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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark one)

For the fiscal year ended April 30, 2003

or

For the transition period from              to             

Commission file number 1-10711

WORLDWIDE RESTAURANT CONCEPTS, INC.

(Exact name of registrant as specified in its charter)

15301 Ventura Blvd., Suite 300, Building B, Sherman Oaks, California 91403

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (818) 662-9800

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

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

NONE

(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.    x  YES    ¨  NO

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    ¨  YES    x  NO

The aggregate market value of the voting stock held by non-affiliates of the registrant as of the last business day of the second quarter, October 11, 2002, as computed by reference to the closing sale price of such shares on the New York Stock Exchange on such date, was $54,460,270.

The number of shares outstanding of common stock, $0.01 par value, as of June 30, 2003, was 27,317,804.

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

Portions of the registrant’s proxy statement for its 2003 annual meeting of stockholders are incorporated by reference into Part III of this Form 10-K.

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PART I

Item 1: Business

General

Worldwide Restaurant Concepts, Inc. and its subsidiaries (hereinafter collectively referred to as “WRC” or the “Company”) are principally engaged in the operation, development and franchising of the Sizzler^® concept, the operation and development of the Pat & Oscar’s^® concept and the operation of KFC^® franchises.

Restaurant Concepts

Sizzler^® Restaurants

The Company operates and franchises 317 Sizzler^® restaurants in the United States, Australia, Latin America, Asia and New Zealand. Sizzler^® restaurants operate in the quick-casual dining market featuring a selection of grilled steak, chicken and seafood entrées, sandwiches and, specialty platters, as well as a fresh fruit and salad bar in a casual dining environment. Sizzler^® restaurants provide guests with a service system in which guests place orders and pay upon entering the restaurant and are then seated and assisted by a server who delivers entrées and follows-up on guest service. This system combines the benefits of convenience with the experience of a full service restaurant. Sizzler^® restaurants in Asia have moved to full table service where customers are served at the table and pay after their meal.

Sizzler^® restaurants are typically free-standing buildings that are 5,000 to 6,000 square feet providing seating for 150 to 200 guests. The restaurants are generally open for lunch and dinner seven days a week. During fiscal year 2003, lunch and dinner sales were approximately 41.0 percent and 59.0 percent, respectively, in the United States. In Australia, lunch and dinner sales were approximately 35.0 percent and 65.0 percent, respectively. The average restaurant check was approximately $9.47 in the United States and $8.82 in Australia ($14.25 Australian dollars).

In addition to operating Sizzler^® restaurants, the Company franchises the Sizzler^® concept. Individual franchise agreements for a Sizzler^® restaurant generally provide for a term of 20 years. Payment of the initial franchise fee entitles the franchisee to assistance with planning and construction of the restaurant and initial management training. Additionally, franchisees pay royalties based on a percentage of gross sales. Multi-unit franchise development agreements may offer reduced initial franchise fees. Franchisees are required to contribute a percentage of gross sales to a national advertising fund and may contribute to regional cooperative advertising funds.

Operating segment information for fiscal years 2003, 2002 and 2001 is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Note 11—Information by Industry Segment and Geographic Area, to the Consolidated Financial Statements.

Pat & Oscar’s^® Restaurants

On August 30, 2000, the Company completed the acquisition of 82.0 percent of the outstanding membership interests of FFPE, LLC, (“FFPE”) a newly organized entity that owns the assets used in the operation of Pat & Oscar’s^® restaurants (formerly doing business under the name “Oscar’s). The terms of the acquisition included the Company’s payment of approximately $15.2 million in cash and issuance of warrants to purchase up to 1,250,000 shares of WRC common stock at $4.00 per share. The Company also agreed to pay an earn-out amount as of January 31, 2003, based on certain targets that were achieved. The Company calculated and accrued the earn-out of approximately $1.0 million during fiscal year 2003, which is included within other current liabilities in the consolidated balance sheet. Mr. Sarkisian, the former owner, has disputed the $1.0 million earn-out calculation and it is expected the payment of the earn-out may be delayed pending the resolution of the litigation initiated by Mr. Sarkisian. See Note 8—Commitments and Contingencies, to the Consolidated Financial Statements.

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The terms of the acquisition also included put and call options for the purchase of the remaining 18.0 percent minority interest. On April 16, 2002, a notice of intent to exercise one of the put options was received from an immediate family member of Mr. Sarkisian who held a portion of the 18.0 percent minority interest. This resulted in the Company acquiring an additional 5.2 percent of the outstanding membership interests of FFPE, subject to that put, for approximately $1.0 million on June 28, 2002. On October 9, 2002, the Company exercised its call option for the remaining 12.8 percent minority interest in Pat & Oscar’s and accrued approximately $1.4 million for its purchase, which is included within other current liabilities in the consolidated balance sheet. Mr. Sarkisian, the former owner, has disputed the $1.4 million and it is expected the payment and tender of the remaining 12.8 percent-interest may be delayed pending the resolution of the litigation initiated by Mr. Sarkisian. See Note 8—Commitments and Contingencies, to the Consolidated Financial Statements. The Company has accounted for the acquisition under the purchase method; accordingly the consolidated statements of income include the results of Pat & Oscar’s^® since the acquisition date. To date, the acquisition has resulted in goodwill of approximately $21.9 million including the put, call and earn-out amounts.

Under the Pat & Oscar’s^® concept, the Company operates 21 restaurants in Southern California and Arizona and features a selection of pizza, pasta, chicken, ribs and salad entrées as well as fresh home-made breadsticks served hot from the oven. Founded in 1991, Pat & Oscar’s^® was a pioneer in the quick-casual restaurant market that offers great tasting, homemade food promptly served in a clean, relaxed and friendly atmosphere. This system combines the benefits of convenience with the experience of a full service restaurant.

Pat & Oscar’s^® restaurants are typically free-standing buildings or end-cap sites located in regional malls, big box centers or strip malls that are 5,500 to 6,500 square feet including patios ranging from 500 to 2,000 square feet. Approximately 200 to 250 seats are available. Pat & Oscar’s^® also offers catering, home-delivery and carry-out services, which represent approximately 48.0 percent of total revenues. During fiscal year 2003, lunch and dinner sales including catering and home-delivery were approximately 47.0 percent and 53.0 percent, respectively. The average transaction, including dine-in, take-out, delivery and catering was $7.26.

Operating segment information for fiscal years 2003, 2002 and 2001 is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Note 11—Information by Industry Segment and Geographic Area, to the Consolidated Financial Statements.

KFC^® Restaurants

The Company operates 109 KFC^® restaurants in Queensland, and one KFC restaurant in New South Wales, Australia under franchise agreements with Yum! Brands, Inc. KFC^® restaurants in Australia operate in the quick-service dining market and feature fried chicken, sandwiches and various side orders such as biscuits, fries, sodas and mashed potatoes. During fiscal year 2003, lunch and dinner sales were approximately 39.0 percent and 61.0 percent, respectively. The average check was approximately $5.75 ($9.30 in Australian dollars). KFC^® restaurants are typically free-standing buildings that are 1,875 to 2,500 square feet, providing seating for 20 to 65 guests. Approximately 68.0 percent of the restaurants offer drive-thru windows and approximately 21.0 percent are located in shopping mall food courts. At the end of fiscal year 2003, the Company operated 13 KFC^® restaurants that offered “face-to-face” drive-thru windows where customers place their order with a restaurant staff member in person. The term of the Company’s franchise agreements vary from one to 16 years and require payment of royalties based on a percentage of sales. Agreements with remaining terms of less than 10 years have renewal options for terms varying from eight to 12 years. As a franchisee, the Company is required to contribute a percentage of revenues to a national Australian cooperative advertising fund administered by the Franchisor and contribute to local advertising initiatives.

Operating segment information for fiscal years 2003, 2002 and 2001 is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Note 11—Information by Industry Segment and Geographic Area, to the Consolidated Financial Statements.

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Suppliers

The Company has entered into distribution arrangements with a number of suppliers of food and other products and services used by its restaurants. From time to time the Company makes advance purchases of selected commodity items to minimize cost fluctuations. Although wholesale commodity prices are subject to change due to various economic conditions, the Company has in the past been able to obtain sufficient supplies to carry on its businesses and believes that it will be able to do so in the future.

Trademarks and Service Marks

The Company owns certain domestic and international registered trademarks, trade names and service marks which are of material importance to its business. The Company owns Sizzler^® and certain other registered trademarks, trade names and service marks that it licenses to its franchisees. The Company also owns the Pat & Oscar’s^® trademark and has been granted a license to use certain trademarks, trade names and service marks, which relate to the operation of KFC^® restaurants in Australia pursuant to the franchise agreements with the Franchisor. The Company has a first right of refusal to open Taco Bell^® restaurants in Queensland, Australia subject to certain conditions in the event the Franchisor commences development of this market.

Research and Development

The Company continuously evaluates and updates its menus and restaurant concepts. The Company’s research and marketing staff, in conjunction with outside consultants and food suppliers, develop new products. Before being introduced, new menu items are tested and evaluated for guest satisfaction, quality and profitability.

The Company intends to continue its existing research programs to develop and test new food products. The costs associated with these activities are not expected to be material to the Company.

