UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS Under Section 12(b) or
(g) of the Securities Exchange Act of 1934
Fresh'n Lite, Inc.
(Name of Small Business Issuer in its charter)
Texas 75-2337102
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2804 Judson Rd. Longview, Texas 75605
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, (903)663-5525
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
Common Stock OTC-BB and Boston Exchange (Pendinq)
Securities to be registered under Section 12(g) of the Act:
Common Stock
(Title of class)
(Title of class)
Potential persons who are to respond to the collections of
information contained in this form are not requiredl to
respond unless the form displays a currently valid control
number.
<PAGE>
GENERAL INSTRUCTIONS
A. Use of Form 10-SB.
1. This Form may be used by a "small business issuer," defined in Rule 12b-2
(ss.240.12b-2) of the Securities Exchange Act of 1934 (dine "Exchange
Act"), to register a class of securities under Section 12(b) or (g) of the
Exchange Act. For further information as to eligibility to use dhis form
see Item 10(a) of Regulation S-B (17 CFR 228.10 et seg.). 2. If the small
business issuer is not organized under the laws of any of dhe states of or
the United States of America, it shall at dhe time of filing tlis
registration statement, file with the, Commission a written irrevocable
consent and power of attorney on Fonn FX [ss. 239.42]. Any change to the
name or address of the agent for service of dhe issuer shall be
communicated promply to the Commission through amendment of dhe requisite
form and referencing d e file number of the registration statement.
B. Signature and Filing of Registration Statement.
1. File three "complete" copies and five "additional" copies of the
registration statement with dhe Commission and file at least one complete
copy with each exchange on which the securities will be registered. A
"complete" copy includes financial statements, exhibits and all ocher
papers and documents. An "additional" CODY excludes exhibits.
2. Manually sign at least one copy of the report filed with the Commission and
each exchange; ocher copies should have typed or printed signatures.
C. Information to be Incorporated by Reference.
Refer to Rule 12b-23 (ss.240.12b-23 of dhis chapter) if information will be
incorporated by reference from other documents in answer or partial answer to
any item of this Fonn.
INFORMATION REQUIRED IN REGISTRATION STATEMENT
Item 1. Description of Business.
Furnish the information required by Item 101 of Regulation S-B.
Item 2. Management's Discussion and Analysis or Plan of Operation.
Furnish the infonnation required by Item 303 of Regulation S-B.
Item 3. Description of Property.
Furnish the information required by Item 102 of Regulation S-B.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
Furnish the information required by Item 403 of Regulation S-B.
Item 5. Directors, Executive Officers, Promoters and Control Persons.
Furnish the information required by Item 401 of Regulation S-B.
Item 6. Executive Compensation.
Furnish the information required by Item 402 of Regulation S-B.
Item 7. Certain Relationships and Related Transactions.
Furnish the information required by Item 404 of Regulation S-B.
Item 8. Legal Proceedings.
Furnish the information required by Item 103 of Regulation S-B.
Item 9. Market for Common Equity and Related Stockholder Matters.
Furnish the infonnation required by Item 201 of Regulation S-B.
<PAGE>
Item 10. Recent Sales of Unregistered Securities.
Fumish the information required by Item 701 of Regulation S-B.
Item 11. Description of Securities.
Fumish the information required by Item 202 of Regulation S-B.
Item 12. Indemnification of Directors and Officers.
Fumish the information required by Item 702 of Regulation S-B.
Item 13. Financial Statements.
Fumish the information required by Item 310 of Regulation S-B.
Item 14. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
Furnish the information required by Item 304 of Regulation S-B.
Item 15. Financial Statements and Exhibits.
(a) List separately all financial statements filed as part of the registration
statement.
(b) Furnish the exhibits required by Item 601 of Regulation S-B.
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, "hereunto duly authorized.
Fresh 'n Lite, Inc.
(Registrant)
Date October 23rd, 1997 /S/ Curtis A. Swanson
------------------------------------------
Curtis A. Swanson, Chief Financial Officer
* Print the name and title of each signing officer under his or her signature.
<PAGE>
Item 1. Description of Business
History.
Fresh'n Lite, Inc. (the "Company") was incorporated under the laws of the
State of Delaware on May 9, 1990. The Company was originally formed under the
name of Bosko's, Inc.
On June 5, 1989, the founders of the Company established the first "Bosko's
3 N 1 D-Lite" restaurant in Marshall, Texas. The restaurant served an assortment
of submarine sandwiches, soups, salads, deli sandwiches, croissant sandwiches,
low fat burgers, baked potatoes, grilled chicken sandwiches, fat free pizza,
steaks, seafood, pastas, no-fat frozen yogurt, fat free & sugar free desserts,
soft drinks, potato chips, and other similar food products. This restaurant was
sold early in 1995.
The Company opened a second restaurant in Tyler, Texas, on February 15,
1991, under the name "Bosko's 3 N 1 D-Lite." This restaurant was sold in early
1995. However, in May, 1995, the Company reacquired this restaurant for the
amount owed on the note to the Company by the prior owner. The Marshall and
Tyler restaurants were marginally profitable and were sold to allow management
to focus on the Company's more profitable restaurants and to divest assets that
were less compatible with the Company's current restaurant concept. The Tyler
restaurant was repurchased because the purchaser was having difficulty in paying
the note and management believes it could reacquire the restaurant and again
make it profitable.
The Company opened a third restaurant in Longview, Texas, on March 8, 1992,
also under the name "Bosko's 3 N 1 D-Lite." This was the Company's first step in
the testing of a store using a geodesic dome design. The address of the Longview
store is 2804 Judson Road, Longview, TX 75601. This store was closed in October
of 1997 in order to allow management to concentrate it's efforts on it's higher
volume and more profitable urban market stores.
On November 9, 1992, the name of the Company was changed to "Fresh'n Lite,
Inc." Consequently, the stores' names also changed to "Fresh'n Lite Cafe &
Grill," with an accompanying marketing slogan "Tastes great, Less Fat." The name
change came about due to market research and the need for public name
recognition of what the Company sells.
The Company's fourth restaurant (bearing the "Fresh'n Lite" name) opened in
Nacogdoches, Texas, on May 24, 1993. This store was another test store for the
Company's geodesic design as well as the first location to have an accompanying
recreation center for the children of customers. The address for the Nacogdoches
store is 1122 North Street, Nacogdoches, Texas 75961. This store was closed in
February of 1997 in order to allow management to concentrate it's efforts on
it's higher volume and more profitable urban market stores.
The fifth "Fresh'n Lite" restaurant opened in Texarkana, Texas, in June of
1994. Although the geodesic design provides a unique, highly visible design, the
Company determined through operations of the Longview and Nacogdoches stores
that this design is not as efficient as a more proven and standard design.
Therefore, the Texarkana store is a 3,308 square foot rectangular building
utilizing a traditional floor plan. The address of the Texarkana store is 3520
Summerhill Road, Texarkana, Texas 75502. This store was closed in April of 1997
in order to allow management to concentrate it's efforts on it's higher volume
and more profitable urban market stores.
The sixth "Fresh'n Lite" restaurant opened in Dallas, Texas, in July of
1995. The design is considerably different and has been changed to be more
suitable to what management believes is the urban taste. It has approximately
4,500 square feet. It has take-out orders and drive-thru capability. It does not
have a recreation area. It is located at 6150 Frankford Rd., Dallas, Texas.
The seventh Fresh'n Lite restaurant opened in Irving (Valley Ranch), Texas
in February, 1997. The design in comparable to that of the company's Dallas
store. The store is located at 8604 N. MacArthur Blvd., Irving, Texas.
The eight Fresh'n Lite restaurant opened in "The Colony", Texas in October
1997. This store is also patterned after the more traditional design used at
it's Dallas store. The store is located at 4707 Hwy 121 W. The Colony, Texas.
Given that the Marshall store was sold and the Texarkana, Longview, and
Nacogdoches stores were closed and then leased to other operators, there are now
a total of four Company restaurants open.
In October 1995, Fresh'n Lite, Inc., a Delaware corporation, merged into
its wholly owned subsidiary, F'NL, Inc., a Texas corporation, with the name
"Fresh'n Lite, Inc." continuing as the name of the Texas corporation. The
Company and its business continues as a Texas corporation. The purpose of the
merger was to merely change the domicile of the Company to Texas.
<PAGE>
Company Business
The Company currently owns and operates four full-service cafe and grill
restaurants located in the Texas cities of Dallas, The Colony, Valley Ranch
(Irving) and Tyler under the name of Fresh'n Lite Cafe & Grill. The Company's
basic concept is to offer its customers a healthy alternative to traditional
casual dining restaurants by utilizing high quality low-fat fresh cut meats and
cheeses, nonfat mayonnaise, and fresh cut vegetables as well as fat-free pizzas
and other specialty items which are not normally associated with healthy eating.
However, the Company feels it is essential that restaurant offerings do not
sacrifice taste for the benefit of more nutritional eating. The majority of the
Company's menu items are prepared to order using fresh meats, cheeses, and
vegetables which are prepared daily in order to meet the customers' expectations
created by the name "Fresh'n Lite." While the restaurants offer full service
casual dining, the menu is geared toward fast preparation selections. Drive-thru
and take-out service has proven to be very popular with consumers.
The Fresh'n Lite restaurants' menu offerings are competitive in price
relative to other casual dining restaurants which use less nutritional food
products. For this reason, the Company feels consumers can perceive an excellent
price/value relationship as they become more aware of the higher quality food
selections, which they receive for the same price as those of lesser quality
offered by competitors.
The Company's restaurants are subject to all local health department codes
and inspections, as well as all Federal Food & Drug Administration policies and
OSHA policies. Certain routine inspections have been made of the restaurants and
have resulted in no health code or other violations.
The Company's primary supplier of goods is Conco Food Systems, P.O. Box
8848, Shreveport, LA 71148. The Company currently purchases approximately 90% of
its inventory from Conco Foods. The Company has a written contract with Conco
Foods, and purchases as needed on a net thirty (30) day basis. The Company is
current in its account with Conco Foods. The Company has accounts with other
suppliers to insure product availability in the event that Conco Food Systems is
unable to meet the Company's needs in the future. Conco Food's parent,
Consolidated Companies, Inc., purchased 133,332 shares of the Company's Common
Stock in March, 1995, for $199,999, and Consolidated Companies has entered into
a five-year Primary Distribution Agreement pursuant to which it has agreed to
provide 90% of products which are required by the Company and which it can
provide.
Control Systems.
