**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, DC 20549-1004**

** **

**FORM 10-Q**

** **

**x    QUARTERLY REPORTPURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly periodended January 25, 2007**

** **

**OR**

** **

**o    TRANSITION REPORTPURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the transition period from                to                    .**

** **

**Commission file number 333-117263**

** **

**VICORP RESTAURANTS, INC.**

(Exact name of registrant as specified in its charter)

 

| **COLORADO**                                                    |   | **84-0511072**                        |
|-----------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of incorporation or organization) |   | (I.R.S. Employer  Identification No.) |
|                                                            |   |                                  |
| **400  WEST 48****TH AVENUE, DENVER, COLORADO**            |   | **80216**                             |
| (Address of  principal executive offices)                       |   | (Zip Code)                            |
|                                                            |   |                                  |
| **(303)  296-2121**                                             |
| (Registrant’s  telephone number, including area code)      |
|                                                            |
| **None**                                                        |
| Securities  registered pursuant to Section 12(b) of the Act:    |
| ** **                                                      |   |                                  |
| **None**                                                        |
| Securities  registered pursuant to Section 12(g) of the Act:    |

 
| Indicate by check mark if  the registrant is a well-known seasoned issuer, as defined in Rule 405 of the  Securities Act.   YES    o    NO    x                                                                                                                                                                     |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                            |
| Indicate by check mark  if the registrant is not required to file reports pursuant to Section 13 or  Section 15(d) of the Exchange Act.    YES    x    NO    o                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                                            |
| Indicate by check mark  whether the registrant (1) has filed all reports required to be filed by  Section 13 or 15(d) of the Securities Exchange Act of 1934 during the  preceding 12 months and (2) has been subject to such filing requirements for  the past 90 days.    YES    x    NO    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 the  registrant’s knowledge, in definitive proxy or information statements  incorporated by reference in Part III of the Form 10-K or any amendment to  this form 10-K:    x    |
|                                                                                                                                                                                                                                                                                                                                                                            |
| 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.                                                                                                                                 |
| Large accelerated filer    o                                                                                                                                                                                                                                                                                                                                |   | Accelerated filer    o |   | Non-accelerated filer    x |
|                                                                                                                                                                                                                                                                                                                                                                            |   |   |   |   |
| Indicate by check mark  whether the registrant is a shell Company (as defined in Rule 12b-2 of the  Exchange Act).   YES    o    NO    x                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                                                                                            |
| Number of shares of  Common Stock, $.0001 par value, outstanding at January 25, 2007: 1,361,753,  excluding treasury shares.                                                                                                                                                                                                                                                    |

 

 

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**VICORPRESTAURANTS, INC.**

**January25, 2007**

**INDEX**

 

 
| ** **                               | ** ** | **PAGE NO.**                                                                                                     |
|------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------|
| **PART I — FINANCIAL  INFORMATION** |       |                                                                                                             |
|                                     |       |                                                                                                             |   |   |
| Item 1.                                  |       | Unaudited  Consolidated Financial Statements                                                                     |   |   |
|                                     |       |                                                                                                             |   |   |
|                                     |       | Consolidated  Balance Sheets as of January 25, 2007 and November 2, 2006                                         |   | 3 |
|                                     |       |                                                                                                             |   |   |
|                                     |       | Consolidated Statements of Operations for the quarter  ended January 25, 2007 and quarter ended January 26, 2006 |   | 4 |
|                                     |       |                                                                                                             |   |   |
|                                     |       | Consolidated Statements of Cash Flows for the quarter  ended January 25, 2007 and quarter ended January 26, 2006 |   | 5 |
|                                     |       |                                                                                                             |   |   |
|                                     |       | Notes to Consolidated Financial Statements                                                                       |   | 6 |
|                                     |       |                                                                                                             |   |   |
| Item 2.                                  |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                      |   | 12 |
|                                     |       |                                                                                                             |   |   |
| Item 3.                                  |       | Quantitative  and Qualitative Disclosures About Market Risk                                                      |   | 20 |
|                                     |       |                                                                                                             |   |   |
| Item 4.                                  |       | Controls and  Procedures                                                                                         |   | 21 |
|                                     |       |                                                                                                             |   |   |
| **PART  II — OTHER INFORMATION**    |       |                                                                                                             |
| ** **                               |       | ** **                                                                                                       |   |   |
| Item 1.                                  |       | Legal  Proceedings                                                                                               |   | 21 |
|                                     |       |                                                                                                             |   |   |
| Item 1a.                                 |       | Risk  Factors                                                                                                    |   | 21 |
|                                     |       |                                                                                                             |   |   |
| Item 2.                                  |       | Unregistered  Sales of Equity Securities and Use of Proceeds                                                     |   | 21 |
|                                     |       |                                                                                                             |   |   |
| Item 3.                                  |       | Defaults Upon  Senior Securities                                                                                 |   | 21 |
|                                     |       |                                                                                                             |   |   |
| Item 4.                                  |       | Submission of  Matters to a Vote of Security Holders                                                             |   | 21 |
|                                     |       |                                                                                                             |   |   |
| Item 5.                                  |       | Other  Information                                                                                               |   | 21 |
|                                     |       |                                                                                                             |   |   |
| Item 6.                                  |       | Exhibits                                                                                                         |   | 22 |
|                                     |       |                                                                                                             |   |   |
| **SIGNATURES**                           |
|                                          |            |                                                                                                                  |  |  |  |  |  |

 

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**PART I —FINANCIAL STATEMENTS**

**Item1.  UNAUDITED CONSOLIDATED FINANCIALSTATEMENTS**

 

**VI Acquisition Corp.**

**Consolidated Balance Sheets**

**(Unaudited)**
| **(In Thousands, Except Share Data)**                                                                                                                                                                   | ** ** | **January 25,  2007** | ** ** | **November 2,  2006** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| **Assets**                                                                                                                                                                                                                  |       |                       |       |                       |       |
| Current assets:                                                                                                                                                                                                             |       |                       |       |                       |       |
| Cash and cash  equivalents                                                                                                                                                                                                  |       | $                          | 1,887      |                       | $          | 1,938 |   |
| Receivables, net                                                                                                                                                                                                            |       | 7,982                      |       | 12,497                     |       |
| Inventories                                                                                                                                                                                                                 |       | 12,250                     |       | 16,459                     |       |
| Deferred income  taxes, short-term                                                                                                                                                                                          |       | 2,360                      |       | 2,387                      |       |
| Prepaid expenses  and other current assets                                                                                                                                                                                  |       | 3,884                      |       | 4,476                      |       |
| Prepaid rent                                                                                                                                                                                                                |       | 529                        |       | 2,459                      |       |
| Income tax  receivable                                                                                                                                                                                                      |       | 1,072                      |       | 1,180                      |       |
| Total current  assets                                                                                                                                                                                                       |       | 29,964                     |       | 41,396                     |       |
| Property and equipment,  net                                                                                                                                                                                                |       | 90,598                     |       | 94,234                     |       |
| Assets under deemed  landlord financing liability, net                                                                                                                                                                      |       | 99,408                     |       | 99,884                     |       |
| Goodwill                                                                                                                                                                                                                    |       | 91,881                     |       | 91,881                     |       |
| Trademarks and tradenames                                                                                                                                                                                                   |       | 42,600                     |       | 42,600                     |       |
| Franchise rights, net                                                                                                                                                                                                       |       | 9,911                      |       | 10,071                     |       |
| Deferred income taxes                                                                                                                                                                                                       |       | 2,650                      |       | 2,623                      |       |
| Other assets, net                                                                                                                                                                                                           |       | 12,027                     |       | 12,553                     |       |
| Total assets                                                                                                                                                                                                                |       | $                          | 379,039    |                       | $          | 395,242 |   |
|                                                                                                                                                                                                                        |       |                       |       |                       |       |
| **Liabilities and stockholders’  equity**                                                                                                                                                                              | ** ** | ** **                 | ** ** | ** **                 | ** ** |
| Current liabilities:                                                                                                                                                                                                        |       |                       |       |                       |       |
| Current  maturities of long-term debt and capitalized lease obligations                                                                                                                                                     |       | $                          | 624        |                       | $          | 847 |   |
| Unpresented  checks                                                                                                                                                                                                         |       | 5,047                      |       | 7,363                      |       |
| Accounts payable                                                                                                                                                                                                            |       | 13,708                     |       | 15,931                     |       |
| Accrued  compensation                                                                                                                                                                                                       |       | 8,198                      |       | 8,170                      |       |
| Accrued taxes                                                                                                                                                                                                               |       | 7,538                      |       | 7,049                      |       |
| Build-to-suit  liability                                                                                                                                                                                                    |       | 191                        |       | 2,549                      |       |
| Other accrued  expenses                                                                                                                                                                                                     |       | 15,700                     |       | 12,175                     |       |
| Total current  liabilities                                                                                                                                                                                                  |       | 51,006                     |       | 54,084                     |       |
| Long-term debt, net of  current maturities                                                                                                                                                                                  |       | 140,606                    |       | 153,181                    |       |
| Capitalized lease  obligations, net of current maturities                                                                                                                                                                   |       | 128                        |       | 140                        |       |
| Deemed landlord  financing liability                                                                                                                                                                                        |       | 108,332                    |       | 108,033                    |       |
| Other non-current  liabilities                                                                                                                                                                                              |       | 15,640                     |       | 15,402                     |       |
| Total  liabilities                                                                                                                                                                                                          |       | 315,712                    |       | 330,840                    |       |
| Commitments and  contingencies (Note 5)                                                                                                                                                                                     |       |                       |       |                       |       |
| Stock subject to  repurchase                                                                                                                                                                                                |       | 1,055                      |       | 1,055                      |       |
| Stockholders’ equity:                                                                                                                                                                                                  |       |                       |       |                       |       |
| Series A  Preferred Stock, $0.0001 par value:                                                                                                                                                                          |       |                       |       |                       |       |
| Series A,  100,000 shares authorized, 68,943 shares issued and outstanding at January  25, 2007 and November 2, 2006, respectively (aggregate  liquidation preference of $100,367 and $97,971, respectively) |       | 100,897                    |       | 98,501                     |       |
| Unclassified  preferred stock, 100,000 shares authorized, no shares issued or outstanding                                                                                                                                   |       | —                     |       | —                     |       |
| Common stock  $0.0001 par value:                                                                                                                                                                                            |       |                       |       |                       |       |
| Class A,  2,800,000 shares authorized, 1,361,753 shares issued and outstanding at  January  25, 2007 and November 2, 2006, respectively                                                                      |       | —                     |       | —                     |       |
| Paid-in capital                                                                                                                                                                                                             |       | 2,446                      |       | 2,446                      |       |
| Treasury stock,  at cost, 1,371.87 shares of preferred stock and 140,490 shares of common  stock at January 25, 2007 and November 2, 2006, respectively                                                      |       | (1,057                     | )          | (1,057                     | )          |
| Accumulated  deficit                                                                                                                                                                                                        |       | (40,014                    | )          | (36,543                    | )          |
| Total  stockholders’ equity                                                                                                                                                                                            |       | 62,272                     |       | 63,347                     |       |
| Total liabilities and  stockholders’ equity                                                                                                                                                                            |       | $                          | 379,039    |                       | $          | 395,242 |   |

