##### Table of Contents




---




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 March 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





GARDEN FRESH RESTAURANT CORP.


(Exact name of registrant as specified in its charter)





Delaware (State or other jurisdiction of
incorporation or organization)

33-0028786 (I.R.S. Employee Identification No.)





17180 Bernardo Center Drive, San Diego, CA 92128


(Address of principal executive offices)(Zip Code)





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


(Former name, former address and former fiscal year, if changed since last report)





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  ̈





The number of shares of Common Stock, $.01 par value, outstanding as of April 26, 2002 was 5,690,955. There are no other
classes of common stock.





---



---

##### Table of Contents




GARDEN FRESH RESTAURANT CORP.





FORM 10-Q





INDEX





PagePART I:    FINANCIAL INFORMATIONItem 1:

Unaudited Financial StatementsBalance Sheets at September 30, 2001 andMarch 31, 2002

3Statements of Operations for the three and six months endedMarch 31, 2001 and March 31, 2002

4Statements of Cash Flows for the six months endedMarch 31, 2001 and March 31, 2002

5Notes to Unaudited Financial Statements

6Item 2:

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

8Item 3:

Quantitative and Qualitative Disclosures About Market Risk

20PART II: OTHER INFORMATIONItem 1:

Legal Proceedings

21Item 2:

Changes in Securities

21Item 3:

Defaults Upon Senior Securities

21Item 4:

Submission of Matters to a Vote of Security Holders

21Item 5:

Other Information

21Item 6:

Exhibits and Reports on Form 8-K

21




---

##### Table of Contents




GARDEN FRESH RESTAURANT CORP.





BALANCE SHEETS





September 30, 2001

March 31, 2002(Dollars in thousands)(Unaudited)ASSETSCash and cash equivalents

$
165

$
5,337Inventories


8,185


8,891Other current assets


4,030


4,402Total current assets


12,380


18,630Property and equipment, net


143,588


136,568Intangible and other assets


1,928


2,288Total assets

$
157,896

$
157,486LIABILITIES AND SHAREHOLDERS EQUITYAccounts payable

$
7,862

$
4,773Revolving line of credit


9,150


Current portion of long-term debt


10,296


17,416Accrued liabilities


10,216


13,642Total current liabilities


37,524


35,831Deferred income taxes


5,149


5,149Long-term debt, net of current portion


37,807


37,087Other liabilities


3,236


3,466Shareholders equity:Preferred stock, $.001 par value; 120,000 shares authorized at September 30, 2001 and March 31, 2002, respectively; 0 issued and
outstanding .





Common stock, $.01 par value; 12,000,000 shares authorized at September 30, 2001 and March 31, 2002, respectively; 5,675,826 and
5,688,253 issued and outstanding at September 30, 2001 and March 31, 2002, respectively.


57


57Additional paid-in capital


59,665


59,736Retained earnings


14,458


16,160Total shareholders equity


74,180


75,953Total liabilities and shareholders equity

$
157,896

$
157,486





See notes to unaudited financial statements.




3




---

##### Table of Contents




GARDEN FRESH RESTAURANT CORP.





STATEMENTS OF OPERATIONS








Three Months Ended March 31,


Six months ended March 31,2001


2002


2001


2002(In thousands, except per share amounts)(Unaudited)Net sales

$
51,322


$
55,948


$
94,681


$
103,827Costs and expenses:Costs of sales


12,482



13,324



23,441



25,628Restaurant operating expenses:Labor


16,660



17,446



30,999



33,462Occupancy and other expenses


11,747



13,036



22,303



25,692General and administrative expenses


3,308



3,460



6,542



6,623Restaurant opening costs


541



101



1,127



306Depreciation and amortization


3,041



3,383



5,929



6,748Total costs and expenses


47,779



50,750



90,341



98,459Operating income


3,543



5,198



4,340



5,368Other income (expense):Interest income


43



12



110



33Interest expense


(1,193
)


(1,136
)


(2,344
)


(2,332
)Other income (expense), net


(60
)


(118
)


1,169



(256
)Income before provision for income taxes


2,333



3,956



3,275



2,813Provision for income taxes


(925
)


(1,562
)


(1,296
)


(1,111
)Net income

$
1,408


$
2,394


$
1,979


$
1,702Basic net income per common share:

$
0.25


$
0.42


$
0.35


$
0.30Shares used in computing basic net income per common share


5,665



5,688



5,665



5,688Diluted net income per common share:

$
0.25


$
0.42


$
0.35


$
0.30Shares used in computing diluted net income per common share


5,670



5,728



5,677



5,708





See notes to unaudited financial statements.