The Company utilizes point of sale computer systems at all stores which
allow the Company's corporate management to monitor the stores on a daily basis
via computer modems and tracking software which will assist the Company in
maintaining control of inventory, supplies and labor costs.
All personnel are provided with a detailed operations manual which outlines
their job duties, safety standards, Company policies, and food handling and
preparation responsibilities. The employees are expected to comply with all
information contained in this manual.
The Company also intends to utilize the services of area managers who will
be in the stores at least twice a week. An area manager will have direct
oversight of no more than seven stores within a given area. The area managers
will be responsible for insuring the stores' compliance with all Company
policies, including but not limited to, inventory control, hiring and firing,
training, maintenance of facilities, food purchasing and preparation, customer
relations, bookkeeping, and etc. The area manager will report directly to the
chief operating officer of the Company on a weekly basis.
Concept and Strategy.
The Company feels that in order to be successful in today's competitive
environment, it must focus on a clearly differentiated identity and offer its
customers the highest quality food product in a comfortable, attractive
atmosphere at reasonable prices. The niche which Fresh'n Lite has identified for
urban, white-collar markets is that of a cafe and grill which offers a wide
selection of sandwiches, salads, pizzas, steaks, seafood, Tex-Mex and special
dinner items and desserts which have nonfat or low-fat content and appeal to the
health conscious, yet do not sacrifice taste and are reasonably priced. The
concept addressing this niche is the "Fresh'n Lite" concept.
Company restaurants featuring the "Fresh'n Lite" concept are designed to
offer full service to the casual diner with food preparation time comparable to
fast-food restaurants. This allows more rapid turnover of busy lunch time
crowds. All of the current stores have substantial drive-thru and take-out
business. While the Company's design allows those customers who are
time-constrained to be served in an efficient manner, the atmosphere of the
restaurants is such that those customers looking for a more relaxed environment
can be served quickly, yet not feel rushed.
<PAGE>
Pricing.
The Company's pricing strategy is to compete initially with other low cost
producers in order to gain an initial acceptance for the Company's product. This
will be possible because of the relatively low initial cost to establish each
new location. With other restaurant chains offering value pricing on many items,
it will also be necessary to keep price competitive to attract new customers.
However, because of the quality of the product and the hoped for repeat
business, it is the Company's expectation that it will be able to increase
prices, subject to price strategies at competing restaurants.
Management and Employees.
The Company believes that attracting and maintaining superior employees
will continue to be vital to its success. Managers receive an attractive
compensation package which includes performance bonuses and other incentives. In
return, they are expected to meet high standards in terms of store margins,
sales volumes, and overall atmosphere in their restaurants. Fresh'n Lite has
established a corporate culture which emphasizes a fun, yet professional,
environment where employees at all levels take pride in their work and
understand their individual importance to the Company's overall success as well
as their value to senior management. The Company currently has approximately 18
full time and 86 part time employees in its operations.
Competition.
The Company believes it is competing with other restaurants which offer
similar products to that which Fresh'n Lite serves as well as those that offer
other food types. For instance, a consumer may typically eat at a hamburger
establishment one day, a Mexican food take-out restaurant another day, and a
deli-style restaurant such as Fresh'n Lite another day. By serving a
consistently good product and emphasizing its comparative healthfulness,
management expects to attract customers back on a more repetitive basis than
those serving other food products. By emphasizing this market niche the Company
hopes to maintain a competitive posture with respect to chain restaurants.
In competing in the healthy eating environment for its "Fresh'n Lite"
restaurants, the Company has the advantage of the "expanded menu" concept, which
will allow the same consumer to have a variety of meal choices for different
days. Yogurt and sandwich specialty shops offer products that are seasonal and
typically eaten at certain times of the day. By offering both of these products,
as well as other alternatives, Fresh'n Lite can accommodate the needs of a
broader customer base, thus generating better productivity throughout the day
and evening. In competing with those restaurants serving similar food products,
the Company believes that its superior service, quality of food products,
competitive pricing, and the combination of fast food and relaxing full service
environment, coupled with the need to eat healthier, has proven its competitive
edge in serving the consumer.
The restaurant industry is competitive on both a national and regional
basis. On a national level, overall marketing and pricing strategies are
dictated by the larger, well established fast food chains. As economic
conditions change, product prices at major chains may be lowered to entice
customers to eat out more. To the extent the Company competes with local
franchises of these national chains, the Company's prices will have to be
competitive to continue attracting their regular customers, as well as gaining
an additional market share in new locations.
National firms will also have the benefit of substantial financial
resources for advertising and other marketing promotions. While Fresh'n Lite is
not able to compete on the same scale, by initially concentrating its efforts on
a certain geographic region, the Company hopes to gain name recognition through
advertisements and promotions with the local media. (See "Advertising and
Marketing") In competing with franchises of national restaurant chains, Fresh'n
Lite does have the advantage of paying no franchise fees to the parent. This
allows for higher operating margins for each dollar of revenue generated.
The Company also faces competition from other local restaurant businesses.
This will include small, one store restaurants, as well as regional restaurant
chains. By keeping overall set-up costs and overhead low, management believes it
will have more staying power than its competitors during those times when
consumers eat out less frequently.
Regulation. Restaurants are subject to licensing and regulation by state
and local health, sanitation, safety, fire, and other authorities and are also
subject to state and local licensing and regulation of the sale of alcoholic
beverages and food. The company has experienced no problems in it's current
operations in complying with these authorities.
Trademark. The Company has been granted a registration for the name
"Fresh'n Lite Deli Cafe." Application for registration of the name "Fresh'n Lite
Deli and Grill" was filed in June 1995. While no assurance can be given
regarding the outcome of this later application, the favorable response received
to date on the first registration is an indication the second registration
should also be granted.
<PAGE>
Registration of these names does not assure the Company that its ownership
is incontestable until five (5) years after registration issues and the Company
files an additional affidavit with the Trademark Office. There are other users
of the name "Fresh'n Lite," several of which began use of the name before the
Company, but none of these users have made any claim regarding the use of this
name by the Company. Whether another user could restrict the Company's use of
the name will depend upon the facts of the particular case, including priority
of use, priority of registration, the area of use, the type of use and the
generic or descriptive nature of the name. The Company has, by attempting
registration, taken those actions the law allows to protect its name.
Item 2: Management Discussion and Analysis
Overview
The Company was organized in In June of 1990 as Bosko's, Inc. under the
laws of the State of Delaware, in November of 1992 the Company changed it's name
to Fresh'n Lite, Inc. and in November of 1995 merged into a Texas corporation
also bearing the name Fresh'n Lite, Inc.. The Company currently owns and
operates 4 Fresh'n Lite Cafe & Grill restaurants, in Dallas, Tyler, Irving
(Valley Ranch), and The Colony, Texas. Additionally the Company owns 3
properties in Longview, Nacogdoches, and Texarkana, Texas which the company has
leased to other operators. The Company has recently entered into a lease
agreement for property in Richardson, Texas for the construction of another
Fresh'n Lite Cafe & Grill. The Company plans to expand by opening additional
Fresh'n LiteCafe & Grill restaurants on a Company owned basis.
The Company has observed a trend towards casual dining. This segment of the
market is expanding at a rate four times faster than other restaurant concepts.
The increase in dual income families, coupled with longer work hours, have
created the demand and desire to dine our more frequently, and the lower check
average of casual dining restaurants such as Fresh'n Lite Cafe & Grill have
provided the price/value impetus. While the fast-food market is dominated by
hamburger and pizza places, there are no clear leaders in table service. In
fact, the two largest categories in terms of share, seafood and Italian,
captured less than 20% of the market, thus leaving this market open for emerging
companies such as Fresh'n Lite.
The Company is targeting, among other groups, the "Baby Boomer" generation
as one of its primary customer groups. The Company believes that its concept
appeals specifically to this group because of the fact that "Baby Boomers" are
generally changing the way they eat. They are trying to prolong as well as
increase the quality of their lives. This group spends 44% of their food dollar
on dining out, but look for a quality experience, not just low fat food. This is
where the Fresh'n Lite Cafe & Grill concept fits in. The Company emphasizes
low-fat foods that taste great, the taste, presentation, and value are being as
important as the nutritional content.
Although recently increased government (FTC) scrutiny has been put on the
nutritional claims of many restaurant operations, the Company feels that it has
taken steps to validate its low-fat approach to casual dining.
Fiscal Year 1993 - 1996 Review
Operating revenues for 1993 were $964,312, with a gross profit of $637,179
(66%), and operating income of $32,414.
Operating revenues for 1994 increased to $1,302,024, with a gross profit of
$865,782 (66%), and an operating loss of $248,023. Contributing to the 1994
operating loss were a $49,009 write-off for the sale of the Marshall and Tyler
units (the Tyler unit was repurchased in May, 1995), expenses of approximately
$30,000 related to a recision offer for some of the Company's stock, and an
increase in general and administrative cost in preparation for the Company's
expansion plans.
Operating revenues for 1995 were $1,840,756, with a gross profit of
$1,318,576 (72%) and operating income of $89,113 before adding royalty revenues
of $5,211 and a franchise fee of $50,000, which increased overall operating
income to $144,324. The Company was able to generate a profit in 1995 based on a
significant increase in gross profits resulting primarily from the addition of
the Dallas restaurant and the increased menu prices in Dallas.
Operating revenues for 1996 were $2,602,533, with a gross profit of
$1,862,111 (71.5%), and operating income of $188,327, before adding royalty
revenues of $34,744, which increased operating income to $223,101.
Financial Condition and Discussion
The Company to date has expanded it's operation through the utilization of
private placement and traditional debt financing. Through these sources of
funding the Company has been able to establish a debt to worth ratio of
approximately 2 to 1 and a cash flow ratio with relation to it's current long
term debt of 2 to 1. The Company has accumulated seven restaurants, five of
which the Company owns the building, fixtures, and equipment but leases the
land, one of which the Company owns the building, fixtures, equipment, and the
land, and one of which the Company owns the equipment and fixtures but leases
the building.
<PAGE>
The Company is currently operating out of cash flow from operations. Its
ability to expand rely on the ability of management to secure additional sources
of funding. The current plans include the procurement of additional debt through
traditional lending institutions.
Plan of Operations
The Company has planned the following operations for the 1997 calendar
year, including;
(i) Construct an additional free standing Company owned Fresh'n Lite Cafe &
Grill restaurant on the Richardson locations. The Company expects to spend
approximately $650,000.00 on the construction, equipping, and start up of this
operation which the Company is funding with additional debt.
