<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                             -----------------------

                                    FORM 10-Q
(Mark One)
[X]    QUARTERLY REPORT under SECTION 13 OR 15(d) of the SECURITIES EXCHANGE ACT
       OF 1934

       For the quarter ended        June 14, 1998
                                       OR

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

       For the transition period from ______________ to ______________.

                         Commission file number 0-20792

                               FRESH CHOICE, INC.
             (Exact name of registrant as specified in its charter)

                DELAWARE                                  77-0130849
      (State or other jurisdiction of                  (I.R.S. Employee
       incorporation or organization)                  Identification No.)

          2901 TASMAN DRIVE - SUITE 109, SANTA CLARA, CALIFORNIA 95054
              (Address of principal executives offices) (Zip Code)

       Registrant's telephone number, including area code: (408) 986-8661
________________________________________________________________________________

               Former name, former address and former fiscal year,
                         if changed since last report.

Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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.
                                                                  [X] Yes [ ] No

         APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
                        DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [ ] Yes [ ] No

                      APPLICABLE ONLY TO CORPORATE ISSUERS:
 The number of shares of Common Stock, $.001 par value, outstanding as of July
12, 1998 was 5,694,920.



<PAGE>   2

                               FRESH CHOICE, INC.

                                      INDEX

<TABLE>
<S>                                                                                                                   <C>
PART I - FINANCIAL INFORMATION

     Item 1 - Financial Statements

         Condensed Consolidated Balance Sheets at June 14, 1998
         and December 28, 1997..........................................................................................3

         Condensed Consolidated Statements of Operations for the Twelve and Twenty-Four Weeks
         ended June 14, 1998 and June 15, 1997 .........................................................................4

         Condensed Consolidated Statements of Cash Flow for the Twenty-Four Weeks
         ended June 14, 1998 and June 15, 1997..........................................................................5

         Notes to Unaudited Condensed Consolidated Financial Statements.................................................6

     Item 2 - Management's Discussion and Analysis of Financial Condition
         and Results of Operations......................................................................................9

     Item 3 - Quantitative and Qualitative Disclosures About Market Risk...............................................18

PART II - OTHER INFORMATION

     Item 1 - Legal Proceedings........................................................................................19
     Item 2 - Changes in Securities....................................................................................19
     Item 3 - Defaults Upon Senior Securities..........................................................................19
     Item 4 - Submission of Matters to a Vote of Security Holders......................................................19
     Item 5 - Other Information........................................................................................19
     Item 6 - Exhibits and Reports on Form 8-K.........................................................................19


SIGNATURES ............................................................................................................20


INDEX TO FORM 10-Q EXHIBITS............................................................................................21
</TABLE>



                                       2
<PAGE>   3

                          PART I. FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

FRESH CHOICE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)

<TABLE>
<CAPTION>

                                                                               June 14,          December 28,
                                                                                 1998               1997
                                                                               --------           --------
ASSETS                                                                       (Unaudited)

<S>                                                                          <C>                 <C>     
CURRENT ASSETS:
       Cash and cash equivalents                                               $    318           $  2,415
       Receivables                                                                  322                124
       Inventories                                                                  490                461
       Pre-opening costs                                                             99                130
       Prepaid expenses and other current assets                                    358                544
                                                                               --------           --------

       Total current assets                                                       1,587              3,674

PROPERTY AND EQUIPMENT, net                                                      32,401             30,842

LEASE ACQUISITION COSTS, net                                                        446                481

DEPOSITS AND OTHER ASSETS                                                           616                611
                                                                               --------           --------

TOTAL ASSETS                                                                   $ 35,050           $ 35,608
                                                                               ========           ========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
       Accounts payable                                                        $  1,482           $  2,271
       Accrued salaries and wages                                                 1,325              1,286
       Sales tax payable                                                            842                525
       Other accrued expenses                                                     1,923              2,101
       Acquisition payable related to purchase of restaurants                       600                600
       Restructuring reserve                                                         --                721
       Line of credit borrowings                                                    940                 --
       Current portion of capital lease obligations                                 246                 --
                                                                               --------           --------

       Total current liabilities                                                  7,358              7,504

CAPITAL LEASE OBLIGATIONS                                                           926                 --

OTHER LONG-TERM LIABILITIES                                                       1,531              1,786
                                                                               --------           --------

       Total liabilities                                                          9,815              9,290
                                                                               --------           --------

STOCKHOLDERS' EQUITY
       Convertible preferred stock, $.001 par value;  3.5 million shares
              authorized; shares outstanding: 1998 and 1997 -1,187,906            5,175              5,175
       Common stock, $.001 par value; 15 million shares authorized;
              shares outstanding: 1998-5,694,920; 1997-5,682,193                 42,170             42,139
       Accumulated deficit                                                      (22,110)           (20,996)
                                                                               --------           --------

       Total stockholders' equity                                                25,235             26,318
                                                                               --------           --------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                     $ 35,050           $ 35,608
                                                                               ========           ========
</TABLE>

See accompanying notes to unaudited condensed consolidated financial statements



                                       3
<PAGE>   4

FRESH CHOICE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

<TABLE>
<CAPTION>

                                                             Twelve Weeks Ended          Twenty-Four Weeks Ended
                                                             ------------------          -----------------------
                                                         June 14,        June 15,        June 14,         June 15,
                                                           1998            1997            1998            1997
                                                         --------        --------        --------        --------

<S>                                                      <C>             <C>             <C>             <C>     
NET SALES                                                $ 17,366        $ 17,379        $ 33,558        $ 33,485

COSTS AND EXPENSES:
        Cost of sales                                       4,597           4,716           8,837           9,105
        Restaurant operating expenses:
              Labor                                         5,651           5,319          11,041          10,376
              Occupancy and other                           5,439           5,003          10,492          10,252
        Depreciation and amortization                         851             697           1,669           1,398
        General and administrative expenses                 1,252           1,444           2,561           2,850
                                                         --------        --------        --------        --------

              Total costs and expenses                     17,790          17,179          34,600          33,981
                                                         --------        --------        --------        --------

OPERATING INCOME (LOSS)                                      (424)            200          (1,042)           (496)

        Interest income                                        --              37               8              89
        Interest expense                                      (43)             (4)            (80)             (9)
                                                         --------        --------        --------        --------

        Interest income (expense), net                        (43)             33             (72)             80
                                                         --------        --------        --------        --------

INCOME (LOSS) BEFORE INCOME TAXES                            (467)            233          (1,114)           (416)

        Provision for (benefit from) income taxes              --              --              --              --
                                                         --------        --------        --------        --------

NET INCOME (LOSS)                                        $   (467)       $    233        $ (1,114)       $   (416)
                                                         ========        ========        ========        ========

Basic net income (loss) per common share                 $  (0.08)       $   0.04        $  (0.20)       $  (0.07)
                                                         ========        ========        ========        ========

Shares used in computing basic per share amounts            5,686           5,663           5,684           5,662
                                                         ========        ========        ========        ========

Diluted net income (loss) per common share               $  (0.08)       $   0.03        $  (0.20)       $  (0.07)
                                                         ========        ========        ========        ========

Shares used in computing diluted per share amounts          5,686           6,854           5,684           5,662
                                                         ========        ========        ========        ========
</TABLE>


See accompanying notes to unaudited condensed consolidated financial statements



                                       4
<PAGE>   5

FRESH CHOICE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Dollars in thousands)
(Unaudited)  

<TABLE>
<CAPTION>

                                                                             Twenty-Four Weeks Ended
                                                                             -----------------------
                                                                              June 14,       June 15,
                                                                                1998           1997
                                                                              -------        -------