4




---

##### Table of Contents




GARDEN FRESH RESTAURANT CORP.





STATEMENTS OF CASH FLOWS





Six months endedMarch 31, 2001


March 31, 2002(Dollars in thousands)(Unaudited)Cash flows from operating activities:Net income

$
1,979


$
1,702Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization


5,929



6,748Loss on disposal of property and equipment


132



257Provision for deferred income taxes


621



Amortization of deferred gain on sale-leaseback of properties


(14
)


(24
)Changes in operating assets and liabilities:Inventories


(901
)


(706
)Other assets


(1,492
)


(372
)Intangible and other assets


(232
)


(376
)Accounts payable


(1,217
)


(2,406
)Accrued liabilities


3,247



3,419Other liabilities


32



142Net cash provided by operating activities


8,084



8,384Cash flows from investing activities:Acquisition of property and equipment:New restaurant development


(14,796
)


(2,375
)Existing restaurant additions


(1,762
)


(2,263
)Decrease in construction costs included in accounts payable


(2,451
)


(805
)Proceeds from sale-leaseback transactions


7,322



4,910Net cash used in investing activities


(11,687
)


(533
)Cash flows from financing activities:Repayments under line of credit


(4,000
)


(450
)Proceeds from long-term debt


13,039



5,935Repayment of short-term debt






(2,700
)Repayment of long-term debt


(5,524
)


(5,535
)Net proceeds from issuance of common stock


88



71Net cash provided by (used in) financing activities


3,603



(2,679
)Net increase in cash and cash equivalents






5,172Cash and cash equivalents at beginning of period


2,058



165Cash and cash equivalents at end of period

$
2,058


$
5,337Supplemental disclosure of noncash investing and financingtransactions:Property and equipment asset purchases in accounts payable

$
1,440


$
122Replacement of line of credit with short-term debt





$
8,700





See notes to unaudited financial statements.




5




---

##### Table of Contents




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, 2001 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 5,000 and 40,000 shares for the three month periods ended March 31, 2001
and 2002, respectively, and 12,000 and 20,000 shares for the six month periods ended March 31, 2001 and 2002, respectively, were used to calculate diluted earnings per share. There were no reconciling items in calculating the numerator for basic and
diluted earnings per share for either of the periods presented. Shares related to stock options of 1,079,000 and 1,031,000 for the three month periods ended March 31, 2001 and 2002, respectively, and 823,000 and 1,031,000 shares for the six month
periods ended March 31, 2001 and 2002, respectively, were excluded from the calculation of diluted net income per share, as the effect of their inclusion would be anti-dilutive.





3.    Settlement of Insurance Claim





The Company recorded other
income of $1,284,000 during the first quarter of fiscal 2001 related to the settlement of an insurance claim for the loss of assets in a fire at the Companys Point Loma restaurant in December 1999.





4.    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.





5.    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. There were no sale lease-back transactions during the quarter ended March 31, 2002.




6




---

##### Table of Contents




GARDEN FRESH RESTAURANT CORP.





NOTES TO UNAUDITED FINANCIAL STATEMENTS





6.    New Credit Agreement





During the quarter ended December 31, 2001, the Company made repayments of $0.5 million towards its line of credit and
converted the remaining balance of $8.7 million to a new credit agreement with the bank consisting of two term loans in the amount of $6.0 million due December 31, 2002, and $2.7 million, due March 31, 2002. The new term loans bear interest at
either the prime rate or LIBOR plus 2.0%, and prime rate or LIBOR plus 2.5%, respectively, and are collateralized by equipment and other assets of the Company. As of March 31, 2002, the Company repaid the entire remaining balance of the $2.7 million
term loan. The Company is required to begin monthly repayments of $0.5 million each month commencing in the third quarter of fiscal 2002 totaling $3.0 million in fiscal 2002 for the $6.0 million note. The Company is required to repay the remaining
unpaid balance of $3.0 million under this agreement during the first quarter of fiscal 2003.




7




---

##### Table of Contents




GARDEN FRESH RESTAURANT CORP.





