**UNITED STATES SECURITIES ANDEXCHANGE COMMISSION**

**Washington,DC 20549-1004**

**FORM 10-Q**

**x****        QUARTERLY REPORT PURSUANTTO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934**

**For thequarterly period ended April 19, 2007**

**OR**

**o****        TRANSITION REPORT PURSUANTTO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934**

**Forthe transition period from                 to                 **

**Commissionfile number 333-117263**

**VICORP RESTAURANTS, INC.**

(Exact name ofregistrant as specified in its charter)

| **COLORADO**                                         |   | **84-0511072**       |
|------------------------------------------------------|--------|----------------------|
| (State or other  jurisdiction of                     |   | (I.R.S. Employer     |
| incorporation or  organization)                      |   | Identification  No.) |
|                                                 |   |                 |
| **400  WEST 48****TH AVENUE, DENVER, COLORADO** |   | **80216**            |
| (Address of  principal executive offices)            |   | Zip Code)            |

 

**(303)296-2121**

(Registrant’stelephone number, including area code)

Securities registeredpursuant to Section 12(b) of the Act:

**None**

Securities registeredpursuant to Section 12(g) of the Act:

**None**

Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Act.                                                                                          YES  o  NO  x

Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13or Section 15(d) of the Exchange Act.                                                                        YES  x  NO  o

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months and (2) has been subject to such filingrequirements for the                                                                          past 90 days.   YES   x  NO   o

Indicate by check mark if disclosure of delinquentfilers, pursuant to Item 405 of Regulation S-K is not contained herein, andwill not be contained, to the best of the registrant’s knowledge, in definitiveproxy or information statements incorporated by                                                                  reference in Part III of the Form 10-K or anyamendment to this form 10-K: x

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer. Seedefinition of “accelerated filer and large accelerated filer” in Rule 12b-2 ofthe Exchange Act.

Large acceleratedfiler o                            Acceleratedfiler  o          Non-acceleratedfiler  x

Indicate by check markwhether the registrant is a shell Company (as defined in Rule 12b-2 of theExchange Act).                                                                                   YES  o                                                             NO  x

Number of shares of Common Stock, $0.0001 par value, outstanding at May31, 2007: 1,361,753, excluding treasury shares.

 

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**VICORPRESTAURANTS, INC.**

**April19, 2007**

**INDEX**
| ** **                          | **Page**  |
|-------------------------------------|-----------|
| **PART I - FINANCIAL  INFORMATION** |      |
|                                |      |   |   |   |
|                                | Item 1.   |   | Unaudited  Consolidated Financial Statements |   |
|                                |      |   |   |   |
|                                |      |   | Consolidated Balance  Sheets as of April 19, 2007 and November 2, 2006 | 3 |
|                                |      |   |   |   |
|                                |      |   | Consolidated  Statements of Operations for the 84 days ended April 19, 2007 and April 20,  2006 and the 168 days ended April 19, 2007 and April 20, 2006 | 4 |
|                                |      |   |   |   |
|                                |      |   | Consolidated  Statements of Cash Flows for the 168 days ended April 19, 2007 and April 20,  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 | 22 |
|                                |      |   |   |   |
|                                | Item 4.   |   | Controls and  Procedures | 22 |
|                                |      |   |   |   |
| **PART II - OTHER  INFORMATION**    |      |
| ** **                          |      |
|                                | Item 1.   |   | Legal Proceedings | 22 |
|                                |      |   |   |   |
|                                | Item  1a. |   | Risk  Factors | 23 |
|                                |      |   |   |   |
|                                | Item 2.   |   | Unregistered  Sales of Equity Securities and Use of Proceeds | 23 |
|                                |      |   |   |   |
|                                | Item 3.   |   | Defaults Upon  Senior Securities | 23 |
|                                |      |   |   |   |
|                                | Item 4.   |   | Submission of  Matters to a Vote of Security Holders | 23 |
|                                |      |   |   |   |
|                                | Item 5.   |   | Other Information | 23 |
|                                |      |   |   |   |
|                                | Item 6.   |   | Exhibits | 23 |
|                                |      |   |   |   |
| **SIGNATURES**                      | 24        |
|                                     |           |  |  |  |  |

 

2

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**PART I – FINANCIAL STATEMENTS**

**Item1.  UNAUDITED CONSOLIDATED FINANCIALSTATEMENTS**

**VI Acquisition Corp.**

**ConsolidatedBalance Sheets**

**(Unaudited)**
| **(in thousands, except share data)**                                                                                                                                                                 | ** ** | **April 19,  2007** | ** ** | **November 2,  2006** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|----------------------------|------------|
| **Assets**                                                                                                                                                                                                                |       |                     |       |                       |       |
| Current assets:                                                                                                                                                                                                           |       |                     |       |                       |       |
| Cash and cash  equivalents                                                                                                                                                                                                |       | $                        | 2,360      |                       | $          | 1,938 |   |
| Receivables, net                                                                                                                                                                                                          |       | 9,505                    |       | 12,497                     |       |
| Inventories                                                                                                                                                                                                               |       | 11,616                   |       | 16,459                     |       |
| Deferred income  taxes, short-term                                                                                                                                                                                        |       | 2,360                    |       | 2,387                      |       |
| Prepaid expenses  and other current assets                                                                                                                                                                                |       | 3,772                    |       | 4,476                      |       |
| Prepaid rent                                                                                                                                                                                                              |       | 1,259                    |       | 2,459                      |       |
| Income tax receivable                                                                                                                                                                                                     |       | 290                      |       | 1,180                      |       |
| Total current  assets                                                                                                                                                                                                     |       | 31,162                   |       | 41,396                     |       |
| Property and equipment,  net                                                                                                                                                                                              |       | 88,049                   |       | 94,234                     |       |
| Assets under deemed  landlord financing liability, net                                                                                                                                                                    |       | 99,511                   |       | 99,884                     |       |
| Goodwill                                                                                                                                                                                                                  |       | 91,881                   |       | 91,881                     |       |
| Trademarks and  tradenames                                                                                                                                                                                                |       | 42,600                   |       | 42,600                     |       |
| Franchise rights, net                                                                                                                                                                                                     |       | 9,751                    |       | 10,071                     |       |
| Deferred income taxes                                                                                                                                                                                                     |       | 2,650                    |       | 2,623                      |       |
| Other non-current  assets, net                                                                                                                                                                                            |       | 11,535                   |       | 12,553                     |       |
| Total assets                                                                                                                                                                                                              |       | $                        | 377,139    |                       | $          | 395,242 |   |
| **Liabilities and stockholders’  equity**                                                                                                                                                                            |       |                     |       |                       |       |
| Current liabilities:                                                                                                                                                                                                      |       |                     |       |                       |       |
| Current  maturities of long-term debt and capitalized lease obligations                                                                                                                                                   |       | $                        | 311        |                       | $          | 847 |   |
| Unpresented  checks                                                                                                                                                                                                       |       | 4,174                    |       | 7,363                      |       |
| Accounts payable                                                                                                                                                                                                          |       | 13,264                   |       | 15,931                     |       |
| Accrued  compensation                                                                                                                                                                                                     |       | 8,346                    |       | 8,170                      |       |
| Accrued taxes                                                                                                                                                                                                             |       | 8,798                    |       | 7,049                      |       |
| Build-to-suit  liability                                                                                                                                                                                                  |       | 500                      |       | 2,549                      |       |
| Other accrued  expenses                                                                                                                                                                                                   |       | 12,820                   |       | 12,175                     |       |
| Total current  liabilities                                                                                                                                                                                                |       | 48,213                   |       | 54,084                     |       |
| Long-term debt, net of  current maturities                                                                                                                                                                                |       | 148,232                  |       | 153,181                    |       |
| Capitalized lease  obligations, net of current maturities                                                                                                                                                                 |       | 239                      |       | 140                        |       |
| Deemed landlord  financing liability                                                                                                                                                                                      |       | 108,565                  |       | 108,033                    |       |
| Other non-current  liabilities                                                                                                                                                                                            |       | 16,005                   |       | 15,402                     |       |
| Total  liabilities                                                                                                                                                                                                        |       | 321,254                  |       | 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 April 19,  2007 and November 2, 2006, respectively (aggregate  liquidation preference of $102,819 and $97,971, respectively) |       | 103,349                  |       | 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 April  19, 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 April 19, 2007 and November 2, 2006, respectively                                                           |       | (1,057                   | )          | (1,057                     | )          |
| Accumulated  deficit                                                                                                                                                                                                      |       | (49,908                  | )          | (36,543                    | )          |
| Total  stockholders’ equity                                                                                                                                                                                          |       | 54,830                   |       | 63,347                     |       |
| Total liabilities and  stockholders’ equity                                                                                                                                                                          |       | $                        | 377,139    |                       | $          | 395,242 |   |

