SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

     (MARK ONE)

[X]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934

For the Thirteen Weeks Ended January 25, 2004

OR

[   ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934

For the transition period from            to           

Commission File Number: 0-28930

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 $0.03 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 [X ] No [   ]

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [   ] No [X]

     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 [   ]

     The number of shares of the registrant’s common stock outstanding as of March 8, 2004 was 29,220,663.

DOCUMENTS INCORPORATED BY REFERENCE

None.

Table of Contents

FORM 10-Q
THIRTEEN WEEKS ENDED JANUARY 25, 2004

INDEX

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PART 1 FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ROADHOUSE GRILL, INC.
CONSOLIDATED BALANCE SHEETS
JANUARY 25, 2004 AND APRIL 27, 2003
(Dollars in thousands, except per share data)

The accompanying notes are an integral part of these consolidated financial statements.

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ROADHOUSE GRILL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED JANUARY 25, 2004 AND JANUARY 26, 2003
(Unaudited, dollars in thousands, except per share data)

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The accompanying notes are an integral part of these consolidated financial statements.

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ROADHOUSE GRILL, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE THIRTY-NINE WEEKS ENDED JANUARY 25, 2004
(Dollars in thousands, except share data)

     The accompanying notes are an integral part of these consolidated financial statements.

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ROADHOUSE GRILL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTY-NINE WEEKS ENDED JANUARY 25, 2004 AND JANUARY 26, 2003
(Unaudited, dollars in thousands)

The accompanying notes are an integral part of these consolidated financial statements.

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ROADHOUSE GRILL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)

BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS

     Roadhouse Grill, Inc. (the “Company”) was incorporated under the laws of the state of Florida in 1992. The principal business of the Company is the operation of full service specialty restaurants. The Company has also granted franchises and licenses to operate restaurants under the “Roadhouse Grill” name. The Company opened its first restaurant in Pembroke Pines, Florida (the greater Ft. Lauderdale area) in 1993. As of January 25, 2004, there were 70 company-owned Roadhouse Grill restaurants located in Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, New York, North Carolina, Ohio and South Carolina. Of these, 35 are located in Florida.

     The Company operates on a fifty-two or fifty-three week fiscal year. Each fiscal quarter consists of thirteen weeks, except in the case of a fifty-three week year, in which case the fourth fiscal quarter consists of fourteen weeks.

     The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated.

     While in a Chapter 11 bankruptcy proceeding (see Note 2 below), the Company applied the provisions of SOP 90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code”, which does not significantly change the application of accounting principles generally accepted in the United States; however, it does require that the financial statements for periods including and subsequent to the Chapter 11 bankruptcy distinguish transactions and events that are directly associated with the reorganization from those transactions that are the result of ongoing operations of the business. As discussed in Note 2, the holders of the Company’s common stock representing in excess of 50 percent of the voting shares immediately prior to confirmation of the Plan of Reorganization continued to own in excess of 50 percent following confirmation of the Plan of Reorganization. As a result, the Company did not adopt “fresh start” accounting upon its emergence from bankruptcy in accordance with SOP 90-7.

     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 SOP 90-7. The ability of the Company to continue as a going concern is predicated upon, among other things, the Company’s ability to generate cash flow from operations to service debt and pay capital and operating lease obligations, the ability to otherwise meet its operating expenses, and the ability to obtain sufficient financing or other resources to satisfy future obligations to the extent not covered by cash flow from operations.

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(2)

COMPLETED PROCEEDINGS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE

     On January 18, 2002 (the “Petition Date”), 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”). Prior to the Petition Date, the Company had been experiencing significant cash flow problems primarily resulting from the opening of 31 new restaurants in the prior 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 its other major creditors in an effort to effect an out-of-court restructuring of its liabilities.

     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 an opportunity to prepare a Chapter 11 plan of reorganization.

     On April 16, 2002 (the “Relief Date”), the Court entered an order for relief and the Company filed its proposed Chapter 11 plan of reorganization and its disclosure statement in support of its plan of reorganization. Subsequent to the entry of the order for relief, the Company temporarily 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 on whether to accept or reject 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 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 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,

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the Court terminated exclusivity but refused to postpone the hearing on confirmation of the Plan.

     Thereafter, Restaurants Acquisition I, Inc., 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 reflecting the resolution of those objections (the “Modification”).

     As of August 19, 2002, 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 was embodied in a term sheet between the Company and CNL dated August 21, 2002 (the “Term Sheet”).

     The hearing on confirmation of the Plan, as modified by the Modification and the Term Sheet, took place on August 21, 2002. At the close of the hearing, the Court announced that the Plan, as modified by the Modification, the Term Sheet and the Confirmation Order (as hereinafter defined) (the “Confirmed Plan of Reorganization”), 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”). In November 2003, the Court issued the final decree officially closing the chapter 11 case.

     The Confirmed Plan of Reorganization became effective on September 20, 2002 (the “Effective Date”). Under the Confirmed Plan of Reorganization, the Company received an infusion of new capital of $5.0 million in exchange for 13,888,889 shares of the authorized but unissued common stock of the Company, constituting 47.53% of the outstanding stock of the reorganized Company. The 13,888,889 shares were issued in a private placement pursuant to Section 4(2) of, and Regulation D promulgated under, the Securities Act of 1933, as amended (the “Private Placement Securities”). The Private Placement Securities were issued to Berjaya Group (Cayman) Limited (“Berjaya”), Prime Gaming Philippines, Inc. (“Prime”), Tonto Capital Partners GP, and Stephen C. Saterbo (“Saterbo”), as more particularly set forth in the table immediately below and reflecting the post-restructuring percentage ownership for each respective investment.

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     Berjaya is the Company’s majority shareholder, representing ownership of approximately 66.5% of the Company’s outstanding Common Stock. It is headquartered in Malaysia. Prime is an affiliate of Berjaya. It is 70% owned by Berjaya Group Berhad, which owns 100% of Berjaya. Prime is headquartered in the Philippines. Tonto Capital Partners GP is affiliated with Ayman Sabi, the Company’s Chief Executive Officer, President, and a director. Saterbo is a senior vice president, member of the board of directors, and substantial shareholder of Colorado Boxed Beef Company, a former major supplier to the Company.

     Additionally, pursuant to the Confirmed Plan of Reorganization Berjaya received, in full satisfaction of a $1.5 million loan to the Company, 4,166,667 shares of the Company’s authorized but unissued common stock at $0.36 per share, representing 14.26% of the outstanding stock of the reorganized Company.

     In accordance with the Confirmed Plan of Reorganization, each existing holder of Common Stock received additional Common Stock equal to 15% of the shares that they previously held. After issuance of the additional shares, the existing shareholders own an aggregate of 11,165,107 shares of the outstanding common stock, representing 38.21% of the outstanding stock of the reorganized Company. The total number of shares of common stock outstanding after effecting the Confirmed Plan of Reorganization is 29,220,663.

     Under bankruptcy law, actions by creditors to collect indebtedness owed prior to the Petition Date and/or prior to the Relief Date were stayed and certain other pre-petition and Gap (January 18, 2002 through April 16, 2002, which is the period of time between the Petition Date and the Relief Date) contractual obligations could not be enforced against the Company. The Company received approval from the Court to pay certain pre-petition and “gap” liabilities including employee salaries and wages, benefits, and other employee obligations. Liabilities through the date the Company emerged from bankruptcy, September 20, 2002, which were incurred pre-petition or during the “gap period” had previously been classified as liabilities subject to compromise. With the Company having emerged from bankruptcy, these liabilities were adjusted during fiscal year 2003 to the amounts to be paid pursuant to the Confirmed Plan of Reorganization. As a result, the Company recorded an extraordinary gain relating to the early extinguishment of debt in the consolidated statements of operations in the amount of $0.1

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million and $1.8 million for the thirty-nine weeks ended January 25, 2004 and fiscal year 2003, respectively. This gain resulted primarily from obligations to pay lease payments that were stayed while the Company was in bankruptcy and other obligations that were canceled as a result of the bankruptcy proceeding.

     On the Petition Date, the Company stopped accruing interest on all unsecured pre-petition debt in accordance with SOP 90-7. Contractual interest expense not accrued or recorded on certain pre-petition debt totaled $0.9 million. As of January 25, 2004, all bankruptcy claims have been resolved. See Note 7 for a description of the debt agreements that have been executed in connection with the settlement of certain bankruptcy claims.

     As restructured under the Confirmed Plan of Reorganization, the Company’s secured and unsecured debt, as well as assumed leases and executory contracts, will require substantial monthly payments over extended future periods. The Company’s future success will depend, in part, on its ability to meet these payment obligations. There is no assurance that the Company will be able to do so.

