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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K/A



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|x |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- |  | ------------------------------------------------------------------------------------



| |  | For the fiscal year ended December 28, 2003
| |  | -------------------------------------------



OR



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



| |  | FOR THE TRANSITION PERIOD FROM  TO
| |  | ----------------------------------



Commission file number 000-31149



California Pizza Kitchen, Inc.

(Exact name of Registrant as Specified in its Charter)



|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|California                                                     |  | 95-4040623                             
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification Number)



6053 West Century
Boulevard, 11th Floor

Los Angeles, California 90045-6442

(Address of Principal Executive Offices, including Zip Code)



(310) 342-5000

(Registrants
Telephone Number, including Area Code)



Securities
registered pursuant to Section 12(b) of the Act:

None



Securities registered pursuant to Section 12(g) of the Act:



Common Stock, $0.01 par value (title of class)



Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes  x    No ̈



Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K, or any amendment to this
Form 10-K. ̈

Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes  x    No ̈



The aggregate market value of voting stock held by non-affiliates of the registrant as of the last trading day of the second fiscal quarter, June 27, 2003, was approximately $249 million based upon the last sales price reported for such
date on the Nasdaq National Market. For purposes of this disclosure, shares of Common Stock held by persons who hold more than 5% of the outstanding shares of Common Stock and shares held by officers and directors of the registrant, have been
excluded in that such persons may be deemed to be affiliates. This determination is not necessarily conclusive.



As of April 20, 2004 there were 19,116,744 shares of the registrants Common Stock outstanding.



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CALIFORNIA PIZZA KITCHEN, INC.



2003
ANNUAL REPORT ON FORM 10-K/A



INDEX



|          |  |                                                                                       |  |     
|--------- |  | ------------------------------------------------------------------------------------- |  | ----
|          |  |                                                                                       |  | Page
|Part I.  
|          |  |                                                                                      
|Item 1.   |  | Business                                                                              |  | 3   
|          |  |                                                                                      
|Item 2.   |  | Properties                                                                            |  | 13  
|          |  |                                                                                      
|Item 3.   |  | Legal Proceedings                                                                     |  | 15  
|          |  |                                                                                      
|Item 4.   |  | Submission of Matters to a Vote of Security Holders                                   |  | 15  
|         
|Part II. 
|          |  |                                                                                      
|Item 5.   |  | Market for the Registrants Common Stock and Related Stockholder Matters              |  | 16  
|          |  |                                                                                      
|Item 6.   |  | Selected Financial Data                                                               |  | 17  
|          |  |                                                                                      
|Item 7.   |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 20  
|          |  |                                                                                      
|Item 7A.  |  | Quantitative and Qualitative Disclosures About Market Risks                           |  | 30  
|          |  |                                                                                      
|Item 8.   |  | Financial Statements and Supplementary Data                                           |  | 30  
|          |  |                                                                                      
|Item 9.   |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  | 30  
|          |  |                                                                                      
|Item 9A.  |  | Controls and Procedures                                                               |  | 30  
|         
|Part III.
|          |  |                                                                                      
|Item 10.  |  | Directors and Executive Officers of the Registrant                                    |  | 32  
|          |  |                                                                                      
|Item 11.  |  | Executive Compensation                                                                |  | 35  
|          |  |                                                                                      
|Item 12.  |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 38  
|          |  |                                                                                      
|Item 13.  |  | Certain Relationships and Related Transactions                                        |  | 46  
|          |  |                                                                                      
|Item 14.  |  | Principal Accounting Fees and Services                                                |  | 47  
|         
|Part IV. 
|          |  |                                                                                      
|Item 15.  |  | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                      |  | 48  



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EXPLANATORY NOTE



On March 12, 2004, we filed our Annual Report on Form 10-K for the year ended December 28, 2003 (the Original
Report) with the Securities and Exchange Commission. In accordance with SEC rules, we incorporated Part III of the Original Report by reference from the proxy statement to be filed in connection with our annual meeting of stockholders. In
accordance with Instruction G(3) of Form 10-K, we are filing this Form 10-K/A to include the information required to be disclosed in Part III since our proxy statement will not be filed within 120 days after the end of our fiscal year. We have not
made any changes to the financial statements included as part of the Original Report except for minor changes to note 2 to clarify the status of our food distribution contract and to add disclosure related to our self-insurance policy; note 3 to
apply consistent classification standards between leasehold improvements and construction-in-progress; note 11 to update dates and amounts paid to certain related parties; and note 12 to add footnotes to the table. These revisions have no effect on
any of the financial data contained in the Original Report.



FORWARD-LOOKING STATEMENTS



This report
contains forward-looking statements that involve risks and uncertainties. These statements relate to our future plans, objectives, expectations and intentions. These statements may be identified by the use of words such as expects,
anticipates, intends, plans and similar expressions. Our actual results could differ materially from those discussed in these statements. Factors that could contribute to these differences include those discussed
under Risk Factors and elsewhere in this report. The cautionary statements made in this report should be read as being applicable to all forward-looking statements wherever they appear in this report.



ASSUMPTIONS USED IN THIS REPORT



Throughout this report, our fiscal years ended January 2, 2000, December
31, 2000, December 30, 2001, December 29, 2002 and December 28, 2003 are referred to as years 1999, 2000, 2001, 2002 and 2003 respectively. Our fiscal year consists of 52 or 53 weeks and ends on the Sunday closest to December 31 in each year. All
fiscal years shown are 52 weeks. Our fiscal quarters typically consist of 13 weeks.



PART I



Item 1.    Business



Overview and Strategy



California Pizza
Kitchen is a leading casual dining restaurant chain with a particular focus on the premium pizza segment. As of April 26, 2004, we own, license or franchise 168 restaurants in 27 states, the District of Columbia and five foreign countries, of which
139 are company owned and 29 operate under franchise or license arrangements. During our 19 years of operating history, we have developed a recognized consumer brand and demonstrated the appeal of our concept in a wide variety of geographic areas.



Our restaurants, which feature an exhibition style kitchen
centered around an open flame oven, provide a distinctive, casual dining experience that is family friendly and has broad consumer appeal. Our menu focuses on imaginative toppings and showcase recipes that capture tastes and flavors that customers
readily identify, but do not typically associate with pizza, pasta or salads. The menu showcases such dishes as The Original BBQ Chicken Pizza, Thai Chicken Pizza, Kung Pao Spaghetti and Tricolore Salad as well as the new CPK Club Salad and
California Club Pizza. While we do offer traditional menu items, the success of our concept is due to our ability to interpret food trends on our platform of pizzas, pastas, salads and appetizers, and to offer items that appeal to a variety of
tastes.



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Our objective is to extend our leadership position in the restaurant and premium pizza market by selling
innovative, high quality pizzas and related products and by providing exceptional customer service, thereby building a high degree of customer loyalty, brand awareness and superior returns for our shareholders. To reach these objectives, we plan to
increase our market share by expanding our restaurant base in new and existing markets, leverage our partnerships in non-traditional and retail channels and offer innovative menu items on our platform of pizzas.



Menu



Our menu committee, which is led by our co-founders Rick Rosenfield and Larry Flax, continuously experiments with food items
and flavor combinations in an attempt to create selections that are innovative and capture distinctive tastes. We first applied our innovative approach to creating and defining a new category of pizzathe premium pizza. For example, our
signature creation, The Original BBQ Chicken Pizza, utilizes barbecue sauce instead of tomato sauce, and adds toppings of BBQ chicken breast, smoked Gouda and mozzarella cheeses, sliced red onion and fresh cilantro. Our Thai Chicken Pizza is created
with a base of spicy peanut-ginger and sesame sauce, and topped with marinated chicken breast, mozzarella cheese, roasted peanuts, green onions, bean sprouts, julienne carrots and fresh cilantro. Among our other innovative pizzas are the California
Club, Carne Asada, Grilled Garlic Shrimp, Jamaican Jerk Chicken and Pear & Gorgonzola.



We have broadened our menu beyond pizza to include pastas, salads, sandwiches, soups, appetizers and desserts, and we strive to bring the same level of creativity and innovation involved in developing our pizzas to
our entire menu. Among our other signature menu items are Chicken-Tequila Fettucine which captures Southwestern flavors in a rich tequila-lime and jalapeno cream sauce, the Original BBQ Chicken Chopped Salad which uses both barbecue sauce and
garden-herb ranch dressing, Oriental Chicken Salad with crispy angel hair pasta, and our hearth-baked Tortilla Spring Roll Appetizers which are sprinkled with herbs and baked in our pizza ovens.



Our menu is also designed to satisfy customers who seek traditional,
American-style, tomato sauce-based pizza or authentic, Italian-style Neapolitan pizza. For the traditionalist, we offer a variety of items such as the Mushroom Pepperoni Sausage Pizza, the Fresh Tomato, Basil and Garlic Pizza, and the Sweet and
Spicy Italian Sausages Pizza that combines sweet Italian sausage and grilled spicy Italian sausage, a tomato sauce base, roasted red and yellow peppers and mild onions. Our Neapolitan pizzas are prepared on a thin, crisp crust and include our
Margherita Pizza with imported Italian tomatoes, fresh mozzarella cheese, fresh basil and parmesan cheese and our Rustica Pizza made with imported Italian tomatoes, fresh mozzarella cheese, garlic, crushed chilies, capers and Mediterranean olives.
Our menu similarly accommodates traditional tastes in pastas and salads, with a variety of tomato sauce based pastas and our high quality versions of popular salads, including our CPK Club, Field Greens, Classic Caesar and Original Chopped.



All of our menu items are prepared to order in our full
service restaurants. This reinforces our customers confidence in the freshness and quality of our preparations and allows us to customize any dish to accommodate specific dietary or taste preferences.



Our menu is continuously evolving to track the increasingly discriminating
and sophisticated palate of the American public. We regularly review the sales mix of our menu items and replace lower selling items in each category with new menu items once or twice a year. Because of our ability to quickly adapt our menu, we
believe that we are able to meet our customers changing tastes and expectations. Our entrees generally range in price from $7.89 to $13.99 and our average guest check during 2003 was approximately $11.60, including alcoholic beverages. We
offer a variety of wines by the bottle or the glass, bottled and tap beers, as well as mixed drinks, primarily to complement our menu offerings.



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Operations



Restaurant management.    We currently have 22 regional directors and three regional Vice Presidents of Operations who report
to our Co-Chief Executive Officers. Each regional director oversees three to nine restaurants and supervises the general manager for each restaurant within his or her area of control. The typical full service restaurant management team consists of a
general manager, who oversees the entire operation of the restaurant, a kitchen manager and two other managers. Additionally, depending upon the size and sales volume of a restaurant, we may also employ another kitchen manager or a third manager in
the dining area. Most of our full service restaurants employ approximately 50 to 75 hourly employees, many of whom work part-time. The general manager of each restaurant is responsible for the day-to-day operation of that restaurant, including
hiring, training and development of personnel, as well as operating results. The kitchen manager is responsible for product quality, food costs and kitchen labor costs. Our full service restaurants are generally open Sunday through Thursday from
11:00 a.m. until 10:00 p.m., and on Friday and Saturday from 11:00 a.m. until 11:00 p.m.



Training.    We strive to maintain quality and consistency in each of our restaurants through the careful training and supervision of personnel and the establishment of, and adherence to,
high standards relating to personal performance, food and beverage preparation and maintenance of facilities. We provide all new employees with complete orientation and training for their positions to ensure they are able to meet our high standards.
Each location has certified trainers who provide classroom and on-the-job instruction. Employees are certified for their positions by passing a series of tests and evaluations. Beginning January 2003, the Company extended its manager training
program by two weeks for a total training period of 12 weeks. The additional two weeks is dedicated solely to food, which is the essence of the California Pizza Kitchen experience. Training also includes service, kitchen and management
responsibilities. An extensive series of interactive modules and on-line quizzes are used in conjunction with on-the-job training. Newly trained managers are then assigned to their home restaurant where they spend one additional training week with
their general manager. We place a high priority on our continuing management development programs in order to ensure that qualified managers are available for our future openings. In addition, we have detailed written operating procedures, standards
and controls, finance modules, food quality assurance systems, and safety programs. Once a year we hold a general manager conference in which all of our general managers receive financial information and additional training on food preparation,
hospitality and other relevant topics.



When we open a new
restaurant, we provide varying levels of training to each employee as is necessary to ensure the smooth and efficient operation of a California Pizza Kitchen restaurant from the first day it opens to the public. Approximately two weeks prior to
opening a new restaurant, our dedicated training/opening team travels to the location to begin intensive training of all new employees for that restaurant. Our training teams remain on site during the first two weeks of operation. We believe this
additional investment in our new restaurants is important since it helps us provide our customers with a quality dining experience from day one. We also make on-site training teams available when our franchisees open new restaurants. After a
restaurant has been opened and is operating smoothly, the general manager supervises the training of new employees.



Recruiting and retention.    We seek to hire experienced general managers and staff. We support our employees by offering
competitive wages, competitive benefits, including a 401(k) plan and salary deferral plan, both with a discretionary match, medical insurance for all of our employees, including part-time workers, generous discounts on dining, and an employee stock
purchase plan which allows all employees to participate who have worked for us for at least a year and who work a minimum of 20 hours per week.



We attempt to motivate and retain our employees by providing them with opportunities for increased responsibilities and advancement, as well as
performance-based cash incentives tied to sales, profitability and qualitative measures. Our most successful general managers are eligible for promotion to senior general manager status and are entitled to receive more lucrative compensation
packages based on various performance criteria. We believe we also enjoy the recruiting advantage of offering our general managers restaurants that are easier to manage because they are generally smaller than those of our competitors, have hours
that typically do not extend



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late into the night, and generally do not require management of a separate bar business. We believe these advantages offer our managers an excellent quality
of life compared to many of our competitors.



Customer
satisfaction.    Customer satisfaction is critically important to us. To that end, we routinely solicit and analyze our customers opinions through periodic surveys of 20,000 to 25,000 randomly selected guests which is a
vital tool in our quality control efforts for both food quality and customer service perspectives.



Marketing



Our
marketing strategy focuses on communicating the California Pizza Kitchen brand through many creative and non-traditional avenues. As one of the pioneers of premium pizza, we continue to benefit from national media attention, featuring our
co-founders Rick Rosenfield and Larry Flax, which we believe provides us with a significant competitive advantage. New store openings, high profile fundraisers and media events currently serve as the focal point of our public relations and media
efforts. Our openings are often featured on live local television and radio broadcasts and receives coverage in local newspapers. We employ a variety of marketing techniques in connection with our new restaurant openings, including charitable fund
raising events with invitations to media personalities and community leaders. In addition, we donate 100% of all opening day pizza sales to worthwhile local charities. During 2003, the California Pizza Kitchen Foundation contributed over $250,000 to
charities across the U.S., a 150% increase over the prior year.



During 2003 we were featured on the Today show, Forbes Magazines 200 Growth Stocks,andBusiness Weeks Hot Growth Companies.We also appeared in feature films including Intolerable
CrueltyandLaurel Canyonas well as television shows such asFriends, The O.C.andTwo and a Half Men.We engage to a limited extent in paid advertising for individual restaurant locations, including billboards, direct mail
and mall kiosks. Ongoing marketing efforts include local kids tours with schools and other childrens organizations, concierge parties and on-going publicity programs. We utilize a variety of printed marketing materials, including
restaurant location brochures, hotel concierge cards, take-out menus and direct and electronic mailings. In 2003, we spent an aggregate of 0.9% of restaurant sales on marketing efforts. We expect to continue investing approximately 1.0% of
restaurant sales in marketing efforts in the future.



Our
involvement in the community does not end once we have opened a restaurant. In each of the markets in which we operate, we continuously engage in a variety of charitable and civic causes and donate food and services on an on-going basis. We have
developed two cookbooks and 100% of the proceeds from these cookbooks are donated to various childrens charities. These cookbooks are sold at our restaurants, through national bookstore chains and through on-line retailers. Additionally we
donate 10% of all proceeds from our premium frozen pizza sales sold at retail outlets to local charities.



Expansion strategy and site selection



In July 2003, Richard Rosenfield and Larry Flax, co-founders and Co-Chairmen of the Board, reassumed the responsibilities of Co-Chief Executive Officers after Fredrick R. Hipp, President & Chief Executive Officer,
resigned from the Company and as a member of the Board of Directors. In connection with this management change, we reviewed our restaurant portfolio, as well as our operations and growth strategy, and decided to slow down our 2004 new restaurant
opening schedule to a range of 10 to 12 new units, emphasizing quality and profitability. Additionally, we appointed a new development team, which applies rigorous qualitative and quantitative criteria during the site selection process, including
local manager and regional director input and obtaining objective demographic and psychographic scores.



Our full service restaurants will continue to represent the majority of our growth in the near term and our expansion strategy focuses primarily on
further penetrating existing markets. As such, we anticipate over the next several years that 70% to 80% of our new restaurants will be in existing markets. This clustering approach enables us to increase brand awareness and improve our operating
and marketing efficiencies. For example,



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clustering enables us to reduce costs associated with regional supervision of restaurant operations and provide us with the opportunity to leverage marketing
costs over a greater number of restaurants. We also believe this approach reduces the risks involved with opening new restaurants given that we better understand the competitive conditions, consumer tastes, demographics and discretionary spending
patterns in our existing markets. In addition, our ability to hire qualified employees is enhanced in markets in which we are well known.



We believe that our site-selection strategy is critical to our success and we devote substantial effort to evaluating each potential site at the highest
levels within our organization. We identify areas within our target markets that meet our demographic requirements, focusing on daytime and evening populations, shopping patterns, availability of personnel and household income levels. We only
consider expanding to new markets that meet our strict demographic criteria. Our site selection criteria are flexible given that we operate restaurants in regional shopping malls, in-line shopping centers, retail and entertainment centers,
freestanding buildings in commercial and residential neighborhoods, office buildings and hotels. We have several long-standing relationships with major mall developers and owners, and are therefore afforded the opportunity to negotiate multiple
location deals.



We plan to construct our new full service
restaurants in 2004 using an updated prototype, which is larger than our former prototype. The new prototype is approximately 5,900 square feet, has approximately 210 indoor and outdoor seats and has been designed to encourage a more adult
experience and increase alcohol sales. These new restaurants will require on average a higher net investment than historical restaurants. However, we expect corresponding sales to be higher and ultimately generate a higher restaurant return on
investment. We still have the ability to operate a full service restaurant in less than the new prototype size, particularly if we are able to secure additional patio seating. We believe the size and flexibility of our formats provides us with a
competitive advantage in securing sites.



We have signed leases
or letters of intent on all prospective 2004 Company-owned full service restaurants.



We also own four California Pizza Kitchen ASAP restaurants, three that were opened in 2000 and one previously franchised ASAP that we acquired at the beginning of our 2004 fiscal year. We are currently evaluating an
expansion strategy for this concept.



Unit level economics



As a result of recent differences in restaurant performance, we now break
out our full service restaurant operating results into groups that better clarify unit level economics. For the fiscal year ended 2003, the 94 full service restaurants opened prior to 2002 averaged $57,644 per week in sales and generated an average
restaurant-level margin of 20.4%, compared to 20.1% the prior year. The 18 restaurants opened in 2002 averaged $46,696 per week in sales and generated an average restaurant-level margin of 11.6%, compared to 12.7% in the prior year. The 22
restaurants opened during 2003 averaged $43,274 per week in sales and generated an average restaurant-level margin of 4.7%. The restaurants opened in the last two years are not typical of the returns we expect in the future and our goal is to
achieve more mature operating margins in line with the 94 full service restaurants referred to above.



Current full service prototypes range between approximately 4,800 to 5,200 square feet and have approximately 150 seats. Our average cash investment, net
of landlord contributions, is approximately $1.3 million for the 22 full service restaurants opened in fiscal 2003, excluding pre-opening costs, which averaged approximately $183,000 per restaurant.



Restaurant franchise and licensing arrangements



As part of our strategy to expand and leverage the California Pizza Kitchen
brand, we introduced and franchised the concept of California Pizza Kitchen ASAP in 1996. Our ASAP restaurants are designed



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specifically for the grab and go customer in non-traditional locations and are typically 600 to 1,000 square feet in size with a limited menu and
common area seating. Our largest ASAP franchisee, Host Marriott Services (hereafter referred to as HMSHost), operates 19 California Pizza Kitchen ASAP restaurants, primarily in airports, throughout the United States under a development
and franchise arrangement. MGM Mirage operates one full service California Pizza Kitchen restaurant in a high-profile resort in Las Vegas, Nevada. We also have an international franchisee operating five full service restaurants with two in Hong Kong
and one each in Singapore, Malaysia, and Indonesia; and another international franchisee operating four full service restaurants in the Philippines.



Our development agreement with HMSHost grants it limited exclusive rights to open new ASAP restaurants in airports, travel plazas along toll-roads and in
mall food court locations; however, any location proposed by HMSHost is subject to approval by us in our sole discretion. If HMSHost determines not to submit a bid or proposal for a new airport, travel plaza or mall location or determines not to
include us in the proposal or bid, we are free to bid ourselves or to license another party to operate an ASAP in that location. Under our agreement, HMSHost may only develop a franchised restaurant in a mall when it obtains a master concessionaire
agreement with the landlord to provide all food services within the food court or other multiple-concept area. Once we have agreed to HMSHost development of an ASAP restaurant in an airport or travel plaza location, we may not license or operate a
full service restaurant ourselves at that location. There is no corresponding prohibition with respect to mall locations.



HMSHosts limited exclusive rights for the development of ASAP restaurants extend until December 2004. HMSHost pays an initial franchise fee of
$20,000 for each ASAP restaurant at a new location, $10,000 for each additional ASAP restaurant at an existing location and continuing royalties at rates of 5% to 5.5% of gross sales. The HMSHost franchise agreement typically terminates at the same
time as an HMSHost concessionaire agreement to operate at an airport or mall terminates.



Our territorial development agreements with our other franchisees grant them the exclusive right to an identified territory subject to meeting development obligations. Our basic franchise agreement with these
franchisees generally requires payment of an initial fee of between $50,000 and $65,000 for a full service restaurant, as well as continuing royalties at a rate of 5% to 6% of gross revenue. Most of our franchise agreements contain a ten or 20-year
term.



Agreement with Kraft Pizza Company



In 1997 we entered into a trademark license agreement with Kraft Pizza
Company (hereafter referred to as Kraft) pursuant to which we have licensed certain of our trademarks and proprietary recipes to Kraft for its use in manufacturing and distributing a line of California Pizza Kitchen premium frozen pizzas
in the United States and Canada. Kraft currently makes and distributes frozen versions of seven of our pizzas: The Original BBQ Chicken; Five-Cheese & Fresh Tomato; Thai Chicken; Roasted Garlic Chicken; Wild Mushroom; Mushroom, Pepperoni &
Sausage and Jamaican Jerk Chicken. Our frozen pizzas are currently sold in 55% of U.S. markets, including Los Angeles, San Francisco, Chicago, Denver, New York, Boston and Atlanta, to name just a few. We intend to continue to expand our distribution
to include additional selected markets, with a continued focus on those markets in which our restaurants are located.



Management information systems



All of our restaurants use computerized management information systems, which are designed to improve operating efficiencies, provide corporate management
timely access to financial and marketing data, and reduce restaurant and corporate administrative time and expense. Our restaurant systems include a point-of-sale system, which facilitates the movement of customer food and beverage orders from the
dining areas to the appropriate menu item preparation area within the restaurant. The data captured by our restaurant level systems include restaurant sales, cash and credit card receipts, quantities of each menu item sold, customer counts and daily
labor



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expense. This information is generally transmitted to the corporate office daily. Each week, every restaurant prepares a flash profit and loss statement that
is compared to budget and the prior year.



Our corporate
information systems provide management with operating reports that show restaurant performance comparisons with budget and prior year results both for the current accounting period and year-to-date. These systems allow us to closely monitor
restaurant sales, cost of sales, labor expense and other restaurant trends on a daily, weekly and monthly basis. We believe these systems enable both restaurant and corporate management to adequately manage the operational and financial performance
of our restaurants as necessary to support our planned expansion.



Purchasing



Our purchasing staff procures all
of our food ingredients, products and supplies. We seek to obtain the highest quality ingredients, products and supplies from reliable sources at competitive prices. To that end, we continually research and evaluate various food ingredients,
products and supplies for consistency and compare them to our detailed specifications. Specific, qualified manufacturers and growers are then inspected and approved for use. This process is repeated at least once a year. To maximize our purchasing
efficiencies and obtain the lowest possible prices for our ingredients, products and supplies, while maintaining the highest quality, our centralized purchasing staff generally negotiates all prices based on one of two formats: (a) fixed price
contracts generally with terms of between one month to one year; or (b) monthly commodity pricing formulas.



In order to provide the freshest ingredients and products, and to maximize operating efficiencies between purchase and usage, each restaurants
kitchen manager determines its daily usage requirements for food ingredients, products and supplies. The kitchen manager orders accordingly from approved local vendors and our national master distributor. The kitchen managers also inspect all
deliveries daily to ensure that the items received meet our quality specifications and negotiated prices. We have competitively priced, high quality alternative manufacturers, vendors, growers and distributors available should the need arise.



Employees



As of April 26, 2004, we have approximately 9,600 employees, including
approximately 120 employees located at our corporate headquarters. Our employees are not covered by any collective bargaining agreement. We consider our employee relations to be strong.



Competition



The restaurant industry is intensely competitive. We compete on the basis of the taste, quality and price of food offered, customer service, ambiance,
location and overall dining experience. We believe that our concept, attractive price-value relationship and quality of food and service enable us to differentiate ourselves from our competitors. Although we believe we compete favorably with respect
to each of these factors, many of our direct and indirect competitors are well-established national, regional or local chains and some have substantially greater financial, marketing, and other resources than we do. We also compete with many other
restaurant and retail establishments for site locations and restaurant level employees. The packaged food industry is also intensely competitive.



Trademarks



Our registered trademarks and service marks include, among others, the word mark California Pizza Kitchen, California Pizza Kitchen
ASAP and our stylized logo set forth on the front and back pages of this report. We have registered all of our marks with the United States Patent and Trademark Office. We have registered our most significant trademarks and service marks in
more than 20 foreign countries, in addition to the Benelux Customs Union and the European Union. In order to better protect our brand, we have also registered



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our ownership of the Internet domain names www.cpk.com and www.californiapizzakitchen.com. We believe that our trademarks, service
marks and other proprietary rights have significant value and are important to our brand-building efforts and the marketing of our restaurant concepts. We have vigorously protected our proprietary rights in the past and expect to continue to do so.
We cannot predict, however, whether steps taken by us to protect our proprietary rights will be adequate to prevent misappropriation of these rights or the use by others of restaurant features based upon, or otherwise similar to, our concept. It may
be difficult for us to prevent others from copying elements of our concept and any litigation to enforce our rights will likely be costly.



Availability of reports



Our Internet address is www.cpk.com. At this internet website we make available, free of charge, our annual report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act as soon as reasonably practicable after we electronically file such materials
with, or furnish them to, the SEC.



Government regulation



Our restaurants are subject to licensing and regulation by state and local
health, sanitation, safety, fire and other authorities, including licensing and regulation requirements for the sale of alcoholic beverages and food. To date, we have not experienced an inability to obtain or maintain any necessary licenses, permits
or approvals, including restaurant, alcoholic beverage and retail licensing. The development and construction of additional restaurants will also be subject to compliance with applicable zoning, land use and environmental regulations. We are also
subject to federal regulation and state laws that regulate the offer and sale of franchises and substantive aspects of a licensor-licensee relationship. Various federal and state labor laws govern our relationship with our employees and affect
operating costs. These laws include minimum wage requirements, overtime, unemployment tax rates, workers compensation rates, citizenship requirements and sales taxes.



