----

----

**FORM      10-Q**

| THE                STEAK N SHAKE COMPANY                                                           |
|----------------------------------------------------------------------------------------------------|
| (Exact                name of registrant as specified in its charter)                              |
| INDIANA(State                or other jurisdictionof                incorporation or organization) | 37-0684070(I.R.S.                EmployerIdentification                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)                          |
|                                                                                               |

----

----

**THE      STEAK N SHAKE COMPANY**

**FORM      10-Q**

**INDEX**

| **PART I.                FINANCIAL INFORMATION**  | Page                No.                                                                                                                         |
|-------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                        | **ITEM                  1. FINANCIAL STATEMENTS**                                                                                          |   |
|                                                        |                                                                                                                                            | Condensed                  Consolidated Statements of Financial Position (Unaudited) as of July                  4, 2007 and September 27, 2006  | 3  |
|                                                        |                                                                                                                                            | Condensed                  Consolidated Statements of Earnings (Unaudited) for the Twelve and                  Forty Weeks Ended July 4, 2007 and July 5, 2006  | 4  |
|                                                        |                                                                                                                                            | Condensed                  Consolidated Statements of Cash Flows (Unaudited) for the Forty Weeks                  Ended July 4, 2007 and July 5, 2006  | 5  |
|                                                        |                                                                                                                                            | Notes                  to Condensed Consolidated Financial Statements                  (Unaudited)  | 6  |
|                                                        | **ITEM                  2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS                  OF OPERATIONS**  | 9  |
|                                                        | **ITEM                  3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET                  RISK**                                   | 15 |
|                                                        | **ITEM                  4. CONTROLS AND PROCEDURES**                                                                                       | 15 |
| **PART                  II. OTHER INFORMATION**        |                                                                                                                                            |
|                                                        | **ITEM                  2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF                  PROCEEDS**                        | 15 |
|                                                        | **ITEM                  6. EXHIBITS AND SIGNATURES**                                                                                            | 16 |

