UNITED STATES
 SECURITIES AND EXCHANGE
COMMISSION
 Washington, D.C.
20549
 
 FORM 10-Q
 
 (Mark
One)
 
 xQUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 
 For the
quarterly period ended September 30,
2009
  or
 
 oTRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 
 For the
transition period from 
to
 
 Commission File Number:
001-13650
 
 Western Sizzlin Corporation(Exact
      name of registrant as specified in its
charter)
 
 Delaware
                  86-0723400(State
      or other jurisdiction of incorporation or organization)
                  (I.R.S.
      Employer Identification
No.)
 
 401
      Albemarle Ave SE, Roanoke, Virginia
              24013(Address
      of principal executive offices)
              (Zip
      Code)
 
 (540)
      345-3195(Registrant’s
      telephone number, including area code)(Former
      name, former address and former fiscal year, if changed since last
      report)
 
 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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).    
Yes o    
No o
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. 
(Check one):
  Large
      accelerated filer  ̈
                Accelerated
      filer  ̈Non-accelerated
      filer  ̈ (Do
      not check if a smaller reporting company)
                Smaller
      reporting company x
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).     Yes o    No
x


Western
Sizzlin Corporation
 
 Form 10-Q
 Nine
Months Ended September 30, 2009
 Table of Contents
 
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Consolidated Balance Sheets — September 30, 2009 and
      December 31, 2008
              
              3Consolidated Statements of Operations — Three Months and Nine
      Months Ended September 30, 2009 and 2008
              
              4Consolidated Statement of Changes in Stockholders’ Equity —
      Nine Months Ended September 30, 2009
              
              5Consolidated Statements of Cash Flows — Nine Months Ended
      September 30, 2009 and 2008
              
              6Notes to Consolidated Financial
    Statements
              
              7-21Item 2. Management’s Discussion and Analysis of Financial
      Condition and Results of Operations
              
              21-29Item 3. Quantitative and Qualitative Disclosure about Market
      Risk
              
              29-30Item 4. Controls and Procedures
              
              30PART II. OTHER INFORMATIONItem 1. Legal Proceedings
              
              30Item 1.A. Risk Factors
              
              31Item 4. Submission of Matters to a Vote of Security
      Holders
              
              31Item 6. Exhibits
              
              32Signatures
              
              33
  2
 Table of Contents
  PART I. FINANCIAL INFORMATION
 WESTERN
SIZZLIN CORPORATION
  Item 1.  Fianancial Statements
(Unaudited)
 Consolidated Balance Sheets
 September
30, 2009 and December 31, 2008
 
 September
      30,
                2009
              
              
              December 31,
                2008(unaudited)AssetsCurrent
      assets:Cash
      and cash equivalents
              
              $
              1,538,840
              
              
              $
              330,998Money
      market investments
              
              
              2,176,728
              
              
              
              3,735,821Trade
      accounts receivable, net of allowance for doubtful accounts of $486,551 in
      2009and
      $339,752 in 2008
              
              
              963,804
              
              
              
              1,064,389Current
      installments of notes receivable, less allowance for impaired notes of
      $62,926 in 2009 and 2008
              
              
              250,731
              
              
              
              198,912Other
      receivables
              
              
              68,792
              
              
              
              78,982Income
      taxes receivable
              
              
              82,066
              
              
              
              98,362Inventories
              
              
              69,327
              
              
              
              59,126Prepaid
      expenses
              
              
              205,465
              
              
              
              133,785Deferred
      income taxes
              
              
              380,959
              
              
              
              494,926Total
      current assets
              
              
              5,736,712
              
              
              
              6,195,301Notes
      receivable, less allowance for impaired notes receivable of $6,980 in 2009
      and 2008, excluding current installments
              
              
              345,771
              
              
              
              449,990Property
      and equipment, net
              
              
              1,220,565
              
              
              
              1,500,149Investment
      in real estate
              
              
              3,745,152
              
              
              
              3,745,152Investments
      in marketable securities
              
              
              1,156,553
              
              
              
              727,721Investments
      in marketable securities held by limited partnerships
              
              
              28,538,208
              
              
              
              15,980,758Intangible
      assets, net of accumulated amortization of $169,089  in 2009 and
      $73,762 in 2008
              
              
              1,250,911
              
              
              
              1,346,238Goodwill
              
              
              4,995,262
              
              
              
              4,995,262Financing
      costs, net of accumulated amortization of $195,641  in 2009 and
      $194,639 in 2008
              
              
              4,570
              
              
              
              5,572Investment
      in unconsolidated joint venture
              
              
              294,156
              
              
              
              304,695Deferred
      income taxes
              
              
              —
              
              
              
              665,805Other
      assets
              
              
              39,469
              
              
              
              36,180$
              47,327,329
              
              
              $
              35,952,823Liabilities
      and Stockholders’ EquityCurrent
      liabilities:Note
      payable — line of credit
              
              $
              100,000
              
              
              $
              —Current
      installments of long-term debt
              
              
              2,495,478
              
              
              
              373,925Accounts
      payable
              
              
              621,423
              
              
              
              812,839Accrued
      expenses and other
              
              
              1,245,350
              
              
              
              1,423,092Total
      current liabilities
              
              
              4,452,251
              
              
              
              2,609,856Long-term
      debt, excluding current installments
              
              
              366,611
              
              
              
              2,833,587Other
      long-term liabilities
              
              
              1,419,809
              
              
              
              1,208,147Deferred
      income taxes
              
              
              123,924
              
              
              
              —6,372,595
              
              
              
              6,651,590Redeemable
      noncontrolling interests
              
              
              14,519,875
              
              
              
              11,288,681Stockholders’
      Equity:Common
      stock, $0.01 par value.  Authorized 10,000,000 shares; issued and
      outstanding 2,840,384 in 2009 and 2,831,884
    in 2008
              
              
              28,405
              
              
              
              28,320Treasury
      stock, at cost, 9,099 shares in 2009 and 2008
              
              
              (90,583
              )
              
              
              (90,583
              )Additional
      paid-in capital
              
              
              22,296,562
              
              
              
              22,235,872Retained
      earnings (accumulated deficit)
              
              
              4,426,932
              
              
              
              (3,376,054
              )Accumulated
      other comprehensive loss — unrealized holding losses
              
              
              (226,457
              )
              
              
              (785,003
              )Total
      stockholders’ equity
              
              
              26,434,859
              
              
              
              18,012,552$
              47,327,329
              
              
              $
              35,952,823
 
 See
accompanying notes to consolidated financial statements.
  3
 Table of Contents
  WESTERN
SIZZLIN CORPORATION
 
 Consolidated Statements of Operations
 Three
Months and Nine Months Ended September 30, 2009 and 2008
 (Unaudited)
  Three Months Ended
              
              
              Nine Months EndedSeptember 30,
              
              
              September 30,2009
              
              
              2008
              
              
              2009
              
              
              2008Revenues:Company-operated
      restaurants
              
              $
              3,350,238
              
              
              $
              3,434,035
              
              
              $
              10,064,358
              
              
              $
              10,050,437Franchise
      operations
              
              
              843,528
              
              
              
              1,001,102
              
              
              
              2,695,286
              
              
              
              3,122,179Total
      revenues
              
              
              4,193,766
              
              
              
              4,435,137
              
              
              
              12,759,644
              
              
              
              13,172,616Costs
      and expenses — restaurant and franchise operations:Company-operated
      restaurants — food, beverage and labor costs
              
              
              2,443,975
              
              
              
              2,607,642
              
              
              
              7,376,467
              
              
              
              7,410,127Restaurant
      occupancy and other
              
              
              606,915
              
              
              
              629,125
              
              
              
              1,740,383
              
              
              
              1,762,936Franchise
      operations — direct support
              
              
              211,898
              
              
              
              309,570
              
              
              
              696,241
              
              
              
              923,491Subleased
      restaurant property expenses
              
              
              —
              
              
              
              362,766
              
              
              
              —
              
              
              
              427,257Corporate
      expenses
              
              
              359,858
              
              
              
              725,693
              
              
              
              1,210,077
              
              
              
              1,641,389Depreciation
      and amortization expense
              
              
              93,057
              
              
              
              258,062
              
              
              
              286,205
              
              
              
              786,676Corporate
      litigation fees and expenses
              
              
              5,225
              
              
              
              4,056
              
              
              
              35,413
              
              
              
              162,820Total
      costs and expenses — restaurant and franchise operations
              
              
              3,720,928
              
              
              
              4,896,914
              
              
              
              11,344,786
              
              
              
              13,114,696Equity
      in income of joint venture
              
              
              80,309
              
              
              
              43,258
              
              
              
              219,462
              
              
              
              150,585Income
      from restaurant and franchise operations
              
              
              553,147
              
              
              
              (418,519
              )
              
              
              1,634,320
              
              
              
              208,505Investment
      advisory fee income
              
              
              101,600
              
              
              
              124,024
              
              
              
              286,710
              
              
              
              124,024Net
      realized gains (losses) on sales of marketable securities
              
              
              588,293
              
              
              
              24,122
              
              
              
              1,123,815
              
              
              
              (15,730
              )Net
      unrealized gains (losses) on marketable securities held by limited
      partnerships
              
              
              5,482,399
              
              
              
              3,255,469
              
              
              
              8,931,320
              
              
              
              (3,187,655
              )Amortization
      expense – investment operations
              
              
              (33,810
              )
              
              
              —
              
              
              
              (95,327
              )
              
              
              —Reimbursements
      (expenses) of investment activities, including interest
      of  $16,706 and $30,374 for the three month periods and $49,272
      and $84,060 for the nine month periods ended September 30, 2009 and
      2008, respectively
              
              
              (212,008
              )
              
              
              174,318
              
              
              
              (475,547
              )
              
              
              (794,355
              )Purchase
      obligation adjustment
              
              
              (253,416
              )
              
              
              —
              
              
              
              (245,773
              )
              
              
              —Income
      (loss) from investment operations
              
              
              5,673,058
              
              
              
              3,577,933
              
              
              
              9,525,198
              
              
              
              (3,873,716
              )Other
      income (expense):Interest
      expense
              
              
              (14,100
              )
              
              
              (15,827
              )
              
              
              (45,566
              )
              
              
              (70,022
              )Interest
      income
              
              
              32,491
              
              
              
              69,801
              
              
              
              103,702
              
              
              
              102,168Other,
      net
              
              
              (478
              )
              
              
              (74
              )
              
              
              28,670
              
              
              
              118Total
      other income, net
              
              
              17,913
              
              
              
              53,900
              
              
              
              86,806
              
              
              
              32,264Income
      (loss) before income tax expense (benefit)
              
              
              6,244,118
              
              
              
              3,213,314
              
              
              
              11,246,324
              
              
              
              (3,632,947
              )Income
      tax expense (benefit):Current
              
              
              11,537
              
              
              
              (19,877
              )
              
              
              34,751
              
              
              
              (5,256
              )Deferred
              
              
              673,062
              
              
              
              (57,966
              )
              
              
              1,033,414
              
              
              
              (161,005
              )Total
      income tax expense (benefit)
              
              
              684,599
              
              
              
              (77,843
              )
              
              
              1,068,165
              
              
              
              (166,261
              )Net
      income (loss)
              
              
              5,559,519
              
              
              
              3,291,157
              
              
              
              10,178,159
              
              
              
              (3,466,686
              )(Income)
      losses attributable to redeemable noncontrollinginterests
              
              
              (1,981,057
              )
              
              
              (351,444
              )
              
              
              (2,375,173
              )
              
              
              599,384Net
      income (loss) attributable to Western Sizzlin Corporation
              
              $
              3,578,462
              
              
              $
              2,939,713
              
              
              $
              7,802,986
              
              
              $
              (2,867,302
              )Earnings
      (loss) per share (basic and diluted):Net
      income (loss) attributable to Western Sizzlin Corporation –
      basic
              
              $
              1.26
              
              
              $
              1.04
              
              
              $
              2.75
              
              
              $
              (1.04
              )Net
      income (loss) attributable to Western Sizzlin Corporation –
      diluted
              
              $
              1.26
              
              
              $
              1.04
              
              
              $
              2.75
              
              
              $
              (1.04
              )
 
 See
accompanying notes to consolidated financial statements.
  4
 Table of Contents
  WESTERN
SIZZLIN CORPORATION
 
 Consolidated Statement of Changes in Stockholders’
Equity
 Nine
Months Ended September 30, 2009
 (Unaudited)
  Common stock
                
                
                Treasury stock
                
                
                Additional
                  Paid-
                
                
                Retained
                  Earnings
                  (Accumulated
                
                
                Accumulated
                  Other
                  ComprehensiveShares
                
                
                Dollars
                
                
                Shares
                
                
                Dollars
                
                
                in Capital
                
                
                Deficit)
                
                
                Income (Loss)
                
                
                TotalBalances,
      December31,
      2008
                
                
                2,831,884
                
                
                $
                28,320
                
                
                
                9,099
                
                
                $
                (90,583
                )
                
                $
                22,235,872
                
                
                $
                (3,376,054
                )
                
                $
                (785,003
                )
                
                $
                18,012,552Net
      income attributable to Western Sizzlin Corporation
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                7,802,986
                
                
                
                —
                
                
                
                7,802,986Change
      in unrealized holding  losses, net of tax benefit of
      $129,718
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                558,546
                
                
                
                558,546Comprehensive
      incomeStock
      options exercised
                
                
                8,500
                
                
                
                85
                
                
                
                —
                
                
                
                —
                
                
                
                60,690
                
                
                
                —
                
                
                
                —
                
                
                
                60,775Balances,
      September 30,2009
                
                
                2,840,384
                
                
                $
                28,405
                
                
                
                9,099
                
                
                $
                (90,583
                )
                
                $
                22,296,562
                
                
                $
                4,426,932
                
                
                $
                (226,457
                )
                
                $
                26,434,859
 See
accompanying notes to consolidated financial statements.
  5
 Table of Contents
  WESTERN
SIZZLIN CORPORATION
 
 Consolidated Statements of Cash Flows
 Nine
Months Ended September 30, 2009 and 2008
 (Unaudited)
 Nine Months EndedSeptember
      30,2009
              
              
              2008Cash
      flows from operating activities:Net
      income (loss)
              
              $
              10,178,159
              
              
              $
              (3,466,686
              )Adjustments
      to reconcile net income (loss) to net cash provided by (used in) operating
      activities:Restaurant
      and franchise activities:Depreciation
      and amortization of property and equipment
              
              
              284,165
              
              
              
              311,447Amortization
      of franchise royalty contracts and other assets
              
              
              —
              
              
              
