================================================================================
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549
                                    FORM 10-K

           [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                 For the Fiscal Year Ended: September 30, 2000
                                       OR
           [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                        COMMISSION FILE NUMBER: 0-20330

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

              OREGON                                   93-0886359
    (State or other jurisdiction                   (I.R.S. Employer
     of incorporation or organization)             Identification No.)

           1411 SW MORRISON STREET, SUITE 400, PORTLAND, OREGON 97205
                    (Address of principal executive offices)

       Registrant's telephone number, including area code: (503)-205-1500

        SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                           COMMON STOCK, NO PAR VALUE
                                (Title of Class)
                                 ---------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes /X/ No / /

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 definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K, or any amendment to
this Form 10-K. [X]

The aggregate market value of the voting stock held by non-affiliates of the
Registrant is $7,444,870 as of November 30, 1999 based upon the last closing
price as reported by the Nasdaq National Market System ($1.00).

The number of shares outstanding of the Registrant's Common Stock as of November
30, 2000 was 9,002,101 shares.

                                ---------------
                      DOCUMENTS INCORPORATED BY REFERENCE
The Registrant has incorporated into Part III of Form 10-K by reference portions
of its Proxy Statement for its 2001 Annual Meeting of Shareholders.
================================================================================

<PAGE>


                               GARDENBURGER, INC.
                          2000 FORM 10-K ANNUAL REPORT
                                TABLE OF CONTENTS

                                                                          Page
                                                                          ----
                                     PART I

Item 1.     Business                                                        2

Item 2.     Properties                                                     11

Item 3.     Legal Proceedings                                              11

Item 4.     Submission of Matters to a Vote of Security Holders            11

                                     PART II

Item 5.     Market for Registrant's Common Equity and Related
            Stockholder Matters
                                                                           12

Item 6.     Selected Financial Data                                        13

Item 7.     Management's Discussion and Analysis of Financial
            Condition and Results of Operations                            14

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk     20

Item 8.     Financial Statements and Supplementary Data                    21

Item 9.     Changes in and Disagreements With Accountants on Accounting
            and Financial Disclosure                                       21

                                    PART III

Item 10.    Directors and Executive Officers of the Registrant             22

Item 11.    Executive Compensation                                         22

Item 12.    Security Ownership of Certain Beneficial Owners and
            Management                                                     22

Item 13.    Certain Relationships and Related Transactions                 22

                                     PART IV

Item 14.    Exhibits, Financial Statement Schedules and Reports on
            Form 8-K                                                       23

Signatures                                                                 24


                                       1

<PAGE>
                                     PART I

ITEM 1.  BUSINESS
-------  --------

GENERAL
Gardenburger, Inc. (the "Company" or "Gardenburger") was organized in 1985 as an
Oregon  corporation  under the name Wholesome & Hearty Foods, Inc. and completed
its  initial  public   offering  in  1992.  The  Company  changed  its  name  to
Gardenburger,  Inc., in October 1997.  The Company's  Common Stock trades on the
National Market Tier of the Nasdaq Stock Market under the symbol "GBUR."

COMPANY OVERVIEW
Gardenburger is a leading  producer and marketer of branded veggie burgers.  The
Company's  Gardenburger(R) product line, featuring the Original  Gardenburger(R)
grain-based  veggie burger,  is a leading  national brand in the retail grocery,
food service,  club store and natural  foods  channels of  distribution.  During
1999,  the Company  elected to change its fiscal  year to a September  30 fiscal
year-end.  Results for 1999 are therefore reflected in a nine-month "stub" year.
The  Company  operates  in one  business  segment.  See Note 1 to the  Company's
financial statements included in this report.

As a result of product  development  and its consumer and trade  marketing,  the
Company  has  emerged  as a leader  in the  veggie  burger  segment  of the meat
alternative  category.  The past year has seen a decline in consumer consumption
of veggie  burgers as a wider  range of meat  alternative  products  have become
available.  In  response  to this  shift in  consumer  tastes,  the  Company  is
expanding  its product  line in early  fiscal  2001 to include a chicken  fillet
alternative, a sausage alternative, and a crumbles or ground meat alternative.

The  Company's   objective  is  to  be  a  leading  provider  of  meatless  meal
alternatives in the four primary  distribution  channels in which it distributes
its  products--retail  grocery  stores;  food  service,  including  restaurants,
universities  and other  commercial  outlets;  club  stores;  and natural  foods
outlets. The Company currently distributes its products through more than 27,000
retail outlets,  35,000 food service outlets, 500 club store locations and 3,500
natural foods stores.

Within  the  retail  grocery   channel,   the  Company's   largest   channel  of
distribution, the Company has approximately 182,000 retail grocery placements of
its products,  representing an all commodity volume ("ACV")1 penetration of 91%,
and an average of 6.6 product variations  available in each retail outlet.  Each
product line is commonly referred to as a stock keeping unit ("SKU").

BUSINESS STRATEGY
Historically,   Gardenburger's  objective  has  been  to  capitalize  on  growth
opportunities for veggie burgers by increasing household  penetration,  consumer
usage and product  distribution  throughout  all channels of  distribution.  The
recent year has seen  increased  competition in the veggie burger segment of the
meat  alternative  category and has seen consumer  interest  shift to other meat
alternative  products  rapidly  becoming  available on the market.  Accordingly,
Gardenburger's  business  strategy has shifted and consists of the following key
elements:

FOCUS ON ACHIEVING PROFITABILITY.  During fiscal 2000, Gardenburger's management
shifted from a strategy of rapid  growth to one focused on  achieving  near-term

----------------------------
1 All commodity  volume  compares the total sales volume of the stores  carrying
the Company's  products to the total sales volume  throughout the retail grocery
channel.

                                       2

<PAGE>

profitability.  To achieve this goal,  Gardenburger spent  substantially less on
product  advertising,  focused on cost  improvements in the production area, and
initiated cost reduction measures at the Portland support center.  This business
model  resulted  in lower sales  revenue and  improved  operating  results.  The
Company  plans to continue the drive  towards  profitability  in fiscal 2001 and
will manage all distribution  channels with a goal of channel  profitability for
the year. There is no assurance that  Gardenburger  will be able to successfully
execute  this  strategy  and  maintain  its market  share in the  veggie  burger
segment, particularly given the current highly competitive retail market.

INTRODUCE NEW PRODUCTS BEYOND VEGGIE BURGERS. In fiscal 2001, Gardenburger plans
to move beyond the veggie burger segment of the meat alternative category.  With
a greater variety of meat alternative  products available,  consumer tastes have
become  varied  and  selective.  Consumer  sales in the  veggie  burger  segment
decreased  approximately  11  percent  in  fiscal  2000;  however,  sales in the
non-burger meat alternative segment increased  approximately 27 percent. To take
advantage of this trend, the Company launched a chicken  alternative  product in
October  2000 in the retail and natural  food  channels  and intends to launch a
crumbles ground meat alternative and a sausage  alternative  product in the food
service  channel  in  early  2001.   Gardenburger   believes  that  new  product
introductions  in other segments of the meat  alternative  category will support
its efforts to manage a leadership  position in all channels and  reinforce  the
Gardenburger brand.

TASTE  IMPROVEMENT.  Gardenburger  is  committed to great  tasting  products and
constantly  strives  for  product  improvements.  In fiscal  2000,  Gardenburger
introduced its revolutionary  Flame Grilled Hamburger Style veggie burger.  This
product  has a backyard  grill taste and has raised the  standard  for taste for
veggie soy burgers.  The Company  currently  has a patent  pending for the flame
grilled concept and technology.

PENETRATE MULTIPLE DISTRIBUTION CHANNELS. The Company is already a leader in the
retail  grocery,  food  service,  club  store  and  natural  foods  distribution
channels.  The  Company's  goal is to manage a strong  brand  position  in these
channels with  profitability  in all channels.  The Company  recognizes that the
increased  competition  in the  grocery  channel  may result in a loss of market
share.  The  Company  is  aggressively  pursuing  profitable  growth in the food
service  channel  where  it has a strong  presence  and  wide  distribution.  In
addition,  Gardenburger  believes  that  other  distribution  channels,  such as
convenience  stores,  present  growth  opportunities  and the  Company  plans to
actively pursue these markets.

PRODUCTS
Gardenburger  is committed to offering  healthy,  great  tasting and  convenient
meatless  food  choices to  consumers.  The  Company's  principal  products  are
currently veggie burgers,  veggie-grain based and soy based, which are currently
offered in seven  flavors.  Gardenburger  also  offers  specialized  products in
certain  channels,   including   Gardenburger   Sub(R),   GardenSausage(R)   and
GardenVegan(R).  In October 2000, the Company  introduced  the Chik'n  Grill(TM)
product,  which  imitates  the taste and texture of chicken,  in the grocery and
natural foods channels.  The Company intends to introduce a sausage  alternative
product and a crumbles ground meat alternative product in early 2001 in its food
service channel.

Gardenburger's  recipes for its products are proprietary,  although they contain
commonly known ingredients.  Veggie-grain based burgers contain fresh mushrooms,
brown  rice,  onions,  rolled  oats,  low-fat  cheeses,  bulgur  wheat,  natural
seasonings and spices and contain no artificial additives. Soy based burgers are
seasoned to taste like ground  beef.  All of the  Company's  veggie  burgers are
considerably lower in fat and calories than hamburgers of comparable weight.

                                       3
<PAGE>

The Company's retail grocery products are as follows:

                                      2.5 OZ. VEGGIE-GRAIN BASED PRODUCTS
<TABLE>
<CAPTION>
                                                               CHARACTERIZING
PRODUCT                                   DESCRIPTION            INGREDIENTS               LOW/NO FAT     CALORIES
------------------------------------ -------------------- ------------------------ ------------------- --------------
<S>                                  <C>                  <C>                      <C>                 <C>
The Original Gardenburger(R)         Veggie-grain based   Mushrooms, brown rice,         Low fat             130
                                     burger               onions, rolled oats and
                                                          low-fat cheese

Gardenburger Santa Fe(R)             Spicy, Mexican       Red and black beans,           Low fat             130
                                     flavor burger        Anaheim chilies, red and
                                                          yellow bell peppers,
                                                          cilantro

Gardenburger Veggie Medley(R)        Vegetable emphasis   Soy cheese, broccoli,           No fat              90
                                     burger               carrots, red and yellow
                                                          bell peppers

Gardenburger Savory Mushroom(TM)     Gourmet burger       Portabella mushrooms,          Low fat             110
                                                          wild rice

Gardenburger Fire Roasted            Gourmet burger       Roasted garlic,                Low fat             120
Vegetable (TM)                                            sun-dried tomatoes
</TABLE>

                                        2.5 OZ. MEAT SUBSTITUTE PRODUCTS
<TABLE>
<CAPTION>
                                                               CHARACTERIZING
PRODUCT                                  DESCRIPTION            INGREDIENTS                LOW/NO FAT     CALORIES
------------------------------------ -------------------- ------------------------ ------------------- --------------
<S>                                  <C>                  <C>                      <C>                 <C>

Gardenburger Hamburger Style(R)      Hamburger analog     Soy, wheat gluten              No fat              90
Classic                              burger

Gardenburger Flame Grilled(TM)       Flame grilled        Soy                         4 grams of fat        120
Hamburger Style                      analog burger

Chik'N Grill(TM)                     Flame grilled        Soy, wheat gluten             Low fat             100
                                     analog chicken
</TABLE>


All of the Company's products are frozen. The Company believes that its colorful
retail packaging,  which features recipes and prominent Gardenburger script logo
on all sides of the package,  contributes to brand recognition and easy consumer
identification  of  Gardenburger  products,  and  is  superior  to  that  of its
competitors.

Gardenburger  veggie  burgers sold in retail grocery stores weigh 2.5 ounces and
come in boxes containing four patties.  Gardenburger  veggie burgers sold in the
food  service  channel  are  available  in both  3.4-ounce  and  5-ounce  sizes.
Gardenburger veggie burgers are distributed to club stores in packages of 12, 15
or 18 burgers of 3.4 ounces each.

DISTRIBUTION
The Company  primarily  distributes  its  products  into four  channels:  retail
grocery, food service, club stores and natural foods stores.

RETAIL GROCERY. Gardenburger veggie burgers can now be found in more than 27,000
grocery stores with over 182,000 placements at September 30, 2000. The Company's

                                       4
<PAGE>

ACV penetration in the U.S. retail grocery  channel is  approximately  91% as of
September  30, 2000,  with an average of 6.6 SKUs.  The  Company's  products are
currently carried in most major U.S. retail grocery chains.

FOOD  SERVICE.  The Company  distributes  its  products to more than 35,000 food
service outlets throughout the U.S. and Canada, including restaurant chains such
as  Applebee's,  Fuddruckers,  Marie  Callenders,  Red Robin,  Subway and T.G.I.
Friday's.  In many of these restaurants,  the Gardenburger brand name appears on
the  menu.  Additional  points of food  service  distribution  include  academic
institutions,  hotels and other outlets,  including  amusement  parks and sports
stadiums.  In the United States, there are approximately  800,000 outlets in the
food service channel. The Company relies primarily on distributors such as Sysco
for distribution to this channel.

CLUB STORES. The Company's products are distributed to club stores with over 500
locations,  including Costco and Sam's Club.  Currently,  these stores carry the
Gardenburger  Original(R)  and/or the Gardenburger  Flame Grilled(TM)  Hamburger
Style veggie burger in the 3.4 ounce food service size.

NATURAL FOODS. The Company's products are distributed to more than 3,500 natural
food stores,  including  Whole Foods and Wild Oats.  The Company  utilizes  food
brokers that specialize in natural foods stores.

The Company's ability to expand  distribution in each of the described  channels
will  depend  in  part on  consumer  preferences,  and to a  certain  extent  on
continuation  of the current trends of health  awareness,  emphasis on a reduced
fat diet  and  reduced  consumption  of red  meat,  as well as  safety  concerns
associated  with red and  white  meat.  There  is  always  a risk  that  further
development of low fat red or white meat products or technological advances that
limit food-borne disease risks may lead to a change in consumer  preferences and
reduce demand for meat replacement  products.  Demand for the Company's products
may be adversely  affected by such changes,  which may occur rapidly and without
warning. Because of the Company's current primary dependence on a single product
line,  any change in consumer  preferences  or increase  in  competition  in the
veggie burger market segment would adversely affect the Company's  business to a
greater degree than if it had multiple significant product lines.

