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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

   
                                 FORM 10-KSB/A-1
    


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


                   For the fiscal year ended December 31, 1997
                                             -----------------

[ ]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934
    

              For the transition period from _________ to _________
                Commission file number _________________________


                               FRESH'N LITE, INC.
                 (Name of small business issuer in its charter)

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<S>                                                                                <C>       
                         TEXAS                                                     75-2337102
(State of other jurisdiction of incorporation or organization)        (I.R.S. Employer Identification No.)

            1705 E. WHALEY, LONGVIEW, TEXAS                                           75605
       (Address of principal executive offices)                                    (Zip Code)
</TABLE>

                    Issuer's telephone number: (903) 758-2811

   
Securities registered under Section 12(b) of the Exchange Act:
    

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     <S>                                                            <C>
                  Title of each class                               Name of each exchange on which registered

      ==========================================                   ==========================================
</TABLE>

Securities registered under Section 12(g) of the Exchange Act:

                          COMMON STOCK, PAR VALUE $.01
                                (Title of class)


CHECK WHETHER THE ISSUER (1) FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION
13 OR 15(d) OF THE EXCHANGE ACT DURING THE PAST 12 MONTHS (OR FOR SUCH SHORTER
PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN
SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]

The Issuer's revenues for the most recent fiscal year:  $3,106,144.

   
The aggregate market value of common stock held by non-affiliates of the
registrant based on the sale trade price of the common stock as reported on the
OTC-BB on April 29, 1997 was $18,607,644. For purposes of this computation, all
officers, directors, and 10% beneficial owners of registrant are deemed to be
affiliates. Such determination should not be deemed an admission that such
officers, directors or 10% beneficial owners are, in fact, affiliates of the
registrant. Number of shares outstanding of each of the Issuer's classes of
common stock, as of April 19, 1997: 6,356,852 shares of common stock, par value
$.01.
    

Transitional Small Business Disclosure Format:  Yes [X]  No [ ]


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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/Forth 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 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

    


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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.

         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.

         Recently the Company issued in a private placement to three Investors,
tranches of debentures raising $3,000,000 in gross proceeds ($2,670,000 in net
proceeds). The Company intends to use the proceeds of the issuance to pursue the
Company's business strategy. See "-- Concept and Strategy."

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/Fort 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/Fort 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: (i) identifying appropriate target markets within the
Dallas/Fort Worth metropolitan area, and (ii) 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. The Company intends to pursue a plan for a
10 store build-to-suit package at $1 million per store with a developer that
will build the stores and lease them back to the Company. Under any such plan
the Company intends to find the land and provide all fixtures, signage and
build-outs for the restaurants. No assurances can be given that the Company will
be able to implement successfully its expansion strategy.

FORWARD-LOOKING STATEMENTS

         This Annual Report on Form 10-KSB/A-1 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-KSB, including, without
limitation, the statements under "Description of Business," "Description of
Property," and "Market for the Registrant's Common Equity and Related
Shareholder Matters" located elsewhere herein regarding the financial position
and liquidity of the Company, its ability to service its indebtedness, its
strategic plans including its ability to locate and construct restaurants 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

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actual results to differ materially from the Company's expectations ("Cautionary
Statements") are disclosed in this Form 10-KSB/A-1, including, without
limitation, in conjunction with the forward-looking statements included in this
Form 10-KSB/A-1. 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 newness of the Company, the need for additional capital and
additional financing, the Company's limited restaurant base, lack of geographic
diversification, the risks associated with expansion, a lack of marketing
experience and activities, risks of franchising, seasonability, the choice of
site locations, development and construction delays, need for additional
personnel, increases in operating and food costs and availability of supplies,
significant industry competition, government regulation, insurance claims 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.

RISK FACTORS

         Newness of Company

         The Company was incorporated in May, 1990. Its founders opened their
first restaurant in June of 1989. Currently, only four Company owned restaurants
are operating. A restaurant was opened on October 31, 1995 near Six Flags in
Arlington, Texas as a franchised restaurant owned by F'NL Investments, LLC which
is owned by two of the Company's directors. The operators of that restaurant
have elected to convert that restaurant to a pizza restaurant and to open the
franchised restaurant at a future date in Arlington at a location yet to be
determined. The Company has no significant presence in the markets it hopes to
enter, and older, more established and higher-capitalized companies may develop
concepts similar to the Company's and hence provide a greater competitive
threat. Also, there is as yet no broad-based proven market for the Company's
"Fresh'n Lite" or "Street Talk Cafe" business concepts. Investing in immature
enterprises like the Company entails risks not often encountered in older, more
established companies. Small, relatively new companies historically experience a
relatively high rate of failure due to such factors as shortage of funds,
shortage of competent personnel, competition from larger companies, and general
economic conditions. There is no assurance that management's previous experience
will enable it to successfully build the Company nor is there any assurance that
the Company can raise sufficient capital to continue its expansion operations or
further develop its concept.

