Exhibit 99.1

WENCOAST RESTAURANTS, INC.



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Financial Statements

For the Fiscal Years Ended January 1, 2006

and January 2, 2005



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WENCOAST RESTAURANTS, INC.

Contents



|                                                 |  |     
|------------------------------------------------ |  | ----
|                                                 |  | Page
|Independent Auditors Report                     |  | 2   
|Balance Sheets                                   |  | 3   
|Statements of Operations and Accumulated Deficit |  | 4   
|Statements of Cash Flows                         |  | 5   
|Notes to Financial Statements                    |  | 6-13



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LOGO

Independent Auditors Report

Board of Directors

Wencoast Restaurants, Inc.

Charleston, South Carolina

We have audited the accompanying balance sheets of Wencoast Restaurants, Inc. as of January 1, 2006 and January 2, 2005, and the related statements of
operations and accumulated deficit and cash flows for the fiscal years then ended. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 financial statements referred to above present fairly, in all material respects, the financial position of Wencoast
Restaurants, Inc. as of January 1, 2006 and January 2, 2005, and the results of its operations and its cash flows for the fiscal years then ended, in conformity with accounting principles generally accepted in the United States of America.

LOGO

Memphis, Tennessee

November 21, 2006

5100 Poplar Avenue  Clark Tower 30th Floor  Memphis, TN 38137  Ph. 901.685.5575  fax 901.685.5583 
 www.thompsondunavant.com

a Professional Limited Liability Company



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WENCOAST RESTAURANTS, INC.

Balance Sheets

January 1, 2006 and January 2, 2005



|                                                      |  |                |            |   |                |   |            |  
|----------------------------------------------------- |  | -------------- | ---------- | - | -------------- | - | ---------- | -
|                                                      |  | January 1,2006 |            |   | January 2,2005 |  
|Assets                                                |  |                |            |   |                |   |            |  
|Current assets                                        |  |                |            |   |                |   |            |  
|Cash and cash equivalents                             |  | $              | 1,294,504  |   |                | $ | 344,307    |  
|Accounts receivable                                   |  |                | 24,844     |   |                |   | 17,131     |  
|Inventories                                           |  |                | 171,876    |   |                |   | 207,068    |  
|Prepaid expenses                                      |  |                | 354,067    |   |                |   | 236,265    |  
|                                                      |  |                |            |   |                |   |            |  
|Total current assets                                  |  |                | 1,845,291  |   |                |   | 804,771    |  
|                                                      |  |               
|Property and equipment, less accumulated depreciation |  |                | 6,102,596  |   |                |   | 14,103,742 |  
|                                                      |  |               
|Other assets                                          |  |                |            |   |                |   |            |  
|Goodwill                                              |  |                | 6,626,330  |   |                |   | 6,626,330  |  
|Unamortized financing costs                           |  |                | 239,030    |   |                |   | 377,518    |  
|Unamortized franchise fees                            |  |                | 145,134    |   |                |   | 154,197    |  
|Note receivable                                       |  |                | 50,000     |   |                |   | 50,000     |  
|Deferred income taxes                                 |  |                | 883,000    |   |                |   | 883,000    |  
|Deposits and other assets                             |  |                | 96,249     |   |                |   | 133,529    |  
|                                                      |  |                |            |   |                |   |            |  
|Total other assets                                    |  |                | 8,039,743  |   |                |   | 8,224,574  |  
|                                                      |  |                |            |   |                |   |            |  
|                                                      |  | $              | 15,987,630 |   |                | $ | 23,133,087 |  
|                                                      |  |                |            |   |                |   |            |  
|Liabilities and Stockholders Equity                  |  |                |            |   |                |   |            |  
|Current liabilities                                   |  |                |            |   |                |   |            |  
|Current maturities of long-term debt                  |  | $              | 627,696    |   |                | $ | 1,593,944  |  
|Accounts payable                                      |  |                | 641,662    |   |                |   | 875,702    |  
|Taxes payable and accrued                             |  |                | 257,879    |   |                |   | 251,431    |  
|Accrued salaries and benefits                         |  |                | 465,185    |   |                |   | 631,215    |  
|Other accrued expenses                                |  |                | 859,577    |   |                |   | 864,163    |  
|                                                      |  |                |            |   |                |   |            |  
|Total current liabilities                             |  |                | 2,851,999  |   |                |   | 4,216,455  |  
|                                                      |  |               
|Long-term debt, less current maturities               |  |                | 10,877,492 |   |                |   | 17,207,851 |  
|                                                      |  |               
|Deferred gain on sale-leaseback transactions          |  |                | 2,210,275  |   |                |   |           |  
|                                                      |  |               
|Commitments and contingencies                         |  |                |            |   |                |   |            |  
|                                                      |  |               
|Stockholders equity                                  |  |                |            |   |                |   |            |  
|Class A voting common stock                           |  |                | 980        |   |                |   | 980        |  
|Class B non-voting common stock                       |  |                | 3,520      |   |                |   | 3,520      |  
|Additional paid-in capital                            |  |                | 4,495,500  |   |                |   | 4,495,500  |  
|Accumulated deficit                                   |  |                | (4,452,136 | ) |                |   | (2,791,219 | )
|                                                      |  |                |            |   |                |   |            |  
|Total stockholders equity                            |  |                | 47,864     |   |                |   | 1,708,781  |  
|                                                      |  |                |            |   |                |   |            |  
|                                                      |  | $              | 15,987,630 |   |                | $ | 23,133,087 |  
|                                                      |  |                |            |   |                |   |            |  

