** **

**UNITED STATES SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

**FORM 10-K**

 
| **(Mark one)** |
|----------------|
| **ý**     | ** ** | **Annual  report pursuant to Section 13 or 15(d) of the Securities Exchange  Act of 1934 for the fiscal year ended April 30, 2005** |
| ** **     | ** ** | ** ** |
| ** **     | ** ** | **or** |
| ** **     | ** ** | ** ** |
| **o**          | ** ** | **Transition  report pursuant to Section 13 or 15(d) of the Securities Exchange  Act of 1934 (No Fee Required) for the transition period from                  to** |
| ** **     | ** ** | ** ** |

 

**Commission file number 1-10711**

 

**WORLDWIDE RESTAURANT CONCEPTS, INC.**

(Exact name of registrant asspecified in its charter)

 
| **Delaware**                                                     | ** ** | **95-4307254**                         |
|------------------------------------------------------------------|------------|----------------------------------------|
| (State or  Other Jurisdiction of  Incorporation or Organization) |       | (I.R.S.  Employer Identification  No.) |

 

**15301Ventura Blvd., Suite 300, Building B, Sherman Oaks, California 91403**

(Address of principal executiveoffices, including zip code)

 

Registrant’s telephone number, including area code:  **(818) 662-9800**

 

Securities registered pursuant to Section 12(b) of the Act:

 
| **TITLE OF EACH CLASS**       | ** ** | **NAME OF EACH EXCHANGE  ON WHICH REGISTERED** |
|-------------------------------|------------|------------------------------------------------|
| Common  Stock, $.01 Par Value |       | New York  Stock Exchange                       |

 

Securities registered pursuant to Section 12(g) of the Act:

 

**NONE**

(TITLE OF CLASS)

 

Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.  ýYESoNO

 

Indicate by check mark if disclosure of delinquent filers pursuant toItem 405 of Regulation S-K is not contained herein, and will not be contained,to the best of registrant’s knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of the Form 10-K orany amendment to this Form 10-K. o

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Rule 12b-2 of the Act). ýYES oNO

 

The aggregate market value of the voting stock held by non-affiliatesof the registrant as of the last business day of the registrant’s most recentlycompleted second quarter, October 17, 2004, as computed by reference tothe closing sale price of such shares on the New York Stock Exchange on suchdate, was $91,126,329.

 

The number of shares outstanding of common stock, $0.01 par value, asof July 24, 2005, was 27,879,764.

 

 

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**TABLE OF CONTENTS**

** **
| **Item**   | ** ** |                                                                                                               |       |       |
|------------|------------|--------------------------------------------------------------------------------------------------------------------|------------|------------|
|       |       |                                                                                                               |       |       |
|       |       | **PART I**                                                                                                    |       | ** ** |
| ** ** | ** ** | ** **                                                                                                         | ** ** | ** ** |
| 1.         |       | Business                                                                                                           |       | 3          |
| 2.         |       | Properties                                                                                                         |       | 8          |
| 3.         |       | Legal  Proceedings                                                                                                 |       | 9          |
| 4.         |       | Submission of Matters to a Vote of Security Holders                                                                |       | 10         |
|       |       | Executive Officers of the Registrant                                                                               |       | 11         |
|       |       |                                                                                                               |       |       |
|       |       | **PART II**                                                                                                   |       | ** ** |
| ** ** | ** ** | ** **                                                                                                         | ** ** | ** ** |
| 5.         |       | Market for Registrant’s Common Equity,  Related Stockholder Matters and Issuer Purchases of Equity Securities |       | 12         |
| 6.         |       | Selected Financial Data                                                                                            |       | 13         |
| 7.         |       | Management’s Discussion and Analysis of Financial Condition and  Results of Operations                        |       | 14         |
| 7A.        |       | Quantitative and Qualitative Disclosures  about Market Risk                                                        |       | 32         |
| 8.         |       | Financial Statements and Supplementary Data                                                                        |       | F-1        |
| 9.         |       | Changes in and Disagreements with  Accountants on Accounting and Financial Disclosures                             |       | 34         |
| 9A.        |       | Controls and Procedures                                                                                            |       | 34         |
| 9B         |       | Other  Information                                                                                                 |       | 40         |
|       |       |                                                                                                               |       |       |
|       |       | **PART III**                                                                                                  |       | ** ** |
| ** ** | ** ** | ** **                                                                                                         | ** ** | ** ** |
| 10.        |       | Directors  and Executive Officers of the Registrant                                                                |       | 41         |
| 11.        |       | Executive Compensation                                                                                             |       | 43         |
| 12.        |       | Security Ownership of Certain Beneficial  Owners and Management and Related Stockholder Matters                    |       | 47         |
| 13.        |       | Certain  Relationships and Related Transactions                                                                    |       | 49         |
| 14.        |       | Principal  Accountant Fees and Services                                                                            |       | 49         |
|       |       |                                                                                                               |       |       |
|       |       | **PART IV**                                                                                                   |       | ** ** |
| ** ** | ** ** | ** **                                                                                                         | ** ** | ** ** |
| 15.        |       | Exhibits  and Financial Statement Schedules                                                                        |       | 51         |

 

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**PART I**

 

**Item 1: *Business***

 

## **General**

 

WorldwideRestaurant Concepts, Inc. and its subsidiaries (hereinafter collectivelyreferred to as “WRC” or the “Company”) are principally engaged in theoperation, development and franchising of the Sizzler® concept, theoperation and development of the Pat & Oscar’s® concept andthe operation of KFC® franchises.

 

## **Restaurant Concepts**

 

Sizzler® Restaurants

 

TheCompany operates and franchises 310 Sizzler® restaurants in theUnited States, Australia, Latin America, Asia and New Zealand.  Sizzler® restaurants operate inthe quick-casual dining market, featuring a selection of grilled steak, chickenand seafood entrées, sandwiches and specialty platters, as well as a freshfruit and salad bar in a casual dining environment.  Sizzler® restaurants provideguests with a service system in which guests place orders and pay upon enteringthe restaurant and are then seated and assisted by a server who deliversentrées and follows-up on guest service. This system combines the benefits of convenience with the experience ofa full service restaurant.  Sizzler®restaurants in Asia provide full table service where customers are served atthe table and pay after their meal.

 

Sizzler®restaurants are typically free-standing buildings that are 5,000 to 6,000square feet providing seating for 150 to 200 guests.  The restaurants are generally open for lunchand dinner seven days a week.  Duringfiscal year 2005, lunch and dinner sales were approximately 41.7 percent and58.3 percent, respectively, in the United States.  In Australia, lunch and dinner sales wereapproximately 34.0 percent and 66.0 percent, respectively.  The average restaurant guest check wasapproximately $10.75 in the United States and $11.60 in Australia ($15.63Australian dollars).

 

Inaddition to operating Sizzler® restaurants, the Company franchisesthe Sizzler® concept. Individual franchise agreements for a Sizzler® restaurantgenerally provide for a term of 20 years. Payment of the initial franchise fee entitles the franchisee toassistance with planning and construction of the restaurant and initialmanagement training. Additionally, franchisees pay royalties based on apercentage of gross sales. Multi-unit franchise development agreements mayoffer reduced initial franchise fees. Franchisees are required to contribute apercentage of gross sales to a national advertising fund and may contribute toregional cooperative advertising funds.

 

Operatingsegment information for fiscal years 2005, 2004 and 2003 is included inManagement’s Discussion and Analysis of Financial Condition and Results ofOperations and in Note 11 – Information by Industry Segment and GeographicArea, to the Consolidated Financial Statements.

 

Pat &Oscar’s®  Restaurants

 

On August 30, 2000, the Company completed the acquisition of 82.0percent of the outstanding membership interests of FFPE, LLC (“FFPE”), a thennewly organized entity that owned the assets used in the operation of Pat &Oscar’s® restaurants (formerly doing business under the name “Oscar’s”).  The terms of the acquisition included theCompany’s payment of approximately $15.2 million in cash and issuance ofwarrants to purchase up to 1,250,000 shares of WRCcommon stock at$4.00 per share.  An earn-out of $1.0million was paid in fiscal year 2004. The warrants were exercised in fiscalyear 2005.

 

The terms of the acquisition also included put and call options for thepurchase of the remaining 18.0 percent minority interest.  On April 16, 2002, the Company receiveda notice of intent to exercise one of the put options. This resulted in theCompany acquiring an additional 5.2 percent of the outstanding membershipinterests of FFPE, subject to that put, for approximately $1.0 million on June 28,2002. On

 

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October 9, 2002, the Company exercisedits call option for the remaining 12.8 percent minority interest in Pat &Oscar’s and accrued approximately $1.4 million for its purchase. Mr. Sarkisian,the former owner, disputed the $1.4 million amount and the payment and tenderof the remaining 12.8 percent interest was delayed pending the resolution ofthe litigation initiated by Mr. Sarkisian. On November 11, 2003, the parties entered into a settlement agreementwhich provided for dismissal of the plaintiffs’ appeal, thereby permitting theCourt’s judgment to become final, and finalizing the Company’s purchase of theplaintiffs’ 12.8 percent interest in Pat & Oscar’s for $1.4 millionunder the call option agreement. The acquisition resulted in goodwill of approximately $21.9 millionincluding the put, call and earn-out amounts. All goodwill related to the acquisition was written off in fiscal year2005. See Note 3 - Goodwill and Other Intangibles, to the ConsolidatedFinancial Statements.

 

Underthe Pat & Oscar’s® concept, the Company operates 21restaurants in Southern California and features a selection of pizza, pasta,chicken, ribs and salad entrées as well as fresh home-made breadsticks servedhot from the oven. Founded in 1991, Pat & Oscar’s® was apioneer in the quick-casual restaurant market that offers great tasting,homemade food promptly served in a clean, relaxed and friendly atmosphere.  This system combines the benefits ofconvenience with the experience of a full service restaurant.

 

Pat &Oscar’s® restaurants are typically free-standing buildings orend-cap sites located in strip malls and are 5,500 to 6,500 square feetincluding patios ranging from 500 to 2,000 square feet.  Approximately 200 to 250 seats areavailable.  Pat & Oscar’s®also offers catering, home-delivery and carry-out services, which representapproximately 42.9 percent of total revenues. During fiscal year 2005, lunch and dinner sales including catering andhome delivery were approximately 48.0 percent and 52.0 percent, respectively.The average transaction, including dine-in, take-out, delivery and catering was$7.80.

 

Operatingsegment information for fiscal years 2005, 2004 and 2003 is included inManagement’s Discussion and Analysis of Financial Condition and Results ofOperations and in Note 11 – Information by Industry Segment and GeographicArea, to the Consolidated Financial Statements.

 

KFC®Restaurants

 

TheCompany operates 111 KFC® restaurants in Queensland, Australia andone KFC® restaurant in New South Wales, Australia under franchiseagreements with Yum! Brands, Inc. KFC® restaurants in Australia operate in the quick-servicedining market and feature fried chicken, sandwiches and various side orderssuch as fries, sodas and mashed potatoes. During fiscal year 2005, lunch and dinner sales were approximately 39.0percent and 61.0 percent, respectively. The average guest check was approximately $7.41 ($9.98 in Australiandollars).  KFC® restaurantsare typically free-standing buildings that are 1,875 to 3,300 square feet,providing seating for 20 to 100 guests. Approximately 69.0 percent of the restaurants offer drive-thru windowsand approximately 21.0 percent are located in shopping mall food courts.  At the end of fiscal year 2005 the Companyoperated 26 KFC® restaurants that offered “face-to-face” drive-thruwindows where customers place their order with a restaurant staff member inperson. The remaining terms of the Company’s franchise agreements vary from oneto 12 years and require payment of royalties based on a percentage ofsales.  Agreements with remaining termsof less than 10 years have renewal options for terms varying from nine to 12years. As a franchisee, the Company is required to contribute a percentage ofrevenues to a national Australian cooperative advertising fund administered bythe franchisor and contribute to local advertising initiatives.

 

Operatingsegment information for fiscal years 2005, 2004 and 2003 is included inManagement’s Discussion and Analysis of Financial Condition and Results ofOperations and in Note 11 – Information by Industry Segment and GeographicArea, to the Consolidated Financial Statements.

 

MergerAgreement with Pacific Equity Partners

 

On April 28,2005, the Company announced that it had entered into a definitive mergeragreement with affiliates of an Australian private equity firm, Pacific EquityPartners (“PEP”), pursuant to which the affiliates of PEP will acquire alloutstanding capital stock of WRC.  Theactual per share merger consideration will be determined by the mergeragreement formula using the U.S. dollar to Australian dollar exchange rate onebusiness day before the closing date of the merger. The terms of the merger

 

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agreementprovide that the per share consideration will vary from a floor of $6.65 if theU.S. dollar to Australian dollar exchange rate is 0.7339 or below to a high of$7.25 if the exchange rate is 0.8410 or above.

 

Uponcompletion of the transaction, the affiliates of PEP will own 100% of theoutstanding capital stock of WRC and the stock of WRC will no longer be tradedpublicly. Members of the Company’s Australian Management Group (“AMG”)currently own shares of capital stock of Collins Foods Group (“CFG”), theCompany’s Australian subsidiary managing the Sizzler® and KFC®restaurants in Australia.  AMG members are expected to be offered anoption to exchange such shares of CFG for a combination of shares of anaffiliate of PEP and cash.

 

The transaction is subject to the approval ofthe Company’s stockholders, as well as customary closing conditions, includingreceipt of regulatory approvals and certain third party consents, including,but not limited to, the approval by YUM! Brands, Inc. of the transfer offranchise agreements for the Company’s KFC® stores in Australia, andreceipt by PEP of debt financing required to complete the transaction. On June 15,2005 the Company filed with the Securities and Exchange Commission (“SEC”) itspreliminary proxy to approve the merger. As of the date of this report filing the Company anticipates thetransaction will be completed by mid-September 2005 assuming thatshareholder approval is obtained.

 

The merger agreement provides for an $8.4million termination fee that would be payable by the Company to PEP if themerger agreement is terminated under any of the following circumstances: 1)termination by WRC concurrently with its acceptance of a superior takeoverproposal; 2) termination by either the Company or PEP following a vote of theCompany’s stockholders in which the stockholders do not approve the merger; or3) termination by PEP if the Company’s Board of Directors or any committee ofthe Board withdraws or adversely modifies the merger agreement.  In addition, under certain othercircumstances WRC would be required to reimburse PEP for its out-of-pocketexpenses relating to the merger up to a maximum of $5.6 million.  Under no circumstances will WRC be requiredto both pay a termination fee and reimburse to PEP for its expenses.

 

## **Suppliers**

 

The Company has entered into distribution arrangements with a number ofsuppliers of food and other products and services used by its restaurants.  From time to time the Company contracts forthe purchase of selected commodity items to minimize cost fluctuations.  Although wholesale commodity prices aresubject to change due to various economic conditions, the Company has in thepast been able to obtain sufficient supplies to carry on its businesses andbelieves that it will be able to do so in the future.

 

The Company has entered into certain agreements for purchase ofnon-alcoholic beverages. As part of the agreements, the Company receivescertain advanced funding from the suppliers. If the Company terminates the agreementsprior to their expiration dates, the Company will be obligated to make paymentsto the suppliers reflecting the advanced funding received by the Company thathas not been earned pursuant to the agreements. The advanced funding subject torepayment was $0.3 million and $0.4 million as of April 30, 2005 and 2004,respectively.  The amounts are recordedas part of deferred gains, rent and landlord incentives in the ConsolidatedBalance Sheets.

 

## **Trademarks and Service Marks**

 

The Company owns certain domestic and international registeredtrademarks, trade names and service marks which are of material importance toits business.  The Company owns theSizzler® trademark and certain other registered trademarks, tradenames and service marks that it licenses to its franchisees.  The Company also owns the Pat &Oscar’s® trademark and has been granted a license to use certaintrademarks, trade names and service marks, which relate to the operation of KFC®restaurants in Australia pursuant to the franchise agreements with thefranchisor.  The Company has a firstright of refusal to open Taco Bell® restaurants in Queensland,Australia subject to certain conditions in the event the franchisor commencesdevelopment of this market.

 

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## **Research and Development**

 

The Company continually evaluates and updates its menus and restaurantconcepts.  The Company’s research andmarketing staff, in conjunction with outside consultants and food suppliers,develop new products. Before being introduced, new menu items are tested andevaluated for guest satisfaction, quality and profitability.

 

The Company intends to continue its existing research programs todevelop and test new food products. The costs associated with these activitiesare not expected to be material to the Company.

 

## **Seasonality**

 

The Company’s operations are subject to seasonal fluctuation in saleswith the summer months being slightly stronger followed by the springmonths.  The fall and winter seasons areweaker due to weather and other conditions; however Pat & Oscar’s®catering sales are typically higher during the winter holidays. The overalleffect of seasonality is moderated to a limited extent because the Australianseasons are in reverse of the seasons in the United States.

 

## **Working Capital Requirements**

 

The Company’s working capital requirements generally do not fluctuatesignificantly during the year because revenues consist primarily of cash salesand there is a rapid turnover of inventory. The Company does not carry significant inventories of beef, poultry,seafood, produce or other food products because these items are ordered anddelivered two or more times per week.

 

## **Competition**

 

The restaurant business is highly competitive and is impacted bychanges in consumer eating preferences, demographic and socio-culturalpatterns, and local and national economic conditions that may affect spendinghabits.  The Company’s restaurantscompete directly and indirectly with a large number of national and regionalrestaurant establishments, as well as with independently owned restaurants thatoffer moderately priced steak, chicken, salads and other menu items.  The Company relies on innovative conceptdevelopment, marketing techniques and promotions and competes with other restaurantsin terms of perceived value, variety and quality of menu items, service andprice. There are other companies engaged in restaurant operations andfranchising programs similar to the Company’s that have greater financialresources and a higher volume of sales than the Company.

 

## **Environmental Matters**

 

Federal and state environmental regulations have not had a materialeffect on the Company, but increasingly more stringent and unique requirementsof various local government bodies with respect to zoning, land use andenvironmental factors sometimes impact construction of new restaurants orremodels of existing restaurants.

 

## **Employees**

 

At April 30, 2005, the Company had approximately 2,500 employeesin the United States and approximately 5,600 employees in Australia. Themajority of the Company’s employees in Australia are covered by union contractsthat are negotiated between the Company and national and state governments andapplicable unions on behalf of all hourly restaurant employees.  Labor relations with employees havetraditionally been good.  The majority ofthe Company’s employees work part-time and are paid on an hourly basis.

 

## **Government Regulation**

 

Each of the Company’s domestic and international restaurants is subjectto various federal, state, local and Australian laws where applicable, andregulations governing, among other things health, sanitation,

 

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environmental matters, safety, wheelchair access, the sale of alcoholicbeverages, wages, hiring and employment practices.  The Company believes it has all materiallicenses and approvals required to operate its business, and that itsoperations are in material compliance with applicable laws and regulations.

 

**Inflation**

 

Increases in interest rates and the costs of labor, food, utilities andconstruction can significantly affect the Company’s operating results.  Management believes that the currentpractices of maintaining adequate operating margins through an appropriatecombination of menu price increases and cost controls, careful management ofworking capital and evaluation of property and equipment needs are its mosteffective means of dealing with inflation.

 

**Risks Associated With Food-Borne Illnesses**

 

As a participant in the food serviceindustry, the Company is exposed to a continuing risk of liability arising fromoutbreaks of E.coli and other food-borne illnesses alleged to be caused by foodcontaminated by its suppliers or by personnel employed at its franchised orCompany-operated restaurants.  Althoughthe Company believes that neither of the two such incidents referenced in Note8 – Commitments and Contingencies, to the Consolidated Financial Statements,will have a long-term material adverse impact on the Company’s financial conditionor results of operations, there can be no assurance to that effect or that thiswill be the case in the event a similar incident occurs in the future.  In the event of any such future incident,there may be a short-term and long-term material adverse impact on the Company’sfinancial condition and/or results of operations.

 

**Risks Associated With Foreign Operations**

 

The Companyoperates Sizzler® restaurants in several Australian states and onein New Zealand, as well as KFC® restaurants in Queensland and oneKFC® restaurant in New South Wales, Australia.  The Company also licenses the right tooperate Sizzler® restaurants to franchisees in a number of countriesand U.S. territories. Possible risks associated with such operations includefluctuations in currency exchange rates, higher rates of inflation, changes intax rates and tax structures and foreign political and economic conditions.

 

In connection with its joint venture agreement with its Sizzlerfranchisee in Singapore the Company is party to a guarantee whereby it isobligated to provide financial support to the joint venture.  The Company does not expect this guarantee tohave a material adverse impact on its financial position, results of operationsor cash flows.

 

**Other Factors That May Affect theCompany’s Business**

 

The Company is aware of industry concerns regarding the potentialimpact of possible further increases in the minimum wage, increases in utilitycosts, the marketing of prepared foods by grocery and convenience stores,customer resistance to increases in menu prices, the growth of home delivery ofprepared foods, increased concerns over the nutritional value of foods,compliance with existing or proposed health and safety legislation, changes indomestic and international economies, threats regarding potential terroristactivities and other similar contingencies. The Company is unable to predict the possible impact of such factors onits business.  These changes havetypically impacted all restaurant companies.

 

**CompanyWebsite and Information**

 

TheCompany’s website address is www.wrconcepts.com. The Company makes available,free of charge, through its website, its annual reports on Form 10-K,quarterly reports on Form 10-Q and current reports on Form 8-K andamendments to these reports as soon as reasonably practicable after suchmaterial is electronically filed with or furnished to the Securities andExchange Commission. These reports can be

 

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foundunder the “SEC Filings” section of the Company’s website. The informationcontained on the Company’s website is not incorporated by reference into thisannual report on Form 10-K.

 

**WhistleBlower Hotline**

 

The Company has a WhistleBlower hotline as mandated by the Sarbanes-Oxley Act of 2002. The toll-freephone number for the Whistle Blower hotline is 866-607-5884 and may also befound on the Company’s website at www.wrconcepts.com.  All reports to the Whistle Blower hotline aretranscribed and forwarded to the Chairman of the Company’s Audit Committee forinvestigation.

 

**Item 2:Properties**

 

At April 30,2005 the Company operated and franchised 443 locations in 16 states and 11countries and territories (including the USA) as illustrated below:

 
| ** **                    | ** ** | **Owned**  | ** ** | **Franchised** | ** ** | **Total**  | ** ** |
|-------------------------------|------------|------------|------------|----------------|------------|------------|------------|
| USA Sizzler® Restaurants | ** ** | ** ** | ** ** | ** **     | ** ** | ** ** | ** ** |
| State                         | ** ** | ** ** | ** ** | ** **     | ** ** | ** ** | ** ** |
| Arizona                       |       | —     |       | 6              |       | 6          |       |
| California                    |       | 40         |       | 106            |       | 146        |       |
| Delaware                      |       | —     |       | 1              |       | 1          |       |
| Florida                       |       | —     |       | 4              |       | 4          |       |
| Hawaii                        |       | —     |       | 4              |       | 4          |       |
| Idaho                         |       | —     |       | 5              |       | 5          |       |
| Montana                       |       | —     |       | 1              |       | 1          |       |
| Nebraska                      |       | —     |       | 3              |       | 3          |       |
| Nevada                        |       | —     |       | 4              |       | 4          |       |
| New Jersey                    |       | 1          |       | 2              |       | 3          |       |
| New Mexico                    |       | —     |       | 2              |       | 2          |       |
| New York                      |       | 2          |       | 9              |       | 11         |       |
| Oregon                        |       | —     |       | 12             |       | 12         |       |
| Texas                         |       | —     |       | 1              |       | 1          |       |
| Utah                          |       | —     |       | 12             |       | 12         |       |
| Washington                    |       | —     |       | 5              |       | 5          |       |
| **Total USA**                 | ** ** | **43**     | ** ** | **177**        | ** ** | **220**    | ** ** |

 
| ** **                                            | ** ** | **Owned**  | ** ** | **Franchised** | ** ** | **Total** | ** ** |
|-------------------------------------------------------|------------|------------|------------|----------------|------------|-----------|------------|
| Latin American Sizzler®Restaurants               |       |       |       |           |       |      |       |
| Countries and Territories                             |       |       |       |           |       |      |       |
| Guatemala                                             |       | —     |       | 5              |       | 5         |       |
| Puerto Rico                                           |       | —     |       | 11             |       | 11        |       |
| **Total Latin America**                               |       | **—** | ** ** | **16**         | ** ** | **16**    | ** ** |
|                                                  |       |       |       |           |       |      |       |
| **Total Sizzler® USA &  Latin America** | ** ** | **43**     | ** ** | **193**        | ** ** | **236**   | ** ** |

 

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| ** **                                   | ** ** | **Owned**  | ** ** | **Franchised** | ** ** | **Total**  | ** ** |
|----------------------------------------------|------------|------------|------------|----------------|------------|------------|------------|
| International Sizzler®Restaurants       | ** ** | ** ** | ** ** | ** **     | ** ** | ** ** | ** ** |
| Countries and Territories                    | ** ** | ** ** | ** ** | ** **     | ** ** | ** ** | ** ** |
| Australia                                    |       | 28         |       | —         |       | 28         |       |
| China                                        |       | —     |       | 2              |       | 2          |       |
| Japan                                        |       | —     |       | 8              |       | 8          |       |
| Korea                                        |       | —     |       | 6              |       | 6          |       |
| New Zealand                                  |       | 1          |       | —         |       | 1          |       |
| Taiwan                                       |       | —     |       | 2              |       | 2          |       |
| Thailand                                     |       | —     |       | 25             |       | 25         |       |
| Singapore                                    |       | —     |       | 2(a)           |       | 2          |       |
| **Total International**                      | ** ** | **29**     | ** ** | **45**         | ** ** | **74**     | ** ** |
|                                         |       |       |       |           |       |       |       |
| **Total Sizzler®**                      | ** ** | **72**     | ** ** | **238**        | ** ** | **310**    | ** ** |
|                                         |       |       |       |           |       |       |       |
| KFC®  restaurants                  |       |       |       |           |       |       |       |
| Australia                                    |       | 112        |       | —         |       | 112        |       |
| **Total KFC®**                          | ** ** | **112**    | ** ** | **—**     | ** ** | **112**    | ** ** |
|                                         |       |       |       |           |       |       |       |
| Pat & Oscar’s®restaurants |       |       |       |           |       |       |       |
| California                                   |       | 21         |       | —         |       | 21         |       |
| **Total Pat & Oscar’s®**  | ** ** | **21**     | ** ** | **—**     | ** ** | **21**     | ** ** |
| **Total all concepts**                       | ** ** | **205**    | ** ** | **238**        | ** ** | **443**    | ** ** |

 

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(a)          The two restaurants in Singapore are jointventures.

 

The Company operates substantially all of its restaurants subject toreal property leases.  The leases aregenerally for primary terms of 5 to 20 years, with two or three five-yearrenewal options and expire on various dates up to the year 2027.  There are 12 franchised restaurants locatedon property leased by the Company and sub-leased to the franchisees.  Periodically the Company reviews theappropriateness of owning versus leasing restaurant locations.

 

In addition to the restaurant locations set forth above, the Companyleases office space in Sherman Oaks, California that serves as its corporateheadquarters.  The Company also leasesregional offices in San Diego, California and Queensland, Australia to supportPat & Oscar’s®****and itsinternational operations, respectively.

 

**Item 3: *Legal Proceedings***

 

The Company is a party to certain litigation arising in the ordinarycourse of business which, in the opinion of management, will not have amaterial adverse effect upon either the Company’s consolidated financialposition, results of operations or cash flows. The following is a summary of the more significant cases pending againstthe Company:

 

Asubsidiary of the Company remains as a defendant in a lawsuit arising out of anE.coli incident at a Sizzler® franchised location in Milwaukee,Wisconsin in July 2000.  Theplaintiffs seek monetary damages for the death of a minor child who consumedallegedly contaminated food at the Sizzler® restaurant. The Company’sformer meat supplier, Excel Corporation (“Excel”) and the Company’s formerfranchisee, E&B Management Company, and E&B Management Company’sprincipals are named defendants in the case. The Company has filed cross-claimsagainst its franchisee and Excel. The case has been referred back to the trialcourt in Milwaukee following Excel’s failed attempt to be dismissed as adefendant and depositions and written discovery have commenced. The Companybelieves that the resolution of all claims associated

 

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with theMilwaukee E.coli incident will not have a material adverse impact on theCompany’s financial position, results of operations or cash flows.

 

On October 3,2001, upon the petition of the Insurance Commissioner of the Commonwealth ofPennsylvania, Reliance Insurance Company (“Reliance”) was declared insolventand became subject to Pennsylvania state law liquidation proceedings.  Reliance was the Company’s primary generalliability and workers’ compensation carrier, during the period May 1, 1997through May 1, 1999, and was the Company’s first level excess generalliability carrier with respect to claims against the Company arising out of theJuly 2000 E.coli incident in Milwaukee. As a result of the legal proceedings affecting Reliance, the Company’sability to recover funds under its liability policies with this carrier,whether relating to the Milwaukee incident or otherwise, may be substantiallylimited.  However, based on the amount ofits primary general liability coverage under policies with other carriers, aswell as anticipated results of the pending litigation in Milwaukee and otherclaims, the Company does not believe that Reliance’s liquidation proceedingsare likely to have a material adverse impact on the Company’s financialposition, results of operations or cash flows.

 

On June 1,2001, The Independent Insurance Co., the Company’s primary general liabilityinsurance carrier in Australia for the period May 1, 2000 through April 30,2001, commenced liquidation proceedings. Based upon an assessment of the pending and possible future claims,which may be filed over a five-year period, the Company’s ability to recoverfunds under its general liability policies with this carrier may besubstantially limited.  Nevertheless, theCompany does not believe that The Independent Insurance Co.’s liquidation islikely to have a material adverse impact on the Company’s financial position,results of operations or cash flows.

 

On October 7,2003, the Company was notified by various health department officials that Pat &Oscar’s was the focal point of an investigation into an outbreak of E.coli atcertain of its restaurants.  Healthofficials focused their investigation on the lettuce that was supplied to therestaurants by Gold Coast and Family Tree. Out of approximately 45 claims, allbut seven have been settled. The Company anticipates that all of the remainingclaims will be settled by the end of the second quarter of fiscal year 2006.

 

On November 30, 2004, the Company filed a Form 8-K in whichit announced it had entered into a Settlement Agreement And General Releasewith two of the lettuce suppliers involved in the 2003 E.coli incident andtheir insurers.  Under the terms of theagreement, the two insurers paid to the Company a total of $5.0 million inexchange for an assumption by the Company of all liabilities of the twodistributors for pending bodily injury claims that arose in connection with theE.coli incident, as well as an agreement by the Company to indemnify and defendthe two distributors from any such claim subsequently arising out of thisincident.  The Company believes that the$5.0 million settlement amount will be sufficient to cover the Company’sliability relating to all pending bodily injury claims arising out of theE.coli incident, and any future claims, should they arise. Accordingly, theCompany does not believe that the resolution of these cases or the claims ofany other individuals who became ill as a result of the alleged E.coli incidentat Pat & Oscar’s will have any material adverse impact on the Company’sfinancial position, results of operations or cash flows. The Company recorded again of $1.6 million related to insurance settlements in connection with Pat &Oscar’s E.coli incident in fiscal year 2005. See Note 17 - E.coli Incident, tothe Consolidated Financial Statements.

 

**Item 4: *Submission of Matters to aVote of Security Holders***

 

None.

 

10

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***Executive Officers of the Registrant as of June 30,2005***

 

The following are the Executive Officers of the Company as of June 30,2005:

 
| Charles L. Boppell |   | 63     |   | President and Chief Executive Officer of  the Company since 1999. Director of the Company since April 1999.  President and Chief Executive Officer of La Salsa Holding Company  (1993-1999).                                                                                          |
|--------------------|--------|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|               |   |   |   |                                                                                                                                                                                                                                                                                       |
| Kevin  W. Perkins  |   | 53     |   | Executive  Vice President of the Company and President and Chief Executive Officer of  the Company’s International Operations since 1997. Director of the Company  (1994 to 2003). President and Chief Executive Officer of the Company  (1994-1997).                                 |
|               |   |   |   |                                                                                                                                                                                                                                                                                       |
| Kenneth Cole       |   | 51     |   | President and Chief Executive Officer of  Sizzler USA, Inc. since May 2001. President and Chief Executive  Officer of Blue Chalk Café (d/b/a Left at Albuquerque) (1999-2001). President  and Chief Executive Officer of Damon’s International, Inc. (1988-1999). |
|               |   |   |   |                                                                                                                                                                                                                                                                                       |
| A. Keith Wall      |   | 53     |   | Vice President and Chief Financial Officer  of the Company since 2001. Vice President and Chief Financial Officer of  Central Financial Acceptance Corporation (1998-2001). Vice President and  Chief Financial Officer of Central Rents, Inc. (1996-1998).                           |
|               |   |   |   |                                                                                                                                                                                                                                                                                       |
| Michael  B. Green  |   | 59     |   | Vice  President, General Counsel and Secretary of the Company since 1999. Vice  President, General Counsel and Secretary of Sizzler USA, Inc.  (1997-present). Assistant General Counsel of the Company (1995-1997).                                                                  |
|               |   |   |   |                                                                                                                                                                                                                                                                                       |
| Mary  E. Arnold    |   | 46     |   | Vice  President and Controller of the Company since 2000. Controller of the Company  (1999-2000). Vice President Finance of The Intergroup Corporation (1999).  Vice President Finance and Controller of Koo Koo Roo, Inc. (1994-1998).                                               |
|               |   |   |   |                                                                                                                                                                                                                                                                                       |
| John  Burns        |   | 63     |   | Vice  President of Purchasing of the Company since 2001. Vice President of  Purchasing of Sizzler USA, Inc. since 1997. Vice President of Purchasing  and Distribution of Family Restaurants, Inc. (1994-1997).                                                                  |
|               |   |   |   |                                                                                                                                                                                                                                                                                       |
| Joan  Miszak       |   | 52     |   | Vice  President of Human Resources of Company since 2003. Senior Partner of Regent  Pacific Management Corporation (2000-2003). Senior Vice President of R.L.  Polk & Co. (1996-2000).                                                                                            |
|               |   |   |   |                                                                                                                                                                                                                                                                                       |
| John  Wright       |   | 57     |   | President  and Chief Executive Officer of Pat & Oscar’s since  January 2004. President of Bennigan’s Grill and Tavern (2002-2003).  President of Metromedia Steakhouse Division (2001-2002). Principal of  Worldwide Solutions (1999-2000).                        |

 

11

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**PART II**

 

**Item 5: *Market For Registrant’s Common Equity,Related Stockholder Matters and Issuer Purchases of Equity Securities***

 

#### **Market Information**

 

TheCompany’s common stock is listed on the New York Stock Exchange (“NYSE”) underthe symbol “SZ.”  As of June 30,2005, the number of record holders of the Company’s common stock was1,512.  The high and low closing salesprices for a share of the Company’s common stock as reported on the NYSE, byquarter, for the past two fiscal years are as follows:

 
| ** **     | ** ** | **2005** | ** ** | **2004** | ** ** |
|----------------|------------|----------|------------|----------|------------|
| ** **     | ** ** | **High** | ** ** | **Low**  | ** ** | **High** | ** ** | **Low** | ** ** |
|           |       |     |       |     |       |   |   |   |   |
| First Quarter  |       | $        | 3.600      |     | $          | 3.010 |   | $ | 3.240 |   | $ | 2.530 |   |
| Second Quarter |       | 3.440    |       | 2.910    |       | 4.010 |   | 2.870 |   |
| Third Quarter  |       | 4.700    |       | 3.070    |       | 3.470 |   | 2.620 |   |
| Fourth Quarter |       | 6.420    |       | 4.350    |       | 3.440 |   | 2.790 |   |
|                |            |          |            |          |            |  |  |  |  |  |  |  |  |

 

#### **Common Stock Dividends**

 

The Company has not declared any cash dividends during the three mostrecent fiscal years and does not expect to pay any dividends in the foreseeablefuture.  Future dividends, if any, willdepend on a number of factors, including earnings, financial position, capitalrequirements and other relevant factors.

