Exhibit 99.1



















                             Financial Statements of
                          FFP Operating Partners, L.P.,
                          a wholly owned subsidiary of
                           FFP Marketing Company, Inc.
                   (with Independent Auditors' Report thereon)




                   {These financial statements are being filed
                   as an exhibit to facilitate compliance with
              certain state environmental regulatory requirements.}














                          Index to Financial Statements



                                                                     Page
                                                                    Number
Independent Auditors' Report                                           2

Balance Sheets as of December 28, 1997, and December 29, 1996          3

Statements of Operations for the Years Ended December 28,
  1997, December 29, 1996, and December 31, 1995                       4

Statements of Partners' Capital for the Years Ended
  December 28, 1997, December 29, 1996, and December 31, 1995          5

Statements of Cash Flows for the Years Ended December  28, 1997,
  December 29, 1996, and December 31, 1995                             6

Notes to Financial Statements                                          8









                          Independent Auditors' Report



The Partners
FFP Operating Partners, L.P.:

            We have audited the financial  statements of FFP Operating Partners,
L.P. (a Delaware limited partnership) as listed in the accompanying index. 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 audits.

            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 FFP  Operating
Partners, L.P. as of December 28, 1997 and December 29, 1996, and the results of
its operations and its cash flows for each of the years in the three-year period
ended  December 28, 1997,  in  conformity  with  generally  accepted  accounting
principles.





                                            KPMG Peat Marwick LLP



Fort Worth, Texas
March 17, 1998




                          FFP Operating Partners, L.P.
                                 Balance Sheets
                    December 28, 1997, and December 29, 1996
                                 (In thousands)

                                                        1997          1996
                                     Assets
Current Assets
   Cash and cash equivalents                            $9,044       $7,257
   Trade receivables, less allowance for doubtful
  accounts
      of $718 and $834 in 1997 and 1996, respectively    7,906        8,623
   Notes receivable                                      1,163        1,198
   Inventories                                          14,347       11,752
   Prepaid expenses and other current assets               586          618
      Total current assets                              33,046       29,448
Property and equipment, net                             25,905       34,713
Receivables from affiliated companies                   11,193       12,660
Other assets, net                                        4,594        7,249
      Total Assets                                     $74,738      $84,070

                        Liabilities and Partners' Capital
Current Liabilities
   Amount due under revolving credit line                   $0       $6,823
   Current installments of long-term debt                1,208        1,587
   Current installments of obligations under capital
      leases                                               917        1,122
   Accounts payable                                     15,208       13,424
   Money orders payable                                 10,350        7,809
   Accrued expenses                                      8,983        8,391
   Payable to affiliated companies                       1,270          834
      Total current liabilities                         37,936       39,990

Long-term debt, excluding current installments          21,465        7,765
Obligations under capital leases, excluding current
  installments                                           3,110        1,653
Other liabilities                                        2,866          643
      Total Liabilities                                 65,377       50,051

Commitments and contingencies

Partners' Capital
    Limited partners' equity                            25,046       33,944
    General partner's equity                               253          344
    Reduction for joint debt obligations               (15,938)           0
    Treasury units of parent                                 0         (269)
      Total Partners' Capital                            9,361       34,019

      Total Liabilities and Partners' Capital          $74,738      $84,070



                 See accompanying notes to financial statements.



                          FFP Operating Partners, L.P.
                            Statements of Operations
     Years                       Ended December 28, 1997, December 29, 1996, and
                                 December 31, 1995 (In thousands)


                                             1997      1996      1995
Revenues
   Motor fuel                              $294,097  $308,205  $282,785
   Merchandise                               61,316    60,089    64,561
   Miscellaneous                              6,763     7,790     6,470
      Total Revenues                        362,176   376,084   353,816

Costs and Expenses
   Cost of motor fuel                       273,367   288,065   260,800
   Cost of merchandise                       42,987    42,503    45,542
   Direct store expenses                     27,944    26,710    27,703
   General and administrative expenses       10,446    10,712    11,029
   Depreciation and amortization              4,999     3,781     3,680
      Total Costs and Expenses              359,743   371,771   348,754

Operating Income                              2,433     4,313     5,062
   Interest Expense                           1,812     1,326     1,176

Net Income                                     $621    $2,987    $3,886

Net income allocated to
    Limited partners                           $615    $2,957    $3,847
    General partner                               6        30        39




                 See accompanying notes to financial statements.




                          FFP Operating Partners, L.P.
                         Statements of Partners' Capital
    Years Ended December 28, 1997, December 29, 1996, and December 31, 1995
                                 (In thousands)


                                              Reduction
                                                 for
                                              Joint Debt
                             Limited   General  Obliga-  Treasury
                             Partners  Partner   tions    Units     Total

Balance, December 25, 1994   $27,140    $275         $0   $(269)    $27,146

Net income                     3,847      39          0       0       3,886

Balance, December 31, 1995    30,987     314          0    (269)     31,032

Net income                     2,957      30          0       0       2,987

Balance, December 29, 1996    33,944     344          0    (269)     34,019

Net income                       615       6          0       0         621
Distribution to partners     (6,871)     (69)         0       0      (6,940)
Net assets distributed in
  restructuring transaction  (2,642)     (28)         0     269      (2,401)
Reduction of equity
  attributable to reporting
  of joint debt obligations
  in restructuring                 0       0    (15,938)      0     (15,938)

Balance, December 28, 1997   $25,046    $253   $(15,938)     $0      $9,361





               See accompanying notes to financial statements.




