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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 
 FORM 10-K/A (Amendment No. 1) þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934For the fiscal year ended December 28, 2004o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934For the transition period from ___to ___
 Commission file number 000-22753 TOTAL ENTERTAINMENT RESTAURANT CORP.  Delaware
    
    52-2016614(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. employer identification no.)
 1551 N. Waterfront Parkway, Suite 310
Wichita, KS 67206
(Address of principal executive offices) (Zip code) (316) 634-0505
(Registrants telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value 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 þ No o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of Registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. Yes þ No o Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule
12b-2 of the Act). Yes þ No o The aggregate market value of Common Stock held by non-affiliates of the Registrant as of
December 28, 2004, based on the closing price of the Common Stock as reported by the Nasdaq
National Market on June 15, 2004, was $110,258,348. Solely for purposes of this computation,
shares held by all officers, directors and 10% or more beneficial owners of the registrant have
been excluded. Such exclusion should not be deemed a determination or an admission that such
officers, directors or 10% or more beneficial owners are, in fact, affiliates of the registrant. As of March 25, 2005, there were 9,977,964 shares outstanding of the Registrants Common
Stock. DOCUMENTS INCORPORATED BY REFERENCE The Company intends to file a definitive proxy statement pursuant to Regulation 14A within 120
days of the end of the fiscal year ended December 28, 2004. Portions of such proxy statement are
incorporated by reference in response to Part III, Items 10, 11, 12 and 13.




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EXPLANATORY NOTE This Amendment No. 1 to the Annual Report on Form 10-K for Total Entertainment Restaurant Corp.
(the Company) for the fiscal year ended December 28, 2004, initially filed on March 28, 2005 (the
Report), is being filed to include Managements Report on Internal Control Over Financial
Reportingrequired by Item 308(a) of Regulation S-K and the related Report of Independent
Registered Accounting Firmrequired by Item 308(b) of Regulation S-K. As permitted by SEC Release
No. 34-50754, the initial filing of the Companys Form 10-K did not include these items. This Amendment No. 1 is specifically intended to make only the following changes to the Report: 1)
to modify Part II Item 9A to include the information required by Items 308(a) and 308(b) of
Regulation S-K; 2) to update the requisite Section 302 and Section 906 certifications and the
signature page to reflect the filing date of this Amendment; and 3)
to modify the list of exhibits to refer to the updated certifications
and auditors consent. All other information presented in the
Report is unaffected by this Amendment. While the remainder of the Report is unchanged, the Company is reproducing the Report in its
entirety to provide a complete presentation to the reader. The information in this Amendment No. 1
is as of the original date of filing of the Report, except for certifications, which speak as of
their respective dates and the filing date of this Amendment No. 1. Except as specifically
indicated, the Report has not been updated to reflect events occurring subsequently to the original
filing date.




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TABLE OF CONTENTS ITEM
    
    
    
    PAGEPART I1.
    
    Business
    
    
    42.
    
    Properties
    
    
    143.
    
    Legal Proceedings
    
    
    144.
    
    Submission of Matters to a Vote of Security Holders
    
    
    15PART II5.
    
    Market for the Registrants Common Equity and Related Stockholder Matters
    
    
    156.
    
    Selected Financial Data
    
    
    167.
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    177A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    258.
    
    Financial Statements and Supplementary Data
    
    
    259.
    
    Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
    
    
    259A.
    
    Controls and Procedures
    
    
    259B.
    
    Other Information
    
    
    27PART III10.
    
    Directors and Executive Officers of the Registrant
    
    
    2811.
    
    Executive Compensation
    
    
    2812.
    
    Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    2813.
    
    Certain Relationships and Related Transactions
    
    
    2814.
    
    Principal Accountant Fees and Services
    
    
    28PART IV15.
    
    Exhibits, Financial Statement Schedules, and Reports on Form 8-K
    
    
    29Signatures
    
    
    32Agreement for Sale & Purchase of AssetsAgreement for Accounting ServiceSubsidiariesConsent of ExpertsCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification Steven M. Johnson Pursuant to Section 906Certification by James K. Zielke Pursuant to Section 906




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PART I 
 Item 1.Business General We own and operate 77 restaurants under the Fox and Hound and Baileys brand names that
each provide a social gathering place offering high quality food, drinks and entertainment in an
upscale, casual environment. Our restaurants offer a broad menu of mid-priced appetizers, entrees
and desserts served in generous portions. In addition, each location features a full-service bar
and offers a wide selection of major domestic, imported and specialty beers. Each restaurant
emphasizes a high energy environment with satellite and cable coverage of a variety of sporting
events and music videos, and most of our restaurants offer multiple billiards tables. In addition
to our food, we believe our customers are attracted to our elegant yet comfortable atmosphere of
dark wood interiors, polished brass, embroidered chairs and booths, and etched glass. Our Fox and
Hound and Baileys restaurants share identical design and operational principles and menus. Our History The first Fox and Hound restaurant opened in August 1994 and the first Baileys restaurant
opened in November 1989. In February 1997, the two companies were combined to form Total
Entertainment Restaurant Corp. In July 1997, we completed our initial public offering. As of
March 25, 2005, the Company owns and operates 59 Fox and Hound restaurants and 18 Baileys
restaurants in Alabama, Arizona, Arkansas, Colorado, Georgia, Illinois, Indiana, Kansas, Louisiana,
Michigan, Missouri, Nebraska, New Jersey, New Mexico, North Carolina, Ohio, Oklahoma, Pennsylvania,
South Carolina, Tennessee, Texas and Virginia. Concept We believe our restaurants offer customers a unique and exciting upscale destination for
socializing, eating and drinking. We believe our restaurants are differentiated from our
competitors by offering all of the following features in a single location:  
    An Upscale, Neighborhood Social Gathering Place. Our restaurants provide a
destination where friends and acquaintances can gather regularly for food, drinks and
entertainment in an upscale yet casual environment.
    High Quality Food and Beverage. Our restaurants offer a broad menu of mid-priced
appetizers, salads, desserts and entrees featuring beef, chicken, fish and barbecue,
all served in generous portions. Each location features a full service bar and a wide
variety of domestic, imported and specialty beers. To maximize the appeal of each area
of our restaurants, sit-down food and beverage service is available in every room.
    State-of-the-Art Audio and Visual Technology.Our restaurants create an exciting,
high-energy atmosphere through state-of-the-art audio and video systems for viewing
sporting events and music videos from our customized playlist. Each location typically
has more than 35 televisions (including several big-screen televisions) with satellite
and cable coverage of concurrent national, regional and local sporting events.
    Late-night Destination. Our restaurants are generally open from 11:00 a.m. to 2:00
a.m., seven days a week, depending upon local law. We provide customers with an
upscale entertainment and dining alternative by offering our full menu during our
increasingly popular late-night segment. Strategy Our goal is to become the leading neighborhood destination for socializing, eating and
drinking. Our strategy for attaining this leadership position is based on the following key
elements: Total Entertainment and Restaurant Experience. Our concept offers a social gathering place,
food and beverages, sports entertainment, games of skill and a late-night destination all in a
single location. Each location provides guests with a multi-dimensional entertainment and
restaurant experience that enables them to participate in one or more elements of the experience. Seasoned Management Team. We employ a seasoned management team with experience in
successfully developing and operating multi-unit concepts in a variety of geographic markets
throughout the United States. We intend to leverage this experience to secure favorable real
estate sites, control costs and implement proven operating procedures. In addition, we maintain
centralized financial and accounting controls through Franchise Services Company, a third party
accounting and administrative services company. By employing the services and infrastructure
provided by Franchise Services Company, we are able to focus our energy and resources on brand and
unit development. -4-




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Growth and Expansion. We believe our restaurant concept will be attractive in a variety of
geographic markets throughout the United States. We plan to open ten to twelve locations in 2005
and between twelve and fifteen locations in 2006. Through March 25, 2005, we have opened two
restaurants in 2005 and currently have five restaurants under construction, four contracts executed
with contingencies and one lease currently under negotiation. We continually evaluate locations in
various markets and negotiate proposed additional leases at desired sites. However, the number of
locations actually opened and the timing thereof may vary depending upon our ability to locate
suitable sites and negotiate favorable leases. Flexibility and Versatility of Concept. We are implementing our concept through both the Fox
and Hound and Baileys brand names. Our concept allows for significant versatility through the
reconfiguration of the entertainment areas within each of its locations to accommodate various
special events. Commitment to High Quality Products and Services. We are committed to providing a superior
experience that includes high quality menu items, a wide variety of domestic, imported and
specialty beers, state-of-the-art audio and video systems and tournament-quality pocket billiard
tables. These features, combined with our focus on a high level of customer service, help build a
loyal clientele and attract new guests. Locations The following table sets forth as of March 25, 2005, the location, opening month and
approximate square footage of each of our existing restaurant locations: ApproximateLocation
    
    Brand Name
    
    Month Opened
    
    Square FootageIndianapolis #2, IN
    
    Fox and Hound
    
    March 2005
    
    
    9,400Cary, NC
    
    Fox and Hound
    
    February 2005
    
    
    8,100Raleigh, NC
    
    Fox and Hound
    
    November 2004
    
    
    7,400Arlington #2, VA
    
    Baileys
    
    October 2004
    
    
    7,400Chicago #4, IL
    
    Fox and Hound
    
    September 2004
    
    
    8,800Chattanooga, TN
    
    Fox and Hound
    
    July 2004
    
    
    9,000Tulsa, OK
    
    Fox and Hound
    
    July 2004
    
    
    9,400Edison, NJ
    
    Fox and Hound
    
    July 2004
    
    
    9,800Omaha #2, NE
    
    Fox and Hound
    
    June 2004
    
    
    9,500Troy, MI
    
    Baileys
    
    May 2004
    
    
    9,700Charlotte #4, NC
    
    Fox and Hound
    
    May 2004
    
    
    7,500Wichita, KS
    
    Fox and Hound
    
    March 2004
    
    
    9,600Phoenix #2, AZ
    
    Fox and Hound
    
    January 2004
    
    
    8,800Richmond #2, VA
    
    Baileys
    
    December 2003
    
    
    9,900Philadelphia #2, PA
    
    Fox and Hound
    
    October 2003
    
    
    10,800Albuquerque, NM
    
    Fox and Hound
    
    October 2003
    
    
    9,800Oklahoma City, OK
    
    Fox and Hound
    
    September 2003
    
    
    9,800Houston #3, TX
    
    Fox and Hound
    
    July 2003
    
    
    8,600Arlington, VA
    
    Baileys
    
    July 2003
    
    
    15,500Philadelphia #1, PA
    
    Fox and Hound
    
    June 2003
    
    
    7,400Denver #4, CO
    
    Fox and Hound
    
    April 2003
    
    
    11,600Chicago #3, IL
    
    Fox and Hound
    
    March 2003
    
    
    9,600Houston #2, TX
    
    Fox and Hound
    
    January 2003
    
    
    12,000Kansas City #2, KS
    
    Fox and Hound
    
    November 2002
    
    
    9,100Tucson, AZ
    
    Fox and Hound
    
    November 2002
    
    
    11,600Chicago #2, IL
    
    Fox and Hound
    
    September 2002
    
    
    12,600Austin, TX
    
    Fox and Hound
    
    July 2002
    
    
    11,600Denver #3, CO
    
    Fox and Hound
    
    July 2002
    
    
    12,600Dallas #5, TX
    
    Fox and Hound
    
    June 2002
    
    
    15,800Richmond, VA
    
    Baileys
    
    May 2002
    
    
    8,500Denver #2, CO
    
    Fox and Hound
    
    April 2002
    
    
    10,300Charlotte #3, NC
    
    Fox and Hound
    
    March 2002
    
    
    7,200Ft. Worth #2, TX
    
    Fox and Hound
    
    February 2002
    
    
    14,000Phoenix, AZ
    
    Fox and Hound
    
    February 2002
    
    
    11,600Denver #1, CO
    
    Fox and Hound
    
    January 2002
    
    
    10,500Dallas #4, TX
    
    Fox and Hound
    
    December 2001
    
    
    13,360Atlanta #2, GA
    
    Baileys
    
    November 2001
    
    
    10,500Charlotte #2, NC
    
    Fox and Hound
    
    August 2001
    
    
    15,300Nashville #3, TN
    
    Baileys
    
    May 2001
    
    
    11,400Ft. Worth #1, TX
    
    Fox and Hound
    
    April 2001
    
    
    9,900Dallas #3, TX
    
    Fox and Hound
    
    December 2000
    
    
    7,600
 -5-




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ApproximateLocation
    
    Brand Name
    
    Month Opened
    
    Square FootageDetroit #2, MI
    
    Baileys
    
    December 2000
    
    
    10,450Cleveland #2, OH
    
    Fox and Hound
    
    October 2000
    
    
    13,500Baton Rouge, LA
    
    Fox and Hound
    
    March 1999
    
    
    11,500Houston, TX
    
    Fox and Hound
    
    February 1999
    
    
    9,100Indianapolis, IN
    
    Fox and Hound
    
    February 1999
    
    
    8,400Winston-Salem, NC
    
    Fox and Hound
    
    January 1999
    
    
    9,400Pittsburgh, PA
    
    Fox and Hound
    
    January 1999
    
    
    10,500New Orleans, LA
    
    Fox and Hound
    
    December 1998
    
    
    9,200Chapel Hill, NC
    
    Baileys
    
    December 1998
    
    
    9,000Canton, OH
    
    Fox and Hound
    
    November 1998
    
    
    9,700Kansas City, KS
    
    Fox and Hound
    
    November 1998
    
    
    9,100Memphis #2, TN
    
    Fox and Hound
    
    November 1998
    
    
    7,600Detroit #1, MI
    
    Baileys
    
    November 1998
    
    
    9,100Dayton, OH
    
    Fox and Hound
    
    October 1998
    
    
    8,700Lubbock, TX
    
    Fox and Hound
    
    October 1998
    
    
    10,600Atlanta #1, GA
    
    Baileys
    
    October 1998
    
    
    8,500Erie, PA
    
    Fox and Hound
    
    August 1998
    
    
    10,400San Antonio, TX
    
    Fox and Hound
    
    August 1998
    
    
    8,400Springfield, MO
    
    Fox and Hound
    
    August 1998
    
    
    9,100Evansville, IN
    
    Fox and Hound
    
    July 1998
    
    
    8,600Cleveland #1, OH
    
    Fox and Hound
    
    May 1998
    
    
    8,500Montgomery, AL
    
    Fox and Hound
    
    January 1998
    
    
    7,700Chicago, IL
    
    Fox and Hound
    
    December 1997
    
    
    10,100Omaha, NE
    
    Fox and Hound
    
    December 1997
    
    
    9,000Nashville #2, TN
    
    Baileys
    
    October 1997
    
    
    7,500Memphis #1, TN
    
    Fox and Hound
    
    September 1997
    
    
    8,400Columbia, SC
    
    Baileys
    
    October 1996
    
    
    10,000Johnson City, TN
    
    Baileys
    
    May 1996
    
    
    8,250Knoxville, TN
    
    Baileys
    
    December 1995
    
    
    9,400Dallas #2, TX
    
    Fox and Hound
    
    November 1995
    
    
    9,600Nashville #1, TN
    
    Baileys
    
    April 1995
    
    
    9,400Greenville, SC
    
    Baileys
    
    September 1994
    
    
    7,000College Station, TX
    
    Fox and Hound
    
    September 1994
    
    
    7,700Dallas #1, TX
    
    Fox and Hound
    
    August 1994
    
    
    6,500Little Rock, AR
    
    Fox and Hound
    
    February 1994
    
    
    8,400Charlotte #1, NC
    
    Baileys
    
    October 1990
    
    
    7,600
 Expansion Plans Our management team has extensive experience in the restaurant business and has successfully
developed and operated numerous restaurants in many geographic markets throughout the United
States. We intend to open ten to twelve locations in 2005 and between twelve to fifteen locations
in 2006. We are currently evaluating locations in markets familiar to our management team.
However, the number of locations actually opened and the timing thereof may vary depending upon our
ability to locate suitable sites and negotiate favorable leases. While we have no current plans to do so, we may in the future franchise and/or grant license
or joint venture rights to the Fox and Hound and Baileys concepts in certain limited geographic
areas of the United States. It is expected that these franchisees, licensees or joint venture
partners would be required to develop a specific number of locations within a specified time frame
and that a license fee and/or a royalty fee will be paid to us in connection with the development
and operation of each such site. Selection Criteria and Leasing We believe the site selection process is critical in determining the potential success of each
restaurant location. Senior management devotes significant time and resources in analyzing each
prospective site and inspects and approves each location prior to final lease execution. A variety
of factors are considered in the site selection process, including local market demographics (e.g.,
median household income levels and age), site visibility, traffic count, nature of the surrounding
retail environment and accessibility and proximity to major retail centers, office complexes,
hotels and entertainment centers (e.g., stadiums, arenas and theaters). We lease all locations, with the exception of one Baileys restaurant in Columbia, South
Carolina, which is owned by us. Most of the restaurants are located in shopping centers. Leases
are generally negotiated with initial terms of five to fifteen
years, with multiple renewal options. We are generally required to complete construction and
open a new location approximately 120 to 280 days after the later of signing of a contract or
obtaining required permits. Additional time is -6-




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sometimes required to obtain certain government
approvals and licenses, such as liquor licenses. In the future, we anticipate leasing our
locations, although we may consider purchasing free-standing sites where it is cost-effective to do
so. Unit Economics Our management team focuses on selecting locations with the potential of producing significant
revenues while controlling capital expenditures and rent as a percentage of net sales. Our
restaurants averaged $2,142,000 and $2,073,000 in sales during fiscal years ended December 28, 2004
and December 30, 2003, respectively. The 74 leased restaurants open at December 28, 2004 had an
average cash investment of approximately $1,518,000. The one unit we own had a cost of $1,969,000
(including the costs for land acquisition, construction, equipment and pre-opening costs). In the
future we anticipate most locations will be leased rather than purchased and anticipate an average
cash investment per location between $2.0 million and $2.3 million. Menu Our restaurants offer a single menu for lunch, dinner and late-night dining. The menu
features a broad selection of appealing appetizers (including quesadillas, chicken wings and
nachos) and soups and salads (including Caesar salads, chili and soups of the day), typically
ranging in price from $3.29 to $6.99. The menu includes over 25 entrees typically priced between
$5.99 to $16.99 such as sandwiches, pizzas, ribs, burgers and a selection of grilled and smoked
barbecued entrees. Most entrees are priced under $12.00. All restaurants opened in 2004 feature a
new and much broader menu including additional appetizers, a full selection of traditional crust
pizzas, and additional entrees, sandwiches, soups and salads. A strong emphasis is placed on the
presentation of each of these menu items, increasing the quality and satisfaction of our customers
overall dining experience. Each location features a full service bar and most restaurants have
over 100 brands of ales, lagers, stouts and specialty beers from around the world, with an average
of 30 beers on tap. Alcoholic beverage service accounted for approximately 56.8% of the Companys
revenues in the fiscal year ended December 28, 2004. During 2004, we converted 18 existing units to the new, broader menu. The average cost per
unit to convert to the new menu was approximately $60,000 in equipment costs and approximately
$15,000 in cost of food, labor and travel associated with new menu training. Additional units may
be converted in 2005 based on managements evaluation of the success of these conversions.
Although management anticipates some increase in revenues associated with the new menu, it is
premature to estimate this impact. Ambiance and Design We strive to offer a unique setting with a broad appeal to both male and female customers
through an inviting, clean and comfortable atmosphere. In order to achieve the feeling of an
upscale atmosphere for these customers, we emphasize décor, lighting and cleanliness. For example,
we recycle fresh filtered air throughout our restaurants several times an hour and place fresh-cut
flowers in our restrooms. Each of our locations feature dedicated areas for viewing sporting
events and/or music videos. These entertainment areas can be readily configured into a comfortable
arena for concurrent viewing of national, regional and local sporting and other television
events. To maximize the broad appeal of the atmosphere in our restaurants, the sound in each room
is carefully monitored to balance the desire among our customers for lively entertainment versus
quieter socializing. In addition, our locations generally offer multiple tournament-quality
billiard tables and darts and popular interactive games to further enhance our appeal as a social
destination. All locations are also capable of accommodating business and social organizations for
special events. We believe the design of our restaurants plays an essential role in our success. Most of our
restaurants have a centrally-located bar and primary dining room as well as two wing rooms that are
partitioned from the central bar and dining area by etched glass. The wing rooms serve as
secondary dining areas and house games of skill along with state-of-the-art audio and video
technology. This layout provides guests with an open view of the main dining room, bar and gaming
areas. Most of our newer units have a separate dedicated non-smoking dining area with one to three
secondary dining and gaming areas. The open kitchen is organized for efficient work flow and is
also centrally located so as to entice guests with its flavorful aromas. Marketing We believe our restaurant concept attracts a loyal clientele. We rely primarily on
word-of-mouth to attract new business. We do, however, advertise through traditional marketing and
advertising media in selected markets. These media include mainly radio and print advertising and
local store marketing to households. Our marketing efforts also seek to focus on national, regional and local sporting events such
as the Super Bowl and the NCAA basketball tournament, which attract locally active groups of fans,
supporters and alumni. The versatile layout and design of our restaurants can also accommodate
group events. -7-




