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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---



FORM 10-Q



(Mark One)

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



| |  | For quarterly period ended December 31, 2002
| |  | --------------------------------------------



OR



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



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



Commission file number 0-25886



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GARDEN FRESH RESTAURANT CORP.

(Exact name of registrant as specified in its charter)



|Delaware                                      |  | 33-0028786         
|--------------------------------------------- |  | -------------------
|(State or other jurisdiction of incorporation |  | (I.R.S. Employee   
|or organization)                              |  | Identification No.)



15822
Bernardo Center Drive, Suite A, San Diego, CA 92127

(Address of principal executive offices)(Zip Code)





Registrants telephone number, including area code: (858) 675-1600





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



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



The number of shares of Common Stock, $.01 par value, outstanding as of January 31, 2003 was 5,783,202. There
are no other classes of common stock.



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GARDEN FRESH
RESTAURANT CORP.

FORM 10-Q



INDEX



|                                 |  |                                                                                             |  | Page
|-------------------------------- |  | ------------------------------------------------------------------------------------------- |  | ----
|PART I:    FINANCIAL INFORMATION |  |                                                                                            
|                                
|Item 1:                          |  | Unaudited Financial Statements                                                              |  |     
|                                
|                                 |  | Balance Sheets as of September 30, 2002 and December 31, 2002                               |  | 3   
|                                
|                                 |  | Statements of Operations for the three months ended December 31, 2001 and December 31, 2002 |  | 4   
|                                
|                                 |  | Statements of Cash Flows for the three months ended December 31, 2001 and December 31, 2002 |  | 5   
|                                
|                                 |  | Notes to Unaudited Financial Statements                                                     |  | 6   
|                                
|Item 2:                          |  | Managements Discussion and Analysis of Financial Condition and Results of Operations       |  | 8   
|                                
|Item 3:                          |  | Quantitative and Qualitative Disclosures About Market Risk                                  |  | 19  
|                                
|Item 4:                          |  | Controls and Procedures                                                                     |  | 20  
|                                
|PART II:    OTHER INFORMATION    |  |                                                                                            
|                                
|Item 1:                          |  | Legal Proceedings                                                                           |  | 21  
|                                
|Item 2:                          |  | Changes in Securities                                                                       |  | 21  
|                                
|Item 3:                          |  | Defaults Upon Senior Securities                                                             |  | 21  
|                                
|Item 4:                          |  | Submission of Matters to a Vote of Security Holders                                         |  | 21  
|                                
|Item 5:                          |  | Other Information                                                                           |  | 21  
|                                
|Item 6:                          |  | Exhibits and Reports on Form 8-K                                                            |  | 21  



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GARDEN FRESH RESTAURANT
CORP.

BALANCE SHEETS

(Dollars in thousands, except par value amounts)



|                                                                                                                                                                                                                                                                         |  | September 30, 2002 |         | December 31, 2002
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------ | ------- | -----------------
|                                                                                                                                                                                                                                                                         |  |                    |         | (Unaudited)      
|ASSETS                                                                                                                                                                                                                                                                   |  |                    |         |                  
|Cash and cash equivalents                                                                                                                                                                                                                                                |  | $                  | 5,294   |                  
|Inventories                                                                                                                                                                                                                                                              |  |                    | 9,123   |                  
|Other current assets                                                                                                                                                                                                                                                     |  |                    | 3,919   |                  
|                                                                                                                                                                                                                                                                         |  |                    |         |                  
|Total current assets                                                                                                                                                                                                                                                     |  |                    | 18,336  |                  
|Property and equipment, net                                                                                                                                                                                                                                              |  |                    | 132,638 |                  
|Intangible and other assets                                                                                                                                                                                                                                              |  |                    | 2,032   |                  
|                                                                                                                                                                                                                                                                         |  |                    |         |                  
|TOTAL ASSETS                                                                                                                                                                                                                                                             |  | $                  | 153,006 |                  
|                                                                                                                                                                                                                                                                         |  |                    |         |                  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                                                                                                                     |  |                    |         |                  
|Accounts payable                                                                                                                                                                                                                                                         |  | $                  | 5,604   |                  
|Current portion of long-term debt                                                                                                                                                                                                                                        |  |                    | 10,635  |                  
|Accrued liabilities                                                                                                                                                                                                                                                      |  |                    | 11,743  |                  
|                                                                                                                                                                                                                                                                         |  |                    |         |                  
|Total current liabilities                                                                                                                                                                                                                                                |  |                    | 27,982  |                  
|Deferred income taxes                                                                                                                                                                                                                                                    |  |                    | 8,336   |                  
|Long-term debt, net of current portion                                                                                                                                                                                                                                   |  |                    | 32,970  |                  
|Other liabilities                                                                                                                                                                                                                                                        |  |                    | 3,485   |                  
|Shareholders equity:                                                                                                                                                                                                                                                    |  |                    |         |                  
|Preferred stock, $.001 par value; 2,500,000 shares authorized at September 30, 2002
and December 31, 2002 of which 120,000 shares are designated as Series A Preferred Stock; 0 shares issued and outstanding at September 30, 2002 and December 31, 2002, respectively. |  |                    |        |                  
|Common stock, $.01 par value; 12,000,000 shares authorized at September 30, 2002 and
December 31, 2002, respectively; 5,732,822 and 5,783,101 shares issued and outstanding at September 30, 2002 and December 31, 2002, respectively.                                   |  |                    | 57      |                  
|Additional paid-in capital                                                                                                                                                                                                                                               |  |                    | 60,133  |                  
|Retained earnings                                                                                                                                                                                                                                                        |  |                    | 20,043  |                  
|                                                                                                                                                                                                                                                                         |  |                    |         |                  
|Total shareholders equity                                                                                                                                                                                                                                               |  |                    | 80,233  |                  
|                                                                                                                                                                                                                                                                         |  |                    |         |                  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                                                                                                               |  | $                  | 153,006 |                  
|                                                                                                                                                                                                                                                                         |  |                    |         |                  



See
notes to unaudited financial statements.