Seasonality

The Company’s operations are subject to seasonal fluctuation in sales with the summer months being slightly stronger followed by the spring months. The fall and winter seasons are weaker due to weather and other conditions; however Pat & Oscar’s^® catering sales are typically higher during the winter holidays. The overall effect of seasonality is moderated to a limited extent because the Australian seasons are in reverse of the seasons in the United States.

Working Capital Requirements

The Company’s working capital requirements generally do not fluctuate significantly during the year because revenues consist primarily of cash sales and there is a rapid turnover of inventory. The Company does not carry significant inventories of beef, poultry, seafood, produce or other food products because these items are ordered and delivered two or more times per week.

Competition

The restaurant business is highly competitive and is impacted by changes in consumer eating preferences, demographic and socio-cultural patterns, and local and national economic conditions that may affect spending habits. The Company’s restaurants compete directly and indirectly with a large number of national and regional restaurant establishments, as well as with independently owned restaurants that offer moderately priced steak, chicken, salads and other menu items. The Company relies on innovative concept development, marketing techniques and promotions and competes with other restaurants in terms of perceived value, variety and quality of menu items, service and price. There are other companies engaged in restaurant operations and franchising programs similar to the Company’s that have greater financial resources and a higher volume of sales than the Company.

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Environmental Matters

Federal and state environmental regulations have not had a material effect on the Company, but increasingly more stringent and unique requirements of various local government bodies with respect to zoning, land use and environmental factors sometimes impact construction of new restaurants or remodels of existing restaurants.

Employees

At April 30, 2003, the Company had approximately 3,500 employees in the United States and approximately 4,950 employees in Australia. The majority of the Company’s employees in Australia are covered by union contracts that are negotiated between the Company and national and state governments and applicable unions on behalf of all hourly restaurant employees. Labor relations with employees have traditionally been good. The majority of the Company’s employees work part-time and are paid on an hourly basis.

Government Regulation

Each of the Company’s domestic and international restaurants is subject to various federal, state, local and Australian laws where applicable, and regulations governing health, sanitation, environmental matters, safety, the sale of alcoholic beverages, wages, hiring and employment practices. The Company believes it has all material licenses and approvals required to operate its business, and that its operations are in material compliance with applicable laws and regulations.

Inflation

Increases in interest rates and the costs of labor, food, utilities and construction can significantly affect the Company’s operating results. Management believes that the current practices of maintaining adequate operating margins through an appropriate combination of menu price increases and cost controls, careful management of working capital and evaluation of property and equipment needs are its most effective means of dealing with inflation.

Other

The Company is aware of industry concerns regarding the potential impact of possible further increases in the minimum wage, increases in utility costs, the marketing of prepared foods by grocery and convenience stores, customer resistance to increases in menu prices, the growth of home delivery of prepared foods, increased concerns over the nutritional value of foods, compliance with existing or proposed health and safety legislation, changes in domestic and international economies, threats regarding potential terrorist activities and other similar contingencies. The Company is unable to predict the possible impact of such factors on its business. However, in the past, the Company has been able to address these changes in the business climate by passing certain associated costs along to its customers. These changes have typically impacted all restaurant companies.

Risks Associated With Foreign Operations

The Company operates Sizzler^® restaurants in several Australian states and one in New Zealand, as well as KFC^® restaurants in Queensland and one KFC^® restaurant in New South Wales, Australia. The Company also licenses the right to operate Sizzler^® restaurants to franchisees in a number of countries and U.S. territories. Possible risks associated with such operations include fluctuations in currency exchange rates, higher rates of inflation, changes in tax rates and tax structures and foreign political and economic conditions.

Company Website and Information

The Company’s website address is www.wrconcepts.com. The Company makes available, free of charge, through its website, its annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to these reports as soon as reasonably practicable after such material is

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electronically filed with or furnished to the Securities and Exchange Commission. These reports can be found under the “SEC Filings” section of the Company’s website. The information contained on the Company’s website is not incorporated by reference into this annual report on Form 10-K.

Whistle Blower Hotline

The Company has instituted the Whistle Blower hotline as mandated by the Sarbanes-Oxley Act of 2002. The toll-free phone number for the Whistler Blower hotline is 866-607-5884 and may also be found on the Company’s website at www.wrconcepts.com. All reports to the Whistle Blower hotline are transcribed and forwarded to the chairman of the audit committee for investigation.

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Item 2: Properties

At April 30, 2003 the Company operated and franchised 448 locations in 17 states and 10 countries and territories (including the USA) as illustrated below:

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The Company operates substantially all of its restaurants subject to real property leases. The leases are generally for primary terms of 5 to 20 years, with two or three five-year renewal options and expire on various dates up to the year 2023. Six franchised restaurants are also located on property owned or leased by the Company. Periodically the Company reviews the appropriateness of owning versus leasing restaurant locations.

In addition to the restaurant locations set forth above, the Company leases office space in Sherman Oaks, California that serves as its corporate headquarters. The Company also leases regional offices in San Diego, California and Queensland, Australia to support Pat & Oscar’s^® and its international operations, respectively.

Item 3: Legal Proceedings

The Company is a party to certain litigation arising in the ordinary course of business which, in the opinion of management, should not have a material adverse effect upon either the Company’s consolidated financial position or results of operations. The following is a summary of the more significant cases filed against the Company:

Two subsidiaries of the Company were named as defendants in 12 lawsuits arising out of an E.coli incident at two franchised locations in Milwaukee, Wisconsin in July 2000. The plaintiffs sought monetary damages for sickness and in one case, death as a result of consuming allegedly contaminated food at the two restaurants. The Company’s meat supplier, Excel Corporation (“Excel”) and the Company’s franchisee, E&B Management Company, and E&B Management Company’s principals were named defendants in some of the cases. The Company filed cross-claims against its franchisee and Excel. Approximately 130 claims have been resolved and all but one case has been settled. On June 19, 2002, the trial court issued an order dismissing all claims against Excel, including those filed by the Company and the plaintiffs. On May 13, 2003, that order was reversed in a unanimous decision by a three judge panel of the Court of Appeals of the State of Wisconsin, and as a result all claims filed by the Company and the plaintiffs were

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reinstated. On June 12, 2003, Excel filed a Petition For Review in the Supreme Court of Wisconsin to appeal the decision of the court of appeals. The Company believes that the resolution of all claims associated with the E.coli incident will not have a material impact on the Company’s financial position or results of operations; however, the outcome is uncertain.

In fiscal years 2003, 2002 and 2001, the Company received advance payments of $0.7 million, $1.0 million and $0.1 million, respectively, from its insurance carrier, National Union Fire Insurance Company of Pittsburgh, Pennsylvania, in recognition of undisputed proceeds payable from its insurance policy covering business interruption and lost profits arising out of the July 2000 E.coli incident in Milwaukee, Wisconsin. These proceeds are recorded as an offset to other operating expenses in the Consolidated Statements of Income.

On October 3, 2001, upon the petition of the Insurance Commissioner of the Commonwealth of Pennsylvania, Reliance Insurance Company (“Reliance”) was declared insolvent and became subject to Pennsylvania state law liquidation proceedings. Reliance was the Company’s primary general liability and workers’ compensation carrier, during the period May 1, 1997 through May 1, 1999, and was the Company’s first level excess general liability carrier with respect to claims against the Company arising out of the July 2000 E.coli incident in Milwaukee. As a result of the legal proceedings affecting Reliance, the Company’s ability to recover funds under its liability policies with this carrier, whether relating to the Milwaukee incident or otherwise, may be substantially limited. However, based on the amount of its primary general liability coverage under policies with other carriers, as well as anticipated results of the pending litigation in Milwaukee and other claims, the Company does not believe that Reliance’s liquidation proceedings are likely to have a material adverse impact on the Company’s financial position or results of operations.

On June 1, 2001, The Independent Insurance Co., the Company’s primary general liability insurance carrier in Australia for the period May 1, 2000 through April 30, 2001, commenced liquidation proceedings. Based upon an assessment of the pending and possible future claims which may be filed over a five year period, the Company’s ability to recover funds under its general liability policies with this carrier may be substantially limited. Nevertheless, the Company does not believe that The Independent Insurance Co.’s liquidation is likely to have a material impact on the Company’s financial position or results of operations.

John Sarkisian, former CEO of the Company’s Pat & Oscar’s division, filed a lawsuit against the Company and its President/CEO alleging wrongful termination, breach of contract, fraud and misrepresentation relating to the Company’s acquisition of Pat & Oscar’s^®. The lawsuit sought monetary damages, injunctive relief and rescission of the purchase agreement. On June 5, 2003, a California Superior Court judge in San Diego County, ruled in favor of the Company on all claims brought by Mr. Sarkisian. The Court has not yet entered final judgment. Mr. Sarkisian will have 60 days from service of the notice of entry of judgment in which to file a notice of appeal.

Item 4: Submission of Matters to a Vote of Security Holders

None.

Executive Officers of the Registrant as of June 30, 2003

The following are the Executive Officers of the Company as of June 30, 2003:

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PART II

Item 5: Market For Registrant’s Common Stock and Related Stockholder Matters

Market Information

The Company’s common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “SZ.” As of June 30, 2003, the number of record holders of the Company’s common stock was 1,634. The high and low closing sales prices for a share of the Company’s common stock as reported on the NYSE, by quarter, for the past two fiscal years are as follows:

Common Stock Dividends

The Company has not declared any cash dividends during the three most recent fiscal years and does not expect to pay any dividends in the foreseeable future. Future dividends, if any, will depend on a number of factors, including earnings, financial position, capital requirements and other relevant factors.