                          FFP Operating Partners, L.P.
                            Statements of Cash Flows
       Years Ended December 28, 1997, December 29, 1996, and December 31,
              1995 (In thousands, except supplemental information)

                                                1997      1996       1995
Cash Flows from Operating Activities
   Net income                                   $621     $2,987     $3,886
   Adjustments to reconcile net income to
     net cash provided by operating activities
      Depreciation and amortization            4,999      3,781      3,680
      Provision for doubtful accounts            131        326        451
      (Gain)/loss on sales of property and
         equipment                              (254)        19       (110)
      (Gain) on sales of convenience store
         operations                              (30)    (1,778)      (791)
   Changes in operating assets and liabilities
      (Increase)/decrease in trade receivables   586     (1,121)    (1,629)
      (Increase)/decrease in inventories      (2,595)      (925)       183
      (Increase)/decrease in prepaid expenses
         and other operating assets             (184)       230        381
      Increase/(decrease) in accounts payable  1,784        940        (44)
      Increase in money orders payable         2,541      1,897      1,658
      Increase/(decrease) in accrued expenses
          and other liabilities                2,815       (790)    (2,302)
Net cash provided by operating activities     10,414      5,566      5,363

Cash Flows from Investing Activities
   Purchases of property and equipment       (14,123)    (6,205)    (4,759)
   Proceeds from sales of property and
      equipment                                1,213         50        169
   (Increase) in receivables from
      affiliated companies                    (5,473)    (5,821)    (3,478)
   Investments in joint ventures and other
      entities                                     0          0     (1,350)
   Decrease in notes receivable                  846        540        733
   (Increase)/decrease in other assets           724        (73)      (490)
Net cash (used in) investing activities      (16,813)   (11,509)    (9,175)
                                                                       continued


Cash Flows from Financing Activities
   Borrowings/(payments) on revolving
      credit line, net                        (6,823)     2,820      4,003
   Proceeds from long-term debt              122,884      4,000          0
   Payments on long-term debt               (109,563)    (2,033)    (4,178)
   Borrowings under capital lease
      obligations                              2,522      1,923      1,076
   Payments on capital lease obligations      (1,270)      (975)      (694)
   Advances from affiliated companies            436        318        339
Net cash provided by financing activities      8,186      6,053        546

Net increase/(decrease) in cash and cash
   equivalents                                 1,787        110     (3,266)
Cash and cash equivalents at beginning of
   year                                        7,257      7,147     10,413
Cash and cash equivalents at end of year      $9,044     $7,257     $7,147


Supplemental Disclosure of Cash Flow Information

             Cash paid for interest during 1997, 1996, and 1995, was $1,917,000,
$1,097,000, and $1,394,000, respectively.

Supplemental Schedule of Noncash Investing and Financing Activities

             During 1997, the Company distributed $6,940,000 to its partners, of
which  $6,871,000  was  offset  against  an  intercompany  receivable  from  FFP
Partners, L.P., the Company's former sole limited partner and former parent.

             During 1997 in conjunction  with the  restructuring of FFP Partners
that resulted in the formation of FFP Marketing Company, Inc., the Company's new
parent, the Company transferred  $196,000 of prepaid expenses and $18,143,000 of
land  and  buildings  to  FFP  Partners,   L.P.  Also  in  connection  with  the
restructuring,  the Company recorded a reduction in partners' capital related to
debt for which it and FFP Partners are jointly liable.

             During 1996 and 1995, the Company acquired fixed assets of $200,000
and $598,000, respectively, in exchange for notes payable.



                 See accompanying notes to financial statements.




                          FFP Operating Partners, L.P.
                          Notes to Financial Statements
           December 28, 1997, December 29, 1996, and December 31, 1995


1.  Basis of Presentation

(a) Organization of Company

            Until December 28, 1997,  the Company was a 99%-owned  subsidiary of
FFP Partners,  L.P. ("FFP  Partners").  On that date,  FFP Partners  completed a
restructuring  in which the real estate owned by the Company (and which was used
in the Company's  retail  operations)  was  transferred  to FFP Partners and all
subsidiaries of FFP Partners,  including the Company, became subsidiaries of FFP
Marketing Company, Inc. ("FFP Marketing"). In addition, FFP Operating LLC (which
is a wholly owned subsidiary of FFP Marketing) became the general partner of the
Company. Accordingly,  effective on December 28, 1997, the Company is indirectly
wholly owned by FFP Marketing,  a publicly  traded company with its common stock
listed on the American Stock Exchange.

            The net book value of the assets and liabilities  transferred to FFP
Partners  in the  restructuring  has been  reflected  as a  distribution  in the
accompanying statements of partners' capital.  Accordingly,  no gain or loss was
recognized by the Company as a result of the restructuring.

            The Company operates convenience stores, truck stops, and motor fuel
concessions at independently  operated  convenience  stores over an eleven state
area. It also operates a money order  company,  selling money orders through its
own  outlets  as well as through  agents;  and sells  motor fuel on a  wholesale
basis, primarily in Texas.