         Need for Additional Capital and Additional Financing

         The Company's ability to generate operating and net income in the
future will depend on the success of its operating restaurants. There can be no
assurance that the Company will be profitable in the future. The Company
anticipates that its expansion plans will require substantial additional capital
that may be greater than can be funded from operations. In such a case, the
Company will be required to raise additional capital through equity or debt
financings. Such sources of financing, if available, may include bank financing,
third-party equity investors, joint venture financing and similar arrangements.
The Company typically borrows funds in connection with specific real estate
transactions and does not have any revolving line of credit outstanding. The
Company, however, since the end of fiscal year 1997 has raised $2,670,000 in net
proceeds from the private placement of debentures. The Company has no other
current arrangement with respect to, or potential sources of, additional
financing. Consequently, there can be no assurance that any additional financing
will be available to the Company when needed, on commercially reasonable terms,
or at all. Any inability to obtain additional financing when needed would have a
material adverse effect on the Company. In addition, any additional equity
financing may involve substantial dilution to the interests of the Company's
then existing stockholders.

         Limited Restaurant Base; Dependence Upon Four Restaurants;
         High Restaurant Failure Rate

         All of the Company's revenues are presently derived from only four
restaurants. There can be no assurance that any new restaurants will be opened
or if opened will be successful or operate profitably. The lack of success or
closing of any of the Company's existing restaurants, or the unsuccessful
operation of any new restaurant, would have a material adverse effect upon the
financial condition and results of operations of the Company.

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         Reliance on Key Employees

         The Company relies heavily on the Chief Executive Officer, the
President and the Chief Financial Officer for the operation of the Company's
business. The Company could be adversely affected should any of these
individuals become unable to operate in this capacity. See "Item 3." The Company
hopes to be able to internally train people or to attract sufficient personnel
by offering appealing career opportunities and benefits, but there is no
assurance that the Company will succeed. An inability to attract such personnel
or the unavailability of these persons, whether as a result of labor shortages,
death, disability, termination or otherwise, could have a substantial adverse
effect on the Company's prospects and anticipated operations and, consequently,
the value of the Common Stock. The Company currently holds $300,000 in "key man"
life insurance on Stanley L. Swanson and $300,000 on Curtis A. Swanson. The
Company may purchase key man life insurance on Henry Leonard as well. There can
be no assurance that such insurance can be obtained. Other than this insurance,
the Company does not anticipate that it will have any protection in the event
that any of such persons or other key personnel become incapacitated, disabled
or otherwise unable to serve.

         Dependence on Local Economy; Lack of Geographic Diversification

         The Company presently operates stores only in the Dallas/Ft. Worth
metropolitan area. Therefore, the Company's results will initially be tied to
the economic strength of this area. Though the management believes that the
economic outlook for Texas in general and this area in particular is reasonably
favorable, there can be no assurance of this assessment.

         Risks of Expansion

         The Company intends to pursue a strategy for expansion which includes
the opening of new Company-owned restaurants and the development and
implementation of a franchising program. The success of the Company's planned
expansion will depend upon a number of factors not entirely within the Company's
control, including among others, the cost and availability of suitable locations
and the negotiation of acceptable leases, the ability to meet development and
construction schedules, the securing of required governmental permits and other
regulatory approvals, the hiring and training of management and other personnel,
the terms and availability of financing and other general economic and business
conditions. Any problems or delays encountered in any one of these areas can
result in substantial increases in costs to the Company as well as delays in the
opening of new restaurants. The Company has only four restaurants to date, and,
accordingly, because of its lack of expertise, its cost and timing estimates may
be inaccurate and additional unanticipated problems may arise. The Company's
proposed expansion plans will also require the implementation of enhanced
operational and financial systems and will require additional management,
operational and financial resources. There can be no assurance that the Company
will effectively manage its expanding operations and anticipate all of the
changing demands that its planned expansion will impose on its systems and
controls. The Company's failure to upgrade management, operating and financial
control systems or other unexpected difficulties encountered during expansion
could adversely affect the Company's business, financial condition and results
of operations. Additionally, in light of the Company's limited number of
restaurants, the failure of any one of its restaurants could have a
disproportionate effect on the financial results of operations of the Company as
a whole.

