UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q





|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended July 5, 2009

OR



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

For the transition period from  to

Commission file number 1-12692

MORTONS RESTAURANT GROUP, INC.

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 13-3490149                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. employer identification no.)
|                                                               | 
|325 North LaSalle Street, Suite 500, Chicago, Illinois         |  | 60654                               
|(Address of principal executive offices)                       |  | (Zip code)                          

312-923-0030

(Registrants telephone number, including area code)

Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes  x or No   ̈.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition
of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):



|                           |  |                      |  |                                               |  |                             
|-------------------------- |  | -------------------- |  | --------------------------------------------- |  | ----------------------------
|Large accelerated filer   ̈ |  | Accelerated filer  x |  | Non-accelerated filer   ̈                      |  | Smaller reporting company   ̈
|                           |  |                      |  | (Do not check if a smaller reporting company) |  |                             

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes   ̈ or No  x.

Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes   ̈ or No   ̈.

As of July 31, 2009, the registrant had 16,564,179 shares of its Common Stock, $0.01 par value, outstanding.









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MORTONS RESTAURANT GROUP, INC. AND SUBSIDIARIES

INDEX



|                                                                                                                            |  |     
|--------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                            |  | Page
|Forward-Looking Statements                                                                                                  |  | 3   
|                                                                                                                            | 
|Part I - Financial Information                                                                                              |  |     
|                                                                                                                            | 
|Item 1. Financial Statements                                                                                                |  | 4   
|Consolidated Balance Sheets as of July 5, 2009 and January 4, 2009 - unaudited                                              |  | 4   
|Consolidated Statements of Operations for the three and six month periods ended July 5, 2009 and June 
29, 2008 - unaudited |  | 6   
|Consolidated Statements of Cash Flows for the six month periods ended July 5, 2009 and June 
29, 2008 - unaudited           |  | 7   
|Notes to Unaudited Consolidated Financial Statements                                                                        |  | 8   
|                                                                                                                            | 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations                               |  | 17  
|                                                                                                                            | 
|Item 3. Quantitative and Qualitative Disclosures about Market Risk                                                          |  | 23  
|                                                                                                                            | 
|Item 4. Controls and Procedures                                                                                             |  | 23  
|                                                                                                                            | 
|Part II - Other Information                                                                                                 |  |     
|                                                                                                                            | 
|Item 1. Legal Proceedings                                                                                                   |  | 24  
|                                                                                                                            | 
|Item 1A. Risk Factors                                                                                                       |  | 25  
|                                                                                                                            | 
|Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                                                         |  | 26  
|                                                                                                                            | 
|Item 6. Exhibits                                                                                                            |  | 26  
|                                                                                                                            | 
|Signatures                                                                                                                  |  | 27  



2



---

Forward-Looking Statements

This Form 10-Q contains various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). Forward-looking statements, written, oral or otherwise made, represent the Companys expectation or belief concerning future events. Without
limiting the foregoing, the words believes, thinks, anticipates, estimates, plans, expects, and similar expressions are intended to identify forward-looking statements. The
Company cautions that these statements are subject to risks, uncertainties, assumptions and other important factors that could cause actual results to differ materially, or otherwise, from those in the forward-looking statements, including, without
limitation, (i) a reduction in consumer and/or business spending in one or more of the Companys markets due to business layoffs or budget reductions, negative consumer sentiment, access to consumer credit, commodity and other prices,
events or occurrences affecting the securities and/or financial markets, occurrences affecting the Companys common stock, housing values, changes in federal, state, foreign and/or local tax levels or other factors, (ii) risks relating to
the restaurant industry and the Companys business, including competition, changes in consumer tastes and preferences, risks associated with opening new locations, increases in food and other raw materials costs, increases in energy costs,
demographic trends, traffic patterns, weather conditions, employee availability, benefits and cost increases, perceived product safety issues, supply interruptions, litigation, judgments or settlements in pending litigation, government regulation,
the Companys ability to maintain adequate financing facilities, the Companys liquidity and capital resources, prevailing interest rates and legal and regulatory matters, (iii) public health issues, including, without limitation
risks relating to the spread of H1N1 influenza and other pandemic diseases and (iv) other risks detailed in the Companys most recent Form 10-K, under Item 1A. Risk Factors herein and in the Companys other reports filed
from time to time with the Securities and Exchange Commission. In addition, the Companys ability to expand is dependent upon various factors, such as the availability of attractive sites for new restaurants, the ability to negotiate suitable
lease terms, the ability to generate or borrow funds to develop new restaurants, the ability to obtain various government permits and licenses, limitations on permitted capital expenditures under the Companys senior revolving credit facility
and the recruitment and training of skilled management and restaurant employees. Other unknown or unpredictable factors also could harm the Companys business, financial condition and results. Consequently, there can be no assurance that actual
results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, the Company. The Company undertakes no obligation to update or revise any
forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by applicable securities laws.



3



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Part I - Financial Information



|Item 1. | Financial Statements
|------- | --------------------

MORTONS RESTAURANT
GROUP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(amounts in thousands)



|                                               |  |             |         |                |   |        
|---------------------------------------------- |  | ----------- | ------- | -------------- | - | -------
|                                               |  | July 5,2009 |         | January 4,2009
|                                               |  | (unaudited)
|Assets                                         |  |             |         |                |   |        
|Current assets:                                |  |             |         |                |   |        
|Cash and cash equivalents                      |  | $           | 1,020   |                | $ | 3,460  
|Restricted cash                                |  |             | 71      |                |   | 1,372  
|Accounts receivable                            |  |             | 3,618   |                |   | 3,832  
|Inventories                                    |  |             | 10,801  |                |   | 12,545 
|Prepaid expenses and other current assets      |  |             | 4,306   |                |   | 4,825  
|Income taxes receivable                        |  |             | 1,023   |                |   | 1,409  
|Deferred income taxes, net                     |  |             | 12,195  |                |   | 5,773  
|                                               |  |             |         |                |   |        
|Total current assets                           |  |             | 33,034  |                |   | 33,216 
|                                               |  |             |         |                |   |        
|Property and equipment, at cost:               |  |             |         |                |   |        
|Furniture, fixtures and equipment              |  |             | 30,870  |                |   | 29,155 
|Buildings and leasehold improvements           |  |             | 108,761 |                |   | 102,598
|Land                                           |  |             | 8,474   |                |   | 8,474  
|Construction in progress                       |  |             | 2,034   |                |   | 2,782  
|                                               |  |             |         |                |   |        
|                                               |  |             | 150,139 |                |   | 143,009
|Less accumulated depreciation and amortization |  |             | 37,482  |                |   | 31,798 
|                                               |  |             |         |                |   |        
|Net property and equipment                     |  |             | 112,657 |                |   | 111,211
|                                               |  |             |         |                |   |        
|Intangible asset                               |  |             | 86,000  |                |   | 86,000 
|Goodwill                                       |  |             | 6,847   |                |   | 6,847  
|Deferred income taxes, net                     |  |             | 3,814   |                |   | 3,814  
|Other assets and deferred expenses, net        |  |             | 4,780   |                |   | 4,479  
|                                               |  |             |         |                |   |        
|                                               |  | $           | 247,132 |                | $ | 245,567
|                                               |  |             |         |                |   |        



4



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MORTONS RESTAURANT GROUP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets, Continued

(amounts in thousands, except share and per share amounts)



|                                                                                                                                                                                                     |  |             |         |   |                |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | ------- | - | -------------- | - | ------- | -
|                                                                                                                                                                                                     |  | July 5,2009 |         |   | January 4,2009 |  
|                                                                                                                                                                                                     |  | (unaudited) |        
|Liabilities and Stockholders Equity                                                                                                                                                                 |  |             |         |   |                |   |         |  
|Current liabilities:                                                                                                                                                                                 |  |             |         |   |                |   |         |  
|Accounts payable                                                                                                                                                                                     |  | $           | 9,385   |   |                | $ | 11,678  |  
|Accrued expenses, including deferred revenue from gift certificates and gift cards of $14,862 and $18,890 at July 5, 2009 and
January 4, 2009, respectively                                          |  |             | 36,520  |   |                |   | 46,866  |  
|Current portion of obligation to financial institution                                                                                                                                               |  |             | 156     |   |                |   | 149     |  
|Accrued income taxes                                                                                                                                                                                 |  |             | 908     |   |                |   | 980     |  
|                                                                                                                                                                                                     |  |             |         |   |                |   |         |  
|Total current liabilities                                                                                                                                                                            |  |             | 46,969  |   |                |   | 59,673  |  
|                                                                                                                                                                                                     |  |             |         |   |                |   |         |  
|Borrowings under senior revolving credit facility                                                                                                                                                    |  |             | 71,300  |   |                |   | 60,800  |  
|Obligation to financial institution, less current maturities                                                                                                                                         |  |             | 2,977   |   |                |   | 3,057   |  
|Joint venture loan payable                                                                                                                                                                           |  |             | 2,893   |   |                |   | 2,794   |  
|Other liabilities                                                                                                                                                                                    |  |             | 47,430  |   |                |   | 36,138  |  
|                                                                                                                                                                                                     |  |             |         |   |                |   |         |  
|Total liabilities                                                                                                                                                                                    |  |             | 171,569 |   |                |   | 162,462 |  
|                                                                                                                                                                                                     |  |             |         |   |                |   |         |  
|Commitments and contingencies                                                                                                                                                                        |  |             |         |   |                |   |         |  
|Stockholders equity:                                                                                                                                                                                |  |             |         |   |                |   |         |  
|Mortons Restaurant Group, Inc. and Subsidiaries:                                                                                                                                                    |  |             |         |   |                |   |         |  
|Preferred stock, $0.01 par value per share. 30,000,000 shares authorized, none issued at July 5, 2009 and January 4, 2009,
respectively                                                              |  |             |        |   |                |   |        |  
|Common stock, $0.01 par value per share. 100,000,000 shares authorized, 17,123,742 and 17,013,607 issued and 15,891,742 and 15,781,607
outstanding at July 5, 2009 and January 4, 2009, respectively |  |             | 171     |   |                |   | 170     |  
|Additional paid-in capital                                                                                                                                                                           |  |             | 168,848 |   |                |   | 167,773 |  
|Treasury stock, 1,232,000 shares at a weighted average cost of $7.63 per share at July 5, 2009 and January 4, 2009                                                                                   |  |             | (9,395  | ) |                |   | (9,395  | )
|Accumulated other comprehensive income                                                                                                                                                               |  |             | 205     |   |                |   | 234     |  
|Accumulated deficit                                                                                                                                                                                  |  |             | (83,963 | ) |                |   | (75,677 | )
|                                                                                                                                                                                                     |  |             |         |   |                |   |         |  
|Total stockholders equity of controlling interest                                                                                                                                                   |  |             | 75,866  |   |                |   | 83,105  |  
|Noncontrolling interest, net of taxes                                                                                                                                                                |  |             | (303    | ) |                |   |        |  
|                                                                                                                                                                                                     |  |             |         |   |                |   |         |  
|Total stockholders equity                                                                                                                                                                           |  |             | 75,563  |   |                |   | 83,105  |  
|                                                                                                                                                                                                     |  |             |         |   |                |   |         |  
|                                                                                                                                                                                                     |  | $           | 247,132 |   |                | $ | 245,567 |  
|                                                                                                                                                                                                     |  |             |         |   |                |   |         |  

See accompanying notes to unaudited consolidated financial statements.