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Operations and Management Our operations and management systems are based upon systems and controls that were developed
by our senior management and have been successfully used to manage a large number of restaurants
located in numerous states. We strive to maintain quality and consistency in our restaurant
locations through the careful training and supervision of personnel and the establishment of
standards relating to food and beverage preparation, maintenance of locations and conduct of
personnel. We staff our restaurants with management that has experience in the restaurant industry. We
believe our strong team-oriented culture helps us attract highly motivated employees who provide
customers with a superior level of service. We train our kitchen employees and wait staff to take
great pride in preparing and serving food in accordance with our high standards. Restaurant
managers and staff are trained to be courteous and attentive to customer needs, and our managers,
in particular, are instructed to visit each table. Senior corporate management hosts weekly
meetings with regional and district managers to discuss staffing, marketing, individual restaurant
performance and customer comments. Moreover, we require our general managers to hold daily shift
meetings at their individual restaurants. Senior management regularly visits the Fox and Hound and
Baileys locations and meets with the respective management teams to ensure compliance with our
strategies and standards of quality. Management.The management of a typical restaurant consists of one general manager and three
to five assistant managers depending upon restaurant revenue and hours of operation. The assistant
managers are responsible for their own operational units, including a kitchen manager, bar manager
and service manager, but all have been trained to support and manage each operational unit of the
restaurant. Each general manager is responsible for the restaurants day-to-day operations and is
required to follow our established operating procedures and standards. Each location also employs
a staff of hourly employees, many of whom are part-time personnel. We currently employ thirteen
district managers, each of which oversees between four and seven restaurants. We also employ two
regional managers who oversee the various districts. Our regional managers, district managers,
general managers and assistant managers participate in incentive cash bonus programs. Awards under
the incentive plans are tied to achievement of specified operating targets, including achievement
of specific unit objectives and control of operating expense budgets. In addition, the regional
managers, district managers and general managers participate in our Employee Stock Option Plan. Financial Controls.We maintain financial and accounting controls for each of our restaurants
through the use of centralized accounting and management information systems. Sales and labor
information are collected daily from each location, and general managers are provided with
operating statements for their locations. Cash is controlled through daily deposits of sales
proceeds in local operating accounts, the balances of which are wire-transferred daily or weekly to
our principal operating account. We utilize a comprehensive peer review reporting system for our
general managers. Within 10 days after the close of each 28-day accounting period, profit and loss
statements are produced and, subsequently, the general managers of each restaurant meet in person
with their respective district managers to review the profit and loss statements. The participants
offer each other feedback on their respective performances and suggest ways of improving
profitability. The regional and district managers also meet in person with the senior management
team to review the performance for the past accounting period as well as set the operating agenda
for the next period. We believe the peer review system enables each general manager and district
manager to benefit from the collective experience of all of the Companys management. Customer Service.We believe customer service and satisfaction are keys to the success of our
operations. In addition to customer evaluations, we use secret shopper visits to independently
evaluate customer satisfaction. A national restaurant evaluation firm performs these visits, at
least three times per 28-day period, to test our food and beverage service in a discrete manner
without the knowledge of the restaurant personnel. In addition, we encourage frequent visits by
restaurant management to customers tables, active involvement of management in responding to guest
comments and assigning wait persons so as to ensure customer satisfaction. Training.Management strives to instill enthusiasm and dedication in its employees and to
create a stimulating and rewarding working environment where employees know what is expected of
them in measurable terms. Each of our new restaurant employees participates in a training program
during which the employee works under the close supervision of a manager. Restaurant management
personnel participate in an eight-week to twelve-week training program that focuses on various
aspects of the restaurants operations and customer service. Management continuously solicits
employee feedback concerning restaurant operations and strives to be responsive to the employees
concerns. We promote a safe drinking environment through the use of certain internal procedures in
addition to extensive alcohol awareness training. It is mandatory for all service employees and
managers, regardless of a lack of state regulation, to complete a third-party alcohol
awareness-training program. We have also established internal measures to promote a safe drinking
environment, such as a four-drink log (which is reviewed by the restaurants district manager). Purchasing We strive to obtain consistent, quality items at competitive prices from reliable sources. We
continually search for and test various products in order to serve the highest quality products
possible and to be responsive to changing customer tastes. We engage a purchasing consultant to
assist in the negotiation of purchasing agreements with suppliers. Food and supplies are shipped
directly to the restaurant locations, although invoices for purchases are forwarded to a central
location for -8-




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payment. Due to the experience of our senior management in the restaurant business,
we have been and expect to continue to be able to purchase most of our restaurant equipment
directly from equipment manufacturers. We have not experienced any significant delays in receiving
supplies or equipment. Management Information Systems We utilize a computer-based management support system, which is designed to improve labor
scheduling and food and beverage cost management, provide corporate management quick access to
financial data and reduce the general managers administrative time. Each general manager uses the
system for production planning, labor scheduling and food and beverage cost variance analysis. The
system generates reports on sales, bank deposits and variance data. We generate weekly consolidated
sales reports and food, beverage and labor-cost variance reports as well as detailed profit and
loss statements for each restaurant location every four weeks. Additionally, we monitor sales
growth, labor variances and other sales trends on a daily basis. Accounting and Administrative Services On March 1, 2005, we renewed our services agreement with Franchise Services Company for
certain accounting and administrative services for an additional one-year period. We pay a per
restaurant per 28-day fixed fee with no annual charge. Competition The entertainment and restaurant industries are highly competitive. There are a large number
of restaurants and entertainment businesses that compete directly and indirectly with us. We
compete with restaurants primarily on the basis of quality of food and service, ambiance and
location and compete with sports bars and entertainment complexes on the basis of entertainment
quality, ambiance and location. Competition for sales in the entertainment and restaurant
industries is intense. Many of our existing and potential competitors are well-established and have
significantly greater financial, marketing and other resources than we do. In addition to other
entertainment and restaurant companies, we compete with numerous businesses for suitable locations
for our restaurants. Government Regulation Our restaurant locations are subject to numerous federal, state and local laws affecting
health, sanitation, safety and Americans with Disabilities Act accessibility standards, as well as
to state and local licensing regulation of the sale of alcoholic beverages. Each restaurant has
appropriate licenses from regulatory authorities allowing it to sell liquor, beer and wine, and
each restaurant has food service licenses from local health authorities. Our licenses to sell
alcoholic beverages must be renewed annually and may be suspended or revoked at any time for cause,
including violation by us or our employees of any law or regulation pertaining to alcoholic
beverage control, such as those regulating the minimum age of patrons or employees, advertising,
wholesale, purchasing, and inventory control. The failure of a restaurant to obtain or retain
liquor or food service licenses would have a material adverse effect on our operations. In order
to reduce this risk, each restaurant is operated in accordance with standardized procedures
designed to ensure compliance with all applicable codes and regulations. In certain states, we are subject to dram-shop statutes, which generally provide a person
injured by an intoxicated person the right to recover damages from an establishment that wrongfully
served alcoholic beverages to the intoxicated person. We carry liquor liability coverage as part
of our existing comprehensive general liability insurance. Significant exposure to liquor
liability claims may result in significant charges due to our relatively high deductibles and may
result in our experiencing higher costs than expected as a result of higher insurance premiums. The development and construction of additional locations are subject to compliance with
applicable zoning, land use and environmental regulations. Our operations are also subject to
federal and state minimum wage laws governing such matters as working conditions, overtime and tip
credits and other employee matters. Significant numbers of our personnel are paid at rates related
to the federal minimum wage, which is currently $5.15 per hour. Accordingly, increases in the
minimum wage will increase our labor costs. Trademarks We have federally registered our Fox & Hound®, Baileys Sports Grille®, Baileys
Smokehouse & Tavern® and Quality Is Our Passion® service marks. Our 7 Baileys Sports Grille®
and Serious Fun 7 Baileys Sports Grille® design marks are also federally registered. We regard
our service and design marks as having significant value and as being an important factor in the
marketing of our restaurant concept. We are aware of names and marks similar to our service marks
that are used by other persons in certain geographic areas. We believe such uses will not have a
material adverse effect on the -9-




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Company as either the Baileys or Fox and Hound brand names may
be used if the other name is unavailable. Our policy is to pursue registration of our marks
whenever possible and to oppose vigorously any infringement of our marks. Employees As of March 25, 2005, we employed approximately 4,800 persons, 360 of whom are executive
officers, regional managers, district managers and restaurant management personnel and the
remainder of whom are hourly restaurant personnel and corporate support staff. None of our
employees is covered by a collective bargaining agreement. We believe our employee relations are
satisfactory. Website Access Our website address is www.tentcorp.com. Our filings with the Securities and Exchange
Commission (SEC) are available at no cost on our website as soon as practicable after the filing
of such reports with the SEC. Risk Factors We May Not Be Able To Manage Our Planned Expansion, Which May Lead To Higher Costs Or A Failure To
Realize Anticipated Revenues Or Operating Profits. We face business risks commonly associated with rapidly growing companies, including the risk
that existing management, information systems and financial controls may be inadequate to support
our planned expansion. We experienced difficulty managing our rapid expansion following our
initial public offering in fiscal year 1997 and, as a result, temporarily suspended development of
new restaurants in the second fiscal quarter of 1999. We cannot predict whether we will be able to
respond on a timely basis to all of the changing demands that our planned expansion will impose on
management and our systems and controls. If we fail to adapt management, information systems and
financial controls or encounter unexpected difficulties during expansion, our business, financial
condition, operating results or cash flows could be materially adversely affected. In addition, we
anticipate entering new geographic markets in which we have no operating experience. These new
markets may have different demographic characteristics, competitive conditions, consumer tastes and
discretionary spending patterns than our existing markets, which may cause new restaurants to be
less successful than restaurants in our existing markets. If We Are Unable To Open New Restaurants In A Timely And Profitable Manner, Our Business Could Be
Materially Adversely Affected. To continue to expand our business, we must open new restaurants on a timely and profitable
basis. We have experienced occasional delays in opening restaurants and may experience delays in
the future. Delays in opening, or failures to open, new restaurants could materially adversely
affect our business, financial condition, operating results and cash flows. Our ability to expand
successfully may depend on a number of factors, some of which are beyond our control, including:  
    Identification and availability of suitable restaurant sites;
    Competition for restaurant sites;
    Negotiation of favorable leases;
    Timely development in certain cases of commercial, residential, street or highway
construction near our restaurants;
    Management of construction and development costs of new restaurants;
    Securing of required governmental approvals and permits;
    Availability, staffing, training and retention of qualified management and hourly
personnel, particularly district, general and assistant managers;
    Competition in new markets; and
    General economic conditions. There can be no assurance that we will be able to complete our planned expansion or that new
restaurants, if completed, will perform in a manner consistent with our most recently opened
restaurants or make a positive contribution to our operating results. -10-




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The Price Of Our Common Stock Has Been Highly Volatile And May Continue To Be Highly Volatile,
Which May Adversely Affect Your Ability To Sell Your Shares And Our Ability To Raise Additional
Capital. A public market for our common stock has existed since 1997. The price of our common stock has
been highly volatile and may continue to be highly volatile. For instance, from January 1, 2001
through March 25, 2005, our common stock has traded from a low of $1.13 to a high of $17.25 per
share. The price of our common stock may experience significant volatility in response to many
factors, some of which are beyond our control and may not even be directly related to us,
including:  -
    Changes in financial estimates or recommendations by securities analysts regarding us or our
common stock;-
    Our performance and the performance of our competitors and other companies in the restaurant
industry;-
    Quarterly fluctuations in our operating results or the operating results of other companies
in the restaurant industry;-
    Additions or departures of key personnel;-
    The trading volume of our common stock;-
    General economic conditions and their effect on the casual dining industry in general; and-
    Competition, natural disasters, acts of war or terrorism or other developments affecting us
or our competitors. In addition, in recent years the stock market has experienced extreme price and volume
fluctuations, which have often been unrelated or disproportionate to the operating performance of
particular companies. This volatility has significantly affected, and may continue to affect, the
price of our common stock and may adversely affect your ability to sell your shares and our ability
to raise additional capital. See Price Range of Common Stock. Our Operating Results Could Be Materially Adversely Affected By The Negative Performance Of A Small
Number Of Restaurants Because Of Our Small Restaurant Base. As of March 25, 2005, we operated only 77 restaurants, 10 of which opened in the last 12
months. Due to the small number of restaurants, poor operating results at any one or more new or
existing restaurants could materially adversely affect our profitability. Factors that could
adversely affect the operating results of any new or existing restaurant include local competition,
consumer preference, development of the area in which the restaurant is located and access to the
restaurant, including construction of highways that provide, or in some cases prevent, access to
the restaurant. The operating results of certain existing restaurants have been, and may continue
to be, affected by any one or more of these factors. The business, financial condition, operating
results and cash flows or the lack of success of one or more new or existing restaurants may have a
more significant effect on our overall results of operations than would be the case in a larger
company with a significantly larger restaurant base. We May Be Unable To Fund Our Significant Future Capital Needs And We May Require Additional Funding
Sooner Than Anticipated. We plan to expend $22 million to $25 million over the next 12 months in connection with new
restaurant openings and expect that similar expenditures for planned expansion in fiscal year 2006
will equal or exceed these amounts. The capital resources required to develop each new restaurant
are significant. We believe that funds anticipated to be available from our existing line of
credit and anticipated cash flow from our operations will be sufficient to satisfy our working
capital and capital expenditure requirements for at least the next 12 months. There can be no
assurance, however, that changes in our operating plans, the acceleration or modification of our
expansion plans, lower than anticipated revenues, increased expenses, potential acquisitions or
other events will not cause us to seek additional financing, prevent us from achieving the goals of
our expansion strategy or prevent any newly opened restaurants from operating profitably. Because Our Business Is Focused On A Single Concept And Lacks Diversification, Our Continued
Success Could Suffer If Consumer Preferences Change. Our restaurant concept features a combination of casual dining and entertainment, and our
continued success depends, to a large degree, upon the popularity of casual dining and the types of
entertainment offered in our restaurants. Changes in consumer tastes and preferences away from our
concept, dining style or entertainment options may have a disproportionate and materially adverse
impact on our business, financial condition, operating results, cash flows and prospects. Changes In Discretionary Spending Could Negatively Impact Our Operating Results. The success of our business and its operating results are dependent on discretionary spending
by consumers, particularly by consumers living in the communities in which our restaurants are
located. A decline in discretionary spending could -11-




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adversely affect our business, financial
condition, operating results and cash flows. Our business could also be adversely affected by
general economic conditions, terrorist attacks and the resulting cancellation or delay of national
sporting events, demographic trends, consumer confidence in the economy and changes in disposable
consumer income. Because We Are Significantly Smaller And Less Established Than The Majority Of Our National
Competitors, We May Lack The Financial Resources Needed To Compete Effectively And Sustain
Profitability. Due to the nature of our business, we compete with competitors in both the restaurant and
entertainment industries. A great number of restaurants and entertainment businesses compete
directly and indirectly with us. Many of these entities have a greater number of locations, are
more established, and have significantly greater financial (based on total assets and annual
revenues), marketing and other resources than us. Although there are only a few other competing
companies presently combining restaurant and entertainment operations in a manner similar to us, we
may encounter increased competition in the future. This increased competition may have an adverse
effect on our business, financial condition, operating results and cash flows. We Depend On The Expertise Of Key Personnel. If Any Of These Individuals Leave Or Change Their Role
With Us, Our Operations May Suffer. Our success and the results of operations are dependent to a large degree on the efforts and
abilities of our existing management, including Steven M. Johnson, Chief Executive Officer; Gary M.
Judd, President; Kenneth C. Syvarth, Chief Operating Officer; and James K. Zielke, Chief Financial
Officer, Secretary and Treasurer. Messrs. Johnson, Judd, Syvarth and Zielke are employed by us
pursuant to employment agreements, each of which will expire as of June 30, 2005, and are also
subject to non-competition, confidentiality and non-solicitation agreements with us. The employment
agreements are extended automatically for successive one year terms unless terminated by either
party no later than 90 days prior to each June 30 annual anniversary date. If any of Messrs.
Johnson, Judd, Syvarth or Zielke were to leave us, our business, financial condition, results of
operations, cash flows and growth could suffer. Our growth will also continue to depend, to a
large degree, upon our ability to attract and retain additional skilled management personnel. Quarterly Fluctuations And Seasonality In Our Operating Results Could Cause Our Stock Price To
Fall. Our operating results may fluctuate significantly from period to period and the results for
one period may not be indicative of results for other periods. Our operating results may also
fluctuate significantly because of several factors, including the timing of new restaurant openings
and related expenses, seasonality, profitability of new restaurants, increases or decreases in
comparable restaurant sales, general economic conditions, consumer confidence in the economy,
changes in consumer preferences, competitive factors and weather conditions. The timing of new restaurant openings may result in significant fluctuations in quarterly
results as a result of the revenues and expenses associated with each new restaurant location. We
typically incur most preopening costs for a new restaurant within the two months immediately
preceding, and the month of, the restaurants opening. In addition, the labor and operating costs
for a newly opened restaurant during the first three to six months of operation are materially
greater than what can be expected after that time, both in aggregate dollars and as a percentage of
restaurant sales. Our growth, operating results and profitability will depend to a large degree on
our ability to increase the number of our restaurants. We also expect seasonality to continue to be a factor in our results of operations.
Historically, our revenues have been moderately higher in the first and fourth quarters due to
weather conditions, major sporting events and the year-end holidays. Our revenues in most of our
restaurants have been lower during the summer months of each year, and we expect lower second and
third quarter revenues to continue in the future. In addition, for accounting purposes, the first,
second and third quarters of each fiscal year consist of 12 weeks and the fourth quarter consists
of 16 or 17 weeks. As a result, some of the variations in our operating results may be attributable
to the different lengths of the fiscal quarters. These quarterly fluctuations and seasonality may
cause our operating results to fall below the expectations of securities analysts and investors,
which could cause our stock price to fall. See Managements Discussion and Analysis of Financial
Condition and Results of Operations  Quarterly Fluctuations, Seasonality and Inflation. Our Operations Depend On Governmental Licenses And Regulation. We are subject to numerous federal, state and local laws affecting our business. Each
restaurant location is subject to licensing and regulation by a number of governmental authorities,
which may include alcoholic beverage control, amusement and state and municipality health and
safety and fire agencies. Our business depends, in particular, on obtaining and maintaining
required food service and liquor licenses for each of our restaurants. If we fail to obtain and
maintain all necessary licenses or if government regulation of our business changes, we may be
forced to delay or cancel new restaurant openings and close or reduce operations at existing
locations, which could materially adversely affect our operating results and profitability. Our operations are particularly dependent on holding the proper governmental licenses
concerning the sale of alcohol. In fiscal year 2004, 56.8% of our sales were derived from alcoholic
beverages. Each restaurant is required to obtain, directly or indirectly, a license to sell
alcoholic beverages on the premises from a state authority and, in certain locations, county and -12-




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municipal authorities. Typically, licenses must be renewed annually and may be revoked or suspended
for cause at any time. Alcoholic beverage control regulations govern numerous aspects of the daily
operations of each restaurant location, including the minimum age of patrons and employees, hours
of operation, advertising practices, wholesale purchasing, inventory control and handling, and
storage and dispensing of alcoholic beverages. Although we have not encountered any material
problems relating to alcoholic beverage licenses or alcoholic beverage control regulations to date,
the failure to receive or retain a liquor license in a particular location could adversely affect
our ability to obtain such a license elsewhere and could materially adversely affect our operating
results. We May Face Liability Under Dram-Shop Statutes. The sale of alcoholic beverages subjects us to dram-shop statutes in 18 of the 22 states in
which our restaurants are located. These statutes generally provide a person injured by an
intoxicated person with the right to recover damages from an establishment that wrongfully served
alcoholic beverages to the intoxicated individual. Recent litigation against restaurant chains has
resulted in significant judgments, including punitive damages, under dram shop statutes. We carry
liquor liability coverage as part of our existing comprehensive general liability insurance, which
coverage we believe is consistent with that carried by other entities serving alcoholic beverages.
Significant exposure to liquor liability claims may result in significant charges due to our
relatively high deductibles and may result in our experiencing higher costs than expected as a
result of higher insurance premiums. If we sustain significant adverse liquor liability claims in
the future, liquor liability insurance may become difficult or impossible to obtain. If we fail to
maintain our insurance coverage or if a judgment against us is rendered under a dram-shop statute
in excess of our liability coverage, we could suffer a material adverse effect on our business,
financial condition, operating results and cash flows. Further, adverse publicity resulting from
such allegations may materially adversely affect us and our restaurants. Federal And State Minimum Wage Laws Apply To A Number Of Our Employees And May Increase Our Costs. Various federal, state and local labor laws and license and permit requirements govern and
affect our relationship with our employees, including such matters as minimum wage requirements,
overtime and other working conditions. A significant number of hourly personnel at our restaurants
are paid at rates related to the federal minimum wage and, accordingly, legislated increases in the
minimum wage will increase labor costs at our restaurants. Significant additional
government-imposed increases in minimum wages, paid leaves of absence, mandated health benefits or
increased tax reporting and tax payment requirements for employees who receive gratuities could be
detrimental to the economic viability of our operations. In addition, we are subject to extensive
rules and regulations with respect to discriminatory practices and accommodation of persons with
disabilities. Adverse Publicity Concerning Customer Complaints Or Litigation May Harm Our Business. We may be from time to time the subject of complaints or litigation from customers alleging
beverage and food-related illness, injuries suffered on our premises, or other quality, health or
operational concerns. Adverse publicity resulting from these allegations may materially affect us,
regardless of whether such allegations are true or whether we are ultimately held liable. These
allegations may also divert financial and management resources that would otherwise be used to
benefit the future performance of our operations. Increased Food And Alcohol Costs Could Materially Adversely Affect Our Operating Results. Among other factors, the success of our business and our operating results are dependent in
part upon our ability to anticipate and react to changes in food and alcohol costs and the mix
between our food and liquor revenues. Various factors beyond our control, such as adverse weather
conditions; increases in federal, state or local taxes, or other governmental regulation; or war,
may affect food and liquor costs. We may not be able to anticipate and react to changing food and
liquor costs by adjusting purchasing practices and implementing menu changes and price adjustments,
and a failure to do so could materially adversely affect our business, financial condition,
operating results and cash flows. There can be no assurance that changes in our sales mix will not
adversely affect our profitability. If We Are Unable To Secure The Exclusive Use Of Our Trademarks, Our Business Maybe Adversely
Affected. We are aware of names and marks similar to our service marks that are used by other persons in
certain geographic areas. We believe such uses will not have a material adverse effect on us, as
either the Baileys or Fox and Hound tradenames may be used if the other name is unavailable,
but there can be no assurance that such marks will be available for use by us in all locations or
that we will be able to secure the exclusive use of such marks. If we are unable to secure and
maintain the exclusive use of our trademarks and tradenames, our business may be adversely
affected. Our Directors And Executive Officers And An Existing Stockholder Have Considerable Control Over Our
Company, Which May Lead To Conflicts With Other Stockholders Over Corporate Governance. Our directors and executive officers and Jamie B. Coulter beneficially own collectively
approximately 25.3% of our outstanding common stock. As a result, these persons, acting alone or
together, will be able to significantly influence all -13-