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GARDEN FRESH RESTAURANT CORP.

STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)



|                                                                    |  | Three Months Ended |       
|------------------------------------------------------------------- |  | ------------------ | ------
|                                                                    |  | December 31, 2001  |       
|Net sales                                                           |  | $                  | 47,879
|Costs and expenses:                                                 |  |                    |       
|Costs of sales                                                      |  |                    | 12,304
|Restaurant operating expenses:                                      |  |                    |       
|Labor                                                               |  |                    | 16,016
|Occupancy and other expenses                                        |  |                    | 12,656
|General and administrative expenses                                 |  |                    | 3,163 
|Restaurant opening costs                                            |  |                    | 205   
|Depreciation and amortization                                       |  |                    | 3,365 
|                                                                    |  |                    |       
|Total costs and expenses                                            |  |                    | 47,709
|                                                                    |  |                    |       
|Operating income                                                    |  |                    | 170   
|Other income (expense):                                             |  |                    |       
|Interest income                                                     |  |                    | 21    
|Interest expense                                                    |  |                    | (1,196
|Other income (expense), net                                         |  |                    | (138  
|                                                                    |  |                    |       
|Income (loss) before income tax benefit (expense)                   |  |                    | (1,143
|Income tax benefit (expense)                                        |  |                    | 451   
|                                                                    |  |                    |       
|Net income (loss)                                                   |  | $                  | (692  
|                                                                    |  |                    |       
|Basic net income (loss) per common share:                           |  | $                  | (0.12 
|                                                                    |  |                    |       
|Shares used in computing basic net income (loss) per common
share   |  |                    | 5,688 
|                                                                    |  |                    |       
|Diluted net income (loss) per common share:                         |  | $                  | (0.12 
|                                                                    |  |                    |       
|Shares used in computing diluted net income (loss) per common
share |  |                    | 5,688 
|                                                                    |  |                    |       



See
notes to unaudited financial statements.



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GARDEN FRESH RESTAURANT
CORP.

STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)



|                                                                          |  | Three Months Ended |       
|------------------------------------------------------------------------- |  | ------------------ | ------
|                                                                          |  | December 31, 2001  |       
|Cash flows from operating activities:                                     |  |                    |       
|Net income (loss)                                                         |  | $                  | (692  
|Adjustments to reconcile net income (loss) to net cash                    |  |                    |       
|provided by (used in) operating activities:                               |  |                    |       
|Depreciation and amortization                                             |  |                    | 3,365 
|Loss on disposal of property and equipment                                |  |                    | 134   
|Provision for deferred income taxes                                       |  |                    |      
|Tax benefit from exercise of common stock options                         |  |                    |      
|Amortization of deferred gain on sale-leaseback of properties             |  |                    | (12   
|Changes in operating assets and liabilities:                              |  |                    |       
|Inventories                                                               |  |                    | (1,393
|Other assets                                                              |  |                    | (958  
|Intangible and other assets                                               |  |                    | (271  
|Accounts payable                                                          |  |                    | 1,151 
|Accrued liabilities                                                       |  |                    | (117  
|Other liabilities                                                         |  |                    | 190   
|                                                                          |  |                    |       
|Net cash provided by operating activities                                 |  |                    | 1,397 
|                                                                          |  |                    |       
|Cash flows from investing activities:                                     |  |                    |       
|Acquisition of property and equipment:                                    |  |                    |       
|New restaurant development                                                |  |                    | (556  
|Existing restaurant additions                                             |  |                    | (1,172
|Decrease in construction costs included in accounts payable               |  |                    | (805  
|Proceeds from sale-leaseback transactions                                 |  |                    | 4,922 
|                                                                          |  |                    |       
|Net cash provided by (used in) investing activities                       |  |                    | 2,389 
|                                                                          |  |                    |       
|Cash flows from financing activities:                                     |  |                    |       
|Repayments under line of credit                                           |  |                    | (450  
|Proceeds from long-term debt                                              |  |                    | 2,585 
|Repayment of short-term debt                                              |  |                    | (550  
|Repayment of long-term debt                                               |  |                    | (2,794
|Net proceeds from issuance of common stock                                |  |                    | 68    
|                                                                          |  |                    |       
|Net cash used in financing activities                                     |  |                    | (1,141
|                                                                          |  |                    |       
|Net increase (decrease) in cash and cash equivalents                      |  |                    | 2,645 
|Cash and cash equivalents at beginning of period                          |  |                    | 165   
|                                                                          |  |                    |       
|Cash and cash equivalents at end of period                                |  | $                  | 2,810 
|                                                                          |  |                    |       
|Supplemental disclosure of non-cash investing and financing
transactions: |  |                    |       
|Property and equipment asset purchases in accounts payable                |  | $                  | 823   
|Replacement of line of credit with short-term debt                        |  |                    | 8,700 



See
notes to unaudited financial statements.



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GARDEN FRESH RESTAURANT
CORP.

NOTES TO UNAUDITED FINANCIAL STATEMENTS



| | 1. |  | UNAUDITED FINANCIAL STATEMENTS
| | -- |  | ------------------------------



The accompanying financial statements have been prepared by Garden Fresh Restaurant Corp. (the Company)
without audit and reflect all adjustments, consisting of normal recurring adjustments, which are, in the opinion of management, necessary for a fair statement of financial position and the results of operations for the interim periods. The
statements have been prepared in accordance with the regulations of the Securities and Exchange Commission and do not necessarily include certain information and footnote disclosures necessary to present the statements in accordance with accounting
principles generally accepted in the United States of America. For further information, refer to the financial statements and notes thereto for the fiscal year ended September 30, 2002 included in the Companys Form 10-K as filed with the
Securities and Exchange Commission.



| | 2. |  | NET INCOME PER COMMON SHARE
| | -- |  | ---------------------------



Basic net income per common share is computed based on the weighted average number of common shares outstanding during the
period. Diluted net income per common share is computed based on the weighted average number of common shares and dilutive potential common shares, which includes options under the Companys stock option plans computed using the treasury stock
method and common shares expected to be issued under the Companys Employee Stock Purchase Plan.