5



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MORTONS RESTAURANT GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(amounts in thousands, except share and per share amounts)



|                                                             |  |                           |            |   |                         |   |            |             |  |   |              |   |  |   |            |  
|------------------------------------------------------------ |  | ------------------------- | ---------- | - | ----------------------- | - | ---------- | ----------- |  | - | ------------ | - |  | - | ---------- | -
|                                                             |  | Three month periods ended |            |   | Six month periods ended |  
|                                                             |  | July 5,2009               |            |   | June 29,2008            |   |            | July 5,2009 |  |   | June 29,2008 |  
|                                                             |  | (unaudited)               |           
|Revenues                                                     |  | $                         | 68,684     |   |                         | $ | 85,647     |             |  | $ | 143,041      |   |  | $ | 176,316    |  
|Food and beverage costs                                      |  |                           | 20,536     |   |                         |   | 27,419     |             |  |   | 44,031       |   |  |   | 57,454     |  
|Restaurant operating expenses                                |  |                           | 39,921     |   |                         |   | 42,659     |             |  |   | 81,264       |   |  |   | 85,819     |  
|Pre-opening costs                                            |  |                           | 416        |   |                         |   | 682        |             |  |   | 1,186        |   |  |   | 1,652      |  
|Depreciation and amortization                                |  |                           | 3,041      |   |                         |   | 3,283      |             |  |   | 6,075        |   |  |   | 6,436      |  
|General and administrative expenses                          |  |                           | 4,007      |   |                         |   | 6,274      |             |  |   | 8,549        |   |  |   | 13,232     |  
|Marketing and promotional expenses                           |  |                           | 1,813      |   |                         |   | 2,233      |             |  |   | 3,485        |   |  |   | 4,036      |  
|Charge related to legal settlements                          |  |                           | 10,567     |   |                         |   |           |             |  |   | 10,567       |   |  |   |           |  
|                                                             |  |                           |            |   |                         |   |            |             |  |   |              |   |  |   |            |  
|Operating (loss) income                                      |  |                           | (11,617    | ) |                         |   | 3,097      |             |  |   | (12,116      | ) |  |   | 7,687      |  
|Write-off of deferred financing costs                        |  |                           |           |   |                         |   |           |             |  |   | 206          |   |  |   |           |  
|Interest expense, net                                        |  |                           | 977        |   |                         |   | 650        |             |  |   | 1,665        |   |  |   | 1,399      |  
|                                                             |  |                           |            |   |                         |   |            |             |  |   |              |   |  |   |            |  
|(Loss) income before income taxes from continuing operations |  |                           | (12,594    | ) |                         |   | 2,447      |             |  |   | (13,987      | ) |  |   | 6,288      |  
|Income tax (benefit) expense                                 |  |                           | (6,474     | ) |                         |   | 513        |             |  |   | (5,928       | ) |  |   | 1,736      |  
|                                                             |  |                           |            |   |                         |   |            |             |  |   |              |   |  |   |            |  
|(Loss) income from continuing operations                     |  |                           | (6,120     | ) |                         |   | 1,934      |             |  |   | (8,059       | ) |  |   | 4,552      |  
|Discontinued operations, net of taxes                        |  |                           | (427       | ) |                         |   | (201       | )           |  |   | (530         | ) |  |   | (457       | )
|                                                             |  |                           |            |   |                         |   |            |             |  |   |              |   |  |   |            |  
|Net (loss) income                                            |  |                           | (6,547     | ) |                         |   | 1,733      |             |  |   | (8,589       | ) |  |   | 4,095      |  
|Net loss attributable to noncontrolling interest             |  |                           | (31        | ) |                         |   |           |             |  |   | (303         | ) |  |   |           |  
|                                                             |  |                           |            |   |                         |   |            |             |  |   |              |   |  |   |            |  
|Net (loss) income attributable to controlling interest       |  | $                         | (6,516     | ) |                         | $ | 1,733      |             |  | $ | (8,286       | ) |  | $ | 4,095      |  
|                                                             |  |                           |            |   |                         |   |            |             |  |   |              |   |  |   |            |  
|Amounts attributable to controlling interest:                |  |                           |            |   |                         |   |            |             |  |   |              |   |  |   |            |  
|(Loss) income from continuing operations, net of taxes       |  | $                         | (6,089     | ) |                         | $ | 1,934      |             |  | $ | (7,756       | ) |  | $ | 4,552      |  
|Discontinued operations, net of taxes                        |  |                           | (427       | ) |                         |   | (201       | )           |  |   | (530         | ) |  |   | (457       | )
|                                                             |  |                           |            |   |                         |   |            |             |  |   |              |   |  |   |            |  
|Net (loss) income                                            |  | $                         | (6,516     | ) |                         | $ | 1,733      |             |  | $ | (8,286       | ) |  | $ | 4,095      |  
|                                                             |  |                           |            |   |                         |   |            |             |  |   |              |   |  |   |            |  
|Basic net (loss) income per share                            |  |                           |            |   |                         |   |            |             |  |   |              |   |  |   |            |  
|Continuing operations                                        |  | $                         | (0.38      | ) |                         | $ | 0.12       |             |  | $ | (0.49        | ) |  | $ | 0.28       |  
|Discontinued operations                                      |  | $                         | (0.03      | ) |                         | $ | (0.01      | )           |  | $ | (0.03        | ) |  | $ | (0.03      | )
|Basic net (loss) income per share                            |  | $                         | (0.41      | ) |                         | $ | 0.11       |             |  | $ | (0.52        | ) |  | $ | 0.25       |  
|Diluted net (loss) income per share                          |  |                           |            |   |                         |   |            |             |  |   |              |   |  |   |            |  
|Continuing operations                                        |  | $                         | (0.38      | ) |                         | $ | 0.12       |             |  | $ | (0.49        | ) |  | $ | 0.28       |  
|Discontinued operations                                      |  | $                         | (0.03      | ) |                         | $ | (0.01      | )           |  | $ | (0.03        | ) |  | $ | (0.03      | )
|Diluted net (loss) income per share                          |  | $                         | (0.41      | ) |                         | $ | 0.11       |             |  | $ | (0.52        | ) |  | $ | 0.25       |  
|Shares used in computing net (loss) income per share         |  |                           |            |   |                         |   |            |             |  |   |              |   |  |   |            |  
|Basic                                                        |  |                           | 15,891,533 |   |                         |   | 16,126,800 |             |  |   | 15,872,925   |   |  |   | 16,370,836 |  
|Diluted                                                      |  |                           | 15,891,533 |   |                         |   | 16,127,296 |             |  |   | 15,872,925   |   |  |   | 16,370,836 |  

See accompanying notes to unaudited consolidated financial statements.



6



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MORTONS RESTAURANT GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(amounts in thousands)



|                                                                                                                                        |  |                         |        |   |              |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------ | - | ------------ | - | ------- | -
|                                                                                                                                        |  | Six month periods ended |       
|                                                                                                                                        |  | July 5,2009             |        |   | June 29,2008 |  
|                                                                                                                                        |  | (unaudited)             |       
|Cash flows from operating activities:                                                                                                   |  |                         |        |   |              |   |         |  
|Net (loss) income attributable to controlling interest                                                                                  |  | $                       | (8,286 | ) |              | $ | 4,095   |  
|Adjustments to reconcile net (loss) income attributable to controlling interest to net cash (used in) provided by operating
activities: |  |                         |        |   |              |   |         |  
|Depreciation, amortization and other non-cash charges                                                                                   |  |                         | 8,944  |   |              |   | 8,001   |  
|Noncontrolling interest, net of taxes                                                                                                   |  |                         | (303   | ) |              |   |        |  
|Deferred income taxes                                                                                                                   |  |                         | (6,410 | ) |              |   | (476    | )
|Charge related to legal settlements                                                                                                     |  |                         | 10,567 |   |              |   |        |  
|Write-off of deferred financing costs                                                                                                   |  |                         | 206    |   |              |   |        |  
|Change in assets and liabilities:                                                                                                       |  |                         |        |   |              |   |         |  
|Accounts receivable                                                                                                                     |  |                         | 223    |   |              |   | (854    | )
|Inventories                                                                                                                             |  |                         | 1,764  |   |              |   | 1,070   |  
|Prepaid expenses and other assets                                                                                                       |  |                         | 461    |   |              |   | 936     |  
|Income taxes receivable                                                                                                                 |  |                         | 386    |   |              |   | 1,102   |  
|Accounts payable                                                                                                                        |  |                         | (2,318 | ) |              |   | (4,640  | )
|Accrued expenses                                                                                                                        |  |                         | (9,455 | ) |              |   | (5,677  | )
|Other liabilities                                                                                                                       |  |                         | 732    |   |              |   | 795     |  
|Accrued income taxes                                                                                                                    |  |                         | (52    | ) |              |   | (463    | )
|                                                                                                                                        |  |                         |        |   |              |   |         |  
|Net cash (used in) provided by operating activities                                                                                     |  |                         | (3,541 | ) |              |   | 3,889   |  
|                                                                                                                                        |  |                         |        |   |              |   |         |  
|Cash flows from investing activities:                                                                                                   |  |                         |        |   |              |   |         |  
|Purchases of property and equipment                                                                                                     |  |                         | (9,889 | ) |              |   | (10,794 | )
|                                                                                                                                        |  |                         |        |   |              |   |         |  
|Net cash used in investing activities                                                                                                   |  |                         | (9,889 | ) |              |   | (10,794 | )
|                                                                                                                                        |  |                         |        |   |              |   |         |  
|Cash flows from financing activities:                                                                                                   |  |                         |        |   |              |   |         |  
|Borrowings under senior revolving credit facility                                                                                       |  |                         | 13,500 |   |              |   | 18,500  |  
|Payments made on senior revolving credit facility                                                                                       |  |                         | (3,000 | ) |              |   | (6,000  | )
|Shares vested and surrendered by employees in lieu of paying minimum income taxes                                                       |  |                         | (50    | ) |              |   | (147    | )
|Tax benefit related to restricted shares vested during the period                                                                       |  |                         |       |   |              |   | (58     | )
|Principal reduction on obligation to financial institution                                                                              |  |                         | (73    | ) |              |   | (66     | )
|Payment of deferred financing costs                                                                                                     |  |                         | (653   | ) |              |   | (144    | )
|Decrease in restricted cash                                                                                                             |  |                         | 1,282  |   |              |   |        |  
|Purchase of treasury stock                                                                                                              |  |                         |       |   |              |   | (8,425  | )
|                                                                                                                                        |  |                         |        |   |              |   |         |  
|Net cash provided by financing activities                                                                                               |  |                         | 11,006 |   |              |   | 3,660   |  
|                                                                                                                                        |  |                         |        |   |              |   |         |  
|Effect of exchange rate changes on cash                                                                                                 |  |                         | (16    | ) |              |   | 179     |  
|                                                                                                                                        |  |                         |        |   |              |   |         |  
|Net decrease in cash and cash equivalents                                                                                               |  |                         | (2,440 | ) |              |   | (3,066  | )
|Cash and cash equivalents at beginning of period                                                                                        |  |                         | 3,460  |   |              |   | 7,016   |  
|                                                                                                                                        |  |                         |        |   |              |   |         |  
|Cash and cash equivalents at end of period                                                                                              |  | $                       | 1,020  |   |              | $ | 3,950   |  
|                                                                                                                                        |  |                         |        |   |              |   |         |  

See accompanying notes to unaudited consolidated financial statements.



