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SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-K

(Mark One)

|ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|- | ----------------------------------------------------------------------------------------
|  | For the fiscal year ended December 29, 2002                                             
|  | OR                                                                                      
|o | 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 0-20792

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FRESH CHOICE, INC.(Exact name of registrant as specified in its charter)

Delaware(State or other jurisdiction of
incorporation or organization)

77-0130849(I.R.S. Employer
Identification No.)485 Cochrane Circle, Morgan Hill, CA(Address of principal executive offices)

95037-2831(Zip Code)


Registrant's telephone number, including area code:(408) 776-0799

Securities
registered pursuant to Section 12(b) of the Act:None

Securities
registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 par value(Title of Class)

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

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
registrant's knowledge, in definite proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K o

Approximate
aggregate market value of the registrant's Common Stock held by nonaffiliates of the registrant (based on the closing sales price of such stock as reported in the Nasdaq
National Market) on June 14, 2002, the last business day of the registrant's second fiscal quarter, was $6,454,291. Excludes shares of Common Stock held by directors, officers and each person
who holds 5% or more of the outstanding Common Stock at June 14, 2002 because such persons may be deemed to be affiliates. This exclusion is not a conclusive determination of such status for
other purposes.

Number
of shares of Common Stock, $0.001 par value, outstanding as of March 3, 2003 was 5,964,068.

DOCUMENTS INCORPORATED BY REFERENCE

|Documents                                                                               | Form 10-K Reference
|--------------------------------------------------------------------------------------- | -------------------
|(1)    Proxy Statement for the Annual Meeting of Stockholders scheduled for May 6, 2003 | Part III           

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FRESH CHOICE, INC.
ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

|                                 |          |    |                                                                                       | Page
No.
|-------------------------------- | -------- | -- | ------------------------------------------------------------------------------------- | --------
|PART I                           |          | 3 
|                                 | Item 1.  |    | BUSINESS                                                                              |         
|                                 | Item 2.  |    | PROPERTIES                                                                            |         
|                                 | Item 3.  |    | LEGAL PROCEEDINGS                                                                     |         
|                                 | Item 4.  |    | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                   |         
|PART II                          |          | 16
|                                 | Item 5.  |    | MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                 |         
|                                 | Item 6.  |    | SELECTED FINANCIAL DATA                                                               |         
|                                 | Item 7.  |    | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |         
|                                 | Item 7a. |    | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            |         
|                                 | Item 8   |    | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                           |         
|                                 | Item 9.  |    | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE  |         
|PART III                         |          | 30
|                                 | Item 10. |    | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                    |         
|                                 | Item 11. |    | EXECUTIVE COMPENSATION                                                                |         
|                                 | Item 12. |    | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                        |         
|                                 | Item 13. |    | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                        |         
|                                 | Item 14. |    | CONTROLS AND PROCEDURES                                                               |         
|PART IV                          |          | 31
|                                 | Item 15. |    | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K                      |         
|SIGNATURES                       |          | 53
|CERTIFICATION OF PERIODIC REPORT |          | 54
|INDEX TO FORM 10-K EXHIBITS      |          | 56
|FORM 10-K EXHIBITS               |          |   

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PART I

Certain statements set forth in or incorporated by reference into this Annual Report on Form 10-K, including anticipated store openings,
planned capital expenditures, settlement of lease obligations and trends in or expectations regarding the Company's operations, constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are based on currently available operating, financial and competitive information and are subject to various risks and uncertainties.
Actual future results and trends may differ materially depending on a variety of factors as set forth under the heading "BusinessBusiness Risks". In particular, the Company's plans to
open new restaurants could be affected by the Company's ability to locate suitable restaurant sites, negotiate acceptable lease terms, construct new restaurants in a timely manner, operate its
restaurants profitably and obtain additional financing, as well as general economic conditions.

Item 1. BUSINESS.

As of March 3, 2003, the Company operated 55 restaurants of which 51 restaurants operate under the "Fresh Choice" and "Zoopa" brand names, 1 operates under
the "Fresh Choice Express" brand name, two operate as dual branded Fresh Choice Express and licensed Starbucks retail stores and one operates as a licensed Starbucks retail store. The Company operates
41 restaurants in California, 5 restaurants in the state of Washington and 9 restaurants in Texas, including the Fresh Choice Express restaurant, the two dual branded Fresh Choice Express and licensed
Starbucks retail stores and the one licensed Starbucks retail store. Fresh Choice and Zoopa restaurants feature an extensive selection of healthy, high-quality, freshly-made
specialty and traditional salads, hot pasta, pizza, hot baked potatoes, soups, fresh breads and muffins, frozen low-fat soft serve and other desserts, offered in a limited-service format.
The Company's goal is to create a distinctive dining experience that combines the selection, quality and ambiance of full-service, casual restaurants with the convenience and value appeal
of traditional buffet restaurants.

The
Fresh Choice and Zoopa restaurants use fresh produce and high-quality ingredients in their menu offerings. Fresh produce is delivered several days per week to each
restaurant, and all menu items are prepared on-site. To reinforce the Company's commitment to freshness, many of the Company's food offerings are prepared in exhibition-style cooking areas
throughout the day. Guests make their selections from salads, soups, baked potatoes, hot pasta, pizza, muffins, breads, bakery goods, fresh fruit, frozen low-fat soft serve and specialty
desserts. Rotisserie chicken and related side dishes are served in several Texas and selected rural California locations.

The
Company believes that its Fresh Choice and Zoopa restaurants provide guests an excellent price/value relationship by offering unlimited servings for a current single price of $6.99
at lunch, $8.29 at dinner, $4.49 for children ages six to twelve and $1.49 for children ages three to five with children under three free, in most locations, plus the cost of a beverage. The Company's
wide variety of high-quality food and attractive prices are designed to appeal to a broad range of guests, including families, business professionals, students and senior citizens. In
addition, the Company believes the concept appeals to health-conscious diners who are focused on the nutritional content of their meals.

Fresh
Choice Express is a concept designed as an extension of the Fresh Choice brand, and existing local Fresh Choice restaurants. Two of the locations are in office buildings providing
breakfast and lunch, Monday through Friday. One of these locations is dual branded with a licensed Starbucks retail store. These restaurants allow a guest to choose from
tossed-to-order salads, made-to-order oven-toasted sandwiches, signature soups and baked potatoes. The third location is in a mall and is
dual branded with a licensed Starbucks retail store. The mall location is open seven days per week for breakfast, lunch and dinner. The menu features a selection of
tossed-to-order salads, made-to-order oven-toasted sandwiches and signature soups. The one licensed Starbucks retail store and the two dual
branded Fresh Choice Express and licensed Starbucks retail stores were opened under a licensing agreement between Fresh Choice and Starbucks Coffee Company and offer handcrafted espresso beverages,
drip coffee and a

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selection of freshly baked pastries. Additional licensed Starbucks retail store locations will be determined jointly between Starbucks Coffee Company and Fresh Choice.

The
Company views its commitment to its employees, or crewmembers, as critical to its long-term success. The Company depends on a high rate of repeat business, and views the
quality of its crewmember interaction with guests as an important element of its strategy. By providing extensive training and competitive compensation, the Company seeks to foster a strong corporate
culture and encourage a sense of personal commitment from crewmembers at all levels. The Company believes that its strong culture helps it attract and retain highly-motivated crewmembers who provide
its guests with a level of service superior to that traditionally associated with limited-service restaurants.

The
Company acquired the Zoopa trade name and three Zoopa restaurants in fiscal 1997 and currently operates its four Washington restaurants and one restaurant in San Antonio, Texas under
the Zoopa name. The Company opened five and closed three Fresh Choice restaurants in California in fiscal 2002. The Company has generally attempted to cluster its restaurants in each market area to
benefit from operating, purchasing and advertising efficiencies, enhance brand-name recognition, and discourage competition.

The
Company was incorporated in California on October 20, 1986 under the name Gourmet California, Inc. In August 1988, the Company was recapitalized as a result of a
merger with Moffett Partners, Inc., and the survivor of the merger was re-named Fresh Choice, Inc. Effective December 4, 1992, the Company was reincorporated in
Delaware. Unless the context otherwise requires, all references to the "Company" or "Fresh Choice" mean Fresh Choice, Inc. and its predecessors.

The
Company maintains a worldwide website atwww.freshchoice.com. Investors can obtain copies of our Securities and Exchange Commission
filings from this site free of charge.

Business Strategy

The Company's objective is to create a distinctive dining experience that combines the selection, quality and ambiance of full-service, casual dining
restaurants with the convenience and value appeal of traditional buffet restaurants. Each element of the Company's strategy is designed to exceed guests' expectations, encourage repeat business, and
establish a significant presence in each of its targeted markets. The key elements of the Company's strategy include the following:

Fresh, Healthy, High-Quality Food.The Company is committed to using fresh produce and high-quality
ingredients in its menu offerings. Fresh produce is delivered several days per week to each restaurant, and all menu items are prepared on-site. To reinforce the Company's commitment to
freshness, many of the Company's food offerings are prepared in separate exhibition-style cooking areas throughout the day. The Company maintains stringent quality standards in identifying, purchasing
and preparing fresh food and ingredients.

Extensive Food Selection.The restaurant's broad selection of food offerings is designed to appeal to a wide range of guests.
Each restaurant features a selection of specialty salads daily, prepared from recipes developed or acquired by the Company, as well as salad ingredients and a variety of dressings that allow guests to
create their own salads. Each restaurant also offers a selection of delicious freshly-prepared soups, hot pasta with a variety of signature sauces, pizza, hot breads, muffins and other bakery goods,
baked potatoes, fresh fruits, frozen low-fat soft serve and other desserts. Rotisserie chicken and related side dishes are served in several Texas and selected rural California locations.

Quality Assurance/Food Safety Program.The Company is committed to ensuring the highest levels of product quality,
consistency and freshness. The Company's restaurant managers audit taste and monitor safe food temperatures throughout the day. Strict shelf life standards are required on all food items. Only high
quality ingredients from reputable sources are used in the restaurants. The regional managers inspect

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the restaurants regularly to assure that all standards are in place and the individual restaurants are complying with product specifications and recipe adherence.

Fresh
Choice provides and requires food safety training to all crewmembers and managers. All restaurants food safety practices are inspected by the regional manager regularly and
typically once per quarter by a quality assurance manager. The results of these inspections directly impact manager incentive pay. Prepared food and food storage temperatures are checked for adherence
to standards
throughout the day with the results recorded. Frequent crewmember hand washing is required and monitored. Fresh Choice restaurants use a safe, flavor and odor free anti-microbial wash on
all fruits and vegetables to ensure that clean and safe produce is served to guests. Digital cameras are strategically placed throughout each restaurant to enhance safety in the restaurants. These
cameras are capable of being accessed off premise to allow the quality assurance manager, the regional managers and other authorized home office crewmembers to observe the restaurants as deemed
necessary.

Excellent Price/Value Relationship.The Company believes its pricing strategy, for offering unlimited servings, is an
excellent price/value alternative to other casual dining restaurants. Discounts are provided for young children and senior citizens through the Company's Masters Club.

Commitment to Guest Service.The Company is committed to providing its guests with a level of service superior to that
traditionally associated with limited-service restaurants. Fresh Choice depends upon a high rate of repeat business, and views the quality of its crewmember interaction with guests as critical to its
long-term success. By providing extensive training and competitive compensation, the Company believes it fosters a strong corporate culture and encourages a sense of personal commitment
from crewmembers at all levels.

The
Company devotes substantial attention and resources to maintaining the cleanliness and consistent high-quality presentation of the salad bar and other exhibition cooking
areas in order to enhance the visual appeal of the Company's offerings.

Distinctive Design and Casual Atmosphere.The Company devotes significant resources to the design and decor of its
restaurants. The restaurants have a flexible design which can accommodate a variety of available sites. The Company's new restaurant design and decor incorporated into its new restaurants and the
current Fresh Choice restaurants remodel plan, uses an interior design that is in the style of an open-air international marketplace, like a farmer's market. The food is displayed in
colorful arcades with fun and distinctive signage segregating each arcade section.

Expansion Strategy

The Company intends to continue expansion in fiscal 2003 in its existing markets. The Company opened five new Fresh Choice restaurants in 2002 and, as of
March 3, 2003, has opened two new Fresh Choice restaurants in fiscal 2003. The Company currently plans to open two additional Fresh Choice restaurants in 2003. Expansion within the Company's
existing markets will allow the Company to generally benefit from advertising, purchasing and operating efficiencies. In addition, the Company believes clustering allows the Company to capture more of
the available guest base and to discourage competition. To the extent that the Company elects to open new restaurants in markets outside of its existing markets, the Company expects that these
restaurants may benefit from certain volume purchasing discounts and operating efficiencies generally applicable to its current restaurants.

In
2002, the Company converted one Fresh Choice Express restaurant in Texas to a licensed Starbucks retail store and converted another Fresh Choice Express to a dual branded Fresh Choice
Express and licensed Starbucks retail store. No new Fresh Choice Express restaurants were opened in 2002 and no additional Fresh Choice Express restaurants are planned for 2003.

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There
can be no assurance that the restaurants will be successful outside the Company's existing markets, in locations where the Company has limited operating experience, where the
weather is more seasonal, or where regional tastes and restaurant preferences may be different. In addition, the Company's ability to successfully implement an expansion strategy will depend upon a
variety of factors, many of which may be beyond the Company's control, including the Company's ability to locate suitable restaurant locations, negotiate acceptable lease terms, obtain required
government approvals, construct new restaurants in a timely manner, attract, train and retrain qualified and experienced personnel and management, operate its restaurants profitably and obtain
additional capital to finance expansion and equipment costs, as well as general economic conditions and the degree of competition in the particular market. The Company has already experienced and
expects to continue to experience delays in restaurant openings from time to time. As the Company continues expansion, there can be no assurance that the Company will be successful in opening the
number of restaurants anticipated, that those restaurants will be opened in a timely manner, or that, if opened, those restaurants will be operated profitably. In addition, the Company frequently
reviews the operating performance and profitability of its restaurants, and, to the extent they do not meet expectations for operating performance, restaurants will be evaluated for possible closure.
The Company has closed restaurants in the past and 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 position and results of
operations.

The
Company currently operates all of its existing restaurants, and has no current plans to offer franchises or to begin purchasing rather than leasing its restaurant sites on a regular
basis.

Site Selection

To date, the Company has located its restaurants in regional malls, strip centers and freestanding locations. The Company considers the location of each
restaurant to be critical to its long-term success, and management devotes significant effort to the investigation and evaluation of potential sites. The site selection process focuses on
market area demographics including targets for population, household income and education, as well as site specific characteristics including daytime traffic volumes and patterns, visibility,
accessibility and availability of adequate parking. The Company also reviews potential competition and guest activity at other restaurants operating in the area. The Company believes that its
flexibility in utilizing its different restaurant layouts gives it a competitive advantage in selecting sites. The Company requires approximately twelve to eighteen months after identifying a site to
complete negotiation of a lease and construct and open a new restaurant. While the Company
currently leases most of its restaurant sites and expects to lease virtually all of its sites in the future, it may purchase one or more sites for construction of new restaurants if available on
acceptable financial terms. Currently, the Company owns land and buildings at two of its restaurant sites and owns buildings on leased land at six others.

Restaurant Economics

For the 52 weeks ended December 29, 2002, the 43 comparable Fresh Choice and Zoopa restaurants open throughout the entire period generated average net
sales of approximately $1,576,000 and average store level cash flow, after occupancy expenses, of approximately $228,000 or 14.5% of net sales. Store level cash flow excludes depreciation and
amortization expense, general and administrative expense, store closure and asset impairment expense, restaurant opening expense and net interest expense. During fiscal 2002 the Company opened five
new Fresh Choice restaurants and, as of March 3, 2003, has opened two new Fresh Choice restaurants in fiscal 2003. The average cash cost of these seven restaurants was $1.2 million, not
including restaurant opening expenses. The investment of capital to open a new restaurant typically includes the purchase and installation of furniture, fixtures, equipment and leasehold improvements,
and in the case of a land lease the cost to construct the building. The Company currently leases the sites for most of its restaurants, mixed between in-line, mall and stand-alone sites.

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Concept and Menu

Each Fresh Choice and Zoopa restaurant features a salad bar offering signature specialty tossed and prepared salads with an extensive choice of salad ingredients
and dressings. All specialty tossed salads and specialty prepared salads are clearly marked, and low-fat and fat-free items are prominently identified. Throughout the day
several crewmembers maintain the salad bar and replenish individual salads and ingredients from the opposite side of the salad bar, minimizing interference with guests. Separate exhibition-style
arcades offer fresh soups, hot pasta dishes, pizza, baked potatoes, hot breads, muffins and other bakery goods, fresh fruits, frozen low-fat soft serve and other desserts. Rotisserie
chicken and related side dishes are served in Texas and selected rural California locations. During peak hours, each guest is escorted to his or her table. Each guest may obtain unlimited refills of
all food and dessert dishes, soft drinks, lemonade, coffee and tea.

The
Company has developed proprietary recipes for a broad assortment of specialty salads, soups, pasta sauces, and muffins. In each product category, the restaurants offer several
standard dishes daily, and rotates additional offerings to provide variety for the Company's many repeat guests. Each category also contains daily offerings that are particularly low in fat. Because
the restaurants utilize a broad variety of produce and other ingredients in its dishes and is not overly dependent on any individual recipe, it is able to substitute dishes and ingredients in the
event that weather conditions or supply factors lead to high prices or shortages of particular produce items or other ingredients. The Company believes that the flexibility of its menu allows it to
accommodate regional tastes and minimize the impact of cost increases.

Salads.The restaurants offer signature specialty tossed salads and specialty prepared salads, each of which is made from
recipes created by the Company, and salads made by the guest from a broad assortment of salad ingredients. The salad bar in each restaurant features specialty tossed salads that are prepared
exhibition-style and are rotated frequently.

Each
day the salad bar features a selection of specialty prepared salads from among the Company's more than 90 recipes. The Company's salad bar also offers more than 40 salad ingredients
and toppings, allowing guests to create their own salad. The ingredients include various types of lettuce and a broad assortment of vegetables, cheeses, and other toppings. The Company offers 10
dressings and a selection of gourmet oils and vinegars.

Soups.The restaurants offer a variety of soups selected daily from among its more than 50 soup recipes. All soups are
prepared on-site utilizing fresh produce and other high-quality ingredients, and include low-fat and non-fat selections.

Pasta.The restaurants offer high quality pasta with a selection of two or three freshly prepared signature sauces.

Pizza.The restaurants offer three-cheese pizza fresh from the oven all day long. In addition low fat vegetarian, pepperoni
or other topped pizzas may be offered.

