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SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 FORM 10-K (MARK ONE) [X]
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the Fiscal Year Ended April 25, 2004 OR [  ]
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period from __________  to _________ Commission File Number: 0-28930 ROADHOUSE GRILL, INC. 
 (Exact Name of Registrant as Specified in its Charter)
 Florida
    
    65-0367604(State or Other Jurisdiction of
    
    (I.R.S. Employer Identification No.)Incorporation or Organization)
 2703-A GATEWAY DRIVE, POMPANO BEACH, FL 33069 
 (Address of Principal Executive Offices and Zip Code)
 Registrants telephone number, including area code (954) 957-2600 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class
    
    Name of Each Exchange on Which RegisteredNONE
    
    NOT APPLICABLE
 Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR VALUE $0.03 PER SHARE
(Title of Class) Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X ] No [  ] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes [  ] No [X] Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X ] No [  ] The number of shares of the registrants common stock outstanding as of
August 6, 2004 was 29,220,663.




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DOCUMENTS INCORPORATED BY REFERENCE None. 2




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ROADHOUSE GRILL, INC. FORM 10-K
FISCAL YEAR ENDED APRIL 25, 2004 INDEX PagePART IItem 1.
    
    Business
    
    
    6Item 2.
    
    Properties
    
    
    23Item 3.
    
    Legal Proceedings
    
    
    24Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    25PART IIItem 5.
    
    Market for Registrants Common Equity and Related Stockholder Matters
    
    
    26Item 6.
    
    Selected Financial Data
    
    
    28Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    30Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    46Item 8.
    
    Financial Statements and Supplementary Data
    
    
    47Item 9.
    
    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    47Item 9A.
    
    Controls and Procedures
    
    
    47PART IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    48Item 11.
    
    Executive Compensation
    
    
    50Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    54Item 13.
    
    Certain Relationships and Related Transactions
    
    
    56Item 14.
    
    Principal Accountant Fees and Services
    
    
    57PART IVItem 15.
    
    Exhibits, Financial Statement Schedules and Reports on Form 8-K
    
    
    59SIGNATURESTrademark License AgreementPurchase AgreementSec. 302 Chief Executive Officer CertificationSec. 302 Chief Financial Officer CertificationSec. 906 Chief Executive Officer CertificationSec. 906 Chief Financial Officer Certification
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FORWARD LOOKING STATEMENTS This report contains forward looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements concern
expectations, beliefs, projections, future plans and strategies, anticipated
events or trends and similar expressions concerning matters that are not
historical facts. Statements preceded by, followed by, or that include the
words believes, expects, anticipates, or similar expressions are
generally considered to be forward-looking statements. Specifically, this
report contains forward-looking statements regarding, among other matters, our
strategies, plans, objectives, expectations, future market position,
operations, cash flow, margins, revenue, profitability, restaurant-level
economics, liquidity and capital resources. Forward looking statements contained in this report are not guarantees of
future performance and involve certain risks, uncertainties and assumptions,
all of which are difficult to predict. We wish to caution readers that certain
important factors have affected in the past and may affect in the future our
actual results, and such factors could cause actual results to differ
significantly from those expressed or implied in any forward looking statement
contained in this report. Important factors that could cause actual results to
differ materially from those expressed or implied by the forward looking
statements in this report include, but are not limited to, the following:  
    
    Our having sufficient working capital to meet our future operating
and capital requirements;
    
    Our ability to manage our debt and comply with the terms of our debt
instruments, operating leases and capital leases;
    
    Our ability to increase our sales and manage our labor costs, food
costs, other restaurant costs and corporate expenses, and our ability to
operate our business on a cash flow positive and profitable basis;
    
    Our ability to acquire an adequate supply of food products at
acceptable prices, and events that affect the availability and pricing
of food products (such as instances of mad cow disease);
    
    Our ability to recruit, train and retain qualified management
personnel and to obtain a sufficient number of qualified restaurant
employees;
    
    Trends in consumer preferences, tastes and eating habits and
competition for consumer dollars, both from restaurants similar to our
restaurants and from restaurants generally;
    
    The level of competition from restaurants that operate in the markets
in which we operate;
    
    U. S. domestic economic conditions and the impact of international
conflicts on domestic economic conditions;
    
    The impact of seasonality on our business, resulting from having more
than half of our restaurants in Florida;
    
    Our ability to maintain financial and accounting controls, management
controls, and adequate reporting systems and procedures; 4




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
    
    Increases in interest rates;
    
    The future relisting of our common stock on a recognized securities
market and the development of a market for our common stock;
    
    Our ability to develop our restaurant concept and business beyond our
existing configuration of restaurants, including the availability of
financing to support future growth, our ability to find suitable
locations for new restaurants and the costs associated with opening new
restaurants; and
    
    To the extent that we decide to further franchise our restaurant
concept, our ability to locate suitable franchisees in markets which we
do not serve (both nationally and internationally) and the ability of
those franchisees to develop, open and successfully operate restaurants
in those markets. The forward looking statements contained in this report reflect our
current view about future events and are subject to risks, uncertainties and
assumptions. The important factors described above, as well as the factors
described elsewhere in this report, could cause the assumptions underlying our
forward looking statements to be incorrect and thereby cause our actual results
to differ materially from those expressed in or implied by our forward looking
statements. We undertake no obligation to revise any of the forward looking
statements contained in this report, which speak only as of the date hereof.
Readers of this report are therefore cautioned not to place undue reliance on
these forward looking statements. 5




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PART I 
 ITEM 1. BUSINESS GENERAL We operate high-quality, full-service casual dining restaurants under the
name Roadhouse Grill. We currently operate 69 restaurants, 34 of which are
located in Florida and the balance of which are located in Alabama, Arkansas,
Georgia, Louisiana, Mississippi, New York, North Carolina, Ohio and South
Carolina. There are also 11 Roadhouse Grill restaurants currently in operation
that are operated by franchisees and licensees. Franchised and licensed restaurants are
located in Malaysia (3), Brasilia, Brazil (1), Las Vegas, Nevada (1),
Cincinnati, Ohio (1) and Italy (5). Our primary business is the operation of full-service, casual dining
restaurants. Roadhouse Grill restaurants offer a diverse, moderately priced
lunch and dinner menu highlighting exhibition cooking of steaks and other
grilled entrees. In addition to steaks and other grilled items, our
restaurants feature daily fresh baked yeast rolls, free peanuts and certain
appetizers as signature items. Guest satisfaction comes from a pleasant
restaurant atmosphere in which high-quality food and beverages are served at
competitive prices. The key elements that define the Roadhouse Grill concept
are:  
    
    Premium Quality Grilled Entrees and a Diverse Menu. Roadhouse
Grill restaurants offer a wide variety of steaks, chicken, seafood
and other entrees, many of which are grilled in an exhibition style
kitchen.
    
    High Price/Value to Guests. Roadhouse Grill restaurants strive
to provide a high price/value dining experience for our guests by
offering a broad, moderately priced menu and serving high quality
generous portions.
    
    Attentive, Friendly Service. We believe that a distinctive,
enjoyable dining experience is made possible through excellent
service. Accordingly, we seek to hire restaurant managers and other
restaurant personnel who possess strong initiative and the ability to
provide quality and personalized service.
    
    Spacious, Open Layout. Roadhouse Grill restaurants are
designed to have a fun and casual atmosphere. The interior of each
restaurant is large, open and visually appealing, with exposed
ceilings designed to create a casual ambiance.
    
    Broad Customer Appeal. The Roadhouse Grill concept is designed
to appeal to a broad range of customers, including business people,
couples, singles and, particularly, families. We believe that to be
attractive to families, a concept must be appealing to both children
and parents. Consequently, Roadhouse Grill restaurants furnish
children with coloring menus, balloons and a free souvenir cup. In
addition, each restaurant offers a special Kids Menu featuring an
assortment of entrees. For adults, each Roadhouse Grill restaurant
offers alcoholic beverages from its full-service bar, which is
separated from the dining area. 6




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RECENT EVENTS On August 6, 2004, we closed a transaction with Sovereign Roadhouse LLC, a
wholly-owned subsidiary of Sovereign Investment Company, (Sovereign)
involving the sale and leaseback of eleven restaurant properties that we had
previously owned. The sale price for the eleven properties was $21.8 million.
The properties are being leased from Sovereign under lease agreements that
extend for 20 years and include four five-year renewal options.
We used approximately $18.1 million of the net proceeds from the sale to pay expenses related to the transaction and approximately $24.6 million of
secured debt, which was repaid at a discount (resulting in a gain on
extinguishment of debt of approximately $7.1 million). The net gain from the
debt repayment will be reflected in our consolidated financial statements in
the second quarter of fiscal 2005. We also realized a gain on the sale of the
properties of approximately $1.7 million, which will be recorded as a reduction
of occupancy and other expense over the life of the leases. The remaining net
proceeds from the sale, of approximately $3.7 million, will be used for working capital, including new marketing initiatives to promote our existing restaurants. See Note 20 of Notes to Consolidated Financial Statements and
Item 7. Managements Discussion of Financial Condition and Results of Operations. RISK FACTORS WE HAVE EXPERIENCED SIGNIFICANT LOSSES FROM OPERATIONS AND CASH FLOW PROBLEMS
IN THE PAST. We emerged from a Chapter 11 reorganization proceeding on September 20,
2002. See Note 2 of Notes to Consolidated Financial Statements for information
about our Chapter 11 proceeding. During the last three fiscal years, our net
losses were $6.0 million, $11.2 million and $21.4 million. Further, we have
experienced substantial cash flow problems in the past, and may do so again in
the future. There can be no assurance that we will be able to achieve and
sustain profitable and cash flow positive operations. OUR PROFITABILITY IS DEPENDENT IN LARGE MEASURE ON FOOD AND SUPPLY COSTS WHICH
ARE NOT WITHIN OUR CONTROL. Our ability to operate our business on a profitable and cash flow positive
basis is dependent in part on our ability to deal with changes in food costs
and matters that effect the supply of necessary food products to our
restaurants. Various factors, many of which are beyond our control, affect food
costs and the availability of certain food products, including climatic
changes, disease or illness in beef cattle (such as mad cow disease) that could
impact supply in the marketplace, and government regulations. Specifically, we
are dependent in the operation of our business on frequent, timely deliveries
of beef, poultry, seafood and produce, which subjects our business to the risks
of possible shortages or interruptions in supply caused by adverse weather or
other conditions which could adversely affect the availability and costs of
these items. These factors have in the past and could in the future materially
affect our business and results of operations. OUR OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY FROM QUARTER TO QUARTER DUE
TO VARIOUS FACTORS BEYOND OUR CONTROL, INCLUDING SEASONALITY. Our operating results have in the past and are likely in the future to
fluctuate seasonally because of the geographic concentration of our operations
in Florida, where 34 of our restaurants are located. Restaurant sales in our
Florida restaurants generally increase from November through April, the peaks
of the Florida tourism season, and generally decrease from May through October.
Further, the results of 7




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operations of our Florida restaurants and thereby our overall results of
operations have in the past and may continue in the future to be materially
adversely affected by declines in tourism in Florida, downturns in the Florida
economy or by hurricanes or other adverse weather conditions in Florida. To
offset these seasonal trends and to attempt to reduce the decline in sales
during the off-season, we generally run special promotions for our customers
during off-peak periods and incentive contests for our employees. Also,
adverse publicity in Florida relating to Roadhouse Grill restaurants could have
a more pronounced effect on our results of operations than might be the case if
our restaurants were broadly dispersed geographically. Although we currently
have more restaurants outside Florida than inside Florida, our non-Florida
restaurants are more broadly disbursed among a wide geographic area, and
therefore have not materially affected the historical seasonality of our
business. In addition to seasonality, our quarterly and annual operating results and
our comparable restaurant sales may fluctuate significantly from period to
period as a result of a variety of factors, including:  
    
    The efforts we make from time to time (including advertising and
promotional programs) to increase our sales, and the success or failure
of those programs;
    
    The results of our continual efforts to manage our labor costs, food
costs, other restaurant costs and corporate expenses;
    
    Our ability to acquire an adequate supply of food products at
acceptable prices, and events that affect the availability and pricing
of food products (such as instances of mad cow disease);
    
    Our ability to recruit, train and retain qualified management
personnel and to obtain sufficient numbers of qualified restaurant
employees;
    
    The level of competition from existing or new competitors in the
markets in which our restaurants are located;
    
    Trends in consumer preferences, tastes and eating habits and
competition for consumer dollars, both from restaurants similar to our
restaurants and from restaurants generally; and
    
    U. S. domestic economic conditions, particularly in the markets in
which we operate, and the impact of international conflicts on domestic
economic conditions. In addition, our quarterly or annual results may be affected by costs
associated with the opening of new restaurants during any period. We typically
incur the most significant portion of preopening expenses associated with a
newly opened restaurant within the two months immediately preceding and the
month of the opening of the new restaurant. Further, we believe that the labor
and operating costs associated with a newly opened restaurant for the first
several months of operation are materially greater than those expected after
that time, both in aggregate dollars and as a percentage of revenues.
Accordingly, the volume and timing of new restaurant openings has had in the
past and may have in the future a meaningful impact on preopening expenses and
labor and operating costs from period to period. 8




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OUR BUSINESS IS IMPACTED BY THE INTENSE COMPETITION IN THE FULL SERVICE CASUAL
DINING SECTOR AND IN THE RESTAURANT INDUSTRY GENERALLY. The restaurant industry, particularly the full-service casual dining
segment, is highly competitive. We compete with a broad range of restaurants,
including national and regional casual dining chains as well as locally-owned
restaurants, some of which operate with concepts similar to ours. We believe
that the competitive factors that are used by consumers to differentiate among
restaurants include price, service, location, concept and food quality,
including taste, freshness, and nutritional value. We believe that we compete
effectively in our markets. However, many of our competitors possess
substantially greater financial, marketing, personnel and other resources than
we do and have greater brand name recognition than we do. We also compete with
other restaurants and restaurant chains for sites for new restaurants and for
employees. We believe that the full-service casual dining segment is likely to
continue to attract a significant number of new entrants. In addition, the
full-service restaurant industry is characterized by the frequent introduction
of new food products, which are accompanied by substantial promotional
campaigns. In recent years, numerous companies in the full-service casual
restaurant industry have introduced products intended to capitalize on growing
consumer preference for food products which are, or are perceived to be,
healthful, nutritious, low in calories, low in carbohydrates and/or low in fat
content. We believe that we will be subject to increasing competition from
companies whose products or marketing strategies address these consumer
preferences, and we may need to modify or refine elements of our business in
order to effectively compete with popular new restaurant formats or concepts
that develop from time to time. There can be no assurance that we will be
successful in implementing any such modifications. WE ARE DEPENDENT UPON SUPPLY AND QUALITY OF FOOD PRODUCTS. Our operations depend upon frequent deliveries of quality food products.
We are routinely exposed to the risks that shortages or interruptions in supply
can occur and adversely affect the availability, quality and cost of these
critical food products. Regional weather conditions may also adversely affect
product supply and quality. We have in the past experienced difficulty in
obtaining adequate supplies of food products, or at a cost that allowed such
products to be sold on a profitable basis. There can be no assurance that
future food supply shortages or interruptions, especially with respect to steak
products, might not have a material adverse effect on our sales, operations and
profitability. OUR BUSINESS IS AFFECTED BY LITIGATION AND PUBLICITY CONCERNING FOOD QUALITY,
HEALTH AND OTHER ISSUES WHICH CAN CAUSE GUESTS TO AVOID OUR RESTAURANTS AND
WHICH CAN RESULT IN LIABILITIES. Health concerns, including adverse publicity concerning food-related
illness, whether or not specifically related to our restaurants, could cause
guests to avoid certain restaurant groups including our restaurants, thereby
having a negative impact on our sales. We may also be the subject of
complaints or litigation from guests alleging food-related illness, injuries
suffered on our premises or other food quality, health or operational concerns.
A lawsuit or claim could result in an adverse decision against us that could
have a material adverse effect on our business and results of operations. We
may also be subject to litigation which, regardless of the outcome, could
result in adverse publicity. Adverse publicity resulting from such allegations
may materially adversely affect our business, regardless of whether such
allegations are true or whether we are ultimately held liable. Such
litigation, adverse publicity or damages could have a material adverse effect
on our business, competitive position and results of operations. 9




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WE COULD FACE LABOR SHORTAGES, INCREASED LABOR COSTS, AND OTHER ADVERSE EFFECTS
OF VARYING LABOR CONDITIONS. The success of our restaurants depends, in large part, on the efforts,
abilities, experience and reputations of the general managers and chefs at each
of our restaurants. Our inability to recruit and retain qualified individuals
may delay the opening of new restaurants or result in higher employee turnover
in existing restaurants, which could materially and adversely affect our
results of operations or business. Our success also depends, in part, upon our
ability to attract, motivate and retain a sufficient number of qualified
employees, including restaurant managers, kitchen staff and wait staff.
Qualified individuals needed to fill these positions are in short supply. A
significant delay in finding qualified employees or high turnover among
existing employees could cause our business and results of operations to
suffer. Also, competition for qualified employees could require us to pay
higher wages to attract sufficient qualified employees. Further, a number of
our employees are subject to various minimum wage requirements. The federal
minimum wage has remained at $5.15 per hour since September 1, 1997. Any
minimum wage increase may have a material adverse effect on our business,
financial condition, results of operations or cash flows. WE MAY NOT BE ABLE TO SUCCESSFULLY EXPAND IN THE FUTURE. We opened only one company-owned restaurant in fiscal 2004 and no
additional company-owned restaurants are currently expected to be opened in
fiscal 2005. Our ability to expand our restaurant operations will depend, in
large measure on our ability to generate sufficient income from operations, as
well as having sufficient debt and/or equity financing available on acceptable
terms, to fund the costs of developing additional company-owned restaurants.
Further, even if we have the funding required to open new company-owned
restaurants in the future, our ability to successfully open new restaurants
will be affected by various factors, including the need to locate suitable
restaurant sites, the negotiation of favorable lease arrangements for such
sites, the management of the costs of development of the new restaurants, our
ability to secure the approvals and permits necessary to open new restaurants
and our ability to successfully retain quality restaurant management and
restaurant personnel to staff the new restaurant. Finally, even if new
restaurants are opened, there may be delays in the opening of such restaurants
that could affect our expectations regarding the impact of such restaurants on
our consolidated sales and operating results and there can be no assurance that
any restaurants we open will operate profitably and be cash flow positive. WE ARE DEPENDENT UPON OUR EXECUTIVE OFFICERS AND KEY EMPLOYEES. We are and will continue to be dependent on the services of our executive
officers and key employees, including Ayman Sabi, our Chief Executive Officer.
The loss of Mr. Sabis services, or the loss of the services of our other
executive officers or our key employees, could have a material adverse effect
on our business, and there can be no assurance that an adequate replacement
could be found if the services of Mr. Sabi, our other executive officers or our
key employees were unavailable. OUR FAILURE TO COMPLY WITH GOVERNMENTAL REGULATIONS COULD HARM OUR BUSINESS AND
REPUTATION AND ADVERSELY AFFECT OUR OPERATIONS. Our business is subject to federal, state and local regulations with
respect to, among other matters, building, fire, health, sanitation and safety.
Further, our development of future restaurants will be subject to laws, rules
and regulations concerning land use, building, zoning and environmental
matters. 10




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Various federal and state labor laws govern our operations and our
relationship with our employees, including minimum wage, overtime, safety and
working conditions, fringe benefit and citizenship requirements. In
particular, we are subject to the regulations of the Immigration and
Naturalization Service (INS). Given the location of many of our restaurants,
even if we operate those restaurants in strict compliance with INS
requirements, our employees may not all meet federal citizenship or residency
requirements, which could lead to disruptions in our work force. Further,
material increases in unemployment tax rates, minimum wage requirements, sales
taxes or the cost of compliance with any applicable law or regulation could
materially and adversely affect our business. Sales of alcoholic beverages account for approximately 10% of our
revenues. Since we sell alcoholic beverages, we are required to comply with the
alcohol licensing requirements of the various government agencies, including
states and municipalities where our restaurants are located. Alcoholic
beverage control regulations require each Roadhouse Grill restaurant to apply
to a state authority and, in certain locations, county and/or municipal
authorities for a license or permit to sell alcoholic beverages on the premises
and to provide service for extended hours. Typically, licenses must be renewed
annually and may be revoked or suspended for cause at any time. If a liquor
license for any restaurant were lost, revenues for that restaurant would be
adversely affected. Alcoholic beverage control regulations relate to numerous
aspects of our restaurants, including minimum age of patrons consuming and
employees serving alcoholic beverages, hours of operation, advertising,
wholesale purchasing, inventory control, and handling, storage and dispensing
of alcoholic beverages. Our restaurant operations are also subject to
dram-shop statutes, which generally provide a person injured by an
intoxicated person the right to recover damages from an establishment that
wrongfully served alcoholic beverages to the intoxicated person. Any liability
under such statutes could have a material adverse effect on our results of
operations and financial condition. While we carry liquor liability coverage
as part of our existing comprehensive general liability insurance, there can be
no assurance that our insurance coverages will be adequate. The federal Americans with Disabilities Act prohibits discrimination on
the basis of disability in public accommodations and employment. We are
required to comply with the Americans with Disabilities Act and regulations
relating to accommodating the needs of the disabled in connection with the
construction of new facilities and with significant renovations of existing
facilities, which will over time require an incremental capital investment by
us. Finally, in connection with our franchise operations, we are required to
comply with Federal Trade Commission and state laws and regulations that govern
the offer, sale and termination of franchises and the refusal to renew
franchises. We believe that we operate our business within the requirements of
applicable federal, state and local laws and regulations. However, our failure
to operate in accordance with any or all of such regulations, or an allegation
that we are operating in violation of such regulations, even if it turns out
not to be true, could have a material adverse impact on our business, financial
position or results of operations. WE ARE SELF-INSURED IN CERTAIN OF OUR INSURANCE COVERAGES AND HAVE EXPERIENCED
INCREASED INSURANCE COSTS. We maintain insurance to cover the potential liabilities associated with a
number of the risks that we may encounter in our business operations. These
include property and flood coverage, auto, workers compensation, general
liability and umbrella, directors and officers liability, employers practice
liability and crime insurance. Many of the policies, such as property, flood
and directors and officers liability, include 11




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deductibles ranging from $100,000 to $250,000 per claim. For many policy
years, under workers compensation, employers practice liability and general
liability coverage, we are effectively self-insured up to varying
self-insurance retention limits set on an individual claim basis ranging up to
$300,000 per claim and on an aggregate basis. We are also self-insured in
regard to the medical insurance benefits that we provide to our managers and
certain other employees. These employees who elect to receive medical
insurance benefits are required to contribute a portion of the cost of
providing the insurance benefits. Due to the trends currently being experienced in the insurance industry,
we believe that insurance costs will continue to represent a significant
expense to us and may increase in the future. We continually evaluate our
options relating to controlling these costs, including changes in insurance
carriers and brokers, modifications to certain of the provisions of our
policies (including deductibles and self-insured retention limits) and changes
in the portion of costs incurred in providing coverage for our employees that
are paid by the employees who participate in the particular insurance plan. OUR COMMON STOCK IS QUOTED ON THE PINK SHEETS, AND INVESTORS MAY FIND IT
DIFFICULT TO SELL OUR COMMON STOCK. Our common stock is currently quoted on the pink sheets. The fact that
our common stock is not listed on the NASDAQ stock market or on a stock
exchange is likely making trading our shares difficult for broker-dealers,
shareholders and investors. It may also make it more difficult for us to raise
additional equity capital in the future. While we hope to relist our common
stock on a nationally recognized market in the future, there can be no
assurance that our common stock will qualify for trading or quotation on a
nationally recognized market in the future. Because our shares are traded on the pink sheets and trade below $1 per
share, we are also subject to SEC rules concerning the trading of so-called
penny stocks. Under these rules, broker-dealers who sell securities governed
by the rule to persons who are not established customers or accredited
investors must make a special suitability determination and must receive the
purchasers written consent to the transaction prior to the sale. These rules
may deter broker-dealers from recommending or trading our stock. APPROXIMATELY 66.5% OF OUR OUTSTANDING COMMON STOCK IS HELD BY ONE SHAREHOLDER,
WHICH WILL LIMIT OTHER SHAREHOLDERS ABILITY TO INFLUENCE CORPORATE MATTERS. At April 25, 2004, Berjaya Group (Cayman) Limited, the ultimate parent of
which is Berjaya Group Berhad, a diversified holding company headquartered in
Malaysia, beneficially owned, directly or indirectly, approximately 66.5% of
our outstanding common stock. See Item 12. Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters. As a
result, Berjaya is able to control major decisions of corporate policy, elect
our entire board of directors and determine the outcome of any major
transaction or other matters submitted to our shareholders, including potential
mergers or acquisitions, and amendments to our articles of incorporation.
Shareholders other than Berjaya are therefore likely to have little or no
influence on decisions regarding such matters. Third parties may be
discouraged from making a tender offer or bid to acquire us because of this
concentration of ownership. 12




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COMPANY-OWNED RESTAURANT OPERATIONS MENU The Roadhouse Grill menu, which was revised and expanded in June 2003,
features aged USDA Choice steaks and prime rib, beef ribs, chicken and seafood,
all of which are grilled to order. Our steaks are aged both before and after
being cut and trimmed. The menu features over sixty items, including 11 cuts
of steak ranging from 6 oz. to 18 oz. We are known for our Roadie, a bourbon
marinated sirloin, our prime rib and award-winning baby-back ribs. In addition
to grilled selections, our menu offers a variety of specialty drinks, a pasta
dish, several seafood dishes, a wide variety of appetizers, sandwiches, and
salads, including signature items such as our Roadhouse cheese wraps, and a
variety of desserts, most notably the messy sundae. Each entree is served
with a choice of a house salad or Caesar salad, a choice of baked sweet potato,
baked potato, home fries, french fries or rice pilaf, homemade yeast rolls and
peanuts. Roadhouse Grill restaurants are open seven days a week for lunch and
dinner and offer full bar service. Entrée prices range from $6.99 to $19.49.
From 11:00 a.m. to 3:00 p.m. Monday through Friday, in addition to our full
menu, each Roadhouse Grill offers a selection of 15 lunch menu items ranging
from charbroiled steak salad to southern fried chicken tenders and french
fries, as well as daily specials, all prepared to order quickly and priced at
$7.99 or less. UNIT ECONOMICS The 68 company-owned Roadhouse Grill restaurants that were open for the
entire 52 weeks in the fiscal year ended April 25, 2004 (fiscal 2004) generated
average net sales of approximately $2.0 million, average restaurant-level cash
flow (restaurant net sales less cost of restaurant sales, excluding pre-opening
expenses) of $159,000 and average operating income (restaurant-level cash flow
less depreciation and amortization) of $60,000. Our average cash investment for these 68 restaurants was approximately
$1.6 million, including building structures (where applicable), building or
leasehold improvements and equipment and fixtures, but excluding land and
pre-opening costs. Restaurant-level economics are affected to the extent that
we construct free-standing units on company-owned or leased land, rather than
leasing existing buildings. In such cases, initial development costs are
substantially greater and occupancy costs (other than depreciation) are
substantially less than when we lease existing buildings. We cannot predict if
average unit-level economics would be altered significantly if in the future
the mix of restaurants placed in leased buildings compared to free-standing
buildings on company-owned or leased land were to change materially from our
current mix. 13




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RESTAURANT LOCATIONS The following table sets forth the location of each of our company-owned
restaurants open as of April 25, 2004: Number ofLocation
    
    RestaurantsFlorida
    
    
    34Georgia
    
    
    9New York
    
    
    6Louisiana
    
    
    2South Carolina
    
    
    2Alabama
    
    
    2Mississippi
    
    
    3Ohio
    
    
    8Arkansas
    
    
    1North Carolina
    
    
    2Total
    
    
    69
 RESTAURANT OPERATIONS AND MANAGEMENT Restaurant Personnel. We believe that excellent service contributes
significantly to a distinctive, enjoyable dining experience. Accordingly, we
seek to hire individuals who possess strong initiative and the ability to
provide quality and personalized service. Roadhouse Grill attempts to foster
the individuality of its employees, encouraging them to interact with customers
on a friendly, casual basis. We recruit both experienced restaurant managers
from outside the company and promote qualified employees from within the
company. We seek to retain high-quality restaurant managers and personnel by
providing them with opportunities for promotion and financial incentives based
on individual restaurant performance. These financial incentives include a
bonus plan that enables each restaurant manager to earn a portion of a bonus
pool by achieving certain predetermined performance goals. To further enhance
the team concept, restaurant managers also have an opportunity for financial
incentives based on our consolidated company-wide financial results. Roadhouse Grill restaurants generally operate with a general manager, a
dining room manager, a kitchen manager and one or two assistant managers,
depending upon volume. The general manager of each restaurant has primary
responsibility for managing the day-to-day operations of the restaurant in
accordance with our company-wide standards. The general manager and kitchen
manager of each restaurant generally are responsible for interviewing, hiring
and training restaurant staff. Each restaurant has a staff of approximately 60
to 70 employees. We devote a significant amount of time and resources to restaurant
management and staff training. Each new manager participates in an eight-week
training program, which is conducted both at designated training restaurants
and our corporate office, before assuming an assistant manager position (or, in
some instances, a kitchen manager position) at a Roadhouse Grill restaurant.
This program is designed to provide training in all areas of restaurant
operations, including food preparation and service, alcoholic beverage 14