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matters requiring stockholder approval,
including the election of directors and the approval of mergers and other business combination
transactions, and they may exercise this ability in a manner that advances their best interests and
not necessarily those of other stockholders. We Have Implemented Anti-Takeover Provisions That Could Discourage Or Prevent A Takeover, Even If
An Acquisition Would Be Beneficial To Our Stockholders. Provisions of our certificate of incorporation, as amended, and bylaws, as well as provisions
of Delaware law, could make it more difficult for a third party to acquire us, even if doing so
would be beneficial to our stockholders. These provisions include provisions:  -
    Establishing a classified board of directors requiring that members of our board of
directors be elected in different years;-
    Authorizing the issuance of blank check preferred stock that could be issued by our board
of directors to increase the number of outstanding shares, facilitate implementation of a
stockholder rights plan (or poison pill) or change the balance of voting control and thwart a
takeover attempt;-
    Prohibiting cumulative voting in the election of directors, which would otherwise allow less
than a majority of our stockholders to elect director candidates;-
    Limiting the ability of our stockholders to call special meetings of our stockholders; and-
    Establishing advance notice requirements for nominations for election to our board of
directors and for proposing matters that can be acted upon by our stockholders at stockholder
meetings. In addition, Section 203 of the General Corporation Law of the State of Delaware and the terms
of our employment agreements and Option Plans may discourage, delay or prevent a change in control. A Single Vendor Handles Much Of Our Accounting and Administrative Services. Franchise Services Company handles much of our accounting and administrative services. While
we believe we could replace this vendor, any disruption of services by this vendor or any change to
a new vendor could adversely affect our restaurants. The Risk Of Future Terrorist Attacks May Adversely Impact Our Revenue. Recent terrorist warnings, both in the United States and internationally, suggest the
possibility of future terrorist attacks, which together with the unpredictability
of future military action and other responses to such terrorist attacks has resulted in economic
uncertainty. The occurrence of future terrorist attacks may adversely affect our business and make
it more difficult to forecast our future results of operation. 
 Item 2.Properties All of our restaurants are located in leased space with the exception of the restaurant in
Columbia, South Carolina, which is owned by us. Most initial lease terms range from five to ten
years, with multiple renewal options. All of our leases provide for a minimum annual rent, and
some leases call for additional rent based on sales volume at the particular restaurant over
specified minimum levels. Generally, the leases are net leases which require us to pay the costs
of insurance, taxes and a portion of lessors operating cost. See Business-Locations. Our executive offices are located at 9300 E. Central, Suite 100, Wichita, Kansas 67206. We
believe there is sufficient office space available at favorable leasing terms in the Wichita,
Kansas area to satisfy the additional needs of the Company that may result from future expansion. 
 Item 3.Legal Proceedings The Company is involved in various legal actions arising in the ordinary course of business.
In the opinion of management, the ultimate disposition of these matters will not have a material
adverse effect on the Companys consolidated financial position and results of operations. Recent litigation against restaurant chains has resulted in significant judgments,
including punitive damages, under dram shop statutes. A judgment significantly in excess of our
insurance coverage or involving punitive damages, which may not be covered by insurance, could
materially adversely affect our financial condition or results of operations. Further, adverse
publicity resulting from these allegations may materially adversely affect us and our restaurants. -14-




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Item 4.Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of the holders of our Common Stock during the fourth
quarter of the Companys fiscal year ended December 28, 2004. 
 PART II 
 Item 5.Market for the Registrants Common Equity and Related Stockholder Matters Market Information Our common stock has traded on the Nasdaq National Market under the symbol TENT since our
initial public offering on July 17, 1997. The following table sets forth, for the periods
indicated, the high and low closing prices per share of our common stock, as reported by the Nasdaq
National Market. These quotations reflect the inter-dealer prices, without retail markup, markdown
or commission and may not necessarily represent actual transactions. Fiscal Year 2002
    
    
    High
    
    
    LowFirst Quarter
    
    
    8.50
    
    
    
    3.31Second Quarter
    
    
    15.94
    
    
    
    7.62Third Quarter
    
    
    16.99
    
    
    
    8.38Fourth Quarter
    
    
    9.76
    
    
    
    6.08
 Fiscal Year 2003
    
    
    High
    
    
    LowFirst Quarter
    
    
    9.68
    
    
    
    7.10Second Quarter
    
    
    9.21
    
    
    
    7.05Third Quarter
    
    
    10.95
    
    
    
    9.10Fourth Quarter
    
    
    12.46
    
    
    
    10.30
 Fiscal Year 2004
    
    
    High
    
    
    LowFirst Quarter
    
    
    14.40
    
    
    
    11.19Second Quarter
    
    
    16.20
    
    
    
    12.19Third Quarter
    
    
    14.37
    
    
    
    9.47Fourth Quarter
    
    
    11.79
    
    
    
    8.60
 Equity Compensation Plan Information Number ofSecuritiesNumber of
    
    
    
    
    
    
    remaining availablesecurities to be
    
    
    
    
    
    
    for future issuanceissued upon
    
    
    Weighted-average
    
    
    under equityexercise of
    
    
    exercise price of
    
    
    compensationoutstanding
    
    
    outstanding
    
    
    plans (excludingoptions, warrants
    
    
    options, warrants
    
    
    securities reflectedand rights
    
    
    and rights
    
    
    in column (a))Plan category
    
    (a)
    
    
    (b)
    
    
    (c)Equity compensation plans
approved by security holders:1997 Incentive and Nonqualified
Stock Option Plan
    
    
    1,251,851
    
    
    $
    7.72
    
    
    
    356,520Directors Stock Option Plan
    
    
    157,589
    
    
    $
    9.33
    
    
    
    115,466Total
    
    
    1,409,440
    
    
    $
    7.90
    
    
    
    471,986Equity compensation plans not
Approved by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    1,409,440
    
    
    $
    7.90
    
    
    
    471,986
 -15-




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Holders As of March 25, 2005, there were 39 holders of record our common stock. Dividends We have not paid any cash dividends on our common stock and do not intend to pay cash
dividends on our common stock for the foreseeable future. We intend to retain future earnings to
finance future development. 
 Item 6.Selected Financial Data The following information has been restated to reflect adjustments to previous filings as
further discussed in Note 2, Restatement of Financial Statements under Notes to Consolidated
Financial Statements included in Item 8, Financial Statements and Supplementary Data of this Form
10-K. The selected financial data set forth below should be read in conjunction with the financial
statements and the notes thereto and Managements Discussion and Analysis of Financial Condition
and Results of Operations included elsewhere in this Form 10-K. The historical income statement
data for the 52 weeks ended December 28, 2004, December 30, 2003, the 53 weeks ended December 31,
2002, and for the 52 weeks ended December 25, 2001, and December 26, 2000, the balance sheet data
as of December 28, 2004, December 30, 2003, December 31, 2002, December 25, 2001, and December 26,
2000 are derived from our audited financial statements. 52 weeks ended
    
    
    53 weeks ended
    
    
    52 weeks endedDec. 30, 2003
    
    
    Dec. 31, 2002
    
    
    Dec. 25, 2001
    
    
    Dec. 26, 2000Dec. 28, 2004
    
    
    (as restated)
    
    
    (as restated)
    
    
    (as restated)
    
    
    (as restated)(In thousands, except per share data)Income Statement Data:Net sales
    
    $
    149,164
    
    
    $
    121,708
    
    
    $
    102,464
    
    
    $
    70,052
    
    
    $
    54,928Costs and expenses:Cost of sales
    
    
    40,619
    
    
    
    32,006
    
    
    
    26,815
    
    
    
    18,955
    
    
    
    14,515Operating expenses
    
    
    79,038
    
    
    
    63,735
    
    
    
    52,300
    
    
    
    35,392
    
    
    
    28,001Depreciation and amortization
    
    
    8,392
    
    
    
    6,945
    
    
    
    5,888
    
    
    
    4,067
    
    
    
    3,906Preopening costs
    
    
    1,986
    
    
    
    1,822
    
    
    
    1,654
    
    
    
    1,218
    
    
    
    500Provision for asset impairment
and store closing
    
    
    2,523
    
    
    
    2,009
    
    
    
    
    
    
    
    
    
    
    
    2,330Restaurant costs and expenses
    
    
    132,558
    
    
    
    106,517
    
    
    
    86,657
    
    
    
    59,632
    
    
    
    49,252Restaurant operating income
    
    
    16,606
    
    
    
    15,191
    
    
    
    15,807
    
    
    
    10,420
    
    
    
    5,676General and administrative expenses
    
    
    7,520
    
    
    
    6,293
    
    
    
    5,181
    
    
    
    3,991
    
    
    
    3,769Goodwill amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    244
    
    
    
    244(Gain) Loss on disposal of assets
    
    
    (1
    )
    
    
    57
    
    
    
    31
    
    
    
    134
    
    
    
    67Income from operations
    
    
    9,087
    
    
    
    8,841
    
    
    
    10,595
    
    
    
    6,051
    
    
    
    1,596Other expense
    
    
    239
    
    
    
    339
    
    
    
    456
    
    
    
    863
    
    
    
    1,080Income from continuing operations
before income taxes
    
    
    8,848
    
    
    
    8,502
    
    
    
    10,139
    
    
    
    5,188
    
    
    
    516Provision for income taxes
    
    
    2,677
    
    
    
    2,757
    
    
    
    3,628
    
    
    
    1,918
    
    
    
    103Income from continuing operations
    
    
    6,171
    
    
    
    5,745
    
    
    
    6,511
    
    
    
    3,270
    
    
    
    413Income (loss) from discontinued operations
    
    
    
    
    
    
    
    
    
    
    13
    
    
    
    (423
    )
    
    
    10Net income
    
    $
    6,171
    
    
    $
    5,745
    
    
    $
    6,524
    
    
    $
    2,847
    
    
    $
    423Earnings per share information:BasicIncome from continuing operations
    
    $
    0.62
    
    
    $
    0.59
    
    
    $
    0.70
    
    
    $
    0.38
    
    
    $
    0.05Income (loss) from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.05
    )
    
    
    Net income
    
    $
    0.62
    
    
    $
    0.59
    
    
    $
    0.70
    
    
    $
    0.33
    
    
    $
    0.05Weighted average number of common
shares outstanding
    
    
    9,898
    
    
    
    9,792
    
    
    
    9,344
    
    
    
    8,670
    
    
    
    9,323DilutedIncome from continuing operations
    
    $
    0.59
    
    
    $
    0.56
    
    
    $
    0.67
    
    
    $
    0.38
    
    
    $
    0.05Income (loss) from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.05
    )
    
    
    Net income
    
    $
    0.59
    
    
    $
    0.56
    
    
    $
    0.67
    
    
    $
    0.33
    
    
    $
    0.05Weighted average number of common
shares outstanding
    
    
    10,400
    
    
    
    10,228
    
    
    
    9,801
    
    
    
    8,694
    
    
    
    9,329
 -16-




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##### Table of Contents



Dec. 30, 2003
    
    
    Dec. 31, 2002
    
    
    Dec. 25, 2001
    
    
    Dec. 26, 2000Dec. 28, 2004
    
    
    (as restated)
    
    
    (as restated)
    
    
    (as restated)
    
    
    (as restated)(In thousands)Balance Sheet Data:Working capital (deficit)
    
    $
    (6,236
    )
    
    $
    (5,869
    )
    
    $
    (5,625
    )
    
    $
    (5,100
    )
    
    $
    (3,435
    )Total assets
    
    
    80,567
    
    
    
    68,721
    
    
    
    57,056
    
    
    
    43,427
    
    
    
    40,191Notes payable, including current portion
    
    
    3,680
    
    
    
    3,635
    
    
    
    2,540
    
    
    
    10,350
    
    
    
    11,980Stockholders equity
    
    
    53,089
    
    
    
    46,164
    
    
    
    40,921
    
    
    
    22,466
    
    
    
    19,841
 
 Item 7.Managements Discussion and Analysis of Financial Condition and Results of
Operations You should read the following discussion and analysis in conjunction with the information set
forth under Selected Financial Data and the Financial Statements and Notes thereto included
elsewhere in this Form 10-K. Restatement Following a review of the accounting adjustments cited in several recent Form 8-K filings by
other restaurant and retail companies, and in consultation with our independent registered public
accounting firm, KPMG LLP, we determined that the adjustments in those filings relating to the
treatment of lease accounting and leasehold amortization applied to the Company, and that it was
appropriate to adjust certain of our prior financial statements. As a result, we have restated our
consolidated financial statements for fiscal years 1997 through 2003 and for the first three
quarters of 2004. Historically, when accounting for leases with renewal options, we recorded rent
expense on a straight-line basis over the initial non-cancelable lease term, with the term
commencing on the initial date of the lease agreement. We also used only the initial
non-cancelable lease term in the determination of capital leases. We amortized our leasehold
improvements and other long-lived assets on those properties over a period that included both the
initial non-cancelable lease term and all option periods provided for in the lease (or the useful
life of the assets, if shorter). Additionally, tenant allowances received from the lessor were
recorded as a reduction of the related leasehold improvements. We previously believed that these
longstanding accounting treatments were appropriate under generally accepted accounting principles.
We now have restated our financial statements to recognize rent expense on a straight-line basis
over the expected lease term, including cancelable option periods where failure to exercise such
options would result in an economic penalty, not to exceed fifteen years (unless the initial lease
term is in excess of fifteen years). The expected lease term, including cancelable option periods
where failure to exercise such options would result in an economic penalty, not to exceed fifteen
years (unless the initial lease term is in excess of fifteen years), is also being utilized in the
determination of capital leases. Additionally, the estimated useful life of leasehold improvements
for amortization purposes was reduced from twenty years to fifteen years, or the remaining life of
the lease, whichever is less. The lease term commences on the date when we have full access to the
property. Lease expenses from the date we have full access to the property to the completion of
construction are capitalized as leasehold improvements. Tenant allowances are being recorded as
accrued rent when received and included as a reduction in the straight-line rent calculation
described above. We also had one lease reclassified from operating to capital as a result of these
adjustments. These adjustments were not attributable to any material non-compliance by us with any
financial reporting requirements under the securities laws, or as a result of any misconduct. The
Restatement is further discussed in Note 2, Restatement of Financial Statements under Notes to
Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data
of this Form 10-K. The cumulative effect of the Restatement through fiscal 2003 as well as the impact of these
adjustments on the consolidated income statements for 2002 and 2003 is shown in the tables below.
The Restatement decreased reported diluted net earnings per share by $0.08 and $0.06 in fiscal
years 2003 and 2002, respectively. The Restatement did not have any impact on our previously
reported cash balances, sales or same-restaurant sales or on our compliance with any covenant under
our credit facility or other debt instruments. Further information on the nature and impact of
these adjustments is provided in Note 2, Restatement of Financial Statements under Notes
to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary
Data of this Form 10-K. -17-




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##### Table of Contents



Net Adjustments Related to Restatement
(in thousands, except per share data) December 30, 2003As
    
    
    
    
    
    
    AsReported
    
    
    Adjustments
    
    
    RestatedLeasehold improvements
    
    $
    45,092
    
    
    $
    3,124
    
    
    $
    48,216Property under capital leases
    
    
    
    
    
    
    918
    
    
    
    918Total property and equipment
    
    
    79,016
    
    
    
    4,042
    
    
    
    83,058Accumulated depreciation and amortization
    
    
    22,615
    
    
    
    2,933
    
    
    
    25,548Net property and equipment
    
    
    56,401
    
    
    
    1,109
    
    
    
    57,510Total assets
    
    
    67,612
    
    
    
    1,109
    
    
    
    68,721Current portion of obligation under capital leases
    
    
    
    
    
    
    8
    
    
    
    8Total current liabilities
    
    
    11,586
    
    
    
    8
    
    
    
    11,594Obligations under capital leases, net of current
portion
    
    
    
    
    
    
    897
    
    
    
    897Deferred taxes
    
    
    2,503
    
    
    
    (1,768
    )
    
    
    735Accrued rent
    
    
    547
    
    
    
    5,128
    
    
    
    5,675Retained earnings
    
    
    20,669
    
    
    
    (3,156
    )
    
    
    17,513Total stockholders equity
    
    
    49,320
    
    
    
    (3,156
    )
    
    
    46,164Total liabilities and stockholders equity
    
    
    67,612
    
    
    
    1,109
    
    
    
    68,721
 Year ended December 30, 2003
    
    
    Year ended December 31, 2002As
    
    
    
    
    
    
    As
    
    
    As
    
    
    
    
    
    
    AsReported
    
    
    Adjustments
    
    
    Restated
    
    
    Reported
    
    
    Adjustments
    
    
    RestatedRestaurant operating expenses
    
    $
    63,490
    
    
    $
    245
    
    
    $
    63,735
    
    
    $
    52,067
    
    
    $
    233
    
    
    $
    52,300Depreciation and amortization
    
    
    6,037
    
    
    
    908
    
    
    
    6,945
    
    
    
    5,177
    
    
    
    711
    
    
    
    5,888Asset impairment
    
    
    2,008
    
    
    
    1
    
    
    
    2,009
    
    
    
    
    
    
    
    
    
    
    
    Restaurant costs and expenses
    
    
    105,363
    
    
    
    1,154
    
    
    
    106,517
    
    
    
    85,713
    
    
    
    944
    
    
    
    86,657Restaurant operating income
    
    
    16,345
    
    
    
    (1,154
    )
    
    
    15,191
    
    
    
    16,751
    
    
    
    (944
    )
    
    
    15,807Income from operations
    
    
    9,995
    
    
    
    (1,154
    )
    
    
    8,841
    
    
    
    11,539
    
    
    
    (944
    )
    
    
    10,595Interest expense
    
    
    266
    
    
    
    74
    
    
    
    340
    
    
    
    342
    
    
    
    68
    
    
    
    410Income before income taxes
    
    
    9,730
    
    
    
    (1,228
    )
    
    
    8,502
    
    
    
    11,151
    
    
    
    (1,012
    )
    
    
    10,139Income taxes
    
    
    3,192
    
    
    
    (435
    )
    
    
    2,757
    
    
    
    3,961
    
    
    
    (333
    )
    
    
    3,628Income from continuing operations
    
    
    6,538
    
    
    
    (793
    )
    
    
    5,745
    
    
    
    7,190
    
    
    
    (679
    )
    
    
    6,511Net income
    
    
    6,538
    
    
    
    (793
    )
    
    
    5,745
    
    
    
    7,203
    
    
    
    (679
    )
    
    
    6,524Basic net earnings per share
    
    
    0.67
    
    
    
    (0.08
    )
    
    
    0.59
    
    
    
    0.77
    
    
    
    (0.07
    )
    
    
    0.70Diluted net earnings per share
    
    
    0.64
    
    
    
    (0.08
    )
    
    
    0.56
    
    
    
    0.73
    
    
    
    (0.06
    )
    
    
    0.67
 Year ended December 30, 2003
    
    
    Year ended December 31, 2002As
    
    
    
    
    
    
    As
    
    
    As
    
    
    
    
    
