SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE)

x þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Thirteen Weeks Ended ~~July~~January 2422, ~~2005~~2006


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

For the transition period from ~~___________~~ to ~~___________~~

Commission File Number: 0-28930

ROADHOUSE GRILL, INC.

(Exact Name of Registrant as Specified in its Charter)


Florida		65-0367604

(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

2703-A GATEWAY DRIVE, POMPANO BEACH, FL 33069 (Address of Principal Executive Offices and Zip Code)

(Address of Principal Executive Offices and Zip Code)

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

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


Title of Each Class		Name of Each Exchange on Which Registered

NONE		NOT APPLICABLE

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

COMMON STOCK, PAR VALUE $0.03 PER SHARE
(Title of Class)

~~Table~~ Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of ~~Contents~~the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant: ~~(1) has~~is ~~filed~~a ~~all~~large ~~reports~~accelerated ~~required~~filer, toan beaccelerated ~~filed~~filer, ~~by Section 13~~ or ~~15(d)~~a ofnon-accelerated ~~the~~filer. ~~Securities~~See ~~Exchange~~definition ~~Act~~ of ~~1934~~“accelerated ~~during~~filer ~~the~~and ~~preceding~~large ~~12 months~~accelerated ~~(or~~filer” ~~for~~in ~~such~~Rule 12b-2 ~~shorter~~of ~~period that~~ the ~~registrant~~Exchange ~~was~~Act ~~required to file such reports), and~~ (~~2) has been~~check ~~subject to such filing requirements for the past 90 days~~one). ~~Yes x No o~~

~~Indicate~~Large byaccelerated ~~check~~filer ~~mark~~o ~~whether~~Accelerated ~~the~~filer ~~registrant~~o ~~is an~~ Non-accelerated filer ~~(as defined in Exchange Act Rule 12b-2). Yes o No x~~ þ

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes x þ No o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ x

The number of shares of the registrant’s common stock outstanding as of ~~September~~June 719, ~~2005~~2006 was 29,220,663.

DOCUMENTS INCORPORATED BY REFERENCE

None.

FORM 10-Q
THIRTEEN WEEKS ENDED JANUARY 22, 2006

INDEX


	Page
PART 1 FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of January 22, 2006 (unaudited) and April 24, 2005		3
Condensed Consolidated Statements of Operations for the Thirteen and Thirty Nine Weeks Ended January 22, 2006 and January 23, 2005 (unaudited)		4
Condensed Consolidated Statement of Shareholders’ Equity for the Thirty Nine Weeks Ended January 22, 2006 (unaudited)		6
Condensed Consolidated Statements of Cash Flows for the Thirty Nine Weeks Ended January 22, 2006 and January 23, 2005 (unaudited)		7
Notes to Condensed Consolidated Financial Statements		8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		18
Item 3. Quantitative and Qualitative Disclosures about Market Risk		36
Item 4. Controls and Procedures		36
PART II OTHER INFORMATION
Item 1. Legal Proceedings		37
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		37
Item 3. Defaults Upon Senior Securities		37
Item 4. Submission of Matters to a Vote of Security Holders		37
Item 5. Other Information		37
Item 6. Exhibits		38
SIGNATURES		39
First Amendment to Loan Agreement
Third Amendment to Line of Credit Promissory Note
Demand Promissory Note
Second Amendment to Stock Warrant Certificate
Section 302 Chief Executive Officer Certification
Section 302 Chief Financial Officer Certification
Section 906 Chief Executive Officer Certification
Section 906 Chief Financial Officer Certification

FORM 10-Q THIRTEEN WEEKS ENDED JULY 24, 2005

INDEX

	Page
PART 1 FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of July 24, 2005 (unaudited) and April 24, 2005		4
Condensed Consolidated Statements of Operations for the Thirteen Weeks Ended July 24, 2005 and July 25, 2004 (unaudited)		5
Condensed Consolidated Statement of Shareholders’ Equity for the Thirteen Weeks Ended July 24, 2005 (unaudited)		6
Condensed Consolidated Statements of Cash Flows for the Thirteen Weeks Ended July 24, 2005 and July 25, 2004 (unaudited)		7
Notes to Condensed Consolidated Financial Statements		8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
Item 3. Quantitative and Qualitative Disclosures about Market Risk		32
Item 4. Controls and Procedures		33
PART II OTHER INFORMATION
Item 1. Legal Proceedings		34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		34
Item 3. Defaults Upon Senior Securities		34
Item 4. Submission of Matters to a Vote of Security Holders		34
Item 5. Other Information		34
Item 6. Exhibits		35
SIGNATURES		36
CERTIFICATION OF CEO PURSUANT TO SECTION 302
CERTIFICATION OF CFO PURSUANT TO SECTION 302
CERTIFICATION OF CEO PURSUANT TO SECTION 906
CERTIFICATION OF CFO PURSUANT TO SECTION 906

PART 1 FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ROADHOUSE GRILL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS JANUARY 22, 2006 and APRIL 24, 2005 (Dollars in thousands, except per share data)

JULY 24, 2005 and APRIL 24, 2005 (Dollars in thousands, except per share data)


	January 22, 2006			April 24, 2005
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	714		$	810
Accounts receivable, net of allowance for doubtful accounts of $225 and $205 at January 22, 2006 and April 24, 2005, respectively		982			970
Inventory		967			1,048
Prepaid expenses		705			1,062

Total current assets		3,368			3,890
Property & equipment, net of accumulated depreciation of $52,844 and $52,804 at January 22, 2006 and April 24, 2005, respectively		20,699			24,593
Asset held for sale		—			465
Intangible assets, net of accumulated amortization of $775 and $861 at January 22, 2006 and April 24, 2005, respectively		1,647			1,801
Other assets		1,366			965

Total assets	$	27,080		$	31,714

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	7,405		$	5,443
Accrued expenses		8,790			6,093
Unearned revenue		1,419			2,044
Current portion of long-term debt		5,642			2,259
Current portion of capital lease obligations		1,331			1,325

Total current liabilities		24,587			17,164
Long-term debt		1,592			3,338
Capital lease obligations		2,484			3,275
Long-term portion of unearned revenue		1,669			2,207
Non-current deferred rent		3,312			3,344

Total liabilities		33,644			29,328

Shareholders’ equity:
Common stock $0.03 par value. Authorized 35,000,000 shares; issued and outstanding 29,220,663 shares		877			877
Additional paid-in capital		55,991			55,972
Accumulated deficit		(63,432	)		(54,463	)

Total shareholders’ equity		(6,564	)		2,386

Total liabilities and shareholders’ equity	$	27,080		$	31,714

	July 24, 2005			April 24, 2005
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	322		$	810
Accounts receivable, net of allowance for doubtful accounts of $211 and $205 at July 24, 2005 and April 24, 2005, respectively		292			970
Inventory		1,034			1,048
Prepaid expenses		959			1,062
Total current assets		2,607			3,890
Property & equipment, net of accumulated depreciation of $53,124 and $52,804 at July 24, 2005 and April 24, 2005, respectively		23,635			24,593
Asset held for sale		465			465
Intangible assets, net of accumulated amortization of $872 and $861 at July 24, 2005 and April 24, 2005, respectively		1,790			1,801
Other assets		950			965
Total assets	$	29,447		$	31,714
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	5,879		$	5,443
Accrued expenses		6,782			6,093
Unearned revenue		1,735			2,044
Current portion of long-term debt		2,288			2,259
Current portion of capital lease obligations		1,172			1,325
Total current liabilities		17,856			17,164
Long-term debt		2,755			3,338
Capital lease obligations		3,008			3,275
Long-term portion of unearned revenue		1,980			2,207
Non-current deferred rent		3,439			3,344
Total liabilities		29,038			29,328
Shareholders’ equity:
Common stock $0.03 par value. Authorized 35,000,000 shares; issued and outstanding 29,220,663 shares		877			877
Additional paid-in capital		55,991			55,972
Accumulated deficit		(56,459	)		(54,463	)
Total shareholders’ equity		409			2,386
Total liabilities and shareholders’ equity	$	29,447		$	31,714

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

ROADHOUSE GRILL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THIRTEEN AND THIRTY NINE WEEKS ENDED ~~JULY~~JANUARY 2422, ~~2005~~2006 AND ~~JULY~~JANUARY 2523, ~~2004 (Unaudited, dollars in thousands, except per share data)~~2005

	July 24, 2005			July 25, 2004
Total revenues	$	31,480		$	32,871
Restaurant operating expenses:
Cost of restaurant sales:
Food and beverage		10,799			11,874
Labor and benefits		10,772			10,703
Occupancy and other		8,301			8,535
Total cost of restaurant sales		29,872			31,112
Depreciation and amortization		1,414			1,600
General and administrative expenses		1,992			1,653
Total operating expenses		33,278			34,365
Operating loss		(1,798	)		(1,494	)
Other expense:
Gain (loss) on sale/disposal of fixed assets		30			(3	)
Interest expense, net		(228	)		(707	)
Total other expense		(198	)		(710	)
Loss before income taxes		(1,996	)		(2,204	)
Income tax benefit		—			—
Net loss		($1,996	)		($2,204	)
Basic earnings per share:
Net loss		($0.07	)		($0.08	)
Diluted earnings per share:
Net loss		($0.07	)		($0.08	)
Weighted average common shares outstanding		29,220,663			29,220,663
Weighted average common shares and share equivalents
outstanding – assuming dilution		29,220,663			29,220,663

(Unaudited, dollars in thousands, except per share data)


	Thirteen Weeks Ended						Thirty Nine Weeks Ended
	January 22, 2006			January 23, 2005			January 22, 2006			January 23, 2005
Total revenues	$	27,566		$	28,874		$	83,373		$	87,507

Restaurant operating expenses:
Cost of restaurant sales:

Food and beverage		9,050			10,434			27,963			31,390

Labor and benefits		9,475			9,786			28,660			28,771

Occupancy and other		7,671			7,278			22,753			22,180


Total cost of restaurant sales		26,196			27,498			79,376			82,341

Depreciation and amortization		1,378			1,568			4,076			4,407

General and administrative expenses		1,807			1,666			5,662			4,917

Asset Impairment		602			157			602			157


Total operating expenses		29,983			30,889			89,716			91,822


Operating loss		(2,417	)		(2,015	)		(6,343	)		(4,315	)
Other (expense) income:

Loss on sale/disposal of fixed assets		(3	)		(9	)		(14	)		(16	)

Gain on extinguishment of debt		—			—			—			7,102

Interest expense, net		(348	)		(188	)		(887	)		(1,356	)


Total other (expense) income		(351	)		(197	)		(901	)		5,730

(Loss) income from continuing operations before income taxes		(2,768	)		(2,212	)		(7,244	)		1,415

Income tax benefit		—			—			—			—


(Loss) income from continuing operations		(2,768	)		(2,212	)		(7,244	)		1,415

Discontinued operations:

Loss from operations of discontinued restaurants (less applicable income taxes of $0)		(165	)		(666	)		(941	)		(1,830	)

Loss on disposal of discontinued restaurants, including provision of $100 for operating losses during phase-out period (less applicable income taxes of $0)		(256	)		—			(784	)		—


Net loss	$	(3,189	)	$	(2,878	)	$	(8,969	)	$	(415	)


	Thirteen Weeks Ended						Thirty Nine Weeks Ended
	January 22, 2006			January 23, 2005			January 22, 2006			January 23, 2005
Basic earnings per share:

Net (loss) income from continuing operations	$	(0.09	)	$	(0.08	)	$	(0.25	)	$	0.05


Net loss from discontinued operations	$	(0.02	)	$	(0.02	)	$	(0.06	)	$	(0.06	)


Net loss	$	(0.11	)	$	(0.10	)	$	(0.31	)	$	(0.01	)


Diluted earnings per share:

Net (loss) income from continuing operations	$	(0.09	)	$	(0.08	)	$	(0.25	)	$	0.05


Net loss from discontinued operations	$	(0.02	)	$	(0.02	)	$	(0.06	)	$	(0.06	)


Net loss	$	(0.11	)	$	(0.10	)	$	(0.31	)	$	(0.01	)


Weighted average common shares Outstanding		29,220,663			29,220,663			29,220,663			29,220,663


Weighted average common shares and share Equivalents outstanding — assuming dilution		29,220,663			29,220,663			29,220,663			29,220,663

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

ROADHOUSE GRILL, INC.

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

FOR THE ~~THIRTEEN~~THIRTY NINE WEEKS ENDED ~~JULY~~JANUARY 2422, ~~2005 (Unaudited, dollars in thousands, except share data)~~2006

	Common Stock				Additional
					Paid-in		Accumulated
	Shares		Amount		Capital		Deficit			Total
Balance April 24, 2005		29,220,663	$	877	$	55,972	$	(54,463	)	$	2,386
Net loss		—		—		—		(1,996	)		(1,996	)
Vesting of stock options		—		—		19		—			19
Balance July 24, 2005		29,220,663	$	877	$	55,991	$	(56,459	)	$	409

(Unaudited, dollars in thousands, except share data)



	Common Stock				Additional Paid-in		Accumulated
	Shares		Amount		Capital		Deficit			Total
Balance April 24, 2005		29,220,663	$	877	$	55,972	$	(54,463	)	$	2,386
Net loss		—		—		—		(8,969	)		(8,969	)
Vesting of stock options		—		—		19		—			19


Balance January 22, 2006		29,220,663	$	877	$	55,991	$	(63,432	)	$	(6,564	)

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

ROADHOUSE GRILL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE ~~THIRTEEN~~THIRTY NINE WEEKS ENDED ~~JULY~~JANUARY 2422, ~~2005~~2006 AND ~~JULY~~JANUARY 2523, ~~2004 (Unaudited, dollars in thousands)~~2005

	July 24, 2005			July 25, 2004
Cash flows from operating activities:
Net loss	$	(1,996	)	$	(2,204	)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization		1,414			1,600
Stock option expense		19			19
Net gain (loss) on sale/disposal of fixed assets		(30	)		3
Cash used for reorganization items		—			(4	)
Changes in assets and liabilities:
Decrease in accounts receivable		678			60
Decrease in inventory		14			14
Decrease in prepaid expenses		103			69
Decrease (increase) in other assets		14			(186	)
Increase (decrease) in accounts payable		436			(107	)
(Decrease) increase in unearned revenue		(536	)		1,369
Increase in accrued expenses		786			1,006
Net cash provided by operating activities		902			1,639
Cash flows from investing activities:
Purchases of property and equipment		(345	)		(260	)
Net cash used in investing activities		(345	)		(260	)
Cash flows from financing activities:
Repayment of long-term debt		(554	)		(1,008	)
Payments on capital lease obligations		(491	)		(290	)
Net cash used in financing activities		(1,045	)		(1,298	)
(Decrease) increase in cash and cash equivalents		(488	)		81
Cash and cash equivalents at beginning of period		810			1,181
Cash and cash equivalents at end of period	$	322		$	1,262
Supplementary disclosures:
Interest paid	$	252		$	663
Income taxes paid	$	64		$	—

(Unaudited, dollars in thousands)


	January 22, 2006			January 23, 2005
Cash flows from operating activities:
Net (loss) income	$	(8,969	)	$	(415	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		4,168			4,684
Asset impairment		602			157
Stock option expense		19			19
Net loss on sale/disposal of fixed assets		14			16
Net loss on disposal of discontinued operations		784			—
Bad debt expense		20			—
Gain on extinguishment of debt		—			(7,102	)
Cash used for reorganization items		—			(6	)

Changes in assets and liabilities:
Increase in accounts receivable		(12	)		(45	)
Decrease in income tax receivable		—			69
Decrease (increase) in inventory		81			(72	)
Decrease in prepaid expenses		357			266
Increase in other assets		(174	)		(92	)
Increase (decrease) in accounts payable		1,956			(862	)
Decrease in restructuring accrual		—			(3	)
(Decrease) increase in unearned revenue		(1,163	)		2,283
Increase in accrued expenses		2,663			1,133

Net cash provided by operating activities		346			230


Cash flows from investing activities:
Net proceeds from sales of property and equipment		1			20,574
Purchases of property and equipment		(915	)		(852	)

Net cash (used in) provided by investing activities		(914	)		19,722


Cash flows from financing activities:
Borrowings under debt agreements		4,020			—
Repayment of long-term debt		(2,383	)		(18,992	)
Payments on capital lease obligations		(1,165	)		(1,297	)

Net cash provided by (used in) financing activities		472			(20,289	)

(Decrease) in cash and cash equivalents		(96	)		(337	)
Cash and cash equivalents at beginning of period		810			1,181

Cash and cash equivalents at end of period	$	714		$	844


Supplementary disclosures:

Interest paid	$	844		$	1,266

Income taxes paid	$	75		$	7

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

ROADHOUSE GRILL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS

Roadhouse Grill, Inc. (the “Company”) was incorporated under the laws of the state of Florida in 1992. The principal business of the Company is the operation of full service specialty restaurants. The Company has also granted franchises and licenses to operate restaurants under the “Roadhouse Grill” name including to entities in Italy, Brazil and Malaysia. The Company opened its first restaurant in Pembroke Pines, Florida (a city in the greater Ft. Lauderdale area) in 1993. As of ~~July~~January 2422, ~~2005~~2006, there were 6760 Company-owned Roadhouse Grill restaurants, 3331 of which are located in Florida and the balance of which are located in Alabama, Arkansas, Georgia, Louisiana, Mississippi, New York, North Carolina, Ohio and South Carolina. During ~~both~~each of the thirteen weeks ended ~~July~~January 2422, ~~2005~~ 2006 and ~~subsequent to July~~October 2423, 2005, ~~one~~two ~~restaurant~~restaurants ~~was~~were closed upon the termination of ~~the~~ the related ~~lease~~leases. InTwo ~~addition,~~additional ~~subsequent~~restaurants towere ~~July 24,~~closed ~~2005,~~during ~~two~~the ~~additional~~thirteen ~~restaurants~~weeks ~~were~~ended ~~closed~~October 23, 2005 while the properties ~~are~~were marketed for sale. Although there can be no assurance, the leases related to these two properties will terminate upon the sale of the respective properties. The Company closed these ~~four~~six restaurants , as well as another unit during fiscal 2006, because they were underperforming from a financial standpoint and the Company determined that it would be better to focus its management time and attention and its available resources on its better ~~performing~~ performing restaurants. Finally, ~~in August~~during the thirty nine weeks ended January ~~2005~~22, ~~two~~2006, one of the Company’s restaurants ~~were~~located ~~heavily~~in ~~damaged~~Biloxi, orMississippi was destroyed inby Hurricane Katrina. Subsequent to January 22, 2006, one additional restaurant was closed in conjunction with the expiration of the related lease.

