
<PAGE>
 
     AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 8, 1998
                                                     REGISTRATION NO. 333-
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
 
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
 
                                   FORM S-1
                            REGISTRATION STATEMENT
                                     UNDER
                          THE SECURITIES ACT OF 1933
 
                                ---------------
 
                              BALANCE BAR COMPANY
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S>                                   <C>                                   <C>
            DELAWARE                              5149                            77-0306617
 (STATE OR OTHER JURISDICTION OF      (PRIMARY STANDARD INDUSTRIAL             (I.R.S. EMPLOYER
  INCORPORATION OR ORGANIZATION)      CLASSIFICATION CODE NUMBER)           IDENTIFICATION NUMBER)
</TABLE>
 
                               1015 MARK AVENUE
                         CARPINTERIA, CALIFORNIA 93013
                                (805) 566-0234
  (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
                   REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
 
                                JAMES A. WOLFE
                               1015 MARK AVENUE
                         CARPINTERIA, CALIFORNIA 93013
                                (805) 566-0234
  (NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
                          CODE, OF AGENT FOR SERVICE)
 
                                ---------------
 
                                  COPIES TO:
 
        <TABLE>
        <S>                                                 <C>
                  KENT V. GRAHAM                                  THOMAS A. BEVILACQUA
              O'MELVENY & MYERS LLP                                 TIMOTHY R. CURRY
             1999 AVENUE OF THE STARS                       BROBECK, PHLEGER & HARRISON LLP
                    SUITE 700                                    TWO EMBARCADERO PLACE
        LOS ANGELES, CALIFORNIA 90067-6035                           2200 GENG ROAD
                  (310) 246-6820                                PALO ALTO, CA 94303-0913
                                                                     (415) 424-0160
        </TABLE>
 
                                ---------------
 
  APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
  If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [_]
  If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
  If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
  If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
  If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
 
                                ---------------
 
<TABLE>
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
<CAPTION>
                                                                    PROPOSED MAXIMUM
                                                                        AGGREGATE         AMOUNT OF
                      TITLE OF EACH CLASS OF                            OFFERING        REGISTRATION
                  SECURITIES TO BE REGISTERED(1)                       PRICE(1)(2)         FEE(1)
----------------------------------------------------------------------------------------------------
<S>                                                                 <C>                 <C>
Common Stock, $0.01 par value.....................................     $35,243,065         $10,397
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
</TABLE>
(1) Calculated pursuant to Rule 457(o).
(2) Estimated solely for the purpose of computing the amount of the
    registration fee pursuant to Rule 457(a).
 
  THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
 
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<PAGE>
 
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A         +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE   +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY  +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT        +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR   +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE      +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE    +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF  +
+ANY SUCH STATE.                                                               +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
                   SUBJECT TO COMPLETION, DATED APRIL 8, 1998
 
PROSPECTUS
---------- 
                                          SHARES
 
                                     [LOGO]
 
                                  COMMON STOCK
 
  Of the             shares of Common Stock offered hereby,              shares
are being sold by Balance Bar Company ("Balance Bar Company" or the "Company")
and               shares are being sold by the Selling Stockholders. The
Company will not receive any of the proceeds from the sale of shares by the
Selling Stockholders. See "Principal and Selling Stockholders."
 
  Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering
price will be between $      and $      per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The Company has applied to have the Common Stock approved for
quotation on the Nasdaq National Market under the symbol BBAR.
 
                                    --------
 
            THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
                    SEE "RISK FACTORS" COMMENCING ON PAGE 5.
 
                                    --------
 
THESE SECURITIES HAVE  NOT BEEN APPROVED  OR DISAPPROVED BY  THE SECURITIES AND
EXCHANGE COMMISSION OR  ANY STATE SECURITIES COMMISSION NOR  HAS THE SECURITIES
AND  EXCHANGE COMMISSION  OR ANY  STATE SECURITIES COMMISSION  PASSED UPON  THE
 ACCURACY OR ADEQUACY OF  THIS PROSPECTUS. ANY  REPRESENTATION TO THE CONTRARY
 IS A CRIMINAL OFFENSE.
 
<TABLE>
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
<CAPTION>
                                                                              PROCEEDS TO
                                   PRICE TO     UNDERWRITING   PROCEEDS TO      SELLING
                                    PUBLIC      DISCOUNT (1)    COMPANY (2)  STOCKHOLDERS
-----------------------------------------------------------------------------------------
<S>                                <C>          <C>            <C>           <C>
Per Share.....................       $              $              $              $
-----------------------------------------------------------------------------------------
Total (3).....................      $              $              $              $
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
</TABLE>
(1) See "Underwriting" for indemnification arrangements with the several
    Underwriters.
(2) Before deducting expenses payable by the Company estimated at $         .
(3) The Company has granted the Underwriters a 30-day option to purchase up to
              additional shares of Common Stock solely to cover over-
    allotments, if any. If all such shares are purchased, the total Price to
    Public, Underwriting Discount and Proceeds to Company, will be $     ,
    $     , and $     , respectively. See "Underwriting."
 
                                    --------
 
  The shares of Common Stock are offered by the several Underwriters subject to
prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about          , 1998, at the office of the agent of
Hambrecht & Quist LLC in New York, New York.
 
HAMBRECHT & QUIST                                   ADAMS, HARKNESS & HILL, INC.
 
          , 1998.
<PAGE>
 
 
 
                      [Picture showing Company Products]
 
 
  The Company intends to distribute to its stockholders annual reports
containing financial statements audited by its independent auditors for each
fiscal year and will make available copies of quarterly reports containing
unaudited financial information for each of the first three quarters of each
fiscal year.
 
  CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
 
  "BALANCE, THE COMPLETE NUTRITIONAL FOOD"(R) bar is a registered trademark of
the Company. "40-30-30 BALANCE"(TM), is a trademark of the Company. The
prospectus also includes tradenames and trademarks of companies other than the
Company which are the property of their respective owners.
 
                                       2
<PAGE>
 
                               PROSPECTUS SUMMARY
 
  The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and Notes thereto appearing elsewhere
in this Prospectus. The Common Stock offered hereby involves a high degree of
risk. See "Risk Factors."
 
 
                                  THE COMPANY
 
  Balance Bar Company develops and markets branded food and beverage products
in convenient, good-tasting, balanced nutritional formulations that appeal to a
broad consumer base. The Company has targeted its products, the Balance bar and
the 40-30-30 Balance powdered drink mix, at the healthy snack and meal
replacement market and believes that by marketing its products as "nutritious
snacks that taste great" it is highlighting their benefits over typical snacks
and meal replacements. In addition, the Company has targeted other markets
consisting of consumers with specific dietary or nutritional requirements,
including the fitness, weight management and diabetic markets. In order to make
its products available wherever people shop, the Company sells its products
through multiple distribution channels, including natural foods, mass
merchandise, club, grocery, convenience, health and fitness, and drug stores.
Balance Bar Company has experienced significant growth as sales have grown from
$1.3 million in 1995 to $39.6 million in 1997.
 
  Consumers have become increasingly health conscious over the last decade, as
reflected in the surge of activities aimed at maintaining and improving health,
including exercising, dieting and quitting smoking. Despite this concern for
health and nutrition, today's consumers find themselves with less time for
three nutritious meals a day and are seeking healthy snacks and meal
substitutes that can be consumed at any time or place. In response to these
trends, many new food and beverage products have been introduced to satisfy
consumer demand for nutritious snacks and meal replacements and have achieved
increasingly broad distribution. The Company believes that the consumer trends
towards health and nutrition will continue to drive the broad distribution of
convenient, healthy snacks and meal replacements.
 
  The Company has differentiated its brand from other snack products and meal
replacements by focusing on the combination of nutrition, good taste and
convenience. The Company's current product lines are based on balanced
proportions of 40% carbohydrates, 30% protein and 30% dietary fat, a
formulation designed to sustain energy and satisfy hunger. The Company
currently sells ten flavors of Balance bars in two sizes and five flavors of
powdered drinks in canisters or single serving envelopes. Although the
Company's current products are based upon the 40-30-30 concept, a Company
survey indicates that the popularity of its products extends to a much broader
consumer base.
 
  The Balance bar has made significant penetration into the natural foods
channel with approximately 69% of the Company's 1997 sales in this channel.
According to SPINS data from Spence Information Services, the Balance bar was
the number one selling brand of nutrition bar in the natural foods channel,
achieving a 31.0% share in 1997. In 1997 and 1998, the Company expanded its
strategic focus to the wider mass market, including mass merchandise, club,
grocery, convenience, health and fitness and drug stores. For the
November/December 1997 reporting period, the top two selling nutrition bar
flavors per point of distribution in grocery stores were Balance bars. In
addition the leading Balance bar flavor outsold the nearest competitor flavor
per point of distribution in grocery stores by 56.6% in December 1997 . The
Company believes that expanding distribution within the mass market represents
a significant growth opportunity.
 
  The Company's goal is to become a recognized leader in providing nutritious,
good tasting and convenient snack and meal replacement products for a wide
variety of consumer needs. In order to achieve its goal, the Company's strategy
is to: (i) continue positioning Balance products as good tasting, nutritious
snacks and meal replacements; (ii) expand the Company's consumer base and brand
awareness through increased advertising and promotional activities; (iii)
expand existing and new channels of distribution; (iv) focus on in-store
promotion and marketing; (v) continue to promote the nutritional qualities of
Balance products; (vi) introduce new products and product line extensions; and
(vii) acquire complimentary companies or product lines.
 
  The Company's principal executive office is located at 1015 Mark Avenue,
Carpinteria, California 93013. Its telephone number is (805) 566-0234.
 
                                       3
<PAGE>
 
 
                                  THE OFFERING
 
<TABLE>
<S>                                                   <C>
Common Stock offered by the Company.................       shares
Common Stock offered by the Selling Stockholders....       shares
Common Stock to be outstanding after the offering...       shares (1)
Use of proceeds.....................................  To retire short and long-term
                                                      debt and for working capital and
                                                      general corporate purposes which
                                                      could include the acquisition of
                                                      companies or product lines.
Proposed Nasdaq National Market symbol..............  BBAR
</TABLE>
 
                             SUMMARY FINANCIAL DATA
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                            YEAR ENDED     SEVEN MONTHS       YEAR ENDED
                             MAY  31,         ENDED          DECEMBER 31,
                          ---------------  DECEMBER 31, -----------------------
                           1993     1994       1994      1995    1996    1997
                          -------  ------  ------------ ------  ------- -------
<S>                       <C>      <C>     <C>          <C>     <C>     <C>
STATEMENTS OF OPERATIONS
 DATA:
  Sales.................. $   481  $  692     $  576    $1,262  $10,544 $39,634
  Income (loss) before
   income tax............  (1,262)   (312)         7       (84)   1,840   2,876
  Net income (loss)......  (1,263)   (313)         6       (85)   1,615   1,660
  Net income (loss) per
   diluted share.........   (1.30)  (0.24)       --      (0.07)    1.04    0.90
  Weighted average number
   of shares outstanding
   (2)...................     971   1,278      1,286     1,300    1,557   1,841
</TABLE>
 
<TABLE>
<CAPTION>
                                                             DECEMBER 31, 1997
                                                           ---------------------
                                                           ACTUAL AS ADJUSTED(3)
                                                           ------ --------------
<S>                                                        <C>    <C>
BALANCE SHEET DATA:
  Cash.................................................... $   89
  Working capital.........................................  2,974
  Total assets............................................ 10,796
  Long-term debt, net of current portion..................    228
  Total shareholders' equity..............................  4,104
</TABLE>
--------
(1) Based on the number of shares outstanding at February 28, 1998. Excludes
    (i)             shares of Common Stock reserved for issuance under the
    Company's 1998 Stock Incentive Plan (the "1998 Plan"), of which no shares
    were subject to outstanding options as of February 28, 1998, and (ii)
    438,091 shares of Common Stock issuable upon the exercise of options
    outstanding at February 28, 1998 at a weighted average exercise price of
    $4.39 per share. See "Capitalization," "Management--Stock Options and Stock
    Plans" and Note 8 of Notes to Financial Statements.
(2) See Note 3 of Notes to Financial Statements for an explanation of the
    determination of shares used in computing net earnings (loss) per diluted
    share.
(3) Adjusted to reflect the sale of               shares of Common Stock
    offered by the Company hereby at an assumed initial public offering price
    of $      per share and the receipt of the estimated net proceeds
    therefrom. See "Use of Proceeds" and "Capitalization."
 
                                ----------------
 
  Unless otherwise indicated, all information in this Prospectus assumes no
exercise of the underwriters' over-allotment option and gives effect to [(i)
the conversion of all shares of Series A Preferred Stock into Common Stock, and
(ii) the   for one stock split (the "Stock Split"). Note to SEC: preferred
stock conversion and Stock Split still to be determined] See "Description of
Capital Stock", "Underwriting" and Notes to Financial Statements.
 
                                       4
<PAGE>
 
                                 RISK FACTORS
 
  This Prospectus contains forward-looking statements that involve risks and
uncertainties. These statements can be identified by the use of forward-
looking terminology such as "believes," "expects," "intends," "plans," "may,"
"will," "should," or "anticipation" or the negative thereof or other
variations thereon or comparable terminology. Actual results could differ
materially from those discussed in the forward-looking statements as a result
of certain factors, including those set forth below and elsewhere in this
Prospectus. The following risk factors should be considered carefully in
addition to the other information in this Prospectus before purchasing the
shares of Common Stock offered hereby.
 
  Trade and Consumer Acceptance in New Distribution Channels. Until recently,
virtually all of the Company's sales were made in natural food stores. In
1997, sales to natural food stores accounted for approximately 69% of the
Company's sales. The Company's growth will depend on its ability to expand
other channels of distribution, including mass merchandise, club, grocery,
convenience, and drug stores, without significant impact on current channels.
These new channels of distribution have presented, and will continue to
present, competitive and marketing challenges, risks, and marketing and
distribution costs that are different from those faced by the Company in the
natural foods channel. In addition, the Company's expansion in these new
channels of distribution will require it to attract and retain consumers in
broader demographic and geographic markets. Although the Company has initiated
distribution through new nationwide distribution channels, there can be no
assurance that the Company will achieve the same success with consumers in
other demographic and geographic markets. The inability to obtain consumer
acceptance in new markets could have a material adverse effect on the
Company's business, results of operations, and financial condition. See
"Business--Growth Strategy" and "--Sales and Distribution."
 
  Potential Sales and Earnings Volatility. The Company has experienced, and
will continue to experience, period-to-period fluctuations in its operating
results as a result of a variety of factors, including: (i) fluctuations in
promotional, advertising, and marketing expenditures; (ii) the introduction of
new products or delays in such introductions; (iii) the introduction or
announcement of new products by the Company's competitors; (iv) customer
acceptance of new products; (v) shipment delays; (vi) consumer perceptions of
the Company's products and operations, including the 40-30-30 nutritional
concept; (vii) competitive pricing pressures; (viii) the adverse effect of
distributors', suppliers', or the Company's failure, and allegations of their
failure, to comply with applicable regulations; (ix) the availability and cost
of raw materials; (x) economic conditions in general and in the food industry
in particular; (xi) the negative effect of changes in or interpretations of
regulations that may limit or restrict the sale of certain of the Company's
products; (xii) the expansion of its operations into new markets; (xiii) the
introduction of its products into each such market; and (xiv) unanticipated
changes in the timing of customer promotions, any of which could have a
material adverse effect on the Company's business, results of operations, and
financial condition. The Company has a limited operating history, and
therefore it is difficult to predict the Company's future sales or its ability
to identify and adapt its products successfully to meet changing dietary
trends and other elements that affect the Company's results of operations.
 
  The Company has increased its expense levels to support its recent growth,
particularly expenses associated with advertising, marketing, promotions, and
employees. The Company expects to continue to increase its operating expenses
in these areas. If the Company does not achieve increased levels of sales
commensurate with these increased operating expenses, or if the Company's
revenues decrease or do not meet the Company's expectations for a particular
period, the Company's business, results of operations, and financial condition
may be materially and adversely affected.
 
  Dependence on Third Party Manufacturers. The Company does not own or operate
any manufacturing facilities and is, therefore, dependent on third parties for
the manufacture of its products. The Company currently relies and expects to
continue to rely on two contract manufacturers to produce all of its products.
These contract manufacturers also produce products for some of the Company's
competitors, and the Company competes with these and other companies for
production capacity. If either of the Company's
 
                                       5
<PAGE>
 
contract manufacturers were unable or unwilling to produce and ship the
Company's products in a timely manner or to produce sufficient quantities to
support the Company's growth, if any, the Company would have to identify and
qualify new contract manufacturers. There can be no assurance that the Company
would be able to identify and qualify new contract manufacturers in a timely
manner or that such manufacturers would allocate sufficient capacity to the
Company in order to meet its requirements, which could adversely affect the
Company's ability to make timely deliveries of its products. In addition,
there can be no assurance that the capacity of the Company's current contract
manufacturers will be sufficient to fulfill the Company's orders, and any
supply shortfall could materially and adversely affect the Company's business,
results of operations, and financial condition. The Company's contract
manufacturers each store the Company's products in a warehouse prior to
shipment to distributors. Shipments to and from the warehouses could be
delayed for a variety of reasons including weather conditions, strikes, and
shipping delays. Any significant delay in shipments of the Company's products
would have a material adverse effect on the Company's business, results of
operations, and financial condition. The Company has from time to time
experienced, and may in the future experience, delays in the production and
delivery of its products.
 
  In addition, the contract manufacturers are contractually required to
maintain the quality of the Company's products and to comply with applicable
laws and regulations relating to the production of food products. There can be
no assurance that the Company's contract manufacturers will continue to
produce products that are consistent with the Company's standards. The Company
has occasionally received, and might from time to time receive, shipments of
products that fail to conform to the Company's standards. The failure of any
contract manufacturer to produce products that conform to the Company's
standards could materially and adversely affect the Company's reputation in
the marketplace and result in product recalls, product liability claims, and
severe economic loss. See "--Government Regulation" and "Business--Contract
Manufacturers and Quality Assurance."
 
  Changes in Dietary Trends. The snack food industry in general and the
nutritional food industry in particular are subject to changing consumer
trends, demands, and preferences. Trends within the nutritional food industry
change often, and the failure of the Company to anticipate, identify or react
to changes in these trends could lead, among other things, to reduced demand
and price reductions, and could have a material adverse effect on the
Company's business, results of operations, and financial condition. These
changes might include consumer demand for new products or formulations that
include health promoting ingredients such as nutraceuticals. The Company's
success depends, in part, on its ability to anticipate the tastes and dietary
habits of consumers and to offer products that appeal to their preferences on
a timely and affordable basis. The Company believes that its growth to date
has been due, to some extent, to the popularity of the "40-30-30" nutritional
concept, which was popularized in 1995 in a nationally best selling book, The
Zone, and has attracted significant media attention and scientific
controversy. All of the Company's current and planned future products are
based on a 40-30-30 ratio, and the ratio is mentioned on all of the Company's
packaging and in most of its advertising and promotional materials. Although
the 40-30-30 concept has achieved a measure of popularity in some consumer
groups, it has also received significant criticism from certain portions of
the scientific and nutritional communities. Although the Company's surveys
indicate that a majority of its products are purchased by consumers for
reasons other than adherence to the 40-30-30 concept, there can be no
assurance that the popularity of the Company's products will continue to grow
if the 40-30-30 concept declines in popularity, or that the Company's products
will continue to receive the same level of acceptance in consumer groups that
are making purchasing decisions for reasons other than the 40-30-30 concept.
See "Business--Consumer Trends" and "--Industry Overview."
 
  Risk of Adverse Publicity. The Company is highly dependent upon consumers'
perception of the safety, quality, and possible dietary benefits of its
products. As a result, substantial negative publicity concerning the 40-30-30
concept, one or more of the Company's products, or other nutritional foods
similar to the Company's products could lead to a loss of consumer confidence
in the Company's products, removal of the Company's products from retailers'
shelves and reduced sales and prices of the Company's products. Any of these
events could have a material adverse effect on the Company's business, results
of operations, and financial condition.
 
 
                                       6
<PAGE>
 
  Narrow Product Line; Dependence on New Products. The Company currently has
only two product lines: nutrition bars (in ten flavors and two sizes) and
powdered drink mixes (in five flavors and two sizes), both of which are based
on a 40-30-30 formulation. In 1997, Balance bars accounted for approximately
92% of sales and powdered drink mixes accounted for approximately 8% of sales.
There can be no assurance that the Company's existing products will continue
to achieve market acceptance. Any such failure could have a material adverse
effect on the Company's business, results of operations, and financial
condition. The Company believes its ability to increase sales is partially
dependent upon its ability to introduce new and innovative products into its
existing markets. The success of new products depends on a number of factors,
including the Company's ability to develop products that appeal to consumers
and that are priced competitively. There can be no assurance that the
Company's efforts to develop new products will be successful, that consumers
will accept new products, or that the Company's competitors will not introduce
products that achieve greater market acceptance than the Company's products.
See "Business--Growth Strategy" and "--Competition."
 
  Dependence on Significant Retail Customers and Distributors. A limited
number of distributors and retail customers have historically accounted, and
are likely to continue to account in the future, for a substantial portion of
the Company's revenues. Most of the Company's sales are made to distributors
(with the assistance of commissioned brokers) that resell to retail customers.
The Company's two largest retail customers in 1997 were Trader Joe's and
General Nutrition Companies ("GNC") and two largest distributor customers were
Tree of Life and United Natural Foods. Trader Joe's and GNC accounted for
approximately 25% and 7%, respectively, of the Company's sales in 1997. The
Company anticipates that Costco will be a significant customer in 1998. United
Natural Foods acquired one of the Company's other natural foods distributors
in October 1997. Including sales to the acquired distributor as if it had been
owned for all of 1997, sales to United Natural Foods accounted for
approximately 14% of the Company's sales in 1997. Tree of Life accounted for
approximately 9% of the Company's sales in 1997. The Company's distributors
and retail customers typically purchase the Company's products with standard
purchase orders and, in general, are not bound by long-term contracts. There
can be no assurance that Trader Joe's, GNC, Costco, Tree of Life or United
Natural Foods will continue their relationships with the Company. The loss of
Trader Joe's, GNC, or CostCo as a retail customer or the loss of a significant
number of other major customers, the loss of major distributors such as Tree
of Life or United Natural Foods, or a significant reduction in purchase volume
by or financial difficulty of such customers or distributors could have a
material adverse effect on the Company's business, results of operations, and
financial condition. See "Business--Sales and Distribution," and "--
Marketing."
 
  Competition. The Company competes across a number of markets with a variety
of competitors, including other makers of nutrition bars and beverages, both
powdered and ready-to-drinks, and many other snacks and meal substitutes. Many
of these companies are larger than the Company and have substantially greater
financial, distribution, and marketing resources than the Company. In
addition, those of the Company's competitors selling products containing less
than 5 grams of fat per serving are permitted by FDA regulations to use the
term "healthy" in advertising their products. These competitors may have a
competitive advantage in marketing to certain consumer markets. Several
companies with strong brand names and substantially greater financial
resources than the Company have announced plans to launch or have launched
directly competitive nutrition bar and powdered drink mix products during the
past several months. All of these competitors also compete for shelf space in
all distribution channels and for suppliers and contract manufacturers.
Increased competition from such companies could have a material adverse effect
on the Company's business, results of operations, and financial condition. See
"Business--Competition."
 
  Product Liability. The Company, like any marketer, distributor or
manufacturer of products that are designed to be ingested, faces an inherent
risk of exposure to product liability claims if the use of its products
results, or is alleged to result, in injury or death. With respect to product
liability claims, the Company has $1.0 million per occurrence and $2.0 million
in aggregate liability insurance. The Company has excess umbrella liability
insurance of up to $8.0 million. There can be no assurance that such insurance
will continue
 
                                       7
<PAGE>
 
to be available at a reasonable cost, or, if available, will be adequate to
cover the Company's liabilities. In addition, the Company is heavily dependent
on its contract manufacturers for compliance with sound and lawful production
of its products. The Company's contract manufacturers are required to
indemnify the Company for product liability claims, arising out of the
manufacturing of the Company's products, and the Company must indemnify the
manufacturers for claims arising out of the labeling and packaging of its
products. Although the Company has contractual indemnification from its
contract manufacturers, and is included as a named insured on each of their
product liability insurance policies, any such indemnification is limited as a
practical matter to the creditworthiness of the indemnifying party, the
availability of such insurance, and such manufacturers' continued maintenance
of such insurance. Therefore, if the Company does not have adequate insurance
or contractual indemnification, product liabilities relating to defective
products could have a material adverse effect on the Company's business,
results of operations, and financial condition. See "Business--Legal
Proceedings," "--Dependence on Third Party Manufacturers" and "--Government
Regulation."
 
  In August 1997, the Company, together with one of its contract manufacturers
and a retailer of its products, was named in a lawsuit, filed but not served
on the Company, for a death allegedly resulting from the ingestion of a
Balance bar that allegedly contained nuts. Although the Company believes that
damages from such lawsuit, if served and adversely determined, would not have
a material adverse effect on the Company's business, results of operations, or
financial condition, no assurance can be given that such lawsuit will not be
served on the Company and, if served, no assurance can be given that any
outcome adverse to the Company would not have a material adverse effect on the
business, results of operations, and financial condition of the Company. See
"Business--Legal Proceedings."
 
  Intellectual Property Protection. The Company relies on a combination of
common law trademark rights, U.S. federal registration rights, and trade
secret laws to protect its proprietary rights. The Company uses the word
"balance" in its corporate name and in each of its two current product line
names. The term "balance" and variations thereof are widely used for many food
products other than those sold by the Company. Such widespread use may weaken
the Company's trademark rights and may dilute any unique, distinctive
significance the word "balance" may have as a means of identifying the
Company's products. In addition, the Company uses "40-30-30" on all of its
product packaging and in advertising and promotional materials. There can be
no assurance that the Company will be able to enforce its trademark rights for
current products or register trademarks or obtain common law trademark rights
using "balance" or "40-30-30" for any new product lines it may introduce. Such
inability to have exclusive use of the word "balance" or "40-30-30" in new
product names could weaken the Company's ability to create a strong "balance"
brand in existing and new product categories.
 