Intermin Financial Statements
For the nine months ending September 30, 1997 the Company has generated
revenues of $2,352,906, a gross profit of $1,701,285, and an operating income of
$44,110. The Company took a pre-tax charge of $169,075 for accelerated
amortization costs associated with the closing of the Nacogdoches and Texarkana
facilities, and $50,000 in extraordinary professional fees, in the first
quarter. The operating income without the extraordinary charges stated above
would have been $263,185, a 61% increase over the same period in 1996.
Seasonality of Business
Based on the Company's limited experience, Management believes that
restaurant sales should be greater during the summer months. However, because
the Company's experience is limited in the Dallas area, there can be no
assurance that such will be the case in the future.
Employees
The Company expects to hire three full time management personnel and thirty
part time hourly personnel with the opening of each new restaurant operation.
The cost of these personnel should be 25% of the annual operating revenue to be
generated by each operation, the initial cost of hiring and training of all
personnel is covered in the store start up costs.
Item 3: Description of Property
Restaurant Locations.
The following table provides information with respect to each of the
Company's properties, the Dallas, Irving, The Colony, Longview, and Texarkana
buildings are owned, with a lease on the land, the Company owns both the
building and land in Nacogdoches and leases the facility in Tyler. The Company's
current plans are to secure 20 year lease-purchases on the property to be used
for the expansion of the next four stores.
Location Square Feet Lease Term
- --------------------------------------------------------------------------------
Tyler, Texas 2,600 sq. ft. 5 Years
Dallas, Texas 4.500 sq. ft. 20 Years
Irving (Valley Ranch), Texas 4,700 sq. ft. 20 Years
The Colony, Texas 4,700 sq. ft. 20 Years
Texarkana, Texas 3,308 sq. ft. 20 Years
Nacogdoches, Texas 4,200 sq. ft. Owned
Longview, Texas 3.500 sq. ft. 20 Years
- --------------------------------------------------------------------------------
<PAGE>
Item 4: Security Ownership of Certain Beneficial Owners and Management
The following table sets forth the number of Common Shares of the Company
owned by each Director, Officer, and by each person of record who beneficially
owns 10% or more of the outstanding Common Stock as of December 31, 1995.
Title of Class Name & Address of Owner(1) After Offering Class
- ----------------- ----------------------------- ----------------------- --------
Common
Shares Stan & Carole Swanson 1,203,921 19.74
3216 Page Road
Longview, Texas 76505
- ----------------- ----------------------------- ----------------------- --------
Common Curtis & Kim Swanson 407,000 6.67
Shares 3218 Page Rd.
Longview, Texas 75605
- ----------------- ----------------------------- ----------------------- --------
Common Edward Dmytryk 20,000 0.33
Shares 707 Kyle Drive
Arlington, Texas 76011
- ----------------- ----------------------------- ----------------------- --------
(1) Bob Lilly is not listed as owners of Common Shares, since at this time they
only have options to purchase Common Stock. Refer to the table set forth
below for information on these options.
The following table sets forth information concerning certain options held
by Stanley L. Swanson, Curtis A. Swanson, and Bob Lilly, Director and Douglas K.
Tabor and Roland R. Jehl, former Directors of the Company, and McCap, Inc. a
former consultant to the Company.
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
Name of Holder Amount of Common Shares Called for by Options Exercise Price Date of Exercise
- ------------------------------------------------------------------------------------------------------------------------
Bob Lilly 50,000 $1.50 On or before 2/28/2000
3,572 $0.10 On or before 2/28/2000
Douglas K. Tabor 25,000 $1.50 On or before 10/19/2000
Roland Jehl 25,000 $1.50 On or before 10/19/2000
Stanley L. Swanson 100,000 $2.50 On or before 12/31/2002
Curtis A. Swanson 100,000 $2.50 On or before 12/31/2002
McCap, Inc. 300,000 $2.50 On or before 12/21/2001
</TABLE>
<TABLE>
<CAPTION>
Item 5: Directors, Executive Officers, Promoters, and Control Persons.
The Directors and Officers of the Company are set forth below.
<S> <C>
Name Age Position In Office Since
- ------------------------------------------------------------------------------------------
Chief Executive Officer, Chairman of
Stanley L. Swanson 51 the Board of 1990
Directors, and President
Curtis A. Swanson 28 Director, Treasurer, 1990
Chief Financial Officer
Jean Hedges 35 Controller 1993
Carole A. Swanson 53 Secretary 1990
Edward Dmytryk 49 Director 1992
Robert (Bob) Lilly 56 Director 1995
Dr. Donald Whittaker 65 Director 1997
</TABLE>
<PAGE>
All directors hold office until the next annual meeting of the shareholders
of the Company, and until their successors are elected and qualified. Officers
hold office until the first meeting of the Board of Directors following the
annual meeting of shareholders, subject to earlier removal by the Board of
Directors.
Family relationships among Officers and Directors: Stanley L. Swanson and
Carole A. Swanson are husband and wife. Curtis A. Swanson is the son of Stanley
L. and Carole A. Swanson.
BUSINESS EXPERIENCE OF DIRECTORS & OFFICERS
Stanley L. Swanson, a founder of the Company, has served as President , Chief
Executive Officer, and Chairman of the Board since its inception in May, 1990.
In addition to developing the Company's overall business strategy and expansion
plans, Mr. Swanson is responsible for selection and negotiations for all future
locations. Prior to establishing the first Fresh'n Lite restaurant in Marshall,
Texas in June 1989, Mr. Swanson was the President and CEO of Canaan Enterprises,
Inc., a Montana corporation involved in the development of real estate
franchises within the state. Under Mr. Swanson's leadership, the company grew
from one franchise in 1986 to ten franchises in 1988. It was at this time that
Mr. Swanson sold his holdings in Canaan Enterprises, Inc., in order to establish
the restaurant business which is now Fresh'n Lite, Inc. From 1981 to 1986, Mr.
Swanson was a real estate broker in the state of Montana, where he owned and
operated two real estate sales and development companies. From 1972 until 1981,
Mr. Swanson was an entrepreneur in the restaurant industry, owning and operating
two restaurant establishments. From 1962 until 1972, Mr. Swanson played
professional baseball, where he was primarily associated with the Cincinnati
Reds and Montreal Expos organizations.
Curtis A. Swanson has been Chief Financial Officer, Executive Vice President,
and Treasurer of the Company since its inception in May, 1990. Mr. Swanson
handles all financial matters and day to day operations for the Company. Prior
to his involvement with Fresh'n Lite, Inc., Mr. Swanson was an officer in Canaan
Enterprises, Inc., from 1986 to 1988. His duties with Canaan Enterprises, Inc.,
included the sales, set-up, and oversight of franchises within the state of
Montana. From 1987 to 1989, Mr. Swanson owned and operated two real estate
franchises, a video rental store, and a pizza establishment.
Jean M. Hedges has been Corporate Controller for the Company since September
1993. Ms. Hedges is responsible for all accounting and office management
functions including generating and analyzing financial reports, performing
monthly, quarterly, and annual closeout functions, budget planning, cash flow
forecasting, analyzing capital expenditures, and evaluating return on
investments. Ms. Hedges has had extensive CPA firm experience and brings a 10
year record as a controller and business manager to the Company. Prior to her
employment with Fresh'n Lite, Ms. Hedges was the controller of Stainback
Casting, a manufacturer based out of Tyler, Texas, from 1992 to 1993. From 1990
to 1992, Ms. Hedges was the controller of American Retirement Homes which owned
over 1/3 of all the retirement homes in the State of Virginia. It was through
this position that Ms. Hedges gained experience in a multi-unit environment.
From 1987 to 1990, Ms. Hedges was the business office manager for Goodman &
Company, CPA, the largest CPA firm in the State of Virginia. From 1984 to 1987
Ms. Hedges was an internal accounting manager with Price Waterhouse, CPA in
Norfolk, Virginia. Ms. Hedges has a Bachelor of Arts degree in Business
Management/Economics and Political Science from Randolph Macon College.
Carole A. Swanson, wife of Stanley L. Swanson and co-founder of Fresh'n Lite,
Inc., has served as Secretary of the Company since its inception in May, 1990.
Prior to establishing the first Fresh'n Lite restaurant in Marshall, Texas, in
June of 1989, Ms. Swanson was a broker/owner of a real estate company in
Hamilton, Montana, from 1983 to 1988. From 1980 to 1983, Ms. Swanson co-owned
and operated the Cedar Chest restaurant in Darby, Montana. From 1977 through
1980, Ms. Swanson took time off to concentrate on home and family. From 1972 to
1976, Ms. Swanson co-owned and operated the Lochsa Lodge Resort and restaurant
in Powell, Idaho. From 1954 through 1972, Ms. Swanson worked with her father in
the development of a 31 store restaurant chain based out of Knoxville,
Tennessee, called the Blue Circle's. This company was sold due to the death of
Ms. Swanson's father. She was involved in training, inventory control, food cost
analysis, labor cost analysis, and bookkeeping.
Edward C. Dmytryk has been a Director of the Company since 1992. Mr. Dmytryk is
currently the chief executive officer and principal owner of Benchmark, Inc., a
metal fabricating company located in Fort Worth, Texas. Until January, 1995, Mr.
Dmytryk was formerly the chief operating officer for Bollinger Industries
International, located in Irving, Texas. Bollinger is a fitness product
corporation with annual sales nearing $60 million. Mr. Dmytryk served as chief
operating officer for Bollinger from September, 1988 until January, 1995. From
November, 1986, until September, 1988, Mr. Dmytryk was the president and general
manager of Mac's Snacks, Inc., located in Arlington, Texas. He was responsible
for the successful turnaround of a national snack food company. Through an
overhaul of the sales and marketing effort, sales increased by 250% under his
leadership. Mr. Dmytryk also successfully negotiated the sale of Mac's to Evans
Food Products. From November, 1985 until November, 1986, Mr. Dmytryk was the
vice president of sales and marketing for Animed, Inc., located in Roslyn, New
York. He was functionally responsible for the overall corporate marketing of a
veterinarian's products and services company, to include research, planning,
<PAGE>
execution, and evaluation. Under his leadership, sales volume grew from $8
million to $16 million through a combination of acquisitions and incremental
sales volume. From 1973 until 1985, Mr. Dmytryk held various executive positions
with Wulfsberg Electronics, Inc., Polaroid Corporation, and We Chemical
Products/Alfa Laval. From 1968 until 1973, Mr. Dmytryk was a captain, regular
officer and pilot in the United States Air Force. He is a graduate of the
Citadel in Charleston, South Carolina with a Bachelors degree in Business
Administration.
