##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(Mark One)

|x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------------

For the Quarterly Period Ended June 25, 2006

or



| ̈ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------------

For the Transition Period from  to
.

Commission file
number 0-25721.



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BUCA, Inc.

(Exact name of registrant as specified in its Charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Minnesota                                                      |  | 41-1802364                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

1300 Nicollet Mall, Suite 5003

Minneapolis, Minnesota 55403

(Address of principal executive offices) (Zip
Code)

(612) 225-3400

(Registrants telephone number, including area code)



---

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Large Accelerated Filer ̈Accelerated Filer  x                    Non-Accelerated Filer ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).    Yes ̈No  x

As of July 31, 2006, the registrant had 20,550,903 shares of common stock outstanding.



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##### Table of Contents

INDEX

BUCA, INC. AND SUBSIDIARIES



|                                                 |  |                                                                                                                                  |  |   
|------------------------------------------------ |  | -------------------------------------------------------------------------------------------------------------------------------- |  | --
|PART I.                    FINANCIAL INFORMATION |  |                                                                                                                                 
|                                                 |  |                                                                                                                                 
|Item 1.                                          |  | Financial Statements                                                                                                             |  |   
|                                                 |  |                                                                                                                                 
|                                                 |  | Condensed Consolidated Balance Sheets  June 25, 2006 and December 25, 2005                                                      |  | 3 
|                                                 |  |                                                                                                                                 
|                                                 |  | Condensed Consolidated Statements of Operations  Thirteen and Twenty-Six Weeks Ended June 25, 2006 and June 26, 2005 (restated) |  | 4 
|                                                 |  |                                                                                                                                 
|                                                 |  | Condensed Consolidated Statements of Shareholders Equity  Twenty-Six Weeks Ended June 25, 2006                                 |  | 5 
|                                                 |  |                                                                                                                                 
|                                                 |  | Condensed Consolidated Statements of Cash Flows  Twenty-Six Weeks Ended June 25, 2006 and June 26, 2005 (restated)              |  | 6 
|                                                 |  |                                                                                                                                 
|                                                 |  | Notes to Condensed Consolidated Financial Statements                                                                             |  | 7 
|                                                 |  |                                                                                                                                 
|Item 2.                                          |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                            |  | 15
|                                                 |  |                                                                                                                                 
|Item 3.                                          |  | Quantitative and Qualitative Disclosures about Market Risk                                                                       |  | 23
|                                                 |  |                                                                                                                                 
|Item 4.                                          |  | Controls and Procedures                                                                                                          |  | 23
|                                                 | 
|PART II.                  OTHER INFORMATION      |  |                                                                                                                                 
|                                                 |  |                                                                                                                                 
|Item 1.                                          |  | Legal Proceedings                                                                                                                |  | 24
|                                                 |  |                                                                                                                                 
|Item 1a.                                         |  | Risk Factors                                                                                                                     |  | 25
|                                                 |  |                                                                                                                                 
|Item 2.                                          |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                      |  | 25
|                                                 |  |                                                                                                                                 
|Item 3.                                          |  | Defaults upon Senior Securities                                                                                                  |  | 25
|                                                 |  |                                                                                                                                 
|Item 4.                                          |  | Submission of Matters to a Vote of Security Holders                                                                              |  | 25
|                                                 |  |                                                                                                                                 
|Item 5.                                          |  | Other Information                                                                                                                |  | 26
|                                                 |  |                                                                                                                                 
|Item 6.                                          |  | Exhibits                                                                                                                         |  | 26
|                                                 | 
|SIGNATURES                                       |  | 27                                                                                                                              
|                                                 | 
|EXHIBIT INDEX                                    |  | 28                                                                                                                              



2



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##### Table of Contents

PART 1.  FINANCIAL INFORMATION

Item 1. Financial Statements

BUCA, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except share data)

(Unaudited)



|                                                                                                                                                                                                                        |  |               |         |   |                   |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | ----------------- | - | ------- | -
|                                                                                                                                                                                                                        |  | June 25, 2006 |         |   | December 25, 2005 |  
|ASSETS                                                                                                                                                                                                                  |  |               |         |   |                   |   |         |  
|CURRENT ASSETS:                                                                                                                                                                                                         |  |               |         |   |                   |   |         |  
|Cash                                                                                                                                                                                                                    |  | $             | 1,113   |   |                   | $ | 1,421   |  
|Accounts receivable                                                                                                                                                                                                     |  |               | 3,540   |   |                   |   | 3,660   |  
|Inventories                                                                                                                                                                                                             |  |               | 6,155   |   |                   |   | 6,382   |  
|Prepaid expenses and other                                                                                                                                                                                              |  |               | 3,760   |   |                   |   | 2,658   |  
|Current assets of discontinued operations and assets held for sale                                                                                                                                                      |  |               | 1,192   |   |                   |   | 1,246   |  
|                                                                                                                                                                                                                        |  |               |         |   |                   |   |         |  
|Total current assets                                                                                                                                                                                                    |  |               | 15,760  |   |                   |   | 15,367  |  
|PROPERTY AND EQUIPMENT, net                                                                                                                                                                                             |  |               | 117,085 |   |                   |   | 121,816 |  
|OTHER ASSETS                                                                                                                                                                                                            |  |               | 4,320   |   |                   |   | 4,428   |  
|LONG-TERM ASSETS OF DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE                                                                                                                                                    |  |               | 9,272   |   |                   |   | 9,255   |  
|                                                                                                                                                                                                                        |  |               |         |   |                   |   |         |  
|                                                                                                                                                                                                                        |  | $             | 146,437 |   |                   | $ | 150,866 |  
|                                                                                                                                                                                                                        |  |               |         |   |                   |   |         |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                                                                    |  |               |         |   |                   |   |         |  
|CURRENT LIABILITIES:                                                                                                                                                                                                    |  |               |         |   |                   |   |         |  
|Accounts payable                                                                                                                                                                                                        |  | $             | 8,554   |   |                   | $ | 12,191  |  
|Unredeemed gift card liabilities                                                                                                                                                                                        |  |               | 1,540   |   |                   |   | 2,921   |  
|Accrued payroll and benefits                                                                                                                                                                                            |  |               | 7,260   |   |                   |   | 8,363   |  
|Accrued sales, property and income tax                                                                                                                                                                                  |  |               | 2,751   |   |                   |   | 3,424   |  
|Other accrued expenses                                                                                                                                                                                                  |  |               | 5,155   |   |                   |   | 7,232   |  
|Line of credit borrowing                                                                                                                                                                                                |  |               | 5,407   |   |                   |   |        |  
|Current maturities of long-term debt and capitalized leases                                                                                                                                                             |  |               | 1,362   |   |                   |   | 1,309   |  
|Current liabilities of discontinued operations and assets held for sale                                                                                                                                                 |  |               | 3,166   |   |                   |   | 4,145   |  
|                                                                                                                                                                                                                        |  |               |         |   |                   |   |         |  
|Total current liabilities                                                                                                                                                                                               |  |               | 35,195  |   |                   |   | 39,585  |  
|                                                                                                                                                                                                                        |  |               |         |   |                   |   |         |  
|LONG-TERM DEBT AND CAPITAL LEASES, less current maturities                                                                                                                                                              |  |               | 16,721  |   |                   |   | 17,415  |  
|DEFERRED RENT                                                                                                                                                                                                           |  |               | 18,958  |   |                   |   | 19,062  |  
|OTHER LIABILITIES                                                                                                                                                                                                       |  |               | 3,493   |   |                   |   | 3,904   |  
|LONG-TERM LIABILITIES OF DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE                                                                                                                                               |  |               | 1,686   |   |                   |   | 1,860   |  
|                                                                                                                                                                                                                        |  |               |         |   |                   |   |         |  
|Total liabilities                                                                                                                                                                                                       |  |               | 76,053  |   |                   |   | 81,826  |  
|                                                                                                                                                                                                                        |  |               |         |   |                   |   |         |  
|COMMITMENTS AND CONTINGENCIES (Note 9)                                                                                                                                                                                  |  |               |         |   |                   |   |         |  
|                                                                                                                                                                                                                        |  |              
|SHAREHOLDERS EQUITY:                                                                                                                                                                                                   |  |               |         |   |                   |   |         |  
|Undesignated stock, 5,000,000 shares authorized, none issued or outstanding Common stock, $.01 par value per share, 30,000,000 shares authorized; 20,513,842 and 20,470,075 shares issued and outstanding,
respectively |  |               | 205     |   |                   |   | 205     |  
|Additional paid-in capital                                                                                                                                                                                              |  |               | 170,033 |   |                   |   | 170,686 |  
|Accumulated deficit                                                                                                                                                                                                     |  |               | (99,343 | ) |                   |   | (99,895 | )
|Unearned compensation                                                                                                                                                                                                   |  |               |        |   |                   |   | (1,151  | )
|Notes receivable from employee shareholders                                                                                                                                                                             |  |               | (511    | ) |                   |   | (805    | )
|                                                                                                                                                                                                                        |  |               |         |   |                   |   |         |  
|Total shareholders equity                                                                                                                                                                                              |  |               | 70,384  |   |                   |   | 69,040  |  
|                                                                                                                                                                                                                        |  |               |         |   |                   |   |         |  
|                                                                                                                                                                                                                        |  | $             | 146,437 |   |                   | $ | 150,866 |  
|                                                                                                                                                                                                                        |  |               |         |   |                   |   |         |  

See notes to Condensed Consolidated Financial Statements.



3



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##### Table of Contents

BUCA, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

(Unaudited)



|                                                                    |  |                      |            |   |                                     |   |            |               |  |   |                                     |   |  |   |            |  
|------------------------------------------------------------------- |  | -------------------- | ---------- | - | ----------------------------------- | - | ---------- | ------------- |  | - | ----------------------------------- | - |  | - | ---------- | -
|                                                                    |  | Thirteen Weeks Ended |            |   | Twenty-Six Weeks Ended              |  
|                                                                    |  | June 25, 2006        |            |   | June 26, 2005(restated  seeNote 2) |   |            | June 25, 2006 |  |   | June 26, 2005(restated  seeNote 2) |  
|Restaurant sales                                                    |  | $                    | 61,019     |   |                                     | $ | 59,653     |               |  | $ | 125,861                             |   |  | $ | 121,038    |  
|Restaurant costs:                                                   |  |                      |            |   |                                     |   |            |               |  |   |                                     |   |  |   |            |  
|Product                                                             |  |                      | 15,142     |   |                                     |   | 15,354     |               |  |   | 31,089                              |   |  |   | 31,052     |  
|Labor                                                               |  |                      | 20,166     |   |                                     |   | 19,433     |               |  |   | 40,911                              |   |  |   | 39,473     |  
|Direct and occupancy                                                |  |                      | 17,569     |   |                                     |   | 17,873     |               |  |   | 36,280                              |   |  |   | 34,690     |  
|Depreciation and amortization                                       |  |                      | 3,258      |   |                                     |   | 3,438      |               |  |   | 6,509                               |   |  |   | 6,688      |  
|                                                                    |  |                      |            |   |                                     |   |            |               |  |   |                                     |   |  |   |            |  
|Total restaurant costs                                              |  |                      | 56,135     |   |                                     |   | 56,098     |               |  |   | 114,789                             |   |  |   | 111,903    |  
|General and administrative expenses                                 |  |                      | 5,529      |   |                                     |   | 6,654      |               |  |   | 9,789                               |   |  |   | 12,128     |  
|Pre-opening costs                                                   |  |                      |           |   |                                     |   |           |               |  |   |                                    |   |  |   | 243        |  
|Loss on impairment of long-lived assets                             |  |                      | 129        |   |                                     |   |           |               |  |   | 180                                 |   |  |   | 436        |  
|Lease termination charges                                           |  |                      |           |   |                                     |   |           |               |  |   |                                    |   |  |   | 74         |  
|                                                                    |  |                      |            |   |                                     |   |            |               |  |   |                                     |   |  |   |            |  
|Operating (loss) income                                             |  |                      | (774       | ) |                                     |   | (3,099     | )             |  |   | 1,103                               |   |  |   | (3,746     | )
|Interest income                                                     |  |                      | 34         |   |                                     |   | 28         |               |  |   | 48                                  |   |  |   | 52         |  
|Interest expense                                                    |  |                      | (727       | ) |                                     |   | (1,009     | )             |  |   | (1,475                              | ) |  |   | (1,465     | )
|                                                                    |  |                      |            |   |                                     |   |            |               |  |   |                                     |   |  |   |            |  
|Loss before income taxes                                            |  |                      | (1,467     | ) |                                     |   | (4,080     | )             |  |   | (324                                | ) |  |   | (5,159     | )
|Income taxes                                                        |  |                      |           |   |                                     |   |           |               |  |   |                                    |   |  |   |           |  
|                                                                    |  |                      |            |   |                                     |   |            |               |  |   |                                     |   |  |   |            |  
|Net loss from continuing operations                                 |  |                      | (1,467     | ) |                                     |   | (4,080     | )             |  |   | (324                                | ) |  |   | (5,159     | )
|Net income from discontinued operations                             |  |                      | 749        |   |                                     |   | 276        |               |  |   | 876                                 |   |  |   | 429        |  
|                                                                    |  |                      |            |   |                                     |   |            |               |  |   |                                     |   |  |   |            |  
|Net (loss) income                                                   |  | $                    | (718       | ) |                                     | $ | (3,804     | )             |  | $ | 552                                 |   |  | $ | (4,730     | )
|                                                                    |  |                      |            |   |                                     |   |            |               |  |   |                                     |   |  |   |            |  
|Net loss from continuing operations per sharebasic and diluted     |  | $                    | (0.07      | ) |                                     | $ | (0.20      | )             |  | $ | (0.01                               | ) |  | $ | (0.25      | )
|                                                                    |  |                      |            |   |                                     |   |            |               |  |   |                                     |   |  |   |            |  
|Net income from discontinued operations per sharebasic and diluted |  | $                    | 0.04       |   |                                     | $ | 0.01       |               |  | $ | 0.04                                |   |  | $ | 0.02       |  
|                                                                    |  |                      |            |   |                                     |   |            |               |  |   |                                     |   |  |   |            |  
|Net (loss) income per sharebasic and diluted                       |  | $                    | (0.03      | ) |                                     | $ | (0.19      | )             |  | $ | 0.03                                |   |  | $ | (0.23      | )
|                                                                    |  |                      |            |   |                                     |   |            |               |  |   |                                     |   |  |   |            |  
|Weighted average common shares outstandingbasic and diluted        |  |                      | 20,525,656 |   |                                     |   | 20,203,204 |               |  |   | 20,507,129                          |   |  |   | 20,188,944 |  
|                                                                    |  |                      |            |   |                                     |   |            |               |  |   |                                     |   |  |   |            |  

See notes to Condensed Consolidated Financial Statements.



