Gardenburger, Inc. (Nasdaq: GBUR) reported today that it expects to record an operating loss before income taxes and preferred dividends of approximately $2.7 million for the fiscal year ended September 30, 2000, on sales of approximately $71.0 million, subject to the company's year end audit. Included is an expense of approximately $1.2 million related to the August departure of Lyle Hubbard, the company's former CEO.

The company expects to record an additional paper loss of approximately $18 million as a valuation allowance against its deferred income tax asset. In prior years, the company carried forward net operating losses available to reduce future income taxes. The company's previous Securities and Exchange Commission filings made clear that recording a valuation reserve against this deferred tax asset would be considered if the company did not achieve its fiscal 2000 business goals.

The establishment of a valuation reserve will not affect the company's ability to utilize its net operating loss carry forwards to offset future taxable income. It also will have no impact on the company's cash position, its liquidity, or its debt covenants with lenders.

The company is currently generating positive cash flow and has paid down the company's line of credit to $2.9 million as of September 30, 2000, from $5.0 million at September 30, 1999.

"Our retail grocery sales were lower than anticipated during the last quarter of our fiscal year due to a market-wide softening in the meatless burger market and heavy marketing expenditures by our major competitors Kellogg's Morningstar Farms and Philip Morris/Kraft's Boca Burger," said Jim Linford, interim CEO of Gardenburger, Inc. "Had our brand not been so well established, the loss might have been even greater.

"While these results are disappointing, the market for non-burger meatless products continues to grow," said Linford. "Therefore, we are introducing new products beyond burgers in all of our distribution channels. By offering other types of meat alternatives, we intend to fully leverage our strong brand name and its association with great taste. This will help us capture market share and better utilize our production capacity."

Most notably, the company is further applying its proprietary flame grilling technology with the introduction of Gardenburger Chik'N Grill(TM), a chicken-like fillet that will ship in November.

The new, meatless Gardenburger Chik'N Grill builds on the popularity of the new Gardenburger Flame Grilled(TM) burgers -- among the fastest selling products in the company's history. The new fillet-shaped product offers the great taste of flame grilled chicken with zero cholesterol and 9 grams of soy protein.

Available market information indicates that sales of similar products have grown 40 percent over the past twelve months. Chik'N Grill will trade on this success, according to Linford. However, its flame grilled taste will give it an advantage in a category driven by taste and health concerns. Other such products are breaded and fried, or simply baked.

Founded in 1985 by GardenChef Paul Wenner(TM), Gardenburger, Inc. is an independent company that distributes its Gardenburger® products to more than 35,000 foodservice outlets throughout the United States and Canada. Retail customers include more than 30,000 grocery, natural food and club stores. Based in Portland, Ore., the company employs approximately 200 people.

Statements in this press release about future events or performance are forward-looking statements that are necessarily subject to risk and uncertainty. The company's actual results could be quite different. Important factors that could affect results include the company's reliance on product acceptance, the company's ability to execute its retail distribution plan, effectiveness of the company's sales and marketing efforts, and intense competition in the veggie burger and other meat alternatives industry, which the company believes will increase. Other important factors that could affect results are set forth in the company's Annual Report on Form 10-K for the year ended September 30, 1999 and the company's 1999 Annual Report to shareholders. Although forward-looking statements help provide complete information about the company, investors should keep in mind that forward-looking statements are inherently less reliable than historical information.