The Company sells its products in North America primarily through  approximately
60  independent,  commissioned  food  brokers and 500 active  distributors.  The
retail food brokers have close working  relationships  with the leading  grocery
chains,   club  stores  and  natural  food  stores  and  arrange  for  sales  of
Gardenburger  products,  which the Company then ships directly to the retailers'
warehouses.  Products sold into the food service  channel are purchased from the
Company by distributors who arrange for shipment by temperature-controlled truck
to their frozen  storage  warehouses in principal  cities  throughout the United
States and Canada for distribution to food service  outlets.  The Company has no
long-term  contracts  with its food brokers and  distributors  and  occasionally
changes  brokers  or  distributors  in  an  effort  to  increase  coverage  in a
geographic  region.  The Company  could  experience a  substantial  temporary or
permanent  decline  in net  sales  if one or more of the  Company's  major  food
brokers or distributors were to discontinue handling the Company's products,  go
out of business,  or decide to emphasize  distributing products of the Company's
competitors.

                                       5

<PAGE>


The following  table lists  selected  retailers,  distributors  and food service
outlets that offer the Company's products for sale to consumers:

RETAIL                                       FOOD SERVICE (CONTINUED)
------                                       ------------------------
GROCERY                                      RESTAURANTS
A&P                                          Applebee's
AWG                                          Arctic Circle
Albertsons                                   A&W
Burris Foods Wholesale                       Burgerville
C&S Wholesale                                Carrows
Cub Stores                                   Coco's
Demoulas                                     Dairy Queen
Dillon's Stores                              Damon's
Dominick's                                   Flamers
Fleming Wholesale                            Foster Freeze
Fred Meyer                                   Fuddruckers
Giant Eagle                                  IHOP
Giant Food                                   Lyons
Hannaford                                    Marie Callenders
Jewel                                        Red Robin
King/Cullen                                  Sizzler
King Supers                                  Subway
Kroger                                       T.G.I. Friday's
Marsh                                        Village Inn
Meijers
Nash Finch Wholesale                         HOTELS
Publix Super Markets                         Holiday Inn
QFC                                          Marriott
Rainbow Foods                                Sheraton
Raley's
Ralph's                                      UNIVERSITIES
Randall's                                    Colorado University
Safeway                                      DePaul
Shaw's                                       Harvard
Smith's                                      Indiana University
Shoprite                                     Johns Hopkins University
Stop and Shop                                MIT
Supervalu Wholesale                          Princeton
Thriftway                                    Purdue
Tops                                         Stanford
Von's                                        University of California, Berkeley
Wakefern                                     UCLA
Wal-Mart                                     University of Chicago
Wegmans                                      USC
White Rose Wholesale
Winn-Dixie                                   SPORTS/ENTERTAINMENT
                                             Dodger Stadium
NATURAL FOODS                                Yankee Stadium
Wild Oats                                    Rose Garden
Whole Foods                                  Six Flags
                                             Universal Studios
CLUB STORES
Costco                                       CONTRACT MANAGEMENT COMPANIES
Sam's Club                                   ARAMARK
                                             Bon Apetit
FOOD SERVICE                                 Compass
------------
                                             Gukenheimer
DISTRIBUTORS                                 Sodexho/Marriott
Alliant/FSA/DOT
Sysco
U.S. Food Service (formerly Rykoff-Sexton)


                                       6

<PAGE>

The Company's sales by region are as follows:

                                           % OF NET SALES
REGION                         FY 2000          FY 1999           FY 1998
------                         -------          -------           -------
Northeast                         26%               27%              32%
Southwest                          6%                9%               9%
Midwest                           17%               14%              14%
Northwest                         34%               34%              28%
Southeast                         13%               13%              14%
Canada                             4%                3%               3%
                                 ----              ----             ----
                                 100%              100%             100%

To date,  the Company has focused its sales efforts  primarily in North America,
and international sales have not been material.  The Company believes,  however,
that  opportunities   exist  for  international   distribution  of  Gardenburger
products.

SALES AND MARKETING

SALES. Gardenburger's sales objective is to manage a strong market position with
its veggie burgers in the retail grocery,  food service,  club store and natural
foods store channels and to expand beyond veggie burgers in the meat alternative
category.  The  Company's  use of regional  food brokers as its  representatives
allows it to maintain  contact with the nation's major retail grocery chains and
food service  outlets  without a large  internal  sales force.  Brokers are paid
sales commissions on all products sold.

Gardenburger's  Vice  President of Grocery and Club Sales and Vice President and
General  Manager of Food Service  Sales and Marketing  coordinate  the Company's
sales efforts. Gardenburger's regional sales force, located strategically in the
Company's primary  geographic sales regions and in proximity to its brokers,  is
divided into a food service division and a retail grocery division. The regional
sales managers,  who joined the Company from major food products  companies such
as  Campbell's,  Nestle,  Quaker Oats and Sara Lee, have  substantial  sales and
industry experience. These regional sales managers coordinate the efforts of the
food brokers and distributors.

MARKETING.  In 1998 and 1999,  Gardenburger's primary marketing objective was to
build  awareness of the veggie burger in general and the  Gardenburger  brand in
particular  in order to increase  the market for veggie  burgers and to make the
Gardenburger  brand the premier name in the veggie  burger  segment.  To achieve
this  goal,  the  Company  spent  heavily  for media  advertising  and  consumer
couponing.  The Company was  successful in these goals;  however,  it determined
that it needed to move to a profit  driven  business  model in fiscal 2000. As a
result,  sales and marketing  expenses were reduced to approximately $28 million
in fiscal 2000 from $48  million in fiscal 1999 and $59 million in fiscal  1998.
Media advertising was curtailed for fiscal 2000 and the Company focused spending
on trade customers as a way to more directly influence consumers. Gardenburger's
marketing  efforts are timed to take  advantage of seasonal  increases in demand
attributable  to the summer  grilling  season and the  tendency of  Americans to
renew their commitment to a healthy life style each January.  The acquisition of
Gardenburger's  two major  competitors  by large food  companies  in fiscal 2000
resulted in significant competition in the veggie burger market, particularly in
the  grocery  distribution  channel.  It is  unknown if these  competitors  will
continue their  aggressive  marketing  tactics and, if so, what effect this will
have on Gardenburger's sales.

                                       7
<PAGE>


RESEARCH AND DEVELOPMENT
Gardenburger's   research  and   development   activities  are  focused  on  the
development  of new meat  alternative  products  outside  the veggie  burger sub
category of the meat  alternative  market,  as well as improvement and increased
efficiency in the manufacturing process. In addition to its permanent R&D staff,
the  Company  involves  other  employees  as well as outside  consultants  on an
as-needed basis for specific  projects.  Gardenburger's  R&D staff developed the
Gardenburger Flame Grilled Hamburger Style(R) product introduced in 2000 and the
new Chik'n Grill product introduced in October 2000. The Company is also working
on  expanding  its line of  soy-based  meat  analogs as soy  continues to garner
positive national attention.  In promoting the soy-based products,  Gardenburger
is  relying  on  the  October  1999  announcement  by the  U.S.  Food  and  Drug
Administration ("FDA") that certain amounts of soy consumed as part of a healthy
diet may reduce the risk of heart disease. The Company conducts its research and
development activities at its facilities in Clearfield, Utah.

In fiscal  2000,  1999 and  1998,  the  Company  spent  approximately  $319,000,
$553,000 and $1,121,000, respectively, on research and development activities.

MANUFACTURING
The  Company's  120,000   square-foot   Clearfield   facility  handles  multiple
manufacturing  lines  for the  Company's  products.  The  first  line  commenced
operations  in early  1998.  A second  line began  producing  in June 1999.  The
Company  believes the Clearfield  facility will be able to support the Company's
growth plans. Clearfield, Utah is a more central location than Portland, Oregon,
with better distribution routes.

The production process involves  cleaning,  chopping and mixing the ingredients,
then forming, baking and quick-freezing the veggie burgers and finally packaging
them. Gardenburger's  manufacturing process at its Clearfield facility is highly
automated,  mixing and baking  products in  assembly-line  fashion  with minimal
human  interaction.  The  Clearfield  facility  also  utilizes  newly-developed,
proprietary  ovens that quickly cook the  products.  Products are shipped  fully
cooked,  frozen and packaged via  temperature  controlled  truck to distributors
throughout North America.

A significant  disruption in the Clearfield  facility's production capacity as a
result  of,  for  instance,  fire,  severe  weather,  regulatory  actions,  work
stoppages or other factors could disable the Company's  capacity to  manufacture
its products.  If Gardenburger  veggie burgers became less available,  consumers
may switch to another brand of veggie burger and grocery stores may reduce shelf
space  allocated to  Gardenburger's  products.  Any  significant  disruption  in
manufacturing  would  likely  have a material  adverse  effect on the  Company's
results of operations and financial condition.

In fiscal 2001, the Company intends to actively pursue co-packing, partnerships,
or  other  business   arrangements  to  more  fully  utilize  its  manufacturing
capabilities.  These  arrangements  could  improve the  Company's  manufacturing
operations and gross margin percentages.

COMPETITION
The market for veggie  burgers  and other meat  alternative  products  is highly
competitive.  The Company's  products  compete  primarily on the basis of taste,
quality  of  natural  ingredients,  ease of  preparation,  availability,  price,
consumer awareness and brand preference.

                                       8
<PAGE>

Gardenburger  believes that its products  compare  favorably to those offered by
its  competitors.  The Company prices its products  competitively to its primary
competitors.  The  calorie  and  fat  content  of  Gardenburger(R)  products  is
generally equivalent to that of competitors' products.

The Company  believes that its principal  competitors  are The Kellogg  Company,
which  distributes its products under the "Morningstar  Farms" label to the food
service and retail grocery  channels;  and Phillip  Morris/Kraft  Food Products,
which distributes soy-based meat analog burgers primarily in the retail grocery,
club and natural food channels  under the "Boca Burger" label.  These  companies
have substantially greater financial resources and marketing experience than the
Company. In addition,  other major national food products companies could decide
to produce veggie burgers at any time in the future.

The Company's products also compete indirectly with low fat meat products,  such
as  ConAgra's  Healthy  Choice 96 percent  Extra Lean  Ground Beef  burger,  and
chicken or turkey based low fat products  distributed by several large companies
such as Tyson Foods, and with frozen, mass-produced low calorie/low fat entrees,
including  national  brands  such as Healthy  Choice,  Lean  Cuisine  and Weight
Watchers.  These  products are produced by large  companies  with  substantially
greater financial resources,  name recognition and marketing experience than the
Company.

SIGNIFICANT CUSTOMERS
No customer represented more than 10 percent of net revenue in fiscal 2000.

SOURCES OF SUPPLY
Gardenburger uses natural ingredients such as mushrooms,  oats, rice, onions and
soy protein.  These are common  agricultural  items typically  available in most
parts of the United States.  In addition,  Gardenburger uses packaging and other
materials  that are  common  in the food  industry.  As a  result,  the  Company
believes,  but cannot assure, that its sources of supply are reasonably reliable
and that the Company is at no greater risk  regarding  supply  issues than other
similar food processors and producers.

EMPLOYEES
As of November 30, 2000, the Company had approximately 177 full-time  equivalent
employees, including 38 employees at its headquarters in Portland and 126 at its
Clearfield facility.  None of the Company's employees is subject to a collective
bargaining agreement, and the Company considers its relations with its employees
to be good.

INTELLECTUAL PROPERTY
Gardenburger  has  approximately  19  U.S.  registered   trademarks,   including
"Gardenburger,"   "Gardenburger   Hamburger  Style,"   "Gardenburger   Sub"  and
"GardenSausage."  The Company has  registered  certain  trademarks in Australia,
Canada,  France,  Germany  and the United  Kingdom,  along  with  other  smaller
countries,  and applied for registration of certain  trademarks in various other
foreign countries, including but not limited to Japan, Mexico and Thailand.

The Company  actively  monitors use of its trademarks by food service  customers
and others and takes  action it believes  appropriate  to halt  infringement  or
improper usage. The Company defends its intellectual  property aggressively and,
from time to time,  has been  engaged  in  infringement  protection  activities.
Nonetheless, in the event third parties infringe or misappropriate the Company's
trademarks,  the  Company  may have to incur  substantial  costs to protect  its
intellectual  property or risk losing its rights.  Any large expenditure or loss
of rights  could  have a material  adverse  effect on the  Company's  results of
operations and financial position.

                                       9
<PAGE>

The  Company  generally  does not hold  any  patents  covering  its  recipes  or
production methods and, therefore,  can protect them only as trade secrets. Some
or all of these  trade  secrets  could be  obtained by others or could enter the
public domain, which could place the Company at a competitive  disadvantage.  In
2000,  the Company  applied for patent status for its Flame Grilled  process and
currently has a "Patent Pending" status.

MANAGEMENT INFORMATION SYSTEMS
The Company has utilized a number of computer systems in its business.  In March
1999, the Company  upgraded its systems with a single Baan  enterprise  resource
planning  system.  This  upgrade is expected to meet the  Company's  information
systems  needs  for  the  next  several   years.   In  addition  to  integrating
manufacturing, sales and accounting functions, the new Baan system increased the
availability  of  real-time  information  for  management  analysis  and  use in
operations.  The Baan system has  enhanced  the  Company's  production  planning
(planning of raw material purchases) and demand forecasting  (matching supply to
distribution  centers  with order  volume)  capabilities.  The Baan  system also
includes pallet tagging,  bar coding and scanning  applications  that facilitate
tracking of raw materials and finished goods through the Company's manufacturing
operation.  The Baan  system will enable the Company to expand its use of EDI if
desired by customers  and  suppliers,  which the Company  believes will expedite
order entry, payment and cash collection processes.

Gardenburger's  Clearfield,  Utah  manufacturing  facility is highly  automated,
using a number of computerized process level controllers.

GOVERNMENT REGULATION
The  manufacturing,  packaging,  storage,  distribution  and  labeling  of  food
products are subject to extensive  federal and state laws and  regulations.  The
FDA has issued  regulations  governing the ingredients  that may be used in food
products,  the content of labels on food  products and the labeling  claims that
may be made for foods. Foods may only include additives,  colors and ingredients
that  are  either  approved  by  the  FDA  or  generally   recognized  as  safe.
Gardenburger  products must be manufactured in compliance with the FDA's current
Good Manufacturing Practice regulations applicable to food.