 

*Seeaccompanying notes to consolidated financial statements.*

3

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**VI Acquisition Corp.**

**Consolidated Statements ofOperations**

**(In Thousands)**

**(Unaudited)**
| ** **                                    | ** ** | **For the 84 days ended** | ** ** | **For the 168 days ended** | ** ** |
|-----------------------------------------------|------------|-----------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                    | ** ** | **April 19,**                            | ** ** | **April 20,**                             | ** ** | **April 19,** | ** ** | **April 20,** | ** ** |
| ** **                                    | ** ** | **2007**                                      | ** ** | **2006**                                       | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                          |       |                                          |       |                                           |       |   |   |   |   |
| **Revenues:**                                 | ** ** | ** **                                    | ** ** | ** **                                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Restaurant operations                         |       | $                                             | 99,250     |                                           | $          | 98,116 |   | $ | 204,795 |   | $ | 202,242 |   |
| Franchise operations                          |       | 1,169                                         |       | 1,165                                          |       | 2,335 |   | 2,331 |   |
| Manufacturing operations                      |       | 9,531                                         |       | 6,883                                          |       | 22,009 |   | 13,723 |   |
| Total revenues                                |       | 109,950                                       |       | 106,164                                        |       | 229,139 |   | 218,296 |   |
| ** **                                    | ** ** | ** **                                    | ** ** | ** **                                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Costs  and expenses:**                      | ** ** | ** **                                    | ** ** | ** **                                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Restaurant costs:                             |       |                                          |       |                                           |       |   |   |   |   |
| Food                                          |       | 26,447                                        |       | 24,583                                         |       | 55,168 |   | 52,743 |   |
| Labor                                         |       | 35,019                                        |       | 33,333                                         |       | 69,461 |   | 66,274 |   |
| Other operating expenses                      |       | 29,919                                        |       | 28,503                                         |       | 61,007 |   | 58,620 |   |
| Franchise operating expenses                  |       | 489                                           |       | 503                                            |       | 958 |   | 986 |   |
| Manufacturing operating expenses              |       | 9,350                                         |       | 6,907                                          |       | 21,915 |   | 13,785 |   |
| General and administrative expenses           |       | 7,019                                         |       | 6,664                                          |       | 13,655 |   | 13,099 |   |
| Management fees – related party          |       | 196                                           |       | 196                                            |       | 392 |   | 392 |   |
| Employee severance                            |       | 500                                           |       | —                                         |       | 500 |   | — |   |
| Loss on disposition of assets                 |       | 413                                           |       | 161                                            |       | 409 |   | 177 |   |
| Asset impairments                             |       | 1,555                                         |       | 513                                            |       | 1,555 |   | 821 |   |
| Operating (loss)  profit                      |       | (957                                          | )          | 4,801                                          |       | 4,119 |   | 11,399 |   |
| Interest expense                              |       | (6,578                                        | )          | (7,090                                         | )          | (13,166 | ) | (14,029 | ) |
| Other income,  net                            |       | 92                                            |       | 113                                            |       | 530 |   | 284 |   |
| Loss before  income taxes                     |       | (7,443                                        | )          | (2,176                                         | )          | (8,517 | ) | (2,346 | ) |
| Income tax  benefit                           |       | —                                        |       | (886                                           | )          | — |   | (1,121 | ) |
| Net loss                                      |       | (7,443                                        | )          | (1,290                                         | )          | (8,517 | ) | (1,225 | ) |
| Preferred stock  dividends and accretion      |       | (2,452                                        | )          | (2,242                                         | )          | (4,848 | ) | (4,427 | ) |
| Net loss attributable  to common stockholders |       | $                                             | (9,895     | )                                              | $          | (3,532 | ) | $ | (13,365 | ) | $ | (5,652 | ) |

 

*See accompanying notes toconsolidated financial statements.*

4

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**VI Acquisition Corp.**

**ConsolidatedStatements of Cash Flow**

**(In Thousands)**

**(Unaudited)**
| ** **                                                                                      | ** ** | **For 168 days ended** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                                      | ** ** | **April 19,**                    | ** ** | **April 20,** | ** ** |
| ** **                                                                                      | ** ** | **2007**                              | ** ** | **2006** | ** ** |
| **Operating  activities:**                                                                      | ** ** | ** **                            | ** ** | ** ** | ** ** |
| Net loss                                                                                        |       | $                                     | (8,517     | ) | $ | (1,225 | ) |
| Reconciliation to net cash provided by operating  activities:                                   |       |                                  |       |   |   |
| Depreciation and amortization                                                                   |       | 9,230                                 |       | 10,340 |   |
| Asset impairments                                                                               |       | 1,555                                 |       | 821 |   |
| Amortization of financing costs and original issue  discounts                                   |       | 586                                   |       | 577 |   |
| Loss on disposition of assets                                                                   |       | 409                                   |       | 177 |   |
| Deferred income tax benefit                                                                     |       | —                                |       | 582 |   |
| Amortization of deferred gain/loss                                                              |       | 13                                    |       | — |   |
| Accretion of interest on deemed landlord financing  obligations                                 |       | 154                                   |       | 281 |   |
| Changes in operating assets and liabilities:                                                    |       |                                  |       |   |   |
| Receivables, net                                                                                |       | 3,620                                 |       | 1,151 |   |
| Inventories                                                                                     |       | 4,843                                 |       | 1,452 |   |
| Unpresented checks                                                                              |       | (3,189                                | )          | (3,336 | ) |
| Accounts payable                                                                                |       | (2,667                                | )          | (1,120 | ) |
| Accrued compensation                                                                            |       | 176                                   |       | 371 |   |
| Other current assets and liabilities                                                            |       | 4,296                                 |       | 4,565 |   |
| Other non-current assets and liabilities, net                                                   |       | 1,133                                 |       | 1,353 |   |
| Net cash provided by operating activities                                                       |       | 11,642                                |       | 15,989 |   |
| **Investing  activities:**                                                                      | ** ** | ** **                            | ** ** | ** ** | ** ** |
| Acquisition of  franchisee restaurants                                                          |       | —                                |       | (650 | ) |
| Purchase of  property and equipment                                                             |       | (5,240                                | )          | (11,356 | ) |
| Purchase of  assets under deemed landlord financing liability                                   |       | (1,083                                | )          | (7,310 | ) |
| Purchase of  build-to-suit assets                                                               |       | (640                                  | )          | — |   |
| Proceeds from build-to-suit  reimbursements                                                     |       | 1,528                                 |       | — |   |
| Net cash (used in) investing activities                                                         |       | (5,435                                | )          | (19,316 | ) |
| **Financing  activities:**                                                                      | ** ** | ** **                            | ** ** | ** ** | ** ** |
| Payments of  debt, capital lease obligations, and deemed landlord financing obligations         |       | (59,004                               | )          | (23,143 | ) |
| Proceeds from  issuance of debt                                                                 |       | 53,260                                |       | 22,150 |   |
| Proceeds from  deemed landlord financing                                                        |       | 31                                    |       | 4,920 |   |
| Debt amendment  costs                                                                           |       | (72                                   | )          | — |   |
| Payments for  repurchase of stock                                                               |       | —                                |       | (745 | ) |
| Net cash (used) provided in financing activities                                                |       | (5,785                                | )          | 3,182 |   |
| Increase  (decrease) in cash and cash equivalents                                               |       | 422                                   |       | (145 | ) |
| Cash and cash  equivalents at beginning of period                                               |       | 1,938                                 |       | 2,099 |   |
| Cash and cash equivalents  at end of period                                                     |       | $                                     | 2,360      |   | $ | 1,954 |   |
|                                                                                            |       |                                  |       |   |   |
| **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) |       | $                                     | 13,385     |   | $ | 14,255 |   |
| Income taxes                                                                                    |       | 3                                     |       | 846 |   |
|                                                                                            |       |                                  |       |   |   |
| **Supplemental  disclosures of non-cash investing and financing activities:**                   | ** ** | ** **                            | ** ** | ** ** | ** ** |
| Deemed landlord / build-to-suit reimbursements not  yet received                                |       | $                                     | 3,533      |   | $ | 4,933 |   |
| Deemed landlord / build-to-suit financing—third  party direct pays                         |       | 983                                   |       | 3,892 |   |
| Capital lease – equipment                                                                  |       | 156                                   |       | — |   |
|                                                                                            |       |                                  |       |   |   |
| Preferred stock  dividends and accretion                                                        |       | $                                     | 4,848      |   | $ | 4,427 |   |

