##### **UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

#### **FORM10-Q**

**(Mark one)**
| **x**      | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|------------|------------|-----------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                    |
| ** ** | ** ** | **For the quarterly period ended March 31, 2007**                                             |
| ** ** | ** ** | ** **                                                                                    |
| ** ** | ** ** | **OR**                                                                                        |
| ** ** | ** ** | ** **                                                                                    |
| **o**      | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**CommissionFile No. 0-23911**

**Fog Cutter Capital Group Inc.**

(Exact name ofregistrant as specified in its charter)

 
| **Maryland**                                                     | ** ** | **52-2081138**                          |
|------------------------------------------------------------------|------------|-----------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) |       | (I.R.S. Employer    Identification No.) |

 

**1410 SW Jefferson Street**

**Portland, OR  97201**

(Address ofprincipal executive offices) (Zip Code)

**(503) 721-6500**

** **(Registrant’s telephonenumber, including area code)

Indicateby check mark whether the registrant: (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports) and (2) has been subject to such filingrequirements for the past 90 days.             Yesx  Noo

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” inRule 12b-2 of the Exchange Act.  (Checkone):

Large accelerated filer o             Accelerated filer o             Non-accelerated filer x

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).                Yeso  Nox

**APPLICABLEONLY TO CORPORATE ISSUERS:**

Indicate the number of shares outstanding of each ofthe issuer’s classes of common stock, as of the latest practicable date.
| **Class**                                  | ** ** | **Outstanding  at April 30, 2007** |
|--------------------------------------------|------------|------------------------------------|
| Common Stock,  par value $0.0001 per share |       | 7,957,428 shares                   |

 

 

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FOGCUTTER CAPITAL GROUP INC.

FORM 10-Q

INDEX
| **PART I–FINANCIAL  INFORMATION** |   |                                                                                        |
|----------------------------------------|--------|---------------------------------------------------------------------------------------------|
|                                   |   |                                                                                        |
| Item 1.                                |   | Interim  Consolidated Financial Statements (Unaudited):                                     |   |   |
|                                   |   |                                                                                        |   |   |
|                                   |   | Consolidated  Statements of Financial Condition                                             |   |   |
|                                   |   |                                                                                        |   |   |
|                                   |   | Consolidated  Statements of Operations                                                      |   |   |
|                                   |   |                                                                                        |   |   |
|                                   |   | Consolidated  Statement of Stockholders’ Equity                                        |   |   |
|                                   |   |                                                                                        |   |   |
|                                   |   | Consolidated  Statements of Cash Flows                                                      |   |   |
|                                   |   |                                                                                        |   |   |
|                                   |   | Notes to Consolidated  Financial Statements                                                 |   |   |
|                                   |   |                                                                                        |   |   |
| Item 2.                                |   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |   |   |
|                                   |   |                                                                                        |   |   |
| Item 3.                                |   | Quantitative  and Qualitative Disclosures about Market Risk                                 |   |   |
|                                   |   |                                                                                        |   |   |
| Item 4.                                |   | Controls and  Procedures                                                                    |   |   |
|                                   |   |                                                                                        |   |   |
| **PART II–OTHER INFORMATION**     |   |                                                                                        |
|                                   |   |                                                                                        |   |   |
| Item 1.                                |   | Legal Proceedings                                                                           |   |   |
|                                   |   |                                                                                        |   |   |
| Item  1A.                              |   | Risk  Factors                                                                               |   |   |
|                                   |   |                                                                                        |   |   |
| Item 2.                                |   | Unregistered  Sales of Equity Securities and Use of Proceeds                                |   |   |
|                                   |   |                                                                                        |   |   |
| Item 3.                                |   | Defaults Upon  Senior Securities                                                            |   |   |
|                                   |   |                                                                                        |   |   |
| Item 4.                                |   | Submission of  Matters to a Vote of Security Holders                                        |   |   |
|                                   |   |                                                                                        |   |   |
| Item 5.                                |   | Other Information                                                                           |   |   |
|                                   |   |                                                                                        |   |   |
| Item 6.                                |   | Exhibits                                                                                    |   |   |
|                                   |   |                                                                                        |   |   |
| Signatures                             |   |                                                                                        |   |   |

 

Available information

Our website is www.fogcutter.com.  We make our annual report on Form 10-K, aswell as other reports filed with the Securities and Exchange Commission,available through our website as soon as reasonably practicable after they arefiled.  A copy of these reports may alsobe obtained by writing to us at 1410 SW Jefferson Street, Portland, Oregon,97201, Attn:  Investor Reporting.

2

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**PARTI – FINANCIAL INFORMATION**

## **ITEM1.  INTERIM CONSOLIDATED FINANCIALSTATEMENTS (Unaudited)**

FOG CUTTER CAPITAL GROUPINC.

CONSOLIDATEDSTATEMENTS OF FINANCIAL CONDITION

*(dollarsin thousands, except share data)*

 
| ** **                                                                                                                                                                                                     | ** ** | **March 31,  2007  (unaudited)** | ** ** | **December 31,  2006** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|-----------------------------|------------|
| Assets                                                                                                                                                                                                         |       |                                  |       |                        |       |
| Current Assets:                                                                                                                                                                                                |       |                                  |       |                        |       |
| Cash and cash  equivalents                                                                                                                                                                                     |       | $                                     | 1,619      |                        | $          | 1,824 |   |
| Accounts  receivable                                                                                                                                                                                           |       | 1,554                                 |       | 1,586                       |       |
| Notes  receivable, current portion                                                                                                                                                                             |       | 464                                   |       | 464                         |       |
| Loans to senior  executives                                                                                                                                                                                    |       | 1,094                                 |       | 1,077                       |       |
| Inventories                                                                                                                                                                                                    |       | 2,687                                 |       | 2,442                       |       |
| Investments in  real estate, held for sale, net                                                                                                                                                                |       | 11,250                                |       | 11,062                      |       |
| Current assets  held for sale                                                                                                                                                                                  |       | —                                |       | 27                          |       |
| Other current  assets                                                                                                                                                                                          |       | 1,205                                 |       | 1,243                       |       |
| Total current  assets                                                                                                                                                                                          |       | 19,873                                |       | 19,725                      |       |
|                                                                                                                                                                                                           |       |                                  |       |                        |       |
| Investments in  real estate, net                                                                                                                                                                               |       | 11,460                                |       | 11,502                      |       |
| Notes receivable                                                                                                                                                                                               |       | 365                                   |       | 371                         |       |
| Property, plant  and equipment, net                                                                                                                                                                            |       | 10,297                                |       | 10,576                      |       |
| Intangible  assets, net                                                                                                                                                                                        |       | 5,193                                 |       | 5,262                       |       |
| Goodwill                                                                                                                                                                                                       |       | 10,526                                |       | 10,526                      |       |
| Other assets  held for sale                                                                                                                                                                                    |       | —                                |       | 385                         |       |
| Other assets                                                                                                                                                                                                   |       | 1,359                                 |       | 1,453                       |       |
| Total assets                                                                                                                                                                                                   |       | $                                     | 59,073     |                        | $          | 59,800 |   |
|                                                                                                                                                                                                           |       |                                  |       |                        |       |
| Liabilities and  Stockholders’ Equity                                                                                                                                                                     |       |                                  |       |                        |       |
| Liabilities:                                                                                                                                                                                                   |       |                                  |       |                        |       |
| Accounts payable  and accrued liabilities                                                                                                                                                                      |       | $                                     | 13,457     |                        | $          | 11,762 |   |
| Current  liabilities associated with assets held for sale                                                                                                                                                      |       | —                                |       | 441                         |       |
| Borrowings and  notes payable, current portion                                                                                                                                                                 |       | 14,410                                |       | 13,453                      |       |
| Obligations  under capital leases, current portion                                                                                                                                                             |       | 578                                   |       | 608                         |       |
| Total current  liabilities                                                                                                                                                                                     |       | 28,445                                |       | 26,264                      |       |
|                                                                                                                                                                                                           |       |                                  |       |                        |       |
| Borrowings and  notes payable                                                                                                                                                                                  |       | 2,435                                 |       | 2,400                       |       |
| Obligations  under capital leases                                                                                                                                                                              |       | 11,832                                |       | 11,883                      |       |
| Deferred income                                                                                                                                                                                                |       | 4,536                                 |       | 4,061                       |       |
| Deferred income  taxes                                                                                                                                                                                         |       | 4,390                                 |       | 4,397                       |       |
| Total liabilities                                                                                                                                                                                              |       | 51,638                                |       | 49,005                      |       |
|                                                                                                                                                                                                           |       |                                  |       |                        |       |
| Commitments and  contingencies                                                                                                                                                                                 |       |                                  |       |                        |       |
| Minority  interests in consolidated subsidiaries                                                                                                                                                               |       | 436                                   |       | 441                         |       |
| Minority  interests in consolidated subsidiaries held for sale                                                                                                                                                 |       | —                                |       | 130                         |       |
|                                                                                                                                                                                                           |       |                                  |       |                        |       |
| Stockholders’ Equity:                                                                                                                                                                                     |       |                                  |       |                        |       |
| Preferred stock,  $.0001 par value; 25,000,000 shares authorized; no shares issued and  outstanding                                                                                                            |       | —                                |       | —                      |       |
| Common stock,  $.0001 par value; 200,000,000 shares authorized; 11,757,073 shares issued as  of March 31, 2007 and December 31, 2006; 7,957,428 shares outstanding as of  March 31, 2007 and December 31, 2006 |       | 169,391                               |       | 168,965                     |       |
| Accumulated  deficit                                                                                                                                                                                           |       | (150,383                              | )          | (146,732                    | )          |
| Treasury stock,  3,799,645 common shares as of March 31, 2007 and December 31, 2006, at cost                                                                                                                   |       | (12,009                               | )          | (12,009                     | )          |
| Total  stockholders’ equity                                                                                                                                                                               |       | 6,999                                 |       | 10,224                      |       |
| Total  liabilities and stockholders’ equity                                                                                                                                                               |       | $                                     | 59,073     |                        | $          | 59,800 |   |

 

The accompanying notesare an integral part of these consolidated financial statements.

3

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FOGCUTTER CAPITAL GROUP INC.CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)*(dollars in thousands, except share data)*

