##### Table of Contents

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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Quarterly Report Under Section 13 or 15 (d)

of the Securities Exchange Act of
1934



FOR QUARTER ENDED DECEMBER 12, 2004



COMMISSION FILE NUMBER 1-7323



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FRISCHS RESTAURANTS, INC.

(Exact name of registrant as specified in its
charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|OHIO                                                           |  | 31-0523213                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



|                                         |  |           
|---------------------------------------- |  | ----------
|2800 GILBERT AVENUE, CINCINNATI, OHIO    |  | 45206     
|(Address of principal executive offices) |  | (Zip Code)



Registrants
telephone number, including area code 513-961-2660



Not
Applicable

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



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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.    YES  x    
NO ̈



The total number of shares outstanding of the issuers no par common stock, as of December 27, 2004 was: 5,050,429



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##### Table of Contents

TABLE OF CONTENTS



|                               |  |         |  |                                                                                       |  |       
|------------------------------ |  | ------- |  | ------------------------------------------------------------------------------------- |  | ------
|                               |  |         |  |                                                                                       |  | PAGE  
|PART I - FINANCIAL INFORMATION |  |        
|                               |  |         | 
|                               |  | ITEM 1. |  | FINANCIAL STATEMENTS                                                                  |  |       
|                               |  |         | 
|                               |  |         |  | CONSOLIDATED STATEMENT OF EARNINGS                                                    |  | 3     
|                               |  |         | 
|                               |  |         |  | CONSOLIDATED BALANCE SHEET                                                            |  | 4 - 5 
|                               |  |         | 
|                               |  |         |  | CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY                                        |  | 6     
|                               |  |         | 
|                               |  |         |  | CONSOLIDATED STATEMENT OF CASH FLOWS                                                  |  | 7     
|                               |  |         | 
|                               |  |         |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                            |  | 8 -21 
|                               |  |         | 
|                               |  | ITEM 2. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |  | 22 -28
|                               |  |         | 
|                               |  | ITEM 3. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            |  | 29    
|                               |  |         | 
|                               |  | ITEM 4. |  | CONTROLS AND PROCEDURES                                                               |  | 29    
|                               | 
|PART II -
OTHER INFORMATION    |  |        
|                               |  |         | 
|                               |  | ITEM 1. |  | LEGAL PROCEEDINGS                                                                     |  | 30    
|                               |  |         | 
|                               |  | ITEM 6. |  | EXHIBITS AND REPORTS ON FORM 8-K                                                      |  | 30 -32
|                               | 
|SIGNATURE                      |  | 32     



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##### Table of Contents

Frischs Restaurants, Inc. and Subsidiaries

Consolidated Statement of Earnings

(Unaudited)



|                                          |  |                          |             |                    |   |                  |  |                  |            |  |   |           
|----------------------------------------- |  | ------------------------ | ----------- | ------------------ | - | ---------------- |  | ---------------- | ---------- |  | - | ----------
|                                          |  | Twenty-eight weeks ended |             | Twelve weeks ended
|                                          |  | December 12,2004         |             | December 14,2003   |   | December 12,2004 |  | December 14,2003
|Revenue                                   |  |                          |             |                    |   |                  |  |                  |            |  |   |           
|Sales                                     |  | $                        | 150,809,640 |                    | $ | 137,128,770      |  | $                | 66,747,477 |  | $ | 60,091,494
|Other                                     |  |                          | 733,428     |                    |   | 658,135          |  |                  | 310,573    |  |   | 292,366   
|                                          |  |                          |             |                    |   |                  |  |                  |            |  |   |           
|Total revenue                             |  |                          | 151,543,068 |                    |   | 137,786,905      |  |                  | 67,058,050 |  |   | 60,383,860
|                                          |  |                          |             |                   
|Costs and expenses                        |  |                          |             |                    |   |                  |  |                  |            |  |   |           
|Cost of sales                             |  |                          |             |                    |   |                  |  |                  |            |  |   |           
|Food and paper                            |  |                          | 52,752,737  |                    |   | 46,495,688       |  |                  | 23,338,433 |  |   | 20,290,257
|Payroll and related                       |  |                          | 50,192,330  |                    |   | 46,345,476       |  |                  | 22,199,684 |  |   | 20,458,182
|Other operating costs                     |  |                          | 30,758,207  |                    |   | 27,879,171       |  |                  | 13,203,667 |  |   | 12,319,982
|                                          |  |                          |             |                    |   |                  |  |                  |            |  |   |           
|                                          |  |                          | 133,703,274 |                    |   | 120,720,335      |  |                  | 58,741,784 |  |   | 53,068,421
|                                          |  |                          |             |                   
|Administrative and advertising            |  |                          | 7,576,408   |                    |   | 6,914,684        |  |                  | 3,251,647  |  |   | 2,956,241 
|Interest                                  |  |                          | 1,446,664   |                    |   | 1,316,295        |  |                  | 640,568    |  |   | 582,628   
|                                          |  |                          |             |                    |   |                  |  |                  |            |  |   |           
|Total costs and expenses                  |  |                          | 142,726,346 |                    |   | 128,951,314      |  |                  | 62,633,999 |  |   | 56,607,290
|                                          |  |                          |             |                    |   |                  |  |                  |            |  |   |           
|Earnings before income taxes              |  |                          | 8,816,722   |                    |   | 8,835,591        |  |                  | 4,424,051  |  |   | 3,776,570 
|                                          |  |                          |             |                   
|Income taxes                              |  |                          | 3,174,000   |                    |   | 3,137,000        |  |                  | 1,680,000  |  |   | 1,366,000 
|                                          |  |                          |             |                    |   |                  |  |                  |            |  |   |           
|NET EARNINGS                              |  | $                        | 5,642,722   |                    | $ | 5,698,591        |  | $                | 2,744,051  |  | $ | 2,410,570 
|                                          |  |                          |             |                    |   |                  |  |                  |            |  |   |           
|Earnings per share (EPS) of common stock: |  |                          |             |                    |   |                  |  |                  |            |  |   |           
|Basic net earnings per share              |  | $                        | 1.12        |                    | $ | 1.15             |  | $                | .54        |  | $ | .48       
|                                          |  |                          |             |                    |   |                  |  |                  |            |  |   |           
|Diluted net earnings per share            |  | $                        | 1.10        |                    | $ | 1.12             |  | $                | .53        |  | $ | .47       
|                                          |  |                          |             |                    |   |                  |  |                  |            |  |   |           



The accompanying notes are an integral
part of these statements.



3



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##### Table of Contents

Frischs Restaurants, Inc. and Subsidiaries

Consolidated Balance Sheet



ASSETS



|                                                    |  |                             |             |              |   |            
|--------------------------------------------------- |  | --------------------------- | ----------- | ------------ | - | -----------
|                                                    |  | December 12,2004(unaudited) |             | May 30, 2004
|Current Assets                                      |  |                             |             |              |   |            
|Cash                                                |  | $                           | 1,276,473   |              | $ | 294,410    
|Receivables                                         |  |                             |             |              |   |            
|Trade                                               |  |                             | 1,245,444   |              |   | 1,384,798  
|Other                                               |  |                             | 402,573     |              |   | 381,090    
|Inventories                                         |  |                             | 4,645,939   |              |   | 4,381,814  
|Prepaid expenses and sundry deposits                |  |                             | 2,214,082   |              |   | 2,076,319  
|Prepaid and deferred income taxes                   |  |                             | 1,024,427   |              |   | 1,024,427  
|                                                    |  |                             |             |              |   |            
|Total current assets                                |  |                             | 10,808,938  |              |   | 9,542,858  
|                                                    |  |                            
|Property and Equipment                              |  |                             |             |              |   |            
|Land and improvements                               |  |                             | 57,594,031  |              |   | 50,250,328 
|Buildings                                           |  |                             | 80,219,972  |              |   | 75,040,561 
|Equipment and fixtures                              |  |                             | 83,516,971  |              |   | 77,673,937 
|Leasehold improvements and buildings on leased land |  |                             | 20,100,228  |              |   | 19,751,361 
|Capitalized leases                                  |  |                             | 7,519,109   |              |   | 7,388,580  
|Construction in progress                            |  |                             | 509,273     |              |   | 6,918,091  
|                                                    |  |                             |             |              |   |            
|                                                    |  |                             | 249,459,584 |              |   | 237,022,858
|Less accumulated depreciation and amortization      |  |                             | 106,321,038 |              |   | 101,302,386
|                                                    |  |                             |             |              |   |            
|Net property and equipment                          |  |                             | 143,138,546 |              |   | 135,720,472
|                                                    |  |                            
|Other Assets                                        |  |                             |             |              |   |            
|Goodwill                                            |  |                             | 740,644     |              |   | 740,644    
|Other intangible assets                             |  |                             | 1,367,552   |              |   | 1,122,982  
|Investments in land                                 |  |                             | 1,148,293   |              |   | 1,148,293  
|Property held for sale                              |  |                             | 1,015,785   |              |   | 1,160,785  
|Net cash surrender value-life insurance policies    |  |                             | 4,714,303   |              |   | 4,600,873  
|Other                                               |  |                             | 2,796,741   |              |   | 2,811,047  
|                                                    |  |                             |             |              |   |            
|Total other assets                                  |  |                             | 11,783,318  |              |   | 11,584,624 
|                                                    |  |                             |             |              |   |            
|                                                    |  | $                           | 165,730,802 |              | $ | 156,847,954
|                                                    |  |                             |             |              |   |            



The accompanying notes are an integral
part of these statements.



4



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##### Table of Contents

LIABILITIES AND SHAREHOLDERS EQUITY



|                                                                                                                           |  |                             |             |              |   |            
|-------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ----------- | ------------ | - | -----------
|                                                                                                                           |  | December 12,2004(unaudited) |             | May 30, 2004
|Current Liabilities                                                                                                        |  |                             |             |              |   |            
|Long-term obligations due within one year                                                                                  |  |                             |             |              |   |            
|Long-term debt                                                                                                             |  | $                           | 7,386,321   |              | $ | 6,230,801  
|Obligations under capitalized leases                                                                                       |  |                             | 558,896     |              |   | 508,520    
|Self insurance                                                                                                             |  |                             | 1,618,183   |              |   | 1,310,191  
|Accounts payable                                                                                                           |  |                             | 13,466,529  |              |   | 13,380,257 
|Accrued expenses                                                                                                           |  |                             | 8,113,011   |              |   | 8,238,293  
|Income taxes                                                                                                               |  |                             | 590,617     |              |   | 436,265    
|                                                                                                                           |  |                             |             |              |   |            
|Total current liabilities                                                                                                  |  |                             | 31,733,557  |              |   | 30,104,327 
|                                                                                                                           |  |                            
|Long-Term Obligations                                                                                                      |  |                             |             |              |   |            
|Long-term debt                                                                                                             |  |                             | 37,801,070  |              |   | 35,226,734 
|Obligations under capitalized leases                                                                                       |  |                             | 3,448,356   |              |   | 3,221,384  
|Self insurance                                                                                                             |  |                             | 1,740,140   |              |   | 2,384,893  
|Deferred income taxes                                                                                                      |  |                             | 4,130,082   |              |   | 3,540,082  
|Deferred compensation and other                                                                                            |  |                             | 3,124,043   |              |   | 2,903,974  
|                                                                                                                           |  |                             |             |              |   |            
|Total long-term obligations                                                                                                |  |                             | 50,243,691  |              |   | 47,277,067 
|                                                                                                                           |  |                            
|Commitments                                                                                                                |  |                             |            |              |   |           
|                                                                                                                           |  |                            
|Shareholders Equity                                                                                                       |  |                             |             |              |   |            
|Capital stock                                                                                                              |  |                             |             |              |   |            
|Preferred stock - authorized, 3,000,000 shares without par value; none issued                                              |  |                             |            |              |   |           
|Common stock - authorized, 12,000,000 shares without par value; issued, 7,500,676 and 7,490,845 shares - stated value - $1 |  |                             | 7,500,676   |              |   | 7,490,845  
|Additional contributed capital                                                                                             |  |                             | 62,171,323  |              |   | 61,976,027 
|                                                                                                                           |  |                             |             |              |   |            
|                                                                                                                           |  |                             | 69,671,999  |              |   | 69,466,872 
|Retained earnings                                                                                                          |  |                             | 46,899,395  |              |   | 42,920,243 
|                                                                                                                           |  |                             |             |              |   |            
|                                                                                                                           |  |                             | 116,571,394 |              |   | 112,387,115
|Less cost of treasury stock (2,450,351 and 2,458,022 shares)                                                               |  |                             | 32,817,840  |              |   | 32,920,555 
|                                                                                                                           |  |                             |             |              |   |            
|Total shareholders equity                                                                                                 |  |                             | 83,753,554  |              |   | 79,466,560 
|                                                                                                                           |  |                             |             |              |   |            
|                                                                                                                           |  | $                           | 165,730,802 |              | $ | 156,847,954
|                                                                                                                           |  |                             |             |              |   |            



