# UNITED STATES SECURITIES
AND EXCHANGE COMMISSIONWashington, D.C. 20549

# FORM 10-K/A[Amendment No.1]

# (Check One)

# [X]    ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934.

# For the quarterly period
ended June 27, 2004

# [   ]    TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934.

For the transition
period from __________ to __________

# Commission File Number 000-22639

CHAMPPS ENTERTAINMENT, INC.(Exact name of registrant as specified in its charter)

|                                                                                                  |                                                 
|------------------------------------------------------------------------------------------------- | ------------------------------------------------
|Delaware (State or other jurisdiction of 
incorporation or organization)                          | 04-3370491  (I.R.S.Employer 
Identification No.)
|10375 Park Meadows Drive, Suite 560, Littleton, Colorado
(Address of principal executive offices) | 80124(Zip Code)                                 

(303) 804-1333(Registrants
telephone number, including area code)

Securities registered pursuant to Section 12 (b) of the Act: None

Securities registered pursuant to Section 12 (g) of the Act: Common Stock, par value $.01 per share

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
and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ]

Indicate
by check mark if disclosure of delinquent filers, pursuant to Item 405 of Resolution S-K
is not contained herein, and will not be contained to the best of the registrants
knowledge, in definitive proxy or information statements incorporated by reference in Part
III of the Form 10-K: [X]

Indicate by check mark if the  registrant  is an  accelerated  filer (as defined in Rule 12b-2 of the Exchange  Act):  YES [X]
NO [ ]



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The
aggregate market value of Common Stock held by non-affiliates of the Registrant as of
September 1, 2004, based on the closing price of the Common Stock as reported by the
Nasdaq National Market on September 1, 2004 of $8.34 per share, was $74,372,042. Solely
for purposes of this computation, shares held by all officers, directors and 10% or more
beneficial owners of the registrant have been excluded. Such exclusion should not be
deemed a determination or an admission that such officers, directors or 10% or more
beneficial owners are, in fact, affiliates of the registrant.

Number
of shares of Common Stock, $.01 par value, outstanding at August 31, 2004: 12,821,423.

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# Explanatory Note

The
purpose of this amendment on Form 10-K/A to the Annual Report on Form 10-K of Champps
Entertainment, Inc. for the fiscal year ended June 27, 2004 is to restate our consolidated
financial statements for the years ended June 27, 2004, June 29, 2003 and June 30, 2002
and related disclosures, including the selected financial data included herein as of and
for the years ended June 27, 2004, June 29, 2003, June 30, 2002, July 1, 2001 and July 2,
2000, as described in Note 2 to the Consolidated Financial Statements. Additional
information about the decision to restate these financial statements can be found in our
Current Report on Form 8-K, filed with the SEC on February 1, 2005. The Company has also
expanded or revised certain disclosures in response to a comment letter received from the
Securities and Exchange Commission on March 21, 2005. These changes consist primarily of
revised disclosures to eliminate non-GAAP measures of operating performance and a correction of
disclosure of contractual obligations and commitments.

Generally,
no attempt has been made in this Form 10-K/A to modify or update other disclosures
presented in the original report on Form 10-K, except as required to reflect the effects
of the restatement and in response to the comment letter to expand or revise certain
disclosures in future filings noted above. The Form 10-K/A generally does not reflect
events occurring after the filing of the Form 10-K or modify or update those disclosures,
including the exhibits to the Form 10-K affected by subsequent events. Information not
affected by the restatement or related to the expanded or revised disclosures resulting
from our SEC comment letter noted above is unchanged and reflects the disclosures made at
the time of the original filing of the Form 10-K on September 8, 2004. Accordingly, this
Form 10-K/A should be read in conjunction with our filings made with the Securities and
Exchange Commission subsequent to the filing of the original Form 10-K, including any
amendments to those filings. The following items have been amended as a result of the
restatement:


Part I  Item 1  Business


Part II  Item 6  Selected Financial Data


Part II  Item 7  Managements Discussion and Analysis of Financial
Condition and Results of Operations


Part II  Item 8  Financial Statements and Supplementary Data


Part II  Item 9A  Controls and Procedures


Part IV  Item 15  Exhibits, Financial Statement Schedules and Reports on Form
8-K

We
have included in this Amendment No. 1 to Form 10-K a discussion of our controls and
procedures as of June 27, 2004, the end of our fiscal year. While the discussion speaks as
of a date later than June 27, 2004, the Company concluded that an updated disclosure is
appropriate under the circumstances of the restatement reflected in this amendment.

In
addition, pursuant to the rules of the SEC, Item 15 of Part IV of the Original Filing has
been amended to contain the consent of our independent registered public accounting firm
and currently dated certifications from our chief executive officer and chief financial
officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. The
consent of the independent registered public accounting firm and the certifications of our
chief executive officer and chief financial officer are attached to this Form 10-K/A as
Exhibits 23, 31.1, 31.2, 32.1 and 32.2, respectively.

i

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In
January 2005, following a review of our accounting policy and in consultation with our
independent registered public accounting firm, KPMG LLP, we have determined that we had
incorrectly calculated our straight-line rent expense, our related deferred rent liability
and our depreciation expense. We have modified our computations to correct this issue. As
a result, we have restated our financial statements for fiscal 2002, 2003, 2004 and for
the first quarter of fiscal 2005.

The
issue requiring restatement relates to our historical accounting practice of using the
initial non-cancelable lease term when determining whether each of our leases was an
operating lease or a capital lease and when calculating straight-line rent expense. In
accordance with this policy, we had depreciated our leasehold improvements over a period
that included both the initial non-cancelable term of the lease and our option periods but
not longer than the useful life of the asset, if shorter. Historically, when accounting
for leases with renewal options, we recorded rent expense on a straight-line basis over
the initial non-cancelable lease term. In addition, we previously did not include
increases when calculating rent expense for leases where the increases in rent include
escalation clauses based on the lesser of a specified percentage increase or the change in
an index that includes a leverage factor. We previously believed that these longstanding
accounting treatments were appropriate under generally accepted accounting principles.

Following
recent discussions with our independent auditors, as well as an extensive analysis of our
accounting records, we have now concluded that the accounting literature should be
interpreted to require that we use the same lease term for depreciating leasehold
improvements as we use in determining capital versus operating lease classifications and
in calculating straight-line rent expense. We have restated our rent expense on a
straight-line basis over the expected lease term, including cancelable option periods
where the failure to exercise such options would result in an economic penalty. Our
decision to modify our lease accounting was confirmed by a letter to Robert J. Kueppers,
Chairman, Center for Public Company Audit Firms, from Donald T. Nicolaisen the Chief
Accountant of the Securities and Exchange Commission on February 7, 2005 reiterating our
revised policy as indicated above.

As
part of our restatement, we have also corrected our disclosure of future minimum lease
payments to include future increases due to escalation clauses as discussed above.

We
have determined that the cumulative effect of the restatement on our financial statements
through fiscal 2004 ended June 27, 2004 results in an increase in the deferred rent
liability and rent expense of approximately $5.8 million, an increase in accumulated
depreciation and depreciation expense of approximately $200,000, a decrease in income tax
expense by approximately $2.5 million, and a decrease in retained earnings of
approximately $3.5 million.

These
adjustments were not attributable to any material non-compliance by us, as a result of any
misconduct, with any financial reporting requirements under the securities laws.

We
have not amended and do not intend to amend our previously filed Quarterly Reports on Form
10-Q for the periods affected by the Restatement that ended prior to June 27, 2004. For
this reason, the consolidated financial statements and related financial information for
the affected periods contained in such reports should no longer be relied upon.

ii

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The
financial impact of the adjustments described above for the periods presented is as
follows:

|                        | Cumulativeimpact toperiodsprior tofiscal 2000 | Impact tofiscal 2000 | Impact tofiscal 2001 | Impact tofiscal 2002 | Impact tofiscal 2003 | Impact tofiscal 2004 | Totalcummulativeimpactthrough fiscal2004
|----------------------- | --------------------------------------------- | -------------------- | -------------------- | -------------------- | -------------------- | -------------------- | ----------------------------------------
|Rent expense            |                                               |                      |                      | 1,234                |                      |                      | 803                                     
|Depreciation expense    |                                               |                      |                      | (29                  | )                    |                      | (1                                      
|                        |                                               |                      |                      |                      |                      |                      |                                         
|Subtotal                |                                               |                      |                      | 1,205                |                      |                      | 802                                     
|Tax expense             |                                               |                      |                      | --                   |                      |                      | --                                      
|                        |                                               |                      |                      |                      |                      |                      |                                         
|Net increase/(decrease) |                                               |                     
|in expenses             |                                               |                      |                      | 1,205                |                      |                      | 802                                     
|                        |                                               |                      |                      |                      |                      |                      |                                         

See
Note 2 of the Notes to Consolidated Financial Statements for additional information.

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iii

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DOCUMENTS INCORPORATED BY
REFERENCE

Certain
portions of the Companys definitive proxy statement to be used in connection with
its 2004 Annual Meeting of Stockholders and to be filed within 120 days of June 27, 2004
are incorporated by reference into Part III, Items 10-14, of this report on Form 10-K/A.

Our
annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form
8-K, and any amendments to the reports will be provided without charge upon written
request addressed to: Investor Relations, Champps Entertainment, Inc., 10375 Park Meadows
Drive, Suite 560, Littleton, Colorado 80124 and will also be available on our web site at
www.champps.com under the heading Investor Relations, as soon as
reasonably practicable after we electronically file such material with, or furnish it to,
the Securities and Exchange Commission. Our Code of Business Conduct and Ethics is
available on our website under the heading The Company.

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iv

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# FORM 10-K/A INDEX

# PART I

|                               |                                                                                                                                                                      |              
|------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------
|Item 1 
Item 2 
Item 3 
Item 4 | Business
Properties                                         
Legal Proceedings                                  
Submission of Matters to a Vote of Security Holders | 2
 18
 18
 19

# PART II

|Item 5
Item 6    
Item 7    
Item 7A   
Item 8    
Item 9    
Item 9A | Market for the Registrants Common Stock and Related
Stockholder Matters                                         
Selected Financial Data                                     
Managements Discussion and Analysis of Results of 
Operations and Financial Condition                          
Quantitative and Qualitative Disclosure About Market Risk   
Financial Statements and Supplementary Data                 
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure                         
Controls and Procedures | 20
 21
 21
 37
 37
 38
 38
|--------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------

# PART III

|                                                |                                                                                                                                                                                                                                                                                                                                    |                   
|----------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------
|Item 10  
Item 11  
Item 12  
Item 13  
Item 14 | Directors and Executive Officers of the Registrant    
Executive Compensation                                
Security Ownership of Certain Beneficial Owners and 
Management                                            
Certain Relationships and Related Transactions        
Independent Registered Public Accountant and Fees | 39
 40
 40
 40
 40

# PART IV

|        |                                                                  |   
|------- | ---------------------------------------------------------------- | --
|Item 15 | Exhibits, Financial Statement Schedules, and Reports on
Form 8-K | 40

v

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# FORWARD-LOOKING
STATEMENTS

This
Annual Report on Form 10-K/A and the documents incorporated by reference into the Annual
Report on Form 10-K/A include forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We
use words such as may, believe, estimate,
expect, plan, intend, project,
anticipate and similar expressions to identify forward-looking statements. We
have based these forward-looking statements on our current expectations and projections
about future events, activities or developments. Our actual results could differ
materially from those discussed in or implied by these forward-looking statements.
Forward-looking statements include, without limitation, statements relating to, among
other things:

|(1) |  | the highly competitive nature of the casual dining restaurant industry;
|--- |  | -----------------------------------------------------------------------

|(2) |  | our ability to open and operate additional restaurants profitably;
|--- |  | ------------------------------------------------------------------

|(3) |  | our ability to raise capital in the future;
|--- |  | -------------------------------------------

|(4) |  | our ability to control restaurant operating costs, which are impacted by
               commodity prices;
|--- |  | ---------------------------------------------------------------------------------------------------------

|(5) |  | potential fluctuation in our quarterly operating results due to seasonality
               and other factors including the levels of pre-opening expenses for our
               new restaurants;
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) |  | the continued service of key management personnel;
|--- |  | --------------------------------------------------

|(7) |  | consumer perceptions of food safety;
|--- |  | ------------------------------------

|(8) |  | changes in consumer tastes and trends and general business and economic
               conditions;
|--- |  | --------------------------------------------------------------------------------------------------

|(9) |  | our ability to attract, motivate and retain qualified associates;
|--- |  | -----------------------------------------------------------------

|(10) |  | labor shortages or increased labor charges;
|---- |  | -------------------------------------------

|(11) |  | our ability to protect our name and logo and other proprietary information;
|---- |  | ---------------------------------------------------------------------------

|(12) |  | the impact of litigation;
|---- |  | -------------------------

|(13) |  | the impact of federal, state or local government regulations relating to our
               associates, such as increases in minimum wage, or the sale of food and
               alcoholic beverages;
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(14) |  | the ability to fully utilize income tax operating loss and credit
               carryforwards; and,
|---- |  | ----------------------------------------------------------------------------------------------------

|(15) |  | the impact of rising energy costs or the availability of energy sources.
|---- |  | ------------------------------------------------------------------------

These
forward-looking statements are subject to numerous risks, uncertainties and assumptions
about us, including the factors described under Item 1. Business  Risk
Factors. The forward-looking events we discuss in this Annual Report on Form 10-K/A
might not occur in light of these risks, uncertainties and assumptions. We undertake no
obligation and disclaim any obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise. Readers
are cautioned that any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties, and, therefore, readers should not place
undue reliance on these forward-looking statements.

1

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Unless
otherwise provided in this Annual Report on Form 10-K/A, references to the
Company, Champps, we, us and our
refer to Champps Entertainment, Inc. and our consolidated subsidiaries. Our fiscal years
ended June 27, 2004, June 29, 2003 and June 30, 2002 are referred to as fiscal 2004, 2003
and 2002, respectively. Fiscal 2004, 2003 and 2002 each contained 52 weeks.

# PART I

# Item 1. Business.

# Overview

Champps
offers an energetic, upscale casual dining experience with uncompromising service and an
extensive menu of freshly prepared items, set in a comfortable atmosphere that promotes
social interaction among our guests. As of September 1, 2004, we owned and operated 48
restaurants in 18 states and had 12 additional restaurants operating under franchise or
license agreements in five states under the names Champps Americana, Champps Restaurant
and Champps Restaurant and Bar. We operate and franchise in a total of 22 states. Our menu
is comprised of approximately 90 items, primarily made from scratch on the premises. We
typically include a selection of 15 appetizers, 11 main plate salads, 30 high-end
sandwiches, specialty burgers and wraps and 26 entrée selections, along with an
additional five to eight regularly changing specials. Our menu selection includes not only
traditional American favorites such as Champps Baby Back Ribs and Grilled Salmon,
but also a variety of ethnic cuisine such as our Mongolian Egg Rolls and Shanghai Steamer.
This diversity is designed to provide our guests with appropriate choices to meet their
dining preference throughout our four distinct day-parts: lunch, after-work, dinner and
late night. We believe that our enticing offerings and generous portions, combined with an
average check per dining room guest of approximately $13.27 in fiscal 2004, excluding
alcoholic beverages, offer our guests exceptional value.

Our
restaurants are designed to create an engaging and socially interactive dining experience.
Through the use of multiple levels and other design elements such as ceramic Italian style
tile, slate style floors and extensive wood accents, we are able to create a variety of
dining atmospheres to satisfy a wide range of diners including families with children,
business professionals, couples and singles, as well as sports fans of all ages. Our
restaurants range in size from approximately 7,500 to nearly 12,100 square feet and seat
207 to 360 guests. We position multiple video walls and large televisions strategically
throughout each restaurant to create an energetic and participatory dining experience. Our
bar area, which is located away from the main dining area, creates a focal gathering point
for our guests to socialize. We offer music, television broadcasts and special promotional
events to increase guest traffic and promote repeat visits. During fiscal 2004, the
average unit sales of our restaurants opened for the entire 12 months was approximately
$4.7 million, which is among the highest in the casual dining industry.

We
locate our restaurants in areas that have a combination of commercial office space,
residential housing and high traffic areas such as shopping malls or multi-screen movie
theaters to attract guests during all of our day-parts. Our restaurants principally rely
on frequent visits and loyalty from our guests who work, reside or shop nearby, rather
than tourist traffic. Typically, our restaurants are located within large metropolitan
areas that draw fan interest in professional and collegiate sport teams to allow us to
promote the broadcasting of these sporting events in our restaurants.

2

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We
opened seven restaurants in fiscal 2004. We expect to open six restaurants in fiscal 2005
primarily by expanding our presence in existing markets. We have increased our number of
company-owned restaurants from 18 in fiscal 1999 to 48 restaurants in fiscal 2004,
representing a compounded annual growth rate of 21.7%. We believe that the flexibility of
our day-part model, the diversity and quality of our freshly prepared menu items, our
unique entertainment and excellent service have created an attractive, high sales volume
restaurant model that provides us with considerable growth opportunities to develop our
brand nationwide.

Our
financial results for the year ended June 27, 2004 included:

| |  | Growth
of consolidated revenues by 17.0% to $211.5 million.
|- |  | -----------------------------------------------------------

| |  | Growth
of income before income taxes by 72.4% to $5.0 million from $2.9 million.
|- |  | --------------------------------------------------------------------------------

| |  | A
decrease of net income of $13.8 million to $4.3 million. Fiscal 2003 net income was
higher in part because we recorded a $15.2 million income tax benefit related to a
decrease in the valuation allowance associated with deferred tax assets.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Business strategy

Our
objectives are to build our brand awareness and guest loyalty and provide our guests with
exceptional food, uncompromising service and an exciting ambiance during each of our four
day-parts. To achieve our objectives, we have developed the following strategies:

Offer
a comprehensive menu featuring enticing foods and beverages.We offer an extensive and
varied menu in each of our four day-parts. Our menu is designed to suit a wide variety of
dining occasions that broadens our consumer appeal and keeps the menu fresh for our
frequent diners. In contrast to many competing restaurant operations, substantially all of
our menu items are prepared on the premises from scratch using high quality, fresh
ingredients and proprietary recipes. Champps is recognized by our guests for providing
exceptional value by offering generous food portions at moderate prices. Our
sophisticated, full service bar offers approximately 18 selections of wine, 20 domestic
and imported bottled and draft beers, as well as premium liquor and specialty drinks. For
fiscal 2004, sales of alcoholic beverages represented approximately 28.2% of our total
food and beverage sales.

Provide
service that WOWs our guests. We strive to personalize the dining
experiences of our guests by instilling both high standards and a sense of urgency among
our associates to exceed each guests dining expectations. We position associates to
greet guests when they enter our restaurants and train our managers to interact with
guests. We also encourage our bartenders to introduce themselves to each patron at the
bar, and our servers typically are responsible for no more than three to four tables at a
time. Our entire staff is dedicated to executing our standard of delivering orders within
12 minutes of being placed. We encourage a strong, team-oriented atmosphere among our
associates that we believe creates uncompromising guest service and a sense of pride in
the Champps brand.

Create
a fun, high energy, social dining and entertainment experience. Our distinct dining
experience features extensive entertainment and socially interactive activities designed
to encourage guest frequency and attract guests outside of normal peak dining hours. For
example, we increase guest traffic in our late night day-part by encouraging guest
participation in a variety of promotional events we offer, such as the Big Bike
Give-Away and Karaoke. Our special design elements, multiple dining levels, patio
areas and sizable bar area allow us to comfortably serve guests seeking different dining
experiences and further promote frequent visits. Our two to three video walls and ten to
12 televisions located throughout our restaurants, as well as our state-of-the-art audio
systems, enable us to provide an exciting and socially interactive environment to view
major sporting events. Our open display kitchens afford our guests the opportunity to
observe our kitchen staff in action.

3

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Capitalize
on our proven multiple day-part model. Champps restaurants generally are open seven
days a week from 11:00 a.m. to 1:00 a.m. We serve our guests during lunch, after work,
during dinner and after dinner during our late night periods. For fiscal 2004, we
generated 33.9% of our sales during lunch, 60.7% after work and during dinner and 5.4%
during late night, demonstrating the versatility of our concept and our ability to serve
guests for a variety of occasions such as professional lunches and everyday dining, as
well as social and special occasions. We adjust our ambiance throughout the day by
changing the lighting and choice of programming for each day-part. According to a market
research study of over 1,100 of our guests completed during fiscal 2002, on average our
guests visit Champps 2.7 times per month while 10.0% of our guests visit our restaurants
on an average of 11 times per month. By operating in multiple day-parts, we are able to
maximize revenue and leverage both development and operating costs. We believe the
versatility of our operating strategy has allowed us to build strong guest loyalty with a
high percentage of repeat business.

Deliver
strong unit economics. We believe our company-owned restaurants provide strong unit
level economics. Our company-owned restaurants open throughout fiscal 2004 generated
average restaurant sales of approximately $4.7 million. The average cash investment cost
net of tenant improvement allowances received from landlords for all of our restaurants
opened since the beginning of fiscal 2001 was approximately $1.8 million, excluding
pre-opening expense, which averaged approximately $0.4 million per restaurant.

Build
awareness of the Champps brand.We believe that the Champps name has achieved
substantial brand recognition among our guests and has become well known within our
markets for our high quality, innovative menu items, generous portions, uncompromising
service and a fun, engaging dining experience. We have a first time guest program that is
intended to strengthen our brand loyalty by educating our first time guests about the
Champps concept. In addition, we believe the most effective way to build brand awareness
is to consistently deliver a dining experience that exceeds our guests expectations.

# Growth strategy

We
adhere to a disciplined growth strategy and believe that there are significant
opportunities to expand our concept in existing and new markets throughout the United
States. The future development of Champps restaurants will be accomplished primarily
through the development of company-owned restaurants in existing markets. Opening multiple
units in existing markets enables us to leverage costs and gain efficiencies associated
with regional supervision, marketing, purchasing and hiring. We believe opening new
restaurants in our existing markets reduces the risks involved with opening new
restaurants because we better understand the existing competitive conditions, consumer
tastes, demographics and discretionary spending patterns. In addition, our ability to hire
and train qualified associates is enhanced in markets in which we are well known and we
are able to utilize existing associates in new restaurants and capitalize on our brand
awareness. We plan to open approximately 80% of our new restaurants in existing markets.

4

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Our
current expansion plans do not include adding new franchisees. Although our existing
franchisees do not have the right to open additional restaurants, under certain
circumstances we may permit our existing franchisees to open additional restaurants. A new
franchised Champps restaurant opened in Des Moines, Iowa in August 2004. Although we have
no obligation to do so, in the future we may seek to acquire some or all of our 12
franchised restaurants from our franchisees. This may require additional capital.

In
fiscal 2002, fiscal 2003 and fiscal 2004, we opened six, seven and seven new restaurants,
respectively. We plan to open six restaurants in fiscal 2005. As of September 1, 2004, we
have begun construction on three restaurants that will open in fiscal 2005. In addition,
we have identified other sites for our growth objectives for fiscal 2005.

We
believe that our site selection strategy is critical to our success and we devote
substantial effort to evaluating each potential site at the highest levels within our
organization. Our chief executive officer, chief operating officer, regional vice
president of operations, and the respective regional directors of operations must approve
each restaurant site that is presented by our real estate professional. Our site selection
criteria focuses on locating suitable facilities within larger metropolitan areas with an
average household income of at least $75,000 and population density in excess of 75,000
within a three mile radius. In addition, site visibility, traffic patterns, accessibility,
adequate parking, competitive restaurants, associate availability, proximity to
entertainment activities, as well as areas near a combination of commercial office space,
residential housing and high traffic areas, influence our site selection criteria.
Potential sites are also evaluated by our vice president of construction and development
to insure we meet our construction obligations and capital expenditure projections, our
legal counsel to insure we negotiate favorable terms in our leases and our chief financial
officer to insure we meet our profit and investment return objectives.

# Unit level economics and
day-part allocation

Our
current restaurants range in size from approximately 7,500 to 12,100 square feet and have
approximately 207 to 360 indoor seats and approximately 42 additional patio seats on
average. We lease 47 of our restaurants and own one. During fiscal 2004, our base of
restaurants opened for the entire 12-month period, generated average sales of
approximately $4.7 million.

Our
current prototype restaurant is approximately 7,800 to 8,800 square feet in size depending
on patio configurations and has seating for approximately 250 to 320 guests. The average
net cash investment for our restaurants varies depending on whether we lease the
restaurant or complete the restaurant through a build-to-suit transaction, the terms of
the lease entered into, the amount of tenant improvement allowance we receive and whether
we enter into an operating lease for any equipment. The average cash investment to
construct a restaurant based on all of our restaurants opened since the beginning of
fiscal 2001 was approximately $1.8 million, net of tenant improvement allowances and
excluding an average pre-opening expense of $0.4 million.

5

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Our
success in our four distinct day-parts demonstrates the strength of our concept. The
following table depicts the dollar amount and percentage of overall company-owned
restaurant sales during fiscal 2004 attributable to each of our day-parts. During this
period, our food and alcoholic beverage sales as a ratio of total food and beverage sales
was 71.8% and 28.2%, respectively. In fiscal 2004, our bar area generated approximately
18.0% of our total restaurant sales, 62.7% of which are generated from 4:00 p.m. to 10:00
p.m., signifying our strong after work and happy hour business. Champps merchandise and
other sales totaled $333,000 and were 0.2% of overall sales in fiscal 2004 and are not
included below.

Sales By Day Part 
Fiscal 2004 (in 000s)

|                    | Food Sales | AlcoholicBeverage Sales | Food & AlcoholicBeverage Sales
|------------------- | ---------- | ----------------------- | ------------------------------
|
|Lunch               |            |                         |                               
|Open to 4:00 p.m    |            |                        
|After Work          |            |                         |                               
|4:00 to 7:00 p.m    |            |                        
|Dinner              |            |                         |                               
|7:00 to 10:00 p.m   |            |                        
|Late Night          |            |                         |                               
|10:00 p.m. to close |            |                         |                               
|                    |            |                         |                               
|                    |            |                         |                               
|                    |            |                         |                               
|                    |            |                         |                               

# Restaurant design and
ambiance

Our
restaurants have an ambiance enhanced by a layout that encourages social interaction and
promotes a high-energy environment. All of our restaurants have multiple levels that
enable us to seat our guests towards a specific location depending upon their dining
preferences while also creating an open atmosphere and the ability for guests to have a
panoramic view of the entire restaurant. Our restaurants have large bar areas, typically
located on the first level. The bars numerous angles and bends provide our guests
with a place to meet and socialize. We place large video walls and additional televisions
strategically throughout each restaurant, which together with a state of the art sound
system, provide a source of entertainment for our guests. We monitor the selection of our
broadcasts, music and volume in each dining area to create the appropriate dining
environment. We also use plasma televisions to incorporate the latest technologies and
keep our restaurants up to date.

Our
restaurant interiors utilize a combination of dark cherry stained wood and brick
throughout the dining area, Italian style ceramic tile in the kitchen and bathrooms, slate
style tile in the bar area and noise reducing carpet in the dining room. Our bars are
generally stainless steel and we use accented black granite or wood trim at our specially
designed hostess stands to enhance our contemporary feel. The majority of our restaurants
include an indoor patio area with a large fireplace and several have outdoor patios, all
of which provide our guests with multiple settings to choose from. Our display kitchens
are presented behind a floor-to-ceiling glass wall to provide a focal point for the dining
room. We use a variety of directional lighting and chandeliers to create a warm
environment in our dining rooms and bar area.

6

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The
exterior of our restaurants typically employ brick, stone and stucco to create a highly
visible restaurant that features a well-lit, large Champps sign and logo. We extensively
landscape our restaurants and where appropriate, vary the exterior design to coordinate
with the surrounding area. Lighted trees, directional lighting on our buildings and large
entries further increase our visual appeal.

# Menu

We
offer our guests a comprehensive selection of approximately 90 items, primarily made on
the premises from scratch, which typically includes a selection of 15 appetizers, 11 main
plate salads, 30 high-end sandwiches, specialty burgers and wraps and 26 entrée
selections. Our menu selection includes not only traditional American favorites such as
Champps Baby Back Ribs and Grilled Salmon, but also a variety of ethnic cuisine such
as Mongolian Egg Rolls and Shanghai Steamer. For example, one of our most popular entrees
is the Parmesan Crusted Chicken that is created with three large chicken breasts crusted
with an Italian herb mix and shredded parmesan cheese before pan frying in olive oil and
accompanied by tender angel hair noodles, our freshly prepared traditional marinara sauce
and fresh garlic buttered toasted crostini. We continuously experiment with food and
beverage items to develop proprietary recipes with high flavor profiles to ensure that our
menu is imaginative and exciting to our guests. We also feature five to eight specials
that change regularly, allowing us to continually refine our menu offerings and keep our
selections fresh for our frequent users. We believe that the broad range of our menu
provides multiple dining options during each of our day-parts.