<S>                                                                           <C>            <C>     
OPERATING ACTIVITIES:
Net loss                                                                      $(1,114)       $  (416)
Adjustments to reconcile net loss to
     net cash provided by (used in) operations:
         Depreciation and amortization                                          1,769          1,502
         Loss on disposal of property                                             170             33
         Deferred rent                                                           (247)          (217)
         Change in operating assets and liabilities:
            Receivables                                                           (31)            77
            Inventories                                                           (29)           (27)
            Pre-opening costs                                                     (36)            --
            Prepaid expenses and other current assets                             186            117
            Accounts payable                                                     (789)         1,280
            Accrued salaries and wages                                             39            (18)
            Other accrued expenses                                                139            292
            Restructuring reserve                                                (721)          (323)
                                                                              -------        -------

     Net cash provided by (used in) operating activities                         (664)         2,300
                                                                              -------        -------

INVESTING ACTIVITIES:
     Capital expenditures                                                      (3,390)        (1,998)
     Deposits and other assets                                                   (186)          (218)
                                                                              -------        -------

     Net cash used in investing activities                                     (3,576)        (2,216)
                                                                              -------        -------

FINANCING ACTIVITIES:
     Common stock sales                                                            31             45
     Line of credit borrowings, net                                               940             --
     Capital lease obligations - borrowings                                     1,265             --
     Capital lease obligations - repayments                                       (93)           (58)
     Other note payable                                                            --             (1)
                                                                              -------        -------

     Net cash provided by (used in) financing activities                        2,143            (14)
                                                                              -------        -------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                               (2,097)            70

CASH AND CASH EQUIVALENTS:
     Beginning of period                                                        2,415          5,647
                                                                              -------        -------

     End of period                                                            $   318        $ 5,717
                                                                              =======        =======

Supplemental Disclosure of Cash Flow Information:
     Cash paid during the period for interest                                 $    49        $    10
                                                                              -------        -------

Supplemental Disclosure of Non-Cash Investing and Financing Activities:
     Acquisition payable related to purchase of restaurants                   $    --        $   600
                                                                              -------        -------
</TABLE>


See accompanying notes to unaudited condensed consolidated financial statements



                                       5
<PAGE>   6

FRESH CHOICE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Twelve Weeks and Twenty-Four Weeks Ended June 14, 1998 and June 15, 1997


1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

        The accompanying condensed consolidated financial statements have been
prepared by the Company without audit and reflect all adjustments, consisting of
normal recurring adjustments and accruals, which are, in the opinion of
management, necessary for a fair statement of financial position and the results
of operations for the interim periods. The statements have been prepared in
accordance with the regulations of the Securities and Exchange Commission, but
omit certain information and footnote disclosures necessary to present the
statements in accordance with generally accepted accounting principles. For
further information, refer to the financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 28, 1997.

2. NET INCOME (LOSS) PER SHARE

        During December 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 (SFAS 128), "Earnings per Share" which requires a
dual presentation of basic and diluted earnings per share (EPS). Basic EPS for
the periods presented is computed by dividing net income (loss) by the weighted
average of common shares outstanding. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock. The Company retroactively
restated prior period earnings per share (EPS) for the change.

        A reconciliation of the components of basic and diluted net income
(loss) per common share follows:

<TABLE>
<CAPTION>

                                                    Twelve Weeks Ended         Twenty-Four Weeks Ended
                                                  -----------------------      ------------------------
                                                  June 14,       June 15,       June 14,       June 15,
(In thousands, except per share data)               1998           1997          1998            1997
                                                  --------       --------      --------        --------
<S>                                               <C>            <C>           <C>             <C>      
 Net income (loss)                                $   (467)      $    233      $ (1,114)       $   (416)
                                                  ========       ========      ========        ========

Basic Net Income (Loss) Per Common Share

 Average common shares outstanding                   5,686          5,663         5,684           5,662
                                                  ========       ========      ========        ========

Diluted Net Income (Loss) Per Common Share

 Dilutive shares:
    Stock options                                       --              3            --              --
    Convertible preferred stock                         --          1,188            --              --
                                                  --------       --------      --------        --------

    Total shares and dilutive shares                 5,686          6,854         5,684           5,662
                                                  ========       ========      ========        ========

 Basic net income (loss) per common share         $  (0.08)      $   0.04      $  (0.20)       $  (0.07)
                                                  ========       ========      ========        ========

 Diluted net income (loss) per common share       $  (0.08)      $   0.03      $  (0.20)       $  (0.07)
                                                  ========       ========      ========        ========
</TABLE>



                                       6
<PAGE>   7

        Diluted EPS presented for the twelve weeks ended June 14, 1998 and the
twenty-four weeks ended June 14, 1998 and June 15, 1997 is the same as basic EPS
since the Company had net losses and, therefore, all potential dilutive
securities are antidilutive and are excluded from the computation. The following
table presents the total dilutive securities which the Company excluded for each
period presented from its diluted EPS computation because either the exercise
price of the securities exceeded the average fair value of the Company's common
stock or the Company had net losses, and, therefore, these securities were
anti-dilutive:

<TABLE>
<CAPTION>
                                         Twelve Weeks Ended     Twenty-Four Weeks Ended
                                         ------------------     -----------------------
                                         June 14,    June 15,    June 14,     June 15,
     (In thousands)                        1998        1997        1998        1997
                                          -----       -----       -----       -----
     <S>                                 <C>          <C>         <C>         <C>  
     Potential Dilutive Securities
        Stock options                       576         586         576         596
        Stock warrants                      732         732         732         732
        Convertible preferred stock       1,188          --       1,188       1,188
</TABLE>


3. INCOME TAXES

        The Company recorded no income tax benefit from its operating losses
during the twenty-four weeks ended June 14, 1998 and June 15, 1997. The Company
has provided valuation allowances against its net deferred tax assets which
consist primarily of the tax benefit related to operating loss carryforwards and
non-deductible asset write-downs and restructuring accruals. The Company will
continue to provide a valuation allowance for its deferred tax assets until it
becomes more likely than not, in management's assessment, that the Company's
deferred tax assets will be realized.

4. BANK LINE OF CREDIT

        During the second quarter of 1998, the Company amended its bank line of
credit agreement to extend the term to May 27, 1999. Under the amended agreement
the maximum available amount of borrowings is $3,850,000 with no term loan
option. Borrowings under the line of credit bear interest at the prime rate
(8.5% at June 14, 1998) plus 1.25% and are secured by the Company's personal
property and by executed deeds of trust on certain Company-owned real estate.
Borrowings under the line of credit are limited to three times the Company's
earnings before interest, taxes, depreciation and amortization, computed on a
quarterly basis for the twelve-month period then ended, and are further limited
to $2,850,000 through September 30, 1998 increasing to $3,850,000 thereafter.

        The agreement requires the Company to achieve minimum quarterly and
annual earnings targets for the Company's fiscal year, to maintain a minimum
tangible net worth, and to not exceed a maximum debt to net tangible worth
ratio. The agreement also contains a maximum fixed asset acquisition limit, a
minimum annual EBITDA requirement, requires the Company to have no borrowings
under the line for 30 consecutive days during the amended term of the agreement
and requires the Company to maintain compliance with the preferred stock
agreement. The Company was in compliance with the loan agreement covenants at
July 29, 1998. The Company has $940,000 borrowed under the line of credit at
June 14, 1998.

5. ACQUISITION PAYABLE RELATED TO PURCHASE OF RESTAURANTS

        At June 14, 1998, the Company had a $600,000 acquisition payable related
to its purchase in May 1997 of the Zoopa trade name and three Zoopa restaurants
in Bellevue, Tacoma and Tukwila, Washington. The Company paid $1,250,000 upon
closing of the purchase in May 1997 with the remaining liability paid following
the end of the second quarter in 1998.