----

**PART I.      FINANCIAL INFORMATION**

**ITEM      1. FINANCIAL STATEMENTS**

| **Condensed                  Consolidated Statements of Financial Position**                                                                 |   |                         |        |   |
|----------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|-------------|--------|
| The                  Steak n Shake Company                                                                                                   |   |                         |        |   |   |   |
| (Unaudited)                                                                                                                                  |   |                         |        |   |   |   |
| (Amounts                  in $000s except share and per share data)                                                                          |   |                         |        |   |
|                                                                                                                                         |   | **July                  4,** |        |   | September                  27, |   |
|                                                                                                                                         |   | **2007**                     |        |   | 2006 |   |
| **Assets**                                                                                                                                   |   |                         |        |   |   |   |
| Current                  Assets                                                                                                              |   |                         |        |   |   |   |
| Cash                                                                                                                                         |   | **$**                        | **3,874**   |   |   | $ | 4,820 |   |
| Receivables,                  net                                                                                                            |   | ** **                   | **6,680**   |   |   |   | 5,858 |   |
| Inventories                                                                                                                                  |   | ** **                   | **7,720**   |   |   |   | 7,018 |   |
| Deferred                  income taxes                                                                                                       |   | ** **                   | **3,185**   |   |   |   | 3,873 |   |
| Assets                  held for sale                                                                                                        |   | ** **                   | **15,183**  |   |   |   | 4,514 |   |
| Other                  current assets                                                                                                        |   | ** **                   | **9,726**   |   |   |   | 4,837 |   |
| Total                  current assets                                                                                                        |   | ** **                   | **46,368**  |   |   |   | 30,920 |   |
|                                                                                                                                         |   |                         |        |   |   |   |   |   |
| Net                  property and equipment                                                                                                  |   | ** **                   | **497,058** |   |   |   | 490,142 |   |
| Goodwill                                                                                                                                     |   | ** **                   | **14,503**  |   |   |   | 14,485 |   |
| Other                  intangible assets, net                                                                                                |   | ** **                   | **2,003**   |   |   |   | 2,152 |   |
| Other                  assets                                                                                                                |   | ** **                   | **7,918**   |   |   |   | 4,822 |   |
| Total                  assets                                                                                                                |   | **$**                        | **567,850** |   |   | $ | 542,521 |   |
|                                                                                                                                         |   |                         |        |   |   |   |   |   |
| **Liabilities                  and Shareholders' Equity**                                                                                    |   |                         |        |   |   |   |   |   |
| Current                  Liabilities                                                                                                         |   |                         |        |   |   |   |   |   |
| Accounts                  payable                                                                                                            |   | **$**                        | **32,682**  |   |   | $ | 28,262 |   |
| Accrued                  expenses                                                                                                            |   | ** **                   | **34,644**  |   |   |   | 38,023 |   |
| Line                  of credit                                                                                                              |   | ** **                   | **23,600**  |   |   |   | 10,065 |   |
| Current                  portion of long-term debt                                                                                           |   | ** **                   | **2,512**   |   |   |   | 2,512 |   |
| Current                  portion of obligations under leases                                                                                 |   | ** **                   | **4,191**   |   |   |   | 4,221 |   |
| Total                  current liabilities                                                                                                   |   | ** **                   | **97,629**  |   |   |   | 83,083 |   |
| Deferred                  income taxes                                                                                                       |   | ** **                   | **3,491**   |   |   |   | 5,800 |   |
| Other                  long-term liabilities                                                                                                 |   | ** **                   | **4,855**   |   |   |   | 3,805 |   |
| Obligations                  under leases                                                                                                    |   | ** **                   | **141,746** |   |   |   | 143,996 |   |
| Long-term                  debt                                                                                                              |   | ** **                   | **17,740**  |   |   |   | 18,802 |   |
|                                                                                                                                         |   |                         |        |   |   |   |   |   |
| Commitments                  and Contingencies                                                                                               |   |                         |        |   |   |   |   |   |
| Shareholders'                  Equity                                                                                                        |   |                         |        |   |   |   |   |   |
| Common                  stock -- $.50 stated value, 50,000,000 shares                                                                        |   |                         |        |   |   |
| authorized                  -- shares issued:  30,332,839                                                                          |   | ** **                   | **15,166**  |   |   |   | 15,166 |   |
| Additional                  paid-in capital                                                                                                  |   | ** **                   | **124,665** |   |   |   | 123,860 |   |
| Retained                  earnings                                                                                                           |   | ** **                   | **183,497** |   |   |   | 173,216 |   |
| Treasury                  stock -- at cost, 1,863,031 shares as of July 4, 2007, and 2,170,332                  shares at September 27, 2006 |   | ** **                   | **(20,939** | **)**  |   |   | (25,207 | ) |
|                                                                                                                                         |   |                         |        |   |   |   |   |   |
| Total                  shareholders' equity                                                                                                  |   | **$**                        | **302,389** |   |   | $ | 287,035 |   |
| Total                  liabilities and shareholders' equity                                                                                  |   | **$**                        | **567,850** |   |   | $ | 542,521 |   |
|                                                                                                                                         |   |                         |        |   |   |   |   |   |
| *See                  accompanying notes.*                                                                                                   |   |                         |        |   |   |   |   |   |