 

*See accompanying notes to consolidated financial statements.*

3

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**VI Acquisition Corp.**

**Consolidated Statements of Operations**

**(In Thousands)**

**(Unaudited)**

 
| ** **                                    | ** ** | **For the fiscal   quarter ended** | ** ** |
|-----------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                    | ** ** | **January 25,**                                   | ** ** | **January 26,** | ** ** |
| ** **                                    | ** ** | **2007**                                               | ** ** | **2006** | ** ** |
| **Revenues:**                                 |       |                                                   |       |   |   |
| Restaurant operations                         |       | $                                                      | 105,614    |   | $ | 104,126 |   |
| Franchise operations                          |       | 1,165                                                  |       | 1,166 |   |
| Manufacturing operations                      |       | 12,478                                                 |       | 6,840 |   |
| Total revenues                                |       | 119,257                                                |       | 112,132 |   |
| ** **                                    |       |                                                   |       |   |   |
| **Costs  and expenses:**                      |       |                                                   |       |   |   |
| Restaurant costs:                             |       |                                                   |       |   |   |
| Food                                          |       | 28,721                                                 |       | 28,160 |   |
| Labor                                         |       | 34,442                                                 |       | 32,941 |   |
| Other operating expenses                      |       | 31,168                                                 |       | 30,117 |   |
| Franchise operating expenses                  |       | 468                                                    |       | 483 |   |
| Manufacturing operating expenses              |       | 12,565                                                 |       | 6,877 |   |
| General and administrative expenses           |       | 6,611                                                  |       | 6,442 |   |
| Management fees — related party          |       | 196                                                    |       | 196 |   |
| Loss on disposition of assets                 |       | 11                                                     |       | 10 |   |
| Asset impairments                             |       | —                                                 |       | 308 |   |
| Operating profit                              |       | 5,075                                                  |       | 6,598 |   |
| Interest expense                              |       | (6,588                                                 | )          | (6,939 | ) |
| Other income,  net                            |       | 438                                                    |       | 171 |   |
| Loss before  income taxes                     |       | (1,075                                                 | )          | (170 | ) |
| Income tax  benefit                           |       | —                                                 |       | (235 | ) |
| Net (loss)  income                            |       | (1,075                                                 | )          | 65 |   |
| Preferred stock  dividends and accretion      |       | (2,396                                                 | )          | (2,185 | ) |
| Net loss attributable  to common stockholders |       | $                                                      | (3,471     | ) | $ | (2,120 | ) |

 

*Seeaccompanying notes to consolidated financial statements.*

4

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**VIAcquisition Corp.**

**Consolidated Statements of Cash Flow**

**(InThousands)**

**(Unaudited)**

 
| ** **                                                                                      | ** ** | **For the fiscal   quarter ended** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                                                                      | ** ** | **January 25,**                                   | ** ** | **January 26,** | ** ** |
| ** **                                                                                      | ** ** | **2007**                                               | ** ** | **2006** | ** ** |
| **Operating  activities:**                                                                      |       |                                                   |       |   |   |
| Net (loss)  income                                                                              |       | $                                                      | (1,075     | ) | $ | 65 |   |
| Reconciliation  to net cash provided by operating activities:                                   |       |                                                   |       |   |   |
| Depreciation and amortization                                                                   |       | 4,693                                                  |       | 5,143 |   |
| Asset impairments                                                                               |       | —                                                 |       | 308 |   |
| Amortization of financing costs and original issue  discounts                                   |       | 289                                                    |       | 287 |   |
| Loss on disposition of assets                                                                   |       | 11                                                     |       | 10 |   |
| Deferred income tax expense                                                                     |       | —                                                 |       | 2,917 |   |
| Amortization of deferred gain                                                                   |       | (12                                                    | )          | — |   |
| Accretion of interest on deemed landlord financing  obligations                                 |       | 39                                                     |       | 126 |   |
| Changes in operating assets and liabilities:                                                    |       |                                                   |       |   |   |
| Receivables, net                                                                                |       | 4,131                                                  |       | 3,528 |   |
| Inventories                                                                                     |       | 4,209                                                  |       | 1,727 |   |
| Unpresented checks                                                                              |       | (2,316                                                 | )          | (6,341 | ) |
| Accounts payable, trade                                                                         |       | (2,223                                                 | )          | (1,051 | ) |
| Accrued compensation                                                                            |       | 27                                                     |       | (262 | ) |
| Other current assets and liabilities                                                            |       | 6,535                                                  |       | 5,466 |   |
| Other non-current assets and liabilities                                                        |       | 607                                                    |       | 1,096 |   |
| Net cash provided by operating activities                                                       |       | 14,915                                                 |       | 13,019 |   |
|                                                                                            |       |                                                   |       |   |   |
| **Investing  activities:**                                                                      |       |                                                   |       |   |   |
| Acquisition of  franchisee restaurants                                                          |       | —                                                 |       | (650 | ) |
| Purchase of  property and equipment                                                             |       | (2,730                                                 | )          | (3,965 | ) |
| Purchase of  assets under deemed landlord financing liability                                   |       | (235                                                   | )          | (5,239 | ) |
| Purchase of  build-to-suit assets                                                               |       | (156                                                   | )          | — |   |
| Proceeds of  build-to-suit assets                                                               |       | 1,035                                                  |       | — |   |
| Net cash used in investing activities                                                           |       | (2,086                                                 | )          | (9,854 | ) |
| **Financing  activities:**                                                                      |       |                                                   |       |   |   |
| Payments of  debt, capital lease obligations, and deemed landlord financing obligations         |       | (34,095                                                | )          | (13,014 | ) |
| Proceeds from  issuance of debt                                                                 |       | 21,185                                                 |       | 6,275 |   |
| Proceeds from  deemed landlord financing                                                        |       | 30                                                     |       | 4,071 |   |
| Payments for  repurchase of stock                                                               |       | —                                                 |       | (745 | ) |
| Net cash used in financing activities                                                           |       | (12,880                                                | )          | (3,413 | ) |
| Decrease in cash  and cash equivalents                                                          |       | (51                                                    | )          | (248 | ) |
| Cash and cash  equivalents at beginning of period                                               |       | 1,938                                                  |       | 2,099 |   |
| Cash and cash  equivalents at end of period                                                     |       | $                                                      | 1,887      |   | $ | 1,851 |   |
|                                                                                            |       |                                                   |       |   |   |
| **Supplemental  disclosures of cash flow information:**                                         |       |                                                   |       |   |   |
| Cash paid during  the period for:                                                               |       |                                                   |       |   |   |
| Interest on long-term debt and deemed landlord  financing liability (net of amount capitalized) |       | $                                                      | 3,518      |   | $ | 3,772 |   |
| Income taxes                                                                                    |       | 3                                                      |       | 74 |   |
|                                                                                            |       |                                                   |       |   |   |
| **Supplemental  disclosures of non-cash investing and financing activities:**                   |       |                                                   |       |   |   |
| Deemed landlord / Build-to-suit reimbursements not  yet received                                |       | $                                                      | 3,302      |   | $ | 4,609 |   |
| Deemed landlord / Build-to-suit financing—third  party direct pays                         |       | 983                                                    |       | 872 |   |
|                                                                                            |       |                                                   |       |   |   |
| Dividends                                                                                       |       | $                                                      | 2,396      |   | $ | 2,185 |   |

 

*Seeaccompanying notes to consolidated financial statements.*

 

5

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**VI Acquisition Corp.**

**Notes toConsolidated Financial Statements**

**January 25, 2007**

**(Unaudited)**

** **

**1.   Description of the Business and Basis ofPresentation**

**Descriptionof Business**

VI AcquisitionCorp. (the “Company” or “VI Acquisition”), a Delaware corporation, wasorganized in June 2003 by Wind Point Partners and other co-investors.  VICORP Restaurants, Inc. (“VICORP”) iswholly-owned by VI Acquisition Corp.  Asa holding company, VI Acquisition Corp. does not have any independentoperations and consequently its consolidated statements of operations aresubstantially equivalent to those of VICORP Restaurants, Inc.

