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SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

(MARK ONE)

For the transition period from           to           

Commission File Number: 0-28930

ROADHOUSE GRILL, INC.

2703-A GATEWAY DRIVE, POMPANO BEACH, FL 33069

Registrant’s telephone number, including area code (954) 957-2600

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

COMMON STOCK, PAR VALUE $.03 PER SHARE
(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  o  No  x

         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 common stock held by non-affiliates of the registrant as of September 24, 2002 (based upon the last reported sale price of the registrant’s common stock on the Pink Sheets on September 23,

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2002), was $1,338,110 (calculated by excluding shares owned beneficially by directors and executive officers as a group from total outstanding shares solely for the purpose of this response).

         Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes  x         No  o

         The number of shares of the registrant’s common stock outstanding as of September 24, 2002 was 9,708,741.

DOCUMENTS INCORPORATED BY REFERENCE

None.

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ROADHOUSE GRILL, INC.

FORM 10-K
FISCAL YEAR ENDED APRIL 28, 2002

INDEX

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         This report contains “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements concern expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. Statements preceded by, followed by, or that include the words “believes,” “expects,” “anticipates,” or similar expressions are generally considered to be forward-looking statements. Specifically, this report contains forward-looking statements, including the following:

	•		the Company’s implementation of the roadhouse-style dining concept;
	•		anticipated trends in the economy and the restaurant industry;
	•		the Company’s strategies, plans, objectives and expectations concerning the Company’s future market position, operations, cash flow, margins, revenue, profitability, restaurant-level economics, liquidity and capital resources;
	•		the Company’s ability to manage its debt and comply with the financial covenants in its debt instruments;
	•		the Company’s ability to maintain financial and accounting controls, management controls, reporting systems and procedures;
	•		the Company’s ability to identify potentially profitable restaurant locations;
	•		the Company’s ability to recruit, train and retain management personnel;
	•		the Company’s ability to manage labor, food costs and other operating expenses; and
	•		costs associated with opening, or completing construction on, new restaurants.

         The forward-looking statements reflect the Company’s current view about future events and are subject to risks, uncertainties and assumptions. The Company wishes to caution readers that certain important factors may have affected and could in the future affect its actual results and could cause actual results to differ significantly from those expressed in any forward-looking statement. The following important factors, in addition to factors the Company discusses elsewhere in this report, including the section entitled “Risk Factors,” could prevent the Company from achieving its goals, and cause the assumptions underlying the forward-looking statements and the actual results to differ materially from those expressed in or implied by those forward-looking statements:

	•		the Company’s ability to make future loan payments;
	•		the Company’s ability to comply with financial covenants in the future;
	•		availability of financing;
	•		relisting of the Company’s stock by Nasdaq;
	•		outcome of the SEC inquiry;
	•		net losses;
	•		the Company’s ability to identify profitable locations and open new restaurants;
	•		the Company’s ability to acquire adequate food supply and to obtain favorable food costs;
	•		changes in consumer preferences, tastes and eating habits;
	•		the availability of qualified labor;
	•		competition from other restaurants;

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	•		construction delays;
	•		increase in interest rates; and
	•		national, regional and local economic and weather conditions.

ITEM 1.     BUSINESS

PROCEEDINGS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE

         On January 18, 2002, an involuntary petition (the “Involuntary Petition”) for relief under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) was filed against the Company by certain of its creditors, all of which were affiliated with one another (collectively, the “Petitioning Creditors”), in the United States Bankruptcy Court for the Southern District of Florida (the “Court”). The Company had recently experienced significant cash flow problems primarily resulting from the opening of 31 new restaurants in the past three years combined with a net loss of $15.9 million in fiscal year 2001 and a net loss of $21.4 million in fiscal year 2002. Prior to the filing of the Involuntary Petition, the Company had been in negotiations with the Petitioning Creditors and other major creditors in an effort to effect an out-of-court restructuring.

         In response to the filing of the Involuntary Petition, the Company initially filed a motion requesting the Court to abstain from taking jurisdiction over the Company to allow out-of-court restructuring efforts to continue. Ultimately, however, the Company decided to consent to the entry of an order for relief in the Chapter 11 case, provided that the order would not be entered until the Company had the opportunity to prepare a Chapter 11 plan of reorganization.

         On April 16, 2002, the Court entered an order for relief and the Company filed its Chapter 11 plan of reorganization and its disclosure statement in support of the plan. Subsequent to the entry of the order for relief, the Company has operated its businesses as a debtor-in-possession pursuant to Chapter 11 of the Bankruptcy Code and concentrated its efforts on emerging from Chapter 11 as quickly as possible.

         In its plan of reorganization the Company classified the claims of its creditors and interests of its equity security holders and provided for the treatment of such claims and interests. Under the Bankruptcy Code, various classes of claims and interests were entitled to vote whether to accept or reject the plan of reorganization. However, the court would not permit such a vote until it approved a disclosure statement as containing information adequate to enable a hypothetical reasonable investor typical of holders of claims or interests of the relevant classes to make an informed judgment about the plan of reorganization.

         The Company filed several amendments to the plan of reorganization. On June 12, 2002, the Company filed Debtor’s Second Amended and Restated Chapter 11 Plan of Reorganization, as Modified (the “Plan”) and Debtor’s Second Amended and Restated Disclosure Statement in Support of Chapter 11 Plan of Reorganization, as Modified (the “Disclosure Statement”). The Disclosure Statement is attached to this Form 10-K as Exhibit 2.1. The Court conducted a hearing on June 12, 2002, to consider approval of the Disclosure Statement. On June 20, 2002, the Court issued an order approving the Disclosure Statement, authorizing the Disclosure

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Statement, Plan and Ballot to be disseminated to creditors and equity security holders and scheduling a hearing on confirmation of the Plan for August 21, 2002.

         On June 25, 2002, a hearing was held on the motion of the Petitioning Creditors to terminate the exclusivity period within which only the Company could file a plan of reorganization and to delay the hearing on confirmation of the Plan. On June 26, 2002, the Court terminated exclusivity but refused to postpone the hearing on confirmation of the Plan.

         Thereafter, Restaurants Acquisition I, Inc. (“RAI”), an entity affiliated with the Petitioning Creditors, filed a competing plan of reorganization, dated July 15, 2002 (the “RAI Plan”). The Petitioning Creditors and creditors affiliated with them (collectively, “CNL”) vigorously opposed confirmation of the Plan. In addition, certain other creditors initially cast ballots rejecting the Plan and/or filed objections to confirmation of the Plan.

         As the date of the confirmation hearing approached, the Company engaged in further negotiations with rejecting and objecting creditors in an effort to resolve their objections to the Plan. By August 19, 2002, most of the objections had been resolved and the Company filed a modification of the Plan (the “Modification”).

         The principal remaining objections were the objections of CNL. However, the Company reached agreement with CNL shortly before the commencement of the confirmation hearing. Under the agreement, CNL withdrew its objections to the Plan, changed its rejections to acceptances of the Plan and caused the RAI Plan to be withdrawn. The agreement is embodied in a term sheet between the Company and CNL dated August 21, 2002 (the “CNL Term Sheet”).

         The hearing on confirmation of the Plan, as modified by the Modification, took place on August 21, 2002. At the close of the hearing, the Court announced that the Plan, as modified by the Modification and the Confirmation Order (as hereinafter defined) (the “Confirmed Plan”), would be confirmed. On August 23, 2002, the Court issued its Order Confirming Debtor’s Second Amended and Restated Chapter 11 Plan of Reorganization, as Modified (the “Confirmation Order”). The Confirmation Order is attached to this report on Form 10-K as Exhibit 2.3. The Modification and CNL Term Sheet are attached as exhibits to the Confirmation Order.

         The Confirmed Plan is scheduled to become effective on or before September 30, 2002 (the “Effective Date”). On the Effective Date, the Company is to receive an infusion of new capital of $5 million in exchange for 13,888,889 shares (47.53%) of new common stock in the reorganized Company (the “New Common Stock”). The 13,888,889 shares will be issued in a private placement pursuant to Section 4(2) of, or Regulation D promulgated under, the Securities Act of 1933, as amended (the “Private Placement Securities”). The Private Placement Securities will be issued to Berjaya Group (Cayman) Limited (“Berjaya”), Prime Gaming Philippines, Inc. (“Prime”), Ayman Sabi , or designee (“Sabi”), and Stephen C. Saterbo, or designee (“Saterbo”), as more particularly set forth in the table immediately below. These parties have placed $5 million in escrow with the Company’s co-bankruptcy counsel, Berger Singerman, P.A.

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         Berjaya is the Company’s majority shareholder, representing approximately 62% of the Company’s common stock prior to the aforementioned $3.5 million cash infusion by Berjaya.

         Prime is an affiliate of Berjaya. It is 58% owned by Berjaya Group Berhad, which owns 100% of Berjaya. Prime is incorporated and headquartered in the Philippines.

         Saterbo is a senior vice president, member of the board of directors, and substantial shareholder of Colorado Boxed Beef Company, a major supplier of the Company.

         Sabi is president, chief executive officer and a director of the Company.

         Pursuant to the Confirmed Plan, on the Effective Date, Berjaya will receive, in full satisfaction of the $1.5 million loan, 4,166,667 shares of New Common Stock at the rate of $.36 per share, representing 14.26% of the outstanding common stock in the reorganized Company.

         Under the Confirmed Plan, on the Effective Date, the 9,708,741 shares of common stock in the Company currently outstanding (the “Old Common Stock”), and any rights, options, warrants, contingent warrants, subscriptions or other agreements and contractual rights to acquire or obtain an interest in the shares of the Company, will be cancelled. The Confirmed Plan provides for each holder of Old Common Stock to receive, in respect of its shares of Old Common Stock, its ratable share of 11,175,052 shares of New Common Stock, representing 38.24% of the stock in the reorganized Company. The total number of shares of New Common Stock to be issued under the Confirmed Plan is 29,220,608. Upon the Effective Date, Berjaya (including its affiliate Prime) will own 20,829,675 shares of common stock representing 71.3% ownership in the Company.

         Under the Confirmed Plan, substantial payments will be required to be made on the Effective Date to pay administrative and other priority claims as well as amounts required to cure defaults on unexpired leases of real and personal property and executory contracts being assumed by the Company. The Company believes that its cash on hand together with the new equity infusion will provide sufficient funds to make these payments.