Regulators  have broad powers to protect public  health,  including the power to
inspect  the  Company's  products  and  facilities,  to order the  shutdown of a
facility or to seize or stop  shipment  of the  Company's  products  and order a
recall  of  previously  shipped  products,  as  well  as  the  power  to  impose
substantial  fines  and seek  criminal  sanctions  against  the  Company  or its
officers.  The Company does not currently carry insurance  against the cost of a
product  recall,  and a significant  recall would have an adverse  effect on the
Company's results of operations and financial condition.  In addition,  negative
publicity may result if regulators take any of the foregoing actions against the
Company  or if  the  Company  were  to  voluntarily  recall  products  to  avoid
regulatory enforcement.

INSURANCE
The Company  maintains  insurance against various risks related to its business.
This includes property and casualty, business interruption, director and officer
liability,  food  spoilage,  products  liability  (but not product  recalls) and
workers' compensation  insurance.  The Company currently maintains $2 million of
product  liability  insurance  coverage  and $20  million  of  general  umbrella
coverage.  The Company  considers its policies adequate to cover the major risks
in its  business,  but there can be no  assurance  that  this  coverage  will be
sufficient to cover the cost of defense or damages in the event of a significant
product liability claim.

                                       10

<PAGE>


ITEM 2.  PROPERTIES
-------  ----------

The Company leases  approximately  19,000 square feet of  administrative  office
space at 1411 SW Morrison,  Suite 400 in Portland,  Oregon, pursuant to a second
two-year  extension to its original lease that  terminates on December 31, 2002.
Current monthly rent is approximately $24,100.

The Company leased  additional space for research and development and production
at 1416 S.E.  Eighth  Avenue in Portland,  Oregon  through  March 31, 2000.  The
facility was leased pursuant to a one-year lease agreement from Frank S. Card, a
shareholder of the Company,  at a rental rate of $2,700 per month. The lease was
terminated  when the research and  development  activities were relocated to the
Company's production facility in Clearfield, Utah.

The Company leases 120,000 square feet of production  space at Freeport  Center,
Building  A-16,  in  Clearfield,  Utah,  pursuant  to  a  five-year  lease  that
terminates  on December 31, 2002.  The Company has the option to renew the lease
for two successive  five-year  terms. The Company began utilizing such space for
production  in the first  quarter of 1998.  The monthly rent on this facility is
currently $28,000, and will increase to $30,500 beginning January 1, 2001.

The Company  also leases  16,000  square feet of storage  space at the  Freeport
Center in  Clearfield.  The lease  commenced  February  15, 1999 and will expire
December  31,  2002.  The  Company  has an  option  to renew  the  lease  for an
additional three-year term. The monthly rent for the storage space is $3,200.

ITEM 3.  LEGAL PROCEEDINGS
-------  -----------------

There are currently no material,  pending legal proceedings to which the Company
or its subsidiaries are a party. From time to time, the Company becomes involved
in ordinary,  routine or regulatory legal proceedings incidental to the business
of the Company.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-------  ---------------------------------------------------

No matters were submitted to a vote of security holders during the quarter ended
September 30, 2000.



                                       11
<PAGE>


                                     PART II

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

The  Company's  Common Stock  trades on the  National  Market tier of The Nasdaq
Stock Market  under the symbol  GBUR.  The high and low sales prices for the two
years in the period ended September 30, 2000 were as follows:

   Fiscal 1999                                         High               Low
   -------------------------------------------      ----------         --------
   Quarter 1                                        $   13.75          $  8.63
   Quarter 2                                            12.50             9.50
   Quarter 3                                            10.25             7.50
   Quarter 4                                             9.00             5.00

   Fiscal 2000                                         High               Low
   -------------------------------------------      ----------         --------
   Quarter 1                                       $     9.25          $  5.50
   Quarter 2                                             7.13             4.44
   Quarter 3                                             6.00             3.44
   Quarter 4                                             5.75             2.19

The number of shareholders of record and approximate number of beneficial owners
of the  Company's  Common Stock at November 30, 2000 were 610 and  approximately
10,500, respectively.

There were no cash  dividends  declared or paid in 2000 or 1999 on the Company's
Common Stock.  The Company does not  anticipate  declaring cash dividends on its
Common Stock in the foreseeable future. The Company may not, without the consent
of Dresdner Kleinwort Benson Private Equity Partners,  LP ("Dresdner"),  declare
or pay any cash dividends or make any distributions  with respect to its capital
stock or other  equity  securities  to the extent  that at least  $5,000,000  in
principal  amount remains  outstanding  under the Company's  convertible  senior
subordinated  notes  and  Dresdner  owns  a  majority  of the  then  outstanding
principal amount.

In addition,  no cash dividends may be paid on the Company's Common Stock unless
dividends have been paid on all outstanding shares of the Company's Series A and
Series B  Convertible  Preferred  Stock  in an  amount  equal to 12%  cumulative
dividends  accrued on such  preferred  shares  through  the record  date for the
common stock  dividend (or, if greater,  the amount of the common stock dividend
payable  on the  preferred  shares  on an  as-converted  basis).  The  quarterly
dividend accruing on the preferred shares is $975,000.

                                       12

<PAGE>


ITEM 6.  SELECTED FINANCIAL DATA
-------  -----------------------

<TABLE>
<CAPTION>
                                             YEAR              NINE MONTHS              YEAR ENDED DECEMBER 31,
                                                                                  -------------------------------------
IN THOUSANDS,                                ENDED                ENDED
EXCEPT PER SHARE AMOUNTS                 SEPTEMBER 30,        SEPTEMBER 30,
                                             2000                 1999              1998          1997         1996
------------------------------------    ----------------     ----------------     ---------     ---------    ----------
<S>                                     <C>                  <C>                  <C>           <C>          <C>
STATEMENT OF OPERATIONS DATA(1)
Net sales                               $        71,043      $        60,106      $100,120      $ 56,837     $  40,527
Gross margin                                     34,906               25,772        49,550        29,601        20,621
Sales and marketing expense                      28,288               48,021        58,513        26,191        13,583
General and administrative expense
                                                  7,304                5,064         5,387         5,471         4,963
Restructuring and other charges
                                                      -                2,684             -             -           612
Operating income (loss)                            (686)             (29,997)      (14,350)       (2,061)        1,463
Preferred dividends                              12,492                1,980              -             -            -
Net income (loss) available for
  common shareholders                   $       (32,653)     $       (22,146)     $(10,042)     $ (1,393)    $   1,063
Basic net income (loss) per share       $         (3.67)     $         (2.51)     $  (1.16)     $  (0.16)    $    0.13
Diluted net income (loss) per share     $         (3.67)     $         (2.51)     $  (1.16)     $  (0.16)    $    0.12

BALANCE SHEET DATA
Working capital                         $         8,058      $        11,741      $  7,354      $ 11,504     $  13,393
Total assets                                     25,160               52,702        55,048        26,470        24,934
Long-term convertible notes payable
                                                 15,000               15,000        15,000             -             -
Convertible redeemable preferred
  stock                                          36,513               32,147             -             -             -
Shareholders' equity (deficit)                  (34,311)             (10,319)       10,926        19,839        20,979

</TABLE>

     (1)Statement  of  operations  data for 1999  includes  only nine  months of
     activity due to the Company's  change in its fiscal year during 1999 from a
     calendar year to a fiscal year ended September 30.

                                       13

<PAGE>


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

FORWARD-LOOKING STATEMENTS
This report contains certain "forward-looking  statements" within the meaning of
the Private  Securities  Litigation  Reform Act of 1995 that  involve  known and
unknown risks and uncertainties.  The Company's actual results,  performance, or
achievements  could differ materially from historical results or from any future
results anticipated by the forward-looking statements. In addition to statements
that explicitly  describe such risks and uncertainties,  readers should consider
statements containing words like "believes," "expects," "intends," "anticipates"
or "plans" to be uncertain and forward-looking. Important risks that could cause
actual  results,  performance or  achievements to differ from those expressed or
implied by the  forward-looking  statements are described below and elsewhere in
this Form 10-K.  Investors  are  cautioned  not to place  undue  reliance on the
forward-looking statements.

GENERAL
The Company's net sales are attributable  almost entirely to the Gardenburger(R)
veggie  burger  (and  related  veggie  patty   products).   If  demand  for  the
Gardenburger  veggie burger  declines or does not increase at the rate currently
anticipated,  whether as a result of competition, lower consumer demand or other
unforeseen  events,  the  Company's  business  will be  adversely  affected to a
greater  degree  than if it had  multiple  product  lines.  Any  decrease in the
Company's  net sales levels may lead to  reductions in the amount of shelf space
allocated to the Company's  products at grocery stores, or menu space devoted to
such products at food service outlets.

RESULTS OF OPERATIONS
The following  table is derived from the Company's  Statements of Operations for
the periods  indicated and presents the results of operations as a percentage of
net sales.

<TABLE>
<CAPTION>
                                                        September 30,              September 30,             December 31,
Year Ended(1)                                                2000                      1999                      1998
---------------------------------------------          -----------------          ----------------          ----------------
<S>                                                    <C>                        <C>                       <C>
Net sales                                                    100.0%                      100.0%                    100.0%
Cost of goods sold                                            50.9                        57.1                      50.5
                                                       -----------------          ----------------          ----------------
Gross margin                                                  49.1                        42.9                      49.5
Sales and marketing expense                                   39.8                        79.9                      58.4
General and administrative expense                            10.3                         8.4                       5.4
Restructuring charges                                           --                         4.5                        --
                                                       -----------------          ----------------          ----------------
Operating loss                                                (1.0)                      (49.9)                    (14.3)
Other expense                                                 (2.8)                       (2.3)                     (1.5)
                                                       -----------------          ----------------          ----------------
Loss before income taxes                                      (3.8)                      (52.2)                    (15.8)
Income tax (expense) benefit                                 (24.6)                       18.7                       5.8
                                                       -----------------          ----------------          ----------------
Loss before preferred dividends                              (28.4)                      (33.5)                    (10.0)
Preferred dividends                                          (17.6)                       (3.3)                       --
                                                       -----------------          ----------------          ----------------
Net loss                                                     (46.0)%                     (36.8)%                   (10.0)%
                                                       =================          ================          ================
</TABLE>

(1) Statements of operations data for 1999 includes only nine months of activity
  due to the  Company's  change in its fiscal  year  during 1999 from a calendar
  year to a fiscal year ended September 30.

                                       14

<PAGE>

2000 COMPARED TO 1999

GENERAL.  During 1999,  the Company  changed its fiscal year end to September 30
from  December  31.   Accordingly,   the  following   discussion   compares  the
twelve-month period ended September 30, 2000 ("fiscal 2000") with the nine-month
period ended September 30, 1999 ("fiscal 1999").

NET SALES.  Net sales for fiscal  2000  increased  to $71.0  million  from $60.1
million for fiscal  1999.  The  increase is  primarily  due to the change in the
Company's  fiscal  year,  offset by  reduced  unit  sales in fiscal  2000 due to
decreased advertising and couponing and an overall decrease in unit sales within
the veggie burger category. The Company has experienced an extremely competitive
environment  in fiscal 2000,  particularly  in the retail grocery and club store
portions of its  business.  This,  coupled  with an overall  decline in consumer
purchasing in the veggie burger market, has resulted in decreased unit sales for
fiscal 2000 on an annualized basis.

GROSS  MARGIN.  Gross margin  increased to $34.9  million  (49.1  percent of net
sales) for fiscal 2000 from $25.8 million (42.9 percent of net sales) for fiscal
1999.  The increase in the gross  margin is  primarily  due to the change in the
Company's  fiscal  year,  as well as  increased  efficiencies  at the  Company's
production facility.  The increase in the gross margin percentage is primarily a
result of the second  production  line at the Company's  Clearfield  plant being
fully on-line as well as favorable  purchase  prices for dairy  products  during
fiscal 2000.

SALES AND  MARKETING  EXPENSE.  Sales and marketing  expense  decreased to $28.3
million  (39.8  percent of net sales) for fiscal 2000 from $48.0  million  (79.9
percent of net sales) for fiscal  1999.  The  Company  has reduced its sales and
marketing  expenditures  as it has moved to a profit  driven  business  model in
fiscal 2000 from its more aggressive media advertising model in fiscal 1999. The
Company has significantly  reduced its discretionary  marketing  expenses and is
focusing its marketing  spending on areas that it believes will more efficiently
manage its market position, especially within the grocery channel.

GENERAL AND ADMINISTRATIVE  EXPENSE.  General and administrative expense ("G&A")
increased to $7.3 million  (10.3 percent of net sales) for fiscal 2000 from $5.1
million  (8.4  percent  of net  sales)  for fiscal  1999.  The  increase  is due
primarily to the change in the  Company's  fiscal year,  increased  depreciation
expense related to the Company's new information  system,  and certain  one-time
severance  payments and costs  related to new strategic  initiatives,  offset in
part by lower  salaries  and  related  costs as a  result  of an  organizational
downsizing which began in September 1999.

RESTRUCTURING  CHARGE.  The  Company  incurred  a  restructuring  charge of $2.7
million  during  fiscal  1999  related to the  closure of its  Portland,  Oregon
production  facility,  a fair market value  adjustment  for two of the Company's
Portland,  Oregon area  properties  and the  write-off  of an older  information
system.  In the first quarter of fiscal 2000, the Company sold one Portland area
property  referred to above for net proceeds of  approximately  $1.5 million and
recognized a gain on the sale of  approximately  $174,000.  In October 2000, the
Company  sold the  second  Portland  area  property  referred  to above  for net
proceeds of approximately  $645,000.  No gain or loss was recognized on the sale
as a valuation allowance was recorded in fiscal 1999.

OPERATING  LOSS. Loss from operations was $686,000 in fiscal 2000 compared to an
operating  loss of $30.0 million for fiscal 1999.  The  improvement in operating

                                       15
<PAGE>

results was primarily due to increased  gross margin  percentages  and decreased
sales and marketing  expenses as a percentage  of net sales as discussed  above,
partially offset by lower sales on an annualized basis for fiscal 2000.

OTHER  EXPENSE,  NET.  Other  expense,  net for  fiscal  2000 was  $303,000  and
primarily consisted of losses from sales of fixed assets.