The accompanying notes are an integral

part of these financial statements.



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WENCOAST RESTAURANTS, INC.

Statements of Operations and Accumulated Deficit

For the Fiscal Years Ended
January 1, 2006 and January 2, 2005



|                                                |  |                 |            |   |                 |   |            |  
|----------------------------------------------- |  | --------------- | ---------- | - | --------------- | - | ---------- | -
|                                                |  | Fiscal Year2005 |            |   | Fiscal Year2004 |  
|Net sales                                       |  | $               | 35,281,107 |   |                 | $ | 35,795,483 |  
|Cost of sales                                   |  |                 | 18,285,735 |   |                 |   | 18,284,869 |  
|                                                |  |                 |            |   |                 |   |            |  
|Gross profit                                    |  |                 | 16,995,372 |   |                 |   | 17,510,614 |  
|Operating expenses                              |  |                 |            |   |                 |   |            |  
|Salaries and benefits                           |  |                 | 4,537,701  |   |                 |   | 4,847,526  |  
|Rent                                            |  |                 | 2,770,145  |   |                 |   | 2,406,246  |  
|Administrative                                  |  |                 | 1,989,878  |   |                 |   | 1,887,500  |  
|Depreciation and amortization                   |  |                 | 1,912,298  |   |                 |   | 2,005,435  |  
|Advertising                                     |  |                 | 1 ,485,058 |   |                 |   | 1,502,067  |  
|Royalties                                       |  |                 | 1,411,656  |   |                 |   | 1,431,963  |  
|Interest expense                                |  |                 | 1,298,557  |   |                 |   | 1,712,507  |  
|Utilities                                       |  |                 | 1,216,216  |   |                 |   | 1,100,754  |  
|Repairs and maintenance                         |  |                 | 803,725    |   |                 |   | 801,416    |  
|Corporate expenses                              |  |                 | 784,298    |   |                 |   | 464,196    |  
|Taxes and licenses                              |  |                 | 364,552    |   |                 |   | 371,597    |  
|Management fees                                 |  |                 | 85,000     |   |                 |   | 86,154     |  
|                                                |  |                 |            |   |                 |   |            |  
|                                                |  |                 | 18,659,084 |   |                 |   | 18,617,361 |  
|                                                |  |                 |            |   |                 |   |            |  
|Operating loss                                  |  |                 | (1,663,712 | ) |                 |   | (1,106,747 | )
|Other income                                    |  |                 |            |   |                 |   |            |  
|Interest income                                 |  |                 | 2,795      |   |                 |   |           |  
|                                                |  |                 |            |   |                 |   |            |  
|Net loss                                        |  |                 | (1,660,917 | ) |                 |   | (1,106,747 | )
|Accumulated deficit                             |  |                 |            |   |                 |   |            |  
|Beginning of year                               |  |                 | (2,791,219 | ) |                 |   | (1,121,365 | )
|Cumulative effect of restatement of prior years |  |                 |           |   |                 |   | (563,107   | )
|                                                |  |                 |            |   |                 |   |            |  
|End of year                                     |  | $               | (4,452,136 | ) |                 | $ | (2,791,219 | )
|                                                |  |                 |            |   |                 |   |            |  