We are subject to federal and state environmental regulations, but these rules have not had a material effect on our
operations. Various laws concerning the handling, storage, and disposal of hazardous materials, such as cleaning solvents and the operation of restaurants in environmentally sensitive locations may impact aspects of our operations. During fiscal
2003 there were no material capital expenditures for environmental control facilities and no such expenditures are anticipated.



Our facilities must comply with the applicable requirements of the Americans with Disabilities Act of 1990 (ADA) and related state statutes.
The ADA prohibits discrimination on the basis of disability with respect to public accommodations and employment. Under the ADA and related state laws, when constructing new restaurants or undertaking significant remodeling of existing restaurants,
we must make the restaurants more readily accessible to disabled persons. We must also make reasonable accommodations for the employment of disabled persons.



We have a significant number of hourly restaurant employees that receive tip income. We have elected to voluntary participate in a Tip Rate Alternative
Commitment (TRAC) agreement with the Internal Revenue Service. By complying with the educational and other requirements of the TRAC agreement, we reduce the likelihood of potential employer-only FICA assessments for unreported or
underreported tips.



Risk factors



Our growth strategy requires us to open new restaurants at a measured
pace. We may not be able to achieve our planned expansion.



We are pursuing a disciplined growth strategy, which to be successful depends on our ability, and the ability of our franchisees and licensees, to open new restaurants and to operate these new restaurants on a profitable basis. The success
of our planned expansion will be dependent upon numerous factors, many of which are



10



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##### Table of Contents

beyond our control; including the hiring, training and retention of qualified operating personnel, especially managers; identification and availability of
suitable restaurant sites; competition for restaurant sites; negotiation of favorable lease terms; timely development of new restaurants, including the availability of construction materials and labor; management of construction and development
costs of new restaurants; securing required governmental approvals and permits; competition in our markets; and general economic conditions.



Our success depends on our ability to locate a sufficient number of suitable new restaurant sites.



One of our biggest challenges in meeting our growth objectives will be to
secure an adequate supply of suitable new restaurant sites. We have experienced delays in opening some of our restaurants and may experience delays in the future. There can be no assurance that we will be able to find sufficient suitable locations
for our planned expansion in any future period. Delays or failures in opening new restaurants could materially adversely affect our business, financial condition, operating results or cash flows.



We could face labor shortages, which could slow our growth.



Our success depends in part upon our ability to attract,
motivate and retain a sufficient number of qualified employees, including restaurant managers, kitchen staff and servers, necessary to keep pace with our expansion schedule. Qualified individuals of the requisite caliber and number needed to fill
these positions are in short supply in some areas. Although we have not experienced any significant problems in recruiting or retaining employees, any future inability to recruit and retain sufficient individuals may delay the planned openings of
new restaurants. Any such delays or any material increases in employee turnover rates in existing restaurants could have a material adverse effect on our business, financial condition, operating results or cash flows. Additionally, competition for
qualified employees could require us to pay higher wages to attract sufficient employees, which could result in higher labor costs.



Our expansion into new markets may present increased risks due to our unfamiliarity with the area.



As part of our expansion strategy we will be opening up restaurants in
markets in which we have no prior operating experience. These new markets may have different competitive conditions, consumer tastes and discretionary spending patterns than our restaurants in our existing markets. In addition, our new restaurants
will typically take several months to reach budgeted operating levels due to problems associated with new restaurants, including lack of market awareness, inability to hire sufficient staff and other factors. Although we have attempted to mitigate
these factors by paying careful attention to training and staffing needs, there can be no assurance that we will be successful in operating new restaurants on a profitable basis.



Our expansion may strain our infrastructure, which could slow our restaurant development.



We also face the risk that our existing systems and procedures, restaurant
management systems, financial controls, and information systems will be inadequate to support our planned expansion. We cannot predict whether we will be able to respond on a timely basis to all of the changing demands that our planned expansion
will impose on management and these systems and controls. If we fail to continue to improve our information systems and financial controls or to manage other factors necessary for us to achieve our expansion objectives, our business, financial
condition, operating results or cash flows could be materially adversely affected.



Our restaurant expansion strategy focuses primarily on further penetrating existing markets. This strategy can cause sales in some of our existing restaurants to decline.



In accordance with our expansion strategy, we intend to open new restaurants
primarily in our existing markets. Since we typically draw customers from a relatively small radius around each of our restaurants, the sales performance and customer counts for restaurants near the area in which a new restaurant opens may decline
due to cannibalization of the existing restaurants customer base.



11



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Our operations are susceptible to changes in food and supply costs, which could adversely affect our
margins.



Our profitability depends, in part, on our
ability to anticipate and react to changes in food and supply costs. Our centralized purchasing staff negotiates prices for all of our ingredients and supplies through either contracts (terms of one month up to one year) or commodity pricing
formulas. Our national master distributor delivers goods at a set, flat fee per case twice a week to all of our restaurants. Our contract with our national master distributor, Meadowbrook Meat Company, Inc., is up for renewal in June 2004.
Furthermore, various factors beyond our control, including adverse weather conditions and governmental regulations, could also cause our food and supply costs to increase. We cannot predict whether we will be able to anticipate and react to changing
food and supply costs by adjusting our purchasing practices. A failure to do so could adversely affect our operating results or cash flows.



Changes in consumer preferences or discretionary consumer spending could negatively impact our results.



Our restaurants feature pizzas, pastas, salads and appetizers in an upscale,
family-friendly, casual environment. Our continued success depends, in part, upon the popularity of these foods and this style of informal dining. Shifts in consumer preferences away from this cuisine or dining style could materially adversely
affect our future profitability. Also, our success depends to a significant extent on numerous factors affecting discretionary consumer spending, including economic conditions, disposable consumer income and consumer confidence. Adverse changes in
these factors could reduce customer traffic or impose practical limits on pricing, either of which could materially adversely affect our business, financial condition, operating results or cash flows. Like other restaurant chains, we can also be
materially adversely affected by negative publicity concerning food quality, illness, injury, publication of government or industry findings concerning food products served by us, or other health concerns or operating issues stemming from one
restaurant or a limited number of restaurants.



Thirty-six
percent of our U.S. based restaurants are located in California. As a result, we are highly sensitive to negative occurrences in that state.



Our franchisees and we currently operate a total of 58 restaurants in California (53 are company-owned and five are owned by franchisees), of which 44 are
concentrated in the greater Los Angeles and San Diego metropolitan areas. As a result, we are particularly susceptible to adverse trends and economic conditions in California. In addition, given our geographic concentration, negative publicity
regarding any of our restaurants in California could have a material adverse effect on our business and operations, as could other regional occurrences such as local strikes, earthquakes or other natural disasters.



Increases in the minimum wage may have a material adverse effect on our
business and financial results.



A number of our employees
are subject to various minimum wage requirements. The federal minimum wage has remained at $5.15 per hour since September 1, 1997. However, 36.0% of our U.S. based restaurants are located in California and receive compensation equal to the
California minimum wage, which rose from $6.25 per hour effective January 1, 2001 to $6.75 per hour effective January 1, 2002. There may be similar increases implemented in other jurisdictions in which we operate or seek to operate. The possibility
exists that the federal minimum wage will be increased in the near future. These minimum wage increases may have a material adverse effect on our business, financial condition, results of operations or cash flows.



Rising insurance costs could negatively impact profitability.



The cost of insurance (workers compensation insurance,
general liability insurance, health insurance and directors and officers liability) increased significantly in 2003 and is expected to continue to increase in 2004. These increases could have a negative impact on our profitability if we are not able
to negate the effect of such increases by continuing to improve our operating efficiencies.



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Compliance with changing regulation of corporate governance and public disclosure may result in
additional expense.



Keeping abreast of, and in compliance
with, changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and Nasdaq Stock Market rules, has required an increased amount of management
attention and external resources. We remain committed to maintaining high standards of corporate governance and public disclosure. As a result, we intend to invest all reasonably necessary resources to comply with evolving standards, and this
investment may result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.



The restaurant industry is affected by litigation and publicity concerning food quality, health and other issues, which
can cause customers to avoid our restaurants and result in liabilities.



We are sometimes the subject of complaints or litigation from customers or employees alleging illness, injury or other food quality, health or operational concerns. Adverse publicity resulting from these allegations
may materially adversely affect our restaurants, regardless of whether the allegations are valid or whether California Pizza Kitchen is liable. In fact, we are subject to the same risks of adverse publicity resulting from these sorts of allegations
even if the claim involves one of our franchisees or licensees. Further, employee claims against us based on, among other things, wage discrimination, harassment or wrongful termination may divert our financial and management resources that would
otherwise be used to benefit the future performance of our operations. We have been subject to these employee claims before, and a significant increase in the number of these claims or any increase in the number of successful claims could materially
adversely affect our business, financial condition, operating results or cash flows. We also are subject to some states dram shop statutes. These statutes generally provide a person injured by an intoxicated person the right to
recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person.



Future changes in financial accounting standards may cause adverse unexpected operating results and affect our reported results of operations.



A change in accounting standards can have a significant
effect on our reported results and may affect our reporting of transactions completed before the change is effective. As an example, any changes requiring that we record compensation expense in our consolidated statements of income for employee
stock options using the fair value method could have a significant negative effect on our reported results. New pronouncements and varying interpretations of pronouncements have occurred and may occur in the future. Changes to existing accounting
rules or the questioning of current accounting practices may adversely affect our reported financial results.



|        |  |           
|------- |  | ----------
|Item 2. |  | Properties



Our corporate
headquarters are located in Los Angeles, California. We occupy this facility under a lease, which was renewed effective September 1, 2002 and extends until August 2012. We lease the majority of our restaurant facilities, although we own our
restaurants in: Alpharetta, Georgia; Grapevine, Texas; Scottsdale, Arizona; Schaumburg, Illinois; and one location in Atlanta, Georgia. The majority of our leases are for ten or 15-year terms and include options to extend the terms. The majority of
our leases also include both minimum rent and percentage-of-sales rent provisions.



13



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##### Table of Contents

Current restaurant locations



As of April 26, 2004, we own, license or franchise 168 restaurants in 27 states, the District of Columbia and five foreign
countries, of which 139 are company owned and 29 operate under franchise or license arrangements. We franchise or license our concept to other restaurant operators including: HMSHost Corporation, which operates 19 California Pizza Kitchen ASAP
restaurants; MGM Mirage, which operates one full service restaurant in a Las Vegas casino; and two franchisees, which currently operate a total of nine full service restaurants in Hong Kong, Indonesia, Malaysia, Singapore and the Philippines.



|                |  |                             |  |                                            |  |                           |  |      
|--------------- |  | --------------------------- |  | ------------------------------------------ |  | ------------------------- |  | -----
|                |  | Company-OwnedRestaurants(1) |  | Franchised/LicensedFull serviceRestaurants |  | FranchisedASAPRestaurants |  | Total
|Domestic        |  |                             |  |                                            |  |                           |  |      
|Alabama         |  | 1                           |  |                                           |  |                          |  | 1    
|Arizona         |  | 4                           |  |                                           |  | 1                         |  | 5    
|California      |  | 53                          |  |                                           |  | 5                         |  | 58   
|Colorado        |  | 5                           |  |                                           |  |                          |  | 5    
|Connecticut     |  | 1                           |  |                                           |  |                          |  | 1    
|Florida         |  | 9                           |  |                                           |  | 3                         |  | 12   
|Georgia         |  | 3                           |  |                                           |  |                          |  | 3    
|Hawaii          |  | 3                           |  |                                           |  |                          |  | 3    
|Illinois(2)     |  | 9                           |  |                                           |  |                          |  | 9    
|Indiana         |  |                            |  |                                           |  | 1                         |  | 1    
|Kentucky        |  | 1                           |  |                                           |  |                          |  | 1    
|Maryland        |  | 3                           |  |                                           |  |                          |  | 3    
|Massachusetts   |  | 4                           |  |                                           |  |                          |  | 4    
|Michigan        |  | 3                           |  |                                           |  |                          |  | 3    
|Minnesota       |  | 2                           |  |                                           |  | 1                         |  | 3    
|Missouri        |  | 6                           |  |                                           |  | 2                         |  | 8    
|Nevada          |  | 1                           |  | 1                                          |  |                          |  | 2    
|New Jersey      |  | 2                           |  |                                           |  |                          |  | 2    
|New York        |  | 4                           |  |                                           |  |                          |  | 4    
|North Carolina  |  | 2                           |  |                                           |  | 2                         |  | 4    
|Ohio            |  | 4                           |  |                                           |  |                          |  | 4    
|Pennsylvania    |  | 1                           |  |                                           |  |                          |  | 1    
|Tennessee       |  | 1                           |  |                                           |  |                          |  | 1    
|Texas           |  | 8                           |  |                                           |  |                          |  | 8    
|Utah            |  | 1                           |  |                                           |  | 1                         |  | 2    
|Virginia        |  | 5                           |  |                                           |  | 1                         |  | 6    
|Washington      |  | 2                           |  |                                           |  |                          |  | 2    
|Washington, D.C |  | 1                           |  |                                           |  | 2                         |  | 3    
|                |  |                             |  |                                           
|International   |  |                             |  |                                            |  |                           |  |      
|Hong Kong       |  |                            |  | 2                                          |  |                          |  | 2    
|Indonesia       |  |                            |  | 1                                          |  |                          |  | 1    
|Malaysia        |  |                            |  | 1                                          |  |                          |  | 1    
|Singapore       |  |                            |  | 1                                          |  |                          |  | 1    
|Philippines     |  |                            |  | 4                                          |  |                          |  | 4    
|                |  |                             |  |                                            |  |                           |  |      
|Totals          |  | 139                         |  | 10                                         |  | 19                        |  | 168  

---

|(1) |  | All of our company-owned restaurants are full service, except for four ASAP restaurants, all of which are located in California.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Includes one restaurant in the Chicago area in which we are the general partner and own approximately 70% of the total partnership interests.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------



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|        |  |                  
|------- |  | -----------------
|Item 3. |  | Legal Proceedings



On February 10, 2003,
one of our former servers filed a class action complaint against us in Orange County Superior Court in California. The plaintiff alleges that we failed to give our food servers, bussers, runners and bartenders rest and meal breaks as required by
California law. Under the California Labor Code, an employer must pay each employee one additional hour of pay at the employees regular rate of compensation for each workday that the required meal or rest period is not provided. The plaintiff
also alleges that additional penalties are owed as a consequence of our resulting failure to pay all wages due at the time of termination of employment and under theories characterizing these alleged breaches as unfair business practices. If the
plaintiff is able to achieve class certification and prevails on the merits of the case, we could potentially be liable for significant amounts. We are still investigating the claims and have participated in one full day of private mediation. No
discovery has taken place as of yet due to a stay in the proceedings ordered by the Court to allow the private mediation, and no date has been set for a hearing on class certification or for trial. We believe that all of our employees were provided
with the opportunity to take all required meal and rest breaks, and as such we intend to vigorously defend our position.



We are also subject to other private lawsuits, administrative proceedings and claims that arise in the ordinary course of our business. Such claims
typically involve claims from guests, employees and others related to operational issues common to the foodservice industry. A number of such claims may exist at any given time. We could be affected by adverse publicity resulting from such
allegations, regardless of whether or not such allegations are valid or whether we are determined to be liable. From time to time, we are also involved in lawsuits with respect to infringements of, or challenges to, our registered trademarks. We
believe that the final disposition of such lawsuits and claims will not have a material adverse effect on our financial position, results of operations or liquidity.



|        |  |                                                    
|------- |  | ---------------------------------------------------
|Item 4. |  | Submission of Matters to a Vote of Security Holders



None.



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##### Table of Contents

PART II



Item 5.    Market for the Registrants Common Stock and Related Stockholder Matters



Our common stock is quoted on the Nasdaq National Market under the symbol CPKI. The following table sets forth, for the two most recent fiscal
years, the high and low sales prices as reported on the Nasdaq National market.



|               |  |      |       |     |   |      
|-------------- |  | ---- | ----- | --- | - | -----
|               |  | High |       | Low
|Fiscal 2002:   |  |      |       |     |   |      
|First Quarter  |  | $    | 26.08 |     | $ | 18.75
|Second Quarter |  |      | 26.67 |     |   | 21.85
|Third Quarter  |  |      | 25.32 |     |   | 17.85
|Fourth Quarter |  |      | 28.03 |     |   | 19.71
|Fiscal 2003:   |  |      |       |     |   |      
|First Quarter  |  | $    | 26.57 |     | $ | 21.45
|Second Quarter |  |      | 24.59 |     |   | 18.26
|Third Quarter  |  |      | 22.70 |     |   | 16.25
|Fourth Quarter |  |      | 19.72 |     |   | 17.26



As of April 20, 2004,
there were approximately 157 holders of record of common stock. On April 20, 2004, the last sale price reported on the Nasdaq National Market for our common stock was $19.72 per share.



Dividend Policy



We currently retain all future earnings for the operation and expansion of our business. We have not paid any cash dividends since 1992 when dividends
were paid in connection with PepsiCo, Inc.s acquisition of a controlling interest in the Company.



We have a $20.0 million line of credit agreement with Bank of America, N.A. that expires on June 30, 2004. Our credit agreement with Bank of America, N.A.
currently prohibits us from declaring or paying any dividends or other distributions on any shares of our capital stock other than dividends payable solely in shares of capital stock or the stock of our subsidiaries. Any payment of cash dividends in
the future will be at the discretion of our Board of Directors and will depend upon our results of operations, earnings, capital requirements, contractual restrictions contained in our credit agreement with Bank of America, N.A., or other
agreements, and other factors deemed relevant by our Board.



Equity
Compensation Plan Information



Information regarding our
equity compensation plans, including both plans approved by security holders and plans not approved by security holders, is set forth in the section entitled Equity Compensation Plan Information on page 41 of this report.



Recent Sales of Unregistered Securities



On December 29, 2003, we purchased certain development rights and the
leasehold interests, equipment and other assets utilized in the operation of two California Pizza Kitchen restaurants owned by CAH Restaurants of California, LLC. Approximately 50% of the $2,503,000 aggregate purchase price was paid by the issuance
of 67,954 shares of our common stock. The shares were issued to Rick J. Caruso, one of our directors, who owns CAH Restaurants of California, LLC. The issuance of the shares was exempt under Section 4(2) of the Securities Act of 1933, as amended,
and under Regulation D as promulgated thereunder, as a transaction not involving any public offering.



16



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##### Table of Contents

Item 6.    Selected Financial Data



The following selected consolidated financial and operating data for each of the five fiscal years in the period ended December 28, 2003 are derived from our audited consolidated financial statements. The audited
consolidated financial statements and accompanying notes for each of the three fiscal years in the period ended December 28, 2003, and the report of independent auditors on those years, are included elsewhere in this report. This selected
consolidated financial and operating data should be read in conjunction with the consolidated financial statements and accompanying notes, Managements Discussion and Analysis of Financial Condition and Results of Operations and
other financial information included elsewhere in this report.



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##### Table of Contents

SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

(dollars in thousands, except per share data, operating data and footnotes)



|                                                                        |  |             |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|----------------------------------------------------------------------- |  | ----------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                                        |  | Fiscal Year |        
|                                                                        |  | 2003        |         |   | 2002 |   |         | 2001 |  |   | 2000    |   |  | 1999 |        
|Statement of Operations Data:                                           |  |             |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Revenues:                                                               |  |             |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Restaurant sales                                                        |  | $           | 356,260 |   |      | $ | 303,427 |      |  | $ | 246,445 |   |  | $    | 208,322 |   |  | $ | 176,933 |  
|Franchise and other revenues                                            |  |             | 3,627   |   |      |   | 2,895   |      |  |   | 2,817   |   |  |      | 2,482   |   |  |   | 2,260   |  
|                                                                        |  |             |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total revenues                                                          |  |             | 359,887 |   |      |   | 306,322 |      |  |   | 249,262 |   |  |      | 210,804 |   |  |   | 179,193 |  
|Costs and expenses:                                                     |  |             |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Cost of sales                                                           |  |             | 87,806  |   |      |   | 73,756  |      |  |   | 60,950  |   |  |      | 51,748  |   |  |   | 44,740  |  
|Labor                                                                   |  |             | 129,702 |   |      |   | 110,151 |      |  |   | 88,898  |   |  |      | 74,341  |   |  |   | 63,701  |  
|Direct operating and occupancy                                          |  |             | 73,949  |   |      |   | 60,652  |      |  |   | 49,344  |   |  |      | 41,079  |   |  |   | 35,848  |  
|                                                                        |  |             |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total restaurant operating costs                                        |  |             | 291,457 |   |      |   | 244,559 |      |  |   | 199,192 |   |  |      | 167,168 |   |  |   | 144,289 |  
|General and administrative                                              |  |             | 21,488  |   |      |   | 18,161  |      |  |   | 15,489  |   |  |      | 14,349  |   |  |   | 13,123  |  
|Depreciation and amortization                                           |  |             | 17,578  |   |      |   | 14,971  |      |  |   | 11,996  |   |  |      | 9,568   |   |  |   | 8,234   |  
|Pre-opening costs                                                       |  |             | 4,019   |   |      |   | 3,355   |      |  |   | 2,867   |   |  |      | 1,650   |   |  |   | 763     |  
|Severance charge(1)                                                     |  |             | 1,221   |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Stock compensation charge(2)                                            |  |             |        |   |      |   |        |      |  |   |        |   |  |      | 1,949   |   |  |   |        |  
|Loss on impairment of property and equipment and restaurant closures    |  |             | 14,725  |   |      |   | 2,380   |      |  |   |        |   |  |      | 1,839   |   |  |   | 200     |  
|                                                                        |  |             |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Operating income                                                        |  |             | 9,399   |   |      |   | 22,896  |      |  |   | 19,718  |   |  |      | 14,281  |   |  |   | 12,584  |  
|Other (expense) income:                                                 |  |             |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Bank financing fees                                                     |  |             |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   | (998    | )
|Interest income                                                         |  |             | 317     |   |      |   | 368     |      |  |   | 632     |   |  |      | 469     |   |  |   | 306     |  
|Interest expense                                                        |  |             |        |   |      |   |        |      |  |   | (25     | ) |  |      | (1,881  | ) |  |   | (3,721  | )
|Equity in loss of unconsolidated joint venture                          |  |             | (349    | ) |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|                                                                        |  |             |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total other (expense) income                                            |  |             | (32     | ) |      |   | 368     |      |  |   | 607     |   |  |      | (1,412  | ) |  |   | (4,413  | )
|                                                                        |  |             |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Income before income tax provision                                      |  |             | 9,367   |   |      |   | 23,264  |      |  |   | 20,325  |   |  |      | 12,869  |   |  |   | 8,171   |  
|Income tax provision                                                    |  |             | (1,411  | ) |      |   | (7,934  | )    |  |   | (7,114  | ) |  |      | (4,504  | ) |  |   | (2,772  | )
|                                                                        |  |             |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net income                                                              |  |             | 7,956   |   |      |   | 15,330  |      |  |   | 13,211  |   |  |      | 8,365   |   |  |   | 5,399   |  
|Redeemable preferred stock accretion                                    |  |             |        |   |      |   |        |      |  |   |        |   |  |      | (3,512  | ) |  |   | (5,147  | )
|                                                                        |  |             |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net income attributable to common shareholders                          |  | $           | 7,956   |   |      | $ | 15,330  |      |  | $ | 13,211  |   |  | $    | 4,853   |   |  | $ | 252     |  
|                                                                        |  |             |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net income per common share(3):                                         |  |             |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Basic                                                                   |  | $           | 0.42    |   |      | $ | 0.82    |      |  | $ | 0.72    |   |  | $    | 0.35    |   |  | $ |        |  
|Diluted                                                                 |  | $           | 0.42    |   |      | $ | 0.81    |      |  | $ | 0.71    |   |  | $    | 0.35    |   |  | $ |        |  
|Shares used in computing net income per common share (in thousands)(3): |  |             |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Basic                                                                   |  |             | 18,867  |   |      |   | 18,585  |      |  |   | 18,308  |   |  |      | 13,703  |   |  |   |        |  
|Diluted                                                                 |  |             | 19,027  |   |      |   | 18,871  |      |  |   | 18,611  |   |  |      | 14,013  |   |  |   |        |  
|Selected Operating Data:                                                |  |             |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Restaurants open at end of year                                         |  |             | 168     |   |      |   | 149     |      |  |   | 131     |   |  |      | 112     |   |  |   | 96      |  
|Company-owned restaurants open at end of year                           |  |             | 137     |   |      |   | 117     |      |  |   | 99      |   |  |      | 82      |   |  |   | 70      |  
|Average weekly company-owned full service restaurant sales              |  | $           | 54,896  |   |      | $ | 55,712  |      |  | $ | 54,438  |   |  | $    | 53,809  |   |  | $ | 49,490  |  
|Comparable company-owned restaurant sales increase(4)                   |  |             | 2.5     | % |      |   | 4.3     | %    |  |   | 3.3     | % |  |      | 7.8     | % |  |   | 4.1     | %
|                                                                        | 
|                                                                        |  | Fiscal Year |        
|                                                                        |  | 2003        |         |   | 2002 |   |         | 2001 |  |   | 2000    |   |  | 1999 |        
|Selected Balance Sheet Data:                                            |  |             |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Cash and cash equivalents                                               |  | $           | 15,877  |   |      | $ | 31,261  |      |  | $ | 19,788  |   |  | $    | 12,649  |   |  | $ | 5,686   |  
|Marketable Securities                                                   |  |             | 18,904  |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Total assets                                                            |  |             | 185,585 |   |      |   | 168,445 |      |  |   | 145,335 |   |  |      | 116,977 |   |  |   | 94,750  |  
|Total debt, including current portion                                   |  |             |        |   |      |   |        |      |  |   |        |   |  |      | 47      |   |  |   | 40,085  |  
|Redeemable preferred stock                                              |  |             |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   | 43,921  |  
|Shareholders equity (deficiency)(5)                                    |  |             | 146,113 |   |      |   | 134,121 |      |  |   | 114,106 |   |  |      | 92,318  |   |  |   | (9,829  | )



18



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##### Table of Contents

---

|(1) |  | Severance charges of $1.2 million represent payments related to the resignations of our former President and Chief Executive Officer and our former Senior Vice President and Chief
Development Officer under the terms of their separation agreements.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) |  | Stock compensation charge of $1.9 million in 2000 represents the performance-based stock options becoming exercisable in accordance with variable plan accounting under Accounting
Principles Board Opinion No. 25. The performance-based stock options were granted to Frederick R. Hipp, our former President and Chief Executive Officer.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) |  | See notes 2 and 9 of notes to audited consolidated financial statements for an explanation of the method used to calculate the net income per common share and shares used in
computing net income per common share, basic and diluted.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) |  | Company owned restaurants are included in the computation of comparable company owned restaurant sales after they have been open 12 months.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------



|(5) |  | The Company completed its initial public offering on August 2, 2000 resulting in approximately $71.9 million in net proceeds.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------



19



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##### Table of Contents

Item 7.    Managements Discussion and Analysis of Financial Condition and Results of Operations



Overview



As of April 26, 2004, we own, license or franchise 168 restaurants in 27 states, the District of Columbia and five foreign countries, of which 139 are
company owned and operate under the names California Pizza Kitchen and California Pizza Kitchen ASAP, the remaining 29 operate under franchise or license arrangements. During our 19 years of operating history, we believe we
have developed strong brand awareness and demonstrated the appeal of our concept in a wide variety of geographic areas. Our concept was, and remains, to take our customers favorite food cravings and put them on a pizzato figuratively put
the world on a pizza.