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##### Table of Contents

BUCA, Inc. and Subsidiaries

Condensed Consolidated Statement of Shareholders Equity

For the Twenty-Six Weeks Ended June 25, 2006

(in thousands)

(Unaudited)



|                                                       |  |              |   |                          |        |     |                      |   |         |                    |  |   |                                 |   |  |                          |         |   |  |   |      |   |  |   |       
|------------------------------------------------------ |  | ------------ | - | ------------------------ | ------ | --- | -------------------- | - | ------- | ------------------ |  | - | ------------------------------- | - |  | ------------------------ | ------- | - |  | - | ---- | - |  | - | ------
|                                                       |  | Common Stock |   | Additionalpaid-incapital |        |     | Unearnedcompensation |   |         | Accumulateddeficit |  |   | Notesreceivablefromshareholders |   |  | Totalshareholdersequity
|                                                       |  | Shares       |   |                          | Amount |     |                      |   |         |                   
|Balance at December 25, 2005                           |  | 20,470       |   |                          | $      | 205 |                      | $ | 170,686 |                    |  | $ | (1,151                          | ) |  | $                        | (99,895 | ) |  | $ | (805 | ) |  | $ | 69,040
|Issuance of common stock                               |  | 7            |   |                          |        |    |                      |   | 40      |                    |  |   |                                |   |  |                          |        |   |  |   | (40  | ) |  |   |      
|Repurchase of common stock from shareholders           |  | (34          | ) |                          |        |    |                      |   | (143    | )                  |  |   |                                |   |  |                          |        |   |  |   | 153  |   |  |   | 10    
|Collections on notes receivable from shareholders      |  |             |   |                          |        |    |                      |   |        |                    |  |   |                                |   |  |                          |        |   |  |   | 181  |   |  |   | 181   
|Common stock issued under employee stock purchase plan |  | 21           |   |                          |        |    |                      |   | 113     |                    |  |   |                                |   |  |                          |        |   |  |   |     |   |  |   | 113   
|Restricted stock forfeitures                           |  | (6           | ) |                          |        |    |                      |   |        |                    |  |   |                                |   |  |                          |        |   |  |   |     |   |  |   |      
|Reclassification due to adoption of SFAS 123(R)        |  |             |   |                          |        |    |                      |   | (1,151  | )                  |  |   | 1,151                           |   |  |                          |        |   |  |   |     |   |  |   |      
|Issuance of non-vested stock                           |  | 56           |   |                          |        |    |                      |   |        |                    |  |   |                                |   |  |                          |        |   |  |   |     |   |  |   |      
|Share-based compensation                               |  |             |   |                          |        |    |                      |   | 488     |                    |  |   |                                |   |  |                          |        |   |  |   |     |   |  |   | 488   
|Net income                                             |  |             |   |                          |        |    |                      |   |        |                    |  |   |                                |   |  |                          | 552     |   |  |   |     |   |  |   | 552   
|                                                       |  |              |   |                          |        |     |                      |   |         |                    |  |   |                                 |   |  |                          |         |   |  |   |      |   |  |   |       
|Balance at June 25, 2006                               |  | 20,514       |   |                          | $      | 205 |                      | $ | 170,033 |                    |  | $ |                                |   |  | $                        | (99,343 | ) |  | $ | (511 | ) |  | $ | 70,384
|                                                       |  |              |   |                          |        |     |                      |   |         |                    |  |   |                                 |   |  |                          |         |   |  |   |      |   |  |   |       

See notes to Condensed Consolidated Financial Statements.



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##### Table of Contents

BUCA, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)



|                                                                                     |  |                        |        |   |                                     |   |        |  
|------------------------------------------------------------------------------------ |  | ---------------------- | ------ | - | ----------------------------------- | - | ------ | -
|                                                                                     |  | Twenty-Six Weeks Ended |       
|                                                                                     |  | June 25, 2006          |        |   | June 26, 2005 (restatedsee Note 2) |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                |  |                        |        |   |                                     |   |        |  
|Net income (loss)                                                                    |  | $                      | 552    |   |                                     | $ | (4,730 | )
|Adjustments to reconcile net income (loss) to net cash used in operating activities: |  |                        |        |   |                                     |   |        |  
|Depreciation and amortization                                                        |  |                        | 6,509  |   |                                     |   | 7,303  |  
|Share-based compensation                                                             |  |                        | 488    |   |                                     |   |       |  
|Loss on impairment of long-lived assets                                              |  |                        | 192    |   |                                     |   | 440    |  
|Deferred rent                                                                        |  |                        |       |   |                                     |   | (47    | )
|Amortization of loan acquisition costs                                               |  |                        | 226    |   |                                     |   | 226    |  
|Tenant allowance proceeds.                                                           |  |                        |       |   |                                     |   | 331    |  
|Other non-cash items                                                                 |  |                        | 18     |   |                                     |   |       |  
|Change in assets and liabilities:                                                    |  |                        |        |   |                                     |   |        |  
|Accounts receivable                                                                  |  |                        | 133    |   |                                     |   | (562   | )
|Inventories                                                                          |  |                        | 274    |   |                                     |   | 297    |  
|Prepaid expenses and other                                                           |  |                        | (1,107 | ) |                                     |   | 910    |  
|Accounts payable                                                                     |  |                        | (3,465 | ) |                                     |   | (1,066 | )
|Accrued expenses                                                                     |  |                        | (6,615 | ) |                                     |   | (6,368 | )
|Other                                                                                |  |                        | (657   | ) |                                     |   | (108   | )
|                                                                                     |  |                        |        |   |                                     |   |        |  
|Net cash used in operating activities                                                |  |                        | (3,452 | ) |                                     |   | (3,374 | )
|                                                                                     |  |                       
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                |  |                        |        |   |                                     |   |        |  
|Purchase of property and equipment                                                   |  |                        | (1,815 | ) |                                     |   | (676   | )
|Proceeds from sale of property and equipment                                         |  |                        | 7      |   |                                     |   | 349    |  
|Proceeds from sale of other assets                                                   |  |                        | 19     |   |                                     |   | 659    |  
|                                                                                     |  |                        |        |   |                                     |   |        |  
|Net cash (used in) provided by investing activities                                  |  |                        | (1,789 | ) |                                     |   | 332    |  
|                                                                                     |  |                       
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                |  |                        |        |   |                                     |   |        |  
|Proceeds from line of credit borrowings                                              |  |                        | 11,407 |   |                                     |   | 6,723  |  
|Payments for line of credit borrowings                                               |  |                        | (6,000 | ) |                                     |   | (3,986 | )
|Principal payments on long-term debt                                                 |  |                        | (668   | ) |                                     |   | (381   | )
|Financing costs                                                                      |  |                        | (100   | ) |                                     |   | (400   | )
|Collection on notes receivable from shareholders                                     |  |                        | 181    |   |                                     |   | 53     |  
|Net proceeds from issuance of common stock                                           |  |                        | 113    |   |                                     |   | 111    |  
|                                                                                     |  |                        |        |   |                                     |   |        |  
|Net cash provided by financing activities                                            |  |                        | 4,933  |   |                                     |   | 2,120  |  
|                                                                                     |  |                        |        |   |                                     |   |        |  
|Net change in cash                                                                   |  |                        | (308   | ) |                                     |   | (922   | )
|Cash at the beginning of period                                                      |  |                        | 1,421  |   |                                     |   | 2,046  |  
|                                                                                     |  |                        |        |   |                                     |   |        |  
|Cash at the end of period                                                            |  | $                      | 1,113  |   |                                     | $ | 1,124  |  
|                                                                                     |  |                        |        |   |                                     |   |        |  

See notes to Condensed Consolidated Financial Statements.



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##### Table of Contents

BUCA, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. BASIS OF PRESENTATION

BUCA, Inc. and Subsidiaries (BUCA, we, our, or us) develop, own and operate Italian
restaurants under the names Buca di Beppo and Vinny Ts of Boston. At June 25, 2006, we owned 93 Buca di Beppo and 11 Vinny Ts of Boston restaurants located in 28 states and the District of Columbia.

The accompanying condensed consolidated financial statements have been prepared by us without audit and reflect all adjustments which are, in the opinion
of management, necessary for a fair statement of financial position and the results of operations for the interim periods. The statements have been prepared in accordance with accounting principles generally accepted in the United States of America
(generally accepted accounting principles) and with the regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to rules and regulations relative to interim financial statements. Operating results for the thirteen and twenty-six weeks ended June 25, 2006 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2006.

The balance sheet at December 25, 2005 has been
derived from the audited financial statements at that date, but does not include all of the information and notes required by generally accepted accounting principles for complete financial statements. For further information, refer to the
consolidated financial statements and notes for the fiscal year ended December 25, 2005 included in our 2005 Annual Report on Form 10-K.

As described in Note 4, Discontinued Operations and Assets Held for Sale, we have reclassified Vinny Ts of Boston and three Buca de Beppo closed restaurants financial results as discontinued operations for all
periods presented. These notes to Condensed Consolidated Financial Statements, except where otherwise indicated, relate to continuing operations only.

The accompanying condensed consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.
We had net income of $0.6 million in the twenty-six weeks ended June 25, 2006; however, we sustained net losses of $32.1 million in fiscal 2005, $38.1 million in fiscal 2004 and $24.7 million in fiscal 2003 and we have an accumulated deficit of
$99.3 million. We have utilized $3.5 million of cash from operating activities through the twenty-six weeks ended June 25, 2006. As of August 1, 2006, we had outstanding borrowings of approximately $5.9 million under our revolving credit
facility, $1.3 million under the term loan A facility, and $15.8 million of capitalized leases. Our current availability under the revolving credit facility is approximately $3.3 million. Our credit agreement contains restrictive covenants which
require that we comply with certain financial ratios. These covenants limit our ability to take various actions without the consent of our lender, including the incurrence of additional debt, the guaranteeing of certain indebtedness and engaging in
various types of transactions, including mergers and sales of assets, paying dividends and making distributions or other restricted payments, including investments. These covenants could have an adverse effect on our business by limiting our ability
to take advantage of business opportunities.

In addition, failure to maintain the covenants required by our credit agreement could result
in acceleration of the indebtedness under the credit facility. In fiscal 2005, we were in violation of certain covenants under the credit agreement, which covenants were subsequently amended and the non-compliance waived by the lender. Our inability
in the future to comply with the covenant requirements under the credit agreement or to obtain a waiver of any violations could impair our liquidity and limit our ability to operate. We were in compliance with our bank covenants as of June 25,
2006.

Based on available funds, current plans and business conditions, we believe that our available cash, amounts available under our
credit agreement and amounts expected to be generated from future operations will be sufficient to meet our cash requirements for the next 12 months. This belief is based on a number of assumptions including continued comparable restaurant sales
increases and decreased product costs as a percentage of sales in future periods and no material adverse developments in our business or the general economy. Additionally, the proceeds from a sale of Vinny Ts of Boston and potential additional
sale-leaseback transactions would permit us, if necessary, to repay indebtedness under the credit agreement. There can be, however, no assurances regarding these assumptions. If our plans are not achieved, there may be further negative effects on
our results of operations and cash flows, which could have a material adverse effect on us.



7



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2. RESTATEMENT OF FINANCIAL STATEMENTS

Subsequent to the issuance of our condensed consolidated financial statements for the twenty-six weeks ended June 26, 2005, we identified errors in
our accounting for leases, which included errors in the accounting for straight-line rent and depreciation of leasehold assets that affected our historical condensed consolidated financial statements. These errors are discussed in the following
paragraphs.

Accounting for Real Estate LeasesWe identified instances where straight-line rent expense was recognized
incorrectly because scheduled rent increases were not included in the minimum payments. In addition, we identified certain leasehold improvements that were being depreciated over lives that were inconsistent with the expected lease term.

Accounting for CashWe determined that we had incorrectly classified outstanding checks as accounts payable as of June 26, 2005
rather than as a reduction in our cash balance as of June 26, 2005. We have now determined that outstanding checks should reduce positive balance accounts at the same banking institution that contain provisions for right of offset.