         Lack of Marketing Experience and Activities

         The Company has limited marketing experience and, to date, has engaged
in limited marketing activities. The growth of the Company's current restaurants
and the success of its new restaurants, if any, will depend, to a large extent,
upon its marketing efforts which will require substantial expenditures by the
Company. There can be no assurance that the Company will be able to obtain
financing for its marketing activities on terms acceptable to the Company, or at
all. There can be no assurance that the Company's marketing efforts will be
successful, that its restaurants will achieve significant market acceptance or
that the Company will have the necessary funds to conduct its marketing
activities.
    


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         Risks of Franchising

         The Company intends to develop and implement a franchising program.
Such program may not be implemented until after the Company opens additional
Company-owned restaurants. The success of a franchising program will depend on
numerous factors, including, but not limited to, the Company's ability to comply
with regulatory requirements and to attract and retain qualified franchisees
(which in turn will depend upon the Company's ability to successfully market and
promote the Company's restaurant concepts). Compliance with Federal and state
franchise sales laws and state franchise relationship laws is costly and time
consuming, and there can be no assurance that the Company will not encounter
difficulties or delays in this area. There can be no assurance that the Company
will be successful in its efforts to expand through franchising or that future
franchisees, if any, will be able to operate restaurants in a manner consistent
with the Company's methods, standards and specifications.

         Geographic Concentration; Seasonality

         The Company's existing restaurants are all located in the Dallas/Ft.
Worth metropolitan area and the Company currently plans to cluster its new
restaurants within Texas and the southwestern states. Consequently, the
Company's operating results may be affected by adverse economic, weather or
other conditions in these regions that are beyond the Company's control. See 
"-- Company Business." Moreover, adverse publicity, if any, regarding any 
Company restaurant could have a more severe impact on the Company's revenue than
might be the case if the Company's restaurants were more broadly dispersed.

         Site Locations

         The choice of site location for each of the Company's restaurants is
extremely important to the potential success of the particular establishment.
The Company will be competing with a wide range of establishments in attempting
to identify and secure desirable locations. Although the Company believes that
it will be able to locate additional suitable sites, there can be no assurance
that such sites will be available, viable or on economic terms acceptable to the
Company.

         Development and Construction Delays

         In connection with the development and construction of any new Company
restaurant, a number of events over which the Company will have no control could
occur that might materially adversely affect the costs and completion time of
such projects. Such events include governmental regulatory approvals, shortages
of or the inability to obtain labor and/or materials, inability of the general
contractor or subcontractors to perform under their contracts, strikes, adverse
weather conditions and acts of God, availability and cost of needed debt or
lease financing, and changes in Federal, state or local laws or regulations. In
addition, the Company will also be dependent on unaffiliated third parties to
complete the construction of its restaurants. Accordingly, there can be no
assurance that the Company will be able to complete any restaurant in a timely
manner or within its proposed budget.

         Need for Additional Personnel

         The Company's ability to successfully open and operate additional
restaurants will depend upon the Company's hiring and retaining additional
personnel who are experienced in the operation of casual dining restaurants, of
which there can be no assurance. The Company's failure to hire additional
experienced personnel will have a material adverse effect on the ability of the
Company to open and successfully operate restaurants and to expand its
operations thereafter.

         Increases in Operating and Food Costs; Availability of Supplies

         Increases in the cost of fresh meats and fresh produce could have a
direct and immediate effect on the Company's results of operations. A
substantial portion of the Company's revenues and food costs are derived from
the sale and purchase of fresh products. The cost of fresh products fluctuates
from time to time depending on a variety of factors beyond the control of the
Company, such as weather conditions and seasonal demand. Dependence
    

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on frequent deliveries of fresh products also subjects food service businesses
to the risk that shortages or interruptions in supply, caused by adverse weather
or other conditions, could adversely affect restaurant sales. Additional factors
such as inflation, increased utility, labor and employee benefit costs and the
availability of qualified management and hourly employees are beyond the
Company's control and may in the future affect the restaurant industry in
general and the Company's restaurants in particular.

