SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549





FORM
      10-Q





(Mark
      One)




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





For
      the
      quarterly period ended March 26, 2006





OR





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


EXCHANGE
      ACTS OF 1934





For
      the
      transition period from __________ to
      __________    .





Commission
      File No. 0-23226





GRILL
      CONCEPTS, INC.


( Exact
      name of registrant as specified in its charter)




Delaware
            
            13-3319172(State
                or other jurisdiction of incorporation or organization)
            
            (IRS
                Employer
              Identification
                No.)





11661
      San Vicente Blvd., Suite 404, Los Angeles, California 90049


(Address
      of principal executive offices) (Zip Code)





(310)
      820-5559


(Registrant's
      telephone number, including area code)








(Former
      name, former address and former fiscal year, if changed since last
      report)





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      past 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 xNo o





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





Indicate
      by check mark whether the registrant is a large accelerated filer an accelerated
      filer or a non-accelerated filer.  See
      definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of
      the Exchange Act. (Check one):




Large
      accelerated filer o Accelerated
      filer o Non-accelerated
      filer x




As
      of May
      5, 2006, 5,777,795 shares of Common Stock of the issuer were
      outstanding.





1


GRILL
      CONCEPTS, INC.





**INDEX**


Page
                NumberPART
                  I - FINANCIAL INFORMATIONItem
                  1. Financial StatementsConsolidated
                  Condensed Balance Sheets - March 26, 2006and
                  December 25, 2005
              
              
              3Consolidated
                  Condensed Statements of Operations - For the threemonths
                  ended March 26, 2006 and March 27, 2005
              
              
              5Consolidated
                  Condensed Statements of Cash Flows - For the threemonths
                  ended March 26, 2006 and March 27, 2005
              
              
              6Notes
                  to Consolidated Condensed Financial Statements
              
              
              7Item
                  2. Management's Discussion and Analysis of Financial
                  Conditionand
                  Results of Operations
              
              
              15Item
                  3. Quantitative and Qualitative Disclosures About Market
                  Risk
              
              
              23Item
                  4. Controls and Procedures
              
              
              23PART
                  II - OTHER INFORMATIONItem
                  6. Exhibits
              
              
              23SIGNATURES
              
              
              24


2


PART
      I -
      FINANCIAL INFORMATION





ITEM
      1.
      FINANCIAL STATEMENTS








GRILL
      CONCEPTS, INC. AND SUBSIDIARIES


CONSOLIDATED
      CONDENSED BALANCE SHEETS





ASSETS





March
                26,
            
            December
                25,2006
            
            2005(unaudited)Current
                assets:Cash
                and cash equivalents
            
            $
            2,247,000
            
            $
            3,161,000Inventories
            
            
            703,000
            
            
            727,000Receivables,
                  net of reserve ($238,000 in 2006 and 2005)
            
            
            1,039,000
            
            
            784,000Reimbursable
                costs receivable
            
            
            1,098,000
            
            
            912,000Prepaid
                expenses & other current assets
            
            
            621,000
            
            
            401,000Total
                current assets
            
            
            5,708,000
            
            
            5,985,000Furniture,
                equipment and improvements, net
            
            
            13,270,000
            
            
            13,372,000Goodwill,
                net
            
            
            205,000
            
            
            205,000Liquor
                licenses
            
            
            426,000
            
            
            426,000Restricted
                cash
            
            
            1,192,000
            
            
            1,042,000Deferred
                tax asset
            
            
            756,000
            
            
            577,000Note
                receivable
            
            
            91,000
            
            
            90,000Other
                assets
            
            
            589,000
            
            
            276,000Total
                assets
            
            $
            22,237,000
            
            $
            21,973,000


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





3





GRILL
      CONCEPTS, INC. AND SUBSIDIARIES


CONSOLIDATED
      CONDENSED BALANCE SHEETS


(Continued)








LIABILITIES,
      MINORITY INTEREST AND STOCKHOLDERS' EQUITY





March
                26,
            
            December
                25,2006
            
            2005(unaudited)Current
                liabilities:Accounts
                payable
            
            $
            1,361,000
            
            $
            1,457,000Accrued
                expenses
            
            
            4,018,000
            
            
            4,533,000Accrued
                managed outlet operating expenses
            
            
            1,098,000
            
            
            912,000Current
                portion of long term debt
            
            
            44,000
            
            
            48,000Current
                portion notes payable - related parties
            
            
            316,000
            
            
            312,000Total
                current liabilities
            
            
            6,837,000
            
            
            7,262,000Long-term
                debt
            
            
            406,000
            
            
            206,000Notes
                payable - related parties
            
            
            640,000
            
            
            671,000Other
                long-term liabilities
            
            
            7,484,000
            
            
            7,398,000Total
                liabilities
            
            
            15,367,000
            
            
            15,537,000Minority
                interest
            
            
            1,537,000
            
            
            1,630,000Stockholders’
                equity:Preferred
                Stock, 1,000,000 shares authorized,995,935
                shares undesignated in 2006 and 2005Series
                II, 10% Convertible Preferred Stock, $.001 parvalue;
                500 shares authorized, 500 sharesissued
                and outstanding in 2006 and 2005
            
            
            -
            
            
            -Common
                stock, $.00004 par value; 12,000,000 sharesauthorized
                in 2006 and 2005, 5,770,195 issuedand
                outstanding in 2006 and 5,728,495 issued and outstanding in 2005
            
            
            -
            
            
            -Additional
                paid-in capital
            
            
            13,731,000
            
            
            13,686,000Accumulated
                deficit
            
            
            (8,398,000
            )
            
            (8,880,000
            )Total
                stockholders’ equity
            
            
            5,333,000
            
            
            4,806,000Total
                liabilities, minority interest and stockholders’ equity
            
            $
            22,337,000
            
            $
            21,973,000





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





4





GRILL
      CONCEPTS, INC. AND SUBSIDIARIES


CONSOLIDATED
      CONDENSED STATEMENTS OF OPERATIONS


(unaudited)




Three
                Months EndedMarch
                26,
            
            March
                27,2006
            
            2005Revenues:Sales
            
            $
            15,062,000
            
            $
            13,387,000Cost
                reimbursements
            
            
            3,818,000
            
            
            3,469,000Management
                and license fees
            
            
            420,000
            
            
            356,000Total
                revenues
            
            
            19,300,000
            
            
            17,212,000Operating
                expenses:Cost
                of sales
            
            
            4,174,000
            
            
            3,738,000Restaurant
                operating expenses
            
            
            8,940,000
            
            
            7,701,000Reimbursed
                costs
            
            
            3,818,000
            
            
            3,469,000General
                and administrative
            
            
            1,241,000
            
            
            1,046,000Depreciation
                and amortization
            
            
            531,000
            
            
            461,000Pre-opening
                costs
            
            
            -
            
            
            91,000Total
                operating expenses
            
            
            18,704,000
            
            
            16,506,000Income
                from operations
            
            
            596,000
            
            
            706,000Interest
                expense, net
            
            
            (21,000
            )
            
            (37,000
            )Income
                before provision for income taxesand
                minority interest
            
            
            575,000
            
            
            669,000Provision
                for income taxes
            
            
            (68,000
            )
            
            (78,000
            )Minority
                interest in net (profit) loss of subsidiaries
            
            
            (25,000
            )
            
            91,000Net
                income
            
            
            482,000
            
            
            682,000Preferred
                dividends accrued
            
            
            (13,000
            )
            
            (13,000
            )Net
                income applicable to common stock
            
            $
            469,000
            
            $
            669,000Net
                income per share applicable to common stock:Basic
                net income
            