As a result, the accompanying condensed consolidated financial statements for the thirteen and twenty-six weeks ended June 26, 2005 have been
restated from the amounts previously reported to correct these errors in accounting.

A summary of the significant effects of the
restatement is as follows (in thousands, except share and per share data):



|                                                                  |  |                                           |        |   |                                             |   |        |                        |  |   |          |   |  |   |         |  
|----------------------------------------------------------------- |  | ----------------------------------------- | ------ | - | ------------------------------------------- | - | ------ | ---------------------- |  | - | -------- | - |  | - | ------- | -
|                                                                  |  | For the Thirteen WeeksEnded June 26, 2005 |        |   | For the Twenty-Six WeeksEnded June 26, 2005 |  
|Statement of Operations                                           |  | previouslyreported (1)                    |        |   | restated                                    |   |        | previouslyreported (1) |  |   | restated |  
|Direct and occupancy                                              |  | $                                         | 17,779 |   |                                             | $ | 17,873 |                        |  | $ | 34,501   |   |  | $ | 34,690  |  
|Depreciation and amortization                                     |  |                                           | 3,441  |   |                                             |   | 3,438  |                        |  |   | 6,694    |   |  |   | 6,688   |  
|Total restaurant costs                                            |  |                                           | 56,007 |   |                                             |   | 56,098 |                        |  |   | 111,720  |   |  |   | 111,903 |  
|Operating loss                                                    |  |                                           | (2,986 | ) |                                             |   | (3,099 | )                      |  |   | (3,541   | ) |  |   | (3,746  | )
|Net loss from continuing operations                               |  |                                           | (3,967 | ) |                                             |   | (4,080 | )                      |  |   | (4,954   | ) |  |   | (5,159  | )
|Net loss                                                          |  |                                           | (3,691 | ) |                                             |   | (3,804 | )                      |  |   | (4,525   | ) |  |   | (4,730  | )
|Net loss from continuing operations per share - basic and diluted |  |                                           | (0.20  | ) |                                             |   | (0.20  | )                      |  |   | (0.25    | ) |  |   | (0.25   | )
|Net loss per share - basic and diluted                            |  |                                           | (0.18  | ) |                                             |   | (0.19  | )                      |  |   | (0.22    | ) |  |   | (0.23   | )
|                                                                  |  |                                           |        |  
|Statement of Cash Flows                                           |  |                                           |        |   |                                             |   |        |                        |  |   |          |  
|Net loss                                                          |  |                                           |        |   |                                             |   |        |                        |  |   | (4,525   | ) |  |   | (4,730  | )
|Accounts Payable                                                  |  |                                           |        |   |                                             |   |        |                        |  |   | (321     | ) |  |   | (1,066  | )
|Net cash used in operating activities                             |  |                                           |        |   |                                             |   |        |                        |  |   | (2,629   | ) |  |   | (3,374  | )
|Net change in cash                                                |  |                                           |        |   |                                             |   |        |                        |  |   | (177     | ) |  |   | (922    | )
|Cash at beginning of period                                       |  |                                           |        |   |                                             |   |        |                        |  |   | 4,314    |   |  |   | 2,046   |  
|Cash at end of period                                             |  |                                           |        |   |                                             |   |        |                        |  |   | 4,137    |   |  |   | 1,124   |  

---

|(1) | The amounts labeled Previously Reported have been adjusted to reflect the reclassification for discontinued operations and assets held for sale (see Note 4).
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

3. STOCK-BASED COMPENSATION

We have stock-based compensation plans under which we issue stock options, non-vested share awards (restricted stock) and discounted purchase rights. Our 1996 Incentive Stock Option Plan (the 1996 Plan) allows our board of directors to
grant options to purchase shares of our stock to eligible employees for both incentive and non-statutory stock options. Options granted under the 1996 Plan vest as determined by the board of directors (generally five years) and are exercisable for a
term not to exceed ten years. The board of directors and shareholders approved amendments to the 1996 Plan to increase the number of shares available for issuance under the 1996 Plan, and as a result of these amendments the aggregate number of
shares available for issuance under the 1996 Plan has been increased to 3,450,000. In December 2004, our board of



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directors accelerated the vesting of outstanding options with an exercise price in excess of $10 per share for the
purpose of improving employee retention and morale.

During 2000, we adopted the 2000 Stock Incentive Plan (the 2000 Plan), pursuant to
which options to acquire an aggregate of 300,000 shares of our common stock may be granted to eligible employees. Our officers and directors are explicitly excluded from participation in the 2000 Plan.

On June 14, 2006, our shareholders approved the 2006 Omnibus Stock Plan (the 2006 Plan) under which 2,100,000 shares are available for issuance.
Upon approval of the 2006 Plan, we ceased granting any future awards under our 1996 Plan.

Our employee stock purchase plan (ESPP) permits
eligible employees to purchase stock at 85% of the fair market value on either the first or last day of the purchase period.

It is our
policy to issue new shares when options are exercised, upon granting non-vested shares and to fulfill employee purchases through the ESPP.

Prior to December 27, 2005, we applied Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations in accounting for these plans. No stock-based compensation expense was
recognized in our condensed Consolidated Statement of Operations prior to fiscal 2006 for stock option awards, as the exercise price was equal to the market price of our stock on the date of grant. In addition, we did not recognize any stock-based
compensation expense for our ESPP as it is intended to be a plan that qualifies under Section 423 of the Internal Revenue Code of 1986, as amended. Finally, we recognized stock-based compensation expense for restricted share awards.

We adopted the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based
Payment (123(R)) as of the beginning of our fiscal year 2006, requiring us to recognize expense related to the fair value of our stock-based compensation awards. We elected the modified prospective transition method as permitted by SFAS
No. 123(R). Under this transition method, stock-based compensation expense for the thirteen and twenty-six weeks ended June 25, 2006, includes: (a) compensation expense for all stock-based compensation awards granted prior to, but not
yet vested as of December 25, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, Accounting for Stock-Based Compensation; (b) compensation expense for all stock-based
awards granted subsequent to December 25, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123(R); and (c) compensation expense for the discount eligible employees receive as part of the
ESPP. We recognized compensation expense for stock options and restricted stock awards on a straight-line basis over the requisite service period of the award. Total share-based compensation included in general and administrative expense in our
Consolidated Statement of Operations for the thirteen and twenty-six weeks ended June 25, 2006, was $0.2 million and $0.5 million, respectively. In accordance with the modified prospective transition method of SFAS No. 123(R), financial
results for prior periods have not been adjusted.



9



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The following table illustrates the effect on net income and earnings per share if we had applied the
fair value recognition provisions of SFAS No. 123(R) to stock-based employee compensation during the thirteen and twenty-six weeks ended June 26, 2005 (in thousands):



|                                                                                         |  |                                  |        |   |                                     |   |        |  
|---------------------------------------------------------------------------------------- |  | -------------------------------- | ------ | - | ----------------------------------- | - | ------ | -
|                                                                                         |  | Thirteen weeksendedJune 26, 2005 |        |   | Twenty-six weeksended June 26, 2005 |  
|Net loss, as reported                                                                    |  | $                                | (3,804 | ) |                                     | $ | (4,730 | )
|Plus: Stock-based employee compensation expense included in reported net loss            |  |                                  |       |   |                                     |   |       |  
|Less: Stock-based compensation expense determined under fair value method for all awards |  |                                  | (425   | ) |                                     |   | (850   | )
|                                                                                         |  |                                  |        |   |                                     |   |        |  
|Pro forma net loss                                                                       |  | $                                | (4,229 | ) |                                     | $ | (5,580 | )
|                                                                                         |  |                                  |        |   |                                     |   |        |  
|Net loss per common share, basic and diluted:                                            |  |                                  |        |   |                                     |   |        |  
|As reported                                                                              |  | $                                | (0.19  | ) |                                     | $ | (0.23  | )
|Pro forma                                                                                |  | $                                | (0.21  | ) |                                     | $ | (0.28  | )

For purposes of this pro forma disclosure, the value of the stock-based compensation was amortized
to expense on a straight-line basis over the period it is vested or earned. Forfeitures were estimated based on historical experience.

The
following table summarizes the stock option transactions for the twenty-six weeks ended June 25, 2006:



|                               |  |           |  |                                |      |                                           |    
|------------------------------ |  | --------- |  | ------------------------------ | ---- | ----------------------------------------- | ---
|                               |  | Options   |  | Weighted-AverageExercise Price |      | Weighted-AverageRemainingContractual Term
|Outstanding, December 25, 2005 |  | 2,151,495 |  | $                              | 6.64 |                                           | 7.6
|Granted                        |  | 58,000    |  |                                | 5.61 |                                           |    
|Exercised                      |  |          |  |                                |     |                                           |    
|Forfeited or expired           |  | 176,604   |  |                                | 8.75 |                                           |    
|                               |  |           |  |                                |      |                                           |    
|Outstanding, June 25, 2006     |  | 2,032,891 |  | $                              | 6.42 |                                           | 7.3
|                               |  |           |  |                                |      |                                           |    
|Exercisable, June 25, 2006     |  | 1,667,958 |  | $                              | 6.52 |                                           |    
|                               |  |           |  |                                |      |                                           |    

The fair value of each option is estimated on the date of grant using the Black-Scholes
option-pricing model and the assumptions noted in the following table. Forfeitures estimates are based on historical company experience and qualitative judgments regarding the employee population.



|                                       |  |      |      |   |      |   |      |  
|-------------------------------------- |  | ---- | ---- | - | ---- | - | ---- | -
|Assumptions                            |  | 2006 |      |   | 2005 |  
|Expected volatility (1)                |  |      | 60.9 | % |      |   | 58.5 | %
|Expected dividends                     |  |      | None |   |      |   | None |  
|Risk-free interest rate (2)            |  |      | 4.7  | % |      |   | 4.2  | %
|Expected term (in years) (3)           |  |      | 7.5  |   |      |   | 7.0  |  
|Weighted Average fair value per option |  | $    | 3.33 |   |      | $ | 3.70 |  



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---

|(1) | Expected stock price volatility is based on historical market price data.
|--- | -------------------------------------------------------------------------

|(2) | Based on the U.S. Treasury interest rates whose term is consistent with the expected life of our stock options.
|--- | ---------------------------------------------------------------------------------------------------------------

|(3) | We estimate the expected term of stock options consistent with the simplified method identified in Staff Accounting Bulletin No. 107 which considers the average of the vesting
term and the contractual term to be the expected term.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Net cash proceeds from the exercise of stock options was $0 for the
twenty-six weeks ended June 25, 2006.

The fair value of restricted share awards is determined based on the closing market price of
our stock on the date of grant. Upon adoption of 123(R), we reclassified unearned compensation within shareholders equity to additional paid-in-capital. A summary of the status of our restricted share awards as of June 25, 2006 is as
follows:



|                               |  |         |  |                                       |     
|------------------------------ |  | ------- |  | ------------------------------------- | ----
|Restricted Share
Awards        |  | Shares  |  | Weighted-AverageGrant-Date Fair Value
|Outstanding, December 25, 2005 |  | 244,000 |  | $                                     | 5.48
|                               |  |         |  |                                       |     
|Granted                        |  | 55,800  |  |                                       | 5.60
|Vested                         |  |        |  |                                       |     
|Forfeited or expired           |  | 5,500   |  |                                       | 5.48
|                               |  |         |  |                                       |     
|Outstanding, June 25, 2006     |  | 294,300 |  | $                                     | 5.58
|                               |  |         |  |                                       |     

As of June 25, 2006, there was approximately $1.7 million of total unrecognized compensation
cost related to non-vested share-based compensation arrangements granted under all equity compensation plans. Total unrecognized compensation expense will be adjusted for future changes in estimated forfeitures. We expect to recognize that cost over
a weighted-average period of 2.8 years.

4. DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE

In December 2005, our board of directors approved the engagement of an investment banker to represent us in the planned sale of the Vinny Ts of
Boston restaurants. We continue to pursue the sale of Vinny Ts of Boston. If the sale is not completed, we expect to explore conversions and other options. We analyzed the Vinny Ts of Boston long-lived assets and intangibles carrying
values and concluded that no impairment existed as of June 25, 2006 as the amount expected to be recovered from the sale, less the costs to sell, are greater than the carrying value. In November 2005, we closed three Buca di Beppo restaurants,
Cheektowaga, New York, Omaha, Nebraska and West Des Moines, Iowa. The Vinny Ts of Boston brand and associated assets and the three individual closed restaurants, as aggregated, meet the definition of a component of an entity.
Operations and cash flows can be clearly distinguished and measured at the restaurant level and, when aggregated with the Vinny Ts of Boston events noted above, the financial results of the three closed restaurants were determined to be
material to our Condensed Consolidated Financial Statements.

Vinny Ts of Boston has been accounted for as an asset held for
sale and, along with the three closed restaurants, have been included in discontinued operations in the Condensed Consolidated Statements of Operations and assets held for sale in the Condensed Consolidated Balance Sheets in accordance with
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.

