UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549




FORM
      10-Q




[
      X
      ]             
QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For
      the
      quarterly period endedDecember
      17,
      2008




OR




[]           
      TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For
      the transition period from
      __________  to  _________




Commission
      file number 0-8445




THE
                STEAK N SHAKE COMPANY
              (Exact
                name of registrant as specified in its
                charter)




INDIANA
            37-0684070(State
                or other jurisdiction
            (I.R.S.
                Employerof
                incorporation or organization)
            Identification
                No.)




36
                S. Pennsylvania Street, Suite 500Indianapolis,Indiana
            46204(Address
                of principal executive offices)
            (Zip
                code)


(317)
      633-4100


(Registrant’s
      telephone number, including area code)




Not
      Applicable


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




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___




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer,a
      non-accelerated fileror
      a smaller reporting company. Seethedefinitionsof“largeaccelerated
      filer,”“accelerated
      filer,”and
      “smaller reporting company”in Rule
      12b-2 of the Exchange Act.




Large
      accelerated filer ___                                                       Accelerated
      filerX


Non-accelerated
      filer ___(Do
      not check if a smaller reporting
      company)                     Smaller
      reportingcompany
      ___




Indicate
      by check mark whether the registrant is a shell company (as defined in
      Rule 12b-2 of the Exchange Act). Yes ___NoX




As
      of January
      20, 2009,28,710,292shares
      of the registrant’s Common Stock, $.50 par value, were
      outstanding.


THE
      STEAK N SHAKE
      COMPANY





FORM
      10-Q





TABLE
      OF CONTENTS





PART I.
                  FINANCIAL INFORMATION
              
              
              
              
              
              PageITEM
                  1. FINANCIAL
                  STATEMENTSCondensed
                  Consolidated Statements of Financial Position (Unaudited) as
                  of December 17, 2008 and September 24,
                  2008
              3Condensed
                  Consolidated Statements of Operations (Unaudited) for the Twelve
                  Weeks Ended December 17, 2008 and December 19,
                  2007
              4Condensed
                  Consolidated Statements of Cash Flows (Unaudited) for the Twelve
                  Weeks Ended December 17, 2008 and December 19,
                  2007
              5Notes
                  to
                  Condensed Consolidated Financial Statements
                  (Unaudited)
              
              
              6ITEM
                  2.
                  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                  OPERATIONS
              15ITEM
                  3.
                  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
                  RISK
              23ITEM
                  4. CONTROLS
                  AND PROCEDURES
              
              
              
              
              23PART
                  II. OTHER
                  INFORMATIONITEM
                  6.
                  EXHIBITS
              
              
              
              
              
              
              24SIGNATURES
              
              
              
              
              
              
              
              25




2
 Table
          of Contents


PARTI.FINANCIAL
        INFORMATION
 ITEM
        1. FINANCIAL
        STATEMENTS


Condensed
                Consolidated Statements of Financial PositionThe
                Steak n Shake
                Company(Amounts
                in $000s except share and
                per share data)December
                17,
            
            
            September
                24,2008
            
            
            2008(Unaudited)
            
            
            (Unaudited)Assets:Current
                AssetsCash
                and cash
                equivalents
            
            $
            25,636
            
            
            $
            6,855Receivables,
                net
            
            
            5,634
            
            
            
            15,622Inventories
            
            
            7,439
            
            
            
            6,795Deferred
                income
                taxes
            
            
            2,902
            
            
            
            3,260Assets
                held for
                sale
            
            
            23,240
            
            
            
            25,395Other
                current
                assets
            
            
            3,945
            
            
            
            3,009Total
                current
                assets
            
            
            68,796
            
            
            
            60,936Net
                property and
                equipment
            
            
            423,671
            
            
            
            432,690Goodwill
            
            
            14,503
            
            
            
            14,503Other
                intangible assets,
                net
            
            
            1,720
            
            
            
            1,765Other
                assets
            
            
            9,433
            
            
            
            10,242Total
                assets
            
            $
            518,123
            
            
            $
            520,136Liabilities
                and Shareholders'
                Equity:Current
                LiabilitiesAccounts
                payable
            
            $
            26,923
            
            
            $
            25,302Accrued
                expenses
            
            
            30,272
            
            
            
            31,685Current
                portion of long-term
                debt
            
            
            5,732
            
            
            
            733Line
                of
                credit
            
            
            19,840
            
            
            
            14,180Current
                portion of obligations
                under leases
            
            
            4,336
            
            
            
            4,417Total
                current
                liabilities
            
            
            87,103
            
            
            
            76,317Deferred
                income
                taxes
            
            
            2,584
            
            
            
            2,209Other
                long-term
                liabilities
            
            
            7,225
            
            
            
            7,439Obligations
                under
                leases
            
            
            133,708
            
            
            
            134,809Long-term
                debt
            
            
            6,308
            
            
            
            15,783Commitments
                and
                ContingenciesShareholders'
                Equity:Common
                stock - $0.50 stated value,
                50,000,000 shares authorized -
              shares
                issued:
                30,332,839
            
            
            15,166
            
            
            
            15,166Additional
                paid-in
                capital
            
            
            128,552
            
            
            
            128,526Retained
                earnings
            
            
            158,293
            
            
            
            161,733Treasury
                stock - at cost:
                1,622,548 shares as of December 17,
              2008;
                1,760,531 shares
                as of September 24, 2008
            
            
            (20,816
            )
            
            
            (21,846
            )Total
                shareholders'
                equity
            
            
            281,195
            
            
            
            283,579Total
                liabilities and
                shareholders' equity
            
            $
            518,123
            
            
            $
            520,136See
                accompanying
                notes.


3
 Table
            of Contents


Condensed
                Consolidated Statements of OperationsThe
                Steak n Shake
                Company(Amounts
                in $000s except share and
                per share data)Twelve
                Weeks
                EndedDecember
                17,
            
            
            December
                19,2008
            
            
            2007(Unaudited)
            
            
            (Unaudited)Revenues:Net
                sales
            
            $
            130,719
            
            
            $
            135,496Franchise
                fees
            
            
            958
            
            
            
            900Total
                revenues
            
            
            131,677
            
            
            
            136,396Costs
                and
                Expenses:Cost
                of
                sales
            
            
            32,031
            
            
            
            32,684Restaurant
                operating
                costs
            
            
            74,682
            
            
            
            75,810General
                and
                administrative
            
            
            8,586
            
            
            
            10,134Depreciation
                and
                amortization
            
            
            7,392
            
            
            
            7,658Marketing
            
            
            7,543
            
            
            
            6,001Interest
            
            
            3,602
            
            
            
            3,313Rent
            
            
            3,565
            
            
            
            3,208Pre-opening
                costs
            
            
            —
            
            
            
            454Asset
                impairments and provision
                for restaurant closing
            
            
            176
            
            
            
            —Other
                expense (income),
                net
            
            
            81
            
            
            
            (451
            )Total
                costs and
                expenses
            
            
            137,658
            
            
            
            138,811Loss
                Before Income
                Taxes
            
            
            (5,981
            )
            
            
            (2,415
            )Income
                Taxes
            
            
            (2,541
            )
            
            
            (1,228
            )Net
                Loss
            
            $
            (3,440
            )
            
            $
            (1,187
            )Basic
                Loss Per Common
                and
              Common
                Equivalent
                Share
            
            $
            (0.12
            )
            
            $
            (0.04
            )Diluted
                Loss Per Common
                and
              Common
                Equivalent
                Share
            
            $
            (0.12
            )
            
            $
            (0.04
            )Weighted
                Average Shares and
                Equivalents:Basic
            
            
            28,301,779
            
            
            
            28,157,379Diluted
            
            
            28,301,779
            
            
            
            28,157,379See
                accompanying
                notes.