              472,722Amortization
      of finance costs
              
              
              1,002
              
              
              
              2,507Provision
      for doubtful accounts
              
              
              153,000
              
              
              
              90,580Equity
      in income of unconsolidated joint venture, net of
      distributions
                of
      $230,000 in 2009 and $150,000 in 2008
              
              
              10,539
              
              
              
              (585
              )Provision
      for deferred income taxes (benefit)
              
              
              1,033,414
              
              
              
              (206,303
              )(Increase)
      decrease in current assets and other assets
              
              
              (58,699
              )
              
              
              138,866Increase
      (decrease) in current liabilities and other liabilities
              
              
              (359,485
              )
              
              
              495,8471,063,936
              
              
              
              1,305,081Investment
      operations:Change
      in money market investments
              
              
              1,559,093
              
              
              
              970,521Realized
      (gains) losses on sales of marketable securities, net
              
              
              (1,123,815
              )
              
              
              15,730Unrealized  (gains)
      losses on marketable securities, net
              
              
              (8,931,320
              )
              
              
              3,187,655Amortization
      expense of investment management customer relationships
              
              
              95,327
              
              
              
              —Proceeds
      from sales of marketable securities held by limited
      partnerships
              
              
              8,314,505
              
              
              
              4,293,837Purchases
      of marketable securities
              
              
              (10,816,824
              )
              
              
              (5,943,630
              )Decrease
      in due to broker
              
              
              —
              
              
              
              (290,411
              )Change
      in purchase obligation
              
              
              245,773
              
              
              
              (18,275
              )Provision
      for deferred income taxes
              
              
              —
              
              
              
              45,298Decrease
      in current liabilities
              
              
              —
              
              
              
              (128,807
              )(10,657,261
              )
              
              
              2,131,918Net
      cash provided by (used in) operating activities
              
              
              584,834
              
              
              
              (29,687
              )Cash
      flows from investing activities:Additions
      to property and equipment
              
              
              (4,581
              )
              
              
              (22,505
              )Purchases
      of marketable securities
              
              
              —
              
              
              
              (803,314
              )Purchase
      of Mustang Capital Advisors, LP, net of cash acquired of
      $10,219
              
              
              —
              
              
              
              (379,872
              )Net
      cash used in investing activities
              
              
              (4,581
              )
              
              
              (1,205,691
              )Cash
      flows from financing activities:Cash
      received from exercise of stock options
              
              
              60,775
              
              
              
              165,148Proceeds
      from issuance of long-term debt
              
              
              —
              
              
              
              2,641,220Payments
      on long-term debt
              
              
              (345,423
              )
              
              
              (92,954
              )Proceeds
      from (payments on) line of credit borrowings, net
              
              
              100,000
              
              
              
              (2,000,000
              )Capital
      contributions from  noncontrolling interests
                in
      limited partnerships, net
              
              
              812,237
              
              
              
              540,000Net
      cash provided by financing activities
              
              
              627,589
              
              
              
              1,253,414Net
      increase in cash and cash equivalents
              
              
              1,207,842
              
              
              
              18,036Cash
      and cash equivalents at beginning of the period
              
              
              330,998
              
              
              
              727,378Cash
      and cash equivalents at end of the period
              
              $
              1,538,840
              
              
              $
              745,414Supplemental
      disclosure of cash flow information:Cash
      payments for interest
              
              $
              95,433
              
              
              $
              154,848Income
      taxes paid, net of refunds
              
              $
              19,884
              
              
              $
              27,508Non-cash
      investing and financing activities:Gross
      unrealized (gains) losses from marketable equity
securities
              
              $
              428,828
              
              
              $
              —Issuance
      of common stock for marketable securities
              
              $
              —
              
              
              $
              800,744Issuance
      of common stock for ownership interest in Mustang Capital Advisors,
      LP
              
              $
              —
              
              
              $
              855,548
 
 See
accompanying notes to consolidated financial statements.
 6
 Table of Contents
  WESTERN
SIZZLIN CORPORATION
 
 Notes to Consolidated Financial Statements
 Nine
Months Ended September 30, 2009 and 2008
 (Unaudited)
 
 (1)
              Introduction
      and Basis of Presentation
 
 Western
Sizzlin Corporation is a holding company which owns a number of subsidiaries,
with its primary business activities conducted through Western Sizzlin Franchise
Corporation and Western Sizzlin Stores, Inc, which franchise and operate
restaurants. Financial decisions are centralized at the holding company level,
and management of operating businesses is decentralized at the business unit
level. The Company’s prime objective centers on achieving above-average returns
on capital in pursuit of maximizing the eventual net worth of its stockholders.
While the Company has historically been principally engaged, and intends at this
time to remain principally engaged, in franchising and operating restaurants, it
has recently made selective investments in other companies. At September 30,
2009, the Company had 96 franchised, 5 Company-operated and 1 joint venture
restaurants operating in 19 states.
 
 The
consolidated financial statements include the accounts of Western Sizzlin
Corporation and its wholly-owned subsidiaries, Western Sizzlin Franchise
Corporation, The Western Sizzlin Stores, Inc., Western Sizzlin Stores of
Little Rock, Inc., Austins of Omaha, Inc., Western
Investments, Inc., Western Properties, Inc., a majority-owned limited
partnership, Western Acquisitions, L.P., a solely-owned limited partnership,
Western Real Estate, L.P., Western Mustang Holdings, L.L.C., a majority-owned
limited liability company, Mustang Capital Management, L.L.C., a majority-owned
limited partnership, Mustang Capital Advisors, L.P., and two limited
partnerships, Mustang Capital Partners I, L.P. and Mustang Capital Partners II,
L.P., (collectively the Company). All significant intercompany accounts and
transactions have been eliminated in consolidation.
 
 The
accompanying unaudited consolidated financial statements of Western Sizzlin
Corporation, (the “Company”) have been prepared in accordance with accounting
principles generally accepted in the United States of America for interim
financial reporting information and the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and notes required by accounting principles generally accepted in
the United States of America for complete financial statements. In the opinion
of management, all material reclassifications and adjustments, consisting of
normal recurring accruals, considered necessary for a fair presentation of the
results of operations, financial position and cash flows for each period shown
have been included. The unaudited consolidated financial statements and notes
are presented as permitted by Form 10-Q and do not contain certain
information included in the Company’s annual consolidated financial statements
and notes. For further information, refer to the consolidated financial
statements and notes thereto included in the Company’s annual report on
Form 10-K for the year ended December 31, 2008.
 
 (2)
              Summary
      of Significant Accounting Policies
 
 In June
2009, the Financial Accounting Standards Board (“FASB”) approved its Accounting
Standards Codification (“FASB ASC”) (formerly SFAS No.168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles—a
replacement of FASB Statement No. 162).  The codification is
the source of authoritative GAAP recognized by the FASB to be applied by
nongovernmental entities.  Rules and interpretive releases of the SEC under
authority of federal securities laws are also sources of authoritative GAAP for
SEC registrants.  On the effective date of SFAS No. 168, the codification
supersedes all then-existing non-SEC accounting and reporting standards. 
All other non-grandfathered non-SEC accounting literature not included in the
codification will become nonauthoritative.  The codification is effective
for financial statements issued for interim and annual periods ending after
September 15, 2009 and was adopted by the Company for the periods ended
September 30, 2009.   The codification did not have a material
impact on the consolidated financial statements.
 
 Effective
January 1, 2008, the Company adopted the provisions of FASB ASC 820,
(formerly Statement of Financial Accounting Standards No. 157, Fair Value Measurements) for
financial assets and liabilities.   FASB ASC 820 defines fair
value, establishes a framework for measuring fair value and expands disclosures
about fair value measurements. FASB ASC 820 applies under other accounting
pronouncements that require or permit fair value measurements, the FASB having
previously concluded in those accounting pronouncements that fair value is the
relevant measurement attribute. Accordingly, FASB ASC 820 does not require any
new fair value measurements. In the first quarter of 2009, using the transition
provision contained in FASB ASC 820-10, (formerly FSP FAS 157-2, Effective Date of FASB Statement
157) the Company adopted the guidance in FASB ASC 820 for its
nonfinancial assets and liabilities that are measured on a non-recurring basis.
The nonfinancial assets for which the Company deferred adoption include goodwill
and long-lived assets. As of September 30, 2009, the Company does not have any
significant non-recurring measurements of nonfinancial assets and nonfinancial
liabilities.
  7
 Table of Contents
  In the
first quarter of 2009, the Company adopted FASB ASC 805-10 and FASB ASC
810-10-65 (formerly Statement of Financial Accounting Standards No. 141(R),
Business Combinations,
and Statement of Financial Accounting Standard No. 160, Noncontrolling Interest in
Consolidated Financial Statements, an amendment of ARB No. 51).  FASB
ASC 805-10 and FASB ASC 810-10-65 significantly changed the accounting for and
reporting for business combinations and noncontrolling (minority) interests in
consolidated financial statements. FASB ASC 805-10 and FASB ASC 810-10-65 were
effective for the first fiscal period beginning on or after December 15,
2008.  FASB ASC 805-10 will impact the Company if it completes an
acquisition or obtains additional minority interests after the effective date.
FASB ASC 810-10-65 amends previously issued guidance to establish accounting and
reporting standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. Among other requirements, this statement
requires that the consolidated net income (loss) attributable to the parent and
the noncontrolling interests be clearly identified and presented on the face of
the consolidated statement of operations. The redeemable noncontrolling
interests reported in the consolidated balance sheet represent limited partner
ownership in investment fund subsidiaries consolidated into the Company’s
financial statements. The limited partnership agreements of these funds contain
certain redemption features that are not solely within control of the Company.
As such, in accordance with FASB ASC 480-10 (formerly EITF Topic No. D-98),
the redeemable noncontrolling interests are classified outside of stockholders’
equity in the accompanying consolidated balance sheets. Certain
reclassifications resulting from the adoption of FASB ASC 810-10-65 and FASB ASC
480-10 have been made to the 2008 amounts to conform to the current year’s
presentation.
 
 In the
first quarter of 2009, the Company adopted FASB ASC 815-10-65 (formerly
Statement of Financial Account Standards No. 161, Disclosures about Derivative
Instruments and Hedging Activities—An Amendment of FASB Statement
No. 133). FASB ASC 815-10-65 requires entities to provide greater
transparency about (a) how and why an entity uses derivative instruments,
(b) how derivative instruments and related hedged items are accounted for
and its related interpretations, and (c) how derivative instruments and
related hedged items affect an entity’s financial position, results of
operations, and cash flows. FASB ASC 815-10-65 was effective for fiscal years
and interim periods beginning after November 15, 2008. The adoption of FASB
ASC 815-10-65 did not impact the Company’s consolidated financial
statements.
 
 In the
first quarter of 2009, the Company adopted FASB ASC 350-30 and FASB ASC
275-10-50 (formerly FASB Staff Position No. 142-3, Determination of the Useful Life of Intangible
Assets).  FASB ASC 350-30 and FASB ASC 275-10-50 amend the factors
that should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset and requires enhanced
related disclosures.  The adoption of FASB ASC 350-30 and FASB ASC
275-10-50 did not impact the Company’s consolidated financial
statements.
 
 In the
second quarter of 2009, the Company adopted FASB ASC 820-10-65 (formerly FASB
Staff Position FAS 157-4, “Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly”). FASB ASC
820-10-65 provides additional guidance for estimating fair value when the volume
and level of activity for the asset or liability have significantly decreased
and also includes guidance on identifying circumstances that indicate a
transaction is not orderly for fair value measurements. The adoption of FASB ASC
820-10-65 did not impact the determination of fair value or reporting of its
financial results.
 
 In the
second quarter of 2009, the Company adopted FASB ASC 320-10-65 (formerly FASB
Staff Position FAS 115-2 and FAS 124-2, “Recognition and Presentation of
Other-Than-Temporary Impairments”). This FASB ASC amends
previously issued guidance to make the other-than-temporary impairments guidance
more operational and to improve the presentation of other-than-temporary
impairments in the financial statements. FASB ASC 320-10-65 replaces the
existing requirement that the entity’s management assert it has both the intent
and ability to hold an impaired debt security until recovery with a requirement
that management assert it does not have the intent to sell the security, and it
is more likely than not it will not have to sell the security before recovery of
its cost basis. FASB ASC 320-10-65 provides increased disclosure about the
credit and noncredit components of impaired debt securities that are not
expected to be sold and also requires increased and more frequent disclosures
regarding expected cash flows, credit losses, and an aging of securities with
unrealized losses. Although FASB ASC 320-10-65 does not result in a change in
the carrying amount of debt securities, it does require that the portion of an
other-than-temporary impairment not related to a credit loss for a
held-to-maturity security be recognized in a new category of other comprehensive
income and be amortized over the remaining life of the debt security as an
increase in the carrying value of the security. FASB ASC 320-10-65 was effective
for interim and annual periods ending after June 15, 2009.  The
adoption of FASB ASC 320-10-65 did not have a significant impact on the
determination or reporting of its financial results but did result in additional
disclosures.
  8
 Table of Contents
  In the
second quarter of 2009, the Company adopted FASB ASC 825-10-65 (formerly FASB
Staff Position FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments) (See Note 11).  FASB ASC
825-10-65required
an entity to provide interim disclosure about the fair value of all financial
instruments and to include disclosures related to the methods and significant
assumptions used in estimating those instruments.  FASB ASC 825-10-65
was effective for interim and annual periods ending after June 15,
2009.
 
 In the
second quarter of 2009, the Company adopted the provisions of FASB ASC 855-10,
(formerly SFAS No. 165, Subsequent Events). FASB ASC
855-10 requires management to evaluate subsequent events through the date the
financial statements are either issued, or available to be issued. Companies are
required to disclose the date through which subsequent events have been
evaluated.  FASB ASC 855-10 was effective for interim or annual
financial periods ending after June 15, 2009.  The adoption of FASB
ASC 855-10 did not have a material effect on the Company’s financial statements
and related disclosures.
 