 

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**Item 6: *Selected Financial Data***

 

Thefollowing table sets forth consolidated financial data with respect to theCompany, and should be read in conjunction with the consolidated financialstatements, including the notes thereto, and Item 7: “Management’s Discussionand Analysis of Financial Condition and Results of Operations” presentedelsewhere herein.

 
| **For the Years Ended  April 30,**                                 | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
|-------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| **(In millions of dollars, except per  share data and exchange rates)** |       |     |       |     |       |     |       |     |       |     |       |
|                                                                    |       |     |       |     |       |     |       |     |       |     |       |
| Revenues                                                                |       | $        | 354.8      |     | $          | 347.2    |       | $        | 293.5      |     | $          | 267.2 |   | $ | 245.3 |   |
|                                                                    |       |     |       |     |       |     |       |     |       |     |       |
| Net income (loss)                                                       |       | (21.3    | )(a)       | 3.6      |       | 6.9      |       | 4.2      |       | 2.7      |       |
|                                                                    |       |     |       |     |       |     |       |     |       |     |       |
| Basic earnings (loss) per share                                         |       | (0.77    | )(a)       | 0.13     |       | 0.25     |       | 0.15     |       | 0.10     |       |
|                                                                    |       |     |       |     |       |     |       |     |       |     |       |
| Diluted earnings (loss) per share                                       |       | (0.77    | )(a)       | 0.07     |       | 0.24     |       | 0.15     |       | 0.10     |       |
|                                                                    |       |     |       |     |       |     |       |     |       |     |       |
| Average Australian dollar exchange rate                                 |       | $        | 0.7422     |     | $          | 0.7056   |       | $        | 0.5676     |     | $          | 0.5171 |   | $ | 0.5494 |   |
|                                                                    |       |     |       |     |       |     |       |     |       |     |       |
| Total assets                                                            |       | 142.5    |       | 162.0    |       | 150.3    |       | 136.2    |       | 122.6    |       |
|                                                                    |       |     |       |     |       |     |       |     |       |     |       |
| Long-term debt                                                          |       | 7.5      |       | 30.8     |       | 19.0     |       | 24.0     |       | 24.1     |       |
|                                                                    |       |     |       |     |       |     |       |     |       |     |       |
| Total stockholders’ equity                                         |       | 12.8     |       | 58.4     |       | 57.4     |       | 52.6     |       | 54.5     |       |
|                                                                    |       |     |       |     |       |     |       |     |       |     |       |
| Cash dividends declared per share                                       |       | —   |       | —   |       | —   |       | —   |       | —   |       |

 

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(a)           Includes a goodwillimpairment charge of $21.9 million.

 

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**Item 7: *Management’s Discussionand Analysis of Financial Condition and Results of Operations***

 

**INTRODUCTION**

 

The following discussion should be read in conjunction with Item 6: “SelectedFinancial Data,” the Consolidated Financial Statements, including the notesthereto, and other financial information appearing elsewhere herein.

 

**OVERVIEW**

 

The Company’s revenues aregenerated from four primary segments: (1) domestic Company-operatedSizzler® restaurant sales and franchise revenues(including franchise fees, royalties and rental income), (2) internationalCompany-operated Sizzler®restaurant sales and franchise revenues, (3) revenues from internationalKFC® franchises operated by the Company and (4) domesticCompany-operated Pat & Oscar’s® restaurant sales.

 

During fiscal year 2005, the Company opened one new Pat &Oscar’s®  location in SouthernCalifornia and closed two locations in San Diego, California due to low salesvolumes caused primarily by poor site characteristics. The Company currentlyoperates Pat & Oscar’s® in six counties in SouthernCalifornia.  The Company continued itsstrategy of providing high quality food in a fast-casual setting served byemployees who are trained in a culture that emphasizes cheerful service and thevalue of its employees and guests. During fiscal year 2005, the division continued to experience loweredprofitability as a result of an E.coli incident that occurred in the secondquarter of fiscal year 2004 (see Notes 8 – Commitments and Contingencies and 17– E.coli Incident, to the Consolidated Financial Statements.)  The Company also continued its equity planfor the division’s regional and restaurant management; however, certain changeswere made during the year. See Note 16 – Market and Operating Partnerships, tothe Consolidated Financial Statements.

 

The Company continued to implement itsprogram to update the exterior façade and continued an interior remodel programat its U.S. Sizzler® restaurants during fiscal year 2005. TheCompany has completed remodels at 18 Company-operated restaurant locations infiscal year 2005. The Company also continued its franchise reinvestment programwhereby its franchisees are implementing the décor and menu upgradesimplemented by the Company.  At the endof fiscal year 2005, approximately 81.5 percent of the Company’s U.S. Sizzler®franchisee locations had completed restaurant remodels that included aninterior remodel and an updated exterior façade. During fiscal year 2005, theCompany signed an area development agreement with a new Sizzler®franchisee to open three restaurants in the Arkansas area over the next fouryears. In addition, during fiscal year 2005, the Company continued to implementits strategic decision to grow the Sizzler® brand in the UnitedStates primarily through franchising.  Aspart of the initiative during the current fiscal year, the Company transitionedten Company-owned locations to existing or new franchisees. The Company iscontinuing its plan to transition two remaining New York area restaurants toexisting or new franchisees, or to third parties, and expects this transitionto be completed in fiscal year 2006. The third New York area Company-ownedlocation will close in the second quarter of fiscal year 2006 when its leaseterm expires. See Note 20 – Restaurant Assets Held for Sale, to theConsolidated Financial Statements.

 

Management is continuing its plan to reposition the Sizzler®concept in Australia by implementing the upgraded food quality and cookingmethods consistent with those implemented in the Company’s domesticoperations.  The Company is presentlyrolling out an interior remodel that provides a softer, warmer grill conceptfeel.  During fiscal year 2005, theCompany opened one new restaurant and relocated another restaurant. Inaddition, during the current fiscal year the Company completed seven remodels.

 

The Company has also continued its facilities upgrade program for itsKFC® locations and has completed seven remodels and the relocationof one shopping mall foodcourt restaurant.

 

14

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**CRITICALACCOUNTING POLICIES AND ESTIMATES**

 

Item 7,Management’s Discussion and Analysis of Financial Condition and Results ofOperations, discusses the Company’s consolidated financial statements whichhave been prepared in accordance with accounting principles generally acceptedin the United States of America.  Thepreparation of these financial statements requires management to make estimatesand assumptions that affect the reported amounts of assets, liabilities andcontingencies as of the date of the financial statements and the reportedamounts of revenues and expenses during the reporting periods.  Management evaluates its estimates andjudgments, including those related to its most critical accounting policies, onan ongoing basis.  Management bases itsestimates and judgments on historical experience and on various other factorsthat are believed to be reasonable under the circumstances, the results ofwhich form the basis for making judgments about the carrying values of assetsand liabilities.  Actual results maydiffer from these estimates under different assumptions or conditions.  Management believes the following criticalaccounting policies affect its more significant judgments and estimates used inthe preparation of its consolidated financial statements.

 

## **Leases**

 

The Company leases the majority of its facilities under operating leaseagreements. The Company accounts for its leases under the provisions ofSFAS No. 13 “Accounting for Leases” and subsequent amendments whichrequire that the leases be evaluated and classified as operating or capitalleases for financial reporting purposes. The term of the lease used for thisevaluation includes renewal option periods only in instances in which theexercise of the renewal option can be reasonably assured and failure toexercise such option would result in an economic penalty.

 

For leasesthat contain scheduled rent escalations, the Company records the total rentpayable during the lease term, as discussed above, on a straight-line basisover the term of the lease (including a “rent holiday” period, if any,beginning upon possession of the premises), and records the difference betweenthe minimum rents paid and the straight-line rent as a component of deferredgains, rent and landlord incentives as part of consolidated balance sheets.Certain leases contain a significant leverage factor in the form of rentescalation that is a multiple of the Consumer Price Index.  Such leases are accounted on a straight-linebasis using assumptions as to the rent escalation amounts. For building leases,straight-line rent incurred during rent holidays is reflected as part of rentexpense in pre-opening expenses.  Ininstances involving land leases, in which the Company is responsible for theconstruction of the restaurant, it is the Company’s policy to reflect suchstraight-line rent incurred during the build-out period as a cost ofconstructing the related restaurant facility. Rent from the date the restaurant is completed through the restaurantopening date is included as part of rent expense.

 

Certain leases provide for contingent rents, which are determined as a percentageof gross sales in excess of specified levels. The Company records a contingent rent liability in accrued expenses onthe consolidated balance sheets and the corresponding rent expense whenspecified levels have been achieved or when management determines thatachieving the specified levels during the fiscal year is probable.  Landlord contributions for leaseholdimprovements are included in deferred gains, rent and landlord incentives (SeeNote 14 – Deferred Gains, Rent andLandlord Incentives, to Consolidated Financial Statements) and areamortized as a reduction of rent expense ratably over the lease term asdetermined above.

 

**Franchiserevenues**

 

Franchise revenues consist of royalties and franchise fees.  The Company recognizes royalties on a franchisee’ssales in the period in which the sales occur. The Company also receives a franchise fee for each restaurant that afranchisee opens.  The recognition offranchise fees is deferred until the Company has performed substantially all ofits related obligations as a franchisor, typically when a restaurant opens.

 

**Propertyand equipment**

 

The Companyreviews its long-lived assets for impairment when events or changes incircumstances indicate that the carrying amount of an asset or group of assetsmay not be recoverable. The Company

 

15

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considers ahistory of operating losses and insufficient future revenue potential to be itsprimary indicators of potential impairment. Assets are grouped and evaluated forimpairment at the lowest level, typically the restaurant level for which thereare identifiable cash flows independent of the cash flows of other groups ofassets.  The Company deems an asset to beimpaired if a forecast of undiscounted projected future operating cash flowsdirectly related to the asset, including disposal value, if any, is less thanits carrying amount.  Projected futureoperating cash flows are based on budgeted future operating results and forecastestimates. Considerable management judgment is necessary to estimate projectedfuture operating cash flows. Accordingly, if actual results fall short of such estimates, significantfuture impairments could result.

 

**Depreciation and Amortization**

 

Depreciation of property and equipment, which includes assets undercapital leases at capitalized value, and amortization are expensed over theestimated useful lives of the assets using the straight-line method. Leaseholdimprovements are amortized over the shorter of their estimated useful lives orthe remaining related lease life, including options for domestic operationswhere exercise of the option is reasonably assured and/or the failure toexercise a renewal option imposes an economic penalty. Leasehold improvementsfor the Company’s international operations are generally amortized over theinitial base term of the lease, which is usually eight to 12 years and does notinclude option renewals.  Leaseholdimprovements for the Company’s domestic operations are amortized over a periodthat may include options, generally 10 to 30 years.  Equipment is depreciated over three to eightyears. The costs of repairs and maintenance are expensed when incurred, whileexpenditures for refurbishments and improvements that significantly add to theproductive capacity or extend the useful life on an asset are capitalized. Whenassets are sold or retired, the asset cost and related accumulated depreciationare eliminated with any remaining gain or loss reflected in net income or loss.

 

**Goodwilland Other Intangibles**

 

In accordance with Statement of Financial Accounting Standards (“SFAS”)No. 142, “Goodwill and Other Intangible Assets,” intangible assets withfinite useful lives are amortized; estimated useful lives range from 10 to 40years.  Goodwill and other intangibleassets with indefinite lives are not amortized but are tested for impairmentannually or more frequently if events or changes in circumstances indicate thatan asset might be impaired.  SFAS No. 142requires a two-step process for testing goodwill impairment.  First, the fair value of each reporting unitis compared to its carrying value to determine whether an indication ofimpairment exists.  If impairment isindicated, then the fair value of the reporting unit’s goodwill is determinedby allocating the unit’s fair value to its assets and liabilities (includingany unrecognized intangible assets) as if the reporting unit had been acquiredin a business combination.  The amount ofimpairment for goodwill and other intangible assets is measured as the excessof its carrying value over its fair value. The Company has established its reporting units based on its currentreporting structure and all recognized assets, liabilities and goodwill havebeen assigned to these reporting units. The Company evaluates its intangibleassets for impairment by comparing their carrying value to their fair valuewith a loss recognized for the amount the carrying value exceeds the fairvalue. Considerable management judgment is necessary to estimate fair value.  Accordingly, actual results could vary fromsuch estimates.  During fiscal year 2005,the Company recorded a $21.9 million goodwill impairment charge related to thewrite-off of all of the goodwill associated with the purchase of Pat &Oscar’s. See Note 3 – Goodwill and Other Intangibles, to the ConsolidatedFinancial Statements.

 

**Incometaxes**

 

At April 30, 2005, the book value of the Company’s net deferredincome tax assets, prior to considering any valuation allowance, wasapproximately $71.3 million, of which approximately $64.4 million was domestic.The principal component of the domestic deferred income tax assets wascomprised of federal net operating loss carryforwards.  The provisions of SFAS No. 109, “Accountingfor Income Taxes,” require a valuation allowance when in management’s judgment,based upon currently available information and other factors, it is more likelythan not that all or a portion of the deferred income tax asset will not berealized.  The Company bases itsdetermination of the need for a valuation allowance on an on-going evaluationof current information including, among other things, estimates of futureearnings in different tax jurisdictions and the expected timing of deferredincome tax asset reversals.  A charge orcredit to income tax expense is made for any adjustments to the valuationallowance in the period in which these

 

16

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determinations are made.  Duringthe year ended April 30, 2005, the valuation allowance increased byapproximately $10.2 million, of which $2.0 million represents a reduction inthe net domestic deferred tax asset of $5.7 million compared to the prioramount of $7.7 million.  The remaining$8.2 million primarily relates to additional net domestic losses.  At April 30, 2005, the Company’svaluation allowance against its domestic deferred income tax assets wasapproximately $58.7 million.

 

The Company believes that the determination to record a valuationallowance to reduce deferred income tax assets is a critical accountingestimate because it is based on an estimate of future taxable income, which issusceptible to change and may or may not occur, and because the impact ofadjusting a valuation allowance may be material.

 

## **Self-Insurance**

 

The Companyself-insures a significant portion of its workers compensation, generalliability and health insurance plans. The full extent of certain claims, in many cases, may not become fullydetermined for several years.  TheCompany, therefore, estimates the potential obligation for liabilities whichhave been incurred as well as those which have been incurred but not yetreported based upon historical data and experience, and utilizes an outsideactuarial consulting firm to assist the Company in developing these estimatesbased on market conditions. Although management believes that the amountsaccrued for these obligations are sufficient, any significant increase ineither the number of claims and/or costs associated with claims made underthese plans could have a material adverse effect on the Company’s financialposition, results of operations or cash flows. See Note 22 – Fourth QuarterAdjustments, to the Consolidated Financial Statements.

 

**SupplementalExecutive Retirement Plan**

 

The Companyterminated its supplemental executive retirement plan (“SERP”) but remainsobligated under the SERP for 11 former employees.  The Company accounts for the SERP under SFAS No. 87“Employers’ Accounting for Pensions.” The Company makes significant assumptions used in determining the netpension cost and benefit obligation. Significant assumptions used include discount rates and mortalityestimates, which are determined with the assistance of an outside consultingfirm.  Although management believes thatthe amounts accrued for these benefit obligations are sufficient, any changesin these assumptions could have a material adverse effect on the Company’sfinancial results.  In connection withthe SERP, the Company has several life insurance policies covering certainformer employees including those in the SERP. However, the Company allowed thepolicies to lapse in July 2005. See Note 1 - Summary of SignificantAccounting Policies (Cash Surrender Value), to the Consolidated FinancialStatements.

 

#### **Market and Operating Partnerships**

 

During fiscalyear 2003, Pat & Oscar’s® began offering equity intereststo its regional and restaurant management (each participant therein, an “EquityPartner”).  This equity plan wasestablished to create and promote a strong sense of ownership among its keymanagers and enhance the development, operation and performance of Pat &Oscar’s. Each Equity Partner, generally a regional market manager or arestaurant general manager, is allowed to purchase an ownership interest in alimited liability company that operates and owns or leases substantially all ofthe restaurant assets from Pat & Oscar’s®. The ownershipinterest purchased by the Equity Partner is based on fair market value andranges from two percent to eight percent of the partnership, which includesonly the restaurants that the Equity Partner oversees.  The Equity Partner is restricted from sellingthe ownership interest for an initial period of five years.  At the end of the initial term the EquityPartner has the option to continue operating on a month-to-month basis, renewthe agreement for another five years and purchase an additional one to twopercent interest or sell his interest to Pat & Oscar’s at the thenprevailing fair market value. Fair market value will be determined inaccordance with reasonable and consistent valuation methods and procedures andwill consider among other things such factors as the restaurant’s remaininglease life, historic profitability and continued profitability of therestaurant(s).  The price paid by Pat &Oscar’s to repurchase the ownership interest, at the option of the EquityPartner, subject to the Company’s approval, may be made either in the form of anote, the Company’s common stock or 50 percent cash and 50 percent Companycommon stock.

 

17

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There is nopublic market for these interests, therefore the fair value determinations aresubjective and require the use of estimates for which significant judgments arerequired. Periodically, the Company may engage outside experts to assess thereasonableness of the methodology the Company uses to estimate fair value.

 

During fiscalyear 2004, the initial investment made by three Equity Partners was offset byoperating losses that were allocated to the Equity Partners (resulting from theE.coli incident, see note 17 - E.coli Incident, to Consolidated FinancialStatements).  As a result, all lossesincurred subsequent to the reduction of an Equity Partner’s investment to zerowere allocated to the Company.  Duringfiscal year 2005, all three Equity Partnerships covering regional managers wereliquidated due to losses that exceeded the Equity Partner’s investment.  One new Equity Partner interest with the SanDiego regional manager was formed based on the updated fair market value of theunderlying restaurants covered by the region. The terms of the new plan are substantially the same as the originalplan.  In addition, one restaurant levelEquity Partner remained at the end of fiscal 2005; however, the losses from theunderlying restaurant had exceeded the Equity Partner’s investment.

 

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**RESULTS OFOPERATIONS**

 

The following table sets forth, for the periods indicated, theConsolidated Statements of Operations Data of the Company expressed as apercentage of total revenues.

 
| ** **                                                               | ** ** | **For the years ended April 30,** | ** ** |
|--------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                               | ** ** | **2005**                               | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                                     |       |                                   |       |   |   |   |   |
| Revenues                                                                 |       |                                   |       |   |   |   |   |
| Restaurant sales, net                                                    |       | 97.3                                   | %          | 97.5 | % | 97.2 | % |
| Franchise revenues                                                       |       | 2.7                                    |       | 2.5 |   | 2.8 |   |
| Total revenues                                                           |       | 100.0                                  |       | 100.0 |   | 100.0 |   |
| Costs, Expenses and Other                                                |       |                                   |       |   |   |   |   |
| Cost of sales (excluding depreciation and  amortization reflected below) |       | 33.4                                   |       | 33.6 |   | 32.7 |   |
| Labor and related expenses                                               |       | 26.4                                   |       | 27.1 |   | 27.2 |   |
| Other operating expenses                                                 |       | 23.4                                   |       | 23.8 |   | 23.6 |   |
| Depreciation and amortization                                            |       | 3.5                                    |       | 3.4 |   | 3.6 |   |
| General and administrative expenses                                      |       | 9.7                                    |       | 8.3 |   | 8.6 |   |
| Gains on property sales, sale-leasebacks  and legal settlements          |       | (1.4                                   | )          | — |   | — |   |
| Asset impairments                                                        |       | 0.9                                    |       | 0.5 |   | 0.7 |   |
| Goodwill impairment                                                      |       | 6.2                                    |       | — |   | — |   |
| Total operating costs, expenses and other                                |       | 102.1                                  |       | 96.7 |   | 96.4 |   |
| Operating income (loss)                                                  |       | (2.1                                   | )          | 3.3 |   | 3.6 |   |
| Interest expense                                                         |       | 0.8                                    |       | 0.9 |   | 0.9 |   |
| Investment income, net                                                   |       | 0.2                                    |       | 0.2 |   | 0.2 |   |
| Income (loss) before income taxes  and minority interest            |       | (2.7                                   | )          | 2.6 |   | 2.9 |   |
| Provision for income taxes                                               |       | 2.5                                    |       | 1.5 |   | 0.7 |   |
| Minority interest expense                                                |       | 0.8                                    |       | — |   | — |   |
|                                                                     |       |                                   |       |   |   |   |   |
| Net income (loss)                                                        |       | (6.0                                   | )%         | 1.1 | % | 2.2 | % |

 

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**RESULTS OF OPERATIONS FOR THE FIFTY-TWO WEEKS ENDED APRIL 30, 2005VS. FIFTY-THREE WEEKS ENDED APRIL 30, 2004**

 

Consolidatedrevenues were $354.8 million in fiscal year 2005 compared to $347.2 million infiscal year 2004, an increase of $7.6 million or 2.2 percent.  The increase is due to a $19.9 millionincrease in revenue from the international division partially offset bydeclines of approximately $12.3 million from the domestic division. Theinternational division increase was primarily due to same store sales increasesfrom the KFC and Sizzler International divisions along with a 5.2 percentincrease in the average Australian dollar exchange rate that representsapproximately $10.9 million in revenues. These increases were partially offsetby a decrease in domestic revenues. Sizzler U.S. revenues were lower due to having 14 fewer Company-ownedrestaurants open (of which ten were converted to franchise operations)partially offset by an increase in same store sales at Company-operatedrestaurants.  Pat & Oscar’srevenues increased due to having more restaurants open on average duringthe current fiscal year compared to the prior year, and same store salesincreases reflecting continued recovery from the E.coli incident that occurredin the prior year (see Notes 8 – Commitments and Contingencies and 17 – E.coliIncident, to the Consolidated Financial Statements.) The impact on consolidatedrevenue of having one additional week of operations in fiscal year 2004 wasapproximately $6.8 million.

 

Consolidated operatingexpenses were $362.4 million in fiscal year 2005 compared to $335.8 million infiscal year 2004, an increase of $26.6 million or 7.9 percent.  The increase is primarily due to a $21.9million goodwill impairment charge (see Note 3 – Goodwill and OtherIntangibles, to the Consolidated Financial Statements) and a 5.2 percentincrease in the average Australian dollar exchange rate that represents $9.3million in costs.  General andadministrative expenses for the current fiscal year include $1.9 millionrelated to Sarbanes-Oxley Section 404 compliance and $1.9 million in costsrelated to the merger (See Note 2 - Merger Agreement, to the ConsolidatedFinancial Statements). The increase was partially offset by gains recorded inconnection with Pat & Oscar’s E.coli legal settlements and on SizzlerU.S. real property sale and sale-leaseback transactions. (See Notes 14, 17 and22, to the Consolidated Financial Statements). The Company also reported a $0.8million foreign exchange gain in fiscal year 2004 compared to a loss of lessthan $0.1 million in fiscal year 2005.

 

Interestexpense was $2.7 million in fiscal year 2005 compared to $3.2 million in fiscalyear 2004, a decrease of $0.5 million or 16.0 percent primarily due to lowerdebt balances. Interest expense is primarily related to the Company’s debt withWestpac Banking Corporation in Australia “Westpac” and financing from GECapital that was repaid during fiscal year 2005.  Investment income was $0.7 million in fiscalyear 2005 compared to $0.6 million in fiscal year 2004, an increase of $0.1million primarily due to higher cash balances and increasing interest rates.

 

In fiscal year 2005, the AustralianManagement Group (“AMG”) exercised options to purchase 19.1 percent of theCompany’s subsidiary, Collins Foods Group (“CFG”). Minority interest expense of$2.7 million primarily represents AMG’s share of CFG’s net earnings (see Note15 – Minority Interest and Australia Management Transaction, to theConsolidated Financial Statements). In addition, an amount of less than $0.1million of minority interest expense represents the portion of the Company’snet earnings or losses that are attributable to the market or operatingpartnership equity interests of the minority shareholders in the Company’ssubsidiary, Pat & Oscar’s. Pat & Oscar’s has a partnershipequity plan under which it may enter into partnership agreements with itsregional managers or general managers. As of April 30, 2005, Pat &Oscar’s had one market partnership agreement with one regional manager covering10 restaurants. There was one operating partnership agreement with onerestaurant general manager.  See Note 16– Market and Operating Partnerships, to the Consolidated Financial Statements.

 

The provision for income taxes was $9.0 million in fiscal year 2005compared to $5.3 million in fiscal year 2004. The increase is partially due toa $2.0 million increase in the valuation allowance against the Company’s U.S.deferred income tax assets. The Company increased its valuation allowance dueto lower estimated amounts of profitability in its domestic operations. TheCompany also increased its valuation allowance by approximately $8.0 millionduring fiscal year 2005 to provide against increases in its domestic netoperating carryforwards that are more likely than not recoverable. Theremaining increase relates to the higher profitability of the Company’sinternational division that does not benefit from the

 

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domestic net operating loss carry-forwards. See Note 4 – Income Taxes,to the Consolidated Financial Statements.

 

**U.S.Sizzler Operations**

 

Total revenues for fiscal year 2005 were $84.4 million compared to$97.8 million in fiscal year 2004. Restaurant sales were $76.7 million compared to $90.6 million in fiscalyear 2004, a decrease of $13.9 million or 15.3 percent.  The decrease in restaurant sales is primarilydue to a reduction of Company-owned locations when compared to prior yearpartially offset by an increase in same store sales associated with successfulpromotions and newly remodeled facilities in several locations. On acomparative basis, Sizzler® restaurants that have been open for morethan 15 months experienced a 2.5 percent increase in average sales perrestaurant.  The Company has severalinitiatives in place to continue increasing sales including televisionadvertising programs, new menu items and a new customer feedback system. Therewere 43 Company-operated Sizzler® restaurants as of April 30,2005 and 57 as of April 30, 2004. During fiscal year 2005, the Company closed four locations due tounprofitable operations and converted ten locations to franchises. From time totime the Company may sell locations, open new locations or acquire locationsfrom its franchisees. See Note 20 - Restaurant Assets Held for Sale, to theConsolidated Financial Statements. Franchise revenues were $7.7 million infiscal year 2005 compared to $7.2 million in fiscal year 2004, an increase of$0.5 million or 6.0 percent. Franchise revenues were higher due to having morefranchised locations and higher royalties from increases in franchise samestore sales. As of April 30, 2005, there were 193 Sizzler®franchise locations, including 16 in Latin America, compared to 185, including15 in Latin America, as of April 30, 2004. During fiscal year 2005, three new franchise locations opened, tenCompany-owned locations were converted to franchises and five were closed.

 

Prime costs, which include cost of sales (food) and labor, were $49.3million in fiscal year 2005 compared to $59.7 million in fiscal year 2004, adecrease of $10.4 million.  Prime costswere 64.2 percent of net restaurant sales in fiscal year 2005 and 65.9 percentof net restaurant sales in fiscal year 2004. The decrease in prime cost percentageis primarily a result of lower food and labor percentages due to a menu priceincrease taken during fiscal year 2005 and tighter operating controls.

 

Otheroperating expenses were $19.7 million in fiscal year 2005 compared to $21.7million in fiscal year 2004, a decrease of $2.0 million or 9.2 percentprimarily due to having a lower number of Company-owned restaurants throughoutfiscal year 2005 compared to fiscal year 2004. Fiscal year 2004 includes $2.4 million of business interruptioninsurance proceeds.  See Note 8 –Commitments and Contingencies, to the Consolidated Financial Statements.

 

Gain onsale-leaseback includes $1.6 million related to a sale-leaseback transaction oneight Sizzler properties that was completed during fiscal year 2005. The restaurantshave been and will continue to be operated as Sizzler restaurants by theCompany (See Note 14 – Deferred Gains, Rent and Landlord Incentives, to theConsolidated Financial Statements).  Inaddition, during fiscal year 2005, the Company sold the land and buildings fortwo Sizzler properties and recorded a gain of $1.7 million.

 

During fiscal year 2005, the Company recorded a $0.3 million assetimpairment charge that relates to the write-down of two New York arearestaurants compared to a write-down of $1.3 million during fiscal year2004.  See Note 19 – Asset ImpairmentCharges, to the Consolidated Financial Statements.

 

Management is continuing to implement its plan to enhance the Sizzler®concept as an affordable, quick-casual dining concept offering a selection ofgrilled steak, chicken, seafood, pastas, sandwiches and specialty “Sizzling”platters as well as a salad bar with a selection of fresh fruit, soups andappetizers served in a casual dining environment at prices that are a goodvalue.  As part of the enhancement, theCompany is continuing to test and implement various menu initiatives thatinclude new grilled entrées and side-dishes and re-designed menu boards to beaccompanied by new marketing programs. The Company is nearing completion of aremodel program that includes an exterior upgrade featuring a stone portico,awnings and additional lighting. The new interior remodel features a softeryellow and golden wood-tone finishes, contemporary lighting and more open floorplan, cook line and order area. During the current fiscal year, the Companyevaluated the remodel program and determined a minimum of five key brandingelements are needed. The Company completed 18 remodels in fiscal year2005.  As of fiscal year end

 

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2005, seven Company-operated locations were left to be remodeled. Ofthose, six locations will be closed or sold to third parties or franchisees in2006.

 

**Pat & Oscar’s Operations**

 

Total revenues for fiscal year 2005 were $49.9 million compared to$48.7 million in the prior year, an increase of $1.2 million or 2.4 percent.The increase in revenues is due to a higher number of restaurants operating onaverage during the year and increased same store sales of 1.0 percent evidencingcontinued recovery from an E.coli incident that occurred in the last week ofthe second quarter of fiscal year 2004 (see Notes 8 – Commitments andContingencies and 17 – E.coli Incident, to the Consolidated FinancialStatements.)  The number of restaurantswas 21 at the end of fiscal year 2005 compared to 22 at the end of fiscal year2004.  During fiscal year 2005, theCompany opened one new restaurant in Southern California and closed twounprofitable restaurants in San Diego, California.  The Company has several initiatives underwaythat are designed to increase brand awareness of the Pat & Oscar’s®concept in new markets and grow customer counts in existing markets. Theinitiatives include print media and e-mail campaigns that offer coupons anddiscounts, local marketing programs and a catering sales force.

 

Prime costs, which include cost of sales (food and paper) and labor,were $31.2 million compared to $30.5 million in the prior year, an increase of$0.7 million.  Prime costs remainedunchanged at 62.6 percent of sales during fiscal year 2005 and in the sameperiod of the prior year.  Food costs asa percentage of sales were higher due to commodity price increases.  Labor costs as a percentage of sales werelower due to higher productivity, resulting from higher sales but werepartially offset by higher workers’ compensation and health insurance costs.

 

Other operating expenses amounted to $15.4 million compared to $16.0million in the prior year, a decrease of $0.6 million or 3.9 percent primarilydue to higher marketing expenses in fiscal year 2004 associated with televisionadvertising and fewer new restaurant openings in the current fiscal year.

 

Gain on legal settlement relates to $1.6 million received in connectionwith an insurance settlement agreement arising out of the E.coli incidentduring the second fiscal quarter of 2004. See Note 17 – E.coli Incident, to theConsolidated Financial Statements.

 

During fiscal year 2005, the Company recorded a $21.9 million goodwillimpairment cost related to the write-off of all of the goodwill associated withthe purchase of Pat & Oscar’s. See Note 3 – Goodwill and OtherIntangibles, to the Consolidated Financial Statements.

 

The Company also recorded a $2.8 million asset impairment chargerelated to the write-down of three Pat & Oscar’s restaurants comparedto a write-down of $0.5 million of one restaurant during fiscal year 2004.  All three restaurants are located in the LosAngeles market and management attributes the write-downs to unfavorable sitecharacteristics that delayed the sales growth of these locations. See Note 19 –Asset Impairment Charges, to the Consolidated Financial Statements.

 

**International Sizzler Operations**

 

Revenues from Company-operated international Sizzler®restaurants were $58.0 million in fiscal year 2005 compared to $54.0 million infiscal year 2004, an increase of $4.0 million or 7.5 percent.  On a comparative basis, Sizzler®restaurants that have been open for more than 15 months experienced a 7.7percent increase in average sales per restaurant.  This increase in same store sales was due toincreased customer counts associated with successful marketing promotions and ahigher average guest check due in part to a price increase.  This revenue increase also includes $2.9million related to an increase in the Australian dollar exchange rate.  There were 29 Company-operated Sizzler®restaurants on April 30, 2005 and on April 30, 2004.  During fiscal year 2005, the Company openedone restaurant and closed one restaurant. International franchise revenues were$1.8 million in fiscal year 2005 compared to $1.6 million in fiscal year 2004,an increase of $0.2 million or 11.6 percent primarily due to increased exchangerates and to having more franchise locations. As of April 30, 2005 and April 30, 2004, there were 43franchised restaurants and two joint venture restaurants in six countries, and37 franchise restaurants and two joint venture restaurants in five countries,respectively.  During fiscal year 2005,the Company opened six franchise locations including the Company’s firstfranchised restaurants in China located in Beijing.

 

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Prime costs were $38.5 million in fiscal year 2005 compared to $35.6million in fiscal year 2004, an increase of $2.9 million.  Prime costs, which include cost of sales(food ) and labor, increased to 66.4 percent of sales compared to 66.0 percentin the prior year.  The prime cost as apercent of sales increased due to higher labor cost associated with higher hourlywages and additional statutory holidays. The increase was partially offset bylower food cost percentage resulting from menu price increases implementedsince the beginning of fiscal year 2005 that passed certain wage and commodityprice increases on to customers.

 

Other operating expenses amounted to $13.0 million in fiscal year 2005compared to $12.6 million in fiscal year 2004, an increase of $0.4 million or2.9 percent.  The increase was primarilydue to a higher average Australian dollar exchange rate in fiscal year 2005 andto costs necessary to support the increased sales levels.

 

Management is continuing its plan to reposition the Sizzler®concept in Australia by implementing the upgraded food quality and cookingmethods consistent with those implemented in the Company’s domesticoperations.  The Company is presentlyrolling out an interior remodel that provides a softer, warmer grill conceptfeel.  During fiscal year 2005, theCompany completed one relocation and seven remodels.

 

**KFC Operations**

 

Revenues fromthe Company’s KFC® restaurants were $160.7 million in fiscal year2005 compared to $145.0 million in fiscal year 2004, an increase of $15.7million or 10.8 percent.  This increasewas primarily driven by higher restaurant same store sales and $7.9 millionrelated to the increase in the Australian dollar exchange rate.  On a comparative basis, KFC®restaurants that have been open for more than 15 months experienced a 6.7percent increase in average sales per restaurant driven by successful marketingprograms featuring various snacks combined with family value offerings. Theincrease is also attributed to an increase in the average guest check due to amenu price increase and customer trade-ups to larger value meals that carry ahigher price. There were 112 KFCârestaurants on April 30, 2005 and April 30, 2004.

 

Primecosts were $93.2 million in fiscal year 2005 compared to $84.9 million infiscal year 2004, an increase of $8.3 million. Prime costs, which include cost of sales (food and paper) and labor,decreased to 58.0 percent of sales compared to 58.6 percent in the prior year.The prime cost percent of sales decreased due to lower food costs as a percentof sales resulting from menu price increases and promotional sales mix. Laborcosts as a percent of sales were also lower due to increased productivityresulting from higher sales and guest counts.

 

Other operating expenses amounted to $35.9 million in fiscal year 2005compared to $33.0 million in fiscal year 2004, an increase of $2.9 million or8.7 percent.  The increase was primarilydue to a higher average Australian dollar exchange rate in fiscal year 2005 andcosts necessary to support the increased sales levels.

 

Management is continuing its facilities upgrade program based onpositive results achieved to-date. During fiscal year 2005 the Company completed seven remodels andrelocated one shopping mall foodcourt restaurant.

 

**RESULTS OF OPERATIONS FOR THE FIFTY-THREE WEEKS ENDED APRIL 30,2004 VS. FIFTY-TWO WEEKS ENDED APRIL 30, 2003**

 

Consolidatedrevenues were $347.2 million in fiscal year 2004 compared to $293.5 million infiscal year 2003, an increase of $53.7 million or 18.3 percent.  The increase is due to a $56.3 millionincrease in revenue from the international division partially offset bydeclines of approximately $2.6 million from the domestic division. Theinternational division increase was primarily due to a 24.3 percent increase inthe average Australian dollar exchange rate that represents approximately $39.2million in revenues, along with the same store sales increases from KFC andSizzler International divisions and the addition of one new KFC®restaurant.  The impact on consolidatedrevenue for fiscal year 2004 of the additional week of operations wasapproximately $6.8 million. These increases were partially offset by a decreasein domestic

 

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revenues.  Sizzler U.S. revenues were lower due tohaving seven fewer Company-owned restaurants open (of which five were convertedto franchise operations) and to a decline in same store sales atCompany-operated restaurants.  There wasone additional Pat & Oscar’s® restaurant opened compared tothe prior year, but the revenue increase was partially offset by significantdeclines in the same store sales following the E.coli incident and related newsstories (see Notes 8 – Commitments and Contingencies and 17 – E.coli Incident,to the Consolidated Financial Statements.)