5



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##### Table of Contents

Frischs Restaurants, Inc. and Subsidiaries

Consolidated Statement of Shareholders Equity

Twenty-eight weeks ended December 12, 2004 and December 14, 2003

(Unaudited)



|                                                    |  |                                               |           |                              |   |            |                  |  |   |                 |   |  |       |             |   |  |   |            |  
|--------------------------------------------------- |  | --------------------------------------------- | --------- | ---------------------------- | - | ---------- | ---------------- |  | - | --------------- | - |  | ----- | ----------- | - |  | - | ---------- | -
|                                                    |  | Common stockat $1 per share -Shares andamount |           | Additionalcontributedcapital |   |            | Retainedearnings |  |   | Treasury shares |   |  | Total |            
|Balance at June 1, 2003                             |  |                                               | 7,420,763 |                              |   | 60,926,377 |                  |  |   | 34,490,774      |   |  |       | (33,072,188 | ) |  |   | 69,765,726 |  
|Net earnings for twenty-eight weeks                 |  |                                               |          |                              |   |           |                  |  |   | 5,698,591       |   |  |       |            |   |  |   | 5,698,591  |  
|Stock options exercised - new shares issued         |  |                                               | 55,249    |                              |   | 582,054    |                  |  |   |                |   |  |       |            |   |  |   | 637,303    |  
|Stock options exercised - treasury shares re-issued |  |                                               |          |                              |   | (12,813    | )                |  |   |                |   |  |       | 80,358      |   |  |   | 67,545     |  
|Tax benefit from stock options exercised            |  |                                               |          |                              |   | 262,903    |                  |  |   |                |   |  |       |            |   |  |   | 262,903    |  
|Other treasury shares re-issued                     |  |                                               |          |                              |   | 18,180     |                  |  |   |                |   |  |       | 44,495      |   |  |   | 62,675     |  
|Employee stock purchase plan                        |  |                                               |          |                              |   | (41,884    | )                |  |   |                |   |  |       |            |   |  |   | (41,884    | )
|Cash dividends - $.31 per share                     |  |                                               |          |                              |   |           |                  |  |   | (1,545,928      | ) |  |       |            |   |  |   | (1,545,928 | )
|                                                    |  |                                               |           |                              |   |            |                  |  |   |                 |   |  |       |             |   |  |   |            |  
|Balance at December 14, 2003                        |  |                                               | 7,476,012 |                              |   | 61,734,817 |                  |  |   | 38,643,437      |   |  |       | (32,947,335 | ) |  |   | 74,906,931 |  
|                                                    |  |                                               |           |                              |  
|Net earnings for twenty-four weeks                  |  |                                               |          |                              |   |           |                  |  |   | 4,830,419       |   |  |       |            |   |  |   | 4,830,419  |  
|Stock options exercised - new shares issued         |  |                                               | 14,833    |                              |   | 172,329    |                  |  |   |                |   |  |       |            |   |  |   | 187,162    |  
|Stock options exercised - treasury shares re-issued |  |                                               |          |                              |   | 3,710      |                  |  |   |                |   |  |       | 26,780      |   |  |   | 30,490     |  
|Tax benefit from stock options exercised            |  |                                               |          |                              |   | 103,566    |                  |  |   |                |   |  |       |            |   |  |   | 103,566    |  
|Employee stock purchase plan                        |  |                                               |          |                              |   | (38,395    | )                |  |   |                |   |  |       |            |   |  |   | (38,395    | )
|Cash dividends - $.11 per share                     |  |                                               |          |                              |   |           |                  |  |   | (553,613        | ) |  |       |            |   |  |   | (553,613   | )
|                                                    |  |                                               |           |                              |   |            |                  |  |   |                 |   |  |       |             |   |  |   |            |  
|Balance at May 30, 2004                             |  |                                               | 7,490,845 |                              |   | 61,976,027 |                  |  |   | 42,920,243      |   |  |       | (32,920,555 | ) |  |   | 79,466,560 |  
|                                                    |  |                                               |           |                              |  
|Net earnings for twenty-eight weeks                 |  |                                               |          |                              |   |           |                  |  |   | 5,642,722       |   |  |       |            |   |  |   | 5,642,722  |  
|Stock options exercised - new shares issued         |  |                                               | 9,831     |                              |   | 146,995    |                  |  |   |                |   |  |       |            |   |  |   | 156,826    |  
|Stock options exercised - treasury shares re-issued |  |                                               |          |                              |   | (6,819     | )                |  |   |                |   |  |       | 69,173      |   |  |   | 62,354     |  
|Other treasury shares re-issued                     |  |                                               |          |                              |   | 38,862     |                  |  |   |                |   |  |       | 33,542      |   |  |   | 72,404     |  
|Tax benefit from stock options exercised            |  |                                               |          |                              |   | 48,870     |                  |  |   |                |   |  |       |            |   |  |   | 48,870     |  
|Employee stock purchase plan                        |  |                                               |          |                              |   | (32,612    | )                |  |   |                |   |  |       |            |   |  |   | (32,612    | )
|Cash dividends - $.33 per share                     |  |                                               |          |                              |   |           |                  |  |   | (1,663,570      | ) |  |       |            |   |  |   | (1,663,570 | )
|                                                    |  |                                               |           |                              |   |            |                  |  |   |                 |   |  |       |             |   |  |   |            |  
|Balance at December 12, 2004                        |  | $                                             | 7,500,676 |                              | $ | 62,171,323 |                  |  | $ | 46,899,395      |   |  | $     | (32,817,840 | ) |  | $ | 83,753,554 |  
|                                                    |  |                                               |           |                              |   |            |                  |  |   |                 |   |  |       |             |   |  |   |            |  



The accompanying notes are an integral
part of these statements.



6



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##### Table of Contents

Frischs Restaurants, Inc. and Subsidiaries

Consolidated Statement of Cash Flows

Twenty-eight weeks ended December 12, 2004 and December 14, 2003

(unaudited)



|                                                                             |  |      |             |   |      |   |             |  
|---------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | -
|                                                                             |  | 2004 |             |   | 2003 |  
|Cash flows provided by (used in) operating activities:                       |  |      |             |   |      |   |             |  
|Net earnings                                                                 |  | $    | 5,642,722   |   |      | $ | 5,698,591   |  
|Adjustments to reconcile net earnings to net cash from operating activities: |  |      |             |   |      |   |             |  
|Depreciation and amortization                                                |  |      | 6,230,249   |   |      |   | 5,735,769   |  
|Loss (gain) on disposition of assets                                         |  |      | (30,317     | ) |      |   | 213,750     |  
|                                                                             |  |      |             |   |      |   |             |  
|                                                                             |  |      | 11,842,654  |   |      |   | 11,648,110  |  
|                                                                             |  |     
|Changes in assets and liabilities:                                           |  |      |             |   |      |   |             |  
|Accounts receivable                                                          |  |      | 117,871     |   |      |   | (4,789      | )
|Inventories                                                                  |  |      | (264,125    | ) |      |   | (128,331    | )
|Prepaid expenses and sundry deposits                                         |  |      | (137,763    | ) |      |   | 939,479     |  
|Other assets                                                                 |  |      | (149,640    | ) |      |   | (939,133    | )
|Accounts payable                                                             |  |      | (469,264    | ) |      |   | 2,394,118   |  
|Accrued expenses                                                             |  |      | (125,282    | ) |      |   | (480,536    | )
|Accrued and deferred income taxes                                            |  |      | 744,352     |   |      |   | 963,120     |  
|Tax benefit from stock options exercised                                     |  |      | 48,870      |   |      |   | 262,903     |  
|Self insured obligations                                                     |  |      | (336,761    | ) |      |   | (413,395    | )
|Other liabilities                                                            |  |      | 220,069     |   |      |   | 104,400     |  
|                                                                             |  |      |             |   |      |   |             |  
|                                                                             |  |      | (351,673    | ) |      |   | 2,697,836   |  
|                                                                             |  |      |             |   |      |   |             |  
|Net cash provided by operating activities                                    |  |      | 11,490,981  |   |      |   | 14,345,946  |  
|                                                                             |  |     
|Cash flows provided by (used in) investing activities:                       |  |      |             |   |      |   |             |  
|Additions to property and equipment                                          |  |      | (13,138,614 | ) |      |   | (15,145,154 | )
|Proceeds from disposition of property                                        |  |      | 242,360     |   |      |   | 10,208      |  
|Proceeds from litigation settlement                                          |  |      |            |   |      |   | 1,700,000   |  
|Change in other assets                                                       |  |      | (233,030    | ) |      |   | (689,467    | )
|                                                                             |  |      |             |   |      |   |             |  
|Net cash (used in) investing activities                                      |  |      | (13,129,284 | ) |      |   | (14,124,413 | )
|                                                                             |  |     
|Cash flows provided by (used in) financing activities:                       |  |      |             |   |      |   |             |  
|Proceeds from borrowings                                                     |  |      | 7,500,000   |   |      |   | 3,500,000   |  
|Payment of long-term debt and capital lease obligations                      |  |      | (4,030,572  | ) |      |   | (3,162,183  | )
|Cash dividends paid                                                          |  |      | (1,108,034  | ) |      |   | (994,169    | )
|Proceeds from stock options exercised - new shares issued                    |  |      | 156,826     |   |      |   | 637,303     |  
|Proceeds from stock options exercised - treasury shares re-issued            |  |      | 62,354      |   |      |   | 67,545      |  
|Other treasury shares re-issued                                              |  |      | 72,404      |   |      |   | 62,675      |  
|Employee stock purchase plan                                                 |  |      | (32,612     | ) |      |   | (41,884     | )
|                                                                             |  |      |             |   |      |   |             |  
|Net cash provided by financing activities                                    |  |      | 2,620,366   |   |      |   | 69,287      |  
|                                                                             |  |      |             |   |      |   |             |  
|Net increase in cash and equivalents                                         |  |      | 982,063     |   |      |   | 290,820     |  
|Cash and equivalents at beginning of year                                    |  |      | 294,410     |   |      |   | 1,133,443   |  
|                                                                             |  |      |             |   |      |   |             |  
|Cash and equivalents at end of quarter                                       |  | $    | 1,276,473   |   |      | $ | 1,424,263   |  
|                                                                             |  |      |             |   |      |   |             |  
|Supplemental disclosures:                                                    |  |      |             |   |      |   |             |  
|Interest paid                                                                |  | $    | 1,660,828   |   |      | $ | 1,492,159   |  
|Income taxes paid (net of refunds, if any)                                   |  |      | 2,381,137   |   |      |   | 1,910,980   |  
|Dividends declared but not paid                                              |  |      | 555,536     |   |      |   | 551,759     |  
|Lease transactions capitalized                                               |  |      | 537,777     |   |      |   |            |  



The accompanying notes are an integral
part of these statements.



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##### Table of Contents

Frischs Restaurants, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Second Quarter Fiscal 2005, Ended December 12, 2004



NOTE A  ACCOUNTING POLICIES



A summary of the Companys significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follows:



Description of the Business



Frischs Restaurants, Inc. (The Company) is a regional company that operates and
licenses others to operate full service family-style restaurants under the name Frischs Big Boy, and operates grill buffet style restaurants under the name Golden Corral under certain licensing agreements. All
restaurants currently operated by the Company are located in various regions of Ohio, Kentucky and Indiana. Plans are in place to expand Golden Corral operations into certain parts of Michigan, Pennsylvania and West Virginia.



The Company owns the trademark Frischs and has exclusive, irrevocable
ownership of the rights to the Big Boy trademark, trade name and service mark in the states of Kentucky and Indiana, and in most of Ohio and Tennessee. Substantially all of the Frischs Big Boy restaurants also offer
drive-thru service. The Company also licenses Big Boy restaurants to other operators, currently in certain parts of Ohio, Kentucky and Indiana. In addition, the Company operates a commissary and food manufacturing plant near its
headquarters in Cincinnati, Ohio that services all Big Boy restaurants operated by the Company, and is available to supply restaurants licensed to others.



Consolidation Practices



The accompanying consolidated financial statements include the accounts of Frischs Restaurants, Inc. and all of its subsidiaries. Significant inter-company accounts and transactions have been eliminated in
consolidation. In the opinion of management, these interim financial statements include all adjustments (all of which were normal and recurring) necessary for a fair presentation of all periods presented. In addition, certain reclassifications may
have been made to prior year information to conform to the current year presentation.



Fiscal Year



The Companys fiscal year is the 52 or 53
week period ending on the Sunday nearest to the last day of May. The first quarter of each fiscal year contains sixteen weeks, while the last three quarters each normally contain twelve weeks. Every fifth or sixth year, an additional week is added
to the fourth quarter, which results in a 53 week fiscal year.



Use of
Estimates



The preparation of financial statements requires management to
use estimates and assumptions to measure certain items that affect the amounts reported. These judgments are based on knowledge and experience about past and current events, and assumptions about future events. Although management believes its
estimates are reasonable and adequate, future events affecting them may differ markedly from current judgment.



Some of the more significant items requiring the use of estimates include liabilities for self insurance and deferred executive compensation, value of intangible assets, and the carrying values of long-lived assets
and long-lived assets to be disposed of.



Cash and Cash Equivalents



Highly liquid investments with an original maturity of three months or less
are considered to be cash equivalents. Outstanding checks in the amount of $704,000 were included in accounts payable as of May 30, 2004.



Receivables



The Company values its trade notes and accounts receivable on the reserve method. The reserve balance was $30,000 as of December 12, 2004 and May 30, 2004. The reserve is monitored for adequacy based on historical
collection patterns and write-offs, and current credit risks.



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Frischs Restaurants, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



NOTE A - ACCOUNTING POLICIES (CONTINUED)



Inventories



Inventories, comprised principally of food items,
are valued at the lower of cost, determined by the first-in, first-out method, or market.



Accounting for Rebates



Cash
consideration received from certain food vendors is treated as a reduction of cost of sales and is recognized in the same period the Company sells the food.



Property and Equipment



Property and equipment are stated at cost. Depreciation is provided principally on the straight-line method over the estimated service lives, which range from ten to 25 years for buildings or components thereof and
five to ten years for equipment. Leasehold improvements are depreciated over ten to 25 years or the remaining lease term, whichever is shorter. Software is depreciated over three to ten years. Interest on borrowings is capitalized during active
construction periods of major capital projects. Capitalized interest was $114,000 and $159,000 respectively, for the 28 weeks ended December 12, 2004 and December 14, 2003, and was $69,000 and $83,000 respectively, for the twelve weeks ended
December 12, 2004 and December 14, 2003. In addition, capitalization of the value of certain employees time who worked on the implementation of the Companys enterprise information system was $96,000 and $219,000 respectively, for the 28
weeks ended December 12, 2004 and December 14, 2003, and was zero and $141,000 respectively, for the twelve weeks ended December 12, 2004 and December 14, 2003.



The cost of land not yet in service is included in construction in progress if construction has begun or if construction is likely within the next twelve
months. Estimated remaining expenditures for new restaurant construction that was in progress as of December 12, 2004 totaled approximately $2,147,000, for one Golden Corral restaurant. No Big Boy restaurants were under construction at December 12,
2004. The cost of land on which construction is not likely within the next twelve months is classified as Investments in land in the consolidated balance sheet.



Certain surplus property is currently held for sale. All of the surplus property is stated at the lower of cost or market and is classified
as Property held for sale in the consolidated balance sheet. Market values are generally determined by real estate brokers and/or the Companys judgment.