----

| **Condensed                  Consolidated Statements of Earnings**  |   |                                    |           |   |                                   |   |       |                         |   |       |
|---------------------------------------------------------------------|--------|-----------------------------------------|----------------|--------|----------------------------------------|--------|------------|------------------------------|--------|------------|
| The                  Steak n Shake Company                          |   |                                    |           |   |                                   |   |       |                         |   |       |   |   |
| (Unaudited)                                                         |   |                                    |           |   |                                   |   |       |                         |   |       |   |   |
| (Amounts                  in 000s, except share and per share data) |   |                                    |           |   |                                   |   |       |
|                                                                |   |                                    |           |   |                                   |   |       |                         |   |       |   |   |
|                                                                |   |                                    |           |   |                                   |   |       |                         |   |       |   |   |
|                                                                |   | **Twelve                  Weeks Ended** |           |   | **Forty                  Weeks Ended** |   |
|                                                                |   | **July                  4,**            |           |   | July                  5,               |   |       | **July                  4,** |   |       | July                  5, |   |
|                                                                |   | **2007**                                |           |   | 2006                                   |   |       | **2007**                     |   |       | 2006 |   |
|                                                                |   |                                    |           |   |                                   |   |       |                         |   |       |   |   |
| **Revenues**                                                        |   |                                    |           |   |                                   |   |       |                         |   |       |   |   |
| Net                  sales                                          |   | **$**                                   | **152,700**    |   |                                   | $      | 149,464    |                         |   | **$**      | **500,213** |   |   | $ | 483,836 |   |
| Franchise                  fees                                     |   | ** **                              | **886**        |   |                                   |   | 936        |                         |   | ** ** | **2,790** |   |   |   | 2,962 |   |
| Total                  revenues                                     |   | ** **                              | **153,586**    |   |                                   |   | 150,400    |                         |   | ** ** | **503,003** |   |   |   | 486,798 |   |
|                                                                |   |                                    |           |   |                                   |   |       |                         |   |       |   |   |   |   |   |   |
| **Costs                  and Expenses**                             |   |                                    |           |   |                                   |   |       |                         |   |       |   |   |   |   |   |   |
| Cost                  of sales                                      |   | ** **                              | **35,318**     |   |                                   |   | 33,398     |                         |   | ** ** | **114,576** |   |   |   | 109,519 |   |
| Restaurant                  operating costs                         |   | ** **                              | **79,882**     |   |                                   |   | 73,928     |                         |   | ** ** | **257,133** |   |   |   | 242,002 |   |
| General                  and administrative                         |   | ** **                              | **12,697**     |   |                                   |   | 12,845     |                         |   | ** ** | **43,803** |   |   |   | 41,620 |   |
| Depreciation                  and amortization                      |   | ** **                              | **7,577**      |   |                                   |   | 6,797      |                         |   | ** ** | **24,628** |   |   |   | 21,909 |   |
| Marketing                                                           |   | ** **                              | **7,054**      |   |                                   |   | 6,854      |                         |   | ** ** | **22,628** |   |   |   | 21,860 |   |
| Interest                                                            |   | ** **                              | **3,314**      |   |                                   |   | 2,532      |                         |   | ** ** | **10,689** |   |   |   | 8,425 |   |