 

*See accompanying notes toconsolidated financial statements.*

5

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**VI Acquisition Corp.**

**Notes to Consolidated FinancialStatements**

**April 19, 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 April 19, 2007, the Company operated 316Company-owned restaurants in 17 states. Of the Company-owned restaurants, 147 are Bakers Square restaurants and169 are Village Inn restaurants, with an additional 93 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 April 19, 2007 are not necessarilyindicative of the results that may be expected for the fiscal year endingNovember 1, 2007.  The consolidatedbalance sheet at November 2, 2006, has been derived from the auditedconsolidated financial statements at that date, but does not include all of theinformation and footnotes required by GAAP for complete financialstatements.  For further information,refer to the audited consolidated financial statements and footnotes theretofor the year ended November 2, 2006, included on 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 quarterhaving four periods.  The second quarterof fiscal 2007 and 2006 ended on April 19, 2007 and April 20, 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-BasedPayment” (“SFAS 123(R)”), using the modified prospective method, requiring allshare-based payments to employees, including grants of employee stock options,to be recognized in the income statement based on their fair values.  For purposes of SFAS 123(R), the Company isconsidered a non-public filer because it is an entity that has only debt securitiestrading in a public market and as such, the adoption date was for the firstfiscal year beginning after December 15, 2005. As there have been no grants ofshare-based payments since the adoption of SFAS123(R) and there was nounamortized compensation expense at the date of adoption, there is no effect onthe consolidated financial statements for the 168 days ended April 19, 2007 andApril 20, 2006, respectively.

6

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**NewAccounting Pronouncements**

In June 2006, the Financial Accounting Standards Board(“FASB”) issued Interpretation No. 48, ‘‘Accounting for Uncertainty in IncomeTaxes – an interpretation of FASB Statement No. 109,’’ (“FIN 48”) whichclarifies the accounting for uncertainty in income taxes recognized in anenterprise’s financial statements in accordance with FASB Statement No. 109, ‘‘Accountingfor Income Taxes.’’ FIN 48 prescribes a recognition threshold and measurementattribute for the financial statement recognition and measurement of a taxposition taken or expected to be taken in a tax return. The guidance set forthunder FIN 48 must be applied to financial reports covering the first fiscalyear beginning after December 15, 2006, therefore the Company will adoptthis guidance in fiscal 2008.  TheCompany is currently assessing financial impact to the consolidated financial statementsupon adoption.

In September 2006, the Securities and ExchangeCommission issued Staff Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of Prior YearMisstatements When Quantifying Misstatements in Current Year FinancialStatements*”* (“SAB 108”).  SAB 108 provides guidance on theconsideration of the effects of prior year misstatements in quantifying currentyear 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”),which defines 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 the consolidated financial statements.

In June 2006, the FASB ratified the consensus onEmerging Issues Task Force Issue No. 06-3 (“EITF No. 06-3”), “How TaxesCollected from Customers and Remitted to Governmental Authorities Should BePresented in the Income Statement”.  The scope of EITF No. 06-3includes any tax assessed by a governmental authority that is directly imposedon a revenue-producing transaction between a seller and a customer and mayinclude, but is not limited to, sales, use, value added and some excisetaxes.  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 periods beginningafter December 15, 2006; therefore, the Company adopted this guidance inthe second 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:
|                                                                              | ** ** | **April 19,** | ** ** | **November 2,** | ** ** |
|------------------------------------------------------------------------------|------------|--------------------|------------|----------------------|------------|
| **(in thousands)**                                                      | ** ** | **2007**           | ** ** | **2006**             | ** ** |
| Inventories at  pie production facilities and third-party storage locations: |       |               |       |                 |       |
| Raw materials                                                                |       | $                  | 5,294      |                 | $          | 6,453 |   |
| Finished goods                                                               |       | 2,950              |       | 6,940                |       |
|                                                                         |       | 8,244              |       | 13,393               |       |
| Restaurant  inventories                                                      |       | 3,372              |       | 3,066                |       |
| Total inventories                                                            |       | $                  | 11,616     |                 | $          | 16,459 |   |

 

**3.     Receivables,net**

Receivables, net consisted of the following:
| (in thousands)              | ** ** | **April 19,  2007** | ** ** | **November 2,  2006** | ** ** |
|----------------------------------|------------|--------------------------|------------|----------------------------|------------|
|                             |       |                     |       |                       |       |
| Trade  receivables               |       | $                        | 5,713      |                       | $          | 8,249 |   |
| Construction  receivables        |       | 3,533                    |       | 3,797                      |       |
| Other  receivables               |       | 398                      |       | 591                        |       |
| Allowance for  doubtful accounts |       | (139                     | )          | (140                       | )          |
| Receivables, net                 |       | $                        | 9,505      |                       | $          | 12,497 |   |

 

**4.     Debt**

On April 14, 2004,the Company completed a private placement of $126.5 million aggregate principalamount of 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, the Company entered into anamended and restated senior secured credit facility consisting of a $15.0million term loan and a $30.0 million revolving credit facility, with a $15.0million sub-limit for letters of credit.

On February 16,2007 the Company entered into an amendment to the senior secured creditfacility which provided for an increase in the revolving credit facility to$35.0 million, and changed the borrowing base governing the revolving creditfacility to be the lesser of (a) $35.0 million and (b) 1.8 times trailingtwelve months Adjusted EBITDA minus the outstanding principal amount of thesenior secured term loan.  Prior to theFebruary 16, 2007 amendment, the senior secured revolving credit facilitypermitted 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 original principal amount of the senior secured termloan.  Under this formula, the Companyhad the ability to borrow the full $30 million, less the amount of outstandingletters of credit and less the amounts borrowed under the senior securedrevolving credit facility. Under the amended formula, the Company had theability to borrow the full $35.0 million, less the amount of outstandingletters of credit, $7.4 million, and less the amounts borrowed under the seniorsecured revolving credit facility, $7.6 million, or $20.0 million as of April19, 2007.

The senior securedcredit facility requires the Company to maintain or comply with a minimumAdjusted EBITDA, a minimum Fixed Charge Coverage ratio, and a maximum GrowthCapital Expenditures limitation.  Underthe February 16, 2007 amendment, the definition of Adjusted EBITDA and certainof the financial covenants governing the senior secured credit facility wereamended, and the interest rate margins associated with both base rate and LIBORborrowings were reduced.  As of April 19,2007, the Company was in compliance with these requirements.

8

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**5.     Commitmentsand 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 $9.3 million and $8.9 million recorded as of April 19, 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 April 19, 2007, the Company had placedletters of credit totaling approximately $7.4 million, associated with itsinsurance 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 iscurrently a 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 the Company violatedCalifornia law with regard to unpaid overtime, compensation for missed mealsand rest periods, civil penalties for failure to provide itemized wagestatements, failure to provide notice on paychecks where paychecks may becashed without any fees, and unfair business practices.  The classes and subclasses alleged in theaction have not been certified by the court at the current stage of thelitigation but generally are claimed to be persons who have been employed sinceFebruary 1, 2005, in the position of restaurant managers, persons who have beenemployed in California since March 15, 2002, in any capacity who received apayroll check in California, and all restaurant managers who  have ended their employment with the Companyprior to the effective date of any settlement, judgment, or other resolution ofthe action.  No dollar amount in damagesis requested in the Complaint and the Complaint seeks statutory damages, andattorneys’ fees in an unspecified amount. The Company intends to vigorously defend this action.

The second purported class action was brought in April 2006 by a formeremployee and alleges the Company violated California laws with regard tofailure to pay vested vacation pay and unfair business practices.  The class alleged is any person who has beenemployed by the Company in California at any time from four years prior to thefiling of the class action to date of trial. In the fourth quarter of fiscal 2006, the Company accrued $600,000 asthe estimated cost of settling this action. The Company entered into a final settlement of this class actionlitigation which was accepted by the courts on April 24, 2007 approximately forthe $600,000 previously accrued, which includes the settlement amount, attorney’sand administrative fees.

**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 $1.8million as of April 19, 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 $3.6 million as of April 19,2007.

**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 indemnificationobligations to its officers and directors. The duration of theseindemnifications varies, and in certain cases, is indefinite. In each of thesecircumstances, payment by 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.