The accompanying notes are an integral

part of these financial statements.



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WENCOAST RESTAURANTS, INC.

Statements of Cash Flows

For the Fiscal Years Ended January 1, 2006 and
January 2, 2005



|                                                                                         |  |                 |            |   |                 |   |            |  
|---------------------------------------------------------------------------------------- |  | --------------- | ---------- | - | --------------- | - | ---------- | -
|                                                                                         |  | Fiscal Year2005 |            |   | Fiscal Year2004 |  
|Cash flows from operating activities:                                                    |  |                 |            |   |                 |   |            |  
|Net loss                                                                                 |  | $               | (1,660,917 | ) |                 | $ | (1,106,747 | )
|Adjustments to reconcile net loss to net cash provided by (used in) operating activities |  |                 |            |   |                 |   |            |  
|Depreciation and amortization                                                            |  |                 | 1,912,298  |   |                 |   | 2,005,435  |  
|Loss on disposal of equipment                                                            |  |                 | 6,010      |   |                 |   | 7,538      |  
|Changes in operating assets and liabilities                                              |  |                 |            |   |                 |   |            |  
|Accounts receivable                                                                      |  |                 | (7,713     | ) |                 |   | 28,907     |  
|Inventories                                                                              |  |                 | 35,192     |   |                 |   | (8,782     | )
|Prepaid expenses                                                                         |  |                 | (117,802   | ) |                 |   | 90,135     |  
|Deposits and other assets                                                                |  |                 | 37,280     |   |                 |   | (63,280    | )
|Accounts payable                                                                         |  |                 | (234,040   | ) |                 |   | 190,385    |  
|Taxes payable and accrued                                                                |  |                 | 6,448      |   |                 |   | (22,375    | )
|Accrued salaries and benefits                                                            |  |                 | (166,030   | ) |                 |   | 320,261    |  
|Other accrued expenses                                                                   |  |                 | (4,585     | ) |                 |   | 249,703    |  
|                                                                                         |  |                 |            |   |                 |   |            |  
|Net cash provided by (used in) operating activities                                      |  |                 | (193,859   | ) |                 |   | 1,691,180  |  
|Cash flows from investing activities:                                                    |  |                 |            |   |                 |   |            |  
|Proceeds from sale-leaseback transactions                                                |  |                 | 10,410,859 |   |                 |   |           |  
|Sale-leaseback transaction expenditures                                                  |  |                 | (340,790   | ) |                 |   |           |  
|Capital expenditures                                                                     |  |                 | (1,629,406 | ) |                 |   | (147,329   | )
|                                                                                         |  |                 |            |   |                 |   |            |  
|Net cash provided by (used in) investing activities                                      |  |                 | 8,440,663  |   |                 |   | (147,329   | )
|Cash flows from financing activities:                                                    |  |                 |            |   |                 |   |            |  
|Proceeds from long-term borrowings                                                       |  |                 | 350,000    |   |                 |   |           |  
|Principal payments on long-term debt                                                     |  |                 | (7,646,607 | ) |                 |   | (1,485,738 | )
|                                                                                         |  |                 |            |   |                 |   |            |  
|Net cash used in financing activities                                                    |  |                 | (7,296,607 | ) |                 |   | (1,485,738 | )
|                                                                                         |  |                 |            |   |                 |   |            |  
|Net increase in cash and cash equivalents                                                |  |                 | 950,197    |   |                 |   | 58,113     |  
|Cash and cash equivalents at beginning of year                                           |  |                 | 344,307    |   |                 |   | 286,194    |  
|                                                                                         |  |                 |            |   |                 |   |            |  
|Cash and cash equivalents at end of year                                                 |  | $               | 1,294,504  |   |                 | $ | 344,307    |  
|                                                                                         |  |                 |            |   |                 |   |            |  
|Supplemental cash flow information:                                                      |  |                 |            |   |                 |   |            |  
|Cash paid during the fiscal year for interest                                            |  | $               | 1,237,461  |   |                 | $ | 1,698,696  |  
|                                                                                         |  |                 |            |   |                 |   |            |  

