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UNITED STATES


SECURITIES AND
EXCHANGE COMMISSION


Washington, D.C. 20549





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FORM 10K





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(Mark One)





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




| |  | For the fiscal year ended September 30, 2001
| |  | --------------------------------------------




OR





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




| |  | For the transition period from
 to
| |  | ----------------------------------




025886


(Commission file number)





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GARDEN FRESH RESTAURANT CORP.


(Exact name of registrant as specified in its charter)





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Delaware

330028786(State or other jurisdiction of

(I.R.S. Employerincorporation or organization)

Identification No.)17180 Bernardo Center DriveSan Diego, CA

92128(Address of principal executive offices)

(Zip Code)





(858) 6751600


(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, $.01 par value


(Title of Class)





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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.  ̈





The approximate aggregate market value of the registrants Common Stock held by nonaffiliates of the registrant (based on the closing sales price of such stock as reported in
the Nasdaq National Market) on December 14, 2001 was $17,919,523. Excludes shares of Common Stock held by directors, officers and each person who holds 5% or more of the registrants Common Stock.





Number of shares of Common Stock, $0.01 par value, outstanding as of December 14, 2001 was 5,688,926.





Parts of the definitive Proxy Statement per Registrants 2002
Annual Meeting of Shareholders are incorporated by reference into Part III of this Form 10-K. Such Proxy Statement shall be filed with the Securities and Exchange Commission pursuant to Regulation 14A no later than 120 days after the end of the
fiscal year covered by this Form 10-K.








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GARDEN FRESH RESTAURANT CORP.





ANNUAL REPORT ON FORM 10K





TABLE OF CONTENTS





PagePART IItem 1.

Business


3Item 2.

Properties


18Item 3.

Legal Proceedings


18Item 4.

Submission Of Matters To A Vote Of Security Holders


18PART IIItem 5.

Market for Companys Common Equity and Related Stockholder Matters


19Item 6.

Selected Financial Data


20Item 7.

Managements Discussion and Analysis Of Financial Condition and Results of Operations


22Item 7a.

Quantitative and Qualitative Disclosures about Market Risk


33Item 8.

Financial Statements and Supplementary Data


33Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure


33PART IIIItem 10.

Directors and Executive Officers of the Company


34Item 11.

Executive Compensation and Other Matters


34Item 12.

Security Ownership of Certain Beneficial Owners And Management


34Item 13.

Certain Relationships and Related Transactions


34PART IVItem 14.

Exhibits, Financial Statement Schedule, and Reports on Form 8K


35SIGNATURESEXHIBIT INDEX




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PART I





Item 1.    
BUSINESS





The statements contained in
this Form 10K that are not purely historical are forward looking statements, including statements regarding the Companys expectations, hopes, beliefs, intentions or strategies regarding the future. Statements which use words such as
expects, will, may, could, anticipates, believes, intends, attempts, and seeks are forward looking statements. These forward looking
statements, including statements regarding the Companys (i) plans to open new restaurants, (ii) plans to increase operational efficiency and improve labor utilization, (iii) budgeted capital expenditures for new restaurant openings and
improvements at existing sites, (iv) timing for implementation of its new accounting software program, (v) need to obtain additional financing, (vi) future restaurant sales,(vii) plans to close existing restaurants, and (viii) strategic marketing
programs and effects of such programs are all based on information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward looking statements. It is important to note that the Companys
actual results could differ materially from those in such forward-looking statements. Among the factors that could cause actual results to differ materially are the factors set forth under the heading Managements Discussion and Analysis
of Financial Condition and Results of Operations  Business Risks. In particular, the Companys expansion efforts and plans to open new restaurants could be affected by the Companys ability to locate suitable restaurant sites,
construct new restaurants in a timely manner and obtain additional funds, while the Companys plans to increase operational efficiency could be affected by difficulties in assimilating the new accounting software as well as escalating costs of
both utilities and fuel, as well as increased labor costs for the distribution center.





General





Garden Fresh Restaurant Corp. was founded in 1983 and currently operates 94 salad
buffet restaurants in California, Florida, Arizona, Colorado, Georgia, Illinois, Kansas, Missouri, Nevada, New Mexico, North Carolina, Oregon, Texas, Utah, and Washington under the names Souplantation and Sweet Tomatoes. The Company also operates
one Ladles, A Soup and Salad Takery (Ladles) and one Slurp! The Soup Experience (Slurp!) in California, however, the Company has determined that they will exit these concepts in fiscal 2002. The Companys restaurants feature fresh,
great tasting salads and other complementary foods. Due to its salad focus, the Companys concept falls within a segment of the restaurant industry that is distinct from other buffet concepts and moderately priced casual restaurants. The
Company believes that it is wellpositioned to further penetrate this segment and that the opportunity for expansion within this segment currently is attractive relative to expansion opportunities for many other restaurant segments.





Business Strategy





The Companys fundamental strategy is to provide a casual restaurant dining experience that incorporates the variety and choice inherent in a buffet
restaurant but the food quality and service expected in casual chains. The Company believes that this strategy will create restaurant operating margins not normally found in the buffet/family dining segment. The key elements of the Companys
strategy are as follows:





Commitment to High Quality
Food.    The Company seeks to provide fresh wholesome food with a strong emphasis on salads, which are featured on two 55 foot bars that include a wide range of salad offerings featuring three freshly tossed salads as well as
a large assortment of fresh cut produce, dressings and toppings and several signature prepared salads. Various other offerings include made from scratch soups, a hot pasta bar, a bakery which serves a variety of hot muffins, focaccias and other
breads and a dessert bar centered around a frozen yogurt station with toppings complemented by fresh fruits and puddings.




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Commitment to Guest
Service.    The Company seeks to provide its guests with a level of service that exceeds the standards set by other buffet concepts while not inhibiting the guest from enjoying the benefits of selecting from a cornucopia of
choices offered at the various food bars within the restaurant. In addition to high service standards, the Company has implemented several programs to maximize guest satisfaction. Included in these is a zero defect program that focuses
on the most popular offerings to ensure that each portion is prepared exactly as specified by the recipes. The Companys high service standards can only be maintained through intensive recruiting and training programs designed to employ crew
members and management that can sustain a friendly, enjoyable environment thereby maximizing the guests meal experience.





Excellent Price/Value Relationship.    The Company believes that the pricing and varied product mix at each restaurant are maintained at such a level
that the resulting meal experience can only be duplicated in other casual chains at price points that average two to three dollars higher than at the Souplantation and Sweet Tomatoes restaurants. The Companys management and frontline
personnel have embraced a company purpose and values that encompass commitment to serving high quality foods. The Company has involved the guests in establishing a price value, such as notifying them in writing in advance of its intent to raise
prices that only cover increased costs, resulting in positive guest feedback.





Cost Management.    The ability of the Company to maintain the highest possible quality products combined with what the Company believes to be one of the
lowest cost structures in the casual chain segment is directly attributable to the Companys ability to manage costs rigorously. This is achievable only through the use of the Companys fully integrated, proprietary computer management
information system. The precision with which the system operates allows a manager to review his/her entire cost structure in increments of cents per guest or minutes per employee if need be. At the same time, every level of management can review
virtually any data in any store as quickly as the store itself. This allows for rapid problem detection and resolution thereby minimizing potential cost problems. The Company believes that the systems sophistication combined with the ability
of management to effectively use it are unequaled in the industry.





Expansion Strategy





The Company intends to expand in fiscal 2002 in existing markets. In fiscal 2001, the
Company opened three new restaurants and re-opened one existing restaurant in California, as well as one new restaurant in Arizona, two new restaurants in Missouri, and three new restaurants and one stand-alone kitchen facility in Illinois.
Subsequent to the close of fiscal 2001, the Company opened one additional restaurant in Irvine, California. In fiscal 2002, the Company anticipates opening a total of four new restaurants, of which three have signed leases and one has purchased
land. The Company has purchased two sites to be opened in fiscal 2003. Expansion within the Companys existing regions will allow the Company to continue generally utilizing a central kitchen to serve several restaurants located within a
particular region. The Company added delivery and separate distribution centers for its restaurants on the West Coast (opened April 2000) and on the East Coast (opened November 2001). This decision was based on the expiration of the distribution
vendors contract, coupled with the potential control and long-term cost savings over other distribution alternatives in this area of the business. See Restaurant Operations  Distribution Center.





During fiscal 1999 the Company opened its first location of Ladles, A Soup and
Salad and Takery in San Diego, California. The Company opened and closed a second Ladles, A Soup and Salad Takery in fiscal 2000. In June 2001 the Company opened the first SLURP! The Soup Experience, a new concept in quick
service, take-away dining. Located in San Diego, California, SLURP! was designed to fit into guests busy schedules, offering soup and other to-go items in a high energy, irreverent atmosphere. In September 2001, the Company decided to abandon
the Ladles and Slurp! concepts due to poor operating performance. The Company plans to close these restaurants during the first half of fiscal 2002. The Company still plans to keep elements of the products developed for Slurp! for us in its core
concept.




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The Companys ability to
achieve its expansion plans will depend on a variety of factors, many of which may be beyond the Companys control, including the Companys ability to locate suitable restaurant sites, negotiate acceptable lease or purchase terms, obtain
required governmental approvals, construct new restaurants in a timely manner, attract, train and retain qualified and experienced personnel and management, operate its restaurants profitably and obtain additional capital, as well as general
economic conditions and the degree of competition in the particular region of expansion. The Company has experienced, and expects to continue to experience, delays in restaurant openings from time to time. Since its inception the Company has closed
three non-performing salad buffet restaurants, one small quick service restaurant, and one Ladles restaurant. As mentioned earlier, the Company plans to close the remaining Ladles restaurant and the Slurp! restaurant during the first half of fiscal
2002. Given the number of restaurants in current operation and the Companys projected expansion rate there can be no assurances that the Company will not close restaurants in the future. Any closure could result in a significant write off of
assets, which could adversely affect the Companys business, financial condition and results of operations.





The Company incurs substantial costs in opening a new restaurant and, in the Companys experience, new restaurants experience fluctuating operational levels for some time
after opening. Owned restaurants generally require significantly more up-front capital than leased restaurants, as a result of which an increase in the percentage of owned restaurant openings as compared to historical practice would increase the
overall capital required to meet the Companys growth plans. There can be no assurance that the Company will successfully expand or that the Companys existing or new restaurants will be profitable. The Company has encountered intense
competition for restaurant sites, and in many cases has had difficulty buying or leasing desirable sites on terms that are acceptable to the Company. In many cases, the Companys competitors are willing and able to pay more than the Company for
sites. The Company expects these difficulties in obtaining desirable sites to continue for the foreseeable future.





The Company currently has no plans to offer franchises.





Unit Economics





For the twelve month period ended
September 30, 2001, the 83 salad buffet restaurants that were open for the entire period had an average of approximately 271,000 guest visits during the period, generated average net sales of approximately $2,237,000, average restaurant operating
income (net sales less (i) cost of sales, (ii) restaurant operating expenses and (iii) depreciation and amortization) of approximately $290,000 or 13.0% of net sales, and average cash flow (operating income plus depreciation and amortization) of
approximately $425,000 or 19.0% of net sales. The Companys average cash investment for the nine new salad buffet restaurants opened, and one existing salad buffet restaurant re-opened, one Slurp! restaurant opened, and one central kitchen
facility opened during the twelve month period ended September 30, 2001 excluding land purchases and preopening costs, was approximately $2,185,000 Preopening costs averaged approximately $177,000 for opening of these restaurants and one
kitchen facility. The investment of capital to open a new restaurant typically includes the purchase or installation of furniture, fixtures, equipment and leasehold improvements, and in the case of an owned site, the purchase of land and a building.
The Company currently leases the sites for most of its restaurants, mixed between inline locations and standalone sites, although the Company purchases sites when necessary to acquire desirable locations.





Concept and Menu





The Companys menu is designed to focus on freshly made, great tasting food. The focal point of the menu is the salad bar, but not to the point of neglecting other interesting
and exciting food offerings at the hot pasta, soup, bakery, frozen yogurt and dessert bars. The Company seeks to provide guests with an excellent value by offering unlimited access to its entire menu of high quality fresh items at a fixed price.
Depending on the region and time of day, the price ranges from $6.49 to $7.99 at lunch and from $7.59 to $9.29 at dinner. Discounts are provided to children under 12 and senior citizens, along with various other discount programs.




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The following is a description of
the Companys menu items in the order they would appear to a guest walking along the various food bars in a typical restaurant:





Tossed Salads.    Upon entering the restaurant, guests are greeted at the door and begin to walk along either of the salad bars. The initial featured
selections along the salad bars are two to three specialty salads that are tossed fresh approximately every 20 minutes. The selections are changed weekly for variety. The following is a partial listing of the Companys specialty salad recipes:





Antipasto Salad Barbecue Chicken Chopped Salad Bartlett Pear Caesar Salad California Cobb Salad Chicken Tortilla Country French
Salad with Bacon Ensalada Azteca Greek Salad Italian Sub

Monterey Bleu Cheese with Peanuts Pesto Orzo with Pine
nuts Roasted Vegetable Salad with Feta & Olives Roma Tomato, Mozzarella & Basil
Salad Shrimp & Krab Louie Salad Spinach Salad with Mandarin Oranges
and Caramelized Walnuts Summer Lemon with Spiced Pecans Watercress Orange Won Ton Chicken Salad





Following the
specialty tossed salads on the salad bar, guests can make their own salads by choosing from a broad assortment of fresh cut salad ingredients. The salad bar offers three types of lettuce (romaine, iceberg and one other rotational lettuce), an
assortment of eleven seasonal fresh cut vegetables (such as grated carrots, sliced mushrooms, chopped bell peppers and diced jicama), ten toppings (such as sunflower seeds, fresh bacon bits, grated cheddar cheese and crumbled eggs), various
condiments and ten dressings. Employees located between the two salad bars replenish the salad offerings frequently and assist guests.





Next, the salad bar features prepared signature salads. The following is a partial list of the Companys signature salad recipes:





Artichoke Rice Salad Aunt Doris Red Pepper Slaw Baja Bean with Cilantro Salad with Chipotle Vinaigrette BBQ Potato Salad Carrot Raisin Salad Chinese Krab Salad Cucumber Tomato Salad with Chile Lime Dijon Potato Salad
with Garlic Dill Vinaigrette Gemelli Pasta Salad with Chicken German Potato Salad Greek
Couscous with Feta Cheese Italian White Bean Salad Jalapeño Potato Salad Joans Broccoli Madness Lemon Orzo Salad with Feta & Mint Mandarin Noodles with Broccoli and Sesame Seeds Mandarin Shells with Almonds and Snow Peas Marinated Summer Vegetable Salad Moroccan Marinated Vegetables

Old Fashioned Macaroni Salad Oriental Ginger Slaw with
Krab Pesto Pasta Picnic Potato Salad Pineapple Coconut Slaw Poppyseed Coleslaw Roasted Potato
Salad with Chipotle Vinaigrette Shrimp & Seafood Shells Southern Dill Potato Salad Spicy Southwestern Pasta Summer Barley with Black Bean Salad Thai Noodles with
Peanut Sauce Three Bean Marinade Salad Tortellini Salad Tortellini Salad with Basil Tuna Tarragon Salad Turkey Chutney Pasta Salad Tumbleweed Tortellini Salad Wild Rice & Chicken Zesty Tortellini





Beverages.    At the end of the salad bar, the Company offers an assortment of beverages, including fresh juices, milk, soft drinks, sparkling waters,
lemonades, and in certain locations, beer and wine. Refills of soft drinks, coffee and tea are provided at no extra cost.