7



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MORTONS RESTAURANT GROUP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

July 5, 2009 and June 29, 2008



|1) | Basis of Presentation
|-- | ---------------------

The accompanying
unaudited consolidated financial statements of Mortons Restaurant Group, Inc. and its subsidiaries (the Company, the controlling interest, we, us and our) have been prepared in
accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all information and footnotes
required by GAAP for complete financial statements and should be read in conjunction with the Companys Annual Report on Form 10-K for the fiscal year ended January 4, 2009.

The accompanying consolidated financial statements are unaudited and include all adjustments (consisting of normal recurring adjustments and accruals)
that management considers necessary for a fair presentation of the Companys financial position and results of operations for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the
results that may be expected for the full year.

The preparation of financial statements in accordance with GAAP requires management of the
Company to make estimates and assumptions relating to assets, liabilities, revenues and expenses reported during the period. Actual results could differ from those estimates.

Certain reclassifications have been made to prior year amounts to conform to the current year presentation of discontinued operations (see Note 11). The
Company evaluated subsequent events through the time of filing this Quarterly Report on Form 10-Q on August 7, 2009. The Company is not aware of any significant events that occurred subsequent to the balance sheet date but prior to the filing
of this report that would have a material impact on the Companys consolidated financial statements.

The Company uses a 52/53 week
fiscal year which ends on the Sunday closest to January 1. Approximately every six or seven years, a 53rd week is added. Fiscal 2009 is a 52 week year. Fiscal 2008 was a 53 week year. The 53rd week was included in the fourth quarter of fiscal
2008.

Mortons Restaurant Group, Inc. (MRG) was incorporated as a Delaware corporation on October 3, 1988 and until
February 14, 2006 was a wholly-owned subsidiary of Mortons Holding Company, Inc. (MHCI), which was incorporated as a Delaware corporation on March 10, 2004 and became the direct parent of the Company on June 4, 2004.
MHCI was a wholly-owned subsidiary of Mortons Holdings, LLC, a Delaware limited liability company formed on April 4, 2002. On February 14, 2006, MHCI was merged with and into MRG, with MRG as the surviving corporation. In accordance
with the Financial Accounting Standards Boards (FASB) Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations, this transaction represented a merger of entities under
common control and accordingly MRG recognized the assets and liabilities transferred at their carrying amounts. MHCI was a holding company with no independent operations. In February 2006, the Company and certain selling stockholders completed an
initial public offering (IPO) of 6,000,000 and 3,465,000 shares of common stock, respectively, at $17.00 per share. In March 2006, the underwriters exercised the over-allotment option to purchase 801,950 additional shares of common stock
from the Company at $17.00 per share.



8



---

|2) | Statements of Cash Flows
|-- | ------------------------

For the purposes of the
consolidated statements of cash flows, the Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. In addition, accrued purchases of property and equipment are reflected as
non-cash transactions in the consolidated statements of cash flows. The Company paid interest of approximately $1,402,000 (which includes capitalized interest of approximately $53,000) and $1,504,000 (which includes capitalized interest of
approximately $62,000) for the six month periods ended July 5, 2009 and June 29, 2008, respectively. The Company received an income tax refund, net of income taxes paid, of approximately $152,000 for the six month period ended July 5,
2009. The Company paid income taxes, net of refunds, of $1,298,000 for the six month period ended June 29, 2008.



|3) | Income Taxes
|-- | ------------

The Company recognized an income tax
benefit of $5,928,000 on a pre-tax loss related to continuing operations of $13,987,000 for the six month period ended July 5, 2009. The Companys effective tax (benefit) rate was (42.4)% and 27.6% for the six month periods ended
July 5, 2009 and June 29, 2008, respectively. During the six month periods ended July 5, 2009 and June 29, 2008, the Companys tax rate was impacted by certain discrete items, including non-cash charges of approximately
$658,000 and $283,000, respectively, related to the tax impact of the vesting of certain restricted stock awards as a result of SFAS No. 123(R), Share-Based Payments and other miscellaneous charges and benefits. Excluding the
effect of these charges, the Companys effective tax rate for the six month periods ended July 5, 2009 and June 29, 2008 was approximately 47.8% and 26.5%, respectively. The rate increased primarily as a result of a loss before income
taxes related to continuing operations of $13,987,000 recorded for the six month period ended July 5, 2009 as compared to income before income taxes related to continuing operations of $6,288,000 recorded for the six month period ended
June 29, 2008 while the level of tax credits generated remained consistent. These rates differ from the statutory rate due to the inclusion of deferred tax assets relating to FICA and other tax credits, and foreign, state and local taxes
partially offset by miscellaneous charges and benefits.

The realization of tax benefits of deductible temporary differences or tax credit
carryforwards will depend on whether the Company has sufficient taxable income within the carryforward periods permitted by the tax law to allow for utilization of such benefits. Without sufficient taxable income to offset the deductible amounts and
carryforwards, the related tax benefits will expire unused. The Company bases its estimates of future taxable income on operating plans and projections. These plans and projections include estimates about a number of factors, including future
revenues, prices, inflation, marketing spending, exchange rates and capital spending. If we determine that all or a portion of our deferred tax assets will not result in a future tax benefit, a valuation allowance must be established with a
corresponding charge to net income. If the current economic recession were to continue longer than expected, and therefore the Companys income continues to be adversely affected, it is reasonably possible that the Companys estimate of
the realizability of deferred taxes could change.



|4) | Net Income (Loss) per Share
|-- | ---------------------------

The Company computes
net income (loss) per common share in accordance with SFAS No. 128, Earnings per Share. Basic and diluted net income (loss) per share have been computed by dividing net income (loss) by the shares outstanding. In accordance
with SFAS No. 128, diluted net income (loss) per common share reflects the potential dilution that would occur if unvested restricted stock awards were vested. Restricted stock of approximately 695,000 shares and approximately 690,000 shares
for the three and six month periods ended July 5, 2009, respectively, were not included in the diluted net (loss) income per share calculation because their effect would have been anti-dilutive. Restricted stock of approximately 592,000 shares
and approximately 644,000 shares for the three and six month periods ended June 29, 2008, respectively, were not included in the diluted net income per share calculation because their effect would



9



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have been anti-dilutive. The following table sets forth the computation of basic and diluted net (loss) income per share (amounts in thousands, except share
and per share amounts):



|                                                             |  |                           |            |   |                         |   |            |             |  |   |              |   |  |   |            |  
|------------------------------------------------------------ |  | ------------------------- | ---------- | - | ----------------------- | - | ---------- | ----------- |  | - | ------------ | - |  | - | ---------- | -
|                                                             |  | Three month periods ended |            |   | Six month periods ended |  
|                                                             |  | July 5,2009               |            |   | June 29,2008            |   |            | July 5,2009 |  |   | June 29,2008 |  
|(Loss) income from continuing operations, net of taxes       |  | $                         | (6,089     | ) |                         | $ | 1,934      |             |  | $ | (7,756       | ) |  | $ | 4,552      |  
|Discontinued operations, net of taxes                        |  |                           | (427       | ) |                         |   | (201       | )           |  |   | (530         | ) |  |   | (457       | )
|                                                             |  |                           |            |   |                         |   |            |             |  |   |              |   |  |   |            |  
|Net (loss) income                                            |  | $                         | (6,516     | ) |                         | $ | 1,733      |             |  | $ | (8,286       | ) |  | $ | 4,095      |  
|                                                             |  |                           |            |   |                         |   |            |             |  |   |              |   |  |   |            |  
|Shares:                                                      |  |                           |            |   |                         |   |            |             |  |   |              |   |  |   |            |  
|Weighted average number of basic common shares outstanding   |  |                           | 15,891,533 |   |                         |   | 16,126,800 |             |  |   | 15,872,925   |   |  |   | 16,370,836 |  
|Dilutive potential common shares                             |  |                           |           |   |                         |   | 496        |             |  |   |             |   |  |   |           |  
|                                                             |  |                           |            |   |                         |   |            |             |  |   |              |   |  |   |            |  
|Weighted average number of diluted common shares outstanding |  |                           | 15,891,533 |   |                         |   | 16,127,296 |             |  |   | 15,872,925   |   |  |   | 16,370,836 |  
|                                                             |  |                           |            |   |                         |   |            |             |  |   |              |   |  |   |            |  
|Basic net (loss) income per share                            |  |                           |            |   |                         |   |            |             |  |   |              |   |  |   |            |  
|Continuing operations                                        |  | $                         | (0.38      | ) |                         | $ | 0.12       |             |  | $ | (0.49        | ) |  | $ | 0.28       |  
|Discontinued operations                                      |  | $                         | (0.03      | ) |                         | $ | (0.01      | )           |  | $ | (0.03        | ) |  | $ | (0.03      | )
|Basic net (loss) income per share                            |  | $                         | (0.41      | ) |                         | $ | 0.11       |             |  | $ | (0.52        | ) |  | $ | 0.25       |  
|Diluted net (loss) income per share                          |  |                           |            |   |                         |   |            |             |  |   |              |   |  |   |            |  
|Continuing operations                                        |  | $                         | (0.38      | ) |                         | $ | 0.12       |             |  | $ | (0.49        | ) |  | $ | 0.28       |  
|Discontinued operations                                      |  | $                         | (0.03      | ) |                         | $ | (0.01      | )           |  | $ | (0.03        | ) |  | $ | (0.03      | )
|Diluted net (loss) income per share                          |  | $                         | (0.41      | ) |                         | $ | 0.11       |             |  | $ | (0.52        | ) |  | $ | 0.25       |  



|5) | Comprehensive (Loss) Income
|-- | ---------------------------

The components of
comprehensive (loss) income for the three and six month periods ended July 5, 2009 and June 29, 2008 are as follows (amounts in thousands):



|                                                                 |  |                           |        |                         |              |   |             |  |   |              |   |  |   |      
|---------------------------------------------------------------- |  | ------------------------- | ------ | ----------------------- | ------------ | - | ----------- |  | - | ------------ | - |  | - | -----
|                                                                 |  | Three month periods ended |        | Six month periods ended
|                                                                 |  | July 5,2009               |        |                         | June 29,2008 |   | July 5,2009 |  |   | June 29,2008
|Net (loss) income                                                |  | $                         | (6,516 | )                       |              | $ | 1,733       |  | $ | (8,286       | ) |  | $ | 4,095
|Other comprehensive (loss) income:                               |  |                           |        |                         |              |   |             |  |   |              |   |  |   |      
|Foreign currency translation                                     |  |                           | 119    |                         |              |   | 16          |  |   | (29          | ) |  |   | 162  
|                                                                 |  |                           |        |                         |              |   |             |  |   |              |   |  |   |      
|Comprehensive (loss) income                                      |  |                           | (6,397 | )                       |              |   | 1,749       |  |   | (8,315       | ) |  |   | 4,257
|Comprehensive loss attributable to noncontrolling interest       |  |                           | (31    | )                       |              |   |            |  |   | (303         | ) |  |   |     
|                                                                 |  |                           |        |                         |              |   |             |  |   |              |   |  |   |      
|Comprehensive (loss) income attributable to controlling interest |  | $                         | (6,366 | )                       |              | $ | 1,749       |  | $ | (8,012       | ) |  | $ | 4,257
|                                                                 |  |                           |        |                         |              |   |             |  |   |              |   |  |   |      



10



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|6) | Stock Based Compensation
|-- | ------------------------

Equity Incentive Plan

Prior to the IPO, the Company adopted the 2006 Mortons Restaurant Group, Inc. Stock Incentive Plan (the equity incentive
plan). The equity incentive plan provides for the grant of stock options and stock appreciation rights and for awards of shares, restricted shares, restricted stock units and other equity-based awards to employees, officers, directors or
consultants. As of July 5, 2009, the aggregate number of shares of the Companys common stock that was approved for grant under the equity incentive plan was 1,789,000 shares. If an award granted under the equity incentive plan terminates,
lapses or is forfeited before the vesting of the related shares, those shares will again be available to be granted. On January 29, 2009 and May 12, 2009, the Company granted and issued 262,150 shares and 300 shares, respectively, of
restricted stock to certain of its employees and directors pursuant to the equity incentive plan at a grant date price of $1.78 per share and $4.09 per share, respectively.

