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United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-SB/A-3
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)
1705 WHALEY, LONGVIEW, TEXAS 75605
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (903) 758-2811
Securities to be registered under Section 12(b) of the Act:
Name of each exchange on which
Title of each class each class is to be registered
------------------- ------------------------------
None None
Securities to be registered under Section 12(g) of the Act:
Common Stock, par value $0.01 per share
(Title of class)
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-SB/A-3 includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), which can be identified by the use of forward-
looking terminology such as, "may," "believe," "expect," "intend,"
"anticipate," "estimate" or "continue" or the negative thereof or other
variations thereon or comparable terminology. All statements other than
statements of historical fact included in this Form 10-SB/A-3, including,
without limitation, the statements under "Description of Business,"
"Management's Discussion and Analysis or Plan of Operation," "Market for Common
Equity and Related Stockholder Matters" and the "Financial Statements" located
elsewhere herein regarding the Company's financial position and liquidity, its
ability to service its indebtedness, its strategic plans including its ability
to implement a franchise plan or change restaurant concepts, its application
for listing on the Nasdaq SmallCap Market, and other matters, are
forward-looking statements. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to have been correct.
Important factors with respect to any such forward-looking statements,
including certain risks and uncertainties that could cause actual results to
differ materially from the Company's expectations ("Cautionary Statements") are
disclosed in this Form 10-SB/A-3, including, without limitation, in conjunction
with the forward-looking statements included in this Form 10-SB/A-3. Important
factors that could cause actual results to differ materially from those in the
forward-looking statements herein include, but are not limited to, the timing
and extent of changes in wholesale food prices, development and construction
delays, labor shortages, uncertainties about competition, government regulation
and the ability of the Company to meet its stated business goals. All
subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by the Cautionary Statements.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
History.
Fresh'n Lite, Inc. (the "Company"), is a Texas corporation. The Company
originally was incorporated as a Delaware corporation on May 9, 1990, under the
name "Bosko's, Inc." On November 9, 1992, the Bosko's, Inc. name was changed
to "Fresh'n Lite, Inc."
In October 1995, the Delaware corporation merged into its wholly-owned
subsidiary, F'NL, Inc., a Texas corporation. F'NL, Inc. was the surviving
corporation in the merger. F'NL, Inc. then changed its name to "Fresh'n Lite,
Inc." The purpose of the merger was to convert the Delaware corporation into a
Texas corporation.
The Company was formed in connection with the creation of a restaurant
in Marshall, Texas, which was named "Bosko's 3 N 1 D-Lite." In the past, the
Company has operated restaurants in the Texas cities of Marshall, Tyler,
Longview, Nacogdoches and Texarkana. Each of these restaurants has been closed
or sold as the Company has developed its restaurant concept and as the Company
has focused on middle class urban markets in the Dallas/Ft. Worth metropolitan
area.
Company Business.
The Company currently operates three full-service restaurants located in
the Texas cities of Dallas, The Colony and Valley Ranch (Irving) under the name
"Fresh'n Lite Cafe & Grill." The Company also operates a full-service Cafe and
grill in Richardson, Texas, under the name "Street Talk Cafe."
The Company's restaurants offer low-fat and non-fat meals and food
items, including a wide selection of sandwiches, salads, pizzas, steaks,
seafood, Tex-Mex and other food items and desserts that appeal to health-
conscious customers. The Company believes that its restaurants' offerings do
not sacrifice taste and represent a health-conscious alternative to traditional
restaurant fare.
The majority of the Company's food items are prepared to order using
fresh meats, cheeses, and vegetables. While the restaurants offer full-service
casual dining, the menus are designed to permit quick food preparation. The
restaurants offer drive-thru and take-out service.
The Company intends to focus on the Street Talk Cafe concept and may
convert some or all of the Fresh'n Lite Cafe & Grill restaurants to the Street
Talk Cafe format. The differences between the Street Talk Cafe concept and the
Fresh'n Lite Cafe & Grill concept primarily relate to the restaurant's design
and decor. In the Company's Street Talk Cafe restaurant, the dining area is
divided into separate areas identified by decor and signage that represents
Wall Street, a sports memorabilia shop, an antique store, a country general
store, a farmer's market and a sidewalk cafe. Dividing the dining area into
smaller units is intended to promote a more private dining atmosphere for the
Company's customers. The Company believes that its customers will perceive the
Street Talk Cafe concept as offering a quieter, less-bustling dining experience
than is offered in an undivided dining area. The Company also believes that
the Street Talk Cafe decor is distinctive from competing restaurants and is
aesthetically attractive.
The Company believes that its menu offerings are competitive in price
relative to other casual dining restaurants that do not emphasize low-fat and
non-fat food items. The Company believes that many consumers will perceive
that the Company's restaurants offer high-quality food selections that can be
part
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of a healthy eating regimen for the same price as food selections offered by
competitors that would be less appropriate as part of a healthy eating regimen.
The Company's primary supplier of goods is Consolidated Companies, Inc.
("Conco"). As of February 17, 1995, Conco entered into a five-year primary
distribution agreement with the Company (the "Primary Distribution Agreement"),
pursuant to which Conco has agreed to provide 90% of the products that are
required by the Company and that Conco can provide. The Company currently
purchases approximately 90% of its inventory from Conco. The Company purchases
items from Conco, as-needed, on a net-30 day basis. The Company is current in
its account with Conco. The Company also has accounts with other suppliers to
ensure product availability in the event that Conco is unable to meet the
Company's needs in the future. In connection with entering into the Primary
Distribution Agreement, Conco purchased 133,332 shares of the Company's common
stock, par value $.01 per share (the "Common Stock"), in March, 1995, for
$199,999.
Control Systems.
The Company utilizes point of sale computer systems at all of the
Company's restaurants. This system allows the Company to monitor the
restaurants on a daily basis via computer modems and tracking software. These
systems assist the Company in maintaining control of inventory, supplies and
labor costs.
Concept and Strategy.
The Company offers high-quality food products that appeal to health-
conscious consumers. The Company's restaurants offer reasonably-priced items
in a comfortable and attractive atmosphere at reasonable prices. The Company
currently focuses on middle-class urban markets in the Dallas/Ft. Worth
metropolitan area. The Company's restaurants offer a wide selection of
sandwiches, salads, pizzas, steaks, seafood, Tex-Mex and other food items and
desserts.
The Company's restaurants are designed to offer full service to the
casual diner with food preparation time comparable to fast-food restaurants.
This allows rapid turnover of lunch-time crowds. The Company's restaurants
offer drive-thru or take-out service.
The Company currently intends to concentrate its expansion efforts in
the Dallas/Ft. Worth metropolitan area. The Company believes that this area
can support up to 20 additional Street Talk Cafe restaurants. The Company's
strategy is to grow through: identifying appropriate target markets within the
Dallas/Ft. Worth metropolitan area and constructing new Street Talk Cafe
restaurants in such markets. The Company also may consider expanding through
franchising.
Currently, the Company has not entered into any leases for additional
locations for Street Talk Cafe restaurants. The Company's expansion plans are
subject to the following: (1) identification of appropriate locations, (2) the
successful negotiation of ground or building leases on acceptable terms, (3)
the availability of capital or other financing for the construction of new
restaurants, (4) the availability of full-time and part-time employees, and (5)
economic and competitive conditions. No assurances can be given that the
Company will be able to implement successfully its expansion strategy.
Pricing.
The Company competes on price with other casual dining restaurants in
order to gain acceptance for the Company's restaurants. With other restaurant
chains offering value pricing on many items, the Company believes that it is
necessary to be price competitive in order to attract new customers. As the
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Company's restaurants mature and develop repeat customers, the Company may
consider increasing prices. Any such price increase, of course, would be
subject to pricing strategies at competing restaurants.
Management and Employees.
The Company believes that attracting and maintaining superior employees
will continue to be vital to its success. Thus, managers' compensation
packages include performance bonuses and other incentives. As a result, the
Company's restaurant managers are expected to meet high standards in terms of
store margins, sales volumes and overall atmosphere in their restaurants. The
Company currently has 12 full-time and 85 part-time employees in its
operations.
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 the Company's operations manual.
The Company expects to hire approximately three full-time management
personnel and thirty part-time hourly personnel with the opening of each new
restaurant operation. The Company anticipates that the cost of compensating
these personnel will be approximately 25% of the annual operating revenue
generated by each new restaurant operation. The initial cost of hiring and
training personnel for each new restaurants will be included in the
restaurant's start-up costs.
Competition.
The Company competes with other restaurants, including restaurants that
offer products similar to those offered by the Company and restaurants that
offer other food types. The Company faces competition from local restaurant
businesses, including one-store restaurants and regional restaurant chains.
The Company also competes with national restaurant companies. Marketing
and pricing strategies may be dictated by large, well-established national
chains. As economic conditions change, product prices at major restaurant
chains may be lowered to entice customers to eat out more. To the extent the
Company competes with local franchises of these national restaurant chains, the
Company's prices will have to be competitive to attract customers and to gain
market share in new locations. However, in competing with franchises of
national restaurant chains, the Company has the advantage of paying no
franchise fees to a franchisor. The Company believes that this allows for
higher operating margins for each dollar of revenue generated.
National restaurant companies also have the benefit of substantial
financial resources for advertising and other marketing promotions which the
Company does not have. By initially concentrating its efforts on the
Dallas/Ft. Worth metropolitan area, the Company hopes to gain name recognition
through advertisements and promotions with the local media.
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 with regard to the sale of alcoholic
beverages and food. Each of the Company's restaurants currently serves
alcoholic beverages pursuant to alcohol licenses issued by the Texas Alcoholic
Beverage Commission. The Company has experienced no material problems in its
current operations in complying with state and local regulatory authorities.
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Trademarks.
The Company has been granted a trademark registration for the name
"Fresh'n Lite Deli Cafe" and "Fresh'n Lite Deli and Grill." The Company also
has applied for trademark and service mark registration of the name "Street
Talk Cafe." No assurances can be given regarding the outcome of this later
application. The Company has not filed for trademark registration of the name
"Fresh'n Lite Cafe & Grill," primarily because the Company may convert its
Fresh'n Lite Cafe & Grill restaurants to Street Talk Cafe restaurants.
Registration of trademark names does not assure the Company that its use
of the name is incontestable until five 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.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Overview.
The Company was organized in June of 1990 as Bosko's, Inc. under the
laws of the State of Delaware. In November of 1992 the Company changed its
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 3 Fresh'n Lite Cafe & Grill restaurants, in Dallas, Irving
(Valley Ranch), and The Colony, Texas. The Company also operates one Street
Talk Cafe restaurant which opened May 9, 1998 in Richardson, Texas. The
Company intends to expand by opening additional Street Talk Cafe restaurants on
a Company owned basis in the Dallas/Ft. Worth metropolitan area.
Comparison of Three Months Ended June 30, 1997 and 1998.
Revenues. For the three months ended June 30, 1998, the Company has
generated revenues of $942,635 compared to revenues in the same period of 1997
of $809,930, a 16.4% gain.
The increase in revenues was due to the fact that the Valley Ranch
location only operated for 4 1/2 months of the same period in 1997 and the
Colony facility was not operating during the same period of 1997. The closing
of the East Texas facilities, which generated significantly lower volumes than
the Valley Ranch and Colony facilities had very little impact on revenues.
The Company only had one store, being the Fresh'n Lite location on
MacArthur Blvd. in Valley Ranch, Texas that has been open long enough to
generate same store sales figures. This unit generated $297,516 in revenue for
the three month period ending June 30, 1998 a 5.3% increase from $282,641 in the
same period of 1997. The Company attributes the increase to increased
promotion associated with Chad Hennings' involvement with the Company. The
Fresh'n Lite restaurant at Preston and Frankford which would have been able to
demonstrate same store sales was closed for 45 days during the period in order
to convert it to a Street Talk Cafe concept.
Costs and Expenses. Costs and expenses for the three month period ended
June 30, 1998 increased by $67,801, or 9.2% to $806,837 as compared to $739,036
for the corresponding period of 1997. This was primarily due to higher volume
stores in the Dallas Market. Other variances between the costs and expenses for
the three month periods are minimal.
Net Income. The Company had a net income for the three months ended
June 30, 1998 of $285,868 compared to net income of $70,894 for the
corresponding three months of 1997, representing $.045 and $.012 per share,
respectively. Earnings per share figures are based on basic and diluted
earnings per share.
Comparison of Six Months Ended June 30, 1997 and 1998.
Revenues. For the six months ended June 30, 1998, the Company has
generated revenues of $1,740,854 compared to revenues in the same period 1997
of $1,522,282, a 14.4% gain, a gross profit
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of $491,304 compared to a loss in the same period of 1997 of $103,653.
The increase in revenues was due to the fact that the Valley Ranch
location only operated for 4 1/2 months of the same period in 1997 and the
Colony facility was not operating during the same period of 1997. The closing
of the East Texas facilities, which generated significantly lower volumes than
the Valley Ranch and Colony facilities had very little impact on revenues.
The Company only had one store, being the Fresh'n Lite location on
MacArthur Blvd. in Valley Ranch, Texas that has been open long enough to
generate same store sales figures. This unit generated $297,516 in revenue for
the three month period ending June 30, 1998 a 5% increase from $282,641 in the
same period of 1997. The Company attributes the increase to increased
promotion associated with Chad Hennings' involvement with the Company. The
Fresh'n Lite restaurant at Preston and Frankford which would have been able to
demonstrate same store sales was closed for 45 days during the period in order
to convert it to a Street Talk Cafe concept.