    
    AsReported
    
    
    Adjustments
    
    
    Restated
    
    
    Reported
    
    
    Adjustments
    
    
    RestatedNet cash provided byoperating activities
    
    $
    16,195
    
    
    $
    1,300
    
    
    $
    17,495
    
    
    $
    13,852
    
    
    $
    747
    
    
    $
    14,599Net cash used in investingactivities
    
    
    (16,727
    )
    
    
    (1,293
    )
    
    
    (18,020
    )
    
    
    (17,888
    )
    
    
    (740
    )
    
    
    (18,628
    )Net cash provided byfinancing activities
    
    
    229
    
    
    
    (7
    )
    
    
    222
    
    
    
    3,806
    
    
    
    (7
    )
    
    
    3,799
 -18-




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##### Table of Contents



General We began operations February 20, 1997 with three Fox and Hound and eight Baileys restaurants.
We have opened and closed restaurants since that date as follows: 1997(1)
    
    
    1998
    
    
    1999
    
    
    2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005(2)Open at beginning of period
    
    
    11
    
    
    
    16
    
    
    
    32
    
    
    
    35
    
    
    
    38
    
    
    
    43
    
    
    
    54
    
    
    
    64
    
    
    
    75Opened during period
    
    
    5
    
    
    
    16
    
    
    
    5
    
    
    
    3
    
    
    
    5
    
    
    
    12
    
    
    
    10
    
    
    
    11
    
    
    
    2Closed during period
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Open at end of period
    

    
    16
    
    
    
    32
    
    
    
    35
    
    
    
    38
    
    
    
    43
    
    
    
    54
    
    
    
    64
    
    
    
    75
    
    
    
    77
   (1)
    
    From February 20, 1997 through December 30, 1997(2)
    
    From December 29, 2004 through March 25, 2005 The components of our net sales are food and non-alcoholic beverages, alcoholic beverages, and
entertainment and other (principally billiard table rental fees). For fiscal years 2004 and 2003,
the components of net sales were as follows: (i) food and non-alcoholic beverages: 36.9% and
34.2%, respectively; (ii) alcoholic beverages: 56.8% and 58.3%, respectively; and (iii)
entertainment and other: 6.3% and 7.5%, respectively. The trend of declining entertainment and
other sales as a percentage of total sales is expected to continue as newer units generally have
fewer billiard tables than older units and new menu conversions are expected to increase food sales
as a percentage of total sales. The components of our cost of sales primarily include direct costs of food, non-alcoholic
beverages and alcoholic beverages. These costs are generally variable and will fluctuate with
changes in sales volume and sales mix. Components of restaurant operating expenses include operating payroll and fringe benefits, and
occupancy, maintenance and utilities. All but one of our locations are leased and provide for a
minimum annual rent, with some leases calling for additional rent based on sales volume at the
particular location in excess of specified minimum sales levels. Depreciation and amortization costs primarily include depreciation and amortization of capital
expenditures for restaurants. Preopening costs include labor costs, costs of hiring and training personnel, and certain
other costs relating to opening new restaurants. The provision for asset impairment reflects the charges made for the write down of certain
underperforming restaurant assets. We periodically review our long lived assets that are held and
used in our restaurant operations for indications of impairment. The provision for restaurant
closing primarily includes the remaining lease obligation for closed restaurants. General and administrative expenses include all corporate and administrative functions that
support existing operations and provide an infrastructure to support future growth. Management,
supervisory and staff salaries, employee benefits, travel, information systems, training, rent and
office supplies, as well as accounting services fees, are major items in this category. In calculating comparable restaurant sales, we include a restaurant in the comparable
restaurant base after it has been in operation for 18 full months. As of March 25, 2005, there
were 60 restaurants in the comparable restaurant base. Annualized average weekly sales are
computed by dividing net sales during the period by the number of store operating weeks and
multiplying the result by 52. Results of Operations The following discussion of results of operations should be read in conjunction with the
information under the caption Selected Financial Data, our Consolidated Financial Statements and
related Notes thereto and the other financial data included elsewhere in this Form 10-K. We
operate on a 52 or 53 week fiscal year ending the last Tuesday in December. Fiscal years 2004 and
2003 each consisted of 52 weeks and fiscal year 2002 consisted of 53 weeks. Our fiscal quarters
consist of three accounting periods of 12 weeks each and a final period of 16 or 17 weeks. -19-




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##### Table of Contents



The following table sets forth for the periods indicated the percentages which certain items
included in the Condensed Consolidated Statement of Income bear to net sales and other selected
operating data. Year Ended(1)Dec. 30,
    
    
    Dec. 31,Dec. 28,
    
    
    2003
    
    
    20022004
    
    
    (as restated)
    
    
    (as restated)Income Statement Data:Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Costs and expenses:Cost of sales
    
    
    27.2
    
    
    
    26.3
    
    
    
    26.2Operating expenses
    
    
    53.0
    
    
    
    52.4
    
    
    
    51.0Depreciation and amortization
    
    
    5.7
    
    
    
    5.7
    
    
    
    5.8Preopening costs
    
    
    1.3
    
    
    
    1.5
    
    
    
    1.6Provision for asset impairment
    
    
    1.7
    
    
    
    1.6
    
    
    
    Restaurant costs and expenses
    
    
    88.9
    
    
    
    87.5
    
    
    
    84.6Restaurant operating income
    
    
    11.1
    
    
    
    12.5
    
    
    
    15.4General and administrative
    
    
    5.0
    
    
    
    5.2
    
    
    
    5.1Income from operations
    
    
    6.1
    
    
    
    7.3
    
    
    
    10.3Other income (expense)
    
    
    
    
    
    
    
    
    
    
    (0.1
    )Interest expense
    
    
    (0.1
    )
    
    
    (0.3
    )
    
    
    (0.3
    )Income from continuing operations
before income taxes
    
    
    6.0
    
    
    
    7.0
    
    
    
    9.9Provision for income taxes
    
    
    1.9
    
    
    
    2.3
    
    
    
    3.5Income from continuing operations
    
    
    4.1
    
    
    
    4.7
    
    
    
    6.4Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    4.1
    %
    
    
    4.7
    %
    
    
    6.4
    %Restaurant Operating Data:Number of locations at end of period
    
    
    75
    
    
    
    64
    
    
    
    54Number of store operating weeks (2)
    
    
    3,620
    
    
    
    3,052
    
    
    
    2,599Annualized average weekly sales per location (3)
    
    $
    2,142
    
    
    $
    2,073
    
    
    $
    2,056
   (1)
    
    The Company operates on a 52 or 53 week fiscal year ending the last Tuesday in
December. The fiscal quarters for the Company consist of accounting periods of 12, 12, 12
and 16 or 17 weeks, respectively.(2)
    
    Store operating weeks represents the number of weeks all locations were open during the
period.(3)
    
    Annualized average weekly sales per location are computed by dividing net sales during
the period by the number of store operating weeks and multiplying the result by fifty-two. Fifty-two Weeks Ended December 28, 2004 Compared to Fifty-two Weeks Ended December 30, 2003 Net sales increased $27,456,000 (22.6%) for the 52 weeks ended December 28, 2004 to
$149,164,000 from $121,708,000 for the 52 weeks ended December 30, 2003, which was attributable to
a 3.3% increase in annualized average weekly sales ($2,142,000 versus $2,073,000) and a 18.6%
increase in store operating weeks (3,620 versus 3,052). Same store sales increased 1.1% for the 52
weeks ended December 28, 2004. Costs of sales increased $8,613,000 (26.9%) for the 52 weeks ended December 28, 2004 to
$40,619,000 from $32,006,000 for the 52 weeks ended December 30, 2003, and increased as a
percentage of net sales to 27.2% from 26.3%. This increase as a percentage of net sales was
principally attributable to an increase in the cost of certain raw products and promotional costs
offset by the impact of a price increase taken in the second quarter of 2004. Restaurant operating expenses increased $15,303,000 (24.0%) for the 52 weeks ended December
28, 2004 to $79,038,000 from $63,735,000 for the 52 weeks ended December 30, 2003, and increased as
a percentage of net sales to 53.0% from 52.4%. This increase as a percentage of net sales was
principally attributable to an increase in occupancy costs of new units and hourly wages offset by
a decrease in the cost of liability insurance premiums and claims expense. The increase in hourly
wages is related to higher labor costs associated with training on new menu conversions in 18 units
during 2004. Depreciation and amortization increased $1,447,000 (20.8%) for the 52 weeks ended December 28,
2004 to $8,392,000 from $6,945,000 for the 52 weeks ended December 30, 2003, and remained
consistent as a percentage of net sales at 5.7%. Preopening costs increased $164,000 (9.0%) for the 52 weeks ended December 28, 2004 to
$1,986,000 from $1,822,000 for the 52 weeks ended December 30, 2003, and decreased to 1.3% from
1.5% as a percentage of net sales. Preopening costs for fiscal year 2004 were related to the
opening of eleven restaurants in fiscal year 2004 and partial preopening costs related -20-




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##### Table of Contents



to restaurants that will open in fiscal year 2005. Preopening costs for fiscal year 2003 were related
to the opening of ten restaurants in fiscal year 2003 and costs related to restaurants that opened
in fiscal year 2004. The provision for asset impairment of $2,523,000 for the 52 weeks ended December 28, 2004,
reflects the charges made for the write down of restaurant assets related to two underperforming
units in the second quarter of fiscal 2004. The provision for asset impairment of $2,009,000 for
the 52 weeks ended December 30, 2003, reflects the charges made for the write down of restaurant
assets related to two underperforming units in the fourth quarter of fiscal 2003. We periodically
review our long-lived assets that are held and used in our restaurant operations for indications of
impairment. We generally do not include units less than 18-months old in this review as the first
six months of operations reflect certain inefficiencies associated with start-up activities. The
two units impaired in the second quarter of fiscal 2004 had been open less than 18 months as of
December 30, 2003. As of December 28, 2004, we have no plans to close any of these units. General and administrative expenses increased $1,227,000 (19.5%) for the 52 weeks ended
December 28, 2004 to $7,520,000 from $6,293,000 for the 52 weeks ended December 30, 2003, due to an
increase in corporate infrastructure to support our expansion. General and administrative expenses
decreased as a percentage of net sales to 5.0% from 5.2%. Other income was $4,000 for the 52 weeks ended December 28, 2004 compared to $1,000 for the 52
weeks ended December 30, 2003. Gain on disposal of assets was $1,000 for the 52 weeks ended December 28, 2004 compared to a
loss on disposal of assets of $57,000 for the 52 weeks ended December 30, 2003. The loss in 2003
reflect the disposal of certain video games. Interest expense decreased $97,000 for the 52 weeks ended December 28, 2004 to $243,000 from
$340,000 for the 52 weeks ended December 30, 2003. This decrease is due to a lower average balance
applicable to our line of credit in the current fiscal year compared with the prior fiscal year
partially offset by an increase in the interest rate on those borrowings during the current fiscal
year. The effective income tax rate on income was 30.3% for the 52 weeks ended December 28, 2004 as
compared to 32.4% for the 52 weeks ended December 30, 2003. This decrease was primarily due to the
impact of the credit for social security taxes paid on tips in excess of minimum wage relative to
the amount of income before taxes and a decrease in the effective state tax rate. Fifty-two Weeks Ended December 30, 2003 Compared to Fifty-three Weeks Ended December 31, 2002 Net sales increased $19,244,000 (18.8%) for the 52 weeks ended December 30, 2003 to
$121,708,000 from $102,464,000 for the 53 weeks ended December 31, 2002, which was attributable to
a 0.8% increase in annualized average weekly sales ($2,073,000 versus $2,056,000) and a 17.4%
increase in store operating weeks (3,052 versus 2,599). Same store sales decreased 2.2% for the 52
weeks ended December 30, 2003. Costs of sales increased $5,191,000 (19.4%) for the 52 weeks ended December 30, 2003 to
$32,006,000 from $26,815,000 for the 53 weeks ended December 31, 2002, and increased as a
percentage of net sales to 26.3% from 26.2%. This increase as a percentage of net sales was
principally attributable to an increase in the cost of certain raw products offset by the impact of
a price increase taken in the first quarter of 2003. Restaurant operating expenses increased $11,435,000 (21.9%) for the 52 weeks ended December
30, 2003 to $63,735,000 from $52,300,000 for the 53 weeks ended December 31, 2002, and increased as
a percentage of net sales to 52.4% from 51.0%. This increase as a percentage of net sales was
principally attributable to an increase in occupancy costs of new units and an increase in the cost
of liability insurance premiums and claims expense. Depreciation and amortization increased $1,057,000 (18.0%) for the 52 weeks ended December 30,
2003 to $6,945,000 from $5,888,000 for the 53 weeks ended December 31, 2002, and decreased as a
percentage of net sales to 5.7% from 5.8%. This increase in expense is due to additional
depreciation on ten restaurants opened since December 31, 2002, net of older restaurants with fully
depreciated equipment during the year. Preopening costs increased $168,000 (10.2%) for the 52 weeks ended December 30, 2003 to
$1,822,000 from $1,654,000 for the 53 weeks ended December 31, 2002, and decreased to 1.5% from
1.6% as a percentage of net sales. Preopening costs for fiscal year 2003 were related to the
opening of ten restaurants in fiscal year 2003 and partial preopening costs related to restaurants
that opened in fiscal year 2004. Preopening costs for fiscal year 2002 were related to the opening
of twelve restaurants in fiscal year 2002 and costs related to restaurants that opened in fiscal
year 2003. The provision for asset impairment of $2,009,000 for the 52 weeks ended December 30, 2003,
reflects the charges made for the write down of restaurant assets related to two underperforming
units in the fourth quarter of fiscal 2003. We periodically review our long-lived assets that are
held and used in our restaurant operations for indications of impairment. We generally do not
include units less than 18-months old in this review as the first six months of operations reflect
certain inefficiencies associated with start-up activities. General and administrative expenses increased $1,112,000 (21.5%) for the 52 weeks ended
December 30, 2003 to $6,293,000 from $5,181,000 for the 53 weeks ended December 31, 2002, due to an
increase in corporate infrastructure to support our expansion. General and administrative expenses
increased as a percentage of net sales to 5.2% from 5.1%. -21-




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Other income was $1,000 for the 52 weeks ended December 30, 2003 compared to other expense of
$46,000 for the 53 weeks ended December 31, 2002. This expense in 2002 was related to the
write-off of an interest in a limited partnership investment. Loss on disposal of assets was $57,000 for the 52 weeks ended December 30, 2003 and $31,000
for the 53 weeks ended December 31, 2002. The losses reflect the disposal of certain video games
for both years. Interest expense decreased $70,000 for the 52 weeks ended December 30, 2003 to $340,000 from
$410,000 for the 53 weeks ended December 31, 2002. This decrease is due to both a lower interest
rate and lower average balance applicable to our line of credit in the current fiscal year compared
with the prior fiscal year. The effective income tax rate on income was 32.4% for the 52 weeks ended December 30, 2003 as
compared to 35.8% for the 53 weeks ended December 30, 2002. This decrease was primarily due to the
impact of the credit for social security taxes paid on tips in excess of minimum wage relative to
the amount of income before taxes and a decrease in the effective state tax rate. Income from discontinued operations was $13,000 for the 53 weeks ended December 31, 2002 due
to income applicable to the restaurant closed on March 31, 2002. Quarterly Fluctuations, Seasonality and Inflation Our operating results may fluctuate significantly from period to period and the results for
one period may not be indicative of results for other periods. Our operating results may also
fluctuate significantly because of several factors, including the timing of new restaurant openings
and related expenses, seasonality, profitability of new restaurants, increases or decreases in
comparable restaurant sales, general economic conditions, consumer confidence in the economy,
changes in consumer preferences, competitive factors and weather conditions. The timing of new restaurant openings may result in significant fluctuations in quarterly
results as a result of the revenues and expenses associated with each new restaurant location. We
typically incur most preopening costs for a new restaurant within the two months immediately
preceding, and the month of, the restaurants opening. In addition, the labor and operating costs
for a newly opened restaurant during the first three to six months of operation are materially
greater than what can be expected after that time, both in aggregate dollars and as a percentage of
restaurant sales. Our growth, operating results and profitability will depend to a large degree on
our ability to increase the number of our restaurants. We expect seasonality to continue to be a factor in our results of operations. Historically,
our revenues have been moderately higher in the first and fourth quarters due to weather
conditions, major sporting events and the year-end holidays. Our revenues in most of our
restaurants have been lower during the summer months of each year, and we expect lower second and
third quarter revenues to continue in the future. In addition, for accounting purposes, the first,
second and third quarters of each fiscal year consist of 12 weeks and fourth quarter consists of 16
or 17 weeks. As a result, some of the variations in our operating results may be attributable to
the different lengths of the fiscal quarters. These quarterly fluctuations may cause our operating
results to fall below the expectations of securities analysts and investors, which could cause our
stock price to fall. The primary inflationary factors affecting our operations include food, liquor and labor
costs. Significant numbers of our personnel are paid at rates related to the federal minimum wage
which is currently $5.15 per hour. Accordingly, increases in the minimum wage will increase our
labor costs. As costs of food and labor have increased, we have historically been able to offset
these increases through economies of scale and improved operating procedures. To date, inflation
has not had a material impact on operating margins. Liquidity and Capital Resources As is customary in the restaurant industry, we operate with negative working capital.
Negative working capital increased $367,000 to $6,236,000 as of December 28, 2004 from $5,869,000
as of December 30, 2003. This increase is attributable primarily to the cost of purchases of
property and equipment in excess of working capital provided by operations and net proceeds from
the line of credit. Cash decreased $1,000 to $812,000 as of December 28, 2004 from $813,000 as of
December 30, 2003. We do not have significant receivables or inventory and receive trade credit
based upon negotiated terms in purchasing food and supplies. Because funds available from cash
sales are not needed immediately to pay for food and supplies, or to finance inventory, they may be
considered as a source of financing for noncurrent capital expenditures. On September 1, 1998 we entered into a loan agreement with Intrust Bank, N.A. (the Line of
Credit) which provides for a line of credit of $20,000,000 subject to certain limitations based on
earnings before interest, taxes, depreciation and amortization of the past fifty-two weeks and the
amount of capital lease obligations on personal property. On October 1, 2003, this line of credit
was amended to extend the original term of the agreement by two years. All other terms of the
agreement remained unchanged. The Line of Credit is secured by substantially all of our assets.
The Line of Credit requires monthly payments of interest only until November 1, 2006, at which time
equal monthly installments of principal and interest are required as necessary to fully amortize
the outstanding indebtedness plus future interest over a period of four years. Interest is accrued
at 1/2% below the prime rate as published in The Wall Street Journal. Proceeds from the Line of
Credit are -22-




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being used for restaurant development. As of December 28, 2004, we had borrowed
$3,680,000 under the Line of Credit. We are in compliance with all debt covenants. Cash flows from operations were $22,216,000 for the 52 weeks ended December 28, 2004 compared
to $17,495,000 for the 52 weeks ended December 30, 2003. Purchases of property and equipment were
$22,023,000 in the 52 weeks ended December 28, 2004 compared to $17,614,000 in the 52 weeks ended
December 30, 2003. Net proceeds from the revolving note payable to bank were $45,000 for the 52
week period ending December 28, 2004 compared to net proceeds on the revolving note payable to bank
of $1,095,000 for the 52 weeks ending December 30, 2003. We intend to open ten to twelve new locations in fiscal year 2005 and twelve to fifteen in
fiscal year 2006. At March 25, 2005, two restaurants had been opened in fiscal 2005, five
restaurants were under construction and an additional four contracts had been executed. We are
currently evaluating locations in markets familiar to our management team. However, the number of
locations actually opened and the timing thereof may vary depending upon our ability to locate
suitable sites and negotiate favorable leases. We expect to expend approximately $22 to $25
million to open new locations over the next twelve months. We believe the funds available from the Line of Credit and cash flow from operations will be
sufficient to satisfy our working capital and capital expenditure requirements for at least the
next twelve months. There can be no assurance, however, that changes in our operating plans, the
acceleration or modification of our expansion plans, lower than anticipated revenues, increased
expenses, stock repurchases, potential acquisitions or other events will not cause the us to seek
additional financing sooner than anticipated, prevent us from achieving the goals of our expansion
strategy or prevent any newly opened locations from operating profitably. There can be no
assurance that additional financing will be available on terms acceptable to us or at all. A summary of our obligations and commitments to make future payments under contracts,
including debt, lease agreements and the administrative services agreement is presented below. The
long-term debt payments represent principal payments only. The Company must also make monthly
interest payments on the outstanding debt balance at a rate of 1/2% below the prime rate as published
in The Wall Street Journal(4.75% at December 28, 2004). Less than
    
    
    1-3
    
    
    4-5
    
    
    AfterContractual Obligations
    
    Total
    
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    5 YearsLong-term debt
    
    $
    3,680,000
    
    
    $
    
    
    
    $
    1,005,000
    
    
    $
    1,852,000
    
    
    $
    823,000Noncancellable operating leases
    
    
    70,560,000
    
    
    
    9,546,000
    
    
    
    17,646,000
    
    
    
    13,360,000
    
    
    
    30,008,000Capital leases
    
    
    897,000
    
    
    
    8,000
    
    
    
    35,000
    
    
    
    42,000
    
    
    
    812,000Other commitments
    
    
    973,000
    
    
    
