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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

|                                         |  |                              
|---------------------------------------- |  | -----------------------------
|For the Quarter Ended September 30, 2001 |  | Commission File No. 001-10887

JENNY CRAIG, INC.




(Exact name of registrant as specified in its charter)


|                         |  |                                     
|------------------------ |  | ------------------------------------
|DELAWARE                 |  | 33-0366188                          
|                        
|(State of Incorporation) |  | (I.R.S. Employer Identification No.)

|                                            |  |           
|------------------------------------------- |  | ----------
|11355 NORTH TORREY PINES ROAD, LA JOLLA, CA |  | 92037     
|                                           
|(Address of principal executive offices)    |  | (Zip Code)

|                                                   |               
|-------------------------------------------------- | --------------
|Registrants telephone number, including area code | (858) 812-7000
|                                                   |               

| |                                                                                                                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.

Yes  [X]  No  [   ]

| |                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------
| | Number of shares of common stock, $.000000005 par value, outstanding
as of the close of business on November 12, 2001  20,688,971.

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TABLE OF CONTENTS



|                            |                                                                                               |                                                      |  |  |  |  |  | 
|--------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|                            | ITEM 1. FINANCIAL STATEMENTS                                                                 
|                            |                                                                                               | CONSOLIDATED BALANCE SHEETS                         
|                            |                                                                                               | UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS     
|                            |                                                                                               | UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                            |                                                                                               | NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|                            | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                            | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|PART II  OTHER INFORMATION
|                            | Item 1. Legal Proceedings                                                                    
|                            | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURE                  



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##### Table of Contents






ITEM 1. FINANCIAL STATEMENTS




JENNY CRAIG, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ in thousands)

|                                                                    |                                                                                                                                                                    |                            |                           |         |          |        |               |         |             |        | 
|------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------- | ------------------------- | ------- | -------- | ------ | ------------- | ------- | ----------- | ------ | 
|                                                                    |                                                                                                                                                                    |                            |                           |         | June 30, |        | September 30,
|                                                                    |                                                                                                                                                                    |                            |                           |         | 2001     |        | 2001         
|                                                                    |                                                                                                                                                                    |                            |                           |         |          |        |              
|                                                                    |                                                                                                                                                                    |                            |                           |         |          |        |               |         | (unaudited)
|ASSETS                                                              |                                                                                                                                                                    |                            |                           |         |          |        |               |        
|Cash and cash equivalents                                           |                                                                                                                                                                    | $                          | 38,433                    |         |          |        | 52,078        |        
|Accounts receivable, net                                            |                                                                                                                                                                    |                            | 2,076                     |         |          |        | 2,302         |        
|Inventories                                                         |                                                                                                                                                                    |                            | 11,427                    |         |          |        | 10,972        |        
|Prepaid expenses and other assets                                   |                                                                                                                                                                    |                            | 3,441                     |         |          |        | 3,493         |        
|                                                                    |                                                                                                                                                                    |                            |                           |         |          |        |               |        
|                                                                    |                                                                                                                                                                    | Total current assets       |                           |         | 55,377   |        |               |         | 68,845      |       
|Deferred tax assets                                                 |                                                                                                                                                                    |                            | 125                       |         |          |        | 168           |        
|Cost of reacquired area franchise rights and other intangibles, net |                                                                                                                                                                    |                            | 7,460                     |         |          |        | 7,229         |        
|Property and equipment, net                                         |                                                                                                                                                                    |                            | 22,216                    |         |          |        | 13,960        |        
|Other assets                                                        |                                                                                                                                                                    |                            | 459                       |         |          |        | 479           |        
|                                                                    |                                                                                                                                                                    |                            |                           |         |          |        |               |        
|                                                                    |                                                                                                                                                                    | $                          | 85,637                    |         |          |        | 90,681        |        
|                                                                    |                                                                                                                                                                    |                            |                           |         |          |        |               |        
|LIABILITIES AND STOCKHOLDERS EQUITY                                |                                                                                                                                                                    |                            |                           |         |          |        |               |        
|Accounts payable                                                    |                                                                                                                                                                    | $                          | 15,255                    |         |          |        | 13,555        |        
|Accrued liabilities                                                 |                                                                                                                                                                    |                            | 15,420                    |         |          |        | 13,427        |        
|Current installments of obligation under capital lease              |                                                                                                                                                                    |                            | 684                       |         |          |        | 696           |        
|Accrual for litigation judgment                                     |                                                                                                                                                                    |                            | 10,525                    |         |          |        | 1,347         |        
|Deferred service revenue                                            |                                                                                                                                                                    |                            | 10,423                    |         |          |        | 9,835         |        
|                                                                    |                                                                                                                                                                    |                            |                           |         |          |        |               |        
|                                                                    |                                                                                                                                                                    |                            | Total current liabilities |         |          | 52,307 |               |         |             | 38,860 | 
|Note payable, excluding current installments                        |                                                                                                                                                                    |                            | 4,957                     |         |          |        |              |        
|Obligation under capital lease, excluding current installments      |                                                                                                                                                                    |                            | 1,048                     |         |          |        | 812           |        
|                                                                    |                                                                                                                                                                    |                            |                           |         |          |        |               |        
|                                                                    |                                                                                                                                                                    |                            | Total liabilities         |         |          | 58,312 |               |         |             | 39,672 | 
|                                                                    |                                                                                                                                                                    |                            |                           |         |          |        |               |        
|Stockholders equity:                                               |                                                                                                                                                                    |                            |                           |         |          |        |               |        
|                                                                    | Common stock $.000000005 par value, 100,000,000 shares
authorized; 27,580,260 shares issued; 20,688,971 shares
outstanding at June 30, 2001 and September 30, 2001 |                            |                           |        |          |        |               |        |            
|                                                                    | Additional paid-in capital                                                                                                                                         |                            |                           | 71,622  |          |        |               | 71,622  |            
|                                                                    | Retained earnings                                                                                                                                                  |                            |                           | 30,070  |          |        |               | 54,064  |            
|                                                                    | Accumulated other comprehensive income                                                                                                                             |                            |                           | 395     |          |        |               | 85      |            
|                                                                    | Treasury stock, at cost: 6,891,289 shares at June 30, 2001 and
September 30, 2001                                                                                  |                            |                           | (74,762 | )        |        |               | (74,762 | )          
|                                                                    |                                                                                                                                                                    |                            |                           |         |          |        |               |        
|                                                                    |                                                                                                                                                                    | Total stockholders equity |                           |         | 27,325   |        |               |         | 51,009      |       
|Commitments and contingencies                                       |                                                                                                                                                                    |                            |                           |         |          |        |               |        
|                                                                    |                                                                                                                                                                    |                            |                           |         |          |        |               |        
|                                                                    |                                                                                                                                                                    | $                          | 85,637                    |         |          |        | 90,681        |        
|                                                                    |                                                                                                                                                                    |                            |                           |         |          |        |               |        

