**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

### **Washington, D.C. 20549**

### ** **

**FORM 10-Q**

 

**(Mark One)**

 
| **ý**                                                  | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934**  |
|-------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|
|                                                        |       |                                                                                                     |
| **For the quarterly period ended  March 31, 2005, or** |
|                                                        |       |                                                                                                     |
| **o**                                                       | ** ** | **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 0-25366**

 

**WesternSizzlin Corporation**

(Exact Name ofRegistrant as Specified in Its Charter)

 
| **Delaware**                                                    | ** ** | **86-0723400**                        |
|-----------------------------------------------------------------|------------|---------------------------------------|
| (State or Other  Jurisdiction of Incorporation or Organization) |       | (I.R.S. Employer  Identification No.) |
|                                                            |       |                                  |
| **1338  Plantation Road Roanoke, Virginia**                     | ** ** | **24012**                             |
| (Address of  Principal Executive Offices)                       |       | (Zip Code)                            |

 

**(540) 345-3195**

(Registrant’sTelephone Number Including Area Code)

 

Indicate by check markwhether the registrant: (1)  has filed all reports required to be filed bySection 13 or 15 (d) of the Securities Exchange Act of 1934 duringthe preceeding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes ý  No o

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2of the Exchange Act). Yes oNo ý

 

As of May 16, 2005,there were 11,908,571 shares of common stock outstanding.

 

 

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**WesternSizzlin Corporation**

 

**Form 10-Q**

**ThreeMonths Ended March 31, 2005**

**Tableof Contents**

 
| **PART I.  FINANCIAL INFORMATION**                                                                                    |   |
|----------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                       |   |
| **Item 1.    Financial Statements (Unaudited)**                                                             |   |
|                                                                                                                       |   |
| Consolidated  Balance Sheets – March 31, 2005 and December 31, 2004                                         | 2      |
|                                                                                                                       |   |
| Consolidated  Statements of Operations - Three Months Ended March 31, 2005 and 2004                                   | 3      |
|                                                                                                                       |   |
| Consolidated  Statement of Changes in Stockholders’ Equity - Three Months Ended  March 31, 2005                  | 4      |
|                                                                                                                       |   |
| Consolidated  Statements of Cash Flows - Three Months Ended March 31, 2005 and 2004                                   | 5      |
|                                                                                                                       |   |
| Notes to  Consolidated Financial Statements                                                                                | 6      |
|                                                                                                                       |   |
| **Item  2.    Management’s Discussion and  Analysis of Financial Condition and Results of Operations** | 12     |
|                                                                                                                       |   |
| **Item  3.    Quantitative and Qualitative  Disclosure about Market Risk**                                  | 16     |
|                                                                                                                       |   |
| **Item 4.    Controls and Procedures**                                                                      | 16     |
|                                                                                                                       |   |
| **PART II. OTHER  INFORMATION**                                                                                       |   |
|                                                                                                                       |   |
| **Item 1.    Legal Proceedings**                                                                            | 17     |
|                                                                                                                       |   |
| **Item 6.    Exhibits**                                                                                     | 17     |
|                                                                                                                       |   |
| **Signatures**                                                                                                             | 18     |
|                                                                                                                       |   |
| **Exhibit Index**                                                                                                     | 19     |

 

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**PART I. FINANCIAL INFORMATION**

**WESTERN SIZZLIN CORPORATION**

 

Consolidated Balance SheetsMarch 31, 2005 and December 31, 2004

 
| ** **                                                                                                             | ** ** | **March 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                                                                                             | ** ** | **(unaudited)**          | ** ** | ** **                  | ** ** |
| **Assets**                                                                                                             | ** ** | ** **               | ** ** | ** **                  | ** ** |
| Current assets:                                                                                                        |       |                     |       |                        |       |
| Cash and cash equivalents                                                                                              |       | $                        | 2,243,488  |                        | $          | 2,105,751 |   |
| Short-term investments                                                                                                 |       | 255,717                  |       | 254,654                     |       |
| Trade accounts receivable, less allowance for doubtful accounts of $408,500  in 2005 and $388,500 in 2004              |       | 875,106                  |       | 842,269                     |       |
| Current installments of notes receivable                                                                               |       | 228,374                  |       | 229,818                     |       |
| Other receivables                                                                                                      |       | 743,789                  |       | 107,896                     |       |
| Inventories                                                                                                            |       | 69,228                   |       | 122,197                     |       |
| Prepaid expenses                                                                                                       |       | 413,272                  |       | 308,087                     |       |
| Deferred income taxes                                                                                                  |       | 449,977                  |       | 400,629                     |       |
| Total current assets                                                                                                   |       | 5,278,951                |       | 4,371,301                   |       |
| Notes receivable, less allowance for doubtful accounts of $81,899 in  2005 and 2004, excluding current installments    |       | 1,001,806                |       | 1,035,485                   |       |
| Property and equipment, net of accumulated depreciation of $4,218,486  in 2005 and $5,061,285 in 2004                  |       | 2,342,844                |       | 2,774,646                   |       |
| Franchise royalty contracts, net of accumulated amortization of  $7,090,824 in 2005 and $6,933,249 in 2004             |       | 2,363,608                |       | 2,521,183                   |       |
| Goodwill                                                                                                               |       | 4,310,200                |       | 4,310,200                   |       |
| Financing costs, net of accumulated amortization of $122,818 in 2005 and  $118,273 in 2004                             |       | 77,394                   |       | 81,937                      |       |
| Deferred income taxes                                                                                                  |       | 936,284                  |       | 933,226                     |       |
| Asset held for sale                                                                                                    |       | 300,000                  |       | 300,000                     |       |
| Other assets                                                                                                           |       | 5,100                    |       | 368,688                     |       |
|                                                                                                                   |       | $                        | 16,616,187 |                        | $          | 16,696,666 |   |
| **Liabilities and Stockholders’  Equity**                                                                         |       |                     |       |                        |       |
| Current liabilities:                                                                                                   |       |                     |       |                        |       |
| Current installments of long-term debt                                                                                 |       | $                        | 819,755    |                        | $          | 839,987 |   |
| Accounts payable                                                                                                       |       | 946,608                  |       | 831,883                     |       |
| Accrued expenses and other                                                                                             |       | 1,241,748                |       | 1,219,147                   |       |
| Total current liabilities                                                                                              |       | 3,008,111                |       | 2,891,017                   |       |
| Long-term debt, excluding current installments                                                                         |       | 2,581,499                |       | 2,697,650                   |       |
| Other long-term liabilities                                                                                            |       | —                   |       | 14,841                      |       |
| Commitments and contingencies (Note 7)                                                                                 |       |                     |       |                        |       |
| Stockholders’ equity:                                                                                             |       |                     |       |                        |       |
| Common stock, $.01 par value. Authorized 20,000,000 shares; 11,908,571  issued and outstanding shares in 2005 and 2004 |       | 119,086                  |       | 119,086                     |       |
| Additional paid-in capital                                                                                             |       | 8,589,578                |       | 8,589,578                   |       |
| Retained earnings                                                                                                      |       | 2,317,913                |       | 2,384,494                   |       |
| Total stockholders’ equity                                                                                        |       | 11,026,577               |       | 11,093,158                  |       |
|                                                                                                                   |       | $                        | 16,616,187 |                        | $          | 16,696,666 |   |

 

See accompanying notes to consolidated financial statements.