Muffins and Breads.The restaurants offer a variety of muffins daily, including a low-fat muffin, selected from
among its more than 70 muffin recipes. All muffins are baked in the exhibition bakery area and are replenished frequently to ensure warmth and freshness. The restaurants also offer a variety of
freshly baked breads, including sourdough french bread, harvest bread and herbed bread sticks.

Rotisserie Chicken (Texas and selected California locations only).These restaurants offer a savory herb crusted rotisserie
chicken served with a variety of side dishes including mashed red potatoes, stuffing and macaroni and cheese.

Desserts.The restaurants offer an assortment of desserts, including fresh fruits, tapioca, chocolate pudding, frozen
low-fat soft serve, tasty cakes, and a triple chocolate decadence brownie.

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Beverages.The restaurants offer an assortment of fruit juices, fresh lemonades and flavored iced teas. Fresh Choice also
offers sodas and sparkling waters, and in most restaurants, beer and wine. Refills of juices, lemonade, soft drinks, coffee and tea are provided at no extra cost to our guests.

Guest Service

The Company is committed to providing a superior level of service in order to distinguish itself from traditional limited-service restaurants. During peak hours,
guests are escorted from the salad bar to a table. Crewmembers are in the dining area during meal hours to ensure each guest leaves the restaurant with the intent to return. Guest servers provide
follow up beverage service, clear and clean tables, and attend to other guest needs.

The
Company devotes substantial attention and resources to maintaining the cleanliness and consistent high-quality presentation of the salad bar and other exhibition cooking
areas in order to enhance the visual appeal of the Company's food offerings. The restaurant's crewmembers are present behind the salad bar and in the exhibition cooking areas to replenish and replace
food offerings, to answer guest questions, and to assist guests in serving themselves. All crewmembers in each restaurant are required to maintain a high standard of dress and grooming.

The
Company actively solicits guest input through several sources. In the restaurant, comment cards are prominently displayed in several areas and guests can also submit their comments
via the Company's web site.

Restaurant Design

The Company's restaurants utilize a salad bar, with the cash registers placed at the end of the salad bar in most of the restaurants before the guest has access
to the other food service areas. A few of the Company's restaurants have been designed so that the cash registers are positioned toward the front of the restaurant to provide guests with direct access
to the various food service areas. The Company's new restaurants incorporate an open, colorful, fun, brighter, more inviting decor package and a more efficient layout. This look was incorporated into
the Company's remodel program completed in fiscal 2000.

The
Company's restaurants range from 4,800 to 9,014 square feet, seating from 108 to 300 guests inside. The Company's average Fresh Choice restaurant is approximately 6,831 square feet
and has inside seats for approximately 219 guests. In addition, many of the Company's restaurants provide limited outdoor seating. The flexible design of the restaurants enables the Company to take
advantage of a broad range of available sites.

Remodeling

Remodeling is an integral part of the Company's strategic plan. Restaurants typically require remodeling every five to seven years. The Company's latest remodel
program incorporated an open, colorful, fun, brighter, more inviting decor package. This remodeling program was completed in fiscal 2000.

Marketing and Promotion

The Company's marketing strategy in its existing markets is to increase unaided brand awareness toward building top-of-mind recall of the
Fresh Choice or Zoopa brand resulting in increased usage among targeted consumers.

The
Company intends to maximize exposure within its target market with a consistent program of high impact, four color, broad reaching mediums such as freestanding inserts in key
newspapers. These tactics are designed to leverage both the high level of brand awareness and build a positive identifiable perception

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of Fresh Choice and Zoopa in the mind of the consumer. Additionally, by consistently providing a positive dining experience, the Company believes it benefits from significant
word-of-mouth advertising.

In
new markets, the marketing strategy is to build brand name awareness where no or very low awareness exists. The Company intends to accomplish this through the use of appropriate local
advertising mediums and creative messages. Prior to opening each new restaurant, the Company typically sponsors fund-raisers and pre-opening parties in the restaurant with
local charities or schools to build community relationships and attract customers to the restaurant.

Restaurant Operations and Management

Management and Crewmembers.The Company has endeavored to establish a strong corporate identity and culture and to maintain
quality and consistency in its restaurants through the careful training of personnel and the establishment of rigorous standards relating to food purchasing and preparation and maintenance of the
serving areas and facilities. Responsibility for managing the Company's restaurant operations is currently shared by eight Regional Managers, who report to either the Area Vice President, or the Area
Director who each reports to the Executive Vice President and Chief Operating Officer who reports to the President and Chief Executive Officer. Regional managers are generally responsible for four to
ten restaurants.

The
management staff of a typical Fresh Choice restaurant consists of one general manager, two or three restaurant managers and a shift manager. The Company externally recruits most of
its restaurant managers, virtually all of whom have prior restaurant management experience. Most of the Company's current general managers have been promoted from restaurant managers. All newly hired
managers participate in the Company's training course. Each restaurant also employs approximately 35 hourly crewmembers, many of whom work part-time. The general manager of each
restaurant is responsible for
the day-to-day operation and profitability of the restaurant. To enhance quality, service, cleanliness, maintenance and safety, the Company has developed detailed systems,
procedures and controls with respect to labor and food cost standards, food preparation, planning and scheduling. The Company's culture emphasizes a sense of ownership and entrepreneurship. The
Company maintains a variety of programs to reward excellent service and performance by each crewmember at the restaurant level. In addition to a competitive base salary, the Company has incentive
plans that rewards restaurant managers based upon achieving sales and profit targets, controlling costs, quality of operations and tenure with the Company.

Food Purchasing.The Company has designed systems for determining order quantities and has developed preparation methods that
together ensure freshness, maximize usage and minimize waste. Most food items are purchased on a centralized basis to ensure uniform quality and adequate supplies, and to obtain competitive prices. To
the extent possible, the Company purchases food items pursuant to fixed-price, annual contracts that are not subject to minimum quantity requirements. All produce is purchased from sources that have
been pre-qualified to meet the Company's specifications. Produce is delivered directly to individual restaurants. At each restaurant, the management team is responsible for assuring that
all deliveries meet the Company's guidelines regarding freshness and quality. The Company believes alternate sources are available for all products.

Recipe Development.The Company's food development efforts focus on introducing compelling and innovative new recipes, as
well as upgrading the flavor profiles and presentation standards of existing recipe favorites. Seasonal and upscale produce items are rotated into the salad bar product mix to continue to have "the
best salad bar in the business".

Training and Support.The Company believes that its training programs have been successful in developing commitment to the
Company, a consistent level of execution, and high-quality guest service. Upon joining Fresh Choice, each restaurant manager participates in a training course that covers all

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aspects of restaurant operations and develops management skills. New managers also attend Fresh Choice University within the first three months of joining Fresh Choice. All crewmembers are instructed
through a combination of written materials and hands-on training prior to their performance being validated by a certified trainer and restaurant management. In addition, the Company
creates and facilitates management and hourly crewmember workshops that apply to and support the Company's current goals and objectives.

Information Systems.Each restaurant is equipped with a computer containing programs to perform crewmember timekeeping and
daily cash and sales reporting. The automation of these important administrative responsibilities reduces the time spent by restaurant managers preparing daily reports of cash, deposits, sales, sales
mix and guest counts, labor costs, and food waste. In addition guest count forecasts are generated automatically, which assists restaurant managers in the more accurate scheduling of crewmembers and
the production of food. Reports are run and distributed automatically to regional managers each morning as well as compiled for executive management review. Payroll information is processed every two
weeks at the restaurants and transmitted electronically to the corporate office, where the information is interfaced with the Company's outside payroll service.

Financial
controls are maintained centrally through a computerized accounting system at the Company's corporate office. Sales are posted electronically to the general ledger from the
central cash and sales database. Profit and loss statements are compiled every four weeks by the accounting department and provided to the general managers and regional managers for analysis and
comparison to the Company's budgets.

Hours of Restaurant Operation.Most of the Company's restaurants are open seven days a week, typically from 11:00 a.m.
to 9:00 p.m. Sunday through Thursday, and from 11:00 a.m. to 10:00 p.m. on Fridays and Saturdays.

Competition

The Company's restaurants compete with the growing mid-price, full-service casual dining segment; with traditional limited-service buffet,
soup, and salad restaurants; and, increasingly, with fast-casual and quick-service outlets. The Company's competitors include national and regional chains, as well as local owner-operated
restaurants. Key competitive factors in the industry are the quality and value of the food products offered, quality and speed of service, price, dining experience, restaurant location and the
ambiance of facilities. The Company believes that it competes favorably with respect to these factors, although many of the Company's competitors have been in existence longer than the Company, have a
more established market presence, and have substantially greater financial, marketing and other resources than the Company, which may give them certain competitive advantages. The Company believes
that its ability to compete effectively will continue to depend in large measure upon its ability to offer a diverse selection of high-quality, fresh food products with an attractive
price/value relationship. In addition the Company expects intense competition for restaurant sites, which may result in the Company having difficulty leasing desirable sites on terms that are
acceptable to the Company. The Company expects that in some cases competitors may be willing to pay more than the Company for sites.

Government Regulation

Each of the Company's restaurants is subject to various federal, state and local laws, regulations and administrative practices affecting its business, and must
comply with provisions regulating health and sanitation standards, equal employment, minimum wages and licensing for the sale of food and alcoholic beverages. Difficulties or failures in obtaining or
maintaining required beer and wine licenses or other required licenses or approvals could delay or prevent the opening of new restaurants or adversely affect the operations of existing restaurants.
The Company has no reason to believe that any of such future license applications would not be approved.

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Trademarks and Service Marks

"Fresh Choice", "Zoopa", "The Ultimate Soup & Salad Bar", "Fresh Choice Masters Club" and "Fresh Choice Express" are registered marks of the Company. The
Company is also pursuing federal registration of its logo. The Company's policy is to strenuously police the use of its marks and to oppose infringement of its marks.

Employees

As of March 3, 2003, the Company had approximately 2,046 crewmembers. These included approximately 1,838 hourly restaurant crewmembers, of whom
approximately 1,252 were part-time crewmembers, approximately 161 full-time restaurant managers and trainees and approximately 47 full-time corporate management and
staff. None of the Company's crewmembers is represented by a labor union. The Company believes its employee relations are excellent.

Executive Officers of the Registrant

The executive officers of the Company as of March 3, 2003 are as follows:

|Name                 |  | Age |  | Position                                                 
|-------------------- |  | --- |  | ---------------------------------------------------------
|Everett F. Jefferson |  | 64  |  | President, Chief Executive Officer and Director          
|Tim G. O'Shea        |  | 55  |  | Executive Vice President, Chief Operating Officer        
|David E. Pertl       |  | 50  |  | Senior Vice President and Chief Financial Officer        
|Joan M. Miller       |  | 51  |  | Senior Vice President, Human Resources                   
|Tina E. Freedman     |  | 42  |  | Senior Vice President, Product Development and Purchasing

Mr. Jefferson
was elected President and Chief Executive Officer and a director of the Company in February 1997. Mr. Jefferson has an extensive background in
restaurant operations. From June 1996 to February 1997 Mr. Jefferson was an independent consultant. From June 1993 to June 1996 Mr. Jefferson was President
and Chief Executive Officer of Cucina Holding, Inc., the operator of Java City coffee and bakery. From March 1990 to June 1993 he was an independent consultant and independent
restaurant operator. From May 1987 to March 1990 he was President and Chief Executive Officer of Skipper's, Inc. From May 1986 to April 1987 he was President of
Kings Table, Inc. Earlier in his career Mr. Jefferson was with Pizza Hut, Inc. for five years including three years as Senior Vice President of Operations and was with Saga
Corporation for ten years including two years as Regional Director of the Southeast and Caribbean.

Mr. O'Shea
joined Fresh Choice in March 1996 as Vice President, Marketing, was named a Senior Vice President in December 1998 and was named Executive Vice President
and Chief Operating Officer in November 2002. From July 1991 to March 1996 he was Vice President, Marketing for retail and foodservice products for W.R. Grace and Co., a food
processor. Mr. O'Shea has over 25 years of experience in restaurant management and marketing including positions as Vice President of Foodservice Marketing for Culinary
Brands, Inc. from January 1987 to June 1991 and Vice President and General Manager of the hotel foodservices division of Saga Corporation from October 1975 to
January 1987.

Mr. Pertl
joined Fresh Choice in January 1997 as Vice President and Chief Financial Officer and was named a Senior Vice President in December 1998. Mr. Pertl
was Vice President and Chief Financial Officer of Summit Family Restaurants, Inc., a publicly-held family style restaurant company, from September 1989 until
July 1996, when Summit was acquired. From September 1977 to September 1989 he

11

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held various financial positions with Ponderosa, Inc., including Senior Vice President and Chief Financial Officer from January 1987 to September 1989.

Ms. Miller
joined Fresh Choice in June, 1995 as Vice President, Human Resources and was named a Senior Vice President in December 1998. From March 1992 to
March 1995 she was Vice President, Human Resources for Medallion Mortgage Co., a mortgage banking company. From March 1990 to March 1992 she was an attorney with Littler Mendelson
Fastiff Tichy & Mathiason, specializing in labor law. From 1981 to 1990 Ms. Miller was Senior Vice President, Human Resources for Pacific Western Bank.

Ms. Freedman
joined Fresh Choice in May 1992 as a restaurant manager and was named Vice President, Product Development and Purchasing in August 1996, was elected as
an executive officer in March 1997 and was named a Senior Vice President in December 1998. Ms. Freedman has held various positions at Fresh Choice, including Director of Product
Development from April 1995 to August 1996, Director of Training from December 1994 to April 1995, Regional Manager from October 1993 to December 1994, and
General Manager from September 1992 to October 1993. From September 1982 to May 1992 she was Director of Food Services for Macy's, California, a retail/restaurant company.

Business Risks

Certain characteristics and dynamics of the Company's business and of financial markets in general create risks to the Company's long-term success and
to predictable financial results. These risks include:

Operating Losses and Historical Declines in Comparable Store Sales.Our quarterly and annual operating results and same store
sales have fluctuated significantly in the past and are likely to fluctuate significantly in the future. The Company reported its first operating loss in the fourth quarter of 1994, and reported
operating losses in three of the following four years. Although the Company has reported a profit for three of the last four years, there can be no assurance that the Company will be profitable over
the long or short term.

From
the third quarter of fiscal 1994 through the end of 1998, the Company reported quarterly comparable store sales declines. The Company reported positive comparable store sales in
each quarter of the following two years; however, the Company's comparable store sales decreased for both fiscal years 2002 and 2001. There can be no assurance that the comparable store sales declines
experienced in 2002 and 2001 will not continue or not decline further.

Expansion.The Company believes its growth depends to a significant degree on its ability to open new restaurants and to
operate such restaurants profitably. The Company resumed its expansion with one new Fresh Choice restaurant opening in 2001, five opening in 2002 and, as of March 3, 2003, two restaurants
opening in 2003. The Company plans to open two additional Fresh Choice restaurants in 2003. There can be no assurance that these eight new restaurants or future restaurants will be successful. The
Company's ability to successfully implement an expansion strategy will depend upon a variety of factors, many of which may be beyond the Company's control, including the Company's ability to locate
suitable restaurant locations, negotiate acceptable lease terms, obtain required government approvals, construct new restaurants in a timely manner, attract, train and retrain qualified and
experienced personnel and management, operate its restaurants profitably and obtain additional capital to finance expansion and equipment costs, as well as general economic conditions and the degree
of competition in the particular market.

The
Company's expansion plans may include entering new geographic regions in which the Company has no previous operating experience. There can be no assurance that the Fresh Choice
concept will be successful in regions outside of California, Texas and Washington where tastes and restaurant preferences may be different. In addition the Company expects intense competition for
restaurant sites, which may result in the Company having difficulty leasing desirable sites on terms that are acceptable to the Company. The Company expects that in some cases competitors may be
willing to pay more than the

12

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Company for sites. These difficulties may make it difficult for the Company to achieve its store growth objectives.

Lease Renewals.As existing restaurant leases expire, the Company must negotiate new leases or lease extensions in order to
continue operations at existing restaurants. There can be no assurance that the Company will be able to renew these leases on favorable terms or at all. If the Company is unable to obtain favorable
terms on new leases or extensions on existing leases, it would increase costs and reduce the Company's operating margins. Moreover, if the Company is unable to renew existing leases and is unable to
find suitable alternate locations, the Company's revenue and operating results would be adversely affected.

Geographic Concentration.As of March 3, 2003, 41 of the Company's 55 restaurants were located in California,
primarily in Northern California. Accordingly, the Company is susceptible to fluctuations in its business caused by adverse economic conditions in this region. In addition, net sales at certain of the
Company's restaurants have been adversely affected when a new Company restaurant has been opened in relatively close geographic proximity. There can be no assurance that expansion within existing or
future geographic markets will not adversely affect the individual financial performance of Company restaurants in such markets or the Company's overall results of operations. In addition, given the
Company's present geographic concentration in Northern California, adverse weather conditions or increased utility costs in the region or negative publicity relating to an individual Company
restaurant could have a more pronounced adverse effect on results of operations than if the Company's restaurants were more broadly dispersed.

Sensitivity to Economic Conditions and Consumer Spending.The restaurant industry historically has been subject to
substantial cyclical variation. The California economy has slowed since the events of September 11, 2001 and there has been a downturn in the general economy and a decline in consumer spending
in the restaurant industry. A continued decline could have a material adverse effect on the Company's financial performance as restaurant sales tend to decline during recessionary periods. A prolonged
economic downturn could alter customers' purchasing decisions, which most likely would have a material adverse impact on the Company's revenue and results of operations.

Volatility of Stock Price.The market price of the Company's Common Stock has fluctuated substantially since the initial
public offering of the Common Stock in December 1992. 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 Company's Common Stock to fluctuate substantially. In addition, in recent years the stock market has experienced extreme
price and volume fluctuations. This volatility has had significant effect on the market prices of securities issued by many companies, including the Company, for reasons sometimes unrelated to the
operating performance of these companies. Any shortfall in the Company's net sales or earnings from levels expected by securities analysts could have an immediate and significant adverse effect on the
trading price of the Company's Common Stock in any given period. Additionally, such shortfalls may not become apparent until late in the fiscal quarter, which could result in an even more immediate
and significant adverse effect on the trading price of the Company's Common Stock.

Seasonality and Quarterly FluctuationsThe Company's restaurants have typically experienced seasonal fluctuations, as a
disproportionate amount of net sales and net income are generally realized in the second and third fiscal quarters. In addition, the Company's quarterly results of operations have been, and may
continue to be, materially impacted by the timing of new restaurant openings and restaurant closings. The fourth quarter normally includes 16 weeks of operations as compared with 12 weeks for each of
the three prior quarters. The fourth quarter of 2000 included 17 weeks. As a result of these factors, net sales and net income in the fourth quarter are not comparable to results in each of the first
three fiscal quarters, and net sales can be expected to decline in the first quarter of each fiscal year in comparison to the fourth quarter of the prior fiscal year

13

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Dependence on Key Personnel.The success of the Company depends on the efforts of key management personnel. The Company's
success will depend on its ability to motivate and retain its key crewmembers and to attract qualified personnel, particularly general managers, for its restaurants. The Company faces significant
competition in the recruitment of qualified crewmembers.