As discussed above, the Company committed to a formal plan for disposal of seven of its restaurants during the thirty nine weeks ended January 22, 2006. Additionally, the Company has determined that it will not rebuild the restaurant that was destroyed by Hurricane Katrina and exited one additional location upon the expiration of the related lease in March 2005. As a result, the Company has adopted discontinued operations accounting treatment for these nine restaurants, which requires separation of financial results for such discontinued operations from those of the remaining continuing operations. In conjunction with such accounting treatment, the Company has recorded a charge of $0.8 million during the thirty nine weeks ended January 22, 2006 relating to the estimated loss on disposal of these restaurants. Revenues for these restaurants were $0.4 million and $3.3 million for the thirteen and thirty nine weeks ended January 22, 2006, respectively.

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

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

The Company’s ability to meet its operating expenses as they come due, including its ability to service its debt and pay its capital and operating lease obligations, is dependent on the Company’s meeting its 2006 business plan, of which there can be no assurance. In that regard, the Company recently obtained a loan from its majority shareholder (Note 11) and collected the proceeds of an outstanding insurance claim (Note 10). The Company is also in the process of selling a closed property in an effort to raise additional working capital. Assuming that the Company meets all material respects of its 2006 business plan, management believes that the Company will have sufficient working capital to meet its obligations during the 2006 fiscal year. Factors that could cause the Company to not meet its business plan could include unforeseen events such as material food cost increases, significant decreases in customer volume, hurricanes or other unforeseen factors. However, if cash generated from operations is insufficient to fund the Company’s financial commitments and working capital requirements, of which there can be no assurance, the Company will have to obtain additional capital from debt or equity financing sources. There can be no assurance that additional debt and/or equity financing will be available on terms acceptable to the Company, or at all. In the event that the Company in unable to secure additional needed financing, it would likely have a material adverse effect upon the Company’s business, results of operations or financial condition.

On November 17, 2005, the Company entered into a merger agreement (the “Merger”) with Steakhouse Partners, Inc. (“Steakhouse”). The Merger was subject, among other matters, to the obtaining by Steakhouse of financing sufficient to complete the transaction. However, Steakhouse was not able to obtain the financing necessary to complete the Merger and, as a result, on March 14, 2006 the Company terminated the Merger. On March 15, 2006, the Company announced that its Board of Directors would continue to explore strategic options that might be available and that the Company continues to have the financial support of its principal shareholders, including the Berjaya Group. In that regard, the Company continues to be advised with respect to its strategic planning process by the investment banking firm of J. H. Chapman Group, L.L.C.

The Company’s ability to meet its operating expenses as they come due, including its ability to service its debt and pay its capital and operating lease obligations, is dependent on the Company’s ability to obtain additional financing as well as its ability to meet its business plan for fiscal 2006 and beyond, of which there can be no assurance. In that regard, the Company recently obtained loans from two principal shareholders (Note 11). If the Company is unable to secure additional required financing from its principal shareholders or other sources and/or successfully complete a financing or sale transaction in its investment banking process, it will likely have a material adverse effect upon the Company’s business, results of operations or financial condition and the Company could be forced to cease operations.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

See the Company’s Annual Report on Form 10-K for the fifty-two weeks ended April 24, 2005 for a summary of significant accounting policies.

(3) LIQUIDITY

The Company’s material financial commitments relate principally to its working capital requirements in connection with the operation of its business and its obligations to make operating and capital lease and term loan payments. As of ~~July~~January 2422, ~~2005~~2006, total minimum ~~payments~~ payments required under the Company’s note and lease obligations in 2006, including interest thereon, were $1514.56 million (see the discussion below regarding the Company’s total contractual ~~cash~~ cash obligations). ~~In addition, capital requirements relating to the opening of new restaurants have~~ ~~in the past been (and may in the future be) significant.~~

The Company did not open any new restaurants during the thirteen weeks ended July 24, 2005 or July 25, 2004. The Company does not currently have any additional Company-owned restaurants under development for fiscal year 2006 or planned for the future. At this time, it is expected that incremental capital from debt or equity sources will be needed to open new restaurants. Should such capital be unavailable, the Company will not be able to open additional restaurants in the future.

On August 6, 2004, the Company closed a transaction with Sovereign Roadhouse LLC, a wholly-owned subsidiary of Sovereign Investment Company (“Sovereign”), involving the sale and leaseback of 11 restaurant properties that were previously owned. See Note 9 for information regarding the sale/leaseback transaction.

During the thirteen weeks ended ~~July~~January 2422, ~~2005~~2006, the Company’s primary ~~source~~sources of working capital ~~was~~were ~~the~~loans ~~receipt~~from ofits ~~proceeds~~principal ofshareholders ~~an insurance claim related~~ to ~~hurricanes~~support ~~which~~its ~~occurred~~operations ~~in August~~ and ~~September 2004~~proceeds ~~(see Note 10). Subsequent to July 24, 2005, the Company also received a~~from ~~loan~~insurance ~~from its majority shareholder to support its operations~~claims. (See ~~Note~~Notes 11 and 12).

The Company has experienced significant cash flow problems in the past and may suffer from cash flow problems in the future. The Company believes that its ability to generate ~~sufficient~~ sufficient cash from operations to meet its obligations is dependent upon, among other things, ~~demand for its~~ products, a continued commitment to providing an excellent dining experience for its customers, the development and implementation of successful marketing strategies, the cost levels of its various food products, and its continuing efforts to reduce its operating costs. For further information regarding the Company’s liquidity, see Note 1.

The Company implemented revenue enhancement programs including the implementation of a new menu with enhanced menu items during fiscal 2005. In addition, the Company has taken, and continues to take, steps to control its costs. There can be no assurance that these initiatives will be effective in generating profits or producing sufficient cash flows to fund operating requirements, including debt repayments and lease obligations. In addition, if

~~operating~~demand ~~results~~for doits ~~not~~products, ~~improve~~a incontinued ~~the~~commitment ~~near~~to ~~term~~providing asan aexcellent ~~result~~dining experience offor its customers, the ~~recent~~development ~~changes~~and ~~that~~implementation ~~have been~~of ~~implemented~~successful ~~and~~marketing strategies, the ~~introduction~~cost levels of ~~the~~its ~~new~~various ~~menus~~food products, ~~then~~and ~~the~~its ~~Company~~continuing ~~may~~efforts beto ~~required~~reduce toits ~~recognize~~operating ~~additional~~costs. ~~impairment~~For ~~charges~~further ~~related~~information toregarding ~~certain~~the ~~long-lived~~Company’s ~~assets~~liquidity, see Note 1.

~~Capital~~As ~~requirements~~discussed ~~relating~~above, to the ~~implementation of the~~ Company’s ~~business~~is ~~plan~~currently ~~have~~exploring ~~been and~~strategic ~~will~~alternatives ~~continue~~that tomay be ~~significant~~ available. IfHowever, ~~cash~~in ~~generated~~order ~~from~~to ~~the~~continue ~~Company’s operations and other possible sources described above are insufficient~~ to ~~fund~~meet ~~the~~its ~~Company’s financial commitments and working capital requirements~~obligations, the Company will ~~have~~need toan ~~obtain additional financing. There can be~~infusion noof ~~assurance that additional~~ debt ~~and/~~or equity ~~financing~~capital. ~~will~~The befailure ~~available~~of ~~on terms acceptable to~~ the Company, orto atobtain ~~all. In~~ the ~~event~~working ~~the~~capital ~~Company~~required ~~were~~ to fund beits ~~unable~~continuing tooperations ~~secure~~will ~~needed additional financing, it would~~ likely have a material adverse effect on ~~its~~the ~~operations,~~Company’s future financial ~~condition~~ position and/or results of operations and could result in the curtailment of operations.

The following table summarizes the Company’s future contractual cash obligations for the remainder of fiscal 2006, each of the next four fiscal years and thereafter as of ~~July~~January 2422, ~~2005~~2006 (dollars in thousands). Operating lease commitments include estimated common area maintenance expenses.

	2006		2007		2008		2009		2010		Thereafter		Total
Long term debt:
Principal	$	13,~~705~~903	$	2,~~375~~369	$	939	$	1716	$	7	$	—	$	57,~~043~~234
Interest		~~172~~198		128		2019		1		—		—		~~321~~465
Total		14,~~877~~101		2,~~503~~497		~~959~~958		1817		7		—		57,~~364~~580
Capital lease debt:
Principal		~~902~~384		1,~~119~~266		~~423~~429		341		~~342~~343		1,~~053~~052		43,~~180~~815
Interest		~~211~~67		230		198		168		135		223		1,~~165~~021
Total		~~1,113~~451		1,~~349~~496		~~621~~627		509		~~477~~478		1,~~276~~275		54,~~345~~836
Operating leases		82,~~222~~409		108,~~069~~974		98,~~627~~595		98,~~063~~077		87,~~525~~605		7969,~~366~~721		~~124~~105,~~872~~381
Other commitments		~~388~~158		~~205~~285		140		142		168		—		~~1,043~~893
Total	$	117,~~600~~119	$	1413,~~126~~252	$	1110,~~347~~320	$	98,~~732~~745	$	98,~~177~~258	$	8070,~~642~~996	$	~~136~~118,~~624~~690

~~The~~Other ~~obligations~~commitments ~~described~~represent ~~above~~minimum doamounts ~~not~~due ~~include~~to ~~the~~certain ~~$1,250,000~~vendors ~~loan~~under ~~that~~contractual agreements. ~~the~~Amounts ~~Company~~reflected ~~obtained~~above could change as additional commitments may be made, ~~from~~cancellation ~~its~~provisions ~~majority~~may ~~shareholder~~be inexercised ~~August 2005.~~by ~~This~~the ~~debt~~Company isor ~~due~~by onits ~~May 15~~creditors, ~~2006~~ or ~~earlier~~agreements ~~upon~~may abe ~~change~~modified ofas ~~control~~warranted ofby ~~the~~changes ~~Company~~in business or operational needs.

Other commitments represent minimum amounts due to certain vendors under contractual agreements. Amounts reflected above could change as additional commitments may be made,

cancellation provisions may be exercised by the Company or by its creditors, or agreements may be modified as warranted by changes in business or operational needs.

(4) LONG-TERM DEBT

As of ~~July~~January 2422, ~~2005~~2006 and April 24, 2005, the Company’s long-term debt was comprised of the following items (amounts in thousands):

	July 24, 2005				April 24, 2005
	January 22, 2006				April 24, 2005
	Non-				Non-
	Current		Current		Current		Current
	Portion		Portion		Portion		Portion
Unsecured note due various entities affiliated with CNL bearing interest at 5%. Monthly payments of $58 are due through October 2007.	$	~~540~~210	$	~~635~~651	$	702	$	627
Unsecured note due Corsair Special Situations Fund (a member of the Company’s Board of Directors is affiliated with the Corsair Special Situations Fund) bearing interest at 5%. Monthly payments of $104 are due through October 2007.		~~1,509~~916		1,~~141~~170		1,799		1,127
Other unsecured notes due various parties bearing interest at 5%. Notes are due through 2009. Current monthly payments are $40.		~~706~~466		~~512~~490		837		505
Total long-term debt	$	2,755	$	2,288	$	3,338	$	2,259
Unsecured demand note due to Ayman Sabi (President and Chief Executive Officer) bearing interest at 10%.		—		120		—		—
Secured note due Berjaya Group (Cayman) Limited (majority shareholder), bearing interest at 10%. Full payment is due upon certain events including a change of control of the Company.		—		3,211		—		—
Total long-term debt	$	1,592	$	5,642	$	3,338	$	2,259

During the thirty nine weeks ended January 22, 2006, the Company entered into an amended and restated loan agreement with its principal shareholder, Berjaya Group (Cayman) Limited. As of January 22, 2006, the Company had borrowed $3.2 million from Berjaya, which represents the full amount available under the loan agreement. In March 2006, the loan agreement was amended to provide for additional borrowings of up to $0.8 million, thereby increasing the total amount of the loan to up to $4.0 million. In May 2006, the loan agreement was further amended to allow for an additional $800,000 in borrowings, thereby increasing the total amount of the loan to up to $4.8 million. Presently, the full amount of the loan has been borrowed and is outstanding. The loan matures on June 30, 2006, at which time all accrued interest is required to be paid. Outstanding principal borrowings are payable upon certain events or transactions

including a change of control of the Company. See further discussion at Note 11. In addition, in September 2005, the Company borrowed $120,000 from its President and Chief Executive Officer. In May 2006, the Company borrowed an additional $104,000. These loans bear interest at 10% per annum and are repayable on demand.

The debt agreements resulting from the Company’s 2002 bankruptcy proceedings may require prepayments of principal to the extent the Company generates excess cash flow from operations, as defined in the agreements.

(5) COMMITMENTS AND CONTINGENCIES

GUARANTOR OF EQUIPMENT LEASES

The Company is the guarantor of equipment leases for three restaurants that are owned by one of its franchisees, Roadhouse West G.P., two of which are currently closed. In addition, the Company believes that other parties have also guaranteed these obligations. Roadhouse West G.P. is currently in a Chapter 7 liquidation. The leases are collateralized by the leased equipment and certain leasehold improvements. The Company cannot predict the outcome of the proceeding but believes that any potential liability will be mitigated by the collateral described above and, accordingly, the Company has recorded no reserve for any possible obligations that may arise relating to these proceedings.

believes that any potential liability will be mitigated by the collateral described above and, accordingly, the Company has recorded no reserve for any possible obligations that may arise relating to these proceedings.

OTHER AGREEMENTS

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

OTHER

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

(6) CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Please see Notes 4 and 11 and the Notes to Consolidated Financial Statements in the Company’s Form 10-K for the fiscal year ended April 24, 2005 for a full discussion of the Company’s related party transactions.

(7) NET LOSS PER COMMON SHARE (“EPS”)

Basic net earnings per share equals net earnings divided by the weighted average shares outstanding during the year. The computation of diluted net earnings per share includes dilutive common stock equivalents in the weighted average shares outstanding. The reconciliation between the computations is as follows (dollars in thousands, except per share data):

	Thirteen Weeks Ended July 24, 2005
	Thirteen Weeks Ended								Thirty Nine Weeks Ended
	Net Loss			Shares		Amount
	January 22, 2006								January 22, 2006
BASIC EPS
	Net Loss			Shares		Amount			Net Loss			Shares		Amount
Net loss available
BASIC EPS:
to common shareholders	$	(1,996	)		29,220,663	$	(0.07	)
Net loss available to common shareholders from continuing operations	$	(2,768	)		29,220,663	$	(0.09	)	$	(7,244	)		29,220,663	$	(0.25	)
EFFECT OF DILUTIVE SECURITIES
Net loss available to common shareholders from discontinued operations		(421	)		29,220,663		(0.02	)		(1,725	)		29,220,663		(0.06	)
Stock options		—			—		—
Net loss available to common shareholders		(3,189	)		29,220,663		(0.11	)		(8,969	)		29,220,663		(0.31	)
DILUTED EPS	$	(1,996	)		29,220,663	$	(0.07	)
DILUTED EPS:
From continuing operations		(2,768	)		29,220,663		(0.09	)		(7,244	)		29,220,663		(0.25	)
From discontinued operations		(421	)		29,220,663		(0.02	)		(1,725	)		29,220,663		(0.06	)
Net loss		(3,189	)		29,220,663		(0.11	)		(8,969	)		29,220,663		(0.31	)

12 Options to purchase 1,295,000 shares of common stock at a weighted average exercise price of $0.36 per share were outstanding during the thirteen and thirty nine weeks ended January 22, 2006, but were not included in the computation of diluted EPS because the options’ exercise price was greater than the average market price of the common shares.

