##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D. C. 20549
 
 FORM 10-Q
 Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
 For the quarterly period endedSeptember 6, 2005
    
    Commission file number000-22753
 FOX & HOUND RESTAURANT GROUP
  Delaware
    
    52-2016614(State or Other Jurisdiction of
Incorporation or Organization)
    
    (I.R.S.
Employer
Identification Number)
 1551 North Waterfront Parkway
Suite 310
Wichita, Kansas 67206
 (316) 634-0505
 
 þ o
 þ o
 o o
  Class
    
    Outstanding at October 17, 2005Common Stock, $.01 par value
    
    10,029,307
shares




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FOX & HOUND RESTAURANT GROUP
 Index
  
 PageNumberPART I. FINANCIAL INFORMATIONItem 1. Condensed Financial Statements (unaudited)Condensed Consolidated Balance Sheets at
September 6, 2005 and December 28, 2004
    
    
    2Condensed Consolidated Statements of
Operations for the twelve weeks ended
September 6, 2005 and September 7, 2004
    
    
    3Condensed Consolidated Statements of
Operations for the thirty-six weeks ended
September 6, 2005 and September 7, 2004
    
    
    4Condensed Consolidated Statements of
Cash Flows for the thirty-six weeks ended
September 6, 2005 and September 7, 2004
    
    
    5Notes to Condensed Consolidated
Financial Statements
    
    
    6Item 2. Managements Discussion and
Analysis of Financial Condition and
Results of Operations
    
    
    9Item 3. Quantitative and Qualitative
Disclosures About Market Risk
    
    
    13Item 4. Procedures and Controls
    
    
    13PART II. OTHER INFORMATIONItem 5. Other Information
    
    
    14Item 6. Exhibits
    
    
    14Certification by Steven M. Johnson - Section 302Certification by James K. Zielke - Section 302Certification by Steven M. Johnson - Section 906Certification by James K. Zielke - Section 906
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FOX & HOUND RESTAURANT GROUP
 
 Condensed Consolidated Balance Sheets
 (in thousands)
 (Unaudited)
 September 6, 2005
    
    
    December 28, 2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,007
    
    
    $
    812Inventories
    
    
    2,659
    
    
    
    2,486Prepaid income taxes
    
    
    
    
    
    
    97Prepaid insurance
    
    
    1,013
    
    
    
    1,705Prepaid rent
    
    
    814
    
    
    
    1,088Other current assets
    
    
    1,102
    
    
    
    717Total current assets
    
    
    6,595
    
    
    
    6,905Property and equipment:Land
    
    
    600
    
    
    
    600Buildings
    
    
    703
    
    
    
    703Leasehold improvements
    
    
    71,256
    
    
    
    59,807Equipment
    
    
    33,681
    
    
    
    30,597Furniture and fixtures
    
    
    10,461
    
    
    
    9,150Property under capital leases
    
    
    918
    
    
    
    918117,619
    
    
    
    101,775Less accumulated depreciation and amortization
    
    
    39,987
    
    
    
    33,39477,632
    
    
    
    68,381Other assets:Goodwill, net of accumulated amortization
    
    
    3,661
    
    
    
    3,661Liquor licenses, net
    
    
    1,262
    
    
    
    1,256Other assets
    
    
    167
    
    
    
    364Total other assets
    
    
    5,090
    
    
    
    5,281Total assets
    
    $
    89,317
    
    
    $
    80,567LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of obligation under capital leases
    
    $
    8
    
    
    $
    8Accounts payable
    
    
    3,260
    
    
    
    2,906Checks outstanding in excess of cash balance
    
    
    2,378
    
    
    
    3,247Sales tax payable
    
    
    1,552
    
    
    
    1,257Accrued payroll
    
    
    1,707
    
    
    
    1,626Accrued payroll taxes
    
    
    842
    
    
    
    806Accrued income taxes
    
    
    2,793
    
    
    
    Deferred income taxes
    
    
    141
    
    
    
    798Other accrued liabilities
    
    
    3,205
    
    
    
    2,493Total current liabilities
    
    
    15,886
    
    
    
    13,141Notes payable
    
    
    4,633
    
    
    
    3,680Obligations under capital leases, net of current portion
    
    
    883
    
    
    
    889Deferred taxes
    
    
    1,543
    
    
    
    1,830Deferred revenue
    
    
    88
    
    
    
    Accrued rent
    
    
    8,441
    
    
    
    7,938Stockholders equity:Preferred stock
    
    
    
    
    
    
    Common stock
    
    
    100
    
    
    
    99Additional paid-in capital
    
    
    29,850
    
    
    
    29,306Retained earnings
    
    
    27,893
    
    
    
    23,684Total stockholders equity
    
    
    57,843
    
    
    