 (3)
              Investments
      in Marketable Securities
 
 Investment
and capital allocation decisions of Western Sizzlin Corporation and Western
Acquisitions, LP are made by Mr. Sardar Biglari, the Company’s Chairman and
Chief Executive Officer.  For investment decisions for Western Sizzlin
Corporation the Board of Directors for Western Sizzlin Corporation has delegated
limited authority including the authority to borrow funds in connection with
making investments in marketable securities or derivative securities at the
holding company level, subject to Board reporting requirements and various
limitations. As of the date of this filing, Mr. Biglari has authority to
manage surplus cash up to $10 million, and in addition, has authority to borrow
a maximum of $5 million. The Company has a margin securities account with a
brokerage firm. The margin account bears interest at the Federal Funds Target
Rate quoted by the Wall Street Journal, plus .5%, or approximately .75% as of
the date of this report, with the minimum and maximum amount of any particular
loan to be determined by the brokerage firm, in its discretion, from time to
time. The margin loan balances at September 30, 2009 and 2008 were $0. The
collateral securing the margin loans are the Company’s holdings in marketable
securities. The minimum and maximum amount of any particular margin may be
established by the brokerage firm, in its discretion, regardless of the amount
of collateral delivered to the brokerage firm, and the brokerage firm may change
such minimum and maximum amounts from time to time.  Mr. Biglari has
full capital allocation decisions over Western Acquisitions, LP.
 
 The
noncontrolling interest holder in Mustang Capital Advisors, LP and Mustang
Capital Management, LLC, has been delegated authority to manage the investments
in these particular Funds.
 
 In the
normal course of business, substantially all of the Company’s securities
transactions, money balances and security positions are transacted with a
broker. The Company is subject to credit risk to the extent any broker with whom
they conduct business is unable to fulfill contractual obligations on their
behalf. The Company monitors the financial conditions of such brokers and does
not anticipate any losses from these counterparties.
 
 ·
              Marketable
      Securities held by Western Sizzlin Corporation (the holding
      company)
 
 Marketable
equity securities held by Western Sizzlin Corporation (the holding company) are
held for an indefinite period and thus are classified as available-for-sale.
Available-for-sale securities are recorded at fair value in Investments in
Marketable Securities on the consolidated balance sheet, with the change in fair
value during the period excluded from earnings and recorded, net of tax, as a
component of other comprehensive income (loss). Substantially all of the
marketable securities held by Western Sizzlin Corporation have been in a
continuous loss position for approximately twelve months as of September 30,
2009.
  9
 Table of Contents
  Following
is a summary of marketable equity securities held by Western Sizzlin Corporation
(the holding company) as of September 30, 2009 and December 31,
2008:
  Cost
                
                
                Gross
                  Unrealized
                  Gains
                
                
                Gross
                  Unrealized
                  Losses
                
                
                Fair ValueSeptember
      30, 2009Itex
      Corporation
                
                $
                1,487,631
                
                
                $
                —
                
                
                $
                (345,817
                )
                
                $
                1,141,814Other
                
                
                25,097
                
                
                
                —
                
                
                
                (10,358
                )
                
                
                14,739$
                1,512,728
                
                
                $
                —
                
                
                $
                (356,175
                )
                
                $
                1,156,553December 
      31, 2008Itex
      Corporation
                
                $
                1,487,631
                
                
                $
                —
                
                
                $
                (771,867
                )
                
                $
                715,764Other
                
                
                25,093
                
                
                
                —
                
                
                
                (13,136
                )
                
                
                11,957$
                1,512,724
                
                
                $
                —
                
                
                $
                (785,003
                )
                
                $
                727,721
 There
were no realized gains or losses from marketable equity securities held by
Western Sizzlin Corporation (the holding company) for the three or nine months
ended September 30, 2009 or 2008.
 
 On a
quarterly basis, the Company performs an assessment to determine whether there
have been any events or economic circumstances to indicate that a marketable
equity security with an unrealized loss has suffered other-than-temporary
impairment, pursuant to FASB ASC 320-10-65 (formerly FSP FAS 115-2 and FAS
124-2).  Western Sizzlin Corporation’s (the holding company)
investments in Itex Corporation account for substantially all of its unrealized
losses at September 30, 2009 and December 31, 2008.  Unrealized losses
on the investments in Itex Corporation did not occur until August 2008. In
management’s judgment, the future earnings potential and underlying business
economics are favorable and the Company intends to hold this position for the
long term.
 
 ·
              Marketable
      Securities held by Western Acquisitions,
  LP
 
 Western
Investments, Inc., a Delaware corporation and wholly-owned subsidiary,
serves as the general partner of Western Acquisitions, LP, a Delaware limited
partnership that operates as a private investment fund. Through Western
Investments, Inc., Mr. Biglari operates as the portfolio manager to
the fund. Cash contributions from outside investors of $0 and $540,000 for the
nine months ended September 30, 2009 and 2008, respectively, were made to the
limited partnership.
 
 As of
September 30, 2009 and December 31, 2008, Western Investments, Inc.
owned 85.3% of Western Acquisitions, LP.  As such, Western
Acquisitions, LP has been consolidated into the accompanying financial
statements with the 14.7% ownership by noncontrolling limited partners presented
as redeemable noncontrolling interests on the accompanying consolidated balance
sheets totaling $2,716,454 and $1,396,092 as of September 30, 2009 and
December 31, 2008, respectively,  pursuant to FASB ASC 810-20
(formerly EITF 04-05 – Determining Whether a General
Partner, or the General Partners as a Group, Controls a Limited Partnership or
Similar Entity When the Limited Partners have Certain Limited
Rights).
 
 Western
Acquisitions, LP is considered, for GAAP purposes, an investment company under
the AICPA Audit and Accounting Guide Investment Companies. The
Company has retained the specialized accounting for Western Acquisitions, LP
pursuant to FASB ASC 810-10-25 (formerly EITF Issue No. 85-12, Retention of Specialized Accounting
for Investment in Consolidation). As such, marketable equity securities
held by Western Acquisitions, LP are recorded at fair value in Investments in
Marketable Securities held by limited partnerships, with unrealized gains and
losses resulting from changes in fair value reflected in the Consolidated
Statements of Operations.
 
 As of
September 30, 2009, Western Acquisitions, LP owned a total of 1,553,545 shares
of The Steak n Shake Company’s common stock.
 
 10
 Table of Contents
  Following
is a summary of marketable equity securities held by Western Acquisitions, LP as
of September 30, 2009 and December 31, 2008:
 As of September
      30, 2009
              
              
              As of December 31, 2008Cost
              
              
              Fair Value
              
              
              Cost
              
              
              Fair ValueThe
      Steak n Shake Co.
              
              $
              19,159,412
              
              
              $
              18,285,225
              
              
              $
              19,159,412
              
              
              $
              9,243,593Other
              
              
              139,881
              
              
              
              154,243
              
              
              
              139,881
              
              
              
              80,737Total
      marketable equity securities
              
              $
              19,299,293
              
              
              $
              18,439,468
              
              
              $
              19,299,293
              
              
              $
              9,324,330
 
 Net
realized gains (losses) and net change in unrealized gains (losses) from
marketable equity securities held by Western Acquisitions, LP were as
follows:
 
 Three
      Months Ended
                September
      30,
              
              
              Nine
      Months Ended
                September
      30,2009
              
              
              2008
              
              
              2009
              
              
              2008Realized
      gains.
              
              $
              —
              
              
              $
              —
              
              
              $
              —
              
              
              $
              —Realized
      losses
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (39,852
              )Net
      realized gains (losses) on sales of marketable securities
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              $
              (39,852
              )Net
      unrealized gains (losses) on marketable securities
              
              $
              4,791,594
              
              
              $
              3,597,201
              
              
              $
              9,115,139
              
              
              $
              (2,845,923
              )
 
 The
limited partners of Western Acquisitions, LP can redeem their investments after
two years from contribution dates.  Pursuant to a request for
redemption from certain limited partners of Western Acquisitions, LP, subsequent
to September 30, 2009, an in-kind stock distribution was made to such limited
partners having an aggregate value of approximately $1.36
million.
 
 ·
              Marketable
      Securities held by Mustang Capital Advisors,
  LP
 
 Western
Mustang Holdings, LLC owns a 50.5% controlling interest in Mustang Capital
Advisors, LP (“MCA”) and a 51% controlling interest in its general partner,
Mustang Capital Management, LLC (“MCM”).
 
 MCM owns
a 1% interest in, and serves as general partner of MCA.  MCA is a
registered investment advisor and serves as the investment advisor to, and the
general partner of, Mustang Capital Partners I, LP and Mustang Capital Partners
II, LP (the "Funds”). The Funds are private investment funds organized for the
purpose of trading and investing in securities.
 
 As of
September 30, 2009 and December 31, 2008, MCA’s ownership interest in the Funds
was 2.8% and 5.0%, respectively, with the remaining interests in the Funds held
by various limited partners who are unrelated to the Company.  The
combined equity of the unrelated limited partners in the Funds totaled 97.2% and
95.0% of the net assets of the Funds as of September 30, 2009 and December 31,
2008, respectively.   As a result of the significant investments
in the Funds by these limited partners, as well as the 49.5% non-controlling
interest in MCA and the 49% non-controlling interest in MCM (which owns 1% of
MCA), the Company owned approximately 1.4% of the combined net assets of the
Funds as of September 30, 2009 and December 31, 2008.  However,
through its majority interest in MCA, the General Partner of the Funds, the
Company controls the investments and operations of the Funds.  As
such, the balance sheets of the Funds and the results of their operations are
included in the accompanying consolidated financial statements pursuant to ASC
810-20 (formerly EITF 04-05 – Determining Whether a General
Partner, or the General Partners as a Group, Controls a Limited Partnership or
Similar Entity When the Limited Partners have Certain Limited
Rights).
 
 The
assets of the Funds consist primarily of money market investments totaling
$2,176,728 and $3,735,821 as of September 30, 2009 and December 31, 2008,
respectively, (representing 100% of the amounts included in the Company's
consolidated balance sheets under Money market investments as of each balance
sheet date), and of marketable securities totaling $10,098,740 and $6,656,428 as
of September 30, 2009 and December 31, 2008, respectively, (representing 35% and
42%, respectively, of the amounts included in the Company's consolidated balance
sheets under the line item “investments in marketable securities held by limited
partnerships” at each balance sheet date).
 The
combined equity of the unrelated limited partners in the Funds and the
non-controlling interests in MCA and MCM totaled $11,803,421 and $9,892,589 as
of September 30, 2009 and December 31, 2008, respectively, and is included in
redeemable noncontrolling interests in the accompanying consolidated balance
sheets.


11
 Table of Contents
  Western
Mustang Holdings, LLC, is, for GAAP purposes, an investment company under the
AICPA Audit and Accounting Guide Investment Companies. The
Company has retained the specialized accounting for Mustang Capital Advisors, LP
pursuant to FASB ASC 810-10-25 (formerly EITF Issue No. 85-12, Retention of Specialized Accounting
for Investment in Consolidation). As such, marketable equity securities
held by Mustang Capital Advisors, LP are recorded at fair value in Investments
in Marketable Securities held by limited partnerships, with unrealized gains and
losses resulting from changes in fair value reflected in the Consolidated
Statements of Operations.
 
 Following
is a summary of marketable equity securities held by Western Mustang Holdings,
LLC as of September 30. 2009 and December 31, 2008:
 
 As of
      September 30, 2009
              
              
              As of December 31, 2008Cost
              
              
              Fair Value
              
              
              Cost
              
              
              Fair ValueThe
      Steak n Shake Co.
              
              $
              1,811,202
              
              
              $
              2,059,750
              
              
              $
              ——
              
              
              $
              —Other
              
              
              8,530,193
              
              
              
              8,038,990
              
              
              
              6,621,658
              
              
              
              6,656,428Total
      marketable equity securities
              
              $
              10,341,395
              
              
              $
              10,098,740
              
              
              $
              6,621,658
              
              
              $
              6,656,428
 
 Net
realized gains (losses) and net change in unrealized gains (losses) for the nine
months ended September  30, 2009, from marketable equity securities
held by Mustang Capital Advisors, LP were as follows:
 
 
 Three
      Months Ended
                September
      30,
              
              
              Nine
      Months Ended
                September
      30,2009
              
              
              2008
              
              
              2009
              
              
              2008Realized
      gains.
              
              $
              617,299
              
              
              $
              52,210
              
              
              $
              1,263,572
              
              
              $
              52,210Realized
      losses
              
              
              (29,006
              )
              
              
              (28,088
              )
              
              
              (139,757
              )
              
              
              (28,088
              )Net
      realized gains (losses) on sales of marketable securities
              
              
              588,293
              
              
              $
              24,122
              
              
              
              1,123,815
              
              
              $
              24,122Net
      unrealized gains (losses) on marketable securities
              
              $
              690,805
              
              
              $
              (341,732
              )
              
              $
              (183,819
              )
              
              $
              (341,732
              )
 
 
 (4)
              Stock
      Options
 
 The
Company has two stock option plans: the 2005 Stock Option Plan and the 2004
Non-Employee Directors’ Stock Option Plan. The 1994 Incentive and Non-qualified
Stock Option Plan was terminated in 2008 with the exercise of all outstanding
options under this plan during year ended December 31, 2008. Under the 2005
and 2004 Plans, employees and directors may be granted options to purchase
shares of common stock at the fair market value on the date of the
grant.
 
 Options
granted under the 2005 and 2004 Plans vest at the date of the grant. The fair
value of each option award is estimated on the date of grant using the
Black-Scholes option-pricing model. Assumptions utilized in the model are
evaluated and revised, as necessary, to reflect market conditions and experience
on the respective dates of grant. The risk-free interest rate for periods within
the contractual life of the option is based on the U.S. Treasury yield curve in
effect at the time of the grant. Expected volatilities are based on the
historical volatility of the Company’s stock for a period equal to the expected
term of the options. The expected term of the options represents the period of
time that options granted are outstanding and is estimated using historical
exercise and termination experience.
 
 Prior to
the adoption of FASB ASC 718 (formerly SFAS No. 123R), the benefit of tax
deductions in excess of recognized stock compensation expense was reported as a
reduction of taxes paid within operating cash flows. FASB ASC 718 requires that
such benefits be recognized as a financing cash flow. The benefits of tax
deductions in excess of recognized stock compensation expense for the three and
nine months ended September 30, 2009 and 2008 were immaterial.
 
 There
were no options granted during the three or nine months ended September 30, 2009
and 2008.
  12
 Table of Contents
  The
following table summarizes stock options outstanding as of September 30, 2009,
as well as activity during the nine month period then ended:
  Options
                  Outstanding
                
                
                Exercise Price
                  Per Share
                  Weighted
                  Average
                
                
                Contractual
                  Term
                  Weighted
                  Average
                
                
                Aggregate
                  Intrinsic
                  ValueBalance,
      December 31,2008
                
                
                12,500
                
                
                $
                7.25
                
                
                
                1.83
                
                
                $
                64,284Granted
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Exercised
                
                
                8,500
                
                
                
                —
                
                
                
                —
                
                
                
                —Expired/Forfeited
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Balance,
      September 30, 2009
                
                
                4,000
                
                
                $
                7.46
                
                
                
                1.46
                
                
                $
                24,173
 All
options outstanding at September 30, 2009 are fully vested and exercisable. At
September 30, 2009, there were 40,000 shares available for future grants under
the plans, however, on April 25, 2007, the Company’s Board of Directors
elected to suspend future grants under all plans
indefinitely.  Subsequent to September 30, 2009, the remaining 4,000
options outstanding were exercised.
 