                                       7
<PAGE>   8

6. RESTRUCTURING RESERVE

        The following table sets forth the Company's restructuring reserves and
their respective balances at December 29, 1996, December 28, 1997 and June 14,
1998.

<TABLE>
<CAPTION>
                            Balance       Provided                   Balance      Utilized      Reserve     Balance
(In thousands)             December 29,  (Reversed)    Utilized    December 28,   to date       Reversed    June 14,
                              1996        in 1997       in 1997        1997        in 1998       in 1998      1998
                             -------      -------       -------       -------      -------       -------      ----
<S>                        <C>           <C>           <C>          <C>           <C>           <C>         <C> 
1995 Reserve:
Restaurant closures:

Non-cash write-down
of restaurant assets to
estimated fair value
and other related
costs                        $    58      $   (58)      $    --       $    --      $    --       $    --       $--

Estimated cash costs
associated with
restaurant closures
and settlement of
lease obligations              1,765         (674)         (370)          721         (689)          (32)       --
                             -------      -------       -------       -------      -------       -------       ---

1995 reserve                   1,823         (732)         (370)          721         (689)          (32)       --
                             -------      -------       -------       -------      -------       -------       ---

1996 Reserve:

Restaurant closures:

Non-cash write-down
of restaurant assets to
estimated fair value
and other related
costs                             28          (28)                         --                                   --

Estimated cash costs
associated with
restaurant closures
and settlement of
lease obligations                845         (254)         (591)           --           --            --        --
                             -------      -------       -------       -------      -------       -------       ---

1996 reserve                     873         (282)         (591)           --           --            --        --
                             -------      -------       -------       -------      -------       -------       ---

1997 Impairment:
Non-cash write-down
of restaurant assets to
estimated fair value                        1,014        (1,014)                        --            --        --
                             -------      -------       -------       -------      -------       -------       ---

Total reserves               $ 2,696      $    --       $(1,975)      $   721      $  (689)      $   (32)      $--
                             =======      =======       =======       =======      =======       =======       ===
</TABLE>


        During the second quarter of 1998, the Company settled its one remaining
cash obligation related to the lease settlement for a previously closed
restaurant and completed its restructuring plan previously announced at the end
of fiscal year 1995. In addition, the Company reversed approximately $32,000 of
excess reserve to other restaurant operating expenses and had no restructuring
reserve balances at June 14, 1998.

        The Company closed no restaurants in 1997, but identified one other
restaurant, which was previously impaired in connection with the Company's
restructuring plan, for closure in 1998 at the expiration of 


                                       8
<PAGE>   9
its lease term. The restaurant closed in the second quarter of 1998 with no
material impact on the Company's financial position, results of operations or
cash flows.

7. RECENTLY ISSUED ACCOUNTING STANDARD

        In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 ("SOP 98-5"), "Reporting on the Costs of
Start-Up Activities", which requires companies to expense the costs of start-up
activities and organization costs as incurred. The Company has historically
capitalized restaurant pre-opening costs, which consist of the direct costs
associated with opening new restaurants including the costs of hiring and
training the initial workforce, and amortizes them over a twelve month period.
SOP 98-5 is required to be adopted effective for the Company's fiscal year
beginning December 28, 1998 and will require the Company to expense the
unamortized portion of restaurant start-up costs at the time of adoption. The
Company has $99,000 of unamortized pre-opening costs as of June 14, 1998 and may
have between $100,000 and $150,000 of unamortized pre-opening costs at the time
SOP 98-5 is adopted.


ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

        The following discussion is intended to highlight significant changes in
the Company's financial position and results of operations for the twenty-four
weeks ended June 14, 1998. The interim Financial Statements and this
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Consolidated Financial
Statements and Notes thereto for the fiscal year ended December 28, 1997 and the
related Management's Discussion and Analysis of Financial Condition and Results
of Operations, both of which are contained in the Company's Annual Report on
Form 10-K for the fiscal year ended December 28, 1997.

        Certain statements set forth in this discussion and analysis of
financial condition and results of operations including anticipated store
openings, planned capital expenditures and trends in or expectations regarding
the Company's operations, constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such statements
are based on currently available operating, financial and competitive
information and are subject to various risks and uncertainties. Actual future
results and trends may differ materially depending on a variety of factors as
set forth herein. In particular, the Company's plans to open new restaurants
could be affected by the Company's ability to locate suitable restaurant sites,
construct new restaurants in a timely manner and obtain additional financing.

Liquidity and Capital Resources

        The Company's primary capital requirements have been the expansion of
its restaurant operations and remodeling of its restaurants. The Company has
traditionally financed these requirements with funds from equity offerings, cash
flow from operations, landlord allowances, equipment lease financing and
short-term bank debt. The Company does not have significant receivables or
inventory and receives trade credit based upon negotiated terms in purchasing
food and supplies.

        For the twenty-four weeks ended June 14, 1998, the Company invested
$3,390,000 in property and equipment, primarily for new and remodeled
restaurants, which was funded from existing cash balances, cash flow from
operations, equipment lease financing and short-term bank borrowings. The
Company opened one new restaurant in Houston, Texas in the second quarter of
1998 and has a restaurant in Fort Worth, Texas under construction. In addition,
the Company has executed lease commitments for an additional restaurant in San
Antonio, Texas and in Houston, Texas. The Company remodeled eight restaurants
during the first half of 1998



                                       9
<PAGE>   10

and currently does not have plans to remodel additional restaurants in 1998. The
Company is utilizing many of the elements from its Zoopa restaurant decor in
both its new and remodeled restaurants.

        At June 14, 1998, the Company had a $600,000 acquisition payable related
to its purchase in May 1997 of the Zoopa trade name and three Zoopa restaurants
in Bellevue, Tacoma and Tukwila, Washington. The Company paid $1,250,000 upon
closing of the purchase in May 1997 with the remaining liability paid following
the end of the second quarter in 1998.

        During the second quarter of 1998, the Company amended its bank line of
credit agreement to extend the term to May 27, 1999. Under the amended agreement
the maximum available amount of borrowings is $3,850,000 with no term loan
option. Borrowings under the line of credit bear interest at the prime rate
(8.5% at June 14, 1998) plus 1.25% and are secured by the Company's personal
property and by executed deeds of trust on certain Company-owned real estate.
Borrowings under the line of credit are limited to three times the Company's
earnings before interest, taxes, depreciation and amortization, computed on a
quarterly basis for the twelve-month period then ended, and are further limited
to $2,850,000 through September 30, 1998 increasing to $3,850,000 thereafter.

        The agreement requires the Company to achieve minimum quarterly and
annual earnings targets for the Company's fiscal year, to maintain a minimum
tangible net worth, and to not exceed a maximum debt to net tangible worth
ratio. The agreement also contains a maximum fixed asset acquisition limit, a
minimum annual EBITDA requirement, requires the Company to have no borrowings
under the line for 30 consecutive days during the amended term of the agreement
and requires the Company to maintain compliance with the preferred stock
agreement. The Company was in compliance with the loan agreement covenants at
July 29, 1998. The Company has $940,000 borrowed under the line of credit at
June 14, 1998.

        At June 14, 1998, the Company had a $600,000 acquisition payable related
to its purchase in May 1997 of the Zoopa trade name and three Zoopa restaurants
in Bellevue, Tacoma and Tukwila, Washington. The Company paid $1,250,000 upon
closing of the purchase in May 1997 and made an additional $553,000 payment
following the end of the second quarter in 1998 which was based on the achieved
restaurant sales levels. The Company allocated the final purchase price to the
identifiable assets acquired, principally fixed assets.