We opened our first casual dining
restaurant in 1985 in Beverly Hills, California and grew steadily to 25 restaurants by early 1992. Our concept, with its signature line of innovative, premium pizzas, open-flame ovens in exhibition-style kitchens and excellent guest service,
attracted PepsiCo, Inc. (hereafter referred to as PepsiCo), which bought a controlling interest in our company in May 1992.



During the approximately five-year period when PepsiCo was our controlling shareholder, we opened 60 restaurants, 17 of which were subsequently closed. We
experimented with different locations and different restaurant sizes, ranging from 3,600 square feet to more than 11,000 square feet. Our rapid expansion strained our infrastructure, resulted in a variety of management and operational changes,
diverted our attention from the execution of our concept and led to disappointing operating results and financial performance, including a decline in comparable restaurant sales in 1996.



At the end of 1996, PepsiCo concluded that it would sell or otherwise divest all of its restaurant businesses, including
California Pizza Kitchen. In September 1997, we consummated a series of transactions to effect a merger and leveraged recapitalization through which an investor group led by Bruckmann, Rosser, Sherrill & Co., L.P. acquired PepsiCos
interest in our company.



Since the beginning of 1998, we have
instituted an accelerated growth plan, focusing largely on further penetrating our existing markets. Between January 1998 and December 2003, we opened 72 new company-owned, full service restaurants and three ASAP restaurants.



In July 2003, Richard Rosenfield and Larry Flax, co-founders and Co-Chairmen
of the Board, reassumed the responsibilities of Co-Chief Executive Officers. In connection with this management change, we reviewed our restaurant portfolio, as well as our operations and growth strategy, and decided to slow down our 2004 new
restaurant opening schedule to a range of 10 to 12 new units, emphasizing quality and profitability.



We plan to open a new restaurant prototype in 2004, which is larger than our former prototype and has been designed to encourage a more adult experience
and increase alcohol sales. These new restaurants will require on average a higher net investment than our historical restaurants. However, we expect corresponding sales to be higher and ultimately generate a higher restaurant cashflow. Pre-opening
expenses for each of these new restaurants is expected to average approximately $185,000 per restaurant.



Our new restaurants experience higher cost of sales, labor and direct operating and occupancy costs for approximately their first 90 to 120 days of
operations in both percentage and dollar terms when compared with our mature restaurants. Accordingly, the volume and timing of new restaurant openings has had, and is expected to continue to have, an impact on pre-opening expenses, cost of sales,
labor and direct operating and occupancy costs until our restaurant operating base is large enough to mitigate these opening costs and inefficiencies.



Our revenues are comprised of restaurant sales, franchise royalties and other income. Our restaurant sales are comprised almost entirely of food and
beverage sales. Our franchise royalties and other revenues consist primarily of monthly royalty income, initial franchise fees and license fees from our trademark license agreement with Kraft.



20



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##### Table of Contents

Cost of sales is comprised of food, beverage and paper supply expenses. The components of cost of sales
are variable and increase with sales volume. Labor costs include direct hourly and management wages, bonuses and taxes and benefits for restaurant employees. Direct operating and occupancy costs include restaurant supplies, marketing costs, fixed
rent, percentage rent, common area maintenance charges, utilities, real estate taxes, repairs and maintenance and other related restaurant costs. Direct operating and occupancy costs generally increase with sales volume but decline as a percentage
of restaurant sales.



General and administrative costs include
all corporate and administrative functions that support existing operations and provide infrastructure to facilitate our future growth. Components of this category include management, supervisory and staff salaries and related employee benefits,
travel and relocation costs, information systems, training, corporate rent and professional and consulting fees. Depreciation and amortization principally includes depreciation on capital expenditures for restaurants. Pre-opening costs, which are
expensed as incurred, consist of the costs of hiring and training the initial work force, travel, the cost of food used in training, marketing costs, the cost of the initial stocking of operating supplies and other direct costs related to the
opening of a new restaurant.



In calculating comparable
company-owned restaurant sales, we include a restaurant in the comparable base once it has been open for 12 months. As of December 28, 2003, we had 112 full service company-owned restaurants that met this criterion.



Results of operations



Operating results for 2003, 2002 and 2001 are expressed as a percentage of revenues below, except for the components of
restaurant operating costs and expenses, which are expressed as a percentage of restaurant sales:



|                                                                     |  |       |   |  |       |   |  |       |  
|-------------------------------------------------------------------- |  | ----- | - |  | ----- | - |  | ----- | -
|                                                                     |  | 2003  |   |  | 2002  |   |  | 2001  |  
|Revenues:                                                            |  |       |   |  |       |   |  |       |  
|Restaurant sales                                                     |  | 99.0  | % |  | 99.1  | % |  | 98.9  | %
|Franchise and other revenues                                         |  | 1.0   |   |  | 0.9   |   |  | 1.1   |  
|                                                                     |  |       |   |  |       |   |  |       |  
|Total revenues                                                       |  | 100.0 |   |  | 100.0 |   |  | 100.0 |  
|Costs and expenses:                                                  |  |       |   |  |       |   |  |       |  
|Cost of sales                                                        |  | 24.6  |   |  | 24.3  |   |  | 24.7  |  
|Labor                                                                |  | 36.4  |   |  | 36.3  |   |  | 36.1  |  
|Direct operating and occupancy                                       |  | 20.8  |   |  | 20.0  |   |  | 20.0  |  
|                                                                     |  |       |   |  |       |   |  |       |  
|Total restaurant operating costs                                     |  | 81.8  |   |  | 80.6  |   |  | 80.8  |  
|General and administrative                                           |  | 6.0   |   |  | 5.9   |   |  | 6.2   |  
|Depreciation and amortization                                        |  | 4.9   |   |  | 4.9   |   |  | 4.8   |  
|Pre-opening costs                                                    |  | 1.1   |   |  | 1.1   |   |  | 1.2   |  
|Severance charge                                                     |  | 0.3   |   |  |      |   |  |      |  
|Loss on impairment of property and equipment and restaurant closures |  | 4.1   |   |  | 0.8   |   |  |      |  
|                                                                     |  |       |   |  |       |   |  |       |  
|Operating income                                                     |  | 2.6   |   |  | 7.5   |   |  | 7.9   |  
|Other income (expense):                                              |  |       |   |  |       |   |  |       |  
|Interest income                                                      |  | 0.1   |   |  | 0.1   |   |  | 0.3   |  
|Interest expense                                                     |  |      |   |  |      |   |  |      |  
|Equity in loss of unconsolidated joint venture                       |  | (0.1  | ) |  |      |   |  |      |  
|                                                                     |  |       |   |  |       |   |  |       |  
|Total other income (expense)                                         |  |      |   |  | 0.1   |   |  | 0.3   |  
|                                                                     |  |       |   |  |       |   |  |       |  
|Income before income tax provision                                   |  | 2.6   |   |  | 7.6   |   |  | 8.2   |  
|Income tax provision                                                 |  | (0.4  | ) |  | (2.6  | ) |  | (2.9  | )
|                                                                     |  |       |   |  |       |   |  |       |  
|Net income                                                           |  | 2.2   | % |  | 5.0   | % |  | 5.3   | %
|                                                                     |  |       |   |  |       |   |  |       |  



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##### Table of Contents

As a result of recently experienced variations in performance among our restaurants opened within the
past two years when compared to our more mature restaurants, we now present supplemental operating data for our restaurants which have been grouped according to class in an effort to better clarify unit level economics. Accordingly, supplemental
operating information for company-owned restaurants opened (A) prior to 2002, (B) in 2002, and (C) in 2003, is presented in the table below:



|                   |  |              |  |                    |    |  |                 |   |  |                                    |    |  |                            |       
|------------------ |  | ------------ |  | ------------------ | -- |  | --------------- | - |  | ---------------------------------- | -- |  | -------------------------- | ------
|                   |  | No. ofStores |  | WeeklySalesAverage |    |  | (,000)Net Sales |   |  | (,000)RestaurantOperatingMargin(1) |    |  | RestaurantOperatingMargin% |       
|Pre-2002 Class     |  |              |  |                    |    |  |                 |   |  |                                    |    |  |                            |       
|2003               |  | 94           |  | 57,644             |    |  | 286,780         |   |  | 58,520                             |    |  | 20.4                       | %     
|2002               |  | 96           |  | 55,798             |    |  | 278,541         |   |  | 55,930                             |    |  | 20.1                       | %     
|                   |  |              |  |                    |    |  |                 |   |  |                                    |    |  |                            |       
|Change             |  |              |  | 3.3                | %  |  | 3.0             | % |  | 4.6                                | %  |  | 30                         | bps   
|                   |  |              |  |                    |    |  |                 |   |  |                                    |    |  |                            |       
|Class of 2002      |  |              |  |                    |    |  |                 |   |  |                                    |    |  |                            |       
|2003               |  | 18           |  | 46,696             |    |  | 43,707          |   |  | 5,053                              |    |  | 11.6                       | %     
|2002               |  | 18           |  | 54,627             |    |  | 21,602          |   |  | 2,744                              |    |  | 12.7                       | %     
|                   |  |              |  |                    |    |  |                 |   |  |                                    |    |  |                            |       
|Change             |  |              |  | (14.5              | )% |  | 102.3           | % |  | 84.1                               | %  |  | (110                       | )  bps
|                   |  |              |  |                    |    |  |                 |   |  |                                    |    |  |                            |       
|Class of 2003      |  |              |  |                    |    |  |                 |   |  |                                    |    |  |                            |       
|2003               |  | 22           |  | 43,274             |    |  | 22,330          |   |  | 1,053                              |    |  | 4.7                        | %     
|2002               |  |             |  |                   |    |  |                |   |  |                                   |    |  |                           | %     
|                   |  |              |  |                    |    |  |                 |   |  |                                    |    |  |                            |       
|Change             |  |              |  |                   | %  |  |                | % |  |                                   | %  |  |                           | bps   
|                   |  |              |  |                    |    |  |                 |   |  |                                    |    |  |                            |       
|Total full service |  |              |  |                    |    |  |                 |   |  |                                    |    |  |                            |       
|2003               |  | 134          |  | 54,896             |    |  | 352,817         |   |  | 64,626                             |    |  | 18.3                       | %     
|2002               |  | 114          |  | 55,712             |    |  | 300,143         |   |  | 58,674                             |    |  | 19.5                       | %     
|                   |  |              |  |                    |    |  |                 |   |  |                                    |    |  |                            |       
|Change             |  |              |  | (1.5               | )% |  | 17.5            | % |  | 10.1                               | %  |  | (120                       | )  bps
|                   |  |              |  |                    |    |  |                 |   |  |                                    |    |  |                            |       
|ASAP               |  |              |  |                    |    |  |                 |   |  |                                    |    |  |                            |       
|2003               |  | 3            |  | 22,071             |    |  | 3,443           |   |  | 177                                |    |  | 5.1                        | %     
|2002               |  | 3            |  | 21,054             |    |  | 3,284           |   |  | 194                                |    |  | 5.9                        | %     
|                   |  |              |  |                    |    |  |                 |   |  |                                    |    |  |                            |       
|Change             |  |              |  | 4.8                | %  |  | 4.8             | % |  | (8.8                               | )% |  | (80                        | )  bps
|                   |  |              |  |                    |    |  |                 |   |  |                                    |    |  |                            |       
|Total restaurants  |  |              |  |                    |    |  |                 |   |  |                                    |    |  |                            |       
|2003               |  | 137          |  | 54,118             |    |  | 356,260         |   |  | 64,803                             |    |  | 18.2                       | %     
|2002               |  | 117          |  | 54,736             |    |  | 303,427         |   |  | 58,868                             |    |  | 19.4                       | %     
|                   |  |              |  |                    |    |  |                 |   |  |                                    |    |  |                            |       
|Change             |  |              |  | (1.1               | )% |  | 17.4            | % |  | 10.1                               | %  |  | (120                       | )  bps
|                   |  |              |  |                    |    |  |                 |   |  |                                    |    |  |                            |       

---

|(1) |  | Restaurant operating margin is defined as restaurant sales less restaurant operating costs. The table above represents the restaurant operating margin for 2003 and 2002 which
consists of sales of $356,260 and $303,427 and operating costs of $291,457 and $244,559, respectively.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



2003 (52 weeks) compared to 2002 (52 weeks)



Total Revenues.    Total revenues increased by $53.6 million, or 17.5%, to $359.9 million in 2003 from $306.3 million in 2002
due to a $52.8 million increase in restaurant sales and a $732,000 increase in franchise and other revenues. The increase in restaurant sales was due to $22.3 million in sales derived from the 22 restaurants in the class of 2003, $22.1 million in
additional sales from a full year of operations for the 18 restaurants in the class of 2002 and $8.4 million from the 97 full service and ASAP restaurant sales increase of 3.0%. The increase in comparable restaurant sales was driven by increases in
average check of approximately 3.3% and a decrease in customer counts of approximately 0.9% compared to 2002. Approximately 1.5% of the increase in average check was due to price increases with 1.9% due to shifts in our menu mix. The increase in
franchise and other revenues was due to a $490,000 increase in royalties from Krafts distribution of our frozen pizza, a $177,000 increase in franchise restaurant royalties and a $65,000 increase in initial franchise fees from the opening of
our Hong Kong franchise in December.



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##### Table of Contents

Cost of sales.    Cost of sales increased by $14.0 million, or 19.0%, to $87.8
million in 2003 from $73.8 million in 2002. Cost of sales as a percentage of restaurant sales increased to 24.6% in 2003 from 24.3% in the prior year. The increase was primarily the result of higher produce prices, higher costs from our wine
initiative and additional paper costs associated with the 7.9% and 11.1% increase in take out and delivery, respectively.



Labor.    Labor increased by $19.5 million, or 17.7%, to $129.7 million in 2003 from $110.2 million in 2002. Labor as a
percentage of restaurant sales increased to 36.4% in 2003 from 36.3% in the prior year. The increase in labor as a percentage of restaurant sales was primarily due to lower weekly sales averages in the 40 stores built and opened during 2002 and
2003, which caused a deleveraging effect on management wages.



Direct operating and occupancy.    Direct operating and occupancy increased by $13.2 million, or 21.7%, to $73.9 million in 2003 from $60.7 million in 2002. Direct operating and occupancy as a percentage of
restaurant sales increased to 20.8% in 2003 from 20.0% in the prior year. The increase was primarily due to higher natural gas and electricity costs and low weekly sales averages in the 40 stores built and opened during 2002 and 2003, which caused a
deleveraging effect on fixed occupancy costs.



General and
administrative.    General and administrative costs increased by $3.3 million, or 18.1%, to $21.5 million in 2003 from $18.2 million in 2002. General and administrative costs as a percentage of total revenue increased to 6.0%
in 2003 from 5.9% in the prior year. The increase in general and administrative expenses was primarily a result of higher personnel costs related to new management positions, the return of our co-founders, personnel costs associated with our interim
president and higher travel and moving expenses related to manager relocations.



Depreciation and amortization.    Depreciation and amortization increased by $2.6 million, or 17.3%, to $17.6 million in 2003 from $15.0 million in 2002. The increase was primarily due to
the 22 new restaurants opened during 2003 and a full year of depreciation on the 18 restaurants opened in 2002 partially offset by the 12 company-owned full service restaurants written down under SFAS No. 144, noted below in Loss on impairment
of property and equipment and restaurant closures.



Pre-opening costs.    Pre-opening costs increased by $664,000 to $4.0 million in 2003 from $3.4 million in 2002. The increase was due to the 22 restaurants that opened in 2003 compared to the 18 restaurants that
opened in 2002.



Severance
charges.    Severance charges of $1.2 million represent payments related to the resignations of our former President and Chief Executive Officer and our former Senior Vice President and Chief Development Officer under the
terms of their separation agreements.



Loss on impairment of
property and equipment and restaurant closures.    Loss on impairment of property and equipment and restaurant closures of $14.7 million represents the impairment charge and closure costs for 12 company-owned full service
restaurants, in accordance with SFAS No. 144. The corresponding impairment charge of $2.4 million in 2002 represents the impairment charge and closure costs for one company-owned full service restaurant and one company-owned ASAP restaurant.



Interest income.    Interest income
decreased by $51,000 to $317,000 in 2003 from interest income of $368,000 for 2002. The decrease was a result of the reduced interest rates available from financial institutions for 2003 compared to 2002.



Income tax provision.    The income tax provision
for 2003 and 2002 was based on annual effective tax rates applied to the income before income tax provision. The 15.1% tax rate in 2003 and 34.1% tax rate in 2002 comprise the federal and state statutory rates, less any tax credits, based on the
annual estimated effective tax rate for the respective years. The low 15.1% tax rate in 2003 resulted from higher FICA tax tip credits relative to prior years and tax provision benefits from the $14.7m impairment and $1.2m severance charges incurred
in 2003.



23



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##### Table of Contents

Net income.    Net income decreased by $7.3 million, or 47.7%, to $8.0 million
in 2003 from $15.3 million in 2002. Net income as a percentage of revenues decreased to 2.2% in 2003 from 5.0% in 2002. The decrease as a percentage of revenues was due to the $14.7 million impairment charge and the $1.2 million severance charge
partially offset by the benefit associated with our 15.1% tax rate for 2003.



2002 (52 weeks) compared to 2001 (52 weeks)



Total RevenuesTotal revenues increased by $57.1 million, or 22.9%, to $306.3 million in 2002 from $249.3 million in 2001 due to a $57.0 million increase in restaurant sales and a $78,000 increase in franchise
and other revenues. The increase in restaurant sales was due to $27.0 million in additional sales from a full year of operations for the 16 restaurants that opened in 2001 and the purchase of a franchise restaurant in June 2001, $21.6 million in
sales derived from the 18 restaurants opened in 2002 and $8.4 million from comparable restaurant sales increases of 4.3%. The increase in comparable restaurant sales was driven by increases in average check of approximately 3.9% and an increase in
customer counts of approximately 0.4% compared to 2001. Approximately 2.1% of the increase in average check was due to price increases with the remainder due to modest shifts in our menu mix. The increase in franchise and other revenues was due to a
$229,000 increase in royalties from Krafts distribution of our frozen pizza, a $72,000 decrease in initial franchise fees and a $79,000 decrease in franchise restaurant royalties.



Cost of sales.    Cost of sales increased by $12.8 million, or 21.0%, to $73.8 million in 2002
from $61.0 million in 2001. Cost of sales as a percentage of restaurant sales decreased to 24.3% in 2002 from 24.7% in the prior year. This reduction was primarily a result of increased operational efficiencies, menu pricing and a favorable
commodities market.



Labor.    Labor
increased by $21.3 million, or 24.0%, to $110.2 million in 2002 from $88.9 million in 2001. As a percentage of restaurant sales, labor increased to 36.3% in 2002 from 36.1% in the prior year. The increase in labor as a percentage of restaurant sales
was primarily due to the 20% increase in medical insurance costs compared with 2001.



Direct operating and occupancy.    Direct operating and occupancy increased by $11.3 million, or 22.9%, to $60.7 million in 2002 from $49.3 million in 2001. Direct operating and occupancy as
a percentage of restaurant sales remained flat at 20.0% in 2002 compared to the prior year as higher smallware costs associated with the new November menu and increases in rent were offset by lower utility and delivery charges and higher net sales
spread over relatively fixed restaurant level operating and occupancy expenses.



General and administrative.    General and administrative expenses increased by $2.7 million, or 17.3%, to $18.2 million in 2002 from $15.5 million in 2001. General and administrative
expenses as a percentage of total revenues decreased to 5.9% in 2002 from 6.2% in the prior year. The increase in general and administrative dollar expenses was primarily a result of higher personnel costs related to new management positions. The
decrease in general and administrative expenses as a percentage of revenues was primarily a result of the Companys increasing revenue base and the ability to leverage general and administrative personnel.



Depreciation and amortization.    Depreciation and
amortization increased by $3.0 million, or 25.0%, to $15.0 million in 2002 from $12.0 million in 2001. The increase was primarily due to the 18 new restaurants opened during 2002 and a full year of depreciation on the 16 restaurants opened in 2001.



Pre-opening costs.    Pre-opening
costs increased by $488,000 to $3.4 million in 2002 from $2.9 million in 2001. The increase was due to the 18 restaurants that opened in 2002 compared to the 16 restaurants that opened in 2001, and an increase in the average pre-opening cost due to
additional labor charges, higher housing costs and delays associated with some mall opening dates. We anticipate pre-opening expenses to be approximately $180,000 to $185,000 per restaurant in 2003.



24



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##### Table of Contents

Loss on impairment of property and equipment and restaurant closures.    Loss
on impairment of property and equipment and restaurant closures of $2.4 million represents the impairment charge and closure costs for one company-owned full service restaurant and one company-owned ASAP restaurant, in accordance with SFAS No. 144.
There was no corresponding impairment charge for the December 30, 2001 fiscal year.



Interest income (expense).    Interest income, net of interest expense, decreased by $239,000 to $368,000 in 2002 from interest income of $607,000 in 2001. The decrease was a result of the
reduced interest rates available from financial institutions for 2002 compared to 2001.



Income tax provision.    The income tax provision for 2002 and 2001 was based on annual effective tax rates applied to the income before income tax provision. The 34.1% tax rate in 2002 and
35.0% tax rate in 2001 comprise the federal and state statutory rates, less any tax credits, based on the annual estimated effective tax rate for the respective years.



Net income.    Net income increased by $2.1 million, or 16.0%, to $15.3 million in 2002 from
$13.2 million in 2001. Net income as a percentage of revenues decreased to 5.0% in 2002 from 5.3% in 2001. The decrease as a percentage of revenues was due to the $2.4 million impairment charge, in accordance with SFAS No. 144, for the loss on
impairment of property and equipment and restaurant closure costs for one company-owned full service restaurant and one company-owned California Pizza Kitchen ASAP restaurant.



Potential fluctuations in quarterly results and seasonality



Our quarterly operating results may fluctuate significantly as a result of a variety of factors, including the timing of new
restaurant openings and related expenses, profitability of new restaurants, increases or decreases in comparable restaurant sales, general economic conditions, consumer confidence in the economy, changes in consumer preferences, competitive factors,
changes in food costs, changes in labor costs, war and weather conditions. In the past we have experienced significant variability in pre-opening costs from quarter to quarter. These fluctuations are primarily a function of the timing of restaurant
openings. We typically incur the most significant portion of pre-opening costs associated with a given restaurant in the month of opening. In addition, our experience to date has been that labor and direct operating and occupancy costs associated
with a newly opened restaurant during the first three to four months of operation are often materially greater than what will be expected after that time, both in aggregate dollars and as a percentage of restaurant sales. Accordingly, the number and
timing of new restaurant openings in any quarter has had, and is expected to continue to have, a significant impact on quarterly pre-opening costs, labor and direct operating and occupancy costs. As a result of our new site selection process and new
prototype, our 2004 new restaurant openings are anticipated to open in the last two quarters of 2004.



Our business is also subject to seasonal fluctuations. Historically, sales in most of our restaurants have been higher during the summer months and winter
holiday season. As a result, we expect our highest earnings to occur in those periods. As a result of all of these factors, results for any one-quarter are not necessarily indicative of the results to be expected for any other quarter or for any
year.



Liquidity and capital resources



In recent years we have funded our capital requirements primarily through
cash flow from operations and proceeds from the initial public offering of our stock in August 2000. In 2003, net cash flow provided by operating activities was $39.0 million compared to $41.2 million in 2002 and $32.7 million in 2001. Net cash flow
provided by operating activities exceeded net income for 2003 primarily due to the effects of depreciation and amortization, loss on impairment of property and equipment and restaurant closures and the net changes in operating assets and
liabilities. The net change in operating assets and liabilities in 2003 was primarily due to an increase in our deferred tax asset and prepaid expenses and other assets resulting from prepaid rent, offset by an increase in accrued liabilities
resulting from accrued payroll tax. In both 2002 and 2001 net cash flow provided



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by operating activities exceeded the net income due to the effects of depreciation and amortization, loss on impairment of property and equipment and
restaurant closures and changes in working capital.



We use
cash to fund the development and construction of new restaurants and remodel our existing restaurants. Net cash used in investing activities in 2003 was $57.4 million compared to $33.5 million in 2002. We opened 22 new restaurants in 2003 compared
to 18 in 2002. Investment activities consisted of capital expenditures of $36.5 million compared to $33.5 million in 2002, which was the result of $28.5 million spent on new restaurants compared to $26.5 million in 2002 and $8.0 million spent on
capitalized maintenance and remodels compared to $7.0 million in 2002. Additionally, we invested $18.9 million of our cash equivalents into short-term marketable securities during 2003 to maximize interest income. We also invested $2.0 million for a
25% equity interest in a new restaurant concept called LA Food Show, Inc. in March of 2003.



Net cash provided by financing activities was $3.0 million in 2003 compared to $3.7 million in 2002 and consisted of employee common stock option exercises and purchases under our employee stock purchase plan. As of
December 28, 2003 we have a $20.0 million revolving line of credit, of which nothing is currently outstanding. The line of credit expires on June 30, 2004 and bears interest at either the bank base rate minus 0.75% or LIBOR plus 1.0%. Availability
under the credit facility is reduced by outstanding letters of credit, which totaled $3.5 million as of December 28, 2003. In addition, the credit facility includes financial and non-financial covenants, with which the Company was in full compliance
as of December 28, 2003 and as of the date of this report.



Our
capital requirements, including costs related to opening additional restaurants, have been and will continue to be significant. We anticipate total capital expenditures between $35.0 million and $40.0 million in 2004 with the majority of expenditure
associated with approximately ten new store openings. Other capital expenditure is expected to be higher than prior year trends and will be primarily directed toward maintenance capital associated with existing and mature stores, remodels and
planned information technology upgrades. We expect to fund all capital requirements using operating cash flow. Additionally, we anticipate pre-opening costs on average to be approximately $185,000; however, any unexpected delays in construction,
labor shortages or other factors could result in higher than anticipated pre-opening costs. Our future cash requirements and the adequacy of available funds will depend on many factors, including the pace of expansion, real estate markets, site
locations and the nature of the arrangements negotiated with landlords. We believe that our current cash balances, together with anticipated cash flows from operations and funds anticipated to be available from our credit facility, will be
sufficient to satisfy our working capital and capital expenditure requirements on a short-term and long-term basis. Changes in our operating plans, acceleration of our expansion plans, lower than anticipated sales, increased expenses or other events
may cause us to seek additional financing sooner than anticipated. Additional financing may not be available on acceptable terms, or at all. Failure to obtain additional financing as needed could have a material adverse effect on our business and
results of operations.



Off-Balance Sheet Arrangements



As part of our on-going business, we do not participate in transactions that
generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or variable interest entities (VIEs), which would have been established for the purpose of
facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of December 28, 2003, we are not involved in any unconsolidated VIE transactions.