(b)  Reclassifications

            Certain 1996 and 1995 amounts  have been  reclassified  to conform
to the 1997 presentation.


2.  Significant Accounting Policies

(a) Fiscal Years

            The  Company  prepares  its  financial  statements  and  reports its
results  of  operations  on the basis of a fiscal  year  which  ends on the last
Sunday of December.  Accordingly,  the fiscal years ended December 28, 1997, and
December 29,  1996,  consisted  of 52 weeks,  while the year ended  December 31,
1995,  consisted  of 53  weeks.  Year  end  data  in  these  notes  is as of the
respective dates above.

(b) Cash Equivalents

            The Company considers all highly liquid  investments with maturities
at date of purchase of three months or less to be cash equivalents.

(c)  Notes Receivable

            The Company  evaluates  the  collectibility  of notes  receivable in
accordance  with the provisions of Statement of Financial  Accounting  Standards
("SFAS") No. 114,  "Accounting by Creditors for Impairment of Loans," as amended
by SFAS No. 118,  "Accounting  by Creditors  for  Impairment of a Loan -- Income
Recognition  and  Disclosures."  At year end 1997 and 1996, no notes  receivable
were determined to be impaired.

(d) Inventories

            Inventories  consist of retail  convenience  store  merchandise  and
motor fuel products.  Merchandise inventories are stated at the lower of cost or
market as determined by the retail method.  Motor fuel inventories are stated at
the lower of cost or market using the  first-in,  first-out  ("FIFO")  inventory
method.

            The Company has selected a single company as the primary grocery and
merchandise  supplier to its convenience stores and truck stops although certain
items,  such as bakery  goods,  dairy  products,  soft drinks,  beer,  and other
perishable products, are generally purchased from local vendors and/or wholesale
route salespeople.  The Company believes it could replace any of its merchandise
suppliers,  including  its primary  grocery and  merchandise  supplier,  with no
significant adverse effect on its operations.

            The Company does not have long-term  contracts with any suppliers of
petroleum   products   covering   more  than  10%  of  its  motor  fuel  supply.
Unanticipated  national or international events could result in a curtailment of
motor fuel  supplies to the  Company,  thereby  adversely  affecting  motor fuel
sales. In addition, management believes a significant portion of its merchandise
sales are to  customers  who also  purchase  motor  fuel.  Accordingly,  reduced
availability of motor fuel could negatively impact other facets of the Company's
operations.

(e) Property and Equipment

            Property and equipment are stated at cost.  Equipment acquired under
capital  leases is stated at the  present  value of the  initial  minimum  lease
payments,  which  is  not  in  excess  of  the  fair  value  of  the  equipment.
Depreciation  and  amortization  of property and  equipment  are provided on the
straight-line  method over the estimated useful lives of the respective  assets,
which range from three to twenty years.  Leasehold improvements are amortized on
the  straight-line  method over the  shorter of the lease term or the  estimated
useful lives of the respective assets.

(f)  Investments

            Investments  in joint  ventures and other  entities  that are 50% or
less owned are  accounted  for by the equity  method and are  included  in other
assets, net, in the accompanying balance sheets.

(g) Intangible Assets

            In  connection  with the  allocation  of the  purchase  price of the
assets  acquired  in 1987 upon the  commencement  of the  Company's  operations,
$1,093,000  was  allocated  as the future  benefit of real  estate  leased  from
affiliates of its former general partner.  The future benefit of these leases is
being amortized using the straight-line method over 20 years, the term including
option periods, of such leases.

            Goodwill of  $1,524,000  and  $2,040,000  at year end 1997 and 1996,
respectively,  is being amortized using the straight-line  method over 20 years.
The Company assesses the  recoverability of goodwill by determining  whether the
amortization  of the  balance  over the  remaining  amortization  period  can be
recovered  through  undiscounted  future  operating  cash flows of the  acquired
operations.  The amount of goodwill  impairment,  if any,  is measured  based on
projected   discounted  future  operating  cash  flows  using  a  discount  rate
reflecting  the  Company's   average  cost  of  funds.  The  assessment  of  the
recoverability  of goodwill  would be impacted if anticipated  future  operating
cash flows are not achieved.

(h) Sales of Convenience Store Operations

            The Company sold the merchandise  operations and related inventories
of certain  convenience store locations to various third parties in exchange for
cash and notes receivable.  The notes receivable generally are for terms of five
years, require monthly payments of principal and interest,  and bear interest at
rates  ranging  from 8% to 10%.  Summary  information  about  these  sales is as
follows:

                                                       Gains
                                             --------------------------
          Number           Notes     Total                   Deferred
           Sold   Cash  Receivable  Proceeds   Recognized  (at year-end)
                         (In thousands, except number sold)
 1997        2      $66     $201      $267         $30         $50
 1996       18      816    1,561     2,377       1,778         250
 1995       10      357      543       900         791         200

           Gains on sales which meet specified criteria,  including receipt of a
significant  cash down  payment and  projected  cash flow from store  operations
sufficient to adequately  service the debt, are  recognized  upon closing of the
sale.  Gains on sales which do not meet the  specified  criteria are  recognized
under  the  installment  method  as cash  payments  are  received.  Gains  being
recognized under the installment method are evaluated  periodically to determine
if full recognition of the gain is appropriate.