Activity relating to the equity incentive plan during the six month period ended July 5, 2009 was as follows:



|                                                            |  |          |  
|----------------------------------------------------------- |  | -------- | -
|Unvested restricted stock outstanding as of January 4, 2009 |  | 583,740  |  
|Granted                                                     |  | 262,450  |  
|Vested                                                      |  | (139,390 | )
|Forfeited by termination                                    |  | (33,260  | )
|                                                            |  |          |  
|Unvested restricted stock outstanding as of July 5, 2009    |  | 673,540  |  
|                                                            |  |          |  

As of July 5, 2009, there were 832,680 shares available for grant. In connection with the
vesting of shares during the six month period ended July 5, 2009, 29,255 shares of the 139,390 shares vested were surrendered at the election of certain employees in lieu of paying employee minimum income taxes in cash. Such surrendered shares
were cancelled by the Company.

The Company recognized stock-based compensation for awards issued under the equity incentive plan in the
following line items in the consolidated statements of operations (amounts in thousands):



|                                                     |  |                           |      |   |                         |   |      |             |  |              |       |  |   |       |  
|---------------------------------------------------- |  | ------------------------- | ---- | - | ----------------------- | - | ---- | ----------- |  | ------------ | ----- |  | - | ----- | -
|                                                     |  | Three month periods ended |      |   | Six month periods ended |  
|                                                     |  | July 5,2009               |      |   | June 29,2008            |   |      | July 5,2009 |  | June 29,2008 |      
|Restaurant operating expenses                        |  | $                         | 94   |   |                         | $ | 93   |             |  | $            | 213   |  | $ | 190   |  
|General and administrative expenses                  |  |                           | 387  |   |                         |   | 389  |             |  |              | 878   |  |   | 794   |  
|Marketing and promotional expenses                   |  |                           | 16   |   |                         |   | 15   |             |  |              | 36    |  |   | 31    |  
|                                                     |  |                           |      |   |                         |   |      |             |  |              |       |  |   |       |  
|Stock-based compensation expense before income taxes |  |                           | 497  |   |                         |   | 497  |             |  |              | 1,127 |  |   | 1,015 |  
|Income tax (benefit) expense                         |  |                           | (172 | ) |                         |   | (183 | )           |  |              | 247   |  |   | (97   | )
|                                                     |  |                           |      |   |                         |   |      |             |  |              |       |  |   |       |  
|Net compensation expense                             |  | $                         | 325  |   |                         | $ | 314  |             |  | $            | 1,374 |  | $ | 918   |  
|                                                     |  |                           |      |   |                         |   |      |             |  |              |       |  |   |       |  

Stock-based compensation expense, net of related income taxes, resulted in an increase of
approximately $0.02 in both basic and diluted net loss per share for the three month period ended July 5, 2009. Stock-based compensation expense, net of related income taxes, resulted in an increase of approximately $0.09 in both basic and
diluted net loss per share for the six month period ended July 5, 2009. Stock-based compensation expense, net of related income taxes, resulted in a decrease of approximately $0.02 in both basic and diluted net income per share for the three
month period ended June 29, 2008. Stock-based compensation expense, net of related income taxes, resulted in a decrease of approximately $0.06 in both basic and diluted net income per share for the six month period ended June 29, 2008.



11



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As of July 5, 2009, total remaining unrecognized compensation expense related to unvested
stock-based payment awards, net of estimated forfeitures, was approximately $5,076,000, which will be recognized over a weighted average period of approximately 2.9 years.



|7) | Financial Information about Geographic Areas
|-- | --------------------------------------------

(Loss) income before income taxes from continuing operations for the Companys domestic and foreign operations are as follows (amounts in thousands):



|                                                                                 |  |                           |         |                         |              |   |             |  |   |              |   |  |   |      
|-------------------------------------------------------------------------------- |  | ------------------------- | ------- | ----------------------- | ------------ | - | ----------- |  | - | ------------ | - |  | - | -----
|                                                                                 |  | Three month periods ended |         | Six month periods ended
|                                                                                 |  | July 5,2009               |         |                         | June 29,2008 |   | July 5,2009 |  |   | June 29,2008
|Domestic (75 and 78 restaurants at July 5, 2009 and June 29, 2008, respectively) |  | $                         | (13,583 | )                       |              | $ | 1,567       |  | $ | (14,760      | ) |  | $ | 4,628
|Foreign (6 and 5 restaurants at July 5, 2009 and June 29, 2008, respectively)    |  |                           | 989     |                         |              |   | 880         |  |   | 773          |   |  |   | 1,660
|                                                                                 |  |                           |         |                         |              |   |             |  |   |              |   |  |   |      
|Total                                                                            |  | $                         | (12,594 | )                       |              | $ | 2,447       |  | $ | (13,987      | ) |  | $ | 6,288
|                                                                                 |  |                           |         |                         |              |   |             |  |   |              |   |  |   |      

Domestic (loss) income before income taxes from continuing operations includes certain corporate
expenses and other charges, that relate to our U.S. based headquarters, and are included in domestic operations but not included in the foreign operations. The charge related to legal settlements of $10,567,000 is included in the domestic loss
before income taxes from continuing operations for the three and six month periods ended July 5, 2009 (see Note 12).



|8) | Senior Revolving Credit Facility
|-- | --------------------------------

On
February 14, 2006, the Company entered into a $115,000,000 senior revolving credit facility with Wachovia Bank, National Association (Wachovia), as administrative agent, Royal Bank of Canada, as syndication agent and a syndicate of
other financial institutions, as lenders. On March 4, 2009, the Company entered into the fifth amendment to the senior revolving credit facility (Fifth Amendment). The Fifth Amendment reduces the senior revolving credit facility
from $115,000,000 to $75,000,000, with a further reduction to $70,000,000 effective December 31, 2009. The maturity date of this senior revolving credit facility remains on February 14, 2011. The Companys indirect wholly-owned
subsidiary, Mortons of Chicago, Inc., is the borrower under the facility. MRG and most of its other domestic subsidiaries are guarantors of the facility. As of July 5, 2009, the Company had outstanding borrowings of approximately
$71,300,000 under its senior revolving credit facility. As of July 5, 2009, the Company was in compliance with all of the financial covenants included in its senior revolving credit facility.

The senior revolving credit facility requires that the Company meet certain financial covenants. The Company plans to manage its business during the
current weak general economic environment through continued development and implementation of operating measures designed to reduce expenditures, conserve cash and generate incremental cash flow. Based on current projections, management anticipates
that the Company will be in compliance with its financial covenants under the amended senior revolving credit facility throughout fiscal 2009; however, if the Company does not meet current projections and/or if the weak economic environment
deteriorates further, or is prolonged, and the Companys actions to respond to these conditions are not sufficient, the Company could fail to comply with one or more of the financial covenants.



12



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|9) | Consolidation of Variable Interest Entity (Joint Venture)
|-- | ---------------------------------------------------------

The Company operates a Mortons Steakhouse in Mexico City, Mexico in which the Company has a variable interest, as defined in FASB Interpretation No. 46 (R), Consolidation of Variable Interest Entities, as
revised, which has been included in the Companys consolidated financial statements due to the fact that the Company is the primary beneficiary of the variable interest entity (VIE). The liabilities recognized as a result of
consolidating the VIE do not represent additional claims on the Companys general assets but rather represent claims against the specific assets of the consolidated VIE. Conversely, assets recognized as a result of consolidating the VIE do not
represent additional assets that could be used to satisfy claims against the Companys general assets. Included in the consolidated balance sheets as of July 5, 2009 and January 4, 2009, are VIE assets of approximately $3,455,000 and
$2,840,000, respectively, which includes restricted cash of $71,000 and $1,372,000, respectively. Also included in Joint venture loan payable in the consolidated balance sheets as of July 5, 2009 and January 4, 2009, is a VIE
liability consisting of a joint venture loan payable with a balance of approximately $2,893,000 and $2,794,000, respectively. This loan represents an advance for capital needs, which is treated as debt of the joint venture and is repayable without
interest.

The Company is not involved in any other VIEs.



|10) | Restaurant Activity
|--- | -------------------

On March 3, 2009, the
Company opened a new Mortons steakhouse in Mexico City through a joint venture structure. During the six month period ended July 5, 2009, the Company closed its Mortons steakhouses in Southfield, Michigan, Westchester, Illinois and
Minneapolis, Minnesota.

The Company currently has signed leases for new Mortons steakhouses in Miami Beach, Florida, which is
expected to open in the fourth quarter of fiscal 2009, and in Indian Wells, California.



|11) | Discontinued Operations
|--- | -----------------------

During the second quarter
of fiscal 2009, the Company closed its Mortons steakhouses located in Southfield, Michigan, Westchester, Illinois and Minneapolis, Minnesota. In connection with the closing of these steakhouses, the Company recorded lease exiting and related
costs of approximately $550,000 pre-tax and approximately $350,000 after-tax, representing rent, severance and the write-off of inventory and an additional accrual related to restaurants that were closed in fiscal 2008. During fiscal 2008, the
Company recognized an impairment charge of approximately $3,057,000 which represented the entire balance, less a minimal salvage value, of property and equipment and goodwill of the three restaurants closed during fiscal 2009, as a result there was
no further impairment recorded during fiscal 2009.