    843,000
    
    
    
    130,000
    
    
    
    
    
    
    
    Totals
    
    $
    76,110,000
    
    
    $
    10,397,000
    
    
    $
    18,816,000
    
    
    $
    15,254,000
    
    
    $
    31,643,000
 Critical Accounting Policies and Estimates We prepare our consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America. The preparation of these financial statements
requires us to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of sales and expenses during the reporting period. Actual
results could differ from those estimates. Critical accounting policies are those we believe are both most important to the portrayal of
our financial condition and operating results, and require our most difficult, subjective or
complex judgments, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain. Judgments and uncertainties affecting the application of
those policies may result in materially different amounts being reported under different conditions
or using different assumptions. We consider the following policies to be most critical in
understanding the judgments that are involved in preparing our consolidated financial statements. Land, Buildings, and Equipment Land, buildings, leasehold improvements and equipment are recorded at cost less accumulated
depreciation. Buildings are depreciated over 30 years using the straight-line method. Leasehold
improvements are amortized over the lesser of the expected lease term, including cancelable option
periods, up to fifteen years, or the estimated useful lives of the related assets using the
straight-line method. Equipment is depreciated over estimated useful lives ranging from two to
seven years, also using the straight-line method. Accelerated depreciation methods are generally
used for income tax purposes. Our accounting policies regarding land, buildings, and equipment, including leasehold
improvements, include our judgments regarding the estimated useful lives of these assets, the
residual values to which the assets are depreciated or
amortized, and the determination as to what constitutes enhancing the value of or increasing
the life of existing assets. These judgments and estimates may produce materially different
amounts of reported depreciation and amortization expense if -23-




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different assumptions were used. As
discussed further below, these judgments may also impact our need to recognize an impairment charge
on the carrying amount of these assets as the cash flows associated with the assets are realized. Impairment of Long-Lived Assets The Company reviews all units for impairment on a semi-annual basis at the end of the second
and fourth fiscal quarters of each year, or at other times during the year when events have
occurred that may be indicators of potential impairment. New units are not included in this review
until they have been open 18 months as the initial six months of operations reflect inefficiencies
associated with start-up operations. The impairment review is performed by comparing the carrying
value of the related assets to the expected undiscounted cash flows of each unit. A unit is deemed
to be impaired if the carrying value of the related assets is more than the expected undiscounted
cash flows for the unit. The amount of the impairment loss is calculated as the difference between
the carrying value of the assets and the fair value of the assets. Store assets typically consist
of leasehold improvements, equipment, and furniture and fixtures. The judgments we make related to the expected useful lives of long-lived assets and our
ability to realize undiscounted cash flows in excess of the carrying amounts of these assets are
affected by factors such as the ongoing maintenance and improvements of the assets, changes in
economic conditions, and changes in usage or operating performance. As we assess the ongoing
expected cash flows and carrying amounts of our long-lived assets, significant adverse changes in
these factors could cause us to realize a material impairment charge. Self-Insurance Accruals As we have relatively high deductibles for expected losses under our workers compensation,
employee medical, and general liability programs, we are effectively self insured for potential
claims. Accrued liabilities have been recorded based on our estimates of the ultimate costs to
settle incurred claims, both reported and not yet reported. Our accounting policies regarding self-insurance programs include our judgments and
independent actuarial assumptions regarding economic conditions, the frequency or severity of
claims and claim development patterns, and claim reserve, management, and settlement practices.
Unanticipated changes in these factors may produce materially different amounts of reported expense
under these programs. New accounting standards In
December 2004, the FASB issued Statement No.123(R), Share-Based Payment,effective
third quarter 2005 for the Company, which is a revision of FASB Statement No.123, Accounting for
Stock-Based Compensation.Statement 123(R) supersedes APB Opinion No. 25, Accounting for Stock
Issued to Employees,and amends FASB Statement No. 95, Statement of Cash Flows.Generally, the
approach in Statement 123(R) is similar to the approach described in Statement 123. However,
Statement 123(R) requires all share-based payments to employees, including grants of employee stock
options, to be recognized in the income statement based on their fair values. Pro forma disclosure
is no longer an alternative. As permitted by Statement 123, the Company currently accounts for share-based payments to
employees using the intrinsic value method and, as such, generally recognizes no compensation cost
for employee stock options. Accordingly, the adoption of Statement 123(R)s fair value method will
have an impact on our results of operations. The Company expects to adopt Statement 123(R) during the third quarter 2005 using the
modified-retrospective method restating prior periods. Had we adopted Statement 123(R) in prior
periods, the impact of that standard would have approximated the impact of Statement 123 as
described in the pro forma disclosures in the summary of significant accounting policies note to
the consolidated financial statements. Statement 123(R) also requires the benefits of tax deductions in excess of recognized
compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as
required under the current rules. This requirement will reduce net operating cash flow and increase
net financing cash flow. Forward Looking Statements This report contains certain forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, which are intended to be covered by the safe harbors created thereby. Although we believe
that the assumptions underlying the forward-looking statements contained herein are reasonable, any
of the assumptions could be inaccurate, and, therefore, there can be no assurance that the
forward-looking statements included in this report will prove to be accurate. Our actual results
may differ materially from the forward-looking statements contained herein. Factors that could
cause actual results to differ from the results discussed in the forward-looking statements
include, but are not limited to, potential increases in food, alcohol, labor, and other operating
costs, changes in competition, the inability to find suitable new locations, changes in consumer
preferences or spending
patterns, changes in demographic trends, the effectiveness of our operating and growth
initiatives and promotional efforts, and changes in government regulation. In light of the
significant uncertainties inherent in the forward-looking statements included -24-




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herein, the inclusion
of such information should not be regarded as a representation by us or any other person that our
objectives and plans will be achieved. 
 Item 7A.Quantitative and Qualitative Disclosures About Market Risk Interest Rate Risk Our Line of Credit has a variable rate which is directly affected by changes in U.S. interest
rates. The average interest rate of the Line of Credit was 3.76% for the year ended December 28,
2004. The following table presents the quantitative interest rate risks at December 28, 2004: Principal Amount by Expected Maturity(In thousands)
    
    
    FairThere-
    
    
    
    
    
    
    Value(dollars in thousands)
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    after
    
    
    Total
    
    
    12/28/04Variable rate debt
    
    $
    
    
    
    $
    140
    
    
    $
    865
    
    
    $
    905
    
    
    $
    947
    
    
    $
    823
    
    
    $
    3,680
    
    
    $
    3,680Average Interest Rate
1/2% below prime
    
    
    4.50
    %
    
    
    4.50
    %
    
    
    4.50
    %
    
    
    4.50
    %
    
    
    4.50
    %
    
    
    4.50
    %
 
 Item 8.Financial Statements and Supplementary Data See the Consolidated Financial Statements listed in the accompanying Index to Financial
Statements on Page F-1 herein. Information required for financial schedules under Regulation S-X
is either not applicable or is included in the financial statements or notes thereto. 
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. 
 Item 9A. Controls and Procedures Disclosure controls and procedures As required by Rule 13a-15(b) under the Securities and Exchange Act of 1934, as amended,
an evaluation of the effectiveness of the design and operation of the Companys disclosure controls
and procedures as of the end of the period covered by this report was conducted under the
supervision and with the participation of the Companys management, including the Chief Executive
Officer (CEO) and Chief Financial Officer (CFO). In performing this evaluation, management
reviewed the Companys policies and procedures for lease accounting. In conjunction with this
review, management concluded that the Companys previously established policies and procedures for
lease accounting were not in accordance with generally accounting principles in the United States.
As a result, management determined that certain expenses, primarily restaurant operating expenses
and depreciation and amortization expenses, were understated in prior periods. Accordingly, the
Company has restated its previously issued financial statements to reflect the correction of the
errors noted in the Companys lease accounting practices. These errors resulted from an error in
the Companys interpretation of generally accepted accounting principles in the United States,
similar to other restaurant and retail companies. Based on the aforementioned evaluation, the CEO
and CFO each concluded that the related ineffective controls over the selection, monitoring, and
review of assumptions and factors affecting lease accounting represented a material weakness in
internal control over financial reporting as of December 28, 2004. Accordingly, the Companys CEO
and CFO have concluded that the Companys disclosure controls and procedures were not effective as
of the end of the period covered by this annual report. Managements Report on Internal Control over Financial Reporting Management of the Company is responsible for establishing and maintaining adequate
internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the
Securities and Exchange Act of 1934. The Companys internal control system is designed to provide
reasonable assurance to the Companys management and Board of Directors
regarding the fair presentation of the Companys financial statements. Because of its
inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions or because the
degree of compliance with the policies or procedures may deteriorate. -25-




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Management has assessed the effectiveness of the Companys internal control over financial
reporting as of December 28, 2004. In making this assessment, management used the criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). In performing this assessment, management reviewed the Companys policies and procedures for
lease accounting. As a result of this review, management concluded that the Companys controls
over the selection, monitoring, and review of assumptions and factors affecting lease and
depreciation accounting were ineffective as of December 28, 2004. As a result, the Company
inappropriately applied generally accepted accounting principles in the United States to leasing
transactions, resulting in the understatement of restaurant operating expenses and depreciation and
amortization expenses in prior periods. On January 25, 2005, the Company announced that it would
restate certain of its previously issued financial statements to reflect the correction of these
errors. Management evaluated the impact of this restatement on the Companys assessment of
internal control over financial reporting and concluded that the deficiency in the Companys
selection, monitoring, and review of factors and assumptions affecting lease and depreciation
accounting represented a material weakness in internal control over financial reporting as of
December 28, 2004. A material weakness in internal control over financial reporting is a control deficiency
(within the meaning of the Public Company Accounting Oversight Boards (PCAOB) Auditing Standard
No. 2), or combination of control deficiencies, that results in there being more than a remote
likelihood that a material misstatement of the annual or interim financial statements will not be
prevented or detected. PCAOB Auditing Standard No. 2 identifies a number of circumstances that,
because of their likely significant negative effect on internal control over financial reporting,
are to be regarded as at least significant deficiencies, as well as strong indicators of a material
weakness, including the restatement of previously issued financial statements to reflect the
correction of a misstatement. As a result of the aforementioned material weakness related to the
Companys lease and depreciation accounting, management has concluded that, as of December 28,
2004, the Companys internal control over financial reporting was not effective based on the
criteria set forth in the COSO framework. The Companys independent registered public accounting firm, KPMG LLP, has issued
an audit report on managements assessment of the Companys internal control over financial
reporting, which follows this report. Remediation of material weakness To remediate the material weakness in the Companys internal control over financial reporting,
subsequent to year end, the Company has implemented additional review procedures over the selection
and monitoring of appropriate assumptions and factors affecting lease accounting and leasehold
depreciation practices. No other material weaknesses have been identified as a result of
managements assessment. Internal control over financial reporting There have been no changes in the Companys internal control over financial reporting
identified in connection with the evaluation required by Rule 13a-15(d) of the Securities Exchange
Act of 1934, as amended, that occurred during the Companys last fiscal quarter that have
materially affected, or are reasonably likely to materially affect, the Companys internal control
over financial reporting. Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders
Total Entertainment Restaurant Corp.: We have audited managements assessment, included in the accompanying Managements Report on
Internal Control Over Financial Reporting (Item 9A) that Total Entertainment Restaurant Corp.s
(the Company) internal control over financial reporting was not effective as of December 28, 2004,
because of the material weakness in internal controls over the selection, monitoring, and review of
assumptions and factors affecting lease and depreciation accounting, based on criteria established
in Internal ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Total Entertainment Restaurant Corp.s management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on managements assessment and an opinion on the
effectiveness of the Companys internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an -26-




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understanding of internal
control over financial reporting, evaluating managements assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion. A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements. Because of its inherent
limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may
deteriorate. A material weakness is a
control deficiency, or combination of control deficiencies, that
results in more than a remote likelihood that a material misstatement
of the annual or interim financial statements will not be prevented
or detected. The following material weakness has been identified and
included in managements assessment as of December 28,
2004: The Companys controls over the selection, monitoring, and
review of assumptions and factors affecting lease and depreciation
accounting were ineffective as of December 28, 2004. As a
result, the Company inappropriately applied generally accepted
accounting principles in the United States to leasing transactions,
resulting in the understatement of restaurant operating expenses and
depreciation and amortization expenses in prior periods. The Company
restated certain of its previously issued financial statements to
reflect the correction of these errors in lease accounting. We also have audited, in
accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of
Total Entertainment Restaurant Corp. and subsidiaries as of
December 28, 2004 and December 30, 2003, and the related
consolidated statements of income, stockholders equity and cash
flows for the years ended December 28, 2004,
December 30, 2003 and December 31, 2002. The aforementioned
material weakness was considered in determining the nature, timing, and extent
of audit tests applied in our audit of the 2004 consolidated
financial statements, and this report does not affect our report
dated March 25, 2005, which expressed an unqualified opinion on
those consolidated financial statements. In our opinion,
managements assessment that Total Entertainment Restaurant
Corp. did not maintain effective internal control over financial
reporting as of December 28, 2004, is fairly stated, in all
material respects, based on criteria established in Internal
Control  Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Also, in our opinion, because of the effect of the material
weakness described above on the achievement of the objectives of the
control criteria, Total Entertainment Restaurant Corp. has not
maintained effective internal control over financial reporting as of
December 28, 2004, based on criteria established in Internal
Control  Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). (signed) KPMG LLP Wichita, Kansas
April 20, 2005 
 Item 9B.Other Information On October 4, 2004, the Companys Board of Directors approved salary adjustments, stock option
grants, and a bonus plan for the Companys executive officers. Each of these officers base salary
was increased as outlined in the following table. Each of these officers was granted an option to
purchase 50,000 shares of the Companys common stock effective November 1, 2004, and additional
options to purchase 50,000 shares of the Companys common stock on November 1 of each of the next
two years. The bonus plan established would pay each of these officers a cash bonus up to twenty
percent of the officers base salary depending on comparable store sales and the Companys EBITDA
and EPS financial performance for fiscal year 2005. Name
    
    
    Position
    
    
    Adjusted Base SalarySteven M. Johnson
    
    
    Chief Executive Officer
    
    
    $315,000James K. Zielke
    
    
    Chief Financial Officer, Secretary and Treasurer
    
    
    $267,500Gary M. Judd
    
    
    President
    
    
    $230,000Kenneth C. Syvarth
    
    
    Chief Operating Officer
    
    
    $175,500
 Additionally, on October 4, 2004, the Companys Board of Directors modified the compensation
to be paid members of the Board of Directors and members of the committees of the Board of
Directors for fiscal year 2005. Directors who are not employees of the Company (Eligible
Directors) will receive an annual fee of $10,000, and the chairpersons of the Stock Option
Committee and Compensation Committee will receive an additional annual fee of $5,000 and the
chairperson of the Audit Committee will receive an additional annual fee of $8,500. Additionally,
each Eligible Director will receive a fee of $1,250 for each regularly scheduled Board of Directors
meeting attended, a fee of $750 for each regularly scheduled Board of Director meeting held via
conference call, a fee of $1,000 for each Audit Committee meeting attended that is scheduled in
conjunction with a regularly scheduled Board of Directors meeting, a fee of $1,000 for each
committee meeting attended not in conjunction with a regularly scheduled Board of Directors
meeting, and a fee of $500 for each committee meeting held via conference call not in conjunction
with a regularly scheduled Board of Directors meeting. The chairperson of the Audit Committee will
receive a fee of $1,500 for each Audit Committee meeting attended in conjunction with a regularly
schedule Board of Directors meeting, each chairperson of a committee of the Board will receive a
fee of $1,500 for each meeting attended or $750 for each meeting held by telephone conference not
held in conjunction with a regularly scheduled Board of Directors meeting. Each Director is
reimbursed for his expenses. Employees who are Directors are not entitled to any compensation for
their service as a Director. The Board of Directors modified the amount of
shares that each Eligible Director will be entitled to receive under annual grants of options under
the Companys 1997 Directors Stock Option Plan (the Directors Plan) to 10,000 shares on April 30
of each year. The compensation reflected above does not reflect all compensation and other perquisites paid
to the Companys executive officers or directors. Such information for the fiscal year ended
December 28, 2004, will be included under the caption Executive Compensation in the Companys
definitive proxy statement for its 2005 Annual Meeting of Stockholders. -27-




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##### Table of Contents



PART III 
 Item 10.Directors and Executive Officers of the Registrant The information required by this Item 10 will be in our definitive proxy materials to be filed
with the Securities and Exchange Commission and is incorporated in this Annual Report on Form 10-K
by this reference. 
 Item 11.Executive Compensation The information required by this Item 11 will be in our definitive proxy materials to be filed
with the Securities and Exchange Commission and is incorporated in this Annual Report on Form 10-K
by this reference. 
 Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters The information required by this Item 12 will be in our definitive proxy materials to be filed
with the Securities and Exchange Commission and is incorporated in this Annual Report on Form 10-K
by this reference. 
 Item 13.Certain Relationships and Related Transactions The information required by this Item 13 will be in our definitive proxy materials to be filed
with the Securities and Exchange Commission and is incorporated in this Annual Report on Form 10-K
by this reference. 
 Item 14.Principal Accountant Fees and Services The information required by this Item 14 will be in our definitive proxy materials to be filed
with the Securities and Exchange Commission and is incorporated in this Annual Report on Form 10-K
by this reference. -28-




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##### Table of Contents



PART IV 
 Item 15.Exhibits, Financial Statement Schedules, and
and Reports on Form 8-K  (a)
    The following documents are filed as part of this report: (1) Financial Statements. See Index to Financial Statements which appears on  (2) Exhibits 
 INDEX TO EXHIBITS ExhibitNumber
    
    Exhibit*2.1
    
    Form of Stock for Stock Exchange Agreement between the
Registrant, the Shareholders of F&H Restaurant Corp.,
Fox & Hound, Inc., Fox & Hound II, Inc. and Baileys Sports
Grille, Inc. and Certain Limited Partners of N. Collins Enter-
tainment, Ltd., 505 Entertainment, Ltd., Midway Entertain-
ment, Ltd. and F&H Dallas, L.P., dated February 20, 1997.*3.1
    
    Certificate of Incorporation of the Registrant.*3.1.1
    
    Amendment to the Certificate of Incorporation of the
Registrant.*3.2
    
    By-laws of the Registrant.*4.1
    
    Specimen Certificate of the Registrants Common Stock.*10.1
    
    Form of 1997 Incentive and Nonqualified Stock Option Plan of
the Registrant.*10.2
    
    Form of 1997 Directors Stock Option Plan of the Registrant.*10.3
    
    Form of Indemnification Agreement for officers and directors
of the Registrant.*10.4
    
    Non-Competition, Confidentiality and Non-Solicitation Agree-
ment between the Registrant and Dennis L. Thompson, dated
February 20, 1997.*10.5
    
    Non-Competition, Confidentiality and Non-Solicitation Agree-
ment between the Registrant and Thomas A. Hager, dated
February 20, 1997.*10.6
    
    Lease by and between Real Alchemy I, L.P. and Midway
Entertainment, Ltd., dated June 1, 1995.*10.6.1
    
    First Amendment to Lease by and between Real Alchemy I,
L.P. and Midway Entertainment, Ltd., dated December 6, 1996.*10.6.2
    
    Amendment to Lease by and between Real Alchemy I, L.P. and
Midway Entertainment, Ltd., dated December 6, 1996.*10.7
    
    Lease by and between 505 Center, L.P. and 505 Entertainment,
Ltd., dated January 31, 1994.*10.7.1
    
    Amendment to Lease by and between 505 Center, L.P. and 505
Entertainment, Ltd., dated December 6, 1996.
 -29-




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##### Table of Contents



ExhibitNumber
    
    Exhibit**10.8
    
    Loan Agreement by and among Intrust Bank, N.A., TENT
Finance, Inc., the Registrant, and various subsidiaries of
Registrant, as Guarantors, dated September 1, 1998.**10.8.1
    
    First Amendment to Loan Agreement by and among Intrust
Bank, N.A., TENT Finance, Inc., the Registrant, and various
subsidiaries of Registrant, as Guarantors, dated October 30, 2001.**10.8.2
    
    Second Amendment to Loan Agreement by and among Intrust
Bank, N.A., TENT Finance, Inc., the Registrant, and various
subsidiaries of Registrant, as Guarantors, dated June 14, 2002.***10.8.3
    
    First Restated Loan Amendment to Loan Agreement by and among Intrust
Bank, N.A., TENT Finance, Inc., the Registrant, and various
subsidiaries of Registrant, as Guarantors, dated October 1, 2003.**10.9
    
    Agreement for Sale and Purchase of Assets between BMR
Restaurants, LLC and Fox & Hound of Virginia, Inc., dated
February 6, 2002.**10.10
    
    Subscription Agreement between Fox & Hound of Colorado, Inc. and Cool
River Restaurant Denver, L.P., dated April 27, 2000.**10.11
    
    Subscription Agreement between Fox & Hound of Texas, Inc.
and Cool River Restaurant Austin, L.P., dated April 27, 2000.**10.12
    
    Employment Agreement between the Registrant and Steven M.
Johnson, dated June 12, 2002.**10.13
    
    Employment Agreement between the Registrant and Kenneth C. Syvarth, dated

June 12, 2002.**10.14
    
    Employment Agreement between the Registrant and James K.
Zielke, dated June 12, 2002.**10.15
    
    Employment Agreement between the Registrant and Gary M.
Judd, dated June 12, 2002.**10.16
    
    Fox & Hound of Littleton, Inc. Stockholders Agreement by and
among TENT Finance, Inc., Gary M. Judd and James K. Zielke
dated as of June 12, 2002.**10.17
    
    Fox & Hound of Littleton, Inc. Form of Pledge and Security
Agreement.+10.18
    
    Agreement for Sale and Purchase of Assets between BMR-Raleigh
Restaurants, LLC and North Carolina Fox & Hound, Inc., dated
November 22, 2004.+10.19
    
    Agreement for Accounting Service with Franchise Services Corporation,
dated March 1, 2005.***14
    
    Code of Ethics+21.1
    
    Subsidiaries of Registrant.+23.1
    
    Consent of Experts.