 
| ** **                                                                                             | ** ** | **Quarter Ended** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                                             | ** ** | **March 31,**     | ** ** |
| ** **                                                                                             | ** ** | **2007**               | ** ** | **2006** | ** ** |
| Revenue:                                                                                               |       |                   |       |   |   |
| Restaurant and manufacturing sales                                                                     |       | $                      | 9,919      |   | $ | 9,595 |   |
| Restaurant franchise and royalty fees                                                                  |       | 539                    |       | 637 |   |
| Real estate rental income                                                                              |       | 935                    |       | 1,067 |   |
| Total revenue                                                                                          |       | 11,393                 |       | 11,299 |   |
|                                                                                                   |       |                   |       |   |   |
| Operating costs  and expenses:                                                                         |       |                   |       |   |   |
| Restaurant and manufacturing cost of sales                                                             |       | 5,786                  |       | 5,330 |   |
| Real estate operating expense                                                                          |       | 387                    |       | 441 |   |
| Engineering and development                                                                            |       | 386                    |       | 410 |   |
| Depreciation and amortization                                                                          |       | 583                    |       | 428 |   |
| Total operating costs and expenses                                                                     |       | 7,142                  |       | 6,609 |   |
|                                                                                                   |       |                   |       |   |   |
| General and  administrative expenses:                                                                  |       |                   |       |   |   |
| Compensation and employee benefits                                                                     |       | 4,847                  |       | 2,585 |   |
| Professional fees                                                                                      |       | 674                    |       | 442 |   |
| Fees paid to related parties                                                                           |       | —                 |       | 160 |   |
| Other                                                                                                  |       | 4,205                  |       | 3,323 |   |
| Total general and administrative expenses                                                              |       | 9,726                  |       | 6,510 |   |
|                                                                                                   |       |                   |       |   |   |
| Non-operating  income (expense):                                                                       |       |                   |       |   |   |
| Gain on sale of real estate                                                                            |       | —                 |       | 505 |   |
| Gain on sale of notes receivable                                                                       |       | —                 |       | 496 |   |
| Interest income                                                                                        |       | 43                     |       | 79 |   |
| Interest expense                                                                                       |       | (859                   | )          | (500 | ) |
| Other income, net                                                                                      |       | 91                     |       | 233 |   |
| Total non-operating income (expense)                                                                   |       | (725                   | )          | 813 |   |
|                                                                                                   |       |                   |       |   |   |
| Loss before  provision for income taxes, minority interests, and equity in income of  equity investees |       | (6,200                 | )          | (1,007 | ) |
|                                                                                                   |       |                   |       |   |   |
| Minority  interest in earnings                                                                         |       | 35                     |       | 13 |   |
| Equity in loss  of equity investees                                                                    |       | —                 |       | (76 | ) |
|                                                                                                   |       |                   |       |   |   |
| Loss from  continuing operations                                                                       |       | (6,165                 | )          | (1,070 | ) |
|                                                                                                   |       |                   |       |   |   |
| Income from  discontinued operations (including gain on sale of $2,492)                                |       | 2,514                  |       | 82 |   |
|                                                                                                   |       |                   |       |   |   |
| Net loss                                                                                               |       | $                      | (3,651     | ) | $ | (988 | ) |
|                                                                                                   |       |                   |       |   |   |
| Basic loss per  share from continuing operations                                                       |       | $                      | (0.77      | ) | $ | (0.13 | ) |
| Basic earnings  per share from discontinued operations                                                 |       | $                      | 0.31       |   | $ | 0.01 |   |
| Basic loss per  share                                                                                  |       | $                      | (0.46      | ) | $ | (0.12 | ) |
| Basic weighted  average shares outstanding                                                             |       | 7,957,428              |       | 7,957,428 |   |
| Diluted loss per  share from continuing operations                                                     |       | $                      | (0.77      | ) | $ | (0.13 | ) |
| Diluted earnings  per share from discontinued operations                                               |       | $                      | 0.31       |   | $ | 0.01 |   |
| Diluted loss per  share                                                                                |       | $                      | (0.46      | ) | $ | (0.12 | ) |
| Diluted weighted  average shares outstanding                                                           |       | 7,957,428              |       | 7,957,428 |   |
|                                                                                                   |       |                   |       |   |   |
| Dividends declared per  share                                                                          |       | $                      | —     |   | $ | 0.13 |   |

 

The accompanying notesare an integral part of these consolidated financial statements.

4

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FOG CUTTER CAPITAL GROUPINC.

CONSOLIDATEDSTATEMENT OF STOCKHOLDERS’ EQUITY

(Unaudited)

*(dollarsin thousands, except share data)*
| ** **                          | ** ** | **Common Stock** | ** ** | **Treasury Stock** | ** ** | **Accumulated** | ** ** | ** ** | ** ** |
|-------------------------------------|------------|-----------------------|------------|-------------------------|------------|-----------------|------------|------------|------------|
| ** **                          | ** ** | **Shares **(1)   | ** ** | **Amount**              | ** ** | **Shares**      | ** ** | **Amount** | ** ** | **Deficit** | ** ** | **Total** | ** ** |
| Balance at  January 1, 2007         |       | 7,957,428             |       | $                       | 168,965    |            | 3,799,645  |       | $          | (12,009 | ) | $ | (146,732 | ) | $ | 10,224 |   |
| Comprehensive  income (loss):       |       |                  |       |                    |       |            |       |       |       |   |   |   |   |
| Net loss                            |       | —                |       | —                  |       | —          |       | —     |       | (3,651 | ) | (3,651 | ) |
| Stock options  expensed in net loss |       | —                |       | 426                     |       | —          |       | —     |       | — |   | 426 |   |
| Balance at March  31, 2007          |       | 7,957,428             |       | $                       | 169,391    |            | 3,799,645  |       | $          | (12,009 | ) | $ | (150,383 | ) | $ | 6,999 |   |

 

----

(1)Issued and outstanding

 

The accompanying notesare an integral part of these consolidated financial statements.

5

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FOGCUTTER CAPITAL GROUP INC. CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)*(dollars in thousands)*

 
| ** **                                                             | ** ** | **Quarter Ended** | ** ** |
|------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                             | ** ** | **March 31,**     | ** ** |
| ** **                                                             | ** ** | **2007**               | ** ** | **2006** | ** ** |
| **Cash flows from operating activities:**          | ** ** | ** **             | ** ** | ** ** | ** ** |
| Net loss                                                               |       | $                      | (3,651     | ) | $ | (988 | ) |
| Income from discontinued operations                                    |       | (2,514                 | )          | (82 | ) |
| Loss from continuing operations                                        |       | (6,165                 | )          | (1,070 | ) |
| Adjustments to reconcile net loss to net operating  cash flows:        |       |                   |       |   |   |
| Equity in loss of equity investees                                     |       | —                 |       | 76 |   |
| Depreciation and amortization                                          |       | 829                    |       | 587 |   |
| Gain on foreign currency                                               |       | (115                   | )          | (137 | ) |
| Gain on sale of notes receivable and other assets                      |       | —                 |       | (496 | ) |
| Gain on sale of real estate                                            |       | —                 |       | (505 | ) |
| Share based compensation                                               |       | 426                    |       | 57 |   |
| Other                                                                  |       | 5                      |       | 11 |   |
| Change in:                                                             |       |                   |       |   |   |
| Other assets                                                           |       | (162                   | )          | (437 | ) |
| Deferred income                                                        |       | 475                    |       | (20 | ) |
| Deferred income taxes                                                  |       | (7                     | )          | (9 | ) |
| Accounts payable and accrued liabilities                               |       | 2,440                  |       | (536 | ) |
| Net cash used in operating activities                                  |       | (2,274                 | )          | (2,479 | ) |
|                                                                   |       |                   |       |   |   |
| Cash flows from  investing activities:                                 |       |                   |       |   |   |
| Proceeds from sale of real estate                                      |       | —                 |       | 3,486 |   |
| Proceeds from sale of notes receivable and other  assets               |       | —                 |       | 664 |   |
| Investment in real estate                                              |       | (118                   | )          | (905 | ) |
| Purchase of net assets of restaurant operations                        |       | —                 |       | (688 | ) |
| Investments in property, plant, and equipment                          |       | (1,336                 | )          | (351 | ) |
| Other                                                                  |       | (13                    | )          | (9 | ) |
| Net cash provided by (used in) investing activities                    |       | (1,467                 | )          | 2,197 |   |
|                                                                   |       |                   |       |   |   |
| Cash flows from  financing activities:                                 |       |                   |       |   |   |
| Proceeds from borrowings                                               |       | 1,064                  |       | 367 |   |
| Repayments on borrowings                                               |       | (123                   | )          | (275 | ) |
| Repayments under capital leases                                        |       | (80                    | )          | (137 | ) |
| Investments by minority interests, net                                 |       | 25                     |       | 97 |   |
| Dividend payments on common stock                                      |       | —                 |       | (1,034 | ) |
| Net cash provided by (used in) financing activities                    |       | 886                    |       | (982 | ) |
|                                                                   |       |                   |       |   |   |
| Effect of  exchange rate change on cash                                |       | —                 |       | 8 |   |
| Net change in  cash and cash equivalents from continuing operations    |       | (2,855                 | )          | (1,256 | ) |
|                                                                   |       |                   |       |   |   |
| Net change in  cash and cash equivalents from discontinued operations: |       |                   |       |   |   |
| Net cash used in operating activities                                  |       | (22                    | )          | (95 | ) |
| Net cash provided by investing activities                              |       | 2,925                  |       | — |   |
| Net cash used in financing activities                                  |       | (253                   | )          | (245 | ) |
| Net change in  cash and cash equivalents                               |       | (205                   | )          | (1,596 | ) |
| Cash and cash  equivalents at beginning of period                      |       | 1,824                  |       | 4,071 |   |
| Cash and cash  equivalents at end of period                            |       | $                      | 1,619      |   | $ | 2,475 |   |
|                                                                   |       |                   |       |   |   |
| Supplemental disclosures  of cash flow information:                    |       |                   |       |   |   |
| Cash paid for interest                                                 |       | $                      | 789        |   | $ | 512 |   |
| Cash paid for  income taxes                                            |       | $                      | 7          |   | $ | 9 |   |

 

The accompanying notesare an integral part of these consolidated financial statements.

6

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**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

**NOTE 1****-BASIS OF PRESENTATION AND ACCOUNTING POLICIES**

The accompanying interimconsolidated financial statements of Fog Cutter Capital Group Inc. andSubsidiaries (“FCCG” or the “Company”) are unaudited and have been prepared inconformity with the requirements of Regulation S-X promulgated under theSecurities Exchange Act of 1934, as amended (the “Exchange Act”), particularlyRule 10-01 thereof, which governs the presentation of interim financial statements.  Accordingly, they do not include all of theinformation and footnotes required by accounting principles generally acceptedin the United States for complete financial statements.  The accompanying interim consolidatedfinancial statements should be read in conjunction with the Company’s AnnualReport as of and for the year ended December 31, 2006 on Form 10-K (“2006 Form10-K”), as previously filed with the SEC on April 2, 2007.  Except as described below, there have been nochanges to the Company’s significant accounting policies as described in Note 2to the consolidated financial statements in its 2006 Form 10-K.

In the Company’s opinion,all adjustments, comprised of normal recurring accruals necessary for the fairpresentation of the interim financial statements, have been included in theaccompanying consolidated financial statements. Operating results for the three months ended March 31, 2007 are notnecessarily indicative of the results that may be expected for the year endingDecember 31, 2007.

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States requires the Company to make estimates andassumptions that affect the reported amounts of assets and liabilities anddisclosures of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period.  Actual results coulddiffer from those estimates.  The Company’soperations and activities are becoming more focused on restaurant and othermore typical commercial businesses, and less focused on finance and realestate.  As a result, certainreclassifications of the balances and modifications to the presentation of thefinancial statements have been made, including the reclassification of certaininvestments in real estate as held for sale. None of these changes in presentation affected previously reportedresults of operations.

At March 31, 2007,certain Company officers and directors had, directly or indirectly, majorityvoting control of the Company.

*Accounting for income taxes*

InJune 2006, the Financial Accounting Standards Board (“FASB”) issued FASBInterpretation No. 48 (“FIN 48”), clarifying the manner in whichenterprises account for uncertainty in income taxes recognized in an enterprise’sfinancial statements.  The interpretationprescribes a recognition threshold and measurement attribute for the financialstatement recognition and measurement of a tax position taken or expected to betaken in a tax return.  The Companyadopted FIN 48 on January 1, 2007 with no material effect to the Company’sconsolidated financial statements.

**NOTE 2****-RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS**

In the Company’s 2006 Form10-K, the Company restated its consolidated statement of financial condition asof December 31, 2005 and the related consolidated statements of operations,stockholders’ equity, and cash flows for each of the fiscal years endedDecember 31, 2005 and 2004 as a result of a change in the method of accountingto correct an error in accounting for certain capital leases and the correctionof certain timing errors in the recognition of sales.  The restatement is more fully described in *Note 3 – Restatement of Consolidated Financial Statements* tothe Consolidated Financial Statements and in *Item 7 –Management’s Discussion and Analysis of Financial Condition and Results ofOperations* of the 2006 Form 10-K. Financial information included in the reports on Form 10-K, Form 10-Q,and Form 8-K filed by the Company between April 1, 2004 and December 31, 2006,and the related opinions of its independent registered public accounting firm,and all earnings press releases and similar communications issued by theCompany during that period, are superseded in their entirety by the 2006 Form10-K.

**NOTE 3****-SIGNIFICANT TRANSACTIONS**

The following significantevents affected our operations for the three months ended March 31, 2007:

*Restaurant openings*

During the three monthsended March 31, 2007, Fatburger Holdings Inc. (“Fatburger”), the Company’srestaurant operations subsidiary, opened one additional franchise location.

*Discontinued operations*

On February 28, 2007, FogCap Commercial Lending Inc., a wholly owned subsidiary of the Company, sold its51% interest in George Elkins Mortgage Banking Company (“George Elkins”).  The Company received $2.9 million for itsportion of the proceeds and recorded a gain on sale of $2.5 million.