Restaurant Industry.The restaurant industry is affected by changes in consumer tastes, as well as national, regional and
local economic conditions and demographic trends. The performance of individual restaurants, including the Company's restaurants, may be affected by factors such as traffic patterns, demographic
considerations, and the type, number and location of competing restaurants. In addition, factors such as inflation, increased food, labor and crewmember benefit costs, and the
availability of experienced management and hourly crewmembers may also adversely affect the restaurant industry in general and the Company's restaurants in particular. Restaurant operating costs are
affected by increases in the minimum hourly wage, unemployment tax rates, and various federal, state and local governmental regulations, including those relating to the sale of food and alcoholic
beverages. There can be no assurance that the restaurant industry in general, and the Company in particular, will be successful.

Competition.The Company's restaurants compete with the rapidly growing mid-price, full-service
casual dining segment; with traditional limited-service buffet, soup, and salad restaurants; and, increasingly, with fast-casual and quick-service outlets. The Company's competitors
include national and regional chains, as well as local owner-operated restaurants. Key competitive factors in the industry are the quality and value of the food products offered, quality and speed of
service, price, dining experience, restaurant location and the ambiance of facilities. Many of the Company's competitors have been in existence longer than the Company, have a more established market
presence, and have substantially greater financial, marketing and other resources than the Company, which may give them certain competitive advantages. The Company believes that its ability to compete
effectively will continue to depend in large measure upon its ability to offer a diverse selection of high-quality, fresh food products with an attractive price/value relationship. In
addition the Company expects intense competition for restaurant sites, which may result in the Company having difficulty leasing desirable sites on terms that are acceptable to the Company. The
Company expects that in some cases competitors may be willing to pay more than the Company for sites.

Ability to Obtain Additional Financing.The Company resumed its restaurant expansion in 2001. The Company's ability to
implement an expansion strategy will depend upon a variety of factors, including its ability to obtain funds. The Company believes its near-term capital requirements can be met through its
existing cash balances, cash provided by operations, its borrowing arrangements and additional equipment lease financing. The Company may seek additional financing to provide greater flexibility.
There can be no assurance that the Company will be able to obtain additional financing when needed on acceptable terms or at all.

Control by Major Shareholder.Crescent Real Estate Equities Limited Partnership ("Crescent") holds 1,187,906 shares of
Series B non-voting convertible preferred stock, which is convertible into Series A voting convertible preferred stock at any time at the option of the holder. Upon
conversion, holders of Series A preferred stock would be entitled to vote with common stockholders and would have a separate right to approve certain corporate actions, such as amending the
Company's Certificate of Incorporation or Bylaws, effecting a merger or sale of the Company, or making a fundamental change in the Company's business activity. In addition, because the Company did not
achieve a specified earnings target in 1998, the holders of Series A preferred stock would have the right to elect a majority of the Company's Board of Directors. These factors could have the
effect of delaying, deferring or preventing a change in control of the Company and, as a result, could discourage acquisition bids for the Company and limit the price that investors are willing to pay
for shares of common stock.

14

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Item 2. PROPERTIES.

The Company currently owns both the land and buildings at two of its restaurant locations, and owns restaurant buildings on leased land at six other locations.
The Company leases all of its other restaurant locations, but may purchase future restaurant locations where it believes it is cost-effective to do so. The Company's restaurants are
located in regional malls, strip centers, and freestanding locations.

The
Company's restaurants range from 4,800 to 9,014 square feet with inside seating for 108 to 300 guests. Many of the Company's restaurants provide limited outdoor seating.

Restaurant
locations leased by the Company are typically leased under "triple net" leases that require the Company to pay real estate taxes, maintenance costs and insurance premiums and,
in many cases, to pay contingent rentals based on sales in excess of specified amounts. Generally, the leases have initial terms of ten to twenty years, with options to renew for additional periods,
which range from five to fifteen years. Of the Company's current leases all, except four, have remaining terms or renewal options extending more than five years following the date of this report. Of
these four, two expire in 2004, one in 2006 and one in 2007. There can be no assurance that the Company will be able to extend these four leases on favorable terms or at all. To the extent the Company
is unable to extend these leases, or secure alternative locations on favorable terms, the Company's operating results would be adversely impacted.

The
Company currently leases a separate facility for its executive headquarters pursuant to a lease that expires July 31, 2010. The Company believes that such facility is adequate
for its office space requirements through fiscal 2003. If additional space is required in the future, the Company further believes that suitable facilities can be leased on commercially reasonable
terms.

Item 3. LEGAL PROCEEDINGS.

From time to time, the Company may be involved in litigation relating to claims arising out of its operations. As of the date of this Annual Report on
Form 10-K, the Company is not engaged in any
legal proceedings that are expected by the Company's management, individually or in the aggregate, to have a material adverse effect on the Company's business, financial condition or results of
operations.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

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PART II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Stock Information.Fresh Choice, Inc.'s common stock trades on The Nasdaq Stock Market® under the Symbol:
SALD. On March 3, 2003, 5,964,068 shares were owned by 317 stockholders of record. The following are the Company's common stock high and low closing sales prices for the fiscal years 2001 and
2002:

2001

High

LowFirst Quarter

$
4.125

$
1.813Second Quarter


3.150


2.150Third Quarter


3.100


2.360Fourth Quarter


3.030


1.900


2002

High

LowFirst Quarter

$
3.000

$
2.180Second Quarter


2.700


2.250Third Quarter


2.501


1.870Fourth Quarter


2.090


1.550


Fresh
Choice, Inc. had its initial public offering on December 9, 1992 at a price of $13.00. Fresh Choice, Inc. had a follow-on public offering on
July 15, 1993 at a price of $25.00.

The
Company has not paid cash dividends on its common stock, and presently intends to continue this policy in order to retain its earnings for the development of the Company's business.
In addition, the Company's current loan and security agreement prohibits the payment of dividends.

On
September 13, 1996, the Company sold to Crescent Real Estate Equities Ltd. ("Crescent") 1,187,906 shares of Series B Non-Voting Convertible
Participating Preferred Stock ("Series B Preferred Stock"), and granted Crescent an option to purchase 593,953 shares of Series C Non-Voting Convertible Participating
Preferred Stock, which expired in 1999, ("Series C Preferred Stock") (collectively, the "Stock") for an aggregate purchase price of approximately $5.5 million, or $4.63 per share of
Series B Preferred Stock pursuant to a Preferred Stock Purchase Agreement dated April 26, 1996. The Series B Preferred Stock is convertible into Series A Voting Convertible
Participating Preferred Stock ("Series A Preferred Stock") at any time at the option of the holder, and the Series A and Series B Preferred Stock is convertible into Common Stock
at any time at the option of the holder. The Company offered and sold the Stock to Crescent, a sophisticated investor who purchased such shares for investment purposes, as transactions not involving a
public offering pursuant to the exemption from registration provisions of Section 4(2) of the Securities Act of 1933, as amended.

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Item 6. SELECTED FINANCIAL DATA.

A five-year summary of selected financial data follows:

|                                                                        |                        | December 29,
2002 |        | December 30,
2001 |   | December 31,
2000 |    | December 26,
1999 |        | December 27,
1998 |  
|----------------------------------------------------------------------- | ---------------------- | ----------------- | ------ | ----------------- | - | ----------------- | -- | ----------------- | ------ | ----------------- | -
|
|Net sales                                                               |                        | $                 | 74,951 |                   | $ | 74,152            |    | $                 | 76,781 |                   | $
|Operating income (loss) (1)                                             |                        |                   | (1,331 | )                 |   | 1,666             |    |                   | 2,238  |                   |  
|Income (loss) from continuing operations                                |                        |                   | (1,534 | )                 |   | 1,397             |    |                   | 1,916  |                   |  
|Basic income (loss) per share from continuing operations                |                        |                   | (0.26  | )                 |   | 0.24              |    |                   | 0.33   |                   |  
|Diluted income (loss) per share from continuing operations              |                        |                   | (0.26  | )                 |   | 0.20              |    |                   | 0.27   |                   |  
|Net income (loss)                                                       |                        |                   | (1,719 | )                 |   | 1,125             |    |                   | 1,675  |                   |  
|Basic net income (loss) per share                                       |                        |                   | (0.29  | )                 |   | 0.19              |    |                   | 0.29   |                   |  
|Diluted net income (loss) per share                                     |                        |                   | (0.29  | )                 |   | 0.16              |    |                   | 0.24   |                   |  
|Total assets                                                            |                        |                   | 36,329 |                   |   | 34,915            |    |                   | 32,159 |                   |  
|Working capital (deficiency)                                            |                        |                   | (4,104 | )                 |   | (607              | )  |                   | (2,908 | )                 |  
|Long-term debt and capital lease obligations, including current portion |                        |                   | 4,916  |                   |   | 3,224             |    |                   | 2,405  |                   |  
|Stockholders' equity                                                    |                        | $                 | 21,632 |                   | $ | 23,259            |    | $                 | 22,001 |                   | $
|Number of restaurants open at end of year:                              |                        |                   |        |                   |   |                   |    |                   |        |                   |  
|                                                                        | Fresh Choice and Zoopa |                   |        | 49                |   |                   | 47 |                   |        | 46                |  
|                                                                        | Fresh Choice Express   |                   |        | 4                 |   |                   | 4  |                   |        | 2                 |  

---

Net
sales, operating income (loss), income (loss) and income (loss) per share from continuing operations presented for all years in the above table excludes the one restaurant closed in
the fourth quarter that is included in discontinued operations pursuant to the Company's adoption, in the first quarter of fiscal 2002, of Statement of Financial Accounting Standards ("SFAS")
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets".

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Certain statements set forth in this discussion and analysis of financial condition and results of operations including anticipated store openings, planned
capital expenditures and trends in or expectations regarding the Company's operations constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of
1995. Such statements are based on currently available operating, financial and competitive information and are subject to various risks and uncertainties. Actual future results and trends may differ
materially depending on a variety of factors as set forth under the heading "Business Risks". In particular, the Company's plans to open new restaurants could be affected by the Company's ability to
locate suitable restaurant sites, negotiate acceptable lease terms, construct new

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restaurants in a timely manner, operate its restaurants profitably and obtain additional financing, as well as general economic conditions.

In
addition, the terrorist threats and the possible responses by the U.S. government, the effects on consumer demand, the financial markets, food supply and distribution and other
conditions increase the uncertainty inherent in forward-looking statements. Forward-looking statements reflect the expectations of the Company at the time they are made, and investors should rely on
them only as expressions of opinion about what may happen in the future and only at the time they are made. The Company undertakes no obligation to update any forward-looking statement. Although the
Company believes it has an appropriate business strategy and the resources necessary for its operations, future revenue and margin trends cannot be reliably predicted and the Company may alter its
business strategies to address changing conditions.

GENERAL

Fresh Choice, Inc. operates limited-service restaurants offering high quality, freshly made specialty and traditional salads, hot pasta, pizza, hot baked
potatoes, soups, fresh breads and muffins, frozen low-fat soft serve and other desserts. The Company operated 53 restaurants at December 29, 2002, 51 restaurants at
December 30, 2001 and 48 restaurants at December 31, 2000. The Company's fiscal year ends on the last Sunday in December. Fiscal years 2002 and 2001 each contained 52 weeks while fiscal
year 2000 contained 53 weeks.

After
opening its first restaurant in 1986, Fresh Choice expanded steadily, its early growth driven by the strong unit economics of its restaurants. The Company operated 22 restaurants
at the time of its initial public offering in December 1992. With $12.7 million in net proceeds from its initial offering and an additional $19.6 million in net proceeds from a
secondary offering in July 1993, the Company accelerated its growth, opening 14 new restaurants in 1993 (including its first two restaurants outside of California), 15 new restaurants in 1994
(including seven restaurants outside of California), seven restaurants in 1995 (of which two are located outside of California) and one restaurant in 1996. The Company opened a number of locations
which did not reach anticipated sales levels and opened a greater percentage of
restaurants in freestanding buildings. The increase in freestanding units and other refinements and the expansion of the Company's restaurant configuration and decor resulted in an increase in the
Company's initial cash investment in new units. At the same time, the Company experienced unanticipated declines in sales at its restaurants, resulting in part from increased competition in the
casual/family dining sector and greater than expected cannibalization of its existing restaurants. The Company's profitability began to decline in the second half of 1994, and the Company reported its
first operating loss in the fourth quarter of 1994. The Company reported additional operating losses for each quarter of 1995. In 1995, after an analysis of the sales potential and operating economics
of every Fresh Choice restaurant, the Company finalized and announced a restructuring plan to help restore profitability. The plan included closing as many as ten of the Company's restaurants, of
which seven restaurants were included in a reserve for closures, and a partial write-down of assets to estimated fair value for thirteen other restaurants. The Company recorded a
$23.9 million restructuring charge in 1995 in connection with the plan. At year-end 1995, the Company closed three restaurants.

The
Company continued to incur an operating loss for 1996. As of year end 1996, the Company had closed or sold eleven restaurants, including the sale of two restaurants and the closure
of a third restaurant in the Washington, D.C. market.

During
1997, the Company successfully introduced a number of cost control programs, which resulted in the Company reporting a net income of $333,000 in 1997. The Company closed no
additional restaurants in 1997 but identified one restaurant for closure at the end of its lease term in 1998. The restaurant closed in 1998 with no material financial impact.

In
the fourth quarter of 1998, the Company announced a plan, which provided for the closure of four previously impaired restaurants, the closure of two additional restaurants at the end
of their lease terms in

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1999, and a write-down of restaurant assets to fair market value for two other restaurants. The Company recorded a $3.7 million store closure and asset impairment charge in
connection with the plan which was implemented in response to the continued poor operating performance of the four previously-impaired restaurants, the cannibalization of sales resulting from
over-building in the Company's core Northern California market and lower-than-anticipated sales at certain new restaurants. The Company closed three of these
restaurants in 1998 and another one at the beginning of 2000. After significant improvement in operating performance at the two remaining locations, management reversed its decision to not renew the
lease on one location and in 2000 reversed its decision to close the other restaurant.

During
1999, the Company reported four consecutive quarters of comparable store sales growth. This sales growth, along with the continued management of costs, resulted in the Company
reporting a net income of $185,000 in 1999. The Company closed two restaurants in 1999. In accordance with the Company's strategy to dispose of under-performing restaurants, the Company closed a
previously impaired restaurant in the third quarter of 1999 and recorded a store closure and asset impairment charge of $443,000, primarily for the estimated lease settlement and other closure costs.
In accordance with the Company's continuing strategy to close restaurants that compete with other Fresh Choice restaurants, the Company sold the property and equipment of another restaurant, received
cash
proceeds of $692,000 and recorded a gain of $452,000. In addition, during the fourth quarter, the Company wrote down the assets of another restaurant whose lease expired in 2000, recording a
non-cash charge of $172,000 which was offset by the reversal of $157,000 of excess accruals resulting from the settlement of the 1998 restaurant closures for less than previously estimated
costs.

During
2000, the Company again reported four consecutive quarters of comparable store sales growth. This sales growth, along with the continued management of costs, resulted in the
Company reporting net income of $1.7 million in 2000. The Company closed three restaurants in 2000. The Company closed one restaurant in accordance with the plan announced in 1998 at the
beginning of 2000. During the second quarter of 2000, the Company reversed its decision to close the remaining restaurant identified for closure in 1998 based upon continued improved performance and
accordingly reversed the reserve provided for the restaurant. The Company also made the decision to close its last remaining restaurant in Houston due to continued poor performance. In addition, the
Company recorded an asset impairment expense of $171,000 for one under-performing restaurant, which is included in loss from discontinued operations. The Company also recorded a lease termination
charge of $332,000 for the buyout and termination of the lease on a former Fresh Choice restaurant in the Washington D.C. market that the Company sold in 1996.

During
2001, the Company's comparable store sales turned negative in the third and fourth quarters after ten consecutive quarters of comparable store sales growth. The Company believes
the negative comparable store sales were the result of a weakening economy and lower consumer confidence following the September 11, 2001 tragedy. Despite the softening sales, the Company
continued its management of costs and reported net income of $1.1 million in 2001. The Company resumed the expansion of the Fresh Choice concept, opening one new Fresh Choice restaurant in
2001. The Company also recorded a store closure and asset impairment charge of $181,000 ($106,000 of which is included in loss from discontinued operations) for the planned closure of two restaurants
whose leases expire in 2002 and the planned conversion of one Fresh Choice Express to a licensed Starbucks retail store.

During
2002, the Company reported four consecutive quarters of comparable store sales declines. The Company believes the negative comparable store sales were primarily the result of the
continued weak economic environment in the Company's core markets. The Company continued its management of costs, but this was not sufficient to offset the continued declining sales, and reported a
net loss of $1.7 million in 2002. The Company continued the expansion of the Fresh Choice concept, opening five new Fresh Choice restaurants in 2002 and, as of March 3, 2003, opening two
restaurants in 2003. The Company plans to open two additional Fresh Choice restaurants in 2003. In addition, the Company recorded a non-cash impairment charge of $1.8 million for
the write-down of assets to fair value for four restaurants. The impairment charge for these restaurants was determined based on the expected cash flows over the

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remaining lease terms, as compared to the net book value of the restaurant assets. The Company does not intend to close any of these four restaurants in 2003.

In
August 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS
No. 144 which was adopted by the
Company in the first quarter of fiscal 2002, replaces SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and
the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of OperationsReporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions," for the disposal of a segment of a business as defined in that opinion. The Company closed three restaurants in 2002 whose lease terms
expired. As a result of the adoption of SFAS No.144, the Company has classified revenues and expenses of one of these closed restaurants as discontinued operations for all periods presented in the
accompanying consolidated financial statements. The revenue and expenses of the other two restaurants closed in 2002 are classified as continuing operations as the restaurants have been or will be
replaced and therefore the operations are not considered discontinued under the provisions of SFAS No. 144.

CRITICAL ACCOUNTING POLICIES

Our accounting policies are more fully described in Note 1 of the Company's audited December 29, 2002 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 reported amounts of
assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities as of the dates and for the periods presented. Management believes the following accounting
policies, among others, represent its more critical or complex estimates and assumptions used in preparation of its consolidated financial statements.

The
Company evaluates its estimates and assumptions on an on-going basis and believes its estimates and assumptions are reasonable based on historical experience and other
factors. However, actual results could differ from those estimates and these differences could be material to the consolidated financial statements. The accounting policies management has identified
as critical or complex accounting policies are described below.