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Soup
Bar.    The soup bar contains a selection of five to six soups made fresh daily, featuring three regular offerings of chicken noodle soup, clam chowder and chili. The Company seeks to offer only the highest quality soups. In
making one of its most popular dishes, chicken noodle soup, the Company cooks its own chicken broilers, selecting only the white meat for use in the soup and using some of the remaining portion to create a natural broth. The Company offers
additional soups that are selected from the Companys soup recipes, including the following:





Albondigas Buenas Soup Butternut Squash Soup Chesapeake Corn Chowder Chunky Potato Cheese Soup Country Corn & Red Potato Chowder Cream of Asparagus Soup Cream of Broccoli Soup Cream of Mushroom Soup French
Onion Soup Green Chile Stew Irish Potato Leek Soup Minestrone Soup Navy Bean Soup New
England Clam Chowder with Bacon Old Fashioned Vegetable Soup Posole


Santa Fe Black Bean Chile Shrimp Bisque
Southwest Tomato Cream Soup Spicy 4Bean Minestrone Split Pea Soup with Ham Sweet Tomato Onion Soup Texas
Red Chili Tomato Parmesan & Vegetable Tortilla Soup Turkey Cassoulet Turkey Noodle Soup Turkey Vegetable Soup Tuscany Chicken Stew Vegetable Beef Stew Vegetable Medley Soup Vegetarian Harvest Soup





Pasta
Bar.    At the pasta bar, guests can select from three hot pasta dishes that are made fresh every 2030 minutes. Pasta is prepared exhibition style to order at the pasta station and served in individual servings to
ensure that both the pasta and the sauce remain hot. The Companys pasta sauce recipes include the following:





Bruschetta Carbonara Chipotle Chicken with Cilantro Creamy Bruschetta Creamy Herb Chicken Creamy Pepper Jack Fettuccine
Alfredo Garden Vegetable with Italian Sausage Garden Vegetable with Meatballs Italian Sausage with Red Pepper Puree

Italian Vegetable Beef Jalapeño Salsa Macaroni & Cheese Nutty Mushroom Pasta Florentine Smoked Salmon & Dill Vegetarian
Marinara with Basil Vegetable Ragu Walnut Pesto




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Baked
Goods.    Each day, the bakery bar offers three different muffins, two varieties of fresh dough pizza focaccias and a variety of freshly baked breads. In addition, the Company offers baked potatoes and assorted toppings. All
muffins and other baked goods are baked on site and replenished frequently to ensure warmth and freshness. The Companys recipes include the following:





Apple Cinnamon Bran Muffin Apple Raisin Muffin Apricot Nut Muffin Banana Nut Muffin Buttermilk Corn Bread Caribbean Key Lime Carrot
Pineapple Muffin with Oat Bran Cherry Nut Muffin Chile Corn Muffin Chocolate Brownie Muffin Chocolate Chip Mandarin Muffin Chocolate Chip Muffin Country Blackberry Cranberry
Orange Bran Muffin Fruit Medley Bran Muffin Garlic Parmesan Focaccia Muffin Georgia Peach Poppyseed Muffin

Indian Grain Bread Lemon Muffin Mandarin Almond with Oat Bran Maple Walnut Nutty Peanut Butter Muffin Paulines Apple Cake Peanut Butter Chocolate
Chip Muffin Pizza Focaccia Pumpkin Raisin Muffin Roasted Potato Focaccia Sourdough Bread Strawberry Buttermilk Muffin Sweet Orange & Cranberry Taffy Apple Tomatillo Focaccia Wild Maine Blueberry Muffin Zucchini Nut Muffin





Desserts.    Each restaurant offers several varieties of fresh fruit and other dessert items. The most popular dessert offering is frozen yogurt. At the
yogurt bar, guests have the choice of two varieties of frozen yogurt and assorted toppings (such as cookie crumbs, granola, sprinkles, peanuts and chocolate sauce).





Restaurant Operations





Cost Management Focus.    The Company is committed to cost management without degrading either quality of food or service. To accomplish this, the
Company has developed a proprietary management information system which, in conjunction with several other cost related programs, allows the Company to provide a cost structure that the Company believes is superior to any casual or buffet style
restaurant.





Computer Information
System.    The core component of the Companys cost management program is the Companys computer information system. The Company has developed a proprietary computer accounting and management information system that
is fully integrated throughout the Company, including in each restaurant. The Company believes that, as compared to offtheshelf software applications, this system provides significantly greater access to restaurant operating data and a
much shorter management reaction time. The system is used as a critical planning tool by corporate and restaurant managers in four primary areas: production, labor, food cost and financial and accounting controls. The system generates forecasts of
estimated guest volumes and other predictive data, which assist restaurant managers in developing automated production reports that detail the daily quantity and timing of batch production of various menu offerings and food preparation requirements.
The computerized system also acts as a scheduling tool for the general managers, producing automated daily labor reports outlining the restaurants staffing needs based on changing trends and guest volume forecasts. Corporate management,
through daily information updates, has complete access to restaurant data and can react quickly to changing trends. The Company can quickly analyze the cost of its menu and make corporatewide menu adjustments to minimize the impact of shifting
food prices and food waste. Weekly computergenerated profit and loss statements and monthly accounting departmentgenerated profit and loss statements are reviewed at the corporate, regional and restaurant management levels.





Because of the Companys growth and additional needs in the areas of
distribution, construction and regional management reporting, the component of the system that provides the Companys formal accounting reports is in the process of being replaced with a commercial software package. The Company has selected a




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package and implementation began during the Companys fiscal 2001 second quarter. The Company expects to complete the system conversion and begin live transaction processing during the
second quarter of fiscal 2002.





Food
Purchasing.    Most food items are contracted on a centralized basis in an effort to achieve uniform quality, adequate supplies and competitive prices. The Companys food purchasing programs are designed to assist the
Company in minimizing food costs through vendor discounts based upon volume purchases. In order to minimize price fluctuations, to the extent practical, the Company enters into fixed price supply contracts that typically have terms of two months to
one year and generally do not have minimum purchase requirements. The Companys regional distributors deliver produce and groceries to the individual restaurants and central kitchen restaurants approximately three to five times a week. At each
restaurant, the production assistant manager is responsible for ensuring that all deliveries meet the Companys guidelines regarding freshness and quality.





Food Management System.    In fiscal 2001 the entire food distribution plan was combined by the Company in
order to place increased emphasis on food quality and costs as well as provide a higher focus on safety and sanitation. Additionally, the Company believes that by removing the food distribution process from operations management that it can provide
a higher degree of attention to total guest experience within the restaurant.





Central Kitchens.    In twenty-one geographic areas covering 90% of the Companys business, the Company uses central kitchens to prepare certain
menu offerings on a more efficient scale. Primarily located in existing restaurants, the kitchens use food preparation processes identical to those used in the restaurants. Each central kitchen generally services between two and ten restaurants.
Items prepared in the central kitchen are delivered daily to the Companys local restaurants. On average, the central kitchens combined account for approximately 50% of the Companys total food cost. The Company believes that, where
economically feasible, the use of central kitchens assists the Company in providing consistently high quality, great tasting food, enhances the freshness of certain menu offerings and allows the restaurant managers to devote more time and attention
to guests without significant additional operating costs.





Distribution Center.    The Companys food and supplies costs are heavily dependent upon the results of operation and efficiency of the
Companys delivery and distribution centers, which began operations on April 1, 2000 on the West Coast and on November 1, 2001 on the East Coast. The decision by the officers and Board of Directors to operate an internal distribution system was
initially based on the expiration of the previous West Coast distribution vendors contract on March 31, 2000, coupled with the potential control and longterm cost savings over other distribution alternatives in this area of the business.
Increasing costs for utilities and fuel along with increasing hourly wage rates could adversely affect the distribution centers ability to deliver groceries at favorable costs in the future.





Food Preparation and Quality Control.    The Company is committed to using
fresh produce and high quality groceries in its menu offerings. The kitchen and central kitchen staff prepare food items from scratch daily. Menu offerings are closely monitored on the food bars and frequently replenished to assure constant food
freshness. Items that are highly sensitive to freshness, such as tossed salads, muffins, pizza focaccias, and prepared pastas are made onsite in small batches throughout the day in order to maintain a high level of freshness and great taste.
The Company has developed a wide assortment of recipes that are used in each restaurant and central kitchen in an effort to achieve consistently high quality. The Companys food development effort focuses on the creation of new recipes within
existing food product categories. The Companys computer system assists the restaurant managers in monitoring quality control without raising costs by providing a detailed analysis of the raw materials used in the creation of each finished
product.





Customer Service.    One of
the Companys fundamental strategies is to develop a strong core of loyal, high frequency guests, in part by providing a level of customer service not typically associated with a buffet style restaurant. The Company seeks to attract and retain
friendly, customeroriented employees. Employees are present at the food bars and in the dining room to replenish food offerings, answer questions and assist guests in serving themselves. The Company devotes substantial attention and resources
to maintaining cleanliness and fresh presentation of the salad and other food bars in order to enhance the visual appeal of the menu offerings.




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The Company actively solicits
guest input through the use of comment cards and other survey instruments. The Company and management attempt to respond in writing or verbally to all guest suggestions and complaints. Restaurant managers evaluate their respective restaurants
approximately four times per day for compliance with Company standards. In addition, the Company conducts inhouse market research through exit interviews and guest focus groups on an ongoing basis in order to be responsive to changes in guest
tastes and expectations. Each restaurant receives independent evaluations of product quality, cleanliness and service from secret shoppers approximately twice a month, as well as a technical evaluation by a director of operations or a training store
general manager once a month to ensure strict adherence to the Companys standards for food quality, service and cleanliness. The results of these independent evaluations are taken into consideration in determining each restaurant
managers monthly bonus.





Restaurant
Management.    The Company seeks to attract and retain friendly, guestoriented employees for its restaurant management positions. Upon joining the Company and before assuming management responsibility, each restaurant
management employee completes the Companys basic management skills program in a training restaurant. The Company also certifies restaurant management employees for participation in ongoing management training programs that focus on leadership,
team building, technical skills, harassment, prevention and awareness, performance reviews, interviewing and other management skills.





General managers are responsible for managing their respective restaurants and reporting to the director of operations. Most directors of operations are responsible for five to
eight restaurants. The management staff of a typical Souplantation/Sweet Tomatoes restaurant consists of one general manager, one production manager, one service manager and several other key employees. The Company recruits most of its management
team (production manager & service manager) from outside the Company, the majority of whom have prior restaurant management experience. Most of the Companys general managers, however, have been promoted from internal management positions.
The general manager of each restaurant is principally responsible for the daytoday operation and profitability of the restaurant. The Company grants monthly bonuses to restaurant managers based on restaurant financial performance and
quality, service and cleanliness scores. As an additional incentive, general managers are eligible for stock options.





Marketing and Promotion





The Companys
marketing efforts seek to develop loyal guests for repeat business, attract new guests and create awareness of existing and new restaurants. Because the Company believes strong execution is the most effective form of marketing, it continues to
execute a zerodefect program in its restaurants on certain popular food offerings in an effort to provide consistently high quality products. The zerodefect program establishes highly detailed procedures
describing the precise methods under which these certain popular food offerings are prepared, presented and replenished.





A significant portion of the Companys external marketing effort consists of attracting new guests through the use of freestanding inserts (FSIs). FSIs contain
descriptive information regarding the restaurants, as well as in some cases, discount coupons. FSIs are distributed by direct mail and through newspapers. In addition, the Company has a BusinesstoBusiness program under which
it mails discount cards to local businesses for distribution to their employees. The discount cards entitle the employees to a certain price discount on each repeat visit during a specified period.





In markets in which the Company has sufficient penetration, the Company uses radio advertising to
stimulate demand. In fiscal 2001, the Company used radio advertising in its San Diego, Tampa Bay, Phoenix, Denver, Los Angeles, Portland, and Southeast Florida markets. During fiscal 2001, the Company implemented a television campaign in the San
Diego region.





In addition, the restaurants often cosponsor
fundraising events in the restaurants for local charitable and other community organizations. For each new restaurant, the Company conducts a preopening awareness program beginning approximately two to three weeks prior to, and ending
four to six weeks after, the opening of the restaurant. The program typically includes special promotions, site signs and sponsorship of a fundraising




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event for a local charity to establish ties to local community leaders and increase awareness of the new restaurant, and preopening trial operations, to which the family and friends of new
employees are invited.





In fiscal 2001, marketing and promotion
expenses constituted approximately 3.1% of net sales.





Restaurant Facilities





Design.    Each Souplantation/Sweet Tomatoes restaurant generally has a
similar appearance. The Company currently uses a standardized design in constructing restaurants, with modifications for each particular site. The design and layout of the restaurants are intended to emphasize the fresh, great tasting salads and
other complementary menu offerings and promote a casual, comfortable and inviting atmosphere. The centerpiece of the restaurants are the two approximately 55foot long salad bars located near the entrance of the restaurants. An aisle between
the two salad bars allows employees easy access for replenishment of fresh food items, preparation of specialty tossed salads and ongoing cleanup without disturbing guests. The remainder of the menu offerings are presented in a scatter bar
format designed to accommodate a high volume of traffic while providing guests with unlimited and convenient access to the food items. The dining area, which seats approximately 220 guests, provides a warm, comfortable atmosphere that creates a
relaxed dining environment similar to many casual family restaurants. The Companys existing restaurants average approximately 7,400 square feet (including the dining area, kitchen and food preparation and storage areas).




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Location.    The following is a list of the Companys current salad buffet restaurants and their locations by region:





Month Opened

Approximate Square Footage(1)Region:

Southern California(2)Irvine

October 2001


7,500Northridge

September 2001


7,400City of Industry

April 2001


7,180Vista (San Diego)

August 2000


7,400Camarillo

July 2000


7,240Temecula

June 2000


7,240Kearny Mesa (San Diego)

October 1999


8,500Del Mar (San Diego)

September 1993


6,760Laguna Niguel

July 1993


6,800Rancho Bernardo (San Diego)

January 1993


6,760San Bernardino

May 1992


6,500Fountain Valley

January 1990


7,500Brentwood (Los Angeles)

January 1990


6,580Beverly (Los Angeles)

September 1989


8,100Alhambra

September 1989


7,500Marina del Rey

June 1989


8,490Costa Mesa

May 1989


10,140
(3)Rancho Cucamonga

April 1989


7,630Brea

October 1988


7,630Arcadia

October 1988


7,500Torrance

July 1988


8,080Mira Mesa (San Diego)

February 1988


8,210Pasadena

November 1987


7,940Carlsbad

July 1987


8,210Lakewood

July 1987


8,210Garden Grove

December 1986


8,210Tustin

August 1986


7,470La Mesa

February 1986


8,420
(3)Point Loma (San Diego)

January 1982


7,000Mission Gorge (San Diego)

March 1978


7,570Region:

Northern CaliforniaSan Jose

December 2000


11,870
(3)Pleasant Hill

June 2000


8,400N. Fresno Street (Fresno)

October 1993


6,760Fremont

February 1993


6,860Shaw Avenue (Fresno)

September 1990


6,760Sunnyvale

May 1990


7,500Pleasanton

March 1990


7,910




12


---

Month Opened

Approximate Square Footage(1)Region:

FloridaBoca Raton

May 2000


10,410
(3)Pembroke Pines

April 2000


7,740Jacksonville

November 1999


7,240Orlando I

October 1999


6,472Orlando II

October 1999


7,700Orange Park (Jacksonville)

March 1999


7,240
(3)Coral Springs

December 1997


7,240Fort Lauderdale

September 1997


7,960Hollywood

August 1997


8,000Altamonte Springs (Orlando)

February 1997


8,740
(3)Fort Myers

January 1997


7,240Sarasota

July 1996


8,500
(3)Plantation

April 1996


8,030Brandon (Tampa)

August 1995


8,110Tampa

July 1995


8,500Carrollwood (Tampa)

June 1993


7,020Largo (Tampa)

September 1992


6,800Palm Harbor (Tampa)

January 1990


8,000
(3)Region:

ArizonaMetro Center (Phoenix)

May 2001


7,180Tucson II

November 1996


6,960Ahwatukee (Phoenix)

July 1996


6,960Peoria (Phoenix)

June 1996


6,460Phoenix

May 1996


6,940Tucson I

May 1996


7,420
(3)Tempe (Phoenix)

February 1995


6,320Scottsdale (Phoenix)

February 1994


9,000
(3)Region:

New MexicoCottonwood Mall (Albuquerque)

October 1996


6,300San Mateo Avenue (Albuquerque)

September 1996


7,240
(3)Region:

UtahCentennial (Salt Lake City)

November 1997


7,450Overlook (Salt Lake City)

September 1997


9,000
(3)Region:

ColoradoLone Tree (Denver)

April 2000


9,000Littleton (Denver)

September 1999


7,700Westminster (Denver)

August 1999


8,900
(3)Aurora (Denver)

