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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 endedJune 14, 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
(Address of principal executive offices) (Zip code) (316) 634-0505
(Registrants telephone number, including area code) Indicate by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. þ     Yes     No     o Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). þ     Yes     No     o Indicate the number of shares outstanding of each of the issuers classes of common stock, as
of the latest practicable date. Class
    
    Outstanding at July 21, 2005Common Stock, $.01 par value
    
    10,016,250 shares




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FOX & HOUND RESTAURANT GROUP Index PageNumberPART I. FINANCIAL INFORMATIONItem 1. Condensed Financial Statements (unaudited)Condensed Consolidated Balance Sheets at
June 14, 2005 and December 28, 2004
    
    
    2Condensed Consolidated Income Statements
for the twelve weeks ended
June 14, 2005 and June 15, 2004
    
    
    3Condensed Consolidated Income Statements
for the twenty-four weeks ended
June 14, 2005 and June 15, 2004
    
    
    4Condensed Consolidated Statements of
Cash Flows for the twenty-four weeks ended
June 14, 2005 and June 15, 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 4. Submission of Matters to a Vote of Stockholders
    
    
    14Item 6. Exhibits and Reports on Form 8-K
    
    
    14Certificate of Incorporation of RegistrantAmendment to Certificate of Incorporation of RegistrantAmendment to Certificate of Incorporation of RegistrantAmendment to 1997 Incentive and Non-Qualified Stock Option PlanAmendment to 1997 Directors Stock Option PlanCertification Pursuant to Section 302Certification Pursuant to Section 302Certification Pursuant to Section 906Certification Pursuant to Section 906
 - 1 -




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FOX & HOUND RESTAURANT GROUP 
 Condensed Consolidated Balance Sheets
 (in thousands)
 (Unaudited)
 June 14,2005
    
    
    December 28, 2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    644
    
    
    $
    812Inventories
    
    
    2,571
    
    
    
    2,486Prepaid income taxes
    
    
    
    
    
    
    97Prepaid insurance
    
    
    1,266
    
    
    
    1,705Prepaid rent
    
    
    579
    
    
    
    1,088Other current assets
    
    
    839
    
    
    
    717Total current assets
    
    
    5,899
    
    
    
    6,905Property and equipment:Land
    
    
    600
    
    
    
    600Buildings
    
    
    703
    
    
    
    703Leasehold improvements
    
    
    68,951
    
    
    
    59,807Equipment
    
    
    32,904
    
    
    
    30,597Furniture and fixtures
    
    
    9,702
    
    
    
    9,150Property under capital leases
    
    
    918
    
    
    
    918113,778
    
    
    
    101,775Less accumulated depreciation and amortization
    
    
    37,631
    
    
    
    33,39476,147
    
    
    
    68,381Other assets:Goodwill, net of accumulated amortization
    
    
    3,661
    
    
    
    3,661Liquor licenses, net
    
    
    1,196
    
    
    
    1,256Other assets
    
    
    166
    
    
    
    364Total other assets
    
    
    5,023
    
    
    
    5,281Total assets
    
    $
    87,069
    
    
    $
    80,567LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of obligation under capital leases
    
    $
    8
    
    
    $
    8Accounts payable
    
    
    5,321
    
    
    
    2,906Checks outstanding in excess of cash balance
    
    
    584
    
    
    
    3,247Sales tax payable
    
    
    1,621
    
    
    
    1,257Accrued payroll
    
    
    1,744
    
    
    
    1,626Accrued payroll taxes
    
    
    1,012
    
    
    
    806Accrued income taxes
    
    
    2,236
    
    
    
    Deferred income taxes
    
    
    340
    
    
    
    797Other accrued liabilities
    
    
    3,018
    
    
    
    2,494Total current liabilities
    
    
    15,884
    
    
    
    13,141Notes payable
    
    
    2,510
    
    
    
    3,680Obligations under capital leases, net of current portion
    
    
    885
    
    
    
    889Deferred taxes
    
    
    1,876
    
    
    
    1,830Deferred revenue
    
    
    22
    
    
    
    Accrued rent
    
    
    8,341
    
    
    
    7,938Stockholders equity:Preferred stock
    
    
    
    
    
    
    Common stock
    
    
    100
    
    
    
    99Additional paid-in capital
    
    
    29,714
    
    
    
    29,306Retained earnings
    
    
    27,737
    
    
    
    23,684Total stockholders equity
    
    
    57,551
    
    
    
    53,089Total liabilities and stockholders equity
    
    $
    87,069
    
    
    $
    80,567
 See accompanying notes. - 2 -




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FOX & HOUND RESTAURANT GROUP 
 Condensed Consolidated Income Statements
 (in thousands, except per share information)
 (Unaudited)
 Twelve
    
    
    Twelveweeks ended
    
    
    weeks endedJune 14,2005
    
    
    June 15,2004(restated)Sales:Food and beverage
    
    $
    33,752
    
    
    $
    29,021Entertainment and other
    
    
    2,090
    
    
    
    2,120Total net sales
    
    
    35,842
    
    
    
    31,141Costs and expenses:Costs of sales
    
    
    9,699
    
    
    
    8,616Restaurant operating expenses
    
    
    19,945
    
    
    
    16,995Depreciation and amortization
    
    
    2,163
    
    
    
    1,802Preopening costs
    
    
    560
    
    
    
    638Asset impairment
    
    
    
    
    
    
    2,523Restaurant costs and expenses
    
    
    32,367
    
    
    
    30,574Restaurant operating income
    
    
    3,475
    
    
    
    567General and administrative expenses
    
    
    2,007
    
    
    