Potential issuances of common stock of 177,000 shares for the three month period ended December 31, 2002 were used to
calculate diluted net income per common share. There were no reconciling items in calculating the numerator for basic and diluted net income per common share for either of the periods presented. Shares related to stock options of 1,049,000 and
670,000 for the three month periods ended December 31, 2001 and 2002, respectively, were excluded from the calculation of diluted net income per common share, as the effect of their inclusion would be anti-dilutive.



| | 3. |  | PREPARATION OF FINANCIAL STATEMENTS
| | -- |  | -----------------------------------



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



| | 4. |  | SALE LEASE-BACK TRANSACTIONS
| | -- |  | ----------------------------



During the quarter ended December 31, 2001, the Company entered into two sale-leaseback transactions whereby the Company
sold and leased back the land and building for two separate restaurant sites. The Company received net proceeds of $4.9 million for the two transactions and recorded deferred gains of $131,000. The gains are being amortized over the respective lease
terms of 20 years. The related leases are being accounted for as operating leases.



During the quarter ended December 31, 2002, the Company completed a sale-leaseback transaction whereby the Company sold
and leased back the land and building for one restaurant site. The Company received net proceeds of $3,097,000 for the transaction and recorded a deferred gain of $152,000. The gain is being amortized over the lease term of 20 years. The related
lease is being accounted for as an operating lease.



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GARDEN FRESH RESTAURANT
CORP.

NOTES TO UNAUDITED FINANCIAL STATEMENTS



| | 5. |  | NEW CREDIT AGREEMENT
| | -- |  | --------------------



During the quarter ended December 31, 2002, the Company entered into a line of credit agreement (Credit Agreement) with a
bank. This credit agreement provides for borrowings up to $6 million under a revolving credit agreement, the proceeds of which shall be used to finance the establishment of restaurants and to finance the Companys working capital requirements.
Outstanding borrowings for working capital purposes shall not at any time exceed $2.0 million. Borrowings are secured by certain equipment and fixtures of the Company. The outstanding principal balance on this line of credit will carry interest at
either the prime rate or LIBOR plus 2% with interest payable at the beginning of each month. The Companys credit agreement contains various financial covenants and restrictions. The credit agreement expires on January 31, 2004. As of December
31, 2002, there is no outstanding balance under this agreement.



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GARDEN FRESH RESTAURANT CORP.



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



INTRODUCTION



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



CRITICAL
ACCOUNTING POLICIES



In response to the
SECs Release Numbers 33-8050 Cautionary Advice Regarding Disclosure About Critical Accounting Policies and 33-8056, Commission Statement about Managements Discussion and Analysis of Financial Condition and Results of
Operations, we have identified the following critical accounting policies that affect the more significant judgments and estimates used in the preparation of our unaudited financial statements. The preparation of our financial statements in
conformity with accounting principles generally accepted in the United States of America requires us to make estimates and judgments that affect our reported amounts of assets and liabilities, revenues and expenses, and related disclosures of
contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to impairment of long-lived assets, accruals for workers compensation and general liability insurance, and contingencies and litigation.
These estimates are based on the information that is currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could vary from those estimates under different assumptions or
conditions.



We believe that the following
critical accounting policies affect the more significant judgments and estimates used in the preparation of our unaudited financial statements:



| |  |  | The Company maintains accruals for workers compensation and general liability insurance which are recorded in the accrued liabilities section of the balance
sheets. The Company determines the adequacy of these accruals by evaluating (1) information periodically provided by its carrier regarding the Companys historical experience and trends relating to insurance claims and payments, and (2)
industry experience and trends related to insurance claims and payments. The Company also consults with its carrier regarding the carriers expectation of future trends to determine necessary accruals. If such information indicates that the
accruals are overstated or understated, the Company will adjust the assumptions utilized in its methodologies and reduce or provide for additional accruals as appropriate. An increase or decrease to the workers compensation insurance accrual
would affect the Companys results of operations by increasing or decreasing the Companys employee benefits expense. An increase or decrease to the general liability insurance accrual would affect the Companys results of operations
by increasing or decreasing the Companys occupancy and other expense.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Company is subject to various claims and legal actions in the ordinary course of business. Some of these matters include landlord disputes, professional
liability, employee-related matters, and investigations by governmental agencies regarding employment practices. The Company is currently in two separate disputes with one landlord and one vendor and accordingly has recorded a liability for its
estimated losses under these disputes
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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totaling $90,000. The Company is not aware of any additional pending or threatened
litigation that it believes is reasonably likely to have a material adverse effect on its results of operations. Should the Company become aware of such claims or should the amounts it is currently disputing change, it will re-evaluate the
probability of an adverse outcome and provide new or additional accruals for such contingencies as necessary.



| |  |  | The Company periodically assesses the impairment of long-lived assets to be held for use based on expectations of future undiscounted cash flows from the related
operations, and when circumstances dictate, adjusts the asset to the extent the carrying value exceeds the fair value of the asset.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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QUARTERLY RESULTS