Noncash financing and investing activities:

During the fiscal year ended January 2, 2005, the Company incurred debt totaling $46,688 related to the acquisition of equipment.

The accompanying notes are an integral

part
of these financial statements.



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WENCOAST RESTAURANTS, INC.

Notes to Financial Statements

January 1, 2006 and January 2, 2005

Note 1 - Summary of significant accounting policies

Organization and
nature of operations

Wencoast Restaurants, Inc. (the Company) was formed under South Carolina saw on July 17, 2000. The Company operates
thirty-one (31) Wendys restaurants in South Carolina and Georgia. The corporate office is located in Charleston, South Carolina.

The Company
maintains its financial records on a 52-53 week fiscal year ending on the Sunday closest to December 31. The year ended January 1, 2006 (fiscal year 2005) was a 52 week year and the year ended January 2, 2005 (fiscal year 2004) was a
53 week year.

Cash and cash equivalents

The Company considers all highly liquid debt instruments with a maturity of three months or less to be cash equivalents. Cash and cash equivalents consist primarily of cash on hand, cash on deposit with financial
institutions, and certificates of deposit.

Inventories

Inventories consist primarily of food, beverages and paper goods and are stated at the lower of cost (first-in, first-out method) or market.

Property and equipment

Property and
equipment is stated at cost. Depreciation is computed over the estimated useful lives of the respective assets using the straight-line method of depreciation. Estimated useful lives are generally fifteen to thirty-nine years for buildings and
improvements and five to seven years for furniture, fixtures and equipment. Depreciation expense totaled $1,850,087 in fiscal year 2005 and $1,936,228 in fiscal year 2004.

Goodwill

Goodwill represents the excess of
cost over fair value of tangible net assets acquired. Statement of Financial Accounting Standards No. 142 requires goodwill to be tested for impairment on an annual basis, or sooner if deemed necessary, and written down when impaired.
Management evaluates goodwill for potential impairment based upon reviews of estimated future results of operations and cash flows. Management believes there was no impairment of goodwill in fiscal year 2005 and fiscal year 2004. There can be no
assurance that future goodwill impairment tests will not result in a charge to earnings.

Other assets

Costs incurred associated with obtaining financing are deferred and amortized over the term of the related debt. The costs of franchise fees and licenses are amortized
over their contractual lives which are generally twenty years. Amortization expense related to these costs totaled $62,211 in fiscal year 2005 and $69,207 in fiscal year 2004.



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WENCOAST RESTAURANTS, INC.