STATEMENT OF OPERATING DATA





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, improvements at existing sites and the development of a new corporate office, (iv) timing for implementation of its new accounting software program, (v) need 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 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 consolidated financial statements:





| |  |  | 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. In September 2001, the Company determined that it would close its Slurp! restaurant and its remaining Ladles restaurants due to
poor operating performance. The Company recorded an accrual of $204,000 at September 30, 2001, representing the present value of the estimated net future lease payments associated with the planned closures of these restaurants. Of this amount,
$80,000 was recorded as accrued liabilities and $124,000 was recorded as other long-term liabilities. Cash payments in the amount of $29,000 were made during the first half of fiscal 2002 to reduce the liabilities. Should the Company incur
unexpected additional expenses related to the exit of the leases related to these locations, additional accruals may be required.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



8




---

##### Table of Contents




| |  |  | The Company maintains an accrual for workers compensation and general liability insurance which is recorded in the accrued liabilities section of our balance sheets. We
determine the adequacy of this accrual by periodically evaluating our historical experience and trends and industry experience and trends related to insurance claims and payments. If such information indicates that our accruals are overstated or
understated, we will adjust the assumptions utilized in our methodologies and reduce or provide for additional accruals as appropriate. An increase or decrease to this accrual would result in an increase or decrease to the Companys employee
benefits expense, respectively, which would affect the Companys results of operations.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | The Company is subject to various claims and legal actions in the ordinary course of business. Some of these matters include professional liability, employee-related matters,
and investigations by governmental agencies regarding our employment practices. The Company is not currently aware of any such 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 it will evaluate the probability of an adverse outcome and provide accruals for such contingencies as necessary.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




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


Six Months EndedMarch 31, 2001


March 31, 2002


March 31, 2001


March 31, 2002Net sales

100.0
%

100.0
%

100.0
%

100.0
%Costs and expenses:Costs of sales

24.3
%

23.8
%

24.8
%

24.7
%Restaurant operating expenses:Labor

32.5
%

31.2
%

32.7
%

32.2
%Occupancy and other expenses

22.9
%

23.3
%

23.5
%

24.7
%General and administrative expenses

6.4
%

6.2
%

6.9
%

6.4
%Restaurant opening costs

1.1
%

0.2
%

1.2
%

0.3
%Depreciation and amortization

5.9
%

6.0
%

6.3
%

6.5
%Total costs and expenses

93.1
%

90.7
%

95.4
%

94.8
%Operating income

6.9
%

9.3
%

4.6
%

5.2
%Interest income

0.0
%

0.0
%

0.1
%

0.0
%Interest expense

(2.3
%)

(2.0
%)

(2.5
%)

(2.2
%)Other income (expenses), net

(0.1
%)

(0.2
%)

1.2
%

(0.3
%)Income before income taxes

4.5
%

7.1
%

3.4
%

2.7
%Provision for income taxes

(1.8
%)

(2.8
%)

(1.4
%)

(1.1
%)Net income

2.7
%

4.3
%

2.0
%

1.6
%




9




---

##### Table of Contents




Results of Operations





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





Net
Sales.    Net sales for the three months ended March 31, 2002 increased 9.0% to $55.9 million from $51.3 million for the comparable 2001 period. This increase was primarily due to the opening of seven salad buffet restaurants
since the comparable 2001 period and the increase in comparable restaurant sales of 2.3%. The same store sales increase is due to increased guest counts of 0.3% combined with a 2.0% increase in average meal price since the comparable 2001 period.
See Business RisksCertain Operating Results and Considerations.





Costs of
Sales.    Costs of sales for the three months ended March 31, 2002 increased 6.4% to $13.3 million from $12.5 million for the comparable 2001 period. This increase was due to the addition of seven salad buffet restaurants
opened since the comparable 2001 period. As a percentage of net sales, cost of sales decreased 0.5 percentage points to 23.8% from 24.3% since the comparable 2001 period. This increase was primarily the result efficiencies achieved through the
utilization of the East Coast distribution center resulting in lower food costs. See Business RisksReliance on Key Suppliers and Distributors.





Labor Expense.    Labor expense for the three months ended March 31, 2002 increased 4.2% to $17.4 million from $16.7 million for the comparable 2001 period.
This increase was due primarily to an increase in the minimum wage in California and the addition of seven salad buffet restaurants opened since the comparable 2001 period. As a percentage of net sales, the labor expense decreased 1.3 percentage
points to 31.2% from 32.5% since the comparable 2001 period as a result of 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 for the three months ended March 31,
2002 increased 11.1% to $13.0 million from $11.7 million for the comparable 2001 period. Occupancy and other expenses as a percentage of net sales increased 0.4 percentage points to 23.3% from 22.9% for the comparable 2001 period. This was due
primarily to higher utility costs predominantly in California, higher 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. See Business RisksPlanned Operating Expenditures.





