8-K

                          SECURITIES AND EXCHANGE COMMISSION

                                Washington, D.C. 20549
                               _______________________


                                       FORM 8-K


   Current Report Pursuant to Section 13 or 15(d) of the Securities 
Exchange Act of 1934

DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED)  June 24, 1997


                           CINEMASTAR LUXURY THEATERS, INC.
                (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


    California                      0-25252                    33-0451054
- ----------------            ------------------------       -------------------
 (State or other            (Commission File Number)          (IRS Employer
 jurisdiction of                                            Identification No.)
 incorporation)


                                431 College Boulevard
                          Oceanside, California  92057-5435
             (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)


REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:  (619) 630-2011




ITEM 5.  OTHER EVENTS

      On June 24, 1997, Registrant entered into a letter agreement ("Letter 
of Intent") with a group of investors headed by Rust Capital Ltd. (the "Rust 
Group") to purchase newly issued shares of Registrant's common stock for $15 
million (the "Transaction").  After the Transaction is completed, the Rust 
Group would own at least 51 percent of Registrant's outstanding Common Stock 
and its equity interest could rise above 51 percent based on a provision tied 
to the Registrant's financial condition at the time of closing.  No 
definitive agreement has been signed and the parties to the Transaction must 
obtain regulatory and shareholder approval before the transaction can be 
completed.  

       Under the Letter of Intent, Registrant would receive up to a $2 
million secured bridge loan at the time the definitive agreement is executed. 
Additionally, after the closing, the membership of the board of directors 
would be changed to reflect the Rust Group's majority interest.

      For further information see Exhibits 10 and 99 attached to this Form 
8-K which are incorporated herein by this reference.

                                        2




ITEM 7.  FINANCIAL STATEMENTS AND EXHIBITS

           (c)  Exhibits.
                         
10.1       Letter of Intent, dated June 24, 1997, by and between Rust Capital 
           Ltd. and CinemaStar Luxury Theaters, Inc.

99.1       Press Release, dated June 26, 1997

                                        3




                                    SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act of 1934, 
the Registrant has duly caused this report to be signed on its behalf by the 
undersigned hereunto duly authorized.

Dated:  June 30, 1997                          CINEMASTAR LUXURY THEATERS, INC.


                                               By:  \s\ JON MELOAN 
                                                    Jon Meloan
                                                    Vice President, Secretary 
                                                    and General Counsel

                                        4





                                    EXHIBIT INDEX

Exhibit  
Number             Description   
- -------            ----------------------------------  

10.1               Letter of Intent, dated June 24,
                   1997, by and between Rust Capital,
                   Ltd. and CinemaStar Luxury Theaters, Inc.

99.1               Press Release, dated June 26, 1997


                                        5

EX-10.1

June 24, 1997

Mr. John Ellison, Jr.
Chief Executive Officer
CinemaStar Luxury Theaters, Inc.
431 College Boulevard
Oceanside, California 92057


Dear Mr. Ellison:

This letter expresses our understanding of the intention of Rust Capital, 
Ltd. ("Buyer") to acquire from CinemaStar Luxury Theaters, Inc. (the 
"Company"), $15.0 million of newly issued common stock (the "Purchase") 
subject to the following terms and conditions:

     1.  PURCHASE OF SHARES.  The Shares shall be purchased from Company by 
Buyer based upon a $24.0 million aggregate valuation of the Company (the 
"Enterprise Value"). For the purpose of determining the number of Shares 
issued to Buyer, the Enterprise Value shall be increased by the cash balances 
of the Company on-hand as of the closing date and reduced by the aggregate 
liabilities of the Company as of the closing date to determine a value net of 
liabilities (the "Net Enterprise Value"). For the purpose of this 
calculation, cash on-hand shall include the aggregate exercise price of all 
options and warrants outstanding as of the closing date. For the purpose of 
this calculation, liabilities shall include but not be limited to the amount 
of funds necessary to (i) repay the notes owed by the Company to Pacific 
Concessions, Inc. ("PCI") including but not limited to principal, interest 
and penalties and charges necessary to relieve the Company of any and all 
financial and business obligations to PCI, (ii) pay all obligations 
pertaining to capital expenditures for which work has been performed or work 
is scheduled to be performed, (iii) any and all costs pertaining to the 
contemplated spin-off of the Company's business activities in the Republic of 
Mexico, (iv) the net present value of all management employment contracts 
calculated at a 10.0 percent discount rate, (v) estimated aggregate liability 
of any pending or threatened litigation to the extent that such liabilities 
can be estimated, (vi) the Company's half of any required Hart-Scott-Rodino 
filing fee, as provided below, and (vii) all other debts and obligations of 
the Company, for which the Company is required, pursuant to generally 
accepted accounting principles, to make an accrual as of the closing date.