 

2

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**WESTERN SIZZLIN CORPORATION**

 

Consolidated Statements of Operations

(Unaudited)

 
| ** **                                        | ** ** | **Three Months  Ended March 31,** | ** ** |
|---------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                        | ** ** | **2005**                               | ** ** | **2004** | ** ** |
| Revenues:                                         |       |                                   |       |   |   |
| Company-operated restaurants                      |       | $                                      | 3,749,611  |   | $ | 3,980,245 |   |
| Franchise operations                              |       | 1,081,822                              |       | 1,137,397 |   |
| Other                                             |       | 112,607                                |       | 100,455 |   |
|                                              |       |                                   |       |   |   |
| Total revenues                                    |       | 4,944,040                              |       | 5,218,097 |   |
| Costs and expenses:                               |       |                                   |       |   |   |
| Cost of company-operated restaurants              |       | 2,551,623                              |       | 2,722,127 |   |
| Cost of franchise operations                      |       | 494,879                                |       | 483,726 |   |
| Other cost of operations                          |       | 88,474                                 |       | 77,753 |   |
| Restaurant operating expenses                     |       | 906,141                                |       | 917,705 |   |
| General and administrative                        |       | 526,269                                |       | 415,067 |   |
| Depreciation and amortization                     |       | 278,269                                |       | 299,875 |   |
| Closed store expenses                             |       | 350,279                                |       | — |   |
|                                              |       |                                   |       |   |   |
| Total costs and expenses                          |       | 5,195,934                              |       | 4,916,253 |   |
|                                              |       |                                   |       |   |   |
| (Loss) income from operations                     |       | (251,894                               | )          | 301,844 |   |
|                                              |       |                                   |       |   |   |
| Other income (expense):                           |       |                                   |       |   |   |
| Interest expense                                  |       | (88,996                                | )          | (100,737 | ) |
| Interest income                                   |       | 15,797                                 |       | 19,754 |   |
| Other                                             |       | 222,001                                |       | 40,271 |   |
|                                              |       |                                   |       |   |   |
|                                              |       | 148,802                                |       | (40,712 | ) |
| (Loss) income before income tax (benefit) expense |       | (103,092                               | )          | 261,132 |   |
|                                              |       |                                   |       |   |   |
| Income tax (benefit) expense                      |       | (36,511                                | )          | 99,230 |   |
|                                              |       |                                   |       |   |   |
| Net (loss) income                                 |       | $                                      | (66,581    | ) | $ | 161,902 |   |
|                                              |       |                                   |       |   |   |
| Earnings (loss) per share:                        |       |                                   |       |   |   |
| Basic                                             |       | $                                      | (.01       | ) | $ | .01 |   |
| Diluted                                           |       | $                                      | (.01       | ) | $ | .01 |   |

 

See accompanying notes to consolidated financial statements

 

3

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**WESTERN SIZZLIN CORPORATION**

 

Consolidated Statement of Changes in Stockholders’ Equity

Three Months Ended March 31, 2005

 

(Unaudited)

 
| ** **                       | ** ** | ** ** | ** ** | **Additional  Paid-in  Capital** | ** ** | **Retained  Earnings** | ** ** | **Total** | ** ** |
|----------------------------------|------------|------------|------------|----------------------------------|------------|------------------------|------------|-----------|------------|
| **Common Stock**                 |
| ** **                       | ** ** | **Shares** | ** ** | **Dollars**                      | ** ** | ** **             |
| Balances, December 31, 2004 |       | 11,908,571 |       | $                                | 119,086    |                   | $          | 8,589,578 |       | $ | 2,384,494 |   | $ | 11,093,158 |   |
| Net loss                         |       | —     |       | —                           |       | —                 |       | (66,581   | )          | (66,581 | ) |
| Balances, March 31, 2005    |       | 11,908,571 |       | $                                | 119,086    |                   | $          | 8,589,578 |       | $ | 2,317,913 |   | $ | 11,026,577 |   |

 

See accompanying notes to consolidated financial statements.

 

4

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**WESTERN SIZZLIN CORPORATION**

 

Consolidated Statements of Cash Flows

(Unaudited)

 
| ** **                                                                                | ** ** | **Three Months Ended  March 31** | ** ** |
|-------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                                | ** ** | **2005**                              | ** ** | **2004** | ** ** |
| Cash flows from operating activities:                                                     |       |                                  |       |   |   |
| Net (loss) income                                                                         |       | $                                     | (66,581    | ) | $ | 161,902 |   |
| Adjustments to reconcile net (loss) income to net cash provided by operating  activities: |       |                                  |       |   |   |
| Depreciation and amortization of property and equipment                                   |       | 116,150                               |       | 137,923 |   |
| Amortization of franchise royalty contracts                                               |       | 157,575                               |       | 157,574 |   |
| Amortization of financing costs                                                           |       | 4,543                                 |       | 4,378 |   |
| Loss on sale/disposal of property and equipment                                           |       | 349,741                               |       | 484 |   |
| Provision for doubtful accounts                                                           |       | 28,414                                |       | 25,000 |   |
| (Benefit) provision for deferred income taxes                                             |       | (52,406                               | )          | 99,120 |   |
| (Increase) decrease in:                                                                   |       |                                  |       |   |   |
| Trade accounts receivable                                                                 |       | (61,251                               | )          | 5,301 |   |
| Notes receivable                                                                          |       | 35,123                                |       | 14,584 |   |
| Other receivables                                                                         |       | (635,893                              | )          | (5,618 | ) |
| Inventories                                                                               |       | 52,969                                |       | (9,562 | ) |
| Prepaid expenses                                                                          |       | (105,185                              | )          | (125,231 | ) |
| Other assets                                                                              |       | 363,588                               |       | 110,159 |   |
| Increase (decrease) in:                                                                   |       |                                  |       |   |   |
| Accounts payable                                                                          |       | 114,725                               |       | 180,844 |   |
| Accrued expenses                                                                          |       | 22,601                                |       | 4,585 |   |
| Other long-term liabilities                                                               |       | (14,841                               | )          | 57,500 |   |
| Net cash provided by operating activities                                                 |       | 309,272                               |       | 818,943 |   |
| Cash flows from investing activities:                                                     |       |                                  |       |   |   |
|                                                                                      |       |                                  |       |   |   |
| Short term investments                                                                    |       | (1,063                                | )          | — |   |
| Additions to property and equipment                                                       |       | (42,089                               | )          | (41,583 | ) |
| Proceeds from sale of property                                                            |       | 8,000                                 |       | 3,300 |   |
|                                                                                      |       |                                  |       |   |   |
| Net cash used in investing activities                                                     |       | (35,152                               | )          | (38,283 | ) |
|                                                                                      |       |                                  |       |   |   |
| Cash flows from financing activities:                                                     |       |                                  |       |   |   |
|                                                                                      |       |                                  |       |   |   |
| Payments on long-term debt                                                                |       | (136,383                              | )          | (130,601 | ) |
|                                                                                      |       |                                  |       |   |   |
| Net cash used in financing activities                                                     |       | (136,383                              | )          | (130,601 | ) |
|                                                                                      |       |                                  |       |   |   |
| Net increase in cash and cash equivalents                                                 |       | 137,737                               |       | 650,059 |   |
|                                                                                      |       |                                  |       |   |   |
| Cash and cash equivalents at beginning of period                                          |       | 2,105,751                             |       | 682,730 |   |
|                                                                                      |       |                                  |       |   |   |
| Cash and cash equivalents at end of period                                                |       | $                                     | 2,243,488  |   | $ | 1,332,789 |   |
|                                                                                      |       |                                  |       |   |   |
| Supplemental disclosure of cash flow information:                                         |       |                                  |       |   |   |
|                                                                                      |       |                                  |       |   |   |
| Cash payments for interest                                                                |       | $                                     | 90,688     |   | $ | 101,765 |   |
| Income taxes paid                                                                         |       | $                                     | 15,025     |   | $ | 110 |   |