Costs and Expenses. Costs and expenses for the six month period ended
June 30, 1998 decreased by $96,647, or 6.4% to $1,529,229 as compared to
$1,626,486 for the corresponding period of 1997. This was primarily due to
accelerated amortization costs associated with the closing of the Nacogdoches
and Texarkana facilities in the first quarter of 1997. Other variances between
the costs and expenses for the first six months of 1998 and 1997 are minimal.
Net Income. The Company had a net income for the six months ended June
30, 1998 of $501,304 compared to a net loss of $103,664 for the corresponding
six months of 1997, representing $.079 and $(.017) per share, respectively.
Earnings per share figures are based on basic and diluted earnings per share.
Comparison of Three Months Ended March 31, 1998 and 1997.
Revenues. For the three months ended March 31, 1998, the Company
generated revenues of $798,219 compared to revenues in the same period 1997 of
$712,352, a 12.1% gain, a profit of $215,435 compared to a net operating loss
of $174,558 in the first quarter of 1997. The difference in profitability from
1997 to 1998 is attributed to the following factors: (1) in the first quarter
of 1997 the Company accelerated the amortization of costs in the amount of
$169,075 associated with the closing of the Nacogdoches and Texarkana, Texas
facilities; (2) in the first quarter of 1997 the Company had a one time charge
of $50,000 for professional fees associated with the Company's filing to trade
on the Nasdaq Over the Counter Bulletin Board; (3) in the first quarter of 1998
the Company realized a one time gain of $111,593 on the sale of the
Nacogdoches, Texas facility; and (4) in the first quarter of 1998 the Company
realized rental income of $28,086 on a temporary lease of the Texarkana
facility.
The increase in revenues was due to the fact that the Valley Ranch
location only operated for 1 1/2 months of the same period in 1997 and the
Colony facility was not operating during the same period of 1997. The closing of
the East Texas facilities, which generated significantly lower volumes than the
Valley Ranch and Colony facilities had very little impact on revenues.
The Company only had one store, being the Fresh'n Lite location at
Preston and Frankford that has been open long enough to generate same store
sales figures. This unit generated $195,619 in revenue for the three month
period ending March 31, 1998 a 2% decrease from $199,610 in the same period of
1997. The Company attributes the decrease to more competition in the immediate
vicinity of this location.
Costs and Expenses. Costs and expenses for the three month period ended
March 31, 1998 increased by $164,448 or 22.8% to $886,910 as compared to
$722,462 for the corresponding period ended March 31, 1997. This was primarily
due to the opening of additional higher volume restaurants in the Dallas market
area.
Net Income. The Company had a net income for the three month period
ended March 31, 1998 of $215,436 compared to net loss of $174,558 for the three
month period ended March 31, 1997, representing $.033 and $(.03) per share,
respectively. Earnings per share figures are based on basic earnings as well as
diluted earnings per share.
Comparison of Year Ended December 31, 1996 and December 31, 1997.
Revenues. Operating revenues for fiscal year ended December 31, 1996
were $2,602,533, with a gross profit of $1,862,111 (71.5%), and operating income
of $282,327, before adding royalty revenues of $34,744, which increased
operating income to $317,101.
Operating revenues for fiscal year ended December 31, 1997 were
$3,106,144, a 19.4% increase from 1996, with a gross profit of $2,215,200
(71.4%), and operating income of $166,862 which included a one time charge of
$169,075 for the accelerated amortization of start up costs associated with the
closing of the Nacogdoches, Texarkana, and Longview, Texas facilities. Prior to
this charge, operating income was $335,937. The Company discontinued its
franchise operation in early 1996, therefore no royalty revenues or franchise
fees are reflected in the 1997 numbers. The 19.4% increase in revenues over
1996 is attributed to the opening of the Irving (Valley Ranch), and The Colony,
Texas facilities.
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Costs and Expenses. Costs and expenses for the fiscal year ended
December 31, 1997 increased by $594,388 or 25.5% to $2,926,758 as compared to
$2,332,370 for the corresponding period ended December 31, 1996. This was
primarily due to opening of higher volume restaurants in the Dallas market area.
Net Income. The Company had a net income for the fiscal
year ended December 31, 1997 of $119,386 compared to net income of
$234,937 for fiscal year ended December 31, 1996, representing $.02 and
$.04 per share, respectively. Earnings per share figures are based on
a basic and fully diluted basis.
Liquidity and Capital Resources.
Historically the Company has required capital to fund the operations and
capital expenditure requirements of its Company-owned restaurants.
From January 4, 1995 through December 12, 1997 the Company received
gross proceeds in the amount of $2,219,500 from intra-state offerings of the
Company's securities. Approximately $287,600 of the proceeds from the
offerings were used to cover offering related costs, including underwriting
discounts and commissions. See "Item 10. Recent Sales of Unregistered
Securities." The net proceeds were used for the acquisition of the Company's
corporate headquarters. The remaining proceeds were used to develop additional
restaurants and for general corporate purposes. The Company's corporate
headquarters were purchased for $1,250,000 which was the appraised value of the
facility. See "Item 7. Certain Relationships and Related Transactions."
The Company met fiscal 1997 capital requirements with cash generated by
operations, the proceeds from the 1997 intra-state offering, and borrowing on
notes payable. In March of 1997 the Company was able to refinance it's
existing debt with East Texas National Bank in Marshall, Texas in order to
extend the due dates from 1997 to March of the year 2000. The refinancing was
done on a renewal basis as the notes came due under the same terms and
conditions as the predecessor notes. In fiscal 1997 the Company's operations
generated approximately $644,352 in cash, as compared to $551,804 in fiscal
1996 and $461,811 in fiscal 1995. The Company's restaurant operations are
labor intensive and do not have significant receivables or inventory. The
Company receives trade credit based upon negotiated terms in purchasing food
and supplies and ordinarily operates with a relatively small level of working
capital.
The Company's principal capital requirements are the funding of new
restaurant development or acquisitions and remodeling of existing units.
During fiscal 1997, the Company constructed and opened one unit in The Colony,
Texas and began construction of a second unit in Richardson, Texas, and
purchased its corporate headquarters. The total capital outlay for the year
was $2,288,392. Opening additional Company-owned restaurants is a key
component of the Company's expansion plans.
On May 29, 1998 the Company issued $1,500,000 of 6% Convertible
Debentures due May 29, 2000 (the "A Debentures"), in a private placement to
three accredited investors (the "Investors"). The private placement yielded
$1,335,000 in net proceeds to the Company (after deduction of the placement
agent's fees and fees of counsel for the Investors). In connection with the
private placement, the Company also issued to the Investors, warrants to
purchase up to an aggregate of 75,000 shares of the Company's Common Stock (the
"Warrants"). The Company issued to the placement agent a Warrant to purchase
up to 50,000 shares of the Company's Common Stock. The exercise price for the
Warrants is $4.40 per share, which is equal to 110% of the average closing bid
prices of the Company's Common Stock for the five trading days immediately
preceding May 29, 1998.
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The A Debentures can be converted into shares of the Company's Common
Stock. The number of shares of Common Stock to be issued upon any such
conversion will be determined based upon the lesser of (a) $4.00 per share,
(the closing bid price of the Common Stock on May 28, 1998), or (b) the average
closing bid prices of the Company's Common Stock for the five trading day
period ending on the trading day immediately preceding the date on which such A
Debenture is converted, multiplied by a discount ranging from 25% to 17.5%.
The Company granted to the Investors certain registration rights with respect
to the shares of Common Stock underlying the A Debentures and the Warrants.
See "Item 10. Recent Sales of Unregistered Securities."
The beneficial conversion feature attached to the A Debentures is
valued at $500,000. The value is calculated at the date of issue as the
difference between the conversion price most beneficial to the investor and the
fair value of the common stock into which the security is convertible,
multiplied by the number of shares into which the security is convertible. This
amount will be amortized into interest expense during the period between
issuance of the debt and the date the securities can be converted at the
highest discount.
On June 30, 1998 the Company issued a second tranche of $1,500,000 of
its 6% Convertible Debentures due June 30, 2000 (the "B Debentures"), in a
private placement to two of the Investors. The private placement yielded
$1,335,000 in net proceeds to the Company (after deduction of the placement
agent's fees and fees of counsel for two of the Investors). In connection with
the private placement, the Company also issued to two of the Investors,
Warrants to purchase up to an aggregate of 75,000 shares of the Company's
Common Stock. The Company issued to the placement agent a Warrant to purchase
up to 50,000 shares of the Company's Common Stock. The exercise price for the
Warrants is $4.30 per share, which is equal to 110% of the average closing bid
prices of the Company's Common Stock for the five trading days immediately
preceding June 30, 1998.
The beneficial conversion feature attached to the B Debentures is
valued at $500,000. The value is calculated at the date of issue as the
difference between the conversion price most beneficial to the investor and the
fair value of the common stock into which the security is convertible,
multiplied by the number of shares into which the security is convertible. This
amount will be amortized into interest expense during the period between
issuance of the debt and the date the securities can be converted at the
highest discount.
Year 2000 Disclosure.
The Company uses current versions of widely used, publicly available
software for its accounting, data processing, and point of sale computer
requirements. The providers of the software utilized by the Company have
stated that there will be no failures in the programs used by the Company
resulting from the year 2000. The Company does not utilize any customized
software. The Company has not yet determined the impact, if any, that year
2000 issued may have on its vendors. However, the Company believes there are
adequate alternative vendors that can supply products and services to the
Company if necessary. Finally, the Company's business is not highly dependent
upon electronic data processing. In conclusion, the Company does not believe
it is at a material risk from year 2000 issues.
ITEM 3: DESCRIPTION OF PROPERTY
Restaurant Locations.
The following table provides information with respect to each of the
Company's restaurant properties. The Dallas, Irving, The Colony, Texarkana,
Longview and Richardson buildings are owned, with a lease on the land. The
Company's current plan is to secure a 20-year lease with an option to purchase
on any land to be used for an additional restaurant.
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<TABLE>
<CAPTION>
LOCATION SQUARE FEET LEASE EXPIRATION DATE
-------- ----------- ---------------------
<S> <C> <C>
Dallas, Texas . . . . . . . . . . . . . . . 4,500 sq. ft. February 21, 2015
Irving (Valley Ranch), Texas . . . . . . . 4,700 sq. ft. November 15, 2016
The Colony, Texas . . . . . . . . . . . . . 4,700 sq. ft. October 15, 2017
Texarkana, Texas . . . . . . . . . . . . . 3,308 sq. ft. February 1, 2014
Longview, Texas . . . . . . . . . . . . . . 3,500 sq. ft. January 6, 2012
Richardson, Texas . . . . . . . . . . . . . 4,700 sq. ft. December 15, 2017
</TABLE>
The Company no longer operates restaurants in the Texarkana and Longview
locations. The Company's lease on the Longview land included an option to
purchase the property which expired in 1997. In connection with the Company's
proposed sale of the building on the Longview property, the Company solicited
and received an extension of the purchase option through December 15, 1998.
The Company currently intends to exercise the purchase option and
simultaneously sell the land and the Company's building to a single purchaser.
The Company has entered into a written agreement for this sale and the
transaction is expected to close during the third quarter of 1998. In
addition, the Company is negotiating with potential purchasers of the Texarkana
location and expects that the Texarkana building will be sold and the Texarkana
ground lease will be assumed by the end of 1998.
The Company currently plans to convert the Dallas restaurant from the
Fresh'n Lite Grill and Cafe concept to the Street Talk Cafe concept. The
anticipated cost of this conversion is approximately $200,000.
Headquarters Location.
The Company owns a building located at 1705 Whaley, Longview, Texas.
The Company utilizes approximately 5,000 sq. ft. of the building for its
administrative operations. The Company leases the remainder (approximately
15,000 sq. ft.) to another company. The Company purchased the headquarters
land and building in December 1997 from a company that is partially owned by
Stanley L. Swanson ("Mr. Stan Swanson") and Curtis A. Swanson ("Mr. Curtis
Swanson"), both directors and officers of the Company. See "Item 7. Certain
Relationships and Related Transactions."
ITEM 4: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of Common Stock of
the Company beneficially owned as of August 1, 1998 by (i) each person of
record known to the Company who beneficially owns 5% or more of the outstanding
Common Stock, (ii) the named executive officers of the Company, (iii) each
director of the Company, and (iv) all directors and executive officers as a
group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS OF OWNER OWNERSHIP CLASS
------------------------- --------- -----
<S> <C> <C>
Stanley L. & Carole Swanson
1705 E. Whaley
Longview, Texas 76505 . . . . . . . . . . 1,303,921 (1) 19.4%
Curtis A. & Kim Swanson
1705 E. Whaley 8.9%
Longview, Texas 75605 . . . . . . . . . . 607,000 (2)
Edward Dmytryk . . . . . . . . . . . . . . . . . 20,000 *
Henry Leonard . . . . . . . . . . . . . . . . . . 25,000 *
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS OF OWNER OWNERSHIP CLASS
------------------------- --------- -----
<S> <C> <C>
Robert Lilly . . . . . . . . . . . . . . . . . . 53,572 (3) *
All directors and executive officers as a
group (5 persons) . . . . . . . . . . . . . . . 2,009,493 30.4%
</TABLE>
- ----------------
* Less than 1%.