During the first quarter of fiscal 2008, the Company closed its Bertolinis
restaurant in Indianapolis, Indiana. During the fourth quarter of fiscal 2008, the Company closed its Mortons steakhouses in Kansas City, Missouri and in Charlotte (Southpark), North Carolina. In connection with the closing of its
Mortons steakhouse in Charlotte (Southpark), North Carolina, during the fourth quarter of fiscal 2008, the Company recorded lease exiting and related costs of approximately $374,000 pre-tax or $223,000 after-tax, representing rent, severance
and the write-off of inventory. In connection with the closing of its Mortons steakhouse in Kansas City, Missouri, during the fourth quarter of fiscal 2008, the Company recorded a net benefit of approximately $209,000 pre-tax or $124,000
after-tax, representing the reversal of the related deferred rent obligation partially offset by severance and the write-off of inventory. There was no such charge related to the closing of Bertolinis in Indianapolis, Indiana. During fiscal
2008, the Company recognized an impairment charge of approximately $37,000 related to the property and equipment of the three restaurants closed during fiscal 2008.



13



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During the second quarter of fiscal 2009, the Company determined that the closed restaurants should be
accounted for as discontinued operations in accordance with SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets, due to the fact that the Company does not expect any further direct or indirect cash
inflows from these restaurants. As a result of the additional restaurants closed during fiscal 2009, the Company determined that it was appropriate to classify the restaurants closed during fiscal 2008 as discontinued operations as well.
Accordingly, the results of operations for the closed restaurants listed above have been reclassified to discontinued operations in the statements of operations for all periods presented.

The results of discontinued operations were as follows (amounts in thousands):



|                                                      |  |                           |       |   |                         |   |       |             |  |   |              |   |  |   |       |  
|----------------------------------------------------- |  | ------------------------- | ----- | - | ----------------------- | - | ----- | ----------- |  | - | ------------ | - |  | - | ----- | -
|                                                      |  | Three month periods ended |       |   | Six month periods ended |  
|                                                      |  | July 5,2009               |       |   | June 29,2008            |   |       | July 5,2009 |  |   | June 29,2008 |  
|Revenues                                              |  | $                         | 1,278 |   |                         | $ | 3,061 |             |  | $ | 2,782        |   |  | $ | 6,831 |  
|Loss from discontinued operations before income taxes |  |                           | (671  | ) |                         |   | (318  | )           |  |   | (833         | ) |  |   | (709  | )
|Income tax benefit on discontinued operations         |  |                           | (244  | ) |                         |   | (117  | )           |  |   | (303         | ) |  |   | (252  | )
|Net loss from discontinued operations                 |  | $                         | (427  | ) |                         | $ | (201  | )           |  | $ | (530         | ) |  | $ | (457  | )



|12) | Legal Matters and Contingencies
|--- | -------------------------------

The Company
records legal fees and accruals in accordance with SFAS No. 5, Accounting for Contingencies, and Emerging Issues Task Force (EITF) Topic D-77. A liability is recorded in accordance with SFAS No. 5 when the
liability is probable and can be reasonably estimated. The Companys accounting policy is to accrue estimated legal defense costs under EITF Topic D-77.

Since August 2002, a number of the Companys current and former employees in New York, Massachusetts, Florida and Illinois have initiated arbitrations with the American Arbitration Association in their respective
states alleging that the Company has violated state (Massachusetts arbitration), state and federal (New York and Illinois arbitrations) and federal (Florida and Massachusetts arbitrations) wage and hour laws regarding the sharing of tips with other
employees and failure to pay for all hours worked. There were two group arbitrations pending in Florida. One was proceeding in Palm Beach as a collective action with approximately 25 claimants. The second was proceeding in Boca Raton with six
claimants. In May 2008, a memorandum of understanding was reached and in September 2008 a settlement agreement was entered into by the parties to resolve both arbitrations. In May 2009, court approval was obtained resolving this matter. There were
two group arbitrations pending in New York. In the first, the arbitrator permitted 78 claimants to consolidate their arbitrations into one action and proceed as a collective action. In July 2008 a joint stipulation of settlement and release was
entered into by the parties and in September 2008, court approval was obtained resolving this matter with the exception of one remaining claimant. In June 2009, a settlement agreement was entered into with the one remaining claimant and in July 2009
court approval was obtained resolving this matter. The second New York arbitration was filed in October 2006 and contained similar allegations as the first New York arbitration. There were four named claimants in this arbitration proceeding. The
claimants sought to represent a class of current and former employees from the Mortons steakhouses in New York (Midtown Manhattan), Great Neck and White Plains for a six year time period. The arbitrator determined that the matter may proceed
as a class and certified a class comprising a group of servers in the New York restaurants. The Company moved to vacate that decision. In December 2008, an agreement was reached to resolve this matter. A joint stipulation of settlement and release
was entered into by the parties in February 2009. In July 2009, court approval was obtained resolving this matter. In the



14



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case involving Massachusetts state claims only, the arbitrator ruled that the claimants may proceed as a class and that there would be no automatic
certification. In July 2009, a settlement agreement was entered into by the parties in conjunction with the settlement of the nationwide class action referred to below.

In May 2005, a former employee of the Boston, Massachusetts Mortons steakhouse filed a nationwide class action complaint in federal court in the United States District Court, District of Massachusetts, alleging
that the sharing of tips with other restaurant employees violates the Fair Labor Standards Act. The Company moved to dismiss the complaint and compel arbitration. While the motion was pending, the plaintiff filed a nationwide collective action
demand for arbitration with the American Arbitration Association. The demand for arbitration alleged the same facts as the lawsuit filed in federal court. The Companys motion to dismiss was granted and the matter moved forward as an
arbitration. The arbitrator ruled that a nationwide class is appropriate, excluding certain states. The Company appealed that decision to the district court and that appeal was denied. In July 2009, a settlement agreement was entered into by the
parties covering federal and state claims. This settlement also includes settlement of the case involving Massachusetts state claims only. The settlement is subject to arbitrator and court approval.

In April 2008, a former employee of the Chicago (Wacker), Illinois Mortons steakhouse filed a nationwide class action complaint in federal court in
the United States District Court, Northern District of Illinois, alleging that the Company failed to pay overtime wages in violation of the Fair Labor Standards Act. In addition, in April 2008, another former employee of the Chicago (Wacker),
Illinois Mortons steakhouse filed a statewide class action complaint in state court in the Circuit Court of Cook County, Illinois County Department alleging that certain food deductions, tip pooling practices and tip credits taken by the
Company violate Illinois wage and hour laws. The Company filed motions to dismiss both complaints and compel arbitration for both matters. In July 2008, the plaintiff in the federal action filed a motion to dismiss the lawsuit (without prejudice),
which was granted by the court. In September 2008, the court granted the Companys motion to dismiss and compel arbitration for the state action and the plaintiff in such action subsequently filed a motion asking the court to reconsider its
decision. This motion was denied and the case was dismissed. The plaintiffs, along with a group of others, subsequently filed individual claims in arbitration. In July 2009, a settlement agreement covering all of these individual arbitrations was
entered into. The settlement is subject to arbitrator and court approval.

During the second quarter of fiscal 2009, the Company recorded a
charge related to the July 2009 settlements discussed above and similar labor claims of $10,567,000 pre-tax or $6,721,000 after-tax. As of July 5, 2009, the accrual related to these legal settlements and other similar labor claims is
$11,546,000 of which $9,082,000 is included in Other long term liabilities in the accompanying consolidated balance sheet. The settlements involve the payments of cash over up to a four year period as well as the issuance of preferred
stock by the Company. The preferred stock, which will have an aggregate liquidation preference of $6,000,000, will be issued in connection with the settlement of the nationwide class action within thirty days following court approval of such
settlement (but not prior to January 1, 2010) and after two years from the date of its issuance may be converted into up to 1,200,000 shares of the Companys common stock (or a lesser number of shares depending on the conversion price
computed at the time the court approves the settlement). The Company will have the right to buy back the preferred stock at a price equal to its liquidation preference at any time prior to its conversion. The cash portion of the settlements was
recorded at the present value of the future payments. The preferred stock portion of the settlement was recorded at fair value as of July 5, 2009. The portion of the accrual relating to the preferred stock will be marked to market at each
quarter end until all contingencies to issue the preferred stock are removed. All changes in the accrual of the fair value of the preferred stock will be recorded in the consolidated statement of operations. SFAS No. 157, Fair Value
Measurements, establishes a three-level hierarchy of measurements based upon the reliability of observable and unobservable inputs used to arrive at fair value. Observable inputs are independent market data, while unobservable inputs
reflect our assumptions about valuation. The fair value of the liability that is related to the preferred stock is calculated based on current



15



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market conditions and using a Black-Scholes option pricing model. The Company believes, in accordance with SFAS No. 157, the preferred stock equity
instruments qualify as level two of the hierarchy of measurements. The aggregate estimated value of the preferred stock to be issued upon final settlement is $3,207,000, or $2.67 per share for the up to 1,200,000 shares of the Companys common
stock which could be issued upon conversion of the preferred stock, using the following assumptions:



|                           |  |         
|-------------------------- |  | --------
|Strike price(1)            |  | $4.55   
|Expected volatility(2)     |  | 86%     
|Risk-free interest rate(3) |  | 0.96%   
|Expected life(4)           |  | 182 days
|Common Stock Price(5)      |  | $3.00   



|(1) | The strike price represents the maximum price of the Companys common stock assuming that the minimum conversion price under the settlement agreement for the
preferred stock is applicable on the date all contingencies to issue the preferred stock are removed. If the actual price of the Companys common stock computed in accordance with the settlement agreement at the time the contingencies are
removed is higher than the strike price of $4.55, the number of shares of the Companys common stock to be issued upon conversion of the preferred stock would be proportionally reduced below the 1,200,000 shares which would be issued at the
minimum conversion price.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Based on historical volatility of the Companys common stock over the expected life of the preferred stock.
|--- | -----------------------------------------------------------------------------------------------------------

|(3) | Represents the LIBOR rate matching the expected life of the preferred stock.
|--- | ----------------------------------------------------------------------------

|(4) | The period of time from the date the liability is recognized under SFAS No. 5 and the projected date the contingencies are removed.
|--- | -----------------------------------------------------------------------------------------------------------------------------------

|(5) | The stock price as of the last day of our fiscal period ended July 5, 2009.
|--- | ---------------------------------------------------------------------------

In general, the claimants are seeking restitution of tips, the difference between the tip credit wage and the minimum wage, recovery of unpaid
compensation, liquidated damages and attorneys fees and costs. If arbitrator or court approval regarding the fairness of the settlements is not obtained, any of these matters could result in an adverse judgment against the Company and could
adversely impact the Companys results of operations and liquidity position in any given period.

The Company is involved in various
other claims and legal actions, including claims and legal actions by landlords, arising in the ordinary course of business. The Company does not believe that the ultimate resolution of these actions will have a material adverse effect on the
Companys financial condition. However, an adverse judgment by a court or an arbitrator or a settlement could adversely impact the Companys results of operations and liquidity position in any given period.



|13) | New Accounting Pronouncements
|--- | -----------------------------

In May 2009, the
FASB issued SFAS No. 165, Subsequent Events. SFAS No. 165 requires management to evaluate subsequent events through the date the financial statements are either issued or available to be issued, depending on the
companys expectation of whether it will widely distribute its financial statements to its shareholders and other financial statement users. SFAS No. 165 requires companies to disclose the date through which subsequent events have been
evaluated. SFAS No. 165 is effective for interim or annual financial periods ending after June 15, 2009.