7

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*Borrowings on notes payable*

In January 2007, theCompany borrowed an additional $1.1 million on a note payable that had abalance of $2.1 million at December 31, 2006. The amended note has a balance of $3.2 million and is secured primarilyby the Company’s interest in its wholly owned subsidiary, DAC International (“DAC”).  The terms of the amended note were notsignificantly different from the terms at December 31, 2006.

**NOTE 4 – COMMITMENTS, CONTINGENCIES &OFF-BALANCE SHEET RISK**

*Warlick complaints*

On October 16, 2006,Fatburger Holdings, Inc., Fatburger Corporation and Fatburger North America,Inc. filed suit against Keith A. Warlick (“Warlick”) the former Chief ExecutiveOfficer of Fatburger Holdings, Inc. and Fatburger Corporation.  Warlick’s employment with Fatburger wasterminated on September 21, 2006 by resolution of the board of directors ofFatburger Holdings, Inc.  The Fatburgercompanies initiated the lawsuit to recover damages from Warlick arising fromwrongful acts and conduct during and after his employment, and are assertingclaims for:  breach of contract, breachof duty of loyalty, breach of fiduciary duty, conversion – embezzlement;fraud/commencement; intentional interference with contractual relations, andequitable indemnity.  Warlick filed ananswer to the lawsuit denying the allegations and included a cross-complaintagainst Fatburger Holdings, Inc., Fatburger Corporation, Fatburger NorthAmerica, Inc., Fog Cutter Capital Group, Inc., and Andrew Wiederhorn, forbreach of contract, employment discrimination based on race and retaliation,wrongful termination and defamation — slander without any specification ofdamages.   The defendants to the cross-complaintfiled by Warlick dispute the allegations of the cross-complaint and intend tovigorously defend against the cross-complaint.

In further response tothe termination of his employment and above lawsuit, on February 6, 2007,Warlick, his wife, and a limited liability company controlled by Warlick, eachof whom is a minority shareholder of Fatburger Holdings, Inc., filed a secondlawsuit against various Fatburger entities, the Company, Andrew Wiederhorn, andmembers of the Fatburger board of directors. The complaint alleges fraud, negligent misrepresentation againstWiederhorn and the Company, and breach of contract and breach of fiduciary dutyagainst all the defendants, related to business transactions which theplaintiff’s allege were not in the best interests of Fatburger Holdings, Inc.,or the plaintiff minority shareholders. The defendants dispute the allegations of the lawsuit and intend tovigorously defend against the claims.

*Liquidity*

As of March 31,2007, borrowings related to the Barcelona properties of $0.9 million were reflectedas current liabilities in the accompanying Consolidated Statements of FinancialCondition due to management’s intention to sell these properties and repay therelated debt at the time of sale.

As of March 31,2007, Fatburger was not in compliance with all obligations under the agreementsevidencing its indebtedness, as defined in the applicable agreements.  Fatburger failed to meet the prescribed fixedcharge coverage ratio and the prescribed debt-coverage ratio for three notespayable.  As a result, the lender has theright to demand repayment of the notes after serving notice.  As such, in the accompanying ConsolidatedStatements of Financial Condition, approximately $4.1 million of long-term debthas been classified as current liabilities. The lender has not demanded early repayment of the loans; however, ifthe lender exercises its right to demand payment, the Company’s liquidity couldbe negatively affected.

The sale of realestate and other investments is considered to be a normal, recurring part ofoperations and management expects these transactions to generate adequate cashflow to meet the Company’s liquidity needs for the 2007 fiscal year.

*Dividends*

The Company doesnot have a fixed dividend policy, and may declare and pay new dividends oncommon stock, subject to financial condition, results of operations, capitalrequirements and other factors deemed relevant by the Board of Directors.  One factor the Board of Directors mayconsider is the impact of dividends on the Company’s liquidity.  No dividends have been declared or paid in2007.

*Fatburger operations*

The Company expects that Fatburger will require capital resourcesand have negative cash flow in the near term while it pursues a growth strategythrough developing additional franchisee and company-owned restaurants.  Fatburger development involves substantialrisks that the Company intends to manage; however, it cannot be assured thatpresent or future development will perform in accordance with the Company’sexpectations or that any restaurants will generate the Company’s expectedreturns on investment.  The Company’sinability to expand Fatburger in accordance with planned expansion or to managethat growth could have a material adverse effect on the Company’s operationsand financial condition.  In addition, ifFatburger or its franchisees are unsuccessful in obtaining capital sufficientto fund this expansion, the timing of restaurant openings may be delayed andFatburger’s results may be harmed.

*Centrisoftoperations*

8

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The Company expects thatCentrisoft Corporation (“Centrisoft”) will require capital resources and havenegative cash flow in the near term. Since Centrisoft is in the early stages of its marketing, there can beno assurance that it will be successful in attracting a significant customerbase.  Centrisoft is currently marketingits software to potential customers both directly and through re-seller relationships.  There can be no assurance that Centrisoftwill be successful in generating sufficient cash flow to support its ownoperations in the near term.

*Other*

In order tofacilitate the development of franchise locations, as of March 31, 2007, Fatburgerhad guaranteed the annual minimum lease payments of four restaurant sites ownedand operated by franchisees.  Theguarantees approximate $1.1 million plus certain contingent rental payments asdefined in the respective leases.  Theseleases expire at various times through 2015.

The Company may utilize awide variety of off-balance sheet financial techniques to manage risk.  In hedging the interest rate and/or exchangerate exposure of a foreign currency denominated asset or liability, the Companymay enter into hedge transactions to counter movements in interest rates andforeign currencies.  These hedges may bein the form of currency and interest rate swaps, options, and forwards, orcombinations thereof.  In December 2006,the Company purchased 64 American-style options to sell up to 62,500 euro each,(for a total of 4.0 million euros) at $1.31 per euro, any time before June 30,2007.  These options are carried at fairmarket value on the Consolidated Statements of Financial Condition at March 31,2007 and December 31, 2006.

There were noother off-balance sheet arrangements in place as of March 31, 2007.

**NOTE 5 –STOCK OPTIONS AND RIGHTS**

The Company has anon-qualified stock option plan (the “Option Plan”) which provides for optionsto purchase shares of the Company’s common stock.  The maximum number of shares of common stockthat may be issued pursuant to options granted under the Option Plan is3,500,000 shares.  Each independentdirector receives, on the last day of each quarter, an automatic non-statutoryoption grant to purchase 1,500 shares of common stock at 110% of the fairmarket value on that day.  Automaticgrants will vest one third on each of the first three anniversaries of thegrant date and expire on the tenth anniversary of the grant date.  In addition to the 4,500 options granted toindependent directors, during the three months ended March 31, 2007, theCompany granted to certain Managers of the Company (as defined by the OptionPlan) options to purchase a total of 75,000 shares of common stock at 110% ofthe fair market value on the grant date. These grants will vest one third on each of the first threeanniversaries of the grant date and expire on the tenth anniversary of thegrant date.

There were no optionsgranted with exercise prices below the market value of the stock at the grantdate.  Fair values for 2007 wereestimated using the Black-Scholes option-pricing model with the followingweighted average assumptions used: 0% dividend yield, expected volatility of 76%,risk-free interest rate of 5.0% and expected lives of five years.

A summary of our stockoptions activity for the three months ended March 31, 2007 is presented below:
|                                 | ** ** | **Shares** | ** ** | **Weighted Average  Exercise  Price** | ** ** |
|---------------------------------|------------|------------|------------|--------------------------------------------|------------|
| Outstanding at  January 1, 2007 |       | 2,762,000  |       | $                                          | 1.45       |   |
| Granted                         |       | 79,500     |       | $                                          | 2.07       |   |
| Exercised                       |       | —     |       | $                                          | —     |   |
| Cancelled/forfeited             |       | —     |       | $                                          | —     |   |
| Outstanding at March  31, 2007  |       | 2,841,500  |       | $                                          | 1.46       |   |

 

A summary of our stockoptions outstanding as of March 31, 2007 is presented below:
| Range of  Exercise Prices | ** ** | **Shares** | ** ** | **Weighted Average  Remaining  Life** | ** ** | **Weighted Average  Exercise  Price** | ** ** |
|-------------------------------------|------------|------------|------------|--------------------------------------------|------------|--------------------------------------------|------------|
| $1.00 – 2.00                   |       | 2,616,000  |       | 9.7                                        |       | $                                          | 1.32       |   |
| $2.01 – 4.00                   |       | 162,000    |       | 9.5                                        |       | $                                          | 2.55       |   |
| $4.01 – 8.00                   |       | 63,500     |       | 7.3                                        |       | $                                          | 4.46       |   |
| Total                               |       | 2,841,500  |       | 9.7                                        |       | $                                          | 1.46       |   |

 

**NOTE 6 – VARIABLE INTERESTENTITIES**

9

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As of March 31, 2007, theCompany has funded loans totaling $10.1 million to two related Spanish entitiesformed to purchase, reposition and sell apartment buildings in Barcelona,Spain.  Under the terms of the loans, theinvestments meet the definition of a Variable Interest Entity (“VIE”) underFASB Interpretation No. 46 (“FIN 46”) and the Company is the primarybeneficiary of the VIE.  As a result, theassets, liabilities, and results of operations of the VIE have beenconsolidated into the accompanying consolidated financial statements as of March31, 2007.

The VIE currently ownstwo apartment buildings, consisting of 33 residential units with a book valueof approximately $10.9 million, including capital improvements and carryingcosts.  The two properties met the criteria to be classified as “held for sale” and wereclassified as such on the Statement of Financial Condition at March 31, 2007.  In December 2006, the VIE entered intoan agreement to sell one of the two buildings for a sales price ofapproximately $8.6 million.  Assets and liabilities of the VIE included inthe accompanying consolidated statements of financial condition are summarizedas follows:
| Investment in real estate,  held for sale, net                                    |   | $       | 10,885,000 |   |
|-----------------------------------------------------------------------------------|--------|---------|------------|--------|
| Other assets                                                                      |   | 33,000  |       |
| Borrowings and  notes payable (included in current liabilities at March 31, 2007) |   | 935,000 |       |
| Accrued expenses  and other liabilities                                           |   | 714,000 |       |
| Minority interest                                                                 |   | 367,000 |       |

 

**NOTE 7 – LOANS TO SENIOR EXECUTIVES**

Prior to the passage ofthe Sarbanes-Oxley Act of 2002, the Company’s employment agreement with itsChief Executive Officer, Andrew Wiederhorn, allowed him to borrow a specifiedmaximum amount from the Company to purchase shares of common stock.  The loans are full recourse to the borrowerand bear interest at the prime rate.  Thetotal amount of loans receivable from Mr. Wiederhorn, including compoundedinterest, was $1.1 million at March 31, 2007. The loans matured on February 21, 2007. The Company has not extended the maturity date of the loans or amendedany other terms.  The Company and Mr.Wiederhorn are cooperating in completing the repayment of the loans in full.

**NOTE 8 – INVENTORIES**

Inventories relateprimarily to the DAC International subsidiary and consist of the following:
|                   | ** ** | **March 31,   2007**       | ** ** | **December 31,   2006** | ** ** |
|-------------------|------------|--------------------------------------|------------|-----------------------------------|------------|
| ** **        | ** ** | **(dollars in thousands)** | ** ** |
| ** **        | ** ** | ** **                           | ** ** | ** **                        | ** ** |
| Raw materials     |       | $                                    | 1,229      |                              | $          | 1,703 |   |
| Work in progress  |       | 826                                  |       | 138                               |       |
| Finished goods    |       | 632                                  |       | 601                               |       |
| Total inventories |       | $                                    | 2,687      |                              | $          | 2,442 |   |

 

**NOTE 9 – OPERATING SEGMENTS**

Operating segmentsconsist of (i) restaurant operations conducted through Fatburger, (ii)manufacturing activities conducted through DAC International, (iii) real estateand financing activities, and (iv) software development and sales conductedthrough Centrisoft Corporation.  Eachsegment operates with its own management and personnel.  Beginning in the fourth quarter of 2006, theCompany began allocating certain corporate expenses to Fatburger through amanagement fee.  This management fee isreflective of management’s increased involvement in the restaurantoperations.  The Company began chargingthis fee to more closely represent the true costs of restaurant operations inthe appropriate segment reporting.  Themanagement fee is eliminated upon consolidation.  The following is a summary of each of theoperating segments:

*Restaurant operations*

As of March 31, 2007, the Company owned approximately 82%of the voting control of Fatburger, which operates or franchises 87 hamburgerrestaurants located primarily in California and Nevada.  Franchisees currently own and operate 52 ofthe Fatburger locations.  One new franchiserestaurant was opened during the three months ended March 31, 2007.