  In addition, the Company only has one federally registered trademark,
"BALANCE--THE COMPLETE NUTRITIONAL FOOD" and 18 applications for federal
registration of marks in the United States. Common law trademark rights do not
provide the Company with the same level of protection as afforded by a United
States federal registration of a trademark. In addition, common law trademark
rights are limited to the geographic area in which the trademark is actually
used plus a reasonable zone of future expansion, while U.S. federal
registration on the Principal Register gives the registrant superior rights
throughout the United States, subject to certain exceptions. The Company has
registered its trademarks in certain foreign jurisdictions where the Company's
products are or will be sold. The protection available in such jurisdictions
may not be as extensive as the protection available to the Company in the
United States.
 
  The Company and one of its largest distributors, Tree of Life, which uses
"Balanced--The Total Nutritional Drink" for an existing beverage, have agreed
to limit their use of the term "balance," "balanced" and variations thereof.
Under the contract, the Company and Tree of Life may continue to use the
current names for their respective products. However, the Company may not use
the trademark or tradename "balanced" in connection with any goods or services
or the term "balance" at the beginning of any name of a nutritional drink
product or certain processed foods and meals produced by Tree of Life. Tree of
Life may not use the trademark or tradename "balance" in connection with any
goods or services or the term
 
                                       8
<PAGE>
 
"balanced" in connection with nutritional bar products. These restrictions
could adversely affect the Company's ability to successfully expand into new
product categories or strengthen its brand name.
 
  Although the Company's formula for its products is a trade secret, it may be
independently developed or duplicated. In addition, the Company does not have
any proprietary rights in the 40-30-30 nutritional concept. The Company
protects its proprietary formula and processes, in part, by confidentiality
agreements with its employees and contract manufacturers. There can be no
assurance that these agreements will not be breached, that the Company would
have adequate remedies for any breach, or that the Company's trade secrets or
those of its contract manufacturers will not otherwise become known or
discovered independently by competitors. The Company owns the formula for the
products produced by its two contract manufacturers, Bariatrix International,
Inc. ("Bariatrix") and Nellson Nutraceutical, Inc. ("Nellson"). However,
pursuant to the terms of the Company's agreement with Nellson, Nellson will
obtain all rights to the nutritional bar formula if the Company does not meet
certain minimum purchase volumes. However, the Company's current purchase
volumes significantly exceed these minimum guaranteed purchase volumes. If the
Company fails to meet the purchase requirements, it has an option to buy out
any remaining purchase requirements to maintain ownership of the formula.
Although the Company believes that it will meet these purchase volumes or be
able to buy out any remaining purchase requirements, there can be no assurance
that the Company will retain ownership of this formula. If the Company were to
lose ownership of this formula and lose its relationships with Bariatrix and
Nellson, it could have a material adverse effect on the Company's business,
results of operations, and financial condition.
 
  Managing and Maintaining Growth. The Company is currently experiencing a
period of rapid growth and expansion that has placed, and could continue to
place, a significant strain on the Company's management, customer and consumer
service and support, operations, sales and administrative personnel, and other
resources. To serve the needs of its existing and future customers and
consumers, the Company has substantially increased and will continue to
increase its work force, which requires the Company to attract, train,
motivate, and manage a substantially larger number of qualified employees.
Additionally, to effectively manage currently anticipated levels of future
demand, the Company may be required to continue to expand its existing, or
implement new, operating, management, information, and financial systems, all
of which may significantly increase its operating expenses. There can be no
assurance that the Company will be able to achieve its growth as planned,
increase its work force, or implement new systems to manage its anticipated
growth, and any failure to do so could have a material adverse effect on the
Company's business, results of operations, and financial condition. See
"Business--Growth Strategy."
 
  Possible Acquisitions. To date, the Company has not had significant
discussions about or evaluated the potential acquisition of companies due
largely to inadequate financial resources. In the future, the Company may
consider making an investment in or acquiring companies or product lines that
complement its existing business. The Company is not able to predict when a
prospective acquisition candidate might become available, if ever, the terms
of the financing of any transaction or when any transaction might be closed.
Future acquisitions by the Company may result in potentially dilutive
issuances of equity securities, the incurrence of debt and contingent
liabilities, and amortization expenses related to goodwill and other
intangible assets, which could materially adversely affect Company
profitability. In addition, acquisitions involve numerous risks, including
difficulties in the assimilation of the operations, products, and employees of
the acquired companies, the diversion of management's attention from other
business concerns, risks of entering markets in which the Company has no or
limited direct prior experience, and the potential loss of key employees of
the acquired company. If any such acquisition occurs, there can be no
assurance as to the effect thereof on the Company's business, results of
operations, and financial condition. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
 
  Availability and Cost of Raw Materials. Most of the key ingredients used in
the Company's products are obtained by its contract manufacturers from third
party suppliers. As with most food products, the availability and cost of raw
materials used in the Company's products can be affected by a number of
factors beyond its control, such as general economic conditions affecting
growing decisions, weather conditions such as frosts,
 
                                       9
<PAGE>
 
drought, and floods, and plant diseases, pests, and other acts of nature.
Because the Company does not control the production of raw materials, it is
also subject to delays caused by interruption in production of materials based
on conditions not within its control. Such conditions include job actions or
strikes by employees of suppliers, weather, crop conditions, transportation
interruptions, natural disasters or other catastrophic events. There can be no
assurance that the Company's contract manufacturers will be able to obtain
alternative sources of raw materials at favorable prices, or at all, if either
of them experience supply shortages. The inability of the Company's contract
manufacturers to obtain adequate supplies of raw materials for its products at
favorable prices, or at all, as a result of any of the foregoing factors or
otherwise could cause an increase in the Company's cost of sales and a
corresponding decrease in gross margin and could have a material adverse
effect on the Company's business, results of operations, and financial
condition.
 
  Dependence on Key Personnel. The success of the Company is significantly
dependent on the personal efforts, performance, abilities, and continued
service of a small number of key managerial and marketing personnel. The loss
of service of any such key personnel could have a material adverse effect on
the Company's business, results of operations, and financial condition. In
addition, the future success of the Company depends upon its ability to
attract and retain highly qualified personnel in the future. Competition for
such personnel is intense and there can be no assurance that the Company will
be able to attract and retain such qualified personnel. A failure to do so
could have a material adverse effect on the Company's business, results of
operations, and financial condition. See "Management."
 
  Government Regulation. The manufacturing, packaging, labeling, advertising,
distribution, and sale of the Company's products are subject to regulation by
various governmental agencies, principally the Food and Drug Administration
(the "FDA"). The FDA regulates the Company's products under the Federal Food,
Drug, and Cosmetic Act (the "FDCA"), and related regulations. The Company's
products are also subject to regulation by the Federal Trade Commission (the
"FTC"), as well as various agencies of the states, localities, and foreign
countries to which the Company distributes its products and in which the
Company's products are sold. The Company believes that it presently complies
in all material respects with the foregoing laws and regulations. There can be
no assurance that future compliance with such laws or regulations, or failure
to comply, will not have a material adverse effect on the Company's business,
results of operations, and financial condition. See "Business--Government
Regulation."
 
  In September 1996, pursuant to a complaint related to a product liability
lawsuit concerning Balance bars and at the FDA's request, the Company
voluntarily, withheld product shipments temporarily. Upon completion of
government inspection of facilities of the Company and one of its contract
manufacturers, and sampling and testing of products, product shipments were
resumed. However, there can be no assurance that the FDA will not again
request that the Company cease product shipment due to any future regulatory
matter, causing a loss of sales and potentially severe damage to the Company's
reputation. Any withholding of product could have a material adverse effect on
the Company's business, results of operations, and financial condition.
 
  The Company might be subject to additional laws or regulations administered
by the FDA or other federal, state or foreign regulatory authorities or more
stringent interpretations of current laws or regulations from time to time in
the future. The Company is unable to predict the nature of such future laws,
regulations, interpretations or applications, nor can it predict what effect
additional governmental regulations or administrative orders, when and if
promulgated, would have on its business in the future. They could, however,
require the reformulation of certain products to meet new standards, the
recall or discontinuance of certain products that cannot be reformulated,
imposition of additional record-keeping requirements, expanded documentation
of the properties of certain products, expanded or different labeling, and
scientific substantiation. Any or all of such requirements could have a
material adverse effect on the Company's business, results of operations, and
financial condition.
 
  Governmental regulations in foreign countries where the Company plans to
commence or expand sales might prevent or delay entry into the market or
prevent or delay the introduction, or require the reformulation, of certain of
the Company's products. Compliance with such foreign governmental regulations
 
                                      10
<PAGE>
 
is generally controlled by the Company's distributors for those countries.
These distributors are independent contractors over which the Company has
limited control. See "Business--Government Regulation."
 
  Risks Associated with Advertising. The Company's advertising of its products
is subject to regulation by the FTC under the Federal Trade Commission Act,
which prohibits unfair or deceptive trade practices, including dissemination
of false or misleading advertising. In addition, the National Advertising
Division of the Council of Better Business Bureaus, Inc. ("NAD") administers a
self-regulatory program by the advertising industry to ensure truth and
accuracy in national advertising. NAD both monitors national advertising and
entertains inquiries and challenges from competing companies and consumers.
Certain advertising claims made by the Company have been challenged by two of
the Company's competitors through NAD in the past. The Company has addressed
such challenges by either providing support for its claims or changing its
advertisements. Although the Company does not believe that such changes have
affected its marketing success, any future changes to the Company's
advertising resulting from compliance with an adverse NAD determination or FTC
action or fines or penalties assessed in connection therewith could adversely
affect the Company's product marketing efforts, and there can be no assurance
that such required changes in advertising would not have a material adverse
effect on the Company's business, results of operations, and financial
condition. See "Business--Government Regulation."
 
  Television advertising is relatively expensive compared to other forms of
advertising in terms of dollar outlays, and the Company's increased emphasis
and reliance on this medium could adversely affect its business, results of
operation and financial condition if its advertisements are not successful.
See "Business--Marketing."
 
  Risks Associated with International Markets. In 1997, 2.9% of the Company's
sales were in markets outside of the United States. Although the Company
intends to continue to focus primarily on the domestic market in the near
term, it also intends to continue to test its products in foreign markets. The
Company might experience difficulty entering new international markets due to
greater regulatory barriers, the necessity of adapting to new regulatory
systems, and problems related to entering new markets with different dietary
habits, cultural bases, and political systems. In addition, the Company has
been and will be required to re-formulate its products to comply with foreign
regulatory standards. Operating in international markets exposes the Company
to certain risks, including, among other things: (i) changes in or
interpretations of foreign regulations that might limit the Company's ability
to sell certain products or repatriate profits to the United States; (ii)
exposure to currency fluctuations; (iii) the potential imposition of trade or
foreign exchange restrictions or increased taxes or tariffs; and (iv)
political instability. As the Company continues to expand its international
operations, these and other risks associated with international operations
will increase. See "Business--Growth Strategy" and "--Government Regulation."
 
  No Prior Public Market; Possible Volatility of Stock Price. Before the
offering, there has been no public market for the Common Stock of the Company,
and there can be no assurance that an active trading market will develop as a
result of the offering or, if a trading market does develop, that it will be
sustained or that the shares of Common Stock can be resold at or above the
initial public offering price. The initial public offering price of the Common
Stock offered hereby will be determined through negotiations between the
Company and the several Underwriters based on factors described in this
Prospectus under "Underwriting" and may not be indicative of the price at
which the Common Stock will actually trade after the offering. The Company has
applied to have the Common Stock approved for quotation on the Nasdaq National
Market, which has experienced, and is likely to continue to experience,
significant price and volume fluctuations which could adversely effect the
market price of the Common Stock without regard to the operating performance
of the Company. In addition, the market price for shares of common stock
issued in initial public offerings have historically been volatile as have
shares of natural food companies. The market price of the Common Stock could
be subject to significant variation due to fluctuations in the Company's
operating results, changes in earnings estimates by securities analysts, the
degree of success the Company achieves in implementing its business strategy,
changes in business or regulatory conditions affecting the Company, its
customers, or its competitors, and other factors.
 
                                      11
<PAGE>
 
  Control by Principal Stockholders. Following completion of the offering, the
Chairman of the Company will beneficially own approximately    % of the
outstanding shares of the Company's Common Stock, and he, together with other
management, will control    % of the shares of the Company's Common Stock.
Accordingly, the Chairman, together with management, will have    % of the
voting power of the Company and will be able to elect all of the directors and
exercise significant control over the business, policies, and affairs of the
Company and determine the disposition of practically all matters submitted to
a vote of the Company's stockholders, including mergers, going private
transactions and other extraordinary corporate transactions and the terms
thereof. Further, these stockholders will be in a position to prevent a
takeover of the Company by one or more third parties, or sell or otherwise
transfer their stock to a third party, which could deprive the Company's
stockholders of a control premium that might otherwise be realized by them in
connection with an acquisition of the Company. See "Principal and Selling
Stockholders."
 
  Possible Anti-Takeover Effect of Certain Charter Provisions. Upon completion
of the offering, the Company's Certificate of Incorporation and Bylaws will
require that stockholders give advance notice to the Company's Secretary of
any nominations of directors made or other business to be brought by
stockholders at any stockholders' meeting. The Certificate of Incorporation
will also require the approval of 75% of the Company's voting stock to amend
certain of its provisions. The Company's Board of Directors will have the
authority to issue shares of Preferred Stock in one or more series and to
determine the price, rights, preferences, and privileges of those shares
without any further vote or action by the stockholders. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of Preferred Stock that may be issued in the future.
The concentration of ownership by the Board of Directors and management, the
issuance of Preferred Stock, and other charter provisions may discourage
certain types of transactions involving an actual or potential change in
control of the Company, including transactions in which the stockholders might
otherwise receive a premium for their shares over then current market prices,
and may limit the ability of the stockholders to approve transactions that
they may deem to be in their best interests. See "Description of Capital
Stock."
 
  In addition, the Company's Board of Directors is divided into three classes
of directors serving staggered terms. One class of directors will be elected
at each annual meeting of stockholders for a three-year term. At least two
annual meetings of stockholders, instead of one, generally will be required to
change the majority of the Company's Board of Directors, so it is more
difficult for the stockholders of the Company to change the management of the
Company than if the Board of Directors were not classified. In addition, the
presence of a classified Board of Directors could make it more difficult for a
third party to acquire, or could discourage a third party from attempting to
acquire, control of the Company and, therefore, may limit the price that
certain investors might be willing to pay in the future for shares of Common
Stock. See "Description of Capital Stock--Possible Anti-Takeover Effect of
Certain Charter Provisions."
 
  Shares Eligible for Future Sale. Sales of substantial amounts of Common
Stock in the public market after the offering or the anticipation of such
sales could have a material adverse effect on then-prevailing market prices.
All of the [     ] shares offered hereby may be resold immediately in the
public market. Beginning 180 days after the date of this Prospectus, upon
expiration of lock-up agreements between the representatives of the
Underwriters and officers, directors and certain stockholders of the Company,
approximately [    ] additional shares will be eligible for sale without
restriction under Rule 144(k) under the Securities Act of 1933, as amended
(the "Securities Act") and [300,000] additional shares (as well as an
additional 438,091 shares issuable upon exercise of outstanding options) will
be eligible for sale subject to compliance with the restrictions of Rule 144.
Any early release of the lock-up agreement by the Underwriters, which, if
granted, could permit sales of a substantial number of shares and could
adversely affect the trading price of the Company's shares, may not be
accompanied by an advance public announcement by the Company. In addition, the
Company intends to file a registration statement on Form S-8 under the
Securities Act approximately 30 days after the date of this Prospectus to
register approximately [300,000] shares of Common Stock reserved for issuance
under the Company's 1998 Performance Award Plan and 370,973 shares subject to
outstanding options.
 
                                      12
<PAGE>
 
  Immediate and Substantial Dilution. Investors participating in this offering
will incur immediate and substantial dilution of [$  ] per share based on a
public offering price of [$  ] per share and pro forma net book value before
this offering of [$   ] per share. To the extent outstanding options to
purchase Common Stock are exercised, there will be further dilution. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
 
  Year 2000 Compliance. Many currently installed computer systems and software
products are coded to accept only two digit entries in the date code field.
Beginning in the year 2000, these date code fields will need to accept four
digit entries to distinguish 21st century dates from 20th century dates. As a
result, in less than three years, computer systems and software used by many
companies may need to be upgraded to comply with such "Year 2000"
requirements. Significant uncertainty exists concerning the potential effects
associated with such compliance. The Company is currently implementing a new
sales, inventory and accounting system that the software vendor has
represented to be Year 2000 compliant. Any Year 2000 compliance problem of
either the Company or its customers could result in a material adverse effect
on the Company's business, operating results, and financial condition.
 
                                      13
<PAGE>
 
                                USE OF PROCEEDS
 
  The net proceeds to the Company from the sale of the            shares of
Common Stock offered by the Company hereby at an assumed initial public
offering price of $      per share are estimated to be $          ($       if
the underwriters' over-allotment option is exercised in full). The Company
will not receive any proceeds from the sale of Common Stock by the Selling
Stockholders.
 
  The Company intends to use the net proceeds to retire a revolving line of
credit in the amount of $3.3 million and a term loan in the amount of $293,000
(at February 28, 1998), for general corporate purposes, including working
capital to increase marketing and advertising, and to add personnel and other
resources to accommodate its anticipated growth. The Company may also use the
net proceeds from this offering to acquire companies or product lines that
complement the Company's existing product lines. To date, however, the Company
has not had significant discussions about or evaluated the potential
acquisition of any such companies or product lines. At February 28, 1998, the
line of credit and the term loan each bore interest at prime plus 1%. In March
1998, the interest rate on the line of credit was reduced to prime plus  3/4%.
The line of credit matures in April 2000 and the term loan matures in
installments through 2001.
 
                                DIVIDEND POLICY
 
  The Company has neither declared nor paid any cash dividends on its capital
stock. The Company intends to retain its earnings for use in its business and
does not plan to pay any cash dividends in the foreseeable future.
Furthermore, the Company's line of credit contains certain covenants that,
among other things, preclude the payment of cash dividends by the Company.
 
                                      14
<PAGE>
 
                                CAPITALIZATION
 
  The following table sets forth the capitalization of the Company as of
December 31, 1997 (i) on an actual basis, and (ii) as adjusted to give effect
to the sale by the Company of the         shares of Common Stock offered by
the Company hereby at an assumed initial public offering price of $       per
share, and the application of the estimated net proceeds therefrom. This table
should be read in conjunction with the Financial Statements of the Company and
Notes thereto, together with Management's Discussion and Analysis of Financial
Condition and Results of Operations, included elsewhere in this Prospectus.
 
<TABLE>
<CAPTION>
                                                             DECEMBER 31, 1997
                                                             ------------------
                                                             ACTUAL AS ADJUSTED
                                                             ------ -----------
                                                               (IN THOUSANDS)
<S>                                                          <C>    <C>
Current portion of long-term debt........................... $   85   $    3
Short-term borrowings.......................................  1,100      --
Long-term debt, less current portion........................    228       10
                                                             ------   ------
Shareholders' equity:
  Convertible Preferred Stock, $0.01 par value, 2,000,000
   shares authorized; issued and outstanding--634,485.......      6
  Common Stock, $0.01 par value, 4,000,000 shares
   authorized, 923,008 shares issued and outstanding and
             shares issued and outstanding pro forma (1)....      9
  Additional paid-in capital................................  2,502
  Retained earnings.........................................  1,587    1,587
                                                             ------   ------
    Total shareholders' equity..............................  4,104
                                                             ------   ------
     Total capitalization................................... $5,517   $
                                                             ======   ======
</TABLE>
--------
(1) Excludes (i)           shares of Common Stock reserved for issuance under
    the Company's 1998 Plan, of which no shares were subject to outstanding
    options as of February 28, 1998, and (ii) 438,091 shares of Common Stock
    issuable upon exercise of options outstanding at February 28, 1998 at a
    weighted average exercise price of $4.39 per share. See "Management--Stock
    Options and Stock Plans" and Note 8 of Notes to Financial Statements.
 
                                      15
<PAGE>
 
                                   DILUTION
 
  As of December 31, 1997, the Company had a net tangible book value of
approximately $3,780,000 or $2.43 per share of Common Stock. Net tangible book
value represents the amount of total tangible assets less total liabilities
divided by the number of shares of Common and Preferred Stock outstanding.
Without taking into account any other changes in the net tangible book value
after December 31, 1997, other than to give effect to the receipt by the
Company of the net proceeds from the sale of the             shares of Common
Stock offered by the Company hereby at an assumed initial public offering
price of $       per share, the pro forma net tangible book value of the
Company as of December 31, 1997 would have been approximately $
or $       per share. This represents an immediate increase in net tangible
book value of $       per share to existing stockholders and an immediate
dilution of $     per share to new investors. The following table illustrates
this per share dilution:
 
<TABLE>
<CAPTION>
<S>                                                               <C>   <C>
  Assumed initial public offering price per share................       $
    Net tangible book value per share before the offering........ $2.43
    Increase per share attributable to new investors.............
  Pro forma net tangible book value per share after the offering.
  Dilution per share to new investors............................       $
                                                                        ========
</TABLE>
 
  The following table summarizes, on a pro forma basis as of December 31,
1997, the differences between existing stockholders and the new investors with
respect to the number of shares of Common Stock purchased from the Company,
the total consideration paid and the average price per share paid:
 
<TABLE>
<CAPTION>
                                                  TOTAL
                          SHARES PURCHASED    CONSIDERATION
                          ----------------- ------------------     AVERAGE
                           NUMBER   PERCENT   AMOUNT   PERCENT PRICE PER SHARE
                          --------- ------- ---------- ------- ---------------
<S>                       <C>       <C>     <C>        <C>     <C>
Existing stockholders
 (1)..................... 1,557,493      %  $2,517,000      %       $1.62
New investors (1)........
                                    ------             ------
 Total...................           100.0%  $          100.0%
                          ========= ======  ========== ======
</TABLE>
 
  Other than as noted above, the foregoing computations assume the exercise of
no stock options after February 28, 1998. As of February 28, 1998, options to
purchase 438,091 shares of Common Stock were outstanding, with a weighted
average exercise price of $4.39 per share. To the extent these options are
exercised, there will be further dilution to new investors. See "Management--
Stock Plans" and Note 8 of Notes to Financial Statements.
--------
 
(1) Sales by Selling Stockholders in this offering will reduce the number of
    shares of Common Stock held by existing stockholders to             or
    approximately     % (            shares or approximately    % if the
    Underwriters' over-allotment option is exercised in full) and will
    increase the number of shares held by new investors to            or
    approximately    % (          shares or approximately    % if the
    Underwriters' over-allotment option is exercised in full) of the total
    number of shares of Common Stock outstanding after this offering. See
    "Principal and Selling Stockholders."
 
                                      16
<PAGE>
 
                            SELECTED FINANCIAL DATA
 
  The following selected statements of operations data for each of the three
years in the period ended December 31, 1997, and the balance sheet data as of
December 31, 1996 and 1997, are derived from the financial statements and
notes thereto included elsewhere herein audited by Arthur Andersen LLP,
independent public accountants, as set forth in their report also included
elsewhere herein. The balance sheet data as of December 31, 1995, are derived
from financial statements audited by Arthur Andersen LLP not included herein.
The selected statements of operations data for the years ended May 31, 1993
and 1994 and the seven months ended December 31, 1994, and the balance sheet
data as of May 31, 1993 and 1994 and as of December 31, 1994, are derived from
unaudited financial statements of the Company, not included herein, prepared
on the same basis as the audited financial statements and, in the opinion of
management, include all adjustments, consisting of only normal recurring
adjustments, necessary for a fair presentation of the Company's financial
position and results of operations. The results of operations for any interim
period are not necessarily indicative of results to be expected for a full
year. The following data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements of the Company and the notes thereto included
elsewhere in this Prospectus.
 
<TABLE>
<CAPTION>
                            YEAR ENDED     SEVEN MONTHS       YEAR ENDED
                             MAY 31,          ENDED          DECEMBER 31,
                          ---------------  DECEMBER 31, -----------------------
                           1993     1994       1994      1995    1996    1997
                          -------  ------  ------------ ------  ------- -------
                                (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                       <C>      <C>     <C>          <C>     <C>     <C>
STATEMENTS OF OPERATIONS
 DATA:
Sales...................  $   481  $  692     $ 576     $1,262  $10,544 $39,634
Cost of Sales...........      141     217       219        593    5,272  19,801
                          -------  ------     -----     ------  ------- -------
 Gross profit...........      340     475       357        669    5,272  19,833
                          -------  ------     -----     ------  ------- -------
Expenses:
 Advertising............      134      47        87        157    1,083   7,481
 Selling and marketing..      587     295       109        355    1,536   7,204
 General and
  administrative........      881     444       154        237      797   2,299
 Interest (income)
  expense...............      --        1       --           4       16     (27)
                          -------  ------     -----     ------  ------- -------
   Total expenses.......    1,602     787       350        753    3,432  16,957
                          -------  ------     -----     ------  ------- -------
 Income (loss) before
  income taxes..........   (1,262)   (312)        7        (84)   1,840   2,876
Income Taxes............        1       1         1          1      225   1,216
                          -------  ------     -----     ------  ------- -------
 Net income (loss)......  $(1,263) $ (313)    $   6     $  (85) $ 1,615 $ 1,660
                          =======  ======     =====     ======  ======= =======
Earnings (loss) per
 share:
 Basic..................  $ (1.30) $(0.24)      --      $(0.07) $  1.15 $  1.07
                          =======  ======     =====     ======  ======= =======
 Diluted................  $ (1.30) $(0.24)      --      $(0.07) $  1.04 $  0.90
                          =======  ======     =====     ======  ======= =======
Weighted average number
 of shares outstanding:
 Basic..................      971   1,278     1,286      1,300    1,402   1,550
                          =======  ======     =====     ======  ======= =======
 Diluted................      971   1,278     1,286      1,300    1,557   1,841
                          =======  ======     =====     ======  ======= =======
</TABLE>
 
<TABLE>
<CAPTION>
                                            MAY 31,         DECEMBER 31,
                                           ---------  --------------------------
                                           1993 1994  1994  1995   1996   1997
                                           ---- ----  ----  ----  ------ -------
                                                     (IN THOUSANDS)
<S>                                        <C>  <C>   <C>   <C>   <C>    <C>
BALANCE SHEET DATA:
 Cash....................................  $238 $ 11  $ 12  $ 34  $1,119 $    89
 Working capital (deficit)...............   107  (44)  (50)  (39)  2,087   2,974
 Total assets............................   453  161   139   185   3,374  10,796
 Long-term debt, net of current portion..     5    9     5   --      --      228
 Total shareholders' equity..............   265   35    16     3   2,162   4,104
</TABLE>
 
                                      17
<PAGE>
 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
  The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and the Company's Financial Statements and Notes
thereto included elsewhere in this Prospectus. Except for the historical
information contained herein, the discussion in this Prospectus contains
certain forward-looking statements that involve risks and uncertainties, such
as statements of the Company's plans, objectives, expectations and intentions.
These statements can be identified by the use of forward-looking terminology
such as "believes," "expects," "intends," "plans," "may," "will," "should," or
"anticipation" or the negative thereof or other variations thereon or
comparable terminology. The cautionary statements made in this Prospectus
should be read as being applicable to all related forward-looking statements
wherever they appear in this Prospectus. The Company's actual results could
differ materially from those discussed here. Factors that could cause or
contribute to such differences include those discussed in "Risk Factors," as
well as those discussed elsewhere herein.
 