(1) Includes 100,000 shares that are not outstanding, but are issuable upon
exercise of options held by Mr. Stan Swanson that are currently
exercisable.
(2) Includes 200,000 shares that are not outstanding, but are issuable upon
exercise of options held by Mr. Curtis Swanson that are currently
exercisable.
(3) Includes an aggregate of 53,572 shares that are not outstanding, but are
issuable upon exercise of two options held by Robert Lilly ("Mr. Lilly)
that are currently exercisable.
ITEM 5: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS.
The directors and executive officers of the Company are set forth below.
<TABLE>
<CAPTION>
IN OFFICE
NAME AGE POSITION SINCE
---- --- -------- -----
<S> <C> <C> <C>
Stanley L. Swanson . . . . . . 53 Chief Executive Officer, Chairman of the 1990
Board of Directors, and President
Curtis A. Swanson . . . . . . . 30 Director, Treasurer, Chief Financial 1990
Officer and
Executive Vice-President
Jean Hedges . . . . . . . . . . 38 Controller 1993
Carole A. Swanson . . . . . . . 55 Secretary 1990
Edward Dmytryk . . . . . . . . 50 Director 1992
Robert (Bob) Lilly . . . . . . 57 Director 1995
Henry Leonard . . . . . . . . . 49 Director, President and Chief Operating 1997
Officer
</TABLE>
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: Mr. Stan Swanson and
Carole A. Swanson ("Ms. Carole Swanson") are husband and wife. Mr. Curtis
Swanson is the son of Mr. Stan and Ms. Carole 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.
Curtis A. Swanson has been Chief Financial Officer, Executive Vice-
President, and Treasurer of the Company since its inception in May, 1990.
11
<PAGE> 12
Jean M. Hedges ("Ms. Hedges") has been Corporate Controller for the
Company since September 1993. 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 the Company, Ms. Hedges was the
controller of Stainback Casting, a manufacturer based out of Tyler, Texas, from
1992 to 1993.
Carole A. Swanson, a co-founder of Fresh'n Lite, Inc., has served as
Secretary of the Company since its inception in May, 1990.
Edward C. Dmytryk ("Mr. 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 Ft. Worth,
Texas. From 1988 until January, 1995, Mr. Dmytryk was the chief operating
officer for Bollinger Industries International, located in Irving, Texas.
Henry Leonard ("Mr. Leonard") has been President and Chief Operating
Officer of the Company since December 1997. In May of 1998 Mr. Leonard was
elected a director of the Company. Prior to joining the Company in 1997, Mr.
Leonard was President of Casa Ole' ALM, L.L.C., a franchise market partner
joint venture with Casa Ole' Restaurants, Inc. From 1995 to 1996, Mr. Leonard
was director of New Concept Development for Papa Gino's of America, Inc. From
1974 to 1994, Mr. Leonard served in a variety of posts for Pizza Systems /
Summit Concepts (d.b.a Mazzio's and Ken's Pizza) including President and Chief
Operating Officer.
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.
ITEM 6: EXECUTIVE COMPENSATION
The following table sets forth certain compensation information
regarding the Company's Chief Executive Officer. No officer of the Company
received compensation during the most recent fiscal year in an amount exceeding
$100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION COMPENSATION
------------ ------------
SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY OPTIONS/SARS (#)
--------------------------- ----------- ------ ---------------
<S> <C> <C> <C>
Stanley L. Swanson, Chief Executive Officer 1997 $24,700 100,000
1996 $24,700 -0-
1995 $24,700 -0-
</TABLE>
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE
NAME GRANTED (#) FISCAL YEAR ($/SH) EXPIRATION DATE
---- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
Stanley L. Swanson 100,000 18.4% $2.50 December 31, 2001
</TABLE>
12
<PAGE> 13
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES ACQUIRED ON FY-END (#) FY-END (#)
NAME EXERCISE (#) VALUE REALIZED EXERCISABLE EXERCISABLE
---- ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Stanley L. Swanson -0- -0- 100,000 $50,000(1)
</TABLE>
- ----------------
(1) Calculated based on a December 31, 1997, fair market value of $3.00 per
share, less the exercise price of $2.50 per share.
Employment Agreement.
The Company has entered into a five-year employment agreement with Mr.
Leonard. Mr. Leonard received 25,000 shares of Common Stock as a signing bonus.
The employment agreement provides Mr. Leonard with an annual salary of $75,000
per year with $25,000 a year increases for the five-year term of the employment
agreement. The employment agreement also provides, as part of Mr. Leonard's base
compensation, an option to purchase 250,000 shares of Common Stock exercisable
over a five-year period in increments of 50,000 per year with the first exercise
date set at December 15, 1998. Pursuant to the employment agreement, Mr. Leonard
may receive additional incentive compensation based on the Company's achievement
of projected net cash flow. The incentive would allow Mr. Leonard to purchase
20,000 shares of Common Stock per year and up to a 50% cash bonus as a percent
of his base salary each year. The employment agreement also provides other
typical employment benefits and a two-year non-compete restriction upon
termination.
Director Compensation.
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.
On December 1, 1995, the Company entered into an agreement with Mr.
Lilly whereby Mr. Lilly receives $1,500 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 previous agreement between Mr. Lilly
and the Company through which Mr. Lilly acquired options to purchase 3,752
shares of Common Stock at $.10 per share. Pursuant to the superseded agreement,
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.
13
<PAGE> 14
Stock Option Plan.
On March 1, 1997, the Board of Directors of the Company adopted its
1997 Incentive Stock Option Plan (the "1997 Plan") pursuant to which 300,000
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 1, 1998.
Under the 1995 Incentive Stock Option Plan (the "1995 Plan"), an option
for 50,000 shares has been granted to Mr. 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 1995 Plan, Roland R. Jehl and Douglas K.
Tabor, who served as directors for one-year terms expiring during 1997, 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.
The Company applies APB Opinion 25 and related interpretations in
accounting for the 1995 Plan and the 1997 Plan. In 1995, the FASB issued FASB
Statement No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123"), which,
if fully adopted by the Company, would change the methods the Company applies in
recognizing the cost of the 1995 Plan and the 1997 Plan. Adoption of the cost
recognition provisions of SFAS 123 is optional and the Company has decided not
to elect these provisions of SFAS 123. The Company recorded no stock-based
compensation costs in 1997, 1996, or 1995. Had the fair values of options been
recognized as compensation expense, costs would have increased by $228,270
($172,270 after tax) in 1997 and $90,108 (no tax effect) in 1995. No options
were granted in 1996. The effects of applying SFAS 123 in this proforma
disclosure are not indicative of future amounts.
ITEM 7: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
F'NL Investments, LLC.
In 1995, Mr. Curtis Swanson, a director, Treasurer and Chief Financial
Officer, and Mr. Dmytryk, a director, own 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 to be located at 900 Six Flags Dr. in Arlington. F'NL
Investments, LLC paid a $50,000 franchise fee to the Company and agreed to pay
the Company royalties of 5% of gross revenues. The directors have elected to
allow F'NL Investments, LLC to convert this restaurant to a pizza restaurant
because of demographics and to open the franchise restaurant in Arlington at a
location to be determined in the future. F'NL Investments, LLC will not be
required to pay additional franchise fees when the new franchise site is
selected.
At December 31, 1996, the Company held a note receivable from F'NL
Investments, LLC. 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 F'NL Investments, LLC by the Company in connection with payroll services it
was providing F'NL Investments, LLC in paying employees of F'NL Investments,
LLC.
At December 31, 1997, the Company held a note receivable from Mr.
Curtis Swanson, an officer, director and shareholder of the Company, in the
amount of $124,500. The note related to operating expenses of the Arlington
franchise location. The note bears interest at 5% and is payable in two
semiannual installments of $77,845, together with interest beginning on June 30,
1998.
14
<PAGE> 15
Four Seasons Marine & Cycle, Inc.
In December 1997, the Company bought its corporate headquarters for
$1,250,000 from Four Seasons Marine & Cycle, Inc. ("Four Seasons"). Messrs.
Curtis Swanson and Stan Swanson, directors and officers of the Company, each own
43% of Four Seasons. The purchase price was based on the appraised value of the
facility. In addition, the transaction was approved by the Board of Directors of
both Four Seasons and the Company.
ITEM 8: 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 therefor; 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 shares of
Common Stock.
15
<PAGE> 16
PART II
ITEM 1: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information and Holdings.
The Company's Common Stock began trading on the Nasdaq Over the Counter
Bulletin Board under the symbol "FLTT" on May 9, 1997. As of June 22, 1998,
there were approximately 204 shareholders of record. The following table sets
forth for the quarters indicated the high and low bid prices of the Company's
Common Stock as reported by the Nat'l Daily Quotation Services, Inc. The prices
reflect inter-dealer prices, without retail mark-up, mark-down or commissions
and may not represent actual transactions.
Dividends.
The Company has not declared any cash dividends on its Common Stock
during the fiscal years ended December 31, 1996 and December 31, 1997 nor during
the first six months ended June 30, 1998. No restrictions exist on the Company's
ability to pay dividends on its Common Stock in the future.
<TABLE>
<CAPTION>
1997 HIGH LOW
---- ---- ---
<S> <C> <C>
First Quarter ............................... N/A N/A
Second Quarter .............................. $ 3.000 $ 2.500
Third Quarter ............................... 3.750 2.500
Fourth Quarter .............................. 3.625 2.125
1998 HIGH LOW
---- ---- ---
First Quarter ............................... $ 3.000 $ 1.649
Second Quarter .............................. 4.469 1.656
</TABLE>
ITEM 2: LEGAL PROCEEDINGS
The Company is not presently a party to any litigation.
ITEM 3: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 4: RECENT SALES OF UNREGISTERED SECURITIES
Sales of Units.
During 1997, the Company sold 198,450 units for an aggregate offering
price of $10.00 per unit. Each unit consisted of four shares of Common Stock and
two warrants to purchase shares of Common Stock. Each warrant entitles the
holder to purchase one share of Common Stock per warrant, for $3.00 per share,
on or before June 25, 2001. The total amount raised through the sale of such
units was $1,984,500, of which $56,600 was paid in underwriting commissions. The
primary purpose of the sale of units was to raise capital for the purchase of
the Company's corporate offices.
16
<PAGE> 17
In connection with the Company had entered into an underwriting
agreement with Dillon-Gage Securities, Inc. ("Dillon-Gage"). After 56,600 units
were sold, the underwriting agreement was terminated and Dillon-Gage refunded
$10,000 of expenses previously advanced. Dillon-Gage retained the aforementioned
10% commission of $56,600. The Company then completed the sale of units.
The Company is registered as an issuer broker dealer with the Texas
Securities Board. The offering of the units was made only to residents of the
State of Texas. The Company relied on the Section 3(a)(11) intrastate offering
exemption of the Securities Act of 1933 as amended, for the sale of these
securities. The sale of units concluded on December 12, 1997.
Sale of 6% Convertible Debentures.
On May 29,1998, the Company issued $1,500,000 of the A Debentures to
the Investors. The private placement yielded $1,335,000 in net proceeds to the
Company (after deduction for the payment of the placement agent's fees and fees
of counsel for the Investors). In connection with the private placement, the
Company also issued to the Investors, Warrants to purchase up to an aggregate of
75,000 shares of the Company's Common Stock. The Company issued to the placement
agent a Warrant to purchase up to 50,000 shares of the Company's Common Stock.
The exercise price for the Warrants is $4.43, which is equal to 110% of the
average closing bid prices of the Company's Common Stock for the five trading
days immediately preceding May 29, 1998.
The A Debentures can be converted into shares of the Company's Common
Stock. The number of shares of Common Stock to be issued upon any such
conversion will be determined based upon the lesser of (a) $4.00 per share (the
closing bid price of the Common Stock on May 28, 1998), or (b) the average
closing bid prices of the Company's Common Stock for the five trading day period
ending on the trading day immediately preceding the date on which such A
Debenture is converted, multiplied by a discount ranging from 25% to 17.5%. The
Company granted to the Investors certain registration rights with respect to the
shares of Common Stock underlying the A Debentures and the Warrants.
On June 30, 1998, the Company issued $1,500,000 of the B Debentures to
two of the Investors. The private placement yielded $1,335,000 in net proceeds
to the Company (after deduction for the payment of the placement agent's fees
and fees of counsel for two of the Investors). In connection with the private
placement, the Company also issued to two of the Investors, Warrants to purchase
up to an aggregate of 75,000 shares of the Company's Common Stock. The Company
issued to the placement agent a Warrant to purchase up to 50,000 shares of the
Company's Common Stock. The exercise price for the Warrants is $4.43, which is
equal to 110% of the average closing bid prices of the Company's Common Stock
for the five trading days immediately preceding May 29, 1998.
The B Debentures can be converted into shares of the Company's Common
Stock. The number of shares of Common Stock to be issued upon any such
conversion will be determined based upon the lesser of (a) $4.00 per share (the
closing bid price of the Common Stock on May 28, 1998), or (b) the average
closing bid prices of the Company's Common Stock for the five trading day period
ending on the trading day immediately preceding the date on which such B
Debenture is converted, multiplied by a discount ranging from 25% to 17.5%. The
Company granted to two of the Investors certain registration rights with respect
to the shares of Common Stock underlying the B Debentures and the Warrants.