 

See accompanying notes to consolidated financial statements.

 

5

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**WESTERNSIZZLIN CORPORATION**

 

Notes toConsolidated Financial Statements

 

Three Months EndedMarch 31, 2005 and 2004

 

(Unaudited)

 

**(1)****                               General**

 

The accompanyingunaudited consolidated financial statements of Western Sizzlin Corporation,(the “Company”) have been prepared in accordance with accounting principlesgenerally accepted in the United States of America for interim financialreporting information and the instructions to Form 10-Q and Article 10of Regulation S-X.  Accordingly, they donot include all of the information and notes required by accounting principlesgenerally accepted in the United States of America for complete financialstatements.  In the opinion ofmanagement, all material reclassifications and adjustments, consisting ofnormal recurring accruals, considered necessary for a fair presentation of theresults of operations, financial position and cash flows for each period shownhave been included.  Operating resultsfor interim periods are not necessarily indicative of the results for the fullyear because, among other things, the dining habits of the Company’s customerscannot be certain.  The unauditedconsolidated financial statements and notes are presented as permitted by Form 10-Qand do not contain certain information included in the Company’s annualconsolidated financial statements and notes. For further information, refer to the consolidated financial statementsand notes thereto included in the Company’s annual report on Form 10-Kfor the year ended December 31, 2004.

 

**(2)****                               StockOptions**

 

The Company applies theintrinsic-value-based method of accounting prescribed by Accounting PrinciplesBoard (APB) Opinion No. 25, *Accounting for StockIssued to Employees,* and related interpretations including FASBInterpretation No. 44,*Accounting for CertainTransactions involving Stock Compensation, an interpretation of APB Opinion No. 25*,issued in March 2000, to account for its fixed-plan stock options. Underthis method, compensation expense is recorded on the date of grant only if thecurrent market price of the underlying stock exceeded the exercise price.  Statement No. 123, *Accountingfor Stock-Based Compensation,* established accounting and disclosurerequirements using a fair-value-based method of accounting for stock-basedemployee compensation plans.  As allowedby Statement No. 123, the Company has elected to continue to apply theintrinsic-value-based method of accounting described above, and has adoptedonly the disclosure requirements of Statement No. 123.  Statement No. 148, *Accountingfor Stock-Based Compensation – Transition and Disclosure, an amendment of SFAS No. 123,*amends the disclosure requirements of Statement No.123 to require prominentdisclosures in both annual and interim financial statements about the method ofaccounting for stock-based compensation and the effect of the method onreported results.   The following table illustrates the effect onnet income if the fair-value-based method had been applied to all outstandingawards in each period:

 
| ** **                                                                                                                                            | ** ** | **2005** | ** ** | **2004** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                                                                                                                  |       |     |       |     |       |
| Net income (loss):                                                                                                                                    |       |     |       |     |       |
| As reported                                                                                                                                           |       | $        | (66,581    | )        | $          | 161,902 |   |
| Deduct  total stock-based employee compensation expense determined under  fair-value based method for all outstanding and unvested awards, net of tax |       | 0        |       | (4,007   | )          |
|                                                                                                                                                  |       |     |       |     |       |
| Pro forma                                                                                                                                             |       | $        | (66,581    | )        | $          | 157,895 |   |
|                                                                                                                                                  |       |     |       |     |       |
| Basic and diluted net income (loss) per share:                                                                                                        |       |     |       |     |       |
| As reported                                                                                                                                           |       | $        | (0.01      | )        | $          | 0.01 |   |
| Pro forma                                                                                                                                             |       | $        | (0.01      | )        | $          | 0.01 |   |

 

6

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In December 2004, the Financial AccountingStandards Board (“FASB”) issued Statement 123 (revised 2004), *Share-Based**Payment*(Statement123(R)).  This Statement is a revision toStatement 123, *Accounting for Stock-Based Compensation*,and supersedes Opinion 25, *Accounting for StockIssued to Employees*. Statement 123(R) requires the measurement of the cost of employeeservices received in exchange for an award of equity instruments based on thegrant-date fair value of the award.  Thecost will be recognized over the period during which an employee is required toprovide service in exchange for the award. No compensation cost is recognized for equity instruments for whichemployees do not render service.  TheCompany will adopt Statement 123(R) on January 1, 2006, requiringcompensation cost to be recognized as expense for the portion of outstandingunvested awards, based on the grant-date fair value of those awards calculatedusing the Black-Scholes option pricing model under Statement 123 for pro formadisclosures.  Although management iscurrently evaluating the impact of Statement 123(R), the Company does notexpect that the adoption of Statement 123(R) will have a material impact onoptions outstanding at March 31, 2005. However, Statement 123(R) will likely have a material impact on theCompany’s financial statements to the extent options are issued in the future.