            Under these sales,  the Company retains the real estate or leasehold
interests,  and leases or subleases the store  facilities  (including  the store
equipment)  to  the  purchaser   under  five-year   renewable   operating  lease
agreements.  The Company retains ownership of the motor fuel operations and pays
the purchaser of the store  commissions  based on motor fuel sales. In addition,
the new store operators may purchase merchandise under the Company's established
buying arrangements.

(i) Environmental Costs

            Environmental remediation costs are expensed;  related environmental
expenditures that extend the life, increase the capacity,  or improve the safety
or efficiency of existing assets are capitalized.  Liabilities for environmental
remediation costs are recorded when environmental  assessment and/or remediation
is  probable  and  the  amounts  can  be  reasonably  estimated.   Environmental
liabilities  are evaluated  independently  from  potential  claims for recovery.
Accordingly,   the  gross  estimated   liabilities  and  estimated   claims  for
reimbursement have been presented  separately in the accompanying balance sheets
(see Note 11b).

            In  October  1996,  the  American   Institute  of  Certified  Public
Accountants issued Statement of Position ("SOP") 96-1, Environmental Remediation
Liabilities.  SOP 96-1,  was adopted by the Company on December  29,  1997,  and
requires,  among  other  things,  environmental  remediation  liabilities  to be
accrued when the criteria of SFAS No. 5,  "Accounting for  Contingencies,"  have
been met. The SOP also  provides  guidance  with respect to the  measurement  of
remediation  liabilities.  Such  accounting  is  consistent  with the  Company's
current method of accounting for environmental remediation costs, and therefore,
adoption  of SOP 96-1 in 1997 did not have a  material  impact on the  Company's
financial position, results of operations, or liquidity.

(j) Motor Fuel Taxes

            Motor fuel  revenues and related cost of motor fuel include  federal
and state excise taxes of $94,241,000,  $100,771,000, and $98,519,000, for 1997,
1996, and 1995, respectively.

(k) Exchanges

            The  exchange  method of  accounting  is  utilized  for  motor  fuel
exchange  transactions.  Under this method,  such transactions are considered as
exchanges of assets with  deliveries  being  offset  against  receipts,  or vice
versa.  Exchange  balances  due from  others are  valued at current  replacement
costs.  Exchange  balances  due to  others  are  valued  at the cost of  forward
contracts (Note 9) to the extent they have been entered into, with any remaining
balance valued at current  replacement cost.  Exchange balances due to others at
year end 1997 and 1996 were $754,000 and $4,000, respectively.

(l) Income Taxes

            Taxable  income or loss of the Company is  includable  in the income
tax returns of its partners;  therefore,  no provision for income taxes has been
made in the accompanying financial statements.

            The Company's  parent is a corporation and accounts for income taxes
under the asset and liability method. The parent recognizes  deferred tax assets
and  liabilities  for the  estimated  future tax  consequences  attributable  to
differences   between  financial   statement  carrying  amounts  of  assets  and
liabilities and their respective tax bases, as recorded on the books and records
of its subsidiaries, that are expected to reverse in future years. The Company's
parent  has not  currently  allocated  the  effect  of  applying  the  asset and
liability method among its subsidiaries; however, it could elect to do so in the
future.

(m)  Fair Value of Financial Instruments

            The  carrying  amounts  of  cash,  receivables,  amounts  due  under
revolving  credit line, and money orders payable  approximate fair value because
of the  short  maturity  of those  instruments.  The  carrying  amount  of notes
receivable  approximates fair value which is determined by discounting  expected
future cash flows at current rates.

            The carrying amount of long-term debt approximates fair value due to
the variable interest rate on substantially all such obligations.

(n)  Allocation of Net Income or Loss and Cash Distributions

            The Partnership Agreement of the Company provides that net income or
loss and cash  distributions  are to be allocated 99% to its limited partner and
1% to its general partner.

            The treasury units of the Company's  former parent (64,778 units, at
cost) which were being held by the Company were retired in conjunction  with the
restructuring.

(o) Employee Benefit Plan

            The Company has a 401(k) profit  sharing plan covering all employees
who meet age and tenure requirements.  Participants may contribute to the plan a
portion, within specified limits, of their compensation under a salary reduction
arrangement.   The  Company  may  make  discretionary   matching  or  additional
contributions  to the plan.  The Company did not make any  contributions  to the
plan in 1997, 1996, or 1995.

(p)  Use of Estimates

            The use of estimates is required to prepare the Company's  financial
statements in conformity with generally accepted accounting principles. Although
management  believes that such  estimates are  reasonable,  actual results could
differ from the estimates.

(q)  Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of

            The Company adopted the provisions of SFAS No. 121,  "Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of," on
January 1, 1996.  This  statement  requires that  long-lived  assets and certain
identifiable  intangibles  to be  reviewed  for  impairment  whenever  events or
changes in  circumstances  indicate that the carrying amount of an asset may not
be  recoverable.  Recoverability  of assets to be held and used is measured by a
comparison  of the  carrying  amount of such  assets to  future  net cash  flows
expected to be  generated  by the assets.  If such assets are  considered  to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying  amount or fair value less
costs to sell. The adoption of this statement did not have a material  impact on
the Company's financial position, results of operations, or liquidity.