Notes to Financial Statements (Continued)

January 1, 2006 and January 2, 2005

Note 1 - Summary of significant accounting policies (continued)

Sale-leaseback transactions

During fiscal
year 2005, the Company entered into three sale-leaseback transactions with unrelated third-parties (see note 7). The sale of the eight restaurant properties resulted in gains of $2,272,651. In accordance with the provisions of Statement of Financial
Accounting Standards No. 98, the gains on the sale-leaseback transactions have been deferred and will be recognized as a reduction of the associated lease expense over the term of the related leases. The amount of the gains deferred at
December 31, 2005 is $2,210,275. Gains recognized as a reduction in lease expense in fiscal year 2005 totaled $62,376.

Long-lived assets

The Company evaluates the recoverability of its long-lived assets, primarily fixed assets, in accordance with Statement of
Financial Accounting Standards (SFAS) No. 121 Accounting for the Impairment of Long-Lived Assets to be Disposed of. SFAS No. 121 requires recognition of impairment of long-lived assets in the event the net book value of such
assets exceeds the estimated future undiscounted cash flows attributable to such assets or the projection of amounts ultimately expected to be recovered for such assets.

Advertising

Advertising costs are expensed
as incurred. Advertising expense totaled $1,485,058 in fiscal year 2005 and $1,502,067 in fiscal year 2004.

Income taxes

The Company follows the asset and liability method for deferred income taxes as required by the provisions of Statement of Financial Accounting Standards
No. 109. Under the asset and liability method, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the
financial statement carrying amounts and the tax basis of existing assets and liabilities.

Use of estimates

Management uses estimates and assumptions in preparing financial statements in accordance with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenue and expenses. Actual results could differ from those estimates.



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WENCOAST RESTAURANTS, INC.

Notes to Financial Statements (Continued)

January 1, 2006 and January 2, 2005

Note 2 - Property and equipment

Property and equipment as of January 1, 2006 and January 2, 2005 consists of the following:



|                                  |  |                |            |                |   |           
|--------------------------------- |  | -------------- | ---------- | -------------- | - | ----------
|                                  |  | January 1,2006 |            | January 2,2005
|Land                              |  | $              | 538,127    |                | $ | 3,162,762 
|Buildings and improvements        |  |                | 2,379,224  |                |   | 6,895,402 
|Furniture, fixtures and equipment |  |                | 11,659,772 |                |   | 11,401,005
|                                  |  |                |            |                |   |           
|                                  |  |                | 14,577,123 |                |   | 21,459,169
|Less accumulated depreciation     |  |                | 8,474,527  |                |   | 7,355,427 
|                                  |  |                |            |                |   |           
|Net property and equipment        |  | $              | 6,102,596  |                | $ | 14,103,742
|                                  |  |                |            |                |   |           

Note 3 - Long-term debt

Long-term debt as of January 1, 2006 and January 2, 2005 consists of the following:



|                                                                                                                                                                                                                      |  |                |            |                |   |           
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ---------- | -------------- | - | ----------
|                                                                                                                                                                                                                      |  | January 1,2006 |            | January 2,2005
|Note payable to GECC in monthly installments of $161,236, including principal and interest at 9.07%, maturing November, 2007                                                                                          |  | $              | 10,279,971 |                | $ | 10,886,184
|Notes payable to Regions Bank in monthly installments totaling $14,108, including principal and interest at rates ranging from 6.95% to 7.75%,
maturity dates from June, 2010 to June, 2018                           |  |                | 1,187,234  |                |   | 1,263,135 
|Notes payable collateralized by an automobile and certain equipment, payable in monthly installments totaling $2,521, including principal and
interest at various rates, maturity dates from May, 2005 to March, 2009 |  |                | 37,983     |                |   | 59,948    
|Notes payable retired in fiscal year 2005 as a result of sale-leaseback transactions                                                                                                                                  |  |                |           |                |   | 6,592,528 
|                                                                                                                                                                                                                      |  |                |            |                |   |           
|                                                                                                                                                                                                                      |  |                | 11,505,188 |                |   | 18,801,795
|Less current maturities                                                                                                                                                                                               |  |                | 627,696    |                |   | 1,593,944 
|                                                                                                                                                                                                                      |  |                |            |                |   |           
|Net long-term debt                                                                                                                                                                                                    |  | $              | 10,877,492 |                | $ | 17,207,851
|                                                                                                                                                                                                                      |  |                |            |                |   |           

All GECC and Regions Bank borrowings are collateralized by a security interest in substantially all restaurant
equipment, furniture and fixtures. Certain store locations include real estate and buildings that are also collateral.