    1,749Gain on disposal of assets
    
    
    25
    
    
    
    Income (loss) from operations
    
    
    1,493
    
    
    
    (1,182
    )Other income (expense):Other income
    
    
    15
    
    
    
    Interest expense
    
    
    (33
    )
    
    
    (44
    )Income (loss) before income taxes
    
    
    1,475
    
    
    
    (1,226
    )Provision for income taxes
    
    
    410
    
    
    
    (371
    )Net income (loss)
    
    
    1,065
    
    
    
    (855
    )Basic earnings (loss) per share
    
    $
    0.11
    
    
    
    ($0.09
    )Diluted earnings (loss) per share
    
    $
    0.10
    
    
    
    ($0.09
    )
 See accompanying notes. - 3 -




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FOX & HOUND RESTAURANT GROUP 
 Condensed Consolidated Income Statements
 (in thousands, except per share information)
 (Unaudited)
 Twenty-four
    
    
    Twenty-fourweeks ended
    
    
    weeks endedJune 14,2005
    
    
    June 15,2004(restated)Sales:Food and beverage
    
    $
    70,826
    
    
    $
    60,442Entertainment and other
    
    
    4,371
    
    
    
    4,546Total net sales
    
    
    75,197
    
    
    
    64,988Costs and expenses:Costs of sales
    
    
    20,101
    
    
    
    17,732Restaurant operating expenses
    
    
    39,949
    
    
    
    33,978Depreciation and amortization
    
    
    4,259
    
    
    
    3,537Preopening costs
    
    
    953
    
    
    
    1,070Asset impairment
    
    
    
    
    
    
    2,523Restaurant costs and expenses
    
    
    65,262
    
    
    
    58,840Restaurant operating income
    
    
    9,935
    
    
    
    6,148General and administrative expenses
    
    
    4,025
    
    
    
    3,494Gain on disposal of assets
    
    
    25
    
    
    
    Income from operations
    
    
    5,935
    
    
    
    2,654Other income (expense):Other income
    
    
    15
    
    
    
    3Interest expense
    
    
    (82
    )
    
    
    (96
    )Income before income taxes
    
    
    5,868
    
    
    
    2,561Provision for income taxes
    
    
    1,815
    
    
    
    775Net income
    
    
    4,053
    
    
    
    1,786Basic earnings per share
    
    $
    0.41
    
    
    $
    0.18Diluted earnings per share
    
    $
    0.39
    
    
    $
    0.17
 See accompanying notes. - 4 -




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FOX & HOUND RESTAURANT GROUP 
 Condensed Consolidated Statements of Cash Flows
 (in thousands)
 (Unaudited)
 Twenty-four
    
    
    Twenty-fourweeks ended
    
    
    weeks endedJune 14,2005
    
    
    June 15,2004(restated)Cash flows from operating activities:Net income
    
    $
    4,053
    
    
    $
    1,786Adjustments to reconcile net income to net cash
provided by operating activities:Asset impairment
    
    
    
    
    
    
    2,523Gain on disposal of assets
    
    
    (25
    )
    
    
    Depreciation and amortization
    
    
    4,311
    
    
    
    3,582Deferred income taxes
    
    
    (411
    )
    
    
    (1,124
    )Net change in operating assets and liabilities:Change in operating assets
    
    
    1,151
    
    
    
    790Change in operating liabilities
    
    
    2,181
    
    
    
    1,820Net cash provided by operating activities
    
    
    11,260
    
    
    
    9,377Cash flows from investing activities:Purchases of property and equipment
    
    
    (10,565
    )
    
    
    (10,962
    )Advances to developer
    
    
    
    
    
    
    297Purchases of liquor licenses
    
    
    
    
    
    
    (571
    )Proceeds from disposal of assets
    
    
    25
    
    
    
    Net cash used in investing activities
    
    
    (10,540
    )
    
    
    (11,236
    )Cash flows from financing activities:Proceeds from revolving note payable to bank
    
    
    21,415
    
    
    
    18,975Payments of revolving note payable to bank
    
    
    (22,585
    )
    
    
    (17,650
    )Payments under capital lease obligations
    
    
    (4
    )
    
    
    (4
    )Proceeds from exercise of stock options
    
    
    286
    
    
    
    379Net cash provided by (used in) financing activities
    
    
    (888
    )
    
    
    1,700Net decrease in cash and cash equivalents
    
    
    (168
    )
    
    
    (159
    )Cash and cash equivalents at beginning of period
    
    
    812
    
    
    
    813Cash and cash equivalents at end of period
    
    $
    644
    
    
    $
    654Supplemental disclosure of cash flow information:Cash paid for interest
    
    
    96
    
    
    
    40Cash paid for income taxes, net of refunds received
    
    
    (230
    )
    
    
    (109
    )Supplemental disclosure of non cash activity:Additions to property and equipment in accounts payable
    
    
    430
    
    
    
    (383
    )Tax benefit related to stock options exercised
    
    
    123
    
    
    