Stock Option Plans

The table below breaks out the stock option plans that were in effect as of April 30, 2003:

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Item 6: Selected Financial Data

The following table sets forth consolidated financial data with respect to the Company and should be read in conjunction with the consolidated financial statements, including the notes thereto, and Item 7: “Management’s Discussion and Analysis of Financial Condition and Results of Operations” presented elsewhere herein.

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Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations

RESULTS OF OPERATIONS

INTRODUCTION

The following discussion should be read in conjunction with Item 6: “Selected Financial Data,” the Consolidated Financial Statements, including the notes thereto, and other financial information appearing elsewhere herein.

The Company’s revenues are generated from four primary segments: (1) domestic Company-operated Sizzler^® restaurant sales and franchise revenues (including franchise fees, royalties and rental income), (2) international Company-operated Sizzler^® restaurant sales and franchise revenues, (3) revenues from international KFC^® franchises operated by the Company and (4) domestic Company-operated Pat & Oscar’s^® restaurant sales.

During fiscal year 2003, the Company opened six new Pat & Oscar’s^® locations, including its first three in Los Angeles County, California and now operates Pat & Oscar’s^® in five counties in Southern California and one Pat & Oscar’s^® in Arizona. The Company plans to open six to eight additional restaurants in fiscal year 2004 and will focus its expansion in Southern California with an emphasis on areas outside of San Diego County. The Company continued its strategy of providing high quality food in a fast-casual setting served by employees who are trained in a culture that emphasizes cheerful service and the value of its employees and guests. The Company also implemented an equity plan for regional and restaurant management. See Note 16—Market and Operating Partnerships, to the Consolidated Financial Statements.

During fiscal year 2003, the Company began a program to update the exterior façade at its U.S. Sizzler^® restaurants and by the end of the fiscal year had completed updates at 19 restaurant locations with three additional updates in process. During the year the Company also completed interior remodels at two Company-operated restaurants. The Company has also continued its franchise reinvestment program whereby its franchisees are implementing the décor and menu upgrades implemented by the Company. At the end of fiscal year 2003, approximately 10.0 percent of U.S. Sizzler^® franchisee locations had completed full restaurant remodels that included an interior remodel and an updated exterior façade. During fiscal year 2003, the Company signed an area development agreement with a new Sizzler^® franchisee to open ten restaurants in Northern California over the next five years. In addition, the Company decided to convert Company-owned restaurants located in the New York market to franchise locations. See Note 19—Restaurant Assets Held for Sale, to the Consolidated Financial Statements.

During fiscal year 2003, the Company’s international division implemented a Sizzler^® remodel design that incorporates features from the U.S. Sizzler^® remodels as well as local preferences. The Company completed four such remodels in fiscal year 2003.

During fiscal year 2003, the Company added four KFC^® restaurants located in new shopping plazas. As of April 30, 2003, one KFC^® freestanding restaurant was closed for a major remodel. The Company has also continued its facilities upgrade program for its KFC^® locations and has completed two tear down and rebuilds that include “face-to-face” drive through window operations.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses the Company’s consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of asset, liabilities and contingencies as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Management evaluates its estimates and judgments, including those related to its most critical accounting policies, on an ongoing basis. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. Management believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

Property and equipment

The Company reviews its long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of an asset or group of assets may not be recoverable. The Company considers a history of operating losses to be its primary indicator of potential impairment. Assets are grouped and evaluated for impairment at the lowest level, typically the restaurant level for which there are identifiable cash flows independent of the cash flows of other groups of assets. The Company deems an asset to be impaired if a forecast of undiscounted projected future operating cash flows directly related to the asset, including disposal value, if any, is less than its carrying amount. Projected future operating cashflows are based on budgeted future operating results and forecast estimates. Considerable management judgment is necessary to estimate projected future operating cashflows. Accordingly, if actual results fall short of such estimates, significant future impairments could result.

Goodwill

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets,” intangible assets with finite useful lives are amortized; estimated useful lives range from 10 to 40 years. Goodwill and other intangible assets with indefinite lives are not amortized but are tested for impairment annually or more frequently if events or changes in circumstances indicate that an asset might be impaired. SFAS No. 142 requires a two-step process for testing impairment. First, the fair value of each reporting unit is compared to its carrying value to determine whether an indication of impairment exists. If an impairment is indicated, then the fair value of the reporting unit’s goodwill is determined by allocating the unit’s fair value to its assets and liabilities (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination. The amount of impairment for goodwill and other intangible assets is measured as the excess of its carrying value over its fair value. The Company has established its reporting units based on its current reporting structure and all recognized assets, liabilities and goodwill have been assigned to these reporting units. Considerable management judgment is necessary to estimate fair market value. Accordingly, actual results could vary from such estimates.

Income taxes

At April 30, 2003, the book value of the Company’s deferred income tax assets, prior to considering any valuation allowance, was approximately $61.6 million, of which approximately $56.9 million was domestic. The principal component of the domestic deferred income tax assets was comprised of federal and state net operating loss carryforwards. The provisions of SFAS No. 109, “Accounting for Income Taxes,” require a valuation allowance when in management’s judgment, based upon currently available information and other factors, it is more likely than not that all or a portion of the deferred income tax asset will not be realized. The Company bases its determination of the need for a valuation allowance on an on-going evaluation of current information including, among other things, estimates of future earnings in different tax jurisdictions and the expected timing of deferred income tax asset reversals. A charge or credit to income tax expense is made for any adjustments to the valuation allowance in the period in which these determinations are made. During the year ended April 30, 2003, the valuation allowance was reduced by

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approximately $5.8 million, which consisted of $3.7 million of utilization of net operating losses and a $2.1 million adjustment related to the Company’s estimate of the future realization of deferred income tax assets. At April 30, 2003, the Company’s valuation allowance against its domestic deferred income tax assets was approximately $49.2 million, which is net of these reductions.

The Company believes that the determination to record a valuation allowance to reduce deferred income tax assets is a critical accounting estimate because it is based on an estimate of future taxable income in the United States, which is susceptible to change and may or may not occur, and because the impact of adjusting a valuation allowance may be material.

Self-Insurance

The Company self-insures a significant portion of its workers compensation, general liability and health insurance plans. The full extent of certain claims, in many cases, may not become fully determined for several years. The Company, therefore, estimates the potential obligation for liabilities which have been incurred but not yet reported based upon historical data and experience, and utilizes an outside consulting firm to assist the Company in developing these estimates. Although management believes that the amounts accrued for these obligations are sufficient, any significant increase in either the number of claims and/or costs associated with claims made under these plans could have a material adverse effect on the Company’s financial results.

Supplemental Executive Retirement Plan

The Company terminated its supplemental executive retirement plan (“SERP”) but continues to remain obligated under the SERP for 11 former employees. The Company accounts for the SERP under SFAS No. 87 “Employers’ Accounting for Pensions.” The Company makes significant assumptions used in determining the net pension cost and benefit obligation. Significant assumptions used include discount rates and mortality estimates, which are determined with the assistance of an outside consulting firm. Although management believes that the amounts accrued for these benefit obligations are sufficient, any changes in these assumptions could have a material adverse effect on the Company’s financial results.

Market and Operating Partnerships

During fiscal year 2003, Pat & Oscar’s^® began offering equity interests to its regional and restaurant management (each participant, an “Equity Partner”). This equity plan was established to promote a responsibility of ownership among its key managers and enhance the development, operation and performance of Pat & Oscar’s. Each Equity Partner, generally a regional market manager or a restaurant general manager, is allowed to purchase an ownership interest in a limited liability company that operates and owns or leases substantially all of the restaurant assets from Pat & Oscar’s^®. The ownership interest purchased by the Equity Partner is based on fair market value and ranges from 2 percent to 8 percent of the partnership, which includes only the restaurants that the Equity Partner oversees. The Equity Partner is restricted from selling the ownership interest for an initial period of five years. At the end of the initial term the Equity Partner has the option to continue operating on a month-to-month basis, renew the agreement for another five years and purchase an additional 1 to 2 percent interest or sell their interest to Pat & Oscar’s at the then prevailing fair market value. Fair market value will be determined in accordance with reasonable and consistent valuation methods and procedures and will consider among other things such factors as the restaurant’s remaining lease life, historic profitability and continued profitability of the restaurant(s). The price paid by Pat & Oscar’s to repurchase the ownership interest, at the option of the Equity Partner, subject to the Company’s approval, may be made either in the form of a note, the Company’s common stock or 50 percent cash and 50 percent Company common stock.

There is no public market for these interests, therefore the fair value determinations are subjective and require the use of estimates for which significant judgments are required. Periodically, the Company may engage outside experts to assess the reasonableness of the methodology the Company uses to estimate fair value.