Assets and liabilities classified as held for
sale (Vinny Ts of Boston) and discontinued operations (Buca di Beppo closed restaurants) consisted of (in thousands):



|                        |  |               |       |                   |   |      
|----------------------- |  | ------------- | ----- | ----------------- | - | -----
|                        |  | June 25, 2006 |       | December 25, 2005
|Current assets          |  | $             | 1,192 |                   | $ | 1,246
|Property and equipment  |  |               | 8,997 |                   |   | 8,942
|Other Assets            |  |               | 275   |                   |   | 312  
|                        |  |               |       |                   |   |      
|Total Long-term assets  |  |               | 9,272 |                   |   | 9,255
|                        |  |              
|Current liabilities (1) |  |               | 3,166 |                   |   | 4,145
|Long-term liabilities   |  |               | 1,686 |                   |   | 1,860



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Discontinued operations financial results for the thirteen and twenty-six weeks ended June 25,
2006 and June 26, 2005 consisted of (in thousands):



|                                        |  |                      |       |                        |   |               |  |               |        |  |   |       
|--------------------------------------- |  | -------------------- | ----- | ---------------------- | - | ------------- |  | ------------- | ------ |  | - | ------
|                                        |  | Thirteen Weeks Ended |       | Twenty-Six Weeks Ended
|                                        |  | June 25, 2006        |       | June 26, 2005          |   | June 25, 2006 |  | June 26, 2005
|Restaurant sales                        |  | $                    | 8,120 |                        | $ | 9,523         |  | $             | 15,652 |  | $ | 18,591
|Restaurant costs                        |  |                      | 7,361 |                        |   | 9,224         |  |               | 14,763 |  |   | 18,133
|Other                                   |  |                      | 10    |                        |   | 23            |  |               | 13     |  |   | 29    
|                                        |  |                      |       |                        |   |               |  |               |        |  |   |       
|Net income from discontinued operations |  | $                    | 749   |                        | $ | 276           |  | $             | 876    |  | $ | 429   
|                                        |  |                      |       |                        |   |               |  |               |        |  |   |       

---

|(1) | We closed three Buca di Beppo restaurants in November 2005. We reached agreement with the landlord of one of the restaurants to terminate the lease and recorded estimated
liabilities for the remaining two restaurants to cover future lease termination costs. The fair value of these liabilities were estimated in accordance with the requirements of SFAS No. 146, Accounting for Costs Associated with Exit or
Disposal Activities.This required us to either negotiate a settlement with the landlord or estimate the present value of the future minimum lease obligations offset by the estimated sublease rentals that could be reasonably obtained for the
properties. We expect to pay these amounts in 2006.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                     |  |   |          |  
|------------------------------------ |  | - | -------- | -
|Accrued exit costs December 25, 2005 |  | $ | 400,000  |  
|Expenses accrued                     |  |   |         |  
|Payments                             |  |   | (139,000 | )
|Accretion expense                    |  |   | 71,000   |  
|                                     |  |   |          |  
|Balance at June 25, 2006             |  | $ | 332,000  |  
|                                     |  |   |          |  

5. LOSS ON IMPAIRMENT OF LONG-LIVED ASSETS

We review our long-lived assets for impairment whenever events or changes in circumstances indicate the carrying value of an asset or group of assets may
not be recoverable, but at least quarterly. We consider a history of consistent and significant operating losses to be a primary indicator of potential asset impairment. Assets are grouped and evaluated for impairment at the lowest level for which
there are identifiable cash flows, primarily the individual restaurants. A restaurant is deemed to be impaired if a forecast of its future operating cash flows directly related to the restaurant is less than its carrying amount. If a restaurant is
determined to be impaired, the loss is measured as the amount by which the carrying amount of the restaurant exceeds its fair value. Fair value is an estimate based on the best information available including prices for similar assets or the results
of valuation techniques such as discounted estimated future cash flows, as if the decision to continue to use the impaired restaurant was a new investment decision. If these assumptions change in the future, we may be required to take additional
impairment charges for the related assets. Considerable management judgment is necessary to estimate undiscounted future cash flows. Accordingly, actual results could vary significantly from such estimates.

During the thirteen weeks ended June 25, 2006, we recorded $129,000 of losses related to the purchase of property and equipment in restaurants that
previously have been fully impaired due to amounts not being recoverable by future cash flows of the restaurant.

During the twenty-six
weeks ended June 25, 2006, we recorded $180,000 of losses related to the purchase of property and equipment in restaurants that previously have been fully impaired due to amounts not being recoverable by future cash flows of the restaurant. The
first two quarters of fiscal 2005 included an approximate $0.4 million loss primarily related to capitalized lease development costs for one restaurant not expected to open due to a reduction in our development plans.

We will continue to review our restaurants for potential asset impairment. We believe that all of our remaining restaurants currently have sufficient
estimated future cash flows to support the carrying value of their long-lived assets. However, if an individual restaurants estimated future cash flows decline below its carrying value of long-lived assets, it could result in additional
impairment charges.



12



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6. NET LOSS FROM CONTINUING OPERATIONS PER SHARE

Net loss from continuing operations per share is computed in accordance with SFAS No. 128, Earnings per Share. Basic loss per share is computed by
dividing net loss by the weighted average number of common shares outstanding. Diluted net loss per share assumes the exercise of stock options using the treasury stock method, if dilutive. The following table sets forth the calculation of basic and
diluted net loss from continuing operations per common share (in thousands, except share and per share data):

|                                                                       |  |                      |            |   |                        |   |            |               |  |   |               |   |  |   |            |  
|---------------------------------------------------------------------- |  | -------------------- | ---------- | - | ---------------------- | - | ---------- | ------------- |  | - | ------------- | - |  | - | ---------- | -
|                                                                       |  | Thirteen Weeks Ended |            |   | Twenty-Six Weeks Ended |  
|                                                                       |  | June 25, 2006        |            |   | June 26, 2005          |   |            | June 25, 2006 |  |   | June 26, 2005 |  
|Numerator:                                                             |  |                      |            |   |                        |   |            |               |  |   |               |   |  |   |            |  
|Basic and diluted net loss from continuing operations                  |  | $                    | (1,467     | ) |                        | $ | (4,080     | )             |  | $ | (324          | ) |  | $ | (5,159     | )
|                                                                       |  |                      |            |  
|Denominator:                                                           |  |                      |            |   |                        |   |            |               |  |   |               |   |  |   |            |  
|Weighted average shares outstanding - basic                            |  |                      | 20,525,656 |   |                        |   | 20,203,204 |               |  |   | 20,507,129    |   |  |   | 20,188,944 |  
|                                                                       |  |                      |            |  
|Effect of dilutive securities:                                         |  |                      |            |   |                        |   |            |               |  |   |               |   |  |   |            |  
|Stock options                                                          |  |                      |           |   |                        |   |           |               |  |   |              |   |  |   |           |  
|                                                                       |  |                      |            |  
|Weighted average shares outstanding - diluted                          |  |                      | 20,525,656 |   |                        |   | 20,203,204 |               |  |   | 20,507,129    |   |  |   | 20,188,944 |  
|                                                                       |  |                      |            |  
|Basic and diluted net loss from continuing operations per common share |  | $                    | (0.07      | ) |                        | $ | (0.20      | )             |  | $ | (0.01         | ) |  | $ | (0.25      | )

Diluted loss from continuing operations per common share excludes 1,304,296 stock options at a
weighted average price of $7.38 in the thirteen weeks ended June 25, 2006 and 2,152,051 stock options at a weighted average price of $8.37 in the thirteen weeks ended June 26, 2005, 1,285,621 stock options at a weighted average price of $7.41 in the
twenty-six weeks ended June 25, 2006 and 2,107,464 stock options at a weighted average price of $8.41 in the twenty-six weeks ended June 26, 2005 due to their anti-dilutive effect.

7. RECENT ACCOUNTING PRONOUNCEMENTS

In February 2006, the Financial Accounting Standards Board
(FASB) issued SFAS No. 155, Accounting for Certain Hybrid Financial Instrumentsan amendment of FASB Statements No. 133 and 140. This statement is intended to simplify accounting for certain hybrid financial instruments by
permitting fair value re-measurement for such hybrid financial instruments. We are required to adopt SFAS 155 for all financial instruments acquired or issued after the beginning of our first fiscal year that begins after September 15, 2006. We
do not expect that adoption of this statement will have a significant effect on our financial statements.

In July 2006, the FASB issued
Financial Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109. FIN 48 prescribes a comprehensive financial statement model of how a company should recognize,
measure, present, and disclose uncertain tax positions that the company has taken or expects to take in its income tax returns. FIN 48 requires that only income tax benefits that meet the more likely than not recognition threshold
be recognized or continue to be recognized on the effective date. Initial derecognition amounts would be reported as a cumulative effect of a change in accounting principle. FIN 48 is effective for fiscal years beginning after December 15,
2006. We are assessing the impact of the new guidance on all of our open tax positions and it is not expected to have a material impact on earnings.

8. SUPPLEMENTAL CASH FLOW INFORMATION

The following is supplemental cash flow information for the twenty-six weeks ended
June 25, 2006 and June 26, 2005 (in thousands):



|                                                            |  |               |       |   |               |   |      
|----------------------------------------------------------- |  | ------------- | ----- | - | ------------- | - | -----
|                                                            |  | June 25, 2006 |       |   | June 26, 2005
|Cash paid during period for:                                |  |               |       |   |               |   |      
|Interest                                                    |  | $             | 1,267 |   |               | $ | 1,617
|Income taxes                                                |  |               |      |   |               |   | 30   
|Non-cash investing and financing activities:                |  |               |       |   |               |   |      
|Shareholder receivable from issuance of stock               |  |               | (40   | ) |               |   |     
|Shareholder receivable reduction due to retirement of stock |  |               | 153   |   |               |   |     



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9. COMMITMENTS AND CONTINGENCIES

Litigation - Three virtually identical civil actions were commenced against our company and three former officers in the United States District Court for the District of Minnesota between August 7, 2005
and September 7, 2005. The three actions have been consolidated. The four lead plaintiffs filed and served a Consolidated Amended Complaint (the Complaint) on January 11, 2006. The Complaint is brought on behalf of a class
consisting of all persons who purchased our common stock in the market during the time period from February 6, 2001 through March 11, 2005 (the class period). The lead plaintiffs allege that in press releases and SEC filings
issued during the class period, defendants made materially false and misleading statements about our companys income, revenues, and internal controls, which allegedly had the result of artificially inflating the market price for our stock. The
lead plaintiffs assert claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and seek compensatory damages in an unspecified amount, plus an award of attorneys fees and costs of litigation. On March 13, 2006, we
filed a motion to dismiss the Complaint on the grounds that the Complaint fails to state a claim and that the Complaint fails to plead fraud with the particularity required under the law. The motion is scheduled for hearing on August 4, 2006.
We are not able to predict the ultimate outcome of this litigation, but it may be costly and disruptive. The total costs cannot be reasonably estimated at this time. Federal securities litigation can result in substantial costs and divert our
managements attention and resources, which may have a material adverse effect on our business and results of operations, including cash flows.

In March 2004, two of our former hourly employees filed a purported class action suit against us in the Orange County Superior Court, State of California. The action was later transferred to the Los Angeles Superior
Court, State of California, and subsequently resolved as described below. The complaint alleged causes of action for failure to pay wages/overtime, failure to allow meal breaks, failure to allow rest breaks, failure to pay reporting time pay,
violation of Business & Professions Code Section 17200, and certain statutory damages and penalties. Mediation occurred in February 2005, at which time the parties reached a tentative settlement. The settlement was preliminarily
approved by the court on September 21, 2005 and the court entered its order approving the settlement on January 25, 2006. Subsequently, notice and claim forms were mailed to the defined class, and class members have filed claims. We expect
that the total payments under the approved settlement will be between $1.5 and $2.0 million. The actual amount will be dependent on how many members of the putative class file timely claims. Based on estimates received from external legal counsel,
we recorded an estimated settlement expense of $1.8 million in fiscal 2004 associated with this legal action.

In February 2005, we
announced that the SEC had informed us that it has issued a formal order of investigation to determine whether there have been violations of the federal securities laws. We understand that the order of investigation relates to our internal controls
and compliance with rules governing filings and reports, including public disclosures, required to be filed with the SEC, and the 2002 purchase of an old farmhouse in Italy known as Villa Sermenino. We have been cooperating and assisting
with the SECs investigation and currently are negotiating a resolution of this matter with the SEC.

On July 25, 2005, we filed
a civil action against two of our former officers, Greg Gadel and John Motschenbacher, in the Hennepin County District Court, Minneapolis, Minnesota. Gadel was our Chief Financial Officer until February 2005. Motschenbacher was an officer since
1999, and our Senior Vice President and Chief Information Officer from February 2004 until March 15, 2005. We allege that Gadel and Motschenbacher breached the fiduciary duties of loyalty, good faith, and due care that they owed to us during
their tenure as officers, and unjustly enriched themselves, by (1) causing us to enter into unfavorable transactions with companies with which Gadel and Motschenbacher had undisclosed, material financial dealings, (2) causing us to overpay
for goods and services provided by vendors with which Gadel and Motschenbacher had undisclosed, material financial dealings, (3) soliciting and receiving undisclosed kickbacks from several vendors, and (4) seeking and receiving improper
reimbursement from us for business expenses that were, in fact, personal in nature, such as family vacations. We seek damages against each of Gadel and Motschenbacher in an amount in excess of $50,000, disgorgement of the compensation that we paid
to Gadel and Motschenbacher during the period that they were faithless fiduciaries, reimbursement of our costs of investigation, and an award of interest, attorneys fees, and costs of litigation. Discovery is proceeding, and the case is set
for trial in October 2006. In connection with this action, we submitted an employee dishonesty insurance claim to our insurer Great American Insurance Company (Great American). In the first quarter of fiscal 2006, Great American
validated our claim of at least $1.8 million and paid to us $1.5 million. We recorded the total $1.8 million in the first quarter of fiscal 2006 as a credit to general and administrative expenses; $0.3 million was recorded as a receivable. We expect
to collect this amount later in fiscal 2006. We retain our right to submit claims for additional losses. The policy contains limits of $3.0 million per occurrence and a deductible of $25,000. In connection with the payment, we will transfer to Great
American our rights of recovery with respect to the portion of loss paid, including our rights of recovery for the amounts of loss paid by Great American under this action. Great American also assumed the liability for future legal expenses in
connection with this action.