    128
 See accompanying notes. - 5 -




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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 The unaudited condensed consolidated financial statements have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission. The information
furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments)
which are, in the opinion of management, necessary to fairly present the operating results for the
respective periods. Certain information and footnote disclosures normally presented in annual
financial statements prepared in accordance with generally accepted accounting principles have been
omitted pursuant to such rules and regulations. These financial statements should be read in
conjunction with the Companys audited consolidated financial statements in its 2004 Form 10-K.
The results of the twelve weeks and twenty-four weeks ended June 14, 2005 are not necessarily
indicative of the results to be expected for the full year ending December 27, 2005. 2.Restatement of Financial Statements Following a review of lease accounting and leasehold amortization polices, we determined that it
was appropriate to adjust certain of our prior financial statements. As a result, we have restated
all of our historical consolidated financial statements for periods prior to the fourth quarter of
2004. Historically, when accounting for leases with renewal options, we recorded rent expense on a
straight-line basis over the initial non-cancelable lease term, with the term commencing on the
initial date of the lease agreement. We also used only the initial non-cancelable lease term in
the determination of capital leases. We amortized our leasehold improvements and other long-lived
assets on those properties over a period that included both the initial non-cancelable lease term
and all option periods provided for in the lease (or the useful life of the assets, if shorter).
Additionally, tenant allowances received from the lessor were recorded as a reduction of the
related leasehold improvements. We now have restated our financial statements to recognize rent
expense on a straight-line basis over the expected lease term, including cancelable option periods
where failure to exercise such options would result in an economic penalty, not to exceed fifteen
years (unless the initial lease term is in excess of fifteen years). The expected lease term,
including cancelable option periods where failure to exercise such options would result in an
economic penalty, not to exceed fifteen years (unless the initial lease term is in excess of
fifteen years), is also being utilized in the determination of capital leases. Additionally, the
estimated useful life of leasehold improvements for amortization purposes was reduced from twenty
years to fifteen years, or the remaining life of the lease, whichever is less. The lease term
commences on the date when we have full access to the property. Lease expenses from the date we
have full access to the property to the completion of construction are capitalized as leasehold
improvements. Tenant allowances are being recorded as accrued rent when received and included as a
reduction in the straight-line rent calculation described above. We also had one lease
reclassified from operating to capital as a result of these adjustments. The impact of these adjustments on the condensed consolidated income statements and cash flows for
the periods ended June 14, 2005 is shown in the tables below. The Restatement decreased reported
diluted net earnings per share by $0.04 for the twelve weeks ended June 15, 2004 and $0.04 for the
twenty-four weeks ended June 15, 2004. The Restatement did not have any impact on our previously
reported cash balances, sales or same-restaurant sales or on our compliance with any covenant under
our credit facility or other debt instruments. - 6 -




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Net Income Adjustments Related to Restatement
(in thousands, except per share data) Twelve weeks ended June 15, 2004
    
    
    Twenty-four weeks ended June 15, 2004AsReported
    
    
    Adjustments
    
    
    As Restated
    
    
    As Reported
    
    
    Adjustments
    
    
    As RestatedRestaurant operating expenses
    
    $
    16,998
    
    
    $
    (3
    )
    
    $
    16,995
    
    
    $
    33,970
    
    
    $
    8
    
    
    $
    33,978Depreciation and amortization
    
    
    1,554
    
    
    
    248
    
    
    
    1,802
    
    
    
    3,058
    
    
    
    479
    
    
    
    3,537Impairment
    
    
    2,365
    
    
    
    158
    
    
    
    2,523
    
    
    
    2,365
    
    
    
    158
    
    
    
    2,523Restaurant costs and expenses
    
    
    30,171
    
    
    
    403
    
    
    
    30,574
    
    
    
    58,195
    
    
    
    645
    
    
    
    58,840Restaurant operating income
    
    
    970
    
    
    
    (403
    )
    
    
    567
    
    
    
    6,793
    
    
    
    (645
    )
    
    
    6,148Income (loss) from operations
    
    
    (779
    )
    
    
    (403
    )
    
    
    (1,182
    )
    
    
    3,299
    
    
    
    (645
    )
    
    
    2,654Interest expense
    
    
    27
    
    
    
    17
    
    
    
    44
    
    
    
    62
    
    
    
    34
    
    
    
    96Income (loss) before income
taxes
    
    
    (806
    )
    
    
    (420
    )
    
    
    (1,226
    )
    
    
    3,240
    
    
    
    (679
    )
    
    
    2,561Income taxes
    
    
    (290
    )
    
    
    (81
    )
    
    
    (371
    )
    
    
    1,082
    
    
    
    (307
    )
    
    
    775Net income (loss)
    
    
    (516
    )
    
    
    (339
    )
    
    
    (855
    )
    
    
    2,158
    
    
    
    (372
    )
    
    
    1,786Basic net earnings (loss)
per share
    
    
    (0.05
    )
    
    
    (0.04
    )
    
    
    (0.09
    )
    
    
    0.22
    
    
    
    (0.04
    )
    
    
    0.18Diluted net earnings (loss)
per share
    
    
    (0.05
    )
    
    
    (0.04
    )
    
    
    (0.09
    )
    
    
    0.21
    
    
    
    (0.04
    )
    
    
    0.17
 Cash Flow Adjustments Related to Restatement
(in thousands, except per share data) Twenty-four weeks ended June 15, 2004As Reported
    
    
    Adjustments
    
    
    As RestatedNet cash provided
by operating
activities
    
    $
    7,114
    
    
    $
    2,263
    
    
    $
    9,377Net cash used in
investing
activities
    
    
    (8,977
    )
    
    
    (2,259
    )
    
    
    (11,236
    )Net cash provided
by financing
activities
    
    
    1,704
    
    
    
    (4
    )
    