RESULTS OF OPERATIONS FOR THE FIFTY-TWO WEEKS ENDED APRIL 30, 2003 VS. FIFTY-TWO WEEKS ENDED APRIL 30, 2002

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Consolidated revenues were $293.5 million in fiscal year 2003 compared to $267.2 million in fiscal year 2002, an increase of $26.3 million or 9.9 percent. The increase is primarily attributable to the opening of six new Pat & Oscar’s^® and four new KFC^® restaurants, and same store sales increases from KFC and Sizzler Australia. Revenues from the international division were also helped by a 9.8 percent increase in the average Australian dollar exchange rate that represents approximately $12.8 million in revenues. These revenue increases were partially offset by a decline in same store sales from the Company’s U.S. restaurants due in part to a weaker domestic economy, harsh weather in the Northeast for part of the year and declining consumer confidence.

Consolidated operating expenses were $281.6 million in fiscal year 2003 compared to $259.3 million in fiscal year 2002, an increase of $22.3 million or 8.6 percent. The increase is primarily due to a 9.8 percent increase in the average Australian dollar exchange rate that represents $11.8 million in costs. The remaining increase is mostly due to the addition of six new Pat & Oscar’s^®, four KFC^® restaurants and increased sales volumes from the Company’s international operations that was partially offset by a $0.9 million foreign currency exchange gain associated with intercompany receivables.

Interest expense was $3.2 million in fiscal year 2003 compared to $3.6 million in fiscal year 2002, a decrease of $0.4 million or 11.2 percent primarily due to lower debt balances and lower interest rates partially offset by a higher Australian dollar exchange rate. Interest expense is primarily related to the Company’s debt with Westpac, financing from GE Capital and the Company’s SERP covering 11 former employees. Investment income was $0.6 million in fiscal year 2003 compared to $0.8 million in fiscal year 2002, a decrease of $0.2 million or 23.2 percent primarily due to lower interest rates.

Minority interest represents the portion of the Company’s net earnings or (losses) that are attributable to the collective ownership interests of the minority shareholders of the Company’s subsidiary, Pat & Oscar’s. Pat & Oscar’s has a partnership equity plan under which it may enter into partnership agreements with its regional managers or general managers. As of April 30, 2003, Pat & Oscar’s had entered into partnership agreements with three regional managers and contemplates entering into additional partnership agreements with certain general managers in fiscal year 2004. The partnership agreements were not executed until the fourth quarter of fiscal year 2003. As a result, there was no minority interest related to this partnership equity plan for fiscal year 2002 or 2001. See Note 16—Market and Operating Partnerships, to the Consolidated Financial Statements.

The provision for income taxes has been computed based on management’s estimate of the annual effective income tax rate applied to income before taxes and was $2.0 million in fiscal year 2003 compared to $0.6 million in fiscal year 2002, an increase of $1.4 million. The increase is due to higher income from the Company’s international division, which does not benefit from net operating loss deductions, and to recently enacted legislation in California that delays the Company’s ability to utilize net operating losses in the state of California for two years. During fiscal year 2003, the Company reduced its deferred income tax asset valuation allowance by $2.1 million to recognize net operating loss carryforwards the Company believes are more likely than not to be realized. See Note 4—Income Taxes, to the Consolidated Financial Statements.

U.S. Sizzler Operations

Total revenues for fiscal year 2003 were $102.2 million compared to $105.7 million in fiscal year 2002. Restaurant sales were $95.6 million compared to $98.9 million in fiscal year 2002, a decrease of $3.3 million or 3.3 percent. On a comparative basis, Sizzler^® restaurants that have been open for more than 15 months experienced a 1.8 percent decrease in average sales per restaurant. The restaurant sales decrease is primarily due to a reduction of Company-owned locations when compared to prior year and lower same store sales due to a weaker economy, harsh weather in the Northeast for part of the year and declining consumer confidence. There were 64 Company-operated Sizzler^® restaurants as of April 30, 2003 and 66 as of April 30, 2002. During fiscal year 2003, the Company closed two restaurants. From time to time the Company may sell locations, open new locations or acquire locations from its franchisees. See Note 19—Restaurant Assets Held for Sale, to the Consolidated Financial Statements. Franchise revenues were $6.6 million in fiscal year 2003 compared to $6.8 million in fiscal year 2002, a decrease of $0.2 million or 3.4 percent. The decrease in fiscal year 2003 is due to having fewer units on average over

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the course of the year. As of April 30, 2003, there were 180 Sizzler^® franchise locations, including 13 in Latin America, compared to 182, including 13 in Latin America, as of April 30, 2002. During fiscal year 2003, four franchised locations were closed and two were opened.

Prime costs, which include food and labor, were $61.5 million in fiscal year 2003 compared to $63.2 million in fiscal year 2002, a decrease of $1.7 million. Prime costs were 64.2 percent of net restaurant sales in fiscal year 2003 and 63.9 percent of net restaurant sales in fiscal year 2002. The percentage increase was due to the impact of reduced sales to cover fixed wages, higher health care and workers’ compensation costs and heavier discounting offered to stimulate sales.

Other operating expenses were $25.5 million in fiscal year 2003 compared to $25.9 million in fiscal year 2002, a decrease of $0.4 million or 1.7 percent primarily due to having a lower number of restaurants throughout fiscal year 2003 compared to fiscal year 2002. In fiscal year 2003, the Company recorded asset impairment charges of $1.4 million relating to certain underperforming restaurants that was partially offset by $0.7 million of business interruption insurance proceeds related to an E.coli incident in July 2000. This is compared to an asset impairment charge of $1.3 million in fiscal year 2002 that was offset by $1.0 million of business interruption insurance proceeds also related to the same E.coli incident. See Note 8—Commitments and Contingencies, to the Consolidated Financial Statements.

Management is continuing to implement its plan to enhance the Sizzler^® concept as an affordable, quick-casual dining concept offering a selection of grilled steak, chicken, seafood, pastas, sandwiches and specialty “Sizzling” platters as well as a salad bar with a selection of fresh fruit, soups and appetizers served in a casual dining environment at prices that are a good value. As part of the enhancement, the Company is continuing to test and implement menu redevelopment initiatives that include new grilled entrées and side-dishes and re-designed menu boards to be accompanied by new marketing programs. The Company is also implementing an exterior upgrade featuring a stone portico, awnings and additional lighting. The Company completed 19 exterior upgrades in fiscal year 2003. In addition, the Company is testing a new interior remodel featuring softer yellow and golden wood tone finishes, contemporary lighting and a more open floor plan and order area. Two restaurants in Northern California, which have been remodeled with this look, are being tested and the Company plans to add three additional restaurants to the test in fiscal year 2004. To provide a better focus on its east coast operations, the Company began to implement a plan to transition its 11 Company-owned New York area restaurants to existing or new franchisees and expects this plan to be completed within fiscal year 2004.

Pat & Oscar’s Operations

Total revenues for fiscal year 2003 were $47.0 million compared to $39.9 million in the same period of the prior year, an increase of $7.1 million or 18.0 percent. The increase in revenues is due to an increase in the number of restaurants to 21 at the end of the 2003 fiscal year compared to 15 in the 2002 fiscal year. On a comparative basis, Pat & Oscar’s^® restaurants that have been open for more than 15 months experienced an 3.2 percent decrease in average sales per restaurant due in part to a weaker economy, aggressive filling in of the San Diego market, troop deployment out of San Diego and continued deterioration in consumer confidence.

Prime costs, which include food and labor, were $27.1 million compared to $23.5 million in the same period of the prior year, an increase of $3.6 million. Total prime costs increased due to the new restaurants opened during the fiscal year. Prime costs represent 57.7 percent of sales, compared to 58.9 percent of sales in the same period of the prior year. This improvement is due to significant food cost savings related to new vendor contracts where benefits of the Company’s purchasing leverage have resulted in lower prices for items such as chicken, pork ribs and cheese. This improvement was partially offset by higher labor costs associated with opening new restaurants and higher health care and worker’s compensation costs.

Other operating expenses amounted to $13.1 million compared to $9.9 million in the same period of the prior year, an increase of $3.2 million or 31.7 percent primarily due to new restaurant openings.

The Company expects to open six to eight new locations during fiscal year 2004 and will focus its expansion in Southern California with emphasis outside of San Diego County.

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International Sizzler Operations

Revenues from Company-operated international Sizzler^® restaurants were $40.1 million in fiscal year 2003 compared to $34.8 million in fiscal year 2002, an increase of $5.3 million or 15.4 percent. On a comparative basis, Sizzler^® restaurants that have been open for more than 15 months experienced a 6.8 percent increase in average sales per restaurant. This increase in same store sales was due to increased customer counts associated with successful marketing promotions and a higher average guest check due in part to a price increase. This revenue increase also includes $3.6 million related to the increase in the Australian exchange rate. There were 29 Company-operated Sizzler^® restaurants on April 30, 2003 compared to 30 restaurants on April 30, 2002. International franchise revenues were $1.7 million in fiscal year 2003 compared to $1.6 million in fiscal year 2002. As of April 30, 2003 and April 30, 2002, there were 42 international franchised restaurants and two joint venture restaurants in five countries, and 50 international franchise restaurants and three joint venture restaurants in six countries, respectively. During fiscal year 2003, the Company opened four franchise locations and one joint venture location, closed 12 franchised restaurants, including terminating its franchisee that had six locations in Indonesia, and closed two joint venture restaurants.