         Significant Industry Competition; Special Restaurant Industry
         Considerations

         The restaurant industry is intensely competitive with respect to price,
service, location and food quality. There are many competitors of the Company
that are better established, have substantially greater financial, marketing and
other resources, have been in existence for a substantially longer period of
time and have greater name brand recognition. Further, the restaurant industry
is significantly affected by many external factors, including changes in the
national economy or in regional or local economies, changes in the demographics
of areas in which restaurants are situated, changes in consumer preferences and
demands, and increases in the number and density of restaurants in a particular
locale. Factors such as inflation and food costs may also affect the restaurant
industry. There can be no assurance that the Company will be able to
successfully compete in the restaurant industry.

         Insurance Coverage and Possible Claims

         The Company does not carry workers' compensation insurance. The Company
has attempted to comply with Texas law to give proper notice to its employees
and to the Texas Labor Board about its failure to provide such insurance.
Failure to provide such insurance could subject the Company to additional risks
because injuries to employees have no limitation on damages and certain common
law defenses are not available to the Company. The Company has, however,
obtained an occupational accident plan for injuries to its employees. This plan
is adopted under the Employee Retirement Income Security Act ("ERISA" ) and is
provided by Clarendon America Insurance Company with a combined single limit of
$500,000 to cover accidental death, medical benefits, legal costs and a portion
of lost wages for two years. There is a $1,000 deductible for each claim. There
is no assurance that this policy will cover a major employee claim for injury or
death. The Company also carries fire insurance, casualty insurance, burglary
insurance and general liability insurance with such limits and deductibles as
management deems prudent giving due consideration to the cost of such insurance.
Companies in the food services industry are from time to time the subject of
complaints, claims, litigation from customers alleging illness or injury or
otherwise relating to food quality, health or other operational complaints.
Adverse publicity resulting from such allegations may materially and adversely
affect the Company and its restaurants, regardless of whether such allegations
are valid or whether the Company is liable. Further, activities of the Company's
franchisees, if any, over which the Company will have no control could expose
the Company to litigation. There can be no assurance that the Company's
liability insurance coverage is adequate or maintainable by the Company on
acceptable terms or that the Company will be able to increase coverage, on
acceptable terms, as new restaurants are opened and additional insurance is
warranted. A partially or completely uninsured successful claim against the
Company or a franchisee could have a material adverse effect on the Company's
business and operations.

         No Dividends with Respect to Common Stock

         The Company has not paid or declared any cash dividends with respect to
its Common Stock, nor does it anticipate any such payments or declarations in
the foreseeable future. Any future dividends will be declared at the discretion
of the Board of Directors of the Company and will depend, among other things, on
the Company's earnings (if any) its financial requirements for future operations
and growth and such other factors as the Company may then deem appropriate.
Prospective investors should not rely on the receipt of dividends in the near
future or at any time in the future when evaluating the merits of an investment
in the Common Stock.

         No Preemptive Rights

         The shares of the Company's Common Stock have no preemptive rights for
shareholders to subsequently acquire unissued or treasury shares when additional
shares are sold to subsequent shareholders. Therefore, each
    

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shareholder's percentage share of the Company will decrease when the Company
sells additional shares to subsequent shareholders.

         No Cumulative Voting

         Neither the Company's Articles of Incorporation nor its Bylaws provide
cumulative voting rights. Therefore, the present holders of more than 50% of the
shares voting for election of directors can elect all of the directors if they
choose to do so, and in such event, the other shareholders holding less than 50%
will not be able to elect any person or persons to the Board of Directors of the
Company.

         Effect of Outstanding Options and Warrants

         For the term of the debentures and warrants issued by the Company in
the recent private placement, the holders thereof are given an opportunity to
profit from a rise in the market price of the Common Stock with a resulting
dilution in the interests of the other shareholders. Further, the terms on which
the Company may obtain additional financing during that period may be adversely
affected by the existence of such debentures and warrants. The holders of the
warrants and the debentures may exercise them at a time when the Company might
be able to obtain additional capital through a new offering of securities on
terms more favorable than those provided by such warrants and debentures.