4
 Table
            of Contents


Condensed
                Consolidated Statements of Cash FlowsThe
                Steak n Shake
                Company(Amounts
                in
                $000s)Twelve
                Weeks
                EndedDecember
                17,
            
            
            December
                19,2008
            
            
            2007(Unaudited)
            
            
            (Unaudited)Operating
                Activities:Net
                loss
            
            $
            (3,440
            )
            
            $
            (1,187
            )Adjustments
                to reconcile net
                loss
              to
                net cash provided
                by operating activities:Depreciation
                and
                amortization
            
            
            7,392
            
            
            
            7,658Provision
                for deferred income
                taxes
            
            
            733
            
            
            
            262Asset
                impairments and provision
                for restaurant closing
            
            
            176
            
            
            
            —Non-cash
                expense for stock-based
                compensation
              and
                deferred
                rent
            
            
            1,230
            
            
            
            714Gain
                on disposal of
                property
            
            
            (59
            )
            
            
            (343
            )Changes
                in receivables and
                inventories
            
            
            9,570
            
            
            
            856Changes
                in other
                assets
            
            
            (1,104
            )
            
            
            84Changes
                in accounts payable and
                accrued expenses
            
            
            1,094
            
            
            
            (830
            )Net
                cash provided by operating
                activities
            
            
            15,592
            
            
            
            7,214Investing
                Activities:Additions
                of property and
                equipment
            
            
            (1,974
            )
            
            
            (13,403
            )Proceeds
                from property and
                equipment disposals
            
            
            5,056
            
            
            
            6,610Net
                cash provided by (used in)
                investing activities
            
            
            3,082
            
            
            
            (6,793
            )Financing
                Activities:Net
                proceeds from line of credit
                facility
            
            
            5,660
            
            
            
            715Principal
                payments on long-term
                debt
            
            
            (4,476
            )
            
            
            (22
            )Principal
                payments on direct
                financing lease obligations
            
            
            (1,066
            )
            
            
            (757
            )Proceeds
                from exercise of stock
                options
            
            
            —
            
            
            
            140Excess
                tax benefits from
                stock-based awards
            
            
            —
            
            
            
            10Repurchase
                of employee shares for
                tax withholding
            
            
            (11
            )
            
            
            —Net
                cash provided by financing
                activities
            
            
            107
            
            
            
            86Increase
                in Cash and Cash
                Equivalents
            
            
            18,781
            
            
            
            507Cash
                and Cash Equivalents at
                Beginning of Period
            
            
            6,855
            
            
            
            1,497Cash
                and Cash Equivalents at End
                of Period
            
            $
            25,636
            
            
            $
            2,004See
                accompanying
                notes.


5
 Table
            of Contents


NotestoCondensed Consolidated
      Financial Statements


The
      Steak n Shake
      Company


(Unaudited)


(Amounts
      in $000s, except share and per
      share data)








1.  Basis
      of Presentation





The
      accompanying unauditedcondensedconsolidated
      financial statements ofThe Steak n Shake Company
      (“we”, “us”, the
“Company”or
“Steak
      n Shake”)have been prepared in
      accordance with
      accounting principles generally accepted in theUnited States of Americaapplicable
      to interim financial
      information and with the instructions to Form 10-Q and Article 10 of Regulation
      S-X.  Accordingly, they do not include all of the information and notes
      required by accounting principles generally accepted in theUnited States of
      Americafor complete
      financial statements.




In
      our opinion, all adjustments
      considered necessary to present fairly the condensed consolidated Statements
      of
      Financial Position as of December 17, 2008 and the condensed consolidated
      Statements of Operations and Statements of Cash Flows for the twelve weeks
      endedDecember 17, 2008 and
      December 19, 2007have been
      included.




The
      condensed consolidated Statements of
      Operations for the twelve weeks ended December 17, 2008 and December 19, 2007
      are not necessarily indicative of the consolidated Statements of Operations
      for
      the entire fiscal years.  For further information, refer to the
      consolidated financial statements and notes thereto included in our Annual
      Report on Form 10-K for the fiscal year ended September 24,
      2008.







2.  Seasonal
      Aspects





We
      have substantial fixed costs which do
      not decline as a result of a decline in sales.  Our first and second
      fiscal quarters, which include the winter months, usually reflect lower average
      weekly unit volumes as compared to the third and fourth fiscal quarters. 
Additionally, sales in the first and second fiscal quarters can be
      adversely affected by severe winter weather.  We may also be
      negatively affected by adverse weather during the first and fourth fiscal
      quarters as hurricanes and tropical storms may impact the Southeastern portion
      of theUnited
      States, where we have a
      significant number of restaurants.


6
 Table
          of Contents


3.  New
      Accounting
      Standards





In
      September 2006, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standards No. 157, “Fair Value Measurements”
(“SFAS 157”), which defines fair value, establishes a formal framework for
      measuring fair value, and expands disclosures about fair value
      measurements.  SFAS 157 is only applicable to existing accounting
      pronouncements that require or permit fair value measurements and does not
      require any new fair value measurements.  As originally issued, SFAS
      157 was to be effective as of the beginning of our fiscal year
      2009.  With the issuance in February 2008 of FSP 157-2, “Effective
      Date of FASB Statement No. 157,” the FASB approved a one-year deferral to the
      beginning of our fiscal year 2010 for the implementation of SFAS 157 with regard
      to non-financial assets and liabilities that are not recognized or disclosed
      at
      fair value in the financial statements on a recurring basis (at least
      annually).  The FASB has also excluded leases from the scope of SFAS
      157 with the issuance of FSP 157-1, “Application of FASB Statement No. 157 to
      FASB Statement No. 13 and Other Accounting Pronouncements that Address Fair
      Value Measurements for Purposes of Lease Classification or Measurement under
      Statement 13.”  The adoption of SFAS 157 with regard to financial
      assets and liabilities as of September 25, 2008 did not materially impact our
      financial statements.  See Note 13 for information regarding the
      partial implementation of SFAS 157.  We are in the process of
      determining the effect, if any, that the adoption of SFAS 157 with regard to
      non-financial assets and liabilities will have on our financial statements
      in
      fiscal year 2010.





In
      February
      2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets
      and Financial Liabilities” (“SFAS 159”).  SFAS 159 provides companies
      with an option to report selected financial assets and financial liabilities
      at
      fair value.  Unrealized gains and losses on items for which the fair
      value option has been elected are reported in earnings at each subsequent
      reporting date.  SFAS 159 is effective for fiscal years beginning
      after November 15, 2007, our fiscal year 2009.  We have determined not
      to elect the fair value measurement option under SFAS 159.