Income taxes.The Company's net deferred tax assets consist primarily of the tax benefit related to operating loss
carryforwards, alternative minimum tax credits and asset write-downs, in connection with store closure reserves, that are not deductible for tax purposes until the assets are disposed. The Company has
provided valuation allowances against its deferred net tax assets based on management's most recent assessment that it is not deemed more likely than not that the deferred tax assets will be realized.
If future assessments by management were to determine that the Company would be able to realize its deferred tax assets in excess of their net recorded amounts, an adjustment to the deferred tax
assets could result in an increase in net income in the period such determination was made.

Long-lived assets impairment.The Company reviews its long-lived assets related to each restaurant
annually for impairment, or whenever events or changes in circumstances indicate that the carrying amount of a restaurant may not be recoverable. The Company considers a history of operating losses to
be its primary indicator of potential impairment, therefore new restaurants are generally not identified for impairment until a sufficient operating history has been developed. Assets are grouped and
evaluated for impairment at the lowest level for which there are identifiable cash flows, the individual restaurants. Based on the best information available, the Company writes down an impaired
restaurant to its estimated fair market value,
which becomes its new cost basis. The Company generally measures estimated fair value by a forecast of undiscounted future operating cash flows directly related to the restaurant. Considerable
management judgment is necessary to estimate projected future operating cash flows. Accordingly, if actual results vary from such estimates, significant future impairment could result.

20

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Discontinued Operations.Considerable management judgment is necessary to determine whether a closed restaurant should be
classified as discontinued operations. In general, the Company considers the extent to which the restaurant's operations and cash flow are expected to be absorbed by other currently operated
restaurants or replaced with a new restaurant in making this determination. A closed restaurant, or group of restaurants, which is located in an isolated market and not replaced, would generally be
classified as discontinued operations.

Property and equipment.Property and equipment are stated at cost. Depreciation and amortization are computed using the
straight-line method over the estimated useful lives of the assets which range from 5 to 30 years or the lease term of a restaurant including option periods, as appropriate, not to
exceed 25 years.

Stock-based compensation.The Company accounts for stock-based awards to employees using the intrinsic value
method in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly, no compensation expense has been recognized in the financial
statements for employee stock arrangements. The Company accounts for stock-based awards to non employees in accordance with SFAS No. 123 "Accounting for Stock-Based Compensation" and Emerging
Issues Task Force ("EITF") Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services".

Workers' Compensation Claims Accrual.The Company records estimates for workers' compensation claims under its workers'
compensation program. Estimated reserves are based on available historical claim settlement data for reported claims. If a greater number of claims occur in comparison to the amount of claims
estimated or medical costs increase beyond anticipated costs, additional charges may be required in the period such determination was made

21

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RESULTS OF OPERATIONS

The following table presents the components of average restaurant operating income on a per restaurant basis, for the comparable Fresh Choice and Zoopa
restaurants open during each year (the Company's Fresh Choice Express restaurants are excluded):

|                            |                                | 2002                     |       | 2001 |       | 2000 |     
|--------------------------- | ------------------------------ | ------------------------ | ----- | ---- | ----- | ---- | ----
|
|NET SALES                   |                                | $                        | 1,576 |      | 100.0 | %    | $   
|                            |                                |                          |       |      |       |      |     
|COSTS AND EXPENSES:         |                                |                          |       |      |       |      |     
|                            | Cost of sales                  |                          |       | 347  |       | 22.0 |     
|                            | Restaurant operating expenses: |                          |       |      |       |      |     
|                            |                                | Labor                    |       |      | 508   |      | 32.3
|                            |                                | Occupancy and other      |       |      | 493   |      | 31.2
|                            | Depreciation and amortization  |                          |       | 65   |       | 4.1  |     
|                            |                                |                          |       |      |       |      |     
|                            |                                | Total costs and expenses |       |      | 1,413 |      | 89.6
|                            |                                |                          |       |      |       |      |     
|RESTAURANT OPERATING INCOME |                                | $                        | 163   |      | 10.4  | %    | $   
|                            |                                |                          |       |      |       |      |     

The
following table sets forth items in the Company's statements of operations as a percentage of sales:

|                                          |                                             | 2002                     |        | 2001   |        | 2000 |      
|----------------------------------------- | ------------------------------------------- | ------------------------ | ------ | ------ | ------ | ---- | -----
|
|NET SALES                                 |                                             | $                        | 74,951 |        | 100.0  | %    | $    
|                                          |                                             |                          |        |        |        |      |      
|COSTS AND EXPENSES:                       |                                             |                          |        |        |        |      |      
|                                          | Cost of sales                               |                          |        | 16,730 |        | 22.3 |      
|                                          | Restaurant operating expenses:              |                          |        |        |        |      |      
|                                          |                                             | Labor                    |        |        | 24,549 |      | 32.8 
|                                          |                                             | Occupancy and other      |        |        | 23,700 |      | 31.6 
|                                          | General and administrative expenses         |                          |        | 5,769  |        | 7.7  |      
|                                          | Depreciation and amortization               |                          |        | 3,345  |        | 4.5  |      
|                                          | Store closure and asset impairment expenses |                          |        | 1,751  |        | 2.3  |      
|                                          | Restaurant opening costs                    |                          |        | 438    |        | 0.6  |      
|                                          |                                             |                          |        |        |        |      |      
|                                          |                                             | Total costs and expenses |        |        | 76,282 |      | 101.8
|                                          |                                             |                          |        |        |        |      |      
|OPERATING INCOME (LOSS)                   |                                             |                          | (1,331 | )      | (1.8   | )    |      
|                                          | Interest income                             |                          |        | 48     |        | 0.1  |      
|                                          | Interest expense                            |                          |        | (263   | )      | (0.4 | )    
|                                          |                                             |                          |        |        |        |      |      
|                                          | Interest expense, net                       |                          |        | (215   | )      | (0.3 | )    
|                                          |                                             |                          |        |        |        |      |      
|INCOME (LOSS) BEFORE INCOME TAXES         |                                             |                          | (1,546 | )      | (2.1   | )    |      
|Provision for (benefit from) income taxes |                                             |                          | (12    | )      |       |      |      
|                                          |                                             |                          |        |        |        |      |      
|INCOME (LOSS) FROM CONTINUING OPERATIONS  |                                             |                          | (1,534 | )      | (2.1   | )    |      
|LOSS FROM DISCONTINUED OPERATIONS         |                                             |                          | (185   | )      | (0.2   | )    |      
|                                          |                                             |                          |        |        |        |      |      
|NET INCOME (LOSS)                         |                                             | $                        | (1,719 | )      | (2.3   | )%   | $    
|                                          |                                             |                          |        |        |        |      |      

22

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Net sales.In 2002, net sales increased $0.8 million, or 1.1%, to $75.0 million. Sales decreased
$1.8 million at the Company's 43 restaurants open in both 2002 and 2001. The two restaurants closed in 2002 that were included in continuing operations, accounted for a $1.9 million
decline in sales. The six new Fresh Choice restaurants opened in 2001 and 2002 contributed $4.2 million in additional net sales. The Fresh Choice Express, dual branded Fresh Choice Express and
licensed Starbucks retail stores and the licensed Starbucks retail store sales contributed $0.3 million to the net sales increase.

In
2001, net sales decreased $2.6 million, or 3.4%, to $74.2 million. Sales decreased $2.1 million at the Company's 45 restaurants open in 2001 and 2000. The two
restaurants closed in 2000 accounted for a $1.0 million decline in sales. The one new Fresh Choice restaurant contributed $0.2 million in net sales. The Fresh Choice Express restaurants
opened in 2000 and 2001 contributed $0.3 million to net sales

The
Company does not include any new stores in its comparable store sales until a store has been open for 18 months. Management believes utilizing an 18-month basis
for reporting comparable store sales represents a more realistic indication of the base business trends. On this basis, comparable store sales decreased 2.5% in 2002 following a decrease of 1.2% in
2001 and an increase of 7.3% in 2000. Comparable store guest counts decreased 3.3% in 2002 following a decrease of 4.8% in 2001 and an increase of 7.9% in 2000. Both the 2001 and 2000 comparable store
comparisons have been adjusted for the extra week in 2000.

The
comparable store average check increased 0.8% in 2002 and 3.8% in 2001, reflecting price increases and coupon offerings at a lower discount. The comparable store average check
decreased 0.5% in 2000 reflecting increased coupon redemptions.

Cost of sales.Cost of sales (food and beverage costs) were 22.3%, 22.7% and 23.8% of net sales in 2002, 2001 and 2000,
respectively. Food and beverage costs declined as a percentage of sales each year due to the combined effect of controlling food cost per guest and increases in the average check in 2002 and 2001. In
addition, food costs benefited from the Company's food program, which manages cost through an efficient product rotation while maintaining a quality menu offering to the guest. Cost efficiencies
experienced with new products and production methods also contributed to lower food costs.

Restaurant Operating Expenses.Restaurant operating expenses (labor, occupancy and other) were 64.4%, 61.8% and 60.1%, of net
sales in 2002, 2001 and 2000, respectively. In 2002, labor was 1.1% of sales higher than in 2001 and in 2001, labor was 0.2% of sales higher than 2000. The labor cost percentage increases for 2002 and
2001 were primarily the result of lower average restaurant sales and higher salaries and wages, partially offset by a higher average check and management of hours in the restaurants. Occupancy and
other costs in 2002 were 1.5% of sales higher than 2001 primarily due to the lower average sales and higher repair and maintenance expenses which increased to 2.0% of sales versus 1.7% in 2001.
Occupancy and other costs in 2001 were 1.5% of sales higher than 2000 primarily due to the lower average sales. In addition, gas and electricity costs increased to 3.7% of sales versus 3.0% of sales
in 2000 and advertising costs increased to 3.2% of sales versus 3.0% of sales in 2000.

Depreciation and Amortization.Depreciation and amortization expenses were 4.5%, 4.5% and 4.8% of sales in 2002, 2001 and
2000, respectively. The decrease in 2001 versus 2000 primarily resulted from a declining depreciable asset base for older restaurant equipment.

General and Administrative Expenses.General and administrative expenses were 7.7%, 8.3% and 8.2% of sales in 2002, 2001 and
2000, respectively. General and administrative expenses decreased $403,000 in 2002, primarily due to the Company's overall efforts to keep the costs down during the current weak economic environment,
lower legal expenses, lower recruiting costs and reduced spending on the Company's annual general manager's conference. The percentage increase in 2001 is primarily the result of lower sales. General
and administrative expenses declined $99,000 in 2001, primarily due to lower accruals for expected incentive payouts, partially offset by higher salary costs and increased legal expenses.

23

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Restaurant Opening Costs.Restaurant opening costs were $438,000, $219,000 and $23,000 in 2002, 2001 and 2000 respectively.
Restaurant opening costs in 2002 were for seven Fresh Choice restaurants, two of which opened in early 2003, and for two existing Fresh Choice Express restaurants that were temporarily closed for
conversion to either a licensed Starbucks retail store or a dual branded Fresh Choice Express and licensed Starbucks retail store. Restaurant opening costs in 2001 were for two new Fresh Choice
restaurants, one of which opened in early 2002, and two new Fresh Choice Express restaurants. In 2000, restaurant opening costs were for two Fresh Choice Express restaurants, one of which opened in
early 2001.

Store Closure and Asset Impairment Expenses.In 2000, the Company reversed its decision to close one restaurant previously
identified for closure based upon continued improved performance and accordingly reversed the reserve of $395,000 provided for the restaurant. In addition, the Company made the decision to close its
last remaining restaurant in Houston due to continued poor performance and recorded a non-cash charge of $5,000 for the write-down of assets to fair value and a $206,000 charge
for the cash costs associated with the restaurant closure and settlement of the lease obligation. In addition, the Company recorded a charge of $332,000 for the buyout and termination of the lease on
a former Fresh Choice restaurant in the Washington D.C. market that the Company sold in 1996. This was the only restaurant remaining in which the Company had assigned the lease but was not relieved of
its liability in the event of a default. The assignee closed the restaurant in late 2000 and the landlord notified the Company of its obligation to perform under the lease. The Company did not believe
it was economically feasible to assume operations of the restaurant and believed the best long-term solution was the buyout and termination of the lease. The Company also recorded a charge
of $9,000 resulting from the settlement of restaurant closures for more than the previously estimated costs.

In
2001, the Company recorded a store closure and asset impairment charge of $75,000 for the planned closure of one restaurant whose lease expires in 2002 and the planned conversion of
one Fresh Choice Express to a licensed Starbucks retail store. This charge is comprised of a $68,000 non-cash charge for the write down of assets to fair value and a $7,000 charge to cover
the estimated closure costs associated with the planned restaurant closure. The impairment charge for this restaurant was determined based on the expected cash flows over the remaining lease terms, as
compared to the net book value of the restaurants' assets.

In
2002, the Company reversed $4,000 of the 2001 estimated closure costs and recorded a non-cash impairment charge of $1,755,000 million for the write-down
of assets to fair value for four restaurants. The impairment charge for these restaurants was determined based on the expected cash flows over the remaining lease terms, as compared to the net book
value of the restaurant assets. The Company does not intend to close any of these restaurants in 2003.

The
Company reviews the cash flow of each restaurant throughout any given reporting period, and performs an impairment review of its investment in property and equipment at any given
restaurant during a reporting period if deemed necessary based on the restaurant's cash flow performance. At least annually, the Company conducts an impairment review of its investment in property and
equipment for all of its restaurants.

Interest Income.Interest income was $48,000 in 2002, $166,000 in 2001 and $185,000 in 2000. In 2002 the Company received
decreased interest income due to lower cash balances in its bank accounts and lower interest rates. In 2001 the Company received decreased interest income due to lower interest rates.

Interest Expense.Interest expense was $263,000 in 2002, $386,000 in 2001 and $461,000 in 2000. Interest expense consisted
primarily of fees and interest related to the Company's long-term borrowings and capital lease obligations for equipment leases.

Provision for (benefit from) Income Taxes.The Company recorded a tax benefit in 2002 as a result of recording a credit for
the over-accrual of federal taxes in 2001 partially offset by state tax payments

24

---

estimated for 2002. Despite a net operating loss, the Company is required to postpone the use of net California operating loss carryforwards for two years that could be used to offset taxable income
in determination of California state income taxes for the 2002 and 2003 tax years as prescribed by state law enacted in September of 2002. The Company recorded an income tax provision for 2001 and
2000, despite net operating loss carryforwards available to offset taxable income, due to projected fiscal 2001 and 2000 net income being subject to alternative minimum tax. The Company's net deferred
tax assets consist primarily of the tax benefit related to operating loss carryforwards, alternative minimum tax credits and asset write-downs, in connection with store closure reserves, that are not
deductible for tax purposes until the assets are disposed. The Company will continue to provide a full valuation allowance for its deferred tax assets until it becomes more likely than not, in
management's assessment, that the Company's deferred tax assets will be realized.

Loss from Discontinued Operations.Loss from discontinued operations includes the revenue and expenses of one restaurant that
was closed during 2002 when its lease term expired. This restaurant was located in an isolated market and is not being replaced. The loss from discontinued operations of $185,000 in 2002 reflects the
revenue and expenses for this store and includes an $8,000 reversal of the 2001 estimated closure costs.

The
loss from discontinued operations of $272,000 in 2001 reflects the revenue and expenses for this store and includes a non-cash charge of $93,000 for the
write-down of assets to fair value and a $13,000 charge to cover the estimated closure costs associated with the planned closure.

The
loss from discontinued operations of $241,000 for fiscal year 2000 reflects revenue and expenses for this store and includes a non-cash charge of $171,000 for the
write-down of assets to fair value. The impairment charge for this restaurant was determined based on the expected cash flows over the remaining lease term, as compared to the net book
value of the restaurant assets.

QUARTERLY INFORMATION

The
following table sets forth certain quarterly results of operations for 2002 and 2001:

|                                                    |                         | Year Ended December 29, 2002 |        | Year Ended December 30, 2001 |  
|--------------------------------------------------- | ----------------------- | ---------------------------- | ------ | ---------------------------- | -
|
|
|Net sales                                           |                         | $                            | 17,029 |                              | $
|Operating income (loss)                             |                         |                              | 205    |                              |  
|Income (loss) from continuing operations            |                         |                              | 157    |                              |  
|Net income (loss)                                   |                         |                              | 113    |                              |  
|Income (loss) per share from continuing operations: |                         |                              |        |                              |  
|                                                    | Basic*                  |                              | $      | 0.03                         |  
|                                                    | Diluted*                |                              | $      | 0.03                         |  
|Net income (loss) per share:                        |                         |                              |        |                              |  
|                                                    | Basic*                  |                              | $      | 0.02                         |  
|                                                    | Diluted*                |                              | $      | 0.02                         |  
|Shares used in computing per share amounts:         |                         |                              |        |                              |  
|                                                    | Basic                   |                              |        | 5,909                        |  
|                                                    | Diluted                 |                              |        | 7,183                        |  
|Number of restaurants                               |                         |                              |        |                              |  
|                                                    | open at end of quarter: |                              |        |                              |  
|                                                    | Fresh Choice and Zoopa  |                              |        | 47                           |  
|                                                    | Fresh Choice Express    |                              |        | 4                            |  

---

25

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Net sales, operating income (loss), income (loss) and income (loss) per share from continuing operations presented for all quarters in the above table excludes the one restaurant closed
in the fourth quarter that is included in discontinued operations pursuant to the Company's adoption, in the first quarter of fiscal 2002, of Statement of Financial Accounting Standards ("SFAS")
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."

The
Company's restaurants experience seasonal fluctuations, as a disproportionate amount of net sales and restaurant operating income are generally realized in the second and third
fiscal quarters. In addition, the Company's quarterly results of operations have been, and may continue to be, materially impacted by the timing of new restaurant openings and by restaurant closings.
The fourth quarter normally includes 16 weeks of operations as compared with 12 weeks for each of the three prior quarters. The fourth quarter of 2000 included 17 weeks. As a result of these factors,
net sales and net income in the fourth quarter are not comparable to results in each of the first three fiscal quarters, and net sales can be expected to decline in the first quarter of each fiscal
year in comparison to the fourth quarter of the prior fiscal year. Because of prior year operating losses, restaurant closures, the seasonality of the Company's business and the impact of new
restaurant openings, results for any quarter cannot be relied upon as indicative of the results that may be achieved for a full fiscal year.

LIQUIDITY AND CAPITAL RESOURCES

The
Company's primary capital requirements have been for the expansion of its restaurant operations and remodeling of its restaurants. The Company has traditionally financed these
requirements with funds from equity offerings, cash flow from operations, landlord allowances, capital equipment leases and short-term bank debt. The Company does not have significant
trade receivables or inventory and receives trade credit based upon negotiated terms in purchasing food and supplies.