The Companyoperates family style restaurants under the brand names “Bakers Square” and “VillageInn,” and franchises restaurants under the Village Inn brand name.  At January 25, 2007, the Company operated 314Company-owned restaurants in 16 states. Of the Company-owned restaurants, 148 are Bakers Square restaurants and166 are Village Inn restaurants, with an additional 95 franchised Village Innrestaurants in 18 states.  TheCompany-owned and franchised restaurants are concentrated in Arizona,California, Florida, the Rocky Mountain region, and the upper Midwest. Inaddition, the Company operates three pie manufacturing facilities located inSanta Fe Springs, California; Oak Forest, Illinois; and Chaska, Minnesota.

**Basis ofPresentation**

The accompanyingunaudited consolidated financial statements have been prepared in accordancewith generally accepted accounting principles (“GAAP”) in the United States ofAmerica for interim financial information and with the instructions to Form10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotesrequired by GAAP for complete financial statements.  In the opinion of management, the financialstatements include all adjustments, consisting of normal recurring adjustments,necessary for a fair presentation. However, operating results for the quarter ended January 25, 2007 arenot necessarily indicative of the results that may be expected for the fiscalyear ending November 1, 2007. Additionally, operating results for the first quarter of the fiscal yearinclude increased sales due to the holidays in November and December.  The consolidated balance sheet at November 2,2006, has been derived from the audited consolidated financial statements atthat date, but does not include all of the information and footnotes requiredby GAAP for complete financial statements. For further information, refer to the audited consolidated financialstatements and footnotes thereto for the year ended November 2, 2006, includedon Form 10-K.

**FiscalPeriods**

TheCompany utilizes a fiscal year based on thirteen periods whereby the last dayof the fiscal year is the nearest Thursday to October 31st.  Each period consists of four weeks, beginningon the first Friday following fiscal year end. Each quarter consists of three periods each, with the fourth quarter havingfour periods.  The first quarter offiscal 2007 and 2006 ended on January 25, 2007 and January 26, 2006,respectively.

**Stock-BasedCompensation**

Priorto November 3, 2006, the Company accounted for share-based payments toemployees in accordance with the recognition and measurement provisions ofAccounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees*,”* (“APB No. 25”) and relatedinterpretations, as permitted by Statement of Financial Accounting Standards (“SFAS”)No. 123, “Accounting forStock-Based Compensation”.  UnderAPB No. 25, compensation expense related to stock options is calculated as thedifference between the exercise price of the option and the fair market valueof the underlying stock at the date of grant. This expense was recognized over the vesting period of the option or atthe time of grant if the options immediately vested.  Simultaneous with the closing of the Company’ssale transaction in June 2003, all options became immediately vested.

EffectiveNovember 3, 2006, the Company adopted the provisions of  SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123(R)”),using the modified prospective method, requiring all share-based payments toemployees, including grants of employee stock options, to be recognized in theincome statement based on their fair values. For 

6

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purposesof SFAS 123(R), the Company is considered a non-public filer because it is anentity that has only debt securities trading in a public market and as such,the adoption date was for the first fiscal year beginning after December 15,2005. As there have been no grants of share-based payments since the adoptionof SFAS 123(R) and there was no unamortized compensation expense at the date ofadoption, there is no effect on the consolidated financial statements for thefiscal quarter ended January 25, 2007.

**NewAccounting Pronouncements**

In June2006, the Financial Accounting Standards Board (“FASB”) issued InterpretationNo. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASBStatement No. 109,” (“FIN 48”) which clarifies the accounting for uncertaintyin income taxes recognized in an enterprise’s financial statements inaccordance with FASB Statement No. 109, “Accounting for Income Taxes.” FIN 48prescribes a recognition threshold and measurement attribute for the financialstatement recognition and measurement of a tax position taken or expected to betaken in a tax return. The guidance set forth under FIN 48 must be applied tofinancial reports covering the first fiscal year beginning afterDecember 15, 2006, therefore the Company will adopt this guidance infiscal 2008.  The Company is currentlyassessing financial impact to the consolidated financial statements uponadoption.

InSeptember 2006, the Securities and Exchange Commission issued Staff AccountingBulletin (“SAB”) No. 108, “Consideringthe Effects of Prior Year Misstatements When Quantifying Misstatements inCurrent Year Financial Statements*”*(“SAB 108”).  SAB 108 provides guidanceon the consideration of the effects of prior year misstatements in quantifyingcurrent year misstatements for the purpose of a materiality assessment.  The Company assesses the materiality ofunrecorded misstatements under the roll over method.  The guidance set forth under SAB 108 must beapplied to financial reports covering the first fiscal year ending afterNovember 15, 2006, therefore the Company will adopt this guidance in thefourth quarter of fiscal 2007. The Company is currently assessing financialimpact to the consolidated financial statements upon adoption.

On September 18, 2006,the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No. 157”), whichdefines fair value, establishes a framework for measuring fair value inaccordance with GAAP and expands disclosures about fair valuemeasurements.  SFAS No. 157 is effectivefor fiscal years beginning after November 15, 2007.  The Company does not believe such adoptionwill have a material impact on our consolidated financial statements.

In June2006, the FASB ratified the consensus on Emerging Issues Task Force IssueNo. 06-3 (“EITF No. 06-3”), “How Taxes Collected from Customers andRemitted to Governmental Authorities Should Be Presented in the IncomeStatement”.  The scope of EITF No. 06-3 includes any tax assessed bya governmental authority that is directly imposed on a revenue-producingtransaction between a seller and a customer and may include, but is not limitedto, sales, use, value added and some excise taxes.  The Task Forceaffirmed its conclusion that entities should present these taxes in the incomestatement on either a gross or a net basis based on their accounting policy,which should be disclosed pursuant to Accounting Principles Board OpinionNo. 22, “Disclosure of Accounting Policies.”  If such taxes aresignificant and are presented on a gross basis, the amounts of those taxesshould be disclosed.  The consensus on EITF No. 06-3 will beeffective for interim and annual reporting periods beginning afterDecember 15, 2006; therefore, the Company will adopt this guidance in thesecond quarter of fiscal 2007.  As it is the accounting policy of theCompany to present such taxes on the income statement on a net basis, suchadoption is not expected to affect current disclosures.

**Reclassifications**

Certain priorperiod amounts in the accompanying consolidated financial statements have beenreclassified to conform to the presentation in fiscal 2007.  These reclassifications had no effect on theCompany’s consolidated net loss.

7

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**2.   Inventories**

Inventoriesare stated at the lower of cost (which is determined using standard cost whichapproximates a first-in, first-out basis) or market and consist of food, paperproducts and supplies.  Inventoriesconsisted of the following:

|                                                                              | ** ** | **January 25,** | ** ** | **November 2,** | ** ** |
|------------------------------------------------------------------------------|------------|----------------------|------------|----------------------|------------|
| **(in thousands)**                                                      | ** ** | **2007**             | ** ** | **2006**             | ** ** |
| Inventories at pie  production facilities and third-party storage locations: |       |                 |       |                 |       |
| Raw materials                                                                |       | $                    | 5,366      |                 | $          | 6,453 |   |
| Finished goods                                                               |       | 3,477                |       | 6,940                |       |
|                                                                         |       | 8,843                |       | 13,393               |       |
|                                                                         |       |                 |       |                 |       |
| Restaurant  inventories                                                      |       | 3,407                |       | 3,066                |       |
| Total inventories                                                            |       | $                    | 12,250     |                 | $          | 16,459 |   |

 

**3.  Receivables, net**

Receivables, net consisted of the following:

| (in thousands)              | ** ** | **January 25, 2007** | ** ** | **November 2, 2006** | ** ** |
|----------------------------------|------------|--------------------------------|------------|--------------------------------|------------|
|                             | ** ** | ** **                     | ** ** | ** **                     | ** ** |
| Trade  receivables               |       | $                              | 4,023      |                           | $          | 8,249 |   |
| Construction  receivables        |       | 3,302                          |       | 3,797                          |       |
| Other  receivables               |       | 803                            |       | 591                            |       |
| Allowance for  doubtful accounts |       | (146                           | )          | (140                           | )          |
| Receivables, net                 |       | $                              | 7,982      |                           | $          | 12,497 |   |

 

**4.   Debt**

On April 14, 2004,we completed a private placement of $126.5 million aggregate principal amountof 101⁄2% senior unsecured notes maturing on April 15, 2011.  The notes were issued at a discounted priceof 98.791% of face value, resulting in net proceeds before transaction expensesof $125.0 million.  The senior unsecurednotes were issued by VICORP Restaurants, Inc. and are guaranteed by VIAcquisition Corp.  Concurrently with theissuance of the 101⁄2% senior unsecured notes, we entered into an amended andrestated senior secured credit facility consisting of a $15.0 million term loanand a $30.0 million revolving credit facility, with a $15.0 million sub-limitfor letters of credit.