16



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|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

Many parts of the world including the United States are currently in a recession and we believe that these weak general economic conditions could continue
through 2009 and possibly beyond. The ongoing impact of the housing crisis, rising unemployment and financial market weakness may further exacerbate current economic conditions. As the economy struggles, our guests may become more apprehensive about
the economy and/or related factors, and may reduce their level of discretionary spending. A decrease in spending due to lower consumer discretionary income or consumer confidence in the economy could impact the frequency with which our guests choose
to dine out or the amount they spend on meals while dining out, thereby decreasing our revenues and negatively affecting our operating results. Additionally, we believe there is a risk that if the current negative economic conditions persist for a
long period of time and become more pervasive, consumers might make long-lasting changes to their discretionary spending behavior, including dining out less frequently on a more permanent basis. Our operating performance, as well as our liquidity
position, have been and continue to be negatively affected by these economic conditions, many of which are beyond our control. We do not believe that it is likely that these adverse economic conditions, and their effect on the restaurant industry,
will improve significantly in the near term.

Results of Operations

Three Month Period Ended July 5, 2009 (13 weeks) compared to Three Month Period Ended June 29, 2008 (13 weeks) and Six Month Period Ended July 5, 2009 (26 weeks) compared to Six Month Period Ended
June 29, 2008 (26 weeks)

Our revenues and results have been affected by the uncertain macroeconomic environment, particularly
in the United States, which has impacted guest traffic throughout the industry. Negative comparable restaurant revenues adversely impacted earnings due to the deleveraging effect on our fixed cost base. We expect these economic conditions to impact
our results through fiscal 2009 and possibly beyond. As a result, we could experience reduced revenues and incur a net loss during one or more of the remaining quarters of fiscal 2009.

Our net loss for the three month period ended July 5, 2009 was $6.5 million compared to net income of $1.7 million for the three month period ended
June 29, 2008. Our net loss for the six month period ended July 5, 2009 was $8.3 million compared to net income of $4.1 million for the six month period ended June 29, 2008. The change is primarily due to a decrease in comparable
restaurant revenues net of related food and beverage and restaurant operating costs, as well as the charge related to legal settlements of $10.6 million. For purposes of this discussion, comparable restaurants refer to Mortons steakhouses open
for all of fiscal 2008 and the six month period ended July 5, 2009. For purposes of this discussion, our Italian restaurants refer to our Bertolinis and Trevi restaurants.

Revenues decreased $17.0 million, or 19.8%, to $68.7 million for the three month period ended July 5, 2009 from $85.6 million for the three month
period ended June 29, 2008. Revenues decreased $20.6 million, or 26.1%, due to a decrease in revenues from comparable restaurants. Revenues decreased $0.7 million due to a decrease in revenues from our three Italian restaurants. Revenues
increased $3.4 million due to the opening of five new restaurants (one in the six month period ended July 5, 2009 and four in fiscal 2008). Revenues increased $0.2 million due to an increase in revenues from our Mortons steakhouse in
Beverly Hills, California, which was closed from June 1, 2008 to September 10, 2008 for major renovations. Revenues increased as a result of increased gift card breakage income of $0.7 million. Gift card breakage for the three months ended
July 5, 2009, includes gift card breakage income of $0.7 million relating to a legacy paper gift certificate program after determining the probability of redemption of such paper gift certificates was remote. Average revenue per restaurant open
all of either period being compared decreased 22.7%. Revenues for the three month period ended July 5, 2009 also reflect the impact of aggregate menu



17



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price increases of approximately 1.5% in July 2008, 0.8% in October 2008 and 1.0% in June 2009 at our Mortons steakhouses and the impact of a menu
price increase at our Italian restaurants of approximately 2.0% in August 2008 and 1.0% in October 2008.

Revenues decreased $33.3 million,
or 18.9%, to $143.0 million for the six month period ended July 5, 2009 from $176.3 million for the six month period ended June 29, 2008. Revenues decreased $41.0 million, or 24.9%, due to a decrease in revenues from comparable
restaurants. Revenues decreased $1.2 million due to a decrease in revenues from our three Italian restaurants. Revenues increased $8.0 million due to the opening of five new restaurants (one in the six month period ended July 5, 2009 and four
in fiscal 2008). Revenues increased $0.2 million due to an increase in revenues from our Mortons steakhouse in Beverly Hills, California, which was closed from June 1, 2008 to September 10, 2008 for major renovations. Revenues
increased as a result of increased gift card breakage income of $0.7 million. Gift card breakage for the six months ended July 5, 2009, includes gift card breakage income of $0.7 million relating to a legacy paper gift certificate program after
determining the probability of redemption of such paper gift certificates was remote. Average revenue per restaurant open all of either period being compared decreased 21.9%. Revenues for the six month period ended July 5, 2009 also reflect the
impact of aggregate menu price increases of approximately 1.0% in February 2008, 1.5% in July 2008, 0.8% in October 2008 and 1.0% in June 2009 at our Mortons steakhouses and the impact of a menu price increase at our Italian restaurants of
approximately 2.0% in August 2008 and 1.0% in October 2008.

Food and beverage costs decreased $6.9 million, or 25.1%, to $20.5 million for
the three month period ended July 5, 2009 from $27.4 million for the three month period ended June 29, 2008. These costs decreased $13.4 million, or 23.4%, to $44.0 million for the six month period ended July 5, 2009 from $57.5
million for the six month period ended June 29, 2008. These decreases are directly related to the decrease in revenues as compared to the prior period, partially offset by the opening of five new restaurants (one in the six month period ended
July 5, 2009 and four in fiscal 2008). Food and beverage costs as a percentage of revenues decreased 2.1% to 29.9% for the three month period ended July 5, 2009 from 32.0% for the three month period ended June 29, 2008 and decreased
1.8% to 30.8% for the six month period ended July 5, 2009 from 32.6% for the six month period ended June 29, 2008. These decreases were primarily due to the impact of the aggregate menu price increases and lower meat and other food costs
when compared to the three and six month periods ended June 29, 2008.

Restaurant operating expenses, which include labor, occupancy
and other operating expenses, decreased $2.7 million, or 6.4%, to $39.9 million for the three month period ended July 5, 2009 from $42.7 million for the three month period ended June 29, 2008. These costs decreased $4.6 million, or 5.3%,
to $81.3 million for the six month period ended July 5, 2009 from $85.8 million for the six month period ended June 29, 2008. These decreases were primarily due to a decrease in salaries, wages and benefits and a decrease in rent expense,
as a result of obtaining rent concessions from landlords, partially offset by the increased costs due to the opening of five new restaurants (one in the six month period ended July 5, 2009 and four in fiscal 2008). Included in the three month
periods ended July 5, 2009 and June 29, 2008 is non-cash rent expense (benefit) recorded in accordance with Statement of Financial Accounting Standards (SFAS) No. 13 of $0.7 million and $(1,000), respectively. Included in
the six month periods ended July 5, 2009 and June 29, 2008 is non-cash rent expense (benefit) recorded in accordance with SFAS No. 13 of $1.0 million and $55,000 respectively. Restaurant operating expenses as a percentage of revenues
increased 8.3% to 58.1% for the three month period ended July 5, 2009 from 49.8% for the three month period ended June 29, 2008 and increased 8.1% to 56.8% for the six month period ended July 5, 2009 from 48.7% for the six month
period ended June 29, 2008. These increases were primarily due to the deleveraging effect on the fixed cost base caused by negative comparable restaurant revenues.

Pre-opening costs decreased $0.3 million, or 39.0%, to $0.4 million for the three month period ended July 5, 2009 from $0.7 million for the three month period ended June 29, 2008. These costs decreased $0.5



18



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million, or 28.2%, to $1.2 million for the six month period ended July 5, 2009 from $1.7 million for the six month period ended June 29, 2008. We
expense all costs incurred during restaurant start-up activities, including pre-opening costs, as incurred. The number of restaurants opened, the timing of restaurant openings and the costs per restaurant opened affected the amount of these costs.

Depreciation and amortization decreased $0.2 million, or 7.4%, to $3.0 million for the three month period ended July 5, 2009 from
$3.3 million for the three month period ended June 29, 2008. Depreciation and amortization decreased $0.4 million, or 5.6%, to $6.1 million for the six month period ended July 5, 2009 from $6.4 million for the six month period ended
June 29, 2008. These decreases are due to the write-off of certain long-lived assets during fiscal 2008 partially offset by the depreciation and amortization relating to new restaurants and capital expenditures related to renovations to
existing restaurants.

General and administrative expenses decreased $2.3 million, or 36.1%, to $4.0 million for the three month period
ended July 5, 2009 from $6.3 million for the three month period ended June 29, 2008. These costs decreased $4.7 million, or 35.4%, to $8.5 million for the six month period ended July 5, 2009 from $13.2 million for the six month period
ended June 29, 2008. General and administrative expenses as a percentage of revenues decreased 1.5% to 5.8% for the three month period ended July 5, 2009 from 7.3% for the three month period ended June 29, 2008 and decreased 1.5% to
6.0% for the six month period ended July 5, 2009 from 7.5% for the six month period ended June 29, 2008. These decreases are primarily due to a decrease in bonuses, reduced legal expenses and the impact of the implementation of certain
cost reduction programs.

Marketing and promotional expenses decreased $0.4 million, or 18.8%, to $1.8 million for the three month period
ended July 5, 2009 from $2.2 million for the three month period ended June 29, 2008. These costs decreased $0.6 million, or 13.7%, to $3.5 million for the six month period ended July 5, 2009 from $4.0 million for the six month period
ended June 29, 2008. Marketing and promotional expenses as a percentage of revenues remained consistent at 2.6% for the three month periods ended July 5, 2009 and June 29, 2008 and increased 0.1% to 2.4% for the six month period ended
July 5, 2009 from 2.3% for the six month period ended June 29, 2008.

Charge related to legal settlements of $10.6 million
relates to the settlement of certain wage and hour and similar labor claims against us and certain of our subsidiaries. The settlements involve the payments of cash over up to a four year period as well as the issuance of preferred stock by us. The
preferred stock, which will have an aggregate liquidation preference of $6.0 million, will be issued in connection with the settlement of the nationwide class action within thirty days following court approval of such settlement (but not prior to
January 1, 2010) and after two years from the date of its issuance may be converted into up to 1,200,000 shares of our common stock (or a lesser number of shares depending on the conversion price computed at the time the court approves the
settlement). We will have the right to buy back the preferred stock at a price equal to its liquidation preference at any time prior to its conversion. The cash portion of the settlements was recorded at the present value of the future payments. The
preferred stock portion of the settlement was recorded at fair value as of July 5, 2009. The portion of the accrual relating to the preferred stock will be marked to market at each quarter end until all contingencies to issue the preferred
stock are removed. All changes in the accrual of the fair value of the preferred stock will be recorded in the consolidated statement of operations. The fair value of the liability that is related to the preferred stock is calculated based on
current market conditions and using a Black-Scholes option pricing model.

Write-off of deferred financing costs of $0.2 million for the
six month period ended July 5, 2009 represents the partial write-off of previously recorded deferred financing costs in connection the amendment of our senior revolving credit facility that was executed on March 4, 2009, pursuant to which
the credit facility was reduced from $115.0 million to $75.0 million, with a further reduction to $70.0 million effective December 31, 2009.