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We are subject to certain other legal actions arising in the normal course of business, none of which is
expected to have a material adverse effect on our results of operations, financial condition or cash flows.

Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

Restatement of Prior
Financial Information

The following discussion should be read in conjunction with our Condensed Consolidated Financial Statements and
the notes related to those Condensed Consolidated Financial Statements contained in Part I. Financial Information, Item 1. Financial Statements of this Quarterly Report on Form 10-Q. Any reference to a Note in this
discussion relates to the accompanying notes to the Condensed Consolidated Financial Statements unless otherwise indicated. All applicable disclosures in the following discussion have been modified to reflect the restatement, as described in Note 2
to the Condensed Consolidated Financial Statements (the Restatement).

Overview

At June 25, 2006, we owned and operated 93 Buca di Beppo and 11 Vinny Ts of Boston restaurants. Our Buca di Beppo restaurants are full service
restaurants that offer high quality, Italian cuisine served family-style in small and large family-sized portions in a fun and energetic atmosphere that parodies the decor and ambiance of post-War Italian/American restaurants. Our Vinny Ts of
Boston restaurants serve individual and family-style portions for both lunch and dinner. The Vinny Ts of Boston restaurants are based upon re-creations of the neighborhood Italian eateries prominent in the neighborhoods of lower Manhattan,
Brooklyn, South Philadelphia and North End of Boston in the 1940s.

In January 2005, we opened one new Buca di Beppo restaurant in
Carlsbad (San Diego), California. During fiscal 2005, we also closed three Buca di Beppo restaurants. From fiscal 2000 to 2003, we had pursued a rapid expansion strategy, opening 17 restaurants in each of fiscal 2000 and 2001 and 14 in each of
fiscal 2002 and 2003. In addition to these new restaurant openings, in January 2002, we purchased the assets of nine Vinny Ts of Boston restaurants. We are currently focused on the development and implementation of appropriate strategies to
improve our operations and improve comparable restaurant sales.

In December 2005, our board of directors approved the engagement of an
investment banker to represent us in the planned sale of the Vinny Ts of Boston restaurants. We continue to pursue the sale of Vinny Ts of Boston. If the sale is not completed, we expect to explore conversions and other options. Vinny
Ts of Boston has been accounted for as assets held for sale as of December 25, 2005 and has been included in discontinued operations in accordance with Statement of Financial Accounting Standards (SFAS) No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. See Note 4 to our Condensed Consolidated Financial Statements for more information on assets held for sale and discontinued operations.

The three Buca di Beppo restaurants we closed during the fourth quarter of fiscal 2005 were in Cheektowaga, New York, Omaha, Nebraska and West Des
Moines, Iowa. Financial results related to these three restaurants have been classified as discontinued operations in our Consolidated Financial Statements. See Note 4 to our Condensed Consolidated Financial Statements for more information on
discontinued operations. We will continue to review all of our restaurant locations for potential impairment and potential closure; however, we currently have made no decision to close any additional restaurants. Except where otherwise indicated,
the following discussion relates to continuing operations only.

During fiscal 2005, we implemented a price increase of approximately 2.0%
at our Buca di Beppo restaurants. The primary reason for this price increase was to offset rising operational costs, particularly in product and occupancy expenses.

In February 2005, we announced that the SEC had informed us that it had issued a formal order of investigation to determine whether there have been violations of the federal securities laws. We believe that the
investigation may have been initiated by the resignation of Joseph Micatrotto, our former chief executive officer and we understand that the order of investigation relates to our internal controls and compliance with rules governing filings and
reports, including public disclosures, required to be filed with the SEC, and the 2002 purchase of an old farmhouse in Italy known as Villa Sermenino.

In March 2005, we announced that we had terminated the employment of our Vice President, Controller, and Interim Chief Financial Officer and our Senior Vice President and Chief Information Officer. Acting through our
audit committee with the assistance of independent counsel, we then commenced an internal investigation of matters relating to the termination of these two executive officers. As part of its investigation, independent counsel to the audit committee,
with the assistance of forensic accountants, examined, among other things, manual journal entries in our accounting records,



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capitalization of fixed assets in connection with new restaurants being developed in prior years, and potential related
party transactions with certain vendors. Based on our internal investigation, we concluded that there was evidence that one or more of our former officers had breached his fiduciary duties to the company. The officers and employees about whom the
investigation had concerns are no longer with the company. See Item 1. Legal Proceedings in Part II for a summary of legal proceedings we have commenced against certain of our former executive officers. We are also cooperating with the
SEC and other governmental authorities regarding the matters relating to our internal investigations and our legal proceedings against these former executive officers.

Results of Operations

Our operating results for the thirteen and twenty-six weeks ended
June 25, 2006 and June 26, 2005 expressed as a percentage of restaurant sales were as follows:



|                                        |  |                      |        |    |                        |   |        |               |  |   |               |    |  |   |         |   
|--------------------------------------- |  | -------------------- | ------ | -- | ---------------------- | - | ------ | ------------- |  | - | ------------- | -- |  | - | ------- | --
|                                        |  | Thirteen Weeks Ended |        |    | Twenty-Six Weeks Ended |  
|                                        |  | June 25, 2006        |        |    | June 26, 2005          |   |        | June 25, 2006 |  |   | June 26, 2005 |   
|Restaurant sales (in thousands)         |  | $                    | 61,019 |    |                        | $ | 59,653 |               |  | $ | 125,861       |    |  | $ | 121,038 |   
|Restaurant costs:                       |  |                      |        |    |                        |   |        |               |  |   |               |    |  |   |         |   
|Product                                 |  |                      | 24.8   | %  |                        |   | 25.7   | %             |  |   | 24.7          | %  |  |   | 25.7    | % 
|Labor                                   |  |                      | 33.0   | %  |                        |   | 32.6   | %             |  |   | 32.5          | %  |  |   | 32.6    | % 
|Direct and occupancy                    |  |                      | 28.9   | %  |                        |   | 30.0   | %             |  |   | 28.8          | %  |  |   | 28.7    | % 
|Depreciation and amortization           |  |                      | 5.3    | %  |                        |   | 5.8    | %             |  |   | 5.2           | %  |  |   | 5.5     | % 
|                                        |  |                      |        |    |                        |   |        |               |  |   |               |    |  |   |         |   
|Total restaurant costs                  |  |                      | 92.0   | %  |                        |   | 94.1   | %             |  |   | 91.2          | %  |  |   | 92.5    | % 
|General and administrative expenses     |  |                      | 9.1    | %  |                        |   | 11.1   | %             |  |   | 7.8           | %  |  |   | 10.0    | % 
|Pre-opening costs                       |  |                      | 0.0    | %  |                        |   | 0.0    | %             |  |   | 0.0           | %  |  |   | 0.2     | % 
|Loss on impairment of long-lived assets |  |                      | 0.2    | %  |                        |   | 0.0    | %             |  |   | 0.1           | %  |  |   | 0.3     | % 
|Lease termination charges               |  |                      | 0.0    | %  |                        |   | 0.0    | %             |  |   | 0.0           | %  |  |   | 0.1     | % 
|                                        |  |                      |        |    |                        |   |        |               |  |   |               |    |  |   |         |   
|Operating (loss) income)                |  |                      | (1.3   | )% |                        |   | (5.2   | )%            |  |   | 0.9           | %  |  |   | (3.1    | )%
|Interest income                         |  |                      | 0.1    | %  |                        |   | 0.0    | %             |  |   | 0.0           | %  |  |   | 0.0     | % 
|Interest expense                        |  |                      | (1.2   | )% |                        |   | (1.6   | )%            |  |   | (1.2          | )% |  |   | (1.2    | )%
|                                        |  |                      |        |    |                        |   |        |               |  |   |               |    |  |   |         |   
|Loss before income taxes                |  |                      | (2.4   | )% |                        |   | (6.8   | )%            |  |   | (0.3          | )% |  |   | (4.3    | )%
|Income taxes                            |  |                      | 0.0    | %  |                        |   | 0.0    | %             |  |   | 0.0           | %  |  |   | 0.0     | % 
|                                        |  |                      |        |    |                        |   |        |               |  |   |               |    |  |   |         |   
|Net loss from continuing operations     |  |                      | (2.4   | )% |                        |   | (6.8   | )%            |  |   | (0.3          | )% |  |   | (4.3    | )%
|Net income from discontinued operations |  |                      | 1.2    | %  |                        |   | 0.4    | %             |  |   | 0.7           | %  |  |   | 0.4     | % 
|                                        |  |                      |        |    |                        |   |        |               |  |   |               |    |  |   |         |   
|Net (loss) income                       |  |                      | (1.2   | )% |                        |   | (6.4   | )%            |  |   | 0.4           | %  |  |   | (3.9    | )%
|                                        |  |                      |        |    |                        |   |        |               |  |   |               |    |  |   |         |   

Thirteen Weeks Ended June 25, 2006 Compared to the Thirteen Weeks Ended June 26, 2005

Restaurant Sales. Our restaurant sales are primarily comprised of food and beverages. Restaurant sales increased by
approximately $1.3 million, or 2.3%, to $61.0 million in the second quarter of fiscal 2006 from $59.7 million in the second quarter of fiscal 2005. Our calculation of comparable restaurant sales includes restaurants open for 18 full months. For the
second quarter of fiscal 2006, comparable restaurant sales increased 2.6% at Buca di Beppo restaurants. The increase in comparable restaurant sales was driven by increased guest counts as well as the approximate 2% price increase on food that we
took over the course of fiscal 2005 and the approximate 1.5% price increase we took during the first quarter of fiscal 2006. Coupons and other discounts are accounted for as a direct reduction in restaurant sales. Second quarter fiscal 2006
restaurant sales reflect total discounts of approximately $2.4 million compared to $2.0 million during the same period in fiscal 2005. We expect that our Buca di Beppo comparable restaurant sales will be slightly positive for the third quarter of
fiscal 2006.

Product. Product costs decreased by approximately $0.2 million, or 1.4%, to $15.1 million in the second quarter of
fiscal 2006 from $15.3 million in the second quarter of fiscal 2005. Product costs as a percentage of restaurant sales decreased to 24.8% in the second quarter of fiscal 2006 from 25.7% in the second quarter of fiscal 2005. The decrease in product
costs as a percentage of sales and in absolute dollars was a result of produce, meat and bar costs decreases. We expect product costs as a percentage of restaurant sales to decrease slightly in the third quarter of fiscal 2006 as compared to the
same quarter in fiscal 2005.

Labor. Labor costs include direct hourly labor and management wages, bonuses, taxes and benefits for
restaurant employees. Labor costs increased by approximately $0.8 million, or 3.8%, to $20.2 million in the second quarter of fiscal 2006 from $19.4 million in the second quarter of fiscal 2005. Labor cost as a percentage of restaurant sales
increased



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to 33.0% in the second quarter of fiscal 2006 from 32.6% in the second quarter of fiscal 2005. The increase in labor
dollars was primarily related to staffing additional non-exempt labor to support higher guest counts. The increase in costs as a percentage of sales was primarily related to increased medical expenses. We expect labor costs in the third quarter of
fiscal 2006 to remain flat or increase slightly as a percentage of sales from the third quarter of fiscal 2005.

Direct and
Occupancy. Direct and occupancy expenses include supplies, marketing, rent, utilities, real estate taxes, repairs and maintenance, and other related restaurant costs. Direct and occupancy costs decreased by approximately $0.3 million, or 1.7%,
to $17.6 million in the second quarter of fiscal 2006 from $17.9 million in the second quarter of fiscal 2005. Direct and occupancy costs as a percentage of restaurant sales decreased to 28.9% in the second quarter of fiscal 2006 from 30.0% in the
second quarter of fiscal 2005. The decrease in direct and occupancy expense in dollars and as a percentage of sales was primarily related to marketing and workers compensation expense reductions. We expect direct and occupancy expenses in the
third quarter of fiscal 2006 to increase as a percentage of sales from the third quarter of fiscal 2005.

Depreciation and
Amortization. Depreciation and amortization includes depreciation on capital expenditures for restaurants and the Paisano Support Center. Depreciation and amortization decreased by $0.2 million, or 5.2%, and decreased as a percentage of sales to
5.3% in the second quarter of fiscal 2006 from 5.8% in the second quarter of fiscal 2005. The primary reason for the decrease as a percentage of sales was the increase in sales and the increases in building asset write-offs taken as a result of
impairments since the second quarter of fiscal 2005. We expect depreciation and amortization to remain flat or decrease slightly as a percentage of sales during the third quarter of fiscal 2006 as compared to the third quarter of fiscal 2005.