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Contractual Commitments



The following table summarizes our contractual commitments as of December 28, 2003 (in millions):



|                               |  |       |       |                        |   |           |  |           |      |                  |   |      |  |   |     
|------------------------------ |  | ----- | ----- | ---------------------- | - | --------- |  | --------- | ---- | ---------------- | - | ---- |  | - | ----
|                               |  |       |       | Payments Due by Period
|                               |  | Total |       | Less than1 Year        |   | 1-3 Years |  | 4-5 Years |      | More than 5Years
|Operating Lease Obligations(1) |  | $     | 188.3 |                        | $ | 21.8      |  | $         | 44.0 |                  | $ | 41.2 |  | $ | 81.3
|                               |  |       |       |                        |   |           |  |           |      |                  |   |      |  |   |     
|                               |  | $     | 188.3 |                        | $ | 21.8      |  | $         | 44.0 |                  | $ | 41.2 |  | $ | 81.3
|                               |  |       |       |                        |   |           |  |           |      |                  |   |      |  |   |     

---

|(1) |  | Represents aggregate minimum lease payments. Most of the leases also require contingent rent in addition to the minimum rent based on a percentage of sales and require expenses
incidental to the use of the property.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Critical Accounting
Policies



Critical accounting policies are those that we
believe are most important to portraying our financial condition and results of operations and also require the greatest amount of subjective or complex judgments by management. Judgments or uncertainties regarding the application of these policies
may result in materially different amounts being reported under different conditions or using different assumptions. We consider the following policies to be the most critical in understanding the judgments that are involved in preparing our
consolidated financial statements.



Property and Equipment



Property and equipment is recorded at cost. Property and equipment is
depreciated over the assets estimated useful lives using the straight-line method. Leasehold improvements are amortized using the straight-line method over the estimated useful life of the asset or the term of the related lease, whichever is
shorter. The lives for furniture, fixtures, and equipment are ten years. The lives for buildings and leasehold improvements are the shorter of 20 years or the term of the related operating lease.



Long-Lived Asset Impairments



We assess the impairment of long-lived assets, including restaurant sites
and other assets, when events or changes in circumstances indicate that the carrying value of the assets or the asset group may not be recoverable. The asset impairment review assesses the fair value of the assets based on the future cash flows the
assets are expected to generate. In July 2003, the Companys management concluded that restaurants with operating cash flows of less than a defined amount should be regularly monitored to determine if impairment charges should be taken. An
impairment loss is recognized when estimated undiscounted future cash flows expected to result from the use of the asset plus net proceeds expected from the disposition of the asset (if any) are less than the related assets carrying amount.
Impairment losses are measured as the amount by which the carrying amounts of the assets exceed their fair values. The net proceeds expected from the disposition of the asset are determined by independent quotes or expected sales prices developed by
internal specialists. Estimates of future cash flows and expected sales process are judgments based on our experience and knowledge of local operations. These estimates can be significantly impacted by changes in real estate market conditions, the
economic environment, capital spending decisions and inflation.



For properties to be closed that are under long-term lease agreements the present value of any remaining liability under the lease, discounted using risk-free rates and net of expected sublease rental that could be reasonably obtained for
the property is recognized as a liability and expensed. The value of any equipment and leasehold improvements related to a closed store is reduced to reflect net recoverable values. Internal specialists estimate the subtenant income, future cash
flows and asset recovery values based on their historical experience



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and knowledge of (1) the market in which the store to be closed is located, (2) the results of our previous efforts to dispose of similar assets and (3) the
current economic conditions. Specific real estate markets, the economic environment and inflation affect the actual cost of disposition for these leases and related assets.



During the years ended December 28, 2003 and December 29, 2002, we determined that certain identified property and equipment
was impaired and as such, incurred impairment charges of $14.7 million and $2.4 million, respectively. There was no remaining net book value associated with any of these properties at December 28, 2003.



Self-Insurance



Our business is primarily self-insured for workers compensation, automobile and general liability costs. We record our
self-insurance liability, determined actuarially, based on claims filed and an estimate of claims incurred but not yet reported. Any actuarial projection of ultimate losses is subject to a high degree of variability. Sources of this variability are
numerous and include, but are not limited to, future economic conditions, court decisions and legislative actions. Our workers compensation future funding estimates anticipate no change in the benefit structure. Statutory changes could have a
significant impact on future claim costs.



Our workers
compensation liabilities are from claims occurring in various states. Individual state workers compensation regulations have received a tremendous amount of attention from state politicians, insurers, employers and providers, as well as the
public in general. Recent years have seen an escalation in the number of legislative reforms, judicial rulings and social phenomena affecting our business. The changes in a states political and economic environment increase the variability in
the unpaid claim liabilities.



Income Taxes



The Company utilizes the liability method of accounting for income taxes as
set forth in Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. Under the liability method, deferred taxes are determined based on the difference between the financial statement and the tax basis of
assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Recognition of deferred tax assets is limited to amounts considered by management to be more likely than not of realization in
future periods.



Restaurant and Franchise Revenues



Revenues from the operation of company-owned restaurants are recognized when
sales occur. All fees from franchised operations are included in revenue as earned. Royalty fees are based on franchised restaurants revenues and are recorded by the Company in the period the related franchised restaurants revenues are
earned.



Pre-opening Costs



The Company follows Statement of Position (SOP) 98-5, Reporting on the
Costs of Start-up Activities, which was issued by the Accounting Standards Executive Committee and provides guidance on the financial reporting of the start-up costs and organization costs. The SOP requires costs of start-up activities and
organization costs to be expensed as incurred.



Stock-based Compensation



Statement of Financial Accounting Standards (SFAS) No.
123, Accounting for Stock-Based Compensation, encourages but does not require a fair value based method of accounting for employee stock options or similar equity instruments. SFAS No. 123 allows an entity to elect to continue to measure
compensation costs under Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to



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Employees, but requires pro forma disclosure of net earnings as if the fair value based method of accounting had been applied.



The Company elected to follow APB No. 25, and related Interpretations in
accounting for our employee stock options because the alternative fair value accounting provided for under SFAS No. 123, Accounting for Stock Based Compensation, requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB No. 25, because the exercise price of our employee stock options equals or exceeds the fair value of the underlying stock on the date of grant, no compensation expense is recognized.



New Accounting Standards



The Financial Accounting Standards Board (FASB) recently issued
several Statements of Financial Accounting Standards (SFAS). The statements relevant to our line of business and the impact on us are as follows:



In January 2003, the FASB issued FIN 46, Consolidation of Variable Interest Entities, which is effective for the quarter ending December 31,
2003 for variable interest entities (VIEs) created before February 1, 2003. FIN 46 establishes criteria to identify VIEs and the primary beneficiary of such entities. Entities that qualify as VIEs must be consolidated by their primary
beneficiary. All other holders of interests in a VIE must disclose the nature, purpose, size and activity of the VIE as well as their maximum exposure to losses as a result of involvement with the VIE. The company adopted FIN 46 in the third quarter
of 2003. We currently have no VIEs and therefore the adoption did not have an effect on our consolidated financial position, results of operations or cash flows.



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity. This Statement requires that certain instruments that were previously classified as equity on a companys statement of financial position now be classified as liabilities. The Statement is effective for financial
instruments entered into or modified after May 31, 2003, and to all other instruments that exist as of the beginning of the first interim financial reporting period beginning after June 15, 2003. We currently have no instruments impacted by the
adoption of this statement and therefore the adoption did not have an effect on our consolidated financial position, results of operations or cash flows.



In April 2003, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 149,
Amendment of Statement 133 on Derivative Instruments and Hedging Activities, which is generally effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. SFAS No.
149 clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative as discussed in SFAS No. 133, clarifies when a derivative contains a financing component, amends the definition of
underlying to conform it to the language used in FASB Interpretation No. 45, Guarantor Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others and amends certain other
existing pronouncements. We currently have no derivative instruments therefore the adoption did not have an effect on our consolidated financial position, results of operations or cash flows.



In November 21, 2002, the Emerging Issues Task Force (EITF) reached a
consensus on Issue No. 02-16, Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor, which requires that cash consideration received by a customer from a vendor is presumed to be a reduction of
the prices of the vendors products or services and should, therefore, be characterized as a reduction of cost of sales when recognized in the customers income statement. These rules are applied to new arrangements, including
modifications of existing arrangements, entered into after December 31, 2002. The adoption did not have a material effect on the Companys consolidated financial position, results of operations or cash flows.



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Inflation



The primary inflationary factors affecting our operations are food and labor costs. A large number of our restaurant personnel are paid at rates based on
the applicable minimum wage, and increases in the minimum wage directly affect our labor costs. Many of our leases require us to pay taxes, maintenance, repairs, insurance and utilities, all of which are generally subject to inflationary increases.
We believe inflation has not had a material impact on our results of operations in recent years.



Item 7A.    Quantitative and Qualitative Disclosures about Market Risks



Our market risk exposures are related to our cash and cash equivalents and marketable securities. Cash and cash equivalents are invested in highly liquid
short-term investments with maturities of less than three months as of the date of purchase. We are exposed to market risk from changes in market prices related to our investments in marketable securities. As of December 28, 2003 we held $18.9
million in marketable securities. Changes in interest rates affect the investment income we earn on our investments and, therefore, impact our cash flows and results of operations.



In addition, we have a $20.0 million line of credit agreement with Bank of America, N.A. that expires on June 30, 2004.
Interest on the line of credit is calculated on either the bank base rate minus 0.75% or LIBOR plus 1.0%. Currently, there is no outstanding balance under this agreement. Should we draw on this line in the future, changes in interest rates would
affect the interest expense on these loans and, therefore, impact our prospective cash flows and results of operations.



Many of the food products purchased by us are affected by changes in weather, production, availability, seasonality and other factors outside our control.
In an effort to control some of this risk, we have entered into some fixed price purchase commitments with terms of no more than one year. In addition, we believe that almost all of our food and supplies are available from several sources, which
helps to control food commodity risks.



Item 8.    Financial Statements and Supplementary Data



The Consolidated Financial Statements we are required to file hereunder are set forth on pages 50 through 67 of this report.



Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure



None.



Item 9A.    Controls and Procedures



In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship
of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions.



We conducted an evaluation, under the supervision and with the participation of our management, including our Co-Chief Executive Officers and principle financial officer, of the effectiveness of the design and operations of our disclosure
controls and procedures, as defined in rules 13a-15 and 15d-15 promulgated under the Exchange Act. Based upon that evaluation, our Companys Co-Chief Executive Officers and principle financial officer concluded that our disclosure controls and
procedures are effective, as of the end of the period covered by



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this report (December 28, 2003), in ensuring that material information relating to California Pizza Kitchen, Inc., including its consolidated subsidiaries,
required to be disclosed in reports we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms, and (ii) is
accumulated and communicated to our management, including our Co-Chief Executive Officers and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.



There were no significant changes in our internal control (including
corrective actions with regard to significant deficiencies or material weaknesses) over financial reporting (as required by the Exchange Act) that occurred during the last fiscal year.



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PART III



Item 10.    Directors and Executive Officers of the Registrant



The table below sets forth the Companys directors and officers, and certain information, as of April 26, 2004, with respect to age and background.



|                       |  |     |  |                                                                                
|---------------------- |  | --- |  | -------------------------------------------------------------------------------
|Name                   |  | Age |  | Position                                                                       
|Larry S. Flax          |  | 61  |  | Co-Chief Executive Officer, Co-President, Co-Chairman of the Board and Director
|Richard L. Rosenfield  |  | 58  |  | Co-Chief Executive Officer, Co-President, Co-Chairman of the Board and Director
|William C. Baker       |  | 70  |  | Director                                                                       
|Rick J. Caruso         |  | 45  |  | Director                                                                       
|Henry Gluck            |  | 75  |  | Director                                                                       
|Charles G. Phillips    |  | 55  |  | Director                                                                       
|Thomas P. Beck         |  | 57  |  | Senior Vice President, Construction                                            
|Susan M. Collyns       |  | 37  |  | Chief Financial Officer, Vice President, Finance, Secretary                    
|Garry J. Gay           |  | 49  |  | Vice President, Human Resources                                                
|Sarah Goldsmith Grover |  | 39  |  | Senior Vice President, Marketing and Public Relations                          
|Joel K. Mayer          |  | 41  |  | Vice President, Real Estate                                                    
|Karen M. Settlemyer    |  | 51  |  | Senior Vice President, Procurement                                             



Larry S. Flax,
a co-founder, was named Co-President in January 2004 and has served as Co-Chief Executive Officer since July 2003 and as Co-Chairman of the Board since our formation in October 1985. From 1985 to 1996, Mr. Flax had also served as Co-Chief Executive
Officer. Since January 2002, Mr. Flax has been Co-Founder and Co-President at LA Food Show, Inc., a newly-formed restaurant operating company. Prior to founding our company, he practiced law as a principal in Flax and Rosenfield, Inc. after serving
as an Assistant United States Attorney, Department of Justice and Assistant Chief, Criminal Division and Chief, Civil Rights Division of the United States Attorneys Office in Los Angeles. Mr. Flax also serves on the board of directors of Arden
Realty, Inc.



Richard L. Rosenfield, a co-founder, was
named Co-President in January 2004 and has served as Co-Chief Executive Officer since July 2003 and as Co-Chairman of the Board since our formation in October 1985. From 1985 to 1996, Mr. Rosenfield had also served as Co-Chief Executive Officer.
Since January 2002, Mr. Rosenfield has been Co-Founder and Co-President at LA Food Show, Inc., a newly-formed restaurant operating company. Prior to founding our company, he practiced law as a principal of Flax and Rosenfield, Inc. after
serving with the Department of Justice, Criminal Division, Appellate Section in Washington, D.C. and as an Assistant United States Attorney, Special Prosecutions Section of the Criminal Division, in Los Angeles. Mr. Rosenfield also serves on
the board of directors of Callaway Golf Company.



William C.
Baker has served as a director since May 2002. Mr. Baker is a principal of the real estate investment firm of Baker & Simpson, L.L.C. From 1996 to 1997, Mr. Baker served as Chief Executive Officer and Chairman of the Santa Anita Companies,
which merged with Meditrust Companies in 1997 and changed its name to La Quinta Inns in 2001. From 1993 to 1995, Mr. Baker was Chief Operating Officer of Red Robin Gourmet Burgers, Inc. From 1977 to 1988, Mr. Baker was the principal shareholder,
Chairman and Chief Executive Officer of Del Taco, Inc. Mr. Baker serves on the boards of directors of Callaway Golf Company, Public Storage, Inc., La Quinta Corporation and Javo Beverage Company.



Rick J. Caruso has served as a director since January 2002. Since
1980, Mr. Caruso has been the Chief Executive Officer of Caruso Affiliated Holdings, a nationwide diversified real estate company he founded in 1980. Mr. Caruso is President of CAH Restaurants of California, LLC which was formerly one of our
franchisees.



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Mr. Caruso serves on the boards of directors of Century Investments, Inc., CRM Properties, Inc., Midvale Corporation and additional privately held companies.



Henry Gluck has served as a director since August 2003.
He served as Chairman and Chief Executive Officer of Caesars World since 1983. While serving in this position, Mr. Gluck served on the Board of Directors of ITT from 1995 to 2003 and was also Co-Chairman of Transcontinental Properties,
developers of Lake Las Vegas. Mr. Gluck has served on the Board of Directors of many publicly traded companies, including Cordura Corporation, Growth Realty, Daylin, Gibralter Savings and Loan Association, Monogram Industries, Metal Box
America, ITT Corp. and Sheraton Hotel Corp. Mr. Gluck serves on the Board of Trustees of Andrus Gerontology Center at the University of Southern California. He also serves on the Board of Advisors/Executive Committee at the UCLA Medical Center. Mr.
Gluck now serves as a consultant to several companies.



Charles G. Phillips has served as a director since November 2000. Mr. Phillips has retired from Gleacher & Co., an investment banking firm where he was a managing director from 1991 to 2002 and is now serving as a consultant to
several companies. Prior to joining Gleacher & Co., Mr. Phillips was a member of Morgan Stanleys Investment Banking Operating Committee and, in 1985, founded that firms high yield business. Mr. Phillips currently serves on the
board of directors of Champs Entertainment, Inc. and has previously been a director of several public companies and private investment funds.



Thomas Beck has served as Senior Vice President, Construction since September 2003. From 1997 to August 2003, Mr. Beck worked at Shawmut Design and
Construction where he last served as National Construction Manager for Shawmuts Restaurant/Retail Division.



Susan M. Collyns served as Controller from September 2001 to March 2004 and was promoted to Vice President, Finance, in January 2004. Ms. Collyns
was promoted to Chief Financial Officer in March 2004. Ms. Collyns has almost 19 years of financial experience in both domestic and international companies. From 1996 to September 2001, Ms. Collyns served as Vice President of Finance and Operations
for BMG Entertainments Windham Hill Group.



Garry J.
Gay has served as Vice President, Human Resources, since September 2003. From 1985 to September 2003, Mr. Gay worked at Spaghetti Warehouse, Inc./Consolidated Restaurant Operations where he last served as Vice President, Human Resources.



Sarah Goldsmith Grover has served as Vice President,
Marketing and Public Relations since 1992 and was promoted to Senior Vice President, Marketing and Public Relations, in November 2000. Ms. Goldsmith Grover joined this Company in 1990 as Director of Public Relations. In 1996, Advertising Age
Magazine named Ms. Goldsmith Grover one of the Marketing 100, a distinction given to the top 100 marketers in the United States.



Joel K. Mayer has served as Vice President, Real Estate, since December 2003. From May 1998 to November 2003, Mr. Mayer worked at Madison Marquette
where he last served as Senior Vice President, Leasing.



Karen M. Settlemyer has served as Vice President, Product Development and Purchasing since 1996 and was promoted to Senior Vice President, Procurement, in November 2003. From 1993 to 1996, Ms. Settlemyer was Director of Product
Development at Boston Market, Inc., during which time she created its very successful Carver Sandwich Program. In 1989, she held the position of Vice President of Research and Development for Grand American Fare. Ms. Settlemyer is a 24-year
foodservice veteran and registered dietician.



Currently, all
directors hold office until the next annual meeting of shareholders and until their successors have been duly elected and qualified. Officers are elected by and serve at the discretion of the board of directors. There are no family relationships
among our directors and officers.



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Audit Committee



Our board of directors has three standing committees: an audit committee, a compensation committee, and a nominating and governance committee.



The audit committee is primarily concerned with the accuracy and
effectiveness of the audits of our financial statements by our internal accounting staff and our independent auditors. This committees function is to review our quarterly and annual financial statements with our independent accountants and
management; review the scope and results of the examination of our financial statements by the independent accountants; approve all professional services performed by the independent accountants and related fees; recommend the retention or
replacement of the independent accountants and periodically review our accounting policies and internal accounting and financial controls. The audit committee is also responsible for establishing and overseeing our internal reporting system relating
to accounting, internal accounting controls and auditing matters. The audit committee is governed by a written charter approved by our board of directors. A more complete description of the committees functions is set forth in the charter.
This committee met six times during the fiscal year ended December 28, 2003.



Three directors served as members of the audit committee in 2003, William C. Baker, Rick J. Caruso and Charles G. Phillips. In March 2004, Mr. Caruso rotated off the committee and was replaced by Henry Gluck. All four
of the current and former members of the audit committee are independent as required by applicable listing standards of The Nasdaq Stock Market. Mr. Phillips served as chair of the audit committee until January 2004 when Mr. Baker was
appointed to serve in that role. The board of directors has determined that Mr. Phillips is an audit committee financial expert within the meaning of Item 401(h)(2) of Regulation S-K.



Shareholder Procedures for Director Nominations



In April 2004, we adopted corporate governance guidelines (the
Guidelines) which established, among other things, procedures by which shareholders may recommend nominees to our board of directors. Pursuant to the Guidelines, communications sent to us with respect to candidates for director proposed
by our shareholders shall be forwarded to the chair of our nominating and governance committee. This committee shall then review and consider the shareholder proposals in connection with our next annual meeting of shareholders so long as the
communication is received prior to the applicable deadline for the submission of shareholder proposals generally.



Compliance with Section 16(a) of the Securities Exchange Act of 1934



Section 16(a) of the Exchange Act requires our executive officers, directors and 10% shareholders to file reports regarding initial ownership and changes
in ownership with the Securities and Exchange Commission and any exchange upon which our securities are listed. Executive officers, directors and 10% shareholders are required by Securities and Exchange Commission regulations to furnish us with
copies of all Section 16(a) forms they file. Our information regarding compliance with Section 16(a) is based solely on a review of the copies of such reports furnished to us by our executive officers, directors and 10% shareholders. Except as set
forth below, we believe that during the fiscal year ending December 28, 2003, all of our executive officers, directors and 10% shareholders complied with all applicable Section 16(a) filing requirements:



|                       |  |                              |  |                                                     |  |                              
|---------------------- |  | ---------------------------- |  | --------------------------------------------------- |  | -----------------------------
|Name                   |  | Number of LateReports (Form) |  | Number of TransactionsNot Reported on aTimely Basis |  | Know Failures toFile a Report
|William C. Baker       |  | One (Form 4)                 |  | One                                                 |  | None                         
|Rick J. Caruso         |  | One (Form 4)                 |  | One                                                 |  | None                         
|Charles G. Phillips    |  | One (Form 4)                 |  | One                                                 |  | None                         
|Thomas P. Beck         |  | One (Form 3)                 |  | One                                                 |  | None                         
|Christopher P. Ames    |  | One (Form 4)                 |  | One                                                 |  | None                         
|Sarah Goldsmith Grover |  | One (Form 4)                 |  | One                                                 |  | None                         
|Julie A. Carruthers    |  | One (Form 4)                 |  | Three                                               |  | None                         
|Larry S. Flax          |  | One (Form 4)                 |  | Two                                                 |  | None                         



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Code of Ethics



We adopted a code of ethics applicable to our Co-Chief Executive Officers, Chief Financial Officer, Controller and other employees, which is a code
of ethics as defined by applicable rules of the Securities Exchange Commission. The code is publicly available on our website at www.cpk.com. If we make any amendments to this code other than technical, administrative, or other
non-substantive amendments, or grant any waivers, including implicit waivers, from a provision of this code to our Co-Chief Executive Officers, Chief Financial Officer, Controller or others performing similar functions, we will disclose the nature
of the amendment or waiver, its effective date and to whom it applies on our website.



Item 11.    Executive Compensation



The following table sets forth information regarding the compensation earned during 2001, 2002 and 2003 by our current Co-Chief Executive Officers, our former Chief Executive Officer, and each of our other four most
highly compensated executive officers who were serving as executive officers on December 28, 2003.



Summary Compensation Table



|                                                                                            |  |              |        |                        |                       |                             |   |                       |  |                     |           |  |   |                   |     
|------------------------------------------------------------------------------------------- |  | ------------ | ------ | ---------------------- | --------------------- | --------------------------- | - | --------------------- |  | ------------------- | --------- |  | - | ----------------- | ----
|                                                                                            |  |              |        |                        |                       | Long TermCompensationAwards |   |                       |  |                    
|                                                                                            |  | Year         |        | Annual Compensation(1) |                       | SecuritiesUnderlyingOptions |   |                       |  |                    
|Name and Principal Position                                                                 |  |              | Salary |                        | Bonus                 |                             |   | All OtherCompensation | 
|Larry S. Flax Co-Chief Executive Officer, Co-Chairman of the Board and Co-President         |  | 200320022001 |        | $                      | 153,846             |                             | $ | 41,600              |  |                  |           |  |   | 5201,5601,560     | (2) 
|                                                                                            |  |              |        |                        |                      
|Richard L. Rosenfield Co-Chief Executive Officer, Co-Chairman of the Board and Co-President |  | 200320022001 |        | $                      | 153,846             |                             | $ | 41,600              |  |                  |           |  |   | 5201,5601,560     | (3) 
|                                                                                            |  |              |        |                        |                      
|Frederick R. Hipp Former Chief Executive Officer and President                              |  | 200320022001 |        | $                      | 425,723600,000580,769 |                             | $ | 315,000210,000       |  | 100,00050,00050,000 | (4)(4)(4) |  | $ | 233,9874,8904,710 | (5) 
|                                                                                            |  |              |        |                        |                      
|Gregory S. Levin Former Vice President, Chief Financial Officer and Secretary               |  | 200320022001 |        | $                      | 215,096185,817135,962 |                             | $ | 42,00077,70044,800    |  | 20,00065,000       | (6)(6)    |  |   | 4,2984,2004,007   | (7) 
|                                                                                            |  |              |        |                        |                      
|Christopher P. Ames Former Vice President, Operations                                       |  | 200320022001 |        | $                      | 209,038196,490117,164 |                             | $ | 42,00077,70048,800    |  | 30,00093,000       | (8)(8)    |  |   | 4,5003,9382,897   | (9) 
|                                                                                            |  |              |        |                        |                      
|Sarah Goldsmith Grover Senior Vice President, Marketing and Public Relations                |  | 200320022001 |        | $                      | 164,452149,327147,408 |                             | $ | 33,18162,79040,600    |  | 20,00020,00025,000  |           |  |   | 4,4663,4203,850   | (10)
|                                                                                            |  |              |        |                        |                      
|Karen M. Settlemyer Senior Vice President, Procurement                                      |  | 200320022001 |        | $                      | 135,250126,365122,692 |                             | $ | 20,10039,84825,830    |  | 10,00020,00015,000  |           |  |   | 3,9143,4672,048   | (11)

---

|(1) |  | In accordance with the rules of the Securities and Exchange Commission, the Annual Compensation described under this heading does not include medical insurance or certain other
benefits and perquisites received by the named executive officers that are available generally to all of our salaried employees and other personal benefits received by the named executive officers that do not exceed the lesser of $50,000 or 10% of
the officers salary and bonus disclosed in this table.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

|(2) |  | Term life insurance premium.
|--- |  | ----------------------------

|(3) |  | Term life insurance premium.
|--- |  | ----------------------------

|(4) |  | In connection with Mr. Hipps resignation in July 2003, options to purchase 87,500 shares granted to him in 2003, option to purchase 31,250 shares granted to him in 2002, and
options to purchase 18,750 shares granted to him in 2001, have been cancelled.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | Mr. Hipp received $233,077 pursuant to the terms of the severance agreement between us and Mr. Hipp. See Employment Agreements below. Also includes term life insurance
premium of $910.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) |  | These options have been cancelled.
|--- |  | ----------------------------------

|(7) |  | Includes term life insurance premium of $983 and deferred compensation match of $3,315.
|--- |  | ---------------------------------------------------------------------------------------

|(8) |  | In connection with Mr. Ames resignation in January 2004, options to purchase 22,500 shares granted to Mr. Ames in 2003 and options to purchase 42,000 shares granted to him in
2001 have been cancelled.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(9) |  | Includes term life insurance premium of $900 and deferred compensation match of $3,600.
|--- |  | ---------------------------------------------------------------------------------------

|(10) |  | Includes term life insurance premium of $866 and deferred compensation match of $3,600.
|---- |  | ---------------------------------------------------------------------------------------

|(11) |  | Includes term life insurance premium of $627 and deferred compensation match of $3,287.
|---- |  | ---------------------------------------------------------------------------------------



The following table sets forth information concerning stock options that we granted to our named executive officers. We have
never issued stock appreciation rights.



|                       |  |                                                |     |  |                                                                                                |    |  |                           |  |                   |     |  |         |  |          
|---------------------- |  | ---------------------------------------------- | --- |  | ---------------------------------------------------------------------------------------------- | -- |  | ------------------------- |  | ----------------- | --- |  | ------- |  | ---------
|                       |  | Individual Grants                              |     |  | Potential Realizable Valueat Assumed Annual Ratesof Stock Price Appreciationfor Option Term(4)
|                       |  | Number ofSecuritiesUnderlyingOptionsGranted(1) |     |  | Percentage ofTotal OptionsGranted toEmployees in2003(2)                                        |    |  | Exercise Price(per share) |  | ExpirationDate(3) |     |  |        
|Name                   |  |                                                |     |  |                                                                                                | 5% |  | 10%                      
|Larry S. Flax          |  |                                               |     |  |                                                                                               |    |  |                          |  |                  |     |  |        |  |         
|Richard L. Rosenfield  |  |                                               |     |  |                                                                                               |    |  |                          |  |                  |     |  |        |  |         
|Frederick R. Hipp      |  | 100,000                                        | (5) |  | 13.40                                                                                          | %  |  | 22.40                     |  | 07/24/06          | (5) |  | 417,649 |  | 888,185  
|Gregory S. Levin       |  | 20,000                                         | (6) |  | 2.68                                                                                           | %  |  | 22.40                     |  | 01/21/13          | (6) |  | 281,745 |  | 713,997  
|Christopher P. Ames    |  | 30,000                                         | (6) |  | 4.02                                                                                           | %  |  | 22.40                     |  | 01/21/13          | (6) |  | 422,617 |  | 1,070,995
|Sarah Goldsmith Grover |  | 20,000                                         |     |  | 2.68                                                                                           | %  |  | 22.40                     |  | 01/21/13          |     |  | 281,745 |  | 713,997  
|Karen M. Settlemyer    |  | 10,000                                         |     |  | 1.34                                                                                           | %  |  | 22.40                     |  | 01/21/13          |     |  | 140,872 |  | 356,998  

---

|(1) |  | Represents options we granted under our 1998 Stock-Based Incentive Compensation Plan.
|--- |  | -------------------------------------------------------------------------------------

|(2) |  | Based on an aggregate of 746,350 shares of our common stock, which are subject to options granted to employees during 2003.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------

|(3) |  | The term of each option we grant is generally ten years from the date of grant. Our options may terminate before their expiration dates if the option holders status as an
employee terminates or upon the option holders death or disability.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | The 5% and 10% assumed annual rates of compounded stock price appreciation are mandated by the rules of the Commission and do not represent either historical appreciation or our
estimate or projection of our future common stock prices.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | The options to purchase 87,500 shares have been cancelled.
|--- |  | ----------------------------------------------------------

|(6) |  | The options to purchase these shares have been cancelled.
|--- |  | ---------------------------------------------------------



36



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##### Table of Contents

The following table sets forth information concerning options that our named executive officers exercised
during 2003 and the number of shares subject to both exercisable and unexercisable stock options as of December 28, 2003. The table also reports values for in-the-money options that represent the positive spread between the exercise
prices of outstanding options and $19.61, the last reported sale price of our common stock in our 2003 fiscal year. We have never issued stock appreciation rights.



