<PAGE>

                                                                      EXHIBIT 13

Gadzooks, Inc.

SELECTED FINANCIAL DATA
($ in thousands, except operating data
and per share amounts)

<Table>
<Caption>


                                                                                                           Fiscal Year Ended
                                            --------------------------------------------------------------------------------
                                            FEBRUARY 2,       February 3,      January 29,      January 30,      January 31,
                                                   2002              2001             2000             1999             1998
                                            -----------       -----------      -----------      -----------      -----------
<S>                                         <C>               <C>              <C>              <C>              <C>
INCOME STATEMENT DATA:
   Net sales                                $   313,823       $   288,411      $   240,253      $   207,172      $   170,828
   Cost of goods sold                           234,054           205,505          173,778          157,728          120,309
                                            -----------       -----------      -----------      -----------      -----------
   Gross profit                                  79,769            82,906           66,475           49,444           50,519
   Selling, general and
      administrative expenses                    69,758            63,450           55,558           49,496           37,962
   Provision for store closings and
      asset impairments                             563                --            1,721               --               --
                                            -----------       -----------      -----------      -----------      -----------
   Operating income (loss)                        9,448            19,456            9,196              (52)          12,557
   Interest income, net                             294               792              496              536              706
                                            -----------       -----------      -----------      -----------      -----------
   Income before income taxes                     9,742            20,248            9,692              484           13,263
   Provision for income taxes                     3,733             7,458            3,622               97            4,975
                                            -----------       -----------      -----------      -----------      -----------
   Net income                               $     6,009       $    12,790      $     6,070      $       387      $     8,288
                                            ===========       ===========      ===========      ===========      ===========
   Net income per share
      Basic                                 $      0.66       $      1.44      $      0.68      $      0.04      $      0.95
      Diluted                               $      0.65       $      1.38      $      0.67      $      0.04      $      0.91
   Average shares outstanding
      Basic                                       9,040             8,911            8,910            8,852            8,683
      Diluted                                     9,304             9,293            9,043            9,036            9,100

SELECTED OPERATING DATA:
   Comparable store sales
      increase (decrease)(1)                       (5.1%)             7.6%             5.4%            (5.6%)            1.8%
   Number of stores at year end                     431               375              326              312              250
   Average net sales per store              $   767,000       $   826,000      $   746,000      $   714,000      $   791,000
   Average net sales per square foot        $       312       $       345      $       315      $       302      $       338
   Total square footage at end of period      1,064,000           908,000          772,000          736,000          585,000
   Operating income percentage                      3.0%              6.7%             3.8%              --              7.3%
   Capital expenditures (in thousands)      $    14,275       $    12,936      $     7,008      $    10,082      $    12,624

BALANCE SHEET DATA:
   Working capital                          $    47,040       $    44,986      $    38,367      $    31,629      $    34,878
   Total assets                                 125,681           118,794           96,662           86,442           84,321
   Total debt                                        --                --               --               --               --
   Shareholders' equity                          86,853            79,388           66,145           60,031           58,480
</Table>

(1) A store becomes comparable after it has been open for 14 full fiscal months.

                                       9

<PAGE>


Gadzooks, Inc.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

Gadzooks is a mall-based specialty retailer of casual apparel and related
accessories for young men and women, principally between the ages of 14 and 18.
In the second half of fiscal 2001 the Company began testing a new retail concept
with the opening of four Orchid stores. The Orchid concept caters to the unique
innerwear and sleepwear needs of females between the ages of 14 and 22. The
Company opened its first store in 1983, and at fiscal year-end 2001, operated
427 Gadzooks stores and four Orchid stores in 40 states. The Company opened 56
Gadzooks stores and four Orchid stores in fiscal 2001, 52 Gadzooks stores in
fiscal 2000 and 19 Gadzooks stores in fiscal 1999. Four Gadzooks stores were
closed during fiscal 2001, three Gadzooks stores were closed during fiscal 2000
and five Gadzooks stores were closed during fiscal 1999.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of Gadzooks' consolidated 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 disclosure of contingent assets and
liabilities at the balance sheet date, as well as the reported amounts of
revenues and expenses during the reporting period. On an ongoing basis,
management evaluates such estimates including sales return rates, inventory
reserves, impairment of long-lived assets, income taxes and accrued expenses.
Actual results may differ from these estimates.

Gadzooks' accounting policies are generally straightforward, however, the
following require more significant management judgments and estimates.

REVENUE RECOGNITION. As discussed in Note 2 to the consolidated financial
statements, retail merchandise sales are recognized at the point of sale less
sales returns and employee discounts. Management records a provision for
estimated sales returns based on historical return rates. If sales return rates
change, an additional allowance may be required.

INVENTORY VALUATION. As discussed in Note 2 to the consolidated financial
statements, inventories are valued at the lower of average cost or market. In
addition, inventories include an allocation of buying and distribution costs to
prepare product for the stores. This inventory valuation method requires certain
management estimates and judgments, including estimates of merchandise
markdowns, which could significantly affect gross margin. Management estimates
the markdown reserve based on several factors, including but not limited to,
merchandise quantities, historical markdown percentages, aged seasonal
merchandise and future merchandise plans. If future demand or merchandise
markdowns are less favorable than those projected by management, additional
inventory adjustments may be required. On a monthly basis, management estimates
shrink based on historical shrink rates. These estimates are compared to actual
results as inventory counts are taken and reconciled to the general ledger
during the second and fourth quarter of each year. Gadzooks has not experienced
significant fluctuations in historical shrink rates.

LONG-TERM ASSET IMPAIRMENT. As discussed in Note 4 of the consolidated financial
statements, management periodically reviews its long-lived assets for impairment
and records a provision whenever events or circumstances indicate that the net
book value of the asset may not be recoverable. Impairment is determined based
on several factors, including but not limited to, current year operating loss or
cash flow loss combined with a history and forecast of operating or cash flow
losses and significant negative industry or economic trends. If management
determines that an impairment exists, an impairment loss is recognized if the
sum of the expected future cash flows (undiscounted and before interest) from
the use of the assets is less than the net book value of the assets. The amount
of the impairment loss is measured as the difference between the net book value
of the assets and the estimated fair market value of the related assets.

                                       10

<PAGE>


DEFERRED TAX ASSETS. As discussed in Note 8 of the consolidated financial
statements, the Company does not currently have a valuation allowance recorded
against its deferred tax assets. In the event that management determines it is
more likely than not that its deferred tax assets would not be realizable in the
future, a valuation allowance would be recorded to reduce the deferred tax asset
to its net realizable value.

ACCRUED EXPENSES. On a monthly basis, certain expenses are estimated in an
effort to reflect these expenses in the proper period. Gadzooks' most material
estimates relate to self-insurance reserves, store level operating expenses and
bonuses. The self-insurance reserves for medical and worker's compensation
claims are recorded based on historical claim levels adjusted for growth in the
employee base. If the historical claims used to calculate these estimates are
not reflective of actual results, additional expenses may be incurred up to the
point that the Company's stop loss insurance begins. The Company is self-insured
for property and casualty claims at the store level. Property and casualty
claims at the store level are estimated and recognized as incurred. Accrued
store level operating expenses are estimated based on current activity and
historical results. Bonuses are based on performance and projected performance
for the remainder of the bonus period. If actual results are significantly
different from Gadzooks' expectations, an adjustment to expenses may be
required.

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated certain selected income
statement data expressed as a percentage of net sales and certain store data:

<Table>
<Caption>

                                                                                                    Fiscal Year
                                                                             ----------------------------------
                                                                              2001          2000          1999
                                                                             ------        ------        ------
<S>                                                                          <C>           <C>           <C>
Net sales                                                                     100.0%        100.0%        100.0%
Cost of goods sold, including buying, distribution and occupancy costs         74.6          71.2          72.3
                                                                             ------        ------        ------
Gross profit                                                                   25.4          28.8          27.7
Selling, general and administrative expenses                                   22.2          22.0          23.2
Provision for store closings and asset impairments                              0.2            --           0.7
                                                                             ------        ------        ------
Operating income                                                                3.0           6.8           3.8
Interest income, net                                                            0.1           0.2           0.2
                                                                             ------        ------        ------
Income before income taxes                                                      3.1           7.0           4.0
Provision for income taxes                                                      1.2           2.6           1.5
                                                                             ------        ------        ------
Net income                                                                      1.9%          4.4%          2.5%
                                                                             ======        ======        ======
Number of stores open at end of period                                          431           375           326
</Table>

FISCAL YEAR. The Company's fiscal year is the 52- or 53-week period that ends on
the Saturday nearest January 31. Fiscal 2001 was the 52-week period ending
February 2, 2002. The Company estimates that the 53rd, or "extra," week included
in fiscal 2000 increased net income by about $450,000, or $.05 per diluted
share. The estimated impact of this 53rd week on the individual income statement
components is discussed under the respective captions below.