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service, company philosophy, operating standards, policies and procedures,
and business management and administration techniques. These new managers are
also trained and evaluated in regards to behavioral skills and other topics to
ensure they possess the ability to succeed in managing one of our restaurants.
The managers of the training restaurant conduct weekly evaluations of each
manager trainee. In connection with the opening of a new restaurant, we send an experienced
training team to train and assist the new restaurant employees. The training
team generally arrives at each restaurant two weeks prior to opening and
remains for four weeks after opening. Typically, the general manager, the
dining room manager and the kitchen manager of each new restaurant are
individuals who have been managers at an existing Roadhouse Grill restaurant. The development and success of our restaurants depends, in part, on the
efforts, abilities, experience and reputations of the general managers and
chefs at our restaurants. Our inability to recruit and retain high-quality
personnel may delay the opening of new restaurants or result in higher employee
turnover in existing restaurants, which could materially and adversely affect
our results of operations or business. Competition for qualified employees
could require us to pay higher wages to attract sufficient qualified employees. Additionally, our restaurant operations are overseen by our Vice President
of Operations and by our nine directors of operations, each of whom is
responsible for supervising the operations of six to ten restaurants. Purchasing. To better insure uniform quality and obtain competitive
prices, we contract centrally for most restaurant food products and other
supplies. Individual restaurants decide the amount of each item they require
and place orders directly with our distributors several times a week. Managers
also arrange for produce items to be provided by local vendors that meet our
quality standards. Corporate management closely monitors prices and other
supply contract terms for locally and centrally contracted items. Because of
the volume of our aggregate orders and the volume of supplies delivered to each
individual restaurant, we believe that we are able to obtain favorable prices
for our supplies. Our profitability is dependent in part on our ability to anticipate and
react to changes in food and supply costs. Various factors beyond our control,
including climatic changes, disease or illness in beef cattle that could impact
supply in the marketplace and government regulations, may affect food costs.
Specifically, our dependence on frequent, timely deliveries of beef, poultry,
seafood and produce subjects us to the risks of possible shortages or
interruptions in supply caused by adverse weather or other conditions which
could adversely affect the availability and cost of any such items. Our
failure or inability to deal with these increases or shortages could materially
and adversely affect our business and result of operations. In addition, during fiscal 2004, we purchased approximately 81% of our
food and other restaurant supplies from two distributors. Our dependence on a
small number of suppliers subjects us to the risk of possible shortages or
interruptions in supply if one of these distributors is not able to provide
food and supplies to our restaurants in a timely manner. However, we believe
that the benefits of working with a small number of high-quality, financially
stable vendors and realizing the benefits of primarily centralized distribution
offsets the risks associated with this supplier dependence. Hours of Operation. Roadhouse Grill restaurants are open seven days a
week, typically from 11:00 a.m. to 10:00 p.m. Sunday through Thursday and from
11:00 a.m. to 11:00 p.m. on Friday and Saturday. 15




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Reporting and Financial Controls. We maintain reporting, financial and
accounting controls for each of our restaurants through the use of centralized
accounting and management information systems. We have also developed and
continue to enhance corporate policies and procedures designed to maintain
consistency in our operations and to strengthen internal accounting controls.
Through the review of periodic financial information, on-site visits to our
restaurants and other means, we continually evaluate compliance with our
policies and procedures. In addition, each of our restaurants is equipped with
a computerized accounting system that allows restaurant management to
efficiently manage labor, food cost and other direct operating expenses, that
provide corporate management rapid access to financial data and that reduces
time devoted by our restaurant managers to administrative responsibilities.
Guest counts, sales, cash deposits and labor cost information are collected
daily from each restaurant. Physical inventories of all food and beverage
items are performed weekly. Each restaurant manager prepares a restaurant
level weekly profit and loss statement, and at the end of each accounting
period, operating statements are prepared for each location. The weekly and
accounting period operating statements are reviewed at both the corporate level
and restaurant level for variances from expected results to allow for any
corrective actions to be taken as quickly as possible. ADVERTISING AND MARKETING Our motto is: Roadhouse Grill...Eat, Drink and be Yourself. We attempt
to build brand-awareness by providing a distinctive dining experience that
results in a significant number of new customers being attracted through word
of mouth, as well as by traditional marketing efforts and promotional
activities. We believe that clustering multiple restaurants in target markets
helps build brand-awareness and increases the efficiencies in our marketing
efforts. We also utilize radio, billboard and print advertising to promote our
restaurants and build brand-awareness. In addition, beginning in fiscal 2004,
we used a program with a rewards and loyalty company to market our restaurants.
Further, we market at the restaurant level through sponsorship of community
charity activities, sporting events, festivals and Chamber of Commerce events.
For fiscal years 2004, 2003 and 2002, advertising and marketing expense
relating to Roadhouse Grill restaurants amounted to approximately 2.4%, 2.4%
and 1.7% of total revenues, respectively. Excluding the expense related to our
program with the rewards and loyalty company, advertising and marketing expense
amounted to 1.5% of total revenues in fiscal 2004. Over the last few years, because of our financial condition, we have not
been able to invest in marketing initiatives at the same level as many of our
competitors. However, during fiscal 2005, we expect to use some of the working
capital available to us from the sale/leaseback transaction described above
under Recent Events to invest in additional marketing initiatives. RESTAURANT INDUSTRY AND COMPETITION The restaurant industry is highly competitive. We compete with a broad
range of restaurants, including national and regional casual dining chains as
well as locally-owned restaurants, some of which operate with concepts similar
to ours. A number of our competitors have been in existence longer than us and
have substantially greater financial, marketing and other resources and wider
geographical diversity than we do. The entrance of new competitors into our
market areas or the expansion of operations by existing competitors could have
a material adverse effect on our future results of operations and financial
condition. There is no assurance that we will be able to compete successfully
in the markets in which we operate. In addition, we compete with other
restaurant companies and retailers for sites, labor and, in many cases,
customers. We believe that the key competitive factors in the restaurant
industry are price, quality of food and service, location and concept. To the
extent that one or more of our competitors becomes more 16




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successful with respect to any of the key competitive factors, then our
business could be materially adversely affected. The restaurant industry has few non-economic barriers to entry and is
affected by changes in consumer tastes as well as national, regional and local
economic conditions, demographic trends, traffic patterns, and the type, number
and location of competing restaurants. There are various other factors which
generally affect competitors in the restaurant industry. Dependence on fresh
meats and produce also subjects restaurant companies to the risk that shortages
or interruptions of supply could adversely affect the availability, quality or
cost of ingredients. In addition, factors such as inflation, increased food,
labor and employee benefit costs and the availability of qualified management
and hourly employees also may adversely affect us and our restaurant
competitors. The significant investment in and long-term commitment that we
make to each of our restaurant sites limits our ability to respond quickly or
effectively to changes in local competitive conditions or other changes that
could affect our operations. The success of our restaurant concept will also
be dependent on the performance of franchisee-owned restaurants over which we
have limited control. SEASONALITY Our operating results fluctuate seasonally because of our geographic
concentration in Florida, where we have 34 of our 69 company-owned restaurants.
Our restaurant sales generally increase from November through April, the peak
period of the Florida tourism season, and generally decrease from May through
October. In addition, because of our present geographic concentration, our
results of operations have been and may continue to be materially adversely
affected by a decline in tourism in Florida, downturns in Floridas economy or
by hurricanes or other adverse weather conditions in Florida. To offset this
seasonal trend and to attempt to reduce the decline in sales during the
off-season, we run special promotions for our customers, incentive contests for
our employees and otherwise focus marketing initiatives on increasing sales
during these off-season periods. GOVERNMENT REGULATION Our business is subject to federal, state and local regulations with
respect to, among other matters, building, fire, health, sanitation and safety.
Further, our development of future restaurants will be subject to laws, rules
and regulations concerning land use, building, zoning and environmental
matters. Various federal and state labor laws govern our operations and our
relationship with our employees, including minimum wage, overtime, safety and
working conditions, fringe benefit and citizenship requirements. In
particular, we are subject to the regulations of the Immigration and
Naturalization Service (INS). Given the location of many of our restaurants,
even if we operate those restaurants in strict compliance with INS
requirements, our employees may not all meet federal citizenship or residency
requirements, which could lead to disruptions in our work force. Further,
material increases in unemployment tax rates, minimum wage requirements, sales
taxes or the cost of compliance with any applicable law or regulation could
materially and adversely affect our business. Sales of alcoholic beverages account for approximately 10% of our
revenues. Since we sell alcoholic beverages, we are required to comply with the
alcohol licensing requirements of the various government agencies, including
states and municipalities where our restaurants are located. Alcoholic
beverage control regulations require each Roadhouse Grill restaurant to apply
to a state authority and, in certain locations, county and/or municipal
authorities for a license or permit to sell alcoholic beverages on the premises
and to 17




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provide service for extended hours. Typically, licenses must be renewed
annually and may be revoked or suspended for cause at any time. If a liquor
license for any restaurant were lost, revenues for that restaurant would be
adversely affected. Alcoholic beverage control regulations relate to numerous
aspects of our restaurants, including minimum age of patrons consuming and
employees serving alcoholic beverages, hours of operation, advertising,
wholesale purchasing, inventory control, and handling, storage and dispensing
of alcoholic beverages. Our restaurant operations are also subject to
dram-shop statutes, which generally provide a person injured by an
intoxicated person the right to recover damages from an establishment that
wrongfully served alcoholic beverages to the intoxicated person. Any liability
under such statutes could have a material adverse effect on our results of
operations and financial condition. While we carry liquor liability coverage
as part of our existing comprehensive general liability insurance, there can be
no assurance that our insurance coverages will be adequate. The federal Americans with Disabilities Act prohibits discrimination on
the basis of disability in public accommodations and employment. We are
required to comply with the Americans with Disabilities Act and regulations
relating to accommodating the needs of the disabled in connection with the
construction of new facilities and with significant renovations of existing
facilities, which will over time require an additional incremental capital
investment by us. Our operations are subject to various local, state and federal laws
regulating the discharge of pollutants into the environment. We believe that
our operations are in material compliance with applicable environmental laws
and regulations, and we conduct environmental audits of all proposed restaurant
sites in order to determine whether there is any evidence of contamination
prior to purchasing or entering into a lease with respect to such sites.
However, there can be no assurance that we will not incur material
environmental liability in connection with any of our owned or leased
properties. Finally, in connection with our franchise operations, we are required to
comply with Federal Trade Commission and state laws and regulations that govern
the offer, sale and termination of franchises and the refusal to renew
franchises. We believe that we operate our business within the requirements of
applicable federal, state and local laws and regulations. However, our failure
to operate in accordance with any or all of such regulations, or an allegation
that we are operating in violation of such regulations, even if it turns out
not to be true, could have a material adverse impact on our business, financial
position or results of operations. INSURANCE We maintain insurance to cover the potential liabilities associated with a
number of the risks that we encounter in our business operations. These
include property and flood coverage, auto, workers compensation, general
liability and umbrella, directors and officers liability, employers practice
liability and crime insurance. Many of the policies, such as property, flood
and directors and officers liability include deductibles ranging from $100,000
to $250,000 per claim. For many policy years, under workers compensation,
employers practice liability and general liability coverage, we are effectively
self-insured up to varying self-insurance retention limits set on an individual
claim basis ranging up to $300,000 per claim and on an aggregate basis. We are
also essentially self-insured in regards to the medical insurance benefits that
we provide to our managers and certain other employees. These employees who
elect to receive medical insurance benefits are required to contribute a
portion of the cost of providing the insurance benefits. Total insurance costs
incurred by us for fiscal 2004, 2003 and 2002 were $5.0 million, $6.3 million
and $3.5 million, respectively. 18




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Due to the trends currently being experienced in the insurance industry,
we believe that insurance costs will continue to represent a significant
expense to us and may increase in the future. Management is continuing to
evaluate options relating to controlling these costs including changes in our
insurance carriers and brokers, modifications to certain of the provisions of
our policies including deductibles and self-insured retention limits and
changes in the portion of costs incurred in providing coverage for our
employees that are allocated to the employees who participate in the plan. EMPLOYEES At April 25, 2004, we employed 4,545 persons, of whom 4,240 were
restaurant employees, 263 were restaurant management and supervisory personnel,
and 42 were corporate personnel. Restaurant employees include both full-time
and part-time workers and substantially all are paid on an hourly basis. None
of our employees are covered by collective bargaining agreements, and we have
never experienced an organized work stoppage, strike or labor dispute. We
believe that our relationship with our employees is satisfactory. TRADEMARKS AND SERVICE MARKS Roadhouse Grill has registered the Roadhouse Grill service mark and
other designs and slogans with the U.S. Patent and Trademark Office and with
the respective trademark offices in other countries. Roadhouse Grill has
certain other foreign trademarks in various stages of the registration process;
however, due to our financial condition, until recently we had temporarily
ceased the registration process in several countries. However, we expect to
resume such process on a case-by-case basis in certain countries in the future. We believe that our trademarks and service marks have significant value
and are essential to our ability to create demand for and awareness of our
restaurants. There can be no assurance, however, that our marks would be
upheld if challenged or that we would not be prevented from using our marks.
We also rely on trade secrets and proprietary know-how, and we employ various
methods to protect our concepts and recipes. However, these methods may not
completely protect us. EXPANSION PLANS FOR COMPANY OWNED RESTAURANTS Expansion Strategy.Due to capital constraints, we have determined that it
is not feasible at this time for us to significantly expand the Roadhouse Grill
concept through the opening of a significant number of additional company-owned
restaurants. We opened one company-owned restaurant in fiscal 2004 (in June
2003). However, no other new company-owned restaurant openings are currently
planned for fiscal 2005. Subject to the operating results of our existing
restaurants, the availability of adequate financing and the identification of
suitable locations, we will make a determination as to the number of
restaurants to open in future years. Our focus during fiscal 2005 will be on
managing our existing restaurants in the United States, expanding the number of
franchised locations and returning our business to profitability. Management
believes that opportunities exist that would enable us to expand our franchised
operations in that regard. Management also believes that this type of growth
opportunity will require significantly lower capital resources than building
the Roadhouse Grill concept through opening significant numbers of additional
company-owned stores. Factors affecting development of company-owned restaurants.If and when we
decide to open additional company-owned restaurants, our ability to
successfully open such new restaurants will depend on 19




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a number of factors, many of which may be beyond our control, including
our having financing available to open such restaurants and our ability to
locate suitable restaurant sites; negotiate acceptable lease or purchase terms;
obtain required governmental approvals and construct the new restaurants in a
timely manner; attract, train and retain qualified and experienced personnel
and management. Due to these factors and others discussed in this report,
there can be no assurance that we will be able to develop or operate additional
restaurants. We believe that the site selection process is critical to the long-term
success of any restaurant, and, accordingly, when we open a company-owned
restaurant we devote significant time and effort to the investigation and
evaluation of potential locations. Among the factors considered in the site
selection process are market demographics (including population, age and median
household income); traffic patterns and activity; site visibility,
accessibility and parking; and proximity to residential developments, office
complexes, hotels, retail establishments and entertainment areas. Another
important factor is the convenience of the potential location to both lunch and
dinner guests and the occupancy cost of the proposed site. Our development
strategy has been to cluster restaurants in markets that can support them with
cost-effective media advertising. In addition, we believe that clustering
multiple units allows more efficient supervision of the restaurants. In
connection with the site selection process, potential restaurant sites are
identified by our personnel and by consultants and independent real estate
brokers. When we have developed new restaurants in existing buildings, construction
has taken approximately 90 to 120 days after required construction permits have
been obtained. Construction of restaurants on vacant land is a longer process
and has generally ranged from 120 to 180 days. Our experience to date has been
that obtaining construction permits has generally taken from 30 to 180 days.
We engage outside general contractors for construction of our restaurants and
expect to continue this practice for the foreseeable future if and when we
develop additional company-owned restaurants. Our prototypical restaurant format is approximately 6,800 square feet with
seating for approximately 260 guests. Our restaurants currently range in size
from 5,000 to 12,000 square feet, with seating for between 190 to 398 guests.
We use a standardized design in constructing restaurants, with modifications
made for each particular site and are assisted by outside architects in the
design of individual restaurants. We also make our standardized design
available to our franchisees and have final right of approval on the design of
each franchised restaurant. We believe that our restaurants have a comfortable atmosphere and are
visually appealing with exposed ceilings and brick and lapboard cedar walls
decorated with colorful murals and neon signs. The typical interior also
includes multi-level seating, a full-service bar, an exhibition grill and
display kitchen. The exterior of each restaurant features rough-sawed siding,
a wrap-around wood plank porch, a tin roof trimmed in neon and an oversized
Roadhouse Grill sign. In addition to the public areas, each restaurant has a
food preparation and storage area including a fully-equipped kitchen. 20




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FRANCHISED AND LICENSED RESTAURANTS The following table sets forth the location of franchised and licensed
restaurants open as of April 25, 2004: Number ofLocation
    
    RestaurantsNevada
    
    
    1Ohio
    
    
    1Italy
    
    
    5Malaysia
    
    
    3Brasilia, Brazil
    
    
    1Total
    
    
    11
 We currently have six franchisees and licensees: Roadhouse Grill Italia
S.R.L, Roadhouse Grill Asia Pacific (H.K.) Limited (Roadhouse Grill Hong
Kong), Roadhouse Grill Asia Pacific (Cayman) Limited (Roadhouse Grill Asia),
Brent Empreendimentos e Alimentacao Ltda. (Roadhouse Grill Brazil), NAHI,
Inc. and Roadhouse Operating Company, LLC (Roadhouse Operating). Berjaya,
our majority shareholder, beneficially owns Roadhouse Grill Hong Kong and
Roadhouse Grill Asia. We are currently seeking to develop additional franchising opportunities
on an international basis with primary focus on development in Europe, South
America, and the Caribbean. We are also actively seeking multi-unit
franchising in the United States. There can be no assurance that we will be
successful in our franchising efforts. Roadhouse Grill Italia S.R.L.On July 6, 2000, we entered into a joint
venture agreement with the Cremonini Group, a publicly-traded Italian
conglomerate and parent company of Roadhouse Grill Italia S.R.L., specializing
in the food service industry in Europe. Under the original joint venture
agreement, Cremonini Group was required to open and operate at least 60
Roadhouse Grill restaurants in Italy, France, Spain, Great Britain and other
principal European countries. In March 2004, the joint venture and related
agreements with the Cremonini Group was terminated and replaced with a
trademark license agreement with Roadhouse Grill Italia S.R.L. (RGI) (the
License Agreement). Under the License Agreement, we have granted RGI the
exclusive right to develop a minimum of 36 restaurants in Italy during the next
ten years, including the four restaurants opened prior to 2004. RGI has the
right to discontinue the development of new restaurants on January 1, 2009
based on the operating restaurants existing at that time not meeting certain
performance criteria. RGI also was granted a right of first refusal in regards
to developing Roadhouse Grill restaurants in other selected European countries.
We are not required to make any capital outlay in connection with the
development of these restaurants. In accordance with the terms of the License Agreement, RGI is required to
pay us a fixed development fee for each restaurant to be opened in accordance
with the development schedule at the earliest to occur of the restaurant
opening or the end of the applicable calendar year. In addition, we are
entitled to fixed royalty fees at the beginning of each calendar year based on
the number of restaurants currently open or scheduled to open by the end of the
following calendar year in accordance with the development schedule. The
payment obligations of RGI under the License Agreement are guaranteed by 21




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the Cremonini Group. As of April 25, 2004, there are five franchised
restaurants operating in Italy and RGI has paid us all fees required to be paid
under the License Agreement, including the development fees relating to the two
restaurants to be opened in 2004. Roadhouse Grill Hong Kong. During January 1996, we entered into a Master
Development Agreement with Roadhouse Grill Asia Pacific (HK) Limited
(Roadhouse Grill Hong Kong), which is for an indefinite period and provides
for the development and franchising of Roadhouse Grill restaurants in Hong
Kong. The Master Development Agreement was amended by an addendum to Master
Development Agreement, dated August 2003 (as amended, the Hong Kong Master
Development Agreement). Under the terms of the Hong Kong Master Development
Agreement, we will be entitled to receive 50% of all revenues received by
Roadhouse Grill Hong Kong from third party franchisees, including, but not
limited to, franchise fees, reservation fees and royalty fees. The Hong Kong
Master Development Agreement provides for minimum initial franchise and ongoing
royalty fees. In addition, Roadhouse Grill Hong Kong has agreed to establish
an office for the purpose of selling Roadhouse Grill franchises in Hong Kong.
Subject to the selling of franchises by Roadhouse Grill Hong Kong in accordance
with an agreed upon development schedule, we will pay 50% of the pre-approved
budgeted expenses of the office. Roadhouse Grill Hong Kong has agreed to pay
50% of the out-of-pocket expenses incurred by us in connection with our duties
and obligations under the Hong Kong Master Development Agreement. Roadhouse
Grill Hong Kong and us will each be 50% responsible for any liabilities that
arise from the attraction, selection, granting, administration and supervision
of franchisees (except for any liabilities caused solely or primarily by either
of them, which such causing party shall be fully responsible for), and
Roadhouse Grill Hong Kong has agreed to maintain an insurance policy for
coverage against such liabilities. Roadhouse Grill Hong Kong is not required
to develop any specific number of restaurants in Hong Kong, but must use its
best efforts to sell franchises in accordance with an agreed upon development
schedule. Under certain circumstances, Roadhouse Grill Hong Kong may also
establish its own Roadhouse Grill restaurants in Hong Kong. In that event,
Roadhouse Grill Hong Kong is not required to pay any franchise or reservation
fee for its restaurants, but is required to pay us royalty fees based on gross
sales in connection with the operation of each of its restaurants. Roadhouse
Grill Hong Kong is also responsible for paying or reimbursing approved expenses
incurred by us in connection with the opening of each restaurant. As of April
25, 2004, Roadhouse Grill Hong Kong had not developed or opened any Roadhouse
Grill restaurants pursuant to the Master Development Agreement. Roadhouse Grill Asia.During January 1996, we entered into a Master
Development Agreement with Roadhouse Grill Asia Pacific (Cayman) Limited
(Roadhouse Grill Hong Kong), which is for an indefinite period and provides
for the development and franchising of Roadhouse Grill restaurants in countries
in Asia and the Pacific Rim (other than Hong Kong), including, but not limited
to, Australia, China, India, Indonesia, Japan, Malaysia, New Zealand,
Singapore, South Korea, the Philippines and Thailand. The Master Development
Agreement was amended by an addendum to Master Development Agreement, dated
August 2003 (as amended, the Asia Master Development Agreement). The
material terms of the Asia Master Development Agreement, including the terms
relating to the establishment of an office and the sharing of franchising
revenues, office expenses and certain expenses, are substantially the same as
those under the Hong Kong Master Development Agreement summarized above. Under
the Asia Master Development Agreement, Roadhouse Grill Asia is not required to
develop any specific number of restaurants in Asia, but must use its best
efforts to sell franchises in accordance with an agreed upon development
schedule. As of April 25, 2004, there were three Roadhouse Grill restaurants
operating in Malaysia under the Master Development Agreement with Roadhouse
Grill Asia. We recorded less than $0.1 million in royalty 22




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income from those restaurants during fiscal 2004. Royalty income is
currently being offset against interest that we owe to Berjaya. This offset of
royalty income will continue until the royalty receivable exceeds the amount
due Berjaya, which approximates $0.1 million as of April 25, 2004. Once the
royalty receivable exceeds the payable to Berjaya, we expect to begin
collecting the earned royalty fees. Roadhouse Grill Brazil.In May 1999, we entered into a Master Development
Agreement with Roadhouse Grill Brazil, which provides for the development and
franchising of Roadhouse Grill restaurants in Brazil. Under the agreement,
Roadhouse Grill Brazil is required to open and maintain at least eight
Roadhouse Grill restaurants during the first ten years of the term of the
agreement. Roadhouse Grill Brazil pays us a one-time franchise fee for each
new restaurant opened and an ongoing service fee based on gross sales.
Roadhouse Grill Brazil currently operates one Roadhouse Grill restaurant in
Brasilia, Brazil. As of April 25, 2004, the receivable from Roadhouse Grill
Brazil was less than $0.1 million. Ohio franchisee.In March 2002, we entered into a Master Development
Agreement with NAHI, Inc., granting the exclusive right to build five
restaurants in five years in the Cincinnati/Tri State area of Ohio and
Kentucky. In order to maintain these exclusive rights, the franchisee must
comply with the terms of the agreement including, but not limited to, opening
one restaurant per year. As of April 25, 2004, the franchisee has not complied
with the development schedule. However, we have not taken any action in
regards to terminating the agreement to date, although we reserve the right to
do so. Currently, there is one restaurant open pursuant to this Master
Development Agreement. Roadhouse Operating. Roadhouse Operating entered into an initial
franchise agreement and Master Development Agreement with us (the Roadhouse
Operating Master Development Agreement) in August 1995 for the exclusive
development of up to five restaurants, over a period which ended October 31,
1999, in Clark County, Nevada (which includes the Las Vegas, Nevada
metropolitan area). Roadhouse Operating initially opened three Roadhouse Grill
restaurants. Two of these have been closed, and one is currently being
operated. Roadhouse Operating is obligated to pay us a percentage royalty fee based
on gross sales. As of April 25, 2004, the receivable from Roadhouse Operating
was approximately $0.2 million. Due to lack of payment, this amount has been
fully reserved. We are also the guarantor of equipment leases for the three
restaurants, owned by Roadhouse West G.P., an affiliate of Roadhouse Operating.
In addition, management understands that other parties have also guaranteed
these obligations. Roadhouse West G.P. is currently in default of the
payment terms of the operating leases and management believes that the balance
of the remaining lease payments due is approximately $1.0 million. The leases
are collateralized by the leased equipment and certain leasehold improvements.
Roadhouse West G.P. has recently filed for Chapter 11
bankruptcy, and such proceeding has now been converted to a
Chapter 7 proceeding. We cannot
predict the outcome of these proceedings but believe that any potential
liability will be mitigated by the factors described above and, accordingly, we
have provided no reserve for any possible obligations that may arise relating
to these proceedings. 
 ITEM 2. PROPERTIES As of April 25, 2004, all but 11 of our company-owned open restaurants
were located in leased space. Initial lease expirations range from five to 20
years, with the majority of the leases providing us with renewal options
extending the lease term. All of our leases provide for a minimum annual rent,
and several 23




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##### Table of Contents



leases call for annual or other escalations at various points in the lease
term or for additional rent based on sales volume at the particular location
over specified minimum levels. Generally, the leases are triple net leases,
which require us to pay the costs of insurance, taxes and a portion of the
lessors operating costs. We believe that our facilities are in satisfactory
condition, are suitable for their intended use and are, in the aggregate,
sufficient for our present business needs. On August 6, 2004, we closed a transaction with Sovereign Roadhouse LLC, a
wholly-owned subsidiary of Sovereign Investment Company, (Sovereign)
involving the sale and leaseback of eleven restaurant properties that we had
previously owned. The sale price for the eleven properties was $21.8 million.
The properties are being leased from Sovereign under lease agreements that
extend for 20 years and include four five-year renewal options. See Note 20 of
Notes to Consolidated Financial Statements. In December 2003, we completed a sale and leaseback transaction relating
to our corporate headquarters building. Gross proceeds from the sale were $3.0
million. The net proceeds of $2.6 million, after payment of expenses and
security deposits, were used, in part, to pay debt related to the facility of
$1.5 million. The remaining net proceeds of $1.1 million were retained by us
for working capital and general corporate purposes. The leaseback agreement
provides for rent to be paid on a triple net basis and extends for a period of
15 years with two five-year renewal options. We occupy approximately 19,000
square feet of the facility and have leased the remaining 11,500 square feet
through May 2007. We also own the land and building related to a closed store that is
currently held for sale. We are currently marketing this facility and hope to
complete the sale of this facility during fiscal 2005. 
 ITEM 3. LEGAL PROCEEDINGS BANKRUPTCY Please refer to Note 2 of Notes to Consolidated Financial Statements for
information regarding our Chapter 11 reorganization proceedings that were
completed in September 2002. CLASS ACTION SUIT AND SEC INFORMAL INVESTIGATION See Note 14 of Notes to Consolidated Financial Statements for information
regarding the putative class action that was filed against us and two of our
directors and was recently dismissed and the informal SEC investigation that
arose as a result of the restatement of our audited financial statements for
the fiscal years ended 2000 and 1999 and the first three fiscal quarters of
fiscal 2001. OTHER We are a party to certain legal proceedings arising in the ordinary course
of business. While it is not possible to predict or determine the outcome of
any of these proceedings, we do not believe that any liability resulting from
these proceedings will have a material adverse effect on our financial
position, results of operations or business. 24