+24.1
    
    Powers of Attorney (included on the signature page of this Form 10-K).+31.1
    
    Certification of Chief Executive Officer pursuant
to Section 302 of the Sarbanes-Oxley Act+31.2
    
    Certification of Chief Financial Officer pursuant
to Section 302 of the Sarbanes-Oxley Act
 -30-




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##### Table of Contents



ExhibitNumber
    
    Exhibit+32.1
    
    Certification by Steven M. Johnson pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.+32.2
    
    Certification by James K. Zielke pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   (b)
    
    Reports on Form 8-K filed in the fourth quarter of 2004:During the fourth quarter of 2004, we filed five Form 8-Ks under Item 1.01, Entry into a
Material Definitive Agreement, Item 8.01, Other Events, Item 2.02 Results of Operations,
and Financial Condition, and Item 5.02 Departure of Directors and Principal Officers;
Election of Directors; Appointment of Principal Officers, on the following dates:
September 21, 2004, September 27, 2004, November 19, 2004 and November 22, 2004.*
    
    Incorporated by reference to the Companys Registration Statement on Form
S-1, as amended (Commission File No. 333-23343).**
    
    Incorporated by reference to the Companys Registration Statement on Form S-2,
as amended (Commission File No. 333-90542).***
    
    Incorporated by reference to the Companys Form 10-K for the year ended December
30, 2003.+
    
    Filed herewith. -31-




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##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Wichita, State of Kansas, on this 21st day of April,
2005. TOTAL ENTERTAINMENT RESTAURANT
CORP.
(Registrant)/s/ James K. ZielkeJames K. ZielkeChief Financial Officer,
Treasurer, Secretary and Director
(principal accounting officer) -32-




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##### Table of Contents



SIGNATORIES Know all men by these presents, that each person whose signature appears below hereby constitutes
and appoints James K. Zielke his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Form 10-K and to file the same, with exhibits
thereto, and other documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent or either of them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has
been signed below by the following persons on behalf of the Registrant and in the capacities and on
the date indicated. SIGNATURE
    
    TITLE
    
    DATE/s/ Dennis L. Thompson
    
    Chairman of the Board
    
    April 21, 2005Dennis L. Thompson/s/ Steven M. Johnson
    
    Chief Executive Officer and
    
    April 21, 2005Steven M. Johnson
    
    Director(principal executive officer)/s/ Gary M. Judd
    
    President and Director
    
    April 21, 2005Gary M. Judd/s/ James K. Zielke
    
    Chief Financial Officer,
    
    April 21, 2005James K. Zielke
    
    Treasurer, Secretaryand Director(principal accounting officer)/s/ John D. Harkey, Jr.
    
    Director
    
    April 21, 2005John D. Harkey, Jr./s/ C. Wells Hall, III
    
    Director
    
    April 21, 2005C. Wells Hall, III/s/ E. Gene Street
    
    Director
    
    April 21, 2005E. Gene Street/s/ Nestor R. Weigand, Jr.
    
    Director
    
    April 21, 2005Nestor R. Weigand, Jr./s/ James T. Morton
    
    Director
    
    April 21, 2005James T. Morton
 -33-




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##### Table of Contents



Total Entertainment Restaurant Corp. Index to Financial Statements PageTotal Entertainment Restaurant Corp.Report of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets as of December 28, 2004 and December 30, 2003
    
    
    F-3Consolidated Statements of Income for the years ended December 28, 2004, December 30, 2003, and December 31, 2002
    
    
    F-5Consolidated Statements of Stockholders Equity for the years ended December 28, 2004, December 30, 2003, and December 31, 2002
    
    
    F-6Consolidated Statements of Cash Flows for the years ended December 28, 2004, December 30, 2003, and December 31, 2002
    
    
    F-7Notes to Consolidated Financial Statements
    
    
    F-8
 F-1




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##### Table of Contents



Report of Independent Registered Public Accounting Firm The Board of Directors
Total Entertainment Restaurant Corp.: We have audited the accompanying consolidated balance sheets of Total Entertainment Restaurant
Corp. and subsidiaries as of December 28, 2004 and December 30, 2003, and the related consolidated
statements of income, stockholders equity and cash flows for the years ended December 28, 2004,
December 30, 2003 and December 31, 2002. These consolidated financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Total Entertainment Restaurant Corp. and subsidiaries
as of December 28, 2004 and December 30, 2003, and the results of their operations and their cash
flows for the years ended December 28, 2004, December 30, 2003 and December 31, 2002, in conformity
with U.S. generally accepted accounting principles. As discussed in note 1 to the consolidated financial statements, the Company adopted the provisions
of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets,
effective December 26, 2001. As discussed in note 2 to the consolidated financial statements, the consolidated financial
statements for the years ended December 30, 2003 and December 31, 2002 have been restated. (signed) KPMG LLP Wichita, Kansas
March 25, 2005 F-2




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##### Table of Contents



Total Entertainment Restaurant Corp. 
 Consolidated Balance Sheets (In Thousands, except share and per share information) December 28,
    
    
    December 30,2004
    
    
    2003(as restated)AssetsCurrent assets:Cash and cash equivalents
    
    $
    812
    
    
    $
    813Inventories
    
    
    2,486
    
    
    
    2,097Prepaid income taxes
    
    
    97
    
    
    
    996Prepaid insurance
    
    
    1,705
    
    
    
    77Prepaid rent
    
    
    1,088
    
    
    
    833Deferred income taxes
    
    
    
    
    
    
    281Other current assets
    
    
    717
    
    
    
    628Total current assets
    
    
    6,905
    
    
    
    5,725Property and equipment:Land
    
    
    600
    
    
    
    600Buildings
    
    
    703
    
    
    
    703Leasehold improvements
    
    
    59,807
    
    
    
    48,216Equipment
    
    
    30,597
    
    
    
    25,107Furniture and fixtures
    
    
    9,150
    
    
    
    7,514Property under capital leases
    
    
    918
    
    
    
    918101,775
    
    
    
    83,058Less accumulated depreciation and amortization
    
    
    33,394
    
    
    
    25,548Net property and equipment
    
    
    68,381
    
    
    
    57,510Other assets:Goodwill
    
    
    3,661
    
    
    
    3,661Liquor licenses, net of accumulated amortization of $255
($148 at December 30, 2003)
    
    
    1,256
    
    
    
    672Advances to developer
    
    
    
    
    
    
    842Other assets
    
    
    364
    
    
    
    311Total other assets
    
    
    5,281
    
    
    
    5,486Total assets
    
    $
    80,567
    
    
    $
    68,721
 F-3




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##### Table of Contents



December 28,
    
    
    December 30,2004
    
    
    2003(as restated)Liabilities and stockholders equityCurrent liabilities:Current portion of obligations under capital leases
    
    $
    8
    
    
    $
    8Accounts payable
    
    
    2,906
    
    
    
    3,474Checks outstanding in excess of cash balance
    
    
    3,247
    
    
    
    2,036Sales tax payable
    
    
    1,257
    
    
    
    1,187Accrued payroll
    
    
    1,626
    
    
    
    1,674Accrued payroll taxes
    
    
    806
    
    
    
    824Deferred income taxes
    
    
    798
    
    
    
    Other accrued liabilities
    
    
    2,493
    
    
    
    2,391Total current liabilities
    
    
    13,141
    
    
    
    11,594Notes payable
    
    
    3,680
    
    
    
    3,635Obligations under capital leases, net of current portion
    
    
    889
    
    
    
    897Deferred taxes
    
    
    1,830
    
    
    
    735Deferred revenue
    
    
    
    
    
    
    21Accrued rent
    
    
    7,938
    
    
    
    5,675Stockholders equity:Preferred stock, $.10 par value, 2,000,000 shares
authorized; none issued
    
    
    
    
    
    
    Common stock, $.01 par value; 20,000,000 shares
authorized; 9,939,987 shares issued and
outstanding (9,825,376 at December 30, 2003)
    
    
    99
    
    
    
    98Additional paid-in capital
    
    
    29,306
    
    
    
    28,553Retained earnings
    
    
    23,684
    
    
    
    17,513Total stockholders equity
    
    
    53,089
    
    
    
    46,164CommitmentsTotal liabilities and stockholders equity
    
    $
    80,567
    
    
    $
    68,721
 See notes to consolidated financial statements F-4




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##### Table of Contents



Total Entertainment Restaurant Corp. 
 Consolidated Statements of Income (In Thousands, except per share information) Year ended
    
    
    Year ended
    
    
    Year endedDecember 28, 2004
    
    
    December 30, 2003
    
    
    December 31, 2002(as restated)
    
    
    (as restated)Sales:Food and beverage
    
    $
    139,741
    
    
    $
    112,594
    
    
    $
    93,853Entertainment and other
    
    
    9,423
    
    
    
    9,114
    
    
    
    8,611Total net sales
    
    
    149,164
    
    
    
    121,708
    
    
    
    102,464Cost and expenses:Cost of sales
    
    
    40,619
    
    
    
    32,006
    
    
    
    26,815Restaurant operating expenses
    
    
    79,038
    
    
    
    63,735
    
    
    
    52,300Depreciation and amortization
    
    
    8,392
    
    
    
    6,945
    
    
    
    5,888Preopening costs
    
    
    1,986
    
    
    
    1,822
    
    
    
    1,654Provision for asset impairment
    
    
    2,523
    
    
    
    2,009
    
    
    
    Restaurant costs and expenses
    
    
    132,558
    
    
    
    106,517
    
    
    
    86,657Restaurant operating income
    
    
    16,606
    
    
    
    15,191
    
    
    
    15,807General and administrative expenses
    
    
    7,520
    
    
    
    6,293
    
    
    
    5,181(Gain) Loss on disposal of assets
    
    
    (1
    )
    
    
    57
    
    
    
    31Income from operations
    
    
    9,087
    
    
    
    8,841
    
    
    
    10,595Other income (expense):Other income (expense)
    
    
    4
    
    
    
    1
    
    
    
    (46
    )Interest expense
    
    
    (243
    )
    
    
    (340
    )
    
    
    (410
    )Income from continuing operations before income taxes
    
    
    8,848
    
    
    
    8,502
    
    
    
    10,139Provision for income taxes
    
    
    2,677
    
    
    
    2,757
    
    
    
    3,628Income from continuing operations
    
    
    6,171
    
    
    
    5,745
    
    
    
    6,511Income from discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    13Net income
    
    $

    6,171
    
    
    $
    5,745
    
    
    $
    6,524Basic earnings per share:Income from continuing operations
    
    $
    0.62
    
    
    $
    0.59
    
    
    $
    0.70Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    Basic earnings per share
    
    $
    0.62
    
    
    $
    0.59
    
    
    $
    0.70Diluted earnings per share:Income from continuing operations
    
    $
    0.59
    
    
    $
    0.56
    
    
    $
    0.67Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    Diluted earnings per share
    
    $
    0.59
    
    
    $
    0.56
    
    
    $
    0.67
 See notes to consolidated financial statements. F-5




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##### Table of Contents



Total Entertainment Restaurant Corp. 
 Consolidated Statements of Stockholders Equity (In Thousands, except share information) Common Stock
    
    
    AdditionalPaid-in
    
    
    RetainedNumber
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    TotalBalance at December 25, 2001 (as previously reported)
    
    
    8,665,611
    
    
    $
    87
    
    
    $
    17,135
    
    
    $
    6,927
    
    
    $
    24,149Restatement adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,683
    )
    
    
    (1,683
    )Balance at December 25, 2001 (as restated)
    
    
    8,665,611
    
    
    
    87
    
    
    
    17,135
    
    
    
    5,244
    
    
    
    22,466Net income (as restated)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,524
    
    
    
    6,524Stock options exercised
    
    
    286,967
    
    
    
    3
    
    
    
    1,947
    
    
    
    
    
    
    
    1,950Tax benefit related to options exercises
    
    
    
    
    
    
    
    
    
    
    316
    
    
    
    
    
    
    
    316Forfeiture of shares of common stock
    
    
    (5,840
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase and retirement of shares of common stock
    
    
    (430,403
    )
    
    
    (4
    )
    
    
    (3,178
    )
    
    
    
    
    
    
    (3,182
    )Shares issued  secondary offering, net of
issuance costs
    
    
    1,350,000
    
    
    
    13
    
    
    
    12,834
    
    
    
    
    
    
    
    12,847Balance at December 31, 2002 (as restated)
    
    
    9,866,335
    
    
    
    99
    
    
    
    29,054
    
    
    
    11,768
    
    
    
    40,921Net income (as restated)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,745
    
    
    
    5,745Stock options exercised
    
    
    116,996
    
    
    
    1
    
    
    
    399
    
    
    
    
    
    
    
    400Tax benefit related to options exercises
    
    
    
    
    
    
    
    
    
    
    364
    
    
    
    
    
    
    
    364Purchase and retirement of shares of common stock
    
    
    (157,955
    )
    
    
    (2
    )
    
    
    (1,264
    )
    
    
    
    
    
    
    (1,266
    )Balance at December 30, 2003 (as restated)
    
    
    9,825,376
    
    
    
    98
    
    
    
    28,553
    
    
    
    17,513
    
    
    
    46,164Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,171
    
    
    
    6,171Stock options exercised
    
    
    114,611
    
    
    
    1
    
    
    
    458
    
    
    
    
    
    
    
    459Tax benefit related to options exercises
    
    
    
    
    
    
    
    
    
    
    295
    
    
    
    
    
    
    
    295Balance at December 28, 2004
    
    
    9,939,987
    
    
    $
    99
    
    
    $
    29,306
    
    
    $
    23,684
    
    
    $
    53,089
 See notes to consolidated financial statements. F-6




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##### Table of Contents



Total Entertainment Restaurant Corp. 
 Consolidated Statements of Cash Flows
 (In Thousands)
 Year ended
    
    
    Year ended
    
    
    Year endedDecember 28,
    
    
    December 30,
    
    
    December 31,2004
    
    
    2003
    
    
    2002(as restated)
    
    
    (as restated)Operating activitiesNet income
    
    $
    6,171
    
    
    $
    5,745
    
    
    $
    6,524Adjustments to reconcile net income to net
cash provided by operating activities:Provision for asset impairment
    
    
    2,523
    
    
    
    2,009
    
    
    
    (Gain) Loss on disposal of assets
    
    
    (1
    )
    
    
    57
    
    
    
    31Depreciation
    
    
    8,367
    
    
    
    6,956
    
    
    
    5,901Amortization
    
    
    138
    
    
    
    74
    
    
    
    41Deferred taxes
    
    
    2,174
    
    
    
    1,901
    
    
    
    754Net change in operating assets and liabilities:Inventories
    
    
    (389
    )
    
    
    (493
    )
    
    
    (373
    )Prepaid income taxes
    
    
    1,194
    
    
    
    (632
    )
    
    
    Prepaid insurance
    
    
    (1,628
    )
    
    
    (49
    )
    
    
    41Prepaid rent
    
    
    (255
    )
    
    
    (205
    )
    
    
    (500
    )Other current assets
    
    
    (89
    )
    
    
    (250
    )
    
    
    12Advances to developer
    
    
    842
    
    
    
    (272
    )
    
    
    (570
    )Other assets
    
    
    (84
    )
    
    
    (135
    )
    
    
    128Accounts payable
    
    
    (306
    )
    
    
    983
    
    
    
    (385
    )Checks in excess of cash balance
    
    
    1,211
    
    
    
    (91
    )
    
    
    674Accrued liabilities
    
    
    106
    
    
    
    676
    
    
    
    1,128Deferred revenue
    
    
    (21
    )
    
    
    (53
    )
    
    
    (30
    )Accrued rent
    
    
    2,263
    
    
    
    1,317
    
    
    
    1,339Lease obligation for closed store
    
    
    
    
    
    
    (43
    )
    
    
    (116
    )Net cash provided by operating activities
    
    
    22,216
    
    
    
    17,495
    
    
    
    14,599Investing activitiesPurchases of property and equipment
    
    
    (22,023
    )
    
    
    (17,614
    )
    
    
    (18,574
    )Purchases of liquor licenses
    
    
    (691
    )
    
    
    (437
    )
    
    
    (69
    )Proceeds from disposal of assets
    
    
    1
    
    
    
    31
    
    
    
    15Net cash used in investing activities
    
    
    (22,713
    )
    
    
    (18,020
    )
    
    
    (18,628
    )Financing activitiesProceeds from revolving note payable to bank
    
    
    40,630
    
    
    
    31,235
    
    
    
    29,390Payments of revolving note payable to bank
    
    
    (40,585
    )
    
    
    (30,140
    )
    
    
    (37,200
    )Proceeds from exercise of stock options
    
    
    459
    
    
    
    400
    
    
    
    1,950Proceeds from sale of stock
    
    
    
    
    
    
    
    
    
    
    14,175Payments under capital lease obligations
    
    
    (8
    )
    
    
    (7
    )
    
    
    (7
    )Issuance costs on sale of stock
    
    
    
    
    
    
    
    
    
    
    (1,327
    )Purchase of common stock
    
    
    
    
    
    
    (1,266
    )
    
    
    (3,182
    )Net cash provided by financing activities
    
    
    496
    
    
    
    222
    
    
    
    3,799Net decrease in cash and cash equivalents
    
    
    (1
    )
    
    
    (303
    )
    
    
    (230
    )Cash and cash equivalents at beginning of year
    
    
    813
    
    
    
    1,116
    
    
    
    1,346Cash and cash equivalents at end of year
    
    $
    812
    
    
    $
    813
    
    
    $
    1,116Supplemental disclosure of cash flow informationCash paid for interest
    
    $
    249
    
    
    $
    288
    
    
    $
    375Cash paid for income taxes
    
    
    (676
    )
    
    
    2,449
    
    
    
    3,763Supplemental disclosure of non cash activityNet change in property and equipment in accounts payable at year end
    
    $
    (262
    )
    
    $
    575
    
    
    $
    238Additions to property and equipment under capital lease obligations
    
    
    
    
    
    
    
    
    
    
    918Tax benefit related to stock options exercised
    
    
    295
    
    
    
    364
    
    
    
    316
 See notes to consolidated financial statements. F-7




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##### Table of Contents



Total Entertainment Restaurant Corp. 
 Notes to Consolidated Financial Statements
 (In thousands, except share and per share information)
 1. Background and Significant Accounting Policies  
    Background Total Entertainment Restaurant Corp. (the Company) owns and operates a chain of restaurant
locations under the Fox and Hound English Pub & Grille, Fox and Hound Pub & Grille, and Fox and
Hound Smokehouse & Tavern (Fox & Hound), Baileys Sports Grille, Baileys Pub & Grille, and
Baileys Smokehouse & Tavern (Baileys) brand names. As of December 28, 2004, the Company owned and
operated 57 Fox & Hounds and 18 Baileys in Alabama, Arizona, Arkansas, Colorado, Georgia,
Illinois, Indiana, Kansas, Louisiana, Michigan, Missouri, Nebraska, New Jersey, New Mexico, North
Carolina, Ohio, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas and Virginia. The Company
operates in one business segment. The company has a 52/53 week fiscal year ending on the last Tuesday in December. Fiscal years 2004
and 2003 each consisted of 52 weeks. Fiscal year 2002 consisted of 53 weeks.  
    Principles of Consolidation The accompanying financial statements include the accounts of Total Entertainment Restaurant Corp.
and its wholly-owned subsidiaries. All significant intercompany accounts have been eliminated.  
    Cash and Cash Equivalents The Company considers cash and cash equivalents to include currency on hand, demand deposits with
banks or financial institutions, and short-term investments with maturities of three months or less
when purchased. Cash and cash equivalents are carried at cost, which approximates fair value.  
    Concentration of Credit Risk The Companys financial instruments exposed to credit risk consist primarily of cash. The Company
places its cash with high credit financial institutions and, at times, such cash may be in excess
of the Federal Depository insurance limit.  
    Inventories Inventories consist of food and beverages and are stated at the lower of cost (first-in, first-out)
or market.  
    Pre-opening Costs Costs related to pre-opening activities are expensed as incurred.  
    Property and Equipment Property and equipment are stated at cost. Maintenance repairs and renewals which do not enhance
the value of or increase the life of the assets are expensed as incurred. Buildings are depreciated using the straight-line method over the estimated useful life of the
asset, which is 30 years. Leasehold improvements are amortized on the straight-line method over
the lesser of the life of the lease, including renewal options, or the estimated useful lives of
the assets, which is 15 years. Equipment and furniture and fixtures are depreciated using the
straight-line method over the estimated useful lives of the assets, which range from two to seven
years. Costs of straight-line rent obligations and interest during the construction period are capitalized
as leasehold improvements and amortized on the straight-line method over a period of 15 years. F-8