FISCAL 2001 COMPARED TO FISCAL 2000

Net sales increased approximately $25.4 million, or 8.8 percent, to $313.8
million during fiscal 2001 from $288.4 million during fiscal 2000. Excluding
sales of $4.5 million from the additional week in fiscal 2000, net sales
increased 10.5 percent in fiscal 2001. Net sales for the new stores opened
during fiscal 2001 and for those not yet qualifying as comparable stores
accounted for


                                       11
<PAGE>

Management's Discussion and Analysis, continued

$39.2 million of the total increase in sales. Comparable store sales decreased
by $13.8 million, or 5.1 percent, in fiscal 2001. The Company experienced
comparable store sales decreases in all of its merchandise categories. The
decrease in comparable store sales is attributed to increased competition and a
difficult retail environment. The average dollar sale increased by 2.5 percent
for the year, and the number of transactions per average store declined by 8.1
percent. A store becomes comparable after it has been open for 14 full fiscal
months.

Gross profit decreased approximately $3.1 million to $79.8 million during fiscal
2001 from $82.9 million in fiscal 2000. As a percentage of net sales, gross
profit decreased by 333 basis points to 25.42 percent from 28.75 percent in
fiscal 2000. The Company estimates that $1.7 million in gross profit was
attributable to the additional week in fiscal 2000. The 333 basis point decline
was the result of a 175 basis point increase in store occupancy costs as a
percentage of sales, a 143 basis point decrease in merchandise margin and a 15
basis point increase in buying and distribution costs as a percentage of sales.
Of the increase in store occupancy costs as a percentage of sales, 133 basis
points was due to negative sales leverage, and the rest was the result of a 2.8
percent increase in occupancy costs per average square foot due to the higher
costs associated with new stores. The decrease in merchandise margin of 143
basis points resulted from increased markdowns taken to manage inventory levels.
Buying and distribution costs as a percent of sales increased by 15 basis points
due to negative sales leverage.

Selling, general and administrative expenses increased approximately $6.3
million to $69.8 million in fiscal 2001 from $63.5 million in fiscal 2000. The
Company estimates that an additional $1.0 million in SG&A costs were
attributable to the additional week in fiscal 2000. The aggregate increase in
SG&A is primarily attributable to additional store expenses as a result of the
Company's expanded store base during the past year and an increase in
administrative costs to support the larger store base. As a percentage of net
sales, SG&A increased 23 basis points to 22.23 percent from 22.00 percent in
fiscal 2000. The increase in SG&A as a percentage of sales is primarily due to
negative sales leverage, and a charitable contribution accrual for over $300,000
related to a t-shirt program to raise funds for the victims of the September 11,
2001 attack on the United States. This increase was partially offset by the
leveraging of corporate expenses over a larger store base, a reduction in
performance-based compensation and the favorable settlement of litigation
against another mall tenant during the third quarter of fiscal 2001 that
resulted in a gain of approximately $740,000.

The Company's net interest income decreased $498,000 to $294,000 in 2001 from
$792,000 in fiscal 2000, due to both lower average cash balances and lower
interest rates in fiscal 2001.

The Company's effective income tax rate increased to 38.3 percent in fiscal 2001
from 36.8 percent in fiscal 2000. This increase is primarily due to an increase
in state income taxes resulting from an increase in the percentage of income
contributed by states at a higher tax rate.

PROVISION FOR ASSET IMPAIRMENTS. As indicated in Note 4 of the consolidated
financial statements, during fiscal 2001, the Company recorded a non-cash
impairment charge of $563,000 to reflect fixtures and leasehold improvements at
their respective estimated fair value in a total of six under-performing stores.
The Company closed one of these stores in March 2002. The remaining locations
are not targeted for closure. The total impairment charge is expected to reduce
depreciation expense by approximately $104,000 annually over the average
remaining useful lives of these assets (approximately 5.4 years). Certain stores
have been negatively impacted by the effects of the September 11, 2001 terrorist
attacks as well as by the entrance into new markets, as such, no assurance can
be given as to whether an impairment charge will be necessary in the future.
Management will continue to monitor these stores along with its regular review
of the performance of all the Company's stores. If management determines that it
is unlikely that a store with negative cash flows will increase its sales volume
to a level that would allow the store to generate positive cash flow, management
will consider remedial actions up to and including closing the store. If
management approves a plan for closing a store or stores, the Company will
recognize a provision for store closing costs during the quarter in which such
approval is granted.


                                       12
<PAGE>


FISCAL 2000 COMPARED TO FISCAL 1999

Net sales increased approximately $48.1 million, or 20.0 percent, to $288.4
million during fiscal 2000 from $240.3 million during fiscal 1999. Net sales
attributed to the 52 new stores opened during 2000 and for those not yet
qualifying as comparable stores (excluding the effect of the 53rd week)
contributed $25.4 million of the increase in total sales. Sales for the 53rd
week contributed $4.5 million to the total increase in sales. Comparable store
sales increased by $18.2 million, or 7.6 percent in fiscal 2000. The Company
experienced comparable store sales increases in all but two of its major
categories - young men's and shoes. The increase in comparable store sales is
due to several factors, including continued improvements in product mix, a
greater concentration of branded merchandise and visual merchandising
improvements. The merchandise changes drove increases in unit sales up more than
10 percent per average store over the prior year. The Company experienced an
overall decline in its average selling price per unit of approximately three
percent, which was due primarily to slight shifts in the sales mix toward
lower-priced merchandise, such as t-shirts and accessories.

Gross profit increased approximately $16.4 million to $82.9 million during
fiscal 2000 from $66.5 million in fiscal 1999. As a percentage of net sales,
gross profit increased 108 basis points to 28.75 percent from 27.67 percent in
fiscal 1999. The Company estimates that gross profit attributable to the 53rd
week approximated $1.7 million. The majority of the increase in gross profit
resulted from leverage achieved on store occupancy and buying and distribution
costs (which are relatively fixed in nature) due to comparable store sales
increases. Store occupancy and buying and distribution costs, as a percent of
sales, decreased by 75 basis points and seven basis points, respectively.
Merchandise margin increased approximately 26 basis points, which was due
primarily to a higher percentage of the Company's sales incurred in lower priced
merchandise with a higher initial mark-up, such as t-shirts, and the
introduction of private label and exclusive merchandise.

Selling, general and administrative expenses increased approximately $7.9
million to $63.5 million in fiscal 2000 from $55.6 million in fiscal 1999. The
Company estimates that SG&A attributable to the 53rd week approximated $1.0
million. The aggregate increase in SG&A is primarily attributable to additional
store expenses as a result of the Company's expanded store base during the past
year and an increase in administrative costs to support the larger store base.
As a percentage of net sales, SG&A decreased 112 basis points to 22.00 percent
in fiscal 2000 from 23.12 percent in fiscal 1999. The decrease in SG&A as a
percentage of sales is due primarily to the Company's ability to leverage
corporate overhead and store costs as a result of the comparable store sales
increase. These gains were partially offset by an increase in compensation, of
which a large portion is performance based.

Net interest income increased $296,000 to $792,000 in fiscal 2000 from $496,000
in fiscal 1999 primarily due to higher average cash balances on hand.

The Company's effective income tax rate decreased to 36.8 percent in fiscal 2000
from 37.4 percent in fiscal 1999. This decrease was primarily due to lower state
income taxes resulting from the implementation of a new legal structure of the
Company during the year, offset by the impact of graduated federal income tax
rates. Additionally, the Company favorably settled with the Internal Revenue
Service the open tax years of fiscal 1997 and 1998.

PROVISION FOR STORE CLOSINGS AND ASSET IMPAIRMENTS. During 1999, the Company
decided to close eight stores that had been identified as under-performing and
recognized a $1.2 million pre-tax provision for costs (consisting of the write
down of long-lived assets and lease termination costs) related to closing the
facilities. As of March 3, 2001, all of the eight stores had been closed. As of
February 3, 2001 substantially all costs to close the eight stores had been
incurred. The components of the provision, an analysis of amounts charged
against the accrual and the sales and operating loss data for the eight stores
are outlined in Note 3 of the consolidated financial statements.

As indicated in Note 4 of the consolidated financial statements, the Company
recorded a non-cash impairment charge of $533,000 in fiscal 1999 to reflect
fixtures and leasehold improvements at their respective estimated fair value in
six other under-performing stores.


                                       13
<PAGE>

Management's Discussion and Analysis, continued


The Company closed two of these six stores in fiscal 2001, the effects of which
were not material to the consolidated financial statements. The remaining
locations are not targeted for closure. The total impairment charge was expected
to reduce depreciation expense by approximately $115,000 annually over the
average remaining useful lives of these assets (approximately 3.7 years).
Management regularly reviews the performance of all the Company's stores. If
management determines that it is unlikely that a store with negative cash flow
will increase its sales volume to a level that would allow the store to generate
positive cash flow, management will consider remedial actions up to and
including closing the store. If management approves a plan for closing a store
or stores, the Company will recognize a provision for store closing costs during
the quarter in which such approval is granted.