                               RUST CAPITAL, LTD.
                327 CONGRESS AVENUE, SUITE 200, AUSTIN, TEXAS 78701;
                        (512) 482-0806, FAX (512) 474-1610





CinemaStar Luxury Theaters, Inc.
June 20, 1997
Page 2

      The number of Shares issued to Buyer shall be calculated as the greater 
of (i) the product of 1.0408 and total number of common stock share 
equivalents determined on a fully diluted basis immediately prior to 
consummation of the transaction contemplated herein (the "Pre-Closing 
Shares), and (ii) the quotient obtained by dividing (x) the product of the 
number of Pre-Closing Shares times $15,000,000 by (y) the Net Enterprise 
Value. Under no circumstance shall the number of Shares of common stock 
issued to Buyer in connection with the Purchase be less than 51.0 percent of 
the outstanding capital stock of the Company calculated on a fully diluted 
basis after consummation of the transaction contemplated herein.

     Subsequent to the closing of the Purchase, the Company shall issue 
additional Shares (the "Adjustment Shares") to Buyer as compensation for any 
liabilities of the Company which related to events initiated on or prior to 
the closing but which were not recognized or formally incurred until 
subsequent to closing (the "Undisclosed Liabilities"). Such Undisclosed 
Liabilities shall include but not be limited to contingent liabilities 
pertaining to the possible outcome of litigation (initiated on, before or 
after the closing) in response to acts or omissions of the Company or Company 
management on or before the closing of the Purchase. The Undisclosed 
Liabilities shall not include any liabilities included in the determination 
of Net Enterprise Value pursuant to the first paragraph of this Section 1; 
however, Undisclosed Liabilities shall include any increase in the amount of 
such liabilities necessary to reflect a true and accurate calculation of such 
liabilities. The number of Adjustment Shares issued shall be calculated as 
the difference, if any, between (i) the number of Shares that would have been 
issued at the closing using the formulas in the preceding paragraph and 
assuming that the Net Enterprise Value had been reduced by the amount of the 
Undisclosed Liabilities and (ii) the number of Shares that would have been 
issued at the closing using the formula in clause (i) or (ii) of the preceding 
paragraph that yielded the lesser number of shares when calculated in 
relation to the closing.

     With respect to any matters giving rise to Undisclosed liabilities, the 
three continuing members of the board of directors of the Company (or their 
successors) shall direct the resolution of such matters after the closing 
date, subject to the approval of the full board of directors, which approval 
shall not be unreasonably withheld.

     2.  USE OF PROCEEDS.  The Company will use the proceeds from the 
Purchase to make certain capital expenditures related to the development and 
expansion of certain theaters; to retire the indebtedness to PCI and certain 
other debt; for working capital; and for general corporate purposes to be 
agreed upon in advance prior to consummation of the Purchase. In addition, 
the proceeds may be used for a fairness opinion of an investment banker to be 
selected by the Company, provided that the payment for such fairness opinion 
shall not exceed $150,000 and provided further that any payments in excess of 
$50,000 shall result in an adjustment to the Enterprise Value.




CinemaStar Luxury Theaters, Inc.
June 20, 1997
Page 3

      3.  CONDITIONS.  The terms of the Purchase will be set forth in a 
definitive agreement mutually acceptable to Buyer and Company containing 
customary representations, warranties and covenants of, and indemnities for, a 
stock purchase of this kind. The obligation of Buyer to close under the 
definitive agreement will be subject to, among other things, Company's 
obtaining shareholder approval of any amendments of its Articles of 
Incorporation necessary to effect the transactions contemplated herein, the
absence of defaults on the part of the Company pursuant to any material 
agreements to which the Company is a party, and the absence of any material 
adverse change in the business, financial condition or prospects of the 
Company arising after the date of the Company's most recent audited financial 
statements and not disclosed to the Buyer prior to the execution of the 
definitive agreement. The definitive agreement will contain provisions for a 
Break Fee in the amount described in Section 9 below in the event that the 
Purchase is not consummated for reasons of the sort set forth in Section 9 
below.