Options to purchase 1,305,000 shares of common stock at a weighted average exercise price of $0.36 per share were outstanding during the thirteen weeks ended July 24, 2005, but were not included in the computation of diluted EPS because the options’ exercise price was greater than the average market price of the common shares.


	Thirteen Weeks Ended							Thirty Nine Weeks Ended
	January 23, 2005							January 23, 2005
	Net Income			Shares	Amount			Net Income			Shares	Amount
BASIC EPS:

Net (loss) income available to common shareholders from continuing operations	$	(2,212	)	29,220,663	$	(0.08	)	$	1,415		29,220,663	$	0.05

Net loss available to common shareholders from discontinued operations		(666	)	29,220,663		(0.02	)		(1,830	)	29,220,663		(0.06	)

Net loss available to common shareholders		(2,878	)	29,220,663		(0.10	)		(415	)	29,220,663		(0.01	)

DILUTED EPS:
From continuing operations		(2,212	)	29,220,663		(0.08	)		1,415		29,220,663		0.05

From discontinued operations		(666	)	29,220,663		(0.02	)		(1,830	)	29,220,663		(0.06	)

Net loss		(2,878	)	29,220,663		(0.10	)		(415	)	29,220,663		(0.01	)

	Thirteen Weeks Ended July 25, 2004
	Net Loss			Shares		Amount
BASIC EPS
Net loss available
to common shareholders	$	(2,204	)		29,220,663	$	(0.08	)
EFFECT OF DILUTIVE SECURITIES
Stock options		—			—		—
DILUTED EPS	$	(2,204	)		29,220,663	$	(0.08	)

Options to purchase 1,395,000 shares of common stock at a weighted average exercise price of $0.36 per share were outstanding during the thirteen and thirty nine weeks ended January 23, 2005, but were not included in the computation of diluted EPS because the options’ exercise price was greater than the average market price of the common shares.

Options to purchase 1,395,000 shares of common stock at a weighted average exercise price of $0.36 per share were outstanding during the thirteen weeks ended July 25, 2004, but were not included in the computation of diluted EPS because the options’ exercise price was greater than the average market price of the common shares.

(8) ADVANCE SALE OF FOOD AND BEVERAGE CREDITS

In June 2003, the Company entered into an agreement with a loyalty and rewards company (the “Rewards Company”) involving the discounted advance sale of food and beverage credits to be used at its restaurants. As part of the agreement, during fiscal 2004, the Company received $2.3 million in exchange for the credits, which was recorded in the Consolidated Balance Sheet as unearned revenue. The Company’s liability under the agreement is secured by a lien on certain equipment. The amount of the discount provided to the Rewards Company relating to the sale of food and beverage credits is recognized as advertising expense (which is included in occupancy and other) in the Consolidated Statement of Operations as the credits are used at the restaurants. Throughout the term of the agreement, the Company and the Rewards Company share in the proceeds of credit card transactions resulting from use of the credits by members of the Rewards Company. As of ~~July~~January 2422, ~~2005~~2006, all food and beverage credits sold to ~~the Rewards Company under the original~~ agreement have been used. In June 2004, the Company renewed the agreement with the Rewards Company. Under the current agreement, the Company received $3.0 million in exchange for the sale of additional food and beverage credits. As of July 24, 2005 and April 24, 2005, the unearned revenue related to this program was $1.6 million and $1.9 million, respectively.

1314

the Rewards Company under the original agreement have been used. In June 2004, the Company renewed the agreement with the Rewards Company. Under the current agreement, the Company received $3.0 million in exchange for the sale of additional food and beverage credits. As of January 22, 2006 and April 24, 2005, the unearned revenue related to this program was $0.9 million and $1.9 million, respectively.

(9) ASSET SALE/LEASEBACK

On August 6, 2004, the Company closed a transaction with Sovereign involving the sale and leaseback of 11 restaurant properties that were previously owned. The sale price for the 11 properties was $21.8 million. The properties are being leased under lease agreements that extend for 20 years and include four five-year renewal options. The Company used approximately $18.3 million of the net proceeds from the sale to repay $24.6 million of secured debt, which was ~~repaid~~ repaid at a discount (resulting in a gain on extinguishment of debt of $7.1 million), and to pay ~~expenses~~ expenses related to the sale/leaseback transaction. The net gain from the debt repayment was reflected in the Consolidated Statement of Operations for the fiscal year ended April 24, 2005. The Company also realized a gain on the sale of the properties of approximately $1.7 million, which is recorded as unearned revenue in the Condensed Consolidated Balance Sheet as of ~~July 24~~January 22, ~~2005~~2006 and will be recorded as a reduction of occupancy and other expense over the life of the leases. The remaining net proceeds from the sale of approximately $3.5 million were used for general corporate purposes.

(10) IMPACT OF 2004 HURRICANES

In August and September 2004, a number of the Company’s restaurants were impacted by Hurricanes Charley, Frances, Ivan and Jeanne, which initially hit the state of Florida and also impacted certain other southern states. The hurricanes caused damage to several of the Company’s properties and resulted in the temporary closure of a number of its restaurants. The hurricanes also impacted customers during the six weeks over which the storms hit, with their focus being on the progress of the storms (and where they might hit) and not on normal living, including casual dining. It is not possible to measure the full impact of the hurricanes and their effect on customers who were preparing for storms, restoring damaged property and recovering financially from storm related costs. However, in total, the Company lost an aggregate of 192 days of restaurant sales due to restaurant closures resulting from the hurricanes during the thirteen weeks ended October 24, 2004. The total decline in sales from the prior year for those days impacted by the hurricanes was approximately $1.3 million. Also, as a result of the hurricanes, the Company incurred losses including property damage, lost profits from restaurant closures, lost food product, and additional expense regarding cleanup and other items. The Company filed insurance claims under its property insurance policy for these losses. In July 2005, the Company received $0.6 million in full settlement of these insurance claims. These receipts were reported in total revenues in the amount of $0.4 million and as a reduction of property and equipment in the amount of $0.2 million during the fifty-two weeks ended April 24, 2005 and as accounts receivable in the Consolidated Balance Sheet as of April 24, 2005.

(11) SUBSEQUENT EVENTS

In August 2005, the Company entered into a loan agreement with its majority shareholder, under which the Company has borrowed $1.25 million. Borrowings under the agreement bear interest at 10% and are to be repaid upon certain events or transactions including a change of

control of the Company. Any remaining outstanding borrowings must be repaid on May 15, 2006. The loan is secured by a lien on substantially all of the assets of the Company.

On August 24 and 25, 2005, Hurricane Katrina hit South Florida. The storm thereafter hit the Southeast Gulf Coast region on August 29, 2005. None of the Company’s South Florida restaurants were heavily damaged in the storm, and all South Florida restaurants that were temporarily closed due to the hurricane have reopened. The Company has seven restaurants in Mississippi, Louisiana and Alabama. Of these restaurants, two restaurants located in Biloxi, Mississippi and Marrero (New Orleans), Louisiana, were heavily damaged in the storm and have not reopened. In regards to the Biloxi location, it appears that this restaurant was destroyed in the storm and will be a total loss. At this time, the Company cannot determine when or if it will be in a position to reopen the Biloxi and Marrero restaurants. Other than these two restaurants, all of the Company’s other restaurants in the gulf coast region had varying degrees of damage from the storm. However, all of these other restaurants have now reopened. Through September 7, 2005, an aggregate of 50 full or partial days of sales were lost in the Company’s South Florida and Gulf Coast restaurants. The Company intends to file insurance claims with respect to its losses, including claims for business interruption. At this time, the Company is unable to determine the amount of any insurance recoveries with respect to its Hurricane Katrina losses. Notwithstanding, the impact of Hurricane Katrina, including the loss of restaurant operating profits from the two stores (Biloxi and Marrero) that were heavily damaged as a result of Hurricane Katrina, is not expected to materially impact the Company’s financial position or results of operations in future periods.

(11) LOANS FROM RELATED PARTIES

In August 2005, the Company entered into a loan agreement with its principal shareholder, under which the Company has borrowed $1.25 million. In October 2005, the Company entered into an amended and restated loan agreement with its principal shareholder under which the Company has borrowed an additional $2.0 million. In each of March and May 2006, the loan agreement was amended, thereby allowing the Company to borrow, in the aggregate, an additional $1.6 million. The total amount currently outstanding under the amended loan agreement is $4.8 million. No additional amounts are presently available for further borrowing under the loan agreement. Proceeds have been used for working capital. Borrowings under the agreement bear interest at 10% and are to be repaid upon certain events or transactions including a change of control of the Company. The loan is secured by a lien on substantially all of the assets of the Company.

In addition, as part of its agreement to make the loan in October 2005, the majority shareholder received a common stock purchase warrant (the “Warrant”) to purchase, for nominal consideration, 4,474,337 shares of the Company’s authorized but unissued common stock (the “Shares”). Under the terms of the warrant, as amended, the majority shareholder has the right to purchase the Shares on or after July 1, 2006. The Warrant will be canceled if a change in control occurs prior to that date. For accounting purposes, no value has been assigned to the warrants at date of grant due to the fact that the warrants are not currently exercisable and are expected to be canceled if a financing or sale transaction is completed.

In September 2005, the Company’s President and Chief Executive Officer loaned the Company $120,000, which was used for working capital. In May 2006, an additional $104,000 was loaned to the Company. This loan is evidenced by a demand promissory note, bears interest at the rate of 10% per annum and is unsecured.

(12) IMPACT OF 2005 HURRICANES

On August 24 and 25, 2005, Hurricane Katrina hit South Florida. The storm thereafter hit the Southeast Gulf Coast region on August 29, 2005. None of the Company’s South Florida restaurants were heavily damaged in the storm, and all South Florida restaurants that were temporarily closed due to the hurricane have reopened. The Company had seven restaurants in Mississippi, Louisiana and Alabama. Of these restaurants, one restaurant located in Biloxi, Mississippi, was destroyed by the storm and was a total loss. The Company does not intend to reopen this restaurant. All of the Company’s other restaurants in the gulf coast region had varying degrees of damage from the storm. However, all of these other restaurants have now reopened. Excluding Biloxi, an aggregate of 80 full or partial days of sales were lost in the Company’s South Florida and Gulf Coast restaurants, representing approximately $0.3 million in lost sales based on prior year sales for these days. The Company has filed insurance claims with respect to its losses, including claims for business interruption. In the aggregate, as of January 22, 2006 the Company has received $0.4 million in proceeds as a partial settlement on its Hurricane Katrina insurance claim, which has been recorded as an offset to the carrying value of the assets impacted by the hurricane. The remaining carrying value of these assets of $0.1 million has been reclassified in the

accompanying Condensed Consolidated Balance Sheet as of January 22, 2006 as accounts receivable based on the recovery of this amount from additional insurance proceeds subsequent to January 22, 2006. At this time, the Company is unable to determine the amount of any additional insurance recoveries in excess of such receivable with respect to its Hurricane Katrina losses.

On October 24, 2005, Hurricane Wilma hit South Florida, which resulted in the temporary closure of thirteen of the Company’s restaurants. The Company’s South Florida restaurants had varying degrees of damage from the storm. However, all of these restaurants have now reopened. An aggregate of 145 full or partial days of sales were lost in the Company’s South Florida restaurants, representing approximately $0.6 million in lost sales based on prior year sales for these days. In addition, the Company’s corporate office was closed for an eight-day period. The Company is in the process of filing insurance claims with respect to its losses, including claims for business interruption. In the aggregate, as of January 22, 2006 the Company has received $0.1 million in proceeds as a partial settlement on its Hurricane Wilma insurance claim, which has been recorded as an offset to the carrying value of the assets impacted by the hurricane. The remaining carrying value of these assets of $0.2 million has been reclassified in the accompanying Condensed Consolidated Balance Sheet as of January 22, 2006 as accounts receivable and was collected as an additional partial settlement subsequent to January 22, 2006. At this time, the Company is unable to determine the amount of any additional insurance recoveries in excess of such receivable with respect to its Hurricane Wilma losses.

(13) ASSET HELD FOR SALE

During the thirteen weeks ended January 22, 2006, the Company sold its closed property in Columbia, South Carolina, which was recorded as an asset held for sale in the accompanying Condensed Consolidated Balance Sheet. The net proceeds from the sale of $0.4 million were used to repay debt owed to the Company’s principal shareholder. No gain or loss was recognized on the transaction, since the carrying value of such property on the Company’s books and records was equal to the net proceeds from the sale, after recording a charge of $62,000 during the thirteen weeks ended October 23, 2005 to adjust the carrying value to estimated net realizable value.

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

FORWARD LOOKING STATEMENTS

This report contains “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements concern expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. Statements preceded by, followed by, or that include the words “believes,” “expects,” “anticipates,” or similar expressions are generally considered to be forward-looking statements. Specifically, this report contains forward-looking statements regarding, among other matters, our strategies, plans, objectives, expectations, future market position, operations, cash flow, margins, revenue, profitability, restaurant-level economics, liquidity and capital resources.

Forward looking statements contained in this report are not guarantees of future performance and involve certain risks, uncertainties and assumptions, all of which are difficult to predict. We wish to caution readers that certain important factors have affected in the past and may affect in the future our actual results, and such factors could cause actual results to differ significantly from those expressed or implied in any forward looking statement contained in this report. Important factors that could cause actual results to differ materially from those expressed or implied by the forward looking statements in this report include, but are not limited to, the following:

• Our ability to effectively complete the investment banking process and identify suitable financing or sale strategic options for our Company; • Our having sufficient working capital to meet our future operating and capital requirements; • Our ability to obtain additional debt and/or equity capital to meet our working capital requirements; • Our ability to comply with the terms of our debt instruments, operating leases, capital leases and vendor contracts; • Our ability to increase our sales and manage our labor costs, food costs, other restaurant costs and corporate expenses, and our ability to operate our business on a cash flow positive and profitable basis; • Our ability to acquire an adequate supply of food products at acceptable prices, and events that affect the availability and pricing of food products (such as instances of mad cow disease); • Our ability to recruit, train and retain qualified management personnel and to obtain a sufficient number of qualified restaurant employees; • Trends in consumer preferences, tastes and eating habits and competition for consumer dollars, both from restaurants similar to our restaurants and from restaurants generally; • The level of competition from restaurants that operate in the markets in which we operate; • U. S. domestic economic conditions and the impact of international conflicts on domestic economic conditions; • The impact of seasonality on our business resulting from having 32 of our 64 current Company-owned restaurants in Florida;

1618

• U. S. domestic economic conditions and the impact of international conflicts on domestic economic conditions; • The impact of seasonality on our business resulting from having 31 of our 59 current Company-owned restaurants in Florida; • Our exposure to the impact of hurricanes and other tropical storms as a result of the heavy concentration of our restaurants in the southeastern United States; • Our ability to maintain financial and accounting controls, management controls, and adequate reporting systems and procedures; • Increases in interest rates; ~~• The future relisting of our common stock on a recognized securities market~~ and ~~the development of a market for our common stock;~~ • Our ability to develop our restaurant concept and business beyond our existing configuration of restaurants, including the availability of financing to support future growth, our ability to find suitable locations for new restaurants and the costs associated with opening new restaurants; and • To the extent that we decide to further franchise our restaurant concept, our ability to locate suitable franchisees in markets that we do not serve (both nationally and internationally) and the ability of those franchisees to develop, open and successfully operate restaurants in those markets.

The forward looking statements contained in this report reflect our current view about future events and are subject to risks, uncertainties and assumptions. The important factors described above, as well as the factors described elsewhere in this report and in our Annual Report on Form 10-K for fiscal 2005 (the “Form 10-K”), could cause the assumptions underlying our forward looking statements to be incorrect and thereby cause our actual results to differ materially from those expressed in or implied by our forward looking statements. We undertake no obligation to revise any of the forward looking statements contained in this report, which speak only as of the date hereof. Readers of this report are therefore cautioned not to place undue reliance on these forward looking statements.

GENERAL

We operate, franchise and license high-quality, full-service casual dining restaurants under the name “Roadhouse Grill.” As of ~~July~~January 2422, ~~2005~~2006, there were 6760 Company-owned Roadhouse Grill restaurants, 3331 of which are located in Florida and the balance of which are located in Alabama, Arkansas, Georgia, Louisiana, Mississippi, New York, North Carolina, Ohio, and South Carolina. We ~~Subsequent~~also tohave ~~July~~12 franchised or licensed restaurants. During the thirty nine weeks ended January 2422, ~~2005~~ 2006, ~~one~~five ~~restaurant~~restaurants ~~was~~were closed upon the termination of the related ~~lease~~leases. In ~~addition,~~Two ~~subsequent to July 24, 2005, two~~ additional restaurants were closed and remain closed while the properties are marketed for sale. Although there can be no assurance, we expect that the leases related to these properties will terminate upon the sale of the respective properties. ~~We also~~In ~~have~~addition, 12during ~~franchised~~the orthirty ~~licensed~~nine ~~restaurants.~~weeks ~~Finally~~ended January 22, ~~in August 2005~~2006, ~~two~~one of our restaurants was destroyed by Hurricane Katrina. Subsequent to January 22, ~~were~~2006, ~~heavily~~one ~~damaged~~additional orrestaurant ~~destroyed~~was closed in ~~Hurricane~~conjunction ~~Katrina~~with the expiration of the related lease.