See accompanying notes to unaudited consolidated financial statements.

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JENNY CRAIG, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands, except per share amounts)

|                                        |                           |  |                                   |                                               |   |                    |        |      |  |        |        | 
|--------------------------------------- | ------------------------- |  | --------------------------------- | --------------------------------------------- | - | ------------------ | ------ | ---- |  | ------ | ------ | 
|                                        |                           |  |                                   |                                               |   | Three Months Ended
|                                        |                           |  |                                   |                                               |   | September 30,     
|                                        |                           |  |                                   |                                               |   |                   
|                                        |                           |  |                                   |                                               |   | 2000               |        | 2001
|                                        |                           |  |                                   |                                               |   |                    |        |     
|Revenues:                               |                           |  |                                   |                                               |   |                    |        |     
|                                        | Company-owned operations: |  |                                   |                                               |   |                    |        |      | 
|                                        |                           |  | Product sales                     |                                               | $ | 57,103             |        |      |  | 63,933 |       
|                                        |                           |  | Service revenue                   |                                               |   | 4,253              |        |      |  | 4,421  |       
|                                        |                           |  |                                   |                                               |   |                    |        |     
|                                        |                           |  | 61,356                            |                                               |   |                    | 68,354 |     
|                                        |                           |  |                                   |                                               |   |                    |        |     
|                                        | Franchise operations:     |  |                                   |                                               |   |                    |        |      | 
|                                        |                           |  | Product sales                     |                                               |   | 4,251              |        |      |  | 4,494  |       
|                                        |                           |  | Royalties                         |                                               |   | 711                |        |      |  | 764    |       
|                                        |                           |  | Initial franchise fees            |                                               |   | 75                 |        |      |  | 25     |       
|                                        |                           |  |                                   |                                               |   |                    |        |     
|                                        |                           |  | 5,037                             |                                               |   |                    | 5,283  |     
|                                        |                           |  |                                   |                                               |   |                    |        |     
|                                        | Licensing revenue         |  |                                   |                                              |   |                    |        | 279  | 
|                                        |                           |  |                                   |                                               |   |                    |        |     
|                                        |                           |  |                                   | Total revenues                                |   |                    | 66,393 |      |  |        | 73,916 | 
|                                        |                           |  |                                   |                                               |   |                    |        |     
|Costs and expenses:                     |                           |  |                                   |                                               |   |                    |        |     
|                                        | Company-owned operations: |  |                                   |                                               |   |                    |        |      | 
|                                        |                           |  | Product                           |                                               |   | 56,099             |        |      |  | 59,192 |       
|                                        |                           |  | Service                           |                                               |   | 3,101              |        |      |  | 3,039  |       
|                                        |                           |  |                                   |                                               |   |                    |        |     
|                                        |                           |  | 59,200                            |                                               |   |                    | 62,231 |     
|                                        |                           |  |                                   |                                               |   |                    |        |     
|                                        | Franchise operations:     |  |                                   |                                               |   |                    |        |      | 
|                                        |                           |  | Product                           |                                               |   | 3,051              |        |      |  | 3,228  |       
|                                        |                           |  | Other                             |                                               |   | 257                |        |      |  | 268    |       
|                                        |                           |  |                                   |                                               |   |                    |        |     
|                                        |                           |  | 3,308                             |                                               |   |                    | 3,496  |     
|                                        |                           |  |                                   |                                               |   |                    |        |     
|                                        |                           |  | 3,885                             |                                               |   |                    | 8,189  |     
|General and administrative expenses     |                           |  | 5,593                             |                                               |   |                    | 6,063  |     
|Litigation judgment                     |                           |  | 219                               |                                               |   |                    | (9,178 | )   
|                                        |                           |  |                                   |                                               |   |                    |        |     
|                                        |                           |  | Operating income (loss)           |                                               |   | (1,927             | )      |      |  | 11,304 |       
|Other income, net, principally interest |                           |  | 345                               |                                               |   |                    | 392    |     
|Gain on sale of building                |                           |  |                                  |                                               |   |                    | 12,385 |     
|                                        |                           |  |                                   |                                               |   |                    |        |     
|                                        |                           |  | Income (loss) before income taxes |                                               |   | (1,582             | )      |      |  | 24,081 |       
|Income taxes                            |                           |  | 154                               |                                               |   |                    | 87     |     
|                                        |                           |  |                                   |                                               |   |                    |        |     
|                                        |                           |  |                                   | Net income (loss)                             |   | $                  | (1,736 | )    |  |        | 23,994 | 
|                                        |                           |  |                                   |                                               |   |                    |        |     
|                                        |                           |  |                                   | Basic and diluted net income (loss) per
share |   | $                  | (.08   | )    |  |        | 1.16   | 
|                                        |                           |  |                                   |                                               |   |                    |        |     