INCOME  TAXES.  Income  tax  expense  was $17.5  million in fiscal  2000,  which
consists of a $17.5 million  valuation  reserve  against the Company's  deferred
income tax assets.  As of September 30, 2000, the Company had net operating loss
carryforwards  (NOLs)  totaling   approximately  $45.3  million.   Statement  of
Financial  Accounting  Standards No. 109,  "Accounting  for Income Taxes" ("SFAS
109") requires that the tax benefit of such NOLs and other deductible  temporary
differences be recorded as an asset to the extent that  management  assesses the
utilization of such NOLs to be reasonably assured in the near future. Otherwise,
a valuation  reserve is required to be recorded.  Such a reserve was recorded in
the fourth quarter of fiscal 2000 as a result of recurring  operating  losses in
recent  years and as a result of  increased  competition  leading to poorer than
expected results for fiscal 2000.

PREFERRED  DIVIDENDS.  Preferred dividends were $12.5 million during fiscal 2000
compared to $2.0 million in fiscal 1999. In April 1999, the Company issued $32.5
million of Series A and Series B convertible preferred stock that is entitled to
a 12% cumulative  annual dividend,  resulting in a non-cash  quarterly  dividend
charge of $975,000. In addition,  the $2.3 million of related issuance costs are
being accreted over five years, after which the preferred stock may be redeemed,
totaling  approximately  $117,000  per quarter.  In the first  quarter of fiscal
2000,  due to an adjustment in the Series B conversion  price to $3.75 per share
from $10.00 per share,  the Company  recorded a non-cash  charge of $8.1 million
related to the implied value of the beneficial conversion feature.

NET LOSS  AVAILABLE  FOR  COMMON  SHAREHOLDERS.  Net loss  available  for common
shareholders  was $32.7  million in fiscal  2000  compared  to $22.1  million in
fiscal 1999. The $32.7 million loss available for common shareholders for fiscal
2000 includes the additional $8.1 million non-cash preferred dividends charge in
the first quarter of fiscal 2000 as well as the $17.5 million  valuation reserve
against the  Company's net deferred tax assets as discussed  above.  The Company
believes that the impact of inflation was not material for fiscal years 2000 and
1999.

1999 COMPARED TO 1998

GENERAL.  During 1999,  the Company  changed its fiscal year end to September 30
from December 31. Accordingly,  the following discussion compares the nine-month
period ended  September 30, 1999 ("fiscal  1999") with the  twelve-month  period
ended December 31, 1998 ("fiscal 1998").

NET SALES.  Net sales for fiscal 1999  decreased  to $60.1  million  from $100.1
million for fiscal 1998. The decrease is  attributable to both the change in the
Company's  fiscal  year and a decrease in unit  sales.  During the 1998  period,
external  events,  such as e. coli  outbreaks in the U.S. and mad cow disease in
the U.K.,  brought  attention  to the  dangers  of eating  red meat.  Management
believes that these events worked synergistically with the Company's advertising
campaign  during 1998 to increase unit sales.  No similar events occurred during
1999. In addition,  the Company  experienced lower than anticipated new consumer
trial during 1999, and unfavorable  weather  conditions  adversely  affected the
1999 grilling season. To a lesser extent, the lower sales figures in fiscal 1999

                                       16
<PAGE>

reflect the impact of the Company's  strong  December 1998 sales,  as customers,
especially  in the grocery  channel,  stocked up on product in  anticipation  of
extensive January 1999 consumer promotions.

GROSS  MARGIN.  Gross margin  decreased to $25.8  million  (42.9  percent of net
sales) for fiscal 1999 from $49.6 million (49.5 percent of net sales) for fiscal
1998.  The  decrease in the gross  margin is a result of the  reduction in sales
discussed above as well as a lower gross margin percentage.  The decrease in the
gross  margin  percentage  is  primarily a result of start-up  costs  related to
bringing  up the  second  production  line  at the  Clearfield  facility  and of
operating manufacturing facilities at less than 100 percent of capacity in order
to reduce product  inventories  in line with  decreased  sales levels for fiscal
1999.

SALES AND  MARKETING  EXPENSE.  Sales and marketing  expense  decreased to $48.0
million  (79.9  percent of net sales) for fiscal 1999 from $58.5  million  (58.4
percent of net sales) for fiscal  1998.  The decrease in spending in fiscal 1999
is primarily a result of the change in fiscal year.  Of the $48.0  million spent
in fiscal 1999,  approximately $35.8 million was for discretionary spending such
as television advertising, couponing and trade programs.

GENERAL AND ADMINISTRATIVE  EXPENSE.  General and administrative expense ("G&A")
decreased  to $5.1  million (8.4 percent of net sales) for fiscal 1999 from $5.4
million  (5.4  percent  of net  sales)  for fiscal  1998.  The  decrease  is due
primarily to the change in the  Company's  fiscal year,  offset in part by costs
related to implementing a year 2000 compliant management  information system and
the associated depreciation expense.

RESTRUCTURING  CHARGE.  The  Company  incurred  a  restructuring  charge of $2.7
million  during  fiscal  1999  related to the  closure of its  Portland,  Oregon
production  facility,  a fair market value  adjustment  for two of the Company's
Portland,  Oregon area  properties  and the  write-off  of an older  information
system.  At  September  30,  1999,  no amounts  remained in accrued  liabilities
related to these charges.

OPERATING  LOSS.  Operating loss was $30.0 million in fiscal 1999 compared to an
operating  loss of $14.4  million for fiscal 1998 as a result of the  individual
line item changes discussed above, including, in particular, the decreased gross
margin  percentage and increased sales and marketing  expense as a percentage of
net sales.

INCOME TAXES.  Income taxes are based on an estimated rate of  approximately  36
percent for fiscal 1999 compared to the  approximately  37 percent rate used for
fiscal 1998.

PREFERRED  DIVIDENDS.  The  Company is accruing a 12 percent  cumulative  annual
dividend on its  convertible  preferred  stock  payable upon  redemption  of the
stock.  The convertible  preferred stock was issued in April 1999. The quarterly
dividend is $975,000.  In addition,  the $2.3 million of related  issuance costs
are being  accreted  over five  years,  after which the  preferred  stock may be
redeemed, totaling approximately $117,000 per quarter.

NET LOSS  AVAILABLE  FOR  COMMON  SHAREHOLDERS.  Net loss  available  for common
shareholders  was $22.1  million in fiscal  1999  compared  to $10.0  million in
fiscal 1998 as a result of the individual line item changes discussed above. The
Company  believes that the impact of inflation was not material for fiscal years
1999 and 1998.

LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000,  the Company had working  capital of $8.1 million,  which
included $2.2 million of cash and cash equivalents, compared to $11.7 million in

                                       17
<PAGE>

working  capital at September 30, 1999,  including $7.0 million of cash and cash
equivalents. The $3.6 million decrease in available working capital is primarily
due to $3.2  million  used in  operations,  $855,000  used for the  purchase  of
property and equipment  and $2.4 million used for payment on the Company's  line
of credit, offset by $1.6 million in proceeds from the sale of property.

Accounts receivable decreased $2.0 million to $4.1 million at September 30, 2000
compared to $6.1 million at September 30, 1999,  primarily due to lower sales in
the fourth quarter of fiscal 2000. Days sales  outstanding  decreased to 28 days
at September 30, 2000 from 32 days at September 30, 1999.

Inventories  remained  relatively  flat at $7.5  million at  September  30, 2000
compared to $7.3 million at September 30, 1999. Inventory turned 4.5 times on an
annualized  basis in the fourth  quarter of fiscal 2000 compared to 5.5 times on
an annualized basis in the fourth quarter of fiscal 1999.

The Company recorded a valuation  reserve of $17.5 million related  primarily to
the  tax  benefit   associated   with  $45.3  million  of  net  operating   loss
carryforwards  ("NOLs")  generated through September 30, 2000. As a result,  net
deferred income tax assets were reduced to zero at September 30, 2000 from $17.5
million at September 30, 1999.

Accounts  payable  decreased  $4.8 million to $1.9 million at September 30, 2000
from $6.7  million at  September  30,  1999,  primarily as a result of decreased
spending on advertising and related costs in fiscal 2000.

Payroll and related liabilities  increased $470,000 to $1.4 million at September
30, 2000 from $941,000 at September 30, 1999,  primarily as a result of payments
under  accrued  retention  compensation  agreements  in fiscal 2000 that did not
occur in fiscal 1999.

Other current  liabilities  decreased  $1.2 million to $1.9 million at September
30, 2000 from $3.1 million at September  30, 1999,  primarily as a result of the
timing of payments and amount of accruals related to couponing and certain trade
related expenditures.

Capital  expenditures  of $855,000  during fiscal 2000  primarily  resulted from
expenditures for the Company's  production  facility.  Capital  expenditures are
estimated  to total  approximately  $750,000  for  fiscal  2001,  primarily  for
equipment to support new products at the Company's production facility.

Additional  paid-in capital increased $8.1 million to $12.4 million at September
30, 2000 from $4.3 million at September 30, 1999 as a result of the $8.1 million
non-cash  charge  related  to the  implied  value of the  beneficial  conversion
feature of the Series B convertible preferred stock.

At September 30, 2000,  the Company had  outstanding  $15.0 million of 7 percent
Convertible  Senior  Subordinated Notes (the "Notes") held by Dresdner Kleinwort
Benson Private Equity Partners L.P. ("Dresdner"). The Notes are convertible into
shares of the Company's  Common Stock at the option of the holder until maturity
in 2003, at which time they will be due in full if not previously converted. The
Company may also elect to prepay the Notes, if not previously converted,  at any
time,  subject to a prepayment  premium prior to March 31, 2002.  The conversion
price of the Notes at September 30, 2000 was $11.42 per share. In December 2000,
the  Company  and  Dresdner  agreed to amend the Notes to provide an  additional
alternative  for interest  payments.  The Company may elect,  with prior written

                                       18
<PAGE>

consent from Dresdner,  to satisfy its semiannual  obligation to pay interest on
the Notes by  increasing  the then  unpaid  principal  amount of the Notes by an
amount equal to the interest then payable. Under this alternative,  the interest
payable shall be  calculated  at an annual  interest rate of 10% rather than 7%.
The Company, with Dresdner's consent, has elected to use the new alternative for
the interest  payable at September  30, 2000 and, as such,  the total  principal
amount of the Notes has been increased to $15,750,000.

Under the terms of the Note  Purchase  Agreement,  as  amended,  relating to the
Notes,  the  Company  must comply with one  financial  covenant as follows:  the
Company  must not have a  cumulative  cash loss in excess of $5.0  million  from
December 23, 1999 through  December 23, 2002. At September 30, 2000, the Company
was in compliance with this covenant.

In April 1999,  the Company  closed a stock  purchase  agreement  selling  $32.5
million of convertible preferred stock to several investors.  Under the terms of
the  agreement,  the Company sold an  aggregate of 2,762,500  shares of Series A
convertible preferred stock and 487,500 shares of Series B convertible preferred
stock to members  of the  investor  group,  at a price of $10 per share for each
series,  or an  aggregate  consideration  of $32.5  million,  and  received  net
proceeds of $30.2 million.  At September 30, 2000, the Series A preferred shares
were  convertible  at a price of $10.00  per share  and the  Series B  preferred
shares were convertible at $3.75 per share (subject to antidilution adjustments)
at any time following  issuance at the discretion of the holder. The Company did
not meet certain  performance  targets for the twelve months ended  December 31,
1999  specified  in the  terms of the  Series  B  convertible  preferred  stock,
triggering  an  adjustment  in the Series B conversion  price to $3.75 per share
from $10.00 per share.  As a result of the adjustment,  the Company  recorded an
approximately $8.1 million non-cash charge for additional preferred dividends to
account for the implied value of the beneficial  conversion feature. Both series
of  preferred  stock are  entitled to a 12 percent  cumulative  annual  dividend
payable upon redemption of the stock or in the event of a sale or liquidation of
the Company. Shares may not be redeemed until five years after the original date
of  issuance,  at which time they may be redeemed at the election of the holders
or, under certain conditions,  at the discretion of the Company.  The redemption
value,  exclusive of accrued but unpaid dividends,  of the Series A and Series B
convertible preferred stock is $27.6 million and $4.9 million, respectively. The
difference  between  the  carrying  amount  and  the  redemption  value  of  the
convertible  preferred stock is being accreted as additional preferred dividends
over the period until redemption.

In December  1999, the Company  entered into a Loan and Security  Agreement with
Banc of America  Commercial  Finance  Corporation (the  "Agreement").  Effective
October 2, 2000,  Banc of America sold the loan under the existing  agreement to
Wells Fargo Business  Credit,  Inc. The Agreement  provides for a line of credit
based on eligible  accounts  receivable  and  inventories of up to $25.0 million
(assuming 30 percent  participation  by another  lender) and expires on December
23,  2002.  The  interest  rate on the line is prime  plus  0.125%  or 9.625% at
September 30, 2000. The Company had $2.6 million  outstanding under this line at
September  30, 2000.  There is one  financial  covenant  under the  Agreement as
follows:  the  Company  must not have a  cumulative  cash loss in excess of $5.0
million from the origination  date of the Agreement  through the expiration date
of the Agreement. At September 30, 2000, the Company was in compliance with this
covenant. The Company's principal sources of liquidity are borrowings under this
credit facility and funds  generated from  operations.  The Company  anticipates
that cash generated from  operations and bank  borrowings  will be sufficient to
satisfy  working  capital  and  capital  expenditure  requirements  for  current
operations for the next twelve months.

                                       19
<PAGE>

The Company leases various food  processing,  production and other  equipment in
use at its Clearfield, Utah production facility pursuant to two lease agreements
between the  Company and BA Leasing & Capital  Corporation  ("BA  Capital"),  an
affiliate  of Bank of America.  Each lease  agreement  contains a  cross-default
provision stating that any default under any other borrowing or credit agreement
that  includes a failure to make payment when due or gives the holder a right of
acceleration  constitutes  an event of  default.  If an event of  default by the
Company  occurred  under the lease  agreements  with BA Capital,  the  Company's
manufacturing capacity would be significantly curtailed or even eliminated if BA
Capital were to exercise its right to sell the equipment.  In addition,  neither
lease  agreement  contains  express  provisions  giving  the  Company a right to
purchase the  equipment at the end of the lease terms,  which range from five to
seven years, depending upon the equipment.