On January 25, 2007, wehad issued letters of credit aggregating $7.4 million and had no borrowingsoutstanding under the senior secured revolving credit facility.  The senior secured revolving credit facilitypermits borrowings equal to the lesser of (a) $30.0 million and (b) 1.2 timestrailing twelve months Adjusted EBITDA (as defined in the senior secured creditagreement) minus the principal amount of the senior secured term loan.  Under this formula, as of January 25, 2007,we had the ability to borrow the full $30 million, less the amount ofoutstanding letters of credit, under the senior secured revolving creditfacility, or $22.6 million.   The seniorsecured credit facility requires the Company to maintain or comply with aminimum Adjusted EBITDA, a minimum Fixed Charge Coverage ratio, and a maximumGrowth Capital Expenditures limitation. As of January 25, 2007, we were in compliance with these requirements.

On February 16, 2007 weentered into an amendment to the senior secured credit facility which providedfor an increase in the revolving credit facility to $35.0 million, and changedthe borrowing base governing the revolving credit facility to be the lesser of(a) $35.0 million and (b) 1.8 times trailing twelve months Adjusted EBITDAminus the outstanding principal amount of the senior secured term loan.  In addition, the definition of AdjustedEBITDA and certain of the financial covenants governing the senior securedcredit facility were amended, and the interest rate margins associated withboth base rate and LIBOR borrowings were reduced.

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**5.   Commitments and Contingencies**

**Insurance reserves**

The Company retains a significant portion of certaininsurable risks primarily in the medical, dental, workers’ compensation,general liability and property areas. The Company had an insurance reserveliability of $8.8 million and $8.9 million recorded as of January 25, 2007 andNovember 2, 2006, respectively. Traditional insurance coverage is obtained for catastrophic losses.  Provisions for losses expected under theseprograms are recorded based upon the Company’s estimates of liabilities forclaims incurred, including those not yet reported.  Such estimates utilize prior company historyand actuarial assumptions followed in the insurance industry.  As of January 25, 2007, the Company hadplaced letters of credit totaling approximately $7.4 million, associated withits insurance programs.

**Litigation contingencies**

From time-to-time,the Company has been involved in various lawsuits and claims arising from theconduct of its business. Such lawsuits typically involve claims from customersand others related to operational issues and complaints and allegations fromformer and current employees. These matters are believed to be common forrestaurant businesses. Additionally, the Company has been party to variousassessments of taxes, penalties and interest from federal and stateagencies.  Management believes theultimate disposition of these matters will not have a material adverse effecton the Company’s consolidated financial position or results of operations.

The Company is currentlya defendant in two purported class action claims in California.  The first purported class action was broughtin March 2006 by two former managers and alleges that we violated Californialaw with regard to unpaid overtime, compensation for missed meals and restperiods, civil penalties for failure to provide itemized wage statements,failure to provide notice on paychecks where paychecks may be cashed withoutany fees, and unfair business practices. The classes and subclasses alleged in the action have not been certifiedby the court at the current stage of the litigation but generally are claimedto be persons who have been employed since February 1, 2005, in the position ofrestaurant managers, persons who have been employed in California since March15, 2002, in any capacity who received a payroll check in California, and allrestaurant managers who  have ended theiremployment with the Company prior to the effective date of any settlement,judgment, or other resolution of the action. No dollar amount in damages is requested in the Complaint and theComplaint seeks statutory damages, and attorneys’ fees in an unspecifiedamount.  The Company intends tovigorously defend this action.

The second purportedclass action was brought in April 2006 by a former employee and alleges theCompany violated California laws with regard to failure to pay vested vacationpay and unfair business practices.  The classalleged is any person who has been employed by us in California at any timefrom four years prior to the filing of the class action to date of trial.  In the fourth quarter of fiscal 2006, theCompany accrued $600,000 as the estimated cost of settling this action.  During the first quarter of 2007, the Companyagreed in principle to settle this matter for the $600,000 previously accruedfor.

**Guarantees and commitments**

VICORP guaranteed certain leases for restaurantproperties sold in 1986 and restaurant leases of certain franchisees. Minimumfuture rental payments remaining under these leases were approximately $1.9million as of January 25, 2007.  TheCompany has not made any payments due to default under these agreements, andmanagement believes the guarantee has no fair value.  Management believes the ultimate dispositionof these matters will not have a material adverse effect on the Company’sconsolidated financial position or results of operations.

Contractual obligations, primarily for restaurantsunder construction, amounted to approximately $5.1 million as of January 25,2007.

**Indemnifications**

In the normal course of business, the Company is partyto a variety of agreements under which it may be obligated to indemnify theother party for certain matters. These obligations typically arise in contractswhere the Company customarily agrees to hold the other party harmless againstlosses arising from a breach of representations or covenants for certainmatters such as title to assets. The Company also has indemnification obligationsto its officers and directors. The duration of these indemnifications varies,and in certain cases, is indefinite. In each of these circumstances, payment by

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the Company depends upon the other party making anadverse claim according to the procedures outlined in the particular agreement,which procedures generally allow the Company to challenge the other party’sclaims. In certain instances, the Company may have recourse against thirdparties for payments that we make.

The Company is unable to reasonably estimate themaximum potential amount of future payments under these or similar agreementsdue to the unique facts and circumstances of each agreement and the fact thatcertain indemnifications provide for no limitation to the maximum potential futurepayments under the indemnification. The Company has not recorded any liabilityfor these indemnifications in the accompanying consolidated balance sheets;however, the Company does accrue losses for any known contingent liability,including those that may arise from indemnification provisions, when theobligation is both probable and reasonably estimable.

**6.   Asset Impairments, Asset Disposalsand Related Costs**

Managementassesses various factors relevant to the assets, including projected cash flowsand the historical performance trends at the operating locations. If animpairment charge is deemed appropriate the carrying value of the assets arereduced to fair market value if the carrying costs exceed the estimated fairmarket value.  During the quarter endedJanuary 25, 2007, there was not an impairment charge. During the quarter endedJanuary 26, 2006, the Company recorded a $0.3 million pretax impairment chargerelated to the write-down of assets for 5 restaurant locations.

As of January 25,2007 and November 2, 2006, the Company had recorded a reserve forclosed/subleased restaurant locations of approximately $0.6 million and $0.6million, respectively, primarily representing estimated future minimum leasepayments related to the restaurant facilities, net of expected sublease income.Of the five restaurant locations to which this reserve relates, four of suchlocations were subleased as of January 25, 2007.

**7.   DeemedLandlord Financing Liability**

For many of ourbuild-to-suit projects, we are considered the owner of the project during theconstruction period in accordance with Emerging Issues Task Force (“EITF”)Issue No. 97-10, “The Effect of Lessee Involvement in Asset Construction (“EITF97-10”),” because we are deemed to have substantially all of the constructionperiod risk.  At the end of these construction projects, a sale-leasebackcould be deemed to occur in certain situations and the seller-lessee wouldrecord the sale, remove all property and related liabilities from its balance sheetand recognize gain or loss from the sale, which is generally deferred andamortized as an adjustment to rent expense over the term of the lease. However, many of our real estate transactions and build-to-suit projects havenot qualified for sale-leaseback accounting because of our deemed continuinginvolvement with the buyer-lessor, which results in the transaction beingrecorded under the financing method.  Under the financing method, theassets remain on the consolidated balance sheet and are depreciated over theiruseful life, and the proceeds from the transaction are recorded as a financingliability.  A portion of lease payments are applied as payments of deemedprincipal and imputed interest.  Of thefive restaurants opened during the first quarter of 2007, three qualified forsale-leaseback accounting under SFAS No. 98, “Accounting for Leases”, one unitis accounted for under the financing method and one unit was not subject toEITF 97-10, which is considered a regular operating lease.

**8.****              Acquisitions**

The Company purchased the assets of four restaurantsduring the first quarter of fiscal 2006 from a franchisee in Oklahoma for $0.7million.  The Company purchased oneadditional restaurant from the same franchisee during the second quarter offiscal 2006.

**9.****              StockRepurchase**

In January 2006, the Company agreed to repurchaseshares of our common stock and preferred stock that had been previouslyacquired by former officers.  Theaggregate purchase price paid to the former officers was approximately $0.7million.