During the last few years, our business has been hampered by heavy debt and ~~shortages of~~ working capital insufficient to operate our business. We have also experienced a continuing decline in ~~restaurant~~ restaurant sales due to, among other issues, our lack of resources to adequately market our restaurants, competition in the markets where we operate, ~~and~~weather

economic conditions generally. Further, we have experienced substantial food cost increases, primarily driven by higher beef prices, only a portion of which we have been able to pass on to our customers. All of these factors have caused us to report significant net losses from operations during the last few years and had a material negative impact on our working capital and cash position.

During the last year, we have implemented new menus, including a new main menu and a new kids’ menu, continued to make additional investments in the recruiting and training of our restaurant managers and directors of operations, implemented new incentive programs for our restaurant employees and directors of operations, taken steps to reduce our costs and attempted to pass a portion of the increased food costs on to our customers. All of these changes are part of an ongoing effort to return our company to profitability. There can be no assurance that we will become profitable in the future.

ENGAGEMENT OF INVESTMENT BANKING FIRM

On April 25, 2005, we engaged the investment banking firm of J. H. Chapman, L.L.C. to explore strategic alternatives for the Company. J. H. Chapman, which was founded in 1982 and is headquartered in Rosemont, Illinois, is the leading investment banking firm specializing in the food industry. With the assistance of J. H. Chapman, we are exploring potential strategic options that may be available to us. However, to date, no agreements have been executed.

RECENT EVENTS

In August 2005, we borrowed $1,250,000 from our majority shareholder. The loan bears interest at 10% and is required to be repaid upon certain events or transactions including a change of control of the Company. Any remaining outstanding borrowings must be repaid on May 15, 2006. The loan is secured by a lien on substantially all of our assets.

On August 24 and 25, 2005, Hurricane Katrina hit South Florida. The storm thereafter hit the Southeast Gulf Coast region on August 29, 2005. None of our South Florida restaurants were heavily damaged in the storm, and all South Florida restaurants that were temporarily closed due to the hurricane have reopened. We have seven restaurants in Mississippi, Louisiana and Alabama. Of these restaurants, two restaurants located in Biloxi, Mississippi and Marrero (New Orleans), Louisiana, were heavily damaged in the storm and have not reopened. In regards to the Biloxi location, it appears this restaurant was destroyed in the storm and will be a total loss. At this time, we cannot determine when or if we will be in a position to reopen the Biloxi and Marrero restaurants. Other than these two restaurants, all of our other restaurants in the Gulf Coast region had varying degrees of damage from the storm. However, all of these other restaurants have now reopened. Through September 7, 2005, an aggregate of 50 full or partial days of sales were lost in our South Florida and gulf coast restaurants. We intend to file insurance claims with

respect to our Hurricane Katrina losses, including claims for business interruption. At this time, we are unable to determine the amount of any insurance recoveries with respect to our hurricane losses. Notwithstanding, the impact of Hurricane Katrina, including the loss of restaurant operating profits from the two stores (Biloxi and Marrero) that were heavily damaged as a result of Hurricane Katrina, is not expected to materially impact our financial position or results of operations in future periods.

OVERVIEW

Our revenues are derived primarily from the sale of food and beverages. Restaurant sales generated from lunch and dinner amounted to approximately 27% and 73%, respectively, of restaurant sales during each of the thirteen-week periods ended July 24, 2005 and July 25, 2004. Restaurant sales of food and beverages accounted for approximately 91% and 9%, respectively, of total restaurant sales in each of the first fiscal quarters of 2006 and 2005. Franchise and management fees during the thirteen weeks ended July 24, 2005 and July 25, 2004 accounted for less than 1% of our revenues.

Restaurant operating expenses include food and beverage, labor, direct operating and occupancy costs. Direct operating costs consist primarily of costs of expendable supplies, marketing and advertising expense, maintenance, utilities and restaurant general and administrative expenses. Occupancy costs include rent, real estate and personal property taxes and property insurance. Certain elements of our restaurant operating expenses, including direct operating and occupancy costs and to a lesser extent labor costs, are relatively fixed.

Of the 67 Company-owned restaurants operating as of July 24, 2005, the most recent was opened in June 2003. One restaurant was closed during the thirteen weeks ended July 24, 2005 and one was closed subsequent to the end of the fiscal quarter in conjunction with the termination of the related leases. In addition, subsequent to July 24, 2005, two additional restaurants were closed and remain closed while the properties are marketed for sale. Although there can be no assurance, we expect that the leases related to these properties will terminate upon the sale of the respective properties. We closed these four restaurants because they were underperforming from a financial standpoint and we determined that it would be better to focus our management time and attention and our available resources on our better performing restaurants. We also have 12 franchised or licensed restaurants. No additional Company-owned restaurants are currently expected to open in fiscal year 2006.

CRITICAL ACCOUNTING POLICIES

Our accounting policies are more fully described in our Form 10-K. As disclosed therein, the preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such

~~differences~~conditions ~~may~~and beeconomic ~~material~~conditions generally. Further, we have experienced substantial food cost increases, primarily driven by higher beef prices, only a portion of which we have been able to pass ~~the~~on ~~financial~~to ~~statements~~our customers. ~~Management~~All ~~believes~~of ~~the~~these ~~following critical~~factors ~~accounting~~have ~~policies~~caused ~~affect~~us ~~the~~to report significant ~~judgments~~net losses from operations during the last few years and ~~estimates~~have ~~used~~had ina ~~the~~material ~~preparation of~~negative impact on our ~~Condensed~~working capital ~~Consolidated~~and ~~Financial~~cash ~~Statements~~position.

~~PROPERTY~~AGREEMENT AND ~~EQUIPMENT~~PLAN OF MERGER

WeOn ~~account for long-lived assets in accordance with SFAS No.~~November ~~144~~17, ~~“Accounting~~2005, ~~for~~we ~~the Impairment~~entered orinto ~~Disposal~~an ofagreement ~~Long-Lived~~and ~~Assets”.~~plan ~~This~~of ~~statement~~merger ~~requires~~with ~~that long-lived assets be~~Steakhouse ~~reviewed~~Partners, ~~for~~Inc. ~~impairment~~(“Steakhouse”) ~~whenever~~pursuant ~~events~~to orwhich ~~changes~~Steakhouse inwas ~~circumstances~~to ~~indicate~~acquire ~~that~~our ~~the~~outstanding ~~carrying~~common ~~amount of an asset may not be recoverable~~stock. WeFor ~~regularly~~details ~~review~~regarding ~~the performance of~~ our ~~individual restaurants~~proposed tomerger, ~~identify~~see ~~possible~~our ~~under~~definitive ~~performing~~proxy ~~operations~~statement ~~that~~dated ~~should~~January 5, be2006. ~~assessed~~The ~~for~~merger ~~possible impairments~~was ofsubject, ~~long-lived~~among ~~assets.~~other ~~In that regard~~matters, weto ~~recorded~~Steakhouse ~~significant~~obtaining ~~impairment~~financing ~~charges~~sufficient ~~during~~to ~~fiscal~~complete ~~2005~~the ~~and~~transaction. ~~depending~~However, onSteakhouse ~~the~~was ~~success~~not ofable ~~our efforts~~ to ~~increase~~obtain ~~sales,~~the wefinancing ~~may~~necessary ~~take~~to ~~additional~~complete ~~charges in~~ the ~~future~~Merger ifand, ~~our~~as ~~sales~~a atresult, ~~several~~on ofMarch 14, ~~our~~2006 ~~restaurants~~we doterminated ~~not~~the ~~increase to forecasted levels in future periods~~Merger. AsOn ~~part of this analysis~~March 15, 2006, ~~management~~we ~~considers~~announced ~~factors~~ that ~~have~~ inour ~~the~~Board ~~past~~of ~~and~~Directors ~~may~~would continue ~~in the future~~ to ~~impact~~explore ~~operating~~strategic ~~results.~~options ~~Recoverability of~~that ~~assets~~might to be ~~held~~available and ~~used~~that iswe ~~measured~~would bycontinue ato ~~comparison~~have of the ~~carrying~~financial ~~amount~~support of anour ~~asset to the~~principal ~~future~~shareholders, ~~net~~including ~~cash flows expected to be generated by~~ the ~~asset~~Berjaya Group. IfIn ~~such~~that ~~assets~~regard, ~~are~~we ~~considered~~continue to be ~~impaired,~~ ~~the~~advised ~~impairment~~with respect to beour ~~recognized~~strategic isplanning ~~measured~~process by the ~~amount~~investment bybanking ~~which~~firm ~~the carrying amount~~ of ~~the~~ ~~assets~~J. ~~exceeds fair value of the assets~~H. ~~Assets~~Chapman toGroup, ~~be disposed of are reported at the lower of the carrying amount or fair value less costs to sell~~L.L.C.

~~INTANGIBLE~~LOANS ~~ASSETS~~FROM RELATED PARTIES

WeIn ~~account~~August 2005, ~~for~~we ~~intangible~~entered ~~assets~~into ina ~~accordance~~loan agreement with ~~SFAS~~our ~~No. 142,~~majority ~~“Goodwill~~shareholder ~~and~~under ~~Other~~which we ~~Intangible~~borrowed ~~Assets”~~$1.25 million. AsIn ~~of July~~October ~~24,~~ 2005, we ~~had~~entered ~~unamortized~~into ~~goodwill~~an inamended ~~the~~and ~~amount~~restated ofloan ~~$1.5 million~~agreement ~~and~~with ~~unamortized~~our ~~identifiable~~majority ~~intangible~~shareholder ~~assets~~under inwhich ~~the~~we ~~amount~~borrowed ofan additional $02.40 million. In ~~accordance~~each ~~with~~of March ~~SFAS~~and ~~No.~~May ~~142~~2006, ~~goodwill,~~the ~~which~~loan ~~relates~~agreement towas ~~the~~amended, ~~prior~~thereby ~~acquisition~~allowing ofus ~~two~~to ~~individual restaurant operations~~borrow, isin ~~subject~~the toaggregate, an additional ~~annual~~$1.6 million. ~~impairment~~The ~~test~~total ~~based~~amount oncurrently ~~its~~outstanding ~~fair~~under ~~value~~the ~~and~~amended noloan ~~amortization of~~agreement ~~goodwill~~ is ~~recorded~~$4.8 million. AsNo ofadditional ~~October 25,~~amounts ~~2004,~~are ~~the~~presently ~~date~~available onfor ~~which~~further weborrowing ~~completed~~under ~~our~~the loan ~~last~~agreement. ~~annual goodwill~~Proceeds ~~impairment~~were ~~test,~~used wefor ~~determined~~working ~~that~~capital. weBorrowings ~~had~~under nothe ~~impairment~~agreement ofbear interest ~~goodwill.~~at We10% ~~will~~and ~~continue~~are to ~~assess~~ ~~the~~be ~~value~~repaid ofupon ~~our~~certain ~~goodwill~~events inor ~~fiscal~~transactions ~~2006~~including ~~and~~a ~~future~~change ~~periods~~of control inof ~~accordance~~the ~~with applicable accounting rules~~Company. ~~Other~~The ~~intangible~~loan ~~assets,~~is ~~which~~secured ~~have~~by ~~been determined to have~~ a ~~finite~~lien ~~life,~~on ~~are being~~substantially ~~amortized~~all ~~over~~of ~~their~~our ~~useful lives~~assets.

~~USE~~ In OFSeptember 2005, ~~ESTIMATES~~our President and Chief Executive Officer loaned us $120,000 on demand, which was used for working capital. In May 2006, an additional $104,000 was loaned to us. This loan is unsecured and bears interest at the rate of 10% per annum.

~~the~~IMPACT ~~use~~OF of2005 ~~estimates include reserves relating to the collectibility of accounts receivable,~~HURRICANES insurance reserves relating to claim costs required to be funded by us, the recoverability of deposits and other prepaid items, estimated accrued property taxes and other accrued liabilities for which actual invoices have not yet been received and the liability for unredeemed gift certificates and gift cards. Various assumptions and other factors underlie the determination of these significant estimates. The process of determining significant estimates is fact specific and takes into account factors such as historical experience, current and expected economic conditions, product mix, and in some cases, actuarial techniques. We constantly re-evaluate these significant factors and make adjustments to estimates where facts and circumstances dictate.

WeOn ~~believe~~August 24 ~~that~~and ~~the~~25, ~~assumptions~~2005, ~~and~~Hurricane ~~other~~Katrina ~~factors~~hit ~~used~~South toFlorida. ~~determine~~The ~~these~~storm ~~estimates~~thereafter ~~are~~hit ~~reasonable~~the ~~and~~Southeast ~~that,~~Gulf ~~with~~Coast ~~the~~region ~~exception~~on ofAugust 29, ~~insurance~~2005. ~~reserves~~None ~~relating~~of toour ~~claim~~South ~~costs~~Florida ~~required~~restaurants towere beheavily ~~funded~~damaged byin usthe storm, ~~changes~~and inall ~~these~~South ~~assumptions~~Florida ~~would~~restaurants ~~not~~that were temporarily closed due to the hurricane have areopened. ~~material~~We ~~impact~~had onseven ~~our~~restaurants ~~financial position~~in orMississippi, ~~results~~Louisiana ofand ~~operations~~Alabama. Of Inthese ~~regard~~restaurants, toone ~~insurance~~restaurant ~~reserves~~located in Biloxi, ~~recorded~~Mississippi, ~~liabilities~~was ~~are~~destroyed ~~based upon~~by anthe ~~estimate~~storm and ofwas ~~the~~a total ~~amount~~loss. ~~that~~We ~~may~~do benot ~~paid~~intend to ~~settle~~reopen ~~claims~~this ~~required~~restaurant. toAll beof ~~funded~~our byother usrestaurants ~~and~~in ~~incurred through~~ the ~~balance~~gulf ~~sheet~~coast ~~date,~~region ~~including~~had ~~consideration~~varying degrees of ~~amounts~~damage ~~paid-to-date~~from ~~in relation to~~ the ~~individual~~storm. ~~claims~~However, anall ~~analysis~~ of ~~the~~these other ~~loss~~restaurants ~~development~~have onnow ~~all~~reopened. ~~reported~~Excluding ~~claims~~Biloxi, ~~potential~~ ~~legal~~an oraggregate ~~other~~of ~~related~~80 ~~costs~~full ~~and~~or ~~any~~partial ~~stop~~days of ~~loss~~sales ~~limits~~were ~~applicable~~lost ~~under~~in our ~~insurance policies.~~South ~~Such~~Florida ~~reserves~~and ~~are~~Gulf ~~subject~~Coast torestaurants, ~~change~~representing approximately $0.3 million in lost sales based ~~upon~~on ~~any~~prior ~~development~~year ~~that~~sales ~~occurs~~for inthese ~~relation to~~days. ~~the~~We ~~outstanding~~have filed insurance claims ~~subsequent~~with respect to ~~the~~our ~~preparation~~losses, ofincluding ~~the~~claims ~~Condensed~~for ~~Consolidated~~business ~~Balance Sheet~~interruption. AsIn ofthe ~~July 24~~aggregate, we ~~2005~~have ~~and~~received ~~July~~$0.5 ~~25,~~million ~~2004~~in ~~total~~proceeds ~~recorded~~as a partial settlement on our Hurricane Katrina insurance ~~reserves~~claim, ~~were~~including $10.54 million ~~and~~ ~~$1.8~~that was received prior to January ~~million~~22, ~~respectively~~2006. At this time, ~~which~~we are ~~included~~unable into ~~accrued~~determine ~~expenses~~the onamount ~~the~~of ~~accompanying~~any ~~balance~~additional insurance recoveries with respect ~~sheet~~to our Hurricane Katrina losses.

