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SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

Commission File Number: 0-28930

ROADHOUSE GRILL, INC.

2703-A GATEWAY DRIVE, POMPANO BEACH, FL 33069

Registrant’s telephone number, including area code (954) 957-2600

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

     Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [X] No [   ]

     The number of shares of the registrant’s common stock outstanding as of December 13, 2002 was 29,220,663.

ROADHOUSE GRILL, INC.

FORM 10-Q

INDEX

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ROADHOUSE GRILL, INC.

The accompanying notes are an integral part of these consolidated financial statements.

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ROADHOUSE GRILL, INC.

The accompanying notes are an integral part of these consolidated financial statements.

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ROADHOUSE GRILL, INC.

The accompanying notes are an integral part of these consolidated financial statements.

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ROADHOUSE GRILL, INC.

The accompanying notes are an integral part of these consolidated financial statements.

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ROADHOUSE GRILL, INC.

(1)

BASIS OF PRESENTATION

The financial statements of Roadhouse Grill, Inc. (the “Company”) for the thirteen and twenty six weeks ended October 27, 2002 and October 28, 2001 are unaudited and reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial statements for the interim periods. The financial statements and notes included herein should be read in conjunction with the Company’s audited consolidated financial statements and notes to consolidated financial statements, together with management’s discussion and analysis of financial condition and results of operations, contained in the Company’s Annual Report on Form 10-K for the fifty-two weeks ended April 28, 2002 (“fiscal year 2002”).

The Company operates on a fifty-two or fifty-three week fiscal year. Each fiscal quarter consists of thirteen weeks, except in the case of a fifty-three week year, in which case the fourth fiscal quarter consists of fourteen weeks.

The results of operations for the thirteen and twenty six weeks ended October 27, 2002 are not necessarily indicative of the results for the entire fiscal year ending April 27, 2003 (“fiscal year 2003”).

While in a Chapter 11 bankruptcy proceeding, the Company applied the provisions of SOP 90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code,” which does not significantly change the application of accounting principles generally accepted in the United States; however, it does require that the financial statements for periods including and subsequent to the Chapter 11 bankruptcy distinguish transactions and events that are directly associated with the reorganization from those transactions that are the result of ongoing operations of the business.

The Consolidated Financial Statements contained herein have been prepared on a going concern basis, which assumes continuity of operations and realization of assets and satisfaction of liabilities in the ordinary course of business, and in accordance with SOP 90-7. The ability of the Company to continue as a going concern is predicated upon, among other things, consummation of the Confirmed Plan of Reorganization (defined below), the ability to generate cash flow from operations to service debt and lease obligations and to otherwise meet the Company’s operating expenses and the ability to obtain financing sources as required sufficient to satisfy future obligations. See Item 2. “Management’s Discussion and Analysis of Results of Operations and Financial Condition” for additional information about the Company’s liquidity and capital resources.

(2)

PROCEEDINGS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE

On January 18, 2002 (the “Petition Date”), an involuntary petition (the “Involuntary Petition”) for relief under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy

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Code”) was filed against the Company by certain of its creditors, all of which were affiliated with one another (collectively, the “Petitioning Creditors”), in the United States Bankruptcy Court for the Southern District of Florida (the “Court”). Prior to the Petition Date, the Company had been experiencing significant cash flow problems primarily resulting from the opening of 31 new restaurants in the prior three years combined with a net loss of $15.9 million in fiscal year 2001 and a net loss of $21.4 million in fiscal year 2002. Prior to the filing of the Involuntary Petition, the Company had been in negotiations with the Petitioning Creditors and other major creditors in an effort to effect an out-of-court restructuring of its liabilities.

In response to the filing of the Involuntary Petition, the Company initially filed a motion requesting the Court to abstain from taking jurisdiction over the Company to allow out-of-court restructuring efforts to continue. Ultimately, however, the Company decided to consent to the entry of an order for relief in the Chapter 11 case, provided that the order would not be entered until the Company had an opportunity to prepare a Chapter 11 plan of reorganization.

On April 16, 2002 (the “Relief Date”), the Court entered an order for relief and the Company filed its Chapter 11 plan of reorganization and its disclosure statement in support of the plan of reorganization. Subsequent to the entry of the order for relief, the Company temporarily operated its businesses as a debtor-in-possession pursuant to Chapter 11 of the Bankruptcy Code and concentrated its efforts on emerging from Chapter 11 as quickly as possible.