    
    1,700
 3.Accounting for Stock-Based Compensation In accordance with Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees, the Company uses the intrinsic value-based method for measuring stock-based
compensation cost which measures compensation cost as the excess, if any, of the quoted market
price of Companys common stock at the grant date over the amount the employee must pay for the
stock. The Companys policy is to grant stock options with grant prices equal to the fair value of
the Companys common stock at the date of grant. Proceeds from the exercise of common stock options
issued to officers, directors and key employees under the Companys stock option plans are credited
to common stock to the extent of par value and to additional paid-in capital for the excess. Pro forma information regarding net income and earnings per share is required by Statement No.
123, which also requires the information be determined as if the Company has accounted for its
employee stock options granted under the fair value of that Statement. The fair value method for
these options were estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions: risk-free
interest rate ranging from 2.9% to 5.3%; no dividend yields; volatility factor ranging from
0.281 to 0.853; and a weighted-average expected life of the option of 5 years. The Black-Scholes option valuation model was developed for use in estimating the fair value of
traded options which have no vesting restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions, including the expected stock
price volatility. Because the Companys employee stock options have characteristics significantly
different from those of traded options, and because changes in the - 7 -




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subjective input assumptions can
materially affect the fair value estimate, in managements opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to
expense over the options vesting period. The Companys pro forma information is as follows: Twelve Weeks Ended
    
    
    Twenty-four Weeks EndedJune 14,
    
    
    June 15,
    
    
    June 14,
    
    
    June 15,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income (loss), as reported
    
    $
    1,065
    
    
    $
    (855
    )
    
    $
    4,053
    
    
    $
    1,786Pro forma stock-based employee
compensation cost, net of tax
    
    
    154
    
    
    
    155
    
    
    
    326
    
    
    
    318Pro forma net income (loss)
    
    $
    911
    
    
    $
    (1,010
    )
    
    $
    3,727
    
    
    $
    1,468Earnings per share:Basic, as reported
    
    $
    0.11
    
    
    $
    (0.09
    )
    
    $
    0.41
    
    
    $
    0.18Basic, pro forma
    
    
    0.09
    
    
    
    (0.10
    )
    
    
    0.37
    
    
    
    0.15Diluted, as reported
    
    
    0.10
    
    
    
    (0.09
    )
    
    
    0.39
    
    
    
    0.17Diluted, pro forma
    
    
    0.09
    
    
    
    (0.10
    )
    
    
    0.36
    
    
    
    0.14Weighted average fair value of options
granted during the period
    
    $
    4.45
    
    
    $
    5.33
    
    
    $
    4.52
    
    
    $
    5.17
 4.Stock Options During the twelve week period ended June 14, 2005, the Company granted to certain key
employees stock options for 17,000 shares of Common Stock at a weighted-average exercise price of
$11.41 per share and options to purchase 17,025 shares were exercised at a weighted-average
exercise price of $5.98 per share pursuant to its 1997 Incentive and Nonqualified Stock Option
Plan. Options to purchase 60,000 shares were granted at a weighted-average exercise price of
$10.95 per share and options to purchase 12,611 shares were exercised at a weighted-average
exercise price of $5.69 per share pursuant to its 1997 Directors Stock Option Plan. 5.Earnings Per Share Basic earnings per share amounts are computed based on the weighted average number of shares
actually outstanding. The number of weighted averaged shares outstanding for the twelve week
periods ended June 14, 2005 and June 15, 2004 were 9,996,628 and 9,888,512, respectively; the
number of weighted average shares outstanding for the twenty-four week periods ended June 14, 2005
and June 15, 2004 were 9,978,937 and 9,869,512, respectively. Diluted earnings per share are computed similar to basic earnings per share except that the
weighted average shares outsanding are increased to include additional shares for the assumed
exercise of stock options, if dilutive. The number of additional shares is calculated by assuming
that outstanding stock options were exercised and the proceeds from such exercises were used to
acquire common shares at an average price during the reporting period. The number of shares
resulting from this computation of diluted earnings per share for the twelve weeks ended June 14,
2005 and June 15, 2004 were 10,420,190 and 10,487,462, respectively, and for the twenty-four week
periods ended June 14, 2005 and June 15, 2004 were 10,397,248 and 10,465,002, respectively. - 8 -