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WENCOAST RESTAURANTS, INC.

Notes to Financial Statements (Continued)

January 1, 2006 and January 2, 2005

Note 3 - Long-term debt (continued)

Credit arrangements in connection with the notes payable to GECC contain, among other things, provisions regarding the maintenance of certain financial ratios and minimum cash flow requirements, as defined. As of January 1, 2006, the
Company was not in compliance with certain of these financial covenants. The lender is aware of these covenant violations and the Company is attempting to obtain a waiver of these requirements. Should the lender not grant such a waiver, the Company
may need to pursue other financing.

Principal maturities of long-term debt as of January 1, 2006 are as follows:



|            |  |   |           
|----------- |  | - | ----------
|Fiscal Year |  |  
|2006        |  | $ | 627,696   
|2007        |  |   | 9,846,426 
|2008        |  |   | 98,361    
|2009        |  |   | 103,282   
|2010        |  |   | 88,367    
|Thereafter  |  |   | 741,056   
|            |  |   |           
|            |  | $ | 11,505,188
|            |  |   |           

Note 4 - Related party transactions

There is a note due from a stockholder at January 1, 2006 and January 2, 2005 in the amount of $50,000. The note is unsecured, non-interest bearing and had an
original maturity date in May, 2005. This note was cancelled in 2006 as a result of the Settlement Agreement referred to in note 7.

A certain stockholder
is paid a quarterly management fee of $21,250. This stockholder was paid management fees of $85,000 in both fiscal years 2005 and 2004.

Note 5 - Retirement plan

The Company has a 401(k) retirement plan which covers all employees who meet eligibility
requirements as defined. The Companys contribution is based upon a matching percentage of the first 6% of participants eligible contributions not to exceed 3% of compensation. Effective January 31, 2005, the Companys matching
percentage was changed from 50% to 25%. Employer matching contributions totaled $17,006 in fiscal year 2005 and $30,321 in fiscal year 2004. The Company may also make additional discretionary contributions to the plan. There were no discretionary
contributions in 2005 or 2004.



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WENCOAST RESTAURANTS, INC.

Notes to Financial Statements (Continued)

January 1, 2006 and January 2, 2005

Note 6 - Stockholders equity

The authorized, issued and outstanding shares of capital stock at January 1, 2006 and January 2, 2005 are summarized as follows:



|                                                |  |            |  |                        |  |                
|----------------------------------------------- |  | ---------- |  | ---------------------- |  | ---------------
|                                                |  |            |  | Issued and Outstanding
|                                                |  | Authorized |  | Fiscal Year2005        |  | Fiscal Year2004
|Class A voting common stock, $.01 par value     |  | 200,000    |  | 98,000                 |  | 98,000         
|Class B non-voting common stock, $.01 par value |  | 800,000    |  | 352,000                |  | 352,000        

Note 7 - Commitments and contingencies

Franchise commitments

Under the terms of
its restaurant franchise agreements, the Company is obligated to make monthly royalty payments of four percent (4%) of net sales and monthly payments for national and local advertising and other fees at a minimum percentage of net sales.
For the fiscal years ended January 1, 2006 and January 2, 2005, the amounts incurred under these agreements totaled $1,411,656 and $1,431,963, respectively, for royalties and $1,485,058 and $1,502,067, respectively, for advertising.