 

**(3)****                               Goodwilland Other Intangible Assets**

 

The Company conforms tothe provisions of Statement of Financial Accounting Standards (SFAS) No. 142,“Goodwill and Other Intangible Assets.” Under SFAS No. 142, goodwill and intangible assets deemed to haveindefinite lives are reviewed for impairment and written down and charged toresults of operations when their carrying amount exceeds their estimated fairvalue. The Company is required to perform impairment tests each year, orbetween yearly tests in certain circumstances, for goodwill. There can be noassurance that future impairment tests will not result in a charge to earnings.

 

Therewere no changes in the net carrying amount of goodwill for the three monthsended March 31, 2005 or the three months ended March 31, 2004.

 

*AmortizingIntangible Assets*

 

Franchiseroyalty contracts are amortized on a straight-line basis over fifteen years, theestimated average life of the franchise agreements.  The Company assesses the recoverability ofthis intangible asset by determining whether the amortization of the franchiseroyalty contracts balance over their remaining life can be recovered through undiscountedfuture operating cash flows of the acquired operation.  The amount of impairment, if any, is measuredbased on projected discounted future operating cash flows using a discount ratereflecting the Company’s average cost of funds.

 
|                           |       |                        |       | **As of March 31,  2005**             |       |                          |       |
|--------------------------------|------------|-----------------------------|------------|--------------------------------------------|------------|-------------------------------|------------|
| ** **                     | ** ** | **Gross  carrying  amount** | ** ** | **Weighted average  Amortization  Period** | ** ** | **Accumulated  Amortization** | ** ** |
| Amortizing  intangible assets: |       |                        |       |                                       |       |                          |       |
| Franchise Royalty Contracts    |       | $                           | 9,454,432  |                                       | 15.0  yrs. |                          | $          | 7,090,824 |   |
|                                |            |                             |            |                                            |            |                               |            |  |  |

 

Aggregate amortizationexpense for amortizing intangible assets for the three months ended March 31,2005 was $157,575.  Estimated amortizationexpense is $630,300 per year through December 31, 2008.

 

**(4)****                               EarningsPer Share**

 

Basic earnings per shareexcludes dilution and is computed by dividing income available to commonstockholders by the weighted-average number of common shares outstanding forthe period.  Diluted earnings per sharereflects the potential dilution that could occur if securities or othercontracts to issue common stock were exercised or converted into common stockor resulted in the issuance of common stock that then shared in the earnings ofthe Company.  Stock options for 175,000 and75,000 shares of common stock for the three months ended March 31, 2005 and

 

7

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2004, respectively, werenot included in computing diluted earnings because the effect of these options areanti-dilutive.

 

The following is a reconciliation of the numeratorsand denominators of the basic and diluted earnings per share computations forthe periods indicated:

 
| ** **                                  | ** ** | **(Loss)  Income  (Numerator)** | ** ** | **Weighted  Average  Shares  (Denominator)** | ** ** | **(Loss)  Earnings  Per Share  Amount** | ** ** |
|---------------------------------------------|------------|---------------------------------|------------|----------------------------------------------|------------|-----------------------------------------|------------|
| **Three  months ended March 31, 2005** |       |                            |       |                                         |       |                                    |       |
| Net loss - basic and diluted                |       | $                               | (66,581    | )                                            | 11,908,571 |                                    | $          | (.01 | ) |
|                                        |       |                            |       |                                         |       |                                    |       |
| **Three months ended March 31, 2004**  |       |                            |       |                                         |       |                                    |       |
| Net income – basic and diluted         |       | $                               | 161,902    |                                         | 11,908,571 |                                    | $          | .01 |   |
|                                             |            |                                 |            |                                              |            |                                         |            |  |  |  |  |

 

**(5)****                               ClosedStore Expense**

 

In the three months endedMarch 31, 2005, the Company recorded closed store expenses of $350,279,which included impairments of $128,471 associated with the end of a subleasedproperty due to a buyout of the lease and impairments related to the closing ofa Company-operated restaurant of $221,808.

 

**(6)****                               ReportableSegments**

 

The Company has defined two reportable segments:Company-operated restaurants and franchising and other.  The Company-operated restaurant segmentconsists of the operations of all Company-operated restaurants and derives itsrevenues from restaurant operations.  Thefranchising and other segment consists primarily of franchise sales and supportactivities and derives its revenues from sales of franchise and developmentrights and collection of royalties from franchisees.

 

Generally, the Company evaluates performance andallocates resources based on income from operations before income taxes. Capitalcosts are allocated to segments based upon predetermined rates or actual orestimated resource usage.  Corporate andfranchise support expenses of $419,725 and $286,664 for three months ended March 31,2005 and 2004, respectively, are allocated entirely to franchising and otherand are not allocated to Company-operated restaurants.  The reason for the increase in 2005 over 2004for the three months ended is attributable to 2005 spending in growth projectsincluding consumer research, prototype plans, and consulting fees.  The accounting policies of the segments arethe same as those described in the summary of significant accounting policies.

 

Reportable segments are business units that providedifferent products or services.  Separatemanagement of each segment is required because each business unit is subject todifferent operational issues and strategies. Through March 31, 2005, all revenues for each business segment werederived from business activities conducted with customers located in the UnitedStates.  No single external customeraccounted for 10% or more of the Company’s consolidated revenues.

 

The following tablesummarizes reportable segment information:

 

8

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| ** **                                              | ** ** | **Three Months  Ended March 31,** | ** ** |
|---------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                              | ** ** | **2005**                               | ** ** | **2004** | ** ** |
|                                                    |       |                                   |       |   |   |
| Revenues from reportable segments:                      |       |                                   |       |   |   |
| Restaurants                                             |       | $                                      | 3,749,611  |   | $ | 3,980,245 |   |
| Franchising and other                                   |       | 1,194,429                              |       | 1,237,852 |   |
|                                                    |       |                                   |       |   |   |
| Total revenues                                          |       | $                                      | 4,944,040  |   | $ | 5,218,097 |   |
| Depreciation and amortization:                          |       |                                   |       |   |   |
| Restaurants                                             |       | $                                      | 106,093    |   | $ | 126,372 |   |
| Franchising and other                                   |       | 172,175                                |       | 173,503 |   |
| Total depreciation and amortization                     |       | $                                      | 278,268    |   | $ | 299,875 |   |
| Interest expense:                                       |       |                                   |       |   |   |
| Restaurants                                             |       | $                                      | 87,976     |   | $ | 100,517 |   |
| Franchising and other                                   |       | 1,020                                  |       | 220 |   |
|                                                    |       |                                   |       |   |   |
| Total interest expense                                  |       | $                                      | 88,996     |   | $ | 100,737 |   |
|                                                    |       |                                   |       |   |   |
| Interest income:                                        |       |                                   |       |   |   |
| Restaurants                                             |       | $                                      | 11,613     |   | $ | 18,714 |   |
| Franchising and other                                   |       | 4,184                                  |       | 1,040 |   |
| Total interest income                                   |       | $                                      | 15,797     |   | $ | 19,754 |   |
|                                                    |       |                                   |       |   |   |
| Income (loss) before income tax (benefit) expense:      |       |                                   |       |   |   |
| Restaurants                                             |       | $                                      | (127,061   | ) | $ | 57,039 |   |
| Franchising and other                                   |       | 23,969                                 |       | 204,093 |   |
|                                                    |       |                                   |       |   |   |
| Total (loss) income before income tax (benefit) expense |       | $                                      | (103,092   | ) | $ | 261,132 |   |