General and Administrative. General and administrative expenses are comprised of expenses associated with all Paisano Support
Center functions that support existing operations, including management and staff salaries, employee benefits, travel, information systems, guest services, training and market research. General and administrative expenses decreased by approximately
$1.2 million, or 16.9%, to $5.5 million in the second quarter of fiscal 2006 from $6.7 million in the second quarter of fiscal 2005. General and administrative expenses as a percentage of restaurant sales decreased to 9.1% in the second quarter of
fiscal 2006 from 11.1% in the second quarter of fiscal 2005. The decrease in general and administrative expenses in dollars and as a percentage of sales was due to reductions in medical expenses, audit fees, Sarbanes-Oxley Compliance consulting fees
and legal fees. As described in Note 3 to our Condensed Consolidated Financial Statements, our second quarter of fiscal 2006 included approximately $0.2 million of share-based compensation expense as a result of the adoption of SFAS No. 123(R).
In accordance with the modified prospective transition method, we have not adjusted the financial results for our prior periods to include a comparable expense. We anticipate general and administrative expenses in the third quarter of fiscal 2006 to
decrease as a percentage of sales as compared to the second quarter of fiscal 2005.

Loss on Impairment of Long-Lived Assets.Loss
on impairment of long-lived assets relates to fixed and other long-term asset impairment charges on both open and unopened restaurants. During the second quarter of fiscal 2006, we recorded fixed asset impairment charges of $0.1 million. We recorded
$129,000 of losses related to the purchase of property and equipment in restaurants that have been fully impaired due to amounts not being deemed recoverable by future cash flows of the restaurant. We will continue to review our restaurants for
potential asset impairment. We currently believe that all of our restaurants have sufficient estimated future cash flows to support the carrying value of their long-lived assets. However, if an individual restaurants estimated future cash
flows decline below its carrying value of long-lived assets, it could result in additional impairment charges.

Interest Expense.
Interest expense includes the financing cost on our credit facilities and capital leases. Interest expense decreased by approximately $0.3 million, or 27.9%, to $0.7 million in the second quarter of fiscal 2006 from approximately $1.0 million in the
second quarter of fiscal 2005. Interest expense on our credit facilities was approximately $0.4 million while interest expense on our capital leases was approximately $0.3 million in the second quarter of 2006. The decrease primarily resulted from a
reduction in long term debt.

Income Taxes. We did not record a benefit from or provision for income taxes in the second quarter of
fiscal 2006 or 2005. We recorded a tax valuation allowance because we concluded that we remained in a position that may not allow for realization of the asset. We will continue to record a tax valuation allowance until it becomes more likely than
not that we will be able to recover the value of our deferred tax assets.

Discontinued Operations. In December 2005, our board
of directors approved the engagement of an investment banker to represent us in the sale of the Vinny Ts of Boston restaurants. In November 2005, we also closed three Buca di Beppo restaurants, Cheektowaga, Omaha and West Des Moines. Vinny
Ts of Boston along with the three closed Buca di Beppo restaurants have been accounted for as discontinued operations under SFAS No. 144, Accounting for the Impairment



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or Disposal of Long-Lived Assets.During the second quarter of fiscal 2006, net income from discontinued
operations increased to $0.7 million from $0.3 million in the same quarter of fiscal 2005. This increase was primarily related to the operations of Vinny Ts of Boston. The Vinny Ts of Boston brand had $0.8 million of net income during
the second quarter of fiscal 2006 compared to $0.4 million during the same period in fiscal 2005.

Net Loss. Net loss for the second
quarter of fiscal 2006 improved over the same period in fiscal 2005 from a net loss of $3.8 million to a net loss of $0.7 million. As a percentage of sales, net loss for the second quarter of 2006 was 1.2% compared to a loss of 6.4% in the second
quarter of fiscal 2005. The improvement in net loss in absolute dollars and as a percentage of sales was primarily a result of a reduction in general and administrative, direct and occupancy, and interest expenses, and an increase in income from
discontinued operations.

Twenty-Six Weeks Ended June 25, 2006 Compared to the Twenty-Six Weeks Ended June 26, 2005

Restaurant Sales. Restaurant sales increased by approximately $4.9 million, or 4.0%, to $125.9 million for the first half of 2006 from $121.0
million in same period of fiscal 2005. The increase in restaurant sales was primarily the result of increases in guest counts. Comparable restaurant sales increased by approximately 4.1% for Buca di Beppo during the first half of 2006. The increase
in comparable restaurant sales was due to an increase in guest counts as well as the approximate 2% price increase on food that we took over the course of fiscal 2005 and the approximate 1.5% price increase that we took during the first quarter of
fiscal 2006, and an increase in the number of stores serving lunch. Coupons and other discounts are accounted for as a direct reduction in restaurant sales. Restaurant sales for the first half of 2006 reflect total discounts of approximately $6.1
million compared to $5.4 million during the same period in fiscal 2005.

Product. Product costs remained relatively flat at
$31.1 million for in the first half of fiscal 2006 but improved as a percentage of sales to 24.7% from 25.7% during the same period of fiscal 2005. Product costs decreased as a percentage of restaurant sales as a result of a reduction in meat prices
associated with changing our distributor and a reduction in tap beer and wine costs as a result of reduced pours.

Labor. Labor
costs increased by approximately $1.4 million, or 3.6%, to $40.9 million in the first half of fiscal 2006 from $39.5 million in fiscal 2005 but decreased as a percentage of sales to approximately 32.5% in fiscal 2006 as compared to 32.6% in fiscal
2005. The primary reason for the increase in absolute dollars was a result of increased non-exempt labor due to higher guest counts and increased medical insurance expense partially offset by reductions in exempt labor. The primary reason labor
costs improved as a percentage of sales in fiscal 2006 was a result of reductions in exempt labor.

Direct and
Occupancy. Direct and occupancy expenses increased by approximately $1.6 million, or 4.5%, to $36.3 million in the first half of fiscal 2006 from $34.7 million in the first half of fiscal 2005. Direct and occupancy expenses increased as a
percentage of sales to 28.8% in the first half of fiscal 2006 as compared to 28.7% in the same period of fiscal 2005. The increase in direct and occupancy costs as a percentage of sales and in absolute dollars was primarily a result of rising
utility costs. The increase in direct and occupancy costs in absolute dollars was also partially a result of increased credit card expenses as a result of increased sales. Utility costs increased approximately $0.7 million in the first half of
fiscal 2006 over the same period in fiscal 2005.

Depreciation and Amortization. Total depreciation and amortization decreased
by approximately $0.2 million, or 2.7%, to $6.5 million in the first half of fiscal 2006 from $6.7 million in the first half of fiscal 2005. Depreciation and amortization decreased as a percentage of sales to 5.2% in the first half of fiscal 2006 as
compared to 5.5% in the first half of fiscal 2005. This decrease was primarily related to a write-down of the restaurant assets of six Buca di Beppo restaurants in operation in fiscal 2005.

General and Administrative. General and administrative expenses decreased by approximately $2.3 million, or 19.3%, to $9.8 million in the
first half of fiscal 2006 from $12.1 million in same period of fiscal 2005. General and administrative expenses decreased as a percentage of sales to approximately 7.8% in the first half of fiscal 2006 as compared to 10.0% in the same period of
fiscal 2005. The decrease in general and administrative costs as a percentage of sales and in absolute dollars were primarily a result of the $1.8 million recovery recorded with respect to the employee dishonesty insurance policy settlement in the
first quarter of 2006, decreased legal and consulting fees primarily related to the internal investigation undertaken in fiscal 2005 and Sarbanes-Oxley compliance.

Loss on Impairment of Long-lived Assets. During the first half of fiscal 2006 we recorded impairment charges of $0.2 million related to impairments of fixed assets. We recorded $180,000 of losses related
to the purchase of property and equipment in restaurants that have been fully impaired due to amounts not being deemed recoverable by future cash flows of the restaurant.



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Interest Expense. Interest expense remained the same at $1.5 million in both the first half
of fiscal 2006 and the first half of fiscal 2005.

Income Taxes. We did not record a benefit from or provision for income taxes in
the first half of fiscal 2006 or 2005.

Discontinued Operations. During the first half of fiscal 2006, net income from
discontinued operations increased to $0.9 million from $0.4 million in the same period of fiscal 2005. This increase was related to the operations of Vinny Ts of Boston. Vinny Ts of Boston had $1.0 million of operating income during the
first half of fiscal 2006 compared to $0.6 million during the same period in fiscal 2005.

Net Income. During the first half of
fiscal 2006, net income increased to $0.6 million from a net loss of $4.7 million in the same period of fiscal 2005. As a percentage of sales, net income improved from a negative 3.9% to a positive 0.4%. This increase in dollars and as a percentage
of sales was primarily related to an increase in restaurant sales and a decrease in general and administrative expenses.

Liquidity and Capital
Resources

As of June 25, 2006, we held cash of approximately $1.1 million, a decrease of approximately $0.3 million from the
fiscal 2005 year-end balance of approximately $1.4 million. The reduction in our cash balance was due primarily to an increased use of cash in our operating and investing activities driven by general and administrative expenses largely related to
accounting and legal costs associated with the investigation of events that transpired under prior management, settlement of various lawsuits, increased medical claims, less favorable payment terms for our new food distributor and capital spending
on a new accounting system.

Net cash used in operating activities was approximately $3.5 million for the twenty-six weeks ended
June 25, 2006 as compared to net cash used in operating activities of $3.4 million for the same period in fiscal 2005. The increase of $0.1 million in the use of cash in operating activities is primarily related to the $1.5 million of proceeds
received from the insurance settlement and improved restaurant operating performance more than offset by increased general and administrative expenses largely related to accounting and legal costs associated with the investigation of events that
transpired under prior management, the settlement of various lawsuits, increased medical claims and less favorable payment terms for our new food distributor. The 2006 activity included break-even cash flow from discontinued operations.

Net cash used in investing activities was $1.8 million for the first twenty-six weeks of fiscal 2006 as compared to a $0.3 million source of cash from
investing activities for the same period in fiscal 2005. The cash was used primarily for the purchase of a new accounting system and maintaining existing restaurant assets. The 2006 activity included investing cash uses of less than $50,000 relating
to discontinued operations.

We use cash for property and equipment primarily to fund the development and construction of new restaurants
and secondarily to fund capitalized property improvement for our existing restaurants. During fiscal 2005, we opened one new Buca di Beppo restaurant, no Vinny Ts of Boston restaurants and closed three Buca di Beppo restaurants. We are
currently evaluating new prototypes for potential new restaurants to be opened subsequent to fiscal 2006 and we anticipate that total cash investment per Buca di Beppo restaurant, including pre-opening costs, will be approximately $2.5 million.

Our board of directors and management reached decisions to close three restaurants during fiscal 2005. In accordance with the requirements
of SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, we established lease termination liabilities of approximately $0.4 million in fiscal 2005 based upon our estimate of the fair value of these obligationsby
either negotiating a settlement with the landlord or estimating the present value of the future minimum lease obligations offset by the estimated sublease rentals that could be reasonably obtained for the properties. These amounts are expected to be
paid in fiscal 2006.

Net cash provided by financing activities was $4.9 million in the first twenty-six weeks of fiscal 2006 and $2.1
million for the same period in fiscal 2005.

In November 2004, we entered into a new credit agreement with Wells Fargo Foothill, Inc. and
Ableco Finance LLC, as lenders, and with Wells Fargo Foothill, Inc., as the arranger and administrative agent for the lenders. The credit agreement provides for (a) a revolving credit facility in an aggregate amount equal to the lesser of a
borrowing base determined in accordance with the terms of the credit agreement and $15 million (including a letter of credit sub-facility of up to an aggregate of $5.7 million); (b) a term loan A facility of up to an aggregate of $5 million;
and (c) a term loan B facility of up to an aggregate of $15 million. We are also required under the loan documents to pay certain of our lenders an annual fee, an



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unused line of credit fee and a prepayment fee in the event of early termination of the agreement. Under the term loan A
facility, we are required to make a principal payment of $312,500 on the first day of January, April, July and October of each year beginning in 2005 and ending on October 1, 2008.

The credit agreement includes various affirmative and negative covenants, including certain financial covenants such as minimum EBITDA as defined in the
agreement, minimum fixed charge coverage ratio and maximum limits on capital expenditures and the acquisition or construction of new restaurants in any fiscal year. Payments under the credit agreement may be accelerated upon the occurrence of an
event of default, as defined in the credit agreement, that is not otherwise waived or cured. As of June 26, 2005, we were in default of the financial covenants regarding minimum EBITDA and fixed charge coverage ratio. As a result, an amendment
and waiver was negotiated and received in April 2005. In exchange for the amendment and waiver, we paid our lenders fees totaling $400,000 and the interest rate on the term loan B portion of the credit facility was increased. Based upon the fiscal
2005 Consolidated Financial Statements, as of December 25, 2005, we were in default of the financial covenants regarding minimum EBITDA and fixed charge coverage ratio. As a result, an amendment and waiver was negotiated and received in March
2006. In exchange for the amendment and waiver, we paid our lender a fee of $100,000. The amendment also extended the term of the credit agreement by one year, ending on November 15, 2009. We were in compliance with our bank covenants as of
June 25, 2006.