         As restructured under the Confirmed Plan, the Company’s secured and unsecured debt, as well as assumed leases and executory contracts, will require substantial monthly payments over extended periods. The reader is referred to the Confirmed Plan, attached to this report on Form 10-K as Exhibit 2.2, for the details of repayment of the restructured indebtedness. The

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Company’s ability to reorganize successfully will depend on, among other things, its ability to meet these payment obligations. There is no assurance that the Company will be able to do so.

         The Consolidated Financial Statements contained herein have been prepared on a going concern basis, which assumes continuity of operations and realization of assets and satisfaction of liabilities in the ordinary course of business, and in accordance with Statement of Position 90-7 (“SOP 90-7”), “Financial Reporting by Entities in Reorganization under the Bankruptcy Code.” The ability of the Company to continue operations is predicated upon, among other things, consummation of the Confirmed Plan, the ability to generate cash flow from operations and the ability to obtain financing sources sufficient to satisfy future obligations. Please refer to Risk Factors and Item 7. Management’s Discussion and Analysis of Results of Operations and Financial Condition for additional information.

GENERAL

         The Company operates, franchises and licenses high-quality full-service casual dining restaurants under the name “Roadhouse Grill.” The Company is currently one of the largest operators of the roadhouse-style casual dining restaurant concept in the United States.

         The Company was founded in 1992 and opened its first Roadhouse Grill restaurant in Pembroke Pines, Florida (the greater Fort Lauderdale area) in 1993. As of April 28, 2002, there were 73 Company owned Roadhouse Grill restaurants located in Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, New York, North Carolina, Ohio, and South Carolina. Of these, 34 are located in Florida. Four of the restaurants outside Florida were closed subsequent to April 28, 2002. The Company also has three franchised locations in Malaysia, one franchised location in Brasilia, Brazil, and three franchised locations in Las Vegas, Nevada.

         On July 6, 2000, the Company entered into a joint venture agreement with Cremonini S.p.A. (“Cremonini Group”), a leading publicly traded Italian conglomerate, specializing in the food service industry in Europe. Under the joint venture agreement, the Cremonini Group is required to open and operate at least 60 Roadhouse Grill restaurants in Italy, France, Spain, Great Britain and other principal European countries by the end of year 2004. In 2001 the parties extended the deadline by one year until 2005 due to issues surrounding the consumption of beef in Europe. The Company opened its first joint venture Roadhouse Grill restaurant in Milan, Italy in November 2001.

THE ROADHOUSE GRILL CONCEPT

         The Company’s primary business is the operation of full-service, casual dining restaurants targeted toward singles, couples, families and senior citizens. Roadhouse Grill restaurants offer a diverse, moderately priced lunch and dinner menu highlighting exhibition cooking of steaks and other grilled entrees. The restaurants feature daily fresh baked yeast rolls, free peanuts and certain appetizers as signature items.

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         Guest satisfaction comes from a pleasant restaurant atmosphere in which high-quality food and beverages are served at competitive prices. The Company motivates its employees to provide friendly and efficient service on a consistent basis.

         The key elements that define the Roadhouse Grill concept are:

	•		Premium Quality Grilled Entrees and a Diverse Menu. Roadhouse Grill restaurants offer a wide variety of steaks, chicken, seafood and other entrees, many of which are grilled in an exhibition style kitchen.
	•		High Price/Value to Guests. Roadhouse Grill restaurants strive to provide a high price/value dining experience for its guests by offering a broad, moderately priced menu and serving high quality generous portions.
	•		Attentive, Friendly Service. The Company believes that a distinctive, enjoyable dining experience is made possible through excellent service. Accordingly, the Company seeks to hire individuals who possess strong initiative and the ability to provide quality and personalized service.
	•		Spacious, Open Layout. Roadhouse Grill restaurants are designed to have a fun and casual atmosphere. The interior of each restaurant is large, open and visually appealing, with exposed ceilings to help create Roadhouse Grill’s casual ambiance.
	•		Broad Customer Appeal. The Roadhouse Grill concept is designed to appeal to a broad range of customers, including business people, couples, singles and, particularly, families. The Company believes that to be attractive to families, a concept must be appealing to both children and parents. Consequently, Roadhouse Grill restaurants furnish children with coloring menus, balloons and a free souvenir cup. In addition, each restaurant offers a special “Kids’ Menu” featuring an assortment of entrees for approximately $2.99. For adults, each Roadhouse Grill restaurant offers beverages from its full-service bar, which is separated from the dining area.

MENU

         The Roadhouse Grill menu, which was revised and expanded on June 24, 2002, features aged USDA Choice steaks and prime rib, beef ribs, chicken and seafood, all of which are grilled to order. The Company’s steaks are aged both before and after being cut and trimmed. The menu features over sixty items, including 13 cuts of steak ranging from 6 oz. to 18 oz. In addition to grilled selections, the new menu offers a variety of new mixed drinks, a pasta dish, seafood, a wide variety of appetizers, sandwiches, and salads, including signature items such as Roadhouse cheese wraps and a variety of desserts, most notably the “messy sundae.” Each entree is served with a choice of a house salad or Caesar salad, a choice of baked sweet potato, baked potato, home fries, French fries or rice pilaf and homemade yeast rolls. Roadhouse Grill restaurants are open seven days a week for lunch and dinner and offer full bar service. Prices

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range from $5.79 to $17.99. From 11:00 a.m. to 3:00 p.m. Monday through Friday, in addition to its full menu, each Roadhouse Grill offers a selection of 20 lunch menu items ranging from charbroiled steak salad to hand-breaded chicken strips and french fries, all prepared to order quickly and priced at $8.99 or less.

UNIT ECONOMICS

         The Company believes that Company-owned Roadhouse Grill restaurants produce attractive restaurant-level economics. The 70 Company-owned Roadhouse Grill restaurants open for the entire 52 weeks in fiscal year 2002 generated average net sales of approximately $2.1 million, average cash flow (operating income plus depreciation and amortization) of $221,304, and average operating income of $38,153. The Company’s average cash investment for these 70 restaurants was approximately $1.3 million, including building structures (where applicable), building or leasehold improvements and equipment and fixtures, but excluding land and pre-opening costs. Restaurant-level economics are affected to the extent that the Company constructs free-standing units on Company-owned or leased land, rather than leasing existing buildings. In such cases, initial development costs are substantially greater and occupancy costs (other than depreciation) are substantially less when the Company leases existing buildings. The Company cannot predict if average unit-level economics would be altered significantly if in the future the mix of restaurants placed in leased buildings compared to free-standing buildings on Company-owned or leased land were to change materially from the Company’s current mix.

EXPANSION

         The Company opened 31 new restaurants in the United States in the past 36 months. As a result of the related developmental expenses, the Company did not generate sufficient cash flow to fund its operations. The Company’s long-term strategy is to expand the Roadhouse Grill concept in a slower and more controlled manner. The Company plans to open approximately two restaurants per year over the next five years. The Company’s focus in fiscal year 2003 will be to maximize its return on its investment in its existing restaurants in the United States and to expand the number of locations internationally.

         The Company’s ability to open new restaurants will depend on a variety of factors, many of which may be beyond the Company’s control, including the Company’s ability to: locate suitable restaurant sites; negotiate acceptable lease or purchase terms; obtain required governmental approvals and construct new restaurants in a timely manner; attract, train and retain qualified and experienced personnel and management; generate sufficient cash from operations or obtain sufficient debt or equity financing on favorable terms; and continue to operate its restaurants profitably. Due to these factors and others discussed in this report, there is no assurance that the Company will be able to continue to effectively develop or operate additional restaurants.

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SITE SELECTION AND CONSTRUCTION

         The Company believes the site selection process is critical to the long-term success of any restaurant, and, accordingly, devotes significant time and effort to the investigation and evaluation of potential locations. Among the factors in the site selection process are market demographics (including population, age and median household income); traffic patterns and activity; site visibility, accessibility and parking; and proximity to residential developments, office complexes, hotels, retail establishments and entertainment areas. Another important factor is the convenience of the potential location to both lunch and dinner guests and the occupancy cost of the proposed site. The Company’s development strategy is to cluster restaurants in markets that can support them with cost-effective media advertising. In addition, the Company believes that clustering multiple units allows more efficient supervision of the restaurants.

         Corporate management of the Company determines which geographic areas may be suitable for Roadhouse Grill restaurants. Potential sites in those geographic areas are identified by Company personnel, consultants and independent real estate brokers. In connection with the Company’s evaluation, Company personnel visit and analyze each potential site.

         When the Company has developed restaurants in existing buildings, construction has taken approximately 90 to 120 days after required construction permits have been obtained. Construction of restaurants on vacant land is a longer process and has generally ranged from 120 to 180 days. The Company’s experience to date has been that obtaining construction permits has generally taken from 30 to 180 days. The Company engages outside general contractors for construction of its restaurants and expects to continue this practice for the foreseeable future.

RESTAURANT DESIGN AND LAYOUT

         The Company’s prototypical restaurant format is approximately 6,800 square feet with seating for approximately 260 guests. Facilities range in size from 5,000 to 12,000 square feet with seating for approximately 190 to 398 guests. The Company uses a standardized design in constructing restaurants, with modifications made for each particular site. The Company is assisted by outside architects in the design of individual restaurants. The Company makes its standardized design available to its franchisees and has final right of approval on the design of each franchised restaurant.

         The Company believes its restaurants have a comfortable atmosphere and are visually appealing with exposed ceilings and brick and lapboard cedar walls decorated with colorful murals and neon signs. The typical interior also includes multi-level seating, a full-service bar, an exhibition grill and display kitchen. The exterior of each restaurant features rough-sawed siding, a wrap-around wood plank porch, a tin roof trimmed in neon and an oversized “Roadhouse Grill” sign. In addition to the public areas, each restaurant has a food preparation and storage area including a fully- equipped kitchen.

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RESTAURANT LOCATIONS

         The following table sets forth the location of Company-owned and franchised restaurants open as of April 28, 2002.

NUMBER OF
COMPANY-OWNED RESTAURANTS IN OPERATION

         Note: Subsequent to April 28, 2002, four Company-owned restaurants were closed. One of these was in Louisiana, one was in Ohio, and two were in North Carolina.