July 1999


7,000Region:

North CarolinaCary

July 2000


7,500Raleigh

March 1999


8,080
(3)Region:

NevadaHenderson

July 1999


6,920Las Vegas

February 1998


7,240
(3)Region:

GeorgiaAlpharetta

June 1999


7,240Perimeter (Atlanta)

September 1998


8,900
(3)Gwinnett (Atlanta)

August 1998


7,240Barrett (Atlanta)

July 1998


7,240




13


---

Month Opened

Approximate Square Footage(1)Region:

TexasWoodlands

September 2000


7,700Stafford I

February 2000


7,700Houston II

March 1999


7,240Brogden (Houston)

August 1998


8,900
(3)Region:

Pacific NorthwestTigard (Oregon)

May 2000


7,000Clackamas (Oregon)

August 1999


8,080Beaverton (Oregon)

December 1998


7,240Vancouver (Washington)

July 1998


8,000
(3)Region:

Mid-WestCrestwood

April 2001


9,570
(3)Creve Couer

December 2000


7,286Overland Park (Kansas)

June 2000


7,300Kansas City

April 2000


8,900
(3)Region:

Illinois (4)St. Charles (Chicago)

February 2001


7,300Glenview (Chicago)

February 2001


7,360Schaumburg

September 2001


7,300





The restaurants
listed below are under development and have been purchased or have lease or purchase contracts signed:





Approximate  Square  Footage(1)Region:

IllinoisWheaton


7,025Region:

CaliforniaAnaheim


7,500Fullerton


7,480Lake Forest


7,500Valencia


7,400


---

|(1) |  | Excludes outdoor patio space, but includes dining area, kitchen and food preparation and storage areas.
|--- |  | -------------------------------------------------------------------------------------------------------

|(2) |  | Does not include Ladles, which opened in fiscal 1999, or Slurp!, which opened in fiscal 2001. Both Ladles and Slurp! are located in San Diego, California.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Includes central kitchen.
|--- |  | -------------------------

|(4) |  | Central kitchen for this region is a stand-alone building located in Elk Grove, IL, which opened in February, 2001.
|--- |  | -------------------------------------------------------------------------------------------------------------------



14


---




The following Ladles and Slurp!
restaurant locations are open and have lease contracts signed:





Month  Opened


Approximate  Square  FootageRegion:

CaliforniaEncinitas (San Diego)

July 1999


1,200Mission Valley (San Diego)

June 2001


2,000





As mentioned
earlier, the Company plans to close both Ladles and Slurp! during the first half of fiscal 2002.





Site Selection and
Construction





The Companys site selection strategy is to
open economically viable restaurants that achieve an appropriate balance between lunch and dinner guest volumes in each of its target markets. The Company considers the location of each restaurant to be critical to its longterm success and
management devotes significant effort to the investigation and evaluation of potential sites. The site selection process focuses on regional and trade area demographics, population density, household income and education levels, daytime
traffic patterns, as well as specific site characteristics such as visibility, accessibility, traffic volume and the availability of adequate parking.





The Company also reviews potential competition and customer activity at other restaurants operating in the area. To date, the Company has located a majority
of its restaurants in strip shopping centers and neighborhood shopping centers located near business districts.





The Company generally engages outside general contractors for the required construction or buildout of restaurant sites and expects to continue this practice for the
foreseeable future. The Companys experience to date has been that obtaining construction permits has taken from two to nine months. The interior buildout of inline restaurants and the construction of freestanding restaurants
generally takes approximately four months and five months, respectively.





The Company may experience delays in opening new restaurants or may not be able to open new restaurants as a result of a variety of factors including the Companys ability to
locate suitable restaurant sites, construct new restaurants in a timely manner and obtain additional funds. See Managements Discussion and Analysis of Financial Condition and Results of Operations and Business
RisksExpansion Risks.





Competition





The restaurant industry is highly competitive. Key competitive factors in the industry include the quality and value of the food products
offered, quality of service, price, dining experience, restaurant location and the ambiance of the facilities. The Companys primary competitors include midprice, fullservice casual dining restaurants, as well as traditional
selfservice buffet and other soup and salad restaurants and healthful and nutritionoriented restaurants. The Company competes with national and regional chains, as well as individually owned restaurants. The number of buffet and casual
restaurants with operations generally similar to the Companys has grown substantially in the last several years and the Company believes competition among buffetstyle and casual restaurants has increased and will continue to increase as
the Companys competitors expand operations in various geographic areas. Such increased competition could increase the Companys operating costs or adversely affect its revenues. The Company believes it competes favorably in the industry,
although many of the Companys competitors have been in existence longer than the Company and have both a more established market presence and substantially greater financial, marketing and other resources than the Company, which may give them
certain competitive advantages. In addition, the restaurant industry has few noneconomic barriers to entry. Therefore, there can be no assurance that third parties will not be able to successfully imitate and implement the Companys
concept. The Company has encountered intense competition




15


---

for restaurant sites, and in many cases has had difficulty buying or leasing desirable sites on terms that are acceptable to the Company. In many cases, the Companys competitors are willing
and able to pay more than the Company for sites. The Company expects these difficulties in obtaining desirable sites to continue for the foreseeable future.





Government Regulation





The
Companys business is subject to and affected by various federal, state and local laws. Each restaurant must comply with state, county and municipal licensing and regulation requirements relating to health, safety, sanitation, building
construction and fire prevention. The Companys restaurants are subject to federal and state laws governing wages, working conditions, citizenship requirements and overtime. Congress and various states (including California) passed proposals
that imposed increases in state or federal minimum wages in 1996, 1997, 1998, 2000, and 2001. There is no assurance that the Company will be able to continue to pass such increased costs on to its guests. The Company is subject to the Americans with
Disabilities Act of 1990, which requires certain accommodations to the Companys restaurant designs to allow access for people with disabilities. In addition, the Company is subject to the regulations of the Immigration and Naturalization
Service (INS). Given that many of the Companys restaurants are located in California and Arizona, even if the Companys operation of those restaurants is in strict compliance with INS requirements, the Companys employees
may not all meet federal citizenship or residency requirements, which could lead to disruptions in its work force. Additionally, legislative proposals are currently under consideration by Congress and state legislators to require employers to pay
for health insurance for all employees. See Managements Discussion and Analysis of Financial Condition and Results of Operations and Business RisksCost Sensitivity.





Insurance





The Company carries property, liability, business interruption, crime, employee benefits, earthquake, directors and officers liability and workers compensation insurance
policies. However, there can be no assurance that the Companys insurance coverage will be adequate or that insurance will continue to be available to the Company at reasonable rates, if at all. In the event coverage is inadequate or becomes
unavailable, the Company could be materially adversely affected.





Trade Names and Service Marks





The Company and its predecessor have used the trademarks and service marks
Souplantation since 1978 and Sweet Tomatoes since 1990. The Souplantation trademark is used in the Southern California market, while the Sweet Tomatoes trademark is used in the Northern California, Florida, Arizona, New Mexico, Utah, Colorado, North
Carolina, Nevada, Georgia, Texas, Washington, Oregon, Kansas, Missouri and Illinois markets. The Company registered both Souplantation and Sweet Tomatoes trademarks, as well as the Garden Fresh Restaurant Corp. trademark, with the United States
Patent and Trademark Office. The Company has also used the trademark and service marks Ladles, A Soup and Salad Takery since July 1999 and Slurp! The Soup Experience since June 2001 in the California market.





Property





The Company currently leases 72 and owns 24 open restaurant sites, including one Ladles and one Slurp! site. The majority of the Companys leases provides for minimum annual
rentals and contains percentageofsales rent provisions against which the minimum rent is applied. A significant majority of the leases also provide for periodic escalation of minimum annual rent based upon increases in the Consumer Price
Index. Typically, the Companys leases are 20 years in length with two 10year extension options. Restaurants leased by the Company are generally leased under triple net leases that require the Company to pay real estate taxes,
insurance and maintenance expenses. The Companys executive offices, a test kitchen and a training facility are located in an approximately 11,000 square foot leased facility near one of the Companys restaurants in San Diego, California




16


---

under a lease expiring in July 2002. The Company has signed a lease for an approximately 30,000 square foot office facility located in San Diego, California and expects to move during the second
half of fiscal 2002. The West Coast distribution center is located in an approximately 30,000 square foot leased facility in San Diego, California under a lease expiring in March 2005, while the East Coast distribution center occupies an
approximately 32,000 square food facility under a lease expiring in June, 2008.





Employees





As of September 30, 2001, the Company had approximately 5,600 employees including
5,000 hourly restaurant employees (of whom 4,200 were parttime employees), 500 fulltime restaurant management employees and 119 fulltime corporate management and staff employees and 5 parttime corporate employees. None of the
Companys employees are represented by a labor union. The Company believes that its relationship with its employees is good.





Executive Officers of the Company





The executive
officers of the Company as of September 30, 2001 are as follows:





Name

Age

PositionMichael P. Mack


50


Chairman of the Board, President and Chief Executive      OfficerDavid W. Qualls


56


Executive Vice PresidentFinance and Real Estate, Chief      Financial
Officer and SecretaryR.Gregory Keller


53


Senior Vice President of OperationsKenneth J. Keane


46


Vice President Human Resources





Michael P.
Mack cofounded the Company in 1983 and was the President and Chief Operating Officer from the Companys inception until April 1991 and the Chief Executive Officer from September 1990 to April 1991. Mr. Mack assumed the role of
Chairman of the Board of Directors in December 1997. Mr. Mack has also been a director of the Company since its inception. Since February 1994, Mr. Mack has been the Companys President and Chief Executive Officer. From April 1991 to February
1994, Mr. Mack served as the President of MPM Management, Inc., a consulting firm. Prior to joining the Company, from 1977 to 1983, Mr. Mack worked for Bain & Company, a management consulting firm, where he specialized in the development and
implementation of business strategies. Mr. Mack received a B.A. from Brown University and a M.B.A. from Harvard University.





David W. Qualls joined the Company in November 1985 as Chief Financial Officer and Secretary. Since 1990, Mr. Qualls has also served as the Companys Executive Vice
President in charge of Finance and Real Estate. From 1982 to 1985, Mr. Qualls served as Vice President of Finance and Administration and Chief Financial Officer of Diatek, Inc., a medical electronics company. Mr. Qualls received a B.A. from
California State University at Fresno and a M.B.A. from the University of Virginia.





R. Gregory Keller joined the Company in June 1991 as Vice President of Operations. From January 1991 to June 1991 prior to joining the Company, Mr. Keller served as a
consultant to the Company. From June 1990 to January 1991, Mr. Keller served as an independent consultant. From June 1971 to June 1990, Mr. Keller served as a divisional Vice President of Operations of Paragon, Inc., a restaurant company, where he
managed operations for 33 restaurants. Mr. Keller received a B.S. from Northern Illinois University.





Kenneth J. Keane is currently Vice President of Human Resources. Mr. Keane joined the Company in 1986 as a restaurant manager. During his employment with the Company he has
served as Director of Operations, Director of Training and Executive Director of Human Resources. Prior to joining the Company, Mr. Keane worked in restaurant management for ten years. Mr. Keane received a certificate in Human Resources from San
Diego State University in 1996.




17


---




Item 2.    
Properties





The Company currently
operates 94 salad buffet restaurants in California, Florida, Arizona, Colorado, Georgia, Illinois, Kansas, Missouri, Nevada, New Mexico, North Carolina, Oregon, Texas, Utah and Washington. One restaurant has opened in fiscal 2002. Nine restaurants
have opened and one reopened in fiscal 2001, seventeen restaurants were opened in fiscal 2000, ten restaurants were opened in fiscal 1999, eight restaurants were opened in fiscal 1998, and seven restaurants were opened in fiscal 1997. Additionally
one Slurp! Restaurant was opened in fiscal 2001, one Ladles restaurant was opened in fiscal 1999 and one additional Ladles restaurant was opened and closed in fiscal 2000. The Company currently leases the sites for most of its restaurants, mixed
between standalone sites and inline locations. The Company operates 75 freestanding restaurants and 19 restaurants located within larger buildings. The Company leases both of its distribution centers located in San Diego, California and
Kennesaw, Georgia. The Company owns nine properties located in Florida, two in Arizona, two in New Mexico, one in Utah, two in Colorado, one in North Carolina, one in California, three in Georgia, one in Illinois and one in Missouri. Current
restaurant ground and building leases vary as to rental provisions, expiration dates and renewal options. The majority of the leases provides for minimum annual rentals and contain percentageofsales rent provisions against which the
minimum rental is applied. A significant majority of the leases also provide for periodic escalation of minimum annual rentals based upon increases in the Consumer Price Index. Typically, the Companys leases are 20 years in length with two
10year extension options. Restaurants leased by the Company are typically leased under triple net leases that require the Company to pay real estate taxes, insurance and maintenance expenses. In the future the Company expects to
continue to both lease and purchase its sites. The Companys executive offices, a test kitchen and a training facility are located in an approximately 11,000 square foot leased facility near one of the Companys restaurants in San Diego,
California under a lease expiring in July 2002. The Company has signed a lease for an approximately 30,000 square foot office facility located in San Diego, California.





During fiscal 1999 the Company opened its first location of Ladles, A Soup and Salad and Takery in San Diego, California. The
Company opened and closed a second Ladles, A Soup and Salad Takery in fiscal 2000. In June 2001 the Company opened the first SLURP! The Soup Experience, a new concept in quick service, take-away dining. Located in San Diego,
California, SLURP! was designed to fit into guests busy schedules, offering soup and other to-go items in a high energy, irreverent atmosphere. In September 2001 the Company decided to abandon the Ladles and Slurp! concepts due to poor
operating performance. The Company plans to close the restaurants during the first half of fiscal 2002. The Company still plans to keep elements of the products developed for Slurp! for use in its core concept.





For additional information regarding the Companys properties, please see the information set forth
in Item 1 of this Report under the caption Restaurant Facilities.





Item 3.    
Legal Proceedings





The Company is from
time to time the subject of complaints, threat letters or litigation from guests alleging illness, injuries or other food quality, health or operational concerns. Adverse publicity resulting from such allegations may materially adversely affect the
Company and its restaurants, regardless of whether such allegations are valid or whether the Company is liable. The Company also is the subject of complaints or allegations from former or prospective employees from time to time. The Company believes
that the lawsuits, claims and other legal matters to which it has become subject in the course of its business are not material to the Companys financial position or results of operations. Nevertheless, an existing or future lawsuit or claim
could result in an adverse decision against the Company that could adversely affect the Company or its business. See Managements Discussion and Analysis of Financial Condition and Results of Operations and Business
Risks-Legal Matters.





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





No matters were submitted to a vote of security holders during the fourth quarter of fiscal year 2001.




18


---




PART II





|Item |  | 5.    
Market for Companys Common Equity and Related Stockholder Matters
|---- |  | -------------------------------------------------------------------------




Garden Fresh Restaurant Corp. Common Stock (Symbol: LTUS) is traded over the counter via Nasdaq National Market. As of September 30, 2001, 5,675,826 shares were owned by 326
shareholders of record. The following is a summary of market activity for the fiscal years 2000 and 2001.





High

Low2000First Quarter

$17.63

$12.38Second Quarter

17.50

10.75Third Quarter

12.13

10.44Fourth Quarter

14.75

9.88High

Low2001First Quarter

$11.00

$   6.19Second Quarter

7.94

5.88Third Quarter

10.00

6.00Fourth Quarter

7.50

5.89





Garden Fresh
Restaurant Corp. completed its initial public offering (IPO) on May 16, 1995 at a price of $9.00 per share.





In May 1998, the Company completed a secondary public offering at a price of $17.19 per share.





To date, the Company has not paid any cash dividends. The Company intends to retain future earnings for use in its business and does not
anticipate paying cash dividends in the foreseeable future.