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

(Unaudited)



|                                                  |  | Three Months Ended |   
|------------------------------------------------- |  | ------------------ | --
|                                                  |  | December 31, 2001  |   
|Net sales                                         |  | 100.0              | % 
|                                                  |  |                    |   
|Costs and expenses:                               |  |                    |   
|Costs of sales                                    |  | 25.7               | % 
|Restaurant operating expenses:                    |  |                    |   
|Labor                                             |  | 33.5               | % 
|Occupancy and other expenses                      |  | 26.4               | % 
|General and administrative expenses               |  | 6.6                | % 
|Restaurant opening costs                          |  | 0.4                | % 
|Depreciation and amortization expenses            |  | 7.0                | % 
|                                                  |  |                    |   
|Total costs and expenses                          |  | 99.6               | % 
|                                                  |  |                    |   
|Operating income:                                 |  | 0.4                | % 
|Interest income                                   |  |                   |   
|Interest expense                                  |  | (2.5               | )%
|Other income (expense), net                       |  | (0.3               | )%
|                                                  |  |                    |   
|Income (loss) before income tax benefit (expense) |  | (2.4               | )%
|Income tax benefit (expense)                      |  | 0.9                | % 
|                                                  |  |                    |   
|Net income (loss)                                 |  | (1.5               | )%
|                                                  |  |                    |   



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RESULTS OF OPERATIONS



Three Months Ended December 31, 2002 Compared to Three
Months Ended December 31, 2001



Net
Sales. Net sales for the first quarter of fiscal 2003 increased 3.8% to $49.7 million from $47.9 million for the comparable 2002 period. This increase was primarily due to the opening of one restaurant since the comparable 2002 period, the one
restaurant added during the first quarter of fiscal 2002 that was not open for the entire quarter and to the increase in comparable restaurant sales of 3.6%. The comparable restaurant sales increase for the first quarter of fiscal 2003 is due to
decreased same store guest counts of 1.6% offset by a 5.2% increase in same store average meal price since the comparable 2002 period. See Business RisksCertain Operating Results and Considerations.



Costs of Sales. Costs of sales remained consistent at
$12.3 million for the three months ended December 31, 2002 and 2001. As a percentage of net sales, cost of sales decreased 0.9 percentage points to 24.8% from 25.7% since the comparable 2002 period. The decrease as a percentage of net sales is due
to increases in the average meal price since the comparable fiscal 2002 period and to efficiencies achieved in the Companys integration of the Food Management System (FMS) which includes the Companys purchasing, central kitchens and
distribution centers resulting in lower food costs since the comparable 2002 period. See Business RisksCertain Operating Results and Considerations.



Labor Expense. Labor expense for the first quarter of fiscal 2003 increased 0.6% to $16.1 million from
$16.0 million for the comparable 2002 period. This increase was due primarily to an increase in the minimum wage rate in California, the addition of one new restaurant since the comparable 2002 period and the one restaurant added during the fiscal
2002 first quarter that was not open for the entire period. As a percentage of net sales, fiscal 2003 first quarter labor expense decreased 1.1 percentage points to 32.4% from 33.5% since the comparable 2002 period as a result of higher net sales
and to programs put in place to better utilize crew labor hours and reduce the number of managers in each store. See Business RisksMinimum Wage.



Occupancy and Other Expenses. Occupancy and other expenses remained consistent at $12.7 million for
the three months ended December 31, 2002 and 2001. Occupancy and other expenses as a percentage of net sales decreased 0.8 percentage points to 25.6% from 26.4% for the comparable 2002 period. The decrease as a percentage of net sales is the result
of higher net sales and to reduced spending as a result of programs put in place to better manage other operating expenditures and to reduced marketing expenses resulting from timing shifts in marketing programs scheduled throughout the rest of
fiscal 2003. These reductions were partially offset by higher liability and property insurance costs as a result of increased rate pressure throughout the insurance industry, increases in base rent associated with sale-leasebacks, and repair and
maintenance costs for aging restaurants. The Company anticipates occupancy and other expenses to increase as it continues to experience escalating insurance costs and higher repair and maintenance expenses related to its aging restaurant base. Such
expenses will be partially offset by decreased depreciation expense related to the older assets reaching the end of their useful lives. Should the Company undertake additional sale-leasebacks of existing sites it would incur increased base rent
related to new leases at those sites but experience a decrease in depreciation expense related to the sale of those assets. See Business RisksPlanned Marketing Expenditures and Business
RisksOther Operating Expenditures.



General and Administrative Expenses. General and administrative for the three months ended December 31, 2002 increased 12.5% to $3.6 million from $3.2 for the comparable fiscal 2002 period. As a percentage of net sales,
general and administrative expenses increased 0.6 percentage points to 7.2% from 6.6% for the comparable fiscal 2002 period. The increase as a percentage of net sales is the result of increased rent and related expenses for the new corporate office
and increased expenses associated with increased staffing in the real estate and marketing departments, which were only partially offset by higher net sales.



Restaurant Opening Costs. Restaurant opening costs for the three months ended December 31, 2002 decreased 73.2% to $55,000 from
$205,000 for the comparable period in the prior year. Restaurant opening costs as a percentage of net sales decreased 0.3 percentage points to 0.1% for the first quarter of fiscal 2003 from 0.4% for the comparable 2002 period. The decrease is
consistent with the Companys reduction in restaurant opening activity for the quarter ended December 31, 2002 compared to the quarter ended December 30, 2001 (no new restaurants were opened during the first quarter of fiscal 2003 compared to
the opening of one new restaurant during the first quarter of fiscal 2002).



Depreciation and Amortization. Depreciation and amortization for the three months ended December 31, 2002 increased 2.9% to $3.5 million from $3.4 million for the comparable 2002 period.
Depreciation and amortization as a percentage of net sales increased 0.1 percentage points to 7.1% for the quarter ended December 31, 2002 from 7.0% for the comparable 2002 period. These increases are the result of additional expense related to the
addition of one new restaurant since the comparable 2002 period and to one restaurant added during the first quarter of fiscal 2002 that was not open for the entire



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fiscal 2002 period and to the depreciation expense related to the addition of a new corporate office and
the amortization of a new accounting software package since the comparable 2002 period. These increases were partially offset by decreased depreciation expense associated with the sale-leaseback of three restaurant locations since the comparable
2002 period.