Robert (Bob) Lilly has been a director of the Company since March, 1995. Mr.
Lilly is currently the owner of Professional Imaging & Promotions, Inc., a
photography and graphics imaging company located in Graham, Texas. From 1961
through 1974, Mr. Lilly played football for the Dallas Cowboys, a National
Football League franchise. Subsequent to his retirement from the Dallas Cowboys,
Mr. Lilly has been involved in personal investments, endorsements and his
photography and graphic imaging business. Over the years he has acquired an
interest in nutrition and has attempted to learn and apply fundamental healthy
nutritional concepts to his personal living and, hence, has developed an
interest in the concept of the Company.
Dr. Donald Whittaker has been a director of the Company since May, 1997. Dr.
Whittaker is the founder and operator of Dr. Whittaker's Vitamins and Completely
Fit Health Foundation.. From 1968 through the present Dr. Whittaker has been a
physician in private practice. Dr. Whittaker has been the host of "Calling Dr.
Whittaker" a weekly program dealing with cutting edge health issues. The program
has been broadcast internationally on TBN since 1979. Dr. Whittaker is a
graduate of Texas Wesleyan College where he received a degree in Chemistry. He
received is post graduate training at Kansas City School of Medicine where he
graduated as a D.O.
<TABLE>
<CAPTION>
Item 6: Executive Compensation
Set forth below is certain relevant information for the Company's
Officers and Directors for the Company's most recently completed fiscal year:
<S> <C>
Name of Individual or Identity Capacities in Which Remuneration Aggregate Remuneration
of Group was Received
- --------------------------------------------------------------------------------------------------
Stanley L. Swanson CEO and President $26,000
Curtis A. Swanson Treasurer and CFO $26,000
Jean Hedges Controller $26,000
All Directors & Officers as a Group $91,300
Including the Above Persons
- --------------------------------------------------------------------------------------------------
</TABLE>
No remuneration is paid to the Board of Directors for their service in that
office, except that Mr. Lilly is paid $500 for each meeting, plus expenses, and
he has been granted an option to acquire 50,000 shares. However, in the future
the Directors may receive a nominal Director's fee for their attendance at
meetings of the Company's Board of Directors, and reimbursement for actual
expenses incurred in attending such meetings.
<TABLE>
<CAPTION>
PROPOSED FUTURE REMUNERATION OF OFFICERS
It is anticipated that in the future the remuneration of officers will
increase to the following annual remuneration amounts.
<S> <C> <C>
Name of Individual or Identity Capacities in Which Remuneration was Aggregate Remuneration
of Group Received
Stanley L. Swanson CEO and President $60,000
Curtis A. Swanson Treasurer and CFO $50,000
Jean Hedges Controller $30,000
</TABLE>
STOCK OPTIONS PLAN
On March 1, 1997, the Board of Directors of the Company adopted its 1997
Incentive Stock Option Plan pursuant to which 200,000 shares of the Company's
stock were set aside for the purpose of the granting of incentive stock options
to directors and key employees of the Company. The purchase price of the stock
purchased pursuant to the exercise of such an option is required to be not less
than 100% of the fair market value of the stock on the date of the grant of the
option. This plan was approved by the shareholders on May 23, 1997.
<PAGE>
Under the 1995 Incentive Stock Option Plan, an option for 50,000 shares has
been granted to Bob Lilly for service as a member of the Board of Directors with
a purchase price of $1.50 per share. This option extends until March 1, 2000.
Also under the Incentive Stock Option Plan, Roland R. Jehl and Douglas K. Tabor
have been granted an option for 25,000 shares each for service as members of the
Board of Directors with a purchase price of $1.50 per share. These options
extend until October 19, 2000.
Additionally, Mr. Lilly was granted an option to acquire stock at $.10 per
share in a manner so that the difference between the price of $.10 per share and
the fair market value of the stock at the time of the issuance of the grant
multiplied by the number of shares equaled $2,500 for each day of promotional
appearances that Mr. Lilly made before December 1, 1995 on behalf of the
Company. Options covering 3,572 shares were granted for personal appearances
made by Mr. Lilly on behalf of the Company before December 1, 1995.
A new agreement has been entered into between the Company and Mr. Lilly
regarding personal appearances made by Mr. Lilly after December 1, 1995. For
each promotional appearance, Mr. Lilly will receive $1,500.00, plus the grant of
an option to acquire Common Stock of the Company at not less than 100% of the
fair market value as of the grant date. The grant of the option will be for
stock having a fair market value of $3,000 at the time of the grant with an
option term of 5 years.
Item 7: Certain Relationships and Related Transactions.
In May, 1994, the Marshall restaurant was sold by the Company to a business
entity owned, in part, by Curtis Swanson. The sales price was $25,000,
consisting of the assumption of indebtedness and the assumption of the lease.
The Company made this choice after determining that the Marshall restaurant was
not particularly profitable and did not fit into the long-range plans of the
Company. It believes that the terms of the sale were commercially reasonable.
Currently, Mr. Curtis Swanson, a director, treasurer, and chief financial
officer, and Mr. Edward Dmytryk, a director, formed F'NL Investments, LLC, a
Texas limited liability company, which has entered into a franchise agreement
with the Company for the establishment of a restaurant in Arlington, Texas. The
franchise restaurant was located at 900 Six Flags Dr. in Arlington. The parties
payed a $50,000 franchise fee and agreed to pay royalties of 5% of gross
revenues. The directors have elected to convert this restaurant to a pizza
restaurant because of demographics and open the franchise restaurant in
Arlington at a location to be determined in the future. FNL Investments, LLC
will not be required to pay additional franchise fee when the new franchise
sight is selected.
On December 1, 1995, the Company entered into an agreement with a Director,
Bob Lilly, whereby Mr. Lilly receives $1,500.00 plus the grant of an option to
acquire Common Stock of the Company at not less than 100% of the fair market
value as of the grant date, for each promotional appearance made by Mr. Lilly on
behalf of the Company. This agreement superseded a previuos agreement between
Mr. Lilly and the Company through which Mr. Lilly acquired options to purchase
3,572 shares of Common Stock at $.10 per share.
At December 31, 1996 the Company had a note receivable from FNL
Investments, LLC which is owned by Ed Dmytryk and Curtis A. Swanson, two
directors of the Company, and which operated a franchise restaurant in
Arlington, Texas. The note was in the amount of $31,345 plus interest at a rate
of 9%. The entire principal amount, along with interest, was repaid prior to the
maturity date of April 30, 1996. The note was for salary payments made on behalf
of FNL Investments, LLC by the Company in connection with payroll services it
was providing FNL Investments, LLC in paying FNL Investments, LLC employees.
Item 8: Legal Proceedings
The Company is not presently a party to any litigation.
Item 9: Market for Common Equity and Related Stockholder Matters.
The Company's common stock began trading on the OTC-Bulletin Board under the
symbol FLTT on May 9, 1997. As of October 22, 1997 there were approximately 475
shareholders of record. The following table sets forth for the quarters
indicated the high and low sale prices of the Company's common stock.
1997 High Low
- --------------------------------------------------------------------------------
First Quarter N/A N/A
Second Quarter $3.00 $2.50
Third Quarter $3.75 $2.50
<PAGE>
Item 10: Recent Sales of Unregistered Securities
Item 10: Recent Sales of Unregistered Securities
As of October 23rd, 1997 the Company had sold 198,450 Units, each unit
consisting of 4 shares of common stock and 2 warrants (which entitle the bearer
to purchase one share of common stock for each warrant held, for $3.00 per
share, on or before June 25, 2001) for an aggregate offering price of $10.00 per
unit. The total amount raised to date through the offering is $1,984,500 of
which $56,600 was paid in underwriting commissions.
The Company had entered into an Underwriting Agreement (the "Agreement")
with Dillon-Gage Securities, Inc., but after 56,600 Units were sold, the
Agreement was allowed to terminate and the underwriter refunded $10,000 of
expenses previously advanced, but the underwriter retained a 10% commission of
$56,600 in the Units previously sold. The Company then proceeded to sell the
Units through its qualified personnel.
The Company is registered as an issuer broker dealer with the Texas
Securities Board. The offering was made only to residents of the State of Texas.
The Company relied upon the Section 3 (a) (11), Intrastate Offering
Exemption of the Securities Act of 1933 as amended for the sale of these
securities.
Item 11: Description of Securities
The Company has only one class of capital stock consisting of Common Stock,
of which it is authorized to issue 50,000,000 shares. No share of Common Stock
is entitled to preference over any other share, and each share is equal to every
other share in all respects. Holders are entitled to one vote for each share
with respect to all matters voted upon by shareholders, including the election
of Directors; are entitled to receive dividends as may be declared by the Board
of Directors out of funds legally available therefore; and are entitled to share
pro rata in the distribution of assets available for such purpose in the event
of liquidation. No preemptive rights attach to ownership of Common Shares. No
current shareholder has any option, warrant or other right to acquire shares on
a basis different than any member of the general public, except that Bob Lilly
has an option to purchase 53,572 shares and Douglas K. Tabor and Roland R. Jehl
have an option to purchase 25,000 shares each, Curtis Swanson and Stanley L.
Swanson have options to purchase 100,000 shares each, and McCap, Inc. has an
option to purchase 300,000 shares. There is no buy-sell agreement restricting
transfer of the shares.
Item 12: Indemnification of Officers and Directors:
Liability and Indemnification. The Company has been incorporated under the
laws of the state of Texas. Such laws have provisions which provide exculpation
and indemnification to officers and directors that may be broader than those
which might be provided by the corporation laws of other states. Such provisions
could diminish the rights of shareholders to sue officers or directors compared
to common law rights they may have had absent such provisions. Additionally, the
Company may seek to amend its Articles of Incorporation to further provide for
indemnity provisions which could reduce or deplete the assets of the Company
unless an act or omission of an officer or director results from proven fraud,
willful misconduct, bad faith, or gross negligence.
Item 13. Financial Statements:
1994, 1995, and 1996 audited financial statements and the interim unaudited
financial statements for the 9 month period ending September 30, 1997.
Item 14. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure:
None
Item 15: Financial Statements and Exhibits.
Attached hereto are the exhibits as required.
VII. EXHIBITS
Hereafter set forth as an Exhibit to the Form 10 of Fresh'n Lite, Inc.
<PAGE>
Fresh 'n Lite, Inc.