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**10.****       Income Taxes**

| (in thousands)                | ** ** | **January 25, 2007** | ** ** | **November 2, 2006** | ** ** |
|------------------------------------|------------|--------------------------------|------------|--------------------------------|------------|
|                               |       |                           |       |                           |       |
| Deferred income  taxes, short-term |       | $                              | 2,360      |                           | $          | 2,387 |   |
| Deferred income  taxes, long-term  |       | 2,650                          |       | 2,623                          |       |
| Total deferred  income taxes       |       | $                              | 5,010      |                           | $          | 5,010 |   |

 

During the first quarterof fiscal 2007, the Company recorded a valuation allowance of $0.6 million forFICA tip credits and net operating loss carry forwards for which it is morelikely than not that a tax benefit will not be realized.  The valuation allowance has been determinedbased on reversals of our existing deferred tax items and our estimates offuture taxable income by each jurisdiction in which we operate as a result ofavailable tax planning strategies.  Inthe event that actual results differ from these estimates, we are unable toimplement certain tax planning strategies or we adjust these estimates infuture periods, we may need to establish an additional valuation allowancewhich could have a material negative impact on our results of operations orfinancial position.

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**Item 2.  MANAGEMENT’S DISCUSSIONAND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OPERATIONS**

*Statementsincluded in Management’s Discussion and Analysis of Financial Condition andResults of Operations and elsewhere in this report are, or may be deemed to be,“forward-looking statements” within the meaning of Section 27A of theSecurities Act and Section 21E of the Securities Exchange Act of 1934, asamended (the “Exchange Act”).  Theseforward-looking statements include all matters that are not historicalfacts.  By their nature, forward-lookingstatements involve risks and uncertainties because they relate to events anddepend on circumstances that may or may not occur in the future.  We caution you that forward-looking statementsare not guarantees of future performance and that our actual results ofoperations, financial condition and liquidity, and the development of theindustry in which we operate may differ materially from those made in orsuggested by the forward-looking statements contained in this informationreport.  See the “Risk Factors” sectionof our Annual Report on Form 10-K for the year ended November 2, 2006, for adiscussion of some of the factors that may affect the Company and itsoperations.  Such factors include thefollowing: competitive pressures within the restaurant industry; changes inconsumer preferences; the level of success of our operating strategy and growthinitiatives; the level of our indebtedness and the terms and availability ofcapital; fluctuations in commodity prices; changes in economic conditions;government regulation; litigation; and seasonality and weather conditions.  In addition, even if our results ofoperations, financial condition and liquidity, and the development of the industryin which we operate are consistent with the forward-looking statementscontained in this announcement, those results or developments may not beindicative of results or developments in subsequent periods.  Any forward-looking statements which we makein this report speak only as of the date of such statement, and we undertake noobligation to update such statements. Comparisons of results for current and any prior periods are notintended to express any future trends or indications of future performance andshould only be viewed as historical data.*

 

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**CompanyProfile and Management Overview**

*Thefollowing discussion contains forward-looking statements that involve numerousrisks and uncertainties. Our actual results could differ materially from thosediscussed in the forward-looking statements as a result of these risks anduncertainties, including those set forth on our Form 10-K under “Forward-lookingstatements” and under “Risk factors.” You should read the following discussionin conjunction with “Item 6. Selected financial data” and our audited consolidatedfinancial statements and notes appearing elsewhere on our Form 10-K.*

**CompanyProfile**

We operate family-diningrestaurants under two well-recognized brands, Village Inn and Bakers Square. Asof January 25, 2007, our company, which was founded in 1958, had 409restaurants in 25 states, consisting of 314 company-operated restaurants and 95franchised restaurants.  We also producepremium pies at three strategically located facilities that we serve in ourrestaurants or sell to third parties.

Our Village Innrestaurants are known for serving fresh breakfast items throughout the day, andwe have leveraged our breakfast heritage to include traditional American fareat lunch and dinner. Our Bakers Square restaurants have built upon thereputation of our signature pies to offer quality meals at breakfast, lunch anddinner. Our broad offering of affordable menu items is designed to appeal to ademographically diverse customer base, including families, senior citizens andother value-oriented diners.

The followingtable sets forth the changes to the number of Company-operated and franchisedrestaurants for the periods presented below.

 

| (Units)                                      | ** ** | **January 25,  2007** | ** ** | **January 26,  2006** | ** ** |
|----------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| Village Inn  Company-operated restaurants:   |       |                       |       |                       |       |
| Beginning of  period                         |       | 161                        |       | 135                        |       |
| Openings/Purchases                           |       | 5                          |       | 10                         |       |
| Closings                                     |       | —                     |       | (1                         | )          |
| End of period                                |       | 166                        |       | 144                        |       |
|                                         |       |                       |       |                       |       |
| Bakers Square  Company-operated restaurants: |       |                       |       |                       |       |
| Beginning of  period                         |       | 148                        |       | 152                        |       |
| Openings                                     |       | —                     |       | —                     |       |
| Closings                                     |       | —                     |       | (1                         | )          |
| End of period                                |       | 148                        |       | 151                        |       |
|                                         |       |                       |       |                       |       |
| Total  Company-operated restaurants          |       | 314                        |       | 295                        |       |
|                                         |       |                       |       |                       |       |
| Village Inn franchised  restaurants:         |       |                       |       |                       |       |
| Beginning of  period                         |       | 95                         |       | 100                        |       |
| Closings/Sales                               |       | —                     |       | (4                         | )          |
| End of period                                |       | 95                         |       | 96                         |       |
|                                         |       |                       |       |                       |       |
| Total restaurants                            |       | 409                        |       | 391                        |       |

 

Our restaurant revenuesare affected by restaurant openings and closings and same unit salesperformance. Same unit sales is a measure of the percentage increase ordecrease of the sales of units open at least 18 months relative to the sameperiod in the prior year. Restaurants opened for less than 18 months areexcluded in order to allow a new restaurant’s operations and sales time tostabilize and provide more meaningful results. Same unit sales is an important indicator within the restaurant industrybecause small changes in same unit sales can have a proportionally higherimpact on operating margins because of the high degree of fixed costsassociated with operating restaurants.

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Financial Summary for the First Fiscal Quarter of 2007

Significantfinancial and other measures for the first quarter of 2007 from the firstquarter of 2006 include:

·                  Combined samestore sales declined 4.0% compared to the prior year.  Village Inn same store sales declined 3.5%and Bakers Square same store sales declined 4.4% compared to the prior year.

·                  There are 18 newrestaurants, net of closures, opened or acquired since the end of the firstquarter of 2006.

·                  Revenues in thefirst quarter of fiscal 2007 increased by 6.4% to $119.3 million

·                  Operating incomedecreased from $6.6 million to $5.1 million

·                  Net income alsodeclined from $0.1 million in the first quarter of fiscal 2006 to a net loss of$1.1 million in the first quarter of fiscal 2007.

**CriticalAccounting Policies and Estimates**

The Company’scritical accounting policies have not changed from those reported in Management’sDiscussion and Analysis of Financial Condition and Results of Operations in theCompany’s Form 10-K for the fiscal year-ended November 2, 2006.

**NewAccounting Pronouncements**

In June2006, the Financial Accounting Standards Board (“FASB”) issued InterpretationNo. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASBStatement No. 109,” (“FIN 48”) which clarifies the accounting for uncertaintyin income taxes recognized in an enterprise’s financial statements in accordancewith FASB Statement No. 109, “Accounting for Income Taxes.” FIN 48 prescribes arecognition threshold and measurement attribute for the financial statementrecognition and measurement of a tax position taken or expected to be taken ina tax return. The guidance set forth under FIN 48 must be applied to financialreports covering the first fiscal year beginning after December 15, 2006,therefore the Company will adopt this guidance in fiscal 2008.  We are currently assessing financial impactto the consolidated financial statements upon adoption.

InSeptember 2006, the Securities and Exchange Commission issued Staff AccountingBulletin (“SAB”) No. 108, “Consideringthe Effects of Prior Year Misstatements When Quantifying Misstatements inCurrent Year Financial Statements*”*(“SAB 108”).  SAB 108 provides guidanceon the consideration of the effects of prior year misstatements in quantifyingcurrent year misstatements for the purpose of a materiality assessment.  The Company assesses the materiality of unrecordedmisstatements under the roll over method. The guidance set forth under SAB 108 must be applied to financialreports covering the first fiscal year ending after November 15, 2006,therefore the Company will adopt  thisguidance in the fourth quarter of fiscal 2007. We are currently assessingfinancial impact to the consolidated financial statements upon adoption.

On September 18, 2006,the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No. 157”), whichdefines fair value, establishes a framework for measuring fair value inaccordance with GAAP and expands disclosures about fair valuemeasurements.  SFAS No. 157 is effectivefor fiscal years beginning after November 15, 2007.  We do not believe such adoption will have amaterial impact on our consolidated financial statements.

In June 2006, theFASB ratified the consensus on Emerging Issues Task Force Issue No. 06-3 (“EITFNo. 06-3”), “How Taxes Collected from Customers and Remitted to GovernmentalAuthorities Should Be Presented in the Income Statement”.  The scope ofEITF No. 06-3 includes any tax assessed by a governmental authority thatis directly imposed on a revenue-producing transaction between a seller and acustomer and may include, but is not limited to, sales, use, value added and someexcise taxes.  The Task Force affirmed its conclusion that entities shouldpresent these taxes in the income statement on either a gross or a net basisbased on their accounting policy, which should be disclosed pursuant toAccounting Principles Board Opinion No. 22, “Disclosure of AccountingPolicies.”  If such taxes are significant and are presented on a grossbasis, the amounts of those taxes should be disclosed.  The consensus onEITF No. 06-3 will be effective for interim and annual reporting periodsbeginning after December 15, 2006; therefore, the Company will adopt thisguidance in the second quarter of fiscal 2007.  As it is the accountingpolicy of the Company to present such taxes on the income statement on a netbasis, such adoption is not expected to affect current disclosures.