19


---




Item 6.    
Selected Financial Data





Years ended September 30,1997

1998

1999

2000

2001(In thousands, except per share and operating data)Statement of Operations Data:Net sales

$90,252


$110,049


$131,944


$165,406


$198,463Costs and expenses:Costs of sales

23,497


28,605


33,840


41,632


49,447Restaurant operating expenses:Labor

26,130


32,526


39,995


52,349


64,420Occupancy and other expenses

20,836


24,290


27,312


35,140


47,210General and administrative expenses

5,672


6,781


8,214


10,280


13,538Restaurant opening costs










2,750


1,952Depreciation and amortization expenses

6,147


7,267


9,441


9,719


12,503Facility exit costs










473


1,572Total costs and expenses

82,282


99,469


118,802


152,343


190,642Operating income

7,970


10,580


13,142


13,063


7,821Interest income

106


227


111


148


160Interest expense

(1,579
)

(1,958
)

(1,618
)

(3,623
)

(4,876
)Other income (expense), net

(62
)

(111
)

(183
)

(65
)

804Income before income taxes and cumulative effect of accounting change

6,435


8,738


11,452


9,523


3,909Provision for income taxes

(2,548
)

(3,420
)

(4,548
)

(3,747
)

(1,547
)Income before cumulative effect of accounting change

3,887


5,318


6,904


5,776


2,362Cumulative effect of accounting change for startup costs, net of income tax     benefit of
$800 in 2000










(1,233
)

Net income

$  3,887


$    5,318


$    6,904


$    4,543


$    2,362Basic net income per common share:Income before cumulative effect of accounting change

$    0.93


$      1.12


$      1.24


$      1.02


$      0.42Cumulative effect of change in accounting for startup costs










(0.22
)

Basic net income per common share

$    0.93


$      1.12


$      1.24


$      0.80


$      0.42Shares used in computing basic net income per common share

4,192


4,734


5,574


5,647


5,670Diluted net income per common share:Income before cumulative effect of accounting change

$    0.88


$      1.04


$      1.18


$      1.00


$      0.42Cumulative effect of change in accounting for startup costs










(0.21
)

Diluted net income per common share

$    0.88


$      1.04


$      1.18


$      0.79


$      0.42Shares used in computing diluted net income per share

4,402


5,089


5,867


5,780


5,682Selected Operating Data:Percentage change in comparable restaurant sales(1)

4.7
%

7.5
%

3.7
%

3.1
%

3.3
%Average price per guest(2)

$    6.75


$      6.94


$      7.01


$      7.22


$      7.51Average sales for salad buffet restaurants open for full period (in thousands)

$  1,985


$    2,098


$    2,156


$    2,206


$    2,237Number of salad buffet restaurants open for full period

42


49


57


66


83Number of salad buffet restaurants open at end of period

49


57


67


83


93




20


---




As of September 30,1997

1998

1999

2000

2001Balance Sheet Data:Working capital (deficit)

$  (7,776
)

$  (7,071
)

$  (11,300
)

$  (29,075
)

$  (25,144
)Total assets

62,409


84,932


114,618


147,188


157,896Longterm debt, including current portion

17,421


14,866


29,197


39,554


48,103Revolving line of credit







5,001


12,000


9,150Shareholders equity

34,168


59,247


66,849


71,671


74,180


---

|(1) |  | Comparable restaurant sales are computed on a monthly basis and then aggregated to determine comparable restaurant sales on a quarterly or annual basis. A restaurant is
included in this computation after it has been open for 15 full calendar months. As a result, a restaurant may be included in this computation for only a portion of a given quarter or year.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Average price per guest is derived from the Companys net sales, which reflects discounts and coupons.
|--- |  | ------------------------------------------------------------------------------------------------------




Operating Results





The following table sets forth the percentage of net sales of certain items included in the Companys statements of operations for the periods indicated.





Years ended September 30,1999

2000

2001Statement of Operations Data:Net sales

100.0
%

100.0
%

100.0
%Costs and expenses:Costs of sales

25.6


25.2


24.9Restaurant operating expenses:Labor

30.3


31.6


32.5Occupancy
and other expenses

20.7


21.2


23.7General and administrative expenses

6.2


6.2


6.8Restaurant opening costs




1.7


1.0Depreciation and amortization expenses

7.2


5.9


6.3Facility exit costs




0.3


0.8Total costs and
expenses

90.0


92.1


96.0Operating income

10.0


7.9


4.0Interest income




0.1


0.1Interest expense

(1.2
)

(2.2
)

(2.5
)Other income (expense), net

(0.1
)




0.4Income before provision for income taxes and cumulative effect of accounting change

8.7


5.8


2.0Provision for income taxes

(3.5
)

(2.3
)

(0.8
)Income before cumulative effect of accounting change

5.2


3.5


1.2Cumulative effect of change in accounting principle




(0.7
)

Net income

5.2
%

2.7
%

1.2
%




21


---




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





The statements contained in this Form 10-Q that are not purely historical are
forward looking statements, including statements regarding the Companys expectations, hopes, beliefs, intentions or strategies regarding the future. Statements which use words such as expects, will, may,
could, anticipates, believes, intends, attempts, and seeks are forward looking statements. These forward looking statements, including statements regarding the Companys
(i) plans to open new restaurants, (ii) plans to increase operational efficiency and improve labor utilization, (iii) budgeted capital expenditures for new restaurant openings and improvements at existing sites, (iv) timing for implementation of its
new accounting software program, (v) need to obtain additional financing, (vi) future restaurant sales, (vii) plans to close existing restaurants, and (viii) strategic marketing programs and effects of such programs are all based on information
available to the Company on the date hereof, and the Company assumes no obligation to update any such forward looking statements. It is important to note that the Companys actual results could differ materially from those in such
forward-looking statements. Among the factors that could cause actual results to differ materially are the factors set forth under the heading Managements Discussion and Analysis of Financial Condition and Results of
OperationsBusiness Risks. In particular, the Companys expansion efforts and plans to open new restaurants could be affected by the Companys ability to locate suitable restaurant sites, construct new restaurants in a timely
manner and obtain additional funds, while the Companys plans to increase operational efficiency could be affected by difficulties in assimilating new accounting software as well as escalating costs of both utilities and fuel, as well as
increased labor costs for the distribution centers.





The
following should be read in conjunction with the Selected Financial Data and the Companys financial statements and related notes thereto.





General





The Company has
grown from 2 restaurants in 1984 to 93 salad buffet restaurants as of September 30, 2001. Of the 93 restaurants, 29 are located in Southern California using the name Souplantation and the remaining are located in Northern California (7), Florida
(18), Arizona (8), New Mexico (2), Utah (2), Nevada (2), Washington (1), Georgia (4), Texas (4), North Carolina (2), Oregon (3), Colorado (4), Missouri (3) Kansas (1) and Illinois (3) using the name Sweet Tomatoes. The Companys existing
restaurants average approximately 7,400 square feet, however, newer restaurants are based on the Companys latest 7,240 sq. ft prototype. The Company currently leases the sites for most of its restaurants, mixed between in-line locations and
stand-alone sites, although the Company purchases sites when necessary to acquire desirable locations.





Net sales reflect discounts and coupons. Costs of sales consists primarily of food and beverage costs. Food costs can vary significantly depending upon pricing and availability of
produce and grocery items. The Company attempts to minimize cost fluctuations for some of its foods by entering into two month to one year fixed price supply contracts that typically have no minimum purchase requirements. Restaurant operating
expenses include all restaurant-level operating costs, the significant components of which are direct and indirect labor expenses (including benefits), advertising expenses, occupancy costs and maintenance and utility expenses. Occupancy and other
operating expenses include rent, real estate taxes and insurance. Certain elements of the Companys restaurant operating expenses and, in particular, occupancy costs, are relatively fixed. However, a significant majority of the Companys
leases provide for periodic escalation of minimum annual rentals based upon increases in the Consumer Price Index. Occupancy costs, as well as depreciation and amortization expenses, will vary between restaurants depending on whether a restaurant
site is leased or owned. See Business RisksCost Sensitivity and Business RisksReliance on Key Suppliers and Distributors.





Restaurant opening costs incurred in connection with opening new restaurant locations, including hiring, training and legal costs, are currently expensed as
incurred. Restaurant opening costs totaled $1,952,000 for the opening of nine new salad buffet restaurants opened, one Slurp! location, one distribution center and the re-opening of one existing salad buffet restaurant in the twelve month period
ended September 30, 2001.




22


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Fiscal 2001 Versus Fiscal 2000





Net Sales.    Net sales for the fiscal year ended September 30, 2001
increased 20.0% to $198.5 million from $165.4 million for the comparable 2000 period. This increase was primarily due to the opening of nine new salad buffet restaurants and the re-opening of one existing salad buffet restaurant since the comparable
2000 period and the increase in comparable restaurant sales of 3.3%. Net sales includes $0.6 million from the Ladles and Slurp! restaurants. See Business RisksCertain Operating Results and Considerations.





Costs of Sales.    Costs of sales increased 18.8% to $49.4
million for the fiscal year ended September 30, 2001 from $41.6 million for the comparable 2000 period. This increase was due primarily to the addition of nine new salad buffet restaurants and the re-opening of one existing salad buffet restaurant
since the comparable 2000 period. As a percentage of net sales, costs of sales decreased to 24.9% from 25.2% since the comparable 2000 period as a result of an increase in the average meal price across most markets effective July 2000. See
Business RisksCertain Operating Results and Considerations.





Labor.    Labor expense for the fiscal year ended September 30, 2001 increased 23.1% to $64.4 million from $52.3 million for the comparable 2000 period.
This increase was due primarily to an increase in the minimum wage rate in California and increases in staff in connection with the addition of nine new salad buffet restaurants and the re-opening of one existing salad buffet restaurant since the
comparable 2000 period. As a percentage of net sales, the labor expense increased to 32.5% from 31.6% in the comparable 2000 period due primarily to an increase in the employee hourly wage rates.





Occupancy and Other Expenses.    Occupancy and other expenses for the fiscal
year ended September 30, 2001 increased 34.5% to $47.2 million from $35.1 million for the comparable 2000 period. Occupancy and other expenses as a percentage of net sales increased to 23.7% from 21.2% for the comparable 2000 period. This increase
was due primarily to planned marketing expenses, higher utility costs in California and higher natural gas costs in our other markets, higher property and general liability insurance costs as a result of increased rate pressure throughout the
insurance industry, increases in base rent associated with sale-leasebacks, and increases in repair and maintenance costs for aging restaurants.





General and Administrative Expenses.    General and administrative expenses for the fiscal year ended September 30, 2001 increased
31.1% to $13.5 million from $10.3 million for the comparable 2000 period. These increases were primarily due to personnel costs, including planned increases to field supervision and human resources to support both the additional nine new salad
buffet restaurants opened and one existing salad buffet restaurant reopened since the comparable 2000 period and future restaurant openings. As a percentage of net sales, general and administrative expenses increased to 6.8% from 6.2% for the
comparable 2000 period.





Restaurant Opening
Costs.    Restaurant opening costs for the fiscal year ended September 30, 2001 decreased 28.6% to $2.0 million from $2.8 million from the 2000 period. Restaurant opening costs as a percentage of net sales decreased 0.7% to
1.0% from 1.7% for the comparable 2000 period. This decrease resulted from fewer new restaurant openings during fiscal 2001 compared to fiscal 2000. Nine salad buffet restaurants and one Slurp! restaurant were opened and one existing restaurant was
re-opened during fiscal 2001 compared to seventeen salad buffet restaurants opened during fiscal 2000.





Depreciation and Amortization Expense.    Depreciation and amortization expense for the fiscal year ended September 30, 2001 increased 28.9% to $12.5
million from $9.7 million for the comparable 2000 period. Depreciation and amortization expense as a percentage of net sales increased to 6.3% from 5.9% for the comparable 2000 period. These increases were due to additional depreciation for the nine
new salad buffet restaurants opened and one existing salad buffet restaurant re-opened since the comparable 2000 period, partially offset by decreased depreciation expense associated with the sale-leaseback of five restaurant locations during fiscal
2001.




23


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Facility Exit
Costs.    Facility exit costs for the fiscal year ended September 30, 2001 increased 220% to $1.6 million from $0.5 million for the comparable 2000 period. In September 2001, the Company decided to abandon the Ladles and
Slurp! concepts due to poor operating performance. The Company plans to close these restaurants during the first half of fiscal 2002. Facility exit costs for fiscal 2001 consist of impairment charges of $1,368,000 as well as an accrual of $204,000,
representing the present value of the estimated net future lease payments associated with these restaurants. Facility exist costs for fiscal 2000 consist of impairment charges of $375,000 as well as an accrual of $98,000 representing the present
value of the estimated net future lease payments associated with the closure of one Ladles restaurant.





Interest Expense.    Interest expense for the fiscal year ended September 30, 2001 increased 36.1% to $4.9 million from $3.6 million for the comparable
2000 period. Interest expense increased due primarily to an increase in borrowings in fiscal 2001 compared to fiscal 2000.





Other Income (Expense), net.    Other income and expense, net for the fiscal year ended September 30, 2001 increased to $804,000 from ($65,000) for the
comparable 2000 period. This increase was primarily due to the receipt of an insurance settlement of $1.3 million related to the loss of assets in a fire at a restaurant in San Diego, California.





Provision for Income Taxes.    Our provisional income tax rate as a
percentage of income before taxes increased slightly to 39.5% for fiscal 2001 from 39.3% in fiscal 2000.





Fiscal 2000 Versus
Fiscal 1999





Net Sales.    Net sales
for the fiscal year ended September 30, 2000 increased 25.4% to $165.4 million from $131.9 million for the comparable 1999 period. This was due primarily to (i) a 3.1% increase in comparable restaurant sales which resulted from an increase in guest
volume of 0.3% and 2.8% resulted from an increase in average meal price effective August 1, 1999 and (ii) the addition of seventeen new stores that opened in fiscal 2000. Net sales includes $0.8 million from the Ladles restaurants.





Costs of Sales.    Costs of sales increased 23.1% to
$41.6 million for the fiscal year ended September 30, 2000 from $33.8 million for the comparable 1999 period. This increase was due to an increase in guest volume. As a percentage of net sales, cost of sales decreased to 25.2% from 25.6% for the
comparable 1999 period, due to leveraged purchasing price variances across all regions and the utilization of our own delivery and distribution center for the West Coast restaurants beginning in April 2000.





Labor.    Labor expense for the fiscal year ended September 30, 2000
increased 30.8% to $52.3 million from $40.0 million for the comparable 1999 period. This increase was due primarily to an increase in the minimum wage in California, the opening of seventeen restaurants, which require higher labor utilization during
the first ninety days, and increased staffing requirements resulting from the increase in guest volume. As a percentage of net sales, labor expense for the fiscal year ended September 30, 2000 increased to 31.6% from 30.3% in the comparable 1999
period, primarily due to increased employee hourly wage rates.





Occupancy and Other Expenses.    Occupancy and other expenses for the fiscal year ended September 30, 2000 increased 28.6% to $35.1 million from $27.3
million for the comparable 1999 period. Occupancy and other operating costs as a percentage of net sales increased to 21.2% from 20.7% for the comparable 1999 period. This was primarily due to an increase in repair and maintenance for aging
restaurants, and increased costs for utilities, supplies costs and janitorial services of 0.1%, 0.2%, 0.1%, and 0.1% respectively.





General and Administrative Expenses.    General and administrative expenses for the fiscal year ended September 30, 2000 increased 25.6% to $10.3 million
from $8.2 million for the comparable 1999 period. This increase was due to personnel and travel costs associated with supporting stores in new regions. As a percentage of net sales, general and administrative expenses were 6.2%, which approximated
the comparable 1999 period.




24


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Restaurant Opening
Costs.    Restaurant opening costs for the fiscal year ended September 30, 2000 were $2.8 million or 1.7% of net sales. Prior to the implementation of SOP 98-5, in the 1999 period $2.4 million of startup costs were amortized
and were included in depreciation and amortization expenses.





Depreciation and Amortization Expense.    Depreciation and amortization expense for the fiscal year ended September 30, 2000 increased 3.2% to $9.7
million from $9.4 million for the comparable 1999 period. Depreciation expense increased due primarily to the additional restaurants open for the entire year, additional restaurants owned versus leased and the seventeen new restaurants opened since
the comparable 1999 period. Depreciation and amortization expense as a percentage of net sales decreased to 5.9%, from 7.2% for the comparable 1999 period resulting from the change in accounting for startup costs effective October 1, 1999, which are
now being expensed as incurred.





Interest
Income.    Interest income for the fiscal year ended September 30, 2000 increased 33.3% to $148,000 from $111,000 for the comparable 1999 period. Interest income increased due to more cash on hand during fiscal 2000.