Interest Income. Interest
income for the three months ended December 31, 2002 decreased 33.3% to $14,000 from $21,000 for the comparable 2002 period as a result of lower interest rates combined with decreased investing activity of available cash.



Interest Expense. Interest expense for the three months
ended December 31, 2002 decreased 16.7% to $1.0 million from $1.2 million for the comparable 2002 period as a result of both lower interest rates and reduction in debt balances since the same period in the prior fiscal year.



Other Expense, net. Other expense, net for the three
months ended December 31, 2002 decreased 37.7% to $86,000 from $138,000 for the comparable 2002 period as a result of fewer asset disposals during the three months ended December 31, 2002 compared to the same period in fiscal 2002.



Provision for Income Taxes. Income tax benefit
(expense) for the first quarter of fiscal 2003 was an expense of ($144,000) compared to a benefit of $451,000 for the comparable 2002 period. This increase is primarily due to increased taxable earnings during the 2002 period combined with an
increase in the Companys effective income tax rate since the same period in the prior fiscal year. The Companys effective tax rate for the three months ended December 31, 2002 increased 1.6 percentage points to 41.1% from 39.5% for the
quarter ended December 31, 2001 as a result of higher apportionment of taxable earnings to states such as California and Illinois that have greater marginal income tax rates. The Company anticipates that it will continue to experience the effects of
apportionment on its taxable earnings should its growth plans result in the expansion of its operations into states with greater marginal income tax rates.



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LIQUIDITY AND CAPITAL
RESOURCES



The Companys principal
capital requirement has been both for funding the development of new restaurants and improving existing restaurants. The Company finances its cash requirements principally from cash flows from operating activities, bank debt, mortgage financing,
equipment lease financing, sale-lease back of owned properties and sale of Company stock. The Company does not have significant receivables and receives trade credit based upon negotiated terms when purchasing food and supplies.



Capital expenditures totaled $4.0 million during the first
three months of fiscal 2003 and $2.5 million for the comparable period in fiscal 2002. During the first three months of fiscal 2003, the Company made capital expenditures of $2.8 million (including the decrease in construction costs included in
accounts payable) for construction of future restaurants and a kitchen facility (two new restaurants and a stand-alone kitchen facility opened during the second quarter of fiscal 2003) and $1.1 million for capital improvements at existing sites. For
the first three months of fiscal 2002, the Company paid $1.4 million (including the decrease in construction costs included in accounts payable) for the opening of one new restaurant and construction of future restaurants, and paid $1.2 million for
capital improvements at existing restaurants. The cash investment to open a new restaurant excludes restaurant opening costs and typically includes the purchase or installation of furniture, fixtures, equipment and leasehold improvements, and in the
case of an owned site, the purchase of land and a building.



During the first three months of fiscal 2003, the Company generated $1.5 million in cash flows from operating activities, received $0.3 million from the sale of the Companys Common Stock pursuant to stock option plans and the
Companys Employee Stock Purchase Plan and received proceeds from sale-lease back transactions of $3.1 million. For the first three months of fiscal 2003, the Company made repayments of $3.3 million towards its long-term debt obligations.



The Companys total capital budget for
fiscal 2003 is $12.7 million, including $6.7 million for the completion of three new restaurants, one stand-alone kitchen facility and $6.0 million for capital improvements for existing facilities. For the three remaining quarters of fiscal 2003 the
Company has a residual budget for capital expenditures in the amount of $3.9 million related to the opening of two new stores and the stand-alone kitchen facility and $4.9 million for capital improvements at existing sites. The development of two
new stores and the kitchen facility was in process as of December 31, 2002 and was completed during January 2003. See Business RisksExpansion Risks.



In addition to funds generated from operations, the Company may need to obtain external financing in the form
of sale-lease back of owned properties and long-term debt financing to complete its plans for expansion of new restaurants and improvements to existing restaurants for fiscal year 2003 and beyond and to meet principal payments on its existing loans.
There can be no assurance that such funds will be available when needed and should the Company not be able to obtain such financing it may be forced to severely curtail the development of new restaurants at its desired pace or at all and to make
improvements to existing restaurants. Additionally, should the Companys results of operations decrease it may not have the ability to pay its debt of $40.3 million outstanding at December 31, 2002. See Business RisksCapital
Requirements.



As of December 31, 2002,
the Company operated 95 restaurants. The Company currently owns the land or land and buildings for 24 restaurants, including the land for certain sites the Company expects to open during fiscal 2004. The Company did not open any new restaurants
during the first three months of fiscal 2003.



The Company incurred restaurant opening costs of $55,000 during the first quarter of fiscal 2003 for the opening of two new restaurants and one stand-alone kitchen facility that opened during the second quarter of fiscal 2003. For
restaurant sites planned to open in fiscal 2003 and 2004 the Company has signed two leases, and purchased two sites. See Business



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Risks  Expansion Risks.



IMPACT OF INFLATION



The primary inflationary factors affecting the Companys operations include food and beverage and labor costs. Minimum wage increases
have affected earnings during the current fiscal year. Substantial increases in costs and expenses, particularly food, supplies, labor, utilities, operating expenses, and fuel costs could have a significant impact on the Companys operating
results to the extent that such increases cannot be passed along to guests.



OTHER



The Company is not
a party to off-balance sheet arrangements, does not engage in trading activities involving non-exchange traded contracts, and is not a party to any transaction with persons or activities that derive benefits from their non-independent relationships
with the Company.