We
emphasize freshness and quality in our food preparation and focus on maintaining our
reputation for creative and high quality menu offerings. Our fresh sauces, salad
dressings, batters and mixes are prepared daily in our restaurants using high-quality and
fresh ingredients.

The
food items on our menu range from $5.95 to $13.45 for appetizers, $7.95 to $14.45 for
burgers and sandwiches, and $7.95 to $21.95 for dinner salads and entrees. For fiscal
2004, our average guest check in our dining room was approximately $13.27, excluding
alcoholic beverages. Our sophisticated, full service bar offers approximately 18
selections of wine, most of which are available by the glass, 20 draft and bottled
domestic and imported beers, as well as premium liquor and specialty drinks. Sales of
alcoholic beverages represented approximately 28.2% of total food and beverage sales
during fiscal 2004.

# Food preparation and
quality control

We
believe our food quality and control standards are among the highest in the industry. Our
systems are designed to provide freshly prepared items based on the specifications set by
our corporate executive chef and overseen at each of our restaurants by an assistant
general manager and up to three management assistants. We invest substantial time in
training and testing of our kitchen associates to adhere to our strict standards and
preparation guidelines to maintain our quality control. The design of our facilities
enables us to ensure food is maintained in accordance with the requirements of the Food
and Drug Administration. We audit our sanitary conditions at each restaurant and train all
of our management associates regarding safe handling practices of all perishable food
products.

7

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# Guest loyalty

We
believe our restaurants generate higher than average repeat visits due to our four
day-part offerings of lunch, after work, dinner and late night, as well as the increased
guest traffic generated from the broadcasting of major sporting events. Based upon a
market research study of over 1,100 of our guests completed during fiscal 2002, we
determined that on average our guests visit Champps 2.7 times per month as compared to
approximately 1.9 visits per month for the casual dining industry, while 10.0% of our
guests visit our restaurants on average 11 times per month. The social interaction that is
created within our restaurants also provides our guests with a comfortable setting to meet
family, friends and co-workers. We rely on frequent visits and loyalty from our guests to
generate the high volume of sales in our restaurants.

# Marketing and advertising

Historically,
we have relied primarily on guest referrals rather than external marketing initiatives to
promote our brand. Within our restaurants we continually promote special events and
upcoming entertainment activities as well as special menu items or drinks to drive guest
frequency and sales. We have implemented a first time guest program that is intended to
strengthen our brand loyalty by educating our first time guests about the Champps concept.
During fiscal 2004, 2003 and fiscal 2002, our expenditures for advertising and promotions
were less than 1.5% of total restaurant sales.

Our
associates are integral to the success of our in-store marketing strategy. Our hosts
introduce our specials to our guests upon seating, and at the end of each dining
experience, our wait staff is instructed to inform our guests of upcoming special or
promotional events. We communicate special events to our guests with poster stanchions or
special displays, as well as table displays. Finally, when exiting our restaurants, the
greeters thank each guest for coming to Champps and invite them to come back soon.

On
occasion, we engage in paid advertising for individual restaurant locations, including
newspaper and radio advertisements and have tested cable television advertising in select
markets. We utilize a variety of printed marketing materials, including restaurant
location brochures, hotel concierge cards, take-out menus and direct and electronic
mailings.

# Operations

Restaurant
management. As of September 1, 2004, we had ten directors of operations who typically
oversee approximately four to six restaurants each and supervises the general managers at
each restaurant in their area. Each director of operations reports to one of two regional
vice presidents. Due to the complexity of our operations and to ensure our high level of
guest service, our restaurant management is divided into three areas, the general manager,
front-of-house managers and back-of-house managers, each of whom are supported by
additional staff members. Our managers are frequently promoted from within Champps to
encourage continuity and opportunities for development, as well as enhance our corporate
culture. We compensate our management team through a combination of base salary and
bonuses based on achieving established performance levels for revenue, profit and guest
service.

8

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Restaurant
associates and service.We believe that our uncompromising service is one of our
differentiating factors. Our service is based on a team concept to ensure that guests are
made to feel that any associate can help them and that they are never left unattended. To
maintain these high standards, we seek to hire and train personnel who believe in our
philosophy and are passionate about guest service. We strive to personalize the dining
experiences of our guests by instilling both high standards and a sense of urgency among
our associates. All associates meet with their managers at two daily pre-shift
motivational and informational meetings in which service standards, restaurant promotions,
specials and quality control are reviewed. We frequently reward individual and restaurant
achievement through several recognition programs intended to build and maintain associate
morale. For example, our Pin Program rewards and recognizes the efforts of
associates with pins that are worn proudly on uniforms to publicly acknowledge their
commitment to guest service.

Training.The
restaurant management team is provided with an intensive ten-week           training
program to ensure they have appropriate knowledge to excel in their           position.
All members of management are required to receive kitchen training to
          understand the importance of the food preparation process and how the quality
of           our menu is a significant driver of repeat guest visits. We also host an
annual           general managers conference focusing on strategic issues in
addition to           conducting other training classes. This conference also serves as a
platform to           recognize the general managers who exceeded our expectations.

We
provide all new associates with complete orientation and training for their positions to
ensure they are able to meet our high standards and understand our Company policies. For
servers, we require a minimum of six-days training on how to serve our food, the
composition and preparation techniques for each menu item, direction on how to treat and
serve our guests and ways to promote our business. Our food preparation staff undergoes an
intensive five-day hands-on training program for their respective positions, which
includes a review of our safety procedures. The training encompasses classroom
instruction, on-the-job training programs for each position, and testing of the new
associates progress at pre-determined stages within the training schedule.

When
we open a new restaurant, we provide an extensive and varied level of training to
associates in each position to ensure the smooth and efficient operation of the restaurant
from the first day it opens to the public. We believe this training helps provide our
guests with a quality dining experience from opening day on. Our training programs enable
us to promote existing associates and managers as new restaurants open. We believe that we
can support our expansion strategy since we have a large manager base in existing
restaurants that can be promoted or transferred to new restaurants, combined with our
thorough training programs and hiring of outside personnel.

# Restaurant franchise and
licensing agreements

As
of September 1, 2004, we had 12 franchised restaurants that began operations between 1991
and 2004. A new franchised location opened in Des Moines, Iowa in August 2004. The
franchises in Duluth, Minnesota and Charlotte, North Carolina were closed by franchisees
in July 2002 and July 2004, respectively. Seven of our current franchised restaurants are
located in the Minneapolis, Minnesota area. We also have one franchised restaurant in Des
Moines, Iowa, Sioux City, South Dakota, Omaha, Nebraska, and two in Milwaukee, Wisconsin.
Three franchisees own nine of the 12 franchised restaurants.

Our
revenue from current franchisee agreements represented approximately 0.3% of our revenue
in fiscal 2004. The franchisee is responsible for all direct costs involved in the
construction and maintenance of their restaurants. We provide menu development and
marketing support on a limited basis. Franchisees are required to provide periodic
financial reports and annual financial statements to our corporate office for performance
measurement and fee calculations. Currently, we are not actively seeking additional
franchisees. Although our existing franchisees do not have the right to open additional
restaurants, under certain circumstances we may permit our existing franchisees to open
additional restaurants. Although we have no obligation to do so, we may seek to acquire
one or more of our existing franchised restaurants if they meet our acquisition criteria.

9

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# Accounting and
management information systems

We
use an automated data processing system and standardized reporting procedures to provide
each of our company-owned restaurants with centralized financial and management controls.
Our management information system tracks each restaurants weekly sales reports,
vendor invoices, payroll information and other operating information which is connected to
our centralized accounting and management information systems at our corporate
headquarters in real time. By having a system where data can be input remotely and
controlled centrally, our overhead functions are streamlined and administrative expenses
are reduced.

While
we continue to monitor our computer hardware and financial software for potential
upgrades, we believe our existing management information systems are sufficient to support
our long-term expansion plans.

# Purchasing

We
endeavor to obtain high quality menu ingredients and other supplies and services for our
operations from reliable sources at competitive prices. We rely on SYSCO Corporation, a
national food distributor, as the primary supplier of our food. In August 2003, we entered
into a new five-year distribution agreement with SYSCO. By utilizing a distribution
company with a national presence, we are able to ensure consistent application of menu
specifications throughout the country at a pre-negotiated price. We also periodically
enter into selective short-term agreements for the products we use most extensively. This
helps us to consistently maintain our product costs. We believe that all essential food
and beverage products are available from several qualified suppliers at competitive prices
should an alternative source be required.

To
maximize purchasing efficiencies and to provide for the freshest ingredients for our menu
items, each restaurants management determines the quantities of food and supplies
required. Our centralized purchasing staff, under the direction of our chief operating
officer, specifies the products to be used at our restaurants, designates the vendors from
whom to purchase these products, and provides suppliers with detailed ingredient
specifications.

# Competition

The
restaurant industry is highly competitive. We compete with other national and
international restaurant chains as well as local and regional operations. Competition
within the industry is based principally on the quality, variety and price of food
products served. Changes in consumer preferences, economic conditions, environmental
conditions, demographic trends and the location and number of, and type of food served by,
competing restaurants could adversely affect our business as could the availability of
experienced management and hourly associates. We believe that the flexibility of our
multiple day-part model, the diversity and quality of our freshly prepared menu items and
our unique entertainment and excellent service have created an attractive, high sales
volume restaurant model that provides us with considerable growth opportunities to develop
our brand nationwide.

10

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# Associates

As
of September 1, 2004, we had approximately 5,400 associates on the Champps team,
approximately 418 of which were restaurant management and field support personnel and 44
whom worked at our corporate headquarters. We do not have any collective bargaining
agreements. We consider our associate relations to be good.

# History

The
original Champps concept began operations in 1984 and grew to eight restaurants by
December 1995. In 1996, William H. Baumhauer, chief executive officer and president of
DAKA International, Inc. (DAKA), a large publicly traded food service
management and restaurant company, led DAKAs purchase of Champps to add to its
portfolio of restaurant concepts. As part of a corporate restructuring in 1997,
DAKAs food service businesses were spun off and the shareholders retained ownership
of the restaurant businesses, which included Champps, Fuddruckers, the Great Bagel &
Coffee Company, Casual Dining Ventures and Restaurant Consulting Service. The new company
was named Unique Casual Restaurants, Inc. At the end of 1998 and early 1999, Fuddruckers
and Restaurant Consulting Services were sold to separate buyers. In June 1999, Unique
Casual Restaurants closed Great Bagel & Coffee Company and Casual Dining Ventures and
changed its name to Champps Entertainment, Inc.

Shortly
thereafter, Mr. Baumhauer, who had left the DAKA organization in May 1998, was recruited
back to Champps as president and chief executive officer. Upon his return, Mr. Baumhauer
set in motion a series of strategic initiatives that included hiring a new management
team, consolidating our headquarters, improving our operational and financial reporting
procedures, standardizing the purchasing process and establishing new associate training
and retention practices. Our pre-tax income from continuing
operations increased from a loss of $14,079,000 in fiscal 1999 to a gain of $4,996,000 in fiscal
2004, an increase of $19,075,000. We have also implemented a disciplined expansion
strategy and have added 34 restaurants since Mr. Baumhauers return.

# Operating locations

We
lease all but one of our restaurants. The leases for our restaurants expire at varying
times commencing in 2009. Nearly all of our leases are for fifteen to twenty year terms
with renewal options extending our leases from five to twenty additional years. Currently,
our leases, with option periods, expire between 2010 and 2041.

11

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The following table sets forth data
regarding our 48 company-operated restaurants at June 27, 2004.All restaurants are
leased except the restaurant located in Lombard, Illinois, which the Company owns.

Company-operated
restaurants

|State                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | City                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Approx.ConditionedSquare Footage                                                                                                                                                                                                                                                                                                                                                                                                                                                            | ApproximateTotal Seating                                                                                                                                                                                                                                                                     
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ARIZONA          
CALIFORNIA       
COLORADO         
                 
                 
DELAWARE         
FLORIDA          
                 
GEORGIA          
ILLINOIS         
                 
                 
                 
                 
INDIANA          
                 
MARYLAND         
MICHIGAN         
                 
                 
                 
                 
MINNESOTA        
                 
                 
NORTH CAROLINA   
                 
NEW JERSEY       
                 
NEW YORK         
OHIO             
                 
                 
                 
                 
                 
                 
PENNSYLVANIA     
TEXAS            
                 
                 
                 
                 
                 
VIRGINIA | Phoenix              
 Irvine               
 Colorado Springs     
 Littleton            
 Denver               
 Wilmington           
 Ft. Lauderdale       
 Tampa                
 Alpharetta           
 Lincolnshire         
 Lombard              
 Orland Park          
 Schaumburg           
 Skokie               
 Indianapolis         
 Indianapolis         
 Columbia             
 Lansing              
 Livonia              
 Troy                 
 Utica                
 West Bloomfield      
 Eden Prairie         
 Minnetonka           
 Richfield            
 Durham               
 Raleigh              
 Edison               
 Marlton              
 Rochester            
 Cincinnati           
 Columbus             
 Columbus             
 Columbus             
 Dayton               
 Lyndhurst            
 Valley View          
 King of Prussia      
 Addison              
 San Antonio          
 Las Colinas          
 Houston              
 Houston              
 Houston              
 Fairfax              
 Reston               
 Richmond             
 Pentagon City | 8,047   
 9,809   
 7,191   
 9,163   
 9,810   
 8,639   
 8,517   
 8,697   
10,182   
 9,165   
10,480   
 8,578   
10,967   
 9,846   
10,270   
 9,119   
 8,590   
 7,002   
10,059   
10,059   
 7,565   
 7,498   
 9,040   
12,085   
 7,890   
 9,596   
 8,114   
 7,619   
10,150   
10,000   
 7,918   
 8,170   
 8,930   
10,128   
 9,368   
 8,170   
 9,163   
 9,160   
 9,900   
 8,878   
10,182   
11,384   
 9,160   
10,180   
 8,498   
11,469   
 8,660   
 9,487 | 251
  245
  228
  300
  274
  280
  257
  259
  288
  291
  302
  282
  310
  328
  286
  273
  291
  228
  285
  275
  261
  248
  299
  360
  241
  288
  288
  244
  287
  348
  315
  291
  291
  317
  314
  224
  300
  334
  318
  217
  316
  331
  325
  328
  310
  327
  270
  293

12

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Restaurants to open

As
of September 1, 2004, we had begun construction on restaurants located in Cleveland, Ohio
and two locations in Philadelphia, Pennsylvania. The Philadelphia restaurants are expected
to open in the second quarter of fiscal 2005 while the Cleveland restaurant is expected to
open in the third quarter of fiscal 2005. We anticipate opening a total of six restaurants
in fiscal 2005.

Franchised restaurants

As
of September 1, 2004, we had 12 franchised restaurants, seven of which are located in the
Minneapolis, Minnesota area, two in Milwaukee, Wisconsin, and one in each of Des Moines,
Iowa, Sioux City, South Dakota and Omaha, Nebraska. Franchises located in Charlotte, North
Carolina and Duluth, Minnesota were closed by franchisees in July 2004 and July 2002,
respectively.

# Trademarks

Through
our operating subsidiaries, we have registered a number of trademarks and service marks
with the United States Patent and Trademark Office and with certain states, including, but
not limited to the trade names: Champs, Champps, and
Champps Americana.

Pursuant
to a Master Agreement dated February 1, 1994, whereby Champps acquired the
Champs and Champps service marks, trademarks and trade
names, we agreed to pay the seller an annual fee. For fiscal 2004, the maximum fee was
equal to the lesser of $322,422or one-quarter percent (0.25%) of the gross sales
of certain Champps restaurants excluding two of our oldest restaurants and we paid the
maximum amount payable under this agreement. The maximum fee payable is increased annually
by the lesser of the increase in the consumer price index or 4.0%.

# Government regulation

Our
business is subject to various federal, state and local laws, including health, sanitation
and safety standards, federal and state labor laws, zoning restrictions and state and
local licensing. We are also subject to federal and state laws regulating franchise
operations and sales, which impose registration and disclosure requirements on franchisors
in the offer and sale of franchises or impose substantive standards on the relationship
between franchisor and franchisee.

Our
restaurants are subject to state and local licensing and regulation with respect to
selling and serving alcoholic beverages. Typically, licenses must be renewed annually and
may be revoked or suspended for cause. The failure to receive or retain, or a delay in
obtaining, a liquor license in a particular location would adversely affect ours, or a
franchisees, operation in that location.

13

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In
addition, our restaurants are subject to dram shop statutes in certain states,
which generally give a person injured by an intoxicated person the right to recover
damages from the establishment that has wrongfully served alcoholic beverages to the
intoxicated person. We carry liquor liability coverage in the amount of $1.0 million per
occurrence subject to an aggregate annual policy limit of $5.0 million, with a $0.25
million deductible per occurrence.

The
Americans with Disabilities Act (the ADA) prohibits discrimination on the
basis of disability in public accommodations and employment. The ADA , which mandates
accessibility standards for individuals with physical disabilities, may increase the cost
of construction of new restaurants and of remodeling older restaurants.

We
are also subject to the Fair Labor Standards Act, which governs such matters as minimum
wages, overtime, and other working conditions. A significant portion of our food service
personnel are paid at rates related to federal or state minimum wage rates, and
accordingly, increases in any such minimum wage will increase our labor costs.

# Risk factors related to
our business

Our growth strategy depends on our
ability to open new restaurants, and we may not be able to achieve our planned unit
expansion

Our
ability to expand our operations through the opening of new restaurants is important to
our future financial success. Since fiscal 1997 through fiscal 2004, we have expanded our
operations from 12 company-owned restaurants in nine states to 48 company-owned
restaurants in 18 states. We expect to open an additional six restaurants in fiscal 2005.
We have experienced delays in restaurant openings from time to time and may experience
delays in the future. We cannot guarantee that we will be able to achieve our expansion
goals or that new restaurants will be operated profitably. Further, we cannot assure that
any restaurant we open will obtain operating results similar to those of our existing
restaurants or will not adversely affect the results of other Champps restaurants in the
same market. The success of our planned expansion will depend upon numerous factors, many
of which are beyond our control, including the following:

| |  | identification
and availability of suitable restaurant sites;
|- |  | -------------------------------------------------------------

| |  | competition
for restaurant sites;
|- |  | ---------------------------------

| |  | negotiation
of favorable lease terms;
|- |  | -------------------------------------

| |  | timely
development in certain cases of commercial, residential, street or highway construction
near our restaurants;
|- |  | --------------------------------------------------------------------------------------------------------------------

| |  | management
of construction and development costs of new restaurants;
|- |  | --------------------------------------------------------------------

| |  | securing
of required governmental approvals and permits in a timely manner, or at all;
|- |  | --------------------------------------------------------------------------------------

| |  | recruitment
of qualified operating personnel, particularly general managers and other restaurant
managers;
|- |  | ----------------------------------------------------------------------------------------------------------

| |  | competition
in our markets; and
|- |  | -------------------------------

| |  | general
economic conditions.
|- |  | ----------------------------

14

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In
addition, we may enter new markets in which we have no operating experience. These new
markets may have different demographic characteristics, competitive conditions, consumer
tastes and discretionary spending patterns than our existing markets, which may cause the
new restaurants to be less successful in these new markets than in our existing markets.

Our
growth strategy may strain our management, financial and other resources. For instance,
our existing systems and procedures, restaurant management systems, financial controls,
information systems, management resources and human resources may be inadequate to support
our planned expansion of new restaurants. We may not be able to respond on a timely basis
to all of the changing demands that the planned expansion will impose on our
infrastructure and other resources.

The inability to develop and
construct our restaurants within budget and projected time periods will adversely affect
our business and financial condition

Critical
to our success is our ability to construct our restaurants within budget and on a timely
basis. Many factors may affect the costs associated with the development and construction
of our restaurants, including:

| |  | labor
disputes;
|- |  | ---------------

| |  | general
contractor disputes;
|- |  | ----------------------------

| |  | shortages
of material and skilled labor;
|- |  | ----------------------------------------

| |  | weather
interference;
|- |  | ---------------------

| |  | unforeseen
engineering problems;
|- |  | --------------------------------

| |  | environmental
problems;
|- |  | -----------------------

| |  | construction
or zoning problems;
|- |  | --------------------------------

| |  | local
government regulations and approvals; and
|- |  | -----------------------------------------------

| |  | unanticipated
increases in costs, any of which could give rise to delays or cost overruns.
|- |  | ------------------------------------------------------------------------------------------

If
we are unable to develop new restaurants within anticipated budget or time periods, our
revenue will not meet our expectations and pre-opening costs may exceed our projections.
In addition, returns on our investments may be impaired and the amount of capital
available for other new restaurants may not be available.

The failure of our existing or new
restaurants to perform as anticipated could adversely affect our business

As
of June 27, 2004, we owned and operated 48 restaurants, seven of which were opened within
the preceding 12-month period. The results achieved by these restaurants may not be
indicative of longer-term performance or the potential market acceptance of restaurants in
other locations. We cannot assure you that any new restaurant we open will have similar
operating results to those of prior restaurants. We anticipate that our new restaurants
will take at least several months to reach our long term profitability levels due to
inefficiencies typically associated with new restaurants.

15

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Because of our small restaurant
base, our operating results could be materially and adversely affected by the negative
performance of a small number of restaurants

Due
to our small restaurant base, poor operating results at any one or more of our restaurants
could materially and adversely affect our business, financial condition, results of
operations or cash flows. In addition, we locate our restaurants close to areas that have
a combination of commercial office space, residential housing and high traffic areas, such
as shopping malls or multi-screen movie theaters. Changes in levels of office occupancy,
new or competing real estate development projects, or delays in the development of the
projects where we are located may adversely affect the performance of a restaurant. In
addition, our operating results achieved to date may not be indicative of our future
operating results with a larger number of restaurants.

We may require additional capital
to expand our business in accordance with our growth strategy

Changes
in our operating plans, acceleration of our expansion plans through internal growth or
acquisitions, lower than anticipated sales, increased expenses or other events may cause
us to seek additional debt or equity financing on an accelerated basis. Additional
financing may not be available on acceptable terms, or at all, and our failure to raise
capital when needed could negatively impact our growth and other plans, as well as our
financial condition and results of operations. Additional debt financing, if available,
may involve significant cash payment obligations and covenants or financial ratios that
restrict our ability to operate or grow our business. See Item 7. Managements
Discussion and Analysis of Financial Condition and Results of Operations  Liquidity
and Capital Resources.

Our franchisees could
take actions that could harm our business

Franchisees
are independent operators and are not employed by us. We provided training and support to
franchisees, but any number of factors beyond our control may diminish the quality of
franchised restaurant operations. Consequently, franchisees may not successfully operate
restaurants in a manner consistent with our standards and requirements or may not hire and
train qualified managers and other restaurant personnel. If franchisees do not operate in
accordance with our standards, our image and reputation may suffer materially and
system-wide sales could significantly decline. Also, the presence of franchised
restaurants may limit our ability to expand in a desired market.

Our operations are susceptible to
changes in food availability and costs, which could adversely affect our operating results

Our
profitability depends in part on our ability to anticipate and react to changes in food
costs. We rely on SYSCO Corporation, a national distributor, as the primary supplier of
our food. Any increase in distribution prices or failure of SYSCO to perform could cause
our food costs to increase. There also could be a significant short-term disruption in our
supply chain if SYSCO failed to meet our distribution requirements or our relationship was
terminated. Further, various factors beyond our control, including adverse weather
conditions, governmental regulation, production, availability and seasonality may affect
our food costs or cause a disruption in our supply. We cannot predict whether we will be
able to anticipate and react to changing food costs by adjusting our purchasing practices
and menu prices, and a failure to do so could materially and adversely affect our
operating results.

16

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Changes in consumer preferences or
discretionary consumer spending could negatively impact our results of operations

Our
continued success depends, in part, upon the popularity of the menu items served in the
Champps environment and our dining style. For example, the recent popularity of low
carbohydrate diets has caused us to modify our menu and add approximately eight carb
conscious items to our menu. Shifts in consumer preferences away from our cuisine or
dining style could materially and adversely affect our future profitability. In addition,
our success depends to a significant extent on numerous factors affecting discretionary
consumer spending, including economic conditions, disposable consumer income and consumer
confidence. Adverse changes in these factors could reduce guest traffic or impose
practical limits on pricing, either of which could materially and adversely affect our
operating results.

Health concerns relating to the
consumption of our food products could negatively impact our results of operations

We
are subject to the risk that consumer preferences could be affected by health concerns
about the consumption of particular food products. Beef and chicken are the key
ingredients in many of our menu items. Negative publicity concerning food quality, illness
and injury, publication of government or industry findings concerning food products served
by us, or other dietary and health concerns or operating issues stemming from one
restaurant or a limited number of restaurants may adversely affect demand for our food and
could result in a decrease in guest traffic to our restaurants.

If we lose the services of our
president or other key associates, our business could suffer

Our
future success significantly depends on the continued service and performance of William
H. Baumhauer, our president and chief executive officer, as well as other key executives.
Our future performance will depend on our ability to motivate and retain Mr. Baumhauer and
other executive officers and key associates, such as regional directors of operation,
restaurant general managers and kitchen managers. Competition for these associates is
intense. In May 2003, Mr. Baumhauers employment agreement was amended and extended
through June 30, 2005. The loss of the services of Mr. Baumhauer or members of our senior
management and key associates or the inability to attract additional qualified personnel
as needed could materially harm our business. We do not currently have key person life
insurance for any of our officers or directors.

We face indemnification
liability from our predecessor companies

In
connection with the spin-off of DAKA International, Inc. (DAKA) in late 1997,
we assumed certain contingent liabilities of DAKA and its subsidiary, Daka, Inc.
(Daka). Under our Post-Closing Covenant Agreement with DAKA, we are
responsible for handling the defense of these claims, including the appeals. In March
2000, a former associate of Daka was awarded approximately $0.2 million in compensatory
damages, $4.8 million in punitive damages and $0.3 million in legal fees in a jury trial
based on the associates claim of negligent supervision and

17

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retaliation due to
alleged conduct that occurred in 1996 at a former Daka food service location. On September
20, 2000, Daka filed a Notice of Appeal with the Court of Appeals for the District of
Columbia. The Court of Appeals affirmed the award of compensatory damages in the amount of
$187,500 and attorneys fees in the amount of $276,000. However, the Court of Appeals
vacated the $4.8 million punitive damages award as constitutionally excessive and remanded
the case to the trial court for re-determination of punitive damages in accordance with
legal principles outlined in its opinion. In January 2004 we paid approximately $0.6
million for compensatory damages and attorneys fees including interest. On remand,
by Order dated May 26, 2004, the trial court awarded punitive damages in the amount of
$937,500. We accrued a liability for the full amount of this award in the fourth quarter
of fiscal 2004. On July 9, 2004, Daka filed a Notice of Appeal with the Court of Appeals
for the District of Columbia and this matter is now pending in that court. In addition, on
June 23, 2004, plaintiffs counsel filed a motion for additional attorneys fees
in the amount of $375,000. Daka plans to vigorously oppose this motion and in the event
the trial court grants the motion for attorneys fees in whole or in part, Daka plans
to file a Notice of Appeal for the award of the legal fees. Depending on the timing and
nature of the ruling by the Court of Appeals, we also could incur substantial additional
legal expenses in pursuing Dakas appeal and the ultimate resolution of this matter.

We
provide reserves in our financial statements for these and other matters. The approximate
amounts of these reserves are reviewed periodically to determine their adequacy. Although
we believe that our current reserves are adequate in light of our analyses of the
potential outcomes of the matters, there can be no guarantees that we will not have torecognize additional charges as these matters are ultimately resolved. Any resulting
charges could be significant.

Litigation could have a
material adverse affect on our business

We
are subject to complaints or allegations from current and former or prospective associates
from time to time. In addition, we are subject to complaints or litigation from guests
alleging discrimination, illness, injury or other food quality, health or operational
concerns. We may be adversely affected by publicity resulting from such allegations,
regardless of whether such allegations are valid, whether we are liable, or whether such
allegations involve one of our franchisees or licensees. A lawsuit or claim could result
in an adverse decision or result that could have a material adverse affect on our
business.