 

Consolidatedoperating expenses were $335.8 million in fiscal year 2004 compared to $282.8million in fiscal year 2003, an increase of $53.0 million or 18.7 percent.  The increase is primarily due to a 24.3percent increase in the average Australian dollar exchange rate that represents$36.0 million in costs. The remaining increase is mostly due to having 33.4percent more weighted average operating weeks of Pat & Oscar’s® operations,one new KFC® restaurant and increased sales volumes from the Company’sinternational operations.

 

Interestexpense was $3.2 million in fiscal year 2004 compared to $2.5 million in fiscalyear 2003, an increase of $0.7 million or 27.9 percent primarily due to higherdebt balances and higher exchange rates. Interest expense is primarily related to the Company’s debt with WestpacBanking Corporation in Australia (“Westpac”) and financing from GECapital.  Investment income was $0.6million in fiscal year 2004 compared to $0.6 million in fiscal year 2003.

 

Minority interest expense (benefit)represents the portion of the Company’s net earnings or (losses) that areattributable to the collective ownership interests of the minority shareholdersof the Company’s subsidiary, Pat & Oscar’s.  Pat & Oscar’s has a partnershipequity plan under which it may enter into partnership agreements with its regionalmanagers or general managers.  As of April 30,2004, Pat & Oscar’s had entered into partnership agreements with threeregional managers covering 22 restaurants and one restaurant general manager.The minority interest benefit was $0.1 million in fiscal year 2004 due tolosses at the Pat & Oscar’s division subject to this plan. Thepartnership agreements were executed in the fourth quarter of fiscal year2003.  See Note 16 – Market and OperatingPartnerships, to the Consolidated Financial Statements.

 

The provision for income taxes was $5.3million in fiscal year 2004 compared to $2.0 million in fiscal year 2003 andthe effective income tax rate increased to 59.7 percent from 22.1 percent infiscal year 2003.  The increase isrelated to the increase in income from the Company’s international divisionwhich does not benefit from the domestic net operating loss carryforward aswell as domestic losses in fiscal year 2004 of approximately $7.0 million, forwhich no net income tax benefit was provided. In addition, during fiscal year 2004, the Company decreased itsvaluation allowance by $0.8 million such that its net domestic deferred incometax asset remained unchanged. See Note 4 – Income Taxes, to the ConsolidatedFinancial Statements.

 

**U.S.Sizzler Operations**

 

Total revenues for fiscal year 2004 were $97.8 million compared to$102.2 million in fiscal year 2003. Restaurant sales were $90.6 million compared to $95.6 million in fiscalyear 2003, a decrease of $5.0 million or 5.3 percent.  The decrease in restaurant sales is primarilydue to a reduction of Company-owned locations when compared to prior year. Inaddition, on a comparative basis, Sizzler® restaurants that havebeen open for more than 15 months experienced a 0.3 percent decrease in averagesales per restaurant.  There were 57Company-operated Sizzler® restaurants as of April 30, 2004 and64 as of April 30, 2003.  Duringfiscal year 2004, the Company opened one restaurant, closed three locations dueto unprofitable operations and converted five locations to franchises. Fromtime to time the Company may sell locations, open new locations or acquirelocations from its franchisees. See Note 20 - Restaurant Assets Held for Sale,to the Consolidated Financial Statements. Franchise revenues were $7.2 millionin fiscal year 2004 compared to $6.6 million in fiscal year 2003, an increaseof $0.6 million or 10.5 percent. Franchise revenues were higher due tofranchise fees received from franchise locations added in fiscal year 2004 andto higher franchise royalties due to having more franchises and a 3.0 percentincrease in franchise same store sales. As of April 30, 2004, there were185 Sizzler® franchise locations, including 15 in Latin America,compared to 180, including 13 in Latin America, as of April 30, 2003.  During fiscal year 2004,

 

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seven new franchise locations opened, five Company-owned locations wereconverted to franchises and seven were closed.

 

Prime costs, which include cost of sales (food) and labor, were $59.7million in fiscal year 2004 compared to $61.5 million in fiscal year 2003, adecrease of $1.8 million.  Prime costswere 65.9 percent of net restaurant sales in fiscal year 2004 and 64.4 percentof net restaurant sales in fiscal year 2003. The increase in prime cost percentage is a result of higher labor costsdue to higher hourly wages and higher health and workers’ compensationinsurance costs.  The increase in primecosts as a percentage of sales was partially offset by lower food costs due totighter controls and menu engineering.

 

Otheroperating expenses were $21.7 million in fiscal year 2004 compared to $23.9million in fiscal year 2003, a decrease of $2.2 million or 9.3 percentprimarily due to having a lower number of Company-owned restaurants throughoutfiscal year 2004 compared to fiscal year 2003. In fiscal year 2004, the Company recorded $2.4 million of businessinterruption insurance proceeds related to a Sizzler franchisee E.coli incidentin July 2000 compared to $0.7 million of business interruption insuranceproceeds related to the same E.coli incident in fiscal 2003. See Note 8 –Commitments and Contingencies, to the Consolidated Financial Statements.

 

TheCompany recorded asset impairment charges of $1.3 million relating to certainunderperforming restaurants in fiscal year 2004 compared to an asset impairmentcharge of $1.4 million in fiscal year 2003.

 

**Pat & Oscar’s Operations**

 

Total revenues for fiscal year 2004 were $48.7 million compared to$47.0 million in the prior year, an increase of $1.7 million or 3.7 percent.The increase in revenues is due to an increase in the number of restaurants to22 at the end of fiscal year 2004 compared to 21 in fiscal year 2003.  During fiscal year 2004, the Company openedtwo new restaurants in Southern California and closed one unprofitablerestaurant in Phoenix, Arizona.  Theincrease in revenues was partially offset by a 13.6 percent decrease in samestore sales primarily due to an E.coli incident (see Notes 8 – Commitments andContingencies and 17 – E.coli Incident, to the Consolidated FinancialStatements).  In addition, sales volumesfrom restaurants opened in new markets during the second half of fiscal year2003 are lower than those of more mature restaurants in Pat & Oscar’score San Diego market.

 

Prime costs, which include cost of sales (food and paper) and labor,were $30.5 million compared to $27.1 million in the prior year, an increase of$3.4 million.  Prime costs represented62.6 percent of sales, compared to 57.7 percent of sales in the same period ofthe prior year.  The increase in theprime cost percentage is due to higher food costs associated with free foodgiveaway promotions following the E.coli incident and to commodity priceincreases for ribs, chicken and cheese. Labor costs were also up due to the impact of fixed labor on a lowersales base following the E.coli incident, as well as on lower sales volumes atthe Company’s Los Angeles locations, and higher workers’ compensation andhealth insurance costs.

 

Other operating expenses amounted to $16.0 million compared to $13.3million in the prior year, an increase of $2.7 million or 20.5 percentprimarily due to new restaurant openings.

 

The Company recorded asset impairment charges of $0.5 million relatingto one restaurant location in fiscal year 2004 compared to an asset impairmentcharge of $0.1 million in fiscal year 2003.

 

**International Sizzler Operations**

 

Revenues from Company-operated international Sizzler®restaurants were $54.0 million in fiscal year 2004 compared to $40.1 million infiscal year 2003, an increase of $13.9 million or 34.5 percent.  On a comparative basis, Sizzler®restaurants that have been open for more than 15 months experienced a 6.7percent increase in average sales per restaurant.  This increase in same store sales was due toincreased customer counts associated with successful marketing promotions and ahigher average guest check due in part to a price increase.  This revenue increase also includes $10.9million related to the increase in the Australian dollar exchange rate.  There were 29 Company-operated Sizzler®restaurants on April 30, 2004 and on April 30, 2003.  International franchise revenues were $1.6million in both fiscal year 2004 and

 

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fiscal year 2003.  As of April 30,2004 and April 30, 2003, there were 37 international franchisedrestaurants and two joint venture restaurants in five countries, and 42international franchise restaurants and two joint venture restaurants in fivecountries, respectively.  During fiscalyear 2004, the Company opened two franchise locations and closed sevenfranchised restaurants.

 

Prime costs were $35.6 million in fiscal year 2004 compared to $26.5million in fiscal year 2003, an increase of $9.1 million.  Prime costs, which include cost of sales(food ) and labor, decreased to 66.0 percent of sales compared to 66.1 percentin the prior year.  The prime cost as apercent of sales decreased due to lower labor cost associated with increasedproductivity, resulting from higher sales and guest counts.  Prime costs as a percent of sales were alsolower due to menu price increases implemented since the beginning of the fiscalyear 2004 that passed on to customers wage and certain commodity price increases.These decreases were partially offset by higher food costs associated withhigher protein value meals and certain commodity price increases.

 

Other operating expenses amounted to $12.6 million in fiscal year 2004compared to $9.1 million in fiscal year 2003, an increase of $3.5 million or38.5 percent.  The increase was primarilydue to a higher average Australian dollar exchange rate in fiscal year 2004 andto costs necessary to support the increased sales levels.

 

The Company recorded asset impairment charges of $0.2 million in fiscalyear 2003.  No asset impairment chargeswere recorded in fiscal year 2004.

 

**KFC Operations**

 

Revenues fromthe Company’s KFC® restaurants were $145.0 million in fiscal year2004 compared to $102.5 million in fiscal year 2003, an increase of $42.5million or 41.4 percent.  This increasewas primarily driven by higher restaurant sales, one new location, onerelocated location and also included $28.4 million related to the increase inthe Australian dollar exchange rate.  Ona comparative basis, KFC® restaurants that have been open for morethan 15 months experienced a 9.7 percent increase in average sales perrestaurant driven by successful marketing programs featuring various snackscombined with family value offerings. The increase is also attributed to anincrease in the average guest check due to a menu price increase and customertrade-ups to large value meals. As of April 30, 2004 and April 30,2003, there were 112 and 110 KFCârestaurants, respectively.

 

Primecosts were $84.9 million in fiscal year 2004 compared to $60.8 million infiscal year 2003, an increase of $24.1 million. Prime costs, which include cost of sales (food and paper) and labor,decreased to 58.6 percent of sales compared to 59.3 percent in the prior year.The prime cost percent decreased due to lower labor costs as a percent ofsales, resulting from increased productivity, due to higher sales.  The decrease was partially offset byincreased food costs due to certain commodity price increases.

 

Other operating expenses amounted to $33.0 million in fiscal year 2004compared to $23.9 million in fiscal year 2003, an increase of $9.1 million or38.2 percent.  The increase was primarilydue to a higher average Australian dollar exchange rate in fiscal year 2004,costs associated with operating two additional restaurants and costs necessaryto support the increased sales levels.

 

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# **LIQUIDITY AND CAPITAL RESOURCES**

# ** **

**Working Capital**

 

The Company’s primary source of liquidity is cash flows fromoperations, which were $22.7 million in fiscal year 2005 compared to $12.4million in fiscal year 2004.  Theincrease is due to a net increase in cash provided by operating assets and liabilitiesof $8.8 million and by an increase in net income adjusted for depreciation andamortization expense, goodwill and asset impairments, and other non-cash itemsof $1.5 million. The increase in cash provided by operating assets andliabilities relates principally to increase in account payable and accruedliabilities.

 

The Company’s working capital at April 30, 2005 was $2.8 million,including cash, cash equivalents and restricted cash totaling $39.7 million ofwhich $9.3 million was held by the Company’s International division.  In addition, the Company self-insures asignificant portion of its workers’ compensation, general liability and healthinsurance plans.  The workers’compensation and general liability insurance policies require the Company toset aside cash reserves sufficient to fund existing and estimated futureclaims. As of April 30, 2005, the Company has letters of credit totaling$5.0 million for this purpose, which are supported by a corresponding amount ofrestricted cash.  At April 30, 2004,the Company had working capital of $1.1 million.  In addition, the Company has restricted cashrelated to employee benefits. The increase in working capital is primarily dueto cash provided by operations on sale-leasebacks of $17.5 million from certainproperties partially offset by funds expended for remodel programs and newrestaurants. The current ratio was approximately 1.0 at April 30, 2005 and1.0 at April 30, 2004.

 

Based on current operations and anticipated sales and franchise growth,management believes that cash flow from operations will be sufficient to meetall of the Company’s current debt service, capital expenditure requirements andworking capital needs for at least the next 12 months. Changes in operatingplans, changes in expansion plans, lower than anticipated sales, increasedexpenses, non-compliance with debt covenants, further economic deterioration orother events such as continued sales softness at Pat & Oscar’s fromthe E.coli incident may cause the Company to seek additional financing soonerthan anticipated.  Additional financingmay not be available on acceptable terms, or at all. Failure to obtainadditional financing as needed could have a material adverse effect on theCompany’s business and the results of operations.

 

**Capital Expenditures**

 

Capital expenditures were $14.8 million in fiscal year 2005 whichincluded $2.2 million used for development of new restaurants and $12.6 millionfor remodels and upgrades of existing restaurants and other improvements acrossall divisions.

 

On April 28, 2005, the Company announced that it had entered intoa definitive merger agreement with affiliates of an Australian private equityfirm, Pacific Equity Partners (“PEP”), pursuant to which PEP and its affiliatesagreed to acquire all of the outstanding capital stock of the Company. See Note2 – Merger Agreement, to the Consolidated Financial Statements. As part of themerger agreement, the Company has committed to limit capital expenditures to$0.5 million during the pendency of this transaction; therefore all plans toexpand the Company’s operations through additional investment are in abeyancepending the outcome of the transaction.

 

**Debt**

 

The Company has a credit facility (“Credit Facility”) with WestpacBanking Corporation in Australia (“Westpac”). The Credit Facility is subject to certain financial covenants andrestrictions such as interest coverage ratios, profitability ratios and otherswhich management believes are customary for a loan of this type.  The maximum principal commitment under theCredit Facility is $31.2 million ($40.0 million in Australian dollars) and wasdrawn down in full in fiscal year 2004. The debt is collateralized by the Company’s Australian subsidiaries’assets, undertakings, intellectual property, unlimited cross-guarantees

 

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and certain negative pledge agreements. The Credit Facility providesfor a five-year term expiring July 31, 2008 at an interest rate equal tothe Australia inter-bank borrowing bid rate (5.7 percent at April 30,2005), plus a 2.3 percent margin. At April 30, 2005 the Company’s unpaidprincipal balance on the Credit Facility was approximately $9.3 million ($12.0million in Australian dollars). The primary exposure relating to this financialinstrument results from changes in interest rates.

 

The Company had a $10.0 million, seven-year term loan expiring in 2008with GE Capital that was amortized based on 15 years, with fixed interest ratesranging from 8.7 to 9.7 percent. A portion of the Company’s real estate andpersonal property in the U.S. as well as a letter of credit in the amount of$0.7 million were collateral for the loan. The agreement was subject to certainfinancial covenants and restrictions such as a fixed charge coverage ratio,minimum earnings before interest, taxes, depreciation and amortization andothers which management believes are customary for loans of this type. Duringfiscal year 2005, utilizing the proceeds from sale-leaseback transactions (seeNote 14 - Deferred Gains, Rent andLandlord Incentives, to the Consolidated Financial Statements), theCompany repaid the entire outstanding loan balance.  Capital lease obligations and mortgageobligations were $5.2 million at April 30, 2005.

 

During fiscal year 2005, the Company also repaid a $0.1 million, variableinterest term loan with Bank of America.

 

The Company was in compliance with all debt covenants as of April 30,2005.

 

28

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# **Contractual Obligations**

 

The Company’s future contractual obligations at April 30, 2005consist of the following (in millions):

 
| ** **                     | ** ** | **Payments Due by Period** | ** ** |
|--------------------------------|------------|----------------------------|------------|
| **Contractual Obligations**    | ** ** | **Total**                  | ** ** | **Less  Than 1  Year** | ** ** | **1-3  Years** | ** ** | **3-5  Years** | ** ** | **More  Than 5  Years** | ** ** |
| Long-Term Debt                 |       | $                          | 10.3       |   | $ | 6.3 |   | $ | 3.2 |   | $ | 0.1 |   | $ | 0.7 |   |
| Interest on Long-Term Debt (a) |       | 4.6                        |       | 0.9 |   | 0.9 |   | 0.5 |   | 2.3 |   |
| Operating Leases               |       | 132.3                      |       | 22.8 |   | 39.0 |   | 29.8 |   | 40.7 |   |
| Capital Leases                 |       | 4.3                        |       | 0.8 |   | 1.5 |   | 0.5 |   | 1.5 |   |
| Pension Benefits               |       | 13.8                       |       | 1.3 |   | 2.6 |   | 2.5 |   | 7.4 |   |
| Total                          |       | $                          | 165.3      |   | $ | 32.1 |   | $ | 47.2 |   | $ | 33.4 |   | $ | 52.6 |   |

 

----

(a)          Amountspresented for interest payments assume that all long-term debt and capitallease obligations outstanding as of April 30, 2005 will remain outstandinguntil maturity and interest rates on variable-rate debt in effect as of April 30,2005 will remain in effect until maturity.

 

Based on current operations and anticipated sales growth, managementbelieves that cash flow from operations will be sufficient to meet all of theknown requirements.

 

**AustralianManagement Options**

 

Under the Company’s stock option plan for its Australian ManagementGroup (“AMG”), certain employees were granted options to purchase up to 4.1million shares, representing a diluted 19.4 percent interest, in Collins FoodsGroup (“CFG”), the Company’s Australian subsidiary managing the Sizzler®and KFC® restaurants in Australia. The exercise price of the options ranged from Australian $1.00 (U.S.$0.78 at April 30, 2005) to Australian $4.41 (U.S. $3.44 at April 30,2005), the estimated fair value of the shares on the grant dates.

 

In accordance with the Company’s stock option plan for AMG, at the endof the first quarter of fiscal year 2005, 4,064,000 options representing 19.0percent of common stock of CFG were exercised by the AMG.  An additional 23,000 options were exercisedduring the second quarter and the remaining 49,000 options expired during thesecond quarter.  During the third quarterof fiscal year 2005, the Company purchased 40,000 shares from certain AMGmembers. Net loss for fiscal year 2005 reflects minority interest of $2.6million, and in fiscal year 2006 net income from the Company’s CFG operationsis expected to be reduced to reflect a minority interest of approximately 18.9percent.

 

The AMG shareholder’s agreement includes a put option whereby the AMGmembers may sell their CFG shares back to the Company at fair market value on acumulative basis at the rate of 1/6th of the shares per yearcommencing August 20, 2003. The agreement further provides that the AMGmembers may sell or transfer their shares of CFG among themselves, subject to afirst right of refusal, held by WRC, to purchase 1/3rd of any suchshares traded. In addition, WRC will have the right to buy the AMG shares fromany terminated AMG member. In accordance with Emerging Issues Task Force (“EITF”)D-98, “Classification and Measurement of Redeemable Securities,” the Companyhas classified the CFG minority interest outside of stockholders’ equity at itsfair value as of the balance sheet date. The fair market value of CFG shares onApril 30, 2005 was estimated to be Australian $10.14 (U.S. $7.90 at April 30,2005). As of April 30, 2005, approximately $4.5 million was received bythe Company for exercised stock options. The difference between the fair valueof the minority interest over its carrying value of $25.0 million is reflectedas a reduction of additional paid-in capital.

 

29

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# **Consolidated Variable Interest Entities**

 

The Company consolidates the results of four domestic Sizzlercooperative advertising funds that are variable interest entities (“VIE’s”).  The cooperative advertising funds consist ofthe Sizzler National Advertising Fund and three local advertising cooperativefunds.  The advertising funds create andadminister the Company’s advertising programs for domestic Company-operated andfranchised restaurants. Each of the funds is a separate non-profit associationwith all the proceeds segregated and managed by a third-party bookkeepingcompany.  The group of funds has beenreported in the Company’s consolidated balance sheets as of April 30,2005, on a net basis, and is included within advertising restricted fund assetsand advertising fund liabilities within current assets and current liabilities,respectively.  The funds are reported asof the latest practicable date, which is April 30, 2005.   The advertising funds administer anddisburse funds for creative and marketing media for the domesticCompany-operated and franchised restaurants. (See Note 1 – Summary ofSignificant Accounting Policies, Variable Interest Entities, to ConsolidatedFinancial Statements.)  The VIE’s had noimpact on the Company’s Consolidated Statement of Operations.  There are no cooperative advertising fundsfor the Sizzler International division.

 

#### **New Accounting Standards**

 

In December 2004, the FinancialAccounting Standard Board (“FASB”) issued SFAS No. 123 (revised 2004), “Share-BasedPayment” (“SFAS 123R”), which replaces SFAS No. 123, “Accounting forStock-Based Compensation,” (“SFAS 123”) and supersedes APB Opinion No. 25,“Accounting for Stock Issued to Employees.”  SFAS 123R requires allshare-based payments to employees, including grants of employee stock options,to be recognized in the financial statements based on their fair value. The pro forma disclosures previously permitted under SFAS 123 will no longer bean alternative to financial statement recognition.  The Company isrequired to adopt SFAS 123R in the first quarter of fiscal 2007. UnderSFAS 123R, the Company must determine the appropriate fair value model tobe used for valuing share-based payments, the amortization method forcompensation cost and the transition method to be used at the date ofadoption.  The transition methods include prospective and retroactiveadoption options.  The prospective method requires that compensationexpense be recorded for all unvested stock options at the beginning of thefirst quarter of adoption of SFAS 123R, while the retroactive method wouldrestate prior periods to record compensation expense for all unvested stockoptions beginning with the first period restated.  The Company isevaluating the requirements of SFAS 123R and expects that the adoption of SFAS123R will have a material impact on the Company’s consolidated results ofoperations and earnings per share.  The Company has not yet determined themethod of adoption or the effect of adopting SFAS 123R.

 

In March 2005, the FASB issued FASBInterpretation No. 47, “Accounting for Conditional Asset RetirementObligations” (“FIN 47”). FIN 47 clarifies the term “conditional asset retirementobligation” as used in SFlAS No. 143, “Accounting for Asset RetirementObligations.” Conditional asset retirement obligation refers to a legalobligation to perform an asset retirement activity in which the timing and/ormethod of settlement are conditional on a future event that may or may not bewithin the control of the entity. The obligation to perform the assetretirement activity is unconditional even though uncertainty exists about thetiming and/or method of settlement. FIN 47 also clarifies when an entity wouldhave sufficient information to reasonably estimate the fair value of an assetretirement obligation. FIN 47 is effective no later than the end of fiscalyears ending after December 15, 2005. The Company does not expect that theadoption of FIN 47 will have a material impact on its financial position,results of operations or cash flows.

 

In May 2005, the FASB issued SFAS No. 154,“Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20and FASB Statement No. 3” (“SFAS 154”). This Statement replaces APBOpinion No. 20, “Accounting Changes,” and FASB Statement No. 3, “ReportingAccounting Changes in Interim Financial Statements,” and changes therequirements for the accounting for and reporting of a change in accountingprinciple. This Statement applies to all voluntary changes in accountingprinciple. It also applies to changes required by an accounting pronouncementin the unusual instance that the pronouncement does not include specifictransition provisions. When a pronouncement includes specific

 

30

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transition provisions, those provisionsshould be followed. SFAS 154 is effective for accounting changes andcorrections of errors made in fiscal years beginning after December 15,2005. Consequently, the Company will adopt the provisions of SFAS 154 for thefiscal year beginning May 1, 2006. Management currently believes thatadoption of the provisions of SFAS No. 154 will not have a material impacton its financial position, results of operations or cash flows.

 

**Forward-LookingStatements**

 

With the exception of any historical information contained in thisreport, the matters described herein contain forward-looking statements thatare made pursuant to the “safe harbor” provisions of the Private SecuritiesLitigation Reform Act of 1995, as amended. These statements may include but are not limited to statementsregarding: (1) expected future revenues and earnings; (2) any futureexpected change in currency exchange rates; (3) the Company’s expectation that it will have adequate cash fromoperations to meet all future debt service, capital expenditure and workingcapital requirements in fiscal year 2006; (4) the consummation of theproposed merger with affiliates of PEP; (5) the sufficiency of the supplyof commodities and labor pool to carry on the Company’s business; and (6) theabsence of any material adverse impact arising out of any current litigation inwhich the Company is involved.

 

The Company cautions that these statements are qualified by importantfactors that could cause actual results to differ materially from thosereflected in the forward looking statements contained herein.  Such factors include, but are not limited to:(1) the Company’s ability to achieve future revenues and earnings andovercome any significant impact from increased food, labor and utility costs inthe U.S. and Australia; (2) the possible negative impact of fluctuationsin the foreign currency exchange rate between the Australian dollar and theU.S. dollar; (3) the continued ability of the Company’s operations togenerate the necessary cash to invest in its U.S. and international businesses;(4) the Company’s ability to generate sufficient cash to meet its futuredebt service, working capital and capital expenditure requirements;  (5) the absence of shortages in criticalsupplies necessary for the Company to continue its business operations; (6) thecontinuing availability to the Company of sufficient insurance coverage toresolve the remaining Sizzler® E.coli case; and (7) such risks as may bedetailed from time to time in the Company’s reports filed with the SEC,including Quarterly Reports on Form 10-Q and 10-Q/A, Current Reports on Form 8-K,and Annual Reports on Form 10-K and 10-K/A.

 

31

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**Item 7A – *Quantitative andQualitative Disclosures about Market Risk***

 

TheCompany is exposed to the following market risks: interest rate risk, foreigncurrency exchange rate risk, and commodity price risk.

 

**Interest Rate Risk**

 

The Company has a credit facility (“Credit Facility”) with WestpacBanking Corporation in Australia (“Westpac”). The Credit Facility is subject to certain financial covenants andrestrictions such as interest coverage ratios, profitability ratios and otherswhich management believes are customary for a loan of this type.  The maximum principal commitment under theCredit Facility is $31.2 million ($40.0 million in Australian dollars) and wasdrawn down in full in fiscal year 2004. The debt is collateralized by the Company’s Australian subsidiaries’assets, undertakings, intellectual property, unlimited cross-guarantees andcertain negative pledge agreements. The Credit Facility provides for afive-year term expiring July 31, 2008 at an interest rate equal to theAustralia inter-bank borrowing bid rate (5.7 percent at April 30, 2005),plus a 2.3 percent margin. At April 30, 2005 the Company’s unpaidprincipal balance on the Credit Facility was approximately $9.3 million ($12.0million in Australian dollars). The primary exposure relating to this financialinstrument results from changes in interest rates.

 

To hedge theCompany’s exposure to interest rate increases on this loan, the Company isparty to an interest rate cap contract that prevents the Company’s interestrate (excluding margin) from exceeding 5.7 percent, in which case the Companywould receive the difference between the contract rate and the actual interestrate.  At April 30, 2005, thenotional amount of the interest rate cap is approximately $2.3 million ($3.0million in Australian dollars), which covered approximately 25.0 percent of theloan principal outstanding and expires on January 1, 2006.  At April 30, 2005, the fair value of theinterest rate cap contract is zero.

 

In addition,the Company is party to an interest rate swap contract to convert part of itsvariable interest exposure to a fixed rate of 5.7 percent (excludingmargin).  At April 30, 2005, thenotional amount of the interest rate swap contract is approximately $2.3million ($3.0 million in Australian dollars), which covered approximately 25.0percent of the loan principal outstanding and expires on January 1,2006.  At April 30, 2005, the fairvalue of the interest rate swap contract is zero.

 

The Company calculated that a hypothetical 10.0 percent change in theinterest rates, as defined above, in the near-term would change interestexpense by less than $0.1 million for a one-year period.

 

The carrying amount, principal maturity and estimated fair value oflong-term debt exposure as of April 30, 2005 are as follows (inthousands):

 
| ** **                                                                                                                                                     | ** ** | **Carrying  Amount** | ** ** | **Estimated  Fair  Value** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------|------------|----------------------------|------------|
| Non-collateralized borrowings, at fixed  interest rates (10.0% at April 30, 2005), due through 2012                                                       |       | $                    | 427        |                       | $          | 516 |   |
| Mortgage notes payable, with a fixed  interest rate of 10.0% collateralized by land and building with an original cost  of approximately $600 due through 2039 |       | 551                  |       | 808                        |       |
| Westpac note, with a variable interest rate  (8.0% at April 30, 2005) payable in Australian dollars due through 2008                                      |       | 9,342                |       | 9,342                      |       |
| Capital lease obligations (interest rates  range from $7.5% to 12.4%)                                                                                          |       | 4,253                |       | 4,253                      |       |
|                                                                                                                                                           |       | $                    | 14,573     |                       | $          | 14,919 |   |

 

32

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The carrying amount, principal maturity and estimated fair value oflong-term debt exposure as of April 30, 2004 are as follows (inthousands):

 
| ** **                                                                                                                                                     | ** ** | **Carrying  Amount** | ** ** | **Estimated  Fair  Value** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------|------------|----------------------------|------------|
| Non-collateralized borrowings, at fixed and  variable interest rates (8.8% at April 30, 2004), due through 2012                                           |       | $                    | 620        |                       | $          | 730 |   |
| GE Capital collateralized borrowings, with  fixed interest rates ranging from 8.7% to 9.7% due through 2008                                                    |       | 8,989                |       | 9,192                      |       |
| Mortgage notes payable, with a fixed  interest rate of 10.0% collateralized by land and building with an original cost  of approximately $600 due through 2039 |       | 553                  |       | 804                        |       |
| Westpac note, with a variable interest rate  (7.8% at April 30, 2004) payable in Australian dollars due through 2008                                      |       | 23,840               |       | 23,840                     |       |
| Capital lease obligations (interest rates  ranging from 8.5% to 12.4%)                                                                                         |       | 3,963                |       | 3,963                      |       |
|                                                                                                                                                           |       | $                    | 37,965     |                       | $          | 38,529 |   |

 

#### **Foreign Currency Exchange Rate Risk**

 

The Company’s foreign currency exchange riskprimarily relates to its investment in its Australian operations wherebychanges in the exchange rate impact the Company’s net investment. The Companyhas mitigated the risk with a bank loan payable in Australian dollars, whichreduces the Company’s exposure by decreasing its net investment.  As of April 30, 2005, the Company’s netequity in its Australian subsidiaries was $17.7 million.

 

The Company calculated that a hypothetical 10.0 percent change in theAustralian exchange rate in the near-term would result in approximately a $1.8million change in the net equity in the Australian subsidiaries.  The Company calculated that a hypothetical10.0 percent change in the Australian exchange rate in the near-term wouldresult in approximately a $1.3 million change in the net income.

 

## **Commodity Price Risk**

 

The Company’s commodity price risk isattributable to fluctuations in the price of selected food products such asmeat, poultry and produce used in the normal course of business. The Companycontracts for certain amounts of these food products in the future at apredetermined or fixed price. The Company has no purchase agreements longerthan one year. The Company does not purchase futures contracts for tradingpurposes.  The Company is unable topredict the possible impact of changes in commodity prices.  However, in the past the Company has beenable to address these changes by passing these costs along to its customersbecause these changes have generally impacted all restaurant companies.

 

33

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**Item 8 – *Financial Statements andSupplementary Data***

 

**INDEX TO FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA**

** **
| **Selected Quarterly Financial Data (Unaudited)**                                                            |       |
|--------------------------------------------------------------------------------------------------------------|------------|
|                                                                                                         |       |
| **Report Of Independent Registered Public  Accounting Firm**                                            |       |
|                                                                                                         |       |
| **Consolidated Financial Statements:**                                                                       |       |
|                                                                                                         |       |
| Consolidated Balance Sheets as of April 30, 2005 and  April 30, 2004                               |       |
|                                                                                                         |       |
| Consolidated Statements of Operations   for the Years Ended April 30, 2005, 2004 and 2003               |       |
|                                                                                                         |       |
| Consolidated Statements of Stockholders’ Equity  for the Years Ended April 30, 2005, 2004 and 2003 |       |
|                                                                                                         |       |
| Consolidated Statements of Cash Flows for the Years Ended  April 30, 2005, 2004 and 2003                |       |
|                                                                                                         |       |
| Notes to Consolidated Financial Statements                                                                   |       |
|                                                                                                         |       |
| **Schedule II – Valuation and Qualifying  Accounts**                                               | ** ** |

 

F-1

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**SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)**

 

(In thousands of dollars, except per share data)

 

The following tables show comparative quarterly financial resultsduring the past two fiscal years. The first, second and fourth fiscal quartersnormally include 12 weeks of operations whereas the third fiscal quarterincludes 16 weeks of operations.  Fiscalyear 2004 was a fifty-three week year, therefore, the fourth fiscal quarterincludes thirteen weeks of operations.

 
| ** **                                                               | ** ** | **First**   | ** ** | **Second**  | ** ** | **Third**   | ** ** | **Fourth**  | ** ** |
|--------------------------------------------------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------|------------|
| **Fiscal Year 2005**                                                     | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** |
| **Weeks**                                                                | ** ** | **12**      | ** ** | **12**      | ** ** | **16**      | ** ** | **12**      | ** ** |
| Restaurant sales, net                                                    |       | $           | 79,874     |        | $          | 77,119      |       | $           | 107,518    |   | $ | 80,864 |   |
| Franchise revenues                                                       |       | 2,078       |       | 2,297       |       | 2,813       |       | 2,281       |       |
| Total revenues                                                           |       | 81,952      |       | 79,416      |       | 110,331     |       | 83,145      |       |
|                                                                     |       |        |       |        |       |        |       |        |       |
| Cost of sales (excluding Depreciation and  amortization reflected below) |       | 27,618      |       | 26,100      |       | 37,146      |       | 27,786      |       |
| Labor and related costs                                                  |       | 21,596      |       | 21,022      |       | 28,732      |       | 22,253      |       |
| Other operating expenses                                                 |       | 20,153      |       | 18,779      |       | 26,128      |       | 18,020      |       |
| Depreciation and amortization                                            |       | 2,805       |       | 2,864       |       | 3,843       |       | 2,937       |       |
| General and administrative expenses                                      |       | 7,077       |       | 6,906       |       | 9,546       |       | 11,038      |       |
| Gains on property sales, sale-leasebacks  and legal settlements          |       | —      |       | —      |       | (3,161      | )          | (1,758      | )          |
| Asset impairments                                                        |       | —      |       | 296         |       | 2,771       |       | —      |       |
| Goodwill impairment                                                      |       | —      |       | —      |       | 21,924      |       | —      |       |
|                                                                     |       |        |       |        |       |        |       |        |       |
| Operating income (loss)                                                  |       | $           | 2,703      |        | $          | 3,449       |       | (16,598     | )          | $ | 2,869 |   |
|                                                                     |       |        |       |        |       |        |       |        |       |
| Net income (loss)                                                        |       | $           | 489        |        | $          | 856         |       | $           | (22,648    | ) | $ | (27 | ) |
|                                                                     |       |        |       |        |       |        |       |        |       |
| Basic earnings (loss) per share                                          |       | $           | 0.02       |        | $          | 0.03        |       | $           | (0.82      | ) | $ | — |   |
| Diluted earnings (loss) per share                                        |       | $           | 0.02       |        | $          | 0.03        |       | $           | (0.82      | ) | $ | — |   |

 
| ** **                                                               | ** ** | **First**   | ** ** | **Second**  | ** ** | **Third**   | ** ** | **Fourth**  | ** ** |
|--------------------------------------------------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------|------------|
| **Fiscal Year 2004**                                                     | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** |
| **Weeks**                                                                | ** ** | **12**      | ** ** | **12**      | ** ** | **16**      | ** ** | **13**      | ** ** |
| Restaurant sales, net                                                    |       | $           | 75,767     |        | $          | 74,304      |       | $           | 102,591    |   | $ | 85,646 |   |
| Franchise revenues                                                       |       | 2,053       |       | 2,038       |       | 2,570       |       | 2,185       |       |
| Total revenues                                                           |       | 77,820      |       | 76,342      |       | 105,161     |       | 87,831      |       |
|                                                                     |       |        |       |        |       |        |       |        |       |
| Cost of sales (excluding Depreciation and  amortization reflected below) |       | 25,555      |       | 25,524      |       | 36,083      |       | 29,410      |       |
| Labor and related costs                                                  |       | 20,498      |       | 20,605      |       | 28,420      |       | 24,591      |       |
| Other operating expenses                                                 |       | 18,730      |       | 18,896      |       | 26,779      |       | 19,907      |       |
| Depreciation and amortization                                            |       | 2,665       |       | 2,769       |       | 3,533       |       | 2,869       |       |
| General and administrative expenses                                      |       | 5,408       |       | 6,763       |       | 8,678       |       | 8,081       |       |
| Operating income                                                         |       | $           | 4,964      |        | $          | 1,785       |       | $           | 1,668      |   | 2,973 |   |
|                                                                     |       |        |       |        |       |        |       |        |       |
| Net income (loss)                                                        |       | $           | 3,440      |        | $          | 276         |       | $           | (812       | ) | $ | 661 |   |
|                                                                     |       |        |       |        |       |        |       |        |       |
| Basic earnings (loss) per share                                          |       | $           | 0.13       |        | $          | 0.01        |       | $           | (0.03      | ) | $ | 0.02 |   |
| Diluted earnings (loss) per share                                        |       | $           | 0.11       |        | $          | —      |       | $           | (0.05      | ) | $ | 0.01 |   |

 

F-2

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders ofWorldwide Restaurant Concepts, Inc.**Sherman Oaks, California

 

We have audited the accompanying consolidatedbalance sheets of Worldwide RestaurantConcepts, Inc. and subsidiaries (the “Company”) as of April 30,2005 and 2004, and the related consolidated statements of operations,stockholders’ equity, and cash flows for each of the three years in the periodended April 30, 2005.  Our audits also included the financialstatement schedules listed in the Index at Item 8.  These financialstatements and financial statement schedules are the responsibility of theCompany’s management.  Our responsibility is to express an opinion on thefinancial statements and financial statement schedules based on our audits.