OVERVIEW
 
  Balance Bar Company develops and markets branded food and beverage products
in convenient, good-tasting, balanced nutritional formulations. The Company's
current and planned product lines are targeted to a broad consumer base in the
healthy food and beverage market. The Company markets its products to
consumers for a wide variety of uses, including snacking, meal replacement,
fitness, weight management and diabetic nutrition. The Company sells its
products in natural foods, mass merchandise, club, grocery, convenience,
health and fitness, and drug stores. The Company's existing product lines, the
Balance bar and the 40-30-30 Balance powdered drink mix, accounted for
approximately 92% and 8%, respectively, of the Company's 1997 sales. The
United States accounted for approximately 97% of 1997 sales. The Company
currently sells ten flavors of Balance bars (in two sizes) and five flavors of
powdered drinks (in canisters and single serving envelopes).
 
  The Company was founded in 1992 to market a 40-30-30 nutrition bar to the
weight loss and sports performance market. From 1992 to 1995, the Company
relied heavily on direct sales to consumers through network marketing and
direct response advertising. In July 1995, the Balance bar won the People's
Choice Award presented by the National Nutritional Foods Association at the
annual natural foods trade show. Shortly thereafter, the Company obtained its
first major wholesale customer, Tree of Life, a national natural foods
distributor. By the end of 1996, the Company had developed a nationwide
network of natural foods brokers and distributors and was selling its
products, through distributors and direct to retailers, to a broad consumer
base. In 1997 and 1998, as a result of a strategic decision to broaden
distribution, the Company expanded its broker network and distribution into
mass merchandise, club, grocery, convenience, health and fitness, and drug
stores.
 
  According to SPINS(/1/) data from Spence Information Services, the Balance
bar was the number one selling nutrition bar in the natural foods channel
achieving a 31.0% market share in 1997. In addition, the Balance Bar accounted
for five of the top ten selling nutrition bar flavors in the natural foods
channel in the November/December 1997 reporting period.
 
  According to ACNielsen ScanTrack: SPINS Natural Track(/2/), the Balance bar
market share of natural products in the energy bars category in grocery stores
increased from 1% in the November/December 1996 reporting period to 14% in the
November/December 1997 reporting period. In addition, during the same time
period the top two selling nutrition bar flavors per point of
distribution(/3/) in grocery stores were Balance bars.
 
--------
(1) SPINS data is based on actual sales from seven significant natural foods
    distributor warehouses (primarily United Natural Foods warehouses), but
    does not include sales from one of the Company's significant natural foods
    distributors, Tree of Life.
 
(2) ACNielsen Scan Track: SPINS Natural Track data is based on actual sales in
    two-month reporting periods from a sample of grocery stores across the
    United States.
 
(3) Sales per point of distribution means dollar sales per grocery store
    selling a particular flavor.
 
                                      18
<PAGE>
 
The leading Balance bar flavor outsold the nearest competitor flavor per point
of distribution in grocery stores by 56.6% in December 1997.
 
  In 1997, the natural foods channel accounted for approximately 69% of the
Company's sales. The Company expects this percentage to decline in 1998 as the
Company expands sales at mass merchandise, club, grocery, convenience, and
drug stores. By December 31, 1997, the Company had up to four of its ten
Balance bar flavors in approximately 40% of mass merchandise stores, 20% of
club stores, 13% of grocery stores, 10% of convenience stores (represents
penetration of honey peanut flavor only), and 9% of drug stores in the United
States.(/1/) The Company's goal is to continue to expand its nationwide
distribution by increasing the number of Balance bar flavors in each store and
further penetrating each distribution channel.
 
  Sales increased 736% in 1996 and 276% in 1997. The Company believes that its
rapid sales growth is the result of a number of factors, including increased
consumer awareness and trial of Balance products and increased consumer
awareness of the role a healthy diet plays in their lives, expanded
distribution channels, increased advertising, marketing and promotional
efforts, improved packaging graphics, the products' good taste and broad
consumer appeal, introduction of new products and product line extensions, and
the rapid growth of the nutrition bar category. As awareness of the Company's
brand has increased, the Company has continued to add major customers across a
number of distribution channels. The following is a list of selected retailers
and distributor customers who now carry the Company's products and the year
they became customers.
 
<TABLE>
<CAPTION>
                                                                      1998
       1995                 1996                  1997         (THROUGH FEBRUARY)
   ------------    -----------------------     -----------     ------------------
   <S>             <C>                         <C>             <C>
   Tree of Life    GNC                         Albertson's      Sam's Club
                   Fred Meyer                  Circle-K         Walgreens
                   Stow Mills                  Kroger           American Stores
                    (United Natural Foods)     Costco
                   Trader Joe's                Ralph's
                   Whole Foods                 Safeway
                   Wild Oats                   7-Eleven
                                               Vons
                                               Wal-Mart
</TABLE>
 
  The Company believes that increasing consumer awareness and trial of Balance
products will continue to be a major factor in its ability to grow.
Accordingly, the Company has increased selling, marketing, and advertising
expenditures significantly in each year since 1995. The Company anticipates
that its 1998 advertising and marketing expenditures will increase
significantly over 1997 advertising and marketing expenditures.
 
COMPONENTS OF SALES AND EXPENSES
 
  Sales consists of invoiced sales less promotional discounts and estimated
returns and allowances. The Company sells its products both directly to retail
customers and to distributors who then resell the products to retailers. The
Company uses commissioned brokers to provide sales support at customer
headquarters and at retail locations. Backlog is not significant as the
Company ships its products against binding purchase orders that are filled
within a short period after the order.
 
  Cost of sales consists of product costs and freight and are recognized as
the related revenues are recorded. The Company does not own or operate any
manufacturing facilities, and sources its products through third-party
contract manufacturers. The Company believes that outsourcing allows the
Company to enhance production flexibility and capacity, while substantially
reducing capital expenditures and avoiding the
--------
(1) The mass merchandise, grocery, convenience, and drug store data was
    provided by Information Resources, Inc., and is based on actual sales from
    a sample of mass merchandise, grocery, convenience, and drug stores. The
    club store data is estimated by the Company.
 
                                      19
<PAGE>
 
costs of managing a production work force. Outsourcing also enables the
Company to leverage working capital, transfer risk and focus resources on
advertising, marketing, and sales. However, because the Company uses third
party contract manufacturers, the Company does not expect to benefit from the
economies of scale typically experienced by manufacturers.
 
  Expenses consist of advertising costs, selling and marketing costs, general
and administrative costs, and interest income and expense. Advertising costs
consist of television, radio and print expenses and are recognized when the
advertising takes place. Selling and marketing costs consist of payroll
expenses, brokers' commissions, slotting allowances, public relations costs,
special events, product sampling costs and other promotional items. Special
events and product sampling costs are recognized when promotional events are
held and promotional materials are distributed. General and administrative
costs consist of payroll expenses, facility rentals, stock option and common
stock expense and other overhead costs. Stock option and common stock expense
consists of the excess of the fair market value over the issue price of stock
options and common stock. This expense is recognized over the period stock
options vest or in the period the common stock was issued.
 
  The Company has experienced, and will continue to experience, period-to-
period fluctuations in its operating results as a result of a variety of
factors, including: (i) fluctuations in promotional, advertising, and
marketing expenditures; (ii) the introduction of new products or delays in
such introductions; (iii) the introduction or announcement of new products by
the Company's competitors; (iv) customer acceptance of new products; (v)
shipment delays; (vi) consumer perceptions of the Company's products and
operations, including the 40-30-30 nutritional concept; (vii) competitive
pricing pressures; (viii) the adverse effect of distributors', suppliers', or
the Company's failure, and allegations of their failure, to comply with
applicable regulations; (ix) the availability and cost of raw materials; (x)
economic conditions in general and in the food industry in particular; (xi)
the negative effect of changes in or interpretations of regulations that may
limit or restrict the sale of certain of the Company's products; (xii) the
expansion of its operations into new markets, (xiii) the introduction of its
products into each such market; and (xiv) unanticipated changes in the timing
of customer promotions, any of which could have a material adverse effect on
the Company's business, results of operations, and financial condition.
 
RESULTS OF OPERATIONS
 
  The following table sets forth, for the periods indicated, the percentage
relationship of certain items from the Company's statements of operation to
sales:
 
<TABLE>
<CAPTION>
                                                            AS A PERCENTAGE
                                                               OF SALES
                                                           --------------------
                                                              YEAR ENDED
                                                             DECEMBER 31,
                                                           --------------------
                                                           1995    1996   1997
                                                           -----   -----  -----
   <S>                                                     <C>     <C>    <C>
   Sales.................................................. 100.0%  100.0% 100.0%
   Cost of Sales..........................................  47.0    50.0   50.0
                                                           -----   -----  -----
    Gross profit..........................................  53.0    50.0   50.0
   Expenses:
     Advertising..........................................  12.5    10.3   18.9
     Selling and marketing................................  28.1    14.6   18.1
     General and administrative...........................  18.8     7.5    5.8
     Interest (income) expense............................   0.3     0.1   (0.1)
                                                           -----   -----  -----
       Total expenses.....................................  59.7    32.5   42.7
                                                           -----   -----  -----
    Income (loss) before income taxes.....................  (6.7)   17.5    7.3
   Income Taxes...........................................   --      2.2    3.1
                                                           -----   -----  -----
    Net income (loss).....................................  (6.7)%  15.3%   4.2%
                                                           =====   =====  =====
</TABLE>
 
                                      20
<PAGE>
 
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1997
 
  Sales. Sales increased 276% from $10.5 million in 1996 to $39.6 million in
1997. The increase was primarily attributable to increased sales at natural
foods and mass merchandise stores and to a lesser extent at club and grocery
stores. Sales also increased in 1997 as the Company gained more retail shelf
space and increased the number of flavors sold to existing customers. In
addition, the introduction of a powdered nutritional drink in 1997 accounted
for approximately $2.6 million of the increase. The addition of three new
Balance bar flavors in December 1997 did not have a significant effect on
sales in 1997.
 
  Gross Profit. Gross profit dollars increased from $5.3 million in 1996 to
$19.8 million in 1997. Gross profit margin was 50.0% in both 1996 and 1997,
and, therefore, gross profit dollars increased as sales increased.
 
  Advertising. Advertising expenses increased from $1.1 million in 1996 to
$7.5 million in 1997. This increase was due to the Company's strategic
decision to build brand awareness and increase sales through substantial
increases in radio and print advertising and the introduction of television
advertising.
 
  Selling and Marketing. Selling and marketing expenses increased from
$1.5 million in 1996 to $7.2 million in 1997. The increase was due to higher
personnel-related costs as the Company built its sales organization, higher
broker commissions related to increased sales and additional expenditures for
slotting allowances as products were introduced to grocery stores. The
increase was also due to increases in special events and product sampling to
build customer awareness of the Company's products. Selling and marketing
expenses as a percentage of sales increased from 14.6% of sales in 1996 to
18.1% in 1997.
 
  General and Administrative. General and administrative expenses increased
from $797,000 in 1996 to $2.3 million in 1997. As a percentage of sales,
general and administrative expenses decreased to 5.8% in 1997 from 7.5% in
1996. The dollar increase in 1997 was due to higher personnel-related costs
and facility rentals to support the increased sales.
 
  Provision for Income Taxes. The Company's effective tax rate in 1996 was
12.2% due to the utilization of net operating loss carryforwards incurred from
1992 to 1995. As of December 31, 1996 the Company had fully utilized its net
operating loss carryforwards. In 1997, the Company's effective tax rate was
42.3%.
 
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1996
 
  Sales. Sales increased 736% from $1.3 million in 1995 to $10.5 million in
1996, due primarily to a change in marketing strategy to nationwide retail
distribution from that of network marketing and direct response marketing. The
addition of several major natural foods customers including Trader Joe's in
late 1996 and Tree of Life beginning in late 1995 accounted for most of the
increase.
 
  Gross Profit. Gross profit dollars increased from $669,000 in 1995 to $5.3
million in 1996. Gross profit margin decreased from 53.0% in 1995 to 50.0% in
1996. This decrease in gross profit margin was primarily attributable to the
change in marketing strategy to that of retail distribution through
distributors and direct to retail customers requiring wholesale pricing and
promotional discounts.
 
  Advertising. Advertising expenses increased from $157,000 in 1995 to $1.1
million in 1996. This increase was due to efforts to build brand awareness and
increase sales through substantially higher levels of radio and print
advertising. Advertising expenses decreased from 12.5% of sales in 1995 to
10.3% in 1996.
 
  Selling and Marketing. Selling and marketing expenses increased from
$355,000 in 1995 to $1.5 million in 1996. The increase was due to higher
personnel-related costs as the Company built its sales organization and higher
broker commissions related to increased sales. The increase was also due to
increases in special events and product sampling to build customer awareness
of the Company's products. As a percentage of sales, selling and marketing
expenses decreased from 28.1% in 1995 to 14.6% in 1996.
 
 
                                      21
<PAGE>
 
  General and Administrative. General and administrative expenses increased
from $237,000 in 1995 to $797,000 in 1996. As a percentage of sales, general
and administrative expenses decreased to 7.5% in 1996 from 18.8% in 1995. The
dollar increase in 1996 was due primarily to $342,000 of additional stock
option and common stock expense and increased payroll costs as additional
personnel were hired to support expanded operations.
 
  Provision for Income Taxes. Because of the Company's loss in 1995, the
provision for income taxes consisted solely of the California minimum tax. The
effective tax rate in 1996 was 12.2% due to the utilization of net operating
loss carryforwards created from 1992 to 1995.
 
  The Company believes that inflation has not had a significant effect on the
Company's results of operations in 1995, 1996 or 1997.
 
                                      22
<PAGE>
 
SELECTED QUARTERLY OPERATING RESULTS
 
  The following table presents selected financial information for the last
eight quarters. This information has been derived from unaudited quarterly
financial statements that, in the opinion of management, reflect all
adjustments (consisting only of normal recurring adjustments) necessary to
fairly present this information and is presented on the same basis as the
audited financial statements appearing elsewhere herein. This information
should be read in conjunction with the financial statements and notes thereto
appearing elsewhere in this Prospectus. The results of operations in any
quarter are not necessarily indicative of results to be expected in any future
period.
 
<TABLE>
<CAPTION>
                                                       QUARTER ENDED
                         ---------------------------------------------------------------------------------
                         MAR. 31,  JUNE 30,  SEPT. 30,  DEC. 31,  MAR. 31,  JUNE 30,   SEPT. 30,  DEC. 31,
                           1996      1996      1996       1996      1997      1997       1997       1997
                         --------  --------  ---------  --------  --------  --------   ---------  --------
                                   (IN THOUSANDS, EXCEPT PER SHARE AND PERCENTAGE DATA)
<S>                      <C>       <C>       <C>        <C>       <C>       <C>        <C>        <C>
Sales...................  $  692    $1,813    $2,346     $5,693    $6,136   $11,095     $10,134   $12,269
Cost of Sales...........     317       901     1,126      2,928     2,970     5,499       5,180     6,152
                          ------    ------    ------     ------    ------   -------     -------   -------
 Gross profit...........     375       912     1,220      2,765     3,166     5,596       4,954     6,117
                          ------    ------    ------     ------    ------   -------     -------   -------
Expenses:
 Advertising............      97       158       273        555       849     1,627       2,650     2,355
 Selling and marketing..     177       342       423        594     1,130     1,906       2,052     2,116
 General and
  administrative........     108       109       270        310       417       554         596       732
 Interest (income)
  expense...............       4         4         5          3        (5)       (9)        (17)        4
                          ------    ------    ------     ------    ------   -------     -------   -------
   Total expenses.......     386       613       971      1,462     2,391     4,078       5,281     5,207
                          ------    ------    ------     ------    ------   -------     -------   -------
 Income (loss) before
  income taxes..........     (11)      299       249      1,303       775     1,518        (327)      910
Income Taxes............       1        37        30        157       328       641        (138)      385
                          ------    ------    ------     ------    ------   -------     -------   -------
 Net income (loss)......  $  (12)   $  262    $  219     $1,146    $  447   $   877     $  (189)  $   525
                          ======    ======    ======     ======    ======   =======     =======   =======
Earnings (Loss) Per
 Share:
 Basic..................  $(0.01)   $ 0.19    $ 0.16     $ 0.82    $ 0.29   $  0.57     $ (0.12)  $  0.34
                          ======    ======    ======     ======    ======   =======     =======   =======
 Diluted................  $(0.01)   $ 0.18    $ 0.13     $ 0.65    $ 0.23   $  0.45     $ (0.12)  $  0.27
                          ======    ======    ======     ======    ======   =======     =======   =======
Weighted average number
 of shares outstanding:
 Basic..................   1,395     1,402     1,403      1,406     1,545     1,549       1,551     1,557
                          ======    ======    ======     ======    ======   =======     =======   =======
 Diluted................   1,395     1,429     1,635      1,763     1,906     1,943       1,551     1,962
                          ======    ======    ======     ======    ======   =======     =======   =======
<CAPTION>
                                                 AS A PERCENTAGE OF SALES
                         ---------------------------------------------------------------------------------
<S>                      <C>       <C>       <C>        <C>       <C>       <C>        <C>        <C>
Sales...................   100.0 %   100.0 %   100.0 %    100.0 %   100.0 %   100.0 %     100.0 %  100.0%
Cost of Sales...........    45.8      49.7      48.0       51.4      48.4      49.6        51.1      50.1
                          ------    ------    ------     ------    ------   -------     -------   -------
 Gross profit...........    54.2      50.3      52.0       48.6      51.6      50.4        48.9      49.9
                          ------    ------    ------     ------    ------   -------     -------   -------
Expenses:
 Advertising............    14.0       8.7      11.7        9.8      13.9      14.6        26.2      19.2
 Selling and marketing..    25.6      18.9      18.0       10.4      18.4      17.2        20.2      17.3
 General and
  administrative........    15.6       6.0      11.5        5.4       6.8       5.0         5.9       6.0
 Interest (income)
  expense...............     0.6       0.2       0.2        0.1      (0.1)     (0.1)       (0.2)      --
                          ------    ------    ------     ------    ------   -------     -------   -------
   Total expenses.......    55.8      33.8      41.4       25.7      39.0      36.7        52.1      42.5
                          ------    ------    ------     ------    ------   -------     -------   -------
 Income (loss) before
  income taxes..........    (1.6)     16.5      10.6       22.9      12.6      13.7        (3.2)      7.4
Income Taxes............     0.1       2.0       1.3        2.8       5.3       5.8        (1.3)      3.1
                          ------    ------    ------     ------    ------   -------     -------   -------
 Net income (loss)......    (1.7)%    14.5 %     9.3 %     20.1 %     7.3 %     7.9 %      (1.9)%     4.3 %
                          ======    ======    ======     ======    ======   =======     =======   =======
</TABLE>
 
                                       23
<PAGE>
 
  Sales. Sales increased sequentially each quarter of 1996 and 1997, except
for the third quarter of 1997. The decline in the third quarter of 1997 was
caused by unusually high sales to two significant natural foods customers near
the end of the second quarter of 1997. Reduced sales to these two customers in
the third quarter of 1997 were partially offset by a significant increase in
sales to one mass merchandise customer. In addition, sales increased in the
fourth quarter due to a significant increase in sales to another mass
merchandise customer.
 
  The Company has not observed seasonality in sales in 1995, 1996 or 1997 due
to the significant expansion of distribution and resulting sales increases
during this period. The Company believes that there may be some seasonally
reduced sales in the fourth quarter due to retailers' emphasis on holiday
merchandise in that quarter.
 
  Expenses. Expenses increased as sales increased in each quarter of 1996 and
1997, except for the fourth quarter of 1997. Advertising expenses were reduced
in the fourth quarter of 1997 to bring them in line with annual objectives.
Advertising and selling and marketing expenses as a percentage of sales were
higher in the third quarter of 1997 than other quarters due to the
unanticipated decline in sales from the second to the third quarter of 1997.
Advertising and selling and marketing expenses as a percentage of sales
fluctuate from quarter to quarter because substantially all advertising
expenses and a significant part of marketing expenses are not directly related
to the level of sales in the current quarter. These expenses have fluctuated
and are expected to continue to fluctuate depending on the level of
investments that are made each quarter to build customer awareness of the
Company's products and increase future sales.
 
  Future purchase commitments of certain advertising and marketing expenses
are made based on expectations about future sales levels. If actual sales vary
from expectations then the percentage relationship of these expenses to sales
will vary and the period to period variances could be material. See "Risk
Factors--Potential Sales and Earnings Volatility."
 
LIQUIDITY AND CAPITAL RESOURCES
 
  Prior to this offering, the Company's operations and capital requirements
were financed through private sales of common and preferred stock and
convertible bonds, internally generated funds, and borrowings under various
credit agreements.
 
  Since late 1995, the Company has experienced substantial growth. Prior to
1995, the Company had insignificant amounts of working capital and cash. Since
1995, the Company's operations have improved significantly and the Company has
achieved substantial increases in net income. In 1996, cash generated from
operations was largely used to fund increases in accounts receivable,
inventory and prepaid advertising expenses. In 1997, cash generated from
operations was not sufficient to fund increases in accounts receivable and
inventory, prepaid advertising expenses and the purchase of property and
equipment. The Company entered into two credit agreements in 1997 that were
used to finance working capital and capital investment needs.
 
  The increase in inventory and receivables in 1996 of $1.9 million was offset
by an increase in accounts payable of $505,000. The increase in accounts
receivable, inventory and prepaid advertising expenses of $6.2 million in 1997
was offset by increased accounts payable of $3.6 million. Cash flow from (used
in) operating activities was $(41,000) in 1995, $935,000 in 1996 and $(1.2)
million in 1997.
 
  Cash used in investing activities was for the purchase of property and
equipment. Purchases of property and equipment in 1995, 1996 and 1997 were,
$3,000, $51,000 and $1.1 million, respectively. The higher level of
expenditures in 1997 reflects the Company's 1997 facility and personnel
expansion to support higher sales volume. The 1997 capital investments were
for computer hardware and software, office furniture and equipment, warehouse
leasehold improvements and packaging design plates and drums. The Company
expects to continue to make significant capital investments in the first
quarter of 1998 to complete the leasehold improvements to its Santa Barbara
County warehouse and office, and add furniture and fixtures and computer
hardware and software as new personnel are hired.
 
                                      24
<PAGE>
 
  Cash provided by financing activities was $66,000, $201,000 and $1.3 million
for 1995, 1996 and 1997, respectively. The primary source of funds in all
three periods was borrowings by the Company. The 1995 and 1996 financing
sources were from the issuance of convertible bonds. These bonds were
converted to common stock in the year they were sold. The 1997 sources were
from a line of credit and term loan (each described below) under which a total
of $1.4 million was borrowed, net of $159,000 of costs related to the
Company's initial public offering. The Company expects to need to continue
borrowing through the closing of this offering to fund increases in accounts
receivable, inventory, prepaid advertising expenses and to purchase property
and equipment.
 
  As of February 28, 1998, the Company had a $3.5 million revolving line of
credit all of which was available (based upon 75 percent of the Company's
eligible accounts receivable), and $3.3 million of which was outstanding. The
line of credit is secured by all of the Company's assets. At February 28,
1998, the line of credit, expiring in June 1998, bore interest at the bank's
prime rate (8.5% at February 28, 1998) plus 1%. The Company increased the
amount available under the revolving line of credit in March 1998 to $9.0
million and extended the maturity to April 2000. The interest rate on the line
of credit was reduced to the bank's prime rate plus 3/4%. The Company also has
a $300,000 three year term loan of which $293,000 was outstanding at February
28, 1998. The term loan is secured by all of the Company's assets and bears
interest at the bank's prime rate plus 1.0%. The term loan is due in the
following installments: $82,000 in 1998, $99,000 in 1999, $109,000 in 2000 and
$10,000 in 2001.
 
  To date, the Company has not had significant discussions about or evaluated
the potential acquisition of companies due largely to inadequate financial
resources. In the future, the Company may consider making an investment in or
acquiring companies or product lines that complement the Company's existing
product lines. The Company is not able to predict when a prospective
acquisition candidate might become available, the terms of the financing, or
when any transaction might be closed or the effect of any acquisition on the
Company's business, results of operation or financial condition. See "Risk
Factors--Possible Acquisitions."
 
  The Company believes that following the consummation of the offering, the
Company will have adequate capital resources and liquidity to meet anticipated
cash needs for working capital and capital expenditures for at least the next
12 months.
 
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
 
  In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income" (SFAS 130) and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131). SFAS 130 and SFAS 131 are
effective in 1998. The Company does not have any items of other comprehensive
income and, accordingly, SFAS 130 does not have any effect on the Company's
financial reporting. The adoption of SFAS 131 in 1998 is not expected to have
a material effect on the Company's financial reporting.
 
EXPENSES ASSOCIATED WITH YEAR 2000 COMPLIANCE
 
  The Company is currently implementing a new sales, inventory and accounting
system that the software vendor has represented to be Year 2000 compliant. The
Company does not anticipate any significant expenses associated with Year 2000
compliance problems. See "Risk Factors--Year 2000 Compliance."
 
                                      25
<PAGE>
 
                                    BUSINESS
 
COMPANY OVERVIEW
 
  Balance Bar Company develops and markets branded food and beverage products
in convenient, good-tasting, balanced nutritional formulations. The Company's
current and planned product lines are targeted to a broad consumer base in the
healthy food and beverage market. The Company markets its products to consumers
for a wide variety of uses, including snacking, meal replacement, fitness,
weight management and diabetic nutrition. The Company sells its products in
natural foods, mass merchandise, club, grocery, convenience, health and
fitness, and drug stores. The Company's existing product lines, the Balance bar
and the 40-30-30 Balance powdered drink mix, are based on balanced proportions
of 40% carbohydrates, 30% protein and 30% dietary fat, a formulation designed
to sustain energy and satisfy hunger. The Company currently sells ten flavors
of Balance bars (in two sizes) and five flavors of powdered drinks (in
canisters and single serving envelopes).
 