(r)  Revenue Recognition

            The Company recognizes revenue related to motor fuel and merchandise
sales at the time of the sale.


3.  Property and Equipment

            Property and equipment consists of the following:
                                                   1997      1996
                                                    (In thousands)
         Land and improvements                        $0    $6,873
         Buildings and leasehold improvements      7,923    26,151
         Fixtures and equipment                   46,137    35,527
         Construction in progress                    121         0
                                                  54,181    68,551

         Accumulated depreciation and            (28,276)  (33,838)
           amortization
                                                 $25,905   $34,713

            In connection with the December 1997  restructuring of FFP Partners,
all land and buildings used in the Company's retail  operations were transferred
to FFP Partners.


4.  Other Assets

            Other assets consist of the following:

                                                   1997      1996
                                                   (In thousands)
         Intangible Assets (Note 2g)
            Ground leases                         $1,093    $1,093
            Goodwill                               1,524     2,040
            Other                                  1,528     1,604
                                                   4,145     4,737

            Accumulated amortization             (2,274)   (2,151)
                                                   1,871     2,586

         Notes receivable                          1,294     2,069
         Claims for reimbursement of
           environmental remediation costs         1,052     1,038
         Investments in joint ventures and             0     1,293
           other entities
         Other                                       377       263
                                                  $4,594    $7,249

            In December 1995, the Company advanced $1,200,000 to a company which
granted the Company a security  interest in certain  loans that were  secured by
convenience  stores located in areas where the Company currently has operations.
In 1997,  the Company  foreclosed on the loans and took title to the  properties
securing the loans.  In connection with the December 1997  restructuring  of FFP
Partners, these properties were transferred to FFP Partners.



5.  Notes Payable and Long-Term Debt

            In connection with the December 1997  restructuring of FFP Partners,
FFP Partners  retained the  liability for the year end balances due under a bank
revolving credit facility ($7,439,000), a bank term loan ($7,905,000), and other
debt  ($594,000)  secured by the real  estate  transferred  to it.  However,  in
accordance  with SFAS No.  125,  "Accounting  for  Transfers  and  Servicing  of
Financial Assets and Liabilities and  Extinguishment  of Liabilities,"  the debt
must be  presented  on the balance  sheets of both FFP  Partners and the Company
until the Company  obtains a legal release as a primary  obligor on the debt. At
such time and to the extent that the Company  obtains a legal release,  the debt
will be removed from its balance  sheet with a  corresponding  adjustment to the
reduction for joint debt obligations that is included in partners' capital. Such
adjustment will result in an increase in partners' capital.

            All other debt,  including capital lease obligations,  for which the
Company  was  liable  at the  time of the  restructuring,  was  retained  by the
Company.

            FFP Partners has indemnified  the Company  against  liability on the
debt retained by FFP Partners and has granted to the Company the right to offset
any payments the Company  might be required to make on the debt  retained by FFP
Partners against any amounts otherwise due to FFP Partners by the Company.

            Although FFP Partners  retained the liability for the $7,439,000 due
under the  revolving  credit  line  portion  of the bank debt at the date of the
December  1997  restructuring,  the  Company  retains  availability  under  this
revolving credit facility.  The revolving credit line provides for borrowings up
to  $15,000,000,  with the amount  available  at any time related to a borrowing
base comprised of the trade receivables and inventories of the Company and other
subsidiaries  of its  parent.  To the extent that  borrowings  under this credit
facility fall below the $7,439,000  balance  retained by FFP Partners,  they are
treated as loans by the Company to FFP Partners and FFP Partners  pays  interest
to the Company on such  amounts at the lender's  prime rate,  which is same rate
that is  payable to the  lender.  The  Company  bears the  interest  cost on any
balances under the revolving credit facility that exceed the $7,439,000 amount.

            The  revolving  credit  facility  and the bank  term  loan both bear
interest at the lender's  prime rate,  payable  monthly;  the term loan requires
monthly principal  payments of $95,000;  and both loans mature in November 2000.
The loans are subject to a Loan and Security  Agreement among FFP Partners,  the
Company,  and another subsidiary of the Company's parent. The agreement contains
various  restrictive  covenants  including  financial  covenants relating to the
maintenance  of a specified  minimum  tangible net worth, a debt to tangible net
worth ratio, and a cash flow coverage ratio, all as defined in the agreement. As
a result of the  restructuring,  these ratios are calculated on a combined basis
for FFP Partners and the Company's  parent.  As of year end, the borrowers  were
not in compliance with certain requirements under the loan agreement; the lender
has waived  declaring a default due to such  noncompliance.  The Company's trade
accounts receivable,  inventories,  and its equipment not otherwise  encumbered,
are pledged as collateral on the loans. In addition,  the Company's other assets
are  covered by a  negative  pledge in favor of the  lender.  The loans are also
secured by the assets of FFP Partners and another  subsidiary  of the  Company's
parent.

            The  Company  has been  advised by FFP  Partners  that FFP  Partners
expects  to  refinance  the bank and other  debt  during  1998.  At the time the
refinancing is completed, the Company anticipates that it will have no liability
for the refinanced  obligations  although it is expected to retain the revolving
credit facility for which it will be solely liable.