     The Company will also demonstrate to the satisfaction of Buyer that it 
has the flexibility to be released at a cost not to exceed $25,000 in the 
aggregate to Buyer or Company from the leases for new theater sites in Kona, 
Hawaii and San Bernardino, California (the "New Leases") without liability or 
potential liability to the Company, should it desire to do so. Buyer has the 
option of requiring the Company to (i) obtain a full release at a cost not to 
exceed $25,000 in the aggregate to Buyer or Company from any and all 
liabilities associated with the New Leases, or (ii) make payments (the "Lease 
Termination Costs") necessary to obtain a release of any and all liabilities 
associated with the New Leases. In the event that the Company pays Lease 
Termination Costs, such payments shall be treated as a liability or 
Undisclosed Liability for the purpose of calculating the number of Shares 
issued to Buyer pursuant to Section 1 of this letter of intent.

     4.  SCHEDULE.  The Buyer shall prepare and deliver drafts of the 
definitive agreement to the Company as soon as reasonably practical.

     The Company shall obtain shareholder approval of the contemplated 
Purchase on or before August 28, 1997. The Closing of the Purchase shall 
occur on or before August 29, 1997. If the Securities and Exchange Commission 
shall make written comments to the proxy materials submitted by the Company 
relating to the meeting of shareholders called for the purpose of obtaining 
such approval and related amendments to the Company's articles of 
incorporation, and by reason of such comments the Company is delayed in 
releasing final proxy materials for a period in excess of ten business days, 
the date for shareholder approval shall be extended to September 12, 1997, 
and the date for the Closing of the Purchase shall be extended to September 
13, 1997.

     Buyer shall have no obligation to continue negotiations with Company, to 
enter into any definitive agreement with Company, or to consummate the 
Purchase or any of the other transactions contemplated herein unless Buyer, 
in its sole discretion, is satisfied with the results of all due diligence 
investigations that it deems necessary. The due diligence




CinemaStar Luxury Theaters, Inc.
June 20, 1997
Page 4


period shall begin immediately following the execution of this letter of 
intent and shall extend until July 15, 1997. At the end of the due diligence 
period Buyer will advise Company in writing whether Buyer will proceed or 
terminate negotiations. Negotiation of a definitive agreement will occur 
simultaneously with the due diligence period. Upon execution of the 
definitive agreement, the Company will promptly file with the SEC and send to 
shareholders any notice required by Rule 14f-1 under the Securities Exchange 
Act of 1934 and, upon the expiration of any waiting period required by such 
rule and funding of the Bridge Loan, the Company's Board of Directors will be 
reconstituted with four representatives of Buyer and three continuing 
directors. Insiders will grant proxies to Buyer, and upon reconstitution of 
the Board Buyer will fund the bridge loan described in Section 10 herein.

     Buyer and the Company will split the cost of any filing fees required 
under the Hart-Scott-Rodino Antitrust Improvements Act; provided that, the 
Company's half of any such fees shall be a reduction to the overall valuation 
of the Company for purposes of Section 1 above.

     5.  OPERATION OF THE BUSINESS.  Until the earliest to occur of (i) 
written notice from Buyer to the Company that Buyer is not satisfied with the 
results of the due diligence investigation referenced in paragraph 4 above 
and has determined to terminate negotiations, (ii) execution of a definitive 
agreement for the Purchase, and (iii) July 15, 1997, the Company shall 
conduct the business in the ordinary course consistent with previous 
practices, and will not make any material change therein, other than the 
repayment of unaffiliated third party debt, or incur any material liabilities 
in connection therewith other than liabilities incurred in the ordinary 
course of business consistent with previous practices and not exceeding 
$100,000 in the aggregate, without Buyer's prior consent, such consent not to 
be unreasonably withheld.

     6.  EXPENSES.  Each party hereto shall be responsible for all costs and 
expenses incurred by such party in connection with the negotiation, 
documentation and consummation of the Purchase.

     7.  ACCESS.  The Company shall afford to Buyer, its counsel, accountants 
and other representatives, free and full access to all of the offices, 
facilities, properties, equipment, inventories, books, contracts, 
commitments, records, customer information, list of employees and records, 
and other relevant records of the Company during normal business hours and 
shall furnish such persons with all information (including financial and 
operating data) concerning the business, assets and financial condition of 
the Company as Buyer shall reasonably request, and the Company shall assist 
Buyer, its counsel, accountants and representatives, in their examination of 
such materials.