NEW ACCOUNTING PRONOUNCEMENTS
In June 2000, the FASB issued  Statement of Financial  Accounting  Standards No.
138,  "Accounting  for  Certain  Derivative   Instruments  and  Certain  Hedging
Activities - an amendment of FASB Statement No. 133" ("SFAS 138"). In June 1999,
the FASB issued Statement of Financial Accounting Standards No. 137, "Accounting
for Derivative  Instruments and Hedging Activities" ("SFAS 137"). SFAS 137 is an
amendment to Statement of Financial  Accounting  Standards No. 133,  "Accounting
for Derivative  Instruments and Hedging Activities".  SFAS 137 and 138 establish
accounting and reporting standards for all derivative instruments.  SFAS 137 and
138 are effective for fiscal years  beginning  after June 15, 2000.  The Company
does not currently have any derivative  instruments,  nor does it participate in
hedging  activities,  and  therefore  it does not expect the  adoption  of these
standards  to have a material  impact on its  financial  position  or results of
operations.

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 ("SAB 101").  SAB 101  summarized  certain areas of the Staff's
views  in  applying   generally  accepted   accounting   principles  to  revenue
recognition  in financial  statements.  In June 2000,  SAB 101B was issued which
deferred  the  implementation  date of SAB 101 until the  fourth  quarter of the
first fiscal year beginning after December 15, 1999. The Company does not expect
that SAB 101 will  have a  significant  impact  on its  financial  condition  or
results of operations.

In May 2000, the Emerging Issues Task Force ("EITF") reached  consensus on Issue
No. 00-14,  "Accounting for Certain Sales Incentives" ("EITF 00-14"). EITF 00-14
is intended to provide  consensus  guidance for the accounting for sales subject
to rebates and revenue  sharing  arrangements  as well as coupons and discounts.
The issue  addresses the income  statement  classification  of rebates and other
discounts as well as the accounting for those rebates and discounts. As a result
of additional  discussion by the EITF in July 2000, the  implementation  date of
EITF 00-14 has been  delayed  until the fourth  quarter of the first fiscal year
beginning  after  December  15,  1999.   Upon   application  of  the  consensus,
comparative  financial  statements for prior periods should be  reclassified  to
comply with the  classification  guidelines of EITF 00-14.  While it is expected
that EITF 00-14 will have an impact on the Company's financial  statements,  the
extent of the impact is not known at this time.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
--------  ----------------------------------------------------------

The  Company's  only  financial  instrument  with  market  risk  exposure is its
variable  rate line of credit.  At  September  30,  2000,  the  Company had $2.6

                                       20
<PAGE>

million  outstanding  under this credit line at an annual interest rate of 9.625
percent.  A  hypothetical  10 percent  change in interest rates would not have a
material impact on the Company's cash flows.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------  -------------------------------------------

The financial  statements and notes thereto  required by this item begin on page
F-1 as listed in Item 14 of Part IV of this document.

Unaudited  quarterly financial data for each of the seven quarters in the period
ended September 30, 2000 is as follows:

<TABLE>
<CAPTION>

IN THOUSANDS, EXCEPT PER SHARE DATA         1ST QUARTER       2ND QUARTER        3RD QUARTER      4TH QUARTER (1)
-----------------------------------         -----------       -----------        -----------      ---------------
<S>                                         <C>               <C>                <C>              <C>
2000
Net sales                                   $     18,750      $      14,361      $     21,333     $       16,599
Gross margin                                       9,969              6,652            10,377              7,908
Net loss (2)                                      (8,772)            (2,791)             (704)          (20,386)
Basic and diluted net loss per share               (0.99)             (0.32)            (0.08)            (2.28)

1999
Net sales                                   $     13,563      $      22,228      $     24,315                n/a
Gross margin                                       6,210              9,177            10,385                n/a
Net loss (3)                                      (5,456)           (11,428)           (5,262)               n/a
Basic and diluted net loss per share               (0.62)             (1.29)           (0.60)                n/a

</TABLE>

(1)Quarterly  statement of operations data for 1999 includes only three quarters
   of activity due to the Company's change in its fiscal year during 1999 from a
   calendar year to a fiscal year ended September 30.
(2)Included  in net  loss in the  first  quarter  of  2000  is an  $8.1  million
   non-cash  charge related to the implied value of the Series B preferred stock
   beneficial conversion feature.  Included in net loss in the fourth quarter of
   2000 is a $17.5 million non-cash income tax valuation  allowance  against net
   deferred tax assets.
(3)Included in net loss in the first and second quarters of 1999,  respectively,
   is a restructuring charge totaling $1,100 and $1,584 on a pre-tax basis.


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

None.

                                       21

<PAGE>


                                    PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------  --------------------------------------------------

Information  required by this item is included  under the  captions  ELECTION OF
DIRECTORS,  EXECUTIVE OFFICERS and SECTION 16(A) BENEFICIAL  OWNERSHIP REPORTING
COMPLIANCE,  in the Company's  Proxy  Statement  for its 2001 Annual  Meeting of
Shareholders and is incorporated herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION
--------  ----------------------

Information  required  by this item is  included  under the  captions  EXECUTIVE
COMPENSATION,  DIRECTOR  COMPENSATION,  EMPLOYMENT  CONTRACTS  AND SEVERANCE AND
CHANGE-IN-CONTROL ARRANGEMENTS and COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION IN COMPENSATION DECISIONS in the Company's Proxy Statement for its
2001 Annual Meeting of Shareholders and is incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------  --------------------------------------------------------------

Information  required  by this  item is  included  under  the  caption  SECURITY
OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT in the Company's  Proxy
Statement for its 2001 Annual Meeting of Shareholders and is incorporated herein
by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------  ----------------------------------------------

Information  required  by this item is included  under the caption  COMPENSATION
COMMITTEE  INTERLOCKS AND INSIDER  PARTICIPATION  IN COMPENSATION  DECISIONS AND
MANAGEMENT  TRANSACTIONS  in the Company's  Proxy  Statement for its 2001 Annual
Meeting of Shareholders and is incorporated herein by reference.




                                       22

<PAGE>


                                     PART IV


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
--------  ---------------------------------------------------------------

(a) FINANCIAL STATEMENTS AND SCHEDULES
                                                                           Page
                                                                           ----

Report of Arthur Andersen LLP                                              F-1

Balance Sheets - September 30, 2000 and 1999                               F-2

Statements of  Operations - Year ended  September  30,  2000,
  nine months ended September 30, 1999 and year ended December 31,
  1998                                                                     F-3

Statements of  Shareholders'  Equity  (Deficit) - Year ended September
  30, 2000, nine months ended F-4 September 30, 1999 and year ended
  December 31, 1998                                                        F-4

Statements of Cash Flows - Year ended  September  30,  2000,  nine months
  ended September 30, 1999 and year ended December 31, 1998                F-5

Notes to Financial Statements                                              F-6

Report of Independent Public Accountants on Financial Statement
   Schedule                                                                F-17

Schedule II  Valuation and Qualifying Accounts                             F-18


(b) REPORTS ON FORM 8-K

There were no reports on Form 8-K filed during the quarter  ended  September 30,
2000.

(c)      EXHIBITS

Exhibits are listed on the Index to Exhibits following the financial  statements
included in this report.



                                       23


<PAGE>

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: December 22, 2000.
                                         GARDENBURGER, INC.

                                         By: /s/ JAMES W. LINFORD
                                             --------------------
                                             James W. Linford
                                             Interim President and
                                             Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities indicated on December 22, 2000.

Signature                          Title
---------                          -----

/s/ JAMES W. LINFORD               Interim President and Chief Executive Officer
---------------------------        (Principal Executive Officer)
James W. Linford


/s/ LORRAINE CRAWFORD              Corporate Controller and Acting Chief
---------------------------        Financial Officer
Lorraine Crawford                  (Principal Financial and Accounting Officer)


/s/ KYLE A. ANDERSON               Director
---------------------------
Kyle A. Anderson

/s/ ALEXANDER P. COLEMAN           Director
---------------------------
Alexander P. Coleman

/s/ JASON M. FISH                  Director
---------------------------
Jason M. Fish

/s/ RONALD C. KESSELMAN            Chairman of the Board
---------------------------
Ronald C. Kesselman

/s/ RICHARD L. MAZER               Director
---------------------------
Richard L. Mazer

/s/ MARY O. MCWILLIAMS             Director
---------------------------
Mary O. McWilliams

/s/ MICHAEL L. RAY                 Director
---------------------------
Michael L. Ray

/s/ E. KAY STEPP                   Director
---------------------------
E. Kay Stepp


---------------------------        Founder and Director
Paul F. Wenner


                                       24

<PAGE>


Exhibit Index

Exhibit No.   Description
-----------   -----------

3.1           Restated Articles of Incorporation, as amended April 14, 1999 (18)

3.2           1995 Restated Bylaws, as amended July 13, 1999 (20)

10.1          Amended and Restated Rights Agreement  between the Company and
              First Chicago Trust Company of New York, dated July 15, 1999 (20)

10.2          Purchase  and Sale  Agreement  and  Receipt  for  Earnest  Money
              between  the Company and Ironwood Investments, dated August 11,
              1999 (21)

10.3          Purchase and Sale  Agreement and Receipt for Earnest Money between
              the Company and John M. Hopkins, dated October 5, 2000

10.4          Loan and Security  Agreement,  dated December 23, 1999, between
              Banc of America Commercial Finance Corporation through its
              Commercial Funding Division and the Company (22)

10.5          Morrison Plaza Office Lease, dated October 29, 1996 (10)

10.6          First Amendment to Morrison Plaza Office Lease, dated December 9,
              1997 (11)

10.7          Lease extension for Morrison Plaza Office Building, dated
              September 11, 1998 (14)

10.8          Third  Amendment to  Lease--Lease  Extension  for Morrison  Plaza
              Office  Building,  dated August 1, 2000

10.9          Facility Lease by and between Freeport Center Associates,  a Utah
              general  partnership and the Company, dated May 28, 1997 (9)

10.10         Addendum,  dated  August  1,  1997,  to  Facility  Lease by and
              between  Freeport  Center Associates, and the Company (11)

10.11         Warehouse  Lease between  Freeport  Center  Associates and the
              Company,  dated January 25, 1999 (17)

10.12         Lease  Agreement  between BA Leasing & Capital  Corporation  and
              the Company,  dated as of December 17, 1997 (11)

10.13         First Amendment,  dated June 4, 1998, to Lease Agreement,  dated
              December 17, 1997 between BA Leasing & Capital Corporation and the
              Company (13)

10.14         Lease Agreement between BA Leasing & Capital Corporation and the
              Company,  dated as of May 28, 1998 (14)

10.15         First Amendment,  dated January 14, 1999, to Lease Agreement
              between BA Leasing & Capital Corporation and the Company, dated as
              of May 28, 1998 (17)

10.16         Purchase  Agreement  Assignment,  dated June 23, 1999, between
              Gardenburger,  Inc. and BA Leasing & Capital Corporation (19)

10.17         Note  Purchase  Agreement,  dated as of March 27,  1998,  between
              the Company and Dresdner Kleinwort Benson Private Equity Partners
              L.P. (12)


                                      E-1

<PAGE>



Exhibit No.
-----------

10.18         Convertible Senior Subordinated Note, dated March 27, 1998 (12)

10.19         First Amendment to Note Purchase  Agreement,  dated December 30,
              1999, between the Company and Dresdner Kleinwort Benson Private
              Equity Partners L.P. (22)

10.20         Registration  Rights  Agreement,  dated as of March 27,  1998,
              between  the  Company  and Dresdner Kleinwort Benson Private
              Equity Partners L.P. (12)

10.21         Stock  Purchase  Agreement,  dated March 29, 1999, by and between
              Gardenburger,  Inc. and Rosewood  Capital III, L.P.,  Farallon
              Capital  Management  LLC, Gruber & McBaine Capital Management,
              LLC, BT Capital Investors LP and certain other purchasers
              identified therein (16)

10.22         Amendment and Waiver of Stock Purchase  Agreement, dated April 14,
              1999, by and between Gardenburger, Inc., and the Purchasers
              identified on Exhibit A thereto (18)

10.23         Investor Rights Agreement,  dated April 14,  1999, by and between
              Gardenburger,  Inc., and the investors identified on Exhibit A
              thereto (18)

10.24         1992 First Amended and Restated Combination Stock Option Plan, as
              amended (15) (19)

10.25         Form of Incentive  Stock Option  Agreement for Option grants to
              executive  officers  after May 24, 1995 (15) (17)

10.26         Form of  Non-Statutory  Stock Option  Agreement  for Option grants
              to executive  officers
              after May 24, 1995 (15) (17)

10.27         Paul F. Wenner Stock Option Agreement (2) (15)

10.28         Lyle Hubbard Employment Agreement, dated April 14, 1996 (10) (15)

10.29         Agreement to Extend and Amend  Employment  Agreement,  dated
              November  16, 1998,  to Lyle Hubbard Employment Agreement, dated
              April 14, 1996 (15) (17)

10.30         Agreement to Extend and Amend Employment  Agreement,  dated March
              5, 1999, to Lyle Hubbard Employment Agreement, dated April 14,
              1996 (15) (17)

10.31         Third Amendment to Employment  Agreement,  dated December 9, 1999,
              between the Company and Lyle Hubbard (15)(21)

10.32         Separation  Agreement  and  Release,  dated  August 4, 2000,
              between the Company and Lyle Hubbard (15)

10.33         Paul F. Wenner Employment Agreement and Amendment thereto (1) (15)

10.34         Form of Severance Agreement for Executive Officers (10) (15)

10.35         Form of Indemnification  Agreement between the Company and its
              Officers and Directors (15) (17)

10.36         2000 Executive Annual Incentive Plan (15)(21)

10.37         Retention  Incentive  Agreement,  dated  December  9, 1999,
              between  the Company and Lyle Hubbard (15)(21)

10.38         Form of  Retention  Incentive  Agreement  between the  Company and
              nine senior  executives (15)(21)


                                      E-2

<PAGE>



Exhibit No.
-----------

10.39         Form of Change in  Control  Agreement  between  the  Company  and
              nine  senior  executives (15)(21)