Impairment of Assets



Under Statement of Financial Accounting Standards No. 144 (SFAS 144), Accounting for the Impairment or Disposal of Long-Lived Assets, the Company considers a
history of cash flow losses on a restaurant-by-restaurant basis to be its primary indicator of potential impairment. Carrying values are reviewed for impairment when events or changes in circumstances indicate that the assets carrying values
may not be recoverable from the estimated future cash flows expected to result from the properties use and eventual disposition. When undiscounted expected future cash flows are less than carrying values, an impairment loss is recognized equal
to the amount by which the carrying values exceed the net realizable values of the assets. Net realizable values are generally determined by estimates provided by real estate brokers and/or the Companys past experience in disposing of
unprofitable restaurant properties. Management believes that this policy is the Companys only critical accounting policy because of its potential for significant impact on the financial condition and results of the Companys operations.



No impairment losses were recorded during any of the periods presented in the
accompanying consolidated financial statements.



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##### Table of Contents

Frischs Restaurants, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



NOTE A - ACCOUNTING POLICIES (CONTINUED)



Restaurant Closing Costs



Any liabilities associated with exit
or disposal activities initiated after December 31, 2002 are recorded in accordance with Statement of Financial Accounting Standards No. 146 (SFAS 146) Accounting for Obligations Associated with Disposal Activities. SFAS 146 requires
that liabilities be recognized for exit and disposal costs only when the liabilities are incurred, rather than upon the commitment to an exit or disposal plan. No significant disposal costs were incurred for the two restaurants that have been
permanently closed since December 31, 2002, as the leases for both locations expired upon closing or shortly thereafter.



Statement of Financial Accounting Standards No. 143 (SFAS 143) Accounting for Asset Retirement Obligations is applicable to legal obligations associated with
the retirement of certain tangible long-lived assets. The adoption of SFAS 143 on June 2, 2003 did not materially impact the Companys financial statements.



Goodwill and Other Intangible Assets, Including Licensing Agreements



Acquired goodwill is tested annually for impairment and also whenever an impairment indicator arises. Impairment losses are recorded when
impairment is determined to have occurred. As of December 12, 2004 and May 30, 2004, the carrying amount of goodwill acquired in prior years was $741,000, which is net of $308,000 amortized in prior years.



Intangible assets having a finite useful life are subject to amortization, and are tested
annually for impairment. The Companys other intangible assets consist principally of initial franchise fees paid for each new Golden Corral restaurant the Company opens. Amortization of the $40,000 initial fee begins when the restaurant opens
and is computed using the straight-line method over the 15-year term of each individual restaurants franchise agreement. The fees are ratably amortized at $2,667 per year per restaurant, or approximately $77,000 per year in each of the next
five years for the 29 Golden Corral restaurants in operation as of December 12, 2004. Amortization for the 28 weeks ended December 12, 2004 and December 14, 2003 was $39,000 and $31,000 respectively, and was $17,000 and $14,000 respectively, for the
twelve weeks ended December 12, 2004 and December 14, 2003. The remaining balance of other intangible assets, including fees paid for future Golden Corral restaurants, is not currently being amortized because these assets have indefinite or as yet
to be determined useful lives.



An analysis of other intangible assets follows:



|                                                                                |  |                  |       |   |             |   |       |  
|------------------------------------------------------------------------------- |  | ---------------- | ----- | - | ----------- | - | ----- | -
|                                                                                |  | December 12,2004 |       |   | May 30,2004 |  
|                                                                                |  | (in thousands)   |      
|Golden Corral initial franchise fees subject to amortization                    |  | $                | 1,160 |   |             | $ | 1,040 |  
|Less accumulated amortization                                                   |  |                  | (213  | ) |             |   | (174  | )
|                                                                                |  |                  |       |   |             |   |       |  
|Carrying amount of Golden Corral initial franchise fees subject to amortization |  |                  | 947   |   |             |   | 866   |  
|                                                                                |  |                 
|Current portion of Golden Corral initial franchise fees subject to amortization |  |                  | (77   | ) |             |   | (69   | )
|Golden Corral fees not yet subject to amortization                              |  |                  | 345   |   |             |   | 180   |  
|                                                                                |  |                 
|Other                                                                           |  |                  | 153   |   |             |   | 146   |  
|                                                                                |  |                  |       |   |             |   |       |  
|Total other intangible assets                                                   |  | $                | 1,368 |   |             | $ | 1,123 |  
|                                                                                |  |                  |       |   |             |   |       |  



The franchise agreements with Golden
Corral Franchising Systems, Inc. also require the Company to pay fees based on defined gross sales. These costs are charged to operations as incurred.



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##### Table of Contents

Frischs Restaurants, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



NOTE A - ACCOUNTING POLICIES (CONTINUED)



Revenue Recognition



Revenue from restaurant operations is
recognized upon receipt of payment from customers. Revenue from the sale of gift cards is deferred for recognition until redeemed by the customer. Revenue from the sale of commissary products to Big Boy restaurants licensed to other operators is
recognized upon shipment of product. Revenue from franchise fees, based on sales of Big Boy restaurants licensed to other operators, is recorded on the accrual method as earned. Initial franchise fees are recognized as revenue when the fees are
deemed fully earned and non-refundable, ordinarily upon the execution of the license agreement, in consideration of the Companys services to that time.



New Store Opening Costs



New store opening costs consist of new employee training costs, the cost of a team to coordinate the opening and the cost of certain replaceable items such as uniforms and china. New store opening costs are charged to
expense as incurred. Opening costs for the 28 weeks ended December 12, 2004 and December 14, 2003 were $1,050,000 ($786,000 for Golden Corral and $264,000 for Big Boy) and $947,000 ($887,000 for Golden Corral and $60,000 for Big Boy), respectively.
For the twelve weeks ended December 12, 2004 and December 14, 2003, opening expenses were $327,000 ($282,000 for Golden Corral and $45,000 for Big Boy) and $513,000 ($476,000 for Golden Corral and $37,000 for Big Boy), respectively.



Benefit Plans



The Company has two qualified defined benefit pension plans covering all of its eligible employees. (Hourly restaurant employees hired after
December 31, 1998 are ineligible to enter the qualified defined benefit pension plans. Instead, these employees are offered participation in a 401(k) savings plan with a matching 40 percent employer cash contribution.) Qualified defined benefit
pension plan benefits are based on years-of-service and other factors. The Companys funding policy is to contribute at least annually amounts sufficient to satisfy legal funding requirements plus such additional tax-deductible amounts deemed
advisable under the circumstances. Contributions are intended to provide not only for benefits attributed to service-to-date, but also for those expected to be earned in the future. In addition, the Company has an unfunded non-qualified Supplemental
Executive Retirement Plan (SERP) that provides a supplemental retirement benefit to the executive officers of the Company and certain other highly compensated employees whose benefits under the qualified plans are reduced when their
compensation exceeds Internal Revenue Code imposed limitations or when elective salary deferrals are made to the Companys non-qualified Executive Savings Plan. Prepaid pension benefit costs (see Note E  Pension Plans) and Executive
Savings Plan assets are the principal components of Other long-term assets in the balance sheet.



The executive officers of the Company and certain other highly compensated employees began receiving comparable pension benefits commencing in the year 2000, through a non-qualified Non Deferred Cash
Balance Plan instead of accruing additional benefits under the qualified defined benefit pension plans and the SERP. (Also see Note E  Pension Plans.)



Self Insurance



The Company self-insures its Ohio workers compensation claims up to $300,000 per claim. Initial self insurance liabilities are accrued based on prior claims history. An annual review of claims experience is
performed during the first quarter of ensuing fiscal years and adjustments are made to the self insurance liabilities to more closely reflect annual claims experience. Favorable claims experience allowed reserves to be lowered by $614,000 and
$710,000 respectively, during the first quarters of fiscal years 2005 and 2004.



Fair Value of Financial Instruments



With the exception of
long-term debt (see Note B - Long-Term Debt), the carrying value of the Companys financial instruments approximates fair value.



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Frischs Restaurants, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



NOTE A - ACCOUNTING POLICIES (CONTINUED)



Income Taxes



Taxes are provided on all items included in the
statement of earnings regardless of when such items are reported for tax purposes. The provision for income taxes in all periods has been computed based on managements estimate of the effective tax rate for the entire year.



Stock Based Compensation



The Company accounts for stock options using the intrinsic value method of measuring
compensation expense prescribed by Accounting Principles Board Opinion No. 25 (APB 25), Accounting for Stock Issued to Employees, as permitted by Statement of Financial Accounting Standards No. 123 (SFAS 123), Accounting for Stock
Based Compensation. No stock based employee compensation cost is included in net income, as all options granted during the periods presented herein had an exercise price equal to the market value of the stock on the date of the grant. In
accordance with Statement of Financial Standards No. 148 (SFAS 148), Accounting for Stock Based Compensation  Transition and Disclosure, the following table presents the effect on net income and earnings per share if the Company
had accounted for stock options using the fair value recognition provisions of SFAS 123:



|                                                                                                                                        |  |                                       |       |                |   |              |  |              |       |  |   |      
|--------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------- | ----- | -------------- | - | ------------ |  | ------------ | ----- |  | - | -----
|                                                                                                                                        |  | 28 weeks ended                        |       | 12 weeks ended
|                                                                                                                                        |  | Dec. 12,2004                          |       | Dec. 14,2003   |   | Dec. 12,2004 |  | Dec. 14,2003
|                                                                                                                                        |  | (in thousands, except per share data)
|Net Income, as reported                                                                                                                 |  | $                                     | 5,643 |                | $ | 5,699        |  | $            | 2,744 |  | $ | 2,411
|Deduct: total stock-based employee compensation expense determined under fair value based method for all grants (a), net of tax
effects |  |                                       | 258   |                |   | 180          |  |              | 130   |  |   | 91   
|                                                                                                                                        |  |                                       |       |                |   |              |  |              |       |  |   |      
|Pro forma net income                                                                                                                    |  | $                                     | 5,385 |                | $ | 5,519        |  | $            | 2,614 |  | $ | 2,320
|                                                                                                                                        |  |                                       |       |                |   |              |  |              |       |  |   |      
|Earnings per share                                                                                                                      |  |                                       |       |                |   |              |  |              |       |  |   |      
|                                                                                                                                        |  |                                       |       |               
|Basic  as reported                                                                                                                     |  | $                                     | 1.12  |                | $ | 1.15         |  | $            | .54   |  | $ | .48  
|Basic  pro forma                                                                                                                       |  | $                                     | 1.07  |                | $ | 1.11         |  | $            | .52   |  | $ | .46  
|                                                                                                                                        |  |                                       |       |               
|Diluted  as reported                                                                                                                   |  | $                                     | 1.10  |                | $ | 1.12         |  | $            | .53   |  | $ | .47  
|Diluted  pro forma                                                                                                                     |  | $                                     | 1.05  |                | $ | 1.08         |  | $            | .51   |  | $ | .45  



(a) For a summary of options granted,
refer to the stock option section of Note D  Capital Stock.



The
estimated total stock-based employee compensation expense was determined using the modified Black-Scholes option pricing model with the following weighted average assumptions:



|                                               |  |                |         |   |                |   |         |              |  |   |              |   |  |   |         |  
|---------------------------------------------- |  | -------------- | ------- | - | -------------- | - | ------- | ------------ |  | - | ------------ | - |  | - | ------- | -
|                                               |  | 28 weeks ended |         |   | 12 weeks ended |  
|                                               |  | Dec. 12,2004   |         |   | Dec. 14,2003   |   |         | Dec. 12,2004 |  |   | Dec. 14,2003 |  
|Dividend yield                                 |  |                | 1.61    | % |                |   | 1.87    | %            |  |   | 1.61         | % |  |   | 1.87    | %
|Expected volatility                            |  |                | 29      | % |                |   | 27      | %            |  |   | 29           | % |  |   | 27      | %
|Risk free interest rate                        |  |                | 3.82    | % |                |   | 2.57    | %            |  |   | 3.35         | % |  |   | 2.94    | %
|Expected lives                                 |  |                | 5 years |   |                |   | 5 years |              |  |   | 5 years      |   |  |   | 5 years |  
|Weighted average fair value of options granted |  | $              | 8.13    |   |                | $ | 4.32    |              |  | $ | 6.79         |   |  | $ | 5.80    |  





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Frischs Restaurants, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



NOTE A - ACCOUNTING POLICIES (CONTINUED)



New Accounting Pronouncements



In December 2004, the Financial
Accounting Standards Board revised Statement of Financial Accounting Standards No. 123 (SFAS 123), Accounting for Stock Based Compensation. The revised SFAS 123 (SFAS 123(R)), Share-Based Payment, supersedes Accounting
Principles Board Opinion No. 25 (APB 25), Accounting for Stock Issued to Employees. SFAS 123(R) requires the fair value of stock options issued to be expensed. It is effective as of the beginning of the first interim or annual reporting
period that begins after June 15, 2005, which will be the Companys second quarter of fiscal year 2006.



Statement of Financial Accounting Standards No. 151 (SFAS 151), Inventory Costs, clarifies accounting for abnormal amounts of idle facility expense, freight, handling costs and spoilage. SFAS 151 is
effective for inventory costs incurred during fiscal years that begin after June 15, 2005. Earlier application is permitted. Its adoption is not expected to have any material impact on the Companys earnings.



The Company reviewed all significant newly issued accounting pronouncements, including
Statements of Financial Accounting Standards Nos. 152 Accounting for Real Estate Time Sharing Transactions and 153 Exchanges of Nonmonetary Assets, and concluded that, other than those disclosed herein, no material impact is
anticipated on the financial statements as a result of future adoption.