Prime costs were $26.5 million in fiscal year 2003 compared to $23.5 million in fiscal year 2002, an increase of $3.0 million. Prime costs, which include food, paper and labor, decreased to 66.1 percent of sales compared to 67.5 percent in the prior year. The prime cost percent decreased due to a lower labor cost associated with better controls and increased productivity. Food cost was also lower due to better controls. In addition, menu price increases implemented during the year passed on to customers minimum wage and commodity prices increases.

Other operating expenses amounted to $9.3 million in fiscal year 2003 compared to $7.7 million in fiscal year 2002, an increase of $1.6 million or 21.2 percent. The increase was primarily due to higher average Australian exchange rate in fiscal year 2003 and costs necessary to support the increased sales levels.

Management is continuing its plan to reposition the Sizzler^® concept in Australia by implementing the upgraded food quality and cooking methods consistent with those implemented in the Company’s domestic operations. The Company is presently testing an interior remodel that provides a softer, warmer grill concept feel. The Company plans to complete remodels for six restaurants in fiscal year 2004.

KFC Operations

Revenues from the Company’s KFC^® restaurants were $102.5 million in fiscal year 2003 compared to $85.2 million in fiscal year 2002, an increase of $17.3 million or 20.3 percent. This increase was primarily driven by higher restaurant sales, four new locations and also included $9.2 million related to the increase in the Australian dollar exchange rate. On a comparative basis, KFC^® restaurants that have been open for more than 15 months experienced an 8.0 percent increase in average sales per restaurant driven by successful marketing programs featuring family value offerings and kids meal premiums and an increase in the average guest check due to a menu price increase and customer trade-ups to large value meals. As of April 30, 2003 and April 30, 2002, there were 110 and 107 KFC^® restaurants, respectively.

Prime costs were $60.8 million in fiscal year 2003 compared to $51.2 million in fiscal year 2002, an increase of $9.6 million. Prime costs, which include food, paper and labor, decreased to 59.3 percent of sales compared to 60.1 percent for the same period of the prior year. The prime cost percent decreased due to a lower labor cost associated with better controls and increased productivity. Food cost was also lower due to better controls. In addition, price increases taken during the year passed on to customers minimum wage and commodity prices increases.

Other operating expenses amounted to $23.8 million in fiscal year 2003 compared to $20.0 million in fiscal year 2002, an increase of $3.8 million or 19.1 percent. The increase was primarily due to a higher average Australian exchange rate in fiscal year 2003, costs associated with operating four additional restaurants and costs necessary to support the increased sales levels.

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Management is continuing its facilities upgrade program based on positive results of “face-to-face” drive-thru operations. The Company plans to open one KFC^® restaurant and complete six remodels in fiscal year 2004, five of which will be “face-to-face.”

RESULTS OF OPERATIONS FOR THE FIFTY-TWO WEEKS ENDED APRIL 30, 2002 VS. FIFTY-TWO WEEKS ENDED APRIL 30, 2001

Consolidated revenues were $267.2 million in fiscal year 2002 compared to $245.3 million in fiscal year 2001, an increase of $21.9 million or 8.9 percent. The increase was primarily attributable to the opening of four new Pat & Oscar’s^® restaurants, and more weeks of operations, and same store sales increases from KFC and Sizzler Australia. These revenue increases were slightly offset by a decline in same store sales from the Company’s U.S. restaurants due to softness and uncertainty in the domestic economy. Further offsetting these revenues was a 5.9 percent decline in the Australian dollar exchange rate that represented approximately $7.6 million in revenues.

Domestic revenues increased $20.1 million or 16.0 percent in fiscal year 2002 to $145.6 million compared to $125.5 million in fiscal year 2001, primarily due to having Pat & Oscar’s for 52 weeks of operation in fiscal year 2002 compared to 35 weeks in the prior year and the opening of four new Pat & Oscar’s^® restaurants in fiscal year 2002. International revenues increased $1.8 million or 1.5 percent primarily due to increased same store sales, higher check averages and increased customer traffic partially offset by a decrease in the Australian exchange rate.

Consolidated operating expenses were $259.3 million in fiscal year 2002 compared to $237.9 million in fiscal year 2001, an increase of $21.3 million or 9.0 percent. The increase was primarily due to the addition of four new Pat & Oscar’s^® locations. The remaining increase was mostly due to an increase in sales volumes and higher labor costs partially offset by a 5.9 percent decrease in the Australian dollar exchange rate. Interest expense was $3.6 million in fiscal year 2002 compared to $3.8 million in fiscal year 2001, a decrease of $0.2 million or 5.3 percent primarily due to lower debt balances and lower interest rates. Interest expense was primarily related to the Company’s debt with Westpac, financing from GE Capital and the Company’s SERP covering 11 former employees. Investment income was $0.8 million in fiscal year 2002 compared to $1.6 million in fiscal year 2001, a decrease of $0.8 million or 47.4 percent primarily due to lower interest rates and lower average cash balances.

The provision for income tax was $0.6 million in fiscal year 2002 compared to $2.4 million in fiscal year 2001, a decrease of $1.8 million due to utilization of net operating loss carryforwards under SFAS No. 109 and to permanent differences that generated a tax benefit in the Company’s domestic and international operations. See Note 4—Income Taxes, to Consolidated Financial Statements.

U.S. Sizzler Operations

Total revenues for fiscal year 2002 were $105.7 million compared to $104.7 million in fiscal year 2001, an increase of $1.0 million or 0.9 percent. Restaurant sales were $98.9 million compared to $97.7 million in fiscal year 2001, an increase of $1.2 million or 1.2 percent. On a comparative basis, Sizzler^® restaurants that have been open for more than 15 months experienced a 0.6 percent decrease in average sales per restaurant. Although fewer restaurants were open at the end of fiscal year 2002, total restaurant sales increased due to a higher number of restaurants open during most of fiscal year 2002 when compared to fiscal year 2001. The increase was partially offset by lower same store sales. There were 66 Company-operated Sizzler^® restaurants as of April 30, 2002 and 68 as of April 30, 2001. During fiscal year 2002, the Company closed one restaurant due to redevelopment and one due to unprofitable operations. From time to time the Company may sell locations, open new locations or acquire locations from its franchisees. Franchise revenues were $6.8 million in fiscal year 2002 compared to $7.0 million in fiscal year 2001, a decrease of $0.2 million or 2.9 percent. The decrease in fiscal year 2002 was due to having seven fewer units. As of April 30, 2002 there were 182 Sizzler^® franchise locations, including 13 in Latin America compared to 189 as of April 30, 2001.

Prime costs, which include food and labor, were $63.2 million in fiscal year 2002 compared to $62.7 million in fiscal year 2001, an increase of $0.5 million. Prime costs were 63.9 percent of net restaurant sales in

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fiscal year 2002 and 64.2 percent in fiscal year 2001. The prime cost percentage decreased due to lower food costs associated with lower commodity prices and better cost controls offset by higher labor costs associated with minimum wage increases and higher workers’ compensation costs.

Other operating expenses were $25.9 million in fiscal year 2002 compared to $23.2 million in fiscal year 2001, an increase of $2.7 million or 11.5 percent primarily due to higher utilities and rent expense and to having a higher number of restaurants throughout fiscal year 2002 compared to 2001. In fiscal year 2002, the Company recorded asset impairment charges of $1.3 million relating to certain underperforming restaurants that was partially offset by $1.0 million of business interruption insurance proceeds related to an E.coli incident in July 2000. See Note 8—Commitments and Contingencies, to the Consolidated Financial Statements.

Pat & Oscar’s Operations

Total revenues for fiscal year 2002 were $39.9 million compared to $20.8 million in the same period of the prior year, an increase of $19.1 million or 91.8 percent. The acquisition of Pat & Oscar’s occurred during the second quarter of the prior year, therefore there were 52 weeks of operation in the fiscal year 2002 compared to 35 weeks in the prior year. In addition, there were 15 restaurants at the end of the fiscal year 2002 compared to 11 in the prior year. On a comparative basis, Pat & Oscar’s^® restaurants that have been open for more than 15 months experienced a 0.1 percent increase in average sales per restaurant as a result of promotions featuring family value meals and other side dishes, which offset cannibalization of sales caused by certain new restaurants opened in fiscal year 2002.

Prime costs, which include food and labor, were $23.5 million compared to $13.1 million in the same period of the prior year. Total prime costs increased due to the additional weeks of operations and the new restaurants. Prime costs represented 58.9 percent of sales, compared to 62.9 percent of sales in the same period of the prior year. This decrease was due to significant food costs saving related to new vendor contracts where benefits of the Company’s purchasing leverage resulted in lower prices for items such as poultry, pork ribs, flour and cheese. In addition, tighter labor cost controls reduced overall labor costs.

Other operating expenses amounted to $9.9 million compared to $5.2 million in the same period of the prior year, an increase of $4.7 million or 90.0 percent primarily due to new restaurant openings and additional weeks of operations.