| Rent                                                                |   | ** **                              | **3,309**      |   |                                   |   | 2,945      |                         |   | ** ** | **10,612** |   |   |   | 9,352 |   |
| Pre-opening                  costs                                  |   | ** **                              | **581**        |   |                                   |   | 620        |                         |   | ** ** | **2,327** |   |   |   | 2,776 |   |
| Provision                  for restaurant closings                  |   | ** **                              | **5,369**      |   |                                   |   | 0          |                         |   | ** ** | **5,176** |   |   |   | (103 | ) |
| Other                  income, net                                  |   | ** **                              | **(668**       | **)**  |                                   |   | (588       | )                            |   | ** ** | **(1,612** | **)** |   |   | (1,682 | ) |
| Total                  costs and expenses                           |   | ** **                              | **154,433**    |   |                                   |   | 139,331    |                         |   | ** ** | **489,960** |   |   |   | 455,678 |   |
|                                                                |   |                                    |           |   |                                   |   |       |                         |   |       |   |   |   |   |   |   |
| **(Loss)                  Earnings Before Income Taxes**            |   | ** **                              | **(847**       | **)**  |                                   |   | 11,069     |                         |   | ** ** | **13,043** |   |   |   | 31,120 |   |
|                                                                |   |                                    |           |   |                                   |   |       |                         |   |       |   |   |   |   |   |   |
| **Income                  Tax (Benefit) Provision**                 |   | ** **                              | **(971**       | **)**  |                                   |   | 3,754      |                         |   | ** ** | **2,762** |   |   |   | 10,615 |   |
|                                                                |   |                                    |           |   |                                   |   |       |                         |   |       |   |   |   |   |   |   |
| **Net                  Earnings**                                   |   | **$**                                   | **124**        |   |                                   | $      | 7,315      |                         |   | **$**      | **10,281** |   |   | $ | 20,505 |   |
|                                                                |   |                                    |           |   |                                   |   |       |                         |   |       |   |   |   |   |   |   |
| **Net                  Earnings Per Common and**                    |   |                                    |           |   |                                   |   |       |                         |   |       |   |   |   |
| **Common                  Equivalent Share:**                       |   |                                    |           |   |                                   |   |       |                         |   |       |   |   |   |   |   |   |
| Basic                                                               |   | **$**                                   | **0.00**       |   |                                   | $      | 0.26       |                         |   | **$**      | **0.37** |   |   | $ | 0.74 |   |
| Diluted                                                             |   | **$**                                   | **0.00**       |   |                                   | $      | 0.26       |                         |   | **$**      | **0.36** |   |   | $ | 0.73 |   |
|                                                                |   |                                    |           |   |                                   |   |       |                         |   |       |   |   |   |   |   |   |
| **Weighted                  Average Shares and Equivalents:**       |   |                                    |           |   |                                   |   |       |                         |   |       |   |   |   |
| Basic                                                               |   | ** **                              | **28,067,417** |   |                                   |   | 27,766,338 |                         |   | ** ** | **28,002,370** |   |   |   | 27,711,366 |   |
| Diluted                                                             |   | ** **                              | **28,255,645** |   |                                   |   | 28,060,885 |                         |   | ** ** | **28,217,828** |   |   |   | 28,021,871 |   |
|                                                                |   |                                    |           |   |                                   |   |       |                         |   |       |   |   |   |   |   |   |
| *See                  accompanying notes.*                          |   |                                    |           |   |                                   |   |       |                         |   |       |   |   |   |   |   |   |