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##### Table of Contents



Total Entertainment Restaurant Corp.
Notes to Consolidated Financial Statements
(In thousands, except share and per share information) 1. Background and Significant Accounting Policies (continued)  
    Liquor Licenses The costs of obtaining non-transferable liquor licenses that are directly issued by local
government agencies for nominal fees are expensed as incurred. The costs of purchasing
transferable liquor licenses through open markets in jurisdictions with a limited number of
authorized liquor licenses are capitalized. Such licenses are amortized using the straight-line
method over ten years. Annual liquor license renewal fees are expensed.  
    Goodwill Effective December 26, 2001, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets. Goodwill is no longer
amortized, but instead tested for impairment annually, or more frequently if circumstances indicate
potential impairment through a comparison of fair value to its carrying value. No goodwill
impairment charges have been recorded through December 28, 2004.  
    Impairment of Long-Lived Assets The Company reviews all units for impairment on a semi-annual basis at the end of the second and
fourth fiscal quarters of each year, or at other times during the year when events have occurred
that may be indicators of potential impairment. New units are generally not included in this
review until they have been open 18 months as the initial six months of operations reflect
inefficiencies associated with start-up operations. The impairment review is performed by comparing
the carrying value of the related assets to the projected undiscounted net cash flows of each unit.
A unit is deemed to be impaired if the carrying value of the related assets is more than the
expected undiscounted cash flows for the unit. The amount of the impairment loss is calculated as
the difference between the carrying value of the assets and the fair value of the assets. Store
assets typically consist of leasehold improvements, equipment, and furniture and fixtures. The
impairment charge of $2,009 recorded in the fourth quarter of 2003 was related to two units having
a current-period operating cash flow loss combined with a history of deteriorating cash flows. The
impairment charge of $2,523 in the second quarter of 2004 was related to two units which had been
open less than 18 months at December 30, 2003. These units had either a current period operating
cash flow loss or nominal cash flow. Projected cash flows for these units did not demonstrate any
improvement in future operating results. In both cases, the carrying value of the assets exceeded
managements expectations of future undiscounted cash flows.  
    Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Valuation allowances are established when necessary to reduce deferred
tax assets to the amounts expected to be realized. Deferred tax assets and liabilities are measured
using enacted tax rates. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.  
    Deferred Revenue During 1999, the Company received an upfront payment of $150 from its soft drink provider. The
Company recognized the upfront payment evenly over the five-year life of the soft drink contract. F-9




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##### Table of Contents



Total Entertainment Restaurant Corp.
Notes to Consolidated Financial Statements
(In thousands, except share and per share information) 1. Background and Significant Accounting Policies (continued)  
    Revenue Recognition Revenues from restaurant sales are recognized at the point food and beverages are delivered to the
customer. Entertainment and other revenues principally include billiard table fees. The revenues
from these fees are recognized when the tables are used by the customer. The sales of gift cards
are recorded as unearned revenue until the gift cards are redeemed for food and beverages at which
point revenue is recognized.  
    Advertising Costs Advertising costs are expensed as incurred. Advertising expense for the years ended
December 28, 2004, December 30, 2003, and December 31, 2002 was $1,523, $1,181, and $1,203,
respectively.  
    Accounting for Stock-Based Compensation The Company maintains stock option plans under which the Company may grant incentive stock options
and non-qualified stock options to employees and non-employee directors. Stock options have been
granted with exercise prices at or above the fair market value on the date of grant. Options vest
and expire according to the terms established at the grant date. SFAS No. 123, Accounting for Stock-Based Compensation, encourages, but does not require,
companies to record compensation cost for stock-based employee compensation plans based on the fair
market value of options granted. The Company has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Accordingly,
because the grant price is equal to or is above the market price on the date of grant for options
issued by the Company, no compensation expense is generally recognized for stock options initially
issued to employees. Proceeds from the exercise of common stock options issued to directors and
employees under the Companys stock option plans are credited to common stock to the extent of par
value and to additional paid-in capital for the excess. On December 31, 2002, The Financial Accounting Standards Board (FASB) issued SFAS No. 148,
Accounting for Stock Based Compensation  Transition and Disclosure, which amends SFAS No. 123.
SFAS No. 148 requires more prominent and frequent disclosures about the effects of stock-based
compensation. Pro forma information regarding net income and earnings per share is required by Statement No. 123,
as amended by SFAS No. 148, which also requires the information be determined as if the Company has
accounted for its employee stock options granted under the fair value of that Statement. The fair
value method for these options were estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions: risk-free interest rate ranging from
2.9% to 5.3%; no dividend yields; volatility factor ranging from 0.281 to 0.853; and a
weighted-average expected life of the option of 5 years. The Black-Scholes option valuation model was developed for use in estimating the fair value of
traded options which have no vesting restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions, including the expected stock
price volatility. Because the Companys employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in managements opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee stock options. F-10




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##### Table of Contents



Total Entertainment Restaurant Corp.
Notes to Consolidated Financial Statements
(In thousands, except share and per share information)  1.
    Background and Significant Accounting Policies (continued) For purposes of pro forma disclosures, the estimated fair value of the options is amortized to
expense over the options vesting period. The Companys pro forma information is as follows: December 28,
    
    
    December 30,
    
    
    December 31,2004
    
    
    2003
    
    
    2002(as restated)
    
    
    (as restated)Net income, as reported
    
    $
    6,171
    
    
    $
    5,745
    
    
    $
    6,524Pro forma stock-based employee
Compensation cost, net of tax
    
    
    710
    
    
    
    643
    
    
    
    389Pro forma net income
    
    $
    5,461
    
    
    $
    5,102
    
    
    $
    6,135Earnings per share:Basic, as reported
    
    $
    0.62
    
    
    $
    0.59
    
    
    $
    0.70Basic, pro forma
    
    $
    0.55
    
    
    $
    0.52
    
    
    $
    0.66Diluted, as reported
    
    $
    0.59
    
    
    $
    0.56
    
    
    $
    0.67Diluted, pro forma
    
    $
    0.53
    
    
    $
    0.50
    
    
    $
    0.63Weighted average fair value of
options granted during the
year
    
    $
    5.12
    
    
    $
    5.52
    
    
    $
    6.12
 In
December 2004, the FASB issued Statement No. 123(R), Share-Based Payment,effective third
quarter 2005 for the Company, which is a revision of FASB Statement No.123, Accounting for
Stock-Based Compensation.Statement 123(R) supersedes APB Opinion No. 25, Accounting for Stock
Issued to Employees,and amends FASB Statement No. 95, Statement of Cash Flows.Generally, the
approach in Statement 123(R) is similar to the approach described in Statement 123. However,
Statement 123(R) requires all share-based payments to employees, including grants of employee stock
options, to be recognized in the income statement based on their fair values. Pro forma disclosure
is no longer an alternative. As permitted by Statement 123, the Company currently accounts for share-based payments to
employees using the intrinsic value method and, as such, generally recognizes no compensation cost
for employee stock options. Accordingly, the adoption of Statement
123(R)s fair value method will
have an impact on our results of operations. The
Company expects to adopt Statement 123(R) during the third quarter 2005 using the
modified-retrospective method restating prior periods. Had the
Company adopted Statement 123(R) in
prior periods, the impact of that standard would have approximated the impact of Statement 123 as
described in the table above. Statement
123(R) also requires the benefits of tax deductions in excess of recognized
compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as
required under the current rules. This requirement will reduce net operating cash flow and increase
net financing cash flow.  
    Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying notes. Actual results could
differ from estimates.  
    Earnings per Share Basic earnings per common share is calculated by dividing net income by the average number of
common shares outstanding during the year. Diluted earnings per common share is calculated by
adjusting outstanding shares, assuming conversion of all potentially dilutive stock options. F-11




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##### Table of Contents



Total Entertainment Restaurant Corp.
Notes to Consolidated Financial Statements
(In thousands, except share and per share information) 2. Restatement of Financial Statements Following a review of lease accounting and leasehold amortization polices, we determined that it
was appropriate to adjust certain of our prior financial statements. As a result, we have restated
all of our historical consolidated financial statements. Historically, when accounting for leases
with renewal options, we recorded rent expense on a straight-line basis over the initial
non-cancelable lease term, with the term commencing on the initial date of the lease agreement. We
also used only the initial non-cancelable lease term in the determination of capital leases. We
amortized our leasehold improvements and other long-lived assets on those properties over a period
that included both the initial non-cancelable lease term and all option periods provided for in the
lease (or the useful life of the assets, if shorter). Additionally, tenant allowances received
from the lessor were recorded as a reduction of the related leasehold improvements. We now have
restated our financial statements to recognize rent expense on a straight-line basis over the
expected lease term, including cancelable option periods where failure to exercise such options
would result in an economic penalty, not to exceed fifteen years (unless the initial lease term is
in excess of fifteen years). The expected lease term, including cancelable option periods where
failure to exercise such options would result in an economic penalty, not to exceed fifteen years
(unless the initial lease term is in excess of fifteen years), is also being utilized in the
determination of capital leases. Additionally, the estimated useful life of leasehold improvements
for amortization purposes was reduced from twenty years to fifteen years, or the remaining life of
the lease, whichever is less. The lease term commences on the date when we have full access to the
property. Lease expenses from the date we have full access to the property to the completion of
construction are capitalized as leasehold improvements. Tenant allowances are being recorded as
accrued rent when received and included as a reduction in the straight-line rent calculation
described above. We also had one lease reclassified from operating to capital as a result of these
adjustments. The cumulative effect of the Restatement through fiscal 2003 as well as the impact of these
adjustments on the consolidated income statements for 2003 and 2002 is shown in the tables below.
The Restatement decreased reported diluted net earnings per share by $0.08 and $0.06 in fiscal
years 2003 and 2002, respectively. The Restatement did not have any impact on our previously
reported cash balances, sales or same-restaurant sales or on our compliance with any covenant under
our credit facility or other debt instruments. Balance Sheet Adjustments Related to Restatement
(in thousands) December 30, 2003As Reported
    
    
    Adjustments
    
    
    As RestatedLeasehold improvements
    
    $
    45,092
    
    
    $
    3,124
    
    
    $
    48,216Property under capital leases
    
    
    
    
    
    
    918
    
    
    
    918Total property and equipment
    
    
    79,016
    
    
    
    4,042
    
    
    
    83,058Accumulated depreciation and amortization
    
    
    22,615
    
    
    
    2,933
    
    
    
    25,548Net property and equipment
    
    
    56,401
    
    
    
    1,109
    
    
    
    57,510Total assets
    
    
    67,612
    
    
    
    1,109
    
    
    
    68,721Current portion of obligation under capital leases
    
    
    
    
    
    
    8
    
    
    
    8Total current liabilities
    
    
    11,586
    
    
    
    8
    
    
    
    11,594Obligations under capital leases, net of current
portion
    
    
    
    
    
    
    897
    
    
    
    897Deferred taxes
    
    
    2,503
    
    
    
    (1,768
    )
    
    
    735Accrued rent
    
    
    547
    
    
    
    5,128
    
    
    
    5,675Retained earnings
    
    
    20,669
    
    
    
    (3,156
    )
    
    
    17,513Total stockholders equity
    
    
    49,320
    
    
    
    (3,156
    )
    
    
    46,164Total liabilities and stockholders equity
    
    
    67,612
    
    
    
    1,109
    
    
    
    68,721
 F-12




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##### Table of Contents



Total Entertainment Restaurant Corp.
Notes to Consolidated Financial Statements
(In thousands, except share and per share information) 2. Restatement of Financial Statements (continued) Net Income Adjustments Related to Restatement
(in thousands, except per share data) Year ended
    
    
    Year endedDecember 30, 2003
    
    
    December 31, 2002As Reported
    
    
    Adjustments
    
    
    As Restated
    
    
    As Reported
    
    
    Adjustments
    
    
    As RestatedRestaurant operating expenses
    
    $
    63,490
    
    
    $
    245
    
    
    $
    63,735
    
    
    $
    52,067
    
    
    $
    233
    
    
    $
    52,300Depreciation and amortization
    
    
    6,037
    
    
    
    908
    
    
    
    6,945
    
    
    
    5,177
    
    
    
    711
    
    
    
    5,888Asset impairment
    
    
    2,008
    
    
    
    1
    
    
    
    2,009
    
    
    
    
    
    
    
    
    
    
    
    Restaurant costs and expenses
    
    
    105,363
    
    
    
    1,154
    
    
    
    106,517
    
    
    
    85,713
    
    
    
    944
    
    
    
    86,657Restaurant operating income
    
    
    16,345
    
    
    
    (1,154
    )
    
    
    15,191
    
    
    
    16,751
    
    
    
    (944
    )
    
    
    15,807Income from operations
    
    
    9,995
    
    
    
    (1,154
    )
    
    
    8,841
    
    
    
    11,539
    
    
    
    (944
    )
    
    
    10,595Interest expense
    
    
    266
    
    
    
    74
    
    
    
    340
    
    
    
    342
    
    
    
    68
    
    
    
    410Income before income taxes
    
    
    9,730
    
    
    
    (1,228
    )
    
    
    8,502
    
    
    
    11,151
    
    
    
    (1,012
    )
    

    
    10,139Income taxes
    
    
    3,192
    
    
    
    (435
    )
    
    
    2,757
    
    
    
    3,961
    
    
    
    (333
    )
    
    
    3,628Income from continuing operations
    
    
    6,538
    
    
    
    (793
    )
    
    
    5,745
    
    
    
    7,190
    
    
    
    (679
    )
    
    
    6,511Net income
    
    
    6,538
    
    
    
    (793
    )
    
    
    5,745
    
    
    
    7,203
    
    
    
    (679
    )
    
    
    6,524Basic net earnings per share
    
    
    0.67
    
    
    
    (0.08
    )
    
    
    0.59
    
    
    
    0.77
    
    
    
    (0.07
    )
    
    
    0.70Diluted net earnings per share
    
    
    0.64
    
    
    
    (0.08
    )
    
    
    0.56
    
    
    
    0.73
    
    
    
    (0.06
    )
    
    
    0.67
 Cash Flow Adjustments Related to Restatement
(in thousands, except per share data) Year ended
    
    
    Year endedDecember 30, 2003
    
    
    December 31, 2002As Reported
    
    
    Adjustments
    
    
    As Restated
    
    
    As Reported
    
    
    Adjustments
    
    
    As RestatedNet cash provided
by operating
activities
    
    $
    16,195
    
    
    $
    1,300
    
    
    $
    17,495
    
    
    $
    13,852
    
    
    $
    747
    
    
    $
    14,599Net cash used in
investing
activities
    
    
    (16,727
    )
    
    
    (1,293
    )
    
    
    (18,020
    )
    
    
    (17,888
    )
    
    
    (740
    )
    
    
    (18,628
    )Net cash provided
by financing
activities
    
    
    229
    
    
    
    (7
    )
    
    
    222
    
    
    
    3,806
    
    
    
    (7
    )
    
    
    3,799
 3. Advances to Developer Advances to developer represent monies advanced to the developer of two build-to-suit locations at
December 31, 2002. Additional monies were advanced to the same developer on two additional
locations during 2003 totaling $547. Also during 2003, the developer repaid the advance on one
location in the amount of $275. The advances to developer totaled $842 at December 30, 2003. The
advances on the remaining three locations were repaid by the developer in 2004. 4. Preferred Stock The Companys Board of Directors has the authority to issue up to 2,000,000 shares of preferred
stock in one or more series and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, conversion rights, voting rights, terms of redemption,
liquidation preference and the number of shares constituting any series or the designation of such
series. F-13




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##### Table of Contents



Total Entertainment Restaurant Corp.
Notes to Consolidated Financial Statements
(In thousands, except share and per share information) 5. Note Payable On September 1, 1998 the Company entered into a line of credit agreement with Intrust Bank, N.A.
(the line of credit) which provides for a line of credit of $20,000 subject to certain limitations
based on earnings before interest, income taxes, depreciation and amortization of the past 52
weeks. On October 1, 2003, this line of credit was amended to extend the original term of the
agreement by two years. All other terms of the agreement remained unchanged. The line of credit is secured by substantially all assets of the Company. The line of credit
restricts the ability of the Company to pay dividends. The line of credit requires monthly payments
of interest only until November 1, 2006, at which time equal monthly installments of principal and
interest are required as necessary to fully amortize the outstanding indebtedness plus future
interest over a period of four years. Interest is accrued at a rate of 0.5% below the prime rate as
published in The Wall Street Journal(4.5% and 3.5% at December 28, 2004 and December 30, 2003,
respectively). Proceeds from the line of credit were used for restaurant development and
acquisition of treasury stock. As of December 28, 2004 and December 30, 2003, the Company had
borrowed $3,680 and $3,635, respectively, under the line of credit. The Company had additional
borrowings available at December 28, 2004 under the line of credit of $16,320. The following represents future maturities of the note: 2005
    
    $
    2006
    
    
    1402007
    
    
    8652008
    
    
    9052009
    
    
    947Thereafter
    
    
    823Total
    
    $
    3,680
 6. Stock Options The Company has elected to follow APB Opinion No. 25, Accounting for Stock Issued to Employeesand
related interpretations in accounting for its employee stock options. Under APB Opinion No. 25,
because the exercise price of the Companys employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized. The Companys stock option plans are as follows:  
    1997 Incentive and Nonqualified Stock Option PlanIn March 1997, the Board of Directors adopted a stock option plan providing for incentive and
nonqualified stock options pursuant to which up to 1,500,000 shares of common stock will be
available for issuance. The Plan was amended in May 1999 to increase the number of authorized
shares reserved for issuance to 1,600,000 shares from 1,500,000 shares. It was amended again
in 2004 to increase the number of authorized shares reserved for issuance to 2,000,000
shares. The Plan covers the former Chairman of the Board, certain officers and key
employees. Options granted have a vesting period of three to five years and a life of ten
years.
    Directors Stock Option PlanIn March 1997, the Board of Directors adopted a stock option plan providing for
nondiscretionary grants to nonemployee directors pursuant to which up to 150,000 shares of
common stock will be available for issuance. The Plan was amended in May 2002 to increase
the number of authorized shares reserved for issuance to 400,000 shares from 150,000 shares.
Options issued under this plan have a vesting period of three years and a life of five years. F-14




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##### Table of Contents



Total Entertainment Restaurant Corp.
Notes to Consolidated Financial Statements
(In thousands, except share and per share information) 6. Stock Options (continued) A summary of the Companys stock option activity and related information for the years ended
December 28, 2004, December 30, 2003, and December 31, 2002 follows: December 28, 2004
    
    
    December 30, 2003
    
    
    December 31, 2002Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExercisePrice
    
    
    Options
    
    
    Price
    
    
    Options
    
    
    Price
    
    
    OptionsOutstanding beginning
of year
    
    $
    6.29
    
    
    
    1,183,640
    
    
    $
    5.42
    
    
    
    1,032,741
    
    
    $
    5.10
    
    
    
    1,143,345Granted
    
    
    11.39
    
    
    
    457,070
    
    
    
    8.16
    
    
    
    295,098
    
    
    
    8.07
    
    
    
    284,137Exercised
    
    
    (4.00
    )
    
    
    (114,611
    )
    
    
    (3.42
    )
    
    
    (116,996
    )
    
    
    (6.79
    )
    
    
    (286,967
    )Canceled
    
    
    (9.11
    )
    
    
    (116,659
    )
    
    
    (5.63
    )
    
    
    (27,203
    )
    
    
    (5.37
    )
    
    
    (107,774
    )Outstanding end of year
    
    $
    7.90
    
    
    
    1,409,440
    
    
    $
    6.29
    
    
    
    1,183,640
    
    
    $
    5.42
    
    
    
    1,032,741
 As of December 28, 2004, the Companys outstanding options have a weighted average remaining
contract life of 6.47 years and exercise prices ranging from $1.69 to $14.11. There were 711,377
options exercisable at December 28, 2004 and 588,948 options exercisable at December 30, 2003. For options outstanding as of December 28, 2004, the number of options, weighted-average exercise
price and weighted-average remaining contract life for each group of options are as follows: Options OutstandingNumber
    
    
    Weighted-
    
    
    Weighted-Outstanding at
    
    
    Average
    
    
    AverageRange of
    
    December 28,
    
    
    Exercise
    
    
    RemainingPrices
    
    2004
    
    
    Price
    
    
    Contract Life$1.69 to $3.75
    
    
    389,359
    
    
    $
    3.12
    
    
    5.34 years$3.97 to $9.00
    
    
    524,624
    
    
    
    8.26
    
    
    5.17 years$9.10 to $12.08
    
    
    359,387
    
    
    
    10.46
    
    
    9.21 years$12.42 to $14.11
    
    
    136,070
    
    
    