     Reorganization items represent amounts incurred as a result of the Chapter 11 proceedings in accordance with SOP 90-7. The Company incurred $3.6 million of expenses relating to its reorganization, including $2.7 million and $0.9 million, respectively, during fiscal year 2003 and fiscal year 2002. The Company has not incurred reorganization expenses during the thirteen or thirty-nine weeks ended January 25, 2004, as compared to $0.2 million and $2.5 million recorded during the thirteen and thirty-nine weeks ended January 26, 2003, respectively. The reorganization expenses recorded in the prior years primarily include fees for legal, accounting, consulting, and outside services. Additionally, on the Petition Date, the Company stopped accruing interest on all unsecured pre-petition debt in accordance with SOP 90-7. The Company is now required to make regular payments on all debt pursuant to the Confirmed Plan of Reorganization.

(3)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PROPERTY AND EQUIPMENT

     Property and equipment are carried at cost less accumulated depreciation. The cost of restaurants held under capital leases is recorded at the lower of the net present value of the minimum lease payments or the fair value of the leased property at the inception of the lease. Repairs and maintenance are expensed as incurred. Major renewals and betterments, which substantially extend the useful life of the property, are capitalized and depreciated over the useful life of the asset. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from their respective accounts and any gain or loss is recognized. Property and equipment are depreciated on a straight-line basis over their useful lives. Estimated useful lives include consideration of lease renewals in situations in which the Company has both an option and the current intent to renew the lease.

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     The Company accounts for long-lived assets in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. This statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company regularly reviews the performance of its individual restaurants to identify possible under-performing operations that should be assessed for possible impairments of long-lived assets. As part of this analysis, management considers factors that have in the past and may continue to impact operating results. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

ASSETS HELD FOR SALE

     Assets held for sale include properties owned by the Company that are currently being marketed for sale and are carried at estimated net realizable value.

INTANGIBLE ASSETS

     The Company accounts for intangible assets in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”. As of January 25, 2004, the Company had unamortized goodwill in the amount of $1.5 million and unamortized identifiable intangible assets in the amount of $0.3 million. In accordance with SFAS No. 142, goodwill, which relates to the prior acquisition of two individual restaurant operations, is subject to an annual impairment test based on its fair value and no amortization of goodwill is recorded. As of October 26, 2003, the date on which the Company completed its annual goodwill impairment test, the Company determined that it had no impairment of goodwill. The Company will continue to assess the value of its goodwill in fiscal 2004 and future periods in accordance with applicable accounting rules. Other intangible assets, which have been determined to have a finite life, are being amortized over their useful lives.

CASH AND CASH EQUIVALENTS

     The Company considers all short-term investments with an original maturity of three months or less to be cash equivalents.

INVENTORY

     Inventory is valued at the lower of cost (based on first-in, first-out inventory costing) or net realizable value and consists primarily of restaurant food items, beverages and paper supplies.

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INCOME TAXES

     Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

     During the thirteen and thirty-nine weeks ended January 25, 2004, the Company recognized no federal income taxes. During the fiscal year ended April 27, 2003, the Company recognized a $1.2 million federal income tax benefit relating to anticipated income tax refunds relating to federal carryback claims of the Company’s alternative minimum tax net operating loss generated for the tax year ended April 28, 2002 and amendments of previously filed federal and state income tax returns. Of this amount, $0.6 million was collected in fiscal 2003 and $0.6 million was collected in the first quarter of fiscal 2004. The Company has also filed amended income tax returns requesting additional income tax refunds totaling approximately $0.1 million. Although there can be no assurance, these refunds are currently anticipated to be received by the end of fiscal 2004, and will be recognized in the Company’s statement of operations when realizability is assured.

PRE-OPENING COSTS

     Pre-opening costs are costs incurred in the opening of new restaurants (primarily payroll costs) and are expensed as incurred. Deferred costs related to restaurant sites subsequently determined to be unsatisfactory and general site selection costs that cannot be identified with a specific restaurant are charged to operations as incurred.

FISCAL YEAR

     The Company’s fiscal year ends on the last Sunday in April.

USE OF ESTIMATES

     The preparation of the Consolidated 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 reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. 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 Consolidated Financial Statements. Amounts

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reported in the Company’s Consolidated Financial Statements that are based, in part, on the use of estimates include reserves relating to the collectibility of accounts receivable, insurance reserves relating to claim costs required to be funded by the Company, the recoverability of deposits and other prepaid items, estimated accrued property taxes and other accrued liabilities for which actual invoices have not yet been received and liabilities related to unredeemed gift certificates and gift cards. 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. The Company constantly re-evaluates these significant factors and makes adjustments where facts and circumstances dictate.

     The Company believes that the assumptions and other factors used to determine its estimates are reasonable and that, with the exception of insurance reserves relating to claim costs required to be funded by the Company, changes in these assumptions would not have a material impact on the Company’s financial position or results of operations. In regards to insurance reserves, recorded liabilities are based upon an estimate of the total amount that may be paid to settle claims required to be funded by the Company and incurred through the balance sheet date, including consideration of amounts paid-to-date in relation to the individual claims, an analysis of the loss development on all reported claims, potential legal or other related costs and any stop loss limits applicable under the Company’s insurance policies. Such reserves are subject to change based upon any development that occurs in relation to the outstanding claims subsequent to the preparation of the Company’s Consolidated Balance Sheet. As of January 25, 2004 and April 27, 2003, total recorded insurance reserves were $1.7 million and $2.0 million, respectively.

     In addition, asset impairment charges, restructuring charges, and the reserve for restructuring are predominantly based on estimates of the market value of assets of which the Company plans to dispose and the amount of future cash flows estimated to be realized relating to impaired assets that are anticipated to be utilized in the Company operations in the future. Such estimates are also affected by the time interval required to dispose of assets to be sold. The assumptions used, particularly in regards to estimates of future cash flows to be realized relating to impaired or potentially impaired assets, are critical in assessing a potential impairment and, if any, estimating the amount of the impairment. These assumptions require consideration of future trends in key operating ratios and the timing and impact of possible changes in operations relating to specific assets. Changes in these assumptions could have a material impact on the timing and amount of possible asset impairments and therefore the Company’s results of operations.

DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

     The estimated fair values of financial instruments have been determined based on available information and appropriate valuation methodologies. The carrying amounts of accounts receivable, accounts payable and accrued expenses approximate fair value due to the short-term nature of the accounts. The fair value of long-term debt is estimated

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based on market rates of interest currently available to the Company. The carrying values of long-term debt and capital leases at January 25, 2004 and April 27, 2003 approximate fair value.

REVENUE RECOGNITION

     Sales by Company-operated restaurants are recognized daily as cash and credit card receipts are received. Revenues from franchised and affiliated restaurants are derived from royalties and initial setup fees. Initial fees are recognized upon opening of a restaurant, which is when the Company has performed substantially all initial services required by the franchise arrangement. Royalties and income from the Company’s joint venture are recorded as the sales of the franchisees and joint venture are reported to the Company. In addition, the Company receives rental income from various sources. Revenues generated from royalty income and rental income combined for each of the thirteen and thirty-nine weeks ended January 25, 2004 and January 26, 2003 were less than 0.5% of total revenues. All uncollected income related to franchise and joint venture operations is subject to an assessment of collectibility and an allowance for doubtful accounts is recorded if collection is not reasonably assured.

ADVERTISING COSTS

     The Company expenses all advertising costs as incurred. Advertising expense for the thirteen weeks ended January 25, 2004 and January 26, 2003 was $0.8 million and $0.9 million, respectively. Advertising expense is included within “occupancy and other” in the accompanying Consolidated Statements of Operations.

STOCK BASED COMPENSATION

     The Company accounts for stock options as prescribed by Accounting Principles Board Opinion No. 25 as amended by Statement of Financial Accounting Standard (“SFAS”) No. 148, Accounting for Stock-Based Compensation, Transition, and Disclosure. Under APB Opinion No 25, compensation expense is recorded when the exercise price of the Company’s employee stock option is less than the market price of the underlying stock at the date of grant.

     The Company has adopted the disclosure provisions of SFAS No. 148, “Accounting for Stock Based Compensation — Transition and Disclosure,” which amends SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS No. 148 allows for continued use of recognition and measurement principles of Accounting Principles Board (“APB”) Opinion No. 25 and related interpretations in accounting for stock based compensation. The Company applies the recognition and measurement principles of APB Opinion No. 25, and related interpretations in accounting for stock based compensation. No stock-based employee compensation expense is reflected in net income as all options granted under the Company’s Stock Option Plan had an exercise price greater than the market value of the underlying common stock on the date of grant.

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     Effective October 30, 2003, the Company granted options for 1,395,000 shares of common stock. The options will vest one third at the end of each of the 2004, 2005 and 2006 fiscal years. The option price is $0.36, which was above the market value of the common stock at the grant date.

     The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions to stock-based employee compensation. Such disclosure is not necessarily indicative of the fair value of stock options that could be granted by the Company in future periods or of the value of all options currently outstanding.