On September 9, 2005, we completed the sale and simultaneous leaseback of eight restaurant locations with
affiliates of CRIC Capital at a sale price of $17.5 million (the Sale Leaseback Transaction). We have and may continue to explore financing opportunities through sale-leaseback transactions involving our land and buildings; however, the
current credit facility restricts our ability to complete certain types of sale-leaseback transactions without the consent of our lenders. We cannot predict whether this financing will be available when needed or on terms acceptable to us.

The net proceeds of the Sale Leaseback Transaction were used to prepay, in its entirety, the outstanding term loan B facility with Ableco
and to prepay a portion of the outstanding term loan A facility with Wells Fargo. A premium equal to four percent of the outstanding principal amount of the term loan B was paid in connection with the prepayment of the term loan B facility.
Concurrently with the closing of the Sale Leaseback Transaction, we entered into an agreement (the Amendment and Consent) with the lenders under the credit agreement. Pursuant to the Amendment and Consent, the lenders consented to the
Sale Leaseback Transaction (subject to the prepayment of the term loan B facility and term loan A facility as provided above), agreed to amend the minimum EBITDA coverage required for relevant testing periods in fiscal year 2007 and agreed to amend
the credit agreement in certain other respects. In consideration for receiving the Amendment and Consent, we agreed to increase the interest rate on each of the remaining term loan A facility and the revolving credit facility by 2.25% per
annum.

The interest rate on the term loan A facility is Wells Fargos reference rate plus 2.50 percentage points. Under the credit
facility, our annual capital expenditures are limited to $13 million and the agreement includes covenants that place restrictions on sales of properties, transactions with affiliates, creation of additional debt, limitations on our ability to sign
leases for new restaurants, maintenance of certain financial covenants and other customary covenants. We expect to be in compliance with the financial covenants of the credit facility, as amended, for the next twelve months.

Amounts borrowed under the credit facility are secured by substantially all of our tangible and intangible assets. As of August 1, 2006, we had
outstanding borrowings of approximately $5.9 million under our revolving credit facility and $1.3 million under the term loan A facility. Our current availability under the revolving credit facility is approximately $3.3 million.

Our capital requirements, including development costs related to the opening of additional restaurants, have been significant. We have reduced our
development plans for fiscal 2005 and 2006 until we have executed proven strategies to consistently improve our comparable restaurant sales and our cash flow from operations. We may need substantial capital to finance our expansion plans, which
require funds for capital expenditures, pre-opening costs and initial operating losses related to new restaurant openings. In addition, we have incurred and expect to incur significant costs related to the on-going litigation and related matters.
The adequacy of available funds and our future capital requirements will depend on many factors, including the pace of expansion, the costs and capital expenditures for new restaurant development and the nature of contributions, loans and other
arrangements negotiated with landlords. Although we can make no assurance, we believe that our available cash, cash flows from operations, and our available borrowings will be sufficient to fund our capital requirements through at least the next
twelve months. Additionally, the proceeds from the anticipated sale of Vinny Ts of Boston and potential additional sale-leaseback transactions would permit us, if necessary, to repay indebtedness under the credit agreement. There can be,
however, no assurances regarding these assumptions. If our plans are not achieved, there may be further negative effects on our results of operations and cash flows, which could have a material adverse effect on us. To fund future operations, we may
need to raise additional capital through public or private equity or debt financing to continue



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our growth. In addition, we have and may continue to consider acquiring the operations of other companies. The sale of
additional equity or debt securities could result in additional dilution to our shareholders. We cannot predict whether additional capital will be available on favorable terms, if at all.

Off-Balance Sheet Arrangements

We do not have
off-balance sheet arrangements.

Application of Critical Accounting Policies and 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. Our critical accounting policies include: property and equipment, leases, impairment of long-lived assets, self-insurance, income taxes, estimated
liability for closing restaurants, loss contingencies and share-based compensation. Based on our adoption of SFAS 123(R) and the impact it had on our financial statements, we added Share-Based Compensation to our Critical Accounting Policies and
Estimates, as described below. A more in-depth description of all other policies can be found in our Annual Report on Form 10-K for the fiscal year ended December 25, 2005.

Share-Based Compensation

Prior to fiscal 2006, we accounted for our share-based employee
compensation plans under the measurement and recognition provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations, as permitted by Financial Accounting
Standards Board SFAS No. 123, Accounting for Stock-Based Compensation. We generally recorded no employee compensation expense for options granted prior to fiscal 2006, as options granted generally had exercise prices equal to the fair
market value of our common stock on the date of grant. We also recorded no compensation expense in connection with our Employee Stock Purchase Plan as the purchase price of the stock was not less than 85% of the lower of the fair market value of our
common stock at the beginning of each offering period or at the end of each offering period. We had recognized compensation expense related to non-vested (restricted) stock issued to employees in fiscal 2005. In accordance with SFAS No. 123, we
disclosed our net income and earnings per share as if we had applied the fair value-based method in measuring compensation expense for our share-based incentive awards.

Effective as of fiscal 2006, we adopted the fair value recognition provisions of SFAS No. 123(R), Share-Based Payment,using the modified prospective transition method. Under that transition method,
compensation expense that we recognize beginning in fiscal 2006 includes expense associated with the fair value of all awards granted on and after December 26, 2005 (the beginning of our 2006 fiscal year), and expense for the unvested portion
of previously granted awards outstanding on December 26, 2005. Results for prior periods have not been adjusted.

We estimate the fair
value of options granted using the Black-Scholes option valuation model and the assumptions shown in Note 3 to the accompanying condensed consolidated financial statements. We estimate the volatility of our common stock at the date of grant based on
our historical volatility rate, consistent with SFAS No. 123(R) and Securities and Exchange Commission Staff Accounting Bulletin No. 107 (SAB 107). Our decision to use historic volatility was based upon the lack of actively traded options
on our common stock. We estimate the expected term consistent with the simplified method identified in SAB 107 for share-based awards granted during the twenty six week period ended June 25, 2006. The simplified method calculates the expected
term as the average of the vesting and contractual terms of the award. The risk-free interest rate assumption is based on observed interest rates appropriate for the term of our employee options. We use historical data to estimate pre-vesting option
forfeitures and record share-based compensation expense only for those awards that are expected to vest. For options granted, we amortize the fair value on a straight-line basis. All options are amortized over the requisite service periods of the
awards, which are generally the vesting periods. If factors change we may decide to use different assumptions under the Black-Scholes option valuation model in the future, which could materially affect our net income and earnings per
share.

Recent Accounting Pronouncements

See Note 7 to our Condensed Consolidated Financial Statements for a discussion of new accounting standards.

Inflation

The primary inflationary factors affecting our operations are food and labor costs. A large number of our restaurant personnel are paid at rates based on
the applicable minimum wage, and increases in the minimum wage directly affect our labor costs. To date, inflation has not had a material impact on our operating results.



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Disclosure Regarding Forward-Looking Statements

This Form 10-Q for the thirteen weeks ended June 25, 2006 contains forward-looking statements within the meaning of the safe harbor provisions of
Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are based on the beliefs of our management as well as on assumptions made by and information currently available to us at the time the statements were made.
When used in this Form 10-Q, the words anticipate, believe, estimate, expect, intend and similar expressions, as they relate to us, are intended to identify the forward-looking statements.
Although we believe that these statements are reasonable, you should be aware that actual results could differ materially from those projected by the forward-looking statements. Because actual results may differ, readers are cautioned not to place
undue reliance on forward-looking statements.



| |  |  | Our comparable restaurant sales percentage and average weekly sales could fluctuate as a result of the success of our menu initiatives, to go efforts, general economic
conditions, consumer confidence in the economy, changes in consumer preferences, competitive factors, weather conditions, or changes in our historical sales pattern.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Cash proceeds from a sale or other strategic alternatives for Vinny Ts of Boston will be dependent upon a variety of factors, including market conditions and the price and
other terms of any such transaction.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Product costs could be adversely affected by increased distribution prices by DMA, our principal food supplier, or a failure to perform by DMA, as well as the availability of food
and supplies from other sources, changes in our menu items, adverse weather conditions, governmental regulation, inflation and general economic conditions.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Labor costs could increase due to increases in the minimum wage as well as competition for qualified employees and the need to pay higher wages to attract a sufficient number of
employees.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Direct and occupancy costs could be adversely affected by an inability to negotiate favorable lease terms, an inability to negotiate favorable lease termination terms, increasing
supply costs, marketing expenses, property taxes, common area maintenance expenses, utility costs, repairs and maintenance expenses, or general economic conditions.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | General and administrative expenses could increase due to competition for qualified employees, the need to pay higher wages to attract sufficient employees, legal and accounting
costs, Sarbanes-Oxley compliance costs as well as general economic conditions.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Interest expense could be adversely affected by our need for additional borrowings on our credit facilities and an increase in interest rates.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our ability to generate cash from operating activities could be adversely affected by increases in expenses as well as decreases in our average check and guest counts.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our actual cash investment for building each restaurant could be higher or lower based upon the success of locating suitable sites, the restaurant location and construction costs.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The covenants and restrictions under our current line of credit and term loan facility could have a significant impact on us based upon our ability to meet and maintain the
covenants, our capital requirements, our financial performance, our business plan and general economic conditions.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The borrowing availability under our current credit facility could be higher or lower due to increases or decreases in our financial performance, ability to maintain debt covenants,
and other debt-related issues.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our capital requirements could be higher or lower due to increases or decreases in the amount of new restaurants we build or acquire and general economic conditions.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The actual impact of our Buca Small initiative could be affected by changes in consumer preferences, the effectiveness of our Buca Small marketing campaigns, competitive factors and
weather conditions.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Additional factors that could cause actual results to differ include: an adverse outcome of the SEC investigation; failure in remediating internal control deficiencies; an adverse
outcome of pending legal proceedings; risks associated with restaurants not generating sufficient cash flows to support the carrying value of the restaurants assets; risks of incurring additional lease termination expenses; risks associated
with terrorism and our countrys war on terrorism; risks associated with actual or alleged food-borne illness; risks associated with future growth; inability to achieve and manage planned expansion; fluctuations in operating results; the need
for additional capital; risks associated with discretionary consumer spending; inability to compete with larger, more established competitors; potential labor shortages; our dependence on governmental licenses; weather and natural disasters; and
legal actions arising in the normal course of business, including complaints or litigation from guests.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Our restaurants feature Italian cuisine served both in individual and family-style portions. Our
continued success depends, in part, upon the popularity of this type of Italian cuisine and this style of informal dining. Shifts in consumer preferences away from our cuisine or dining style could materially adversely affect our future
profitability. Also, our success depends to a significant extent on numerous factors affecting discretionary consumer spending, including economic conditions, disposable consumer income and consumer confidence. Adverse changes in these factors could
reduce guest traffic or impose practical limits on pricing, either of which could materially adversely affect our business, financial condition, operating results or cash flows.

Certain of these risk factors are more fully discussed in our Annual Report on Form 10-K for the period ended December 25, 2005. We caution you,
however, that the list of factors above may not be exhaustive and that those or other factors, many of which are outside of our control, could have a material adverse effect on us and our results of operations. All forward-looking statements
attributable to persons acting on our behalf or us are expressly qualified in their entirety by the cautionary statements set forth here. We assume no obligation to publicly release the results of any revision or updates to these forward-looking
statements to reflect future events or unanticipated occurrences.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk from
changes in interest rates on borrowings under our credit agreement. The credit agreement provides for (a) a revolving credit facility in an aggregate amount equal to the lesser of a borrowing base determined in accordance with the terms of the
credit agreement and $15 million (including a letter of credit sub-facility of up to an aggregate of $5.7 million); and (b) a term loan A facility of up to an aggregate of $5 million. The interest rate on the term loan A facility is Wells
Fargos reference rate plus 2.50 percentage points. As of August 1, 2006, we had approximately $7.2 million outstanding in debt borrowings under our credit facility. Thus, a 1% change in interest rates would cause annual interest expense
to increase by $72,000.

We have no derivative financial instruments or derivative commodity instruments.

Many of the food products purchased by us are affected by commodity pricing and are, therefore, subject to price volatility caused by weather, production
problems, delivery difficulties and other factors that are outside our control. To control this risk in part, we have fixed price purchase commitments for some food and supplies from vendors who supply our national food distributor. In addition, we
believe that substantially all of our food and supplies are available from several sources, which helps to control food commodity risks. We believe we have the ability to increase menu prices, or vary the menu items offered, if needed in response to
a food product price increases. To compensate for a hypothetical price increase of 10% for food and supplies, we would need to increase menu prices by an average of 2.5%, which compares to our average price increase of approximately 2.0% in fiscal
2005, 1% in fiscal 2004 and 2% in fiscal 2003. Accordingly, we believe that a hypothetical 10% increase in food product costs would not have a material effect on our operating results.

Item 4. Controls and Procedures

Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures

As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of the
principal executive officer and principal financial officer, of our disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the Exchange Act)). Based upon this
evaluation, our principal executive officer and principal financial officer concluded that as of June 25, 2006, our disclosure controls and procedures were ineffective to ensure that information required to be disclosed by us in reports that we
file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms due to the material weaknesses in internal control over financial
reporting as described in Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 25, 2005 that have not been remediated. In fiscal 2005 and continuing in fiscal 2006, we have begun to remediate identified deficiencies
and material weaknesses in our internal control over financial reporting. See Item 9A. Controls and Procedures of our Annual Report on Form 10-K for the fiscal year ended December 25, 2005 for more information about the deficiencies
we have identified and the remediation we have taken and expect to take.