In its plan of reorganization, the Company classified the claims of its creditors and interests of its equity security holders and provided for the treatment of such claims and interests. Under the Bankruptcy Code, various classes of claims and interests were entitled to vote on whether to accept or reject the plan of reorganization. On June 12, 2002, the Company filed Debtor’s Second Amended and Restated Chapter 11 Plan of Reorganization, as Modified (the “Plan”) and Debtor’s Second Amended and Restated Disclosure Statement in Support of Chapter 11 Plan of Reorganization, as Modified (the “Disclosure Statement”). The Court conducted a hearing on June 12, 2002 to consider approval of the Disclosure Statement. On June 20, 2002, the Court issued an order approving the Disclosure Statement, authorizing the Disclosure Statement, Plan and ballot to be disseminated to creditors and equity security holders and scheduling a hearing on confirmation of the Plan for August 21, 2002.

On June 25, 2002, a hearing was held on the motion of the Petitioning Creditors to terminate the exclusivity period within which only the Company could file a plan of reorganization and to delay the hearing on confirmation of the Plan. On June 26, 2002, the Court terminated exclusivity but refused to postpone the hearing on confirmation of the Plan.

Thereafter, Restaurants Acquisition I, Inc., an entity affiliated with the Petitioning Creditors, filed a competing plan of reorganization, dated July 15, 2002 (the “RAI Plan”). The Petitioning Creditors and creditors affiliated with them (collectively, “CNL”) vigorously opposed confirmation of the Plan. In addition, certain other creditors initially cast ballots rejecting the Plan and/or filed objections to confirmation of the Plan.

As the date of the confirmation hearing approached, the Company engaged in further negotiations with rejecting and objecting creditors in an effort to resolve their objections to the Plan. By August 19, 2002, most of the objections had been resolved and the Company

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filed a modification of the Plan reflecting the resolution of those objections (the “Modification”).

As of August 19, 2002, the principal remaining objections were the objections of CNL. However, the Company reached agreement with CNL shortly before the commencement of the confirmation hearing. Under the agreement, CNL withdrew its objections to the Plan, changed its rejections to acceptances of the Plan and caused the RAI Plan to be withdrawn. The agreement is embodied in a term sheet between the Company and CNL dated August 21, 2002 (the “Term Sheet”).

The hearing on confirmation of the Plan, as modified by the Modification and the Term Sheet, took place on August 21, 2002. At the close of the hearing, the Court announced that the Plan, as modified by the Modification, the Term Sheet and the Confirmation Order (as hereinafter defined) (the “Confirmed Plan of Reorganization”), would be confirmed. On August 23, 2002, the Court issued its Order Confirming Debtor’s Second Amended and Restated Chapter 11 Plan of Reorganization, as Modified (the “Confirmation Order”).

The Confirmed Plan of Reorganization became effective on September 20, 2002 (the “Effective Date”). Under the Confirmed Plan of Reorganization, the Company received an infusion of new capital of $5.0 million in exchange for 13,888,889 shares (47.53%) of the authorized but unissued common stock of the reorganized Company. The 13,888,889 shares were issued in a private placement pursuant to Section 4(2) of, or Regulation D promulgated under, the Securities Act of 1933, as amended (the “Private Placement Securities”). The Private Placement Securities were issued to Berjaya Group (Cayman) Limited (“Berjaya”), Prime Gaming Philippines, Inc. (“Prime”), Tonto Capital Partners GP, and Stephen C. Saterbo (“Saterbo”), as more particularly set forth in the table immediately below and reflecting the post-restructuring percentage ownership for each respective investment.

Berjaya is the Company’s majority shareholder, representing, with its affiliates, ownership of approximately 71% of the Company’s outstanding Common Stock. It is headquartered in Malaysia. Prime is an affiliate of Berjaya. It is 70% owned by Berjaya Group Berhad, which owns 100% of Berjaya. Prime is headquartered in the Philippines. Tonto Capital Partners GP is affiliated with Ayman Sabi, the Company’s Chief Executive Officer, President, and a director. Saterbo is a senior vice president, member of the board of directors, and substantial shareholder of Colorado Boxed Beef Company, a major supplier to the Company.