     The fair value method for these options was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions for the thirteen and thirty-nine weeks ended January 25, 2004 and January 26, 2003: the risk-free interest rate was 4.67%; the expected dividend yield was 0.0%, the volatility factor of the expected market price of the Company’s common stock was 49.72%, and a grant life of the option of 10 years.

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NEW ACCOUNTING STANDARDS

     In December 2002, the FASB issued Statement No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure, an amendment of FASB Statement No. 123” (“SFAS 148”). SFAS 148 amends FASB Statement No. 123, “Accounting for Stock-Based Compensation”, to provide alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation and to require prominent disclosures about the effects on reported net income of an entity’s accounting policy decisions with respect to stock-based employee compensation. SFAS 148 also amends APB Opinion No. 28, “Interim Financial Reporting”, to require disclosures about those effects in interim financial information. The Company currently accounts for its stock-based compensation awards to employees and directors under the accounting prescribed by Accounting Principles Board Opinion No. 25 and provides the disclosures required by SFAS No. 123. The Company currently intends to continue to account for its stock-based compensation awards to employees and directors under the accounting prescribed by Accounting Principles Board Opinion No. 25 and has adopted the additional disclosure provisions of SFAS 148.

(4)

LIQUIDITY

     See Note 2 for a description of the Company’s Chapter 11 bankruptcy proceedings that were completed in September 2002.

     The Company’s material financial commitments relate principally to its working capital requirements and its obligations to make operating and capital lease and term loan payments, monthly interest payments on its various loans and lease payments in accordance with the terms of its real property leases. As of January 25, 2004, total minimum annual payments required under the Company’s note and lease obligations, including interest thereon, were $18.4 million. See discussion below regarding the Company’s total contractual cash obligations. In addition, capital requirements relating to the opening of new restaurants have in the past been (and may in the future be) significant.

     The Company did not open any new restaurants during the thirteen weeks ended January 25, 2004. The Company opened one new restaurant during the thirty-nine weeks ended January 25, 2004 at a total cost of approximately $1.8 million, of which $0.4 million was expended during the thirty-nine weeks ended January 25, 2004. The Company does not currently expect to open any additional Company-owned restaurants in fiscal year 2004. Further, while the Company may, subject to cash availability, open one or two new restaurants in fiscal 2005, no final decisions have to date been made in that regard. At this time, it is expected that the cash required to develop new restaurants beyond fiscal 2004 will be funded from operations. Should cash from operations be insufficient for future

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expansion, and additional capital through debt and equity sources be unavailable, there can be no assurance that the Company will be able to open additional restaurants.

     During the thirteen and thirty-nine weeks ended January 25, 2004, the Company’s primary sources of working capital were cash provided by operations, the net proceeds of a sale/leaseback transaction involving its corporate headquarters building (see Note 13) and the sale of food and beverage credits (see Note 11). During the thirty-nine weeks ended January 25, 2004, the Company also collected $0.6 million in federal income tax refunds. The Company has filed for approximately $0.1 million in additional federal and state income tax refunds in fiscal year 2004, which it presently expects to collect during fiscal year 2004. The Company expects that its primary source of working capital for the remainder of fiscal year 2004 will be cash flow from operations.

     The Company has experienced significant cash flow problems in the past and may suffer from such cash flow problems in the future. The Company believes that its ability to generate cash from operations is dependent upon, among other things, demand for its products, a continued commitment to providing an excellent dining experience for its customers, the development and implementation of successful marketing strategies, the cost levels of its various food products, and its continuing efforts to reduce its operating costs. The Company implemented revenue enhancement programs including the implementation of a new menu with enhanced menu items in June 2003. The Company also has taken, and continues to take, steps to controls its costs. There can be no assurance that these initiatives will be effective in generating profits or producing sufficient cash flows to fund operating requirements, including debt repayments and lease obligations.

     Capital requirements relating to the implementation of the Company’s business plan have been and will continue to be significant. If cash generated from the Company’s operations and other possible sources described above are insufficient to fund the Company’s financial commitments and working capital requirements (including amounts required to support future growth), the Company will have to obtain additional financing. There can be no assurance that additional debt and/or equity financing will be available on terms acceptable to the Company, or at all. In the event the Company is unable to secure needed additional financing, the Company may have to significantly curtail its operations.

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     The following table summarizes the Company’s future contractual cash obligations for the remainder of the current fiscal year, for each of the next four fiscal years and thereafter as of January 25, 2004 (dollars in thousands). See Notes 5, 6 and 7 for further information regarding these obligations. Operating lease commitments include estimated common area maintenance expenses.

     Other commitments represent minimum amounts due to certain vendors under contractual agreements. Amounts reflected above could change as additional commitments may be made, cancellation provisions may be exercised by the Company or by its creditors, or agreements may be modified as warranted by changes in business or operational needs. Amounts due under long term debt agreements may be accelerated to the extent the Company realizes excess cash flow as described in Note 7.

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(5)

CAPITAL LEASE OBLIGATIONS

     The Company has entered into various lease agreements relating to buildings and furniture, fixtures and equipment that quality as capital lease obligations under generally accepted accounting principles. Such lease agreements expire over periods ranging from four to 20 years. The following is a schedule of future minimum lease payments required under capital leases for the remainder of the current fiscal year, for each of the next four fiscal years and thereafter as of January 25, 2004 (dollars in thousands):

(6)

OPERATING LEASES

     The Company is a party to various operating lease agreements relating to the rental of land and buildings and equipment at many of its restaurants. Such agreements range in terms of up to 20 years and generally provide the Company the option to renew for additional periods. The agreements generally also require significant penalties to be paid in the event the lease is terminated prior to its expiration. The following is a schedule of future minimum lease payments, including estimated increases in allocated maintenance costs, required under operating leases that have remaining noncancelable lease terms in excess of one year as of January 25, 2004 for the remainder of the current fiscal year, for each of the next four fiscal years and thereafter (dollars in thousands):

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     The total rent expense for operating leases was $2.6 million for each of the thirteen weeks ended January 25, 2004 and January 26, 2003. The total rent expense for operating leases was $7.7 million and $8.2 million for the thirty-nine weeks ended January 25, 2004 and January 26, 2003, respectively. The Company leases a portion of its corporate headquarters and has recorded rental income in the amount of less than $0.1 million for each of the thirteen weeks ended January 25, 2004 and January 26, 2003 and $0.1 million for each of the thirty-nine weeks ended January 25, 2004 and January 26, 2003.

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(7)

LONG-TERM DEBT

     As of January 25, 2004, the Company’s long-term debt was comprised of the following items (amounts in thousands):

     The carrying amount of property and equipment and assets held for sale used as collateral was approximately $50.6 million and $60.8 million at January 25, 2004 and April 27, 2003, respectively.

     The debt agreements resulting from the Confirmed Plan of Reorganization may require prepayments of principal to the extent the Company generates excess cash flow from operations, as defined in the agreements.

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(8)

STOCK OPTION PLANS

     Effective January 28, 2003, the Company adopted the 2003 Stock Option Plan (the “2003 Plan”). The 2003 Plan provides for the Company to grant stock options to purchase up to 1,500,000 shares of the Company’s authorized but unissued common stock to officers, directors, key employees and independent contractors and consultants. The 2003 Plan is administered by the Compensation Committee of the Company’s Board of Directors. Options may be granted at an exercise price of not less than $0.36 per share and may have a term of up to ten years. The vesting period of options granted under the 2003 Plan is determined by the Compensation Committee.

     Effective October 30, 2003, the Company granted options to purchase 1,395,000 shares of common stock. The options will vest one third at the end of each of the 2004, 2005 and 2006 fiscal years. The option exercise price is $0.36, which was above the market value of the common stock at the grant date.

(9)

SELF-FUNDED INSURANCE

     The Company maintains insurance to cover the potential liabilities associated with a number of the risks that the Company may encounter in its business operations. These risks include property and flood coverage, auto, workers’ compensation, general liability and umbrella, directors and officers liability, employers practice liability and crime insurance. Many of the policies, such as property, flood and directors and officers liability include deductibles ranging from $100,000 to $250,000 per claim. For many policy years under workers’ compensation, employers practice liability and general liability coverages, the Company is effectively self-insured up to varying self-insurance retention limits set on an individual claim basis ranging up to $300,000 per claim and on an aggregate basis. The Company is also self-insured in regards to the medical insurance benefits that it provides to its managers and certain other employees up to an aggregate stop loss limit. These employees who elect to receive medical insurance benefits are required to contribute a portion of the cost of providing the insurance benefits. Total insurance costs incurred by the Company for the thirteen weeks ended January 25, 2004 and January 26, 2003 were $1.3 million and $1.1 million, respectively. Total insurance costs incurred by the Company for the thirty-nine weeks ended January 25, 2004 and January 26, 2003 were $3.5 million and $3.3 million, respectively.

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(10)

COMMITMENTS AND CONTINGENCIES

CLASS ACTION SUIT AND SEC INFORMAL INVESTIGATION

     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 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 then 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. 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 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. As a result, the Company believes that the plaintiffs’ claims against the Company have now been extinguished.