If the A Debentures and the B Debentures are converted and the Warrants
are exercised, then the ownership positions of the shareholders who own the
Company's Common Stock will be diluted.
17
<PAGE> 18
The A Debentures and B Debentures were sold in an exempt private
placement pursuant to Section 4(2) of the Securities Act of 1933, as amended.
The A Debentures were sold to only three accredited Investors and the B
Debentures were sold to only two of the accredited Investors.
ITEM 5: INDEMNIFICATION OF OFFICERS AND DIRECTORS
Liability and Indemnification.
The Company is a Texas corporation. Texas' corporation laws include
provisions that may provide exculpation and indemnification to officers and
directors. Such provisions could diminish the rights of shareholders to sue
officers or directors. The Company's Articles of Incorporation exculpate the
Company's directors from personal liability to the Company, except to the extent
a Texas statute precludes such elimination of personal liability. The Company's
Bylaws provide that the Company may advance expenses to, and indemnify, the
Company's directors, officers, employees, agents and other persons, all to the
fullest extent allowed by applicable law.
18
<PAGE> 19
PART F/S -- FINANCIAL STATEMENTS
FRESH'N LITE, INC.
INDEX TO FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<S> <C>
Audited Financial Statements
Independent Auditors Report .....................................21
Balance Sheets ..................................................23
Statements of Income ............................................25
Statements of Changes in Shareholders' Equity ...................26
Statements of Cash Flows ........................................27
Notes to Financial Statements ...................................29
Interim Condensed Financial Statements
Condensed Balance Sheets ........................................48
Condensed Income Statement ......................................50
Condensed Statements of Cash Flows ..............................51
Notes to Interim Condensed Financial Statements (Unaudited) .....52
Interim Condensed Financial Statements
Condensed Balance Sheets ........................................53
Condensed Income Statement ......................................55
Condensed Statements of Cash Flows ..............................56
Notes to Interim Condensed Financial Statements (Unaudited) .....57
</TABLE>
19
<PAGE> 20
FRESH'N LITE, INC.
RESTATED FINANCIAL STATEMENTS TOGETHER
WITH AUDITORS' REPORT
DECEMBER 31, 1997
<PAGE> 21
INDEPENDENT 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, 1997, and the related statements of income, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audits 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 that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Fresh'n Lite, Inc. as of
December 31, 1997, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles.
/s/ T. G. PROTHRO & COMPANY, PLLC
Certified Public Accountants
Tyler, Texas
March 3, 1998, except for Note 14 as
to which the date is August 12, 1998
MEMBERS, AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
MEMBERS, TEXAS SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS
21
<PAGE> 22
FINANCIAL STATEMENTS
<PAGE> 23
FRESH'N LITE, INC.
BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
1997
Restated
-----------
<S> <C>
ASSETS
CURRENT ASSETS
Cash ................................................. $ 20,373
Inventory ............................................ 26,571
-----------
Total Current Assets ............................ 46,944
-----------
PROPERTY AND EQUIPMENT (Pledged)
Buildings ............................................ 3,774,141
Land ................................................. 135,000
Leasehold Improvements ............................... 30,113
Vehicles and Equipment ............................... 1,250,302
-----------
Total Property and Equipment .................... 5,189,556
Accumulated Depreciation ............................. (430,325)
-----------
Property and Equipment - Net .................... 4,759,231
-----------
OTHER ASSETS
Assets Held for Sale,
Net of Accumulated Depreciation .................... 909,835
Corporate Organizational Costs and Other Assets,
Net of Accumulated Amortization .................... 32,651
Notes Receivable - Related Party ..................... 164,543
-----------
Total Other Assets ............................. 1,107,029
-----------
TOTAL ASSETS .................................... $ 5,913,204
===========
</TABLE>
See accompanying notes to financial statements.
23
<PAGE> 24
FRESH'N LITE, INC.
BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
1997
Restated
--------
<S> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accrued Expenses ............................................. $ 340,635
Accounts Payable ............................................. 52,864
Bank Overdraft ............................................... 48,104
Note Payable - Short Term .................................... 10,249
Income Taxes Payable ......................................... 8,800
Current Portion of Capital Lease Obligation .................. 6,175
Current Portion of Notes Payable - Long Term ................. 465,015
----------
Total Current Liabilities ........................... 931,842
OTHER LIABILITIES
Capital Lease Obligation, net of Current Portion ............. 165,504
Notes Payable - Long Term, net of Current Portion ............ 1,101,437
Deferred Income Tax Liability ................................ 121,200
----------
Total Liabilities ................................... 2,319,983
----------
SHAREHOLDERS' EQUITY
Common Stock, $0.01 Par Value; 50,000,000 Shares Authorized;
6,158,482 Shares Issued and Outstanding .................... 61,585
Additional Paid in Capital ................................... 3,278,499
Retained Earnings ............................................ 254,387
----------
3,594,471
Less: Treasury Stock, at Cost, 1,250 Shares ................. (1,250)
----------
Total Shareholders' Equity .......................... 3,593,221
----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .......... $5,913,204
==========
</TABLE>
See accompanying notes to financial statements.
24
<PAGE> 25
FRESH'N LITE, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
RESTATED RESTATED RESTATED
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Food and Beverage Sales....................................... $ 3,106,144 $ 2,602,533 $ 1,840,756
Franchise Royalties Earned.................................... -- 34,774 5,211
Franchise Fees Earned......................................... -- -- 50,000
----------- ----------- -----------
Total Revenues....................................... 3,106,144 2,637,307 1,895,967
----------- ----------- -----------
EXPENSES
Food and Beverage Costs....................................... 890,944 740,422 522,180
Salaries and Contract Labor................................... 744,750 580,517 473,757
Payroll and Other Taxes....................................... 145,893 118,574 92,619
Professional Fees............................................. 95,662 88,542 17,646
Advertising and Promotional................................... 129,274 64,878 42,275
Rent.......................................................... 160,049 105,673 70,182
Insurance..................................................... 61,424 41,525 46,390
Franchise System Costs........................................ 10,000 22,311 57,392
Telephone..................................................... 41,346 20,823 22,765
Travel........................................................ 12,269 5,763 8,412
Utilities..................................................... 100,331 86,794 67,926
Depreciation.................................................. 233,881 162,793 122,633
Amortization.................................................. 188,539 119,301 137,445
Interest...................................................... -- 101,499 86,683
Linen and Laundry............................................. 39,918 22,452 10,291
Repairs and Maintenance....................................... 40,062 19,164 12,261
Supplies...................................................... 12,247 12,099 8,116
Miscellaneous................................................. 20,169 19,240 11,730
----------- ----------- -----------
Total Expenses....................................... 2,926,758 2,332,370 1,810,703
----------- ----------- -----------
OPERATING INCOME..................................... 179,386 304,937 85,264
Income Tax Expense:
Current.............................................. 8,800 -- --
Deferred............................................. 51,200 70,000 --
----------- ----------- -----------
NET INCOME........................................... $ 119,386 $ 234,937 $ 85,264
=========== =========== ===========
EARNINGS PER SHARE
Basic Earnings Per Share...................................... $ 0.02 $ 0.04 $ 0.02
=========== =========== ===========
Diluted Earnings Per Share.................................... $ 0.02 $ 0.04 $ 0.02
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
25
<PAGE> 26
FRESH'N LITE, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
ADDITIONAL RETAINED TOTAL
COMMON PAID IN EARNINGS TREASURY SHAREHOLDERS'
STOCK CAPITAL (DEFICITS) STOCK EQUITY
----- ------- --------- ----- ------
<S> <C> <C> <C> <C> <C>
Balances, January 1, 1995 ......... $49,729 $ 999,520 $(185,200) $ (1,250) $ 862,799
Net Income ............... -- -- 85,264 -- 85,264
Sale of Common Stock,
291,734 Shares ......... 2,918 365,334 -- -- 368,252
------- ----------- ----------- ----------- -----------
Restated Balances, December 31,
1995............................. 52,647 1,364,854 (99,936) (1,250) 1,316,315
Net Income ............... -- -- 234,937 -- 234,937
Sale of Common Stock,
226,400 Shares ......... 2,264 563,736 -- -- 566,000
Stock Issuance Costs ..... -- (159,980) -- -- (159,980)
------- ----------- ----------- ----------- -----------
Restated Balances, December 31,
1996 ............................ 54,911 1,768,610 135,001 (1,250) 1,957,272
Net Income ............... -- -- 119,386 -- 119,386
Sale of Common Stock,
667,400 Shares ......... 6,674 1,661,826 -- -- 1,668,500
Stock Issuance Costs ..... -- (151,937) -- -- (151,937)
------- ----------- ----------- ----------- -----------
Restated Balances, December 31,
1997 ............................ $61,585 $ 3,278,499 $ 254,387 $ (1,250) $ 3,593,221
------- ----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
26
<PAGE> 27
FRESH'N LITE, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
(Restated) (Restated) (Restated)
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income ................................................. $ 119,386 $ 234,937 $ 85,264
----------- ----------- -----------
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation ...................................... 223,881 162,793 122,633
Amortization ...................................... 188,539 119,301 137,445
Deferred Income Taxes ............................. 51,200 70,000 --
Change in Net Capital Leases ...................... (19,750) (2,131) (808)
Net Change in Assets and Liabilities:
(Increase) Decrease in Inventory ......... 618 8,172 (11,063)
Increase (Decrease) in Accounts Payable .. 5,854 (13,074) (15,173)
Increase (Decrease) in Accrued Expenses .. 45,824 (50,505) 86,121
Increase in Income Taxes Payable ......... 8,800 -- --
----------- ----------- -----------
Total Adjustments ................................. 514,966 294,556 319,155
----------- ----------- -----------
Net Cash Provided by Operating Activities: 634,352 529,493 404,419
----------- ----------- -----------
Cash Flows from Investing Activities:
Capital Expenditures ....................................... (2,288,392) (771,327) (928,617)
Expenditures for Preopening/Remodel
Costs and other Assets ................................... -- (74,708) (54,495)
(Increase) Decrease in Note Receivable - Related Party .............. (133,198) 9,712 (41,057)
(Increase) Decrease in Deferred Stock Issuance Costs
and Deferred Franchise System Costs ............................... -- 102,935 (15,000)
----------- ----------- -----------
Net Cash Used in Investing Activities .... (2,421,590) (733,388) (1,039,169)
----------- ----------- -----------
Cash Flows from Financing Activities:
Sale of Common Stock, Net of Stock Issuance Costs .......... 1,168,500 406,020 200,001
Financing through Bank Overdrafts .......................... 48,103 (31,004) 10,675
Borrowings on Notes Payable ................................ 1,451,239 144,694 487,550
Principal Payments on Notes Payable ........................ (877,871) (312,570) (57,825)
----------- ----------- -----------
Net Cash Provided by Financing Activities 1,789,971 207,140 640,401
----------- ----------- -----------
NET INCREASE IN CASH .............................. 2,733 3,245 5,651
CASH AT BEGINNING OF YEAR ........................................... 17,640 14,395 8,744
----------- ----------- -----------
CASH AT END OF YEAR ........................................ $ 20,373 $ 17,640 $ 14,395
----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
27
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS
<PAGE> 29
FRESH'N LITE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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'n 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 Company merged from a
Delaware corporation into F'NL, Inc., a Texas corporation. Immediately, the
Company changed its name to Fresh'n Lite, Inc.
Prior to 1994, the Company's restaurants provided healthy foods and beverages in
a "fast food" deli atmosphere. During 1994, the Company expanded all restaurants
into "full service" restaurants, offering dinner menus and a wait staff. During
1995, the Company closed the Texarkana, Longview and Nacogdoches restaurants and
reopened them as Aunt Bea's Home Cooking. During 1997, the Company closed the
Texarkana, Longview, and Nacogdoches restaurants. All of the Company's
restaurants are now located in the Dallas/Ft. Worth Metroplex.
Following is a summary of the Company's restaurants:
<TABLE>
<CAPTION>
LOCATION DATE OPENED/STATUS
- -------- ------------------
<S> <C>
Tyler, Texas (sold August 1994,
Repurchased March 1995,
Closed December 1997).............................. February 1991
Longview, Texas (Closed 1997)........................ March 1992
Nacogdoches, Texas (Closed 1997)..................... May 1993
Texarkana, Texas (Closed 1997)....................... June 1994
Dallas (Frankford Avenue), Texas..................... July 1995
Irving (Valley Ranch), Texas......................... February 1997
The Colony, Texas.................................... October 1997
Richardson, Texas.................................... Under Construction
</TABLE>
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.
29
<PAGE> 30
FRESH'N LITE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The Company has satisfactory title for all owned assets, except for the
corporate headquarters, including land, purchased during the year ended December
31, 1997. These assets were purchased pursuant to a contract for sale dated
December 1, 1997, which transfers title via warranty deed to the Company upon
payment in full and fulfillment of all other obligations under the contract. The
seller was a corporation owned primarily by two officers/directors of the
Company and the sales price approximated the corporation's historical cost basis
in the assets sold.
RESTAURANT PREOPENING/REMODEL COSTS
During the period of construction or major remodel of the Company's East Texas
restaurants, the Company capitalized certain costs pertaining to these
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 remodeling period, in
the case of a major remodel of an existing restaurant. Once the new restaurants
open or existing restaurants' major remodels were completed, capitalization
ceased. During the year ended December 31, 1997, certain of these costs were
reclassified as building costs. The remaining costs were fully amortized as a
result of the East Texas restaurants costs being closed.