General and Administrative Expenses.    General and administrative expenses for the three months ended March 31, 2002 increased 6.1% to $3.5 million from $3.3 million for the comparable 2001 period. As a
percentage of net sales, general and administrative expenses decreased 0.2 percentage points to 6.2% from 6.4% for the comparable 2001 period. The decrease as a percentage of net sales resulted from higher net sales since the second quarter of
fiscal 2001 and reduced spending in the general and administrative area in an effort to decrease costs.





Restaurant Opening
Costs.    Restaurant opening costs for the three months ended March 31, 2002 decreased 80.0% to $0.1 million from $0.5 million for the comparable 2001 period. Restaurant opening costs as a percentage of net sales decreased
0.9 percentage points to 0.2% from 1.1% for the comparable 2001 period. These decreases are the result of fewer new restaurant openings during the quarter compared to the same quarter in fiscal 2001. One salad buffet restaurant was opened during the
second quarter of fiscal 2002 compared to two new salad buffet restaurants and one kitchen facility opened during the second quarter of fiscal 2001.





Depreciation and Amortization.    Depreciation and amortization for the three months ended March 31, 2002 increased 13.3% to $3.4 million from $3.0 million for the comparable 2001 period.
Depreciation and amortization as a percentage of net sales increased 0.1 percentage points to 6.0% from 5.9% for the comparable 2001 period. These increases were due to additional depreciation for the seven new salad buffet restaurants opened since
the comparable 2001 period, partially offset by decreased depreciation expense associated with the sale-leaseback of four restaurant locations since the comparable 2001 period.





Interest Income.    Interest income for the three months ended March 31, 2002 decreased 72.1% to $12,000 from $43,000 for the comparable 2001 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 March 31, 2002 and 2000 decreased 8.3% to $1.1 million from $1.2 million for the comparable 2001 period as a result of lower interest rates. As a percentage of net
sales,




10




---

##### Table of Contents




interest expense decreased 0.3 percentage points to 2.0% from 2.3% for the comparable 2001 period as a result of the
higher net sales which were attributable to increases in comparable store sales and the opening of seven new restaurants since the first quarter of fiscal 2001.





Other Income (Expense), net.    Other income (expense), net for the three months ended March 31, 2002 increased 97% to $118,000 from $60,000 for the comparable
2001 period as a result of increased write-offs of assets as equipment is replaced in aging restaurants.





Provision for Income Taxes.    Income tax expense for the three months ended March 31, 2002 was $1.6 million compared to $0.9 million for the comparable 2001 period. The Companys effective tax rate was 39.5%
and 39.6% for the three months ended March 31, 2002 and 2001, respectively.




11




---

##### Table of Contents




Six Months Ended March 31, 2002 Compared to Six Months Ended March 31, 2001





Net Sales.    Net sales for the six months ended March 31, 2002 increased 9.6% to $103.8 million
from $94.7 million for the comparable 2001 period. This increase was primarily due to the opening of seven salad buffet restaurants since the comparable 2001 period and the increase in comparable restaurant sales of 1.4%. The same store sales
increase is due to an increase in average meal price of 0.9% combined with increased guest counts of 0.5% versus the comparable 2001 period. See Business RisksCertain Operating Results and Considerations.





Costs of Sales.    Costs of sales for the six months ended March 31, 2002 increased 9.4% to $25.6 million from
$23.4 million for the comparable 2001 period. This increase was due to the addition of seven salad buffet restaurants since the comparable 2001 period. As a percentage of net sales, costs of sales decreased 0.1 percentage points to 24.7% from 24.8%
since the comparable 2001 period as a result of efficiencies achieved through the utilization of the East Coast distribution center during the second quarter of fiscal 2002 offset by unfavorable purchase price variances associated with higher than
planned prices with our suppliers during the first quarter of fiscal 2002. See Business Risks  Reliance on Key Suppliers and Distributors.





Labor Expense.    Labor expense for the six months ended March 31, 2002 increased 8.1% to $33.5 million from $31.0 million for the comparable 2001 period. This
increase was due primarily to an increase in the minimum wage in California and the addition of seven salad buffet restaurants opened since the comparable 2001 period. As a percentage of net sales, the labor expense decreased 0.5 percentage points
to 32.2% from 32.7% in the comparable 2001 as a result of programs put in place to better utilize crew labor hours and reduce the number of managers in each restaurant. See Business RisksMinimum Wage.