        During the second quarter of 1998, the Company amended its bank line of
credit agreement to extend the term to May 28, 1999. Under the amended agreement
the available amount of borrowings is $3,850,000 with no term loan option.
Borrowings under the line of credit bear interest at the prime rate (8.5% at
June 14, 1998) plus 1.25% and are secured by the Company's personal property and
by executed deeds of trust on certain Company-owned real estate. Borrowings
under the line of credit are limited to three times the Company's earnings
before interest, taxes, depreciation and amortization and are further limited to
$2,850,000 through September 30, 1998 increasing to $3,850,000 thereafter
provided the Company remains in compliance with all loan covenants.

        The agreement requires the Company to achieve minimum quarterly and
annual earnings targets, to maintain a minimum tangible net worth, and to not
exceed a maximum debt to net tangible worth ratio. The agreement also contains a
maximum fixed asset acquisition limit and a minimum annual EBITDA requirement,
requires the Company to have no borrowings under the line for 30 consecutive
days during the amended term of the agreement and requires the Company to
maintain compliance with all bank agreements and the preferred stock agreement.
The Company was in compliance with the loan agreement covenants at June 14,
1998. The Company has $940,000 borrowed under the line of credit at June 14,
1998

        During the twenty-four weeks ended June 14, 1998, the Company entered
into equipment leases providing $1,265,000 in financing under capital lease
agreements that expire in 2001.



                                       10
<PAGE>   11

        Operating activities during the twenty-four weeks ended June 14, 1998
used $664,000 which included $689,000 in cash costs related to the completion of
the Company's 1995 restructuring plan.

        Long-term debt at June 14, 1998 consisted of $1,172,000 of capital lease
obligations and a $118,000 note for site construction costs which is included in
other long-term liabilities on the balance sheet.

        The Company's outstanding Series B non-voting preferred stock is
currently held by one entity and is convertible, at the holders' option, into
Series A voting convertible preferred stock on a one-for-one basis. Although no
Series A preferred stock is currently outstanding, any holders of Series A
preferred stock would be entitled to vote with common stockholders on all
matters submitted to a vote of stockholders. When and if issued, the holders of
a majority of the outstanding Series A preferred stock will have a separate
right to approve certain corporate actions. In the event of a failure by the
Company to achieve earnings targets (before interest, taxes, depreciation and
amortization) of at least $5,500,000 in 1998 (subject to adjustment under
certain circumstances by the Company's board of directors), any Series A
preferred stockholders could elect a majority of the Company's Board of
Directors. Upon achievement of certain per-share market price test, the Company
may force a mandatory conversion of the Series A preferred stock to common
stock. No shares of Series C preferred stock are currently outstanding, but an
option to purchase such shares is outstanding. All shares of Series A, Series B
and Series C preferred stock are senior to the Company's common stock with
respect to dividends and with respect to distribution on liquidation.

        The Company's continued growth depends to a significant degree on its
ability to open new restaurants and to operate such restaurants profitably. The
Company has currently slowed its expansion plans and intends to resume its
restaurant expansion when its financial performance improves. The Company's
ability to implement an expansion strategy will depend upon a variety of
factors, including the success of efforts to restore profitability and the
Company's ability to obtain funds. See "Business Risks" included herein. The
Company believes its operating cash requirements and near-term capital
requirements for restaurant remodeling and expansion can be met through existing
cash balances, cash provided by operations, equipment lease financing and its
amended line of credit agreement. The Company may continue to seek additional
debt or equity financing to provide greater flexibility toward improving its
operating performance and continuing expansion.

Impact of Inflation

        Many of the Company's employees are paid hourly rates related to the
federal and state minimum wage laws. Accordingly, increases in the minimum wage
could materially increase the Company's labor costs. The Federal minimum wage
increased effective September 1, 1997, and the State of California minimum wage
increased effective March 1, 1998. In addition, the cost of food commodities
utilized by the Company are subject to market supply and demand pressures.
Shifts in these costs may have a significant impact on the Company's food costs.
The Company anticipates that increases in these costs can be offset through
pricing and other cost control efforts; however, there is no assurance that the
Company would be able to pass such costs on to its guests or that even if it
were able to do so, it could do so in a short period of time.

Year 2000 Software Requirements

        The Company has completed a review of all its restaurant and corporate
computer systems for compliance with the year 2000. The Company has determined
that certain of its existing computer systems use only two digits to identify a
year in the date field and, as a result, may improperly identify the year 2000
in calculating and processing information. The Company recognizes this system
design could cause certain systems



                                       11
<PAGE>   12

to potentially fail or create erroneous results by or at the year 2000 but
believes its current strategic information plan is addressing the problem.

        The Company is currently in the process of migrating its critical
processing and information requirements to outsourced processing companies whose
software is represented to be year 2000 compliant. The Company expects to
complete this system migration, begun in 1997, during 1998 with no significant
incremental costs. In accordance with its strategic information plan, the
Company is already replacing certain restaurant systems, primarily its
restaurant point of sale system, used for capturing and transmitting data to the
outsourced systems, with year 2000 compliant systems. The Company expects to
have the critical restaurant systems in place by approximately the end of 1998
at an estimated cost of $500,000 which is to be capitalized in accordance with
normal policy and which will be funded either through operating cash flow or
equipment lease financing.

        The Company has also contacted outside entities with which it interacts
electronically and has requested information regarding whether or not their
systems are or will be year 2000 compliant. The Company plans to monitor the
progress of outside entities that are in the process of developing year 2000
compliance, but it does not believe there is a material risk to the Company if
these entities do not achieve compliance.

Business Risks

        Certain characteristics and dynamics of the Company's business and of
financial markets in general create risks to the Company's long-term success and
to predictable financial results. These risks include:

        Operating Losses and Declines in Comparable Store Sales. The Company's
profitability began to decline in the second half of 1994. In the fourth quarter
of 1994, the Company reported its first operating loss, and reported operating
losses in both 1995 and 1996 and reported a modest profit in 1997. The Company
has reported an operating loss for the first half of 1998.

        Beginning late in the third quarter of fiscal 1994, the Company began
reporting comparable store sales declines. Comparable store sales have continued
to decline in each quarter through the end of 1997. The Company reported
comparable store sales declines of 4.6%, 15.3%, 5.9% and 2.7% for fiscal years
1994, 1995, 1996 and 1997, respectively, and a comparable store sales decline of
8.5% in the first half of 1998. There can be no assurance that comparable store
sales will improve or that the Company will return to long-term profitability.

        Expansion. The Company experienced substantial growth prior to mid-1995,
having opened 14 restaurants in 1993, 15 restaurants in 1994, and seven in 1995.
In 1995, the Company suspended its expansion plans after opening seven
restaurants, reviewed the operating performance of all of its restaurants, and
identified certain restaurants which did not meet its expectations for operating
performance. As a result, in December 1995 the Company announced a restructuring
plan to close as many as ten restaurants. The Company has closed or sold twelve
restaurants to date. The Company closed three restaurants at the end of 1995 and
eight in 1996 in accordance with a restructuring plan announced at the end of
1995. The Company closed no restaurants in 1997, but identified one other
restaurant for closure in 1998 at the expiration of its lease term. This
restaurant closed in the second quarter of 1998 with no material impact on the
Company's financial position, results of operations or cash flows.