In
      December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS
      141(R)”), which replaces SFAS 141.  SFAS 141(R) requires that the fair
      value of the purchase price of an acquisition including the issuance of equity
      securities be determined on the acquisition date; requires that all assets,
      liabilities, noncontrolling interests, contingent consideration, contingencies,
      and in-process research and development costs of an acquired business be
      recorded at fair value at the acquisition date; requires that acquisition costs
      generally be expensed as incurred; requires that restructuring costs generally
      be expensed in periods subsequent to the acquisition date; and requires that
      changes in deferred tax asset valuation allowances and acquired income tax
      uncertainties after the measurement period impact income tax
      expense.  SFAS 141(R) also broadens the definition of a business
      combination and expands disclosures related to business
      combinations.  SFAS 141(R) applies prospectively to business
      combinations for which the acquisition date is on or after the beginning of
      the
      first annual reporting period beginning on or after December 15, 2008, our
      fiscal year 2010, except that business combinations consummated prior to the
      effective date must apply SFAS 141(R) income tax requirements immediately upon
      adoption.  We are in the process of determining the effect, if any,
      that the adoption of SFAS 141(R) will have on our financial
      statements.





In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
      Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS
      160”).  SFAS 160 clarifies the accounting for noncontrolling interests
      and establishes accounting and reporting standards for the noncontrolling
      interest in a subsidiary, including classification as a component of
      equity.  SFAS 160 is effective for fiscal years beginning after
      December 15, 2008, our fiscal year 2010.  We are in the process of
      determining the effect, if any, that the adoption of SFAS 160 will have on
      our
      financial statements.


7
 Table
          of Contents


In
      April
      2008, the FASB issued FASB Staff Position No. 142-3, “Determination of the
      Useful Life of Intangible Assets” (“FSP 142-3”).  FSP 142-3 amends the
      factors that should be considered in developing renewal or extension assumptions
      that are used to determine the useful life of a recognized intangible asset
      under SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), and
      requires enhanced related disclosures.  FSP 142-3 must be applied
      prospectively to all intangible assets acquired as of and subsequent to fiscal
      years beginning after December 15, 2008, our fiscal year 2010.  We are
      in the process of determining the effect, if any, that the adoption of FSP
      142-3
      will have on our financial statements.








4.  Loss
      Per
      Share





Loss
      per share of common stock is based
      on the weighted average number of shares outstanding during the period. 
The following table presents a reconciliation of the basic and diluted
      weighted average common shares as required byStatement of Financial
      Accounting
      Standards No. 128, “Earnings Per Share.”




Twelve
                  Weeks
                  EndedDecember
                  17,
              
              December
                  19,2008
              
              2007Basic
                  loss per
                  share:Weighted
                  average common
                  shares
              28,301,779
              
              28,157,379Diluted
                  loss per
                  share:Weighted
                  average common
                  shares
              28,301,779
              
              28,157,379Dilutive
                  effect of stock
                  awards
              —
              
              —Weighted
                  average common and
                  incremental shares
              28,301,779
              
              28,157,379Number
                  of share-based awards
                  excluded from the calculation
                of
                  diluted loss per
                  share because the awards' exercise
                prices
                  were greater
                  than the average market price of the
                Company's
                  common
                  stock, or because they were antidilutive
                due
                  to the Company's
                  net losses for the twelve weeks ended
                December
                  17, 2008 and
                  December 19, 2007
              1,579,471
              
              1,386,549








5.  Restaurant
      Closings





We
      permanently closed one Company-owned restaurant during the first quarter of
      fiscal year 2009 and thirteen Company-owned restaurants in the fourth quarter
      of
      fiscal year 2008.  The restaurant closed in the first quarter of
      fiscal year 2009 and ten of the restaurants closed in fiscal year 2008 were
      located near other Company-owned stores that continue to
      operate.  Therefore, the results of operations of these restaurants
      are not presented as discontinued operations and continue to be included in
      continuing operations in the condensed consolidated Statements of
      Operations.





The
      assets of three restaurants closed in fiscal year 2008 were not located near
      other Company-owned stores, and we do not expect to have significant continuing
      involvement in the operations after disposal.  Although these
      restaurants meet the definition of “discontinued operations,” as defined in SFAS
      No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS
      144”), we have not segregated the results of operations as the amounts are
      immaterial.  Net loss after tax related to the three restaurants was
      approximately $53 for the first quarter of fiscal year 2008.


8
 Table
          of Contents


6.  Net
      Property and
      Equipment




Net
      property and equipment consists of
      the following:




December
                  17,
              
              
              September
                  24,2008
              
              
              2008Land
              
              $
              152,653
              
              
              $
              151,006Buildings
              
              
              152,558
              
              
              
              156,695Land
                  and leasehold
                  improvements
              
              
              154,031
              
              
              
              157,738Equipment
              
              
              200,884
              
              
              
              204,116Construction
                  in
                  progress
              
              
              2,495
              
              
              
              2,423662,621
              
              
              
              671,978Less
                  accumulated depreciation and
                  amortization
              
              
              (238,950
              )
              
              
              (239,288
              )Net
                  property and
                  equipment
              
              $
              423,671
              
              
              $
              432,690








7.  Assets
      Held forSale




Assets
      held for sale is comprised of the
      following:





December
                  17,
              
              
              September
                  24,2008
              
              
              2008Land
                  and
                  buildings
              
              $
              19,940
              
              
              $
              21,726Land
                  and leasehold
                  improvements
              
              
              3,049
              
              
              
              3,388Equipment
              
              
              251
              
              
              
              281Total
                  assets held for
                  sale
              
              $
              23,240
              
              
              $
              25,395





Assets
      held for sale consists of
      property and equipment related toclosedrestaurants
      andparcels ofland
      thatarecurrently
      being marketed for
      disposal.TheDecember
      17,2008balances
      includeassets related to 13restaurantsclosed
      during prior yearsand20parcels
      of land.We
      expect to sell these properties
      within the next 12 months.During
      thetwelve weeksendedDecember
      17, 2008,
      we soldone restaurant and oneparcel
      ofland that were held for
      sale as of
      September 24,
      2008.The
      current year-to-date
      pre-tax loss on the sale of these propertieswas $71.





TheSeptember
      24,2008balancesinclude
      assets related
      to seven restaurants closed during the fourth quarter of fiscal year 2008,
      seven restaurants closed during prior years, and 20 parcels of
      land.







8.  Goodwill
      and Other
      Intangibles





Goodwill


Goodwill
      consists of the excess of the purchase price over the fair value of the net
      assets acquired in connection with the acquisitions of Creative Restaurants,
      Inc. (“CRI”) and Kelley Restaurants, Inc. (“KRI”) on July 6, 2006 and December
      29, 2004, respectively.  The related goodwill is allocated to
      reporting units that benefited from the acquisition using a relative fair value
      methodology.


9
 Table
            of Contents


Under
      SFAS No. 142, “Goodwill and Other Intangible Assets,” (“SFAS 142”) we are
      required to assess goodwill and any indefinite-lived intangible assets for
      impairment annually or more frequently if circumstances indicate impairment
      may
      have occurred.  The analysis of potential impairment of goodwill requires a
      two-step approach.  The first step is the estimation of fair value of
      each applicable reporting unit.  If step one indicates that impairment
      potentially exists, the second step is performed to measure the amount of
      impairment, if any.  Goodwill impairment exists when the estimated
      fair value of goodwill is less than its carrying value.





We
      perform our annual assessment of the recoverability of our goodwill in
      accordance with SFAS 142 during the fourth quarter of each fiscal
      year.  The valuation methodology and underlying financial information
      included in our determination of fair value requires significant judgments
      to be
      made by management.  We use both market and income approaches to
      derive fair value.  The judgments in these two approaches include, but
      are not limited to, comparable market multiples, long-term projections of future
      financial performance, and the selection of appropriate discount rates used
      to
      determine the present value of future cash flows.  Changes in such
      estimates or the application of alternative assumptions could produce
      significantly different results.