See accompanying notes to unaudited consolidated financial statements.

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JENNY CRAIG, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)

|                                                             |                                                      |                                                                                                    |                                                       |                                                     |        |                    |        |        |        |         |        |  
|------------------------------------------------------------ | ---------------------------------------------------- | -------------------------------------------------------------------------------------------------- | ----------------------------------------------------- | --------------------------------------------------- | ------ | ------------------ | ------ | ------ | ------ | ------- | ------ | -
|                                                             |                                                      |                                                                                                    |                                                       |                                                     |        | Three Months Ended
|                                                             |                                                      |                                                                                                    |                                                       |                                                     |        | September 30,     
|                                                             |                                                      |                                                                                                    |                                                       |                                                     |        |                   
|                                                             |                                                      |                                                                                                    |                                                       |                                                     |        | 2000               |        | 2001  
|                                                             |                                                      |                                                                                                    |                                                       |                                                     |        |                    |        |       
|Cash flows from operating activities:                        |                                                      |                                                                                                    |                                                       |                                                     |        |                    |        |       
|                                                             |                                                      | Net income (loss)                                                                                  |                                                       | $                                                   | (1,736 | )                  |        |        | 23,994 |        
|                                                             |                                                      | Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities: |                                                       |                                                     |        |                    |        |        |        |        
|                                                             |                                                      |                                                                                                    | Depreciation and amortization                         |                                                     |        | 1,372              |        |        |        | 1,204   |       
|                                                             |                                                      |                                                                                                    | Provision for deferred income taxes (benefit)         |                                                     |        | 2,161              |        |        |        | (43     | )     
|                                                             |                                                      |                                                                                                    | Write-off of cost of reacquired area franchise rights |                                                     |        | 209                |        |        |        |        |       
|                                                             |                                                      |                                                                                                    | (Gain) loss on disposal of property and equipment     |                                                     |        | 1                  |        |        |        | (12,343 | )     
|                                                             |                                                      |                                                                                                    | (Increase) decrease in:                               |                                                     |        |                    |        |        |        |         |       
|                                                             |                                                      |                                                                                                    |                                                       | Accounts receivable                                 |        |                    | 298    |        |        |         | (226   | )
|                                                             |                                                      |                                                                                                    |                                                       | Inventories                                         |        |                    | 853    |        |        |         | 455    |  
|                                                             |                                                      |                                                                                                    |                                                       | Prepaid expenses and other assets                   |        |                    | (374   | )      |        |         | (71    | )
|                                                             |                                                      |                                                                                                    | Increase (decrease) in:                               |                                                     |        |                    |        |        |        |         |       
|                                                             |                                                      |                                                                                                    |                                                       | Accounts payable                                    |        |                    | (928   | )      |        |         | (1,700 | )
|                                                             |                                                      |                                                                                                    |                                                       | Accrued liabilities                                 |        |                    | (396   | )      |        |         | (1,993 | )
|                                                             |                                                      |                                                                                                    |                                                       | Accrual for litigation judgment                     |        |                    | 219    |        |        |         | (9,178 | )
|                                                             |                                                      |                                                                                                    |                                                       | Deferred service revenue                            |        |                    | (123   | )      |        |         | (588   | )
|                                                             |                                                      |                                                                                                    |                                                       |                                                     |        |                    |        |       
|                                                             |                                                      |                                                                                                    |                                                       | Net cash provided by (used in) operating activities |        |                    | 1,556  |        |        |         | (489   | )
|                                                             |                                                      |                                                                                                    |                                                       |                                                     |        |                    |        |       
|Cash flows from investing activities:                        |                                                      |                                                                                                    |                                                       |                                                     |        |                    |        |       
|                                                             | Purchase of property and equipment                   |                                                                                                    |                                                       | (163                                                | )      |                    |        | (800   | )     
|                                                             | Proceeds from sale of building                       |                                                                                                    |                                                       |                                                    |        |                    |        | 20,318 |       
|                                                             | Proceeds from maturity of short-term investments     |                                                                                                    |                                                       | 925                                                 |        |                    |        |       |       
|                                                             |                                                      |                                                                                                    |                                                       |                                                     |        |                    |        |       
|                                                             |                                                      |                                                                                                    |                                                       | Net cash provided by investing activities           |        |                    | 762    |        |        |         | 19,518 |  
|                                                             |                                                      |                                                                                                    |                                                       |                                                     |        |                    |        |       
|Cash flows from financing activities:                        |                                                      |                                                                                                    |                                                       |                                                     |        |                    |        |       
|                                                             | Principal payments on note payable and capital lease |                                                                                                    |                                                       | (258                                                | )      |                    |        | (5,181 | )     
|                                                             |                                                      |                                                                                                    |                                                       |                                                     |        |                    |        |       
|Effect of exchange rate changes on cash and cash equivalents |                                                      |                                                                                                    | (2,631                                                | )                                                   |        |                    | (203   | )     
|                                                             |                                                      |                                                                                                    |                                                       |                                                     |        |                    |        |       
|Net increase (decrease) in cash and cash equivalents         |                                                      |                                                                                                    | (571                                                  | )                                                   |        |                    | 13,645 |       
|Cash and cash equivalents at beginning of period             |                                                      |                                                                                                    | 34,710                                                |                                                     |        |                    | 38,433 |       
|                                                             |                                                      |                                                                                                    |                                                       |                                                     |        |                    |        |       
|Cash and cash equivalents at end of period                   |                                                      | $                                                                                                  | 34,139                                                |                                                     |        |                    | 52,078 |       
|                                                             |                                                      |                                                                                                    |                                                       |                                                     |        |                    |        |        |        |        
|Supplemental disclosure of cash flow information:            |                                                      |                                                                                                    |                                                       |                                                     |        |                    |        |       
|                                                             | Income taxes paid                                    |                                                                                                    | $                                                     | 465                                                 |        |                    |        | 220    |       
|                                                             | Interest paid                                        |                                                                                                    |                                                       | 156                                                 |        |                    |        | 47     |       