10

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|                                           | ** ** | **Three months ended March 31,** | ** ** |
|-------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **                                | ** ** | **(dollars in thousands)**                 | ** ** |
| ** **                                | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Company-owned  restaurant sales           |       | $                                                    | 7,602      |   | $ | 6,285 | ** ** |
| Royalty revenue                           |       | 519                                                  |       | 564 | ** ** |
| Franchise fee  revenue                    |       | 20                                                   |       | 74 | ** ** |
| Total revenue                             |       | 8,141                                                |       | 6,923 | ** ** |
|                                      |       |                                                 |       |   | ** ** |
| Cost of sales                             |       | (4,411                                               | )          | (3,658 | **)** |
| Depreciation and  amortization            |       | (534                                                 | )          | (356 | **)** |
| Other general  & administrative costs |       | (3,888                                               | )          | (3,074 | **)** |
| Interest expense                          |       | (214                                                 | )          | (255 | **)** |
| Management  allocation                    |       | (535                                                 | )          | — | ** ** |
| Minority  interest in losses              |       | 35                                                   |       | 13 | ** ** |
| Segment loss                              |       | $                                                    | (1,406     | ) | $ | (407 | **)** |
|                                      |       |                                                 |       |   | ** ** |
| Capital  expenditures                     |       | $                                                    | 244        |   | $ | 261 | ** ** |
| Segment assets                            |       | $                                                    | 22,219     |   | $ | 19,994 | ** ** |
| Minority interests                        |       | $                                                    | 68         |   | $ | 174 | ** ** |

 

 

*Manufacturing operations*

The Company conductsmanufacturing activities through its wholly-owned subsidiary, DACInternational.  DAC is a supplier ofcomputer controlled lathes and milling machinery for the production of eyeglass,contact, and intraocular lenses.
|                                           | ** ** | **Three months ended March 31,** | ** ** |
|-------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **                                | ** ** | **(dollars in thousands)**                 | ** ** |
| ** **                                | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Manufacturing  sales                      |       | $                                                    | 2,313      |   | $ | 3,293 |   |
| Cost of sales                             |       | (1,376                                               | )          | (1,672 | ) |
| Engineering and  development              |       | (235                                                 | )          | (230 | ) |
| Depreciation and  amortization            |       | (24                                                  | )          | (8 | ) |
| Other general  & administrative costs |       | (622                                                 | )          | (377 | ) |
| Interest expense                          |       | (3                                                   | )          | (6 | ) |
| Other  non-operating income               |       | 14                                                   |       | 1 |   |
| Segment income                            |       | $                                                    | 67         |   | $ | 1,001 |   |
|                                      |       |                                                 |       |   |   |
| Capital  expenditures                     |       | $                                                    | 45         |   | $ | 38 |   |
| Segment assets                            |       | $                                                    | 5,480      |   | $ | 4,791 |   |

 

*Real estate and financing operations*

The Company owns various interests in real estate and notesreceivable.  At March 31, 2007, realestate is comprised of ownership or leasehold interests in 74 freestandingretail buildings located throughout the United States and two apartment buildingslocated in Barcelona, Spain.  At March 31,2007, notes receivable have a carrying value of $0.8 million and are primarilysecured by real estate.
|                                           | ** ** | **Three months ended March 31,** | ** ** |
|-------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **                                | ** ** | **(dollars in thousands)**                 | ** ** |
| ** **                                | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Rental income                             |       | $                                                    | 935        |   | $ | 1,066 |   |
| Operating  expenses                       |       | (387                                                 | )          | (441 | ) |
| Depreciation and  amortization            |       | (110                                                 | )          | (138 | ) |
| Other general  & administrative costs |       | (50                                                  | )          | (241 | ) |
| Interest income                           |       | 43                                                   |       | 79 |   |
| Interest expense                          |       | (628                                                 | )          | (256 | ) |
| Other  non-operating income               |       | 77                                                   |       | 1,234 |   |
| Equity in loss  of equity investees       |       | —                                               |       | (76 | ) |
| Segment income  (loss)                    |       | $                                                    | (120       | ) | $ | 1,227 |   |
|                                      |       |                                                 |       |   |   |
| Capital  expenditures                     |       | $                                                    | —     |   | $ | 828 |   |
| Segment assets                            |       | $                                                    | 27,840     |   | $ | 32,668 |   |
| Investment in  equity investees           |       | $                                                    | —     |   | $ | 738 |   |
| Minority  interests                       |       | $                                                    | 367        |   | $ | 333 |   |

 

11

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Other non-operating income for the three months ended March 31, 2007 isprimarily composed of foreign currency gains of $0.1 million, compared to gainon sale of real estate ($0.5 million), gain on sale of notes receivable ($0.5million), foreign currency gains ($0.1 million), and commission and othernon-operating revenue ($0.1 million) for the three months ended March 31, 2006.

*Software development and sales operations*

The Company holds a 79% ownership interest in Centrisoft, whichconducts software development and sales activities.  Centrisoft develops and sells software thatcontrols and enhances the productivity of enterprise networks and providesfirst level security against unauthorized applications and users.
|                                           | ** ** | **Three months ended March 31,** | ** ** |
|-------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **                                | ** ** | **(dollars in thousands)**                 | ** ** |
| ** **                                | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Software sales                            |       | $                                                    | 4          |   | $ | 17 |   |
| Engineering and  development              |       | (151                                                 | )          | (180 | ) |
| Depreciation and  amortization            |       | (112                                                 | )          | (79 | ) |
| Other general  & administrative costs |       | (221                                                 | )          | (436 | ) |
| Interest expense                          |       | (268                                                 | )          | (164 | ) |
| Segment loss                              |       | $                                                    | (748       | ) | $ | (842 | ) |
|                                      |       |                                                 |       |   |   |
| Capital  expenditures                     |       | $                                                    | —     |   | $ | 7 |   |
| Segment assets                            |       | $                                                    | 3,534      |   | $ | 3,997 |   |

 

*Reconciliation to total net loss*
|                                      | ** ** | **Three months ended March 31,** | ** ** |
|--------------------------------------|------------|------------------------------------------------------|------------|
| ** **                           | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **                           | ** ** | **(dollars in thousands)**                 | ** ** |
| ** **                           | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Segment loss  from operations        |       | $                                                    | (2,207     | ) | $ | 979 |   |
| Corporate  expenses                  |       | (4,748                                               | )          | (2,230 | ) |
| Elimination of  intercompany charges |       | 790                                                  |       | 181 |   |
| Income from  discontinued operations |       | 2,514                                                |       | 82 |   |
| Net loss                             |       | $                                                    | (3,651     | ) | $ | (988 | ) |

 

**NOTE 10 – DISCONTINUED OPERATIONS**

The Company held a 51%ownership interest in George Elkins, a California commercial mortgage bankingoperation.  In December 2006, the Companyreached an agreement to sell George Elkins to a third party and the sale closedin February 2007.  As such, all assets ofGeorge Elkins have been classified as held for sale at December 31, 2006 andresults from operations of George Elkins for the three months ended March 31,2007 and 2006 have been classified as discontinued operations.  Prior to the decision to sell George Elkins,it was a reportable segment of the Company’s operations.
|                                           | ** ** | **Three months ended March 31,** | ** ** |
|-------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **                                | ** ** | **(dollars in thousands)**                 | ** ** |
|                                      |       |                                                 |       |   |   |
| Loan brokerage  fees                      |       | $                                                    | 1,673      |   | $ | 1,693 |   |
| Loan servicing  fees                      |       | 134                                                  |       | 300 |   |
| Total revenue                             |       | 1,807                                                |       | 1,993 |   |
|                                      |       |                                                 |       |   |   |
| Depreciation and  amortization            |       | (4                                                   | )          | (7 | ) |
| Other general  & administrative costs |       | (1,811                                               | )          | (1,884 | ) |
| Interest income                           |       | 2                                                    |       | 2 |   |
| Other  non-operating income               |       | 13                                                   |       | 144 |   |
| Minority  interest in earnings            |       | 15                                                   |       | (166 | ) |
| Gain on sale of  discontinued operations  |       | 2,492                                                |       | — |   |
| Income from  discontinued operations      |       | $                                                    | 2,514      |   | $ | 82 |   |
|                                      |       |                                                 |       |   |   |
| Capital  expenditures                     |       | $                                                    | —     |   | $ | — |   |
| Segment assets                            |       | $                                                    | —     |   | $ | 1,341 |   |
| Minority interests                        |       | $                                                    | —     |   | $ | 222 |   |

 

12

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**NOTE 11 –SUBSEQUENT EVENTS**

*Restaurant openings*

Subsequent to March 31,2007, Fatburger opened one additional franchise location.

13

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**ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

*Certainstatements contained herein and certain statements contained in future filingsby the Company with the SEC may not be based on historical facts and are “Forward-LookingStatements” within the meaning of Section 27A of the Securities Act of 1933, asamended, and Section 21E of the Securities Exchange Act of 1934, asamended.  Forward-Looking Statements arebased on various assumptions (some of which are beyond the Company’s control)and may be identified by reference to a future period or periods, or by the useof forward-looking terminology, such as “may,” “will,” “believe,” “expect,” “anticipate,”“continue,” or similar terms or variations on those terms, or the negative ofthose terms.  Actual results could differmaterially from those set forth in Forward-Looking Statements due to a varietyof factors, including, but not limited to the Risk Factors identified hereinand the following:*

*·*                  economicfactors, particularly in the market areas in which the Company operates;

*·*                  the financialand securities markets and the availability of and costs associated withsources of liquidity;

*·*                  competitiveproducts and pricing;

*·*                  the real estatemarket, including the residential real estate market in Barcelona, Spain;

*·*                  the ability tosell assets to maintain liquidity;

*·*                  fiscal andmonetary policies of the U.S. Government;

*·*                  changes inprevailing interest rates;

*·*                  changes incurrency exchange rates;

*·*                  acquisitions andthe integration of acquired businesses;

*·*                  performance ofretail/consumer markets, including consumer preferences and concerns aboutdiet;

*·*                  effectiveexpansion of the Company’s restaurants in new and existing markets;

*·*                  profitabilityand success of franchisee restaurants;

*·*                  availability ofquality real estate locations for restaurant expansion;

*·*                  the market forCentrisoft’s software products;

*·*                  credit riskmanagement; and

*·*                  asset/liabilitymanagement.

*Exceptas may be required by law, the Company does not undertake, and specificallydisclaims any obligation, to publicly release the results of any revisionswhich may be made to any Forward-Looking Statements to reflect the occurrenceof anticipated or unanticipated events or circumstances after the date of such statements.*

*Thefollowing discussion and analysis should be read in conjunction with theConsolidated Financial Statements of Fog Cutter Capital Group Inc. and thenotes thereto included elsewhere in this filing.  References in this filing to “the Company,” “we,”“our,” and “us” refer to Fog Cutter Capital Group Inc. and its subsidiariesunless the context indicates otherwise.*

## **Executive Overview**

*Business overview*

Fog Cutter Capital GroupInc. is primarily engaged in the operations of its Fatburger Holdings, Inc. (“Fatburger”)restaurant business.  Later in our 2007fiscal year, we intend to change our corporate name to Fatburger RestaurantsInc. in order to better reflect our primary business going forward.

Fatburger, “The LastGreat Hamburger Stand”®, opened its first restaurant in Los Angeles in1952.  There are currently 87 Fatburgerrestaurants located in 14 states and in Canada. The restaurants specialize in fresh, made to order hamburgers and otherspecialty sandwiches.  French fries,homemade onion rings, hand-scooped ice cream shakes and soft drinks round outthe menu.  We acquired the controllinginterest in Fatburger in August 2003 and currently own 82% voting control.