Lease commitments

In April,
2005, the Company entered into a sale-leaseback agreement with an unrelated party involving six restaurant properties. Under the arrangement, the restaurant properties with a net book value of $5,351,899 were sold for $7,188,152 and leased back
under twenty year operating lease agreements. The Company received cash of $1,457,323, retired debt of $5,325,764 and paid closing costs and other fees related to the early retirement of debt with the remaining $405,065. The leases provide for
aggregate monthly base payments of $48,280 and expire in March, 2025 with options to extend the term of the leases for two additional five year periods.

In December, 2005, the Company entered into a second sale-leaseback agreement with an unrelated party involving one restaurant property. Under this arrangement, the restaurant property with a net book value of $1,102,656 was sold for
$1,746,912 and leased back under a twenty year operating lease agreement. The Company received cash of $518,590, retired debt of $1,121,322 and paid closing costs and other fees related to the early retirement of debt with the remaining $107,000.
The lease provides for monthly base payments of $12,144 and expires in November, 2025 with options to extend the term of the lease for two additional five year periods.



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WENCOAST RESTAURANTS, INC.

Notes to Financial Statements (Continued)

January 1, 2006 and January 2, 2005

Note 7 - Commitments and contingencies (continued)

In December, 2005, the Company entered into a third sale-leaseback agreement with an unrelated party involving one restaurant property. Under this arrangement, the Company simultaneously purchased the restaurant
property, sold the property and entered into an agreement to lease back the restaurant. The Company purchased the restaurant for $1,329,858 and subsequently sold the restaurant for $1,475,795. The Company received cash of $119,694, recovered the
purchase price of $1,329,858 and paid closing costs and other related fees of $26,243. The restaurant is leased under a twenty year operating lease agreement with two five year extension options. The lease provides for monthly base payments of
$9,675 and expires in November, 2025.

The Company leases thirty (30) restaurant properties under lease agreements with third parties which expire at
various dates through 2025. Rent expense under these operating leases totaled $2,770,145 in fiscal year 2005 and $2,406,246 in fiscal year 2004.

The
Company leases office facilities under noncancelable operating lease agreements which were set to expire February 28, 2006 and December 31, 2006. Monthly payments under these lease agreements totaled $8,152. The Company signed a two year
extension on the lease set to expire in February, 2006. Monthly payments under this agreement total $2,800. The operating lease set to expire in December, 2006 was terminated effective April 30, 2006 and a termination fee of $22,385 was paid.

At January 1, 2006, future minimum rental payments required under noncancelable operating leases are as follows:



|            |  |   |           
|----------- |  | - | ----------
|Fiscal Year |  |  
|2006        |  | $ | 2,713,527 
|2007        |  |   | 2,623,728 
|2008        |  |   | 2,523,988 
|2009        |  |   | 2,449,953 
|2010        |  |   | 2,109,119 
|Thereafter  |  |   | 21,284,083
|            |  |   |           
|            |  | $ | 33,704,398
|            |  |   |           

Employee health benefit plan

The Company sponsors a self-insured, comprehensive health benefit plan designed to provide insurance for approved health claims of eligible participants up to a certain
dollar amount. The Company maintains insurance for annual claims per employee in excess of $35,000. Expense recognized under the health benefit plan approximated $277,000 and $275,000 for the fiscal years 2005 and 2004, respectively. The Company
accrues its estimated liability for these self-insured benefits, including an estimate for incurred by not reported claims. Management believes the accrual is sufficient to cover the Companys estimated liability for covered claims.



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WENCOAST RESTAURANTS, INC.