The aforementioned charges totaling $1.7 million have been combined and are
reflected under the caption "Provision for store closings and asset impairments"
in the accompanying Consolidated Statement of Income for the respective year.

QUARTERLY RESULTS AND SEASONALITY

The Company's quarterly results of operations may fluctuate materially depending
on, among other things, the timing of new store openings, net sales contributed
by new stores, increases or decreases in comparable store sales and changes in
the Company's merchandise mix.

The Company's business is also subject to seasonal influences, with higher sales
during the Christmas holiday, back-to-school, and spring break seasons. The
Christmas holiday season remains the Company's single most important selling
season. The Company believes, however, that the significance of the
back-to-school season (which affects operating results in the second and third
quarters) and spring break season (which affects operating results in the first
quarter) reduces somewhat the Company's dependence on the Christmas holiday
selling season.

The following table sets forth certain statement of income and operating data
for each of the Company's last eight fiscal quarters. The following quarterly
data was derived from unaudited financial statements of the Company which, in
the opinion of management of the Company, contain all adjustments (consisting
only of normal recurring adjustments) necessary for fair presentation thereof.
Results for any quarter are not necessarily indicative of results that may be
achieved for a full fiscal year.

<Table>
<Caption>

                                                                       FISCAL 2001                                      Fiscal 2000
                                      ---------------------------------------------------------------------------------------------
                                         FIRST     SECOND        THIRD      FOURTH       First      Second      Third         Fourth
                                       QUARTER    QUARTER      QUARTER     QUARTER     Quarter     Quarter    Quarter     Quarter(1)
                                      --------   --------     --------    --------    --------    --------   --------    ----------
<S>                                   <C>        <C>          <C>         <C>         <C>         <C>        <C>         <C>
($ in thousands, except operating
data and per share amounts)
Statement of income data:
   Net sales                          $ 70,838   $ 72,553     $ 73,177    $ 97,255    $ 62,955    $ 64,223   $ 67,328    $ 93,904
   Gross profit                         19,926     14,285       18,860      26,699      17,881      16,801     18,512      29,712
   Operating income (loss)(2)            3,536     (2,129)       1,543       6,498       3,747       2,248      3,381      10,081
   Net income (loss)(2)                  2,366     (1,302)       1,001       3,945       2,495       1,537      2,311       6,447
   Net income (loss) per share(2)
      Basic                           $   0.26   $  (0.14)    $   0.11    $   0.43    $   0.28    $   0.17   $   0.26    $   0.72
      Diluted                         $   0.25   $  (0.14)    $   0.11    $   0.43    $   0.27    $   0.17   $   0.25    $   0.69
   Average shares outstanding
      Basic                              8,958      9,057        9,070       9,075       8,927       8,915      8,894       8,909
      Diluted                            9,435      9,057        9,264       9,238       9,381       9,215      9,248       9,325
Selected operating data:
   Stores open at end of period            391        408          426         431         328         345        368         375
</Table>

(1)  The fourth quarter of fiscal 2000 includes results for a 13-week period
     versus 12 weeks in the current year. The Company estimates that this 53rd
     week increased sales, gross profit, operating income, net income and
     diluted earnings per share by $4.5 million, $1.7 million, $720,000,
     $450,000 and $.05, respectively.

(2)  Includes a charge for asset impairments of $563,000 ($347,000 after tax, or
     $0.03 per diluted share) during the fourth quarter of 2001.


                                       14
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

GENERAL. During the last three fiscal years, the Company's primary uses of cash
have been to finance new store openings and store remodels, and to purchase
merchandise inventories. The Company has historically satisfied its cash
requirements principally from cash flow from operations and proceeds from the
sale of equity securities.

CASH FLOWS. During fiscal 2001, 2000 and 1999, cash flows from operating
activities were $7.4 million, $14.3 million and $9.3 million, respectively. Cash
flow from operations before working capital changes decreased to $13.8 million
in fiscal 2001 from $18.7 million in the prior year primarily due to the decline
in operating results discussed above.

Working capital components used $6.4 million in fiscal 2001. Cash used was
primarily the result of funding higher inventory levels ($7.7 million) as a
result of new store openings.

Working capital components used $4.4 million in fiscal 2000. Cash used was
primarily the result of funding higher inventory levels ($11.5 million) offset,
in part, by increases in accounts payable and income taxes payable of $7.6
million.

Cash used in investing activities approximated $14.0 million, $12.9 million and
$7.0 million for fiscal 2001, 2000 and 1999, respectively. The Company spent
$14.3 million on capital expenditures during fiscal 2001, the primary components
of which were $13.1 million to open new stores or remodel and refurbish existing
stores and $1.2 million to purchase and/or upgrade information systems and for
other corporate purposes.

The Company spent $12.9 million on capital expenditures during fiscal 2000, the
primary components of which were $11.6 million to open new stores or remodel and
refurbish existing stores and $1.3 million to purchase and/or upgrade
information systems and for other corporate purposes. The Company opened 56, 52
and 19 new Gadzooks stores in fiscal 2001, 2000 and 1999, respectively, and four
new Orchid stores in fiscal 2001.

Net cash flow provided by financing activities totaled $1.2 million, $291,000
and $24,000 for fiscal 2001, 2000 and 1999, respectively. The Company received
$968,000 and $435,000 from the exercise of employee stock options during fiscal
2001 and fiscal 2000, respectively. The Company received $207,000 for sales of
treasury stock in fiscal 2001 and used $144,000 for net purchases of treasury
stock in fiscal 2000.

CREDIT FACILITY. On June 1, 2001, the Company renewed and revised its existing
credit facility with Wells Fargo Bank. The revised facility provides an
unsecured revolving line of credit totaling $15 million. The total amount
available to borrow pursuant to the credit agreement is limited to 150% of cash
flow (as defined in the credit agreement) for the trailing 12-month period.
Amounts borrowed under the revolving line bear interest at the lesser of either
the bank's prime rate, or 195 basis points above LIBOR. The Company pays
commitment fees of 0.33% on the unused portion of the revolving line of credit.
The credit agreement also provides for the issuance of letters of credit that
are generally used in connection with international merchandise purchases.
Outstanding letters of credit issued by the bank reduce amounts otherwise
available for borrowing under the revolving line of credit. The credit facility
subjects the Company to various restrictions on the incurrence of additional
indebtedness, acquisitions, loans to officers and stock repurchases. The
covenants also require the Company to maintain certain tangible net worth,
working capital, debt to equity, net income and fixed charge coverage minimums
as well as certain other ratios customary in such agreements. At November 3,
2001, the Company was in technical default of its line of credit covenant that
requires net income of not less than $1 on a trailing two-quarter basis
determined as of each fiscal quarter end. Prior to the default, the bank issued
a waiver for the respective covenant through the end of the third quarter; the
Company will be subject to the covenant on a going forward basis and was in
compliance as of year end. Amounts available to borrow under the line of credit,
as limited by the cash flow multiple


                                       15
<PAGE>

Management's Discussion and Analysis, continued

and outstanding letters of credit, totaled $14.8 million at February 2, 2002. No
borrowings (other than letters of credit totaling $232,000) were outstanding
under the revolving line at February 2, 2002. Any amount borrowed under the
revolving line of credit will become due on June 1, 2002, the date the credit
agreement matures.

The Company has no other long-term financial commitments other than store,
corporate office and distribution center leases as outlined in detail in Note 7
to the consolidated financial statements.

CAPITAL EXPENDITURES. The Company anticipates capital expenditures of $8 million
to $10 million in fiscal 2002 to open 12 new Gadzooks stores, remodel one
existing store, update the look of selected existing stores and purchase and/or
upgrade information systems. The Company has hired a consultant to review the
current store base and provide recommendations on ways to update the look of
more mature stores. Further, they will develop a plan to increase the visual
appeal, flow and shop-ability of all stores. During fiscal 2001, the Company had
capital expenditures of $14.3 million, of which $13.1 million was used to open
56 new Gadzooks stores, four new Orchid stores, remodel six existing stores,
refurbish two stores and purchase other assets for open stores. The remaining
$1.2 million was used primarily for corporate purposes, such as the purchase
and/or upgrade of information systems. The Company believes that its existing
cash balances, cash generated from operations, and funds available under its
credit facility will be sufficient to satisfy its cash requirements through
fiscal 2002.

NEW ACCOUNTING PRONOUNCEMENTS

On February 4, 2001, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No.133, "Accounting for Derivative Instruments and Hedging
Activities," as amended by SFAS 137 and SFAS 138. These statements require the
recognition of all derivatives as either assets or liabilities on the balance
sheet and the measurement of those instruments at fair value. The statements
also established new accounting rules for hedging instruments which, depending
on the nature of the hedge, require that changes in the fair value of the
derivatives either be offset against the change in fair value of assets,
liabilities or firm commitments through earnings, or be recognized in other
comprehensive income (loss) until the hedged item is recognized in earnings. The
adoption of SFAS 133 had no impact on the Company's consolidated financial
statements.