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##### Table of Contents



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No actions were submitted to a vote of our shareholders during the fourth
quarter of fiscal 2004. 25




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##### Table of Contents



PART II 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION As of April 25, 2004, we had outstanding 29,220,663 shares of common
stock, par value $0.03 per share. Our common stock is currently quoted on the
Pink Sheets under the symbol GRLL.PK. Our common stock traded on the Nasdaq
National Market until it was delisted in May 2002. The following table sets
forth, for the periods indicated, the highest and lowest closing sale prices
for the common stock, as reported by the Nasdaq National Market through May
2002 and on the Pink Sheets thereafter: HIGH($)
    
    LOW($)FISCAL 2003First Quarter
    
    
    0.60
    
    
    
    0.05Second Quarter
    
    
    0.80
    
    
    
    0.10Third Quarter
    
    
    0.80
    
    
    
    0.10Fourth Quarter
    
    
    0.30
    
    
    
    0.05FISCAL 2004First Quarter
    
    
    0.45
    
    
    
    0.15Second Quarter
    
    
    0.45
    
    
    
    0.10Third Quarter
    
    
    0.35
    
    
    
    0.10Fourth Quarter
    
    
    0.40
    
    
    
    0.10FISCAL 2005First Quarter
    
    
    0.35
    
    
    
    0.05Second
Quarter (to August 6, 2004)
    
    
    0.125
    
    
    
    0.12
 DIVIDEND POLICY We have not declared or paid any cash dividends or distributions on our
capital stock. We do not intend to pay any cash dividends on our common stock
in the foreseeable future. Future earnings, if any, will be used to support
operations and finance expansion. Future declaration and payment of dividends,
if any, will be determined in light of then current conditions, including our
earnings, operations, capital requirements, financial condition, and other
factors deemed relevant by our Board of Directors, at their discretion. SHAREHOLDERS As of August 6, 2004, there were approximately 80 shareholders of record
of our common stock. A portion of our outstanding common stock is held of
record in broker street name for the benefit of individual investors, and we
believe that as of the date of this report there are approximately 900
beneficial holders of our common stock. 26




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##### Table of Contents



EQUITY COMPENSATION PLAN INFORMATION See Item 12. 27




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##### Table of Contents



ITEM 6. SELECTED FINANCIAL DATA The following table sets forth for the periods and dates indicated
selected financial data of the Company. The following should be read in
conjunction with the Consolidated Financial Statements and Notes thereto and
Managements Discussion and Analysis of Financial Condition and Results of
Operations appearing elsewhere in this Form 10-K. Fiscal
    
    Fiscal
    
    Fiscal
    
    Fiscal
    
    FiscalSTATEMENT OF OPERATIONS DATA:
    
    2004
    
    2003
    
    2002
    
    2001
    
    2000(dollars in thousands, except per
share data):Total revenues
    
    $
    139,380
    
    
    $
    140,924
    
    
    $
    158,982
    
    
    $
    168,055
    
    
    $
    148,897Cost of restaurant sales:Food and beverage
    
    
    49,271
    
    
    
    47,439
    
    
    
    55,066
    
    
    
    59,112
    
    
    
    50,268Labor and benefits
    
    
    45,078
    
    
    
    47,860
    
    
    
    51,817
    
    
    
    54,059
    
    
    
    43,512Occupancy and other
    
    
    33,483
    
    
    
    34,567
    
    
    
    37,580
    
    
    
    39,269
    
    
    
    30,067Pre-opening expenses
    
    
    120
    
    
    
    124
    
    
    
    477
    
    
    
    2,481
    
    
    
    2,387Total cost of restaurant sales
    
    
    127,952
    
    
    
    129,990
    
    
    
    144,940
    
    
    
    154,921
    
    
    
    126,234Depreciation and amortization
    
    
    7,078
    
    
    
    7,460
    
    
    
    8,991
    
    
    
    10,297
    
    
    
    8,560General and administrative
expenses
    
    
    6,506
    
    
    
    6,956
    
    
    
    9,106
    
    
    
    10,954
    
    
    
    8,241Asset impairment
    
    
    964
    
    
    
    5,854
    
    
    
    7,507
    
    
    
    3,066
    
    
    
    Restructuring charge
    
    
    (96
    )
    
    
    46
    
    
    
    5,086
    
    
    
    
    
    
    
    Reorganization expenses
    
    
    
    
    
    
    2,726
    
    
    
    876
    
    
    
    
    
    
    
    Total operating expenses
    
    
    142,404
    
    
    
    153,032
    
    
    
    176,506
    
    
    
    179,238
    
    
    
    143,035Operating (loss) income
    
    
    (3,024
    )
    
    
    (12,108
    )
    
    
    (17,524
    )
    
    
    (11,183
    )
    
    
    5,862Other expense:Interest expense, net
    
    
    (3,236
    )
    
    
    (2,289
    )
    
    
    (3,810
    )
    
    
    (3,655
    )
    
    
    (2,301
    )Other, net
    
    
    282
    
    
    
    75
    
    
    
    (60
    )
    
    
    800
    
    
    
    Total other expense
    
    
    (2,954
    )
    
    
    (2,214
    )
    
    
    (3,870
    )
    
    
    (2,855
    )
    
    
    (2,301
    )(Loss) income before income
taxes, extraordinary gain, and
cumulative effect of change in
accounting principle
    
    
    (5,978
    )
    
    
    (14,322
    )
    
    
    (21,394
    )
    
    
    (14,038
    )
    
    
    3,561Income tax (benefit) expense
    
    
    (1
    )
    
    
    (1,241
    )
    
    
    49
    
    
    
    1,818
    
    
    
    78(Loss) income before
extraordinary gain and
cumulative effect of change in
accounting principle
    
    
    (5,977
    )
    
    
    (13,081
    )
    
    
    (21,443
    )
    
    
    (15,856
    )
    
    
    3,483
 28




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##### Table of Contents



Fiscal
    
    Fiscal
    
    Fiscal
    
    Fiscal
    
    Fiscal2004
    
    2003
    
    2002
    
    2001
    
    2000Extraordinary gain
    
    
    
    
    
    
    1,838
    
    
    
    
    
    
    
    
    
    
    
    (Loss) income before
cumulative effect of
change in accounting
principle
    
    
    (5,977
    )
    
    
    (11,243
    )
    
    
    (21,443
    )
    
    
    (15,856
    )
    
    
    3,483Cumulative effect of
change in accounting
principle (net of tax
benefit of $248)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (877
    )Net (loss) income
    
    ($
    5,977
    )
    
    ($
    11,243
    )
    
    ($
    21,443
    )
    
    ($
    15,856
    )
    
    $
    2,606Basic net (loss)
income per common
shareBasic (loss) income
before cumulative
effect of change in
accounting principle
    
    ($
    0.20
    )
    
    ($
    0.56
    )
    
    ($
    2.21
    )
    
    ($
    1.63
    )
    
    $
    0.36Cumulative effect of
change in accounting
principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.09
    )Basic net (loss)
income per common
share
    
    ($
    0.20
    )
    
    ($
    0.56
    )
    
    ($
    2.21
    )
    
    ($
    1.63
    )
    
    $
    0.27Diluted net (loss)
income per common
share:Diluted (loss) income
before cumulative
effect of change in
accounting principle
    
    ($
    0.20
    )
    
    ($
    0.56
    )
    
    ($
    2.21
    )
    
    ($
    1.63
    )
    
    $
    0.36Cumulative effect of
change in accounting
principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.09
    )Diluted net (loss)
income per common
share
    
    ($
    0.20
    )
    
    ($
    0.56
    )
    
    ($
    2.21
    )
    
    ($
    1.63
    )
    
    $
    0.27Weighted average common
shares outstanding
    
    
    29,220,663
    
    
    
    20,000,744
    
    
    
    9,708,741
    
    
    
    9,708,741
    
    
    
    9,708,741Weighted average
common shares and
share equivalents
outstanding assuming
dilution
    
    
    29,220,663
    
    
    
    20,000,744
    
    
    
    9,708,741
    
    
    
    9,708,741
    
    
    
    9,792,019
 29




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##### Table of Contents



Fiscal
    
    Fiscal
    
    Fiscal
    
    Fiscal
    
    FiscalBALANCE SHEET DATA:
    
    2004
    
    2003
    
    2002
    
    2001
    
    2000(dollars in thousands,
except share data)Cash and cash equivalents
    
    $
    1,181
    
    
    $
    2,956
    
    
    $
    3,193
    
    
    $
    1,582
    
    
    $
    378Total current assets
    
    
    3,804
    
    
    
    7,393
    
    
    
    7,618
    
    
    
    8,889
    
    
    
    4,868Property and equipment
    
    
    49,512
    
    
    
    60,024
    
    
    
    71,926
    
    
    
    87,204
    
    
    
    92,204Total assets
    
    
    57,314
    
    
    
    71,304
    
    
    
    83,354
    
    
    
    100,328
    
    
    
    104,414Total current liabilities
    
    
    17,856
    
    
    
    19,474
    
    
    
    10,888
    
    
    
    56,692
    
    
    
    21,979Liabilities subject to
compromise  pre-petition
    
    
    
    
    
    
    
    
    
    
    54,757
    
    
    
    
    
    
    
    Liabilities subject to
compromise  GAP
    
    
    
    
    
    
    
    
    
    
    2,181
    
    
    
    
    
    
    
    Long-term debt, including
current portion *
    
    
    32,666
    
    
    
    39,559
    
    
    
    
    
    
    
    42,179
    
    
    
    25,661Obligations under capital
leases, including current
portion *
    
    
    5,398
    
    
    
    6,714
    
    
    
    
    
    
    
    5,742
    
    
    
    6,479Total liabilities
    
    
    52,506
    
    
    
    60,519
    
    
    
    67,826
    
    
    
    63,357
    
    
    
    51,587Total shareholders equity
    
    
    4,808
    
    
    
    10,785
    
    
    
    15,528
    
    
    
    36,971
    
    
    
    52,827
  *
    
    Note, for fiscal year 2002, total current liabilities, long term debt,
capital lease debt and total
liabilities do not include liabilities classified as subject to
compromise. 
 ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 GENERAL We operate, franchise and license high-quality full-service casual dining
restaurants under the name Roadhouse Grill. As of April 25, 2004, there were
69 company-owned Roadhouse Grill restaurants, 34 of which are located in
Florida and the balance of which are located in Alabama, Arkansas, Georgia,
Louisiana, Mississippi, New York, North Carolina, Ohio, and South Carolina. We
also have 11 franchised or licensed restaurants. During the last few years, our restaurant business has been hampered by
heavy debt, which caused, in part, our 2002 Chapter 11 proceeding. We have
also been unable to increase restaurant sales due to economic conditions, our
lack of adequate funding to advertise our restaurants and a very competitive
restaurant market. Further, we have experienced food cost increases arising
from adverse market conditions, only a portion of which can be passed on to
customers. All of these factors have caused us to report significant net
losses in the last few years. During the last year, we have revamped our menu, made additional
investments in the recruiting and training of our restaurant managers and
directors of operations, entered into a long-term program with a loyalty and
rewards company that we believe will help to market our restaurants, taken
steps to reduce our 30




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##### Table of Contents



costs and attempted to pass a portion of the increased food costs on to our
customers, all in an effort to return our company to profitability. RECENT EVENTS On August 6, 2004, we closed a transaction with Sovereign Roadhouse LLC, a
wholly-owned subsidiary of Sovereign Investment Company, (Sovereign)
involving the sale and leaseback of eleven restaurant properties that were
previously owned. The sale price for the eleven properties was $21.8 million.
The properties are being leased from Sovereign under lease agreements that
extend for 20 years and include four five-year renewal options.
We used approximately $18.1 million of the net proceeds from the
sale to pay expenses related to the transaction and to repay approximately $24.6 million of secured
debt, which was repaid at a discount (resulting in a gain on extinguishment of
debt of approximately $7.1 million). The net gain from the debt repayment will
be reflected in our consolidated financial statements in the second quarter of
fiscal 2005. The Company also realized a gain on the sale of the properties of
approximately $1.7 million, which will be recorded as a reduction of occupancy
and other expense over the life of the leases. The remaining net proceeds from
the sale of approximately $3.7 million will be used for working capital, including new
marketing initiatives to promote our existing restaurants. OVERVIEW Our
revenues are derived primarily from the sale of food and beverages.
In fiscal year 2004, restaurant sales generated from lunch and dinner amounted
to approximately 27% and 73% of restaurant sales, respectively, as compared to
26% and 74%, respectively, in fiscal year 2003. Restaurant sales of food and
beverages accounted for approximately 90% and 10%, respectively, of total
restaurant sales in each of fiscal years 2004 and 2003. Franchise and
management fees during fiscal 2004 and 2003 accounted for less than 1% of our
total revenues. Restaurant operating expenses include food and beverage, labor, direct
operating and occupancy costs. Direct operating costs consist primarily of
costs of expendable supplies, marketing and advertising expense, maintenance,
utilities and restaurant general and administrative expenses. Occupancy costs
include rent, real estate and personal property taxes and property insurance.
Certain elements of our restaurant operating expenses, including direct
operating and occupancy costs and to a lesser extent labor costs, are
relatively fixed. Of our 69 currently operating company-owned restaurants, one was opened in
June 2003. Further, we closed one restaurant as of July 27, 2003 in
conjunction with the sale of the related leasehold and we sold a second restaurant
in April 2004. No additional company-owned restaurants are currently expected
to be opened in fiscal year 2005. The average cash investment of the 68 company-owned Roadhouse Grill
restaurants open the entire 52 weeks in fiscal year 2004 was approximately $1.6
million, including building structures (where applicable), building or
leasehold improvements and equipment and fixtures, but excluding land and
pre-opening costs. The average land acquisition cost for the 11 restaurant
sites operating and owned by us was approximately $0.9 million. The average
annual occupancy cost for the restaurant sites leased by us is approximately
$0.2 million. 31




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##### Table of Contents



CRITICAL ACCOUNTING POLICIES Our accounting policies are more fully described in Note 3
of the Notes to Consolidated Financial Statements. As disclosed therein, the
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions about future events that affect the amounts reported
in the financial statements and accompanying notes. Future events and their
effects cannot be determined with absolute certainty. Therefore, the
determination of estimates requires the exercise of judgment. Actual results
inevitably will differ from those estimates, and such differences may be
material to the financial statements. Management believes the following
critical accounting policies affect the significant judgments and estimates
used in the preparation of our Consolidated Financial Statements. PROPERTY AND EQUIPMENT We account for long-lived assets in accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. This
statement requires that long-lived assets be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. We regularly review the performance of our
individual restaurants to identify possible under performing operations that
should be assessed for possible impairments of long-lived assets. In
that regard, we recorded impairment charges during fiscal 2004 and
2003. See Results of Operations below. As part of
this analysis, management considers factors that have in the past and may
continue in the future to impact operating results. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an
asset to the future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds fair
value of the assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell. INTANGIBLE ASSETS We account for intangible assets in accordance with SFAS No. 142,
Goodwill and Other Intangible Assets. As of April 25, 2004, we had
unamortized goodwill in the amount of $1.5 million and unamortized identifiable
intangible assets in the amount of $0.3 million. In accordance with SFAS No.
142, goodwill, which relates to the prior acquisition of two individual
restaurant operations, is subject to an annual impairment test based on its
fair value and no amortization of goodwill is recorded. As of October 26,
2003, the date on which we completed our last annual goodwill impairment test,
we determined that we had no impairment of goodwill. We will continue to
assess the value of our goodwill in fiscal 2005 and future periods in
accordance with applicable accounting rules. Other intangible assets, which
have been determined to have a finite life, are being amortized over their
useful lives. USE OF ESTIMATES The preparation of the Consolidated Financial Statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
materially from those estimates. Amounts reported in our Consolidated
Financial Statements that are based, in part, on the use of estimates include
reserves relating to the collectibility of accounts receivable, insurance
reserves relating to claim costs required to be funded by us, the
recoverability of deposits and other prepaid items, estimated accrued property
taxes and other accrued 32




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##### Table of Contents



liabilities for which actual invoices have not yet been received and the
liability for unredeemed gift certificates and gift cards. Various assumptions
and other factors underlie the determination of these significant estimates.
The process of determining significant estimates is fact specific and takes
into account factors such as historical experience, current and expected
economic conditions, product mix, and in some cases, actuarial techniques. We
constantly re-evaluate these significant factors and make adjustments to
estimates where facts and circumstances dictate. We believe that the assumptions and other factors used to determine these
estimates are reasonable and that, with the exception of insurance reserves
relating to claim costs required to be funded by us, changes in these
assumptions would not have a material impact on our financial position or
results of operations. In regard to insurance reserves, recorded liabilities
are based upon an estimate of the total amount that may be paid to settle
claims required to be funded by us and incurred through the balance sheet date,
including consideration of amounts paid-to-date in relation to the individual
claims, an analysis of the loss development on all reported claims, potential
legal or other related costs and any stop loss limits applicable under our
insurance policies. Such reserves are subject to change based upon any
development that occurs in relation to the outstanding claims subsequent to the
preparation of the Consolidated Balance Sheet. As of April 25, 2004 and April
27, 2003, total recorded insurance reserves were $1.8 million and $2.0 million,
respectively. In addition, asset impairment charges, restructuring charges, and the
restructuring accrual are primarily based on estimates of the market value of
assets of which we plan to dispose and the amount of future cash flows
estimated to be realized relating to impaired assets that are anticipated to be
utilized in our operations in the future or expenditures estimated to be used
to settle the outstanding obligations. Such estimates are also affected by the
time interval required to dispose of assets to be sold. The assumptions used,
particularly in regard to estimates of future cash flows to be realized
relating to impaired or potentially impaired assets, are critical in assessing
a potential impairment and, if any, estimating the amount of the impairment.
These assumptions require consideration and projection of future trends in key
operating ratios and the timing and impact of possible changes in operations
relating to specific assets. Changes in these assumptions could have a
material impact on the timing and amount of possible asset impairments and
therefore on our results of operations. 33




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##### Table of Contents



RESULTS OF OPERATIONS The following table sets forth for the periods indicated the percentage
relationship to total revenues of certain statements of operations data. STATEMENTS OF OPERATIONS DATA: Fiscal
    
    Fiscal
    
    Fiscal2004
    
    2003
    
    2002Total revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of restaurant sales:Food and beverage
    
    
    35.4
    
    
    
    33.7
    
    
    
    34.6Labor and benefits
    
    
    32.3
    
    
    
    34.0
    
    
    
    32.6Occupancy and other
    
    
    24.0
    
    
    
    24.5
    
    
    
    23.7Pre-opening expenses
    
    
    0.1
    
    
    
    
    
    
    
    0.3Total cost of restaurant sales
    
    
    91.8
    
    
    
    92.2
    
    
    
    91.2Depreciation and amortization
    
    
    5.1
    
    
    
    5.3
    
    
    
    5.7General and administrative expenses
    
    
    4.7
    
    
    
    5.0
    
    
    
    5.7Asset impairment
    
    
    0.7
    
    
    
    4.2
    
    
    
    4.7Restructuring charge
    
    
    (0.1
    )
    
    
    
    
    
    
    3.2Reorganization expenses
    
    
    
    
    
    
    1.9
    
    
    
    0.6Total operating expenses
    
    
    102.2
    
    
    
    108.6
    
    
    
    111.1Operating loss
    
    
    (2.2
    )
    
    
    (8.6
    )
    
    
    (11.1
    )Total other expense
    
    
    (2.1
    )
    
    
    (1.6
    )
    
    
    (2.4
    )Loss before taxes and extraordinary gain
    
    
    (4.3
    )
    
    
    (10.2
    )
    
    
    (13.5
    )Income tax (benefit) expense
    
    
    
    
    
    
    (0.9
    )
    
    
    Loss before extraordinary gain
    
    
    (4.3
    )
    
    
    (9.3
    )
    
    
    (13.5
    )Extraordinary gain
    
    
    
    
    
    
    1.3
    
    
    
    Net loss
    
    
    (4.3
    )%
    
    
    (8.0
    )%
    
    
    (13.5
    )%
 34




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RESTAURANT DATA: Fiscal
    
    Fiscal
    
    Fiscal2004
    
    2003
    
    2002Company-owned restaurants:Beginning of period
    
    
    70
    
    
    
    73
    
    
    
    83Opened
    
    
    1
    
    
    
    1
    
    
    
    3Closed
    
    
    (2
    )
    
    
    (4
    )
    
    
    (13
    )End of period
    
    
    69
    
    
    
    70
    
    
    
    73Franchised and licensed restaurants:Beginning of period
    
    
    9
    
    
    
    8
    
    
    
    7Opened
    
    
    2
    
    
    
    3
    
    
    
    1Closed
    
    
    
    
    
    
    (2
    )
    
    
    End of period
    
    
    11
    
    
    
    9
    
    
    
    8Total restaurants:Beginning of period
    
    
    79
    
    
    
    81
    
    
    
    90Opened
    
    
    3
    
    
    
    4
    
    
    
    4Closed
    
    
    (2
    )
    
    
    (6
    )
    
    
    (13
    )End of period
    
    
    80
    
    
    
    79
    
    
    
    81
 FIFTY-TWO WEEKS ENDED APRIL 25, 2004 (FISCAL YEAR 2004) COMPARED TO THE
FIFTY-TWO WEEKS ENDED APRIL 27, 2003 (FISCAL YEAR 2003) Total revenues. Total revenues decreased $1.5 million, or 1.1%, from
$140.9 million for fiscal year 2003 to $139.4 million for fiscal year 2004.
This decrease is primarily attributable to a reduction in sales at comparable
restaurants, offset to some extent by the opening of two new restaurants in
April and June 2003 and the closing of two restaurants in July 2003 and April 2004
as a result of the sale of the related property interests. Sales at comparable
restaurants for fiscal 2004 decreased 2.9% compared with sales for the
corresponding prior year period. This decrease results from a reduction in
customer headcount, partially offset by an increase in check average resulting
from the menu price changes implemented in June and October 2003 as discussed
below. Management believes that the decrease in headcount is primarily
attributable to competition from new restaurants in certain of the markets in
which our restaurants operate, our financial condition and the impact of our
financial condition on our ability to invest in our restaurants and engage in
expanded marketing initiatives, and the general state of the economy and its
impact on the casual full service dining industry and the restaurant industry
generally. A restaurant is considered comparable after its first 18 months of
operation. Sales from the two restaurants opened in April and June 2003
totaled $3.5 million during fiscal year 2004, compared to $0.1 million in
fiscal year 2003. Sales from restaurants closed in fiscal years 2004 and 2003
were $1.4 million in fiscal year 2004, compared to $2.8 million in fiscal year
2003. 35




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Food and beverage.Food and beverage costs increased $1.9 million, or
4.0%, to $49.3 million for fiscal year 2004 from $47.4 million for fiscal year
2003. As a percentage of revenues, food and beverage costs increased by 1.7%
to 35.4%, from 33.7% during the prior period. These increases are primarily
attributable to the significant increases in beef, dairy and produce prices as
well as the impact of the new menu (introduced in June 2003) on produce and
other food costs. The increase in meat and dairy costs, that began in March
2003 and was further negatively impacted by the Mad Cow Disease scare which
closed the Canadian border from exporting any beef products, has continued to
have a significant adverse impact on food costs. During October 2003, in
response to the continued increased beef prices, we modified our menu pricing
on certain items. This increase averaged approximately 3% based on the current
sales mix at the time of the increase. We also implemented changes in our
menu, including price changes on certain items, in May 2004 that represented an
average price increase of approximately 3% based on the current sales mix at
the time of the increase. In addition, we attempted to reduce our overall food
costs by featuring lower food cost, generally non-beef, menu items in our
advertising materials and through commitments to purchase meat products at
fixed prices in certain instances in which market conditions appeared to
indicate an expected rise in prices. Management can not project the period
over which the existing prices will continue to exist and when or if food costs
will decline (as a percentage of revenues) to the historic levels that previously existed. However, although
there can be no assurances, we will continue to evaluate and implement changes
designed to reduce food costs. Labor and benefits. Labor and benefits costs for fiscal year 2004 decreased $2.8 million, or
5.8%, to $45.1 million for fiscal year 2004 from $47.9 million for fiscal year
2003. As a percentage of revenues, labor and benefits costs for fiscal year 2004 decreased 1.7% to
32.3%, from 34.0% during the prior period. This decrease, both in dollars and as
a percentage of revenues, is due primarily to a reduction in direct labor cost,
a decrease in group health insurance resulting from modifications to our
medical benefit plan implemented in June 2003, and a decrease in workers
compensation insurance costs. Occupancy and other. Occupancy and other costs decreased $1.1 million, or
3.2%, to $33.5 million for fiscal year 2004 from $34.6 million for fiscal year
2003. As a percentage of revenues, occupancy and other expense was 24.0% for
fiscal year 2004, compared to 24.5% for fiscal year 2003. The decrease, both
in dollars and as a percentage of revenues, is attributable to a decrease in
equipment rental expense resulting from the expiration of certain operating
leases and a reduction in repair and maintenance and marketing expenses
incurred, partially offset by an increase in utility expense resulting from
increased fuel costs. Marketing expense for fiscal year 2004 was $3.3 million,
compared to $3.4 million for fiscal year 2003. Excluding the advertising
expense related to the new program implemented in June 2003 with the loyalty
and rewards company (see Note 19 to the Consolidated Financial Statements),
marketing expense was $2.1 million in fiscal year 2004. See
Outlook below for a discussion of future occupancy costs as a result of the recently completed sale/leaseback of 11 properties. Pre-opening expenses.We recorded $0.1 million in pre-opening expenses
during each of fiscal year 2004 and 2003 relating to the opening of two new
restaurants in April and June 2003. Depreciation and amortization.Depreciation and amortization expense
decreased $0.4 million, or 5.3%, to $7.1 million for fiscal year 2004 from $7.5
million for fiscal year 2003. As a percentage of revenues, depreciation and
amortization expense decreased 0.2% to 5.1% from 5.3% during these periods.
The decrease, both in dollars and as a percentage of revenues, is due to the
fact that depreciation expense was discontinued on idle facilities and
equipment as a result of closing restaurants (including leases rejected in our
bankruptcy proceedings), due to the fact that certain equipment became fully
depreciated during the 36




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period and because of asset impairment charges which were taken in fiscal
year 2003 that reduced the carrying value of our property and equipment. General and administrative. General and administrative costs decreased
$0.5 million, or 7.1%, to $6.5 million for the fifty-two weeks ended April 25,
2004, compared to $7.0 million for the fifty-two weeks ended April 27, 2003.
As a percentage of revenues, general and administrative costs decreased 0.3%
from 5.0% to 4.7% during these periods. The decrease, both in dollars and as a
percentage of revenues, is the result of reductions in corporate overhead and a
decrease in legal and professional fees incurred, offset to some extent by an
increase in training expense, which is a result of our increased emphasis on
hiring and continuing to train high quality restaurant managers and an increase
in rent expense resulting from the sale/leaseback transaction executed in
December 2003 relating to our corporate headquarters building. Reorganization expenses. Reorganization expenses represent expenses
incurred relating to our bankruptcy proceedings and reorganization under
Chapter 11 and primarily are comprised of legal, professional and consulting
services. Total reorganization expenses incurred during fiscal year 2003 were
$2.7 million, or 1.9% of revenues. No reorganization expense was incurred
during fiscal year 2004. Asset impairment and restructuring charge. We recorded asset impairment
charges during fiscal year 2004 totaling $1.0 million relating to three
restaurants that are not performing as expected and other restaurants for which
impairment charges had previously been recognized. We recorded asset
impairment charges during fiscal year 2003 totaling $5.9 million related to the
17 restaurants that were closed. During fiscal year 2004, we recorded a
restructuring charge benefit of $0.1 million relating to a reduction in
previously accrued restructuring charges resulting from the final settlement of
a bankruptcy claim relating to a closed restaurant. Total other expense.Total other expense increased $0.8 million, or
36.4%, to $3.0 million for the fifty-two weeks ended April 25, 2004 from $2.2
million for the fifty-two weeks ended April 27, 2003. The increase was
primarily due to the forgiveness of interest expense during the period of
bankruptcy. Included in other expense for the fifty-two weeks ended April 25,
2004 is a gain on the sale of fixed assets of $0.3 million, which primarily
relates to the sale of a property in April 2004. Income tax benefit.For fiscal year 2003, we recorded a net income tax
benefit of $1.2 million relating to an expected federal income tax refund. We
did not recognize a tax benefit relating to the operating loss for either
fiscal year 2004 or 2003 because management believes that it is not likely that
all of our deferred tax assets will be realized in the future. Extraordinary gain. We recognized an extraordinary gain during fiscal
year 2003 of $1.8 million relating to the forgiveness of debt resulting from
the Chapter 11 reorganization. The debt forgiveness is primarily comprised of
obligations that were canceled as a result of the bankruptcy proceedings. No
extraordinary gain was recorded during fiscal year 2004. FIFTY-TWO WEEKS ENDED APRIL 27, 2003 (FISCAL YEAR 2003) COMPARED TO THE
FIFTY-TWO WEEKS ENDED APRIL 28, 2002 (FISCAL YEAR 2002) Total revenues. Total revenues decreased $18.1 million, or 11.4%, from
$159.0 million for fiscal year 2002 to $140.9 million for fiscal year 2003.
This decrease is primarily attributable to the closing of 13 unprofitable
restaurants in fiscal year 2002 and four additional unprofitable restaurants in
the first quarter of fiscal year 2003. Revenues generated from these 17
restaurants totaled $0.3 million and $12.1 million 37