Additionally, pursuant to the Confirmed Plan of Reorganization Berjaya received, in full satisfaction of a $1.5 million loan to the Company, 4,166,667 shares of the Company’s authorized but unissued common stock at $.36 per share, representing 14.26% of the outstanding Common Stock in the reorganized Company.

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In accordance with the Confirmed Plan of Reorganization, each existing holder of Common Stock received additional Common Stock equal to 15% of the shares which they previously held. After issuance of the additional shares, the existing shareholders own 11,165,107 shares of the outstanding common stock, representing 38.21% of the stock in the reorganized Company. The total number of shares of common stock outstanding after effecting the Confirmed Plan of Reorganization is 29,220,663.

Under bankruptcy law, actions by creditors to collect indebtedness owed prior to the Petition Date and/or prior to the Relief Date were stayed and certain other pre-petition and Gap (January 18, 2002 through April 16, 2002, which is the period of time between the Petition Date and the Relief Date) contractual obligations could not be enforced against the Company. The Company received approval from the Court to pay certain pre-petition and “gap” liabilities including employee salaries and wages, benefits, and other employee obligations. Liabilities through the date the Company emerged from bankruptcy, September 20, 2002, which were incurred pre-petition or during the “gap period” had previously been classified as liabilities subject to compromise. With the Company having emerged from bankruptcy, these liabilities were adjusted during the thirteen weeks ended October 27, 2002 to the amounts to be paid pursuant to the Confirmed Plan of Reorganization. As a result, these liabilities have been decreased by $1.8 million and the Company has recorded an extraordinary gain relating to the early extinguishment of debt in the accompanying consolidated statements of operations for the thirteen and twenty six weeks ended October 27, 2002. This decrease is primarily comprised of lease obligations that were stayed while the Company was in bankruptcy and other obligations that were canceled as a result of the bankruptcy proceedings. As of October 27, 2002, final resolution of certain obligations had not yet been reached. Accordingly, future extraordinary items may need to be recognized as final resolutions are reached. It is currently anticipated that all such remaining items will be resolved during the third quarter of fiscal 2003.

As restructured under the Confirmed Plan of Reorganization, the Company’s secured and unsecured debt, as well as assumed leases and executory contracts, will require substantial monthly payments over extended future periods. The Company’s future success will depend, in part, on its ability to meet these payment obligations. There is no assurance that the Company will be able to do so.

Reorganization items represent amounts incurred as a result of the Chapter 11 proceedings in accordance with SOP 90-7. The Company has incurred $3.2 million of expenses relating to its reorganization, including $0.8 million and $2.3 million, respectively, during the thirteen and twenty six weeks ended October 27, 2002. These expenses primarily include fees for legal, accounting, consulting, and outside services. Additionally, on the Petition Date, the Company stopped accruing interest on all unsecured pre-petition debt in accordance with SOP 90-7. With the confirmation of its plan of reorganization, the Company will now be required to make regular interest payments on all debt pursuant to the Confirmed Plan of Reorganization.

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(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PROPERTY AND EQUIPMENT

Property and equipment are carried at cost less accumulated depreciation. The cost of restaurants held under capital leases is recorded at the lower of the net present value of the minimum lease payments or the fair value of the leased property at the inception of the lease. Repairs and maintenance are charged to expense as incurred. Major renewals and betterments, which substantially extend the useful life of the property, are capitalized and depreciated over the useful life of the asset. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from their respective accounts and any gain or loss is recognized. Property and equipment are depreciated on a straight-line basis over their useful lives. Estimated useful lives include consideration of lease renewals in situations in which the Company has both an option and the current intent to renew the lease.

The Company accounts for long-lived assets in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. This Statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

ASSETS HELD FOR SALE

Assets held for sale include properties owned by the Company which are currently being marketed for sale and are carried at estimated net realizable value.

INTANGIBLE ASSETS

The Company accounts for intangible assets in accordance with SFAS No. 142, Goodwill and Other Intangible Assets. As of October 27, 2002, the Company had unamortized goodwill in the amount of $1.5 million, and unamortized identifiable intangible assets in the amount of $0.4 million. In accordance with SFAS No. 142, goodwill is subject to an annual impairment test based on its fair value and no amortization of goodwill is recorded. The intangible assets, which have been determined to have a finite life, are being amortized over their useful lives. See Note 9.