See accompanying notes to unaudited consolidated financial statements.

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JENNY CRAIG, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001

1. The accompanying unaudited consolidated financial statements do not include
all of the information and footnotes required by accounting principles
generally accepted in the United States of America for complete financial
statements. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, considered necessary for a fair presentation have
been included. Operating results for any interim period are not necessarily
indicative of the results for any other interim period or for the full year.
These statements should be read in conjunction with the June 30, 2001
consolidated financial statements.

2. In October 2001, the California Court of Appeal reversed a substantial
portion of an $8.7 million judgment rendered against the Company in 1999
arising from a dispute with a former landlord. The judgment, which included
compensatory and punitive damages for alleged fraud totaling $7.2 million, was
reversed and the award of damages for breach of the lease was reduced to
approximately $700,000. The appellate court also reversed the award of
$569,000 in attorneys fees to the plaintiff, and directed the trial court to
redetermine the proper amount in view of the reduced amount of damages awarded.
This reversal is the reason for both the decrease in the accrual for litigation
judgment on the accompanying consolidated balance sheet at September 30, 2001
and the $9,178,000 litigation judgment credit on the accompanying consolidated statement of
operations for the quarter ended September 30, 2001.

3. In July 2001, the Company completed the sale of its corporate office
building for $21,000,000. Concurrent with the sale, the note payable, which
totaled $5,147,000 at June 30, 2001, was paid in full. A gain on the sale of
the building totaling $12,385,000 was recorded in the quarter ended September
30, 2001. After repayment of the note payable and expenses of the sale, the
Company received net cash proceeds of $15,154,000.

4. The weighted average number of shares used to calculate basic net income
(loss) per share was 20,688,971 for the quarters ended September 30, 2000 and
2001. Stock options had the effect of increasing the number of shares used in
the diluted net income per share calculation by application of the treasury
stock method by 2,676 shares for the quarter ended September 30, 2001. The
effect of 2,462,000 stock options have been excluded from the calculation of
diluted net loss per share for the quarter ended September 30, 2000 as
inclusion of their effect would be antidilutive.