 
| ** **                          | ** ** | **March 31,  2005** | ** ** | **March 31,  2004** | ** ** |
|-------------------------------------|------------|--------------------------|------------|--------------------------|------------|
| Total assets:                       |       |                     |       |                     |       |
| Restaurants                         |       | $                        | 8,646,411  |                     | $          | 8,305,661 |   |
| Franchising and other               |       | 7,969,776                |       | 8,862,645                |       |
|                                |       |                     |       |                     |       |
| Total assets                        |       | $                        | 16,616,187 |                     | $          | 17,168,306 |   |
|                                |       |                     |       |                     |       |
| Expenditures for fixed assets:      |       |                     |       |                     |       |
| Restaurants                         |       | $                        | 37,748     |                     | $          | 41,583 |   |
| Franchising and other               |       | 4,341                    |       | —                   |       |
|                                |       |                     |       |                     |       |
| Total expenditures for fixed assets |       | $                        | 42,089     |                     | $          | 41,583 |   |

 

**(7)****                               Contingencies**

 

As of March 31,2005, the Company has accrued approximately $520,000 related to mattersdiscussed below.  In the case of allknown contingencies, the Company accrues for an obligation, including estimatedlegal costs, when a loss is probable and the amount is reasonablyestimable.  As facts concerningcontingencies become known to the Company, the Company reassesses its positionwith respect to accrued liabilities and other expenses.  These estimates are subject to change asevents evolve and as additional information becomes available during thelitigation process.

 

9

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**FFCA**

 

In January 2001, theCompany executed a series of Master Lease Agreements (“Agreements”) relating tocertain franchised properties formerly operated by other parties as “Quincy’s”restaurants (“Former Quincy’s”).  Signedcopies of these Agreements were required, pursuant to the terms of thedocument, to be executed by Franchise Financing Corporation of America, nowknown as General Electric Franchise Finance Corporation, (the “Lessor”), to belegally binding; however, no signed copies were ever returned to the Company.  At the end of January 2002, thereremained only 25 Former Quincy’s operated by Company franchisees, the Lessorhaving taken back, in 2001 and 2002, other restaurants previously operated byCompany franchisees.  The Agreements,incomplete for a lack of signature by the Lessor, provided for rental paymentsfrom the Company to the Lessor.  However,the cost of any rental payments was passed on to the franchisees operating theproperties. During 2002 and 2003, nine of the remaining twenty-five propertieswere closed and the franchisees discontinued making payments to the Company. OnMay 15, 2003, the Company sent a letter to the Lessor, providing notice ofthe Company’s termination of any tenancies at-will on any remaining FormerQuincy’s units effective May 31, 2003. No response has ever been received from Lessor.

 

Following the May 15,2003 termination of the tenancies at-will, the Company advised five franchiseeswho continued to operate former Quincy’s units at that time to make any rentpayments directly to FFCA.  With regardto eleven other former Quincy’s units, the Company became aware, on or about May 15,2003, that the franchisees had elected to make their payments directly to FFCAand it is the Company’s understanding that FFCA has accepted thesepayments.  There can be no assurancesthat the franchisees have made their payments and will continue to make theirlease payments in the future or that they even continue to operate theserestaurants.  The Company’s estimate ofthe total payments that were made directly to the lessor for these sixteenfranchisees, or former franchisees, is approximately $2,507,000 through March 31,2005.  In addition, total payments due bythe sixteen franchisees for the period April 1, 2005 through December 31,2005 (the end of the lease term) would be approximately $1,387,000.

 

While the Company disputesany liability for any of the following amounts, to the Company’s knowledge, asof March 31, 2005 a total of approximately $1,810,000 of rental payments hadnot been made by either the franchisees or by the Company with regard to theabove-referenced nine properties.  Rentfor these nine properties, for the period of April 1, 2005 through December 31,2005 (the end of the lease term), according to the payment schedule setout in the agreements, would approximate $815,000.

 

The Company intends tovigorously contest any potential claims asserted by General Electric FranchiseFinance Corporation.  While the Companyhas previously engaged in discussions with the Lessor of the properties toresolve any rental payments claimed by the Lessor under the Agreements, it isnot possible at this time to determine the outcome of these discussions.

 

**Lincoln,Nebraska Lease Claim**

 

The Company was aguarantor of a lease agreement in Lincoln, Nebraska, with monthly rentals ofapproximately $8,200.  The leaseagreement, which ran through February 2014, was assigned by the Company toa third party in March 1998 and subsequently by the third party to anotherparty.  When the assignees failed to makerecent monthly rental, property tax, and association payments on the premises,  the landlord took possession of the premises,and on or about May 12, 2004, sold the premises to a third party intendingto use the premises for its own purposes. The Company resolved the landlord’s lawsuit filed in the District Courtof Lancaster County, Nebraska and received a release from all claims inconjunction with this claim upon payment of $50,000 on April 18, 2005.

 

**MBM Claim**

 

During 2003, the Companywas notified of a claim by MBM Distributors (MBM) involving amounts alleged tobe owed by the Company to MBM for product delivered on open account andinventory arising our of a distribution agreement.   In December 2003,MBM filed suit in Federal

 

10

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District Court in NorthCarolina seeking damages of an amount in excess of $800,000.  The claim was settled during mediation on April 19,2005.  The Company agreed to pay MBM$365,000 to resolve this claim.

 

**Dickson,Tennessee Claim**

 

In 1994, the Companyentered into a lease agreement for a restaurant premise located in Dickson,Tennessee.  The lease agreement has anoriginal term of 15 years and requires monthly base rental payments of $6,500for the final five years of the lease term. The Company ceased operations of the premises as a restaurant in 1996and subsequently subleased the property. The location has been vacant since September 2001.  In June 2004, the Company advised thelandlord that the Company was surrendering the property.  The landlord is obligated to, and has advisedthe Company that he is attempting to find a replacement tenant.