CASH AND CASH EQUIVALENTS

The Company considers all short-term investments with an original maturity of three months or less to be cash equivalents. As of October 27, 2002, $1.7 million of the Company’s cash and cash equivalents was held in escrow for payment of bankruptcy claims.

During the twenty six weeks ended October 27, 2002, the Company recorded certain non-cash transactions including the recording of capital leases of approximately $3.5 million which increased property, plant and equipment and capital lease obligations by a like

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amount. In addition, pursuant to the Confirmed Plan of Reorganization, during the twenty six weeks ended October 27, 2002, the Company converted various accounts payable and accrued expense liabilities to long term debt in the aggregate amount of approximately $13.0 million.

INVENTORY

Inventory is valued at the lower of cost (based on first-in, first-out inventory costing) or net realizable value and consists primarily of restaurant food items, beverages and paper supplies.

INCOME TAXES

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

PRE-OPENING COSTS

Pre-opening costs are costs incurred in the opening of new stores (primarily payroll costs) are expensed as incurred. Deferred costs related to sites subsequently determined to be unsatisfactory and general site selection costs that cannot be identified with a specific restaurant are charged to operations as incurred.

FISCAL YEAR

The Company’s fiscal year ends on the last Sunday in April.

USE OF ESTIMATES

The preparation of the Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results, particularly with respect to matters impacted by the proceedings under Chapter 11, could differ materially from those estimates.

In addition, asset impairment charges, restructuring charges, and the reserve for restructuring are predominantly based on estimates of the market value of assets of which the Company plans to dispose and the amount of future cash flows estimated to be realized relating to impaired assets that are anticipated to be utilized in the Company operations in the future.

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Such estimates will also be affected by the time interval required to dispose of those assets to be sold. Actual results could be materially different.

DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair values of financial instruments have been determined based on available information and appropriate valuation methodologies. The carrying amounts of accounts receivable, accounts payable and accrued expenses approximate fair value due to the short-term nature of the accounts. The fair value of long-term debt is estimated based on market rates of interest currently available to the Company. The carrying values of long-term debt and capital leases at October 28, 2002 and April 28, 2002 approximate fair value.

REVENUE RECOGNITION

Sales by Company-operated restaurants are recognized daily as cash and credit card receipts are received. Revenues from franchised and affiliated restaurants are derived from royalties and initial setup fees. Initial fees are recognized upon opening of a restaurant, which is when the Company has performed substantially all initial services required by the franchise arrangement.

Royalties and income from the Company’s joint venture are recorded as the sales of the franchisees and joint venture are reported to the Company. In addition, the Company receives rental income from various sources. All uncollected income related to franchise and joint venture operations is subject to an assessment of collectability and an allowance for doubtful accounts is recorded if collection is not reasonably assured.

ADVERTISING COSTS

The Company expenses all advertising costs as incurred. Advertising expense is included within “occupancy and other” in the accompanying consolidated statements of operations.

STOCK BASED COMPENSATION

The Company accounts for stock options as prescribed by Accounting Principles Board Opinion No. 25.

(4) LIQUIDITY

The Company’s material financial commitments relate principally to its working capital requirements and its obligations to make operating and capital lease and term loan payments, monthly interest payments on its various loans and lease payments pursuant to certain real property leases. As of October 27, 2002, total minimum annual payments required under the Company’s note and lease obligations were $12.5 million. In addition, capital requirements relating to the opening of new restaurants have in the past been (and may in the future be) significant.

During fiscal year 2002, the Company’s primary sources of working capital were a sale-leaseback credit facility with Franchise Finance Corporation of America (“FFCA”) and working capital provided by operations. The FFCA debt has been restructured as a result of the Confirmed Plan of Reorganization During fiscal year 2003, the Company’s primary sources of working capital have been and are expected to continue to be cash generated from

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operations and proceeds from possible sales of assets relating to closed facilities, net of any required debt repayments.

The Company expects to open two additional restaurants in fiscal year 2003 at a total cost of approximately $2.9 million, including approximately $1.2 million to be expended after October 27, 2002. It is expected that the cash required to develop new restaurants will be generated from operations. Should cash from operations be insufficient for future expansion, and should additional capital through debt and equity sources be unavailable, there can be no assurance that the Company will be able to open additional restaurants.