 

We conducted our audits in accordance withthe standards of the Public Company Accounting Oversight Board (UnitedStates).  Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free ofmaterial misstatement.  An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financialstatements.  An audit also includes assessing the accounting principlesused and significant estimates made by management, as well as evaluating theoverall financial statement presentation.  We believe that our auditsprovide a reasonable basis for our opinion.

 

In our opinion, such consolidated financialstatements present fairly, in all material respects, the financial position ofWorldwide Restaurant Concepts, Inc. and subsidiaries as of April 30,2005 and 2004, and the results of their operations and their cash flows foreach of the three years in the period ended April 30, 2005, in conformitywith accounting principles generally accepted in the United States ofAmerica.  Also, in our opinion, such financial statement schedules, whenconsidered in relation to the basic consolidated financial statements taken asa whole, present fairly, in all material respects, the information set forththerein.

 

We have also audited, in accordance with thestandards of the Public Company Accounting Oversight Board (United States), theeffectiveness of the Company’s internal control over financial reporting as of April 30,2005, based on the criteria established in *InternalControl—Integrated Framework* issued by the Committee of SponsoringOrganizations of the Treadway Commission and our report dated August 3,2005 expressed an unqualified opinion on management’s assessment of theeffectiveness of the Company’s internal control over financial reporting and anadverse opinion on the effectiveness of the Company’s internal control overfinancial reporting because of material weaknesses.

 

As discussed in Note 2 to the consolidated financialstatements, the Company has entered into a definitive merger agreement withPacific Equity Partners to acquire all of the outstanding capital stock of theCompany.

 
| /s/ DELOITTE & TOUCHE LLP |   |
|------------------------------------|--------|
| Los Angeles, California            |
| August 3, 2005                |

 

F-3

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**WORLDWIDE RESTAURANT CONCEPTS, INC. ANDSUBSIDIARIES**

**Consolidated Balance Sheets**

(In thousands)

 
| **As of April 30,**                                                                                             | ** ** | **2005** | ** ** | **2004** | ** ** |
|----------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| **ASSETS**                                                                                                           |       |     |       |     |       |
| **Current assets**                                                                                                   |       |     |       |     |       |
| Cash and cash equivalents                                                                                            |       | $        | 34,379     |     | $          | 24,755 |   |
| Restricted cash                                                                                                      |       | 5,330    |       | 5,131    |       |
| Receivables, net of an allowance of $437 in  2005 and $641 in 2004                                                   |       | 2,760    |       | 2,042    |       |
| Inventories                                                                                                          |       | 5,670    |       | 4,807    |       |
| Deferred income taxes                                                                                                |       | 5,485    |       | 3,169    |       |
| Prepaid expenses and other current assets                                                                            |       | 4,371    |       | 2,718    |       |
| Assets related to restaurants held for sale                                                                          |       | 2,232    |       | 5,417    |       |
| Total current assets                                                                                                 |       | 60,227   |       | 48,039   |       |
|                                                                                                                 |       |     |       |     |       |
| **Property and equipment, at cost**                                                                                  |       |     |       |     |       |
| Land                                                                                                                 |       | 2,547    |       | 6,864    |       |
| Buildings and leasehold improvements                                                                                 |       | 91,286   |       | 92,810   |       |
| Equipment                                                                                                            |       | 79,062   |       | 76,128   |       |
| Construction in progress                                                                                             |       | 2,597    |       | 1,350    |       |
|                                                                                                                 |       | 175,492  |       | 177,152  |       |
| Less accumulated depreciation and  amortization                                                                      |       | (106,763 | )          | (101,681 | )          |
| Total property and equipment, net                                                                                    |       | 68,729   |       | 75,471   |       |
|                                                                                                                 |       |     |       |     |       |
| **Long-term notes receivables including $160  and $200 of related party receivables in 2005 and 2004, respectively** |       | 1,460    |       | 912      |       |
|                                                                                                                 |       |     |       |     |       |
| **Deferred income taxes**                                                                                            |       | 7,192    |       | 10,757   |       |
|                                                                                                                 |       |     |       |     |       |
| **Goodwill**                                                                                                         |       | 1,723    |       | 23,647   |       |
|                                                                                                                 |       |     |       |     |       |
| **Intangible assets, net of accumulated  amortization of $1,322 in 2005 and $1,068 in 2004**                         |       | 2,278    |       | 2,090    |       |
|                                                                                                                 |       |     |       |     |       |
| **Other assets**                                                                                                     |       | 925      |       | 1,127    |       |
| Total assets                                                                                                         |       | $        | 142,534    |     | $          | 162,043 |   |

 

The accompanying notes are an integral partof these consolidated financial statements.

 

F-4

----

 

**WORLDWIDE RESTAURANT CONCEPTS, INC. ANDSUBSIDIARIES**

**Consolidated Balance Sheets**

(In thousands, except par value)

 
| **As of April 30,**                                                                                                                                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                             |       |     |       |     |       |
| **Current liabilities**                                                                                                                                                   |       |     |       |     |       |
| Current portion of long-term debt                                                                                                                                         |       | $        | 7,077      |     | $          | 7,156 |   |
| Accounts payable                                                                                                                                                          |       | 16,426   |       | 12,396   |       |
| Other current liabilities                                                                                                                                                 |       | 29,630   |       | 23,334   |       |
| Income taxes payable                                                                                                                                                      |       | 4,327    |       | 4,056    |       |
|                                                                                                                                                                      |       |     |       |     |       |
| Total current liabilities                                                                                                                                                 |       | 57,460   |       | 46,942   |       |
|                                                                                                                                                                      |       |     |       |     |       |
| **Long-term debt, net of current portion**                                                                                                                                |       | 7,496    |       | 30,809   |       |
|                                                                                                                                                                      |       |     |       |     |       |
| **Deferred gains, rent and landlord  incentives**                                                                                                                         |       | 18,917   |       | 11,894   |       |
|                                                                                                                                                                      |       |     |       |     |       |
| **Pension liability**                                                                                                                                                     |       | 13,817   |       | 14,031   |       |
|                                                                                                                                                                      |       |     |       |     |       |
| **Minority interest**                                                                                                                                                     |       | 32,028   |       | 14       |       |
| ** **                                                                                                                                                                |       |     |       |     |       |
| **Commitments and contingencies**                                                                                                                                         |       |     |       |     |       |
|                                                                                                                                                                      |       |     |       |     |       |
| **Stockholders’ equity**                                                                                                                                             |       |     |       |     |       |
| Preferred stock, authorized 1,000 shares, $5  par value; no shares issued and outstanding                                                                                 |       | —   |       | —   |       |
| Common stock, authorized 50,000 shares,  $.01 par value; issued and outstanding of 29,880 and 27,880 and 29,438 and  27,438 at April 30, 2005 and 2004, respectively |       | 299      |       | 294      |       |
| Additional paid-in capital                                                                                                                                                |       | 256,066  |       | 280,442  |       |
| Accumulated deficit                                                                                                                                                       |       | (226,036 | )          | (204,706 | )          |
| Treasury stock, at cost, 2,000 shares, at  April 30, 2005 and 2004                                                                                                   |       | (4,135   | )          | (4,135   | )          |
| Accumulated other comprehensive loss                                                                                                                                      |       | (13,378  | )          | (13,542  | )          |
| Total stockholders’ equity                                                                                                                                           |       | 12,816   |       | 58,353   |       |
|                                                                                                                                                                      |       |     |       |     |       |
| Total liabilities and stockholders’ equity                                                                                                                           |       | $        | 142,534    |     | $          | 162,043 |   |

 

The accompanying notes are an integral partof these consolidated financial statements.

 

F-5

----

 

**WORLDWIDE RESTAURANT CONCEPTS, INC. ANDSUBSIDIARIES**

**Consolidated Statements of Operations**

(In thousands, except per share data)

 
| **For the Years Ended  April 30,**                                 | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|-------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| **Revenues**                                                            |       |     |       |     |       |     |       |
| Restaurant sales, net                                                   |       | $        | 345,375    |     | $          | 338,308  |       | $ | 285,305 |   |
| Franchise revenues                                                      |       | 9,469    |       | 8,846    |       | 8,223    |       |
|                                                                    |       |     |       |     |       |     |       |
| Total revenues                                                          |       | 354,844  |       | 347,154  |       | 293,528  |       |
|                                                                    |       |     |       |     |       |     |       |
| **Costs, Expenses and Other**                                           |       |     |       |     |       |     |       |
| Cost of sales (excluding depreciation and  amortization reflected below |       | 118,650  |       | 116,572  |       | 96,083   |       |
| Labor and related costs                                                 |       | 93,603   |       | 94,114   |       | 79,825   |       |
| Other operating expenses                                                |       | 83,080   |       | 82,548   |       | 69,660   |       |
| Depreciation and amortization                                           |       | 12,449   |       | 11,836   |       | 10,439   |       |
| General and administrative expenses                                     |       | 34,567   |       | 28,930   |       | 25,145   |       |
| Gains on property sales, sale-leasebacks  and legal settlements         |       | (4,919   | )          | —   |       | —   |       |
| Asset impairments                                                       |       | 3,067    |       | 1,764    |       | 1,661    |       |
| Goodwill impairment                                                     |       | 21,924   |       | —   |       | —   |       |
|                                                                    |       |     |       |     |       |     |       |
| Total operating costs, expenses and other                               |       | 362,421  |       | 335,764  |       | 282,813  |       |
|                                                                    |       |     |       |     |       |     |       |
| Operating income (loss)                                                 |       | (7,577   | )          | 11,390   |       | 10,715   |       |
| Interest expense                                                        |       | 2,702    |       | 3,215    |       | 2,515    |       |
| Investment income, net                                                  |       | 658      |       | 551      |       | 630      |       |
| **Income (loss) before income taxes and  minority interest**            |       | (9,621   | )          | 8,726    |       | 8,830    |       |
| ** **                                                              |       |     |       |     |       |     |       |
| **Provision for income taxes**                                          |       | 9,030    |       | 5,255    |       | 1,953    |       |
| ** **                                                              |       |     |       |     |       |     |       |
| **Minority interest expense (benefit)**                                 |       | 2,679    |       | (94      | )          | (31      | )          |
| ** **                                                              |       |     |       |     |       |     |       |
| **Net income (loss)**                                                   |       | $        | (21,330    | )        | $          | 3,565    |       | $ | 6,908 |   |
| ** **                                                              |       |     |       |     |       |     |       |
| Basic earnings (loss) per share                                         |       | $        | (0.77      | )        | $          | 0.13     |       | $ | 0.25 |   |
|                                                                    |       |     |       |     |       |     |       |
| Diluted earnings (loss) per share                                       |       | $        | (0.77      | )        | $          | 0.07     |       | $ | 0.24 |   |
|                                                                    |       |     |       |     |       |     |       |
| Weighted average common shares outstanding:                             |       |     |       |     |       |     |       |
|                                                                    |       |     |       |     |       |     |       |
| Basic                                                                   |       | 27,621   |       | 27,371   |       | 27,232   |       |
| Diluted                                                                 |       | 27,621   |       | 28,382   |       | 27,870   |       |
|                                                                         |            |          |            |          |            |          |            |  |  |  |  |  |

 

The accompanying notes are an integral partof these consolidated financial statements.

 

F-6

----

 

**WORLDWIDERESTAURANT CONCEPTS, INC. AND SUBSIDIARIES**

**Consolidated Statements of Stockholders’Equity**

(In thousands)

 
| ** **                                  | ** ** | ** **      | ** ** | ** ** | ** ** | ** **     | ** ** | ** **      | ** ** | ** **   | ** ** | **Accumulated**   | ** ** | ** **             | ** ** |
|---------------------------------------------|------------|-----------------|------------|------------|------------|----------------|------------|-----------------|------------|--------------|------------|-------------------|------------|------------------------|------------|
| ** **                                  | ** ** | **Common**      | ** ** | ** ** | ** ** | **Additional** | ** ** | ** **      | ** ** | ** **   | ** ** | **Other**         | ** ** | **Total**              | ** ** |
| ** **                                  | ** ** | **Shares**      | ** ** | **Common** | ** ** | **Paid-In**    | ** ** | **Accumulated** | ** ** | **Treasury** | ** ** | **Comprehensive** | ** ** | **Stockholders’** | ** ** |
| ** **                                  | ** ** | **Outstanding** | ** ** | **Stock**  | ** ** | **Capital**    | ** ** | **Deficit**     | ** ** | **Stock**    | ** ** | **Loss**          | ** ** | **Equity**             | ** ** |
| **Balance at April 30, 2002**          |       | 27,205          |       | $          | 292        |           | $          | 279,904         |       | $            | (215,179   | )                 | $          | (4,135                 | )          | $ | (8,294 | ) | $ | 52,588 |   |
| Comprehensive income:                       |       |            |       |       |       |           |       |            |       |         |       |              |       |                   |       |
| Net income                                  |       |            |       |       |       |           |       | 6,908           |       |         |       |              |       | 6,908                  |       |
| Foreign currency adjustment                 |       |            |       |       |       |           |       |            |       |         |       | (252              | )          | (252                   | )          |
| Minimum pension liability                   |       |            |       |       |       |           |       |            |       |         |       | (2,039            | )          | (2,039                 | )          |
| Unrealized gain on derivative instruments   |       |            |       |       |       |           |       |            |       |         |       | 83                |       | 83                     |       |
| Comprehensive income (loss)                 |       |            |       |       |       |           |       | 6,908           |       |         |       | (2,208            | )          | 4,700                  |       |
| Exercise of stock options, net              |       | 27              |       |       |       | 97             |       |            |       |         |       |              |       | 97                     |       |
| **Balance at April 30, 2003**          |       | 27,232          |       | 292        |       | 280,001        |       | (208,271        | )          | (4,135       | )          | (10,502           | )          | 57,385                 |       |
| Comprehensive income:                       |       |            |       |       |       |           |       |            |       |         |       |              |       |                   |       |
| Net income                                  |       |            |       |       |       |           |       | 3,565           |       |         |       |              |       | 3,565                  |       |
| Foreign currency adjustment                 |       |            |       |       |       |           |       |            |       |         |       | (1,941            | )          | (1,941                 | )          |
| Minimum pension liability                   |       |            |       |       |       |           |       |            |       |         |       | (1,132            | )          | (1,132                 | )          |
| Unrealized gain on derivative instruments   |       |            |       |       |       |           |       |            |       |         |       | 33                |       | 33                     |       |
| Comprehensive income (loss)                 |       |            |       |       |       |           |       | 3,565           |       |         |       | (3,040            | )          | 525                    |       |
| Exercise of stock options, net              |       | 206             |       | 2          |       | 441            |       |            |       |         |       |              |       | 443                    |       |
| **Balance at April 30, 2004**          |       | 27,438          |       | 294        |       | 280,442        |       | (204,706        | )          | (4,135       | )          | (13,542           | )          | 58,353                 |       |
| Comprehensive income:                       |       |            |       |       |       |           |       |            |       |         |       |              |       |                   |       |
| Net loss                                    |       |            |       |       |       |           |       | (21,330         | )          |         |       |              |       | (21,330                | )          |
| Foreign currency adjustment                 |       |            |       |       |       |           |       |            |       |         |       | 328               |       | 328                    |       |
| Minimum pension liability                   |       |            |       |       |       |           |       |            |       |         |       | (170              | )          | (170                   | )          |
| Unrealized gain on derivative instruments   |       |            |       |       |       |           |       |            |       |         |       | 6                 |       | 6                      |       |
| Comprehensive income (loss)                 |       |            |       |       |       |           |       | (21,330         | )          |         |       | 164               |       | (21,166                | )          |
| Revaluation of minority interest            |       |            |       |       |       | (25,017        | )          |            |       |         |       |              |       | (25,017                | )          |
| Exercise of stock options and warrants, net |       | 442             |       | 5          |       | 641            |       |            |       |         |       |              |       | 646                    |       |
| **Balance at April 30, 2005**          |       | 27,880          |       | $          | 299        |           | $          | 256,066         |       | $            | (226,036   | )                 | $          | (4,135                 | )          | $ | (13,378 | ) | $ | 12,816 |   |

 

The accompanying notes are an integral partof these consolidated financial statements.

 

F-7

----

 

**WORLDWIDE RESTAURANT CONCEPTS, INC. ANDSUBSIDIARIES**

**Consolidated Statements of Cash Flows**

(In thousands)

 
| **For the Years Ended  April 30,**                                                   | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|-------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| **CASH FLOWS FROM OPERATING ACTIVITIES**                                                  |       |     |       |     |       |     |       |
| Net income (loss)                                                                         |       | $        | (21,330    | )        | $          | 3,565    |       | $ | 6,908 |   |
| Adjustments to reconcile net income (loss)  to net cash provided by operating activities: |       |     |       |     |       |     |       |
| Depreciation and amortization                                                             |       | 12,449   |       | 11,836   |       | 10,439   |       |
| Deferred income taxes                                                                     |       | 1,921    |       | (1,516   | )          | (2,895   | )          |
| Allowance for bad debts                                                                   |       | 140      |       | 235      |       | 16       |       |
| (Gain) loss on sale of assets                                                             |       | (3,749   | )          | 303      |       | (282     | )          |
| Asset write downs                                                                         |       | 3,620    |       | 2,216    |       | 2,026    |       |
| Amortization of deferred revenue                                                          |       | (748     | )          | (1,247   | )          | (1,216   | )          |
| Foreign currency gain                                                                     |       | —   |       | —   |       | (922     | )          |
| Minority interest expense (benefit)                                                       |       | 2,679    |       | (94      | )          | (31      | )          |
| Goodwill impairment                                                                       |       | 21,924   |       | —   |       | —   |       |
| Other                                                                                     |       | 22       |       | 78       |       | (31      | )          |
| Changes in operating assets and  liabilities:                                             |       |     |       |     |       |     |       |
| Receivables                                                                               |       | (1,673   | )          | 686      |       | (285     | )          |
| Inventories                                                                               |       | 68       |       | (202     | )          | (122     | )          |
| Prepaid expenses and other current assets                                                 |       | (218     | )          | (665     | )          | (527     | )          |
| Accounts payable                                                                          |       | 3,286    |       | (3,425   | )          | 3,321    |       |
| Accrued liabilities                                                                       |       | 4,335    |       | 151      |       | 4,734    |       |
| Income taxes payable                                                                      |       | 9        |       | 500      |       | 301      |       |
| Net cash provided by operating activities                                                 |       | 22,735   |       | 12,421   |       | 21,434   |       |
| **CASH FLOWS FROM INVESTING ACTIVITIES**                                                  |       |     |       |     |       |     |       |
| Additions to property and equipment                                                       |       | (14,802  | )          | (17,296  | )          | (16,456  | )          |
| Proceeds from sale of assets                                                              |       | 4,751    |       | 775      |       | 2,025    |       |
| Proceeds from sale-leaseback financing                                                    |       | 17,467   |       | —   |       | —   |       |
| (Increase) decrease in restricted cash                                                    |       | (199     | )          | (3,081   | )          | 46       |       |
| Acquisition of minority interest in  subsidiary                                           |       | —   |       | (2,464   | )          | (1,041   | )          |
| Increase upon consolidation of variable  interest entity                                  |       | (310     | )          | —   |       | —   |       |
| Other, net                                                                                |       | 67       |       | 159      |       | (65      | )          |
| Net cash provided by (used in) investing  activities                                      |       | 6,974    |       | (21,907  | )          | (15,491  | )          |
| **CASH FLOWS FROM FINANCING ACTIVITIES**                                                  |       |     |       |     |       |     |       |
| Long-term borrowings                                                                      |       | —   |       | 15,860   |       | —   |       |
| Repayment of long-term debt                                                               |       | (25,729  | )          | (8,464   | )          | (7,558   | )          |
| Sale of subsidiary equity                                                                 |       | 4,461    |       | 50       |       | 145      |       |
| Distributions to minority shareholders and  partners                                      |       | (193     | )          | (56      | )          | —   |       |
| Other, net                                                                                |       | 646      |       | 443      |       | 105      |       |
| Net cash provided by (used in) financing  activities                                      |       | (20,815  | )          | 7,833    |       | (7,308   | )          |
| Effect of exchange rate changes on cash and  cash equivalents                             |       | 730      |       | 105      |       | 1,725    |       |
| Net increase (decrease) in cash and cash  equivalents                                     |       | 9,624    |       | (1,548   | )          | 360      |       |
| Cash and cash equivalents at beginning of  year                                           |       | 24,755   |       | 26,303   |       | 25,943   |       |
| Cash and cash equivalents at end of year                                                  |       | $        | 34,379     |     | $          | 24,755   |       | $ | 26,303 |   |
| ** **                                                                                |       |     |       |     |       |     |       |
| **Supplemental Cash Flow Disclosures**                                                    |       |     |       |     |       |     |       |
| Cash paid during the year for:                                                            |       |     |       |     |       |     |       |
| Interest                                                                                  |       | $        | 2,414      |     | $          | 3,220    |       | $ | 2,429 |   |
| Income taxes                                                                              |       | 6,746    |       | 5,178    |       | 4,954    |       |
|                                                                                      |       |     |       |     |       |     |       |
| **Non-Cash  Investing and Financing Transactions**                                        |       |     |       |     |       |     |       |
| Minimum pension liability adjustment, net                                                 |       | $        | 170        |     | $          | 1,132    |       | $ | 2,039 |   |
| Net increase in value of interest rate  cap/swap derivatives                              |       | 6        |       | 33       |       | 83       |       |
| Pat & Oscar’s Earn-Out                                                      |       | —   |       | —   |       | 1,038    |       |
| Pat & Oscar’s Call Option                                                   |       | —   |       | —   |       | 1,416    |       |
| Capital leases                                                                            |       | 1,235    |       | 2,909    |       | 1,804    |       |
| Revaluation of minority interest                                                          |       | (25,017  | )          | —   |       | —   |       |

 

The accompanying notes are an integral partof these consolidated financial statements.

 

F-8

----

 

**WORLDWIDERESTAURANT CONCEPTS, INC. AND SUBSIDIARIES**

**Notes to Consolidated Financial Statements**

 

**Note 1 – Summary of Significant AccountingPolicies**

 

**Line ofBusiness**: Worldwide Restaurant Concepts, Inc. andsubsidiaries (“WRC” or the “Company”) is principally engaged in the operation,development and franchising of the Sizzler® concept, the operationand development of the Pat & Oscar’s® concept, and theoperation of KFC® franchises.

 

**Principles of Consolidation**: The consolidatedfinancial statements include the accounts of Worldwide Restaurants Concepts, Inc.and all wholly-owned and majority-owned subsidiaries.  Intercompany accounts and transactions havebeen eliminated.  The Company utilizesvarious advertising funds to administer its advertising programs.  Under Financial Interpretation No. 46R “Consolidationof Variable Interest Entities,” the Company consolidated all of the U.S.Sizzler local advertising cooperative funds (“ad funds”).

 

**Accounting Period**:The Company uses a fifty-two, fifty-three week fiscal year ending on the Sundaynearest to April 30.  Fiscal years2005 and 2003 were fifty-two week years ended on May 1, 2005 and April 27,2003, respectively.  Fiscal year 2004 wasa fifty-three week year ended on May 2, 2004.  For clarity of presentation, the Company hasdescribed all years presented as if ended on April 30.

 

**Use of Estimates in Preparation of FinancialStatements**: The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesof America requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period.  Actual results could differ from thoseestimates.

 

**Revenue Recognition**:The Company recognizes revenue for the sale of food products at the time theyare sold net of any customer discounts. The Company recognizes franchise revenue as follows:  The initial franchise fee is recognized asincome when the franchised restaurant commences operation, at which time theCompany has fulfilled its obligations relating to such fees, which includeassistance with planning and construction of the restaurant and initialmanagement training.  Royalties that arebased upon a percentage of sales are recognized as income when earned inaccordance with Statement of Financial Accounting Standards (“SFAS”) No. 45,  “Accounting for Franchise Fee Revenue”. On alimited basis, franchisees enter into leases of restaurant properties leased orowned by the Company. Lease revenue is recognized in the period in which it isearned.  Royalty revenues and franchisefees are included in “Franchise Revenues” in the consolidated statements ofoperations.

 

**Marketing Costs**:Marketing costs are expensed as incurred and reported in Other OperatingExpenses and include costs of advertising and marketing. Company-operatedSizzler restaurants and most Sizzler franchise restaurants in the U.S.contribute 0.5 percent of sales to a national advertising co-op and from 3.0 to5.0 percent of sales to certain regional advertising co-ops.  Company-operated KFC restaurants contribute5.0 percent of sales to an Australian national advertising co-op.  In the U.S., the national advertising co-opprovides for brand research, production and design and the regional co-opsprovide local media and advertising.  InAustralia, the national advertising co-op provides brand research, productionand design as well as local media. Marketing costs were $17.4 million, $17.4 million and $14.5 million forthe years ended April 30, 2005, 2004, and 2003, respectively**.**

 

**Stock-Based Compensation**: The Company uses theintrinsic value method of accounting for stock options granted to employees asprescribed by Accounting Principles Board Opinion No. 25 (“APB 25”), “Accountingfor Stock Issued to Employees,” and accordingly does not recognize compensationexpense if the exercise price of the Company’s stock options is equal to orgreater than the market price of the underlying stock on the date of thegrant.  Had the Company applied fairvalue recognition provisions of Statement of Financial Accounting Standards (“SFAS”)No. 123 (“SFAS 123”), “Accounting for Stock-Based Compensation,” pro formanet income and pro forma earnings per share would have been as follows (inthousands, except per share data):

 

F-9

----

 
| ** **                                                                                                                                        | ** ** | **For the years ended April 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                                                                                        | ** ** | **2005**                               | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                                                                                                              |       |                                   |       |   |   |   |   |
| Net Income (loss):                                                                                                                                |       | $                                      | (21,330    | ) | $ | 3,565 |   | $ | 6,908 |   |
| Add: Total stock-based employee  compensation expense included in reported earnings, net of related tax  effects                                  |       | 90                                     |       | 112 |   | 399 |   |
| Deduct: Total stock-based employee  compensation expense determined under the fair value based method for all  awards, net of related tax effects |       | (748                                   | )          | (1,047 | ) | (889 | ) |
| Pro forma basic net income (loss)                                                                                                                 |       | $                                      | (21,988    | ) | $ | 2,630 |   | $ | 6,418 |   |
| Deduct: Income attributed to AMG options  dilution (see Note 15)                                                                                  |       | —                                 |       | (1,494 | ) | (184 | ) |
| Pro forma diluted net income (loss)                                                                                                               |       | $                                      | (21,988    | ) | $ | 1,136 |   | $ | 6,234 |   |
|                                                                                                                                              |       |                                   |       |   |   |   |   |
| Earnings (loss) per share:                                                                                                                        |       |                                   |       |   |   |   |   |
| Basic, as reported                                                                                                                                |       | $                                      | (0.77      | ) | $ | 0.13 |   | $ | 0.25 |   |
| Basic, pro forma                                                                                                                                  |       | $                                      | (0.80      | ) | $ | 0.10 |   | $ | 0.24 |   |
| Diluted, as reported                                                                                                                              |       | $                                      | (0.77      | ) | $ | 0.07 |   | $ | 0.24 |   |
| Diluted, pro forma                                                                                                                                |       | $                                      | (0.80      | ) | $ | 0.04 |   | $ | 0.22 |   |

 

**Earnings per Share**:Basic earnings per share is computed as net income divided by the weightedaverage number of common shares outstanding for the period.  Diluted earnings per share include the effectof options, warrants and AMG options of CFG (see Note 15 ) using the treasurystock method when dilutive.

 

**Cash and Cash Equivalents**:At April 30, 2005 and 2004, cash and cash equivalents consists of cash andshort-term investments, carried at cost, with maturities of less than threemonths at the date of acquisition.

 

**Fair Value of Financial Instruments**:Carrying amounts of certain of the Company’s financial instruments, includingcash, cash equivalents, receivables, accrued liabilities and payablesapproximate fair value because of their short maturities. At April 30,2005,  the carrying value of long-termdebt was $14.6 million and the fair value was approximately $14.9 million thusthe Company’s variable rate debt approximates fair value meaning that similarterms could currently be obtained. At April 30, 2004,  the carrying value of long-term debt was$38.0 million and the fair value was approximately $38.5 million.

 

**Restricted Cash**: Asof April 30, 2005 and 2004, the Company had restricted cash balancesrelated to employee benefits and restricted cash collateral for letter ofcredit with an insurance company.

 

**Allowances for Doubtful Accounts**:  The Company maintains allowances for doubtfulaccounts for estimated losses resulting from the potential inability of theCompany’s franchisees and others to make required payments for franchiseroyalties, rents and notes receivable and catering and delivery services.  In assessing the collectibility of thesereceivables, the Company makes assumptions regarding the financial condition ofits franchisees and customers based primarily on past payment trends andperiodic financial information which the franchisees and customers are requiredto submit.  If the financial condition ofits franchisees or customers were to deteriorate and result in their inabilityto make payments, the Company may be required to increase its allowance fordoubtful accounts by recording additional bad debt expense.

 

**Inventories**:Inventories are valued at the lower of cost (first-in, first-out method) ormarket, and primarily consist of food products and restaurant supplies.

 

**Property and Equipment**:Property and equipment are stated at cost. The Company reviews its long-lived assets for impairment whenever eventsor changes in circumstances indicate that the carrying amount of an asset orgroup of assets may not be recoverable. The Company considers a history of operating losses and insufficientfuture revenue potential to be its primary indicator of potential impairment.  Assets are grouped and evaluated forimpairment at the lowest level for which there are identifiable cash flowsindependent of the cash flows of other groups of assets.  The Company deems an asset to be

 

F-10

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impaired if a forecast of undiscounted projected future operating cashflows directly related to the asset, including disposal value, if any, is lessthan its carrying amount.  If an asset isdetermined to be impaired, the loss is measured as the amount by which thecarrying amount of the asset exceeds fair value.  In the absence of an active market, theCompany generally measures fair value by discounting projected future cashflows.

 

**Depreciation and Amortization**:Depreciation of property and equipment, which includes assets under capitalleases at capitalized value, and amortization are expensed over the estimateduseful lives of the assets using the straight-line method. Leaseholdimprovements are amortized over the shorter of their estimated useful lives orthe remaining related lease life, including options for domestic operationswhere exercise of the option is reasonably assured and/or if failure toexercise a renewal option imposes an economic penalty. Leasehold improvementsfor the Company’s international operations are generally amortized over theinitial base term of the lease, which is usually eight to 12 years and does notinclude option renewals.  Leaseholdimprovements for the Company’s domestic operations are amortized over a periodthat may include options, generally 10 to 30 years.  Equipment is depreciated over three to eightyears. The costs of repairs and maintenance are expensed when incurred, whileexpenditures for refurbishments and improvements that significantly add to theproductive capacity or extend the useful life on an asset are capitalized. Whenassets are retired or sold, the asset cost and related accumulated depreciationare eliminated with any remaining gain or loss reflected in net income.

 

**Goodwill and Other Intangible Assets**:  In accordance with Statement of FinancialAccounting Standards (“SFAS”) No. 142, “Goodwill and Other IntangibleAssets,” intangible assets with finite useful lives are amortized; estimateduseful lives range from 10 to 40 years. Goodwill and other intangible assets with indefinite lives are notamortized but are tested for impairment annually or more frequently if eventsor changes in circumstances indicate that an asset might be impaired.  SFAS No. 142 requires a two-step processfor testing goodwill impairment.  First,the fair value of each reporting unit is compared to its carrying value todetermine whether an indication of impairment exists.  If impairment is indicated, then the fairvalue of the reporting unit’s goodwill is determined by allocating the unit’sfair value to its assets and liabilities (including any unrecognized intangibleassets) as if the reporting unit had been acquired in a businesscombination.  The amount of impairmentfor goodwill and other intangible assets is measured as the excess of itscarrying value over its fair value.  TheCompany has established its reporting units based on its current reportingstructure and all recognized assets, liabilities and goodwill have been assignedto these reporting units. The Company evaluates its intangible assets forimpairment by comparing their carrying value to their fair value with a lossrecognized for the amount the carrying value exceeds the fair value.Considerable management judgment is necessary to estimate fair value.  Accordingly, actual results could vary fromsuch estimates.  During fiscal year 2005,the Company recorded a $21.9 million goodwill impairment charge related to thewrite-off of all of the goodwill associated with the purchase of Pat &Oscar’s. See Note 3 – Goodwill and Other Intangibles, to the ConsolidatedFinancial Statements.

 

**Cash Surrender Value**:The Company has several life insurance policies covering certain formeremployees with an aggregate cash surrender value of $39.5 million as of April 30,2005.  The Company has borrowings againstthe cash surrender value totaling $39.2 million as of April 30, 2005.  The net amount is recorded in other assets onthe consolidated balance sheets. However, the Company allowed the policies to lapse in July 2005 andthe cash surrender value was applied to the remaining balances owed at July 2005ending the Company’s obligations under the policies.

 

**L****eases:**TheCompany leases the majority of its facilities under operating leaseagreements. The Company accounts for its leases under the provisions ofSFAS No. 13 “Accounting for Leases” and subsequent amendments whichrequire that the leases be evaluated and classified as operating or capitalleases for financial reporting purposes. The term of the lease used for this evaluationincludes renewal option periods only in instances in which the exercise of therenewal option can be reasonably assured and failure to exercise such optionwould result in an economic penalty.

 

For leasesthat contain scheduled rent escalations, the Company records the total rentpayable during the lease term, as discussed above, on a straight-line basisover the term of the lease (including a “rent holiday” period, if any,beginning upon possession of the premises), and records the difference betweenthe minimum rents paid and the straight-line rent as a component of deferredgains, rent and landlord incentives as part of consolidated balance sheets.Certain leases contain a significant leverage factor in the form of rentescalation that is a multiple of the Consumer Price Index.  Such leases are accounted for on astraight-line basis using assumptions as to the rent escalation amounts. Forbuilding leases, straight-line rent incurred during rent holidays is reflectedas part of rent expense in pre-opening expenses.  In

 

F-11

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instancesinvolving land leases, in which the Company is responsible for the constructionof the restaurant, it is the Company’s policy to reflect such straight-linerent incurred during the build-out period as a cost of constructing the relatedrestaurant facility.  Rent from the datethe restaurant is complete through the restaurant opening date is included aspart of rent expense.

 

Certain leases provide for contingent rents, which are determined as apercentage of gross sales in excess of specified levels.  The Company records a contingent rentliability in accrued expenses on the consolidated balance sheets and thecorresponding rent expense when specified levels have been achieved or whenmanagement determines that achieving the specified levels during the fiscalyear is probable.  Landlord contributionsfor leasehold improvements are included in deferred gains and revenues (SeeNote 14 – Deferred Gains, Rent andLandlord Incentives, to Consolidated Financial Statements) and areamortized as a reduction of rent expense ratably over the lease term asdetermined above.