        The Company opened one Fresh Choice restaurant in 1996 and in 1997,
acquired the Zoopa trade name and three Zoopa restaurants (in Tacoma, Tukwila
and Bellevue, Washington) and opened an additional two new Zoopa restaurants (in
San Antonio and Houston, Texas). In the second quarter of 1998, the Company
opened one new Zoopa restaurant (in Houston, Texas) and has a restaurant (in
Fort Worth, Texas) under construction. The Company believes its growth depends
to a significant degree on its ability to open new restaurants and to operate
such restaurants profitably. The Company has lease commitments on two additional



                                       12
<PAGE>   13

locations and currently has no plans for expansion beyond this. The Company
intends to continue its expansion when its financial performance improves,
however, there can be no assurance that the Company will be able to continue
expansion. The Company's ability to implement successfully an expansion strategy
will depend on a variety of factors, including the selection and availability of
affordable sites, the selection and availability of capital to finance
restaurant expansion and equipment costs, the ability to hire and train
qualified management and personnel, the ability to control food and other
operating costs, and other factors, many of which are beyond the Company's
control.

        On a long-term basis, the Company intends to continue to expand its
operations in markets outside of California, contingent upon its financial
performance. The Company's expansion plans may include entering new geographic
regions in which the Company has no previous operating experience. There can be
no assurance that the concept will be successful in regions outside of
California, where tastes and restaurant preferences may be different. As of July
29, 1998, the Company had opened or purchased eight restaurants in Texas, six
restaurants in the state of Washington and three restaurants in the Washington,
DC metropolitan area. Of the twelve restaurants closed or sold, two were in
Texas, one was in the state of Washington, six were in California, and three
were in the Washington, DC metropolitan area (where the Company no longer
operates).

        Geographic Concentration. As of July 29, 1998, 42 of the Company's 53
restaurants are located in California, primarily in the San Francisco Bay Area.
Accordingly, the Company is susceptible to fluctuations in its business caused
by adverse economic conditions in this region. In addition, net sales at certain
of the Company's restaurants have been adversely affected when a new Company
restaurant has been opened in relatively close geographic proximity, and such
pressure may continue to depress annual comparable store sales. There can be no
assurance that expansion within existing or future geographic markets will not
adversely affect the individual financial performance of Company restaurants in
such markets or the Company's overall results of operations. In addition, given
the Company's present geographic concentration in Northern California, adverse
weather conditions in the region or negative publicity relating to an individual
Company restaurant could have a more pronounced adverse affect on net sales than
if the Company's restaurants were more broadly dispersed.

        Volatility of Stock Price. The market price of the Company's Common
Stock has fluctuated substantially since the initial public offering of the
Common Stock in December 1992. Changes in general conditions in the economy, the
financial markets or the restaurant industry, natural disasters or other
developments affecting the Company or its competitors could cause the market
price of the Company's Common Stock to fluctuate substantially. In addition, in
recent years the stock market has experienced extreme price and volume
fluctuations. This volatility has had significant effect on the market prices of
securities issued by many companies, including the Company, for reasons
sometimes unrelated to the operating performance of these companies. Any
shortfall in the Company's net sales or earnings from levels expected by
securities analysts could have an immediate and significant adverse effect on
the trading price of the Company's Common Stock in any given period.
Additionally, such shortfalls may not become apparent until late in the fiscal
quarter, which could result in an even more immediate and significant adverse
effect on the trading price of the Company's Common Stock.

        Seasonality and Quarterly Fluctuations. The Company's restaurants have
typically experienced seasonal fluctuations, as a disproportionate amount of net
sales and net income are generally realized in the second and third fiscal
quarters. In addition, the Company's quarterly results of operations have been,
and may continue to be, materially impacted by the timing of new restaurant
openings and restaurant closings. The fourth quarter normally includes 16 weeks
of operations as compared with 12 weeks for each of the three prior quarters. As
a result of these factors, net sales and net income in the fourth quarter are
not comparable to results in each of the first three fiscal quarters, and net
sales and net income can be expected to decline in the first quarter of each
fiscal year in comparison to the fourth quarter of the prior fiscal year.
Comparable store sales, which have been negative for four consecutive years, may
continue to be negative.



                                       13
<PAGE>   14

        Dependence on Key Personnel. The success of the Company depends on the
efforts of key management personnel. The Company's success will depend on its
ability to motivate and retain its key employees and to attract qualified
personnel, particularly general managers, for its restaurants. The Company faces
significant competition in the recruitment of qualified employees.

        Restaurant Industry. The restaurant industry is affected by changes in
consumer tastes, as well as national, regional and local economic conditions and
demographic trends. The performance of individual restaurants, including the
Company's restaurants, may be affected by factors such as traffic patterns,
demographic considerations, and the type, number and location of competing
restaurants. In addition, factors such as inflation, increased food, labor and
employees benefit costs, and the availability of experienced management and
hourly employees may also adversely affect the restaurant industry in general
and the Company's restaurants in particular. Restaurant operating costs are
affected by increases in the minimum hourly wage, unemployment tax rates, and
various federal, state and local governmental regulations, including those
relating to the sale of food and alcoholic beverages. There can be no assurance
that the restaurant industry in general, and the Company in particular, will be
successful.

        Competition. The Company's restaurants compete with the rapidly growing
mid-price, full-service casual dining segment; with traditional self-service
buffet, soup, and salad restaurants; and, increasingly, with quick-service
outlets. The Company's competitors include national and regional chains, as well
as local owner-operated restaurants. Key competitive factors in the industry are
the quality and value of the food products offered, quality and speed of
service, price, dining experience, restaurant location and the ambiance of
facilities. Many of the Company's competitors have been in existence longer than
the Company, have a more established market presence, and have substantially
greater financial, marketing and other resources than the Company, which may
give them certain competitive advantages. The Company believes that its ability
to compete effectively will continue to depend in large measure upon its ability
to offer a diverse selection of high-quality, fresh food products with an
attractive price/value relationship.

        Ability to Obtain Additional Financing. Although the Company has slowed
its expansion, it intends to continue restaurant expansion as its financial
performance improves. The Company's ability to implement an expansion strategy
will depend upon a variety of factors, including its ability to restore
profitability and obtain funds. The Company believes its near-term capital
requirements can be met through its existing cash balances, cash provided by
operations, its available bank line of credit and equipment leases. However, the
Company may seek additional financing to provide greater flexibility toward
improving its operating performance. There can be no assurance that the Company
will be able to obtain additional financing when needed on acceptable terms or
at all.



                                       14
<PAGE>   15

Results of Operations

        The following table sets forth items in the Company's statements of
operations as a percentage of sales and certain operating data for the periods
indicated:

<TABLE>
<CAPTION>

                                                   Twelve Weeks Ended                              Twenty-Four Weeks Ended
                                         ------------------------------------------      ------------------------------------------
(In thousands)                             June 14, 1998           June 15, 1997           June 14, 1998            June 15, 1997
                                         ------------------      ------------------      ------------------      ------------------

<S>                                      <C>         <C>         <C>         <C>         <C>         <C>         <C>         <C>   
NET SALES                                $ 17,366    100.0%      $ 17,379    100.0%      $ 33,558    100.0%      $ 33,485    100.0%

COSTS AND EXPENSES:
        Cost of sales                       4,597     26.5%         4,716     27.1%         8,837     26.3%         9,105     27.2%
        Restaurant operating expenses:
              Labor                         5,651     32.5%         5,319     30.6%        11,041     32.9%        10,376     31.0%
              Occupancy and other           5,439     31.3%         5,003     28.8%        10,492     31.3%        10,252     30.6%
        Depreciation and amortization         851      4.9%           697      4.0%         1,669      5.0%         1,398      4.2%
        General and administrative 
          expenses                          1,252      7.2%         1,444      8.3%         2,561      7.6%         2,850      8.5%
                                         ------------------      ------------------      ------------------      ------------------