The Company has experienced significant cash flow problems in the past. The Company believes that its ability to generate cash from operations is dependent upon, among other things, increased demand, restructuring its operations to minimize cash expenditures and the development of successful marketing strategies. The Company has implemented revenue enhancement programs along with cost reduction initiatives designed to produce positive cash flow and achieve sustainable profitable operations. There can be no assurance that these initiatives will be effective in generating profits or producing sufficient cash flows to fund operating requirements including debt repayments and lease obligations.

Capital requirements relating to the implementation of the Company’s business plan have been and will continue to be significant. If cash generated from the Company’s operations and possible sales of assets relating to closed facilities are insufficient to fund the Company’s financial commitments and working capital requirements (including amounts required to support future growth), the Company will have to obtain additional financing. There can be no guarantee or assurance that additional financing will be available on terms acceptable to the Company, or at all. In the event the Company is unable to secure such additional financing, the Company may have to significantly curtail its operations.

(5) ASSET IMPAIRMENT AND RESTRUCTURING CHARGES

In September 2001, the Company closed one unprofitable restaurant. In October 2001, the Company made the decision to close and sell 13 additional unprofitable restaurants. All but one of those restaurants was closed by November 12, 2001. The remaining restaurant is expected to be closed by the end of fiscal 2003. The Company recorded a $5.8 million asset impairment/restructure charge in the second quarter of fiscal year 2002. During the fourth quarter of fiscal year 2002, the Company revised its impairment/restructure charge relating to those 13 stores from $5.8 million to $9.6 million. Also, in the fourth quarter of fiscal year 2002, the Company accrued for an asset impairment/restructure charge for four additional stores that were closed subsequent to April 28, 2002 and for two undeveloped sites. The Company’s management made the decision to close these four restaurants and the decision not to build on the two undeveloped sites in the fourth quarter of fiscal year 2002. However, the actual closing of the restaurants occurred subsequent to the fiscal year end. The asset impairment/restructure charge relating to these four restaurants and the exit from the two undeveloped sites amounted to $3.0 million.

During the thirteen weeks ended October 27, 2002, the restructuring accrual was reduced by $3.7 million due to the reclassification of certain obligations to long term debt or capital lease obligation based on the final terms of the Confirmed Plan of Reorganization and an additional restructuring charge of $0.1 million was recorded primarily to adjust an estimated

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lease commitment liability to its final negotiated amount. Also, during the second quarter of fiscal year 2003, the Company recognized a $4.8 million asset impairment charge relating to long-lived assets at certain restaurants that are not performing as expected and fixtures and equipment owned or relating to capital leases at certain of the closed restaurants described above. The asset impairment relating to the under performing restaurants was based on the estimated future cash flow projections of those restaurants being insufficient to recover the cost of the long-lived assets. The asset impairment recorded during the thirteen weeks ended October 27, 2002 also includes the recognition of an impairment of $0.3 million relating to a former corporate deposit that has been deemed to not be collectable.

The following is a summary of the significant components of the Company’s asset impairment and restructuring charges for all of fiscal 2002 and for the first twenty six weeks of fiscal 2003 (in millions):

Asset impairment for fiscal 2002 includes the estimated loss on the sale of the 18 locations. In the case of the five mortgage sites and the six sites on which the Company has a ground lease and has built a building, the charge represents the difference between the net book value of the assets and the estimated net sale proceeds after all fees and commissions. The loss on rejection of lease commitments represents the settlement amount of leases rejected under the Confirmed Plan of Reorganization. Lease payments represent the value of anticipated lease payments until all of the real estate leased assets are sold. Bank and other charges include the cost to restructure all of the Company’s debt with its lenders and other fees associated with the Confirmed Plan of Reorganization including legal fees, loan documentation fees and other fees. Other charges also include all of the other costs related to shut down of the closed locations including travel expense, the cost to relocate the food inventory and equipment to other locations and other miscellaneous costs.

The following is a summary of the activity in the Company’s accrual for restructuring charges (in millions):

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(6) LONG-TERM DEBT

As of October 27, 2002, the Company’s long-term debt was comprised of the following items (amounts in millions):

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(7) CAPITAL LEASE OBLIGATIONS

The Company has entered into various lease agreements relating to buildings and furniture, fixtures and equipment that qualify as capital lease obligations under generally accepted accounting principles. Such lease agreements expire over periods ranging from four to 20 years. As of October 27, 2002, the total capital lease obligations and current portion of such capital lease obligations was $7.1 million and $1.2 million, respectively.