     On July 26, 2002, while the Company’s Chapter 11 proceedings were pending, the plaintiffs filed an amended class action complaint. Since the case was stayed against the Company, the individual defendants filed a motion to dismiss the amended class action complaint on September 4, 2002, and the plaintiffs filed an opposition thereto on October 3, 2002. On April 4, 2003, the court heard arguments on the motion to dismiss and dismissed the amended class action complaint. The plaintiffs filed a second amended class action complaint on May 5, 2003 naming only the individual defendants and not the Company. The individual defendants filed a motion to dismiss the second amended class action complaint on June 4, 2003, to which plaintiffs responded. The court heard oral

24

arguments on the matter on October 30, 2003 and the judge’s ruling on the motion to dismiss is currently pending.

     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 claims of $250,000. With respect to the case against the individual defendants, the Company’s by-laws obligate the Company to indemnify the individual defendants to the fullest extent provided by law, and, in that regard, the Company has been paying the individual defendants’ legal fees in connection with the defense of the Action. Such fees have not been material to date with respect to the Company’s results of operations.

     The Company believes that its only remaining potential liability with respect to the Action relates to its obligation to indemnify the individual defendants to the fullest extent provided by law. Based on the current stage of the case, which is in the earliest stages of pleading and has been dismissed once, the fact that no class has been certified in the Action, the fact that the court is currently considering an extensive motion to dismiss the second amended complaint, and the fact that the Company and the individual defendants believe that the Action is without merit and that the individual defendants have significant defenses to the claims raised in the Action, the Company does not believe that a material liability to the Company with respect to the Action is probable. Further, the Company believes that the insurance coverage described above provides adequate coverage for any loss ultimately incurred by the individual defendants.

     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.

GUARANTOR OF EQUIPMENT LEASES

     The Company is the guarantor of equipment leases for three restaurants that are owned by one of its franchisees, Roadhouse West G.P., two of which are currently closed. In addition, the Company believes that other parties have also guaranteed these obligations. Roadhouse West G.P. is currently in default of the payment terms of the operating leases, and recently filed a petition under Chapter 11, which has now been converted into a Chapter 7 proceeding. The balance of the remaining lease payments due was approximately $1.0 million as of January 25, 2004. The leases are collateralized by the leased equipment and certain leasehold improvements. The Company cannot predict the outcome of the proceedings but believes that any potential liability will be mitigated by the factors described above and, accordingly, has provided no reserve for any possible obligations that may arise relating to these proceedings.

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OTHER AGREEMENTS

     The Company is a party to various agreements relating to services performed at its restaurants. Such agreements are generally for periods of one year or less and none of these agreements, individually, require payments that would be material to the Company’s financial position or results of operations.

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, the Company does not believe that any liability resulting from these proceedings will have a material adverse effect on the Company’s financial position or results of operations or its business.

(11)

SALE OF FOOD AND BEVERAGE CREDITS

     In June 2003, the Company entered into an agreement with a loyalty and rewards company (the “Rewards Company”) involving the discounted advance sale of food and beverage credits to be used at its restaurants. The agreement extends for a two-year period. As part of the agreement, the Company initially received $1.5 million in exchange for the credits, which was recorded as unearned revenue. In November 2003 and January 2004 (subsequent to the end of the third fiscal quarter), the Company received $0.6 million and $0.2 million, respectively, in exchange for additional credits. In the aggregate, the Company has received $2.3 million, which represents the full amount to be received under the agreement. As of January 25, 2004, the balance of the unearned revenue of $0.9 million is recorded in the accompanying Consolidated Balance Sheet. The Company’s obligation to service the unused food and beverage credits is secured by a second lien on certain property and equipment of the Company. Throughout the term of the agreement, the Company and the Rewards Company share in the proceeds of credit card transactions resulting from use of the credits by members of the Rewards Company and the funds received from the advance sale of the food and beverage credits are used to cover operating expenses relating to the use of credits. The Company believes that the members of the Rewards Company are predominantly not current customers of the Company’s restaurants.

(12)

NET LOSS PER COMMON SHARE (“EPS”)

     Basic net earnings per share equals net earnings divided by the weighted average shares outstanding during the period. The computation of diluted net earnings per share includes dilutive common stock equivalents in the weighted average shares outstanding. On October 30, 2003, 1,395,000 options to purchase shares of common stock were issued at an option price of $0.36 per share (see Note 8). These options were not included in the computation of diluted EPS because the Company recognized a loss during the applicable

26

periods and including such options would result in antidilutive EPS. The reconciliation between the computations is as follows (dollars in thousands, except per share data):

     No stock options were outstanding during the thirteen weeks ended January 26, 2003. Options to purchase 511,333 shares of common stock at a weighted average exercise price of $4.57 per share were outstanding during the thirty-nine weeks ended January 26, 2003 until such options were cancelled pursuant to the Confirmed Plan of Reorganization. The options were not included in the computation of diluted EPS because the Company recognized a loss during the thirty-nine weeks and including such options would result in antidilutive EPS.

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(13)

SALE/LEASEBACK OF CORPORATE HEADQUARTERS BUILDING

     In December 2003, the Company completed a sale and leaseback transaction relating to its corporate headquarters building. Gross proceeds from the sale were $3.0 million. The net proceeds of $2.6 million, after payment of expenses and security deposits, were used, in part, to pay debt related to the facility of $1.5 million. The remaining net proceeds of $1.1 million were retained by the Company for working capital and general corporate purposes. The leaseback agreement provides for rent to be paid on a triple net basis and extends for a period of 15 years with two five-year renewal options.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS

     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 statements relating to 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.

     These forward looking statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, all of which are difficult to predict. 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 or implied in any forward looking statement. Important factors that could cause actual results to differ materially from those expressed or implied by the forward looking statements or “cautionary statements,” include, but are not limited to, the following:

•

the Company’s ability to manage its debt and comply with the terms of its debt instruments, operating leases and capital leases;

•

the Company’s ability to acquire adequate food supply and to obtain favorable food costs and events that impact availability and pricing of food products (such as instances of mad cow disease);

•

the Company’s ability to recruit, train and retain management personnel and to obtain necessary numbers of qualified employees;

•

changes in consumer preferences, tastes and eating habits;

•

U. S. domestic economic conditions and the impact of international conflicts on domestic economic conditions;

•

the Company’s ability to maintain financial and accounting controls, management controls, reporting systems and procedures;

•

increases in interest rates;

•

anticipated trends in the economy and the restaurant industry and competition for consumer dollars, both from restaurants similar to the Company’s restaurants and restaurants generally;

•

the Company’s ability to manage labor, food costs and other operating expenses so that its restaurants increase sales and operate on a profitable and positive cash flow basis;

•

availability of additional financing to the Company on satisfactory terms or at all;

•

the relisting of the Company’s stock;

•

the outcome of the SEC inquiry;

•

the Company’s ability to further develop its business beyond its existing restaurants including finding suitable locations for new restaurants and the impact of seasonality because of the Company’s current configuration with half its restaurants in Florida;

•

costs associated with opening, or completing construction on, new restaurants; and

29

•

the Company’s ability to locate suitable franchisees in markets which it does not serve to develop restaurants in those markets.

     The forward-looking statements contained in this report reflect the Company’s current view about future events and are subject to risks, uncertainties and assumptions. The important factors described above, as well as the factors described elsewhere in this report and in the Company’s 2003 Annual Report on Form 10-K, 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 undertakes no obligation to publicly release any revisions to these forward looking statements, which speak only as of the date hereof. Readers of this report are cautioned not to place undue reliance on these forward looking statements.

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 January 25, 2004, there were 70 Company owned Roadhouse Grill restaurants located in Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, New York, North Carolina, Ohio, and South Carolina. Of these, 35 are located in Florida. The Company also has three franchised locations in Malaysia, one franchised location in Brasilia, Brazil, one franchised location in Las Vegas, Nevada, one franchised location in Cincinnati, Ohio and four joint venture restaurants in Italy.

     During the last few years the Company’s restaurant business has been hampered by its heavy debt, which caused, in part, the Company’s 2002 Chapter 11 proceeding, and continuing lower same restaurant sales. Economic conditions and a competitive restaurant market have also contributed to lower same restaurant sales. Further, recent food cost increases arising from adverse market conditions have not yet been fully passed on to customers. All of these factors have caused the Company to continue in a loss position. The Company continues to take steps to increase sales, pass more of its increased food costs on to customers and control its costs, all in an effort to return to profitability.

REVENUES

     The Company’s revenues are derived primarily from the sale of food and beverages. During the thirteen weeks ended January 25, 2004, restaurant sales generated from lunch and dinner amounted to approximately 28% and 72% of restaurant sales,

30

respectively, as compared to 26% and 74%, respectively, for the thirteen weeks ended January 26, 2003. Restaurant sales of food and beverages accounted for approximately 91% and 9%, respectively, of total restaurant sales in the third fiscal quarter of 2004 and 90% and 10%, respectively, in the third fiscal quarter of 2003. Franchise and management fees during the thirteen weeks ended January 25, 2004 and January 26, 2003 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 property 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.