              Total costs and expenses     17,790    102.4%        17,179     98.8%        34,600    103.1%        33,981    101.5%
                                         ------------------      ------------------      ------------------      ------------------

OPERATING INCOME (LOSS)                      (424)    (2.4)%          200      1.2%        (1,042)    (3.1)%         (496)    (1.5)%

        Interest income                        --        --%           37      0.2%             8        --%           89      0.3%
        Interest expense                      (43)    (0.3)%           (4)    (0.1)%          (80)    (0.2)%           (9)      --%
                                         ------------------      ------------------      ------------------      ------------------

        Interest income (expense), net        (43)    (0.3)%           33      0.1%           (72)    (0.2)%           80      0.3%
                                         ------------------      ------------------      ------------------      ------------------

INCOME (LOSS) BEFORE INCOME TAXES            (467)    (2.7)%          233      1.3%        (1,114)    (3.3)%         (416)    (1.2)%

        Provision for (benefit from) 
          income taxes                         --        --%           --       --%            --        --%           --        --%
                                         ------------------      ------------------      ------------------      ------------------

NET INCOME (LOSS)                        $   (467)    (2.7)%     $    233      1.3%      $ (1,114)    (3.3)%     $   (416)    (1.2)%
                                         ==================      ==================      ==================      ==================
</TABLE>


        The following table presents the components of average operating income
(loss) on a per restaurant basis, based on the average number of restaurants
open during the period:

<TABLE>
<CAPTION>
                                                        Twelve Weeks Ended                       Twenty-Four Weeks Ended
                                              --------------------------------------      ---------------------------------------
(In thousands)                                  June 14, 1998         June 15, 1997         June 14, 1998          June 15, 1997
                                              -----------------      ---------------      -----------------      ----------------

<S>                                           <C>        <C>         <C>       <C>        <C>        <C>         <C>       <C>   
NET SALES                                     $ 330      100.0%      $ 350     100.0%     $ 635      100.0%      $ 686     100.0%

COSTS AND EXPENSES:
        Cost of sales                            87       26.5%         95      27.1%       167       26.3%        187      27.2%
        Restaurant operating expenses:
              Labor                             107       32.5%        107      30.6%       209       32.9%        213      31.0%
              Occupancy and other               103       31.3%        101      28.8%       199       31.3%        210      30.6%
        Depreciation and amortization            16        4.9%         14       4.0%        32        5.0%         29       4.2%
        General and administrative expenses      24        7.2%         29       8.3%        48        7.6%         58       8.5%
                                              -----------------      ---------------      -----------------      ----------------
              Total costs and expenses          337      102.4%        346      98.8%       655      103.1%        697     101.5%
                                              -----------------      ---------------      -----------------      ----------------
OPERATING INCOME (LOSS)                       $  (7)      (2.4)%     $   4       1.2%     $ (20)      (3.1)%     $ (11)     (1.5)%
                                              =================      ===============      =================      ================
 Average restaurants open                      52.7                   49.6                 52.8                   48.8   
                                              =========              ========             ========               ========
</TABLE>



                                       15
<PAGE>   16

Results of Operations:  Twelve Weeks Ended June 14, 1998
Compared to Twelve Weeks Ended June 15, 1997

        Net Sales. Net sales for the second quarter ended June 14, 1998 were
$17,366,000, a decrease of $13,000, or 0.1%, from sales of $17,379,000 for the
second quarter ended June 15, 1997. The primary components of the net decrease
in sales were:

<TABLE>
<S>                                                                      <C>        
        Incremental sales from new or acquired restaurants                    $ 1,263,000
        Decline in comparable store sales                                      (1,128,000)
        Absence of sales from a closed restaurant                                (148,000)
                                                                         -----------------
                                                                                $ (13,000)
                                                                         =================
</TABLE>

        The decrease in sales for the second quarter of 1998 resulted from a
6.8% comparable-store sales decline compared to the same quarter of 1997 and the
closure of one restaurant offset by the addition of five new restaurants in 1997
and one new restaurant in 1998. Comparable store customer counts, which include
only restaurants open and operated by the Company at least 18 months, declined
7.5%. The comparable store average check was $6.88 in the second quarter, an
increase of 0.7% versus $6.83 in the second quarter of 1997.

        Net sales per restaurant averaged $330,000 in the second quarter of
1998, a decrease of 5.7% from net sales per restaurant of $350,000 in the second
quarter of 1997. Second quarter sales in 1998 were adversely impacted by the
lingering effect of El Nino weather patterns in the Company's core Northern
California markets where 38 of the Company's 53 restaurants are located.

        Costs and Expenses. Cost of sales (food and beverage costs) was 26.5% of
sales in the second quarter of 1998 compared to 27.1% in the second quarter of
1997, a decrease of 0.6% of sales. The improved food costs results from a food
program, developed and implemented in the second half of 1997, which manages
food costs through an efficient product rotation while maintaining a quality
menu offering to guests. In addition, the Company had offered a special Spring
promotional menu in the second quarter last year which featured higher cost
products, including artichokes and asparagus.

        Restaurant Operating Expenses. Restaurant operating expenses (labor,
occupancy and other) were 63.8% of net sales in the second quarter of 1998
compared to 59.4% of sales in the second quarter of 1997, an increase of 4.4% of
sales.

        Labor costs were 1.9% of sales higher than last year, primarily due to
the fixed portion of labor cost which became a higher percentages of sales as
comparable store sales declined and an increase in the average wage resulting
primarily from the increase in the California minimum wage.

        Occupancy and other costs were 2.5% of sales higher than the prior year,
primarily due to the impact of comparable store sales decline on these mostly
fixed costs and to higher advertising costs in the current quarter compared to
the same quarter last year. The Company invested 3.6% of sales in advertising
this quarter versus 2.6% of sales in the prior year quarter, an increase of 1.0%
of sales.

        Depreciation and Amortization. Depreciation and amortization expenses
increased $154,000 in the second quarter of 1998 compared to the second quarter
of 1997 due to the six additional restaurants operating this year compared to
last year, including one restaurant opened in the second quarter of this year.
The increase in depreciation and amortization as a percentage of sales to 4.9%
of sales in the second quarter of 1998 from 4.0% of sales in the second quarter
of 1997 is primarily the result of lower average unit sales.

        General and Administrative Expenses. General and administrative expenses
decreased $192,000 for the second quarter of 1998 compared to the second quarter
of 1997 due to continued cost management in



                                       16
<PAGE>   17

staffing levels and expenses and to the absence of bonus accruals based on the
Company's financial performance in the current year compared to the same quarter
last year.

        Interest Income. The Company had no interest income in the second
quarter of 1998 compared to $37,000 in the second quarter of 1997. Last year,
the Company earned interest income primarily from the investment in money market
funds of the excess proceeds from its September 1996 sale of series B preferred
stock to Crescent Real Estate Equities Limited Partnership. Subsequent to the
second quarter of 1997, the proceeds were used to construct or purchase new
restaurants and remodel existing restaurants.

        Interest Expense. Interest expense consists primarily of fees and
interest related to the Company's short-term line of credit facility and capital
lease obligations for equipment leases. Interest expense increased to $43,000 in
the second quarter of 1998 compared to $4,000 in the second quarter of 1997 due
primarily to short-term borrowings in the current year versus no borrowing in
last year's second quarter and to new equipment leases at three of the Company's
new restaurants.