Occupancy and Other Expenses.    Occupancy and other expenses for the six months ended March 31, 2002 increased
15.2% to $25.7 million from $22.3 million for the comparable 2001 period. Occupancy and other expenses as a percentage of net sales increased 1.2 percentage points to 24.7% from 23.5% for the comparable 2001 period. This was due primarily to higher
utility costs predominantly in California, higher 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. See Business RisksPlanned Operating Expenditures.





General and Administrative
Expenses.    General and administrative expenses for the six months ended March 31, 2002 increased 1.5% to $6.6 million from $6.5 million for the comparable 2001 period. As a percentage of net sales, general and
administrative expenses decreased 0.5 percentage points to 6.4% from 6.9% for the comparable 2001 period.The decrease as a percentage of net sales resulted from higher net sales since the second quarter of fiscal 2001 and reduced spending in
the general and administrative area in an effort to decrease costs.





Restaurant Opening
Costs.    Restaurant opening costs for the six months ended March 31, 2002 decreased 72.7% to $0.3 million from $1.1 million for the comparable 2001 period. Restaurant opening costs as a percentage of net sales decreased 0.9
percentage points to .3% from 1.2% for the comparable 2001 period. These decreases are the result of fewer new restaurant openings during the fiscal 2002 period compared to the same period in fiscal 2001. Two salad buffet restaurants were opened
during the first half of fiscal 2002 compared to four new salad buffet restaurants and one kitchen facility opened and one existing salad buffet restaurant re-opened during the first half of fiscal 2001.





Depreciation and Amortization.    Depreciation and amortization for the six months ended March 31, 2002 increased 13.6% to
$6.7 million from $5.9 million for the same period in fiscal 2001. Depreciation and amortization as a percentage of net sales increased 0.2 percentage points to 6.5%, from 6.3% for the comparable period in 2001. These increases were due to
additional depreciation for the seven new salad buffet restaurants opened since the comparable 2001 period, partially offset by decreased depreciation expense associated with the sale-leaseback of four restaurant locations since the comparable 2001
period.





Interest Income.    Interest income for the six months ended March 31, 2002 decreased 70.0%
to $33,000 from $110,000 for the comparable 2001 period as a result of lower interest rates combined with decreased investing activity available cash.





Interest Expense.    Interest expense for the six months ended March 31, 2002 and 2001 remained consistent at $2.3 million. Interest expense as a percentage of net sales decreased 0.3
percentage points to 2.2% from 2.5% for the same




12




---

##### Table of Contents




period in 2001 as a result of the higher net sales which were attributable to increases in comparable store sales and
the opening of seven new restaurants since the first quarter of fiscal 2001.





Other Income (Expense),
net.    Other income (expense), net for the six months ended March 31, 2002 was ($.3) million compared to $1.2 million for the comparable 2001 period. This decrease resulted primarily from the insurance settlement related to
the loss of assets in a fire at a restaurant in San Diego, California that was recorded during the first quarter of fiscal 2001.





Provision for Income Taxes.    Income tax expense for the six months ended March 31, 2002 was $1.1 million compared to $1.3 million for the comparable 2001 period. The Companys effective tax rate was 39.5%
and 39.6% for the six months ended March 31, 2002 and 2001, respectively.




13




---

##### Table of Contents




Liquidity and Capital Resources





The Companys principal capital requirement has been for both funding the development of new restaurants and improving existing restaurants. The Company finances its cash
requirements principally from cash flow 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 $5.4 million
during the first six months of fiscal 2002 and $19.0 million for the comparable period in fiscal 2001. During the first six months of fiscal 2002, the Company made capital expenditures of $3.0 million for the opening of two new salad buffet
restaurants and the construction of future additional restaurants and $0.1 million for a future stand-alone kitchen facility (including the decrease in construction costs included in accounts payable) and $2.3 million for capital improvements at
existing sites. For the first six months of fiscal 2001, the Company paid $17.2 million for the opening of four new salad buffet restaurants and the re-opening of one existing salad buffet restaurant (including the decrease in construction costs
included in accounts payable), and paid $1.8 million for capital improvement 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 half of fiscal 2002, the Company obtained $8.4 million from operating activities, obtained $5.9 million from long-term equipment and mortgage financing, and received proceeds from sale-lease back transactions of $4.9 million. For the first
six months of fiscal 2002, the Company made repayments of $5.5 million towards its long-term debt obligations. In addition, during the first six months of fiscal 2002, the Company made repayments of $0.5 million towards its line of credit and
converted the remaining balance of $8.7 million into a new short-term credit agreement with the bank consisting of two term loans in the amounts of $6.0 million and $2.7 million, due December 31, 2002 and March 31, 2002, respectively. As of March
31, 2002 the Company repaid the entire balance of the $2.7 million term loan. The Company is required to begin monthly repayments of $0.5 million each month commencing in the third quarter of fiscal 2002 totaling $3.0 million in fiscal 2002 for the
$6.0 million note. The Company is required to repay the remaining unpaid balance of $3.0 million under this agreement by December 31, 2002.