 

**Sale-Leaseback Transactions:** In accordance with SFAS No. 98, “Accountingfor Leases,” the Company uses sales-leaseback accounting to record the sale ofcertain property.  Gains associated with such sales are generally deferredand amortized in proportion to the amortization of the leased asset, if acapital lease, or in proportion to the related gross rental charged to expenseover the lease term, if an operating lease. See Note 14 – Deferred Gains, Rent and Landlord Incentives,to Consolidated Financial Statements.

 

**Foreign Currency Translation:**  The functional currency for foreignsubsidiaries is generally the local currency. Assets and liabilities of such foreign subsidiaries are translated intoU.S. dollars at exchange rates in effect at the end of the accounting period.Revenue and expenses are translated at weighted average exchange rates duringthe period. Resulting translation adjustments are recorded as a component ofaccumulated other comprehensive loss in the consolidated balance sheets. Inaddition, the Company has certain inter-company receivables and payablesbetween the U.S. and its foreign subsidiaries that are expected to be settledon a known future date.  These balancesare translated at exchange rates in effect at the end of the accounting periodand the resulting gains or losses are recorded as a component of general andadministrative expenses. The functional currency used in the Company’s foreignoperations is primarily the Australian dollar. Foreign translation losses were less than $0.1 million in fiscal year2005. The Company recognized $0.8 and $0.9 million of foreign currencytranslation gains during the fiscal years 2004 and 2003, respectively.

 

**Income Taxes:** Deferred income taxes are recognized for the tax consequences oftemporary differences by applying enacted statutory tax rates applicable tofuture years for the differences between the financial statement carryingamounts and the income tax basis of existing assets and liabilities. The effecton deferred income taxes of a change in tax rates is recognized in income inthe period of enactment.

 

The Company provides a valuation allowancefor deferred income tax assets when it believes it is more likely than not thata portion of such deferred income tax assets will not be realized.

 

**Derivative Financial Instruments:**The Company’s interest rate risk is managedwith the selective use of derivatives that mitigates or eliminates certainfinancial and market risks. To qualify for hedge accounting, the details of thehedging relationship must be formally documented at the inception of thearrangement, including the risk management objective, hedging strategy, hedgeditem, specific risks that are being hedged, the derivative instrument and howeffectiveness is being assessed.  Thederivative must be highly effective in offsetting changes in fair value or cashflows, as appropriate, for the risk being hedged.  Effectiveness is evaluated on a retrospectiveand prospective basis.  If a hedgerelationship becomes ineffective, it no longer qualifies as a hedge.  Any excess gains or losses attributable toany ineffectiveness are recognized in earnings.

 

At April 30, 2005, the Company was party to an interest rate swapagreement and an interest rate cap agreement in connection with its borrowingsfrom Westpac (see Note 6 – Debt, to the Consolidated FinancialStatements).  The Company has designatedthese derivatives as cash flow hedges and recorded the fair value in theconsolidated financial statements. All of the change in value of thederivatives is recorded in other comprehensive income, as no ineffectivenessexists. The fair value of the derivatives will be reduced to zero uponexpiration of the contracts in January 2006.  At April 30, 2005, the amount of othercomprehensive income attributed to the Company’s derivative financialinstruments was zero therefore there would be no related impact to earningsduring the next 12 months related to the existing gain or loss.  (See Note 21 - Accumulated Other Comprehensive Loss, to the Consolidated FinancialStatements.)

 

F-12

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**Variable interest entities:**The Company utilizes various advertising funds to administer its advertisingprograms.  The cooperative advertisingfunds consist of the domestic Sizzler national advertising fund and three adfunds.  The ad funds create andadminister advertising programs for domestic Company-operated and franchiserestaurants. Each of the ad funds is a separate non-profit association with allthe proceeds segregated and managed by a third-party bookkeeping company.  Under Financial Interpretation No. 46R “Consolidationof Variable Interest Entities,” the Company consolidated all of the Sizzler adfunds.  Consolidation of the ad funds hadno impact on the Company’s consolidated statement of operations.

 

Advertising fund assets and liabilities of $1.3 million are included inthe accompanying consolidated balance sheets as of April 30, 2005.

 

**New Accounting Standards:** In December 2004,the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123(revised 2004), “Share-Based Payment” (“SFAS 123R”), which replaces SFAS No. 123,“Accounting for Stock-Based Compensation,” (“SFAS 123”) and supersedes APBOpinion No. 25, “Accounting for Stock Issued to Employees.”  SFAS123R requires all share-based payments to employees, including grants ofemployee stock options, to be recognized in the financial statements based ontheir fair value.  The pro forma disclosures previously permitted underSFAS 123 will no longer be an alternative to financial statementrecognition.  The Company is required to adopt SFAS 123R in the firstquarter of fiscal 2007. Under SFAS 123R, the Company must determine theappropriate fair value model to be used for valuing share-based payments, theamortization method for compensation cost and the transition method to be usedat the date of adoption.  The transition methods include prospective andretroactive adoption options.  The prospective method requires thatcompensation expense be recorded for all unvested stock options at thebeginning of the first quarter of adoption of SFAS 123R, while the retroactivemethod would restate prior periods to record compensation expense for allunvested stock options beginning with the first period restated.  TheCompany is evaluating the requirements of SFAS 123R and expects that theadoption of SFAS 123R will have a material impact on the Company’s consolidatedresults of operations and earnings per share.  The Company has not yetdetermined the method of adoption or the effect of adopting SFAS 123R.

 

In March 2005, the FASB issued FASBInterpretation No. 47, “Accounting for Conditional Asset RetirementObligations” (“FIN 47”). FIN 47 clarifies the term “conditional assetretirement obligation” as used in SFAS No. 143, “Accounting for AssetRetirement Obligations.” Conditional asset retirement obligation refers to alegal obligation to perform an asset retirement activity in which the timingand/or method of settlement are conditional on a future event that may or maynot be within the control of the entity. The obligation to perform the assetretirement activity is unconditional even though uncertainty exists about thetiming and/or method of settlement. FIN 47 also clarifies when an entity wouldhave sufficient information to reasonably estimate the fair value of an assetretirement obligation. FIN 47 is effective no later than the end of fiscalyears ending after December 15, 2005. The Company does not expect that theadoption of FIN 47 will have a material impact on its financial position,results of operations or cash flows.

 

In May 2005, the FASB issued SFAS No. 154,“Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20and FASB Statement No. 3” (“SFAS 154”). This Statement replaces APBOpinion No. 20, “Accounting Changes,” and FASB Statement No. 3, “ReportingAccounting Changes in Interim Financial Statements,” and changes therequirements for the accounting for and reporting of a change in accountingprinciple. This Statement applies to all voluntary changes in accountingprinciple. It also applies to changes required by an accounting pronouncement inthe unusual instance that the pronouncement does not include specifictransition provisions. When a pronouncement includes specific transitionprovisions, those provisions should be followed. SFAS 154 is effective foraccounting changes and corrections of errors made in fiscal years beginningafter December 15, 2005. Consequently, the Company will adopt theprovisions of SFAS 154 for the fiscal year beginning May 1, 2006.Management currently believes that adoption of the provisions of SFAS No. 154will not have a material impact on its financial position, results ofoperations or cash flows.

 

**Reclassifications**: Certainreclassifications were made to the prior year financial statements to conformto current year presentation.

 

F-13

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**Note 2 – Merger Agreement**

 

On April 28,2005, the Company announced that it had entered into a definitive mergeragreement with affiliates of an Australian private equity firm, Pacific EquityPartners (“PEP”), pursuant to which the affiliates of PEP agreed to acquire alloutstanding capital stock of Worldwide Restaurant Concepts, Inc.  The actual per share merger considerationwill be determined by the merger agreement formula using the U.S. dollar toAustralian dollar exchange rate one business day before the closing date of themerger. The terms of the merger agreement provide that the per shareconsideration will vary from a floor of $6.65 if the U.S. dollar to Australiandollar exchange rate is 0.7339 or below to a high of $7.25 if the exchange rateis 0.8410 or above.

 

Upon completion of the transaction, theaffiliates of PEP will own 100% of the outstanding capital stock of WorldwideRestaurant Concepts, Inc. and the stock of Worldwide Restaurant Concepts, Inc.will no longer be traded publicly. Members of the AMG currently own shares ofcapital stock of CFG.  These persons are expected to be offered an optionto exchange such shares of CFG for a combination of shares of affiliates of PEPand cash.

 

The transaction is subject to the approval ofthe Company’s stockholders, as well as customary closing conditions, includingreceipt of regulatory approvals and certain third party consents, including,but not limited to, the approval by YUM! Brands, Inc. of the transfer offranchise agreements for the Company’s KFC® stores in Australia, andreceipt by PEP of debt financing required to complete the transaction. On June 15,2005 the Company filed with the SEC its preliminary proxy to seek stockholderapproval for the merger.  As of the dateof this report, the Company anticipates the transaction will be completed bymid-September 2005, assuming that stockholder approval is obtained.

 

The merger agreement provides for an $8.4million termination fee that would be payable by the Company to PEP if themerger agreement is terminated under any of the following circumstances: 1)termination by WRC concurrently with its acceptance of a superior takeoverproposal; 2) termination by either the Company or PEP following a vote of theCompany’s stockholders in which the stockholders do not approve the merger; or3) termination by PEP if the Company’s Board of Directors or any committee ofthe Board withdraws or adversely modifies the merger agreement.  In addition, under certain othercircumstances WRC would be required to reimburse PEP for its out-of-pocketexpenses relating to the merger up to a maximum of $5.6 million.  Under no circumstances will WRC be requiredto both pay a termination fee and reimburse to PEP for its expenses.

 

# **Note 3 –Goodwill and Other Intangibles**

 

UnderSFAS No. 142, “Goodwill and Other Intangible Assets,” the Companyestablished its reporting units based on its current reporting structure andall recognized assets, liabilities and goodwill have been assigned to thesereporting units. The Company completed its annual goodwill impairment testduring the second quarter of fiscal year 2005. At that time approximately $21.9million of the Company’s $23.6 million of goodwill related to its Pat &Oscar’s reporting unit.  The remainderprimarily related to the Sizzler USA reporting unit.  Following its analysis the Company concludedthat the fair value of its goodwill exceeded the carrying value and noimpairment was recorded.

 

Subsequentto the completion of its annual goodwill impairment test, the Company enteredinto negotiations with potential buyers, and as discussed in Note 2, on April 28,2005, the Company entered into a merger agreement with affiliates of PEP.During the negotiations with PEP and other potential buyers,  the Companyreceived offers for Pat & Oscar’s which were substantially less thanthe carrying value of that reporting unit. This market information led theCompany to conclude that there were indicators of impairment and that it wasmore likely than not that its goodwill was impaired. The Company then completedthe second step of the impairment analysis under SFAS 142, “Goodwill and OtherIntangible Assets,” determining that the carrying amount of the Pat &Oscar’s reporting unit goodwill exceeded its implied fair value, and that thegoodwill was fully impaired.  Accordingly, during the third quarter, theCompany recorded a goodwill impairment charge of $21.9 million representing thewrite-off of all of the goodwill associated with the purchase of Pat &Oscar’s. The changes in the carrying amount of goodwill, by reporting segment,for the fiscal years ended April 30, 2005 and 2004, are as follows (inthousands):

 

F-14

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| ** **                         | ** ** | **Sizzler** | ** ** | **Pat &** | ** ** | **Sizzler**       | ** ** | ** ** | ** ** |
|------------------------------------|------------|-------------|------------|--------------------|------------|-------------------|------------|------------|------------|
| ** **                         | ** ** | **USA**     | ** ** | **Oscar’s**   | ** ** | **International** | ** ** | **Total**  | ** ** |
|                               |       |        |       |               |       |              |       |       |       |
| Goodwill as of April 30, 2003 |       | $           | 1,449      |               | $          | 21,913            |       | $          | 274        |   | $ | 23,636 |   |
| Goodwill acquired during the year  |       | —      |       | 11                 |       | —            |       | 11         |       |
| Balance as of April 30, 2004  |       | 1,449       |       | 21,924             |       | 274               |       | 23,647     |       |
| Goodwill impairment                |       | —      |       | (21,924            | )          | —            |       | (21,924    | )          |
| Goodwill as of April 30, 2005 |       | $           | 1,449      |               | $          | —            |       | $          | 274        |   | $ | 1,723 |   |
|                                    |            |             |            |                    |            |                   |            |            |            |  |  |  |  |  |

 

The following table sets forth intangible assets by major asset classas of the fiscal years ended April 30 (in thousands):

 
| ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** | **Weighted**             | ** ** |
|---------------------------------------------|------------|------------|------------|------------|------------|--------------------------|------------|
| ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** | **Average Amortization** | ** ** |
| ** **                                  | ** ** | **2005**   | ** ** | **2004**   | ** ** | **Period (years)**       | ** ** |
|                                        |       |       |       |       |       |                     |       |
| Franchise rights                            |       | $          | 1,895      |       | $          | 1,518                    |       | 12 |   |
| Trademarks                                  |       | 1,654      |       | 1,589      |       | 30                       |       |
| Other intangibles                           |       | 51         |       | 51         |       | indefinite               |       |
|                                        |       |       |       |       |       |                     |       |
| Total intangibles                           |       | 3,600      |       | 3,158      |       |                     |       |
|                                        |       |       |       |       |       |                     |       |
| Accumulated amortization - franchise rights |       | (933       | )          | (757       | )          |                     |       |
| Accumulated amortization - trademarks       |       | (389       | )          | (311       | )          |                     |       |
| Total accumulated amortization              |       | (1,322     | )          | (1,068     | )          |                     |       |
| Net intangibles                             |       | $          | 2,278      |       | $          | 2,090                    |       |   |   |

 

Trademarks consist of cost to register new trademarks and defend existingtrademarks.  Aggregate amortizationexpense related to intangible assets was approximately $0.2 million, $0.2million and $0.1 million for the years ended April 30, 2005, 2004 and2003, respectively.  There was noimpairment loss recorded in the Company’s finite intangible assets duringfiscal years 2005, 2004 or 2003. Amortization expense is expected to be approximately$0.2 million in each of the next five fiscal years.

 

# **Note 4 –Income Taxes**

 

The Companyfiles a consolidated United States income tax return, which includes alldomestic subsidiaries and has elected to include certain Australiansubsidiaries.  As a result, substantiallyall of the Company’s domestic and foreign income is subject to tax in theUnited States of America.  The Companyalso files a consolidated income tax return in Australia which includes theresults of its Australian entities.

 

F-15

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The components of the provision for income taxes attributable to incomefrom operations consists of the following (in thousands):

 
| ** **                    | ** ** | **For the years ended April 30,** | ** ** |
|-------------------------------|------------|----------------------------------------|------------|
| ** **                    | ** ** | **2005**                               | ** ** | **2004** | ** ** | **2003** | ** ** |
|                          |       |                                   |       |   |   |   |   |
| Current                       |       |                                   |       |   |   |   |   |
| Federal                       |       | $                                      | 338        |   | $ | 114 |   | $ | — |   |
| State                         |       | 619                                    |       | 428 |   | 520 |   |
| Foreign                       |       | 6,824                                  |       | 6,326 |   | 4,434 |   |
|                          |       | 7,781                                  |       | 6,868 |   | 4,954 |   |
| Deferred                      |       |                                   |       |   |   |   |   |
| Federal                       |       | (7,187                                 | )          | 1,150 |   | 2,086 |   |
| State                         |       | (993                                   | )          | (394 | ) | 1,593 |   |
| Foreign                       |       | (748                                   | )          | (1,613 | ) | (836 | ) |
|                          |       | (8,928                                 | )          | (857 | ) | 2,843 |   |
| Change in valuation allowance |       | 10,177                                 |       | (756 | ) | (5,844 | ) |
| Provision for income taxes    |       | $                                      | 9,030      |   | $ | 5,255 |   | $ | 1,953 |   |

 

A reconciliation of thestatutory United States Federal income tax rate to the Company’s consolidatedeffective income tax rate follows:

 
| ** **                                                    | ** ** | **For the years ended April 30,** | ** ** |
|---------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                    | ** ** | **2005**                               | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                          |       |                                   |       |   |   |   |   |
| Federal statutory tax rate – Income /  (Loss)            |       | (35.0                                  | )%         | 35.0 | % | 35.0 | % |
| State and local income taxes, net of federal  benefit         |       | (2.2                                   | )          | 2.4 |   | 2.9 |   |
| Australian taxes, net of federal benefit                      |       | 34.2                                   |       | 33.5 |   | 23.9 |   |
| Dividend income – foreign                                |       | —                                 |       | 3.4 |   | — |   |
| Reversal of accruals for state taxes                          |       | (3.5                                   | )          | — |   | — |   |
| Latin America withholding, net of federal  benefit            |       | 1.4                                    |       | 1.6 |   | 1.5 |   |
| Officer life premiums & other permanent  differences |       | 5.0                                    |       | 3.8 |   | 3.9 |   |
| Cash surrender value – permanent  differences            |       | (10.2                                  | )          | (15.3 | ) | (13.7 | ) |
| Other                                                         |       | 1.0                                    |       | 1.1 |   | — |   |
| Change in valuation allowance                                 |       | 82.7                                   |       | (5.8 | ) | (31.4 | ) |
| Effective tax rate                                            |       | 73.4                                   | %          | 59.7 | % | 22.1 | % |

 

Duringfiscal year 2005 the Company decreased its income tax accruals by approximately$0.6 million for issues on various state tax returns for which the statute oflimitations expired.  The Companycontinues to maintain an accrual for certain tax matters at its foreignoperations and does not believe the ultimate resolution of these matters willhave a material impact on the Company’s financial position, results ofoperations or cash flows.

 

F-16

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UnitedStates pre-tax income (loss) from domestic and foreign operations is as follows(in thousands):

 
| ** ** | ** ** | **For the years ended April 30,** | ** ** |
|------------|------------|----------------------------------------|------------|
| ** ** | ** ** | **2005**                               | ** ** | **2004** | ** ** | **2003** | ** ** |
|       |       |                                   |       |   |   |   |   |
| Domestic   |       | $                                      | (30,197    | ) | $ | (7,397 | ) | $ | (899 | ) |
| Foreign    |       | 17,897                                 |       | 16,217 |   | 9,760 |   |
|       |       | $                                      | (12,300)   |   | $ | 8,820 |   | $ | 8,861 |   |

 

The tax effects of temporary differences and carryforwards that giverise to significant amounts of deferred income tax assets and deferred incometax liabilities are as follows (in thousands):

 
| ** **                                                    | ** ** | **As of April 30,** | ** ** |
|---------------------------------------------------------------|------------|--------------------------|------------|
| ** **                                                    | ** ** | **2005**                 | ** ** | **2004** | ** ** |
| Current deferred tax assets:                                  |       |                     |       |   |   |
| Operating allowances and accruals                             |       | $                        | 5,485      |   | $ | 3,169 |   |
| Current portion of deferred income taxes                      |       | $                        | 5,485      |   | $ | 3,169 |   |
|                                                          |       |                     |       |   |   |
| Non-current deferred tax assets:                              |       |                     |       |   |   |
| Property and equipment                                        |       | $                        | 8,223      |   | $ | 6,985 |   |
| Australian deferred assets, primarily  Property and equipment |       | 6,985                    |       | 6,237 |   |
| Deferred gain                                                 |       | 4,111                    |       | 1,709 |   |
| Goodwill                                                      |       | 5,981                    |       | (1,631 | ) |
| Other                                                         |       | (1,005                   | )          | 549 |   |
| Federal & state tax credits                          |       | 5,488                    |       | 5,150 |   |
| Net operating loss carryforwards                              |       | 36,068                   |       | 40,240 |   |
| Deferred income taxes                                         |       | 65,851                   |       | 59,239 |   |
| Less: valuation allowance                                     |       | (58,659                  | )          | (48,482 | ) |
| Net deferred income taxes                                     |       | $                        | 7,192      |   | $ | 10,757 |   |

 

Pursuant to SFAS No. 109, a valuation allowance is recordedagainst net deferred income tax assets, if after assessing both the positiveand negative evidence, management concludes that it is considered more likelythan not, that some if not all of its deferred income tax assets will not berealized. Such evidence includes the Company’s past and projected futureperformance, the market environment in which the Company operates, and theexpected timing and nature of the reversals of its recorded deferred income taxassets.  During the third quarter offiscal 2005, the Company recorded a non-cash charge of approximately $2.0million to increase its valuation allowance against its net US deferred incometax assets. The Company also increased its valuation allowance by approximately$8.0 million during fiscal year 2005 to provide against increases in itsdomestic net operating carryforwards that are more likely than not recoverable.The Company’s net deferred U.S. income tax assets were $5.7 million, $7.7million, and $7.7 million as of April 30, 2005, 2004 and 2003,respectively.

 

The following is a summary of the netoperating loss carryforwards, credit carryforwards and related expiration datesat April 30, 2005 (in thousands):

 

F-17

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| ** **                 | ** ** | **Gross**  | ** ** | ** **     | ** **       |
|----------------------------|------------|------------|------------|----------------|------------------|
| ** **                 | ** ** | **Amount** | ** ** | **Expiration** | ** **       |
| Federal net operating loss |       | $          | 103,052    |           | 2012 – 2018 |   |
| Minimum tax credit         |       | $          | 2,649      |           | Indefinite       |   |
| General business credit    |       | $          | 2,796      |           | 2006 – 2010 |   |

 

The amount of the general business credit set to expire, if unused,during fiscal year 2006 is approximately $0.5 million.

 

**Note 5 – Leases**

 

The Company is a party to a number ofnon-cancelable lease agreements involving land, buildings and equipment.  The leases are generally for terms rangingfrom 5 to 20 years and expire on varying dates through 2027.  The Company has the right to extend many ofthese leases.  Certain leases requirecontingent rent, determined as a percentage of sales, when annual sales exceedspecified levels.  The Company is also asublessor of land, buildings and equipment on certain properties, which areleased to franchisees and others, which are not significant in amount.  As of April 30, 2005 and 2004, fixedassets held under capital leases included in property and equipment were $8.5million and $7.3 million, respectively. As of April 30, 2005 and 2004, accumulated depreciation on capitalleases was $4.6 million and $3.7 million, respectively.

 

Following is a schedule by year of future minimum leasecommitments and sublease rental income under all non-cancelable leases (inthousands): 

 
| ** **                                  | ** ** | **Commitments** | ** ** | **Sublease**  | ** ** |
|---------------------------------------------|------------|-----------------|------------|---------------|------------|
| ** **                                  | ** ** | **Capital**     | ** ** | **Operating** | ** ** | **Rental** | ** ** |
| **Years ended April 30,**              | ** ** | **Leases**      | ** ** | **Leases**    | ** ** | **Income** | ** ** |
| 2006                                        |       | $               | 1,207      |          | $          | 22,830 |   | $ | 947 |   |
| 2007                                        |       | 1,133           |       | 20,725        |       | 686 |   |
| 2008                                        |       | 952             |       | 18,276        |       | 468 |   |
| 2009                                        |       | 533             |       | 16,177        |       | 395 |   |
| 2010                                        |       | 357             |       | 13,587        |       | 301 |   |
| Thereafter                                  |       | 3,187           |       | 40,754        |       | 97 |   |
| Total minimum lease commitments/receivables |       | $               | 7,369      |          | $          | 132,349 |   | $ | 2,894 |   |
|                                        |       |            |       |          |       |   |   |
| Less amount representing interest           |       | (3,116          | )          |          |       |   |   |
|                                        |       |            |       |          |       |   |   |
| Present value of minimum lease payments     |       | $               | 4,253      |          |       |   |   |   |

 

Rent expense consists of (in thousands):

 
| ** **            | ** ** | **For the years ended April 30,** | ** ** |
|-----------------------|------------|----------------------------------------|------------|
| ** **            | ** ** | **2005**                               | ** ** | **2004** | ** ** | **2003** | ** ** |
| Minimum rentals       |       | $                                      | 20,383     |   | $ | 19,903 |   | $ | 16,989 |   |
| Contingent rentals    |       | 1,349                                  |       | 1,317 |   | 947 |   |
| Less sublease rentals |       | (1,366                                 | )          | (1,340 | ) | (748 | ) |
| Net rent expense      |       | $                                      | 20,366     |   | $ | 19,880 |   | $ | 17,188 |   |

 

F-18

----

 

**Note 6 – Debt**

 

A summary of debt outstanding as of April 30, 2005 and 2004 is asfollows (in thousands):

 
| ** **                                                                                                                                                | ** ** | **2005** | ** ** | **2004** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                                                                                                                      |       |     |       |     |       |
| Non-collateralized borrowings, at fixed  rate of 10.0% due through 2012                                                                                   |       | $        | 427        |     | $          | 620 |   |
| GE Capital collateralized borrowings, with  fixed interest rates ranging from 8.7% to 9.7% due through 2008                                               |       | —   |       | 8,989    |       |
| Mortgage notes payable, with an interest  rate of 10.0% collateralized by land and building with an original cost of  approximately $600 due through 2039 |       | 551      |       | 553      |       |
| Westpac note, with a variable interest rate  (8.0% at April 30, 2005) payable in Australian dollars due through 2008                                 |       | 9,342    |       | 23,840   |       |
| Capital lease obligations (interest rates  ranging from 7.5% to 12.4%)                                                                                    |       | 4,253    |       | 3,963    |       |
|                                                                                                                                                      |       | 14,573   |       | 37,965   |       |
| Less – current portion                                                                                                                               |       | (7,077   | )          | (7,156   | )          |
| Long-term debt                                                                                                                                            |       | $        | 7,496      |     | $          | 30,809 |   |

 

Payments on outstanding long-term debt, including capital leaseobligations of $7.1 million are due in fiscal year 2006, $4.0 million in fiscalyear 2007, $0.7 million in fiscal year 2008, $0.4 million in fiscal year 2009,$0.2 million in fiscal year 2010 and $2.2 million thereafter.

 

The Company has a credit facility (“Credit Facility”) with WestpacBanking Corporation in Australia (“Westpac”). The Credit Facility is subject to certain financial covenants andrestrictions such as interest coverage ratios, profitability ratios and otherswhich management believes are customary for a loan of this type.  The maximum principal commitment under theCredit Facility is $31.2 million ($40.0 million in Australian dollars) and wasdrawn down in full in fiscal year 2004. The debt is collateralized by the Company’s Australian subsidiaries’assets, undertakings, intellectual property, unlimited cross-guarantees andcertain negative pledge agreements. The Credit Facility provides for afive-year term expiring July 31, 2008 at an interest rate equal to theAustralia inter-bank borrowing bid rate (5.7 percent at April 30, 2005), plusa 2.3 percent margin. At April 30, 2005 the Company’s unpaid principalbalance on the Credit Facility was approximately $9.3 million ($12.0 million inAustralian dollars). The primary exposure relating to this financial instrumentresults from changes in interest rates.

 

To hedge theCompany’s exposure to interest rate increases on this loan, the Company isparty to an interest rate cap contract that prevents the Company’s interestrate (excluding margin) from exceeding 5.7 percent, in which case the Companywould receive the difference between the contract rate and the actual interestrate.  At April 30, 2005, thenotional amount of the interest rate cap is approximately $2.3 million ($3.0million in Australian dollars), which covered approximately 25.0 percent of theloan principal outstanding and expires on January 1, 2006.  At April 30, 2005, the fair value ofinterest rate cap contract is zero.

 

In addition,the Company is party to an interest rate swap contract to convert part of itsvariable interest exposure to a fixed rate of 5.7 percent (excludingmargin).  At April 30, 2005, thenotional amount of the interest rate swap contract is approximately $2.3million ($3.0 million in Australian dollars), which covered approximately 25.0percent of the loan principal outstanding and expires on January 1,2006.  At April 30, 2005, the fairvalue of interest rate swap contract is zero.

 

The Company has an additionalcredit facility with Westpac.  The creditfacility utilizes the same collateral and is subject to the same financialcovenant restrictions as the Credit Facility with Westpac as mentioned above.The term of this facility expires on December 31, 2005.  The maximum principal commitment under thefacility is $2.3 million ($3.0 million in Australian dollars).  There have been no amounts borrowed under thefacility to date.  The available facilityis multi-option in nature and has been allocated initially to a $1.5 million($2.0 million in Australian dollars) revolving commercial bill facility and a$0.8 million ($1.0 million in Australian dollars) overdraft facility. Anyun-drawn amount under either option can be re-allocated at any time by theCompany to the other option. The loan agreement provides for interest on thecommercial bill option at equivalent rates to the Credit Facility.  The interest rate applicable to the overdraftfacility is Westpac’s reference lending rate plus 100 basis points (currently8.8 percent).  There is a 1.0 percent fee

 

F-19

----

 

applicable to any undrawnportion of either option.

 

The Company had a $10.0 million, seven-year term loan expiring in 2008with GE Capital that was amortized based on 15 years, with fixed interest ratesranging from 8.7 to 9.7 percent. A portion of the Company’s real estate andpersonal property in the U.S. as well as a letter of credit in the amount of$0.7 million were collateral for the loan. The agreement was subject to certainfinancial covenants and restrictions such as a fixed charge coverage ratio,minimum earnings before interest, taxes, depreciation and amortization andothers which management believes are customary for loans of this type. Duringfiscal year 2005, utilizing the proceeds from sale-leaseback transactions (seeNote 14, - Deferred Gains, Rent and Landlord Incentives, to the ConsolidatedFinancial Statements), the Company repaid the entire outstanding loan balance.

 

During fiscal year 2005, the Company also repaid a $0.1 million,variable interest term loan with Bank of America.

 

The Company was in compliance with all debt covenants as of April 30,2005.

 

**Note 7 – Employee Benefit Plans**

 

In fiscal year 2003, the Company terminated its Supplemental ExecutiveRetirement Plan (“SERP”) but remains obligated under the SERP for 11 formeremployees. The Company accounts for the SERP under SFAS No. 87 “Employers’Accounting for Pensions.” The components of net periodic benefit cost for theyears ended April 30, 2005, 2004, and 2003 determined under SFAS No. 87are as follows (in thousands):

 
| ** **                    | ** ** | **For the years ended April 30,** | ** ** |
|-------------------------------|------------|----------------------------------------|------------|
| ** **                    | ** ** | **2005**                               | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Pension Plan:**             |       |                                   |       |   |   |   |   |
| Interest cost                 |       | $                                      | 667        |   | $ | 758 |   | $ | 756 |   |
| Recognized net actuarial loss |       | 220                                    |       | 159 |   | 86 |   |
| Net periodic benefit cost     |       | $                                      | 887        |   | $ | 917 |   | $ | 842 |   |

 

Anadditional minimum liability is recognized if the unfunded accumulated benefitobligation is greater than the pension liability accrued.  The additional minimum liability is measuredas the difference between these amounts. During the years ended April 30, 2005 and 2004, the Company incurred$0.4 million and $1.3 million, respectively, in charges to other comprehensiveloss to reflect its additional minimum pension liability.  The following table sets forth the fundedstatus and amounts recognized in the Company’s Consolidated Balance Sheets forthe SERP (in thousands):

 
| ** **                              | ** ** | **For the years ended April 30,** | ** ** |
|-----------------------------------------|------------|----------------------------------------|------------|
| ** **                              | ** ** | **2005**                               | ** ** | **2004** | ** ** |
| **Change in Benefit Obligation:**       |       |                                   |       |   |   |
| Benefit obligation at beginning of year |       | $                                      | 14,031     |   | $ | 13,326 |   |
| Interest cost                           |       | 667                                    |       | 758 |   |
| Actuarial loss                          |       | 390                                    |       | 1,292 |   |
| Benefits paid                           |       | (1,271                                 | )          | (1,345 | ) |
| Benefit obligation at end of year       |       | $                                      | 13,817     |   | $ | 14,031 |   |
|                                    |       |                                   |       |   |   |
| **Reconciliation of Funded Status:**    |       |                                   |       |   |   |
| Unfunded status                         |       | $                                      | (13,817    | ) | $ | (14,031 | ) |
| Unrecognized actuarial loss             |       | 5,982                                  |       | 5,812 |   |
| Net amount recognized                   |       | $                                      | (7,835     | ) | $ | (8,219 | ) |

 

F-20

----

 
| ** **                           | ** ** | **As of April 30,** | ** ** |
|--------------------------------------|------------|--------------------------|------------|
| ** **                           | ** ** | **2005**                 | ** ** | **2004** | ** ** |
| **Balance Sheets Consist of:**       |       |                     |       |   |   |
| Pension liability                    |       | $                        | 13,817     |   | $ | 14,031 |   |
| Accumulated other comprehensive loss |       | (5,982                   | )          | (5,812 | ) |
| Net amount recognized                |       | $                        | 7,835      |   | $ | 8,219 |   |

 

As the plan participants are inactive, the unrecognized actuarial lossis amortized over the participants’ estimated average remaining life expectancyof 20 and 21 years in fiscal year 2005 and 2004, respectively.  Amounts subject to amortization are limitedto the excess loss that is more than 10.0 percent of the benefit obligation atthe beginning of the year.  Significantassumptions used in determining the amounts shown above are as follows:

 
| ** **                  | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|-----------------------------|------------|----------|------------|----------|------------|----------|------------|
| Discount rate               |       | 4.8      | %          | 5.0      | %          | 6.0      | %          |
| Rates of salary progression |       | N/A      |       | N/A      |       | N/A      |       |

 

The following table represents expected benefit payments from the planover the next ten plan years (in thousands). The projection assumes a death age of 81:

 
| **Years ended April 30,** | ** ** | **Annual  Payout** | ** ** |
|--------------------------------|------------|--------------------|------------|
| 2006                           |       | $                  | 1,276      |   |
| 2007                           |       | 1,266              |       |
| 2008                           |       | 1,266              |       |
| 2009                           |       | 1,256              |       |
| 2010                           |       | 1,206              |       |
| 2011-2015                      |       | 4,660              |       |
|                                |            |                    |            |  |

 

In addition, the Company has a contributory employee profit sharing,savings and retirement plan (the “Plan”) whereby eligible employees can electto contribute from 1.0 percent to 50.0 percent of their salary to the plansubject to statutory limits.  Under thePlan, the Company can elect to make matching contributions, with certainlimitations.  Amounts charged to expenseunder these plans were approximately $0.3 million for each of the years ended April 30,2005, 2004 and 2003.

 

**Note 8 – Commitments and Contingencies**

 

The Company is subject to various commitments and contingencies asfollows:

 

TheCompany self-insures a significant portion of its workers compensation, generalliability and health insurance plans. The full extent of certain claims, in many cases, may not become fullydetermined for several years.  TheCompany, therefore, estimates the potential obligation for liabilities whichhave been reported and those that have been incurred but not yet reported basedupon historical data and experience, and utilizes an outside consulting firm toassist the Company in developing these estimates.  Although management believes that the amountsaccrued for these obligations are sufficient, any significant increase ineither the number of claims or costs associated with claims made under theseplans could have a material adverse effect on the Company’s financial results. The workers’ compensation and generalliability policies require the Company to set aside cash reserves sufficient tofund existing and estimated future claims. As of April 30, 2005, theCompany has letters of credit of approximately $5.0 million for this purpose,which are secured by a corresponding amount of restricted cash.

 

TheCompany’s commodity price risk is attributable to fluctuations in the price ofselected food products such as meat, poultry and produce used in the normalcourse of business. The Company contracts for

 

F-21

----

 

certainamounts of these food products in the future at a predetermined or fixed price.The Company has no purchase agreements longer than one year. The Company doesnot purchase futures contracts for trading purposes.  The Company is unable to predict the possibleimpact of changes in commodity prices. However, in the past the Company has been able to address these changesby passing these costs along to its customers because these changes havegenerally impacted all restaurant companies.

 

In connection with its joint venture agreement with its Sizzlerfranchisee in Singapore the Company is party to a guarantee whereby it isobligated to provide financial support to the joint venture.  The Company does not expect this guarantee tohave a material adverse impact on its financial position, results of operationsor cash flows.

 

### Litigation

###  

The Company is a party to certain litigation arising in the ordinarycourse of business which, in the opinion of management, will not have amaterial adverse effect upon either the Company’s consolidated financialposition, results of operations or cash flows. The following is a summary of the more significant cases pending againstthe Company:

 

Asubsidiary of the Company remains as a defendant in a lawsuit arising out of anE.coli incident at a Sizzler® franchised location in Milwaukee,Wisconsin in July 2000.  Theplaintiffs seek monetary damages for the death of a minor child who consumedallegedly contaminated food at the Sizzler® restaurant. The Company’sformer meat supplier, Excel Corporation (“Excel”) and the Company’s formerfranchisee, E&B Management Company, and E&B Management Company’sprincipals are named defendants in the case. The Company has filed cross-claimsagainst its franchisee and Excel. The case has been referred back to the trialcourt in Milwaukee following Excel’s failed attempt to be dismissed as adefendant and depositions and written discovery have commenced. The Companybelieves that the resolution of all claims associated with the Milwaukee E.coliincident will not have a material adverse impact on the Company’s financialposition, results of operations or cash flows.