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 in 1996, these costs, which aggregated $159,980, reduced the additional
paid in capital realized from the sale. During the year ended December 31, 1997,
additional attorney's fees and expense totaling $151,937 were incurred and
reduced the additional paid in capital realized from 1997 stock sales.
FRANCHISE SYSTEM COSTS
During 1995, 1996, and 1997, the Company incurred certain internal, as well as
external, costs as it developed its franchise system. These costs are expensed
as incurred. During the years ended December 31, 1997, 1996 and 1995, the
Company expensed franchise system costs in the amount of $10,000, $22,311 and
$57,392, respectively.
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.
30
<PAGE> 31
FRESH'N LITE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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. During 1996, the Company's only franchise was
closed by its owner. Accordingly, the Company earned no royalties during 1997.
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. The Company is still
promoting its franchise operations and hopes to secure additional franchises in
the near future.
ADVERTISING AND PROMOTIONAL COSTS
All advertising and promotional costs are charged to operations when incurred.
Advertising and promotional costs were $ 129,274 for the year ended December 31,
1997. Advertising and promotional costs were $64,878 and $42,275 for the years
ended December 31, 1996 and 1995, respectively.
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.
CAPITALIZED LAND LEASES
At December 31, 1997, the Company was leasing land in Longview, Texas, that has
been reclassified as an asset held for sale. For financial reporting purposes,
the lease is 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. The Company paid no cash for income taxes in 1997 and paid
$126,659 for interest in 1997. The Company paid no cash for income taxes in 1996
and paid $123,403 for interest in 1996. The Company paid no cash for income
taxes in 1995 and paid $93,307 for interest in 1995.
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of tax 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.
31
<PAGE> 32
FRESH'N LITE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The differences relate primarily to depreciable assets (use of different
depreciation methods and lives for financial statement and 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).
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 preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates that affect certain reported
amounts and disclosures. These estimates are based on management's knowledge and
experience. Accordingly, actual results could differ from these estimates.
CONSIDERATION OF CREDIT RISK
The Company maintains its cash in bank deposit accounts at high quality
financial institutions. The balances are at all times within 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.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior periods' financial
statements in order to conform them to the classifications used for the current
year.
COMPENSATED ABSENCES
The Company requires employees to use their earned vacation prior to the end of
each year. If the employees fail to use their compensated absences prior to
year-end, they lose their benefit. Accordingly, no liability has been accrued in
the accompanying financial statements for compensated absences.
ASSETS HELD FOR SALE
In accordance with SFAS 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of," the Company has reclassified
certain assets from "Property and Equipment" to "Assets Held for Sale" in the
accompanying financial statements. Management identified assets totaling
$1,101,700, net of accumulated depreciation totaling $191,865, as being held for
sale during the year ended December 31, 1997. The assets reclassified were land,
capitalized land lease, building, furniture
32
<PAGE> 33
FRESH'N LITE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and equipment and leasehold improvements of the Company's Longview and
Nacogdoches restaurants that were closed during the year ended December 31,
1997. Management is unable to provide an expected disposal date, but is actively
pursuing selling the assets as quickly as possible while maximizing potential
sales proceeds. Depreciation on the reclassified assets was ceased at the point
management committed to a plan to dispose of the assets.
EARNINGS PER SHARE
The Company has adopted SFAS 128 "Earnings Per Share" ("EPS") to compute and
present earnings per share in its financial statements. This statement requires
dual presentation of basic diluted EPS on the face of the income statement. The
statement is effective for financial statements issued for periods ending after
December 31, 1997 and requires restatement of all prior-period EPS data
presented.
NOTE 2 - INVENTORY
A summary of inventory, by restaurant location, is as follows:
<TABLE>
<CAPTION>
1997
----
<S> <C>
Tyler, Texas (Inventory will be transferred to other locations)....... $ 5,179
Dallas (Frankford Avenue), Texas...................................... 6,058
Irving (Valley Ranch), Texas.......................................... 7,819
The Colony, Texas..................................................... 7,515
Richardson, Texas..................................................... --
-------
Total Inventory........... $26,571
=======
</TABLE>
33
<PAGE> 34
FRESH'N LITE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 3 - CORPORATE ORGANIZATIONAL COSTS
Corporate Organizational Costs consist of the following:
<TABLE>
<CAPTION>
ACCUMULATED
COSTS AMORTIZATION
----- ------------
<S> <C> <C>
Balances, January 1, 1997................................. $ 42,695 $ 41,542
Additions........................................ -- 1,153
Balances, December 31, 1997............................... $ 42,695 $ 42,695
========= =========
</TABLE>
Other costs included with Corporate Organizational Costs in the balance sheet
aggregated $32,651 as of December 31, 1997, consisting of $17,163 in utility and
other deposits and $15,488 in prepaid insurance.
NOTE 4 - INCOME TAXES
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Earnings before income taxes.............................. $ 179,386 $ 304,937 $ 85,264
Add (Deduct):
Timing differences.................................... 38,360 (48,177) 69,911
---------- ---------- --------
Taxable income before net operating loss.......... 217,746 256,760 155,175
Net operating loss utilized................... 191,877 256,760 155,175
---------- ---------- --------
Taxable Income.......................... $ 25,869 $ -- $ --
========== ========== ========
Current income tax expense................................ $ 8,800 $ -- $ --
========== ========== ========
</TABLE>
During the year ended December 31, 1997, the Company completely utilized its tax
loss carryforwards totaling $191,877 to offset taxable income.
34
<PAGE> 35
FRESH'N LITE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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, 1997, 1996 and 1995 are
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforward ...... $ -- $ (53,405) $(127,908)
Valuation allowance .................. -- -- 11,962
--------- --------- ---------
Net deferred tax asset ........... -- (53,405) (115,946)
--------- --------- ---------
Deferred tax liabilities:
Difference in depreciation methods ... 124,000 97,800 48,500
Deduction of startup costs ........... 6,250 82,750 95,040
Cash to accrual conversion ........... (3,000) (47,900) (35,060)
Other ................................ 2,750 14,755 7,466
--------- --------- ---------
Net deferred tax liability ....... 130,000 123,405 115,946
--------- --------- ---------
Balance .......................... $ 130,000 $ 70,000 $ --
========= ========= =========
NOTE 5 - NOTE PAYABLE-SHORT TERM
Note payable-short term at DECEMBER 31, 1997 consisted of the following:
AFCO Credit Corporation, dated July 25, 1997, due May 28, 1998, interest rate at
10.5%, payable in 9 monthly payments of $2,619 beginning August 28, 1997 and the
balance at maturity.
$ 10,249
=========
</TABLE>
35
<PAGE> 36
FRESH'N LITE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 6 - NOTES PAYABLE-LONG TERM
Notes payable-long term at DECEMBER 31, 1997 consisted of the following:
<TABLE>
<CAPTION>
AMOUNT
------
<S> <C>
East Texas National Bank, dated June 30, 1997, due June 20, 2000,
interest rate at 9.50%, payable in 36 monthly payments of $3,594
beginning June 30, 1997 and the balance at maturity, including
interest collateralized by the Company's real and personal
property in Gregg, Nacogdoches and Bowie counties, Texas ............ $ 321,794
East Texas National Bank, dated January 28, 1994, due January 28,
1998, interest rate at 8.50%, payable in 36 monthly payments
of $ 3,282 beginning February 7, 1994 and the balance at maturity,
including interest, collateralized by the Company's real and personal
property in Gregg, Nacogdoches and Bowie counties, Texas ............ 282,953
East Texas National Bank, dated November 1, 1995, due October 12,
1998, interest rate at 10.25%, pay 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 ........................................... 128,481
Related Parties:
Carole A. Swanson, dated March 12, 1997, due September 15, 2001,
interest rate at 9.26% ding in 50 monthly payments of $478
beginning April 15, 1997 and the balance at maturity,
including interest, collateralized by a second lien on a
Company automobile........................................... 18,152
Four Seasons, Inc., dated December 1, 1997, due December 1,
2012, interest rate at 10%, payable in 180 monthly payments of
$8,060 beginning January 1, 1998 and the balance at maturity,
including interest, subject to contract for sale dated
December 1, 1997............... ............................. 750,000
Infinity Financial Services, dated March 13, 1997, due March
27, 2002, interest rate at 9.99%, payable in 60 monthly
payments of $522 beginning April 27, 1997 and the balance at
maturity, including interest, secured by a Company
automobile................................... ............... 21,850
Infinity Financial Services, dated March 13, 1997, due March
27, 2002, interest rate at 9.99%, payable in 60 monthly
payments of $373 beginning April 27, 1997 and the balance at
maturity including interest, secured by a Company
automobile................................... ............... 15,820
Bank One, Texas, NA, dated May 9, 1997, due, June 15, 2002,
interest rate at 9.65%, payable in 59 monthly payments of $474
beginning June 15, 1998 and the balance at maturity, including
interest, secured by a Company automobile.................... 21,062
Frost National Bank, dated March 31, 1995, due May 31, 2000,
interest rate at 11.990%, payable $241 monthly, including
interest, secured by a Company automobile.................... 6,340
--------
</TABLE>
36
<PAGE> 37
FRESH'N LITE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 6 - NOTES PAYABLE-LONG TERM (CONTINUED)
<TABLE>
<CAPTION>
AMOUNT
------
<S> <C>
Total Notes Payable-Long Term....................... 1,566,452
Less Current Portion......................................... (465,015)
----------
Notes Payable-Long Term, net of Current Portion..... $1,101,437
==========
</TABLE>
During the years ended December 31, 1997, 1996 and 1995, the Company capitalized
as building and equipment costs $124,199, $44,500 and $12,347, respectively, in
interest related to the above notes payable.
Notes Payable-Long Term are expected to mature over the next five years as
follows:
<TABLE>
<S> <C>
1998........................................ $ 465,015
1999........................................ 59,061
2000........................................ 341,940
2001........................................ 49,742
2002........................................ 40,818
Later Years................................. 609,876
-----------
Total..................... $ 1,566,452
===========
</TABLE>
NOTE 7 - LEASES
Following is a summary of the Company's operating and capital leases:
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, beginning 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 becomes
due if the contingent rentals exceed the minimum rentals. No contingent
rentals have become due as of December 31, 1997. The lease also
contains an option to purchase the land for $160,000 within the first
five years of the lease. Management elected not to exercise their
option on the land. This lease has been classified as a capital lease
as it contains a bargain purchase option.
37
<PAGE> 38
FRESH'N LITE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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, $2,258 per 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 elected not to
exercise their option on the land. This lease has been classified as a
capital lease during the period that the purchase option was valid and
is currently classified as an operating lease since the purchase option
has expired.
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 an operating lease
as no transfer of title or bargain purchase option is contained in this
land 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 $7,083 per month, and the second at
market rate. This lease has been classified as an operating lease as it
contains no transfer of title provision or bargain purchase option.
The Colony, Texas restaurant (land):
The lease term is for twenty years beginning October 15, 1997. Minimum
lease rentals are $4,300 per month for the first 60 months, $4,575 per
month for the next 60 months, $4,900 per month for the next 60 months,
and $5,117 per month for the final 60 months with no contingent
rentals. The lease also contains an option to purchase the land for
$550,000 at any time during, but not after, the first three years of
the initial term of the lease. This lease has been classified as an
operating lease as no transfer of title or bargain purchase option is
contained in this land lease.
Richardson, Texas restaurant (land):
The lease term is for twenty years beginning December 15,
1997. Minimum lease rentals are $4,667 per month for the
first 48 months, $4,947 per month for the next 36 months,
$5,244 per month for the next 36 months, $5,559 per month for
the next 36 months, $5,892 per month for the next 36 months,
$6,246 per month for the next 36 months, and $6,620 per month
for the final 36 years with no contingent rentals. The
Company has the option to renew the lease for one term of ten
years. This lease has been classified as an operating lease
as no transfer of title or bargain purchase option is
contained in this land lease.
38
<PAGE> 39
FRESH'N LITE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 7 - LEASES (CONTINUED)
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, 1997 the Company was leasing its Tyler restaurant land and
building as well as certain computer equipment under operating leases. The
Company also leased land for its Texarkana, Dallas, Valley Ranch and Richardson
restaurants under operating leases. The annual minimum lease payments under
noncancelable operating leases as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Years Ending December 31:
<S> <C>
1998............................................... $ 249,282
1999............................................... 235,992
2000............................................... 227,490
2001............................................... 229,768
2002............................................... 245,226
Later Years........................................ 3,956,348
----------
Total Minimum Lease Payments.............. $5,144,106
==========
</TABLE>
CAPITAL LEASE
At December 31, 1997, the Company was leasing the land for its Longview, Texas,
restaurant under a capital lease. The lease contains a bargain purchase option
that management intends to exercise 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,
1997:
39
<PAGE> 40
FRESH'N LITE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 7 - LEASES (CONTINUED)
<TABLE>
<CAPTION>
Years Ending December 31:
<S> <C>
1998.......................................... $ 18,000
1999.......................................... 18,000
2000.......................................... 18,000
2001.......................................... 18,000
2002.......................................... 19,200
Later Years................................... 172,800
---------
Total Minimum Lease Payments.............. $ 264,000
Less Amount Representing Interest............. (93,320)
---------
Present Value of Minimum Lease Payments... 171,680
Less Short Term Portion....................... (6,175)
---------
Present Value of Minimum Lease $ 165,505
Payments, net of Current Portion........ =========
</TABLE>
During the year ended December 31, 1997, the Company recognized $12,221 in
interest cost related to the above capital lease. During the year ended December
31, 1996, the Company recognized $24,791 in interest cost related to capital
leases. During the year ended December 31, 1995, the Company charged to expense
$32,153 in interest costs related to capital leases.