In
      conjunction with our annual goodwill analysis for fiscal 2008, our step one
      results indicated that impairment potentially existed for one reporting unit,
      and we began the second step of the analysis for this reporting
      unit.  Due to the complexity of estimating the fair value of tangible
      property and identifiable intangible assets in the step two analysis, we were
      not able to complete the analysis as of the date of our annual
      report.  However, during the first quarter of fiscal year 2009, we
      completed our analysis and have determined that we did not have an impairment
      as
      of the annual assessment date.





During
      the current fiscal quarter, due to the continued volatility in the market
      price of our common stock and the uncertainty associated with the economy,
      we
      performed an interim goodwill impairment analysis.  The results of the
      step one analysis indicated that we did not have an impairment of goodwill
      for
      any of our applicable reporting units.





Our
      calculation of the fair value of the reporting units considers current market
      conditions existing at the assessment date.  Due to the significant
      volatility in the market price of our common stock, it is possible that we
      will
      need to update our impairment analysis during future quarters.  We can
      provide no assurance that a material impairment charge will not occur in future
      periods as a result of these analyses.





Other
      Intangibles


Other
      intangibles are comprised of
      the following:





December
                  17,
              
              
              September
                  24,2008
              
              
              2008Gross
                  value of intangible assets
                  subject to amortization
              
              $
              2,291
              
              
              $
              2,291Accumulated
                  amortization
              
              
              (1,071
              )
              
              
              (1,026
              )Intangible
                  assets subject to
                  amortization, net
              
              
              1,220
              
              
              
              1,265Intangible
                  assets with indefinite
                  lives
              
              
              500
              
              
              
              500Total
                  intangible
                  assets
              
              $
              1,720
              
              
              $
              1,765




Intangible
      assets subject to
      amortization consist of a right to operate and favorable leases acquired in
      connection with prior acquisitions, and are being amortized over their estimated
      weighted average useful lives of 12 years and 8 years,
      respectively.  Amortization expense for the twelve weeks ended
      December 17, 2008 and December 19, 2007 was $45.  Total annual
      amortization for each of the next five years is approximately$190.


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Intangible
      assets with indefinite lives
      consist of reacquired franchise rights assumed
      in connection with the acquisitions
      of CRI and KRI and were recorded in accordance with the provisions of Emerging
      Issues Task Force Issue No. 04-1,“Accounting
      for Pre-existing
      Relationships between the Parties to a Business Combination.”








9.  Borrowings




Revolving
      Credit Facility


As
      amended on November 21, 2008, our Revolving Credit Facility (“Facility”) allows
      us to borrow from time to time up to $25,000, bears interest based on the One
      Month LIBOR plus 350 basis points, and expires January 30, 2010.  At
      December 17, 2008, outstanding borrowings under the Facility were $19,840 at
      an
      interest rate of 4.1%.





Senior
      Note Agreement


Effective
      September 29, 2008, we can no longer make any new borrowings under our Senior
      Note Agreement and Private Shelf Facility (the “Senior Note
      Agreement”).  We had outstanding borrowings under the Senior Note
      Agreement of $11,957 at a weighted average fixed rate of 9.0% as of December
      17,
      2008.  Interest rates are fixed based upon market rates at the time of
      borrowing.





During
      the first quarter of fiscal year 2009, we made a principal prepayment of $4,471
      on the Senior Note Agreement.  As a result of this prepayment, we
      incurred a $506 prepayment penalty which is included in Interest expense in
      the
      condensed consolidated Statement of Operations for the current
      quarter.





As
      amended on November 21, 2008, we have agreed to make equal prepayments under
      the
      Senior Note Agreement and the Facility once the balance of our Facility reaches
      $10,000.  The amendment also increased the interest rates under the
      Senior Note Agreement effective November 21, 2008.





Our
      debt
      agreements contain restrictions and covenants customary for credit agreements
      of
      these types which, among other things, require us to maintain certain financial
      ratios.  The amendments executed on November 21, 2008 include revised
      financial covenants.  We were in compliance with all covenants under
      those amended agreements as of December 17, 2008.





The
        Senior Note Agreement and the Facility are secured with the deposit accounts,
        accounts receivable, inventory, equipment, general intangibles, fixtures,
        and
        all other personal property.  The Senior Note Agreement and Facility
        also prohibit us from making cash dividends or repurchasing our common
        stock.  As of November 21, 2008, the amendment to the Senior Note
        Agreement also relieves us of the requirement to secure the borrowings with
        certain real estate assets if the principal balance under the Senior Note
        Agreement is less than $5,000 on March 31, 2010.
  We
        also
        have one note in the amount of $83 outstanding as of December 17,
        2008.
 
 The
        carrying amounts for debt reported in the condensed consolidated Statement
        of
        Financial Position do not differ materially from their fair market values
        at
        December 17, 2008.


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10.Income
      Taxes





Our
      effective income tax ratedecreasedto42.5%
      from50.8%
      in the same period in the prior yearprimarily due
      tothe
      increase in pre-tax loss and the
      related proportionate increase of federal income tax credits when compared
      to
      the total pre-tax loss.





We
      adopted the provisions ofFASBInterpretation
      No. 48,“Accounting
      for Uncertainty in Income
      Taxes” at the beginning of
      our fiscal year 2008.




As
      ofDecember 17,
      2008,
      we hadapproximately
      $975of
      unrecognized tax benefits, including
      approximately $203of
      interest and
      penalties,which
      are included inOther long-term liabilitiesin
      the condensed consolidated
      Statement of
      Financial Position.During thetwelve
      weeksendedDecember
      17, 2008,
      we recognized approximately
      $23in
      potential interest and penalties
      associatedwith uncertain
      tax positions.  Our continuing practice is to recognize interest
      expense and penalties related to income tax matters in income tax
      expense.Of the
      $975of
      unrecognized tax benefits,
      $845 would impact
      the effective income tax rate if
      recognized.





We
      file income tax returns which are
      periodically audited by various federal, state, and localjurisdictions.With
      few exceptions, we are no longer
      subject to federal, state, and local tax examinations for fiscal years prior
      to
      2004.Webelievewe
      havecertainstate
      incometax exposures related
      to fiscalyears2004and
      2005.Due
      to the expiration of thevarious statestatutesof
      limitations forthese fiscal years,
      it is possiblethatthe
      total amount of unrecognized tax
      benefits will decrease by approximately$60within
      12 months.





Included
      in Receivables at September 24, 2008 was $11,351 in income taxes
      receivable.  This amount represented expected federal and state income
      tax refunds which were received in cash during the quarter ended December 17,
      2008.  The refunds received were the result of net operating loss
      carryback claims.  We carried back the fiscal year 2008 taxable loss
      to fiscal year 2006 in order to generate cash refunds from income tax previously
      paid.








11.  Common
      Stock
      Plans




Employee
      Stock Options - During the twelve weeks ended December 17, 2008,
      we granted 110,000 options to employees under plans approved by our
      shareholders.  Employees and non-employee directors forfeited 99,380
      options during the quarter.  Pre-tax stock-based compensation expense
      recorded during the twelve weeks
      ended December 17, 2008for
      the stock option plans totaled
      $333.