    53,089Total liabilities and
stockholders equity
    
    $
    89,317
    
    
    $
    80,567
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##### Table of Contents



FOX & HOUND RESTAURANT GROUP
 
 Condensed Consolidated Income Statements
 (in thousands, except per share information)
 (Unaudited)
 Twelve weeks
    
    
    Twelve weeksended
    
    
    endedSeptember 6, 2005
    
    
    September 7, 2004(restated)Sales:Food and beverage
    
    $
    34,684
    
    
    $
    29,414Entertainment and other
    
    
    2,054
    
    
    
    2,047Total net sales
    
    
    36,738
    
    
    
    31,461Costs and expenses:Costs of sales
    
    
    10,116
    
    
    
    8,697Restaurant operating expenses
    
    
    21,702
    
    
    
    18,519Depreciation and amortization
    
    
    2,365
    
    
    
    1,930Preopening costs
    
    
    293
    
    
    
    558Restaurant costs and expenses
    
    
    34,476
    
    
    
    29,704Restaurant operating income
    
    
    2,262
    
    
    
    1,757General and administrative expenses
    
    
    1,965
    
    
    
    1,523Income (loss) from operations
    
    
    297
    
    
    
    234Other income (expense):Interest expense
    
    
    (73
    )
    
    
    (76
    )Income before income taxes
    
    
    224
    
    
    
    158Provision for income taxes
    
    
    68
    
    
    
    48Net income
    
    
    156
    
    
    
    110Basic earnings per share
    
    $
    0.02
    
    
    $
    0.01Diluted earnings per share
    
    $
    0.01
    
    
    $
    0.01
  - 3 -




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##### Table of Contents



FOX & HOUND RESTAURANT GROUP
 
 Condensed Consolidated Income Statements
 (in thousands, except per share information)
 (Unaudited)
 Thirty-six weeks
    
    
    Thirty-six weeksended
    
    
    endedSeptember 6, 2005
    
    
    September 7, 2004(restated)Sales:Food and beverage
    
    $
    105,510
    
    
    $
    89,856Entertainment and other
    
    
    6,425
    
    
    
    6,593Total net sales
    
    
    111,935
    
    
    
    96,449Costs and expenses:Costs of sales
    
    
    30,217
    
    
    
    26,429Restaurant operating expenses
    
    
    61,651
    
    
    
    52,497Depreciation and amortization
    
    
    6,624
    
    
    
    5,467Preopening costs
    
    
    1,246
    
    
    
    1,628Asset impairment
    
    
    
    
    
    
    2,523Restaurant costs and expenses
    
    
    99,738
    
    
    
    88,544Restaurant operating income
    
    
    12,197
    
    
    
    7,905General and administrative expenses
    
    
    5,990
    
    
    
    5,017Gain on disposal of assets
    
    
    25
    
    
    
    Income from operations
    
    
    6,232
    
    
    
    2,888Other income (expense):Other income
    
    
    15
    
    
    
    3Interest expense
    
    
    (155
    )
    
    
    (172
    )Income before income taxes
    
    
    6,092
    
    
    
    2,719Provision for income taxes
    
    
    1,883
    
    
    
    823Net income
    
    
    4,209
    
    
    
    1,896Basic earnings per share
    
    $
    0.42
    
    
    $
    0.19Diluted earnings per share
    
    $
    0.40
    
    
    $
    0.18
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FOX & HOUND RESTAURANT GROUP
 
 Condensed Consolidated Statements of Cash Flows
 (in thousands)
 (Unaudited)
 Thirty-six weeks
    
    
    Thirty-six weeksended September
    
    
    ended September6, 2005
    
    
    7, 2004(restated)Cash flows from operating activities:Net income
    
    $
    4,209
    
    
    $
    1,896Adjustments to reconcile net income to net cash
provided by operating activities:Asset impairment
    
    
    
    
    
    
    2,523Gain on disposal of assets
    
    
    (25
    )
    
    
    Depreciation and amortization
    
    
    6,703
    
    
    
    5,536Deferred income taxes
    
    
    (944
    )
    
    
    (62
    )Net change in operating assets and liabilities:Change in operating assets
    
    
    692
    
    
    
    426Change in operating liabilities
    
    
    3,647
    
    
    
    1,883Net cash provided by operating activities
    
    
    14,282
    
    
    
    12,202Cash flows from investing activities:Purchases of property and equipment
    
    
    (15,338
    )
    
    
    (16,397
    )Advances to developer
    
    
    
    
    
    
    297Purchases of liquor licenses
    
    
    (100
    )
    
    
    (596
    )Proceeds from disposal of assets
    
    
    25
    
    
    
    Net cash used in investing activities
    
    
    (15,413
    )
    
    
    (16,696
    )Cash flows from financing activities:Proceeds from revolving note payable to bank
    