NOTE 8 - SUMMARY OF NONCASH TRANSACTIONS
Following is a summary of noncash investing and financing activities for the
years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Exchange Common Stock for Furniture and Equipment.................... $ -- $ -- $ 34,901
Exchange Common Stock for Building Costs............................. 500,000 -- 89,650
Exchange Common Stock for Deferred Stock Issuance Costs.............. -- -- 5,000
Exchange Common Stock for Debt Repayment............................. -- -- 38,700
Accrued Deferred Stock Issuance Cost................................. (151,937) -- (82,935)
Accrued Tyler Equipment Purchase..................................... -- -- 7,682
--------- ---------- ----------
Total Noncash Investing and Financing Activities: $ 348,063 $ -- $ 92,998
========= ========== ==========
</TABLE>
40
<PAGE> 41
FRESH'N LITE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 9 - CONTINGENCIES
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 Company on April 12, 1997
that AT&T had agreed not to pursue its claims against 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, disfigurement 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.
During the year ended December 31, 1997, a plaintiff filed suit against the
Company for an alleged breach of lease and service agreement with regards to
restaurant locations that have been closed. Plaintiff has demanded approximately
$27,000 in damages and other costs. Management denies responsibility in the
suit, but may agree to an out of court settlement for a lesser amount in order
to bring an expeditious end to the matter. No estimate of a potential settlement
amount has been included in the accompanying financial statements as it is not
reasonably estimable.
NOTE 10 - RELATED PARTY TRANSACTIONS
On February 17, 1995, the Company sold 133,333 shares of its common stock, par
value $.01 per share (the "Common Stock") to the Company's largest food
distributor for $200,000, pursuant to a food purchase/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. The Company is
unaware of and has not been notified that any repurchasing events have occurred.
As of December 31, 1996, the Company's obligation under the common stock
repurchase portion of the agreement has expired. The Company is continuing to
satisfy its obligation under the food purchase portion of the agreement.
At December 31, 1997, the Company held a note receivable from an
officer/shareholder of the Company in the amount of $124,500. The note bears
interest at 5% and is payable in two semiannual installments of $77,845,
together with interest beginning on June 30, 1998.
At December 31, 1997, the Company held a note receivable from a shareholder of
the Company in the amount of $15,000. The note bears interest at 9% and is
payable in two semiannual installments of $8,018, together with interest
beginning on June 30, 1998.
41
<PAGE> 42
FRESH'N LITE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 10 - RELATED PARTY TRANSACTIONS (CONTINUED)
At December 31, 1997, the Company held a note receivable from a company, owned
by a shareholder of the Company in the amount of $17,653. The note bears
interest at 9% and is payable in twelve monthly installments of $1,543, together
with interest beginning on February 1, 1998.
At December 31, 1997, the Company held a note receivable from a sister
corporation in the amount of $7,390. The note bears interest at 10% and is
payable in one installment of $7,390, together with interest on March 1, 1998.
The Company has a long-term operating lease agreement with a corporation that
owns a significant amount of the Company's stock. Minimum rents receivable are
$8,500 per month for five years and the lease covers office and retail space at
the Company's headquarters occupied by the corporation.
NOTE 11 - STOCK OPTIONS
On May 23, 1997, the Board of Directors of the Company adopted its 1997
Incentive Stock Option Plan (the "1997 Plan) pursuant to which 200,000 shares of
the Company's Common 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, or 110% of such value in the case of a
holder of 10% of the stock of the Company. This plan was approved by
shareholders on May 23, 1997. None of these stock options have been exercised.
On March 1, 1995, the Board of Directors of the Company adopted its 1995
Incentive Stock Option Plan (the "1995 Plan") pursuant to which 100,000 shares
of the Company's Common 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 1995 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 1995 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. None of these stock options have been exercised.
Under a contract approved by the Board of Directors, a consulting company was
granted options to purchase 300,000 shares of the Company's Common Stock with a
purchase price of $2.50 per share and expiring on October 10, 2002. Also, under
employment contracts approved by the Board of Directors, two officers of
the Company were granted options to purchase 100,000 shares each of the
Company's Common Stock with a purchase price of $3.00 per share expiring
December 31, 2002. At December 31, 1997, none of these options had been
exercised.
The Company applies APB Opinion 25 and related interpretations in accounting for
the 1995 Plan and the 1997 Plan. In 1995, the FASB issued FASB Statement No. 123
"Accounting for Stock-Based Compensation" ("SFAS 123"), which, if fully adopted
by the Company, would change the methods the
42
<PAGE> 43
FRESH'N LITE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 11 - STOCK OPTIONS (CONTINUED)
Company applies in recognizing the cost of the 1995 Plan and the 1997
Plan. Adoption of the cost recognition provisions of SFAS 123 is
optional and the Company has decided not to elect these provisions of
SFAS 123. The Company recorded no stock-based compensation costs in
1997, 1996, or 1995. Had the fair values of options been recognized as
compensation expense, costs would have increased by $228,270 ($172,270
after tax) in 1997 and $90,108 (no tax effect) in 1995. No options
were granted in 1996. The effects of applying SFAS 123 in this
proforma disclosure are not indicative of future amounts. A summary of
the status of the Company's stock options as of December 31, 1995,
1996, and 1997 and the changes during the year ended on those dates is
presented below.
<TABLE>
<CAPTION>
1995
# SHARES OF WEIGHTED
UNDERLYING AVERAGE
OPTIONS EXERCISE PRICES
------------ ---------------
<S> <C> <C>
Outstanding at beginning of the year ..................... 0 N/A
Granted .................................................. 103,572 $ 1.45
Exercised ................................................ 0 N/A
Forfeited ................................................ 0 N/A
Expired .................................................. 0 N/A
Outstanding at end of the year ........................... 103,572 $ 1.45
Exercisable at end of the year ........................... 103,572 $ 1.45
Weighted-average FV of options granted during the year ... $ .87 --
</TABLE>
<TABLE>
<CAPTION>
1996
# SHARES OF WEIGHTED
UNDERLYING AVERAGE
OPTIONS EXERCISE PRICES
------------ ---------------
<S> <C> <C>
Outstanding at beginning of the year...................... 103,572 $ 1.45
Granted .................................................. 0 N/A
Exercised ................................................ 0 N/A
Forfeited ................................................ 0 N/A
Expired .................................................. 0 N/A
Outstanding at end of the year ........................... 103,572 $ 1.45
Exercisable at end of the year ........................... 103,572 $ 1.45
</TABLE>
43
<PAGE> 44
FRESH'N LITE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 11 - STOCK OPTIONS (Continued)
<TABLE>
<CAPTION>
1997
# SHARES OF WEIGHTED
UNDERLYING AVERAGE
OPTIONS EXERCISE PRICES
------------ ---------------
<S> <C> <C>
Outstanding at beginning of the year ................. 103,572 $ 1.45
Granted .............................................. 543,500 2.67
Exercised ............................................ 0 N/A
Forfeited ............................................ 0 N/A
Expired .............................................. 0 N/A
Outstanding at end of the year ....................... 647,072 2.47
Exercisable at end of the year ....................... 647,072 2.47
Weighted-average FV of options granted during the year $ .42 --
</TABLE>
The fair value of each stock option granted is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions: dividend yield of 0%, risk-free interest rate of 5.57% and 7.8%,
expected lives of 1 1/4 years and 3 1/4 years, and volatility of 74.9%
respectively for 1997 and 1995.
The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- ---------------------------------
NUMBER WEIGHTED AVG. NUMBER
RANGE OF EXERCISE OUTSTANDING AT REMAINING WEIGHTED AVG. EXERCISABLE AT WEIGHTED AVG.
PRICES 12/31/97 CONTR. LIFE EXERCISE PRICE 12/31/97 EXERCISE PRICE
----------------- -------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$.10 - $1.50 103,572 2.49 $ 1.45 103,572 $ 1.45
$1.50 - $3.00 543,500 4.86 $ 2.67 543,500 $ 2.67
$.10 - $3.00 647,072 4.48 $ 2.47 647,072 $ 2.47
</TABLE>
NOTE 12 - RESTAURANT PREOPENING/REMODEL COSTS
A summary of Restaurant Preopening/Remodel Costs, by restaurant location, is as
follows:
<TABLE>
<CAPTION>
ACCUMULATED
COSTS AMORTIZATION
----- -------------
<S> <C> <C>
Balances, January 1, 1997...................................... $ 685,778 $ 397,217
Additions............................................. -- 187,387
Transfers to building costs........................... (122,552) (21,378)
Dispositions.......................................... (563,226) (563,226)
Balances, December 31, 1997.................................... $ -- $ --
========== ==========
</TABLE>
44
<PAGE> 45
FRESH'N LITE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 13 - EARNINGS PER SHARE
The Company has adopted SFAS 128. This standard, effective for financial
statements ending after December 15, 1997, requires that all prior-period EPS
data be restated to conform to the new standard. The Company had conformed to
SFAS 128 for all periods being presented.
BASIC EPS:
Basic EPS is computed by dividing the numerator (net income available to common
shareholders) by the denominator (weighted-average shares outstanding). For the
years ended December 31, 1997, 1996 and 1995, there were no reconciling items
between "net income available to common shareholders" and "net income."
The numerators used are as follows:
<TABLE>
<CAPTION>
YEAR TITLE AMOUNT
---- ----- ------
<S> <C> <C>
1997 Net Income $ 119,386
1996 Net Income $ 234,937
1995 Net Income $ 85,264
</TABLE>
The denominators used are as follows:
<TABLE>
<CAPTION>
YEAR TITLE AMOUNT
---- ----- ------
<S> <C> <C>
1997 Weighted-Average Shares Outstanding 5,807,700
1996 Weighted-Average Shares Outstanding 5,321,282
1995 Weighted-Average Shares Outstanding 5,118,648
</TABLE>
DILUTED EPS:
Diluted EPS is computed by dividing the numerator ("net income available to
common shareholders" less the income impact of any assumed dilutive conversions)
by the denominator ("weighted-average shares outstanding" plus incremental
shares from any assumed dilutive conversions). For the years ended December 31,
1997, 1996 and 1995, there were no income impacts of any assumed dilutive
conversions.
The numerators used are as follows:
<TABLE>
<CAPTION>
YEAR TITLE AMOUNT
---- ----- ------
<S> <C> <C>
1997 Net Income $ 119,386
1996 Net Income $ 234,937
1995 Net Income $ 85,264
</TABLE>
45
<PAGE> 46
FRESH'N LITE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 13 - EARNINGS PER SHARE (CONTINUED)
The denominators used are as follows:
<TABLE>
<CAPTION>
YEAR TITLE AMOUNT
---- ----- ------
<S> <C> <C>
1997 Weighted-Average Shares Outstanding 5,807,700
Plus Incremental shares from dilutive stock options 47,500
1997 denominator ---------
5,855,200
---------
1996 Weighted-Average Shares Outstanding 5,321,282
Plus Incremental shares from dilutive stock options 43,500
1996 denominator ---------
5,364,782
1995 Weighted-Average Shares Outstanding 5,118,648
Plus Incremental shares from dilutive stock options None
1995 denominator ---------
5,118,648
</TABLE>
Stock options totaling 533,500 and 103,572 shares for 1997 and 1995,
respectively, were not included in the above computations because their effect
would have been antidilutive.
NOTE 14 - PRIOR PERIOD ADJUSTMENTS AND RESTATEMENTS
Certain errors, resulting in both the understatement and overstatement of
previously reported assets, liabilities and expenses for 1997, 1996 and 1995,
resulted in the following changes to total assets, beginning retained earnings
(deficits) and net income:
1997
<TABLE>
<CAPTION>
BEGINNING
RETAINED
TOTAL ASSETS EARNINGS NET INCOME
------------ -------- ----------
<S> <C> <C> <C>
As previously reported ........................ $ 8,145,537 $ 182,225 $ 110,862
Overstatement of capitalized land leases ...... (2,175,000) (5,951) 4,583
Overstatement of capitalized franchise costs... (57,333) (65,273) 7,941
Deferred taxes on above items ................. -- 24,000 (4,000)
----------- ----------- -----------
As restated .......................... $ 5,913,204 $ 135,001 $ 119,386
=========== =========== ===========
</TABLE>
46
<PAGE> 47
FRESH'N LITE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 14 - PRIOR PERIOD ADJUSTMENTS AND RESTATEMENTS (CONTINUED)
1996
<TABLE>
<CAPTION>
BEGINNING
RETAINED
TOTAL ASSETS EARNINGS NET INCOME
------------ -------- ----------
<S> <C> <C> <C>
As previously reported ........................ $ 4,643,517 $ (40,876) $ 223,101
Overstatement of capitalized land leases ...... (900,000) (1,668) (4,283)
Overstatement of capitalized franchise costs .. (65,273) (57,392) (7,881)
Deferred taxes on above items ................. -- -- 24,000
----------- ----------- -----------
As restated .......................... $ 3,378,244 $ (99,936) $ 234,937
=========== =========== ===========
</TABLE>
1995
<TABLE>
<CAPTION>
BEGINNING
RETAINED
TOTAL ASSETS EARNINGS NET INCOME
------------ -------- ----------
<S> <C> <C> <C>
As previously reported ........................ $ 3,787,941 $ (185,200) $ 144,324
Overstatement of capitalized land leases ...... (500,000) -- (1,668)
Overstatement of capitalized franchise costs .. (57,392) -- (57,392)
Deferred taxes on above items ................. -- -- --
----------- ----------- -----------
As restated .......................... $ 3,230,549 $ (185,200) $ 85,264
=========== =========== ===========
</TABLE>
47
<PAGE> 48
FRESH'N LITE, INC.