            $
            0.08
            
            $
            0.12Diluted
                net income
            
            $
            0.08
            
            $
            0.11Weighted
                average shares outstanding:Basic
            
            
            5,752,766
            
            
            5,650,146Diluted
            
            
            6,242,486
            
            
            6,092,223





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





5


GRILL
      CONCEPTS, INC. AND SUBSIDIARIES


CONSOLIDATED
      CONDENSED STATEMENTS OF CASH FLOWS


(unaudited)





Three
                Months EndedMarch
                26,
            
            March
                27,2006
            
            2005Cash
                flows from operating activities:Net
                income
            
            $
            482,000
            
            $
            682,000Adjustments
                to reconcile net income to net cash provided by operating
                activities:Depreciation
                and amortization
            
            
            531,000
            
            
            461,000Amortized
                deferred rent and lease incentives
            
            
            (187,000
            )
            
            (169,000
            )Stock
                based compensation expense
            
            
            38,000
            
            
            -Deferred
                income taxes
            
            
            (179,000
            )
            
            -Provision
                for doubtful accounts
            
            
            -
            
            
            19,000Minority
                interest in profit (loss) of subsidiaries
            
            
            25,000
            
            
            (91,000
            )Changes
                in operating assets and liabilities:Inventories
            
            
            24,000
            
            
            (7,000
            )Receivables
            
            
            (255,000
            )
            
            (117,000
            )Reimbursable
                costs receivable
            
            
            (186,000
            )
            
            (65,000
            )Prepaid
                expenses and other current assets
            
            
            53,000
            
            
            79,000Tenant
                improvement allowances
            
            
            -
            
            
            1,560,000Other
                assets
            
            
            -
            
            
            2,000Accounts
                payable
            
            
            (96,000
            )
            
            (667,000
            )Accrued
                expenses
            
            
            (546,000
            )
            
            69,000Accrued
                managed outlet operating expenses
            
            
            186,000
            
            
            65,000Net
                cash provided by (used in) operating activities
            
            
            (110,000
            )
            
            1,821,000Cash
                flows from investing activities:Purchase
                of furniture, equipment and improvements
            
            
            (424,000
            )
            
            (1,457,000
            )Restricted
                cash
            
            
            (150,000
            )
            
            (160,000
            )Purchase
                of liquor license
            
            
            -
            
            
            (17,000
            )Net
                cash used in investing activities
            
            
            (574,000
            )
            
            (1,634,000
            )Cash
                flows from financing activities:Capital
                contributions from minority interests in LLCs
            
            
            -
            
            
            145,000Debt
                issuance costs
            
            
            (318,000
            )
            
            -Proceeds
                from line of credit
            
            
            210,000
            
            
            -Proceeds
                from exercise of stock options and warrants
            
            
            7,000
            
            
            -Payments
                on notes payable - related parties
            
            
            (27,000
            )
            
            (34,000
            )Payments
                on long-term debt
            
            
            (14,000
            )
            
            (66,000
            )Return
                of capital and profits to minority shareholder
            
            
            (88,000
            )
            
            -Net
                cash provided by (used in) financing activities
            
            
            (230,000
            )
            
            45,000Net
                increase (decrease) in cash and cash equivalents
            
            
            (914,000
            )
            
            232,000Cash
                and cash equivalents, beginning of period
            
            
            3,161,000
            
            
            1,407,000Cash
                and cash equivalents, end of period
            
            $
            2,247,000
            
            $
            1,639,000Supplemental
                cash flow information:Cash
                paid during the period for:Interest
            
            $
            39,000
            
            $
            27,000Income
                taxes
            
            $
            286,000
            
            $
            -





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




6




GRILL
      CONCEPTS, INC. AND SUBSIDIARIES


NOTES
      TO
      CONSOLIDATED CONDENSED FINANCIAL STATEMENTS


(unaudited)





**1.**
            **INTERIM
                FINANCIAL PRESENTATION**





The
      interim consolidated financial statements are prepared pursuant to the
      requirements for reporting on Form 10-Q. These financial statements have not
      been audited by our independent registered public accounting firm. The December
      25, 2005 balance sheet data was derived from audited financial statements but
      does not include all disclosures required by generally accepted accounting
      principles. The interim financial statements and notes thereto should be read
      in
      conjunction with the financial statements and notes included in the Company's
      Form 10-K for the year ended December 25, 2005. In the opinion of management,
      these interim financial statements reflect all adjustments of a normal recurring
      nature necessary for a fair presentation of the results for the interim periods
      presented. The current period results of operations are not necessarily
      indicative of results, which ultimately will be reported for the full year
      ending December 31, 2006.








**2.**
            **STOCK-BASED
                COMPENSATION**





We
      maintain performance incentive plans under which incentive stock options and
      non-qualified stock options may be granted to employees, consultants and
      non-employee directors.  To date, we have granted both qualified and
      non-qualified stock options under these plans.  Stock options are granted
      at the market price on the date of grant, generally vest at 20% per year, and
      generally expire ten years from the date of grant.  We issue new shares of
      common stock upon exercise of stock options.




Effective
      December 26, 2005, the first day of our 2006 fiscal year, we adopted Financial
      Accounting Standards Board (“FASB”) Statement No. 123(R), “Share-Based Payment”
(“SFAS 123R”), using the modified prospective transition method, and as a
      result, did not retroactively adjust results from prior periods.  Under
      this transition method, stock-based compensation was recognized for expense
      related to the options vesting in the first quarter of 2006 based on the grant
      date fair value estimated in accordance with the provisions of SFAS 123R. 
We apply the Black-Scholes valuation model in determining the fair value of
      share-based payments to employees, non-employee directors and consultants. 
The resulting compensation expense is recognized over the requisite service
      period, which is generally the option vesting term of five years.  Options
      issued to non-employee directors are vested 100% at grant date. Prior to fiscal
      2006, stock-based compensation was included as a pro forma disclosure in the
      Notes to the Consolidated Financial Statements as permitted by SFAS 123.




Compensation
      expense is recognized only for those options expected to vest, with forfeitures
      estimated based on our historical experience and future expectations. 
Prior to the adoption of SFAS 123R, the effect of forfeitures on the pro forma
      expense amounts was recognized as the forfeitures occurred.




As
      a result of adopting SFAS 123R, the impact to the Consolidated Statement of
      Operations for the quarter ended March 26, 2006 on income before income taxes
      and net income was $38,000 and $34,000, respectively, and $0.006 and $0.006
      on
      basic and diluted earnings per share, respectively.




The
      pro
      forma table below reflects net income and basic and diluted net income per
      share
      for the first quarter of fiscal 2005, had we applied the fair value recognition
      provisions of SFAS 123:




7




March
                27, 2005Net
                income, as reported
            
            $
            682,000Deduct:
                stock compensation expenseunder
                fair value method, net of taxes
            
            
            (40,000
            )Net
                income, pro forma
            
            $
            642,000Net
                income per share, as reported:Basic
            
            $
            0.12Diluted
            
            $
            0.11Net
                income per share, pro forma:Basic
            
            $
            0.11Diluted
            
            $
            0.10




Pro
      forma
      disclosure for the quarter ended March 26, 2006 is not presented because the
      amounts are recognized in the consolidated financial statements.




There
      were no options granted in the first quarter of either 2006 or 2005. For all
      of
      2005 and 2006 we have utilized the Black-Scholes option pricing model for
      estimating our stock-based compensation cost.