 (5)
              Goodwill
      and Other Intangible Assets
 
 The
Company conforms to the provisions of FASB ASC 350 (formerly Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible
Assets). Under FASB ASC 350, goodwill and intangible assets deemed to
have indefinite lives are reviewed for impairment and written down and charged
to results of operations when their carrying amount exceeds their estimated fair
value. The Company is required to perform impairment tests each year at the end
of the calendar year, or between yearly tests in certain circumstances, for
goodwill. There can be no assurance that future impairment tests will not result
in a charge to earnings.
 
 Amortizing
Intangible Assets
  As
      of September 30, 2009
                
                
                As
      of December 31, 2008Gross
                  carrying
                  amount
                
                
                Weighted
                  average
                  amortization
                  period
                
                
                Accumulated
                  amortization
                
                
                Gross
                  carrying
                  amount
                
                
                Weighted
                  average
                  amortization
                  period
                
                
                Accumulated
                  amortizationAmortizing
      intangible assets:Investment
      in management customer relationships
                
                $
                1,420,000
                
                
                
                10.5
                
                
                $
                169,089
                
                
                $
                1,420,000
                
                
                
                10.5
                
                
                $
                73,762$
                1,420,000
                
                
                
                10.5
                
                
                $
                169,089
                
                
                $
                1,420,000
                
                
                
                10.5
                
                
                $
                73,762
  In
connection with the acquisition of Mustang Capital Advisors, L.P in 2008, the
Company acquired certain customer related intangible assets. The value assigned
to these intangible assets of $1,420,000 was determined based on the present
value of the estimated cash flows to be generated by the assets.
 
 Amortization
expense for amortizing intangible assets for the three and nine months ended
September 30, 2009 was
$33,810         and $95,327,
respectively. Franchise royalty contracts, originally acquired in
January 2004, were fully amortized as of December 31, 2008. The
estimated annual amortization expense for the remaining amortizing intangible
asset is $135,240 per year through 2018.
 (6)
                Debt
 
 At
September 30, 2009, there was $100,000 outstanding on a $1,500,000 line of
credit with a bank.  The line is payable on demand, subject to annual
renewal by the bank (January 30, 2010), carries an interest rate of prime (3.25%
at September 30, 2009 and at December 31, 2008), with a floor of 4%,
collateralized by trade accounts receivable and the assignment of all franchise
royalty contracts.
 
 In 2008,
the Company’s purchase of the investment in real estate was refinanced through
the issuance of a note payable to a bank of $2,641,220, secured by the land held
for investment.  Interest accrues on the unpaid principal balance at
prime minus 0.5%, or 2.75% as of September 30, 2009.  The Company made
one payment of principal of $264,122 on January 29, 2009, and all remaining
principal and accrued interest is due on January 30,
2010.  Accordingly, the outstanding balance of this debt is classified
as a current liability at September 30, 2009.
  13
 Table of Contents
 
 The
Company has a note payable to a finance company with interest at 10.07% due in
equal monthly installments, including principal and interest, of $13,487, with a
final payment due on April 13, 2010.  The note payable requires
pre-payment premiums in certain circumstances and contains certain restrictive
covenants, including debt coverage ratios, periodic reporting requirements and
maintenance of operations at certain Company-operated restaurants that
collateralize the note payable.  The note payable is collateralized by
accounts receivable, inventory and property and equipment.
 (7)
                Income
      Taxes
 The
Company adopted the provisions of FASB ASC 740-10 (formerly FASB Interpretation
No. 48, Accounting for
Uncertainty in Income Taxes, an Interpretation of FASB Statement
No. 109), on January 1, 2007.  As of September 30, 2009, the
Company has a recorded liability of $11,805, including interest of $6,489, for
such uncertain tax positions.  The recorded liability was increased by
$979 during the three months ended September 30, 2009.
 
 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 periods in
which those temporary differences become deductible.
 
 Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment. Based
upon the level of historical taxable income and projections for future taxable
income over the periods which the deferred tax assets are deductible, management
believes it is more likely than not the Company will realize the benefits of
these deductible differences, net of a valuation allowance of $0, $2,327,000 and
$1,074,000 at September 30, 2009, December 31, 2008 and September 30, 2008,
respectively, related to the unrealized losses on marketable
securities.
 
 (8)
              Earnings
      (Loss) Per Share
 
 Basic
earnings (loss) per share excludes dilution and is computed by dividing income
(loss) attributable to Western Sizzlin Corporation by the weighted-average
number of common shares outstanding for the period.  Diluted earnings
per share reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared in the
earnings of the Company.
 
 The
following is a reconciliation of the numerators and denominators of the basic
and diluted earnings (loss) per share computations for the periods
indicated:
  Income (Loss)
                  (Numerator)
                
                
                Weighted
                  Average
                  Shares
                  (Denominator)
                
                
                Earnings
                  (Loss)
                  Per Share
                  AmountThree
      months ended September 30, 2009Net
      income — basic
                
                $
                3,578,462
                
                
                
                2,833,917
                
                
                $
                1.26Net
      income — diluted
                
                $
                3,578,462
                
                
                
                2,835,045
                
                
                $
                1.26Three
      months ended September 30, 2008Net
      income — basic
                
                $
                2,939,713
                
                
                
                2,822,637
                
                
                $
                1.04Net
      income — diluted
                
                $
                2,939,713
                
                
                
                2,826,513
                
                
                $
                1.04
  Income (Loss)
                  (Numerator)
                
                
                Weighted
                  Average
                  Shares
                  (Denominator)
                
                
                Earnings
                  (Loss)
                  Per Share
                  AmountNine
      months ended September 30, 2009Net
      income — basic
                
                $
                7,802,986
                
                
                
                2,832,569
                
                
                $
                2.75Net
      income — diluted
                
                $
                7,802,986
                
                
                
                2,834,480
                
                
                $
                2.75Nine
      months ended September 30, 2008Net
      loss — basic
                
                $
                (2,867,302
                )
                
                
                2,750,132
                
                
                $
                (1.04
                )Net
      loss — diluted
                
                $
                (2,867,302
                )
                
                
                2,750,132
                
                
                $
                (1.04
                )
  For the
nine months ended September 30, 2008, the Company excluded from the loss per
share calculation all common stock equivalents because the effect on loss per
share was anti-dilutive.
  14
 Table of Contents
 
 (9)
              Reportable
      Segments
 
 The
Company has organized segment reporting with additional information to reflect
how the Company views its business activities.  The Company-operated
Restaurant segment consists of the operations of all Company-operated
restaurants and derives its revenues from restaurant operations.  The
Franchising segment consists primarily of franchise sales and support activities
and derives its revenues from sales of franchise and development rights and
collection of royalties from franchisees. The Investment Operations segment
consists of investment operations and certain direct expenses associated with
legal matters. The Company does not allocate certain expenses to any business
segment.  These costs include expenses of the following functions:
legal, accounting, stockholder relations, personnel not directly related to a
segment, information systems and other headquarter activities.  These
unallocated expenses are designated as unallocated corporate expenses. Certain
other expenses (such as sublease property expense and claims settlement and
legal fees associated with a lawsuit) are also not allocated to any reportable
segment.
 
 The
following table summarizes reportable segment information:
  15
 Table of Contents
  Three Months

                  Ended September 30,
                
                
                Nine Months
                  Ended September
      30,2009
                
                
                2008
                
                
                2009
                
                
                2008Revenues
      from reportable segments:Restaurants
                
                $
                3,350,238
                
                
                $
                3,434,035
                
                
                $
                10,064,358
                
                
                $
                10,050,437Franchising
                
                
                843,528
                
                
                
                1,001,102
                
                
                
                2,695,286
                
                
                
                3,122,179Total
      revenues
                
                $
                4,193,766
                
                
                $
                4,435,137
                
                
                $
                12,759,644
                
                
                $
                13,172,616Depreciation
      and amortization:Restaurants
                
                $
                86,591
                
                
                $
                92,420
                
                
                $
                264,571
                
                
                $
                289,526Franchising
                
                
                6,466
                
                
                
                165,642
                
                
                
                21,634
                
                
                
                497,150Total
      depreciation and amortization
                
                $
                93,057
                
                
                $
                258,062
                
                
                $
                286,205
                
                
                $
                786,676Income
      from restaurant and franchise operations:Restaurants
      and equity in joint venture
                
                $
                293,066
                
                
                $
                148,106
                
                
                $
                902,399
                
                
                $
                738,432Franchising
                
                
                625,164
                
                
                
                525,890
                
                
                
                1,977,411
                
                
                
                1,701,538Subleased
      properties expenses
                
                
                —
                
                
                
                (362,766
                )
                
                
                —
                
                
                
                (427,257
                )Unallocated
      expenses
                
                
                (5,225
                )
                
                
                (4,056
                )
                
                
                (35,413
                )
                
                
                (162,820
                )Corporate
                
                
                (359,858
                )
                
                
                (725,693
                )
                
                
                (1,210,077
                )
                
                
                (1,641,388
                )Total
      income from restaurant and franchise operations:
                
                $
                553,147
                
                
                $
                (418,519
                )
                
                $
                1,634,320
                
                
                $
                208,505Income
      (loss) from investment operations:Investment
      advisory fee income
                
                $
                101,600
                
                
                $
                124,024
                
                
                $
                286,710
                
                
                $
                124,024Net
      realized gains (losses) on sales of marketable securities
                
                
                588,293
                
                
                
                24,122
                
                
                
                1,123,815
                
                
                
                (15,730
                )Net
      unrealized gains (losses) on marketable securities held by limited
      partnership
                
                
                5,482,399
                
                
                
                3,255,469
                
                
                
                8,931,320
                
                
                
                (3,187,655
                )Amortization
      expense – investment operations
                
                
                (33,810
                )
                
                
                —
                
                
                
                (95,327
                )
                
                
                —Reimbursements
      (expenses) of investment operations
                
                
                (212,008
                )
                
                
                174,318
                
                
                
                (475,547
                )
                
                
                (794,355
                )Purchase
      obligation adjustment
                
                
                (253,416
                )
                
                
                —
                
                
                
                (245,773
                )
                
                
                —Total
      income (loss) from investment operations
                
                $
                5,673,058
                
                
                $
                3,577,933
                
                
                $
                9,525,198
                
                
                $
                (3,873,716
                )Interest
      Expense:Restaurants
                
                $
                14,100
                
                
                $
                15,827
                
                
                $
                45,566
                
                
                $
                70,022Total
      interest expense
                
                $
                14,100
                
                
                $
                15,827
                
                
                $
                45,566
                
                
                $
                70,022Interest
      Income:Corporate
                
                $
                32,491
                
                
                $
                69,801
                
                
                $
                103,702
                
                
                $
                102,168Total
      interest income
                
                $
                32,491
                
                
                $
                69,801
                
                
                $
                103,702
                
                
                $
                102,168
  September
      30,
                
                
                December 31,2009
                
                
                2008Total
      assets:Restaurants
                
                $
                7,509,734
                
                
                $
                6,523,219Franchising
                
                
                2,428,165
                
                
                
                1,920,513Corporate
                
                
                359,434
                
                
                
                1,203,830Investment
      activities
                
                
                37,029,996
                
                
                
                26,305,261Total
      assets
                
                $
                47,327,329
                
                
                $
                35,952,823
  September
      30,
                
                
                December31,2009
                
                
                2008Total
      goodwill:Restaurants
                
                $
                3,539,057
                
                
                $
                3,539,057Franchising
                
                
                771,143
                
                
                
                771,143Investment
      activities
                
                
                685,062
                
                
                
                685,062Total
      goodwill
                
                $
                4,995,262
                
                
                $
                4,995,262
  16
 Table of Contents
  (10)
                Fair
      Value Measurements
 
 Effective
January 1, 2008, the Company adopted FASB ASC 825-10 (formerly Statement of
Financial Accounting Standards No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities).  FASB ASC 825-10 permits
entities to choose to measure many financial instruments and certain other items
at fair value. The Company did not elect the fair value reporting option for any
assets and liabilities not previously recorded at fair value.
 
 Effective
January 1, 2008, the Company adopted the provisions of FASB ASC 820
(formerly Statement of Financial  Accounting Standards No. 157,
Fair Value
Measurements),applicable to all financial assets and liabilities and for nonfinancial
assets and liabilities recognized or disclosed at fair value in the consolidated
financial statements on a recurring basis (at least annually). FASB ASC 820
defines fair value as the exchange price that would be received for an asset or
paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. The standard also establishes a
fair value hierarchy which requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value.
FASB ASC 820 describes three levels of inputs that may be used to measure fair
value:
  Level
      1
              Quoted
      market prices in active markets for identical assets or
      liabilities.Level
      2
              Observable
      market-based inputs or unobservable inputs that are corroborated by market
      data.Level
      3
              Unobservable
      inputs that are not corroborated by market
data.
 
 At
September 30, 2009 and December 31, 2008, the Company’s investments in
marketable securities are carried at fair value, based on quoted market prices,
in the consolidated balance sheets and are classified within Level 1 of the fair
value hierarchy, with the exception of $1.5 million that have been valued, in
the absence of observable market prices, by Mustang Capital Advisors,
LP.  The Funds investments in Level 1 securities are freely tradable
and are listed on a national securities exchange or reported on the NASDAQ
national market at their last sales price as of the last business day of the
period.
 
 Approximately
$1.5 million of the investments held by Mustang Capital Advisors, LP have been
classified within Level 2 of the fair value hierarchy and have been valued, in
the absence of observable market prices, by the management of Mustang Capital
Advisors, LP.  Fair value is determined using valuation methodologies
after giving consideration to a range of observable factors including last known
sales price; any current bids or offers on the stock; comparisons to publicly
traded stocks with appropriate discounts for liquidity; size of position;
control data research; and current market conditions. Those estimated values do
not necessarily represent the amounts that may be ultimately realized due to the
occurrence of future circumstances that can not be reasonably determined.
Because of the inherent uncertainty of valuation, those estimated values may be
materially higher or lower than the values that would have been used had a ready
market for the securities existed.
 