----

| **Condensed                  Consolidated Statements of Cash Flows**                                                  |                                   |                         |        |   |                     |   |
|-----------------------------------------------------------------------------------------------------------------------|----------------------------------------|------------------------------|-------------|--------|--------------------------|--------|
| The                  Steak n Shake Company                                                                            |                                   |                         |        |   |                     |   |
| (Unaudited)                                                                                                           |                                   |                         |        |   |                     |   |
| (Amounts                  in 000's)                                                                                   | **Forty                  Weeks Ended** |                         |
|                                                                                                                  |                                   | **July                  4,** |        |   | July                  5, |   |
|                                                                                                                  |                                   | **2007**                     |        |   | 2006                     |   |
| **Operating                  Activities**                                                                             |                                   |                         |        |   |                     |   |
| Net                  earnings                                                                                         |                                   | **$**                        | **10,281**  |   |                     | $      | 20,505 |   |
| Adjustments                  to reconcile net earnings to net cash provided by operating                  activities: |                                   |
| Depreciation                  and amortization                                                                        |                                   | ** **                   | **24,628**  |   |                     |   | 21,909 |   |
| Deferred                  income taxes                                                                                |                                   | ** **                   | **(1,621**  | **)**  |                     |   | 3,515 |   |
| Provision                  for restaurant closings                                                                    |                                   | ** **                   | **5,176**   |   |                     |   | (103 | ) |
| Loss                  on disposal of property and equipment                                                           |                                   | ** **                   | **498**     |   |                     |   | 674 |   |
| Non-cash                  expense for stock-based compensation and deferred rent                                      |                                   | ** **                   | **3,535**   |   |                     |   | 3,405 |   |
| Changes                  in receivables and inventories                                                               |                                   | ** **                   | **(1,524**  | **)**  |                     |   | (3,342 | ) |
| Changes                  in other assets                                                                              |                                   | ** **                   | **(5,260**  | **)**  |                     |   | (572 | ) |
| Changes                  in accounts payable and accrued expenses                                                     |                                   | ** **                   | **750**     |   |                     |   | 6,352 |   |
| Net                  cash provided by operating activities                                                            |                                   | ** **                   | **36,463**  |   |                     |   | 52,343 |   |
|                                                                                                                  |                                   |                         |        |   |                     |   |   |   |
| **Investing                  Activities**                                                                             |                                   |                         |        |   |                     |   |   |   |
| Additions                  of property and equipment                                                                  |                                   | ** **                   | **(56,193** | **)**  |                     |   | (65,798 | ) |
| Proceeds                  from property and equipment disposals                                                       |                                   | ** **                   | **5,956**   |   |                     |   | 1,778 |   |
| Net                  cash used in investing activities                                                                |                                   | ** **                   | **(50,237** | **)**  |                     |   | (64,020 | ) |
|                                                                                                                  |                                   |                         |        |   |                     |   |   |   |
| **Financing                  Activities**                                                                             |                                   |                         |        |   |                     |   |   |   |
| (Payments)                  proceeds on the line of credit facility, net                                              |                                   | ** **                   | **(1,465**  | **)**  |                     |   | 14,410 |   |
| Proceeds                  from long-term debt                                                                         |                                   | ** **                   | **15,000**  |   |                     |   |   |   |
| Principal                  payments on long-term debt                                                                 |                                   | ** **                   | **(1,062**  | **)**  |                     |   | (1,094 | ) |
| Proceeds                  from equipment and property leases                                                          |                                   | ** **                   | **800**     |   |                     |   | 700 |   |
| Principal                  payments on lease obligations                                                              |                                   | ** **                   | **(2,401**  | **)**  |                     |   | (3,119 | ) |
| Excess                  tax benefit from stock-based awards                                                           |                                   | ** **                   | **62**      |   |                     |   | 50 |   |
| Proceeds                  from exercise of stock options                                                              |                                   | ** **                   | **660**     |   |                     |   | 398 |   |
| Proceeds                  from Employee Stock Purchase Plan                                                           |                                   | ** **                   | **1,234**   |   |                     |   | 1,344 |   |
| Repurchase                  of Company stock                                                                          |                                   | ** **                   | **-**       |   |                     |   | (312 | ) |
| Net                  cash provided by financing activities                                                            |                                   | ** **                   | **12,828**  |   |                     |   | 12,377 |   |
|                                                                                                                  |                                   |                         |        |   |                     |   |   |   |
| **(Decrease)                  Increase in Cash**                                                                      |                                   | ** **                   | **(946**    | **)**  |                     |   | 700 |   |
|                                                                                                                  |                                   |                         |        |   |                     |   |   |   |
| **Cash                  at Beginning of Period**                                                                      |                                   | ** **                   | **4,820**   |   |                     |   | 3,063 |   |
|                                                                                                                  |                                   |                         |        |   |                     |   |   |   |
| **Cash                  at End of Period**                                                                            |                                   | **$**                        | **3,874**   |   |                     | $      | 3,763 |   |
|                                                                                                                  |                                   |                         |        |   |                     |   |   |   |
| *See                  accompanying notes.*                                                                            |                                   |                         |        |   |                     |   |   |   |