 

On several occasions, thelandlord has filed Complaints in the General Sessions Court of Dickson,Tennessee alleging default under the lease agreement and seeking collection ofunpaid rent, real estate taxes and attorney’s fees.  The Company has advised the landlordthat it has surrendered the premises, and has put the landlord on notice of thelandlord’s obligation to mitigate any damages. Following the landlord’sinitiation of collection actions in the General Sessions Court of DicksonCounty, Tennessee, the Company paid rent and related costs for the months ofMay, June, July, August, September, and October 2004, but continued toassert that it surrendered the property. The landlord has recently filedseparate collection actions, again in the General Sessions Court in DicksonCounty, Tennessee, to collect rent from November 2004 through April 2005,real estate taxes, and attorney’s fees. The Company has appealed these claims to the court of general record inDickson County, Tennessee, for trial de novo, and the Company will assert adefense of failure to mitigate damages. The Company intends to vigorously contest all claims asserted by the landlord.

 

**Lawrenceville,Georgia Casualty**

 

On July 11, 2004,the building, improvements, and contents located on real property owned by theCompany in Lawrenceville, Georgia were completely destroyed by fire.  As a result of this casualty, the Companyterminated the lease of the tenant operating the restaurant on thesepremises.  Insurance proceeds of $591,000were received in April 2005 and a gain on the casualty of $220,351 hasbeen recorded in other income in the accompanying consolidated statement ofoperations for the three months ended March 31, 2005.  As of March 31, 2005, the insuranceproceeds are recorded in other receivables on the consolidated balance sheet.  The land is currently for sale and managementdoes not anticipate any impairment on this property based on current estimates offair value.  In accordance with the notepayable agreement related to the property, the insurance proceeds were remittedto the Company’s lender on April 8, 2005. The proceeds from the sale of the land will also be remitted to thelender (along with any other necessary payments) to completely retire alloutstanding obligations on this property.

 

**ChubbClaim**

 

In November 2004,Chubb Insurance filed suit in the Circuit Court for the City of Roanoke againstWestern Sizzlin Stores of Virginia, Inc., seeking recovery of allegedlyunpaid premiums in the amount of $97,249. Western Sizzlin Stores of Virginia, Inc. has filed a grounds ofdefense and served discovery.  To date,there has been no response.  If and whenthe requested discovery is answered, the Company will be able to better assessChubb’s claim.  Western Sizzlin Stores ofVirginia, Inc. has never been billed by Chubb and has never had any directcontractual relations with them.

 

**Other**

 

The Company is involvedin various other claims and legal actions arising in the ordinary course ofbusiness.  In the opinion of themanagement, the ultimate disposition of these matters will not have a materialadverse effect on the Company’s financial condition, results of operations orliquidity.

 

11

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**Item 2.   Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

 

**Overview**

 

The following discussionmay include forward-looking statements including anticipated financialperformance, business prospects, the future opening of Company-operated andfranchised restaurants, anticipated capital expenditures, and othermatters.  All statements other thanstatements of historical fact are forward-looking statements.  Section 27A of the Securities Act of 1933(as amended) and Section 21E of the Securities Exchange Act of 1934 (asamended) provide safe harbors for forward-looking statements.  In order to comply with the terms of thesesafe harbors, the Company notes that a variety of factors, individually or inthe aggregate, could cause the Company’s actual results and experience todiffer materially from the anticipated results or other expectations expressedin the Company’s forward-looking statements including, without limitation, thefollowing: the ability of the Company or its franchises to obtain suitablelocations for restaurant development; consumer spending trends and habits;competition in the restaurant segment with respect to price, service, location,food quality and personnel resources; weather conditions in the Company’soperating regions; laws and government regulations; general business andeconomic conditions; availability of capital; success of operating initiativesand marketing and promotional efforts; and changes in accounting policies.  In addition, the Company disclaims any intentor obligation to update those forward-looking statements.

 

The Company operated andfranchised a total of 152 restaurants located in 21 states, including 6Company-owned and 146 franchise restaurants as of March 31, 2005.  The restaurants include a family steakhouseconcept and a steak and buffet concept.

 

###### **Results ofOperations**

 

Net lossfor the three months ended March 31, 2005 was $(66,581) compared to netincome of $161,902 for the three months ended March 31, 2004.

 

The following table setsforth for the periods presented the percentage relationship to total revenuesof certain items included in the consolidated statements of income and certainrestaurant data for the periods presented:

 
| ** **                              | ** ** | **Three Months  Ended March 31,** | ** ** |
|-----------------------------------------|------------|----------------------------------------|------------|
| ** **                              | ** ** | **2005**                               | ** ** | **2004** | ** ** |
| Revenues:                               |       |                                   |       |   |   |
| Company-operated restaurants            |       | 75.8                                   | %          | 76.3 | % |
| Franchise royalties and fees            |       | 21.9                                   |       | 21.8 |   |
| Other sales                             |       | 2.3                                    |       | 1.9 |   |
| Total revenues                          |       | 100.0                                  |       | 100.0 |   |
|                                    |       |                                   |       |   |   |
| Cost of company-operated restaurants    |       | 51.6                                   |       | 52.2 |   |
| Cost of franchise operations            |       | 10.0                                   |       | 9.3 |   |
| Other cost of operations                |       | 1.9                                    |       | 1.5 |   |
| Restaurant operating expenses           |       | 18.3                                   |       | 17.6 |   |
| General and administrative              |       | 10.6                                   |       | 8.0 |   |
| Depreciation and amortization           |       | 5.6                                    |       | 5.6 |   |
| Closed store expenses                   |       | 7.1                                    |       |   |   |
| Total costs and expenses                |       | 105.1                                  |       | 94.2 |   |
|                                    |       |                                   |       |   |   |
| (Loss) income from operations           |       | (5.1                                   | )          | 5.8 |   |
|                                    |       |                                   |       |   |   |
| Other income (expense)                  |       | 3.0                                    |       | (0.8 | ) |
| Income (loss) before income tax expense |       | (2.1                                   | )          | 5.0 |   |
|                                    |       |                                   |       |   |   |
| Income tax expense (benefit)            |       | (.7                                    | )          | 1.9 |   |
| Net income (loss)                       |       | (1.4%                                  | )          | 3.1 | % |

 

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| ** **                              | ** ** | **Three Months  Ended March 31,** | ** ** |
|-----------------------------------------|------------|----------------------------------------|------------|
| ** **                              | ** ** | **2005**                               | ** ** | **2004** | ** ** |
| **Restaurant Data**                     |       |                                   |       |   |   |
| Number of Company-Operated Restaurants: |       |                                   |       |   |   |
| Beginning of period                     |       | 7                                      |       | 7 |   |
| Opened                                  |       | —                                 |       | — |   |
| Closed                                  |       | 1                                      |       | — |   |
| Franchised                              |       | —                                 |       | — |   |
| End of period                           |       | 6                                      |       | 7 |   |
|                                    |       |                                   |       |   |   |
| Number of U.S. Franchised Restaurants:  |       |                                   |       |   |   |
| Beginning of period                     |       | 147                                    |       | 161 |   |
| Opened                                  |       | —                                 |       | 1 |   |
| Closed                                  |       | (1                                     | )          | (3 | ) |
| End of period                           |       | 146                                    |       | 159 |   |

 

**Revenues**

 

Company-operatedrestaurant revenues decreased $230,600 (5.8%) to $3.7 million for the three monthsended March 31, 2005 as compared to $4.0 million for the comparable three monthsended March 31, 2004.  The decreasewas largely attributable to the closing of a Company-operated location inFebruary, 2005, totaling approximately $180,000 in lost revenues over priorperiod.  The additional decrease over theprior year is due to weather-related closings in January and February of2005.  March 2005 revenues for Company-operatedrestaurants were approximately 3% over the prior year.  Same store sales for the three months ended March 31,2005, experienced an overall decrease of 1.3%.