 The
Company’s investments in marketable securities are measured at fair value on a
recurring basis.  There have been no changes in inputs during the
period ended September 30, 2009.
  (11)
              Fair
      Value of Financial Instruments
  The
following table presents the carrying amounts and estimated fair values of the
Company’s financial instruments at September 30, 2009 and December 31,
2008. FASB ASC 825-10 (formerly SFAS No. 107, Disclosures about Fair Value of
Financial Instruments), defines the fair value of a financial instrument
as the amount at which the instrument could be exchanged in a current
transaction between willing parties:
 
 September
      30, 2009
              
              
              December
      31, 2008Carrying
                amount
              
              
              Fair
                value
              
              
              Carrying
                amount
              
              
              Fair
                valueFinancial
      assets:Cash
      and cash equivalents
              
              $
              1,538,840
              
              
              $
              1,538,840
              
              
              $
              330,998
              
              
              $
              330,998Money
      market investments
              
              
              2,176,728
              
              
              
              2,176,728
              
              
              
              3,735,821
              
              
              
              3,735,821Trade-accounts
      receivable
              
              
              963,804
              
              
              
              963,804
              
              
              
              1,064,389
              
              
              
              1,064,389Notes
      receivable
              
              
              596,502
              
              
              
              592,277
              
              
              
              648,902
              
              
              
              642,239Other
      receivables
              
              
              68,792
              
              
              
              68,792
              
              
              
              78,982
              
              
              
              78,982Investments
      in marketable securities
              
              
              29,694,761
              
              
              
              29,694,761
              
              
              
              16,708,479
              
              
              
              16,708,479Financial
      liabilities:Note
      payable - line of credit
              
              
              100,000
              
              
              
              100,000
              
              
              
              —
              
              
              
              —Long-term
      debt
              
              
              2,862,089
              
              
              
              2,727,692
              
              
              
              3,207,512
              
              
              
              3,294,575Accounts
      payable
              
              
              621,423
              
              
              
              621,423
              
              
              
              812,839
              
              
              
              812,839Accrued
      expenses and other
              
              
              1,245,350
              
              
              
              1,245,350
              
              
              
              1,423,092
              
              
              
              1,423,092Other
      liabilities
              
              
              1,419,809
              
              
              
              1,419,809
              
              
              
              1,208,147
              
              
              
              1,208,147
  17
 Table of Contents
  The
following methods and assumptions were used to estimate the fair value of each
class of financial instruments:
  Cash
      and cash equivalents, trade accounts receivable, other receivables, notes
      payable-line of credit, due to broker, accounts payable, accrued expenses
      and other liabilities: The carrying amounts approximate fair value because
      of the short maturity of those
instruments.
  Notes
      receivable: The fair value is determined as the present value of expected
      future cash flows discounted at the interest rate which approximates the
      rate currently offered by local lending institutions for loans of similar
      terms to companies with comparable credit
risk.
  Long-term
      debt: The fair value of the Company’s long-term debt is estimated by
      discounting the future cash flows of each instrument at rates which
      approximate those currently offered to the Company for similar debt
      instruments of comparable maturities by the Company’s
    lenders.
  There
were no changes to the methods or significant assumptions used to estimate fair
values for the period ended September 30, 2009.
 (12)
                  Commitments
      and Contingencies
 Commitments
 
 The
limited partners of the two investment funds managed by Mustang Capital
Advisors, LP can redeem their investments annually.  The limited
partners of Western Acquisitions, LP can redeem their investments after two
years from contribution dates.  Certain limited partners of Western
Acquisitions, LP with redeemable noncontrolling interests totaling $2.3 million
at September 30, 2009, have requested complete liquidation of their investments
in Western Acquisitions, LP.  Pursuant to that request and subsequent
to September 30, 2009, an in-kind stock distribution having an aggregate value
of approximately $1.36 million was made to such limited
partners.  Additional distributions will be made to these limited
partners as permitted by the limited partnership agreement.
 
 The
Company has a severance provision contained within the Employment Agreement with
its Chief Financial Officer. The agreement provides certain termination benefits
in the event that employment with the Company is terminated without cause and
upon a change of control. Under the terms of the agreement, in the event of
termination without cause the executive will receive termination benefits equal
to nine months of the executive’s annual base salary in effect on the
termination date and the continuation of health and welfare benefits through the
termination date of the agreement. Under a change of control, the executive will
receive termination benefits equal to one year of the executive’s base salary in
effect on the change of control date and the continuation of health and welfare
benefits through the termination date of the agreement.
 
 The
Company has a severance provision contained within the Employment Agreement with
the President of one of its subsidiaries, Western Sizzlin Franchise Corporation.
The agreement provides for an automatic renewal of one year unless the Company
or the executive provides notice of termination as specified in the agreement.
Under the terms of the agreement, in the event of termination without cause, the
executive will receive termination benefits on a graduated percentage of base
salary and continuation of health and welfare benefits based on length of
service.
 
 In
connection with the acquisition of controlling interests in Mustang Capital
Advisors, LP and Mustang Capital Management, LLC, the Company is obligated to
purchase the noncontrolling interest holder’s ownership upon the occurrence of
certain events.  The purchase obligation will ultimately be settled in
cash and shares of the Company’s common stock.  The Company is
accounting for this purchase obligation pursuant to FASB ASC 480-10 (formerly
Statement of Financial Accounting Standards No. 150 (As Amended) - Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity).The resulting liability is
reported in other long-term liabilities on the accompanying consolidated balance
sheet.  The change in the purchase obligation liability for the third
quarter of 2009 is an increase of $253,416 and an increase $245,773 for the nine
months ended September 30, 2009.
 
 Contingencies
 
 The
Company accrues an obligation for contingencies, including estimated legal
costs, when a loss is probable and the amount is reasonably
estimable.  As facts concerning contingencies become known to the
Company, the Company reassesses its position with respect to accrued liabilities
and other expenses.  These estimates are subject to change as events
evolve and as additional information becomes available during the litigation
process.
  18
 Table of Contents
  Little
Rock, Arkansas Lease
 
 In
September 2006, the Company was served with a lawsuit filed in the Circuit
Court of Pulaski County, Arkansas, captioned Parks Land Company, LLP, et al. v.
Western Sizzlin Corporation, et al. The plaintiffs are owners/landlords
of four restaurant premises located in the Little Rock, Arkansas metropolitan
area which had been leased pursuant to a single ten year lease agreement. 
The Company occupied these locations for a period of time, but before
the end of the lease, subleased each of these premises to various
operators.  The ten year lease agreement expired on June 30,
2006.   In the lawsuit the plaintiffs sought recovery
of alleged damages for certain repair and maintenance expenses on the
premises, for the replacement of certain equipment, for diminution of property
value, and for loss of rental income, as well as interest and
costs.  The case was tried to a 12 person jury in Little Rock,
starting February 12, 2008.   The jury returned a
verdict for the plaintiffs on February 20, 2008, in the amount of
$689,526.  On February 29, 2008, the Circuit Court of Pulaski
County, Arkansas entered judgment on the jury’s verdict in the case against the
Company in the amount of $689,666 plus plaintiff’s legal costs.  On
appeal by the Company, on May 14, 2009, the Arkansas Supreme Court reversed and
remanded the case for a new trial.  On June 25, 2009, the Arkansas
Supreme Court issued a per curiam order denying Parks Land Company’s petition
for a rehearing. The new trial has been scheduled in the Pulaski
County Circuit Court for the week of February 22, 2010.   As
previously reported, the Company has accrued $900,000 related to this loss
contingency. There has been no change in the Company’s loss contingency accrual
of $900,000 since December 31, 2007.
 
 Other
 
 The
Company is involved in various other claims and legal actions arising in the
ordinary course of business.  In the opinion of the management, the
ultimate disposition of these matters will not have a material adverse effect on
the Company’s financial condition, results of operations or
liquidity.
 (13)
                    Investment
      in Unconsolidated Joint
Venture
 
 The
Company is a partner in a 50/50 joint venture with a franchisee for a restaurant
in Harrisonburg, Virginia.  During October 2005, the joint
venture entered into a loan agreement for $3.05 million and the Company
guaranteed 50% of the loan obligation.  The estimated fair value of
the guarantee of approximately $30,000 is recorded in other long-term
liabilities and in investments in unconsolidated joint venture on the
accompanying consolidated balance sheets at September 30, 2009 and
December 31, 2008.  The term of the guarantee extends through
July 1, 2026 and the Company would be required to perform under the
guarantee should the joint venture not to be able to meet its scheduled
principal and interest payments.  Pursuant to the joint venture
agreement, a cash contribution of $300,000 from each 50/50 partner was also made
at the closing of this financing.  The Company is accounting for the
investment using the equity method and the Company’s share of the net income of
the joint venture is reported in the accompanying statements of operations as
equity in earnings of unconsolidated joint venture.
 
 Selected
Financial Data
 
 The
following is selected financial information for the joint venture as of and for
the three and nine months ended September 30, 2009 and 2008,
respectively:
 
 Three Months
                  Ended September 30,
                
                
                Nine Months
                  Ended September 30,2009
                
                
                2008
                
                
                2009
                
                
                2008(unaudited)
                
                
                (unaudited)
                
                
                (unaudited)
                
                
                (unaudited)Selected
      Statement of Operations Data:Total
      revenues
                
                $
                1,320,228
                
                
                $
                1,216,010
                
                
                $
                3,943,194
                
                
                $
                3,639,345Cost
      of food
                
                
                528,614
                
                
                
                508,049
                
                
                
                1,604,786
                
                
                
                1,494,523Payroll
      expense
                
                
                359,463
                
                
                
                353,545
                
                
                
                1,068,412
                
                
                
                1,054,087Gross
      profit
                
                
                432,151
                
                
                
                354,416
                
                
                
                1,269,996
                
                
                
                1,090,735Marketing
      and operating expense
                
                
                48,559
                
                
                
                49,128
                
                
                
                149,925
                
                
                
                140,179General
      and administrative
                
                
                121,723
                
                
                
                114,502
                
                
                
                377,149
                
                
                
                336,832Depreciation
      and amortization
                
                
                51,615
                
                
                
                51,212
                
                
                
                154,145
                
                
                
                152,131Interest
                
                
                49,637
                
                
                
                53,056
                
                
                
                149,855
                
                
                
                160,422Net
      income
                
                
                160,617
                
                
                
                86,518
                
                
                
                438,922
                
                
                
                301,171
  19
 Table of Contents
  September
      30, 2009
                
                
                September
                  30, 2008Selected
      Balance Sheet Data:Cash
                
                
                
                
                
                
                
                
                
                $
                113,315
                
                
                $
                112,464Prepaid
      expenses
                
                
                
                
                
                
                
                
                
                
                10,124
                
                
                
                11,934Inventory
                
                
                
                
                
                
                
                
                
                
                16,588
                
                
                
                16,620Land,
      equipment and building improvements, net
                
                
                
                
                
                
                
                
                
                
                3,433,006
                
                
                
                3,616,910Loan
      costs,
      net
                
                
                
                
                
                
                
                
                
                
                9,277
                
                
                
                10,820Total
      assets
                
                
                
                
                
                
                
                
                
                
                3,582,511
                
                
                
                3,775,765Loan
      payable
                
                
                
                
                
                
                
                
                
                
                2,801,492
                
                
                
                2,999,177Accounts
      payable and accrued expenses
                
                
                
                
                
                
                
                
                
                
                252,708
                
                
                
                225,426Members’
      equity
                
                
                
                
                
                
                
                
                
                
                528,311
                
                
                
                551,161
 (14)
                      Impact
      of Recently Issued Accounting
Standards
 In
May 2007, the FASB adopted new standards which provide clarification to the
accounting for investments by entities that apply the accounting guidance in
FASB ASC 946 (formerly the AICPA Audit and Accounting Guide, Investment
Companies).  FSP FIN 46(R)-7 amends FASB ASC 810 (formerly FIN
46(R), as revised), to make permanent the temporary deferral of the application
of FASB ASC 810, to entities within the scope of the guide under FASB ASC 946
(formerly Statement of Position (“SOP”) No. 07-1, Clarification of the Scope of the
Audit and Accounting GuideInvestment Companies and Accounting by Parent Companies
and Equity Method Investors for Investments in Investment
Companies).  FSP FIN 46(R)-7 is effective upon adoption of SOP
07-1.  The adoption of FSP FIN 46(R)-7 is not expected to have a
material impact on the Company.
 
 In
June 2007, the FASB adopted new standards that address whether the
accounting principles of FASB ASC 946 (formerly the AICPA Audit and Accounting
Guide Investment
Companies) may be applied to an entity by clarifying the definition of an
investment company and whether those accounting principles may be retained by a
parent company in consolidation or by an investor in the application of the
equity method of accounting.  The new standards were to be effective
for fiscal years beginning on or after December 15, 2007 with earlier
adoption encouraged.  However, in February 2008, the FASB issued
new guidance that indefinitely defers the effective date of these new
guidelines.
 
 The
Company’s majority-owned subsidiaries, Western Acquisitions, LP and Mustang
Capital Advisors, LP, are investment companies as currently defined in FASB ASC
946 (formerly the AICPA Audit and Accounting Guide, Investment
Companies).  The Company has retained the specialized
accounting for Western Acquisitions, LP and Mustang Capital Advisors, LP
pursuant to FASB ASC 810-10-25 (formerly EITF 85-12, Retention of Specialized Accounting
for Investments in Consolidation).  As such, marketable equity
securities held by Western Acquisitions, LP and Mustang Capital Advisors, LP are
recorded at fair value in Investments in Marketable Securities in the
consolidated financial statements, with unrealized gains and losses resulting
from the change in fair value reflected in the Consolidated Statement of
Operations. The Company intends to monitor future developments associated with
this Statement in order to assess the impact, if any, which may
result.
 
 In June
2009, the FASB adopted new standards which significantly change the accounting
for transfers of financial assets and the criteria for determining whether to
consolidate a variable interest entity (“VIE”).  The new standards
eliminate the qualifying special purpose entity (“QSPE”) concept, establish
conditions for reporting a transfer of a portion of a financial asset as a sale,
clarify the financial-asset derecognition criteria, revise how interests
retained by the transferor in a sale of financial assets initially are measured,
and remove the guaranteed mortgage securitization recharacterization
provisions.  The new standards also require reporting entities to
evaluate former QSPEs for consolidation, change the approach to determining a
VIE’s primary beneficiary from a mainly quantitative assessment to an
exclusively qualitative assessment designed to identify a controlling financial
interest, and increase the frequency of required reassessments to determine
whether a company is the primary beneficiary of a VIE. These standards require
additional year-end and interim disclosures for public and nonpublic companies
that are similar to the disclosures required by FASB ASC 860 (formerly FSP FAS
140-4 and FIN 46(R)-8, Disclosures by Public Entities
(Enterprises) about Transfers of Financial Assets and Interests in Variable
Interest Entities).  The new
standards are effective January 1, 2010.  The Company is currently
evaluating these new standards but does not believe that they will have a
significant impact on the determination or reporting of its financial
results.
 