19



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Interest expense, net increased $0.3 million, or 50.3%, to $1.0 million for the three month period ended
July 5, 2009 from $0.7 million for the three month period ended June 29, 2008. Interest expense, net increased $0.3 million, or 19.0%, to $1.7 million for the six month period ended July 5, 2009 from $1.4 million for the six month
period ended June 29, 2008. These increases are primarily due to an increase in borrowings during the three and six month periods ended July 5, 2009 when compared to the three and six month periods ended June 29, 2008. Interest income
for the three and six month periods ended July 5, 2009 was insignificant. There was no interest income for the three and six month periods ended June 29, 2008.

Provision for income taxes consisted of an income tax benefit of $5.9 million for the six month period ended July 5, 2009 and an income tax expense of $1.7 million for the six month period ended June 29,
2008. Our effective tax (benefit) rate was (42.4)% and 27.6% for the six month periods ended July 5, 2009 and June 29, 2008, respectively. During the six month periods ended July 5, 2009 and June 29, 2008, our tax rate was
impacted by certain discrete items, including non-cash charges of approximately $0.7 million and $0.3 million, respectively, related to the tax impact of the vesting of certain restricted stock awards as a result of SFAS No. 123(R),
Share-Based Payments and other miscellaneous charges and benefits. Excluding the effect of these charges, our effective tax rate for the six month periods ended July 5, 2009 and June 29, 2008 was approximately 47.8% and
26.5%, respectively. The rate increased primarily as a result of a loss before income taxes related to continuing operations of $13.9 million recorded for the six month period ended July 5, 2009 as compared to income before income taxes related
to continuing operations of $6.3 million recorded for the six month period ended June 29, 2008 while the level of tax credits generated remained consistent. These rates differ from the statutory rates due to the inclusion of deferred tax assets
relating to FICA and other tax credits, and foreign, state and local taxes partially offset by miscellaneous charges and benefits.

Net
loss attributable to noncontrolling interest of $31,000 and $0.3 million for the three and six month periods ended July 5, 2009, respectively, consists of our partners 49.99% share of the net loss of the Mortons steakhouse located
in Mexico City.

Liquidity and Capital Resources

Our principal liquidity requirements are to meet our lease obligations and working capital and capital expenditure needs and to pay principal and interest on our debt. Subject to our operating performance, which, if
significantly adversely affected, would adversely affect the availability of funds, we expect to finance our operations, including costs of opening currently planned new restaurants, for at least the remainder of fiscal 2009, through cash provided
by operations and borrowings available under our senior revolving credit facility. We cannot be sure, however, that this will be the case, and to the extent possible, we may seek additional financing in the future. In addition, we rely to a
significant degree on landlord development allowances as a means of financing the costs of opening new restaurants, and any substantial reduction in the amount of those landlord development allowances could adversely affect our liquidity. As of
July 5, 2009, we had cash and cash equivalents of $1.0 million compared to $3.5 million as of January 4, 2009.

The global credit
market crisis has created a difficult business environment in our industry, which generally has worsened during fiscal 2009. Our operating performance, as well as our liquidity position, have been and we believe will continue to be negatively
affected by these economic conditions, many of which are beyond our control. We do not believe that it is likely that current economic conditions, and their effect on the restaurant industry, will improve significantly in the near term.

We are managing our business during this time through continued development and implementation of operating measures designed to reduce expenditures,
conserve cash and generate incremental cash flow.



20



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Based on our current projections, we believe that our cash and cash equivalents, cash flow from operations and funds available under our senior revolving
credit facility will be sufficient to meet our working capital and investment requirements and our debt service obligations through fiscal 2009. If available liquidity is not sufficient to meet these requirements and obligations as they come due,
our plans include further reducing expenditures as necessary in order to meet our cash requirements. However, there can be no assurance that any such reductions in expenditures would be sufficient to enable us to meet our cash requirement needs.

Working Capital and Cash Flows

As of July 5, 2009, we had, and in the future we may have, negative working capital balances. Our operations have not required significant working capital and, like many restaurant companies, we have been able to operate with negative
working capital since our restaurant guests pay for their food and beverage purchases in cash or by credit card at the time of sale, and we are able to sell many of our food inventory items before payment is due to our suppliers. We do not have
significant receivables. Our receivables primarily represent amounts due from credit card processors, which arise when customers pay by credit card, and are included in Accounts Receivable in our consolidated balance sheets. We receive
trade credit based upon negotiated terms in purchasing food and supplies. Funds available from cash sales not needed immediately to pay for food and supplies or to finance receivables or inventories historically have typically been used for capital
expenditures and/or to repay debt.

Operating Activities

Cash flows used in operating activities for the six month period ended July 5, 2009 were $3.5 million consisting primarily of a decrease in accounts
payable and accrued expenses of $11.8 million partially offset by a decrease in inventories of $1.8 million and net income before depreciation, amortization, and other non-cash charges, a change in deferred income taxes and the charge related to
legal settlements of $4.8 million.

Investing Activities

Cash flows used in investing activities for the six month period ended July 5, 2009 were $9.9 million due to purchases of property and equipment.

Financing Activities

Cash flows provided by financing activities for the six month period ended July 5, 2009 were $11.0 million, primarily consisting of net borrowings under our senior revolving credit facility of $10.5 million.

Debt and Other Obligations

Senior Revolving Credit Facility

On February 14, 2006, we entered into a $115.0 million senior revolving credit facility with Wachovia Bank, N.A. On March 4,
2009, we entered into the fifth amendment to the senior revolving credit facility reducing the facility from $115.0 million to $75.0 million, with a further reduction to $70.0 million effective December 31, 2009. Our senior revolving credit
facility matures on February 14, 2011. As of July 5, 2009, we had outstanding borrowings of approximately $71.3 million under our senior revolving credit facility at a weighted average interest rate of 4.35%. As of July 5, 2009, we
were in compliance with all of the financial covenants included in the senior revolving credit facility. However, if the weak economic environment deteriorates further, or is prolonged, and our actions to respond to these conditions are not
sufficient, we could fail to comply with one or more of the financial covenants.



21



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Mortgages

During 2001, one of our subsidiaries entered into a mortgage loan of $4.0 million with a predecessor of GE Capital Franchise Finance, the proceeds of which were used to fund the purchase of land and construction of a restaurant. The
mortgage loan bears interest at 8.98% per annum and is scheduled to mature in March 2021. On July 5, 2009 and January 4, 2009, the aggregate outstanding principal balance due on this mortgage loan was approximately $3.1 million and
$3.2 million, respectively, of which approximately $0.2 million and $0.1 million, respectively, of principal is included in Current portion of obligation to financial institution in the accompanying consolidated balance sheets. As of
July 5, 2009, we were in compliance with all of the financial covenants included in this mortgage loan.

Restaurant Operating Leases

Our obligations for restaurant operating leases include certain restaurant operating leases for which we, or one of our subsidiaries,
guarantees, for a portion of the lease term, the performance of the lease by the subsidiary operating company that is a party thereto.

Contractual
Commitments

The following table represents our contractual commitments associated with our debt and other obligations disclosed above
as of July 5, 2009:



|                                                                    |  |                        |        |      |   |        |  |      |         |      |   |            |  |       |        |  |   |         |  |   |        
|------------------------------------------------------------------- |  | ---------------------- | ------ | ---- | - | ------ |  | ---- | ------- | ---- | - | ---------- |  | ----- | ------ |  | - | ------- |  | - | -------
|                                                                    |  | Remainder2009          |        | 2010 |   | 2011   |  | 2012 |         | 2013 |   | Thereafter |  | Total
|                                                                    |  | (amounts in thousands)
|Senior revolving credit facility, including interest (a)            |  | $                      | 1,504  |      | $ | 3,009  |  | $    | 71,676  |      | $ |           |  | $     |       |  | $ |        |  | $ | 76,189 
|Mortgage loan with GE Capital Franchise Finance, including interest |  |                        | 217    |      |   | 435    |  |      | 435     |      |   | 435        |  |       | 435    |  |   | 3,156   |  |   | 5,113  
|                                                                    |  |                        |        |      |   |        |  |      |         |      |   |            |  |       |        |  |   |         |  |   |        
|Subtotal                                                            |  |                        | 1,721  |      |   | 3,444  |  |      | 72,111  |      |   | 435        |  |       | 435    |  |   | 3,156   |  |   | 81,302 
|Operating leases                                                    |  |                        | 13,226 |      |   | 29,212 |  |      | 29,358  |      |   | 28,862     |  |       | 28,871 |  |   | 199,892 |  |   | 329,421
|Purchase commitments                                                |  |                        |       |      |   |       |  |      |        |      |   |           |  |       |       |  |   |        |  |   |       
|                                                                    |  |                        |        |      |   |        |  |      |         |      |   |            |  |       |        |  |   |         |  |   |        
|Total                                                               |  | $                      | 14,947 |      | $ | 32,656 |  | $    | 101,469 |      | $ | 29,297     |  | $     | 29,306 |  | $ | 203,048 |  | $ | 410,723
|                                                                    |  |                        |        |      |   |        |  |      |         |      |   |            |  |       |        |  |   |         |  |   |        



|(a) | Interest is based on borrowings as of July 5, 2009 and current interest rates.
|--- | ------------------------------------------------------------------------------

During the first six months of fiscal 2009, our expenditures for fixed assets and related investment costs, plus pre-opening costs,
approximated $11.1 million. During the first six months of fiscal 2009, capital expenditures were reduced by landlord contributions of approximately $0.9 million. We estimate that we will spend up to approximately $13.0 million in fiscal 2009,
including the $11.1 million recorded in the first six months of fiscal 2009, to finance ordinary refurbishment of existing restaurants, remodel the bar area in selected restaurants to include our Bar 1221 concept, add additional Boardrooms in selected restaurants and make capital
expenditures for new restaurants. Capital expenditures in fiscal 2009 are expected to be reduced by landlord contributions of approximately $2.7 million. We anticipate that funds generated through operations and through borrowings under our senior
revolving credit facility, together with landlord contributions, will be sufficient to fund these currently planned expenditures through the end of fiscal 2009. We cannot be sure, however, that this will be the case.

New Accounting Standards

In June 2009, the FASB
issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R). SFAS No. 167 amends the guidance in FASB Interpretation 46R related to the consolidation of variable interest entities. SFAS No. 167 requires
reporting entities to evaluate former QSPEs for consolidation, changes the approach to determining a VIEs primary beneficiary from a quantitative assessment to a qualitative assessment designed to identify a controlling financial interest, and
increases the frequency of required reassessments to determine whether a company is the primary beneficiary of a VIE. It also clarifies, but does not significantly change, the characteristics that identify a VIE. SFAS No. 167 is effective as of
the



22



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beginning of the first fiscal year that begins after November 15, 2009. The Company is in the process of evaluating the impact of SFAS No. 167 on
the Companys consolidated financial statements.