Financial Statements Together
With Auditors' Report
December 31, 1996
<PAGE>
T. G. PROTHRO & COMPANY, P.L.L.C.
CERTIFIED PUBLIC ACCOUNTANTS
100 INDEPENDENCE PLACE, SUITE 213 BANK ONE BUILDING
POST OFFICE Box 7337 PHONE 903.534.8811
TYLER, TEXAS 75711 -7337 FAX 903.534.8891
Indepndent Auditors' Report
Board of Directors,
Fresh'n Lite, Inc.
Longview, Texas
We have audited the accompanying balance sheet of Fresh'n Lite, Inc. as of
December 31, 1996, and the related statements of income, changes in
shareholders' equity and cash flows for the years ended December 31, 1996, 1995
and 1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted the audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes 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 our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the f-mancial position of Fresh'n Lite, Inc. as of
December 31, 1996, and the results of its operations and its cash flows for the
years ended December 31, 1996, 1995 and 1994, in conformity with generally
accepted accounting principles.
/s/ T.G. Prothro & Company, P.L.L.C.
--------------------------------
Certified Public Accountants
June 4, 1997
Tvler, Texas
Members, American Institute of Certified Public Accountants
Members, Texas Society of Certified Public Accountants
<PAGE>
FINANCIAL STATEMENTS
<PAGE>
Fresh 'n Lite, Inc.
Balance Sheet
December 31, 1996
1996
ASSETS ----
CURRENT ASSETS
Cash $ 18,967
Inventory 27,189
------------
Total Current Assets 46,156
------------
PROPERTY AND EQI1IPMENT (Pledged)
Buildings 2,001,702
Land 100,000
Capitalized Land Leases 1,343,000
Leasehold Improvements 83,297
Vehicles and Equipment 1,050,499
------------
Total Property and Equipment 4,578,498
Accumulated Depreciation (392,428)
Property and Equipment - Net 4,186,070
------------
OTHER ASSETS
Restaurant Preopening Remodel Costs
and Other Assets, Net of
Accumulated Amortization 314,673
Deferred Franchise System Cost, 65,273
Net of Accumulated Amortization 31,345
Note Receivable - Related Party ------------
Total Other Assets 411,291
------------
TOTAL ASSETS $ 4,643,517
============
(Continued)
<PAGE>
Fresh 'n Lite, Inc.
Balance Sheet
December-31, 1996
1996
------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accrued Expenses 142,873
Accounts Payable 47,009
Bank Overdraft 1,327
Note Payable-ShortTerm 6,299
Current Portion of Capital Lease Obligations 13,219
CurrentPortion of Notes Payable-Long Term 675,864
Total Current Liabilities ------------
886,591
OTHER LIABILITES
Capital Lease Obligations, net of Current Portion 1,337,260
Notes Payable-Long-Term, net of Current Portion 321,170
Deferred Income Tax Liability 94,000
------------
Total Liabilities 2,639,021
------------
CONTINGENCIES
SHAREHOLDERS' EQUITY
Common Stock, $0.01 Par Value; 50,000,000
Shares Authorized; 5,491,082
Shares Issued and Outstanding 54,911
Additional Paid in Capital 1,768,610
Retained Earnings 182,225
------------
2,005,746
Less: Treasury Stock, at Cost,
1,250 Shares (1,250)
------------
Total Shareholders' Equity 2,004,496
------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 4,643,517
============
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
Fresh 'n Lite, Inc.
Statements of Income
For the Years ended December 31,1996,1995 and 1994
<S> <C>
1996 1995 1994
----------- ----------- -----------
SALES $ 2,602,533 $ 1,840,756 $ 1,302,024
COST OF SALES (740,422) (522,180) (436,242)
----------- ----------- -----------
GROSS PROFIT 1,862,111 1,318,576 865,782
Franchise Royalties Earned 34,774 5,211 --
Franchise Fees Earned -- 50,000 --
----------- ----------- -----------
Total Gross Profit and Franchise Income 1,896,885 1,373,787 865,782
----------- ----------- -----------
EXPENSES
Salaries and Contract Labor 653,997 474,486 353,834
Payroll and Other Taxes 118,574 92,619 47,418
Professional Fees 15,062 16,917 45,615
Advertising and Promotional 64,878 42,275 63,189
Rent 47,423 48,932 55,788
Insurance 41,525 46,390 15,763
Telephone 20,823 22,765 31,308
Travel 5,763 8,412 7,901
Utilities 86,794 67,926 61,598
Depreciation 162,793 122,633 79,918
Amortization 133,731 137,445 120,997
Interest 155,466 106,265 72,723
Linen and Laundry 22,452 10,291 8,643
Repairs and Maintenance 19,164 12,261 15,318
Supplies 12,099 8,116 14,442
Miscellaneous 19,240 11,730 70,341
Loss on Sale of Restaurants -- -- 49,009
----------- ----------- -----------
Total Expenses 1,579,784 1,229,463 1,113,805
----------- ----------- -----------
OPERATING INCOME (LOSS) 317,101 144,324 (248,023)
Income Tax (Expense) Benefit:
Current -- -- --
Deferred (94,000) -- 15,200
----------- ----------- -----------
NET INCOME (LOSS) $ 223,101 $ 144,324 $ (232,823)
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
Fresh 'n Lite, Inc.
Statements of Changes in Shareholders' Equity
For the Years ended December 31, 1996. 1995 and 1994
<S> <C> <C> <C>
Total
Additional Retained Share-
Common Paid In Earnings Treasury holders'
Stock Capital (Deficits) Stock Equity
----------- ----------- ----------- ----------- -----------
BALANCES, JANUARY 1, 1994 $ 46,737 $ 788,697 $ 47,623 $ (1,250) $ 881,807
Net Loss -- -- (232,823) -- (232,823)
Sale of Common Stock,
299,210 Shares 2,992 210,823 -- -- 213,815
----------- ----------- ----------- -----------
Balances, December 3 1, 1994 49,729 999,520 (185,200) (1,250) 862,799
Net Income -- -- 144,324 -- 144,324
Sale of Common Stock,
291,734 Shares 2,918 365,334 -- -- 368,252
----------- ----------- ----------- ----------- -----------
Balances, December 31, 1995 52,647 1,364,854 (40,846) (1,250) 1,375,375
Net Income -- -- 223,101 -- 223,101
Sale of Common Stock,
226,400 Shares 2,264 563,736 -- -- 566,000
Stock Issuance Costs -- (159,980) -- -- (159,980)
BALANCES, -- -- -- -- --
DECEMBER 31, 1996 $ 54,911 $ 1,768,610 $ 182,225 $ (1,250) $ 2,004,496
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Fresh 'n Lite, Inc.
Statements of Cash Flows
For the Years ended December 31, 1996, 1995 and 1994
<TABLE>
<S> <C> <C>
1996 1995 1994
----------- ----------- ----------
Cash Flows from Operating Activities:
Net Income (Loss) $ 223,101 $ 144,324 $ (232,823)
----------- ----------- -----------
Adjustments to Reconcile Net Income (Loss) to Net
Cash Provided by Operating Activities:
Depreciation 162,793 122,633 79,918
Amoriization 133,731 137,445 120,997
Change in Net Capital Leases (6,414) (2,476) 3,940
Net Change in Assets and Liabilities:
(Increase) Decrease in Inventory 8,172 (11,063) (4.232
Increase (Decrease)in Accounts Payable (13,074) (15,173) 47,775
Increase (Decrease)in Accrued Expenses (50,505) 86,121 (1,294)
Increase (Decrease)in Deferred Taxes 94,000 -- (15,200)
Loss on Sale of Restaurants -- -- 49,009
----------- ----------- -----------
Total Adjustments 328,703 317,487 280,913
----------- ----------- -----------
Net Cash Provided by
Operating Activities 551,804 461,811 280,913
Cash Flows from Investing Activities:
Capital Expenditures (771,327) (928,617) 48,090
Expenditures for Preopening/Remodel
Costs and Other Assets (74,708) (54,495) (94,951)
(Increase)Decrease in Note Receivable-Related Party 9,712 (41,057) --
(Increase) Decrease in Deferred Stock Issuance Cost
and Deferred Franchise System Costs 80,624 (72,392) --
Proceeds from Restaurant Sales -- -- --
Net Cash Used in
Investing Activities (755,699) (1,096,561) (683,879)
Cash Flows from Financing Activities:
Sale of Common Stock, net of Stock Issuance Costs 406,020 200,001 169,996
Borrowings on Notes Payable 144,694 487,550 751,287
Principal Payments on Notes Payable (312,570) (57,825) (284,225)
----------- ----------- -----------
Net Cash Provided by
Financing Activities 238,144 629,726 637,058
NET INCREASE (DECREASE) IN CASH 34,249 (5,024) 1,269
CASH (OVERDRAFT) AT BEGINNING OF YEAR (16,609) (11,585) (12,854)
CASH (OVERDRAFT) AT END OF YEAR
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
<PAGE>
Fresh'n Lite, Inc.
Notes to Financial Statements
December 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND OPERATIONS
Fresh'n Lite, Inc., "the Company" (a Texas Corporation since October, 1995) was
incorporated as Bosko's, Inc., in May 1990 as a Delaware Corporation. In
December 1992 the corporate title was changed to Fresh tn Lite, Inc. in order to
have its restaurants' names more reflective of its products. The Company's
restaurants changed their names throughout 1992, which resulted in significant
costs being capitalized during that year. In 1995, the Corporation merged from a
Delaware Corporation into F'NL, Inc., a Texas Corporation. Immediately, the
Corporation changed its name to Freshtn Lite, Inc.
Prior to 1994, the Company's restaurants provided healthy foods and beverages in
a "fast food" deli atmosphere. Dunng 1994, the Company expanded all stores into
"full service" stores, offering dinner menus and a wait staff. During 1995, the
Company closed the Texarkana, Longview and Nacogdoches stores and reopened them
as Aunt Bea's Home Cooking. The Company expects the Aunt Bea concept to offer a
wider appeal to rural locations.
The Company operates the following restaurants:
City Date Opened
------------------------------------ -----------------
Marshall, Texas (sold May 26, 1994) June 1990
Tyler, Texas (sold August 1, 1994,
Repurchased March 31, 1995) February 1991
Longview, Texas March 1992
Nacogdoches, Texas May 1993
Texarkana, Texas June 1994
Dallas (Frankford Avenue), Texas July 1995
Irving (Valley Ranch),Texas Februarv 1997
Other restaurant locations are under consideration.
INVENTORY Inventory consists of food and beverage products and paper supplies
stated at the lower of cost (determined on the first-in, first-out basis) or
market value.
PROPERTY AND EQUIPMENT Property and equipment items are stated at cost.