International Sizzler Operations

Revenues from Company-operated international Sizzler^® restaurants were $34.8 million in fiscal year 2002 compared to $34.4 million in fiscal year 2001, an increase of $0.4 million or 1.1 percent. On a comparative basis, Sizzler^® restaurants that have been open for more than 15 months experienced a 9.0 percent increase in average sales per restaurant. This increase in revenue was due to increased customer counts and a higher average guest check that were driven by successful marketing promotions featuring the add-on of a steak or seafood entrée for only $2.00 or $3.00 Australian dollars with the purchase of a salad bar and beverage. The increase was partially offset by a decrease of $2.2 million related to the decline in the Australian dollar exchange rate. There were 30 Company-operated Sizzler^® restaurants on April 30, 2002 compared to 31 restaurants at the end of 2001. International franchise revenues were $1.6 million in fiscal year 2002 compared to $1.7 million in fiscal year 2001, a decrease of $0.1 million or 5.9 percent. The decrease was primarily due to a 5.9 percent decline in the exchange rate compared to the prior year. As of April 30, 2002 and April 30, 2001, there were 50 international franchised restaurants and three joint venture restaurants in six countries and 56 international franchise restaurants and three joint venture restaurants, respectively. During fiscal year 2002, three franchised restaurants were closed in Japan and three in Taiwan.

Prime costs were $23.5 million in fiscal year 2002 compared to $23.1 million in fiscal year 2001. Prime costs, which include food, paper and labor, increased to 67.5 percent of sales compared to 67.2 percent in the prior year. This increase was due to higher food costs associated with the add-on promotions, to higher commodity prices and higher labor costs associated with wage increases and training.

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Other operating expenses amounted to $7.7 million in fiscal year 2002 compared to $7.8 million in fiscal year 2001, a decrease of $0.1 million or 1.2 percent primarily due to the effect of lower exchange rates partially offset by an increase in costs necessary to support the increased sales levels.

KFC Operations

Revenues from the Company’s KFC^® restaurants were $85.2 million in fiscal year 2002 compared to $83.8 million in fiscal year 2001, an increase of $1.4 million or 1.7 percent. On a comparative basis, KFC^® restaurants that have been open for more than 15 months experienced a 4.5 percent increase in average sales per restaurant driven by successful marketing programs featuring family value meals and kids meal premiums and an increase in the average guest check. This increase was partially offset by $5.3 million related to the effect of a decline in the Australian dollar exchange rate. As of April 30, 2002 and April 30, 2001, there were 107 KFC^® restaurants.

Prime costs were $51.2 million in fiscal year 2002 compared to $50.4 million in fiscal year 2001. Prime costs, which include food, paper and labor, remained constant at 60.1 percent of net revenues in both years.

Other operating expenses amounted to $20.0 million in fiscal year 2002 compared to $19.1 million in fiscal year 2001, an increase of $0.9 million or 4.7 percent. This increase was primarily due to higher rent expense associated with more restaurants being open and increased repair costs partially offset by lower exchange rates.

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LIQUIDITY AND CAPITAL RESOURCES

Working Capital

The Company’s primary source of liquidity is cash flows from operations, which were $21.4 million in fiscal year 2003 compared to $21.2 million in fiscal year 2002. This increase is primarily due to increases in net income adjusted for depreciation and amortization expense and other non-cash items of $2.3 million, net of fluctuations in operating account balances of $2.1 million.

The Company’s working capital deficit at April 30, 2003 was $3.6 million, including cash, cash equivalents and restricted cash totaling $28.4 million of which $13.2 million was held by the Company’s International division. At April 30, 2002, the Company had working capital of $2.1 million. This decrease is primarily due to investment in additional KFC and Pat & Oscar’s restaurants, and funds expended for restaurant remodel and enhancement programs and repayment of debt, partially offset by cash provided by operations. The current ratio was approximately 0.9 at April 30, 2003 and 1.1 at April 30, 2002.

Based on current operations and anticipated sales and franchise growth, management believes that cash flow from operations will be sufficient to meet all of the Company’s current debt service and capital expenditure requirements and working capital needs. The Company is also pursuing additional sources of capital such as equipment leases for the expansion of Pat & Oscar’s. Changes in operating plans, changes in expansion plans, lower than anticipated sales, increased expenses, non-compliance with debt covenants, further economic deterioration or other events may cause the Company to seek additional financing sooner than anticipated. Additional financing may not be available on acceptable terms, or at all. Failure to obtain additional financing as needed could have a material adverse effect on our business and results of operations.

Capital Expenditures

Capital expenditures were $16.5 million in fiscal year 2003, which included Sizzler^® remodels and other improvements of $2.6 million, new Pat & Oscar’s^® restaurant construction and equipment of $9.5 million, KFC^® restaurant construction and remodels of $2.9 million, Australian Sizzler^® expenditures of $1.2 for remodels and maintenance, and corporate expenditures of $0.3 million primarily for maintenance and computer system upgrades.

The Company plans to expand its international operations through additional investment in Company-operated restaurants, joint ventures and the sale of additional franchises. The Company expects to remodel six Sizzler^® Australia restaurants at a cost of approximately $92,000 each, complete tear down and rebuilds of four KFC^® restaurants at a cost of approximately $371,000 each, net of landlord contributions, and remodel two KFC^® restaurants at a cost of approximately $346,000 each. In addition, the Company plans to open one new KFC^® location at a cost of approximately $550,000, net of landlord contributions. The Company’s domestic operations will primarily be expanded by growing the Pat & Oscar’s concept through new restaurants. Presently, the Company contemplates adding six to eight Pat & Oscar’s^® locations by the end of fiscal year 2004 at a cost of approximately $1.2 to $1.4 million per location, net of landlord contributions. The Company presently plans to complete an additional three major Sizzler^® upgrades in fiscal year 2004 at a cost of approximately $200,000 each and will monitor the results before continuing with the upgrade program. In addition, the Company is developing a new Sizzler^® restaurant in Northern California at a cost of approximately $1.0 million. The Company estimates that total capital expenditures in fiscal year 2004 will be approximately $20.0 million and will fund this requirement with cash flow from operations and additional borrowing from Westpac. The Company may also utilize existing cash and leasing to support its expansion activities.

The Company’s Australian subsidiary, Collins Food Group, (“CFG”), expects to borrow $12.4 million ($20.0 million in Australian dollars) from Westpac Banking Corporation (“Westpac”) and repatriate approximately

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$12.9 million ($20.8 million Australian dollars) to WRC by August 2003. These funds will primarily be used to expand Pat & Oscar’s.

Debt

The Company’s debt includes a credit facility (“Primary Credit Facility”) with Westpac Banking Corporation in Australia (“Westpac”). The Primary Credit Facility is collateralized by the Australian subsidiary’s assets, undertakings, intellectual property, unlimited cross-guarantees and certain negative pledge agreements. The loan provides for a three-year term at an interest rate equal to the Australian inter-bank borrowing rate (4.9 percent at April 30, 2003), plus a 2.3 point margin. The agreement is subject to certain financial covenants and restrictions such as interest coverage ratios, profitability ratios and others which management believes are customary for a loan of this type. As of April 30, 2003, the Company’s unpaid principal balance on the Primary Credit Facility was $12.1 million ($19.5 million in Australian dollars). The Company has elected to extend the term of the loan with Westpac for 12 months from August 2003 to August 2004. The Company may elect to extend the term of the loan for an additional six months at Westpac’s discretion. If the loan is not extended then the Company will be required to repay the note in August 2004. The Company expects to enter into a new loan with Westpac by August 2004.

On June 4, 2003, the Company entered into an additional credit facility with Westpac. The credit facility utilizes the same collateral, is subject to the same financial covenant restrictions, and is subject to the same term and potential extension as the Primary Credit Facility with Westpac as mentioned above. The maximum principal commitment under the facility is $1.9 million ($3.0 million in Australian dollars). There have been no amounts borrowed under the facility to date. The available facility is multi-option in nature and has been allocated initially to a $1.3 million ($2.0 million in Australian dollars) revolving commercial bill facility and a $0.6 million ($1.0 million in Australian dollars) overdraft facility. Any un-drawn amount under either option can be re-allocated at any time by the Company to the other option. The loan agreement provides for interest on the commercial bill option at equivalent rates to the Primary Credit Facility. The interest rate applicable to the overdraft facility is Westpac’s reference lending rate plus 1.0 percent (currently 9.0 percent). There is a 1.0 percent fee applicable to any undrawn portion of either option.

On July 15, 2003, the Company entered into a revised credit facility (“Revised Credit Facility”) with Westpac that replaces the Primary Credit Facility mentioned above. Financial covenants and collateral are substantially the same as required by the Primary Credit Facility. However, the maximum borrowings available under the Revised Credit Facility has been increased to $26.3 million ($40.0 million in Australian dollars). There have been no additional amounts borrowed under the Revised Credit Facility as of July 15, 2003. The Revised Credit Facility provides for a five-year term expiring on July 31, 2008 at an interest rate equal to the Australian inter-bank borrowing rate (4.9 percent at April 30, 2003), plus a 2.3 percent margin.

In addition, the Company has a $10.0 million, seven-year term loan due in January 2008 with GE Capital that is amortized based on 15 years, with fixed interest rates ranging from 8.7 to 9.7 percent. Under the terms of the agreement, the Company has borrowed the maximum amount available. A portion of the Company’s real estate and personal property in the U.S. as well as a letter of credit in the amount of $0.7 million are collateral for the loan. The agreement is subject to certain financial covenants and restrictions such as a fixed charge coverage ratio, minimum EBITDA and other covenants which management believes are customary for loans of this type. At the end of the 2003 fiscal year, the Company’s unpaid principal balance was approximately $9.4 million.