  The Balance bar has significantly penetrated the natural foods channel, and
approximately 69% of the Company's 1997 total sales were to this channel.
According to SPINS data from Spence Information Services, the Balance bar was
the number one selling brand of nutrition bar in the natural foods channel,
achieving a 31.0% share in 1997. In 1997 and the first quarter 1998, the
Company expanded its strategic focus to the mass market and expanded its broker
network and distribution into mass merchandise, club, grocery, convenience,
health and fitness, and drug stores. For the November/December 1997 reporting
period, the top two selling nutrition bar flavors per point of distribution in
grocery stores were Balance bars. In addition, the leading Balance bar flavor
outsold the nearest competitor flavor per point of distribution in grocery
stores by 56.6% in December 1997.
 
  The Company's sales have grown from $1.3 million in 1995 to $10.4 million in
1996 and $39.6 million in 1997. Sales of the Company's Balance bar and 40-30-30
powdered drink mix represented approximately 92% and 8%, respectively, of 1997
sales.
 
CONSUMER TRENDS
 
  Consumers have become increasingly health conscious over the last decade, as
reflected in the surge of activities aimed at maintaining and improving health,
including exercising, dieting, and quitting smoking. Consumers have also become
more aware of the nutritional content of foods they eat. A 1997 study by the
Food Marketing Institute indicated that 54% of grocery shoppers "almost always
read the nutrition label before buying a product for the first time." Next to
taste, nutrition is the second most important reason a shopper selects food
products. In addition, a 1997 survey indicated that 79% of Americans believe
nutrition affects their health and 34% of Americans report that they were
careful in selecting the foods they ate to achieve a balanced diet. The Company
believes that this consumer interest has resulted in significant changes in the
food industry and is the cause of the substantial growth of the healthy food
and beverage market. The Company also believes that as members of the Baby Boom
generation age, their increased interest in prolonging life and improving their
quality of life is resulting in growth in consumer knowledge of nutrition and
interest in healthy foods and beverages.
 
  Despite this concern for health and nutrition, today's consumers find
themselves with less time for three nutritious meals a day. A 1997 survey found
that the number of people who skip a meal "very often" or "quite a bit"
increased from 21% in 1995 to 28% in 1997, and that 21% of Americans view time
as a major barrier to achieving a healthful eating style. The Company believes
that today's lifestyle demands have led to an increasing need for convenient,
nutritious snacks and meal replacements that can be consumed by consumers at
any time or place.
 
                                       26
<PAGE>
 
INDUSTRY OVERVIEW
 
  Because of their many uses, Balance products compete with a diverse group of
food products across a number of sizable markets, some of which overlap,
including natural foods, healthy foods, nutraceuticals and snacks in general.
According to Nutrition Business Journal, retail sales of natural foods to
natural food stores, health chains and mass merchandise stores reached $6.9
billion in 1996 and were projected to grow annually at a rate of 8-12% from
1997 to 2000. A recent market report by Packaged Facts projects retail sales
of certain processed healthy foods, defined to include granola and grain based
snacks, fruit snacks, and nutrition bars, to reach approximately $3.8 billion
in 1998. The snack and meal replacement segment of the nutraceutical market,
which includes products that contain health promoting ingredients or omit
unhealthy ingredients, totaled $49 billion in 1997. The Company believes that
these markets for natural and healthy foods will continue to grow as more
health conscious consumers seek nutritious snacks and meal replacements. In
addition, the Company believes that the traditional snack market represents a
substantial opportunity for penetration by healthy snacks. In 1996, consumers
spent more than $60 billion on salted snacks, baked snacks, candy and other
specialty snacks, and approximately 5% of total dollars spent by consumers in
U.S. grocery stores was spent on snacks.
 
  As consumers have become increasingly more health conscious, new food and
beverage products have been introduced to satisfy the demand for more
nutritious snacks and meal replacements. For example, reduced fat and salt
versions of existing products have been introduced, including low- or no-fat,
lower sodium and lower cholesterol cookies and crackers, potato chips and
candy bars. New types of granola and grain-based snacks, rice cakes, and
nutrition bars have also been introduced, as have new powdered drinks and
ready-to-drink beverages. These beverage products are typically formulated
based on consumer dietary or nutritional requirements such as weight
management. The Company believes that demand for healthy snack and meal
replacement products will continue to increase, and the Company and other
companies will continue to introduce new products to satisfy growing consumer
demand.
 
  Initially, healthy foods and beverages were sold primarily in natural food
stores and certain specialty retailers such as GNC. The Company believes that
the continued growth in consumer demand for convenient, healthy foods has
resulted in the introduction of these products, which include energy bars,
into mass merchandise, club, grocery, convenience and drug stores. According
to ACNielsen ScanTrack: SPINS Natural Track data, the energy bars category at
grocery stores was the fastest growing food category with growth of
approximately 43% from September to December 1997. Data from Information
Resources, Inc., indicates that dollar sales of nutrition bars by mass
merchandise, grocery and drug stores increased approximately 252%, 43% and
50%, respectively, from 1996 to 1997. The Company believes that the consumer
trends towards health and nutrition will continue to drive the broad
distribution of convenient, healthy snacks and meal replacements.
 
BALANCE BAR ADVANTAGE
 
  Balance Bar Company develops and markets branded food and beverage products
in convenient, good-tasting, balanced nutritional formulations that appeal to
a broad consumer base. The Company has targeted its products at the healthy
snack and meal replacement market and believes that by marketing its products
as "nutritious snacks that taste great," it is highlighting their benefits
over typical snacks and meal replacements. In addition, the Company has
targeted other markets consisting of consumers with specific dietary or
nutritional requirements, including the fitness, weight management and
diabetic markets. In order to make its products available wherever people
shop, the Company sells its products through multiple distribution channels,
including natural foods, mass merchandise, club, grocery, convenience, health
and fitness, and drug stores.
 
  The Company has differentiated its brand from other meal replacement and
snack products by offering products based on balanced proportions of 40%
carbohydrates, 30% protein, and 30% dietary fat. This concept, which has been
promoted by recent articles and books, such as the best selling book The Zone,
is based on the theory that the rise in blood sugar after a 40-30-30 snack or
meal can be moderated by the presence of balanced proportions of dietary fat
and protein, resulting in sustained energy and hunger
 
                                      27
<PAGE>
 
satisfaction. A 1997 Company consumer survey shows that, although consumers
that are familiar with the 40-30-30 concept are an important component of the
Company's current consumer base, the popularity of its products extends to a
much broader market.
 
  The Balance bar has made a significant penetration into the natural foods
channel and approximately 69% of the Company's 1997 sales were to that
channel. According to SPINS data from Spence Information Services, the Balance
bar was the number one selling brand of nutrition bar in the natural foods
channel, achieving a 31.0% share in 1997. In addition, the Balance bar
accounted for five of the ten top selling nutrition bar flavors in the natural
foods market in 1997.
 
  The Company expects sales in 1998 outside of the natural foods channel to
increase as a percentage of the Company's total sales. Higher sales to mass
merchandise, club, grocery, convenience and drug stores are expected to
account for the increase. By December 31, 1997, the Company had one to four of
its ten Balance bar flavors in approximately 40% of mass merchandise stores,
20% of club stores, 13% of grocery stores, 10% of convenience stores
(represents penetration of honey peanut flavor only), and 9% of drug stores in
the United States. The Company's goal is to continue to expand nationwide
distribution by increasing the number of Balance bar flavors in each store and
further penetrating each distribution channel. According to ACNielsen Scan
Track: SPINS Natural Track, the Balance bar market share of natural products
in the energy bars category in grocery stores increased from 1% in
November/December 1996 reporting period to 14% in the November/December 1997
reporting period.
 
GROWTH STRATEGY
 
  The Company's goal is to become a recognized leader in providing nutritious,
good tasting and convenient snack and meal replacement products for a wide
variety of consumer needs. Its growth strategy is to:
 
  Position Balance Products as Good Tasting, Nutritious Snacks and Meal
Replacements. The Company's products are already well known among natural
foods consumers for balanced nutrition, convenience, and good taste. To
further penetrate the much larger snack and meal replacement market, the
Company is positioning its products as the "nutritious snack that tastes
great," highlighting their differences from typical snacks and meal
replacements. This message is being communicated to a broad audience of health
conscious consumers of all ages through advertising, marketing and product
sampling.
 
  Expand Consumer Base and Brand Awareness Through Increased Advertising and
Promotional Activities. The Company intends to further increase consumer
awareness of and demand for its products by increasing its advertising and
promotional activities in conjunction with the Company's further penetration
of new distribution channels. The Company anticipates that its 1998
advertising and marketing expenditures will significantly increase over 1997
expenditures, primarily due to the Company's increased emphasis on television
advertising. In addition, the Company believes that one of its most effective
marketing tools is product sampling combined with the dissemination of
educational information explaining the nutritional qualities of its products.
Accordingly, the Company intends to increase its sponsorship of sporting
events and tours, and its participation in musical events, festivals, health
fairs, and charitable events.
 
  Expand Distribution. The Company's goal is to increase the number of Balance
bar flavors in each store and further penetrate each distribution channel. To
make its products available wherever people shop, the Company expects to also
expand into new channels of distribution, such as vending and food service.
Although the Company intends to continue to focus primarily on the domestic
market in the near term, it also intends to continue to test its products in
foreign markets by establishing relationships with leading overseas
distributors.
 
  Focus on In-store Promotion and Marketing. The Company, through its brokers
and internal sales force, works with each distributor and retail customer to
ensure that the Company's products are effectively promoted. The Company
employs periodic in-store promotions that can include informational materials
about
 
                                      28
<PAGE>
 
its products, sale pricing, product sampling, store advertising and special
product displays to generate consumer interest in its products. The Company
also works to ensure that enough product is available on each retailer's shelf
and that the presentation is attractive to customers.
 
  Continue to Promote the Nutritional Qualities of Balance Products. The
nutritional qualities of Balance products are important to significant
consumer segments including the fitness, weight management and diabetic
markets. The Company intends to continue to advertise in health and fitness
magazines, in American Diabetes Association publications and in various other
magazines with wider circulation to promote consumer interest within these
markets. The Company will continue to distribute educational materials that
promote interest in the Company's brand, its products and the 40-30-30
nutritional concept.
 
  Introduce New Products and Product Line Extensions. The Company initially
focused on nutrition bars, followed by its introduction of powdered drink
mixes in 1997. The Company intends to introduce further extensions of its most
popular bar and drink products, such as its recently introduced new Balance
bar flavors Almond Butter Crunch, Chocolate Raspberry Fudge and Yogurt Honey
Peanut and its new Balance mini-bars. The Company also intends to introduce
related new products.
 
  Acquire Complimentary Companies or Product Lines. To grow sales outside of
existing product lines and related products, the Company will consider
strategic acquisitions. The Company intends to focus on acquisitions of
product lines or companies with product lines that are marketed to the natural
foods or broader healthy food and beverage markets. The Company may also
consider possible acquisitions of or investments in manufacturers of healthy
foods and beverages.
 
                                      29
<PAGE>
 
PRODUCTS
 
  The Company's current products, each based on the 40-30-30 balanced
nutrition concept, are vitamin and mineral fortified and are made of high
quality ingredients and contain no artificial colors, flavors or
preservatives. The Company develops its nutritional bar and beverage flavors
in conjunction with its contract manufacturers. The Company from time to time
hires outside consultants and intends to hire in-house product development
personnel to develop future products.
 
                     BALANCE BAR COMPANY BRANDED PRODUCTS
 
<TABLE>
<CAPTION>
                                                                               ESTIMATED RETAIL
PRODUCT                  FLAVORS                      DESCRIPTION              PRICE RANGE (1)
-----------------------------------------------------------------------------------------------
<S>                  <C>                     <C>                               <C>
 BARS
  Balance Bar        Honey Peanut,           1.76 ounces; sold both            $.99 to
                     Chocolate, Yogurt       individually and in               $1.99 per
                     Honey Peanut,           15 bar packs                      bar
                     Almond Brownie,
                     Toasted  Crunch,
                     Chocolate Raspberry
                     Fudge, Almond
                     Butter Crunch, Mocha,
                     Banana Coconut and
                     Cranberry

  Balance Mini-Bar   Honey Peanut,           Half the size of a                $.59 to
                     Chocolate, and          Balance Bar; designed             $1.19 per
                     Almond Brownie          as a snack or child's             bar
                                             serving; sold both
                                             individually and in
                                             15 bar packs

  Club Store         Honey Peanut and        15 bars in a shrink-              $12.99 for
  Display            Chocolate               wrapped pack                      15 bar
  Pack Balance Bars                                                            pack

 DRINKS
  Canister of        Chocolate, Strawberry,  15 serving canisters of           $10.95 to
  40-30-30           Vanilla, Banana         powdered drink mix to             $19.95
  Balance Powdered   Coconut and Mocha       be blended with milk or           per canister
  Drink Mix                                  water

  Single Serving     Chocolate, Strawberry,  Single serving;                   $1.29 to
  Envelope of        Vanilla and Banana      sold in individual envelopes      $1.69 per
  40-30-30           Coconut                 and six pack box                  envelope,
  Balance Powdered                                                             $5.79 to
  Drink Mix                                                                    $11.99 per
                                                                               box
-----------------------------------------------------------------------------------------------
</TABLE>
 
(1) The retail price varies depending on the nature of the retail outlet
    selling the product.
 
  In addition to its branded products, the Company sells full size bars under
a private label to one of its significant customers.
 
  The recommended maximum shelf life of Balance bars is eight months, although
factors such as exposure to heat during transportation or storage can cause a
deterioration in the taste or quality of the Balance bars. To date, the
Company has not experienced any significant complaints with respect to product
quality or shelf life.
 
                                      30
<PAGE>
 
SALES AND DISTRIBUTION
 
  The Company sells its products directly to certain large retail customers
and to distributors who then resell the products to retailers. The Company
uses commissioned brokers to provide sales support at customer headquarters
and at retail locations. As of February 28, 1998, the Company had 11 brokers
in the natural foods channel and had added 29 brokers to support its expansion
into new distribution channels. These 40 brokers have approximately 60 offices
across the United States.
 
  As of February 28, 1998, the Company's internal sales force and sales
support staff consisted of 18 employees responsible for direct selling efforts
to its retail customers and for supervising and assisting its commissioned
brokers and distributors in sales activities. The Company plans to increase
its sales force and sales support staff to continue to support its strategy of
expanding distribution.
 
  Natural Foods Channel. In July 1995, the Balance bar won the People's Choice
Award presented by the National Nutritional Foods Association at the annual
natural foods trade show. Shortly thereafter, the Company obtained its first
major customer, Tree of Life, a national natural foods distributor. According
to SPINS data, in the natural foods channel, the Balance bar was the number
one selling nutrition bar, achieving a 31.0% share in 1997. In addition, the
Balance bar accounted for five of the top ten selling nutrition bar flavors in
the natural food channel in 1997. In 1997, the Company increased its sales to
this channel by increasing the number of natural food stores carrying its
products, gaining more retail shelf space, and adding additional flavors of
its products.
 
  The Company's primary direct natural foods customers are Trader Joe's, Tree
of Life, GNC and United Natural Foods. Trader Joe's accounted for
approximately 25% of the Company's sales in 1997 and was the only retail
customer that accounted for more than 10% of sales in that period. In February
1998, the Company entered into a two-year exclusive supply agreement with
Trader Joe's. The agreement guarantees product pricing and supply availability
for the term of the agreement. Whole Foods and Wild Oats, important natural
foods retailers of the Company's products, purchase the Company's products
through distributors. The Company's two largest natural foods distributors in
1997 were United Natural Foods and Tree of Life, which accounted for
approximately 14% and 9%, respectively, of the Company's 1997 sales. See "Risk
Factors--Dependence on Significant Retail Customers and Distributors."
 
  New Distribution Channels. In 1997 and 1998, as part of an aggressive
strategy to broaden its markets, the Company began entering new distribution
channels, including mass merchandise, club, grocery, convenience, health and
fitness, and drug stores. The Company's principal customers within these new
distribution channels include grocery stores (Fred Meyer, Albertson's, and
Kroger), mass merchandisers and club stores (Costco, Sam's Club, and Wal-Mart)
and convenience stores (Circle-K and 7-Eleven). See "Risk Factors--Trade and
Consumer Acceptance in New Distribution Channels."
 
  According to ACNielsen ScanTrack: SPINS Natural Track, the Balance bar
market share of natural products in the energy bars category in mainstream
grocery stores increased from 1% in the November/December 1996 reporting
period to 14% in the November/December 1997 reporting period. In addition, in
the same time period the top two selling nutrition bar flavors per point of
distribution in grocery stores were Balance bars. The leading Balance bar
flavor outsold the nearest competitor flavor per point of distribution in
grocery stores by 56.6% in December 1997.
 
THE COMPANY'S TARGET CONSUMER
 
  The Company targets people of all ages who seek a meal replacement for
breakfast, lunch, or dinner, a convenient, nutritious snack, an energy
enhancement before or after exercise, or a convenient means of helping to
manage their weight.
 
  The following tables, based on Company surveys, demonstrate the broad usage
patterns for Balance bars.
 
                                      31
<PAGE>
 
[PIE CHART DEPICTING THE WAYS IN WHICH CONSUMERS USE THE BARS AND BAR GRAPH
DEPICTING THE TIMES WHEN CONSUMERS EAT THE BAR]
 
 
 
-----------------
(1) Based on responses to a 1997 Company survey of approximately 1,100 heads
    of household who either sent in wrappers for a rebate or requested a
    sample pack.
 
(2) Consumers could respond more than once to the survey question regarding
    the time they eat Balance bars.
 
                                      32
<PAGE>
 
MARKETING
 
  The Company markets its products as "nutritious snacks that taste great."
Its primary marketing and advertising efforts are designed to increase
consumer awareness of and demand for its products. The Company's marketing
strategy has the following three main components.
 
  Advertising. The Company intends to increase significantly its 1998
advertising expenditures to create greater awareness of the convenience,
taste, and nutritional attributes of its products. The Company plans to use a
combination of television, print, and radio advertising, with primary emphasis
on television to reach a larger number of target consumers. However, the
Company will continue to spend a significant portion of its advertising budget
on print advertising as print ads enable the Company to reach target audiences
in a cost-effective manner. In addition to advertising in magazines with wide
circulation, the Company also places advertisements in special interest
publications targeted to groups such as health food consumers, athletes and
diabetics. The Company intends to use radio advertising primarily to support
its event marketing. The Company has advertised on television programs such as
Baywatch, CNN Headline News, ESPN SportsCenter, and Entertainment Tonight, in
magazines such as Prevention, Readers' Digest, People, Sports Illustrated,
U.S. News & World Report and Glamour, and on radio shows such as The Howard
Stern Show. See "Risk Factors--Risks Associated with Advertising."
 
  Promotions and Sponsorships. The Company believes that one of its most
effective marketing tools is product sampling combined with the on-site
dissemination of information explaining the nutritional attributes of its
products. The Company participates in numerous trade shows targeted at buyers
in the health and fitness, food, and sports markets, in addition to consumer
health fairs. The Company also purchases sponsorships and samples its products
at sporting events and tours, musical events, health conferences, festivals,
and charitable events. The Company has been a sponsor of golf and tennis
tournaments, including the Nuveen senior men's tennis tour, and will be the
presenting sponsor for the 1998 Los Angeles Open Tennis Tournament. It also
sponsors the Associated Volleyball Players tour. In addition, the Company
utilizes endorsements of its products from highly visible sports and
entertainment personalities and actively markets to their personal fitness
trainers and professional sports teams.
 
  Customer and Consumer Service. The Company is committed to providing
superior service to its customers and consumers. Its sales and marketing team
continually gathers information and feedback from consumers and retailers to
enable the Company to better tailor its consumer support to meet changing
consumer needs. The Company provides access to nutritionists and consumer
service representatives through its toll free number to answer questions and
educate consumers on balanced nutrition, new products and developments. In
addition, the Company maintains an informational web site.
 
CONTRACT MANUFACTURERS AND QUALITY ASSURANCE
 
  Contract Manufacturers. The Company does not own or operate any
manufacturing facilities, and sources its products through third-party
contract manufacturers. Outsourcing is designed to allow the Company to
enhance production flexibility and capacity while substantially reducing
capital expenditures and avoiding the costs of managing a production work
force, and to leverage working capital, transfer risk, and focus its energy
and resources on marketing and sales. Because the Company has two third-party
contract manufacturers, one on each coast of North America, the Company can
deliver its products quickly with lower freight costs.
 
  Bariatrix supplies the Company with Balance bars and 40-30-30 Balance
powdered drink mixes from a facility in Quebec, Canada. Bariatrix produces the
Company's products under formulations that the Company owns. Bariatrix may not
produce products for any other customers using these formulas. In addition,
Bariatrix is contractually prohibited from producing products based on the 40-
30-30 concept for any other customer, with limited exceptions for two existing
customers and Canadian medical centers. The Company's contract with Bariatrix
expires December 31, 2002, subject to automatic annual extensions during each
year the contract remains in effect. Most Balance bars produced by Bariatrix
are shipped to locations east of the Mississippi River while drinks are
distributed nationwide.
 
                                      33
<PAGE>
 
  Nellson supplies the Company with Balance bars from a facility in Irwindale,
California. Nellson uses formulations owned by the Company, subject to
reversion to Nellson at any time before January 1, 2001, if the Company fails
to meet certain minimum volume purchase requirements that are significantly
below current purchase levels. If the Company fails to meet the purchase
requirements, it has an option to buy out any remaining requirements to
maintain ownership of the formulations. A reversion of ownership of the
formulations would not change Nellson's obligations to produce 40-30-30 bars
exclusively for the Company subject to an exception for one small customer.
Nellson is contractually prohibited from producing products based on the 40-
30-30 concept for any other customer through December 31, 2002. The contract
with Nellson expires December 31, 2002 subject to automatic annual extensions
during each year the contract remains in effect. Most of the Balance bars
produced by Nellson are shipped to locations west of the Mississippi River.
See "Risk Factors--Intellectual Property Protection."
 
  The Company's manufacturers supply the Company's products at a fixed price
per unit. The prices are subject to increase upon 75 days notice by Nellson
and 90 days notice by Bariatrix if raw material prices, labor rates or
exchange rates rise. The Company provides no raw materials, but provides all
packaging materials. Under each contract, the Company is indemnified against
product liability relating to the manufacture and shipment of the products and
has indemnified the manufacturer against product liability arising from the
labeling and packaging of the products and from the use of the formulas. In
both contracts, the manufacturers are required to comply with all legal
requirements applicable to the production of food products. See "Risk
Factors--Government Regulation" and "--Product Liability."
 
  The Company believes that its contract manufacturers have the capacity to
fulfill the Company's planned production needs for at least the next nine
months. In addition, the Company believes that these manufacturers are willing
to increase capacity to meet the Company's additional production needs. If the
Company's growth exceeds the production capacity of its contract
manufacturers, or if either of them was unable or unwilling to continue
production, the Company believes it could locate and qualify other contract
manufacturers to meet its production needs. However, a limited number of
contract manufacturers have the ability to produce a high volume of the
Company's products, and it could take a significant period of time to locate
and qualify such alternative production sources. See "Risk Factors--Dependence
on Third Party Manufacturers."
 
  Quality Assurance. The Company's contract manufacturers produce and package
the Company's products in accordance with the Standard Operating Procedures
for Good Manufacturing Practice by the FDA. All raw materials are purchased
from approved suppliers and inspected by the contract manufacturer as they are
received into the production facilities. Raw materials are then labeled to
indicate their source of supply, lot number, and date of receipt, and samples
of the raw materials are kept for two years from the date received. The
ingredients are mixed into batches under the supervision of two quality
assurance contract manufacturer employees to verify adherence to the Company's
formulations and ensure taste consistency. The finished products are passed
through metal detectors, weighed, wrapped, and date coded. After each
production run, samples are analyzed to test the product for micro-impurities
and to ensure accurate labeling.
 
COMPETITION
 
  Although the Company competes across a number of markets with a variety of
competitors, it competes primarily with other makers of nutritional bars and
beverages. The Company's principal competitors in the nutrition bar category
are PowerBar, Inc., ClifBar, Inc., Met-Rx, and M&M Mars (VO2 Max), none of
which currently produces products formulated on a 40-30-30 basis, as well as
PR Nutrition, which produces two products on a 40-30-30 basis. The Company
believes that it is differentiated from its nutrition bar competitors by the
broad consumer appeal of its products and by its commitment to brand building
through strategic, consumer-focused marketing.
 
  The Company's drink products also compete with a wide variety of other
powdered and ready-to-drink beverages. The Company's principal competitors in
the nutritional drink market are Met-Rx, Slim Fast
 
                                      34
<PAGE>
 
Nutritional Foods International (Slim Fast), and Abbot Laboratories Ross
Products Division (Ensure), none of which currently produce products
formulated on a 40-30-30 basis. The success of another nutrition bar or
beverage based on the 40-30-30 concept could create significant additional
competition in the Company's existing and target markets.
 
  The Company's products also compete with many other snacks and meal
substitutes, including salty snacks, candy, fruits, and fast food. For
instance, candy and snack manufacturers are placing greater emphasis on
marketing low calorie and low fat products as healthy snacks.
 
  Competition in the diverse consumer markets in which the Company competes is
based on a wide variety of factors, including taste, perceived nutritional
benefits, convenience, quality, brand recognition, and price. Many of the
Company's competitors are large, multinational companies with well
established, branded products, and significantly greater financial,
distribution, and marketing resources than the Company, including large
advertising and promotion budgets. These competitors may also have a
significantly greater ability to influence or control product placement in
retail stores. In each retail outlet, many products compete for limited shelf
space. The Company's continued success will depend in part upon its ability to
provide competitive promotional discounts, slotting allowances, and point-of-
purchase displays, as well as the quality of its packaging. See "Risk
Factors--Competition."
 
PROPRIETARY RIGHTS
 
  The Company's primary intellectual property rights are its trademarks, trade
names, and formulas for the Balance bar and 40-30-30 powdered drink mix.
 