 

On October 3,2001, upon the petition of the Insurance Commissioner of the Commonwealth ofPennsylvania, Reliance Insurance Company (“Reliance”) was declared insolventand became subject to Pennsylvania state law liquidation proceedings.  Reliance was the Company’s primary generalliability and workers’ compensation carrier, during the period May 1, 1997through May 1, 1999, and was the Company’s first level excess generalliability carrier with respect to claims against the Company arising out of theJuly 2000 E.coli incident in Milwaukee. As a result of the legal proceedings affecting Reliance, the Company’sability to recover funds under its liability policies with this carrier,whether relating to the Milwaukee incident or otherwise, may be substantiallylimited.  However, based on the amount ofits primary general liability coverage under policies with other carriers, aswell as anticipated results of the pending litigation in Milwaukee and otherclaims, the Company does not believe that Reliance’s liquidation proceedingsare likely to have a material adverse impact on the Company’s financialposition, results of operations or cash flows.

 

On June 1,2001, The Independent Insurance Co., the Company’s primary general liabilityinsurance carrier in Australia for the period May 1, 2000 through April 30,2001, commenced liquidation proceedings.  Based upon an assessment of the pending andpossible future claims, which may be filed over a five-year period, the Company’sability to recover funds under its general liability policies with this carriermay be substantially limited. Nevertheless, the Company does not believe that The IndependentInsurance Co.’s liquidation is likely to have a material impact on the Company’sfinancial position, results of operations or cash flows.

 

On October 7,2003, the Company was notified by various health department officials that Pat &Oscar’s was the focal point of an investigation into an outbreak of E.coli atcertain of its restaurants.  Healthofficials focused their investigation on the lettuce that was supplied to therestaurants by Gold Coast and Family Tree. Out of approximately 45 claims, allbut seven have been settled. The Company anticipates that all of the remainingclaims will be settled by the end of the second quarter of fiscal year 2006.

 

On November 30, 2004, the Company fileda Form 8-K in which it announced it had entered into a SettlementAgreement And General Release with two of the lettuce suppliers involved in the2003 E.coli incident and their insurers. Under the terms of the agreement, the two insurers paid to the Company atotal of $5.0 million in exchange for an assumption by the Company of allliabilities of the two distributors for pending bodily injury claims that arosein connection with the E.coli incident, as well as an agreement

 

F-22

----

 

by the Company to indemnify and defend thetwo distributors from any such claim subsequently arising out of thisincident.  The Company believes that the$5.0 million settlement amount will be sufficient to cover the Company’sliability relating to all pending bodily injury claims arising out of theE.coli incident, and any future claims, should they arise. Accordingly, theCompany does not believe that the resolution of these cases or the claims ofany other individuals who became ill as a result of the alleged E.coli incidentat Pat & Oscar’s will have any material adverse impact on the Company’sfinancial position, results of operations or cash flows. See Note 17 - E.coliIncident, to the Consolidated Financial Statements.

 

**Note 9 – Foreign Currency Exchange**

 

WRC had certain intercompany advances to its Australian subsidiariesdenominated in Australian dollars. During fiscal year 2003, the Companydetermined that these advances, previously accounted for as permanentinvestments, would be repatriated in fiscal year 2004. In accordance with SFAS52, “Foreign Currency Translation,” the Company recognized $0.8 million of netforeign currency gains in fiscal year 2004 as a result of fluctuations in theexchange rates. This gain is included within general and administrativeexpenses in the Consolidated Statements of Operations. In fiscal year 2004, tohedge the foreign currency exchange risk on anticipated future repatriation,the Company entered into and exercised a foreign currency put option contractfor $13.2 million ($20.0 million in Australian dollars).  The Company recorded $0.3 million in optionpremium cost associated with the put option contract during fiscal year 2004.The option expired in fiscal year 2004. The premium option cost is includedwithin general and administrative expenses in the Consolidated Statements ofOperations. The Company’s did not enter into any foreign exchange optioncontracts in fiscal years 2005 and 2003.

 

**Note 10 – Stock Options, Restricted Stock and Shareholder Rights Plans**

 

The Company has an Employee Stock Incentive Plan for certain officersand key employees, and a stock option plan for non-employee directors.  The maximum number of shares that may beissued under these plans is 5,000,000 and 775,000 shares, respectively.  Options issued under the Employee StockIncentive Plan are typically issued at fair market value at the date of thegrant, therefore no compensation expense is recorded.  Options issued under the non-employee directors’plan may be issued in lieu of cash compensation and are issued at 50.0 percentof the fair market value at the date of the grant.  However, at least 25.0 percent of annualdirector fees must be taken in the form of options in accordance with the aboveformula.  Compensation expense under suchgrants is deferred as a component of additional paid-in capital and amortizedand expensed ratably into income over the period the service is provided.  Grants of options to employees and theperiods during which such options can be exercised are made at the discretionof the Board of Directors.  Board ofDirectors compensation expense related to grant of options was $90,000, $70,000and $65,000 for the years ended April 30, 2005, 2004 and 2003,respectively.

 

The Company has adopted the “disclosure only” provisions of SFAS No. 123,“Accounting for Stock Based Compensation” and accordingly has elected tocontinue to measure compensation cost under Accounting Principles Board OpinionNo. 25, “Accounting for Stock Issued to Employees,” and to comply with thepro forma disclosure requirements of the standard. The fair value of optiongrants is estimated on the date of grant utilizing the Black-Scholesoption-pricing model with the following assumptions:

 

| ** **                        | ** ** | **For the Years Ended April 30,** | ** ** |
|-----------------------------------|------------|----------------------------------------|------------|
| ** **                        | ** ** | **2005**                               | ** ** | **2004** | ** ** | **2003** | ** ** |
| Expected Life (years)             |       | 5                                      |       | 5 |   | 5 |   |
| Volatility (percent)              |       | 64.8                                   |       | 66.8 |   | 65.3 |   |
| Risk-free Interest Rate (percent) |       | 3.4                                    |       | 3.0 |   | 3.8 |   |
| Dividend Yield (percent)          |       | 0.0                                    |       | 0.0 |   | 0.0 |   |

 

F-23

----

 

**Stock Options**

 

The Company’s outstanding options become exercisable in varying amountsthrough fiscal 2008.  A summary of stockoption transactions follows:

 
| ** **                                                                 | ** ** | **For The Years Ended April 30,** | ** ** |
|----------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                 | ** ** | **2005**                               | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                                                 | ** ** | **Options**                            | ** ** | **Weighted Average  Exercise  Price** | ** ** | **Options** | ** ** | **Weighted Average  Exercise  Price** | ** ** | **Options** | ** ** | **Weighted Average  Exercise  Price** | ** ** |
| Options outstanding beginning of the year                                  |       | 3,447,000                              |       | $ | 2.21 |   | 3,422,000 |   | $ | 2.09 |   | 2,944,000 |   | $ | 2.01 |   |
| Options granted                                                            |       | 183,000                                |       | 3.04 |   | 633,000 |   | 2.90 |   | 695,000 |   | 2.49 |   |
| Options exercised                                                          |       | (284,000                               | )          | 1.97 |   | (206,000 | ) | 1.80 |   | (27,000 | ) | 1.22 |   |
| Options canceled                                                           |       | (118,000                               | )          | 2.92 |   | (402,000 | ) | 2.46 |   | (190,000 | ) | 2.44 |   |
| Options outstanding end of year                                            |       | 3,228,000                              |       | $ | 2.25 |   | 3,447,000 |   | $ | 2.21 |   | 3,422,000 |   | $ | 2.09 |   |
| Options exercisable at end of year                                         |       | 2,693,000                              |       | $ | 2.11 |   | 2,501,000 |   | $ | 2.08 |   | 2,078,000 |   | $ | 2.10 |   |
| Weighted average fair value per share of  options granted during the year. |       |                                   |       | $ | 2.21 |   |   |   | $ | 1.81 |   |   |   | $ | 1.52 |   |

 

Thefollowing table summarizes information about stock options outstanding at April 30,2005:

 
| **Exercise  Prices** | ** ** | **Number  Outstanding** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Weighted Average  Remaining  Contractual Life** | ** ** | **Number  Exercisable** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
|----------------------|------------|-------------------------|------------|----------------------------------------|------------|---------------------------------------------------|------------|-------------------------|------------|----------------------------------------|------------|
|                 |       |                    |       |                                   |       |                                              |       |                    |       |                                   |       |
| $0.61 -  $1.25       |       | 363,000                 |       | $                                      | 0.96       |                                              | 6.1 years  |                    | 363,000    |                                   | $          | 0.96 |   |
| $1.26 -  $2.50       |       | 1,477,000               |       | 1.98                                   |       | 4.6 years                                         |       | 1,428,000               |       | 1.98                                   |       |
| $2.51 -  $5.00       |       | 1,386,000               |       | 2.87                                   |       | 6.1 years                                         |       | 900,000                 |       | 2.77                                   |       |
| $5.01 -  $6.88       |       | 2,000                   |       | 6.88                                   |       | 0.3 years                                         |       | 2,000                   |       | 6.88                                   |       |
|                 |       |                    |       |                                   |       |                                              |       |                    |       |                                   |       |
| Total                |       | 3,228,000               |       | $                                      | 2.25       |                                              |       |                    | 2,693,000  |                                   | $          | 2.11 |   |

 

# **Warrants**

 

In connection with the acquisition of Pat &Oscar’s, the Company issued warrants to purchase up to 1,250,000 shares of theCompany’s common stock at $4.00 per share, exercisable over 5 years.  All of the warrants became exercisable infiscal year 2005. The terms of the agreement allowed the holders of thewarrants to effect either a cash exercise or a cashless exercise where theholders would receive the number of the warrant shares equivalent to the excessof fair value of warrants over the exercise price.  On February 28, 2005 the Companyreceived a request from the warrant holders to exercise all 1,250,000warrants.  On March 21, 2005,pursuant to the agreement, the warrants were exercised through a cashlessexercise. Upon exercise, 157,820 shares of the Company’s common stock wereissued to the holders of the warrants.

 

F-24

----

 

**Shareholder Rights Plan**

 

The rights plan provides one preferred share purchase right for eachshare of common stock distributed to shareholders of record at the close ofbusiness on January 22, 2001.  Therights plan is intended to give the Board of Directors and managementsufficient time to evaluate and respond to any proposed transaction involving achange in control.  The plan is intendedto prevent an acquirer from gaining control of the Company without offering afair price to all shareholders.  Thethreshold for triggering the plan is any party acquiring 14.0 percent of theoutstanding stock of the Company.  Theexercise price is $10.00 per share and the rights expire in January of2006.  The preferred stock is convertibleat a “triggering event” into common stock at a ratio by dividing $10.00 by 50.0percent of the current market price of the stock.

 

OnApril 28, 2005, the Company executed a merger agreement (“the MergerAgreement”) with certain affiliates of Pacific Equity Partners Pty Limited (“PEP”),an Australian private equity firm.  Inconnection with the Merger Agreement, the Company and its Rights Agent enteredinto a Second Amendment to the Rights Agreement dated May 10, 2005 (the “SecondAmendment”) which amends the Rights Agreement to provide, among other things,that the execution or delivery of the Merger Agreement and the consummation ofthe transactions contemplated by the Merger Agreement will not cause the Rightsto become exercisable under the Rights Agreements.

 

**Note 11 – Information by Industry Segment and Geographic Area**

 

Substantially all of the Company’s revenues result from the sale ofmenu items at restaurants operated by the Company or generated from franchiseactivity.  The Company’s reportablesegments are based on geographic area and product brand.  Sizzler Domestic consists of all USA andLatin America Sizzler® restaurant and franchiseoperations. SizzlerInternational consists of all other Sizzler®restaurant and franchise operations.  KFCconsists of KFC® franchise restaurants in Australia.  Pat & Oscar’s consists of operationsof the Pat & Oscar’s® restaurant and related cateringfunctions.  Corporate and other includesany items not included in the reportable segments listed above.  The effects of all intercompany transactionsare eliminated when computing revenues, operating income (loss) andidentifiable assets.

 

Operating income includes segment operatingresults before investment income, interest expense, income taxes, and allocatedcorporate overhead. The corporate and other components of operating incomerepresent corporate selling and general and administrative expenses prior tobeing allocated to the operating segments.

 

Identifiable assets are those assets used in the operations of eachsegment.  Corporate and other assetsinclude cash, accounts receivable and various other assets.  Long-lived assets principally includegoodwill, property and equipment, net, identifiable intangibles, net and otherassets.

 
| ** **                                         | ** ** | **For the Years Ended April 30,** | ** ** |
|----------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                         | ** ** | **2005**                               | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Revenues (in thousands):**                       |       |                                   |       |   |   |   |   |
| Sizzler – Domestic                            |       | $                                      | 84,423     |   | $ | 97,830 |   | $ | 102,161 |   |
| Sizzler – International                       |       | 59,812                                 |       | 55,582 |   | 41,792 |   |
| KFC                                                |       | 160,718                                |       | 145,010 |   | 102,540 |   |
| Pat & Oscar’s                        |       | 49,891                                 |       | 48,732 |   | 47,035 |   |
| Total                                              |       | $                                      | 354,844    |   | $ | 347,154 |   | $ | 293,528 |   |
| **Depreciation and Amortization (in  thousands):** |       |                                   |       |   |   |   |   |
| Sizzler – Domestic                            |       | $                                      | 2,958      |   | $ | 3,579 |   | $ | 4,151 |   |
| Sizzler – International                       |       | 1,767                                  |       | 1,619 |   | 1,348 |   |
| KFC                                                |       | 4,344                                  |       | 3,392 |   | 2,623 |   |
| Pat & Oscar’s                        |       | 2,889                                  |       | 2,588 |   | 1,792 |   |
| Corporate and other                                |       | 491                                    |       | 658 |   | 525 |   |
| Total                                              |       | $                                      | 12,449     |   | $ | 11,836 |   | $ | 10,439 |   |
|                                                    |            |                                        |            |  |  |  |  |  |  |  |  |

 

F-25

----

 
| **Operating Income (loss) (in thousands):**              |   |    |    |   |   |   |   |
|----------------------------------------------------------|--------|---------|---------|--------|--------|--------|--------|
| Sizzler – Domestic                                  |   | $       | 9,883   |   | $      | 6,944  |   | $ | 6,908 |   |
| Sizzler – International                             |   | 2,362   |    | 2,502  |   | 2,182  |   |
| KFC                                                      |   | 19,368  |    | 15,787 |   | 9,797  |   |
| Pat & Oscar’s                              |   | (26,594 | )       | (5,213 | )      | 892    |   |
| Corporate and other                                      |   | (12,596 | )       | (8,630 | )      | (9,064 | )      |
| Total                                                    |   | (7,577  | )       | 11,390 |   | 10,715 |   |
|                                                     |   |    |    |   |   |   |   |
| **Reconciliation to Net Income (loss):**                 |   |    |    |   |   |   |   |
| Interest expense                                         |   | 2,702   |    | 3,215  |   | 2,515  |   |
| Investment income, net                                   |   | 658     |    | 551    |   | 630    |   |
| Income (loss) before income taxes and minority  interest |   | (9,621  | )       | 8,726  |   | 8,830  |   |
| Income tax provision                                     |   | 9,030   |    | 5,255  |   | 1,953  |   |
| Minority interest expense (benefit)                      |   | 2,679   |    | (94    | )      | (31    | )      |
| Net income (loss)                                        |   | $       | (21,330 | )      | $      | 3,565  |   | $ | 6,908 |   |
|                                                          |        |         |         |        |        |        |        |  |  |  |  |

 
| ** **                               | ** ** | **For the Years Ended April 30,** | ** ** |
|------------------------------------------|------------|----------------------------------------|------------|
| ** **                               | ** ** | **2005**                               | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                     |       |                                   |       |   |   |   |   |
| **Capital Expenditures (in thousands):** |       |                                   |       |   |   |   |   |
| Sizzler - Domestic                       |       | $                                      | 3,303      |   | $ | 5,378 |   | $ | 2,582 |   |
| Sizzler - International                  |       | 3,462                                  |       | 1,695 |   | 1,173 |   |
| KFC                                      |       | 5,386                                  |       | 4,302 |   | 2,876 |   |
| Pat & Oscar’s              |       | 2,406                                  |       | 5,607 |   | 9,453 |   |
| Corporate and other                      |       | 245                                    |       | 314 |   | 372 |   |
| Total                                    |       | $                                      | 14,802     |   | $ | 17,296 |   | $ | 16,456 |   |
|                                          |            |                                        |            |  |  |  |  |  |  |  |  |

 
| ** **                              | ** ** | **As of April 30,** | ** ** | ** ** | ** ** |
|-----------------------------------------|------------|--------------------------|------------|------------|------------|
| ** **                              | ** ** | **2005**                 | ** ** | **2004**   | ** ** | ** ** | ** ** |
| **Identifiable Assets (in thousands):** |       |                     |       |       |       |   |   |
| Sizzler - Domestic                      |       | $                        | 43,002     |       | $          | 51,991 |   |   |   |
| Sizzler - International                 |       | 10,384                   |       | 9,339      |       |   |   |
| KFC                                     |       | 21,365                   |       | 18,455     |       |   |   |
| Pat & Oscar’s             |       | 24,707                   |       | 49,103     |       |   |   |
| Corporate and other                     |       | 43,076                   |       | 33,155     |       |   |   |
| Total                                   |       | $                        | 142,534    |       | $          | 162,043 |   |   |   |

 

F-26

----

 

The Company’s revenues from external customers and long-lived assets bygeographic areas are as follows (in thousands):

 
| ** **                                            | ** ** | **For the Years Ended April 30,** | ** ** |
|-------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                            | ** ** | **2005**                               | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                            |       |                                   |       |   |   |   |   |
| **Revenues from external customers (in  thousands):** |       |                                   |       |   |   |   |   |
| Domestic                                              |       | $                                      | 134,314    |   | $ | 146,562 |   | $ | 149,196 |   |
| International                                         |       | 220,530                                |       | 200,592 |   | 144,332 |   |
| Total                                                 |       | $                                      | 354,844    |   | $ | 347,154 |   | $ | 293,528 |   |
|                                                       |            |                                        |            |  |  |  |  |  |  |  |  |

 
| ** **                            | ** ** | **As of April 30,** | ** ** | ** ** | ** ** |
|---------------------------------------|------------|--------------------------|------------|------------|------------|
| ** **                            | ** ** | **2005**                 | ** ** | **2004**   | ** ** | ** ** | ** ** |
| ** **                            |       |                     |       |       |       |   |   |
| **Long-lived assets (in thousands):** |       |                     |       |       |       |   |   |
| Domestic                              |       | $                        | 42,698     |       | $          | 77,279 |   |   |   |
| International                         |       | 30,957                   |       | 25,056     |       |   |   |
| Total                                 |       | $                        | 73,655     |       | $          | 102,335 |   |   |   |

 

**Note 12 – Earnings Per Share**

 

Earnings per share (EPS) have been calculatedas follows (in thousands, except EPS):

 
| ** **                                                                       | ** ** | **For the Years Ended April 30,** | ** ** |
|----------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                       | ** ** | **2005**                               | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                                             |       |                                   |       |   |   |   |   |
| Numerator for basic EPS - Net income (loss)                                      |       | $                                      | (21,330    | ) | $ | 3,565 |   | $ | 6,908 |   |
| Income attributed to AMG options dilution  (see Note 15)                         |       | —                                 |       | (1,494 | ) | (184 | ) |
| Numerator for diluted EPS - Net income  (loss)                                   |       | $                                      | (21,330    | ) | $ | 2,071 |   | $ | 6,724 |   |
|                                                                             |       |                                   |       |   |   |   |   |
| Denominator for basic EPS - weighted  average shares of common stock outstanding |       | 27,621                                 |       | 27,371 |   | 27,232 |   |
| Effect of dilutive stock options                                                 |       | —                                 |       | 1,011 |   | 638 |   |
| Denominator for diluted EPS – adjusted weighted  average shares outstanding |       | 27,621                                 |       | 28,382 |   | 27,870 |   |
|                                                                             |       |                                   |       |   |   |   |   |
| Basic earnings (loss) per share                                                  |       | $                                      | (0.77      | ) | $ | 0.13 |   | $ | 0.25 |   |
|                                                                             |       |                                   |       |   |   |   |   |
| Diluted earnings (loss) per share                                                |       | $                                      | (0.77      | ) | $ | 0.07 |   | $ | 0.24 |   |
|                                                                                  |            |                                        |            |  |  |  |  |  |  |  |  |

 

Certain equity instruments including stockoptions, warrants and other common stock equivalents have been excluded fromthe computation above because their effect would have been anti-dilutive.  When computing earnings per share, 3.2million, 1.4 million shares and 2.5 million shares have been excluded fromfiscal years 2005, 2004 and 2003, respectively.

 

**Note 13 – Related PartyTransactions**

 

As a material consideration for his employment as President/CEO ofSizzler USA, on October 15, 2001 Sizzler USA extended an unsecured,non-interest-bearing loan in the amount of $200,000 to Mr. KennethCole.  The proceeds of the loan were tobe used to pay two promissory notes executed by Mr. Cole in favor of hisformer employer as payment for shares of stock of his former employer purchasedby Mr. Cole.  During fiscal year2005 the loan agreement between Mr. Cole and Sizzler USA was amended toforgive the loan over a five-year period staring in fiscal 2005.  Should Mr. Cole cease being employed bySizzler USA, any deficiency remaining will become immediately due andpayable.  The outstanding loan balancewas $160,000 as of the end of fiscal 2005.

 

F-27

----

 

The Company entered into an agreement for services dated November 24,2003 with one of its directors, Mr. Barry Krantz.  Under the agreement Mr. Krantz providedconsulting services in connection with Pat & Oscar’s first televisioncampaign. The engagement had a maximum term of six months and totalcompensation payable of up to $30,000. During fiscal 2004, Mr. Krantz was paid a total of $16,000 underthe agreement.  There were no paymentsmade to Mr. Krantz in fiscal 2005.

 

**Note 14 – Deferred Gains, Rent and Landlord Incentives**

 

At April 30, 2005, deferred gains, rent and landlord incentivesinclude approximately $3.9 million in unamortized deferred gains related to asale and leaseback of certain properties in Australia, $2.9 million in deferredcredits received from landlords, $3.4 million in deferred rent, $8.4 million inunamortized deferred gains related to the sale and leaseback of nine SizzlerUSA restaurants (as described below), $0.3 million in vendor rebates anddeferred franchise fees.  At April 30,2004, deferred gains, rent and landlord incentives include approximately $4.4million in unamortized deferred gains related to a sale and leaseback ofcertain properties in Australia, $3.4 million in deferred credits received fromlandlords, $2.9 million in deferred rent, $0.8 million in unamortized deferredgains related to the sale and leaseback of one Sizzler USA restaurant (asdescribed below), $0.4 million in vendor rebates and deferred franchise fees.

 

During fiscal year 2003, the Companycompleted a sale-leaseback transaction for one of its Sizzler USA restaurants.The Company received cash proceeds of approximately $1.6 million.  The lease agreement, which extends for tenyears, requires annual lease payments of approximately $139,000 and is subjectto contingent rentals based upon restaurant revenues exceeding definedthresholds.  In accordance with SFAS No. 28“Accounting for Sales with Leasebacks,” the Company recognized a $0.3 milliongain into earnings and deferred a $0.9 million gain that will be recognizedover the ten year life of the lease.  The$0.3 million represents the excess of the total gain over the present value ofthe future minimum lease payments.  TheCompany does not have a continuing involvement in the property sold other thanthe active use of the property in consideration for payment of rent.

 

During fiscal year 2005, the Company completed sale-leasebacktransactions on eight Sizzler Domestic properties. The restaurants have beenand will continue to be operated by the Company. The Company received cashproceeds of approximately $17.5 million. The lease agreements have a term often years and require annual lease payments of approximately $1.3 million. Inaccordance with SFAS No. 28 “Accounting for Sales with Leasebacks” andSFAS 98, “Accounting for Leases,” the Company recognized a $1.6 million gainand deferred a $7.9 million gain that will be recognized over the ten year lifeof the lease. The $1.6 million gain represents the excess of the total gainover the present value of the future minimum lease payments. The Company doesnot have a continuing involvement in the properties sold other than the activeuse of the properties in consideration for payment of rent.

 

**Note 15 – Minority Interest and Australian Management Transaction**

 

Minorityinterest liability is attributable to the collective ownership interests of theminority shareholders of the Company’s subsidiaries, Pat & Oscars andCollins Foods Group.

 

Under the Company’s stock option plan for its Australian ManagementGroup (“AMG”), certain employees were granted options to purchase up to 4.1million shares, representing a diluted 19.4 percent interest, in Collins FoodsGroup (“CFG”), the Company’s Australian subsidiary managing the Sizzler®and KFC® restaurants in Australia. The exercise price of the options ranged from Australian $1.00 (U.S.$0.78 at April 30, 2005) to Australian $4.41 (U.S. $3.44 at April 30,2005), the estimated fair value of the shares on the grant dates.

 

In accordance with the Company’s stock option plan for AMG, at the endof the first quarter of fiscal year 2005, 4,064,000 options representing 19.0percent of common stock of CFG were exercised by the AMG.  An additional 23,000 options were exercisedduring the second quarter and the remaining 49,000 options expired during thesecond quarter.  During the third quarterof fiscal year 2005, the Company re-purchased 40,000 shares from certain AMGmembers. Net loss for fiscal year 2005 reflects minority interest of $2.6million and in fiscal year 2006, net income from the Company’s CFG operationsis expected to be reduced to reflect a minority interest of approximately 18.9percent reflecting the expiration of certain options and repurchase of certainshares.

 

The CFG options were considered in the computation of diluted earningsper share. See Note 12 – Earnings Per Share, to the Consolidated FinancialStatements.

 

F-28

----

 

The AMG shareholder’s agreement includes a put option whereby the AMGmembers may sell their CFG shares back to the Company at fair market value on acumulative basis at the rate of 1/6th of the shares per year commencing August 20,2003. The agreement further provides that the AMG members may sell or transfertheir shares of CFG among themselves, subject to a first right of refusal, heldby WRC, to purchase 1/3rd of any such shares traded. In addition, WRCwill have the right to buy the AMG shares from any terminated AMG member. Inaccordance with Emerging Issues Task Force (“EITF”) D-98, “Classification andMeasurement of Redeemable Securities,” the Company has classified the CFGminority interest outside of stockholders’ equity at its fair value as of thebalance sheet date. The fair market value of CFG shares on April 30, 2005was estimated to be Australian $10.14 (U.S. $7.90 at April 30, 2005). Asof April 30, 2005, approximately $4.5 million was received by the Companyfor exercised stock options. The difference between the fair value of theminority interest over its carrying value of $25.0 million is reflected as areduction of additional paid-in capital.

 
| **Minority interest**                                |   |   |   |
|------------------------------------------------------|--------|--------|--------|
| CFG minority interest at April 30,  2004        |   | $      | — |   |
| Sale of subsidiary equity                            |   | (150   | )      |
| Income attributable to minority interest             |   | 2,640  |   |
| Minority interest benefits paid                      |   | (161   | )      |
| Foreign currency translation effect                  |   | 43     |   |
| Total                                                |   | 2,372  |   |
| Value of CFG put at April 30, 2005              |   | 29,585 |   |
| Total CFG minority interest                          |   | 31,957 |   |
| Total Pat & Oscar’s minority  interest |   | 71     |   |
| Total minority interest at April 30,  2005      |   | $      | 32,028 |   |

 

**Note 16 – Market and Operating Partnerships**

 

During fiscalyear 2003, Pat & Oscar’s® began offering equity intereststo its regional and restaurant management (each participant, an “Equity Partner”).  This equity plan was established to create andpromote a strong sense of ownership among its key managers and enhance thedevelopment, operation and performance of Pat & Oscar’s. Each EquityPartner, generally a regional market manager or a restaurant general manager,is allowed to purchase an ownership interest in a limited liability companythat operates and owns or leases substantially all of the restaurant assetsfrom Pat & Oscar’s®. The ownership interest purchased bythe Equity Partner is based on fair market value and ranges from two percent toeight percent of the partnership, which includes only the restaurants that theEquity Partner oversees.  The EquityPartner is restricted from selling the ownership interest for an initial periodof five years.  At the end of the initialterm the Equity Partner has the option to continue operating on amonth-to-month basis, renew the agreement for another five years and purchasean additional one to two percent interest or sell his interest to Pat &Oscar’s at the then prevailing fair market value. Fair market value will bedetermined in accordance with reasonable and consistent valuation methods andprocedures and will consider among other things such factors as the restaurant’sremaining lease life, historic profitability and continued profitability of therestaurant(s).  The price paid by Pat &Oscar’s to repurchase the ownership interest, at the option of the EquityPartner, subject to the Company’s approval, may be made either in the form of anote, the Company’s common stock or 50 percent cash and 50 percent Companycommon stock.

 

There is nopublic market for these interests, therefore the fair value determinations aresubjective and require the use of estimates for which significant judgments arerequired. Periodically, the Company may engage outside experts to assess thereasonableness of the methodology the Company uses to estimate fair value.

 

During fiscalyear 2004, the initial investment made by three Equity Partners was offset byoperating losses that were allocated to the Equity Partners (resulting from theE.coli incident, see note 17 - E.coli Incident, to Consolidated FinancialStatements).  As a result, all lossesincurred subsequent to the reduction of an Equity Partner’s investment to zerowere allocated to the Company.  Duringfiscal year 2005, all three

 

F-29

----

 

EquityPartnerships covering regional managers were liquidated due to losses that hadfar exceeded the Equity Partner’s investment. One restaurant level equitypartner remained at the end of fiscal 2005; however, the losses from theunderlying restaurant had exceeded the equity partner’s investment. As aresult, all losses incurred subsequent to the reduction of an Equity Partner’sinvestment to zero were allocated to the Company. One new Equity Partnerinterest with the San Diego regional manager was formed after the previouspartnership was liquidated based on the updated fair market value of theunderlying restaurants covered by the region. The terms of the new plan are substantially the same as the originalplan.  In lieu of obtaining an initialinvestment in the partnership, a restricted stock grant in Pat & Oscar’sthat vests over three years was issued to the Eequity Partner.

 

**Note 17 – E.coli Incident**

 

On October 7, 2003, the Company was notified by various healthdepartment officials that Pat & Oscar’s was the focal point of aninvestigation into an outbreak of E.coli at certain of its restaurants.  Health officials focused their investigationon the lettuce that was supplied to the restaurants by Gold Coast and FamilyTree. Out of approximately 45 claims, all but seven have been settled. TheCompany anticipates that all of the remaining claims will be settled by the endof the second quarter of fiscal year2006.

 

The costs related to investigating and minimizing the impact of theE.coli incident through the end of the fiscal year ended April 30, 2005 of$0.1 million are reflected in the Company’s Consolidated Statements ofOperations.  The Company recorded a gainof $1.6 million related to insurance settlements in connection with Pat &Oscar’s E.coli incident in fiscal year 2005.

 

**Note 18 – Other Current Liabilities**

 

Other current liabilities as of April 30, 2005 and 2004 are asfollows (in thousands):

 
| ** **                         | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------------------------------|------------|----------|------------|----------|------------|
|                               |       |     |       |     |       |
| Accrued payroll                    |       | $        | 5,268      |     | $          | 4,570 |   |
| Accrued vacation                   |       | 5,396    |       | 4,937    |       |
| Accrued taxes, other than income   |       | 5,760    |       | 4,340    |       |
| Accrued self-insurance             |       | 5,324    |       | 3,503    |       |
| Accrued and deferred rent          |       | 2,518    |       | 2,170    |       |
| Accrued accounting and merger fees |       | 2,512    |       | 399      |       |
| Other                              |       | 2,852    |       | 3,415    |       |
| Total other current liabilities    |       | $        | 29,630     |     | $          | 23,334 |   |
|                                    |            |          |            |          |            |  |  |  |  |

 

**Note 19 – Asset Impairment**

 

Periodically, the Company performs a review of the undiscountedprojected cash flows to the carrying amount of the related assets ofunderperforming stores. Accordingly in fiscal year 2005, the Company recordedasset impairment charges of approximately $3.1 million, of which $0.3 millionrelates to Sizzler – Domestic segment and $2.8 million relates to Pat &Oscar’s.  In fiscal year 2004 the Companyrecorded asset impairment charges of approximately $1.8 million, of which $1.3million relates to Sizzler – Domestic segment and $0.5 million relates to Pat &Oscar’s. The Company recorded asset impairment charges of $1.7 million infiscal 2003, of which of which $1.4 million relates to Sizzler – Domesticsegment, $0.2 million relates to Sizzler – International segment and $0.1million relates to Pat & Oscar’s.

 

**Note 20 – Restaurant Assets Held for Sale**

 

During fiscal year 2005, the Company continued to implement itsstrategic decision to grow the Sizzler® brand in theUnited States primarily through franchising. As part of the initiative the Company identified Company-owned locationsin California that it plans to transition to existing or new franchisees. TheCompany is also continuing its plan to transition New York area restaurants toexisting or new franchisees, or to third parties, and expects this transitionto be completed in fiscal year 2006.

 

Assets related to restaurants held for sale reflected on theconsolidated balance sheets relate to two New York area restaurants and threeCalifornia restaurants for fiscal year 2005. Assets related to restaurants

 

F-30

----

 

held for sale reflected on the consolidated balance sheets relate toseven New York area restaurants and 11 California restaurants for fiscal year2004.  Assets related to restaurants heldfor sale primarily reflect leasehold improvements and restaurant equipment netof impairment charges of $0.6 and $3.1 million in fiscal years 2005 and 2004,respectively.

 

During fiscal year 2005, the Company sold 10 Sizzler USA restaurants tofranchisees and two restaurants to third parties for $2.6 million. In addition,the Company sold one Pat & Oscar’s restaurant in San Diego for $0.4million. The results of operations of restaurants held for sale or sold havenot been reflected as discontinued operations in the accompanying financialstatements as it is contemplated that the substantial majority of such restaurantswill only be sold to existing or new franchisees. When the Company-ownedrestaurant converts to a franchise, the Company receives royalty income that isbased on franchise sales.

 

The components of the assets related torestaurants held for sale included in the consolidated balance sheets are asfollows (in thousands):

 
| ** **                                  | ** ** | **April 30, 2005** | ** ** | **April 30, 2004** | ** ** |
|---------------------------------------------|------------|-------------------------|------------|-------------------------|------------|
|                                        |       |                    |       |                    |       |
| Inventories                                 |       | $                       | 173        |                    | $          | 597 |   |
| Prepaid expenses                            |       | 27                      |       | 174                     |       |
| Property and equipment, net                 |       | 1,918                   |       | 4,513                   |       |
| Other                                       |       | 114                     |       | 133                     |       |
| Assets related to restaurants held for sale |       | $                       | 2,232      |                    | $          | 5,417 |   |

 

**Note 21 –Accumulated Other Comprehensive Loss**

 

Components of accumulated other comprehensive loss included in theconsolidated balance sheets as of April 30, 2005 and 2004 are as follows(in thousands):

 
| ** **                                 | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------------------------------|------------|----------|------------|----------|------------|
|                                       |       |     |       |     |       |
| Foreign currency loss                      |       | $        | 7,396      |     | $          | 7,724 |   |
| Unrealized loss on derivative instruments  |       | —   |       | 6        |       |
| Minimum pension liability                  |       | 5,982    |       | 5,812    |       |
| Total accumulated other comprehensive loss |       | $        | 13,378     |     | $          | 13,542 |   |

 

**Note 22 – Fourth Quarter Adjustments**

 

During the fourth quarter of fiscal year 2005, the Company recorded acharge of approximately $0.5 million to increase its self-insurance reserve forworkers’ compensation and general liability. The increase is due to increasedloss development factors based on current market conditions.  During the fourth quarter of fiscal year2005, the Company recorded a gain of $1.7 million on the sale of land andbuilding on two properties. In addition, the Company increased its reserve forloss contingencies by $0.3 million and incurred $1.6 million in fees related tothe proposed merger with PEP. See Note 2 - Merger Agreement, to theConsolidated Financial Statements.