        Income Taxes. The Company recorded no tax benefit from its operating
loss for the second quarter of 1998 due to valuation allowances against its net
deferred tax assets. In the second quarter of 1997, the Company offset currently
taxable income with available net operating loss carryforwards and, as a result,
recorded no tax provision for its operating income.


Results of Operations:  Twenty-Four Weeks Ended June 14, 1998
Compared to Twenty-Four Weeks Ended June 15, 1997

        Net Sales. Net sales for the twenty-four weeks ended June 14, 1998 were
$33,558,000, an increase of $73,000, or 0.2%, from sales of $33,485,000 for the
twenty-four weeks ended June 15, 1997. The primary components of the net
increase in sales were:

<TABLE>
<S>                                                                      <C>        
        Incremental sales from new or acquired restaurants                    $ 3,011,000
        Decline in comparable store sales                                      (2,768,000)
        Absence of sales from a closed restaurant                                (170,000)
                                                                         -----------------
                                                                                 $ 73,000
                                                                         =================
</TABLE>

        The increase in sales for the first half of 1998 resulted from the
addition of five new restaurants in 1997 and one new restaurant in the second
quarter of 1998 offset by an 8.5% comparable-store sales decline versus 1997 and
the closure of one restaurant in the second quarter of 1998. Comparable store
customer counts, which include only restaurants open and operated by the Company
at least 18 months, declined 9.7%. The comparable store average check was $6.89
in the first half, an increase of 1.4% versus $6.80 in the first half of 1997.

        Net sales per restaurant averaged $635,000 in the first half of 1998, a
decrease of 7.4% from net sales per restaurant of $686,000 in the first half of
1997. Sales in 1998 were adversely impacted in the first quarter of 1998 by the
El Nino storms in the Company's core Northern California markets and by the
lingering effect of El Nino weather patterns into the second quarter. In
addition, the Company launched a major advertising program, including television
support, in last year's first quarter.

        Costs and Expenses. Cost of sales (food and beverage costs) was 26.3% of
sales in the first half of 1998 compared to 27.2% in the first half of 1997, a
decrease of 0.9% of sales. The Company continued to benefit from its food
program, developed and implemented in the second half of 1997, which manages
food costs through an efficient product rotation while maintaining a quality
menu offering to guests.



                                       17
<PAGE>   18

        Restaurant Operating Expenses. Restaurant operating expenses (labor,
occupancy and other) were 64.2% of net sales in the first half of 1998 compared
to 61.6% of sales in the second half of 1997, an increase of 2.6% of sales.

        Labor costs were 1.9% of sales higher than last year, primarily due to
the fixed portion of labor cost which became a higher percentages of sales as
comparable store sales declined and a higher average wage resulting primarily
from the increase in the California minimum wage.

        Occupancy and other costs were 0.7% of sales higher than the prior year,
primarily due to the impact of comparable store sales decline on these mostly
fixed costs offset by lower advertising costs compared to the same year to date
period last year. The Company invested 3.1% of sales in advertising this year
versus 4.6% of sales in the prior year, a decrease of 1.5% of sales.

        Depreciation and Amortization. Depreciation and amortization expenses
increased $271,000 in the first half of 1998 compared to the first half of 1997
due to the six additional restaurants operating this year compared to last year,
including one restaurant opened in the second quarter of this year. The increase
in depreciation and amortization as a percentage of sales to 5.0% of sales in
the current year from 4.2% of sales in the prior year is primarily the result of
lower average unit sales.

        General and Administrative Expenses. General and administrative expenses
decreased $289,000 for the first half of 1998 compared to the first half of 1997
due to continued cost management in staffing levels and expenses and to the
absence of bonus accruals based on the Company's financial performance in the
current year compared to last year.

        Interest Income. Interest income declined to $8,000 in the first half of
1998 compared to $89,000 in the first half of 1997. Last year, the Company
earned interest income primarily from the investment in money market funds of
the excess proceeds from its September 1996 sale of series B preferred stock to
Crescent Real Estate Equities Limited Partnership. Subsequent to the second
quarter of 1997, the proceeds were used to construct or purchase new restaurants
and remodel existing restaurants.

        Interest Expense. Interest expense consists primarily of fees and
interest related to the Company's short-term line of credit facility and capital
lease obligations for equipment leases. Interest expense increased to $80,000 in
the first half of 1998 compared to $9,000 in the first half of 1997 due
primarily to short-term borrowings in the current year versus no borrowing in
last year's year-to-date period and to new equipment leases at three of the
Company's new restaurants.

        Income Taxes. The Company recorded no income tax benefit from its
operating losses during the twenty-four weeks ended June 14, 1998 and June 15,
1997. The Company has provided valuation allowances against its net deferred tax
assets which consist primarily of the tax benefit related to operating loss
carryforwards and non-deductible asset write-downs and restructuring accruals.
The Company will continue to provide a valuation allowance for its deferred tax
assets until it becomes more likely than not, in management's assessment, that
the Company's deferred tax assets will be realized.


ITEM 3  -  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.



                                       18
<PAGE>   19

                           PART II. OTHER INFORMATION


ITEM 1 - LEGAL PROCEEDINGS                                      Not Applicable.

ITEM 2 - CHANGES IN SECURITIES                                  Not Applicable.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES                        Not Applicable.

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

        The Company held its Annual Meeting of Stockholders on May 21, 1998. The
stockholders voted on proposals on:

        (1) The election of two Class II directors to hold office for a
three-year term and until their respective successors are elected and qualified.
The proposal was approved by the following vote:

<TABLE>
<CAPTION>
        Nominee                        In Favor                        Withheld
        -------                        --------                        --------
<S>                                    <C>                             <C>    
        Everett F. Jefferson           4,566,643                       410,174
        Barry Krantz                   4,570,785                       406,032
</TABLE>

        (2) An amendment of the Company's 1992 Employee Stock Purchase Plan to
increase the maximum aggregate number of shares reserved for issuance thereunder
by 200,000. The proposal was approved by the following vote:

<TABLE>
<CAPTION>
        For                            Against                         Abstain
        ---                            -------                         -------
<S>                                    <C>                             <C>   
        2,340,326                      163,429                         26,412
</TABLE>

        (3) An amendment of the Company's 1988 Stock Option Plan to extend its
term by ten (10) years. The proposal was approved by the following vote:

<TABLE>
<CAPTION>
        For                            Against                         Abstain
        ---                            -------                         -------
<S>                                    <C>                             <C>   
        1,985,496                      515,134                         29,537
</TABLE>

        (4) The appointment of Deloitte & Touche LLP as the Company's
independent accountants for the fiscal year ending December 27, 1998. The
proposal was approved by the following vote:

<TABLE>
<CAPTION>
        For                            Against                         Abstain
        ---                            -------                         -------
<S>                                    <C>                             <C>   
        4,938,507                      17,639                          20,671
</TABLE>

ITEM 5 - OTHER INFORMATION                                       Not Applicable.

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits. The exhibits listed in the accompanying index to Form 10-Q
Exhibits are filed or incorporated by reference as part of this report.

(b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter
ended June 14, 1998.



                                       19
<PAGE>   20
                                   SIGNATURES

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


                                       FRESH CHOICE, INC.
                                       (Registrant)


                                         /S/ Everett F. Jefferson
                                       -----------------------------------------
                                       Everett F. Jefferson
                                       President and Chief Executive Officer
                                       (Principal Executive Officer)



                                         /S/ David E. Pertl
                                       -----------------------------------------
                                       David E. Pertl
                                       Vice President and Chief Financial 
                                       Officer
                                       (Principal Financial and Accounting 
                                       Officer)


Dated:  July 29, 1998



                                       20
<PAGE>   21

                           INDEX TO FORM 10-Q EXHIBITS

<TABLE>
<CAPTION>
 EXHIBIT
 NO.                                   DESCRIPTION
 -------------------------------------------------------------------------------
<S>       <C>      <C>                                                           
 3.1      (1)      Restated Certificate of Incorporation of Fresh Choice, Inc.