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**FactorsAffecting Comparability**

Our fiscal year iscomprised of 52 or 53 weeks divided into four fiscal quarters of 12 or 13, 12,12, and 16 weeks.  The first quarter offiscal 2007 and 2006 each consisted of 12 weeks, or 84 days and fiscal 2007 and2006 consist of 52 weeks or 364 total days.

**Seasonality**

Our salesfluctuate seasonally and as mentioned previously, our quarters do not all havethe same time duration.  Specifically,our fourth quarter generally has an extra three to four weeks compared to ourother quarters of the fiscal year. Historically, our average daily sales are highest in our first quarter(November through January) as a result of holiday pie sales while our fourthquarter (mid-July through October) records our lowest average daily sales.  Therefore, our quarterly results are notnecessarily indicative of results that may be achieved for the full fiscalyear.  Factors influencing relative salesvariability, in addition to those noted above, include the frequency andpopularity of advertising and promotions, the relative sales level of new andclosed locations, holidays and weather.

**Resultsof Consolidated Operations(Unaudited)**

|                                              | ** ** | **For the fiscal quarter ended** | ** ** |
|----------------------------------------------|------------|------------------------------------------------------|------------|
| **(in thousands)**                      | ** ** | **January 25,  2007**                           | ** ** | **January 26,  2006** | ** ** |
|                                         |       |                                                 |       |   |   |
| Revenues:                                    |       |                                                 |       |   |   |
| Restaurant  operations                       |       | $                                                    | 105,614    |   | $ | 104,126 |   |
| Franchise  operations                        |       | 1,165                                                |       | 1,166 |   |
| Manufacturing  operations                    |       | 12,478                                               |       | 6,840 |   |
| Total revenues                               |       | 119,257                                              |       | 112,132 |   |
| Costs and expenses:                          |       |                                                 |       |   |   |
| Restaurant  costs:                           |       |                                                 |       |   |   |
| Food                                         |       | 28,721                                               |       | 28,160 |   |
| Labor                                        |       | 34,442                                               |       | 32,941 |   |
| Other operating  expenses                    |       | 31,168                                               |       | 30,117 |   |
| Franchise  operating expenses                |       | 468                                                  |       | 483 |   |
| Manufacturing  operating expenses            |       | 12,565                                               |       | 6,877 |   |
| General and  administrative expenses         |       | 6,611                                                |       | 6,442 |   |
| Management fees                              |       | 196                                                  |       | 196 |   |
| Loss on  disposition of assets               |       | 11                                                   |       | 10 |   |
| Asset  impairments                           |       | —                                               |       | 308 |   |
| Total costs and  expenses                    |       | 114,182                                              |       | 105,534 |   |
| Operating profit                             |       | 5,075                                                |       | 6,598 |   |
| Interest expense                             |       | (6,588                                               | )          | (6,939 | ) |
| Other income, net                            |       | 438                                                  |       | 171 |   |
| Income before income taxes                   |       | (1,075                                               | )          | (170 | ) |
| Income tax benefit                           |       | —                                               |       | (235 | ) |
| Net (loss) income                            |       | (1,075                                               | )          | 65 |   |
| Preferred stock  dividends and accretion     |       | (2,396                                               | )          | (2,185 | ) |
| Net loss attributable to common stockholders |       | $                                                    | (3,471     | ) | $ | (2,120 | ) |

 

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The following tablepresents each revenue stream as a percentage of total revenue, cost andexpenses as a percentage of each respective revenue stream and general andadministrative expenses and operating profit as a percentage of total revenues.

 

|                                      | ** ** | **For the fiscal quarter ended** | ** ** |
|--------------------------------------|------------|------------------------------------------------------|------------|
| ** **                           | ** ** | **January 25,  2007**                           | ** ** | **January 26,  2006** | ** ** |
|                                 |       |                                                 |       |   |   |
| Revenues:                            |       |                                                 |       |   |   |
| Restaurant  operations               |       | 88.6                                                 | %          | 92.9 | % |
| Franchise  operations                |       | 1.0                                                  |       | 1.0 |   |
| Manufacturing  operations            |       | 10.4                                                 |       | 6.1 |   |
| Total revenues                       |       | 100.0                                                |       | 100.0 |   |
| Costs and expenses:                  |       |                                                 |       |   |   |
| Restaurant costs:                    |       |                                                 |       |   |   |
| Food(1)                              |       | 27.2                                                 |       | 27.0 |   |
| Labor(1)                             |       | 32.6                                                 |       | 31.6 |   |
| Other operating  expenses(1)         |       | 29.5                                                 |       | 28.9 |   |
| Franchise  operating expenses(2)     |       | 40.2                                                 |       | 41.4 |   |
| Manufacturing  operating expenses(3) |       | 100.7                                                |       | 100.5 |   |
| General and  administrative expenses |       | 5.5                                                  |       | 5.7 |   |
| Operating profit                     |       | 4.3                                                  | %          | 5.9 | % |

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(1)    Restaurant costspercentages are based on restaurant operations revenues.

(2)    Franchise operating expensepercentage is based on franchise operations revenues.

(3)    Manufacturing operatingexpense percentage is based on manufacturing operations revenues.

All other cost percentages are based on totalrevenues.

**FirstQuarter of Fiscal 2007 Compared to First Quarter of Fiscal 2006**

***Total revenues*** increased by $7.1million, or 6.4%, to $119.3 million in fiscal 2007’s first quarter, from $112.1million for the same period in fiscal 2006. This increase was primarily due to the increase in third party piesales, which increased $5.6 million or 82.4%, to $12.5 million, which wasprimarily a result of the addition of a large customer at the end of the firstquarter of fiscal 2006.  Overallrestaurant revenues increased from sales at the 18 new restaurants, net ofclosures, opened or acquired since the end of the first quarter of 2006.  Restaurant revenues were negatively impactedby declining same unit sales.  Same unitrestaurant sales for the first quarter of 2007 declined 4.0% versus theprevious year’s first quarter.  Same unitrestaurant sales for Village Inn and Bakers Square decreased 3.5% and 4.4%,respectively.  Average guest spendingdecreased 5.3% at Village Inn and 8.6% at Bakers Square in the first quarter offiscal 2007 compared to the first quarter of fiscal 2006.

***Food costs*** increased by $0.6 million,or 2.0%, to $28.7 million in the first quarter of fiscal 2007, from $28.2 millionfor the first quarter of fiscal 2006. Food costs as a percentage of restaurant revenues increased slightly to27.2% for the first quarter of fiscal 2007 from 27.0% for the first quarter offiscal 2006.

***Labor costs*** increased by $1.5 million,or 4.6%, to $34.4 million in the first quarter of fiscal 2007, from $32.9million for the first quarter of fiscal 2006. Labor costs as a percentage of restaurant revenues increased to 32.6%from 31.6% over these periods.  Therelative increase in labor costs was due to lower operating efficiency,increased average wage due to minimum wage increases, negative leverageassociated with the same store sales declines and labor inefficiencies at thenew restaurants in start up mode.

The federallegislation regarding the proposed increase in the minimum wage rate currentlyis under discussion in both the United States House of Representatives and theUnited States Senate, and if this legislation is adopted we expect that itwould increase labor costs.

***Other operating expenses*** increased by$1.1 million, or 3.5%, to $31.2 million in the first quarter of fiscal 2007from $30.1 million for the first quarter of fiscal 2006. Other operatingexpenses as a percentage of restaurant revenues 

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increased to 29.5%from 28.9% over these periods. This increase was primarily driven by higheroccupancy costs associated with new store growth.

***Manufacturing operating expenses***increased by $5.7 million, or 82.6%, to $12.6 million in the first quarter offiscal 2007 from $6.9 million for the first quarter of fiscal 2006. Thisincrease was primarily due to higher third party pie sales associated with theaddition of the large customer at the end of the first quarter of 2006.Manufacturing operating expenses as a percentage of manufacturing revenuesincreased from 100.5% to 100.7% over these periods.  Both variable and fixed costs are allocatedto external sales. As external sales increase as a percentage of total pieproduction, the allocation method may cause a decrease in the operating profitdue to the higher allocation of fixed costs to the external sales.

***General and administrative expenses***increased $0.2 million, or 2.6%, to $6.6 million for the first quarter offiscal 2007 from $6.4 million for the first quarter of fiscal 2006. The increaseresulted primarily from an increase in the broker fees related to third partypie sales.  The increase was alsoattributed to reduced travel and capitalization of internal architecture andconstruction costs as a result of fewer stores under construction, resulting insuch costs being reflected as period costs. As a percentage of total revenues, general and administrative expenseswere 5.5% in the first quarter of fiscal 2007 and 5.7% in the first quarter offiscal 2006.

***Impairment expense***was******$0.3 million******in the firstquarter of 2006 due to the write down of three restaurant locations.  During the first quarter of fiscal 2007,there was no impairment charge.