     8.  CONFIDENTIALITY. Buyer agrees that any information or material that 
is obtained from the Company will be used solely for the purposes of 
evaluating the Business and the Company in connection with the transactions 
contemplated hereby. Buyer agrees

  


CinemaStar Luxury Theaters, Inc.
June 20, 1997
Page 5

that it and its representatives will not disclose any information which they 
receive from the Company to any third party, except as required by applicable 
law or legal process, without the prior written consent of the Company; 
provided, however, that any such information may be disclosed by Buyer to 
Buyer's representatives when they need to know such information for the 
purposes of preparing for and evaluating the Purchase. Buyer agrees that if 
the Purchase contemplated herein is not consummated for any reason, Buyer 
shall return or destroy all materials received from the Company or to the 
party furnishing such material. Buyer acknowledges that Company is a public 
reporting Company and it has not and will not buy or sell the Company's 
securities. The Company will issue a press release, to be mutually agreed 
upon with Buyer, upon execution of this letter of intent.

     9.  EXCLUSIVITY. Company shall immediately cease and cause to be 
terminated any existing discussions or negotiations with any persons 
conducted heretofore with respect to any merger, financing (other than any 
financing in the ordinary course of business consistent with previous 
practices not to exceed $100,000 in the aggregate and not involving the 
issuance of securities convertible into or exchangeable or exercisable for 
Company securities), consolidation, sale of substantial assets, sale of 
shares of capital stock (including without limitation by way of a tender 
offer) or similar transaction involving the company or any of its 
subsidiaries, as the case may be (any of the foregoing inquiries or proposals 
other than the Purchase and the Bridge Loan contemplated hereby arising prior 
to July 15, 1997 (whether initiated before or after the date of this letter 
of intent) being referred to as an "Acquisition Proposal"). From the date of 
this letter of intent until the earlier of the date Buyer advises Company of 
its intention to terminate negotiations as provided in Section 4 above, and 
July 15, 1997 (the "Exclusivity Period"), the Company shall not, directly or 
indirectly, through any of its officers, directors, employees, 
representatives or agents, initiate, solicit or encourage the initiation of, 
any inquiries or proposals regarding any Acquisition Proposal. Nothing 
contained in this Section 9 shall prevent the Board of Directors of the 
Company from considering, negotiating, approving and recommending to the 
stockholders of the Company a bona fide Acquisition Proposal, provided that 
the Board of Directors determines in good faith (upon advice of independent 
counsel) that it is required to do so in order to discharge properly its 
fiduciary duties, and provided further that any such action by the Board of 
Directors will give rise to the obligation of the Company to pay the Break 
Fee described below in the event the Company completes a transaction with a 
party other than Buyer as a result of such Acquisition Proposal.

     In the event Buyer advises Company of its intention to continue 
negotiations after its completion of due diligence review in accordance with 
Section 4 above, and Buyer and Company enter into a definitive agreement, 
such definitive agreement shall provide for a Break Fee on substantially the 
same terms as are set forth in this letter of intent.

     Company shall immediately notify Buyer after receipt of any Acquisition 
Proposal, or any modification of or amendment to any Acquisition Proposal, or 
any request for nonpublic information relating to Company in connection with 
an Acquisition Proposal or 




CinemaStar Luxury Theaters, Inc.
June 20, 1997
Page 6

for access to the properties, books or records of Company by any person or 
entity that informs the Board of Directors that it is considering making, or 
has made, an Acquisition Proposal.

     Company will ensure that its officers, directors and employees and any 
investment banker or other representative or adviser retained by it are aware 
of the restrictions imposed by this Section 9.