         Government Regulation

         The Company is subject to various Federal, state and local laws
affecting its business. Each of the Company's restaurants will be subject to
licensing regulation by numerous governmental authorities, which may include
alcohol beverage control, building, health and safety, and fire agencies in the
state or municipality in which the restaurant is located. Difficulties in
obtaining or failure to obtain the necessary licenses or approvals could delay
or prevent the development of a new restaurant in an area. The Company is also
subject to federal and state laws and regulations governing employer-employee
relations, including those related to minimum wage requirements, overtime,
working and safety conditions and immigrant status. Any difficulties or failures
in obtaining required licenses or approvals could delay or prevent the opening
of a new restaurant. The failure to obtain or retain food or other licenses or
increases in the minimum wage rate, employee benefits (including costs
associated with the mandated health insurance coverage) or other costs relating
to employees could have an adverse effect on the Company's business. The Company
also will be subject to compliance with federal and state franchise sales law
and state franchise relationship laws to the extent it develops and implements a
franchising program. Compliance with such franchise laws can be time consuming
and costly and the Company's inability to comply with existing or future
franchise laws may have a material adverse effect on the Company's business and
prospects. The Company may become subject to government labeling and other
requirements which would require disclosure of fat, sodium and other items in
the Company's food, and in complying with these requirements, the Company may
incur additional expense.

         Alcoholic beverage control regulations in each state require that the
Company's restaurants apply to the specific state authority and, in certain
locations, county and municipal authorities for a license or permit to sell
alcoholic beverages on the premises and to provide service for extended hours
and on Sundays. Typically, an alcoholic beverage license must be renewed
annually and may be revoked or suspended for cause at any time. Alcohol beverage
control regulations relate to numerous aspects of the daily operations of the
Company's restaurants, including minimum age of patrons and employees, hours of
operation, advertising, wholesale purchasing, inventory control and handling,
and storage and dispensing of alcoholic beverages. The failure of a restaurant
to obtain or retain a liquor or food service license would adversely affect the
particular restaurant's operations.

         Restaurants in most states are subject to "dram shop" laws and
legislation, which imposes liability on licensed alcoholic beverage servers for
injuries or damages caused by their negligent service of alcoholic beverages to
a visibly intoxicated person or to a minor, if such service is the proximate
cause of the injury or damage and such injury or damage is reasonably
foreseeable. The Company maintains liquor liability insurance as part of its
existing comprehensive general liability insurance, which it believes to be
adequate to protect against such liability, although
    


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there can be no assurance that it will not be subject to a judgment in excess of
such insurance coverage or that it will be able to continue to maintain such
insurance coverage at reasonable costs or at all. The imposition of a judgment
substantially in excess of the Company's insurance coverage would have a
material adverse effect on the Company. In the event that such insurance
coverage were to become unavailable in the future, it could materially and
adversely affect the Company.


ITEM 2: 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.


<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 Messrs.
Stanley L. Swanson ("Mr. Stan Swanson") and Curtis A. Swanson (Mr. Curtis
Swanson"), who are both directors and officers of the Company. See "Item 6."


ITEM 3:  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The Directors and Officers of the Company as of the fiscal year ended
December 31, 1997 are set forth below.
    


                                        8

<PAGE>   10

   
<TABLE>
<CAPTION>

                 NAME                     AGE                    POSITION                  IN OFFICE SINCE
--------------------------------------    ---     ---------------------------------------- ---------------
<S>                                       <C>     <C>                                          <C>
Stanley L. Swanson....................    53      Chief Executive Officer, Chairman of the     1990
                                                    Board of Directors

Henry Leonard.........................    49      President and Chief Operating Officer        1997

Curtis A. Swanson.....................    30      Director, Treasurer, Chief Financial Officer 1990

Jean Hedges...........................    36      Controller                                   1993

Carole A. Swanson.....................    55      Secretary                                    1990

Edward Dmytryk........................    50      Director                                     1992

Robert (Bob) Lilly....................    57      Director                                     1995

Dr. Donald Whittaker..................    65      Director                                     1997
</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.

         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 Fort 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. 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 American,
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.

         Dr. Donald Whittaker ("Dr. Whittaker") was a director of the Company
from May 1997 until May 1, 1998. Dr. Whittaker is the founder and operator of
Dr. Whittaker's Vitamins and Completely Fit Health Foundation. From 1968 through
the present, Dr. Whittaker has been a physician in private practice. Dr.
Whittaker has been the host of "Calling Dr. Whittaker," a weekly program dealing
with cutting edge health issues. The program has been broadcast internationally
on Trinity Broadcast Network since 1979. Dr. Whittaker is a graduate of Texas
Wesleyan
    

                                        9

<PAGE>   11



College where he received a degree in Chemistry. He received his postgraduate
training at Kansas City School of Medicine where he graduated as a D.O..