During
2001, the Company closed on a $2,200,000 loan (the "Loan"), with a commercial bank. Under the terms of the Loan, the Company issued a promissory note (the "Note") in the amount of
$2,200,000. The Note is secured by a deed of trust on certain Company-owned real estate. The Note bears interest at the prime rate (4.25% at December 29, 2002) plus 0.625%. The Note has a
fifteen-year amortization period and matures after 84 monthly payments of principal and interest. All unpaid principal and interest shall be due and payable on the Note's maturity
date of September 2, 2008.

The
Company had $2,061,000 and $2,178,000 of debt outstanding under the Loan described above at December 29, 2002 and December 30, 2001 respectively. At December 29,
2002, $1,935,000 was included in long-term debt and $126,000 was included in the current portion of long-term obligations. At December 30, 2001, $2,060,000 was included
in long-term debt and $118,000 was included in the current portion of long-term obligations. The Deed of Trust requires the Company to maintain a minimum debt service coverage
ratio and to maintain a minimum tangible net worth.

On
June 3, 2002 the Company renegotiated its $2,000,000 revolving line of credit (the "Agreement") with its bank, which extends the Agreement's expiration date to June 3,
2004. Borrowings bear interest at the prime rate (4.25% at December 29, 2002) plus 0.5%. Borrowings under the Agreement are collateralized by the Company's personal property. On
December 29, 2002 the Company had no borrowings under the Agreement.

On
December 29, 2002 the Company had a commitment from the bank, separate from the Agreement, which makes $956,000 available to the Company in support of outstanding letters of
credit required under its workers' compensation program. This commitment, which is scheduled to expire March 28, 2003, will automatically extend for a one-year period.

The
Agreement requires the Company to maintain (i) a minimum tangible net worth, (ii) a minimum debt service coverage ratio and (iii) a maximum debt to tangible net
worth ratio. The Agreement also limits the Company's fixed asset acquisitions and requires approval before paying dividends or

26

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repurchasing outstanding shares of stock. In addition the Agreement requires the outstanding principal balance of the loan to be zero for at least one period of thirty consecutive days during the
term of the loan.

During
2002 the Company entered into equipment leases which provided $2,488,000 in financing under the capital lease arrangement expiring in 2007. These and other capital lease
obligations at December 29, 2002 totaled $2,742,000 of which $610,000 was included in current portion of long-term debt. Long-Term Debt also included a $113,000 note for
site construction costs of which $1,000 was included in the current portion of long-term obligations.

Net
cash provided by operating activities from continuing operations in 2002 was $6.2 million and consisted of:

Loss from continuing operations

$(1,534
)Adjustments to reconcile loss from continuing operations to net cash provided by operating activities of continuing operations:Depreciation and amortization

3,546Non-cash store closure and asset impairment expenses

1,751Other

470Change in operating assets and liabilities

1,940Net cash provided by operating activities of continuing operations

$6,173


During
the same period, the Company invested $9.2 million in property and equipment, which includes the equipment acquired under capital leases.

The
Company's contractual obligations as of December 29, 2002 are as follows:

Total

Less than 1
year

1-3 years

4-5 years

After 5 years(In thousands)Capital Lease Obligations

$
2,742

$
610

$
1,753

$
379

$
Secured Note


2,061


126


419


1,516


Other Note Payable


113


1


3


3


106Operating Leases


123,660


8,822


25,836


16,721


72,281Total Contractual Cash Obligations

$
128,576

$
9,559

$
28,011

$
18,619

$
72,387


In
the first quarter of 2003 the Company entered into a capital lease for equipment that requires minimum monthly payments of $9,699 through 2008.

The
Company's outstanding Series B non-voting convertible preferred stock is currently held by one entity and is convertible, at the holders' option, into
Series A voting convertible preferred stock on a one-for-one basis. Although no Series A preferred stock is currently outstanding, holders of Series A
preferred stock, if any, would be entitled to vote with common stockholders on all matters submitted to a vote of stockholders. When and if issued, the holders of a majority of the outstanding
Series A preferred stock will have a separate right to approve certain corporate actions.

In
fiscal 1998, the Company failed to achieve a specified earnings target (before interest, taxes, depreciation and amortization) of at least $5.5 million which constituted an
event of default of the terms of the preferred stock agreement and which triggered the right of the Series A preferred stockholders to elect a majority of the Company's Board of Directors. The
holder of the Series B preferred stock has not initiated any action to convert such shares into shares of Series A preferred stock nor has it exercised its right to elect a majority of
the Board of Directors. In March 2003 such holder notified the Company that it had no intention, at that time, of exercising such right; however, the holder has not waived any of its rights
under the agreement.

27

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The Company's continued growth depends to a significant degree on its ability to open new restaurants and to operate such restaurants profitably. As of March 3, 2003, two new
Fresh Choice restaurants have opened in fiscal 2003. The Company plans to open two additional new Fresh Choice restaurants in 2003 in California. The Company has signed leases for these additional
Fresh Choice restaurants. The total leasehold improvements and equipment costs for these four locations is estimated to be approximately $4.3 million, of which approximately $2.1 million
has been expended through December 29, 2002.

Although
the Company has no firm development plans beyond 2003, the Company continues to look for sites, primarily in its core Northern California markets as well as in Southern
California, for possible expansion beyond 2003. The Company's ability to continue an expansion strategy will depend upon a variety of factors, including its return to profitability and the Company's
ability to obtain funds. See "Business Risks" included herein.

The
Company intends to finance its operating cash requirements and fiscal 2003 capital requirements through existing cash balances, cash provided by operations, its borrowing
arrangements and existing equipment lease financing commitment. The Company has a $5.5 million commitment for capital equipment lease financing for new furniture, fixtures, equipment and
leasehold items of which the Company has utilized $2.3 million through December 29, 2002. The Company intends to utilize the remaining commitment to fund restaurant equipment primarily
in its new restaurants. The Company may seek additional debt financing to provide greater flexibility if it continues restaurant expansion in 2004 and beyond.

The
Company's ability to continue an expansion strategy will depend upon a variety of factors, including, maintaining a sufficient cash flow from operations and its ability to obtain
additional funds. The Company believes its near-term capital requirements can be met through its existing cash balances, cash provided by operations, its borrowing arrangements and
additional equipment lease financing. However, the Company's operating cash flow is impacted by the Company's comparable store sales increases or decreases. In 2002 comparable store sales declined
2.5% and in 2001 comparable store sales, excluding the extra 53rd week of sales in 2000, declined 1.2%. The Company expects comparable store sales to improve, but there can be no
assurance that comparable store sales will improve. In addition, the Company may seek additional financing to provide greater flexibility. There can be no assurance that the Company will be able to
obtain additional financing when needed on acceptable terms or at all. To the extent operating cash flow declines, or financing cannot be obtained, the Company intends to curtail its expansion plans
in 2004 and beyond.

INFLATION

Many of the Company's employees are paid hourly rates related to the federal and state minimum wage laws. Accordingly, increases in the minimum wage could
materially increase the Company's labor costs. In addition, the cost of food commodities utilized by the Company are subject to market supply and demand pressures. Shifts in these costs may have a
significant impact on the Company's food costs. The Company anticipates that increases in these costs may be offset through pricing and other cost control efforts; however, there is no assurance that
the Company would be able to pass such costs on to its guests or that even if it were able to do so, it could do so in a short period of time.

RECENTLY ISSUED ACCOUNTING STANDARDS

In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 142
requires that an intangible asset that is acquired shall be initially recognized and measured based on its fair value. The statement also provides that intangible assets shall be tested for impairment
annually, or more frequently if circumstances indicate potential impairment,

28

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through a comparison of fair value to its carrying amount. SFAS No. 142 became effective for fiscal periods beginning after December 15, 2001.

In
accordance with SFAS No. 142 and effective December 31, 2001 (fiscal year 2002), the Company discontinued the amortization of certain intangible assets that were defined
by the Company to have an indefinite life. The Company also increased the amortization rates of certain other intangible assets to reflect a shorter useful life of these assets. Had SFAS
No. 142 been in effect during the year ending December 30, 2001, previously reported net income would have increased by $20,000 and basic and diluted earnings per share would have been
unchanged.

In
August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 which was adopted by the
Company in the first quarter of fiscal 2002, replaces SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and
the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of OperationsReporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions", for the disposal of a segment of a business as defined in that opinion. The Company closed three restaurants in 2002 whose lease terms
expired. As a result of the adoption of SFAS No. 144, the Company has classified revenues and expenses of one of these closed restaurants as discontinued operations for all periods presented in
the accompanying consolidated financial statements. The revenue and expenses of the other two restaurants closed in 2002 are classified as continuing operations as the restaurants have been or will be
replaced and therefore the operations are not considered discontinued under the provisions of SFAS No. 144.

In
June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" which addresses accounting for restructuring and similar
costs. SFAS No. 146 supercedes previous accounting guidance, principally EITF Issue No. 94-3. The Company will adopt the provisions of SFAS No. 146 for restructuring
activities initiated after December 29, 2002. 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 future restructuring costs as well as the amounts recognized. Management
does not expect the adoption of SFAS No. 146 will have a material impact on the Company's consolidated financial statements.

In
December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Base CompensationTransition and Disclosure" which amends SFAS No. 123,
"Accounting for Stock-Based Compensation," and provides alternative methods of transition to SFAS No. 123's fair value method of accounting for stock-based employee compensation. SFAS
No. 148 also amends the disclosure requirements of SFAS No. 123 and APB Opinion No. 28, "Interim Financial Reporting," to require disclosure of the effects of an entity's
accounting policy with respect to stock-based compensation on reported net income and earnings per share in annual and interim financial statements. The disclosure provisions of SFAS No. 148
are applicable to all companies with stock-based employee compensation, regardless of whether the compensation is accounted for using the fair value method of SFAS No. 123 or the intrinsic
value method of APB Opinion No. 25. As allowed by SFAS No. 123, the Company will continue to utilize the accounting method prescribed by APB Opinion No. 25 and has adopted the
disclosure requirements of SFAS No. 148.

Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to interest rate risk primarily through its borrowing activities. The Company has not used derivative financial instruments to hedge such
risks. There is inherent rollover risk for borrowings as they mature and are renewed at current market rates. The extent of this risk is not quantifiable or predictable because of the variability of
future interest rates and business financing requirements. If market rates were to increase immediately by 10 percent from levels at December 29,

29

---

2002, the fair value of the Company's borrowings would not be materially affected as borrowings are primarily subject to variable interest rates.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The Company adopted SFAS No. 142 and SFAS No. 144 for the fiscal year beginning December 31, 2001 (fiscal year 2002). The Company's financial
statements as of December 29, 2002 and December 30, 2001 and for each of the three fiscal years in the period ended December 29, 2002, and the Independent Auditors' Report, are
included in the report as listed on Page 31 of this Report, Item 15(a).

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Not
applicable.

PART III

Certain information required by Part III is omitted from this Report. The Company plans to file its Proxy Statement (the "Proxy Statement") pursuant to
Regulation 14A not later than 120 days after the end of the fiscal year covered by this Report, and certain information included therein is incorporated herein by reference.

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

There is incorporated by reference the information relating to the directors of the Company set forth under the caption "Election of Directors" in the Proxy
Statement. Information relating to the executive officers of the Company is set forth in Part I of this Report under the caption "Executive Officers of the Registrant."

Item 11. EXECUTIVE COMPENSATION

There is incorporated by reference the information relating to executive compensation set forth under the caption "Executive Compensation and Other Matters" in
the Proxy Statement.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

There is incorporated by reference the information relating to ownership of equity securities of the Company by certain beneficial owners and management set forth
under the caption "General InformationStock Ownership of Certain Beneficial Owners and Management" and the information
relating to equity compensation plans under the caption "Equity Compensation Plan Information" in the Proxy Statement.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

There is incorporated by reference the information relating to certain relationships and related transactions set forth under the caption "Compensation Committee
Interlocks and Insider Participation" in the Proxy Statement.

30

---



Item 14. CONTROLS AND PROCEDURES



PART IV

Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

The following documents are filed as part of this Report:

Page Nos.Consolidated Balance Sheets at December 29, 2002 and December 30, 2001

F-1Consolidated Statements of Operations for the Fiscal Years Ended December 29, 2002, December 30, 2001 and December 31, 2000

F-2Consolidated Statements of Stockholders' Equity for the Fiscal Years Ended December 29, 2002, December 30, 2001 and December 31, 2000

F-3Consolidated Statements of Cash Flows for the Fiscal Years Ended December 29, 2002, December 30, 2001 and December 31, 2000

F-4Notes to the Consolidated Financial Statements

F-5Independent Auditors' Report

F-21


31

---



Fresh Choice, Inc.    CONSOLIDATED BALANCE SHEETS    (Dollars in thousands, except per share and share amounts)

|                                                 |                                                                                                                                                                            | December 29,
2002 |        | December 30,
2001 |  
|------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------- | ------ | ----------------- | -
|ASSETS                                           |                                                                                                                                                                           
|CURRENT ASSETS:                                  |                                                                                                                                                                            |                   |        |                   |  
|                                                 | Cash and cash equivalents                                                                                                                                                  |                   | $      | 2,994             |  
|                                                 | Inventories                                                                                                                                                                |                   |        | 467               |  
|                                                 | Prepaid expenses and other current assets                                                                                                                                  |                   |        | 524               |  
|                                                 |                                                                                                                                                                            |                   |        |                   |  
|                                                 | Total current assets                                                                                                                                                       |                   |        | 3,985             |  
|PROPERTY AND EQUIPMENT, net                      |                                                                                                                                                                            |                   | 31,475 |                   |  
|DEPOSITS AND OTHER ASSETS                        |                                                                                                                                                                            |                   | 869    |                   |  
|                                                 |                                                                                                                                                                            |                   |        |                   |  
|TOTAL ASSETS                                     |                                                                                                                                                                            | $                 | 36,329 |                   | $
|                                                 |                                                                                                                                                                            |                   |        |                   |  
|LIABILITIES AND STOCKHOLDERS' EQUITY             |                                                                                                                                                                           
|CURRENT LIABILITIES:                             |                                                                                                                                                                            |                   |        |                   |  
|                                                 | Accounts payable                                                                                                                                                           |                   | $      | 2,825             |  
|                                                 | Other accrued expenses                                                                                                                                                     |                   |        | 2,331             |  
|                                                 | Accrued salaries and wages                                                                                                                                                 |                   |        | 1,582             |  
|                                                 | Sales tax payable                                                                                                                                                          |                   |        | 614               |  
|                                                 | Current portion of long-term obligations                                                                                                                                   |                   |        | 737               |  
|                                                 |                                                                                                                                                                            |                   |        |                   |  
|                                                 | Total current liabilities                                                                                                                                                  |                   |        | 8,089             |  
|CAPITAL LEASE OBLIGATIONS                        |                                                                                                                                                                            |                   | 2,132  |                   |  
|LONG-TERM DEBT                                   |                                                                                                                                                                            |                   | 2,047  |                   |  
|OTHER LONG-TERM LIABILITIES                      |                                                                                                                                                                            |                   | 2,429  |                   |  
|                                                 |                                                                                                                                                                            |                   |        |                   |  
|                                                 | Total liabilities                                                                                                                                                          |                   |        | 14,697            |  
|                                                 |                                                                                                                                                                            |                   |        |                   |  
|COMMITMENTS AND CONTINGENCIES (Notes 2, 6 and 9) |                                                                                                                                                                            |                   |        |                   |  
|STOCKHOLDERS' EQUITY:                            |                                                                                                                                                                            |                   |        |                   |  
|                                                 | Convertible preferred stock, $.001 par value; 3.5 million shares authorized; shares outstanding: 2002 and 2001-1,187,906; liquidation preference: 2002-$8,161; 2001-$7,496 |                   |        | 5,175             |  
|                                                 | Common stock, $.001 par value; 15 million shares authorized; shares outstanding: 2002-5,964,068; 2001-5,906,965                                                            |                   |        | 42,630            |  
|                                                 | Accumulated deficit                                                                                                                                                        |                   |        | (26,173           | )
|                                                 |                                                                                                                                                                            |                   |        |                   |  
|                                                 | Total stockholders' equity                                                                                                                                                 |                   |        | 21,632            |  
|                                                 |                                                                                                                                                                            |                   |        |                   |  
|TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY       |                                                                                                                                                                            | $                 | 36,329 |                   | $
|                                                 |                                                                                                                                                                            |                   |        |                   |  

See
accompanying notes to consolidated financial statements

F-1

---



Fresh Choice, Inc.    CONSOLIDATED STATEMENTS OF OPERATIONS    (In thousands, except per share amounts)

|                                                             |                                                  | Fiscal Year Ended        |       
|------------------------------------------------------------ | ------------------------------------------------ | ------------------------ | ------
|
|NET SALES                                                    |                                                  | $                        | 74,951
|COSTS AND EXPENSES:                                          |                                                  |                          |       
|                                                             | Cost of sales                                    |                          |       
|                                                             | Restaurant operating expenses:                   |                          |       
|                                                             |                                                  | Labor                    |       
|                                                             |                                                  | Occupancy and other      |       
|                                                             | General and administrative expenses              |                          |       
|                                                             | Depreciation and amortization                    |                          |       
|                                                             | Store closure and asset impairment expenses      |                          |       
|                                                             | Restaurant opening costs                         |                          |       
|                                                             |                                                  |                          |       
|                                                             |                                                  | Total costs and expenses |       
|                                                             |                                                  |                          |       
|OPERATING INCOME (LOSS):                                     |                                                  |                          | (1,331
|                                                             | Interest income                                  |                          |       
|                                                             | Interest expense                                 |                          |       
|                                                             |                                                  |                          |       
|                                                             | Interest expense, net                            |                          |       
|                                                             |                                                  |                          |       
|INCOME (LOSS) FROM CONTINUING OPERATONS BEFORE INCOME TAXES: |                                                  |                          | (1,546
|                                                             | Provision for (benefit from) income taxes        |                          |       
|                                                             |                                                  |                          |       
|INCOME (LOSS) FROM CONTINUING OPERATIONS                     |                                                  |                          | (1,534
|                                                             |                                                  |                          |       
|LOSS FROM DISCONTINUED OPERATIONS NET OF TAX                 |                                                  |                          | (185  
|                                                             |                                                  |                          |       
|NET INCOME (LOSS)                                            |                                                  | $                        | (1,719
|                                                             |                                                  |                          |       
|Basic net income (loss) per common share:                    |                                                  |                          |       
|                                                             | Basic income (loss) from continuing operations   |                          | $     
|                                                             | Basic loss from discontinued operations          |                          |       
|                                                             |                                                  |                          |       
|Basic net income (loss) per common share:                    |                                                  | $                        | (0.29 
|                                                             |                                                  |                          |       
|Shares used in computing basic per share amounts             |                                                  |                          | 5,929 
|                                                             |                                                  |                          |       
|Diluted net income (loss) per common share:                  |                                                  |                          |       
|                                                             | Diluted income (loss) from continuing operations |                          | $     
|                                                             | Diluted loss from discontinued operations        |                          |       
|                                                             |                                                  |                          |       
|Diluted net income (loss) per common share                   |                                                  | $                        | (0.29 
|                                                             |                                                  |                          |       
|Shares used in computing diluted per share amounts           |                                                  |                          | 5,929 
|                                                             |                                                  |                          |       