In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No.141, "Business Combinations," and SFAS No.142, "Goodwill and Other Intangible
Assets." SFAS 141 supersedes Accounting Principles Board Opinion ("APB") No.16,
"Business Combinations." The provisions of SFAS 141 (1) require that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001, (2) provide specific criteria for the initial recognition
and measurement of intangible assets apart from goodwill and (3) require that
unamortized negative goodwill be written off immediately as an extraordinary
gain instead of being deferred and amortized. SFAS 142 supersedes APB No.17,
"Intangible Assets," and changes the accounting for goodwill from an
amortization method to an impairment-only approach. The Company's consolidated
financial statements will not be impacted by the adoptions of SFAS 141 and SFAS
142.

In August 2001, the FASB issued SFAS No.144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" effective for fiscal years beginning after
December 15, 2001 and replaces SFAS No.121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS 144
establishes an accounting model for long-lived assets to be disposed of by sale,
including discontinued operations, and replaces the provisions of APB 30 for the
disposal of segments of a business. SFAS 144 retains the fundamental provisions
of SFAS 121 concerning the recognition and measurement of long-lived assets to
be held and used and the measurement of long-lived assets to be disposed of by
sale. However, SFAS 144 provides additional guidance with regard to discontinued
operations and assets to be disposed of. In addition, SFAS 144 excludes goodwill
from its scope. The adoption of SFAS 144 will have no immediate impact on the
Company, but could result in future store closures being classified as
discontinued operations in the consolidated financial statements.


                                       16
<PAGE>


INFLATION

The Company does not believe that inflation has had a material effect on net
sales or results of operations. The Company has generally been able to pass on
increased costs through increases in selling prices.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company does not engage in trading market risk sensitive instruments and
does not purchase as investments, as hedges, or for purposes "other than
trading," instruments that are likely to expose the Company to market risk,
whether it be from interest rate, foreign currency exchange, commodity price or
equity price risk. The Company has issued no debt instruments, entered into no
forward or futures contracts, purchased no options and entered into no swaps.

The Company's primary market risk exposure is that of interest rate risk. A
change in LIBOR or the Prime Rate as set by Wells Fargo Bank would affect the
rate at which the Company could borrow funds under its credit facility.

STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE

Certain sections of this Annual Report, including the preceding "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
contain various forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934. This Report contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21F
of the Securities Exchange Act of 1934. When used in this report, words such an
"anticipate," "believe," "estimate," "expect," "intend," "predict," "project,"
and similar expressions, as they relate to us or our management, identify
forward-looking statements. These forward-looking statements are based on
information currently available to our management. Actual results could differ
materially from those contemplated by the forward-looking statements as a result
of certain factors, including but not limited to fluctuations in store sales
results, changes in economic conditions, fluctuations in quarterly results and
other factors described under the "Risk Factors" section of the Company's Annual
Report on Form 10-K for the fiscal year ended February 2, 2002. Such statements
reflect the current views of our management with respect to future events and
are subject to these and other risks, uncertainties and assumptions relating to
our operations, results of operations, growth strategy and liquidity. All
subsequent written and oral forward-looking statements attributable to us, or
persons acting on our behalf, are expressly qualified in their entirety by this
paragraph.


                                       17
<PAGE>


Gadzooks, Inc.

CONSOLIDATED BALANCE SHEETS

<Table>
<Caption>


                                                           FEBRUARY 2,          February 3,
                                                                  2002                 2001
                                                         -------------        -------------
<S>                                                      <C>                  <C>
ASSETS
   Current assets:
      Cash and cash equivalents                          $  14,868,373        $  20,284,368
      Accounts receivable                                    1,682,112            3,125,995
      Inventory                                             63,659,506           55,941,468
      Other current assets                                   1,931,244            1,956,079
                                                         -------------        -------------
                                                            82,141,235           81,307,910
                                                         -------------        -------------
   Leaseholds, fixtures and equipment, net                  41,009,291           36,025,881
   Deferred tax assets                                       2,530,036            1,459,884
                                                         -------------        -------------
                                                            43,539,327           37,485,765
                                                         -------------        -------------
                                                         $ 125,680,562        $ 118,793,675
                                                         =============        =============

LIABILITIES AND SHAREHOLDERS' EQUITY
   Current liabilities:
      Accounts payable                                   $  27,091,550        $  25,233,423
      Accrued payroll and benefits                           2,794,928            4,241,859
      Other current liabilities                              3,481,858            3,306,201
      Income taxes payable                                   1,733,229            3,540,830
                                                         -------------        -------------
                                                            35,101,565           36,322,313
   Accrued rent                                              3,726,255            3,083,419
   Commitments and contingencies (Note 7)
   Shareholders' equity:
      Preferred stock, $1.00 par value,
         1,000,000 shares authorized,
         none issued                                                --                   --
      Common stock, $.01 par value,
         25,000,000 shares authorized,
         9,117,237 and 8,969,825 shares
         issued and outstanding, respectively                   91,172               89,698
   Additional paid-in capital                               44,384,938           43,042,615
   Retained earnings                                        42,707,909           36,699,218
   Treasury stock, at cost, 39,063 and
         52,797 shares, respectively                          (331,277)            (443,588)
                                                         -------------        -------------
                                                            86,852,742           79,387,943
                                                         -------------        -------------
                                                         $ 125,680,562        $ 118,793,675
                                                         =============        =============
</Table>

The accompanying notes are an integral part of these consolidated financial
statements.



                                       18
<PAGE>


Gadzooks, Inc.

CONSOLIDATED STATEMENTS OF INCOME

<Table>
<Caption>

                                                                                          Fiscal Year Ended
                                                         --------------------------------------------------
                                                          FEBRUARY 2,        February 3,        January 29,
                                                                 2002               2001               2000
                                                         ------------       ------------       ------------
<S>                                                      <C>                <C>                <C>
Net sales                                                $313,822,954       $288,410,676       $240,252,299

Costs and expenses:
   Cost of goods sold, including buying,
      distribution and occupancy costs                    234,054,103        205,504,899        173,777,873
   Selling, general and administrative expenses            69,758,047         63,449,926         55,557,545
   Provision for store closings and asset impairments         563,081                 --          1,721,343
                                                         ------------       ------------       ------------
                                                          304,375,231        268,954,825        231,056,761
                                                         ------------       ------------       ------------
   Operating income                                         9,447,723         19,455,851          9,195,538

Interest expense                                              138,201            127,709             97,686
Interest income                                               432,603            919,423            594,339
                                                         ------------       ------------       ------------
   Income before income taxes                               9,742,125         20,247,565          9,692,191
Provision for income taxes                                  3,733,434          7,457,992          3,621,953
                                                         ------------       ------------       ------------
   Net income                                            $  6,008,691       $ 12,789,573       $  6,070,238
                                                         ============       ============       ============

Net income per share
   Basic                                                 $       0.66       $       1.44       $       0.68
                                                         ============       ============       ============
   Diluted                                               $       0.65       $       1.38       $       0.67
                                                         ============       ============       ============

Average shares outstanding

   Basic                                                    9,039,912          8,911,331          8,910,084
                                                         ============       ============       ============
   Diluted                                                  9,303,926          9,292,895          9,043,135
                                                         ============       ============       ============
</Table>

The accompanying notes are an integral part of these consolidated financial
statements.


                                       19
<PAGE>

Gadzooks, Inc.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<Table>
<Caption>

                                          Common Stock            Additional     Retained      Treasury Stock
                                       Shares      Capital   Paid-In-Capital     Earnings    Shares        Capital          Total
                                     ---------   ---------   ---------------  -----------   -------   ------------   ------------
<S>                                  <C>         <C>         <C>              <C>           <C>       <C>            <C>
BALANCE, JANUARY 30, 1999            8,892,736   $  88,927    $ 42,197,629    $17,855,453    15,226   $   (111,364)  $ 60,030,645
   Stock issued under option plans      29,792         298          65,274             --        --             --         65,572
   Purchase of treasury stock               --          --              --             --    25,000       (212,981)      (212,981)
   Sale of treasury stock                   --          --              --        (16,046)  (20,678)       187,890        171,844
   Tax benefit from exercise
      of stock options                      --          --          19,565             --        --             --         19,565
   Net income                               --          --              --      6,070,238        --             --      6,070,238
                                     ---------   ---------    ------------    -----------   -------   ------------   ------------

BALANCE, JANUARY 29, 2000            8,922,528      89,225      42,282,468     23,909,645    19,548       (136,455)    66,144,883
   Stock issued under option plans      47,297         473         434,504             --        --             --        434,977
   Purchase of treasury stock               --          --              --             --    50,000       (423,938)      (423,938)
   Sale of treasury stock                   --          --         163,177             --   (16,751)       116,805        279,982
   Tax benefit from exercise
      of stock options                      --          --         162,466             --        --             --        162,466
   Net income                               --          --              --     12,789,573        --             --     12,789,573
                                     ---------   ---------    ------------    -----------   -------   ------------   ------------

BALANCE, FEBRUARY 3, 2001            8,969,825      89,698      43,042,615     36,699,218    52,797       (443,588)    79,387,943
   Stock issued under option plans     147,412       1,474         966,255             --        --             --        967,729
   Sale of treasury stock                   --          --          95,156             --   (13,734)       112,311        207,467
   Tax benefit from exercise
      of stock options                      --          --         280,912             --        --             --        280,912
   Net income                               --          --              --      6,008,691        --             --      6,008,691
                                     ---------   ---------    ------------    -----------   -------   ------------   ------------

BALANCE, FEBRUARY 2, 2002            9,117,237   $  91,172    $ 44,384,938    $42,707,909    39,063   $   (331,277)  $ 86,852,742
                                     =========   =========    ============    ===========   =======   ============   ============
</Table>

The accompanying notes are an integral part of these consolidated financial
statements.