----

**Notes      to Condensed Consolidated Financial Statements**

**Basis      of Presentation**

**Seasonal      Aspects**

**Earnings      Per Share**

*, Earnings Per Share*

|                                                                                                                                                                                                                                                                          |   | **Twelve                  Weeks Ended** |           |   | **Forty                  Weeks Ended** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|----------------|--------|----------------------------------------|--------|
|                                                                                                                                                                                                                                                                          |   | **July                  4,**            |           |   | July                  5,               |   |   | **July                  4,** |   |   | July                  5, |   |
|                                                                                                                                                                                                                                                                          |   | **2007**                                |           |   | 2006                                   |   |   | **2007** |   |   | 2006 |   |
| Basic                  earnings per share:                                                                                                                                                                                                                                    |   |                                    |           |   |                                   |   |   |   |   |   |   |   |
| Weighted                  average common shares                                                                                                                                                                                                                               |   | ** **                              | **28,067,417** |   |                                   |   | 27,766,338 |   |   | ** ** | **28,002,370** |   |   |   | 27,711,366 |   |
|                                                                                                                                                                                                                                                                          |   |                                    |           |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| Diluted                  earnings per share:                                                                                                                                                                                                                                  |   |                                    |           |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted                  average common shares                                                                                                                                                                                                                               |   | ** **                              | **28,067,417** |   |                                   |   | 27,766,338 |   |   | ** ** | **28,002,370** |   |   |   | 27,711,366 |   |
| Diluted                  effect of share-based awards                                                                                                                                                                                                                         |   | ** **                              | **188,228**    |   |                                   |   | 294,547 |   |   | ** ** | **215,458** |   |   |   | 310,505 |   |
| Weighted                  average common and incremental shares                                                                                                                                                                                                               |   | ** **                              | **28,255,645** |   |                                   |   | 28,060,885 |   |   | ** ** | **28,217,828** |   |   |   | 28,021,871 |   |
|                                                                                                                                                                                                                                                                          |   |                                    |           |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| Number                  of share-based awards excluded from the calculation of earnings                  per share                  as the award's exercise prices were greater than the average market                  price                  of the Company's common stock |   | ** **                              | **1,482,954**  |   |                                   |   | 1,038,989 |   |   | ** ** | **1,308,218** |   |   |   | 448,729 |   |

----

**Net      Property and Equipment**

|                                                            |   | **July                  4,** |         |   | September                  27, |   |
|-----------------------------------------------------------------|--------|------------------------------|--------------|--------|--------------------------------|--------|
|                                                            |   | **2007**                     |         |   | 2006                           |   |
|                                                            |   |                         |         |   |                           |   |
| Land                                                            |   | **$**                        | **178,502**  |   |                           | $      | 184,741 |   |
| Buildings                                                       |   | ** **                   | **171,150**  |   |                           |   | 165,411 |   |
| Land                  and leasehold improvements                |   | ** **                   | **153,813**  |   |                           |   | 139,603 |   |
| Equipment                                                       |   | ** **                   | **202,711**  |   |                           |   | 184,223 |   |
| Construction                  in progress                       |   | ** **                   | **12,475**   |   |                           |   | 15,460 |   |
|                                                            |   | ** **                   | **718,651**  |   |                           |   | 689,438 |   |
| Less                  accumulated depreciation and amortization |   | ** **                   | **(221,593** | **)**  |                           |   | (199,296 | ) |
| **Net                  property and equipment**                 |   | **$**                        | **497,058**  |   |                           | $      | 490,142 |   |

**Assets      Held for Sale**

**Goodwill**

**Other      Intangibles**

|                                                                      |   | **July                  4,** |      |   | September                  27, |   |
|---------------------------------------------------------------------------|--------|------------------------------|-----------|--------|--------------------------------|--------|
|                                                                      |   | **2007**                     |      |   | 2006                           |   |
| Gross                  value of intangible assets subject to amortization |   | **$**                        | **2,291** |   |                           | $      | 2,291 |   |
| Accumulated                  amortization                                 |   | ** **                   | **(788**  | **)**  |                           |   | (639 | ) |
| Intangible                  assets subject to amortization, net           |   | ** **                   | **1,503** |   |                           |   | 1,652 |   |
| Intangible                  assets with indefinite lives                  |   | ** **                   | **500**   |   |                           |   | 500 |   |
| **Total                  intangible assets**                              |   | **$**                        | **2,003** |   |                           | $      | 2,152 |   |
|                                                                      |   |                         |      |   |                           |   |   |   |

**Borrowings**

----

**Common      Stock Plans**

**Impairment      and Other Restaurant Closure Costs**

**Income      Taxes**

**Supplemental      Cash Flow Information**

**Commitments      and Contingencies**

**New      Accounting Standards**

----

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

**Overview**

| ·   | Total                revenues increased 2.1% to                $153,586. |
|--------------------|--------------------------------------------------------------------------|

| ·   | Diluted                earnings per share were $0.00 after $0.12 per share of non-cash impairment                charges related to the closing of fourteen restaurants and certain                parcels                of land and $0.01 of non-operating expenses related to evolution                of the                organization and completion of major IT                projects. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**2007      Full Year Guidance**