Aggregated Option Exercises In 2003 And Fiscal Year-End Option Values



|                       |  |                           |  |               |  |                                                                        |  |                                                              |  |               |  |       
|---------------------- |  | ------------------------- |  | ------------- |  | ---------------------------------------------------------------------- |  | ------------------------------------------------------------ |  | ------------- |  | ------
|                       |  | SharesAcquired onExercise |  | ValueRealized |  | Number of Securities UnderlyingUnexercised Options atDecember 28, 2003 |  | Value of UnexercisedIn-the-Money Options atDecember 28, 2003
|Name                   |  |                           |  | Exercisable   |  | Unexercisable                                                          |  | Exercisable                                                  |  | Unexercisable
|Larry S. Flax          |  |                          |  |              |  | 90,000                                                                 |  |                                                             |  | 414,900       |  |      
|Richard L. Rosenfield  |  |                          |  |              |  | 90,000                                                                 |  |                                                             |  | 414,900       |  |      
|Frederick R. Hipp      |  |                          |  |              |  | 62,500                                                                 |  |                                                             |  |              |  |      
|Gregory S. Levin       |  | 9,500                     |  | 87,288        |  | 48,250                                                                 |  | 53,125                                                       |  | 52,439        |  | 23,050
|Christopher P. Ames    |  | 3,250                     |  | 33,080        |  | 40,625                                                                 |  | 69,125                                                       |  | 9,124         |  | 2,305 
|Sarah Goldsmith Grover |  | 31,712                    |  | 405,714       |  | 28,750                                                                 |  | 43,125                                                       |  | 34,094        |  | 17,288
|Karen M. Settlemyer    |  | 5,000                     |  | 108,750       |  | 44,625                                                                 |  | 30,625                                                       |  | 266,290       |  | 17,288



Employment agreements



In July 2003, we entered into a separation agreement with
our former Chief Executive Officer and President, Frederick R. Hipp. This agreement provided that we would pay Mr. Hipp an aggregate severance payment of $600,000, payable in installments over regular payroll intervals in 2003 with the balance being
paid in one lump sum on the first regular payroll date in 2004. Under the terms of the severance agreement, all unvested stock options held by Mr. Hipp terminated in connection with his resignation and vested options to purchase an aggregate of
62,500 shares of our common stock remain exercisable until July 23, 2006. We paid Mr. Hipp $233,077 in fiscal year 2003 and $366,923 in fiscal year 2004 pursuant to the terms of this severance agreement.



Director compensation



In August 2003, we adopted a new cash and stock option compensation policy for our independent directors. As adopted, this
policy will be reviewed annually by our board. Under the policy, our independent directors will receive an annual retainer of $30,000 and a fee of $1,500 for each board meeting attended in 2003. In addition, our independent directors receive the
following fees for each committee meeting attended:



|                                                       |  |                       |       |                      |   |      
|------------------------------------------------------ |  | --------------------- | ----- | -------------------- | - | -----
|Committee Meeting Attended                             |  | Member Attendance Fee |       | Chair Attendance Fee
|Audit Committee                                        |  | $                     | 2,000 |                      | $ | 3,000
|Compensation Committee                                 |  | $                     | 1,000 |                      | $ | 1,500
|Nominating and Governance Committee or Other Committee |  | $                     | 500   |                      | $ | 1,000



These fees were paid
retroactively to January 2003 for all independent directors serving on our board at the time of the policys adoption. The board continued our prior policy of granting each new independent director who joins our board an option to purchase
15,000 shares of our common stock. These options vest over a two-year period with 50% becoming exercisable annually, subject only to the directors continued service. The board also determined that each independent director would be granted an
option to purchase 10,000 shares of our common stock for his service as a member of the board of directors in 2003. These options will vest over a three year period in equal annual installments so long as the director continues to serve on the
board. In each case the exercise price is set at the fair market value of a share of common stock as determined by our stocks closing price on the date of grant. The options terminate 10 years after the date of grant or, if earlier,
immediately after the date a director voluntarily resigns or 60 days after involuntarily resignation from the board. Independent directors are also reimbursed for reasonable expenses incurred in connection with serving as a director.



37



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##### Table of Contents

Compensation committee interlocks and insider participation



Our compensation committee currently consists of Messrs. Phillips, Baker,
Caruso and Gluck. Mr. Phillips served as chair of the compensation committee until March 2004, when Mr. Baker was appointed to that role. No member of the compensation committee has served as one of our officers or employees at any time. None of our
executive officers serves as a member of the board of directors or compensation committee of any other company that has one or more executive officers serving as a member of our board of directors or our compensation committee.



Item 12.    Security Ownership of Certain Beneficial Owners and Management



The following table sets forth information concerning the beneficial ownership of our common stock as of April 20, 2004 by our directors, named executive
officers, all persons known by us to be the beneficial owners of more than five percent of our outstanding common stock and all executive officers and directors as a group. The common stock is our only outstanding voting security. Except as set
forth below, the following shareholders have the sole voting power with respect to all shares of common stock shown as beneficially owned by them.



|                                                                 |  |                 |  |            |  
|---------------------------------------------------------------- |  | --------------- |  | ---------- | -
|                                                                 |  | Shares Owned(1) | 
|Name                                                             |  | Number ofShares |  | Percentage |  
|Larry S. Flax(2)                                                 |  | 681,371         |  | 3.5        | %
|Richard L. Rosenfield(3)                                         |  | 650,876         |  | 3.4        | %
|Frederick R. Hipp(4)                                             |  | 62,500          |  | 0.3        | %
|Rick J. Caruso(5)                                                |  | 75,454          |  | 0.4        | %
|Charles G. Phillips(6)                                           |  | 35,405          |  | 0.2        | %
|William C. Baker(7)                                              |  | 12,500          |  | 0.1        | %
|Henry Gluck(8)                                                   |  | 10,000          |  | 0.1        | %
|Gregory S. Levin(9)                                              |  | 81              |  |           | %
|Christopher P. Ames(10)                                          |  | 16,947          |  | 0.1        | %
|Sarah Goldsmith Grover(11)                                       |  | 41,485          |  | 0.2        | %
|Karen M. Settlemyer(12)                                          |  | 49,322          |  | 0.3        | %
|Capital Group International, Inc.(13).                           |  | 2,745,650       |  | 14.4       | %
|FMR Corp.(14)                                                    |  | 1,138,540       |  | 6.0        | %
|Strong Capital Management, Inc.(15)                              |  | 1,090,182       |  | 5.7        | %
|Capital Research and Management Company(16)                      |  | 1,300,000       |  | 6.8        | %
|All directors and executive officers as a group (12 persons)(17) |  | 1,573,510       |  | 8.1        | %

---

|(1) |  | Percentage of ownership is calculated as required by Commission Rule 13d-3(d)(1). Except as indicated in the footnotes to this table, the persons named in this table have sole
voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws. The table above includes the number of shares underlying options which are exercisable within 60 days
after the date of this amended annual report.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Mr. Flax, our Co-Chief Executive Officer, Co-President, Co-Chairman of the Board and one of our directors, individually owns no shares of our common stock and has options to buy
190,000 shares. Options to purchase 90,000 of such shares will be exercisable within 60 days of this amended annual report. The total number of shares owned includes 498,155 shares over which Mr. Flax exercises voting control as the trustee of the
Larry S. Flax Revocable Trust. The total number of shares owned also includes 40,782 shares over which Mr. Flax exercises voting control as the trustee of the Rosenfield Childrens Trust and 52,434 shares over which Mr. Flaxs wife
exercises voting control as the trustee of the Joan Gillette Flax Family Trust. Mr. Flax disclaims any beneficial ownership over the shares held by the Rosenfield Childrens Trust and the Joan Gillette Flax Family Trust. Mr. Flaxs address
is 6053 West Century Blvd., 11th Floor, Los Angeles, California 90045.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



38



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##### Table of Contents

|(3) |  | Mr. Rosenfield, our Co-Chief Executive Officer, Co-President, Co-Chairman of the Board and one of our directors, individually owns 560,876 shares of our common stock and has options
to buy an additional 190,000 shares. Options to purchase 90,000 of such shares will be exercisable within 60 days of this amended annual report. Mr. Rosenfields address is 6053 West Century Blvd., 11th Floor, Los Angeles, California 90045.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Mr. Hipp, our former Chief Executive Officer and President, individually owns no shares of our common stock and has options to buy an additional 62,500 shares, all of which are
immediately exercisable. Mr. Hipps address is 8100 AMF Drive, Mechanicsville, Virginia 23111.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | Mr. Caruso, one of our directors, owns 67,954 shares and has options to buy an additional 25,000 shares. Options to purchase 7,500 of such shares will be exercisable within 60 days
of this amended annual report. Mr. Carusos address is Caruso Affiliated, 101 The Grove Drive, Los Angeles, CA 90036.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) |  | Mr. Phillips, one of our directors, owns 27,905 shares of our common stock and has options to buy an additional 25,000 shares. Options to purchase 7,500 of such shares will be
exercisable within 60 days of this amended annual report. Mr. Phillips address is 775 Park Avenue, New York, NY 10021.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) |  | Mr. Baker, one of our directors, owns 5,000 shares of our common stock and has options to buy an additional 25,000 shares. Options to purchase 7,500 of such shares will be
exercisable within 60 days of this amended annual report. Mr. Bakers address is 6053 West Century Blvd., 11thFloor, Los Angeles, California 90045.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) |  | Mr. Gluck, one of our directors, owns 10,000 shares of our common stock and has options to buy 15,000 shares, none of which will be exercisable within 60 days of this amended
annual report. Mr. Glucks address is 6053 West Century Blvd., 11thFloor, Los Angeles, California 90045.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(9) |  | Mr. Levin, our former Chief Financial Officer, owns 81 shares of our common stock. Mr. Levins address is 6326-A Lindmar Drive, Goleta, CA 93117.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------

|(10) |  | Mr. Ames, our former Vice President, Operations, individually owns no shares of our common stock. The number of shares owned includes 1,190 shares owned by Mr. Ames wife, Edie
Garritano-Ames. Mr. Ames wife has options to purchase an additional 51,692 shares. Options to purchase 15,757 shares under Ms. Ames options will be exercisable within 60 days of this amended annual report. Mr. Ames address is
6053 West Century Blvd., 11thFloor, Los Angeles, California 90045.
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(11) |  | Ms. Goldsmith Grover, our Senior Vice President of Marketing and Public Relation, owns 4,297 shares of our common stock and has options to purchase an additional 91,875 shares.
Options to purchase 37,188 of such shares will be exercisable within 60 days of this amended annual report. Ms. Goldsmith Grovers address is 6053 West Century Blvd., 11thFloor, Los Angeles, California 9004.
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(12) |  | Ms. Settlemyer, our Senior Vice President of Procurement, owns 884 shares of our common stock and has options to buy 100,250 shares. Options to purchase an additional 48,438 of
these shares will be exercisable within 60 days of this amended annual report. Ms. Settlemyers address is 6053 West Century Blvd., 11thFloor, Los Angeles, California 9004.
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(13) |  | Capital Group International, Inc. (CGII) has sole voting power over 1,878,920 shares and sole dispositive power over 2,745,650 shares. CGII is the parent holding company
of a group of investment management companies that hold investment power and, in some cases, voting power over the shares. The investment management companies provide investment advisory and management services for their respective clients which
include registered investment companies and institutional accounts. CGII does not have investment power or voting power over any of such 2,745,650 shares. The total number of shares includes 2,617,990 beneficially owned by Capital Guardian Trust
Company, a subsidiary of CGII, with additional shares owned by two other subsidiaries of CGII: Capital International Research and Management Inc. (d/b/a Capital International, Inc.) and Capital International S.A Capital Guardian Trust Company has
sole voting power over 1,751,260 of such shares and sole dispositive power over all 2,617,990 shares. CGII and Capital Guardian Trust Company disclaim any beneficial ownership over these shares. The address for Capital Group International, Inc. and
Capital Guardian Trust Company is 11100 Santa Monica Boulevard, Los Angeles, California 90025. The number of shares set forth in this table is as reported in a Schedule 13G/A filed jointly by Capital Group International, Inc. and Capital
Guardian Trust Company on February 13, 2004, under the Securities Exchange Act of 1934 for the year ended December 31, 2003. We have no reason to believe that the information in the Schedule 13G/A was not complete or accurate or that a statement or
an amendment should have been filed thereto and was not.
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



39



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##### Table of Contents

|(14) |  | FMR Corp. has sole voting power over 8,300 shares and sole dispositive power over 1,138,540 shares. Fidelity Management & Research Company (Fidelity), a wholly owned
subsidiary of FMR Corp., is the beneficial owner of 1,130,240 of such 1,138,540 shares as a result of acting as investment adviser to various investment companies (the Funds). Edward C. Johnson III as Chairman of FMR Corp.,
FMR Corp. through its control of Fidelity, and the Funds have sole power to dispose of the 1,130,240 shares owned by the Funds. Neither FMR Corp. nor Edward C. Johnson III, Chairman of FMR Corp., has the sole power to vote or direct the
voting of the shares owned directly by the Funds, which power resides with the Funds Boards of Trustees. Fidelity Management Trust Company (Fidelity Trust), a wholly owned subsidiary of FMR Corp., is the beneficial owner of 8,300
of such 1,138,540 shares as a result of its serving as investment manager of the institutional accounts. Edward C. Johnson III and FMR Corp., through its control of Fidelity Trust, each has sole dispositive power over the 8,300 shares and sole power
to vote or to direct the voting of the 8,300 shares owned by the institutional accounts. The address for FMR Corp. is 82 Devonshire Street, Boston, Massachusetts 02109. The number of shares set forth in this table is as reported in a Schedule
13G/A filed jointly by FMR Corp., Edward C. Johnson III, Abigail P. Johnson, and Fidelity Management and Research Company on February 17, 2004, under the Securities Exchange Act of 1934 for the year ended December 31, 2003. We have no reason to
believe that the information in the Schedule 13G/A was not complete or accurate or that a statement or an amendment should have been filed thereto and was not.
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(15) |  | Strong Capital Management, Inc. has shared voting power over 1,052,182 shares and shared dispositive power over 1,090,182 shares. Strong Capital Management, Inc. is a registered
investment advisor whose clients have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, such shares. Richard S. Strong has shared voting power over 1,052,182 shares and shared dispositive
power over 1,090,182 shares. The address of Strong Capital Management, Inc. is 100 Heritage Reserve, Meomonee Falls, Wisconsin 53051. The address of Richard S. Strong is c/o Godfrey & Kahn S.C., 780 N. Water Street, Milwaukee, Wisconsin 53202.
The number of shares set forth in this table is as reported in a Schedule 13G filed jointly by Strong Capital Management, Inc. and Richard S. Strong on February 17, 2004, under the Securities Exchange Act of 1934 for the year ended December 31,
2003. We have no reason to believe that the information in the Schedule 13G/A was not complete or accurate or that a statement or an amendment should have been filed thereto and was not.
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(16) |  | Capital Research and Management Company has sole voting power over zero shares and sole dispositive power over 1,300,000 shares. SMALLCAP World Fund, Inc., an investment company
which is advised by Capital Research and Management Company is the beneficial owner of 1,100,000 of such 1,300,000 shares. Capital Research and Management Company may be deemed to be the beneficial owner of 1,300,000 shares as a result of
acting as investment advisor to various investment companies. The address for Capital Research and Management Company and SMALLCAP World Fund, Inc. is 333 South Hope Street, Los Angeles, California 90045. The number of shares set forth in this table
is as reported in a Schedule 13G filed jointly by Capital Research and Management Company and SMALLCAP World Fund, Inc. on February 13, 2004, under the Securities Exchange Act of 1934 for the year ended December 31, 2003. We have no reason to
believe that the information in the Schedule 13G was not complete or accurate or that a statement or an amendment should have been filed thereto and was not.
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(17) |  | These 12 persons include all directors and executive officers detailed in the Directors and Executive Officers of the Registrant section above. See notes 2-3, 5-8 and
11-12 above. Thomas P. Beck, our Senior Vice President, Construction, individually owns zero shares of our common stock and has options to buy 35,000 shares. Options to buy 4,375 of such shares will be exercisable within 60 days of this amended
annual report. Susan M. Collyns, our Chief Financial Officer and Vice President, Finance, individually owns 1,097 shares and has options to purchase an additional 48,750 shares. Options to purchase 5,000 of such shares will be exercisable within 60
days of this amended annual report. Garry J. Gay, our Vice President, Human Resources, individually owns no shares and has options to purchase 25,000 shares. Options to purchase 3,125 of such shares will be exercisable within 60 days of this amended
annual report. Joel K. Mayer, our Vice President, Real Estate, shares joint ownership of 1,000 shares with his wife and has options to purchase an additional 25,000 shares. Options to purchase 2,500 of such shares will be exercisable within 60 days
of this amended annual report. The address for all these persons is 6053 West Century Blvd., 11th Floor, Los Angeles, California 90045.
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



40



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##### Table of Contents

Equity Compensation Plan Information



The following table gives information about our common stock that may be issued upon the exercise of options, warrants and
rights under our 1998 Stock-Based Incentive Compensation Plan and our Employee Stock Purchase Plan, which together constitute all of our existing equity compensation plans as of December 28, 2003.



|                                                           |  |                                                                                          |  |                                                                          |       |                                                                                                                                         |         |    
|---------------------------------------------------------- |  | ---------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------ | ----- | --------------------------------------------------------------------------------------------------------------------------------------- | ------- | ---
|Plan category                                              |  | Number of securities tobe issued upon exerciseof outstanding options,warrants and rights |  | Weighted-averageexercise price ofoutstanding options,warrants and rights |       | Number of securitiesremaining available forfuture issuance underequity compensationplans (excludingsecurities reflected infirst
column) |        
|Equity compensation plans approved by security holders     |  | 2,087,736                                                                                |  | $                                                                        | 19.28 |                                                                                                                                         | 965,438 | (1)
|Equity compensation plans not approved by security holders |  | None                                                                                     |  |                                                                          | None  |                                                                                                                                         | None    |    
|Total                                                      |  | 2,087,736                                                                                |  | $                                                                        | 19.28 |                                                                                                                                         | 965,438 |    

---

|(1) |  | Represents 541,559 shares of our common stock issuable pursuant to our 1998 Stock-Based Incentive Compensation Plan and 423,879 available pursuant to our Employee Stock Purchase
Plan.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Summary of the provisions of our 1998 Stock-Based
Incentive Compensation Plan



The following summary of our
1998 Plan is qualified in its entirety by the specific language of the 1998 Plan, a copy of which is available to any shareholder upon request.



In general.    Our 1998 Plan became effective February 5, 1998, received shareholder approval within the one year period that
followed, and continues in effect for a period of ten years from its effective date, unless terminated earlier by our board of directors. Termination of our 1998 Plan will not affect any options previously granted under the plan. Our board of
directors may amend or terminate our 1998 Plan, subject to applicable law and regulation. Our independent directors administer the 1998 Plan.



Shares subject to our 1998 Plan.    A total of 4,000,000 shares of our common stock have been reserved for issuance under our
1998 Plan. As of April 26, 2004, we have granted options to acquire 4,509,893 shares under this plan and our employees have exercised options to purchase 1,468,207 shares. We last granted options under this plan in March 2004.



Administration.    Our 1998 Plan is administered
by our independent directors. These directors have sole authority to interpret and administer the 1998 Plan, to adopt regulations relating to administration of the 1998 Plan, to grant options, to determine the terms of options, and to determine the
effect of a change in corporate control, with its discretion being conclusive on these matters.



Options.    Options may be either incentive stock options as defined in Section 422 of the Internal Revenue Code, or options
that are not incentive stock options. Our 1998 Plan does not allow for stock appreciation rights, restricted stock awards or phantom stock awards.



Under our 1998 Plan, the aggregate fair market value of the common stock for which an employee may be granted incentive stock options which first become
exercisable in any calendar year may not exceed $100,000. An optionee may purchase common stock through exercising an option and paying the exercise price associated therewith. Only common stock is subject to purchase upon exercise of the options.



Eligibility to participate in our 1998
Plan.    Under the 1998 Plan, our independent directors have the discretionary authority to grant options to anyone performing services for us as an employee, director, or



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independent contractor. Directors and independent contractors who are not also employees will be eligible to receive non-qualified options, but not incentive
stock options.



Option
agreements.    The options granted under the 1998 Plan are evidenced by option agreements substantially in the form filed as an exhibit to the Registration Statement on Form S-8 that we filed with the Securities and Exchange
Commission on August 2, 2000. Each option agreement, and any amendment thereto, will contain such terms and conditions consistent with the requirements of the 1998 Plan as our independent directors shall determine. Such option agreements will
constitute the only form of reports which optionees receive as to the status of options granted or exercisable under the 1998 Plan.



Exercise price.    Under the 1998 Plan, our independent directors determine the exercise price for any option; however the
exercise price for a stock option may not be less than 100% of the fair market value of our common stock on the date the option is granted (110% in the case of incentive stock options granted to persons owning more than 10% of the outstanding common
stock). The 1998 Plan further provides that the exercise price of non-qualified stock options may be equal to or greater than 85% of the fair market value of a share of common stock on the date of grant if any discount from fair market value is
expressly granted in lieu of salary or bonus.



Fair market
value.    Fair market value means the fair market value per share of common stock on the date an award is granted. For purposes of the 1998 Plan, the fair market value of a share of common stock will be the last
sale price on Nasdaq on the day in question. If no such sale takes place on such day, the price will be determined based on the average of the days closing bid and ask quotations (and in their absence or a change from Nasdaq listing, according
to specific terms of the 1998 Plan).



Vesting.    Our independent directors may impose vesting requirements on an optionees right to exercise an option.



Duration of options.    Unless provided by our independent directors in an award, each option will be exercisable at any time
on or after it vests and remain exercisable until ten years after its date of grant (five years in the case of incentive stock options granted to an employee owning more than 10% of our common stock), subject to earlier expiration, as described
below, based on the date on which the employee terminates employment with us.



Effect of termination of service.    Unless otherwise set forth in an option agreement, if an optionee terminates employment or service as an employee, director, or independent contractor
with us without having fully exercised his or her options and the optionees termination is due to:



(a)  Disability or Retirement within the meaning of the 1998 Plan, any options that were exercisable on
the date the optionees employment or service terminated may be exercised within a period of two months after termination of the optionees employment or service;



(b)  The optionees death, any options that were exercisable on the date of the
optionees death may be exercised within a period of three months thereafter by the person or persons to whom the optionees rights under the option passed by will or by applicable laws of descent and distribution; or



(c)  Any reason other than disability, retirement,
or death, all of the optionees rights and benefits with respect to any unexercised option shall immediately be deemed canceled and may not be exercised. This rule does not apply to options granted to independent contractors.



Notwithstanding the foregoing, our independent directors may in their
discretion allow vesting to be accelerated and may allow for additional or different periods of exercise in certain circumstances. In no event, however, may any option be exercised after the expiration date set forth in the agreement granting it.



Conditions of exercise.    An
optionee may exercise an option only by (a) a written notice of his or her intent to exercise the option with respect to a specific number of shares of common stock, and (b) payment to us,



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contemporaneously with delivery of such notice, of the exercise price for the number of shares with respect to which the option is then being exercised.
Options may be exercised in part or in whole and at one time or from time to time.



Payment for options.    An optionee must make full payment of the exercise price for each share of common stock purchased upon the exercise of any option at the time of its exercise. Such
payment may be made in cash or by certified or bank cashiers check, or if provided for in an option agreement by (a) the optionees delivery of shares of common stock owned by the optionee for at least six months and equal in fair market
value to the purchase price of the shares to be acquired pursuant to the option (subject to special incentive stock option rules set forth in the 1998 Plan), (b) a cashless exercise involving a broker, or (c) by any combination of the above, as well
as any other form of payment that our independent directors may approve.



Tax withholding.    Our obligation to deliver shares of common stock pursuant to the exercise of an option is subject to the optionees satisfaction of all applicable income tax
withholding and employment tax requirements. An optionee may pay the withholding taxes that arise from the exercise of non-qualified options either in cash, by certified or cashiers check, or, with our independent directors consent, by
having us retain a number of shares that are subject to the option and have a fair market value equal to the amount required to be withheld.



Issuance of common stock.    Shares issued upon the exercise of options under the 1998 Plan will be newly issued or treasury
shares and be freely transferable; subject to (a) applicable federal and state laws, rules and regulations and to such approvals by any government or regulatory agency as may be required, and (b) any rights of repurchase or other rights that we
reserve under the 1998 Plan or an agreement. We are not required to issue or deliver any certificates for shares of common stock prior to the completion of any registration or qualification of or obtaining of consents or approvals with respect to
such shares under any federal or state law or any rule or regulation of any government body, which we may, in our discretion, determine to be necessary or advisable. Moreover, no option may be exercised if such exercise would be contrary to
applicable laws and regulations.



Recapitalization, merger,
consolidation and similar transactions.    The aggregate number of shares reserved for issuance under the 1998 Plan, and the number of shares subject to outstanding options, the maximum number of shares that can be covered by
an option, the exercise price thereof, and the number and kind of shares underlying the option will be proportionately adjusted subsequent to the effective date of the 1998 Plan upon our merger, consolidation, reorganization, recapitalization, stock
dividend, stock split, reclassification or the like.



Nontransferability.    Unless otherwise provided in an option agreement granting a non-qualified option, optionees may not transfer options other than by will or by the laws of descent or distribution. The 1998
Plan includes special provisions under which the holder of a non-qualified option may sell the option or the underlying shares in a transaction approved by our independent directors, or transfer the option in accordance with the option agreement.