See
accompanying notes to consolidated financial statements

F-2

---



Fresh Choice, Inc.    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY    (Dollars in thousands)

|                           |                                                          | Convertible Preferred Stock |   |   |       |   |           |        |   |        |    
|-------------------------- | -------------------------------------------------------- | --------------------------- | - | - | ----- | - | --------- | ------ | - | ------ | ---
|
|
|
|BALANCESDecember 27, 1999 |                                                          | 1,187,906                   |   | $ | 5,175 |   | 5,762,444 |        | $ | 42,291 |    
|                           | Exercise of stock options                                |                             |  |   |       |  |           | 462    |   |        |   
|                           | Sales of common stock under employee stock purchase plan |                             |  |   |       |  |           | 70,376 |   |        | 99 
|                           | Issuance of stock options for consulting services        |                             |  |   |       |  |           |       |   |        | 15 
|                           | Net income                                               |                             |  |   |       |  |           |       |   |        |   
|                           |                                                          |                             |   |   |       |   |           |        |   |        |    
|BALANCESDecember 31, 2000 |                                                          | 1,187,906                   |   |   | 5,175 |   | 5,833,282 |        |   | 42,405 |    
|                           | Exercise of stock options                                |                             |  |   |       |  |           | 6,458  |   |        | 11 
|                           | Sales of common stock under employee stock purchase plan |                             |  |   |       |  |           | 67,225 |   |        | 101
|                           | Issuance of stock options for consulting services        |                             |  |   |       |  |           |       |   |        | 21 
|                           | Net income                                               |                             |  |   |       |  |           |       |   |        |   
|                           |                                                          |                             |   |   |       |   |           |        |   |        |    
|BALANCESDecember 30, 2001 |                                                          | 1,187,906                   |   |   | 5,175 |   | 5,906,965 |        |   | 42,538 |    
|                           | Exercise of stock options                                |                             |  |   |       |  |           | 2,875  |   |        | 5  
|                           | Sales of common stock under employee stock purchase plan |                             |  |   |       |  |           | 54,228 |   |        | 89 
|                           | Issuance of stock options for consulting services        |                             |  |   |       |  |           |       |   |        | (2 
|                           | Net loss                                                 |                             |  |   |       |  |           |       |   |        |   
|                           |                                                          |                             |   |   |       |   |           |        |   |        |    
|BALANCESDecember 29, 2002 |                                                          | 1,187,906                   |   | $ | 5,175 |   | 5,964,068 |        | $ | 42,630 |    
|                           |                                                          |                             |   |   |       |   |           |        |   |        |    

See
accompanying notes to consolidated financial statements

F-3

---



Fresh Choice, Inc.    CONSOLIDATED STATEMENTS OF CASH FLOWS    (Dollars in thousands)

|                                                                                                                                           |                                                      | Fiscal Year Ended                         |       
|------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------------------------- | ----------------------------------------- | ------
|
|OPERATING ACTIVITIES OF CONTINUING OPERATIONS:                                                                                             |                                                      |                                           |       
|Income (loss) from continuing operations                                                                                                   |                                                      | $                                         | (1,534
|Adjustments to reconcile income (loss) from continuing operations to net cash provided by operating activities from continuing operations: |                                                      |                                           |       
|                                                                                                                                           | Depreciation and amortization                        |                                           |       
|                                                                                                                                           | Non-cash store closure and asset impairment expenses |                                           |       
|                                                                                                                                           | Issuance of common stock for consulting services     |                                           |       
|                                                                                                                                           | Loss on disposal of property and equipment           |                                           |       
|                                                                                                                                           | Deferred rent                                        |                                           |       
|                                                                                                                                           | Change in operating assets and liabilities:          |                                           |       
|                                                                                                                                           |                                                      | Inventories                               |       
|                                                                                                                                           |                                                      | Prepaid expenses and other current assets |       
|                                                                                                                                           |                                                      | Accounts payable                          |       
|                                                                                                                                           |                                                      | Accrued salaries and wages                |       
|                                                                                                                                           |                                                      | Other accrued expenses                    |       
|                                                                                                                                           |                                                      | Store closure reserve                     |       
|                                                                                                                                           |                                                      |                                           |       
|Net cash provided by operating activities of continuing operations                                                                         |                                                      |                                           | 6,173 
|                                                                                                                                           |                                                      |                                           |       
|INVESTING ACTIVITIES:                                                                                                                      |                                                      |                                           |       
|                                                                                                                                           | Capital expenditures                                 |                                           |       
|                                                                                                                                           | Proceeds from sale of property and equipment         |                                           |       
|                                                                                                                                           | Deposits and other assets                            |                                           |       
|                                                                                                                                           |                                                      |                                           |       
|                                                                                                                                           | Net cash used in investing activities                |                                           |       
|                                                                                                                                           |                                                      |                                           |       
|FINANCING ACTIVITIES:                                                                                                                      |                                                      |                                           |       
|                                                                                                                                           | Common stock sales                                   |                                           |       
|                                                                                                                                           | Long-term debtborrowings                            |                                           |       
|                                                                                                                                           | Long-term debtrepayments                            |                                           |       
|                                                                                                                                           | Capital lease obligationsborrowings                 |                                           |       
|                                                                                                                                           | Capital lease obligationsrepayments                 |                                           |       
|                                                                                                                                           |                                                      |                                           |       
|                                                                                                                                           | Net cash provided by (used in) financing activities  |                                           |       
|                                                                                                                                           |                                                      |                                           |       
|CASH PROVIDED (USED) BY CONTINUING OPERATIONS                                                                                              |                                                      |                                           | (1,209
|CASH USED BY DISCONTINUED OPERATIONS                                                                                                       |                                                      |                                           | (165  
|                                                                                                                                           |                                                      |                                           |       
|INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                                                                           |                                                      |                                           | (1,374
|CASH AND CASH EQUIVALENTS:                                                                                                                 |                                                      |                                           |       
|                                                                                                                                           | Beginning of year                                    |                                           |       
|                                                                                                                                           |                                                      |                                           |       
|                                                                                                                                           | End of year                                          |                                           | $     
|                                                                                                                                           |                                                      |                                           |       
|Supplemental Disclosure of Cash Flow Information:                                                                                          |                                                      |                                           |       
|                                                                                                                                           | Cash paid during the year for interest               |                                           | $     
|                                                                                                                                           |                                                      |                                           |       
|                                                                                                                                           | Cash paid during the year for income taxes           |                                           | $     
|                                                                                                                                           |                                                      |                                           |       
|Noncash Investing and Financing Activities                                                                                                |                                                      |                                           |       
|                                                                                                                                           | Equipment acquired under capital leases              |                                           | $     
|                                                                                                                                           |                                                      |                                           |       

See accompanying notes to consolidated financial statements

F-4

---



Fresh Choice, Inc.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        Fiscal Years ended December 29, 2002, December 30, 2001, and December 31, 2000

1. Organization and Significant Accounting Policies

Description of business.Fresh Choice, Inc. (the "Company") is incorporated in Delaware and operates in one segment
consisting of limited-service restaurants, under the names Fresh Choice, Fresh Choice Express and Zoopa, offering freshly-made specialty and traditional salads, hot pasta, pizza, hot baked
potatoes, soups, fresh bread and muffins, frozen low-fat soft serve and other desserts. In addition the Company operates one licensed Starbucks retail store. The Company operated 53
restaurants at December 29, 2002 including one Fresh Choice Express restaurant, two dual branded Fresh Choice Express and licensed Starbucks retail stores and one licensed Starbucks retail
store, 51 restaurants at December 30, 2001 including three Fresh Choice Express restaurants and one dual branded Fresh Choice Express and licensed Starbucks retail store and 48 restaurants at
December 31, 2000 including two Fresh Choice Express restaurants.

Basis of presentation.The consolidated financial statements include the accounts of the Company and Moffett Design
Corporation, a wholly-owned subsidiary, after elimination of intercompany transactions and balances. The Company's fiscal year ends on the last Sunday in December. Fiscal years 2002 and 2001 each
contained 52 weeks and fiscal 2000 contained 53 weeks. As a result of the adoption of Financial Accounting Standard ("SFAS") No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" for fiscal year 2002, the Company has classified the revenues and expenses of one restaurant which was closed during 2002 as discontinued operations in the accompanying
consolidated financial statements.

Estimates.The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions that affect reported amounts of assets, liabilities, revenues and expenses as of the dates and for the periods presented. Such
management estimates include the store closure reserve, the valuation allowance for deferred income taxes, estimated useful lives of property and equipment, accrual for claims outstanding under the
Company's workers' compensation policy and certain other accrued expenses. Actual results could differ from those estimates.

Cash and cash equivalents.The Company considers all highly liquid debt instruments with a maturity of three months or less,
when purchased, to be cash equivalents.

Fair value of financial instruments.The Company believes that the carrying amount for cash and cash equivalents, accounts
payable and long-term debt borrowings approximated fair values at December 29, 2002.

Concentrations.Financial instruments which potentially subject the Company to concentration risk principally consist of cash
and cash equivalents. The Company places its cash and cash equivalents with what it believes are high credit quality financial institutions.

The
Company has geographic concentration risk as forty of the Company's 53 restaurants are located in California, primarily in Northern California. Accordingly, the Company is
susceptible to fluctuations in its business caused by adverse economic conditions in this region.

Inventories.Inventories consist principally of food and supplies stated at the lower of cost (first in, first out) or
market.

F-5

---

Restaurant opening costs.Restaurant opening costs consist of the direct costs associated with opening a new restaurant
including the costs of hiring and training the initial workforce. These costs are expensed as incurred.

Property and equipment.Property and equipment are stated at cost. Depreciation and amortization are computed using the
straight-line method over the estimated useful lives of the assets which range from 5 to 30 years or the lease term of a restaurant including option periods, as appropriate, not to
exceed 25 years.

Long-lived assets impairment.The Company reviews its long-lived assets related to each restaurant
annually for impairment, or whenever events or changes in circumstances indicate that the carrying amount of a restaurant may not be recoverable. The Company considers a history of operating losses to
be its primary indicator of potential impairment, therefore new restaurants are generally not identified for impairment until a sufficient operating history has been developed. Assets are grouped and
evaluated for impairment at the lowest level for which there are identifiable cash flows, the individual restaurants. Based on the best information available, the Company writes down an impaired
restaurant to its estimated fair market value, which becomes its new cost basis. The Company generally measures estimated fair value by a forecast of undiscounted future operating cash flows directly
related to the restaurant. Considerable management judgment is necessary to estimate projected future operating cash flows. Accordingly, if actual results vary from such estimates, significant future
impairment could result.

Lease acquisition costs.Lease acquisition costs are amortized using the straight-line method over the remaining
term of the acquired lease including option periods, as appropriate, not to exceed 25 years.

Deferred rent.The Company computes rent expense on a straight-line basis for operating leases that contain
provisions for scheduled rent increases over the lease term. The Company's deferred rent liability consists of the net cumulative rent expensed in excess of rent payments since inception of these
leases.

Income taxes.Deferred tax assets and liabilities are recognized to reflect the estimated future tax effects, calculated at
currently effective tax rates, of differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. A valuation allowance related to a deferred tax
asset is recorded until it is deemed more likely than not that the deferred tax asset will be realized.

Net income (loss) per common share.Basic net income (loss) per common share excludes dilution and is computed by dividing
net income by the weighted average of common shares outstanding for the year. Diluted net income (loss) per common share reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock. The Company converts common stock options and warrants into dilutive potential shares using the treasury stock method and
converts preferred stock into dilutive potential shares using the "if converted" method.

Stock-based compensation.The Company accounts for stock-based awards to employees using the intrinsic value method in
accordance with Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." The Company accounts for stock-based awards to non employees in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 123 "Accounting for Stock-Based Compensation" and Imerging Issues Task Force ("EITF") Issue No. 96-18 "Accounting for
Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.

F-6

---

The
following table illustrates the effect on net income and net income (loss) per common share if the Company had applied fair value recognition provisions of SFAS No. 123 to
stock based employee compensation.

December 29,
2002

December 30,
2001

December 31,
2000(In thousands, except per share data)Net income (loss)

$
(1,719
)
$
1,125

$
1,675Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects


(337
)

(388
)

(419
)Pro forma net income (loss)

$
(2,056
)
$
737

$
1,256Net income (loss) per common share:Basic-as reported

$
(0.29
)
$
0.19

$
0.29Basic-pro forma

$
(0.35
)
$
0.13

$
0.22Diluted-as reported

$
(0.29
)
$
0.16

$
0.24Diluted-pro forma

$
(0.35
)
$
0.10

$
0.18


Reclassifications.Certain amounts for the fiscal years ended December 30, 2001 and December 31, 2000 have been
reclassified to conform to the December 29, 2002 presentation.

Recently Issued Accounting Standards.In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 142, "Goodwill and Other Intangible Assets". SFAS No. 142 requires that an intangible asset that is acquired shall be initially recognized and measured based on its fair value. The
statement also provides that intangible assets shall be tested for impairment annually, or more frequently if circumstances indicate potential impairment, through a comparison of fair value to its
carrying amount. SFAS No. 142 became effective for fiscal periods beginning after December 15, 2001.

In
accordance with SFAS No. 142 and effective December 31, 2001 (fiscal year 2002), the Company discontinued the amortization of certain intangible assets that were defined
by the Company to have an indefinite life. The Company also increased the amortization rates of certain other intangible assets to reflect a shorter useful life of these assets. Had SFAS
No. 142 been in effect during the year ending December 30, 2001, previously reported net income would have increased by $20,000 and basic and diluted earnings per share would have been
unchanged.

In
August 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS
No. 144 which was adopted by the Company in the first quarter of fiscal 2002, replaces SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of OperationsReporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for the disposal of a segment of a business as defined in that opinion. The Company
closed three restaurants in 2002 whose lease terms expired. As a result of the adoption of SFAS No.144, the Company has classified revenues and expenses of one of these closed restaurants as
discontinued operations for all periods presented in the accompanying consolidated financial statements. The revenue

F-7

---

and expenses of the other two restaurants closed in 2002 are classified as continuing operations as the restaurants have been or will be replaced and therefore the operations are not considered
discontinued under the provisions of SFAS No. 144.

In
June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" which addresses accounting for restructuring and similar
costs. SFAS No. 146 supercedes previous accounting guidance, principally EITF No. 94-3. The Company will adopt the provisions of SFAS No. 146 for restructuring
activities initiated after December 29, 2002. 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 future restructuring costs as well as the amounts recognized. Management
does not expect that the adoption of SFAS No. 146 will have a material impact on the Company's consolidated financial statements.

In
December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based CompensationTransition and Disclosure" which amends FASB Statement No. 123,
"Accounting for Stock-Based Compensation," and provides alternative methods of transition for a voluntary change to SFAS No. 123's fair value method of accounting for stock-based employee
compensation. SFAS No. 148 also amends the disclosure requirements of SFAS No. 123 and APB Opinion No. 28, "Interim Financial Reporting," to require disclosure of the effects of
an entity's accounting policy with respect to stock-based compensation on reported net income and earnings per share in annual and interim financial statements. The transition guidance and annual
disclosure provisions of SFAS No. 148 are effective for fiscal years ending after December 15, 2002 with earlier application permitted in certain circumstances. The interim disclosures
are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. The disclosure provisions of SFAS No. 148 are applicable to all
companies with stock-based employee compensation, regardless of whether the compensation is accounted for using the fair value method of SFAS No. 123 or the intrinsic value method of APB
Opinion No. 25. As allowed by SFAS No. 123, the Company will continue to utilize the accounting method prescribed by APB Opinion No. 25 and has adopted the disclosure requirements
of SFAS No. 148.

2. Store Closure and Asset Impairment

2000 Store Closure Reserve.In 2000, the Company reversed its decision to close one restaurant previously identified for
closure based upon continued improved performance and accordingly reversed the reserve of $395,000 provided for the restaurant. In addition, the Company made the decision to close its last remaining
restaurant in Houston due to continued poor performance and recorded a non-cash charge of $5,000 for the write-down of assets to fair value and a $206,000 charge for the cash
costs associated with the restaurant closure and settlement of the lease obligation. The Company also recorded a lease termination charge of $332,000 for the buyout and termination of the lease on a
former Fresh Choice restaurant in the Washington D.C. market that the Company had sold in 1996. The Company also recorded a charge of $9,000 resulting from the settlement of restaurant closures for
more than the previously estimated costs.

2001 Store Closure Reserve.In 2001, the Company recorded a store closure and asset impairment charge of $75,000 for the
planned closure of one restaurant whose lease expires in 2002 and the planned conversion of one Fresh Choice Express to a licensed Starbucks retail store. This charge is comprised of a $68,000
non-cash charge for the write down of assets to fair value and a $7,000 charge to cover the

F-8

---

estimated closure costs associated with the planned restaurant closure. The impairment charge was determined based on the expected cash flows over the remaining lease terms, as compared to the net
book value of the restaurants' assets.

2002 Asset Impairment.In 2002, the Company reversed $4,000 of the 2001 estimated closure costs and recorded a
non-cash impairment charge of $1,755,000 for the write-down of assets to fair value for four restaurants. The impairment charge for these restaurants was determined based on
the expected cash flows over the remaining lease terms, as compared to the net book value of the restaurant assets. The Company does not intend to close any of these four restaurants in 2003.