We
are also subject to state dram shop laws and regulations, which generally
provide that a person injured by an intoxicated person may seek to recover damages from an
establishment that wrongfully served alcohol to such person. While we carry liquor
liability coverage as part of our existing comprehensive general liability insurance, we
may still be subject to a judgment in excess of our insurance coverage and we may not be
able to obtain or continue to maintain such insurance coverage at reasonable costs, or at
all.

If we are unable to protect our
intellectual property rights, it could reduce our ability to capitalize on our brand names

Pursuant
to a Master Agreement dated February 1, 1994, we acquired the Champps,
Champs and Champps Americana service mark, trademark and
trade name. Our business prospects depend, in part, on our ability to develop favorable
consumer recognition of the Champps name and logo. Our trademarks could be infringed in
ways that leave us without redress, such as by imitation. In addition, we rely on trade
secrets and proprietary know-how, and we employ various methods to protect our concepts
and recipes. However, such methods

18

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may not afford adequate protection and others could
independently develop similar know-how or obtain access to our know-how, concepts and
recipes. Moreover, we may face claims of infringement that could both interfere with our
use of our proprietary know-how, concepts, recipes, trade secrets or trademarks or subject
us to damages. Defending against such claims may be costly and, if unsuccessful, may
prevent us from continuing to use such proprietary information in the future.

Although
Champps, Champs and Champps Americana are
federally registered trademarks, there are other restaurants and bars that operate under
similar names. If these restaurants or bars are affected by negative publicity and
consumers confuse these competitors with our Champps branded restaurants, our operating
results could be adversely affected.

We are subject to extensive
governmental regulations including, but not limited to, the sale and serving of alcoholic
beverages and wages paid to our associates that could adversely affect our operations and
our ability to expand and develop our restaurants

The
restaurant industry is subject to various federal, state and local governmental
regulations. While at this time we have been able to obtain and maintain the necessary
governmental licenses, permits and approvals, the failure to maintain these licenses,
permits and approvals, including food and liquor licenses, could adversely affect our
operating results. Difficulties or failure in obtaining the required licenses and
approvals could delay or result in our decision to cancel the opening of new restaurants.
Local authorities may suspend, revoke or deny renewal of our food and liquor licenses if
they determine that our conduct or facilities do not meet applicable standards or if there
are changes in regulations. Smoking bans in some locations could also have an adverse
effect on our business.

For
fiscal 2004, approximately 28.2% of our restaurant food and beverage sales was
attributable to the sale of alcoholic beverages, and we believe our ability to serve these
beverages is an important factor in attracting guests. Alcoholic beverage control
regulations require each of our restaurants to apply to a state authority and, in certain
locations, county or municipal authorities for a license or permit to sell alcoholic
beverages on the premises and to provide service for extended hours and on Sundays.
Typically, licenses must be renewed annually and may be revoked or suspended for cause at
any time, which could include sales to minors or intoxicated persons. Alcoholic beverage
control regulations relate to numerous aspects of daily operations of our restaurants. The
failure of a restaurant to obtain or retain liquor or food service licenses would
adversely affect the restaurants operations.

Various
federal and state labor laws govern our relationship with our associates and affect our
operating costs. These laws include minimum wage requirements, overtime pay, unemployment
tax rates, workers compensation rates, and citizenship requirements. Additional
government imposed increases in minimum wages, overtime pay, paid leave of absence and
mandated health benefits, increased tax reporting and tax payment requirements for
associates who receive gratuities or a reduction in the number of states that allow tips
to be credited toward minimum wage requirements could harm our operating results. We are
subject to the ADA which may increase the cost of construction or remodeling.

19

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On
June 17, 2002, the United States Supreme Court ruled that the Internal Revenue Service
(IRS) can use aggregate tip estimates to ensure that the employer is paying
FICA taxes on allegedly underreported tips. Under the ruling, the IRS does not need to
examine individual associates records and it is permissible for the IRS to estimate
the amount of cash tips given to associates based on tips included on credit card
receipts.

The
reporting of tips is the responsibility of the associates receiving the tips. We encourage
our associates to abide by the law and report 100% of the tips that they receive. While we
believe our associates adequately report tips, we have implemented tip reporting policies
and procedures that are in full compliance with the recommended IRS policies and
procedures as defined in our Tip Reporting Alternative Commitment agreement that was
executed by the Company and the IRS in fiscal 2003.

Our success depends on our ability
to compete effectively in the restaurant industry

The
restaurant industry is highly competitive. Although we believe that our operating concept,
quality of food, ambiance and overall dining experience differentiates us from
competitors, we may be unable to compete effectively with new restaurant concepts or with
larger, better-established competitors, which have substantially greater financial
resources and operating histories than ours.

We may not be able to generate
sufficient future taxable income to fully utilize our income tax operating loss and credit
carryforwards

As
of June 27, 2004, we had federal net operating loss (NOL) carryforwards of
approximately $50.9 million and FICA tax credit carryforwards of approximately $5.6
million. The federal NOLs expire at various times through 2020 and the FICA tip tax
credits expire at various times through 2024. While we expect to fully utilize the
carryforwards to reduce our income tax liabilities, future income may not be sufficient
for full utilization of the carryforwards.

Our revenues may be adversely
impacted by work stoppages, strikes or lock-outs associated with professional sports teams

A
portion of our revenues are generated from patrons who eat and drink at Champps while
watching sports events. A work stoppage, strike or lock-out by any professional sports
league would adversely impact our revenues.

Our financial results are subject
to fluctuations due to the seasonal nature of our business

Our
sales fluctuate seasonally and therefore our quarterly results are not necessarily
indicative of results that may be achieved for the full fiscal year. For fiscal years 2004
and 2003, our relative sales were highest in our second quarter (October through
December), followed by our third quarter (January through March), then by our fourth
quarter (April through June). Our first quarter (July through September) recorded the
lowest relative sales for those years. Factors influencing sales variability in addition
to those noted above include the frequency and popularity of sporting events, holidays
(including which day of the week the holiday occurs) and weather.

# Strategic alternatives

From
time to time, as a matter of standard business practice, our management investigates
various strategic alternatives in an attempt to maximize shareholder value. These
strategic alternatives include potential acquisitions, mergers with other companies and
going private transactions. As of September 1, 2004, the Company has not entered into any
definitive agreements relative to any strategic alternative that has been considered or
brought before management. Should a material strategic alternative be presented that has
the potential to maximize shareholder value, the board of directors would assign an
independent committee to determine the merits of the proposed transaction and seek
shareholder approval, if necessary.

20

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# Item 2. Properties.

The
Company leases approximately 15,800 square feet of office space at its corporate
headquarters in Littleton (Douglas County), Colorado, at an average annual rent of
$348,000. The lease term for the office space ends October 2009. See Item 1.
Business  Operating Locations for a listing of the Companys owned and
franchised restaurant locations, which is incorporated herein by reference.

# Item 3. Legal
Proceedings.

In
connection with the spin-off of DAKA International, Inc. in late 1997, we assumed certain
contingent liabilities of DAKA and its subsidiary, Daka, Inc. Under our Post-Closing
Covenant Agreement with DAKA, we are responsible for handling the defense of these claims,
including the appeals. In March 2000, a former associate of Daka was awarded approximately
$0.2 million in compensatory damages, $4.8 million in punitive damages and $0.3 million in
legal fees in a jury trial (McCrae vs. Daka) based on the associates claim of
negligent supervision and retaliation due to alleged conduct that occurred in 1996 at a
former Daka food service location. On September 20, 2000, Daka filed a Notice of Appeal
with the Court of Appeals for the District of Columbia. The Court of Appeals affirmed the
award of compensatory damages in the amount of $187,500 and attorneys fees in the
amount of $276,000. However, the Court of Appeals vacated the $4.8 million punitive
damages award as constitutionally excessive and remanded the case to the trial court for
redetermination of punitive damages in accordance with legal principles outlined in its
opinion. In January 2004 we paid approximately $0.6 million for compensatory damages and
attorneys fees including interest. On remand, by Order dated May 26, 2004, the trial
court awarded punitive damages in the amount of $937,500. We accrued a liability for the
full amount of this award in the fourth quarter of fiscal 2004. On July 9, 2004, Daka
filed a Notice of Appeal with the Court of Appeals for the District of Columbia and this
matter is now pending in that court. In addition on June 23, 2004, plaintiffs
counsel filed a motion for additional attorneys fees in the amount of $375,000. Daka
plans to vigorously oppose this motion and in the event the trial court grants the motion
for attorneys fees in whole or in part, Daka plans to file a Notice of Appeal for
the award of the legal fees. We have not accrued for these additional attorneys
fees. Depending on the timing and nature of the ruling by the Court of Appeals, we also
could incur substantial additional legal expenses in pursuing Dakas appeal and the
ultimate resolution of this matter.

Revisions
to our estimated loss of $937,500 may be made in the future and will be reported in the
period in which additional information is known. Based upon our analysis, and the advice
of outside legal counsel, the Company believes that the ultimate outcome of this matter
will not have any further material adverse effect on the Companys consolidated
financial position, results of operations or cash flows.

In
December 2001, the State of Florida proposed to assess subsidiaries of DAKA $2.4 million
in unpaid state sales taxes, and an additional $2.9 million in penalties and interest
through December 2001. We were contractually obligated to indemnify DAKA for this matter.
In February 2004, we entered into a settlement agreement with the Florida Department of
Revenue and paid $0.1 million in full settlement of this matter.

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We
are engaged in various other actions arising in the ordinary course of business. We
believe based on managements analyses and the advice of outside counsel that the
ultimate collective outcome of these other matters will not have a material adverse effect
on our consolidated financial condition, results of operations or cash flows.

As
of June 27, 2004, we had an aggregate of approximately $1.0 million reserved for
liabilities associated with predecessor companies, almost all of which related to the Daka
associate judgment noted above. These amounts have been reserved as a result of the trial
court award of punitive damages.

# Item 4.
Submission of Matters to a Vote of Security Holders.

There
were no matters submitted by the Company to a vote of shareholders, through solicitation
or proxies or otherwise, during the fourth quarter of the fiscal year for which this
report is filed.

# PART II

# Item 5.  Market for the Registrant's Common Stock and Related Stockholder Matters.

Our
common stock is listed on the NASDAQ National Market (Nasdaq) under the symbol
CMPP. The following table sets forth, for the periods indicated, the high and
low sales prices per share for the common stock as reported by Nasdaq.

|                      | High | Low
|--------------------- | ---- | ---
|Fiscal 2003           |      |    
|First Fiscal Quarter  |      |    
|Second Fiscal Quarter |      |    
|Third Fiscal Quarter  |      |    
|Fourth Fiscal Quarter |      |    
|Fiscal 2004           |      |    
|First Fiscal Quarter  |      |    
|Second Fiscal Quarter |      |    
|Third Fiscal Quarter  |      |    
|Fourth Fiscal Quarter |      |    

On
August 31, 2004, there were approximately 1,800 holders of record of the Companys
common stock. On September 1, 2004, the closing price of the Companys common stock
was $8.34 per share.

We
have never declared or paid dividends on our common stock. We currently intend to retain
future earnings for use in the operation and expansion of our business and therefore do
not anticipate paying cash dividends in the foreseeable future. Also, the Companys
credit arrangements restrict the amount of dividend payments or capital stock repurchases
to a maximum amount of $7.5 million over a three year period beginning March 2004.
Moreover, certain financial covenant ratios under the credit facilities require a minimum
amount of tangible net worth, as defined in the related agreements.

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# Item 6. Selected
Financial Data.

# SELECTED FINANCIAL DATA

The
following table presents selected consolidated data from continuing operations and balance
sheet data of the Company. The balance sheet data as of June 27, 2004, June 29, 2003, June
30, 2002, July 1, 2001 and July 2, 2000 and the statements of operations data for each of
the five fiscal years in the period ended June 27, 2004 presented below are derived from
our restated audited consolidated financial statements.

Certain
amounts have been reclassified for earlier periods to conform to the fiscal 2004
presentation. The reclassifications have no impact on net income or income per share.

The
selected consolidated financial data should be read in conjunction with the consolidated
financial statements and related notes thereto of the Company and Managements
Discussion and Analysis of Results of Operations and Financial Condition included
elsewhere in this Annual Report on Form 10-K/A.

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|                                                | As of and for the Fiscal Years Ended
|----------------------------------------------- | ------------------------------------
|
|
|
|Statements of Operations Data:                  |                                     
|Total revenue                                   |                                     
|Income from continuing operations               |                                     
|Net income (a)                                  |                                     
|Basic income per share before                   |                                     
|discontinued  operations                        |                                     
|Diluted income per share before                 |                                     
|discontinued operations                         |                                     
|Basic weighted average shares (in thousands):   |                                     
|Diluted weighted average shares (in thousands): |                                     
|Balance Sheet Data:                             |                                     
|Total assets                                    |                                     
|Long-term debt and capital lease obligations    |                                     
|including current portion                       |                                     
|Total equity                                    |                                     

|(a) | The fiscal years ending June 29, 2003 and July 1, 2001 had recorded income tax benefits
of $15,155 and $7,893, respectively, primarily related to reversals of valuation
allowances previously recorded on deferred tax assets.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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# Item 7.  Management's Discussion
and Analysis of Results of Operations and Financial Condition.

# Restatement

Following
a January 2005 review of the accounting adjustments cited in several recent Form 8-K
filings by other restaurant companies, and in consultation with our independent registered
public accounting firm, KPMG LLP, we determined that one of the adjustments in those
filings relating to the treatment of lease accounting and leasehold depreciation applied
to us, and that our prior financial statements contained errors. As a result, we have
restated our consolidated financial statements for the fiscal years 2000 through 2004 and
for the first quarter of fiscal 2005.

Historically, the Companys
accounting practice consisted of using the initial non-cancelable lease term when
determining whether each of its leases was an operating lease or a capital lease and when
calculating straight-line rent expense. In accordance with this policy, the Company had
depreciated its leasehold improvements over a period that included both the initial
non-cancelable term of the lease and its option periods but not longer than the useful
life of the asset, if shorter. When accounting for leases with renewal options, we had
recorded rent expense on a straight-line basis over the initial non-cancelable lease term.
In addition, we previously did not include increases when calculating rent expense for
leases where the increases in rent include escalation clauses based on the lesser of a
specified percentage increase or the change in an index that includes a leverage factor.
We previously believed that these longstanding accounting treatments were appropriate
under generally accepted accounting principles. We now have restated our financial
statements to use the same lease term for depreciating leasehold improvements as we use in
determining capital versus operating lease classifications and in calculating
straight-line rent expense. We have restated our financial statements to recognize rent
expense on a straight-line basis over the expected lease term, including cancelable option
periods where the failure to exercise such options would result in an economic penalty.

We
have determined that the cumulative effect of the restatement on our financial statements
through fiscal 2004 ended June 27, 2004 results in an increase in the deferred rent
liability and rent expense of approximately $5.8 million, an increase in accumulated
depreciation and depreciation expense of approximately $200,000, a decrease in income tax
expense by approximately $2.5 million, and a decrease in retained earnings of
approximately $3.5 million. The following table presents the financial impact of the
adjustments resulting from changes to our lease accounting:

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|Increase (Decrease)     | Cumulativeimpact toperiodsprior tofiscal 2000 | Impact tofiscal 2000 | Impact tofiscal 2001 | Impact tofiscal 2002 | Impact tofiscal 2003 | Impact tofiscal 2004 | Totalcummulativeimpactthrough fiscal2004
|----------------------- | --------------------------------------------- | -------------------- | -------------------- | -------------------- | -------------------- | -------------------- | ----------------------------------------
|Rent expense            |                                               |                      |                      | 1,234                |                      |                      | 803                                     
|Depreciation expense    |                                               |                      |                      | (29                  | )                    |                      | (1                                      
|                        |                                               |                      |                      |                      |                      |                      |                                         
|Subtotal                |                                               |                      |                      | 1,205                |                      |                      | 802                                     
|Tax expense             |                                               |                      |                      | --                   |                      |                      | --                                      
|                        |                                               |                      |                      |                      |                      |                      |                                         
|Net increase/(decrease) |                                               |                     
|in expenses             |                                               |                      |                      | 1,205                |                      |                      | 802                                     
|                        |                                               |                      |                      |                      |                      |                      |                                         

The
consolidated financial statements included in this Form 10-K/A have been restated to
reflect the adjustments described above. The Restatement is further discussed in
Explanatory Note in the forepart of this Form 10-K/A, in Item 6,
Selected Financial Data, in Item 8, Note 2, Restatement of Previously
Issued Financial Statements of this Form 10-K/A, in Item 9A Controls and Procedures
and in Part IV, Exhibits, Financial Statement Schedules, and Reports on Form
8-K

# Overview

We
are a restaurant company competing in the upscale casual market. As of June 27, 2004, we
owned and operated 48, and franchised 12, upscale, full-service, casual dining restaurants
under one of the following names: Champps Americana, Champps Restaurant or Champps
Restaurant and Bar. We operate and franchise restaurants in 22 states with larger
concentrations of restaurants in the upper Midwest, mid-Atlantic and Texas. Champps
provides an extensive menu of approximately 90 items consisting of high quality
ingredients, freshly prepared and served with exceptional service in an exciting
environment through the use of videos, music, sports and promotions. Our restaurants
generally are open seven days a week from 11:00 a.m. to 1:00 a.m. We serve our guests in
the dining room and bar area during lunch, after work, during dinner and after dinner
during our late night period.

Since
June 1999, we have positioned ourselves to increase profitability while embarking on a
strategic expansion in major metropolitan areas throughout the United States. Prior to
June 1999, we disposed of all non-Champps operating businesses and began to concentrate
solely on the Champps concept. At June 1999, we owned 18 restaurants. In fiscal year 2000,
we opened four restaurants and acquired two franchised restaurants. In fiscal 2001, fiscal
2002 and fiscal 2003, we opened four, six and seven restaurants, respectively. In fiscal
2004, we opened seven additional locations and had fully executed contracts for three
additional locations expected to open in fiscal 2005. We have identified other potential
sites and are negotiating contracts on additional sites for restaurants to be opened in
fiscal 2005. We expect to open a total of six new company-operated restaurants in fiscal
2005.

Our
new restaurants typically range in size from 7,500 square feet to 9,000 square feet.
Historically since 2001, restaurants with a ground lease have required, on average, a net
cash investment of approximately $1.8 million and average total invested capital of
approximately $2.8 million per restaurant. Restaurants constructed with build-to-suit
financing have required, on average, a net cash investment of $1.4 million and average
total invested capital of approximately $4.7 million which includes land acquisition cost.
Pre-opening expenses are expected to average approximately $360,000 per restaurant.

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Historically,
our primary sources of liquidity for funding our operations and expansion have been net
cash from operations, and standard restaurant financing methods, such as build-to-suit
transactions, sale-leaseback transactions, mortgage facilities, notes payable, tenant
improvement allowances and equipment financing. We recently secured a three-year $25.0
million revolving bank credit facility giving us greater financial flexibility and future
interest expense savings. In that regard, certain of our higher interest rate notes
payable and capital leases as well as certain operating leases were repaid in the third
and fourth quarters of 2004 with excess cash and use of this bank facility, although we
were subject to prepayment penalties and a write-off of related debt issuance costs.

Because
we continue to expand, the timing of revenues and expenses associated with opening new
restaurants is expected to result in fluctuations in our quarterly and annual results. In
addition, our results, and the results of the restaurant industry as a whole, may be
adversely affected by changes in consumer tastes, discretionary spending priorities,
national, regional and local economic conditions, demographic trends, consumer confidence
in the economy, traffic patterns, weather conditions, employee availability, state and
federal minimum wage requirements and the type, number and location of competing
restaurants. Changes in any of these factors could adversely affect us and our financial
results.

The
success of our business and our operating results are also dependent upon our ability to
anticipate and react to changes in food and liquor costs and the mix between food and
liquor revenues. Various factors beyond our control, such as adverse weather conditions,
may affect food costs and increases in federal, state and local taxes may affect liquor
costs. While we have been able to manage our exposure to the risk of increasing food and
liquor costs in the past through certain purchasing practices, menu changes and price
adjustments, there can be no assurance that we will be able to do so in the future or that
changes in our sales mix or our overall buying power will not adversely affect our results
of operations.

Many
food product costs have increased substantially in this recent fiscal year. The most
notable products with higher costs that affected our operations included beef, dairy and
chicken wings. We responded to these higher costs by raising prices on select menu items
and adjusting recipes.

An
important indicator of sales performance within the restaurant industry is comparable
sales or same store sales. This indicator compares the revenue performance of our
restaurants open for more than sixty-six weeks to the same restaurants in the prior year
thereby eliminating the impact of new openings in comparing the operations of existing
stores. Small changes in comparable sales can have a proportionally higher impact on
operating margins because of the high degree of fixed costs associated with operating
restaurants.

Our
comparable food sales have been positive for nine consecutive quarters and for 17 out of
the last 20 quarters. However, at the same time, comparable alcohol sales have been
negative for nine consecutive quarters. The following table provides our comparable sales
percentage change by quarter versus the prior years comparable quarter for the last
three fiscal years.

27

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|            | Quarter 1 | Quarter 2 | Quarter 3 | Quarter 4 | Total
|----------- | --------- | --------- | --------- | --------- | -----
|Fiscal 2004 |           |           |           |           |      
|Food        |           |           |           | 0.9       | %    
|Alcohol     |           |           |           | -1.8      | %    
|            |           |           |           |           |      
|Total       |           |           |           | 0.2       | %    
|            |           |           |           |           |      
|Fiscal 2003 |           |          
|Food        |           |           |           | 0.7       | %    
|Alcohol     |           |           |           | -6.5      | %    
|            |           |           |           |           |      
|Total       |           |           |           | -1.6      | %    
|            |           |           |           |           |      
|Fiscal 2002 |           |          
|Food        |           |           |           | -2.9      | %    
|Alcohol     |           |           |           | -5.4      | %    
|            |           |           |           |           |      
|Total       |           |           |           | -3.7      | %    
|            |           |           |           |           |      

We
believe that alcohol sales have been impacted by our strategy to deemphasize our late
night business beginning in the fourth quarter of fiscal 2002, the sluggish economy,
competition, fluctuating consumer confidence, higher unemployment, decreases in
discretionary income and a decline in overall on-premise alcohol sales throughout our
industry. In June 2004 after reviewing competitor prices, we increased our alcohol prices.

Our
average weekly sales per restaurant has been decreasing over the last several years as our
new stores have lower average weekly sales than our existing stores due in part to their
reduced size.

Food
safety issues have received increased media attention during this past year. Two prominent
issues have been the identification of green onions grown in farms in Mexico as the source
of hepatitis and the first reported case of mad cow disease in the United
States. We know of no known cases related to these food safety concerns affecting our
restaurants. We have received assurances from our produce provider of green onions that
their sources are safe. Also, we have reinforced to our restaurant operators procedures to
follow for the safe food handling of green onions. To date, the mad cow
disease issue has not been shown to influence the beef-eating habits of consumers per
industry reports, although future cases could certainly influence our customers eating
habits. The USDA and the beef industry have taken a number of actions to reduce the risk
of mad cow diseased beef from entering consumer markets.

As
is fairly typical during most election years, proposals to increase minimum wage levels
have once again surfaced at the federal level. In addition, certain states where we do
business have legislative proposals to increase their minimum wage levels. While most of
our kitchen staff are paid in excess of minimum wage levels and would not be affected by
the proposals, our server and bar staff are generally paid the tipped minimum wage.

Recently,
the popularity of the Atkins diet has resulted in many restaurant chains incorporating and
promoting high-protein, low-carbohydrate items on their menus. We responded to this trend
by including certain menu items labeled carb conscious in our specials section
of the menu starting in the third quarter of fiscal 2004. We added a carb
conscious section to our menu in June 2004.

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In
the last fiscal year, two of our restaurants operations were negatively impacted by
local ordinances prohibiting smoking in public places. These smoking bans are becoming
more prevalent at both state and local levels. State mandated smoking bans have not
historically impacted our operations while locality specific bans have negatively affected
our operations due to the ability of smoking patrons to choose smoking venues in other
close localities that do not have a smoking ban.

We
have been liable for two potentially significant loss contingencies related to a
predecessor company (see Note 10 to our audited consolidated financial statements).
Significant developments have occurred this last fiscal year in both items. In the McCrae
vs. Daka matter, the Court of Appeals issued its decision in December 2003. The Court
affirmed the award of compensatory damages in the amount of $187,500 and attorneys
fees in the amount of $276,000. However, the Court vacated the $4.8 million punitive
damages award as constitutionally excessive and remanded the case to the trial court for
redetermination of punitive damages in accordance with legal principles outlined in its
opinion. In January 2004, we paid approximately $0.6 million for these items including
interest. In May 2004, the trial court made its redetermination and awarded $0.9 million
in punitive damages to the plaintiff. We accrued this amount as a predecessor cost in the
fourth quarter of fiscal 2004 even though we have appealed the punitive damage
redetermination award. We have not accrued for $0.4 million of additional attorneys
fees sought by plaintiffs counsel as we do not believe the liability is probable.

The
State of Florida proposed sales tax assessment including penalties and interest was
settled in February 2004 for a payment of $0.1 million. Previously, the State of Florida
had proposed to assess $2.4 million in unpaid state sales taxes, and an additional $2.9
million in penalties and interest as of December 2001.

Our financial results for the year
ended June 27, 2004 included:

| |  | Growth
of consolidated revenues by 17.0% to $211.5 million.
|- |  | -----------------------------------------------------------

| |  | Growth
of income before income taxes by 72.4% to $5.0 million from $2.9 million.
|- |  | --------------------------------------------------------------------------------

| |  | A
decrease of net income of $13.8 million to $4.3 million. Fiscal 2003 net income was
higher in part because we recorded a $15.2 million income tax benefit related to a
decrease in the valuation allowance associated with deferred tax assets.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Critical accounting
policies

The
preparation of our consolidated financial statements requires us to make estimates and
assumptions that affect the reported amounts and disclosures in the consolidated financial
statements. The estimates and assumptions are evaluated on an on-going basis and are based
on historical experience and on various other factors that are believed by us to be
reasonable under the circumstances.

Items
significantly impacted by estimates and judgments include, but are not limited to,
representations, warranties and indemnities provided in connection with the spin-off of
DAKA International, Inc. in 1997 and the subsequent sale of the Fuddruckers business unit
in 1998, self-insured risks relating to workers compensation and general liability
claims and legal liabilities, the useful lives and recoverability of our long-lived assets
such as property, equipment and intangibles, fair value attributed to assets and
liabilities of acquired businesses, valuation of deferred tax assets and the recording of
income tax expense.

29

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Loss contingencies and
self-insurance reserves

We
maintain accrued liabilities and reserves relating to the resolution of certain contingent
obligations and reserves for self-insurance. Significant contingencies include those
related to litigation. We account for contingent obligations in accordance with Statement
of Financial Accounting Standards (SFAS) No. 5, Accounting for
Contingencies, as interpreted by FASB Interpretation No. 14 which requires that we
assess each contingency to determine estimates of the degree of probability and range of
possible settlement. Contingencies which are deemed to be probable and where the amount of
such settlement is reasonably estimable are accrued in our financial statements. If only a
range of loss can be determined, we accrue to the best estimate within that range; if none
of the estimates within that range is better than another, we accrue to the low end of the
range.

We
are self-insured for a significant portion of our employee health benefits, workers
compensation and general liability programs. However, we maintain stop-loss coverage with
third party insurers to limit our individual claim and total exposures under the programs.
We estimate our accrued liability for the ultimate costs to close known claims including
claims incurred but not yet reported to us as of the balance sheet date. Our recorded
estimated liability for self-insurance is based on the insurance companies incurred loss
estimates and managements judgment, including assumptions and factors related to the
frequency and severity of claims, our claims development history and our claims settlement
practice.

The
assessment of loss contingencies and self-insurance reserves is a highly subjective
process that requires judgments about future events. Contingencies are reviewed at least
quarterly to determine the adequacy of the accruals and related financial statement
disclosure. The ultimate settlement of loss contingencies and self-insurance reserves may
differ significantly from amounts we have accrued in our financial statements.

Useful lives of property
and equipment

Leasehold
improvements and equipment are recorded at cost less accumulated depreciation. These
assets are depreciated using the straight-line method over the shorter of the estimated
useful lives of the assets or the term of the lease used in determining whether the lease
is a capital lease versus operating lease and in calculating straight-line rent expense.
These estimates may produce materially different amounts of reported depreciation and
amortization expense if different assumptions were used. Land is recorded at cost and is
not depreciated. As discussed further below, these judgments may also impact our need to
recognize an impairment charge on the carrying amount of these assets.