Restricted
      Shares- During the twelve weeks
      ended December
      17, 2008, we granted 108,696 non-vestedrestrictedshares
      to employees and non-employee
      directorsunder plans
      approved by our shareholdersat a weighted average
      grant date fair
      value per share of $6.14.  During the same period, 2,200restrictedshares
      were forfeited and 19,196restrictedshares
      vested.  Pre-tax stock-based
      compensation expense recorded during the twelve weeks ended December 17, 2008
      for the plan totaled $471.





Employee
      Stock Purchase Plan - During
      the twelve weeks ended December 17, 2008, we did not issue any shares to
      employees under our Employee Stock Purchase Plan.  Pre-tax stock-based
      compensation expense recorded during the twelve weeks ended December 17, 2008
      for the Employee Stock Purchase Plan totaled $96.





We
      are currently reevaluating our
      compensation philosophy, including the various equity plans, to ensure alignment
      with the objective ofmaximizing intrinsic business value per-share.


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12.  Restructuring





Duringfiscal
      years 2007 and 2008,
      same-store sales declined while
      certain restaurant operating costs, such as food costs and labor rates,
      increased.As
      a result, management undertook a
      review of operationsand
      approveda comprehensive
      cost reduction plan.The
      majority of planned cost reductionswereachieved
      through headcount reductionsin the field and at the
      corporate offices.In
      order to execute the plan,
      we incurred restructuring expenses related to the headcount reductions, which
      were recordedin
      General andadministrative
      expensein
      thecondensed consolidatedStatement
      ofOperations.




The
      table below summarizes all
      restructuring-related severance accruals and payments during the first quarter
      of fiscal year 2009:





September
                  24,
                  2008 accrual balance
              
              $
              372Year-to-date
                  fiscal year 2009
                  accruals
              
              
              68Year-to-date
                  fiscal year 2009
                  payments
              
              
              (320
              )December
                  17, 2008 accrual
                  balance
              
              $
              120




The
      remaining
      restructuring accrual will be paid prior to the end of fiscal year
      2009.





In
      addition to severance related to
      restructuring, during fiscal year 2008 we also incurred severance expense
      related to the departure of former executives.  The severance is being
      paid out according to the terms of the executives’ agreements.  During
      the first quarter of fiscal year 2009, we paid $279 of the September 24, 2008
      executive severance accrual balance of $474.  The remaining $195 will
      be paid prior to the end of fiscal year 2009.







13.  Fair
      Value of Financial Assets and Liabilities




In
      September 2006, the FASB issued SFAS 157, which defines fair value, establishes
      a formal framework for measuring fair value, and expands disclosures about
      fair
      value measurements.  The provisions of SFAS 157 were effective for the
      Company on September 25, 2008; however, the FASB deferred the effective date
      of
      SFAS 157 until the beginning of our fiscal year 2010 as it relates to fair
      value
      measurement requirements for non-financial assets and liabilities that are
      not
      measured at fair value on a recurring basis.  Accordingly, we adopted SFAS
      157 for financial assets and liabilities measured at fair value on a recurring
      basis as of September 25, 2008, which did not materially impact our financial
      statements.




The
      fair
      value framework as established in SFAS 157 requires the categorization of assets
      and liabilities into three levels based upon the assumptions (inputs) used
      to
      price the assets or liabilities.  Level 1 provides the most reliable
      measure of fair values, whereas Level 3 generally requires significant
      management judgment.  The three levels are defined as
      follows:





·
            Level
                1:  Unadjusted quoted prices in active markets for identical
                assets and liabilities.


·
            Level
                2:  Observable inputs other than those included in Level
                1.  For example, quoted prices for similar assets or liabilities
                in active markets or quoted prices for identical assets or liabilities
                in
                inactive markets.


·
            Level
                3:  Unobservable inputs reflecting management’s own assumptions
                about the inputs used in pricing the asset or
                liability.





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As
      of
      December 17, 2008, the fair values of financial assets were as
      follows:


Assets
              
              Level
                  1
              
              
              Level
                  2
              
              
              Level
                  3
              
              
              TotalCash
                  equivalents
              
              $
              —
              
              
              $
              18,654
              
              
              $
              —
              
              
              $
              18,654Non-qualified
                  deferred
                  compensation plan investments
              
              
              1,443
              
              
              
              —
              
              
              
              —
              
              
              
              1,443Total
                  assets at fair
                  value
              
              $
              1,443
              
              
              $
              18,654
              
              
              $
              —
              
              
              $
              20,097





There
      were no financial liabilities measured at fair value as of December 17,
      2008.  There were no changes in our valuation techniques used to
      measure fair values on a recurring basis as a result of partially adopting
      SFAS
      157.







14.  Supplemental
      Cash Flow Information




During
      the twelve weeks ended December
      17, 2008, we issued a total of142,982 shares with a
      market value of
$839, which were primarilyrestricted
      sharesand were
      predominantly issuedtoemployees
      and non-employee
      directors;we recorded notes receivable of $100 as
      a result of the refranchising of seven restaurants to a franchisee;and
      we had $331 of capital expenditures
      in Accounts payable as of December 17, 2008.  We had $339 of capital
      expenditures in Accounts payable as of December 19,
      2007.







15.  Commitments
      and
      Contingencies





We
      are engaged in various legal
      proceedings in the ordinary course of our business and have certain unresolved
      claims pending.   The ultimate liability, if any, for the
      aggregate amounts claimed cannot be determined at this time.  However,
      management believes, based on examination of these matters and experiences
      to
      date, that the ultimate liability, if any, in excess of amounts already provided
      for in the condensed consolidated financial statements is not likely to have
      a
      material effect on our financial position,results
      of operations or cash
      flows.





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


(Amounts
      in $000s, except share and per
      share data)




Overview





In
      the following discussion, the term
“same store sales” refers to the sales of only those Company-owned units open 18
      months as of the beginning of the current fiscal quarter and which remained
      open through the end of the fiscal quarter.





In
      the
      first quarter of fiscal year 2009, total revenues decreased 3.5% to $131,677
      as
      compared to $136,396 in the first quarter of fiscal year
      2008.  Revenues in the current quarter decreased
      in part because of the operation of 20 fewer Company-owned restaurants following
      the closure and refranchising of certain units since the same period of the
      prior year.  In addition, same-store sales decreased 1.4% as compared
      with the same quarter in the prior year.  The net loss for the first
      quarter of fiscal year 2009 was ($3,440), or ($0.12) per diluted share, compared
      to a net loss of ($1,187), or ($0.04) per diluted share in the first quarter
      of
      fiscal year 2008.





In
      the current quarter, we
      closed one Company-owned restaurant and refranchised seven Company-owned
      restaurants to franchisees, bringing the total number of Company-owned
      restaurants at 415 and the total number of franchised units to
      75.





New
      management, during the fourth quarter of fiscal year 2008, enacted a change
      in
      strategic direction under which we began to operate in a manner designed to
      generate cash.  The details of our turnaround plan are
      below.




Turnaround
      Plan





Under
      the direction
      of the new leadership the following goals were set:





●To
      form a strong management
      team,


●To
      achieve a low cost
      structure,


●To
      maintain a sound balance
      sheet,


●To
      establish a focused strategy,
      and


●To
      execute the plan
      decisively.