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Item 2.Managements Discussion and Anaysis of Financial Condition and Results of
Operations General The following discussion and analysis should be read in conjunction with the Financial
Statements and Notes thereto included elsewhere in this Form 10-Q. As of June 14, 2005, the Company owned and operated 80 restaurants under the Fox and Hound
Smokehouse & Tavern, Fox and Hound English Pub & Grille, and Fox and Hound Pub & Grille (Fox and
Hound), Baileys Smokehouse & Tavern, Baileys Sports Grille and Baileys Pub & Grille
(Baileys) brand names. The Companys restaurants offer a broad menu of mid-priced appetizers,
entrees, and desserts served in generous portions. In addition, each location features a
full-service bar and offers a wide selection of major domestic, imported and specialty beers. Each
restaurant emphasizes a high energy environment with multiple billiard tables and satellite and
cable coverage of a variety of sporting events and music videos. In addition to our food, the
Company believes that customers are attracted to the elegant yet comfortable atmosphere of dark
wood interiors, polished brass, embroidered chairs and booths, and etched glass. The Fox and Hound
and Baileys restaurants share identical design and operational principles and menus. As of June
14, 2005, the Company owned and operated 61 Fox and Hound restaurants and 19 Baileys restaurants
located in Alabama, Arizona, Arkansas, Colorado, Georgia, Illinois, Indiana, Kansas, Louisiana,
Michigan, Missouri, Nebraska, New Mexico, North Carolina, Ohio, Oklahoma, Pennsylvania, South
Carolina, Tennessee, Texas and Virginia. As of June 15, 2004, the Company owned and operated 52
Fox and Hound restaurants and 17 Baileys restaurants. The components of the Companys net sales are food and non-alcoholic beverages, alcoholic
beverages, and entertainment and other (principally billiard table rental fees). For the twelve
weeks ended June 14, 2005, food and non-alcoholic beverages were 37.1% of total sales, alcoholic
beverages were 57.1% of total sales and entertainment and other were 5.8% of total sales. For the
twelve weeks ended June 15, 2004, food and non-alcoholic beverages were 35.3% of total sales,
alcoholic beverages were 57.9% of total sales and entertainment and other were 6.8% of total sales. The components of the Companys cost of sales primarily include direct costs of food,
non-alcoholic beverages and alcoholic beverages. These costs are generally variable and will
fluctuate with changes in sales volume and sales mix. Components of restaurant operating expenses include operating payroll and fringe benefits, and
occupancy, maintenance and utilities. All but one of the Companys locations are leased and
provide for a minimum annual rent, with some leases calling for additional rent based on sales
volume at the particular location in excess of specified minimum sales levels. Depreciation and amortization costs primarily include depreciation and amortization of capital
expenditures for restaurants. Preopening costs include labor costs, costs of hiring and training personnel and certain other
costs relating to opening new restaurants. General and administrative expenses include all corporate and administrative functions that
support existing operations and provide an infrastructure to support future growth. Management,
supervisory and staff salaries, employee benefits, travel, information systems, training, rent and
office supplies as well as accounting services fees are major items of costs in this category. In calculating comparable restaurant sales, the Company includes a restaurant in the
comparable restaurant base after it has been in operation for 18 full months. As of June 14, 2005,
there were 63 restaurants in the comparable restaurant base. Annualized average weekly sales are
computed by dividing net sales during the period by the number of store operating weeks and
multiplying the result by 52. Results of Operations The following table sets forth for the periods indicated (i) the percentages which certain
items included in the Condensed Consolidated Statement of Operations bear to net sales, and (ii)
other selected operating data. The Company operates on a 52 or 53 week fiscal year ending the last
Tuesday in December. Fiscal years 2004 and 2005 each consists of 52 weeks. Fiscal quarters
consist of three accounting periods of 12 weeks each and a final period of 16 or 17 weeks. - 9 -




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##### Table of Contents



Twelve Weeks Ended
    
    Twenty-four Weeks EndedJune 14,
    
    
    June 15,
    
    
    June 14,
    
    
    June 15,2005
    
    
    2004
    
    
    2005
    
    
    2004(restated)
    
    


    
    
    (restated)Operating Statement Data:Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Costs and expenses:Costs of sales
    
    
    27.1
    
    
    
    27.7
    
    
    
    26.7
    
    
    
    27.3Restaurant operating expenses
    
    
    55.6
    
    
    
    54.6
    
    
    
    53.1
    
    
    
    52.3Depreciation and amortization
    
    
    6.0
    
    
    
    5.8
    
    
    
    5.7
    
    
    
    5.4Preopening costs
    
    
    1.6
    
    
    
    2.0
    
    
    
    1.3
    
    
    
    1.6Asset impairment
    
    
    
    
    
    
    8.1
    
    
    
    
    
    
    
    3.9Restaurant costs and expenses
    
    
    90.3
    
    
    
    98.2
    
    
    
    86.8
    
    
    
    90.5Restaurant operating income
    
    
    9.7
    
    
    
    1.8
    
    
    
    13.2
    
    
    
    9.5General and administrative expenses
    
    
    5.6
    
    
    
    5.6
    
    
    
    5.3
    
    
    
    5.4Gain on disposal of assets
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    Income (loss) from operations
    
    
    4.2
    
    
    
    (3.8
    )
    
    
    7.9
    
    
    
    4.1Interest expense
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1Income (loss) before income taxes
    
    
    4.1
    
    
    
    (3.9
    )
    
    
    7.8
    
    
    
    4.0Income tax expense (benefit)
    
    
    1.1
    
    
    
    (1.2
    )
    
    
    2.4
    
    
    
    1.2Net income (loss)
    
    
    3.0
    %
    
    
    (2.7
    )%
    
    
    5.4
    %
    
    
    2.8
    %Restaurant Operating Data (dollars in thousands):Annualized average weekly sales per location
    
    $
    1,995
    
    
    $
    2,019
    
    
    $
    2,124
    
    
    $
    2,137Number of restaurants at end of the period
    
    
    80
    
    
    
    69
    
    
    
    80
    
    
    
    69
 Twelve Weeks Ended June 14, 2005 Compared to Twelve Weeks Ended June 15, 2004 Net sales increased $4,701,000 (15.1%) for the twelve weeks ended June 14, 2005 to $35,842,000
from $31,141,000 for the twelve weeks ended June 15, 2004. This increase was due to a 16.6%
increase in store weeks (934 versus 802) as a result of eleven restaurants opened since June 15,
2004 offset by a 1.2% decrease in annualized average weekly sales per location. Comparable
restaurant sales decreased 0.9% for the quarter ended June 14, 2005. Costs of sales increased $1,083,000 (12.6%) for the twelve weeks ended June 14, 2005 to
$9,699,000 from $8,616,000 in the twelve weeks ended June 15, 2004, and decreased as a percentage
of sales to 27.1% from 27.7%. This decrease as a percentage of sales is principally attributable
to a decrease in promotional activities. Restaurant operating expenses increased $2,950,000 (17.4%) for the twelve weeks ended June 14,
2005 to $19,945,000 from $16,995,000 in the twelve weeks ended June 15, 2004, and increased as a
percentage of net sales to 55.6% from 54.6%. This increase as a percentage of sales was
attributable to an increase in hourly labor, advertising expense and occupancy costs offset by a
decrease in health and workers comp insurance costs. Depreciation and amortization increased $361,000 (20.0%) for the twelve weeks ended June 14,
2005 to $2,163,000 from $1,802,000 in the twelve weeks ended June 15, 2004, and increased as a
percentage of sales to 6.0% from 5.8%. This increase in expense as a percentage of sales is due to
additional depreciation on eleven restaurants opened since June 15, 2004 offset by lower
depreciation on assets impaired in the second quarter of fiscal 2004 as well as assets which became
fully depreciated in the past year. Preopening costs decreased $78,000 (12.2%) for the twelve weeks ended June 14, 2005 to
$560,000 from $638,000 in the twelve weeks ended June 15, 2004. These costs are attributable to
three units that opened during the twelve weeks ended June 14, 2005 and partial preopening expenses
for two restaurants which have yet to open. Three restaurants were opened in the twelve weeks
ended June 15, 2004. The provision for asset impairment of $2,523,000 for the twelve weeks ended June 15, 2004,
reflects the charges made for the write down of restaurant assets related to two underperforming
units. We periodically review our long-lived assets that are held and used in our restaurant
operations for indications of impairment. As of June 14, 2005, we have no plans to close either of
these units. General and administrative expenses increased $258,000 (14.8%) for the twelve weeks ended June
14, 2005 to $2,007,000 from $1,749,000 in the twelve weeks ended June 15, 2004, due to an increase
in corporate infrastucture - 10 -