Valuation of long-lived
assets

We
evaluate the carrying value of long-lived assets including property, equipment and related
identifiable intangible assets whenever events or changes in circumstances indicate that
the carrying value may not be recoverable in accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. Under SFAS No.
144, an assessment is made to determine if the sum of the expected future undiscounted
cash flows from the use of the assets and eventual disposition is less than the carrying
value. If the sum of the expected undiscounted cash flows is less than the carrying value,
an impairment loss is recognized based on fair value.

30

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We
separately evaluate each individual restaurant for impairment. Generally, a restaurant is
not evaluated for impairment until it has been open a full six quarters as the initial two
quarters of operations are generally characterized by operating inefficiencies associated
with start-up operations. We consider four consecutive quarters of negative cash flow or
losses to indicate a potential for an individual restaurant to be impaired. We estimate
the future cash flows for such potentially impaired restaurants utilizing such factors as
restaurant sales trends, local economic conditions, demographics and competition,
management plans and initiatives and other factors deemed appropriate in the
circumstances.

As
of June 27, 2004, we had two restaurants open for at least six quarters which had negative
cash flow in the last fiscal year. We currently have a plan to simplify these
restaurants operations and thereby reduce costs which should significantly improve
cash flow. These initiatives are to be instituted in the first half of fiscal 2005. We
believe it is premature to record an impairment on the long-lived assets of these
restaurants in light of our plans to improve the financial performance of these two
restaurants.

Additionally,
we had another two restaurants open for at least six quarters which had positive cash flow
over the last fiscal year, but the level of such cash flows were not high enough to
sufficiently cover the restaurants long-term asset values if such cash flows
continue for the remainder of the restaurants lives. These two restaurants had
negative local factors occurring in the last year that impacted their operations. We
believe that the local factors will mitigate in the future and these restaurants
cash flows will improve. Therefore, we believe recording an impairment is not appropriate
at this time.

Our
forward-looking judgments and estimates concerning the above mentioned restaurants may not
materialize. If such cash flows associated with any of these restaurants do not
sufficiently improve, we would record an impairment for all or a portion of the respective
restaurants long-lived assets depending on the fair value assigned to such assets.
As of June 27, 2004, the long-lived assets value on these four restaurants totaled $7.3
million.

We
evaluate impairment of goodwill and other unidentifiable intangible assets in accordance
with SFAS No. 142 Goodwill and Other Intangible Assets. Under the provisions
of SFAS No. 142, we are required to assess impairment at least annually by means of a fair
value-based test. At June 27, 2004, we evaluated our goodwill and determined that the
goodwill was not impaired. The determination of fair value requires us to make certain
assumptions and estimates related to our business and is highly subjective, and
accordingly, actual amounts realized may differ significantly from our estimate.

Leases

We
lease most of our properties including our corporate office. We account for our leases
under the provisions of SFAS No. 13 and SFAS No. 98, both are entitled Accounting
for Leases, as well as other pertinent authoritative literature. To classify the
lease as either an operating or a capital lease we use the non-cancelable term of the
lease if there is no penalty to cancel the lease at the conclusion of the non-cancelable
period. If a penalty exists, we use the non-cancelable period plus option(s) in
determining the term to use when classifying the lease. A penalty is deemed to occur if we
forego an economic benefit, or suffer an economic detriment by not renewing the lease.
This penalty can either be a part of the lease or can arise from the retirement of an
asset with value. This same lease term is used to calculate straight-line rent and in
calculating depreciation expense for our leasehold improvements. We record the total rent
payable during the lease term on a straight-line basis over the term of the lease and
record the difference between the rent paid and the straight-line rent as a deferred rent
liability. Lease incentive payments (tenant improvement allowances) received
from landlords are recorded as deferred rent liabilities and are amortized on a
straight-line basis over the lease term as a reduction in rent. Future additional
authoritative changes to the methods of accounting for leases could have a material impact
on the Companys reported results of operations and financial position.

31

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Valuation of deferred tax
assets

We
recognize deferred tax assets and liabilities for the future tax consequences attributable
to temporary differences between the carrying value for financial reporting purposes and
the tax basis of assets and liabilities in accordance with SFAS No. 109, Accounting
for Income Taxes. Deferred tax assets and liabilities are recorded using the enacted
tax rates expected to apply to taxable income in the years in which such differences are
expected to be recovered or settled. The effect on deferred tax assets and liabilities,
resulting from a change in tax rates, is recognized as a component of income tax expense
(benefit) in the period that such change occurs. Net operating loss and other credit
carryforwards, including FICA tip tax credits, are recorded as deferred tax assets. A
valuation allowance is recorded for the tax benefit of the deferred tax assets not
expected to be utilized based on projected future taxable income and the reversal of
temporary differences. As of June 27, 2004, we had net deferred tax assets of $26.4
million. As a result of our improved profitability in recent years and our estimates of
projected future taxable income, we believe that it is more likely than not that we will
be able to realize these net deferred tax assets. As of June 27, 2004, we had federal net
operating loss carryforward of approximately $50.9 million and a FICA tip credit of
approximately $5.6 million, expiring at various dates through 2024.

Income tax provision

Certain
components of our provision for income taxes are estimated. These estimates include, among
other items, effective rates for local and state taxes, allowable tax credits for items
such as FICA taxes paid on reported tip income, estimates related to depreciation and
amortization allowable for tax purposes, and the tax deductibility of certain other items.

Our
estimates are based on the best available information at the time that we prepare the
provision. We generally file our annual income tax returns many months after our fiscal
year-end. Income tax returns are subject to audit by federal, state and local governments,
generally years after the returns are filed. These returns could be subject to material
adjustments or differing interpretations of the tax laws.

Our
accounting policies are more fully described in Note 1 to our consolidated financial
statements included elsewhere in this Annual Report on Form 10-K/A and incorporated herein
by reference.

# Financial definitions

Revenue
 Our revenue is comprised of restaurant sales and net franchise royalties and fees.
Restaurant sales are comprised almost entirely of food and beverage sales with less than
0.2% of the restaurant sales represented by sales of Champps merchandise and other
revenue. In calculating our company-owned comparable restaurant sales, we include
restaurants open at least 66 weeks. As of the end of fiscal 2004, 39 restaurants of our
total 48 restaurants in operation were included in our comparable sales calculation.

32

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Restaurant
Operating Costs  Product costs are composed primarily of food and beverage
expenses. Labor costs include direct hourly and management wages, our restaurant
associates wages during training, bonuses, workers compensation and payroll taxes
and benefits for restaurant employees. Other operating expense includes restaurant
supplies, marketing costs specifically related to the restaurants activities,
utilities, repairs and maintenance, banking and credit card fees and other directly
related restaurant costs. Occupancy costs include equipment operating leases, fixed rent,
percentage rent, common area maintenance charges, general liability and property insurance
and real estate and personal property taxes. Depreciation and amortization principally
includes depreciation on capital expenditures for restaurants. Depreciation and
amortization excludes corporate level depreciation and amortization which are included in
general and administrative expense. Restaurant level operating profit is composed of
restaurant sales less restaurant operating costs, which includes product costs, labor
costs, other operating expense, occupancy and depreciation and amortization.

General
and Administrative Expenses General and administrative expenses include all
corporate and administrative functions that support existing operations and provide
infrastructure to facilitate our future growth. Components include executive and
management salaries, regional supervisory and staff salaries, bonuses and related
associate payroll taxes and benefits, travel, information systems, communication expenses,
corporate rent and related occupancy and operating costs, corporate depreciation and
amortization and professional and consulting fees.

Preopening
and Other Items  Pre-opening expenses, which are expensed as incurred, consist
of direct costs related to hiring and training the initial restaurant workforce and other
expenses incurred prior to the opening of a new restaurant that are directly associated
with opening the new restaurants. Other (income) expense, net generally consists of gains
or losses on asset disposals primarily from asset replacements. Interest expense and
income, net consists of interest expense on notes payable and capitalized lease
obligations and amortization of loan fee costs partially offset by interest income earned
on excess cash balances and interest capitalized as part of the construction process.
Expenses related to predecessor companies consist of expenses for indemnity obligations
related to the spin-off of DAKA International in 1997. Debt extinguishment costs consist
of prepayment penalties and write-off of unamortized debt issuance costs associated with
repayment of debt before scheduled maturity. Loss from discontinued operations consists of
expenses for obligations of indemnity related to the Companys sale of Fuddruckers in
1998.

Fiscal
Calendar We utilize a 52/53 week fiscal year ending on the Sunday closest to
June 30 for financial reporting purposes. Fiscal years 2004, 2003 and 2002 each consisted
of 52 weeks. Each quarter within those years consisted of 13 weeks. Our upcoming fiscal
2005 will consist of 53 weeks. The first quarter of fiscal 2005 will contain 14 weeks
while the remaining quarters in the fiscal year will contain 13 weeks each.

33

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# Results of operations

The following table sets forth
certain financial information for the Company (dollars in 000s).

|                                          | Fiscal Year Ended
|----------------------------------------- | -----------------
|
|
|Revenue:                                  |                  
|Sales                                     |                  
|Franchising and royalty, net              |                  
|                                          |                  
|Total revenue                             |                  
|                                          |                  
|Restaurant operating expenses (as a       |                  
|percentage of restaurant sales)           |                  
|Product costs                             |                  
|Labor costs                               |                  
|Other operating expenses                  |                  
|Occupancy                                 |                  
|Pre-opening expenses                      |                  
|                                          |                  
|Cost of sales and operating expenses      |                  
|(Stated as a percentage of total revenue) |                  
|General and administrative expenses       |                  
|Depreciation and amortization             |                  
|Other (income) expense, net               |                  
|                                          |                  
|Income from operations                    |                  
|                                          |                  
|Other (income) expense:                   |                  
|Interest expense and income, net          |                  
|Expenses related to predecessor companies |                  
|Debt extinguishment costs                 |                  
|                                          |                  
|Total costs and expenses                  |                  
|                                          |                  
|Income from continuing operations         |                  
|Loss from discontinued operations         |                  
|                                          |                  
|Income before income taxes                |                  
|Income tax expense (benefit)              |                  
|                                          |                  
|Net income                                |                  
|                                          |                  
|Restaurant operating weeks                |                  
|Restaurant sales per operating week       |                  
|Number of restaurants (end of period)     |                  
|Company-owned                             |                  
|Franchised                                |                  
|                                          |                  
|Total restaurants                         |                  
|                                          |                  

Fiscal 2004 compared to fiscal 2003

Total revenue. Total revenue
increased approximately $30.8 million, or 17.0%, to $211.5 million in fiscal 2004 from
$180.7 million for the comparable prior year period primarily due to the opening of seven
additional restaurants throughout fiscal 2004 and full year inclusion of the seven
restaurants opened in fiscal 2003. Comparable restaurant sales increased 0.2% between
years. In fiscal 2004, comparable food sales increased 1.2% while comparable alcohol sales
decreased 2.3%. The average guest check in our dining room, excluding alcoholic beverages,
was approximately $13.27 for fiscal 2004 versus $13.03 for fiscal 2003. During fiscal
2004, food sales and alcoholic beverage sales represented 71.8% and 28.2% of our total
food and beverage sales, respectively. During fiscal 2003, food and alcoholic beverage
sales represented 70.5% and 29.5% of our total food and beverage sales, respectively.

34

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Cost of sales and
operating expenses.

| | Product costs. Product costs increased by $8.3 million, or 16.4%, to $58.9 million in fiscal
2004 from $50.6 million in the prior year. Product costs as a percentage of restaurant
sales decreased to 27.9% for fiscal 2004 compared to 28.1% for fiscal 2003 due largely to
recipe modifications and increased vendor rebates partially offset by rising costs for
several commodities, particularly proteins, dairy and higher beer and alcohol costs.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Labor costs. Labor costs increased by $9.6 million, or 16.6%, to $67.3 million in fiscal
2004 from $57.7 million in the prior year. Labor costs as a percentage of restaurant sales
decreased to 31.9% in fiscal 2004 from 32.0% in fiscal 2003. Lower staff and management
costs from cost cutting initiatives were offset by insurance costs.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Other operating expense. Other operating expense increased $4.5 million, or 15.8%, to $33.0
million in fiscal 2004 from $28.5 million in the prior year. Operating expense as a
percentage of restaurant sales decreased to 15.6% in fiscal 2004 from 15.8% in fiscal
2003. The decrease was due to lower janitorial costs and credit card fees partially offset
by higher utility costs.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Occupancy.Occupancy
expense increased $2.9 million, or 17.1%, to $19.9 million in           fiscal 2004 from
$17.0 million in the prior year primarily due to the opening of           new
restaurants. Occupancy expense as a percentage of restaurant sales was 9.4%           in
both fiscal 2004 and fiscal 2003.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Pre-opening expenses.Pre-opening expenses were $1.9 million for fiscal 2004 and $3.1 million for
the comparable prior year period. Pre-opening expenses as a percentage of revenue were
0.9% for fiscal 2004 and 1.7% for fiscal 2003. Pre-opening expenses have historically been
approximately $0.4 million per location. We opened seven restaurants in both fiscal 2004
and fiscal 2003. The average restaurant pre-opening cost was significantly lower in 2004
versus 2003 because of the timing of openings, openings occurring in existing markets, and
improved management of the expenses.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

General and administrative
expenses.General and administrative expenses increased $1.2 million, or 11.4%,
to $11.7 million in fiscal 2004 from $10.5 million in the comparable prior year period.
The increase was the result of higher personnel costs to support growth, bonus expense and
computer related costs. The increase was partially offset by lower hiring and recruiting
expenses as well as $160,000 of expenses related to terminated projects and litigation
settlement costs of $441,000 incurred in the prior year. General and administrative
expenses as a percentage of total revenue decreased to 5.6% for fiscal 2004 from 5.8% in
fiscal 2003 as a result of economies of scale associated with higher revenues.

Depreciation and amortization.Depreciation and amortization expense increased $2.2 million, or 28.9%, to $9.9
million for fiscal 2004 from $7.7 million in the prior year primarily due to an increase
in assets associated with the opening of new restaurants. Depreciation and amortization
expense as a percentage of restaurant sales increased to 4.7% in fiscal 2004 from 4.4% in
fiscal 2003 due to lower average restaurant revenues associated with new restaurants.

35

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Other (income) expense, net.
Other expense of $0.1 million was recorded in fiscal 2004 compared to other expense of
$0.3 million in fiscal 2003. The decrease in expense in 2004 was due to fewer losses on
asset replacements and $0.1 of income recorded in fiscal 2004 related to certain warrant
investments.

Interest expense and income, net.Interest expense and income, net was approximately $2.1 million in fiscal 2004 and
$1.8 million in fiscal 2003. The increase resulted primarily from lower capitalized
interest associated with lower levels of capital expenditures and higher interest expense
associated with the issuance of $15.0 million of 5.5% convertible notes in December 2002
and $4.5 million of new borrowings in the first quarter of fiscal 2004. Partially
offsetting the above was the prepayment of approximately $15.2 million and $5.2 million of
debt and capital leases in fiscal 2004 and fiscal 2003, respectively, before scheduled
maturity.

Expenses related to predecessor
companies.Expenses related to predecessor companies totaled $1.2 million for fiscal
2004 and $0.3 million for the prior year. The fiscal 2004 expenses relate to adjustments
to the liabilities for the McCrae vs. Daka litigation as a result of the appellate
decision and trial court redetermination (see Note 9 to the consolidated financial
statements) and on-going litigation costs partially offset by a reduction in the liability
for the State of Florida proposed tax assessment due to the favorable settlement of the
proposed assessment.

Debt extinguishment costs.
Debt extinguishment costs of $0.6 million were incurred for fiscal 2004 as a result of the
repayment of $15.2 million of debt and capital lease obligations before scheduled
maturity. Debt extinguishment costs of $0.3 million were incurred in fiscal 2003 as a
result of the prepayment of $5.2 million of debt before scheduled maturity.

Income before income taxes.
Income before income taxes increased $2.1 million, or 72.4%, to $5.0 million for fiscal
2004 from $2.9 million in the comparable prior year period for the reasons described
herein.

Income tax expense. For fiscal
2004, we recorded an income tax expense of $0.7 million, or an effective income tax rate
of 14.5%. Although we recognized an income tax expense of 14.5%, we anticipate paying
income taxes at an effective tax rate of only 6% because of our ability to utilize net
operating loss carryforwards to offset taxable federal income. In fiscal 2003, we recorded
an income tax benefit of $15.1 million reflecting a $16.8 million decrease in deferred tax
asset valuation allowance.

# Fiscal 2003 compared to
fiscal 2002

Total revenue. Total revenue
increased approximately $22.2 million, or 14.0%, to $180.7 million for fiscal 2003 from
$158.5 million for the comparable prior period. The increase was primarily due to the
full-year operation of six additional restaurants opened in fiscal 2002, seven additional
restaurants opened in fiscal 2003 and menu price increases having an impact on sales of
approximately 1%. This increase was partially offset by a decrease in comparable
restaurant sales of 1.6%. Comparable food sales increased 1.0% due largely to increases in
customer traffic partially offset by a lower guest check average; however, comparable
alcohol sales decreased 6.8%. The comparable alcohol sales decrease was due, in part, to a
strategic de-emphasis of the Companys late night promotions as the promotions are
costly and can alienate dinner guests. Sales in the January through March 2003 period were
also negatively affected by severe weather primarily in Ohio, Indiana, the mid-Atlantic
and Colorado markets. Furthermore, sales were negatively affected by weakening consumer
confidence and the impact of the war in Iraq. During fiscal 2003, food sales and alcoholic
beverage sales represented 70.5% and 29.5% of our total food and beverage sales,
respectively. During fiscal 2002, food sales and alcoholic beverage sales represented
67.8% and 32.2% of our total food and beverage sales, respectively.

36

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Cost of sales and
operating expenses.

| | Product costs. Product costs increased by $6.0 million, or 13.5%, to $50.6 million in fiscal
2003 from $44.6 million for the comparable prior period primarily as a result of our
increased restaurant base. Product costs as a percentage of restaurant sales in fiscal
2003 decreased to 28.1% from 28.2% for the comparable prior period. This improvement was
primarily the result of decreased commodity costs and stable produce prices in the first
half of fiscal 2003.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Labor costs. Labor costs increased by $7.1 million, or 14.0%, to $57.7 million in fiscal
2003 from $50.6 million for the comparable prior period primarily as a result of our
increased restaurant base. Labor costs as a percentage of restaurant sales were 32.0% in
both fiscal 2003 and fiscal 2002. The company experienced lower staff costs due to
efficiency improvements partially offset by higher health benefit and payroll tax costs
and the impact of lower average sales relative to fixed management costs.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Other operating expense. Other operating expense increased $4.4 million, or 18.3%, to $28.5
million for fiscal 2003 from $24.1 million for the comparable prior period. Other
operating expense as a percentage of restaurant sales increased to 15.8% in fiscal 2003
from 15.3% for the comparable prior period primarily due to lower comparable restaurant
sales coupled with higher expenses for utilities.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Occupancy.Occupancy
expense increased $2.4 million, or 16.4%, to $17.0 million for fiscal
                    2003 from $14.6 million for the comparable prior period. Occupancy
expense as a                     percentage of restaurant sales increased to 9.4% for
fiscal 2003 from 9.2% for                     the comparable prior period primarily due
to an increase in real estate taxes                     coupled with lower comparable
restaurant sales.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Pre-opening expense. Pre-opening expense increased $0.5 million to $3.1 million during fiscal 2003
from $2.6 million during the comparable prior period. We opened seven new restaurants in
fiscal 2003 and opened six new restaurants for the comparable prior period. Although
pre-opening expense is incurred prior to the opening of a new restaurant, we continue to
incur pre-opening expense for trainers up to two weeks after a new restaurant opens.
Pre-opening expense has historically been approximately $0.4 million per location.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

General and administrative
expense. General and administrative expense increased $1.3 million, or 14.1%, to $10.5
million for fiscal 2003 from $9.2 million for the comparable prior period. The company
experienced a $180,000 reversal of bad debt from a franchisee in fiscal 2002,
approximately $441,000 of litigation settlement costs, $160,000 of expenses related to
terminated projects and higher computer expense due to the new restaurants and increased
professional fees in fiscal 2003. General and administrative expense as a percentage of
total revenue was 5.8% for fiscal 2003 and fiscal 2002.

Depreciation and Amortization.
Depreciation and amortization expense increased $1.3 million, or 20.3%, to $7.7 million
for fiscal 2003 from $6.4 million for the comparable prior period. Depreciation and
amortization expense as a percentage of restaurant sales increased to 4.4% for fiscal 2003
from 4.1% for the comparable prior period.

37

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Interest expense and income, net.Interest expense and income, net increased $0.2 million to $1.8 million from $1.6
million in the prior period primarily due to interest expense on additional debt. As of
June 29, 2003, we had a total of $28.6 million in notes payable and capitalized leases
versus $21.8 million as of June 30, 2002.

Expenses related to predecessor
companies and loss from discontinued operations. Expenses related to the Daka spin-off
and Fuddruckers sale were both $0.3 million in both fiscal 2003 and 2002.

Debt extinguishment costs.Debt extinguishment costs of $0.3 million were incurred in fiscal 2003 as a result of
the repayment of $5.2 million of notes payable before their scheduled maturity. No debt
extinguishment costs were incurred in the prior fiscal year.

Other (income) expense.The
Company recorded other expense of $0.3 million in fiscal 2003 compared to a nominal amount
in the prior fiscal year. The increase in expense resulted from losses on asset disposals
from asset retirements.

Income before provision for income
taxes. Income before provision for income taxes decreased $1.5 million, or 33.5%, to
$2.9 million from $4.4 million for the comparable prior period.

Provision for income tax
benefit/expense. For fiscal 2003, we recognized an income tax benefit of $15.1 million
compared to income tax expense of $0.2 million in fiscal 2002. The income tax benefit in
fiscal 2003 was primarily the result of a reversal of the remaining valuation allowance on
the Companys deferred tax assets associated with net operating loss carryforwards.
The reversal of the valuation allowance resulted from a determination by management that
the net operating loss carryforwards are not limited under tax law and the Companys
future taxable income will, more likely than not, be sufficient to realize the
carryforwards before expiration.

# Liquidity and capital
resources

As
of June 27, 2004, our unrestricted cash balance was $1.4 million and our restricted cash
balance was $0.1 million. The restricted cash balance primarily serves as collateral for
performance obligations. Our cash balance and working capital needs are generally low, as
sales are made for cash or through credit cards that are quickly converted to cash,
purchases of food and supplies and other operating expenses are generally paid within 30
to 60 days after receipt of invoices and labor costs are paid bi-weekly. The timing of our
sales collections and vendor and labor payments are consistent with other companies
engaged in the restaurant industry. Our net working capital decreased by $4.0 million in
fiscal 2004 primarily as a result of using excess cash to reduce debt balances.

For
fiscal years 2004, 2003 and 2002, we generated cash flow from operating activities of
$21.2 million, $16.5 million and $15.4 million, respectively. The increased cash flow from
operating activities was due largely to our improved profitability and, to a smaller
extent, due to increased cash from working capital changes. Proceeds from tenant improvement
allowances in the amount of $4.1 million, $6.4 million, and $6.4 million
in fiscal years 2004, 2003 and 2002, repectively. Our operating cash flow is
enhanced by our ability to utilize net operating loss carryforwards and other tax credits
to offset our federal income tax liability. At June 27, 2004, we had $56.5 million of such
carryforwards and credits available through 2024 to offset federal taxes. We expect to
fully utilize these carryforwards and credits in the next seven to ten years.

38

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A
significant portion, if not all, of our cash flow generated from operating activities in
each of the last three fiscal years has been invested in capital expenditures, the
majority of which was for the construction of new stores. We opened seven new restaurants
in both fiscal 2004 and fiscal 2003 and six new restaurants in fiscal 2002. The following
table, in thousands, details our capital expenditures for the last three fiscal years
along with funding provided from tenant improvement allowances. Tenant improvement
allowances are reimbursements received from certain of our landlords for a portion of
initial construction expenditures.

|                                            | Fiscal Year Ended
|------------------------------------------- | -----------------
|
|New store contruction                       |                  
|Existing store remodel and refurbishment    |                  
|Corporate related capital expenditures      |                  
|Purchase of equipment previously under      |                  
|operating lease                             |                  
|                                            |                  
|Purchase of property and equipment          |                  
|                                            |                  
|Proceeds from tenant improvement allowances |                  
|                                            |                  

Total
capital expenditures for fiscal year 2005 are anticipated to be approximately $20.0
million, before tenant improvement allowances. These expenditures will primarily be for
the construction of six new restaurants expected to open in fiscal 2005, construction for
certain restaurants expected to open in early fiscal 2006 and for upgrades to existing
restaurants. We review our capital expenditures budget on a monthly basis and amounts are
subject to change. We are anticipating receiving cash for tenant improvement allowances of
approximately $4.8 million for fiscal 2005.

In
January, 2003, we entered into an agreement with AEI Fund Management, Inc.
(AEI) for the development and sale/leaseback of up to seven new restaurants
with an additional funding commitment of $24.5 million. At June 27, 2004, we had completed
the construction of three restaurants under this commitment located in Houston, Texas,
Cincinnati, Ohio and Orland Park, Illinois. The agreement expires the earlier of November
30, 2005 or upon AEIs acceptance or rejection of seven total restaurant sites. The
funding of this build-to-suit facility is subject to various pre-closing conditions. For
additional information on our agreement with AEI, please refer to the information provided
under Note 6 to the accompanying consolidated financial statements, which information is
incorporated by reference herein.

We
supplemented our operating cash flows over the last three years through various financing
arrangements. In September 2002, we entered into a $5.0 million five-year term loan
facility with General Electric Capital. This facility was collateralized by equipment. We
borrowed $0.5 million of the funds in fiscal 2003 and the $4.5 million balance during the
first quarter of fiscal 2004. These loans were repaid later in fiscal 2004.

In
fiscal 2003, we received $15.0 million of gross proceeds from the issuance of 5.5%
convertible subordinated notes (notes) and warrants. Approximately $1.4
million of issuance costs were incurred relative to the notes. The notes are due December
2007 and require interest only payments semi-annually.

39

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Also
in fiscal 2003, we received approximately $5.0 million from the exercise of stock options.
Most of the stock option exercises occurred as a result of a 10b5-1 stock trading plan
under which our chief executive officer exercised 1.0 million stock options before the
options expired at the end of fiscal 2003. The exercise price of the options and certain
tax withholding liabilities were paid through tendering almost half of the exercised
shares with a fair value of $3.6 million.

In
fiscal 2002, we entered into two term loans totaling $5.0 million with General Electric
Capital collateralized by equipment. As of June 27, 2004, we had approximately $1.8
million outstanding under these term loans. These loans bear interest at the 30-day
commercial paper rate, plus 3.75% and mature between December 2006 and February 2007. Also
in fiscal 2002, we received $1.8 million of proceeds from equipment capital lease
transactions.

In
fiscal 2004 and fiscal 2003, we elected to prepay $15.2 million and $5.2 million,
respectively, of our existing debt to reduce our annual interest costs. The funds to
prepay the debt came from excess cash, the $15.0 million issuance of convertible notes in
fiscal 2003 and borrowings under the new $25.0 million senior secured bank credit facility
obtained in fiscal 2004. Prepayment penalties and a write-off of unamortized deferred
financing fees totaling $587,000 and $290,000 were recorded in fiscal 2004 and fiscal
2003, respectively, as a result of prepaying the debt before its scheduled maturity.

In March 2004, we obtained a
three-year $25.0 million senior secured credit facility with a new lender, LaSalle Bank.
We used a portion of the facility to refinance certain of our existing debt and the
facility may also be used to support growth and general working capital needs and provide
up to $5.0 million for the issuance of letters of credit. The facility is secured by a
blanket lien on all personal assets and real property of the Company. Borrowings under the
facility will bear interest depending on a total funded debt to EBITDA ratio and will
range from prime to prime plus 50 basis points or, if elected by us, LIBOR plus 200 to 300
basis points. Total funded debt is defined as all indebtedness of the consolidated
entities, including senior and subordinated debt, capital lease obligations and contingent
liabilities. We paid an up-front fee of $188,000 and are required to pay an annual unused
commitment fee of 37.5 basis points to 50 basis points.

The
facility limits the opening of new company owned restaurants to a maximum of twenty-four
over a three-year period and also limits the amount of dividends and/or stock repurchases.
As of June 27, 2004, the Company had $2.5 million of outstanding borrowings under this
facility and had placed letters of credit of $1.3 million under the facility with $19.4
million available for additional borrowing.