The Companys original capital budget for fiscal 2002 totaled $17.4 million for the completion of four new salad buffet restaurants and the development of the new corporate office ($9.8 million), capital
improvements for existing facilities ($5.8 million) and the development of a stand-alone kitchen facility ($1.8 million). During the first six months of fiscal 2002, the Company reduced the number of stores it plans to open from four to two,
reducing the capital budget for new store openings and the development of the new corporate office by $4.0 million to $5.8 million. For the remaining two quarters of fiscal 2002 the Company has a residual budget for capital expenditures in the
amount of $2.8 million related to new store openings and the development of the new corporate office, $1.7 million for the development of the kitchen facility, and $3.5 million for capital improvements at existing sites . The Company currently does
not have plans to open any additional restaurants in fiscal 2002. See Business RisksExpansion Risks.





In addition to funds generated from operations, the Company will 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,
improvements of existing restaurants, or the development of the corporate office for fiscal year 2002 and beyond. 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, to make improvements at existing restaurants, or to develop the new corporate office. Additionally, should the Companys results of operations
decrease it may not have the ability to pay the current portion of its long-term debt of $17.4 million, which includes the $6.0 million note which is due under the short term credit agreement with the bank at the end of Q1, fiscal 2003. See
Business RisksCapital Requirements.





As of March 31, 2002, the Company operated 95 salad buffet
restaurants. The Company currently owns the land or land and buildings for 27 restaurants, including the land for certain sites the Company expects to open during the balance of fiscal 2002 and 2003. During the first six months of fiscal 2002, the
Company opened one owned site, one leased site, one leased warehouse facility and completed sale-lease backs for two sites.





The
restaurant opening costs incurred during the first half of fiscal 2002 for the opening of two new salad buffet




14




---

##### Table of Contents




restaurants, one warehouse facility and the construction of future additional restaurants during the six-month period
ending March 31, 2002 was $0.3 million. For restaurant sites planned to open in fiscal 2002 and 2003 the Company has signed three leases, and purchased three sites. See Business 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, and operating expenses, 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 July 2001, the
Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 141 (SFAS No. 141), Business Combinations, and Statement No. 142 (SFAS No. 142), Goodwill and Other Intangible
Assets. SFAS No. 141 supersedes APB Opinion No. 16, Business Combinations and SFAS No. 38, Accounting for Preacquisition Contingencies of Purchases Enterprises and eliminates pooling-of-interests accounting
prospectively. SFAS No. 141 was adopted on July 1, 2001. SFAS No. 142 supersedes APB Opinion No. 17, Intangible Assets and changes the accounting for goodwill from an amortization method to an impairment-only approach. Under SFAS No.
142, goodwill will be tested annually and whenever events or circumstances occur indicating that goodwill might be impaired. The provisions of SFAS No. 142 are required to be applied starting with fiscal years beginning after December 15, 2001. Upon
adoption of SFAS No. 142, amortization of goodwill recorded for business combinations consummated prior to July 1, 2001 will cease, and intangible assets acquired prior to July 1, 2001 that do not meet the criteria for recognition under SFAS No. 141
will be reclassified to goodwill. The adoption of SFAS No. 141 did not have an impact on the Companys financial position or results of operations. The Company will adopt SFAS No. 142 on October 1, 2003. At this time, the Company does not
anticipate that the adoption of SFAS No. 142 will have a material effect on the Companys financial statements.





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





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




15




---

##### Table of Contents




OperationsReporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions, for the disposal of a segment of a business. However, it retains the requirement in APB No. 30 to report separately discontinued operations and extends that reporting to a component of an entity
that either has been disposed of (by sale, abandonment, or in a distribution to owners) or is classified as held for sale. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. At this time, the Company does not anticipate
that the adoption of SFAS No. 144 will have a material effect on the Companys financial statements.