CONDENSED BALANCE SHEET
FOR THE THREE MONTH PERIOD ENDING
MARCH 31, 1998
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
----------- ----------
(Restated (Unaudited)
Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash ..................................................... $ 20,373 $ 201,163
Inventory ................................................ 26,571 26,468
---------- ----------
Total Current Assets ............................ 46,944 227,631
---------- ----------
PROPERTY AND EQUIPMENT (Pledged)
Buildings ................................................ 3,774,141 4,545,522
Land ..................................................... 135,000 135,000
Leasehold Improvements ................................... 30,113 30,113
Vehicles and Equipment ................................... 1,250,302 1,398,060
----------- ----------
Total Property and Equipment .................... 5,189,556 6,108,695
Accumulated Depreciation ................................. (430,325) (466,475)
----------- ----------
Property and Equipment - Net .................... 4,759,231 5,642,220
----------- ----------
OTHER ASSETS
Assets Held for Sale, Net of Accumulated Depreciation .... 909,835 441,373
Corporate Organizational Costs and Other Assets,
Net of Accumulated Amortization ........................ 32,651 30,683
Notes Receivable - Related Parties........................ 164,543 146,005
----------- ----------
Total Other Assets .............................. 1,107,029 618,061
----------- ----------
TOTAL ASSETS .................................... $5,913,204 $6,487,912
=========== ==========
</TABLE>
See accompanying notes to interim condensed financial statements.
48
<PAGE> 49
FRESH'N LITE, INC.
CONDENSED BALANCE SHEET
FOR THE THREE MONTH PERIOD ENDING
MARCH 31, 1998
(Continued)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
----------- ----------
(Restated (Unaudited)
Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS EQUITY
CURRENT LIABILITIES
Accrued Expenses .......................................... $ 340,635 $ 314,665
Accounts Payable .......................................... 52,864 62,357
Bank Overdraft ............................................ 48,104 --
Note Payable - Short-Term ................................. 10,249 3,389
Income Taxes Payable ...................................... 8,800 8,800
Current Portion of Capital Lease Obligations .............. 6,175 6,175
Current Portion of Notes Payable - Long Term .............. 465,015 215,020
---------- ----------
Total Current Liabilities ........................ 931,842 610,406
OTHER LIABILITIES
Capital Lease Obligations, net of Current Portion ......... 165,504 165,504
Notes Payable - Long-Term, net of Current Portion ......... 1,101,437 1,484,590
Deferred Income Tax Liability ............................. 121,200 121,200
---------- ----------
Total Liabilities ................................ 2,319,983 2,381,700
---------- ----------
CONTINGENCIES
SHAREHOLDERS' EQUITY
Common Stock, $.01 Par Value; 50,000,000 Shares Authorized;
6,356,852 Shares Issued and Outstanding ................. 61,585 63,568
Additional Paid In Capital ................................ 3,278,499 3,574,071
Retained Earnings - Prior ................................. 135,001 254,387
Retained Earnings - Current ............................... 119,386 215,436
(1,250) (1,250)
---------- ----------
Less Treasury Stock, at Cost, 1,250 shares
Total Shareholders Equity ........................ 3,593,221 4,106,212
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY ........ 5,913,204 6,487,912
========== ==========
</TABLE>
See accompanying notes to interim condensed financial statements.
49
<PAGE> 50
FRESH'N LITE, INC.
CONDENSED INCOME STATEMENT
FOR THE THREE MONTH PERIODS ENDING
MARCH 31, 1997 AND MARCH 31, 1998
<TABLE>
<CAPTION>
MARCH 31, 1997 MARCH 31, 1998
-------------- --------------
(Restated Unaudited) (Unaudited)
<S> <C> <C>
SALES....................................... $ 712,352 $ 798,219
EXPENSES
Cost of Sales............................... 204,967 205,156
Salaries and Contract Labor................. 208,836 228,022
Payroll and other Taxes..................... 32,024 39,882
Professional Fees........................... 53,892 8,428
Advertising and Promotional................. 18,568 15,285
Rent........................................ 35,644 50,579
Insurance................................... 13,804 17,121
Telephone................................... 7,858 5,309
Travel...................................... 3,750 3,231
Utilities................................... 25,045 23,592
Depreciation................................ 38,464 36,150
Amortization................................ 192,294 14,850
Interest.................................... 19,744 33,846
Linen and Laundry........................... 5,284 11,575
Repairs and Maintenance..................... 17,718 20,129
Supplies.................................... 6,518 9,307
Miscellaneous............................... 2,500 0
----------- -----------
Total Expenses..................... 886,910 722,462
----------- -----------
OPERATING INCOME (LOSS)............ (174,558) 75,757
OTHER INCOME/(EXPENSE)
Profit/(Loss) on Sale of Assets............. -- 111,593
Rental Income............................... -- 28,086
Income Tax (Expense) Benefit:
Current............................ -- --
Deferred........................... -- --
----------- -----------
NET INCOME......................... (174,558) 215,436
Basic Earnings Per Share.................... $ (.03) $ .034
Diluted Earnings Per Share.................. $ (.03) $ .034
</TABLE>
See accompanying notes to interim condensed financial statements.
50
<PAGE> 51
FRESH'N LITE, INC.
CONDENSED STATEMENT OF CASH FLOWS
FOR THE THREE MONTH PERIODS ENDING
MARCH 31, 1997 AND MARCH 31, 1998
<TABLE>
<CAPTION>
MARCH 31, 1997 MARCH 31, 1998
-------------- --------------
(Restated Unaudited) (Unaudited)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss) ........................................... $ (174,558) $ 215,436
---------- ---------
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation ................................................ 38,464 36,150
Amortization ................................................ 192,294 14,850
Net Change in Assets and Liabilities:
Decrease / (Increase) in Inventory ................. (27,768) 103
(Decrease) / Increase in Accounts Payable .......... (18,070) (51,471)
(Decrease) / Increase in Accrued Expenses .......... (40,018) (25,970)
---------- ---------
Total Adjustments ........................................... 144,902 (26,338)
---------- ---------
Net Cash Provided by Operating Activities .......... (29,656) 189,098
---------- ---------
Cash Flows from Investing Activities:
Capital Expenditures ........................................ (239,804) (919,139)
Expenditures for Preopening/Remodel Costs
and other Assets .......................................... (24,020) 0
(Increase) / Decrease in Notes Receivable ................... (19,221) 18,538
Increase in Deferred Franchise System Costs ................. (39,969) 0
Net Proceeds from Sale of Assets ............................ 0 461,580
---------- ---------
Net Cash Used in Investing Activities .............. (323,014) (439,021)
---------- ---------
Cash Flows from Financing Activities:
Sale of Common Stock ........................................ 698,000 297,555
Borrowing on Notes Payable .................................. 385,000 633,158
Principal Payments on Notes Payable ......................... (556,727) (500,000)
---------- ---------
Net Cash Provided by Financing Activities .......... 526,273 430,713
---------- ---------
NET INCREASE / (DECREASE) IN CASH ........................... 173,603 180,790
CASH AT BEGINNING OF YEAR ................................... 19,640 20,373
---------- ---------
CASH AT END OF PERIOD ....................................... 193,243 201,163
========== =========
</TABLE>
See accompanying notes to interim condensed financial statements.
51
<PAGE> 52
FRESH'N LITE, INC.
NOTES TO INTERIM CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIOD ENDING
MARCH 31, 1998
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
The condensed financial statements of Fresh'n Lite, Inc. (the
"Company") as of March 31, 1997 and March 31, 1998 have been prepared
by the Company, pursuant to the rules and regulations of the
Securities and Exchange Commission. The Company owns and operates
four restaurants under the names of "Fresh'n Lite Cafe & Grill" and
"Street Talk Cafe."
The information furnished herein reflects all adjustments (consisting
of normal recurring accruals and adjustments) which are, in the
opinion of management, necessary to fairly state the operating
results for the respective periods. However, these operating results
are not necessarily indicative of the results expected for the full
fiscal year. Certain information and footnote disclosures normally
included in annual financial statements prepared in accordance with
generally accepted accounting principals have been omitted pursuant
to such rules and regulations. The notes to the condensed financial
statements should be read in conjunction with the notes to the
financial statements contained in the Annual Report filed on May 1,
1997 on Form 10-KSB and the notes to the financial statements
contained in the Form 10- KSB/A-1 filed on August 14, 1998 Company
management believes that the disclosures are sufficient for interim
financial reporting purposes.
NOTE 2. SALE OF RESTAURANT FACILITY
On March 17, 1998, the Company sold its facility in Nacogdoches,
Texas. The Company realized a gain of $111,593 on the sale of this
facility which was previously classified as "assets held for sale."
NOTE 3. SUBSEQUENT EVENTS
On April 3, 1998, the Board of Directors approved a plan to
repurchase up to 100,000 shares of the Company's Common Stock.
Repurchases will be made from time to time in open market
transactions. All repurchases will be made in accordance with
applicable securities regulations, and the timing of the repurchases
will be dependent upon market conditions, share price, and other
factors. The repurchased Common Stock may be used by the Company to
meet the needs of its various stock option plans, or for other
corporate purposes.
On April 8, 1998, the Board of Directors approved an increase in the
previously approved stock repurchase plan from 100,000 to 150,000
shares.
52
<PAGE> 53
FRESH'N LITE, INC.
CONDENSED BALANCE SHEET
FOR THE SIX MONTH PERIOD ENDED
JUNE 30, 1998
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ ---------
(Restated (Unaudited)
Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash.......................................................... $ 20,373 $ 1,789,639
Inventory..................................................... 26,571 $ 40,270
-------------- --------------
Total Current Assets............................... 46,944 1,829,909
-------------- --------------
PROPERTY AND EQUIPMENT (Pledged)
Buildings..................................................... 3,774,141 5,347,868
Land.......................................................... 135,000 385,000
Leasehold Improvements........................................ 30,113 30,113
Vehicles and Equipment........................................ 1,250,302 2,518,525
-------------- --------------
Total Property and Equipment....................... 5,189,556 8,281,506
Accumulated Depreciation...................................... (430,325) (479,132)
-------------- --------------
Property and Equipment - Net ...................... 4,759,231 7,802,374
-------------- --------------
OTHER ASSETS
Assets Held for Sale, Net of Accumulated Depreciation......... 909,835 241,413
Corporate Organizational Costs and Other Assets,
Net of Accumulated Amortization............................. 32,651 26,299
Notes Receivable - Related Parties............................ 164,543 75,000
------------- --------------
Total Other Assets................................. 1,107,029 342,712
------------- --------------
TOTAL ASSETS....................................... $ 5,913,204 $ 9,974,995
============= =============
</TABLE>
See accompanying notes to interim condensed financial statements.
53
<PAGE> 54
FRESH'N LITE, INC.
CONDENSED BALANCE SHEET
FOR THE SIX MONTH PERIOD ENDED
JUNE 30, 1998
(Continued)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(Restated Unaudited) (Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS EQUITY
CURRENT LIABILITIES
Accrued Expenses.................................................... $ 340,635 $ 44,715
Accounts Payable.................................................... 52,864 67,547
Bank Overdraft...................................................... 48,104 --
Note Payable - Short Term........................................... 10,249 --
Income Taxes Payable................................................ 8,800 8,800
Current Portion of Capital Lease Obligations........................ 6,175 6,175
Current Portion of Notes Payable - Long Term........................ 465,015 292,604
---------- ----------
Total Current Liabilities................................ 931,842 419,841
OTHER LIABILITIES
Capital Lease Obligations, Net of Current Portion................... 165,504 165,000
Notes Payable - Long Term, Net of Current Portion................... 1,101,437 2,206,874
Deferred Income Tax Liability....................................... 121,200 121,200
---------- ----------
Total Other Liabilities.................................. 1,388,141 2,493,074
---------- ----------
Total Liabilities........................................ 2,319,983 2,912,915
---------- ----------
SHAREHOLDERS EQUITY
Common Stock, $.01 Par Value; 50,000,000 Shares Authorized;
6,356,852 Shares Issued and Outstanding........................... 61,585 63,568
Additional Paid In Capital.......................................... 3,278,499 6,244,071
Retained Earnings - Prior........................................... 135,001 254,387
Retained Earnings - Current......................................... 119,386 501,304
Less Treasury Stock, at Cost........................................ (1,250) (1,250)
---------- ----------
Total Shareholders Equity................................ 3,593,221 7,062,080
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY................ 5,913,204 9,974,995
========== ==========
</TABLE>
See accompanying notes to interim condensed financial statements.