NUMBER OF
FRANCHISED RESTAURANTS IN OPERATION

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NUMBER OF
JOINT VENTURE RESTAURANTS IN OPERATION

FRANCHISE OPERATIONS

         In addition to operating Company-owned restaurants, the Company has seven franchise locations. The Company currently has four franchisees: Roadhouse Operating Company, LLC (“Roadhouse Operating”), Roadhouse Grill Asia Pacific (H.K.) Limited (“Roadhouse Grill Hong Kong”), Roadhouse Grill Asia Pacific (Cayman) Limited (“Roadhouse Grill Asia”), and Brent Empreendimentos e Alimentacao Ltda. (“Roadhouse Grill Brazil”). Berjaya, the majority shareholder of the Company, directly or indirectly owns Roadhouse Grill Hong Kong and Roadhouse Grill Asia.

         The Company is currently seeking to develop additional franchising opportunities on an international basis with primary focus on development in Europe, South America, and the Caribbean . The Company will be actively seeking multi-unit franchising in the United States in the foreseeable future.

         Roadhouse Operating. Roadhouse Operating entered into an initial franchise agreement and Master Development Agreement with the Company (the “Roadhouse Operating Master Development Agreement”) in August 1995. Pursuant to the Roadhouse Operating Master Development Agreement, the Company was required to enter into a franchise agreement with Roadhouse Operating for each new franchise restaurant prior to the opening of that restaurant. Pursuant to the Roadhouse Operating Master Development Agreement, and in each case pursuant to a separate franchise agreement, Roadhouse Operating currently operates three Roadhouse Grill restaurants.

         The Roadhouse Operating Master Development Agreement provided for the exclusive development of up to five restaurants, over a period which ended October 31, 1999, in Clark County, Nevada (which includes the Las Vegas, Nevada metropolitan area). Under the Roadhouse Operating Master Development Agreement, Roadhouse Operating’s exclusive right to develop Roadhouse Grill restaurants was contingent upon it meeting the development schedule set forth in the Roadhouse Operating Master Development Agreement.

         Roadhouse Operating is obligated to pay the Company a percentage royalty fee based on gross sales. Under the Roadhouse Operating Master Development Agreement, Roadhouse Operating is not obligated to pay any area development or initial franchise fees. As of April 28, 2002, the receivable from Roadhouse Operating was approximately $143,000. Due to lack of payment, this amount has been fully reserved.

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         The Company is the guarantor of equipment leases for three restaurants owned by Roadhouse Operating. Roadhouse Operating is currently in default of the payment terms of the operating leases. The balance of the remaining lease payments due was approximately $1.0 million as of April 28, 2002. Approximately $250,000 of these payments was in arrears as of April 28, 2002. The Company is currently in negotiations with the lessors and Roadhouse Operating to restructure the lease agreements and bring the payments current. Should these negotiations fail, under the guaranty the Company could be held liable to make payment to the lessors.

         Roadhouse Operating was not able to meet the development schedule under the Roadhouse Operating Master Development Agreement which expired on October 31, 1999. As of the date of this filing, the Company has taken no action to enforce compliance with the development of new restaurants required under the Roadhouse Operating Master Development Agreement.

         Roadhouse Grill Hong Kong. In January 1996, the Company entered into a Master Development Agreement with Roadhouse Grill Hong Kong (the “Hong Kong Master Development Agreement”), which is for an indefinite period and provides for the development and franchising of Roadhouse Grill restaurants in Hong Kong. Under the Hong Kong Master Development Agreement, Roadhouse Grill Hong Kong is not required to develop any specific number of restaurants in Hong Kong, but any restaurants that it develops are credited against the development obligations of Roadhouse Grill Asia under Roadhouse Grill Asia’s Master Development Agreement with the Company. Roadhouse Grill Hong Kong is not required to pay any franchise or reservation fee for restaurants that it develops, but is responsible for paying or reimbursing approved expenses incurred by the Company in connection with the opening of each restaurant. In addition, Roadhouse Grill Hong Kong is required to pay the Company a royalty on gross sales in connection with the operation of each of its restaurants. Under certain circumstances, Roadhouse Grill Hong Kong or the Company may grant franchises to third parties in Hong Kong. In that event, the Company is entitled to receive 50% of any franchise and reservation fees and 40% of any royalty fee, payable by the third party franchisee to Roadhouse Grill Hong Kong, subject to limitations on the amounts payable to the Company of $10,000 per restaurant in the case of franchise and reservations fees and royalty fees based on gross sales.

         As of April 28, 2002, Roadhouse Grill Hong Kong had not developed or opened any Roadhouse Grill restaurants, and the Company does not anticipate that Roadhouse Grill Hong Kong will develop any Roadhouse Grill restaurants in the foreseeable future.

         Roadhouse Grill Asia. In January 1996, the Company entered into a Master Development Agreement with Roadhouse Grill Asia (the “Asia Master Development Agreement”), which is for an indefinite period and covers countries in Asia and the Pacific Rim (other than Hong Kong), including, but not limited to, Australia, China, India, Indonesia, Japan, Malaysia, New Zealand, Singapore, South Korea, the Philippines and Thailand. Under the Asia Master Development Agreement, Roadhouse Grill Asia is required to open and maintain at least 30 Roadhouse Grill restaurants during the first ten years of the Asia Master Development Agreement, with a minimum of two restaurants to be developed each year. Under certain circumstances, Roadhouse Grill Asia or the Company may grant franchises to third parties in the

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territory. The fee arrangements under the Asia Master Development Agreement are substantially the same as those under the Hong Kong Master Development Agreement. See Item 13 “Certain Relationships and Related Transactions.”

         Roadhouse Grill Asia currently operates three franchised Roadhouse Grill restaurants in Malaysia. The Company accrued $84,000 in royalty income from those restaurants during fiscal year 2002. As of April 28, 2002, $168,080 of the royalty receivable from Roadhouse Grill Asia has been fully reserved due to lack of payment. The remaining receivable of $86,399 is not reserved, as it will be offset by interest payable to Berjaya.

         Roadhouse Grill Asia has not met the development schedule under the Asia Master Development Agreement. As of the date of this filing, the Company has taken no action to enforce compliance with the development of new stores required under the Asia Master Development Agreement.

         Roadhouse Grill Brazil. In May 1999, the Company entered into a Master Development Agreement with Roadhouse Grill Brazil, which provides for the development and franchising of Roadhouse Grill restaurants in Brazil. Under the agreement, Roadhouse Grill Brazil is required to open and maintain at least eight Roadhouse Grill restaurants during the first ten years of the term of the agreement. Roadhouse Grill Brazil pays the Company a one-time franchise fee for each new restaurant opened and an ongoing service fee based on gross sales. Roadhouse Grill Brazil currently operates one Roadhouse Grill restaurant in Brasilia, Brazil.

JOINT VENTURE OPERATIONS

         On July 6, 2000, the Company entered into a joint venture agreement with the Cremonini Group, a publicly-traded Italian conglomerate, specializing in the food service industry in Europe. Under the joint venture agreement, Cremonini Group is required to open and operate at least 60 Roadhouse Grill restaurants in Italy, France, Spain, Great Britain and other principal European countries by the end of year 2004. In 2001, the parties extended the deadline by one year until 2005 due to issues surrounding the consumption of beef in Europe. The Company is not required to make any capital outlay in connection with the joint venture. In accordance with the terms of the joint venture agreement, the Company owns a 1.5% equity interest in the joint venture and has an option to purchase up to an additional 8.5% equity interest in the joint venture. In addition, the Company is entitled to royalty fees based on gross sales.

         The Company opened its first joint venture Roadhouse Grill restaurant in Milan, Italy in November 2001.

         By letter dated June 20, 2002, Cremonini notified the Company that it was immediately suspending the performance of its obligations under the joint venture agreement and ancillary agreements. The Company believes that it will be able to come to an amicable resolution of any disagreements with Cremonini. However, if the Company cannot reach an agreement with Cremonini, the Company will attempt to make arrangements with one or more other candidates to develop the Company’s restaurants in Europe. There can be no assurance that the Company

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will be able to make such arrangements. Further, if arrangements can be made, the terms may differ substantially from the terms of the joint venture with Cremonini.

ADVERTISING AND MARKETING

         The Company attempts to build brand-awareness by providing a distinctive dining experience that results in a significant number of new customers being attracted through word of mouth, as well as by traditional marketing efforts and promotional activities. The Company believes that clustering multiple restaurants in target markets will help build brand-awareness and increase efficiencies in its marketing efforts. The Company also utilizes radio, billboard and print advertising to promote its restaurants and build brand-awareness. The Company’s motto is: “Roadhouse Grill...Eat, Drink and be Yourself.” The Company also markets at the restaurant level through sponsorship of community charity activities, sporting events, festivals and Chamber of Commerce events. For fiscal year 2002, advertising and marketing expense relating to Roadhouse Grill restaurants amounted to approximately 1.6% of total revenues.

RESTAURANT OPERATIONS AND MANAGEMENT

         Restaurant Personnel. The Company believes that excellent service contributes significantly to a distinctive, enjoyable dining experience. Accordingly, the Company seeks to hire individuals who possess strong initiative and the ability to provide quality and personalized service. Roadhouse Grill attempts to foster the individuality of its employees, encouraging them to interact with customers on a friendly, casual basis. The Company recruits both experienced restaurant managers from outside the Company and promotes qualified employees from within the Company. The Company seeks to retain high-quality restaurant managers and personnel by providing them with opportunities for promotion and financial incentives based on individual restaurant performance. These financial incentives include a bonus plan that enables each restaurant manager to earn a portion of a bonus pool by achieving certain predetermined performance goals.

         Roadhouse Grill restaurants generally operate with a general manager, a dining room manager, a kitchen manager and one or two assistant managers depending upon volume. The general manager of each restaurant has primary responsibility for managing the day-to-day operations of the restaurant in accordance with Company standards. The general manager and kitchen manager of each restaurant generally are responsible for interviewing, hiring and training restaurant staff. Each restaurant has a staff of approximately 65 employees. The Company currently employs seven directors of operations, each of whom is responsible for six to 13 restaurants.

         The Company devotes a significant amount of time and resources to restaurant management and staff training. Each new manager participates in an eight-week training program, which is conducted at designated training restaurants, before assuming an assistant manager position (or, in some instances, a kitchen manager position) at a Roadhouse Grill restaurant. This program is designed to provide training in all areas of restaurant operations, including food preparation and service, alcoholic beverage service, Company philosophy, operating standards, policies and procedures, and business management and administration

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techniques. The managers of the training restaurant conduct weekly evaluations of each manager trainee.