    
    34,733
    
    
    
    30,920Payments of revolving note payable to bank
    
    
    (33,780
    )
    
    
    (26,275
    )Payments under capital lease obligations
    
    
    (6
    )
    
    
    (6
    )Proceeds from exercise of stock options
    
    
    379
    
    
    
    410Net cash provided by financing activities
    
    
    1,326
    
    
    
    5,049Net increase in cash and cash equivalents
    
    
    195
    
    
    
    555Cash and cash equivalents at beginning of period
    
    
    812
    
    
    
    813Cash and cash equivalents at end of period
    
    $
    1,007
    
    
    $
    1,368Supplemental disclosure of cash flow information:Cash paid for interest
    
    
    200
    
    
    
    123Income tax refunds, net of payments
    
    
    229
    
    
    
    729Supplemental disclosure of non cash activity:Additions to property and equipment in accounts payable
    
    
    512
    
    
    
    13Tax benefit related to stock options exercised
    
    
    166
    
    
    
    250
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FOX & HOUND RESTAURANT GROUP
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
 1. Basis of Presentation and Description of Business
  2. Restatement of Financial Statements
   - 6 -




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Twelve weeks ended September 7, 2004
    
    
    Thirty-six weeks ended September 7, 2004As Reported
    
    
    Adjustments
    
    
    As Restated
    
    
    As Reported
    
    
    Adjustments
    
    
    As RestatedRestaurant operating expenses
    
    $
    18,495
    
    
    $
    24
    
    
    $
    18,519
    
    
    $
    52,465
    
    
    $
    32
    
    
    $
    52,497Depreciation and amortization
    
    
    1,662
    
    
    
    268
    
    
    
    1,930
    
    
    
    4,720
    
    
    
    747
    
    
    
    5,467Impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,365
    
    
    
    158
    
    
    
    2,523Restaurant costs and expenses
    
    
    29,412
    
    
    
    292
    
    
    
    29,704
    
    
    
    87,607
    
    
    
    937
    
    
    
    88,544Restaurant operating income
    
    
    2,049
    
    
    
    (292
    )
    
    
    1,757
    
    
    
    8,842
    
    
    
    (937
    )
    
    
    7,905Income (loss) from operations
    
    
    526
    
    
    
    (292
    )
    
    
    234
    
    
    
    3,825
    
    
    
    (937
    )
    
    
    2,888Interest expense
    
    
    59
    
    
    
    17
    
    
    
    76
    
    
    
    121
    
    
    
    51
    
    
    
    172Income (loss) before income
taxes
    
    
    467
    
    
    
    (309
    )
    
    
    158
    
    
    
    3,707
    
    
    
    (988
    )
    
    
    2,719Income taxes
    
    
    145
    
    
    
    (97
    )
    
    
    48
    
    
    
    1,227
    
    
    
    (404
    )
    
    
    823Net income (loss)
    
    
    322
    
    
    
    (212
    )
    
    
    110
    
    
    
    2,480
    
    
    
    (584
    )
    
    
    1,896Basic net earnings (loss)
per share
    
    
    0.03
    
    
    
    (0.02
    )
    
    
    0.01
    
    
    
    0.25
    
    
    
    (0.06
    )
    
    
    0.19Diluted net earnings (loss)
per share
    
    
    0.03
    
    
    
    (0.02
    )
    
    
    0.01
    
    
    
    0.24
    
    
    
    (0.06
    )
    
    
    0.18
   Thirty-six weeks ended September 7, 2004As Reported
    
    
    Adjustments
    
    
    As RestatedNet cash provided
by operating
activitiesNet cash
provided by operating activities
    
    $
    10,125
    
    
    $
    2,077
    
    
    $
    12,202Net cash used in
investing
activities
    
    
    (14,627
    )
    
    
    (2,069
    )
    
    
    (16,696
    )Net cash provided
by financing
activities
    
    
    5,057
    
    
    
    (8
    )
    
    
    5,049
 3. Accounting for Stock-Based Compensation
    - 7 -




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##### Table of Contents



Twelve Weeks Ended
    
    
    Thirty-six Weeks EndedSeptember 6,
    
    
    September 7,
    
    
    September 6,
    
    
    September 7,2005
    
    
    2004
    
    
    2005
    
    
    2004(restated)
    
    
    
    
    
    
    (restated)Net income, as reported
    
    $
    156
    
    
    $
    110
    
    
    $
    4,209
    
    
    $
    1,896Pro forma stock-based employee
compensation cost, net of tax
    
    
    159
    
    
    
    145
    
    
    
    484
    
    
    
    463Pro forma net income (loss)
    
    $
    (3
    )
    
    $
    (35
    )
    