5. Comprehensive income (loss) for the quarters ended September 30, 2000 and
2001 presented below includes foreign currency translation items. There was no
tax expense or tax benefit associated with the foreign currency items.

|                                         |  |                    |        |      |  |  |        |  
|---------------------------------------- |  | ------------------ | ------ | ---- |  |  | ------ | -
|                                         |  | Three Months Ended
|                                         |  | September 30,     
|                                         |  |                   
|                                         |  | 2000               |        | 2001
|                                         |  |                    |        |     
|Net income (loss)                        |  | $                  | (1,736 | )    |  |  | 23,994 |  
|Foreign currency translation adjustments |  |                    | (2,631 | )    |  |  | (310   | )
|                                         |  |                    |        |      |  |  |        |  
|Comprehensive income (loss)              |  | $                  | (4,367 | )    |  |  | 23,684 |  
|                                         |  |                    |        |      |  |  |        |  

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6. The Company operates in the weight management industry.
Substantially all revenue results from the sale of weight management products
and services, whether the centre is operated by the Company or its franchisees.
The Companys reportable segments consist of Company-owned operations and
franchise operations, further segmented by geographic area. The following
presents information about the respective reportable segments ($ in thousands):

|                         |                                 |  |  |               |  |                     |        |        |  |  |        |    
|------------------------ | ------------------------------- |  |  | ------------- |  | ------------------- | ------ | ------ |  |  | ------ | ---
|                         |                                 |  |  |               |  | Three Months       
|                         |                                 |  |  |               |  | Ended September 30,
|                         |                                 |  |  |               |  |                    
|                         |                                 |  |  |               |  | 2000                |        | 2001  
|                         |                                 |  |  |               |  |                     |        |       
|Revenue:                 |                                 |  |  |               |  |                     |        |       
|                         | Company-owned operations:       |  |  |               |  |                     |        |        | 
|                         |                                 |  |  | United States |  | $                   | 51,733 |        |  |  | 58,716 |    
|                         |                                 |  |  | Foreign       |  |                     | 9,623  |        |  |  | 9,638  |    
|                         | Franchise operations:           |  |  |               |  |                     |        |        | 
|                         |                                 |  |  | United States |  |                     | 3,613  |        |  |  | 3,650  |    
|                         |                                 |  |  | Foreign       |  |                     | 1,424  |        |  |  | 1,633  |    
|                         | Licensing revenue-United States |  |  |              |  |                     |        | 279    | 
|Operating income (loss): |                                 |  |  |               |  |                     |        |       
|                         | Company-owned operations:       |  |  |               |  |                     |        |        | 
|                         |                                 |  |  | United States |  |                     | (3,281 | )      |  |  | 9,907  | (1)
|                         |                                 |  |  | Foreign       |  |                     | 481    |        |  |  | 247    |    
|                         | Franchise operations:           |  |  |               |  |                     |        |        | 
|                         |                                 |  |  | United States |  |                     | 428    |        |  |  | 379    |    
|                         |                                 |  |  | Foreign       |  |                     | 445    |        |  |  | 492    |    
|                         | Licensing revenue-United States |  |  |              |  |                     |        | 279    | 
|Identifiable assets:     |                                 |  |  |               |  |                     |        |       
|                         | United States                   |  |  | 86,728        |  |                     |        | 75,694 | 
|                         | Foreign                         |  |  | 15,380        |  |                     |        | 14,987 | 



---

|(1) |  | Includes the reversal of a litigation judgment totaling $9,178,000. See
note 2.
|--- |  | -------------------------------------------------------------------------------

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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

Information provided in this Report on Form 10-Q may contain, and the
Company may from time to time disseminate material and make statements which
may contain forward-looking information, as that term is defined by the
Private Securities Litigation Reform Act of 1995 (the Act). These
forward-looking statements may relate to anticipated financial performance,
business prospects and similar matters. The words expects, anticipates,
believes, and similar words generally signify a forward-looking statement.
These cautionary statements are being made pursuant to the provisions of the
Act and with the intention of obtaining the benefit of safe-harbor provisions
of the Act. The reader is cautioned that all forward-looking statements are
necessarily speculative and there are certain risks and uncertainties that
could cause actual events or results to differ materially from those referred
to in such forward-looking statements. Among the factors that could cause
actual results to differ materially are: increased competition; technological
and scientific developments, including appetite suppressants and other drugs
which can be used in weight-loss programs; increases in cost of food or
services; lack of market acceptance of additional products and services;
legislative and regulatory restrictions or actions; effectiveness of marketing
and advertising programs; prevailing domestic and foreign economic conditions;
and the risk factors set forth from time to time in the Companys annual
reports and other reports and filings with the SEC. The reader should
carefully review the cautionary statements contained under the caption
Forward-Looking Statements in Item 1 of the Companys Annual Report on Form
10-K for the year ended June 30, 2001.

Quarter Ended September 30, 2001 as Compared to Quarter Ended September 30,
2000

The following table presents selected operating results for United States
Company-owned and foreign Company-owned operations for the quarters ended
September 30, 2000 and 2001 (U.S. $ in thousands):