     Of the Company’s 70 currently operating Company-owned restaurants, one was opened in April 2003 and one was opened in June 2003. One restaurant was closed as of July 27, 2003 in conjunction with the sale of the related leasehold interest in the second quarter of fiscal 2004. No additional restaurants are expected to open in fiscal 2004, and while subject to cash availability, the Company may open one or two additional restaurants in fiscal 2005, no final decisions have to date been made to open any new restaurants.

     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 can be no assurance that a new Roadhouse Grill restaurant will attain profitable or positive cash flow operations. Furthermore, costs during the first several months of operation can be expected to be higher than the Company’s average costs and there is no assurance that these costs will decline to more normalized levels as the new restaurant matures.

     The average cash investment of the 69 Company-owned Roadhouse Grill restaurants open the entire 52 weeks in fiscal year 2003 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 12 restaurant sites operating and owned by the Company was approximately $0.8 million. The average annual occupancy cost for the restaurant sites leased by the Company is approximately $0.2 million.

CRITICAL ACCOUNTING POLICIES

     Roadhouse Grill’s accounting policies are more fully described in Note 3 of the 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

31

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. Management believes the following critical accounting policies affect the significant judgments and estimates used in the preparation of the Company’s Consolidated Financial Statements.

PROPERTY AND EQUIPMENT

     The Company accounts for long-lived assets in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. This statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company regularly reviews the performance of its individual restaurants to identify possible under performing operations that should be assessed for possible impairments of long-lived assets. As part of this analysis, management considers factors that have in the past and may continue to impact operating results. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

INTANGIBLE ASSETS

     The Company accounts for intangible assets in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”. As of January 25, 2004, the Company had unamortized goodwill in the amount of $1.5 million and unamortized identifiable intangible assets in the amount of $0.3 million. In accordance with SFAS No. 142, goodwill, which relates to the prior acquisition of two individual restaurant operations, is subject to an annual impairment test based on its fair value and no amortization of goodwill is recorded. As of October 26, 2003, the date on which the Company completed its annual goodwill impairment test, the Company determined that it had no impairment of goodwill. The Company will continue to assess the value of its goodwill in fiscal 2004 and future periods in accordance with applicable accounting rules. Other intangible assets, which have been determined to have a finite life, are being amortized over their useful lives.

USE OF ESTIMATES

     The preparation of the Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the

32

reporting period. Actual results could differ materially from those estimates. Amounts reported in the Company’s Consolidated Financial Statements that are based, in part, on the use of estimates include reserves relating to the collectibility of accounts receivable, insurance reserves relating to claim costs required to be funded by the Company, the recoverability of deposits and other prepaid items, estimated accrued property taxes and other accrued liabilities for which actual invoices have not yet been received and the liability for unredeemed gift certificates and gift cards. 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. The Company constantly re-evaluates these significant factors and makes adjustments where facts and circumstances dictate.

     The Company believes that the assumptions and other factors used to determine these estimates are reasonable and that, with the exception of insurance reserves relating to claim costs required to be funded by the Company, changes in these assumptions would not have a material impact on the Company’s financial position or results of operations. In regards to insurance reserves, recorded liabilities are based upon an estimate of the total amount that may be paid to settle claims required to be funded by the Company and incurred through the balance sheet date, including consideration of amounts paid-to-date in relation to the individual claims, an analysis of the loss development on all reported claims, potential legal or other related costs and any stop loss limits applicable under the Company’s insurance policies. Such reserves are subject to change based upon any development that occurs in relation to the outstanding claims subsequent to the preparation of the Company’s Consolidated Balance Sheet. As of January 25, 2004 and April 27, 2003, total recorded insurance reserves were $1.7 million and $2.0 million, respectively.

     In addition, asset impairment charges, restructuring charges, and the reserve for restructuring are predominantly based on estimates of the market value of assets of which the Company plans to dispose and the amount of future cash flows estimated to be realized relating to impaired assets that are anticipated to be utilized in the Company operations in the future or expenditures estimated to be used to settle the outstanding obligations. Such estimates are also affected by the time interval required to dispose of assets to be sold. The assumptions used, particularly in regards to estimates of future cash flows to be realized relating to impaired or potentially impaired assets, are critical in assessing a potential impairment and, if any, estimating the amount of the impairment. These assumptions require consideration and projection of future trends in key operating ratios and the timing and impact of possible changes in operations relating to specific assets. Changes in these assumptions could have a material impact on the timing and amount of possible asset impairments and therefore the Company’s results of operations.

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RESULTS OF OPERATIONS

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

34

The following table sets forth for the periods indicated certain restaurant data:

     RESTAURANT DATA:

35

THIRTEEN WEEKS ENDED JANUARY 25, 2004 (“FISCAL YEAR 2004 THIRD QUARTER”) COMPARED TO THE THIRTEEN WEEKS ENDED JANUARY 26, 2003 (“FISCAL YEAR 2003 THIRD QUARTER”)

     Total revenues. Total revenues decreased $0.9 million, or 2.7%, from $33.9 million for Fiscal Year 2003 Third Quarter to $33.0 million for Fiscal Year 2004 Third Quarter. This decrease is primarily attributable to a reduction in sales at comparable restaurants, offset to some extent by the opening of two new restaurants in April and June 2003 and the closing of one restaurant in July 2003 as a result of the sale of the leasehold interest. Sales at comparable restaurants for Fiscal Year 2004 Third Quarter decreased 4.0% compared with sales for Fiscal Year 2003 Third Quarter. Management believes that this decrease is primarily attributable to competition from new restaurants in certain of the markets in which the Company’s restaurants operate, the Company’s financial condition and the impact of the Company’s financial condition on the ability to invest in its restaurants and engage in expanded marketing initiatives and the general state of the economy and its impact on the casual full service dining industry and the restaurant industry generally. A restaurant is considered comparable after its first 18 months of operation. The Company did not open or close any company owned and operated restaurants during either Fiscal Year 2004 Third Quarter or Fiscal Year 2003 Third Quarter.

     Food and beverage. Food and beverage costs increased $0.4 million, or 3.5%, to $11.7 million for Fiscal Year 2004 Third Quarter from $11.3 million for Fiscal Year 2003 Third Quarter. As a percentage of revenues, food and beverage costs increased by 2.0% to 35.4% for Fiscal Year 2004 Third Quarter from 33.4% for Fiscal Year 2003 Third Quarter. The increase, both in dollars and as a percentage of revenues, is primarily attributable to the significant increases in meat and cheese prices. The increase in meat costs, that began in March 2003 and was further negatively impacted by the Mad Cow Disease scare which closed the Canadian border from exporting any beef products, has continued to have a significant impact on food costs. During September 2003, in response to the continued abnormally high beef prices, the Company modified its menu pricing on certain items. This increase averaged approximately 3% based on the current sales mix at the time of the increase. The Company will continue to monitor its pricing and will whenever possible pass food cost increases on to its customers. However, due to competitive conditions and the Company’s customer base, it may not be possible to pass increased food costs on to customers, particularly during times of high meat, cheese and produce costs.

     Labor and benefits. Labor and benefits costs decreased $0.6 million, or 5.2%, to $10.9 million for Fiscal Year 2004 Third Quarter from $11.5 million for Fiscal Year 2003 Third Quarter. As a percentage of revenues, labor and benefits costs decreased 0.9% to 33.0% for Fiscal Year 2004 Third Quarter from 33.9% for Fiscal Year 2003 Third Quarter. This decrease, both in dollars and as a percentage of revenues, is due primarily to a reduction in direct labor cost and a decrease in group health insurance resulting from modifications to the Company’s medical benefit plan implemented in June 2003, partially offset by an increase in workers’ compensation insurance costs.

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     Occupancy and other. Occupancy and other costs decreased $0.3 million, or 3.6%, to $8.0 million for Fiscal Year 2004 Third Quarter from $8.3 million for Fiscal Year 2003 Third Quarter. As a percentage of revenues, occupancy and other was 24.2% for Fiscal Year 2004 Third Quarter versus 24.4% for Fiscal Year 2003 Third Quarter. The decrease, both in dollars and as a percentage of revenues, is attributable to a decrease in equipment rental expense resulting from the expiration of certain operating leases and reduced repair and maintenance and direct operating expenses incurred, partially offset by increased general insurance expense and utility expense due to higher fuel costs.

     Depreciation and amortization. Depreciation and amortization expense was $1.8 million, or 5.3% of revenues, for both the Fiscal Year 2004 and 2003 Third Quarters.