InOn ~~addition~~October 24, ~~asset~~2005, ~~impairment~~Hurricane ~~charges~~Wilma ~~and~~hit ~~the~~South ~~carrying~~Florida, ~~value~~which ofresulted in the ~~asset held for sale are~~temporary ~~primarily~~closure ~~based~~of onthirteen ~~estimates~~ of ~~the~~our ~~market~~restaurants. ~~value~~The ofrestaurants ~~assets~~had ofvarying ~~which~~degrees weof ~~plan~~damage tofrom ~~dispose and~~ the ~~amount~~storm. ofHowever, ~~future~~all ~~cash~~of ~~flows~~these ~~estimated~~restaurants tohave benow ~~realized~~reopened. ~~relating~~An toaggregate ~~impaired~~of ~~assets~~145 ~~that~~full ~~are~~or partial ~~anticipated~~days toof besales ~~utilized~~were lost in our ~~operations~~South inFlorida ~~the~~restaurants, ~~future~~representing orapproximately ~~expenditures~~$0.6 million in ~~estimated~~lost tosales bebased ~~used~~on ~~to settle~~prior ~~the~~year ~~outstanding~~sales ~~obligations.~~for ~~Such~~these ~~estimates~~days. ~~are~~In ~~also~~addition, ~~affected~~our bycorporate ~~the~~office ~~time interval required~~was toclosed ~~dispose~~for ofan ~~assets~~eight-day ~~to be sold~~period. ~~The~~We ~~assumptions~~are ~~used, particularly~~ in ~~regard~~the toprocess ~~estimates~~ of ~~future~~ ~~cash~~filing ~~flows~~insurance toclaims bewith ~~realized~~respect ~~relating~~ to our ~~impaired or potentially impaired assets~~losses, ~~are~~including ~~critical in~~claims ~~assessing~~for abusiness ~~potential~~interruption. ~~impairment~~In ~~and,~~the ~~if any~~aggregate, ~~estimating~~we ~~the~~have ~~amount~~received ~~of the impairment~~$0. ~~These~~3 ~~assumptions~~million ~~require~~as ~~consideration~~a ~~and~~partial ~~projection~~settlement of ~~future~~the ~~trends~~insurance inclaim ~~key~~including ~~operating~~$0.1 million ~~ratios~~that ~~and~~was ~~the~~received ~~timing~~before ~~and~~January 22, ~~impact~~2006. ofAt ~~possible~~this ~~changes~~time, inwe ~~operations~~are ~~relating~~unable to ~~specific~~determine ~~assets. Changes in these assumptions could have a material impact on~~ the ~~timing and~~ amount of ~~possible~~any ~~asset~~additional insurance ~~impairments~~recoveries ~~and therefore~~with onrespect to our ~~results~~Hurricane ofWilma ~~operations~~losses.

OVERVIEW

Our revenues are derived primarily from the sale of food and beverages. Restaurant sales generated from lunch and dinner amounted to approximately 28% and 72%, respectively, of restaurant sales during each of the thirteen-week periods ended January 22, 2006 and January 23, 2005. Restaurant sales of food and beverages accounted for approximately 91% and 9%, respectively, of total restaurant sales in each of the third fiscal quarters of 2006 and 2005. Franchise and management fees during the thirteen weeks ended January 22, 2006 and January 23, 2005 accounted for less than 1% of our revenues.

~~RESULTS~~and OFadministrative ~~OPERATIONS~~expenses. Occupancy costs include rent, real estate and personal property taxes and property insurance. Certain elements of our restaurant operating expenses, including direct operating and occupancy costs and to a lesser extent labor costs, are relatively fixed.

~~The~~Of ~~following~~the ~~table~~60 ~~sets~~Company-owned ~~forth~~restaurants operating as of January 22, 2006, the newest was opened in June 2003. Two restaurants were closed during the thirteen weeks ended January 22, 2006 and three other restaurants were closed in fiscal 2006 in conjunction with the termination of the related leases. During the thirteen weeks ended October 23, 2005, two additional restaurants were closed and remain closed while the properties are marketed for sale. Although there can be no assurance, we expect that the ~~periods~~leases ~~indicated~~related to these properties will terminate upon the ~~percentage~~sale ~~relationship~~of the respective properties. We closed these seven restaurants because they were underperforming from a financial standpoint and we determined that it would be better to ~~total~~focus our management time and ~~revenues~~attention and our available resources on our better performing restaurants. Finally, one of ~~certain~~our restaurants ~~statements~~was destroyed by Hurricane Katrina and one additional restaurant was closed in early 2005 upon the termination of ~~operations~~the ~~data~~related lease. No additional Company-owned restaurants are currently expected to open in fiscal year 2006. In addition to the Company-owned restaurants, we also have 12 franchised or licensed restaurants. Subsequent to January 22, 2006, one additional restaurant was closed in conjunction with the expiration of the related lease.

~~STATEMENTS~~CRITICAL OFACCOUNTING ~~OPERATIONS DATA:~~POLICIES

	Thirteen Weeks Ended
	July 24, 2005			July 25, 2004
Total revenues		100.0	%		100.0	%
Cost of restaurant sales:
Food and beverage		34.3			36.1
Labor and benefits		34.2			32.6
Occupancy and other		26.5			25.9
Pre-opening expenses		—			—
Total cost of restaurant sales		95.0			94.6
Depreciation and amortization		4.5			4.9
General and administrative expenses		6.3			5.0
Total operating expenses		105.8			104.5
Operating loss		(5.8	)		(4.5	)
Total other expense		(0.6	)		(2.2	)
Loss before taxes		(6.4	)		(6.7	)
Income tax		—			—
Net loss		(6.4	)%		(6.7	)%

DISCONTINUED OPERATIONS

As discussed above, we committed to a formal plan for disposal of nine of our restaurants. As a result, we have adopted discontinued operations accounting treatment for these nine restaurants, which requires separation of financial results for such discontinued operations from those of the remaining continuing operations. In conjunction with such accounting treatment, we have recorded a charge of $0.8 million during the thirty nine weeks ended January 22, 2006 relating to the estimated loss on disposal of these restaurants.

~~The~~PROPERTY ~~following~~AND ~~table sets forth for the periods indicated certain restaurant data.~~EQUIPMENT

~~RESTAURANT~~ We ~~DATA:~~account for long-lived assets in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. This statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We regularly review the performance of our individual restaurants to identify possible under performing operations that should be assessed for possible impairments of long-lived assets. In that regard, we recorded significant impairment charges during fiscal 2006 and fiscal 2005 and depending on the success of our efforts to increase sales, we may take additional charges in the future if our sales at several of our restaurants do not increase to forecasted levels during future periods. As part of this analysis, management considers factors that have in the past and may continue in the future to impact operating results. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

	Thirteen Weeks Ended
	July 24, 2005			July 25, 2004
Company-owned restaurants:
Beginning of period		68			69
Opened		—			—
Closed		(1	)		—
End of period		67			69
Franchised and licensed restaurants:
Beginning of period		12			11
Opened		—			—
Closed		—			—
End of period		12			11
Total restaurants:
Beginning of period		80			80
Opened		—			—
Closed		(1	)		—
End of period		79			80

INTANGIBLE ASSETS

We account for intangible assets in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”. As of January 22, 2006, we had unamortized goodwill in the amount of $1.5 million and unamortized identifiable intangible assets in the amount of $0.1 million. In accordance with SFAS No. 142, goodwill, which relates to the prior acquisition of two individual restaurant operations, is subject to an annual impairment test based on its fair value and no amortization of goodwill is recorded. As of October 23, 2005, the date on which we completed our last annual goodwill impairment test, we determined that we had no impairment of goodwill. We will continue to assess the value of our goodwill in fiscal 2006 and future periods in accordance with applicable accounting rules. Other intangible assets, which have been determined to have a finite life, are being amortized over their useful lives.

USE OF ESTIMATES

The preparation of the Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates. Amounts reported in our Condensed Consolidated Financial Statements that are based, in part, on the use of estimates include reserves relating to the collectibility of accounts receivable, insurance reserves relating to claim costs required to be funded by us, the recoverability of deposits and other prepaid items, estimated accrued property taxes and other accrued liabilities for which actual invoices have not yet been received, the estimated costs to be

~~THIRTEEN~~incurred ~~WEEKS~~in ~~ENDED~~relation ~~JULY~~to ~~24,~~the ~~2005~~disposal ~~(“FISCAL~~and ~~YEAR~~run-off ~~2006~~of ~~FIRST~~discontinued ~~QUARTER”)~~operations ~~COMPARED~~and TOthe ~~THE~~liability ~~THIRTEEN~~for ~~WEEKS~~unredeemed ~~ENDED~~gift ~~JULY~~certificates 25and gift cards. Various assumptions and other factors underlie the determination of these significant estimates. The process of determining significant estimates is fact specific and takes into account factors such as historical experience, ~~2004~~current ~~(“FISCAL~~and ~~YEAR~~expected economic ~~2005~~conditions, ~~FIRST~~product ~~QUARTER”)~~mix, and in some cases, actuarial techniques. We constantly re-evaluate these significant factors and make adjustments to estimates where facts and circumstances dictate.

~~Total~~We ~~revenues.~~believe ~~Total~~that ~~revenues~~the ~~decreased~~assumptions ~~$1.4 million,~~and orother ~~4.3%,~~factors ~~from~~used ~~$32.9 million~~to ~~for~~determine ~~Fiscal~~these estimates are ~~Year~~reasonable ~~2005~~and ~~First~~that, ~~Quarter~~with tothe ~~$31.5 million~~exception ~~for~~of ~~Fiscal~~insurance ~~Year~~reserves ~~2006~~relating ~~First~~to ~~Quarter.~~claim ~~This~~costs ~~decrease~~required isto ~~primarily~~be ~~attributable~~funded toby aus, ~~reduction~~changes in ~~sales~~these atassumptions ~~comparable~~would ~~restaurants~~not ~~and~~have ~~the~~a ~~closing~~material ofimpact ~~a restaurant~~on inour ~~March 2005~~financial position ~~upon~~or ~~the~~results ~~expiration~~ of ~~the related lease~~operations. ~~Sales~~In atregard ~~comparable~~to ~~restaurants for~~insurance ~~Fiscal~~reserves, ~~Year~~recorded ~~2006~~liabilities ~~First~~are ~~Quarter~~based upon ~~decreased~~an ~~3.3%~~estimate ~~compared~~of ~~with~~the ~~sales~~total ~~for~~amount ~~Fiscal~~that ~~Year~~may ~~2005~~be ~~First Quarter.~~paid ~~This~~to ~~decrease~~settle ~~results~~claims ~~from~~required ato ~~reduction~~be infunded ~~customer headcount, partially offset~~ by anus ~~increase~~and inincurred ~~check~~through ~~average~~the ~~resulting~~balance ~~primarily~~sheet ~~from~~date, ~~the~~including ~~menu~~consideration ~~price~~of ~~changes~~amounts ~~described~~paid-to-date ~~below~~in relation ~~that~~to ~~were implemented~~the inindividual ~~March 2005.~~claims, ~~Management~~an ~~believes~~analysis ~~that~~of the ~~decrease~~loss indevelopment ~~headcount~~on isall ~~primarily~~reported claims, ~~attributable~~potential tolegal ~~increased~~or ~~competition~~other ~~from~~related ~~new~~costs ~~restaurants~~and inany ~~many~~stop ofloss ~~the~~limits ~~markets~~applicable inunder ~~which~~ our insurance ~~restaurants~~policies. ~~operate~~Such ~~and~~reserves ~~the~~are ~~impact~~subject ofto ~~our~~change ~~financial~~based ~~condition~~upon ~~and~~any ~~lack~~development ofthat ~~working~~occurs ~~capital~~in ~~on our~~relation ~~ability~~ to ~~invest~~the inoutstanding ~~our~~claims ~~restaurants~~subsequent ~~and~~to ~~engage~~the inpreparation ~~necessary~~of ~~marketing~~the ~~initiatives.~~Condensed AConsolidated ~~restaurant~~Balance isSheet. ~~considered~~As ~~comparable~~of ~~after~~January 22, ~~its~~2006 ~~first~~and 18January ~~months~~23, of2005 ~~operation.~~total ~~Sales~~recorded ~~from~~insurance ~~the~~reserves ~~restaurant~~were ~~closed~~$1.5 inmillion ~~March 2005~~and ~~were~~ $01.38 million, respectively, which are included in ~~the~~accrued ~~Fiscal~~expenses ~~Year~~on ~~2005~~the ~~First~~accompanying balance ~~Quarter~~sheet.

~~Food~~In ~~and~~addition, ~~beverage.~~asset ~~Food~~impairment charges and ~~beverage~~the estimated costs ~~decreased~~associated ~~$1.1 million,~~with ~~or 9.2%, to $10.8 million~~discontinued ~~for~~operations ~~Fiscal~~are ~~Year~~primarily ~~2006~~based ~~First~~on ~~Quarter,~~the ~~from~~amount ~~$11.9 million~~of ~~for~~future ~~Fiscal~~cash ~~Year~~flows ~~2005~~estimated ~~First~~to ~~Quarter.~~be Asrealized arelating ~~percentage~~to ofthe ~~revenues,~~impaired ~~food~~assets ~~and~~or ~~beverage~~restaurants ~~costs~~including ~~decreased~~any byobligations ~~1.8%~~estimated to ~~34.3%~~be ~~for Fiscal Year 2006 First Quarter from 36~~incurred.1% ~~for Fiscal Year 2005 First Quarter.~~ The ~~decrease in dollars was impacted~~ byassumptions ~~the~~used, ~~reduction~~particularly in ~~revenue.~~regard ~~The~~to ~~decrease~~estimates ~~as a percentage~~ of ~~revenues~~future iscash ~~primarily~~flows ~~attributable~~ to ~~the~~ ~~impact~~be ofrealized ~~changes~~relating to inimpaired ~~our~~or ~~main~~potentially ~~menu~~impaired ~~that~~assets, ~~were~~are ~~implemented~~critical in ~~March 2005.~~assessing ~~The~~a ~~updated~~potential ~~main~~impairment ~~menu included changes in certain plate presentations~~ and ~~recipes as well as both the introduction of~~, ~~selected~~if ~~new~~any, ~~menu~~estimating ~~offerings and~~ the ~~elimination~~amount of ~~certain items from~~ the ~~previous menu that did not generate sufficient sales volume~~impairment. ~~The~~These ~~menu~~assumptions ~~also~~require ~~included~~consideration aand projection ~~price increase~~ of ~~approximately~~future ~~2% based~~trends onin ~~the~~key ~~current~~operating ~~sales~~ratios ~~mix.~~and Inthe ~~addition,~~timing weand ~~attempted~~impact toof ~~reduce~~possible ~~our overall food costs by~~changes ~~featuring lower food cost, generally non-beef, menu items~~ in ~~our~~operations ~~new~~relating ~~menu~~to ~~and~~specific ~~advertising materials~~assets. ~~Management~~Changes ~~will~~in ~~continue~~these toassumptions ~~evaluate~~could ~~and~~have ~~implement~~a ~~changes designed to reduce overall~~material ~~food~~impact ~~costs.~~on ~~However,~~the ~~there~~timing ~~can~~and beamount noof ~~assurances~~possible ~~that~~asset ~~such~~impairments ~~initiatives~~and ~~will~~therefore ~~continue~~on ~~to be effective in reducing~~ our ~~food~~results ~~costs~~of operations.

Labor and benefits. Labor and benefits costs increased $0.1 million, or 0.9%, to $10.8 million for Fiscal Year 2006 First Quarter, from $10.7 million for Fiscal Year 2005 First Quarter. As a percentage of revenues, labor and benefits costs increased to 34.2% for Fiscal Year 2006 First Quarter from 32.6% for Fiscal Year 2005 First Quarter. The increase in both dollars and as a percentage of revenues is primarily attributable to the impact of changes in minimum wage implemented in the state of Florida in May 2005 and increases in costs associated with our group health insurance plan, partially offset by a reduction in workers’ compensation costs. The increase as a percentage of revenues is also attributable to the decline in revenues and the fixed nature of a significant portion of our labor and benefits.

~~Occupancy~~RESULTS ~~and~~OF ~~other. Occupancy and other costs decreased $0.2 million, or 2.4%, to $8.3~~OPERATIONS million for Fiscal Year 2006 First Quarter, from $8.5 million for Fiscal Year 2005 First Quarter. As a percentage of revenues, occupancy and other was 26.5% for Fiscal Year 2006 First Quarter compared to 25.9% for Fiscal Year 2005 First Quarter. The decrease in dollars is attributable to reduced marketing expense and costs associated with equipment operating leases that expired during these periods, partially offset by increased rent expense resulting from the sale and leaseback transaction completed in August 2004 and increased utilities expense. The increase as a percentage of revenues is primarily attributable to the relatively fixed nature of certain occupancy and other costs, including rent and property taxes, compared to reduced revenues. Marketing expense for Fiscal Year 2006 First Quarter was $0.6 million, compared to $1.0 million for Fiscal Year 2005 First Quarter.

~~Depreciation~~The ~~and~~following ~~amortization.~~table ~~Depreciation~~sets ~~and~~forth ~~amortization expense decreased $0.2 million, or 12.5%, to $1.4 million~~ for the ~~Fiscal~~periods ~~Year~~indicated ~~2006 First Quarter, from $1.6 million for~~ the ~~Fiscal Year 2005 First Quarter. As a~~ percentage ofrelationship ~~revenues, depreciation and amortization expense decreased 0.4%~~ to ~~4.5% from 4.9% during these periods. The decrease, both in dollars and as a~~total ~~percentage~~revenues of ~~revenues, is due to~~ certain ~~equipment~~statements ~~becoming fully depreciated during the period, the sale and leaseback transaction~~ of ~~the~~operations 11 properties in August 2004, and asset impairments recorded in fiscal year 2005 that reduced the carrying value of our property and equipment, offset to some extent by depreciation of additional assets purchaseddata.