                                       20
<PAGE>

Gadzooks, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<Table>
<Caption>

                                                                                                         Fiscal Year Ended
                                                                      ----------------------------------------------------
                                                                       FEBRUARY 2,         February 3,         January 29,
                                                                              2002                2001                2000
                                                                      ------------        ------------        ------------
<S>                                                                   <C>                 <C>                 <C>
Cash flows from operating activities:
   Net income                                                         $  6,008,691        $ 12,789,573        $  6,070,238
   Adjustments to reconcile net income to net cash provided
      by operating activities:
      Provision for store closings                                              --                  --           1,188,547
      Impairment of long-lived assets                                      563,081                  --             532,796
      Loss on disposal of assets                                           140,319             193,939             288,813
      Depreciation                                                       8,344,301           6,951,320           5,841,152
      Deferred income taxes                                             (1,220,830)         (1,232,138)            (15,338)
   Changes in operating assets and liabilities:
      Accounts receivable                                                1,443,883          (1,909,416)          1,785,072
      Inventory                                                         (7,718,038)        (11,522,984)        (10,014,677)
      Other assets                                                         175,513             (35,079)           (146,331)
      Accounts payable                                                   1,858,127           4,838,048           2,246,639
      Accrued payroll and benefits                                      (1,446,931)            709,204           1,033,897
      Income taxes payable                                              (1,526,689)          2,792,532             930,329
      Other liabilities                                                    818,493             711,205            (467,219)
                                                                      ------------        ------------        ------------
            Net cash provided by operating activities                    7,439,920          14,286,204           9,273,918
                                                                      ------------        ------------        ------------
Cash flows from investing activities:
   Capital expenditures                                                (14,274,965)        (12,936,332)         (7,008,271)
   Proceeds from the sale of leaseholds, fixtures and equipment            243,854                  --                  --
                                                                      ------------        ------------        ------------
            Net cash used in investing activities                      (14,031,111)        (12,936,332)         (7,008,271)
                                                                      ------------        ------------        ------------
Cash flows from financing activities:
   Issuance of common stock, under options plans                           967,729             434,977              65,572
   Purchase of treasury stock                                                   --            (423,938)           (212,981)
   Sale of treasury stock under employee benefit plans                     207,467             279,982             171,844
                                                                      ------------        ------------        ------------
            Net cash provided by financing activities                    1,175,196             291,021              24,435
                                                                      ------------        ------------        ------------
Net increase (decrease) in cash and cash equivalents                    (5,415,995)          1,640,893           2,290,082
Cash and cash equivalents at beginning of year                          20,284,368          18,643,475          16,353,393
                                                                      ------------        ------------        ------------
Cash and cash equivalents at end of year                              $ 14,868,373        $ 20,284,368        $ 18,643,475
                                                                      ============        ============        ============
Cash paid during the year for:
   Interest                                                           $    135,257        $     68,564        $     93,348
   Income taxes                                                          6,482,779           5,900,872           2,736,158
</Table>


The accompanying notes are an integral part of these consolidated financial
statements.



                                       21
<PAGE>

Gadzooks, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1) ORGANIZATION AND NATURE OF THE COMPANY

Gadzooks, Inc. ("Gadzooks" or the "Company") is a mall-based, specialty retailer
of casual apparel and related accessories for young men and women principally
between the ages of 14 and 18. In the second half of fiscal 2001, the Company
began testing a new retail concept with the opening of four Orchid stores. The
Orchid concept caters to the unique innerwear and sleepwear needs of females
between the ages of 14 and 22. At February 2, 2002, the Company had 431
company-owned stores in metropolitan and middle markets in 40 states of which
427 were Gadzooks stores and four were Orchid stores.

The Company's fiscal year ends on the Saturday nearest January 31. All
references in these financial statements to fiscal years are to the calendar
year in which the fiscal year begins. Fiscal year 2000 represents the 53-week
period ended February 3, 2001 and fiscal years 2001 and 1999 represent the
52-week periods ended February 2, 2002 and January 29, 2000, respectively.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION. In June 2000, the Company completed a corporate
restructuring. The consolidated financial statements include the accounts of
Gadzooks, Inc. and its wholly-owned affiliates, Gadzooks Holding Company and
Gadzooks Management, L.P. All significant intercompany accounts and transactions
have been eliminated in consolidation.

USE OF ESTIMATES. The preparation of the financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make certain estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at February 2, 2002 and February 3, 2001 and the reported
amounts of revenues and expenses during each of the three years in the period
ended February 2, 2002. On an ongoing basis, management evaluates such estimates
including sales return rates, inventory reserves, impairment of long-lived
assets, income taxes and accrued expenses. The Company bases its estimates on
historical experience and on various other assumptions that the Company believes
to be reasonable under the circumstances, the results of which form the basis
for making judgements about the carrying value of assets and liabilities that
are not readily apparent from other sources. The self-insurance reserves for
medical and worker's compensation claims are recorded based on historical claim
levels adjusted for growth in the employee base. If the historical claims used
to calculate these estimates are not reflective of actual results, additional
expenses may be incurred up to the point that the Company's stop loss insurance
begins. The Company is self-insured for property and casualty claims at the
store level. Property and casualty claims at the store level are estimated and
recognized as incurred. Actual results could differ from these estimates.

CASH AND CASH EQUIVALENTS. Cash and cash equivalents include cash on hand and
marketable securities with original maturities of three months or less.

INVENTORY. Inventory is valued at the lower of average cost or market. In
addition, inventories include an allocation of buying and distribution costs to
prepare product for the stores less an estimate for shrink, which is based on
historical shrink rates and adjusted to actual levels twice a year.

LEASEHOLDS, FIXTURES AND EQUIPMENT. Leaseholds, fixtures and equipment are
stated at cost. Depreciation of fixtures and equipment is based upon the
estimated useful lives of the assets, generally from five to ten years, computed
on the straight-line method. Amortization of leasehold improvements is computed
on the straight-line method over estimated useful lives or lease terms, if
shorter. The Company reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate the respective net carrying amounts
may not be recoverable. An impairment loss is recognized if the sum of the
expected future cash flows (undiscounted and before interest) from the use of
the assets is less than the net book value of the assets. The amount of the
impairment loss is measured as the difference between the net book value of the
assets and the estimated fair value of the related assets. Impairment review of
long-lived assets is performed at the store level.


                                       22
<PAGE>


REVENUE RECOGNITION. Retail merchandise sales are recognized at the point of
sale less sales returns and employee discounts. Management records a provision
for estimated sales returns based on historical return rates. If sales return
rates change, an additional allowance may be required.

ADVERTISING. Advertising costs are expensed when incurred. Advertising costs
were $1,270,772, $1,212,657 and $748,311 for fiscal years 2001, 2000 and 1999,
respectively.

STORE PRE-OPENING COSTS. Costs incurred with the setup of a new store prior to
its opening for business are expensed as incurred.

INCOME TAXES. Deferred income taxes are provided on the liability method. Under
this method, deferred tax assets and liabilities are recognized based on
differences between the financial statement and the tax basis of assets and
liabilities using presently enacted tax rates. The Company reviews its deferred
tax assets for ultimate realization and will record a valuation allowance to
reduce the deferred tax asset if it is more likely than not that some portion,
or all, of these deferred tax assets will not be realized.

EARNINGS PER SHARE. Basic earnings per share are computed by dividing net income
by the weighted average number of shares outstanding during each period. Diluted
earnings per share are computed by dividing net income by the weighted average
number of shares outstanding during each period after giving effect to dilutive
potential common shares resulting from stock options.

RECLASSIFICATIONS. Certain prior year amounts have been reclassified to conform
to current year presentation.