Maximizing
      Intrinsic Value Per Share





Our
      long-term objective is to maximize intrinsic business value per share of the
      Company.  (Intrinsic value is computed by taking all future cash flows
      into and out of the business and then discounting the resultant number at an
      appropriate interest rate.) Thus, our financial goal is to maximize free cash
      flow and return on invested capital.  We regard capital allocation as
      immensely important to creating shareholder value.


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Strategy





Steak
      n
      Shake is a classic American brand, and we intend to lead and dominate the
      premium burger and milk shake segment of the restaurant industry.  We
      have chosen a focused strategy, namely, emphasizing our core — burgers, fries,
      milk shakes, and chili — which make up nearly 80% of our sales.  We
      aspire to be best-in-class in cleanliness, product, service, value, promotion,
      and menu.  It is critical that our food be distinctive, savory, and
      priced to attract higher frequency of return.  We are working on a new
      menu — to reduce it to clear and appealing choices and thus
      simplify.  We currently are testing in several markets to determine
      the most appetizing menu selections by simultaneously improving variety while
      discarding slow moving items.




Low
      Cost Structure





During
      first quarter of fiscal year 2009, we reduced General and administrative expense
      by $1,548 as compared to the same period in the prior year and believe that
      we
      can achieve additional savings in fiscal year 2009.




Balance
      Sheet





Management’s
      intention is to further strengthen the Company’s Statement of Financial Position
      in fiscal year 2009.  Cash and cash equivalents increased by $18,781
      in the first quarter.  Cash provided by operating activities of
      $15,592 included $10,632 related to income tax refunds.  We own
      146 operating Steak n Shake restaurants and have an additional 33 properties
      held for sale.  We amended our debt facilities during the quarter
      which included an extension of our Revolving Credit Facility to January 30,
      2010, revised financial covenants, and relief of the requirement to provide
      collateral under our Senior Note Agreement.








Critical
      Accounting
      Policies





Management’s
      discussion and analysis of
      financial condition and results of operations is based upon our condensed
      consolidated financial statements, which have been prepared in accordance
      with accounting principles generally accepted in theUnited States of America.  The
      preparation of our
      financial statements requires us to make estimates and judgments that affect
      the
      reported amounts of assets, liabilities, expenses and related disclosure of
      contingent assets and liabilities.Critical accounting
      policies are those we believe are most important to portraying our financial
      condition and results of operations and also require the most subjective or
      complex judgments by management.Judgments
      and uncertainties regarding the application of these policies may result in
      materially different amounts being reported under various conditions or using
      different assumptions.  On an ongoing basis, we evaluate
      our
      estimates and assumptions based on historical experience and other factors
      that
      are believed to be relevant under the circumstances.There
      have been no material changes to
      the critical accounting policies previously disclosed in our Annual Report
      on
      Form 10-K for the fiscal year ended September 24, 2008.


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Results
      of
      Operations





The
      following table sets forth the
      percentage relationship to total revenues, unless otherwise indicated, of items
      included in our condensed consolidated Statements of Operations for the periods
      indicated:




Twelve
                  Weeks
                  EndedDecember
                  17,
              
              
              December
                  19,2008
              
              
              2007Revenues:Net
                  sales
              99.3
              %
              
              99.3
              %Franchise
                  fees
              0.7
              %
              
              0.7
              %Total
                  revenues
              100.0
              %
              
              100.0
              %Costs
                  and
                  Expenses:Cost
                  of
                  sales  (1)
              24.5
              %
              
              24.1
              %Restaurant
                  operating costs
                  (1)
              57.1
              %
              
              55.9
              %General
                  and
                  administrative
              6.5
              %
              
              7.4
              %Depreciation
                  and
                  amortization
              5.6
              %
              
              5.6
              %Marketing
              5.7
              %
              
              4.4
              %Interest
              2.7
              %
              
              2.4
              %Rent
              2.7
              %
              
              2.4
              %Pre-opening
                  costs
              0.0
              %
              
              0.3
              %Asset
                  impairments and provision
                  for restaurant closing
              0.1
              %
              
              0.0
              %Other
                  expense (income),
                  net
              0.1
              %
              
              (0.3)
              %Loss
                  Before Income
                  Taxes
              (4.5)
              %
              
              (1.8)
              %Income
                  Taxes
              (1.9)
              %
              
              (0.9)
              %Net
                  Loss
              (2.6)
              %
              
              (0.9)
              %(1)
                  Cost of sales and restaurant
                  operating costs are expressed as a percentage of net
                  sales.


Comparison
      of Twelve Weeks Ended
      December 17, 2008 to Twelve Weeks Ended December 19,
      2007





Net
      Loss


We
      recorded a net loss of ($3,440), or
      ($0.12) per diluted share, for the current quarter as compared with a net loss
      of ($1,187) or ($0.04) per diluted share for the first quarter of fiscal year
      2008.





Revenues


Net
      sales decreased 3.5% from $135,496
      to $130,719 in the current quarter in partbecausewe
      operated 20 fewer Company-owned
      restaurants following the closure and refranchising of certain units since
      the
      same period of the prior year.  In addition, samestore sales decreased1.4%compared
      with the same quarter in the
      prior year.  The decrease in same store sales was caused in part byadecline
      in guest traffic of 0.9%as well as a 0.5% decrease
      in average guest check. 17
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Franchise
      fees increased 6.4% to $958 in the current fiscal quarter.  The increase is
      primarily the result of growth in the number of franchised units from 62 at
      the
      end of the first quarter of fiscal year 2008 to 75 at the end of the current
      quarter.  The increase in franchise fees was offset by a decrease in
      franchisee same store sales of 3.8%, which resulted in lower royalty fees
      accrued.




Costs
      and Expenses


Cost
      of sales was $32,031or24.5%
      of net sales, compared with
      $32,684or24.1%
      of net sales inthefirstquarter
      of fiscalyear2008.Theslightincrease
      as a percentage of net
      saleswas primarily
      driven by commodities.





Restaurant
      operating costswere$74,682or57.1%
      of net sales, compared with
      $75,810or55.9%
      of net sales inthefirstquarter
      of fiscalyear2008.Labor
      costs declined by $560 because we
      operated 20 fewer Company-owned restaurants in the current quarter as compared
      to same period in the prior year.  Outside services, insurance, and
      taxes decreased by $690.  These decreases were partially offset by a
      $220 increase in repairs.  The increase as a percentage of net sales
      was due to higher minimum wage rates and the impact of negative same store
      sales
      on fixed costs.





As
      part of our plan to reduce costs,
      General and administrative expenses decreased $1,548 (15.3%) to $8,586 and
      decreased as a percentage of total revenues from 7.4% to 6.5%.Wages,
      payroll taxes,and
      related benefitsdeclined by approximately$1,580due
      to reductions in staffing that
      occurred duringthe third
      and fourth quarters of fiscal year 2008.




Marketing expenseincreased$1,542
      (25.7%) to $7,543andincreased
      as a percentage of total
      revenues from 4.4% to 5.7%.Management,
      by design, increased its
      marketing expenditures primarily as a result of planned promotional spend.




Interest
      expense increasedslightly as a percentage
      of total
      revenuesdue primarilyto
      the $506 prepayment
      penalty related to the $4,471 principal prepayment on our Senior Note
      Agreement and Private Shelf Facility (the “Senior Note Agreement”) that we
      amended during the first quarter of fiscal year 2009.  The increase was partially
      offset by lower interest expense related to a decrease intotal outstanding
      borrowings.