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##### Table of Contents



to support the Companys expansion. General and administrative expenses
as a percentage of net sales remained at 5.6%. Gain on disposal of assets was $25,000 for the twelve weeks ended June 14, 2005. The gain
reflects the disposal of a liquor license from a restaurant which was closed in 2002. Interest expense was $33,000 for the twelve weeks ended June 14, 2005 and $44,000 for the
twelve weeks ended June 15, 2004. This decrease is due to a lower average balance applicable to
the revolving note payable in the current fiscal year compared with the prior fiscal year partially
offset by a higher interest rate. The effective income tax rate was 27.8% for the twelve weeks ended June 14, 2005 and 30.3% for
the twelve weeks ended June 15, 2004. This decrease is due to a change in the full year projected
effective tax rate from 32.0% at the end of the first quarter of 2005 to 30.9% at the end of the
second quarter of 2005. Twenty-four Weeks Ended June 14, 2005 Compared to Twenty-four Weeks Ended June 15, 2004 Net sales increased $10,209,000 (15.7%) for the twenty-four weeks ended June 14, 2005 to
$75,197,000 from $64,988,000 for the twenty-four weeks ended June 15, 2004. This
increase was due to a 16.5% increase in store weeks (1,841 versus 1,581) as a result of eleven
restaurants opened since June 15, 2004 offset by a 0.6% decrease in annualized average weekly sales
per location. Comparable restaurant sales decreased 0.1% for the twenty-four weeks ended June 14,
2005. Costs of sales increased $2,369,000 (13.4%) for the twenty-four weeks ended June 14, 2005 to
$20,101,000 from $17,732,000 in the twenty-four weeks ended June 15, 2004, and decreased as a
percentage of sales to 26.7% from 27.3%. This decrease as a percentage of sales is principally
attributable to a decrease in promotional activities. Restaurant operating expenses increased $5,971,000 (17.6%) for the twenty-four weeks ended
June 14, 2005 to $39,949,000 from $33,978,000 in the twenty-four weeks ended June 15, 2004, and
increased as a percentage of net sales to 53.1% from 52.3%. This increase as a percentage of sales
was attributable to an increase in hourly labor and occupancy costs offset by a decrease in health
and workers comp insurance costs. Depreciation and amortization increased $722,000 (20.4%) for the twenty-four weeks ended June
14, 2005 to $4,259,000 from $3,537,000 in the twenty-four weeks ended June 15, 2004, and increased
as a percentage of sales to 5.7% from 5.4%. This increase in expense as a percentage of sales is
due to additional depreciation on eleven restaurants opened since June 15, 2004 offset by lower
depreciation on assets impaired in the second quarter of fiscal 2004 as well as assets which became
fully depreciated in the past year. Preopening costs decreased $117,000 (10.9%) for the twenty-four weeks ended June 14, 2005 to
$953,000 from $1,070,000 in the twenty-four weeks ended June 15, 2004. These costs are
attributable to five units that opened during the twenty-four weeks ended June 14, 2005 and partial
preopening expenses for two restaurants which have yet to open. Five restaurants were opened in
the twenty-four weeks ended June 15, 2004. The provision for asset impairment of $2,523,000 for the twenty-four weeks ended June 15,
2004, reflects the charges made for the write down of restaurant assets related to two
underperforming units. We periodically review our long-lived assets that are held and used in our
restaurant operations for indications of impairment. As of June 14, 2005, we have no plans to
close either of these units. General and administrative expenses increased $531,000 (15.2%) for the twenty-four weeks ended
June 14, 2005 to $4,025,000 from $3,494,000 in the twenty-four weeks ended June 15, 2004, due to an
increase in corporate infrastucture to support the Companys expansion. General and administrative
costs as a percentage of sales decreased from 5.4% for the twenty-four weeks ended June 15, 2004 to
5.3% for the twenty-four weeks ended June 14, 2005. Gain on disposal of assets was $25,000 for the twenty-four weeks ended June 14, 2005. The gain
reflects the disposal of a liquor license from a restaurant which was closed in 2002. Interest expense was $82,000 for the twenty-four weeks ended June 14, 2005 and $96,000 for the
twenty-four weeks ended June 15, 2004. This decrease is due to a lower average balance applicable
to the revolving note payable in the current fiscal year compared with the prior fiscal year
partially offset by a higher interest rate. The effective income tax rate was 30.9% for the twenty-four weeks ended June 14, 2005 and
30.3% for the twenty-four weeks ended June 15, 2004. This increase is due primarily to the impact
of the credit for social security taxes paid on tips in excess of minimum wage relative to the
amount of income before taxes. Quarterly Fluctuations, Seasonality and Inflation The timing of new unit openings will result in significant fluctuations in quarterly results.
The Company expects seasonality to continue to be a factor in the results of its business in the
future due to expected lower second and third quarter revenues due to the summer season. The
primary inflationary factors affecting the Companys - 11 -