We plan to openadditional Fatburger restaurants throughout the United States and internationally,including Canada and China.  We intend tocontinue to open company-owned restaurants in strategic markets and increasethe number of franchised locations in the U.S and internationally.  Franchisees currently own and operate 52 ofthe Fatburger locations and we have agreements for approximately 207 newfranchise locations.  As is typical forour industry, the identification of qualified franchisees and quality locationshas an impact on the rate of growth in the number of our restaurants.

In addition to ourrestaurant operation, we also conduct manufacturing activities, softwaredevelopment and sales activities, and make real estate and other realestate-related investments through various controlled subsidiaries.

14

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*Operatingsegments*

Our operating segmentsare:

(i)             Restaurant operations– conducted through our Fatburger subsidiary,

(ii)          Manufacturing operations– conducted through our wholly owned subsidiary, DAC International (“DAC”),

(iii)       Real estate and financeoperations, and

(iv)      Software development and salesoperations – conducted through our subsidiary, Centrisoft Corporation (“Centrisoft”).

Due to the varied natureof our operations, we do not utilize a standard array of key performanceindicators in evaluating our results of operations.  Our evaluation instead focuses on aninvestment-by-investment or asset-by-asset analysis within our operatingsegments.

*Significantevents*

The following significantevents affected our operations for the three months ended March 31, 2007:

·                  Restaurantopenings – During the three months ended March 31, 2007, Fatburger opened oneadditional franchise location.

·                  Discontinuedoperations – On February 28, 2007, Fog Cap Commercial Lending Inc., our whollyowned subsidiary, sold its 51% interest in George Elkins Mortgage BankingCompany (“George Elkins”).  We received $2.9million for our portion of the proceeds and recorded a gain on sale of $2.5 million.

·                  Borrowings onnotes payable – In January 2007, we borrowed an additional $1.1 million on anote payable that had a balance of $2.1 million at December 31, 2006.  The amended note has a balance of $3.2million and is secured primarily by our interest in DAC.  The terms of the amended note were notsignificantly different from the terms at December 31, 2006.

**Resultsof operations**

We have incurred net lossesfrom continuing operations as follows:
|                    | ** ** | **Three months ended March 31,**                        | ** ** |
|--------------------|------------|-----------------------------------------------------------------------------|------------|
| ** **         | ** ** | **2007**                                                                    | ** ** | **2006** | ** ** |
| ** **         | ** ** | **(dollars in thousands, except per  share data)** | ** ** |
| Net loss           |       | $                                                                           | (6,165     | ) | $ | (1,070 | ) |
| Net loss per share |       | $                                                                           | (0.77      | ) | $ | (0.13 | ) |

 

Our net loss fromcontinuing operations was $6.2 million (or $0.77 per share) for the threemonths ended March 31, 2007, compared to $1.1 million (or $0.13 per share) forthe same period in the prior year.  Theloss is primarily due to operating expenses associated with our managementinfrastructure.  We have put in place amanagement structure which we believe will enable us to significantly expandour operations, notably our Fatburger subsidiary.  However, until the growth is realized, thecost of our management structure will be borne by our existing operations.

The following sectionsdescribe the results of operations of our operating segments for the three monthsended March 31, 2007.

*Restaurant segment operations*

The following table shows our operating margin for company-ownedrestaurants for the three months ended March 31, 2007 and 2006:
|                                                | ** ** | **Three months ended March 31,**          | ** ** |
|------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                     | ** ** | **2007**                                                      | ** ** | **2006** | ** ** |
| ** **                                     | ** ** | **(% to Company-owned restaurant sales)** | ** ** |
| Restaurant sales:                              |       |                                                          |       |   |   |
| Company-owned  restaurant sales                |       | 100.0                                                         | %          | 100.0 | % |
| Cost of sales –  food, paper, merchandise |       | (24.0                                                         | )%         | (28.1 | )% |
| Cost of sales –  wages and benefits       |       | (34.0                                                         | )%         | (30.1 | )% |
| Restaurant  depreciation and amortization      |       | (6.2                                                          | )%         | (4.6 | )% |
| Operating margin  (restaurant sales only)      |       | 35.8                                                          | %          | 37.2 | % |

 

The following table shows our total operating resultsfrom the restaurant segment for the three months ended March 31, 2007 and 2006:

15

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|                                    | ** ** | **Three months ended March 31,** | ** ** |
|------------------------------------|------------|------------------------------------------------------|------------|
| ** **                         | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **                         | ** ** | **(% to total revenue)**              | ** ** |
| Total restaurant  operations:      |       |                                                 |       |   |   |
| Company-owned restaurant sales     |       | 93.4                                                 | %          | 90.8 | % |
| Royalty revenue                    |       | 6.4                                                  | %          | 8.1 | % |
| Franchise fee revenue              |       | 0.2                                                  | %          | 1.1 | % |
| Total revenue                      |       | 100.0                                                | %          | 100.0 | % |
|                               |       |                                                 |       |   |   |
| Cost of sales                      |       | (60.0                                                | )%         | (57.0 | )% |
| General & administrative costs |       | (48.5                                                | )%         | (45.4 | )% |
| Interest expense                   |       | (2.6                                                 | )%         | (3.7 | )% |
| Management allocation              |       | (6.6                                                 | )%         | — | % |
| Minority interest in losses        |       | 0.4                                                  | %          | 0.2 | % |
| Segment loss                       |       | (17.3                                                | )%         | (5.9 | )% |

 

For the three months ended March 31, 2007,company-owned restaurant sales increased 20.6% to $7.6 million from $6.3million for the same period in 2006.  Thisincrease was primarily the result of the addition of nine company-ownedrestaurants in 2006 and a price increase in June 2006.  Same store sales for company-ownedrestaurants open during all of 2006 decreased 6.3% for the first three monthsof 2007 compared to the same period in 2006. The operating margin as a percentage of sales for company-ownedlocations decreased to 35.8% in 2007 from 37.2% in 2006.  This was due primarily to increases in laborcosts of 3.9% as a percentage of sales and restaurant depreciation expense of1.6% (from the addition of nine company-owned restaurants in 2006), partiallyoffset by reductions in food costs as a percentage of sales of 4.1%.

Royalty revenue decreased 16.7%, from $0.6 million forthe first three months of 2006 to $0.5 million for the three months ended March31, 2007, as a result of decreased sales in our franchise locations and theconversion of five franchise locations to company-owned stores subsequent toMarch 31, 2006.  We added one franchiselocation during the three months ended March 31, 2007.  Same store sales for franchise restaurants openduring all of 2006 decreased 11.5% for the first three months of 2007 comparedto the same period in 2006.

System-wide same store sales decreased 9.3% for storesopen during all of 2006 during the first three months of 2007 compared to thesame period in 2006.  Our loss fromrestaurant operations was 17.3% of total revenue for the three months ended March31, 2007 compared to 5.9% for the same period in 2006.  The change is due to the implementation of amanagement allocation of our corporate expenses, as well as increased generaland administrative expenses as we continue to set up our infrastructure tosupport our expansion.

We intend to continue to open company-owned restaurants in strategicmarkets and increase the number of franchised locations in the U.S. andinternationally.  Since we acquired ourinterest in Fatburger in August 2003, Fatburger has added 38 new restaurantsthrough March 31, 2007.  While we seek toexpand the number of existing restaurants, the identification of qualifiedfranchisees and quality locations has an effect on the rate of growth in thenumber of our restaurants.

*Manufacturing segment operations*
|                              | ** ** | **Three months ended March 31,** | ** ** |
|------------------------------|------------|------------------------------------------------------|------------|
| ** **                   | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **                   | ** ** | **(% to total revenue)**              | ** ** |
| Manufacturing sales          |       | 100.0                                                | %          | 100.0 | % |
| Manufacturing cost of  sales |       | (59.5                                                | )%         | (50.8 | )% |
| Engineering and  development |       | (10.2                                                | )%         | (7.0 | )% |
| Operating margin             |       | 30.3                                                 | %          | 42.2 | % |
|                         |       |                                                 |       |   |   |
| Compensation expense         |       | (18.1                                                | )%         | (8.2 | )% |
| Depreciation expense         |       | (1.1                                                 | )%         | (0.2 | )% |
| Other operating expense      |       | (8.2                                                 | )%         | (3.4 | )% |
| Segment income               |       | 2.9                                                  | %          | 30.4 | % |

 

Total revenue for thissegment was $2.3 million for the three months ended March 31, 2007, compared to$3.3 million for the same period in 2006. Net income for this segment was $0.1 million for the first three monthsof 2007, compared to $1.0 for the same period in 2006.  In order to focus our efforts on ourrestaurant segment, we intend to sell our equity position in DAC for an amounthigher than our net investment.  If wewere to sell this segment, it would decrease our net revenue and increase ournet loss.  There can be no assurance thatwe will be able to sell this segment for a profit.

16

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*Real estate and finance segmentoperations*
|                                       | ** ** | **Three months ended March 31,** | ** ** |
|---------------------------------------|------------|------------------------------------------------------|------------|
| **Real estate operations:** | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **                            | ** ** | **(dollars in thousands)**                 | ** ** |
|                                  |       |                                                 |       |   |   |
| Operating revenue                     |       | $                                                    | 935        |   | $ | 1,066 |   |
| Operating expenses                    |       | (387                                                 | )          | (441 | ) |
| Depreciation and  amortization        |       | (110                                                 | )          | (138 | ) |
| Operating margin                      |       | 438                                                  |       | 487 |   |
|                                  |       |                                                 |       |   |   |
| General and  administrative expenses  |       | (38                                                  | )          | (227 | ) |
| Interest expense                      |       | (339                                                 | )          | (256 | ) |
| Gain on sale of real  estate          |       | —                                               |       | 505 |   |
| Other non-operating  income           |       | 5                                                    |       | 5 |   |
| Income from real estate  operations   |       | $                                                    | 66         |   | $ | 514 |   |

 

During the three monthsended March 31, 2007, our operating margin on real estate decreased less than $0.1million, to $0.4 million, compared to $0.5 million for the same period of 2006.  Although we have continued to sell certainreal estate investments, we have been able to maintain our operating margin atrelatively stable levels due to our success in reducing vacancies andincreasing lease rates.  In the firstquarter of 2006, we sold seven buildings for total proceeds of $3.5 million, resultingin a net gain on sale of approximately $0.5 million.  General and administrative expenses havedecreased for the first quarter of 2007 compared to 2006, primarily due to theVIE investments in Barcelona nearing completion and being marketed forsale.  Interest expense for the threemonths ended March 31, 2007 has increased compared to the same period of 2006as we borrowed money on various notes payable secured by certain real estateinvestments in the second half of 2006.

*Interest income*– Our interest income for the three months ended March 31, 2007 was less than $0.1million, compared with $0.1 million for the first quarter of 2006.  The decrease is primarily attributable to anet reduction in average asset balance, reflecting the sale or repayment ofnotes in our notes receivable portfolio.

*Foreign exchange gains*– Changes in foreign currency exchange rates resulted in a net gain ofapproximately $0.1 million in this segment for the three months ended March 31,2007 and 2006.  At March 31, 2007,approximately 18% of our total assets and 4% of our total liabilities weredenominated in the euro.  See *Item 3 – Quantitative and Qualitative Disclosures about Market Risk*for further analysis.

*Other non-operating income*–In the three month ended March 31, 2006, we had equity in losses of equityinvestee of $0.1 million and gain on sale of notes receivable of $0.5 millionin this segment.  There are no comparableincome sources in 2007.