 

F-31

----

 

**Schedule II - Valuation and Qualifying Accounts**

 

The following is a summary of the activity in valuation and qualifyingaccounts:

 

VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED APRIL 30, 2005,2004, AND 2003

 

**Allowance for Accounts and**

**Notes Receivable**

(In thousands)

 
| ** **                     | ** ** | **Balance at** | ** ** | ** **    | ** ** | ** **     | ** ** | **Balance**   | ** ** |
|--------------------------------|------------|----------------|------------|---------------|------------|----------------|------------|---------------|------------|
| ** **                     | ** ** | **Beginning**  | ** ** | ** **    | ** ** | ** **     | ** ** | **at End of** | ** ** |
| ** **                     | ** ** | **of Period**  | ** ** | **Additions** | ** ** | **Deductions** | ** ** | **Period**    | ** ** |
|                           |       |           |       |          |       |           |       |          |       |
| Year ended April 30, 2005 |       | $              | 641        |          | $          | 140            |       | $             | 344        |   | $ | 437 |   |
|                           |       |           |       |          |       |           |       |          |       |
| Year ended April 30, 2004 |       | $              | 751        |          | $          | 235            |       | $             | 345        |   | $ | 641 |   |
|                           |       |           |       |          |       |           |       |          |       |
| Year ended April 30, 2003 |       | $              | 817        |          | $          | 16             |       | $             | 82         |   | $ | 751 |   |

 

F-32

----

 

**Item 9: *Changes in andDisagreements With Accountants on Accounting and Financial Disclosures***

 

None.

 

**Item 9A: Controls and Procedures**

 

**Disclosure Controls and Procedures**

 

The Company maintains disclosure controls andprocedures that are designed to ensure that information required to bedisclosed in the Company’s reports under the Securities Exchange Act of 1934,as amended (the “Exchange Act”), is recorded, processed, summarized andreported within the time periods specified in the SEC’s rules and forms,and that such information is accumulated and communicated to management,including the Company’s Chief Executive Officer (“CEO”) and Chief FinancialOfficer (“CFO”), as appropriate, to allow timely decisions regarding requireddisclosure*.* The Company periodicallyreviews the design and effectiveness of its disclosure controls and internalcontrol over financial reporting. The Company makes modifications to improvethe design and effectiveness of its disclosure controls and internal controlstructure, and may take other corrective action, if its reviews identify a needfor such modifications or actions.

 

A control system, no matter how well conceivedand operated, can provide only reasonable, not absolute, assurance that theobjectives of the control system are met. Because of the inherent limitationsin all control systems, no evaluation of controls can provide absoluteassurance that all control issues and instances of fraud, if any, within theCompany have been detected. These inherent limitations include the realitiesthat judgments in decision-making can be faulty, and that breakdowns can occurbecause of simple error or mistake. Additionally, controls can be circumventedby the individual acts of some persons, by collusion of two or more people, orby management override of the control. The design of any system of controlsalso is based in part upon certain assumptions about the likelihood of futureevents, and there can be no assurance that any design will succeed in achievingits stated goals under all potential future conditions; over time, control maybecome inadequate because of changes in conditions, or the degree of compliancewith the policies or procedures may deteriorate. Because of the inherentlimitations in a cost-effective control system, misstatements due to error orfraud may occur and not be detected*.*

 

In connection with the preparation of its AnnualReport on Form 10-K, as of April 30, 2005, an evaluation wasperformed under the supervision and with the participation of the Company’smanagement, including the CEO and CFO, of the effectiveness of the design andoperation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and15d-15(e) under the Exchange Act). The Company has concluded that controldeficiencies in its internal control over financial reporting as of April 30,2005 constitute material weaknesses within the meaning of the Public CompanyAccounting Oversight Board’s (“PCAOB”) Auditing Standard No. 2. Based onthat evaluation, the Company’s CEO and CFO concluded that the Company’sdisclosure controls and procedures were not effective as of April 30,2005.

 

**Management’s Report on Internal Control over Financial Reporting**

 

The management of Worldwide Restaurant Concepts, Inc.(the “Company”) is responsible for establishing and maintaining adequateinternal control over financial reporting. Internal control over financialreporting is defined in Rule 13a-15(f) or 15d-15(f) promulgatedunder the Securities Exchange Act of 1934 as a process designed by, or underthe supervision of, the Company’s principal executive and principal financialofficer and effected by the Company’s board of directors, management and otherpersonnel, to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles andincludes those policies and procedures that: 

 

•              Pertain to themaintenance of records that in reasonable detail accurately and fairly reflectthe transactions and dispositions of the assets of the Company;

 

•              Provide reasonableassurance that transactions are recorded as necessary to permit 

 

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preparation of financial statements in accordance with generallyaccepted accounting principles, and that receipts and expenditures of theCompany are being made only in accordance with authorizations of management anddirectors of the Company; and

 

•              Provide reasonableassurance regarding prevention or timely detection of unauthorized acquisition,use or disposition of the Company’s assets that could have a material effect onthe financial statements.

 

Because of its inherent limitations, internalcontrol over financial reporting may not prevent or detect misstatements.Projections of any evaluation of effectiveness to future periods are subject tothe risk that controls may become inadequate because of changes in conditions,or that the degree of compliance with the policies or procedures maydeteriorate.

 

A materialweakness is a control deficiency, or combination of control deficiencies, thatresults in more than a remote likelihood that a material misstatement of theannual or interim financial statements will not be prevented or detected.  The Company’s management assessed theeffectiveness of the Company’s internal control over financial reporting as of April 30,2005, which identified the following material weaknesses in the Company’sinternal control over financial reporting:

 

ControlEnvironment. The Company did not maintain a control environment that fullyemphasized the establishment of, adherence to, or adequate communicationregarding appropriate internal control for all aspects of its operations.  Specifically, the Company did not haveadequate controls in the following areas for the purposes of establishing,maintaining and communicating its control environment: (i) a sufficientnumber of personnel or appropriate depth of knowledge, experience and trainingin the application of accounting principles generally accepted in the UnitedStates of America (“US GAAP”) in its accounting and finance function, (ii) adequatecontrols over management override, including review of journal entry activityand analysis completed in connection with the financial closing and reportingprocess, and (iii) adequate monitoring program including adequate testingof its internal control systems and a comprehensive internal auditfunction.  Due to the potential formisstatements and the absence of other mitigating controls, there is a morethan remote likelihood that a material misstatement of the interim and annualfinancial statements would not have been prevented or detected.

 

InadequateEvaluation, Documentation and Application of Accounting Policies and Procedures– The Company’s controls for the evaluation, documentation and application ofaccounting policies and procedures were not designed or operatingeffectively.  Specifically, during theCompany’s fiscal fourth quarter of 2005, it was discovered that the Company’saccounting policies and procedures regarding lease accounting, including theaccounting treatment of rent holidays, rent escalations and tenant improvementallowances, had not been applied properly. During the first quarter of the Company’s 2006 fiscal year, the Companyfinalized the impact of the items identified and restated its financialstatements for the years ended April 30, 2004, 2003 and 2002 and for thefirst and second quarters of 2005 to present those financial statements in accordancewith US GAAP.  Due to (1) thesignificance of misstatements identified and potential for additionalmisstatements, and (2) the absence of other mitigating controls; there isa more than remote likelihood that a material misstatement of the interim andannual financial statements would not have been prevented or detected.

 

InadequateControls over the Identification and Accounting for Non-Routine Transactions –The Company’s controls for identifying and properly accounting for non-routinetransactions did not operate effectively. As a result, the Company’s processes did not identify goodwill and otherlong-lived asset impairments totaling approximately $25 million during itsthird and fourth quarter of fiscal 2005 financial closing processes.  Due to (1) the significance ofmisstatements identified and potential for additional misstatements, and (2) theabsence of other mitigating controls; there is a more than remote likelihoodthat a material misstatement of the interim and annual financial statementswould not have been prevented or detected.

 

Inadequate Controls over Income Tax Accounting – The Company’s controlsover income tax accounting were not designed or operating effectively.  As a result, a number of adjustments totalingin excess of $2.5 million to the income tax accounts of the Company, includingthe income tax valuation allowance and deferred income tax amounts, werenecessary for the 2005 year-end consolidated financial statements to 

 

35

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be presented in conformity with US GAAP.  Due to (1) the significance ofmisstatements identified and potential for additional misstatements, and (2) theabsence of other mitigating controls; there is a more than remote likelihoodthat a material misstatement of the interim and annual financial statementswould not have been prevented or detected.

 

InadequateControls over Self-Insurance Accruals – The Company’s control processes toreasonably estimate and adjust its self-insurance accruals were not operatingeffectively.  As a result, during its2005 year-end closing process, adjustments totaling $536,000 were necessary toproperly state its self-insurance accruals for workers’ compensation andgeneral liability in accordance with US GAAP. Due to (1) the significance of misstatements identified andpotential for additional misstatements, and (2) the absence of othermitigating controls; there is a more than remote likelihood that a materialmisstatement of the interim and annual financial statements would not have beenprevented or detected.

 

InadequateControls over Accounting for Commitments and Contingencies – The Company’scontrols over the accounting for commitments and contingencies were notoperating effectively.  This resulted inadjustments to the Company’s 2005 year-end accruals totaling $123,000 foroutstanding litigation and contingencies for the consolidated financialstatements to be presented in accordance with US GAAP.  Due to (1) the significance ofmisstatements identified and potential for additional misstatements, and (2) theabsence of other mitigating controls; there is a more than remote likelihoodthat a material misstatement of the interim and annual financial statementswould not have been prevented or detected.

 

Inadequate Preparation of Account Analyses, Account Summaries andAccount Reconciliations -The following significant deficiencies in theoperating effectiveness of controls over the year-end financial closing andreporting process were identified, which were considered a material weaknesswhen aggregated.  Inaccurate orincomplete account analyses, account summaries and account reconciliations wereprepared during the year-end financial closing and reporting process in theareas of accounts receivable, inventory, other current assets, property andequipment and other current liabilities. Due to (1) the significance of misstatements identified andpotential for additional misstatements, and (2) the absence of othermitigating controls; there is a more than remote likelihood that a materialmisstatement of the interim and annual financial statements would not have beenprevented or detected.

 

Inadequate Controls over Inventory – Deficiencies in operatingeffectiveness were identified related to the controls over the disbursementsmade for inventory purchases, including a lack of timely review of supportingdocumentation to ensure proper safeguarding of assets and propriety of amountsrecorded, which were considered a material weaknesses when aggregated.  Due to the potential for misstatements andthe absence of other mitigating controls, there is a more than remotelikelihood that a material misstatement of the interim and annual financialstatements would not have been prevented or detected.

 

Inadequate Controls over Payroll Costs – The Company’s controls overstore payroll costs were not operating effectively as store managers have boththe ability of establishing new employees in the payroll system and approvingthe time reported by employees for processing, without an appropriate level ofcompensating controls to safeguard the assets of the Company.  Due to the potential for misstatements andthe absence of other mitigating controls, there is a more than remotelikelihood that a material misstatement of the interim and annual financialstatements would not have been prevented or detected.

 

As a result ofthese deficiencies, material adjustments were necessary in order to present the2005 financial statements in accordance with accounting principles generallyaccepted in the United States.  Theseadjustments were primarily related to the recorded balances in deferred taxes,property and equipment, goodwill, accrued liabilities, deferred gains, rent andlandlord incentives, operating expenses and income taxes.   These deficiencies were concluded to bematerial weaknesses due to the misstatements identified, the potential forfurther misstatements as a result of the internal control deficiencies, and thelack of other mitigating controls.  In makingthis assessment, the Company’s management used the criteria set forth by thecommittee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal Control-Integrated Framework. Because of the material weaknesses described above, management believesthat, as of April 30, 2005, the Company’s internal control over financialreporting, as defined by the PCAOB, was not effective.

 

The Company’sindependent auditors have issued an audit report on our assessment of theCompany’s internal control over financial reporting which appears below.

 

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The Companyanticipates that the planned merger with Pacific Equity Partners (“PEP”) willbe consummated shortly after the filing of this 10-K, but no later than the endof the third quarter of calendar year 2005. Furthermore, PEP has indicated itsintention to substantially change the financial reporting process, internalcontrols, and structure of the company after the merger is completed, includingrelocating the company’s headquarters to Australia, reforming it as anAustralian based company, adopting international accounting principles andde-listing the Company from the New York Stock Exchange.  Accordingly, the Company would no longer besubject to the requirements of the Sarbanes-Oxley Act.  However, the company intends to addadditional technical and accounting resources during the second fiscal quarterof 2006 to assist in remediating the material weaknesses discussed previouslyin the event that the merger is not completed as planned.

 

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

To the Board of Directors and Stockholders ofWorldwide Restaurant Concepts, Inc.**Sherman Oaks, California

 

We have audited management’s assessment, included inthe accompanying *Management’s Report on Internal Control overFinancial Reporting*, that WorldwideRestaurant Concepts, Inc. and subsidiaries (the “Company”) did notmaintain effective internal control over financial reporting as of April 30,2005, because of the effect of the material weaknesses identified in management’sassessment based on criteria established in *InternalControl—Integrated Framework*issued by the Committee of SponsoringOrganizations of the Treadway Commission.  The Company’s management isresponsible for maintaining effective internal control over financial reportingand for its assessment of the effectiveness of internal control over financialreporting.  Our responsibility is to express an opinion on management’sassessment and an opinion on the effectiveness of the Company’s internalcontrol over financial reporting based on our audit.

 

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (UnitedStates).  Those standards require that we plan and perform the audit to obtainreasonable assurance about whether effective internal control over financialreporting was maintained in all material respects.  Our audit includedobtaining an understanding of internal control over financial reporting,evaluating management’s assessment, testing and evaluating the design andoperating effectiveness of internal control, and performing such otherprocedures as we considered necessary in the circumstances.  We believethat our audit provides a reasonable basis for our opinions.

 

A company’s internal control over financialreporting is a process designed by, or under the supervision of, the company’sprincipal executive and principal financial officers, or persons performingsimilar functions, and effected by the company’s board of directors,management, and other personnel to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statementsfor external purposes in accordance with generally accepted accountingprinciples.  A company’s internal control over financial reportingincludes those policies and procedures that (1) pertain to the maintenanceof records that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directorsof the company; and (3) provide reasonable assurance regarding preventionor timely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

 

Because of the inherent limitations of internalcontrol over financial reporting, including the possibility of collusion orimproper management override of controls, material misstatements due to erroror fraud may not be prevented or detected on a timely basis.  Also,projections of any evaluation of the effectiveness of the internal control overfinancial reporting to future periods are subject to the risk that the controlsmay become inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

 

A material weakness is a significant deficiency, orcombination of significant deficiencies, that results in more than a remotelikelihood that a material misstatement of the annual or interim financialstatements 

 

37

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will not be prevented or detected.  Thefollowing material weaknesses have been identified and included in management’sassessment:

 

ControlEnvironment. The Company did not maintain a controlenvironment that fully emphasized the establishment of, adherence to, or adequatecommunication regarding appropriate internal control for all aspects of itsoperations.  Specifically, the Companydid not have adequate controls in the following areas for the purposes ofestablishing, maintaining and communicating its control environment: (i) asufficient number of personnel or appropriate depth of knowledge, experienceand training in the application of accounting principles generally accepted inthe United States of America (“US GAAP”) in its accounting and financefunction, (ii) adequate controls over management override, includingreview of journal entry activity and analysis completed in connection with thefinancial closing and reporting process, and (iii) adequate monitoringprogram including adequate testing of its internal control systems and acomprehensive internal audit function. Due to the potential for misstatements and the absence of othermitigating controls, there is a more than remote likelihood that a materialmisstatement of the interim and annual financial statements would not have beenprevented or detected.

 

InadequateEvaluation, Documentation and Application of Accounting Policies and Procedures – TheCompany’s controls for the evaluation, documentation and application ofaccounting policies and procedures were not designed or operatingeffectively.  Specifically, during the Company’s fiscalfourth quarter of 2005, it was discovered that the Company’s accountingpolicies and procedures regarding lease accounting, including the accountingtreatment of rent holidays, rent escalations and tenant improvement allowances,had not been applied properly.  Duringthe first quarter of the Company’s 2006 fiscal year, the Company finalized theimpact of the items identified, which included increases to fixed assets,deferred rent liabilities and accumulated deficit and a decrease to net income,and restated its financial statements for the years ended April 30, 2004,2003 and 2002 and for the first and second quarters of 2005 to present thosefinancial statements in accordance with US GAAP.  Due to (1) the significance ofmisstatements identified and potential for additional misstatements, and (2) theabsence of other mitigating controls; there is a more than remote likelihoodthat a material misstatement of the interim and annual financial statementswould not have been prevented or detected.

 

InadequateControls over the Identification and Accounting for Non-Routine Transactions – TheCompany’s controlsfor identifying and properly accounting for non-routine transactions did notoperate effectively.  As a result, theCompany’s processes did not identify goodwill and other long-lived assetimpairments totaling approximately $25 million during its third and fourthquarter of fiscal 2005 financial closing processes.  Due to (1) the significance ofmisstatements identified and potential for additional misstatements, and (2) theabsence of other mitigating controls; there is a more than remote likelihoodthat a material misstatement of the interim and annual financial statementswould not have been prevented or detected.

 

Inadequate Controls over Income Tax Accounting– TheCompany’s controls over income tax accounting were not designed or operatingeffectively. As a result, a number of adjustments totaling in excess of $2.5 millionto the income tax accounts of the Company, including the income tax valuationallowance and deferred income tax amounts, were necessary for the 2005 year-endconsolidated financial statements to be presented in conformity with USGAAP.  Due to (1) the significanceof misstatements identified and potential for additional misstatements, and (2) theabsence of other mitigating controls; there is a more than remote likelihoodthat a material misstatement of the interim and annual financial statementswould not have been prevented or detected.

 

InadequateControls over Self-Insurance Accruals – TheCompany’s control processes to reasonably estimate and adjust itsself-insurance accruals were not operating effectively.  As a result, during its 2005 year-end closingprocess, adjustments totaling $536,000 were necessary to properly state itsself-insurance accruals for workers’ compensation and general liability inaccordance with US GAAP.  Due to (1) thesignificance of misstatements identified and potential for additionalmisstatements, and (2) the absence of other mitigating controls; there isa more than remote likelihood that a material misstatement of the interim andannual financial statements would not have been prevented or detected.

 

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InadequateControls over Accounting for Commitments and Contingencies – TheCompany’s controls over the accounting for commitments and contingencies werenot operating effectively.  This resultedin adjustments to the Company’s 2005 year-end accruals for outstandinglitigation and contingencies for the consolidated financial statements to bepresented in accordance with US GAAP. Due to (1) the significance of misstatements identified andpotential for additional misstatements, and (2) the absence of othermitigating controls; there is a more than remote likelihood that a materialmisstatement of the interim and annual financial statements would not have beenprevented or detected.

 

Inadequate Preparation of Account Analyses, AccountSummaries and Account Reconciliations -The followingsignificant deficiencies in the operating effectiveness of controls over theyear-end financial closing and reporting process were identified, which wereconsidered a material weakness when aggregated. Inaccurate or incomplete account analyses, account summaries and accountreconciliations were prepared during the year-end financial closing andreporting process in the areas of accounts receivable, inventory, other currentassets, property and equipment and other current liabilities.  Due to (1) the significance ofmisstatements identified and potential for additional misstatements, and (2) theabsence of other mitigating controls; there is a more than remote likelihoodthat a material misstatement of the interim and annual financial statementswould not have been prevented or detected.

 

Inadequate Controls over Inventory – Deficiencies inoperating effectiveness were identified related to the controls over thedisbursements made for inventory purchases, including a lack of timely reviewof supporting documentation to ensure proper safeguarding of assets andpropriety of amounts recorded, which were considered a material weaknesses whenaggregated.  Due to thepotential for misstatements and the absence of other mitigating controls, thereis a more than remote likelihood that a material misstatement of the interimand annual financial statements would not have been prevented or detected.

 

Inadequate Controls over Payroll Costs – The Company’s controls over store payroll costswere not operating effectively as store managers have both the ability ofestablishing new employees in the payroll system and approving the timereported by employees for processing, without an appropriate level ofcompensating controls to safeguard the assets of the Company.  Due to the potential for misstatementsand the absence of other mitigating controls, there is a more than remotelikelihood that a material misstatement of the interim and annual financialstatements would not have been prevented or detected.

 

These material weaknesses were considered indetermining the nature, timing, and extent of audit tests applied in our auditof the consolidated financial statements and financial statement schedules asof and for the year ended April 30, 2005, of the Company and this reportdoes not affect our report on such financial statements and financial statementschedules.

 

In our opinion, management’s assessment that theCompany did not maintain effective internal control over financial reporting asof April 30, 2005, is fairly stated, in all material respects, based onthe criteria established in *InternalControl—Integrated Framework*issued by the Committee of SponsoringOrganizations of the Treadway Commission.  Also in our opinion, because ofthe effect of the material weaknesses described above on the achievement of theobjectives of the control criteria, the Company has not maintained effectiveinternal control over financial reporting as of April 30, 2005, based onthe criteria established in *InternalControl—Integrated Framework*issued by the Committee of SponsoringOrganizations of the Treadway Commission.

 

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We have also audited, in accordance with the standards of the PublicCompany Accounting Oversight Board (United States), the consolidated financialstatements and financial statement schedules as of and for the year ended April 30,2005, of the Company and our report dated August 3, 2005, expressed anunqualified opinion on those financial statements and financial statementschedules and included an explanatory paragraph regarding the entering into adefinitive merger agreement with Pacific Equity Partners to acquire all of theoutstanding capital stock of the Company.

 
| /s/ DELOITTE & TOUCHE LLP |   |
|------------------------------------|--------|
|                               |
| Los Angeles, California            |
| August 3, 2005                |

 

**Item 9B:Other Information**

 

None

 

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**PART III**

** **

**Item 10: *Directors and Executive Officers of the Registrant***

 

**DIRECTORS**

 

The Board of Directors consists of sevenmembers, divided into three classes.  Theterm of Class II (consisting of three members) expires at the 2005 AnnualMeeting, the term of Class III (consisting of two members) expires at the2006 Annual Meeting and the term of Class I (consisting of two members)expires at the 2007 Annual Meeting.

 

Certain information concerning the directorsis set forth below:

 
| **Name and  Age**                       | ** ** | **Present Principal Occupation  and Five Year  Business Experience**                                                                                                                                                                                                                                                                                               |
|-----------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                              | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                         |
| **Class I:**Term expires in 2007.  |       |                                                                                                                                                                                                                                                                                                                                                               |
| ** **                              | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                         |
| Peggy T.  Cherng, Ph.D (57)             |       | Director of the Company since June 9,  2003. Chief Executive Officer, Panda Restaurant Group (1996 to present).  Director, Children’s Hospital Los Angeles, National Restaurant Association,  Methodist Hospital of Southern California, and Member, Board of Visitors,  Peter F. Drucker Graduate School of Management, Claremont Graduate  University. |
|                                    |       |                                                                                                                                                                                                                                                                                                                                                               |
| Charles F. Smith (72)                   |       | Director of the Company since 1995.  President of Charles F. Smith & Co., Inc., an investment  banking firm (1984 to present). Director, FirstFed Financial Corp.,  TransOcean Distribution, Ltd. Trustee, St. John’s Hospital Foundation and  Marymount High School.                                                                           |
| **Class II:** Term expires in 2005 | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                         |
| ** **                              | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                         |
| Charles L. Boppell (63)                 |       | President and Chief Executive Officer of  the Company since 1999. Director of the Company since 1999. President and  Chief Executive Officer of La Salsa Holding Co. (1993-1999). Director, Fresh  Choice, Inc.                                                                                                                                               |
|                                    |       |                                                                                                                                                                                                                                                                                                                                                               |
| Phillip D. Matthews (66)                |       | Chairman of the Board of the Company since  1999. Director of the Company since 1997. Lead Director and Chairman of the  Executive Committee of Wolverine World Wide, Inc. Chairman of the Board  of Wolverine World Wide, Inc. (1993-1996). Director, Washington  Mutual, Inc. and Wolverine World Wide, Inc.                                 |
|                                    |       |                                                                                                                                                                                                                                                                                                                                                               |
| Robert A. Muh (67)                      |       | Director of the Company since 1997. Chief  Executive Officer of Sutter Securities, Inc. (1992-1997, 1998 to the  present). Trustee, Massachusetts Institute of Technology and Napa Valley  Opera House.                                                                                                                                                       |

 

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| **Class III:** Term expires in 2006 | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                               | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| Barry E. Krantz (60)                     |       | Director of the Company since 1997.  Restaurant industry consultant since 1995. Consultant to the Company  (1996-1999). President and Chief Operating Officer, Family  Restaurants, Inc. (1994-1995). Chief Operating Officer, Restaurant  Enterprises Group, Inc. (1993-1994). President, Family Restaurant  Division of Restaurant Enterprises Group, Inc. (1989-1994). Director,  Fresh Choice, Inc. and Gardenburger, Inc. Regional Board Member,  Anti-Defamation League |
|                                     |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| Leonard H. Dreyer (61)                   |       | Restaurant industry consultant since 2001.  Chairman of the Board (1994-1999), Chief Executive Officer and President (1994-2001)  and Executive Vice President and Chief Financial Officer (1990-1994), Marie  Callender’s Pies Shops, Inc. Director, Marine Corps Scholarship  Foundation, Chairman (1999-2000). University Advancement Foundation,  California State University at Fullerton.                                                                                              |

 

Except as otherwise indicated, during thepast five years none of the directors has been employed by or has carried onhis or her occupation in any corporation or organization which is a parent,subsidiary or other affiliate of the Company.

 

Leonard H. Dreyer (Chairman), Charles F.Smith, Phillip D. Matthews and Robert A. Muh comprised the AuditCommittee.  The Audit Committee met tentimes during fiscal year 2005.  The AuditCommittee has sole responsibility for the appointment, retention and replacementof the Company’s independent auditors (subject to stockholder ratification),reviews the fee arrangements and scope of the annual audit and considers thecomments of the independent auditors with respect to internal accountingcontrols.  The Audit Committee assiststhe Board of Directors in reviewing and monitoring the financial statements ofthe Company and its compliance with legal and regulatory requirements.  At each meeting, the Audit Committee meetsseparately with the independent auditors. The Board of Directors considers Mr. Dreyer, Mr. Smith, Mr. Matthewsand Mr. Muh to be “independent” within the meaning of Sections303.01(B)(2)(a) and (3) of the NYSE’s listing standards.  All members are “financially literate” underthe NYSE’s listing standards, and the Board has determined that all fourmembers possess such accounting or related financial management expertise as tobe considered an “audit committee financial expert” under the SEC’s rules.

 

**Section 16(b) Beneficial OwnershipReporting Compliance**

 

The Company isrequired to identify any director, officer or beneficial owner of in excess of10% of the Common Stock who failed to timely file with the SEC a requiredreport relating to ownership and changes in ownership of the Company’s equitysecurities. Based solely on the Company’s review of Forms 3, 4 and 5 furnishedto it during or with respect to fiscal 2005, all such persons complied withsuch applicable filing requirements during fiscal 2005.

 

Information required by this item with respect to the Company’sexecutive officers is set forth in Part I of this Annual Report under thecaption “Executive Officers of the Registrant” as of June 30, 2005.

 

The Companyhas adopted a written code of ethics that applies to our senior financialofficers including Chief Executive Officer, Chief Financial Officer, Controllerand other financial executives.  Thiscode of ethics is filed as Exhibit 14.1 to this report on Form 10-K.

 

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**Item 11: *Executive Compensation***

 

**Summary Compensation Table**

** **
| ** **                       | ** ** | ** ** | ** ** | ** **                 | ** ** | ** **                    | ** ** | **Long Term**                       | ** ** |
|----------------------------------|------------|------------|------------|----------------------------|------------|-------------------------------|------------|-------------------------------------|------------|
| ** **                       | ** ** | ** ** | ** ** | ** **                 | ** ** | ** **                    | ** ** | **Compensation**                    | ** ** |
| **Name and  Principal Position** | ** ** | ** ** | ** ** | **Annual Compensation(1)** | ** ** | **Restricted  Stock  Awards** | ** ** | **Securities  Underlying  Options** | ** ** | **All Other  Compensation** | ** ** |
| **at  May 1, 2005**         | ** ** | **Year**   | ** ** | **Salary($)**              | ** ** | **Bonus($)(2)**               | ** ** | **($)**                             | ** ** | **(#)** | ** ** | **($)(3)** | ** ** |
|                             |       |       |       |                       |       |                          |       |                                |       |   |   |   |   |
| Charles L. Boppell               |       | 2005       |       | 415,000                    |       | 109,000                       |       | —                              |       | — |   | — |   |
| Chief Executive Officer and      |       | 2004       |       | 415,000                    |       | —                        |       | —                              |       | 37,500 |   | — |   |
| Director                         |       | 2003       |       | 400,000                    |       | 284,000                       |       | —                              |       | 75,000 |   | — |   |
|                             |       |       |       |                       |       |                          |       |                                |       |   |   |   |   |
| Kevin W. Perkins                 |       | 2005       |       | 299,000                    |       | 676,000                       |       | —                              |       | — |   | — |   |
| Chief Executive Officer/         |       | 2004       |       | 299,000                    |       | 187,000                       |       | —                              |       | — |   | — |   |
| International Division           |       | 2003       |       | 227,000                    |       | 172,000                       |       | —                              |       | — |   | — |   |
|                             |       |       |       |                       |       |                          |       |                                |       |   |   |   |   |
| Kenneth Cole                     |       | 2005       |       | 297,000                    |       | 137,000                       |       | —                              |       | — |   | — |   |
| Chief Executive Officer          |       | 2004       |       | 297,000                    |       | —                        |       | —                              |       | 40,000 |   | — |   |
| Sizzler USA                      |       | 2003       |       | 286,000                    |       | 114,000                       |       | —                              |       | 60,000 |   | — |   |
|                             |       |       |       |                       |       |                          |       |                                |       |   |   |   |   |
| A. Keith Wall                    |       | 2005       |       | 187,000                    |       | 81,000                        |       | —                              |       | — |   | — |   |
| Vice President and               |       | 2004       |       | 187,000                    |       | —                        |       | —                              |       | 30,000 |   | — |   |
| Chief Financial Officer          |       | 2003       |       | 182,000                    |       | 64,000                        |       | —                              |       | 40,000 |   | — |   |
|                             |       |       |       |                       |       |                          |       |                                |       |   |   |   |   |
| Michael B. Green                 |       | 2005       |       | 190,000                    |       | 82,000                        |       | —                              |       | — |   | — |   |
| Vice President/General Counsel   |       | 2004       |       | 185,000                    |       | —                        |       | —                              |       | 24,000 |   | — |   |
| and Secretary                    |       | 2003       |       | 170,000                    |       | 51,000                        |       | —                              |       | 25,000 |   | — |   |
|                             |       |       |       |                       |       |                          |       |                                |       |   |   |   |   |
| John Wright (4)                  |       | 2005       |       | 250,000                    |       | 38,000                        |       | —                              |       | 15,000 |   | — |   |
| Chief Executive Officer          |       | 2004       |       | 77,000                     |       | —                        |       | —                              |       | — |   | — |   |
| Pat & Oscar’s      |       |       |       |                       |       |                          |       |                                |       |   |   |   |   |

 

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(1)   In addition to salary and bonus, certain of the named executives mayreceive other annual compensation in the form of automobile allowance and costreimbursement, reimbursements for legal and tax assistance, and executivemedical plan costs. For fiscal 2003, 2004 and 2005, no such items of otherannual compensation exceeded the lesser of $50,000 or 10% of total salary andbonus for any named executive.

 

(2)   Bonuses are attributed to the fiscal year withrespect to which they are earned rather than paid.

 

(3)   Certain executive officers receive the benefit oflife insurance provided by the Company. For fiscal 2003, 2004 and 2005, thecost of premiums did not exceed $2,000 for any named executive officer.

 

(4)   Mr. Wright received an initial signing bonusof $103,000 in fiscal 2004 that included relocation costs.

 

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**Option Grants in the Last Fiscal Year**

 

The following table sets forth grants ofoptions to purchase shares of the Company’s Common Stock during the fiscal yearended April 30, 2005 to the executive officers named in the SummaryCompensation Table:

 

 
| ** **  | ** ** | **INDIVIDUAL GRANTS**                                               | ** ** | ** **                                                          | ** ** |
|-------------|------------|---------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|
| **Name**    | ** ** | **Number of  Securities****Underlying  Options****Granted(#)  (1)** | ** ** | **% of Total  Options  Granted to  Employees  in  Fiscal  Year(%)** | ** ** | **Exercise  or Base  Price  ($/SH)  (2)** | ** ** | **Expiration  Date** | ** ** | **Grant  Date****   Present  Value  ($)(3)** | ** ** |
| John Wright |       | 15,000                                                              |       | 13.3                                                                | %          | 3.25 |   | 06/17/14 |   | 28,000 |   |

 

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(1)   Incentive stock options granted pursuant to the Company’s 1997 EmployeeStock Incentive Plan. The options become exercisable in equal amounts in eachof the three years after the date of grant. The 1997 Employee Stock IncentivePlan has provisions relating to the impact of a change of control, death,disability, retirement and termination of employment on the exercisability ofoptions.

 

(2)   Based on the market price per share for theCompany’s Common Stock as of June 17, 2004.

 

(3)   In accordance with rules of the SEC, theCompany used the Black-Scholes option-pricing model to estimate the presentvalue as of the grant date of the option. The Company cannot predict orestimate the future price of its Common Stock, and no option pricing model,including the Black-Scholes model, can accurately determine the value of anoption. Accordingly, the Company can make no assurance that the value realizedby the officer, if any, will be at or near the value estimated in accordancewith the Black-Scholes model. The assumptions that the Company used for thevaluation include: 64.8 % price volatility, 3.4% weighted average risk-freerate of return, 0.0% dividend yield, and a single option exercise at the end offive years. The Company made no adjustment for non-transferability or risk offorfeiture.

 

44

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**FISCAL2005 YEAR-END OPTION VALUE TABLE**

 

The following table sets forth the number ofall unexercised options and the aggregate dollar value of all unexercised “in-the-money”options held by the executive officers named in the Summary Compensation Tableas of the end of fiscal 2005.  On April 29,2005, the final trading day of the fiscal year, the closing sale price on theNYSE of a share of the Company’s Common Stock was $6.29.  The value of the unexercised, in-the-moneyoptions held by such officers was based on the closing sale price minus therelevant exercise price.  There were nooptions exercised by such officers during fiscal 2005.

 

**Fiscal 2005 Year-End Option Value Table**

 
| ** **         | ** ** | **Number of**           | ** ** | **Value of**            | ** ** |
|--------------------|------------|-------------------------|------------|-------------------------|------------|
| ** **         | ** ** | **Shares Subject**      | ** ** | **Unexercised In-**     | ** ** |
| ** **         | ** ** | **to Unexercised**      | ** ** | **the-Money**           | ** ** |
| ** **         | ** ** | **Options at**          | ** ** | **Options at**          | ** ** |
| ** **         | ** ** | **April 30, 2005** | ** ** | **April 30, 2005** | ** ** |
| **Name**           | ** ** | **Exercisable**         | ** ** | **Non-exercisable**     | ** ** | **Exercisable** | ** ** | **Non-exercisable** | ** ** |
|               |       |                    |       |                    |       |   |   |   |   |
| Charles L. Boppell |       | 1,062,500               |       | 50,000                  |       | $ | 4,295,000 |   | $ | 202,000 |   |
| Kevin W. Perkins   |       | 120,000                 |       | —                  |       | 432,000 |   | — |   |
| Kenneth Cole       |       | 203,333                 |       | 46,667                  |       | 864,000 |   | 198,000 |   |
| A. Keith Wall      |       | 121,666                 |       | 33,334                  |       | 564,000 |   | 155,000 |   |
| Michael B. Green   |       | 103,000                 |       | 26,000                  |       | 429,000 |   | 108,000 |   |
| John Wright        |       | 16,670                  |       | 48,330                  |       | 57,000 |   | 166,000 |   |
|               |       |                    |       |                    |       |   |   |   |   |
|               |       | 1,627,169               |       | 204,331                 |       | $ | 6,641,000 |   | $ | 829,000 |   |

 

**Executive Supplemental BenefitPlan**

 

During fiscal 2005,the Company maintained an Executive Supplemental Benefit Plan (“SERP”) foreleven former eligible employees. Under the SERP, the normal retirement date isthe later of the participant’s sixty-fifth birthday or the date the participantachieves 10 years of service under the SERP. Participants who retire at thenormal retirement date are entitled to receive 65% of the average for theirthree highest years of earnings, comprised of base salary and standard bonus,but excluding any other cash bonus or form of remuneration, during the lastfive years of employment, reduced by 50% of the participant’s primary socialsecurity benefit and by the annuitized value of the participant’s accountbalance under the profit sharing portion of the Company’s Employee SavingsPlan. Such benefits are payable as a life and survivor annuity. Participantswho retire between the ages of 55 and 65 and who have completed 15 years ofservice under the SERP are entitled to receive reduced benefits based on ageand the number of years of service completed. During fiscal 2003, the Company terminated the SERP, except with regardto the eleven former eligible employees who currently are participants andreceiving benefits.