General and administrative. General and administrative costs increased $0.3 million, or 17.6%, to $2.0 million for the Fiscal Year 2006 First Quarter, from $1.7 million for the Fiscal Year 2005 First Quarter. As a percentage of revenues, general and administrative costs increased 1.3% from 5.0% for Fiscal Year 2005 First Quarter to 6.3% for Fiscal Year 2006 First Quarter. The increase in dollars is primarily due to increased investments in field management personnel and bank fees. The increase as a percentage of revenues is the result of the relatively fixed nature of general and administrative costs compared to reduced revenues.


	Thirteen Weeks Ended						Thirty Nine Weeks Ended
	January 22,			January 23,			January 22,			January 23,
	2006			2005			2006			2005
Total revenues		100.0	%		100.0	%		100.0	%		100.0	%
Cost of restaurant sales:
Food and beverage		32.8			36.1			33.5			35.9
Labor and benefits		34.4			33.9			34.4			32.9
Occupancy and other		27.8			25.2			27.3			25.3

Total cost of restaurant sales		95.0			95.2			95.2			94.1

Depreciation and amortization		5.0			5.4			4.9			5.0
General and administrative expenses		6.6			5.8			6.8			5.6
Asset impairment		2.2			0.6			0.7			0.2

Total operating expenses		108.8			107.0			107.6			104.9

Operating loss		(8.8	)		(7.0	)		(7.6	)		(4.9	)
Other (expense) income:

Loss on sale/disposal of fixed assets		—			—			—			—
Gain on extinguishment of debt		—			—			—			8.1
Interest expense, net		(1.3	)		(0.7	)		(1.1	)		(1.6	)

Total other (expense) income		(1.3	)		(0.7	)		(1.1	)		6.5

(Loss) income from continuing operations before income taxes		(10.1	)		(7.7	)		(8.7	)		1.6
Income tax		—			—			—			—

(Loss) income from continuing operations		(10.1	)%		(7.7	)%		(8.7	)%		1.6	%

Interest expense, net. Total interest expense decreased $0.5 million, or 71.4%, to $0.2 million for Fiscal Year 2006 First Quarter, from $0.7 million for Fiscal Year 2005 First Quarter. The decrease was primarily due to the reduction in outstanding debt resulting from debt payments made between these periods, including the early payment of debt from the proceeds of the August 2004 sale/leaseback transaction.

Income taxes. We did not recognize a tax benefit relating to the operating loss for either the Fiscal Year 2006 First Quarter or Fiscal Year 2005 First Quarter because management does not believe that it is more likely than not that our deferred tax assets will be realized in the future.

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

~~The~~RESTAURANT ~~following discussion of our full year fiscal 2006 operating results that are not~~DATA: historical statements constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Our forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those stated or implied in these forward-looking statements. Please refer to our Form 10-K and to the factors described in this report for further discussion on forward-looking statements and the risks and other factors that could prevent us from achieving our goals and cause the assumptions underlying the forward-looking statements and the actual results to differ materially from those expressed in or implied by those forward-looking statements.

Fiscal 2006 revenue. As discussed above, no new restaurants are currently being developed for fiscal 2006. All 64 of our restaurants will qualify as comparable restaurants during fiscal 2006. As discussed above, fiscal 2005 revenues were significantly adversely impacted by four hurricanes that occurred in certain of the markets in which we operate, particularly the state of Florida. Excluding the estimated effects of the hurricanes on fiscal 2005, sales from comparable restaurants declined 4.9% during the fiscal year. Management intended to use a portion of the net proceeds received from the August 2004 sale/leaseback of 11 properties to invest in additional marketing for its restaurants, in an effort to improve future revenues. However, the financial impact of the hurricanes as well as the continued decline in sales required us to use these net proceeds, after debt payments, for working capital purposes. Following the sale/leaseback, management has developed and implemented certain programs, including a new local restaurant marketing program, a modified incentive compensation program for our employees and changes in the hiring and training of restaurant employees. In addition, management developed a new menu insert that included the introduction of certain new menu items. Management has also developed a new kids’ menu and main menu with enhanced features and new menu items, which were introduced in our restaurants in February and March 2005, respectively. While management has seen certain improvements in our operations from these new programs, including improved traffic in our restaurants, higher average checks, lower employee turnover and improved store execution, there can be no assurance as to whether these changes will ultimately result in increased sales or profitability. Based on the above, management currently expects that the negative same restaurant sales trend it has experienced in recent years will improve and that total fiscal 2006 revenues may increase slightly over fiscal 2005, exclusive of the impact of any restaurant closed during the fiscal year. Notwithstanding, the impact of hurricanes, including Hurricane Katrina, may adversely affect fiscal 2006 sales and management’s current expectations with respect to fiscal 2006 sales.


	Thirteen Weeks Ended				Thirty Nine Weeks Ended
	January 22,		January 23,		January 22,		January 23,
	2006		2005		2006		2005
Company-owned restaurants:
Beginning of period		62		69		68		69
Opened		—		—		—		—
Closed		2		—		8		—

End of period		60		69		60		69

Franchised and licensed restaurants:
Beginning of period		12		11		12		11
Opened		1		—		1		—
Closed		1		—		1		—

End of period		12		11		12		11


Total restaurants:
Beginning of period		74		80		80		80
Opened		1		—		1		—
Closed		3		—		9		—

End of period		72		80		72		80

Management believes that identifying opportunities to expand our operations in relation to franchised restaurants represents a growth opportunity and would require significantly lower capital resources from us than the expansion of Company-owned restaurants. However, these initiatives are not expected to generate significant revenue or operating profit during fiscal 2006. Accordingly, revenue anticipated to be generated from royalty fees and other income is expected to be less than 1% of total revenues in fiscal 2006.

~~Food~~THIRTEEN ~~and~~WEEKS ~~beverage~~ENDED ~~costs.~~JANUARY ~~Similar to many competing restaurant concepts~~22, we2006 ~~experienced~~(“FISCAL ~~a significant~~YEAR ~~increase~~2006 inTHIRD ~~food~~QUARTER”) ~~and~~COMPARED ~~beverage~~TO ~~costs during fiscal 2004, which continued into fiscal~~THE ~~2005.~~THIRTEEN ~~This~~WEEKS ~~increase~~ENDED ~~was~~JANUARY ~~primarily caused by the instances of Mad Cow Disease that were reported in Canada and the United States in 2003~~23, which caused a significant increase in meat and dairy costs. Management has taken actions in an attempt to reduce the impact of these events, including enhancing our menu, in part, to promote certain non-meat menu items, implementing menu price increases, negotiating arrangements to purchase certain meat products at fixed rates during fiscal 2005 ~~and~~(“FISCAL ~~targeting~~YEAR ~~certain marketing initiatives in an attempt to change our sales mix and increase sales of lower cost food items. In addition, in March~~ 2005, weTHIRD ~~introduced a new main menu into our~~QUARTER”) restaurants that included changes in menu offerings and plate presentations that are expected to result in a reduction in food costs. Management is also continuing its initiatives to further reduce food costs as described above. Management cannot predict the duration of these cost increases or further impacts that may occur as a result of these events. However, it is presently anticipated that food and beverage costs for fiscal 2006 will decline by approximately 2% of revenues as compared to fiscal 2005.

~~Labor~~Total ~~and benefits~~revenues. WeTotal ~~experienced~~revenues adecreased ~~decrease~~$1.3 million, inor ~~labor~~4.5%, ~~and~~from ~~benefits~~$28.9 million ~~costs~~for inFiscal Year ~~fiscal~~2005 ~~2004~~Third asQuarter ~~a percent~~to of$27.6 million ~~revenues~~for asFiscal ~~compared~~Year to2006 ~~fiscal~~Third ~~2003~~Quarter. This decrease ~~resulted from improved management of~~is ~~hourly~~primarily ~~labor,~~attributable to a ~~decrease~~reduction in ~~the~~sales ~~cost~~at ofcomparable ~~providing~~restaurants. ~~medical~~Sales ~~benefits~~at ~~to employees due to plan design~~comparable ~~changes~~restaurants ~~implemented~~for inFiscal ~~June 2003~~Year ~~and~~2006 aThird ~~decrease~~Quarter indecreased ~~the~~5.3% ~~cost~~compared ofwith ~~workers’~~sales ~~compensation~~for ~~insurance~~Fiscal ~~due~~Year to2005 aThird ~~change~~Quarter. toThis adecrease ~~guaranteed~~results ~~cost~~from ~~insurance~~a ~~program~~reduction in ~~January 2003~~customer asheadcount, ~~compared~~partially ~~to the significant~~offset ~~claims~~by ~~incurred~~an increase in ~~fiscal~~check ~~2003~~average ~~under~~resulting ~~the~~primarily ~~previous~~from ~~self~~the ~~funded~~menu ~~program.~~price ~~However,~~changes ~~due~~described ~~to the decline~~below inthat ~~revenues~~were ~~during~~implemented ~~fiscal~~in March 2005. asManagement ~~compared~~believes tothat ~~fiscal 2004 and~~ the ~~generally~~decrease ~~fixed~~in ~~nature~~headcount ~~of labor~~is ~~and~~primarily ~~benefits,~~attributable ~~these costs increased slightly~~ to ~~32.4%~~economic ofconditions ~~revenues~~during inthe ~~fiscal~~Fiscal ~~2005~~Year ~~from~~2006 ~~32.3%~~Third ofQuarter and ~~revenues~~consumer indiscretionary ~~fiscal~~spending ~~2004.~~which ~~This~~have ~~increase has~~ been ~~partially~~negatively ~~offset~~impacted by ~~further~~the ~~reductions~~significant inincreases ~~workers’~~in ~~compensation~~gas ~~and~~prices ~~group~~as ~~health~~well ~~insurance expense. Management currently expects labor and benefit costs~~ as aincreased ~~percentage~~competition offrom ~~revenues~~new torestaurants ~~increase~~in ~~approximately~~many 1% of ~~revenues~~the markets in ~~fiscal 2006 compared~~which toour ~~fiscal~~restaurants ~~2005~~operate ~~due~~and ~~primarily to~~ the impact of ~~recent~~our ~~amendments~~financial tocondition ~~minimum~~and ~~wage~~lack ~~regulations~~of inworking capital on ~~certain~~our ofability ~~the~~to ~~states~~invest in ~~which~~our werestaurants ~~operate (Florida~~ and ~~New~~engage ~~York), changes~~ in ~~the~~necessary ~~compensation~~marketing ~~paid to~~initiatives. A restaurant ~~employees~~is ~~and~~considered acomparable ~~slight~~after ~~increase~~its infirst ~~workers’~~18 months ~~compensation~~of ~~insurance costs~~operation.

~~Occupancy~~Food and ~~other~~beverage. AsFood aand ~~result~~beverage ~~primarily~~costs ofdecreased ~~the~~$1.3 million, ~~sale~~or ~~and~~12.5%, ~~leaseback~~to ~~transaction~~$9.1 million for ~~entered~~Fiscal ~~into in~~Year ~~August~~2006 Third Quarter, from $10.4 ~~2004~~million asfor ~~discussed~~Fiscal ~~above~~Year 2005 Third Quarter. As a percentage of revenues, wefood ~~will~~and ~~incur~~beverage ~~additional~~costs ~~rent~~decreased ~~expense~~by in3.3% ~~fiscal~~to ~~2006~~32.8% offor Fiscal Year 2006 ~~approximately~~Third $1Quarter from 36.~~0 million~~1% ~~compared~~for toFiscal ~~fiscal~~Year 2005 Third Quarter. ~~Partially~~The ~~offsetting~~decrease ~~this~~in ~~increase~~dollars ~~will~~was beimpacted ~~reduced~~by ~~costs~~the ~~incurred~~reduction in revenue. The decrease as a ~~result~~percentage of ~~the~~revenues ~~expected~~is ~~conversion~~primarily attributable to the impact of ~~certain~~changes ~~equipment~~in ~~leases~~our ~~from~~main menu that were implemented in March 2005. The updated main menu ~~operating~~included ~~leases~~changes toin ~~capital~~certain ~~leases~~plate ~~upon~~presentations and recipes as well as both the ~~expiration~~introduction of selected new menu offerings and the ~~original~~elimination ~~lease~~of ~~terms~~certain items from the previous menu that did not generate sufficient sales volume. ~~Due~~The ~~primarily~~menu also included a price increase of approximately 2% based on the current sales mix. In addition, we attempted to ~~these~~reduce ~~factors~~our overall food costs by featuring lower food cost, ~~management~~generally ~~expects~~non-beef, ~~occupancy~~menu items in our new menu and ~~other~~advertising materials. ~~expenses~~Management inwill ~~fiscal~~continue ~~2006~~to evaluate and implement changes designed to ~~remain~~reduce overall ~~relatively~~food ~~consistent~~costs. ~~with~~However, ~~fiscal~~there ~~2005~~can be no assurances that such initiatives will continue to be effective in reducing our food costs.

Labor and benefits. Labor and benefits costs decreased $0.3 million, or 3.1%, to $9.5 million for Fiscal Year 2006 Third Quarter, from $9.8 million for Fiscal Year 2005 Third Quarter. As a percentage of revenues, labor and benefits costs increased to 34.4% for Fiscal Year 2006 Third Quarter from 33.9% for Fiscal Year 2005 Third Quarter. The decrease in dollars is attributable to a reduction in workers’ compensation costs and the decline in revenues, partially offset by the impact of changes in minimum wage implemented in the state of Florida in May 2005. The increase in labor and benefits as a percentage of revenues is primarily attributable to the impact of changes in minimum wage and the fixed nature of a significant portion of our labor and benefits compared to reduced revenues.

~~Pre-opening~~Occupancy ~~expenses~~and other. AsOccupancy ~~discussed~~and ~~above,~~other nocosts ~~new~~increased ~~restaurant~~$0.4 million, ~~openings~~or ~~are~~5.5%, ~~currently~~to ~~planned~~$7.7 million for ~~fiscal~~Fiscal Year 2006 Third Quarter, from $7.3 million for Fiscal Year 2005 Third Quarter. As a ~~result~~percentage of revenues, ~~pre-opening~~occupancy ~~expenses~~and ~~are~~other ~~not~~was ~~anticipated~~27.8% for Fiscal Year 2006 Third Quarter compared to be25.2% ~~significant~~for Fiscal Year 2005 Third Quarter. The increase in both dollars and as a percentage of revenues is attributable to increased marketing expense, caused by the timing of a free-standing insert marketing effort that was executed just prior to the end of the fiscal quarter in Fiscal Year 2006 but immediately after the end of the quarter in Fiscal Year 2005 and utilities expense, partially offset by costs associated with equipment operating leases that expired during these periods. The increase as a percentage of revenues is also attributable to the relatively fixed nature of certain occupancy and other costs, including rent and property taxes, compared to reduced revenues.

Depreciation and amortization. ~~Management~~Depreciation ~~currently~~and ~~expects~~amortization ~~that~~expense ~~total~~decreased ~~depreciation and~~$0.2 million, ~~amortization~~or ~~expense~~12.5%, ~~will~~to ~~continue~~$1.4 million toduring ~~decline~~the inFiscal ~~fiscal~~Year 2006 asThird ~~compared~~Quarter tofrom ~~fiscal~~$1.6 million ~~2005~~during ~~due to~~ the ~~sale~~Fiscal ~~and~~Year ~~leaseback~~2005 ~~transaction~~Third ~~entered~~Quarter. ~~into~~As ina ~~August 2004,~~percentage ~~the impairment~~ of ~~assets~~revenues, atdepreciation ~~the~~and ~~end~~amortization ofexpense ~~fiscal~~decreased ~~2005~~0.4% ~~and~~to ~~the~~5.0% ~~volume~~from of5.4% ~~assets that have or will become fully depreciated~~ during ~~fiscal~~these ~~2005 and fiscal 2006~~periods.

General and administrative. ~~expenses~~General and administrative costs increased $0.1 million, ~~Management~~or ~~currently~~5.9%, to ~~expects~~$1.8 million ~~that~~for the Fiscal Year 2006 Third Quarter, from $1.7 million for the Fiscal Year 2005 Third Quarter. As a percentage of revenues, general and administrative ~~expenses~~costs ~~will~~increased ~~remain~~0.8% ~~relatively~~from 5.8% ~~consistent~~for inFiscal ~~fiscal~~Year 2005 Third Quarter to 6.6% for Fiscal Year 2006 Third Quarter. The increase, both in dollars and as a percentage of revenues, is primarily due to increased bank fees and costs associated with the investment banking process, partially offset by a reduction in legal and professional fees. The increase as a percentage of revenues is also attributable to the relatively fixed nature of general and administrative costs compared to ~~fiscal~~reduced ~~2005~~revenues.