         In connection with the opening of each new restaurant, the Company sends an experienced training team to train and assist the new restaurant employees. The training team generally arrives at each restaurant two weeks prior to opening and remains for four weeks after opening. Typically, the general manager, the dining room manager and the kitchen manager of each new restaurant are individuals who have been managers at an existing Roadhouse Grill restaurant.

         The development and success of the Company’s restaurants depend, in large part, on the efforts, abilities, experience and reputations of the general managers and chefs at such restaurants. The Company’s inability to recruit and retain high-quality personnel may delay the opening of new restaurants or result in higher employee turnover in existing restaurants, which could materially and adversely affect the Company’s results of operations or business. Competition for qualified employees could require the Company to pay higher wages to attract sufficient qualified employees which could result in higher labor costs.

         Purchasing. To better insure uniform quality and obtain competitive prices, the Company contracts centrally for most restaurant food products and other supplies. Individual restaurants decide the amount of each item they require and place orders directly with the Company’s distributors several times a week. Managers also arrange for dairy and produce items to be provided by local vendors that meet the Company’s quality standards. Corporate management closely monitors prices and other supply contract terms for locally and centrally contracted items. Because of the volume of its aggregate orders and the volume of supplies delivered to each individual restaurant, the Company believes that it is able to obtain favorable prices for its supplies.

         The Company’s profitability is dependent in large measure on its ability to anticipate and react to changes in food and supply costs. Various factors beyond the Company’s control, including climatic changes and government regulations, may affect food costs. Specifically, the Company’s dependence on frequent, timely deliveries of beef, poultry, seafood and produce subjects it to the risks of possible shortages or interruptions in supply caused by adverse weather or other conditions which could adversely affect the availability and cost of any such items. The failure to react to these increases could materially and adversely affect the Company’s business and result of operations. In addition, during fiscal year 2002, the Company purchased approximately 66% of its food and other restaurant supplies from two distributors. The Company’s dependence on a small number of suppliers subjects it to the risk of possible shortages or interruptions in supply if any of these distributors is not able to provide food and supplies to the Company’s restaurants in a timely manner.

         Hours of Operation. The Company’s Roadhouse Grill restaurants are open seven days a week, typically from 11:00 a.m. to 10:00 p.m. Sunday through Thursday and from 11:00 a.m. to 11:00 p.m. on Friday and Saturday.

         Reporting and Financial Controls. The Company maintains financial and accounting controls for each of its restaurants through the use of centralized accounting and management

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information systems. In addition, each restaurant is equipped with a computerized accounting system that allows restaurant management to efficiently manage labor, food cost and other direct operating expenses, that provide corporate management rapid access to financial data and that reduces time devoted by its restaurant managers to administrative responsibilities. Guest counts, sales, cash deposits and labor cost information are collected daily from each restaurant. Physical inventories of all food and beverage items are performed weekly. Each restaurant manager prepares a restaurant level weekly profit and loss statement, and at the end of each accounting period, operating statements are prepared for each location. The weekly and accounting period operating statements are reviewed at both the corporate level and restaurant level for variances from expected results to allow for any corrective actions to be taken as quickly as possible.

RESTAURANT INDUSTRY AND COMPETITION

         The restaurant industry is highly competitive. The Company competes with a broad range of restaurants, including national and regional casual dining chains as well as locally-owned restaurants, some of which operate with concepts similar to that of the Company. A number of competitors have been in existence longer than the Company and have substantially greater financial, marketing and other resources and wider geographical diversity than the Company. The entrance of new competitors into the Company’s market areas or the expansion of operations by existing competitors could have a material adverse effect on the Company’s results of operations and financial condition. There is no assurance that the Company will be able to compete successfully in the markets in which it operates. In addition, the Company competes with other restaurant companies and retailers for sites, labor and, in many cases, customers. The Company believes that the key competitive factors in the restaurant industry are quality of food and service, price, location and concept. To the extent that one or more of its competitors becomes more successful with respect to any of the key competitive factors, the Company’s business could be adversely affected.

         The restaurant industry has few non-economic barriers to entry and is affected by changes in consumer tastes as well as national, regional and local economic conditions, demographic trends, traffic patterns, and the type, number and location of competing restaurants. Dependence on fresh meats and produce also subjects restaurant companies to the risk that shortages or interruptions of supply could adversely affect the availability, quality or cost of ingredients. In addition, factors such as inflation, increased food, labor and employee benefit costs and the availability of qualified management and hourly employees also may adversely affect the restaurant industry generally and the Company’s restaurants in particular. The Company’s significant investment in and long-term commitment to each of its restaurant sites limits its ability to respond quickly or effectively to changes in local competitive conditions or other changes that could affect the Company’s operations. The Company’s continued success is dependent to a large extent on its reputation for providing high quality and value and this reputation may be affected not only by performance of Company-owned restaurants but also by the performance of franchisee-owned restaurants over which the Company has limited control.

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SEASONALITY

         The Company’s operating results fluctuate seasonally because of its geographic concentration. Of the 73 restaurants owned and operated by the Company as of April 28, 2002, and of the 69 restaurants currently owned and operated, 34 are located in residential areas in Florida. The Company’s restaurant sales generally increase from November through April, the peaks of the Florida tourism season, and generally decrease from May through October. In addition, because of its present geographic concentration, the Company’s results of operations may be materially adversely affected by a decline in tourism in Florida, downturns in Florida’s economy or by hurricanes or other adverse weather conditions in Florida.

GOVERNMENT REGULATION

         Each Roadhouse Grill restaurant is subject to and affected by various federal, state and local laws and governmental regulations, including those relating to the preparation, sale and service of food and alcoholic beverages, designation of non-smoking and smoking areas, accessibility of restaurants to disabled customers, development and construction of restaurants and environmental matters. Difficulties or failures in obtaining the required construction and operating licenses, permits or approvals could delay or prevent the opening of a new restaurant. Roadhouse Grill believes that it is operating in material compliance with applicable laws and regulations.

         The Company is also subject to laws governing its relationship with employees, including minimum wage requirements, overtime, working conditions and immigration requirements. Legislative proposals are introduced by governmental authorities from time to time that would, if enacted, have a material adverse effect on the Company’s business by increasing the Company’s operating costs. Material increases in unemployment tax rates, sales taxes or the cost of compliance with any applicable law or regulation could materially and adversely affect the Company’s business. There is no assurance that the Company would be able to pass such increased costs on to its guests or that, if it were able to do so, it could do so in a short period of time.

         Sale of alcoholic beverages account for approximately 10% of the Company’s revenues. Alcoholic beverage control regulations require each Roadhouse Grill restaurant to apply to a state authority and, in certain locations, county and/or municipal authorities for a license or permit to sell alcoholic beverages on the premises and to provide service for extended hours. Typically, licenses must be renewed annually and may be revoked or suspended for cause at any time. If a liquor license for any restaurant were lost, revenues for that restaurant would be adversely affected. Alcoholic beverage control regulations relate to numerous aspects of the Company’s restaurants, including minimum age of patrons consuming, and employees serving, alcoholic beverages, hours of operation, advertising, wholesale purchasing, inventory control, and handling, storage and dispensing of alcoholic beverages. The Company is also subject to “dram-shop” statutes, which generally provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person. The Company carries liquor liability coverage as part of its existing comprehensive general liability insurance.

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         The federal Americans with Disabilities Act prohibits discrimination on the basis of disability in public accommodations and employment. The Company is required to comply with the Americans with Disabilities Act and regulations relating to accommodating the needs of the disabled in connection with the construction of new facilities and with significant renovations of existing facilities.

         In connection with its sale of franchises, the Company is subject to the United States Federal Trade Commission rules and regulations and state laws that regulate the offer and sale of franchises. The Company also is subject to laws that regulate certain aspects of the franchise relationship.

         The Company is subject to various local, state and federal laws regulating the discharge of pollutants into the environment. The Company believes that its operations are in material compliance with applicable environmental laws and regulations. The Company conducts environmental audits of all proposed restaurant sites in order to determine whether there is any evidence of contamination prior to purchasing or entering into a lease with respect to such sites. However, there can be no assurance that the Company will not incur material environmental liability in connection with any of its owned or leased properties.

EMPLOYEES

         At April 28, 2002, the Company employed approximately 4,716 persons, of whom 4,395 were restaurant employees, 278 were restaurant management and supervisory personnel, and 43 were corporate personnel. Restaurant employees include both full-time and part-time workers and substantially all are paid on an hourly basis. No Company employees are covered by collective bargaining agreements, and the Company has never experienced an organized work stoppage, strike or labor dispute. The Company believes its relations with its employees are generally satisfactory.

TRADEMARKS, SERVICE MARKS AND TRADE DRESS

         The Company believes that its rights in trademarks, service marks and trade dress are important to its marketing efforts. Roadhouse Grill has registered the “Roadhouse Grill” service mark, the “Cowboy Jim and rocking chair” design and the slogan “Good Food and a Smile . . . That’s Roadhouse Style” with the U.S. Patent and Trademark Office. The Company currently has registered the “Roadhouse Grill” service mark in Europe and Malaysia and has been approved for registration in Canada. Roadhouse Grill has certain foreign trademarks in various stages of the registration process; however, the Company has temporarily ceased the registration process in several countries and will resume such process on a case-by-case basis in certain of those countries in the near future.

         The Company believes that its trademarks and service marks have significant value and are essential to the Company’s ability to create demand for and awareness of its restaurants. There can be no assurance, however, that the Company’s marks would be upheld if challenged or that the Company would not be prevented from using its marks. The Company also relies on

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trade secrets and proprietary know-how. The Company employs various methods to protect its concepts and recipes. However, these methods may not completely protect the Company.

RISK FACTORS

THE COMPANY IS IN THE PROCESS OF EMERGING FROM BANKRUPTCY AND THERE CAN BE NO ASSURANCE THAT IT CAN REORGANIZE SUCCESSFULLY

         The Confirmed Plan is scheduled to become effective on or before September 30, 2002. Under the Confirmed Plan, substantial payments will be required to be made on the Effective Date to pay administrative and other priority claims as well as amounts required to cure defaults on unexpired leases of real and personal property and executory contracts being assumed by the Company. The amount to be paid by the end of fiscal year 2003 includes approximately $4.3 million principal and $2.2 million interest, subject to certain claims which are in negotiations subject to the Court’s final ruling. The Company believes that its cash on hand together with the new equity infusion will provide sufficient funds to make these payments. As restructured under the Confirmed Plan, the Company’s secured and unsecured debt, as well as assumed leases and executory contracts, will require substantial monthly payments over extended periods. The Company’s ability to reorganize successfully will depend on, among other things, its ability to meet future payment obligations over the extended periods. There can be no assurance that the future profits of the Company will be sufficient to fund these obligations.