     General and administrative. General and administrative costs decreased $0.4 million, or 21.1%, to $1.5 million for Fiscal Year 2004 Third Quarter as compared to $1.9 million for Fiscal Year 2003 Third Quarter. As a percentage of revenues, general and administrative costs decreased 1.0% from 5.5% for Fiscal Year 2003 Third Quarter to 4.5% for Fiscal Year 2004 Third Quarter. The decrease, both in dollars and as a percentage of revenues, is the result of the Company’s reduction in corporate overhead and a decrease in legal and professional fees incurred, offset to some extent by an increase in training expense, which is a result of the Company’s increased emphasis on hiring and continuing to train high quality restaurant managers.

     Reorganization expenses. Reorganization expenses represent expenses incurred relating to the Company’s bankruptcy proceedings and reorganization under Chapter 11 and primarily are comprised of legal, professional and consulting services. Total reorganization expenses incurred in Fiscal Year 2003 Third Quarter were $0.2 million, or 0.7% of revenues. No reorganization expense was incurred during the Fiscal Year 2004 Third Quarter.

     Asset impairment and restructuring charge. The Company recorded a restructuring benefit in Fiscal Year 2003 Third Quarter totaling $0.1 million. This benefit related to a change in the estimated costs incurred in regards to the 17 restaurants that were closed.

     Interest expense, net. Total interest expense decreased $0.1 million, or 11.1%, to $0.8 million for Fiscal Year 2004 Third Quarter from $0.9 million for Fiscal Year 2003 Third Quarter. The decrease was primarily due to the reduction in outstanding debt resulting from debt payments made between these periods.

     Income tax benefit. For the third quarter of fiscal year 2003, the Company recorded a net income tax benefit of $1.2 million relating to an expected federal income tax refund. The Company did not recognize a tax benefit relating to the operating loss for either Fiscal Year 2004 Third Quarter or Fiscal Year 2003 Third Quarter because

37

management believes that it is not likely that all of its deferred tax assets will be realized in the future.

     Extraordinary gain. The Company recognized an extraordinary gain during Fiscal Year 2003 Third Quarter of $0.1 million relating to the forgiveness of debt resulting from its Chapter 11 reorganization. The debt forgiveness is primarily comprised of obligations that were canceled as a result of the bankruptcy proceedings. No extraordinary gain was recorded during the Fiscal Year 2004 Third Quarter.

THIRTY-NINE WEEKS ENDED JANUARY 25, 2004 COMPARED TO THE THIRTY-NINE WEEKS ENDED JANUARY 26, 2003

     Total revenues. Total revenues decreased $0.5 million, or 0.5%, from $103.1 million for the thirty-nine weeks ended January 26, 2003 to $102.6 million for the thirty-nine weeks ended January 25, 2004. This decrease is primarily attributable to a reduction in sales at comparable restaurants, offset to some extent by the opening of two new restaurants in April and June 2003 and closing of a restaurant in July 2003 as a result of the sale of the leasehold interest. Sales at comparable restaurants for the thirty-nine weeks ended January 25, 2004 decreased 2.3% compared with sales for corresponding prior year period. Management believes that this decrease is primarily attributable to competition from new restaurants in certain of the markets in which the Company’s restaurants operate, the Company’s financial condition and the impact of the Company’s financial condition on the ability to invest in its restaurants and engage in expanded marketing initiatives and the general state of the economy and its impact on the casual full service dining industry and the restaurant industry generally. A restaurant is considered comparable after its first 18 months of operation.

     Food and beverage. Food and beverage costs increased $1.6 million, or 4.6%, to $36.2 million for the thirty-nine weeks ended January 25, 2004 from $34.6 million for the thirty-nine weeks ended January 26, 2003. As a percentage of revenues, food and beverage costs increased by 1.8% to 35.3% from 33.5% during these periods. These increases are primarily attributable to the significant increases in beef and produce prices as well as the impact of the new menu (introduced in June 2003) on produce and other food costs. The increase in meat costs, that began in March 2003 and was further negatively impacted by the Mad Cow Disease scare which closed the Canadian border from exporting any beef products, has continued to have a significant impact on food costs. During September 2003, in response to the continued increased beef prices, the Company modified its menu pricing on certain items. This increase averaged approximately 3% based on the current sales mix at the time of the increase.

     Labor and benefits. Labor and benefits costs decreased $1.0 million, or 2.9%, to $33.6 million for the thirty-nine weeks ended January 25, 2004 from $34.6 million for the thirty-nine weeks ended January 26, 2003. As a percentage of revenues, labor and benefits costs decreased 0.8% to 32.7% from 33.5% during these periods. This decrease, both in dollars and as a percentage of revenues, is due primarily to a reduction in direct labor cost and a decrease in group health insurance resulting from modifications to the

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Company’s medical benefit plan implemented in June 2003, partially offset to some extent by an increase in workers’ compensation insurance costs.

     Occupancy and other. Occupancy and other costs decreased $1.3 million, or 5.0%, to $24.7 million for the thirty-nine weeks ended January 25, 2004 from $26.0 million for the thirty-nine weeks ended January 26, 2003. As a percentage of revenues, occupancy and other was 24.1% for the thirty-nine weeks ended January 25, 2004 as compared to 25.2% for the thirty-nine weeks ended January 26, 2003. The decrease, both in dollars and as a percentage of revenues, is attributable to a decrease in equipment rental expense resulting from the expiration of certain operating leases and a reduction in repair and maintenance and marketing expenses incurred, partially offset by an increase in general insurance expense and utility expense resulting from increased fuel costs.

     Pre-opening expenses. The Company recorded $0.1 million in pre-opening expenses during the thirty-nine weeks ended January 25, 2004 relating to the opening of a new restaurant in June 2003. Less than $0.1 million was recorded in pre-opening expenses during the thirty-nine weeks ended January 26, 2003.

     Depreciation and amortization. Depreciation and amortization expense decreased $0.2 million, or 3.6%, to $5.4 million for the thirty-nine weeks ended January 25, 2004 from $5.6 million for the thirty-nine weeks ended January 26, 2003. As a percentage of revenues, depreciation and amortization expense decreased 0.3% to 5.2% from 5.5% during these periods. The decrease, both in dollars and as a percentage of revenues, is due to the fact that depreciation expense was discontinued on idle facilities and equipment as a result of closing restaurants (including leases rejected in the Company’s bankruptcy proceedings), due to the fact that certain equipment became fully depreciated during the period and because of asset impairment charges which were taken in 2003 that reduced the carrying value of the Company’s property and equipment.

     General and administrative. General and administrative costs decreased $0.2 million, or 4.0%, to $4.8 million for the thirty-nine weeks ended January 25, 2004 as compared to $5.0 million for the thirty-nine weeks ended January 26, 2003. As a percentage of revenues, general and administrative costs decreased 0.2% from 4.9% to 4.7% during these periods. The decrease, both in dollars and as a percentage of revenues, is the result of the Company’s reduction in corporate overhead and a decrease in legal and professional fees incurred, offset to some extent by an increase in training expense, which is a result of the Company’s increased emphasis on hiring and continuing to train high quality restaurant managers.

     Reorganization expenses. Reorganization expenses represent expenses incurred relating to the Company’s bankruptcy proceedings and reorganization under Chapter 11 and primarily are comprised of legal, professional and consulting services. Total reorganization expenses incurred during the thirty-nine weeks ended January 26, 2003

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were $2.5 million, or 2.4% of revenues. No reorganization expense was incurred during the thirty-nine weeks ended January 25, 2004.

     Asset impairment and restructuring charge. The Company recorded asset impairment and restructuring charges during the thirty-nine weeks ended January 26, 2003 totaling $5.1 million and nil, respectively. These charges were related to the 17 restaurants that were closed. During the thirty-nine weeks ended January 25, 2004, the Company recorded a benefit of $0.1 million relating to a reduction in previously accrued restructuring charges resulting from the final settlement of a bankruptcy claim relating to a closed restaurant.

     Interest expense, net. Total interest expense increased $1.1 million, or 78.6%, to $2.5 million for the thirty-nine weeks ended January 25, 2004 from $1.4 million for the thirty-nine weeks ended January 26, 2003. The increase was primarily due to the forgiveness of the Company’s interest expense during the period of bankruptcy.

     Income tax benefit. For the thirty-nine weeks ended January 26, 2003, the Company recorded a net income tax benefit of $1.2 million relating to an expected federal income tax refund. The Company did not recognize a tax benefit relating to the operating loss for either the thirty-nine weeks ended January 25, 2004 or January 26, 2003 because management believes that it is not likely that all of its deferred tax assets will be realized in the future.

     Extraordinary gain. The Company recognized an extraordinary gain during the thirty-nine weeks ended January 26, 2003 of $1.9 million relating to the forgiveness of debt resulting from its Chapter 11 reorganization. The debt forgiveness is primarily comprised of obligations that were canceled as a result of the bankruptcy proceedings. No extraordinary gain was recorded during the thirty-nine weeks ended January 25, 2004.