     Company shall pay to Buyer a fee (the "Break Fee") of $600,000 within 
ten days of the first to occur of any of the following:

     (a) if Company breaches any of the provisions set forth in the first 
paragraph of Section 9;

     (b) if Company fails during the Exclusivity Period to enter into a 
definitive agreement with Buyer for a transaction on substantially the terms 
set forth in this letter of intent, provided that Buyer has negotiated in 
good faith, that Buyer has waived its due diligence condition, and provided 
further that Buyer has presented to the Company for its execution a 
definitive agreement on substantially the terms set forth in this letter of 
intent and otherwise containing only customary representations, warranties 
and covenants of, and indemnities for, a stock purchase of the kind 
contemplated herein (provided that, to the extent that, during the 
negotiation of the definitive agreement, Buyer has proposed and Company has 
agreed to the inclusion in the definitive agreement of any provision, such 
provision shall be deemed to be customary);

     (c) if Buyer and Company enter into a definitive agreement and the 
approval of Company shareholders to such agreement and any required 
amendments to the Company's Articles of Incorporation is not received on or 
before August 28, 1997 (or, if extended as provided above, September 12, 
1997); or

     (d) if on or before June 30, 1998, the Company consummates a transaction 
pursuant to an Acquisition Proposal arising prior to (including any such 
Acquisition Proposal arising prior to the execution of this letter agreement) 
or during the Exclusivity Period with a party other than Buyer.

     10. BRIDGE LOAN. Buyer will provide to Company a loan (the "Bridge 
Loan") in the amount of $2.0 million concurrent with the signing of a 
definitive agreement for the Purchase. The Bridge Loan, which will be subject 
to the execution of legal documentation mutually acceptable to Buyer and 
Company, shall have the following terms and conditions:

     (a) The term of the Bridge Loan shall be six months with all outstanding 
principal and interest due and payable at the closing of the definitive 
agreement for the Purchase. The principal amount of the Bridge Loan shall be 
convertible into 2.0 million shares of the Company's common stock.




CinemaStar Luxury Theaters, Inc.
June 20, 1997
Page 7

     (b) Interest shall accrue at the lesser of 14.0 percent per annum or the 
highest rate allowed by applicable law.

     (c) Concurrent with the funding of the Bridge Loan, the Company shall 
issue to Buyer (i) a warrant (the "First Warrant") to purchase 1.0 million 
shares of the Company's common stock, and (ii) a second warrant (the "Second 
Warrant") to purchase 1.5 million shares of the Company's common stock. The 
Second Warrant may not be exercised prior to August 29, 1997, and will be 
canceled upon closing of the definitive agreement for the Purchase or if the 
Company terminates the definitive agreement prior to its closing due to a 
default on the part of Buyer. The exercise price per share under each warrant 
shall be equal to the lesser of (i) $1.13 per share, or (ii) the average 
closing price of the Company's common stock as quoted on National Association 
of Securities Dealer's Automated Quotation System for the five trading days 
prior to the date on which the Bridge Loan is funded. If the Purchase is not 
consummated, the Company will agree not to issue other shares until it has 
obtained authorization for issuance of shares sufficient for exercise of all 
warrants and conversion of the principal amount of the Bridge Loan. The 
Company shall grant to Buyer full demand registration rights with regards to 
the underlying shares of Company common stock to be issued upon execution of 
both warrants and all shares issuable upon conversion of the Bridge Loan.

     (d) The Bridge Loan shall be secured with a second lien (a third lien 
with respect to the Chula Vista 6 lease) on all of the assets of the Company, 
including but not limited to all leases.

     (e) The terms of the Bridge Loan shall contain representations, 
warranties and covenants customary for a transaction of this type. Prior to 
repayment of all outstanding principal and interest owed on the Bridge Loan, 
the Company, without the express written consent of the Buyer, shall not (i) 
incur any new indebtedness except for trade payables incurred in the normal 
course of business, (ii) modify or otherwise change the by-laws or Articles 
of Incorporation of the Company or any of its affiliates except as 
contemplated by this letter of intent, (iii) enter into or modify any 
employment agreements, (iv) pledge, mortgage or otherwise encumber any of the 
assets of the Company, (v) enter into any agreements for the settlement of 
debts or litigation, (vi) enter into any contracts, leases or agreements 
having a term in excess of six months and a monthly payment obligation of in 
excess of $5,000 per month, (vii) take any actions detrimental to the ability 
of the Company to repay the Bridge Loan, (viii) issue any new shares of 
capital stock of the Company, or (ix) take any actions to diminish the value 
of the Buyer's collateral.

     (f) Upon default by the Company, the Buyer shall have remedies which 
include but are not limited to the following:

         (1)  Foreclosure of any and all collateral, and




CinemaStar Luxury Theaters, Inc.
June 20, 1997
Page 8

         (2)  The right to appoint a majority of the Board of Directors of 
         the Company.

     (g) Company shall as a condition to the making of the Bridge Loan 
provide Buyer with such assurance as Buyer may reasonably require that the 
Bridge Loan will not violate any applicable usury or similar laws.