23            Consent of Arthur Andersen LLP

27            Financial Data Schedule

99            Description of Common Stock of Gardenburger, Inc. (18)

(1)  Incorporated by reference to the Company's Form S-1 Registration  Statement
     (Commission File No. 33-46623), filed May 6, 1992.
(2)  Incorporated by reference to the Company's 1992 Form 10-K Annual Report,
     filed March 23, 1993.
(3)  Incorporated by reference to the Company's 1993 Form 10-K Annual Report,
     filed March 23, 1994.
(4)  Incorporated by reference to the Company's 1994 Form 10-K Annual Report,
     filed March 30, 1995.
(5)  Incorporated by reference to the Company's 1995 Form 10-K Annual Report,
     filed March 29, 1996.
(6)  Incorporated  by  reference  to the  Company's  Form 10-Q  Quarterly Report
     for the quarter  ended September 30, 1996, filed November 4, 1996.
(7)  Incorporated by reference to the Company's Form 8-K Current Report, filed
     May 8, 1996.
(8)  Incorporated  by  reference  to the  Company's  Form 10-Q  Quarterly Report
     for the quarter  ended September 30, 1997, filed November 4, 1997.
(9)  Incorporated  by reference to the Company's Form 10-Q Quarterly  Report for
     the quarter ended June 30, 1997, filed August 14, 1997.
(10) Incorporated by reference to the Company's 1996 Form 10-K Annual Report,
     filed March 25, 1997.
(11) Incorporated by reference to the Company's 1997 Form 10-K Annual Report,
     filed March 31, 1998.
(12) Incorporated  by reference to the Company's Form 10-Q for the quarter ended
     March 31, 1998,  filed May 15, 1998.
(13) Incorporated  by reference to the Company's Form 10-Q for the quarter ended
     June 30, 1998, filed August 12, 1998.
(14) Incorporated  by reference to the Company's Form 10-Q for the quarter ended
     September 30, 1998, filed November 5, 1998.
(15) Management contract or compensatory plan or arrangement.
(16) Incorporated by reference to the Company's Form 8-K Current Report, filed
     April 1, 1999.
(17) Incorporated  by reference to the Company's Form 10-K for the year ended
     December 31, 1998,  filed March 31, 1999.
(18) Incorporated  by reference to the Company's Form 10-Q for the quarter ended
     March 31, 1999, filed May 17, 1999.
(19) Incorporated  by reference to the Company's Form 10-Q for the quarter ended
     June 30, 1999, filed August 13, 1999.
(20) Incorporated  by reference to the  Company's  Registration  Statement on
     Form S-8 (No.  333-92665), filed December 13, 1999.
(21) Incorporated  by reference to the  Company's  Form 10-K for the  nine-month
     transition period ended September 30, 1999, filed December 27, 1999.
(22) Incorporated  by reference to the Company's Form 10-Q for the quarter ended
     December 31, 1999, filed February 9, 2000.


                                      E-3

<PAGE>
                    Report of Independent Public Accountants


To the Board of Directors and Shareholders of
Gardenburger, Inc.:

We have audited the accompanying balance sheets of Gardenburger, Inc. (an Oregon
corporation)  as of September  30, 2000 and 1999 and the related  statements  of
operations,  shareholders'  equity  (deficit)  and cash flows for the year ended
September 30, 2000, the nine months ended  September 30, 1999 and the year ended
December 31, 1998.  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. 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.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  financial  position of  Gardenburger,  Inc. as of
September  30,  2000 and 1999,  and the results of its  operations  and its cash
flows for the year ended September 30, 2000, the nine months ended September 30,
1999 and the year  ended  December  31,  1998,  in  conformity  with  accounting
principles generally accepted in the United States.


                                                     /s/ ARTHUR ANDERSEN LLP


Portland, Oregon,
  November 7, 2000


                                      F-1
<PAGE>

                               GARDENBURGER, INC.
                                 BALANCE SHEETS
                      (In thousands, except share amounts)
                                                                SEPTEMBER 30,
                                                            --------------------
                                                              2000       1999
                                                            --------   --------

ASSETS
Current Assets:
    Cash and cash equivalents                               $  2,178   $  7,033
    Accounts receivable, net of allowances of
       $264 and $301                                           4,098      6,133
    Inventories, net                                           7,499      7,268
    Prepaid expenses                                           2,079      2,207
    Deferred income taxes                                          -      4,775
        Total Current Assets                                  15,854     27,416
                                                            --------   --------

Property, Plant and Equipment, net of accumulated
       depreciation of $5,235 and $3,960                       7,342     10,275
Deferred Income Taxes                                              -     12,691
Other Assets, net of accumulated amortization of
       $1,207 and $804                                         1,964      2,320
                                                            --------   --------
        Total Assets                                        $ 25,160   $ 52,702
                                                            ========   ========

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
    Short-term note payable                                 $  2,591   $  5,000
    Accounts payable                                           1,876      6,669
    Payroll and related liabilities payable                    1,411        941
    Other current liabilities                                  1,918      3,065
                                                            --------   --------
        Total Current Liabilities                              7,796     15,675

Other Long-Term Liabilities                                      162        199
Convertible Notes Payable                                     15,000     15,000

Convertible Redeemable Preferred Stock                        36,513     32,147

Shareholders' Equity (Deficit):
    Preferred Stock, no par value, 5,000,000 shares
      authorized                                                   -          -
    Common Stock, no par value, 25,000,000 shares
      authorized; shares issued and outstanding:
      8,972,601 and 8,841,451                                 11,153     10,619
    Additional paid-in capital                                12,405      4,277
    Retained deficit                                         (57,869)   (25,215)
                                                            --------   --------
       Total Shareholders' Equity (Deficit)                  (34,311)   (10,319)
                                                            --------   --------
       Total Liabilities and Shareholders' Equity (Deficit) $ 25,160   $ 52,702
                                                            ========   ========

      The accompanying notes are an integral part of these balance sheets.

                                      F-2
<PAGE>

                               GARDENBURGER, INC.
                            STATEMENTS OF OPERATIONS
                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                            FOR THE YEAR           FOR THE NINE           FOR THE YEAR
                                                               ENDED               MONTHS ENDED               ENDED
                                                           SEPTEMBER 30,          SEPTEMBER 30,           DECEMBER 31,
                                                                2000                   1999                   1998
                                                         ------------------     ------------------     ------------------
<S>                                                      <C>                    <C>                    <C>
Net sales                                                $           71,043     $           60,106     $          100,120
Cost of goods sold                                                   36,137                 34,334                 50,570
                                                         ------------------     ------------------     ------------------
Gross margin                                                         34,906                 25,772                 49,550

Operating expenses:
    Sales and marketing                                              28,288                 48,021                 58,513
    General and administrative                                        7,304                  5,064                  5,387
    Restructuring charge                                                  -                  2,684                      -
                                                         ------------------     ------------------     ------------------
                                                                     35,592                 55,769                 63,900
                                                         ------------------     ------------------     ------------------
Operating loss                                                         (686)               (29,997)               (14,350)

Other income (expense):
    Interest income                                                     125                    197                    115
    Interest expense                                                 (1,823)                (1,596)                (1,404)
    Other, net                                                         (303)                     7                   (200)
                                                         ------------------     ------------------     ------------------
                                                                     (2,001)                (1,392)                (1,489)
                                                         ------------------     ------------------     ------------------
Loss before benefit from income taxes                                (2,687)               (31,389)               (15,839)
Provision for (benefit from) income taxes                            17,474                (11,223)                (5,797)
                                                         ------------------     ------------------     ------------------
Loss before preferred dividends                                     (20,161)               (20,166)               (10,042)
Preferred dividends                                                 (12,492)                (1,980)                     -
                                                         ------------------     ------------------     ------------------
Net loss available for common shareholders               $          (32,653)    $          (22,146)    $          (10,042)
                                                         ==================     ==================     ==================

Net loss per share - basic and diluted                   $            (3.67)    $            (2.51)    $            (1.16)
                                                         ==================     ==================     ==================

Shares used in per share calculations                                 8,891                  8,812                  8,659
                                                         ==================     ==================     ==================
</TABLE>

        The accompanying notes are an integral part of these statements.

                                      F-3

<PAGE>

                               GARDENBURGER, INC.
                  STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
For the Year Ended September 30, 2000, the Nine Months Ended September 30, 1999
                      and the Year Ended December 31, 1998
                      (In thousands, except share amounts)

<TABLE>
<CAPTION>
                                                                            Additional       Retained           Total
                                                    Common Stock             Paid-In         Earnings       Shareholders'
                                             ---------------------------
                                               Shares         Amount         Capital        (Deficit)      Equity (Deficit)
                                             ------------   ------------   -------------   -------------   ----------------
<S>                                          <C>            <C>            <C>             <C>             <C>
BALANCE AT DECEMBER 31, 1997                   8,608,254    $     8,651    $      4,203    $      6,985    $        19,839

Exercise of common stock options                  74,586            541               -               -                541
Income tax benefit of non-qualified stock
  option exercises and disqualifying
  dispositions                                         -              -              72               -                 72
Issuance of shares in exchange for
  interest on convertible notes payable           50,971            525               -               -                525
Foreign currency translation                           -              -               -              (9)                (9)
Net loss                                               -              -               -         (10,042)           (10,042)
                                             ------------   ------------   -------------   -------------   ----------------
BALANCE AT DECEMBER 31, 1998                   8,733,811          9,717           4,275          (3,066)            10,926

Exercise of common stock options                  55,660            377               -               -                377
Income tax benefit of non-qualified stock
  option exercises and disqualifying
  dispositions                                         -              -               2               -                  2
Issuance of shares in exchange for
  interest on convertible notes payable           51,980            525               -               -                525
Accrual of preferred dividends                         -              -               -          (1,980)            (1,980)
Foreign currency translation                           -              -               -              (3)                (3)
Loss before preferred dividends                        -              -               -         (20,166)           (20,166)
                                             ------------   ------------   -------------   -------------   ----------------
BALANCE AT SEPTEMBER 30, 1999                  8,841,451         10,619           4,277         (25,215)           (10,319)

Exercise of common stock options                  55,600            115               -               -                115
Income tax benefit of non-qualified stock
  option exercises and disqualifying
  dispositions                                         -              -               3               -                  3
Issuance of shares in exchange for
  interest on convertible notes payable           75,550            419               -               -                419
Reset of conversion price of Series B
  preferred stock                                      -              -           8,125               -              8,125
Accrual of preferred dividends                         -              -               -         (12,492)           (12,492)
Foreign currency translation                           -              -               -              (1)                (1)
Loss before preferred dividends                        -              -               -         (20,161)           (20,161)
                                             ------------   ------------   -------------   -------------   ----------------
BALANCE AT SEPTEMBER 30, 2000                  8,972,601    $    11,153    $     12,405    $    (57,869)   $       (34,311)
                                             ============   ============   =============   =============   ================

</TABLE>

        The accompanying notes are an integral part of these statements.

                                      F-4

<PAGE>

                               GARDENBURGER, INC.
                            STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                     FOR THE YEAR        FOR THE NINE        FOR THE YEAR
                                                                         ENDED           MONTHS ENDED            ENDED
                                                                     SEPTEMBER 30,       SEPTEMBER 30,       DECEMBER 31,
                                                                         2000                1999                1998
                                                                   ----------------    ---------------     ----------------
<S>                                                                <C>                 <C>                 <C>
Cash flows from operating activities:
   Loss before preferred dividends                                 $       (20,161)    $      (20,166)     $       (10,042)
   Effect of exchange rate on operating accounts                                (1)                (3)                  (9)
   Adjustments to reconcile loss before preferred dividends to
      net cash flows used in operating activities:
         Depreciation and amortization                                       2,235              1,600                1,637
         Non-cash portion of restructuring charge                                -              1,584                    -
         Other non-cash expenses                                               421                214                  481
         Loss on sale of fixed assets                                          339                 19                   75
         Deferred income taxes                                              17,466            (11,235)              (5,956)
         (Increase) decrease in:
            Accounts receivable, net                                         2,035              8,836               (6,896)
            Inventories, net                                                  (231)             5,189               (9,254)
            Prepaid expenses                                                   128              2,308               (2,194)
            Income taxes receivable, net                                         -                  -                  475
         Increase (decrease) in:
            Accounts payable                                                (4,793)            (3,039)               6,543
            Payroll and related liabilities                                    470               (881)                 206
            Other accrued liabilities                                       (1,147)               699                1,264
                                                                   ----------------    ---------------     ----------------
               Net cash used in operating activities                        (3,239)           (14,875)             (23,670)

Cash flows from investing activities:
   Payments for purchase of property and equipment                            (855)            (1,031)             (11,282)
   Proceeds from sale of property and equipment                              1,580                 33                5,355
   Other assets, net                                                           (47)                42                 (102)
                                                                   ----------------    ---------------     ----------------
               Net cash provided by (used in) investing activities             678               (956)              (6,029)

Cash flows from financing activities:
   Proceeds from (payments on) line of credit, net                          (2,409)           (10,000)              15,000
   Proceeds from issuance of convertible notes payable                           -                  -               15,000
   Financing fees from issuance of convertible notes payable                     -                  -               (1,124)
   Issuance of preferred stock, net of issuance costs                            -             30,167                    -
   Proceeds from exercise of common stock options and warrants                 115                377                  541
                                                                   ----------------    ---------------
               Net cash provided by (used in) financing activities          (2,294)            20,544               29,417
                                                                   ----------------    ---------------     ----------------

Increase (decrease) in cash and cash equivalents                            (4,855)             4,713                 (282)

Cash and cash equivalents:
   Beginning of period                                                       7,033              2,320                2,602
                                                                   ----------------    ---------------     ----------------
   End of period                                                   $         2,178     $        7,033      $         2,320
                                                                   ================    ===============     ================

</TABLE>

        The accompanying notes are an integral part of these statements.

                                      F-5
<PAGE>



                               GARDENBURGER, INC.
                          NOTES TO FINANCIAL STATEMENTS
       (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND AS OTHERWISE INDICATED)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------

ORGANIZATION AND NATURE OF OPERATIONS
Gardenburger,  Inc.  was  incorporated  in Oregon  in 1985 to  provide a line of
meatless food products in response to the public's  awareness of the  importance
of diet to overall  health and fitness.  Toward this end, the Company  developed
and now  produces  and  distributes  frozen,  meatless  food  products  that are
generally low in cholesterol  and fat,  consisting  primarily of various flavors
and styles of veggie burgers.  The Company's  products are  principally  sold to
retail and food service customers throughout the United States.

CHANGE IN REPORTING PERIOD
In July 1999,  the Company  changed its fiscal year end to September  30. Fiscal
1999 ended on  September  30,  1999 and fiscal 2000 began  October 1, 1999.  For
purposes of these footnotes, the nine month period ended September 30, 1999 will
be  referred  to  herein  as the year  ended  September  30,  1999.  See Note 8,
Unaudited Fiscal Year Operating Results.