LIQUIDITY AND CAPITAL RESOURCES

     The Company’s material financial commitments relate principally to its working capital requirements and its obligations to make operating and capital lease and term loan payments in accordance with the terms of its agreements. See Notes 5, 6, and 7 to the Consolidated Financial Statements for a description of the Company’s current outstanding debt and capital and operating lease obligations. As of January 25, 2004, total minimum annual payments required under the Company’s note and lease obligations, including interest thereon, were $18.4 million. See discussion below regarding the Company’s total contractual cash obligations. In addition, capital requirements relating to the opening of new restaurants have in the past been (and may in the future be) significant.

     The following table summarizes the Company’s future contractual cash obligations for the remainder of the current fiscal year, for each of the next four fiscal

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years and thereafter as of January 25, 2004 (dollars in thousands). Operating lease commitments include estimated common area maintenance expenses.

     Other commitments represent minimum amounts due to certain vendors under contractual agreements. Amounts reflected above could change as additional commitments may be made, cancellation provisions may be exercised by the Company or by its creditors, or agreements may be modified as warranted by changes in business or operational needs. Amounts due under long-term debt agreements may be accelerated to the extent the Company realizes excess cash flow as described in Note 7 to the Consolidated Financial Statements.

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     The Company opened one new restaurant in Fiscal Year 2003 at a total cost of approximately $1.1 million. Also, the Company opened one additional restaurant in June 2003 at a total cost of $1.8 million, of which $1.4 million was expended prior to April 27, 2003 and $0.4 million was expended in the Fiscal Year 2004 First and Second Quarters. The Company does not currently expect to open any additional company-owned restaurants in fiscal year 2004. Further, while the Company may, subject to cash availability, open one or two new restaurants in fiscal 2005, no final decisions have to date been made in that regard. At this time, it is expected that the cash required to develop new restaurants beyond fiscal 2004 will be funded from operations. Should cash from operations be insufficient for future expansion and additional capital through debt and equity sources be unavailable, there can be no assurance that the Company will be able to open additional restaurants.

     During fiscal year 2003, the Company’s primary sources of working capital were the debt restructuring and working capital provided by operations. The Company also filed for federal income tax refunds totaling approximately $1.2 million during fiscal year 2003, of which $0.6 million was collected in fiscal year 2003 and the remaining $0.6 million was collected in the thirty-nine weeks ended January 25, 2004. The Company has also filed for approximately $0.2 million in additional federal and state income tax refunds in the Fiscal Year 2004 First and Second Quarters, which it presently expects to collect during the remainder of the fiscal year. Also, during the thirty-nine weeks ended January 25, 2004, the Company entered into an agreement with a loyalty and rewards company involving the discounted advanced sale of food and beverage credits to be used at its restaurants. As part of the agreement, the Company received $2.1 million in exchange for food and beverage credits during the thirty-nine weeks ended January 25, 2004 including $0.6 million during the thirteen weeks ended January 25, 2004. Subsequent to January 25, 2004, the Company received an additional $0.2 million from the sale of food and beverage credits. In the aggregate, the Company has received $2.3 million, which represents the full amount to be received under the agreement. Such funds have been and will continue to be used to cover operating expenses relating to the use of the food and beverage credits by the members of the loyalty and rewards company. See further discussion in Note 11 to the Consolidated Financial Statements.

     In December 2003, the Company completed a sale and leaseback transaction relating to its corporate headquarters building. Gross proceeds from the sale were $3.0 million. The net proceeds of $2.6 million, after payment of expenses and security deposits, were used, in part, to pay debt related to the facility of $1.5 million. The remaining net proceeds of $1.1 million were retained by the Company for working capital and general corporate purposes. The leaseback agreement provides for rent to be paid on a triple net basis and extends for a period of 15 years with two five-year renewal options.

     The Company expects that its primary source of working capital for the remainder of fiscal year 2004 will be cash flow from operations.

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     The Company has experienced significant cash flow problems in the past. The Company believes that its ability to generate cash from operations is dependent upon, among other things, demand for its products, a continued commitment to providing an excellent dining experience for its customers, the development and implementation of successful marketing strategies, the cost levels of its various food products, and its continuing efforts to reduce its operating costs. The Company implemented revenue enhancement programs including the implementation of a new menu with enhanced menu items in June 2003. The Company also has taken, and continues to take, steps to control its costs. There can be no assurance that these initiatives will be effective in generating profits or producing sufficient cash flows to fund operating requirements, including debt repayments and lease obligations.

     Capital requirements relating to the implementation of the Company’s business plan have been and will continue to be significant. If cash generated from the Company’s operations and other possible sources described above are insufficient to fund the Company’s financial commitments and working capital requirements (including amounts required to support future growth), the Company will have to obtain additional financing. There can be no assurance that additional debt and/or equity financing will be available on terms acceptable to the Company, or at all. In the event the Company is unable to secure needed additional financing, the Company may have to significantly curtail its operations.

SUMMARY OF CASH FLOWS

     Cash provided by operating activities during the thirty-nine weeks ended January 25, 2004 was $3.1 million, as compared with $2.1 million used in operating activities for the thirty-nine weeks ended January 26, 2003. The primary sources of cash for the thirty-nine weeks ended January 25, 2004 were the net income generated from operations excluding non-cash expenses including depreciation and amortization, collection of income tax refunds and the advance sale of food and beverage credits. The primary uses of cash for the thirty-nine weeks ended January 25, 2004 were reorganization expenses, decreases in accrued restructuring, and increases in corporate deposits, partially offset by net cash generated from operations excluding non cash expenses. During the thirty-nine weeks ended January 26, 2003, the Company used $2.4 million in cash to pay reorganization items.

     Cash provided by investing activities during the thirty-nine weeks ended January 25, 2004 was $2.1 million, as compared to cash used in investing activities of $0.2 million during the thirty-nine weeks ended January 26, 2003. During the thirty-nine weeks ended January 25, 2004, the Company completed a sale/leaseback transaction relating to its corporate headquarters building, which provided $2.8 million of cash proceeds, net of closing expenses. Cash provided by investing activities for the thirty-nine weeks ended January 25, 2004 also includes $0.6 million of proceeds relating to the sale of the leasehold interest at one former restaurant in July 2003. Cash used in investing activities in both fiscal periods includes net purchases of property, plant and

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equipment of $1.3 million and $1.0 million during the fiscal 2004 and 2003 periods, respectively, including $0.4 million in fiscal 2004 relating to the new restaurants opened during April and June 2003.

     Cash used in financing activities during the thirty-nine weeks ended January 25, 2004 was $6.2 million, as compared to $1.4 million provided during the thirty-nine weeks ended January 26, 2003. Cash used in financing activities during the thirty-nine weeks ended January 25, 2004 consisted of repayments of long term debt and capital lease obligations, including a $1.5 million payment in December 2003 resulting from the sale/leaseback transaction described above and a $0.6 million prepayment resulting from use of the proceeds relating to the sale of the leasehold interest in July 2003 discussed above. Cash provided during the thirty-nine weeks ended January 26, 2003 consisted of $5.0 million of proceeds from issuance of common stock, net of repayments of long-term debt and capital lease obligations.

CAPITAL EXPENDITURES

     The Company opened one new restaurant in April 2003 at a total cost of approximately $1.1 million. Also, the Company opened one additional restaurant in June 2003 at a total cost of $1.8 million, of which $1.4 million was expended prior to April 27, 2003 and $0.4 million was expended during the thirty-nine weeks ended January 25, 2004. The Company does not currently expect to open any additional Company-owned restaurants in fiscal 2004. At this time, it is expected that the cash required to develop new Company-owned restaurants beyond 2004 will be funded by cash from operations.

SEASONALITY AND QUARTERLY RESULTS

     The Company’s operating results fluctuate seasonally because of its geographic concentration. Of the 70 restaurants currently owned and operated by the Company, 35 are located in generally residential or light commercial 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. To offset this seasonal trend and to attempt to reduce the decline in sales during the off-season, the Company runs special promotions for its customers, incentive contests for its employees and otherwise focuses marketing initiatives to increasing sales during these periods.

     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 factors described in “Forward Looking Statements” above.

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IMPACT OF INFLATION

     The primary inflationary factors affecting the Company’s operations include food, beverage and labor costs. Labor costs are affected by changes in the labor market generally and, because many of the Company’s employees are paid at federal and state established minimum wage levels, changes in such wage laws affect the Company’s labor costs. In addition, most of the Company’s leases require the Company to pay taxes, maintenance, repairs and utilities, and these costs are subject to inflationary pressures. The Company believes low inflation rates in its principal markets have contributed to relatively stable labor costs. There is no assurance that low inflation rates will continue or that the Company will have the ability to control costs in the future.