In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards
Codification TM and the Hierarchy of Generally Accepted Accounting Principles  a replacement of FASB Statement No. 162. SFAS No. 168 provides for the FASB Accounting Standards Codification TM (the Codification) to
become the single official source of authoritative, nongovernmental U.S. generally accepted accounting principles (GAAP). The Codification did not change GAAP but reorganizes the literature. SFAS 168 is effective for interim and annual periods
ending after September 15, 2009.



|Item 3. | Quantitative and Qualitative Disclosures about Market Risk
|------- | ----------------------------------------------------------

The inherent risk in market risk sensitive instruments and positions primarily relates to potential losses arising from adverse changes in foreign currency exchange rates, interest rates and beef and other food product prices.

As of July 5, 2009, we owned and operated six international restaurants, one each in: Hong Kong, China; Macau, China; Mexico City, Mexico;
Singapore; Toronto, Canada; and Vancouver, Canada. As a result, we are subject to risk from changes in foreign exchange rates. These changes result in cumulative translation adjustments, which are included in accumulated other comprehensive income
(loss). We do not consider the potential loss resulting from a hypothetical 10% adverse change in quoted foreign currency exchange rates, as of July 5, 2009, to be material.

We are also subject to market risk from exposure to changes in interest rates based on our financing activities. This exposure relates to borrowings
under our senior revolving credit facility that are payable at floating rates of interest. Our other indebtedness, our mortgage, is payable at a fixed rate of interest. As of July 5, 2009, there were borrowings outstanding under our floating
rate senior revolving credit facility of approximately $71.3 million. As a result, a hypothetical 10% fluctuation in interest rates would have an immaterial impact on earnings for the six month period ended July 5, 2009.

We are also exposed to market price fluctuations in beef and other food product prices. Given the historical volatility of beef and other food product
prices, this exposure can impact our food and beverage costs. Since we typically set our menu prices in advance of our beef and other food product purchases, we cannot quickly take into account changing costs of beef and other food items. To the
extent that we are unable to pass the increased costs on to our guests through price increases, our results of operations would be adversely affected. To manage this risk in part, we attempt to enter into fixed price purchase commitments. We
currently do not use financial instruments to hedge our risk to market price fluctuations in beef or other food product prices. As a result, a hypothetical 10% fluctuation in beef costs would have an impact of approximately $1.2 million on earnings
for the six month period ended July 5, 2009.



|Item 4. | Controls and Procedures
|------- | -----------------------

The Company maintains
disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act) designed to provide reasonable assurance that the information required to be disclosed by the Company in the reports that it files or submits under
the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commissions rules and forms. These include, without limitation, controls and procedures designed to ensure that
this information is accumulated and communicated to the Companys management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Management, with the
participation of the Chief Executive and Chief Financial Officers, conducted an evaluation of the effectiveness of the design and operation of the Companys



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disclosure controls and procedures as of July 5, 2009. Based on this evaluation, the Companys Chief Executive Officer and Chief Financial Officer
have concluded that the Companys disclosure controls and procedures were effective as of July 5, 2009 at the reasonable assurance level. No changes were made in our internal controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation.

Part II - Other Information



|Item 1. | Legal Proceedings
|------- | -----------------

Since August 2002, a number of
the Companys current and former employees in New York, Massachusetts, Florida and Illinois have initiated arbitrations with the American Arbitration Association in their respective states alleging that the Company has violated state
(Massachusetts arbitration), state and federal (New York and Illinois arbitrations) and federal (Florida and Massachusetts arbitrations) wage and hour laws regarding the sharing of tips with other employees and failure to pay for all hours worked.
There were two group arbitrations pending in Florida. One was proceeding in Palm Beach as a collective action with approximately 25 claimants. The second was proceeding in Boca Raton with six claimants. In May 2008, a memorandum of understanding was
reached and in September 2008 a settlement agreement was entered into by the parties to resolve both arbitrations. In May 2009, court approval was obtained resolving this matter. There were two group arbitrations pending in New York. In the first,
the arbitrator permitted 78 claimants to consolidate their arbitrations into one action and proceed as a collective action. In July 2008 a joint stipulation of settlement and release was entered into by the parties and in September 2008, court
approval was obtained resolving this matter with the exception of one remaining claimant. In June 2009, a settlement agreement was entered into with the one remaining claimant and in July 2009 court approval was obtained resolving this matter. The
second New York arbitration was filed in October 2006 and contained similar allegations as the first New York arbitration. There were four named claimants in this arbitration proceeding. The claimants sought to represent a class of current and
former employees from the Mortons steakhouses in New York (Midtown Manhattan), Great Neck and White Plains for a six year time period. The arbitrator determined that the matter may proceed as a class and certified a class comprising a group of
servers in the New York restaurants. The Company moved to vacate that decision. In December 2008, an agreement was reached to resolve this matter. A joint stipulation of settlement and release was entered into by the parties in February 2009. In
July 2009, court approval was obtained resolving this matter. In the case involving Massachusetts state claims only, the arbitrator ruled that the claimants may proceed as a class and that there would be no automatic certification. In July 2009, a
settlement agreement was entered into by the parties in conjunction with the settlement of the nationwide class action referred to below.

In May 2005, a former employee of the Boston, Massachusetts Mortons steakhouse filed a nationwide class action complaint in federal court in the United States District Court, District of Massachusetts, alleging that the sharing of
tips with other restaurant employees violates the Fair Labor Standards Act. The Company moved to dismiss the complaint and compel arbitration. While the motion was pending, the plaintiff filed a nationwide collective action demand for arbitration
with the American Arbitration Association. The demand for arbitration alleged the same facts as the lawsuit filed in federal court. The Companys motion to dismiss was granted and the matter moved forward as an arbitration. The arbitrator ruled
that a nationwide class is appropriate, excluding certain states. The Company appealed that decision to the district court and that appeal was denied. In July 2009, a settlement agreement was entered into by the parties covering federal and state
claims. This settlement also includes settlement of the case involving Massachusetts state claims only. The settlement is subject to arbitrator and court approval.

In April 2008, a former employee of the Chicago (Wacker), Illinois Mortons steakhouse filed a nationwide class action complaint in federal court in the United States District Court, Northern District of
Illinois, alleging that the Company failed to pay overtime wages in violation of the Fair Labor Standards



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Act. In addition, in April 2008, another former employee of the Chicago (Wacker), Illinois Mortons steakhouse filed a statewide class action complaint
in state court in the Circuit Court of Cook County, Illinois County Department alleging that certain food deductions, tip pooling practices and tip credits taken by the Company violate Illinois wage and hour laws. The Company filed motions to
dismiss both complaints and compel arbitration for both matters. In July 2008, the plaintiff in the federal action filed a motion to dismiss the lawsuit (without prejudice), which was granted by the court. In September 2008, the court granted the
Companys motion to dismiss and compel arbitration for the state action and the plaintiff in such action subsequently filed a motion asking the court to reconsider its decision. This motion was denied and the case was dismissed. The plaintiffs,
along with a group of others, subsequently filed individual claims in arbitration. In July 2009, a settlement agreement covering all of these individual arbitrations was entered into. The settlement is subject to arbitrator and court approval. See
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations for additional disclosure regarding the July 2009 settlements.

In general, the claimants are seeking restitution of tips, the difference between the tip credit wage and the minimum wage, recovery of unpaid
compensation, liquidated damages and attorneys fees and costs. If arbitrator or court approval regarding the fairness of the settlements is not obtained, any of these matters could result in an adverse judgment against the Company and could
adversely impact the Companys results of operations and liquidity position in any given period.

The Company is involved in various
other claims and legal actions, including claims and legal actions by landlords, arising in the ordinary course of business. The Company does not believe that the ultimate resolution of these actions will have a material adverse effect on the
Companys financial condition. However, an adverse judgment by a court or an arbitrator or a settlement could adversely impact the Companys results of operations and liquidity position in any given period.



|Item 1A. | Risk Factors
|-------- | ------------

In addition to the other information
set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended January 4, 2009, which could materially affect our
business, financial condition or future results. The risks described in this report and in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we
currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.

The Further Spread of H1N1
Influenza May Adversely Affect Our Business

The further spread of H1N1 influenza, which is more commonly known as swine
flu, may adversely affect our business. Due to the outbreak of H1N1 influenza in Mexico, our restaurant in Mexico City, Mexico was temporarily closed on April 26, 2009 and reopened on May 6, 2009, initially, with certain general
restrictions imposed by the local government to help prevent the spread of the H1N1 influenza. Our results of operations for this restaurant were adversely impacted while such restrictions were in place. We could also be adversely affected if other
jurisdictions in which we have restaurants impose mandatory closures, seek voluntary closures or impose restrictions on operations. Past outbreaks of severe acute respiratory syndrome, which is also known as SARS, and Avian flu had a negative impact
on our restaurants, and another outbreak of H1N1 influenza may also reduce traffic in our restaurants. H1N1 influenza also could adversely affect our ability to adequately staff our restaurants, receive deliveries on a timely basis and/or perform
functions at the corporate level. Even if H1N1 influenza does not spread significantly, the perceived risk of infection or significant health risk may adversely affect our business.



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We may be required to establish a valuation allowance against our deferred income tax assets

The realization of tax benefits of deductible temporary differences or tax credit carryforwards will depend on whether we have sufficient taxable income
of an appropriate character within the carryforward periods permitted by the tax law to allow for utilization of the deductible amounts and carryforwards. Without sufficient taxable income to offset the deductible amounts and carryforwards, the
related tax benefits will expire unused. We base our estimates of future taxable income on our operating plans and projections. These plans and projections require us to make estimates about a number of factors, including future revenues, prices,
inflation, marketing spending, exchange rates and capital spending. If we determine that all or a portion of our deferred tax assets will not result in a future tax benefit, a valuation allowance must be established with a corresponding charge to
net income. The likelihood of recording such a valuation increases during periods of economic downturn. Such charges may have a material adverse effect on our results of operations or financial condition.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

During the three and six month periods ended July 5, 2009, the Company did not purchase shares of its common stock.



|Item 6. | Exhibits
|------- | --------



|            |  |                                                                                                                                            
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                
|            | 
|31.1*       |  | Certification of Thomas J. Baldwin Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                               
|            | 
|31.2*       |  | Certification of Ronald M. DiNella Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                               
|            | 
|32.1*       |  | Certification of Thomas J. Baldwin Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|            | 
|32.2*       |  | Certification of Ronald M. DiNella Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



|* | Filed herewith.
|- | ---------------



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SIGNATURES

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



|                     |  |                                 |  |                                                                                                          
|-------------------- |  | ------------------------------- |  | ---------------------------------------------------------------------------------------------------------
|                     |  | MORTONS RESTAURANT GROUP, INC.
|                     |  | (Registrant)                   
|                     |  |                                
|Date: August 7, 2009 |  | By:                             |  | /s/ THOMAS J. BALDWIN                                                                                    
|                     |  |                                 |  |                                                                                                          
|                     |  |                                 |  | Thomas J. Baldwin                                                                                        
|                     |  |                                 |  | Chairman of the Board of Directors, Chief Executive
Officer and President (Principal Executive Officer)  
|                     |  |                                
|Date: August 7, 2009 |  | By:                             |  | /s/ RONALD M. DINELLA                                                                                    
|                     |  |                                 |  |                                                                                                          
|                     |  |                                 |  | Ronald M. DiNella                                                                                        
|                     |  |                                 |  | Senior Vice President, Chief Financial Officer and
Treasurer (Principal Financial and Accounting Officer)



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