            In  addition  to the  foregoing  debt,  the  Company  has a loan  of
$6,735,000  incurred in  connection  with the December  1997  acquisition  of 94
operating  convenience  stores.  The loan bears interest  payable monthly at the
prime rate (8.5% at year end 1997) of a large  national bank, is due in February
1999, and is secured by the assets of the 94 convenience  stores.  FFP Marketing
is in the process of securing long-term  financing to refinance this bridge loan
and expects to complete the refinancing by mid-1998.

            The aggregate  fixed  maturities  of long-term  debt for each of the
five years subsequent to 1997 are as follows:

                                           (In thousands)
                   1998                        $1,208
                   1999                         8,034
                   2000                        13,118
                   2001                            55
                   2002                            53
                   Thereafter                     205
                                              $22,673


6.  Capital Leases

            The  Company  is  obligated  under   noncancelable   capital  leases
beginning  to expire in 1998.  The gross  amount of the assets  covered by these
capital  leases that are included in property and equipment in the  accompanying
balance sheets is as follows:

                                                 1997       1996
                                                  (In thousands)
      Fixtures and equipment                    $6,565     $3,980
      Accumulated amortization                  (1,641)      (888)
                                                $4,924     $3,092

            The  amortization of assets held under capital leases is included in
depreciation  and  amortization  expense  in  the  accompanying   statements  of
operations. Future minimum lease payments under the noncancelable capital leases
for years subsequent to 1997 are:

                                                          (In thousands)
          1998                                                $1,237
          1999                                                 1,069
          2000                                                   994
          2001                                                 1,126
          2002                                                   435
          Thereafter                                               0
          Total minimum lease payments                         4,861

             Amount representing interest                       (834)
          Present value of future minimum lease payments       4,027

             Current installments                               (917)
          Obligations under capital leases, excluding
            current installments                              $3,110


7.  Operating Leases

            The Company has noncancelable, long-term operating leases on certain
locations,  a significant portion of which are with related parties.  Certain of
the leases have contingent rentals based on sales levels of the locations and/or
have escalation clauses tied to the consumer price index.  Minimum future rental
payments  (including  bargain renewal  periods) and sublease  receipts for years
after 1997 are as follows:

                             Future Rental Payments
                              ------------------------   Future
                              Related                   Sublease
                              Parties  Others   Total   Receipts
                                       (In thousands)
             1998              $3,314  $2,913  $6,227    $1,062
             1999               3,316   2,661   5,977       902
             2000               3,311   2,545   5,856       627
             2001               3,304   2,369   5,673       276
             2002               3,043   1,603   4,646        51
             Thereafter         1,837   9,579  11,416        29
                              $18,125 $21,670 $39,795    $2,947

            Total rental expense and sublease income were as follows:

                                    Rent Expense
                              ------------------------
                              Related                   Sublease
                              Parties  Others   Total   Receipts
                                       (In thousands)
             1997                $915    $922  $1,837    $1,370
             1996                 727     742   1,469     1,154
             1995                 849     735   1,584       843


8.  Accrued Expenses

            Accrued expenses consist of the following:

                                                     1997      1996
                                                      (In thousands)
      Motor fuel taxes payable                       $5,655   $5,453
      Accrued payroll and related expenses              927      806
      Other                                           2,401    2,132
                                                     $8,983   $8,391


9.  Futures and Forward Contracts

            The Company is party to commodity futures contracts with off-balance
sheet risk. Changes in the market value of open futures contracts are recognized
as gains or losses in the period of change.  These investments  involve the risk
of dealing with others and their  ability to meet the terms of the contracts and
the risk associated with unmatched positions and market  fluctuations.  Contract
amounts  are often used to express  the  volume of these  transactions,  but the
amounts potentially subject to risk are much smaller.

            From  time-to-time the Company enters into forward  contracts to buy
and sell fuel, principally to satisfy balances owed on exchange agreements (Note
2k). These transactions, which together with futures contracts are classified as
operating  activities for purposes of the statements of cash flows, are included
in motor  fuel  sales and  related  cost of sales and  resulted  in net gains as
follows:

                                      (In thousands)
                      1997                 $430
                      1996                  363
                      1995                   87

            Open  positions  under  futures  and  forward   contracts  were  not
significant at year end 1997 and 1996.


10.  Related Party Transactions

            Until completion of the December 1997 restructuring of FFP Partners,
the Company reimbursed its general partner (and its affiliates) for salaries and
related costs of executive officers and others and for expenses incurred by them
in connection with the management of the Company.  These expenses were $763,000,
$745,000, and $727,000, and for 1997, 1996, and 1995, respectively.

            From  time to time,  the  Company  makes  advances  to and  receives
advances from its parent and other subsidiaries of its parent. Such advances are
reflected  in  receivables  from or  payables  to  affiliated  companies  in the
accompanying  balance  sheets.  Prior to 1996, the Company did not charge or pay
interest on these advances.  Beginning in 1996, interest, at a rate equal to the
interest rate on the Company's  bank debt, was charged or paid on such balances.
Miscellaneous   income  includes   $706,000  and  $655,000  in  1997  and  1996,
respectively, of interest income on advances to affiliates.