Rent
      expense increased slightly as a
      percentage of total revenues primarily due to the decline in same store
      sales, as well as
      rent related to the
      sale-leasebacktransactions
      entered into during fiscal
      year 2008.





We
      did not incur pre-opening costs for
      the currentquarterdueto
      the fact that wedid
      not open any new units in the
      current quarter,compared
      tofourduring
      thefirst quarter of fiscal
      year
      2008.There
      are noplanned Company-owned
      restaurant
      openings for fiscal year 2009.





Income
      Taxes


Our
      effective income tax ratedecreasedto42.5%
      from50.8%
      in the same period in the prior year
      primarilydue
      tothe
      increase in pre-tax loss and the
      related proportionate increase of federal income tax credits when compared
      to
      the total pre-tax loss.


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Liquidity
      and Capital
      Resources





We
      generated $15,592 in cash flows from operations during the first quarter of
      fiscal year 2009 as compared to $7,214 during the first quarter of fiscal year
      2008.  The increase resulted primarily from a net $10,632 related to
      income tax refunds.





Net
      cash
      provided by investing activities of $3,082 during the first quarter of fiscal
      year 2009 resulted primarily from proceeds of $5,056 related to the sale of
      one
      parcel of land, one restaurant property, and the transfer of two Company-owned
      buildings and various equipment to a franchisee.  We closed one Company-owned restaurant
      and
      refranchised seven Company-owned restaurants to a franchisee during the first
      quarter of fiscal year 2009.




Net
      cash
      used in investing activities of $6,793 during the first quarter of fiscal year
      2008 resulted primarily from capital expenditures of $13,403.  During
      the first quarter of fiscal year 2008, we opened four new Company-owned
      restaurants and refranchised four Company-owned restaurants to a
      franchisee.  We received proceeds of $6,610 from the sale of two
      parcels of land and from the transfer of three Company-owned buildings and
      various equipment to franchisees during the first quarter of fiscal year
      2008.





We
      do not
      plan to open any Company-owned units during the remainder of fiscal year
      2009.  Capital expenditures in fiscal year 2009 will be limited
      principally to capitalizable repair and maintenance costs.  We intend
      to meet our working capital needs by using existing cash,anticipated
      cash flows from operations, net operating loss carryback tax refunds, existing
      credit facilities, the sale of excess properties, and potential sale-leaseback
      transactions.  We continually review available financing
      alternatives.  In addition, we may consider, on an
      opportunistic basis, strategic decisions to create value and
      improve operating performance.





Revolving
      Credit Facility


As
      amended on November 21, 2008, our Revolving Credit Facility (“Facility”) allows
      us to borrow from time to time up to $25,000, bears interest based on the One
      Month LIBOR plus 350 basis points, and expires January 30, 2010.  At
      December 17, 2008, outstanding borrowings under the Facility were $19,840 at
      an
      interest rate of 4.1%.





Senior
      Note Agreement


Effective
      September 29, 2008, we can no longer make any new borrowings under our Senior
      Note Agreement.  We had outstanding borrowings under the Senior Note
      Agreement of $11,957 at a weighted average fixed rate of 9.0% as of December
      17,
      2008.  Interest rates are fixed based upon market rates at the time of
      borrowing.





During
      the first quarter of fiscal year 2009, we made a principal prepayment of $4,471
      on the Senior Note Agreement.  As a result of this prepayment, we
      incurred a $506 prepayment penalty which is included in Interest expense in
      the
      condensed consolidated Statement of Operations for the current
      quarter.





As
      amended on November 21, 2008, we have agreed to make equal prepayments under
      the
      Senior Note Agreement and the Facility once the balance of our Facility reaches
      $10,000.  The amendment also increased the interest rates under the
      Senior Note Agreement effective November 21, 2008.





Our
      debt
      agreements contain restrictions and covenants customary for credit agreements
      of
      these types which, among other things, require us to maintain certain financial
      ratios.  The amendments executed on November 21, 2008 include revised
      financial covenants.  We were in compliance with all covenants under
      those amended agreements as of December 17, 2008.


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The
      Senior Note Agreement and the Facility are secured with the deposit accounts,
      accounts receivable, inventory, equipment, general intangibles, fixtures, and
      all other personal property.  The Senior Note Agreement and Facility
      also prohibit us from making cash dividends or repurchasing our common
      stock.  As of November 21, 2008, the amendment to the Senior Note
      Agreement also relieves us of the requirement to secure the borrowings with
      certain real estate assets if the principal balance under the Senior Note
      Agreement is less than $5,000 on March 31, 2010.




We
      also
      have one note in the amount of $83 outstanding as of December 17,
      2008.





The
      carrying amounts for debt reported in the condensed consolidated Statement
      of
      Financial Position do not differ materially from their fair market values at
      December 17, 2008.








New
      Accounting
      Standards





In
      September 2006, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standards No. 157, “Fair Value Measurements”
(“SFAS 157”), which defines fair value, establishes a formal framework for
      measuring fair value, and expands disclosures about fair value
      measurements.  SFAS 157 is only applicable to existing accounting
      pronouncements that require or permit fair value measurements and does not
      require any new fair value measurements.  As originally issued, SFAS
      157 was to be effective as of the beginning of our fiscal year
      2009.  With the issuance in February 2008 of FSP 157-2, “Effective
      Date of FASB Statement No. 157,” the FASB approved a one-year deferral to the
      beginning of our fiscal year 2010 for the implementation of SFAS 157 with regard
      to non-financial assets and liabilities that are not recognized or disclosed
      at
      fair value in the financial statements on a recurring basis (at least
      annually).  The FASB has also excluded leases from the scope of SFAS
      157 with the issuance of FSP 157-1, “Application of FASB Statement No. 157 to
      FASB Statement No. 13 and Other Accounting Pronouncements that Address Fair
      Value Measurements for Purposes of Lease Classification or Measurement under
      Statement 13.”  The adoption of SFAS 157 with regard to financial
      assets and liabilities as of September 25, 2008 did not materially impact our
      financial statements.  See Note 13 for information regarding the
      partial implementation of SFAS 157.  We are in the process of
      determining the effect, if any, that the adoption of SFAS 157 with regard to
      non-financial assets and liabilities will have on our financial statements
      in
      fiscal year 2010.





In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities” (“SFAS 159”).  SFAS 159
      provides companies with an option to report selected financial assets and
      financial liabilities at fair value.  Unrealized gains and losses on
      items for which the fair value option has been elected are reported in earnings
      at each subsequent reporting date.  SFAS 159 is effective for fiscal
      years beginning after November 15, 2007, our fiscal year 2009.  We
      have determined not to elect the fair value measurement option under SFAS
      159.


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In
      December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS
      141(R)”), which replaces SFAS 141.  SFAS 141(R) requires that the fair
      value of the purchase price of an acquisition including the issuance of equity
      securities be determined on the acquisition date; requires that all assets,
      liabilities, noncontrolling interests, contingent consideration, contingencies,
      and in-process research and development costs of an acquired business be
      recorded at fair value at the acquisition date; requires that acquisition costs
      generally be expensed as incurred; requires that restructuring costs generally
      be expensed in periods subsequent to the acquisition date; and requires that
      changes in deferred tax asset valuation allowances and acquired income tax
      uncertainties after the measurement period impact income tax
      expense.  SFAS 141(R) also broadens the definition of a business
      combination and expands disclosures related to business
      combinations.  SFAS 141(R) applies prospectively to business
      combinations for which the acquisition date is on or after the beginning of
      the
      first annual reporting period beginning on or after December 15, 2008, our
      fiscal year 2010, except that business combinations consummated prior to the
      effective date must apply SFAS 141(R) income tax requirements immediately upon
      adoption.  We are in the process of determining the effect, if any,
      that the adoption of SFAS 141(R) will have on our financial
      statements.