ESTIMATES
The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  liabilities at the date of the financial statements and the reported
amounts of revenues and expenses  during the reporting  period.  Actual  results
could differ from those estimates.  Management  believes that the estimates used
are reasonable.

CASH EQUIVALENTS
Cash  equivalents  consist of highly liquid  investments  with maturities at the
date of purchase of 90 days or less.

INVENTORIES
Inventories are valued at standard cost,  which  approximates  the lower of cost
(using the first-in, first-out (FIFO) method), or market, and include materials,
labor and manufacturing overhead.

                                      F-6

<PAGE>


OTHER ASSETS
Other assets consist  principally of $880 and $1,151 in deferred financing fees,
net  of   accumulated   amortization,   as  of  September  30,  2000  and  1999,
respectively.  Other  assets  also  include  $657 and $780 in  goodwill,  net of
accumulated  amortization,  as of  September  30,  2000 and 1999,  respectively.
Deferred  financing  fees are being  amortized  over the maturity  period of the
related debt and goodwill is being amortized using the straight-line method over
ten years.

PROPERTY, PLANT AND EQUIPMENT
Property,  plant and equipment are stated at cost. Depreciation and amortization
are provided using the  straight-line  method over the estimated useful lives of
the assets.  Leasehold  improvements  are  amortized  over the lease term or the
estimated useful life of the asset, whichever is shorter. Estimated useful lives
are as follows:

Buildings and improvements     3-40 years  Machinery and equipment   7-30 years
Office furniture and equipment 3-10 years  Vehicles                     5 years

LONG-LIVED ASSETS
In accordance with SFAS 121,  long-lived assets held and used by the Company are
reviewed for impairment  whenever  events or changes in  circumstances  indicate
that the  carrying  amount of an asset may not be  recoverable.  For purposes of
evaluating the recoverability of long-lived  assets, the recoverability  test is
performed using undiscounted net cash flows of the asset.

SEGMENT REPORTING
The Company adopted Statement of Financial  Accounting  Standards No. 131 ("SFAS
131"),  "DISCLOSURES  ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED  INFORMATION,"
for the year ended December 31, 1998.  Based upon  definitions  contained within
SFAS 131,  the  Company has  determined  that it  operates  in one  segment.  In
addition, virtually all sales are domestic.

CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
The  Company  invests  its  excess  cash  with  high  credit  quality  financial
institutions,  which bear  minimal  risk,  and, by policy,  limits the amount of
credit exposure to any one financial institution.

For the year ended September 30, 2000, one customer  accounted for approximately
9 percent  of  revenue  and 17 percent  of the  accounts  receivable  balance at
September 30, 2000.

For the year ended September 30, 1999, one customer  accounted for approximately
11 percent  of  revenue  and 5 percent  of the  accounts  receivable  balance at
September 30, 1999.

For the year ended December 31, 1998, one customer  accounted for  approximately
14 percent  of  revenue  and 8 percent  of the  accounts  receivable  balance at
December 31, 1998.

Historically,  the  Company  has not  incurred  significant  losses  related  to
accounts receivable.


                                      F-7
<PAGE>


REVENUE RECOGNITION
Revenue from the sale of products is generally recognized at time of shipment to
the customer.  Promotional  and other  discounts are accrued at time of shipment
based on historical experience.

ADVERTISING COSTS
Advertising costs, including media advertising, couponing and other advertising,
which are  included  in sales  and  marketing  expense,  are  expensed  when the
advertising first takes place.  Advertising  expense was  approximately  $316 in
2000, $17,313 in 1999 and $19,904 in 1998.

SLOTTING FEES
Slotting  fees  associated  with a new product or new  territory  are  initially
recorded  as an asset and the related  expense is  recognized  ratably  over the
12-month period beginning with the initial introduction of the product. Slotting
agreements refer to oral arrangements pursuant to which the retail grocer allows
the  Company's  products to be placed on the store's  shelves in exchange  for a
slotting  fee. If a slotting fee  agreement  were  breached,  the Company  would
pursue available legal remedies to enforce the agreement as appropriate.

RESEARCH AND DEVELOPMENT COSTS
Research  and  development   costs  are  expensed  as  incurred.   Research  and
development  expense was approximately  $319 in 2000, $553 in 1999 and $1,121 in
1998 and is  included  in  sales  and  marketing  expenses  in the  accompanying
statements of operations.

NET LOSS PER SHARE
Basic earnings per share (EPS) is calculated  using the weighted  average number
of common shares  outstanding  for the period and diluted EPS is computed  using
the weighted  average  number of common  shares and dilutive  common  equivalent
shares outstanding.

Basic  EPS and  diluted  EPS are the same for all  periods  presented  since the
Company was in a loss position in all periods.

Potentially  dilutive  securities  that  are not  included  in the  diluted  EPS
calculation because they would be antidilutive are as follows:


                                SEPTEMBER 30,         DECEMBER 31,
                            -------------------
                              2000       1999             1998
                            --------   --------    ------------------
Stock options                 2,778      3,247            2,768
Convertible notes             1,313      1,237            1,163
Convertible preferred stock   4,062      3,250                -
                            --------   --------    ------------------
  Total                       8,153      7,734            3,931
                            ========   ========    ==================



                                      F-8
<PAGE>



2.       INVENTORIES
--------------------

Detail of inventories at September 30, 2000 and 1999 is as follows:

                                 2000                  1999
                            ----------------      ----------------
Raw materials               $     1,126           $    2,672
Packaging and supplies              354                  538
Finished goods                    6,019                4,058
                            ----------------      ----------------
                            $     7,499           $    7,268
                            ================      ================

3.       PROPERTY, PLANT AND EQUIPMENT
--------------------------------------

Detail of property,  plant and  equipment  at September  30, 2000 and 1999 is as
follows:

                                           2000                   1999
                                     ------------------    --------------------
Land                                 $       131           $         721
Building and improvements                  1,597                   2,504
Machinery and equipment                    6,472                   6,807
Office furniture and equipment             4,377                   4,203
                                     ------------------    --------------------
                                          12,577                  14,235
Less accumulated depreciation             (5,235)                 (3,960)
                                     ------------------    --------------------
                                     $     7,342           $      10,275
                                     ==================    ====================

4.       LINE OF CREDIT
-----------------------

In December  1999, the Company  entered into a Loan and Security  Agreement with
Banc of America  Commercial  Finance  Corporation (the  "Agreement").  Effective
October 2, 2000,  Banc of America sold the loan under the existing  agreement to
Wells Fargo Business  Credit,  Inc. The Agreement  provides for a line of credit
based on eligible  accounts  receivable  and  inventories of up to $25.0 million
(assuming 30 percent  participation  by another  lender) and expires on December
23,  2002.  The  interest  rate on the line is prime  plus  0.125%  or 9.625% at
September 30, 2000. The Company had $2.6 million  outstanding under this line at
September  30, 2000.  There is one  financial  covenant  under the  Agreement as
follows:  the  Company  must not have a  cumulative  cash loss in excess of $5.0
million from the origination  date of the Agreement  through the expiration date
of the Agreement. At September 30, 2000, the Company was in compliance with this
covenant.

5.       LEASE COMMITMENTS
--------------------------

Future minimum lease payments at September 30, 2000 are as follows:

YEAR ENDED SEPTEMBER 30,
------------------------
2001                                        $   3,718
2002                                            3,737
2003                                            3,198
2004                                            3,017
2005                                            2,510
Thereafter                                      1,047
                                            ----------
   Total                                    $  17,227
                                            ==========


                                      F-9
<PAGE>


Rental expense for the years ended  September 30, 2000 and 1999 and December 31,
1998 was $3,711, $2,355 and $2,613, respectively.

6.       CONVERTIBLE NOTES PAYABLE
----------------------------------

At September 30, 2000,  the Company had  outstanding  $15.0 million of 7 percent
Convertible  Senior  Subordinated Notes (the "Notes") held by Dresdner Kleinwort
Benson Private Equity Partners L.P. ("Dresdner"). The Notes are convertible into
shares of the Company's  Common Stock at the option of the holder until maturity
in 2003, at which time they will be due in full if not previously converted. The
Company may also elect to redeem the Notes, if not previously converted,  at any
time after March 27, 2000.  The  conversion  price of the Notes at September 30,
2000 was $11.42 per share.

Under the terms of the Note  Purchase  Agreement,  as  amended,  relating to the
Notes,  the  Company  must comply with one  financial  covenant as follows:  the
Company  must not have a  cumulative  cash loss in excess of $5.0  million  from
December 23, 1999 through  December 23, 2002. At September 30, 2000, the Company
was in compliance with this covenant.

See Note 13,  Subsequent  Events,  for information  regarding an increase in the
principal amount of the Notes in December 2000.

7.       INCOME TAXES
---------------------

The Company  accounts for income taxes under  Statement of Financial  Accounting
Standards No. 109,  "ACCOUNTING  FOR INCOME  TAXES"  ("SFAS  109").  The Company
realizes tax benefits as a result of the exercise of non-qualified stock options
and  the  exercise  and  subsequent  sale of  certain  incentive  stock  options
(disqualifying dispositions). For financial reporting purposes, any reduction in
income  tax  obligations  as a result  of these  tax  benefits  is  credited  to
additional  paid-in  capital.  Tax  benefits of $3, $2 and $72 were  credited to
additional paid-in capital in 2000, 1999 and 1998,  respectively.  The provision
for (benefit from) income taxes is as follows:



                             SEPTEMBER 30,                  DECEMBER 31,
                   --------------------------------
                        2000               1999                 1998
                   -------------       ------------      -----------------
CURRENT:
   Federal         $         -         $        -        $           129
   State                     8                 12                     30
                   -------------       ------------      -----------------
                             8                 12                    159
DEFERRED                 17,466           (11,235)                (5,956)
                   -------------       ------------      -----------------
                   $     17,474        $  (11,223)       $        (5,797)
                   =============       ============      =================


                                      F-10

<PAGE>


Total deferred income tax assets were $20,525 and $17,907 and  liabilities  were
$832  and  $441 at  September  30,  2000 and  1999,  respectively,  prior to the
consideration of any valuation  allowance.  Individually  significant  temporary
differences are as follows:

                                                         SEPTEMBER 30,
                                                 -------------------------------
                                                    2000               1999
                                                 ------------       ------------
Net operating loss carryforwards                 $   17,416         $   15,055
Provision for trade promotions and discounts            926                558


Total net deferred tax assets were $19.7  million as of September  30, 2000.  In
accordance with SFAS 109, the Company recorded a valuation allowance against the
entire  amount of net deferred tax assets as of September  30, 2000, as a result
of  recurring  operating  losses  in recent  years and as a result of  increased
competition leading to poorer than expected results for fiscal 2000.

The Company has tax net operating  loss  carryforwards,  totaling $45.3 million,
which expire as follows:  2018 - $11.8 million,  2019 - $31.5 million and 2020 -
$2.0 million.

The  reconciliation  between the effective  tax rate and the  statutory  federal
income tax rate is as follows:

<TABLE>
<CAPTION>
                                                                  SEPTEMBER 30,                 DECEMBER 31,
                                                        ----------------------------------
                                                            2000                1999                1998
                                                        --------------      --------------    -----------------
<S>                                                     <C>                 <C>               <C>
Statutory federal income tax rate                               (34.0)%             (34.0)%              (34.0)%
State taxes, net of federal income tax benefit                   (2.7)               (1.3)                (3.9)
Tax exempt interest and dividends                                   --                  --                (0.1)
Trademark and goodwill amortization                               0.9                 0.1                  0.2
Meals and entertainment                                           1.1                 0.1                  0.4
Effect of change in valuation allowance                         685.3                  --                   --
Other                                                            (0.3)               (0.7)                 0.8
                                                        --------------      --------------    -----------------
Effective tax rate                                              650.3  %            (35.8) %             (36.6) %
                                                        ==============      ==============    =================
</TABLE>


8.       UNAUDITED FISCAL YEAR OPERATING RESULTS
------------------------------------------------

The  following  statement  of  operations  data is  included  for  informational
purposes only and is unaudited for fiscal years 1996 through 1999.

<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
SEPTEMBER 30,                              2000          1999            1998            1997            1996
------------------------------------     ----------    ----------      ----------     -----------      ----------
<S>                                      <C>           <C>             <C>            <C>              <C>

Net sales                                $71,043       $   88,817      $  88,406      $   48,144       $  40,258
Cost of goods sold                        36,137           48,141         44,295          23,888          19,924
Gross margin                              34,906           40,676         44,111          24,256          20,334
Operating expenses                        35,592          69,639          57,755          28,465          18,247
Operating income (loss)                                  (28,963)        (13,644)         (4,209)          2,087
                                         (686)
Net income (loss) available for
   common shareholders                   (32,653)        (21,826)         (9,384)        (2,667)           1,675

</TABLE>


                                      F-11

<PAGE>

9.       CONVERTIBLE REDEEMABLE PREFERRED STOCK
-----------------------------------------------

In April 1999,  the Company  closed a stock  purchase  agreement  selling  $32.5
million of convertible  redeemable  preferred stock to several investors.  Under
the terms of the  agreement,  the Company  sold an  aggregate of 2,763 shares of
Series A preferred  stock and 487 shares of Series B preferred  stock to members
of the investor  group,  at a price of $10.00 per share for each  series,  or an
aggregate  consideration  of $32.5  million,  and received net proceeds of $30.2
million.  At September 30, 2000, the Series A preferred  shares were convertible
at a price  of  $10.00  per  share  and  the  Series  B  preferred  shares  were
convertible at $3.75 per share (subject to antidilution adjustments) at any time
following  issuance at the  discretion  of the holder.  The Company did not meet
certain  performance  targets  for the twelve  months  ended  December  31, 1999
specified in the terms of the Series B preferred stock, triggering an adjustment
in the Series B conversion  price to $3.75 per share from $10.00 per share. As a
result of the adjustment,  the Company  recorded an  approximately  $8.1 million
non-cash  charge for additional  preferred  dividends to account for the implied
value of the beneficial  conversion feature.  Both series of preferred stock are
entitled to a 12 percent  cumulative  annual dividend payable upon redemption of
the stock or in the event of a sale or  liquidation  of the Company.  Shares may
not be  redeemed  until  December  31,  2004,  following  which time they may be
redeemed at the election of the holders or,  under  certain  conditions,  at the
discretion of the Company. The redemption value, exclusive of accrued but unpaid
dividends,  of the Series A and Series B  preferred  stock is $27.6  million and
$4.9 million,  respectively.  The difference between the carrying amount and the
redemption value of the convertible redeemable preferred stock is being accreted
as additional preferred dividends over the period until redemption.