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during fiscal year 2003 and 2002, respectively. Sales at comparable
restaurants for fiscal year 2003 decreased 6.0% compared with sales for fiscal
year 2002. We believe that this decrease is partially attributable to the
decline in the economy as well as to the impact of our Chapter 11 proceeding.
A restaurant is considered comparable after its first 18 months of operation.
We opened one new restaurant during the fourth quarter of fiscal year 2002 and
one additional new restaurant during the fourth quarter of fiscal year 2003.
Combined revenues from these restaurants, which are not included in comparable
restaurant sales, were $3.0 million and $0.5 million during fiscal years 2003
and 2002, respectively. Food and beverage.Food and beverage costs decreased $7.7 million, or
14.0%, to $47.4 million for fiscal year 2003 from $55.1 million for fiscal year
2002. This decrease is primarily attributable to the restaurant closings
described above. As a percentage of sales, food and beverage costs decreased
by 0.9% to 33.7% for fiscal year 2003 from 34.6% for fiscal year 2002. The
decrease as a percentage of revenue can be attributed to bulk purchasing
agreements including significantly discounted pork purchases made when
available quantities exceeded normal demand and a reduction in chicken costs.
Meat costs, which historically represent approximately 44% of total food costs,
remained relatively constant at approximately 15.4% of total food sales in both
fiscal years 2003 and 2002. Labor and benefits. Labor and benefits costs decreased $3.9 million, or
7.5%, to $47.9 million for fiscal year 2003 from $51.8 million for fiscal year
2002. The decrease is primarily due to the restaurant closings described
above. As a percentage of sales, labor and benefits costs increased 1.4% to
34.0% for fiscal year 2003 from 32.6% for fiscal year 2002. This increase is
due to the significant increase in workers compensation insurance and group
medical insurance costs, which represented 2.9% of revenues in fiscal year 2003
as compared to 1.3% in fiscal year 2002. Occupancy and other. Occupancy and other costs decreased $3.0 million, or
8.0%, to $34.6 million for fiscal year 2003 from $37.6 million for fiscal year
2002. As a percentage of sales, occupancy and other was 24.5% for fiscal year
2003 versus 23.7% for fiscal year 2002. The increase as a percentage of sales
is due to the fixed nature of certain components of occupancy and other costs,
such as rent expense, as well as an increase in marketing and advertising
expenses incurred, which represented 2.4% of total revenues in fiscal year 2003
as compared to 1.6% in fiscal year 2002 and an increase in general and
employers practice liability expenses which increased from 0.5% of revenues in
fiscal year 2002 to 0.9% of revenues in fiscal year 2003. Pre-opening expenses.Pre-opening expenses decreased $0.4 million, or
80.0%, to $0.1 million in fiscal year 2003 from $0.5 million in fiscal year
2002. The decrease is due to the opening of only one restaurant in fiscal year
2003 compared to the opening of three restaurants in fiscal year 2002. Depreciation and amortization.Depreciation and amortization decreased
$1.5 million, or 16.7%, to $7.5 million for fiscal year 2003 from $9.0 million
for fiscal year 2002. As a percentage of revenues, depreciation and
amortization decreased 0.4% to 5.3% for fiscal year 2003 from 5.7% for fiscal
year 2002. The decrease, both in dollars and as a percentage of revenues, is
due to the fact that depreciation expense was discontinued on idle facilities
and equipment as a result of closing restaurants (including leases rejected in
our bankruptcy proceedings), due to equipment at some older restaurants
becoming fully depreciated and due to asset impairment charges which were taken
in 2002 and 2003 that reduced the carrying value of our property and equipment. General and administrative. General and administrative costs decreased
$2.1 million, or 23.1%, to $7.0 million for fiscal year 2003 as compared to
$9.1 million for fiscal year 2002. As a percentage of sales, general and
administrative costs decreased 0.7% from 5.7% for fiscal year 2002 to 5.0% for
fiscal year 38




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2003. The decrease, both in dollars and as a percentage of revenues, is
the result of our reduction in corporate overhead and the consolidation of
field management personnel. Reorganization expenses. Reorganization expenses represent expenses
incurred relating to our Chapter 11 reorganization proceeding and are primarily
comprised of legal, professional and consulting services. Total reorganization
expenses incurred in fiscal year 2003 were $2.7 million, or 1.9% of revenues,
as compared to $0.9 million, or 0.6% of revenues, in fiscal year 2002. Asset impairment and restructuring charge. We recorded asset impairment
and restructuring charges in fiscal year 2002 totaling $7.5 million and $5.1
million, respectively. These charges were related to the 17 restaurants that
were closed as described above. During fiscal year 2003, we recorded an asset
impairment of $5.9 million relating to restaurants that were not performing as
expected and fixtures and equipment owned or relating to capital leases at
certain of the closed restaurants. Total other expense.Total other expense decreased $1.7 million, or
43.6%, to $2.2 million for fiscal year 2003 from $3.9 million for fiscal year
2002. The decrease was primarily due to the forgiveness of interest expense
during the period of the Chapter 11 proceeding. Income tax (benefit) expense.We recorded an income tax benefit of $1.2
million for fiscal year 2003, compared to an income tax expense of
approximately $0.1 million for fiscal year 2002. The credit recorded in fiscal
year 2003 was due to the recording of a federal income tax refund, partially
offset by state income and franchise taxes. The expense recorded in fiscal
2002 was due to state income and franchise taxes. We did not recognize a tax
benefit relating to the operating loss for fiscal year 2003 or fiscal year 2002
because management believes that it is not likely that all of our deferred tax
assets will be realized in the future. Extraordinary gain. We recognized an extraordinary gain during fiscal
year 2003 of $1.8 million relating to the forgiveness of debt resulting from
our Chapter 11 reorganization. The debt forgiveness is primarily comprised of
obligations that were canceled as a result of the bankruptcy proceedings. OUTLOOK The following discussion of our future operating results that are not
historical statements constitute forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. Our forward-looking
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those stated or implied in the
forward-looking statement. Please refer to Page 4 of this Annual Report on
Form 10-K, as well as to the other disclosures contained in this Annual Report
on Form 10-K, for further discussion on forward-looking statements and the
risks and other factors that could prevent us from achieving our goals and
cause the assumptions underlying the forward-looking statements and the actual
results to differ materially from those expressed in or implied by those
forward-looking statements. As of the date of this Annual Report on Form 10-K, the economy has shown
recent signs of strengthening, however concerns still exist as to the strength
of consumer spending due to the economic downturn and world events including
terrorism and the conflict in the Middle East. Our revenue projections assume
that current spending trends do not worsen during fiscal 2005. Actual results
in fiscal 2005 could vary significantly as a result of changes in consumer
spending and the economy in general. Fiscal 2005 revenue. As discussed above, we opened one new restaurant in
April 2003 and an additional new restaurant in June 2003. No
additional new restaurants are currently being developed for 39




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fiscal 2005. The existing 69 company-owned restaurants will qualify as
comparable restaurants during fiscal 2005. Management currently believes that
food and beverage sales for its comparable stores for fiscal 2005 will increase
slightly compared to sales in fiscal 2004. This anticipated improvement as
compared to the reduction in sales at comparable restaurants of 2.9%
experienced between fiscal 2003 and fiscal 2004 and 6.0% reduction experienced
between fiscal 2002 and fiscal 2003 is projected based upon the improvements
that have recently been implemented that are designed to improve the dining
experience of customers and the consistency in operations, as well as the
anticipated impact of contemplated marketing initiatives and the menu enhancement and price
increase that was implemented in fiscal 2004 and in May 2004. Management intends to continue to focus efforts on identifying
opportunities during fiscal 2005 to expand its operations in relation to
franchised restaurants. We believe that this represents a growth opportunity
and would require significantly lower capital resources from us than expansion
of company-owned restaurants. This initiative is not expected to generate
significant revenue or operating profit during fiscal 2005. Accordingly,
revenue anticipated to be generated from royalty fees and other income is
expected to be less than 1% of total revenues in fiscal 2005. Food and beverage costs. Similar to many competing restaurant concepts,
we have experienced a significant increase in food and beverage costs during
fiscal 2004. This increase was primarily caused by the instances of Mad Cow
Disease that were reported in Canada and the United States in 2003, which has
had a significant negative impact on meat and dairy costs. Management has
taken actions in an attempt to reduce the impact of these events including
enhancing its menu, in part, to promote certain non-meat menu items,
implementing a menu price increase in October 2003 and May 2004, negotiating
arrangements to purchase certain meat products at fixed rates during fiscal
2005 and targeting certain marketing initiatives in an attempt to change our
sales mix and increase sales of lower cost food items. Management cannot
predict the duration of these cost increases or further impacts that may occur
as a result of these events. However, it is presently anticipated that food
and beverage costs will remain consistent with fiscal 2004 and may increase
slightly in fiscal 2005. Labor and benefits. We experienced a decrease in labor and benefits costs
in fiscal 2004 as a percent of revenues as compared to fiscal 2003. This
decrease has resulted from improved management of hourly labor, a decrease in
the cost of providing medical benefits to employees due to plan design changes
implemented in June 2003 and a decrease in the cost of workers compensation
insurance due to a change to a guaranteed cost insurance program in January
2003 as compared to the significant claims incurred in fiscal 2003 under the
previous self funded program. Management currently expects to realize a slight
decrease in labor and benefit costs in fiscal 2005 of up to 0.5% of revenues
compared to fiscal 2004 due primarily to the continued efficient management of
hourly labor. Occupancy and other. As a result of the sale and leaseback transaction
entered into in August 2004, we will incur additional rent expense in fiscal
2005 of approximately $1.7 million. In addition, we intend to use a portion of
the net proceeds from this transaction to invest in additional marketing for
our restaurants. Management has also recently implemented cost cutting
initiatives in regards to a number of the component areas included in occupancy
and other expenses. Due to these factors, as well as the reduced costs
expected to be incurred as a result of the conversion of certain equipment
leases from operating leases to capital leases in fiscal 2005, management
presently expects occupancy and other expenses to remain relatively flat or
possibly increase slightly as a percent of total revenues in fiscal 2005,
compared to fiscal 2004. 40




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Pre-opening expenses. As discussed above, no additional new restaurant
openings are currently planned for fiscal 2005. As a result, pre-opening
expenses are not anticipated to be significant in fiscal 2005. Depreciation and amortization. Management currently expects that total
depreciation and amortization expense will decline in fiscal 2005 as compared
to fiscal 2004 due to the sale and leaseback transaction entered into in August
2004 and due to the volume of assets that have or will become fully depreciated
during fiscal 2004 and fiscal 2005. General and administrative expenses.General and administrative expenses
have declined over the last two years due to cost control initiatives and a
reduction in legal and professional expenses. Also, during fiscal 2004, we
made additional investments in training for our store managers and in our
regional supervisors in order to improve the oversight of restaurant operations
and enhance the effectiveness of operational improvements. As a result of
these continued investments as well as the increase in rent expense to be
incurred in fiscal 2005 resulting from the transaction executed in December
2003 relating to the sale and leaseback of the corporate headquarters building,
management currently expects that our general and administrative expenses will
increase slightly compared to fiscal 2004. Total other expense. Based on the current debt and capital lease
obligations outstanding, the significant debt payments made in fiscal 2004, and
the debt payments made in connection with the recent sale and leaseback
transaction, we presently anticipate that total other expense, which is
primarily comprised of interest expense, will decrease significantly in fiscal
2005 and will range between $1.3 million and $1.5 million in fiscal 2005. Income tax (benefit) expense. Due to the existence of federal and state
income tax loss carryforwards, we do not currently anticipate that any
significant income tax expense or benefits will be recorded or realized in
fiscal 2005. LIQUIDITY AND CAPITAL RESOURCES Our material financial commitments relate principally to our working
capital requirements and our obligations to make operating and capital lease
and term loan payments in accordance with the terms of our agreements. See
Notes 5, 6, 7 and 20 to the Consolidated Financial Statements for a description
of our current outstanding debt and capital and operating lease obligations.
As of April 25, 2004, total minimum annual payments required under our note and
lease obligations, including interest thereon, were $17.5 million. 41




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The following table summarizes our future contractual cash obligations for
each of the next five fiscal years and thereafter as of April 25, 2004 (dollars
in thousands). Operating lease commitments include estimated common area
maintenance expenses. 2005
    
    2006
    
    2007
    
    2008
    
    2009
    
    Thereafter
    
    TotalLong term debt:Principal
    
    $
    4,448
    
    
    $
    4,683
    
    
    $
    4,688
    
    
    $
    4,034
    
    
    $
    3,008
    
    
    $
    11,805
    
    
    $
    32,666Interest
    
    
    2,346
    
    
    
    2,045
    
    
    
    1,730
    
    
    
    1,405
    
    
    
    1,154
    
    
    
    1,253
    
    
    
    9,933Total
    
    
    6,794
    
    
    
    6,728
    
    
    
    6,418
    
    
    
    5,439
    
    
    
    4,162
    
    
    
    13,058
    
    
    
    42,599Capital lease debt:Principal
    
    
    1,119
    
    
    
    1,054
    
    
    
    1,089
    
    
    
    408
    
    
    
    331
    
    
    
    1,397
    
    
    
    5,398Interest
    
    
    407
    
    
    
    343
    
    
    
    267
    
    
    
    220
    
    
    
    190
    
    
    
    417
    
    
    
    1,844Total
    
    
    1,526
    
    
    
    1,397
    
    
    
    1,356
    
    
    
    628
    
    
    
    521
    
    
    
    1,814
    
    
    
    7,242Operating leases
    
    
    9,130
    
    
    
    8,104
    
    
    
    7,171
    
    
    
    6,580
    
    
    
    5,941
    
    
    
    28,888
    
    
    
    65,814Other commitments
    
    
    694
    
    
    
    442
    
    
    
    74
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,210Total
    
    $
    18,144
    
    
    $
    16,671
    
    
    $
    15,019
    
    
    $
    12,647
    
    
    $
    10,624
    
    
    $
    43,760
    
    
    $
    116,865
 Other commitments represent minimum amounts due to certain vendors under
contractual agreements. Amounts reflected above could change as additional
commitments may be made, cancellation provisions may be exercised by us or by
our creditors, or agreements may be modified as warranted by changes in
business or operational needs. Amounts due under long-term debt agreements may
be accelerated to the extent that we realize excess cash flow as described in
Note 7 to the Consolidated Financial Statements. As described below, on August 6, 2004 we executed a sale and leaseback of
eleven of our restaurant properties. As
a result of this transaction, our minimum annual note and lease obligations
have been reduced by approximately $1.8 million for each of fiscal years 2005
through 2009 and total obligations thereafter have been increased by
approximately $31.0 million. See discussion below regarding our total
contractual cash obligations. We opened one new restaurant in fiscal year 2004 at a total cost of
approximately $1.8 million, of which $1.4 million was expended prior to April
27, 2003 and $0.4 million was expended in fiscal year 2004. We do not
currently have any additional new restaurants under development for fiscal year
2005. At this time, it is expected that the cash required to develop new
restaurants beyond fiscal 2005, if any, will be funded from operations. Should
cash from operations be insufficient for future expansion and additional
capital through debt and equity sources be unavailable, there can be no
assurance that we will be able to open additional restaurants. 42




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Capital requirements relating to the opening of
new restaurants have in the past and, to the extent we elect to open new restaurants, may in the future be significant. During fiscal year 2004, our primary source of working capital was cash
provided by operations. We also filed for federal income tax refunds totaling
approximately $1.2 million during fiscal year 2003, of which $0.6 million was
collected in fiscal year 2003 and the remaining $0.6 million was collected in
fiscal year 2004. In addition, we have also filed for approximately $0.2
million in additional federal and state income tax refunds in fiscal year 2004,
which we presently expect to collect during fiscal year 2005. Also, during
fiscal year 2004, we entered into an agreement with a loyalty and rewards
company involving the discounted advanced sale of food and beverage credits to
be used at our restaurants. As part of the agreement, we received $2.3 million
in exchange for food and beverage credits during fiscal year 2004, which
represents the full amount to be received under the agreement. In June 2004,
we renewed the agreement with the loyalty and rewards company. Under the
agreement, we will receive a total of $3.0 million from the advance sale of
food and beverage credits, including $1.5 million that was received in June
2004 at the inception of the agreement. Such funds have been and will continue
to be used to cover operating expenses relating to the use of the food and
beverage credits by the members of the loyalty and rewards company. See
further discussion in Note 19 to the Consolidated Financial Statements. In July 2003 and March 2004, we sold our interests in the properties
relating to two of our restaurants. Total net proceeds from these two
transactions, of approximately $1.5 million, were used to repay approximately
$1.3 million in debt and the remaining $0.2 million was used for general
corporate purposes. In December 2003, we completed a sale and leaseback transaction relating
to our corporate headquarters building. Gross proceeds from the sale were $3.0
million. The net proceeds of $2.6 million, after payment of expenses and
security deposits, were used, in part, to pay debt related to the facility of
$1.5 million. The remaining net proceeds of $1.1 million were retained by us
for working capital and general corporate purposes. The leaseback agreement
provides for rent to be paid on a triple net basis and extends for a period of
15 years with two five-year renewal options. On August 6, 2004, we closed a transaction with Sovereign Roadhouse LLC, a
wholly-owned subsidiary of Sovereign Investment Company, (Sovereign)
involving the sale and leaseback of eleven restaurant properties that were
previously owned. The sale price for the eleven properties was $21.8 million.
The properties are being leased from Sovereign under lease agreements that
extend for 20 years and include four five-year renewal options.
We used approximately $18.1 million of the net proceeds from the
property sale to pay expenses related to the transaction and to repay $24.6 million of
secured debt, which was repaid at a discount (resulting in a gain on
extinguishment of debt of approximately $7.1 million). The net gain from the
debt repayment will be reflected in our consolidated financial statements in
the second quarter of fiscal 2005. We also realized a gain on the sale of the
properties of approximately $1.7 million, which will be recorded as a reduction
of occupancy and other expense over the life of the leases. The remaining net
proceeds from the sale of approximately $3.7 million will be used for working capital, including new marketing initiatives to promote our existing restaurants. We expect that our primary source of working capital for future periods
will be cash flow from operations, proceeds from the sale/leaseback, additional advance sales of
food and beverage credits and possible additional debt and/or equity financing. We have experienced significant cash flow problems in the past. We
believe that our ability to generate cash from operations is dependent upon,
among other things, demand for our products, a continued 43




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commitment to providing an excellent dining experience for our customers,
the development and implementation of successful marketing strategies, the cost
levels of our various food products, and our continuing efforts to reduce our
operating costs. We implemented revenue enhancement programs including the
implementation of a new menu with enhanced menu items in June 2003 and menu
price increases in October 2003 and May 2004. We also have taken, and continue
to take, steps to control our costs. There can be no assurance that these
initiatives will be effective in generating profits or producing sufficient
cash flows to fund operating requirements, including debt repayments and lease
obligations. Capital requirements relating to the implementation of our business plan
have been and will continue to be significant. If cash generated from our
operations and other possible sources described above are insufficient to fund
our financial commitments and working capital requirements (including amounts
required to support future growth), we will have to obtain additional
financing. There can be no assurance that additional debt and/or equity
financing will be available on terms acceptable to us, or at all. In the event
we are unable to secure needed additional financing, we may have to
significantly curtail our operations or forgo growth opportunities. SUMMARY OF CASH FLOWS Cash provided by operating activities during fiscal year 2004 was $3.8
million, compared with $1.2 million provided by operating activities during
fiscal year 2003. The primary sources of cash for each fiscal year were the
net income generated from operations excluding reorganization expenses and
non-cash expenses including depreciation, amortization and asset impairments
and cash received from the advance sale of food and beverage credits under the
new program with the loyalty and rewards company. Cash used for reorganization
items was $0.2 million and $2.5 million in fiscal years 2004 and 2003,
respectively. Cash provided by investing activities during fiscal year 2004 was $2.9
million, compared to $1.4 million used during fiscal year 2003. Cash provided
by investing activities during fiscal year 2004 included the proceeds from
sales of property and equipment, offset to some extent by purchases of
property, plant and equipment. Cash used in investing activities in fiscal
year 2003 consisted primarily of purchases of property, plant and equipment,
offset to some extent by proceeds from sales of property and equipment. The
proceeds from sales of property and equipment in fiscal 2004 primarily relates
to the sale of a restaurant leasehold interest in July 2003, the sale/leaseback
of our corporate headquarters building in December 2003 and the sale of one
restaurant that was sold in April 2004. Cash used in financing activities during fiscal year 2004 was $8.5
million, compared to less than $0.1 million provided by financing activities
during fiscal year 2003. Cash used in financing activities in fiscal year 2004
consisted of repayments of long term debt and capital lease obligations. Cash
provided by financing activities during fiscal year 2003 included $5.0 million
in proceeds from issuance of common stock, offset by repayments of long term
debt and capital lease obligations. CAPITAL EXPENDITURES We opened one new restaurant in June 2003 at a total cost of $1.8 million,
of which $1.4 million was expended in fiscal 2003. We also opened one
additional restaurant in fiscal year 2003 at a total cost of approximately $1.1
million. We do not currently have any additional new restaurants under
development for fiscal 2005. At this time, it is expected that the cash
required to develop new company-owned 44




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restaurants, if any, beyond 2005 will be funded by cash from operations and
possible additional debt and/or equity financing. SEASONALITY AND QUARTERLY RESULTS Our operating results fluctuate seasonally because of our geographic
concentration. Of the 69 restaurants currently owned and operated by us, 34
are located in generally residential or light commercial areas in Florida. Our
restaurant sales generally increase from November through April, the peak
period of the Florida tourism season, and generally decrease from May through
October. In addition, because of our present geographic concentration, our
results of operations may be materially adversely affected by a decline in
tourism in Florida, downturns in Floridas economy or by hurricanes or other
adverse weather conditions in Florida. To offset this seasonal trend and to
attempt to reduce the decline in sales during the off-season, we run special
promotions for our customers, incentive contests for our employees and
otherwise focus marketing initiatives to increasing sales during these periods. In addition to seasonality, our quarterly and annual operating results and
comparable unit sales may fluctuate significantly as a result of a variety of
factors, including:  
    
    The efforts we make from time to time (including advertising and
promotional programs) to increase our sales, and the success or failure
of those programs;
    
    The results of our continual efforts to manage our labor costs, food
costs, other restaurant costs and corporate expenses;
    
    Our ability to acquire an adequate supply of food products at
acceptable prices, and events that affect the availability and pricing
of food products (such as instances of mad cow disease);
    
    Our ability to recruit, train and retain qualified management
personnel and to obtain a sufficient number of qualified restaurant
employees;
    
    The level of competition from existing or new competitors in the
markets in which our restaurants are located;
    
    Trends in consumer preferences, tastes and eating habits and
competition for consumer dollars, both from restaurants similar to our
restaurants and from restaurants generally; and
    
    U. S. domestic economic conditions, particularly in the markets in
which we operate, and the impact of international conflicts on domestic
economic conditions. IMPACT OF INFLATION The primary inflationary factors affecting our operations include food,
beverage and labor costs. Labor costs are affected by changes in the labor
market generally and, because many of our employees are paid at federal and
state established minimum wage levels, changes in such wage laws affect our
labor costs. In addition, most of our leases require us to pay taxes,
maintenance, repairs and utilities, and these costs are subject to inflationary
pressures. We believe that inflation rates, which have been low in recent
periods, 45




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have not had a significant impact on our food and labor costs. There is no
assurance that low inflation rates will continue or that we will have the
ability to control costs in the future. IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS In December 2002, the FASB issued Statement No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure, an amendment of FASB
Statement No. 123 (SFAS 148). SFAS 148 amends FASB Statement No. 123,
Accounting for Stock-Based Compensation, to provide alternative methods of
transition for an entity that voluntarily changes to the fair value based
method of accounting for stock-based employee compensation and to require
prominent disclosures about the effects on reported net income of an entitys
accounting policy decisions with respect to stock-based employee compensation.
SFAS 148 also amends APB Opinion No. 28, Interim Financial Reporting, to
require disclosures about those effects in interim financial information. We
currently account for our stock-based compensation awards to employees and
directors under the accounting prescribed by Accounting Principles Board
Opinion No. 25 and provide the disclosures required by SFAS No. 123. We
currently intend to continue to account for our stock-based compensation awards
to employees and directors under the accounting prescribed by Accounting
Principles Board Opinion No. 25 and will adopt the additional disclosure
provisions of SFAS 148. 
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Our exposure to market risk is limited primarily to the fluctuating
interest rates associated with variable rate indebtedness which is subject to
interest rate changes in the United States and Eurodollar markets. We do not
currently use, and have not historically used, derivative financial instruments
to hedge against such market interest rate risk. At April 25, 2004, we had
approximately $0.9 million in variable rate indebtedness outstanding,
representing approximately 2% of our total outstanding indebtedness. Such
indebtedness was repaid in full in August 2004 as discussed in Note 20 to the
Consolidated Financial Statements. Changes in market interest rates, either
increasing or decreasing rates by up to ten percent, would have no material
impact on our results of operations. Certain of the food products purchased by us are affected by commodity
pricing and are, therefore, subject to unpredictable price volatility. These
commodities are generally purchased based upon market prices established with
vendors. The purchase arrangement may contain contractual features that limit
the price paid by establishing certain floors and caps. We do not use
financial instruments to hedge commodity prices because our purchase
arrangements help control the ultimate cost paid. Extreme changes in commodity
prices and/or long-term changes could adversely affect us. However, changes in
commodity prices would ultimately affect our competitors as well as us. We
expect that in most cases increased commodity prices could be passed through to
our consumers via increases in menu prices. From time to time, competitive
circumstances could limit menu price flexibility, and in those cases margins
would be negatively impacted by increased commodity prices. This market risk discussion contains forward-looking statements. Actual
results may differ materially from the discussion based upon general market
conditions and changes in domestic and global financial markets. 46




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data required by this item are
attached to this Form 10-K beginning on page F-1. 
 ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 None. 
 ITEM 9A. CONTROLS AND PROCEDURES We carried out an evaluation, under the supervision and with the
participation of our management, including the Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of
our disclosure controls and procedures pursuant to Securities Exchange Act Rule
13-a-14(c) and 15d-14(c). Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer have concluded that, as of April 25, 2004,
our disclosure controls and procedures were effective in timely alerting them
to material information relating to us (including our consolidated
subsidiaries) required to be included in this report. There were no changes in
our procedures during the year ended April 25, 2004 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting. 47




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PART III 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 EXECUTIVE OFFICERS The names of our executive officers and certain information with respect
to each of them is set forth below. Name
    
    Age
    
    PositionAyman Sabi
    
    
    41
    
    
    President and Chief Executive OfficerMichael C. Brant
    
    
    41
    
    
    Executive Vice President of Finance and Chief Financial OfficerAlain K.K. Lee
    
    
    47
    
    
    Executive Vice President and Corporate SecretaryMark Rogers
    
    
    41
    
    
    Vice President of Operations
 Ayman Sabi has been our President and Chief Executive Officer since
February 1998. He served as Chairman of our Executive Committee from November
1997 to February 1998. Mr. Sabi became a director in February 1997. Mr. Sabi
has served as the Chairman and Chief Executive Officer of SABi International
Developments, Inc., a trading, contracting and investment company which owns,
operates and invests in various restaurant and retail concepts, both
domestically and internationally since 1989. Michael C. Brant became our Executive Vice President of Finance and Chief
Financial Officer in May 2003. Prior to that, he was our Vice President of
Finance and Chief Financial Officer from October 2002 until May 2003. Before
joining us, Mr. Brant was, from November 1999 until January 2002, the Vice
President and Chief Financial Officer of Aviation Sales Company, where he
helped lead that company through a significant restructuring of its operations
and capital structure. Mr. Brant also served as a consultant to Aviation Sales
from January 2002 until April 2002. Prior to joining Aviation Sales, from
April 1999 to October 1999, Mr. Brant was a Vice President of Becker
Professional Services and, for more than five years prior thereto, Mr. Brant
held senior financial positions at John Alden Life Insurance Company, the
principal subsidiary of John Alden Financial Corporation. Additionally, before
joining John Alden, Mr. Brant held various positions, including senior manager,
for a period of nine years with Price Waterhouse. Mr. Brant is a certified
public accountant. Alain K.K. Lee has been our Executive Vice President and Corporate
Secretary since September 2002. He was previously Vice President of Corporate
Affairs and Franchising/Investor Relations from July 1998 until September 2002.
From 1990 to 1998, Mr. Lee served as Berjaya Group Berhads Chief Financial
Officer and as a General Manager and Director of several other Berjaya
subsidiary companies. Berjaya Group Berhad owns 100% of Berjaya, our majority
shareholder. Mr. Lee also serves on the Board of Directors of ILTS, Inc. and
Taiga Forest Products Ltd. Mark Rogers has been our Vice President of Operations since January 2003.
Previously, he was our Senior Director of Operations from October 2000 to June
2002. Prior to joining us, Mr. Rogers was (i) from September 1997 to October
2000, a Regional Director with Unos, where he was responsible for seven
company stores and seven franchise locations, (ii) from May 1991 to September
1997, a District Manager with Applebees responsible for six restaurants and
instrumental in beginning a new concept called Chevy Chase Grill, (iii) from
February 1988 to May 1991, the Executive Food and Beverage Manager at Catawba
Island Club where he was responsible for all aspects of the food and beverage
department for this private fine dining and casual theme resort restaurant, and
(iv) from June 1981 to February 1988 he held various positions with T.G.I.
Fridays. 48