  Trademarks and TradeNames. The names of the Company's current products are
"Balance--The Complete Nutritional Food" bar, and "40-30-30 Balance" powdered
drink mix. As of February 28, the Company held one federally registered
trademark "Balance--The Complete Nutritional Food" and had 18 trademark
applications pending at the United States Patent and Trademark Office. In
addition, the Company has trademark registrations and pending applications in
certain foreign countries. The Company intends to vigorously protect its
trademarks against infringement through cease and desist letters and, if
necessary, litigation. Such litigation, even if the Company is successful,
could be costly and could significantly divert the time and efforts of the
Company's management.
 
  The Company does not have any proprietary rights in either the "balance"
name or "40-30-30" name alone, although the Company has filed for various
trademarks using each of these words in combination with other words. There
can be no assurance that the Company will be able to obtain trademark rights
using "balance" or "40-30-30" for any new products or product lines it may
introduce.
 
  The Company and its largest distributor, Tree of Life, have agreed to limit
their use of the term "balance," "balanced" and variations thereof. Under the
contract, both the Company and Tree of Life may continue to use the current
names for their respective products. However, the Company may not use the
trademark or tradename "balanced" in connection with any goods or services or
the term "balance" at the beginning of any name of a nutritional drink product
or certain processed foods and meals produced by Tree of Life. Tree of Life
may not use the trademark or tradename "balance" in connection with any goods
or services or the term "balanced" in connection with nutritional bar
products. These restrictions could adversely affect the Company's ability to
successfully expand into new product categories or strengthen its brand name.
 
  Formulas. The Company, working with its contract manufacturers, developed a
proprietary formula for Balance bars and a proprietary formula for the 40-30-
30 Balance powdered drink mix. The Company owns the Nellson formula subject to
reversion to Nellson at any time before January 1, 2001, if the Company fails
to meet certain minimum volume purchase requirements that are significantly
below current production levels. The Company considers its formulas as
proprietary trade secrets. In its efforts to maintain the
 
                                      35
<PAGE>
 
confidentiality and ownership of trade secrets, the Company requires its
manufacturers, employees, brokers and consultants to execute confidentiality
agreements. However, there can be no assurance that these agreements will
provide meaningful protection for the Company's trade secrets in the event of
an unauthorized use or disclosure of such information or that a third party
will not independently develop a similarly tasting product using a similar
formula. See "Risk Factors--Intellectual Property Protection."
 
MIS SYSTEMS
 
  The Company is committed to using technology to enhance its efficiency,
productivity, and competitive position. The Company implemented an electronic
data interchange ("EDI") system for key customers in the first quarter of
1998. The EDI system will enable distributors and certain high volume
retailers who purchase directly from the Company to place purchase orders
electronically through a value added network. Additionally, the Company has
recently installed a fully integrated sales, inventory and accounting system
which the Company expects to be integrated with its EDI system by the second
quarter of 1998.
 
EMPLOYEES
 
  As of February 28, 1998, the Company had a total of 59 employees, including
11 who are temporary-to- hire staff. None of the Company's employees is
covered by a collective bargaining agreement, and the Company believes that
its relationship with its employees is good.
 
FACILITIES
 
  The Company is headquartered in Santa Barbara County, California, where it
leases an aggregate of approximately 30,000 square feet of space in two
buildings. These leases expire on January 31, 2000 and January 31, 2001,
respectively. However, the Company may extend each lease to January 31, 2002.
The Company believes that its current space adequately meets its needs in the
near term and it does not expect difficulties in obtaining additional space on
reasonable terms as the need arises. The Company uses independent contract
warehousing services for the storage of its products pending shipment to
retailers or distributors.
 
LEGAL PROCEEDINGS
 
  The Company does not manufacture any products, and is contractually
indemnified by its contract manufacturers for product liability arising from
the manufacture of its products. However, the Company faces the risk that it
will be the subject of lawsuits based on the use of its products and formulas,
the labeling and packaging of its products (for which it has indemnified its
contract manufacturers), and the risk that its contract manufacturers will not
maintain sufficient insurance or have the financial ability to pay their
contractual indemnification obligations.
 
  The Company has inspection rights and quality assurance programs with its
contract manufacturers. With respect to product liability claims in the United
States, the Company maintains $1.0 million per occurrence and $2.0 million in
aggregate product liability insurance as well as $8.0 million of excess
umbrella liability insurance. In addition, the Company requires its contact
manufacturers to include the Company as a named insured on their product
liability policies. Nellson maintains $12.0 million of product liability
coverage and Bariatrix maintains $C 10.0 million ($7.1 million U.S.) of
product liability coverage. However, there can be no assurance that such
insurance will continue to be available, or if available, will be adequate to
cover potential liabilities.
 
  The Company, together with one of its contract manufacturers and a retailer
of its products, was named in a lawsuit, filed on August 12, 1997, but not
served on the Company, seeking compensatory and punitive damages in an
unspecified amount for a death allegedly resulting from the ingestion of a
Balance Bar that allegedly contained nuts. The Company does not believe that
this suit, even if adversely determined, will have a material adverse effect
on the Company's business, results of operations, or financial condition.
However, there can be no assurance that such lawsuit will not be served on the
Company or that, if served, it would not
 
                                      36
<PAGE>
 
have a material adverse effect on the Company's business, results of
operation, and financial condition. See "Risk Factors--Product Liability."
 
  In October 1997, the Company received a letter, prompted by two of the
Company's competitors, from NAD, a self-regulatory program by the advertising
industry, questioning certain claims made in the Company's advertisements. The
Company has addressed such challenges by either providing support for its
claims or changing its advertisements. There can be no assurance that future
inquiries or changes in advertising would not have a material adverse effect
on the Company's business, results of operations, and financial condition. See
"Risk Factors--Government Regulation," "Risk Factors--Risks Associated with
Advertising," and "--Government Regulation."
 
GOVERNMENT REGULATION
 
  The manufacturing, packaging, labeling, advertising, distribution, and sale
of the Company's products are subject to the regulation of various government
agencies, principally the FDA. The FDA regulates the Company's products
pursuant to the Federal Food, Drug, and Cosmetic Act ("FDCA") and the Fair
Packaging and Labeling Act ("FPLA") and regulations thereunder. The FDCA is
intended, among other things, to assure consumers that foods are wholesome,
safe to eat, and produced under sanitary conditions, and that food labeling is
truthful and not deceptive. The FPLA provides requirements for the contents
and placement of information required on consumer packages to ensure that
labeling is useful and informative. The Company's products are generally
classified and regulated as food under the FDCA, and are, therefore, not
subject to premarket approval by the FDA. However, the Company's products are
subject to the comprehensive labeling and safety regulations of the FDA, the
violation of which could result in product seizure and condemnation,
injunction of business activities, or criminal or civil penalties.
Furthermore, if the FDA determines, on the basis of labeling, promotional
claims, or marketing by the Company, that the intended use of any of the
Company's products is for the diagnosis, cure, mitigation, treatment, or
prevention of disease, it could regulate those products as drugs and require,
among other things, premarket approval for safety and efficacy. The Company
believes that it presently complies in all material respects with the
foregoing laws and regulations. However, there can be no assurance that future
compliance with such laws or regulations will not have a material adverse
effect on the Company's business, results of operations or financial
condition.
 
  In September 1996, pursuant to a complaint related to a product liability
lawsuit concerning Balance bars, and at the FDA's request, the Company
voluntarily, temporarily withheld product shipments. Upon completion of
government inspection of facilities of the Company and one of its contract
manufacturers, and sampling and testing of products, the product shipments
were resumed. However, there can be no assurance that the FDA will not again
request that the Company cease any product shipment due to any future
regulatory matter. Any withholding of product could have a material adverse
effect on the Company's business, results of operations, and financial
condition. See "--Legal Proceedings."
 
  The Company's advertising is subject to regulation by the FTC, pursuant to
the Federal Trade Commission Act ("FTCA") which prohibits unfair or deceptive
acts or practices including the dissemination of false or misleading
advertising. Violations of the FTCA may result in a cease and desist order,
injunction, or civil or criminal penalties. The FTC monitors advertising and
entertains inquiries and complaints from competing companies and consumers. It
also reviews referrals from industry self-regulatory organizations, including
the NAD. The NAD of the Council of Better Business Bureaus, Inc. administers a
voluntary self-regulatory, alternative dispute resolution process that is
supported by the advertising industry and serves the business community and
the public by fostering truthful and accurate advertising. Certain advertising
claims made by the Company have been challenged through the NAD in the past.
The Company has addressed such challenges by either providing support for its
claims or changing its advertisements. Although the Company does not believe
that such changes have affected its marketing success, any future NAD
inquiries or FTC actions that result in modifications to the Company's
advertising or the imposition of fines or penalties could have a material
adverse effect on the Company's business, results of operations and financial
condition. See "Risk Factors--Risks Associated With Advertising."
 
                                      37
<PAGE>
 
  The Company's activities are also regulated by various agencies of the
states, localities, and foreign countries in which the Company's products are
sold. In addition, the Company has been and will be required to re-formulate
its products to comply with foreign regulatory standards. The Company believes
that it presently complies in all material respects with the foregoing laws
and regulations. There can be no assurance, however, that future compliance
with such laws or regulations will not have a material adverse effect on the
Company's business, results of operations and financial condition.
 
  The Company may be subject to additional laws or regulations administered by
the FDA or other federal, state, or foreign regulatory authorities, the repeal
of laws or regulations, or more stringent interpretations of current laws or
regulations, from time to time in the future. The Company cannot predict the
nature of such future laws, regulations, interpretations, or applications, nor
can it predict what affect additional government regulations or administrative
orders, when and if promulgated, would have on its business in the future.
Such laws could, however, require the reformulation of products, the recall,
withholding or discontinuance of products, the imposition of additional
recordkeeping requirements, the revision of labeling, advertising, or other
promotional materials, and changes in the level of scientific substantiation
needed to support claims. Any or all such government actions could have a
material adverse effect on the Company's business, results of operation and
financial condition.
 
                                      38
<PAGE>
 
                                  MANAGEMENT
 
EXECUTIVE OFFICERS, DIRECTORS, AND KEY EMPLOYEES
 
  Executive officers, directors, and key employees of the Company and their
ages as of February 28, 1998 are as follows:
 
<TABLE>
<CAPTION>
NAME                      AGE POSITION
----                      --- --------
<S>                       <C> <C>
Thomas R. David-
 son(2)(3)..............   58 Chairman of the Board of Directors
James A. Wolfe(3).......   56 President, Chief Executive Officer and Director
Richard G. Lamb.........   51 Executive Vice President, Secretary and Director
Thomas J. Flahie........   40 Senior Vice President of Finance and Administration
Patrick J. Lee..........   31 Senior Vice President of Sales
Kristina M. Eriksen.....   39 Vice President of Finance
Lara Jackle.............   28 Vice President of Marketing
Mark Fox................   45 Vice President of Event Marketing
Michael Sanchez.........   38 Vice President of Western Sales
Adelle M. Demko(1)(3)...   51 Director
Barry D. Goss(2)........   58 Director
John Hale(2)............   48 Director
Dennis Ryan McCar-
 thy(1)(2)..............   47 Director
George F. Raymond(1)(3).   61 Director
</TABLE>
--------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Corporate Development Committee.
 
  Thomas R. Davidson co-founded the Company in February 1992 and has served as
Chairman since that time. He served as Chief Executive Officer from February
1992 until January 1994 and as Secretary from February 1992 to July 1997. He
co-founded (1968) and serves as Chairman of Datatel, Inc.; co-founded (1979)
and served as a Director of National Information Systems until its sale in
1994; co-founded (1980) and served as a Director of V-Mark; and co-founded and
served as Chairman of Envision Medical Corporation from 1991 until its sale in
1996.
 
  James A. Wolfe joined the Board of Directors in May 1993. He has served as
Chief Executive Officer since December 1995 and as President since November
1997. From December 1995 to December 1996, he was a consultant to the Company.
From January 1985 to December 1995, he was a self-employed business consultant
with clients such as Cadbury Schweppes, Welch's, Quaker Oats and Celestial
Seasonings. Prior to that time, he was an executive with 7-Up Foods, Coca-Cola
USA and Welch's.
 
  Richard G. Lamb co-founded the Company in February 1992 and has served as a
Director since that time, as Executive Vice President since November 1997, and
as Secretary since July 1997. He served as Executive Vice President and Chief
Operating Officer from February 1992 until January 1994, and as President from
January 1994 to November 1997. Prior to joining the Company, Mr. Lamb was the
co-founder and President of Windsurfing Hawaii, Inc., a sporting goods
manufacturing company and prior to that served as Vice President,
International Operations, for Windsurfing International, Inc., a sporting
goods manufacturing company.
 
  Thomas J. Flahie joined the Company in February 1998 and has served as
Senior Vice President of Finance and Administration since that time. From
December 1978 to February 1998, he held various positions with Andersen
Worldwide, an international accounting and consulting firm. He was a partner
with Andersen Worldwide for the last seven years.
 
  Patrick J. Lee joined the Company in January 1997 and has served as Senior
Vice President of Sales since that time. From October 1995 to December 1996,
he was the Western Division Manager of PowerBar, Inc.
 
                                      39
<PAGE>
 
(formerly Power Food, Inc.) where he directed sales and marketing activities
for the Western United States. From 1988 to 1994, he worked for Dial
Corporation where he served as District Sales Manager in 1994, Trade Marketing
Manager from 1993 to 1994 and as Key Account Executive from 1990 to 1993.
 
  Kristina M. Eriksen joined the Company in January 1997 and has served as
Vice President of Finance since that time. She also served as Chief Financial
Officer from January 1997 to February 1998. From November 1991 until January
1997 she was the Chief Financial Officer and Corporate Controller for Envision
Medical Corporation, a medical device company. From 1983 to 1990, she worked
for General Motors/Electronic Data Systems.
 
  Lara Jackle joined the Company in September 1997 and has served as Vice
President of Marketing since that time. From August 1994 until September 1997,
Ms. Jackle was a project manager with Reckitt & Colman, an U.K. consumer
products marketing company. From 1992 to 1994 Ms. Jackle was a student at
Cornell University where she earned her M.B.A.
 
  Mark Fox joined the Company in January 1997 and has served as Vice President
of Event Marketing since December 1997. From 1992 until January 1997, Mr. Fox
was owner and founder of Mark Edward Promotional Design, a promotional and
event marketing firm. From 1990 to 1992 Mr. Fox was in the residential real
estate business.
 
  Michael Sanchez joined the Company in June 1992 and has served as Vice
President of Western Sales since January 1997. He also served as Vice
President of Sales from January 1994 to January 1997 and held several sales
executive positions from June 1992 to January 1994. From February 1989 to June
1992, he served as a store manager for Circuit City, an electronics appliance
retailer.
 
  Adelle M. Demko joined the Board of Directors in April 1997. From 1994 to
the present, Ms. Demko has been a management consultant and board advisor to
various companies. In July 1992 she joined Earthshell Container Corporation
and served as its President and Chief Operating Officer. In September 1989 she
founded Demko Baer & Associates, a financial consulting and database firm, and
served as principal from 1989 to 1992. From 1986 to 1989 she was as an
investment banker at Wedbush Morgan Securities and a Limited Partner of
Wedbush Capital Partners, an equity buyout fund. Prior to that she was a
financial and strategy consultant at Xerox Corporation and a corporate and
business attorney in New York City. Ms. Demko serves as a director of Planet
Earth Science and as a member of the Advisory Board of Beam Technologies.
 
  Barry D. Goss joined the Board of Directors in April 1993. He has been the
President and Chief Executive Officer of Intelligent Solutions Inc. since
1995. From 1989 to September 1994 Mr. Goss was the Vice President and Chief
Information Officer at Applied Magnetics Corporation, a manufacturer of
magnetic recording heads for the computer industry.
 
  John Hale joined the Board of Directors in April 1997. Since November 1997,
Mr. Hale has been Executive Vice President and Chief Operating Officer for
Doctors' Choice, LLC a subsidiary of Age Wave, LLC, a health and nutrition
solutions business targeted to the mature adult population. From May 1992 to
November 1997, he was Senior Vice President of Operations at Celestial
Seasonings, Inc., the leading specialty tea company in the United States.
Prior to that, he has held various executive positions at Frito Lay, Inc. from
June 1987 through May 1992 and The Quaker Oats Company from November 1973
through June 1987.
 
  Dennis Ryan McCarthy joined the Board of Directors in 1993. From February
1993 to May 1994 he served as Vice President of Finance of the Company. From
1982 to the present, Mr. McCarthy has served as a consultant on financial, and
investment banking valuation issues for various companies. Prior to that, he
was the Secretary-Treasurer of the Newhall Land and Farming Company, a
publicly held company.
 
                                      40
<PAGE>
 
  George F. Raymond, a Certified Public Accountant, joined the Board of
Directors in April 1997. Mr. Raymond founded Automatic Business Centers, a
payroll processing service in 1972 and served as its President and Chairman
from 1972 until 1989. Since 1987, Mr. Raymond served as a director of BMC
Software, a publicly held computer software company. Mr. Raymond also serves
as a director of DocuCorp International, a publicly held data imaging software
company.
 
  All directors hold office until the next annual meeting of stockholders and
until their successors have been elected and qualified. The officers of the
Company are appointed annually and serve at the discretion of the Board of
Directors, subject, in the case of Mr. Wolfe, to rights under the employment
agreement described below.
 
BOARD OF DIRECTORS COMMITTEES
 
  The Audit Committee was established in July 1996 by the Board of Directors
to make recommendations concerning the engagement of independent public
accountants, review the plans and results of the audit engagement with the
independent public accountants, approve professional services provided by the
independent public accountants, review the independence of the independent
public accountants, consider the range of audit and non-audit fees, and review
the adequacy of the Company's internal accounting controls. The Audit
Committee is currently comprised of Adelle Demko (Chairperson), George
Raymond, and Dennis McCarthy.
 
  The Compensation Committee was established in May 1993 by the Board of
Directors to review and approve the compensation and benefits for the
Company's executive officers and administer the Company's stock incentive
plans, and the Company's management incentive plans, described below. The
Compensation Committee is currently comprised of John Hale (Chairperson),
Thomas Davidson, Barry Goss, and Dennis McCarthy.
 
  The Corporate Development Committee was established in July 1997 by the
Board of Directors to create a strategic plan for the Company's corporate
growth and development, review financing alternatives, consider potential
acquisitions of companies, and make recommendations concerning the corporate
structure of the Company. The Corporate Development Committee is currently
comprised of Thomas Davidson (Chairperson), Adelle Demko, George Raymond, and
James Wolfe.
 
DIRECTOR COMPENSATION
 
  The Company does not pay and does not expect to pay its directors who are
employees of the Company for their services as directors. For services
rendered between January 1, 1994 and October 1997, non-employee directors of
the Company received fully vested options to purchase 200 shares of Common
Stock per meeting and, from October 1997 through the consummation of the
offering, cash compensation of $1,500 per meeting. In addition, each non-
employee director who joined the Board in 1997 received an option to purchase
1,000 shares of Common Stock that vests in April 1998. Upon consummation of
the offering, the Company expects to pay its non-employee directors reasonable
cash compensation consistent with compensation paid by other publicly held
companies, but the Company has not yet set the specific amount of such
compensation. The Company also expects to make automatic, annual stock option
grants under the 1998 Plan. See "Management--Stock Options and Stock Plans."
 
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
 
  No member of the Compensation Committee was an officer or employee of the
Company during 1997. No member of the Compensation Committee serves as a
member of the board of directors or compensation committee of any entity that
has one or more executive officers serving as a member of the Company's Board
of Directors or Compensation Committee.
 
                                      41
<PAGE>
 
EXECUTIVE COMPENSATION
 
  The following table sets forth certain compensation awarded to, earned by,
or paid to the Company's Chief Executive Officer and to the Company's other
executive officers whose total cash compensation exceeded $100,000 during the
year ended December 31, 1997 (collectively, the "Named Executive Officers").
 
                          SUMMARY COMPENSATION TABLE
 
<TABLE>
<CAPTION>
                                                                    LONG TERM
                                                                   COMPENSATION
                                   ANNUAL COMPENSATION                AWARDS
                          ------------------------------------- ------------------
                                                    OTHER           SECURITIES
   NAME AND PRINCIPAL                              ANNUAL       UNDERLYING OPTIONS
        POSITION          SALARY $ BONUS $(1) COMPENSATION $(2)       (#)(3)
   ------------------     -------- ---------- ----------------- ------------------
<S>                       <C>      <C>        <C>               <C>
James A. Wolfe, Chief
 Executive Officer and
 President..............  $124,333  $49,733        $11,077             --
Richard G. Lamb, Execu-
 tive Vice President....   107,500   37,625         10,274             --
Patrick Lee, Senior Vice
 President of Sales.....    91,750   27,525          9,550             --
</TABLE>
-----------------
(1) Bonuses for 1997 were determined in accordance with the 1997 Management
    Incentive Plan.
 
(2) Consists of $6,250 of auto allowance and Company match of employee 401(k)
    plan contributions.
 
(3) See "--1993 and 1997 Stock Incentive Plans."
 
BONUS PROGRAMS
 
  In January 1998, the Compensation Committee adopted the Company's 1998
Employee Incentive Program for all employees. Under the program, cash bonuses
will be awarded based upon individual and Company target sales and profit
goals set for 1998 ("1998 Goals"). For all sales personnel other than the
Senior Vice President of Sales, 1998 Goals include both regional and overall
Company targets. For all other employees, 1998 Goals include only overall
Company targets. To be eligible, the employee must be employed by July 1, 1998
and must also be an employee on December 31, 1998. The Company has set target
bonuses for each level of employee at a specified percentage of an eligible
employee's salary (the "Target Bonus"). Target Bonuses range from 5% to 40% of
an employee's salary, depending upon level of seniority. If 108% of 1998 Goals
are achieved, 100% of Target Bonuses will be paid. To the extent the Company
exceeds 108% of its 1998 Goals, each eligible employee will receive an
increasing percentage of their Target Bonus up to 200% of such bonus.
 
  The Company's 1997 Employee Incentive Program was identical to the 1998
Employee Incentive Program except that (i) management and outside sales
managers received bonuses based upon overall Company target sales and profit
goals set by the Compensation Committee for 1997, (ii) if 100% of 1997 goals
were achieved, 33% of 1997 target bonuses would be paid, and (iii) for every
percentage point above the 1997 goals, eligible employees would receive an
increasing percentage of their 1997 target bonus up to 100% of such bonus.
 
401(k) PLAN
 
  The Company adopted a retirement savings plan (the "401(k) Plan") in 1997
that permits participation by all employees over age 21 with at least 3 months
of service. Employees can elect to contribute up to 15% of total eligible
compensation into the 401(k) Plan. Contributions were limited to $9,500 in
1997. The 401(k) Plan provides that the Company may make matching
contributions up to 100% of the first 5% of elective contributions.
 
STOCK OPTIONS AND STOCK PLANS
 
  No stock options were granted to the Named Executive Officers during the
year ended December 31, 1997.
 
                                      42
<PAGE>
 
  The following table sets forth information with respect to the ownership and
value of stock options as of December 31, 1997 held by the Named Executive
Officers.
 
      AGGREGATED OPTION EXERCISES IN FISCAL YEAR ENDED DECEMBER 31, 1997
                   AND OPTION VALUES AS OF DECEMBER 31, 1997
 
<TABLE>
<CAPTION>
                                                              SECURITIES UNDERLYING             VALUE OF UNEXERCISED
                                                             UNEXERCISED OPTIONS AT       IN-THE-MONEY OPTIONS AT DECEMBER
                                                                DECEMBER 31, 1997                    31, 1997(1)
                                                        --------------------------------- ---------------------------------
                        SHARES ACQUIRED      VALUE
NAME                    ON EXERCISE (#) REALIZED ($)(1) EXERCISABLE (#) UNEXERCISABLE (#) EXERCISABLE ($) UNEXERCISABLE ($)
----                    --------------- --------------- --------------- ----------------- --------------- -----------------
<S>                     <C>             <C>             <C>             <C>               <C>             <C>
James A. Wolfe.........       --                --          115,774          33,333         $3,707,320       $1,066,656
Richard G. Lamb........       --                --          107,905          33,333          3,457,960        1,066,656
Patrick Lee............       650           $19,825           9,350          10,000            285,175          305,000
</TABLE>
-------
(1) There was no public trading market for the Company's Common Stock at
    December 31, 1997. These values were calculated based on the difference
    between the $33.00 fair market value of the Common Stock, as determined by
    the Company's Board of Directors, and the stock option exercise price.
 
1998 PERFORMANCE AWARD PLAN
 
  Immediately prior to the offering, the Company will establish the 1998
Performance Award Plan (the "1998 Plan") to provide a means to attract, reward
and retain talented and experienced officers, non-employee directors, other
key employees and certain other eligible persons (collectively, "Eligible
Persons") who may be granted awards from time to time by the Company's Board
of Directors or, if authorized, the Compensation Committee, or, for non-
employee directors, under a formula provided in the 1998 Plan. The maximum
number of shares reserved for issuance is 300,000 subject to adjustment for
certain changes in the Company's capital structure and other extraordinary
events. Shares subject to awards that are not paid for or exercised before
they expire or are terminated are available for other grants under the 1998
Plan.
 
  Awards under the 1998 Plan may be in the form of nonqualified stock options,
incentive stock options, stock appreciation rights ("SAR's"), limited SAR's,
restricted stock, performance shares, stock bonuses, or cash bonuses based on
performance. Awards may be granted singly or in combination with other awards.
Any cash bonuses under the 1998 Plan will depend upon the extent to which
performance goals set by the Board of Directors or the Compensation Committee
are met during the performance period. Awards under the 1998 Plan generally
will be nontransferable by the holder of the award (a "Holder") (other than by
will or the laws of descent and distribution) and rights thereunder generally
will be exercisable, during the Holder's lifetime, only by the Holder, subject
to such exceptions as may be authorized by the Compensation Committee. No
incentive stock option may be granted at a price that is less than the fair
market value of the Common Stock (less than 110% of fair market value of the
Common Stock on the date of grant for certain participants) on the date of
grant. Nonqualified stock options and other awards may be granted at prices
below the fair market value of the Common Stock on the date of grant, though
the Company currently has no intention to do so.
 