*Software development and sales segment operations*
|                              | ** ** | **Three months ended March 31,** | ** ** |
|------------------------------|------------|------------------------------------------------------|------------|
| ** **                   | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **                   | ** ** | **(dollars in thousands)**                 | ** ** |
| Software sales               |       | $                                                    | 4          |   | $ | 17 |   |
| Engineering and  development |       | (151                                                 | )          | (180 | ) |
| Compensation expense         |       | (108                                                 | )          | (277 | ) |
| Depreciation expense         |       | (112                                                 | )          | (79 | ) |
| Other operating expense      |       | (113                                                 | )          | (159 | ) |
| Interest expense             |       | (268                                                 | )          | (164 | ) |
| Segment loss                 |       | $                                                    | (748       | ) | $ | (842 | ) |

 

Total revenue for thissegment was less than $0.1 million for each of the three months ended March 31,2007 and 2006.  Segment loss was approximately$0.8 million for the first quarter of 2007 and 2006.  In order to focus our efforts on ourrestaurant segment, we intend to sell all, or a portion of, our equity positionin Centrisoft.  If we were to sell thissegment, we believe that it would have a positive effect on our cash flow anddecrease our net loss.  There can be noassurance that we will be able to sell this segment.

*Corporate expenses*

|                                     | ** ** | **Three months ended March 31,** | ** ** |
|-------------------------------------|------------|------------------------------------------------------|------------|
| ** **                          | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **                          | ** ** | **(dollars in thousands)**                 | ** ** |
| Compensation and  employee benefits |       | $                                                    | 3,564      |   | $ | 1,348 |   |
| Travel and  entertainment           |       | 429                                                  |       | 307 |   |
| Insurance                           |       | 136                                                  |       | 262 |   |
| Professional fees                   |       | 292                                                  |       | 61 |   |
| Occupancy costs                     |       | 44                                                   |       | 47 |   |
| Directors fees                      |       | 124                                                  |       | 77 |   |
| Other expenses                      |       | 159                                                  |       | 128 |   |
| Total operating  expenses           |       | $                                                    | 4,748      |   | $ | 2,230 |   |

 

17

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For the three monthsended March 31, 2007, we incurred corporate operating expenses of $4.7 million,compared to $2.2 million for the same period in 2006.  This increase is primarily due to an increasein compensation expenses.  Corporateexpenses for the first quarter of 2007 also include $0.4 million for sharebased payments accounted for under FAS 123R, compared to less than $0.1 millionfor the same period in 2006.  Theincrease is due to various stock option grants in August 2006 and a stockoption exchange plan adopted in December 2006.

*Management allocation and other intercompanycharges*

In the fourth quarter of 2006, as we focused our efforts on theFatburger segment we began allocating a portion of our corporate expenses toour restaurant segment to more accurately reflect the operating results of thatsegment.  This allocation was $0.5million for the three months ended March 31, 2007.  This allocation is eliminated uponconsolidation on the Consolidated Statements of Operations.  There was no comparable allocation in thefirst quarter of 2006.  Otherintercompany charges, including intercompany interest expense, are eliminatedupon consolidation, and totaled $0.3 million for the three month ended March31, 2007 and $0.2 million for the same period in 2006.

*Income taxes*

During the three monthsended March 31, 2007 and 2006, a provision for income taxes was not requireddue to the net operating loss generated during the period.

*Discontinued operations*

In December, we and our 49% partners reached an agreement to sell ourownership interest in George Elkins, a California commercial mortgage bankingoperation.  The sale closed in February2007.  As such, results from operationsof George Elkins for the three months ended March 31, 2007 and 2006 have beenclassified as discontinued operations. Prior to the decision to sell George Elkins, it was a reportable segmentof our operations.  The following tableshows our total operating results from George Elkins for the first quarter:
|                                          | ** ** | **Three months ended March 31,** | ** ** |
|------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                               | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **                               | ** ** | **(% to total revenue)**              | ** ** |
| Total revenue                            |       | $                                                    | 1,807      |   | $ | 1,993 |   |
| Compensation expense                     |       | (1,534                                               | )          | (1,657 | ) |
| Other operating expense                  |       | (281                                                 | )          | (234 | ) |
| Non-operating income                     |       | 17                                                   |       | 146 |   |
| Gain on sale of  discontinued operations |       | 2,492                                                |       | — |   |
| Minority interest in  earnings           |       | 13                                                   |       | (166 | ) |
| Segment income                           |       | $                                                    | 2,514      |   | $ | 82 |   |

 

**Changes in financial condition**

Our assets, liabilitiesand stockholders’ equity can be summarized as follows:
|                                  | ** ** | **March 31, 2007**         | ** ** | **December 31, 2006** | ** ** |
|----------------------------------|------------|--------------------------------------|------------|---------------------------------|------------|
| ** **                       | ** ** | **(dollars in thousands)** | ** ** |
| Total assets                     |       | $                                    | 59,073     |                            | $          | 59,800 |   |
| Total liabilities                |       | $                                    | 51,638     |                            | $          | 49,005 |   |
| Total minority  interests        |       | $                                    | 436        |                            | $          | 571 |   |
| Total stockholders’  equity |       | $                                    | 6,999      |                            | $          | 10,224 |   |

 

The decrease in totalassets during the first three months of 2007 is primarily due to the disposalof our George Elkins subsidiary, which was classified as held for sale atDecember 31, 2006.  Total liabilities increasedover the first three months of 2007, primarily due to additional borrowings of$1.1 million and an increase in accounts payable and accrued liabilities.  The cash received from the disposal of GeorgeElkins was used to support our operating activities.  Stockholders’ equity decreased during the firstquarter of 2007 by approximately $3.2 million, mainly resulting from our netloss of $3.7 million, partially offset by share based compensation of $0.4million.  These changes are described inmore detail as follows:

*Cash*

Our cash decreased $0.2million from December 31, 2006 to March 31, 2007.  Significant sources and uses of cash during thequarter include:

18

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·                  $2.3million of cash used in operations – comprised primarily of our net loss of $6.2million adjusted for non-cash income and expense items of $1.1 million;

·                  $1.5million of cash used in investing activities – comprised mainly of $1.3 millioninvested in restaurant assets and other property, plant & equipment;

·                  $0.9million of cash provided by financing activities – includes additionalborrowing of $1.1 million, partially offset by repayments of borrowings and capitalleases of $0.2 million; and

·                  $2.7 million netcash inflow from discontinued operations.

*Net investmentsin real estate, and related liabilities*

Our investments inreal estate can be summarized as follows:
|                                                      | ** ** | **March 31, 2007**         | ** ** | **December 31, 2006** | ** ** |
|------------------------------------------------------|------------|--------------------------------------|------------|---------------------------------|------------|
| ** **                                           | ** ** | **(dollars in thousands)** | ** ** |
| US based investments –  held for sale (1):      |       |                                 |       |                            |       |
| Purchase price /  improvements                       |       | $                                    | 403        |                            | $          | 403 |   |
| Accumulated  depreciation and amortization           |       | (38                                  | )          | (35                             | )          |
| Net book value                                       |       | 365                                  |       | 368                             |       |
| Foreign-based  investments – held for sale (2): |       |                                 |       |                            |       |
| Purchase price /  improvements                       |       | 10,885                               |       | 10,694                          |       |
| Total investments in  real estate, held for sale     |       | $                                    | 11,250     |                            | $          | 11,062 |   |
|                                                 |       |                                 |       |                            |       |
| US based investments –  held for use (3):       |       |                                 |       |                            |       |
| Purchase price /  improvements                       |       | $                                    | 13,265     |                            | $          | 13,200 |   |
| Accumulated  depreciation and amortization           |       | (1,805                               | )          | (1,698                          | )          |
| Total investments in  real estate, held for use      |       | $                                    | 11,460     |                            | $          | 11,502 |   |
|                                                 |       |                                 |       |                            |       |
| Total investments in  real estate, net               |       | $                                    | 22,710     |                            | $          | 22,564 |   |

 

----

(1)                       Includes 1 commercial property within theUnited States at March 31, 2007 and December 31, 2006.

(2)                       Includes 2 apartment buildings in Barcelona,Spain at March 31, 2007 and December 31, 2006.

(3)                       Includes 32 commercial properties undercapital lease throughout the United States at March 31, 2007 and December 31,2006.

Borrowings relatedto our investments in real estate were as follows:
|                                                 | ** ** | **March 31, 2007**         | ** ** | **December 31, 2006** | ** ** |
|-------------------------------------------------|------------|--------------------------------------|------------|---------------------------------|------------|
| ** **                                      | ** ** | **(dollars in thousands)** | ** ** |
| Obligations on real  estate under capital lease |       | $                                    | 10,337     |                            | $          | 10,471 |   |
| Borrowings on Barcelona  properties             |       | 3,435                                |       | 3,435                           |       |
| Total borrowings  related to real estate        |       | $                                    | 13,772     |                            | $          | 13,906 |   |

 

Investments in propertiesunder capital lease decreased less than $0.1 million at March 31, 2007 due todepreciation of $0.1 million during the first three months of 2007, partiallyoffset by capital improvements to those properties.  Obligations under capital leases related tothese properties decreased $0.1 million due to scheduled monthly paymentsduring the same period.  Our investmentin apartment buildings in Barcelona, Spain increased $0.2 million sinceDecember 31, 2006.  This was primarily theresult of increases in unrealized foreign currency translation of $0.1 million.

*Net property,plant and equipment*

Net property, plant andequipment decreased $0.3 million at March 31, 2007 compared to December 31, 2006,primarily due to scheduled monthly depreciation on those assets.  Obligations on property, plant, and equipmentunder capital lease remained stable at $0.2 million at March 31, 2007 comparedto December 31, 2006.

*Goodwilland net intangible assets*
|                                          | ** ** | **March 31, 2007**         | ** ** | **December 31, 2006** | ** ** |
|------------------------------------------|------------|--------------------------------------|------------|---------------------------------|------------|
| ** **                               | ** ** | **(dollars in thousands)** | ** ** |
| Goodwill – Fatburger                |       | $                                    | 7,063      |                            | $          | 7,063 |   |
| Goodwill – Centrisoft               |       | 1,999                                |       | 1,999                           |       |
| Goodwill – DAC  International       |       | 1,464                                |       | 1,464                           |       |
| Total goodwill                           |       | $                                    | 10,526     |                            | $          | 10,526 |   |
|                                     |       |                                 |       |                            |       |
| Net intangible assets –  Fatburger  |       | $                                    | 4,896      |                            | $          | 4,943 |   |
| Net intangible assets –  Centrisoft |       | 297                                  |       | 319                             |       |
| Total net intangible  assets             |       | $                                    | 5,193      |                            | $          | 5,262 |   |

 

19

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Net intangible assets decreasedless than $0.1 million in the three months ended March 31, 2007 due to monthlyamortization of those assets.  Netintangible assets at March 31, 2007 consists of trademark rights ofapproximately $4.0 million, franchise agreements of approximately $0.6 million,sales contracts for Centrisoft of approximately $0.3 million, and othermiscellaneous intangible assets of approximately $0.3 million.  We do not believe that there is anyimpairment of goodwill or net intangible assets at March 31, 2007.

*Notes receivable*

As of March 31, 2007, ournotes receivable portfolio (excluding loans to senior executives) consists of threeindividual loans with a combined carrying value of $0.8 million.  Two of the loans are secured by real estateconsisting of commercial property located in Texas and Arizona, and one loan issecured by stock in a restaurant business. The loans have a weighted average interest rate (excluding fees andpoints) of 10.9% and a weighted average maturity of 12 months.

*Loans to seniorexecutives*

We currently have twoloans to our Chairman and Chief Executive Officer, Andrew Wiederhorn, for atotal of $1.1 million.  Both loans weremade on February 21, 2002 (prior to the passage of the Sarbanes-Oxley Act of2002).  The loans matured on February 21,2007, and bear interest at the prime rate, as published in the Wall StreetJournal, which interest is added to the principal.  We have not extended the maturity date of theloans or amended any other terms.  TheCompany and Mr. Wiederhorn are cooperating in completing the repayment of theloans in full.