***Operating profit***decreased by $1.5 million, or 22.7%, to $5.1 million in the first quarter of fiscal2007, from $6.6 million for the first quarter of fiscal 2006. Operating profitas a percentage of total revenues for the first quarter of fiscal 2007decreased to 4.3% from 5.9% over the first quarter of fiscal 2006.

***Interest expense*** decreased by $0.4 million or 4.5%, to$6.6 million in the first quarter of fiscal 2007 from $6.9 million for thefirst quarter of fiscal 2006.  Thedecrease was due to change in the estimated useful lives of buildings duringthe third quarter of fiscal 2006.  Thischange removed the Company’s ability to control the property through at least90% of its economic life for 26 of our 126 restaurants accounted for using thefinancing method. As a result, the Company recognized the “sale” of these 26units by removing both the assets and financing obligations associated with therestaurants and recording any gain or loss in accordance with SFAS No. 98, “Accountingfor Leases”.  The effect of this changewas a reduction in the Company’s financing obligation of $30.5 million thereforereducing interest expense prospectively.

***Income tax benefit***for the firstquarter of fiscal 2006 was $0.2 million. The effective tax rate was 0.0% for the first quarter of fiscal 2007compared to 138.2% for the first quarter of fiscal 2006.  The provision/benefit differ from ourstatutory rate of approximately 40% due to general business credits that weearn from FICA taxes paid on employee tips, partially offset by nondeductibleamortization related to franchise rights. During the first quarter of fiscal 2007 the Company recorded a valuationallowance of $0.6 million for FICA tip credits and net operating carry forwardsfor which it is more likely than not that a tax benefit will not berealized.  The valuation allowance hasbeen determined based on reversals of our existing deferred tax items and ourestimates of future taxable income by each jurisdiction in which we operate asa result of available tax planning strategies. In the event that actual results differ from these estimates, we areunable to implement certain tax planning strategies or we adjust theseestimates in future periods, we may need to establish an additional valuationallowance which could have a material negative impact on our results ofoperations or financial position.

***Net income***decreased by $1.2 million to a net lossof $1.1 million in the first quarter of fiscal 2007 compared to net income of$0.1 million in the first quarter of fiscal 2006.

***Preferred stock dividends and accretion***increased by $0.2 million to $2.4 million in the first quarter of fiscal 2007from $2.2 million for the first quarter of fiscal 2006 as a result of thecompounding effect of unpaid preferred stock dividends.

**Liquidityand Capital Resources**

***CashRequirements***

Our principalliquidity requirements are to continue to finance our operations, service ourdebt and fund capital expenditures for maintenance and expansion.  Cash flow from operations has historicallybeen sufficient to finance 

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continuingoperations and meet normal debt service requirements.  However, we are highly leveraged and ourability to repay our debt borrowings at maturity is likely to depend in part onour ability to refinance the debt when it matures, which will be contingent onour continued successful operation of the business as well as other factorsbeyond our control, including the debt and capital market conditions at thattime.

Ourcash balance and working capital needs are generally low, as sales are made forcash or through credit cards that are quickly converted to cash, purchases offood and supplies and other operating expenses are generally paid within 30 to60 days after receipt of invoices and labor costs are paid bi-weekly.  The timing of our sales collections andvendor and labor payments are consistent with other companies engaged in therestaurant industry.

For the balance offiscal 2007, we anticipate capital expenditures and net build-to-suitconstruction of approximately $16.5 million, reflecting further acceleration ofour new unit growth.  Of this amount,$3.5 million is expected to be spent on new store construction, $4.6 millionfor remodels and the remainder on capital maintenance and other support relatedprojects.   We currently expect to openan estimated 9 new stores in fiscal 2007, including the five units that weopened in the first quarter.

In connection withour new restaurant development program, we have entered into build-to-suitdevelopment agreements whereby third parties will purchase property, fund thecosts to develop new restaurant properties for us and lease the properties tous upon completion.  Under theseagreements, we generally are responsible for the construction of the restaurantand remitting payments to the contractors on the projects, which are subsequentlyreimbursed by the property owner.  Theseamounts advanced and subsequently reimbursed are not included in theanticipated capital spending totals above. On January 25, 2007, we had outstanding receivables of $3.3 millionrelating to these types of agreements. In certain of these agreements, we are obligated to purchase theproperty in the event that we are unable to complete the construction within aspecified time frame, and are also responsible for cost overruns abovespecified amounts.

***Debtand Other Obligations and Liabilities***

On April 14, 2004,we completed a private placement of $126.5 million aggregate principal amountof 101⁄2% senior unsecured notes maturing on April 15, 2011.  The notes were issued at a discounted priceof 98.791% of face value, resulting in net proceeds before transaction expensesof $125.0 million.  The senior unsecurednotes were issued by VICORP Restaurants, Inc. and are guaranteed by VIAcquisition Corp. Concurrently with the issuance of the 101⁄2% senior unsecurednotes, we entered into an amended and restated senior secured credit facilityconsisting of a $15.0 million term loan and a $30.0 million revolving creditfacility, with a $15.0 million sub-limit for letters of credit.

On January 25, 2007, wehad issued letters of credit aggregating $7.4 million and had no borrowingsoutstanding under the senior secured revolving credit facility.  The senior secured revolving credit facilitypermits borrowings equal to the lesser of (a) $30.0 million and (b) 1.2 timestrailing twelve months Adjusted EBITDA (as defined in the senior secured creditagreement) minus the principal amount of the senior secured term loan.  Under this formula, as of January 25, 2007,we had the ability to borrow the full $30 million, less the amount of outstandingletters of credit, under the senior secured revolving credit facility, or $22.6million.   The senior secured creditfacility requires the Company to maintain or comply with a minimum AdjustedEBITDA, a minimum Fixed Charge Coverage ratio, and a maximum Growth CapitalExpenditures limitation.  As of January25, 2007, we were in compliance with these requirements.

On February 16, 2007 weentered into an amendment to the senior secured credit facility which providedfor an increase in the revolving credit facility to $35.0 million, and changedthe borrowing base governing the revolving credit facility to be the lesser of(a) $35.0 million and (b) 1.8 times trailing twelve months Adjusted EBITDAminus the outstanding principal amount of the senior secured term loan.  In addition, the definition of AdjustedEBITDA and certain of the financial covenants governing the senior securedcredit facility were amended, and the interest rate margins associated withboth base rate and LIBOR borrowings were reduced.

We are the primelessee under various operating leases for land, building and equipment forCompany-operated and franchised restaurants, pie production facilities andlocations subleased to non-affiliated first parties. These leases have initialterms ranging from 15 to 30 years and, in most instances, provide for renewaloptions ranging from five to 20 years. These leases expire at various datesthrough June 2028.

We have guaranteedcertain leases for restaurant properties sold in 1986 and restaurant leases ofcertain franchisees. Estimated minimum future rental payments remaining underthese leases were approximately $1.9 million as of January 25, 2007.

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As of January 25,2007, our commitments with respect to the above obligations were as follows (inmillions):
| ** **                                  | ** ** | **Payments due by periods** | ** ** |
|---------------------------------------------|------------|-----------------------------|------------|
| ** **                                  | ** ** | ** **

**Total**       | ** ** | **Less than  one year** | ** ** | **1-3  years** | ** ** | ** **

**3-5 years** | ** ** | **More than  5 years** | ** ** |
| Senior secured credit  facility             |       | $                           | 15.0       |   | $ | — |   | $ | 15.0 |   | $ | — |   | $ | — |   |
| 10-1/2% senior  unsecured notes             |       | 126.5                       |       | — |   | — |   | 126.5 |   | — |   |
| Total long-term  debt                       |       | 141.5                       |       | — |   | 15.0 |   | 126.5 |   | — |   |
| Capital lease obligations(1)  (2)           |       | 0.2                         |       | 0.1 |   | 0.1 |   | — |   | — |   |
| Operating lease  obligations(2)             |       | 198.1                       |       | 24.9 |   | 46.7 |   | 39.5 |   | 87.0 |   |
| Deemed landlord  financing liability(1) (2) |       | 259.0                       |       | 11.5 |   | 23.4 |   | 24.4 |   | 199.7 |   |
| Other debt(3)                               |       | 0.6                         |       | 0.6 |   | — |   | — |   | — |   |
| Letters of credit(4)                        |       | 7.4                         |       | 7.4 |   | — |   | — |   | — |   |
| Purchase commitments(5)                     |       | 5.1                         |       | 5.1 |   | — |   | — |   | — |   |
| Total                                       |       | $                           | 611.9      |   | $ | 49.6 |   | $ | 85.2 |   | $ | 190.4 |   | $ | 286.7 |   |

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(1)          Amounts payable undercapital leases and the deemed landlord financing liability represent grosslease payments, including both deemed principal and imputed interestcomponents.

(2)          Many of our leases andfinancing obligations contain provisions that require additional rent paymentscontingent on sales performance and the payment of common area maintenancecharges and real estate taxes.  Amountsin this table do not reflect any of these additional amounts.

(3)          Property insurancefinancing for one year.

(4)          We have letters ofcredit outstanding primarily to guarantee performance under insurancecontracts.  The letters of credit areirrevocable and have one-year renewable terms.

(5)          We have commitmentsunder contracts for the purchase of property and equipment.  Portions of such contracts not completed atJanuary 25, 2007 as noted in the table above were not reflected as assets orliabilities in our consolidated financial statements.