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
2000 and 2001, the Company experienced an increase of 3.1% and 3.3%, respectively, in comparable restaurant sales. In the first six months of fiscal 2001 and 2002, the Companys comparable restaurant sales increased 4.3% and 1.4% respectively.
The Companys restaurants have not historically experienced significant increases in guest volume following their initial opening period (15 months) due to the fact that most sites open immediately at average or greater than average guest
volume. As a result, the Company does not believe that recent comparable restaurant sales are indicative of future trends in comparable restaurant sales. The Company believes that it may from time to time in the future experience declines in
comparable restaurant sales, and that any future increases in comparable restaurant sales would be modest.





Expansion Risks





The Company opened seventeen salad buffet restaurants in fiscal 2000, ten in fiscal 2001 (opening nine new salad buffet
restaurants and re-opening one existing salad buffet restaurant), and has opened two restaurants to date in fiscal 2002, both in an existing region in Southern California. The Company currently does not have plans to open any additional restaurants
in fiscal 2002. For fiscal 2003 the Company plans to open three restaurants in existing regions. The Companys ability to achieve its expansion plans will depend on a variety of factors, many of which may be beyond the Companys control,
including the Companys ability to locate suitable restaurant sites, negotiate acceptable lease or purchase terms, obtain required governmental approvals, construct new restaurants in a timely manner, attract, train and retain qualified and
experienced personnel and management, operate its restaurants profitably and obtain additional capital, as well as general economic conditions and the degree of competition in the particular region of expansion. The Company has experienced, and
expects to continue to experience, delays in restaurant openings from time to time.





Since its inception the Company has closed
three non-performing salad buffet restaurants, one mini restaurant, two Ladles, A Soup and Salad Takery locations, and its Slurp! The Soup Experience location due to poor operating performance. The first Ladles location was
closed during the first quarter of fiscal 2001 and the second was closed during the first quarter of fiscal 2002. The Slurp! restaurant was closed during the second quarter of fiscal 2002. The Company recorded an accrual of $204,000 at September 30,
2001, representing the present value of the estimated net future lease payments associated with the planned closures of these restaurants. Of this amount, $80,000 was recorded as accrued liabilities and $124,000 was recorded as other long-term
liabilities. Cash payments in the amount of $29,000 were made during the first half of fiscal 2002 to reduce the liabilities. Subsequent to March 31, 2002 the Company negotiated a sub-lease for the Slurp! location which will remain in effect until
the Company is able to exit the lease according to the original terms. The new tenant will pay all rents and related charges under the lease as stated in the original lease agreement.





Given the number of restaurants in current operation and the Companys projected expansion rate there can be no assurances that the Company will not close restaurants in the future.
Any closure could result in a significant write-off of assets, which could adversely affect the Companys business, financial condition and results of operations.





The Company incurs substantial costs in opening a new restaurant and, in the Companys experience, new restaurants experience fluctuating operational expenses 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. Owned restaurants generally require significantly more up-front capital than leased restaurants, as a
result of which an increase in the




16




---

##### Table of Contents




percentage of owned restaurant openings as compared to historical practice would increase the overall capital required
to meet the Companys growth plans. There can be no assurance that the Company will successfully expand or that the Companys existing or new restaurants will be profitable. The Company has encountered intense competition for restaurant
sites, and in many cases has had difficulty buying or leasing desirable sites on terms that are acceptable to the Company. In many cases, the Companys competitors are willing and able to pay more than the Company for sites. The Company expects
these difficulties in obtaining desirable sites to continue for the foreseeable future.





Restaurant Industry and Competition





The restaurant industry is highly competitive. Key competitive factors in the industry include the quality and value of the
food products offered, quality of service, price, dining experience, restaurant location and the 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 will
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, improvements of existing restaurants, or the development of the corporate
office for fiscal year 2002 and beyond. 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, to make improvements at existing restaurants, or to develop the new corporate office. Additionally, should the Companys results of operations decrease it may not have the ability to pay the current portion of its
long-term debt of $17.4 million, which includes the $6.0 million note which is due under the short term credit agreement with the bank at the end of Q1, fiscal 2003.





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, and 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




17




---

##### Table of Contents




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 Operating Expenditures





The Company has incurred planned marketing expenditures during the first half of fiscal 2002 in order to implement strategic marketing programs designed to benefit the Company in
subsequent quarters. Expenditures related to these programs include advertising production costs, media expenses, and research. There can be no assurance these programs will be successful and will benefit the Company by increasing guest counts and
revenues in the future. The Company continues to incur marketing expenditures related to the development of future promotional programs designed to enhance the Companys position in the marketplace. In addition, the Company is expanding the
scope of its local store marketing programs. There can be no assurance these programs will be successful and will benefit the Company by increasing guest counts and revenues in the future.