NOTE B
- LONG-TERM DEBT



|                             |  |                       |       |                       |   |                       |  |                       |       |  |   |       
|---------------------------- |  | --------------------- | ----- | --------------------- | - | --------------------- |  | --------------------- | ----- |  | - | ------
|                             |  | December 12, 2004     |       | May 30, 2004         
|                             |  | Payablewithinone year |       | Payableafter one year |   | Payablewithinone year |  | Payableafter one year
|                             |  | (in thousands)       
|Construction Draw Facility - |  |                       |       |                       |   |                       |  |                       |       |  |   |       
|Construction Phase Loans     |  | $                     |      |                       | $ |                      |  | $                     |      |  | $ |      
|Term Loans                   |  |                       | 7,386 |                       |   | 27,801                |  |                       | 6,231 |  |   | 25,227
|Bullet Loan                  |  |                       |      |                       |   | 10,000                |  |                       |      |  |   | 10,000
|Revolving Credit Loan        |  |                       |      |                       |   |                      |  |                       |      |  |   |      
|                             |  |                       |       |                       |   |                       |  |                       |       |  |   |       
|                             |  | $                     | 7,386 |                       | $ | 37,801                |  | $                     | 6,231 |  | $ | 35,227
|                             |  |                       |       |                       |   |                       |  |                       |       |  |   |       



The portion payable after one year
matures as follows:



|                      |  |                  |        |             |   |       
|--------------------- |  | ---------------- | ------ | ----------- | - | ------
|                      |  | December 12,2004 |        | May 30,2004
|                      |  | (in thousands)  
|Period ending in 2006 |  | $                | 7,682  |             | $ | 6,664 
|2007                  |  |                  | 6,912  |             |   | 6,376 
|2008                  |  |                  | 15,915 |             |   | 15,684
|2009                  |  |                  | 3,753  |             |   | 4,059 
|2010                  |  |                  | 2,320  |             |   | 1,616 
|Subsequent to 2010    |  |                  | 1,219  |             |   | 828   
|                      |  |                  |        |             |   |       
|                      |  | $                | 37,801 |             | $ | 35,227
|                      |  |                  |        |             |   |       



The Construction Draw Facility is an
unsecured draw credit line that provides for borrowing of up to $61,500,000 to construct and open Golden Corral restaurants. As of December 12, 2004, $9,000,000 remained available to be borrowed before the Facility expires September 1, 2006, unless
extended. It is subject to a1/4percent unused commitment fee. Under the terms of the Facility, funds borrowed
are initially governed as a Construction Phase Loan, with interest determined by a pricing matrix that uses changeable basis points, determined by certain of the



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##### Table of Contents

Frischs Restaurants, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



NOTE B  LONG TERM DEBT (CONTINUED)



Companys financial ratios. The basis points are added to or subtracted from one of various indices chosen by the Company. Interest is payable at the end of each specific rate period selected by the Company, which may be monthly,
bi-monthly or quarterly. Within six months of the completion and opening of each restaurant, the balance outstanding under each Construction Phase Loan must be converted to a Term Loan amortized over a period not to exceed seven years. Upon
conversion, the Company may select a fixed interest rate over the chosen term or may choose among various adjustable rate options. All funds borrowed under the Facility as of December 12, 2004 have been converted to Term Loans. Fixed interest rates
have been chosen for all of the Term Loans, the weighted average of which is 6.15 percent. All of the Term Loans are being repaid in 84 equal monthly installments of principal and interest aggregating $780,000, expiring in various periods ranging
from May 2006 through January 2012. Prepayments of the Term Loans are permissible upon payment of sizeable prepayment fees and other amounts. Any outstanding Construction Phase Loan that has not been converted into a Term Loan shall mature and be
payable in full on September 1, 2006, unless extended.



The $10,000,000 Bullet
Loan is secured by mortgages on the real property of six Golden Corral restaurants. It matures and is payable in one installment on December 31, 2007. In December 2004, the Company exercised its option to convert the loan from variable rated
interest to a fixed rate of 5.57 percent for the remainder of the term. Interest is payable monthly in arrears.



A $5,000,000 unsecured Revolving Credit Loan is in place that is intended to fund temporary working capital needs. The loan, none of which was outstanding as of December
12, 2004, is subject to a 30 consecutive day out-of-debt period each year. It matures on September 1, 2006, unless extended. Interest is determined by the same pricing matrix used for Construction Phase Loans under the Construction Draw Facility,
the basis points from which are added to or subtracted from one of various indices chosen by the Company. The loan is subject to a1/4percent unused commitment fee. Interest is payable at the end of each specific rate period selected by the Company, which may be monthly, bi-monthly or quarterly.



These loan agreements contain covenants relating to tangible net worth, interest expense,
cash flow, debt levels, capitalization changes, asset dispositions, investments and restrictions on pledging certain restaurant operating assets. The Company was in compliance with all loan covenants as of December 12, 2004. Compensating balances
are not required by these loan agreements.



The fair values of any outstanding
balances in the Construction Phase of the Construction Draw Facility or the Revolving Credit Loan approximate carrying value as of December 12, 2004 and May 30, 2004, as the current provisions of the loans call for variable rated interest. The fair
value of the Bullet Loan also approximates carrying value as of December 12, 2004 and May 30, 2004. Its fixed rate was determined in December 2004. The fair values of the fixed rate Term Loans shown in the following table are based on fixed rates
that would be available for loans with identical terms and maturities, if borrowed at December 12, 2004 and May 30, 2004:



|                             |  |                   |        |              |   |               |  |           |        |  |   |       
|---------------------------- |  | ----------------- | ------ | ------------ | - | ------------- |  | --------- | ------ |  | - | ------
|                             |  | December 12, 2004 |        | May 30, 2004
|                             |  | Carryingvalue     |        | Fairvalue    |   | Carryingvalue |  | Fairvalue
|                             |  | (in thousands)   
|Construction Draw Facility - |  |                   |        |              |   |               |  |           |        |  |   |       
|Term Loans                   |  | $                 | 35,187 |              | $ | 35,570        |  | $         | 31,458 |  | $ | 31,822
|Bullet Loan                  |  |                   | 10,000 |              |   | 10,000        |  |           | 10,000 |  |   | 10,000



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##### Table of Contents

Frischs Restaurants, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



NOTE C - LEASED PROPERTY



The Company occupies
certain of its restaurants pursuant to lease agreements. The majority of the leases are for fifteen or twenty years and contain renewal options for ten to fifteen years, and/or have favorable purchase options. As of December 12, 2004, eleven of the
Companys 28 leased restaurant locations have been capitalized. Delivery equipment is also held under capitalized leases expiring during periods through 2012. Amortization of capitalized lease assets is computed on the straight-line method over
the primary terms of the leases. An analysis of the capitalized leased property follows:



|                              |  |                   |        |   |             |   |        |  
|----------------------------- |  | ----------------- | ------ | - | ----------- | - | ------ | -
|                              |  | Asset balances at |       
|                              |  | December 12,2004  |        |   | May 30,2004 |  
|                              |  | (in thousands)    |       
|Restaurant facilities         |  | $                 | 6,306  |   |             | $ | 6,306  |  
|Equipment                     |  |                   | 1,213  |   |             |   | 1,083  |  
|                              |  |                   |        |   |             |   |        |  
|                              |  |                   | 7,519  |   |             |   | 7,389  |  
|Less accumulated amortization |  |                   | (5,936 | ) |             |   | (6,116 | )
|                              |  |                   |        |   |             |   |        |  
|                              |  | $                 | 1,583  |   |             | $ | 1,273  |  
|                              |  |                   |        |   |             |   |        |  



As of December 12, 2004, seventeen of
the Companys restaurant properties are occupied pursuant to operating leases, four of which are ground leases for Golden Corral restaurants. Another Golden Corral ground lease has been entered into for a restaurant to open in the spring of
2005 (currently under construction). The operating lease table below includes scheduled payments for this lease, even though payments will not begin until the restaurant opens. The Company also occupies office space under an operating lease that
expires during 2013, with renewal options available through 2023. The Company has the option to purchase the property in 2023. Total rental expense of operating leases was $869,000 and $773,000 respectively, for the 28 weeks ended December 12, 2004
and December 14, 2003, and was $370,000 and $333,000 respectively, during the twelve weeks ended December 12, 2004 and December 14, 2003.



Future minimum lease payments under capitalized leases and operating leases, including residual value guarantees on certain of the capitalized leases, having an initial
or remaining term of one year or more follow:



|                             |  |                   |        |   |                 |   |       
|---------------------------- |  | ----------------- | ------ | - | --------------- | - | ------
|Period ending December 12,   |  | Capitalizedleases |        |   | Operatingleases
|                             |  | (in thousands)   
|2005                         |  | $                 | 934    |   |                 | $ | 1,587 
|2006                         |  |                   | 779    |   |                 |   | 1,541 
|2007                         |  |                   | 2,781  |   |                 |   | 1,368 
|2008                         |  |                   | 192    |   |                 |   | 1,204 
|2009                         |  |                   | 119    |   |                 |   | 1,130 
|2010 to 2025                 |  |                   | 253    |   |                 |   | 8,877 
|                             |  |                   |        |   |                 |   |       
|Total                        |  |                   | 5,058  |   |                 | $ | 15,707
|                             |  |                   |        |   |                 |   |       
|Amount representing interest |  |                   | (1,051 | ) |                 |   |       
|                             |  |                   |        |   |                 |   |       
|Present value of obligations |  |                   | 4,007  |   |                 |   |       
|Portion due within one-year  |  |                   | (559   | ) |                 |   |       
|                             |  |                   |        |   |                 |   |       
|Long-term obligations        |  | $                 | 3,448  |   |                 |   |       
|                             |  |                   |        |   |                 |   |       



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##### Table of Contents

Frischs Restaurants, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



NOTE D - CAPITAL STOCK



2003 Stock Option
and Incentive Plan



Shareholders approved the 2003 Stock Option and
Incentive Plan (the 2003 Incentive Plan or Plan) on October 6, 2003. The 2003 Incentive Plan provides for several forms of awards including stock options, stock appreciation rights, stock awards including restricted and
unrestricted awards of stock, and performance awards. The Plan will continue in effect until terminated by the Board of Directors. Subject to adjustment for changes in capitalization, the maximum number of shares of common stock that the Plan may
issue is 800,000. The Plan provides that the total number of shares of common stock covered by options plus the number of stock appreciation rights granted to any one individual may not exceed 80,000 during any fiscal year. Additionally, no more
than 80,000 shares of common stock may be issued in payment of performance awards denominated in shares, and no more than $1,000,000 in cash (or fair market value, if paid in shares) may be paid pursuant to performance awards denominated in dollars,
granted to any one individual during any fiscal year if the awards are intended to qualify as performance based compensation. Employees of the Company and non-employee directors of the Company are eligible to be selected to participate in the Plan.
Participation is based on selection by the Compensation Committee (the Committee) of the Board of Directors. Although there is no limit to the number of participants in the Plan, there are approximately 40 persons currently participating in the
Plan.



Options to purchase shares of the Companys common stock permit the
holder to purchase a fixed number of shares at a fixed price. When options are granted, the Committee determines the number of shares subject to the option, the term of the option which may not exceed ten years, the time or times when the option
will become exercisable and the price per share that a participant must pay to exercise the option. No option will be granted with an exercise price that is less than 100 percent of fair market value on the date of the grant.



Stock appreciation rights (SARs) are rights to receive payment, in cash, shares of
common stock or a combination of the two, equal to the excess of (1) the fair market value of a share of common stock on the date of exercise over (2) the price per share of common stock established in connection with the grant of the SAR (the
reference price). The reference price must be at least 100 percent of the common stocks fair market value on the date the SAR is granted. SARs may be granted by the Committee in its discretion to any participant, and may have terms no
longer than ten years.



Stock awards are grants of shares of common stock that
may be restricted (subject to a holding period or other conditions) or unrestricted. The Committee determines the amounts, vesting, if any, terms and conditions of the awards, including the price to be paid, if any, for restricted awards and any
contingencies related to the attainment of specified performance goals or continued employment or service. The Committee may also grant performance awards to participants. Performance awards are the right to receive cash, common stock or both, at
the end of a specified performance period, subject to satisfaction of the performance criteria and any vesting conditions established for the award.



Options to purchase 7,000 shares were granted in October 2004. As of December 12, 2004, no other awards (meaning any form of stock option, stock appreciation right,
restricted stock award, unrestricted stock award or performance award) had been granted under the 2003 Stock Option and Incentive Plan.



Other Stock Option Plans



The 1993 Stock Option Plan is not affected by the adoption of the 2003 Stock Option and Incentive Plan. The 1993 Stock Option Plan originally authorized the grant of
stock options for up to 562,432 shares (as adjusted for stock dividends paid in earlier years) of the common stock of the Company for a ten year period beginning May 9, 1994. Shareholders approved the Amended and Restated 1993 Stock Option Plan
(Amended Plan) in October 1998, which extended the availability of options to be granted to October 4, 2008. As of December 12, 2004, 6,204 shares remained available to be optioned. Of the 556,228 cumulative shares optioned to date, 377,077 remain
outstanding as of December 12, 2004.



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##### Table of Contents

Frischs Restaurants, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



NOTE D - CAPITAL STOCK (CONTINUED)



Shares may
be optioned to employees at not less than 75 percent of fair market value on the date granted. The Amended Plan added a provision for automatic, annual stock option grants of 1,000 shares to each of the Companys non-employee directors. The per
share exercise price for options granted to non-employee directors must equal 100 percent of fair market value on the date of grant. The Amended Plan also added a Company right to repurchase shares acquired on exercise of options if an optionee
chooses to dispose of such shares. Stock appreciation rights are not provided for under the Amended Plan. All outstanding options under the 1993 Plan were granted at fair market value and expire ten years from the date of grant. Outstanding options
to the President and Chief Executive Officer generally vest in six months, while options granted to non-employee directors vest after one year. Outstanding options granted to other key employees vest in three equal annual installments.



The 1984 Stock Option Plan expired May 8, 1994. The final 14,090 outstanding options
expired in June 2003, ten years from the date originally granted.