OUTLOOK

     The following discussion of the Company’s future operating results and expansion strategy and other statements in this report that are not historical statements constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The Company’s forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those stated or implied in the forward-looking statement. Please refer to the Company’s Annual Report on Form 10-K for the fiscal year ended April 27, 2003, as well as to the other disclosures contained in this Quarterly Report on Form 10-Q, for further discussion on forward-looking statements and the risks and other factors that could prevent the Company from achieving its goals and cause these assumptions underlying the forward-looking statements and the actual results to differ materially from those expressed in or implied by these forward-looking statements.

     As of the date of this Quarterly Report on Form 10-Q, the economy has shown recent signs of strengthening, however concerns still exist as to the strength of consumer spending due to the economic downturn and world events including terrorism and the conflict in the Middle East. The Company’s revenue projections assume that current spending trends do not worsen during fiscal 2004. Actual results in fiscal 2004 could vary significantly as a result of changes in consumer spending and the economy in general.

     Fiscal 2004 revenue. As discussed above, the Company opened one new restaurant in April of fiscal 2003 and an additional new restaurant in June 2003. No additional new restaurant openings are currently planned for fiscal 2004. Also, the Company closed one restaurant in July 2003 in conjunction with the sale of the related leasehold interest in the second quarter of fiscal 2004. The remaining 68 Company-owned restaurants will qualify as comparable restaurants during fiscal 2004. For the thirty-nine weeks ended January 25, 2004, sales at comparable restaurants declined 2.3% compared with the prior year. Management currently believes that food and beverage sales for its comparable restaurants for the remainder of fiscal 2004 will not change significantly from the results realized during the first three quarters of the current fiscal year and will range between a 1% to 3% decrease compared to fiscal 2003.

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     Management intends to focus efforts on identifying opportunities during the remainder of fiscal 2004 and into fiscal 2005 to expand its operations in relation to franchised restaurants. The Company believes that this represents a growth opportunity and would require significantly lower capital resources from the Company than expansion of Company-owned restaurants. This initiative is not expected to generate significant revenue or operating profit during fiscal 2004. Revenue anticipated to be generated from royalty fees and other income is expected to be less than 1% of total revenues in fiscal 2004.

     Food and beverage costs. The Company has been able to reduce its food and beverage costs as a percentage of revenues over the last two years due to a change in its primary food distributor and by utilizing more efficient and cost effective purchasing initiatives. Management believed that through continued efforts in these areas it would be able to maintain its food and beverage costs in fiscal 2004 at a level relatively flat with fiscal 2003. However, due to the instance of Mad Cow Disease that was reported in Canada, the supply of meat products from Canada was temporarily closed. Presently, meat product exports from Canada are being allowed into the United States. However, there continues to be a ban on importing livestock. The duration of this event, coupled with the continued high demand for beef products in the United States, resulted in a shortage of beef products, depletion of existing livestock and a corresponding significant increase in beef prices. In December, an instance of Mad Cow Disease was reported in the state of Washington. This instance caused many countries to discontinue importing beef products from the United States. However, this event has not resulted in any material impact on domestic beef pricing. Although there can be no assurances as to the duration of these events and the continued high beef prices, it is currently anticipated that this impact will continue throughout the remainder of fiscal 2004 and into fiscal 2005. This has resulted in an increase in food costs for the Company’s restaurants through the first three quarters of fiscal year 2004. Management cannot predict the duration or further impacts that may occur as a result of this event or whether it will be able to effectively pass some of these increased costs on to its customers.

     Labor and benefits. The Company has experienced an increase in labor and benefits costs over the last two years as a percentage of revenues. This increase has resulted from significant increases in the cost of providing medical benefits to employees, continued increases in the cost of workers’ compensation insurance as well as from wage pressure resulting from a tight labor market. Management currently expects labor and benefit costs, as a percentage of revenues, to range from flat to a decrease of 1.0% due to more efficient management of hourly labor and changes implemented in its medical benefit plan in June 2003.

     Occupancy and other. Management has recently implemented cost cutting initiatives in regards to a number of the component areas included in occupancy and other expenses. Marketing expenses, exclusive of charges associated with the program initiated in June 2003 that involved the advance sale of food and beverage credits to a loyalty and rewards company, are currently planned of approximately 1.5% of total

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revenues in fiscal year 2004. Due to these cost cutting initiatives and reduced costs expected to be incurred as a result of the conversion of certain equipment leases from operating leases to capital leases in fiscal 2003, management presently expects occupancy and other expenses to decrease between 1.5% and 2.5% as a percent of total revenues in fiscal 2004 compared to fiscal 2003.

     Pre-opening expenses. As discussed above, the Company opened one new restaurant in June 2003. No additional new restaurant openings are currently planned for fiscal 2004. As a result, pre-opening expenses are not anticipated to be significant during the remainder of fiscal 2004.

     Depreciation and amortization. The Company is continuing to make capital investments in its restaurants in regards to replacement equipment and necessary building improvements. Management currently expects that total depreciation and amortization expense will remain relatively flat due to the opening of new restaurants and other capital investments and the offsetting impact of assets that have or will become fully depreciated during fiscal 2003 and fiscal 2004 and will range between $7.0 million and $7.2 million in fiscal 2004.

     General and administrative expenses. General and administrative expenses have declined over the last two years due to cost control initiatives and the consolidation of operations. The Company currently plans to make additional investments in fiscal 2004 in its franchising efforts and in its investment in its regional supervisors in order to improve the oversight of restaurant operations and enhance the effectiveness of operational improvements as well as a continued investment in its recruiting and manager training program. As a result, management currently expects that its general and administrative expenses will remain relatively flat in fiscal 2004 and may increase slightly compared to fiscal 2003.

     Reorganization expenses. The Company does not currently anticipate that it will incur any significant reorganization expenses in fiscal 2004.

     Interest expense, net. Based on the current debt and capital lease obligations outstanding, the Company presently anticipates that total interest expense will range between $3.2 million and $3.4 million in fiscal 2004.

     Income tax (benefit) expense. The Company has filed in fiscal 2004 for approximately $0.2 million in federal and state income tax refunds that are anticipated to be recognized in results of operations in fiscal 2004. Due to the existence of federal and state income tax loss carryforwards, the Company does not currently anticipate that any significant additional income tax expense or benefits will be recorded or realized in fiscal 2004.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     The Company’s exposure to market risk is limited primarily to the fluctuating interest rates associated with variable rate indebtedness which is subject to interest rate changes in the United States and Eurodollar markets. The Company does not currently use, and has not historically used, derivative financial instruments to hedge against such market interest rate risk. At January 25, 2004, the Company had approximately $0.9 million in variable rate indebtedness outstanding, representing approximately 2.6% of the Company’s total outstanding indebtedness. Changes in market interest rates, either increasing or decreasing rates by up to ten percent, would have no material impact on the Company’s results of operations.

     Certain of the food products purchased by the Company are affected by commodity pricing and are, therefore, subject to unpredictable price volatility. These commodities are generally purchased based upon market prices agreed to in agreements with vendors. The purchase arrangement may contain contractual features that limit the price paid by establishing certain floors and caps. The Company does not use financial instruments to hedge commodity prices because the Company’s purchase arrangements help control the ultimate cost paid. Extreme changes in commodity prices and/or long-term changes could affect the Company adversely. However, the Company believes that any changes in commodity prices would generally affect the Company’s competitors at about the same time as the Company. The Company expects that in most cases increased commodity prices could be passed through to its consumers via increases in menu prices, however, from time to time, competitive circumstances may limit menu price flexibility, and in those cases margins would be negatively impacted by increased commodity prices.

     This market risk discussion contains forward-looking statements. Actual results may differ materially from the discussion based upon general market conditions and changes in domestic and global financial markets.

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ITEM 4. CONTROLS AND PROCEDURES

     (a) Evaluation of Disclosure Controls and Procedures

     The Company carried out an evaluation, under the supervision and with the participation of senior management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13-a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934), as of January 25, 2004. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective, as of January 25, 2004, in timely alerting them to material information relating to the Company required to be included in reports to be filed or submitted under the Exchange Act.

     (b) Changes in Internal Controls

     There has been no change in the Company’s internal control over financial reporting during the quarter ended January 25, 2004 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

BANKRUPTCY

     Please refer to Note 2 to the Consolidated Financial Statements for a complete discussion of the Company’s Chapter 11 bankruptcy proceedings that were completed in September 2002.

CLASS ACTION SUIT AND SEC INFORMAL INVESTIGATION

     Please refer to Note 10 to the Consolidated Financial Statements for a complete discussion of the Company’s class action suit and SEC informal investigation.

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, the Company does not believe that any liability resulting from these proceedings will have a material adverse effect on the Company’s financial position or results of operations or its business.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

There were no changes in securities during the thirteen weeks ended January 25, 2004.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

There were no defaults upon senior securities during the thirteen weeks ended January 25, 2004.

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

No matters were submitted to a vote of the Company’s shareholders during the thirteen weeks ended January 25, 2004.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)

Exhibits.

(b)		Reports on Form 8-K.
		None

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SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 8th day of March, 2004.

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