 

Franchiseand other revenues decreased 3.5% to $1.2 million for the three-months ended March 31,2005 as compared to $1.2 million for the comparable three months ended March 31,2004.  The decrease was attributable tofewer franchised units in the system at March 31, 2005 as compared to March 31,2004.  System-wide sales for thefranchise system for the three months ended March 31, 2005 were $54.0million compared to $56.7 million for the same period in 2004.  Same store sales for the three months ended March 31,2005 decreased 0.48% over 2004.

 

###### **Costs and Expenses**

 

Costof Company-operated restaurants, consisting primarily of food, beverage, andemployee costs decreased $170,500 (6.3%) to $2.6 million for the three monthsended March 31, 2005 from $2.7 million for the three months ended March 31,2004.  These costs decreased as apercentage of total revenues from 52.2% in 2004 to 51.6% in 2005.   The decrease in the costs were largely attributableto the closing of a Company-operated location in February 2005 and decreasesin labor costs by monitoring staffing requirements more effectively.

 

Costof franchise operations and other cost of operations were $583,000 (11.8%) forthe three months ended March 31, 2005 compared to $561,000 (10.8%) in 2004.The increase was attributable to increased spending in growth projects for 2005including consumer research of $2,000, prototype plan development of $18,000and franchise consulting costs of $6,000 associated with evaluation of theCompany’s current systems.

 

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Restaurantoperating expenses, which include utilities, insurance, maintenance, rent andother such costs of theCompany-operated restaurants, decreased slightly by $12,000 (1.3%) for thethree months ended March 31, 2005 versus the prior year’s comparableperiod. These expenses as a percentage of total revenues increased to 18.3% in2005 compared to 17.6% in 2004 for the comparable period.  The decrease was attributable to closing a Company-operatedlocation in February 2005.

 

Forthe three months ended March 31, 2005 and 2004, general and administrativeexpenses were $526,000 and $415,000, respectively and as a percentage of totalrevenue were 10.6% and 8.0%, respectively. The increase was primarily due tolegal fees associated with litigation matters during the first quarter of 2005.

 

Depreciationand amortization expense was $21,600 (7.2%) less for the three months ended March 31,2005 versus the three months ended March 31, 2004.  The decreases were attributable to certainproperty and equipment becoming fully depreciated.

 

Closedstore expenses were $350,000 (7.1%) for the three months ended March 31,2005.  These expenses included impairmentof $128,000 associated with the end of a subleased property due to a buyout ofthe lease and impairments related to the closing of a Company-operatedrestaurant of $222,000 in February 2005.

 

**OtherIncome (Expense)**

 

Interest expensedecreased $11,700 for the three months ended March 31, 2005 versus thethree months ended March 31, 2004 due to a lower average principaloutstanding balance.  Interest incomefluctuates according to the levels of available cash balances.  The Company employs a cash management systemwhereby available balances are invested on an overnight basis.

 

Other income increased$182,000 (3.7%) for the three months ended March 31, 2005 versus the threemonths ended March 31, 2004 due largely to a gain on the Lawrenceville,Georgia casualty of $220,000.

 

Income tax expense isdirectly affected by the levels of pretax income. The Company’s effective taxrate was 35.4% and 38.0% for the three months ended March 31, 2005 and 2004,respectively.

 

###### **Liquidity and Capital Resources**

 

As is customary in therestaurant industry, the Company has historically operated with negativeworking capital.  Historically, theCompany has leased the majority of its restaurants and through a strategy ofcontrolled growth has financed operations from operating cash flows, theutilization of the Company’s line of credit and long-term debt provided by variouslenders.  The Company had a positiveworking capital of $2.3 million and $1.5 million at March 31, 2005 and December 31,2004, respectively.

 

Cash flows provided byoperating activities were $309,000 in 2005 compared to $819,000 in 2004. During2004, cash flows provided by operating activities were primarily due to netincome of $162,000 and depreciation and amortization of $300,000, decrease inother assets of $110,000 due to sale of an asset, a note payable of $115,000issued as part of settlement of a litigation matter, increase in accountspayable and accrued expenses of $128,000 offset by increases in prepaidexpenses of $125,000. During 2005, cash flows provided by operations wereprimarily due to net loss of $(66,581) and depreciation and amortization of$278,000, loss on sale/disposal of property and equipment $349,741, offset byincrease in trade accounts receivable and other receivables of $697,000. Netcash used in investing activities of $35,000 in 2005 and $38,000 in 2004, wasfor capital expenditures related to property and equipment.  Net cash used in financing activities of $136,000in 2005 and $131,000 in 2004 was for payments on long-term debt.

 

Management believes thatthe Company’s short-term cash requirements will include possible settlements ofcertain legal proceedings, a capital contribution related to a planned jointventure

 

14

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for development of abuffet concept restaurant, and capital improvements to Company-operatedrestaurants.

 

The Company utilizes itsexisting line of credit to provide short-term funding in addition to cash fromoperations.  Management reviews availablefinancing alternatives to provide cash for future expansion, restructureexisting debt, and provide additional working capital; however, managementbelieves existing financing will provide adequate funding for cashrequirements.

 

# **CRITICALACCOUNTING POLICIES**

 

## **Franchise Revenue**

##  

Initialfranchise fees are recognized when all material services have beensubstantially performed by the Company and the restaurant has opened forbusiness.  Franchise royalties, which arebased on a percentage of monthly sales, are recognized as income on the accrualbasis.  Costs associated with franchiseoperations are recognized on the accrual basis.

 

## **Accounts and Notes Receivable and Allowance forDoubtful Accounts**

##  

Inconnection with franchise fees charged to our franchisees, we have accounts andnotes receivable outstanding from our franchisees at any given time.  We review outstanding accounts and notesreceivable monthly and record allowances for doubtful accounts as deemedappropriate for certain individual franchisees. In determining the amount of allowance for doubtful accounts to berecorded, we consider the age of the receivable, the financial stability of thefranchisee, discussions that may have been had with the franchisee and ourjudgement as to the overall collectibility of the receivable from thatfranchisee.