FAIR VALUE OF FINANCIAL INSTRUMENTS. All financial instruments are recorded at
cost, which approximates fair value due to the short maturity of these
instruments. During fiscal 2001 and 2000, no financial instruments were held or
issued for trading purposes.

NEW ACCOUNTING PRONOUNCEMENTS. On February 4, 2001, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No.133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS 137 and SFAS
138. These statements require the recognition of all derivatives as either
assets or liabilities on the balance sheet and the measurement of those
instruments at fair value. The statements also established new accounting rules
for hedging instruments which, depending on the nature of the hedge, require
that changes in the fair value of the derivatives either be offset against the
charge in fair value of assets, liabilities or firm commitments through
earnings, or be recognized in other comprehensive income (loss) until the hedged
item is recognized in earnings. The adoption of SFAS 133 had no impact on the
Company's consolidated financial statements.

In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No.141, "Business Combinations," and SFAS No.142, "Goodwill and Other Intangible
Assets." SFAS 141 supersedes Accounting Principles Board Opinion ("APB") No.16,
"Business Combinations." The provisions of SFAS 141 (1) require that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001, (2) provide specific criteria for the initial recognition
and measurement of intangible assets apart from goodwill and (3) require that
unamortized negative goodwill be written off immediately as an extraordinary
gain instead of being deferred and amortized. SFAS 142 supersedes APB No.17,
"Intangible Assets," and changes the accounting for goodwill from an
amortization method to an impairment-only approach. The Company's consolidated
financial statements will not be impacted by the adoptions of SFAS 141 and SFAS
142.

In August 2001, the FASB issued SFAS No.144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" effective for fiscal years beginning after
December 15, 2001 and replaces SFAS No.121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS 144
establishes an accounting model for long-lived assets to be disposed of by sale,
including discontinued operations, and replaces the provisions of APB 30 for the
disposal of segments of a business. SFAS 144 retains the fundamental provisions
of SFAS 121 concerning the recognition and measurement of long-lived assets to
be held and used and the measurement of long-lived assets to be disposed of by
sale. However, SFAS 144 provides additional guidance with regard to discontinued
operations and assets to be disposed of. In addition, SFAS 144 excludes goodwill
from its scope. The adoption of SFAS 144 will have no immediate impact on the
Company, but could result in future store closures being classified as
discontinued operations in the consolidated financial statements.


                                       23
<PAGE>

Notes to Consolidated Financial Statements, continued


(3) PROVISION FOR STORE CLOSINGS

During 1999, the Company decided to close eight stores that had been identified
as under-performing, and recognized a $1,189,000 pre-tax provision for costs
related to closing the facilities. As of March 3, 2001, all of the eight stores
had been closed. As of February 2, 2002, all costs to close the eight stores had
been incurred. The components of the provision and an analysis of the amounts
charged against the accrual are outlined below.

<Table>
<Caption>

                                        1999     Charges         Reserve      Charges        Reserve       Charges       Reserve
                                    Original     through      Balance at      through     Balance at       through    Balance at
In thousands                       provision    01/29/00       01/29/00      02/03/01       02/03/01      02/02/02      02/02/02
                                   ---------    --------      ----------     --------     ----------      --------    ----------
<S>                                <C>          <C>           <C>            <C>          <C>             <C>         <C>
Lease termination costs              $   382     $  (263)       $   119       $  (113)       $     6       $    (6)      $    --
Impairment of long-lived assets          807        (807)            --            --             --            --            --
                                     -------     -------        -------       -------        -------       -------       -------
Total                                $ 1,189     $(1,070)       $   119       $  (113)       $     6       $    (6)      $    --

</Table>

As a result of a change in estimate, the Company recorded $6,000 of the original
store closing provision as a reduction to selling, general and administrative
expenses in fiscal 2001. Sales and operating losses of the eight stores are
shown below for the years ended February 2, 2002, February 3, 2001 and January
29, 2000 (unaudited):

<Table>
<Caption>

                         FEBRUARY 2,        February 3,        January 29,
                                2002               2001               2000
                         -----------        -----------        -----------
<S>                      <C>                <C>                <C>
Sales                    $    53,447        $   883,117        $ 3,015,017
Operating loss                (8,995)           (58,608)          (695,402)
</Table>

(4) IMPAIRMENT OF LONG-LIVED ASSETS

In accordance with Statement of Financial Accounting Standards No.121,
"Accounting for the Impairment of Long-Lived Assets to be Disposed of," which
requires that long-lived assets held and used by an entity be reviewed for
impairment whenever events or circumstances indicate that the net book value of
the asset may not be recoverable, the Company recorded a non-cash impairment
charge of $563,000 in fiscal 2001 to reflect fixtures and leasehold improvements
at their respective estimated fair value in a total of six under-performing
stores. In March 2002, the Company closed one of these stores, the effect of
which was not material to the consolidated financial statements. The remaining
locations are not targeted for closure. The Company also recorded non-cash
impairment charges of $533,000 in fiscal 1999 to reflect fixtures and leasehold
improvements at their respective estimated fair value in six under-performing
stores. The Company closed two of these stores in fiscal 2001, the effects of
which were not material to the consolidated financial statements. The remaining
locations are not targeted for closure. Management regularly reviews the
performance of all the Company's stores. If management determines that it is
unlikely that a store's sales volume will increase to a level that would allow
the store to generate positive cash flows, management will consider remedial
actions up to and including closing the store. If management approves a plan for
closing a store or stores, the Company will recognize a provision for store
closing costs during the quarter in which such approval is granted.


                                       24
<PAGE>

(5) LEASEHOLDS, FIXTURES AND EQUIPMENT

Leaseholds, fixtures and equipment are summarized as follows:

<Table>
<Caption>

                                                FEBRUARY 2,          February 3,
                                                       2002                2001
                                               ------------        ------------
<S>                                            <C>                 <C>
Leasehold improvements                         $ 43,469,311        $ 35,748,417
Fixtures and equipment                           29,473,009          24,789,217
                                               ------------        ------------
                                                 72,942,320          60,537,634
Less accumulated depreciation                   (31,933,029)        (24,511,753)
                                               ------------        ------------
                                               $ 41,009,291        $ 36,025,881
                                               ============        ============
</Table>

(6) LONG-TERM OBLIGATIONS

On June 1, 2001, the Company renewed and revised its existing credit facility
with Wells Fargo Bank. The revised facility provides an unsecured revolving line
of credit totaling $15 million. The total amount available to borrow pursuant to
the credit agreement is limited to 150% of cash flow (as defined in the credit
agreement) for the trailing 12-month period. Amounts borrowed under the
revolving line bear interest at the lesser of either the bank's prime rate, or
195 basis points above LIBOR. The Company pays commitment fees of 0.33% on the
unused portion of the revolving line of credit. The credit agreement also
provides for the issuance of letters of credit that are generally used in
connection with international merchandise purchases. Outstanding letters of
credit issued by the bank reduce amounts otherwise available for borrowing under
the revolving line of credit. The credit facility subjects the Company to
various restrictions on the incurrence of additional indebtedness, acquisitions,
loans to officers and stock repurchases. The covenants also require the Company
to maintain certain tangible net worth, working capital, debt to equity, net
income and fixed charge coverage minimums as well as certain other ratios
customary in such agreements. At November 3, 2001, the Company was in technical
default of its line of credit covenant that requires net income of not less than
$1 on a trailing two-quarter basis determined as of each fiscal quarter end.
Prior to the default, the bank issued a waiver for the respective covenant
through the end of the third quarter; the Company will be subject to the
covenant on a going forward basis and was in compliance as of year end. Amounts
available to borrow under the line of credit, as limited by the cash flow
multiple and outstanding letters of credit, totaled $14.8 million at February 2,
2002. Any amount borrowed under the revolving line of credit will become due on
June 1, 2002, the date the credit agreement matures. Prior to June 1, 2002,
management expects to be able to renegotiate and extend this facility under
terms no less favorable to the Company than those of the current credit
agreement. No assurance can be given, however, that such negotiations will be
successful, or that the Company will be able to obtain terms equivalent to the
current credit agreement. No borrowings other than $232,000 in letters of credit
were outstanding under the revolving line at February 2, 2002.