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##### Table of Contents



DIRECTORS The names of our directors and certain information with respect to each of
them are set forth below. In each case, the directors have been elected to
serve until their successors are elected and qualified. Name
    
    Age
    
    Director SinceAyman Sabi
    
    
    41
    
    
    February 1997Alain K.K. Lee
    
    
    47
    
    
    January 1998Ronald J. Buck
    
    
    41
    
    
    September 2002Nathan D. Benn
    
    
    42
    
    
    September 2002
 For biographical information about Messrs. Sabi and Lee, see Executive
Officers above. Ronald J. Buck is co-founder and Managing Principal of Corsair Partners,
LLC and the investment manager of Corsair Special Situations Fund, L.P., both
of which are investment firms specializing in investing in distressed and
illiquid securities. From 1995 to 1998, Mr. Buck was a bond analyst in
Standard and Poors retail and restaurant group. Mr. Buck served in various
positions in Chase Manhattan Bank from 1989 to 1995, and in the last three
years as a Vice President in the Recovery and Restructuring Department. Mr.
Buck is a member of our Boards Audit Committee and Compensation Committee. Nathan D. Benn, is currently the Director and Chief Financial Officer of
the Florida Division of Buckhead Beef, a major supplier to the Company.
Previously, he served as Chief Financial Officer of Colorado Boxed Beef Company
beginning in October 2000. From August 1997 to September 2000, Mr. Benn was
Chief Financial Officer of Cutrale Citrus Juices USA, Inc. Mr. Benn also
served as Vice President and General Manager of Rouse Rubber Industries, Inc.
from December 1995 to July 1997; and Corporate Controller/Director of MIS of
Choctaw Maid Farms, Inc. from December 1992 to November 1995. Mr. Benn is a
certified public accountant. Mr. Benn is a member of our Boards Audit
Committee and Compensation Committee. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Exchange Act requires our directors and executive
officers and persons who own more than 10% of our common stock to file with the
SEC initial reports of ownership and reports of changes in ownership of our
common stock. Officers, directors and beneficial owners of more than 10% of
our common stock are required by the SEC regulations to furnish us with copies
of all Section 16(a) forms that they file. Based solely on a review of the copies of such reports furnished to us, or
written representation that no such reports were required, we believe that for
the fiscal year ended April 25, 2004, all of our officers, directors and
greater than 10% beneficial owners, complied with all Section 16(a) filing
requirements applicable to them. 49




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ITEM 11. EXECUTIVE COMPENSATION Summary Compensation Table The following table sets forth the compensation paid to our Executive
Officers whose compensation exceeded $100,000 in fiscal 2004. The individuals
included in the table are collectively referred to as the Named Executive
Officers. ANNUAL COMPENSATION NAME AND
    
    FISCAL
    
    
    
    
    
    OTHER ANNUAL
    
    ALL OTHERPRINCIPAL POSITION
    
    YEAR
    
    SALARY
    
    COMPENSATION(1)
    
    COMPENSATION(2)Ayman Sabi,
    
    
    2004
    
    
    $
    235,547
    
    
    $
    67,468
    
    
    $
    23,555President and Chief
    
    
    2003
    
    
    
    409,633
    
    
    
    67,642
    
    
    
    40,963Executive Officer
    
    
    2002
    
    
    
    405,788
    
    
    
    62,178
    
    
    
    40,579Michael C. Brant,
    
    
    2004
    
    
    
    224,049
    
    
    
    
    
    
    
    22,405Executive Vice
    
    
    2003
    
    
    
    105,712
    
    
    
    
    
    
    
    7,958President of Finance and
    
    
    2002
    
    
    
    
    
    
    
    
    
    
    
    Chief Financial Officer(3)Alain K.K. Lee,
    
    
    2004
    
    
    
    135,288
    
    
    
    34,332
    
    
    
    13,529Executive Vice President
    
    
    2003
    
    
    
    129,492
    
    
    
    34,768
    
    
    
    12,949and Corporate Secretary
    
    
    2002
    
    
    
    129,492
    
    
    
    40,369
    
    
    
    12,949Mark Rogers,
    
    
    2004
    
    
    
    130,231
    
    
    
    
    
    
    
    Vice President of
    
    
    2003
    
    
    
    
    
    
    
    
    
    
    
    Operations(4)
    
    
    2002
    
    
    
    
    
    
    
    
    
    
    
    
  (1)
    
    This amount represents rent and car lease payments made by us for Mr.
Sabi and Mr. Lee.(2)
    
    Represents Supplemental Executive Retirement Plan (SERP)
contributions made by us.(3)
    
    Mr. Brant began his employment with us on October 8, 2002.(4)
    
    Mr. Rogers began his employment with us on June 30, 2003. 50




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Options/SAR Grants in Last Fiscal Year Individual Grants(1)
    
    
    
    
    
    
    
    
    
    PotentialRealizableValue at AssumedAnnual RatesNumber of
    
    % of Total
    
    
    
    
    
    
    
    
    
    of Stock PriceSecurities
    
    Options/SARs
    
    
    
    
    
    
    
    
    
    Appreciation forUnderlying
    
    Granted to
    
    Exercise or
    
    
    
    
    
    Option Term (2)Options/SARs
    
    Employees in
    
    Base Price
    
    ExpirationName(1)
    
    Granted
    
    Fiscal Year
    
    ($/Share)
    
    Date
    
    5%(3)
    
    10%(3)Ayman Sabi
    
    
    400,000
    
    
    
    30
    %
    
    $
    0.36
    
    
    
    4/28/2013
    
    
    $
    
    
    
    $
    Michael C. Brant
    
    
    200,000
    
    
    
    15
    %
    
    $
    0.36
    
    
    
    4/28/2013
    
    
    $
    
    
    
    $
    Alain K.K. Lee
    
    
    200,000
    
    
    
    15
    %
    
    $
    0.36
    
    
    
    4/28/2013
    
    
    $
    
    
    
    $
    Mark Rogers
    
    
    175,000
    
    
    
    13
    %
    
    $
    0.36
    
    
    
    4/28/2013
    
    
    $
    
    
    
    $
    
  (1)
    
    All options awarded under the 2003 Stock Option Plan.(2)
    
    The full option term was used in the 5% and 10% annual growth
projections for the price of the underlying stock.(3)
    
    The closing price of our common stock on the effective date
of these stock option grants was $0.20, or 56% of the $0.36 exercise
price of the stock options. A 5% and 10% appreciation in our stock
price over the full term of these options would represent no gain or
an immaterial gain, respectively, in the value of the stock options. AGGREGATED OPTIONS / SAR GRANTS EXERCISED IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTIONS / SAR VALUES Number of Securities
    
    Value ofUnderlying
    
    UnexercisedUnexercised
    
    In-the-MoneyShares
    
    
    
    
    
    Options/SARs at
    
    Options/SARs atAcquired
    
    
    
    
    
    Fiscal Year-End(1)
    
    Fiscal Year-End(1)On
    
    ValueExercise
    
    Realized
    
    Exercisable(E)
    
    Exercisable(E)(#)
    
    ($)
    
    Unexercisable(U)
    
    Unexercisable(U)Ayman Sabi
    
    
    
    
    
    
    
    
    
    
    E -0-
    
    
    
    U-400,000
    
    
    
    E -0-
    
    
    
    U -0-Michael C. Brant
    
    
    
    
    
    
    
    
    
    
    E -0-
    
    
    
    U-200,000
    
    
    
    E -0-
    
    
    
    U -0-Alain K.K. Lee
    
    
    
    
    
    
    
    
    
    
    E -0-
    
    
    
    U-200,000
    
    
    
    E -0-
    
    
    
    U -0-Mark Rogers
    
    
    
    
    
    
    
    
    
    
    E -0-
    
    
    
    U-175,000
    
    
    
    E -0-
    
    
    
    U -0-
  (1)
    
    All Options awarded under the 2003 Stock Option Plan. 51




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Compensation of Directors Each outside director receives $3,500 for each Board Meeting that he
attends and $500 for attendance at each meeting of the Audit Committee or
Compensation Committee. 2003 Stock Option Plan We have a stock option plan (the 2003 Stock Option Plan) pursuant to which
options may be granted to our officers, directors, key employees and
independent contractors or to consultants that perform services for us. The
plan is administered by the Compensation Committee of our Board of Directors,
which has the sole authority to make all decisions under the plan. We have reserved 1,500,000 shares of common stock for issuance under the
plan. At April 25, 2004, options to purchase 1,395,000 shares of common stock
at an exercise price of $0.36 per share were outstanding under the plan. Under the plan, the option exercise price per share of common stock may be
any price determined by the plans administrators at the time of grant; except
that the option price of an incentive stock option granted under the plan may
not be less than the fair market value per share of common stock on the date of
grant (or less than 110% of the fair market value for shareholders who own more
than 10% of our stock). Under the plan, fair market value shall be determined
by the plan administrators and if the shares of our common stock are listed on
a national stock exchange or traded on the over the counter market, the fair
market value shall equal the average of the closing price of our common stock
on the seven market days prior to the option grant date as reported by such
exchange or market; provided, however, that the exercise price of options
granted under the 2003 Stock Option Plan shall not be less than $0.36 per
share. The exercise price of an option shall be paid in cash. Cash payments will
be used for general corporate purposes. No option granted under the plan is assignable or transferable, other than
by will or by the laws of descent and distribution. During the lifetime of an
optionee, an option is exercisable only by the optionee. The expiration date
of an option is determined by the plans administrators at the time of the
grant, but in no event may an option be exercised after the expiration of 10
years from the date of grant. The vesting schedule for an option will be
determined by the plan administrators and will be set forth in a written
agreement between us and the optionee. The plans administrators may, in their
sole discretion, accelerate the date on which any option may be exercised. In
the event of certain transactions, including certain changes in control,
certain mergers and reorganizations, and certain dispositions of substantially
all our assets, the plan administrators have the discretion to provide on a
case-by-case basis that the option will automatically become exercisable or
will terminate. If the option is terminated upon a change of control, the
optionee will have the right prior to the change of control to exercise any
vested option. Unless otherwise provided for by the plans administrators, six months
after the date on which an optionees employment is terminated by reason of
death, the unexercised portion of any vested options granted under the plan
will automatically be terminated. Unless otherwise provided by the plans
administrators, the unexercised portion of any vested options granted under the
plan will automatically be terminated three months after the date on which an
optionees employment is terminated for any other reason provided, however,
that the unexercised portion of any vested options will automatically be
terminated immediately on the date on which an optionees employment is
terminated for cause, as 52




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defined in the plan. If an optionee dies within three months after the termination of his/her employment, the optionees
estate has the right to exercise any portion of the deceased employees option within six months of such optionees death. To prevent certain types of dilution of the rights of a holder of an option, the plan provides for appropriate adjustment of
the number of shares for which options may be granted, the number of shares subject to outstanding options and the exercise price of
outstanding options in the event of any increase or decrease in the number of issued and outstanding shares of our capital stock
resulting from a stock split, reverse split, combination of shares, exchange of shares, stock dividend, recapitalization,
reclassification or other capital adjustment. The Compensation Committee has discretion to make appropriate adjustments to
outstanding options in the event of a merger, consolidation or other reorganization. The plan will expire in May 2013, and any option outstanding on such date will remain outstanding until it expires or is
exercised. The Board of Directors may amend or terminate the plan or any option at any time, without the approval of our
shareholders, provided that any amendment may not adversely affect the rights of an optionee under an outstanding option without the
optionees consent. In addition, no such amendment may, without approval of our shareholders, increase the number of shares of
common stock reserved for issuance under the plan, or modify the requirements for eligibility to receive options under the plan. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Neither Mr. Buck or Mr. Benn, the members of the compensation committee, served as officers or employees of ours or any of
our subsidiaries during fiscal year 2004. Other than as described in Item 13. Certain Relationships and Related Transactions,
there were no material transactions between us and any of the members of our compensation committee during fiscal year 2004. 53




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ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
 Security Ownership of Directors and Named Executive Officers The following table indicates the share ownership, as of April 25, 2004,
of our directors and executive officers, and of all directors and executive
officers as a group: TOTAL SHARESNAME OF BENEFICIAL OWNER (1)
    
    BENEFICIALLY OWNED (2)
    
    PERCENT OF CLASSAyman Sabi (3)
    
    
    2,781,228
    
    
    
    9.5
    %Alain K. K. Lee
    
    
    
    
    
    
    Ronald J. Buck
    
    
    
    
    
    
    Nathan D. Benn
    
    
    
    
    
    
    Michael C. Brant
    
    
    
    
    
    
    Mark Rogers
    
    
    
    
    
    
    All executive
officers and
directors as a
group (five
persons) (3)
    
    
    2,781,228
    
    
    
    9.5
    %
  (1)
    
    Unless stated otherwise, the address of the beneficial owners is 2703-A
Gateway Drive, Pompano Beach, Florida 33069.  (2)
    
    Information concerning beneficial ownership was furnished by the
persons named in the table or derived from documents filed with the U.S.
Securities and Exchange Commission. Unless stated otherwise, each
person named in the table has sole voting and investment power with
respect to the shares beneficially owned.  (3)
    
    Includes (i) 3,450 shares of common stock beneficially owned directly
by Mr. Sabi and (ii) 2,777,778 shares owned by Tonto Capital Partners,
GP (Tonto). Mr. Sabi, as a general partner of Tonto, is deemed a
beneficial owner of the Company shares owned by Tonto for U. S.
securities law purposes. However, Mr. Sabi disclaims any pecuniary
interest in the shares owned by Tonto except to the extent of his
proportional interest in Tonto. 54




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##### Table of Contents



Security Ownership of Principal Shareholders The following table indicates the share ownership, as of April 25, 2004,
of any individual known to us to be a beneficial owner of more than five
percent of our common stock. TOTAL SHARESNAME OF BENEFICIAL OWNER (1)
    
    BENEFICIALLY OWNED (2)
    
    PERCENT OF CLASSBerjaya Group (Cayman) Limited (3)
    
    
    19,440,786
    
    
    
    66.5
    %Tonto Capital Partners, GP (4)
    
    
    2,777,778
    
    
    
    9.5
    %
 (1) Unless stated otherwise, the address of the beneficial owners is 2703-A
Gateway Drive, Pompano Beach, Florida 33069. (2) Information concerning beneficial ownership was furnished by the persons
named in the table or derived from documents filed with the U.S. Securities
and Exchange Commission. Unless stated otherwise, each person named in the
table has sole voting and investment power with respect to the shares
beneficially owned. (3) Prime Gaming Philippines, Inc. (Prime), an affiliated company of
Berjaya, beneficially owns 1,388,889 shares or 4.75% of our common stock. In
the aggregate, Berjaya and Prime beneficially own 20,829,675 shares or 71.28%
of our common stock. The ultimate parent of Berjaya is Berjaya Group Berhad,
a diversified holding company headquartered in Malaysia. Berjaya disclaims
beneficial ownership over the company securities owned by Prime. (4) Mr. Sabi, as a general partner of Tonto Capital Partners, GP, is deemed
to be the beneficial owner of all of the shares owned by Tonto for U.S.
securities law purposes. However, Mr. Sabi disclaims any pecuniary interest
in our shares owned by Tonto except to the extent of his proportional
interest in Tonto. 55




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##### Table of Contents



Equity Compensation Plan Information The following table provides information, as of April 25, 2004, with
respect to all of our compensation plans under which equity securities are
authorized for issuance: Number of securitiesremaining available forNumber of securities
    
    
    
    
    
    future issuance underto be issued upon
    
    Weighted-average
    
    equity compensationexercise of
    
    exercise price of
    
    plans (excludingoutstanding options,
    
    outstanding options,
    
    securities reflected inPlan category
    
    warrants and rights
    
    warrants and rights
    
    the first column)Equity compensation
plans approved by
security
holders(1)(2)
    
    
    1,395,000
    
    
    $
    0.36
    
    
    
    105,000Equity compensation
plans not approved
by security holders
    
    
    -0-
    
    
    
    N/A
    
    
    
    -0-Total
    
    
    1,395,000
    
    
    $
    0.36
    
    
    
    105,000
 (1) Under the Confirmed Plan of Reorganization, our 1994 and 1998 stock option
plans were terminated and all outstanding options were canceled. (2) Effective May 15, 2003, our shareholders approved the 2003 Stock Option
Plan. The 2003 Plan reserves an aggregate of 1,500,000 shares for the issuance
of options thereunder. During fiscal year 2004, 1,395,000 of those options
were granted, and 105,000 remain issuable. 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Berjaya, which beneficially owns approximately 66.5% of our common stock,
directly or indirectly owns Roadhouse Grill Asia Pacific (H.K.) Limited
(Roadhouse Grill Hong Kong) and Roadhouse Grill Asia Pacific (Cayman) Limited
(Roadhouse Grill Asia). For a description of the franchise relationship
between us and Berjaya, see Item 1. Business. On February 14, 2001, Berjaya loaned us $1.5 million. The loan was
evidenced by a promissory note with interest at 10% per annum, was payable by
us on demand at any time after August 14, 2001, and was collateralized by
intellectual property and certain unencumbered real and personal property.
Pursuant to our Confirmed Plan of Reorganization, in September 2002, Berjaya
received in full satisfaction of the principal amount of this loan, 4,166,667
shares of our common stock at the issue price of $0.36 per share. We currently
owe Berjaya $100,000 of accrued but unpaid interest as of April 25, 2004 under
this loan. Berjaya is currently offsetting this amount against royalties due
to us under our franchise arrangement with 56




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##### Table of Contents



Roadhouse Grill Asia. See Item 1. Business  Franchised Restaurants
and Note 16 of Notes to Consolidated Financial Statements for information. On September 30, 2002, pursuant to our Confirmed Plan of Reorganization,
Berjaya, and its affiliate, Prime Gaming Philippines, Inc, invested and paid
$3.5 million and received 9,722,222 shares of common stock at the issue price
of $0.36 per share. Tonto Capital Partners, GP is affiliated with Ayman Sabi, the Companys
Chief Executive Officer, President and a director. Pursuant to our Confirmed
Plan of Reorganization, Tonto purchased 2,777,778 shares of our common stock
for $0.36 per share. Mr. Sabi, as a general partner of Tonto, is deemed a
beneficial owner of the shares owned by Tonto for U.S. securities law purposes.
However, Mr. Sabi disclaims any pecuniary interest in the shares owned by Tonto
except to the extent of his proportional interest in Tonto. Ronald J. Buck, who is one of our directors, is co-founder and Managing
Principal of Corsair Partners, LLC and the investment manager of Corsair
Special Situations Fund, L.P., both of which are investment firms specializing
in investing in distressed and illiquid securities. Corsair Special Situations
Fund, L.P. is the holder of a note from us in the amount of $4.0 million as of
April 25, 2004 payable in monthly installments of $103,959, with interest at
the rate of 5% per annum, through October 2007. Nathan D. Benn, one of our directors, is currently the Director and Chief
Financial Officer of the Florida Division of Buckhead Beef, which has a
contract with us to supply beef to our food purveyor for resale to our
restaurants. 
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The following sets forth the aggregate fees billed to us by Grant Thornton
LLP, our independent accountants for fiscal years 2004 and 2003 (dollars in
thousands): Audit Fees Fees billed by Grant Thornton for audit services were approximately
$120,000 for fiscal year 2004 and $162,000 for fiscal year 2003, including fees
associated with the annual audit, the reviews of our quarterly reports on Form
10-Q, statutory audits required internationally, fees related to filings with
the SEC and accounting consultations. Audit-Related Fees Fees billed by Grant Thornton for audit-related services were
approximately nil for fiscal year 2004 and nil for fiscal year 2003, for
consultations on proposed financial reporting standards on internal controls. Tax Fees Fees billed by Grant Thornton for tax services, including tax compliance
and tax consulting, were approximately $31,000 for fiscal year 2004 and
$209,000 for fiscal year 2003. All Other Fees Fees billed by Grant Thornton for all other services were approximately
nil for fiscal year 2004 and $15,000 for fiscal year 2003, and primarily
included fees for audit of the Companys 401k plan. 57




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##### Table of Contents



The Audit Committee of the Board of Directors has implemented procedures
to ensure that all audit and permitted non-audit services provided to us are
pre-approved by the Audit Committee. All of the audit-related, tax and all
other services provided by Grant Thornton to us in fiscal year 2004 were
approved by the Audit Committee pursuant to these procedures. All non-audit
services provided in fiscal year 2004 were reviewed with the Audit Committee,
which concluded that the provision of such services by Grant Thornton was
compatible with the maintenance of that firms independence in the conduct of
its auditing functions. 58




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##### Table of Contents



PART IV 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K  (a)
    
    The following documents are filed as part of this Form 10-K.  1.
    
    Consolidated Financial Statements
The Consolidated Financial Statements are listed in the accompanying
Index to Financial
Statements on Page F-1.2.
    
    Financial Statement Schedules
Financial Statement Schedules are listed in the accompanying Index
to Financial Statements on Page F-1.3.
    
    Exhibits
The exhibits listed below are filed or incorporated by reference as
part of this Form 10-K. For exhibits incorporated by reference, the
location of the exhibit in the previous filing is indicated
parenthetically. Exhibit
    
    Description2.1
    
    Debtors Second Amended and Restated Disclosure
Statement in Support of Chapter 11 Plan of Reorganization, as
Modified, dated June 12, 2002 (incorporated by reference to
Exhibit 2.1 to the Companys Annual Report on Form 10-K for the
fiscal year ended April 28, 2002).2.2
    
    Debtors Second Amended and Restated Chapter 11 Plan of
Reorganization as Modified, dated June 12, 2002 (incorporated by
reference to Exhibit 2.1 to the Companys Annual Report on Form 10-K
for the fiscal year ended April 28, 2002).2.3
    
    Order Confirming Debtors Second Amended and Restated Chapter
11 Plan of Reorganization, as Modified (incorporated by reference
to Exhibit 2.1 to the Companys Annual Report on Form 10-K for the
fiscal year ended April 28, 2002).3.1
    
    Amended and Restated Articles of Incorporation of the
Company (incorporated by reference to Exhibit 3.1 to the
Companys Annual Report on Form 10-K for the fiscal year
ended April 27, 2003).3.2
    
    Bylaws of the Company (incorporated
by reference to Exhibit 3.2 to the Registration Statement on
Form S-1 dated September 26, 1996).
 59




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##### Table of Contents



Exhibit
    
    Description10.1
    
    Purchase and Sale Agreement, dated August 30, 1996, between
Roadwear, Inc. and the Company, relating to the Kendall restaurant
(incorporated by reference to Exhibit 10.28 to the Registration
Statement on Form S-1 dated September 26, 1996).10.2
    
    Master Development Agreement, dated January 5, 1996, between
the Company and Roadhouse Grill Asia (incorporated by
reference to Exhibit 10.31 to the Registration Statement on Form S-1
dated September 26, 1996).10.3
    
    Addendum to Master Development
Agreement, dated August 8, 2003, between the Company and
Roadhouse Grill Asia Pacific (Cayman) Limited (incorporated by
reference to Exhibit 10.1 to the Companys Quarterly Report
on Form 10-Q for the fiscal quarter ended October 26, 2003).10.4
    
    Addendum to Master Development
Agreement, dated August 8, 2003, between the Company and
Roadhouse Grill Asia Pacific (HK) (incorporated by reference to
Exhibit 10.2 to the Companys Quarterly Report on
Form 10-Q for the fiscal quarter ended October 26, 2003).10.5
    
    Investment Agreement, dated October 25, 1995 between
Berjaya and the Company (incorporated by reference
to Exhibit 10.39 to the Registration Statement on Form S-1
dated September 26, 1996).10.6
    
    Master Lease Agreement between the Company and Pacific
Financial Company, dated June 2, 1997 (incorporated by reference to
Exhibit 10.42 to the Companys Quarterly Report on Form 10-Q for the
fiscal quarter ended June 29, 1997).10.7
    
    Agreement for Purchase and Sale of Membership Interest in
Boca Roadhouse, L.C., a limited liability company, dated December
15, 1997 (incorporated by reference to Exhibit 10.47 to the
Companys Annual Report on Form 10-K for the fiscal year ended
December 28, 1997).
 60




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##### Table of Contents



Exhibit
    
    Description10.8
    
    Roadhouse Grill, Inc. Deferred Compensation Plan. Effective
June 3, 1997 (incorporated by reference to Exhibit 10.48 to the
Companys Annual Report on Form 10-K for the fiscal year ended
December 28, 1997).10.9
    
    Amendment dated December 1, 1997 to that Master Development
Agreement executed January 5, 1996 by and between Roadhouse Grill,
Inc. and Roadhouse Grill Asia Pacific (H.K.) Limited (incorporated
by reference to Exhibit 10.49 to the Companys Annual Report on Form
10-K for the fiscal year ended December 28, 1997).10.10
    
    Amendment dated December 1, 1997 to that Master Development
Agreement executed January 5, 1996 by and between Roadhouse Grill,
Inc. and Roadhouse Grill Asia Pacific (Cayman) Limited (incorporated
by reference to Exhibit 10.50 to the Companys Annual Report on Form
10-K for the fiscal year ended December 28, 1997).10.11
    
    Convertible Secured Promissory note, dated February 14,
2001, made by the Company in favor of Berjaya (incorporated by
reference to Exhibit 10.1 to the Companys Quarterly Report for the
fiscal quarter ended January 28, 2001).10.12
    
    Roadhouse Grill, Inc. 2003 Stock
Option Plan (incorporated by reference to the Companys Proxy
Statement dated April 22, 2003).10.13
    
    Promissory Notes and Forbearence Agreement with
Colorado Boxed Beef (incorporated by reference to Exhibit 10.2 to
the Companys Quarterly Report on Form 10-Q for the fiscal quarter
ended January 28, 2001).10.14
    
    Promissory Note, dated September 20, 2002, made by the
Company in favor of CNL Funding 2000-A, LP. (incorporated by
reference to Exhibit 10.1 of the Companys Quarterly Report on Form
10-Q for the fiscal quarter ended January 26, 2003).10.15
    
    Promissory Note, dated September 20, 2002, made by the
Company in favor of CNL Income Fund III, LTD. (incorporated by
reference to Exhibit 10.2 of the Companys Quarterly Report on Form
10-Q for the fiscal quarter ended January 26, 2003).10.16
    
    Promissory Note, dated September 20, 2002, made by the
Company in favor of CNL APF Partners, LP. (incorporated by reference to Exhibit 10.3 of
the Companys Quarterly Report on Form 10-Q for the fiscal quarter
ended January 26, 2003).
 61




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##### Table of Contents



Exhibit
    
    Description10.17
    
    Promissory Note, dated September 20, 2002, made by the
Company in favor of CORSAIR Special Situations Fund LP.
(incorporated by reference to Exhibit 10.4 of the Companys
Quarterly Report on Form 10-Q for the fiscal quarter ended January
26, 2003).10.18
    
    Partnership agreement of Tonto
Capital Partners GP incorporated by reference to Exhibit 10.1 to
the Companys Quarterly Report on Form 10-Q for the fiscal
quarter ended January 25, 2004).10.19
    
    Trademark License Agreement, dated
March 3, 2004, between the Company and Roadhouse Grill Italia S.R.L.*10.20
    
    Purchase Agreement, dated July 28, 2004, between the Company and Sovereign Roadhouse LLC.*16.1
    
    Letter of KPMG LLP to the Securities and Exchange Commission,
dated September 24, 2001 (incorporated by reference to Exhibit 16
to the Companys Form 8-K filed with the Securities and Exchange
Commission on September 24, 2001).21.1
    
    Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21 to the Companys Annual Report on Form 10-K for the
fiscal year ended April 30, 2000).31.1
    