The changes
in outstanding and exercisable options involving all Plans are summarized below:



|                                 |  |                   |   |                   |                              |       |              |         |   |                              |   |      
|-------------------------------- |  | ----------------- | - | ----------------- | ---------------------------- | ----- | ------------ | ------- | - | ---------------------------- | - | -----
|                                 |  | 28 weeks ended   
|                                 |  | December 12, 2004 |   | December 14, 2003
|                                 |  | No. ofshares      |   |                   | Weighted avg.price per share |       | No. ofshares |         |   | Weighted avg.price per share
|Outstanding at beginning of year |  | 319,993           |   |                   | $                            | 15.97 |              | 321,665 |   |                              | $ | 13.96
|Granted during the 28 weeks      |  | 81,000            |   |                   | $                            | 29.37 |              | 91,000  |   |                              | $ | 19.28
|Exercised during the 28 weeks    |  | (14,997           | ) |                   | $                            | 14.61 |              | (61,249 | ) |                              | $ | 11.40
|Expired during the 28 weeks      |  |                  |   |                   | $                            |      |              | (14,090 | ) |                              | $ | 14.38
|Forfeited during the 28 weeks    |  | (1,919            | ) |                   | $                            | 18.94 |              | (500    | ) |                              | $ | 17.17
|                                 |  |                   |   |                   |                              |       |              |         |   |                              |   |      
|Outstanding at end of quarter    |  | 384,077           |   |                   | $                            | 18.84 |              | 336,826 |   |                              | $ | 15.82
|                                 |  |                   |   |                   |                              |       |              |         |   |                              |   |      
|Exercisable at beginning of year |  | 227,314           |   |                   | $                            | 14.94 |              | 233,156 |   |                              | $ | 13.21
|                                 |  |                   |   |                   |                              |       |              |         |   |                              |   |      
|Exercisable at end of quarter    |  | 260,571           |   |                   | $                            | 15.58 |              | 204,147 |   |                              | $ | 13.99
|                                 |  |                   |   |                   |                              |       |              |         |   |                              |   |      



Stock options outstanding and
exercisable as of December 12, 2004 for all Plans:



|                                   |  |              |  |                                 |       |                                         |           
|---------------------------------- |  | ------------ |  | ------------------------------- | ----- | --------------------------------------- | ----------
|Range of Exercise Prices per
Share |  | No. ofshares |  | Weighted averageprice per share |       | Weighted averageremaining life in years
|Outstanding:                       |  |              |  |                                 |       |                                         |           
|$ 8.31 to $13.00                   |  | 72,814       |  | $                               | 10.62 |                                         | 5.36 years
|$13.01 to $18.00                   |  | 65,754       |  | $                               | 13.76 |                                         | 6.57 years
|$18.01 to $24.20                   |  | 165,009      |  | $                               | 19.35 |                                         | 8.05 years
|$24.21 to $30.13                   |  | 80,500       |  | $                               | 29.36 |                                         | 9.54 years
|                                   |  |              |  |                                 |       |                                         |           
|$ 8.31 to $30.13                   |  | 384,077      |  | $                               | 18.84 |                                         | 7.60 years
|                                   |  |              | 
|Exercisable:                       |  |              |  |                                 |       |                                         |           
|$ 8.31 to $13.00                   |  | 72,814       |  | $                               | 10.62 |                                         |          
|$13.01 to $18.00                   |  | 65,754       |  | $                               | 13.76 |                                         |          
|$18.01 to $24.20                   |  | 122,003      |  | $                               | 19.52 |                                         |          
|$24.21 to $30.13                   |  | 0            |  |                                 | 0     |                                         |          
|                                   |  |              |  |                                 |       |                                         |           
|$ 8.31 to $30.13                   |  | 260,571      |  | $                               | 15.58 |                                         |          



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##### Table of Contents

Frischs Restaurants, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



NOTE D - CAPITAL STOCK (CONTINUED)



Shareholders approved the Employee Stock Option Plan (elsewhere referred to as Employee Stock Purchase Plan) in October 1998. The Plan provides employees who have completed 90 days of continuous service with an opportunity to purchase
shares of the Companys common stock through payroll deduction. Immediately following the end of each semi-annual offering period, participant account balances are used to purchase shares of stock at the lesser of 85 percent of the fair market
value of shares at the beginning of the offering period or at the end of the offering period. The Plan authorizes a maximum of 1,000,000 shares that may be purchased on the open market or from the Companys treasury. As of October 31, 2004
(latest available data), 99,011 shares had been purchased through the Plan. Shares purchased through the Plan are held by the Plans custodian until withdrawn or distributed. As of October 31, 2004, the custodian held 39,769 shares on behalf of
employees.



A total of 58,492 common shares (as adjusted for changes in
capitalization in earlier years) were reserved for issuance under the non-qualified Executive Savings Plan when it was established in 1993. As of December 12, 2004, 49,374 shares remained in the reserve, including 8,038 shares allocated but not
issued to participants.



There are no other outstanding options, warrants or
rights.



Treasury Stock



As of December 12, 2004, the Companys treasury held 2,450,351 shares of the
Companys common stock. From September 1998 through January 2002, 1,135,286 shares of the Companys common stock were repurchased at a cost of $12,162,000 pursuant to repurchase programs authorized by the Companys Board of Directors.
No shares were repurchased under the two-year authorization that expired October 7, 2004.



Most of the remaining shares held in the treasury were acquired in August 1997 pursuant to the terms of a modified Dutch Auction self-tender offer.



Earnings Per Share



Basic earnings per share is based on the weighted average number of outstanding common
shares during the period presented. Diluted earnings per share includes the effect of common stock equivalents, which assumes the exercise and conversion of dilutive stock options.



|                  |  |                                    |  |                  |      |                            |                                    |  |           |  |   |     
|----------------- |  | ---------------------------------- |  | ---------------- | ---- | -------------------------- | ---------------------------------- |  | --------- |  | - | ----
|                  |  | Basic earnings per share           |  | Stockequivalents |      | Diluted earnings per share
|                  |  | Weighted averageshares outstanding |  | EPS              |      |                            | Weighted averageshares outstanding |  | EPS      
|28 weeks ended:   |  |                                    |  |                  |      |                            |                                    |  |           |  |   |     
|                  |  |                                    |  |                  |     
|December 12, 2004 |  | 5,036,682                          |  | $                | 1.12 |                            | 116,355                            |  | 5,153,037 |  | $ | 1.10
|December 14, 2003 |  | 4,974,983                          |  | $                | 1.15 |                            | 121,174                            |  | 5,096,157 |  | $ | 1.12
|                  |  |                                    |  |                  |     
|12 weeks ended:   |  |                                    |  |                  |      |                            |                                    |  |           |  |   |     
|                  |  |                                    |  |                  |     
|December 12, 2004 |  | 5,039,103                          |  | $                | .54  |                            | 105,119                            |  | 5,144,222 |  | $ | .53 
|December 14, 2003 |  | 4,989,325                          |  | $                | .48  |                            | 138,805                            |  | 5,128,130 |  | $ | .47 



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##### Table of Contents

Frischs Restaurants, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



NOTE E - PENSION PLANS



As discussed more
fully in Note A  Accounting Policies, the Company sponsors two qualified defined benefit pension plans plus an unfunded non qualified Supplemental Executive Retirement Plan (SERP) for highly compensated employees (HCEs). The
following table shows the components of net periodic pension cost for all periods presented in these consolidated financial statements:



|                                                                  |  |                |        |   |                |   |       |              |  |   |              |   |  |   |      |  
|----------------------------------------------------------------- |  | -------------- | ------ | - | -------------- | - | ----- | ------------ |  | - | ------------ | - |  | - | ---- | -
|                                                                  |  | 28 weeks ended |        |   | 12 weeks ended |  
|Net periodic pension cost components                              |  | Dec. 12,2004   |        |   | Dec. 14,2003   |   |       | Dec. 12,2004 |  |   | Dec. 14,2003 |  
|                                                                  |  | (in thousands) |       
|Service cost                                                      |  | $              | 1,042  |   |                | $ | 935   |              |  | $ | 421          |   |  | $ | 414  |  
|Interest cost                                                     |  |                | 811    |   |                |   | 703   |              |  |   | 327          |   |  |   | 312  |  
|Expected return on plan assets                                    |  |                | (1,053 | ) |                |   | (836  | )            |  |   | (425         | ) |  |   | (367 | )
|Amortization of prior service cost                                |  |                | 38     |   |                |   | 37    |              |  |   | 15           |   |  |   | 16   |  
|Amortization of loss                                              |  |                | 207    |   |                |   | 236   |              |  |   | 87           |   |  |   | 90   |  
|                                                                  |  |                |        |   |                |   |       |              |  |   |              |   |  |   |      |  
|Net periodic pension cost                                         |  | $              | 1,045  |   |                | $ | 1,075 |              |  | $ | 425          |   |  | $ | 465  |  
|                                                                  |  |                |        |   |                |   |       |              |  |   |              |   |  |   |      |  
|Weighted average discount rate                                    |  |                | 6.5    | % |                |   | 6.5   | %            |  |   | 6.5          | % |  |   | 6.5  | %
|Weighted average rate of compensation increase                    |  |                | 5.0    | % |                |   | 5.0   | %            |  |   | 5.0          | % |  |   | 5.0  | %
|Weighted average expected long-term rate of return on plan assets |  |                | 8.5    | % |                |   | 8.5   | %            |  |   | 8.5          | % |  |   | 8.5  | %



Contributions to the Plans are
expected to exceed $2,125,000 for fiscal 2005. Contributions for fiscal 2004 were $2,304,000, of which $304,000 was paid in fiscal 2005.



Compensation expense (not included in the net periodic pension cost described above) relating to the Non Deferred Cash Balance Plan (see Note A  Accounting
Policies) was $275,000 and $270,000 respectively, during the 28 weeks ended December 12, 2004 and December 14, 2003, and was $124,000 and $116,000 respectively, for the twelve weeks ended December 12, 2004 and December 14, 2003. Contributions of
$521,000 and $489,000 respectively, were made to the Plan in December 2004 and December 2003.



The Company also sponsors two 401(k) plans and a non-qualified Executive Savings Plan for certain HCEs who have been disqualified from participation in the 401(k) plans (see Note A  Accounting Policies).
In the 28 weeks ended December 12, 2004 and December 14, 2003, matching contributions to the 401(k) plans amounted to $91,000 and $85,000 respectively, and were $38,000 and $36,000 respectively, during the twelve weeks ended December 12, 2004 and
December 14, 2003. Matching contributions to the Executive Savings Plan were $12,000 and $8,000 respectively, during the 28 weeks ended December 12, 2004 and December 14, 2003, and were $4,000 and $3,000 respectively, during the twelve weeks ended
December 12, 2004 and December 14, 2003.



The Company does not sponsor post
retirement health care benefits.



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Frischs Restaurants, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



NOTE F  SEGMENT INFORMATION



The Company
has two reportable segments within the restaurant industry: Big Boy restaurants and Golden Corral restaurants. Financial information by operating segment is as follows:



|                                             |  |                |         |   |                |   |         |              |  |   |              |   |  |   |        |  
|-------------------------------------------- |  | -------------- | ------- | - | -------------- | - | ------- | ------------ |  | - | ------------ | - |  | - | ------ | -
|                                             |  | 28 weeks ended |         |   | 12 weeks ended |  
|                                             |  | Dec. 12,2004   |         |   | Dec. 14,2003   |   |         | Dec. 12,2004 |  |   | Dec. 14,2003 |  
|                                             |  | (in thousands) |        
|Sales                                        |  |                |         |   |                |   |         |              |  |   |              |   |  |   |        |  
|Big Boy                                      |  | $              | 100,594 |   |                | $ | 95,429  |              |  | $ | 45,401       |   |  | $ | 42,260 |  
|Golden Corral                                |  |                | 50,216  |   |                |   | 41,700  |              |  |   | 21,346       |   |  |   | 17,831 |  
|                                             |  |                |         |   |                |   |         |              |  |   |              |   |  |   |        |  
|                                             |  | $              | 150,810 |   |                | $ | 137,129 |              |  | $ | 66,747       |   |  | $ | 60,091 |  
|                                             |  |                |         |   |                |   |         |              |  |   |              |   |  |   |        |  
|Earnings from operations before income taxes |  |                |         |   |                |   |         |              |  |   |              |   |  |   |        |  
|Big Boy                                      |  | $              | 12,182  |   |                | $ | 11,921  |              |  | $ | 5,929        |   |  | $ | 5,253  |  
|                                             |  |                |         |  
|Opening expense                              |  |                | (264    | ) |                |   | (60     | )            |  |   | (45          | ) |  |   | (37    | )
|                                             |  |                |         |   |                |   |         |              |  |   |              |   |  |   |        |  
|Total Big Boy                                |  |                | 11,918  |   |                |   | 11,861  |              |  |   | 5,884        |   |  |   | 5,216  |  
|                                             |  |                |         |  
|Golden Corral                                |  |                | 2,468   |   |                |   | 2,213   |              |  |   | 854          |   |  |   | 874    |  
|Opening expense                              |  |                | (786    | ) |                |   | (887    | )            |  |   | (282         | ) |  |   | (476   | )
|                                             |  |                |         |   |                |   |         |              |  |   |              |   |  |   |        |  
|Total Golden Corral                          |  |                | 1,682   |   |                |   | 1,326   |              |  |   | 572          |   |  |   | 398    |  
|                                             |  |                |         |  
|Administrative expense                       |  |                | (4,070  | ) |                |   | (3,693  | )            |  |   | (1,703       | ) |  |   | (1,547 | )
|Interest expense                             |  |                | (1,447  | ) |                |   | (1,316  | )            |  |   | (641         | ) |  |   | (582   | )
|Other  net                                  |  |                | 734     |   |                |   | 658     |              |  |   | 311          |   |  |   | 292    |  
|                                             |  |                |         |   |                |   |         |              |  |   |              |   |  |   |        |  
|Total Corporate Items                        |  |                | (4,783  | ) |                |   | (4,351  | )            |  |   | (2,033       | ) |  |   | (1,837 | )
|                                             |  |                |         |   |                |   |         |              |  |   |              |   |  |   |        |  
|                                             |  | $              | 8,817   |   |                | $ | 8,836   |              |  | $ | 4,423        |   |  | $ | 3,777  |  
|                                             |  |                |         |   |                |   |         |              |  |   |              |   |  |   |        |  
|Depreciation and amortization                |  |                |         |   |                |   |         |              |  |   |              |   |  |   |        |  
|Big Boy                                      |  | $              | 3,884   |   |                | $ | 3,863   |              |  | $ | 1,688        |   |  | $ | 1,597  |  
|Golden Corral                                |  |                | 2,346   |   |                |   | 1,873   |              |  |   | 1,053        |   |  |   | 811    |  
|                                             |  |                |         |   |                |   |         |              |  |   |              |   |  |   |        |  
|                                             |  | $              | 6,230   |   |                | $ | 5,736   |              |  | $ | 2,741        |   |  | $ | 2,408  |  
|                                             |  |                |         |   |                |   |         |              |  |   |              |   |  |   |        |  
|Capital expenditures                         |  |                |         |   |                |   |         |              |  |   |              |   |  |   |        |  
|Big Boy                                      |  | $              | 5,973   |   |                | $ | 5,337   |              |  | $ | 2,746        |   |  | $ | 3,602  |  
|Golden Corral                                |  |                | 7,166   |   |                |   | 9,808   |              |  |   | 1,394        |   |  |   | 4,488  |  
|                                             |  |                |         |   |                |   |         |              |  |   |              |   |  |   |        |  
|                                             |  | $              | 13,139  |   |                | $ | 15,145  |              |  | $ | 4,140        |   |  | $ | 8,090  |  
|                                             |  |                |         |   |                |   |         |              |  |   |              |   |  |   |        |  



|                    |  |              |         |             |   |        
|------------------- |  | ------------ | ------- | ----------- | - | -------
|                    |  | As of       
|                    |  | Dec. 12,2004 |         | May 30,2004
|Identifiable assets |  |              |         |             |   |        
|Big Boy             |  | $            | 88,911  |             | $ | 84,680 
|Golden Corral       |  |              | 76,820  |             |   | 72,168 
|                    |  |              |         |             |   |        
|                    |  | $            | 165,731 |             | $ | 156,848
|                    |  |              |         |             |   |        



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##### Table of Contents

Frischs Restaurants, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



NOTE G  CONTINGENCIES



Litigation



The construction of a Golden Corral restaurant in Canton, Ohio was halted in
August 2001 in order to assess structural concerns. In March 2002, a final assessment of the defects resulted in the Companys decision to construct a new building on another part of the lot. (The restaurant finally opened for business in
January 2003.) On July 30, 2002, the general contractor that built the defective building filed a demand for arbitration against the Company seeking $294,000 plus interest, fees, and costs it claims is owed by the Company under the construction
contract. The Company denies the claim and has filed a counterclaim against the general contractor alleging defective construction and claiming damages, lost profits, interest and costs in excess of $1,000,000. The Company is vigorously prosecuting
this claim and believes that it will ultimately prevail.