 

**FranchiseRoyalty Contracts**

 

Franchiseroyalty contracts are amortized on a straight-line basis over fifteen years,the estimated average life of the franchise agreements.  The Company assesses the recoverability ofthis intangible asset by determining whether the amortization of the franchiseroyalty contracts balance over their remaining life can be recovered throughundiscounted future operating cash flows of the acquired operation.  The amount of impairment, if any, is measuredbased on projected discounted future operating cash flows using a discount ratereflecting the Company’s average cost of funds.

 

**Goodwill**

 

Goodwill represents theexcess of purchase price over fair value of net assets of businesses acquired.  Goodwill and intangible assets acquired in apurchase business combination and determined to have an indefinite useful lifeare not amortized, but instead tested for impairment at least annually.

 

**OTHER**

 

###### **Impact of Inflation**

 

Theimpact of inflation on the costs of food and beverage products, labor and realestate can affect the Company’s operations. Over the past few years, inflation has had a lesser impact on theCompany’s operations due to the lower rates of inflation in the nation’seconomy and economic conditions in the Company’s market areas.

 

Managementbelieves the Company has historically been able to pass on increased coststhrough certain selected menu price increases and has offset increased costs byincreased productivity and purchasing efficiencies, but there can be noassurance that the Company will be able to do so in the future.  Management anticipates that the average cost ofrestaurant real estate leases and construction cost could increase in thefuture which could affect the Company’s ability to expand.  In addition, mandated health care oradditional increases in the federal or state minimum wages could significantlyincrease the Company’s costs of doing business.

 

15

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##### **Impact of Recently Issued Accounting Standards**

 

In December 2004, the Financial AccountingStandards Board (“FASB”) issued Statement 123 (revised 2004), *Share-Based**Payment*(Statement123(R)).  This Statement is a revision toStatement 123, *Accounting for Stock-Based Compensation*,and supersedes Opinion 25, *Accounting for StockIssued to Employees*. Statement 123(R) requires the measurement of the cost of employeeservices received in exchange for an award of equity instruments based on thegrant-date fair value of the award.  Thecost will be recognized over the period during which an employee is required toprovide service in exchange for the award. No compensation cost is recognized for equity instruments for whichemployees do not render service.  TheCompany will adopt Statement 123(R) on January 1, 2006, requiringcompensation cost to be recognized as expense for the portion of outstandingunvested awards, based on the grant-date fair value of those awards calculatedusing the Black-Scholes option pricing model under Statement 123 for pro formadisclosures.  Although management iscurrently evaluating the impact of Statement 123(R), the Company does not expectthat the adoption of Statement 123(R) will have a material impact on optionsoutstanding at March 31, 2005. However, Statement 123(R) will likely have a material impact on theCompany’s financial statements to the extent options are issued in the future.

 

As of March 31, 2005,there were no other new accounting standards issued but not yet adopted by theCompany, which are expected to be applicable to the Company’s consolidatedfinancial position, operating results or financial statement disclosures.

 

**Item 3.    Quantitative and Qualitative Disclosure about Market Risk**

 

The Company does notengage in derivative financial instruments or derivative commodityinstruments.  As of March 31, 2005,the Company’s financial instruments were not exposed to significant market riskdue to foreign currency exchange risk. The Company is exposed to market risk related to interest rates, as wellas increased prices in restaurant industry commodities such as beef.

 

Thetable below provides information about the Company’s debt obligations that aresensitive to changes in interest rates. The table presents principal cash flows and related weighted averageinterest rates by expected maturity dates.

 

Debtobligations held for other than trading purposes at March 31, 2005 (dollarsin thousands):

 

#### EXPECTED MATURITY DATE

 
| ** **             | ** ** | **2005** | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **Thereafter** | ** ** | **Total** | ** ** | **Estimated  Fair Value** | ** ** |
|------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------------|------------|-----------|------------|---------------------------|------------|
| Long-term debt         |       |     |       |     |       |     |       |     |       |     |       |           |       |      |       |                      |       |
| Fixed Rate             |       | $        | 820        |     | $          | 450      |       | $        | 333        |     | $          | 285            |       | $         | 315        |                      | $          | 1,198 |   | $ | 3,401 |   | $ | 3,671 |   |
| Average Interest  Rate |       | 9.99     | %          | 9.95     | %          | 10.01    | %          | 10.07    | %          | 10.07    | %          | 10.07          | %          | 10.00     | %          |                      |       |
|                        |            |          |            |          |            |          |            |          |            |          |            |                |            |           |            |                           |            |  |  |  |  |  |  |  |  |

 

**Item 4.  Controls and Procedures**

 

**Senior management, including the Chief Executive Officerand Chief Financial Officer, evaluated the effectiveness of the Company’sdisclosure controls and procedures as of March 31, 2005.  Based on this evaluation process, the ChiefExecutive Officer and Chief Financial Officer have concluded that the Company’sdisclosure controls and procedures are effective to ensure that informationrequired to be disclosed in reports filed and submitted under the SecuritiesExchange Act of 1934 (as amended) is recorded, processed, summarized andreported within the time periods specified in the SEC’s rules andforms.  Additionally, there have been nochanges in the Company’s internal control over financial reporting thatoccurred during the last fiscal quarter that have materially affected, or arereasonable likely to materially affect, the Company’s internal control overfinancial reporting.**

 

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# **PART II.OTHER INFORMATION**

 

Item 1.    LegalProceedings

 

In addition to thoseproceedings discussed in the Company’s consolidated financial statementsincluded in Item 1, Part 1, the Company is involved in various otherclaims and legal actions arising in the ordinary course of business.  In the opinion of the management, theultimate disposition of these other matters will not have a material adverseeffect on the Company’s financial condition, results of operations orliquidity.

 

Item 6.  Exhibits and Reports on Form 8-K–

See Exhibit Indexon page 19.

 

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# **SIGNATURES**

# ** **

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned hereuntoduly authorized.

 

 
|   | **Western Sizzlin Corporation**             |
|--------|---------------------------------------------|
|   | By:                                         | */s/ James C. Verney* |   |
|   | James C. Verney                             |
|   | President and  Chief Executive Officer      |
|   |                                        |
|   | By:                                         | */s/ Robyn B. Mabe* |   |
|   | Robyn B. Mabe                               |
|   | Vice President  and Chief Financial Officer |
|        |                                             |  |  |  |

 

Date:  May 16, 2005

 

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**EXHIBIT INDEX**

** **

31.1                           Certificationof Chief Executive Officer pursuant to Rule 13a-14(a).

 

31.2                           Certificationof Chief Financial Officer pursuant to Rule 13a-14(a).

 

32.1                           Certificationof Chief Executive Officer pursuant to 18 U.S.C. Section 1350.

 

32.2         Certification of Chief FinancialOfficer pursuant to 18 U.S.C. Section 1350.

 

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