 

**Employment Agreement**

 

The Company is a party to an Employment Agreementwith Charles L. Boppell, its Chief Executive Officer. The agreement, enteredinto on February 8, 1999, sets forth Mr. Boppell’s position andresponsibilities with the Company. Under the agreement, Mr. Boppell was toreceive a minimum annual base salary of $350,000 over the term of theagreement. In fiscal 2001, Mr. Boppell’s salary was increased to $370,000and remained at that amount for fiscal 2002. In fiscal 2003, Mr. Boppell’ssalary was increased to $400,000, and in fiscal 2004 Mr. Boppell’s salarywas increased to $415,000**.** Theagreement entitled Mr. Boppell to participation in the ManagementIncentive Plan or other bonus program, disability benefits, and other fringebenefits and perquisites generally available to executive officers of the Company.The agreement expired on February 7, 2004, at which time the Company and Mr. Boppellexecuted an 

 

45

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amendment, which provided for one-yearextensions on a year-to-year basis.  Atleast ninety days prior to the end of each contract year (February 7th),Mr. Boppell and the Company are to decide whether to continue theagreement for another contract year.  Inthe event that the Company determines not to continue the agreement and extend Mr. Boppell’semployment for another year for any reason other than “Cause” as definedtherein, Mr. Boppell will be entitled to receive as severance one year’sbase salary plus one year’s performance bonus based upon the averageperformance bonus actually received during the last two fiscal years andpayment for one year’s COBRA premiums for the executive medical and dentalplans then in effect, payable monthly on a prorated basis for one year.  In the event that Mr. Boppell determinesnot to continue the agreement and desires to terminate his employment at theend of the contract year, Mr. Boppell and the Company will enter into aone-year consulting agreement with total compensation computed in accordancewith the terms as set forth above.

 

Under the agreement, the Company mayterminate Mr. Boppell’s employment for cause. “For Cause” is defined toinclude the executive’s (a) breach of his covenants contained in theagreement, (b) entry of a plea of guilty or nolo contendere for any crimeinvolving moral turpitude or any felony punishable by imprisonment or hisconviction of any such offense, (c) commission of any act of fraud relatedto his duties, and (d) willful misconduct, dishonesty or gross negligencein performance of his duties.

 

In connection with the employment agreement,the Company granted to Mr. Boppell an option to purchase 1,000,000 sharesof the Company’s Common Stock at an exercise price of $2.19 a share. The optionvested and became exercisable at the rate of 200,000 shares per year in each offiscal 2000, 2001, 2002, 2003 and 2004.

 

46

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**Item 12: *Security Ownership of Certain BeneficialOwners and Management and Related Stockholder Matters***

 

**PRINCIPAL STOCKHOLDERS**

 

As of July 1, 2005, according to filingswith the Securities and Exchange Commission (“SEC”) and to the best knowledgeof the Company, the following persons are the beneficial owners of more than 5%of the outstanding shares of the Common Stock of the Company:

 
| **Name and Address**                                                                                                                | ** ** | **Amount and Nature of  Beneficial  Ownership(1)** | ** ** | **Percent Of  Class(2)** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|--------------------------|------------|
|                                                                                                                                |       |                                               |       |                     |       |
| James A. Collins                                                                                                                    |       | 3,119,611                                          | (3)        | 11.2                     | %          |
| 6101 West Centinela Avenue                                                                                                          |       |                                               |       |                     |       |
| Culver City, CA 90230                                                                                                               |       |                                               |       |                     |       |
|                                                                                                                                |       |                                               |       |                     |       |
| Dimensional Fund Advisors Inc (“DFAI”) (4)  1299 Ocean Avenue,  11th Floor  Santa  Monica, CA 90401                  |       | 2,253,570                                          |       | 8.1                      | %          |
|                                                                                                                                |       |                                               |       |                     |       |
| Eliot Rose Asset Management LLC and  Gary S. Siperstein (“Eliot”)  10 Weybosset St., Suite 401  Providence, RI 02903 |       | 2,224,300                                          | (5)        | 8.0                      | %          |
|                                                                                                                                |       |                                               |       |                     |       |
| Prides Capital Partners, LLC  (“Prides”)                                                                                  |       | 2,047,950                                          | (6)        | 7.3                      | %          |
| 200 High Street, Suite 700                                                                                                     |       |                                               |       |                     |       |
| Boston, MA 02110                                                                                                                    |       |                                               |       |                     |       |
|                                                                                                                                |       |                                               |       |                     |       |
| Asamara, LLC                                                                                                                        |       | 1,674,200                                          |       | 6.0                      | %          |
| 415 South Boston, 9th  Floor                                                                                                        |       |                                               |       |                     |       |
| Tulsa, OK  74103                                                                                                               |       |                                               |       |                     |       |

 

----

(1)   Unless otherwise indicated, possesses sole votingand dispositive power for all shares of Common Stock the beneficial ownershipof which is ascribed.

 

(2)   In accordance with rules of the SEC,percentages were calculated on the basis of the amount of outstanding shares,excluding shares held by or for the account of the Company, plus shares deemedoutstanding pursuant to Rule 13d-3(d)(1) under the SecuritiesExchange Act of 1934, as amended.

 

(3)   Does not include 254,483 shares of Common Stockheld by an independent trustee for the benefit of Mr. Collins’ adultchildren, as to which shares Mr. Collins disclaims beneficial ownership.

 

(4)   DFAI and its affiliates disclaim beneficialownership of any Common Stock. According to their SEC filings, DFAI and itsaffiliates may be deemed to be beneficial owners of the shares as a result ofserving as investment adviser and investment manager of various portfolios.

 

(5)   According to its SEC filings, Eliot lacks solevoting or dispositive power with respect to all of the shares of Common Stock,and possesses shared voting power with respect to none of the shares and shareddispositive power with respect to 2,224,300 shares.  Eliot is a registered investment adviserwhose clients (none of whom has more than 5% of the outstanding shares of theCommon Stock) have the right to receive, or the power to direct the receipt of,dividends and the proceeds of the sale of the shares.

 

47

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(6)   According to its SEC filings, Prides lacks solevoting and shared voting power with respect to all of the shares of CommonStock.  Prides’ principal business isacting as general partner for an investment partnership and providing investingadvisory services.

 

The followingtable sets forth certain information regarding the equity securities of theCompany beneficially owned by each director of the Company, each executiveofficer named in the Summary Compensation Table and all directors and executiveofficers of the Company as a group, on April 30, 2005.

 
| **Name**                                                      | ** ** | **Amount and Nature****Of Beneficial  Ownership  of Common  Stock(1)(2)** | ** ** | **Percent of  Class(3)** | ** ** |
|---------------------------------------------------------------|------------|---------------------------------------------------------------------------|------------|--------------------------|------------|
| **Directors **                                           |       |                                                                      |       |                     |       |
| ** **                                                    |       |                                                                      |       |                     |       |
| Phillip D. Matthews                                           |       | 216,350                                                                   |       |                     | *     |
| Charles L. Boppell                                            |       | 1,295,900                                                                 |       | 4.2                      | %          |
| Peggy T. Cherng                                               |       | 10,364                                                                    |       |                     | *     |
| Leonard H. Dreyer                                             |       | 13,136                                                                    |       |                     | *     |
| Barry E. Krantz                                               |       | 79,388                                                                    |       |                     | *     |
| Robert A. Muh                                                 |       | 226,226                                                                   |       |                     | *     |
| Charles F. Smith                                              |       | 279,685                                                                   |       |                     | *     |
|                                                          |       |                                                                      |       |                     |       |
| **Executive Officers not also  Directors **              |       |                                                                      |       |                     |       |
| ** **                                                    |       |                                                                      |       |                     |       |
| A. Keith Wall (age 52)                                        |       | 145,000                                                                   |       |                     | *     |
| Kenneth Cole (age 51)                                         |       | 239,366                                                                   |       |                     | *     |
| Michael B. Green (age 59)                                     |       | 144,500                                                                   |       |                     | *     |
| Kevin W. Perkins (age 53)                                     |       | 455,830                                                                   |       | 1.5                      | %          |
| John Wright (age 57)                                          |       | 21,670                                                                    |       |                     | *     |
|                                                          |       |                                                                      |       |                     |       |
| All Directors and Executive  Officers as a Group (15 persons) |       | 3,289,290                                                                 |       | 10.7                     | %          |

 

----

*  Lessthan one percent (1%) of class.

 

(1)   Possesses sole voting and investment power.

 

(2)   Includes shares issuable pursuant to optionsexercisable within 60 days of May 1, 2005 in the following amounts: Mr. Boppell— 37,500 shares, Ms. Cherng – 2,228 shares, and all directors andexecutive officers as a group — 144,770 shares. Shares issuable pursuant to all options exercisable after May 1,2005: Mr. Matthews — 138,118 shares, Mr. Boppell — 1,112,500shares, Ms. Cherng – 15,093 shares, Mr. Dreyer – 24,921 shares, Mr. Krantz— 54,845 shares, Mr. Muh — 166,054 shares, Mr. Smith — 172,167shares, and all directors and executive officers as a group — 2,609,323 shares.

 

(3)   In accordance with rules of the SEC,percentages were calculated on the basis of the amount of outstanding shares,excluding shares held by or for the account of the Company, plus shares deemedoutstanding pursuant to Rule 13d-3(d)(1) under the SecuritiesExchange Act of 1934, as amended.

 

48

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###### ***FISCAL 2005 YEAR-ENDEQUITY COMPENSATION PLAN INFORMATION***

 
| ** **                                                  | ** ** | **(a)**                                                                                              | ** ** | **(b)**                                                                             | ** ** | **(c)**                                                                                                                                               | ** ** |
|-------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| **Plan Category**                                           | ** ** | **Number of Securities  to be issued upon  exercise of  outstanding options,  warrants, and rights** | ** ** | **Weighted-average  exercise price of  outstanding options,  warrants, and rights** | ** ** | **Number of securities  remaining available for   future issuance under  equity compensation  plans (excluding  securities reflected in  column (a)** | ** ** |
| Equity compensation plans approved by  security holders     |       | 3,228,000                                                                                            |       | $                                                                                   | 2.25       |                                                                                                                                                  | 1,593,000  |   |
| Equity compensation plans not approved by  security holders |       | —                                                                                               |       | —                                                                              |       | —                                                                                                                                                |       |
| Total                                                       |       | 3,228,000                                                                                            |       | $                                                                                   | 2.25       |                                                                                                                                                  | 1,593,000  |   |

 

There are no equity compensation plans of theCompany, under which equity securities of the Company are authorized forissuance, that have not been approved by the stockholders.

 

**Item 13: *Certain Relationships and Related Transactions***

 

The Company has an employment agreement withits Chief Executive Officer. (See Item 11, “Executive Compensation — EmploymentAgreement.”)

 

As amaterial consideration for his employment as President/CEO of Sizzler USA, on October 15,2001 Sizzler USA extended an unsecured, non-interest-bearing loan in the amountof $200,000 to Kenneth Cole.  Theproceeds of the loan were to be used to pay two promissory notes executed by Mr. Colein favor of his former employer as payment for shares of stock of his formeremployer purchased by Mr. Cole. During fiscal 2005 it was determined that Mr. Cole’s formeremployer was insolvent and under the terms of the loan agreement Sizzler USAbegan forgiving the loan over a five-year period that ends April 30,2009.  Should Mr. Cole cease beingemployed by Sizzler USA, any deficiency remaining will become immediately dueand payable.  The unamortized loanbalance was $160,000 as of the end of fiscal 2005.

 

The Company entered into an agreement forservices dated November 24, 2003 with one of its directors, BarryKrantz.  Under the agreement Mr. Krantzprovided consulting services in connection with Pat & Oscar’s firsttelevision campaign. The engagement had a maximum term of six months and totalcompensation payable thereunder of $30,000. During fiscal 2004, Mr. Krantz was paid a total of $16,000 underthe agreement.  There were no paymentsmade to Mr. Krantz in fiscal 2005.

 

**Item 14: *Principal Accountant Fees and Services***

 

Deloitte & Touche LLP served as theCompany’s independent auditors for the fiscal year ended April 30,2005.   The following summarizes billingsto the Company by Deloitte and Touche LLP.

 

49

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Principal Accountant Fees and Services (inthousands):

 
| ** **    | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------|------------|----------|------------|----------|------------|
| Audit         |       | $        | 1,658      |     | $          | 341 |   |
| Audit-Related |       | 150      |       | —   |       |
| Tax           |       | 95       |       | 230      |       |
| Other         |       | —   |       | 11       |       |
| Total         |       | $        | 1,903      |     | $          | 582 |   |

 

*Audit Fees* for fiscal 2005 and fiscal 2004 were forprofessional services rendered for the audit of the Consolidated FinancialStatements of the Company included in its Form 10-K and reviews offinancial statements included in its Form 10-Q’s, and for services thatare normally provided by the accountant in connection with statutory andregulatory filings or engagements.

 

*Audit-RelatedFees*consist offees for assurance and related services that are reasonably related to theperformance of the audit or review of the Company’s financial statements andare not reported under Audit Fees. This category includes fees related to auditand attest services not required by statute or regulations, due diligencerelated to the Company’s proposed merger transaction and consultationsconcerning financial accounting and reporting standards.

 

*TaxFees*consist offees for professional services for tax compliance, tax advice and tax planning.These services include assistance regarding federal, state and internationaltax compliance, return preparation, tax audits and customs and duties.

 

*Other Fees* for services for fiscal 2005 and 2004 relate toany services not included in the first three categories and specificallyrelated to the Pat & Oscar’s market and operating partner programs,the Australian Management Group deal and sale-leaseback transactions.

 

The independent auditors are appointedannually by the Audit Committee (subject to stockholder ratification).  In making its approval, the Audit Committee reviewsboth the audit scope and estimated audit fees for the coming year.

 

The Audit Committee is required to preapproveall auditing services and permitted non-audit services (including the fees andterms thereof) to be performed for the Company by its independent auditors,subject to de minimis exceptions for non-audit services described in section 10A(i)(1)(B) ofthe Securities Exchange Act of 1934, as amended, which are approved by theAudit Committee prior to the completion of the audit.

 

50

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**PART IV**

** **

**Item 15: *Exhibits and Financial Statement Schedules.***

 

(a) Listing of financial statements:

 

(1)           FinancialStatements:

 

Selected Quarterly Financial Data (Unaudited)

 

Report OfIndependent Registered Public Accounting Firm

 

Consolidated Balance Sheets of WorldwideRestaurant Concepts, Inc. and Subsidiaries as of April 30, 2005 and2004

 

Consolidated Statements of Operations ofWorldwide Restaurant Concepts, Inc. and Subsidiaries for each of the threeyears in the period ended April 30, 2005

 

Consolidated Statements of Stockholders’Equity of Worldwide Restaurant Concepts, Inc. and Subsidiaries for each ofthe three years in the period ended April 30, 2005

 

Consolidated Statements of Cash Flows ofWorldwide Restaurant Concepts, Inc. and Subsidiaries for each of the threeyears in the period ended April 30, 2005

 

Notes to Consolidated Financial Statements

 

(2)           FinancialStatement Schedules:

 

II.            Valuationand Qualifying Accounts

 

All Other Financial Statement Schedules are omitted because they arenot applicable or the required information is show in the consolidatedfinancial statements or note thereto. See Item 8 “Financial Statements andSupplementary Data.”

 

(b)           Exhibits

 

Exhibits in response to this portion of Item15 are listed below

 
| **Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                              |
|------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                                                                                                                                                                                                         |
| 3.1        |       | Certificate  of Incorporation of Registrant, incorporated herein by reference to  Exhibit 3.1 to Amendment No. 1 to Registrant’s Form S-4  Registration Statement Number 33-38412.                                                                                                                                       |
|       |       |                                                                                                                                                                                                                                                                                                                                         |
| 3.2        |       | Certificate  of Ownership and Merger of Worldwide Restaurant Concepts, Inc. into  Sizzler International, Inc., incorporated herein by reference to  Exhibit 4.2 to the Registrant’s Post –Effective Amendment No. 2 to  Form S-8 Registration Statement No. 333-47661 filed November 14,  2001. |
|       |       |                                                                                                                                                                                                                                                                                                                                         |
| 3.3        |       | Bylaws of  Registrant, as amended April 23, 2003, incorporated herein by reference  to Exhibit 3.3 to the Registrant’s Form 10-K report for the fiscal  year ended April 30, 2003.                                                                                                                                  |
|       |       |                                                                                                                                                                                                                                                                                                                                         |
| 4.0        |       | Rights  Agreement dated January 22, 2001 between the Registrant and The Bank of  New York, as Rights Agent, incorporated herein by reference to Exhibit 4  to the Registrant’s Form 8-K Report filed January 22, 2001.                                                                                              |

 

51

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| 4.1    |   | First  Amendment to the Rights Agreement dated April 30, 2002 between the  Registrant and American Stock Transfer and Trust Company, incorporated herein  by reference to Exhibit to Registrant’s Form 8-A/A filed  May 25, 2005.                                                                                                  |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                        |
| 4.2    |   | Second  Amendment to the Rights Agreement dated May 10, 2005 between the  Registrant and American Stock Transfer and Trust Company, incorporated herein  by reference to Exhibit 4.01 to Registrant’s Form 8-K filed  May 11, 2005.                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                        |
| 10.1   |   | Employee  Savings Plan of Registrant, restated as of January 1, 1992, incorporated  herein by reference to Exhibit 10.2 to the Registrant’s Form 10-K  report for the fiscal year ended April 30, 1995.                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                        |
| 10.2   |   | Amendment to  Employee Savings Plan of Registrant, incorporated herein by reference to  Exhibit 2.2 to the Registrant’s Form 10-K report for the fiscal  year ended April 30, 1997.                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                        |
| 10.3   |   | Registrant’s  Executive Supplemental Retirement Plan (effective May 1, 1985 and  including amendments through May 1, 1993), incorporated herein by  reference to Exhibit 10.3 to the Registrant’s Form 10-K report for  the fiscal year ended April 30, 1996.                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                        |
| 10.4   |   | Employment Agreement dated February 8,  1999 between Registrant and Charles L. Boppell, incorporated herein by  reference to Exhibit 10.4 to the Registrant’s Form 10-K report for  the fiscal year ended April 30, 1999.                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                        |
| 10.5   |   | Amended and Restated Services Agreement  dated May 5, 1999 between Registrant and Charles F. Smith, incorporated  herein by reference to Exhibit 10.13 to the Registrant’s Form 10-K  report for the fiscal year ended April 30, 1999.                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                        |
| 10.6   |   | Paid Leave Plan and Trust and Summary Plan  Description of Registrant, as amended as of June 30, 1994, incorporated  herein by reference to Exhibit 10.5 to the Registrant’s Form 10-K  report for the fiscal year ended April 30, 1995.                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                        |
| 10.7   |   | 1997 Employee Stock Incentive Plan of  Registrant (as amended) through September 4, 2001, incorporated herein  by reference to Exhibit 4.4 to the Registrant’s Post-Effective Amendment  No.1 to S-8 Registration Statement Number 333-47661 filed November 14,  2001.                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                        |
| 10.8   |   | 1997 Non-Employee Directors Stock Incentive  Plan of Registrant (as amended) through September 4, 2001, incorporated  herein by reference to Exhibit 4.4 to the Registrant’s Post-Effective  Amendment No. 1 to Form S-8 Registration Statement  No. 333-47659 filed November 14, 2001.                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                        |
| 10.9   |   | Development Agreement dated October 4,  1996 between Kentucky Fried Chicken Pty. Limited and Collins Foods  International Pty Ltd., incorporated herein by reference to  Exhibit 10.20 to the Registrant’s Form 10-K report for the fiscal  year ended April 30, 1997.                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                        |
| 10.10  |   | Master Franchise Agreement dated  October 4, 1996 between Kentucky Fried Chicken Pty Limited and Collins  Foods International Pty Ltd., incorporated herein by reference to  Exhibit 10.21 to the Registrant’s Form 10-K report for the fiscal  year ended April 30, 1997.                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                        |
| 10.11  |   | Form of Franchise Agreement between  Kentucky Fried Chicken Pty, Limited and Collins Foods International Pty, Ltd.  relating to KFC® restaurant franchise, incorporated herein by  reference to Exhibit 10.22 to the Registrant’s Form 10-K report for  the fiscal year ended April 30, 1997.                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                        |
| 10.20  |   | Standard  Office Lease - Gross American Industrial Real Estate Association corporate  headquarters lease agreement between Pacifica Plaza Office Building and  Sizzler USA Real Property, Inc., incorporated herein by reference to  Exhibit 10.25 to the Registrant’s Form 10-K report for the fiscal  year ended April 30, 1998. |

 

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| 10.21  |   | Amended and Restated LLC Membership  Interest Purchase Agreement dated August 21, 2000 among the Registrant,  as purchaser, and FFPE Holding Company, Inc., JBS Investments, Ltd., OMS  Investments, Ltd., TDM Enterprises, Ltd., Oscar Sarkisian and Martha Patricia  Sarkisian (individually and as Co-Trustees of Sarkisian Family Trust UTD  July 19, 1995), John Sarkisian, Bernadette Sarkisian, and Tamara  Sarkisian-Celmo (individually and as Trustee of the Tamara Sarkisian-Celmo  Family Trust UTD October 16, 1997), FFPE, LLC, and S & C  Company, Inc., as the selling parties, incorporated herein by reference  to Exhibit 10.1 to the Registrant’s Form 8-K report filed  September 14, 2000. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.22  |   | Credit Agreement dated May 23, 2000  between the Registrant, as lender, S & C Company, Inc., and  FFPE, LLC, as borrowers, incorporated herein by reference to  Exhibit 10.2 to the Registrant’s Form 8-K report filed June 5,  2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.23  |   | Membership Interest Pledge Agreement, dated  August 30, 2000, among the Registrant, as secured party, and FFPE  Holding Company, Inc., as debtor, incorporated herein by reference to  Exhibit 10.3 to the Registrant’s Form 8-K report filed  September 14, 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.24  |   | Call Option Agreement dated August 30,  2000 between FFPE Holding Company, Inc., as optionor, and the  Registrant, as optionee, incorporated herein by reference to  Exhibit 10.4 to the Registrant’s Form 8-K report filed  September 14, 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.25  |   | Put Option Agreement (John Sarkisian) dated  August 30, 2000 between the Registrant, as optionor, and FFPE Holding  Company, Inc., as optionee, incorporated herein by reference to  Exhibit 10.5 to the Registrant’s Form 8-K report filed  September 14, 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.26  |   | Put Option Agreement  (Tammy-Sarkisian-Celmo) dated August 30, 2000 between the Registrant, as  optionor, and FFPE Holding Company, Inc., as optionee, incorporated  herein by reference to Exhibit 10.6 to the Registrant’s Form 8-K  report filed September 14, 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.27  |   | Warrant dated August 30, 2000 issued  by the Registrant to FFPE Holding Company, Inc., incorporated herein by  reference to Exhibit 10.7 to the Registrant’s Form 8-K report filed  September 14, 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.28  |   | Warrant Registration Rights Agreement dated  August 30, 2000 between the Registrant and FFPE Holding  Company, Inc., incorporated herein by reference to Exhibit 10.8 to  the Registrant’s Form 8-K report filed September 14, 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.29  |   | Employment Agreement dated August 30,  2000 between the Registrant and John Sarkisian, incorporated herein by  reference to Exhibit 10.9 to the Registrant’s Form 8-K report filed  September 14, 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.30  |   | Employment  Agreement dated August 30, 2000 between the Registrant and Tamara  Sarkisian-Celmo, incorporated herein by reference to Exhibit 10.10 to  the Registrant’s Form 8-K report filed September 14, 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.31  |   | AUD$46.0  million Bill Acceptance and Discount Facility dated August 21, 2000  between Collins Restaurants Management Pty, Ltd. and Westpac Banking  Corporation, incorporated herein by reference to Exhibit 10.1 to the  Registrant’s Form 8-K report filed September 1, 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.32  |   | Unlimited  Cross Guarantee and Indemnity and Negative Pledge with Financial Ratio  Covenants dated August 21, 2000 between various subsidiaries of the  Registrant and Westpac Banking Corporation, incorporated herein by reference  to Exhibit 10.2 to the Registrant’s Form 8-K report filed  September 1, 2000.                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.33  |   | Guaranty and  Indemnity dated August 21, 2000 between the Registrant as Guarantor and  Westpac Banking Corporation as Financier, incorporated herein by reference to  Exhibit 10.3 to the Registrant’s Form 8-K report filed  September 1, 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |

 

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| 10.34  |   | Stock Pledge  dated August 21, 2000 between Sizzler Asia Holdings, Inc. as  Charger and Westpac Banking Corporation as Financier, incorporated herein by  reference to Exhibit 10.4 to the Registrant’s Form 8-K report filed  September 1, 2000.                                                                                                                                      |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.35  |   | Fixed and  Floating Charge dated August 21, 2000 between Collins Restaurants  Management Pty, Ltd. as Chargor and Westpac Banking Corporation as Financier,  incorporated herein by reference to Exhibit 10.5 to the Registrant’s  Form 8-K report filed September 1, 2000.                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.36  |   | Fixed and  Floating Charge dated August 21, 2000 between Sizzler Asia  Holdings, Inc. as Chargor and Westpac Banking Corporation as Financier,  incorporated herein by reference to Exhibit 10.6 to the Registrant’s  Form 8-K report filed September 1, 2000.                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.37  |   | Subordination  Deed dated August 21, 2000 between the Registrant and various of its  subsidiaries as Junior Creditor and Westpac Banking Corporation as Senior  Creditor, incorporated herein by reference to Exhibit 10.7 to the  Registrant’s Form 8-K report filed September 1, 2000.                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.38  |   | Loan and  Security Agreement dated December 20, 2000 by and between Heller  Financial Leasing, Inc., and Sizzler USA, Inc., Sizzler USA  Restaurants, Inc., Sizzler USA Real Property, Inc., incorporated  herein by reference to Exhibit 10.1 to the Registrant’s Form 8-K  report filed January 11, 2001.                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.39  |   | Promissory  Note in the amount of $5.0 million, dated December 20, 2000, by Sizzler  USA, Inc., Sizzler USA Restaurants, Inc., Sizzler USA Real  Property, Inc. (Borrower) to Heller Financial Leasing, Inc.  (Lender), incorporated herein by reference to Exhibit 10.2 to the  Registrant’s Form 8-K report filed January 11, 2001.                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.40  |   | Future  Advance Promissory Note in the amount of $5.0 million, dated  December 20, 2000, by Sizzler USA, Inc., Sizzler USA  Restaurants, Inc., Sizzler USA Real Property, Inc. (Borrower) to  Heller Financial Leasing, Inc. (Lender), incorporated herein by  reference to Exhibit 10.3 to the Registrant’s Form 8-K report filed  January 11, 2001.                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.41  |   | Guaranty  dated December 20, 2000, of Registrant (Guarantor) for the benefit of Heller  Financial Leasing, Inc. (Lender), incorporated herein by reference to  Exhibit 10.4 to the Registrant’s Form 8-K report filed  January 11, 2001.                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.42  |   | Environmental  Indemnity Agreement dated December 20, 2000, by and between Sizzler  USA, Inc., Sizzler USA Restaurants, Inc., Sizzler USA Real  Property, Inc., and Registrant (Indemnitor) for the benefit of Heller  Financial Leasing, Inc. (Lender), incorporated herein by reference to  Exhibit 10.5 to the Registrant’s Form 8-K report filed  January 11, 2001. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.43  |   | Certificate  Regarding Management dated December 20, 2000, of Sizzler USA, Inc.,  Sizzler USA Restaurants, Inc., Sizzler USA Real Property, Inc.,  incorporated herein by reference to Exhibit 10.6 to the Registrant’s  Form 8-K report filed January 11, 2001.                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.44  |   | Stay Bonus  Plan of Collins Foods Group Pty, Ltd. dated as of March 30, 2001,  incorporated herein by reference to Exhibit 10.44 of the Registrant’s  form 10-K for the fiscal year ended April 29, 2001.                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.45  |   | Collins  Foods Share Option Plan of Collins Foods Group Pty, Ltd. dated as of  March 30, 2001, incorporated herein by reference to Exhibit 10.45  of the Registrant’s form 10-K for the fiscal year ended April 29, 2001.                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.46  |   | Productivity  Bonus Option Plan of Collins Foods Group Pty, Ltd. dated as of March 30,  2001, incorporated herein by reference to Exhibit 10.46 of the  Registrant’s form 10-K for the fiscal year ended April 29, 2001.                                                                                                                                                                         |

 

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| 10.47  |   | Shareholders  Agreement dated March 30, 2001 between Collins Foods Group Pty, Ltd.,  Registrant, Restaurant Concepts International, Inc., and members of the  Australian Management Group, incorporated herein by reference to  Exhibit 10.47 of the Registrant’s Form 10-K for the fiscal year ended  April 29, 2001.                        |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                        |
| 10.48  |   | Registrant’s  2001 AMG Restricted Stock Plan dated March 26, 2001, incorporated herein  by reference to Exhibit 4.3 of Registrant’s Form S-8 Registration  Statement filed May 25, 2001, incorporated herein by reference to  Exhibit 10.48 of the Registrant’s form 10-K for the fiscal year ended  April 29, 2001.           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                        |
| 10.49  |   | Form of  Restricted Share Agreement between Registration entered into between  Registrant and members of the Australian Management Group pursuant to  Registrant’s 2001 Restricted Stock Plan dated March 26, 2001  incorporated herein by reference to Exhibit 10.49 of the Registrants  Form 10-K for the fiscal year ended April 29, 2001. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                        |
| 10.50  |   | Standard  Office Lease Sherman Oaks Galleria Park Partners, LLC Agreement dated July 19,  2001, incorporated herein by reference to Exhibit 10.1 to the  Registrant’s Form 8-K report filed September 9, 2001.                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                        |
| 10.51  |   | Australian  Sale and Leaseback Agreement, incorporated herein by reference to  Exhibit 10.1 to the Registrant’s Form 10-Q for the third quarter of  the 2003 fiscal year.                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                        |
| 10.52  |   | AUD$3.0  million Multiple Option Facility dated April 8, 2003 between Collins  Restaurants Management Pty, Ltd. and Westpac Banking Corporation,  incorporated herein by reference to Exhibit 10.52 to the Registrant’s  Form 10-K for fiscal year ended April 30, 2003.                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                        |
| 10.53  |   | AUD$40.0  million Bill Acceptance and Discount Facility dated July 15, 2003  between Collins Restaurant Management Pty, Ltd. and Westpac Banking  Corporation, incorporated herein by reference to Exhibit 10.53 to the  Registrant’s Form 10-K for fiscal year ended April 30, 2003.                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                        |
| 10.54  |   | Employment  Agreement Amendment dated February 7, 2004 between Registrant and  Charles L. Boppell, is incorporated herein by reference to Exhibit 10.54  to the Registrant’s Form 10-K for fiscal year ended April 30, 2004.                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                        |
| 10.55  |   | Shareholders  Agreement dated March 22, 2004 between Collins Foods Group Pty, Ltd.,  Registrant, Worldwide Restaurant Concepts, Inc., and members of the  Australian Management Group, is incorporated herein by reference to  Exhibit 10.55 to the Registrant’s Form 10-K for fiscal year ended  April 30, 2004.                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                        |
| 10.56  |   | Agreement  and Plan of Merger dated April 28, 2005 by and among the Registrant, Aus  Bidco Pty Limited and US Mergeco, Inc. is incorporated herein by  reference to Exhibit 10.1 to the Registrants Form 8-K filed  April 29, 2005.                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                        |
| 14.1   |   | Code of  Ethics for Chief Executive Officer and Senior Financial Officers, is  incorporated herein by reference to Exhibit 14.1 to the Registrant’s  Form 10-K for fiscal year ended April 30, 2004.                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                        |
| 21.0   |   | Subsidiaries of Registrant.                                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                        |
| 23.0   |   | Consent of  Deloitte & Touche LLP.                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                        |
| 31.1   |   | Certification by Charles L. Boppell,  President and Chief Executive Officer of the Registrant Pursuant to Section 302  of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                        |
| 31.2   |   | Certification by A. Keith Wall, Vice  President and Chief Financial Officer of the Registrant Pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                              |

 

55

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| 32.1** |   | Certification by Charles L. Boppell,  President and Chief Executive Officer of the Registrant pursuant to 18 U.S.C.  Section 1350, as Adopted Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                |
| 32.2** |   | Certification by A. Keith Wall, Vice  President and Chief Financial Officer of the Registrant pursuant to 18 U.S.C.  Section 1350, as Adopted Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |

 

----

| **These certifications are not deemed to be  “filed” for purposes of Section 18 of the Securities Exchange Act of  1934, or otherwise subject to liability under that section. These  certifications will not be deemed to be incorporated by reference in any  filing under the Securities Act of 1933 or the Securities Exchange Act of  1934, except to the extent that the registrant specifically incorporates them  by reference. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

56

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##### **SIGNATURES**

#####  

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the Registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.

 
| Dated: August 3, 2005 | WORLDWIDE RESTAURANT CONCEPTS, INC. |
|----------------------------|-------------------------------------|
|                       |                                |
|                       |                                | By: /s/ Charles L. Boppell |
|                       |                                | Charles L. Boppell |
|                       |                                | Chief Executive Officer |

 

Pursuant to the requirements of the Securities Exchange Act of 1934,this report has been signed below by the following persons in the capacitiesand on the dates indicated.

 
| **SIGNATURE**           | ** ** | **TITLE**                | ** **                    | **DATE** |
|-------------------------|------------|--------------------------|-------------------------------|----------|
|                    |       |                     |                          |     |
| /s/ Charles L. Boppell  |       |                     | President, Chief              |     | August 3, 2005 |
| Charles L. Boppell      |       | Executive Officer and    |                          |     |
|                    |       | Director                 |                          |     |
|                    |       |                     |                          |     |
| /s/ Barry E. Krantz     |       |                     | Director                      |     | August 3, 2005 |
| Barry E. Krantz         |       |                     |                          |     |
|                    |       |                     |                          |     |
| /s/ Phillip D. Matthews |       |                     | Chairman of the Board         |     | August 3, 2005 |
| Phillip D. Matthews     |       | and Director             |                          |     |
|                    |       |                     |                          |     |
| /s/ Robert A. Muh       |       |                     | Director                      |     | August 3, 2005 |
| Robert A. Muh           |       |                     |                          |     |
|                    |       |                     |                          |     |
| /s/ Charles F. Smith    |       |                     | Director                      |     | August 3, 2005 |
| Charles F. Smith        |       |                     |                          |     |
|                    |       |                     |                          |     |
| /s/ Peggy Cherng        |       |                     | Director                      |     | August 3, 2005 |
| Peggy Cherng            |       |                     |                          |     |
|                    |       |                     |                          |     |
| /s/ Leonard H. Dreyer   |       |                     | Director                      |     | August 3, 2005 |
| Leonard H. Dreyer       |       |                     |                          |     |
|                    |       |                     |                          |     |
| /s/ A. Keith Wall       |       |                     | Vice President and            |     | August 3, 2005 |
| A. Keith Wall           |       | Chief Financial Officer  |                          |     |
|                    |       | (principal financial and |                          |     |
|                    |       | accounting officer)      |                          |     |
|                    |       |                     |                          |     |
| /s/ Mary E. Arnold      |       |                     | Vice President and Controller |     | August 3, 2005 |
| Mary E. Arnold          |       |                     |                          |     |
|                         |            |                          |                               |          |  |  |  |  |  |  |  |  |

 

57

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