THE BANKRUPTCY MAY HAVE CREATED A NEGATIVE IMAGE OF THE COMPANY.

         The effect, if any, which the Company’s bankruptcy proceedings may have on its future operations cannot be accurately predicted or quantified. The Company believes that its bankruptcy and consummation of the Confirmed Plan will not have a material impact on its relationships with its customers, employees and suppliers. Nevertheless, there could be a detrimental impact on future sales and patronage because of the negative image of the Company that may have been created by its bankruptcy.

OWNERSHIP OF APPROXIMATELY 71% OF THE COMPANY’S OUTSTANDING COMMON STOCK BY ONE SHAREHOLDER WILL LIMIT OTHER SHAREHOLDERS’ ABILITY TO INFLUENCE CORPORATE MATTERS.

         At April 28, 2002, Berjaya beneficially owned, directly or indirectly, approximately 62% of the Company’s outstanding common stock. Under the Confirmed Plan, Berjaya will acquire additional shares, resulting in a total ownership of approximately 71%. As a result, Berjaya will be able to control major decisions of corporate policy, elect the Company’s entire board of directors and determine the outcome of any major transaction or other matters submitted to the Company’s shareholders, including potential mergers or acquisitions, and amendments to the Company’s articles of incorporation. Shareholders other than Berjaya are therefore likely to have

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little or no influence on decisions regarding such matters. Third parties may be discouraged from making a tender offer or bid to acquire the Company because of this concentration of ownership.

THE COMPANY’S COMMON STOCK HAS BEEN DELISTED, AND INVESTORS MAY FIND IT MORE DIFFICULT TO SELL THE COMPANY’S COMMON STOCK.

         On April 24, 2002, the Company received notification from The Nasdaq Stock Market that the Company’s common stock would be delisted at the opening of business on May 2, 2002, unless the Company requested a hearing to appeal the determination in accordance with Nasdaq rules. Nasdaq’s delisting notification was based on the Company’s filing for protection under Chapter 11 of the U.S. Bankruptcy Code, the Company’s failure to meet the independent director and audit committee requirements for continued listing pursuant to Marketplace Rules 4350(c) and 4350(d)(2), and The Nasdaq Stock Market’s concerns about the Company’s ability to sustain compliance with all requirements for continued listing on The Nasdaq Stock Market. The Company did not request a hearing to appeal the determination. Accordingly, its common stock was delisted at the opening of business on May 2, 2002. As a result of its delisting, the Company’s common stock is currently quoted on the Pink Sheets.

         The fact that the Company’s common stock is not listed is likely to make trading its shares more difficult for broker-dealers, shareholders and investors, potentially leading to further declines in share price. It may also make it more difficult for the Company to raise additional capital. An investor may find it more difficult to sell the Company’s common stock or to obtain accurate quotations of the share price of its common stock. Management has not determined when or whether it will apply again for listing on a Nasdaq market.

         The Company is also subject to an SEC rule concerning the trading of so-called penny stocks. Under this rule, broker-dealers who sell securities governed by the rule to persons who are not established customers or accredited investors must make a special suitability determination and must receive the purchaser’s written consent to the transaction prior to the sale. This rule may deter broker-dealers from recommending or selling the Company’s stock, which may negatively affect the liquidity of the Company’s stock.

THE SEC IS CONDUCTING AN INFORMAL INVESTIGATION OF THE COMPANY AND THE OUTCOME OF THE INVESTIGATION CANNOT BE DETERMINED.

         On August 3, 2001, the Securities and Exchange Commission (“SEC”) informed the Company that it is conducting an informal investigation regarding the restatement of the Company’s audited financial statements for the fiscal years ended 2000 and 1999 and the first three fiscal quarters of fiscal 2001. The Company has cooperated fully with the SEC and will continue to do so. The outcome of the SEC inquiry cannot be determined as of the date of this filing.

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THE COMPANY HAS EXPERIENCED RECENT LOSSES AND CASH FLOW PROBLEMS.

         The Company opened 31 new restaurants in the past 36 months. As a result of the related development expenses, the Company did not generate sufficient cash flow to fund its operations. In addition, the Company has also experienced recent losses and cash flow problems. There can be no assurance that the Company will be able to achieve and sustain sufficient positive cash flow to support operations or expansion.

SUBSTANTIALLY ALL OF THE COMPANY’S ASSETS ARE PLEDGED.

         Under the Confirmed Plan, substantially all of the Company’s assets will be pledged as security for loans.

THE COMPANY MAY NOT BE ABLE TO CONTINUE TO SUCCESSFULLY EXPAND ITS RESTAURANT OPERATIONS.

         The Company expects to open two restaurants in fiscal year 2003. The Company’s ability to expand successfully will depend on a number of factors, including:

	•		Identification and availability of suitable locations;
	•		Competition for restaurant sites;
	•		Negotiation of favorable lease arrangements;
	•		Timely development of commercial, residential, street or highway construction near its restaurants;
	•		Management of the costs of construction and development of new restaurants;
	•		Securing required governmental approvals and permits;
	•		Recruitment of qualified operating personnel, particularly managers and chefs;
	•		Weather conditions; and
	•		Competition in new markets.

         The opening of additional restaurants will depend in part upon the Company’s ability to generate sufficient funds from operations or to obtain sufficient equity or debt financing on favorable terms to support its expansion. The Company may require additional debt or equity financing to continue to open new restaurants. The Company cannot be certain that additional financing will be available when and to the extent required or that, if available, it will be on acceptable terms. If the Company is unable to obtain additional funds in a timely manner or on acceptable terms, it may have to curtail or suspend the expansion of its operations, which could lead to overall lower revenues and adversely effect the Company’s financial results and prospects. If adequate funds are not available on acceptable terms, the Company may not be able to fund its expansion or respond to competitive pressures.

         The Company may not be able to open its planned new operations on a timely basis, if ever, and, if opened, these restaurants may not be operated profitably. The Company expects to experience delays in restaurant openings from time to time. Delays or failures in opening

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planned new restaurants could have an adverse effect on the Company’s business, financial condition, results of operations or cash flows.

THE COMPANY’S UNFAMILIARITY WITH NEW MARKETS MAY PRESENT RISKS WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON ITS FUTURE GROWTH AND PROFITABILITY.

         The Company’s growth strategy depends on its ability to successfully expand its Roadhouse Grill brand into new markets in which it has no operating experience. Historically, new restaurants opened in expanded markets generally take about 15 to 36 months to achieve expected Company-wide targeted levels of performance. This is due to higher operating costs caused by temporary inefficiencies typically associated with expanding into new regions and opening new restaurants, such as lack of market awareness and acceptance and unavailability of experienced staff. These new markets may have different competitive conditions, consumer tastes and discretionary spending patterns than the Company’s existing markets, which may cause the Company’s restaurants in these new markets to be less successful than the Company’s restaurants in its existing markets. As a result, the Company’s continued expansion may result in an increase in operating costs. There can be no assurance that restaurants in new markets will be successful.

IMPLEMENTING THE COMPANY’S LONG TERM GROWTH STRATEGY MAY STRAIN ITS MANAGEMENT RESOURCES AND NEGATIVELY IMPACT ITS COMPETITIVE POSITION.

         The Company’s growth strategy may strain its management, financial and other resources. The Company must maintain a high level of quality and service at its existing and future restaurants, continue to enhance its operational, financial and management capabilities and locate, hire, train and retain experienced and dedicated operating personnel, particularly managers and chefs. The Company may not be able to effectively manage these and other factors necessary to permit it to achieve its expansion objectives, and any failure to do so could negatively impact its competitive position.

THE COMPANY’S PROFITABILITY IS DEPENDENT IN LARGE MEASURE ON FOOD AND SUPPLY COSTS WHICH ARE NOT WITHIN THE COMPANY’S CONTROL

         The Company’s profitability is dependent in large measure on its ability to anticipate and react to changes in food and supply costs. Various factors beyond the Company’s control, including climatic changes and government regulations, may affect food costs. Specifically, the Company’s dependence on frequent, timely deliveries of beef, poultry, seafood and produce subjects it to the risks of possible shortages or interruptions in supply caused by adverse weather or other conditions which could adversely affect the availability and cost of any such items. While the Company has been able to anticipate and react to increasing food costs through purchasing practices, menu changes and price adjustments in the past, there can be no assurance

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that the Company will be able to do so in the future. The failure to react to these increases could materially and adversely affect the Company’s business and result of operations.

THE COMPANY’S OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY FROM QUARTER TO QUARTER DUE TO VARIOUS FACTORS BEYOND ITS CONTROL, INCLUDING SEASONALITY.

         The Company’s operating results fluctuate seasonally because of its geographic concentration. Of the 73 restaurants owned and operated by the Company as of April 28, 2002, 34 are located in residential areas in Florida. Four of the restaurants outside Florida were closed subsequent to April 28, 2002.

         The Company’s restaurant sales generally increase from November through April, the peaks of the Florida tourism season, and generally decrease from May through October. In addition, because of its present geographic concentration, the Company’s results of operations have been and may continue to be materially adversely affected by a decline in tourism in Florida, downturns in Florida’s economy or by hurricanes or other adverse weather conditions in Florida. Also, adverse publicity in Florida relating to Roadhouse Grill restaurants could have a more pronounced effect on the Company’s results of operations than might be the case if its restaurants were broadly dispersed geographically. Although the Company has expanded its operations in other geographic markets, to, among other things, offset some of the effects on its operating results due to its concentration in the Florida market, there can be no assurance that the Company’s restaurants outside of the Florida area will be successful and have a positive effect on the seasonal nature of its operating results. Because of the seasonality of the Company’s business, its results for any quarter are not necessarily indicative of the results that may be achieved for a full year.

         In addition to seasonality, the Company’s quarterly and annual operating results and comparable unit sales may fluctuate significantly as a result of a variety of factors, including:

	•		the amount of sales contributed by new and existing restaurants;
	•		labor costs for the Company’s personnel;
	•		the Company’s ability to achieve and sustain profitability on a quarterly or annual basis;
	•		consumer confidence and changes in consumer preferences;
	•		health concerns, including adverse publicity concerning food-related illness;
	•		the level of competition from existing or new competitors in the full-service casual dining segment of the restaurant industry; and
	•		economic conditions generally and in each of the markets in which the Company is located.