Rights of optionees.    Neither the
1998 Plan, nor the grant of any option, nor any action by our independent directors in connection with the 1998 Plan will create any right on the part of any person to continue to perform services for us. In addition, an optionee will not have any
shareholder rights with respect to shares subject to an option unless and until the option is duly exercised and shares of common stock are delivered to the optionee.



Restrictions on resale.    Unless specifically included as a term and condition of any option,
there are no restrictions on the resale of common stock acquired upon the exercise of options. Shares of common stock purchased upon the exercise of Options may be resold only in compliance with the registration requirements of the Securities Act of
1933, and applicable state securities laws. Under the Securities Act, our affiliates generally may resell shares of common stock purchased pursuant to our 1998 Plan only (a) in accordance with the provisions of Rule 144 under the Securities Act or
an exemption from registration under the Securities Act, or (b) pursuant to an applicable current and effective registration statement under the Securities Act.



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As defined in Rule 405 under the Securities Act, an affiliate of a company is a person who directly, or
indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such company. The determination of whether a person is an affiliate is primarily a factual one based upon whether he or she possesses,
directly or indirectly, individually or in concert with others, the powers to direct or cause the direction of the management or policies of the company, whether through the ownership of voting stock, by executive position, by membership on any of
its committees, by contract or otherwise.



Finally, if any one
of our officers, directors, or more than 10% shareholders both sells common stock obtained through the exercise of an option and purchases common stock at a lower price within the six-month period before or after such sale, the short swing profit
from the transactions will be subject to recapture by us, pursuant to the short-swing profit prohibitions imposed by Section 16(b) of the Securities Exchange Act of 1934. Section 16(b) is not applicable to the exercise of options that are in the
money, and will not apply to the grant of options so long as at least six months elapse between the date of the option grant and the sale of the common stock purchased upon exercise of the option.



Federal Income Tax Consequences.    Under present
federal income tax laws, grants of options will have the following federal income tax consequences for optionees and us:



(a)  The grant of an option will not, by itself, result in the recognition of taxable income to the optionee.



(b)  The exercise of an option which is an
incentive stock option will generally not, by itself, result in the recognition of taxable income to the optionee nor entitle the Company to a deduction at the time of such exercise. However, the difference between the exercise price and the fair
market value of the option shares on the date of exercise is an item of tax preference which may, in certain situations, trigger the alternative minimum tax under the Internal Revenue Code. The alternative maximum tax is incurred only when it
exceeds the regular income tax. The optionee will recognize capital gain or loss upon resale of the shares received upon such exercise, provided that such resale occurs at least one year after transfer of the shares to the optionee and two years
after the grant of the option. If both of these conditions are not satisfied, the optionee will recognize ordinary income upon disposition in an amount equal to the lesser of (x) the difference between the exercise price and the fair market value on
the date of exercise of the share; or (y) the gain realized upon the sale.



(c)  The exercise of an option which is not an incentive stock option will result in the recognition of taxable income by the
optionee on the date of exercise in an amount equal to the difference between the fair market value on the date of exercise of the shares acquired pursuant to the option and their exercise price.



Summary of the provisions of our Employee Stock Purchase Plan



The ESPP was adopted by the board of directors and was approved by our
shareholders on November 2, 1999. The ESPP was amended by the board of directors on June 23, 2000. The purpose of the ESPP is to provide employees with an opportunity to purchase through payroll deduction shares of our common stock at a price below
market value, thereby enabling us to retain the services of our employees, to secure the services of new employees, and to provide incentives for such employees to exert maximum efforts for our success. A total of 750,000 shares of our common stock
have been reserved for issuance under the ESPP. As of April 26, 2004, our employees have purchased 353,485 shares under this plan and we have 396,515 shares available for future purchases.



Administration.    Our independent directors
administer the ESPP. The independent directors have authority to construe and to interpret the ESPP and the rights granted under it, to establish, amend and revoke rules for its administration, and to determine when and how rights to purchase stock
shall be granted and the terms of each offering. The independent directors have final power to determine all questions of policy and expediency that may arise in the administration of the ESPP.



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Eligibility; Price of Shares.    Each of our employees and our
affiliates employees who works at least 20 hours per week will be eligible to participate in the ESPP, provided such employee is employed for the continuous period which is designated by the board of directors or our independent directors
(which must be less than two years) prior to the date of the grant. However, no employee is eligible to participate in the ESPP if, immediately after electing to participate, the employee would own common stock (including stock such employee may
purchase under outstanding options) representing 5% or more of the total combined voting power or value of all classes of our stock or of any affiliate. In addition, no employee is permitted to participate if under the ESPP and all of our similar
purchase plans, such rights would accrue at a rate which exceeds $25,000 in fair market value of our common stock (determined at the time the right is granted) for any calendar year.



Under the ESPP, the board of directors or our independent directors may establish offering periods that provide
for grants of rights to purchase our common stock to eligible employees on the offering date of the applicable offering period. The current offering under the ESPP adopted by the board of directors on February 28, 2003 establishes
consecutive two-year offering periods commencing July 16 of every other calendar year thereafter (i.e. July 16, 2004, July 16, 2006, etc.), and designates the offering date as the first day of the applicable offering period. Each two-year offering
period is divided into four six-month purchase periods commencing July 16 and January 16 of each year. On the last day of each purchase period we apply the amount contributed by the participant during that purchase period to purchase
shares of our common stock for such participant. The purchase price is equal to 85% of the lower of (a) the market price of our common stock on the first day of the applicable offering period and (b) the market price of our common stock on the last
business day of the purchase period.



The current offering also
provides for an automatic reset of the offering date purchase price on the first day of each six-month purchase period if favorable to the employees. The automatic reset allows a new offering period to begin every six months in the event
the market price on the first day of the applicable purchase period is lower than the market price of our common stock on the first day of the current offering period. If the market price of our common stock is lower on the first day of the purchase
period, then the two-year offering period automatically restarts on the first day of that purchase period.



Participation; Payroll Deductions; Purchase of Shares.    Eligible employees become participants in the ESPP by executing a
participation agreement authorizing payroll deductions and delivering it to us prior to the six-month period for which such authorization is effective. Payroll deductions continue throughout the offering period unless changed or terminated as
provided in the ESPP. In the current offering, no participant may contribute more than 15% of his or her total annual compensation or more than $21,250 in any year.



Under the ESPP, the board of directors or our independent directors shall specify a maximum number of shares that may be
purchased by any eligible employee in the offering, and a maximum aggregate number of shares which may be purchased by all eligible employees in the offering. Currently, the maximum aggregate number of shares available to be purchased by all
eligible employees in any one offering is 375,000. In addition, no employee may purchase under the ESPP more than $25,000 worth of our common stock (based on the fair market value on the date of grant) in a calendar year. Historically, our executive
officers have purchased the maximum amount allowable under the ESPP.



Withdrawal From the ESPP; Termination of Employment.    Participants may withdraw from the ESPP at any time up to 10 business days prior to the purchase date. Payroll deductions will cease and all amounts credited
to the participants account will be refunded in cash, without interest. A participant who has withdrawn from the ESPP cannot be a participant in future offering periods unless he or she re-enrolls pursuant to the ESPPs guidelines.
Termination of a participants employment with us or an affiliate, for any reason, will result in the immediate termination of rights granted pursuant to any offering under the ESPP. Rights granted under the ESPP are non-transferable, and are
exercisable only by the participant to whom such rights are granted.



Amendment and Termination.    The ESPP may be amended or terminated at any time by the board of directors, subject to applicable laws.



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Effect of Certain Corporate Events.    In the event of a change in the
outstanding common stock subject to the ESPP as a result of a merger, consolidation, change in corporate structure or otherwise, the ESPP and outstanding rights will be appropriately adjusted. In the event of our dissolution or liquidation, a merger
in which we are not the surviving corporation, a reverse merger in which our common stock is converted into other property, or any other capital reorganization involving an exchange of more than 50% of our voting shares, the board of directors may,
in its discretion, provide for the assumption of the ESPP by any surviving corporation, the continuation of the ESPP and rights under the ESPP, or the purchase of our common stock with the participants accumulated payroll deductions followed
by termination of the current offering.



Item 13.    Certain Relationships and Related Transactions



On March 6, 2003 we paid $2.0 million for a 25.0% stake in LA Food Show, Inc., an upscale family casual dining restaurant concept. LA Food Show was
created by our co-founders, Co-Chairmen of the Board of Directors, Co-Chief Executive Officers and Co-Presidents, Larry S. Flax and Richard L. Rosenfield. LA Food Show opened its first location in June 2003. Messrs. Flax and Rosenfield own the
remaining 75.0% of equity in LA Food Show, Inc. Under the terms of the agreement we reserve the right of first negotiation for the 75.0% of outstanding equity we do not currently own. We have pre-emptive rights in future financings by LA Food Show
so long as we maintain an ownership interest of at least 15.0%, and are entitled to one of three seats on the LA Food Show Board of Directors.



We have accounted for this investment in accordance with the equity method of accounting as interpreted by APB Opinion No. 18, The Equity Method of
Accounting for Investments In Common Stock. APB Opinion No. 18 requires an investor to record the initial investment at cost and adjust the carrying value of its investment to recognize the investors share of the earnings or loss
after the date of acquisition. At December 28, 2003 our net investment in LA Food Show, Inc., was $1.7 million. On July 24, 2003 Richard L. Rosenfield and Larry S. Flax became our Co-Chief Executive Officers, and in January 2004 they also became
Co-Presidents.



Effective September 29, 2003, we entered into
an employee leasing arrangement with LA Food Show under which we provide LA Food Show with all of its restaurant level employees and managers, as well as administrative and support services such as payroll, marketing, human resources, facilities
management, accounting, information technology and training. LA Food Show reimburses us for all of the leased employees wages, benefits and other employee-related costs, as well as all business-related expenses incurred by the leased
employees. As of April 26, 2004 we have an approximately $221,000 receivable associated with the employee lease agreement.



One of our directors, Rick J. Caruso, also serves as President and is sole owner of CAH Restaurants of California, LLC. We had entered into franchise and
development agreements with CAH Restaurants of California, LLC pursuant to which it operated two California Pizza Kitchen restaurants. CAH Restaurants of California, LLC paid franchise and royalty fees to us under these agreements. We recorded an
aggregate of $256,000 and $260,000 in such fees during the years ended 2003 and 2002, respectively. On December 29, 2003 we acquired the territory rights and assets used to operate two restaurants from CAH Restaurants of California for $2.5 million.
These California restaurants, one ASAP and one full service, are located in Thousand Oaks and Ventura, respectively. The transaction was executed with $1.3 million cash and the balance of the purchase price was paid in shares of our common stock.
CAH Restaurants of California, LLC assigned its right to receive these shares to Mr. Caruso. As part of the acquisition, we assumed the leases for the two restaurants, one of which is entered into with Westlake Promenade, LLC that is wholly owned by
Mr. Caruso.



For the 17 weeks to April 25, 2004, we made
aggregated lease payments to Caruso Affiliated Holdings (CAH) for two California store locations of $61,000 and $54,000 for Thousand Oaks and Marina Del Rey, respectively. These payments consisted of rent of $46,000 and $30,000, common area
maintenance charges of $15,000 and $7,000, and percentage rent of zero and $17,000, respectively. CAH was the owner of record prior to our purchase of the Thousand Oaks store on December 29, 2003. CAH purchased Marina Waterside shopping center,
where our Marina Del Rey store is located, on January 20, 2004.



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On August 24, 2001, we loaned a former employee and officer, Tom Jenneman, $65,000. The loan was
supported by a full recourse promissory note and accrued interest at 7.5% per annum. The full recourse promissory note was paid in full, including accrued interest, upon maturation in February 2003.



Neal Rosenfield, a real estate broker for Blatteis Real Estate and the
brother of Richard L. Rosenfield, our Co-Founder, Co-Chief Executive Officer and Co-President, received commissions paid by a third party landlord related to our lease of certain restaurant locations in the amounts of $71,300, $76,165 and $145,143
in 2003, 2002 and 2001, respectively.



In connection with our
initial public offering in August 2000, our former Chief Executive Officer exercised options to purchase 110,696 shares of common stock. Under the agreement granting these options, we were required to pay an amount equal to 20% of the gain
recognized by our former Chief Executive Officer for federal income tax purposes, which was $325,000. In addition, we loaned our former Chief Executive Officer $586,000 which is equal to the difference between the cash payment and the total income
tax liability he incurred as a result of this exercise. The full recourse promissory note was paid in full, including accrued interest, upon maturation in August 2002.



Item 14.    Principal Accountant Fees and Services



Ernst & Young LLP has acted as our independent auditors since its appointment during the fiscal year ended December 28, 1997. Aggregate fees billed
for the last two fiscal years were as follows:



|                   |  |                                   |         |                                   |   |        
|------------------ |  | --------------------------------- | ------- | --------------------------------- | - | -------
|                   |  | Fiscal Year endedDecember 28,2003 |         | Fiscal Year endedDecember 29,2002
|Audit Fees         |  | $                                 | 155,000 |                                   | $ | 131,000
|Audit-Related Fees |  | $                                 | 13,500  |                                   | $ | 19,159 
|Tax Fees           |  | $                                 | 93,000  |                                   | $ | 68,145 
|All Other Fees     |  | $                                 | 32,000  |                                   | $ | 23,640 



Other
Audit-Related Fees includes fees related to pension audits.



All Other Fees includes fees related to tax compliance and structure services.



Our audit committee has the sole authority to appoint or replace our independent auditors (subject, if applicable, to shareholder ratification). The
committee is directly responsible for the compensation and oversight of the work of the independent auditors (including resolution of disagreements between management and the independent auditors regarding financial reporting) for the purpose of
preparing or issuing an audit report or related work. Our audit committee, or a subcommittee of the committee, pre-approves the provision of all auditing and non-audit services (including tax services) by the independent auditors up to a specified
dollar amount and also approves all audit and non-audit engagement fees and terms with the independent auditors. During fiscal 2002 and 2003, all of the services related to the audit and other fees described above were pre-approved by our audit
committee and none were provided pursuant to any waiver of the pre-approval requirement.



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PART IV



Item 15.    Exhibits, Financial Statement Schedules, and Reports on Form 8-K



(a)  The following documents are filed as a part of this Report:



1.    Financial Statements



The following financial statements, as indexed below, are incorporated by reference in Part II, Item 8 of this Annual Report
on Form 10-K/A:



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                                               |  |     
|------------------------------------------------------------------------------------------------------------------------------ |  | ----
|                                                                                                                               |  | Page
|Report of Independent Auditors                                                                                                 |  | 49  
|                                                                                                                               | 
|Consolidated Financial Statements:                                                                                             |  |     
|                                                                                                                               | 
|Consolidated Balance Sheets at December 28, 2003 and December 29, 2002                                                         |  | 50  
|                                                                                                                               | 
|Consolidated Statements of Income for the Years Ended December 28, 2003, December 29, 2002 and December 30, 2001               |  | 51  
|                                                                                                                               | 
|Consolidated Statements of Shareholders Equity for the Years Ended December 28, 2003, December 29, 2002 and December 30, 2001 |  | 52  
|                                                                                                                               | 
|Consolidated Statements of Cash Flows for the Years Ended December 28, 2003, December 29, 2002 and December 30, 2001           |  | 53  
|                                                                                                                               | 
|Notes to Consolidated Financial Statements                                                                                     |  | 55  



2.    Financial Statements Schedules



All financial statement schedules are omitted because they are not required or are not applicable or the required information the Companys Consolidated Financial Statements and Notes thereto, described in Item 15(a)(1) above.



3.    Exhibits



The Exhibits listed in the Index to Exhibits, which appears immediately
following the signature page and is incorporated herein by reference, are filed as part of this Annual Report on Form 10-K/A.



(b)  Reports on Form 8-K.



|    |   |  |                                                                                                                                                                           
|--- | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i  | ) |  | We filed a press release dated October 8, 2003, which described certain financial results for the third quarter on Form 8-K under Item 12
on October 10, 2003.            
|    |  
|(ii | ) |  | We filed a press release dated October 23, 2003, which described selected financial results for the third quarter on Form 8-K under Items
7, 9 and 12 on October 23, 2003.



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REPORT OF INDEPENDENT AUDITORS



The Board of
Directors and Shareholders of California Pizza Kitchen, Inc.



We have audited the accompanying consolidated balance sheets of California Pizza Kitchen, Inc. and Subsidiaries (the Company) as of December 28, 2003 and December 29, 2002, and the related consolidated statements of income,
shareholders equity and cash flows for each of the three fiscal years in the period ended December 28, 2003. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.



We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of California
Pizza Kitchen, Inc. and Subsidiaries at December 28, 2003 and December 29, 2002 and the consolidated results of their operations and their cash flows for each of the three fiscal years in the period ended December 28, 2003 in conformity with
accounting principles generally accepted in the United States.



/s/    ERNST & YOUNG LLP



Los Angeles, California

April 21, 2004



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CALIFORNIA PIZZA KITCHEN, INC. AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS

December 28, 2003 and December 29, 2002

(in thousands, except for share data)



|                                                                                                                                                                             |  |      |         |   |      |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                                                                                                                                             |  | 2003 |         |   | 2002 |  
|Assets                                                                                                                                                                       |  |      |         |   |      |   |         |  
|                                                                                                                                                                             |  |     
|Current assets:                                                                                                                                                              |  |      |         |   |      |   |         |  
|Cash and cash equivalents                                                                                                                                                    |  | $    | 15,877  |   |      | $ | 31,261  |  
|Investment in marketable securities                                                                                                                                          |  |      | 18,904  |   |      |   |        |  
|Accounts receivable                                                                                                                                                          |  |      | 2,591   |   |      |   | 2,933   |  
|Inventories                                                                                                                                                                  |  |      | 2,892   |   |      |   | 2,466   |  
|Prepaid expenses and other current assets                                                                                                                                    |  |      | 3,702   |   |      |   | 1,216   |  
|                                                                                                                                                                             |  |      |         |   |      |   |         |  
|Total current assets                                                                                                                                                         |  |      | 43,966  |   |      |   | 37,876  |  
|Property and equipment, net                                                                                                                                                  |  |      | 130,532 |   |      |   | 126,356 |  
|Investment in unconsolidated joint venture                                                                                                                                   |  |      | 1,651   |   |      |   |        |  
|Deferred taxes, net                                                                                                                                                          |  |      | 6,478   |   |      |   | 2,404   |  
|Other assets                                                                                                                                                                 |  |      | 2,958   |   |      |   | 1,809   |  
|                                                                                                                                                                             |  |      |         |   |      |   |         |  
|Total assets                                                                                                                                                                 |  | $    | 185,585 |   |      | $ | 168,445 |  
|                                                                                                                                                                             |  |      |         |   |      |   |         |  
|                                                                                                                                                                             |  |     
|Liabilities and Shareholders Equity                                                                                                                                         |  |      |         |   |      |   |         |  
|                                                                                                                                                                             |  |     
|Current liabilities:                                                                                                                                                         |  |      |         |   |      |   |         |  
|Accounts payable                                                                                                                                                             |  | $    | 4,069   |   |      | $ | 3,858   |  
|Accrued compensation and benefits                                                                                                                                            |  |      | 12,034  |   |      |   | 10,955  |  
|Deferred rent                                                                                                                                                                |  |      | 7,845   |   |      |   | 6,952   |  
|Other accrued liabilities                                                                                                                                                    |  |      | 9,536   |   |      |   | 8,105   |  
|Accrued income tax                                                                                                                                                           |  |      | 1,375   |   |      |   | 1,444   |  
|                                                                                                                                                                             |  |      |         |   |      |   |         |  
|Total current liabilities                                                                                                                                                    |  |      | 34,859  |   |      |   | 31,314  |  
|Other liabilities                                                                                                                                                            |  |      | 4,613   |   |      |   | 3,010   |  
|                                                                                                                                                                             |  |     
|Commitments and contingencies                                                                                                                                                |  |      |        |   |      |   |        |  
|                                                                                                                                                                             |  |     
|Shareholders equity:                                                                                                                                                        |  |      |         |   |      |   |         |  
|Common Stock$0.01 par value, 80,000,000 shares authorized, 18,947,164 and 18,743,439 shares issued and outstanding at December 28, 2003
and December 29, 2002, respectively |  |      | 189     |   |      |   | 187     |  
|Additional paid-in capital                                                                                                                                                   |  |      | 215,340 |   |      |   | 211,306 |  
|Accumulated deficit                                                                                                                                                          |  |      | (69,416 | ) |      |   | (77,372 | )
|                                                                                                                                                                             |  |      |         |   |      |   |         |  
|Total shareholders equity                                                                                                                                                   |  |      | 146,113 |   |      |   | 134,121 |  
|                                                                                                                                                                             |  |      |         |   |      |   |         |  
|Total liabilities and shareholders equity                                                                                                                                   |  | $    | 185,585 |   |      | $ | 168,445 |  
|                                                                                                                                                                             |  |      |         |   |      |   |         |  



See accompanying notes.



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CALIFORNIA PIZZA KITCHEN, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF INCOME

Years ended December 28, 2003, December 29, 2002 and December
30, 2001

(in thousands, except per share data)



|                                                                     |  |      |         |   |      |   |         |      |  |   |         |  
|-------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                     |  | 2003 |         |   | 2002 |   |         | 2001 | 
|Revenues:                                                            |  |      |         |   |      |   |         |      |  |   |         |  
|Restaurant sales                                                     |  | $    | 356,260 |   |      | $ | 303,427 |      |  | $ | 246,445 |  
|Franchise and other revenues                                         |  |      | 3,627   |   |      |   | 2,895   |      |  |   | 2,817   |  
|                                                                     |  |      |         |   |      |   |         |      |  |   |         |  
|Total revenues                                                       |  |      | 359,887 |   |      |   | 306,322 |      |  |   | 249,262 |  
|Costs and expenses:                                                  |  |      |         |   |      |   |         |      |  |   |         |  
|Cost of sales                                                        |  |      | 87,806  |   |      |   | 73,756  |      |  |   | 60,950  |  
|Labor                                                                |  |      | 129,702 |   |      |   | 110,151 |      |  |   | 88,898  |  
|Direct operating and occupancy                                       |  |      | 73,949  |   |      |   | 60,652  |      |  |   | 49,344  |  
|                                                                     |  |      |         |   |      |   |         |      |  |   |         |  
|Total restaurant operating costs                                     |  |      | 291,457 |   |      |   | 244,559 |      |  |   | 199,192 |  
|General and administrative                                           |  |      | 21,488  |   |      |   | 18,161  |      |  |   | 15,489  |  
|Depreciation and amortization                                        |  |      | 17,578  |   |      |   | 14,971  |      |  |   | 11,996  |  
|Pre-opening costs                                                    |  |      | 4,019   |   |      |   | 3,355   |      |  |   | 2,867   |  
|Severance charge                                                     |  |      | 1,221   |   |      |   |        |      |  |   |        |  
|Loss on impairment of property and equipment and restaurant closures |  |      | 14,725  |   |      |   | 2,380   |      |  |   |        |  
|                                                                     |  |      |         |   |      |   |         |      |  |   |         |  
|Operating income                                                     |  |      | 9,399   |   |      |   | 22,896  |      |  |   | 19,718  |  
|Other income (expense):                                              |  |      |         |   |      |   |         |      |  |   |         |  
|Interest income                                                      |  |      | 317     |   |      |   | 368     |      |  |   | 632     |  
|Interest expense                                                     |  |      |        |   |      |   |        |      |  |   | (25     | )
|Equity in loss of unconsolidated joint venture                       |  |      | (349    | ) |      |   |        |      |  |   |        |  
|                                                                     |  |      |         |   |      |   |         |      |  |   |         |  
|Total other income (expense)                                         |  |      | (32     | ) |      |   | 368     |      |  |   | 607     |  
|                                                                     |  |      |         |   |      |   |         |      |  |   |         |  
|Income before income tax provision                                   |  |      | 9,367   |   |      |   | 23,264  |      |  |   | 20,325  |  
|Income tax provision                                                 |  |      | (1,411  | ) |      |   | (7,934  | )    |  |   | (7,114  | )
|                                                                     |  |      |         |   |      |   |         |      |  |   |         |  
|Net income                                                           |  | $    | 7,956   |   |      | $ | 15,330  |      |  | $ | 13,211  |  
|                                                                     |  |      |         |   |      |   |         |      |  |   |         |  
|Net income per common share:                                         |  |      |         |   |      |   |         |      |  |   |         |  
|Basic                                                                |  | $    | 0.42    |   |      | $ | 0.82    |      |  | $ | 0.72    |  
|                                                                     |  |      |         |   |      |   |         |      |  |   |         |  
|Diluted                                                              |  | $    | 0.42    |   |      | $ | 0.81    |      |  | $ | 0.71    |  
|                                                                     |  |      |         |   |      |   |         |      |  |   |         |  
|Shares used in calculating net income per common share:              |  |      |         |   |      |   |         |      |  |   |         |  
|Basic                                                                |  |      | 18,867  |   |      |   | 18,585  |      |  |   | 18,308  |  
|                                                                     |  |      |         |   |      |   |         |      |  |   |         |  
|Diluted                                                              |  |      | 19,027  |   |      |   | 18,871  |      |  |   | 18,611  |  
|                                                                     |  |      |         |   |      |   |         |      |  |   |         |  



See accompanying notes.



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CALIFORNIA PIZZA KITCHEN, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

Years ended December 28, 2003, December 29,
2002 and December 30, 2001

(in thousands, except for share data)



|                                                                                                             |  |              |   |                          |        |                     |  |   |         |  |   |          |   |  |   |        
|------------------------------------------------------------------------------------------------------------ |  | ------------ | - | ------------------------ | ------ | ------------------- |  | - | ------- |  | - | -------- | - |  | - | -------
|                                                                                                             |  | Common Stock |   | AdditionalPaid-inCapital |        | Accumulated Deficit |  |   | Total  
|                                                                                                             |  | Shares       |   |                          | Amount |                     |  |  
|Balances at December 31, 2000                                                                                |  | 17,889,091   |   |                          | $      | 179                 |  | $ | 198,052 |  | $ | (105,913 | ) |  | $ | 92,318 
|Exercise of employee stock options                                                                           |  | 206,871      |   |                          |        | 2                   |  |   | 1,104   |  |   |         |   |  |   | 1,106  
|Shares redeemed upon exercise of employee stock option                                                       |  | (9,160       | ) |                          |        |                    |  |   |        |  |   |         |   |  |   |       
|Issuance of common stock, net of issuance costs of $844                                                      |  | 200,000      |   |                          |        | 2                   |  |   | 4,339   |  |   |         |   |  |   | 4,341  
|Issuance of common stock, under employee stock purchase plan                                                 |  | 138,541      |   |                          |        | 1                   |  |   | 1,774   |  |   |         |   |  |   | 1,775  
|Tax benefit from employee stock option exercises and employee stock purchase plan disqualifying dispositions |  |             |   |                          |        |                    |  |   | 1,355   |  |   |         |   |  |   | 1,355  
|Net income                                                                                                   |  |             |   |                          |        |                    |  |   |        |  |   | 13,211   |   |  |   | 13,211 
|                                                                                                             |  |              |   |                          |        |                     |  |   |         |  |   |          |   |  |   |        
|Balances at December 30, 2001                                                                                |  | 18,425,343   |   |                          |        | 184                 |  |   | 206,624 |  |   | (92,702  | ) |  |   | 114,106
|Exercise of employee stock options                                                                           |  | 189,493      |   |                          |        | 2                   |  |   | 2,022   |  |   |         |   |  |   | 2,024  
|Issuance of common stock, under employee stock purchase plan                                                 |  | 128,603      |   |                          |        | 1                   |  |   | 1,701   |  |   |         |   |  |   | 1,702  
|Tax benefit from employee stock option exercises and employee stock purchase plan disqualifying dispositions |  |             |   |                          |        |                    |  |   | 959     |  |   |         |   |  |   | 959    
|Net income                                                                                                   |  |             |   |                          |        |                    |  |   |        |  |   | 15,330   |   |  |   | 15,330 
|                                                                                                             |  |              |   |                          |        |                     |  |   |         |  |   |          |   |  |   |        
|Balances at December 29, 2002                                                                                |  | 18,743,439   |   |                          |        | 187                 |  |   | 211,306 |  |   | (77,372  | ) |  |   | 134,121
|Exercise of employee stock options                                                                           |  | 144,748      |   |                          |        | 1                   |  |   | 1,846   |  |   |         |   |  |   | 1,847  
|Issuance of common stock, under employee stock purchase plan                                                 |  | 58,977       |   |                          |        | 1                   |  |   | 1,119   |  |   |         |   |  |   | 1,120  
|Tax benefit from employee stock option exercises and employee stock purchase plan disqualifying dispositions |  |             |   |                          |        |                    |  |   | 1,069   |  |   |         |   |  |   | 1,069  
|Net income                                                                                                   |  |             |   |                          |        |                    |  |   |        |  |   | 7,956    |   |  |   | 7,956  
|                                                                                                             |  |              |   |                          |        |                     |  |   |         |  |   |          |   |  |   |        
|Balances at December 28, 2003                                                                                |  | 18,947,164   |   |                          | $      | 189                 |  | $ | 215,340 |  | $ | (69,416  | ) |  | $ | 146,113
|                                                                                                             |  |              |   |                          |        |                     |  |   |         |  |   |          |   |  |   |        



See accompanying notes.