 (15)
              Subsequent
      Events
 
 In
accordance with the provisions of FASB ASC 855-10 (formerly SFAS No. 165), the
Company has evaluated subsequent events through November 13, 2009, which is the
date these financial statements were issued.  All subsequent events
requiring recognition as of September 30, 2009, have been incorporated into the
consolidated financial statements presented herein.
  20
 Table of Contents
 
 The
Company has entered into an Agreement and Plan of Merger with The Steak n Shake
Company dated October 22, 2009.  If the merger is completed, the
Company will become a wholly owned subsidiary of The Steak n Shake Company and
will cease to be a publicly traded company.  The merger is subject to
approval by the Company’s stockholders.
 
 In
accordance with the Agreement and Plan of Merger, on October 22, 2009 the
Company declared a special dividend payable to the Company’s stockholders in the
form of 1,322,806 shares of Steak n Shake common stock that was beneficially
owned by Western Investments, Inc.  Each stockholder of the Company of
record as of November 2, 2009 was entitled to receive this dividend which was
distributed on November 6, 2009.  The dividend was payable at the rate
of approximately 0.465 shares of Steak n Shake common stock for each share of
Company common stock outstanding as of November 2, 2009 (fractional share
interests were settled by a cash payment).
 
 The
limited partners of Western Acquisitions, LP can redeem their investments after
two years from contribution dates.  Pursuant to a request for
redemption from certain limited partners of Western Acquisitions, LP, subsequent
to September 30, 2009, an in-kind stock distribution was made to such limited
partners having an aggregate value of approximately $1.36
million.
  Item 2.  Management’s Discussion and
Analysis of Financial Condition and Results of
Operations
  Overview
 
 The
following discussion may include forward-looking statements including
anticipated financial performance, business prospects, the future opening of
Company-operated and franchised restaurants, anticipated capital expenditures,
and other matters.  All statements other than statements 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 (as amended) provide safe harbors for forward-looking
statements.  In order to comply with the terms of these safe harbors,
the Company notes that a variety of factors, individually or in the aggregate,
could cause the Company’s actual results and experience to differ materially
from the anticipated results or other expectations expressed in the Company’s
forward-looking statements including, without limitation, the following: the
ability of the Company or its franchises to obtain suitable locations 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’s operating regions; laws
and government regulations; general business and economic conditions;
availability of capital; success of operating initiatives and marketing and
promotional efforts; and changes in accounting policies.  In addition,
the Company disclaims any intent or obligation to update those forward-looking
statements.
 
 Western
Sizzlin Corporation is a holding company owning subsidiaries engaged in a number
of diverse business activities.  The Company’s primary business
activities are conducted through Western Sizzlin Franchise Corporation and
Western Sizzlin Stores, Inc., which franchise and operate 102 restaurants
in 19 states, including five Company-owned, 96 franchise restaurants, and one
joint venture restaurant.  The Company currently operates and/or
franchises the following concepts:  Western Sizzlin, Western Sizzlin
Wood Grill, Great American Steak & Buffet, and Quincy’s
Steakhouses.
 
 Financial
decisions are centralized at the holding company level, and management of
operating businesses is decentralized at the business unit
level.  Investment and all other capital allocation decisions are made
for the Company and its subsidiaries by Mr. Sardar Biglari, Chairman and
Chief Executive Officer.
  While the
Company has historically been principally engaged, and intends at this time to
remain principally engaged, in franchising and operating restaurants, its recent
investment activities could bring it within the definition of an “investment
company” and require it to register as an investment company under the
Investment Company Act of 1940.  The Board of Directors has adopted a
policy requiring management to restrict the Company’s operations and investment
activities to avoid becoming an investment company, until and unless the Board
approves otherwise.  Although the Company does not presently intend to
change its principal business, and the Board has not approved any such change,
the Company has expanded its investment operations, and may decide in the future
to register as an investment company under the Investment Company
Act.  Under certain circumstances, if it is successful in investment
operations, then the Company may inadvertently fall within the definition of an
investment company, in which event it may be required to register as an
investment company.  If the Company decides or is required to register
as an investment company, then it would become subject to various provisions of
the Investment Company Act and the regulations adopted under such Act, which are
very extensive and could adversely affect its operations.
  21
 Table of Contents
 
 The
Company seeks to invest, at the holding company level and through its
subsidiaries, including Western Acquisitions, L.P., in stocks of businesses at
prices below their intrinsic business value.  The Company’s preferred
strategy is to allocate a meaningful amount of capital in each investee,
resulting in concentration.  The carrying values of these investments
are exposed to market price fluctuations, which may be accentuated by a
concentrated equity portfolio.  A significant decline in the price of
major investments may produce a large decrease in the Company’s net earnings and
its stockholders’ equity (See Note 3 to the Company’s consolidated financial
statements included in Item 1 of this report).
 
 The
consolidated financial statements include the accounts of Western Sizzlin
Corporation and its wholly-owned subsidiaries, Western Sizzlin Franchise
Corporation, The Western Sizzlin Stores, Inc., Western Sizzlin Stores of
Little Rock, Inc., Austins of Omaha, Inc., Western
Investments, Inc., Western Properties, Inc., a majority-owned limited
partnership, Western Acquisitions, L.P., solely-owned limited partnerships,
Western Real Estate, L.P. and Western Mustang Holdings, L.L.C. (collectively the
Company). All significant intercompany accounts and transactions have been
eliminated in consolidation.
 
 The
Company has entered into an Agreement and Plan of Merger with The Steak n Shake
Company dated October 22, 2009.  If the merger is completed, the
Company will become a wholly owned subsidiary of The Steak n Shake Company and
will cease to be a publicly traded company.  The merger is subject to
approval by the Company’s stockholders.
 
 In
accordance with the Agreement and Plan of Merger, on October 22, 2009 the
Company declared a special dividend payable to the Company’s stockholders in the
form of 1,322,806 shares of Steak n Shake common stock that was beneficially
owned by Western Investments, Inc.  Each stockholder of the Company of
record as of November 2, 2009 was entitled to receive this dividend which was
distributed on November 6, 2009.  The dividend was payable at the rate
of approximately 0.465 shares of Steak n Shake common stock for each share of
Company common stock outstanding as of November 2, 2009 (fractional share
interests were settled by a cash payment).
 
 Results
of Operations
 
 Net
income attributable to Western Sizzlin Corporation for the three and nine months
ended September 30, 2009 was $3,578,462 and $7,802,986 compared to net income
(loss) attributable to Western Sizzlin Corporation of $2,588,269 and
($2,267,918) for the three and nine months ended September 30,
2008.  The significant improvement was primarily attributable to
targeted reduced expenses in restaurant and franchise operations and
improvements in the performance of investment operations.  Income from
investment operations that impacted net income (loss) attributable to Western
Sizzlin Corporation, excluding income (losses) attributable to noncontrolling
interests, for the three and nine months ended September 30, 2009 was $5,673,058
and $9,525,198 compared to net income (loss) from investment operations of
$3,557,933 and ($3,873,716) for the three and nine months ended September 30,
2008.   This improvement in results of investment operations was
largely due to recoveries in marketable securities over the prior
period.
 
 The
following table sets forth for the periods presented the percentage relationship
to total revenues of certain items included in the consolidated statements of
income and certain restaurant data for the periods presented:
  Three Months
              
              
              Nine MonthsEnded September 30,
              
              
              Ended September 30,2009
              
              
              2008
              
              
              2009
              
              
              2008Revenues:Company-operated
      restaurants
              
              
              79.9
              %
              
              
              77.4
              %
              
              
              78.9
              %
              
              
              76.3
              %Franchise
      operations
              
              
              20.1
              
              
              
              22.6
              
              
              
              21.1
              
              
              
              23.7Total
      revenues
              
              
              100.0
              
              
              
              100.0
              
              
              
              100.0
              
              
              
              100.0Costs
      and expenses — restaurant and franchise operations:Company-operated
      restaurants — food, beverage and labor costs
              
              
              58.3
              
              
              
              58.7
              
              
              
              57.8
              
              
              
              56.3Restaurant
      occupancy and other
              
              
              14.5
              
              
              
              14.2
              
              
              
              13.6
              
              
              
              13.4Franchise
      operations — direct support
              
              
              5.1
              
              
              
              7.0
              
              
              
              5.5
              
              
              
              7.0Subleased
      restaurant property expenses
              
              
              —
              
              
              
              8.2
              
              
              
              —
              
              
              
              3.2Corporate
      expenses
              
              
              8.6
              
              
              
              16.4
              
              
              
              9.5
              
              
              
              12.5Depreciation
      and amortization expense
              
              
              2.2
              
              
              
              5.8
              
              
              
              2.2
              
              
              
              6.0Corporate
      litigation fees and expenses
              
              
              .1
              
              
              
              .1
              
              
              
              .3
              
              
              
              1.2Total
      costs and expenses — restaurant and franchise operations
              
              
              88.8
              
              
              
              110.4
              
              
              
              88.9
              
              
              
              99.6Equity
      in income of joint venture
              
              
              1.9
              
              
              
              1.0
              
              
              
              1.7
              
              
              
              1.2Income
      (loss) from restaurant and franchise operations
              
              
              13.1
              
              
              
              (9.4
              )
              
              
              12.8
              
              
              
              1.6  22
 Table of Contents
  Investment
      advisory fee income
              
              
              2.4
              
              
              
              2.8
              
              
              
              2.2
              
              
              
              .9Net
      unrealized gains (losses) on marketable securities held by limited
      partnerships
              
              
              130.7
              
              
              
              73.8
              
              
              
              70.0
              
              
              
              (24.1
              )Net
      realized gains (losses) on sales of marketable securities
              
              
              14.0
              
              
              
              .6
              
              
              
              8.8
              
              
              
              (.1
              )Amortization
      expense – investment activities
              
              
              (.8
              )
              
              
              —
              
              
              
              (.7
              )
              
              
              —Expense
      of investment operations
              
              
              (5.1
              )
              
              
              3.9
              
              
              
              (3.7
              )
              
              
              (6.0
              )Purchase
      obligation adjustment
              
              
              (6.0
              )
              
              
              —
              
              
              
              (1.9
              )
              
              
              —Income
      (loss) from investment operations
              
              
              135.3
              
              
              
              81.1
              
              
              
              74.7
              
              
              
              (29.3
              )Other
      income (expense):Interest
      expense
              
              
              (.3
              )
              
              
              (.4
              )
              
              
              (.4
              )
              
              
              (.5
              )Interest
      income
              
              
              .8
              
              
              
              1.1
              
              
              
              .8
              
              
              
              .6Other,
      net
              
              
              —
              
              
              
              —
              
              
              
              .2
              
              
              
              —Total
      other income (expense), net
              
              
              .5
              
              
              
              .7
              
              
              
              .6
              
              
              
              .1Income
      (loss) before income tax (benefit)
              
              
              148.9
              
              
              
              72.4
              
              
              
              88.1
              
              
              
              (27.6
              )Income
      tax expense (benefit):Current
              
              
              .3
              
              
              
              —
              
              
              
              .3
              
              
              
              —Deferred
              
              
              16.0
              
              
              
              (1.8
              )
              
              
              8.1
              
              
              
              (1.3
              )Total
      income tax expense (benefit)
              
              
              16.3
              
              
              
              (1.8
              )
              
              
              8.4
              
              
              
              (1.3
              )Net
      income (loss)
              
              
              132.6
              
              
              
              74.2
              
              
              
              79.7
              
              
              
              (26.3
              )(Income)
      losses attributable to redeemable noncontrolling interests
              
              
              (47.2
              )
              
              
              (7.9
              )
              
              
              (18.6
              )
              
              
              4.6Net
      income (loss) attributable to Western Sizzlin Corporation
              
              
              85.4
              
              
              
              66.3
              
              
              
              61.1
              
              
              
              (21.8
              )
  23
 Table of Contents
 
 Three Months
              
              
              Nine MonthsEnded September 30,
              
              
              Ended September 30,2009
              
              
              2008
              
              
              2009
              
              
              2008Restaurant
      DataNumber
      of Company-Operated Restaurants:Beginning
      of period
              
              
              5
              
              
              
              5
              
              
              
              5
              
              
              
              5Opened
              
              
              —
              
              
              
              1
              
              
              
              —
              
              
              
              1Closed
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Franchised
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —End
      of period
              
              
              5
              
              
              
              6
              
              
              
              5
              
              
              
              6Number
      of U.S. Franchised Restaurants:Beginning
      of period
              
              
              99
              
              
              
              111
              
              
              
              104
              
              
              
              116Opened
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Closed
              
              
              (3
              )
              
              
              (5
              )
              
              
              (8
              )
              
              
              (10
              )End
      of period
              
              
              96
              
              
              
              106
              
              
              
              96
              
              
              
              106Number
      of Joint Venture Restaurants:Beginning
      of period
              
              
              1
              
              
              
              1
              
              
              
              1
              
              
              
              1Opened
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Closed
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —End
      of period
              
              
              1
              
              
              
              1
              
              
              
              1
              
              
              
              1
 
 Revenues
 
 Total
revenues decreased 5.4% to $4.19 million for the three months ended
September 30, 2009 from $4.43 million for the three months ended
September 30, 2008. Total revenues decreased 3.2% to $12.76 million for the
nine months ended September 30, 2009 from $13.17 million for the nine
months ended September 30, 2008.  The decreases in total revenues
were due to the decreases in franchise revenues over the same periods, which
were partially offset by increases in Company- operated restaurant revenues for
the nine months ended, as further described below.
 
 Company-operated
restaurant revenues decreased 2.3% to $3.35 million for the three months ended
September 30, 2009 as compared to $3.43 million for the three months ended
September 30, 2008. Company-operated restaurant revenues increased 0.14% to
$10.06 million for the nine months ended September 30, 2009 as compared to
$10.05 million for the nine months ended September 30, 2008.
 
 Franchise
revenues decreased 15.6% to $844,000 for the three months ended
September 30, 2009 as compared to $1.00 million for the three months ended
September 30, 2008. Franchise revenues decreased 13.5% to $2.70 million for
the nine months ended September 30, 2009 as compared to $3.12 million for
the nine months ended September 30, 2008.  The overall decrease
in franchise revenues is attributable to fewer franchised units in the system
during the relevant periods in 2009 as compared to the relevant periods in
2008.  Same store sales at franchise operations for the three and nine
months ended September 30, 2009, experienced overall decreases of 5.22% and
4.17%, respectively, compared to the same periods in 2008.
 