10.      SHAREHOLDERS' EQUITY
-----------------------------

PREFERRED STOCK
The Company has  authorized  5,000  shares of  preferred  stock,  of which 3,250
shares  have been  issued (see Note 9). Such stock may be issued by the Board of
Directors in one or more series, with the preferences, limitations and rights of
each series to be determined by the Board of Directors.

PREFERRED SHARE PURCHASE RIGHTS
In April 1996,  the Company  declared a dividend  distribution  of one preferred
share purchase right on each  outstanding  share of the Company's  Common Stock.
Each right, when exercisable, will entitle shareholders to buy one one-hundredth
of a share of Series A Junior Participating Preferred Stock of the Company at an
exercise price of $47 per share. The rights will become  exercisable if a person
or group (an  "Acquiring  Person")  acquires 15 percent or more of the Company's
Common  Stock (with  certain  exceptions)  or  announces  a tender  offer for 15
percent or more of the Common  Stock.  With the exception of certain cash tender
offers,  if a person  becomes an  Acquiring  Person,  or in the event of certain
mergers  of the  Company  with an  Acquiring  Person,  the  rights  will  become
exercisable  for  shares of Common  Stock  with a market  value of two times the
exercise  price of the right.  The  Company's  Board of Directors is entitled to
redeem the rights at $.01 per right at any time before a person has  acquired 15
percent or more of the outstanding Common Stock.

                                      F-12

<PAGE>


STOCK PLAN OPTIONS
The Company has a 1992 First Amended and Restated  Combination Stock Option Plan
(the  "Plan"),  which  provides  for the  issuance of  incentive  stock  options
("ISOs") to  employees  and  officers of the  Company  and  non-statutory  stock
options  ("NSOs") to  employees,  officers,  directors  and  consultants  of the
Company.  Under the Plan,  the exercise  price of an ISO cannot be less than the
fair market value on the date of grant and the  exercise  price of an NSO cannot
be less than 85  percent  of fair  market  value on the date of  grant.  Options
granted under the Plan generally vest three to five years from the date of grant
and generally  expire ten years from the date of grant.  Vesting may  accelerate
upon a change in control of the Company.  At September 30, 2000, the Company had
1,951 shares of Common Stock  reserved  for  issuance  under the Plan.  Activity
under the Plan is summarized as follows:

<TABLE>
<CAPTION>
                                        SHARES AVAILABLE        SHARES SUBJECT TO          WEIGHTED AVERAGE
                                           FOR GRANT                 OPTIONS                EXERCISE PRICE
                                      ---------------------    ---------------------     ----------------------
<S>                                   <C>                      <C>                       <C>
BALANCES, DECEMBER 31, 1997                     649                     1,443                    $8.78
Options granted                                (172)                      172                    11.50
Options canceled                                101                      (101)                    8.12
Options exercised                                --                       (75)                    7.27
                                      ---------------------    ---------------------     ----------------------
BALANCES, DECEMBER 31, 1998                     578                     1,439                     9.24
Options granted                                (516)                      516                     9.96
Options canceled                                 57                       (57)                    8.90
Options exercised                                --                       (56)                    7.18
                                      ---------------------    ---------------------     ----------------------
BALANCES, SEPTEMBER 30, 1999                    119                     1,842                     9.51
Options granted                                (246)                      246                     6.40
Options canceled                                660                      (660)                    9.80
Options exercised                                --                       (10)                    6.50
                                      ---------------------    ---------------------     ----------------------
BALANCES, SEPTEMBER 30, 2000                    533                     1,418                    $8.86
                                      =====================    =====================     ======================
</TABLE>

NON-PLAN OPTIONS
On March 10, 1992, the Company granted a non-statutory  stock option to its then
Chief Executive  Officer  exercisable  for 1,650 shares of the Company's  Common
Stock.  Such  option is  exercisable  for a period of ten years from the date of
grant at an  exercise  price of $1.00 per share,  the fair  market  value of the
Company's  Common  Stock on the date of grant.  During  1996,  a portion  of the
option  covering  625 of the shares was  exercised  and during  fiscal  2000,  a
portion of the option  covering 45 shares was exercised.  At September 30, 2000,
an option to  purchase  980  shares of Common  Stock  remained  outstanding  and
exercisable  in full and 980 shares of the Company's  Common Stock were reserved
for issuance under this option grant.

On April 14,  1996,  the Company  granted an option to its then Chief  Executive
Officer  exercisable for 300 shares of the Company's  Common Stock.  Pursuant to
the terms of the original grant, such option is exercisable for a period of five
years from the Chief Executive  Officer's  termination date of August 4, 2000 at
an exercise  price of $8.69 per share.  At September 30, 2000, the entire option
remained  outstanding and the Company had 300 shares reserved for issuance under
this option grant.


                                      F-13

<PAGE>


During  1999,  the  Company  granted  options  to  certain   employees  and  two
consultants  covering a total of 80 shares of the  Company's  Common Stock at an
average exercise price of $11.16 per share. During fiscal 2000, options covering
15 shares at an average  exercise price of $11.63 were canceled and at September
30, 2000,  options  covering 65 shares were  outstanding at an average  exercise
price of $11.05.  At September 30, 2000, the Company had 65 shares of its Common
Stock  reserved  for  issuance  under these  options.  The fair value of options
granted to non-employees was not material.

On March 1, 2000,  the  Company  granted  options to the members of its Board of
Directors  covering a total of 15 shares of the  Company's  Common  Stock.  Such
options are  exercisable  for a period of ten years from the date of grant at an
exercise price of $5.69 per share, subject to vesting provisions over a one-year
period.  At September 30, 2000, all of the options remained  outstanding and the
Company had 15 shares of its Common  Stock  reserved  for  issuance  under these
option grants.

STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123
During 1995,  the  Financial  Accounting  Standards  Board issued SFAS 123 which
defines a fair value based method of accounting  for employee  stock options and
similar equity  instruments  and encourages all entities to adopt that method of
accounting for all of their employee stock compensation plans.  However, it also
allows an entity to continue to measure  compensation cost for those plans using
the method of accounting  prescribed by APB 25. Entities electing to continue to
use the  accounting  treatment in APB 25 must make pro forma  disclosures of net
income and, if presented,  earnings per share, as if the fair value based method
of accounting defined in SFAS 123 had been adopted.

The Company has elected to account for its stock-based  compensation plans under
APB 25; however,  the Company has computed,  for pro forma disclosure  purposes,
the  value  of all  options  granted  during  2000,  1999  and  1998  using  the
Black-Scholes option pricing model as prescribed by SFAS 123 using the following
weighted average assumptions for grants:

                                 2000              1999               1998
                            ---------------    --------------     --------------
Risk-free interest rate             6.50%             6.00%              5.50%
Expected dividend yield                0%                0%                 0%
Expected lives                  6.5 years         6.5 years          6.5 years
Expected volatility                80.77%            61.49%             60.77%

Using the Black-Scholes  methodology,  the total value of options granted during
2000, 1999 and 1998 was $1,117, $3,816 and $1,058, respectively,  which would be
amortized on a pro forma basis over the vesting period of the options (typically
three to five  years).  The  weighted  average  per share  fair value of options
granted during 2000, 1999 and 1998 was $4.30, $6.41 and $4.92, respectively.

                                      F-14
<PAGE>


If  the  Company  had  accounted  for  its  stock-based  compensation  plans  in
accordance   with  SFAS  123,  the  Company's  net  loss   available  to  common
shareholders and net loss per share would  approximate the pro forma disclosures
below:

<TABLE>
<CAPTION>
                                          2000                        1999                         1998
                                -------------------------    ------------------------    --------------------------
                                    As         Pro Forma         As        Pro Forma         As          Pro Forma
                                 Reported                     Reported                    Reported
                                ----------     ----------    ----------    ----------    -----------     ----------
<S>                             <C>            <C>           <C>           <C>           <C>             <C>
Net loss available to common
  shareholders                  $(32,653)       $(34,279)    $(22,146)      $(24,404)     $(10,042)       $(11,870)
Basic and diluted net loss
  per share                       $(3.67)         $(3.86)      $(2.51)        $(2.77)       $(1.16)         $(1.37)

</TABLE>

The following table summarizes  information about all stock options  outstanding
at September 30, 2000:

<TABLE>
<CAPTION>
                            OPTIONS OUTSTANDING                                        OPTIONS EXERCISABLE
----------------------------------------------------------------------------     --------------------------------
                                             Weighted
                                              Average           Weighted           Number of          Weighted
    Range of              Number             Remaining           Average             Shares           Average
 Exercise Prices      Outstanding at        Contractual         Exercise          Exercisable         Exercise
                          9/30/00          Life - Years           Price            at 9/30/00          Price
------------------    ----------------    ----------------    --------------     ---------------    -------------
<S>                   <C>                 <C>                 <C>                <C>                <C>
         $   1.00            980                 1.3             $ 1.00                  980             $1.00
      5.68 - 6.78            382                 8.1               6.44                  116              6.61
      7.00 - 7.94            292                 5.3               7.59                  283              7.59
      8.69 - 8.97            571                 4.9               8.75                  535              8.73
     9.56 - 10.41            117                 4.9              10.03                   90             10.00
    10.91 - 11.75            354                 4.7              11.54                  279             11.56
    12.31 - 13.56             82                 6.3              12.77                   73             12.75
------------------    ----------------    ----------------    --------------     ---------------    -------------
    $1.00 - 13.56          2,778                 4.1             $ 6.10                2,356             $5.78
==================    ================    ================    ==============     ===============    =============

</TABLE>

At  September  30,  1999  and  December  31,  1998,  2,257  and  2,010  options,
respectively,  were exercisable at weighted average exercise prices of $5.58 per
share and $5.08 per share, respectively.

11.      401(K) PLAN
--------------------

The Company has a 401(k) Salary  Deferral  Plan,  which covers all employees who
have  reached the age of 18. The covered  employees  may elect to have an amount
deducted  from their wages for  investment  in a  retirement  plan.  The Company
matches 100 percent of employee contributions up to two percent of compensation.
The Company's  contribution to this plan was approximately $137 in 2000, $112 in
1999 and $137 in 1998.


                                      F-15
<PAGE>


12.      SUPPLEMENTAL CASH FLOW INFORMATION
-------------------------------------------

Supplemental disclosure of cash flow information is as follows:
<TABLE>
<CAPTION>
                                                               2000             1999              1998
                                                           -------------    --------------    -------------
<S>                                                        <C>              <C>               <C>
Cash paid during the period for interest                   $    455         $     637         $    552
Cash paid during the period for income taxes                      6                10               11
Issuance of Common Stock in exchange for interest
   expense on Convertible Notes                                 419               525              525
Preferred dividends                                          12,492             1,980               --

</TABLE>

13.      SUBSEQUENT EVENTS
--------------------------

SALE OF PROPERTY
In October 2000, the Company sold the production  facility it owned in Portland,
Oregon for net  proceeds  to the  Company of  approximately  $645.  There was no
significant gain or loss on the sale.

AMENDMENT TO CONVERTIBLE NOTES PAYABLE
In December 2000, the Company and Dresdner  agreed to amend the Notes to provide
an additional  alternative for interest  payments.  The Company may elect,  with
prior written consent from Dresdner, to satisfy its semiannual obligation to pay
interest  on the Notes by  increasing  the then unpaid  principal  amount of the
Notes by an amount equal to the interest then payable.  Under this  alternative,
the interest  payable  shall be  calculated  at an annual  interest  rate of 10%
rather than 7%. The Company, with Dresdner's consent, has elected to use the new
alternative  for the interest  payable at September  30, 2000 and, as such,  the
total principal amount of the Notes has been increased to $15,750.


                                      F-16
<PAGE>


                    Report of Independent Public Accountants
                         on Financial Statement Schedule

We have audited in accordance with generally  accepted auditing  standards,  the
financial statements included in Gardenburger, Inc.'s Form 10-K, and have issued
our report thereon dated November 7, 2000. Our audit was made for the purpose of
forming an opinion on those statements  taken as a whole. The schedule  included
on page F-18 is the responsibility of the Company's  management and is presented
for purposes of complying with the Securities  and Exchange  Commission's  rules
and is not  part of the  basic  financial  statements.  This  schedule  has been
subjected to the auditing procedures applied in our audit of the basic financial
statements and, in our opinion,  fairly states,  in all material  respects,  the
financial  data  required  to be set  forth  therein  in  relation  to the basic
financial statements taken as a whole.




                                               /s/ ARTHUR ANDERSEN LLP

Portland, Oregon,
   November 7, 2000


                                      F-17






<PAGE>
                                                                     SCHEDULE II

                               GARDENBURGER, INC.
                       VALUATION AND QUALIFYING ACCOUNTS
     YEAR ENDED DECEMBER 31, 1998, NINE MONTHS ENDED SEPTEMBER 30, 1999 and
                         YEAR ENDED SEPTEMBER 30, 2000
                                 (In thousands)


<TABLE>
<CAPTION>
              Column A                     Column B                      Column C            Column D     Column E
------------------------------------   -----------------------------------------------    ------------------------
                                          Balance         Charged         Charged to                       Balance
                                         at Beginning    to Costs and   Other Accounts -   Deductions -    at End
 Description                              of Period        Expenses        Describe         Describe(a)   of Period
------------------------------------   --------------   --------------  ----------------  -------------  -----------
<S>                                    <C>              <C>             <C>               <C>            <C>
 Year Ended December 31, 1998:

 Reserves deducted from asset accounts:

 Allowance for uncollectible accounts        $ 275            $ 146               $ -          $ 273        $ 148

 Nine Months Ended September 30, 1999:

 Reserves deducted from asset accounts:

 Allowance for uncollectible accounts        $ 148            $ 190               $ -           $ 37        $ 301

 Year Ended September 30, 2000:

 Reserves deducted from asset accounts:

 Allowance for uncollectible accounts        $ 301             $ 20               $ -           $ 57        $ 264

</TABLE>

(a) Charges  to the  account included  in this  column are  for the purposes for
    which the  reserve  was  created  as well as a reduction  in the  reserve to
    levels estimated to be appropriate by the Company.

                                      F-18