The
following table sets forth the Company's store closure reserve and asset impairment charge as of and for the years ended December 29, 2002, December 30, 2001 and
December 31, 2000:

|                                                                                             |  | Balance
1999 |     | Provided
(Reversed)
in 2000 |   | Utilized
in 2000 |   | Balance
2000 |      | Provided
(Reversed)
in 2001 |   | Utilized
in 2001 |  | Balance
2001 |    | Provided
(Reversed)
in 2002 |   | Utilized
in 2002 |   | Balance
2002
|-------------------------------------------------------------------------------------------- |  | ------------ | --- | --------------------------- | - | ---------------- | - | ------------ | ---- | --------------------------- | - | ---------------- |  | ------------ | -- | --------------------------- | - | ---------------- | - | ------------
|
|1998 Reserve:                                                                                |  |              |     |                             |   |                  |   |              |      |                             |   |                  |  |              |    |                             |   |                  |   |             
|Estimated cash costs associated with restaurant closures and settlement of lease obligations |  | $            | 430 |                             | $ | (428             | ) | $            | (2   | )                           | $ |                 |  | $            |   |                             | $ |                 |   | $           
|                                                                                             |  |              |     |                             |   |                  |   |              |      |                             |   |                  |  |              |    |                             |   |                  |   |             
|1998 Reserve                                                                                 |  |              | 430 |                             |   | (428             | ) |              | (2   | )                           |   |                 |  |              |   |                             |   |                 |   |             
|                                                                                             |  |              |     |                             |   |                  |   |              |      |                             |   |                  |  |              |    |                             |   |                  |   |             
|1999 Reserve:                                                                                |  |              |     |                             |   |                  |   |              |      |                             |   |                  |  |              |    |                             |   |                  |   |             
|Estimated cash costs associated with restaurant closures and settlement of lease obligations |  |              | 140 |                             |   |                 |   |              | (140 | )                           |   |                 |  |              |   |                             |   |                 |   |             
|                                                                                             |  |              |     |                             |   |                  |   |              |      |                             |   |                  |  |              |    |                             |   |                  |   |             
|1999 Reserve                                                                                 |  |              | 140 |                             |   |                 |   |              | (140 | )                           |   |                 |  |              |   |                             |   |                 |   |             
|                                                                                             |  |              |     |                             |   |                  |   |              |      |                             |   |                  |  |              |    |                             |   |                  |   |             
|2000 Reserve:                                                                                |  |              |     |                             |   |                  |   |              |      |                             |   |                  |  |              |    |                             |   |                  |   |             
|Restaurant closures:                                                                         |  |              |     |                             |   |                  |   |              |      |                             |   |                  |  |              |    |                             |   |                  |   |             
|Non-cash write-down of assets to estimated fair value and other related costs                |  |              |    |                             |   | 32               |   |              | (32  | )                           |   |                 |  |              |   |                             |   |                 |   |             
|Estimated cash costs associated with restaurant closures and settlement of lease obligations |  |              |    |                             |   | 553              |   |              | (189 | )                           |   | 364              |  |              |   |                             |   | (364             | ) |             
|                                                                                             |  |              |     |                             |   |                  |   |              |      |                             |   |                  |  |              |    |                             |   |                  |   |             
|2000 Reserve                                                                                 |  |              |    |                             |   | 585              |   |              | (221 | )                           |   | 364              |  |              |   |                             |   | (364             | ) |             
|                                                                                             |  |              |     |                             |   |                  |   |              |      |                             |   |                  |  |              |    |                             |   |                  |   |             
|2001 Reserve:                                                                                |  |              |     |                             |   |                  |   |              |      |                             |   |                  |  |              |    |                             |   |                  |   |             
|Restaurant closures:                                                                         |  |              |     |                             |   |                  |   |              |      |                             |   |                  |  |              |    |                             |   |                  |   |             
|Estimated cash costs associated with restaurant closures                                     |  |              |    |                             |   |                 |   |              |     |                             |   |                 |  |              | 7  |                             |   |                 |   |             
|Impaired restaurants:                                                                        |  |              |     |                             |   |                  |   |              |      |                             |   |                  |  |              |    |                             |   |                  |   |             
|Non-cash write-down of assets to estimated fair value and other related costs                |  |              |    |                             |   |                 |   |              |     |                             |   |                 |  |              | 68 |                             |   | (68              | ) |             
|                                                                                             |  |              |     |                             |   |                  |   |              |      |                             |   |                  |  |              |    |                             |   |                  |   |             
|2001 Reserve                                                                                 |  |              |    |                             |   |                 |   |              |     |                             |   |                 |  |              | 75 |                             |   | (68              | ) |             
|                                                                                             |  |              |     |                             |   |                  |   |              |      |                             |   |                  |  |              |    |                             |   |                  |   |             
|2002 Reserve:                                                                                |  |              |     |                             |   |                  |   |              |      |                             |   |                  |  |              |    |                             |   |                  |   |             
|Impaired restaurants:                                                                        |  |              |     |                             |   |                  |   |              |      |                             |   |                  |  |              |    |                             |   |                  |   |             
|Non-cash write-down of assets to estimated fair value and other related costs                |  |              |    |                             |   |                 |   |              |     |                             |   |                 |  |              |   |                             |   |                 |   |             
|                                                                                             |  |              |     |                             |   |                  |   |              |      |                             |   |                  |  |              |    |                             |   |                  |   |             
|2002 Reserve                                                                                 |  |              |    |                             |   |                 |   |              |     |                             |   |                 |  |              |   |                             |   |                 |   |             
|                                                                                             |  |              |     |                             |   |                  |   |              |      |                             |   |                  |  |              |    |                             |   |                  |   |             
|Totals                                                                                       |  | $            | 570 |                             | $ | 157              |   | $            | (363 | )                           | $ | 364              |  | $            | 75 |                             | $ | (432             | ) | $           
|                                                                                             |  |              |     |                             |   |                  |   |              |      |                             |   |                  |  |              |    |                             |   |                  |   |             

F-9

---



The following table presents the results of operations for two restaurants closed in 2002 and three restaurants closed in 2000, whose results were included in
continuing operations; no restaurants were closed in 2001:

2002

2001

2000(In thousands)Net sales

$
1,298

$
3,182

$
4,468Cost of sales


298


719


1,103Restaurant operating expenses:Labor


475


1,028


1,508Occupancy and other


478


1,014


1,267Depreciation and amortization


57


209


352Total costs and expenses


1,308


2,970


4,230Operating income (loss)

$
(10
)
$
212

$
238


3. Discontinued Operations

As
discussed in Note 1Basis of Presentation, discontinued operations includes the revenue and expenses of one restaurant that was closed during 2002 when its lease
term expired. This restaurant was located in an isolated market and is not being replaced. The consolidated financial statements present this restaurant's operations as discontinued operations for
2002, 2001 and 2000. Operating results for this restaurant are summarized as follows:

2002

2001

2000(In thousands)Net sales

$
849

$
1,056

$
1,182Cost of sales


202


249


298Restaurant operating expenses:Labor


334


376


402Occupancy and other


473


513


519Depreciation and amortization


33


84


33Store closure and asst impairment expenses


(8
)

106


171Total costs and expenses


1,034


1,328


1,423Operating (loss)

$
(185
)
$
(272
)
$
(241
)


F-10

---

4. Property and Equipment

Property
and equipment consists of:

December 29,
2002

December 30,
2001(In thousands)Land

$
1,795

$
1,795Buildings and improvements


6,856


6,831Leasehold improvements


20,065


18,687Equipment


10,199


11,899Furniture and fixtures


9,830


8,703Equipment under capital leases


5,219


2,731Construction in progress


2,644


2,115Total property and equipment


56,608


52,761Accumulated depreciation and amortization


(25,133
)

(25,044
)Property and equipment, net

$
31,475

$
27,717


Accumulated
amortization of equipment leased under capital leases was $1,673,000 and $1,101,000 at December 29, 2002 and December 30, 2001, respectively.

5. Other Accrued Expenses

The
components of other accrued expenses are as follows:

December 29,
2002

December 30,
2001(In thousands)Unredeemed gift certificates

$
572

$
539Accrued workers' compensation


516


315Accrued utilities


300


225Accrued advertising


230


252Accrued property taxes


196


98Income taxes payable


31


37Deferred vendor allowances


15


76Other


471


319$
2,331

$
1,861


F-11

---



6. Borrowing Arrangements

Loan and Security Agreement.During 2001, the Company closed on a $2,200,000 loan (the "Loan"), with a commercial bank. Under
the terms of the Loan, the Company issued a promissory note (the "Note") in the amount of $2,200,000. The Note is secured by a deed of trust on certain Company-owned real estate. The Note bears
interest at the prime rate (4.25% at December 29, 2002) plus 0.625%. The Note has a fifteen year amortization period and matures after 84 monthly payments of principal and interest. All
unpaid principal and interest shall be due and payable on the Note's maturity date of September 2, 2008.

The
Company had $2,061,000 and $2,178,000 of debt outstanding under the Loan described above at December 29, 2002 and December 30, 2001 respectively. At December 29,
2002, $1,935,000 was included in long-term debt and $126,000 was included in the current portion of long-term obligations. At December 30, 2001, $2,060,000 was included
in long-term debt and $118,000 was included in the current portion of long-term obligations. The Deed of Trust requires the Company to maintain a minimum debt service coverage
ratio and to maintain a minimum tangible net worth.

Line of Credit.On June 3, 2002 the Company renegotiated its $2,000,000 revolving line of credit (the "Agreement")
with its bank, which extends the Agreement's expiration date to June 3, 2004. Borrowings bear interest at the prime rate (4.25% at December 29, 2002) plus 0.5%. Borrowings under the
Agreement are collateralized by the Company's personal property. On December 29, 2002 the Company had no borrowings under the Agreement.

The
Agreement requires the Company to maintain (i) a minimum tangible net worth, (ii) a minimum debt service coverage ratio and (iii) a maximum debt to tangible net
worth ratio. The Agreement also limits the Company's fixed asset acquisitions and requires approval before paying dividends or repurchasing outstanding shares of stock. In addition the Agreement
requires the outstanding principal
balance of the loan to be zero for at least one period of thirty consecutive days during the term of the loan.

On
December 29, 2002 the Company had a commitment from the bank, separate from the Agreement, which makes $956,000 available to the Company in support of outstanding letters of
credit required under its workers' compensation program. This commitment, which is scheduled to expire March 28, 2003, will automatically extend for a one year period.

Other Note Payable.At December 29, 2002, the Company had a $113,000 promissory note included in long-term
debt of which $1,000 was included in the current portion of long-term obligations. The promissory note is payable through 2029, bears interest at 8% and is secured by property at one of
the Company's restaurants. Payments are due approximately $1,000 per calendar year through 2006 with the balance due thereafter.

The
Company's debt payments for 2003 and subsequent years are summarized as follows:

|                          |  | Total |       | 2003 |   | 2004 |  | 2005 |     | 2006 |   | 2007 |  | Thereafter
|------------------------- |  | ----- | ----- | ---- | - | ---- |  | ---- | --- | ---- | - | ---- |  | ----------
|
|Capital Lease Obligations |  | $     | 2,742 |      | $ | 610  |  | $    | 577 |      | $ | 629  |  | $         
|Secured Note              |  |       | 2,061 |      |   | 126  |  |      | 132 |      |   | 140  |  |           
|Other Note Payable        |  |       | 113   |      |   | 1    |  |      | 1   |      |   | 1    |  |           
|                          |  |       |       |      |   |      |  |      |     |      |   |      |  |           
|Total Debt Payments       |  | $     | 4,916 |      | $ | 737  |  | $    | 710 |      | $ | 770  |  | $         
|                          |  |       |       |      |   |      |  |      |     |      |   |      |  |           

F-12

---

7. Common Stock

Stock Option Plan.The Company has reserved 1,500,000 shares for issuance to employees, management, directors and consultants
under an incentive stock option plan and a non-qualified stock option plan (the "Plan"). Under the Plan, the Company may grant options at prices not less than the fair market value of the
Company's common stock at the grant date. Options generally have a ten-year term and vest over a four or five-year period commencing one year after grant.

During
1997, the Company granted non-qualified options to purchase 120,000 common shares, having terms similar to options granted under the Plan, to an executive officer of
the Company to purchase shares of common stock at $4.375 per share. These non-qualified options were outstanding as of December 31, 2000, December 30, 2001 and
December 29, 2002 and are reflected in the summary of stock option activity below.

A
summary of stock option activity follows:

Number of
Shares

Weighted
Average
Exercise PriceOutstandingDecember 27, 1999 (269,033 exercisable at a weighted average price of $5.56)

837,556

$
3.73Options granted (weighted average fair value of $1.67)

186,750

$
2.72Options cancelled

(26,943
)
$
3.41Options exercised

(462
)
$
0.83OutstandingDecember 31, 2000 (421,498 exercisable at a weighted average price of $4.59)

996,901

$
3.55Options granted (weighted average fair value of $2.00)

127,000

$
2.87Options cancelled

(32,011
)
$
2.36Options exercised

(6,458
)
$
1.74OutstandingDecember 30, 2001 (606,193 exercisable at a weighted average price of $4.11)

1,085,432

$
3.52Options granted (weighted average fair value of $1.53)

220,500

$
2.36Options cancelled

(50,651
)
$
2.95Options exercised

(2,875
)
$
1.75OutstandingDecember 29, 2002

1,252,406

$
3.34


F-13

---

Additional
information regarding options outstanding as of December 29, 2002 is as follows:

Options Outstanding

Options ExercisableRange of
Exercise Prices

Number
Outstanding

Weighted
Average
Contractual
Life in Years

Weighted
Average
Exercise
Price

Number
Excercisable

Weighted
Average
Exercise
Price$
1.63

$  1.75

229,959

7.2

$
1.72

146,707

$
1.721.78

2.69

249,000

8.4


2.39

59,936


2.272.74

2.88

193,499

7.4


2.78

120,095


2.792.90

3.38

214,983

6.9


3.13

139,813


3.233.50

4.38

268,820

4.2


4.30

268,820


4.304.63

26.13

96,145

2.9


8.62

96,145


8.62$
1.63

$26.13

1,252,406

6.4

$
3.34

831,516

$
3.80


At
December 29, 2002, 146,354 shares were available for future grants under the Plan.

During
1998, the Company granted options to purchase 50,000 shares of common stock under the Plan at an exercise price of $3.375 pursuant to the terms of a consulting agreement with the
Chairman of the Company's Board of Directors. The options vest over five years, and the Company measures expense quarterly based on the then current fair value of the options. In 2002, 2001 and 2000,
the Company recorded ($2,000), $21,000 and $15,000 in consulting expense (recovery) related to these options.

Stock Purchase Plans.The Company has two Employee Stock Purchase Plans, the "Old Plan" and the "New Plan". Under both the
Old and New Plan, eligible employees may authorize payroll deductions of up to 10% of their base compensation, as defined, to purchase up to 329,600 and 290,000 shares of common stock under the Old
and New Plan, respectively, at a price equal to 85% of the lower of the fair market value as of the beginning or end of each six-month offering period. Shares of common stock issued under
the Old Plan were 14,658, 67,225 and 70,376 shares in 2002, 2001 and 2000 at weighted average prices of $1.52, $1.51 and $1.41 per share, respectively. Shares of common stock issued under the New Plan
were 39,570 in 2002 at a weighted average price of $1.70. At December 29, 2002, there were no shares available for issuance under the Old Plan and there were 250,430 shares available under the
New Plan.

Accounting for Stock-Based Compensation.As discussed in Note 1, the Company accounts for its stock-based awards to
employees using the intrinsic value method in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees" and its related interpretations. Accordingly, no compensation
expense has been recognized in the financial statements for employee stock arrangements.

Under
SFAS No. 123 "Accounting for Stock-Based Compensation,", the fair value of stock-based awards to employees is calculated through the use of option pricing models. Such
models were developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions which differs significantly from stock option awards. These models also
require subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. The Company's calculations were made using the
Black-Scholes option pricing model with the following weighted average assumptions: expected life, twenty four months following vesting for officers and directors and twelve months following vesting
for all other employees; stock volatility, 94.0% in 2002, 94.0% in 2001 and 85.0% in 2000; risk free interest rate, 3.8% in 2002, 5.2% in 2001 and 6.3% in 2000; and no dividends during the expected
term. The Company's calculations are based on a multiple option

F-14

---

valuation approach and forfeitures are recognized as they occur. The fair value of the employee purchase rights under the Employee Stock Purchase Plan was estimated using the same model, but with the
following weighted average assumptions: expected option life, six months, stock volatility, 90.0% in 2002, 100.0% in 2001 and 81.0% in 2000; risk-free rates, 1.8% in 2002, 1.8% in 2001 and
5.0% in 2000; and no dividends during the expected term. The effect on net income (loss) and net income (loss) per common share if the Company had applied the fair value provisions of SFAS 123,
to stock based compensation is discussed in Note 1.

Other Stock Transactions.At December 29, 2002, the Company had an outstanding warrant, issued in 1995 to outside
consultants in connection with the Company's restructuring plan, to purchase 100,000 shares of its common stock at an exercise price of $6.875. The warrant expires in 2005.

Basic and Diluted Net Income (Loss) Per Common Share.A reconciliation of the components of basic and diluted net income
(loss) per common share follows:

|                                                           |                                  | December 29,
2002 |        | December 30,
2001 |   | December 31,
2000 |      
|---------------------------------------------------------- | -------------------------------- | ----------------- | ------ | ----------------- | - | ----------------- | -----
|
|Basic Net Income (Loss) Per Common Share                   |                                  |                   |        |                   |   |                   |      
|Income (loss) from continuing operations                   |                                  | $                 | (1,534 | )                 | $ | 1,397             |      
|Loss from discontinued operations                          |                                  |                   | (185   | )                 |   | (272              | )    
|                                                           |                                  |                   |        |                   |   |                   |      
|Net Income (Loss)                                          |                                  | $                 | (1,719 | )                 | $ | 1,125             |      
|                                                           |                                  |                   |        |                   |   |                   |      
|Average common shares outstanding                          |                                  |                   | 5,929  |                   |   | 5,860             |      
|                                                           |                                  |                   |        |                   |   |                   |      
|Basic income (loss) per share from continuing operations   |                                  | $                 | (0.26  | )                 | $ | 0.24              |      
|Basic loss per share from discontinued operations          |                                  |                   | (0.03  | )                 |   | (0.05             | )    
|                                                           |                                  |                   |        |                   |   |                   |      
|Basic net income (loss) per common share                   |                                  | $                 | (0.29  | )                 | $ | 0.19              |      
|                                                           |                                  |                   |        |                   |   |                   |      
|Diluted Net Income (Loss) Per Common Share                 |                                  |                   |        |                   |   |                   |      
|Income (loss) from continuing operations                   |                                  | $                 | (1,534 | )                 | $ | 1,397             |      
|Loss from discontinued operations                          |                                  |                   | (185   | )                 |   | (272              | )    
|                                                           |                                  |                   |        |                   |   |                   |      
|Net Income (Loss)                                          |                                  | $                 | (1,719 | )                 | $ | 1,125             |      
|                                                           |                                  |                   |        |                   |   |                   |      
|Average common shares outstanding                          |                                  |                   | 5,929  |                   |   | 5,860             |      
|Dilutive shares:                                           |                                  |                   |        |                   |   |                   |      
|                                                           | Stock options                    |                   |        |                  |   |                   | 86   
|                                                           | Convertible preferred stock      |                   |        |                  |   |                   | 1,187
|                                                           |                                  |                   |        |                   |   |                   |      
|                                                           | Total shares and dilutive shares |                   |        | 5,929             |   |                   | 7,133
|                                                           |                                  |                   |        |                   |   |                   |      
|Diluted income (loss) per share from continuing operations |                                  | $                 | (0.26  | )                 | $ | 0.20              |      
|Diluted loss per share from discontinued operations        |                                  |                   | (0.03  | )                 |   | (0.04             | )    
|                                                           |                                  |                   |        |                   |   |                   |      
|Diluted net income (loss) per common share                 |                                  | $                 | (0.29  | )                 | $ | 0.16              |      
|                                                           |                                  |                   |        |                   |   |                   |      

F-15

---



The Company excluded certain potentially dilutive securities each year from its dilutive net income (loss) per common share computation because either the
exercise price of the securities exceeded that average fair values of the Company's common stock or the Company had a net loss and therefore, these securities were anti-dilutive.