Expenditures for maintenance and repairs are charged to expense as incurred
Major improvements are capitalized. Significantly all Property and Equipment is
pledged against the Company's notes payable.
<PAGE>
Fresh'n Lite, Inc.
Notes to Financial Statements
December 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
RESTAURANT PREOPENING/REMODEL COSTS
During the period of construction or major remodel, the Company capitalizes
certain costs pertaining to the restaurants. These costs include interest,
salaries, advertising, contract labor, rent, repairs, supplies, and other costs
that relate to either the preopening period, in the case of a new restaurant, or
the remodelina period, in the case of a major remodel of an existing restaurant.
Once the new restaurants open or existing restaurants' major remodels are
completed, capitalization ceases.
DEFERRED STOCK ISSUANCE COSTS
The Company offered stock for sale during 1996, using an Underwriter for the
first time. As costs and expenses were incurred pursuant to the stock offering,
they were deferred until the stock sale took place. When the stock sale took
place, these costs, which aggregated $ 159,980, reduced the additional paid in
capital realized from the sale. The majority of the costs involved were
attorney's fees.
DEFERRED FRANCHISE SYSTEM COSTS
During 1995 and 1996, the Company incurred certain internal, as well as
external, costs as it developed its franchise system. Substantially all internal
phases of the franchise system were in place by February, 1996 at which time no
additional internal costs were deferred. The Company amortizes total deferred
franchise system costs over five years, beginning in February of 1996. Total
amortization of deferred franchise system cost were $ 22,311 in 1996. No costs
were amortized during 1995, as the franchise system was not operational.
FRANCHISE FEES
The Company has sold one franchise to a franchisee that is an entity partially
owned by an officer/stockholder of the Company. The terms of the franchise
require a $ 50,000 fee to be paid to the Company. The Company recognizes this
payment as revenue when it has completed its obligations under the franchise
agreement. At December 31, 1995, the Company had no further obligation under
this initial franchise and has received the fee of $ 50,000.
In addition to the franchise fee, the Company earns royalties based upon 5 % of
the franchisee's gross sales. The Company recognizes franchise royalty revenue
when earned, not when received. At December 31, 1996, the Company had earned $
34,774 from royalties, of which $ 7,500 was not paid at year end. At December
31, 1995, the Company had earned $ 5,211 from such royalties which was not paid
at year end.
<PAGE>
Fresh'n Lite, Inc.
Notes to Financial Statements
December 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
ADVERTISING COSTS
All advertising costs are expensed when incurred, except for those capitalized
during a restaurant's preopenin~ period.
DEPRECIATION AND AMORTIZATION
Leasehold improvements are amortized over the terms of the underlying leases
using the straight line method. Buildings are depreciated over the estimated
useful lives of twenty years using the straight line method. Vehicles and
equipment are depreciated over the estimated useful lives of five to ten years
using the straight line method.
Restaurant preopening/remodel costs are amortized over sixty months using the
straight line method.
CAPITALIZED LAND LEASES
At December 31, 1996, the Company was leasing land for its restaurants in
Longview, Texas; Texarkana, Texas; Dallas (Frankford Avenue), Texas; and Irving
(Valley Ranch), Texas. For financial reporting purposes, such leases are
capitalized at an amount equal to the lesser of the present value of the lease
payments or market value. No depreciation is being recorded on the capitalized
land leases.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents, along with cash in bank and cash overdrafts. The Company paid
no cash for income taxes in 1996 and paid $ 177,370 for interest in 1996. The
Company paid no cash for income taxes in 1995 and paid $ 112,889 for interest in
1995. The Company paid no cash for income taxes in 1994 and paid $ 48,070 for
interest in 1994.
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in the
fnnncial statements and consist of taxes currently due plus deferred taxes.
Deferred taxes are recognized for differences between the basis of assets and
liabilities for financial statement and income tax purposes.
The differences relate primarily to depreciable assets (use of different
depreciation methods and lives for financial statement and income tax purposes),
restaurant preopening/remodel costs (deferred for financial statement purposes
but not for income tax purposes), capitalized land leases (capitalized for
financial statement purposes but not for income tax purposes) and basis of
accounting (cash basis for income tax purposes and accrual basis for financial
statement purposes).
<PAGE>
Fresh 'n Lite, Inc.
Notes to Financial Statements
December 31, 1996
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The deferred tax assets and liabilities represent the future tax return
consequences of those differences, which will either be taxable or deductible
when the assets and liabilities are recovered or settled. Deferred taxes also
are recognized for operating losses and tax credits that are available to offset
future taxable income.
ESTIMATES
The accompanying financial statements include certain estimates made by
management in order for the f~nancial statements to be presented in accordance
with generally accepted accounting principles. Management believes there are
reasonable bases for each estimate and that the methods involved are consistent
from year to year.
CONSIDERATION OF CREDIT RISK
The Company maintains its cash in bank deposit accounts at high quality fnancial
institutions. The balances are at all times with~n federal insurance limits. The
Company believes their cash management policies effectively address their cash
in bank credit risk. All restaurant sales are either cash or credit card. The
credit card sales are approved at point of sale with very little risk of loss.
NOTE 2 - lNVENTORY
A summary of inventory, by restaurant location, is as follows:
1996
-----------
Tyler, Texas $ 3,686
Longview, Texas 3,367
Nacogdoches, Texas -
Texarkana, Texas 8,374
Dallas (Frankford Avenue), Texas 11,762
-----------
Total Inventory $ 27,189
===========
<PAGE>
Fresh'n Lite, Inc.
Notes to Financial Statements
December 31. 1996
NOTE 3 - RESTAURANT PREOPENING/REMODEL COSTS
Restaurant Preopening/Remodel Costs consist of the following:
Accumulated
Costs Amortization
---------- ------------
Balances, January 1, 1996 $ 625,523 $ 268,998
Additions 60,924 128,219
Balances, December 31, 1996 $ 686,447 $ 397,217
---------- -----------
Other costs included with Restaurant Preopening/Remodel Costs in the balance
sheet aggregated $ 25,443 as of December 31, 1996. These costs were for
organizational expenses, funding costs, prepaid items and utility deposits.
A summary of Restaurant Preopening/Remodel Costs, by restaurant location, is as
follows:
1996
----------
Longview, Texas $ 122,448
Nacogdoches, Texas 210,750
Texarkana, Texas 230,028
Dallas (Frankford Avenue), Texas 62,297
Irving (Valley Ranch), Texas 60,924
----------
Total Restaurant Preopening/Remodel Cost $ 686,447
==========
NOTE 4-INCOME TAXES
1996 1995 1994
--------- --------- ---------
Earnings (loss) before income taxes $ 315,011 $ 144,324 $(248,023)
Add:
Timing differences (23,455) 33.129 112,332
Taxable income (loss) before -- -- --
Net operating loss carryforward $ 291,556 $ 177,453 $(135,691
--------- --------- ---------
Income tax (expense) benefit $ (94,000) $ -- $ 15,200
========= ========= =========
<PAGE>
Fresh'n Lite, Inc.
Notes to Financial Statements
December 31, 1996
NOTE 4 - INCOME TAXES (Continued)
Deferred taxes result from differences in the bases of assets and liabilities
for income tax and financial statement purposes. The source of the differences
and the tax effect creating the balance at December 31, 1996, 1995 and 1994 are
as follows:
1996 1995 1994
--------- --------- ---------
Deferred tax assets:
Net operating loss carry forward $ ( 53,405) $(127,908) $ 150,953)
Valuation allowance -- 11,962 45,718
--------- --------- ---------
Net deferred tax asset (53,405) (115,946) (105,235)
--------- --------- ---------
Deferred tax liabilities:
Difference in depreciation methods 97,800 48,500 21,333
Deduction of startup costs 82,750 95,040 97,987
Cash to accrual conversion (47,900) (35,060) (19,717)
Other 14,755 7,466 5,632
--------- --------- ---------
Net deferred taX liability 147,405 115,946 105 235
--------- --------- ---------
Balance $ 94,000 $ -- $ --
========= ========= =========
The Company has tax loss carryforwards totaling $ 157,081 that may be offset
against future taxable income. If not used, the carryforwards will expire as
follows:
Year Originated Year Expiring Amount
- ---------------------------- -------------------- ---------
December 31, 1993 December 31, 2008 $ 21,390
December 31, 1994 December 31,2009 135,691
---------
Total Tax Loss Carryforwards $ 157,081
=========
NOTE 5 - NOTE PAYABLE-SHORT TERM
Notes payable-short term at December 31, 1996 consisted of the following:
Transamerica Insurance Finance Corporation, dated July 28, 1996, due July
28, 1997, interest rate at 9.28%, payable in 12 monthly payments of $ 2,134
beginning August 28, 1996 and the balance at maturity. $ 6,299
===========
<PAGE>
Fresh 'n Lite, Inc.
Notes to Financial Statements
December 31, 1996
<TABLE>
<CAPTION>
NOTE 6 - NOTES PAYABLE-LONG TERM
Notes payable-long term at December 31, 1996 consisted of the following:
<S> <C>
Amount
East Texas National Bank, dated March 30, 1994, due June 30, 1997, interest -----------
rate at 8.50%, payable in 36 monthly payments of $ 3,594 beginning June 3O,
1994 and the balance at maturity, including interest, collateralized by the
Company's real and personal property in Gregg, Nacogdoches and Bowie
counties, Texas $ 334,018
East Texas National Bank, dated January 28, 1994, due January 28, 1997,
interest rate at 8.50%, payable in 36 monthly payments of $ 3,282 beginning
February 7, 1994 and the balance at maturity, including interest,
collateral~zed by the Company's real and personal property in Gregg,
Nacogdoches and Bowie counties, Texas 300,233
East Texas National Bank, dated May 12, 1995, due September 12, 1998,
interest rate at ETNB prime plus .50%, payable in four installments of
interest only (beginning June 12, 1995), then thirty-five monthly payments
of $ 3,261, then a final balloon payment to fully repay the loan,
collateralized by the Company's Frankford Avenue leasehold estate in
Dallas, and by various personal properties 34,409
East Texas National Bank, dated November 1, 1995, due October 12, 1998,
interest rate at 10.25%, payable in 35 Monthly payments of $ 1,864
beginning November 12, 1995 and the balance at maturity, including
interest, collateralized by a second lien on the Company's Frankford Avenue
leasehold estate in Dallas, and by a security interest in various
equipment, fixtures and other personal property at that location 165,265
East Texas National Bank, dated December 31, 1996, due January 30, 1998,
interest rate at 10.2%, payable in 11 Monthly payments of $ 2,526 beginning
January 30, 1997, and the balance at maturity,~including interest,
collateralized by all accounts receivable, inventory, and equipment. 138,395
</TABLE>
Fresh'n Lite, Inc.