In connection with the acquisition of Pat & Oscar’s, the Company assumed a revolving credit facility with Southwest Community Bank that matures in fiscal years 2004 and 2005. The loan carries a variable interest rate that ranged from 5.3 percent to 5.8 percent during fiscal year 2003. The unpaid principal and interest related to this note was $0.6 million. There is also a $0.2 million, variable interest term loan with Bank of America that matures in fiscal year 2007. The loan interest rate varied from 5.3 percent to 5.8 percent during fiscal year 2003.

The Company is in compliance with all debt covenants as of April 30, 2003.

Contractual Obligations

The Company’s future contractual obligations at April 30, 2003 consist of the following (in millions):

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Based on current operations and anticipated sales growth, management believes that cash flow from operations will be sufficient to meet all of the known requirements.

Pat & Oscar’s Call Option

On October 9, 2002, the Company exercised its call option for the remaining 12.8 percent minority interest in Pat & Oscar’s and accrued approximately $1.4 million for its purchase, which is included within other current liabilities and goodwill in the 2003 consolidated balance sheets. Mr. Sarkisian, the former owner, has disputed the $1.4 million amount and it is expected that the payment and tender of the remaining 12.8 percent interest may be delayed pending the resolution of the litigation initiated by Mr. Sarkisian. See Note 8—Commitments and Contingencies, to the Consolidated Financial Statements.

Pat & Oscar’s Earn-Out

The Company’s purchase agreement for the acquisition of Pat & Oscar’s provides for an earn-out cash consideration if specified revenue, profitability, and growth targets covering the period from the acquisition date through January 31, 2003 were achieved. The Company accrued the earn-out of approximately $1.0 million, which is included within other current liabilities and goodwill in the 2003 consolidated balance sheets. However, Mr. Sarkisian, the former owner, has disputed the $1.0 million amount and it is expected that the payment of the earn-out may be delayed pending the resolution of the litigation initiated by Mr. Sarkisian. See Note 8—Commitments and Contingencies, to the Consolidated Financial Statements.

Australian Management Options

Under the Company’s stock option plan for its Australian Management Group (“AMG”), certain AMG employees were granted options to purchase 2.9 million shares representing a 13.7 percent interest in Collins Food Group (“CFG”), the Company’s Australian subsidiary. The exercise price of the options, Australian $1.00 (U.S. $0.62 at April 30, 2003), equaled the estimated fair value of the shares on the grant date. In addition, participants who remain employees of CFG for the three years ending August 30, 2003, are entitled to their share of a retention bonus aggregating $1.4 million Australian, which can only be applied to the exercise price of the options. Such amount is being expensed over the related three-year period. In addition, under the terms of the plan, for the one-year period ended August 20, 2002, the AMG participants earned options to purchase 865,000 additional shares of CFG at the fair market value as of August 20, 2002. These shares represent a 4.0 percent interest in CFG and the Company expects a third party valuation of the fair value of these options will be completed in the first quarter of fiscal year 2004. On August 20, 2003, the AMG may be granted further options representing 1.6 percent of the outstanding shares of CFG subject to the achievement of certain specified profitability targets. All of the options become, and remain exercisable for a period of one year commencing August 20, 2003 and become immediately exercisable in the event of a change in control of CFG.

Based on the operating results of CFG, the Company believes that the fair market value of CFG has

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increased since the initial options were granted. This increase in the fair market value of the CFG options is considered in the computation of earnings per share and the dilutive effect of the CFG options has been included in the calculation of diluted earnings per share. See Note 12—Earnings Per Share, to the Consolidated Financial Statements. Historically, the dilutive effect of the outstanding options has not been material and the Company expects that starting in fiscal year 2004, the dilutive effect of the CFG options may be up to approximately $0.01 per share per quarter in future quarters and could vary depending on the value of CFG. If the options are exercised, earnings per share could be diluted by up to 20.0 percent of CFG’s net income.

From August 21, 2003 to November 21, 2004, the AMG may make an offer to purchase all of the Company’s shares of CFG. The purchase price would be an amount determined by the AMG (“Established Price Per Share”), which the Company has the right to either accept, or alternatively to purchase all shares held by the AMG at the Established Price Per Share. In the event the Company proposes to sell CFG or the Sizzler^® and KFC^® operations in Australia to a third party before December 2004, the AMG is entitled to purchase CFG or these operations on the same terms and conditions as has been accepted by the Company. If the AMG does not elect to purchase CFG or these operations, all AMG members are then required to sell their shares at the same effective price per share as is accepted by the Company in a sale of CFG or the Sizzler^® and KFC^® operations to a third party.

In anticipation that the AMG members will exercise some or all of their options on or after August 20, 2003, the Company and the AMG have initiated discussions and have reached a tentative agreement subject to a definitive written agreement that the AMG will not exercise their right to purchase all of the Company’s shares of CFG and in return the AMG may be granted additional options such that the total shares under all options will allow AMG management to purchase up to a maximum of 20% of the outstanding shares of CFG. The tentative agreement includes a put option for the AMG members to sell their AMG shares back to the Company at fair market value on a cumulative basis at the rate of 1/6^th of the shares per year. If all of the AMG options are exercised the Company would prospectively reflect a minority interest of approximately 20 percent of the net income from its CFG operations as a reduction of consolidated net income. The tentative agreement also provides that the AMG members may sell or transfer their shares of CFG among themselves. In addition, WRC will have the right to buy the AMG shares upon termination of an AMG member.

Separately, in fiscal year 2001, the AMG members purchased 332,000 shares of the Company’s common stock for $448,000 in cash, representing the market value on the date of purchase. These shares are subject to resale restrictions until April 6, 2006. Under the terms of the tentative revised agreement, such restrictions will be removed effective August 20, 2003.

Share Repurchase

Pursuant to the Company’s share repurchase plan, the Company repurchased 636,000 shares of its stock for a total of $0.9 million during fiscal year 2002 bringing the total number of shares repurchased to the 2.0 million shares authorized. No additional shares were authorized for repurchase during fiscal year 2003.

New Accounting Standards

In June 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 143 “Accounting for Asset Retirement Obligations.” This standard provides accounting guidelines for the cost of legal obligations associated with the retirement of long-lived assets. SFAS No. 143 requires that companies recognize the fair value of a liability for asset retirement obligations in the period in which the obligations are incurred and capitalize that amount as part of the book value of the long-lived asset. The resulting net cost is then depreciated over the remaining life of the underlying long-lived asset. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. As required, the Company will adopt the provisions of SFAS No. 143 on May 1, 2003, the first day of its 2004 fiscal year. The Company does not expect the adoption of SFAS No. 143 to have a material impact on its financial position, results of operations or cash flows.

The Company adopted the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” on May 1, 2002. SFAS No. 144 addresses the financial accounting and reporting for

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the impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121 and the accounting and reporting provisions of APB Opinion No. 30 for the disposal of a segment of a business. SFAS No. 144 also amends ARB No. 51 to eliminate the exception to consolidation for a subsidiary for which control is likely to be temporary. The Company believes that the adoption of SFAS No. 144 did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections,” which rescinds SFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt,” and also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. A principal effect will be the characterization of gains and losses from debt extinguishments used as part of an entity’s risk management strategy. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002. The Company believes that SFAS No. 145 will not have a material effect on the Company’s financial position, results of operations or cash flows.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (“EITF”) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity.” The provisions of this statement are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. The Company adopted SFAS No. 146 on January 1, 2003 and the standard has had no effect on its financial position, results of operations or cash flows.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure.” SFAS No. 148 amends SFAS No. 123 “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation and amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both the annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company has included the required disclosures in the Notes to the Consolidated Financial Statements. Management is currently assessing whether to adopt the transition component of SFAS No. 148.

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities. “ This Statement amends and clarifies the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. In particular, SFAS No. 149 (1) clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative as discussed in SFAS No. 133, (2) clarifies when a derivative contains a financing component, (3) amends the definition of an underlying derivative to conform it to the language used in FASB Interpretation No. 45, Guarantor Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, and (4) amends certain other existing pronouncements. SFAS No. 149 is generally effective for contracts entered into or modified after June 30, 2003. The Company does not believe the adoption of SFAS No. 149 will have a material impact on the Company’s financial position, results of operations or cash flows.

In November 2002, the FASB issued Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” which elaborates on required disclosures by a guarantor in its financial statements about obligations under certain guarantees that it has issued and clarifies the need for a guarantor to recognize, at the inception of certain guarantees, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for all interim or annual periods ending after December 15, 2002. The Company adopted the provisions of FIN 45 on January 1, 2003 and the adoption did not have a material impact on the Company’s financial position, results of operations or cash flows.

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In January 2003, the FASB issued FASB Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities.” This standard clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” and addresses consolidation by business enterprises of variable interest entities. FIN 46 requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risk among the parties involved. FIN 46 also significantly enhances the disclosure requirements related to variable interest entities. This statement is effective for variable interest entities created or in which an enterprise obtains an interest after January 31, 2003. It applies in the first fiscal year or interim period beginning after June 15, 2003 for all interests in variable interest entities acquired before February 1, 2003. The Company does not have any entities that will require consolidation as a result of FIN 46.