Interest Expense.    Interest expense
for the fiscal year ended September 30, 2000 increased 125% to $3.6 million from $1.6 million for the comparable 1999 period. Interest expense increased due primarily to an increase in debt of $17.4 million in fiscal 2000.





Other Income (Expense), net.    Other income and expense,
net, for the fiscal year ended September 30, 2000 decreased 64.5% to $(65,000) from $(183,000) for the comparable 1999 period. This decrease was primarily due to fewer write-offs of fixed assets during fiscal 2000, compared to fiscal 1999.





Provision for Income
Taxes.    Our provisional income tax rate as a percentage of income before taxes decreased slightly from 39.7% during fiscal year 1999 to 39.3% for fiscal year 2000.







25


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Quarterly Results and Seasonality





The following table sets forth certain unaudited quarterly results and the percentage that certain items
in the Companys statements of operations bear to net sales for the four quarters of fiscal 2000 and 2001. The Company believes that this unaudited quarterly information includes all adjustments, consisting only of normal recurring adjustments
and accruals, necessary for a fair presentation of the information shown. The operating results for any quarter are not necessarily indicative of results for any future period.





Fiscal 2000

Fiscal 2001First Quarter

Second Quarter

Third Quarter

Fourth Quarter

First Quarter

Second Quarter

Third Quarter

Fourth Quarter(Dollars in thousands)Statement of Operations Data:Net sales


$35,702




$40,783




$42,657




$46,264




$43,359




$51,322




$52,103




$51,679Operating income


2,070




3,761




3,958




3,274




797




3,543




3,429




52Income before cumulative effect of     accounting change


801




1,867




1,894




1,214




571




1,408




1,259




(876
)Net income


(432
)



1,867




1,894




1,214




571




1,408




1,259




(876
)Basic net income (loss) per common     share


$   (0.08
)



$   0.33




$   0.34




$   0.21




$   0.10




$   0.25




$   0.22




$   (0.15
)Diluted net income (loss) per common     share


$   (0.08
)



$   0.32




$   0.33




$   0.21




$   0.10




$   0.25




$   0.22




$   (0.15
)Asa Percentage of Net Sales:Operating income


5.8
%



9.2
%



9.3
%



7.9
%



1.8
%



6.9
%



6.6
%



0.1
%Income before cumulative effect of
           accounting change


2.2
%



4.6
%



4.4
%



2.6
%



1.3
%



2.7
%



2.4
%



(1.7
)%Selected Operating Data:Number of salad buffet restaurants open     at end of period


71




71




79




83




86




88




91




93Percentage change in comparable     restaurant sales(1)


2.4
%



4.8
%



2.8
%



2.8
%



3.4
%



4.7
%



3.5
%



1.4
%


---

|(1) |  | Comparable restaurant sales are computed on a monthly basis and then aggregated to determine comparable restaurant sales on a quarterly or annual basis. A restaurant is
included in this computation after it has been open for 15 full calendar months. As a result, a restaurant may be included in this computation for only a portion of a given quarter or year.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




The Companys restaurants experience seasonal influences, as a disproportionate amount of the
Companys net income is generally realized during the second, third and fourth fiscal quarters due to higher average sales and lower average costs. Quarterly results have fluctuated and are expected to continue to fluctuate as a result of a
number of factors, including the timing of new restaurant openings, and are not necessarily indicative of the results that may be achieved for a full fiscal year.





Liquidity and Capital Resources





The Company finances its cash requirements principally from cash flow from operating activities, bank debt, mortgage financing, sale-leaseback of owned properties and sale of
Company stock. The Company does not have significant receivables and receives trade credit based upon negotiated terms when purchasing food and supplies. For the fiscal year ended September 30, 2001, the Company generated $15.6 million from
operating activities, repaid $2.9 million under its bank line of credit, obtained $19.0 million from equipment and mortgage financing (with repayments of $10.5 million) and received $0.1 million from the sale of the Companys Common Stock
pursuant to stock option plans and the Companys Employee Stock Purchase Plan. The Companys principal capital requirement has been for funding the development of restaurants. Historically, the Company has primarily leased the land and
buildings for its restaurant operations. The Company does purchase land or land and buildings when favorable conditions are available. The Company currently owns the land or land and buildings for 27 restaurants, including the land for certain sites
the Company expects to open during fiscal 2002




26


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and fiscal 2003. During fiscal 2001 the Company opened three owned salad buffet restaurant sites, six leased salad buffet restaurant sites, one leased Slurp! location, and one leased kitchen
facility, reopened one leased restaurant site and completed sale-leasebacks for five restaurant sites. As of September 30, 2001, the Company operated 93 salad buffet restaurants, 1 Ladles restaurant, and 1 Slurp! restaurant.





The Companys principal capital requirement has been and will continue to be
funding the development of restaurants. For the year ended September 30, 2001, cash used in investing activities totaled $23.4 million including $12.5 million in proceeds from the sale-lease back of five restaurant locations which partially offset
the $24.0 million of expenditures for the development of new restaurants. The remaining capital expenditures primarily funded replacements and new additions at existing restaurants. In addition to budgeted capital expenditures for fiscal 2002 of
$16.4 million for new restaurant openings, the Company has budgeted $5.8 million in expenditures for fiscal 2002 for capital improvements at existing sites. See BusinessUnit Economics.





As of September 30, 2001, the Company had borrowed $9.2 million of its $12 million bank line of credit.
Such credit line bears interest at a rate equal to the prime rate, which totaled 6.0% per annum as of September 30, 2001; or LIBOR plus 2%. As of September 30, 2001, none of the $12 million credit line was borrowed at LIBOR. Borrowings under the
line of credit are collateralized by equipment and other assets. The credit agreement will expire on December 31, 2001 and contains various financial covenants and restrictions, including restrictions on the Companys ability to pay dividends
or to effect mergers or acquisitions without the banks approval. As of September 30, 2001, the Company was not in compliance with certain financial covenant provisions of the credit agreement. However the financial institution has waived the
violations through September 30, 2001 and has negotiated a new credit agreement with the Company consisting of two term loans in the amount of $6.0 million due December 31, 2002, and $2.7 million, due March 31, 2002, respectively. The new term loans
require scheduled repayments of principal and interest at regular intervals throughout the terms of the agreement and bear interest at a rate equal to either the prime rate or LIBOR plus 2%, and prime rate or LIBOR plus 2.5%, respectively. The new
term loans are collaterized by equipment and other assets of the Company. This new agreement contains various financial covenants and restrictions.





In connection with the development of new restaurants, the Company has over time obtained mortgage and equipment financing from approximately nine lenders,
each of which has financed multiple loans. The outstanding balance of each loan generally is between $0.1 million and $1.9 million. The loans have varying maturity rates extending through August 2006, interest rates generally ranging from 7.52%
through 10.72% with an average interest rate of 9.12% per annum, and in certain cases, prepayment penalties of one to two percent. As of September 30, 2001, the outstanding balances on such loans aggregated approximately $48.1 million.





In addition to funds generated from operations, sale-leaseback of
owned properties and the sale of the Companys stock, the Company will need to obtain external financing to complete its expansion plans for fiscal year 2002 and beyond. There can be no assurance that such funds will be available when needed.
Additionally, should the Companys results of operations decrease or should costs or capital expenditures rise, the Company may not have the ability to open new restaurants at its desired pace or at all, because capital may not be available.
See Business RisksExpansion Risks.





If
these sources of financing are insufficient to satisfy the Companys liquidity requirements, the Company may be required to sell additional equity or debt securities or obtain additional credit facilities. There is no assurance that financing
will be available to the Company on favorable terms, or at all.





Impact of Inflation





The primary inflationary factors affecting the Companys operations include food
and beverage and labor costs. The Company does not believe that inflation has materially affected earnings during the past four years. Substantial increases in costs and expenses, particularly food, supplies, labor and operating expenses, could have




27


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a significant impact on the Companys operating results to the extent that such increases cannot be passed along to guests.





Effects of Energy Crisis





The Company continues to experience increased energy costs related to the California energy crisis and to higher natural gas prices in its other markets. In addition to higher
utility costs, the California energy crisis has resulted in electricity shortages that have caused power providers to implement rolling blackouts throughout the state. Disruptions in the power supply could occur in areas where Company restaurants
are located, causing those restaurants to experience temporary interruptions in operations. Such interruptions in operations may result in lost revenue and affect store profitability. The increased utility and natural gas costs were not part of the
Companys original plan and will continue to affect the Companys profitability. In addition, there can be no assurance that the interruptions in power supplies resulting from the energy shortages in California will not also impact the
Companys operating results and ability to control costs in the future.





New Accounting Standards





In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 141 (SFAS No. 141), Business Combinations, and Statement No. 142 (SFAS No. 142), Goodwill and Other Intangible Assets. SFAS No. 141 supersedes APB Opinion No. 16, Business
Combinations and SFAS No. 38, Accounting for Preacquisition Contingencies of Purchases Enterprises and eliminates pooling-of-interests accounting prospectively. SFAS No. 141 was adopted on July 1, 2001. SFAS No. 142 supersedes APB
Opinion No. 17, Intangible Assets and changes the accounting for goodwill from an amortization method to an impairment-only approach. Under SFAS No. 142, goodwill will be tested annually and whenever events or circumstances occur
indicating that goodwill might be impaired. The provisions of SFAS No. 142 are required to be applied starting with fiscal years beginning after December 15, 2001. Upon adoption of SFAS No. 142, amortization of goodwill recorded for business
combinations consummated prior to July 1, 2001 will cease, and intangible assets acquired prior to July 1, 2001 that do not meet the criteria for recognition under SFAS No. 141 will be reclassified to goodwill. The adoption of SFAS No. 141 did not
have an impact on the Companys financial position or results of operations. The Company will adopt SFAS No. 142 on October 1, 2003. At this time, the Company does not anticipate that the adoption of SFAS No. 142 will have a material effect on
the Companys financial statements.





In August 2001, the FASB
issued Statement of Financial Accounting Standards No. 143 (SFAS No. 143), Accounting for Asset Retirement Obligations, which addresses financial accounting and reporting for obligations associated with the retirement of tangible
long-lived assets and for the associated asset retirement costs. The standard applies to tangible long-lived assets that have a legal obligation associated with their retirement that results from the acquisition, construction or development or
normal use of the asset. SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The fair value of the
liability is added to the carrying amount of the associated asset and this additional carrying amount is depreciated over the remaining life of the asset. The liability is accreted at the end of each period through charges to operating expense. The
provisions of SFAS No. 143 are required to be applied during the quarter ending December 31, 2003. To accomplish this, the Company must identify all legal obligations for asset retirement obligations, if any, and determine the fair value of these
obligations on the date of adoption. The determination of fair value is complex and will require the Company to gather market information and develop cash flow models. Additionally, the Company will be required to develop processes to track and
monitor these obligations. At this time, the Company does not anticipate that the adoption of SFAS No. 143 will have a material effect on the Companys financial statements.





In October 2001, the FASB issued Statement of Financial Accounting Standards No. 144 (SFAS No. 144), Accounting for the
Impairment or Disposal of Long-Lived Assets, which addresses financial accounting and




28


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reporting for the impairment or disposal of long-lived assets. While SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of, it retains many of the fundamental provisions of SFAS No. 121, including the recognition and measurement of the impairment of long-lived assets to be held and used, and the measurement of long-lived assets to be disposed of by
sale. SFAS No. 144 also supersedes the accounting and reporting provisions of Accounting Principles Board Opinion No. 30 (APB No. 30), Reporting the Results of OperationsReporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business. However, it retains the requirement in APB No. 30 to report separately discontinued operations and extends that reporting
to a component of an entity that either has been disposed of (by sale, abandonment, or in a distribution to owners) or is classified as held for sale. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. At this time, the
Company does not anticipate that the adoption of SFAS No. 144 will have a material effect on the Companys financial statements.







29


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BUSINESS RISKS





In addition to other information in this Form 10K, shareholders and prospective investors
should consider carefully the following factors in evaluating the Company and its business.





Certain Operating Results
and Considerations





In fiscal 1999, 2000 and 2001, the Company
experienced an increase of 3.7%, 3.1%, and 3.3% respectively, in comparable restaurant sales. The Company does not believe it has significant latitude to achieve comparable restaurant sales growth through price increases, and, as a result, the
Company does not believe that recent comparable restaurant sales are indicative of future trends in comparable restaurant sales. The Company believes that it may from time to time in the future experience declines in comparable restaurant sales, and
that any future increases in comparable restaurant sales may be modest. Further, the Companys newer restaurants have not historically experienced significant increases in guest volume following their initial opening period. See Selected
Financial Data.





Expansion Risks





The Company opened ten salad buffet restaurants in fiscal 1999, seventeen in fiscal 2000, and ten in fiscal 2001 (opening nine new
restaurants and re-opening one existing restaurant). The Company currently intends to open four restaurants in fiscal 2002. The Company may experience difficulty in opening four restaurants in fiscal 2002, including but not limited to hiring
qualified restaurant managers and staff. The Companys ability to achieve its expansion plans will depend on a variety of factors, many of which may be beyond the Companys control, including the Companys ability to locate suitable
restaurant sites, qualified managers, negotiate acceptable leases or purchase terms, obtain required governmental approvals, construct new restaurants in a timely manner, attract, train and retain qualified and experienced personnel and management,
operate its restaurants profitably and obtain additional capital, as well as general economic conditions and the degree of competition in the particular region of expansion. The Company has experienced, and expects to continue to experience, delays
in restaurant openings from time to time.





Since its inception, the
Company has closed three nonperforming restaurants and currently plans on closing the remaining Ladles restaurant and the Slurp! restaurant during the first half of fiscal 2002 due to poor operating performance. Given the number of restaurants
in current operation and the Companys projected expansion rate, there can be no assurances that the Company will not close restaurants in the future. Any closure could result in a significant writeoff of assets, which could adversely
effect the Companys business, financial condition and results of operations.





The Company incurs substantial costs in opening a new restaurant and, in the Companys experience, new restaurants experience fluctuating operational levels for some time
after opening. Owned restaurants generally require significantly more upfront capital than leased restaurants. As a result, an increase in the percentage of owned restaurant openings as compared to historical practice would increase the
capital required to meet the Companys growth plans. There can be no assurance that the Company will successfully expand into new regions or that the Companys existing or new restaurants will be profitable. The Company has encountered
intense competition for restaurant sites, and in many cases has had difficulty buying or leasing desirable sites on terms that are acceptable to the Company. In many cases, the Companys competitors are willing and able to pay more than the
Company for sites. The Company expects these difficulties in obtaining desirable sites to continue for the foreseeable future. See Restaurant Industry and Competition, BusinessExpansion Strategy and
BusinessCompetition.





Restaurant Industry and Competition





The restaurant industry is highly competitive. Key competitive factors in the industry include the
quality and value of the food products offered, quality of service, price, dining experience, restaurant location and the




30


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ambiance of the facilities. The Companys primary competitors include midprice, fullservice casual dining restaurants, as well as traditional selfservice buffet and other
soup and salad restaurants and healthful and nutritionoriented restaurants. The Company competes with national and regional chains, as well as individually owned restaurants. The number of buffet and casual restaurants with operations
generally similar to the Companys has grown substantially in the last several years and the Company believes competition among buffetstyle and casual restaurants has increased and will continue to increase as the Companys
competitors expand operations in various geographic areas. Such increased competition could increase the Companys operating costs or adversely affect its revenues. The Company believes it competes favorably in the industry, although many of
the Companys competitors which have been in existence longer than the Company, have a more established market presence and have substantially greater financial, marketing and other resources than the Company, which may give them certain
competitive advantages. In addition, the restaurant industry has few noneconomic barriers to entry. Therefore, there can be no assurance that third parties will not be able to successfully imitate and implement the Companys concept. The
Company has encountered intense competition for restaurant sites, and in many cases has had difficulty buying or leasing desirable sites on terms that are acceptable to the Company. In many cases, the Companys competitors are willing and able
to pay more than the Company for sites. The Company expects these difficulties in obtaining desirable sites to continue for the foreseeable future.