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CALIFORNIA PIZZA KITCHEN, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 28, 2003, December 29, 2002 and
December 30, 2001

(in thousands, except for share data)



|                                                                                  |  |      |         |   |      |   |         |      |  |   |         |  
|--------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                  |  | 2003 |         |   | 2002 |   |         | 2001 | 
|Operating activities:                                                             |  |      |         |   |      |   |         |      |  |   |         |  
|Net income                                                                        |  | $    | 7,956   |   |      | $ | 15,330  |      |  | $ | 13,211  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |      |         |   |      |   |         |      |  |   |         |  
|Depreciation and amortization                                                     |  |      | 17,578  |   |      |   | 14,971  |      |  |   | 11,996  |  
|Equity in loss of unconsolidated joint venture                                    |  |      | 349     |   |      |   |        |      |  |   |        |  
|Loss on impairment of property and equipment and restaurant closures              |  |      | 14,725  |   |      |   | 2,380   |      |  |   |        |  
|Change in deferred tax asset                                                      |  |      | (4,074  | ) |      |   | 3,837   |      |  |   | (288    | )
|Changes in operating assets and liabilities:                                      |  |      |         |   |      |   |         |      |  |   |         |  
|Accounts receivable                                                               |  |      | 342     |   |      |   | 1,808   |      |  |   | (1,246  | )
|Inventories                                                                       |  |      | (426    | ) |      |   | (689    | )    |  |   | (168    | )
|Prepaid expenses and other assets                                                 |  |      | (3,635  | ) |      |   | 233     |      |  |   | 1,243   |  
|Accounts payable                                                                  |  |      | 211     |   |      |   | 612     |      |  |   | (227    | )
|Accrued liabilities                                                               |  |      | 5,276   |   |      |   | 1,733   |      |  |   | 8,144   |  
|Other liabilities                                                                 |  |      | 730     |   |      |   | 1,029   |      |  |   | 54      |  
|                                                                                  |  |      |         |   |      |   |         |      |  |   |         |  
|Net cash provided by operating activities                                         |  |      | 39,032  |   |      |   | 41,244  |      |  |   | 32,719  |  
|Investing activities:                                                             |  |      |         |   |      |   |         |      |  |   |         |  
|Capital expenditures                                                              |  |      | (36,479 | ) |      |   | (33,497 | )    |  |   | (32,755 | )
|Investments in marketable securities                                              |  |      | (18,904 | ) |      |   |        |      |  |   |        |  
|Investment in unconsolidated joint venture                                        |  |      | (2,000  | ) |      |   |        |      |  |   |        |  
|                                                                                  |  |      |         |   |      |   |         |      |  |   |         |  
|Net cash used in investing activities                                             |  |      | (57,383 | ) |      |   | (33,497 | )    |  |   | (32,755 | )
|Financing activities:                                                             |  |      |         |   |      |   |         |      |  |   |         |  
|Payments on long-term debt                                                        |  |      |        |   |      |   |        |      |  |   | (47     | )
|Net proceeds from issuance of common stock                                        |  |      | 2,967   |   |      |   | 3,726   |      |  |   | 7,222   |  
|                                                                                  |  |      |         |   |      |   |         |      |  |   |         |  
|Net cash provided by financing activities                                         |  |      | 2,967   |   |      |   | 3,726   |      |  |   | 7,175   |  
|                                                                                  |  |      |         |   |      |   |         |      |  |   |         |  
|Net increase (decrease) in cash and cash equivalents                              |  |      | (15,384 | ) |      |   | 11,473  |      |  |   | 7,139   |  
|Cash and cash equivalents at beginning of year                                    |  |      | 31,261  |   |      |   | 19,788  |      |  |   | 12,649  |  
|                                                                                  |  |      |         |   |      |   |         |      |  |   |         |  
|Cash and cash equivalents at end of year                                          |  | $    | 15,877  |   |      | $ | 31,261  |      |  | $ | 19,788  |  
|                                                                                  |  |      |         |   |      |   |         |      |  |   |         |  
|Supplemental disclosure of cash flow information:                                 |  |      |         |   |      |   |         |      |  |   |         |  
|Cash paid during the year for:                                                    |  |      |         |   |      |   |         |      |  |   |         |  
|Interest                                                                          |  | $    |        |   |      | $ |        |      |  | $ | 25      |  
|Income taxes                                                                      |  | $    | 3,627   |   |      | $ | 5,088   |      |  | $ | 3,737   |  



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CALIFORNIA PIZZA KITCHEN, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

Years ended December 28, 2003, December 29, 2002 and December 30, 2001

(in thousands except for share data)



Supplemental disclosure of non-cash financing activities:



During the fiscal year ended December 30, 2001, one of the Companys officers exercised options to purchase 14,375 shares of common stock with an aggregate exercise price of $214 by exchanging 9,160 shares
previously owned.







See accompanying notes.



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CALIFORNIA PIZZA KITCHEN, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Years ended December 28, 2003, December 29, 2002 and December 30, 2001

(in thousands, except for
share and per share data)



1.    Description of
Business



Nature of Business



As of December 28, 2003, California Pizza Kitchen, Inc. and its wholly owned
subsidiaries (the Company) owns, operates, licenses or franchises 168 restaurants under the names California Pizza Kitchen and California Pizza Kitchen ASAP in 27 states and the District of Columbia, and five foreign countries, of which
137 are company-owned and 31 operate under franchise or license arrangements.



The Company manages its operations by restaurant. The Company has aggregated its operations to one reportable segment.



2.    Summary of Accounting Policies



Principles of Consolidation



The accompanying consolidated financial statements include the accounts of California Pizza Kitchen, Inc. and its wholly owned subsidiaries. In addition,
the Company was a general partner in a limited partnership, which was formed to operate a restaurant in Chicago. In January 2000, the Company acquired a majority interest in its remaining limited partnership restaurant. As such, beginning January 3,
2000, the Company consolidated the financial statements of the limited partnership with its own financial statements. Prior to fiscal 2000, the Company accounted for its ownership in the limited partnership (which are not material) under the equity
method of accounting. All significant intercompany balances and transactions have been eliminated.



Fiscal Year End



The Companys fiscal year ends on the Sunday closest to December 31. The Companys fiscal years ended December 28, 2003, December 29, 2002 and
December 30, 2001, each covered 52 weeks. For purposes of the accompanying consolidated financial statements, the years ended December 28, 2003, December 29, 2002 and December 30, 2001 may be referred to as the fiscal years 2003, 2002 and 2001,
respectively.



Use of Estimates



The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.



Cash and Cash Equivalents



The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. Its cash and cash
equivalent balances are not pledged or restricted. The Companys policy is to invest cash in excess of operating requirements in income-producing investments. Cash equivalents at December 28, 2003 consist primarily of money market funds and
local municipality securities.



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CALIFORNIA PIZZA KITCHEN, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Investments



The Company accounts for investments in marketable securities in accordance with Statements of Financial Accounting
Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. Its investments are classified as marketable securities that are held-to-maturity and have been recorded at amortized cost. At
December 28, 2003 the Company had $18.9 million of held-to-maturity investments that consisted of treasury bills, federal agency securities and auction rate securities. Under current investment guidelines, maturities are restricted to two years or
less.



On March 6, 2003 the Company invested $2.0 million for a
25.0% equity participation in LA Food Show, Inc., an upscale family casual dining restaurant concept. It accounts for this investment in accordance with the equity method of accounting as interpreted by Accounting Principles Board (APB) Opinion No.
18, The Equity Method of Accounting for Investments In Common Stock. APB Opinion No. 18 requires an investor to record the initial investment at cost and adjust the carrying value of the investment to recognize the investors share
of the earnings or loss after the date of acquisition.



Accounts Receivable



The Company negotiates
reimbursements from landlords for the construction of new restaurants. These reimbursements reduce the capitalized costs of new restaurants. Included in accounts receivable are contractual amounts due from landlords related to new restaurant
construction costs. As of December 28, 2003 and December 29, 2002, the Company has recorded receivables related to construction improvement allowances of $1,061 and $2,148, respectively, and has reduced property and equipment by these amounts
accordingly.



Inventories



Inventories consist of food and beverage, uniforms and supplies. Inventories
are stated at the lower of cost (first-in, first-out method) or market.



Property and Equipment



Property and equipment
is recorded at cost. Property and equipment is depreciated over the assets estimated useful lives using the straight-line method. Leasehold improvements are amortized using the straight-line method over the estimated useful life of the asset
or the term of the related lease, whichever is shorter. The lives for furniture, fixtures, and equipment are ten years. The lives for buildings and leasehold improvements are the shorter of 20 years or the term of the related operating lease.



Impairment of Long Lived Assets



The Company assesses the impairment of long-lived assets whenever events or
changes in circumstances indicate that the carrying value may not be recoverable. Factors considered important that could trigger an impairment review include a significant underperformance relative to expected historical or projected future
operating results, a significant change in the manner of the use of the asset or a significant negative industry or economic trend.



Liquor License



Transferable liquor licenses, included in other long-term assets, which have a market value are carried at the lower of cost or market and are not
amortized.



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CALIFORNIA PIZZA KITCHEN, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Gift Certificates



The Company sells gift certificates and recognizes deferred revenue, included in other accrued liabilities, for gift
certificates outstanding until the gift certificates are redeemed.



Self-Insurance



The Companys business is
primarily self-insured for workers compensation, automobile and general liability costs. The Company records its self-insurance liability, determined actuarially, based on claims filed and an estimate of claims incurred but not yet reported.
The Companys workers compensation liabilities are from claims occurring in various states. The Companys workers compensation future funding estimates anticipate no change in the benefit structure.



Income Taxes



The Company utilizes the liability method of accounting for income taxes as
set forth in SFAS No. 109, Accounting for Income Taxes. Under the liability method, deferred taxes are determined based on the difference between the financial statement and the tax basis of assets and liabilities using enacted tax rates
in effect in the years in which the differences are expected to reverse. Recognition of deferred tax assets is limited to amounts considered by management to be more likely than not of realization in future periods.



Restaurant and Franchise Revenues



Revenues from the operation of company-owned restaurants are recognized when
sales occur. All fees from franchised operations are included in revenue as earned. Royalty fees are based on franchised restaurants revenues and are recorded by the Company in the period the related franchised restaurants revenues are
earned.



Advertising Costs



The Company expenses advertising costs as incurred. Advertising expenses for
2003, 2002 and 2001 totaled $3,193, $ 2,670 and $2,433, respectively.



Operating Leases



The Company accounts for
operating leases on a straight-line basis in accordance with SFAS No. 13, Accounting for Operating Leases. The Company leases restaurant and office facilities that have terms expiring between 2004 and 2024. The restaurant facilities
primarily have renewal clauses of ten to 20 years exercisable at the option of the Company with rent escalation clauses stipulating specific rent increases, some of which are based on the consumer price index. Certain of these leases require the
payment of contingent rentals based on a percentage of gross revenues, as defined.



Pre-opening Costs



The
Company follows Statement of Position (SOP) 98-5, Reporting on the Costs of Start-up Activities, which was issued by the Accounting Standards Executive Committee and provides guidance on the financial reporting of the start-up costs and
organization costs. The SOP requires costs of start-up activities and organization costs to be expensed as incurred.



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CALIFORNIA PIZZA KITCHEN, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Earnings Per Share



The Company calculates net income per share in accordance with SFAS No. 128, Earnings Per Share. Basic Earnings
Per Share (EPS) is computed by dividing net income or loss attributable to common shareholders by the weighted average of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other
contracts to issue common stock (convertible preferred stock, warrants to purchase common stock and common stock options using the treasury stock method) were exercised or converted into common stock. Potential common shares in the diluted EPS
computation are excluded where their effect would be antidilutive.



Stock-based Compensation



In December 2002,
the Financial Accounting Standards Board issued SFAS No. 148, Accounting for Stock-Based CompensationTransition and Disclosure. SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based Compensation, to provide
alternative methods of transition to SFAS No. 123s fair value method of accounting for stock-based employee compensation. SFAS No. 148 also amends the disclosure provisions of SFAS No. 123 and APB No. 28, Interim Financial
Reporting to require disclosure in the summary of significant accounting policies of the effects of an entitys accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual
and interim financial statements. While SFAS No. 148 does not amend SFAS No. 123 to require companies to account for employee stock options using the fair value method, the disclosure provisions of SFAS No. 148 are applicable to all companies with
stock-based employee compensation, regardless of whether they account for that compensation using the fair value method of SFAS No. 123 or the intrinsic value method of APB Opinion No. 25. As allowed by SFAS No. 123, the Company has elected to
continue to utilize the accounting method prescribed by APB Opinion No. 25 and have adopted the disclosure requirements of SFAS No. 148.



Fair Value of Financial Instruments



The fair values of the Companys cash and cash equivalents, trade accounts receivable, accounts payable and all other current liabilities approximate
their carrying values because of the short maturities of these instruments.



Concentrations of Credit Risk



Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, which may exceed federally insured limits, cash equivalents, which are primarily commercial paper and marketable
securities, which are treasury bills, federal agency securities and auction rate securities. The Company places its cash, cash equivalents and marketable securities with high quality financial institutions.



The Company maintains a food distribution contract with its sole national
master distributor, Meadowbrook Meat Company, Inc. that potentially subjects the Company to a concentration of business risk. This contract is up for renewal in June 2004. Management of the Company believes it will be able to negotiate a similarly
priced contract with either its current sole master distributor or another distributor.



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CALIFORNIA PIZZA KITCHEN, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Recent Accounting Pronouncements



The Financial Accounting Standards Board (FASB) recently issued
several Statements of Financial Accounting Standards (SFAS). The statements relevant to the Companys line of business and the impact on us are as follows:



In January 2003, the FASB issued FIN 46, Consolidation of Variable Interest Entities, which is effective for the
quarter ending December 31, 2003 for variable interest entities (VIEs) created before February 1, 2003. FIN 46 establishes criteria to identify VIEs and the primary beneficiary of such entities. Entities that qualify as VIEs must be
consolidated by their primary beneficiary. All other holders of interests in a VIE must disclose the nature, purpose, size and activity of the VIE as well as their maximum exposure to losses as a result of involvement with the VIE. The company
adopted FIN 46 in the third quarter of 2003. The Company currently has no VIEs and therefore the adoption did not have an effect on the Companys consolidated financial position, results of operations or cash flows.



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity. This Statement requires that certain instruments that were previously classified as equity on a companys statement of financial position now be classified as
liabilities. The Statement is effective for financial instruments entered into or modified after May 31, 2003, and to all other instruments that exist as of the beginning of the first interim financial reporting period beginning after June 15, 2003.
The Company currently has no instruments impacted by the adoption of this statement and therefore the adoption did not have an effect on the Companys consolidated financial position, results of operations or cash flows.



In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133
on Derivative Instruments and Hedging Activities, which is generally effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. SFAS No. 149 clarifies under what
circumstances a contract with an initial net investment meets the characteristic of a derivative as discussed in SFAS No. 133, clarifies when a derivative contains a financing component, amends the definition of underlying to conform it
to the language used in FASB Interpretation No. 45, Guarantor Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others and amends certain other existing pronouncements. The Company
currently has no derivative instruments therefore the adoption did not have an effect on the Companys consolidated financial position, results of operations or cash flows.



In November 21, 2002, the Emerging Issues Task Force (EITF) reached a consensus on Issue No. 02-16, Accounting by a
Customer (Including a Reseller) for Certain Consideration Received from a Vendor, which requires that cash consideration received by a customer from a vendor is presumed to be a reduction of the prices of the vendors products or services
and should, therefore, be characterized as a reduction of cost of sales when recognized in the customers income statement. These rules are applied to new arrangements, including modifications of existing arrangements, entered into after
December 31, 2002. The adoption did not have a material effect on the Companys consolidated financial position, results of operations or cash flows.



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3.    Property and Equipment



Property and equipment consist of the following:



|                                               |  |      |         |      |   |        
|---------------------------------------------- |  | ---- | ------- | ---- | - | -------
|                                               |  | 2003 |         | 2002
|Land                                           |  | $    | 5,786   |      | $ | 5,786  
|Buildings                                      |  |      | 9,990   |      |   | 9,506  
|Furniture, fixtures and equipment              |  |      | 97,450  |      |   | 80,095 
|Leasehold improvements                         |  |      | 135,733 |      |   | 116,274
|Construction-in-progress                       |  |      | 4,054   |      |   | 4,897  
|                                               |  |      |         |      |   |        
|                                               |  |      | 253,013 |      |   | 216,558
|Less accumulated depreciation and amortization |  |      | 122,481 |      |   | 90,202 
|                                               |  |      |         |      |   |        
|                                               |  | $    | 130,532 |      | $ | 126,356
|                                               |  |      |         |      |   |        



On an annual basis the
Company reviews the carrying value of long-lived assets in accordance with SFAS No. 144, Accounting for Impairment and Disposal of Long-Lived Assets, on a restaurant-by-restaurant basis. In accordance with SFAS No. 144, the Company
recognizes the impairment of certain property and equipment by reducing the carrying value of the assets to the estimated fair value based on discounted cash flows of each under-performing restaurant. The Company increased accumulated depreciation
and amortization and recorded a loss on impairment of property and equipment of $14,725 and $2,380 in 2003 and 2002, respectively.



4.    Long-term Debt



On December 15, 2000, the Company replaced its prior credit agreement with a $20.0 million revolving line of credit with Bank of America, N.A., of which
zero is outstanding as of December 28, 2003. The credit line bears interest at either the bank base rate minus 0.75% or LIBOR plus 1.0% and expires on June 30, 2004. The terms of the credit line include financial covenants, which the Company was in
compliance with as of December 28, 2003.



The credit agreement
provides for the issuance of letters of credit, which reduce the availability under the revolving line. Letters of credit outstanding in connection with various insurance programs totaled $3,514 and $1,570 at December 28, 2003 and December 29, 2002,
respectively.



5.    Income Taxes



The details of the provision for income taxes are as follows:



|          |  |      |        |   |      |   |        |      |  |   |        |  
|--------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|          |  | 2003 |        |   | 2002 |   |        | 2001 | 
|Current:  |  |      |        |   |      |   |        |      |  |   |        |  
|Federal   |  | $    | (4,484 | ) |      | $ | (2,747 | )    |  | $ | (6,280 | )
|State     |  |      | (1,001 | ) |      |   | (1,350 | )    |  |   | (1,122 | )
|          |  |      |        |   |      |   |        |      |  |   |        |  
|          |  |      | (5,485 | ) |      |   | (4,097 | )    |  |   | (7,402 | )
|Deferred: |  |      |        |   |      |   |        |      |  |   |        |  
|Federal   |  |      | 3,569  |   |      |   | (3,612 | )    |  |   | 264    |  
|State     |  |      | 505    |   |      |   | (225   | )    |  |   | 24     |  
|          |  |      |        |   |      |   |        |      |  |   |        |  
|          |  |      | 4,074  |   |      |   | (3,837 | )    |  |   | 288    |  
|          |  |      |        |   |      |   |        |      |  |   |        |  
|          |  | $    | (1,411 | ) |      | $ | (7,934 | )    |  | $ | (7,114 | )
|          |  |      |        |   |      |   |        |      |  |   |        |  



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The income tax provision differs from the federal statutory rate because of the effect of the
following items for the fiscal years 2003, 2002 and 2001:



|                                           |  |       |    |  |       |    |  |       |   
|------------------------------------------ |  | ----- | -- |  | ----- | -- |  | ----- | --
|                                           |  | 2003  |    |  | 2002  |    |  | 2001  |   
|Statutory rate                             |  | (35.0 | )% |  | (35.0 | )% |  | (35.0 | )%
|State income taxes, net of federal benefit |  | (3.5  | )  |  | (4.0  | )  |  | (3.6  | ) 
|General business and tip tax credit        |  | 30.0  |    |  | 8.0   |    |  | 8.4   |   
|Other                                      |  | (6.6  | )  |  | (3.1  | )  |  | (4.8  | ) 
|Valuation allowance                        |  |      |    |  |      |    |  |      |   
|                                           |  |       |    |  |       |    |  |       |   
|                                           |  | (15.1 | )% |  | (34.1 | )% |  | (35.0 | )%
|                                           |  |       |    |  |       |    |  |       |   



Deferred income taxes
reflect the net tax effects of temporary differences between the carrying value of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Companys net deferred tax
asset at December 28, 2003 and December 29, 2002 consist of the following:



|                                                |  |      |        |   |      |   |        |  
|----------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                                                |  | 2003 |        |   | 2002 |  
|Deferred tax assets:                            |  |      |        |   |      |   |        |  
|Asset impairment reserves                       |  | $    | 9,730  |   |      | $ | 4,055  |  
|Insurance reserves                              |  |      | 613    |   |      |   | 352    |  
|Vacation reserves                               |  |      | 857    |   |      |   | 688    |  
|Other accruals                                  |  |      | 1,533  |   |      |   | 806    |  
|Tax credits                                     |  |      | 749    |   |      |   | 381    |  
|Accrued rent                                    |  |      | 335    |   |      |   | 359    |  
|Book depreciation (under)/over tax depreciation |  |      | (7,248 | ) |      |   | (4,793 | )
|Partnership basis                               |  |      | (91    | ) |      |   | 556    |  
|                                                |  |      |        |   |      |   |        |  
|Net deferred tax asset                          |  | $    | 6,478  |   |      | $ | 2,404  |  
|                                                |  |      |        |   |      |   |        |  



6.    Shareholders Equity



On January 14, 2003 and July 15, 2003 employees purchased 29,576 and 29,401 shares respectively, of common stock from the Company under the Companys employee stock purchase plan. The net proceeds to the Company were $578 and $542,
respectively.



On January 15, 2002 and July 17, 2002, employees
purchased 67,537 and 61,066 shares of common stock from the Company under the Companys employee stock purchase plan. The net proceeds to the Company were $890 and $812, respectively.



7.    Common Stock Option Plans



In 1998, the Company adopted the 1998 Stock Based Incentive Compensation
Plan (1998 Plan). The 1998 Plan allows for the Company to reward, retain and attract valued employees, directors and independent contractors. In fiscal 2001, the Company increased the amount of shares reserved under the 1998 Plan for
future awards from 2,500,000 shares to 3,500,000 shares. In fiscal 2003, the Company increased the amount of shares reserved under the 1998 Plan for future awards from 3,500,000 shares to 4,000,000 shares. Options under the 1998 Plan may be either
nonqualified options or incentive stock options. Nonqualified options may be granted at prices determined by the Companys Board of Directors. Incentive stock options may be granted at not less than



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100% of fair value on the date of grant for employees owning 10% or less of the Companys stock and at not less than 110% for employees owning more than
10% of the Companys stock. The Companys Board of Directors determines the terms governing the exercise of options and direct stock bonuses.



Shares subject to option under the Plans were as follows:



|                                 |  |           |   |  |                              |      
|-------------------------------- |  | --------- | - |  | ---------------------------- | -----
|                                 |  | Shares    |   |  | WeightedAverageExercisePrice
|Outstanding at December 31, 2000 |  | 1,046,622 |   |  | $                            | 10.05
|Granted                          |  | 606,000   |   |  |                              | 21.46
|Exercised                        |  | (206,871  | ) |  |                              | 6.37 
|Canceled                         |  | (200,262  | ) |  |                              | 14.86
|                                 |  |           |   |  |                              |      
|Outstanding at December 30, 2001 |  | 1,245,489 |   |  |                              | 10.05
|Granted                          |  | 583,000   |   |  |                              | 20.64
|Exercised                        |  | (189,493  | ) |  |                              | 10.68
|Canceled                         |  | (22,231   | ) |  |                              | 19.68
|                                 |  |           |   |  |                              |      
|Outstanding at December 29, 2002 |  | 1,616,765 |   |  |                              | 17.81
|Granted                          |  | 746,350   |   |  |                              | 20.93
|Exercised                        |  | (144,748  | ) |  |                              | 10.00
|Canceled                         |  | (130,631  | ) |  |                              | 20.82
|                                 |  |           |   |  |                              |      
|Outstanding at December 28, 2003 |  | 2,087,736 |   |  | $                            | 19.28
|                                 |  |           |   |  |                              |      



The following table
summarizes information regarding options outstanding and options exercisable at December 28, 2003:



|                         |  |                 |  |                                         |  |                              |       |                                        |         |                              |   |      
|------------------------ |  | --------------- |  | --------------------------------------- |  | ---------------------------- | ----- | -------------------------------------- | ------- | ---------------------------- | - | -----
|Range of Exercise Prices |  | Number ofShares |  | WeightedAverageRemainingContractualLife |  | WeightedAverageExercisePrice |       | NumberExercisableas ofDecember 28,2003 |         | WeightedAverageExercisePrice
|$  2.50  6.54           |  | 34,371          |  | 4.65                                    |  | $                            | 2.51  |                                        | 34,371  |                              | $ | 2.51 
|8.70  9.26              |  | 72,007          |  | 5.87                                    |  |                              | 8.75  |                                        | 69,507  |                              |   | 8.74 
|15.0019.96              |  | 1,198,589       |  | 6.89                                    |  |                              | 17.95 |                                        | 465,230 |                              |   | 17.01
|20.5223.51              |  | 782,769         |  | 7.98                                    |  |                              | 22.28 |                                        | 273,287 |                              |   | 22.16
|                         |  |                 |  |                                         |  |                              |       |                                        |         |                              |   |      
|                         |  | 2,087,736       |  | 7.25                                    |  | $                            | 19.28 |                                        | 842,395 |                              | $ | 17.41
|                         |  |                 |  |                                         |  |                              |       |                                        |         |                              |   |      



Options available for
future grant totaled 541,559 and 657,278 shares at December 28, 2003 and December 29, 2002, respectively.