Notes to Financial Statements
December 31, 1996
<TABLE>
<CAPTION>
NOTE 6 - NOTES PAYABLE (Continued)
<S> <C>
Related Party:
Stanley L. Swanson, dated October 19, 1994, due October 19, 1999,
interest rate at 9.49%, payable in 60 monthly payments of $ 251
beginning November 19, 1994 and the balance at maturity,~including
interest, collateralized by a second lien on a 1994 Nissan pick-up and
a corporate guarantee 7,573
Ford Motor Credit Company, dated June 25, 1993, due July 25, 1997, interest
rate at 9.50%, payable $ 209 monthly, including interest, secured by a 1993
Nissan truck
1,462
Frost National Bank, dated March 2, 1995, due June 2, 2000, interest rate
at 11.75%, payable $239 monthly, including interest, secured by a 1995
Mazda truck 7,750
Frost National Bank, dated March 31, 1995, due May 31, 2000, interest rate
at 11.990%, payable $ 241 monthly, including interest, secured by a 1995
Mazda truck 7,929
-----------
Total Notes Payable-Long Term 997,034
Less Current Portion (675,864)
Notes Payable-Long Term, net of Current Portion $ 321,170
===========
</TABLE>
During the years ended December 31, 1996, 1995 and 1994, the Company capitalized
as building costs $ 44,500, $ 12,347 and $ 2,000, respectively, in interest
related to the above notes payable.
Notes Payable-Long Term are expected to mature over the next five years as
follows:
1997 $ 675,864
1998 150,314
1999 22,060
2000 9,453
2001 8,310
---------
Total $ 866,001
=========
<PAGE>
Fresh'n Lite, Inc.
Notes to Financial Statements
December 31, 1996
NOTE 7- LEASES
Following is a summary of the Company's operating and capital leases:
Marshall, Texas restaurant (land and building):
The lease term was from April 6, 1989 to March 9, 1990 and has expired. An oral
arrangement of paying rent month to month has been agreed upon. Minimum lease
rentals were $ 550 per month with no contingent rentals. This has been
classified as an operating lease. This store was sold May 26, 1994 and the above
lease was assumed by the purchaser; therefore, the Company had no further
obligation under this lease after the date of sale.
Tyler, Texas restaurant (land and building):
The sublease term is from April 1, 1995 to July 31, 1999. Minimum lease rentals
are $ 1,500 per month with no contingent rentals. The lease includes a five year
option at the same terms and conditions as during the primary term. This has
been classified as an operating lease.
Longview, Texas restaurant (land):
The lease term is for twenty years, begir~ng January 6, 1992. Minimum lease
rentals are $1,000 per month for the first 36 months, $ 1,300 per month for the
next 24 months, $ 1,500 per month for the next 60 months and $ 1,600 per month
for the final 120 months. The lease includes contingent rentals based upon a
percentage of gross sales, that become due if the contingent rent~ls exceed the
minimum rentals. No contingent rentals have become due as of December 31, 1995.
The lease also contains an option to purchase the land for $ 160,000 within the
first five years of the lease. Management anticipates purchasing the land within
the option period. This lease has been classified as a capital lease.
Nacogdoches, Texas restaurant (land):
The lease term was for twenty years beginning September 28, 1992. Minimum lease
rentals were $ 960 per month for the first 36 months, $ 1,080 per month for the
next 24 months, $ 1,200 per month for the next 36 months, $ 1,344 per month for
the next 36 months, $ 1,505per month for the next 36 months, $ 1,686 per month
for the next 36 months and $ 1,888 permor~h for the final 36 months, with no
contingent rentals. The lease also contained an option to purchase the land for
$ 100,000 during the first three years of the lease. This lease has been
classified as a capital lease. During the year ended December 31, 1994, the
Company exercised its' purchase option, and has purchased the land for $
100,000. At December 31, 1994 the lease was no lon~er in effect.
<PAGE>
Fresh 'n Lite, Inc.
Notes to Financial Statements
December 31, 1996
NOTE 7-LEASES (Continued)
Texarkana, Texas restaurant (land):
The lease term is for twenty years beginning February 1, 1994. Minimum lease
rentals are $ 1,547 per month for the first 36 months, $ 1,949 per month for the
next 60 months, $ 2,258per month for the next 60 months, $ 2,615 per month for
the final 84 months, with no contingent rentals. The lease also contains an
option to purchase the land for $ 200,000 during the first three years of the
lease. Management anticipates purchasing the land within the option period. This
lease has been classified as a capital lease.
Dallas (Frankford Avenue), Texas restaurant (land):
The lease term is for twenty years beginning February 21, 1995. Minimum lease
rentals are $ 4,250 per month for the first 60 months, $ 4,583 per month for the
next 60 months, $ 5,167 per month for the next 60 months, and $ 5,417 per month
for the final 60 months, with no contingent rentals. The lease also contains two
five year extensions at $ 5,750 per month for the first five year period and $
6,083 per month for the second five year period. This has been classified as a
capital lease.
Irving (Valley Ranch), Texas restaurant (land):
The lease term is for twenty years beginning November 15, 1996. Minimum lease
rentals are $ 3,625 per month for the first 60 months, $ 4,167 per month for the
next sixty months, $ 4,667 per month for the next 60 months, and $ 5,250 per
month for the final 60 months with no contingent rentals. The lease also
contains two five year extensions, the first at market rate, but not to exceed $
7,O83 per month, and the second at market rate. This lease has been classified
as a capital lease.
Computers and related equipment:
The lease is with AT&T Capital Corporation, dated October 5, 1993. The lease
term is for 60 months beginning October 14, 1993. Minimum lease rentals are $
579 per month. This lease has been classified as an operating lease.
OPERATING LEASES
At December 31, 1996 the Company was leasing its Tyler restaurant land and
building as well as certain computer equipment under operating leases. The
annual minimum lease payments under noncancelable operating leases as of
December 31, 1996 are as follows:
<PAGE>
Fresh'n Lite, Inc.
Notes to Financial Statements
December 31, 1996
NOTE 7-LEASES (Continued)
Years Ending December 31:
1997 $ 24,948
1998 23,211
1999 10,500
2000 -
2001 -
Later Years -
---------
Total Minimum Lease Payments $ 58,659
CAPITAL LEASES
December 31, 1996:
At December 31, 1996, the Company was leasing the land for its Longview, Texas;
Texarkana, Texas; Dallas (Frankford Avenue), Texas; and Irving (Valley Ranch),
Texas restaurants under capital leases. The economic substance of the leases is
that the Company is financing the acquisition of the assets through the leases,
and accordingly, it is recorded in the Company's assets and liabilities.
The following is a schedule by years of future minimum lease payments required
under the capital leases, together with their present value as of December 31.
1996:
Years Endinc December 31:
1997 $ 135,888
1998 135,888
1999 135,888
2000 137,886
2001 14O,968
Later Years 2,225,788
---------
Total Minimum Lease Payments 2,912,306
Less Amount Representing Interest (1,561,827)
---------
Present Value of Minimum
Lease Payments 1,35O,479
Less Short Term Portion ( 13,219
---------
Present Value of Minimum Lease
Payments, net of Current Portion $ 1,337,260
===========
<PAGE>
Fresh'n Lite, Inc.
Notes to Financial Statements
December 31, 1996
NOTE 7-LEASES (Continued)
During the year ended December 31, 1996, the Company recognized $ 78,755 in
interest cost related to the above capital leases. During the year ended
December 31, 1995, the Company charged to expense $ 51,738 in interest costs
related to the above capital leases. During the year ended December 31, 1994,
the Company recognized $ 31,146 in interest costs related to the capital leases,
$ 7,729 was capitalized as Building Costs and $ 23,417 was charged to expense.
NOTE 8 - SUMMARARY OF NONCASH
TRANSACTIONS
Following is a summary of noncash investing and financing activities for the
years ended December 31:
1996 1995 1994
--------- --------- ---------
Exchange Common Stock for Furniture
And Equipment $ -- $ 34,901 $ 10,500
Exchange Common Stock for Building Costs -- 89,650 13,318
Exchange Common Stock for Corporate
Organizational Costs -- -- 20,000
Exchange Common Stock for Deferred
Stock Issuance Costs -- 5,000 --
Exchange Common Stock for Debt Repayment -- 38,000 --
Capital Lease Obligations 400,000 500,000 (165,000)
Accrued Deferred Stock Issuance Cost -- 82,935 --
Accrued Tyler Equipment Purchase -- 7,682 --
--------- --------- ---------
Total Noncash Investing and
Financing Activities $ 400,000 $ 758,868 $(121,182)
========= ========= =========
<PAGE>
Fresh'n Lite, Inc.
Notes to Financial Statements
December 31, 1996
NOTE 9-CONTINGENCIES
Securities Issues:
After February 28, 1994, the Company's counsel discovered that, beginning in
approximately March of 1992, the Company sold shares of its common stock to
shareholders in transactions which were not registered with either the U.S.
Securities and Exchange Commission or qualified under the Texas Securities Act.
These sales of stock were subject to rescission under the Texas Securities Act
by the purchaser or darnages if the purchaser no longer owns the shares. The
Company obtained a $ 500,000 line of credit which would allow it to repurchase
substantially all of the effected shares at the original sales price, plus
interest at 10% per annum.
On August 10, 1994, rescissions offers were prepared and sent to a certain
number of the effected shareholders, in a total amount of approximately $
481,682. On September 10, 1994, the rescission offers expired, at that date six
shareholders had accepted the offers in a total amount of $ 26,249, for 36,298
shares. A new shareholder purchased the subject shares from the accepting
shareholders, which management believes fulfills the Company's obligation under
the rescission offers.
Legal Actions:
Litigation was threatened against the Company by AT&T Capital Corporation
regarding an equipment lease entered into by the Company. The potential claim
was for approximately $ 30,000. Counsel has advised the Corporation that on
April 12, 1996 that AT&T had agreed not to pursue its claims agninst the Company
and that the likelihood of a non-favorable outcome was nominal at all times.
Suit was filed against the Company in 1994 for damages arising from an employee
accident involving a meat slicer. The Company has paid the employee's medical
expenses of $ 2,014 during 1995. The employee was seeking unspecified additional
amounts for lost wages, pain and suffering, disfi~urement and impairment. The
suit was scheduled for mediation on May 22, 1996 and for trial on July 8, 1996.