                                       25
<PAGE>
Notes to Consolidated Financial Statements, continued


(7) COMMITMENTS AND CONTINGENCIES

OPERATING LEASES. The Company leases store, office, and warehouse space under
non-cancelable leases with terms that generally range from five to ten years.
Most of the store leases provide for additional rentals based on a percentage of
store sales and specify rental increases over the term of the lease. Total rent
expense under these operating leases was $28,029,808, $23,112,695 and
$20,775,846, for fiscal years 2001, 2000 and 1999, respectively. Included in
these total rent figures are $735,000, $608,000 and $350,000 of contingent rent
for fiscal years 2001, 2000 and 1999, respectively. Accrued rent of $3,726,255
as of February 2, 2002 and $3,083,419 as of February 3, 2001 has been provided
to account for rent expenses on a straight-line basis. Future minimum lease
payments under non-cancelable operating leases as of February 2, 2002 are as
follows:

<Table>
<Caption>

Fiscal year
-----------
<S>                                   <C>
2002                                  $ 28,243,787
2003                                    28,272,668
2004                                    27,451,639
2005                                    26,196,581
2006                                    23,533,500
Thereafter                              62,222,962
                                      ------------
Total minimum lease payments          $195,921,137
                                      ============
</Table>

LITIGATION. In the ordinary course of business, the Company is periodically a
party to lawsuits. The Company does not believe that any resulting liability
from existing legal proceedings, individually or in the aggregate, will have a
material adverse effect on its operations or financial condition. During the
third quarter of fiscal 2001, the Company favorably settled a lawsuit against
another mall tenant which resulted in a gain of approximately $740,000.

(8) Income Taxes

The provision for federal and state income taxes consists of the following:

<Table>
<Caption>

                                                                          Fiscal
                              --------------------------------------------------
                                     2001               2000                1999
                              -----------        -----------        ------------
<S>                           <C>                <C>                <C>
Current tax expense           $ 4,954,264        $ 8,690,125         $ 3,637,291
Deferred tax benefit           (1,220,830)        (1,232,133)            (15,338)
                              -----------        -----------         -----------
                              $ 3,733,434        $ 7,457,992         $ 3,621,953
                              ===========        ===========         ===========
</Table>

The following table reconciles the provision for income taxes to the amount
computed by applying the U.S. statutory federal tax rate of 34% to pre-tax
income:


<Table>
<Caption>

                                                                                                    Fiscal
                                                         -------------------------------------------------
                                                                2001               2000               1999
                                                         -----------        -----------        -----------
<S>                                                      <C>                <C>                <C>
Tax provision at the federal corporate rate              $ 3,312,323        $ 6,884,172        $ 3,295,345
State income taxes, net of related federal benefit           433,458            599,533            410,099
Graduated federal rate                                            --            100,000                 --
Tax exempt interest                                          (38,134)                --                 --
Other, net                                                    25,787           (125,713)           (83,491)
                                                         -----------        -----------        -----------
Provision for income taxes                               $ 3,733,434        $ 7,457,992        $ 3,621,953
                                                         ===========        ===========        ===========
</Table>



                                       26
<PAGE>


Deferred tax assets (liabilities) are comprised of the following:

<Table>
<Caption>

                                                    February 2,      February 3,
                                                           2002             2001
                                                     ----------       ----------
<S>                                                  <C>              <C>
Deferred tax assets:
   Accruals not currently deductible                 $2,363,393       $1,750,452
   Depreciation                                       1,327,047          719,158
                                                     ----------       ----------
                                                      3,690,440        2,469,610
Deferred tax liabilities                                     --               --
                                                     ----------       ----------
                                                     $3,690,440       $2,469,610
                                                     ==========       ==========
</Table>


At February 2, 2002 and February 3, 2001, $1,160,404 and $1,009,726,
respectively of net current deferred tax assets were classified as other current
assets. The early disposition of certain qualified stock options and the
exercise of certain nonqualified stock options in fiscal 2001, 2000 and 1999
resulted in income tax benefits to the Company of $280,912, $162,466 and $19,565
respectively, which was credited to additional paid-in capital. The income tax
benefit is the tax effect of the difference between the market price on the date
of exercise and the option price.

(9)  EMPLOYEE BENEFIT PLANS

Effective January 1, 1995, the Company established the Gadzooks, Inc. Employees'
Savings Plan (the "401(k) Plan"). The 401(k) Plan is open to substantially all
employees who have been employed at least one year and who work at least 1,000
hours per year. Under the 401(k) Plan, a participant may contribute up to 15% of
pre-tax earnings, with the Company matching 50% of the employee's contribution
up to 5% of earnings. Employee and Company contributions are paid to a corporate
trustee and invested in various mutual funds or the Company's common stock at
the discretion of the participant. Company contributions made to participants'
accounts become 100% vested on the fifth anniversary of the employee's initial
participation in the Plan. For the years ended February 2, 2002, February 3,
2001 and January 29, 2000, the Company contributed $213,362, $104,854 and
$130,837, respectively, in matching contributions to the 401(k) Plan. During
fiscal 2001, 252 shares of the Company's treasury stock were sold to the 401(k)
plan at the closing price for the respective pay period.

On June 18, 1998, the shareholders approved the Gadzooks, Inc. Employee Stock
Purchase Plan ("ESPP"). The ESPP allows eligible employees the right to purchase
common stock on a monthly basis at 85% of the closing market price of the shares
on the last day of the respective calendar month. The aggregate number of shares
that may be offered under the ESPP was increased from 60,000 to 110,000 in
fiscal 2000. During fiscal 2001, 2000 and 1999, 13,482, 16,751 and 20,678
shares, respectively, of the Company's common stock were sold to employees
pursuant to the plan. The Company may purchase shares of common stock from time
to time on the open market to provide shares for sale pursuant to the ESPP.

(10) STOCK OPTION PLANS

The Company has three incentive and nonstatutory stock option plans. The
"Employee Plan" for employees and consultants was adopted in February 1992; the
"Key Employee Plan" for key employees was adopted in September 1994; and the
"Nonemployee Director Plan" for the Company's outside directors was adopted in
August 1995. Under these plans, options are granted to purchase common stock at
a price no less than fair market value at the grant date. For options granted
prior to the initial public offering, the Board of Directors considered various
factors in determining fair market value including, among other things, the
rights and preferences of holders of other securities issued by the Company, the
financial position and results of operations of the Company, and the liquidity
of the Company's common stock. Subsequent to the initial public offering, all
shares have been granted at the closing price of the Company's common stock
traded on The Nasdaq Stock Market on the date of grant. Options have vesting
periods of generally two to five years from date of grant and may be exercised
at any time once they become vested, but not more than 10 years from the date of
grant.


                                       27
<PAGE>

Notes to Consolidated Financial Statements, continued

During fiscal 2000, the Employee Plan was amended to adjust the maximum
aggregate number of shares that may be optioned and sold under the plan to
2,100,000 shares. During fiscal 1998, the Nonemployee Director Plan was amended
to adjust the maximum aggregate number of shares that may be optioned and sold
to 100,000 shares. The maximum aggregate number of shares that may be optioned
and sold under the Key Employee Plan is 272,651 shares.

The following table includes option information for the Employee Plan, Key
Employee Plan and Nonemployee Director Plan:

<Table>
<Caption>

                                                                                                                      Fiscal
                                      --------------------------------------------------------------------------------------
                                                          2001                          2000                            1999
                                      ------------------------      ------------------------    ----------------------------
                                                      WEIGHTED                      Weighted                        Weighted
                                                       AVERAGE                       Average                         Average
                                                      EXERCISE                      Exercise                        Exercise
                                         SHARES          PRICE         Shares          Price       Shares              Price
                                      ---------    -----------      ---------    -----------    ---------        -----------
<S>                                   <C>          <C>              <C>          <C>            <C>                 <C>
Outstanding at beginning of year      1,117,511    $     10.64      1,049,652    $      9.72      870,070        $      9.71
Granted                                 308,039          20.04        197,025          15.79      555,580               9.82
Exercised                              (142,036)          6.41        (52,273)          9.41      (30,192)              2.21
Cancelled                               (49,240)         17.37        (76,893)         11.89     (345,806)             10.50
                                      ---------    -----------      ---------    -----------    ---------        -----------
Outstanding at end of year            1,234,274    $     13.21      1,117,511    $     10.64    1,049,652        $      9.72
                                      ---------    -----------      ---------    -----------    ---------        -----------
Available for grant at end of year      400,898                       659,697                     179,829
                                      ---------                     ---------                   ---------
</Table>

The following table summarizes information about stock options outstanding at
February 2, 2002:

<Table>
<Caption>


                                                         Options Outstanding                     Options Exercisable
                         ---------------------------------------------------         -------------------------------
                                                Weighted
                                                 Average            Weighted                                Weighted
                              Number           Remaining             Average              Number             Average
Range of                 Outstanding         Contractual            Exercise         Exercisable            Exercise
Exercise Prices          at 02/02/02                Life               Price         at 02/02/02               Price
---------------          -----------         -----------       -------------         -----------       -------------
<S>                      <C>                 <C>               <C>                   <C>               <C>
$  0.21 - $ 7.00             166,113             6 years       $        6.06             105,053       $        5.66
   7.25 -  11.56             263,460             7 years                9.24             125,110                9.16
  11.60 -  12.38             345,158             7 years               12.00             170,586               11.91
  12.44 -  21.63             243,256             9 years               15.91              36,452               16.37
  22.06 -  28.13             216,287             9 years               22.41              19,267               25.48
----------------         -----------                                                 -----------
$  0.21 - $28.13           1,234,274                                                     456,468
----------------         -----------                                                 -----------
</Table>

The Company measures and records compensation expense in accordance with current
practices as prescribed by APB No.25, "Accounting for Stock Issued to
Employees," and provides disclosure about pro forma compensation expense in
accordance with SFAS No.123, "Accounting for Stock-Based Compensation."