    $
    3,725
    
    
    $
    1,433Earnings per share:Basic, as reported
    
    $
    0.02
    
    
    $
    0.01
    
    
    $
    0.42
    
    
    $
    0.19Basic, pro forma
    
    
    0.00
    
    
    
    0.00
    
    
    
    0.37
    
    
    
    0.14Diluted, as reported
    
    
    0.01
    
    
    
    0.01
    
    
    
    0.40
    
    
    
    0.18Diluted, pro forma
    
    
    0.00
    
    
    
    0.00
    
    
    
    0.36
    
    
    
    0.14Weighted average fair value of options
granted during the period
    
    $
    
    
    
    $
    5.45
    
    
    $
    4.52
    
    
    $
    5.19
 3. Stock Options
  4. Earnings Per Share
   5. Subsequent Events
   - 8 -




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##### Table of Contents



Item 2. Managements Discussion and Anaysis of Financial Condition and Results of
Operations
 General
       - 9 -




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##### Table of Contents



Results of Operations
  Twelve Weeks Ended
    
    
    Thirty-six weeks EndedSeptember 7,
    
    
    
    
    
    
    September 7,September 6,
    
    
    2004
    
    
    September 6,
    
    
    20042005
    
    
    (restated)
    
    
    2005
    
    
    (restated)Operating Statement Data:Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Costs and expenses:Costs of sales
    
    
    27.5
    
    
    
    27.6
    
    
    
    27.0
    
    
    
    27.4Restaurant operating expenses
    
    
    59.1
    
    
    
    58.9
    
    
    
    55.1
    
    
    
    54.4Depreciation and amortization
    
    
    6.4
    
    
    
    6.1
    
    
    
    5.9
    
    
    
    5.7Preopening costs
    
    
    0.8
    
    
    
    1.8
    
    
    
    1.1
    
    
    
    1.7Asset impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.6Restaurant costs and expenses
    
    
    93.8
    
    

    
    94.4
    
    
    
    89.1
    
    
    
    91.8Restaurant operating income
    
    
    6.2
    
    
    
    5.6
    
    
    
    10.9
    
    
    
    8.2General and administrative expenses
    
    
    5.4
    
    
    
    4.9
    
    
    
    5.3
    
    
    
    5.2Loss on disposal of assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income from operations
    
    
    0.8
    
    
    
    0.7
    
    
    
    5.6
    
    
    
    3.0Interest expense
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.1
    
    
    
    0.2Income before income taxes
    
    
    0.6
    
    
    
    0.5
    
    
    
    5.5
    
    
    
    2.8Income tax expense (benefit)
    
    
    0.2
    
    
    
    0.2
    
    
    
    1.7
    
    
    
    0.8Net income
    
    
    0.4
    %
    
    
    0.3
    %
    
    
    3.8
    %
    
    
    2.0
    %Restaurant Operating Data (dollars in thousands):Annualized average weekly sales per location
    
    $
    1,945
    
    
    $
    1,920
    
    
    $
    2,062
    
    
    $
    2,061Number of restaurants at end of the period
    
    
    82
    
    
    
    72
    
    
    
    82
    
    
    
    72
 Twelve Weeks Ended September 6, 2005 Compared to Twelve Weeks Ended September 7, 2004
  - 10 -




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Thirty-six weeks Ended September 6, 2005 Compared to Thirty-six weeks Ended September 7, 2004
      - 11 -




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Quarterly Fluctuations, Seasonality and Inflation
  Liquidity and Capital Resources
  1 2 The Wall Street Journal
  -12-




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##### Table of Contents



Forward Looking Statements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Interest Rate Risk
  Principal Amount by Expected Maturity(In thousands)FairThere-
    
    
    
    
    
    Value(dollars in thousands)
    
    2005
    
    2006
    
    2007
    
    2008
    
    2009
    
    after
    
    Total
    
    9/6/05Variable rate debt
    
    $
    
    
    
    $
    172
    
    
    $
    1,067
    
    
    $
    1,133
    
    
    $
    1,203
    
    
    $
    1,058
    
    
    $
    4,633
    
    
    $
    4,633Average Interest Rate
1/2% below prime
    
    
    6.00
    %
    
    
    6.00
    %
    
    
    6.00
    %
    
    
    6.00
    %
    
    
    6.00
    %
    
    
    6.00
    %
 
 Item 4. Procedures and Controls
  -13-




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 5. Other Information
  -14-




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Item 6. Exhibits
      -15-




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FOX & HOUND RESTAURANT GROUP
 
 SIGNATURES
  Fox & Hound Restaurant Group(Registrant)Date October 17, 2005
    
    
    
    /s/ James K. ZielkeJames K. ZielkeChief Financial Officer,Secretary and Treasurer(Duly Authorized Officer)
 -16-