Changes in Internal Control Over Financial Reporting

There have been no changes to our internal control over financial reporting during the second quarter of fiscal 2006 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.



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##### Table of Contents

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

In March 2004, two of our former hourly employees filed a purported class
action suit against us in the Orange County Superior Court, State of California. The action was later transferred to the Los Angeles Superior Court, State of California, and subsequently resolved as described below. The complaint alleged causes of
action for failure to pay wages/overtime, failure to allow meal breaks, failure to allow rest breaks, failure to pay reporting time pay, violation of Business & Professions Code Section 17200, and certain statutory damages and
penalties. Mediation occurred in February 2005, at which time the parties reached a tentative settlement. The settlement was preliminarily approved by the court on September 21, 2005 and the court entered its order approving the settlement on
January 25, 2006. Subsequently, notice and claim forms were mailed to the defined class, and class members have filed claims. We expect that the total payments under the approved settlement will be between $1.5 and $2.0 million. The actual
amount will be dependent on how many members of the putative class file timely claims. Based on estimates received from external legal counsel, we recorded an estimated settlement expense of $1.8 million in fiscal 2004 associated with this legal
action.

In February 2005, we announced that the SEC had informed us that it has issued a formal order of investigation to determine
whether there have been violations of the federal securities laws. We understand that the order of investigation relates to our internal controls and compliance with rules governing filings and reports, including public disclosures, required to be
filed with the SEC, and the 2002 purchase of an old farmhouse in Italy known as Villa Sermenino. We have been cooperating and assisting with the SECs investigation and are currently negotiating a resolution of this matter with the
SEC.

Three virtually identical civil actions were commenced against our company and three former officers in the United States District
Court for the District of Minnesota between August 7, 2005 and September 7, 2005. The three actions have been consolidated. The four lead plaintiffs filed and served a Consolidated Amended Complaint (the Complaint) on
January 11, 2006. The Complaint is brought on behalf of a class consisting of all persons who purchased our common stock in the market during the time period from February 6, 2001 through March 11, 2005 (the class period).
The lead plaintiffs allege that in press releases and SEC filings issued during the class period, defendants made materially false and misleading statements about our companys income, revenues, and internal controls, which allegedly had the
result of artificially inflating the market price for our stock. The lead plaintiffs assert claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and seek compensatory damages in an unspecified amount, plus an award of
attorneys fees and costs of litigation. On March 13, 2006, we filed a motion to dismiss the Complaint on the grounds that the Complaint fails to state a claim and that the Complaint fails to plead fraud with the particularity required
under the law. The motion is scheduled for hearing on August 4, 2006. We are not able to predict the ultimate outcome of this litigation, but it may be costly and disruptive. The total costs cannot be reasonably estimated at this time. Federal
securities litigation can result in substantial costs and divert our managements attention and resources, which may have a material adverse effect on our business and results of operations, including cash flows.

On July 25, 2005, we filed a civil action against two of our former officers, Greg Gadel and John Motschenbacher, in the Hennepin County District
Court, Minneapolis, Minnesota. Gadel was our Chief Financial Officer until February 2005. Motschenbacher was an officer since 1999, and our Senior Vice President and Chief Information Officer from February 2004 until March 15, 2005. We allege
that Gadel and Motschenbacher breached the fiduciary duties of loyalty, good faith, and due care that they owed to us during their tenure as officers, and unjustly enriched themselves, by (1) causing us to enter into unfavorable transactions
with companies with which Gadel and Motschenbacher had undisclosed, material financial dealings, (2) causing us to overpay for goods and services provided by vendors with which Gadel and Motschenbacher had undisclosed, material financial
dealings, (3) soliciting and receiving undisclosed kickbacks from several vendors, and (4) seeking and receiving improper reimbursement from us for business expenses that were, in fact, personal in nature, such as family vacations. We seek
damages against each of Gadel and Motschenbacher in an amount in excess of $50,000, disgorgement of the compensation that we paid to Gadel and Motschenbacher during the period that they were faithless fiduciaries, reimbursement of our costs of
investigation, and an award of interest, attorneys fees, and costs of litigation. Discovery is proceeding, and the case is set for trial in October 2006. In connection with this action, we submitted an employee dishonesty insurance claim to
our insurer Great American Insurance Company (Great American). In the first quarter of fiscal 2006, Great American validated our claim of at least $1.8 million and paid to us $1.5 million. We recorded the total $1.8 million in the first
quarter of fiscal 2006 as a credit to general and administrative expenses; $0.3 million was recorded as a receivable. We retain our right to submit claims for additional losses. The policy contains limits of $3.0 million per occurrence and a
deductible of $25,000. In connection with the payment, we will transfer to Great American our rights of recovery with respect to the portion of loss paid, including our rights of recovery for the amounts of loss paid by Great American under this
action. Great American also assumed the liability for future legal expenses in connection with this action.



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##### Table of Contents

From time to time, we are involved in various legal actions arising in the ordinary course of business.
In the opinion of our management, the ultimate dispositions of these matters will not have a material adverse effect on our consolidated financial statements.

Item 1A. Risk Factors

There have been no material changes in our risk factors from those disclosed in our
Annual Report on Form 10-K for the fiscal year ended December 25, 2005.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Our Paisano Partner program requires
our restaurant general managers, known as Paisano Partners, to purchase between $10,000 and $20,000 of our common stock. We provide the Paisano Partners the option to finance the purchase of the common stock with a full recourse loan payable over
five years at a fixed interest rate of 8%. We have the option, but not the obligation, to buy out a Paisano Partners entire equity interest purchased under the Paisano Partner program at the purchase price of the equity interest paid by the
Paisano Partner either (1) upon the initiation of bankruptcy proceedings by or against the Paisano Partner within five years after the purchase date of the equity interest or (2) if the Paisano Partners employment with us is
terminated for any reason within five years after the purchase date of the equity interest. The following table represents the repurchase of Paisano Partner equity shares issued in accordance with this program during the first quarter of fiscal
2006.



|                                      |  |                                                |  |                                            |      |                                                                                               |   |                                                                                                                           |   |          
|------------------------------------- |  | ---------------------------------------------- |  | ------------------------------------------ | ---- | --------------------------------------------------------------------------------------------- | - | ------------------------------------------------------------------------------------------------------------------------- | - | ---------
|Period                                |  | (a) Total Number of Shares (orUnits) Purchased |  | (b) Average Price Paid per Share (or Unit) |      | (c) Total Number of Shares (or Units)Purchased as Part of Publicly AnnouncedPlans or Programs |   | (d) Maximum Number (orApproximate Dollar Value) ofShares (or Units) that May YetBe
Purchased Under the Plansor Programs)*
|Four-week period ended April 23, 2006 |  |                                               |  | $                                          |     |                                                                                               |  |                                                                                                                           | $ | 1,219,937
|Four-week period ended May 21, 2006   |  | 10,156                                         |  |                                            | 6.20 |                                                                                               |  |                                                                                                                           |   | 1,089,944
|Five-week period ended June 25, 2006  |  | 1,125                                          |  |                                            | 4.73 |                                                                                               |  |                                                                                                                           |   | 1,079,944
|                                      |  |                                                |  |                                            |      |                                                                                               |   |                                                                                                                           |   |          
|Total                                 |  | 11,281                                         |  | $                                          | 6.05 |                                                                                               |  |                                                                                                                           |   |          

---

|* | The dollar figure indicates the total amount of shares that we have the option, but not the obligation, to purchase under the program.
|- | --------------------------------------------------------------------------------------------------------------------------------------

Item 3. Defaults upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

At our Annual Meeting of Shareholders held on
June 14, 2006, our shareholders voted on the following matters:

(1) Election of three Class I directors to serve a three-year term.
The nominated directors were elected as follows:



|                 |  |            |  |          
|---------------- |  | ---------- |  | ---------
|Director-Nominee |  | For        |  | Withhold 
|Fritzi G. Woods  |  | 17,826,352 |  | 59,826   
|James T. Stamas  |  | 14,772,280 |  | 3,113,898
|John P. Whaley   |  | 17,835,869 |  | 50,309   

(2) Approval of the BUCA, Inc. 2006 Omnibus Stock Plan. The proposal was approved as follows:



|           |  |           |  |         |  |                
|---------- |  | --------- |  | ------- |  | ---------------
|For        |  | Against   |  | Abstain |  | Broker Non-Vote
|11,017,590 |  | 4,032,352 |  | 14,838  |  | 2,821,398      



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##### Table of Contents

Item 5. Other Information

None

Item 6. Exhibits

Exhibits



|            |  |                                                                                                                                                                               |  |                          
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------
|Exhibit No. |  | Description                                                                                                                                                                   |  | Method of Filing         
|3.1         |  | Amended and Restated Articles of Incorporation of the Registrant (1)                                                                                                          |  | Incorporated By Reference
|            |  |                                                                                                                                                                              
|3.2         |  | Amended and Restated Bylaws of the Registrant (2)                                                                                                                             |  | Incorporated By Reference
|            |  |                                                                                                                                                                              
|3.3         |  | Articles of Amendment of Amended and Restated Articles of Incorporation of the Registrant (3)                                                                                 |  | Incorporated By Reference
|            |  |                                                                                                                                                                              
|4.1         |  | Specimen of Common Stock Certificate (4)                                                                                                                                      |  | Incorporated By Reference
|            |  |                                                                                                                                                                              
|10.1        |  | Amended Employee Stock Purchase Plan                                                                                                                                          |  | Filed Electronically     
|            |  |                                                                                                                                                                              
|31.1        |  | Certification by Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                        |  | Filed Electronically     
|            |  |                                                                                                                                                                              
|31.2        |  | Certification by Principal Financial and Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                         |  | Filed Electronically     
|            |  |                                                                                                                                                                              
|32.1        |  | Certification by Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  | Filed Electronically     

---

|(1) | Incorporated by reference to Exhibit 3.4 to Amendment No. 1 to the Registrants Registration Statement on Form S-1 (Registration No. 333-72593), filed with the
Commission on March 24, 1999.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Incorporated by reference to Exhibit 3.5 to Amendment No. 1 to the Registrants Registration Statement on Form S-1 (Registration No. 333-72593), filed with the
Commission on March 24, 1999.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Incorporated by reference to Exhibit 4.3 to the Registrants Registration Statement on Form S-3 (Registration No. 113737), filed with the Commission on March 19,
2004.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the Registrants Registration Statement on Form S-1 (Registration No. 333-72593), filed with the
Commission on March 24, 1999.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                     |  |     |  |                         |  |                                                                                                
|-------------------- |  | --- |  | ----------------------- |  | -----------------------------------------------------------------------------------------------
|                     |  |     |  | BUCA, Inc. (Registrant)
|                     |  |    
|Date: August 4, 2006 |  | by: |  | /s/ Wallace B. Doolin  
|                     |  |     |  |                         |  | Wallace B. Doolin Chairman, President and Chief Executive Officer (Principal Executive Officer)
|                     |  |     | 
|                     |  |     |  | by:                     |  | /s/ Kaye R. OLeary                                                                            
|                     |  |     |  |                         |  | Kaye R. OLeary Chief Financial Officer (Principal Financial Officer)                          
|                     |  |     | 
|                     |  |     |  | by:                     |  | /s/ Dennis J. Goetz                                                                            
|                     |  |     |  |                         |  | Dennis J. Goetz Chief Accounting Officer (Principal Accounting Officer)                        



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EXHIBIT INDEX



|            |  |                                                                                                                                                                               |  |                          
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------
|Exhibit No. |  | Description                                                                                                                                                                   |  | Method of Filing         
|3.1         |  | Amended and Restated Articles of Incorporation of the Registrant (1)                                                                                                          |  | Incorporated By Reference
|            |  |                                                                                                                                                                              
|3.2         |  | Amended and Restated Bylaws of the Registrant (2)                                                                                                                             |  | Incorporated By Reference
|            |  |                                                                                                                                                                              
|3.3         |  | Articles of Amendment of Amended and Restated Articles of Incorporation of the Registrant (3)                                                                                 |  | Incorporated By Reference
|            |  |                                                                                                                                                                              
|4.1         |  | Specimen of Common Stock Certificate (4)                                                                                                                                      |  | Incorporated By Reference
|            |  |                                                                                                                                                                              
|10.1        |  | Amended Employee Stock Purchase Plan                                                                                                                                          |  | Filed Electronically     
|            |  |                                                                                                                                                                              
|31.1        |  | Certification by Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                        |  | Filed Electronically     
|            |  |                                                                                                                                                                              
|31.2        |  | Certification by Principal Financial and Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                         |  | Filed Electronically     
|            |  |                                                                                                                                                                              
|32.1        |  | Certification by Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  | Filed Electronically     

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|(1) | Incorporated by reference to Exhibit 3.4 to Amendment No. 1 to the Registrants Registration Statement on Form S-1 (Registration No. 333-72593), filed with the
Commission on March 24, 1999.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Incorporated by reference to Exhibit 3.5 to Amendment No. 1 to the Registrants Registration Statement on Form S-1 (Registration No. 333-72593), filed with the
Commission on March 24, 1999.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Incorporated by reference to Exhibit 4.3 to the Registrants Registration Statement on Form S-3 (Registration No. 113737), filed with the Commission on March 19,
2004.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the Registrants Registration Statement on Form S-1 (Registration No. 333-72593), filed with the
Commission on March 24, 1999.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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