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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 potentialfuture payments under the indemnification. The Company has not recorded anyliability for these indemnifications in the accompanying consolidated balancesheets; however, the Company will accrue losses for any known contingentliability, including those that may arise from indemnification provisions, whenthe obligation is both probable and reasonably estimable.

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

Each quarter,management assesses various factors relevant to its restaurant assets,including undiscounted projected cash flows and the historical performancetrends at the operating locations. If the carrying value of the restaurantassets exceed the undiscounted cash flows for a location, the carrying value ofthe assets are reduced to fair market value if the carrying costs exceed theestimated fair market value.  During thequarter ended April 19, 2007, there was a $1.6 million impairment chargerelated to the write-down of assets for eight restaurants. During the quarter endedApril 20, 2006, the Company recorded a $0.5 million impairment charge relatedto the write-down of assets for 6 restaurant locations and for the two quartersended April 20, 2006 the Company recorded a $0.8 million impairment charge on11 restaurant locations.

As of April 19,2007 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 April 19, 2007.

**7.     DeemedLandlord Financing Liability**

For many of thebuild-to-suit projects, the Company is considered the owner of the projectduring the construction period in accordance with Emerging Issues Task Force (“EITF”)Issue No. 97-10, “The Effect of Lessee Involvement in Asset Construction (“EITF97-10”),” because the Company is deemed to have substantially all of theconstruction period risk.  At the end of these construction projects, asale-leaseback could be deemed to occur in certain situations and theseller-lessee would record the sale, remove all property and relatedliabilities from its balance sheet and recognize gain or loss from the sale,which is generally deferred and amortized as an adjustment to rent expense overthe term of the lease.  However, many of the Company’s real estatetransactions and build-to-suit projects have not qualified for sale-leasebackaccounting because of the deemed continuing involvement with the buyer-lessor,which results in the transaction being recorded under the financingmethod.  Under the financing method, the assets remain on the consolidatedbalance sheet and are depreciated over their useful life, and the proceeds fromthe transaction are recorded as a financing liability.  A portion of leasepayments are applied as payments of deemed principal and imputed interest.  Of the eight restaurants opened during fiscal2007, two units are accounted for under the financing method, three units werenot subject to EITF 97-10, which are considered regular operating leases and anadditional three units qualified for sale leaseback treatment.  The Company recognized the “sale” of thesethree additional units in the first quarter of fiscal 2007 and on ayear-to-date basis by removing both the assets and built-to-suit liabilityassociated with the restaurants and recording any gain or loss in accordancewith FASB SFAS No. 98, “Accounting for Leases” (“SFAS No. 98”). The leases werethen tested under the provisions of SFAS No. 13 “Accounting for Leases” (“SFASNo. 13”) for treatment as capital or operating leases.  The leases qualified as operating anddeferred rent was recorded in accordance with SFAS No. 98 and SFAS No.13. Theeffect of this change was a reduction in the Company’s build-to-suit liabilityof $3.6 million in the first quarter of fiscal 2007 and on a year-to-datebasis, a reduction of property, plant and equipment of $3.7 million in thefirst quarter of fiscal 2007 and on a year-to-date basis, and a net loss on thetransactions of $0.1 million in the first quarter of fiscal 2007 and on ayear-to-date basis. The net loss has been deferred and will be amortized torent expense over the remaining reasonably assured lease term in accordancewith SFAS No. 13.

10

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**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 common stock and preferred stock that had been previously acquired byformer officers.  The aggregate purchaseprice paid to the former officers was approximately $0.7 million.

**10.  Employee Severance and Executive IncentiveProgram**

In April 2007, theCompany recorded a severance charge of $0.5 million related to a severance chargedue to the departure of one of the Company’s officers.

In May 2007, theCompany entered into an employment agreement with the Company’s Chief ExecutiveOfficer, effective April 5, 2007.  Aspart of the employment agreement, the Executive is entitled to an appreciationpayment in an amount equal to a specified percentage of the appreciationamount, which vests ratably over five years

**11.  Income Taxes**

| (in thousands)                | ** ** | **April 19,  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 |   |

 

The Companyrecorded an additional valuation allowance of $3.3 million during the secondquarter of fiscal 2007 and $3.9 million for the 168 days ended April 19, 2007,respectively, for FICA tip credits and net operating loss carry forwards forwhich it is more likely than not that a tax benefit will not be realized.  The valuation allowance has been determinedbased on reversals of the Company’s existing deferred tax items and estimatesof future taxable income by each jurisdiction in which the Company operates asa result of available tax planning strategies. In the event that actual results differ from these estimates, theCompany is unable to implement certain tax planning strategies or adjusts theseestimates in future periods, the Company may need to establish an additionalvaluation allowance which could have a material negative impact on results ofoperations or financial position.

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**Item 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF 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-lookingstatements are not guarantees of future performance and that our actual resultsof operations, 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 theindustry in 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 auditedconsolidated financial statements and notes appearing elsewhere on ourForm 10-K.*

**CompanyProfile**

The Companyoperates family-dining restaurants under two well-recognized brands, VillageInn and Bakers Square. As of April 19, 2007, the Company, which was founded in1958, had 409 restaurants in 25 states, consisting of 316 company-operatedrestaurants and 93 franchised restaurants. The Company also produces premium pies at three strategically locatedfacilities that serve the restaurants and sell to third parties.

Village Innrestaurants are known for serving fresh breakfast items throughout the day, andhave leveraged the breakfast heritage to include traditional American fare atlunch and dinner. Bakers Square restaurants have built upon the reputation ofsignature pies to offer quality meals at breakfast, lunch and dinner. The broadoffering of affordable menu items is designed to appeal to a demographicallydiverse customer base, including families, senior citizens and othervalue-oriented diners.

The followingtable sets forth the changes to the number of Company-operated and franchisedrestaurants for the periods presented below.
| (units)                                      | ** ** | **April 19,  2007** | ** ** | **April 20,  2006** | ** ** |
|----------------------------------------------|------------|--------------------------|------------|--------------------------|------------|
| Village Inn  Company-operated restaurants:   |       |                     |       |                     |       |
| Beginning of period                          |       | 161                      |       | 135                      |       |
| Openings/Purchases                           |       | 8                        |       | 16                       |       |
| Closings                                     |       | —                   |       | (1                       | )          |
| End of period                                |       | 169                      |       | 150                      |       |
|                                         |       |                     |       |                     |       |
| Bakers Square  Company-operated restaurants: |       |                     |       |                     |       |
| Beginning of period                          |       | 148                      |       | 152                      |       |
| Openings                                     |       | —                   |       | —                   |       |
| Closings                                     |       | (1                       | )          | (2                       | )          |
| End of period                                |       | 147                      |       | 150                      |       |
|                                         |       |                     |       |                     |       |
| Total Company-operated restaurants           |       | 316                      |       | 300                      |       |
|                                         |       |                     |       |                     |       |
| Village Inn  franchised restaurants:         |       |                     |       |                     |       |
| Beginning of period                          |       | 95                       |       | 100                      |       |
| Closings/Sales                               |       | (2                       | )          | (4                       | )          |
| End of period                                |       | 93                       |       | 96                       |       |
|                                         |       |                     |       |                     |       |
| Total  restaurants                           |       | 409                      |       | 396                      |       |

 

Restaurantrevenues are 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 the84 Days ended April 19, 2007 compared to the 84 Days ended April 20, 2006

·                  Combined samestore sales declined 3.4% compared to the prior year.  Village Inn same store sales declined 1.2%and Bakers Square same store sales declined 5.6% compared to the prior year.

·                  There are 16 newrestaurants, net of closures, opened or acquired since the end of the secondquarter of fiscal 2006.

·                  Revenues in thesecond quarter of fiscal 2007 increased by 3.6% to $110.0 million.

·                  Operating profitdecreased from $4.8 million in the second quarter of fiscal 2006 to a $1.0million loss for the same period in 2007.

·                  Net loss alsoincreased from $1.3 million in the second quarter of fiscal 2006 to a net lossof $7.4 million in the second quarter of fiscal 2007.

Financial Summary for the 168 Days ended April 19,2007 compared to the 168 days ended April 20, 2006

·                  Combined samestore sales declined 3.7% compared to the prior year.  Village Inn same store sales declined 2.3%and Bakers Square same store sales declined 5.0% compared to the prior year.

·                  There are 16 newrestaurants, net of closures, opened or acquired since the end of the secondquarter of fiscal 2006.

·                  Revenues infiscal 2007 increased by 4.9% to $229.1 million.

·                  Operating profitdecreased from $11.4 million in fiscal 2006 to $4.1 million in fiscal 2007.