         In addition, the Company has experienced variability in the amount and percentage of revenues attributable to preopening expenses. The Company typically incurs the most significant portion of preopening expenses associated with a given restaurant within the two months immediately preceding and the month of the opening of the restaurant. The Company’s experience to date has been that labor and operating costs associated with a newly opened

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restaurant for the first several months of operation are materially greater than those expected after that time, both in aggregate dollars and as a percentage of revenues. Accordingly, the volume and timing of new restaurant openings has had, and is expected to continue to have, a meaningful impact on preopening expenses and labor and operating costs. Therefore, results for any one quarter are not necessarily indicative of results to be expected for any other quarter or for a full fiscal year, and, from time to time in the future, the Company’s results of operations may be below the expectations of public market analysts and investors.

INTENSE COMPETITION IN THE RESTAURANT INDUSTRY COULD PREVENT THE COMPANY FROM INCREASING OR SUSTAINING ITS REVENUES AND PROFITABILITY.

         The restaurant industry, particularly the full-service casual dining segment, is highly competitive. The Company competes with a broad range of restaurants, including national and regional casual dining chains as well as locally-owned restaurants, some of which operate with concepts similar to that of the Company. The Company competes in the areas of price, service, location, concept and food quality, including taste, freshness, and nutritional value.

         The Company has numerous well-established competitors, some of which dominate the industry. These competitors possess substantially greater financial, marketing, personnel and other resources than the Company. Many of the Company’s competitors have achieved significant national, regional and local brand name and product recognition. The Company also engages in extensive advertising and promotional programs, both generally and in response to efforts by additional competitors to enter new markets or introduce new products. In addition, the Company competes with other restaurant companies and retailers for sites, labor and, in many cases, customers.

         The Company believes that the full-service casual dining segment is likely to attract a significant number of new entrants. In addition, the full-service restaurant industry is characterized by the frequent introduction of new food products which are accompanied by substantial promotional campaigns. In recent years, numerous companies in the full-service casual restaurant industry have introduced products intended to capitalize on growing consumer preference for food products which are, or are perceived to be, healthful, nutritious, low in calories and low in fat content. The Company will be subject to increasing competition from companies whose products or marketing strategies address these consumer preferences. The Company may need to modify or refine elements of its restaurant system to evolve its concept in order to compete with popular new restaurant formats or concepts that develop from time to time. There can be no assurance that the Company will be successful in implementing these modifications.

         The restaurant business is often affected by changes in:

	•		Consumer tastes;
	•		National, regional or local economic conditions;
	•		Demographic trends;
	•		Consumer confidence in the economy;

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	•		Discretionary spending priorities;
	•		Weather conditions;
	•		Tourist travel;
	•		Traffic patterns; and
	•		The type, number and location of competing restaurants.

         Changes in these factors could prevent the Company from increasing or sustaining its revenues and profitability and result in a material adverse effect on its business, financial condition, results of operations or cash flows.

THE COMPANY IS DEPENDENT UPON SUPPLY AND QUALITY OF FOOD PRODUCTS

         The success of the Company’s restaurants depends upon frequent deliveries of food products. The Company is routinely exposed to the risks that shortages or interruptions in supply can occur and adversely affect the availability, quality and cost of these critical food products. Regional weather conditions may also adversely affect product supply and quality. In the recent past, certain types of steak products and seafood have experienced fluctuations in supply availability. The Company has not experienced significant difficulty in obtaining adequate supplies of food products on a timely basis. However, there can be no assurance that in the future inadequate supplies of food products, especially steak products, might not have a materially adverse effect on the Company’s operations and profitability.

THE COMPANY IS AFFECTED BY LITIGATION AND PUBLICITY CONCERNING FOOD QUALITY, HEALTH AND OTHER ISSUES WHICH CAN CAUSE GUESTS TO AVOID ITS RESTAURANTS AND WHICH CAN RESULT IN LIABILITIES.

         Health concerns, including adverse publicity concerning food-related illness, although not specifically related to the Company’s restaurants, could cause guests to avoid its restaurants which would have a negative impact on its sales. The Company may also be the subject of complaints or litigation from guests alleging food-related illness, injuries suffered on the premises or other food quality, health or operational concerns. A lawsuit or claim could result in an adverse decision against the Company that could have a material adverse effect on its business and results of operations. The Company may also be subject to litigation which, regardless of the outcome, could result in adverse publicity. Adverse publicity resulting from such allegations may materially adversely affect the Company and its restaurants, regardless of whether such allegations are true or whether the Company is ultimately held liable. Such litigation, adverse publicity or damages could have a material adverse effect on the Company’s business, competitive position and results of operations.

THE COMPANY COULD FACE LABOR SHORTAGES, INCREASED LABOR COSTS, AND OTHER ADVERSE EFFECTS OF VARYING LABOR CONDITIONS.

         The development and success of the Company’s restaurants depend, in large part, on the efforts, abilities, experience and reputations of the general managers and chefs at such

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restaurants. The Company’s inability to recruit and retain such individuals may delay the opening of new restaurants or result in higher employee turnover in existing restaurants, which could materially and adversely affect the Company’s results of operations or business. In addition, the Company’s success depends in part upon its ability to attract, motivate and retain a sufficient number of qualified employees, including restaurant managers, kitchen staff and wait staff. Qualified individuals needed to fill these positions are in short supply and the inability to recruit and retain such individuals may delay the planned openings of new restaurants or result in high employee turnover in existing restaurants. A significant delay in finding qualified employees or high turnover of existing employees could cause the Company’s business and results of operations to suffer. Also, competition for qualified employees could require the Company to pay higher wages to attract sufficient qualified employees which could result in higher labor costs.

INCREASES IN THE MINIMUM WAGE MAY HAVE A MATERIAL ADVERSE EFFECT ON THE COMPANY’S BUSINESS AND FINANCIAL RESULTS.

         A number of the Company’s employees are subject to various minimum wage requirements. The federal minimum wage has remained at $5.15 per hour since September 1, 1997. Any minimum wage increase may have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.

THE COMPANY IS DEPENDENT UPON ITS CHIEF EXECUTIVE OFFICER AND OTHER KEY EMPLOYEES.

         The Company believes that the development of its business has been, and will continue to be, dependent on Ayman Sabi, its Chief Executive Officer, and other key executive employees. The loss of Mr. Sabi’s services could have a material adverse effect on the Company’s business, and there can be no assurance that an adequate replacement could be found for Mr. Sabi in the event of his unavailability. The Company’s continued growth will further depend on its ability to attract and retain additional skilled senior management personnel, including, but not limited to, senior operations personnel.

FAILURE TO COMPLY WITH GOVERNMENTAL REGULATIONS COULD HARM THE COMPANY’S BUSINESS AND REPUTATION.

         The Company is subject to regulation by federal agencies and to licensing and regulation by state and local health, sanitation, building, zoning, safety, fire and other departments relating to the development and operation of restaurants. These regulations include matters relating to:

	•		the environment;
	•		building construction;
	•		zoning requirements; and
	•		the preparation and sale of food and alcoholic beverages.

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         The Company’s facilities are licensed and subject to regulation under state and local fire, health and safety codes. The development and construction of additional restaurants will be subject to compliance with applicable zoning, land use and environmental regulations. Various federal and state labor laws govern the Company’s operations and its relationship with its employees, including minimum wage, overtime, safety and working conditions, fringe benefit and citizenship requirements. In particular, the Company is subject to the regulations of the Immigration and Naturalization Service (INS). Given the location of many of the Company’s restaurants, even if the Company operates those restaurants in strict compliance with INS requirements, the Company’s employees may not all meet federal citizenship or residency requirements, which could lead to disruptions in the Company’s work force. Material increases in unemployment tax rates, sales taxes or the cost of compliance with any applicable law or regulation could materially and adversely affect the Company’s business.

         Sales of alcoholic beverages account for approximately 10% of the Company’s revenues. The Company is required to comply with the alcohol licensing requirements of the various government agencies, including states and municipalities where the Company’s restaurants are located. Alcoholic beverage control regulations require applications to state authorities and, in certain locations, county and municipal authorities for a license and permit to sell alcoholic beverages. Typically, licenses must be renewed annually and may be revoked or suspended for cause at any time. Alcoholic beverage control regulations relate to numerous aspects of the daily operations of the restaurants, including minimum age of guests and employees, hours of operation, advertising, wholesale purchasing, inventory control and handling, storage and dispensing of alcoholic beverages. If the Company fails to comply with federal, state or local regulations its licenses may be revoked and it may be forced to terminate the sale of alcoholic beverages at one or more of its restaurants.

         The federal Americans with Disabilities Act prohibits discrimination on the basis of disability in public accommodations and employment. The Company is required to comply with the Americans with Disabilities Act and regulations relating to accommodating the needs of the disabled in connection with the construction of new facilities and with significant renovations of existing facilities.

         The Company is also subject in certain states to “dram-shop” statutes which generally provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person. Any liability under such statutes could have a material adverse effect on the Company’s results of operations and financial condition.

         In connection with the Company’s franchise operations, it is required to comply with Federal Trade Commission and state laws and regulations that govern the offer, sale and termination of franchises and the refusal to renew franchises.

         Failure to comply with the regulations described above could negatively impact the Company’s business and reputation.

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THE COMPANY’S BOARD OF DIRECTORS MAY ISSUE SHARES OF PREFERRED STOCK WITHOUT SHAREHOLDER APPROVAL.

         The Company’s articles of incorporation authorizes the issuance of up to 10,000,000 shares of preferred stock with rights and preferences that may be determined from time to time by the Company’s Board of Directors. Such preferred stock could adversely affect the voting power or other rights of the holders of outstanding shares of the Company’s Common Stock. In addition, the issuance of shares of preferred stock may have the effect of rendering more difficult, or discouraging, an acquisition or change in control of the Company. Although the Company does not have any current plans to issue any series or shares of preferred stock, it may do so in the future.