Asset impairment. WeAsset ~~recorded asset~~ impairment charges oftotaling $10.86 million, ~~and~~or $12.~~0 million~~2% ~~in fiscal~~of ~~2005 and 2004~~revenues, ~~respectively.~~were recorded ~~The accounting~~ for ~~long-lived~~the ~~assets~~Fiscal ~~requires~~Year us2006 toThird ~~estimate future~~Quarter ~~net~~relating ~~cash flows~~ to beassets ~~generated~~at bytwo ~~the asset (in this case our~~ restaurants). Ifthat ~~certain restaurants~~were do not performing ~~perform~~ as expected,. weAsset ~~may~~impairment becharges ~~required~~of to$0.2 million, ~~take~~or ~~additional~~0.6% ~~asset~~of ~~impairment charges~~revenues, ~~although~~were recorded atduring ~~present~~the noFiscal ~~such~~Year ~~charges~~2005 ~~are~~Third ~~expected~~Quarter.

Interest expense, net. ~~Based~~Total oninterest ~~the~~expense ~~current~~increased ~~debt~~$0.1 million, ~~and~~or ~~capital~~50.0%, ~~lease~~to ~~obligations outstanding~~$0.3 ~~and~~million ~~the~~for ~~significant~~Fiscal ~~debt~~Year ~~payments~~2006 ~~made~~Third inQuarter, ~~fiscal~~from ~~2005~~$0.2 million ~~including~~for ~~the~~Fiscal ~~payments~~Year ~~made~~2005 inThird ~~connection~~Quarter. ~~with~~The ~~the~~increase ~~sale~~was ~~and~~primarily ~~leaseback~~due ~~transaction,~~to wethe ~~presently anticipate that~~ interest ~~expense~~incurred ~~will decrease~~relating ~~significantly in fiscal 2006 compared~~ to ~~fiscal~~borrowings ~~2005~~from ~~and~~the ~~will total approximately $0.2~~Company’s ~~million~~major ~~per quarter in fiscal 2006~~shareholders.

Income ~~tax (benefit) expense~~taxes. ~~Due~~We todid ~~the~~not ~~existence~~recognize ofa ~~federal and state income~~ tax ~~loss carryforwards,~~benefit werelating doto ~~not~~the ~~currently~~operating ~~anticipate~~loss ~~that~~for ~~any significant income tax expense or benefits~~either ~~will~~the beFiscal ~~recorded~~Year ~~or realized in fiscal~~ 2006. WeThird ~~have~~Quarter ~~fully~~or ~~reserved~~Fiscal ~~all~~Year of2005 ~~our~~Third ~~tax~~Quarter ~~loss carryforwards~~ because wemanagement dodoes not believe that it is more likely than not that our deferred tax assets will be realized in the future.

LIQUIDITY AND CAPITAL RESOURCES

Our material financial commitments relate principally to our working capital requirements and our obligations to make operating and capital lease and term loan payments in accordance with the terms of our agreements. See Note 4 to the Condensed Consolidated Financial Statements for a description of our current outstanding debt obligations. As of July 24, 2005, total minimum payments required under our note and lease obligations in 2006, including interest thereon, were $15.5 million.

The following table summarizes our future contractual cash obligations for the remainder of fiscal 2006, each of the next four fiscal years and thereafter as of July 24, 2005 (dollars in thousands). Operating lease commitments include estimated common area maintenance expenses.

	2006		2007		2008		2009		2010		Thereafter		Total
Long term debt:
Principal	$	1,705	$	2,375	$	939	$	17	$	7	$	—	$	5,043
Interest		172		128		20		1		—		—		321
Total		1,877		2,503		959		18		7		—		5,364
Capital lease debt:
Principal		902		1,119		423		341		342		1,053		4,180
Interest		211		230		198		168		135		223		1,165
Total		1,113		1,349		621		509		477		1,276		5,345
Operating leases		8,222		10,069		9,627		9,063		8,525		79,366		124,872
Other commitments		388		205		140		142		168		—		1,043
Total	$	11,600	$	14,126	$	11,347	$	9,732	$	9,177	$	80,642	$	136,624

Loss from operations of discontinued restaurants. Total loss from operations of discontinued restaurants decreased $0.5 million to $0.2 million for Fiscal Year 2006 Third Quarter, from $0.7 million for Fiscal Year 2005 Third Quarter due to the closure of restaurants during the period.

~~Other~~Loss ~~commitments~~from ~~represent~~disposal ~~minimum~~of ~~amounts~~discontinued ~~due~~restaurants. toDuring ~~certain~~the ~~vendors~~Fiscal ~~under~~Year ~~contractual agreements.~~2006 ~~Amounts~~Third ~~reflected~~Quarter, ~~above~~we recorded ~~could~~a ~~change~~loss asfrom ~~additional~~disposal ~~commitments~~of ~~may~~discontinued berestaurants ~~made, cancellation~~in ~~provisions~~the ~~may~~amount beof ~~exercised~~$0.3 million. byWe usdid not orrecord bya ~~our~~loss ~~creditors,~~from ordisposal ~~agreements~~of ~~may~~discontinued ~~be modified~~restaurants asduring ~~warranted~~the byFiscal ~~changes~~Year in2005 ~~business~~Third Quarter. orSee ~~operational~~further ~~needs~~discussion above.

~~During~~THIRTY ~~the~~NINE ~~thirteen~~WEEKS ~~weeks~~ENDED ~~ended~~JANUARY ~~July 24~~22, ~~2005,~~2006 ~~our~~(“FISCAL ~~primary~~YEAR ~~source~~2006 ofFIRST ~~working~~THREE ~~capital~~QUARTERS”) ~~was~~COMPARED TO ~~insurance~~THE ~~proceeds~~THIRTY ~~from~~NINE ~~our~~WEEKS ~~summer~~ENDED ~~2004~~JANUARY ~~hurricane~~23, ~~claims~~2005 (~~see~~“FISCAL ~~Note~~YEAR 102005 ofFIRST ~~Notes~~THREE ~~to our Condensed Consolidated Financial Statements~~QUARTERS”).

OnTotal ~~August 6,~~revenues. ~~2004,~~Total werevenues ~~entered~~decreased ~~into~~$4.1 million, aor ~~sale/leaseback~~4.7%, ~~for~~from 11$87.5 million ~~restaurant~~for ~~properties with~~Fiscal ~~Sovereign.~~Year ~~The~~2005 ~~sale~~First ~~price~~Three ~~for~~Quarters ~~the~~to ~~11 properties was~~ $2183.84 million. ~~The~~for ~~properties~~Fiscal ~~have~~Year ~~been~~2006 First Three Quarters. This ~~leased~~decrease ~~back~~is ~~under~~primarily ~~lease~~attributable ~~agreements~~to ~~that~~a ~~extend~~reduction ~~for~~in ~~20 years~~sales ~~and~~at ~~include~~comparable ~~four~~restaurants. ~~five-year~~Sales ~~renewal~~at ~~options.~~comparable Werestaurants ~~used~~for ~~approximately~~Fiscal ~~$18.3 million~~Year of2006 ~~the~~First ~~net~~Three ~~proceeds~~Quarters ~~from~~decreased ~~the~~5.0% ~~sale~~compared towith ~~repay~~sales ~~approximately~~for ~~$24.6 million~~Fiscal ofYear ~~secured~~2005 ~~debt,~~First ~~which~~Three ~~was~~Quarters. ~~repaid~~This atdecrease aresults ~~discount~~from ~~(resulting~~a reduction in ~~a gain~~customer onheadcount, ~~extinguishment~~partially ofoffset ~~debt~~by ofan ~~approximately~~increase ~~$7.1 million)~~in ~~and~~check toaverage ~~pay~~resulting ~~transaction~~primarily ~~expenses relating~~from to the ~~sale/leaseback.~~menu ~~The~~price changes ~~net~~described ~~gain~~below ~~from~~that ~~the~~were ~~debt~~implemented ~~repayment~~in isMarch 2005. ~~reflected~~Management inbelieves ~~our~~that the decrease ~~consolidated~~in ~~statement~~headcount ofis ~~operations~~primarily ~~for~~attributable ~~the~~to ~~fiscal~~economic ~~year~~conditions ~~ended~~during ~~April 24,~~the ~~2005.~~Fiscal WeYear ~~also~~2006 ~~realized~~Second aand ~~gain~~Third onQuarters ~~the~~and ~~sale~~consumer ofdiscretionary ~~the~~spending ~~properties~~which ofhave ~~approximately~~been ~~$1.7 million,~~negatively ~~which~~impacted isby ~~recorded as~~the ~~unearned~~significant ~~revenue~~increases in ~~the~~gas ~~consolidated~~prices ~~balance~~as ~~sheet~~well as ofincreased ~~July 24,~~competition ~~2005~~from ~~and~~new isrestaurants ~~being~~in ~~recorded as~~many aof ~~reduction~~the ofmarkets ~~occupancy~~in ~~and~~which ~~other~~our ~~expense~~restaurants ~~over~~operate and the ~~life~~impact of ~~the~~our ~~leases.~~financial ~~The~~condition ~~remaining~~and ~~net~~lack ~~proceeds~~of ~~from~~working ~~the~~capital ~~sale~~on ofour ~~approximately~~ability ~~$3.5 million~~to ~~were~~invest ~~used~~in ~~for~~our ~~general~~restaurants ~~corporate~~and ~~purposes,~~engage in necessary marketing ~~including~~initiatives. ~~working~~A ~~capital~~restaurant tois ~~meet~~considered ~~our~~comparable ~~ordinary~~after ~~course~~its ~~expenses~~first 18 months of operation.

Food and beverage. Food and beverage costs decreased $3.4 million, or 10.8%, to $28.0 million for Fiscal Year 2006 First Three Quarters, from $31.4 million for Fiscal Year 2005 First Three Quarters. As a percentage of revenues, food and beverage costs decreased by 2.4% to 33.5% for Fiscal Year 2006 First Three Quarters from 35.9% for Fiscal Year 2005 First Three Quarters. The decrease in dollars was impacted by the reduction in revenue. The decrease as a percentage of revenues is primarily attributable to the impact of changes in our main menu that were implemented in March 2005. The updated main menu included changes in certain plate presentations and recipes as well as both the introduction of selected new menu offerings and the elimination of certain items from the previous menu that did not generate sufficient sales volume. The menu also included a price increase of approximately 2% based on the current sales mix. In addition, we attempted to reduce our overall food costs by featuring lower food cost, generally non-beef, menu items in our new menu and advertising materials. Management will continue to evaluate and implement changes designed to reduce overall food costs. However, there can be no assurances that such initiatives will continue to be effective in reducing our food costs.

InLabor ~~August 2005,~~and webenefits. ~~borrowed~~Labor and benefits costs decreased $0.1 million,~~250~~ or 0.3%,~~000~~ ~~from~~to ~~our~~$28.7 million ~~majority~~for ~~shareholder~~Fiscal Year 2006 First Three Quarters, from $28.8 million ~~The~~for ~~loan~~Fiscal ~~bears~~Year 2005 First ~~interest~~Three atQuarters. ~~the~~As ~~rate~~a percentage of ~~10%~~revenues, ~~per~~labor ~~annum~~ and isbenefits ~~secured~~costs byincreased ato ~~lien~~34.4% onfor Fiscal ~~all~~Year of2006 ~~our~~Three ~~assets~~Second Quarters from 32.9% ~~The~~for ~~loan is~~Fiscal ~~due~~Year on2005 ~~May 15,~~First ~~2006,~~Three orQuarters. ~~earlier~~The increase ~~upon~~as a ~~change~~percentage of ~~control~~revenues ofis primarily attributable to the ~~Company.~~impact Weof ~~are~~changes ~~using~~in ~~the~~minimum ~~proceeds~~wage ofimplemented in the ~~loan~~state ~~for~~of ~~working~~Florida ~~capital~~in May 2005 and increases in costs associated with our group ~~business.~~health ~~(See~~insurance ~~Note~~plan, 11partially ofoffset ~~Notes~~by toa ~~our Condensed~~reduction ~~Consolidated~~in ~~Financial~~workers’ ~~Statements~~compensation costs.) ~~Such~~The increase ~~debt~~ is ~~not~~also ~~included~~attributable to the decline in revenues and the ~~table~~fixed ~~above since~~nature itof ~~was~~a ~~incurred~~significant portion ~~subsequent~~of toour ~~July 24,~~labor ~~2005~~and benefits.

WeOccupancy ~~expect~~and ~~that~~other. ~~our~~Occupancy ~~primary~~and ~~source~~other ofcosts ~~working~~increased ~~capital~~$0.6 million, or 2.7%, to $22.8 million for ~~future~~Fiscal ~~periods~~Year ~~will~~2006 beFirst ~~cash~~Three ~~flow~~ Quarters, from ~~operations~~$22.2 million for Fiscal Year 2005 First Three Quarters. As a percentage of revenues, ~~proceeds~~occupancy and other was 27.3% for Fiscal Year 2006 First Three Quarters compared to 25.3% for Fiscal Year 2005 First Three Quarters. The increase in both dollars and as a percentage of revenues is attributable to increased rent expense resulting from the sale ofand aleaseback ~~closed~~transaction ~~property~~completed in August 2004 and increased utilities expense, partially ~~possible~~offset ~~additional~~by ~~debt~~reduced ~~and/or~~costs associated with equipment operating leases that expired during ~~equity~~these ~~financing~~periods. ~~and~~The ~~possible~~increase ~~advance~~as ~~sales~~a percentage of ~~additional~~revenues ~~food~~is also attributable to the relatively fixed nature of certain occupancy and ~~beverage~~other ~~credits~~costs, including rent and property taxes, compared to reduced revenues.

WeDepreciation ~~have~~and ~~experienced~~amortization. ~~significant~~Depreciation ~~cash~~and ~~flow~~amortization ~~problems~~expense indecreased ~~the past~~$0. ~~We believe that our~~3 million, ~~ability~~or 6.8%, to ~~generate~~$4.1 million ~~cash~~for ~~from~~the ~~operations~~Fiscal isYear ~~dependent~~2006 ~~upon,~~First ~~among~~Three ~~other things~~Quarters, ~~demand~~from $4.4 million for ~~our~~the ~~products,~~Fiscal aYear ~~continued~~2005 ~~commitment~~First toThree ~~providing~~Quarters. anAs ~~excellent~~a ~~dining~~percentage ~~experience~~of ~~for our customers~~revenues, ~~the~~ ~~development~~depreciation and ~~implementation~~amortization expense ofwas ~~successful~~4.9% ~~marketing~~during ~~strategies,~~ the ~~cost~~Fiscal ~~levels~~Year of2006 ~~our various~~First ~~food~~Three ~~products,~~Quarters ~~and~~compared ~~our continuing efforts~~ to ~~reduce our operating costs~~5.0% ~~During~~for ~~fiscal 2005, we implemented revenue enhancement programs including~~ the ~~implementation of a new menu~~Fiscal ~~with~~Year ~~enhanced~~2005 ~~menu~~First ~~items~~Three Quarters. InThe ~~addition,~~decrease wein ~~have~~dollars ~~taken,~~is ~~and~~due ~~continue~~ to ~~take,~~certain ~~steps~~equipment tobecoming ~~control~~fully ~~our~~depreciated ~~costs.~~during ~~There~~the ~~can~~period, bethe nosale ~~assurance~~and ~~that~~leaseback ~~these~~transaction ~~initiatives~~of ~~will~~the be11 ~~effective~~properties in ~~generating~~August ~~profits or producing sufficient cash flows to fund operating requirements~~2004, ~~including debt repayments~~ and ~~lease~~asset ~~obligations.~~impairments Inrecorded ~~addition,~~in iffiscal ~~operating~~year ~~results~~2005 dothat ~~not~~reduced ~~improve in~~ the ~~near term~~carrying asvalue ~~a result~~ of ~~the~~our property ~~recent changes that have occurred~~ and ~~the introduction of the new menus~~equipment, ~~then~~ weoffset ~~may be required~~ to ~~recognize~~some ~~additional~~extent ~~impairment~~by ~~charges~~depreciation ~~related~~of toadditional ~~certain long-lived~~ assets ~~(and such charges may be significant)~~purchased.