*Other assets*
|                                  | ** ** | **March 31, 2007**         | ** ** | **December 31, 2006** | ** ** |
|----------------------------------|------------|--------------------------------------|------------|---------------------------------|------------|
| ** **                       | ** ** | **(dollars in thousands)** | ** ** |
| Trade receivables                |       | $                                    | 1,554      |                            | $          | 1,586 |   |
|                             |       |                                 |       |                            |       |
| Inventories                      |       | $                                    | 2,687      |                            | $          | 2,442 |   |
|                             |       |                                 |       |                            |       |
| Other current assets:            |       |                                 |       |                            |       |
| Prepaid expenses                 |       | $                                    | 393        |                            | $          | 429 |   |
| Other restaurant  segment assets |       | 779                                  |       | 718                             |       |
| Other  VIE-related assets        |       | 33                                   |       | 96                              |       |
| Total other  current assets      |       | $                                    | 1,205      |                            | $          | 1,243 |   |
|                             |       |                                 |       |                            |       |
| Other assets:                    |       |                                 |       |                            |       |
| Software costs                   |       | $                                    | 1,133      |                            | $          | 1,217 |   |
| Investment in  operating leases  |       | 42                                   |       | 54                              |       |
| Other                            |       | 184                                  |       | 182                             |       |
| Total other  assets              |       | $                                    | 1,359      |                            | $          | 1,453 |   |

 

Trade receivables andinventories at March 31, 2007 relate primarily to the operations of DAC.

*Deferred income*

Our deferred incomerelating to the collection of unearned Fatburger franchise fees was $4.5million at March 31, 2007, compared with $4.1 million at December 31, 2006.  As of March 31, 2007, nearly all of thedeferred income was comprised of the non-refundable franchise fee received byFatburger for each future franchise location. These initial fees generally represent half of the total fee perlocation.  The balance of the franchisefee (approximately an additional $4.5 million) will be collected in the future whenleases on these specific franchise locations are signed.

*Notes payable*

As of March 31, 2007, ournotes payable (excluding borrowings on real estate) totaled $13.4 million,including $7.0 million of debt held at Fatburger, $0.7 million at Centrisoft,and $0.5 million at DAC.  This comparesto $12.4 million at December 31, 2006. The increase was primarily due to additional borrowings of $1.1 million.

*Accounts payable and accrued liabilities*

Accountspayable and accrued liabilities totaled $13.5 million at March 31, 2007,compared with $11.8 million at December 31, 2006, and consisted of thefollowing:

|                                                | ** ** | **March 31, 2007**         | ** ** | **December 31, 2006** | ** ** |
|------------------------------------------------|------------|--------------------------------------|------------|---------------------------------|------------|
| ** **                                     | ** ** | **(dollars in thousands)** | ** ** |
| Accounts payable                               |       | $                                    | 6,263      |                            | $          | 6,999 |   |
| Sales deposits                                 |       | 1,970                                |       | 1,104                           |       |
| Accrued wages, bonus  and commissions          |       | 2,641                                |       | 669                             |       |
| Leased real estate  portfolio-related accruals |       | 551                                  |       | 597                             |       |
| Other                                          |       | 2,032                                |       | 2,393                           |       |
| Total accrued expenses  and other liabilities  |       | $                                    | 13,457     |                            | $          | 11,762 |   |

 

20

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Theincrease in accounts payable relates primarily to accrued wages and bonuses.

*Deferred income taxes*

There was no significantchange to our deferred income taxes at March 31, 2007, compared to December 31,2006.

**Liquidityand Capital Resources**

Liquidity is ameasurement of our ability to meet potential cash requirements, includingongoing commitments to repay borrowings, fund business operations,acquisitions, and expansion (including growth of company-owned and franchisedrestaurant locations), engage in loan acquisition and lending activities andfor other general business purposes.  Inaddition to our cash on hand, our primary sources of funds for liquidity duringthe first three months of 2007 consisted of cash provided by proceeds from thesale of discontinued operations, new borrowings, and the repayments to us fromborrowers.  As of March 31, 2007, we hadcash or cash equivalents of $1.6 million, which, together with projectedborrowings and proceeds from the sales of assets, we believe will be sufficientto meet our current liquidity needs.

At March 31, 2007,we had total consolidated secured indebtedness of $29.3 million, as well as $22.3million of other liabilities.  Ourconsolidated secured indebtedness consisted of:

·                  notespayable and other debt of Fatburger of $7.0 million secured by the assets ofFatburger;

·                  $12.4million in capital leases maturing between 2010 and 2040 which are secured byreal estate;

·                  notespayable of $3.4 million secured by our two Barcelona properties;

·                  $5.3million of notes payable secured by various assets of the Company;

·                  $0.5million of short-term borrowings secured by the assets of DAC International;and

·                  $0.7million of notes payable secured by the assets of Centrisoft.

We consider thesale of assets to be a normal, recurring part of our operations and we arecurrently generating adequate cash flow as a result of these transactions.  However, excluding the sale of assets fromtime to time, we are currently operating with negative cash flow, since many ofour operations do not currently generate sufficient cash to cover operating andoverhead expenses.  We believe that ourexisting sources of funds will be adequate to meet our liquidity needs;however, there can be no assurance that this will be the case.

If our existing liquidityposition were to prove insufficient, and we were unable to repay, renew orreplace maturing indebtedness on terms reasonably satisfactory to us, we may berequired to sell (potentially on short notice) a portion of our assets, andcould incur losses as a result.  Specificrisks to our liquidity position include the following:

*Foreign currencyexchange rate risk*

Our exposure to foreigncurrency fluctuations arises mainly from our investment in Barcelona realestate.  As of March 31, 2007,approximately 18% of our total assets and 4% of our total liabilities were denominatedin the euro.  We may, from time to time, utilizea wide variety of financial techniques to assist in the management of currencyrisk, including currency swaps, options, and forwards, or combinationsthereof.  In December 2006, we purchasedAmerican-style options to partially protect us against a downward trend in theeuro.  These options give us the right,but not the obligation, to sell up to 4.0 million euros, in 62,500 euroincrements, at $1.31 per euro any time before June 30, 2007.

*Interestrate risk*

Our borrowings andthe availability of further borrowings are substantially affected by, amongother things, changes in interest rates, changes in market spreads or decreasesin credit quality of our assets. Material increases in interest expense from variable-rate fundingsources, or material decreases in monthly cash receipts from operations,generally would negatively impact our liquidity.  On the other hand, material decreases ininterest expense from variable-rate funding sources would positively affect ourliquidity.  Fluctuations in interestrates will impact our net income to the extent our operations and our fixedrate assets are funded by variable rate debt. We may also be impacted to the extent that our variable rate assetsre-price on a different schedule or in relation to a different index than anyfloating rate debt.  See *Item 3 – Quantitative and Qualitative Disclosures about Market Risk*for further analysis.

*Fatburgerdebt covenant*

At December 31, 2006,Fatburger was not in compliance with all obligations under the agreementsevidencing its indebtedness, as defined in the applicable agreements.  Fatburger failed to meet the prescribed fixedcharge coverage ratio and the prescribed debt-coverage ratio at December 31, 2006.  

21

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Due to Fatburger’snon-compliance, the lender has the right to demand repayment of the notes afterserving notice.  As such, on ourConsolidated Statements of Financial Condition, $4.1 million of long-term debthas been classified as current at March 31, 2007, and December 31, 2006, thatwould otherwise be classified as non-current. The lender has not demanded early repayment of the loans, however, ifthe lender exercises its right to demand repayment, our liquidity could benegatively affected.

*Fatburgerexpansion*

Fatburger is involved ina nationwide expansion of franchise and company-owned locations, which willrequire significant liquidity.  If realestate locations of sufficient quality cannot be located, the timing ofrestaurant openings may be delayed.  Additionally,if Fatburger or its franchisees cannot obtain capital sufficient to fund thisexpansion, the timing of restaurant openings may be delayed.

*Centrisoftoperations*

We expect that Centrisoftwill require capital resources and have negative cash flow for the nearterm.  Since Centrisoft is in the earlystages of its marketing, there can be no assurance that it will be successfulin attracting a significant customer base. Centrisoft is currently marketing its software to potential customersboth directly and through re-seller relationships.  There can be no assurance that Centrisoftwill be successful in generating sufficient cash flow to support its ownoperations in the near term.

*Dividends*

While we do not have afixed dividend policy, we may declare and pay new dividends on our commonstock, subject to our financial condition, results of operations, capitalrequirements and other factors deemed relevant by the Board of Directors.  One factor the Board of Directors may consideris the impact of dividends on our liquidity. We have not declared or paid any dividends in the first quarter of 2007.

*NASDAQ delisting*

Effective October 14,2004, our stock began trading in the over-the-counter (“OTC”) market.   Trading of our common stock on the OTC market may reduce theliquidity of our common stock compared to quotation on a national market.  Also, the coverage of the Company by securityanalysts and media could be reduced, which could result in lower prices for ourcommon stock than might otherwise prevail and could also result in increasedspreads between the bid and ask prices for our common stock.  Additionally, certain investors will notpurchase securities that are not quoted on a national market, which couldmaterially impair our ability to raise funds through the issuance of commonstock or other securities convertible into common stock.

*Commonstock trading price*

If the trading price of our common stock is less than $5.00 pershare, trading in our common stock could be subject to Rule 15g-9 of theSecurities Exchange Act of 1934, as amended. Under that Rule, brokers who recommend such securities to persons otherthan established customers and accredited investors must satisfy special salespractice requirements, including an individualized written suitability determinationfor the purchaser and the purchaser’s written consent prior to anytransaction.  The Securities EnforcementRemedies and Penny Stock Reform Act of 1990 also requires additional disclosurein connection with any trades involving a stock defined as a penny stock(generally, any equity security not traded on an exchange or quoted on NASDAQthat has a market price of less than $5.00 per share), including the deliveryof a disclosure schedule explaining the penny stock market and the associatedrisks.  Such requirements could severelylimit the market liquidity of our common stock. There can be no assurance that our common stock will not become treatedas penny stock.

**Off Balance Sheet Arrangements**

In order tofacilitate the development of franchise locations, as of March 31, 2007,Fatburger had guaranteed the annual minimum lease payments of four restaurantsites owned and operated by franchisees. The guarantees approximate $1.1 million plus certain contingent rentalpayments as defined in the respective leases. These leases expire at various times through 2015.

The lease guarantees byFatburger do not provide us with a material source of liquidity, capitalresources or other benefits.  There areno revenues, expenses or cash flows connected with the lease guarantees otherthan the receipt of normal franchise royalties. As of March 31, 2007, we were not aware of any event or demand that waslikely to trigger the guarantee by Fatburger.

We have various operatingleases for office and retail space which expire through 2015.  The leases provide for varying minimum annualrental payments including rent increases and free rent periods.  We have future minimum rental payments undernon-cancelable operating leases with initial or remaining terms of one year ormore of approximately $16.0 million as of March 31, 2007.

We did not have any otheroff-balance sheet arrangements in place as of March 31, 2007.

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**ITEM3.  QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

Our market riskresults from instruments entered into other than for trading purposes andconsists primarily of exposure to loss resulting from changes in foreigncurrency exchange rates, interest rates and commodity prices.

*Foreigncurrency exchange rate risk*

Our exposure toforeign currency fluctuations arises mainly from our investment in Barcelonareal estate.  As of March 31, 2007,approximately 18% of our total assets and 4% of our total liabilities weredenominated in the euro.  The followingtable illustrates the projected effect on our net asset value as a result ofhypothetical changes in foreign currency rates as of March 31, 2007:
| Change in foreign  exchange rates (1) | ** ** | **Projected change in  net asset  fair value** | ** ** | **Projected percentage  change in net asset  fair value** | ** ** |
|-----------------------------------------------------------|------------|--------------------------------------------------------------------|------------|------------------------------------------------------------------------------------|------------|
| Decrease 20%                                              |       | $                                                                  | (814,000   | )                                                                                  | -1.6       | % |
| Decrease 10%                                              |       | $                                                                  | (458,000   | )                                                                                  | -0.9       | % |
| No Change                                                 |       | $                                                                  | —     |                                                                               | 0.0        | % |
| Increase 10%                                              |       | $                                                                  | 890,000    |                                                                               | 1.7        | % |
| Increase 20%                                              |       | $                                                                  | 1,780,000  |                                                                               | 3.4        | % |

 

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(1)                Assumes that uniform percentage changes occurinstantaneously in the euro.  A decreasein the foreign exchange rate indicates a strengthening of the U.S. dollaragainst that currency.  An increase inthe foreign exchange rate indicates a weakening of the U.S. dollar against thatcurrency.