ITEM 2. PROPERTIES

         As of April 28, 2002, all but 16 of the Company’s restaurants were located in leased space. However, three of those restaurants were closed as a result of the Company’s restructuring. Initial lease expirations range from five to 20 years, with the majority of the leases providing renewal options extending the lease term. All of the Company’s leases provide for a minimum annual rent, and several leases call for additional rent based on sales volume at the particular location over specified minimum levels. Generally, the leases are triple net leases, which require the Company to pay the costs of insurance, taxes and a portion of the lessors’ operating costs. The Company believes its facilities are in satisfactory condition, are suitable for their intended use and are, in the aggregate, sufficient for the present business needs of the Company.

         The Company owns a 30,000 square foot office building in Pompano Beach, Florida. The Company relocated its corporate headquarters to this facility in October 1999. The Company occupies approximately 17,000 square feet of the new facility and has leased the remaining 13,000 square feet for a three-year period ending in January 2004.

ITEM 3. LEGAL PROCEEDINGS

BANKRUPTCY

	Please refer to ITEM 1, BUSINESS, PROCEEDINGS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE, for a complete discussion of bankruptcy proceedings.

         CLASS ACTION SUIT

As a result of a review of its accounting records, the Company, in August 2001, restated its previously reported, audited financial statements for the fiscal years ended April 30, 2000, and April 25, 1999, and the related, unaudited quarterly financial statements for those periods, as well as the unaudited financial statements for the quarters ended July 30, 2000, October 29, 2000, and January 28, 2001. In connection with the

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	restatement, the Company filed amended Form 10-Ks for fiscal years 2000 and 1999, and amended Form 10-Qs for the fiscal 2001, 2000 and 1999 quarters containing the restated financial statements.
	The restatement occurred because of a determination by the Company that certain operating expenses were more appropriately attributable to fiscal 2000 and 1999 than later periods. The restatement resulted in a decrease in net income for fiscal 2000 and 1999, and the related quarterly periods, and an increase in net income for the quarters ended July 30, 2000, October 29, 2000, and January 28, 2001.
	On April 10, 2002, a purported class action complaint alleging violations of federal securities laws was filed in the United States District Court for the Southern District of Florida against the Company, the chairman of the Company’s board of directors, and the Company’s president and chief executive officer. This action (the “Action”) is styled: Sears v. Roadhouse Grill, Inc, et al., Case No. 02-CV-60493.
	The Action purports to be brought on behalf of all purchasers of the stock of the Company between August 31, 1998, and August 1, 2001, with certain exclusions, and appears to be based principally if not solely on the fact that certain financial statements have been restated as described above. The Company believes there is no merit to the Action. The Company further believes that, under section 510(b) of the Bankruptcy Code, even if claims of the type asserted in the Action are allowed, they will be subordinated, in the Chapter 11 Case, to the claims of all creditors of the Company. Accordingly, such claims are treated under the Reorganization Plan as subordinate to the claims of all creditors. To the extent, if any, such claims are allowed, they will share in the distribution of stock in Reorganized Roadhouse Grill with the Holders of the Old Common Stock, and will not dilute the recoveries of Roadhouse Grill’s creditors. The Company believes there is no merit to the Action.
	As the Company filed for relief under Chapter 11 of the United States Bankruptcy Code on April 16, 2002, any claims in this Action should have been filed by the plaintiffs with the United States Bankruptcy Court for the Southern District of Florida (“the Court”). If the plaintiffs had filed a claim with the Court, their claim against the Company would have been subordinated to the claims of all creditors of the Company. However, no claim against the Company was filed during the bankruptcy proceedings. Therefore, based on discussions with counsel, it is the Company’s expectation that the case against the Company will be dismissed. However, this would not carry over to the individuals who are named as defendants. Should the Action brought by the plaintiffs not be dismissed, the plaintiffs will share in the distribution of stock in Reorganized Roadhouse Grill with the Holders of the Old Common Stock, and will not dilute the recoveries of Roadhouse Grill’s creditors.
	The Company believes that the individual defendants are covered, with respect to the claims asserted in the Action, by the Company’s Directors and Officers Liability Insurance Policy issued by National Union Fire Insurance Co. of Pittsburgh, Pa. The policy provides directors and officers liability coverage and corporate securities coverage. It has aggregate limits of $5,000,000 and a self-insured retention for securities

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	claims of $250,000. With respect to the case against the defendants, the Company will indemnify the individual defendants.

         OTHER

	The Company is a party to certain legal proceedings arising in the ordinary course of business. While it is not possible to predict or determine the outcome of any of these proceedings, in the opinion of the Company, based on review by legal counsel, any resulting liability will not have a material adverse effect on the Company’s financial position or results of operations or its business.

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

         There were no maters submitted for a vote of security holders during the fourth quarter of fiscal year 2002.

PART II

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

MARKET INFORMATION

         As of April 28, 2002, the Company’s authorized and issued common equity consisted of 9,708,741 shares of common stock, par value $.03 per share. The Company’s common stock has traded on the Pink Sheets under the Symbol “GRLLQ” since May 2, 2002. Prior to that, the Company’s common stock traded under the symbol “GRLL” on the Nasdaq National Market from the Company’s initial public offering on November 26, 1996 to May 2, 2002 when the stock was delisted.

         The following table sets forth, for the periods indicated, the highest and lowest closing sale prices for the common stock, as reported by the Nasdaq National Market:

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DIVIDEND POLICY

         The Company has not declared or paid any cash dividends or distributions on its capital stock. The Company does not intend to pay any cash dividends on its common stock in the foreseeable future, as the current policy of the Company’s Board of Directors is to retain all earnings to support operations and finance expansion. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.” Future declaration and payment of dividends, if any, will be determined in light of then current conditions, including the Company’s earnings, operations, capital requirements, financial condition, and other factors deemed relevant by the Board of Directors.

SHAREHOLDERS

         As of September 24, 2002, there were 80 shareholders of record of the Company’s common stock. A portion of the Company’s outstanding common stock is held of record in broker “street name” for the benefit of individual investors.

ITEM 6. SELECTED FINANCIAL DATA

         The following table sets forth for the periods and the dates indicated selected financial data of the Company. The following should be read in conjunction with the Consolidated Financial Statements and Notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this Form 10-K.

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*

Note, for fiscal year 2002, working capital, long term debt, and current ratio do not include liabilities classified as subject to compromise.

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

GENERAL

         The Company operates, franchises and licenses high-quality, full-service, casual dining restaurants under the name “Roadhouse Grill.” The Company was founded in 1992 and opened its first restaurant in 1993. As of April 28, 2002, there were 73 Company owned Roadhouse Grill restaurants located in Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, New York, North Carolina, Ohio, and South Carolina. Of these, 34 are located in Florida. Four of the restaurants outside of Florida were closed subsequent to April 28, 2002. The Company also has three franchised locations in Malaysia, one franchised location in Brasilia, Brazil, three franchised locations in Las Vegas, Nevada and one joint venture location in Milan, Italy.

REVENUES

         The Company’s revenues are derived primarily from the sale of food and beverages. In fiscal year 2002, restaurant sales generated from lunch and dinner amounted to approximately 27% and 73% of restaurant sales, respectively. Restaurant sales of food and beverages accounted for approximately 90% and 10%, respectively, of total restaurant sales in fiscal year 2002. Franchise and management fees during fiscal year 2002 accounted for less than 1% of the Company’s total revenues. Restaurant operating expenses include food and beverage, labor, direct operating and occupancy costs. Direct operating costs consist primarily of costs of expendable supplies, marketing and advertising expense, maintenance, utilities and restaurant general and administrative expenses. Occupancy costs include rent, real estate and personal property taxes and insurance. Certain elements of the Company’s restaurant operating expenses, including direct operating and occupancy costs and to a lesser extent labor costs, are relatively fixed.

         In April 1998, the AICPA Accounting Standards Executive Committee issued Statement of Position 98-5 (“SOP 98-5”), “Reporting on the Costs of Start-Up Activities.” SOP 98-5 defines start-up activities broadly (including organizational costs) and requires that the cost of start-up activities be expensed as incurred. SOP 98-5 is effective for fiscal years beginning after December 15, 1998. In previous years, the Company’s accounting policy was to capitalize pre-opening costs and amortize them over a one-year period. Pre-opening costs consist of direct costs related to hiring and training the initial work force and other direct costs associated with opening a new restaurant. The Company adopted SOP 98-5 during the first quarter of fiscal year 2000. The effect of initially applying the provisions of SOP 98-5 was reported as a change in accounting principle at the beginning of the first quarter of fiscal year 2000. The cumulative effect of the change was $877,000, net of taxes. Thereafter, all such costs have been expensed as incurred and are included in “pre-opening expenses” within the accompanying statements of operations. During fiscal year 2002, pre-opening costs incurred in connection with the opening of three Company owned restaurants averaged approximately $158,900.

         The Company’s new restaurants can be expected to generate above-average sales during the initial weeks that the restaurant is open, commonly referred to as the “honeymoon” period. As the restaurant is open longer, sales generally decline after initial trial by guests. There is no assurance that a new Roadhouse Grill restaurant will attain the average unit volume that has been the Company’s historical experience. Furthermore, costs during the first several months of operation can be expected to be higher than the Company’s average costs, primarily cost of food and beverage sales and labor costs. There is no assurance that these costs will decline as the restaurant matures or that it will attain average costs.

         The average cash investment of the 70 Company-owned Roadhouse Grill restaurants open the entire 52 weeks in fiscal year 2002 was approximately $1.3 million, including building structures (where applicable), building or leasehold improvements and equipment and fixtures, but excluding land and pre-opening costs. The average land acquisition cost for the 13 restaurant sites owned by the Company was approximately $892,000. The Company has obtained financing in connection with the acquisition of its owned properties, which financing generally

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has required a down payment of 10% of the purchase price. The average annual occupancy cost for the restaurant sites leased by the Company is approximately $208,000. The Company expects that the average cash investment required to open the two Company owned restaurants under construction or development as of April 28, 2002, excluding land and pre-opening costs, will be approximately $0.8 million.

         During second and fourth quarters of 2002 the Company recognized impairment losses of $2.8 million and $4.7 million, respectively, for the write-down of assets at 18 Company-owned restaurants at which operations had ceased or would be ceased. The Company closed 13 of the restaurants by the end of fiscal year 2002. Four of the remaining restaurants were closed subsequent to April 28, 2002.

Critical Accounting Policies

         Roadhouse Grill’s accounting policies are more fully described in Note A of Notes to Consolidated Financial Statements. As disclosed therein, the preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements.