WeGeneral ~~require~~and ~~significant~~administrative. ~~working~~General ~~capital~~and toadministrative ~~operate~~costs ~~our~~increased ~~business~~$0.8 million, ~~Although there can be no~~or ~~assurance~~16.3%, ifto we$5.7 million ~~meet~~for ~~our~~the ~~business~~Fiscal ~~plan~~Year in2006 ~~all~~First ~~material~~Three ~~respects~~Quarters, wefrom ~~expect~~$4.9 million tofor ~~have sufficient~~the ~~working~~Fiscal ~~capital~~Year to2005 ~~meet~~First ~~our~~Three ~~obligations during fiscal 2006~~Quarters. ~~Factors~~As ~~that~~a ~~could~~percentage ~~cause~~of usrevenues, togeneral ~~not~~and administrative ~~meet~~costs ~~our~~increased ~~business~~1.2% ~~plan~~from ~~could~~5.6% ~~include~~for ~~unforeseen~~Fiscal ~~events~~Year ~~such~~2005 asFirst ~~material~~Three ~~food~~Quarters ~~cost~~to ~~increases, significant~~6.8% ~~decreases~~for inFiscal ~~customer~~Year 2006 ~~volume,~~First ~~hurricanes~~Three ~~or other unforeseen factors~~Quarters. ~~However~~The increase, ~~if cash~~both ~~generated~~in ~~from~~dollars ~~our operations~~ and ~~other~~as ~~possible~~a ~~sources~~percentage ~~described~~of ~~above~~revenues, ~~are insufficient~~is toprimarily ~~fund~~due ~~our~~to ~~financial~~increased ~~commitments~~bank fees and ~~working~~costs ~~capital~~associated ~~requirements,~~with ofthe ~~which~~investment ~~there~~banking ~~can~~process ~~be no~~as ~~assurance,~~well weas ~~will~~the ~~have~~non-recurring tobad ~~obtain~~debt ~~additional~~recovery ~~capital~~realized ~~from~~during ~~debt~~the orFiscal ~~equity~~Year ~~financing~~2005 ~~sources.~~Second Quarter, ~~There~~partially ~~can~~offset beby noa ~~assurance~~reduction ~~that~~in ~~additional~~legal ~~debt~~ and~~/or~~ ~~equity~~professional ~~financing will be available on terms acceptable to us, or at all~~fees. InThe ~~the~~increase ~~event~~as wea ~~are~~percentage ~~unable to secure needed additional~~of ~~financing,~~revenues itis ~~would~~also ~~likely~~attributable ~~have~~to athe ~~material~~relatively ~~adverse~~fixed ~~effect~~nature ~~upon~~of ~~our~~general ~~business,~~and ~~results~~administrative ofcosts ~~operations~~compared orto ~~financial~~reduced ~~condition~~revenues.

Asset impairment. Asset impairment charges totaling $0.6 million, or 0.7% of revenues, were recorded for the Fiscal Year 2006 First Three Quarters relating to assets at two restaurants that were not performing as expected. Asset impairment charges of $0.2 million, or 0.2% of revenues, were recorded during the Fiscal Year 2005 First Three Quarters.

Gain on extinguishment of debt. During the twenty six weeks ended October 24, 2004, we recognized a $7.1 million gain relating to the repayment of debt at a discounted amount resulting from the use of a portion of the net proceeds of the sale/leaseback of 11 properties. See discussion above.

Interest expense, net. Total interest expense decreased $0.5 million, or 35.7%, to $0.9 million for Fiscal Year 2006 First Three Quarters, from $1.4 million for Fiscal Year 2005 First Three Quarters. The decrease was primarily due to the reduction in outstanding debt resulting from debt payments made between these periods, including the early payment of debt from the proceeds of the August 2004 sale/leaseback transaction, partially offset be interest incurred relating to borrowings from the Company’s major shareholders.

Income taxes. We did not recognize a tax benefit relating to the operating loss for either the Fiscal Year 2006 First Three Quarters or Fiscal Year 2005 First Three Quarters because management does not believe that it is more likely than not that our deferred tax assets will be realized in the future.

Loss from operations of discontinued restaurants. Total loss from operations of discontinued restaurants decreased $0.9 million to $0.9 million for Fiscal Year 2006 First Three Quarters, from $1.8 million for Fiscal Year 2005 First Three Quarters due to the closure of restaurants during the period.

Loss from disposal of discontinued restaurants. During the Fiscal Year 2006 First Three Quarters, we recorded a loss from disposal of discontinued restaurants in the amount of $0.8 million. We did not record a loss from disposal of discontinued restaurants during the Fiscal Year 2005 First Three Quarters. See further discussion above.

LIQUIDITY AND CAPITAL RESOURCES

Our material financial commitments relate principally to our working capital requirements and our obligations to make operating and capital lease and term loan payments in accordance with the terms of our agreements. See Note 4 to the Condensed Consolidated Financial Statements for a description of our current outstanding debt obligations. As of January 22, 2006, total minimum payments required under our note and lease obligations in 2006, including interest thereon, were $14.6 million.

The following table summarizes our future contractual cash obligations for the remainder of fiscal 2006, each of the next four fiscal years and thereafter as of January 22, 2006 (dollars in thousands). Operating lease commitments include estimated common area maintenance expenses.


	2006		2007		2008		2009		2010		Thereafter		Total
Long term debt:
Principal	$	3,903	$	2,369	$	939	$	16	$	7	$	—	$	7,234
Interest		198		128		19		1		—		—		465

Total		4,101		2,497		958		17		7		—		7,580

Capital lease debt:
Principal		384		1,266		429		341		343		1,052		3,815
Interest		67		230		198		168		135		223		1,091

Total		451		1,496		627		509		478		1,275		4,836

Operating leases		2,409		8,974		8,595		8,077		7,605		69,721		105,381

Other commitments		158		285		140		142		168		—		893

Total	$	7,119	$	13,252	$	10,320	$	8,745	$	8,258	$	70,996	$	118,690

Other commitments represent minimum amounts due to certain vendors under contractual agreements. Amounts reflected above could change as additional commitments may be made, cancellation provisions may be exercised by us or by our creditors, or agreements may be modified as warranted by changes in business or operational needs.

During the thirteen weeks ended January 22, 2006, our primary source of working capital was loans from our principal shareholders and proceeds from insurance claims. The current balance of loans due from our principal shareholders is $5.0 million, all of which is currently due on June 30, 2006. See Note 11 of Notes to our Condensed Consolidated Financial Statements.

On August 6, 2004, we entered into a sale/leaseback for 11 restaurant properties with Sovereign. The sale price for the 11 properties was $21.8 million. The properties have been leased back under lease agreements that extend for 20 years and include four five-year renewal options. We used approximately $18.3 million of the net proceeds from the sale to repay approximately $24.6 million of secured debt, which was repaid at a discount (resulting in a gain on extinguishment of debt of approximately $7.1 million) and to pay transaction expenses relating to the sale/leaseback. The net gain from the debt repayment is reflected in our consolidated statement of operations for the fiscal

year ended April 24, 2005. We also realized a gain on the sale of the properties of approximately $1.7 million, which is recorded as unearned revenue in the consolidated balance sheet as of January 22, 2006 and is being recorded as a reduction of occupancy and other expense over the life of the leases. The remaining net proceeds from the sale of approximately $3.5 million were used for general corporate purposes, including working capital to meet our ordinary course expenses.

We have experienced significant cash flow problems in the past. We believe that our ability to generate cash from operations is dependent upon, among other things, demand for our products, a continued commitment to providing an excellent dining experience for our customers, the development and implementation of successful marketing strategies, the cost levels of our various food products, and our continuing efforts to reduce our operating costs. During fiscal 2005, we implemented revenue enhancement programs including the implementation of a new menu with enhanced menu items. In addition, we have taken, and continue to take, steps to control our costs. There can be no assurance that these initiatives will be effective in generating profits or producing sufficient cash flows to fund operating requirements, including debt repayments and lease obligations. In addition, if operating results do not improve in the near term as a result of the recent changes that have occurred and the introduction of the new menus, then we may be required to recognize additional impairment charges related to certain long-lived assets (and such charges may be significant).

We require significant working capital to operate our business. We expect that our primary source of working capital for future periods will be cash flow from operations, possible additional debt and/or equity financing and possible additional proceeds from insurance claims. If cash generated from our operations and other possible sources described above are insufficient to fund our financial commitments and working capital requirements, of which there can be no assurance, we will have to obtain additional capital from debt or equity financing sources. There can be no assurance that additional debt and/or equity financing will be available on terms acceptable to us, or at all. In the event we are unable to secure needed additional financing, it will likely have a material adverse effect upon our business, results of operations or financial condition, which could result in a curtailment of our operations.

SUMMARY OF CASH FLOWS

Cash provided by operating activities during the ~~thirteen~~thirty nine weeks ended ~~July~~January 2422, ~~2005 was~~2006 was $0.93 million, compared with $10.62 million ~~provided by operating activities~~ during the ~~thirteen~~ thirty nine weeks ended ~~July~~January 2523, ~~2004~~ 2005. The primary ~~source~~sources of cash for the ~~thirteen~~thirty nine weeks ended ~~July~~January 2422, 2006 were the ~~2005~~timing ~~was~~of ~~cash~~payments ~~generated~~of ~~from~~accounts ~~operations~~payable and ~~from~~accrued expenses and the collection of insurance proceeds from ~~the~~ hurricane ~~claim~~claims. See Note 10 of Notes to Condensed Consolidated Financial Statements. The primary sources of cash for the ~~thirteen~~thirty nine weeks ended ~~July~~January 2523, ~~2004~~2005 were the net ~~income~~cash generated from operations excluding non-cash expenses such as depreciation and amortization and cash received from the advance sale of food and beverage credits under the program with the ~~loyalty~~ ~~and rewards company. The primary use of cash during each of the thirteen weeks ended July 24, 2005 and July 25, 2004 was cash used to support operations.~~

~~Cash used in investing activities was $0.3 million during each of the thirteen-week periods~~33 ~~ended July 24, 2005 and July 25, 2004. Cash used in investing activities during each period consisted of purchases of property and equipment.~~

CashTable used in financing activities during the thirteen weeks ended July 24, 2005 was $1.0 million, compared to $1.3 million used in financing activities during the thirteen weeks ended July 25, 2004. Cash used in financing activities in each period consisted of repayments of long term debt and capital lease obligations. Contents

loyalty and rewards company. The primary use of cash during each of the thirty nine weeks ended January 22, 2006 and January 23, 2005 was cash used to support operations and payments made relating to the use of the food and beverage credits.

Cash used in investing activities was $0.9 million during the thirty nine weeks ended January 22, 2006, compared to $19.7 million provided by investing activities during the thirty nine weeks ended January 23, 2005. Cash used by investing activities during each period consisted of purchases of property and equipment. During the thirty nine weeks ended January 23, 2005, we received $20.6 million relating to proceeds from the sale leaseback transaction in August 2004.

Cash provided by financing activities during the thirty nine weeks ended January 22, 2006 was $0.5 million, compared to $20.3 million used in financing activities during the thirty nine weeks ended January 23, 2005. Cash provided by financing activities during the thirty nine weeks ended January 22, 2006 related to the proceeds of borrowings from related parties. See Note 11 of Notes to Condensed Consolidated Financial Statements. Cash used in financing activities in each period consisted of repayments of long term debt and capital lease obligations, including early debt payments from proceeds of the sale/leaseback transaction during the thirty nine weeks ended January 23, 2005.

CAPITAL EXPENDITURES

We did not open any new restaurants during the thirteen weeks ended ~~July~~January 2422, ~~2005~~2006 or ~~July~~ January 2523, ~~2004~~ 2005. We do not currently have any additional Company-owned restaurants under development for fiscal year 2006 or planned for the future. At this time, it is expected that incremental capital from debt or equity sources would be needed to open new restaurants. Should cash from operations be insufficient for future expansion and additional capital through debt and equity sources be unavailable, we will not be able to open additional restaurants.

SEASONALITY AND QUARTERLY RESULTS

Our operating results fluctuate seasonally because of our geographic concentration. Of the 6459 restaurants currently owned and operated by us, 3231 are located in generally residential or light commercial areas in Florida. Our restaurant sales generally increase from November through April, the peak period of the Florida tourism season, and generally decrease from May through October. In addition, because of our present geographic concentration, our results of operations may be materially adversely affected by a decline in tourism in Florida, downturns in Florida’s economy or by hurricanes or other adverse weather conditions in Florida. To offset this seasonal trend and to attempt to reduce the decline in sales during the off-season, we run special promotions for our customers, incentive contests for our employees and otherwise focus marketing initiatives to increasing sales during these periods.

3134

hurricanes or other adverse weather conditions in Florida. To offset this seasonal trend and to attempt to reduce the decline in sales during the off-season, we run special promotions for our customers, incentive contests for our employees and otherwise focus marketing initiatives to increasing sales during these periods.

In addition to seasonality, our quarterly and annual operating results and comparable unit sales may fluctuate significantly as a result of a variety of factors, including the factors described above in Forward Looking Statements.

IMPACT OF INFLATION

The primary inflationary factors affecting our operations include food, beverage and labor costs. Labor costs are affected by changes in the labor market generally and, because many of our employees are paid at federal and state established minimum wage levels, changes in such wage laws affect our labor costs. In that regard, the Florida Constitution and state regulations of New York were recently amended to increase the minimum wage payable to Florida and New York employees. These changes in New York and Florida were effective in January and May, 2005, respectively. Additional changes went into effect in both of these states on January 1, 2006. Management believes that the impact of changes in the minimum wage laws will be offset by other changes in our operations, as described in the Form 10-K and in this report.

In addition, most of our real property leases require us to pay taxes, maintenance, repairs and utilities, and these costs are subject to inflationary pressures. We believe that inflation rates, which have been low in recent periods, have not had a significant impact on our food and labor costs. There is no assurance that low inflation rates will continue or that we will have the ability to control costs in the future.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not currently use, and have not historically used, derivative financial instruments to hedge against such market interest rate risk. Changes in market interest rates, either increasing or decreasing rates by up to ten percent, would have no material impact on our results of operations.

Certain of the food products purchased by us are affected by commodity pricing and are, therefore, subject to unpredictable price volatility. These commodities are generally purchased based upon market prices established with vendors. The purchase arrangement may contain contractual features that limit the price paid by establishing certain floors and caps. We do not use financial instruments to hedge commodity prices because our purchase arrangements help control the ultimate cost paid. Extreme changes in commodity prices and/or long-term changes could adversely affect us. However, changes in commodity prices would ultimately affect our competitors as well as us. We expect that in most cases increased commodity prices could be passed through to our consumers via increases in menu prices. From time to time, competitive circumstances could limit menu price flexibility, and in those cases margins would be negatively impacted by increased commodity prices.

through to our consumers via increases in menu prices. From time to time, competitive circumstances could limit menu price flexibility, and in those cases margins would be negatively impacted by increased commodity prices.

ITEM 4. CONTROLS AND PROCEDURES

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Securities Exchange Act Rules 13a-15(b) and 15d-15(c). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of ~~July~~January 2422, ~~2005~~2006, our disclosure controls and procedures were effective in timely alerting them to material information relating to us (including our consolidated subsidiaries) required to be included in this report. There were no changes in our procedures during the thirteen weeks ended ~~July~~January 2422, ~~2005~~2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

3336

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are a party to certain legal proceedings arising in the ordinary course of business. While it is not possible to predict or determine the outcome of any of these proceedings, we do not believe that any liability resulting from these proceedings will have a material adverse effect on our financial position, results of operations or business.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

There were no changes in securities during the thirteen weeks ended ~~July~~January 2422, ~~2005~~2006.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

There were no defaults upon senior securities during the thirteen weeks ended ~~July~~January 2422, ~~2005~~ 2006.

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

NoA ~~actions~~proxy ~~were~~statement ~~submitted~~dated January 5, 2006 was distributed on or about January 10, 2006 to shareholders aof ~~vote~~record at the close of ~~our~~business ~~shareholders~~on ~~during~~December 29, 2005 to vote upon a proposal to approve and adopt the ~~first~~Agreement ~~quarter~~and Plan of ~~fiscal~~Merger dated November 17, 2005 between the Company and Steakhouse Partners, Inc. As discussed above, on March 14, 2006, the Company terminated the Merger Agreement due to the inability of Steakhouse to provide the funding necessary to complete the transaction and satisfy its financing contingency. No stockholder vote was ever taken regarding the proposed transaction.

ITEM 5. OTHER INFORMATION

None.

3437

ITEM 6. EXHIBITS

(a)

Exhibits.

Exhibit Number		Description
Exhibit
Number		Description
10.1		Second Amended and Restated Loan Agreement dated March 15, 2006, by and between Roadhouse Grill, Inc. and Berjaya Group (Cayman) Limited*
10.2		Second Amended and Restated Line of Credit Promissory Note dated March 15, 2006, by and between Roadhouse Grill, Inc. and Berjaya Group (Cayman) Limited*
10.3		Second Amended and Restated Security Agreement dated March 15, 2006, by and between Roadhouse Grill, Inc. and Berjaya Group (Cayman) Limited*
10.4		First Amendment to Second Amended and Restated Loan Agreement, dated May 8, 2006
10.5		Third Amended and Restated Line of Credit Promissory Note dated May 8, 2006 by Roadhouse Grill, Inc. in favor of Berjaya Group (Cayman) Limited
10.6		Demand Promissory Note dated May 9, 2006 by Roadhouse Grill, Inc. in favor of Ayman Sabi.
10.7		Second Amendment to Stock Warrant Certificate dated June, 2006.
31.1		Certification by Chief Executive Officer under Section 302 of Sarbanes-Oxley.
31.2		Certification by Chief Financial Officer under Section 302 of Sarbanes-Oxley.
32.1		Certification by Chief Executive Officer under Section 906 of Sarbanes-Oxley.
32.2		Certification by Chief Financial Officer under Section 906 of Sarbanes-Oxley.

35 * Incorporated by reference from the Current Report on Form 8-K filed by the Company on March 24, 2006

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this ~~7th~~19th day of ~~September, 2005~~June 2006.



		ROADHOUSE GRILL, INC.

		By:		/s/ Michael C. Brant

		Michael C. Brant
		Executive Vice President of Finance
		and Chief Financial Officer
		(Principal Financial Officer)

3639

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Filing Compare · ROADHOUSE GRILL INC