The
      expected term of the options represents the estimated period of time until
      exercise and is based on historical experience of similar options, giving
      consideration to the contractual terms, vesting schedules and expectations
      of
      future employee behavior.  For fiscal 2006, expected stock price volatility
      is based on the historical volatility of our stock. The risk-free interest
      rate
      is based on the U.S. Treasury yield in effect at the time of grant with an
      equivalent remaining term. The Company  has
      not
      paid dividends in the past and does not currently plan to pay any dividends
      in
      the near future.




Stock
      option activity during the quarter ended March 26, 2006 was as follows:




**Shares**
              
              **Weighted
                  Average****Exercise
                  Price**
              
              **Weighted
                  Average Remaining Contractual Term (in years)**
              
              **Aggregate**
                **Intrinsic**
                **Value**Outstanding
                  at December 25, 2005
              
              
              713,275
              
              $
              2.89Granted
              
              
              -Exercised
              
              
              4,000
              
              
              1.66Cancelled
              
              
              5,300
              
              
              2.495Outstanding
                  at March 26, 2006
              
              
              703,975
              
              
              2.90
              
              
              5.6
              
              $
              440,821Vested
                  and expected to vest at March 26, 2006
              
              
              656,121
              
              
              2.63
              
              
              7.7
              
              $
              502,188Exercisable
                  at March 26, 2006
              
              
              436,575
              
              
              2.85
              
              
              4.4
              
              $
              288,732




8




The
      aggregate intrinsic value in the table above represents the total pretax
      intrinsic value (the difference between our closing stock price on March 26,
      2006 and the exercise price, multiplied by the number of in-the-money options)
      that would have been received by the option holders had all option holders
      exercised their options on March 26, 2006.  This amount changes based on
      the fair market value of our stock.  Total intrinsic value of options
      exercised for the quarter ended March 26, 2006 was zero.  As of March 26,
      2006, total unrecognized stock-based compensation expense related to non-vested
      stock options was approximately $0.4 million, which is expected to be recognized
      over a weighted average period of approximately 3 years.  As of March 26,
      2006 there were 53,000 shares of common stock available for issuance pursuant
      to
      future stock option grants.






Additional
      information regarding options outstanding as of March 26, 2006 is as follows:




Options
                Outstanding
            
            Options
                ExercisableRange
                of
              Exercise
                Price
            
            Number
              Outstanding
                at
              March
                26,
              2006
            
            Weighted-
              Average
              Remaining
              Contractual
                Life
            
            Weighted-
              Average
              Exercise
                Price
            
            Number
              Outstanding
                at
              March
                26,
              2006
            
            Weighted-
              Average
              Exercise
                Price$
                1.25
            
            
            1,750
            
            
            4.2
            
            $
            1.25
            
            
            1,750
            
            $
            1.25$
                1.55
            
            
            44,800
            
            
            4.5
            
            $
            1.55
            
            
            44,800
            
            $
            1.55$
                1.65
            
            
            92,800
            
            
            5.2
            
            $
            1.65
            
            
            62,200
            
            $
            1.65$
                1.70
            
            
            35,150
            
            
            7.2
            
            $
            1.70
            
            
            13,100
            
            $
            1.70$
                2.19
            
            
            52,650
            
            
            5.4
            
            $
            2.19
            
            
            39,600
            
            $
            2.19$
                2.23
            
            
            50,000
            
            
            8.3
            
            $
            2.23
            
            
            10,000
            
            $
            2.23$
                2.46
            
            
            12,000
            
            
            2.2
            
            $
            2.46
            
            
            12,000
            
            $
            2.46$
                2.75
            
            
            5,000
            
            
            0.1
            
            $
            2.75
            
            
            5,000
            
            $
            2.75$
                2.86
            
            
            69,450
            
            
            6.4
            
            $
            2.86
            
            
            34,250
            
            $
            2.86$
                3.14 - $3.45
            
            
            168,500
            
            
            5.1
            
            $
            3.22
            
            
            123,500
            
            $
            3.18$4.00
                to $4.68
            
            
            147,250
            
            
            6.7
            
            $
            4.19
            
            
            65,750
            
            $
            4.17$5.36
                to $14.00
            
            
            17,625
            
            
            1.0
            
            $
            6.40
            
            
            17,625
            
            $
            6.40





**3.**
            **RESTRICTED
                CASH**





In
      January 2006 a $1,010,000 certificate of deposit was established at Union Bank
      to act as collateral for the Standby Letter of Credit opened to support our
      worker’s compensation insurance policy. Other restricted cash consisted of
      $72,000 held in escrow for the Daily Grill at Continental Park in El Segundo,
      California and $110,000 that was placed in escrow with our insurance claims
      processor in 2004 for worker’s compensation claims.





At
      December 25, 2005 restricted cash consisted of a $860,000 certificate of deposit
      serving as collateral for our Stand By Letter of Credit, $72,000 held in escrow
      for the Daily Grill at Continental Park and $110,000 that was placed in escrow
      with our insurance claims processor in 2004 for worker’s compensation claims.








**4.**
            **PREPAID
                EXPENSES AND OTHER CURRENT
                ASSETS**





Most
      lease agreements contain one or more of the following; tenant improvement
      allowances, rent holidays, rent escalation clauses and/or contingent rent
      provisions.




Rent
      is
      recognized on a straight-line basis, including the restaurant build-out period.
      This period is normally prior to the commencement of rent payments and is
      commonly called the rent holiday period. The build-out period generally begins
      when the Company enters the space and begins to make improvements in preparation
      for intended use. Tenant improvement allowances are also recognized on a
      straight- line basis over the lease term.




9




Prepaid
      expenses and other current assets at March 26, 2006 and December 25, 2005 were
      comprised of:


2006
              
              2005Tenant
                  improvement allowances receivable
              
              $
              273,000
              
              $
              -Prepaid
                  expenses, other
              
              
              348,000
              
              
              401,000Total
                  prepaid assets and other current assets
              
              $
              621,000
              
              $
              401,000





**5.**
            **LONG-TERM
                DEBT**





In
      March
      2006 we signed a new financing agreement with Diamond Creek Investment Partners,
      LLC, at which time the previous line was terminated. The Credit Agreement
      provides for a revolving term loan (the “Loan”) to the Company of the lesser of
      (1) $8.0 million, or (2) 2.25 times the Company’s trailing 12 month EBITDA.
      Funds may be borrowed under the Credit Agreement, subject to satisfaction of
      all
      conditions of funding, in minimum monthly advances of $500,000. Proceeds of
      the
      Loan may be used to pay expenses of the Loan and for general corporate purposes.
      The interest rate on the Loan is, at the option of the Company and subject
      to
      certain limitations on the use of LIBOR based loans, equivalent to either (1)
      prime rate, but not less than 7%, plus an applicable margin, or (2) the London
      Interbank Offered Rate, but not less than 4%, plus an applicable margin. The
      margin, in each case, varies based upon the Company’s leverage ratio (funded
      debt to EBITDA, each as defined) and ranges from 2.75% to 3.50% with respect
      to
      prime rate loans and 5.50% to 6.25% with respect to LIBOR loans. The current
      interest rate is equal to 10.7% and will be adjusted quarterly commencing in
      the
      fourth quarter of 2006.





The
      Credit Agreement provides that the Company will pay all expenses incurred in
      connection with the Loan, including expenses incurred by the Lender. By separate
      agreement, the Company agreed to pay certain fees associated with the Loan,
      including a loan initiation fee of $120,000, an unused line fee of 0.5% of
      the
      unused portion of the credit facility payable monthly and a loan servicing
      fee
      of $3,000 per month.  In March 2006, we borrowed $210,000 under the line of
      credit to pay costs associated with obtaining the financing.