Cost Sensitivity





The
Companys profitability is highly sensitive to increases in food, labor, utilities and other operating costs. The Companys dependence on frequent deliveries of fresh produce and groceries subjects it to the risk that shortages or
interruptions in supply caused by adverse weather or other conditions could materially adversely affect the availability, quality and cost of ingredients. In addition, unfavorable trends or developments concerning factors such as inflation, food,
labor and employee benefit costs (including increases in hourly wage and minimum unemployment tax rates), rent increases resulting from the rent escalation provisions in the Companys leases, and the availability of experienced management and
hourly employees may also adversely affect the Company. The Company believes recent relatively favorable inflation rates and parttime labor supplies in its principal market area have contributed to relatively stable food and labor costs in
recent years. However, there can be no assurance that these conditions will continue or that the Company will have the ability to control costs in the future. See Reliance on Key Suppliers and Distributors, and Business.





Importance of Key Employees





The Company is heavily dependent upon the services of its officers and key management personnel involved in restaurant operations, purchasing, expansion and
administration. In particular, the Company is dependent upon the management and leadership of its four executive officers, Michael P. Mack, David W. Qualls, R. Gregory Keller and Kenneth J. Keane. The loss of any of these four individuals could have
a material adverse effect on the Companys business, financial condition and results of operations. The success of the Company and its individual restaurants depends upon the Companys ability to attract and retain highly motivated,
wellqualified restaurant operations and other management personnel. The Company faces significant competition in the recruitment of qualified employees. See BusinessRestaurant OperationsRestaurant Management and
BusinessRestaurant OperationsCustomer Service.





Seasonality and Quarterly Fluctuations





The Companys business experiences seasonal fluctuations
as a disproportionate amount of the Companys net income is generally realized in the second, third and fourth fiscal quarters due to higher average sales and lower average costs. Quarterly results have fluctuated and are expected to continue
to fluctuate as a result of a number of factors, including the timing of new restaurant openings. As a result of these factors, net sales and net income on a quarterly basis may fluctuate and are not necessarily indicative of the results that may be
achieved for a full fiscal year. See Quarterly Results and Seasonality.




31


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Geographic Concentration in California and Florida; Restaurant Base





Thirty seven of the Companys 94 existing salad buffet restaurants are located
in California and eighteen are located in Florida. Accordingly, the Company is susceptible to fluctuations in its business caused by adverse economic or other conditions in these regions, including natural disasters, such as hurricanes which have
occurred annually in recent years in Florida, or other acts of God that could have a material adverse effect on the Companys business. The Companys significant investment in, and longterm commitment to, each of its restaurant sites
limits its ability to respond quickly or effectively to changes in local competitive conditions or other changes that could affect the Companys operations. In addition, the Company has a small number of restaurants relative to some of its
competitors. Consequently, a decline in the profitability of an existing restaurant or the introduction of an unsuccessful new restaurant could have a more significant effect on the Companys result of operations than would be the case in a
company with a larger number of restaurants. See BusinessRestaurant Facilities and BusinessExpansion Strategy.





Reliance on Key Suppliers and Distributors





The Company utilizes sole source suppliers for certain produce and grocery items. In addition, in order to minimize price fluctuations, the Company enters into fixed price supply
contracts that typically have terms of two months to one year and generally do not have minimum purchase requirements. However, in the event that the Companys suppliers are unable to make the required deliveries due to shortages or
interruptions caused by adverse weather or other conditions or are relieved of their contract obligations due to an invocation of an act of God provision, the Company would need to renegotiate these contracts or purchase such products and groceries
elsewhere. There can be no assurance that the Companys produce and grocery costs would not as a result be higher, and such higher costs could have a material adverse effect on the Companys business, financial conditions and results of
operations. The Company has several local produce distributors and also distributes other grocery items through its own distribution system out of one warehouse on the West Coast and one on the East Coast. All produce and groceries purchased by the
Company are channeled from the growers and other suppliers to the Companys warehouses, restaurants and restaurant commissaries through these distributors. In the event that any of these distributors were to cease distribution on behalf of the
Company, the Company would be required to make alternate arrangements for produce. There can be no assurance that the Companys distribution expense would not be greater under such alternate arrangements. See Cost Sensitivity and
BusinessRestaurant Operations.





Legal Matters





The Company is from time to time the subject of complaints, threat letters or litigation from guests
alleging illness, injury or other food quality, health or operational concerns. Adverse publicity resulting from such allegations may materially adversely affect the Company and its restaurants, regardless of whether such allegations are valid or
whether the Company is liable. The Company is party to various legal actions relating to former employees. In the opinion of management, after reviewing the information which is currently available with respect to these matters, and consulting with
the Companys counsel, any liability which may ultimately be incurred will not materially affect the financial position or results of operations of the Company. See Legal Proceedings.





Government Regulation





The Companys business is subject to and affected by various federal, state and local laws. Each restaurant must comply with state, county and municipal licensing and
regulation requirements relating to health, safety, sanitation, building construction and fire prevention. The Companys restaurants are subject to federal and state laws governing wages, working conditions, citizenship requirements and
overtime. Congress and various states (including California) passed proposals that imposed increases in state or federal minimum wages in 1996, 1997, 1998, 2000 and 2001. There is no assurance that the Company will be able to continue to pass
increased costs on to its guests. The Company is subject to the Americans with Disabilities Act of 1990, which requires certain




32


---

accommodations to the Companys restaurant designs to allow access for people with disabilities. In addition, the Company is subject to the regulations of the Immigration and Naturalization
Service (INS). Given the location of many of the Companys restaurants, even if the Companys operation of those restaurants is in strict compliance with INS requirements, the Companys employees may not all meet federal
citizenship or residency requirements, which could lead to disruptions in its work force. Additionally, legislative proposals are currently under consideration by Congress and state legislators to require employers to pay for health insurance for
all employees.





Antitakeover Measures





Certain provisions of the Companys Restated Certificate of Incorporation and Bylaws could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of the Company. Such provisions could limit the price that investors might be willing to pay in the future for shares of the Companys
Common Stock. Certain of these provisions allow the Company to issue Preferred Stock with rights senior to those of the Common Stock without any further vote or action by the stockholders, eliminate the right of stockholders to act by written
consent and impose various procedural and other requirements that could make it more difficult for stockholders to effect certain corporate actions. The issuance of Preferred Stock could decrease the amount of earnings and assets available for
distribution to the holders of Common Stock and could adversely affect the rights and powers, including voting rights, of the holders of the Common Stock. In certain circumstances, such issuance could have the effect of decreasing the market price
of the Common Stock.





Volatility of Stock Price





The market price of the Companys Common Stock has fluctuated since the initial public offering of the Common Stock in May 1995.
Quarterly operating results of the Company and other restaurant companies, changes in general conditions in the economy, the financial markets or the restaurant industry, natural disasters or other developments affecting the Company or its
competitors could cause the market price of the Common Stock to fluctuate substantially. In addition, in recent years the stock market has experienced extreme price and volume fluctuations. This volatility has had a significant effect on the market
price of securities issued by many companies for reasons unrelated to the operating performance of these companies. See Market for Companys Common Equity and Related Stockholder Matters.





Item 7a.    
Quantitative and Qualitative Disclosures About Market Risk





Market risks relating to the Companys operations result primarily from changes in shortterm interest rates as the Companys line of credit is tied to the prime
rate. As of September 30, 2001, the Company had $9.2 million in debt outstanding under the credit facility. Based on a hypothetical 50 basis point adverse change in prime rates, net interest expense would increase by approximately $460,000 on an
annual basis, and likewise would decrease earnings and cash flows. The Company cannot predict market fluctuations in interest rates and their impact on debt, nor can there be any assurance that longterm fixed rate debt will be available at
favorable rates, if at all. Consequently, future results may differ materially from the estimated results due to adverse changes in interest rates or debt availability.





The Company did not have any foreign currency or other market risk or any derivative financial instruments at September 30, 2001.





Item 8.    
Financial Statements and Supplementary Data





The Companys financial statements as of September 30, 2001 and 2000, and for each of the three fiscal years in the period ended September 30, 2001 and the report of our
independent accountants, are included in this report as listed in the index on page 33 of this reportItem 14(a).





Item
9.    
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure





Not Applicable.




33


---




PART III





Item 10.    
Directors and Executive Officers of the Company





The information relating to directors of the Company is incorporated by reference from the Companys Proxy Statement filed in connection with the Companys Annual Meeting
of Stockholders to be held March 15, 2002 as set forth under the caption Election of Directors. Information relating to the executive officers of the Company is set forth in Part I, Item 1 of this Report under the caption Executive
Officers of the Company.





Item 11.    
Executive Compensation and Other Matters





The information relating to executive compensation is incorporated by reference to the Proxy Statement under the caption Executive Compensation and Other Matters.





Item 12.    
Security Ownership of Certain Beneficial Owners and Management





The information relating to ownership of equity securities of the Company by certain beneficial owners and management is incorporated by reference to the Proxy Statement under the
caption General InformationStock Ownership of Certain Beneficial Owners and Management.





Item
13.    
Certain Relationships and Related Transactions





The information relating to certain relationships and related transactions is incorporated by reference to the Proxy Statement under the caption Certain Transactions.




34


---




PART IV





Item 14.    
Exhibits, Financial Statement Schedule, and Reports on Form 8K





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





Page Number(1
)

Independent Auditors Report


F1Balance Sheets as of September 30, 2000 and 2001


F2Statements of Operations for the years ended September 30, 1999, 2000 and 2001


F3Statements of Shareholders Equity for the years ended September 30, 1999, 2000 and 2001


F4Statements of Cash Flows for the years ended September 30, 1999, 2000 and 2001


F5Notes to Financial Statements


F6Schedules are omitted because they are not applicable or the required information is shown in
     the financial statements or notes thereto.(2
)

Exhibits. The Exhibits listed in the accompanying Exhibit Index are filed or incorporated by
     reference as part of this Report.





(b)  Reports on Form 8K.    The registrant did not file any Reports on Form 8K during the fourth quarter of fiscal 2001.




35


---

INDEPENDENT AUDITORS REPORT





|To | the Board of Directors and Shareholders of
|-- | ------------------------------------------

|Ga | rden Fresh Restaurant Corp.:
|-- | ----------------------------




We have audited the accompanying balance sheets of Garden Fresh Restaurant Corp. as of September 30, 2000 and 2001, and the related statements of operations, shareholders
equity, and cash flows for each of the years in the three-year period ended September 30, 2001. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial
statements based on our audits.





We conducted our audits in
accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.





In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Garden Fresh Restaurant Corp. as of September 30,
2000 and 2001, and the results of its operations and its cash flows for each of the years in the three-year period ended September 30, 2001, in conformity with accounting principles generally accepted in the United States of America.





| | KP | MG LLP
| | -- | ------




|San | Diego, California
|--- | -----------------

|No | vember 8, 2001, except as to Note 3,
|-- | ------------------------------------

| | wh | ich is as of December 3, 2001
| | -- | -----------------------------






F-1


---

GARDEN FRESH RESTAURANT CORP.





BALANCE SHEETS





September 30,2000

2001A S S E T SCurrent assets:Cash and cash equivalents

$     2,058,000

$         165,000Inventories

6,383,000

8,185,000Other current assets

1,273,000

4,030,000Total
current assets

9,714,000

12,380,000Property and equipment, net

135,535,000

143,588,000Intangible and other assets

1,939,000

1,928,000TOTAL
ASSETS

$147,188,000

$157,896,000L I A B I L I T I E S   A N D   S H A R E H O L D E R S   E
Q U I T YCurrent liabilities:Accounts payable

$     9,701,000

$     7,862,000Revolving line of credit

12,000,000

9,150,000Current portion of longterm debt

8,942,000

10,296,000Current deferred income taxes

218,000

Accrued liabilities

7,928,000

10,216,000Total
current liabilities

38,789,000

37,524,000Deferred income taxes

3,745,000

5,149,000Longterm debt, net of current portion

30,612,000

37,807,000Other liabilities

2,371,000

3,236,000Shareholders equity:Preferred stock, $.001 par value; 0 and 120,000 shares
authorized at                September 30, 2000 and 2001, respectively; 0 shares issued and
               outstanding at September 30, 2000 and 2001, respectively



Common stock, $.01 par value; 12,000,000 shares authorized at
               September 30, 2000 and 2001 respectively; 5,655,645 and 5,675,826
               issued and outstanding at September 30, 2000 and 2001, respectively

57,000

57,000Additional paidin capital

59,518,000

59,665,000Retained earnings

12,096,000

14,458,000Total
shareholders equity

71,671,000

74,180,000TOTAL
LIABILITIES AND SHAREHOLDERS EQUITY

$147,188,000

$157,896,000Commitments and contingencies (note 8)





See accompanying notes to financial statements.




F-2


---




GARDEN FRESH RESTAURANT CORP.





STATEMENTS OF OPERATIONS





Years ended September 30,1999

2000

2001Net sales

$131,944,000


$165,406,000


$198,463,000Costs and expenses:Costs of sales

33,840,000


41,632,000


49,447,000Restaurant operating expenses:Labor

39,995,000


52,349,000


64,420,000Occupancy
and other expenses

27,312,000


35,140,000


47,210,000General and administrative expenses

8,214,000


10,280,000


13,538,000Restaurant opening costs




2,750,000


1,952,000Depreciation and amortization expenses

9,441,000


9,719,000


12,503,000Facility exit costs




473,000


1,572,000Total
costs and expenses

118,802,000


152,343,000


190,642,000Operating
income

13,142,000


13,063,000


7,821,000Other income (expense):Interest income

111,000


148,000


160,000Interest expense

(1,618,000
)

(3,623,000
)

(4,876,000
)Other income (expense), net

(183,000
)

(65,000
)

804,000(1,690,000
)

(3,540,000
)

(3,912,000
)Income before provision for income taxes and cumulative effect      of accounting change

11,452,000


9,523,000


3,909,000Provision for income taxes

(4,548,000
)

(3,747,000
)

(1,547,000
)Income before cumulative effect of accounting change

6,904,000


5,776,000


2,362,000Cumulative effect of change in accounting for startup costs, net      of income tax
benefit of $800,000




(1,233,000
)

Net
income

$     6,904,000


$     4,543,000


$     2,362,000Basic net income per common share:Income before cumulative effect of accounting change

$                 1.24


$                 1.02


$                 0.42Cumulative effect of change in accounting for startup costs

$                   


$                 (0.22
)

$                   Basic net
income per common share

$                 1.24


$                 0.80


$                 0.42Shares used in computing basic net income per common        
     share

5,574,000


5,647,000


5,670,000Diluted net income per common share:Income before cumulative effect of accounting change

$                 1.18


$                 1.00


$                 0.42Cumulative effect of change in accounting for startup costs

$                   


$                    (.21
)

$                   Diluted
net income per common share

$                 1.18


$                 0.79


$                 0.42Shares used in computing diluted net income per common        
     share

5,867,000


5,780,000


5,682,000





See accompanying notes to financial statements.




F-3


---




GARDEN FRESH RESTAURANT CORP.





STATEMENTS OF SHAREHOLDERS EQUITY


YEARS ENDED SEPTEMBER 30, 1999, 2000 AND
2001





Common Stock

Additional paid-in capital

Retained earnings

TotalShares

AmountBalance at September 30, 1998

5,544,217


$56,000


$58,542,000


$       649,000

$59,247,000Exercise of common stock options

204,317


2,000


1,706,000




1,708,000Issuance of common stock under
               employee stock purchase plan

12,871





159,000




159,000Treasury stock repurchases and retired

(132,000
)

(2,000
)

(1,906,000
)



(1,908,000
)Tax benefits from exercise of common
               stock options







739,000




739,000Net income










6,904,000

6,904,000Balance at September 30, 1999

5,629,405


56,000


59,240,000


7,553,000

66,849,000Exercise of common stock options

8,861





81,000




81,000Issuance of common stock under
               employee stock purchase plan

17,379


1,000


184,000




185,000Tax benefits from exercise of common
               stock options







13,000




13,000Net income










4,543,000

4,543,000Balance at September 30, 2000

5,655,645


57,000


59,518,000


12,096,000

71,671,000Exercise of common stock options

1,400





7,000




7,000Issuance of common stock under
               employee stock purchase plan

18,781





140,000




140,000Net income










2,362,000

2,362,000Balance at September 30, 2001

5,675,826


$57,000


$59,665,000


$14,458,000

$74,180,000








See accompanying notes to
financial statements.