         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 4:  REMUNERATION OF DIRECTORS AND OFFICERS
    

   
<TABLE>
<CAPTION>

                                                     CAPACITIES IN WHICH           AGGREGATE
    NAME OF INDIVIDUAL OR IDENTITY OF GROUP       REMUNERATION WAS RECEIVED       REMUNERATION
----------------------------------------------  -----------------------------     --------------

<S>                                            <C>                               <C>
                                                Chief Executive Officer and
Stanley L. Swanson.............................   Chairman of the Board           $       24,700

Curtis A. Swanson.............................. Chief Financial Officer           $       24,700

Jean M. Hedges................................. Controller                        $       26,000

Henry Leonard.................................. President                         $        2,885(a)

Officers and Directors as a Group (8 members)..               --                  $       78,285
</TABLE>
    

   
   (a) Mr. Leonard joined the company December 15, 1997 therefore the salary 
       reflected is for only 1/2 of 1 month.
    

   
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 a
director, 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

                                       10

<PAGE>   12

   
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.

STOCK OPTION PLAN

         On March 1, 1997, the Board of Directors of the Company adopted the
1997 Stock Option Plan (the "1997 Plan") pursuant to which 300,000 shares of the
Company's Common Stock have been 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 Common 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
Common Stock on the date of the grant of the option. The 1997 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.
    

         Additionally, Mr. Lilly was granted an option to acquire stock at $.10
per share in a manner so that the difference between the price of $.10 per share
and the fair market value of the stock at the time of the issuance of the grant
multiplied by the number of shares equaled $2,500 for each day of promotional
appearances that Mr. Lilly made before December 1, 1995 on behalf of the
Company. Options covering 3,572 shares were granted for personal appearances
made by Mr. Lilly on behalf of the Company before December 1, 1995.

         A new agreement has been entered into between the Company and Mr. Lilly
regarding personal appearances made by Mr. Lilly after December 1, 1995. For
each promotional appearance, Mr. Lilly will receive $1,500, plus the grant of an
option to acquire Common Stock of the Company at not less than 100% of the fair
market value as of the grant date. The grant of the option will be for stock
having a fair market value of $3,000 at the time of the grant with an option
term of 5 years.

   
         The Company applies APB Opinion 25 and related interpretations in
accounting for the 1995 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 pro-forma disclosure are not
indicative of future amounts.
    



                                       11

<PAGE>   13

ITEM 5:  SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITYHOLDERS

   
         The following table sets forth the number of shares of Common Stock of
the Company owned by (i) each of the three highest paid persons who are officers
and directors, (ii) all directors and officers as a group, and (iii) each person
of record who beneficially owns 10% or more of the outstanding Common Stock as
of December 31, 1997.
    

   
<TABLE>
<CAPTION>

                         NAME & ADDRESS OF         NUMBER OF SHARES       PERCENT OF
  TITLE OF CLASS            OWNER(1)                     OWNED               CLASS
------------------- ---------------------------- ---------------------- ----------------
<S>                <C>                             <C>                     <C>
Common Stock        Stan & Carole Swanson            1,203,921              18.94
                    3216 Page Road
                    Longview, Texas  76505

Common Stock        Curtis & Kim Swanson               507,024               7.98
                    3218 Page Road
                    Longview, Texas  75605

Common Stock        Jean Hedges                          2,000                *
                    1705 E. Whaley
                    Longview, Texas  75605

Common Stock        Officers and Directors as        2,266,969              35.66
                      a Group (8 members)
</TABLE>
    

   
----------
         (1)      Mr. Lilly is not listed as an owner of Common Stock, since as
                  of December 31, 1997 he only had options to purchase Common
                  Stock. Refer to the table set forth below for information on
                  these options.
         *        Less than one percent.

         The following table sets forth information concerning certain options
held by (i) each of the three highest paid persons who are officers and
directors, (ii) all directors and officers as a group, and (iii) each person of
record who beneficially owns 10% or more of the outstanding Common Stock as of
December 31, 1997.
    

   
<TABLE>
<CAPTION>

                                 AMOUNT OF COMMON STOCK
        NAME OF HOLDER            CALLED FOR BY OPTIONS    EXERCISE PRICE      DATE OF EXERCISE
-------------------------------   ---------------------    --------------      ----------------

<S>                                         <C>             <C>              <C>
Bob Lilly......................             50,000          $ 1.50           On or before 02/28/2000
                                             3,572          $ 0.10           On or before 02/28/2000
Jean Hedges....................
Stanley L. Swanson.............            100,000          $ 3.00           On or before 12/31/2002
Curtis A. Swanson..............            100,000          $ 3.00           On or before 12/31/2002
Officers and Directors as a
  Group (8 members)............            253,572              --                     --
</TABLE>
    

   
         On May 23, 1997, the Board of Directors of the Company adopted the 1997
Plan pursuant to which 300,000 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 Common 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 Common 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 Common Stock
of the Company. This plan was approved by shareholders on May 1, 1998. None of
these stock options have been exercised.