**Sourcesand Uses of Cash**

The followingtable presents a summary of our cash flows from operating, investing andfinancing activities for the first quarters of fiscal 2007 and 2006  indicated (in millions):

** **

|                                            | ** ** | **January 25,** | ** ** | **January 26,** | ** ** |
|--------------------------------------------|------------|----------------------|------------|----------------------|------------|
| ** **                                 | ** ** | **2007**             | ** ** | **2006**             | ** ** |
|                                       |       |                 |       |                 |       |
| Net cash provided by  operating activities |       | $                    | 14.9       |                 | $          | 13.0 |   |
| Net cash used in  investing activities     |       | (2.1                 | )          | (9.9                 | )          |
| Net cash used in  financing activities     |       | (12.9                | )          | (3.4                 | )          |
|                                       |       |                 |       |                 |       |
| Net decrease in cash and cash equivalents  |       | $                    | (0.1       | )                    | $          | (0.3 | ) |

 

***OperatingActivities***

For the firstquarter of fiscal 2007, cash flows from operating activities increased $1.9million compared to the first quarter of fiscal 2006.  The increase resulted primarily fromincreased collections on receivables and reduction of inventory levels,partially offset by payments related to new store construction.  Receivable and inventory balances trendhigher during the November and December holiday season.

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***InvestingActivities***

Our capital expenditures,excluding amounts related to assets under financing obligations, for the firstquarters of fiscal 2007 and 2006 were comprised of the following (in millions):

 

|                                              | ** ** | **January 25,  2007** | ** ** | **January 26,  2006** | ** ** |
|----------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
|                                         |       |                       |       |                       |       |
| New store construction                       |       | $                          | 1.1        |                       | $          | 2.1 |   |
| Existing store remodel  and refurbishment    |       | 0.2                        |       | 0.4                        |       |
| Store capital  maintenance                   |       | 0.9                        |       | 1.3                        |       |
| Pie production facility  capital maintenance |       | 0.5                        |       | 0.1                        |       |
| Corporate related                            |       | —                     |       | 0.1                        |       |
| Purchase of property and equipment           |       | $                          | 2.7        |                       | $          | 4.0 |   |

 

In addition to the capital expenditures noted above,we spent $0.2 million for assets under deemed finance liability during thefirst quarter of fiscal 2007 compared to $5.2 million in the first quarter offiscal 2006.  We opened five newrestaurants in the first quarter of fiscal 2007 and opened ten new restaurantsin the first quarter of fiscal 2006, including the four units acquired from afranchisee. However, we also had an additional eight locations underconstruction at the end of the first quarter of fiscal 2007.

***FinancingActivities***

We used cash infinancing activities of $12.9 million during the first quarter of fiscal 2007,consisting principally of the repayment of all $12.9 million of outstandingborrowings under our revolving line of credit at November 2, 2006, partiallyoffset by proceeds from deemed landlord financing transactions.

We used cash infinancing activities of $3.4 million during the first quarter of fiscal 2006,consisting principally of the repayment of all $13.0 million of outstandingborrowings under our revolving line of credit at November 3, 2005 and paymentsfor the repurchase of stock of $0.7 million, partially offset by $4.1 millionof proceeds from deemed landlord financing transactions.

**Cash Management**

We have historically funded the majority of ourcapital expenditures with cash provided by operating activities. We have onoccasion obtained, and may in the future obtain, capitalized lease financingfor certain expenditures related to equipment. Our investment requirements fornew restaurant development include requirements for acquisition of land,building and equipment.  Historically wehave either acquired all of these assets for cash, or purchased building andequipment assets for cash and acquired a leasehold interest in land. We haveentered into sale-leaseback arrangements for many of the land and buildingassets that we have purchased in the past, many of which have been accountedfor as financing transactions. Since the initial net cash investment requiredfor leased units is significantly lower than for owned properties, we intend tofocus on leasing sites for future growth so that we only have to fund theequipment portion of our new restaurant capital costs from our cash flows. Webelieve that this will reduce our upfront cash requirements associated with newrestaurant growth and enable us to increase our return on these investments,although it will result in significant long term obligations under eitheroperating or capital leases.

### **Item 3.  Quantitativeand Qualitative Disclosures About Market Risk**

There have been nomaterial changes from the Annual Report on Form 10-K for the fiscal year endedNovember 2, 2006 related to the Company’s exposure to market risk from interestrates or changes in food commodity prices.

 

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**Item4.  Controls and Procedures**

### **Evaluationof Disclosure Controls and Procedures**

Withinthe 84-day period prior to the filing date of this report, our management,under the supervision of our Chairman of the Board and Chief Financial Officer,carried out an evaluation of the effectiveness of the design and operation ofour disclosure controls and procedures pursuant to Rules 13a-14 and 15d-14under the Securities Exchange Act of 1934 (the “Exchange Act”), as amended.Based upon their evaluation, our Chairman of the Board and Chief FinancialOfficer concluded that our disclosure controls and procedures are effective inalerting them timely to material information required to be included in ourExchange Act filings. There have not been any significant changes in ourinternal controls or in other factors that could significantly affect thesecontrols subsequent to the date of the evaluation.

### **Limitationson the Effectiveness of Controls**

Acontrol system, no matter how well designed and operated, can provide onlyreasonable, not absolute, assurance that the control system’s objectives willbe met. Further, the design of a control system must reflect the fact thatthere are resource constraints, and the benefits of controls must be consideredrelative to their costs. Because of the inherent limitations in all controlsystems, no evaluation of controls can provide absolute assurance that allcontrol issues and instances of fraud, if any, within the Company have beendetected. These inherent limitations include the realities that judgments indecision-making can be faulty, that breakdowns can occur because of simpleerror or mistake, and that controls can be circumvented by the acts ofindividuals or groups. Because of the inherent limitations in a cost-effectivecontrol system, misstatements due to error or fraud may occur and not bedetected.

### **PART II —OTHER INFORMATION**

**Item1.  Legal Proceedings**

From time-to-time,we have been involved in various lawsuits and claims arising from the conductof our business. Such lawsuits typically involve claims from customers andothers related to operational issues and complaints and allegations from formerand current employees. These matters are believed to be common for restaurantbusinesses.  We believe the ultimatedisposition of these matters will not have a material adverse effect on ourconsolidated financial position or results of operations.

**Item1A.  Risk Factors**

There have been nomaterial changes to the risk factors previously disclosed in the Company’sAnnual Report on Form 10-K for the fiscal year ended November 2, 2006.

**Item2.  Unregistered Sales of EquitySecurities and Use of Proceeds**

Notapplicable.

**Item3.  Defaults Upon Senior Securities**

Notapplicable.

**Item4.  Submission of Matters to a Vote ofSecurity Holders**

Notapplicable.

**Item5.  Other Information**

Not applicable

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**Item6.  Exhibits**

**(a)****                                  Exhibits**

31.1                           Certificationby our Chairman of the Board with respect to our Form 10-Q for the quarterlyperiod ended January 25, 2007, pursuant to Rule 13a-14 or 15d-14 of theSecurities Exchange Act of 1934, as adopted pursuant to Section 302 of theSarbanes-Oxley Act of 2002.

31.2                           Certificationby our Chief Financial Officer with respect to our Form 10-Q for the quarterlyperiod ended January 25, 2007, pursuant to Rule 13a-14 or 15d-14 of theSecurities Exchange Act of 1934, as adopted pursuant to Section 302 of theSarbanes-Oxley Act of 2002.

32.1                           Certificationsby our Chairman of the Board and Chief Financial Officer with respect to ourForm 10-Q for the quarterly period ended January 25, 2007, pursuant to Rule13a-14 or 15d-14 of the Securities Exchange Act of 1934 and Title 18 of theUnited States Code Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002.

**(b)****                                  Reportson Form 8-K**

### During the first quarter of fiscal 2007 endedJanuary 25, 2007, we filed the following reports on Form 8-K:

### Current report on Form8-K on January 26, 2007, announcing the fourth quarter and year end results offiscal 2006 ended November 2, 2006.

### Subsequent to the firstquarter of fiscal 2007 ended January 25, 2007, we filed the following reportson Form 8-K:

### Current report on Form8-K on February 22, 2007, announcing second amendment to the Company’s Amended and Restated Loan andSecurity Agreement dated April 14, 2004.

Current report on Form 8-K on March 5, 2007, announcing the resignationof the Chief Executive Officer from the Company and from the Board of Directorsand the appointment of Kenneth Keymer as Chief Executive Officer.

Current report on Form 8-K on March 9, 2007, announcing the financialresults for the first quarter 2007 ended January 25, 2007.

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**SIGNATURES**

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.
|                      |   | VICORP Restaurants, Inc.                                                                            |
|----------------------|--------|-----------------------------------------------------------------------------------------------------|
|                 |   |                                                                                                |
|                 |   |                                                                                                |
| Date: March 9,  2007 |   |                                                                                                |
|                 |   |                                                                                                |
|                 |   | /s/ Anthony Carroll                                                                                 |
|                 |   |          Anthony  Carroll                              |
|                 |   | Chief Financial Officer and Chief Adminstrative  Officer                                            |
|                 |   |          (Principal  Financial and Accounting Officer) |

 

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