  Administration. The 1998 Plan will be administered by the Compensation
Committee. The Compensation Committee will have broad authority to (i)
designate recipients of discretionary awards, (ii) determine or modify the
terms and provisions of awards, including the price, vesting provisions, terms
of exercise and expiration dates, (iii) approve the form of award agreements,
and (iv) construe and interpret the 1998 Plan. The Compensation Committee will
have the discretion to accelerate and extend the exercisability or term and
establish the events of termination or reversion of outstanding awards.
 
  Change in Control. Upon a Change in Control Event, each option and SAR will
become immediately exercisable; restricted stock will immediately vest free of
restrictions; and the number of shares, cash or other property covered by each
performance share award will be issued to the Holder, unless the Compensation
Committee determines to the contrary. A "Change in Control Event" is defined
generally to include (i) certain
 
                                      43
<PAGE>
 
changes in a majority of the membership of the Board of Directors over a
period of two years or less, (ii) the acquisition of more than 50% of the
outstanding voting securities of the Company by any person other than Thomas
Davidson, James Wolfe, Richard Lamb, and Michael Sanchez, or one of their
affiliates, successors, heirs, relatives or certain donees, or (iii)
stockholder approval of a transfer of substantially all of the Company's
assets, the dissolution or liquidation of the Company, or a merger,
consolidation or reorganization (other than with an affiliate) whereby
stockholders immediately prior to such event own less than 50% of the
outstanding voting securities of the surviving entity after such event.
 
  Plan Amendment; Termination and Term. The Company's Board of Directors has
the authority to amend, suspend or discontinue the 1998 Plan at any time, but
no such action will affect any outstanding award in any manner materially
adverse to a participant without the consent of the participant. The 1998 Plan
may be amended by the Board of Directors without stockholder approval unless
such approval is required by applicable law.
 
  The 1998 Plan will remain in existence as to all outstanding awards until
such awards are exercised or terminated. The maximum term of options, SAR's
and other rights to acquire Common Stock under the 1998 Plan is ten years
after the initial date of award, subject to provisions for further deferred
payment in certain circumstances. No award can be made after             ,
2007.
 
  Automatic Grants to Non-Employee Directors. Under the 1998 Plan, each
director who is not an officer or employee (each a "Non-Employee Director")
will be granted a nonqualified stock option to purchase 1,000 shares of Common
Stock upon becoming a Non-Employee Director at an exercise price equal to the
market price of the Common Stock at the close of trading on that date. In
addition, on the day of the annual stockholders meeting in each calendar year
beginning in 1998 and continuing for each subsequent year during the term of
the 1998 Plan, each then-continuing Non-Employee Director will be granted a
nonqualified stock option to purchase 1,000 shares of Common Stock at an
exercise price equal to the market price of the Common Stock at the close of
trading on that date. Non-Employee Directors may also be granted discretionary
awards. No Non-Employee Director may receive options to purchase more than
4,000 shares of Common Stock under the 1998 Plan in any one year. All Non-
Employee Director stock options will have a 10-year term and will become
exercisable in equal annual installments over a five-year period commencing on
the first anniversary of the grant date. If a Non-Employee Director's services
are terminated for any reason other than the Non-Employee Director's death,
disability or retirement, any stock options held by such Non-Employee Director
that are exercisable will remain exercisable for six months after such
termination of service or until the expiration of the option term, whichever
occurs first. If the Non-Employee Director dies, becomes disabled or retires,
stock options held by such Non-Employee Director will, as of the date of such
death, disability or retirement, become fully exercisable for all of the
shares of Common Stock at the time subject to the option and will remain
exercisable for two years after the date of such termination of services. Upon
a Change in Control Event, each automatic option grant to a Non-Employee
Director will become immediately exercisable for all of the shares at the time
subject to that option and remain exercisable to the extent provided above,
subject to the adjustment and termination provisions of the 1998 Plan. Any
outstanding automatic option grant that is not exercised prior to a Change in
Control Event in which the Company is not to survive will terminate, unless
such option is assumed or replaced by the surviving corporation.
 
  Payment for Shares. The exercise price of options and other awards may be
paid in cash or (subject to certain restrictions) shares of Common Stock. The
Company may finance the exercise or purchase and (subject to any applicable
legal limits) offset shares to cover the exercise or purchase price and
withholding taxes.
 
  Federal Tax Consequences. The current federal income tax consequences of
awards authorized under the 1998 Plan follow certain basic patterns.
Generally, awards under the 1998 Plan that are includable in income of the
recipient at the time of award or exercise (such as nonqualified stock
options, SARs, restricted stock and performance awards) are deductible by the
Company, and awards that are not required to be included in income of the
recipient at such times (such as incentive stock options) are not deductible
by the Company.
 
                                      44
<PAGE>
 
1993 AND 1997 STOCK INCENTIVE PLANS AND OTHER STOCK OPTION GRANTS
 
  The Company established the 1993 Stock Incentive Plan (the "1993 Plan") and
1997 Stock Incentive Plan (the "1997 Plan") to provide incentive to, and
encourage stock ownership by, selected employees, officers, directors, and
consultants. Awards consisted of grants of options to purchase shares of the
Company's authorized but unissued Common or Preferred Stock. As of February
28, 1998, a total of 426,721 options were granted pursuant to both plans, of
which 55,748 options were exercised and 370,973 options remain outstanding.
All options granted were options for the purchase of Common Stock. The Company
intends to grant approximately 51,500 additional options under the 1997 Plan.
 
  In addition to the 1993 Plan and the 1997 Plan, as of February 28, 1998, a
total of 78,118 options were granted outside such plans, of which 11,000
options were exercised and 67,118 options remain outstanding.
 
EMPLOYMENT AGREEMENT
 
  As of           , 1998, the Company entered into a [   ]-year employment
agreement with James Wolfe. During the term of Mr. Wolfe's employment
agreement, his compensation will consist of a minimum annual base salary of
$[   ], participation in the Company's management incentive bonus plans and
stock incentive plans, and fringe benefits similar to those of other senior
executives of the Company. [If Mr. Wolfe's employment is terminated, he will
be subject to a [   ]-year restriction on competition with the Company.]
 
                                      45
<PAGE>
 
                             CERTAIN TRANSACTIONS
 
  On January 15, 1997, Tom Davidson, co-founder and Chairman of the Board of
the Company, was issued 100,000 shares of Common Stock for consideration of
$150,000. The shares were issued in connection with the conversion of
convertible bonds purchased by Mr. Davidson in July 1995.
 
  On December 5, 1995, the Company entered into a consulting agreement with
James Wolfe to serve as the Company's acting Chief Executive Officer. Mr.
Wolfe also has been a director of the Company since May 10, 1993. Pursuant to
his consulting agreement, Mr. Wolfe received approximately $116,000 in
consideration of his services to the Company in 1996. The consulting agreement
was terminated on December 31, 1996 when Mr. Wolfe became the Chief Executive
Officer of the Company.
 
  During 1997, the Company paid $43,551 to Adelle Demko, a director of the
Company, in connection with special consulting services related to this
offering.
 
                                      46
<PAGE>
 
                      PRINCIPAL AND SELLING STOCKHOLDERS
 
  The following table sets forth certain information about the beneficial
ownership of the Company's Common Stock as of February 28, 1998, and as
adjusted to reflect the sale of the Common Stock offered hereby, by (i) each
director and each Named Executive Officer of the Company, (ii) all directors
and executive officers of the Company as a group, (iii) each person (or group
of affiliated persons) known by the Company to own beneficially more than five
percent of the Company's outstanding voting securities not otherwise listed;
and (iv) each Selling Stockholder not otherwise listed. The address of each
person listed is in care of the Company, 1015 Mark Avenue, Carpinteria,
California 93013, unless otherwise indicated.
 
DIRECTORS AND NAMED EXECUTIVE OFFICERS:
 
<TABLE>
<CAPTION>
                            SHARES BENEFICIALLY              SHARES BENEFICIALLY
                                OWNED PRIOR                      OWNED AFTER
                              TO THE OFFERING                   THE OFFERING
                          -----------------------  SHARES  -----------------------
                          NUMBER(1) PERCENT(1)(2) OFFERED  NUMBER(1) PERCENT(1)(2)
                          --------- ------------- -------- --------- -------------
<S>                       <C>       <C>           <C>      <C>       <C>
Thomas R. Davidson(3)...    801,267       49.7%        --    801,267           %
James A. Wolfe(4).......    116,317        6.9         --    116,317
Richard G. Lamb(5)......    234,753       13.7      40,000   194,753
Patrick Lee(6)..........     10,000          *         --     10,000          *
Thomas J. Flahie........        --                     --        --
Adelle M. Demko(7)......      1,600          *         --      1,600          *
Barry D. Goss(8)........     36,640        2.3      16,522    20,118
John Hale(9)............      1,600          *         --      1,600          *
Dennis Ryan McCar-
 thy(10)................     15,696          *         --     15,696          *
George F. Raymond(11)...      1,600          *         --      1,600          *
All directors and execu-
 tive officers as a
 group (10 persons).....  1,219,473       66.8      56,522 1,162,951
 
OTHER SELLING STOCKHOLDERS:
 
Tucker Anthony, Inc.....     25,566        1.6      25,566       --
Jennifer Fisher Barner..      2,600          *       2,350       250          *
Brian Bayly.............     13,044          *      13,044       --
Susan Bayly.............      3,334          *       3,334       --
Susan Block.............      4,000          *       4,000       --
Donald Breidenbach,
 Sr. ...................     13,044          *       2,500    10,544          *
Donald Breidenbach,
 Jr.(12)................     29,566        1.8       2,500    27,066
Gene & Joyce Daoust.....     62,444        3.9      10,000    52,444
John Deardourff.........     44,711        2.8       3,500    41,211
John Douglas............     13,044          *       2,609    10,435          *
John H. Douglas Trust...     13,044          *       2,609    10,435          *
Marcus Elliott-Woody....      4,000          *         200     3,800          *
Giles Gunn..............     21,740        1.4       2,200    19,540
Charles P. Gunn.........     14,348          *       2,500    11,848          *
John Heron..............     32,500        2.0      32,500       --
PZL Limited(13).........     28,587        1.8       8,000    20,587
Graham Major............        100          *         100       --
Bruce McFadden(14)......     10,494          *       8,694     1,800
John Montgomery.........     13,044          *         756    12,288          *
John Nadolski...........     26,087        1.6      10,000    16,087          *
Trustees for B. Nash....      6,500          *       3,250     3,250          *
</TABLE>
 
                                      47
<PAGE>
 
<TABLE>
<CAPTION>
                           SHARES BENEFICIALLY             SHARES BENEFICIALLY
                               OWNED PRIOR                     OWNED AFTER
                             TO THE OFFERING                  THE OFFERING
                         ----------------------- SHARES  -----------------------
                         NUMBER(1) PERCENT(1)(2) OFFERED NUMBER(1) PERCENT(1)(2)
                         --------- ------------- ------- --------- -------------
<S>                      <C>       <C>           <C>     <C>       <C>
Nicole Nash.............   3,250          *       3,250      --
Paul Nash...............   3,250          *       3,250      --
J. Michael Nolan, Jr. ..  26,088         1.6     26,088      --
Danny Robertson.........  10,000          *      10,000      --
The Roy Family Trust....  12,525          *       2,500   10,025          *
Michael Sanchez(15).....  80,414         4.9     10,000   70,414
Jackie Shanks...........   1,087          *         200      887
Michael Shor............   8,700          *       8,500      200          *
Joseph Skenderian(16)...   9,372          *       2,172    7,200          *
Terry Staples...........  19,500         1.2      1,000   18,500
Robert Warfield.........  30,435         1.9      5,400   25,035
John & Brenda Yeaton....  50,000         3.1     10,000   40,000
</TABLE>
--------
  *Less than 1% of outstanding shares.
 
 (1) Beneficial ownership is determined in accordance with rules of the
     Securities and Exchange Commission and generally includes voting or
     investment power with respect to securities. Shares of Common Stock
     issuable on conversion of Preferred Stock or exercise of stock options
     within 60 days of February 28, 1998, are deemed beneficially owned and
     outstanding for computing only the percentage of the person or the entity
     holding such securities. Except as indicated by footnote, and subject to
     community property laws where applicable, the persons and entities named
     in the table have sole voting and investment power with respect to all
     shares of Common Stock shown as beneficially owned by them.
 
 (2) Percentage of ownership is based on 1,607,993 shares of Common Stock
     outstanding before the offering and      shares of Common Stock
     outstanding after the offering.
 
 (3) Includes 2,600 shares of Common Stock that are issuable upon exercise of
     stock options. Includes 420,000 shares of Common Stock held by the
     Davidson Family Limited Partnership. Mr. Davidson disclaims beneficial
     ownership of 315,000 of these shares, reflecting the limited partner
     interests held by his children in the limited partnership.
 
 (4) Includes 65,774 shares of Common Stock that are issuable upon exercise of
     stock options.
 
 (5) Includes 107,905 shares of Common Stock that are issuable upon exercise
     of stock options.
 
 (6) Includes 9,350 shares of Common Stock that are issuable upon exercise of
     stock options.
 
 (7) Includes 1,600 shares of Common Stock that are issuable upon exercise of
     stock options.
 
 (8) Includes 19,248 shares of Common Stock that are issuable upon exercise of
     stock options. Includes 6,522 shares of Common Stock held by the Goss
     Joint Venture. Mr. Goss disclaims beneficial ownership of 4,443 of these
     shares, reflecting the joint venture interests held by Mr. Goss' father
     and two sisters. Of the shares offered, 6,522 are owned by the Goss Joint
     Venture and 10,000 are owned by Mr. Goss.
 
 (9) Includes 1,600 shares of Common Stock that are issuable upon exercise of
     stock options.
 
(10) Includes 7,000 shares of Common Stock that are issuable upon exercise of
     stock options.
 
(11) Includes 1,600 shares of Common Stock that are issuable upon exercise of
     stock options.
 
(12) Includes 10,000 shares of Common Stock that are issuable upon exercise of
     stock options.
 
(13) PZL Limited is owned by David and Patricia Lamb. David Lamb is Richard
     Lamb's brother.
 
(14) Includes 1,800 shares of Common Stock that are issuable upon exercise of
     stock options. Mr. McFadden was a director of the Company from May 1993
     to February 1997.
 
(15) Includes 46,500 shares of Common Stock that are issuable upon exercise of
     stock options. Mr. Sanchez is Vice President of Western Sales for the
     Company.
 
(16) Includes 7,200 shares of Common Stock that are issuable upon exercise of
     stock options. Mr. Skenderian was a director of the Company from January
     1994 to October 1997.
 
                                      48
<PAGE>
 
                         DESCRIPTION OF CAPITAL STOCK
 
  The authorized capital stock of the Company currently consists of 4,000,000
shares of Common Stock, par value $0.01 per share and 2,000,000 shares of
Preferred Stock, par value $.01 per share. Immediately following the
completion of the offering, the Company estimates that approximately
shares of Common Stock will be issued and outstanding (assuming no exercise of
the Underwriters' over-allotment option). No shares of Preferred Stock will be
issued and outstanding. The Company anticipates that immediately prior to the
consummation of this offering there will be    holders of Common Stock.
Immediately before the offering, the Company will effect the Stock Split.
 
  The following description of the Company's capital stock is a summary of the
material terms of such stock. It does not purport to be complete and is
subject in all respects to applicable Delaware law and to the provisions of
the Company's Restated Certificate of Incorporation to be restated immediately
prior to the consummation of this offering (the "Certificate of
Incorporation") and Amended and Restated Bylaws (the "Bylaws"), copies of
which will be filed as exhibits to the Registration Statement of which this
Prospectus is a part.
 
COMMON STOCK
 
  Upon the completion of this offering, the Common Stock will be publicly
traded on the Nasdaq National Market under the symbol "BBAR." The holders of
Common Stock are entitled to one vote for each share held of record on all
matters submitted to a vote of the stockholders. There are no cumulative
voting rights, the absence of which will, in effect, allow the holders of a
majority of the outstanding shares of Common Stock to elect all the directors
then standing for election. The absence of cumulative voting rights could have
the effect of delaying, deterring or preventing a change of control of the
Company. Subject to preferential rights of outstanding Preferred Stock,
holders of Common Stock are entitled to receive ratably such dividends as may
be declared by the Board of Directors out of funds legally available therefor.
See "Dividend Policy." If the Company liquidates, dissolves, or winds up, the
holders of Common Stock are entitled to share ratably in all assets remaining
after payment of liabilities and satisfaction of preferential rights of any
outstanding shares of Preferred Stock. The Common Stock has no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the Common Stock. The outstanding shares
of Common Stock are, and the shares of Common Stock to be issued upon
completion of this offering will be, fully paid and non-assessable.
 
PREFERRED STOCK
 
  As of February 28, 1998, 634,485 shares of the Company's Series A Preferred
Stock were outstanding. All holders of the Company's Series A Preferred Stock
have agreed to convert each share of the Series A Preferred Stock into one
share of Common Stock immediately prior to the Stock Split (the "Preferred
Stock Conversion"), resulting in the issuance of an aggregate of 634,485
shares of Common Stock [after giving effect to the Stock Split.] Unless
otherwise indicated, all information in this Prospectus gives effect to the
Preferred Stock Conversion. The holders of Series A Preferred Stock presently
outstanding are entitled to one vote for each share held of record on all
matters submitted to a vote of the stockholders. Holders of Series A Preferred
Stock presently outstanding are entitled to receive ratably such dividends as
may be declared by the Board of Directors out of funds legally available
therefor. See "Dividend Policy." Each share of Series A Preferred Stock
presently outstanding is convertible into one share of Common Stock. If the
Company liquidates, dissolves, or winds up, the holders of Series A Preferred
Stock are entitled to receive payment in cash of $2.30 per share before any
amount can be paid to holders of Common Stock.
 
  Pursuant to the Company's Certificate of Incorporation, the Board of
Directors is authorized to issue Preferred Stock in one or more series and to
fix by resolution the rights, preferences, privileges, and restrictions
thereof, including voting rights, dividend rights, dividend rates, conversion
rights, terms of redemption, redemption prices, liquidation preferences, and
the number of shares constituting any series or
 
                                      49
<PAGE>
 
the designation of such series, without further vote or action by the
stockholders. The issuance of Preferred Stock could have the effect of
delaying, deterring or preventing a change in control of the Company without
further action of the stockholders. The issuance of Preferred Stock with
voting and conversion rights could adversely affect the voting power of the
holders of Common Stock, including the loss of voting control to others. See
"Risk Factors--Possible Anti-Takeover Effect of Certain Charter Provisions."
 
POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS
 
  The Company's Certificate of Incorporation and Bylaws require that
stockholders give advance notice to the Company's Secretary of any
directorship nominations or other business to be brought by stockholders at
any stockholders' meeting. The Certificate of Incorporation also requires the
approval of 75% of the Company's voting stock to amend certain provisions of
the Certificate of Incorporation. The existence of authorized but unissued and
unreserved Common Stock and Preferred Stock may enable the Board of Directors
to issue shares to persons friendly to current management which could render
more difficult or discourage an attempt to obtain control of the Company by
means of a proxy contest, tender offer, merger, or otherwise, and thereby
protect the continuity of the Company's management. These provisions may have
the effect of precluding some stockholders from bringing matters before the
stockholders and of deterring hostile takeovers or delaying changes in control
or management of the Company. See "Risk Factors--Possible Anti-Takeover Effect
of Certain Charter Provisions."
 
  The Company's Board of Directors is divided into three classes of directors
serving staggered three-year terms. See "Management." At least two annual
meetings of stockholders, instead of one, generally will be required to change
the majority of the Company's Board of Directors, so it is more difficult for
the stockholders of the Company to change the management of the Company than
if the Board of Directors were not classified. In addition, the presence of a
classified Board of Directors could make it more difficult for a third party
to acquire, or could discourage a third party from attempting to acquire,
control of the Company and, therefore, may limit the price that certain
investors might be willing to pay in the future for shares of Common Stock.
 
  Under the Delaware General Corporation's Law, as amended from time to time
(the "DGCL") in the case of a corporation having a classified board and not
having a provision in its Certificate to the contrary (as is the case with the
Company), stockholders may remove a director only for cause.
 
CERTAIN PROVISIONS OF DELAWARE LAW
 
  The Company is a Delaware corporation and, upon consummation of this
offering, will be subject to Section 203 of the DGCL. In general, Section 203
prevents an "interested stockholder" (defined generally as a person owning 15%
or more of a corporation's outstanding voting stock) from engaging in a
"business combination" (as defined therein) with a Delaware corporation for
three years following the date such person became an interested stockholder
unless (i) before such person became an interested stockholder, the board of
directors of the corporation approved the transaction in which the interested
stockholder became an interested stockholder or approved the business
combination, (ii) upon consummation of the transaction that resulted in the
interested stockholder becoming an interested stockholder, the interested
stockholder owns at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding shares owned by
persons who are both officers and directors of the corporation and shares held
by certain employee stock ownership plans) or (iii) on or following the
transaction in which such person became an interested stockholder, the
business combination is approved by the board of directors of the corporation
and authorized at a meeting of stockholders by the affirmative vote of the
holders of at least two-thirds of the outstanding voting stock of the
corporation not owned by the interested stockholder.
 
LIMITATION OF LIABILITY AND INDEMNIFICATION AGREEMENTS
 
  The Company's Certificate of Incorporation provides that to the fullest
extent permitted by the DGCL, a director of the Company will not be liable to
the Company or its stockholders for monetary damages for
 
                                      50
<PAGE>
 
breach of fiduciary duty as a director. Under the DGCL, liability of a
director cannot be limited (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or that involve intentional misconduct or a knowing violation of
law, (iii) in respect of certain unlawful dividend payments or stock
redemptions or repurchases, or (iv) for any transaction from which the
director derives an improper personal benefit. The effect of the provisions of
the Company's Certificate of Incorporation is to eliminate the rights of the
Company and its stockholders (through stockholders' derivative suits on behalf
of the Company) to recover monetary damages against a director for breach of
the fiduciary duty of care as a director (including breaches resulting from
negligent or grossly negligent behavior), except in the situations described
in clauses (i) through (iv) above. This provision does not limit or eliminate
the rights of the Company or any stockholder to seek nonmonetary relief such
as an injunction or rescission if a director breaches his or her duty of care.
In addition, the Company's Certificate of Incorporation and Bylaws provide
that the Company will indemnify its directors, officers, employees, and agents
against losses incurred by any such person by reason of the fact that such
person was acting in such capacity.
 
  The Company has entered into contracts with each of the directors and
executive officers of the Company under which the Company must indemnify them
from claims, liabilities, damages, expenses, losses, costs, penalties or
amounts paid in settlement incurred by them in or arising out of their work
for or on behalf of the Company, to the maximum extent provided by applicable
law. In addition, such parties are entitled to an advance of expenses in such
matters, to the maximum extent authorized or permitted by law.
 
CERTAIN ANTI-TAKEOVER EFFECTS
 
  The provisions of the Certificate of Incorporation and the Bylaws of the
Company summarized above could be deemed to have anti-takeover effects and
could delay, defer, or prevent a tender offer or takeover attempt that a
stockholder might consider to be in such stockholder's best interest,
including attempts that might result in a premium over the market price for
the shares held by stockholders. See "Risk Factors--Possible Anti-Takeover
Effect of Certain Charter Provisions."
 
TRANSFER AGENT OR REGISTRAR
 
  The Transfer Agent and Registrar for the Common Stock is                .
 
LISTING
 
  Before this offering, there has not been a public trading market for the
Common Stock. The Company has applied for listing of the Common Stock on the
NASDAQ National Market, upon notice of issuance, under the symbol "BBAR."
 
                                      51
<PAGE>
 
                        SHARES ELIGIBLE FOR FUTURE SALE
 
  Upon the consummation of the offering, the Company will have outstanding [ ]
shares of Common Stock, assuming no exercise of options after February 28,
1998. All of the [     ] shares offered hereby may be resold immediately in
the public market. Beginning 180 days after the date of this Prospectus, upon
expiration of lock-up agreements between the representatives of the
Underwriters and officers, directors and certain stockholders of the Company,
approximately [    ] additional shares will be eligible for sale without
restriction under Rule 144(k) under the Securities Act of 1933, as amended
(the "Securities Act") and [  ] additional shares (as well as an additional
438,091 shares issuable upon exercise of outstanding options) will be eligible
for sale subject to compliance with the restrictions of Rule 144. Any early
release of the lock-up agreement by the Underwriters, which, if granted, could
permit sales of a substantial number of shares and could adversely affect the
trading price of the Company's shares, may not be accompanied by an advance
public announcement by the Company. In addition, the Company intends to file a
registration statement on Form S-8 under the Securities Act approximately 30
days after the date of this Prospectus to register approximately 300,000
shares of Common Stock reserved for issuance under the Company's 1998
Performance Award Plan and 370,973 shares subject to outstanding options. See
"Risk Factors--Shares Eligible for Future Sale."
 
  In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for
at least one year, will be entitled to sell in any three-month period a number
of shares that does not exceed the greater of (i) one percent of the number of
shares of Common Stock then outstanding (approximately [ ] shares immediately
after the offering) or (ii) the average weekly trading volume of the Company's
Common Stock as reported through the Nasdaq National Market during the four
calendar weeks immediately preceding the filing of a Form 144 for such sale
with the Securities and Exchange Commission (the "Commission"). Sales under
Rule 144 are also subject to certain requirements relating to manner of sale,
notice, and availability of current public information about the Company. A
person (or persons whose shares are aggregated) who is not deemed to have been
an affiliate of the Company at any time during the 90 days immediately
preceding the sale and who has beneficially owned Restricted Shares for at
least two years is entitled to sell such shares under Rule 144(k) without
regard to the requirements described above.
 
                                      52
<PAGE>
 
                                 UNDERWRITING
 
  Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their Representatives, Hambrecht & Quist LLC
and Adams, Harkness & Hill, Inc. have severally agreed to purchase from the
Company and the Selling Stockholders the following respective numbers of
shares of Common Stock:
 
<TABLE>
<CAPTION>
                                                                      NUMBER OF
     NAME                                                              SHARES
     ----                                                            -----------
     <S>                                                             <C>
     Hambrecht & Quist LLC..........................................
     Adams, Harkness & Hill, Inc....................................
                                                                     -----------
     Total..........................................................
                                                                     ===========
</TABLE>
 
  The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company, its counsel and
independent auditors. The nature of the Underwriters' obligation is such that
they are committed to purchase all shares of Common Stock offered hereby if
any of such shares are purchased.
 