 Costs
and Expenses —restaurant and franchise operations
 
 Costs of
company-operated restaurants, consisting primarily of food, beverage, and labor
costs decreased $164,000 (6.5%) to $2.44 million for the three months ended
September 30, 2009 from $2.61 million for the three months ended
September 30, 2008.   These costs for the three month period
as a percentage of Company-operated restaurants revenue were 72.8% and 76.1% for
the three months ended September 30, 2009 and 2008,
respectively.  Costs of Company-operated restaurants decreased $34,000
(.0.4%) to $7.38 million for the nine months ended September 30, 2009 from
$7.41 million for the nine months ended September 30,
2008.   These costs for the nine month period as a percentage of
Company-operated restaurants revenue were 73.3% and 73.7% for the nine months
ended September 30, 2009 and 2008, respectively.  These costs
have decreased due to cost savings on commodities purchases.
 
 Restaurant
occupancy and other, which include utilities, insurance, maintenance, rent and
other such costs of the Company-operated restaurants, decreased by $22,000
(3.5%) for the three months ended September 30, 2009 versus the prior
year’s comparable period. These costs for the three month period decreased as a
percentage of Company-operated restaurant revenues from 18.3% in 2008 to 18.1%
in 2009.  Restaurant occupancy and other decreased by $23,000 (1.3%)
for the nine months ended September 30, 2009 compared to the same period in
2008.  These costs for the nine month period decreased slightly as a
percentage of Company-operated restaurant revenues from 17.5% in 2008 to 17.3%
in 2009.
  24
 Table of Contents
 
 Cost of
franchise operations direct support expense decreased by $98,000 and $227,000
for the three and nine months ended September 30, 2009 versus the prior
years’ comparable periods.  The decreases were largely attributable to
targeted expense reductions for 2009.
 
 Subleased
properties include net costs associated with subleasing former Company-operated
restaurants and maintenance of vacant premises.  There were no such
expenses for the three and nine months ended September 30, 2009 and were
$362,766 and $427,257 for the three and nine months ended September 30,
2008.  Subleasing arrangements expired at the end of
2008.
 
 Unallocated
corporate expenses consist of certain expenses not allocated to any business
segment.  These expenses include legal, accounting, stockholder
relations, personnel not directly related to a segment, information systems, and
other headquarter’s activities.  These expenses decreased by $365,000
and $431,000 for the three and nine month periods ended September 30, 2009
versus the prior year’s comparable periods.  The decreases are a
result of managing expenses at the corporate level and targeted expense
reductions for 2009.
 
 Depreciation
and amortization expense decreased $165,000 and $500,000 for the three and nine
months period ended September 30, 2009 versus the prior year’s comparable
periods.  The variance is largely attributable to franchise royalty
contracts being fully amortized as of December 31, 2008.
 
 Corporate
litigation fees increased by $1,200 for the three months ended
September 30, 2009 versus the prior year’s comparable period and decreased
$127,000 for the nine months ended September 30, 2009 versus the prior
year’s comparable period.  These expenses relate to legal fees
associated with the trial and appeal of the lawsuit involving the Company in
Little Rock, Arkansas.  (See Note 12 to the Company’s consolidated
financial statements included in Item 1 of this report).
 
 Equity
in income of Joint Venture
 
 Equity in
income of joint venture increased $37,000 for the three months ended September
30, 2009, versus the prior year’s comparable period  and increased
$69,000 for the nine months ended September 30, 2009, versus the prior year’s
comparable period due to increased performance of the restaurant during the
relevant periods in 2009.  (See Note 13 to the Company’s consolidated
financial statements included in Item 1 of this report).
 
 Income
(Loss) from Investment Operations
 
 Investment
operations include investment advisory fee income of $102,000 and $287,000 for
the three and nine months ended September 30, 2009, respectively, and $124,000
for the three and nine months ended September 30, 2008.  Net realized
gains (losses) on sales of marketable securities were $588,000 and $1,123,000
for the three and nine months ended September 30, 2009, respectively, and
$24,000 and ($16,000) for the three and nine months ended September 30,
2008.  Net unrealized gains (losses) on marketable securities held by
the limited partnerships, Western Acquisitions, L.P. and Mustang Capital
Advisors, L.P., were $5.5 million and $8.9 million for the three and nine months
ended September 30, 2009 and $3.3 million and ($3.2 million) for the three and
nine months ended September 30, 2008.   Amortization expense
associated with investment activities of $34,000 and $95,000 were recorded in
the three and nine months ended September 30, 2009, respectively, and $0 for the
comparable periods in 2008.  Purchase obligation adjustments of
($253,000) and $(246,000) were recorded in the three and months ended September
30, 2009, respectively and $0 for the comparable periods in 2008. Reimbursement
(expenses) associated with investment activities were ($212,000) and ($476,000)
for the three and nine months ended September 30, 2009, respectively, and
$174,000 and ($795,000) for the three and nine months ended September 30,
2008.  The decrease in expenses for the relevant periods in 2009
versus the prior year’s comparable period is attributable to expenses in 2008
associated with the Steak n Shake proxy contest, the ITEX tender offer, and
other investment related activities.  There was no management fees
charged or collected from outside investors by Western Acquisitions LP in first
nine months of 2009 or 2008.
 
 Other
Income (Expense)
 
 Interest
expense decreased $1,700 and decreased $25,000 for the three and nine months
ended September 30, 2009 over the comparable period in
2008.    Interest income fluctuates according to the levels
of available cash balances.
 
 Other,
net for the three and nine months ended September 30, 2009 was comparable to the
same periods in 2008.
 
 Income
tax expense is directly affected by the levels of pretax income and the
valuation allowance established on deferred tax assets. The Company’s effective
tax rate was 11.0% and (2.4%) for the three months ended September 30, 2009
and 2008, respectively and 9.5% and (4.6%) for the nine months ended
September 30, 2009 and 2008, respectively.  The provisions for
deferred income taxes for the three and nine month periods ended
September 30, 2009 includes provision decreases for the valuation allowance
of $1,048,000 and $2,327,000, respectively, which decreased the Company’s
effective tax rate for the periods.
  25
 Table of Contents
 
 Cash
and Cash Equivalents
 
 As of
September 30, 2009, the Company had $1.5 million of cash and cash equivalents
compared to $745,000 as of September 30, 2008.
 
 Investment
of Available Capital
 
 The
Company’s cash flows from restaurant and franchise activities have exceeded its
working capital, financing and capital investment needs of its restaurant and
franchise operations, and management expects that the Company’s cash flows will
continue to exceed its operating cash needs for the foreseeable
future.  The Company regularly evaluates how best to use available
capital to increase stockholder value.  The Company may pursue
investments in the form of acquisitions, joint ventures and partnerships where
the Company believes attractive returns can be obtained.  Further, the
Company may determine under certain market conditions that available capital is
best utilized to fund investments that it believes offers the Company attractive
return opportunities, whether or not related to its ongoing business
activities.
 
 As
previously discussed in Note 3 to the Company’s consolidated financial
statements included in Item 1 of this report, the Company’s Board of Directors
has delegated authority to direct investment of the Company’s surplus cash to
its Chairman, Sardar Biglari, subject to Board reporting requirements and
various limitations that have been or may be from time to time adopted by the
Board of Directors.  These investments may include significant and
highly concentrated direct investments with respect to the equity securities of
public companies.  Any such investments will involve risks, and
stockholders should recognize that the Company’s balance sheet may change
depending on the performance of investments.  Furthermore, such
investments could be subject to volatility that may affect both the recorded
value of the investments as well as the Company’s periodic
earnings.
 
 Operating
Activities and Cash Flows
 
 The
Company provided approximately $585,000 and used $30,000 in operating cash flows
for the nine months ended September 30, 2009 and 2008, respectively,
including the purchase of marketable securities of $10.8 million and $5.9
million in the nine months ended September 30, 2009 and 2008,
respectively.  Proceeds from sales of marketable securities were $8.3
million and $4.3 million for the nine months ended September 30, 2009 and 2008,
respectively. Net unrealized gains (losses) on marketable securities were $8.9
million and ($3.2 million) for the nine months ended September 30, 2009 and
2008, respectively.  Net realized gains (losses) were $1.1 million and
($16,000) for the nine months ended September 30, 2009 and 2008,
respectively.  The Company’s primary source of operating cash flows is
the operating profits generated from Company’s restaurant and franchise
operations.  Adjustments to reconcile net income (loss) to net cash
provided by restaurant and franchise activities were approximately $1.1 million
and $1.3 million for the nine months ended September 30, 2009 and 2008,
respectively.  Adjustments to reconcile net income (loss) to net cash
provided by (used in) investment activities were approximately ($10.7 million)
and $2.1 million  for the nine months ended September 30, 2009
and 2008, respectively.
 
 Investing
Activities
 
 During
the nine months ended September 30, 2009 and 2008, the Company spent $4,600
and $23,000 on capital expenditures on Company restaurants.  For the
nine months ended September 30, 2008, amounts included purchases of marketable
securities of $803,000 and purchase of Mustang Capital Advisors, LP of
$380,000.
 
 Financing
Activities
 
 The
Company made scheduled payments on long-term debt of $345,000 and $93,000 for
the nine months ended September 30, 2009 and 2008,
respectively.  For the nine months ended September 30, 2009, net
proceeds of $100,000 were received from borrowings on the line of
credit.  Proceeds of $2 million were received from the issuance of a
note payable for nine months ended September 30, 2008.  Net capital
contributions of $812,000 and $540,000 were received from capital contributions
from noncontrolling interests in limited partnerships for the nine months ended
September 30, 2009 and 2008, respectively.   Cash received from
exercise of stock options were $61,000 and $165,000 for the nine months ended
September 30, 2009 and 2008, respectively.
  26
 Table of Contents
 
 Certain
notes payable require prepayment premiums in certain
circumstances.  In addition, certain notes payable contain certain
restrictive covenants including debt coverage ratios, periodic reporting
requirements and maintenance of operations at certain Company-operated
restaurants that collateralize the notes payable. At September 30, 2009,
the Company was in compliance with all covenants on the notes
payable.
 
 Liquidity
 
 The
Company’s primary sources of liquidity are cash generated from operations and,
if needed, borrowings under its existing line of credit. The Company continually
reviews its available financing alternatives.  In addition, the
Company may consider, on an opportunistic basis, strategic decisions to create
value and improve operational performance.
 
 CONTRACTUAL
OBLIGATIONS
 
 The table
below sets forth a summary of contractual obligations that will impact future
liquidity as of September 30, 2009:
 
 Payment due by periodContractual Obligations
              
              2009
              
              
              2010
              
              
              2011
              
              
              2012
              
              
              2013
              
              
              Thereafter
              
              
              TotalsLong-term
      debt
              
              $
              2,564,761
              
              
              $
              62,214
              
              
              $
              134,189
              
              
              $
              148,342
              
              
              $
              52,583
              
              
              
              —
              
              
              $
              2,962,089Operating
      leases
              
              
              165,867
              
              
              
              639,880
              
              
              
              367,611
              
              
              
              399,171
              
              
              
              405,086
              
              
              
              766,908
              
              
              
              2,744,523Interest
      expense (1)
              
              
              28,470
              
              
              
              40,459
              
              
              
              27,655
              
              
              
              13,501
              
              
              
              1,101
              
              
              
              
              
              
              
              111,186Tax
      obligations (2)
              
              
              11,805
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              11,805Other
      long-termliabilities
      (3)
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              527,770
              
              
              
              527,770Totals
              
              $
              2,770,903
              
              
              $
              742,553
              
              
              $
              529,455
              
              
              $
              561,014
              
              
              $
              458,770
              
              
              $
              1,294,678
              
              
              $
              6,357,373
 
 
 (1)
                Reflects
      future interest payments through scheduled maturity dates based upon
      average borrowing rates, outstanding debt balances and scheduled principal
      payments on long-term debt.  Interest on the Company’s variable
      rate debt is based on the interest rate in effect at September 30,
      2009.
 
 (2)
                Reflects
      recognized liabilities for uncertain tax positions under the provision FIN
      48.  (See Note 7 to the Company’s consolidated financial
      statements included in Item 1 of this
report).
 
 (3)
                Reflects
      the cash portion of the Company’s purchase obligation to purchase the
      ownership percentage of the minority interest holder of Mustang Capital
      Advisors, LP.
  CRITICAL
ACCOUNTING ESTIMATES
 
 The
discussion and analysis of financial condition and results of operations is
based on the consolidated financial statements and accompanying notes that have
been prepared in accordance with United States generally accepted accounting
principles.  The preparation of these consolidated financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the consolidated financial statements and
the reported amounts of revenues and expenses during the reporting
period.  Actual results could differ from those
estimates.
 
 Application
of the critical accounting policies discussed below requires significant
judgments by management. Often as a result of the need to make estimates of
matters that are inherently uncertain.  If actual results were to
differ materially from the estimates made, the reported results could be
materially affected.  The Company is not currently aware of any
reasonably likely events or circumstance that would result in materially
different results. The Company’s senior management has reviewed the critical
accounting policies and estimates and the Management’s Discussion and Analysis
regarding them with the Audit and Finance Committee of the Board of
Directors.
 
 The
following are areas requiring significant judgments and estimates due to
uncertainties as of the reporting date: trade accounts and notes receivable and
the allowance for doubtful accounts, investments, determination of useful lives
and the evaluation of any impairment of long-lived assets (including franchise
royalty contracts, investment management contracts, and limited partnership
agreements, goodwill and property and equipment), commitments and contingencies,
and income taxes.
  27
 Table of Contents
 
 Trade
Accounts and Notes Receivable and the Allowance for Doubtful
Accounts
 
 The
Company collects royalties, and in some cases rent, from
franchisees.  The Company views trade accounts and notes receivable
and the related allowance for doubtful accounts as a critical accounting
estimate since the allowance for doubtful accounts is based on judgments and
estimates concerning the likelihood that individual franchisees will pay the
amounts included as receivables from them.  In determining the amount
of allowance for doubtful accounts to be recorded for individual franchisees,
the Company considers the age of the receivable, the financial stability of the
franchisee, discussions that may have occurred with the franchisee and a
judgment as to the overall collectability of the receivable from the
franchisee.  In addition, the Company establishes an allowance for all
other receivables for which no specific allowances are deemed
necessary.  If average sales or the financial health of franchisees
were to deteriorate, the Company might have to increase the allowance for
doubtful accounts.
 