If the Company had elected to recognize compensation expense based on the fair
value of options granted at the grant date as prescribed by SFAS 123, net income
and earnings per share would have been reduced to the pro forma amounts
indicated in the following table:

<Table>
<Caption>

                                                                                                 Fiscal
                                               --------------------------------------------------------
                                                         2001                 2000                 1999
                                               --------------       --------------       --------------
<S>                                            <C>                  <C>                  <C>
Net income - as reported                       $    6,008,691       $   12,789,573       $    6,070,238
Net income - pro forma                              3,391,047           10,764,338            4,831,365
Diluted earnings per share - as reported                 0.65                 1.38                 0.67
Diluted earnings per share - pro forma                   0.36                 1.16                 0.53
</Table>


                                       28
<PAGE>


The fair value of each option grant is estimated as of the date of grant using
the Black-Scholes Multiple Option pricing model with the following
weighted-average assumptions used for grants:

<Table>
<Caption>

                                                                   Fiscal
                              -------------------------------------------
                                   2001              2000            1999
                              ---------         ---------       ---------
<S>                           <C>               <C>             <C>
Expected volatility           207%              226%            248%
Risk-free interest rate       4.4%              4.6%            6.5%
Expected lives                4.4 years         4.1 years       4.2 years
Dividend yield                  0%                0%              0%
</Table>

The weighted average fair value of options granted was $19.22, $15.23 and $9.63
per share for fiscal 2001, 2000 and 1999, respectively.

(11)  EARNINGS PER SHARE

The following table outlines the Company's calculation of weighted average
shares outstanding:

<Table>
<Caption>

                                                                                                  Fiscal
                                                           ---------------------------------------------
                                                                2001              2000              1999
                                                           ---------         ---------         ---------
<S>                                                        <C>               <C>               <C>
Weighted average common shares outstanding (basic)         9,039,912         8,911,331         8,910,084
Effect of dilutive options                                   264,014           381,564           133,051
                                                           ---------         ---------         ---------
Weighted average common and dilutive
   potential shares outstanding (diluted)                  9,303,926         9,292,895         9,043,135
                                                           =========         =========         =========
</Table>

The treasury stock method is used to determine dilutive potential common shares
outstanding related to stock options. Options which, based on their exercise
price, would be antidilutive are not considered in the treasury stock method
calculation. Options excluded from the earnings per share calculation due to
their antidilutive nature totaled 225,057, 51,232 and 215,389 in fiscal 2001,
2000 and 1999, respectively.

(12)  SHAREHOLDER RIGHTS PLAN

On September 3, 1998, the Company declared a dividend of one Preferred Share
Purchase Right ("Right") on each outstanding share of Gadzooks, Inc. common
stock. The dividend distribution was made on September 15, 1998 to shareholders
of record on that date. The Rights become exercisable if a person or group
acquires 20 percent or more of the Company's common stock or announces its
intent to do so. Each Right will entitle shareholders to buy one one-thousandth
of a new series of junior participating preferred stock at an exercise price of
$110. When the Rights become exercisable, the holder of each Right (other than
the acquiring person or members of such group) is entitled (1) to purchase, at
the Right's then current exercise price, a number of the acquiring company's
common shares having a market value of twice such price; (2) to purchase, at the
Right's then current exercise price, a number of the Company's common shares
having a market value of twice such price; or (3) at the option of the Company,
to exchange the Rights (other than Rights owned by such person or group), in
whole or in part, at an exchange ratio of one share of common stock (or
one-thousandth of a share of the new series of junior participating preferred
stock) per Right. The Rights may be redeemed for one cent each by the Company at
any time prior to acquisition by a person (or group) of beneficial ownership of
20 percent or more of the Company's common stock. The Rights will expire on
September 15, 2008.


                                       29
<PAGE>

Gadzooks, Inc.

REPORT OF INDEPENDENT ACCOUNTANTS

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF GADZOOKS, INC.

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Gadzooks,
Inc. and its subsidiaries at February 2, 2002 and February 3, 2001, and the
results of their operations and their cash flows for each of the three years in
the period ended February 2, 2002 in conformity with accounting principles
generally accepted in the United States of America. 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 of these statements in accordance with auditing standards
generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.


/s/ PRICEWATERHOUSECOOPERS LLP

Fort Worth, Texas

March 7, 2002


                                       30
<PAGE>


Gadzooks, Inc.

CORPORATE INFORMATION

DIRECTORS                                       OFFICERS

GERALD R. SZCZEPANSKI                           GERALD R. SZCZEPANSKI
Chairman of the Board                           Chairman of the Board and
Co-Founder of Gadzooks                          Chief Executive Officer
Director since 1983
                                                PAULA Y. MASTERS
WILLIAM C. BOUSQUETTE(A)                        President and
Former Senior Vice President and                Chief Merchandising Officer
Chief Financial Officer
Texaco, Inc. (retired)                          JAMES A. MOTLEY
Director since 2001                             Vice President and
                                                Chief Financial Officer
G. MICHAEL MACHENS(A),(C)                       Treasurer and Secretary
Managing General Partner
Phillips-Smith-Machens                          WILLIAM S. KOTCH III
   Venture Partners                             Senior Vice President
Director since 1992                             Real Estate

ROBERT E.M. NOURSE(C)                           GEORGE S. SOTIRIN
President                                       Vice President
Arena Growth Ventures                           Store Operations
Director since 1993
                                                STEPHEN R. PUTERBAUGH
RON G. STEGALL(A)                               Vice President
President                                       Human Resources
Arlington Equity Partners, Inc.
Director since 1999                             JEFFREY P. CREECY
                                                Vice President
LAWRENCE H. TITUS, JR.(A)                       Information Systems
Co-Founder of Gadzooks
(retired)
Director since 1983

(A) Audit Committee

(B) Compensation Committee

SHARE PRICE DATA

The following table sets forth, for the quarterly periods indicated, the high
and low closing prices per share of the common stock as reported on The Nasdaq
Stock Market:

<Table>
<Caption>

                                                  2001                      2000
                                   ---------------------------------------------
Fiscal Quarters                      High          Low         High          Low
---------------                    ------       ------       ------       ------
<S>                                <C>          <C>          <C>          <C>
First Quarter                      $24.64       $17.00       $24.13       $12.38
Second Quarter                      17.56        12.47        23.13         7.94
Third Quarter                       15.90        11.95        18.75        11.00
Fourth Quarter                      15.36        10.90        21.13        12.94
</Table>

On March 28, 2002 the closing sales price on The Nasdaq Stock Market was $17.45.
As of March 28, 2002, the approximate number of common shareholders of record
was 88, although the Company believes that the actual number of beneficial
owners is significantly higher. The Company presently intends to retain earnings
for use in its business and therefore does not anticipate declaring a cash
dividend in the near future.

Certain statements contained in this Annual Report (other than historical
information) are forward-looking statements that involve risks and
uncertainties. Reference is made to the "Risk Factors" section of the Company's
most recent Annual Report on Form 10-K filed with the U.S. Securities and
Exchange Commission for factors that, among others, could cause the actual
results of the Company to differ materially from those contained in the
forward-looking statements.

ANNUAL MEETING

The Annual Meeting of Gadzooks, Inc. will be held at 9:00 a.m. CST, on June 13,
2002, at the Company's headquarters.

TRANSFER AGENT AND REGISTRAR

Mellon Investor Services
Overpeck Centre
85 Challenger Road
Ridgefield Park, NJ 07660
(800) 635-9270
www.mellon-investor.com

CORPORATE COUNSEL

Akin, Gump, Strauss, Hauer & Feld, L.L.P.
Dallas, Texas

INDEPENDENT ACCOUNTANTS

PricewaterhouseCoopers LLP
Fort Worth, Texas

SHAREHOLDER INFORMATION

A copy of Form 10-K, excluding exhibits, as filed with the Securities and
Exchange Commission, may be obtained without charge upon written request to
Investor Relations at the Company's headquarters. Copies of exhibits are
available upon payment of a $125.00 fee to cover the costs of reproduction.

COMMON STOCK

Listed on The Nasdaq Stock Market(SM) -- Symbol: GADZ

CORPORATE HEADQUARTERS

4121 International Parkway
Carrollton, Texas 75007
(972) 307-5555
(972) 662-4290 Fax
www.gadzooks.com

Gadzooks and the Gadzooks logo are registered trademarks and service marks of
Gadzooks, Inc.

Gaditude is a registered service mark of Gadzooks, Inc.

                                       31