  The Underwriters propose to offer the shares of Common Stock directly to the
public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $        per share. The Underwriters may allow, and such dealers may
re-allow, a concession not in excess of $        per share to certain other
dealers. After the offering, the offering price and other selling terms can be
changed by the Representatives. The Representatives have informed the Company
that the Underwriters do not intend to confirm discretionary sales in excess
of five percent of the shares of Common Stock hereby.
 
  The Company has granted to the Underwriters an option exercisable no later
than 30 days after the date of this Prospectus, to purchase up to
additional shares of Common Stock at the offering price, less the underwriting
discount set forth on the cover page of this Prospectus. To the extent the
Underwriters exercise this option, each of the Underwriters will have a firm
commitment to purchase approximately the same percentage thereof which the
number of shares of Common Stock to be purchased by it shown in the above
table bears to the total number of shares of Common Stock offered hereby. The
Company will be obligated, pursuant to the option, to sell such shares to the
Underwriters to the extent the option is exercised. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of shares of Common Stock offered hereby.
 
  The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the
right to reject an order for the purchase of shares in whole or in part.
 
  The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments the Underwriters may be required
to make in respect thereof.
 
  The officers and directors and substantially all of the other stockholders
of the Company, who will beneficially own in the aggregate        shares of
Common Stock after the offering, have agreed, subject to certain exceptions,
that they will not, without the prior written consent of Hambrecht & Quist
LLC, offer,
 
                                      53
<PAGE>
 
sell or otherwise dispose of any shares of Common Stock, options or warrants
to acquire shares of Common Stock or securities exchangeable for or
convertible into shares of Common Stock owned by them during the 180-day
period following the date of this Prospectus. The Company has agreed that it
will not, without the prior written consent of Hambrecht & Quist LLC, offer,
sell or otherwise dispose of any shares of Common Stock, options or warrants
to acquire shares of Common Stock or securities exchangeable for or
convertible into shares of Common Stock during the 180-day period following
the date of this Prospectus, except that the Company may issue shares upon the
exercise of options granted prior to the date hereof, and may grant additional
options under its stock incentive plans, provided that, without the prior
written consent of Hambrecht & Quist LLC, such additional options shall not be
exercisable during such period.
 
  The Underwriters have reserved for sale, at the initial public offering
price, shares of Common Stock for certain employees, directors, vendors, and
affiliates of the Company who have expressed an interest in purchasing shares
of Common Stock. These employees, directors, and other persons are expected to
purchase, in the aggregate, not more than five percent of the Common Stock
offered in the offering. The number of shares available for sale to the
general public in the offering will be reduced to the extent these persons
purchase the reserved shares. Any reserved shares not so purchased will be
offered to the general public on the same basis as the other shares offered
hereby.
 
  Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be
determined by negotiations between the Company, the Selling Stockholders, and
the Representatives. Among the factors to be considered in determining the
initial public offering price are prevailing market and economic conditions,
revenues and earnings of the Company, market valuations of other companies
engaged in activities similar to the Company, estimates of the business
potential and prospects of the Company, the present state of the Company's
business operations, the Company's management, and other factors deemed
relevant. The estimated initial public offering price set forth on the cover
of this preliminary prospectus is subject to change as a result of market
conditions and other factors.
 
  Certain persons participating in this offering may overallot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the
open market, including by entering stabilizing bids, effecting syndicate
covering transactions or imposing penalty bids. A stabilizing bid means the
placing of any bid or the effecting of any purchase, for the purpose of
pegging, fixing or maintaining the price of the Common Stock. A syndicate
covering transaction means the placing of any bid on behalf of the
underwriting syndicate or the effecting of any purchase to reduce a short
position created in connection with the offering. A penalty bid means an
arrangement that permits the Underwriters to reclaim a selling concession from
a syndicate member in connection with the offering when shares of Common Stock
sold by the syndicate member are purchased in syndicate covering transactions.
Such transactions may be effected on the Nasdaq National Market, in the over-
the-counter market, or otherwise. Such stabilizing, if commenced, may be
discontinued at any time.
 
                                 LEGAL MATTERS
 
  The validity of the Common Stock offered hereby will be passed upon for the
Company by O'Melveny & Myers LLP, Los Angeles, California. Certain legal
matters in connection with the offering will be passed upon for the
Underwriters by Brobeck, Phleger & Harrison LLP, Palo Alto, California.
 
                                    EXPERTS
 
  The audited financial statements and schedule included in this Prospectus
and elsewhere in the Registration Statement have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports
with respect thereto, and are included herein in reliance upon the authority
of said firm as experts in giving said reports.
 
 
                                      54
<PAGE>
 
                            ADDITIONAL INFORMATION
 
  The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits to it. Certain items are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and the exhibits filed as a
part of it. Statements contained in this Prospectus as to the contents of any
contract or any other document referred to are not necessarily complete and,
in each instance, if such contract or document is filed as an exhibit to the
Registration Statement, reference is made to the copy of such contract or
document filed as an exhibit, each such statement being qualified in all
respects by such reference to such exhibit. The Registration Statement,
including the exhibits, as well as the reports and other information filed by
the Company with the Commission, can be inspected without charge at the public
reference facilities maintained by the Commission in Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
located at the Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, 13th Floor, New York, NY 10048, and
copies of all or any part thereof can be obtained from such office after
payment of fees prescribed by the Commission. The Commission maintains a Web
site at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the Commission. In addition, after being approved for
listing on the Nasdaq National Market, upon notice of issuance, the Common
Stock, reports and other information concerning the Company can be inspected
at the offices of Nasdaq.
 
 
                                      55
<PAGE>
 
                              BALANCE BAR COMPANY
 
                         INDEX TO FINANCIAL STATEMENTS
 
<TABLE>
<CAPTION>
                                                                           PAGE
                                                                           ----
<S>                                                                        <C>
Report of Independent Public Accountants.................................. F-2
Balance Sheets as of December 31, 1996 and 1997........................... F-3
Statements of Operations for the years ended December 31, 1995, 1996 and
 1997..................................................................... F-4
Statements of Shareholders' Equity for the years ended December 31, 1995,
 1996 and 1997............................................................ F-5
Statements of Cash Flows for the years ended December 31, 1995, 1996 and
 1997 .................................................................... F-6
Notes to Financial Statements............................................. F-7
</TABLE>
 
                                      F-1
<PAGE>
 
                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To Balance Bar Company:
 
  We have audited the accompanying balance sheets of Balance Bar Company (a
Delaware corporation) as of December 31, 1996 and 1997, and the related
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our 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 Balance Bar Company, as of
December 31, 1996 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
 
                                          ARTHUR ANDERSEN LLP
 
Los Angeles, California
February 20, 1998
 
                                      F-2
<PAGE>
 
                              BALANCE BAR COMPANY
 
                                 BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                      DECEMBER 31,
                                                                     ---------------
                                                                      1996    1997
                                                                     ------  -------
                                                                      (AMOUNTS IN
                                                                         000'S,
                               ASSETS                                  EXCEPT PAR
                               ------                                    VALUE)
<S>                                                                  <C>     <C>
CURRENT ASSETS:
  Cash.............................................................. $1,119  $    89
  Accounts receivable, net of allowance for doubtful accounts of $22
   in 1996 and $46 in 1997..........................................  1,435    3,444
  Income taxes receivable...........................................     --      374
  Inventories.......................................................    583    3,806
  Prepaids and other................................................     23    1,381
  Deferred taxes....................................................    139      344
                                                                     ------  -------
      Total current assets..........................................  3,299    9,438
                                                                     ------  -------
PROPERTY AND EQUIPMENT, net.........................................     56    1,011
OTHER ASSETS........................................................     19      347
                                                                     ------  -------
                                                                     $3,374  $10,796
                                                                     ======  =======
<CAPTION>
                LIABILITIES AND SHAREHOLDERS' EQUITY
                ------------------------------------
<S>                                                                  <C>     <C>
CURRENT LIABILITIES:
  Current portion of long-term debt................................. $   --  $    85
  Short-term borrowings.............................................     --    1,100
  Accounts payable..................................................    606    4,201
  Accrued commissions...............................................     97      121
  Other accrued expenses............................................    146      957
  Income taxes payable..............................................    363       --
                                                                     ------  -------
      Total current liabilities.....................................  1,212    6,464
                                                                     ------  -------
LONG-TERM DEBT, net of current portion..............................     --      228
                                                                     ------  -------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
  Convertible preferred stock, $.01 par value
    Authorized--2,000 shares
    Issued and outstanding--634 shares in 1996 and 1997.............      6        6
  Common stock, $.01 par value
    Authorized--4,000 shares
    Issued and outstanding--910 shares in 1996 and 923 shares in
     1997...........................................................      9        9
  Additional paid-in capital........................................  2,220    2,502
  Retained earnings (deficit).......................................    (73)   1,587
                                                                     ------  -------
                                                                      2,162    4,104
                                                                     ------  -------
                                                                     $3,374  $10,796
                                                                     ======  =======
</TABLE>
 
      The accompanying notes are an integral part of these balance sheets.
 
                                      F-3
<PAGE>
 
                              BALANCE BAR COMPANY
 
                            STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                         YEARS ENDED DECEMBER
                                                                 31,
                                                        -----------------------
                                                         1995    1996    1997
                                                        ------  ------- -------
                                                          (AMOUNTS IN 000'S,
                                                        EXCEPT PER SHARE DATA)
<S>                                                     <C>     <C>     <C>
SALES.................................................. $1,262  $10,544 $39,634
COST OF SALES..........................................    593    5,272  19,801
                                                        ------  ------- -------
    Gross profit.......................................    669    5,272  19,833
                                                        ------  ------- -------
EXPENSES:
  Advertising..........................................    157    1,083   7,481
  Selling and marketing................................    355    1,536   7,204
  General and administrative...........................    237      797   2,299
  Interest (income) expense............................      4       16     (27)
                                                        ------  ------- -------
    Total expenses.....................................    753    3,432  16,957
                                                        ------  ------- -------
    Income (loss) before income taxes..................    (84)   1,840   2,876
INCOME TAXES...........................................      1      225   1,216
                                                        ------  ------- -------
    Net income (loss).................................. $  (85) $ 1,615 $ 1,660
                                                        ======  ======= =======
EARNINGS (LOSS) PER SHARE:
    Basic.............................................. $(0.07) $  1.15 $  1.07
                                                        ======  ======= =======
    Diluted............................................ $(0.07) $  1.04 $  0.90
                                                        ======  ======= =======
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
    Basic..............................................  1,300    1,402   1,550
                                                        ======  ======= =======
    Diluted............................................  1,300    1,557   1,841
                                                        ======  ======= =======
</TABLE>
 
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-4
<PAGE>
 
                              BALANCE BAR COMPANY
 
                       STATEMENTS OF SHAREHOLDERS' EQUITY
                               (AMOUNTS IN 000'S)
 
<TABLE>
<CAPTION>
                           PREFERRED
                             STOCK     COMMON STOCK  ADDITIONAL RETAINED
                         ------------- -------------  PAID-IN   EARNINGS
                         SHARES AMOUNT SHARES AMOUNT  CAPITAL   (DEFICIT) TOTAL
                         ------ ------ ------ ------ ---------- --------- ------
<S>                      <C>    <C>    <C>    <C>    <C>        <C>       <C>
BALANCE, December 31,
 1994...................  634    $ 6    651    $ 7     $1,606    $(1,603) $   16
  Exercise of stock
   options..............   --     --      4     --         --         --      --
  Issuance of common
   stock as compensation
   for services.........   --     --     15     --          1         --       1
  Conversion of
   convertible bonds....   --     --     71      1         70         --      71
  Net loss..............   --     --     --     --         --        (85)    (85)
                          ---    ---    ---    ---     ------    -------  ------
BALANCE, December 31,
 1995...................  634      6    741      8      1,677     (1,688)      3
  Exercise of stock
   options..............   --     --      2     --         --         --      --
  Issuance of common
   stock as compensation
   for services.........   --     --     33     --         67         --      67
  Conversion of
   convertible bonds....   --     --    134      1        200         --     201
  Compensation expense
   in connection with
   issuance of stock
   options..............   --     --     --     --        276         --     276
  Net income............   --     --     --     --         --      1,615   1,615
                          ---    ---    ---    ---     ------    -------  ------
BALANCE, December 31,
 1996...................  634      6    910      9      2,220        (73)  2,162
  Exercise of stock
   options..............   --     --     10     --         13         --      13
  Issuance of common
   stock as compensation
   for services.........   --     --      3     --         60         --      60
  Compensation expense
   in connection with
   issuance of stock
   options..............   --     --     --     --        209         --     209
  Net income............   --     --     --     --         --      1,660   1,660
                          ---    ---    ---    ---     ------    -------  ------
BALANCE, December 31,
 1997...................  634    $ 6    923    $ 9     $2,502    $ 1,587  $4,104
                          ===    ===    ===    ===     ======    =======  ======
</TABLE>
 
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-5
<PAGE>
 
                              BALANCE BAR COMPANY
 
                            STATEMENTS OF CASH FLOWS
                               (AMOUNTS IN 000'S)
 
<TABLE>
<CAPTION>
                                                             YEARS ENDED
                                                             DECEMBER 31,
                                                          --------------------
                                                          1995   1996    1997
                                                          ----  ------  ------
<S>                                                       <C>   <C>     <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income (loss)....................................... $(85) $1,615  $1,660
 Adjustments to reconcile net income (loss) to net cash
  provided by (used in) operating activities:
     Depreciation and amortization.......................   12      17     175
     Compensation expense in connection with issuance of
      common stock and stock options.....................    1     343     269
     Other...............................................   --      11      --
     Changes in operating assets and liabilities:
      Accounts receivable................................  (24) (1,385) (2,009)
      Income tax receivable..............................   --      --    (374)
      Inventories........................................  (24)   (558) (3,223)
      Prepaids and other.................................    5     (17) (1,371)
      Deferred taxes.....................................   --    (139)   (205)
      Accounts payable...................................   42     505   3,595
      Accrued expenses...................................   32     180     679
      Income taxes payable...............................   --     363    (363)
                                                          ----  ------  ------
       Net cash provided by (used in) operating
        activities.......................................  (41)    935  (1,167)
                                                          ----  ------  ------
CASH FLOWS FROM INVESTING ACTIVITIES--
 Purchases of property and equipment.....................   (3)    (51) (1,114)
                                                          ----  ------  ------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Increase in short-term borrowings.......................   --      --   1,100
 Proceeds from long-term debt............................   --      --     300
 Payments of capital lease obligations...................   (5)     --      (3)
 Proceeds from issuance of convertible bonds.............   71     201      --
 Proceeds from exercise of stock options.................   --      --      13
 Initial public offering costs...........................   --      --    (159)
                                                          ----  ------  ------
       Net cash provided by financing activities.........   66     201   1,251
                                                          ----  ------  ------
NET INCREASE (DECREASE) IN CASH..........................   22   1,085  (1,030)
CASH, beginning of year..................................   12      34   1,119
                                                          ----  ------  ------
CASH, end of year........................................ $ 34  $1,119  $   89
                                                          ====  ======  ======
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-6
<PAGE>
 
                              BALANCE BAR COMPANY
 
                         NOTES TO FINANCIAL STATEMENTS
 
                               DECEMBER 31, 1997
 
1. THE COMPANY
 
  Balance Bar Company, a Delaware corporation, (the Company) develops and
markets branded food products in convenient, good tasting, balanced
nutritional formulations. The Company's name was changed from Bio-Engineered
Foods, Inc. in 1997. The Company's current products, the "BALANCE--THE
COMPLETE NUTRITIONAL FOOD" bar and the "40-30-30 BALANCE" powdered drink mix,
are based on caloric proportions of 40% carbohydrates, 30% protein and 30%
dietary fat. During all periods presented, in excess of 90% the Company
revenue was derived from sales of its Balance bar (in multiple flavors and two
sizes).
 
2. CONCENTRATIONS OF RISK
 
  Accounts receivable are unsecured and the Company is at risk to the extent
such amounts become uncollectable. As of December 31, 1996, two customers
comprised 31% and 19% of accounts receivable. As of December 31, 1997, two
customers comprised 18% and 17% of accounts receivable, respectively.
 
  During the year ended December 31, 1995, the Company did not have sales to
any customer that represented greater than 10% of sales. During the year ended
December 31, 1996, the Company had sales to two customers that represented
approximately 26% and 14%, respectively, of sales. During the year ended
December 31, 1997, the Company had sales to one customer that represented
approximately 25% of sales. In February 1998, the Company entered into a two
year exclusive sales agreement with this customer. The Company's customers are
comprised primarily of distributors and retailers and are located primarily
throughout the United States, and to a lesser extent Canada and Japan. Sales
to customers outside the United States were less than 10 percent of sales for
all periods presented.
 
  The Company has no internal capacity to produce its products and relies on
two contract manufacturers to produce its products. One manufacturer is
located in California and the other in Eastern Canada. The partial or total
loss of supply from either of these contract manufacturers would adversely
affect the Company's ability to fulfill orders and make timely delivery of
products. The Company has entered into long-term supply contracts with the two
contract manufacturers that require the Company to purchase minimum numbers of
bars per year and the contract manufacturers to supply specified numbers of
bars per year. If the production capacity of the two contract manufacturers is
insufficient to fill sales orders, the Company will attempt to use other
contract manufacturers. The Company may not be able to establish additional
production sources at acceptable prices that meet quality and capacity
requirements at other contract manufacturers, if necessary.
 
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
  a. Use of Estimates
 
    The preparation of financial statements in conformity with generally
  accepted accounting principles requires management to make estimates and
  assumptions that affect the reported amounts of assets and liabilities and
  disclosure of contingent assets and liabilities at the date of the
  financial statements and the reported amounts of revenues and expenses
  during the reporting period. Actual results could differ from those
  estimates.
 
                                      F-7
<PAGE>
 
  b. Inventories
 
    Inventories are valued at the lower of cost (first-in, first-out) or
  market and consist of the following at December 31, 1996 and 1997 (in
  000's):
 
<TABLE>
<CAPTION>
                                                                     DECEMBER
                                                                        31,
                                                                    -----------
                                                                    1996  1997
                                                                    ---- ------
   <S>                                                              <C>  <C>
   Balance bars.................................................... $278 $2,074
   Powdered drink mix..............................................   --    473
   Packaging material and other....................................  305  1,259
                                                                    ---- ------
                                                                    $583 $3,806
                                                                    ==== ======
</TABLE>
 
  c. Property and Equipment
 
    Property and equipment are stated at cost. Depreciation and amortization
  are computed using the straight-line method over each assets useful life
  ranging from one to seven years.
 
    The Company capitalizes expenditures that materially increase asset lives
  and charges ordinary repairs and maintenance to operations as incurred.
  When assets are sold or otherwise disposed of, the cost and related
  accumulated depreciation or amortization are removed from the accounts and
  any resulting gain or loss is included in operations.
 
  d. Deferred Offering Costs
 
    In connection with its proposed public offering of common stock, the
  Company has capitalized $315,000 of related costs as of December 31, 1997.
  These costs are included in long-term other assets in the accompanying
  balance sheets and will be charged to common stock upon completion of the
  offering or otherwise to operations.
 
  e. Coupons
 
    The Company provides for coupon redemption costs at the time of coupon
  distribution. As of December 31, 1996 and 1997, costs related to the
  redemption of distributed but unredeemed coupons were not material.
 
  f. Revenue Recognition
 
    The Company recognizes revenue at the time of shipment. The Company
  provides for estimated returns and allowances at the time of shipment.
 
  g. Advertising and Marketing
 
    The costs of advertising and marketing are expensed as the advertising
  takes place, as free samples and promotional materials are distributed and
  as promotional events are held. At December 31, 1997, prepaids and other
  current assets in the accompanying balance sheets includes $1,015,000 of
  prepaid advertising.
 
  h. Statements of Cash Flows
 
    For purposes of the statements of cash flows, the Company considers all
  highly liquid investments with an original maturity of three months or less
  to be cash equivalents.
 
    Cash payments for interest were $4,000, $23,000 and $24,000 for the years
  ended December 31, 1995, 1996 and 1997, respectively. Cash payments for
  taxes were $1,000, $1,000 and $2,159,000 for the years ended December 31,
  1995, 1996 and 1997, respectively.
 
                                      F-8
<PAGE>
 
    Non-cash transactions excluded from the statements of cash flows consist
  of the conversion into common stock of $71,000 in 1995 and $201,000 in 1996
  of convertible bonds.
 
  i. Earnings (Loss) Per Share
 
    Earnings (loss) per share is computed in accordance with Financial
  Accounting Standards (SFAS) No. 128, "Earnings per share." Earnings (loss)
  per share for the years ended December 31, 1996 and 1997 are based on the
  weighted average number of common and preferred shares outstanding plus the
  dilutive effects of stock options. For the year ended December 31, 1995,
  stock options were not included as their effect would be anti-dilutive. In
  connection with the Company's initial public offering, the Company has
  obtained commitments from all of the holders of convertible preferred stock
  to convert the preferred stock to common stock (see Note 11). As such, the
  preferred shares have been included in the calculation of weighted average
  number of shares for basic earnings (loss) per share in the accompanying
  statements of operations.
 
    The weighted average number of common and preferred shares outstanding
  for the years ended December 31, 1995, 1996 and 1997 was 1,300,000,
  1,402,000 and 1,550,000, respectively. The dilutive effect of stock options
  for the years ended December 31, 1996 and 1997 was 155,000 and 291,000,
  respectively.
 
  j. Fair Value of Financial Instruments
 
    Based on borrowing rates currently available for bank loans, the fair
  value of short-term borrowings and long-term debt approximates carrying
  values. The fair value of other financial instruments, consisting of cash,
  and short-term trade receivables and payables also approximate carrying
  values.
 
  k. New Authoritative Pronouncements
 
    In June 1997, the Financial Accounting Standards Board issued SFAS No.
  130, "Reporting Comprehensive Income" (SFAS 130) and SFAS No. 131,
  "Disclosures about Segments of an Enterprise and Related Information" (SFAS
  131). SFAS 130 and SFAS 131 are effective in 1998. The Company does not
  have any items or other comprehensive income and, accordingly, SFAS 130
  does not have any effect on the Company's financial reporting. Management
  does not expect the adoption of SFAS 131 to have a material impact on the
  Company's financial reporting.
 
4. PROPERTY AND EQUIPMENT
 
  Property and equipment consist of the following at December 31, 1996 and
1997 (in 000's):
 
<TABLE>
<CAPTION>
                                                                    DECEMBER
                                                                       31,
                                                                   ------------
                                                                   1996   1997
                                                                   ----  ------
   <S>                                                             <C>   <C>
   Furniture and fixtures........................................  $16   $  264
   Machinery and equipment.......................................   95      835
   Leasehold improvements........................................   --      142
                                                                   ---   ------
                                                                   111    1,241
   Less: Accumulated depreciation and amortization...............  (55)    (230)
                                                                   ---   ------
                                                                   $56   $1,011
                                                                   ===   ======
</TABLE>
 
                                      F-9
<PAGE>
 
5. SHORT-TERM BORROWINGS AND LONG-TERM DEBT
 
  In 1997, the Company obtained a line-of-credit with a bank that expires on
June 1, 1998. The line-of-credit provides the Company with maximum borrowings
of $3,500,000. Advances are limited to 75 percent of eligible accounts
receivable and are secured by all of the company's assets. Interest accrues at
the bank's prime rate (8.5 percent at December 31, 1997) plus one percent. As
of December 31, 1997, there was $1,100,000 outstanding under this agreement.
Selected information regarding short-term borrowings for the year ended
December 31, 1997 is as follows (dollars in 000's):
 
<TABLE>
      <S>                                                                <C>
      Average amount outstanding........................................ $  208
      Maximum amount outstanding........................................ $1,100
      Weighted average interest rate during period......................   9.50%
</TABLE>
 
  In December 1997, the Company obtained a $300,000 three year loan from a
bank. The loan is secured by all of the Company's assets. Interest accrues at
the bank's prime rate (8.5 percent at December 31, 1997) plus one percent. The
principal balance is due $82,000 in 1998, $99,000 in 1999, $109,000 in 2000
and $10,000 in 2001.
 
6. INCOME TAXES
 
  The Company accounts for income taxes under the provisions of SFAS No. 109,
"Accounting for Income Taxes." Under SFAS No. 109, deferred income tax assets
or liabilities are computed based on the temporary difference between the
financial statement and income tax bases of assets and liabilities using the
current marginal income tax rate. Deferred income tax expenses or credits are
based on the changes in deferred income tax assets or liabilities from period
to period.
 
  The provisions for income taxes for the years ended December 31, 1995, 1996
and 1997 are as follows (in 000's):
 
<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                              -----------------
                                                              1995 1996   1997
                                                              ---- ----  ------
      <S>                                                     <C>  <C>   <C>
      CURRENT:
        Federal.............................................. $--  $227  $1,116
        State................................................   1   137     305
                                                              ---  ----  ------
                                                                1   364   1,421
                                                              ---  ----  ------
      DEFERRED...............................................  --  (139)   (205)
                                                              ---  ----  ------
        Provision for income taxes........................... $ 1  $225  $1,216
                                                              ===  ====  ======
</TABLE>
 
  Differences between the provision for income taxes and income taxes at the
statutory federal income tax rate for the years ended December 31, 1996 and
1997 are as follows (dollars in 000's):
 
<TABLE>
<CAPTION>
                                                           DECEMBER 31,
                                                      -------------------------
                                                         1996         1997
                                                      -----------  ------------
     <S>                                              <C>   <C>    <C>     <C>
     Income tax at statutory federal rate............ $626   34.0% $  978  34.0%
     State income taxes, net of federal benefit......   80    4.3     187   6.5
     Effect of permanent differences.................   92    5.0      60   2.1
     Net operating loss carryforwards................ (547) (29.7)     --    --
     Other items, net................................  (26)  (1.4)     (9) (0.3)
                                                      ----  -----  ------  ----
                                                      $225   12.2% $1,216  42.3%
                                                      ====  =====  ======  ====
</TABLE>
 
                                     F-10
<PAGE>
 
  Under SFAS No. 109, deferred tax assets are recognized for temporary
differences that will result in deductible amounts in future periods. The
components of the deferred income tax assets (liabilities) at December 31,
1996 and 1997 are as follows (in 000's):
 
<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                                 --------------
                                                                  1996    1997
                                                                 ------  ------
      <S>                                                        <C>     <C>
      State taxes............................................... $   45  $  109
      Allowance for doubtful accounts...........................      9      68
      Inventory reserves........................................     --      23
      Depreciation..............................................     (3)    (15)
      Accrued liabilities.......................................     46      76
      Other.....................................................     42      83
                                                                 ------  ------
                                                                 $  139  $  344
                                                                 ======  ======
</TABLE>
 
7. COMMITMENTS AND CONTINGENCIES
 
  The Company leases its facilities and certain property and equipment under
long-term operating leases expiring at various dates through January 2001.
Total rental expense for the years ended December 31, 1995, 1996 and 1997 was
$22,000, $29,000 and $131,000, respectively.
 