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##### Table of Contents



operations include food, liquor and labor
costs. A large number of the Companys restaurant personnel are tipped employees who are paid at
the federal subminimum wage level; therefore, future subminimum wage changes will have a
significant effect on labor costs. Historically, inflation has not had a material impact on
operating margins. As costs of food and labor have increased, the Company has previously been able
to offset these increases through economies of scale, improved operating procedures and menu price
changes. However, during fiscal 2004, the Company experienced significant increases in certain
commodity prices above historical levels which negatively impacted our costs of food and operating
margins. Additionally, competitive pressures may limit the Companys ability to fully recover cost
increases with the implementation of menu price increases. To the extent that we experience
significant increases in commodity prices, it may have a material negative impact on operating
margins. Liquidity and Capital Resources As is customary in the restaurant industry, the Company operates with negative working
capital. Negative working capital increased $3,749,000 to $9,985,000 as of June 14, 2005 from
$6,236,000 as of December 28, 2004. This increase is attributable to the costs of purchasing
property and equipment in excess of cash provided by operations and net proceeds from the line of
credit. Cash decreased $168,000 to $644,000 at June 14, 2005 compared to the balance of $812,000
at December 28, 2004. The Company does not have significant receivables or inventory and receives
trade credit based upon negotiated terms in purchasing food and supplies. Because funds available
from cash sales are not needed immediately to pay for food and supplies, or to finance inventory,
they may be considered as a source of financing for noncurrent capital expenditures. On September 1, 1998 the Company entered into a loan agreement with Intrust Bank, N.A. (the
Line of Credit) which provides for a line of credit of $20,000,000 subject to certain limitations
based on earnings before interest, taxes, depreciation and amortization of the past fifty-two weeks
and the amount of capital lease obligations on personal property. The Line of Credit is secured by
substantially all of the Companys assets. The Line of Credit requires monthly payments of
interest only until November 1, 2006, at which time equal monthly installments of principal and
interest are required as necessary to fully amortize the outstanding indebtedness plus future
interest over a period of four years. Interest is accrued at 1/2% below the prime rate as published
in The Wall Street Journal. As of June 14, 2005 the Company had borrowed $2,510,000 under the Line
of Credit. The Company is in compliance with all debt covenants. Cash flows from operations were $11,260,000 in the twenty-four weeks ended June 14, 2005
compared to $9,377,000 in the twenty-four weeks ended June 15, 2004. Purchases of property and
equipment were $10,565,000 in the twenty-four weeks ended June 14, 2005 compared to $10,962,000 in
the twenty-four weeks ended June 15, 2004. Net payments on the revolving note payable to bank was
$1,170,000 for the twenty-four week period ending June 14, 2005 compared to net proceeds of
$1,325,000 for the twenty-four weeks ending June 15, 2004. At June 14, 2005, the Company had
$644,000 in cash and cash equivalents. The Company intends to open ten to twelve new locations in fiscal year 2005 and twelve to
fifteen new locations in fiscal year 2006. At June 14, 2005, five units had been opened in fiscal
2005, three units were under construction, contracts had been executed on three additional sites,
and lease negotiations had begun on six additional sites. The Company is currently evaluating
locations in markets familiar to its management team. However, the number of locations actually
opened and the timing thereof may vary depending upon the ability of the Company to locate suitable
sites and negotiate favorable leases. The Company expects to expend approximately $20.0 to $25.0
million to open new locations over the next twelve months. The Company believes the funds available from the Line of Credit and its cash flow from
operations will be sufficient to satisfy its working capital and capital expenditure requirements
for at least the next twelve months. There can be no assurance, however, that changes in the
Companys operating plans, the acceleration or modification of the Companys expansion plans, lower
than anticipated revenues, increased expenses, stock repurchases, potential acquisitions or other
events will not cause the Company to seek additional financing sooner than anticipated, prevent the
Company from achieving the goals of its expansion strategy or prevent any newly opened locations
from operating profitably. There can be no assurance that additional financing will be available
on terms acceptable to the Company or at all. Forward Looking Statements This report contains certain forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, which are intended to be covered by the safe harbors created thereby. Although the Company
believes that the assumptions underlying the - 12 -




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##### Table of Contents



forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and, therefore, there can be no assurance
that the forward-looking statements included in this report will prove to be accurate. Our actual
results may differ materially from the forward-looking statements contained herein. Factors that
could cause actual results to differ from the results discussed in the forward-looking statements
include, but are not limited to, potential increases in food, alcohol, labor, and other operating
costs, changes in competition, the inability to find suitable new locations, changes in consumer
preferences or spending patterns, changes in demographic trends, the effectiveness of our operating
and growth initiatives and promotional efforts, and changes in government regulation. Further
information about the factors that might affect the Companys financial and other results are
included in the Companys 10-K, filed with the Securities and Exchange Commission. In light of
the significant uncertainties inherent in the forward-looking statements included herein, the
inclusion of such information should not be regarded as a representation by the Company or any
other person that the objectives and plans of the Company will be achieved. 
 Item 3.Quantitative and Qualitative Disclosures About Market Risk Interest Rate Risk The Companys Line of Credit has a variable rate which is directly affected by changes in U.S.
interest rates. The average interest rate of the Line of Credit was 5.23% for the twelve weeks
ended June 14, 2005. The interest rate at June 14, 2005 was 5.50%. On July 1, 2005 the rate
increased to 5.75%. The following table presents the quantitative interest rate risks at June 14,
2005: Principal Amount by Expected Maturity(In thousands)FairThere-
    