F-4


---

GARDEN FRESH RESTAURANT CORP.





STATEMENTS OF CASH FLOWS





Years Ended September 30,1999

2000

2001Cash flows from operating activities:Net income

$   6,904,000


$   4,543,000


$   2,362,000Adjustments to reconcile net income to net cash provided by
               operating activities:Cumulative effect of accounting change, net of tax benefit




1,233,000


Depreciation and amortization

9,441,000


9,719,000


12,503,000Loss on
disposal of property and equipment

192,000


638,000


512,000Facility
exit costs




473,000


1,572,000Provision
for deferred income taxes

777,000


3,744,000


(80,000
)Tax
benefits from exercise of common stock options

739,000


13,000


Amortization of deferred gain on saleleaseback of                         properties




(4,000
)

(36,000
)Changes in operating assets and liabilities:Increase
in inventories

(698,000
)

(2,106,000
)

(1,803,000
)Increase
in other current assets

(354,000
)

(259,000
)

(1,593,000
)Increase
(decrease) in accounts payable

(388,000
)

3,981,000


(193,000
)Increase
in accrued liabilities

1,264,000


1,443,000


2,181,000Increase
in other liabilities

209,000


514,000


190,000Net cash
provided by operating activities

18,086,000


23,932,000


15,615,000Cash flows from investing activities:Acquisition of property and equipment:New
restaurant development

(30,766,000
)

(36,626,000
)

(24,033,000
)Existing
restaurant additions

(5,751,000
)

(6,658,000
)

(9,320,000
)Decrease
in construction costs included in accounts                         payable




(806,000
)

(2,451,000
)Increase in intangible and other assets

(3,331,000
)

(802,000
)

(28,000
)Proceeds from saleleaseback transactions




4,485,000


12,478,000Net cash
used in investing activities

(39,848,000
)

(40,407,000
)

(23,354,000
)Cash flows from financing activities:Borrowings (repayments) under line of credit

5,001,000


6,999,000


(2,850,000
)Proceeds from longterm debt

19,898,000


18,054,000


19,001,000Repayment of longterm debt

(5,567,000
)

(7,697,000
)

(10,452,000
)Net proceeds from issuance of common stock

1,867,000


266,000


147,000Repurchase of common stock

(1,908,000
)




Net cash
provided by financing activities

19,291,000


17,622,000


5,846,000Net increase (decrease) in cash and cash equivalents

(2,471,000
)

1,147,000


(1,893,000
)Cash and cash equivalents at beginning of year

3,382,000


911,000


2,058,000Cash and cash equivalents at end of year

$       911,000


$   2,058,000


$       165,000Supplemental disclosure of cash flow information:Cash paid during the year for interest

$   2,241,000


$   3,466,000


$   5,035,000Cash paid during the year for income taxes

$   2,685,000


$       976,000


$   1,521,000Supplemental disclosure of noncash transactionproperty and      equipment asset
purchases in accounts payable

$       806,000


$   2,451,000


$       805,000


See accompanying notes to financial statements




F-5


---




GARDEN FRESH RESTAURANT CORP.





NOTES TO FINANCIAL STATEMENTS





Note 1.    The Company and a Summary of Significant Accounting Policies





| | The Company
| | -----------




Garden Fresh Restaurant Corp. (the Company) is a Delaware Corporation which owns and operates 93 salad buffet restaurants in Arizona, California, Colorado, Florida,
Georgia, Illinois, Kansas, Missouri, Nevada, New Mexico, North Carolina, Oregon, Texas, Utah and Washington, under the names Souplantation and Sweet Tomatoes. The Company also operates two other restaurants under the names Slurp! The Soup Experience
and Ladles, A Soup and Salad Takery.





| | Use of Estimates
| | ----------------




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





| | Inventories
| | -----------




Inventories, consisting principally of food, beverages and restaurant supplies, are valued at the lower of cost (firstin, firstout) or market.





| | Property and Equipment
| | ----------------------




Property, equipment, and leasehold improvements are recorded at cost. Depreciation and amortization are provided using the straightline method. Property, equipment, and
leasehold improvements are depreciated over estimated useful lives of 3 years to 30 years or the remaining lease term, whichever is shorter.





Maintenance and repairs are charged to operations as incurred. When assets are sold or otherwise disposed of, the cost and related accumulated depreciation
are removed from the accounts and any gain or loss is included in the results of operations.





| | Intangibles and Other Assets
| | ----------------------------




Intangible assets resulting from the 1983 acquisition of the two original Souplantation restaurants, comprised of leasehold interests and goodwill, are
amortized using the straightline method over 15 years.





Debt
issuance costs are capitalized and amortized into interest expense using the straightline method over the term of the debt.





| | Income Taxes
| | ------------




Current income tax expense is the amount of income taxes expected to be payable for the current year. A deferred tax asset or liability is established for the expected future
consequences resulting from the differences in the financial reporting and tax bases of assets and liabilities. Deferred income tax expense (benefit) is the net change during the year in the deferred income tax asset or liability. Valuation
allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.




F-6


---








| | Impairment of LongLived Assets
| | -------------------------------




The Company periodically assesses the impairment of longlived assets to be held for use based on expectations of future undiscounted cash flows from
the related operations, and when circumstances dictate, adjusts the asset to the extent the carrying value exceeds the fair value of the asset. These factors, along with managements plans with respect to the operations, are considered in
assessing the recoverability of goodwill, other purchased intangibles and property and equipment.





During the third quarter of fiscal 2000, the Company closed one salad buffet restaurant and recorded an impairment charge of $68,000. In the fourth quarter of fiscal 2000, the
Company determined that it would close a Ladles restaurant in the first quarter of fiscal 2001 due to poor operating performance. Accordingly, the Company recorded an impairment charge of $307,000 in the fourth quarter of fiscal 2000 determined as
the amount by which the carrying amount of the assets exceeded the present value of the estimated future cash flows. Net book value of assets determined to be impaired relating to the restaurant closures included $375,000 of equipment and leasehold
improvements. In addition, the Company recorded an accrual of $98,000 representing the present value of the estimated net future lease payments associated with the Ladles location, which was recorded as other long term liabilities. The Company was
successful in exiting the lease agreement during fiscal year 2001 and paid the lessor $49,000 to terminate the lease agreement. As of September 30, 2001, there was no remaining balance accrued relating to this liability. All charges described above
have been included in the 2000 results of operations as facility exit costs.





In September 2001, the Company made the decision that they would abandon the Ladles and Slurp! concepts due to poor operating performance. The Company plans to close these
restaurants during the first half of fiscal 2002. This triggered an impairment evaluation by the Company of its long lived assets related to these restaurants in the fourth quarter of fiscal 2001. Based on the Companys analyses of the results
of operations and projected future cash flows associated with these restaurants, the Company determined that an impairment existed. Accordingly, the Company recorded an impairment charge of $1,368,000 in the fourth quarter of fiscal 2001 determined
as the amount by which the carrying amount of the assets exceeded the present value of the estimated future cash flows. Net book value of assets determined to be impaired included $340,000 of equipment, $273,000 of furniture and fixtures, $353,000
of leasehold improvements, $299,000 of construction in process, and $103,000 of inventory and other assets. In addition, the Company recorded an accrual of $204,000 representing the present value of the estimated net future lease payments associated
with these restaurants. Of this amount, $80,000 has been recorded as accrued liabilities and $124,000 has been recorded as other long term liabilities. There were no cash payments made to reduce the liabilities during fiscal year 2001. All charges
described above have been included in the 2001 results of operations as facility exit costs.





| | Advertising
| | -----------




Advertising costs are expensed as incurred. Advertising expenses were $2,641,000, $3,331,000 and $6,243,000 in fiscal 1999, 2000, and 2001, respectively, and are included in
occupancy and other expenses.





| | Fair Value of Financial Instruments
| | -----------------------------------




Because of their short maturities, the carrying amounts for cash and cash equivalents, accounts payable, accrued liabilities and other liabilities,
approximate their fair value. The carrying amounts for the bank line of credit and longterm debt approximate fair value as the interest rates and terms are substantially similar to rates and terms which could be obtained currently for similar
instruments.





| | Cash and Cash Equivalents
| | -------------------------




Cash equivalents are highly liquid investments purchased with original maturities of three months or less. Cash equivalents consist of investments in money
market accounts backed by Federal government securities. The carrying amount is reflected at cost, which approximates the fair value due to the short maturity of these instruments. The Companys policy is to place its cash with high credit
quality financial institutions in order to limit the amount of credit exposure.




F-7


---








| | Net Income per Common Share
| | ---------------------------




The Company has presented basic net income per common share and diluted net income per common share in conformity with the Financial Accounting Standards
Board Statement of Financial Accounting Standards (SFAS) No. 128. Basic net income per common share is computed based on the weighted average number of common shares outstanding during the period. Diluted net income per common share is
computed based on the weighted average number of common shares outstanding during the period increased by the effect of dilutive stock options using the treasury stock method and common shares expected to be issued under the Companys employee
stock purchase plan.





Potentially dilutive securities of
approximately 293,000, 133,000 and 12,000 shares for fiscal 1999, 2000 and 2001, respectively, were used to calculate diluted earnings per common share. There are no reconciling items in calculating the numerator for basic and diluted net income per
common share for the periods presented. For the years ended September 30, 1999, 2000 and 2001, respectively, shares related to stock options of 422,000, 791,000 and 1,146,000, respectively, were excluded from the calculation of diluted net income
per common share, as the effect of their inclusion would be antidilutive.





| | StockBased Compensation
| | ------------------------




The Company measures compensation expense for its stockbased employee compensation plans using the intrinsic value method and provides pro forma
disclosures of net income and net income per share as if the fair value method had been applied in measuring compensation expense.





| | Segment Reporting
| | -----------------




In 1998, the Company adopted SFAS No. 131, Disclosures about Segments of and Enterprise and Related Information, which establishes annual and interim reporting
standards for an enterprises operating segment and related disclosures about its products, services, geographic areas and major customers. An operating segment is defined as a component of an enterprise that engages in business activities from
which it may earn revenues and incur expenses, and about which separate financial information is regularly evaluated by the chief operating decision maker in deciding how to allocate resources. All of the Companys restaurants are aggregated
into one reportable segment given the similarities of economic characteristics between the operations represented by the restaurants and the common nature of the products, customers and methods of distribution.





| | SaleLeasebacks
| | ---------------




During the year ended September 30, 2000, the Company entered into two sale-leaseback transactions whereby the Company sold and leased back the land and building for two separate
restaurant sites. The Company received net proceeds of $4,485,000 for the two transactions and recorded deferred gains of $231,000. The gains are being amortized over the respective lease terms of 20 years. The related leases are being accounted for
as operating leases.





During the fiscal year ended September 30,
2001, the Company completed five saleleaseback transactions whereby the Company sold and leased back the land and building for five separate restaurant sites. The Company received net proceeds of $12,478,000 for the five transactions and
recorded deferred gains of $614,000. The gains are being amortized over the respective lease terms of 20 years. The related leases are being accounted for as operating leases.







F-8


---








| | Reclassifications
| | -----------------




Certain 1999 and 2000 amounts have been reclassified to conform to the 2001 presentation.





Note 2.    Composition of Certain Financial Statement Captions





September 30,2000

2001Other current assets:Prepaid taxes

$    979,000

$1,920,000Deferred income taxes



1,266,000Prepaid insurance

63,000

420,000Prepaid rent

52,000

103,000Other

179,000

321,000$1,273,000

$4,030,000





Depreciable LivesProperty and equipment, net:Leasehold improvements

Shorter of 30 years or lease term

$  34,830,000


$  44,820,000Furniture and fixtures

38 years

40,562,000


46,626,000Equipment

38 years

30,934,000


36,149,000Land



33,062,000


30,608,000Buildings

30 years

29,091,000


28,032,000Construction in process on new restaurants



11,985,000


11,084,000180,464,000


197,319,000Less accumulated depreciation and amortization



(44,929,000
)

(53,731,000
)$135,535,000


$143,588,000





September 30,2000

2001Intangible and other assets:Intangible assets, net of amortization of $758,000 and $766,000, respectively

$       8,000

$           Cash surrender value of insurance policies

845,000

950,000Deposits and other assets

1,086,000

978,000$1,939,000

$  1,928,000Accrued liabilities:Accrued payroll

$3,346,000

$  3,892,000Accrued interest

354,000

383,000Taxes payable

924,000

1,086,000Accrued insurance

1,154,000

1,597,000Current accrued rent

27,000

23,000Current deferred gain on saleleaseback properties

12,000

42,000Other

2,111,000

3,193,000$7,928,000

$10,216,000Other liabilities:Accrued rent

$1,101,000

$  1,149,000Deferred compensation

957,000

1,101,000Deferred gain on saleleaseback properties, net of current portion

215,000

762,000Other

98,000

224,000$2,371,000

$  3,236,000




F-9


---








Note 3.    LongTerm Debt





Obligations under longterm debt arrangements are comprised of:





September 30,2000

2001Notes payable to lending institutions, interest at 7.52%10.72%, due in various monthly
    installments aggregating $928,000 (including interest) through 2006. Secured by property     and equipment.

$19,929,000


$28,307,000Notes payable to lending institutions, interest at 8.66%10.537%, due in various monthly
    installments aggregating $362,000 (including interest) through 2006. Secured by land and     property.

19,625,000


19,796,000Revolving line of credit, interest at either prime rate or LIBOR plus 2%, due December 31,
    2001. Secured by property and equipment.

12,000,000


9,150,00051,554,000


57,253,000Less current portion

(20,942,000
)

(19,446,000
)$30,612,000


$37,807,000





During the fiscal
years ended September 30, 2000 and 2001, the Company had a revolving line of credit up to $12,000,000 collateralized by property and equipment. The outstanding principal balance on this line of credit bears interest at either the prime rate (6.0% at
September 30, 2001) or LIBOR plus 2% with interest payable at the beginning of each month. At September 30, 2001, the outstanding balance was $9,150,000. None of the $9,150,000 balance was borrowed at LIBOR. All outstanding principal and interest
amounts are due on December 31, 2001. The credit agreement contains various financial covenants and restrictions, including restrictions on the Companys ability to pay dividends and to effect mergers or acquisitions without the banks
approval. As of September 30, 2001, the Company was not in compliance with certain financial covenant provisions of the credit agreement. However the financial institution has waived the violations through September 30, 2001 and has negotiated a new
credit agreement with the Company consisting of two term loans in the amount of $6.0 million due December 31, 2002, and $2.7 million, due March 31, 2002. The new term loans bear interest at either the prime rate or LIBOR plus 2.0%, and prime rate or
LIBOR plus 2.5%, respectively. The new term loans are collateralized by equipment and other assets of the Company and require scheduled repayments of principal and interest at regular intervals throughout the terms of the agreement. This new
agreement contains various financial covenants and restrictions.





The Company capitalized $712,000, $772,000, and $499,000 of interest costs during 1999, 2000, and 2001 respectively, related to construction of new stores.