On August 2, 2000 in connection with the Companys initial public offering, options to purchase 110,696 shares of common stock were exercised. These
options required the Company to reimburse 20% of the taxable gain incurred upon exercise to the employee. As a result, the Company incurred a variable plan accounting charge of $1,949 in accordance with APB No. 25, Accounting for Stock Issued
to Employees representing the difference between the fair value of the stock at the time of exercise and the option strike price plus the 20% tax reimbursement.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The Company has adopted the disclosure only provisions of SFAS No. 123 and will continue
to use the intrinsic value-based method of accounting prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. Accordingly, no compensation expense has been recognized for its stock option
plans. Had compensation expense for stock option plans been determined based on the fair value at the grant date for awards in fiscal 2003, 2002 and 2001 consistent with the provisions of SFAS No. 123, the Companys after-tax net income and
after-tax net income per share would have been reduced to the pro forma amounts indicated below (in thousands, except net income per share):



|                                                                                                                               |  |      |        |      |   |        |  |   |       
|------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ------ | ---- | - | ------ |  | - | ------
|                                                                                                                               |  | 2003 |        | 2002 |   | 2001  
|Net income as reported                                                                                                         |  | $    | 7,956  |      | $ | 15,330 |  | $ | 13,211
|Deduct:                                                                                                                        |  |      |        |      |   |        |  |   |       
|Total stock-based employee compensation expense determined under fair value methods for all awards, net of related tax effects |  |      | 3,426  |      |   | 2,166  |  |   | 1,245 
|                                                                                                                               |  |      |        |      |   |        |  |   |       
|Pro forma net income                                                                                                           |  | $    | 4,530  |      | $ | 13,164 |  | $ | 11,966
|                                                                                                                               |  |      |        |      |   |        |  |   |       
|Net income per share:                                                                                                          |  |      |        |      |   |        |  |   |       
|Basic, as reported                                                                                                             |  | $    | 0.42   |      | $ | 0.82   |  | $ | 0.72  
|Basic, pro forma                                                                                                               |  | $    | 0.24   |      | $ | 0.71   |  | $ | 0.65  
|Diluted, as reported                                                                                                           |  | $    | 0.42   |      | $ | 0.81   |  | $ | 0.71  
|Diluted, pro forma                                                                                                             |  | $    | 0.24   |      | $ | 0.70   |  | $ | 0.64  
|Weighted average shares used in computation:                                                                                   |  |      |        |      |   |        |  |   |       
|Basic                                                                                                                          |  |      | 18,867 |      |   | 18,585 |  |   | 18,308
|Diluted                                                                                                                        |  |      | 19,027 |      |   | 18,871 |  |   | 18,611



The fair value of
these options was estimated at the date of grant using a Black-Scholes option-pricing model with the following assumptions for the fiscal years ended 2003, 2002 and 2001.



|                          |  |      |   |  |      |   |  |      |  
|------------------------- |  | ---- | - |  | ---- | - |  | ---- | -
|                          |  | 2003 |   |  | 2002 |   |  | 2001 |  
|Risk free interest rate   |  | 3.03 | % |  | 2.53 | % |  | 5.00 | %
|Expected lives (in years) |  | 5.00 |   |  | 5.00 |   |  | 5.00 |  
|Dividend yield            |  |     | % |  |     | % |  |     | %
|Expected volatility       |  | 0.31 | % |  | 0.42 | % |  | 0.35 | %



The impact of applying
SFAS No. 123, as amended by SFAS No. 148, in this pro forma disclosure is not necessarily indicative of the effect on income in the future. The Company anticipates making additional stock-based compensation awards in the future.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



8.    Net Income Per Common Share



Reconciliation of basic and diluted net income per common share in
accordance with SFAS No. 128 for the fiscal years ended December 28, 2003, December 29, 2002 and December 30, 2001 is as follows:



|                                                                                         |  |      |        |      |   |        |  |   |       
|---------------------------------------------------------------------------------------- |  | ---- | ------ | ---- | - | ------ |  | - | ------
|                                                                                         |  | 2003 |        | 2002 |   | 2001  
|Numerator for basic and diluted net income per share attributable to common shareholders |  | $    | 7,956  |      | $ | 15,330 |  | $ | 13,211
|                                                                                         |  |      |        |      |   |        |  |   |       
|Denominator (in thousands):                                                              |  |      |        |      |   |        |  |   |       
|Denominator for basic net income per common shareweighted average shares                |  |      | 18,867 |      |   | 18,585 |  |   | 18,308
|Employee stock options                                                                   |  |      | 160    |      |   | 286    |  |   | 303   
|                                                                                         |  |      |        |      |   |        |  |   |       
|Denominator for diluted net income per common shareweighted average shares              |  |      | 19,027 |      |   | 18,871 |  |   | 18,611
|                                                                                         |  |      |        |      |   |        |  |   |       



There were no shares
considered antidilutive for the purposes of this computation.



9.    Commitments and Contingencies



Commitments



The
Company leases certain restaurant facilities and its corporate headquarters under non-cancelable operating leases with terms ranging from five to 20 years. The restaurant leases generally require payment of contingent rents based on a percentage of
sales and require payment of various expenses incidental to the use of property. Rent expense on all operating leases approximated $22,052 for fiscal 2003, $18,257 for fiscal 2002, and $14,888 for fiscal 2001, including contingent rental expense of
$1,827, $1,348 and $1,255 for the fiscal years 2003, 2002 and 2001, respectively. Most leases contain renewal options and may be subject to periodic adjustments for inflation and scheduled escalations.



The aggregate future minimum annual lease payments under non-cancelable
operating leases for the fiscal years succeeding December 28, 2003 are as follows:



|                    |  |   |        
|------------------- |  | - | -------
|Fiscal year ending: |  |   |        
|2004                |  | $ | 21,810 
|2005                |  |   | 22,052 
|2006                |  |   | 21,913 
|2007                |  |   | 21,491 
|2008                |  |   | 19,735 
|Thereafter          |  |   | 81,315 
|                    |  |   |        
|                    |  | $ | 188,316
|                    |  |   |        



Contingencies



Occasionally, the Company is a defendant in litigation
arising in the ordinary course of its business, including claims resulting from slip and fall accidents, employment-related claims and claims from guests or employees alleging illness, injury or other food quality, health or operational
concerns. To date, none of these types of litigation, all of which are covered by insurance, has had a material effect on the Company and, as of the date of this report, the Company is not a party to any material litigation.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



10.    Employee Benefit Plans



In January 1994, the Company established a defined contribution plan for
certain qualified employees as defined. Participants may contribute from 1% to 15% of pretax compensation, subject to certain limitation. The plan provides for certain discretionary contributions by the Company.



The Company has also established an Executive Retirement Savings Plan (the
ERSP). The ERSP is a non-qualified deferred compensation plan for its highly compensated employees as defined in the ERSP and who are otherwise ineligible for participation in the 401(k) plans. The ERSP allows participating employees to
defer up to 100% of the receipt of their base compensation and their eligible bonuses. The plan provides for certain discretionary contributions by the Company. Employee deferrals and Company discretionary matches are deposited into a
rabbi trust established by the Company.



The
Company recorded contribution expenses of $268, $282 and $131 for fiscal 2004, 2003, and 2002, respectively for both the defined contribution plan and ERSP. The contributions are made subsequent to each fiscal year end.



In November 1999, the Company adopted an employee stock purchase plan
(Purchase Plan) under Section 423 of the Internal Revenue Code of 1986 which became effective with the initial public offering in August 2000 and reserved 375,000 shares for issuance thereunder. In 2003, the Company increased the aggregate number of
shares available for sale under the Purchase Plan to 750,000 shares. The Purchase Plan allows eligible employees to purchase common stock at a discount, but only through payroll deductions, during consecutive 24 month offering periods, subject to
automatic reset if favorable to the employees. Each offering period will be divided into four consecutive six-month purchase periods. The price at which the stock is purchased under the Purchase Plan is equal to 85% of the lower of the fair market
value of the common stock on the first day of the offering period and the fair market value of the common stock on the last day of the purchase period.



On January 14, 2003 and July 15, 2003 employees purchased 29,576 and 29,401 shares respectively, of common stock from the Company under the Companys
employee stock purchase plan. The net proceeds to the Company were $578 and $542, respectively.



On January 15, 2002 and July 17, 2002, employees purchased 67,537 and 61,066 shares of common stock from the Company under the Companys employee
stock purchase plan. The net proceeds to the Company were $890 and $812, respectively.



11.    Related Party Transactions



On March 6, 2003 the Company paid $2.0 million for a 25.0% stake in LA Food Show, Inc., an upscale family casual dining restaurant created by the Companys co-founders, Co-Chairmen of the Board of Directors and Co-Chief Executive
Officers, Larry S. Flax and Richard L. Rosenfield. Messrs. Flax and Rosenfield own the remaining 75.0% of equity in LA Food Show, Inc. Under the terms of the agreement the Company reserves the right of first negotiation for the 75.0% of outstanding
equity it does not currently own. The Company has pre-emptive rights in future financings by LA Food Show so long as it maintains an ownership interest of at least 15.0%, and are entitled to one of three seats on the LA Food Show Board of Directors.



The Company has accounted for this investment in accordance
with the equity method of accounting as interpreted by APB Opinion No. 18, The Equity Method of Accounting for Investments In Common Stock. APB Opinion No. 18 requires an investor to record the initial investment at cost and adjust the
carrying value of its investment to recognize the investors share of the earnings or loss after the date of acquisition. At December 28, 2003 the Companys net investment in LA Food Show, Inc., was $1.7 million.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Effective September 29, 2003, the Company entered into an employee leasing arrangement with LA Food
Show under which it provides LA Food Show with all of its restaurant level employees and managers, as well as administrative and support services such as payroll, marketing, human resources, facilities management, accounting, information technology
and training. LA Food Show reimburses us for all of the leased employees wages, benefits and other employee-related costs, as well as all business-related expenses incurred by the leased employees.



A Company director, Rick J. Caruso, also serves as President and is sole
owner of CAH Restaurants of California, LLC. The Company has entered into franchise and development agreements with CAH Restaurants of California, LLC pursuant to which it operated two California Pizza Kitchen restaurants. CAH Restaurants of
California, LLC paid franchise and royalty fees to the Company under these agreements. The Company has recorded an aggregate of $256,000, $260,000 and $204,000 in such fees during the years ended 2003, 2002 and 2001, respectively. On December 29,
2003 the Company acquired the territory rights and assets used to operate two restaurants from CAH Restaurants of California for $2.5 million. These California stores are located in Thousand Oaks and Ventura and are an ASAP and full service
restaurant, respectively. The transaction was executed with $1.3 million cash with the balance of the purchase price paid in common stock.



The Company also made aggregate lease payments to Caruso Affiliated Holdings (CAH), for the 17 weeks to April 25, 2004, for two California store
locations, of $61,000 and $54,000 for Thousand Oaks and Marina Del Rey, respectively. These payments consisted of rent of $46,000 and $30,000, common area maintenance charges of $10,000 and $5,000 and percentage rent of zero and $17,000,
respectively. CAH was the owner of record prior to the Companys purchase of the Thousand Oak store on December 29, 2003 and CAH purchased Marina Waterside shopping center, where the Companys Marina Del Rey store is located, on January
20, 2004.



On August 24, 2001, we loaned a former employee and
officer, Tom Jenneman, $65,000. The loan was supported by a full recourse promissory note and accrued interest at 7.5% per annum. The full recourse promissory note was paid in full, including accrued interest, upon maturation in February 2003.



Neal Rosenfield, a real estate broker for Blatteis Real Estate
and the brother of Richard L. Rosenfield, our Co-Founder, Co-Chief Executive Officer and Co-President, received commissions paid by a third party landlord related to our lease of certain restaurant locations in the amounts of $71,300, $76,165 and
$145,143 in 2003, 2002 and 2001, respectively.



In connection
with the Companys initial public offering in August 2000, its former Chief Executive Officer exercised options to purchase 110,696 shares of common stock. Under the agreement granting these options, the Company was required to pay an amount
equal to 20% of the gain recognized by its former Chief Executive Officer for federal income tax purposes, which was $325,000. In addition, the Company loaned its former Chief Executive Officer $586,000 which is equal to the difference between the
cash payment and the total income tax liability he incurred as a result of this exercise. The full recourse promissory note was paid in full, including accrued interest, upon maturation in August 2002.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



12.    Quarterly Financial Data (Unaudited)



Summarized unaudited quarterly financial data (in thousands, except net
income per share).



|                                    |  |             |        |              |   |                 |  |   |                |   |  |   |       
|----------------------------------- |  | ----------- | ------ | ------------ | - | --------------- |  | - | -------------- | - |  | - | ------
|                                    |  | Mar 30,2003 |        | June 29,2003 |   | Sept 28,2003(a) |  |   | Dec 28,2003(b)
|Quarter Ended:                      |  |             |        |              |   |                 |  |   |                |   |  |   |       
|Total revenues                      |  | $           | 82,857 |              | $ | 87,864          |  | $ | 93,096         |   |  | $ | 96,070
|Operating income (loss)             |  |             | 5,942  |              |   | 6,524           |  |   | (7,153         | ) |  |   | 4,086 
|Net income (loss)                   |  |             | 3,993  |              |   | 4,395           |  |   | (4,846         | ) |  |   | 4,414 
|Diluted net income (loss) per share |  | $           | 0.21   |              | $ | 0.23            |  | $ | (0.26          | ) |  | $ | 0.24  
|                                    |  |             |        |             
|                                    |  | Mar 31,2002 |        | June 30,2002 |   | Sept 29,2002(c) |  |   | Dec 29,2002   
|Quarter Ended:                      |  |             |        |              |   |                 |  |   |                |   |  |   |       
|Total revenues                      |  | $           | 70,216 |              | $ | 75,626          |  | $ | 78,944         |   |  | $ | 81,536
|Operating income                    |  |             | 5,666  |              |   | 6,595           |  |   | 4,445          |   |  |   | 6,190 
|Net income                          |  |             | 3,736  |              |   | 4,344           |  |   | 3,005          |   |  |   | 4,245 
|Diluted net income per share        |  | $           | 0.20   |              | $ | 0.23            |  | $ | 0.16           |   |  | $ | 0.22  

---

|(a) |  | Includes Loss on impairment of property and equipment and restaurant closures charge of $12,979 and Severance charge of $82.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------



|(b) |  | Includes Loss on impairment of property and equipment and restaurant closures charge of $1,766.
|--- |  | -----------------------------------------------------------------------------------------------



|(c) |  | Includes Loss on impairment of property and equipment and restaurant closures charge of $2,380.
|--- |  | -----------------------------------------------------------------------------------------------



67



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##### Table of Contents

EXHIBIT INDEX



|              |  |                                                                                                                                                                                                                                       
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                           
|3.1(B)        |  | Amended and Restated Articles of Incorporation, and amendments thereto                                                                                                                                                                
|              | 
|3.2(A)        |  | Amended and Restated Bylaws                                                                                                                                                                                                           
|              | 
|4.1(A)        |  | Specimen Common Stock Certificate                                                                                                                                                                                                     
|              | 
|4.2(A)        |  | Registration Rights Agreement dated September 30, 1997                                                                                                                                                                                
|              | 
|10.1(A)       |  | Memorandum of Understanding Regarding Form of Agreement between Host Marriott Services and California Pizza Kitchen, Inc. dated May 12, 1998                                                                                          
|              | 
|10.2(A)       |  | Third Amended and Restated Employment Agreement of Richard L. Rosenfield dated July 6, 2000                                                                                                                                           
|              | 
|10.3(A)       |  | Third Amended and Restated Employment Agreement of Larry S. Flax dated July 6, 2000                                                                                                                                                   
|              | 
|10.4(A)       |  | Severance Agreement between Frederick R. Hipp and California Pizza Kitchen, Inc. dated March 31, 1998                                                                                                                                 
|              | 
|10.5(A)       |  | Severance Agreement between Tom N. Jenneman and California Pizza Kitchen, Inc. dated November [sic], 1999                                                                                                                             
|              | 
|10.6(A)       |  | California Pizza Kitchen, Inc. Employee Stock Purchase Plan adopted on November 2, 1999, as amended on June 23, 2000                                                                                                                  
|              | 
|10.7(A)       |  | California Pizza Kitchen, Inc. 1998 Stock-Based Incentive Compensation Plan adopted February 5, 1998, as amended on July 21, 1998 and November 2, 1999 and forms of stock option agreement
thereunder                                 
|              | 
|10.8(A)       |  | California Pizza Kitchen, Inc. Non-Qualified Stock Option Agreements between California Pizza Kitchen, Inc. and Frederick R. Hipp dated March 31, 1998                                                                                
|              | 
|10.9(B)       |  | Credit Agreement by and between California Pizza Kitchen, Inc. and Bank of America, N.A., dated December 15, 2000                                                                                                                     
|              | 
|10.10(B)      |  | Master Subsidiary Guaranty issued from Bank of America, N.A. by CPK Management Company and California Pizza Kitchen of Illinois, Inc. dated December 15, 2000                                                                         
|              | 
|10.11(C)      |  | Third and Fourth Amendments to California Pizza Kitchen, Inc. 1998 Stock-Based Incentive Compensation Plan dated as of July 28, 2000 and May 1, 2001                                                                                  
|              | 
|10.12(D)      |  | Shareholders Agreement among LA Food Show, Inc., Richard L. Rosenfield and Larry S. Flax, as trustee of the Larry S. Flax Revocable Trust dated June 18, 2002 and California Pizza
Kitchen, Inc., dated March 6, 2003                
|              | 
|10.13(D)      |  | Subscription Agreement among Richard L. Rosenfield, Larry S. Flax, as trustee of the Larry S. Flax Revocable Trust dated June 18, 2002 and California Pizza Kitchen, Inc., dated March 6,
2003                                        
|              | 
|10.14(D)      |  | Certificate Of Determination of the Series A 8% Convertible Preferred Stock of LA Food Show, Inc. filed with the California Secretary of State on March 4, 2003                                                                       
|              | 
|10.15(D)      |  | Amendment No. 1 to Shareholders Agreement among LA Food Show, Inc., Richard L. Rosenfield, Larry S. Flax as trustee of the Larry S. Flax Revocable Trust dated June 18, 2002 and
California Pizza Kitchen, Inc., dated March 11, 2003
|              | 
|10.16(E)      |  | Agreement for Purchase and Sale of Assets between CAH Restaurants of California, LLC and California Pizza Kitchen, Inc. dated as of December 29, 2003, and exhibits thereto.                                                          
|              | 
|23            |  | Consent of Ernst & Young LLP                                                                                                                                                                                                          
|              | 
|31.1          |  | Certification of Principal Executive Officers pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002                                                    



68



---

##### Table of Contents

|              |  |                                                                                                                                                                                  
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                      
|              | 
|31.2          |  | Certification of Principal Financial Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|              | 
|32.1          |  | Certification of Principal Executive Officers pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                           
|              | 
|32.2          |  | Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                            

---

|(A) |  | Incorporated by reference to the registrants Registration Statement on Form S-1 (Registration 333-37778).
|--- |  | ----------------------------------------------------------------------------------------------------------



|(B) |  | Incorporated by reference to the registrants Registration Statement on Form S-1 (Registration 333-53088).
|--- |  | ----------------------------------------------------------------------------------------------------------



|(C) |  | Incorporated by reference to the registrants Quarterly Report on Form 10-Q filed April 1, 2001.
|--- |  | ------------------------------------------------------------------------------------------------



|(D) |  | Incorporated by reference to the registrants Annual Report on Form 10-K filed March 14, 2003.
|--- |  | ----------------------------------------------------------------------------------------------



|(E) |  | Incorporated by reference to the registrants Annual Report on Form 10-K filed March 12, 2004.
|--- |  | ----------------------------------------------------------------------------------------------



69



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##### Table of Contents

SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, as amended, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.



|                      |  |  |  |                                |  |     |  |                                                                                                                                              
|--------------------- |  |  |  | ------------------------------ |  | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|Dated: April 26, 2004 |  |  |  | California Pizza Kitchen, Inc.
|                      |  |  |  |                               
|                      |  |  |  |                                |  | By: |  | /s/    LARRY S.
FLAX                                                                                                                         
|                      |  |  |  |                                |  |     |  | Larry S. Flax Co-Chairman of the Board, Co-Chief Executive Officer, Co-President and Director                                                
|                      |  |  |  |                               
|                      |  |  |  |                                |  | By: |  | /s/    RICHARD L.
ROSENFIELD                                                                                                                 
|                      |  |  |  |                                |  |     |  | Richard L. Rosenfield Co-Chairman of the Board, Co-Chief Executive Officer, Co-President and Director                                        
|                      |  |  |  |                               
|                      |  |  |  |                                |  | By: |  | /s/    SUSAN M.
COLLYNS                                                                                                                      
|                      |  |  |  |                                |  |     |  | Susan M. Collyns Chief Financial Officer, Chief Accounting Officer and Vice President of Finance (Principal Financial and Accounting Officer)



Pursuant to the
requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



|                                                  |  |                                                                                                               |  |               
|------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------- |  | --------------
|Signature                                         |  | Title                                                                                                         |  | Date          
|                                                  |  |                                                                                                              
|/s/    LARRY S.
FLAXLarry S. Flax                 |  | Co-Chairman of the Board, Co-Chief Executive Officer, Co-President and Director (Principal Executive Officer) |  | April 26, 2004
|                                                  |  |                                                                                                              
|/s/    RICHARD L.
ROSENFIELDRichard L.
Rosenfield |  | Co-Chairman of the Board, Co-Chief Executive Officer, Co-President and Director (Principal Executive Officer) |  | April 26, 2004
|                                                  |  |                                                                                                              
|/s/    SUSAN M.
COLLYNSSusan M. Collyns           |  | Chief Accounting Officer and Vice President of Finance (Principal Financial and Accounting Officer)           |  | April 26, 2004
|                                                  |  |                                                                                                              
|/s/    WILLIAM C.
BAKERWilliam C. Baker           |  | Director                                                                                                      |  | April 26, 2004
|                                                  |  |                                                                                                              
|/s/    RICK J.
CARUSORick J. Caruso               |  | Director                                                                                                      |  | April 26, 2004
|                                                  |  |                                                                                                              
|/s/    HENRY
GLUCKHenry Gluck                     |  | Director                                                                                                      |  | April 26, 2004
|                                                  |  |                                                                                                              
|/s/    CHARLES G.
PHILLIPSCharles G.
Phillips     |  | Director                                                                                                      |  | April 26, 2004



70



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##### Table of Contents

EXHIBIT INDEX



|              |  |                                                                                                                                                                                                                                       
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                           
|              | 
|3.1(B)        |  | Amended and Restated Articles of Incorporation, and amendments thereto                                                                                                                                                                
|              | 
|3.2(A)        |  | Amended and Restated Bylaws                                                                                                                                                                                                           
|              | 
|4.1(A)        |  | Specimen Common Stock Certificate                                                                                                                                                                                                     
|              | 
|4.2(A)        |  | Registration Rights Agreement dated September 30, 1997                                                                                                                                                                                
|              | 
|10.1(A)       |  | Memorandum of Understanding Regarding Form of Agreement between Host Marriott Services and California Pizza Kitchen, Inc. dated May 12, 1998                                                                                          
|              | 
|10.2(A)       |  | Third Amended and Restated Employment Agreement of Richard L. Rosenfield dated July 6, 2000                                                                                                                                           
|              | 
|10.3(A)       |  | Third Amended and Restated Employment Agreement of Larry S. Flax dated July 6, 2000                                                                                                                                                   
|              | 
|10.4(A)       |  | Severance Agreement between Frederick R. Hipp and California Pizza Kitchen, Inc. dated March 31, 1998                                                                                                                                 
|              | 
|10.5(A)       |  | Severance Agreement between Tom N. Jenneman and California Pizza Kitchen, Inc. dated November 1999                                                                                                                                    
|              | 
|10.6(A)       |  | California Pizza Kitchen, Inc. Employee Stock Purchase Plan adopted on November 2, 1999, as amended on June 23, 2000                                                                                                                  
|              | 
|10.7(A)       |  | California Pizza Kitchen, Inc. 1998 Stock-Based Incentive Compensation Plan adopted February 5, 1998, as amended on July 21, 1998 and November 2, 1999 and forms of stock option agreement
thereunder                                 
|              | 
|10.8(A)       |  | California Pizza Kitchen, Inc. Non-Qualified Stock Option Agreements between California Pizza Kitchen, Inc. and Frederick R. Hipp dated March 31, 1998                                                                                
|              | 
|10.9(B)       |  | Credit Agreement by and between California Pizza Kitchen, Inc. and Bank of America, N.A., dated December 15, 2000                                                                                                                     
|              | 
|10.10(B)      |  | Master Subsidiary Guaranty issued from Bank of America, N.A. by CPK Management Company and California Pizza Kitchen of Illinois, Inc. dated December 15, 2000                                                                         
|              | 
|10.11(C)      |  | Third and Fourth Amendments to California Pizza Kitchen, Inc. 1998 Stock-Based Incentive Compensation Plan dated as of July 28, 2000 and May 1, 2001                                                                                  
|              | 
|10.12(D)      |  | Shareholders Agreement among LA Food Show, Inc., Richard L. Rosenfield and Larry S. Flax, as trustee of the Larry S. Flax Revocable Trust dated June 18, 2002 and California Pizza
Kitchen, Inc., dated March 6, 2003                
|              | 
|10.13(D)      |  | Subscription Agreement among Richard L. Rosenfield, Larry S. Flax, as trustee of the Larry S. Flax Revocable Trust dated June 18, 2002 and California Pizza Kitchen, Inc., dated March 6,
2003                                        
|              | 
|10.14(D)      |  | Certificate Of Determination of the Series A 8% Convertible Preferred Stock of LA Food Show, Inc. filed with the California Secretary of State on March 4, 2003                                                                       
|              | 
|10.15(D)      |  | Amendment No. 1 to Shareholders Agreement among LA Food Show, Inc., Richard L. Rosenfield, Larry S. Flax as trustee of the Larry S. Flax Revocable Trust dated June 18, 2002 and
California Pizza Kitchen, Inc., dated March 11, 2003
|              | 
|10.16(E)      |  | Agreement for Purchase and Sale of Assets between CAH Restaurants of California, LLC and California Pizza Kitchen, Inc. dated as of December 29, 2003, and exhibits thereto.                                                          
|              | 
|23            |  | Consent of Ernst & Young LLP                                                                                                                                                                                                          
|              | 
|31.1          |  | Certification of Principal Executive Officers pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002                                                    



71



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##### Table of Contents

|              |  |                                                                                                                                                                                  
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                      
|              | 
|31.2          |  | Certification of Principal Financial Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|              | 
|32.1          |  | Certification of Principal Executive Officers pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                           
|              | 
|32.2          |  | Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                            

---

|(A) |  | Incorporated by reference to the registrants Registration Statement on Form S-1 (Registration 333-37778).
|--- |  | ----------------------------------------------------------------------------------------------------------



|(B) |  | Incorporated by reference to the registrants Registration Statement on Form S-1 (Registration 333-53088).
|--- |  | ----------------------------------------------------------------------------------------------------------



|(C) |  | Incorporated by reference to the registrants Quarterly Report on Form 10-Q filed April 1, 2001.
|--- |  | ------------------------------------------------------------------------------------------------



|(D) |  | Incorporated by reference to the registrants Annual Report on Form 10-K filed March 14, 2003.
|--- |  | ----------------------------------------------------------------------------------------------



|(E) |  | Incorporated by reference to the registrants Annual Report on Form 10-K filed March 12, 2004.
|--- |  | ----------------------------------------------------------------------------------------------



72