Since the period ended March 31, 2001, the Company has converted four 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 energy costs related to increased utility expenses predominantly in California.
Further, the Company may continue 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 utilities
and repair and maintenance will not continue to impact the Companys ability to control costs in the future.





Importance
of Key Employees





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





Computer Information System





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





Because of the Companys growth and additional needs in the areas of distribution, construction and regional management reporting, the component of
the system that provides the Companys formal accounting reports is in the process




18




---

##### Table of Contents




of being replaced with a commercial software package. The Company began implementing the new software package during the
second quarter of fiscal 2001 and expects to complete the system conversion and begin live transaction processing during the third quarter of fiscal 2002. The Company intends to gain efficiencies in both its inventory tracking and financial
reporting processes through use of the new system. However, there can be no assurance that the Company will be able to achieve a timely implementation of or become proficient with the new software such that it will have a positive financial impact
on the results of operations.





Seasonality and Quarterly Fluctuations





The Companys business experiences seasonal fluctuations, as a disproportionate amount of the Company 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





Thirty-eight of
the Companys 95 existing salad buffet restaurants are located in California, and eighteen are located in Florida. Accordingly, the Company is susceptible to fluctuations in its business caused by adverse economic or other conditions in these
regions, including natural disasters or other acts of God. In addition, in California, higher utility costs will continue to 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
condition 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 central kitchen facilities 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.




19




---

##### Table of Contents




Item 3:

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





Market risks relating to the Companys operations result primarily
from changes in short-term interest rates as the Companys short term credit agreement which consists of a term loan in the amount of $6.0 million due December 31, 2002. The term loan bears interest at either the prime rate or LIBOR plus 2.0%.
As of March 31, 2002, the Company had $6.0 million in debt outstanding under the term loan. Based on a hypothetical 50 basis point adverse change in prime rates, net interest expense would increase by approximately $30,000 on an annual basis, and
likewise would decrease earnings and cash flows. The Company cannot predict market fluctuations in interest rates and their impact on debt, nor can there be any assurance that long-term fixed rate debt will be available at favorable rates, if at
all. Consequently, future results may differ materially from the estimated results due to adverse changes in interest rates or debt availability.





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




20




---

##### Table of Contents




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





On March 15, 2002, the Company held its Annual Meeting of Stockholders. At this
meeting, Edgar F. Berner and John M. Robbins, Jr. were elected to the Board of Directors as Class B Directors. Votes for and against Mr. Berner were 4,730,873 and 478,738, respectively. Votes for and against Mr. Robbins were 4,734,546 and 475,064,
respectively. There were no abstentions in the election for Class B Directors. Remaining directors of the Company not up for election at this meeting are Michael P. Mack, Michael M. Minchin, Jr., Robert A. Gunst, and David Nierenberg. A proposal to
amend the Companys 1998 Stock Option Plan was passed with 2,619,413 votes cast for the amendment, 1,275,546 votes cast against, with 27,678 abstentions. Also at this meeting, KPMG, LLP was ratified as the Companys independent auditors.





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 23 herewith





Reports on Form 8-K:





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




21




---

##### Table of Contents




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: May 14, 2002



GARDEN FRESH RESTAURANT CORP. (Registrant)/s/    MICHAEL P. MACKMichael P. Mack Chief Executive
Officer/President (Principal Executive Officer)/s/    DAVID W. QUALLSDavid W. Qualls Chief Financial Officer (Principal
Accounting and Financial Officer)




22




---

##### Table of Contents




EXHIBIT INDEX





Exhibit Number

Description3.1*

Restated Certificate of Incorporation of Garden Fresh Restaurant Corp.3.1******

Certificate of Designation, Preferences and Rights of the Terms of the Series A Preferred Stock, as filed with the Delaware
Secretary of State on February 23, 2001.3.2**

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

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

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

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

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

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

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

Form of Executive Employment Agreement10.7***

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

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

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

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

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

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

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

Wells Fargo Bank Credit Agreement, dated December 3, 2001


---

|* |  | Incorporated by reference from Exhibit 3.1 filed with the Companys Registration Statement on Form S-8 (No. 33-93568) filed June 16, 1995.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

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

|******* |  | Incorporated by reference from the Companys Form 10-K filed with the SEC on December 27, 2001.
|------- |  | -----------------------------------------------------------------------------------------------



23