54
<PAGE> 55
FRESH'N LITE, INC.
CONDENSED INCOME STATEMENT
FOR THE THREE MONTH AND SIX MONTH PERIODS ENDING
JUNE 30, 1997 AND JUNE 30, 1998
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1997 1998 1997 1998
------- ------- ------ ------
(Restated (Unaudited) (Restated (Unaudited)
Unaudited) Unaudited)
<S> <C> <C> <C> <C>
SALES................................................. $809,930 $942,635 $1,522,822 $1,740,854
EXPENSES
Food & Beverage Costs................................. 221,410 268,455 426,377 473,611
Salaries and Contract Labor........................... 209,736 208,857 418,572 436,879
Payroll and other Taxes............................... 32,126 34,389 64,690 74,271
Professional Fees..................................... 27,927 19,087 81,819 27,515
Advertising and Promotional........................... 20,138 27,155 38,706 42,440
Rent.................................................. 34,308 57,984 69,952 108,563
Insurance............................................. 8,963 17,588 22,767 34,709
Telephone............................................. 9,962 5,983 17,820 11,292
Travel................................................ 4,325 3,657 8,075 6,888
Utilities............................................. 21,208 23,357 46,253 46,949
Depreciation.......................................... 51,701 34,618 90,165 70,768
Amortization.......................................... 19,472 16,567 211,766 31,417
Interest.............................................. 36,841 43,888 56,585 77,734
Linen and Laundry..................................... 10,946 12,042 16,230 23,617
Repairs and Maintenance............................... 16,765 15,595 34,483 35,654
Supplies.............................................. 6,833 11,535 13,351 20,842
Miscellaneous......................................... 6,375 6,080 8,875 6,080
-------- -------- ---------- ----------
Total Expenses............................. 739,036 806,837 1,626,486 1,529,229
-------- -------- ---------- ----------
OPERATING INCOME (LOSS)............................... 70,894 135,798 (103,664) 211,625
OTHER INCOME/(EXPENSE)
Profit/(Loss) on Sale of Assets....................... -- 150,000 -- 261,593
Rental Income......................................... -- -- -- 28,086
Income Tax (Expense) Benefit:
Current.................................... -- -- -- --
Deferred................................... -- -- -- --
-------- -------- ---------- ----------
NET INCOME................................. 70,894 285,868 (103,664) 501,304
Basic Earnings Per Share.............................. $ .012 $ .045 $ (.017) $ .079
Diluted Earnings Per Share............................ $ .012 $ .045 4 (.017) $ .079
</TABLE>
See accompanying notes to interim condensed financial statements.
55
<PAGE> 56
FRESH'N LITE, INC.
CONDENSED STATEMENT OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 1997 AND JUNE 30, 1998
<TABLE>
<CAPTION>
JUNE 30, 1997 JUNE 30, 1998
------------- -------------
(Restated Unaudited) (Unaudited)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss)......................................... $(103,653) $ 501,304
--------- ------------
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation.............................................. 90,165 70,768
Amortization.............................................. 211,766 31,417
Net Change in Assets and Liabilities:
Decrease / (Increase) in Inventory................. (28,215) (13,699)
(Decrease) / Increase in Accounts Payable.......... (6,537) 14,683
(Decrease) / Increase in Accrued Expenses.......... (114,277) (295,920)
--------- ------------
Total Adjustments......................................... 152,902 (192,751)
--------- ------------
Net Cash Provided by Operating Activities.......... (49,249) 308,553
--------- ------------
Cash Flows from Investing Activities:
Capital Expenditures...................................... (612,822) (3,091,950)
Expenditures for Preopening/Remodel Costs
and other Assets........................................ (24,020) 0
(Increase) / Decrease in Notes Receivable................. (25,521) 89,543
Increase in Deferred Franchise System Costs............... (39,969) 0
Net Proceeds from Sale of Assets................... 11 562,539
--------- ------------
Net Cash Used in Investing Activities.............. (702,321) (2,439,868)
--------- ------------
Cash Flows from Financing Activities:
Sale of Common Stock...................................... 959,500 2,967,555
Borrowing on Notes Payable................................ 0 1,433,026
Principal Payments on Notes Payable....................... (166,585) (500,000)
--------- ------------
Net Cash Provided by Financing Activities.......... 792,915 3,900,581
--------- ------------
NET INCREASE / (DECREASE) IN CASH......................... 41,345 1,769,266
CASH AT BEGINNING OF YEAR................................. 18,967 20,373
--------- ------------
CASH AT END OF PERIOD..................................... 60,312 1,789,639
========= ============
</TABLE>
See accompanying notes to interim condensed financial statements.
56
<PAGE> 57
FRESH'N LITE, INC.
NOTES TO INTERIM CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTH PERIOD ENDED
JUNE 30, 1998
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
The condensed financial statements of Fresh'n Lite, Inc. (the
"Company") as of June 30, 1997 and June 30, 1998 have been prepared
by the Company, pursuant to the rules and regulations of the
Securities and Exchange Commission. The Company owns and operates
four restaurants under the names of "Fresh'n Lite Cafe & Grill" and
"Street Talk Cafe."
The information furnished herein reflects all adjustments (consisting
of normal recurring accruals and adjustments) which are, in the
opinion of management, necessary to fairly state the operating
results for the respective periods. However, these operating results
are not necessarily indicative of the results expected for the full
fiscal year. Certain information and footnote disclosures normally
included in annual financial statements prepared in accordance with
generally accepted accounting principals have been omitted pursuant
to such rules and regulations. The notes to the condensed financial
statements should be read in conjunction with the notes to the
financial statements contained in the Form 10-SB/A-3 filed on August
14, 1998. Company management believes that the disclosures are
sufficient for interim financial reporting purposes.
NOTE 2. SALE OF RESTAURANT FACILITY
On March 17, 1998, the Company sold its facility in Nacogdoches,
Texas. The Company realized a gain of $111,593 on the sale of this
facility which was previously classified as "assets held for sale."
On June 29, 1998, the Company sold its facility in Texarkana, Texas.
The Company realized a gain of $150,000 on the sale of this facility
which was previously classified as "assets held for sale."
NOTE 3. OTHER EVENTS
On April 3, 1998, the Board of Directors approved a plan to
repurchase up to 100,000 shares of the Company's Common Stock.
Repurchases will be made from time to time in open market
transactions. All repurchases will be made in accordance with
applicable securities regulations, and the timing of the repurchases
will be dependent upon market conditions, share price and other
factors. The repurchased Common Stock may be used by the Company to
meet the needs of its various stock option plans or for other
corporate purposes.
On April 8, 1998, the Board of Directors approved an increase in the
previously approved stock repurchase plan from 100,000 to 150,000
shares.
On May 29, 1998, the Company issued $1,500,000 of 6% Convertible
Debentures due May 29, 2000 (the "A Debentures"), in a private
placement to three accredited investors (the "Investors"). The
private placement yielded $1,335,000 in net proceeds to the Company
(after deduction of the placement agent's fees and fees of counsel
for the Investors). In connection with the private
57
<PAGE> 58
FRESH'N LITE, INC.
NOTES TO INTERIM CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTH PERIOD ENDED
JUNE 30, 1998
(Unaudited)
placement, the Company also issued to the Investors, warrants to
purchase up to an aggregate of 75,000 shares of the Company's Common
Stock (the "Warrants"). The Company issued to the placement agent a
Warrant to purchase up to 50,000 shares of the Company's Common
Stock. The exercise price for the Warrants is $4.40 per share, which
is equal to 110% of the average closing bid prices of the Company's
Common Stock for the five trading days immediately preceding May 29,
1998.
The A Debentures can be converted into shares of the Company's Common
Stock. The number of shares of Common Stock to be issued upon any
such conversion will be determined based upon the lesser of (a) $4.00
per share (the closing bid price of the Common Stock on May 28,
1998), or (b) the average closing bid prices of the Company's Common
Stock for the five trading day period ending on the trading day
immediately preceding the date on which such A Debenture is
converted, multiplied by a discount ranging from 25% to 17.5%. The
Company granted to the Investors certain registration rights with
respect to the shares of Common Stock underlying the A Debentures and
the Warrants.
The beneficial conversion feature attached to the A Debentures is
valued at $500,000. The value is calculated at the date of issue as
the difference between the conversion price most beneficial to the
investor and the fair value of the common stock into which the
security is convertible, multiplied by the number of shares into
which the security is convertible. This amount will be amortized into
interest expense during the period between issuance of the debt and
the date the securities can be converted at the highest discount.
On June 30, 1998, the Company issued a second tranche of $1,500,000
of its 6% Convertible Debentures due June 30, 2000 (the "B
Debentures"), in a private placement to two of the Investors. The
private placement yielded $1,335,000 in net proceeds to the Company
(after deduction of the placement agent's fees and fees of counsel
for two of the Investors). In connection with the private placement,
the Company also issued to two of the Investors, Warrants to purchase
up to an aggregate of 75,000 shares of the Company's Common Stock.
The Company issued to the placement agent a Warrant to purchase up to
50,000 shares of the Company's Common Stock. The exercise price for
the Warrants is $4.30 per share, which is equal to 110% of the
average closing bid prices of the Company's Common Stock for the five
trading days immediately preceding June 30, 1998.
The B Debentures can be converted into shares of the Company's Common
Stock. The number of shares of Common Stock to be issued upon any
such conversion will be determined based upon the lesser of (a)
$3.9062 per share (the closing bid price of the Common Stock on June
29, 1998), or (b) the average closing bid prices of the Company's
Common Stock for the five trading day period ending on the trading
day immediately preceding the date on which such B Debenture is
converted, multiplied by a discount ranging from 25% to 17.5%. The
Company granted to two of the Investors certain registration rights
with respect to the shares of Common Stock underlying the B
Debentures and the Warrants.
The beneficial conversion feature attached to the B Debentures is
valued at $500,000. The value is calculated at the date of issue as
the difference between the conversion price most beneficial to the
investor and the fair value of the common stock into which the
security is convertible, multiplied by the number of shares into
which the security is convertible. This amount will be amortized into
interest expense during the period between issuance of the debt and
the date the securities can be converted at the highest discount.
58
<PAGE> 59
PART III
ITEM 1: INDEX TO EXHIBITS
Attached hereto are the exhibits as required.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE NO.
---------- ---------------------- --------
<S> <C> <C>
2.1* Articles of Incorporation --
2.2* Amendment to Articles of Incorporation --
2.3* By-Laws --
3.1 Warrant Agreement filed as an exhibit to the Company's --
Form 10-KSB dated February 28, 1997 and incorporated by
reference
6.1*** Primary Distribution Agreement dated as of February 17, --
1995, by and between Consolidated Companies, Inc. on the
one hand and Fresh'n Lite Inc. on the other
6.2CE*** Lease with Option to Purchase dated as of January 6, 1992 --
by and between Gibson Properties, Inc. on the one hand and
Bosko's, Inc. on the other
6.3CE*** Restaurant Lease dated as of September 15, 1997 by and --
between USRP (Midon), LLC on the one hand and Fresh'n
Lite, Inc. on the other
6.4CE*** Ground Lease dated as of February 21, 1995 by and between --
Peter D. Fonberg Investments -- on the one hand and Fresh'n
Lite, Inc. on the other
6.5CE*** Ground Lease dated as of July 15, 1996 by and between --
MacArthur Partners, Ltd. on the one hand and Fresh'n
Lite, Inc. on the other
6.6CE*** Ground Lease Agreement dated as of April 11, 1997 by and --
between Robert M. Farrell -- Development, Ltd. on the one
hand and Fresh'n Lite, Inc. on the other
6.7CE*** Lease Agreement dated as of November 7, 1990 by and --
between Harold Wilder on the one hand and Bosko's, Inc.
on the other
6.8CE*** 1997 Incentive Stock Option Plan --
6.9*** Franchise Agreement dated as of October 1, 1995 by and --
between Fresh'n Lite, Inc. on the one hand and F'NL
Investments, LLC on the other
6.10CE*** Lease with Option to Purchase dated as of October 15, 1993 --
by and between Connor Patman and Steve and Ann M.
Raffaelli on the one hand and Fresh'n Lite, Inc. on the
other
6.11CE*** Sublease Agreement dated as of May 25, 1998 by and between --
Jason Sukiennik, Jennifer -- Sukiennik and Pete Sukiennik
on the one hand and Fresh'n Lite, Inc. on the other
27.1 Financial Data Schedule filed as an exhibit to the Form --
10-Q dated June 30, 1998 --
</TABLE>
- ---------------
* Previously filed as an exhibit to the Company's Registration Statement
on Form 10-SB (File No. 001-13559) filed with the Securities and
Exchange Commission on November 10, 1997.
*** Previously filed as a paper exhibit, pursuant to a hardship exemption,
to the Company's Registration Statement on Form 10-SB (File No.
001-13559) filed with the Securities and Exchange Commission on
November 10, 1997 and filed in electronic format as exhibits to the
Company's Registration Statement on Form 10-SB/A-2 filed with the
Securities and Exchange Commission on June 25, 1998.
59
<PAGE> 60
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this amendment to its registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
FRESH'N LITE, INC.
(Registrant)
Date: August 14, 1998 /s/ Curtis A. Swanson
---------------------
Curtis A. Swanson, Chief Financial Officer
60