NEW ACCOUNTING STANDARDS



In April 2002 the FASB issued Statement of Financial
Accounting Standards No. 145 (SFAS No. 145), Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. This statement updates, clarifies and simplifies existing accounting
pronouncements including: rescinding SFAS No. 4, which required all gains and losses from extinguishments of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect and amending SFAS No. 13 to
require that certain lease modifications that have economic effects similar to sale lease-back transactions be accounted for in the same manner as sale lease-back transactions. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002
with early adoption of the provisions related to the rescission of SFAS No. 4 encouraged. The Company adopted the provisions of SFAS No. 145 on October 1, 2002 and does not anticipate that the adoption of SFAS No. 145 will have a material effect on
its financial statements.



In June 2002, the FASB
issued Statement of Financial Accounting Standards No. 146 (SFAS No. 146), Accounting for Costs Associated with Exit or Disposal Activities, which addresses accounting for restructuring and similar costs. SFAS No. 146 supersedes previous
accounting guidance, principally Emerging Issues Task Force Issue No. 94-3. SFAS No. 146 requires that the liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. Under Issue 94-3, a liability
for an exit cost was recognized at the date of the companys commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. Accordingly, SFAS No. 146 may affect the timing
of recognizing any future restructuring costs as well as the amounts recognized. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. The Company will adopt the provisions of SFAS No. 146 on January
1, 2003. The Company does not anticipate that the adoption of SFAS No. 146 will have a material effect on its financial statements.



In October 2002, the FASB issued Statement of Financial Accounting Standards No. 147 (SFAS No. 147), Acquisitions of Certain
Financial Institutions, which no longer requires the separate recognition and subsequent amortization of goodwill that was originally required by SFAS No. 72, Accounting for Certain Acquisitions of Banking or Thrift Institutions.
Instead, SFAS No. 72 goodwill would be accounted for in accordance with Statement No. 142 (SFAS 142), Goodwill and Other Intangible Assets and would be subject to an annual impairment test. SFAS No. 147 also amends SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets, to include in its scope core deposit intangibles. Those intangible assets are now subject to the same recoverability and impairment loss recognition provisions that SFAS No. 144 requires for
other long-lived assets. SFAS 147 was effective October 1, 2002. The Company does not expect the adoption of SFAS 147 to have a material effect on the financial statements.



In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148 (SFAS No. 148),
Accounting for Stock Based Compensation  Transition and Disclosure, which provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation and
amends the disclosure requirements of Statement No. 123 (SFAS No. 123) to require more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation. Under the provisions of SFAS No. 123, companies
that adopted the preferable, fair value based method were required to apply that method prospectively for new stock option awards. This contributed to a ramp-up effect on stock-based compensation expense in the first few years following
adoption. SFAS No. 148 provides two additional methods of transition that reflect an entitys full complement of stock-based compensation expense immediately upon adoption, thereby eliminating the ramp-up effect. SFAS No. 148 also improves the
clarity and



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prominence of disclosures about the pro forma effects of using the fair value based method of accounting
for stock-based compensation for all companiesregardless of the accounting method usedby requiring that the data be presented more prominently and in a more user-friendly format in the footnotes to the financial statements. In addition,
the Statement improves the timeliness of those disclosures by requiring that this information be included in interim as well as annual financial statements. The Company is required to adopt SFAS 148 in the quarter ended March 31, 2003 (fiscal 2003
second quarter). The Company does not expect the adoption of SFAS 148 to have a material effect on the financial statements.



BUSINESS RISKS



The Companys business is subject to a number of risks. A comprehensive summary of such risks can be found in the Companys Form
10-K. In addition to other information in this Form 10-Q, shareholders and prospective investors should consider carefully the following factors in evaluating the Company and its business.



Certain Operating Results and Considerations



In fiscal 2001 and 2002 the Company experienced an increase of
3.3% and 2.1%, respectively, in comparable restaurant sales. In the first three months of fiscal 2002 and 2003, the Companys comparable restaurant sales increased 0.4% and 3.6% respectively. The Company does not believe it has significant
latitude to achieve comparable restaurant sales growth through price increases, and, as a result, the Company does not believe that recent comparable restaurant sales are indicative of future trends in such sales. The Company believes that it may
from time to time in the future experience declines in comparable restaurant sales, and that any future increases in comparable restaurant sales may be modest. Further, the Companys newer restaurants have not historically experienced
significant increases in guest volume following their initial opening period.



Expansion Risks



The
Company opened ten restaurants in fiscal 2001 (opening nine new restaurants and re-opening one existing restaurant), two in fiscal 2002, and has opened two restaurants and one stand-alone kitchen facility to date in fiscal 2003. Both restaurants
were opened during the second quarter of fiscal 2003 in an existing region in Southern California. The Company currently does not have plans to open any additional restaurants in fiscal 2003. The Companys ability to achieve its expansion plans
in the future will depend on a variety of factors, many of which may be beyond the Companys control, including the Companys ability to locate suitable restaurant sites, negotiate acceptable lease or purchase terms, obtain required
governmental approvals, construct new restaurants in a timely manner, attract, train and retain qualified and experienced personnel and management, operate its restaurants profitably and obtain additional capital, as well as general economic
conditions and the degree of competition in the particular region of expansion. The Company has experienced, and expects to continue to experience, delays in restaurant openings from time to time.



The Company incurs substantial costs in opening a new
restaurant and, in the Companys experience, new restaurants experience fluctuating operational levels for some time after opening. In the Companys experience, operational expenses tend to stabilize over a period of three to fifteen
months after a store opens. Additionally, owned restaurants generally require significantly more upfront capital than leased restaurants. As a result, an increase in the percentage of owned restaurant openings as compared to historical
practice would increase the capital required to meet the Companys growth plans.