Outstanding
borrowings under the facility may be converted to a five-year term loan if the ratio of
senior debt to EBITDA exceeds specified levels. The facility requires the Company to
maintain a minimum fixed charge coverage ratio and tangible net worth level and not exceed
thresholds for total funded debt to EBITDA and total senior debt to EBITDA ratios. EBITDA
is defined in the agreement as (the) Consolidated Entities net income for such
period, plus (a) without duplication the sum of (i) Interest Expense, (ii) federal and
state income taxes, (iii) depreciation and amortization expenses, (iv) start-up costs
associated with the opening of new restaurants, and (v) one-time prepayment fees
associated with payment in full of all Indebtedness of Borrower that is pre-paid at the
Closing Date with proceeds from the 3-Year Loan; minus (b) without duplication,
extraordinary gains, in each case as charged against (or added to, as the case may be)
revenues to arrive at net income for such period, all as determined in accordance with
GAAP.

40

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As
of June 27, 2004, we were in compliance with all debt covenants and financial ratios. This
facility has four financial ratios that measure our fixed charge coverage ratio,
borrowers total funded debt to EBITDA, total senior debt to EBITDA and minimum
tangible net worth.

At
June 27, 2004, we had a bank credit facility with First National Bank of Colorado under
which we could borrow up to $2.0 million to provide short-term working capital and to
support the issuance of letters of credit. As of June 27, 2004, we had no outstanding
borrowings but had placed letters of credit of $1.8 million under this working capital
facility. The Company has no intent to extend this facility past its January 2005
expiration in light of its new $25.0 million credit facility.

For
additional information regarding our material debt instruments, including our $15.0
million convertible subordinated notes and related warrants, $25.0 million senior secured
credit facility with LaSalle Bank, and our $2.0 million bank credit facility with First
National Bank of Colorado, please refer to the information provided under Note 7-
Long-term Debt, to the accompanying consolidated financial statements, which
information is incorporated by reference herein.

There
will be cash payments during the next twelve months associated with predecessor company
activities. Such cash payments will include settlements and on-going legal costs. We
expect the total cash payments for these liabilities to be approximately $1.0 million, but
the amounts could be higher depending on the final outcome of litigation. For additional
information regarding our commitments and contingencies, including our payments associated
with our predecessor company activities, please refer to the information provided under
Note 10  Commitments and Contingencies, to the accompanying consolidated
financial statements, which information is incorporated by reference herein. During fiscal
2004, 2003 and 2002, we expended approximately $0.8 million, $1.0 million and $1.4 million
related to the predecessor company matters.

We
believe our cash flow from operations, together with anticipated tenant improvement
allowances of approximately $4.8 million and funds available under our $25.0 million
credit facility ($19.4 million available at June 27, 2004) will be sufficient to fund our
operations, debt repayment and expansion at least through the end of fiscal 2005. However,
changes in our operating plans, acceleration of our expansion plans, lower than
anticipated sales, increased expenses or other events, including those described in
Item 1 Business-Risk Factors, may cause us to seek additional debt or equity
financing on an accelerated basis. Additional financing may not be available on acceptable
terms, or at all, and our failure to raise capital when needed could negatively impact our
growth plans and our financial condition and results of operations. Any additional equity
financing may be dilutive to the holders of our common stock and debt financing, if
available, may involve significant cash payment obligations and covenants and/or financial
ratios that restrict our ability to operate or grow our business.

41

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# Contractual obligations and commitments

Payments, including interest, due by period
as of June 27, 2004 (in 000's)

|Contractual Obligations                | Total | One yearand less | Two tothree years | Four tofive years | After fiveyears
|-------------------------------------- | ----- | ---------------- | ----------------- | ----------------- | ---------------
|Operating leases                       |       |                  | $                 | 227,540           |                
|Long-term debt                         |       |                  |                   | 22,514            |                
|Letters of credit                      |       |                  |                   | 2,092             |                
|Construction commitments               |       |                  |                   | 7,618             |                
|Build-to-suit construction commitments |       |                  |                   | 192               |                
|Licensing fees                         |       |                  |                   | 20,082            |                
|                                       |       |                  |                   |                   |                
|                                       |       |                  | $                 | 280,038           |                
|                                       |       |                  |                   |                   |                

We
are obligated under non-cancelable operating leases for our headquarters and all but one
of our restaurants. The fixed terms of the restaurant leases range up to 20 years and
generally contain multiple renewal options for various periods ranging from five to 20
years. The table, as presented above, includes only the non-cancelable portion of our
leases as we are only obligated for that term. Our restaurant leases also contain
provisions that require additional rent payments based on sales performance and the
payment of common area maintenance charges and real estate taxes. Amounts in this table do
not reflect any of these additional amounts.

Our
long-term debt is principally comprised of a $15.0 million issuance of 5.5% convertible
notes due December 2007. The Notes are convertible at the option of the holder at any time
prior to maturity into shares of Common Stock, at a conversion price of $10.66 per share,
subject to adjustment upon certain events. At any time on or after December 15, 2005, the
Company may redeem some or all of the Notes at par plus accrued and unpaid interest. All
of the Notes will be automatically converted, at the Companys option, into shares of
common stock at the then effective conversion price if the closing price of the common
stock exceeds 150% of the then effective conversion price for any 15 out of 20 consecutive
trading days at any time within three years after the first issuance date of the Notes. If
the automatic conversion date occurs prior to December 15, 2004, the Company will make an
additional cash payment with respect to the Notes in an amount equal to $110.00 per $1,000
principal amount of the Notes converted (representing 24 months of interest), less the
amount of interest actually paid on the Notes prior to the automatic conversion date.
There are no assurances that the convertible debt holders will convert their debt into
shares prior to December 2007, nor are there any assurances that the stock price will
rise, allowing the Company to automatically convert the debt. If the debt is not converted
it may be necessary for the Company to seek additional financings when this debt matures.
If the Company seeks additional financings there are no assurances that the Company will
be able to do so at that time, and the terms of the debt may not be as favorable as our
existing debt.

Additionally,
at June 27, 2004, we had term debt balances of $1.8 million and $2.5 million of loans
outstanding under our revolving credit facility. Our term debt and revolving credit
facility incur interest expense at variable rates based upon either, the prevailing prime
rate or the LIBOR rate plus a factor. At June 27, 2004, the term debt and revolving credit
facility were charged interest expense at an average rate of 5.0% and 3.7%, respectively.
We used these interest rates to calculate our future obligations for these debts. The rate
of interest charged for our variable rate obligations may change in the future. As a
result our future obligations related to our variable debt may increase or decrease from
those amounts presented above. The credit facility borrowings mature in March 2007.

42

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We
have letters of credit outstanding to guarantee performance under insurance contracts and
to secure other arrangements. The letters of credit are irrevocable and have one-year
renewable terms.

We
have commitments under contracts for the purchase of property and equipment and for the
construction of buildings under build-to-suit arrangements or otherwise. Portions of such
contracts not completed at June 27, 2004 as stated above were not reflected as assets or
liabilities in our consolidated financial statements.

We
are obligated to pay a licensing fee for the use of the Champs and
Champps service marks, trademarks and trade names. Although this agreement
runs in perpetuity, we have presented only 20 years of our obligation in the schedule
above. (See Trademarks in the Business section, Part 1, Item 1 of
this report)

# Impact of inflation

The
primary inflationary factors affecting our operations are food, alcoholic beverages and
labor costs. A large number of our restaurant associates are paid at rates based on the
applicable minimum wage, and increases in the minimum wage directly affect our labor
costs. Many of our leases require us to pay property taxes, maintenance, repairs,
insurance and utilities, all of which are generally subject to inflationary increases. We
believe inflation has not had a material impact on our results of operations in recent
years. We cannot predict whether inflation will have an impact on our results of
operations in the future.

# Seasonality

Our
sales fluctuate seasonally and therefore our quarterly results are not necessarily
indicative of results that may be achieved for the full fiscal year. For fiscal years 2004
and 2003, our relative sales were highest in our second quarter (October through
December), followed by our third quarter (January through March), then by our fourth
quarter (April through June). Our first quarter (July through September) recorded the
lowest relative sales for those years. Factors influencing sales variability in addition
to those noted above include the frequency and popularity of sporting events, holidays
(including which day of the week the holiday occurs) and weather.

# Item 7A. Quantitative
and Qualitative Market Risk Disclosures

We
are exposed to market risk primarily from changes in interest rates and changes in
commodity prices.

At
June 27, 2004, we were exposed to interest rate fluctuations on approximately $4.3 million
of notes payable and bank credit facility borrowings carrying variable interest rates. A
hypothetical one hundred basis point increase in interest rates for these notes payable
would increase our annual interest expense by approximately $43,000.

43

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We
have also been subject to interest rate market risk for short-term invested cash and cash
equivalents. The principal of such invested funds would not be subject to fluctuating
value because of their highly liquid short-term nature. As of June 27, 2004, we had no
such funds invested in short-term maturing investments.

Many
of the ingredients purchased for use in the products sold to our guests are subject to
unpredictable price volatility outside of our control. We try to manage this risk by
entering into selective short-term agreements for the products we use most extensively.
Also, we believe that our commodity cost risk is diversified as many of our food products
are available from several sources and we have the ability to modify product recipes or
vary our menu items offered. Historically, we have also been able to increase certain menu
prices in response to food commodity price increases and believe the opportunity may exist
in the future. To compensate for a hypothetical price increase of 10% for food and
beverages, we would need to increase prices charged to our guests by an average of
approximately 2.8%. We have not used financial instruments to hedge our commodity product
prices.

# Item 8. Financial
Statements and Supplementary Data.

The
information required under this Item 8 is set forth on pages F-1 through F-27 of this
Report.

# Item 9.  Changes in and
Disagreements with Accountants on Accounting and Financial Disclosure.

None.

# Item 9A. Controls and
Procedures.

We
maintain disclosure controls and procedures that are designed to ensure that information
required to be disclosed by us in the reports that we file or submit to the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods specified by the
Commissions rules and forms, and that information is accumulated and communicated to
our management, including our chief executive officer and our chief financial officer, as
appropriate to allow timely decisions regarding required disclosure. The effectiveness of
our disclosure controls and procedures is subject to certain limitations, including the
exercise of judgment in designing, implementing and evaluating the controls and
procedures, the assumptions used in identifying the likelihood of future events, and the
inability to eliminate errors or misconduct completely. As a result, there can be no
assurance that our disclosure controls and procedures will detect all errors or fraud. By
their nature, any system of internal control, including our system, can provide only
reasonable assurance regarding managements control objectives.

Under
the supervision and with the participation of our management, including our Chief
Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of the
design and operation of our disclosure controls and procedures (as defined in Rule
13a-15(e) under the Securities Exchange Act of 1934 (the Exchange Act)) as of
June 27, 2004, the end of the period covered by this report. Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls
and procedures were not effective as of June 27, 2004.

44

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Subsequent
to the period covered by this report, and following a January 2005 review of the
accounting adjustments cited in several recent Form 8-K filings by other restaurant
companies we determined that one of the adjustments in those filings relating to the
treatment of lease accounting and leasehold depreciation applied to us, and that it was
appropriate to adjust our previously filed financial statements. As a result, on January
26, 2005, the Audit Committee of our Board of Directors concluded that the financial
statements contained in the Companys prior filings with the Securities and Exchange
Commission, including the Companys 10-K for the period ending June 27, 2004, and
10-Q for the period ending October 3, 2004, could no longer be relied upon. The
Restatement is further discussed in the Explanatory Note in the forepart of
this Form 10-K/A, in Item 2, Restatement of Previously Issued Financial
Statements of this Form 10-K/A, and in Part IV, Exhibits, Financial Statement
Schedules, and Reports on Form 8-K.

Based
upon the aforementioned evaluation, the CEO and CFO each concluded that the related
ineffective controls over the selection, monitoring and review of assumptions and factors
affecting lease accounting represented a material weakness in internal control over
financial reporting as of June 27, 2004.

Remediation of material weakness

To
remediate the material weakness in the Companys internal control over financial
reporting the Company has implemented additional review procedures over the selection and
monitoring of appropriate assumptions and factors affecting lease accounting and leasehold
depreciation practices. No other material weaknesses have been identified as a result of
managements assessment.

Internal control over financial
reporting>

During
the quarter ended January 2, 2005, we effected a material change in our internal control
over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) to
remediate internal control deficiencies in our lease accounting policies and practices
that lead to the restatement noted above.

[THE REMAINDER OF THIS
PAGE WAS INTENTIONALLY LEFT BLANK]

45

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# PART III

# Item 10. Directors and
Executive Officers of the Registrant.

Part
of the information required by this Item is incorporated herein by reference to the
information from the section captioned Election of Directors contained in the
Proxy Statement for the Companys Annual Stockholders Meeting to be held on or
about December 1, 2004 and to be filed with the Securities and Exchange Commission within
120 days of June 27, 2004.

Our executive officers include the
following persons:

|Name                                                                                                                           | Age                                             | Positions                                                                                                                                                                                                                                                            
|------------------------------------------------------------------------------------------------------------------------------ | ----------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|William H. Baumhauer 
Donnie N. Lamb       
Frederick J. Dreibholz
                     
Donna L. Depoian     
David J. Miller | 56  
    51  
    49  
        
    44  
    53 | Chairman, President and Chief Executive Officer
    Senior Vice President, Chief Operating Officer
    Vice  President,  Treasurer  and  Chief  Financial
    Officer
    Vice President, Secretary and General Counsel
    Vice President of Construction and Design

All executive officers hold office at
the discretion of the board of directors.

William
H. Baumhauer. Mr. Baumhauer is our chairman of the board and has been an officer of
Champps since June 1999 and a director since August 1999. Mr. Baumhauer also held these
positions with our predecessors or us from September 1988 until July 24, 1998, when he
left the Company to serve as president and chief operating officer of Planet Hollywood
International, Inc., a position he held until his return to Champps in June 1999.

Donnie
N. Lamb. Mr. Lamb has served as our senior vice president and chief operating officer
since August 2002. Mr. Lamb started his employment with the Company in August 1996. He
served as a director of operations from August 1996 through August 1999 when he was
promoted to vice president  operations. Prior to August 1996, Mr. Lamb held
multi-unit management positions with Houlihans and Ruby Tuesday, Inc.

Frederick
J. Dreibholz. Mr. Dreibholz has served as our vice president, chief financial officer
and treasurer since October 1999. From November 1998 to October 1999, Mr. Dreibholz acted
as a consultant to numerous restaurant and food service clients in South Florida and New
York City. From April 1998 to November 1998, he served as chief financial officer of
Unique Restaurant Concepts, Inc. and Sforza Enterprises, Inc. From November 1987 to April
1998, he served as chief financial officer of Flik International Corp.

Donna
L. Depoian. Ms. Depoian has served as our vice president, general counsel and
secretary since May 1998. From February 1998 to May 1998, Ms. Depoian served as our acting
general counsel and assistant secretary and from July 1997 to February 1998, as our
corporate counsel and assistant secretary. From April 1994 to July 1997, Ms. Depoian
served as corporate counsel and assistant secretary for DAKA International, Inc.

46

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David
J. Miller.Mr. Miller has served as our vice president of construction and design
since October 1999. He started with the Company in May 1996 and served in the capacities
of construction manager until October 1997 when he was promoted to corporate director of
construction.

# Item 11. Executive
Compensation.

The information
required by this Item is incorporated by reference to the section captioned
Executive Compensation contained in the Proxy Statement for the Companys
Annual Shareholders Meeting to be held on or about December 1, 2004 and to be filed
with the Securities and Exchange Commission within 120 days of June 27, 2004.

# Item 12. Security
Ownership of Certain Beneficial Owners and Management.

The
information required by this Item is incorporated by reference to the section captioned
Principal and Management Shareholders contained in the Proxy Statement for the
Companys Annual Shareholders Meeting to be held on or about December 1, 2004
and to be filed with the Securities and Exchange Commission within 120 days of June 27,
2004.

# Item 13. Certain
Relationships And Related Transactions.

The
information required by this Item is incorporated by reference from the sections captioned
Certain Relationships and Related Transactions contained in the Proxy
Statement for the Companys Annual Shareholders Meeting to be held on or about
December 1, 2004 and to be filed with the Securities and Exchange Commission within 120
days of June 27, 2004.

# Item 14. Independent
Registered Public Accountant and Fees.

The
information required by this Item is incorporated by reference from the section captioned
Audit and Other Fees contained in the Proxy Statement for the Companys
Annual Shareholders Meeting to be held on or about December 1, 2004 and to be filed
with the Securities and Exchange Commission within 120 days of June 27, 2004.

# PART IV

# Item 15. Exhibits,
Financial Statement Schedules and Reports on Form 8-K.

(a)    
          The following are being filed as part of this Annual Report on Form 10-K/A.

# 1. Financial Statements:

| |  | Report of
Independent Registered Public Accounting Firm
| |  | -------------------------------------------------------

| |  | Consolidated Balance
Sheets  As of June 27, 2004 (Restated) and June 29, 2003 (Restated)
| |  | -----------------------------------------------------------------------------------------

47

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| |  | Consolidated Statements
of Operations  Fiscal years ended June 27, 2004 (Restated), June 29, 2003 (Restated) and June 30, 2002 (Restated)
| |  | ------------------------------------------------------------------------------------------------------------------------------------------

| |  | Consolidated Statements
of Changes in Stockholders Equity and Comprehensive Income  Fiscal years
ended June 27, 2004 (Restated), June 29, 2003 (Restated) and June 30, 2002(Restated)
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Consolidated Statements
of Cash Flows  Fiscal years ended June 27, 2004 (Restated), June 29, 2003 (Restated) and June 30, 2002 (Restated)
| |  | ------------------------------------------------------------------------------------------------------------------------------------------

| |  | Notes to
Consolidated Financial Statements for the fiscal years ended June 27, 2004 (Restated), June 29, 2003 (Restated)
and June 30, 2002 (Restated).
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

# 2. Financial Statement
Schedules:

| | There
are no Financial Statement Schedules required to be filed. Information required by
Article 12 of Regulation S-X with respect to Valuation and Qualifying Accounts has been
included in the Notes to the Consolidated Financial Statements.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 3. Exhibits:

| | 2.1 |  | Agreement
and Plan of Merger, dated as of May 27, 1997, by and among Compass Interim, Inc. (Compass
Interim), Compass Holdings, Inc. (Purchaser), Compass Group PLC (Parent)
and DAKA International, Inc. (DAKA International), incorporated herein by
reference to the Companys Registration Statement on Form 10 filed June 3, 1997, as
amended.
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2.2 |  | Reorganization
Agreement dated as of May 27, 1997, by and among DAKA International, Daka, Inc. (Daka),
the Company, Parent and Compass Holdings, together with certain exhibits thereto,
incorporated herein by reference to the Companys Registration Statement on Form 10
filed June 3, 1997, as amended.
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2.3 |  | Agreement
and Plan of Merger among Champps Entertainment, Inc. (Champps), DAKA and CEI
Acquisition Corp., dated as of October 10, 1995, incorporated herein by reference to DAKAs
Registration Statement on Form S-4 (File No. 33-65425) (1996 DAKA Form S-4).
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2.4 |  | Series
D Convertible Preferred Stock and Warrant Purchase Agreement, dated as of January 12,
1996, by and among La Salsa Holding Co. and Casual Dining Ventures, Inc. Pursuant to Item
601(b)(2) of Regulation S-K, the Schedules to the Series D Convertible Preferred Stock
and Warrant Purchase Agreement are omitted. The Company hereby undertakes to furnish
supplementally a copy of any omitted Schedule to the Commission upon request.
Incorporated herein by reference to the Annual Report on Form 10-K of DAKA International
for the year ended June 29, 1996.
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2.5 |  | Certificate
of Ownership and Merger between Champps  Entertainment,  Inc. and Unique Casual
Restaurants,  Inc., dated July 26,          1999.
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------

48

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| | 3.1 |  | Amended
and Restated Certificate of Incorporation of the Company, incorporated herein by
reference to the Companys Registration Statement on Form 10 filed June 3, 1997, as
amended.
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3.2 |  | Amended
and Restated By-laws of the Company incorporated herein by reference to the Companys
Registration Statement on Form 10 filed June 3, 1997, as amended.
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3.3 |  | Certificate
of Designations, Preferences and Rights of a Series of Preferred Stock of the Company,
dated January 30, 1998, incorporated herein by reference to the Companys Current
Report on Form 8-K filed February 2, 1998.
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4.1 |  | Specimen
Stock Certificate for shares of the UCRI Common Stock, incorporated herein by reference
to the Companys Registration Statement on Form 10 filed June 3, 1997, as amended.
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4.2 |  | Form
of 5.5% Convertible Subordinated Note Due 2007, incorporated herein by reference to the
Companys Current Report on Form 8-K filed December 16, 2002.
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4.3 |  | Form
of Warrant to Purchase Common Stock, incorporated herein by reference to the Companys
Current Report on Form 8-K filed December 16, 2002.
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------

| | 4.4 |  | Registration
 Rights  Agreement dated as of December 12, 2002 by and between Champps  Entertainment,
 Inc., U.S. Bancorp Piper          Jaffray,  Inc. and the Buyers as defined  therein,
 incorporated  herein by reference to the Company's  Current Report on Form          8-K
filed December 16, 2002.
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.1 |  | Tax
Allocation Agreement dated as of May 27, 1997, by and among DAKA, the Company, and
Parent, incorporated herein by reference to the Companys Registration Statement on
Form 10 filed June 3, 1997, as amended.
| | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.2 |  | Post-Closing
Covenants Agreement, dated as of May 27, 1997, by and among DAKA, Daka, Inc., the
Company, Champps, Fuddruckers, Inc., Purchaser and Parent, incorporated herein by
reference to the Companys Registration Statement on Form 10 filed June 3, 1997, as
amended.
| | ---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.3 |  | Stock
Purchase Agreement, dated as of May 26, 1997, between DAKA, Parent, Purchaser, First
Chicago Equity Corporation, Cross Creek Partners I and the other holders of Series A
Preferred Stock of DAKA, incorporated herein by reference to the Companys
Registration Statement on Form 10 filed June 3, 1997, as amended.
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.4* |  | 1997
Stock Option and Incentive Plan, incorporated herein by reference to the Companys
Registration Statement on Form 10 filed June 3, 1997, as amended.
| | ----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.5* |  | 1997
Stock Purchase Plan, incorporated herein by reference to the Companys Registration
Statement on Form 10 filed June 3, 1997, as amended.
| | ----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------

| | 10.6* |  | Indemnification
Agreement, by and between the Company and directors and officers of DAKA, incorporated
herein by reference to the Companys Registration Statement on Form 10 filed June 3,
1997, as amended.
| | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

49

---



| | 10.7 |  | La
Salsa Holding Co. Warrant to Purchase Shares of Series D Convertible Preferred Stock,
dated as of January 12, 1996, issued to Casual Dining Ventures, Inc. by La Salsa Holding
Co. Incorporated herein by reference to the Annual Report on Form 10-K of DAKA
International for the year ended June 29, 1996.
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.8 |  | Stock
Purchase Agreement,  dated as of July 31, 1998, by and between King Cannon,  Inc. and
Unique Casual  Restaurants,  Inc.,          incorporated  herein by  reference to the
Annual  Report on Form 10-K of Unique  Casual  Restaurants,  Inc. for the year ended
         June 27, 1999.
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.9 |  | Loan
Agreement, dated April 21, 2000, by and between Champps Operating Corporation and Finova
Capital Corporation, incorporated herein by reference to the Annual Report on Form 10-K
of Champps Entertainment, Inc. for the year ended June 30, 2002.
| | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.10 |  | Securities
Purchase Agreement dated as of December 12, 2002 by and between Champps Entertainment,
Inc. and the Buyers as defined therein, incorporated herein by reference to the Companys
Current Report on Form 8-K filed December 16, 2002.
| | ----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.11 |  | First
Amendment to Multi-Site Agreement, dated January 8, 2003, by and between Champps
Entertainment Inc. and AEI Fund Management, Inc., incorporated herein by reference to the
Quarterly Report on Form 10-Q of Champps Entertainment, Inc. for the quarter ended
December 29, 2002.
| | ----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.12 |  | Master
Credit Facility Agreement, dated as of February 14, 2003, by and between Champps
Entertainment, Inc. and First National Bank of Colorado, incorporated herein by reference
to the Quarterly Report on Form 10-Q of Champps Entertainment, Inc. for the quarter ended
March 30, 2003.
| | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.13* |  | Amended
and Restated Employment Contract, dated as of May 22, 2003, by and between Champps
Entertainment, Inc. and William H. Baumhauer, incorporated herein by reference to the
Companys Current Report on Form 8-K dated May 28, 2003.
| | ------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.14* |  | 2003
Stock Option and Incentive Plan, incorporated herein by reference to the Companys
definitive proxy statement filed April 29, 2003.
| | ------ |  | ----------------------------------------------------------------------------------------------------------------------------------------

| | 10.15 |  | Amended
and Restated Agreement, dated as of May 22, 2003, by and between Champps
         Entertainment,  Inc. and Sysco  incorporated  herein by reference to the Annual
Report on Form 10-K of Champps  Entertainment,          Inc. for the year ended June 29,
2003.
| | ----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.16 |  | Credit
Agreement (Revolving Loan), by and between LaSalle Bank National Association as
Administrative Agent and as a Syndication Party and Champps Operating Corporation as
Borrower dated as of March 16, 2004 incorporated herein by reference to the Quarterly
Report on Form 10-Q of Champps Entertainment, Inc. for the quarter ended March 28, 2004.
| | ----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 21.1** |  | Subsidiaries
of the Company.
| | ------ |  | ----------------------------

| | 23.1** |  | Consent
of KPMG LLP.
| | ------ |  | --------------------

| | 31.1*** |  | Certification
by Michael P. O'Donnell pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
| | ------- |  | ------------------------------------------------------------------------------------------------

50

---



| | 31.2*** |  | Certification
by Frederick J. Dreibholz pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
| | ------- |  | --------------------------------------------------------------------------------------------------

| | 32.1*** |  | Certification
by Michael P. O'Donnell pursuant to Section 1350, Chapter 63 of Title 18, United States
Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
| | ------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 32.2*** |  | Certification
by Frederick J. Dreibholz pursuant to Section 1350, Chapter 63 of Title 18, United States
Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
| | ------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 99.1 |  | Champps
 Entertainment,  Inc. Policy Statements:  Code of Conduct and Ethics incorporated herein
by reference to the Quarterly          Report on Form 10-Q of Champps Entertainment, Inc.
for the quarter ended December 28, 2003.
| | ---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | * |  | Identifies each management contract
or compensatory plan or arrangement.
| | - |  | ------------------------------------------------------------------------

| | ** |  | Incorporated herein
by reference to the Annual Report on Form 10-K of Champps Entertainment, Inc. for the year ended June 27, 2004.
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------

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

(b)    Reports on Form 8-K

Current
reports on Form 8-K filed during the fourth quarter ended June 27, 2004:

| |  | Current report
on Form 8-K furnished pursuant to Item 12 (Results of Operations and Financial Condition)
on April 29, 2004 announcing results for its third quarter of fiscal 2004 ended March 28,
2004.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(c)     Financial Statement Schedules:

| |  | There are
no Financial Statement Schedules required to be filed. Information required by Article 12
of Regulation S-X with respect to Valuation and Qualifying Accounts has been included in
the Notes to the Consolidated Financial Statements.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Exhibit Index:

| | 2.1 |  | Agreement
and Plan of Merger,  dated as of May 27, 1997, by and among  Compass  Interim,  Inc.
 ("Compass  Interim"),  Compass          Holdings, Inc. ("Purchaser"),  Compass Group PLC
("Parent") and DAKA International, Inc. ("DAKA International"),  incorporated
         herein by reference to the Company's Registration Statement on Form 10 filed
June 3, 1997, as amended.
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2.2 |  | Reorganization
Agreement dated as of May 27, 1997, by and among DAKA International, Daka, Inc. (Daka),
the Company, Parent and Compass Holdings, together with certain exhibits thereto),
incorporated herein by reference to the Companys Registration Statement on Form 10
filed June 3, 1997, as amended.
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2.3 |  | Agreement
and Plan of Merger among Champps Entertainment, Inc. (Champps), DAKA and CEI
Acquisition Corp., dated as of October 10, 1995, incorporated herein by reference to DAKAs
Registration Statement on Form S-4 (File No. 33-65425) (1996 DAKA Form S-4).
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