·                  Net lossincreased from $1.2 million in fiscal 2006 to a net loss of $8.5 million in fiscal2007.

**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 June 2006, theFinancial Accounting Standards Board (“FASB”) issued Interpretation No. 48, ‘‘Accountingfor Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109,’’(“FIN 48”) which clarifies the accounting for uncertainty in income taxesrecognized in an enterprise’s financial statements in accordance with FASBStatement 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.  The Company is currently assessing financialimpact to the consolidated financial statements upon adoption.

In September 2006,the Securities and Exchange Commission issued Staff Accounting Bulletin (“SAB”)No. 108, “Considering the Effectsof Prior Year Misstatements When Quantifying Misstatements in Current YearFinancial Statements*”* (“SAB108”).  SAB 108 provides guidance on theconsideration of the effects of prior year misstatements in quantifying currentyear 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 Statement of Financial Accounting Standards (“SFAS”) No.157, Fair Value Measurements (“SFAS No. 157”), which defines fair value,establishes a framework for measuring fair value in accordance with GAAP andexpands disclosures about fair value measurements.  SFAS No. 157 is effective for fiscal yearsbeginning after November 15, 2007.  TheCompany does not believe such adoption will have a material impact on theconsolidated 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 andsome excise taxes.  The Task Force affirmed its conclusion that entitiesshould present these taxes in the income statement on either a gross or a netbasis based on their accounting policy, which should be disclosed pursuant to AccountingPrinciples Board Opinion No. 22, “Disclosure of Accounting Policies.” If such taxes are significant and are presented on a gross basis, the amountsof those taxes should be disclosed.  The consensus on EITF No. 06-3will be effective for interim and annual reporting periods beginning afterDecember 15, 2006; therefore, the Company adopted 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, such adoptionis not expected to affect current disclosures.

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**FactorsAffecting Comparability**

The fiscal year iscomprised of 52 or 53 weeks divided into four fiscal quarters of 12 or 13, 12,12, and 16 weeks.  The second 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**

Sales fluctuateseasonally and as mentioned previously, the quarters do not all have the sametime duration.  Specifically, the fourthquarter generally has an extra three to four weeks compared to other quartersof the fiscal year. Historically, average daily sales are highest in the firstquarter (November through January) as a result of holiday pie sales whilefourth quarter (mid-July through October) records the lowest average dailysales.  Therefore, the quarterly resultsare not necessarily indicative of results that may be achieved for the fullfiscal year.  Factors influencing relativesales variability, 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.

**Results of ConsolidatedOperations**

**(Unaudited)**
| ** **                                    | ** ** | **For the 84 days ended** | ** ** | **For the 168 days ended** | ** ** |
|-----------------------------------------------|------------|-----------------------------------------------|------------|------------------------------------------------|------------|
| **(in thousands)**                       | ** ** | **April 19,  2007**                      | ** ** | **April 20,  2006**                       | ** ** | **April 19,  2007** | ** ** | **April 20,  2006** | ** ** |
|                                          |       |                                          |       |                                           |       |   |   |   |   |
| Revenues:                                     |       |                                          |       |                                           |       |   |   |   |   |
| Restaurant operations                         |       | $                                             | 99,250     |                                           | $          | 98,116 |   | $ | 204,795 |   | $ | 202,242 |   |
| Franchise operations                          |       | 1,169                                         |       | 1,165                                          |       | 2,335 |   | 2,331 |   |
| Manufacturing operations                      |       | 9,531                                         |       | 6,883                                          |       | 22,009 |   | 13,723 |   |
| Total revenues                                |       | 109,950                                       |       | 106,164                                        |       | 229,139 |   | 218,296 |   |
| Costs and  expenses:                          |       |                                          |       |                                           |       |   |   |   |   |
| Restaurant costs:                             |       |                                          |       |                                           |       |   |   |   |   |
| Food                                          |       | 26,447                                        |       | 24,583                                         |       | 55,168 |   | 52,743 |   |
| Labor                                         |       | 35,019                                        |       | 33,333                                         |       | 69,461 |   | 66,274 |   |
| Other operating expenses                      |       | 29,919                                        |       | 28,503                                         |       | 61,007 |   | 58,620 |   |
| Franchise operating  expenses                 |       | 489                                           |       | 503                                            |       | 958 |   | 986 |   |
| Manufacturing  operating expenses             |       | 9,350                                         |       | 6,907                                          |       | 21,915 |   | 13,785 |   |
| General and  administrative expenses          |       | 7,019                                         |       | 6,664                                          |       | 13,655 |   | 13,099 |   |
| Management fees  – related party         |       | 196                                           |       | 196                                            |       | 392 |   | 392 |   |
| Employee  severance                           |       | 500                                           |       | —                                         |       | 500 |   | — |   |
| Loss on  disposition of assets                |       | 413                                           |       | 161                                            |       | 409 |   | 177 |   |
| Asset  impairments                            |       | 1,555                                         |       | 513                                            |       | 1,555 |   | 821 |   |
| Total costs and expenses                      |       | 110,907                                       |       | 101,363                                        |       | 225,020 |   | 206,897 |   |
| Operating (loss)  profit                      |       | (957                                          | )          | 4,801                                          |       | 4,119 |   | 11,399 |   |
| Interest expense                              |       | (6,578                                        | )          | (7,090                                         | )          | (13,166 | ) | (14,029 | ) |
| Other income,  net                            |       | 92                                            |       | 113                                            |       | 530 |   | 284 |   |
| Loss before  income taxes                     |       | (7,443                                        | )          | (2,176                                         | )          | (8,517 | ) | (2,346 | ) |
| Income tax  benefit                           |       | —                                        |       | (886                                           | )          | — |   | (1,121 | ) |
| Net loss                                      |       | (7,443                                        | )          | (1,290                                         | )          | (8,517 | ) | (1,225 | ) |
| Preferred stock  dividends and accretion      |       | (2,452                                        | )          | (2,242                                         | )          | (4,848 | ) | (4,427 | ) |
| Net loss attributable  to common stockholders |       | $                                             | (9,895     | )                                              | $          | (3,532 | ) | $ | (13,365 | ) | $ | (5,652 | ) |

 

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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 84 days ended** | ** ** | **For the 168 Days ended** | ** ** |
|---------------------------------------|------------|-----------------------------------------------|------------|------------------------------------------------|------------|
| ** **                            | ** ** | **April 19,  2007**                      | ** ** | **April 20,  2006**                       | ** ** | **April 19,  2007** | ** ** | **April 20,  2006** | ** ** |
|                                  |       |                                          |       |                                           |       |   |   |   |   |
| Revenues:                             |       |                                          |       |                                           |       |   |   |   |   |
| Restaurant  operations                |       | 90.3                                          | %          | 92.4                                           | %          | 89.4 | % | 92.6 | % |
| Franchise  operations                 |       | 1.1                                           |       | 1.1                                            |       | 1.0 |   | 1.1 |   |
| Manufacturing  operations             |       | 8.6                                           |       | 6.5                                            |       | 9.6 |   | 6.3 |   |
| Total revenues                        |       | 100.0                                         |       | 100.0                                          |       | 100.0 |   | 100.0 |   |
| Costs and expenses:                   |       |                                          |       |                                           |       |   |   |   |   |
| Restaurant  costs:                    |       |                                          |       |                                           |       |   |   |   |   |
| Food (1)                              |       | 26.6                                          |       | 25.1                                           |       | 26.9 |   | 26.1 |   |
| Labor (1)                             |       | 35.3                                          |       | 34.0                                           |       | 33.9 |   | 32.8 |   |
| Other operating  expenses (1)         |       | 30.1                                          |       | 29.1                                           |       | 29.8 |   | 29.0 |   |
| Franchise  operating expenses (2)     |       | 41.8                                          |       | 43.2                                           |       | 41.0 |   | 42.3 |   |
| Manufacturing  operating expenses (3) |       | 98.1                                          |       | 100.3                                          |       | 99.6 |   | 100.5 |   |
| General and  administrative expenses  |       | 6.4                                           |       | 6.3                                            |       | 6.0 |   | 6.0 |   |
| Operating (loss) profit               |       | (0.9                                          | )%         | 4.5                                            | %          | 1.2 | % | 5.2 | % |

 

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(1)  Restaurantcosts percentages are based on restaurant operations revenues.

(2)  Franchiseoperating expense percentage is based on franchise operations revenues.

(3)  Manufacturingoperating expense percentage is based on manufacturing operations revenues.

All other cost percentagesare based on total revenues.