During 1996 the Company settled this claim for $ 14.000
<PAGE>
Fresh'n Lite, Inc.
Notes to Financia1 Statements
December 31, 1996
NOTE 10 - RELATED PARTY TRANSACTIONS
On May 26, 1994, the Company sold its Marshall, Texas store to an
officer/shareholder of the Company. As more fully described in Note 11, the
sales price was $ 25,000, which resulted in a loss of $ 11,500 for the year
ended December 31. 1994.
As more fully described in Note 5, the Company borrowed funds from two
officer/shareholders in the total amount of $ 50,641, during the year ended
December 31, 1994. At December 31, 1995, the Company owes one shareholder
10,025.
On February 17, 1995, the Company sold 133,333 shares of common stock to the
Company's largest food distnbutor for $ 200,000, pursuant to a stock purchase
agreement. The agreement binds the Company to purchase 90% of its food products
from the distributor for five years, as well as to repurchase the common stock
at the original price if one of two repurchasing events occur. As of December
31, 1996, the Company's obligation under this agreement has expired. As of June
4, 1997, the Company is unaware of and has not been notified that any
repurchasing events have occurred.
At December 31, 1996, the Company had a note receivable from an
officer/shareholder of the Company in the amount of $ 31,345. The note bears
interest at 9% and is payable in ten monthly payments of $ 3,264.51 beginning in
February, 1997.
NOTE 11-COMPENSATED ABSENCES
Compensated absences have not been accrued in the accompanying financial
statements as the amount cannot be reasonably estimated. Management believes the
amounts to be insignificant and, therefore, would have little impact on the
accompanying financial statements.
NOTE 12 - DISCONTINUED RESTAURANTS
The Company sold its Marshall, Texas and Tyler, Texas stores during the year
ended December 31, 1994. These stores were not a "segment" of the Company and,
therefore, these stores operations are included in income from continuing
operations for the Year ended December 31. 1994.
<PAGE>
Fresh 'n Lite, Inc.
Notes to Financial Statements
December 31, 1996
NOTE 12 - DISCONTINUED RESTAURANTS (Continued)
Following are certain items related to the discontinued restaurants during the
year ended December 31 1994:
Tyler Marshall
Restaurant Restaurant Total
---------- ---------- ----------
Sales $ 111,542 $ 41,273 $ 152,815
Cost of Sales (42,183) (13,165) 55,348
--------- --------- ---------
Gross Profit 69,827 28,108 97,467
--------- ---------
Operating Expenses (61,827) (29,789) (91,616)
--------- --------- ---------
Net Operating Income (Loss) $ 7,532 $ (1,681) $ 5,851
========= ========= =========
Loss on Sale $ (3,509) $ (11,500) $ (49,009)
========= ========= =========
On March 31, 1995, the company reacquired the Tyler restaurant for $ 21,632.
NOTE 13-STOCK OPIIONS
On March 1, 1995, the Board of Directors of the Company adopted its 1995
Incentive Stock Option Plan pursuant to which 100,000 shares of the Company's
stock were set aside for the purpose of granting of incentive stock options to
directors and key employees of the Company. The purchase price of the stock
purchased pursuant to the exercise of such an option is required to be not less
than 100% of the fair market value of the stock on the date of the grant of the
option. This plan was approved by shareholders on October 19, 1995.
Under the Plan, an option for 50,000 shares has been granted to one shareholder
for service as a member of the Board of Directors with a purchase price of $
1.50 per share and expires March 1, 2000. Also, under the Plan, two other
Directors have been granted options for 25,000 shares each for service as
members of the Board with a purchase price of $ 1.50 per share and expire on
October 19, 2000. As of June 4, 1997, none of these stock options have been
exercised.
<PAGE>
FRESH'N LITE, INC.
BALANCE SHEET
FOR THE NINE MONTH PERIOD ENDING SEPTEMBER 30, 1997
(Unaudited)
ASSETS 9 Month Period Ending
September 30, 1997
-------------------------------
CURRENT ASSETS
Cash 82,643
Inventory 73,958
Total Current Assets 156,601
PROPERTY AND EQUIPMENT
(Pledged)
Buildings 2,908,175
Land 100,000
Capitalized Land Leases 1,343,000
Leasehold Improvements 83,297
Vehicles and Equipment 1,284,773
Total Property and Equipment 5,719,245
Accumulated Depreciation (521,075)
Property and Equipment - Net 5,198,170
OTHER ASSETS
Restaurant Preopening/Remodel Costs
and Other Assets, Net of Accumulated Amortization 169,945
Deferred Stock Issuance Costs 29,969
Deferred Franchise System Costs 75,273
Note Receivable - Related Party 56,866
Total Other Assets 332,053
TOTAL ASSETS $5,686,824
<PAGE>
FRESH'N LITE, INC.
BALANCE SHEET
FOR THE NINE MONTH PERIOD ENDING SEPTEMBER 30, 1997
(Unaudited)
LIABILITIES AND
SHAREHOLDER'S EQUITY 9 Month Period Ending
September 30, 1997
---------------------------
CURRENT LIABILITIES
Accrued Expenses 111,863
Accounts Payable 51,965
Current Portion of Capital Lease Obligations 13,219
Current Portion of Notes Payable- Long Term 75,864
Total Current Liabilities 252,911
OTHER LIABILITIES
Capital Lease Obligations, Net of Current Portion 1,337,260
Notes Payable - Long Term, Net of Current Portion 1,078,547
Total Liabilities 2,415,807
CONTINGENCIES
SHAREHOLDERS' EQUITY
Common Stock, $0.01 Par Value; 50,000,000 Shares
Authorized; 6,041,800 Shares Issued and Outstanding 60,418
Additional Paid In Capital 2,732,603
Retained Earnings - Prior 182,225
Retained Earnings - Current 44,110
----------
3,019,356
Less Treasury Stock at Cost, 1250 Shares (1,250)
Total Shareholders' Equity 3,018,106
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $5,686,824
<PAGE>
FRESH'N LITE, INC
INCOME STATEMENT
FOR THE NINE MONTH PERIOD ENDING SEPTEMBER 30, 1997
(Unaudited )
9 Month Period Ending
September 30, 1997
----------------------------
SALES $2,352,906
COSTS OF SALES (651,621)
----------
GROSS PROFIT 1,701,285
EXPENSES
Salaries and Contract Labor 622,101
Payroll and Other Taxes 88,803
Professional Fees 86,953
Advertising and Promotional 57,925
Rent 109,114
Insurance 38,149
Telephane 28,618
Travel 10,557
Utilities 66,116
Depreciation 141,680
Amortization 230,416
Interest 83,001
Linen and Laundry 22,879
Repairs and Maintenance 50,795
Supplies 12,201
Miscellaneous 7,867
----------
Total Expenses $1,657,175
----------
OPERATING INCOME(LOSS) 44,110
Income Tax (Expense) Benefit:
Current
Deferred
NET INCOME $ 44,110
<PAGE>
<TABLE>
<CAPTION>
Fresh 'o Lite, Inc.
Statements of Changes in Shareholders' Equity
For the Years ended December 31, 1996, 1995, 1994 and the interim 9
months ending September 1997
<S> <C>
Total
Additional Retained Share
Common Paid in Earnings Treasory holders'
Stock Capital (Deficits) Stock Equity
---------- ---------- ----------- ---------- -----------
BALANCES, JANUARY
1, 1994 $ 46,737 $ 788,697 $ 47,623 $ (1,250) $ 881,807
Net (Loss) -- -- 232,823) -- (232,823)
Sale of Common
Stock, 299,210
Shares 2,992 210,823 -- -- 213,815
----------- ----------- ----------- ----------- -----------
Balances, Dec. 31, 1994 49,729 999,520 (185,200) (1,2SO) 862,799
Net Income -- -- 144,324 -- 144,324
Sale of Common
Stock, 291,734
Shares 2,918 365,334 -- -- 368,252
----------- ----------- ----------- ----------- -----------
Balances, Dec. 31, 1995 52,647 1,364,854 (40,876) (1,250) 1,375,375
Net Income -- -- 223,101 -- 223,101
Sale of Common
Stock, 226,400
Shares 2,264 563,736 -- -- 566,000
Stock Issuance
Costs -- (159,980) -- -- (159,9801
----------- ----------- ----------- ----------- -----------
Balances, Dec. 31, 1996 54,911 1,768,610 185,200 (1,250) 2,004,496
Net Income -- -- 44,110 -- 44,110
Sale of Common
Stock, 550,700
Shares 5,507 963,993 -- -- 969,500
----------- ----------- ----------- ----------- -----------
BALANCES,
SEPTEMBER30,1997 $ 60,418 $ 2,732,603 $ 226,338 $ (1,250) $ 3,018,106
=========== =========== =========== =========== ===========
</TABLE>
<PAGE>
FRESH'N LITE, INC.
STATEMENT OF CASH FLOW
FOR THE NINE MONTH PERIOD ENDING SEPTEMBER 30, 1997
(Unaudited)
9 Month Period Ending
September 30, 1997
----------------------------
Cash Flows from Operating Activities
Net Income (Loss) $226,335
--------
Adjustments to Reconcile Net Income
to Net Cash Provided by
Operating Activities:
Depreciation 141,680
Amortization 230,416
Change in Net Capital Leases o
Net Change in Assets and Liabilities
(Increase) in Inventory (46,769)
Increase (Decrease) in Accounts Payable 4,956
Increase (Decrease) in Accrued Expenses (31,010)
(Decrease) in Deferred Taxes o
Loss on Sale of Restaurants o
Total Adjustments 299,273
Net Cash Provided bv O~eratina Activities 525,608
Cash Flows from Investing Activities:
Capital Expenditures (1,140,747)
Expenditures for Preopening/Remodel Costs and
Other Assets (111,118)
(Increase ) Decrease in Note Receivable (25,521)
(Increase) in Deferred Franchise System Costs (1O,000)
Proceeds from Restaurant Sales 0
Net Cash Used in Investing Activities (1,287,386)
Cash Flows from Financing Activities:
Sale of Common Stock 969,500
Borrowing on Notes Payable 385,O00
Principal Payments on Notes Payable (656,398)
Net Cash Provided by Financing Activities 698,102
NET INCREASE (DECREASE) IN CASH 63,676
CASH AT BEGINNING OF YEAR 18,967
CASH AT END OF PERIOD 82,643
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Item 14. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure:
None
Item 15: Financial Statements and Exhibits.
Attached hereto are the exhibits as required.