         The most significant accounting estimates inherent in the preparation of Roadhouse Grill’s financial statements include estimates associated with management’s evaluation of the recoverability of goodwill as well as those used in the determination of liabilities related to warranty activity, litigation, product liability, product recall, taxation and repositioning. In addition, significant estimates form the bases for the Company’s reserves with respect to sales and pricing allowances, collectibility of accounts receivable, inventory valuations and certain benefits provided to current employees. Various assumptions and other factors underlie the determination of these significant estimates. The process of determining significant estimates is fact specific and takes into account factors such as historical experience, current and expected economic conditions, product mix, and in some cases, actuarial techniques. Roadhouse Grill constantly re-evaluates these significant factors and makes adjustments where facts and circumstances dictate.

         See “New Accounting Pronouncements” below for information regarding the effects of the adoption of SFAS 142, “Goodwill and Other Intangible Assets”, which could be material.

RESULTS OF OPERATIONS

         The following table sets forth for the periods indicated the percentage relationship to total revenues of certain statements of operations data.

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FIFTY-TWO WEEKS ENDED APRIL 28, 2002 (“FISCAL YEAR 2002”) COMPARED TO THE FIFTY-TWO WEEKS ENDED APRIL 29, 2001 (“FISCAL YEAR 2001”)

         Total revenues. Total revenues decreased $9.1 million, or 5.4%, from $168.1 million for fiscal year 2001 to $159.0 million for fiscal year 2002. This decrease is primarily attributable to the 13 unprofitable restaurants in fiscal year 2002. Sales at comparable stores for fiscal year 2002 decreased 4.5% compared with sales for fiscal year 2001. The Company believes that this decrease is partially attributable to reduced marketing and advertising expenditures in fiscal year 2002 as compared to fiscal year 2001 and partially attributable to the decline in the economy, particularly after the events of September 11, 2001. The Company spent 1.6% of revenue on marketing expense in fiscal year 2002 versus 2.5% in fiscal year 2001. A restaurant is considered comparable after its first 18 months of operation.

         Food and beverage. Food and beverage costs decreased $4.0 million to $55.1 million, or 6.7%, for fiscal year 2002 from $59.1 million for fiscal year 2001. This decrease is primarily attributable to the closing of 13 unprofitable restaurants in fiscal year 2002. As a percentage of sales, food and beverage costs decreased by 0.6% to 34.6% for fiscal year 2002 from 35.2% for fiscal year 2001. The decrease as a percentage of revenue can be attributed to the Company changing to a new food distribution company with lower prices.

         Labor and benefits. Labor and benefits costs decreased $2.3 million, or 4.1%, to $51.8 million for fiscal year 2002 from $54.1 million for fiscal year 2001. The decrease is primarily due to the closing of 13 unprofitable restaurants in fiscal year 2002. As a percentage of sales, labor and benefits costs increased 0.4% to 32.6% for fiscal year 2002 from 32.2% for fiscal year 2001. This increase is due to the fixed nature of management salaries.

         Occupancy and other. Occupancy and other costs decreased $1.7 million, or 4.3%, to $37.6 million for fiscal year 2002 from $39.3 million for fiscal year 2001. As a percentage of sales, occupancy and other was 23.7% for fiscal year 2002 versus 23.4% for fiscal year 2001. The decrease in dollars is primarily due to reduced advertising expenditures. The increase as a percentage of sales is due to the fixed components such as rent expense.

         Pre-opening expenses. Pre-opening expenses decreased $2.0 million, or 80.0%, to $0.5

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million in fiscal year 2002 from $2.5 million in fiscal year 2001. The decrease is due to the opening of only three restaurants in fiscal year 2002 compared to the opening of 11 restaurants in fiscal year 2001.

         Depreciation and amortization. Depreciation and amortization decreased $1.3 million, or 11.8%, to $9.0 million for fiscal year 2002 from $10.3 million for fiscal year 2001. The decrease is due to the fact that depreciation expense was discontinued on idle facilities and equipment as a result of closing restaurants and due to equipment at some older restaurants becoming fully depreciated.

         General and administrative and Reorganization Items. General and administrative costs including reorganization decreased $1.9 million, or 4.5%, to $9.1 million for fiscal year 2002 versus $11.0 million for fiscal year 2001. As a percentage of sales, general and administrative costs decreased 0.8% from 6.5% for fiscal year 2001 to 5.7% for fiscal year 2002. The decrease, both in dollars and as a percentage of sales, is the result of the Company’s reduction in corporate overhead and the consolidation of field management personnel, net of increased expenses for reorganization items. Reorganization items occurred in fiscal year 2002 only and represent amounts incurred as a result of the Chapter 11 proceedings in accordance with SOP 90-7. The amounts for reorganization items in general and administrative expenses is $876,207, which represents amounts incurred for legal, professional, and consulting services.

         Asset Impairment. The Company recorded a $7.5 million charge in fiscal year 2002 compared to $3.1 million in fiscal year 2001. The asset impairment charge in fiscal year 2002 is related to 13 stores the Company closed in fiscal year 2002 and the write down of assets of four stores closed subsequent to year end. The asset impairment charge taken in fiscal year 2001 was due to the impairment of assets at four of the 13 stores closed in fiscal year 2002. The asset impairment charge in both years is based on SFAS No. 121 (Accounting for Impairment of Long-lived Assets and for Long-Lived Assets to be Disposed of).

         Total other expense. Total other expense increased $1.0 million, or 30.0%, to $3.9 million for fiscal year 2002 from $2.9 million for fiscal year 2001. The increase is primarily due to higher default interest rates as a result of the Company becoming past due in its obligations.

         Income taxes (expense). The Company recorded income tax expense of $49,000 for fiscal year 2002, compared to $1.8 million for fiscal year 2001. The expense recorded in fiscal 2002 was due to state income and franchise taxes. During the fourth quarter of fiscal year 2001, the Company increased the valuation allowance for the deferred tax asset. Due to losses incurred during fiscal year 2001, management believed that it was not likely that the deferred tax assets would be realized in the future.

FIFTY-TWO WEEKS ENDED APRIL 29, 2001 COMPARED TO THE FIFTY-THREE WEEKS ENDED APRIL 30, 2000 (“FISCAL YEAR 2000”)

         Total revenues. Total revenues increased $19.2 million, or 12.9%, from $148.9 million for fiscal year 2000 to $168.1 million for fiscal year 2001. This increase is primarily attributable to sales generated at the 11 new restaurants opened by the Company since the end of the fiscal year 2000 and the full year impact of operations of the 17 locations opened during fiscal year 2000. Sales at comparable stores for fiscal year 2001 decreased 5.2% compared with fiscal year 2000. The Company believes that this decrease is partially attributable to reduced marketing and advertising expenditures in fiscal year 2001 as compared to fiscal year 2000 and increased competition. The Company spent 3.3% of revenue on marketing expense in fiscal year of 2000 versus only 2.5% in fiscal year 2001. A restaurant is considered comparable after its first 18 months of operation.

         Food and beverage. Food and beverage costs increased $8.8 million to $59.1 million for fiscal year 2001 from $50.3 million for fiscal year 2000. This increase is primarily attributable to 11 new restaurants opened by the Company since the end of the fiscal year 2000 and the full year impact of operations of the 17 locations opened in fiscal year 2000. As a percentage of sales, food and beverage costs increased by 1.4% to 35.2% for fiscal year 2001 from 33.8% for fiscal year 2000. This increase can be attributable to a change in beef procurement practices and a general increase in food cost. In the third quarter of fiscal year 2001, the Company changed from using in house meat cutters to purchasing precut portion controlled beef. The Company estimates that the change to precut beef, increased food and beverage costs as a percentage of

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revenue by approximately 1.4%. The Company anticipates a 0.8% decrease in labor costs due to the elimination of all meat cutters in the future.

         Labor and benefits. Labor and benefits costs increased $10.6 million to $54.1 million for fiscal year 2001 from $43.5 million for fiscal year 2000. The increase is primarily due to the operation of 11 new restaurants opened since the end of the fiscal year 2000 and the full year impact of operations of the 17 locations opened in fiscal year 2000. As a percentage of sales, labor and benefits costs increased 3.0% to 32.2% for fiscal year 2001 from 29.2% for fiscal year 2000. During fiscal year 2001, the Company increased the number of hourly personnel at its restaurants in order to provide excellent customer service. During fiscal year 2001, the Company implemented an aggressive recruiting campaign to attract talented restaurant managers. Due to the competitive labor market, the Company incurred higher management salaries.

         Occupancy and other. Occupancy and other costs increased $9.2 million to $39.3 million for fiscal year 2001 from $30.1 million for fiscal year 2000. The increase is due to the operation of 11 new restaurants opened since the end of the fiscal year 2000 and the full year impact of operations of the 17 locations opened in fiscal year 2000, increase in equipment rental expense and an increase in utilities expense due to higher fuel costs. As a percentage of sales, occupancy and other was 23.4% for fiscal year 2001 versus 20.2% for fiscal year 2000. During fiscal year 2000 and 2001, the Company entered into sale-leaseback agreements to finance furniture and equipment for new locations. These leases were recorded as operating leases and no gain or loss was recorded in these transactions.

         Pre-opening expenses. Pre-opening expenses increased $94,000 to $2.5 million for fiscal year 2001 from $2.4 million in the for fiscal year 2000. The increase is due to the pre-opening expenses incurred in fiscal year 2001 for stores opened in the fourth quarter of fiscal year 2000.

         Depreciation and amortization. Depreciation and amortization increased $1.7 million to $10.3 million for fiscal year 2001 from $8.6 million for fiscal year 2000. The increase is primarily due to the operation of 11 new restaurants opened since the end of the fiscal year 2000 and the full year impact of operations of the 17 locations opened in fiscal year 2000.

         General and administrative. General and administrative costs increased $2.8 million to $11.0 million for fiscal year 2001 versus $8.2 million for fiscal year 2000. The increase is primarily the result of the Company’s substantial recruiting efforts. The Company devoted significant capital resources in fiscal year 2001 to upgrade store management positions. The Company plans to continue to maintain a pool of managers that are trained according to the Roadhouse Grill philosophy. As a percentage of sales, general and administrative costs increased 1.0% from 5.5% for fiscal year 2000 to 6.5% for fiscal year 2001.

         Asset Impairment. The Company recorded a $3.1 million charge in fiscal year 2001 due to the impairment of assets at four stores based on SFAS No. 21 (Accounting for Impairment of Long-lived Assets and for Long-Lived Assets to be Disposed of).