    Certification by Chief Executive
Officer under Section 302 of Sarbanes-Oxley.*31.2
    
    Certification by Chief Financial
Officer under Section 302 of Sarbanes-Oxley.*32.1
    
    Certification by Chief Executive
Officer under Section 906 of Sarbanes-Oxley*32.2
    
    Certification by Chief Financial
Officer under Section 906 of Sarbanes-Oxley*
   *
    
    Filed herewith.  (b)
    
    REPORTS ON FORM 8-K:None 62




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##### Table of Contents



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, on this 6th day of
August, 2004. ROADHOUSE GRILL, INC.By:
    /s/  Michael C. BrantMichael C. BrantExecutive Vice President of Finance
and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. Name
    
    Capacity
    
    Date/s/ Ayman A. Sabi
Ayman A. Sabi
    
    President, Chief Executive
Officer (Principal Executive
Officer), and Director
    
    August 6, 2004/s/ Michael C. Brant
Michael C. Brant
    
    Executive Vice President of
Finance and Chief Financial
Officer (Principal Financial
Officer)
    
    August 6, 2004/s/ Alain K. K. Lee
Alain K. K. Lee
    
    Executive Vice President,
Corporate Secretary, and Director
    
    August 6, 2004/s/ Nathan D. Benn
Nathan D. Benn
    
    Director
    
    August 6, 2004/s/ Ronald J. Buck
Ronald J. Buck
    
    Director
    
    August 6, 2004
 63




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##### Table of Contents



INDEX TO FINANCIAL STATEMENTS PageReport of Independent Registered Public Accounting Firm  Grant Thornton
LLP
    
    
    F-1Consolidated Balance Sheets as of April 25, 2004 and April 27, 2003
    
    
    F-2Consolidated Statements of Operations for the Fifty-Two Weeks Ended April 25, 2004,
April 27, 2003, and April 28, 2002
    
    
    F-3Consolidated Statements of Shareholders Equity for the Fifty-Two Weeks
Ended April 25, 2004, April 27, 2003, and April 28, 2002
    
    
    F-5Consolidated Statements of Cash Flows for the Fifty-Two Weeks Ended April 25,
2004,
April 27, 2003, and April 28, 2002
    
    
    F-6Notes to Consolidated Financial Statements
    
    
    F-7
 64




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##### Table of Contents



REPORT OF INDEPENDENT
REGISTED PUBLIC ACCOUNTING FIRM Board of Directors and Shareholders
Roadhouse Grill, Inc. We have audited the accompanying consolidated balance sheets of Roadhouse
Grill, Inc. and Subsidiaries as of April 25, 2004 and April 27, 2003, and the
related consolidated statements of operations, stockholders equity, and cash
flows for the fifty-two weeks ended April 25, 2004 and April 27, 2003. 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 audit. We conducted our audits in accordance with 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Roadhouse Grill,
Inc. and Subsidiaries as of April 25, 2004 and April 27, 2003 and the
consolidated results of their operations and their consolidated cash flows for
the fifty-two weeks ended April 25, 2004 and April 27, 2003, in conformity with
accounting principles generally accepted in the United States of America. /s/ Grant Thornton LLP
 
Miami, Florida
June 25, 2004 (except for Note 20, as to
   which the date is August 6, 2004) F-1




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##### Table of Contents



ROADHOUSE GRILL, INC.
CONSOLIDATED BALANCE SHEETS
April 25, 2004 and April 27, 2003
($ in thousands, except per share data) April 25, 2004
    
    April 27, 2003AssetsCurrent assets:Cash and cash equivalents
    
    $
    1,181
    
    
    $
    2,956Accounts receivable, net of allowance for doubtful accounts
of $178 and $195 at April 25, 2004 and April 27, 2003, respectively
    
    
    257
    
    
    
    337Income tax receivable
    
    
    69
    
    
    
    741Inventory
    
    
    1,024
    
    
    
    1,163Prepaid expenses
    
    
    1,273
    
    
    
    2,196Total current assets
    
    
    3,804
    
    
    
    7,393Property & equipment, net of accumulated depreciation of $54,221
and $49,741 at April 25, 2004 and April 27, 2003, respectively
    
    
    49,512
    
    
    
    60,024Asset held for sale
    
    
    800
    
    
    
    800Intangible assets, net of accumulated amortization of $816
and $772 at April 25, 2004 and April 27, 2003, respectively
    
    
    1,846
    
    
    
    1,890Other assets
    
    
    1,352
    
    
    
    1,197Total assets
    
    $
    57,314
    
    
    $
    71,304Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    4,557
    
    
    $
    3,630Accrued expenses
    
    
    7,033
    
    
    
    8,242Restructuring accrual
    
    
    159
    
    
    
    579Unearned revenue
    
    
    540
    
    
    
    72Current portion of long-term debt
    
    
    4,448
    
    
    
    5,616Current portion of capital lease obligations
    
    
    1,119
    
    
    
    1,335Total current liabilities
    
    
    17,856
    
    
    
    19,474Long-term debt
    
    
    28,218
    
    
    
    33,943Capital lease obligations
    
    
    4,279
    
    
    
    5,379Other non-current liabilities
    
    
    2,153
    
    
    
    1,723Total liabilities
    
    
    52,506
    
    
    
    60,519Shareholders equity:Common stock $0.03 par value. Authorized 35,000,000
shares; issued and outstanding 29,220,663 as of April 25, 2004
and April 27, 2003
    
    
    877
    
    
    
    877Additional paid-in capital
    
    
    55,953
    
    
    
    55,953Accumulated deficit
    
    
    (52,022
    )
    
    
    (46,045
    )Total shareholders equity
    
    
    4,808
    
    
    
    10,785Total liabilities and shareholders equity
    
    $
    57,314
    
    
    $
    71,304
 The accompanying notes are an integral part of these consolidated financial
statements. F-2




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##### Table of Contents



ROADHOUSE GRILL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Fifty-Two Weeks Ended April 25, 2004, April 27, 2003, and April 28, 2002
($ in thousands, except per share data) April 25, 2004
    
    April 27, 2003
    
    April 28, 2002Total revenues
    
    $
    139,380
    
    
    $
    140,924
    
    
    $
    158,982Restaurant operating expenses:Cost of restaurant sales:Food and beverage
    
    
    49,271
    
    
    
    47,439
    
    
    
    55,066Labor and benefits
    
    
    45,078
    
    
    
    47,860
    
    
    
    51,817Occupancy and other
    
    
    33,483
    
    
    
    34,567
    
    
    
    37,580Pre-opening expenses
    
    
    120
    
    
    
    124
    
    
    
    477Total cost of restaurant sales
    
    
    127,952
    
    
    
    129,990
    
    
    
    144,940Depreciation and amortization
    
    
    7,078
    
    
    
    7,460
    
    
    
    8,991General and administrative expenses
    
    
    6,506
    
    
    
    6,956
    
    
    
    9,106Asset impairment
    
    
    964
    
    
    
    5,854
    
    
    
    7,507Restructuring charge
    
    
    (96
    )
    
    
    46
    
    
    
    5,086Reorganization expenses
    
    
    
    
    
    
    2,726
    
    
    
    876Total operating expenses
    
    
    142,404
    
    
    
    153,032
    
    
    
    176,506Operating loss
    
    
    (3,024
    )
    
    
    (12,108
    )
    
    
    (17,524
    )Other (expense) income :Gain (loss) on sale of fixed assets
    
    
    282
    
    
    
    75
    
    
    
    (60
    )Interest expense, net
    
    
    (3,236
    )
    
    
    (2,289
    )
    
    
    (3,810
    )Total other expense
    
    
    (2,954
    )
    
    
    (2,214
    )
    
    
    (3,870
    )Loss before income taxes and
Extraordinary gain
    
    
    (5,978
    )
    
    
    (14,322
    )
    
    
    (21,394
    )Income tax (benefit) expense
    
    
    (1
    )
    
    
    (1,241
    )
    
    
    49Loss before extraordinary gain
    
    
    (5,977
    )
    
    
    (13,081
    )
    
    
    (21,443
    )Extraordinary gain
    
    
    
    
    
    
    1,838
    
    
    
    Net loss
    
    
    ($5,977
    )
    
    
    ($11,243
    )
    
    
    ($21,443
    )
 F-3




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##### Table of Contents



April 25, 2004
    
    April 27, 2003
    
    April 28, 2002Basic earnings per share:Loss before extraordinary gain
    
    $
    (0.20
    )
    
    $
    (0.65
    )
    
    $
    (2.21
    )Extraordinary gain
    
    $
    
    
    
    $
    0.09
    
    
    $
    Net loss
    
    $
    (0.20
    )
    
    $
    (0.56
    )
    
    $
    (2.21
    )Diluted earnings per share:Loss before extraordinary gain
    
    $
    (0.20
    )
    
    $
    (0.65
    )
    
    $
    (2.21
    )Extraordinary gain
    
    $
    
    
    
    $
    0.09
    
    
    $
    Net loss
    
    $
    (0.20
    )
    
    $
    (0.56
    )
    
    $
    (2.21
    )Weighted average common shares
and share equivalentsOutstanding-assuming dilution
    
    
    29,220,663
    
    
    
    20,000,744
    
    
    
    9,708,741
 The accompanying notes are an integral part of these consolidated financial
statements. F-4




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##### Table of Contents



ROADHOUSE GRILL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
For the Fifty-Two Weeks Ended April 25, 2004, April 27, 2003, and April 28, 2002
($ in thousands) Common Stock
    
    Additional Paid-in
    
    AccumulatedShares
    
    Amount
    
    Capital
    
    Deficit
    
    TotalBalance April 29, 2001
    
    
    9,708,741
    
    
    $
    291
    
    
    $
    50,039
    
    
    $
    (13,359
    )
    
    $
    36,971Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21,443
    )
    
    
    (21,443
    )Balance April 28, 2002
    
    
    9,708,741
    
    
    
    291
    
    
    
    50,039
    
    
    
    (34,802
    )
    
    
    15,528Issuance of additional shares
    
    
    19,511,922
    
    
    
    586
    
    
    
    5,914
    
    
    
    
    
    
    
    6,500Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,243
    )
    
    
    (11,243
    )Balance April 27, 2003
    
    
    29,220,663
    
    
    
    877
    
    
    
    55,953
    
    
    
    (46,045
    )
    
    
    10,785Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,977
    )
    
    
    (5,977
    )Balance April 25, 2004
    
    
    29,220,663
    
    
    $
    877
    
    
    $
    55,953
    
    
    $
    (52,022
    )
    
    $
    4,808
 The accompanying notes are an integral part of these consolidated financial
statements. F-5




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##### Table of Contents



ROADHOUSE GRILL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Fifty-Two Weeks Ended April 25, 2004, April 27, 2003, and April 28, 2002
($ in thousands) April 25,
    
    April 27,
    
    April 28,2004
    
    2003
    
    2002Cash flows from operating activities:Net loss
    
    $
    (5,977
    )
    
    $
    (11,243
    )
    
    $
    (21,443
    )Adjustments to reconcile net loss to
net cash provided by (used in) operating
activities:Depreciation and amortization
    
    
    7,078
    
    
    
    7,460
    
    
    
    8,991Asset impairment
    
    
    964
    
    
    
    5,854
    
    
    
    7,507Cash used for reorganization items
    
    
    (179
    )
    
    
    (2,519
    )
    
    
    (1,187
    )Restructuring charge
    
    
    (96
    )
    
    
    46
    
    
    
    5,086Reorganization expenses
    
    
    
    
    
    
    2,726
    
    
    
    876Forgiveness of debt due to reorganization
    
    
    
    
    
    
    (1,838
    )
    
    
    Net (gain) loss on sale/disposal of assets
    
    
    (282
    )
    
    
    (75
    )
    
    
    60Provision for bad debt
    
    
    14
    
    
    
    6
    
    
    
    336Cash used for store closings
    
    
    
    
    
    
    
    
    
    
    (404
    )Changes in assets and liabilities:Decrease in accounts receivable
    
    
    66
    
    
    
    343
    
    
    
    1,037Decrease (increase) in income tax receivable
    
    
    672
    
    
    
    (864
    )
    
    
    2,236Decrease in inventory
    
    
    139
    
    
    
    142
    
    
    
    157Decrease (increase) in prepaid expenses
    
    
    463
    
    
    
    394
    
    
    
    (548
    )(Increase) decrease in other assets
    
    
    (248
    )
    
    
    506
    
    
    
    219Increase in accounts payable
    
    
    1,031
    
    
    
    682
    
    
    
    862(Decrease) increase in restructuring accrual
    
    
    (82
    )
    
    
    (874
    )
    
    
    4,691(Decrease) in notes payable to vendor
    
    
    

    
    
    
    
    
    
    
    (1,117
    )Increase (decrease) in unearned revenue
    
    
    693
    
    
    
    (30
    )
    
    
    (1
    )(Decrease) increase in accrued expenses
    
    
    (473
    )
    
    
    454
    
    
    
    (904
    )Net cash provided by operating activities
    
    
    3,783
    
    
    
    1,170
    
    
    
    6,454Cash flows from investing activities:Proceeds from sales of property and equipment
    
    
    4,502
    
    
    
    782
    
    
    
    Purchases of property and equipment
    
    
    (1,570
    )
    
    
    (2,194
    )
    
    
    (2,619
    )Net cash provided by (used in)
investing activities
    
    
    2,932
    
    
    
    (1,412
    )
    
    
    (2,619
    )Cash flows from financing activities:Proceeds from issuance of common stock
    
    
    
    
    
    
    5,000
    
    
    
    Repayment of long-term debt
    
    
    (7,174
    )
    
    
    (4,113
    )
    
    
    (1,448
    )Payments on capital lease obligations
    
    
    (1,316
    )
    
    
    (882
    )
    
    
    (776
    )Net cash (used in) provided by
financing activities
    
    
    (8,490
    )
    
    
    5
    
    
    
    (2,224
    )(Decrease) increase in cash and cash equivalents
    
    
    (1,775
    )
    
    
    (237
    )
    
    
    1,611Cash and cash equivalents at beginning of year
    
    
    2,956
    
    
    
    3,193
    
    
    
    1,582Cash and cash equivalents at end of year
    
    $
    1,181
    
    
    $
    2,956
    
    
    $
    3,193Supplementary disclosures:Interest paid
    
    $
    3,219
    
    
    $
    1,994
    
    
    $
    2,486Income taxes paid
    
    $
    29
    
    
    $
    50
    
    
    $
    40
 The accompanying notes are an integral part of these consolidated
financial statements. F-6




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##### Table of Contents



ROADHOUSE GRILL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 25, 2004, April 27, 2003 and April 28, 2002  (1)
    
    BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS Roadhouse Grill, Inc. (the Company) was incorporated under the laws of
the state of Florida in 1992. The principal business of the Company is the
operation of full service specialty restaurants. The Company has also granted
franchises and licenses to operate restaurants under the Roadhouse Grill
name. The Company opened its first restaurant in Pembroke Pines, Florida (the
greater Ft. Lauderdale area) in 1993. As of April 25, 2004, there were 69
company-owned Roadhouse Grill restaurants, 34 of which are located in Florida
and the balance of which are located in Alabama, Arkansas, Georgia, Louisiana,
Mississippi, New York, North Carolina, Ohio and South Carolina. The Company operates on a fifty-two or fifty-three week fiscal year. Each
fiscal quarter consists of thirteen weeks, except in the case of a fifty-three
week year, in which case the fourth fiscal quarter consists of fourteen weeks. The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated. While in a Chapter 11 bankruptcy proceeding (see Note 2 below), the
Company applied the provisions of SOP 90-7, Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code, which does not significantly change
the application of accounting principles generally accepted in the United
States; however, it does require that the financial statements for periods
including and subsequent to the Chapter 11 bankruptcy distinguish transactions
and events that are directly associated with the reorganization from those
transactions that are the result of ongoing operations of the business. As
discussed in Note 2, the holders of the Companys common stock representing in
excess of 50 percent of the voting shares immediately prior to confirmation of
the Plan of Reorganization continued to own in excess of 50 percent following
confirmation of the Plan of Reorganization. As a result, the Company did not
adopt fresh start accounting upon its emergence from bankruptcy in accordance
with SOP 90-7. The Consolidated Financial Statements contained herein have been prepared
on a going concern basis, which assumes continuity of operations and
realization of assets and satisfaction of liabilities in the ordinary course of
business, and in accordance with SOP 90-7. The ability of the Company to
continue as a going concern is predicated upon, among other things, the
Companys ability to generate cash flow from operations to service debt and pay
capital and operating lease obligations, the ability to otherwise meet its
operating expenses, and the ability to obtain sufficient financing or other
resources to satisfy future obligations to the extent not covered by cash flow
from operations.  (2)
    
    COMPLETED PROCEEDINGS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE On January 18, 2002 (the Petition Date), an involuntary petition (the
Involuntary Petition) for relief under Chapter 11 of the United States
Bankruptcy Code (the Bankruptcy Code) was filed against the Company by
certain of its creditors, all of which were affiliated with one another
(collectively, the F-7




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##### Table of Contents



Petitioning Creditors), in the United States Bankruptcy Court for the
Southern District of Florida (the Court). Prior to the Petition Date, the
Company had been experiencing significant cash flow problems primarily
resulting from the opening of 31 new restaurants in the prior three years
combined with a net loss of $15.9 million in fiscal year 2001 and a net loss of
$21.4 million in fiscal year 2002. Prior to the filing of the Involuntary
Petition, the Company had been in negotiations with the Petitioning Creditors
and its other major creditors in an effort to effect an out-of-court
restructuring of its liabilities. In response to the filing of the Involuntary Petition, the Company
initially filed a motion requesting the Court to abstain from taking
jurisdiction over the Company to allow out-of-court restructuring efforts to
continue. Ultimately, however, the Company decided to consent to the entry of
an order for relief in the Chapter 11 case, provided that the order would not
be entered until the Company had an opportunity to prepare a Chapter 11 plan of
reorganization. On April 16, 2002, the Court entered an order for relief and the Company
filed its proposed Chapter 11 plan of reorganization and its disclosure
statement in support of its plan of reorganization. Subsequent to the entry of
the order for relief, the Company temporarily operated its businesses as a
debtor-in-possession pursuant to Chapter 11 of the Bankruptcy Code and
concentrated its efforts on emerging from Chapter 11 as quickly as possible. In its plan of reorganization, the Company classified the claims of its
creditors and interests of its equity security holders and provided for the
treatment of such claims and interests. Under the Bankruptcy Code, various
classes of claims and interests were entitled to vote on whether to accept or
reject the plan of reorganization. On June 12, 2002, the Company filed
Debtors Second Amended and Restated Chapter 11 Plan of Reorganization, as
Modified (the Plan) and Debtors Second Amended and Restated Disclosure
Statement in Support of Chapter 11 Plan of Reorganization, as Modified (the
Disclosure Statement). The Court conducted a hearing on June 12, 2002 to
consider approval of the Disclosure Statement. On June 20, 2002, the Court
issued an order approving the Disclosure Statement, authorizing the Disclosure
Statement, Plan and ballot to be disseminated to creditors and equity security
holders and scheduling a hearing on confirmation of the Plan for August 21,
2002. On June 25, 2002, a hearing was held on the motion of the Petitioning
Creditors to terminate the exclusivity period within which only the Company
could file a plan of reorganization and to delay the hearing on confirmation of
the Plan. On June 26, 2002, the Court terminated exclusivity but refused to
postpone the hearing on confirmation of the Plan. Thereafter, Restaurants Acquisition I, Inc., an entity affiliated with the
Petitioning Creditors, filed a competing plan of reorganization, dated July 15,
2002 (the RAI Plan). The Petitioning Creditors and creditors affiliated with
them (collectively, CNL) vigorously opposed confirmation of the Plan. In
addition, certain other creditors initially cast ballots rejecting the Plan
and/or filed objections to confirmation of the Plan. As the date of the confirmation hearing approached, the Company engaged in
further negotiations with rejecting and objecting creditors in an effort to
resolve their objections to the Plan. By August 19, 2002, most of the
objections had been resolved and the Company filed a modification of the Plan
reflecting the resolution of those objections (the Modification). F-8




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##### Table of Contents



As of August 19, 2002, the principal remaining objections were the
objections of CNL. However, the Company reached agreement with CNL shortly
before the commencement of the confirmation hearing. Under the agreement, CNL
withdrew its objections to the Plan, changed its rejections to acceptances of
the Plan and caused the RAI Plan to be withdrawn. The agreement was embodied
in a term sheet between the Company and CNL dated August 21, 2002 (the Term
Sheet). The hearing on confirmation of the Plan, as modified by the Modification
and the Term Sheet, took place on August 21, 2002. At the close of the
hearing, the Court announced that the Plan, as modified by the Modification,
the Term Sheet and the Confirmation Order (as hereinafter defined) (the
Confirmed Plan of Reorganization), would be confirmed. On August 23, 2002,
the Court issued its Order Confirming Debtors Second Amended and Restated
Chapter 11 Plan of Reorganization, as Modified (the Confirmation Order). In
November 2003, the Court issued the final decree officially closing the chapter
11 case. The Confirmed Plan of Reorganization became effective on September 20,
2002 (the Effective Date). Under the Confirmed Plan of Reorganization, the
Company received an infusion of new capital of $5.0 million in exchange for
13,888,889 shares of the authorized but unissued common stock of the Company.
The 13,888,889 shares were issued in a private placement exempt from the
registration requirements of the Securities Act of 1933, as amended (the
Private Placement Securities). The Private Placement Securities were issued
to Berjaya Group (Cayman) Limited (Berjaya), Prime Gaming Philippines, Inc.
(Prime), Tonto Capital Partners GP, and Stephen C. Saterbo (Saterbo), as
more particularly set forth in the table immediately below: Investment
    
    Price/Share
    
    Number of SharesBerjaya
    
    $
    3,000,000
    
    
    $
    0.36
    
    
    
    8,333,333Prime
    
    
    500,000
    
    
    
    0.36
    
    
    
    1,388,889Tonto Capital
Partners GP
    
    
    1,000,000
    
    
    
    0.36
    
    
    
    2,777,778Saterbo
    
    
    500,000
    
    
    
    0.36
    
    
    
    1,388,889
 Berjaya is the Companys majority shareholder. It currently beneficially
owns 66.5% of the Companys outstanding Common Stock. It is headquartered in
Malaysia. Prime is an affiliate of Berjaya. It is 70% owned by Berjaya Group
Berhad, which owns 100% of Berjaya. Prime is headquartered in the Philippines.
Tonto Capital Partners GP is affiliated with Ayman Sabi, the Companys Chief
Executive Officer, President, and a director. Saterbo is a senior vice
president, member of the board of directors, and substantial shareholder of
Colorado Boxed Beef Company, a former major supplier to the Company. Additionally, pursuant to the Confirmed Plan of Reorganization Berjaya
received, in full satisfaction of the principal amount of a $1.5 million loan
to the Company, 4,166,667 shares of the Companys authorized but unissued
common stock at $0.36 per share. Unpaid interest, approximating $0.1 million
at April 25, 2004, remains outstanding on this note. F-9




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##### Table of Contents



In accordance with the Confirmed Plan of Reorganization, each existing
holder of Common Stock received additional Common Stock equal to 15% of the
shares that they previously held. After issuance of the additional shares, the
existing shareholders own an aggregate of 11,165,107 shares of the outstanding
common stock, representing 38.21% of the outstanding stock of the reorganized
Company. The total number of shares of common stock outstanding after
effecting the Confirmed Plan of Reorganization is 29,220,663. Under bankruptcy law, actions by creditors to collect indebtedness owed
prior to the Petition Date and/or prior to the Relief Date were stayed and
certain other pre-petition and Gap (January 18, 2002 through April 16, 2002,
which is the period of time between the Petition Date and the Relief Date)
contractual obligations could not be enforced against the Company. The Company
received approval from the Court to pay certain pre-petition and gap
liabilities including employee salaries and wages, benefits, and other employee
obligations. Liabilities through the date the Company emerged from bankruptcy,
September 20, 2002, which were incurred pre-petition or during the gap period
had previously been classified as liabilities subject to compromise. With the
Company having emerged from bankruptcy, these liabilities were adjusted during
fiscal year 2003 to the amounts to be paid pursuant to the Confirmed Plan of
Reorganization. As a result, the Company recorded an extraordinary gain
relating to the early extinguishment of debt in the consolidated statements of
operations in the amount of $1.8 million for the fiscal year ended April 27,
2003. This gain resulted primarily from obligations to pay lease payments that
were stayed while the Company was in bankruptcy and other obligations that were
canceled as a result of the bankruptcy proceeding. On the Petition Date, the Company stopped accruing interest on all
unsecured pre-petition debt in accordance with SOP 90-7. Contractual interest
expense not accrued or recorded on certain pre-petition debt totaled $0.9
million. As of April 25, 2004, all bankruptcy claims have been resolved. See
Note 9 for a description of the debt agreements that were executed in
connection with the settlement of certain bankruptcy claims. As restructured under the Confirmed Plan of Reorganization, the Companys
secured and unsecured debt, as well as assumed leases and executory contracts,
will require substantial monthly payments over extended future periods. The
Companys future success will depend, in part, on its ability to meet these
payment obligations. There can be no assurance that the Company will be able
to do so. Reorganization items represent amounts incurred as a result of the Chapter
11 proceedings in accordance with SOP 90-7. The Company incurred $3.6 million
of expenses relating to its reorganization, including $2.7 million and $0.9
million, respectively, during fiscal year 2003 and fiscal year 2002. The
Company has not incurred reorganization expenses during the fiscal year ended
April 25, 2004. The reorganization expenses recorded in the prior years
primarily include fees for legal, accounting, consulting, and outside services.
Additionally, on the Petition Date, the Company stopped accruing interest on
all unsecured pre-petition debt in accordance with SOP 90-7. Since emerging
from the Chapter 11 proceeding, the Company is now required to make regular
payments on all of its debt. F-10




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##### Table of Contents



(3)
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PROPERTY AND EQUIPMENT Property and equipment are carried at cost less accumulated depreciation.
The cost of restaurants held under capital leases is recorded at the lower of
the net present value of the minimum lease payments or the fair value of the
leased property at the inception of the lease. Repairs and maintenance are
expensed as incurred. Major renewals and betterments, which substantially
extend the useful life of the property, are capitalized and depreciated over
the useful life of the asset. When assets are retired or otherwise disposed
of, the cost and accumulated depreciation are removed from their respective
accounts and any gain or loss is recognized. Property and equipment are
depreciated on a straight-line basis over their useful lives. Estimated useful
lives include consideration of lease renewals in situations in which the
Company has both an option and the current intent to renew the lease. The Company accounts for long-lived assets in accordance with SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets. This
statement requires that long-lived assets be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. The Company regularly reviews the performance of
its individual restaurants to identify possible under-performing operations
that should be assessed for possible impairments of long-lived assets. As part
of this analysis, management considers factors that have in the past and may
continue in the future to impact operating results. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an
asset to the future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds fair
value of the assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell. ASSET HELD FOR SALE Asset held for sale consists of a property owned by the Company that is
currently being marketed for sale and is carried at estimated net realizable
value. INTANGIBLE ASSETS The Company accounts for intangible assets in accordance with SFAS No.
142, Goodwill and Other Intangible Assets. As of April 25, 2004, the Company
had unamortized goodwill in the amount of $1.5 million and unamortized
identifiable intangible assets in the amount of $0.3 million. In accordance
with SFAS No. 142, goodwill, which relates to the prior acquisition of two
individual restaurant operations, is subject to an annual impairment test based
on its fair value and no amortization of goodwill is recorded. As of October
26, 2003, the date on which the Company completed its last annual goodwill
impairment test, the Company determined that it had no impairment of goodwill.
The Company will continue to assess the value of its goodwill in fiscal 2005
and future periods in accordance with applicable accounting rules. Other
intangible assets, which have been determined to have a finite life, are being
amortized over their useful lives. F-11




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##### Table of Contents



CASH AND CASH EQUIVALENTS The Company considers all short-term investments with an original maturity
of three months or less to be cash equivalents. INVENTORY Inventory is valued at the lower of cost (based on first-in, first-out
inventory costing) or net realizable value and consists primarily of restaurant
food items, beverages and paper supplies. INCOME TAXES Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. During the fiscal year ended April 25, 2004, the Company recorded no
federal income taxes. During the fiscal year ended April 27, 2003, the Company
recognized a $1.2 million federal income tax benefit relating to anticipated
income tax refunds arising from federal carryback claims of the Companys
alternative minimum tax net operating loss generated for the tax year ended
April 28, 2002 and amendments of previously filed federal and state income tax
returns. Of this amount, $0.6 million was collected in fiscal 2003 and $0.6
million was collected in fiscal 2004. The Company has also filed amended
income tax returns requesting additional income tax refunds totaling
approximately $0.1 million. Although there can be no assurance, these refunds
are currently anticipated to be received in fiscal 2005, and will be recognized
in the Companys statement of operations when their realizability is assured. PRE-OPENING COSTS Pre-opening costs are costs incurred in the opening of new restaurants
(primarily payroll costs) and are expensed as incurred. Deferred costs related
to restaurant sites subsequently determined to be unsatisfactory and general
site selection costs that cannot be identified with a specific restaurant are
charged to operations as incurred. FISCAL YEAR The Companys fiscal year ends on the last Sunday in April. During each
of the fiscal years ended April 25, 2004 and April 27, 2003, the Companys
results of operations included 52 weeks. USE OF ESTIMATES The preparation of the Consolidated Financial Statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and F-12