|                           |  |                                                            |        |                                                                  |  |        |        |      |  |      |    |        |  |  |       |  |  |  |       |   |  |  |     |  
|-------------------------- |  | ---------------------------------------------------------- | ------ | ---------------------------------------------------------------- |  | ------ | ------ | ---- |  | ---- | -- | ------ |  |  | ----- |  |  |  | ----- | - |  |  | --- | -
|                           |  | U.S. Company Owned
Operations
Three Months Ended Sept. 30, |        | Foreign Company Owned
Operations(1)
Three Months Ended Sept. 30,
|                           |  |                                                            |        |                                                                 
|                           |  |                                                            |        |                                                                  |  |        |        |      |  | %    |    |        |  |  |       |  |  |  |       | %
|                           |  | 2000                                                       |        | 2001                                                             |  | Change |        | 2000 |  | 2001 |    | Change
|                           |  |                                                            |        |                                                                  |  |        |        |      |  |      |    |       
|Product sales              |  | $                                                          | 48,256 |                                                                  |  |        | 54,891 |      |  |      | 14 | %      |  |  | 8,847 |  |  |  | 9,042 |   |  |  | 2   | %
|Service revenue            |  |                                                            | 3,477  |                                                                  |  |        | 3,825  |      |  |      | 10 | %      |  |  | 776   |  |  |  | 596   |   |  |  | 23 | %
|                           |  |                                                            |        |                                                                  |  |        |        |      |  |      |    |        |  |  |       |  |  |  |       |   |  |  |     |  
|Total                      |  |                                                            | 51,733 |                                                                  |  |        | 58,716 |      |  |      | 14 | %      |  |  | 9,623 |  |  |  | 9,638 |   |  |  | 0   | %
|Costs and expenses         |  |                                                            | 50,770 |                                                                  |  |        | 53,520 |      |  |      | 5  | %      |  |  | 8,430 |  |  |  | 8,711 |   |  |  | 3   | %
|General and
administrative |  |                                                            | 4,025  |                                                                  |  |        | 4,467  |      |  |      | 11 | %      |  |  | 712   |  |  |  | 680   |   |  |  | 4  | %
|Litigation judgment        |  |                                                            | 219    |                                                                  |  |        | (9,178 | )    |  |      |   |        |  |  |      |  |  |  |      |   |  |  |    |  
|                           |  |                                                            |        |                                                                  |  |        |        |      |  |      |    |        |  |  |       |  |  |  |       |   |  |  |     |  
|Operating income (loss)    |  | $                                                          | (3,281 | )                                                                |  |        | 9,907  |      |  |      |    |        |  |  | 481   |  |  |  | 247   |   |  |  | 49 | %
|                           |  |                                                            |        |                                                                  |  |        |        |      |  |      |    |        |  |  |       |  |  |  |       |   |  |  |     |  
|Average number of centres  |  |                                                            | 435    |                                                                  |  |        | 429    |      |  |      | 1 | %      |  |  | 113   |  |  |  | 115   |   |  |  | 2   | %
|                           |  |                                                            |        |                                                                  |  |        |        |      |  |      |    |        |  |  |       |  |  |  |       |   |  |  |     |  



---

|(1) |  | Foreign Company-owned operations reflect the Companys 87 centres in
Australia and 28 centres (26 centres in 2000) in Canada, with the Canadian
centres generating revenues of $2,411,000 and $3,280,000 in the quarters ended
September 30, 2000 and 2001, respectively, and an operating loss of $132,000
for the quarter ended September 30, 2000 and operating income of $29,000 for
the quarter ended September 30, 2001.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Revenues from United States Company-owned operations, which represented
79% of the worldwide Company-owned centres at September 30, 2001, increased 14%
for the quarter ended

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September 30, 2001 compared to the quarter ended
September 30, 2000. Average revenue per United States Company-owned centre
increased from $119,000 for the quarter ended September 30, 2000 to $137,000
for the quarter ended September 30, 2001. Product sales, which consists
primarily of food products, from United States Company-owned operations
increased 14% principally due to a 5% increase in the number of active
participants in the program between the periods (principally due to improved
retention of participants) and an 8% increase in the average dollar amount of
food products purchased per participant. The increase in the average dollar
amount of food products purchased per participant resulted from the
implementation of an approximate 3% price increase on food items in May 2001
and the introduction of the Ultimate Choice program, also in May 2001. The
Ultimate Choice program allows the participant more flexibility in selecting
their individual food items, which the Company believes has resulted in many
participants choosing products which they find more appealing and that have
higher retail prices. Service revenues from United States Company-owned
operations increased 10% principally due to an increase in the average service
fee charged per new participant enrolled in the program between the periods.

Revenues from foreign Company-owned operations, which is derived from 87
centres in Australia and 28 centres (26 centres in 2000) in Canada, was
essentially the same as the prior year quarter. There was an 8% weighted
average decrease in the Australian and Canadian currencies in relation to the
U.S. dollar between the periods.

The Company has experienced reduced demand over the past several years.
The Company believes that increased competition from various sources, including
prescription and non-prescription pills, best selling diet books, and other do
it yourself methods have contributed to the Companys downward trend. Many of
these competitors claim to provide quick and easy weight loss or other
aggressive claims about the efficacy of their methods, are supported by a high
level of advertising, and are less expensive than the Companys program. The
Company cannot predict whether the current trend will continue in the future.

Costs and expenses of United States Company-owned operations increased 5%
for the quarter ended September 30, 2001 compared to the same quarter last
year. The 5% increase was primarily due to the increased variable costs,
principally the cost of goods sold and compensation, associated with the
increased revenues. Costs and expenses of United States Company-owned
operations as a percentage of United States Company-owned revenues decreased
from 98% to 91% between the periods principally due to a small reduction in
advertising spending and the lower proportion of fixed costs when compared to
the higher level of revenues.