**Second Quarter Results:  84 Days ended April 19, 2007 Compared to the84 Days ended April 20, 2006**

***Total revenues*** increased by $3.8million, or 3.6%, to $110.0 million in the second quarter of fiscal 2007, from$106.2 million for the same period in fiscal 2006.  This increase was primarily due to theincrease in third party pie sales, which increased $2.6 million or 37.7%, to$9.5 million compared to $6.9 million in the same period in fiscal 2006, whichwas primarily a result of the addition of a large customer at the end of thefirst quarter of fiscal 2006.  Overallrestaurant revenues increased from sales at the 16 new restaurants, net ofclosures, opened or acquired since the end of the second quarter of 2006.  Restaurant revenues were negatively impactedby declining same unit sales.  Same unitrestaurant sales for the second quarter of 2007 declined 3.4% versus theprevious year’s second quarter.  Sameunit restaurant sales for Village Inn and Bakers Square decreased 1.2% and5.6%, respectively.  Average guestspending increased 2.8% at Village Inn and 1.0% at Bakers Square in the secondquarter of fiscal 2007 compared to the second quarter of fiscal 2006.

***Food costs*** increased by $1.8 million,or 7.3%, to $26.4 million in the second quarter of fiscal 2007, from $24.6million for the second quarter of fiscal 2006. Food costs as a percentage of restaurant revenues increased to 26.6% forthe second quarter of fiscal 2007 from 25.1% for the second quarter of fiscal2006 primarily due to higher commodity prices and product mix.

***Labor costs*** increasedby $1.7 million, or 5.1%, to $35.0 million in the second quarter of fiscal2007, from $33.3 million for the second quarter of fiscal 2006.  Labor costs as a percentage of restaurantrevenues increased to 35.3% from 34.0% over these periods.  The relative increase in labor costs was dueto lower operating efficiency, increased average wage due to minimum wageincreases in several states, negative leverage associated with the same storesales declines and labor inefficiencies at the new restaurants in start upmode.

The increase in the federal minimum wage rate,signed by the President in May 2007, is not expected to materiallyincrease labor costs.

16

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***Other operating expenses*** increased by$1.4 million, or 4.9%, to $29.9 million in the second quarter of fiscal 2007from $28.5 million for the second quarter of fiscal 2006. Other operatingexpenses as a percentage of restaurant revenues increased to 30.1% from 29.1% overthese periods. This increase was primarily driven by higher occupancy costsassociated with new store growth.

***Manufacturing operating expenses***increased by $2.5 million, or 36.2%, to $9.4 million in the second quarter offiscal 2007 from $6.9 million for the second quarter of fiscal 2006. Thisincrease was primarily due to higher third party pie sales associated with theaddition of a large customer at the end of the first quarter of 2006.Manufacturing operating expenses as a percentage of manufacturing revenuesdecreased from 100.3% to 98.1% over these periods primarily due to morefavorable variable gross margins due to labor efficiencies.  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 $0.3 million, or 4.5%, to $7.0 million for the second quarter offiscal 2007 from $6.7 million for the second quarter of fiscal 2006. Theincrease was primarily attributed to reduced travel and capitalization ofinternal architecture and construction costs as a result of fewer stores underconstruction, resulting in such costs being reflected as period costs.  The increase also resulted from an increasein the broker fees related to third party pie sales.   As a percentage of total revenues, generaland administrative expenses for the second quarter of fiscal 2007 wereconsistent at 6.4% compared to 6.3% in the second quarter of fiscal 2006.

***Employeeseverance*** in the second quarter of fiscal 2007 relatedprimarily to a severance charge due to the departure of one of the Company’sofficers.

***Losson disposition of assets*** increased $0.2 million to $0.4million for the second quarter of fiscal 2007 from $0.2 million for the secondquarter of fiscal 2006.   The increaseresulted primarily from services related to site investigation, architecturaland environmental research associated with properties that the Company hasdecided not to develop.

***Impairment expense***was $1.6 millionin the second quarter of fiscal 2007 related to the write down of eightrestaurant locations compared to $0.5 million******in the second quarter of 2006due to the write down of six restaurant locations.

***Operating loss***increased by $5.8 million from a $4.8 million operating profit for the secondquarter of fiscal 2006 to a $1.0 million operating loss in the secondquarter of fiscal 2007.

***Interestexpense*** decreased by $0.5 millionor 7.0%, to $6.6 million in the second quarter of fiscal 2007 from $7.1 millionfor the second quarter of fiscal 2006. The decrease was due to the Company recognizing the “sale”, in the thirdquarter of fiscal 2006, of 26 units by removing both the assets and financingobligations associated with the restaurants and recording any gain or loss inaccordance with SFAS No. 98, “Accounting for Leases”.  The effect of this change was a reduction inthe financing obligation of $30.5 million therefore reducing interest expenseprospectively.

***Income tax benefit***for the secondquarter of fiscal 2006 was $0.9 million. The effective tax rate for the second quarter of fiscal 2006 was40.7%.  The provision/benefit differ fromthe Company’s statutory rate of approximately 40% due to general businesscredits that the Company earns from FICA taxes paid on employee tips, partiallyoffset by nondeductible amortization related to franchise rights.  Consistent with the first quarter of fiscal2007, the Company recorded a valuation allowance of $3.3 million in the secondquarter of fiscal 2007 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 the Company’s existing deferred tax itemsand estimates of future taxable income by each jurisdiction in which theCompany operates as a result of available tax planning strategies. In the eventthat actual results differ from these estimates, the Company is unable toimplement certain tax planning strategies or adjusts these estimates in futureperiods, the Company may need to establish an additional valuation allowancewhich could have a material negative impact on results of operations orfinancial position.

***Net loss***increased to $7.4 million in the secondquarter of fiscal 2007 compared to net loss of $1.3 million in the secondquarter of fiscal 2006.

***Preferred stock dividends and accretion***increased by $0.3 million to $2.5 million in the second quarter of fiscal 2007from $2.2 million for the second quarter of fiscal 2006 as a result of thecompounding effect of unpaid preferred stock dividends.

17

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**Year-To-DateResults:  168 Days ended April 19, 2007Compared to the 168 Days ended April 20, 2006**

***Total revenues*** increased by $10.8million, or 4.9%, to $229.1 million in fiscal 2007 from $218.3 million infiscal 2006.  This increase was primarilydue to the increase in third party pie sales, which increased $8.3 million or60.6%, to $22.0 million in fiscal 2007 from $13.7 million in fiscal 2006, whichwas primarily a result of the addition of a large customer at the end of thefirst quarter of fiscal 2006.  Overallrestaurant revenues increased from sales at the 16 new restaurants, net ofclosures, opened or acquired since the end of the second quarter of 2006.  Restaurant revenues were negatively impactedby declining same unit sales.  Same unitrestaurant sales declined 3.7% versus the previous year.  Same unit restaurant sales for Village Innand Bakers Square decreased 2.3% and 5.0%, respectively.  Average guest spending increased 2.2% atVillage Inn and 0.8% at Bakers Square in fiscal 2007 compared to fiscal 2006.

***Food costs*** increased by $2.5 million,or 4.7%, to $55.2 million in fiscal 2007, from $52.7 million in fiscal2006.  Food costs as a percentage ofrestaurant revenues increased to 26.9% for fiscal 2007 from 26.1% for the sameperiod in fiscal 2006 primarily due to higher commodity prices and product mix.

***Labor costs*** increasedby $3.2 million, or 4.8%, to $69.5 million in fiscal 2007, from $66.3 millionin fiscal 2006.  Labor costs as apercentage of restaurant revenues increased to 33.9% from 32.8% over theseperiods.  The relative increase in laborcosts was due to lower operating efficiency, increased average wage due tominimum wage increases, negative leverage associated with the same store salesdeclines and labor inefficiencies at the new restaurants in start up mode.

The increase in the federal minimum wage rate,signed by the President in May 2007, is not expected to materiallyincrease labor costs.

***Other operating expenses*** increased by$2.4 million, or 4.1%, to $61.0 million in fiscal 2007 from $58.6 million infiscal 2006. Other operating expenses as a percentage of restaurant revenuesincreased to 29.8% from 29.0% over these periods. This increase was primarilydriven by higher occupancy costs associated with new store growth.