A
summary of the excluded potential dilutive securities as of the end of each fiscal year follows:

December 29,
2002

December 30,
2001

December 31,
2000(In thousands)Stock Options

1,028

785

598Stock Warrants

100

100

100Convertible Preferred Stock

1,187



Total

2,315

885

698


8. Convertible Preferred Stock

At
December 29, 2002 the Company had outstanding 1,187,906 shares of its Series B non-voting convertible preferred stock which it sold in 1996 at $4.63 per
share to Crescent Real Estate Equities Limited Partnership ("Crescent") in a private offering for net proceeds of $5,175,000 (net of $325,000 of issuance costs).

The
Series B non-voting convertible preferred stock converts, at the holders' option, into Series A voting convertible preferred stock on a
one-for-one basis, and the Series A voting convertible preferred stock and Series B non-voting convertible preferred stock convert, at the holders'
option, into common stock on a one-for-one basis. The Series A preferred stock entitles its holders to vote with common stockholders on all matters submitted to a vote
of stockholders. In addition, when and if issued, the holders of a majority of the outstanding Series A preferred stock will have a separate right to approve certain corporate actions. The
Company did not achieve a specified earnings target in 1998, which constituted an event of default under the terms of the preferred stock agreement and which triggered the right of the Series A
preferred stockholders to elect a majority of the Company's Board of Directors. The holder of the Series B preferred stock has not initiated any action to convert such shares into shares of
Series A preferred stock nor has it exercised its right to elect a majority of the Board of Directors. Such holder has notified the Company that it has no present intention of exercising such
right; however, it has not waived any of its rights under the agreement.

If
(i) either (A) the average closing price of the Company's common stock during any 120 consecutive trading days equals or exceeds $15.00 per share (as adjusted for stock
dividends, combinations or splits) or (B) the Company sells common stock equal to or greater than 25% of the total number of shares outstanding at a price per share equal to or greater than
$15.00 and (ii) the shares of stock issuable upon conversion of the Series A preferred stock are registered for resale on the open market, the Company may force a mandatory conversion of
the Series A preferred stock to common stock. All shares of Series A and Series B preferred stock are senior to the Company's common stock with respect to dividends and with
respect to distributions on liquidation. Upon any liquidation, after an event of default, the holders of Series A and Series B preferred stock are entitled to be paid in full an amount
equal to $4.63 per share, together with all accrued dividends at an annual rate of $0.56 per share calculated from the first date of an event of default, which occurred in fiscal 1998. In connection
with the agreement, the Company also has

F-16

---

granted to Crescent registration rights with respect to the Common Stock issuable upon conversion of the Series A and Series B preferred stock.

9. Lease Commitments and Contingencies

The
Company leases restaurant and office facilities under operating lease agreements that expire at various dates, including renewal options, through 2033. The Company also leases
equipment under capital lease agreements that expire at various dates through 2007. The Company pays real estate taxes, insurance and maintenance expenses related to these leases.

The
Company has a $5.5 million commitment for capital equipment lease financing for new furniture, fixtures, equipment and leasehold items of which the Company has utilized
$2.3 million through December 29, 2002. The Company intends to utilize the remaining commitment to fund restaurant equipment primarily in its new restaurants.

At
December 29, 2002, future minimum lease payments, including option periods for leases the Company intends to renew under all noncancelable lease agreements and also including
leases for stores not yet opened are presented below:

Capital
Leases

Operating
Leases(In thousands)Year Ending:2003

$
835

$
8,8222004


749


8,9252005


745


8,5022006


606


8,4082007


396


8,313Thereafter





80,690Minimum lease payments


3,331

$
123,660Amount representing interest


(589
)Present value of minimum lease payments


2,742Current portion


(610
)Capital lease obligations

$
2,132


The
Company's rent is composed of minimum rental payments under operating lease agreements. Rent expense for continuing and discontinued operations was $8,415,000 in 2002, $7,697,000 in
2001 and $7,637,000 in 2000. The Company was not required to pay contingent rental payments based upon a percentage of sales during 2002, 2001 and 2000.

Deferred
rent included in other long-term liabilities was $2,027,000 and $1,799,000 at December 29, 2002 and December 30, 2001, respectively.

Deferred
income included in other long-term liabilities was $193,000 and $211,000 at December 29, 2002 and December 30, 2001, respectively, from a gain on the
1993 sale and leaseback of a building and land for one of the Company's restaurants. The Company is amortizing the gain over the 20-year initial term of the lease.

F-17

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In
the first quarter of 2003 the Company entered into a capital lease for equipment that requires minimum monthly payments of $9,699 through 2008.

10. Income Taxes

The
provision for (benefit from) income taxes of continuing operations consists of:

2002

2001

2000(In thousands)Federal current

$
(47
)
$
20

$
34State current


35


29


12Total Current


(12
)

49


46Federal deferred


487


1,018


658State deferred


217


698


576Valuation allowance


(704
)

(1,716
)

(1,234
)Total deferred








Total

$
(12
)
$
49

$
46


The
deferred portion of the Company's tax provision (benefit) reflects the tax effects of differences between the carrying amounts of assets and liabilities for financial reporting and
income tax purposes. The Company has recorded net deferred tax assets which consist primarily of the tax benefit related to operating loss carryforwards and asset write-downs that are not deductible
for tax purposes until the assets are disposed. Based on management's assessment that it is not deemed more likely than not that the deferred tax assets will be realized, the Company provided
valuation allowances against its deferred
net tax assets. The Company had valuation allowances of $10,247,000 and $9,543,000 at December 29, 2002 and December 30, 2001, respectively.

The
provision for (benefit from) income taxes of continuing operations differs from the amount computed by applying the federal statutory income tax rate to income before taxes as
follows:

2002

2001

2000Tax computed at federal statutory rate

(35.0
)%
35.0
%
35.0
%State income taxes, net of federal effect

(11.5
)
23.9

12.9Valuation allowance

42.3

(107.2
)
(73.7
)Other

3.4

51.7

28.1Effective tax rate

(0.8
)%
3.4
%
2.3
%


F-18

---

The
components of the net deferred tax asset (liability) are as follows:

December 29,
2002

December 30,
2001(In thousands)Deferred tax assets (liabilities):Net operating loss carryforwards

$
8,868

$
9,047Alternative minimum tax credits


937


960Deferred rent


914


771Accruals recognized in different periods


773


671Federal tax credits


280


280Restructuring expenses recognized in different periods





8Tax basis depreciation and operating lease expenses


(1,525
)

(2,194
)Valuation allowance


(10,247
)

(9,543
)Net deferred tax asset (liability)

$


$



At
December 29, 2002, the Company had net operating loss carryforwards of approximately $25,146,000 and $8,550,000 for federal and state income tax purposes, respectively. These
federal and state net operating loss carryforwards expire beginning 2010 through 2019 and beginning 2004 through 2005, respectively. The net operating loss carryforwards available for state tax
purposes are substantially less than for federal tax purposes, because only 50% of net operating losses can be utilized to offset future state taxable income and because state net operating loss
carryforwards generated in earlier years have already expired. The extent to which the loss carryforwards can be used to offset future taxable income may be limited, depending on the extent of
ownership changes within any three-year period.

11. Employee Benefit Plans

401(k) Savings Plan.The Company has a 401 (k) tax deferred savings plan (the "Plan") which allows eligible employees
to contribute from 1% to 25% of pre-tax compensation. Discretionary matching contributions are determined annually by the Board of Directors. Employees vest immediately in their
contributions and vest in Company contributions over a five year period. The Company contributed $13,000, $16,000 and $12,000 to the Plan in 2002, 2001 and 2000, respectively.

Deferred Compensation Plan.In December 2001 the Company adopted a deferred compensation plan which allows a select
group of management employees to elect to defer up to 100% of their compensation into the plan. Annually, at the discretion of the Board of Directors, the Company may make matching contributions to
each participant. Matching contributions vest 20% for each year of service up to five years. Deferred compensation and matching contributions are invested by each participant based on their selection
of portfolio options specified in the plan. All contributions and earnings held under the plan are assets of the Company and are subject to the claims of general creditors of the Company. The plan is
not intended to be a qualified plan under Section 401(a) of the Internal Revenue Code. The Company made no contributions in 2002 or 2001.

F-19

---

12. Quarterly Financial Information (unaudited)

Summarized quarterly financial information for fiscal years 2002 and 2001 is as follows:

|                                                    |          | Year Ended December 29, 2002 |        | Year Ended December 30, 2001 |  
|--------------------------------------------------- | -------- | ---------------------------- | ------ | ---------------------------- | -
|
|
|Net sales                                           |          | $                            | 17,029 |                              | $
|Operating income (loss)                             |          |                              | 205    |                              |  
|Income (loss) from continuing operations            |          |                              | 157    |                              |  
|Net income (loss)                                   |          |                              | 113    |                              |  
|Income (loss) per share from continuing operations: |          |                              |        |                              |  
|                                                    | Basic*   |                              | $      | 0.03                         |  
|                                                    | Diluted* |                              | $      | 0.03                         |  
|Net income (loss) per share                         |          |                              |        |                              |  
|                                                    | Basic*   |                              | $      | 0.02                         |  
|                                                    | Diluted* |                              | $      | 0.02                         |  

---

Net
sales, operating income (loss), income (loss) and income (loss) per share from continuing operations presented for all quarters in the above table excludes the one restaurant closed
in the fourth quarter that is included in discontinued operations pursuant to the Company's adoption, in the first quarter of fiscal 2002, of SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets."

F-20

---



INDEPENDENT AUDITORS' REPORT

To
the Stockholders and Board of Directors
of Fresh Choice, Inc.

We
have audited the accompanying consolidated balance sheets of Fresh Choice, Inc. and subsidiary (the "Company") as of December 29, 2002 and December 30, 2001, and
the related consolidated statements of operations, stockholders' equity and cash flows for each of the three fiscal years in the period ended December 29, 2002. These financial statements are
the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

As
discussed in Note 1 to the financial statements, during the year ended December 29, 2002, the Company adopted the provisions of Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets", and No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets".

In
our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 29, 2002 and December 30,
2001, and the results of its operations and its cash flows for each of the three fiscal years in the period ended December 29, 2002 in conformity with accounting principles generally accepted
in the United States of America.

SIGNATURE

DELOITTE &
TOUCHE LLP

San
Jose, California
February 14, 2003

F-21

---



SIGNATURES

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

|Date: March 21, 2003 |  | FRESH CHOICE, INC.
|-------------------- |  | ------------------
|                     |  | By:               

Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has been signed below on March 21, 2003 by the following persons on behalf of the registrant and
in the capacities indicated.

|/s/CHARLES A. LYNCHCharles A. Lynch         |  | Chairman of the Board and Director                                                            
|------------------------------------------- |  | ----------------------------------------------------------------------------------------------
|/s/EVERETT F. JEFFERSONEverett F. Jefferson |  | President, Chief Executive Officer and Director
(Principal Executive Officer)                 
|/s/DAVID E. PERTLDavid E. Pertl             |  | Senior Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)
|/s/VERN O. CURTISVern O. Curtis             |  | Director                                                                                      
|/s/CARL R. HAYSCarl R. Hays                 |  | Director                                                                                      
|/s/BARRY E. KRANTZBarry E. Krantz           |  | Director                                                                                      
|/s/CHARLES L. BOPPELLCharles L. Boppell     |  | Director                                                                                      

53

---



CERTIFICATION OF PERIODIC REPORT

I,
Everett F. Jefferson, certify that:

I
have reviewed this annual report on Form 10-K of Fresh Choice, Inc.

Based
on my knowledge, this annual 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 annual report;

Based
on my knowledge, the financial statements, and other financial information included in this annual 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 annual report;

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:



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 function):



6.
The registrant's other certifying officers and I have indicated in this annual report whether or not 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: March 21, 2003                                                              |  | 
|--------------------------------------------------------------------------------- |  | 
|/s/EVERETT F. JEFFERSONEverett F. Jefferson
President and Chief Executive Officer |  | 

54

---

I,
David E. Pertl, certify that:

I
have reviewed this annual report on Form 10-K of Fresh Choice, Inc.

Based
on my knowledge, this annual 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 annual report;

Based
on my knowledge, the financial statements, and other financial information included in this annual 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 annual report;

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:



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 function):



6.
The registrant's other certifying officers and I have indicated in this annual report whether or not 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: March 21, 2003                                                              |  | 
|--------------------------------------------------------------------------------- |  | 
|/s/DAVID E. PERTLDavid E. Pertl
Senior Vice President and Chief Financial Officer |  | 

55

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INDEX TO FORM 10-K EXHIBITS

|Exhibit No. |          | Description                                                                                                                             
|----------- | -------- | ----------------------------------------------------------------------------------------------------------------------------------------
|3.1         | (1)      | Restated Certificate of Incorporation of Fresh Choice, Inc.                                                                             
|3.2         | (8)      | Amended By-Laws of Fresh Choice, Inc. dated April 11, 1996                                                                              
|3.3         | (10)     | Certificate of Amendment of Restated Certificate of Incorporation of Fresh Choice, Inc.                                                 
|3.4         | (10)     | Certificate of Designation of Series A Voting Participating Convertible Preferred Stock of Fresh Choice, Inc.                           
|3.5         | (10)     | Certificate of Designation of Series B Non-Voting Participating Convertible Preferred Stock of Fresh Choice, Inc.                       
|3.6         | (10)     | Certificate of Designation of Series C Non-Voting Participating Convertible Preferred Stock of Fresh Choice, Inc.                       
|4.1         | (10)     | Registration Rights Agreement dated September 13, 1996 between Fresh Choice, Inc. and Crescent Real Estate Equities Limited Partnership 
|10.1        | (1)      | Form of Indemnity Agreement for directors and officers                                                                                  
|10.2        | (2)  (3) | Second Amended and Restated 1988 Stock Option Plan                                                                                      
|10.3        | (2)  (3) | 1992 Employee Stock Purchase Plan                                                                                                       
|10.8        | (8)      | Preferred Stock Purchase Agreement with Crescent Real Estate Equities Limited Partnership                                               
|10.18       | (6)      | Warrant to Purchase up to 75,000 Shares of the Company's Common Stock issued to Silicon Valley Bank on December 20, 1995                
|10.19       | (6)      | Common Stock Purchase Warrant to Purchase 100,000 Shares of the Company's Common Stock issued to Bain & Company, dated December 15, 1995
|10.26       | (11)(3)  | Employment Offer Letter to David E. Pertl dated January 24, 1997                                                                        
|10.27       | (11)(3)  | Employment Offer Letter to Everett F. Jefferson dated January 30, 1997                                                                  
|10.28       | (11)(3)  | Amendment to Employment Offer Letter to Everett F. Jefferson dated February 10, 1997                                                    
|10.34       | (13)(3)  | Consulting Agreement with Charles A. Lynch dated April 17, 1998                                                                         
|10.36       | (14)     | Loan and Security Agreement dated December 29, 1998 with FINOVA Capital Corporation                                                     
|10.37       | (14)(3)  | Form of Severance Agreement with Senior Vice Presidents                                                                                 
|10.43       | (17)(3)  | Amendment to Employment offer letter to David E. Pertl dated August 23, 2001                                                            
|10.44       | (17)(3)  | Employment Agreement with Everett F. Jefferson dated October 9, 2001                                                                    
|10.45       | (17)(3)  | Amended and Restated Form of Severance Agreement with Senior Vice Presidents dated August 14, 2001                                      
|10.46       | (17)(3)  | 2001 Employee Stock Purchase Plan                                                                                                       
|10.47       | (17)(3)  | Second Amended and Restated 1988 Stock Option Plan as amended through July 12, 2001                                                     
|10.48       | (17)     | Promissory Note Secured by Deed of Trust dated August 13, 2001 with Mid-Peninsula Bank                                                  
|10.49       | (17)     | Commercial Deed of Trust, Financing Statement, Security Agreement and Fixture Filing dated August 13, 2001 with Mid-Peninsula Bank      
|10.50       | (17)     | Revolving Loan Agreement dated October 5, 2001 with Mid-Peninsula Bank                                                                  
|10.51       | (17)     | Pledge Agreement dated October 5, 2001 with Mid-Peninsula Bank                                                                          

56

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|10.52 | (17)    | Promissory Note dated October 5, 2001 with Mid Peninsula Bank                                                                             
|----- | ------- | ------------------------------------------------------------------------------------------------------------------------------------------
|10.53 | (18)(3) | 2002 Home Office Incentive Plan                                                                                                           
|10.54 | (18)(3) | Senior Vice President of Operations 2002 Incentive Plan                                                                                   
|10.55 | (18)(3) | Non Qualified Deferred Compensation Plan of Fresh Choice, Inc. effective as of December 1, 2001                                           
|10.56 | (18)(3) | Trust Agreement Under The Non Qualified Deferred Compensation Plan of Fresh Choice, Inc. dated December 17, 2001                          
|10.57 | (19)    | Letter dated April 25, 2002 amending the Revolving Loan Agreement dated October 5, 2001 with Mid-Peninsula Bank                           
|10.58 | (20)    | Change in Terms Agreement dated June 3, 2002 amending the Revolving Loan Agreement dated October 5, 2001 with Mid-Peninsula Bank          
|10.59 |         | Letter dated December 10, 2002 amending the Revolving Loan Agreement dated October 5, 2001 as amended June 3, 2002 with Mid-Peninsula Bank
|10.60 | (3)     | 2003 Home Office Incentive Plan                                                                                                           
|21.1  |         | Subsidiaries of the Company                                                                                                               
|23.1  |         | Independent Auditors' Consent                                                                                                             
|99.1  |         | Certification by the Chief Executive Officer of his responsibility for financial reports.                                                 
|99.2  |         | Certification by the Chief Financial Officer of his responsibility for financial reports.                                                 

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57

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