In October 2001, the California Court of Appeal reversed a substantial
portion of an $8.7 million judgment rendered against the Company in 1999
arising from a dispute with a former landlord. The judgment, which included
compensatory and punitive damages for alleged fraud totaling $7.2 million, was
reversed and the award of damages for breach of the lease was reduced to
approximately $700,000. The appellate court also reversed the award of
$569,000 in attorneys fees to the plaintiff, and directed the trial court to
redetermine the proper amount in view of the reduced amount of damages awarded.
This appellate reversal is the reason for both the decrease in the accrual for
litigation judgment on the accompanying consolidated balance sheet at September
30, 2001 and the $9,178,000 litigation judgment credit on the accompanying consolidated statement
of operations for the quarter ended September 30, 2001.

After including the allocable portion of general and administrative
expenses and the litigation judgment reversal, United States Company-owned
operations had operating income of $9,907,000 for the quarter ended September
30, 2001 compared to an operating loss of $3,281,000 for the quarter ended
September 30, 2000.

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Costs and expenses of foreign Company-owned operations increased 3% for
the quarter ended September 30, 2001 compared to the quarter ended September
30, 2000, principally due to a 2% increase in the number of centres between the
periods. After including the allocable portion of general and administrative
expenses, foreign Company-owned operations had operating income of $247,000 for
the quarter ended September 30, 2001 compared to operating income of $481,000
for the quarter ended September 30, 2000.

Revenues from franchise operations increased 5% from $5,037,000 to
$5,283,000 for the quarters ended September 30, 2000 and 2001, respectively.
This increase was principally due to an increase in the revenues at franchised
centres which resulted in increased product sales and royalties for the
Company. As of September 30, 2001 there were 112 franchised centres in
operation, of which 74 were in the United States and 38 were in foreign
countries, principally Australia and New Zealand.

Costs and expenses of franchised operations, which consist primarily of
product costs, increased 6% from $3,308,000 to $3,496,000 for the quarters
ended September 30, 2000 and 2001, respectively, principally because of the
increased level of franchise operations. Franchise costs and expenses as a
percentage of franchise revenues remained relatively constant between the
periods.

The $279,000 of licensing royalties for the quarter ended September 30,
2001 are pursuant to a trademark license agreement entered into with Balance
Bar Company (subsequently acquired by Kraft Foods) and are based upon the
retail sales of certain products bearing the Companys brand.

General and administrative expenses increased 8% from $5,593,000 to
$6,063,000 but decreased from 8.4% to 8.2% of total revenues for the quarters
ended September 30, 2000 and 2001, respectively. The increase in general and
administrative expenses is principally due to increased legal and consulting
expenses.

The elements discussed above combined to result in operating income of
$11,304,000, which includes the $9,178,000 credit from the litigation judgment
reversal, for the quarter ended September 30, 2001 compared to an operating
loss of $1,927,000 for the quarter ended September 30, 2000.

In July 2001, the Company completed the sale of its corporate office
building for $21,000,000. Concurrent with the sale, the note payable, which
totaled $5,147,000 at June 30, 2001, was paid in full. A gain on the sale of
the building totaling $12,385,000 was recorded in the quarter ended September
30, 2001. After repayment of the note payable and expenses of the sale, the
Company received net cash proceeds of $15,154,000.

Income taxes (benefit) for the quarter ended September 30, 2001 includes
income taxes at an effective rate of 37% on the Companys foreign taxable
income, and reflects the utilization of net operating loss carryforwards
available to offset the Companys taxable income from United States operations.
Income taxes (benefit) for the prior year quarter ended September 30, 2000
includes income taxes at an effective rate of 37% on the Companys foreign
taxable income, but does not
reflect any benefit for the net operating loss incurred by the Companys United
States operations because of the uncertainty, at that time, that such benefit
would be realizable.

In May 2001, the
Company retained the investment banking firm
Koffler & Company to advise the Company on strategic
alternatives to maximize shareholder value, including a possible sale
of the Company.

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Liquidity and Capital Resources

The Company has historically financed its operations through cash flow
from operations, supplemented by a note payable obtained in 1996 (which was
paid off in the quarter ended September 30, 2001) to partially finance the
Companys purchase of its corporate office building and by a capital lease for
computer equipment related to Y2K remediation in 2000.

At September 30, 2001, the Company had cash and cash equivalents totaling
$52,078,000 compared to $38,433,000 at June 30, 2001, reflecting an increase of
$13,645,000 during the quarter ended September 30, 2001. The increase in cash
and cash equivalents resulted principally from the proceeds from the Companys
sale of its corporate office building.