***Manufacturing operating expenses***increased by $8.1 million, or 58.7%, to $21.9 million in fiscal 2007 from $13.8million in fiscal 2006. This increase was primarily due to higher third partypie sales associated with the addition of a large customer at the end of thefirst quarter of 2006. Manufacturing operating expenses as a percentage ofmanufacturing revenues decreased from 100.5% to 99.6% over these periods dueprimarily to favorable labor efficiencies in fixed overhead costs slightlyoffset by lower variable gross margins in fiscal 2007.  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 $0.6 million, or 4.6%, to $13.7 million for fiscal 2007 from $13.1million for fiscal 2006. The increase resulted primarily from an increase inthe broker fees related to third party pie sales.  The increase was also attributed to reducedtravel and capitalization of internal architecture and construction costs as aresult of fewer stores under construction, resulting in such costs beingreflected as period costs.  As apercentage of total revenues, general and administrative expenses were 6.0% forfiscal 2007 and fiscal 2006.

***Employeeseverance*** for fiscal 2007 related primarily to a severancecharge due to the departure of one of the Company’s officers.

***Losson disposition of assets*** increased $0.2 million to $0.4million for fiscal 2007 from $0.2 million for fiscal 2006.   The increase resulted primarily fromservices related to site investigation, architectural and environmentalresearch associated with properties that the Company has decided not todevelop.

***Impairment expense***duringfiscal 2007 was $1.6 million related to the write down of eight restaurantlocations compared to $0.8 million******inthe fiscal 2006 due to the write down of eleven restaurant locations.

***Operating profit***decreased by $7.3 million to $4.1 million in fiscal 2007 from $11.4 million infiscal 2006.

***Interestexpense*** decreased by $0.8 millionor 5.7%, to $13.2 million in fiscal 2007 from $14.0 million in fiscal2006.  The decrease was due to theCompany recognizing the “sale”, in the third quarter of fiscal 2006, of 26units by removing

18

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***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 financing obligation of $30.5 million therefore reducinginterest expense prospectively.***

***Income tax benefit***for fiscal 2006 was$1.1 million.  The effective tax rate was47.8% for fiscal 2006.  Theprovision/benefit differ from the Company’s statutory rate of approximately 40%due to general business credits that the Company earns from FICA taxes paid onemployee tips, partially offset by nondeductible amortization related tofranchise rights.  During fiscal 2007,the Company recorded a valuation allowance of $3.9 million for FICA tip creditsand net operating carry forwards for which it is more likely than not that atax benefit will not be realized.  Thevaluation allowance has been determined based on reversals of existing deferredtax items and estimates of future taxable income by each jurisdiction in whichthe Company operates as a result of available tax planning strategies.  In the event that actual results differ fromthese estimates, the Company is unable to implement certain tax planningstrategies or adjusts these estimates in future periods, the Company may needto establish an additional valuation allowance which could have a materialnegative impact on results of operations or financial position.

***Net loss***increased by $7.3 million to $8.5million in fiscal 2007 compared to $1.2 million in fiscal 2006.

***Preferred stock dividends and accretion***increased by $0.4 million to $4.8 million in fiscal 2007 from $4.4 millionin fiscal 2006 as a result of the compounding effect of unpaid preferred stockdividends.

**Liquidityand Capital Resources**

***CashRequirements***

The Company’sprincipal liquidity requirements are to continue to finance operations, servicedebt and fund capital expenditures for maintenance and expansion.  Cash flow from operations has historicallybeen sufficient to finance continuing operations and meet normal debt servicerequirements.  However, the Company ishighly leveraged and the ability to repay debt borrowings at maturity is likelyto depend in part on the Company’s ability to refinance the debt when itmatures, which will be contingent on continued successful operation of thebusiness as well as other factors beyond the Company’s control, including thedebt and capital market conditions at that time.

TheCompany’s cash balance and working capital needs are generally low, as salesare made for cash or through credit cards that are quickly converted to cash,purchases of food and supplies and other operating expenses are generally paidwithin 30 to 60 days after receipt of invoices and labor costs are paidbi-weekly.  The timing of salescollections and vendor and labor payments are consistent with other companiesengaged in the restaurant industry.

For the balance offiscal 2007, the Company anticipates capital expenditures and net build-to-suitconstruction of approximately $9.0 million. The Company currently expects toopen 9 new stores in fiscal 2007, including the eight units that opened in thefirst two quarters.

In connection withthe new restaurant development program, the Company entered into build-to-suitdevelopment agreements whereby third parties will purchase property, fund thecosts to develop new restaurant properties and lease the properties to theCompany upon completion.  Under theseagreements, the Company is generally responsible for the construction of therestaurant and remitting payments to the contractors on the projects, which aresubsequently reimbursed by the property owner. These amounts advanced and subsequently reimbursed are not included inthe anticipated capital spending totals above. On April 19, 2007, the Company had outstanding receivables of $3.5million relating to these types of agreements. In certain of these agreements, the Company is obligated to purchase theproperty in the event the Company is unable to complete the construction withina specified time frame, and is also responsible for cost overruns abovespecified amounts.

***Debtand Other Obligations and Liabilities***

On April 14, 2004,the Company completed a private placement of $126.5 million aggregate principalamount of 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, the Company entered into anamended and restated senior secured credit facility consisting of a $15.0million term loan and a $30.0 million revolving credit facility, with a $15.0million sub-limit for letters of credit.

On February 16,2007 the Company entered into an amendment to the senior secured creditfacility which provided for an increase in the revolving credit facility to$35.0 million, and changed the borrowing base governing the revolving creditfacility to be the lesser of (a) $35.0 million and (b) 1.8 times trailingtwelve months Adjusted EBITDA minus the outstanding principal amount of thesenior secured term loan.  Prior to theFebruary 16, 2007 amendment, the senior secured revolving credit facilitypermitted 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 original principal amount of the senior secured termloan.  Under this formula, the Company hadthe ability to borrow the full $30 million, less the amount of outstandingletters of credit and less the amounts borrowed under the senior securedrevolving credit facility. Under the amended formula, the Company had theability to borrow the full $35.0 million, less the amount of outstandingletters of credit, $7.4 million, and less the amounts borrowed under the seniorsecured revolving credit facility, $7.6 million, or $20.0 million as of April19, 2007.

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The senior securedcredit facility requires the Company to maintain or comply with a minimumAdjusted EBITDA, a minimum Fixed Charge Coverage ratio, and a maximum GrowthCapital Expenditures limitation.  Underthe February 16, 2007 amendment, the definition of Adjusted EBITDA and certainof the financial covenants governing the senior secured credit facility wereamended, and the interest rate margins associated with both base rate and LIBORborrowings were reduced.  As of April 19,2007, the Company was in compliance with these requirements.

In May 2007, theCompany entered into an employment agreement with Mr. Kenneth Keymer, the ChiefExecutive Officer, effective April 5, 2007. As part of the agreement, Mr. Keymer is entitled to an appreciationpayment in an amount equal to a specified percentage of the appreciation amountthat vests ratably over five years.

The Company is theprime lessee under various operating leases for land, building and equipmentfor Company-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 2027.

The Company hasguaranteed certain leases for restaurant properties sold in 1986 and restaurantleases of certain franchisees. Estimated minimum future rental paymentsremaining under these leases were approximately $1.8 million as of April 19,2007.

As of April 19,2007, the Company’s commitments with respect to the above obligations were asfollows (in millions):

|                                              | ** ** | **Payments due by periods** | ** ** |
|----------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                   | ** ** | ** **                                 | ** ** | **Less than ** | ** ** | **1-3 ** | ** ** | ** ** | ** ** | **More than 5** | ** ** |
| ** **                                   | ** ** | **Total**                                  | ** ** | **one year** | ** ** | **years** | ** ** | **3-5 years** | ** ** | **years** | ** ** |
| Senior secured  credit facility              |       | $                                          | 22.6       |   | $ | — |   | $ | 22.6 |   | $ | — |   | $ | — |   |
| 10.5% senior  unsecured notes                |       | 126.5                                      |       | — |   | — |   | 126.5 |   | — |   |
| Total long-term debt                         |       | 149.1                                      |       | — |   | 22.6 |   | 126.5 |   | — |   |
| Capital lease  obligations(1) (2)            |       | 0.4                                        |       | 0.1 |   | 0.2 |   | 0.1 |   | — |   |
| Operating lease  obligations(2)              |       | 192.3                                      |       | 24.9 |   | 46.7 |   | 38.5 |   | 82.2 |   |
| Deemed landlord  financing liability (1) (2) |       | 258.1                                      |       | 11.6 |   | 23.7 |   | 24.6 |   | 198.2 |   |
| Other debt (3)                               |       | 0.2                                        |       | 0.2 |   | — |   | — |   | — |   |
| Letters of  credit (4)                       |       | 7.4                                        |       | 7.4 |   | — |   | — |   | — |   |
| Purchase  commitments(5)                     |       | 3.6                                        |       | 3.6 |   | — |   | — |   | — |   |
| Total                                        |       | $                                          | 611.1      |   | $ | 47.8 |   | $ | 93.2 |   | $ | 189.7 |   | $ | 280.4 |   |

 

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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 the 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)          Letters of creditoutstanding primarily relate to guarantee performance under insurancecontracts.  The letters of credit areirrevocable and have one-year renewable terms.