     (h) Company may at its option reduce the amount of the Bridge Loan, in 
such event, the number of shares of Company common stock covered by the 
warrants to be issued to Buyer pursuant to paragraph 10(c) above shall be 
reduced in the same proportion as the reduction in the principal amount of 
the Bridge Loan.

     11. MEXICAN OPERATIONS. During the due diligence period Buyer will 
evaluate the Mexican operations of the Company and consider a sale of the 
existing Mexican operations to John Ellison and certain other existing 
CinemaStar management personnel. In the event that Buyer determines to permit 
such a sale, the sale will be effected by an agreement to be negotiated 
between the Company and such Company personnel, subject to the approval of 
the terms of such agreement by Buyer.

     12. BOARD OF DIRECTORS. The Company's board of directors will be 
reconstituted to reflect Buyer's ownership of a majority of the Company's 
shares.

     13. BINDING LAW; ARBITRATION. To the extent that the foregoing 
provisions are intended to be binding upon the parties, (i) any dispute 
arising under such binding provisions shall be resolved exclusively by 
arbitration to take place in the state of Delaware; (ii) such binding 
provisions shall be governed by the laws of the State of Delaware, without 
regard to conflict of laws principles, and (iii) the parties hereby consent 
to the personal jurisdiction of such courts in respect of disputes regarding 
such binding provisions. Company shall not assert as a defense to the payment 
of the Break Fee that the provisions of this letter of intent concerning the 
Break Fee are unenforceable due to vagueness. Any dispute between Company and 
Buyer with respect to any provision intended to be binding hereunder shall be 
resolved by arbitration. Buyer and Company shall each appoint an arbitrator, 
and such arbitrators shall appoint a third arbitrator. The decision of a 
majority of the three arbitrators shall be binding. Such arbitration shall 
take place in the state of Delaware at such place as a majority of the 
arbitrators shall agree, and shall be conducted in accordance with the rules 
of the American Arbitration Association or such other rules as the 
arbitrators may agree upon by majority vote.

     14. Buyer may assign its rights hereunder to any entity controlling, 
controlled by or under common control with Buyer, which assignment shall not 
require the consent of the Company.

     Except for paragraphs 5 to 9 above inclusive and 13 and 14 (which shall 
be binding on the parties hereto), the foregoing provisions of this letter is 
only an expression of the 




CinemaStar Luxury Theaters, Inc.
June 20, 1997
Page 9

mutual intention of Buyer and the Company and shall not constitute any 
binding agreement of the parties hereto. Except with respect to paragraphs 5 
to 9 above inclusive and 13 and 14, no binding agreement between the parties 
shall arise except upon execution and delivery of the definitive agreement 
referred to in paragraph 3 hereof. In the event a definitive agreement is not 
executed on or prior to July 15, 1997, this agreement shall terminate except 
for the provisions of paragraphs 6, 8, 9, 13 and 14, which shall survive.




CinemaStar Luxury Theaters, Inc.
June 20, 1997
Page 10

     Please indicate your acceptance of the proposal by executing this letter 
in the space provided below, and then returning an executed copy to me at the 
address below no later than 5:00 p.m., PDT, on June 24, 1997.

Very truly yours,

RUST CAPITAL, LTD.
By:  Rust Investment Corporation
Its: General Partner


     By:  /s/ JACK R. CROSBY
        -------------------------------
          Jack R. Crosby, President

Acknowledged, accepted and agreed to on this __ day of June 1997 by:

CINEMASTAR LUXURY THEATERS, INC.


By:   /s/ JOHN ELLISON, JR.
    -------------------------------
Its:  PRESIDENT
    -------------------------------


     /s/ALAN GROSSBERG
    -------------------------------
     Senior V.P.