----

**Critical      Accounting Policies**

*Impairment      of Long-lived Assets*

*Insurance      Reserves*

*Income      Taxes*

*Goodwill      and Other Intangible Assets*

*Leases*

----

**Results      of Operations**

|                                                                                                                                            |   |                                    |   |   |                     |   |   | **Forty                  Weeks** |   |   |                     |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|--------|--------|--------------------------|--------|--------|----------------------------------|--------|--------|--------------------------|--------|
|                                                                                                                                            |   | **Twelve                  Weeks Ended** |   |   | **Ended**                |   |   |                             |   |
|                                                                                                                                            |   | **July                  4,**            |   |   | July                  5, |   |   | **July                  4,**     |   |   | July                  5, |   |
|                                                                                                                                            |   | **2007**                                |   |   | 2006                     |   |   | **2007**                         |   |   | 2006                     |   |
|                                                                                                                                            |   |                                    |   |   |                     |   |   |                             |   |   |                     |   |
| **Revenues**                                                                                                                                    |   |                                    |   |   |                     |   |   |                             |   |   |                     |   |
| Net                  sales                                                                                                                      |   |                                    | 99.4   | %      |                     |   | 99.4   | %                                |   |   | 99.4                     | %      |   |   | 99.4 | % |
| Franchise                  fees                                                                                                                 |   |                                    | 0.6    | %      |                     |   | 0.6    | %                                |   |   | 0.6                      | %      |   |   | 0.6 | % |
|                                                                                                                                            |   |                                    | 100.0  | %      |                     |   | 100.0  | %                                |   |   | 100.0                    | %      |   |   | 100.0 | % |
|                                                                                                                                            |   |                                    |   |   |                     |   |   |                             |   |   |                     |   |   |   |   |   |
| **Costs                  and Expenses**                                                                                                         |   |                                    |   |   |                     |   |   |                             |   |   |                     |   |   |   |   |   |
| Cost                  of sales (1)                                                                                                              |   |                                    | 23.1   | %      |                     |   | 22.3   | %                                |   |   | 22.9                     | %      |   |   | 22.6 | % |
| Restaurant                  operating costs (1)                                                                                                 |   |                                    | 52.3   | %      |                     |   | 49.5   | %                                |   |   | 51.4                     | %      |   |   | 50.0 | % |
| General                  and administrative                                                                                                     |   |                                    | 8.3    | %      |                     |   | 8.5    | %                                |   |   | 8.7                      | %      |   |   | 8.5 | % |
| Depreciation                  and amortization                                                                                                  |   |                                    | 4.9    | %      |                     |   | 4.5    | %                                |   |   | 4.9                      | %      |   |   | 4.5 | % |
| Marketing                                                                                                                                       |   |                                    | 4.6    | %      |                     |   | 4.6    | %                                |   |   | 4.5                      | %      |   |   | 4.5 | % |
| Interest                                                                                                                                        |   |                                    | 2.2    | %      |                     |   | 1.7    | %                                |   |   | 2.1                      | %      |   |   | 1.7 | % |
| Rent                                                                                                                                            |   |                                    | 2.2    | %      |                     |   | 2.0    | %                                |   |   | 2.1                      | %      |   |   | 1.9 | % |
| Pre-opening                  costs                                                                                                              |   |                                    | 0.4    | %      |                     |   | 0.4    | %                                |   |   | 0.5                      | %      |   |   | 0.6 | % |
| Provision                  for restaurant closings                                                                                              |   |                                    | 3.5    | %      |                     |   | 0.0    | %                                |   |   | 1.0                      | %      |   |   | 0.0 | % |
| Other                  income, net                                                                                                              |   |                                    | (0.4   | )%     |                     |   | (0.4   | )%                               |   |   | (0.3                     | )%     |   |   | (0.3 | )% |
|                                                                                                                                            |   |                                    | 100.6  | %      |                     |   | 92.6   | %                                |   |   | 97.4                     | %      |   |   | 93.6 | % |
|                                                                                                                                            |   |                                    |   |   |                     |   |   |                             |   |   |                     |   |   |   |   |   |
| **(Loss)                  Earnings Before Income Taxes**                                                                                        |   |                                    | (0.6   | )%     |                     |   | 7.4    | %                                |   |   | 2.6                      | %      |   |   | 6.4 | % |
|                                                                                                                                            |   |                                    |   |   |                     |   |   |                             |   |   |                     |   |   |   |   |   |
| **Income                  Tax Benefit (Provision)**                                                                                             |   |                                    | (0.6   | )%     |                     |   | 2.5    | %                                |   |   | 0.5                      | %      |   |   | 2.2 | % |
|                                                                                                                                            |   |                                    |   |   |                     |   |   |                             |   |   |                     |   |   |   |   |   |
| **Net                  Earnings**                                                                                                               |   |                                    | 0.1    | %      |                     |   | 4.9    | %                                |   |   | 2.0                      | %      |   |   | 4.2 | % |
|                                                                                                                                            |   |                                    |   |   |                     |   |   |                             |   |   |                     |   |   |   |   |   |
| (1)                  Cost of sales and restaurant operating costs are expressed as a                  percentage                  of net sales. |   |