On August 29, 2002,
the Company filed a separate lawsuit against the architect that designed the defective building alleging negligent design and claiming damages, lost profits, interest and costs in excess of $2,500,000. In July 2003, the Company resolved all claims,
counterclaims and cross claims against the trial court defendants, including the architect and the architects structural engineering consultant. The defendants agreed to pay the Company the sum of $1,700,000 in full and final settlement of all
claims. The Company received the settlement funds in full during the first quarter of fiscal year 2004 and the case was dismissed.



The Company is also subject to various claims and suits in the ordinary course of business. The Company does not believe that any ultimate liability for such claims will
have a material impact on its earnings, cash flows or financial position.



Other



The Company is contingently liable for the performance
of certain leases that have been assigned or sub-let to third parties. The average annual obligation of these leases approximate $50,000 over the next five years. In the event of default by the assignees or sub-lessees, the Company generally has the
right to re-assign or sub-let the properties.



As of December 12, 2004, the
Company had two outstanding letters of credit totaling $175,000 in support of its self-insurance program. (See Note A - Accounting Policies.)



NOTE H - RELATED PARTY TRANSACTIONS



A Big Boy licensed restaurant owned by an officer and director of the Company and two Big Boy licensed restaurants owned by children and other family members of an
officer and directors of the Company pay to the Company franchise and advertising fees, employee leasing and other fees, and make purchases from the Companys commissary.



The total paid to the Company by these three restaurants amounted to $2,705,000 and $2,415,000 respectively, during the 28 weeks ended
December 12, 2004 and December 14, 2003, and was $1,216,000 and $1,075,000 respectively, during the twelve weeks ended December 14, 2003 and December 15, 2002. The amount owed to the Company from these restaurants was $156,000 and $116,000
respectively, as of December 12, 2004 and May 30, 2004. Amounts due are always settled within 28 days of billing.



All related party transactions described herein were effected on substantially similar terms as transactions with persons having no relationship with the Company.



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##### Table of Contents

ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Overview



The Companys Second Quarter of Fiscal 2005 consists of the twelve weeks ended December 12, 2004, and compares with the twelve weeks ended December 14, 2003, which constituted the Second Quarter of Fiscal 2004.
The First Half of Fiscal 2005 consists of the 28 weeks ended December 14, 2003, and compares with the 28 weeks ended December 14, 2003, which constituted the First Half of Fiscal 2004. The first half of the Companys fiscal year normally
accounts for a disproportionate share of annual revenue and earnings because it contains 28 weeks whereas the second half of the year normally contains only 24 weeks. The twelve week third quarter in particular is a disproportionately smaller share
of annual revenue and earnings because it spans most of the winter season from mid December through early March. Additionally, severe winter weather can have a prominent negative impact upon revenue and earnings during the third quarter. Operations
consist of two reportable segments within the restaurant industry: Big Boy restaurants and Golden Corral restaurants.



Total revenue for the Second Quarter of Fiscal 2005 was a record $67,058,000, an increase of $6,674,000, or 11.1 percent higher than the Second Quarter of Fiscal 2004.
Net earnings for the Second Quarter of Fiscal 2005 were a record $2,744,000, or diluted earnings per share (EPS) of $.53. Comparable net earnings from the Second Quarter of Fiscal 2004 were $2,411,000, or $.47 diluted EPS.



Total revenue for the First Half of Fiscal 2005 was a record $151,543,000, an increase of
$13,756,000, or 10 percent higher than the First Half of Fiscal 2004. Net earnings for the First Half of Fiscal 2005 were $5,643,000, or $1.10 diluted EPS. Comparable net earnings from the First Half of Fiscal 2004 were $5,699,000, or $1.12 diluted
EPS.



Record earnings in the Second Quarter of Fiscal 2005 pulled results for
the First Half of Fiscal 2005 nearly even with the First Half of Fiscal 2004, overcoming disappointing first quarter 2005 results. The second quarter improvement was driven by higher margins in Big Boy restaurants, principally the result of higher
sales levels.



Results for the first halves of both years were positively
impacted by favorable claims experience in the Companys self insurance program. Self insurance reserves were lowered by $614,000 ($393,000 net after income tax, or $.08 diluted EPS) in the First Quarter of Fiscal 2005, while the First Quarter
of Fiscal 2004 received the benefit of a $710,000 adjustment ($458,000 net after income tax, or $.09 diluted EPS).



Results of Operations



The Companys revenues consist primarily of retail restaurant sales. Big Boy sales also include wholesale sales from the Companys commissary to restaurants
licensed to other operators. Total revenue also includes franchise and other fees, the amounts of which are not material to any of the periods discussed herein.



Changes in sales occur when new restaurants are opened and older restaurants are closed. Changes in customer counts and menu price increases affect changes in same
store sales. Consolidated restaurant sales reached record heights during the Second Quarter of Fiscal 2005 and the First Half of Fiscal 2005:



|                              |  |                |        |              |   |              |  |              |         |  |   |        
|----------------------------- |  | -------------- | ------ | ------------ | - | ------------ |  | ------------ | ------- |  | - | -------
|                              |  | Second Quarter |        | First Half  
|                              |  | Dec. 12,2004   |        | Dec. 14,2003 |   | Dec. 12,2004 |  | Dec. 14,2003
|                              |  | (in thousands)
|Big Boy sales                 |  | $              | 43,147 |              | $ | 40,673       |  | $            | 95,994  |  | $ | 91,831 
|Wholesale sales to licensees  |  |                | 2,103  |              |   | 1,430        |  |              | 4,277   |  |   | 3,254  
|Other wholesale sales         |  |                | 151    |              |   | 157          |  |              | 323     |  |   | 344    
|                              |  |                |        |              |   |              |  |              |         |  |   |        
|Total Big Boy Sales           |  |                | 45,401 |              |   | 42,260       |  |              | 100,594 |  |   | 95,429 
|                              |  |                |        |             
|Golden Corral sales           |  |                | 21,346 |              |   | 17,831       |  |              | 50,216  |  |   | 41,700 
|                              |  |                |        |              |   |              |  |              |         |  |   |        
|Consolidated restaurant sales |  | $              | 66,747 |              | $ | 60,091       |  | $            | 150,810 |  | $ | 137,129
|                              |  |                |        |              |   |              |  |              |         |  |   |        



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The same store sales increase in Big Boy restaurants was 3.2 percent higher than the Second Quarter of Fiscal 2004. The
second quarter improvement elevated the First Half of Fiscal 2005 to 1.8 percent higher than the First Half of Fiscal 2004, erasing a disappointing.6 percent increase in the First Quarter of Fiscal 2005. Customer counts in the Second Quarter of
Fiscal 2005 were about even with counts from the Second Quarter of Fiscal 2004, an improvement from a 1.8 percent decline reported in the first quarter. A generally improving economy and modest increases in consumer spending probably contributed to
this increase. The average guest check continued to rise during the Second Quarter of Fiscal 2005, which included a menu price increase of 1.5 percent implemented near the end of the first quarter. For the First Half of Fiscal 2005, a 1 percent
decline in customer counts was more than covered by a 2.8 percent rise in the average guest check. Another price increase is currently being planned for February 2005.



The rest of the Big Boy sales increases came from the combination of more restaurants in operation and higher wholesale sales. Wholesale
sales have increased significantly in both the Second Quarter of Fiscal 2005 and the First Half of 2005, as sixteen Big Boy restaurants licensed in northwestern Ohio have begun purchasing food and supplies from the commissary.



The Company currently operates 89 Big Boy restaurants. This count includes one that opened in
August 2004 and one that re-opened in September 2004 that had been closed for rebuilding since May 2004. Both of these restaurants also added greatly to the improvement in second quarter sales and margins. One older, low volume Big Boy restaurant
was closed in November 2004. During the last twelve months, one other new Big Boy was opened in January 2004 and one restaurant was relocated to a superior site within the same neighborhood. Two new buildings are likely to be constructed during the
next twelve months, consisting of one rebuild and one relocation.



The Golden
Corral sales increases were primarily the result of more restaurants in operation:



|                                    |  |             |  |            |  |      |  |     
|----------------------------------- |  | ----------- |  | ---------- |  | ---- |  | ----
|                                    |  | Second Qtr. |  | First Half
|                                    |  | 2005        |  | 2004       |  | 2005 |  | 2004
|In operation at beginning of period |  | 27          |  | 22         |  | 26   |  | 20  
|Opened during the period            |  | 2           |  | 2          |  | 3    |  | 4   
|In operation at end of period       |  | 29          |  | 24         |  | 29   |  | 24  
|Total sales weeks during period     |  | 339         |  | 272        |  | 763  |  | 607 



One Golden Corral restaurant was under
construction as of December 12, 2004. It should open in April 2005. Four more should open over the remainder of 2005.



Golden Corral same store sales decreased 5.9 percent during the Second Quarter of Fiscal 2005, pushing the decline in same store sales for the First Half of Fiscal 2005
to 4.7 percent. There was no appreciable improvement in the decline in customer counts during the Second Quarter of Fiscal 2005 when compared with the First Quarter of Fiscal 2005. For the First Half of Fiscal 2005, a 10.4 percent decline in
customer counts could not be overcome by a 6.4 percent higher average guest check. Management continues to believe that most of the drop in customer counts can be attributed to a short-term phenomenon called the sister-store effect that
occurs when a new restaurant is built near an existing one, and that the long-term benefits of the overall market development strategies far outweigh the short-term effects. Menu price increases of 3.3 percent and 2.3 percent were implemented
respectively in November 2003 and May 2004.



Following general industry
practice, same store sales comparisons include only those restaurants that had been open for five full fiscal quarters prior to the start of the comparison periods. Accordingly, only 21 Golden Corral restaurants are included in the same store sales
comparisons for the Second Quarter of Fiscal 2005, and only twenty are included in the comparison for the First Half of Fiscal 2005. The Company operated 29 Golden Corral restaurants at the end of the Second Quarter of Fiscal 2005.



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##### Table of Contents

Earnings before income tax for both operating segments are highlighted below (also see note F to the consolidated
financial statements):



|                                       |  |                |       |              |   |              |  |              |        |  |   |       
|-------------------------------------- |  | -------------- | ----- | ------------ | - | ------------ |  | ------------ | ------ |  | - | ------
|                                       |  | 2nd Quarter    |       | First Half  
|                                       |  | Dec. 12,2004   |       | Dec. 14,2003 |   | Dec. 12,2004 |  | Dec. 14,2003
|                                       |  | (in thousands)
|Big Boy earnings before income tax     |  | $              | 5,884 |              | $ | 5,216        |  | $            | 11,918 |  | $ | 11,861
|Golden Corral earnings before inc. tax |  |                | 572   |              |   | 398          |  |              | 1,682  |  |   | 1,326 
|                                       |  |                |       |              |   |              |  |              |        |  |   |       
|Total earnings before income tax       |  | $              | 6,456 |              | $ | 5,614        |  | $            | 13,600 |  | $ | 13,187
|                                       |  |                |       |              |   |              |  |              |        |  |   |       



The operating percentages shown in the
following table are percentages of restaurant sales (including Big Boy wholesale sales) rather than of total revenue. The table supplements the discussion that follows which addresses cost of sales for both the Big Boy and Golden Corral reporting
segments, including food cost, payroll and other operating costs.



|                                                |  |                   |  |                   |  |                   |  |                   |  |        |  |       |  |       |  |        |  |       |  |       |  |        |  |      
|----------------------------------------------- |  | ----------------- |  | ----------------- |  | ----------------- |  | ----------------- |  | ------ |  | ----- |  | ----- |  | ------ |  | ----- |  | ----- |  | ------ |  | -----
|                                                |  | 12 weeks 12/12/04 |  | 12 weeks 12/14/03 |  | 28 weeks 12/12/04 |  | 28 weeks 12/14/03
|                                                |  | Total             |  | BigBoy            |  | GC                |  | Total             |  | BigBoy |  | GC    |  | Total |  | BigBoy |  | GC    |  | Total |  | BigBoy |  | GC   
|Sales                                           |  | 100.0             |  | 100.0             |  | 100.0             |  | 100.0             |  | 100.0  |  | 100.0 |  | 100.0 |  | 100.0  |  | 100.0 |  | 100.0 |  | 100.0  |  | 100.0
|Food and Paper                                  |  | 35.0              |  | 33.0              |  | 39.2              |  | 33.8              |  | 31.8   |  | 38.4  |  | 35.0  |  | 32.7   |  | 39.5  |  | 33.9  |  | 31.7   |  | 39.0 
|Payroll and Related                             |  | 33.3              |  | 34.1              |  | 31.4              |  | 34.0              |  | 35.0   |  | 31.7  |  | 33.3  |  | 34.4   |  | 31.0  |  | 33.8  |  | 34.9   |  | 31.3 
|Other Operating Costs (including opening costs) |  | 19.8              |  | 17.5              |  | 24.6              |  | 20.5              |  | 18.4   |  | 25.5  |  | 20.4  |  | 18.6   |  | 24.0  |  | 20.3  |  | 18.6   |  | 24.3 
|Gross Profit                                    |  | 11.9              |  | 15.4              |  | 4.8               |  | 11.7              |  | 14.8   |  | 4.4   |  | 11.3  |  | 14.3   |  | 5.5   |  | 12.0  |  | 14.8   |  | 5.4  



The higher food and paper cost
percentages for the Second Quarter of Fiscal 2005 and the First Half of Fiscal 2005 are the result of higher commodity costs, especially meat and dairy, for both the Big Boy and Golden Corral segments. Beef continues to be a highly volatile market.
Import and export restrictions can cause wide fluctuations in cost. Golden Corral food cost percentages were lower in the Second Quarter of Fiscal 2005 than the first quarter, reflecting a drop in the price of sirloin top butts used on the Great
Steaks Buffet. Despite the lower price of sirloin in the Second Quarter of Fiscal 2005, Golden Corral food costs were still much higher than a year ago. Food and paper cost percentages for the Golden Corral segment are much higher than the Big Boy
segment because of the all-you-can-eat nature of the Golden Corral concept, as well as its use of steak as a featured item on the buffet. Menu price hikes, as discussed above, helped to counter the effects of higher food costs a certain degree.
However, menu prices can not be raised high enough at once to offset the significant increases that have been seen on a wide range of products.