We can utilize a widevariety of financial techniques to assist in the management of currency risk,including currency swaps, options, and forwards, or combinations thereof.  In December 2006, we purchased American-styleoptions to partially protect us against a downward trend in the euro.  These options give us the right, but not theobligation, to sell up to 4.0 million euros, in 62,500 euro increments, at$1.31 per euro any time before June 30, 2007.

*Interestrate risk*

Changes ininterest rates can affect net income by increasing the cost associated withoperating and expanding our restaurant operation.  Changes in the level of interest rates canalso affect, among other things, the value of our interest-earning assets (andthe associated default rates), our payments on variable-interest rate debt, ourability to acquire loans and general levels of consumer spending.

*Other market risks*

Our restaurantoperations are exposed to the impact of commodity and utility pricefluctuations related to unpredictable factors such as weather and various othermarket conditions outside our control. Our ability to recover increased costs through higher prices is limitedby the competitive environment in which we operate.

**ITEM4.  CONTROLS AND PROCEDURES**

*Evaluation of disclosure controlsand procedures*

Our Chief Executive Officer and our ChiefFinancial Officer, after evaluating the effectiveness of the Company’s“disclosure controls and procedures” (as defined in the Securities and ExchangeAct of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period coveredby this report, have concluded that our disclosure controls and procedures wereeffective and designed to ensure that material information relating to us andour consolidated subsidiaries is accumulated and communicated to our managementto allow timely decisions regarding required disclosure.

*Changes in internal control overfinancial reporting*

## There were no significant changes in ourinternal control over financial reporting in connection with an evaluation thatoccurred during our first fiscal quarter of 2007 that have materially affectedor are reasonably likely to materially affect our internal control overfinancial reporting.

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## **PART II – OTHER INFORMATION**

**ITEM 1.  LEGAL PROCEEDINGS**

*Warlick complaint*

**Fatburger Holdings, Inc., et al.v. Keith A. Warlick/ Warlick v. Fatburger, et al, Superior Court of Californiafor the County of Los Angeles, Case No. SC 091436.**** **On October16, 2006, Fatburger Holdings, Inc., Fatburger Corporation and Fatburger NorthAmerica, Inc. filed suit against Keith A. Warlick (“Warlick”) the former ChiefExecutive Officer of Fatburger Holdings, Inc. and Fatburger Corporation.  Warlick’s employment with Fatburger wasterminated on September 21, 2006 by resolution of the board of directors ofFatburger Holdings, Inc.  The Fatburgercompanies initiated the lawsuit to recover damages from Warlick arising fromwrongful acts and conduct during and after his employment, and are assertingclaims for:  breach of contract, breachof duty of loyalty, breach of fiduciary duty, conversion – embezzlement;fraud/commencement; intentional interference with contractual relations, andequitable indemnity.  Warlick filed ananswer to the lawsuit denying the allegations and included a Cross-complaintagainst Fatburger Holdings, Inc., Fatburger Corporation, Fatburger NorthAmerica, Inc., Fog Cutter Capital Group, Inc., and Andrew Wiederhorn, forbreach of contract, employment discrimination based on race and retaliation,wrongful termination and defamation – slander without any specification ofdamages.   The defendants to theCross-complaint filed by Warlick dispute the allegations of the cross-complaintand intend to vigorously defend against the cross-complaint.

**Keith Warlick, et al. v. FogCutter Capital Group, et al., Superior Court of California for the County ofLos Angeles, Case No. 58365915. **In further response to the termination ofhis employment and above lawsuit, on February 6, 2007, Warlick, his wife, and alimited liability company controlled by Warlick, each of whom is a minorityshareholder of Fatburger Holdings, Inc., filed a second lawsuit against variousFatburger entities, the Company, Andrew Wiederhorn, and members of theFatburger board of directors.  Thecomplaint alleges fraud, negligent misrepresentation against Wiederhorn and theCompany, and breach of contract and breach of fiduciary duty against all thedefendants, related to business transactions which the plaintiff’s allege werenot in the best interests of Fatburger Holdings, Inc., or the plaintiffminority shareholders.  The defendantsdispute the allegations of the lawsuit and intend to vigorously defend againstthe claims.

***Shareholder Derivative Complaint***

On July 6, 2004, Jeff AllanMcCoon, derivatively on behalf of Fog Cutter, filed a lawsuit in the CircuitCourt for the State of Oregon (Multnomah County) which named us and all of ourdirectors as defendants.  In December 2006, the Company reached asettlement with the plaintiff in which the Company agreed to pay $125,000 inlegal fees and is released from further liability under this complaint.  The settlement agreement was accepted by thecourt on January 2, 2007.  No furtheraction is expected under this complaint.

**ITEM 1A.  RISKFACTORS**

There have been nomaterial changes in the risk factors set forth in *Part I, Item1A – Risk Factors* of our Annual Report as of and for the year endedDecember 31, 2006 on Form 10-K, as previously filed with the SEC on April 2,2007.

**ITEM 2.  UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

None.

**ITEM 3.  DEFAULTSUPON SENIOR SECURITIES**

Not applicable.

**ITEM 4.  SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS**

**None.**

**ITEM 5.  OTHERINFORMATION**

None.

**ITEM 6.  EXHIBITS**

3.1           Amended and RestatedArticles of Incorporation of the Registrant, incorporated by reference toExhibit 3.1 to the Form 10-Q for the period ended September 30, 1999, aspreviously filed with the SEC on November 22, 1999 (File No. 000-23911).

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3.2           Bylaws of theRegistrant, incorporated by reference to Exhibit 3.2 to Amendment No. 3 to theRegistration Statement (Registration No. 333-39035) on Form S-11, as previouslyfiled with the SEC on March 30, 1998.

4.1           Common StockCertificate Specimen, incorporated by reference to Exhibit 4.1 to Amendment No.3 to the Registration Statement (Registration No. 333-39035) on Form S-11, aspreviously filed with the SEC on March 30, 1998.

4.2           Form of RegistrationRights Agreement, incorporated by reference to Exhibit 10.8 to Amendment No. 3to the Registration Statement (Registration No. 333-39035) on Form S-11, aspreviously filed with the SEC on March 30, 1998.

4.3           Form of Stock OptionPlan, incorporated by reference to Exhibit 10.3 to Amendment No. 3 to theRegistration Statement (Registration No. 333-39035) on Form S-11, as previouslyfiled with the SEC on March 30, 1998.

4.4           Waiver, Release,Delegation and Amendment to Stock Option and Voting Agreement among Andrew A.Wiederhorn, Lawrence A. Mendelsohn, Joyce Mendelsohn, Tiffany Wiederhorn, andthe Registrant, dated July 31, 2002, incorporated by reference to Exhibit 2.1to the Form 8-K dated August 8, 2002, as previously filed with the SEC onAugust 15, 2002.

4.5           Summary of Rights toPurchase Shares, incorporated by reference to Exhibit 99.1 to the Form 8-Kdated October 18, 2002, as previously filed with the SEC on October 18, 2002.

4.6           Rights Agreement datedas of October 18, 2002 between the Registrant and The Bank of New York,incorporated by reference to Exhibit 1 to Form 8-A, as previously filed withthe SEC on October 29, 2002.

4.7           Amendment to the RightsAgreement, dated as of May 1, 2004, by and between the Registrant and The Bankof New York, as previously filed with the SEC on March 30, 2005.

4.8           Long Term Vesting TrustAgreement among the Registrant and Lawrence Mendelsohn, Andrew Wiederhorn andDavid Egelhoff, dated October 1, 2000, incorporated by reference to Exhibit 4.4to the Form 10-K for the year ended December 31, 2002, as previously filed withthe SEC on March 3, 2003.

4.9           Amendment Number 1 tothe Long Term Vesting Trust Agreement dated as of September 19, 2002, by andbetween the Registrant and Andrew Wiederhorn, Don Coleman, and DavidDale-Johnson, as previously filed with the SEC on March 30, 2005.

4.10         Amendment Number 2 to theLong Term Vesting Trust Agreement, dated as of May 26, 2004, by and between theRegistrant and Andrew Wiederhorn, Don Coleman, and David Dale-Johnson, aspreviously filed with the SEC on March 30, 2005.

11.1         Computation of Per ShareEarnings.

31.1         Certification of ChiefExecutive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2         Certification of ChiefFinancial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1         Certification of theChief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2         Certification of theChief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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**SIGNATURES**

Pursuant to therequirements of the Securities Exchange Act of 1934, as amended, the registranthas duly caused this report to be signed on its behalf by the undersignedthereunto duly authorized.
| FOG CUTTER CAPITAL GROUP  INC. |
|--------------------------------|
|                           |   |
|                           | By: /s/ Andrew A. Wiederhorn |   |
|                           | Andrew A. Wiederhorn |
|                           | Chief Executive Officer |
|                           |   |
|                           |   |
|                           | By: /s/ R. Scott Stevenson |   |
|                           | R. Scott Stevenson |
|                           | Senior Vice President and Chief Financial Officer |
|                           |   |
| Date:  May 11,  2007      |

 

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EXHIBIT INDEX

3.1           Amended and RestatedArticles of Incorporation of the Registrant, incorporated by reference toExhibit 3.1 to the Form 10-Q for the period ended September 30, 1999, aspreviously filed with the SEC on November 22, 1999 (File No. 000-23911).

3.2           Bylaws of theRegistrant, incorporated by reference to Exhibit 3.2 to Amendment No. 3 to theRegistration Statement (Registration No. 333-39035) on Form S-11, as previouslyfiled with the SEC on March 30, 1998.

4.1           Common StockCertificate Specimen, incorporated by reference to Exhibit 4.1 to Amendment No.3 to the Registration Statement (Registration No. 333-39035) on Form S-11, aspreviously filed with the SEC on March 30, 1998.

4.2           Form of RegistrationRights Agreement, incorporated by reference to Exhibit 10.8 to Amendment No. 3to the Registration Statement (Registration No. 333-39035) on Form S-11, aspreviously filed with the SEC on March 30, 1998.

4.3           Form of Stock OptionPlan, incorporated by reference to Exhibit 10.3 to Amendment No. 3 to theRegistration Statement (Registration No. 333-39035) on Form S-11, as previouslyfiled with the SEC on March 30, 1998.

4.4           Waiver, Release,Delegation and Amendment to Stock Option and Voting Agreement among Andrew A.Wiederhorn, Lawrence A. Mendelsohn, Joyce Mendelsohn, Tiffany Wiederhorn, andthe Registrant, dated July 31, 2002, incorporated by reference to Exhibit 2.1to the Form 8-K dated August 8, 2002, as previously filed with the SEC onAugust 15, 2002.

4.5           Summary of Rights toPurchase Shares, incorporated by reference to Exhibit 99.1 to the Form 8-Kdated October 18, 2002, as previously filed with the SEC on October 18, 2002.

4.6           Rights Agreement datedas of October 18, 2002 between the Registrant and The Bank of New York,incorporated by reference to Exhibit 1 to Form 8-A, as previously filed withthe SEC on October 29, 2002.

4.7           Amendment to the RightsAgreement, dated as of May 1, 2004, by and between the Registrant and The Bankof New York, as previously filed with the SEC on March 30, 2005.

4.8           Long Term Vesting TrustAgreement among the Registrant and Lawrence Mendelsohn, Andrew Wiederhorn andDavid Egelhoff, dated October 1, 2000, incorporated by reference to Exhibit 4.4to the Form 10-K for the year ended December 31, 2002, as previously filed withthe SEC on March 3, 2003.

4.9           Amendment Number 1 tothe Long Term Vesting Trust Agreement dated as of September 19, 2002, by andbetween the Registrant and Andrew Wiederhorn, Don Coleman, and DavidDale-Johnson, as previously filed with the SEC on March 30, 2005.

4.10         Amendment Number 2 to theLong Term Vesting Trust Agreement, dated as of May 26, 2004, by and between theRegistrant and Andrew Wiederhorn, Don Coleman, and David Dale-Johnson, aspreviously filed with the SEC on March 30, 2005.

11.1         Computation of Per ShareEarnings.

31.1         Certification of ChiefExecutive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2         Certification of ChiefFinancial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1         Certification of theChief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2         Certification of theChief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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