Principal payments due on longterm debt during the five years subsequent to
September 30, 2001 are as follows:





2002

$19,446,0002003

10,010,0002004

15,556,0002005

7,754,0002006

4,487,000$57,253,000




F-10


---








Note 4.    Income Taxes





The provision for income taxes is summarized as follows:





Years ended September 30,1999

2000

2001Current tax expense:Federal

$2,791,000

$              

$1,145,000State

980,000

3,000

483,000Total current

3,771,000

3,000

1,628,000Deferred federal tax expense

768,000

3,185,000

109,000Deferred state tax expense (benefit)

9,000

559,000

(190,000
)Total tax expense before cumulative effect of change in accounting principle

$4,548,000

$3,747,000

$1,547,000





Income taxes are
included in the statements of operations as follows:





Years ended September 30,1999

2000

2001Income tax expense on income before cumulative effect of change in      accounting principle

$4,548,000

$3,747,000


$1,547,000Cumulative effect of change in accounting principle



(800,000
)

Total tax expense

$4,548,000

$2,947,000


$1,547,000





A reconciliation of
the amount computed by applying the statutory federal income tax rate to the income before provision for income taxes to the provision for income taxes is as follows:





Years ended September 30,1999

2000

2001Amounts computed at 34% statutory federal rate

$3,894,000

$2,547,000

$1,329,000State taxes and other

654,000

400,000

218,000Provion for income taxes

$4,548,000

$2,947,000

$1,547,000





The tax effects of
temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at September 30, 2000 and 2001 are as follows:





September 30,2000

2001Write off of startup costs

$    837,000


$1,230,000Net present value of loss on lease obligation

40,000


81,000Inventories, pursuant to the Tax Reform Act of 1986

27,000


28,000Accrued rent

452,000


453,000Accrued vacation expense for financial reporting purposes

243,000


245,000Change in insurance asset net of deferred compensation

204,000


274,000Federal deduction for current year state tax expense

95,000


78,000Net operating loss carryforwards

120,000


Alternative minimum tax credit carryforwards

1,490,000


1,060,000State tax benefit

140,000


Total gross deferred tax assets

3,648,000


3,449,000Depreciation

(7,611,000
)

(7,332,000
)Total gross deferred tax liabilities

(7,611,000
)

(7,332,000
)Net deferred tax liabilities

$(3,963,000
)

$(3,883,000
)




F-11


---








At September 30,
2001, the Company had available alternative minimum tax credit carryforwards of $1,060,000. The Internal Revenue Code imposes certain conditions and possible limitations on the future availability of tax credit carryforwards, including limitations
arising from changes in the Companys ownership.





The
realization of deferred tax assets may be dependent upon the Companys ability to generate sufficient taxable income in future years. Although realization is not assured, management believes it is more likely than not that the deferred income
tax assets will be realized and therefore has not recorded a valuation allowance.





Note
5.    Shareholders Equity





| | Preferred Stock
| | ---------------




On February 15, 2001, the Board of Directors declared a dividend distribution of one Preferred Stock Purchase Right (each a Right and collectively the
Rights) for each outstanding share of Common Stock, $0.01 par value, of the Company. The distribution was paid on March 16, 2001 to stockholders of record on that date. Each Right entitles the registered holder to purchase from the
Company one one-hundredth of a share of the Companys Preferred Stock, at a price of $34.00. The Rights shall become exercisable once any person (with some limited exceptions) has acquired or commences to acquire a beneficial interest of at
least 20% of the Companys outstanding common stock.





The
Preferred Stock purchasable upon exercise of the Rights will be non-redeemable and junior to any other series of preferred stock the Company may issue (unless otherwise provided in the terms of such other series). Each share of Preferred Stock will
have a preferential cumulative quarterly dividend in an amount equal to the greater of (a) $85.00 or (b) 100 times the dividend declared on each share of Common Stock. In the event of liquidation, the holders of Preferred Stock will receive a
preferred liquidation payment equal to the greater of (a) $85.00 per share, plus accrued dividends to the date of distribution whether or not earned or declared, or (b) an amount per share equal to 100 times the aggregate payment to be distributed
per share of Common Stock. Each share of Preferred Stock will have 100 votes, voting together with the shares of Common Stock. In the event of any merger, consolidation or other transaction in which shares of Common Stock are exchanged for or
changed into other securities, cash and/or other property, each share of Preferred Stock will be entitled to receive 100 times the amount and type of consideration received per share of Common Stock. The rights of the Preferred Stock as to
dividends, liquidation and voting, and in the event of mergers and consolidations, are protected by customary anti-dilution provisions.





Prior to certain specified events, the Rights may be redeemed by the Board of Directors at a price of $0.001 per Right. There are 120,000 shares of Series A Preferred Stock
reserved for issuance upon exercise of the Rights. No shares have been issued as of September 30, 2001.





| | Common Stock
| | ------------




In October 1998, the Company announced that it intended to repurchase up to 500,000 shares of its common stock. As of September 30, 1999, the Company repurchased 132,000 shares of
common stock at an average price of $14.45, for a total of $1,908,000. All shares repurchased have been retired. The Company did not repurchase any shares during fiscal 2000 or 2001.





| | Stock Option Plans
| | ------------------




The Company has five stock option plans under which 1,782,500 options are authorized to be granted to employees, consultants and directors of the Company. Of this balance, 307,064
options are still available to be




F-12


---





granted as of September 30, 2001. The plans provide for the grant of both incentive stock options and nonqualified stock options. Under the plans, options to purchase common stock may be
granted for periods up to ten years at a price per share ranging from 85% to 110% of the fair market value of the Companys common stock at the date of grant. During fiscal 1999, 2000 and 2001, employee stock options were granted at the fair
market value of the stock at the date of grant. The options generally vest over periods of one to five years and may be exercised in annual installments ranging from one to ten years. Under the plans, directors will receive options to purchase
10,000 shares of common stock upon their election to the Board of Directors, and options to purchase 6,640 shares annually thereafter.





Activity for fiscal 1999, 2000 and 2001 with respect to these plans is as follows:





Shares Underlying Options

WeightedAverage Exercise PriceOutstanding at September 30, 1998


746,019




$   9.18Granted


180,460




$13.99Exercised


(204,317
)



$   8.36Canceled


(7,556
)



$12.77Outstanding at September 30, 1999


714,606




$10.59Granted


229,260




$13.80Exercised


(8,861
)



$   9.28Canceled


(10,964
)



$13.11Outstanding at September 30, 2000


924,041




$11.37Granted


256,500




$   7.88Exercised


(1,400
)



$   4.70Canceled


(20,666
)



$10.70Outstanding at September 30, 2001


1,158,475




$10.62





Options to purchase
an aggregate of 491,306, 624,661, and 792,716 shares were exercisable under the plans as of September 30, 1999, 2000, and 2001 respectively. The weighted average price of options exercisable under the plans as of September 30, 1999, 2000, and 2001
was $9.33, $10.30, and $10.88 per share, respectively. The weighted average exercise price of options granted under the plans during fiscal 1999, 2000, and 2001 was $13.99, $13.80, and $7.88 per share, respectively.





The following is a summary of stock options outstanding as September 30, 2001:





Options Outstanding

Options ExercisableRange of Exercise Prices

Number Outstanding at September 30, 2001

WeightedAverage Remaining Contractual Life In Years

WeightedAverage Exercise Price

Number Exercisable at September 30, 2001

WeightedAverage Exercise Price$  6.50  $  9.13


668,662



5.92



$   8.14



439,520



$   8.27$10.00  $12.75


119,711



6.71



$12.21



97,788



$12.09$13.00  $20.63


370,102



7.47



$14.58



255,408



$14.90$  6.50  $20.63


1,158,475



6.49



$10.62



792,716



$10.88





The Company applies
the intrinsic value method of accounting for its stockbased compensation. No compensation expense has been recognized for employee stock option grants, which were fixed in nature, as the options have been granted at fair market value. No
compensation expense has been recognized for the employee




F-13


---





stock purchase plan. Had compensation expense for the Companys stockbased compensation awards and employee stock purchase plan shares issued during fiscal 1999, 2000 and 2001 been
determined based on fair value at the grant dates, the Companys net income and net income per common share would have been reduced to the pro forma amounts indicated below:





Years ended September 30,1999

2000

2001Net income:Asreported

$6,904,000

$4,543,000

$2,362,000Proforma

$6,261,000

$2,833,000

$1,197,000Net income per common share:Basic:Asreported

$            1.24

$            0.80

$            0.42Proforma

$            1.12

$            0.50

$            0.21Diluted:Asreported

$            1.18

$            0.79

$            0.42Proforma

$            1.07

$            0.49

$            0.21





Pro forma net income
reflects only options granted since October 1, 1995. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma net income amounts presented above. The fair value of each option
grant is estimated on the date of grant using the BlackScholes option pricing model with the following weightedaverage assumptions for grants in fiscal 1999, 2000 and 2001, respectively: dividend yield of 0.0% for each year, expected
volatility of 77%, 91%, and 115.63%, riskfree interest of 4.72%, 5.96%, and 5.78% and expected lives of 6.7 years, 6.8 years, and 8.0 years. The fair value of the employees purchase rights pursuant to the employee stock purchase plan is
estimated using the BlackScholes model with the following assumptions for fiscal 1999, 2000 and 2001: dividend yield of 0% for each year, expected volatility of 77%, 91%, and 115.63%, riskfree interest rates of 4.44%, 5.57%, and 5.15%
and expected lives of 6 months for each year.





| | Employee Stock Purchase Plan
| | ----------------------------




During 1996, the Company implemented an employee stock purchase plan for all eligible employees to purchase shares of common stock at 85% of the lower of the
fair market value of a share of common stock on the first day of the offering period or the fair market value of a share of common stock on the purchase date.





Employees may authorize the Company to withhold up to 10% of their compensation during any offering period, subject to certain
limitations. During fiscal 1999, 2000 and 2001, 12,871, 17,379, and 18,781 shares were issued under the plan, respectively. At September 30, 2001, 176,467 shares were reserved for future issuance.





Note 6. 401(K) Savings Plan





The Company has a 401(k) Savings Plan (the Plan) which allows eligible employees to contribute from one percent to the maximum percentage as determined by the Plan
administrator (seventeen percent for the plan years ended 1999, 2000 and 2001) of pretax compensation, with the Company making discretionary matching contributions as determined each year by the Plan administrator. Employees vest immediately
in their contributions and vest in Company contributions over a fouryear period of service. Included in general and administrative expenses for fiscal 1999, 2000 and 2001 are Company contributions of $80,000, $122,000, and $60,000
respectively.




F-14


---








Note 7.    Deferred Compensation Plan





During 1998, the Company implemented a deferred compensation plan whereby a
select group of management employees may elect to defer up to 100% of their compensation into the plan. The Company makes matching contributions of 50% up to $6,000 for management and 100% up to $12,000 for officers and up to $20,000 for senior
officers. Matching contributions vest over a fouryear period (25% per year of service). Deferrals and matching contributions accrue earnings based upon the investment return of a portfolio selected by the participant from among portfolio
options specified in the plan. The Companys liability related to this plan at September 30, 1999, 2000 and 2001 was $514,000 and $957,000, and $1,101,000, respectively. The plan also provides a death benefit to participants who die while
employed by the Company. The death benefit is generally $100,000 but for executive officers is $500,000. The cash surrender value of such insurance at September 30, 1999, 2000 and 2001 was $438,000, $845,000, and $950,000, respectively. Benefits
under the plan are generally payable at retirement or attainment of a specified age. All contributions and earnings held under the plan remain assets of the Company and are subject to the claims of general creditors of the Company. There are
currently 21 participants in the plan. The plan is not intended to be a qualified plan under Section 401(a) of the Internal Revenue Code.





Note 8.    Commitments and Contingencies





The Company leases certain of its restaurant facilities, including land under noncancelable operating lease agreements. The leases expire at various dates through 2021 and contain
five to twentyyear renewal options. The leases provide that the Company pay the taxes, insurance and maintenance expenses related to the leasedfacilities, and the monthly rental payments are subject to periodic adjustments. Certain
leases contain fixed escalation clauses and rent under these leases is charged ratably over the lease term. The majority of the leases also provide for percentage rentals on sales above a specified minimum. The Company also has noncancelable
operating leases for trucks and certain other equipment that expire at various dates through 2007.





The aggregate future minimum lease commitments due are as follows:





Year Ending September 30,

Amount2002

$   12,966,0002003

12,942,0002004

12,889,0002005

11,891,0002006

11,210,000Thereafter

86,153,000Total minimum lease payments

$148,051,000





The Company incurred
rental expense under all operating leases of $6,447,000, $8,099,000, and $11,096,000 in fiscal 1999, 2000 and 2001, respectively. Rental expense includes percentage rents of $347,000, $437,000, and $515,000 for fiscal 1999, 2000 and 2001,
respectively.





The Company is party to various legal actions
relating to former employees. In the opinion of management, after reviewing the information, which is currently available with respect to these matters, and consulting with the Companys counsel, any liability that may ultimately be incurred
will not materially affect the liquidity, financial position or results of operations of the Company.







F-15


---




SIGNATURES





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





|Da | te: December 27, 2001
|-- | ---------------------

| | GA | RDEN FRESH RESTAURANT CORP.
| | -- | ---------------------------




| | /s/    MICHAEL P. MACK
| | ----------------------

| | By:
| | ---

| | Michael P. Mack
| | ---------------

| | Chief Executive Officer President
| | ---------------------------------




Pursuant to the requirements of the Securities Exchange Act of 1934, the following persons in the capacities indicated have signed this Report below on
December 27, 2001.





Signature

Title/s/    MICHAEL P. MACK Michael P. Mack

Chairman of the Board, Chief Executive Officer,      President and Director/s/    DAVID W. QUALLS David W. Qualls

Chief Financial Officer and Chief Accounting      Officer/s/    EDGAR F. BERNER Edgar F. Berner

Director/s/    ROBERT A. GUNST Robert A. Gunst

Director/s/    MICHAEL M. MINCHIN,
JR. Michael M. Minchin, Jr.

Director/s/    JOHN M. ROBBINS,
JR. John M. Robbins, Jr.

Director/s/    DAVID NIERENBERG David Nierenberg

Director





---




EXHIBIT INDEX





Exhibit Number

Description3.1*

Restated Certificate of Incorporation of Garden Fresh Restaurant Corp.3.2******

Certificate of Designation, Preferences and Rights of the Terms of the Series A Preferred Stock,
     as filed with the Delaware Secretary of State on February 23, 2001.3.3**

Bylaws of Garden Fresh Restaurant Corp., as amended.4.1******

Rights Agreement between the Company and Equiserve Trust Company, N. A., dates as of
     February 15, 2001.10.1**

Form of Indemnity Agreement for executive officers and directors.10.2**

The Companys Restaurant Management Stock Option Plan, as amended.10.3**

The Companys Key Employee Stock Option Plan, as amended.10.4**

The Companys 1995 Outside Director Stock Option Plan.10.5**

The Companys 1995 Key Employee Stock Option Plan, as amended.10.6***

Form of Executive Employment Agreement10.7***

Wells Fargo Bank Revolving Line of Credit Note10.8****

The Companys 1998 Stock Option Plan (subsequently amended to increase the share reserve to
     550,000)10.9****

The Companys Variable Deferred Compensation Plan for Executives10.9A****

Amendment to the Companys Variable Deferred Compensation Plan for Executives10.13**

Park Terrace Office Park lease between the Company and Park Terrace Partners dated
     November 1, 199110.14*****

Indemnification Agreement between the Company and David Qualls, Greg Keller, and Michael
     Mack dated April 28, 1998.10.15

Office Lease between the Company and Pacific Holding Company, dated September 14, 2001.10.16

Wells Fargo Bank Credit Agreement, dated December 3, 200123.1

Consent of Independent AccountantsKPMG LLP


---

|* |  | Incorporated by reference from Exhibit 4.1 filed with the Companys Registration Statement on Form S-8 (No. 33-93568) filed June 16, 1995.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------

|** |  | Incorporated by reference from the Exhibits with corresponding numbers filed with the Companys Registration Statement on Form S-1 (No. 33-90404), as amended by Amendment
No. 1 to Form S-1 filed on April 19, 1995, Amendment No. 2 for Form S-1 filed May 8, 1995, Amendment No. 3 to Form S-1 filed on May 15, 1995, Exhibit 10.2 is incorporated by reference from Exhibits 10.2 and 10.2A, Exhibit 10.3 is incorporated by
reference from Exhibits 10.3 and 10.3A and Exhibit 10.5 is incorporated by reference from Exhibit 10.5 and 10.5A.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*** |  | Incorporated by reference from the Exhibits with corresponding numbers filed with the Companys Form 10-Q filed with the SEC on February 13, 1998.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------

|**** |  | Incorporated by reference from the Exhibits with corresponding numbers filed with the Companys Form 10-Q filed with the SEC on April 28, 1998, as amended by Amendment No.
1 to Form 10-Q filed on April 28, 1998, Amendment No. 2 for Form 10-K filed on August 13, 1999, and Amendment No. 3 for Form 10-Q filed on December 29, 1999.
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|***** |  | Incorporated by reference from the Exhibits with corresponding numbers filed with the Companys Form S-1 (No. 33-51267) filed with the SEC on April 29, 1998.
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|****** |  | Incorporated by reference from the Form 8-K filed on February 23, 2001.
|------ |  | -----------------------------------------------------------------------