**Comparison      of Twelve Weeks Ended July 4, 2007 to Twelve Weeks Ended July 5,      2006**

*Net      Earnings*

*Revenues*

*Costs      and Expenses*

----

*Income      Taxes*

**Comparison      of Forty Weeks Ended July 4, 2007 to Forty Weeks Ended July 5,      2006**

*Net      Earnings*

*Revenues*

*Costs      and Expenses*

----

*Income      Taxes*

**Liquidity      and Capital Resources**

----

**New      Accounting Standards**

**Effects      of Governmental Regulations and Inflation**

**Risks      Associated with Forward-Looking Statements**

----

**ITEM      3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET      RISK**

**ITEM      4. CONTROLS AND PROCEDURES**

**PART      II. OTHER INFORMATION**

**ITEM      2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF      PROCEEDS**

| **Period**                                          |   | **Total                Number of Shares Purchased** |   |   | **Average                Price Paid per Share** |   |   | **Total                Number of Shares Purchased as Part of Publicly Announced Plans or                Programs** |   |   | **Maximum                Number of Shares that May Yet Be Purchased Under the Plans or                Programs** |   |
|-----------------------------------------------------|--------|-----------------------------------------------------|--------|--------|-------------------------------------------------|--------|--------|--------------------------------------------------------------------------------------------------------------------|--------|--------|------------------------------------------------------------------------------------------------------------------|--------|
|                                                |   |                                                |   |   |                                            |   |   |                                                                                                               |   |   |                                                                                                             |   |
| April                  12, 2007 – May 9, 2007 |   |                                                | --     |   |                                            |   | --     |                                                                                                               |   |   | --                                                                                                               |   |   |   | 2,979,600 |   |
| May                  10, 2007 – June 6, 2007  |   |                                                | --     |   |                                            |   | --     |                                                                                                               |   |   | --                                                                                                               |   |   |   | 2,979,600 |   |
| June                  7, 2007 – July 4, 2007  |   |                                                | --     |   |                                            |   | --     |                                                                                                               |   |   | --                                                                                                               |   |   |   | 2,979,600 |   |

**ITEM      6. EXHIBITS**

|   |                                                                                                               |
|--------|--------------------------------------------------------------------------------------------------------------------|
| 31.1   | Rule                13a – 14(a) / 15d – 14(a) Certification of Chief Executive                Officer. |
| 31.2   | Rule                13a – 14(a) / 15d – 14(a) Certification of Chief Financial                Officer. |
| 32     | Section                1350 Certifications.                                                                        |