Self insured claims experience is reviewed and adjusted annually during the first quarter. The assumptions used to measure these adjustments can be complex and sometimes
require management to exercise considerable judgment. However, management does not consider the adjustments made during the annual review to be critical to the fair presentation of the Companys financial condition or its results of operations
for the fiscal year taken as a whole. Payroll and Related Costs for the first halves of both fiscal years received the benefit of favorable claims experience, as self insurance liabilities were lowered by $614,000 during the First Quarter of Fiscal
2005 and by $710,000 in the First Quarter of Fiscal 2004.



Payroll and related
cost percentages moved downward in the Second Quarter of Fiscal 2005 and the First Half of Fiscal 2005 for both the Big Boy and Golden Corral segments, even when the benefit of the self insurance reserve



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##### Table of Contents

adjustments that were apportioned to payroll and related costs is excluded. There has been no appreciable change in average pay rates for either Big Boy or
Golden Corral. Reduced percentages for Big Boy are primarily the result of higher sales while maintaining service hours at last years levels. A significant reduction of Golden Corral service hours worked is responsible for the Golden Corral
percentage improvement in spite of lower sales. However, the rate of reduction was slowed down in the Second Quarter of Fiscal 2005 when compared with the First Quarter of 2005.



Although pressure is once again mounting for an increase in the minimum wage, the Company believes it is unlikely that Federal legislation
will be enacted to raise the minimum wage in the near term. However, if such legislation is enacted, the Company would counter the effects with higher menu prices, together with tighter payroll standards and a reduction in hours worked. New overtime
rules initiated by the U. S. Department of labor went into effect in August 2004. The new rules had a negligible impact on the Company.



Net periodic pension cost (computed under Statement of Financial Accounting Standards No. 132 (R)) was $425,000 and $465,000 respectively, in the Second Quarter of Fiscal
2005 and the Second Quarter of Fiscal 2004. Net periodic pension cost was $1,045,000 and $1,075,000 respectively, for the First Half of Fiscal 2005 and the First Half of Fiscal 2004. The decline in the expense reflects the halt of escalating costs
over the past few years that resulted from earlier years poor return on equity investments held by the Companys defined benefit pension plans. Costs should continue to taper downward in future years, assuming expected returns on
investments are achieved. Company contributions to the plans will exceed $2,125,000 for fiscal year 2005.



Other operating costs include occupancy costs such as maintenance, rent, depreciation, property tax, insurance and utilities; field supervision; accounting and payroll preparation costs; franchise fees for Golden
Corral restaurants; opening costs and many other restaurant operating expenses. As most of these expenses tend to be more fixed in nature, same store sales increases cause these costs to be a lower percentage of sales, as reflected in the above
table for Big Boy, especially for the Second Quarter of Fiscal 2005. Lower opening costs, especially in the Second Quarter of Fiscal 2005, caused Golden Corrals other operating costs to be a lower percentage of sales for both the Second
Quarter of Fiscal 2005 and the First Half of Fiscal 2005, when compared with comparable periods in fiscal 2004.



No impairment of assets was recorded in either the First Half of Fiscal 2005 or the First Half of Fiscal 2004.



Administrative and advertising expense increased $295,000 during the Second Quarter of Fiscal
2005, or 10 percent higher than the Second Quarter of Fiscal 2004. The First Half of Fiscal 2005 increased $662,000 or 9.6 percent higher than the First Half of Fiscal 2004. The largest component of these increases is higher spending for advertising
and marketing that is proportionate with higher sales levels, reflecting the Companys long standing policy to spend a constant percentage of Big Boy and Golden Corral sales on advertising and marketing.



Interest expense increased $58,000 during the Second Quarter of Fiscal 2005, or 9.9 percent
higher than the Second Quarter of Fiscal 2004. The First Half of Fiscal 2005 increased $130,000 or 9.9 percent higher than the First Half of Fiscal 2004. The increase was caused by the combination of higher debt and higher interest rates. In early
December 2004, the Company exercised its option to convert a $10,000,000 Bullet Loan from variable rate interest to a fixed rate of 5.57 percent for the remainder of the term. The conversion will create a spike in interest costs in the near term.



As a percentage of pre-tax earnings, the estimated effective tax rate for the
entire year increased to 36 percent during the Second Quarter of Fiscal 2005, up from 34 percent in the first quarter. During the Second Quarter of Fiscal 2004, the rate was increased to 35.5 percent from 35 percent in the first quarter. These rates
have been kept consistently low through the Companys use of tax credits, principally the federal credit allowed for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips.



Critical Accounting Policies



Two factors are required for an accounting policy to be deemed critical. The policy must be
significant to the fair presentation of a companys financial condition and its results of operations, and the policy must require managements most difficult, subjective or complex judgments. Management believes that its policy used in
accounting for the impairment of long-lived assets is the Companys only critical accounting policy because of its potential for significant impact on financial condition and results of operations. A discussion of this policy can be found under
the Property and Equipment caption of Note A to the consolidated financial statements.



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##### Table of Contents

Liquidity and Capital Resources



Sales to restaurant customers provide the Companys principal source of cash. The funds from sales are immediately available for the
Companys use, as substantially all sales to restaurant customers are received in cash or credit cards. Net earnings plus depreciation provide the primary source of cash provided by operating activities. Other sources of cash may include
borrowing against credit lines, proceeds from employees exercising of stock options and occasional sales of real estate. In addition to servicing debt, these cash flows are utilized for discretionary objectives, including capital projects
(principally restaurant expansion) and dividends.



The Company has historically
maintained a strategic negative working capital position, a common practice in the restaurant industry. As significant cash flows are consistently provided by operations, and credit lines are readily available, the use of this practice should not
hinder the Companys ability to retire any of its obligations when due, including the aggregated obligations and commercial commitments shown in the table below.



Aggregated Information about Contractual Obligations and Commercial Commitments

December 12, 2004



|  |  |                                          |  |                                       |  |        |  |        |  |        |  |        |  |        |  |                
|- |  | ---------------------------------------- |  | ------------------------------------- |  | ------ |  | ------ |  | ------ |  | ------ |  | ------ |  | ---------------
|  |  |                                          |  | Payments due by period (in thousands)
|  |  |                                          |  | Total                                 |  | year 1 |  | year 2 |  | year 3 |  | year 4 |  | year 5 |  | morethan 5years
|  |  | Long-Term Debt                           |  | 45,187                                |  | 7,386  |  | 7,682  |  | 6,912  |  | 15,915 |  | 3,753  |  | 3,539          
|  |  | Rent due under Capital Lease Obligations |  | 5,058                                 |  | 934    |  | 779    |  | 2,781  |  | 192    |  | 119    |  | 253            
|1 |  | Rent due under Operating Leases          |  | 15,707                                |  | 1,587  |  | 1,541  |  | 1,368  |  | 1,204  |  | 1,130  |  | 8,877          
|  |  | Unconditional Purchase Obligations       |  | 4,447                                 |  | 4,431  |  | 16     |  | 0      |  |        |  |        |  |                
|  |  | Other Long-Term Obligations              |  | None                                  |  |        |  |        |  |        |  |        |  |        |  |                
|  |  | Total Contractual Cash Obligations       |  | 70,399                                |  | 14,338 |  | 10,018 |  | 11,061 |  | 17,311 |  | 5,002  |  | 12,669         

---

|1 | Not included are certain leases of former operating properties that the Company has assigned or sub-let to third parties. The average annual obligations of these leases approximate
$50 over the next five years. The Company remains contingently liable for the performance of these leases. In the event of default by the assignees or sub-lessees, the Company generally retains the right to re-assign or re-sublet the properties.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The working capital deficit was $20,925,000 as of December 12,
2004. It was $20,348,000 as of September 19, 2004. The working capital deficit is expected to continue increasing at a modest, manageable pace as construction debt is prudently increased to supplement the use of internally generated cash to finance
expansion plans. As of December 12, 2004, $9,000,000 remained available to be drawn against a Construction Draw Credit Facility, which expires September 1, 2006, unless extended. Additionally, a $5,000,000 working capital revolving line of credit
(currently unused) is readily available if needed.



Operating cash flows
were $11,491,000 in the First Half of Fiscal 2005, or $2,855,000 lower than the First Half of Fiscal 2004. The change is principally due to a decrease in accounts payable. Before including changes in assets and liabilities, cash flows from net
earnings plus depreciation (and minimal asset dispositions) increased to $11,843,000 in the First Half of Fiscal 2005 from $11,648,000 in the First Half of Fiscal 2004.



Investing activities in the First Half of Fiscal 2005 included $13,139,000 in capital costs. The capital spending includes $7,166,000 for
Golden Corral restaurants, principally for new restaurant construction and site acquisitions. Also included in the capital costs was $5,973,000 spent on Big Boy restaurants, consisting of new restaurant construction, remodeling existing restaurants
including kitchen and dining room expansions, routine equipment replacements and other capital outlays.



It is the Companys policy to own the land on which it builds new restaurants; however, it is sometimes necessary to enter ground leases to obtain desirable land on which to build. Four of the 29 Golden Corral
restaurants have been built on leased land. Another Golden Corral ground lease has been entered into for a restaurant that will open in the spring of 2005 (currently under construction). All of these leases have been accounted for as operating
leases. As of



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##### Table of Contents

December 12, 2004, the Company occupied a total of 28 restaurants pursuant to leases, eleven of which are capital leases under the provisions of Statement of
Financial Accounting Standards No. 13 (SFAS 13), Accounting for Leases as amended.



Financing activities in the First Half of Fiscal 2005 included $7,500,000 of new debt borrowed against the Companys credit lines. Scheduled and other payments of long-term debt and capital lease obligations
amounted to $4,031,000 during the First Half of Fiscal 2005. Regular quarterly cash dividends paid to shareholders totaled $1,108,000. Dividends declared but not paid as of December 12, 2004 totaled $556,000. The Company expects to continue its 44
year practice of paying regular quarterly cash dividends.



The Companys
stock repurchase program expired October 7, 2004. It had authorized the repurchase of up to 500,000 shares of the Companys common stock. No shares were acquired during the two year life of the program, as the price at which shares of the
Companys common stock had been traded did not warrant the utilization of the program.



Options to purchase 384,000 shares of the Companys common stock remained outstanding as of December 12, 2004, including 261,000 fully vested shares at a weighted average price per share of $15.58. Proceeds of
$219,000 were received during the First Half of Fiscal 2005 from employees and directors who acquired 15,000 shares through exercise of stock options granted by the Companys 1993 Stock Option Plan. Shareholders approved the 2003 Stock Option
and Incentive Plan in October 2003. Options to purchase 7,000 shares granted in October 2004 are included in the 384,000 options outstanding described above. The maximum number of shares that the new Plan may issue is 800,000.



No Big Boy restaurants were under construction as of December 12, 2004. Two buildings are
likely to be constructed during the next twelve months, consisting of one rebuild and one relocation. The approximate cost to build and equip a new Big Boy restaurant ranges from $2,300,000 to $2,800,000, depending on land cost. Approximately
one-fifth of the Companys Big Boy restaurants are routinely renovated or decoratively updated each year at an average cost of $75,000 per restaurant. In addition, certain high-volume Big Boy restaurants are regularly evaluated to determine
whether their kitchens should be redesigned for increased efficiencies. A typical kitchen redesign costs approximately $125,000.



The Company reached a new agreement with Golden Corral Franchising Systems, Inc. in July 2004. The new agreement added 21 Golden Corrals to the development schedule,
bringing the total to 62 restaurants to be in operation by December 31, 2011. Twenty-nine restaurants were in operation as of December 12, 2004. The build-out plan calls for five restaurants to be opened each year through December 2010, with the
final three scheduled for 2011. Costs remaining to complete construction of the restaurant that was under construction as of December 12, 2004 were estimated at $2,147,000 as of December 12, 2004. On average, the cost to build and equip each Golden
Corral restaurant is approximately $3,300,000, including land.



Risk
Factors and Safe Harbor Statement



Statements included in this
Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) that are not historical facts are forward-looking statements as that item is defined in the Private Securities Litigation Reform Act of 1995.
Forward-looking statements can generally be identified in sentences that contain words such as should, could, will, may, plan, expect, anticipate,
estimate, project, intend, believe and similar words that are used to convey the fact that the statement being made is prospective and does not strictly relate to historical or present facts. Such
forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from anticipated results. The Company undertakes no obligation to update any of the forward-looking statements that may be
contained in this MD&A.



Food safety is the most significant risk to any
company that operates in the restaurant industry. It has become the focus of increased government regulatory initiatives at the local, state and federal levels resulting in higher compliance costs to the Company. To limit the Companys exposure
to the risk of food contamination, management rigorously emphasizes and enforces the Companys food safety policies in all of the Companys restaurants, and at the commissary and food manufacturing plant that the Company operates for Big
Boy restaurants. These policies are designed to work cooperatively with programs established by health agencies at all levels of government authority, including the federal Hazard Analysis of Critical Control Points (HACCP) program. In addition, the
Company makes use of ServSafe Training, a nationally recognized program developed by the National Restaurant Association. The ServSafe program provides accurate, up-to-date science-based information to all levels of restaurant workers on all aspects
of food handling, from receiving and storing to preparing and serving. All restaurant managers are required to receive re-certification in ServSafe Training every five years.