51

---



| | 2.4 |  | Series
D Convertible Preferred Stock and Warrant Purchase Agreement, dated as of January 12,
1996, by and among La Salsa Holding Co. and Casual Dining Ventures, Inc. Pursuant to Item
601(b)(2) of Regulation S-K, the Schedules to the Series D Convertible Preferred Stock
and Warrant Purchase Agreement are omitted. The Company hereby undertakes to furnish
supplementally a copy of any omitted Schedule to the Commission upon request.
Incorporated herein by reference to the Annual Report on Form 10-K of DAKA International
for the year ended June 29, 1996.
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2.5 |  | Certificate
of Ownership and Merger between Champps  Entertainment,  Inc. and Unique Casual
Restaurants,  Inc., dated July 26, 1999.
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------

| | 3.1 |  | Amended
and Restated Certificate of Incorporation of the Company, incorporated herein by
reference to the Companys Registration Statement on Form 10 filed June 3, 1997, as
amended.
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3.2 |  | Amended
and Restated By-laws of the Company incorporated herein by reference to the Companys
Registration Statement on Form 10 filed June 3, 1997, as amended.
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3.3 |  | Certificate
of Designations, Preferences and Rights of a Series of Preferred Stock of the Company,
dated January 30, 1998, incorporated herein by reference to the Companys Current
Report on Form 8-K filed February 2, 1998.
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4.1 |  | Specimen
Stock Certificate for shares of the UCRI Common Stock, incorporated herein by reference
to the Companys Registration Statement on Form 10 filed June 3, 1997, as amended.
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4.2 |  | Form
of 5.5% Convertible Subordinated Note Due 2007, incorporated herein by reference to the
Companys Current Report on Form 8-K filed December 16, 2002.
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4.3 |  | Form
of Warrant to Purchase Common Stock, incorporated herein by reference to the Companys
Current Report on Form 8-K filed December 16, 2002.
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------

| | 4.4 |  | Registration
 Rights  Agreement dated as of December 12, 2002 by and between Champps  Entertainment,
 Inc., U.S. Bancorp Piper          Jaffray,  Inc. and the Buyers as defined  therein,
 incorporated  herein by reference to the Company's  Current Report on Form          8-K
filed December 16, 2002.
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.1 |  | Tax
Allocation Agreement dated as of May 27, 1997, by and among DAKA, the Company, and
Parent, incorporated herein by reference to the Companys Registration Statement on
Form 10 filed June 3, 1997, as amended.
| | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.2 |  | Post-Closing
Covenants Agreement, dated as of May 27, 1997, by and among DAKA, Daka, Inc., the
Company, Champps, Fuddruckers, Inc., Purchaser and Parent, incorporated herein by
reference to the Companys Registration Statement on Form 10 filed June 3, 1997, as
amended.
| | ---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.3 |  | Stock
Purchase Agreement, dated as of May 26, 1997, between DAKA, Parent, Purchaser, First
Chicago Equity Corporation, Cross Creek Partners I and the other holders of Series A
Preferred Stock of DAKA, incorporated herein by reference to the Companys
Registration Statement on Form 10 filed June 3, 1997, as amended.
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

52

---



| | 10.4 |  | 1997
Stock Option and Incentive Plan, incorporated herein by reference to the Companys
Registration Statement on Form 10 filed June 3, 1997, as amended.
| | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.5 |  | 1997
Stock Purchase Plan, incorporated herein by reference to the Companys Registration
Statement on Form 10 filed June 3, 1997, as amended.
| | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------

| | 10.6 |  | Indemnification
Agreement, by and between the Company and directors and officers of DAKA, incorporated
herein by reference to the Companys Registration Statement on Form 10 filed June 3,
1997, as amended.
| | ---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.7 |  | La
Salsa Holding Co. Warrant to Purchase Shares of Series D Convertible Preferred Stock,
dated as of January 12, 1996, issued to Casual Dining Ventures, Inc. by La Salsa Holding
Co. Incorporated herein by reference to the Annual Report on Form 10-K of DAKA
International for the year ended June 29, 1996.
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.8 |  | Stock
Purchase Agreement,  dated as of July 31, 1998, by and between King Cannon,  Inc. and
Unique Casual  Restaurants,  Inc.,          incorporated  herein by  reference to the
Annual  Report on Form 10-K of Unique  Casual  Restaurants,  Inc. for the year ended
         June 27, 1999.
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.9 |  | Loan
Agreement, dated April 21, 2000, by and between Champps Operating Corporation and Finova
Capital Corporation, incorporated herein by reference to the Annual Report on Form 10-K
of Champps Entertainment, Inc. for the year ended June 30, 2002.
| | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.10 |  | Securities
Purchase Agreement dated as of December 12, 2002 by and between Champps Entertainment,
Inc. and the Buyers as defined therein, incorporated herein by reference to the Companys
Current Report on Form 8-K filed December 16, 2002.
| | ----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.11 |  | First
Amendment to Multi-Site Agreement, dated January 8, 2003, by and between Champps
Entertainment Inc. and AEI Fund Management, Inc., incorporated herein by reference to the
Quarterly Report on Form 10-Q of Champps Entertainment, Inc. for the quarter ended
December 29, 2002.
| | ----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.12 |  | Master
Credit Facility Agreement, dated as of February 14, 2003, by and between Champps
Entertainment, Inc. and First National Bank of Colorado, incorporated herein by reference
to the Quarterly Report on Form 10-Q of Champps Entertainment, Inc. for the quarter ended
March 30, 2003.
| | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.13 |  | Amended
and Restated Employment Contract, dated as of May 22, 2003, by and between Champps
Entertainment, Inc. and William H. Baumhauer, incorporated herein by reference to the
Companys Current Report on Form 8-K dated May 28, 2003.
| | ----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.14 |  | 2003
Stock Option and Incentive Plan, incorporated herein by reference to the Companys
definitive proxy statement filed April 29, 2003.
| | ----- |  | ----------------------------------------------------------------------------------------------------------------------------------------

| | 10.15 |  | Amended
and Restated Agreement, dated as of May 22, 2003, by and between Champps
         Entertainment,  Inc. and Sysco  incorporated  herein by reference to the Annual
Report on Form 10-K of Champps  Entertainment,          Inc. for the year ended June 29,
2003.
| | ----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

53

---



| | 10.16 |  | Credit
Agreement (Revolving Loan), by and between LaSalle Bank National Association as
Administrative Agent and as a Syndication Party and Champps Operating Corporation as
Borrower dated as of March 16, 2004 incorporated herein by reference to the Quarterly
Report on Form 10-Q of Champps Entertainment, Inc. for the quarter ended March 28, 2004.
| | ----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 21.1 |  | Subsidiaries
of the Company.
| | ---- |  | ----------------------------

| | 23.1 |  | Consent
of KPMG LLP.
| | ---- |  | --------------------

| | 31.1 |  | Certification
by Michael P. O'Donnell pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
| | ---- |  | ------------------------------------------------------------------------------------------------

| | 31.2 |  | Certification
by Frederick J. Dreibholz pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
| | ---- |  | --------------------------------------------------------------------------------------------------

| | 32.1 |  | Certification
by Michael P. O'Donnell pursuant to Section 1350, Chapter 63 of Title 18, United States
Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
| | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 32.2 |  | Certification
by Frederick J. Dreibholz pursuant to Section 1350, Chapter 63 of Title 18, United States
Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
| | ---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 99.1 |  | Champps
 Entertainment,  Inc. Policy Statements:  Code of Conduct and Ethics incorporated herein
by reference to the Quarterly Report on Form 10-Q of Champps Entertainment, Inc.
for the quarter ended December 28, 2003.
| | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# SIGNATURES

Pursuant to the requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CHAMPPS ENTERTAINMENT,
INC.           (Registrant)

By: /s/ Frederick J. Dreibholz 
        Frederick J. Dreibholz
        Vice President, Chief Financial
        Officer and Treasurer
        (Principal Financial and Accounting Officer)

Date: May 5, 2005

54

---



# Report of Independent
Registered Public Accounting Firm

The Board of Directors
and ShareholdersChampps Entertainment, Inc.:

We have audited the accompanying
consolidated balance sheets of Champps Entertainment, Inc. (the Company) and
subsidiaries as of June 27, 2004 and June 29, 2003, and the related consolidated
statements of operations, changes in shareholders equity and comprehensive income,
and cash flows for each of the years in the three-year period ended June 27, 2004. These
consolidated financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these consolidated financial statements
based on our audits.

We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects, the
financial position of Champps Entertainment, Inc. and subsidiaries as of June 27, 2004 and
June 29, 2003, and the results of their operations and their cash flows for each of the
years in the three-year period ended June 27, 2004, in conformity with U.S. generally
accepted accounting principles.

As discussed in Note 2 of the
consolidated financial statements, the consolidated financial statements for all periods
presented have been restated.

/s/ KPMG LLP

Denver, Colorado

August 18, 2004, except as     to Note 2,
which is as of     February 11, 2005

F-1

---



CHAMPPS ENTERTAINMENT,
INC.CONSOLIDATED BALANCE SHEETSAs of June 27, 2004 and June 29, 2003(In thousands, except
share data)

|                                                                        | June 27,2004 | June 29,2003
|----------------------------------------------------------------------- | ------------ | ------------
|
|ASSETS                                                                  |              |             
|Current assets:                                                         |              |             
|Cash and cash equivalents (Note 1)                                      |              |             
|Restricted cash (Note 1)                                                |              |             
|Accounts receivable (Note 1)                                            |              |             
|Inventories (Note 1)                                                    |              |             
|Prepaid expenses and other current assets (Notes 1 and 3)               |              |             
|Deferred tax assets (Notes 1 and 9)                                     |              |             
|                                                                        |              |             
|Total current assets                                                    |              |             
|Property and equipment, net (Notes 1 and 4)                             |              |             
|Goodwill (Note 1)                                                       |              |             
|Deferred tax assets (Notes 1 and 9)                                     |              |             
|Other assets, net (Notes 1 and 5)                                       |              |             
|                                                                        |              |             
|Total assets                                                            |              |             
|                                                                        |              |             
|LIABILITIES AND SHAREHOLDERS' EQUITY                                    |              |             
|Current liabilities:                                                    |              |             
|Accounts payable                                                        |              |             
|Accrued expenses (Notes 6 and 10)                                       |              |             
|Current portion of capital lease obligations                            |              |             
|Current portion of long-term debt (Note 8)                              |              |             
|                                                                        |              |             
|Total current liabilities                                               |              |             
|Capital lease obligations, net of current portion                       |              |             
|Long-term debt, net of current portion (Note 8)                         |              |             
|Other long-term liabilities (Notes 6 and 10)                            |              |             
|                                                                        |              |             
|Total liabilities                                                       |              |             
|                                                                        |              |             
|Commitments and contingencies (Note 10)                                 |              |             
|Shareholders' equity (Notes 1, 11 and 12):                              |              |             
|Preferred stock ($.01 par value per share; authorized 5,000,000 shares; |              |             
|none issued)                                                            |              |             
|Common stock ($.01 par value per share; authorized 30,000,000           |              |             
|shares; 13,285,253 and 13,235,638 shares issued at June 27, 2004        |              |             
|and June 29, 2003, respectively)                                        |              |             
|Additional paid-in capital                                              |              |             
|Accumulated deficit                                                     |              |             
|Accumulated other comprehensive income                                  |              |             
|Treasury stock, at cost (471,588 shares)                                |              |             
|                                                                        |              |             
|Total shareholders' equity                                              |              |             
|                                                                        |              |             
|Total liabilities and shareholders' equity                              |              |             
|                                                                        |              |             

See accompanying
notes to consolidated financial statements.

F-2

---



CHAMPPS ENTERTAINMENT,
INC. CONSOLIDATED STATEMENTS OF OPERATIONS Fiscal Years Ended June 27, 2004, June 29, 2003 and June 30,
2002(In thousands, except per share data)

|                                                    | Fiscal Year Ended
|--------------------------------------------------- | -----------------
|
|
|Revenue:                                            |                  
|Sales (Note 1)                                      |                  
|Franchising and royalty, net (Note 1)               |                  
|                                                    |                  
|Total revenue                                       |                  
|                                                    |                  
|Costs and expenses:                                 |                  
|Cost of sales and operating expenses                |                  
|General and administrative expenses                 |                  
|Depreciation and amortization                       |                  
|Other (income) expense, net                         |                  
|                                                    |                  
|Income from operations                              |                  
|Other (income) expense:                             |                  
|Interest expense and income, net                    |                  
|Expenses related to predecessor companies (Note 10) |                  
|Debt extinguishment costs (Note 8)                  |                  
|                                                    |                  
|Income from continuing operations                   |                  
|Loss from discontinued operations,                  |                  
|net of tax of $83 (Note 10)                         |                  
|                                                    |                  
|Income before income taxes                          |                  
|Income tax expense (benefit) (Note 9)               |                  
|                                                    |                  
|Net income                                          |                  
|                                                    |                  
|Basic income (loss) per share (Note 11):            |                  
|Income before discontinued operations               |                  
|Loss from discontinued operations                   |                  
|                                                    |                  
|Net income                                          |                  
|                                                    |                  
|Diluted income (loss) per share (Note 11):          |                  
|Income before discontinued operations               |                  
|Loss from discontinued operations                   |                  
|                                                    |                  
|Net income                                          |                  
|                                                    |                  
|Basic weighted average shares outstanding           |                  
|                                                    |                  
|Diluted weighted average shares outstanding         |                  
|                                                    |                  

See accompanying
notes to consolidated financial statements.

F-3

---



CHAMPPS ENTERTAINMENT,
INC.CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY ANDCOMPREHENSIVE INCOME Fiscal
Years Ended June 27, 2004, June 29, 2003 and June 30, 2002(In thousands, except
share data)

|                                                     |  |  |  |            |  |  |      | 
|---------------------------------------------------- |  |  |  | ---------- |  |  | ---- | 
|
|
|
|Balance as of July 1, 2001    as perviously reported |  |  |  | 12,017,647 |  |  | $120 | 
|Restatement Adjustments                              |  |  |  |            |  |  |      | 
|                                                     |  |  |  |            |  |  |      | 
|Balance as of July 1, 2001    (as restated - Note 2) |  |  |  | 12,017,647 |  |  | 120  | 
|Net income                                           |  |  |  | -          |  |  | -    | 
|Common shares issued                                 |  | 
|(Note 11)                                            |  |  |  | 156,877    |  |  | 2    | 
|Income tax benefit of                                |  | 
|stock options exercised                              |  |  |  | -          |  |  | -    | 
|Non-cash stock                                       |  | 
|compensation                                         |  |  |  | -          |  |  | -    | 
|Interest on loan for exercise                        |  | 
|of stock options (Note 13)                           |  |  |  | -          |  |  | -    | 
|                                                     |  |  |  |            |  |  |      | 
|Balance as of  June 30, 2002 (Restated)              |  |  |  | 12,174,524 |  |  | 122  | 
|Net income                                           |  |  |  | -          |  |  | -    | 
|Common shares issued                                 |  | 
|(Note 11)                                            |  |  |  | 1,061,114  |  |  | 10   | 
|Income tax benefit of                                |  | 
|stock options exercised                              |  |  |  | -          |  |  | -    | 
|Fair value of common stock                           |  | 
|warrants issued (Note 10)                            |  |  |  | -          |  |  | -    | 
|Repurchase of common shares                          |  | 
|(Note 11)                                            |  |  |  | -          |  |  | -    | 
|Interest on loan for exercise                        |  | 
|of stock options (Note 13)                           |  |  |  | -          |  |  | -    | 
|Repayment of loan for                                |  | 
|exercise of stock options                            |  | 
|(Note 13)                                            |  |  |  | -          |  |  | -    | 
|                                                     |  |  |  |            |  |  |      | 
|Balance as of June 29, 2003 (Restated)               |  |  |  | 13,235,638 |  |  | 132  | 
|Net income                                           |  |  |  | -          |  |  | -    | 
|Unrealized gains on equity                           |  | 
|securities, net of tax                               |  | 
|of $55                                               |  |  |  | -          |  |  | -    | 
|                                                     |  |  |  |            |  |  |      | 
|Total comprehensive income                           |  |  |  |            |  |  |      | 
|Common shares issued (Note 11)                       |  |  |  | 49,615     |  |  | 1    | 
|Income tax benefit of                                |  | 
|stock options exercised                              |  |  |  | -          |  |  | -    | 
|Interest on loan for exercise                        |  | 
|of stock options (Note 13)                           |  |  |  | -          |  |  | -    | 
|Repayment of loan for                                |  | 
|exercise of stock options                            |  | 
|(Note 13)                                            |  |  |  | -          |  |  | -    | 
|                                                     |  |  |  |            |  |  |      | 
|Balance as of June 27, 2004 (Restated)               |  |  |  | 13,285,253 |  |  | $133 | 
|                                                     |  |  |  |            |  |  |      | 

See accompanying
notes to consolidated financial statements.

F-4

---



CHAMPPS ENTERTAINMENT,
INC.CONSOLIDATED STATEMENTS OF CASH FLOWSFiscal Years Ended June 27, 2004, June 29, 2003 and June 30,
2002(In thousands)

|                                                              | June 27,2004 | June 29,2003 | June 30,2002
|------------------------------------------------------------- | ------------ | ------------ | ------------
|
|Cash flows from operating activities:                         |              |              |             
|Net income                                                    |              |              | $           
|Adjustments to reconcile net income to net cash provided by   |              |             
|operating activities:                                         |              |             
|Depreciation and amortization Notes 1,3 and 4)                |              |              |             
|Amortization of notes payable discount                        |              |              |             
|Loss on disposal of assets                                    |              |              |             
|Non-cash compensation (Note 11)                               |              |              |             
|Income tax benefit of stock options exercised                 |              |              |             
|Interest on loan for exercise of stock options (Note 13)      |              |              |             
|Deferred income taxes (Note 8)                                |              |              |             
|Changes in assets and liabilities:                            |              |             
|Accounts receivable (Note 1)                                  |              |              |             
|Inventories (Note 1)                                          |              |              |             
|Prepaid expenses and other current assets (Notes 1 and 2)     |              |              |             
|Accounts payable                                              |              |              |             
|Accrued expenses (Note 5)                                     |              |              |             
|Other assets (Notes 1 and 4)                                  |              |              |             
|Other long-term liabilities (Note 5)                          |              |              |             
|Proceeds from tenant improvement allowances                   |              |              |             
|                                                              |              |              |             
|Net cash provided by operating activities                     |              |              |             
|                                                              |              |              |             
|Cash flows from investing activities:                         |              |             
|Purchase of property and equipment                            |              |              |             
|Proceeds from disposal of assets                              |              |              |             
|Change in restricted cash                                     |              |              |             
|Repayment of loan for exercise of stock options               |              |              |             
|                                                              |              |              |             
|Net cash used in investing activities                         |              |              |             
|                                                              |              |              |             
|Cash flows from financing activities:                         |              |             
|Proceeds from issuance of common stock (Note 11)              |              |              |             
|Proceeds from issuance of convertible subordinated notes      |              |             
|and common stock warrants (Notes 7 and 10)                    |              |              |             
|Issuance costs for subordinated convertible notes and common  |              |             
|stock warrants (Notes 7 and 10)                               |              |              |             
|Repurchase of common stock (Note 11)                          |              |              |             
|Repayment of long-term debt and capitalized lease obligations |              |              |             
|Proceeds from long-term debt (Note 7)                         |              |              |             
|Proceeds from capital lease transactions                      |              |              |             
|                                                              |              |              |             
|Net cash provided by (used in) financing activities           |              |              |             
|                                                              |              |              |             
|Net change in cash and cash equivalents                       |              |              |             
|Cash and cash equivalents, beginning of period                |              |              |             
|                                                              |              |              |             
|Cash and cash equivalents, end of period (Note 1)             |              |              | $           
|                                                              |              |              |             

|Supplemental disclosures of cash flow information: |  |  |   |       |  |   |       |  |   |       | 
|-------------------------------------------------- |  |  | - | ----- |  | - | ----- |  | - | ----- | 
|Cash paid during the period for:                   |  | 
|Interest, net of amount capitalized                |  |  | $ | 1,851 |  | $ | 1,441 |  | $ | 1,613 | 
|Income taxes, net of refunds                       |  |  |   | 467   |  |   | 541   |  |   | 175   | 

See
accompanying notes to consolidated financial statements.

F-5

---



# CHAMPPS ENTERTAINMENT,
INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFiscal Years Ended
June 27, 2004, June 29, 2003 and June 30, 2002

# 1. Summary of
Significant Accounting Policies

Background

Champps
Entertainment, Inc. (the Company), is a Delaware corporation formed on May 27,
1997 in connection with the spin-off of DAKA International, Inc. (DAKA
International). At June 27, 2004, the Company operated one business segment. The
Companys principal business activity is to own, operate and franchise Champps casual
dining restaurants that serve customers in upscale restaurant settings in 22 states
throughout the United States with larger concentrations of restaurants in the upper
Midwest, mid-Atlantic and Texas.

Basis of Presentation

The
accompanying consolidated financial statements include the accounts of the Champps
Entertainment, Inc. and its consolidated subsidiaries. Significant intercompany balances
and transactions have been eliminated in consolidation.

Fiscal Year

The
Companys fiscal year ends on the Sunday closest to June 30th. For purposes of these
consolidated financial statements, the fiscal years ended June 27, 2004, June 29, 2003 and
June 30, 2002, are referred to as fiscal 2004, 2003, and 2002, respectively. Fiscal 2004,
2003 and 2002 each consisted of 52 weeks. The Companys upcoming fiscal 2005 will
consist of 53 weeks.

Significant Estimates

In
the process of preparing its consolidated financial statements in accordance with
accounting principles generally accepted in the United States of America, the Company
estimates the carrying value of certain assets and liabilities that are subjective in
nature. The primary estimates included in the Companys consolidated financial
statements include the useful lives and recoverability of property and equipment, the
recoverability of goodwill, the valuation allowance for deferred tax assets, accruals for
the self insured risk relating to workers compensation and general liability,
accruals for loss contingencies and accruals relating to representations and warranties
provided in connection with the spin-off of DAKA International, Inc. in 1997 and the
Fuddruckers sale in 1998. Actual results could differ from those estimates.

Cash and Cash Equivalents
and Restricted Cash

Cash
and cash equivalents consist of cash and highly liquid investments with maturities of
three months or less at the date of purchase. Cash and cash equivalents are carried at
cost, which approximates fair value due to their short-term maturities. The Company placed
certificates of deposit to serve as cash collateral for stand-by letters of credit in the
amount of $101,000 and $741,000 at June 27, 2004 and June 29, 2003, respectively. Such
collateral commitments expire within the twelve-month period after the balance sheet dates
presented and accordingly, have been classified as current assets in the accompanying
consolidated balance sheets.

F-6

---



Accounts Receivable

Accounts
receivable consist largely of credit card receivables representing three to four
days credit card sales that have not, at the balance sheet date, been processed by
the credit card processor and remitted to the Company. Accounts receivable also includes
amounts due from the Companys franchisees for the payment of franchise royalty fees
that are paid monthly in arrears and other receivables that may arise in the ordinary
course of business. The Companys allowance for uncollectible accounts receivable and
related bad debt expense are not significant.

Concentration of Credit
Risk

Financial
instruments that potentially subject the Company to a concentration of credit risk are
cash and cash equivalents, restricted cash and accounts receivable. The Company maintains
its day-to-day operating cash, temporary excess cash and restricted cash balances with two
major financial institutions that, in turn, invest in investment-grade commercial paper
and other corporate obligations, certificates of deposit, government obligations and other
investments and marketable securities. At most times, cash balances are in excess of
Federal Deposit Insurance Corporation (FDIC) insurance limits. The Company considers the
concentration of credit risk for accounts receivable to be minimal as a result of the
short-term nature of credit card receivables, the credit worthiness of the credit card
processor and payment histories of the Companys franchisees.

Inventories

Inventories
are stated at the lower of cost, principally determined using the first-in, first-out
method, or market value. Inventories include the initial cost of smallwares. Subsequent
purchases of smallwares are charged to expense when purchased. Approximately 80% of the
Companys food products and supplies are purchased under a distribution contract with
Sysco Corporation. Management believes that it could obtain its food products and supplies
from alternative sources under terms that are similar to those received currently.

The components of inventories were as
follows (in 000s):

|                         | June 27,2004 | June 29,2003
|------------------------ | ------------ | ------------
|Food and liquor products |              |             
|Smallwares               |              |             
|Supplies                 |              |             
|                         |              |             
|Total inventory          |              |             
|                         |              |             

Prepaid Expenses and
Other Current Assets

The
Company has cash outlays in advance of expense recognition for items such as rent,
insurance, interest, financing fees, income taxes and service contracts. All amounts
identified as prepaid expenses and other current assets will be utilized during the
twelve-month period after the balance sheet dates presented and accordingly, have been
classified as current assets in the accompanying consolidated balance sheets.

F-7

---



Capitalized Construction
Costs

The
Company capitalizes as part of its new restaurant construction certain directly related
pre-construction development and site acquisition costs primarily consisting of broker and
site investigation costs. Additionally, direct external construction management oversight
and insurance builders risk costs are capitalized as part of the projects.

The
Company also capitalizes interest as part of its new restaurant construction. Interest
capitalized is based upon the weighted-average of accumulated expenditures. The interest
capitalization period commences when expenditures are made to prepare an asset for its
intended use and interest costs are incurred. The interest capitalization period ends when
the restaurant opens or when the asset is substantially complete and ready for service.
The Company utilizes an interest rate based upon the weighted average of the rates
applicable to other borrowings of the enterprise during the assets construction
period, unless the interest expense is directly related to the construction project. If
interest expenses are not incurred during the construction periods, no interest
capitalization is recorded.

The
Company accumulates its costs in its construction-in-progress account until the restaurant
opens. At that time, the costs accumulated to date are reclassified to property, plant and
equipment and are depreciated over their useful lives.

Renovations, Improvements
and Repairs and Maintenance

As
is typical in the restaurant industry, the Company renovates, remodels or improves its
restaurants (all or a portion depending on need), replaces aged equipment and periodically
upgrades equipment to more current technology. Each of these expenditures provides a
future economic benefit and is capitalized accordingly. While the Company believes its
useful lives used for depreciation purposes are representative of the assets actual
useful lives, the Company has an asset retirement policy and any assets that are replaced
are retired. In fiscal years 2004, 2003 and 2002, the Company capitalized $2.2 million,
$2.4 million and $2.8 million, respectively, related to renovations, remodels and
improvements to existing restaurants. The Company currently has a capitalization threshold
of $1,500 and any costs for singular items below this threshold are expensed.

The
Company routinely has repairs and maintenance to its facilities and equipment. In fiscal
years 2004, 2003 and 2002, the Company recorded repair and maintenance expense of $3.7
million, $3.4 million and $2.8 million, respectively. These repairs and maintenance costs
generally relate to repairs to existing equipment, fixtures or facilities (e.g.
electrical, plumbing, refrigeration, air conditioning, heating, painting, tile work, roof
repairs and wood repairs).

Property and Equipment

Property
and equipment are stated at cost. Property and equipment under capital leases are stated
at the present value of minimum lease payments. Property and equipment are depreciated
using the straight-line method over the estimated useful lives of the assets. Leasehold
improvements and assets capitalized pursuant to capital lease obligations are amortized
over the shorter of their lease term, contract term or the assets estimated useful
life. Useful lives range from 15 to 27 years for buildings 3 to 27 years for leasehold
improvements, 5 to 7 years for restaurant equipment, 3 years for software and 5 years for
computers and audio-visual equipment.

F-8

---



Other Assets

Other
assets predominantly consist of deposits related to long-term leases and utilities,
deferred financing fees and liquor licenses. Deferred financing fees are amortized to
interest expense over the life of the related loan. Liquor licenses are amortized using
the straight-line method over a similar term of the related restaurant lease that we use
to depreciate our assets and use to calculate straight-line deferred rent.

Impairment or Disposal of
Long-Lived Assets and Goodwill

The
Company evaluates the carrying value of long-lived assets including property, equipment
and related identifiable intangible assets in accordance with Statement of Financial
Accounting Standards (SFAS) No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. Under SFAS No. 144, an assessment is made to
determine if the sum of the expected future undiscounted cash flows from the use of the
assets and eventual disposition is less than the carrying value. If the sum of the
expected undiscounted cash flows is less than the carrying value, an impairment loss is
recognized based on fair value. The Company evaluates each individual restaurant for
impairment. Each restaurant has cash flows that are largely independent and its assets and
liabilities are largely independent from other assets and liabilities. In addition, the
Company evaluates each individual restaurant for impairment after it has been open six
full quarters as the initial two quarters of operations are generally characterized by
operating inefficiencies associated with start-up operations. Impairment testing is
completed whenever events or changes in circumstances indicate that the assets
carrying amount may not be recoverable. The Company considers four consecutive quarters of
negative cash flow or losses to be a potential for an individual restaurant to be impaired
and utilizes a present value technique in determining fair value. The present value
technique used utilizes a single set of estimated cash flows and a single interest rate
that is commensurate with the risk of the operation.