In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
      Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS
      160”).  SFAS 160 clarifies the accounting for noncontrolling interests
      and establishes accounting and reporting standards for the noncontrolling
      interest in a subsidiary, including classification as a component of
      equity.  SFAS 160 is effective for fiscal years beginning after
      December 15, 2008, our fiscal year 2010.  We are in the process of
      determining the effect, if any, that the adoption of SFAS 160 will have on
      our
      financial statements.





In
      April
      2008, the FASB issued FASB Staff Position No. 142-3, “Determination of the
      Useful Life of Intangible Assets” (“FSP 142-3”).  FSP 142-3 amends the
      factors that should be considered in developing renewal or extension assumptions
      that are used to determine the useful life of a recognized intangible asset
      under SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), and
      requires enhanced related disclosures.  FSP 142-3 must be applied
      prospectively to all intangible assets acquired as of and subsequent to fiscal
      years beginning after December 15, 2008, our fiscal year 2010.  We are
      in the process of determining the effect, if any, that the adoption of FSP
      142-3
      will have on our financial statements.








Effects
      of Governmental Regulations and
      Inflation





Most
      of our employees are paid hourly
      rates related to federal and state minimum wage laws.  Any increase in
      the legal minimum wage would directly increase our operating
      costs.  We are also subject to various federal, state and local laws
      related to zoning, land use, safety standards, working conditions, and
      accessibility standards.  Any changes in these laws that require
      improvements to our restaurants would increase operating costs.  In
      addition, we are subject to franchise registration requirements and certain
      related federal and state laws regarding franchise operations.  Any
      changes in these laws could affect our ability to attract and retain
      franchisees.





Inflation
      in food, labor, fringe
      benefits,energy costs,
      transportation costs, and
      other operating costs directly affects our operations.


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Risks
      Associated with Forward-Looking
      Statements





Certain
      statements contained in this
      report represent forward-looking statements within the meaning of the
      Private Securities Litigation Reform Act of 1995.In
      general, forward-looking statements
      include estimates of future revenues, cash flows, capital expenditures or other
      financial items, as well as assumptions underlying any of the foregoing.Forward-looking statements
      reflect management’s current expectations regarding future events and use words
      such as “anticipate,” “believe,” “expect,” “may” and other similar terminology.A
      forward-looking statement is neither a
      prediction nor a guarantee of future events or circumstances, and those future
      events or circumstances may not occur.Investors
      should not place undue
      reliance on the forward-looking statements, which speak only as of the date
      of
      this report.These
      forward-looking statements are
      based on currently available operating, financial and competitive information
      and are subject to various risks and uncertainties.Our
      actual future results and trends may
      differ materially depending on a variety of factors, many beyond our control,
      including, but not limited to:





·
            the
                success of our planto increase
                store
                traffic on a profitable
                basis;


·
            competition
                in the restaurant industry for guests, staff, locations, and new
                products;


·
            disruptions
                in the overall economy and the financial
                markets;


·
            our
                ability to comply with the restrictions and covenants to our debt
                agreements;


·
            declines
                in the market price of our common stock, which could adversely affect
                our
                goodwill impairment analysis;


·
            the
                potential to recognize additional impairment charges on our long-lived
                assets;


·
            fluctuations
                in food commodityand energyprices and
                the
                availability of food
                commodities;


·
            the
                ability of our franchisees to
                operate profitable
                restaurants;


·
            the
                poor performance or closing of
                even a small number of
                restaurants;


·
            changes
                in guest preferences,
                tastes,and
                dietary
                habits;


·
            changes
                in minimumwage rates
                andthe availability
                and cost of
                qualified personnel;


·
            harsh
                weather conditions or losses
                due to casualties;


·
            unfavorable
                publicity relating to
                food safety or food-borne
                illness;


·
            exposure
                to liabilities related to
                the ownership and leasing of significant amounts of real
                estate;


·
            our
                ability to comply with
                existing and future governmental
                regulations;


·
            our
                ability to adequately protect
                our trademarks, service marks,and
                other components of our brand;
                and


·
            other
                risks identified in the
                periodic reports we file with the Securities and Exchange
                Commission.





Accordingly,
      such forward-looking
      statements do not purport to be predictions of future events or circumstances
      and may not be realized.Additional
      risks and uncertainties not
      currently known to us or that are currently deemed immaterial may also become
      important factors that may harm our business, financial condition, results
      of
      operations or cash flows.We
      assume no obligation to update
      forward-looking statements except as required in our periodic
      reports.


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ITEM
      3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK





Our
      primary market risk exposure with regard to financial instruments is to changes
      in interest rates.  We invest excess cash primarily in cash equivalents due
      to their relatively low credit risk.  Interest rates on these securities
      are based upon market rates at the time of purchase and remain fixed until
      maturity.





The
      Revolving Credit Facility bears interest at a rate based upon the One Month
      LIBOR plus 350 basis points.  Historically, we have not used
      derivative financial instruments to manage exposure to interest rate
      changes.  At December 17, 2008, a hypothetical 100 basis point
      increase in short-term interest rates would have an impact of approximately
      $31
      on our quarterly net loss.





We
      purchase certain food products which may be affected by volatility in commodity
      prices due to weather conditions, supply levels, and other market conditions.
       We utilize various purchasing and contract pricing techniques to minimize
      volatility, but do not enter into financial derivative contracts.








ITEM
      4. CONTROLS AND
      PROCEDURES





Based
      on an
      evaluation of our disclosure controls and procedures (as defined in Exchange
      Act
      Rules 13a-15(e) and 15d-15(c)), our Chief Executive Officer andInterimChief
      Financial Officer have concluded
      that our disclosure controls and procedures were effective as ofDecember 17,
      2008.





There
      have been no changes in our
      internal control over financial reporting that occurred during the current
      quarter endedDecember 17,2008that
      have materially affected, or that
      are reasonably likely to materially affect, our internal control over financial
      reporting.


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PART
      II. OTHER
      INFORMATION








ITEM
      6.
      EXHIBITS




Exhibit
                  Number
              
              Description10.01*
              
              Form
                  of First Amendment dated
                  April 22, 2008 to Change in Control Benefits Agreement dated November
                  7,
                  2007 entered into with Omar Janjua and David C. Milne (incorporated
                  by
                  reference to Exhibit 10.04 to the Registrant's Quarterly Report
                  on Form
                  10-Q for the fiscal quarter ended April 9, 2008)31.01
              
              Rule
                  13(a)-14(a)/15d-14(a)
                  Certification of Chief Executive Officer31.02
              
              Rule
                  13(a)-14(a)/15d-14(a)
                  Certification of Chief Financial Officer32.01
              
              Section
                  1350
                  Certifications*
                  Indicates management contract or
                  compensatory plans or arrangements required to be filed as an
                  Exhibit.







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SIGNATURES





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.








Date:January
      26,2009






THE
      STEAK N SHAKE
      COMPANY


By:/s/Duane
      E.
      Geiger


Duane
      E. Geiger


InterimChief
      Financial Officer, Vice President and
      Controller





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