         On March 1, 1995, the Board of Directors of the Company adopted 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 Common Stock on the date of the grant of the
option. This plan was approved by shareholders on October 19, 1995.
    


                                       12

<PAGE>   14

   
         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 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 to adopt 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 pro-forma 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>



                                       13

<PAGE>   15


<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

                                                       1997
                                                       ----
                                                                  # SHARES OF          WEIGHTED
                                                                   UNDERLYING          AVERAGE
                                                                    OPTIONS        EXERCISE PRICES
                                                               --------------      ---------------

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
                              OUTSTANDING AT       REMAINING        WEIGHTED AVG.      EXERCISABLE AT     WEIGHTED AVG.
 RANGE OF EXERCISE 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>


ITEM 6:  INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS

   
F'NL INVESTMENTS, LLC

         In 1995, Mr. Curtis Swanson, a director, Treasurer and Chief Financial
Officer, and Mr. Dmytryk, a director, formed F'NL Investments, LLC, a Texas
limited liability company, which has entered into a franchise agreement with the
Company for the establishment of a restaurant in Arlington, Texas. The franchise
restaurant was 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
    

                                       14

<PAGE>   16



   
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.

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
owns 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.
    



                                       15

<PAGE>   17



                                     PART II

ITEM 1:  MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS.

   
         The Company's Common Stock began trading on the OTC Bulletin Board
under the symbol "FLTT" on May 9, 1997. 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.
    


<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>

   
         As of April 29, 1998, the Company estimates that there were
approximately 500 beneficial owners of the Company's Common Stock, represented
by 220 holders of record. The Company has never declared a dividend on its
Common Stock.
    


ITEM 2:  LEGAL PROCEEDINGS

   
         The Company is not currently a party to any litigation.
    


ITEM 3:  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

         None.


ITEM 4:  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matter was submitted to a vote of the shareholders of the Company
during the fourth quarter of the fiscal year ended December 31, 1997.


   
ITEM 5:  COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

         The Company has not received or reviewed during the last fiscal year
any Forms 3, 4 or 5 from any director, officer or beneficial owner of ten
percent of the Company's Common Stock. The Company understands that all of the
officers and directors and ten percent owners are in the process of gathering
information and intend to remedy any filing deficiencies.
    


ITEM 6:  REPORTS ON FORM 8-K

         None.

                                       16

<PAGE>   18


                                    PART F/S

FINANCIAL STATEMENTS

         The financial statements and supplementary data are set forth herein
commencing on page 21 of Financial Statements of this report.



                                       17

<PAGE>   19



                               FRESH'N LITE, INC.

   
                     RESTATED FINANCIAL STATEMENTS TOGETHER
                              WITH AUDITORS' REPORT

                                DECEMBER 31, 1997
    







<PAGE>   20



   
                          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


                                       19

<PAGE>   21



                              FINANCIAL STATEMENTS







<PAGE>   22



   
                               FRESH'N LITE, INC.
                                  BALANCE SHEET
                                DECEMBER 31, 1997
    

   
<TABLE>
<CAPTION>

                                                         1997
                                                      Restated
                                                     -----------

         ASSETS
     CURRENT ASSETS
<S>                                                  <C>        
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.


                                       21

<PAGE>   23



   
                               FRESH'N LITE, INC.
                                  BALANCE SHEET
                                DECEMBER 31, 1997

(Continued)
    

   
<TABLE>
<CAPTION>

                                                                    1997
                                                                  Restated
                                                                 ----------
         LIABILITIES AND SHAREHOLDERS' EQUITY

     CURRENT LIABILITIES
<S>                                                              <C>       
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, 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.


                                       22

<PAGE>   24



   
                               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
                                          ----------     ----------     ----------
     REVENUES
<S>                                       <C>            <C>            <C>
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.


                                       23

<PAGE>   25



   
                               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.


                                       24

<PAGE>   26



   
                               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 ....................................         233,881          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......            --            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.
    