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##### Table of Contents



assumptions about future events that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Future events and their effects cannot be
determined with absolute certainty. Therefore, the determination of estimates
requires the exercise of judgment. Actual results inevitably will differ from
those estimates, and such differences may be material to the Consolidated
Financial Statements. Amounts reported in the Companys Consolidated Financial
Statements that are based, in part, on the use of estimates include reserves
relating to the collectibility of accounts receivable, insurance reserves
relating to claim costs required to be funded by the Company, the
recoverability of deposits and other prepaid items, estimated accrued property
taxes and other accrued liabilities for which actual invoices have not yet been
received and liabilities related to unredeemed gift certificates and gift
cards. Various assumptions and other factors underlie the determination of
these significant estimates. The process of determining significant estimates
is fact specific and takes into account factors such as historical experience,
current and expected economic conditions, product mix, and in some cases,
actuarial techniques. The Company constantly re-evaluates these significant
factors and makes adjustments to estimates where facts and circumstances
dictate. The Company believes that the assumptions and other factors used to
determine its estimates are reasonable and that, with the exception of
insurance reserves relating to claim costs required to be funded by the
Company, changes in these assumptions would not have a material impact on the
Companys financial position or results of operations. In regards to insurance
reserves, recorded liabilities are based upon an estimate of the total amount
that may be paid to settle claims required to be funded by the Company and
incurred through the balance sheet date, including consideration of amounts
paid-to-date in relation to the individual claims, an analysis of the loss
development on all reported claims, potential legal or other related costs and
any stop loss limits applicable under the Companys insurance policies. Such
reserves are subject to change based upon any development that occurs in
relation to the outstanding claims subsequent to the preparation of the
Companys Consolidated Balance Sheet. As of April 25, 2004 and April 27, 2003,
total recorded insurance reserves, included in accrued expenses, were $1.8
million and $2.0 million, respectively. In addition, asset impairment charges, restructuring charges, and the
restructuring accrual are primarily based on estimates of the market value of
assets of which the Company plans to dispose and the amount of future cash
flows estimated to be realized relating to impaired assets that are anticipated
to be utilized in the Company operations in the future. Such estimates are
also affected by the time interval required to dispose of assets to be sold.
The assumptions used, particularly in regards to estimates of future cash flows
to be realized relating to impaired or potentially impaired assets, are
critical in assessing a potential impairment and, if any, estimating the amount
of the impairment. These assumptions require consideration of future trends in
key operating ratios and the timing and impact of possible changes in
operations relating to specific assets. Changes in these assumptions could
have a material impact on the timing and amount of possible asset impairments
and therefore the Companys results of operations. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair values of financial instruments have been determined
based on available information and appropriate valuation methodologies. The
carrying amounts of accounts receivable, accounts payable and accrued expenses
approximate fair value due to the short-term nature of the accounts. The fair
value of long-term debt is estimated based on market rates of interest
currently F-13




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##### Table of Contents



available to the Company. The carrying values of long-term debt and
capital leases at April 25, 2004 and April 27, 2003 approximate fair value
except for such debt instruments that were prepaid subsequent to year end at a
discount as discussed in Note 20. REVENUE RECOGNITION Sales by Company-operated restaurants are recognized daily as cash and
credit card receipts are received. Revenues from franchised and affiliated
restaurants are derived from royalties and initial setup fees. Royalties and
initial fees are recognized when earned or upon opening of a restaurant, which
is when the Company has performed substantially all initial services required
by the franchise arrangement. In addition, the Company receives rental income
from various sources. Revenues generated from royalty income and rental income
combined for each of the fiscal years ended April 25, 2004 and April 27, 2003
were less than 0.5% of total revenues. All uncollected income related to
franchise and joint venture operations is subject to an assessment of
collectibility and an allowance for doubtful accounts is recorded if collection
is not reasonably assured. ADVERTISING COSTS The Company expenses all advertising costs as incurred. Advertising
expense for the fiscal years ended April 25, 2004, April 27, 2003 and April 28,
2002 was $3.3 million, $3.4 million and $2.6 million, respectively. During
fiscal 2004, the Company entered into a new advertising agreement with a
loyalty and rewards company (see Note 19). Excluding the advertising expense
related to this agreement, advertising expense for fiscal year 2004 was $2.1
million. Advertising expense is included within occupancy and other in the
accompanying Consolidated Statements of Operations. STOCK BASED COMPENSATION The Company accounts for stock options as prescribed by Accounting
Principles Board Opinion No. 25 as amended by Statement of Financial Accounting
Standard (SFAS) No. 148, Accounting for Stock-Based Compensation, Transition,
and Disclosure. Under APB Opinion No 25, compensation expense is recorded when
the exercise price of the Companys employee stock option is less than the
market price of the underlying stock at the date of grant. The Company has adopted the disclosure provisions of SFAS No. 148,
Accounting for Stock Based Compensation  Transition and Disclosure, which
amends SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 148
allows for continued use of recognition and measurement principles of
Accounting Principles Board (APB) Opinion No. 25 and related interpretations
in accounting for stock based compensation. The Company applies the recognition
and measurement principles of APB Opinion No. 25, and related interpretations
in accounting for stock based compensation. No stock-based employee
compensation expense is reflected in net income as all options granted under
the Companys Stock Option Plan had an exercise price greater than the market
value of the underlying common stock on the date of grant. Effective October 30, 2003, the Company granted options for 1,395,000
shares of common stock. The options vest one third on April 28th of each of
2004, 2005 and 2006. The option price is $0.36, which was above the market
value of the common stock at the grant date. F-14




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The following table illustrates the effect on net income and earnings per
share if the Company had applied the fair value recognition provisions to
stock-based employee compensation. Such disclosure is not necessarily
indicative of the fair value of stock options that could be granted by the
Company in future periods or of the value of all options currently outstanding. Fiscal Year EndedApril 25, 2004Net loss, as reported
    
    $
    (5,977
    )Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards
    
    
    56Pro forma net loss
    
    $
    (6,033
    )Earnings per share:Basic, as reported
    
    $
    (0.20
    )Basic, pro forma
    
    $
    (0.20
    )Diluted, as reported
    
    $
    (0.20
    )Diluted, pro forma
    
    $
    (0.20
    )
 The fair value method for these options was estimated at the date of grant
using the Black-Scholes option pricing model with the following weighted
average assumptions for the fiscal year ended April 25, 2004: the risk-free
interest rate was 4.67%; the expected dividend yield was 0.0%, the volatility
factor of the expected market price of the Companys common stock was 49.72%,
and a grant life of the option of 10 years. F-15




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##### Table of Contents



Stock option activity during the periods indicated is as follows: Number of
    
    Weighted AverageShares
    
    Exercise PriceBalance at April 29, 2001
    
    
    680,896
    
    
    $
    5.04Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (159,797
    )
    
    
    6.51Expired
    
    
    
    
    
    
    Balance at April 28, 2002
    
    
    521,099
    
    
    
    4.61Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (11,166
    )
    
    
    6.58Expired
    
    
    
    
    
    
    Cancelled per the
Confirmed Plan
    
    
    (509,933
    )
    
    
    4.56Balance at April 27, 2003
    
    
    
    
    
    
    Granted
    
    
    1,395,000
    
    
    
    0.36Exercised
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    Balance at April 25, 2004
    
    
    1,395,000
    
    
    $
    0.36
 At April 25, 2004, no options were exercisable and the weighted average
remaining contractual life of outstanding options was 9 years. NEW ACCOUNTING STANDARDS In December 2002, the FASB issued Statement No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure, an amendment of FASB
Statement No. 123 (SFAS 148). SFAS 148 amends FASB Statement No. 123,
Accounting for Stock-Based Compensation, to provide alternative methods of
transition for an entity that voluntarily changes to the fair value based
method of accounting for stock-based employee compensation and to require
prominent disclosures about the effects on reported net income of an entitys
accounting policy decisions with respect to stock-based employee compensation.
SFAS 148 also amends APB Opinion No. 28, Interim Financial Reporting, to
require disclosures about those effects in interim financial information. The
Company currently accounts for its stock-based compensation awards to employees
and directors under the accounting prescribed by Accounting Principles Board
Opinion No. 25 and provides the disclosures required by SFAS No. 123. The
Company currently intends to continue to account for its stock-based
compensation awards to employees and directors under the accounting prescribed
by Accounting Principles Board Opinion No. 25 and has adopted the additional
disclosure provisions of SFAS 148. F-16




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##### Table of Contents



(4)
    
    LIQUIDITY The Companys material financial commitments relate principally to its
working capital requirements and its obligations to make operating and capital
lease and term loan payments, monthly interest payments on its various loans
and lease payments in accordance with the terms of its real property leases.
As of April 25, 2004, total minimum annual payments required under the
Companys note and lease obligations, including interest thereon, were $17.5
million. See discussion below regarding the Companys total contractual cash
obligations. In addition, capital requirements relating to the opening of new
restaurants have in the past been (and may in the future be) significant. The Company opened one new restaurant during the fiscal year ended April
25, 2004 at a total cost of approximately $1.8 million, of which $0.4 million
was expended during the fiscal year ended April 25, 2004. The Company does not
currently have any additional Company-owned restaurants under development for
fiscal year 2005. At this time, it is expected that the cash required to
develop new restaurants beyond fiscal 2005, if any, will be funded from
operations. Should cash from operations be insufficient for future expansion,
and additional capital through debt and equity sources be unavailable, there
can be no assurance that the Company will be able to open additional
restaurants. During the fiscal year ended April 25, 2004, the Companys primary sources
of working capital were cash provided by operations, the net proceeds of a
sale/leaseback transaction involving its corporate headquarters building (see
Note 8) and the sale of food and beverage credits (see Note 19). During the
fifty-two weeks ended April 25, 2004, the Company also collected $0.6 million
in federal income tax refunds. The Company has filed for approximately $0.1
million in additional federal and state income tax refunds in fiscal year 2004,
which it presently expects to collect during fiscal year 2005. On August 6, 2004, the Company closed a transaction with Sovereign
Roadhouse LLC, a wholly-owned subsidiary of Sovereign Investment Company,
(Sovereign) involving the sale and leaseback of eleven restaurant properties
that were previously owned. The sale price for the eleven properties was $21.8
million. The Company used $18.1 million of the net proceeds from the property sale, to pay expenses related to the transaction and to repay
$24.6 million of secured debt. The remaining net proceeds from the sale,
approximately $3.7 million, will be used for working capital, including new marketing of restaurants. See Note 20 for further information about the sale/leaseback transaction. The Company has experienced significant cash flow problems in the past and
may suffer from such cash flow problems in the future. The Company believes
that its ability to generate cash from operations is dependent upon, among
other things, demand for its products, a continued commitment to providing an
excellent dining experience for its customers, the development and
implementation of successful marketing strategies, the cost levels of its
various food products, and its continuing efforts to reduce its operating
costs. The Company implemented revenue enhancement programs including the
implementation of a new menu with enhanced menu items in June 2003. The
Company also has taken, and continues to take, steps to controls its costs.
There can be no assurance that these initiatives will be effective in
generating profits or producing sufficient cash flows to fund operating
requirements, including debt repayments and lease obligations. Capital requirements relating to the implementation of the Companys
business plan have been and will continue to be significant. If cash generated
from the Companys operations and other possible F-17




---



##### Table of Contents



sources described above are insufficient to fund the Companys financial
commitments and working capital requirements (including amounts required to
support future growth), the Company will have to obtain additional financing.
There can be no assurance that additional debt and/or equity financing will be
available on terms acceptable to the Company, or at all. In the event the
Company were to be unable to secure needed additional financing, the Company
might have to significantly curtail its operations. The following table summarizes the Companys future contractual cash
obligations for each of the next five fiscal years and thereafter as of April
25, 2004 (dollars in thousands). See Notes 7, 8, 9 and 20 for further information
regarding these obligations. Operating lease commitments include estimated
common area maintenance expenses. 2005
    
    2006
    
    2007
    
    2008
    
    2009
    
    Thereafter
    
    TotalLong term debt:Principal
    
    $
    4,448
    
    
    $
    4,683
    
    
    $
    4,688
    
    
    $
    4,034
    
    
    $
    3,008
    
    
    $
    11,805
    
    
    $
    32,666Interest
    
    
    2,346
    
    
    
    2,045
    
    
    
    1,730
    
    
    
    1,405
    
    
    
    1,154
    
    
    
    1,253
    
    
    
    9,933Total
    
    
    6,794
    
    
    
    6,728
    
    
    
    6,418
    
    
    
    5,439
    
    
    
    4,162
    
    
    
    13,058
    
    
    
    42,599Capital lease debt:Principal
    
    
    1,119
    
    
    
    1,054
    
    
    
    1,089
    
    
    
    408
    
    
    
    331
    
    
    
    1,397
    
    
    
    5,398Interest
    
    
    407
    
    
    
    343
    
    
    
    267
    
    
    
    220
    
    
    
    190
    
    
    
    417
    
    
    
    1,844Total
    
    
    1,526
    
    
    
    1,397
    
    
    
    1,356
    
    
    
    628
    
    
    
    521
    
    
    
    1,814
    
    
    
    7,242Operating leases
    
    
    9,130
    
    
    
    8,104
    
    
    
    7,171
    
    
    
    6,580
    
    
    
    5,941
    
    
    
    28,888
    
    
    
    65,814Other commitments
    
    
    694
    
    
    
    442
    
    
    
    74
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,210Total
    
    $
    18,144
    
    
    $
    16,671
    
    
    $
    15,019
    
    
    $
    12,647
    
    
    $
    10,624
    
    
    $
    43,760
    
    
    $
    116,865
 Other commitments represent minimum amounts due to certain vendors under
contractual agreements. Amounts reflected above could change as additional
commitments may be made, cancellation provisions may be exercised by the
Company or by its creditors, or agreements may be modified as warranted by
changes in business or operational needs. Amounts due under long term debt
agreements may be accelerated to the extent the Company realizes excess cash
flow as described in Note 9. As described above and in Note 20, on August 6, 2004, the
Company executed a sale and leaseback of eleven of its restaurant properties. As a result of this transaction, the Companys minimum annual
note and lease obligations have been reduced by approximately $1.8 million for
each of fiscal years 2005 through 2009 and total obligations thereafter have
increased by approximately $31.0 million. F-18




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##### Table of Contents



(5)
    
    ASSET IMPAIRMENT AND RESTRUCTURING CHARGES In September 2001, the Company closed one unprofitable restaurant. In
October 2001, the Company made the decision to close and sell 13 additional
unprofitable restaurants. All but one of those restaurants was closed by
November 12, 2001. In connection with the closing of unprofitable restaurants,
the Company recorded a $5.8 million asset impairment/restructure charge in the
second quarter of fiscal year 2002. During the fourth quarter of fiscal year
2002, the Company increased its impairment/restructure charge relating to the
closing of unprofitable restaurants from $5.8 million to $9.6 million. Also,
in the fourth quarter of fiscal year 2002, the Company accrued for an asset
impairment/restructure charge for four additional restaurants that were closed
subsequent to April 28, 2002 and for two undeveloped restaurant sites. The
Companys management made the decision to close these four restaurants and the
decision not to build on the two undeveloped restaurant sites during the fourth
quarter of fiscal year 2002. However, the actual closing of the restaurants
occurred subsequent to the fiscal year end. The asset impairment/restructure
charge relating to these four restaurants and the exit from the two undeveloped
restaurant sites totaled $3.0 million. During the second quarter of fiscal year 2003, the restructuring accrual
was reduced by $3.7 million due to the reclassification of certain obligations
to long term debt or capital lease obligation based on the final terms of the
Confirmed Plan of Reorganization and an additional restructuring charge of $0.1
million was recorded primarily to adjust an estimated lease commitment
liability to its final negotiated amount. Also, during the second quarter of
fiscal year 2003, the Company recognized a $4.8 million asset impairment charge
relating to long-lived assets at certain restaurants that were not performing
as expected and fixtures and equipment owned or relating to capital leases at
certain of the closed restaurants described above. The asset impairment
relating to the under-performing restaurants was based on the estimated future
cash flow projections of those restaurants being insufficient to recover the
cost of the long-lived assets. The asset impairment recorded during the
thirteen weeks ended October 27, 2002 also included the recognition of an
impairment of $0.3 million relating to a former deposit that had been deemed
not to be collectable. During the third quarter of fiscal year 2003, the Company reduced its
restructuring accrual by $0.1 million to reflect a change in the estimated
amount to be paid relating to certain of its rejected lease commitments as a
result of final negotiations relating to these obligations. Also, during the
fourth quarter of fiscal year 2003, the Company recognized an asset impairment
of $0.8 million relating to the final closure of the restaurant sites discussed
above and an analysis of the value of the equipment removed and retained from
these locations. During the fourth quarter of fiscal year 2004, the Company recorded asset
impairment charges totaling $1.0 million relating to three restaurants that are
not performing as expected and other restaurants for which an impairment had
previously been recognized. F-19




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##### Table of Contents



The following is a summary of the significant components of the Companys
asset impairment and restructuring charges for fiscal years 2004, 2003 and 2002
(in millions): Fiscal 2004
    
    Fiscal 2003
    
    Fiscal 2002Asset impairment
    
    $
    1.0
    
    
    $
    5.9
    
    
    $
    7.5Loss on rejection of lease commitments
    
    
    
    
    
    
    
    
    
    
    3.8Lease payments
    
    
    (0.1
    )
    
    
    
    
    
    
    1.1Bank and other charges
    
    
    
    
    
    
    
    
    
    
    0.2Total
    
    $
    0.9
    
    
    $
    5.9
    
    
    $
    12.6
 Asset impairment for fiscal 2002 included the estimated loss on the
closing or abandonment of the 18 restaurants and/or restaurant sites. In the
case of the five mortgaged restaurant sites and the six restaurant sites on
which the Company had a ground lease and built a building, the charge
represents the difference between the net book value of the assets and the
estimated net sale proceeds after all fees and commissions. The loss on
rejection of lease commitments represents the settlement amount of leases
rejected under the Confirmed Plan of Reorganization. Lease payments represent
the value of anticipated lease payments until all of the real estate leased
assets are sold. Bank and other charges include the cost to restructure all of
the Companys debt with its lenders and other fees associated with the
Confirmed Plan of Reorganization including legal fees, loan documentation fees
and other fees. Other charges also include all of the other costs related to
shut down of the closed restaurant locations including travel expense, the cost
to relocate the food inventory and equipment to other locations and other
miscellaneous costs. The following is a summary of the activity in the Companys restructuring
accrual (in millions): Paid on
    
    LiabilitiesRestructuring
    
    or Prior to
    
    Reclassified
    
    Balance as ofCharges
    
    April 25, 2004
    
    to Debt
    
    April 25, 2004Loss on rejection of
lease commitments
    
    $
    3.8
    
    
    $
    
    
    
    $
    3.8
    
    
    $
    Lease payments
    
    
    1.0
    
    
    
    0.7
    
    
    
    0.2
    
    
    
    0.1Bank and other charges
    
    
    0.2
    
    
    
    0.1
    
    
    
    
    
    
    
    0.1Total
    
    $
    5.0
    
    
    $
    0.8
    
    
    $
    4.0
    
    
    $
    0.2
 F-20




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##### Table of Contents



(6)
    
    PROPERTY AND EQUIPMENT Property and equipment, net consists of the following (dollars in
thousands): EstimatedApril 25, 2004
    
    April 27, 2003
    
    Useful LivesBuilding
    
    $
    17,553
    
    
    $
    20,572
    
    
    20 yearsLand
    
    
    10,206
    
    
    
    11,519Furniture and equipment
    
    
    27,074
    
    
    
    27,603
    
    
    3-7 yearsLeasehold improvements
    
    
    48,804
    
    
    
    48,713
    
    
    7-20 years103,637
    
    
    
    108,407Less: accumulated
depreciation
    
    
    (54,221
    )
    
    
    (49,741
    )49,416
    
    
    
    58,666Construction in progress
    
    
    96
    
    
    
    1,358$
    49,512
    
    
    $
    60,024
 Included in property and equipment are buildings and equipment under
capital leases of $10.3 million and $9.4 million at April 25, 2004 and April
27, 2003, respectively. The Company did not capitalize any interest costs
during fiscal years 2004, 2003 or 2002. See Note 20 for a discussion of the asset sale and leaseback executed on
August 6, 2004 involving eleven restaurant properties that the Company
previously owned.  (7)
    
    CAPITAL LEASES The following is a schedule of future minimum lease payments required
under capital leases as of April 25, 2004 (dollars in thousands): 2005
    
    $
    1,5262006
    
    
    1,3972007
    
    
    1,3562008
    
    
    6282009
    
    
    521Thereafter
    
    
    1,814Total minimum lease payments
    
    
    7,242Less: amount representing interest at varying rates
ranging from 5 percent to 16 percent
    
    
    (1,844
    )Present value of net minimum capital lease
payments
    
    
    5,398Less: current portion of capital lease obligations
    
    
    1,119Present value of minimum capital lease obligations
excluding current portion
    
    $
    4,279
 F-21




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##### Table of Contents



(8)
    
    OPERATING LEASES The Company is a party to various operating lease agreements relating to
the rental of land and buildings and equipment at many of its restaurants.
Such agreements range in terms of up to 20 years and generally provide the
Company the option to renew for additional periods. The agreements generally
also require significant penalties to be paid in the event the lease is
terminated prior to its expiration. The following is a schedule of future
minimum lease payments required under operating leases that have remaining
noncancelable lease terms in excess of one year as of April 25, 2004 (dollars
in thousands): 2005
    
    $
    9,1302006
    
    
    8,1042007
    
    
    7,1712008
    
    
    6,5802009
    
    
    5,941Thereafter
    
    
    28,888Total minimum lease payments
    
    $
    65,814
 In December 2003, the Company completed a sale and leaseback transaction
relating to its corporate headquarters building. Gross proceeds from the sale
were $3.0 million. The net proceeds of $2.6 million, after payment of expenses
and security deposits, were used, in part, to pay debt related to the facility
of $1.5 million. The remaining net proceeds of $1.1 million were retained by
the Company for working capital and general corporate purposes. The leaseback
agreement provides for rent to be paid on a triple net basis and extends for a
period of 15 years with two five-year renewal options. The deferred gain
realized on the sale of $0.2 million is being recognized over the life of the
lease. The total rent expense for operating leases was $10.3 million, $10.7
million and $12.1 million, for fiscal 2004, 2003 and 2002, respectively. The
Company leases a portion of its corporate headquarters and has recorded rental
income in the amounts of $0.3 million and $0.2 million for fiscal 2004 and
2003, respectively. See Note 20 for a discussion of the asset sale and leaseback executed on
August 6, 2004 involving eleven restaurant properties that the Company
previously owned. F-22




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##### Table of Contents



(9)
    
    LONG-TERM DEBT As of April 25, 2004, the Companys long-term debt was comprised of the
following items (amounts in thousands): Non-current
    
    CurrentPortion
    
    PortionSecured note due Finova Capital Corporation
bearing interest at 9%. Monthly payments of
$274 are based on a 11-year amortization with
a balloon payment due after eight years in October
2010. Note is secured by various inventory,
trademarks, property and equipment.
    
    $
    18,437
    
    
    $
    1,542Secured note due Finova Capital Corporation
bearing interest at 5%. Monthly payments of
$65 are due through October 2010. Note
is secured by various property and equipment.
    
    
    3,292
    
    
    
    510Secured notes due U. S. Mortgage LLC primarily
bearing interest at LIBOR plus 1.75%.
Monthly payments of approximately $13 are
due through 2010 on this note. Note is
collateralized by one property.
    
    
    722
    
    
    
    136Unsecured note due various entities affiliated with
CNL bearing interest at 5%. Monthly payments of
$58 are due through October 2007.
    
    
    1,328
    
    
    
    597Unsecured note due Corsair Special Situations Fund
(a member of the Companys Board of Directors is
affiliated with the Corsair Special Situations Fund)
bearing interest at 5%. Monthly payments of $104
are due through October 2007.
    
    
    2,926
    
    
    
    1,072Other unsecured notes due various parties
bearing interest at 5%. Monthly payments of
$56 are due through October 2010.
    
    
    1,513
    
    
    
    591Total long-term debt
    
    $
    28,218
    
    
    $
    4,448
 The carrying amount of property and equipment and assets held for sale
used as collateral was approximately $47.4 million and $60.8 million at April
25, 2004 and April 27, 2003, respectively. On the Petition Date, the Company stopped accruing interest on all
unsecured pre-petition debt in accordance with SOP 90-7. Contractual interest
expense not accrued or recorded on certain pre-petition debt totaled $0.9
million. F-23




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##### Table of Contents



The debt agreements resulting from the Confirmed Plan of Reorganization
may require prepayments of principal to the extent the Company generates excess
cash flow from operations, as defined in the agreements. In April 2004, the Company executed the credit agreement relating to the
secured note due Finova Capital Corporation. Such note bears interest at 9%
and matures in October 2010. In accordance with the terms of the credit
agreement, the Company is required to comply with various financial and
non-financial covenants including limitations on capital expenditures and new
indebtedness. As of April 25, 2004, the Company was in compliance with the
terms of the credit agreement. On August 6, 2004, the Company executed a sale and leaseback transaction
involving eleven of the restaurant properties that were previously owned. The
net proceeds of the transaction were used, in part, to repay $24.6 million of
debt, including all of the debt previously owed to Finova Capital Corporation
and U. S. Mortgage LLC described above. See further discussion at Note 20.  (10)
    
    STOCK OPTION PLANS A Stock Option Plan (the Original Plan) was adopted during 1994 and
later amended. Options to purchase 521,099 shares of the Companys common
stock were granted and remained outstanding as of April 28, 2002. In addition,
pursuant to an agreement entered into in 1998 with the President and Chief
Executive Officer, the general counsel and a consultant, options to purchase
300,000 shares of common stock were issued. Also, under the 1998 Omnibus Stock
Option Plan, options to purchase 324,500 shares of common stock were granted by
the Company. No stock options were granted during fiscal years 2003, 2002 or
2001. All stock options outstanding as of the effective date of the Confirmed
Plan of Reorganization were cancelled in accordance with the plan. Effective January 28, 2003, the Company adopted the 2003 Stock Option Plan
(the 2003 Plan). The 2003 Plan provides for the Company to grant up to
1,500,000 options to purchase shares of common stock to officers, directors,
key employees and independent contractors and consultants. The 2003 Plan is
administered by the Compensation Committee of the Board of Directors. Options
may be granted at an exercise price equal to the fair market value at the date
of grant, however not less than $0.36 per share and may have a term of up to
ten years. During fiscal year 2004, the Company granted ten-year options to
purchase 1,395,000 shares of common stock to various officers and key employees
with an exercise price of $0.36 per share. One third of such options vest on
April 28th of each of 2004, 2005 and 2006.  (11)
    
    SELF-FUNDED INSURANCE The Company maintains insurance to cover the potential liabilities
associated with a number of the risks that the Company may encounter in its
business operations. These include property and flood coverage, auto, workers
compensation, general liability and umbrella, directors and officers liability,
employers practice liability and crime insurance. Many of the policies, such
as property, flood and directors and officers liability include deductibles
ranging from $100,000 to $250,000 per claim. For many policy years, under
workers compensation, employers practice liability and general liability
coverage, the Company is effectively self-insured up to varying self-insurance
retention limits set on an F-24




---



##### Table of Contents



individual claim basis ranging up to $300,000 per claim and on an aggregate
basis. The Company is also self-insured in regards to the medical insurance
benefits that it provides to its managers and certain other employees. These
employees who elect to receive medical insurance benefits are required to
contribute a portion of the cost of providing the insurance benefits. Total
insurance costs incurred by the Company for fiscal years 2004, 2003 and 2002
were $5.0 million, $6.3 million and $3.5 million, respectively.  (12)
    
    INCOME TAXES Income tax (benefit) expense for fiscal years 2004, 2003, and 2002
consisted of the following (dollars in thousands): April 25, 2004
    
    April 27, 2003
    
    April 28, 2002Current:Federal
    
    $
    
    
    
    $
    (1,327
    )
    
    $
    State
    
    
    (1
    )
    
    
    86
    
    
    
    49Total current
    
    
    (1
    )
    
    
    (1,241
    )
    
    
    49Deferred:Federal
    
    
    
    
    
    
    
    
    
    
    State
    
    
    
    
    
    
    
    
    
    
    Total deferred
    
    
    
    
    
    
    
    
    
    
    Total income tax
(benefit) expense
    
    $
    (1
    )
    