    13.43
    
    
    7.51 yearsTotal
    
    
    1,409,440
    
    
    $
    7.90
    
    
    6.47 years
 The number of shares and weighted-average exercise price of options exercisable at December 28,
2004 are as follows: Options ExercisableNumber
    
    
    Weighted-Exercisable at
    
    
    AverageRange of
    
    December 28,
    
    
    ExercisePrices
    
    2004
    
    
    Price$1.69 to $3.75
    
    
    375,609
    
    
    $
    3.15$3.97 to $9.00
    
    
    295,259
    
    
    
    8.51$9.10 to $12.08
    
    
    40,509
    
    
    
    11.21$12.42 to $14.11
    
    
    
    
    
    
    Total
    
    
    711,377
    
    
    $
    5.83
 7. Leases The Company leases many of its facilities under noncancelable operating leases having terms
expiring between 2005 and 2024. The leases have renewal clauses of 3 to 5 years, exercisable at
the option of the Company. In addition, certain leases contain escalation clauses based on a fixed
percentage increase and provisions for contingent rentals based on a percentage of gross revenues,
as defined by the lease. The difference between the actual lease payments and the amount of rent
expense recorded on a straight-line basis is recorded as accrued rent over the expected lease term,
including cancelable option periods where failure to exercise such options would result in an
economic penalty, not to exceed fifteen years (unless the F-15




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##### Table of Contents



Total Entertainment Restaurant Corp.
Notes to Consolidated Financial Statements
(In thousands, except share and per share information) 7. Leases (continued) initial lease term is in excess of fifteen years). The lease term commences on the date when we
have full access to the property. Tenant allowances are being recorded as accrued rent when
received and included as a reduction in the straight-line rent calculation described above. Total rental expense for the years ended December 28, 2004, December 30, 2003, and December 31,
2002 was $9,307, $7,483, and $6,029, respectively. Contingent rentals for the years ended December
28, 2004, December 30, 2003, and December 31, 2002 were $29, $9, and $86, respectively. The following presents the future minimum lease payments under noncancelable leases with initial
terms in excess of one year for each of the next five years and thereafter as of December 28, 2004: Capital
    
    
    Operating2005
    
    $
    121
    
    
    $
    9,5462006
    
    
    132
    
    
    
    9,1362007
    
    
    133
    
    
    
    8,5102008
    
    
    133
    
    
    
    7,7452009
    
    
    133
    
    
    
    5,615Thereafter
    
    
    1,952
    
    
    
    30,008Total minimum lease payments
    
    
    2,604
    
    
    $
    70,560Less: amount representing interest
    
    
    1,707Present value of minimum lease payments
    
    
    897Less: current portion
    
    
    8Capital lease obligations, excluding current portion
    
    $
    889
 The balance of property under capital lease was $740 and $801 December 28, 2004 and December 30,
2003, respectively, net of accumulated amortization of $178 and $117 at December 28, 2004 and
December 30, 2003, respectively. Amortization is calculated on a straight-line basis over shorter
of the estimated useful life of the assets or respective lease term. 8. Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share (in
thousands, except per share data): 2004
    
    
    2003
    
    
    2002(as restated)
    
    
    (as restated)NumeratorIncome from continuing operations
    
    $
    6,171
    
    
    $
    5,745
    
    
    $
    6,511Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    13Net income
    
    $
    6,171
    
    
    $
    5,745
    
    
    $
    6,524DenominatorDenominator for basic earnings per
share  weighted-average shares
    
    
    9,898
    
    
    
    9,792
    
    
    
    9,344Effect of dilutive securities:Employee stock options
    
    
    502
    
    
    
    436
    
    
    
    457Dilutive potential common sharesDenominator for diluted earnings
per share  adjusted
weighted-average shares and
assumed conversions
    
    
    10,400
    
    
    
    10,228
    
    
    
    9,801
 F-16




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##### Table of Contents



Total Entertainment Restaurant Corp.
Notes to Consolidated Financial Statements
(In thousands, except share and per share information) 8. Earnings Per Share (continued) Basic earnings per share:Income from continuing operations
    
    $
    0.62
    
    
    $
    0.59
    
    
    $
    0.70Loss on discontinued operations
    
    
    
    
    
    
    
    
    
    
    Basic earnings per share
    
    $
    0.62
    
    
    $
    0.59
    
    
    $
    0.70Diluted earnings per share:Income from continuing operations
    
    $
    0.59
    
    
    $
    0.56
    
    
    $
    0.67Loss on discontinued operations
    
    
    
    
    
    
    
    
    
    
    Diluted earnings per share
    
    $
    0.59
    
    
    $
    0.56
    
    
    $
    0.67
 Employee stock options of 174,617; 61,046; and 37,554 for the years ended December 28, 2004,
December 30, 2003, and December 31, 2002, respectively, are not included in the computation of
diluted earnings per share because to do so would have been anti-dilutive for the periods
presented. Such options could potentially dilute basic earnings per share in the future. 9. Income Taxes The Companys provision for income taxes consists of the following: December 28, 2004
    
    
    December 30, 2003
    
    
    December 31, 2002(as restated)
    
    
    (as restated)Income tax expense
allocated to
discontinued operations
    
    $
    
    
    
    $
    
    
    
    $
    8Income tax expense
allocated to continuing
operations
    
    
    2,677
    
    
    
    2,757
    
    
    
    3,628Total income tax expense
    
    $
    2,677
    
    
    $
    2,757
    
    
    $
    3,636
 December 28, 2004
    
    
    December 30, 2003
    
    
    December 31, 2002(as restated)
    
    
    (as restated)Current:Federal
    
    $
    306
    
    
    $
    425
    
    
    $
    2,225State
    
    
    197
    
    
    
    431
    
    
    
    651Total Current
    
    
    503
    
    
    
    856
    
    
    
    2,876Deferred:Federal
    
    
    1,949
    
    
    
    1,865
    
    
    
    692State
    
    
    225
    
    
    
    36
    
    
    
    68Total Deferred
    
    
    2,174
    
    
    
    1,901
    
    
    
    760Total income tax expense
    
    $
    2,677
    
    
    $
    2,757
    
    
    $
    3,636
 F-17




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##### Table of Contents



Total Entertainment Restaurant Corp.
Notes to Consolidated Financial Statements
(In thousands, except share and per share information) 9. Income Taxes (continued) The income tax effects of temporary differences that give rise to significant portions of deferred
income tax assets and liabilities at December 28, 2004 and December 30, 2003 are as follows: December 28, 2004
    
    
    December 30, 2003(as restated)Deferred tax assets:Preopening and organization costs
    
    $
    399
    
    
    $
    595Capital lease obligation
    
    
    305
    
    
    
    308Accrued rent
    
    
    2,439
    
    
    
    1,744FICA credit carryover
    
    
    297
    
    
    
    AMT credit carryover
    
    
    140
    
    
    
    Accrued liabilities
    
    
    157
    
    
    
    503Vacation
    
    
    85
    
    
    
    75Other
    
    
    123
    
    
    
    106Total deferred tax assets
    
    
    3,945
    
    
    
    3,331Deferred tax liabilities:Property and equipment
    
    
    5,394
    
    
    
    3,485Goodwill
    
    
    373
    
    
    
    300Prepaid expenses
    
    
    806
    
    
    
    Total deferred tax liabilities
    
    
    6,573
    
    
    
    3,785Net deferred tax (liability) asset
    
    $
    (2,628
    )
    
    $
    (454
    )
 A reconciliation between the reported provision for income taxes and tax determined by applying the
applicable U.S. Federal Statutory income tax rate to income before taxes follows: December 28,
    
    
    December 30,
    
    
    December 31,2004
    
    
    2003
    
    
    2002(as restated)
    
    
    
    
    
    (as restated)Amount
    
    
    Rate
    
    
    Amount
    
    
    Rate
    
    
    Amount
    
    
    RateIncome tax expense at federal statutory rate
    
    $
    3,008
    
    
    
    34.0
    %
    
    $
    2,891
    
    
    
    34.0
    %
    
    $
    3,447
    
    
    
    34.0
    %State income taxes, net of federal benefit
    
    
    245
    
    
    
    2.8
    
    
    
    289
    
    
    
    3.4
    
    
    
    456
    
    
    
    4.5Tax credits (1)

    
    
    (615
    )
    
    
    (7.0
    )
    
    
    (458
    )
    
    
    (5.4
    )
    
    
    (368
    )
    
    
    (3.6
    )Other items, net
    
    
    39
    
    
    
    0.5
    
    
    
    35
    
    
    
    0.4
    
    
    
    101
    
    
    
    0.9Actual income tax expense
    
    $
    2,677
    
    
    
    30.3
    %
    
    $
    2,757
    
    
    
    32.4
    %
    
    $
    3,636
    
    
    
    35.8
    %
   (1)
    
    The tax credits represent the credit for FICA taxes paid on tips in excess of minimum wage 10. Fair Values of Financial Instruments The carrying amount reported in the balance sheet for all financial instruments, including cash and
cash equivalents, certain payables, and debt instruments, approximates its fair value. F-18




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##### Table of Contents



Total Entertainment Restaurant Corp.
Notes to Consolidated Financial Statements
(In thousands, except share and per share information) 11. Quarterly Financial Summaries (Unaudited) The following table summarizes the unaudited consolidated quarterly results of operations for
fiscal 2004 and 2003: 1st
    
    
    2nd
    
    
    3rd
    
    
    4thQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter(12 weeks)
    
    
    (12 weeks)
    
    
    (12 weeks)
    
    
    (16 weeks)(as restated)
    
    
    (as restated)
    
    
    (as restated)2004Net sales
    
    $
    33,847
    
    
    $
    31,141
    
    
    $
    31,461
    
    
    $
    52,715Restaurant operating income (b)
    
    
    5,581
    
    
    
    567
    
    
    
    1,757
    
    
    
    8,701Net income (loss) (a) (b)
    
    
    2,641
    
    
    
    (855
    )
    
    
    110
    
    
    
    4,275Basic earnings per share (b)
    
    
    0.27
    
    
    
    (0.09
    )
    
    
    0.01
    
    
    
    0.43Diluted earnings per share (b)
    
    
    0.25
    
    
    
    (0.09
    )
    
    
    0.01
    
    
    
    0.42
 1st
    
    
    2nd
    
    
    3rd
    
    
    4thQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter(12 weeks)
    
    
    (12 weeks)
    
    
    (12 weeks)
    
    
    (16 weeks)(as restated)
    
    
    (as restated)
    
    
    (as restated)
    
    
    (as restated)2003Net sales
    
    $
    27,041
    
    
    $
    25,249
    
    
    $
    25,268
    
    
    $
    44,150Restaurant operating income (d)
    
    
    4,679
    
    
    
    3,144
    
    
    
    2,002
    
    
    
    5,366Net income (c) (d)
    
    
    2,210
    
    
    
    1,105
    
    
    
    311
    
    
    
    2,119Basic earnings per share (d)
    
    
    0.22
    
    
    
    0.12
    
    
    
    0.03
    
    
    
    0.22Diluted earnings per share (d)
    
    
    0.21
    
    
    
    0.11
    
    
    
    0.03
    
    
    
    0.21
   (a)
    
    The second quarter of fiscal 2004 includes a charge to earnings of $2,523 ($1,766 net of
income tax) related to the provision for asset impairment in the quarter.(b)
    
    As described in Note 2, we have restated our consolidated statement of net income related to
the calculation of straight-line rent expense and the related deferred rent liability and
depreciation expense. The effect of the Restatement on reported restaurant operating income was
$(242), $(403), and $(292) for the quarters ended March 23, 2004, June 15, 2004, and September 7,
2004, respectively. The effect of the Restatement on reported net income was $(33), $(339), and
$(212) for the quarters ended March 23, 2004, June 15, 2004, and September 7, 2004, respectively.
The effect of the Restatement on reported basic earnings per share and diluted earnings per
share was $(0.00), $(0.03), and $(0.02) for the quarters ended March 23, 2004, June 15, 2004, and
September 7, 2004, respectively.(c)
    
    The fourth quarter of fiscal 2003 includes a charge to earnings of $2,009 ($1,358 net of
income tax) related to the provision for asset impairment in the quarter.(d)
    
    As described in Note 2, we have restated our consolidated statement of net income related to
the calculation of straight-line rent expense and the related deferred rent liability and
depreciation expense. The effect of the Restatement on reported restaurant operating income was
$(256), $(260), $(252), and $(386) for the quarters ended March 25, 2003, June 17, 2003,
September 9, 2003, and December 30, 2003, respectively. The effect of the Restatement on
reported net income was $(58), $(130), $(169), and $(436) for the quarters ended March 25, 2003,
June 17, 2003, September 9, 2003, and December 30, 2003, respectively. The effect of the
Restatement on reported basic earnings per share and diluted earnings per share was $(0.01),
$(0.01), $(0,02), and $(0.04) for the quarters ended March 25, 2003, June 17, 2003, September 9,
2003, and December 30, 2003, respectively. 12. Commitments and Contingencies Legal Proceedings The Company is involved in various legal actions arising in the ordinary course of business. In the
opinion of management, the ultimate disposition of these matters will not have a material adverse
effect on the Companys consolidated financial position and results of operations. Recent litigation against restaurant chains has resulted in significant judgments, including
punitive damages, under dram shop statutes. A judgment significantly in excess of our insurance
coverage or involving punitive damages, which may not be covered by insurance, could materially
adversely affect our financial F-19




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##### Table of Contents



Total Entertainment Restaurant Corp.
Notes to Consolidated Financial Statements
(In thousands, except share and per share information) 12. Commitments and Contingencies (continued) condition or results of operations. Further, adverse publicity resulting from these allegations may
materially adversely affect us and our restaurants. Commitments On March 1, 2005 the Company renewed its services agreement with Franchise Services Company for
certain accounting and administrative services for a term of one year. The Company pays a per
restaurant per 28-day fixed fee. At December 28, 2004, the Company paid approximately $65 per
28-day period. 13. Related Party Transactions The Company leases two of its restaurants, the College Station and Dallas #2 locations, from
limited partnerships controlled by the former Co-Chairman of the Companys board of directors. The
total rental expense paid to the limited partnerships for both restaurants for the years ended
December 28, 2004, December 30, 2003, and December 31, 2002 was $300, $277, and $281, respectively. In February 2002, the Company purchased the assets of a seafood restaurant in Richmond, Virginia,
from BMR Restaurants, LLC (BMR), which has been converted to a Baileys restaurant. The
Companys Chairman of the board of directors is the manager of BMR. The Chairman and his wife
collectively own 82.6% of BMR, which had owned the restaurant assets for more than two years. The
Company paid a total of $300 for these assets, which included a real estate lease, leasehold
improvements, furniture and equipment. The transaction was unanimously approved by the
disinterested members of the board of directors. In December 2004, the Company purchased the assets of a restaurant in Cary, North Carolina, from
BMR-Raleigh Restaurants, LLC (BMRR), which has been converted to a Fox & Hound Pub & Grille. The
Companys Chairman of the board of directors is the manager of BMRR. The Chairman and his wife
collectively own 46.6% of BMRR, which had owned the restaurant assets for more than two years. The
Company paid a total of $568 for these assets, which included a real estate lease, leasehold
improvements, furniture and equipment. The transaction was unanimously approved by the
disinterested members of the board of directors In April 2000 and February 2001, the Company invested an aggregate of $200 for limited partnership
interests in limited partnerships formed to develop and operate Cool River Restaurants. Two
members of the Companys board of directors and a former Co-Chairman are the majority owners of the
managing general partner of these partnerships. In June 2002, the Company was refunded $100 of its
original investment in exchange for rights to one of the related limited partnership interests. 14. Benefit plans The Company provides employees who meet minimum service requirements with retirement benefits under
a 401(k) plan (the the Plan). Under the Plan, eligible employees may make contributions of
between 1% and 20% of their annual compensation. Effective for 2003, officers and highly
compensated employees do not participate in this plan. The Company makes quarterly matching
contributions in an amount equal to 50% of the first 6% of employee compensation contributed,
resulting in a maximum Company contribution of 3% of employee compensation. The Companys expense
under the Plan was $64, $72, and $77 for 2004, 2003 and 2002, respectively. F-20




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##### Table of Contents



INDEX TO EXHIBITS ExhibitNumber
    
    Exhibit*2.1
    
    Form of Stock for Stock Exchange Agreement between the
Registrant, the Shareholders of F&H Restaurant Corp.,
Fox & Hound, Inc., Fox & Hound II, Inc. and Baileys Sports
Grille, Inc. and Certain Limited Partners of N. Collins Enter-
tainment, Ltd., 505 Entertainment, Ltd., Midway Entertain-
ment, Ltd. and F&H Dallas, L.P., dated February 20, 1997.*3.1
    
    Certificate of Incorporation of the Registrant.*3.1.1
    
    Amendment to the Certificate of Incorporation of the
Registrant.*3.2
    
    By-laws of the Registrant.*4.1
    
    Specimen Certificate of the Registrants Common Stock.*10.1
    
    Form of 1997 Incentive and Nonqualified Stock Option Plan of
the Registrant.*10.2
    
    Form of 1997 Directors Stock Option Plan of the Registrant.*10.3
    
    Form of Indemnification Agreement for officers and directors
of the Registrant.*10.4
    
    Non-Competition, Confidentiality and Non-Solicitation Agree-
ment between the Registrant and Dennis L. Thompson, dated
February 20, 1997.*10.5
    
    Non-Competition, Confidentiality and Non-Solicitation Agree-
ment between the Registrant and Thomas A. Hager, dated
February 20, 1997.*10.6
    
    Lease by and between Real Alchemy I, L.P. and Midway
Entertainment, Ltd., dated June 1, 1995.*10.6.1
    
    First Amendment to Lease by and between Real Alchemy I,
L.P. and Midway Entertainment, Ltd., dated December 6, 1996.*10.6.2
    
    Amendment to Lease by and between Real Alchemy I, L.P. and
Midway Entertainment, Ltd., dated December 6, 1996.*10.7
    
    Lease by and between 505 Center, L.P. and 505 Entertainment,
Ltd., dated January 31, 1994.*10.7.1
    
    Amendment to Lease by and between 505 Center, L.P. and 505
Entertainment, Ltd., dated December 6, 1996.**10.8
    
    Loan Agreement by and among Intrust Bank, N.A., TENT
Finance, Inc., the Registrant, and various subsidiaries of
Registrant, as Guarantors, dated September 1, 1998.**10.8.1
    
    First Amendment to Loan Agreement by and among Intrust
Bank, N.A., TENT Finance, Inc., the Registrant, and various
subsidiaries of Registrant, as Guarantors, dated October
30, 2001.**10.8.2
    
    Second Amendment to Loan Agreement by and among Intrust
Bank, N.A., TENT Finance, Inc., the Registrant, and various
subsidiaries of Registrant, as Guarantors, dated June 14,
2002.***10.8.3
    
    First Restated Loan Amendment to Loan Agreement by and among
Intrust
Bank, N.A., TENT Finance, Inc., the Registrant, and various
subsidiaries of Registrant, as Guarantors, dated October
1, 2003.**10.9
    
    Agreement for Sale and Purchase of Assets between BMR
Restaurants, LLC and Fox & Hound of Virginia, Inc., dated
February 6, 2002.




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##### Table of Contents



ExhibitNumber
    
    Exhibit**10.10
    
    Subscription Agreement between Fox & Hound of Colorado, Inc. and
Cool River Restaurant Denver, L.P., dated April 27, 2000.**10.11
    
    Subscription Agreement between Fox & Hound of Texas, Inc.
and Cool River Restaurant Austin, L.P., dated April 27, 2000.**10.12
    
    Employment Agreement between the Registrant and Steven M.
Johnson, dated June 12, 2002.**10.13
    
    Employment Agreement between the Registrant and Kenneth C. Syvarth, dated
June 12, 2002.**10.14
    
    Employment Agreement between the Registrant and James K.
Zielke, dated June 12, 2002.**10.15
    
    Employment Agreement between the Registrant and Gary M.
Judd, dated June 12, 2002.**10.16
    
    Fox & Hound of Littleton, Inc. Stockholders Agreement by and
among TENT Finance, Inc., Gary M. Judd and James K. Zielke
dated as of June 12, 2002.**10.17
    
    Fox & Hound of Littleton, Inc. Form of Pledge and Security
Agreement.+10.18
    
    Agreement for Sale and Purchase of Assets between BMR-Raleigh
Restaurants, LLC and North Carolina Fox & Hound, Inc., dated
November 22, 2004.+10.19
    
    Agreement for Accounting Service with Franchise Services
Corporation, dated March 1, 2005.***14
    
    Code of Ethics+21.1
    
    Subsidiaries of Registrant.+24.1
    
    Powers of Attorney (included on the signature page of this Form 10-K).+31.1
    
    Certification of Chief Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley Act+31.2
    
    Certification of Chief Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act+32.1
    
    Certification by Steven M. Johnson pursuant
to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.+32.2
    
    Certification by James K. Zielke pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
   *
    
    Incorporated by reference to the Companys Registration Statement on
Form S-1, as amended (Commission File No. 333-23343).**
    
    Incorporated by reference to the Companys Registration Statement on Form
S-2, as amended (Commission File No. 333-90542).***
    
    Incorporated by reference to the Companys Form 10-K for the year ended
December 30, 2003.+
    
    Filed herewith.