The
      Loan
      matures, and is payable in full, on March 9, 2011 subject to mandatory
      prepayment to the extent, if any, that the outstanding principal balance of
      the
      Loan exceeds 2.25 times trailing 12 month EBITDA or upon the occurrence of
      certain defined extraordinary events. The Company may prepay amounts owing
      under
      the Credit Agreement subject to payment of a prepayment premium of (1) 3% with
      respect to prepayments occurring on or before March 9, 2007, and (2) 1% with
      respect to prepayments occurring after March 9, 2007 and on or before March
      9,
      2008.





The
      Company’s obligations under the Credit Agreement are secured by a first lien on
      all of the Company’s assets, including all of the capital stock and other equity
      interests held by the Company in its subsidiaries, subject to existing liens
      on
      such assets. The Loan requires the Company to comply with certain ordinary
      lending covenants. These include, among others, financial covenants relating
      to
      maximum debt to EBITDA ratio, minimum EBITDA and maximum capital expenditures.
      The Company must also comply with certain information requirements, including
      providing periodic financial statements and projections as well as notices
      of
      defaults, litigation and other matters, maintenance of insurance and compliance
      with laws as well as limitations on liens and encumbrances, indebtedness,
      dispositions, dividends and retirement of capital stock, consolidations and
      mergers, changes in nature of business and other operating, financial and
      structural limitations.




10




Events
      of
      default in the Credit Agreement include, among others, (a) the failure to pay
      when due the obligations owing under the Credit Agreement, (b) the failure
      to
      perform and not timely remedy certain covenants, (c) certain cross defaults
      or
      cross accelerations, (d) the occurrence of bankruptcy or insolvency events,
      (e)
      the failure to make certain payments, or the occurrence of certain events,
      relating to retirement plans, (f) certain adverse judgments against the Company
      or any of its subsidiaries, (g) certain changes in ownership of the Company’s
      stock or the board of directors, or (h) the occurrence of, and failure to
      remedy, a Material Adverse Effect (as defined in the Credit Agreement). Upon
      the
      occurrence of an event of default, the Lender may terminate the loan commitment
      and declare the Loan due and payable in full.





On
      March
      31, 2006, the Company borrowed $1 million under the terms of the Credit
      Agreement with Diamond Creek Investment Partners LLC. The borrowed funds were
      primarily used to retire $930,132 of collateralized subordinated notes and
      manditorily redeemable capital obligations owed to The Michigan Avenue Group
      (“MAG”) by the Company’s subsidiary Chicago - The Grill on the Alley LLC
      (“Chicago Grill LLC)”, and guaranteed by the Company, with the balance used for
      general working capital. The retired obligations related to the initial funding
      provided by MAG, as a member/investor in Chicago Grill LLC, with respect to
      the
      Company’s The Grill on the Alley restaurant in Chicago.





**6.**
            **OTHER
                LONG-TERM LIABILITIES**





In
      connection with certain of the Company's leases, the landlord has provided
      the
      Company with tenant improvement allowances. These lease incentives have been
      recorded as long-term liabilities and are being amortized over the life of
      the
      lease. Additionally, the Company recognizes a liability for deferred rent where
      lease payments are lower than rental expense recognized on a straight-line
      basis.





Other
      Long-Term Liabilities at March 26, 2006 and December 25, 2005 were comprised
      of:





2006
            
            2005Tenant
                Improvement Allowances
            
            $
            5,283,000
            
            $
            5,140,000Deferred
                Rent
            
            
            2,201,000
            
            
            2,258,000Total
                Other Long-Term Liabilities
            
            $
            7,484,000
            
            $
            7,398,000





**7.**
            **RECENTLY
                ISSUSED ACCOUNTING
                REQUIREMENTS**




In
      November 2005, the FASB issued Staff Position ("FSP") FAS123(R)-3, Transition
      Election to Accounting for the Tax Effects of Share-Based Payments Awards.
      This
      FSP requires an entity to follow either the transition guidance for the
      additional-paid-in capital pool as prescribed in SFAS No. 123(R), Share-Based
      Payment, or the alternative transition method as described in the FSP. An entity
      that adopts SFAS No. 123(R) using the modified prospective application may
      make
      a one-time election to adopt the transition method described in this FSP. An
      entity may take up to one year from the later of its initial adoption of SFAS
      No. 123(R) or the effective date of this FSP to evaluate its available
      transition alternatives and make its one-time election. This FSP became
      effective in November 2005. We continue to evaluate the impact that the adoption
      of this FSP could have on our financial statements.


In
      October 2005, the FASB posted FASB Staff Position (FSP) 13-1, which requires
      that rental costs incurred during and after a construction period for the right
      to control the use of a leased asset during and after construction of a lessee
      asset to be recognized as rental expense. The provisions of FSP 13-1 shall
      be
      applied to the first reporting period beginning after December 15, 2005. The
      Company’s existing accounting policy for rental costs incurred during and after
      the construction period conforms to FSP 13-1. The adoption of FSP 13-1 did
      not
      have a material impact on the Company’s consolidated financial
      statements.





11


.


**8.**
            **DISTRIBUTION
                OF CAPITAL AND PREFERRED
                RETURNS**





The
      Company’s San Jose Grill, Chicago - Grill on the Alley, Grill on Hollywood,
      South Bay Daily Grill and Downtown Daily Grill restaurants are each owned by
      limited liability companies (the “LLCs”) in which the Company serves as manager
      and owns a controlling interest. Each of the LLCs has minority interest owners,
      some of whom have participating rights in the joint venture such as the ability
      to approve operating and capital budgets and the borrowing of money. In
      connection with the financing of each of the LLCs, the minority members may
      have
      certain rights to priority distributions of capital until they have received
      a
      return of their initial investments (“Return of Member Capital”) as well as
      rights to receive defined preferred returns on their invested capital
      (“Preferred Return”).





The
      Universal CityWalk Daily Grill is owned by a partnership (“the CityWalk
      Partnership”) for which we serve as manager. Our partner has certain rights to
      priority distribution of capital from the CityWalk Partnership until they have
      received their initial investments (“Return of Member Capital”).





The
      following tables set forth a summary for each of the LLCs and the CityWalk
      Partnership of (1) the distributions of capital to the Members and/or the
      Company during the quarter ended March 26, 2006, (2) the unreturned balance
      of
      the capital contributions of the Members and/or the Company at March 26, 2006,
      and (3) the accrued but unpaid preferred returns due to the Members and/or
      the
      Company at March 26, 2006:




**San
                  Jose**
              
              **Chicago
                  Grill On The Alley**
              
              **The
                  Grill On Hollywood LLC**Members
              
              Company
              
              Members
              
              Company
              
              Members
              
              CompanyDistributions
                  of profit and note repayments during the quarter ended March 26,
                  2006:
              
              $
              89,000
              
              $
              88,000
              
              $
              42,000
              (a)
              
              -
              
              
              -
              
              
              -Unreturned
                  Initial Capital Contributions at March 26, 2006:
              
              
              -
              
              
              -
              
              $
              874,000
              
              
              -
              
              $
              1,200,000
              
              $
              250,000Preferred
                  Return rate:
              
              
              10
              %
              
              10
              %
              
              8
              %
              
              
              
              
              12
              %
              
              12
              %Accrued
                  but unpaid Preferred Returns at March 26, 2006:
              
              
              -
              
              
              -
              
              
              -
              
              
              
              
              
              (b
              )
              
              (b
              )





12


**South
                  Bay Daily Grill(Continental Park LLC)**
              
              **Universal
                  Citywalk Daily Grill**
              
              **Downtown
                  Daily Grill****(612
                  Flower Daily Grill, LLC)**Members
              
              Company
              
              Members
              
              Company
              
              Members
              
              Company
                  (d)Distributions
                  of profit during the quarter ended March 26, 2006:
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Unreturned
                  Initial and Additional Capital Contributions at March 26,
                  2006:
              
              $
              1,100,000
              
              $
              450,000
              
              $
              1,396,106
              
              $
              296,106
              
              $
              1,375,000
              
              $
              275,000Preferred
                  Return rate:
              
              
              10
              %
              
              10
              %(c)
              
              -
              
              
              -
              
              
              9
              %
              
              9
              %Accrued
                  but unpaid Preferred Returns at March 26, 2006:
              
              
              (b)
              
              
              (b)
              
              
              (b)
              
              
              -
              
              $
              102,103
              
              $
              25,029


(a)
            Distribution
                of capital and note repayments as of March 26, 2006 includes $30,000
                of
                capital and note repayments and $12,000 of interest and preferred
                return.