EX-99.1

PRESS RELEASE

[LETTERHEAD OF CINEMASTAR]

(BW)(CINEMASTAR)(LUXY) CinemaStar Luxury Theaters announces $15 million 
equity plan; Rust Capital's investment to fuel expansion program

     Business/Entertainment Editors

     SAN DIEGO--(BUSINESS WIRE)--June 26, 1997--CinemaStar Luxury Theaters 
Inc. (NASDAQ:LUXY) Thursday announced that it has reached an agreement in 
principle for a group of investors led by Rust Capital Ltd., an Austin, 
Texas, venture capital firm, to purchase newly issued shares of CinemaStar's 
common stock for $15 million.
     After completion, Rust Capital and its partners would own not less than 
51 percent of CinemaStar's outstanding common stock on a fully diluted 
basis. Rust Capital's equity interest in the company may be increased above 
51 percent in accordance with a formula tied to the company's financial 
condition at closing, expected by mid-September 1997.
     It is anticipated that a shareholder's meeting will be held in August 
1997.
     Completion of the transaction is subject to the negotiation and signing 
of a definitive agreement, due diligence, regulatory and shareholder 
approval, and various other conditions.
     Terms of the agreement call for a secured bridge loan to be provided to 
CinemaStar of up to $2 million, concurrent with the execution of the 
definitive agreement.
     Commenting on the transaction, John Ellison Jr., president and chief 
executive officer of CinemaStar, said: "We've been very fortunate in our 
search to find a partner to help us in our growth plans in key markets. To 
that end, we are very pleased to be associated with Rust Capital, who have 
had previous successful investments in the entertainment industry and the 
theater exhibition business."
     Rust Capital, headed by its founder and chairman, Jack R. Crosby, has 
focused on investing in companies in the movie exhibition, cable television, 
satellite communications, media, entertainment, banking, real estate 
development and oil field services industries.
     Among his many investment activities, Crosby, along with a group of 
co-investors, joined E.M. Warburg Pincus & Co. and Home Box Office in funding 
the Orion Pictures purchase of Filmways in 1982. From 1982 through early 
1985, he served as director of Orion. Rust Capital, along with a group of 
co-investors, purchased selected theaters from Wometco Theaters Inc. in 1990 
before selling them in 1994.
     "We look forward to our association with this exciting company. This 
contemplated investment will provide much needed equity capital which we 
believe will enhance the company's opportunity to execute 



its growth strategy," Crosby said.
     CinemaStar's board of directors will be reconstituted to reflect the 
majority interest of Rust Capital.
     In a separate action, CinemaStar announced the resignation of Walter 
Schlotter and Andrew Friedenberg from the company's board of directors. 
Schlotter, an independent business consultant, and Friedenberg, director of 
the Cinema Society and Visual Arts Foundation in San Diego, have stepped down 
from the board to devote more time to other business affairs. Both were 
appointed to the board in June 1995.
     "Wally Schlotter and Andy Friedenberg have made many important 
contributions to the company, and we appreciate their guidance during this 
time in CinemaStar's period of rapid growth," said Ellison.
     In line with the new corporate strategy of focusing on domestic 
opportunities, the company has decided not to proceed with the development of 
a 12-screen multiplex in Guadalajara, Mexico. It intends to go forward with 
its plans to open a 10-screen multiplex in Tijuana, Mexico.
     However, negotiations are under way to effect the sale of some or all of 
the Mexican assets to certain current members of management, with CinemaStar 
retaining a minority position.
     CinemaStar's expansion program began last year and will result in the 
company opening new theater complexes in Southern California over the next 18 
months.
     On July 2, the company is scheduled to complete the expansion of its 
Mission Marketplace 8 theater complex in Oceanside, Calif. The company is 
adding five more screens which will make the new Ultraplex 13 at Mission 
Marketplace the largest multiscreen entertainment center in North San Diego 
County.
     Founded in 1989, CinemaStar Luxury Theaters currently operates seven 
first-run movie theaters, and will have a total of 69 screens in Southern 
California once the Ultraplex 13 at Mission Marketplace opens next week.
     CinemaStar theaters feature high-quality projection and sound 
capabilities, including LucasFilm THX Stereo Surround Sound environment 
system in most auditoriums, along with luxury amenities such as high-back 
reclining seats and extra-wide aisles between seat rows.
- -0-
     The information contained in this news release contains certain 
forward-looking statements that involve risk and uncertainties, such as the 
statements of the company's plan, objectives, expectations and intentions. 
The company's actual results could differ materially from those indicated by 
such statements as a result of various factors, including those discussed in 
the company's Form 10-KSB and Form 10-QSB on file with the SEC.
                                   --30--
     CONTACT:  CinemaStar Luxury Theaters, San Diego
               John Ellison Jr. or Alan Grossberg, 619/630-2011
                 or
               Pondel Parsons & Wilkinson, Los Angeles
               Craig Parsons/Michael Pollock, 310/207-9300