In January 2003, the EITF reached a final consensus on Issue No. 02-16 (“EITF 02-16”),”Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor. “ EITF 02-16 requires that consideration from vendors, such as sales volume rebates and advertising support funds, be accounted for as a reduction to cost of sales unless certain requirements are met showing that the funds are used for a specific program entirely funded by an individual vendor. During the fourth quarter of fiscal year 2003, the Company included vendor rebates of $0.4 million in cost of sales to be in compliance with EITF 02-16. For consistency, a retrospective reclass of $0.5 million and $0.4 million from operating expenses to cost of sales was made to the fourth quarter of fiscal years 2002 and 2001, respectively. This reclass had no impact on the Company’s reported operating or net income amounts for the prior year periods presented.

Forward-Looking Statements

With the exception of any historical information contained in this report, the matters described herein contain forward-looking statements that are made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, as amended. These statements may include but are not limited to statements regarding: (1) the expected continuation of the Company’s growth in revenues and earnings; (2) the continuation of new Sizzler^® exterior remodel program at both Company and franchised locations; (3) any expected change in currency exchange rates; (4) the Company’s plans to open new KFC^® units in fiscal year 2004; (5) the Company’s plans for continued remodeling of its Australian Sizzler^® and KFC^® restaurants; (6) the planned expansion of international Sizzler^® locations in fiscal year 2004; (7) the plan to franchise 10 New York area locations now operated by the Company; (8) the Company’s expectation that it will have adequate cash from operations to meet all debt service, capital expenditures and working capital requirements in fiscal year 2004; (9) the opening of six to eight new Pat & Oscar’s^® locations during fiscal year 2004; (10) the sufficiency of the supply of commodities and labor pool to carry on the Company’s business; (11) the absence of any material adverse impact arising out of any current litigation in which the Company is involved; and (12) the anticipated dilutive effect of the exercise of the CFG options on the Company’s earnings per share.

The Company cautions that these statements are qualified by important factors that could cause actual results to differ materially from those reflected in the forward looking statements contained herein. Such factors include, but are not limited to: (1) the Company’s ability to continue achieving growth in revenues and earnings and overcome any significant impact from increased food, labor and utility costs in the U.S. and Australia; (2) the possible negative impact of the fluctuations in the foreign currency exchange rate between the Australian dollar and the U.S. dollar; (3) the Company’s ability to open new Australian KFC^® locations due to available sites and approvals from its franchisor; (4) the Company’s ability to complete the remodeling of its existing Australian Sizzler^® and KFC^® locations; (5) the ability of the Company and its franchisees to meet all necessary conditions required to open additional Sizzler^® franchise locations in the U.S. and in international locations; (6) the continued ability of the Company’s operations to generate the necessary cash to invest in its U.S. and international businesses; (7) the Company’s ability to generate sufficient cash to meet all debt service, working capital and capital expenditure requirements; (8) the ability of Pat & Oscar’s to achieve the opening of the projected number of new restaurants in fiscal year 2004; (9) the ability of the company to successfully complete the New York area franchising program; (10) that there will not be any shortages in critical supplies for the Company to continue its business operations; (11) that the Company will continue to have sufficient insurance coverage to resolve the remaining E.coli case; (12) the definitive resolution of the Sarkisian litigation; (13) the number of shares in CFG acquired by AMG

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members pursuant to the exercise of their options thereon; and (14) other risks as detailed from time to time in the Company’s SEC reports, including Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and Annual Reports on Form 10-K.

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Item 7A—Quantitative and Qualitative Disclosures about Market Risk

The Company is exposed to the following market risks: interest rate risk, foreign currency exchange rate risk, and commodity price risk.

Interest Rate Risk

The Company’s primary financial instrument subject to interest rate risk is a bank loan with Westpac Banking Corporation in Australia (“Westpac”). The loan has an outstanding principal balance of $12.1 million ($19.5 million Australian dollars) at April 30, 2003. The loan is payable in Australian dollars and is collateralized by the principal operating assets, undertakings, intellectual property, unlimited cross-guarantees and certain negative pledge agreements of the Company’s International Division. The loan bears variable interest at a rate equal to the Australian inter-bank borrowing rate (4.9 percent at April 30, 2003), plus a margin of 2.3 percent. The primary exposure relating to this financial instrument results from changes in interest rates.

To hedge the Company’s exposure to interest rate increases on this loan, the Company is party to an interest rate cap contract that prevents the Company’s interest rate (excluding margin) from exceeding 7.5 percent, in which case the Company would receive the difference between the contract rate and the actual interest rate. At April 30, 2003, the interest rate cap covered approximately 42.8 percent of the loan principal outstanding and expires on August 29, 2003.

In addition, the Company is party to an interest rate swap contract to convert part of its variable interest exposure to a fixed rate of 7.5 percent (excluding margin). At April 30, 2003, the interest rate swap contract covered approximately 42.8 percent of the loan principal outstanding and expires on August 29, 2003.

The Company also has a revolving credit facility and a term loan in the amount of $0.9 million with variable interest as a result of the acquisition of Pat & Oscar’s^®. The interest rates ranged from 5.3 to 5.8 percent during fiscal year 2003.

The Company calculated that a hypothetical 10.0 percent change in the interest rates, as defined above, in the near-term would not have material impact on the Company’s results of operations.

The carrying amount, principal maturity and estimated fair value of long-term debt exposure as of April 30, 2003 are as follows (in thousands):

The Company’s carrying value of fixed rate long-term debt and variable rate debt approximated fair value at April 30, 2002.

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Foreign Currency Exchange Rate Risk

The Company’s foreign currency exchange risk primarily relates to its investment in its Australian operations whereby changes in the exchange rate impact the Company’s net investment. The Company has mitigated the risk with a bank loan payable in Australian dollars, which reduces the Company’s exposure by decreasing its net investment. As of April 30, 2003, the Company’s net deficit in its Australian subsidiaries was $9.2 million. The Company does not enter into contracts designed to hedge the residual foreign currency exchange risk.

The Company calculated that a hypothetical 10.0 percent increase in the exchange rate in the near-term would result in approximately a $0.9 million increase in the net deficit in the Australia subsidiaries.

Commodity Price Risk

The Company’s commodity price risk is attributable to fluctuations in the price of selected food products such as meat, poultry and produce used in the normal course of business. The Company contracts for certain amounts of these food products in the future at a predetermined or fixed price in order to hedge the risk of changes in the market price. The Company does not purchase futures contracts for trading purposes. The Company is unable to predict the possible impact of changes in commodity prices. However, in the past the Company has been able to address these changes by passing these costs along to its customers because these changes have generally impacted all restaurant companies.

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Item 8—Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

(In thousands of dollars, except per share data)

The following tables show comparative quarterly financial results during the past two fiscal years. The first, second and fourth fiscal quarters include 12 weeks of operations whereas the third fiscal quarter includes 16 weeks of operations.

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INDEPENDENT AUDITORS’ REPORT

To the Board of Directors and Stockholders of

Worldwide Restaurant Concepts, Inc.:

We have audited the accompanying consolidated balance sheets of Worldwide Restaurant Concepts, Inc. and subsidiaries, (“the Company”) as of April 30, 2003 and 2002, and the related statements of income, stockholders’ equity, and cash flows for the years then ended. Our audits also included the 2003 and 2002 financial statement schedules listed in the Index at Item 15 (a) (2). These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on the 2003 and 2002 financial statements and financial statement schedules based on our audits. The financial statements and financial statement schedules of the Company for the year ended April 30, 2001 were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those financial statements and stated that such 2001 financial statement schedules, when considered in relation to the 2001 basic financial statements taken as a whole, presented fairly, in all material respects, the information set forth therein, in their report dated June 14, 2001.

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

In our opinion, such 2003 and 2002 consolidated financial statements present fairly, in all material respects, the financial position of Worldwide Restaurant Concepts, Inc. and subsidiaries as of April 30, 2003 and 2002, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such 2003 and 2002 financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.

/s/ DELOITTE & TOUCHE LLP

Los Angeles, California

June 24, 2003 (July 15, 2003 as to the

fifth paragraph of Note 6)

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THIS REPORT IS A COPY OF A PREVIOUSLY ISSUED ARTHUR ANDERSEN LLP REPORT

THIS REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of Sizzler International, Inc.:

We have audited the accompanying consolidated balance sheets of Sizzler International, Inc. (the “Company”) (a Delaware corporation) and subsidiaries as of April 30, 2001 and 2000, and the related consolidated statements of operations and comprehensive income, stockholders’ investment and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sizzler International, Inc. and subsidiaries as of April 30, 2001 and 2000, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States.

Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in the index of financial statements are presented for purposes of complying with the Securities and Exchange Commission’s rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Los Angeles, California

June 14, 2001

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WORLDWIDE RESTAURANT CONCEPTS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands)

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

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WORLDWIDE RESTAURANT CONCEPTS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands, except par value)

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

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WORLDWIDE RESTAURANT CONCEPTS, INC. AND SUBSIDIARIES

Consolidated Statements of Income

(In thousands, except per share data)

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

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WORLDWIDE RESTAURANT CONCEPTS, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

(In thousands)