(b)
            Due
                to the under performance of the restaurant the preferred return is
                not
                being accrued. The Company is not liable to pay the preferred return
                distributions, such that they represent a non-recourse obligation
                of the
                subsidiary entity. If preferred returns were accrued for The Grill
                on
                Hollywood the member would have an accrued preferred return of $815,000
                and the Company would have an accrued preferred return of $170,000.
                If
                preferred returns were accrued for the South Bay Daily Grill the
                member
                would have an accrued preferred return of $377,000 and the Company
                would
                have an accrued preferred return of $145,000. If preferred returns
                were
                accrued for the CityWalk Partnership the Member would have an accrued
                preferred return of $569,000.


(c)
            The Company’s preferred return with respect to the South
              Bay Daily Grill is based on unrecovered capital contribution and accrued
              but unpaid management fees.


(d)
            The Company is a non-managing member and a wholly
              owned
              subsidiary of the Company is the Manager of this
              restaurant.




13





**9.**
            **PER
                SHARE DATA**




Pursuant
          to SFAS No. 128, “Earnings Per Share,” basic net income per share is computed by
          dividing the net income attributable to common shareholders by the
          weighted-average number of common shares outstanding during the period.
          Diluted
          net income per share is computed by dividing the net income attributable
          to
          common shareholders by the weighted-average number of common and common
          equivalent shares outstanding during the period. Common share equivalents
          included in the diluted computation represent shares issuable upon assumed
          exercise of stock options, warrants and convertible preferred stocks using
          the
          treasury stock method.


A
            reconciliation of earnings available to common stockholders and diluted
            earnings
            available to common stockholders and the related weighted average shares
            for the
            quarters ended March 26, 2006 and March 27, 2005 follow:


2006
            
            2005Earnings
            
            Shares
            
            Earnings
            
            SharesNet
                income
            
            $
            482,000
            
            
            
            
            $
            682,000Less:
                preferred stock dividend
            
            
            (13,000
            )
            
            
            
            
            (13,000
            )Earnings
                available for common stockholders
            
            
            469,000
            
            
            5,752,776
            
            
            669,000
            
            
            5,650,146Dilutive
                securities:Stock
                options
            
            
            -
            
            
            90,161
            
            
            -
            
            
            85,875Warrants
            
            
            -
            
            
            399,559
            
            
            -
            
            
            231,202Convertible
                Stock
            
            
            
            
            
            -
            
            
            
            
            
            125,000Dilutive
                earnings available to common stockholders
            
            $
            469,000
            
            
            6,242,486
            
            $
            669,000
            
            
            6,092,223


For
          the
          three months ended March 26, 2006, 315,375 options, 26,562 warrants and
          500
          shares of convertible preferred stock were excluded from the calculation
          of
          diluted earnings per share because they were anti-dilutive. For the three
          months
          ended March 27, 2005, 338,875 options, 235,703 warrants and 500 shares
          of
          convertible preferred stock were excluded from the calculation of diluted
          earnings per share because they were anti-dilutive.





**10.**
            **LITIGATION
                CONTINGENCIES**




In
      June
      2004, one of our former hourly restaurant employees filed a class action lawsuit
      against us in the Superior Court of California of Orange County. We requested
      and were granted a motion to move the suit from Orange County to Los Angeles
      County. The lawsuit was then filed in the Superior Court of California of Los
      Angeles in December 2004. The plaintiff has alleged violations of California
      labor laws with respect to providing meal and rest breaks. The lawsuit sought
      unspecified amounts of penalties and other monetary payments on behalf of the
      plaintiffs and other purported class members. We believe that all of our
      employees were provided with the opportunity to take all required meal and
      rest
      breaks. The case has been placed in a stay status pending the outcome of a
      review by the California Supreme Court of appealed cases of the same nature.
      We
      intend to vigorously defend our position in all of these matters although the
      outcome cannot be ascertained at this time.




A
      Class
      Action complaint was filed in the Superior Court of the State of California
      for
      the County of Los Angeles on March 15, 2006.  The plaintiff and those
      similarly situated (Servers) complain that the company has violated
      the labor code by having Servers "Tip Out" Bartenders and Expeditors a
      percentage of their tips to these employees who provide no direct table
      service.  The complaint has labeled this act as "Tip-pooling."  The
      company has not yet been served with this complaint. There is a hearing
      scheduled in June to determine where the case will be heard within the court
      system.





14





**11.**
            **Subsequent
                Events**





On
      March
      31, 2006, the Company borrowed $1 million under the terms of the Credit
      Agreement with Diamond Creek Investment Partners LLC. See Note 5 for complete
      discussion of the credit agreement.





On
      April
      4, 2006 the Company signed a management agreement for a hotel-based Daily Grill
      to open at the Westin Memphis Beale Street in Memphis, Tennessee. The restaurant
      owner will pay all construction and pre-opening costs. The Company will receive
      a management fee with an annual guaranteed minimum fee. The restaurant is
      scheduled to open in the spring of 2007.





**Item
      2. Management’s Discussion and Analysis of Financial Condition and Results** **of
      Operations**





The
      following discussion and analysis should be read in conjunction with the
      Company's financial statements and notes thereto included elsewhere in this
      Form
      10-Q. Except for the historical information contained herein, the discussion
      in
      this Form 10-Q contains certain forward looking statements that involve risks
      and uncertainties, such as statements of the Company's plans, objectives,
      expectations and intentions. The cautionary statements made in this Form 10-Q
      should be read as being applicable to all related forward looking statements
      wherever they appear in this Form 10-Q. The Company's actual results could
      differ materially from those discussed here. For a discussion of certain factors
      that could cause actual results to be materially different, refer to the
      Company's Annual Report on Form 10-K for the year ended December 25,
      2005.





**Results
      of Operations**





The
      following table sets forth, for the periods indicated, information derived
      from
      the Company’s consolidated statements of operations expressed as a percentage of
      total operating revenues, except where otherwise noted. We typically analyze
      our
      operating expenses as a percentage of sales revenues, not total revenues.