Since its inception, the Company has closed three non-performing buffet restaurants, one mini restaurant, two Ladles restaurants and one SLURP! restaurant due to poor operating performance. Given the
number of restaurants in current operation and the Companys projected expansion rate, there can be no assurances that the Company will not close restaurants in the future. Any closure could result in a significant writeoff of assets,
which could adversely affect the Companys business, financial condition and results of operations.



There can be no assurance that the Company will successfully expand into new regions or that new restaurants will be profitable. The
Company has encountered intense competition for restaurant sites, and in many cases has had difficulty buying or leasing desirable sites on terms that are acceptable to the Company. In many cases, the Companys competitors are willing and able
to pay more than the Company for sites. The Company expects these difficulties in obtaining desirable sites to continue for the foreseeable future.



Restaurant Industry and Competition



The restaurant industry is highly competitive. Key competitive factors in the industry include the quality and value of



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



Capital
Requirements



In addition to funds generated
from operations, the Company may need to obtain external financing in the form of sale-lease back of owned properties and long-term debt financing to complete its plans for expansion through new restaurants and improvements to existing restaurants
for fiscal year 2003 and beyond and to meet principal payments on its existing loans. There can be no assurance that such funds will be available when needed and should the Company not be able to obtain such financing it may be forced to severely
curtail the development of new restaurants at its desired pace or at all and to make improvements to existing restaurants. Additionally, should the Companys results of operations decrease it may not have the ability to pay its debt of $40.3
million outstanding at December 31, 2002.



Cost Sensitivity



The Companys profitability is highly
sensitive to increases in food, labor and other operating costs. The Companys dependence on frequent deliveries of fresh produce and groceries subjects it to the risk that shortages or interruptions in supply caused by adverse weather or other
conditions could materially adversely affect the availability, quality and cost of ingredients. In addition, unfavorable trends or developments concerning factors such as inflation, food, labor, employee benefit costs (including increases in hourly
wage and minimum unemployment tax rates  See Business RisksMinimum Wage), rent increases resulting from the rent escalation provisions in the Companys leases, escalating insurance costs for general liability,
property and workers compensation coverage, and the availability of experienced management and hourly employees may also adversely affect the Company. There can be no assurance to what extent that these conditions will continue or that the
Company will have the ability to control costs in the future. See Business RisksReliance on Key Suppliers and Distributors.



Minimum Wage



The Company has experienced increases in its labor expenses due to increases in the federal minimum wage rate and in the California
minimum wage rate. These increases have resulted in a decrease in the Companys profitability. The Company could be impacted by increasing wage costs in any of its markets where the minimum wage rate is increased. The Company is exploring
strategic ideas on how to better manage labor utilization in order to minimize any potential impact from increasing wage costs. There can be no assurance that the Company will be able to manage and absorb these increases in wage costs in the future.



Planned Marketing Expenditures



The Company has incurred marketing expenditures during the
first quarter of fiscal 2003 to attempt to increase guest counts. A significant portion of the Companys external marketing effort consists of attracting guests through the use of freestanding inserts (FSIs). FSIs contain
descriptive information regarding the restaurants, as well as in most cases, discount coupons. FSIs are distributed by direct mail and through newspapers. In addition, the Company has a BusinesstoBusiness program under which
it mails discount cards to local businesses for distribution to their employees. The discount cards entitle the employees to a certain price discount on each repeat visit during a specified period. In markets in which the Company has sufficient
penetration, the Company uses radio advertising to stimulate demand. In fiscal 2002, the Company used radio



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advertising in its San Diego, Phoenix, and Southeast Florida markets. In addition, the restaurants often
cosponsor fundraising events in the restaurants for local charitable and other community organizations. For each new restaurant, the Company conducts a preopening awareness program beginning approximately two to three weeks prior
to, and ending four to six weeks after, the opening of the restaurant. There can be no assurance that the marketing and promotion strategies discussed herein will result in higher net sales in the future.



Other Operating Expenditures



Since the period ended December 31, 2001, the Company has
converted three locations to leased from owned as part of a plan to reduce debt. Such conversions result in an increase in store rent expense (partially offset by a decrease in building depreciation expense) for the converted location. Should the
Company continue to convert owned locations to leased locations, store rent expense will continue to increase as a result.



The Company continues to experience increased insurance costs and higher repair and maintenance expenditures in its existing stores. Such
increases may affect store profitability. There can be no assurance that the increases in repair and maintenance expenditures will not continue to impact the Companys ability to control costs in the future.



Importance of Key Employees



The success of the Company and its individual restaurants
depends upon the Companys ability to attract and retain highly motivated, well-qualified restaurant operations and other management personnel. The Company faces significant competition in the recruitment of qualified employees.



Computer Information System



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



The Corporate Accounting and Information System.In May 2002, the Company completed its conversion to
new accounting software which replaced not only the previous software, but also incorporated the Companys distribution and purchasing functions into an integrated system. The corporate system directly interfaces with the Company restaurant
system, which creates a seamless flow of information throughout the Company.



There can be no assurance that the Company will experience higher net sales, cost reduction savings or increases in net income in the future through the use of its proprietary restaurant information
system or the corporate accounting system.



Seasonality and
Quarterly Fluctuations



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



Geographic Concentration: Restaurant Base



Forty of the Companys 97 existing restaurants are located in California, and eighteen are located in Florida. Accordingly, the Company is susceptible to fluctuations in its business caused by adverse economic or other
conditions in these regions, including natural disasters or other acts of God. In addition, in California, higher utility costs will continue to



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affect the Companys
profitability in this region. As a result of the Companys continued concentration in California and Florida, adverse economic or other conditions in either state could have a material adverse effect on the Companys business. The
Companys significant investment in, and long-term commitment to, each of its restaurant sites limits its ability to respond quickly or effectively to changes in local competitive conditions or other changes that could affect the Companys
operations. In addition, the Company has a small number of restaurants relative to some of its competitors. Consequently, a decline in the profitability of an existing restaurant or the introduction of an unsuccessful concept could have a more
significant effect on the Companys result of operations than would be the case in a company with a larger number of restaurants.