The
Company evaluates impairment of goodwill and other unidentifiable intangible assets in
accordance with SFAS No. 142 Goodwill and Other Intangible Assets. Under the
provisions of SFAS No. 142, the Company is required to assess goodwill impairment at least
annually by means of a fair value-based test. The determination of fair value requires the
Company to make certain assumptions and estimates related to the two restaurants for which
its goodwill relates and is highly subjective.

Loss Contingencies and
Self-Insurance Reserves

The
Company maintains accrued liabilities and reserves relating to the resolution of certain
contingent obligations and reserves for self-insurance. Significant contingencies include
those related to litigation and state tax assessments. Contingent obligations are
accounted for in accordance with SFAS No. 5, Accounting for Contingencies,
which requires that the Company assess each contingency to determine estimates of the
degree of probability and range of possible settlement. Those contingencies that are
deemed to be probable and where the amount of such settlement is reasonably estimable are
accrued in the Companys financial statements. If only a range of loss can be
determined, the best estimate within that range is accrued; if none of the estimates
within that range is better than another, the low end of the range is accrued. Reserves
for self-insurance are determined based on the insurance companies incurred loss
estimates, industry development factors and managements judgment.

F-9

---



The
assessment of contingencies is a highly subjective process that requires judgments about
future events. Contingencies are reviewed at least quarterly to determine the adequacy of
the accruals and related financial statement disclosure. The ultimate settlement of
contingencies may differ materially from amounts accrued in the financial statements.

Leases

The
Company leases most of its properties including its corporate office. Leases are accounted
for under the provisions of SFAS No. 13 and SFAS No. 98, both entitled Accounting
for Leases, as well as other subsequent amendments and authoritative literature. The
Company uses the same lease term for all of the following: determining capital versus
operating lease classifications, calculating straight-line rent expense, amortization of
leasehold improvements and amortization of tenant improvement allowances. The lease term
is a minimum of the non-cancelable period but may include option periods if the Company
would incur an economic penalty associated with the cancellation of the lease.

The
Company periodically enters into sale/leaseback transactions with unrelated third parties
in connection with the construction of new restaurants. Such transactions qualify as sales
under SFAS No. 66, Sales of Real Estate because they include a normal
leaseback, adequate initial and continuing investment by the buyer/lessor and the transfer
of all risks and rewards of ownership to the buyer/lessor. The Company has not incurred
gains or losses in connection with its sale/leaseback transactions.

Deferred Rent Liabilities

For
leases that contain rent escalations, the Company records the total rent payable during
the lease term on a straight-line basis over the term of the lease and records the
difference between the rent paid and the straight-line rent as a deferred rent liability.
The Company also includes future rent increases where the future increases include
escalation clauses based on the lesser of a specified percentage increase of the change in
an index that includes a leverage factor. These future estimated rent expenses are used to
calculate straight-line rent expense. In addition, lease incentive payments (tenant
improvement allowances) received from landlords are recorded as deferred rent
liabilities and are amortized on a straight-line basis over the lease term as a reduction
of rent expense. The lease term used to calculate straight-line deferred rent and lease
incentive amortization is a minimum of the non-cancelable period but may include option
periods if the Company would incur an economic penalty associated with the cancellation of
the lease.

Revenue Recognition

Revenue
from restaurant sales is recognized when food and beverage products are sold. Revenues
from our gift cards are recognized upon redemption. Until redemption of the gift cards,
outstanding balances on such cards are included in other accrued expenses on
our accompanying consolidated balance sheets.

F-10

---



Franchising and Royalty
Income

Royalty
revenues from franchised restaurants are recognized as revenues when earned in accordance
with the respective franchise agreement. The Company recognized royalty revenues of
$579,000, $616,000 and $648,000 during 2004, 2003 and 2002, respectively.

Franchise
fees for new franchises are recognized as revenue when substantially all commitments and
obligations have been fulfilled, which is generally upon commencement of operations by the
franchisee. No franchise fees for new franchises were recognized in fiscal 2004, 2003 or
2002.

Advertising Costs

Advertising
costs are expensed as incurred. Advertising expenses were $4.7 million, $4.1 million and
$3.5 million in fiscal 2004, 2003 and 2002, respectively.

Pre-opening Expense

Pre-opening
costs are expensed as incurred and include the direct and incremental costs incurred in
connection with the commencement of each restaurants operations. Pre-opening costs
are principally comprised of training-related costs. Pre-opening expenses were $1.9
million, $3.1 million and $2.6 million in fiscal 2004, 2003 and 2002, respectively.

Income Taxes

Income
taxes are accounted for under the asset and liability method. The Company recognizes
deferred tax assets and liabilities for the future tax consequences attributable to
differences between the carrying value for financial reporting purposes and the tax basis
of assets and liabilities. Deferred tax assets and liabilities are recorded using the
enacted tax rates expected to apply to taxable income in the years in which such
differences are expected to be recovered or settled. The effect on deferred tax assets and
liabilities resulting from a change in tax rates is recognized as a component of income
tax expense (benefit) in the period that such change occurs. Net operating loss and other
credit carryforwards, including FICA tip tax credits and targeted jobs tax credits, are
recorded as deferred tax assets. A valuation allowance would be recorded for the tax
benefit of the deferred tax assets not expected to be utilized.

Accounting for
Stock-Based Compensation

The
Company maintains stock option plans under which the company may grant incentive stock
options and non-qualified stock options to associates, consultants and non-employee
directors. Stock options have been granted with exercise prices at or above the fair
market value on the date of grant. Options vest and expire according to the terms
established at the grant date.

The
Company maintains an Employee Stock Purchase Plan (The Purchase Plan) under
which the employees of the Company may purchase stock at a discount. The plan requires our
employees to make a contribution commitment prior to the start of a quarter and allows the
employee to purchase stock at the lower of the closing price at the beginning of the
quarter or the end of the quarter less a percentage discount.

F-11

---



SFAS
No. 123, Accounting for Stock-Based Compensation, encourages, but does not
require, companies to record compensation cost for stock-based employee compensation plans
based on the fair market value of options granted. The Company has chosen to continue to
account for stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations. Accordingly, because the grant
price is equal to or is above the market price on the date of grant for options issued by
the Company, no compensation expense is generally recognized for stock options initially
issued to employees.

On
December 31, 2002, The Financial Accounting Standards Board (FASB) issued SFAS
No. 148, Accounting for Stock Based Compensation  Transition and
Disclosure, which amends SFAS No. 123. SFAS No. 148 requires more prominent and
frequent disclosures about the effects of stock-based compensation. The Company intends to
continue to account for its stock-based compensation according to the provisions of APB
Opinion No. 25 until more definitive pronouncements are issued requiring companies to
record compensation costs upon the issuance of options.

Had
compensation cost for the Companys stock options and employee stock purchase plan
been recognized based upon the estimated fair value on the grant date under the fair value
methodology prescribed by SFAS No. 123, as amended by SFAS No. 148, the Companys net
earnings and earnings per share would have been as follows (in 000s except earnings
per share data:

|                                           | June 27,2004 | June 29,2003 | June 30,2002
|------------------------------------------ | ------------ | ------------ | ------------
|Net earnings, as reported and restated     |              |              | $           
|Add: Stock-based employee compensation     |              |             
|expense included in net income, net of     |              |             
|related tax effects                        |              |              |             
|Deduct: Total stock-based employee         |              |             
|compensation expense determined under fair |              |             
|value based method for all awards, net of  |              |             
|related tax effects                        |              |              |             
|                                           |              |              |             
|Pro forma net income                       |              |              | $           
|                                           |              |              |             
|Earnings per share:                        |              |             
|Basic - as reported                        |              |              | $           
|Basic - pro forma                          |              |              |             
|Diluted - as reported                      |              |              | $           
|Diluted - pro forma                        |              |              |             

The
fair value of each stock option granted in 2004, 2003 and 2002 under the Companys
stock option plans was estimated on the date of grant using the Black-Scholes
option-pricing model. The fair value of the stock purchased through the ESPP was estimated
based upon the actual discount extended plus the value of the options associated with the
shares during the quarter.

F-12

---



The following key assumptions were
used to value the option grants issued and the ESPP stock purchased for each year :

| | Weighted AverageRisk Free Rate | Average ExpectedLife | Volatility | Dividend Yield
| | ------------------------------ | -------------------- | ---------- | --------------
| | 2002                           |                      |            | 3.25          
| | 2003                           |                      |            | 1.40          
| | 2004                           |                      |            | 2.06          

Comprehensive Income

Comprehensive
income consists of two components, net income and other comprehensive income. Other
comprehensive income refers to revenue, expenses, gains and losses that under generally
accepted accounting principles are recorded as an element of shareholders equity but
are excluded from net income. The Companys other comprehensive income in 2004 was
comprised of unrealized investment gains on available for sale securities.

# 2. Restatement of
Previously Issued Financial Statements

We have
determined that we had incorrectly calculated our straight-line rent expense, our related
deferred rent liability and our depreciation expense and have modified our computation to
correct this issue. As a result, we have restated our financial statements for periods
prior to fiscal 2004.

The
issue requiring restatement relates to our historical accounting practice of using the
initial non-cancelable lease term when determining whether each of our leases was an
operating lease or a capital lease and when calculating straight-line rent expense. In
accordance with this policy, we had depreciated our leasehold improvements over a period
that included both the initial non-cancelable term of the lease and our option periods but
not longer than the useful life of the asset, if shorter. In addition, the Company
previously did not include increases when calculating rent expense for leases where the
increases in rent include escalation clauses based on the lesser of a specified percentage
increase of the change in the index that includes a leverage factor.

We
have adjusted our financial statements to reflect the same lease term for depreciating
leasehold improvements as we use in determining capital versus operating lease
classifications and in calculating straight-line rent expense. We have also increased
straight line rent on certain leases where the future increases include escalation clauses
based on the lesser of a specified percentage increase or the change in an index that
includes a leverage factor.

We have determined that the
cumulative effect of the restatement on our previously issued financial statements through
the fiscal 2004 ended June 27, 2004 results in an increase in the deferred rent liability
and rent expense of approximately $5.8 million, an increase in accumulated depreciation
and depreciation expense of approximately $200,000, a decrease in income tax expense by
approximately $2.5 million, and a decrease in retained earnings of approximately $3.5
million.

F-13

---



The
financial impact of the adjustments described above for the periods presented is as
follows:

|                        | Cumulative impact toperiods priorto fiscal 2001 | Impact tofiscal2002 | Impact to fiscal2003 | Impact tofiscal2004 | Total cumulative impact through fiscal 2004
|----------------------- | ----------------------------------------------- | ------------------- | -------------------- | ------------------- | -------------------------------------------
|Rent expense            |                                                 |                     |                      | 2,864               |                                            
|Depreciation expense    |                                                 |                     |                      | (48                 | )                                          
|                        |                                                 |                     |                      |                     |                                            
|Subtotal                |                                                 |                     |                      | 2,816               |                                            
|Tax expense             |                                                 |                     |                      | --                  |                                            
|                        |                                                 |                     |                      |                     |                                            
|Net increase/(decrease) |                                                 |                    
|in expenses             |                                                 |                     |                      | 2,816               |                                            
|                        |                                                 |                     |                      |                     |                                            

Consolidated Statements
of Cash Flows

Previously,
we accounted for the receipt of lease incentives as financing activities under the line
entitled proceeds from tenant improvement allowances. In our restated
financial statements for 2004 and prior periods, we have reclassified these receipts as
cash flows from operating activities.

[THE REMAINDER OF THIS PAGE WAS INTENTIONALLY LEFT BLANK]

F-14

---



The following tables present the
adjustments as a result of the restatement to the Consolidated Statements of Operations
for the fiscal years ended June 27, 2004 (fiscal 2004), June 29, 2003 (fiscal 2003) and
June 30, 2002 (fiscal 2002), Consolidated Balance Sheets as of June 27, 2004 and June 29,
2003 and abbreviated Consolidated Statements of Cash Flows for the fiscal years ended June
27, 2004, June 29, 2003 and June 30 2002:

|Fiscal 2004 - Fiscal year ended June 27, 2004
|---------------------------------------------
|
|Consolidated Statement of Operations         
|Revenue                                      
|Sales                                        
|Franchising and royalty, net                 
|                                             
|Total revenue                                
|                                             
|Costs and expenses                           
|Cost of sales and operating expenses         
|General and administrative expenses          
|Depreciation and amortization                
|Other (income) expense                       
|                                             
|Income from operations                       
|Other (income) expense:                      
|Interest expense and income, net             
|Expenses related to predecessor companies    
|Debt extinguishment costs                    
|                                             
|Income before income taxes                   
|Income tax expense                           
|                                             
|Net income                                   
|                                             
|Basic income per share                       
|                                             
|Diluted income per share                     
|                                             
|Statement of Cash Flows Data                 
|Net cash provided by operating activities    
|Net cash used in investing activities        
|Net cash provided by financing activities    

F-15

---



|Fiscal 2004 (continued)                       
|----------------------------------------------
|
|Consolidated Balance Sheet as of June 27, 2004
|ASSETS                                        
|Current assets:                               
|Cash and cash equivalents                     
|Restricted cash                               
|Accounts receivable                           
|Inventories                                   
|Prepaid expenses and other current assets     
|Deferred tax assets                           
|                                              
|Total current assets                          
|Property and equipment, net                   
|Goodwill                                      
|Deferred tax assets                           
|Other assets, net                             
|                                              
|Total assets                                  
|                                              
|LIABILITIES AND SHAREHOLDERS' EQUITY          
|Current liabilities:                          
|Accounts payable                              
|Accrued expenses                              
|Current portion of long-term debt             
|                                              
|Total current liabilities                     
|Long-term debt, net of current portion        
|Other long-term liabilities                   
|                                              
|Total liabilities                             
|Commitments and contingencies                 
|Shareholders' equity:                         
|Common stock                                  
|Additional paid-in capital                    
|Accumulated deficit                           
|Accumulated other comprehensive income        
|Treasury stock, at cost                       
|                                              
|Total shareholders' equity                    
|                                              
|Total liabilities and shareholders' equity    
|                                              

F-16

---



|Fiscal 2003 - Fiscal year ended June 29, 2003
|---------------------------------------------
|
|Consolidated Statement of Operations         
|Revenue                                      
|Sales                                        
|Franchising and royalty, net                 
|                                             
|Total revenue                                
|                                             
|Costs and expenses                           
|Cost of sales and operating expenses         
|General and administrative expenses          
|Depreciation and amortization                
|Other (income) expense                       
|                                             
|Income from operations                       
|Other (income) expense:                      
|Interest expense and income, net             
|Expenses related to predecessor companies    
|Debt extinguishment costs                    
|                                             
|Income before income taxes                   
|Income tax expense                           
|                                             
|Net income                                   
|                                             
|Basic income per share                       
|                                             
|Diluted income per share                     
|                                             
|Statement of Cash Flows Data                 
|Net cash provided by operating activities    
|Net cash used in investing activities        
|Net cash provided by financing activities    

F-17

---



|Fiscal 2003 (continued)                          
|-------------------------------------------------
|
|Consolidated Balance Sheet as of June 29, 2003   
|ASSETS                                           
|Current assets:                                  
|Cash and cash equivalents                        
|Restricted cash                                  
|Accounts receivable                              
|Inventories                                      
|Prepaid expenses and other current assets        
|Deferred tax assets                              
|Net assets held for sale                         
|                                                 
|Total current assets                             
|Property and equipment, net                      
|Goodwill                                         
|Deferred tax assets                              
|Other assets, net                                
|                                                 
|Total assets                                     
|                                                 
|LIABILITIES AND SHAREHOLDERS' EQUITY             
|Current liabilities:                             
|Accounts payable                                 
|Accrued expenses                                 
|Current portion of capital lease obligations     
|Current portion of long-term debt                
|                                                 
|Total current liabilities                        
|Capital lease obligations, net of current portion
|Long-term debt, net of current portion           
|Other long-term liabilities                      
|                                                 
|Total liabilities                                
|                                                 
|Commitments and contingencies                    
|Shareholders' equity:                            
|Common stock                                     
|Additional paid-in capital                       
|Accumulated deficit                              
|Accumulated other comprehensive income           
|Treasury stock, at cost                          
|                                                 
|Total shareholders' equity                       
|                                                 
|Total liabilities and shareholders' equity       
|                                                 

F-18

---



|Fiscal 2002 - Fiscal year ended June 30, 2002
|---------------------------------------------
|
|Consolidated Statement of Operations         
|Revenue                                      
|Sales                                        
|Franchising and royalty, net                 
|                                             
|Total revenue                                
|                                             
|Costs and expenses                           
|Cost of sales and operating expenses         
|General and administrative expenses          
|Depreciation and amortization                
|Other (income) expense                       
|                                             
|Income from operations                       
|Other (income) expense:                      
|Interest expense and income, net             
|Expenses related to predecessor companies    
|                                             
|Income from continuing operations            
|Loss from discontinued operations, net of tax
|                                             
|Income before income taxes                   
|Income tax expense                           
|                                             
|Net income                                   
|                                             
|Basic income (loss) per share:               
|Income before discontinued operations        
|Loss from discontinued operations            
|                                             
|Net income                                   
|                                             
|Diluted income (loss) per share:             
|Income before discontinued operations        
|Loss from discontinued operations            
|                                             
|Net income                                   
|                                             
|Statement of Cash Flows Data                 
|Net cash provided by operating activities    
|Net cash used in investing activities        
|Net cash provided by financing activities    

F-19

---



Reclassification included
with restatement

Expenses
related to the training of new restaurant managers and their travel and temporary housing
during their training periods have been reclassified from restaurant operating expenses to
general and administrative expenses. This reclassification was made to provide better
comparability with other restaurant companies. The following amounts have been
reclassified:

|                                                 | June 27,2004 | June 29,2003 | June 30,2002
|------------------------------------------------ | ------------ | ------------ | ------------
|Manager in training - labor expense              |              |              |             
|Manager in training - travel and housing expense |              |              |             
|                                                 |              |              |             
|Total amount reclassified                        |              |              |             
|                                                 |              |              |             

# 3. Prepaid Expenses and
Other Current Assets

The components of prepaid expenses
and other current assets were as follows (in 000s):

|                                                   | June 27,2004 | June 29,2003
|-------------------------------------------------- | ------------ | ------------
|Prepaid rents, real estate taxes and related costs |              |             
|Prepaid insurance                                  |              |             
|Prepaid licenses and permits                       |              |             
|Prepaid contracts and other                        |              |             
|Build-to-suit construction costs                   |              |             
|                                                   |              |             
|                                                   |              |             
|                                                   |              |             

The
build-to-suit construction costs relate to construction projects where the Company is
considered the owner. One such project was under development at June 29, 2003 while no
such projects were under development at June 27, 2004.

# 4. Property and Equipment

Property and equipment consisted of
the following (in 000s):

|                                          | June 27,2004 | June 29,2003
|----------------------------------------- | ------------ | ------------
|
|Land                                      |              |             
|Buildings & leasehold improvements        |              |             
|Software                                  |              |             
|Equipment                                 |              |             
|Equipment under capital lease             |              |             
|Construction in progress                  |              |             
|                                          |              |             
|                                          |              |             
|Accumulated depreciation and amortization |              |             
|                                          |              |             
|Total property and equipment              |              |             
|                                          |              |             
|                                          |              |             

F-20

---



In
fiscal 2004, the Company acquired certain equipment under capital lease. Accumulated
depreciation for equipment under capital lease totaled $1,921,000 at June 29, 2003.

General
and administrative expense on the consolidated statement of operations included $379,000,
$377,000 and $366,000 of depreciation and amortization expense for the years ended June
27, 2004, June 29, 2003 and June 30, 2002.

All
personal property and real property of the Company are secured by a blanket lien under the
Companys $25.0 million senior secured credit facility.

# 5. Other Assets, Net

The components of other assets were
as follows (in 000s):

|                              | June 27,2004 | June 29,2003
|----------------------------- | ------------ | ------------
|Deferred financing costs      |              |             
|Liquor licenses               |              |             
|Available for sale securities |              |             
|Long-term deposits            |              |             
|Other                         |              |             
|                              |              |             
|                              |              |             
|                              |              |             

The
available for sale securities are common stock investments held by the Company which are
reported at fair value, with unrealized gains, net of tax, reported as a separate
component of shareholders equity. The Company has a zero cost basis in these
securities. The securities were sold in July 2004 for $294,000.

Accumulated
amortization for other assets, net totaled $990,000 and $426,000 at June 27, 2004 and June
29, 2003, respectively.

# 6. Accrued Expenses and
Other Long-Term Liabilities

The components of accrued expenses
were as follows (in 000s):

|                                                           | June 27,2004 | June 29,2003
|---------------------------------------------------------- | ------------ | ------------
|Salaries, wages and related taxes                          |              |             
|Accrued taxes, predominantly sales and estimated property  |              |             
|Build-to-suit construction liability                       |              |             
|Accrued insurance                                          |              |             
|Predecessor obligations (sales taxes, legal and insurance) |              |             
|Other                                                      |              |             
|                                                           |              |             
|                                                           |              |             
|                                                           |              |             

F-21

---



The components of other long-term
liabilities were as follows (in 000s):

|                                                           | June 27,2004 | June 29,2003
|---------------------------------------------------------- | ------------ | ------------
|
|Tenant improvement allowances                              |              |             
|Deferred rents                                             |              |             
|Predecessor obligations (sales taxes, legal and insurance) |              |             
|Other                                                      |              |             
|                                                           |              |             
|                                                           |              |             
|                                                           |              |             

Tenant
improvement allowances are reimbursements received from certain landlords for initial
construction costs and are amortized on a straight-line basis over the lease term as a
reduction in rent. The tenant improvement allowances are recorded when the Company has
completed its obligations and the tenant improvement allowance is receivable. Tenant
improvement allowances of $4.1 million were received for new restaurants during the
current fiscal year.

Deferred
rents represent the cumulative difference between actual rent paid and rent expensed on a
straight-line basis.

# 7. Leases

The
Company has entered into lease agreements for certain restaurant facilities and office
space. The fixed terms of the leases range up to 20 years and, in general, contain
multiple renewal options for various periods ranging from 5 to 20 years. Nearly all of the
leases contain escalation clauses. Certain leases contain provisions that require
additional payments based on sales performance (contingent rentals) and the
payment of common area maintenance charges and real estate taxes. Contingent rentals are
accrued monthly as the liabilities are incurred utilizing pro-rated monthly sales targets.

The
Company has a commitment for the development and sale/leaseback of up to seven restaurants
from AEI Fund Management, Inc. (AEI) that provides a maximum $24.5 million
financing commitment through an agreement executed January 8, 2003. Under the agreement,
AEI purchases the land and funds a substantial portion of the construction costs of new
restaurants selected by the Company for participation under the agreement. The Company
serves as the developer of the site and is responsible for completing the project on time
and within budget. Once the project is completed per the terms of the development
agreement, the Company enters into a lease with AEI for the property. The Company, as
seller-lessee, has no continuing involvement in the property other than that of lessee.
For accounting purposes, the Company is considered the owner of the property during the
construction period due to the Companys obligation to develop the property and
AEIs option to sell the funded assets to the Company in the event of a default under
the development agreement.

As
of June 27, 2004 and June 29, 2003, the Company had none and $2.7 million, respectively,
of construction costs that had been funded by AEI. Since the projects were not complete as
of those dates and the Company had additional obligations relative to the development
agreements, the Company is considered the owner of the projects during the construction
period. These amounts are classified as prepaid expenses and other current assets and
accrued expenses on the consolidated balance sheets.

F-22

---



Future minimum lease payments
pursuant to leases with non-cancelable lease terms excluding option
periods in excess of one year at June 27, 2004 were as follows (in 000s):

|Fiscal Years Ending                 | Operating Leases
|----------------------------------- | ----------------
|
|2005                                |                 
|2006                                |                 
|2007                                |                 
|2008                                |                 
|2009                                |                 
|Thereafter                          |                 
|                                    |                 
|Total future minimum lease payments |                 
|                                    |                 

Total
rent expense in 2004, 2003 and 2002 approximated $13,497,000, $11,800,000 and $10,160,000,
respectively. Contingent rentals in rent expense for 2004, 2003 and 2002 approximated
$362,000, $382,000 and $526,000, respectively.

# 8. Long-term Debt

Long-term debt consisted of the
following (in 000s):

|Lender                         | Interest rate | Face amount | June 27, 2004                      | June 29, 2003 | Nature of debt | Nature of collateral | Maturity
|------------------------------ | ------------- | ----------- | ---------------------------------- | ------------- | -------------- | -------------------- | --------
|Convertible Subordinated Notes |               |             | 5.50%                              |               |                |                      | $15,000 
|LaSalle Bank N.A.              |               |             | Prime - Prime +.50% or LIBOR +2-3% |               |                |                      | 25,000  
|GE Capital                     |               |             | CP + 3.75%                         |               |                |                      | 3,022   
|GE Capital                     |               |             | CP + 3.75%                         |               |                |                      | 1,978   
|GE Capital                     |               |             | CP + 3.75%                         |               |                |                      | 5,000   
|FINOVA                         |               |             | 10.36%                             |               |                |                      | 4,750   
|FINOVA                         |               |             | 10.36%                             |               |                |                      | 4,750   
|Former Employee                |               |             | 10.00%                             |               |                |                      | 500     
|                               |               |             |                                    |               |                |                      |         
|                               |               |             |                                    |               |                |                      |         
|                               |               |             |                                    |               |                |                      |         
|Less current portion           |               |             |                                    |               |                |                      |         
|                               |               |             |                                    |               |                |                      |         
|Debt, net of current portion   |               |             |                                    |               |                |                      |         
|                               |               |             |                                    |               |                |                      |         

On
December 16, 2002, the Company issued, through a private placement, $15,000,000 of 5.5%
Convertible Subordinated Notes due 2007 (the Notes) and related warrants (the
Warrants) to purchase shares of the Companys Common Stock (the
Common Stock) (see Note 10). The securities were sold to accredited investors
in reliance on Regulation D under the Securities Act of 1933, as amended. The Notes were
recorded at their estimated fair market value of $13,995,000 based upon a $1,005,000
valuation attributable to the Warrants. The Notes discount of $1,005,000 is being
accreted to interest expense over the term of the Notes. Origination issuance costs of
$1,395,000 were incurred with the issuance of the Notes, are classified as an other asset
on the accompanying consolidated balance sheet and are being amortized as interest expense
over the term of the Notes. The Notes mature on December 15, 2007. Interest is payable
semi-annually in arrears on June 1 and December 1, beginning on June 1, 2003.

F-23

---



The
Notes are convertible at the option of the holder at any time prior to maturity into
shares of Common Stock, at a conversion price of $10.66 per share, subject to adjustment
upon certain events. At any time on or after December 15, 2005, the Company may redeem
some or all of the Notes at par plus accrued and unpaid interest. All of the Notes will be
automatically converted, at the Companys option, into shares of common stock at the
then effective conversion price if the closing price of the common stock exceeds 150% of
the then effective conversion price for any 15 out of 20 consecutive trading days at any
time within three years after the first issuance date of the Notes. If the automatic
conversion date occurs prior to December 15, 2004, the Company will make an additional
cash payment with respect to the Notes in an amount equal to $110.00 per $1,000 principal
amount of the Notes converted (representing 24 months of interest), less the amount of
interest actually paid on the Notes prior to the automatic conversion date.

Upon
certain change in control events or if the Common Stock is no longer traded on a national
exchange or an established automated over-the-counter trading market in the United States,
a Noteholder may require the Company to repurchase such holders Notes in cash at
110% of the principal amount of the Notes, plus accrued but unpaid interest, if any.

The
Notes are subordinated in right of payment to existing and future senior indebtedness and
other liabilities of the Company and its subsidiaries. The Company and its subsidiaries
are not prohibited from incurring senior indebtedness or other debt under the Agreement
governing the Notes.

In
March 2004, we obtained a three-year $25.0 million senior secured credit facility with a
new lender, LaSalle Bank. We used a portion of the facility to refinance certain of our
existing debt and the facility may also be used to support growth and general working
capital needs and provide up to $5.0 million for the issuance of letters of credit. The
facility is secured by a blanket lien on all personal assets and real property of the
Company. Borrowings under the facility will bear interest depending on a total funded debt
to EBITDA ratio and will range from prime to prime plus 50 basis points or, if elected by
us, LIBOR plus 200 to 300 basis points. Total funded debt is defined as all indebtedness
of the consolidated entities, including senior and subordinated debt, capital lease
obligations and contingent liabilities. We paid an up-front fee of $188,000 and are
required to pay an annual unused commitment fee of 37.5 basis points to 50 basis points.