15





Three
                Months EndedMarch
                26,
            
            March
                27,2006
            
            2005%
            
            %Revenues:Company
                restaurant sales
            
            
            78.0
            
            
            77.8Reimbursed
                managed outlet operating expenses
            
            
            19.8
            
            
            20.1Management
                and license fees
            
            
            2.2
            
            
            2.1Total
                revenues
            
            
            100.0
            
            
            100.0Cost
                of sales
            
            
            21.6
            
            
            21.7Restaurant
                operating expenses
            
            
            46.3
            
            
            44.8Reimbursed
                managed outlet operating expenses
            
            
            19.8
            
            
            20.1General
                and administrative expense
            
            
            6.4
            
            
            6.1Depreciation
                and amortization
            
            
            2.8
            
            
            2.7Pre-opening
                costs
            
            
            -
            
            
            0.5Total
                operating expenses
            
            
            96.9
            
            
            95.9Operating
                income
            
            
            3.1
            
            
            4.1Interest
                expense, net
            
            
            (0.1
            )
            
            (0.2
            )Income
                  before taxes and  minority interest
            
            
            3.0
            
            
            3.9Provision
                for income taxes
            
            
            (0.4
            )
            
            (0.5
            )Minority
                interest
            
            
            (0.1
            )
            
            0.5Net
                income
            
            
            2.5
            
            
            3.9





The
      following table sets forth certain unaudited financial information and other
      restaurant data relating to Company owned restaurants and Company managed and/or
      licensed restaurants.




First
                  Quarter
                Openings
            
            Total
                  open at
                End
                  of QuarterFY
                2006
            
            FY
                2005
            
            FY
                2006
            
            FY
                2005Daily
                Grill Restaurants:Company
                owned
            
            
            -
            
            
            1
            
            
            12
            
            
            12Managed
                and/or licensed
            
            
            -
            
            
            -
            
            
            8
            
            
            8Grill
                on the Alley restaurants:Company
                owned
            
            
            -
            
            
            -
            
            
            4
            
            
            4Other
                restaurantsManaged
                and/or licensed
            
            
            -
            
            
            -
            
            
            -
            
            
            -Total
            
            
            -
            
            
            1
            
            
            24
            
            
            24





16




Three
                Months EndedMarch
                26, 2006
            
            March
                27, 2005Weighted
                  average weekly sales per  company owned
                  restaurant:Daily
                Grill
            
            $
            65,795
            
            $
            61,850Grill
                on the Alley
            
            
            92,255
            
            
            81,714Change
                in comparable restaurants (1)Daily
                Grill
            
            
            3.9
            %
            
            (1.0
            )%Grill
                on the Alley
            
            
            12.9
            %
            
            6.0
            %Total
                sales:Daily
                Grill
            
            $
            10,264,000
            
            $
            9,138,000Grill
                on the Alley
            
            
            4,798,000
            
            
            4,249,000Total
                consolidated sales
            
            $
            15,062,000
            
            $
            13,387,000




(1)
            When
                computing comparable restaurant sales, restaurants open for at least
                12
                months are compared from period to
                period.





We
      also
      earn management and license fee revenue based on a percentage of gross sales
      at
      restaurants under management and licensing arrangements. Our management and
      license fee revenue typically is earned at a rate of five to eight percent
      of
      reported sales at these restaurants. In addition to the base fee we also earn
      incentive fees based on net income which is reported as management and license
      fee revenue. The gross sales of managed and licensed restaurants are not
      included in our statements of operations. However, we consider the disclosure
      of
      these gross sales to be a key indicator of brand strength and important to
      understanding how changes in sales at the managed and licensed restaurants
      impact our revenue.





Sales
      at
      non-Company owned Grill Concepts-branded restaurants, categorized as, managed
      and licensed restaurants were as follows:





2006
            
            2005SalesManaged
                Daily Grills
            
            $
            5,299,000
            
            $
            4,601,000Licensed
                Daily Grills
            
            
            1,697,000
            
            
            1,809,000$
            6,996,000
            
            $
            6,410,000Management
                and license fees
            
            $
            420,000
            
            $
            356,000Percent
                of gross sales
            
            
            6.0
            %
            
            5.6
            %





17





**Material
      Changes in Results of Operations for the Three Months Ended March 26, 2006
      as
      Compared to the Three Months Ended March 27, 2005**





*Revenues* .
      Total
      revenues for the 2006 quarter increased 12.1% to $19.3 million from $17.2
      million in the 2005 period. Sales revenues increased 12.5% to $15.1 million
      in
      2006 from $13.4 million in 2005. Management and license fee revenues increased
      18.0% to $420,000 in 2006 from $356,000 in 2005.





Sales
      for
      Daily Grill restaurants increased by 12.3% from $9.1 million in the 2005 quarter
      to $10.3 million in the 2006 period. The increase in sales revenues for the
      Daily Grill restaurants from 2005 to 2006 was primarily attributable to the
      Santa Monica Daily Grill ($0.7 million) which opened in March 2005 and Downtown
      Daily Grill ($0.9 million) which opened in May 2005 and an increase in same
      store sales of 3.9% ($0.3 million) for restaurants open for 12 months in both
      years, partially off-set by the closure of the La Cienega Daily Grill ($0.7
      million) in July 2005. Weighted average weekly sales at the Daily Grill
      restaurants increased 6.4% from $61,850 in 2005 to $65,795 in 2006 driven by
      new
      menu pricing put in place in November 2005, higher average checks at new
      restaurants and increased guest counts.





Sales
      for
      Grill restaurants increased by 12.9% from $4.2 million in the 2005 quarter
      to
      $4.8 million in 2006. The increase in sales revenues for the Grill restaurants
      from 2005 to 2006 was attributable to a 10.5% increase in guest count combined
      with a small increase in average check. Weighted average weekly sales at the
      Grill restaurants increased 12.9% from $81,714 in 2005 to $92,255 in 2006.





Management
      and license fee revenues during the 2006 quarter were attributable to (1) hotel
      restaurant management services which accounted for $369,000 of management fees
      and (2) licensing fees from the LAX Daily Grill, and Skokie, Illinois Daily
      Grill which totaled $51,000. The increase in management fees during 2006 was
      attributable to sales increases of 11% to 36% at the Houston Daly Grill, San
      Francisco Daily Grill, Long Beach Daily Grill and Burbank Daily
      Grill.





*Operating
      Expenses and Operating Results.* Total
      operating expenses, including cost of sales, restaurant operating expenses,
      reimbursable costs, general and administrative expense, depreciation and
      amortization, and pre-opening costs, increased 13.3% to $18.7 million in the
      2006 quarter (representing 96.9% of revenues) from $16.5 million in 2005
      (representing 95.9% of revenues).





*Cost
      of Sales* .
      While
      sales revenues increased by 12.5% ($1.7 million) in the 2006 quarter as compared
      to 2005, cost of sales increased by 11.7% ($0.4 million) and decreased as a
      percentage of sales from 27.9% in 2005 to 27.7% in 2006. The decrease in cost
      of
      sales was attributable to improved purchasing and menu
      modifications.





*Restaurant
      Operating Expenses.* Restaurant
      operating expenses increased 16.1% to $8.9 million in the 2006 quarter from
      $7.7
      million in 2005. As a percentage of sales, restaurant operating expenses
      represented 59.4% in 2006 compared to 57.5% in 2005. The dollar increase in
      restaurant operating expenses was primarily attributable to the opening of
      Santa
      Monica ($352,000) and Downtown ($524,000), increased payroll and related
      benefits ($469,000), variable expenses ($204,000) and occupancy costs ($78,000)
      at comparable restaurants partially offset by the closure of La Cienega
      ($489,000). The increase in operating expenses as a percentage of revenues
      resulted from a 1.4% increase in payroll and related benefits along with a
      0.7%
      increase in variable costs as a percentage of revenues.




18




*Reimbursed
      Costs.* Reimbursed
      costs increased 10.1% from $3.5 million in 2005 to $3.8 million in 2006. These
      expenses represent the operating costs for which we are the primary obligor
      of
      the restaurants we do not consolidate. The increase is primarily due to the
      increased restaurant operating expenses ($275,000) and cost of sales ($92,000).