(5)          Purchase commitmentsprimarily relate to purchase of property and equipment.  Portions of such contracts not completed atApril 19, 2007 as noted in the table above were not reflected as assets orliabilities in the consolidated financial statements.

20

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**Sourcesand Uses of Cash**

The followingtable presents a summary of the Company’s cash flows from operating, investingand financing activities for the 168 days ended April 19, 2007 and April 20,2006 indicated (in millions):
|                                                      | ** ** | **168 days ended** | ** ** | **168 days ended** | ** ** |
|------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                           | ** ** | **April 19,**           | ** ** | **April 20,**           | ** ** |
| ** **                                           | ** ** | **2007**                     | ** ** | **2006**                     | ** ** |
|                                                 |       |                         |       |                         |       |
| Net cash provided by  operating activities           |       | $                            | 11.6       |                         | $          | 16.0 |   |
| Net cash used in  investing activities               |       | (5.4                         | )          | (19.3                        | )          |
| Net cash (used in)  provided by financing activities |       | (5.8                         | )          | 3.2                          |       |
|                                                 |       |                         |       |                         |       |
| Net increase (decrease) in cash and cash equivalents |       | $                            | 0.4        |                         | $          | (0.1 | ) |

 

***OperatingActivities***

During fiscal2007, cash flows from operating activities decreased $4.4 million compared tofiscal 2006 primarily due to the increased net loss offset by increasedcollections and lower inventory levels due to seasonality.

***InvestingActivities***

Capitalexpenditures, excluding amounts related to assets under financing obligations,for fiscal 2007 and 2006, respectively, were comprised of the following (inmillions):
|                                              | ** ** | **168 days ended** | ** ** | **168 days ended** | ** ** |
|----------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                   | ** ** | **April 19, 2007** | ** ** | **April 20, 2006** | ** ** |
|                                         |       |                         |       |                         |       |
| New store construction                       |       | $                            | 2.2        |                         | $          | 5.1 |   |
| Existing store remodel  and refurbishments   |       | 0.5                          |       | 2.9                          |       |
| Store capital  maintenance                   |       | 1.4                          |       | 3.3                          |       |
| Pie production facility  capital maintenance |       | 0.7                          |       | 0.0                          |       |
| Corporate related                            |       | 0.4                          |       | 0.1                          |       |
| Purchase of property  and equipment          |       | $                            | 5.2        |                         | $          | 11.4 |   |

 

In addition to the capital expenditures noted above,the Company spent $1.1 million for assets under deemed landlord financingliability during fiscal 2007 compared to $7.3 million in fiscal 2006 and spent$0.6 million for assets under built-to-suit construction.  In fiscal 2007, the Company also received netproceeds of $1.5 million related to build-to-suit construction.  Eight new restaurants were opened in fiscal2007 compared to sixteen new restaurants, including the five units acquiredfrom a franchisee, during fiscal 2006. Additionally, there are five locationsunder construction as of April 19, 2007.

***FinancingActivities***

Cash used infinancing activities was $5.8 million in fiscal 2007, consisting principally ofthe net repayments under the revolving line of credit and other short term debtof $5.1 million and $0.6 million, respectively. Additionally, $0.1 million was paid related to the amendment to theCompany’s senior secured credit facility.

Financingactivities provided cash of $3.2 million during fiscal 2006, consistingprimarily of $4.9 million of proceeds from deemed landlord financingtransactions associated with new restaurant construction, partially offset bypayments for the repurchase of stock of $0.7 million and the repayment ofamounts outstanding under the revolving line of credit at November 3, 2005.

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**Cash Management**

The Company historically funded the majority of capitalexpenditures with cash provided by operating activities. The Company has onoccasion obtained, and may in the future obtain, capitalized lease financingfor certain expenditures related to equipment. The investment requirements fornew restaurant development include requirements for acquisition of land,building and equipment.  Historically theCompany either acquired all of these assets for cash, or purchased building andequipment assets for cash and acquired a leasehold interest in land. TheCompany entered into sale-leaseback arrangements for many of the land andbuilding assets purchased in the past, many of which have been accounted for asfinancing transactions. Since the initial net cash investment required forleased units is significantly lower than for owned properties, the Companyintends to focus on leasing sites for future growth so the only fundingrequired relates to the equipment portion. The Company believes that this willreduce upfront cash requirements associated with new restaurant growth andenable increased returns on these investments, although it will result insignificant long term obligations under either operating 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.

**Item 4.    Controls andProcedures**

### **Evaluation of Disclosure Controls and Procedures**

Withinthe 84-day period prior to the filing date of this report, management, underthe supervision of the Chief Executive Officer and Chief Financial Officer,carried out an evaluation of the effectiveness of the design and operation of disclosurecontrols and procedures pursuant to Rules 13a-14 and 15d-14 under theSecurities Exchange Act of 1934 (the “Exchange Act”), as amended. Based upontheir evaluation, the Chief Executive Officer and Chief Financial Officerconcluded that  disclosure controls andprocedures are effective in alerting them timely to material informationrequired to be included in the Exchange Act filings. There have not been anysignificant changes in internal controls or in other factors that couldsignificantly affect these controls 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 be detected.

### **PART II –OTHER INFORMATION**

**Item1.    Legal Proceedings**

From time-to-time,the Company has been involved in various lawsuits and claims. Such lawsuitstypically involve claims from customers and others related to operationalissues and complaints and allegations from former and current employees. Thesematters are believed to be common for restaurant businesses.  The Company believes the ultimate dispositionof these matters will not have a material adverse effect on the consolidatedfinancial position or results of operations.

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**Item 1A.   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.
| **Item 6.** | **Exhibits**                                                                                                                                            |
|-------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **  | ** **                                                                                                                                              |
| **(a)**     | **Exhibits**                                                                                                                                            |
| ** **  | ** **                                                                                                                                              |
|        | 31.1                                                                                                                                                    | Certification by the Chief Executive Officer with  respect to the Form 10-Q for the quarterly period ended April 19, 2007,  pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as  adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|        |                                                                                                                                                    |   |
|        | 31.2                                                                                                                                                    | Certification by the Chief Financial Officer with  respect to the Form 10-Q for the quarterly period ended April 19, 2007,  pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as  adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|        |                                                                                                                                                    |   |
|        | 32.1                                                                                                                                                    | Certifications by the Chief Executive Officer and  Chief Financial Officer with respect to the Form 10-Q for the quarterly  period ended April 19, 2007, pursuant to Rule 13a-14 or 15d-14 of the  Securities Exchange Act of 1934 and Title 18 of the United States Code  Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of  2002. |
|        |                                                                                                                                                    |
| **(b)**     | **Reports on Form 8-K**                                                                                                                                 |
| ** **  | ** **                                                                                                                                              |
|        | During the second quarter  of fiscal 2007 ended April 19, 2007, the Company filed the following reports  on Form 8-K:                                   |
|        |                                                                                                                                                    |
|        | Current report on Form 8-K on April 20, 2007,  regarding the severance agreement for the Company’s former Chief Executive  Officer, Debra Koenig.  |
|        |                                                                                                                                                    |
|        | Current report on Form 8-K  on May 11, 2007 regarding the employment agreement for the Company’s current  Chief Executive Officer, Kenneth Keymer. |
|        |                                                                                                                                                    |
|        | Current report on Form 8-K on May 31, 2007,  announcing the financial results for the second quarter of fiscal 2007 ended  April 19, 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: May 31, 2007 |                                                      |
|               |                                                      |
|               |                                                      |
|               | /s/ Kenneth Keymer                                        |   |
|               | Kenneth Keymer                                            |
|               | Chief Executive Officer                                   |
|               | (Principal Executive Officer)                             |
|               |                                                      |
|               |                                                      |
| Date: May 31, 2007 |                                                      |
|               |                                                      |
|               |                                                      |
|               | /s/ Anthony Carroll                                       |   |
|               | Anthony Carroll                                           |
|               | Chief Financial Officer and Chief Administrative  Officer |
|               | (Principal Financial and Accounting Officer)              |
|                    |                                                           |  |  |

 

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