPTION>
                                                               2002           2001
                                                               ----           ----

<S>                                                        <C>           <C>
         Total Reportable Segment Operating Loss           $  (98,480)   $ (1,153,492)

         Other Income (Expense):
             Interest income                                   16,664          20,927
             Interest expense                                 (61,648)       (208,042)
             Contingent gain                                  100,000              --
             Loss on collection of net receivables               --           (22,981)
             Gain on settlement of pension                       --             3,114
             Gain on sale of property and equipment              --           107,674
             Gain on sale of assets                              --         1,033,878
             Other income                                      53,827              --
                                                           ----------    ------------
                  Total Other Income (Expense), Net           108,843         934,570
                                                           ----------    ------------

         Income (Loss) Before Income Taxes and
         Extraordinary Item                                $   10,363    $   (218,922)
                                                           ==========    ============
</TABLE>

                                      F-15