                                       25

<PAGE>   27



                          NOTES TO FINANCIAL STATEMENTS






<PAGE>   28


   
                               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.
    



                                       27

<PAGE>   29


                               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.

                                       28

<PAGE>   30


                               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.

                                       29

<PAGE>   31


                               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

                                       30

<PAGE>   32


                               FRESH'N LITE, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 1997


     NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


ended December 31, 1997. The assets reclassified were land, capitalized land
lease, building, furniture 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>



                                       31

<PAGE>   33



   
                               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.



                                       32

<PAGE>   34



   
                               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      $    --
                                            =========      =========      =========
</TABLE>
    


         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
                                                                      =========
    




                                       33

<PAGE>   35


   
                               FRESH'N LITE, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 1997
    


   
         NOTE 6 - NOTES PAYABLE-LONG TERM (CONTINUED)
    

Notes payable-long term at DECEMBER 31, 1997 consisted of the following:

   
<TABLE>
<CAPTION>

                                                                                                               AMOUNT 
                                                                                                           ------------

<S>         <C>                                                                                          <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%, payable in 35 Monthly payments of $1,864 beginning November 12,
1995 and the balance at maturity, including interest, collateralized by a second
lien on the Company's Frankford Avenue leasehold estate in Dallas, and by a
security interest in various equipment, fixtures and other personal property at
that location..........................................................................................        128,481

Related Parties:

         Carole A. Swanson, dated March 12, 1997, due September 15, 2001,
         interest rate at 9.26%, payable 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 21,850 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>
    


                                       34

<PAGE>   36


                               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.
    


                                       35

<PAGE>   37


                               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
    

                                       36

<PAGE>   38


                               FRESH'N LITE, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 1997


         NOTE 7 - LEASES (CONTINUED)


   
         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.
    

                  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:
    


         Years Ending December 31:
   

<TABLE>
<CAPTION>

<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:


                                       37

<PAGE>   39


                               FRESH'N LITE, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 1997


         NOTE 7 - LEASES (CONTINUED)


         Years Ending December 31:

   
<TABLE>
<CAPTION>
<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                               
      Payments, net of Current Portion.....................      $        165,505
                                                                 ================
</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>
    



                                       38

<PAGE>   40



   
                               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.


                                       39

<PAGE>   41


                               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
    

                                       40

<PAGE>   42


                               FRESH'N LITE, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 1997



         NOTE 11 - STOCK OPTIONS (CONTINUED)


   
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 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>



                                       41

<PAGE>   43


                               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>



                                       42

<PAGE>   44


   
                               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>
    



                                       43

<PAGE>   45


   
                               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>
    



                                       44

<PAGE>   46


   
                               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>
    




                                       45

<PAGE>   47



   
                               PART III. EXHIBITS


         Hereafter set forth as exhibits to the Form 10-KSB/A-1 of Fresh'n Lite,
Inc and incorporated by reference are the following exhibits:

<TABLE>
<CAPTION>

       NO. AS PER
  PART III OF FORM 1A    DESCRIPTION OF EXHIBIT
---------------------    ----------------------

    <S>                 <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

     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

     27.1                Financial Data Schedule filed as an exhibit to the Form
                         10-SB/A-2 filed June 25, 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.

**    Filed as a paper exhibit to the Company's Form 10-SB filed October 23,
      1997 and filed in electronic format as exhibits to Amendment No. 1 to Form
      10-SB filed June 25, 1998 and incorporated herein by reference.
    



                                       46

<PAGE>   48


   
                                   SIGNATURES
    

   
         The undersigned registrant hereby amends and restates its Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1997.
    

   
         In accordance with Section 13 or 15(d) of the Securities Exchange Act,
the registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
    


                                         FRESH'N LITE, INC.
                                         Registrant


   
                                         By: /s/ Stanley L. Swanson
                                             ----------------------------------
                                             Stanley L. Swanson
                                             Chairman of the Board of Directors
                                             and Chief Executive Officer

                                         August 14, 1998
                                         Date
    


         In accordance with the Exchange Act, this amendment has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.



   
                                         By:  /s/ Henry Leonard
                                             ----------------------------------
                                             Henry Leonard, Director
                                             President and Chief Operating 
                                             Officer


                                         August 14, 1998
                                         Date
    



   
                                         By:  /s/ Curtis A. Swanson
                                             ----------------------------------
                                             Curtis A. Swanson, Director
                                             Vice President and Chief 
                                             Financial Officer


                                         August 14, 1998
                                         Date
    


                                       47