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Other examples of risks and uncertainties facing the Company include, but are not limited to, the following: intense
competition for customers; consumer perceptions of value, food quality and quality of service; changing consumer preferences, particularly based on concerns with nutritional content of the Companys food or restaurant food in general; changing
demographics in neighborhoods where the Company operates restaurants; changes in business strategy and development plans; the rising cost of quality sites on which to build restaurants; poor selection of restaurant sites; changes in the supply and
cost of food; the effects of other inflationary pressures, especially higher costs for health care benefits and higher energy prices; rolling power outages; shortages of qualified labor; seasonal weather conditions, particularly during the winter
months of the third quarter; natural disasters; fires or explosions; criminal acts, including bomb threats, robberies, hostage taking, kidnapping and other violent crimes; acts of terrorists or acts of war; civil disturbances and boycotts.



Risks and uncertainties also include rising variable interest rates;
limitations on borrowing capacity; legal claims; changes in accounting standards; estimates used in preparing financial statements; disruptions to the business during transitions to new computer software; financial stability of technology vendors to
support computer software over the long-term; unauthorized access to information systems; changes in governmental regulations regarding the environment; exposure to penalties for potential violations of numerous governmental regulations in general,
and immigration (I-9) and minor labor regulations in particular; any future imposition by OSHA of costly ergonomics regulations on workplace safety; legislative changes affecting labor law, especially increases in the federal or state minimum wage
requirements; and legislation or court rulings that result in changes to tax codes.



The Company continually takes reasonable preventive measures to reduce its risks and uncertainties. However, the nature of some risks and uncertainties leaves the Company with little control. The materialization of any of the risks and
uncertainties identified herein, together with those risks not specifically listed or those that are presently unforeseen, could result in significant adverse effects on the Companys financial position, results of operations and cash flows,
which could include the permanent closure of any affected restaurant(s) with an impairment of assets charge taken against earnings, and could adversely affect the price at which shares of the Companys common stock trade.



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##### Table of Contents

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS



The Company has no market risk exposure to interest rate changes as of December 12, 2004 as all of its debt is currently financed with fixed interest rates. The Company does not currently use derivative financial
instruments to manage its exposure to changes in interest rates. The Company does not use foreign currency.



Big Boy restaurants utilize centralized purchasing and food preparation through the Companys commissary. The Company believes the commissary operation ensures uniform product quality and safety, timeliness of
distribution to restaurants and results in lower food and supply costs.



Food
supplies are generally plentiful and may be obtained from any number of suppliers. Quality and price are the principal determinants of source. Commodity pricing affects the cost of many of the Companys food products. Commodity pricing can be
extremely volatile, affected by many factors, including import and export restrictions, production and the impact of weather on crops. Certain commodities, principally beef, chicken, pork, dairy products, fish, french fries and coffee, are generally
purchased based upon market prices established with vendors. Purchase contracts for some of these items may contain contractual provisions that limit the price to be paid. The Company does not use financial instruments as a hedge against changes in
commodity pricing.



For Golden Corral restaurants, the Company currently
purchases substantially all food, beverage and other menu items from the same vendor that Golden Corral Franchising Systems, Inc. (the Franchisor) uses for its operations. Deliveries are made two to three times per week. Other vendors are available
to provide products that meet the Franchisors specifications should the Company wish or need to make a change.



ITEM 4. CONTROLS AND PROCEDURES (Peters minutes of DCC)



The Companys Chief Executive Officer (CEO) and Chief Financial Officer (CFO) reviewed and evaluated the Companys disclosure controls and procedures, as defined in Securities Exchange Act regulations 240.13a-15(e) and
240.15d-15(e) as of the end of the period covered by this report. Based on that evaluation, the Companys CEO and CFO concluded that the Companys disclosure controls and procedures were effective as of December 12, 2004.



The Company completed the second and final implementation phase of its enterprise information
system in September 2004. Phase I of the implementation, which included new software modules for the General Ledger, Accounts Payable, Procurement, Inventory Control and Asset Management, was completed in April 2004. Phase II of the implementation
incorporated Payroll and Human Resources modules into the system. Certain changes in the system of internal control were instituted to enhance the effectiveness of the systems modules.



There were no other significant changes in the Companys internal controls over
financial reporting during the fiscal quarter ended December 12, 2004 that have materially affected, or are reasonably likely to affect, the Companys Internal control over financial reporting.



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PART II - OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS



The Company is the
owner of a Golden Corral Restaurant located in North Canton, Ohio. In 2001, the Companys general contractor, Fortney & Weygandt, Inc. (Fortney) constructed a Golden Corral Restaurant at the original location on the North Canton
site. Complicated geological conditions at the site required that the restaurant be built on a structural slab (platform), which rested upon driven piles. The foundation system for the building had been designed by a Houston, Texas engineering firm,
Maverick Engineering, Inc. (Maverick). Maverick was a subcontractor to the Companys architect of record, LMH&T.



Shortly before the scheduled opening of the restaurant, it was discovered that, due to a combination of design and construction errors, the building had shifted, which
caused separation of the building from its underground plumbing system. The Company elected to demolish the original structure, and subsequently built a new building on a different portion of the original parcel. The restaurants grand opening
was, therefore, delayed until January 2003.



On July 30, 2002, the
Companys general contractor, Fortney, filed a Demand for Arbitration against the Company with the American Arbitration Association. Fortney sought recovery of its outstanding contract balance, in the sum of $293,638, plus interest,
fees, and costs. Fortney contends that it is owed this money by the Company under the terms of the General Construction Contract. The Company has denied that it owes these monies to Fortney, and has filed a counterclaim against Fortney alleging
defective construction. The Companys claim against Fortney is for excess cost of construction, loss profit, interest and costs, in an amount exceeding $1,000,000.



On August 29, 2002, the Company filed a lawsuit in the Stark County, Ohio Court of Common Pleas against its former architect, LMH&T,
alleging negligent design as a casual factor in the demise of the original structure. The Company sought damages including lost profits, interest, and costs exceeding $2,500,000. LMH &T brough into the lawsuit its structural engineering
consultant, Maverick, as well as the Companys soils consultant, Cowherd Banner Carlson Engineering (CBC).



In July 2003, the Company resolved all claims, counterclaims, and cross-claims, against and involving the trial court defendants. The trial court defendants, including
LMH&T and Maverick, agreed to pay to the Company the sum of $1,700,000 in full and final settlement of all claims. The Company received the settlement funds in full during the first quarter of fiscal year 2004 and the case was dismissed.



The resolution between the Company and the trial court defendants (design
team) is separate and apart from the dispute between Fortney and the Company, which is before the American Arbitration Association. In that action, Fortney continues to seek recovery of $293,638, plus interest, fees, and costs. The Company continues
to seek the balance of its claim from Fortney.



From time to time, the Company
is subject to various claims and suits in the ordinary course of business. The Company does not believe that any ultimate liability for such claims will have a material impact on its earnings, cash flows or financial position.



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



a)
EXHIBITS



3 (a) Third Amended Articles of Incorporation, filed
as Exhibit (3) (a) to the Registrants Form 10-K Annual Report for 1993, is incorporated herein by reference.



3 (b) Code of Regulations, filed as Exhibit (3) (a) to the Registrants Form 10-Q Quarterly Report for December 15, 1996, is incorporated herein by
reference.



3 (c) Amendments to the Code of Regulations
adopted October 1, 1984, filed as Exhibit (3) (b) to the Registrants Form 10-Q Quarterly Report for December 15, 1996, is incorporated herein by reference.



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3 (d) Amendments to the Code of Regulations adopted October 24, 1996, filed as Exhibit (3) (c) to the
Registrants Form 10-Q Quarterly Report for December 15, 1996, is incorporated herein by reference.



10 (a) Intellectual Property Use and Noncompete Agreement between the Registrant and Liggett Restaurant Enterprises LLC (now known as Big Boy Restaurants
International, LLC) dated January 8, 2001, filed as Exhibit (10) (a) to the Registrants Form 10-Q Quarterly Report for March 4, 2001, is incorporated herein by reference.



10 (b) Transfer Agreement between the Registrant and Liggett Restaurant Enterprises LLC (now known as Big Boy Restaurants
International, LLC) dated January 8, 2001, filed as Exhibit (10) (b) to the Registrants Form 10-Q Quarterly Report for March 4, 2001, is incorporated herein by reference.



10 (c)1 First Amended and Restated Loan Agreement (Golden Corral) and Exhibit 10(c)2 Second Amended and Restated Loan
Agreement (Revolving and Bullet Loans) between the Registrant and US Bank NA effective October 15, 2004, filed as exhibits 10(c)1 and 10(c)2 to the Registrants Form 10-Q Quarterly Report for September 19, 2004, are incorporated herein by
reference.



10 (d) Area Development Agreement, Termination
Agreement and Addendum effective July 20, 2004 between the Registrant and Golden Corral Franchising Systems, Inc., filed as Exhibit 10 (f) to the Registrants Form 10-K Annual Report for 2004, is incorporated herein by reference.



10 (e) Employment Agreement between the Registrant and Jack C. Maier
effective May 29, 2000, filed as Exhibit (10) (d) to the Registrants Form 10-Q Quarterly Report for September 17, 2000, is incorporated herein by reference. *



10 (f) Employment Agreement between the Registrant and Craig F. Maier effective June 2, 2003, filed as Exhibit 10 (h) to the
Registrants Form 10-K Annual Report for 2003, is incorporated herein by reference. *



10 (g) Frischs Executive Savings Plan effective November 15, 1993, filed as Exhibit (10) (a) to the Registrants Form 10-Q Quarterly Report for September 17, 1995, is incorporated herein by reference. *



10 (h) Second Amendment to the Frischs Executive
Savings Plan effective July 28, 2004, filed as Exhibit 10(h) to the Registrants Form 10-Q Quarterly Report for September 19, 2004, is incorporated herein by reference. *



10 (i) Frischs Executive Retirement Plan effective June 1, 1994, filed as Exhibit (10) (b) to the Registrants
Form 10-Q Quarterly Report for September 17, 1995, is incorporated herein by reference. *



10 (j) Amendment No. 1 to Frischs Executive Retirement Plan effective January 1, 2000, filed as Exhibit 10 (k) to the Registrants form 10-K Annual Report for 2003, is incorporated herein by reference.*



10 (k) 2003 Stock Option and Incentive Plan, filed as
Appendix A to the Registrants Proxy Statement dated August 28, 2003, is incorporated herein by reference. *



10 (l) Forms of agreement to be used for stock options granted to employees and to non-employee directors under the Registrants 2003 Stock Option
and Incentive Plan, filed as Exhibits 99.1 and 99.2 to the Registrants From 8-K dated October 1, 2004, are incorporated herein by reference. *



10 (m) Amended and Restated 1993 Stock Option Plan, filed as Exhibit A to the Registrants Proxy Statement dated September 9, 1998, is incorporated
herein by reference. *



10 (n) Employee Stock Option Plan,
filed as Exhibit B to the Registrants Proxy Statement dated September 9, 1998, is incorporated herein by reference. *



10 (o) Agreement between the Registrant and Craig F. Maier dated November 21, 1989, filed as



Exhibit (10) (g) to the Registrants Form 10-K Annual Report for 1990,
is incorporated herein by reference. *



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10 (p) Frischs Nondeferred Cash Balance Plan effective January 1, 2000, filed as Exhibit (10) (r)
to the Registrants Form 10-Q Quarterly Report for December 10, 2000, is incorporated herein by reference, together with the Trust Agreement established by the Registrant between Firstar Bank, N.A. (Trustee) (now known as US Bank) and Donald H.
Walker (Grantor). There are identical Trust Agreements between Firstar Bank, N.A. (Trustee) (now known as US Bank) and Craig F. Maier, Paul F. McFarland, W. Gary King, Karen F. Maier, Ken C. Hull, Michael E. Conner, Todd M. Rion and certain other
highly compensated employees (Grantors). *



10 (q)
Senior Executive Bonus Plan effective June 2, 2003, filed as Exhibit (10) (s) to the Registrants Form 10-K Annual Report for 2003, is incorporated herein by reference.*

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|* | denotes compensatory plan or agreement
|- | --------------------------------------



15 Letter re: unaudited interim financial statements, is filed herewith.



31.1 Certification of Chief Executive Officer pursuant to rule 13a -14(a) is filed herewith.



31.2 Certification of Chief Financial Officer pursuant to rule 13a - 14(a)
is filed herewith.



32.1 Section 1350 Certification of
Chief Executive Officer is filed herewith.



32.2
Section 1350 Certification of Chief Financial Officer is filed herewith.



b). Reports on Form 8-K:



A Form 8-K was filed on
October 1, 2004 reporting under item 1.01, Entry into a Material Definitive Agreement, to provide the forms of agreement to be used for stock options granted to employees and to non-employee directors under the Registrants 2003 Stock option
and Incentive Plan. Copies of the forms of agreement were attached as Exhibits 99.1 and 99.2.



A Form 8-K was filed on October 18, 2004 reporting under item 2.02, Results of Operations and Financial Condition, the Registrants press release announcing financial results for the quarter ending September 19,
2004.



A Form 8-K was filed on October 19, 2004
reporting under item 2.03, Creation of a Direct Financial Obligation, the Registrants agreement to amend and restate its credit facilities with US Bank NA.



A Form 8-K was filed on January 10, 2005 reporting under item 2.02, Results of Operations and Financial Condition, the
Registrants press release announcing financial results for the quarter ending December 12, 2004.



SIGNATURE



Pursuant to the requirements of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|                      |  |                                         |  |                                                                                   
|--------------------- |  | --------------------------------------- |  | ----------------------------------------------------------------------------------
|                      |  | FRISCHS RESTAURANTS, INC. (registrant)
|                      |  |                                        
|DATE January 11, 2005 |  |                                         |  |                                                                                   
|                      |  |                                        
|                      |  | BY                                      |  | /s/ Donald H. Walker                                                              
|                      |  |                                         |  | Donald H. Walker                                                                  
|                      |  |                                         |  | Vice President  Finance, Treasurer and Principal Financial and Accounting Officer



32