Notes to Financial Statements (Continued)

January 1, 2006 and January 2, 2005

Note 7 - Commitments and contingencies (continued)

Legal matters

On June 6, 2005, the
Board of Directors terminated an individual who at the time was a stockholder, president of the Company, and a member of the Board. This stockholder subsequently filed suit against the remaining stockholder and the other members of the Board. The
Company filed a countersuit against this individual for matters pertaining to and arising out of the foregoing. On June 30, 2006, the parties executed a Settlement Agreement and Mutual Release in settlement of any and all claims related to
these actions. The Settlement Agreement included, among other things, the payment of $515,000 to the former stockholder and cancellation of his $50,000 note payable to the Company (see note 4) and related interest, fees and costs. The former
stockholder in return agreed to transfer and assign to the remaining stockholder all his rights, title and interests in the Company and in all franchise and license agreements related to the Companys business. In addition, both parties agreed
to a mutual release of any and all claims by either party.

Note 8 - Income taxes

There is no provision for income taxes for the fiscal years ended January 1, 2006 and January 2, 2005 as a result of operating losses and recording valuation
allowances related to the deferred federal and state income tax benefits for each of the years. Deferred income taxes result from the tax benefit of federal and state net operating loss carryforwards, the use of different depreciation methods for
financial reporting and tax purposes, and the differences in accounting for goodwill and the sale-leaseback transactions for financial reporting and tax purposes.

The components of the net deferred tax asset as of January 1, 2006 and January 2, 2005 are as follows:



|                                   |  |      |            |   |      |   |            |  
|---------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                   |  | 2005 |            |   | 2004 |  
|Deferred tax asset                 |  |      |            |   |      |   |            |  
|Net operating loss carryforwards   |  | $    | 2,524,000  |   |      | $ | 2,819,000  |  
|Deferred gain on sale-leaseback    |  |      | 840,000    |   |      |   |           |  
|                                   |  |      |            |   |      |   |            |  
|                                   |  |      | 3,364,000  |   |      |   | 2,819,000  |  
|Deferred tax liabilities           |  |      |            |   |      |   |            |  
|Property and equipment             |  |      | (655,000   | ) |      |   | (796,000   | )
|Goodwill                           |  |      | (731,000   | ) |      |   | (545,000   | )
|                                   |  |      |            |   |      |   |            |  
|                                   |  |      | (1,386,000 | ) |      |   | (1,341,000 | )
|Valuation allowance                |  |      | (1,095,000 | ) |      |   | (595,000   | )
|                                   |  |      |            |   |      |   |            |  
|Net non-current deferred tax asset |  | $    | 883,000    |   |      | $ | 883,000    |  
|                                   |  |      |            |   |      |   |            |  

The Company has recorded a valuation allowance to reduce deferred tax assets to estimated net realizable value
based upon managements assessment of such amounts at January 1, 2006 and January 2, 2005. Managements assessment will be updated periodically to reflect changes in the Companys business and results of operations.



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WENCOAST RESTAURANTS, INC.

Notes to Financial Statements (Continued)

January 1, 2006 and January 2, 2005

Note 8 - Income taxes (continued)

The Company has net operating loss carryforwards of approximately $6,640,000 to offset future federal and state taxable income. These carryforwards expire in the years 2020 through 2024.

Note 9 - Concentrations of risk

The
Company maintains cash and cash equivalents at two (2) commercial banks in amounts which, at January 1, 2006 and at other times throughout the year, exceeded federally insured limits. The Company has minimized risk by depositing cash and
cash equivalents in banks with a high credit standing. The Company has not experienced any losses of such funds and management believes the Company is not exposed to significant risk on cash and cash equivalents.

During fiscal years 2005 and 2004, the Company made significant purchases of food, beverages and paper goods from two vendors. Management does not consider this a
significant risk, as there are other vendors available to replace current vendors.

Note 10 - Correction of an error

During the fiscal year ended January 1, 2006, the Company discovered an error in previously reported depreciation expense on certain assets. As a
result, the correction of this error had the following effects on the January 2, 2005 financial statements: depreciation expense increased $241,260, property and equipment net of accumulated depreciation decreased $804,367, net loss for the
fiscal year 2004 increased $241,260, and accumulated deficit increased $563,107 to reflect the effects of the correction on years prior to fiscal year 2004.



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