  Future minimum lease payments under operating leases are as follows (in
000's):
 
<TABLE>
      <S>                                                                   <C>
      Years ending December 31,
      1998................................................................. $245
      1999.................................................................  245
      2000.................................................................  164
      2001.................................................................   13
                                                                            ----
                                                                            $667
                                                                            ====
</TABLE>
 
  Included in property and equipment is approximately $16,000 of equipment
that is leased under a lease accounted for as a capital lease that expires
December 31, 2001.
 
  The Company has been named as a defendant in various lawsuits arising out of
the normal course of business. Management believes the final outcome of such
claims will not have a material impact on the Company's financial position or
results of operations.
 
8. SHAREHOLDERS' EQUITY
 
  In 1997, the Company adopted SFAS No. 129 "Disclosure of Information About
Capital Structure." Holders of the Company's common stock and convertible
preferred stock are entitled to voting rights at the rate of one vote per
share. Preferred stockholders are entitled to a liquidation preference of
$2.30 per share. Preferred stock may be converted to common stock, at the rate
of one share for one share, at any time. No dividend has ever been declared on
the Company's common or convertible preferred stock.
 
  In 1995 and 1996, the Company issued $71,000 and $201,000 of 12 percent
convertible bonds, respectively. These bonds were converted into common stock
at the rate of $1 per share and $1.50 per share, respectively in the years the
bonds were issued.
 
  The Company has two stock option plans, under which the Company is
authorized to issue incentive and non-qualified stock options to its
directors, officers, key employees and consultants totaling up to 430,000
shares of common stock. The Company has issued 77,918 stock options outside of
these two stock option
 
                                     F-11
<PAGE>
 
plans. At December 31, 1997, 63,279 shares are available for future grant
under these two plans. Options are generally granted at exercise prices not
less than the fair market value on the date of grant and expire 10 years after
the date of grant. Options granted under these plans vest over various periods
up to three years.
 
  The Company adopted SFAS No. 123, "Accounting for Stock Based Compensation"
(SFAS 123) in 1996. As allowed by SFAS 123, the Company has elected to
continue to measure compensation cost under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and comply
with the pro forma disclosure requirements of the new standard.
 
  A summary of the Company's outstanding options and activity follows for the
years ended December 31, 1995, 1996 and 1997:
 
<TABLE>
<CAPTION>
                                1995              1996              1997
                          ----------------- ----------------- -----------------
                                   WEIGHTED          WEIGHTED          WEIGHTED
                          SHARES   AVERAGE  SHARES   AVERAGE  SHARES   AVERAGE
                           UNDER   EXERCISE  UNDER   EXERCISE  UNDER   EXERCISE
                          OPTION    PRICE   OPTION    PRICE   OPTION    PRICE
                          -------  -------- -------  -------- -------  --------
<S>                       <C>      <C>      <C>      <C>      <C>      <C>
OPTIONS OUTSTANDING,
 beginning of year.......  39,068   $1.01    46,418   $0.53   434,887   $ 1.02
  Granted................  22,600    0.50   390,969    1.08     7,800     2.29
  Canceled............... (11,250)   2.30        --      --    (4,348)    0.01
  Exercised..............  (4,000)   0.01    (2,500)   2.30    (9,748)    0.78
                          -------           -------           -------
OPTIONS OUTSTANDING, end
 of year.................  46,418    0.53   434,887    1.02   428,591     1.05
                          =======           =======           =======
Options exercisable at
 end of year.............  46,418   $0.53   254,356   $ .88   337,776   $ 1.00
                          =======           =======           =======
Weighted average fair
 value of of options
 granted during the year.           $0.50             $2.30             $19.74
                                    =====             =====             ======
</TABLE>
 
  The following table summarizes information about the options outstanding at
December 31, 1997:
 
<TABLE>
<CAPTION>
                                 WEIGHTED AVERAGE
   EXERCISE                         REMAINING
    PRICES    NUMBER OUTSTANDING CONTRACTUAL LIFE NUMBER EXERCISABLE
   --------   ------------------ ---------------- ------------------
   <S>        <C>                <C>              <C>
   $0.01             6,522           .5 years            6,522
   $0.50            32,150          7.3 years           32,150
   $1.00           359,371          8.2 years          280,704
   $2.50            30,548          9.0 years           14,400
                   -------                             -------
                   428,591                             337,776
                   =======                             =======
</TABLE>
 
  As permitted by SFAS 123, the Company continues to apply the accounting
rules of APB 25 governing the recognition of compensation expense from its
stock option plans. Such accounting rules measure compensation expense on the
first date at which both the number of shares and the exercise price are
known. Under the Company's plans, this would typically be the grant date. To
the extent that the exercise price equals or exceeds the market value of the
stock on the grant date, no expense is recognized. Compensation expense is
recognized for options where the market value of the stock on the grant date
exceeds the exercise price. The compensation expense is recognized immediately
if vesting is at issuance or ratably over the vesting period if the options
vest over time.
 
  Under the provisions of SFAS 123, equity instruments granted to non-
employees are excluded from the pro forma disclosure requirements and are
recorded as compensation expense at fair value in the accompanying statements
of operations.
 
  During the years ended December 31, 1995, 1996 and 1997, the Company
recorded compensation expense of $1,000, $313,000 and $209,000, respectively,
in connection with stock option and common stock
 
                                     F-12
<PAGE>
 
grants to employees at exercise prices less than fair market value on the date
of grant. During the years ended December 31, 1996 and 1997, the Company
recorded compensation expense of $30,000 and $60,000, respectively, in
connection with common stock grants to non-employees.
 
  Had the Company applied the fair value based method of accounting, which is
not required, to all grants of stock options, under SFAS 123, the Company
would have recorded additional compensation expense and computed pro forma net
income (loss) and earnings (loss) per share amounts as follows for the years
ended December 31, 1995, 1996 and 1997 (amounts in 000's except for per share
data):
 
<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                           --------------------
                                                           1995    1996   1997
                                                           -----  ------ ------
   <S>                                                     <C>    <C>    <C>
   Additional compensation expense........................ $   3  $   64 $   37
   Pro forma net income (loss)............................ $ (88) $1,555 $1,635
   Pro forma earnings (loss) per share:
     Basic................................................ (0.07)   1.11   1.05
     Diluted.............................................. (0.07)   1.00   0.89
</TABLE>
 
  These pro forma amounts were determined by estimating the fair value of each
option on its grant date using the Black-Scholes option-pricing model.
Assumptions of 6.30 percent for risk free interest rate, 6 years for expected
life, zero volatility and no expected dividends were applied to all grants in
1995 and 1996. Assumptions of 6.54 percent for risk free interest rate, 6
years for expected life, zero volatility and no expected dividends were
applied to all grants in 1997.
 
9. RELATED PARTY TRANSACTIONS
 
  In December 1995, the Company entered into a management consulting agreement
with a member of the board of directors. In 1996, the Company recorded
$116,000 of expense in connection with this agreement.
 
  During 1997, the Company paid $44,000 to one member of the board of
directors in connection with special services related to the Company's initial
public offering.
 
10. 401(k) PLAN
 
  In 1997, the Company adopted a 401(k) Plan (the Plan). All employees are
eligible to participate in the Plan after 3 months of service. The Company
matches up to a percent of employee contributions made during the year. The
total Company 401(k) matching contribution recognized for the year ended
December 31, 1997 was $42,000.
 
11. INITIAL PUBLIC OFFERING
 
  The Company intends to have an initial public offering of its common stock
in 1998. In connection with the Company's initial public offering, the Company
has obtained commitments from all of the holders of convertible preferred
stock to convert the preferred stock to common stock if the proposed initial
offering is completed. This commitment expires in June 1998.
 
                                     F-13
<PAGE>
 
[PICTURE SHOWING PEOPLE ENGAGING IN VARIOUS ACTIVITIES AND A LARGE BALANCE BAR]
<PAGE>
 
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
 
   NO DEALER, SALESPERSON OR
 OTHER PERSON HAS BEEN AUTHORIZED
 TO GIVE ANY INFORMATION OR TO
 MAKE ANY REPRESENTATIONS OTHER
 THAN THOSE CONTAINED IN THIS
 PROSPECTUS AND, IF GIVEN OR
 MADE, SUCH INFORMATION OR
 REPRESENTATIONS MUST NOT BE
 RELIED UPON AS HAVING BEEN
 AUTHORIZED BY THE COMPANY, ANY
 SELLING STOCKHOLDER OR THE
 UNDERWRITERS. THIS PROSPECTUS
 DOES NOT CONSTITUTE AN OFFER TO
 SELL OR A SOLICITATION OF
 AN OFFER TO BUY TO ANY PERSON IN
 ANY JURISDICTION IN WHICH SUCH
 OFFER OR SOLICITATION WOULD BE
 UNLAWFUL OR TO ANY PERSON TO
 WHOM IT IS UNLAWFUL. NEITHER THE
 DELIVERY OF THIS PROSPECTUS NOR
 ANY OFFER OR SALE MADE HERE-
 UNDER SHALL, UNDER ANY
 CIRCUMSTANCES, CREATE ANY
 IMPLICATION THAT THERE HAS BEEN
 NO CHANGE IN THE AFFAIRS OF THE
 COMPANY OR THAT THE INFORMATION
 CONTAINED HEREIN IS CORRECT AS
 OF ANY TIME SUBSEQUENT TO THE
 DATE HEREOF.
 
                                  -----------
 
                               TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                           PAGE
                                                                           ----
  <S>                                                                      <C>
  Prospectus Summary......................................................   3
  Risk Factors............................................................   5
  Use of Proceeds.........................................................  14
  Dividend Policy.........................................................  14
  Capitalization..........................................................  15
  Dilution................................................................  16
  Selected Financial Data.................................................  17
  Management's Discussion and Analysis of Financial Condition and Results
   of Operations..........................................................  18
  Business................................................................  26
  Management..............................................................  39
  Certain Transactions....................................................  46
  Principal and Selling Stockholders......................................  47
  Description of Capital Stock............................................  49
  Shares Eligible for Future Sale.........................................  52
  Underwriting............................................................  53
  Legal Matters...........................................................  54
  Experts.................................................................  54
  Additional Information..................................................  55
  Index to Financial Statements........................................... F-1
</TABLE>
 
                                  -----------
 
   UNTIL       , 1998 (25 DAYS
 AFTER THE DATE OF THIS PROSPEC-
 TUS), ALL DEALERS EFFECTING
 TRANSACTIONS IN THE COMMON
 STOCK, WHETHER OR NOT PARTICI-
 PATING IN THIS DISTRIBUTION, MAY
 BE REQUIRED TO DELIVER A PRO-
 SPECTUS. THIS IS IN ADDITION TO
 THE OBLIGATION OF DEALERS TO DE-
 LIVER A PROSPECTUS WHEN ACTING
 AS UNDERWRITERS AND WITH RESPECT
 TO THEIR UNSOLD ALLOTMENTS OR
 SUBSCRIPTIONS.
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
                                      SHARES

                                  BALANCE BAR
                                    COMPANY

                                 COMMON STOCK
 
                                --------------
 
                                  PROSPECTUS
 
                                --------------
 
                               HAMBRECHT & QUIST

                         ADAMS, HARKNESS & HILL, INC.
 
                                       , 1998
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<PAGE>
 
                                    PART II
 
                    INFORMATION NOT REQUIRED IN PROSPECTUS
 
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
 
  The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates
except the SEC registration fee, the NASD fee and the National Market System
application fee.
 
<TABLE>
<CAPTION>
                                                                       AMOUNT TO
                                                                        BE PAID
                                                                       ---------
   <S>                                                                 <C>
   SEC registration fee...............................................  $10,397
   NASD fee...........................................................    4,024
   Application fee--National Market System............................       *
   Printing and engraving expenses....................................       *
   Legal fees and expenses............................................       *
   Accounting fees and expenses.......................................       *
   Blue Sky qualification fees and expenses...........................       *
   Transfer Agent and Registrar fees..................................       *
   D&O Insurance......................................................       *
   Miscellaneous fees and expenses....................................       *
                                                                        -------
     Total............................................................  $
                                                                        =======
</TABLE>
--------
* To be provided by Amendment.
 
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
 
  The Company's Certificate of Incorporation provides that to the fullest
extent permitted by the DGCL, a director of the Company will not be liable to
the Company or its stockholders for monetary damages for breach of fiduciary
duty as a director. Under the DGCL, liability of a director may not be limited
(i) for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or repurchases, and
(iv) for any transaction from which the director derives an improper personal
benefit. The effect of the provisions of the Company's Certificate of
Incorporation is to eliminate the rights of the Company and its stockholders
(through stockholders' derivative suits on behalf of the Company) to recover
monetary damages against a director for breach of the fiduciary duty of care
as a director (including breaches resulting from negligent or grossly
negligent behavior), except in the situations described in clauses (i) through
(iv) above. This provision does not limit or eliminate the rights of the
Company or any stockholder to seek nonmonetary relief such as an injunction or
rescission in the event of a breach of a director's duty of care. In addition,
the Company's Certificate of Incorporation provides that the Company will
indemnify its directors, officers, employees, and agents against losses
incurred by any such person by reason of the fact that such person was acting
in such capacity.
 
  The Company has entered into contracts with each of the directors and
executive officers of the Company under which the Company must indemnify them
from claims, liabilities, damages, expenses, losses, costs, penalties or
amounts paid in settlement incurred by them in or arising out of their work
for or on behalf of the Company, to the maximum extent provided by applicable
law. In addition, such parties are entitled to an advance of expenses is such
matters, to the maximum extent authorized or permitted by law.
 
  To the extent that the Board of Directors or the stockholders of the Company
wish to limit or repeal the ability of the Company to provide indemnification
as set forth in the Company's Certificate of Incorporation, such repeal or
limitation may not be effective as to directors and officers who are parties
to the
 
                                     II-1
<PAGE>
 
Indemnification Agreements, because their rights to full protection would be
contractually assured by the Indemnification Agreements. It is anticipated
that similar contracts may be entered into, from time to time, with future
directors of the Company.
 
  The Form of Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Company and
its directors and officers for certain liabilities arising under the
Securities Act or otherwise.
 
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
 
  Set forth below is certain information concerning all sales of securities by
the Company during the past three years that were not registered under the
Securities Act. The Company believes that each of such transactions was exempt
from registration under either Section 4(2) or Rule 701 of the Securities Act.
 
    (a) On February 1, 1995, an aggregate of 1,000 shares of the Company's
  Common Stock were issued to 6 employees for no consideration. The shares
  were issued as gifts to these employees.
 
    (b) On February 9, 1995, 14,000 shares of the Company's Common Stock were
  issued to a vendor for consideration of $14,000. The shares were issued in
  connection with the release of a debt owed by the Company for past
  accounting services.
 
    (c) On October 16, 1995, 4,000 shares of the Company's Common Stock were
  issued to an employee for consideration of $40. The shares were issued in
  connection with the exercise of stock options by this employee.
 
    (d) On January 20, 1996, 15,000 shares of the Company's Common Stock were
  issued to Richard Lamb and 10,000 shares of Common Stock were granted to
  one other employee for consideration of past services.
 
    (e) On January 22, 1996, and April 16, 1996, an aggregate of 71,000
  shares of the Company's Common Stock were issued to various investors and
  Thomas Davidson for an aggregate consideration of $71,000. The shares were
  issued in connection with the conversion of convertible bonds purchased by
  these investors and Mr. Davidson from July 1995 to January 1996.
 
    (f) On April 24, 1996, 2,500 shares of the Company's Common Stock were
  issued to one employee in consideration for past services.
 
    (g) On December 16, 1996, 3,000 shares of the Company's Common Stock were
  issued to a professional fitness trainer for consideration of past
  services.
 
    (h) On December 17, 1996, 2,172 shares of the Company's Common Stock were
  issued to James Wolfe in consideration for past services.
 
    (i) On December 17, 1996, 2,500 shares of Common Stock were issued to a
  former employee for consideration of $5,750. The shares were issued in
  connection with the exercise of this former employee's stock options.
 
    (j) On January 15, 1997, 134,001 shares of Common Stock were issued to
  various investors and Thomas Davidson for aggregate consideration of
  $201,000. The shares were issued in connection with the conversion of
  convertible bonds purchased from July 1995 to January 1996.
 
    (k) On April 1, 1997, 3,000 shares of the Company's Common Stock were
  issued to a professional fitness trainer for consideration of past
  services.
 
    (l) On May 9, 1997, an aggregate of 2,250 shares of the Company's Common
  Stock were issued to an former employee for aggregate consideration of
  $270. The shares were issued in connection with the exercise of stock
  options by this former employee.
 
                                     II-2
<PAGE>
 
    (m) On August 25, 1997, 2,500 shares of the Company's Common Stock were
  issued to Thomas Davidson for consideration of $5,750. The shares were
  issued in connection with the exercise of stock options by Mr. Davidson.
 
    (n) On October 6, 1997, 4,348 shares of Common Stock were issued to
  Dennis McCarthy for $43. These shares were issued in connection with the
  exercise of stock options held by Mr. McCarthy.
 
    (o) On December 31, 1997, 650 shares of the Company's Common Stock were
  issued to Patrick Lee for $1,625. These shares were issued in connection
  with the exercise of stock options held by Mr. Lee.
 
    (p) On January 16, 1998, 50,000 shares of the Company's Common Stock were
  issued to James Wolfe for $50,000. These shares were issued in connection
  with the exercise of stock options held by Mr. Wolfe.
 
    (q) On January 23, 1998, 500 shares of the Company's Common Stock were
  issued to an employee for $500. These shares were issued in connection with
  the exercise of stock options held by this employee.
 
    (r) On March 20, 1998, 1,800 shares of the Company's Common Stock were
  issued to a former Company director. These shares were issued in connection
  with the exercise of stock options granted to the former director.
 
    (s) On March 30, 1998, 2,174 shares of the Company's Common Stock were
  issued to James Wolfe. These shares were issued in connection with the
  exercise of stock options granted to Mr. Wolfe.
 
    (t) On March 30, 1998, 2,000 shares of the Company's Common Stock were
  issued to two employees. These shares were issued in connection with the
  exercise of stock options granted to these employees.
 
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 
  (a) Exhibits Number
 
<TABLE>
<CAPTION>
   NUMBER                              DESCRIPTION
   ------                              -----------
   <C>     <S>
    1.1*   Form of Underwriting Agreement
    3.1*   Restated Certificate of Incorporation of the Company
    3.2*   Amended and Restated Bylaws of the Company
    4.1*   Specimen of Common Stock Certificate
    5.1*   Opinion of O'Melveny & Myers LLP
   10.1    Form of Indemnification Agreement between the Company and each of
            its executive officers and directors
   10.2(1) Production Agreement between the Company and Bariatrix
            International, Inc.
   10.3(1) Production Agreement between the Company and Nellson Candies, Inc.
   10.4    1993 Stock Incentive Plan
   10.5    1997 Stock Incentive Plan
   10.6*   1998 Stock Incentive Plan
   10.7*   Employment Agreement between the Company and James A. Wolfe
   10.8.1  Credit Agreement between the Company and Santa Barbara Bank & Trust
            for the Revolving Line of Credit
   10.8.2  Security Agreement between the Company and Santa Barbara Bank &
            Trust
   10.8.3  Promissory Note by the Company in favor of Santa Barbara Bank &
            Trust
   10.8.4  Security Agreement between the Company and Santa Barbara Bank &
            Trust
   10.8.5  Promissory Note from the Company in favor of Santa Barbara Bank &
            Trust
   10.9(1) Letter Agreement between the Company and Trader Joe's
</TABLE>
 
 
                                     II-3
<PAGE>
 
<TABLE>
<CAPTION>
    NUMBER                              DESCRIPTION
    ------                              -----------
   <C>      <S>
   10.10(1) Agreement Between the Company and Tree of Life
   10.11    Form of Employee Option Agreement under 1993 Stock Incentive Plan
   10.12    Form of Employee Option Agreement under 1997 Stock Incentive Plan
   10.13*   Form of Employee Option Agreement under 1998 Performance Award Plan
   11.1     Statement of Computation of Per Share Earnings
   23.1     Consent of Independent Auditors
   23.2*    Consent of O'Melveny & Myers LLP (included in Exhibit 5.1)
   24.1     Power of Attorney (see page II-5)
   27.1     Financial Data Schedule
</TABLE>
--------
*   To be filed by Amendment.
(1) The Company has requested confidential treatment for portions of these
    agreements.
 
  (b) Financial Statement Schedules
 
  All schedules for which provision is made in the applicable accounting
regulations of the Commission are provided in the Notes to the Financial
Statements included elsewhere in this Registration Statement or are not
required under the applicable instructions or are inapplicable and therefore
have been omitted.
 
ITEM 17. UNDERTAKINGS
 
  (a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
 
  (b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions described in Item 14 or otherwise, the
Registrant has been advised that in the opinion of the Commission, such
indemnification is against public policy as expressed in the Securities Act,
and is, therefore, unenforceable. If a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered hereunder, the Registrant will, unless in the opinion of its
counsel, the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
 
  (c) The undersigned Registrant hereby undertakes that:
 
    (1) For purposes of determining any liability under the Securities Act,
  the information omitted from the form of Prospectus filed as part of this
  Registration Statement in reliance upon Rule 430A and contained in a form
  of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
  Rule 497(h) under the Securities Act will be deemed to be part of this
  Registration Statement as of the time it was declared effective.
 
    (2) For the purpose of determining any liability under the Securities
  Act, each post-effective amendment that contains a form of Prospectus will
  be deemed to be a new Registration Statement relating to the securities
  offered therein, and the offering of such securities at that time will be
  deemed to be the initial bona fide offering thereof.
 
 
                                     II-4
<PAGE>
 
                                  SIGNATURES
 
  Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-1 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Carpinteria, State of California on this seventh day of April, 1998.
 
                                          BALANCE BAR COMPANY
 
                                                   /s/ James A. Wolfe
                                          By: _________________________________
                                                      James A. Wolfe
                                          Its:   President and Chief Executive
                                           Officer
 
                                     II-5
<PAGE>
 
                               POWER OF ATTORNEY
 
  KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints James A. Wolfe, Richard G. Lamb, and
Thomas J. Flahie, and each of them acting individually, as such person's
attorney in fact, each with full power of substitution, for such person in any
and all capacities, to sign any and all amendments to this Registration
Statements (including post-effective amendments), and to file the same, with
exhibits and other documents in connection therewith, with the Commission.
Each such signatory hereby ratifies and confirms our signatures as they may be
signed by said attorney-in-fact to any and all amendments to said Registration
Statement, or any related registration statement that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act of 1933.
 
  Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
 
<TABLE>
<CAPTION>
             SIGNATURE                           TITLE                    DATE
             ---------                           -----                    ----
<S>                                  <C>                           <C>
     /s/ Thomas R. Davidson          Chairman of the Board of        April 7, 1998
____________________________________  Directors
         Thomas R. Davidson
         /s/ James A. Wolfe          Chief Executive Officer         April 7, 1998
____________________________________  (Principal Executive
            James A. Wolfe            Officer) and Director
        /s/ Thomas J. Flahie         Senior Vice President of        April 7, 1998
____________________________________  Finance and Administration
           Thomas J. Flahie           (Principal Financial and
                                      Accounting Officer)
      /s/ Adelle M. Demko            Director                        April 7, 1998
____________________________________
          Adelle M. Demko
         /s/ Barry D. Goss           Director                        April 7, 1998
____________________________________
            Barry D. Goss
           /s/ John Hale             Director                        April 7, 1998
____________________________________
              John Hale
      /s/ Richard G. Lamb            Director                        April 7, 1998
____________________________________
          Richard G. Lamb
      /s/ Dennis Ryan McCarthy       Director                        April 7, 1998
____________________________________
         Dennis Ryan McCarthy
       /s/ George F. Raymond         Director                        April 7, 1998
____________________________________
          George F. Raymond
</TABLE>
 
                                     II-6
<PAGE>
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
 NUMBER                                DESCRIPTION
 ------                                -----------
 <C>      <S>
  1.1*    Form of Underwriting Agreement
  3.1*    Restated Certificate of Incorporation of the Company
  3.2*    Amended and Restated Bylaws of the Company
  4.1*    Specimen of Common Stock Certificate
  5.1*    Opinion of O'Melveny & Myers LLP
 10.1     Form of Indemnification Agreement between the Company and each of its
          executive officers and directors
 10.2(1)  Production Agreement between the Company and Bariatrix International,
          Inc.
 10.3(1)  Production Agreement between the Company and Nellson Candies, Inc.
 10.4     1993 Stock Incentive Plan
 10.5     1997 Stock Incentive Plan
 10.6*    1998 Performance Award Plan
 10.7*    Employment Agreement between the Company and James A. Wolfe
 10.8.1   Credit Agreement between the Company and Santa Barbara Bank & Trust
          for the Revolving Line of Credit
 10.8.2   Security Agreement between the Company and Santa Barbara Bank & Trust
 10.8.3   Promissory Note by the Company in favor of Santa Barbara Bank & Trust
 10.8.4   Security Agreement between the Company and Santa Barbara Bank & Trust
 10.8.5   Promissory Note from the Company in favor of Santa Barbara Bank &
          Trust
 10.9(1)  Letter Agreement between the Company and Trader Joe's
 10.10(1) Agreement Between the Company and Tree of Life
 10.11    Form of Employee Option Agreement under 1993 Stock Incentive Plan
 10.12    Form of Employee Option Agreement under 1997 Stock Incentive Plan
 10.13*   Form of Employee Option Agreement under 1998 Performance Award Plan
 11.1     Statement of Computation of Per Share Earnings
 23.1     Consent of Independent Auditors
 23.2*    Consent of O'Melveny & Myers LLP (included in Exhibit 5.1)
 24.1     Power of Attorney (see page II-6)
 27.1     Financial Data Schedule
</TABLE>
--------
*   To be filed by Amendment.
(1) The Company has requested confidential treatment for portions of these
    agreements.