    $
    (1,241
    )
    
    $
    49
 The tax effects of the temporary differences comprising deferred tax
assets and liabilities are as follows (dollars in thousands): April 25, 2004
    
    April 27, 2003Deferred tax assets:Tax credit carryforwards
    
    $
    3,960
    
    
    $
    2,990NOL/Capital loss carryforwards
    
    
    11,865
    
    
    
    9,125Insurance reserves
    
    
    254
    
    
    
    459Property and equipment
    
    
    4,289
    
    
    
    3,819Restructuring reserves
    
    
    60
    
    
    
    210Reorganization expenses
    
    
    2
    
    
    
    1,026Deferred rent
    
    
    772
    
    
    
    695Other
    
    
    562
    
    
    
    420Less valuation allowance
    
    
    (21,764
    )
    
    
    (18,744
    )Net deferred taxes
    
    $
    
    
    
    $
    
 F-25




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##### Table of Contents



In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
period in which those temporary differences become deductible. The valuation
allowance for deferred tax assets was $21.8 million and $18.7 million as of
April 25, 2004 and April 27, 2003, respectively. The valuation allowance
increased by $3.1 million because management determined it is more likely than
not that the Company will not be able to utilize its deferred tax assets. At April 25, 2004, the Company had available net operating loss
carryforwards of approximately $30.2 million, which will expire in years
beginning in 2021 through 2024. The actual income tax expense differs from the expected income tax
effect (computed by applying the U.S. Federal corporate tax rate of 34 percent
to earnings before income taxes) for fiscal years 2004 and 2003 as follows: April 25, 2004
    
    April 27, 2003Income taxes at statutory rates
    
    
    (34.0
    )%
    
    
    (34.0
    )%State and local taxes, net of benefit
    
    
    (3.6
    )%
    
    
    3.6
    %FICA tip tax credit
    
    
    (10.7
    )%
    
    
    1.3
    %Other items
    
    
    (2.3
    )%
    
    
    3.2
    %Permanent differences
    
    
    .1
    %
    
    
    (0.1
    )%Change in valuation allowance %
    
    
    50.5
    %
    
    
    35.9
    %0
    %
    
    
    9.9
    %
  (13)
    
    CONCENTRATIONS OF BUSINESS AND CREDIT RISK Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist primarily of cash in bank and investment
custodian accounts. At times, the Company maintains cash balances in excess of
insured limits. The custodian of the investment account is a major financial
institution. The Company currently owns and operates 34 of its 69 restaurants within
the state of Florida. Consequently, the operations of the Company are affected
by fluctuations in the Florida economy and may be affected by adverse weather
conditions within the state. Furthermore, the Company may be affected by
changing conditions within the food service industry. For fiscal years 2004, 2003 and 2002, two suppliers comprised
approximately 81%, 79% and 66%, respectively, of the Companys purchases.
Purchases from these suppliers were approximately $44.2 million, $41.9 million
and $47.4 million for these years, respectively. One of the Companys
directors was employed by one of these suppliers during these periods. See
Note 16. F-26




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##### Table of Contents



(14)
    
    COMMITMENTS AND CONTINGENCIES CLASS ACTION SUIT AND SEC INFORMAL INVESTIGATION On April 10, 2002, a purported class action complaint alleging violations
of federal securities laws was filed in the United States District Court for
the Southern District of Florida against the Company, the then chairman of the
Companys board of directors, and the Companys president and chief executive
officer. This action (the Action) was styled: Sears v. Roadhouse Grill, Inc,
et al., Case No. 02-CV-60493. On April 4, 2003, the court heard arguments on a
motion to dismiss and dismissed the amended class action complaint. The
plaintiffs filed a second amended class action complaint on May 5, 2003 naming
only the individual defendants and not the Company. The individual defendants
filed a motion to dismiss the second amended class action complaint on June 4,
2003, to which plaintiffs responded. The court heard oral arguments on the
matter on October 30, 2003 and in March 2004 the second amended class action
complaint was dismissed. No further actions have occurred in regards to this
matter since the second amended class action complaint was dismissed and, as
such, the Company believes that it will have no liability in regard to this
matter. On August 3, 2001, the Securities and Exchange Commission (SEC) informed
the Company that it intended to conduct an informal investigation regarding the
restatement of the Companys audited financial statements for the fiscal years
ended 2000 and 1999 and the first three fiscal quarters of fiscal 2001. The
Company cooperated fully with the SEC and, at this time, believes that this
matter has been concluded. GUARANTOR OF EQUIPMENT LEASES The Company is the guarantor of equipment leases for three restaurants
that are owned by one of its franchisees, Roadhouse West G.P., two of which are
currently closed. In addition, the Company believes that other parties have
also guaranteed these obligations. Roadhouse West G.P. is currently in default
of the payment terms of the operating leases, and recently filed a petition
under Chapter 11, which has now been converted into a Chapter 7 proceeding.
The balance of the remaining lease payments due was approximately $1.0 million
as of January 25, 2004. The leases are collateralized by the leased equipment
and certain leasehold improvements. The Company cannot predict the outcome of
the proceedings but believes that any potential liability will be mitigated by
the factors described above and, accordingly, has provided no reserve for any
possible obligations that may arise relating to these proceedings. OTHER AGREEMENTS The Company is a party to various agreements relating to services
performed at its restaurants. Such agreements are generally for periods of one
year or less and none of these agreements, individually, require payments that
would be material to the Companys financial position or results of operations. F-27




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##### Table of Contents



OTHER The Company is a party to certain legal proceedings arising in the
ordinary course of business. While it is not possible to predict or determine
the outcome of any of these proceedings, the Company does not believe that any
liability resulting from these proceedings will have a material adverse effect
on the Companys financial position, results of operations or its business.  (15)
    
    EMPLOYEE401(k)PLAN AND SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN The Company maintains a plan to provide mid-level employees with an
employee savings plan pursuant to Section 401(k) of the Internal Revenue Code
of 1986, as amended (the Code). As an alternative to providing highly
compensated employees with participation in such 401(k) plan, which would have
required the Company to extend plan benefits to a broader group of employees,
the Company also maintains a Supplemental Executive Retirement Plan (the
SERP). The 401(k) plan permits participants to contribute, on a pre-tax basis, a
percentage of compensation but not in excess of the maximum level allowed by
the Code. The Company will match 10% of up to the first six percent
contributed by each employee. The cost recognized by the Company for matching
contributions for fiscal years 2004, 2003 and 2002 was less than $0.1 million
each year. The SERP permits participants to contribute, on a pre-tax basis, a maximum
of 15% of annual compensation. The Company will match 100% up to the first 10%
of annual compensation contributed. The cost recognized by the Company for
matching contributions for fiscal years 2004, 2003 and 2002 was approximately
$0.1 million for each of these years.  (16)
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS BERJAYA Berjaya, which beneficially owns approximately 66.5% of the Companys
common stock, beneficially owns Roadhouse Grill Asia Pacific (H.K.) Limited
(Roadhouse Grill Hong Kong) and Roadhouse Grill Asia Pacific (Cayman) Limited
(Roadhouse Grill Asia). Roadhouse Grill Hong Kong. During January 1996, the Company entered into a
Master Development Agreement with Roadhouse Grill Asia Pacific (HK) Limited
(Roadhouse Grill Hong Kong), which is for an indefinite period and provides
for the development and franchising of Roadhouse Grill restaurants in Hong
Kong. The Master Development Agreement was amended by an addendum to Master
Development Agreement, dated August 2003 (as amended, the Hong Kong Master
Development Agreement). Under the terms of the Hong Kong Master Development
Agreement, the Company will be entitled to receive 50% of all revenues received
by Roadhouse Grill Hong Kong from third party franchisees, including, but not
limited to, franchise fees, reservation fees and royalty fees. The Hong Kong
Master Development Agreement provides for minimum initial franchise and ongoing
royalty fees. In addition, Roadhouse Grill Hong Kong has agreed to establish
an office for the purpose of selling Roadhouse Grill franchises in Hong Kong.
Subject to the selling of franchises by Roadhouse Grill Hong Kong in accordance
with an agreed upon development schedule, the Company will pay 50% of the pre- F-28




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##### Table of Contents



approved budgeted expenses of the office. Roadhouse Grill Hong Kong has agreed
to pay 50% of the out-of-pocket expenses incurred by the Company in connection
with its duties and obligations under the Hong Kong Master Development
Agreement. The Company and Roadhouse Grill Hong Kong will each be 50%
responsible for any liabilities that arise from the attraction, selection,
granting, administration and supervision of franchisees (except for any
liabilities caused solely or primarily by either of them, which such causing
party shall be fully responsible for), and Roadhouse Grill Hong Kong has agreed
to maintain an insurance policy for coverage against such liabilities.
Roadhouse Grill Hong Kong is not required to develop any specific number of
restaurants in Hong Kong, but must use its best efforts to sell franchises in
accordance with an agreed upon development schedule. Under certain
circumstances, Roadhouse Grill Hong Kong may also establish its own Roadhouse
Grill restaurants in Hong Kong. In that event, Roadhouse Grill Hong Kong is
not required to pay any franchise or reservation fee for its restaurants, but
is required to pay the Company royalty fees based on gross sales in connection
with the operation of each of its restaurants. Roadhouse Grill Hong Kong is
also responsible for paying or reimbursing approved expenses incurred by the
Company in connection with the opening of each restaurant. As of April 25,
2004, Roadhouse Grill Hong Kong had not developed or opened any Roadhouse Grill
restaurants pursuant to the Master Development Agreement. Roadhouse Grill Asia.During January 1996, the Company entered into a
Master Development Agreement with Roadhouse Grill Asia Pacific (Cayman) Limited
(Roadhouse Grill Hong Kong), which is for an indefinite period and provides
for the development and franchising of Roadhouse Grill restaurants in countries
in Asia and the Pacific Rim (other than Hong Kong), including, but not limited
to, Australia, China, India, Indonesia, Japan, Malaysia, New Zealand,
Singapore, South Korea, the Philippines and Thailand. The Master Development
Agreement was amended by an addendum to Master Development Agreement, dated
August 2003 (as amended, the Asia Master Development Agreement). The
material terms of the Asia Master Development Agreement, including the terms
relating to the establishment of an office and the sharing of franchising
revenues, office expenses and certain expenses, are substantially the same as
those under the Hong Kong Master Development Agreement summarized above. Under
the Asia Master Development Agreement, Roadhouse Grill Asia is not required to
develop any specific number of restaurants in Asia, but must use its best
efforts to sell franchises in accordance with an agreed upon development
schedule. As of April 25, 2004, there were three Roadhouse Grill restaurants
operating in Malaysia under the Master Development Agreement with Roadhouse
Grill Asia. The Company recorded less than $0.1 million in royalty income from
those restaurants during each of fiscal years 2004, 2003 and 2002. Royalty
income is currently being offset against interest that the Company owes to
Berjaya. See Note 2. This offset of royalty income will continue until the
royalty receivable exceeds the amount due Berjaya, which approximates $0.1
million as of April 25, 2004 and is included in accrued expenses in the
accompanying Consolidated Balance Sheet. Once the royalty receivable exceeds
the payable to Berjaya, the Company expects to begin collecting the earned
royalty fees. THE CREMONINI GROUP On July 6, 2000, the Company entered into a joint venture agreement with
the Cremonini Group, a publicly-traded Italian conglomerate and parent company
of Roadhouse Grill Italia S.R.L., specializing in the food service industry in
Europe. Under the original joint venture agreement, Cremonini Group was
required to open and operate at least 60 Roadhouse Grill restaurants in Italy,
France, Spain, Great Britain F-29




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##### Table of Contents



and other principal European countries. In March 2004, the joint venture
and related agreements with the Cremonini Group were terminated and replaced
with a trademark license agreement with Roadhouse Grill Italia S.R.L. (RGI)
(the License Agreement). Under the License Agreement, the Company has
granted RGI the exclusive right to develop a minimum of 36 restaurants in Italy
during the next ten years, including the four restaurants opened prior to 2004.
RGI has the right to discontinue the development of new restaurants on January
1, 2009 based on the operating restaurants existing at that time not meeting
certain performance criteria. RGI also was granted a right of first refusal in
regards to developing Roadhouse Grill restaurants in other selected European
countries. The Company is not required to make any capital outlay in
connection with the development of these restaurants. In accordance with the terms of the License Agreement, RGI is required to
pay the Company a fixed development fee for each restaurant to be opened in
accordance with the development schedule at the earliest to occur of the
restaurant opening or the end of the applicable calendar year. In addition,
the Company is entitled to fixed royalty fees at the beginning of each calendar
year based on the number of restaurants currently open or scheduled to open by
the end of the following calendar year in accordance with the development
schedule. The payment obligations of RGI under the License Agreement are
guaranteed by the Cremonini Group. As of April 25, 2004, there are five
franchised restaurants operating in Italy and RGI has paid the Company all fees
required to be paid under the License Agreement including the development fees
relating to the two restaurants to be opened in 2005. OTHER Tonto Capital Partners, GP is affiliated with Ayman Sabi, the Companys
Chief Executive Officer, President and a director. Pursuant to the Companys
Confirmed Plan of Reorganization, Tonto purchased 2,777,778 shares of the
Companys common stock for $0.36 per share. Mr. Sabi, as a general partner of
Tonto, is deemed a beneficial owner of the Company shares owned by Tonto for
U.S. securities law purposes. However, Mr. Sabi disclaims any pecuniary
interest in the Company shares owned by Tonto except to the extent of his
proportional interest in Tonto. Ronald J. Buck, a director of the Company, is co-founder and Managing
Principal of Corsair Partners, LLC and the investment manager of Corsair
Special Situations Fund, L.P., both of which are investment firms specializing
in investing in distressed and illiquid securities. Corsair Special Situations
Fund, L.P. is the holder of a note from the Company in the amount of $4.0
million as of April 25, 2004 payable in monthly installments of $103,959, with
interest at the rate of 5% per annum, through October 2007. Nathan D. Benn, is currently the Director and Chief Financial Officer of
the Florida Division of Buckhead Beef, which has a contract with the Company to
supply beef to the Companys food purveyor for resale to the Companys
restaurants. F-30




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##### Table of Contents



(17)
    
    NET LOSS PER COMMON SHARE (EPS) Basic net earnings per share equals net earnings divided by the weighted
average shares outstanding during the year. The computation of diluted net
earnings per share includes dilutive common stock equivalents in the weighted
average shares outstanding. The reconciliation between the computations is as
follows (dollars in thousands, except per share data): Fifty-two Weeks Ended April 25, 2004Net Loss
    
    Shares
    
    AmountBASIC EPSNet loss available
to common shareholders
    
    $
    (5,977
    )
    
    
    29,220,663
    
    
    $
    (0.20
    )EFFECT OF DILUTIVE SECURITIESStock options
    
    
    
    
    
    
    
    
    
    
    DILUTED EPS
    
    $
    (5,977
    )
    
    
    29,220,663
    
    
    $
    (0.20
    )
 Options to purchase 1,395,000 shares of common stock at a weighted average
exercise price of $0.36 per share were outstanding during fiscal year 2004, but
were not included in the computation of diluted EPS because the options
exercise price was greater than the average market price of the common shares. Fifty-two Weeks Ended April 27, 2003Net Loss
    
    Shares
    
    AmountBASIC EPSNet loss available
to common shareholders
    
    $
    (11,243
    )
    
    
    20,000,744
    
    
    $
    (0.56
    )EFFECT OF DILUTIVE SECURITIESStock options
    
    
    
    
    
    
    
    
    
    
    DILUTED EPS
    
    $
    (11,243
    )
    
    
    20,000,744
    
    
    $
    (0.56
    )
 Options to purchase 509,933 shares of common stock at a weighted average
exercise price of $4.56 per share were outstanding during fiscal year 2003
until such options were cancelled pursuant to the Confirmed Plan of
Reorganization, but were not included in the computation of diluted EPS because
the options exercise price was greater than the average market price of the
common shares. F-31




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##### Table of Contents



Fifty-two Weeks Ended April 28, 2002Net Loss
    
    Shares
    
    AmountBASIC EPSNet loss available
to common shareholders
    
    $
    (21,443
    )
    
    
    9,708,741
    
    
    $
    (2.21
    )EFFECT OF DILUTIVE SECURITIESStock options
    
    
    
    
    
    
    
    
    
    
    DILUTED EPS
    
    $
    (21,443
    )
    
    
    9,708,741
    
    
    $
    (2.21
    )
 Options to purchase 521,099 shares of common stock at a weighted average
exercise price of $4.61 per share were outstanding during fiscal year 2002, but
were not included in the computation of diluted EPS because the options
exercise price was greater than the average market price of the common shares.  (18)
    
    QUARTERLY FINANCIAL DATA The following is a summary of the unaudited quarterly results of
operations for fiscal year 2004 and fiscal year 2003 (dollars in thousands,
except per share data): 1ST
    
    2ND
    
    3RD
    
    4TH
    
    TOTALQTR
    
    QTR
    
    QTR
    
    QTR
    
    YEAR2004:Total revenues
    
    $
    36,225
    
    
    $
    33,395
    
    
    $
    32,950
    
    
    $
    36,810
    
    
    $
    139,380Operating loss
    
    
    (223
    )
    
    
    (1,100
    )
    
    
    (789
    )
    
    
    (912
    )
    
    
    (3,024
    )Net loss
    
    
    (1,072
    )
    
    
    (1,877
    )
    
    
    (1,594
    )
    
    
    (1,434
    )
    
    
    (5,977
    )Basic net loss
per common share
    
    
    (0.04
    )
    
    
    (0.06
    )
    
    
    (0.05
    )
    
    
    (0.05
    )
    
    
    (0.20
    )Diluted net loss
per common share
    
    
    (0.04
    )
    
    
    (0.06
    )
    
    
    (0.05
    )
    
    
    (0.05
    )
    
    
    (0.20
    )2003:Total revenues
    
    $
    35,939
    
    
    $
    33,305
    
    
    $
    33,887
    
    
    $
    37,793
    
    
    $
    140,924Operating loss
    
    
    (1,910
    )
    
    
    (7,308
    )
    
    
    (973
    )
    
    
    (1,917
    )
    
    
    (12,108
    )Net loss
    
    
    (2,120
    )
    
    
    (5,793
    )
    
    
    (509
    )
    
    
    (2,821
    )
    
    
    (11,243
    )Basic net loss
per common share
    
    
    (0.22
    )
    
    
    (0.49
    )
    
    
    (0.02
    )
    
    
    (0.10
    )
    
    
    (0.56
    )*Diluted net loss
per common share
    
    
    (0.22
    )
    
    
    (0.49
    )
    
    
    (0.02
    )
    
    
    (0.10
    )
    
    
    (0.56
    )*
  *
    
    The quarterly loss per share data does not tie to the annual data due to the issuance of
new shares on October 18, 2002 as a result of the Confirmed Plan of Reorganization. F-32




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##### Table of Contents



(19)
    
    ADVANCE SALE OF FOOD AND BEVERAGE CREDITS In June 2003, the Company entered into an agreement with a loyalty and
rewards company (the Rewards Company) involving the discounted advance sale
of food and beverage credits to be used at its restaurants. As part of the
agreement, during fiscal 2004, the Company received $2.3 million in exchange
for the credits, which is recorded in the Consolidated Balance Sheet as
unearned revenue. The amount of the discount provided to the Rewards Company
relating to the sale of food and beverage credits is recognized as advertising
expense (which is included in occupancy and other) in the Consolidated
Statement of Operations as the credits are used at the restaurants. Throughout
the term of the agreement, the Company and the Rewards Company share in the
proceeds of credit card transactions resulting from use of the credits by
members of the Rewards Company. The Company believes that the members of the
Rewards Company were predominantly not current customers of the Companys
restaurants at inception. As of April 25, 2004, the unearned revenue remaining
from the original agreement was $0.4 million. In June 2004, the Company
renewed the agreement with the Rewards Company. Under the current agreement,
the Company expects to receive $3.0 million in exchange for the sale of
additional food and beverage credits, of which $1.5 million was received upon
execution of the renewed agreement.  (20)
    
    ASSET SALE/LEASEBACK AND NEW REVOLVING CREDIT FACILITY On August 6, 2004, the Company closed a transaction with Sovereign
Roadhouse LLC, a wholly-owned subsidiary of Sovereign Investment Company,
(Sovereign) involving the sale and leaseback of eleven restaurant properties
that were previously owned. The sale price for the eleven properties was $21.8
million. The properties are being leased from Sovereign under lease agreements
that extend for 20 years and include four five-year renewal
options. The Company used approximately $18.1 million of the net proceeds from the sale to pay expenses related to the transaction and to repay $24.6 million of secured
debt, which was repaid at a discount (resulting in a gain on extinguishment of
debt of approximately $7.1 million). The net gain from the debt repayment will
be reflected in the Companys consolidated financial statements in the second
quarter of fiscal 2005. The Company also realized a gain on the sale of the
properties of approximately $1.7 million, which will be recorded as a reduction
of occupancy and other expense over the life of the leases. The remaining net
proceeds from the sale of approximately $3.7 million will be used
for working capital, including new marketing initiatives to promote
the Companys existing restaurants. The following represents a proforma presentation of the Companys
consolidated balance sheet as of April 25, 2004 as though the asset sale and
leaseback had been entered into as of April 25, 2004 (dollars in thousands): F-33




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##### Table of Contents



Unaudited
    
    UnauditedBalance, as
    
    Pro forma
    
    Balance, ProReported
    
    Adjustments
    
    formaAssetsCash and cash equivalents
    
    $
    1,181
    
    
    $
    3,629
    (1)
    
    $
    4,810Accounts receivable
    
    
    257
    
    
    
    
    
    
    
    257Income tax receivable
    
    
    69
    
    
    
    
    
    
    
    69Inventory
    
    
    1,024

    
    
    
    
    
    
    
    1,024Prepaid expenses
    
    
    1,273

    
    
    
    
    
    
    
    1,273Total current assets
    
    
    3,804
    
    
    
    3,629
    
    
    
    7,433Property and equipment
    
    
    49,512
    
    
    
    (19,143
    )(2)
    
    
    30,369Assets held for sale
    
    
    800

    
    
    
    
    
    
    
    800Other intangible assets
    
    
    1,846

    
    
    
    
    
    
    
    1,846Other assets
    
    
    1,352
    
    
    
    (525
    )(3)
    
    
    827Total assets
    
    $
    57,314
    
    
    $
    (16,039
    )
    
    $
    41,275Liabilities and Shareholders
EquityAccounts payable
    
    $
    4,557

    
    
    
    
    
    
    $
    4,557Accrued expenses
    
    
    7,033

    
    
    
    
    
    
    
    7,033Restructuring accrual
    
    
    159

    
    
    
    
    
    
    
    159Unearned revenue
    
    
    540
    
    
    $
    83
    (4)
    
    
    623Current portion of long-term debt
    
    
    4,448
    
    
    
    (2,259
    )(5)
    
    
    2,189Current portion of capital leases
    
    
    1,119

    
    
    
    
    
    
    
    1,119Total current liabilities
    
    
    17,856
    
    
    
    (2,176
    )
    
    
    15,680Long-term debt
    
    
    28,218
    
    

    
    (22,752
    )(5)
    
    
    5,466Capital lease obligations
    
    
    4,279

    
    
    
    
    
    
    
    4,279Other non-current liabilities
    
    
    2,153
    
    
    
    1,574
    (4)
    
    
    3,727Total liabilities
    
    
    52,506
    
    
    
    (23,354
    )
    
    
    29,152Common stock
    
    
    877

    
    
    
    
    
    
    
    877Additional paid-in capital
    
    
    55,953

    
    
    
    
    
    
    
    55,953Retained deficit
    
    
    (52,022
    )
    
    
    7,315
    (6)
    
    
    (44,707
    )Total shareholders equity
    
    
    4,808
    
    
    
    7,315
    
    
    
    12,123Total liabilities and equity
    
    $
    57,314
    
    
    $
    (16,039
    )
    
    $
    41,275
 Notes to pro forma balance sheet:  (1)
    
    Reflects the net cash proceeds received from the sale of the 11
properties, comprised of gross proceeds of $21,750, net of debt
prepayments of $17,171 and transaction expenses of $950.(2)
    
    Reflects the book value of the 11 sold properties as of April 25,
2004. F-34




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##### Table of Contents



(3)
    
    Represents the unamortized capitalized loan costs as of April 25,
2004 relating to the debt that was paid from the net proceeds of the
sale that will be written-off in the second quarter of fiscal year 2005.(4)
    
    Represents the current and non-current portions of the deferred
gain that would have been recognized as of April 25, 2004 if the
sale/leaseback had occurred at that date. The deferred gain from the
sale will be recorded as a reduction of occupancy and other expense
over the 20-year term of the lease.(5)
    
    Represents the current and non-current portions as of April 25,
2004 of the debt that was paid from the net proceeds of the sale.(6)
    
    Represents the gain that would have been recognized as of April 25,
2004 from the discounted prepayment of debt. This gain will be recognized in the second quarter of fiscal year 2005. The following represents a proforma presentation of the Companys
consolidated statements of operations for the fifty-two weeks ended April 25,
2004 as though the asset sale and leaseback had been entered into as of the
beginning of the period (dollars in thousands): Unaudited
    
    UnauditedBalance, as
    
    Pro forma
    
    Balance, ProReported
    
    Adjustments
    
    formaTotal revenues
    
    $
    139,380
    
    
    
    
    
    
    $
    139,380Restaurant operating expenses:Cost of restaurant sales:Food and beverage
    
    
    49,271
    
    
    
    
    

    
    
    49,271Labor and benefits
    
    
    45,078
    
    
    
    
    
    
    
    45,078Occupancy and other
    
    
    33,483
    
    
    $
    2,201
    (1)
    
    
    35,684Pre-opening expenses
    
    
    120
    
    
    
    
    
    
    
    120Total cost of restaurant sales
    
    
    127,952
    
    
    
    2,201
    
    
    
    130,153Depreciation and amortization
    
    
    7,078
    
    
    
    (803
    )(2)
    
    
    6,275General and administrative
expenses
    
    
    6,506
    
    
    
    
    
    
    
    6,506Asset impairment
    
    
    964
    
    
    
    
    
    
    
    964Restructuring charge
    
    
    (96
    )
    
    
    
    
    
    
    (96
    )Reorganization expenses
    
    
    
    
    
    
    
    
    
    
    Total operating expenses
    
    
    142,404
    
    
    
    1,398
    
    
    
    143,802Operating loss
    
    
    (3,024
    )
    
    
    (1,398
    )
    
    
    (4,422
    )Other expense
    
    
    (2,954
    )
    
    
    2,049
    (3)
    
    
    (905
    )Gain on extinguishment of debt
    
    
    
    
    
    
    
    (4)
    
    
    Loss before income taxes
    
    
    (5,978
    )
    
    
    651
    
    
    
    (5,327
    )Income tax benefit
    
    
    1
    
    
    
    
    (5)
    
    
    1Net loss
    
    ($
    5,977
    )
    
    $
    651
    
    
    ($
    5,326
    )
 F-35




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##### Table of Contents



Notes to pro forma statement of operations:  (1)
    
    Reflects the operating lease expense that would have been
recognized during fiscal 2004 if the sale/leaseback had been executed
at the beginning of the fiscal year.(2)
    
    Represents the depreciation expense relating to the sold
properties of $721 and amortization expense relating to the capitalized
loan costs associated with the prepaid debt of $82 that was recognized
during fiscal 2004 that would not have been recognized if the
transaction had been executed at the beginning of fiscal 2004.(3)
    
    Represents the interest expense relating to the prepaid debt that
would not have been incurred if the transaction had been executed at
the beginning of fiscal 2004.(4)
    
    Note that as a result of the discounted payoff of debt from the
use of a portion of the net proceeds of the asset sale, the Company
will recognize a gain on extinguishment of debt of approximately
$7,103. This gain will be recognized in the second quarter of fiscal 2005.(5)
    
    Note that no federal or state income taxes will be incurred
directly as a result of the asset sale due to the use of net operating
loss carryforwards. The Company may incur federal alternative minimum
tax (AMT) in fiscal 2005 based upon the total taxable income earned
including the gain on the asset sale. However, due to the use of AMT
loss carryforwards, AMT, if any, would be expected to be minor. F-36




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##### Table of Contents



EXHIBIT INDEX Exhibit No.
    
    Description10.19
    
    Trademark License Agreement, dated
March 3, 2004, between the Company and Roadhouse Grill Italia, S.R.L.10.20
    
    Purchase Agreement, dated July 28, 2004, between the Company and Sovereign Roadhouse LLC31.1
    
    Certification of Chief Executive Officer under Section 302 of
Sarbanes  Oxley31.2
    
    Certification of Chief Financial Officer under Section 302 of
Sarbanes  Oxley32.1
    
    Certification of Chief Executive Officer under Section 906 of
Sarbanes  Oxley32.2
    
    Certification of Chief Financial Officer under Section 906 of
Sarbanes  Oxley
 F-37