The Companys principal cash commitments at September 30, 2001 are as
follows:



| |  | Operating lease payments on premises from which the Companys centre
operations are conducted totaling approximately $30,003,000, of which
approximately $15,268,000 is payable in the twelve months ending
September 30, 2002 and approximately $9,136,000 is payable in the
twelve months ending September 30, 2003. Management expects that in
the normal course of business, leases that expire will be renewed or
replaced by other leases.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Debt service with respect to
the capital lease principal totaling $1,508,000 plus related interest.                                                                                                                                                                                                                                                                                                                                             
| 
| |  | The litigation judgment of approximately $700,000 plus simple interest
at 10% and attorneys fees to be determined by the trial court.                                                                                                                                                                                                                                                                                                          
| 
| |  | Remaining payments of approximately $289,000 related to the
restructuring implemented in November 1999.                                                                                                                                                                                                                                                                                                                                         
| 
| |  | In the normal course of its business the Company acquires property and
equipment, including replacing assets which are no longer useful.
This may include moving the location of a centre or remodeling
existing centres.                                                                                                                                                                                                                       

The Company believes that its available cash and cash equivalents,
together with its cash flow from operations, are adequate for its needs in the
foreseeable future.

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Recent Accounting Pronouncements

In July 2001, the Financial Accounting Standards
Board issued Statement No. 141, Business
Combinations, and Statement No. 142, Goodwill and
Other Intangible Assets. Statement 141 requires that
the purchase method of accounting be used for all business
combinations initiated after June 30, 2001 as well as all
purchase method business combinations completed after
June 30, 2001. Statement 142 will require that
goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead be tested for impairment at
least annually in accordance with the provisions of
Statement 142. Statement 142 will also require that
intangible assets with definite useful lives be amortized over
their respective estimated useful lives to their estimated
residual values, and reviewed for impairment in accordance with
SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of.

The Company is required to adopt the provisions
of Statement 141 immediately, and Statement 142 is
required for fiscal years beginning after December 15,
2001. Goodwill and intangible assets acquired in business
combinations completed before July 1, 2001 will continue to
be amortized prior to the adoption of Statement 142.

Statement 141 will require, upon adoption of
Statement 142, that the Company evaluate its existing
intangible assets and goodwill that were acquired in a prior
purchase business combination, and to make any necessary
reclassifications in order to conform with the new criteria in
Statement 141 for recognition apart from goodwill. Upon
adoption of Statement 142, the Company will be required to
reassess the useful lives and residual values of all intangible
assets acquired in purchase business combinations, and make any
necessary amortization period adjustments by the end of the
first interim period after adoption. In addition, to the extent
an intangible asset is identified as having an indefinite useful
life, the Company will be required to test the intangible asset
for impairment in accordance with the provisions of
Statement 142 within the first interim period. Any
impairment loss will be measured as of the date of adoption and
recognized as the cumulative effect of a change in accounting
principle in the first interim period.

In connection with the transitional goodwill
impairment evaluation, Statement 142 will require the
Company to perform an assessment of whether there is an
indication that goodwill is impaired as of the date of adoption.
Any transitional impairment loss will be recognized as the
cumulative effect of a change in accounting principle in the
Companys consolidated statement of operations.

Because of the extensive effort needed to comply
with adopting Statements 141 and 142, it is not
practicable to reasonably estimate the impact of adopting these
Statements on the Companys financial statements at the
date of this report, including whether any transitional
impairment losses will be required to be recognized as the
cumulative effect of a change in accounting principle.

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

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

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to a variety of risks, including changes in
interest rates affecting the return on its investments and the cost of its
debt, and foreign currency fluctuations.

At September 30, 2001, the Company maintains a portion of its cash and
cash equivalents in financial instruments with original maturities of three
months or less. The Company also, at times, maintains a short-term investment
portfolio containing financial instruments with original maturities of greater
than three months but less than twelve months. These financial instruments,
principally comprised of high quality commercial paper, are subject to interest
rate risk and will decline in value if interest rates increase. Due to the
short duration of these financial instruments, an immediate 10% increase in
interest rates would not have a material effect on the Companys financial
condition or results of operations. The Company has not used derivative
financial instruments in its investment portfolio.

The Companys long-term debt at September 30, 2001 is comprised of a fixed
rate capital lease agreement covering certain computer hardware with a total
balance of $1,508,000. Due to the relative immateriality of the long-term
debt, an immediate 10% change in interest rates would not have a material
effect on the Companys financial condition or results of operations.

Approximately 15% of the Companys revenues for the quarter ended
September 30, 2001 were generated from foreign operations, located principally
in Australia and Canada. In the quarter ended September 30, 2001, the Company
was subjected to an 8% weighted average decrease in the Australian and Canadian
currencies in relation to the U.S. dollar compared to the quarter ended
September 30, 2000. Currently, the Company does not enter into forward
exchange contracts or other financial instruments with respect to foreign
currency.




PART II  OTHER INFORMATION




Item 1. Legal Proceedings

| |                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The litigation described in Item 3 of the Companys Report on Form 10-K
for the fiscal year ended June 30, 2001 has been dismissed as a result of
a settlement reached between the parties.




Item 6. Exhibits and Reports on Form 8-K

| |                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------
| | (b) The Company filed a report on Form 8-K on September 21,
2001 reporting the Companys sale of its corporate office building.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

| |  |  |  |                                                                      
| |  |  |  | ---------------------------------------------------------------------
| |  |  |  | JENNY CRAIG, INC.                                                    
|
| |  |  |  | By: /S/ James S. Kelly                                               
| |  |  |  |                                                                      
| |  |  |  | James S. Kelly
Vice President,
Chief Financial Officer, and Treasurer

Date: November 13, 2001

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