*General
      and Administrative.* General
      and administrative expenses increased 18.6% to $1.2 million in the 2006 quarter
      compared to $1.0 million in 2005. General and administrative expenses
      represented 6.4% of revenues in 2006 as compared to 6.1% of revenues in 2005.
      The increase in general and administrative expense was attributable to payroll
      and related benefits ($71,000), one-time system implementation fees ($72,000),
      stock option compensation expense ($38,000) and travel ($22,000).





*Depreciation
      and Amortization.* Depreciation
      and amortization expense increased 15.2% for the 2006 quarter representing
      2.8%
      of revenues in 2006 and 2.7% of revenues in 2005 primarily due to the addition
      of the Santa Monica and Downtown Daily Grills.





*Pre-opening
      Costs* .
      Pre-opening costs totaled $91,000 in the 2005 period with nothing in 2006.
      These
      pre-opening costs were attributable to the opening in January 2005 of the Santa
      Monica Daily Grill.





*Interest
      Expense.* Interest
      expense, net, totaled $21,000 during the 2006 quarter as compared to $37,000
      in
      2005. The decrease in interest expense was primarily attributable to reduction
      in the MAG loan due to repayment and increased interest income.





*Provision
      for income taxes* . The
      2006
      provision for income taxes is comprised of amounts for federal and state taxes
      reduced by the income tax benefit resulting from the recognition of deferred
      tax
      asset that is considered more likely than not to be realized of $0.2 million.
      The provision for income taxes differs from the amount of income tax expense
      that would result from applying the domestic federal statutory tax rates to
      pretax income primarily due to the change in the deferred income tax valuation
      allowance, minority interests’ share of net loss of subsidiaries and the impact
      of state income taxes.




*Minority
      Interest.* We
      reported a minority interest in the profit of our majority owned subsidiaries
      of
      $25,000 during the 2006 quarter as compared to a net loss of $91,000 during
      the
      2005 quarter. The change in minority interest in loss was primarily attributable
      to improved operations at the San Jose Grill, the Downtown Daily Grill and
      CityWalk Daily Grill and having fully utilized our allocation of minority
      interest for the Hollywood Grill.





*Net
      Income* .
      We
      reported net income of $482,000 in the 2006 quarter as compared to a net income
      of $682,000 for 2005.





**Material
      Changes in Financial Condition, Liquidity and Capital
      Resources.**





At
      March
      26, 2006 the Company had negative working capital of $1.1 million and a cash
      balance of $2.2 million compared to negative working capital of $1.3 million
      and
      a cash balance of $3.2 at December 25, 2005.





The
      increase in our cash position reflects the following cash flows:





19




2006
            
            2005Net
                cash provided by (used in) operating activities
            
            $
            (110,000
            )
            $
            1,821,000Net
                cash used in investing activities
            
            
            (574,000
            )
            
            (1,634,000
            )Net
                cash provided by (used in) financing activities
            
            
            (230,000
            )
            
            45,000Net
                increase (decrease) in cash and cashequivalents
            
            $
            (914,000
            )
            $
            232,000





Included
      in cash flows from operating activities were tenant improvement allowances
      of
      $1.6 million in 2005.





The
      positive change in working capital position was principally attributable a
      reduction of accrued expenses and an increase in receivables.





Our
      need
      for capital resources historically has resulted from, and for the foreseeable
      future is expected to relate primarily to, the construction and opening of
      new
      restaurants. Funds necessary to operate restaurants under management agreements
      are usually funded by cash generated by the restaurants. Sales from these
      outlets are deposited into an agency account belonging to the owner and we
      pay
      the outlet operating expenses, including our fee, from this agency account.
      Historically, we have funded our day-to-day operations through operating cash
      flows that have ranged from a $1.8 to $4.6 million over the past three fiscal
      years. Growth has been funded through a combination of bank borrowing, loans
      from stockholders/officers, the sale of debentures and stock, loans and tenant
      allowances from certain of our landlords, and, beginning in 1999, through joint
      venture arrangements.





*Financing
      Facilities.* At March
      26, 2006, the Company had $210,000 owing under our new line of credit (see
      note
      5), $136,000 owing under equipment leasing financing transactions, a loan from
      a
      member of Chicago - The Grill on the Alley, LLC of $0.8 million, loans from
      stockholders-officers of $0.2 million, and loans/advances from a landlord,
      the
      SBA and others of $0.1 million.




*Operating
      Leases and Contractual Obligations.* At March
      26, 2006, we were obligated under eighteen leases covering the premises in
      which
      our Daily Grill and Grill Restaurants are located as well as leases on our
      executive offices. Such restaurant leases and the executive office lease contain
      minimum rent provisions which provide for the payment of minimum aggregate
      rental payments of approximately $30.1 million over the life of those leases,
      with minimum annual rental payments of $3.6 million in 2006, $7.3 million
      between 2007 and 2008, $6.1 million between 2009 and 2010, and $13.1 million
      thereafter. There were no material changes in our obligations under operating
      leases or other contracts during the quarter ended March 26, 2006 as compared
      to
      those described in the Company’s Form 10-K for the year ended December 25,
      2005.





*Commitments
      Relating to Managed Restaurants and LLCs.* Under
      certain of our operating and management agreements we have an obligation to
      potentially make additional cash advances and/or contributions and may not
      realize any substantial returns for some time. The agreements and arrangements
      under which we may be required to make cash advances or contributions, guarantee
      obligations or defer receipt of cash are described in the Company’s Form 10-K
      for the year ended December 25, 2005. There were no material developments with
      respect to those agreements and arrangements during the quarter ended March
      26,
      2006.





20





Detailed
      information regarding the initial capital contributions to the LLCs and the
      CityWalk Partnership, Preferred Returns for each, management fees payable to
      the
      Company and principal distribution provisions are included in the Company’s Form
      10-K for the year ended December 25, 2005. The following tables set forth a
      summary for each of the LLCs and the CityWalk Partnership of (1) the
      distributions of capital to the Members and/or the Company during the quarter
      ended March 26, 2006, (2) the unreturned balance of the capital contributions
      of
      the Members and/or the Company at March 26, 2006, and (3) the accrued but unpaid
      preferred returns due to the Members and/or the Company at March 26,
      2006:




**San
                Jose**
            
            **Chicago
                Grill On The Alley**
            
            **The
                Grill On Hollywood LLC**Members
            
            Company
            
            Members
            
            Company
            
            Members
            
            CompanyDistributions
                of profit and note repayments during the quarter ended March 26,
                2006:
            
            $
            89,000
            
            $
            88,000
            
            $
            42,000
            (a)
            
            -
            
            
            -
            
            
            -Unreturned
                Initial Capital Contributions at March 26, 2006:
            
            
            -
            
            
            -
            
            $
            874,000
            
            
            -
            
            $
            1,200,000
            
            $
            250,000Preferred
                Return rate:
            
            
            10
            %
            
            10
            %
            
            8
            %
            
            
            
            
            12
            %
            
            12
            %Accrued
                but unpaid Preferred Returns at March 26, 2006:
            
            
            -
            
            
            -
            
            
            -
            
            
            
            
            
            (b)
            
            
            (b)




**South
                Bay Daily Grill**
              **(Continental
                Park LLC)**
            
            **Universal
                Citywalk Daily Grill**
            
            **Downtown
                Daily Grill**
              **(612
                Flower Daily Grill, LLC)**Members
            
            Company
            
            Members
            
            Company
            
            Members
            
            Company
              (d)Distributions
                of profit during the quarter ended March 26, 2006:
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Unreturned
                Initial and Additional Capital Contributions at March 26,
                2006:
            