    
    
    
    
    
    Value(dollars in thousands)
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    after
    
    
    Total
    
    
    6/14/05Variable rate debt
    
    $
    
    
    
    $
    94
    
    
    $
    582
    
    
    $
    615
    
    
    $
    650
    
    
    $
    569
    
    
    $
    2,510
    
    
    $
    2,510Average Interest Rate
1/2% below prime
    
    
    5.75
    %
    
    
    5.75
    %
    
    
    5.75
    %
    
    
    5.75
    %
    
    
    5.75
    %
    
    
    5.75
    %
 
 Item 4.Procedures and Controls As of the end of the period covered by this report, the Company carried out an evaluation,
under the supervision and with the participation of the Companys management, including the
Companys Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design
and operation of the Companys disclosure controls and procedures pursuant to Exchange Act Rule
13a-14. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Companys disclosure controls and procedures are effective. There were no
significant changes in the Companys internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation. - 13 -




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##### Table of Contents



PART II. OTHER INFORMATION 
 Item 4.Submission of Matters to a Vote of Stockholders On May 17, 2005, the Company held its Annual Meeting of Stockholders (the Meeting). At the
Meeting, the stockholders re-elected Steven M. Johnson, Gary M. Judd, and John D. Harkey, Jr. to
the Board of Directors to serve until the 2008 Annual Meeting of Stockholders and until their
successors have been duly elected and qualified. As to the re-elected Directors, there were
6,553,037 votes For and 2,882,723 votes Withheld for Steven M. Johnson, 6,551,037 votes For
and 2,884,723 votes Withheld for Gary M. Judd, and 9,016,671 votes For and 419,089 votes
Withheld for John D. Harkey, Jr. The continuing directors and the expiration of their current
terms as directors are as follows: James K. Zielke
    
    
    2006C. Wells Hall III
    
    
    2006E. Gene Street
    
    
    2006Dennis L. Thompson
    
    
    2007James T. Morton
    
    
    2007Nester R. Weigand, Jr.
    
    
    2007
 The stockholders also ratified the appointment of KPMG LLP as the Companys independent
auditors for the year ending December 27, 2005. As to the ratification of auditors, there were
8,148,454 votes For, 1,282,406 votes Against, and 4,900 votes Abstained. The stockholders also approved an amendment to the Companys 1997 Directors Stock Option Plan
to approve an increase in authorized shares reserved for issuance pursuant to the Plan from 400,000
shares to 500,000 shares of common stock. As to the amendment, there were 6,421,192 votes For,
564,818 votes Against, 306,064 votes Abstained, and 2,143,686 votes Broker Non Vote. The stockholders also approved an amendment to the Companys 1997 Incentive and Non-Qualified
Option Plan to approve an increase in authorized shares reserved for issuance pursuant to the Plan
from 2,000,000 shares to 2,500,000 shares of common stock. As to the amendment, there were
5,619,150 votes For, 1,367,071 votes Against, 305,853 votes Abstained, and 2,143,686 votes
Broker Non Vote. The stockholders also approved an amendment to the Companys amended Certificate of
Incorporation to change the Companys corporate name to Fox & Hound Restaurant Group. As to the
amendment, there were 9,433,350 votes For, 1,390 votes Against, 1,020 votes Abstained, and
1,000 votes Broker Non Vote. 
 Item 6.Exhibits and Reports on Form 8-K Exhibits Exhibit 3.1  Certificate of Incorporation of Registrant Exhibit 3.1.1  First Amendment to Certificate of Incorporation of Registrant. Exhibit 3.1.2  Second Amendment to Certificate of Incorporation of Registrant. Exhibit 10.1  Third Amendment to 1997 Incentive and Non-Qualified Stock Option Plan of Fox &
Hound Restaurant Group Exhibit 10.2  Fourth Amendment to 1997 Directors Stock Option Plan of Fox & Hound Restaurant
Group Exhibit 31.1  Certification by Steven M. Johnson pursuant to Rule 13a-14(a) or 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Exhibit 31.2  Certification by James K. Zielke pursuant to Rule 13a-14(a) or 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Exhibit 32.1  Certification by Steven M. Johnson pursuant to Rule 13a-14(b) or 15d-14(b) and
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. - 14 -




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Exhibit 32.2  Certification by James K. Zielke pursuant to Rule 13a-14(b) or 15d-14(b) 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Reports on Form 8-K A Current Report on Form 8-K (Item 5) dated April 12, 2005, reporting the filing of Exhibit
99.1-Press release of Fox & Hound Restaurant Group A Current Report on Form 8-K (Item 12) dated April 14, 2005, reporting the filing of Exhibit
99.1-Press release of Fox & Hound Restaurant Group A Current Report on Form 8-K (Item 5) dated May 20, 2005, reporting the filing of Exhibit
99.1-Press release of Fox & Hound Restaurant Group - 15 -




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FOX & HOUND RESTAURANT GROUP 
 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed in its behalf by the undersigned thereunto duly authorized. Fox & Hound Restaurant Group(Registrant)Date
July 25, 2005
    
    
    
    /s/ James K. ZielkeJames K. ZielkeChief Financial Officer,Secretary and Treasurer(Duly Authorized Officer)
 - 16 -