 3.2      (8)      Amended By-Laws of Fresh Choice, Inc. dated April 11, 1996

 3.3      (10)     Certificate of Amendment of Restated Certificate of 
                   Incorporation of Fresh Choice, Inc.

 3.4      (10)     Certificate of Designation of Series A Voting Participating
                   Convertible Preferred Stock of Fresh Choice, Inc.

 3.5      (10)     Certificate of Designation of Series B Non-Voting 
                   Participating Convertible Preferred Stock of Fresh Choice, 
                   Inc.

 3.6      (10)     Certificate of Designation of Series C Non-Voting 
                   Participating Convertible Preferred Stock of Fresh Choice, 
                   Inc.

 4.1      (10)     Registration Rights Agreement dated September 13, 1996 
                   between Fresh Choice, Inc. and Crescent Real Estate Equities 
                   Limited Partnership

 10.1     (1)     Form of Indemnity Agreement for directors and officers

 10.2     (2)(3)  Second Amended and Restated 1988 Stock Option Plan

 10.3     (2)(3)  1992 Employee Stock Purchase Plan

 10.4     (1)     Series A Preferred Stock Purchase Agreement dated August 10, 1988

 10.5     (1)     Series B Preferred Stock Purchase Agreement dated July 21, 1989

 10.6     (1)     Series C Preferred Stock Purchase Agreement dated January 15, 1990

 10.7     (1)     Master Lease and Warrant Agreement with Equitec Leasing Company
                  and Warrant dated January 18, 1990

 10.8     (8)     Preferred Stock Purchase Agreement with Crescent Real Estate
                  Equities Limited Partnership dated April 26, 1996

 10.9     (1)     Series D Preferred Stock Purchase Agreement dated April 17, 1991

 10.10    (5)     Amendment No. 1 dated September 3, 1993 to the Business Loan
                  Agreement dated September 3, 1993.

 10.11    (5)     Amendment No. 2 dated November 15, 1993 to the Business Loan
                  Agreement dated September 3, 1993.

 10.12    (1)     Amendment dated December 1, 1992 to Preferred Stock Purchase
                  Agreements

 10.13    (4)     Business Loan Agreement dated September 3, 1993 with Bank of
                  America National Trust and Savings Association

 10.14    (5)     Amendment No. 4 dated March 31, 1995 to the Business Loan
                  Agreement dated September 3, 1993
</TABLE>



                                       21
<PAGE>   22

                     INDEX TO FORM 10-Q EXHIBITS continued

<TABLE>
<CAPTION>



 EXHIBIT
 NO.                                   DESCRIPTION
 -------------------------------------------------------------------------------
<S>       <C>      <C>                                                           
10.15     (5)      Amendment No. 3 dated April 27, 1994 to the Business Loan
                   Agreement dated September 3, 1993

10.16     (6)      Loan and Security Agreement dated December 20, 1995 with Silicon
                   Valley Bank

10.17     (6)      Third Party Security agreement dated December 20, 1995 between
                   Silicon Valley Bank and Moffett Design Corporation

10.18     (6)      Warrant to Purchase up to 75,000 Shares of the Company's Common
                   Stock issued to Silicon Valley Bank on December 20, 1995

10.19     (6)      Common Stock Purchase Warrant to Purchase 100,000 Shares of the
                   Company's Common Stock issued to Bain & Company, dated 
                   December 15, 1995

10.20     (6)(3)   Employment Offer Letter to Robert Ferngren dated November 9, 1995

10.21     (9)(3)   Amendment dated July 29, 1996 to Employment Offer Letter to
                   Robert Ferngren

10.22     (10)(3)  Severance Agreement with Charles A. Lynch dated July 18, 1996

10.23     (10)(3)  Severance Agreement with David Anderson dated July 18, 1996

10.24     (10)(3)  Severance Agreement with Tim G. O'Shea dated July 18, 1996

10.25     (10)(3)  Severance Agreement with Joan M. Miller dated July 18, 1996

10.26     (11)(3)  Employment Offer Letter to David E. Pertl dated January 24, 1997

10.27     (11)(3)  Employment Offer Letter to Everett F. Jefferson dated January 30, 1997

10.28     (11)(3)  Amendment to Employment Offer Letter to Everett F. Jefferson dated
                   February 10, 1997

10.29     (11)     Loan Modification Agreement dated November 27, 1996 with Silicon
                   Valley Bank

10.30     (11)(3)  Severance Agreement with Tina Freedman dated March 13, 1997

10.31     (12)     Agreement of Sale and Purchase dated April 2, 1997 with RUI One Corp.

10.32     (12)     Amendment to Loan and Security Agreement dated July 9, 1997 with
                   Silicon Valley Bank

10.33              Amendment to Loan and Security Agreement dated May 27, 1998 with
                   Silicon Valley Bank

10.34              Consulting Agreement with Charles A. Lynch dated April 17, 1998

27.1      (7)      Financial Data Schedule

27.2      (7)      Restated Financial Data Schedule for Quarters 2 and 3 of
                   Fiscal Year 1997

27.3      (7)      Restated Financial Data Schedule for Quarters 2 and 3 of
                   Fiscal Year 1996
      

</TABLE>



                                       22
<PAGE>   23

----------
(1)  Incorporated by reference from the Exhibits with corresponding numbers
     filed with the Company's Registration Statement on Form S-1 (No. 33-53904)
     filed October 29, 1992, as amended by Amendment No. 1 to Form S-1 (No.
     33-53904) filed December 7, 1992, except that Exhibit 3.1 is incorporated
     by reference from Exhibit 3.1C and Exhibit 3.2 is incorporated by reference
     from Exhibit 3.2B. 

(2)  Incorporated by reference from the Exhibits with corresponding numbers
     filed with the Company's Quarterly Report on Form 10-Q for the quarter
     ended September 4, 1994. 

(3)  Agreements or compensatory plans covering executive officers and directors
     of Fresh Choice, Inc. 

(4)  Incorporated by reference from the Company's Annual Report on Form 10-K for
     the period ended December 26, 1993. 

(5)  Incorporated by reference from the Exhibits with corresponding numbers
     filed with the Company's Quarterly Report on Form 10-Q for the quarter
     ended March 19, 1995. 

(6)  Incorporated by reference from the Exhibits with corresponding numbers
     filed with the Company's Annual Report on Form 10-K for the year ended
     December 31, 1995. 

(7)  Included in EDGAR filing only. 

(8)  Incorporated by reference from the Exhibits with corresponding numbers
     filed with the Company's Quarterly Report on Form 10-Q for the quarter
     ended March 24, 1996. 

(9)  Incorporated by reference from the Exhibits with corresponding numbers
     filed with the Company's Quarterly Report on Form 10-Q for the quarter
     ended June 16, 1996. 

(10) Incorporated by reference from the Exhibits with corresponding numbers
     filed with the Company's Quarterly Report on Form 10-Q for the quarter
     ended September 8, 1996. 

(11) Incorporated by reference from the Exhibits with corresponding numbers
     filed with the Company's Annual Report on Form 10-K for the year ended
     December 29, 1996. 

(12) Incorporated by reference from the Exhibits with corresponding numbers
     filed with the Company's Quarterly Report on Form 10-Q for the quarter
     ended June 15, 1997.






                                       23