            In  July  1991,  the  Company  entered  into  an  agreement  with an
affiliated company whereby the affiliated  company sells alcoholic  beverages at
the Company's stores in Texas.  Under Texas law, the Company is not permitted to
hold licenses to sell alcoholic  beverages in Texas. The agreement provides that
the Company will receive rent and a management  fee based on the gross  receipts
from sales of alcoholic beverages at its stores. In July 1992, the agreement was
amended to be for a term of five years commencing on the date of amendment.  The
sales recorded by the affiliated  company under this agreement were  $8,330,000,
$8,240,000,  and  $9,116,000,  and in 1997,  1996, and 1995,  respectively.  The
Company  received  $1,355,000,  $1,265,000,  and $1,217,000,  in 1997, 1996, and
1995,  respectively,  in rent, management fees, and interest, which are included
in miscellaneous revenues in the statements of operations.  After deducting cost
of sales and other expenses  related to these sales,  including the amounts paid
to the Company,  the affiliated  company had earnings of $83,000,  $82,000,  and
$91,000 in 1997,  1996, and 1995,  respectively,  as a result of these alcoholic
beverage  sales.  Under a  revolving  note  executed  in  connection  with  this
agreement,  the Company advances funds to the affiliated  company to pay for the
purchases of alcoholic beverages.  Receipts from the sales of such beverages are
credited  against the note balance.  The revolving note provides for interest at
0.5% above the prime rate  charged by a major  financial  institution  and had a
balance of $426,000 and $420,000 at year end 1997 and 1996, respectively.

            The  Company  purchases   certain  goods  and  services   (including
automobiles,  office supplies,  computer software and consulting  services,  and
fuel  supply  consulting  and  procurement   services)  from  related  entities.
Purchases  of  these  products  and  services  from  other  subsidiaries  of the
Company's  parent were $434,000,  $614,000,  and $197,000 and from other related
entities  were  $206,000,  $113,000,  and  $186,000  in 1997,  1996,  and  1995,
respectively.  In 1997 the  Company  purchased  $2,224,000  of motor  fuel  from
another  subsidiary of the Company's parent and sold $498,000,  $1,822,000,  and
$50,000  of  motor  fuel to this  same  subsidiary  in  1997,  1996,  and  1995,
respectively.  The Company  believes all such  purchases  and sales were made on
terms and at prices  at least as  favorable  as could  have been  obtained  from
unrelated third parties.

            As a part of its merchandise sales activities,  the Company supplies
its private label  cigarettes on a wholesale basis to other retailers who do not
operate  outlets in its trade areas and pays them rebates based on the volume of
cigarettes  purchased.  In 1997, 1996, and 1995, the Company paid $-0-, $14,000,
and  $51,000,  respectively,  of such rebates to a company on whose Board one of
the  Company's  executive  officers  serves.  The amount of rebates paid to this
company was  calculated  in the same manner as the rebates  paid to  non-related
companies.

            In 1980 and 1982,  certain companies from which the Company acquired
its initial  base of retail  outlets  granted to a third party the right to sell
motor fuel at retail for a period of 10 years at  self-serve  gasoline  stations
owned or leased by the affiliated  companies or their affiliates.  All rights to
commissions under these agreements and the right to sell motor fuel at wholesale
to the third party at such locations were assigned to the Company in May 1987 in
connection  with the  acquisition of its initial base of retail  operations.  In
December  1990,  in  connection  with  the  expiration  or  termination  of  the
agreements  with the third party,  the Company  entered into  agreements  with a
company owned and controlled by the Chairman of the general  partner and members
of his immediate family,  which grant to the Company the exclusive right to sell
motor  fuel at retail at these  locations.  The  terms of these  agreements  are
comparable to agreements that the Company has with other unrelated parties.  The
Company paid this affiliated  company  commissions  related to the sale of motor
fuel at these locations of $323,000,  $277,000, and $261,000, in 1997, 1996, and
1995, respectively.

            During 1995, the Company purchased four parcels of land, including a
building and petroleum storage tanks and related  dispensing  equipment,  from a
company  controlled  by the  Chairman of the general  partner and members of his
immediate  family.  The Company paid a total of $116,000 for the real estate and
related  improvements.  The Company is  operating  one of these  locations  as a
convenience  store and one as a  self-service  motor fuel  outlet and intends to
operate the other two as either  convenience  stores or self-service  motor fuel
outlets.  The purchase price was  determined by reference to similar  properties
acquired by the Company from unrelated parties.

            During 1996,  the Company  charged to expense  $611,000 to reimburse
various  related  companies for legal fees that  benefited the Company.  Of this
amount,  the Company paid  $225,000  during 1996 and the  remaining  $386,000 in
1997.


11.  Commitments and Contingencies

(a) Uninsured Liabilities

            The Company maintains  general  liability  insurance with limits and
deductibles  management believes prudent in light of the exposure of the Company
to loss and the cost of the insurance.