 Investments
 
 Marketable
equity securities held by Western Sizzlin Corporation are held for an indefinite
period and thus are classified as available-for-sale. Available-for-sale
securities are recorded at fair value in Investments in Marketable Securities on
the consolidated balance sheet, with the change in fair value during the period
excluded from earnings and recorded net of tax as a component of other
comprehensive income (loss).  Fair value is determined through the use
of quoted market values on national exchanges.  On a quarterly basis,
the Company performs an assessment to determine whether there have been any
events or economic circumstances to indicate that a marketable equity security
with an unrealized loss has suffered other-than-temporary impairment, pursuant
to FASB ASC 320-10-65 (formerly FSP FAS 115-2 and FAS 124-2).
 
 Western
Acquisitions, LP and Mustang Capital Advisors, LP are, for GAAP purposes,
investment companies under the AICPA Audit and Accounting Guide Investment
Companies.  The Company has retained the specialized accounting
for Western Acquisitions, LP and Mustang Capital Advisors, LP pursuant to FASB
ASC 810-10-25 (formerly EITF Issue No. 85-12, Retention of Specialized Accounting
for Investments in Consolidation).  As such, marketable equity
securities held by Western Acquisitions, LP and Mustang Capital Advisors, LP are
recorded at fair value in Investments in Marketable Securities held by limited
partnerships, with unrealized gains and losses resulting from the change in fair
value reflected in the Statement of Operations.  Fair value is
primarily determined through the use of quoted market values on national
exchanges.
 
 Long-lived
Assets, Franchise Royalty Contracts and Goodwill
 
 The
Company views the determination of the carrying value of long-lived assets,
franchise royalty contracts, goodwill, investment management contracts and
limited partnership agreements as critical accounting estimates since it must
evaluate the estimated economic useful life in order to properly depreciate or
amortize the long-lived assets, franchise royalty contracts, and investment
management contracts and limited partnership agreements and because it must
consider if the value of any of the long-lived assets have been impaired,
requiring adjustments to the carrying value.  Goodwill is not subject
to amortization but is subject to at least an annual impairment test to
determine if the carrying amount exceeds its fair value.
 
 Economic
useful life is the duration of time the asset is expected to be productively
employed, which may be less than its physical life.  The estimated
economic useful lives of long-lived assets are monitored to determine if they
continue to be appropriate in light of changes in business
circumstances.
 
 The
Company must also consider whether long-lived assets (including property and
equipment and intangible assets) have been impaired to the extent that we must
recognize a loss on such impairment, including goodwill impairment. The Company
evaluates its long-lived assets for impairment at the restaurant, franchise and
investment company levels on an annual basis or whenever changes or events
indicate that the carrying value may not be recoverable. The Company assesses
impairment of each level of assets based on the operating cash flows of the
restaurant, franchise and investment operations and our plans for each
restaurant unit, franchisee contract, or investment. Generally, all restaurant
units with negative cash flows from operations for the most recent twelve months
at each quarter end are included in the Company’s assessment. In performing our
assessment, the Company must make assumptions regarding estimated future cash
flows, including estimated proceeds from similar asset sales, and other factors
to determine both the recoverability and the estimated fair value of the
respective assets. If the long-lived assets of a restaurant are not recoverable
based upon estimated future, undiscounted cash flows, the Company writes the
assets down to their fair value. If these estimates or their related assumptions
change in the future, the Company may be required to record additional
impairment charges.
  28
 Table of Contents
 
 The
Company evaluates goodwill for impairment on an annual basis during the fourth
quarter of each year, or more frequently if an event occurs that triggers an
interim impairment test.  The Company determines the fair values of
our reporting units using the discounted cash flow method.  This
method uses projections of cash flows from each of the reporting
units.  Several of the key assumptions in estimating future cash flows
include periods of operations, projections of operating profits, and weighted
average cost of capital.  These assumptions are derived from the
Company’s internal budgets and consideration of available market
data.  The factors which contribute the greatest variability in our
estimates of fair values are the weighted average cost of capital and estimates
of future operating profits.
 
 Purchase
Obligation
 
 In
connection with our acquisition of a controlling interest in Mustang Capital
Advisors, LP and Mustang Capital Management, LLC, the Company is obligated to
purchase the minority interest holder’s ownership percentage upon the occurrence
of certain events.  The purchase obligation will ultimately be settled
in cash and shares of the Company’s common stock.  The Company is
accounting for this purchase obligation pursuant to FASB ASC 480-10 (formerly
Statement of Financial Accounting Standards No. 150 (As Amended) - Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity).The
resulting liability is reported in other long-term liabilities on the
accompanying financial statements.
 
 Commitments
and Contingencies
 
 The
Company views accounting for contingencies as a critical accounting estimate
since loss contingencies arising from claims, assessments, litigation, fines and
penalties and other sources require judgment as to any probable liabilities
incurred.  Actual results could differ from the expected results
determined based on such estimates.
 
 Income
Taxes
 
 The
Company records valuation allowances against deferred tax assets, when
necessary, in accordance with FASB ASC 740 (formerly SFAS No. 109, “Accounting for Income
Taxes”). Realization of deferred tax assets is dependent on future
taxable earnings and is therefore uncertain. The Company assesses the likelihood
that deferred tax assets in each of the jurisdictions in which it operates will
be recovered from future taxable income. Deferred tax assets do not include
future tax benefits that the Company deems likely not to be
realized.
 
 In
July 2006, the FASB issued FASB ASC 740-10 (formerly FASB Interpretation
Number 48, Accounting for
Uncertainty in Income Taxes, an Interpretation of FASB Statement
No. 109).   FASB ASC 740-10 prescribes a recognition
threshold and measurement attributes for the financial statement recognition and
measurement of a tax position taken in a tax return.  The Company must
determine whether it is “more-likely-than-not” that a tax position will be
sustained upon examination, including resolution of any related appeals or
litigation processes, based on the technical merits of the
position.  Once it is determined that a position meets the
more-likely-than-not recognition threshold, the position is measured to
determine the amount of benefit to recognize in the financial
statements.  FASB ASC 740-10 applies to all tax positions related to
income taxes subject to FASB ASC 740.
 
 OTHER
 
 Impact
of Inflation
 
 The
impact of inflation on the costs of food and beverage products, labor and real
estate can affect the Company’s operations.  Management believes the
Company has historically been able to pass on increased costs through certain
selected menu price increases and has offset increased costs by increased
productivity and purchasing efficiencies, but there can be no assurance that the
Company will be able to do so in the future.  Management anticipates
that the average cost of restaurant real estate leases and construction costs
could increase in the future which could affect the Company’s ability to
expand.  In addition, mandated health care or additional increases in
the federal or state minimum wages could significantly increase the Company’s
costs of doing business.
 
 Item 3.  Quantitative and Qualitative
Disclosure about Market Risk
 
 As of
September 30, 2009, the Company’s financial instruments are not exposed to
significant market risk due to foreign currency exchange
risk.  However, the Company is exposed to market risk related to
changes in market prices of marketable securities, interest rates related to
certain debt obligations, and commodity risks.
  29
 Table of Contents
  Market
Price Risk
  The
Company’s marketable securities are currently concentrated in a few investments.
A change in market prices exposes the Company to market risk related to the
investments in marketable securities.  As of September 30, 2009, the
Company held $29.7 million in available-for-sale marketable securities. A
hypothetical 10% decline in the market value of those securities would result in
$2.97 million of unrealized losses and a corresponding decline in their fair
values at September 30, 2009.  This hypothetical decline would not
affect the Company’s cash flows unless the securities were disposed
of.
 
 Interest
Rate Risk
 
 The
Company has exposure to interest rate risk related to certain instruments
entered into for other than trading purposes. Specifically, borrowings under the
loan associated with the Texas land purchase and revolving credit facility bear
interest at variable rates based on the prime rate minus .5%.  The
nature and amount of borrowings under the credit facility may vary as a result
of future business requirements, market conditions and other
factors.
 
 Commodity
Price Risk
 
 The
Company purchases certain food products such as beef, poultry, pork, eggs and
coffee, and utilities such as gas and electricity, which are affected by
commodity pricing and are, therefore, subject to price volatility caused by
weather, production problems, delivery difficulties and other factors that are
outside of the Company’s control and which are generally unpredictable. Changes
in commodity prices affect the Company and competitors generally and often
simultaneously. In general, the Company purchases food products and utilities
based upon market prices established with vendors. Although many of the items
purchased are subject to changes in commodity prices, the majority of our
purchasing arrangements are structured to contain features that minimize price
volatility by establishing fixed pricing and/or price ceilings and floors. The
Company uses these types of purchase arrangements to control costs as an
alternative to using financial instruments to hedge commodity prices. The
Company has determined that our purchasing agreements do not qualify as
derivative financial instruments or contain embedded derivative instruments. In
many cases, the Company believes it will be able to address commodity cost
increases which are significant and appear to be long-term in nature by
adjusting our menu pricing or changing our product delivery strategy. However,
competitive circumstances could limit such actions and, in those circumstances,
increases in commodity prices could lower its margins. Because of the often
short-term nature of commodity pricing aberrations and our ability to change
menu pricing or product delivery strategies in response to commodity price
increases, the Company believes that the impact of commodity price risk is not
significant.
 
 The
Company has established a policy to identify, control and manage market risks
which may arise from changes in interest rates, commodity prices and other
relevant rates and prices.
 
 Item 4.  Controls and
Procedures
 
 Evaluation
of Disclosure Controls and Procedures
 
 Based on
an evaluation of the Company’s disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(c) under the Securities Exchange Act
of 1934, as amended),  the Company’s  Chief Executive
Officer and Chief Financial Officer have concluded that its disclosure controls
and procedures were effective as of September 30, 2009.
 
 Changes
in Internal Control Over Financial Reporting
 
 There
have been no changes in its internal control over financial reporting that
occurred during the current quarter ended September 30, 2009 that have
materially affected, or that are reasonably likely to materially affect, the
internal control over financial reporting.
 
 PART II. OTHER INFORMATION
 
 Item 1.  Legal
Proceedings
 
 In
addition to those proceedings discussed in Note 12 to the Company’s consolidated
financial statements included in Item 1 of this report, the Company is involved
in various other claims and legal actions which are routine litigation matters
incidental to the business.  In the opinion of the management, the
ultimate disposition of these other matters will not have a material adverse
effect on the Company’s financial condition, results of operations or
liquidity.
  30
 Table of Contents
 
 Item 1A. Risk
Factors
 
 An
investment in the common stock of any company involves a degree of
risk.  Investors should consider carefully the risks and uncertainties
described in the Company’s Annual Report on Form 10-K filed with the SEC,
and those other risks described elsewhere in this report, before deciding
whether to purchase our common stock.  Additional risks and
uncertainties not currently known to us or that we currently deem immaterial may
also become important factors that may harm the Company’s business, financial
condition, and results of operations.  The occurrence of risk factors
could harm the Company’s business, financial condition, and results of
operations for company operations, as well as franchised
operations.  The trading price of the Company’s common stock could
decline due to any of these risks and uncertainties, and stockholders may lose
part or all of their investment.
 
 The
Company has revised and updated the risk factor entitled “Our investment
activities could require registration as an Investment Company” included in the
“Risk Factors” section of Company’s Annual Report on Form 10-K for the year
ended December 31, 2008, as set forth below.  Except as set forth
below, there have been no material changes in the risk factors described in the
Company’s Annual Report on Form 10-K for the year ended December 31,
2008.
 
 Our
investment activities could require registration as an Investment
Company.
 
 We have
historically been principally engaged in franchising and operating restaurants
and we do not presently intend to change our principal
business.  However, we may inadvertently fall within the definition of
an investment company under the Investment Company Act of 1940, as amended, in
part if we own investment securities having a value exceeding 40% of the value
of our total assets (excluding government securities and cash items) on an
unconsolidated basis.  Although investment securities currently
represent less than 40% of our total assets, determined based on our current
market capitalization (excluding government securities and cash items), the
value of the investment securities that we hold, and the total value of our
assets, can change significantly from time to time.  As a result, we
could fail to satisfy the 40% test in part if the value of our investment
positions increases substantially, or if the value of our non-investment assets
decreases substantially.  Failure to satisfy the 40% test does not
automatically mean that we would be required to register under the Investment
Company Act, and the Board has not adopted any strict numerical limit on our
investment activities.
 
 If our
investment activities inadvertently result in our being determined to be an
investment company and we fail to register as an investment company, we might be
unable to enforce contracts with third parties, and third parties could seek
rescission of transactions with us undertaken during the period that we were an
unregistered investment company, subject to equitable considerations set forth
in the Investment Company Act.  In addition, we might be subject to
monetary penalties or injunctive relief, or both, in an action brought against
us by the SEC.
 
 If we
decide to register as an investment company, then we would become subject to
various provisions of the Investment Company Act and the regulations adopted
under such Act, which are very extensive and could adversely affect our
operations.  For example, we might be prohibited from entering into or
continuing transactions with certain of our affiliates.
 
 Item 4.  Submission
of Matters to a Vote of Security Holders
 
 At the
Annual Meeting of the Stockholders held August 13, 2009, the following persons
were elected to the Board of Directors for a one-year term, until the 2010
Annual Meeting of Stockholders, or until their successors are elected and
qualified:
 
 Nominees
              
              Shares
                voted for
              
              
              Shares
                withheldSardar
      Biglari
              
              
              2,177,399
              
              
              
              52,485Philip
      L. Cooley
              
              
              2,177,409
              
              
              
              52,475Titus
      W. Greene
              
              
              2,201,163
              
              
              
              28,721Kenneth
      R. Cooper
              
              
              2,201,163
              
              
              
              28,721Jonathan
      Dash
              
              
              2,177,399
              
              
              
              52,485Martin
      S. Fridson
              
              
              2,177,409
              
              
              
              52,475
 
 31
 Table of Contents
  Item 6.  Exhibits:
 
 31.1
              Certification
      of Chief Executive Officer pursuant to
  Rule 13a-14(a).31.2
              Certification
      of Chief Financial Officer pursuant to
  Rule 13a-14(a).32.1
              Certification
      of Chief Executive Officer pursuant to 18 U.S.C.
      Section 1350.32.2
              Certification
      of Chief Financial Officer pursuant to 18 U.S.C.
      Section 1350.
 
 32
 Table of Contents
 
 SIGNATURES
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
 
 Western
      Sizzlin CorporationBy:
              /s/
      Sardar BiglariSardar
      BiglariPresident
      and Chief Executive OfficerBy:
              /s/
      Robyn B. MabeRobyn
      B. MabeVice
      President and Chief Financial OfficerDate  November
      12, 2009
 
 33