            $
            1,100,000
            
            $
            450,000
            
            $
            1,396,106
            
            $
            296,106
            
            $
            1,375,000
            
            $
            275,000Preferred
                Return rate:
            
            
            10
            %
            
            10
            %(c)
            
            -
            
            
            -
            
            
            9
            %
            
            9
            %Accrued
                but unpaid Preferred Returns at March 26, 2006
            
            
            (b)
            
            
            (b)
            
            
            (b)
            
            
            -
            
            $
            102,103
            
            $
            25,029





21





a)
            Distribution
                of capital and note repayments as of March 26, 2006 includes $30,000
                of
                capital and note repayments and $12,000 of interest and preferred
                return.


b)
            Due
                to the poor performance of the restaurant the preferred return is
                not
                being accrued. The Company is not liable to pay the preferred return
                distributions, such that they represent a non-recourse obligation
                of the
                subsidiary entity. If preferred returns were accrued for The Grill
                on
                Hollywood the Member would have an accrued preferred return of $815,000
                and the Company would have an accrued preferred return of $170,000.
                If
                preferred returns were accrued for the South Bay Daily Grill the
                Member
                would have an accrued preferred return of $377,000 and the Company
                would
                have a preferred return of $145,000. If preferred returns were accrued
                for
                the CityWalk Partnership the Member would have an accrued preferred
                return
                of $569,000.


(c)
            The Company’s preferred return with respect to the South
              Bay Daily Grill is based on unrecovered capital contribution and accrued
              but unpaid management fees.


(d)
            The
              Company is a non-managing member and a wholly owned subsidiary of the
              Company is the Manager of this
              restaurant.





**Critical
      Accounting Policies**





The
      Company's discussion and analysis of its financial condition and results of
      operations are based upon the Company's financial statements, which have been
      prepared in accordance with accounting principles generally accepted in the
      United States of America. The Company believes certain critical accounting
      policies affect its more significant judgments and estimates used in the
      preparation of its financial statements. A description of the Company’s critical
      accounting policies is set forth in the Company’s Form 10-K for the year ended
      December 25, 2005.




With
        the
        adoption for stock-based compensation in accordance with the provisions of
        SFAS 123R at
        the
        beginning  of  fiscal  2006,  we  added  a  new  critical  accounting  policy  to  the  previous  disclosure
        included in Item 7 Management's Discussion and Analy sis
        of
        Financial Condition and  Results  of  Operations"
        of our Annual Report on Form 10-K for the fiscal year  ended  December
        25, 2005,
  **Stock-Based
        Compensation.** We
        account for stock-based compensation in accordance
        with the provisions of SFAS 123R. We use the Black-Scholes option-pricing model which
        requires the input of highly subjective assumptions. These assumptions include
        estimating the estimated volatility of the Company's common stock price over
        the
        vesting term and the number options that will ultimately not complete their
        vesting requirements ("forfeitures"). Changes in the subjective assumptions
        can
        materially affect the estimated fair value of stock-based compensation and
        consequently, the related amount recognized on the consolidated statements
        of
        operations. See Note 2 of the Notes to the Consolidated Financial Statements
        in
        this Form 10-Q for further discussion of stock-based compensation.
  There
        have been  no  material  changes  to  the  other  critical  accounting  policies  previously  reported  in  our  Annual  Report  on  Form  10-K  for  the  fiscal  year  ended  December  25,  2005.


**Certain
      Factors Affecting Future Operating Results**





In
      addition to the opening of new restaurants during 2006 and the various factors
      described in the Company's Annual Report on Form 10-K for the year ended
      December 25, 2005, the following developments may impact future operating
      results and financial condition.





On
      April
      4, 2006 the Company signed a management agreement for a hotel-based Daily Grill
      to open at the Westin Memphis Beale Street in Memphis, Tennessee. The restaurant
      owner will pay all construction and pre-opening costs. The Company will receive
      a management fee with an annual guaranteed minimum fee. The restaurant is
      scheduled to open in the spring of 2007.





There
      can
      be no assurance that the Company will be successful in opening new restaurants
      in accordance with its anticipated opening schedule; that sufficient capital
      resources will be available to fund scheduled restaurant openings and start-up
      costs; that new restaurants can be operated profitably; that hotel restaurant
      management services will produce satisfactory cash flow and operating results
      to
      support such operations; or that additional hotels will elect to retain the
      Company's hotel restaurant management services.





22





**Item
      3. Quantitative and Qualitative Disclosures about Market
      Risk**





The
      Company is exposed to market risk from changes in interest rates on funded
      debt.
      This exposure relates to our credit line facility. There were $210,000
      borrowings outstanding under the Credit Line Facility at March 26, 2006.
      Borrowings under the Credit Facility bear interest at the LIBOR rate plus a
      margin ranging from 5.5% to 6.25%. A hypothetical 1% interest rate change would
      not have a material impact on the Company's results of operations.





**Item
      4. Evaluation of Disclosure Controls and Procedures**




We
      maintain disclosure controls and procedures (as defined in Exchange Act Rule
      13a-15(e) and 15d-15(e)) that are designed to ensure that information required
      to be disclosed in our Exchange Act reports is recorded, processed, summarized
      and reported within the time periods specified in the Securities and Exchange
      Commission's rules and forms, and that such information is accumulated and
      communicated to our management, including our Chief Executive Officer and Chief
      Financial Officer, as appropriate, to allow timely decisions regarding the
      required disclosure.




In
      designing and evaluating the disclosure controls and procedures, management
      recognizes that any controls and procedures, no matter how well designed and
      operated, can provide only reasonable assurance of achieving the desired control
      objectives, and management necessarily is required to apply its judgment in
      evaluating the cost-benefit relationship of possible controls and
      procedures.




An
      evaluation as of the end of the period covered by this report was carried out
      under the supervision and with the participation of our management, including
      our principal executive officer and principal financial officer, of the
      effectiveness of our disclosure controls and procedures, as such term is defined
      under Rule 13a-15(e) and Rule 15d -15(e) promulgated under the Securities
      Exchange Act of 1934, as amended (the "Exchange Act"). Based
      on
      their evaluation, our certifying officers concluded that these disclosure
      controls and procedures are effective in providing reasonable assurance that
      the
      information required to be disclosed by us in our periodic reports filed with
      the Securities and Exchange Commission (“SEC”) is recorded, processed,
      summarized and reported within the time periods specified by the SEC’s rules and
      SEC reports.





There
      have been no changes in our internal control over financial reporting that
      occurred during the period covered by this report that have materially affected,
      or are reasonably likely to materially affect, our internal control over
      financial reporting.





**PART
      II - OTHER INFORMATION**





**Item
      6. Exhibits**




31.1
            Section
                302 Certification of CEO


31.2
            Section
                302 Certification of CFO


32.1
            Certification
                of CEO Pursuant to 18.U.S.C. Section 1350, as Adopted Pursuant to
                Section
                906 of the Sarbanes-Oxley Act of
                2002.


32.2
            Certification
                of CFO Pursuant to 18.U.S.C. Section 1350, as Adopted Pursuant to
                Section
                906 of the Sarbanes-Oxley Act of
                2002.




23




SIGNATURES





In
      accordance with the requirements of the Exchange Act, the registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly
      authorized.




GRILL CONCEPTS, INC.Dated: May 8, 2006
            By:
            /s/ Robert
              SpivakRobert
              SpivakPresident
              and
              Chief Executive Officer




By:
            /s/ Philip
              GayPhilip
              GayPrincipal
              Accounting Officer





24