            The  Company  self-insures  claims up to  $45,000  per year for each
individual  covered by its employee  medical  benefit plan for  supervisory  and
administrative  employees;  claims  above  $45,000  are  covered by a  stop-loss
insurance policy. The Company also self-insures  medical claims for its eligible
store employees.  However, claims under the plan for store employees are subject
to a  $1,000,000  lifetime  limit per employee and the Company does not maintain
stop-loss  coverage  for these  claims.  The Company  and its covered  employees
contribute  to pay the  self-insured  claims and stop-loss  insurance  premiums.
Accrued  liabilities  include amounts management  believes adequate to cover the
estimated claims arising prior to a year-end,  including claims incurred but not
yet reported.  The Company  recorded expense related to these plans of $295,000,
$271,000, and $353,000, in 1997, 1996, and 1995, respectively.

            The  Company  is covered  for  worker's  compensation  in all states
through  incurred loss  retrospective  policies.  Accruals for estimated  claims
(including claims incurred but not reported) have been recorded at year end 1997
and 1996, including the effects of any retroactive premium adjustments.

(b) Environmental Matters

            The  operations  of the  Company are subject to a number of federal,
state, and local  environmental  laws and regulations,  which govern the storage
and sale of motor fuels,  including those regulating  underground storage tanks.
In  September  1988,  the   Environmental   Protection   Agency  ("EPA")  issued
regulations  that  require  all newly  installed  underground  storage  tanks be
protected  from  corrosion,  be  equipped  with  devices to  prevent  spills and
overfills,  and  have  a  leak  detection  method  that  meets  certain  minimum
requirements.  The effective  commencement  date for newly  installed  tanks was
December  22,  1988.  Underground  storage  tanks in place prior to December 22,
1988,  must  conform to the new  standards  by  December  1998.  The Company has
implemented  a plan to bring all of its existing  underground  storage tanks and
related  equipment into compliance with these laws and regulations and currently
estimates the costs to do so will range from  $1,444,000  to  $1,764,000  during
1998. The Company  anticipates that substantially all these expenditures will be
capitalized  as additions to property and  equipment.  Such  estimates are based
upon current  regulations,  prior  experience,  assumptions  as to the number of
underground storage tanks to be upgraded, and certain other matters. At year end
1997  and  1996,  the  Company   recorded   liabilities  for  future   estimated
environmental  remediation  costs related to known leaking  underground  storage
tanks of $644,000 in other liabilities.  Corresponding  claims for reimbursement
of environmental  remediation  costs of $644,000 were recorded in 1997 and 1996,
as  the  Company   expects  that  such  costs  will  be  reimbursed  by  various
environmental  agencies.  In 1995, the Company  contracted with a third party to
perform site assessments and remediation activities on 35 sites located in Texas
that are known or thought to have leaking  underground  storage tanks. Under the
contract,  the third party will coordinate with the state  regulatory  authority
the work to be performed and bill the state  directly for such work. The Company
is liable for the $10,000 per occurrence  deductible and for any costs in excess
of the $1,000,000 limit provided for by the state  environmental trust fund. The
Company does not expect that the costs of  remediation  of any of these 35 sites
will  exceed  the  $1,000,000  limit.  The  assumptions  on which the  foregoing
estimates are based may change and  unanticipated  events and  circumstances may
occur which may cause the actual cost of complying  with the above  requirements
to vary significantly from these estimates.

            During  1997,  1996,  and  1995,  environmental   expenditures  were
$1,665,000,   $2,019,000,   and  $1,003,000,   respectively  (including  capital
expenditures  of  $1,267,000,  $1,456,000,  and  $644,000),  in  complying  with
environmental laws and regulations.

            The Company does not maintain  insurance  covering losses associated
with environmental  contamination.  However, all the states in which the Company
owns or  operates  underground  storage  tanks have state  operated  funds which
reimburse the Company for certain  cleanup costs and  liabilities  incurred as a
result of leaks in underground  storage tanks.  These funds,  which  essentially
provide insurance coverage for certain environmental liabilities,  are funded by
taxes on  underground  storage  tanks or on motor  fuels  purchased  within each
respective  state.  The  coverages  afforded  by each state  vary but  generally
provide up to $1,000,000 for the cleanup of environmental contamination and most
provide  coverage  for  third-party  liability  as well.  The funds  require the
Company to pay deductibles  ranging from $5,000 to $25,000 per  occurrence.  The
majority of the Company's environmental  contamination cleanup activities relate
to  underground  storage  tanks  located in Texas.  Due to an increase in claims
throughout the state, the Texas state environmental trust fund has significantly
delayed  reimbursement  payments for certain  cleanup costs after  September 30,
1992. In 1993, the Texas state fund issued  guidelines that, among other things,
prioritize  the timing of future  reimbursements  based upon the total number of
tanks operated by and the financial net worth of each applicant. The Company has
been classified in the category with the lowest priority.  Because the state and
federal  governments  have the right,  by law, to levy  additional  fees on fuel
purchases,  the  Company  believes  these  clean up  costs  will  ultimately  be
reimbursed.  However, due to the uncertainty of the timing of the receipt of the
reimbursements, the claims for reimbursement of environmental remediation costs,
totaling $1,052,000 and $1,038,000 at year end 1997 and 1996, respectively, have
been classified as long-term receivables and are included in other assets in the
accompanying balance sheets. (c) Other

            The Company is subject to various claims and  litigation  arising in
the ordinary  course of business,  particularly  personal  injury and employment
related claims.  In the opinion of management,  the outcome of such matters will
not have a material effect on the financial position or results of operations of
the Company.