The
facility limits the opening of new company owned restaurants to a maximum of twenty-four
over a three-year period and also limits the amount of dividends and/or stock repurchases.
As of June 27, 2004, the Company had $2.5 million of outstanding borrowings under this
facility and had placed letters of credit of $1.3 million under the facility with $19.4
million available for additional borrowing. The weighted-average annual interest rate on
credit line borrowings at June 27, 2004 was 3.7%.

Outstanding
borrowings under the facility may be converted to a five-year term loan if the ratio of
senior debt to EBITDA exceeds specified levels. The facility requires the Company to
maintain a minimum fixed charge coverage ratio and tangible net worth level and not exceed
thresholds for total funded debt to EBITDA and total senior debt to EBITDA ratios. EBITDA
is defined in the agreement as (the) Consolidated Entities net income for such
period, plus (a) without duplication the sum of (i) Interest Expense, (ii) federal and
state income taxes, (iii) depreciation and amortization expenses, (iv) start-up costs
associated with the opening of new restaurants, and (v) one-time prepayment fees
associated with payment in full of all Indebtedness of Borrower that is pre-paid at the
Closing Date with proceeds from the 3-Year Loan; minus (b) without duplication,
extraordinary gains, in each case as charged against (or added to, as the case may be)
revenues to arrive at net income for such period, all as determined in accordance with
GAAP.

F-24

---



As
of June 27, 2004, we were in compliance with all debt covenants and financial ratios. This
facility has four financial ratios that measure our fixed charge coverage ratio,
borrowers total funded debt to EBITDA, total senior debt to EBITDA and minimum
tangible net worth.

In
February 2003, the Company finalized a commitment for bank financing with First National
Bank of Colorado under which it could borrow up to $8,000,000. The commitment had two
parts: $2,000,000 available to provide short-term working capital and to support the
issuance of letters of credit; the remaining $6,000,000 available to provide interim
financing associated with construction of new restaurant locations. The Company cancelled
the $6,000,000 interim construction financing facility in April 2004 as a result of the
placement of a new facility with a new lender. The working capital facility expires in
January 2005 at which time all outstanding borrowings are due. Outstanding borrowings bear
interest at the Wall Street Journal prime rate and require monthly interest payments.
There was an initial commitment fee of $42,500. The Company is required to maintain a
funded debt to EBITDA (earnings before interest, tax, depreciation and amortization) ratio
of not more than 2 to 1 and a debt to tangible net worth ratio not to exceed 1.25 to 1.
Also, the Company is limited to $5,000,000 of annual replacement capital expenditures and
the $2,000,000 working capital line must be repaid for 10 consecutive days each quarter.
As of June 27, 2004, no amounts were drawn and $1.8 million of letters of credit were
placed under this commitment.

The
GE Capital loans require that the Company maintain a maximum debt to net worth ratio, a
minimum debt coverage ratio, a minimum ratio of earnings before interest, taxes,
depreciation and amortization compared to debt and a maximum funded indebtedness ratio.

In
September 2002, the Company executed a proposal for an additional $5,000,000 term loan
collateralized with equipment with GE Capital. The Company received $500,000 of proceeds
in fiscal 2003 and received the remaining $4,500,000 from the loan in August 2003. These
loans were repaid in late fiscal 2004.

At
June 27, 2004, the Company was in compliance with all debt covenants and required
financial ratios under its debt agreements.

In
fiscal 2004 and 2003, the Company repaid certain debt with existing balances totaling
approximately $15,200,000 and $5,200,000, respectively, before scheduled maturity. Related
prepayment costs and unamortized debt issuances costs totaling $587,000 and $290,000,
respectively, were recorded as debt extinguishment costs in the accompanying consolidated
statement of operations.

F-25

---



The
Company incurred interest expense of $2,480,000, $2,372,000 and $2,039,000 in fiscal years
2004, 2003 and 2002, respectively. Of these amounts, $142,000, $310,000 and $271,000 were
capitalized in each respective year. Interest income totaled $237,000, $236,000 and
$155,000 in 2004, 2003 and 2002, respectively.

Principal
amounts of long-term debt outstanding as of June 27, 2004 due during each of the four
succeeding fiscal years were $942,000 in 2005, $620,000 in 2006, $2,696,000 in 2007 and
$14,305,000 in 2008.

# 9. Income Taxes

Deferred tax assets and (liabilities)
were comprised of the following (in 000s):

|                                 | June 27,2004 | June 29,2003
|-------------------------------- | ------------ | ------------
|
|Deferred tax assets:             |              |             
|Net operating loss carryforwards |              |             
|Deferred rent                    |              |             
|FICA tip tax credits             |              |             
|Accrued expenses                 |              |             
|Capital leases                   |              |             
|Other                            |              |             
|                                 |              |             
|Total deferred tax assets        |              |             
|                                 |              |             
|Deferred tax liabilities:        |              |             
|Property and equipment           |              |             
|Goodwill                         |              |             
|Other                            |              |             
|                                 |              |             
|Total deferred tax liabilities   |              |             
|                                 |              |             
|Net deferred tax assets          |              |             
|                                 |              |             
|Current portion                  |              |             
|Long-term                        |              |             

The following is a reconciliation of
income taxes at the federal statutory rate to the Companys income tax expense
(benefit) (in 000s):

|                                                   | Fiscal Year Ended
|-------------------------------------------------- | -----------------
|
|
|Income tax provision computed at statutory federal |                  
|income tax rates                                   |                  
|FICA tip tax credit                                |                  
|Non- deductible costs                              |                  
|Decrease in the valuation allowance                |                  
|State income tax provision, net of federal benefit |                  
|Expired net operating loss carryforward            |                  
|Other, net                                         |                  
|                                                   |                  
|Income tax expense (benefit)                       |                  
|                                                   |                  

F-26

---



Total
income tax expense includes current income tax expense of $468,000, $2,762,000 and
$768,000 and deferred income tax expense (benefit) of $256,000, ($17,917,000) and
($559,000) in 2004, 2003 and 2002, respectively. As of June 27, 2004, the Company had
federal net operating loss carryforwards of approximately $50.9 million expiring at
various dates through 2020. The Companys FICA tip tax credits totaling $5.6 million
may be used to offset federal income taxes and expire at various dates through 2024.
During fiscal 2003, the Company determined that it was more likely than not that it would
realize the tax benefits of its deferred tax assets based on projections of future taxable
income and the reversal of deferred tax liabilities. As a result, the valuation allowance
on deferred tax assets was eliminated in fiscal 2003. The valuation allowance on deferred
tax assets decreased $1,366,000 in fiscal 2002.

Average
annual taxable income of approximately $3.0 million would need to be generated over the
future carryforward years for full realization of the deferred tax asset related to the
net operating loss carryforwards. Estimated taxable income for the fiscal year ended June
27, 2004 was $6.0 million.

# 10. Commitments and
Contingencies

Fuddruckers
Representations and Indemnity

The
agreement whereby Fuddruckers was sold contains various representations and warranties by
the Company, certain of which expired on December 31, 2000. The remaining representations
and warranties will continue in effect as stated in the Agreement.

The
maximum aggregate liability of the Company on account of any breach of any representation
or warranty is limited to the amount of the final purchase price. There is no limit on the
liability of the Company to the purchaser on account of any breach by the Company of any
of its covenants or agreements under the agreement or on account of indemnification
obligations covering matters other than breaches of representations and warranties,
provided that, if the purchaser is entitled to recover any losses in excess of the final
purchase price, the Company may either (i) require the purchaser to reconvey to the
Company full ownership and control of the shares and all assets (to the extent then owned
by the purchaser or Fuddruckers) that were transferred pursuant to the agreement in such a
manner as to rescind the transactions contemplated by the agreement based upon a formula
price. During 2004, no claims for indemnification were presented by the purchaser and the
Company believes the risk for significant claims for indemnification being presented in
the future by the purchaser is remote.

Spin-Off Indemnifications

The
Company agreed to assume certain liabilities in connection with the spin-off of DAKA
International and its subsidiaries to Compass. In addition, the Company entered into a
post-closing covenants agreement that provided for post-closing payments by the Company to
Compass under certain circumstances. The Company also agreed to indemnify Compass for
certain losses on liabilities existing prior to the effective date of the spin-off but
unidentified at such date. This indemnification began to expire on December 31, 1999. The
Company believes the risk of a significant claim for indemnification being presented by
Compass is remote.

Accrued Insurance Costs

The
Company is self-insured for certain losses related to workers compensation claims,
general liability and medical/dental claims. The Company has purchased stop-loss coverage
in order to limit its exposure to significant levels of such claims. Self-insured reserves
are accrued based upon the Companys estimates of the aggregate liability for
uninsured claims incurred using certain assumptions that are based upon historical
experience. Actual amounts required to settle those obligations may exceed those
estimates.

F-27

---



Through
June 29, 1997, the Company was self-insured for workers compensation, general
liability, and various other risks up to specified limits. The Companys share of
prior workers compensation and general liability programs of DAKA International
through June 29, 1997 were allocated using labor costs and the aggregate costs of such
programs were determined through actuarial studies which determined the estimated amount
required to be provided for incurred incidents. In connection with the spin-off of DAKA,
the Company is obligated to indemnify Compass for all claims arising subsequent to the
effective date of the spin-off including claims related to associates of DAKA
International not continuing with the Company after the spin-off, that relate to events
occurring prior to the effective date of the spin-off. The Company believes that any
claims related to its obligation to further indemnify Compass after June 27, 2004 are
adequately accrued.

Tax Contingencies

In
December 2001, the State of Florida proposed to assess subsidiaries of DAKA International
$2.4 million in unpaid state sales taxes, and an additional $2.9 million in penalties and
interest as of December 2001. The Company was contractually obligated to indemnify DAKA
for this matter. In February 2004, the Company paid $0.1 million to the Florida Department
of Revenue in full settlement of the matter.

Additionally,
the Company, from time-to-time, has been party to various other assessments of taxes,
penalties and interest from Federal and state agencies. Tax reserves are accrued based
upon the Companys estimates of the ultimate settlement of the contingencies. The
Company believes that amounts are adequately accrued. Actual amounts required to settle
those obligations may exceed those estimates.

Litigation

The
Company has agreed to assume certain contingent liabilities of DAKA International in
connection with the spin-off and has agreed to assume certain contingent liabilities of
Fuddruckers for periods prior to its sale to King Cannon.

In
connection with the spin-off of DAKA International in late 1997, the Company assumed
certain contingent liabilities of DAKA International and its subsidiary, Daka, Inc. In
March 2000, a former associate of Daka was awarded approximately $0.2 million in
compensatory damages, $4.8 million in punitive damages and $0.3 million in legal fees in a
jury trial based on the associates claim of negligent supervision and retaliation
due to alleged conduct that occurred in 1996 at a former Daka food service location. On
September 20, 2000, Daka filed a Notice of Appeal with the Court of Appeals for the
District of Columbia. Under our Post-Closing Covenant Agreement with DAKA, the Company has
been responsible for handling the defense of these claims, including the appeals. The
Court of Appeals affirmed the award of compensatory damages in the amount of $187,500 and
attorneys fees in the amount of $276,000. However, the Court of Appeals vacated the
$4.8 million punitive damages award as constitutionally excessive and remanded the case to
the trial court for redetermination of punitive damages in accordance with legal
principles outlined in its opinion. In January 2004, the Company paid approximately $0.6
million for these items including accrued interest. On remand, by Order dated May 26,
2004, the trial court awarded punitive damages in the amount of $937,500. The Company
accrued a liability for the full amount of this award in the fourth quarter of fiscal
2004. On July 9, 2004, Daka filed a Notice of Appeal with the Court of Appeals for the
District of Columbia and this matter is now pending in that court. In addition on June 23,
2004, plaintiffs counsel filed a motion for additional attorneys fees in the
amount of $375,000 which has not been accrued for by the Company. Daka plans to vigorously
oppose this motion and in the event the trial court grants the motion for attorneys
fees in whole or in part, Daka plans to file a Notice of Appeal for the award of the legal
fees. Depending on the timing and nature of the ruling by the Court of Appeals, the
Company also could incur substantial additional legal expenses in pursuing Dakas
appeal and the ultimate resolution of this matter.

F-28

---



Revisions
to the estimate may be made in the future and will be reported in the period in which
additional information is known. Based upon the Companys analysis, and the advice of
outside legal counsel, the Company believes that the ultimate outcome of this matter will
not have any further material adverse effect on the Companys consolidated financial
position or results of operations.

From
time-to-time, additional lawsuits are filed against the Company in the ordinary course of
business. Such lawsuits typically involve claims from customers and others related to
operational issues common to the food service industry. A number of such claims may exist
at any given time. In addition, the Company also encounters complaints and allegations
from former and current associates or others from time-to-time that are believed to be
common for businesses such as the Companys. In addition to the matters described
above, the Company is currently not a party to any litigation that management believes
could have a material adverse effect on the Companys consolidated financial position
or results of operations and the Company is not aware of any such threatened litigation.

Reserves

The
Company had previously recorded liabilities as of June 27, 1999 associated with the
activities of certain predecessor companies which were either spun-off or sold to other
entities. Adjustments to the reserves are recorded as a charge or credit to expense based
upon changes in managements estimate of the amount of the ultimate settlement. The
Company believes that these reserves are adequate to provide for the outcome of the
related contingencies. Such amounts are expected to be paid over the next year as the
amounts become known and payable.

The following table displays the
activity and balances relating to the reserves (in 000s):

|                         | PredecessorObligations
|------------------------ | ----------------------
|Balance at July 1, 2001  |                       
|Expense recognition      |                       
|Payments                 |                       
|                         |                       
|Balance at June 30, 2002 |                       
|Expense recognition      |                       
|Payments                 |                       
|                         |                       
|Balance at June 29, 2003 |                       
|Expense recognition      |                       
|Payments                 |                       
|                         |                       
|Balance at June 27, 2004 |                       
|                         |                       

F-29

---



During
fiscal 2004, the Company recognized additional liabilities of $1,171,000 related to
adjustments to the liabilities for the McCrae vs. Daka litigation as a result of the
appellate decision and trial court redetermination and on-going litigation costs partially
offset by a reduction in the liability for the State of Florida proposed tax assessment
due to the favorable settlement of the proposed assessment.

During
fiscal 2003, the Company recognized additional liabilities of $282,000 associated with
legal expenses and other expenses of predecessor companies, all of which are identified as
expenses related to predecessor companies on the consolidated statement of operations.

During
fiscal 2002, the Company recognized additional liabilities of $541,000 associated with
additional anticipated legal and other expenses of the predecessor companies. This amount
consisted of $305,000 identified as expenses related to predecessor companies on the
consolidated statement of operations and $236,000, less a tax benefit of $83,000,
identified as a loss from discontinued operations.

The
predecessor obligations reserves are included in the balances for accrued expenses and
other long-term liabilities.

# 11. Shareholders
Equity and Income Per Share

The
authorized capital stock of the Company consists of 30.0 million shares of common stock,
of which 12,813,665 and 12,764,050 shares were issued and outstanding as of June 27, 2004
and June 29, 2003, respectively. The Company also has 5.0 million shares of authorized
preferred stock, none of which is issued.

The
Companys credit arrangements restrict the amount of dividend payments or capital
stock repurchases to a maximum amount of $7.5 million over a three year period beginning
March 2004. Moreover, certain financial covenant ratios under the credit facilities
require a minimum amount of tangible net worth, as defined.

On
December 16, 2002, the Company issued warrants to purchase 386,961 shares of common stock
of the Company in conjunction with the issuance of the Notes described in Note 7. Each
warrant is exercisable for one share of common stock at an initial exercise price of
$11.10 per share, subject to adjustment upon certain events. The warrants are exercisable
(in whole or in part) at any time on or before December 15, 2007, unless terminated
earlier at the Companys option upon certain events. At any time after December 15,
2004, if the closing price of common stock exceeds 175% of the then effective exercise
price of the warrants for any 15 out of 20 consecutive trading days, the Company may
terminate the warrants. Any unexercised warrants as of December 15, 2007 will
automatically expire. The warrants had an estimated fair market value of $1,005,000 as of
the date of issuance and were recorded as additional paid-in capital, net of issuance
costs of $100,000.

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F-30

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The following table sets forth the
computation of basic and diluted earnings per share (in 000s except per share data):

|                                                               | Fiscal Year Ended
|-------------------------------------------------------------- | -----------------
|
|
|Basic income per share:                                        |                  
|Income before discontinued operations                          |                  
|Loss from discontinued operations                              |                  
|                                                               |                  
|Net income                                                     |                  
|                                                               |                  
|Weighted average shares outstanding                            |                  
|Income before discontinued operations per share - basic        |                  
|Loss from discontinued operations per share - basic            |                  
|                                                               |                  
|Net income per share - basic                                   |                  
|                                                               |                  
|Diluted income per share:                                      |                  
|Income before discontinued operations                          |                  
|Plus income impact of assumed conversion of 5.5%               |                  
|convertible subordinated notes                                 |                  
|                                                               |                  
|Income before discontinued operations plus assumed conversions |                  
|                                                               |                  
|Loss from discontinued operations                              |                  
|                                                               |                  
|Net income plus assumed conversions                            |                  
|                                                               |                  
|Weighted average shares outstanding                            |                  
|Net effect of dilutive stock options based on the              |                  
|treasury stock method using average market price (a)           |                  
|Net effect of dilutive warrants based on the                   |                  
|treasury stock method using average market price               |                  
|Assumed conversion of 5.5% convertible subordinated notes      |                  
|                                                               |                  
|Total shares outstanding for computation of per share earnings |                  
|                                                               |                  
|Income before discontinued operations per share - diluted      |                  
|Loss from discontinued operations per share - diluted          |                  
|                                                               |                  
|Net income per share - diluted                                 |                  
|                                                               |                  

| | (a) |  | For
the years ended June 27, 2004, June 29, 2003 and June 30, 2002, 220,763, 67,154 and
11,800 stock options, respectively, would have been anti-dilutive and, therefore,
were not considered in the computation of diluted income per share.
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) |  | Not included
in calculation because the securities had not yet been issued.
| | --- |  | ---------------------------------------------------------------------------

| | (c) |  | Not included in
calculation because the assumed conversion of warrants into 386,961 common shares was
anti-dilutive.
| | --- |  | --------------------------------------------------------------------------------------------------------------------

| | (d) |  | Not included in calculation because the assumed conversion of
convertible notes into 1,407,129 common shares was anti-dilutive.
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------

F-31

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# 12. Stock Options and
Employee Benefit Plans

Stock Options

In
1997 and 2003, the Company adopted stock option and incentive plans for the benefit of the
associates and non-employee directors of the Company whereby the Company authorized and
reserved for issuance an aggregate of 2,615,000 shares of common stock. As of June 27,
2004, options to purchase approximately 742,000 shares of common stock remained available
for grant under the plans.

On
November 4, 1999, the Company authorized and reserved for issuance 750,000 shares of
common stock in connection with a non-qualified stock option agreement entered into with
William H. Baumhauer, the Companys chief executive officer. The options were to
expire on June 30, 2001 and were exercisable at $4.00 per share. On September 28, 2000,
Mr. Baumhauers employment agreement was amended and restated. At that time the
expiration date of the options previously granted on November 4, 1999 were extended to
June 30, 2003. The Company recorded non-cash compensation expense of $189,000 and $286,000
for the years ended June 30, 2002 and July 1, 2001, respectively, related to the extension
of termination dates on these options which resulted in a remeasurement date. Although the
price of the options extended were above the fair market value on the original grant date,
the price of the options were below the fair market value of the underlying stock on the
extension date. The non-cash compensation expense was included in general and
administrative expenses.

On
September 13, 2002, Mr. William Baumhauer announced he had entered into a stock trading
plan, which complies with the requirements of Rule 10b5-1 of the Securities and Exchange
Commission. Under the plan, Mr. Baumhauer may sell enough shares of stock which he owns to
pay the price to exercise 1,009,000 stock options, pay the withholding taxes associated
with the exercise of the stock options and repay a loan to the Company of $550,000. Rule
10b5-1 permits employees to adopt written plans at a time when they are not aware of
material nonpublic information and to sell shares according to the plan on a regular
basis, regardless of any subsequent nonpublic information they receive or the price of the
stock at the time of the sale. Stock trading plans permitted under this rule allow an
employee to minimize the effects of sales by spreading them over a more extended period
than the traditional trading windows permitted under typical insider trading
policies, and also avoid being prohibited from selling any shares for long periods of time
due to nonpublic information they may possess during traditional windows.

In
fiscal 2003, Mr. Baumhauer exercised options to purchase 1,009,000 shares of common stock
of the Company under this plan with an aggregate exercise price of approximately
$4,620,000. Mr. Baumhauer satisfied the exercise price of options and paid certain of his
withholding tax liabilities by tendering to the Company 471,588 common shares held by him
more than six months and having a fair market value of approximately $3,583,000 plus cash
of $1,037,000.

On
July 31, 2003, Mr. Baumhauer terminated the stock trading plan.

The
Company granted options to the Companys board of directors, its executive officers,
managers and directors in its corporate office, the regional directors of operations and
the general managers of the restaurants. In addition, options have been granted to
corporate office associates below the level of manager and director.

F-32

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The following table presents activity
under the Companys stock option plans:

|                             | Number of Options | Weighted Average Exercise Price | Weighted Average Grant Date Fair Value
|---------------------------- | ----------------- | ------------------------------- | --------------------------------------
|Outstanding at July 1, 2001  |                   |                                 |                                       
|Granted                      |                   |                                 |                                       
|Exercised                    |                   |                                 |                                       
|Forfeited                    |                   |                                 |                                       
|                             |                   |                                 |                                       
|Outstanding at June 30, 2002 |                   |                                 |                                       
|Granted                      |                   |                                 |                                       
|Exercised                    |                   |                                 |                                       
|Forfeited                    |                   |                                 |                                       
|                             |                   |                                 |                                       
|Outstanding at June 29, 2003 |                   |                                 |                                       
|Granted                      |                   |                                 |                                       
|Exercised                    |                   |                                 |                                       
|Forfeited                    |                   |                                 |                                       
|                             |                   |                                 |                                       
|Outstanding at June 27, 2004 |                   |                                 |                                       
|                             |                   |                                 |                                       

The number of options exercisable at
the dates presented below and their weighted average exercise price were as follows:

|              | Options Exercisable | Weighted Average Exercisable Price
|------------- | ------------------- | ----------------------------------
|June 30, 2002 |                     |                                   
|June 29, 2003 |                     |                                   
|June 27, 2004 |                     |                                   

The following table sets forth
information regarding options outstanding at June 27, 2004:

|Number of Options | Range of Prices | Weighted Average Price | Weighted Average RemainingContractual Life | Number CurrentlyExerciseable | Weighted AveragePrice for CurrentlyExercisable
|----------------- | --------------- | ---------------------- | ------------------------------------------ | ---------------------------- | ----------------------------------------------
|                  | 108,701         |                        |                                            | $4.00 - $4.82                |                                               
|                  | 320,019         |                        |                                            | 4.94 - 5.75                  |                                               
|                  | 386,600         |                        |                                            | 6.03 - 7.11                  |                                               
|                  | 221,468         |                        |                                            | 7.50 - 13.80                 |                                               

In
August 2004, the Companys Board of Directors granted an additional 420,700 options
to purchase common stock at a grant price of $7.85.

F-33

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Employee Stock Purchase
Plan

The
Company has reserved 400,000 shares of its common stock to be offered under its 1997 Stock
Purchase Plan (the Purchase Plan). As of June 27, 2004, 224,810 shares of
common stock had been issued under the Purchase Plan. Under the Purchase Plan, eligible
associates of the Company may participate in quarterly offerings of shares made by the
Company. The participating associates purchase shares at a discount from the lower of fair
value at the beginning or end of each quarterly offering period through payroll
deductions. In fiscal 2002, associates purchased 32,151 shares for a total of $207,000. In
fiscal 2003, associates purchased 33,849 shares for a total of $252,000. In fiscal 2004,
associates purchased 39,450 shares for a total of $191,000. The proforma expense
associated with the Purchase Plan was $67,000, $91,000 and $88,000 for fiscal 2004, 2003
and 2002, respectively.

Employee Benefit Plan

The
Company sponsors a 401(k) retirement plan enabling associates to contribute up to 15% of
their annual compensation. The Companys discretionary contributions to the 401(k)
Plan are determined by the Companys Board of Directors. The Companys
contribution to the Plan for fiscal years 2003 and 2002 were $55,000 and $74,000,
respectively. For fiscal 2004, the Companys discretionary contribution estimate of
$64,000 has been accrued and is pending approval by the Board of Directors.

# 13. Fair Value of
Financial Instruments

The
estimated fair value of financial instruments has been determined by the Company using
available market information and appropriate valuation methodologies. The following
methods and assumptions were used to estimate the fair value of the Companys
financial instruments for which it was practicable to estimate that value:

Current
assets and liabilities  The carrying amount of cash, accounts receivable, accounts
payable and accrued expenses approximates fair value because of the short-term maturity of
these instruments.

Notes
payable  The carrying value of notes payable approximates fair value based upon
current market rates available to the Company for similar instruments.

# 14. Related Party
Transactions

In fiscal
2001, the Company amended Mr. William Baumhauers employment contract. Mr. Baumhauer
is the Companys chairman of the board, president and chief executive officer. As
part of the amended employment contract, the Company loaned $550,000 to Mr. Baumhauer. The
loan was evidenced by a promissory note that bears interest at 9.0% and was due on
September 30, 2003. The proceeds of the loan were used to exercise options to purchase
178,000 shares of the Companys common stock and pay related tax liabilities. The
loan was secured by a pledge of the purchased stock. In fiscal 2003, Mr. Baumhauer repaid
$350,000 of the loan. The remainder of the loan of $200,000 plus accrued interest of
$116,000 was repaid in fiscal 2004.

F-34

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# 15. Quarterly Financial
Data (Unaudited)

The Companys quarterly results
of operations for fiscal years 2004 and 2003 are summarized as follows (in 000s
except per share data):

|Fiscal 2004  Restated                    | Quarter ended | Year ended
|----------------------------------------- | ------------- | ----------
|
|Revenue                                   |               |           
|Pre-opening expenses                      |               |           
|Expenses related to predecessor companies |               |           
|Debt extinguishment costs                 |               |           
|Income from continuing operations         |               |           
|Net income                                |               |           
|Basic income per share:                   |               |           
|Net income                                |               |           
|Diluted income per share:                 |               |           
|Net income                                |               |           

|Fiscal 2003  Restated                    | Quarter ended | Year ended
|----------------------------------------- | ------------- | ----------
|
|Revenue                                   |               |           
|Pre-opening expenses                      |               |           
|Expenses related to predecessor companies |               |           
|Debt extinguishment costs                 |               |           
|Income from continuing operations         |               |           
|Net income                                |               |           
|Basic income per share:                   |               |           
|Net income                                |               |           
|Diluted income per share:                 |               |           
|Net income                                |               |           

|(a) |  | Net
income in the fourth quarter of fiscal 2003 included a benefit for income taxes of $15.4
million as a result of the reversal of previously recorded deferred tax valuation
allowance.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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F-35

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|Fiscal 2004 - As originally reported      | Quarter ended | Year ended
|----------------------------------------- | ------------- | ----------
|
|Revenue                                   |               |           
|Pre-opening expenses                      |               |           
|Expenses related to predecessor companies |               |           
|Debt extinguishment costs                 |               |           
|Income from continuing operations         |               |           
|Net income                                |               |           
|Basic income per share:                   |               |           
|Net income                                |               |           
|Diluted income per share:                 |               |           
|Net income                                |               |           

|Fiscal 2003 - As originally reported      | Quarter ended | Year ended
|----------------------------------------- | ------------- | ----------
|
|Revenue                                   |               |           
|Pre-opening expenses                      |               |           
|Expenses related to predecessor companies |               |           
|Debt extinguishment costs                 |               |           
|Income from continuing operations         |               |           
|Net income                                |               |           
|Basic income per share:                   |               |           
|Net income                                |               |           
|Diluted income per share:                 |               |           
|Net income                                |               |           

|(a) | Net
income in the fourth quarter of fiscal 2003 included a benefit for income taxes of $13.4
million as a       result of the reversal of previously recorded deferred tax valuation
allowance.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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F-36

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