Reliance on Key Suppliers and Distributors



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



Volatility of Stock Price



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



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ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



On November 1, 2002 the Company entered into a line of credit agreement (Credit Agreement) with Wells Fargo Bank. This credit agreement provides for borrowings up to $6 million under a revolving credit
agreement that will carry interest at either the prime rate or LIBOR plus 2% with interest payable at the beginning of each month. At December 31, 2002 the Company did not have an outstanding balance under its line of credit agreement with the bank.
Should the Company draw from this line of credit, changes in short-term interest rates could affect the Companys line of credit interest rate, increasing net interest expense and likewise decreasing earnings and cash flow. The Company cannot
predict market fluctuations in interest rates and their impact on debt, nor can there be any assurance that long-term fixed rate debt will be available at favorable rates, if at all. Consequently, future results may differ materially from the
estimated results due to adverse changes in interest rates or debt availability. This agreement terminates on January 31, 2004.



The Company did not have any foreign currency or other market risk or any derivative financial instruments at December 31, 2002.



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ITEM 4: CONTROLS AND PROCEDURES



| | (a) |  | Under the supervision and with the participation of management, including the principal executive and principal financial officers, the effectiveness of the design
and operation of our disclosure controls and procedures was evaluated, as such term is defined under Rule 13a-14(c) promulgated under the Securities Exchange Act of 1934, as amended, within the 90 day period prior to the filing date of this report.
Based on this evaluation, the principal executive officer and principal financial officer concluded that the Companys disclosure controls and procedures were effective as of that date.
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) |  | There have been no significant changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls or in
other factors that could significantly affect these controls subsequent to the date of the evaluation referenced in paragraph (a) above.
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





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PART IIOTHER
INFORMATION



|Item 1. Legal Proceedings                                   |  | Not Applicable
|----------------------------------------------------------- |  | --------------
|Item 2. Changes in Securities                               |  | Not Applicable
|Item 3. Defaults Upon Senior Securities                     |  | Not Applicable
|Item 4. Submission of Matters to a Vote of Security Holders |  | Not Applicable
|Item 5. Other Information                                   |  | Not Applicable
|Item 6. Exhibits and Reports on Form 8-K                    |  |               



Exhibits:



The Exhibits required by Item 6(a) of the report are listed in the Exhibit
Index on page 25 herewith.



Reports on Form 8-K:



No reports on Form 8-K have been filed by the Company during the fiscal
quarter ended December 31, 2002.



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SIGNATURES



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.



DATED:



|                  |  |  |  | GARDEN FRESH RESTAURANT CORP.
|----------------- |  |  |  | -----------------------------
|February 11, 2003 |  |  |  | (Registrant)                 



|
|
|
|



| 
|-
|:
| 



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CERTIFICATIONS



I, Michael P. Mack, certify that:



1. I have reviewed this quarterly report on Form 10-Q of Garden Fresh
Restaurant Corporation;



2. Based on my knowledge, this quarterly
report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this quarterly report;



3. Based on my knowledge, the
financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this quarterly report;



4. The registrants other certifying
officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



a) designed such disclosure controls and procedures to ensure that material information relating to the registrant is made
known to us by others, particularly during the period in which this quarterly report is being prepared;



b) evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation
Date); and



c) presented in this quarterly report our
conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;



5. The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the
audit committee of registrants board of directors (or persons performing the equivalent functions):



a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material weaknesses in internal controls; and



b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and



6. The registrants other certifying officers and I have indicated in
this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.



Date: February 11, 2003



/s/ MICHAEL P. MACKMichael P. Mack Chief Executive Officer, President and Director




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CERTIFICATIONS



I, David W. Qualls, certify that:



1. I have reviewed this quarterly report on Form 10-Q of Garden Fresh
Restaurant Corporation;



2. Based on my knowledge, this quarterly
report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this quarterly report;



3. Based on my knowledge, the
financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this quarterly report;



4. The registrants other certifying
officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



a) designed such disclosure controls and procedures to ensure that material information relating to the registrant is made
known to us by others, particularly during the period in which this quarterly report is being prepared;



b) evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation
Date); and



c) presented in this quarterly report our
conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;



5. The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the
audit committee of registrants board of directors (or persons performing the equivalent functions):



a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material weaknesses in internal controls; and



b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and



6. The registrants other certifying officers and I have indicated in
this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.



Date: February 11, 2003



/s/ DAVID W. QUALLSDavid W. Qualls Chief Financial Officer and Chief Accounting Officer




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EXHIBIT INDEX



|Exhibit Number |  | Description                                                                                                                                                             
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|              
|3.1            |  | Restated Certificate of Incorporation of Garden Fresh Restaurant Corp. (1)                                                                                              
|3.2            |  | Certificate of Designation, Preferences and Rights of the Terms of the Series A
Preferred Stock, as filed with the Delaware Secretary of State on February 23, 2001. (6)
|3.3            |  | Bylaws of Garden Fresh Restaurant Corp., as amended. (2)                                                                                                                
|4.1            |  | Rights Agreement between the Company and Equiserve Trust Company, N. A., dates as of
February 15, 2001. (6)                                                             
|99.1           |  | Certification of Chief Executive Officer                                                                                                                                
|99.2           |  | Certification of Chief Financial Officer                                                                                                                                

---

|(1) |  | Incorporated by reference from Exhibit 4.1 filed with the Companys Registration Statement on Form S-8 (No. 33-93568) filed June 16, 1995.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Incorporated by reference from the Companys Form 8-K filed with the SEC on February 15, 2001.
|--- |  | ----------------------------------------------------------------------------------------------

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