(8) COMMITMENTS AND CONTINGENCIES

CLASS ACTION SUIT

As a result of a review of its accounting records, the Company, in August 2001, restated its previously reported, audited financial statements for the fiscal years ended April 30, 2000, and April 25, 1999, and the related, unaudited quarterly financial statements for those periods, as well as the unaudited financial statements for the quarters ended July 30, 2000, October 29, 2000, and January 28, 2001. In connection with the restatement, the Company filed amended Form 10-Ks for fiscal years 2000 and 1999, and amended Form 10-Qs for the fiscal 2001, 2000 and 1999 quarters containing the restated financial statements.

The restatement occurred because of a determination by the Company that certain operating expenses were more appropriately attributable to fiscal 2000 and 1999 than later periods. The restatement resulted in a decrease in net income for fiscal 2000 and 1999, and the related quarterly periods, and an increase in net income for the quarters ended July 30, 2000, October 29, 2000, and January 28, 2001.

On April 10, 2002, a purported class action complaint alleging violations of federal securities laws was filed in the United States District Court for the Southern District of Florida against the Company, the then chairman of the Company’s board of directors, and the Company’s president and chief executive officer. This action (the “Action”) is styled: Sears v. Roadhouse Grill, Inc, et al., Case No. 02-CV-60493.

The Action purports to be brought on behalf of all purchasers of the stock of the Company between August 31, 1998 and August 1, 2001, with certain exclusions, and appears to be based principally, if not solely, on the fact that certain financial statements have been restated as described above. The Company believes there is no merit to the Action. The Company further believes that, under section 510(b) of the Bankruptcy Code, even if claims of the type asserted in the Action are allowed, they will be subordinated, in the Chapter 11 Case, to the claims of all creditors of the Company. Accordingly, such claims are treated under the Confirmed Plan of Reorganization as subordinate to the claims of all creditors.

As the Company filed for relief under Chapter 11 of the United States Bankruptcy Code on April 16, 2002, any claims in this Action should have been filed by the plaintiffs with the Court. If the plaintiffs had filed a claim with the Court, their claim against the Company would have been subordinated to the claims of all creditors of the Company. However, no claim against the Company was filed during the bankruptcy proceedings. Therefore, based on discussions with counsel, it is the Company’s expectation that the case against the Company will be dismissed. Should the Action brought by the plaintiffs be successful, the

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plaintiffs will share only in the distribution of stock in the reorganized company with the holders of the existing Common Stock, and will not dilute the recoveries of the Company’s creditors.

The Company believes that the individual defendants are covered, with respect to the claims asserted in the Action, by the Company’s Directors and Officers Liability Insurance Policy issued by National Union Fire Insurance Co. of Pittsburgh, Pa. The policy provides directors and officers liability coverage and corporate securities coverage. It has aggregate limits of $5,000,000 and a self-insured retention for securities claims of $250,000. With respect to the case against the defendants, to the extent permitted by law the Company intends to indemnify the individual defendants to the extent deductibles are paid.

GUARANTOR OF EQUIPMENT LEASES

The Company is the guarantor of equipment leases for three restaurants that are owned by one of its franchisees, Roadhouse West G.P., two of which are currently closed. In addition, management understands that other parties may also have guaranteed these obligations. Roadhouse West G.P. is currently in default of the payment terms of the operating leases. The balance of the remaining lease payments due was approximately $1.0 million as of October 27, 2002. Approximately $0.3 million of these payments were in arrears as of October 27, 2002. Roadhouse West G.P. has recently filed for Chapter 11 Bankruptcy. As a significant creditor of Roadhouse West G.P., the Company expects to actively participate in the unsecured creditor’s committee relating to the bankruptcy proceeding. However, the Company can not currently predict the outcome of these proceedings.

OPERATING LEASES AND OTHER AGREEMENTS

The Company is a party to various operating lease agreements relating to the rental of land and buildings and equipment at many of its restaurants. Such agreements range in terms of up to 20 years and generally provide the Company the option to renew for additional periods. The agreements generally also require significant penalties to be paid in the event the lease is terminated prior to its expiration. As of October 27, 2002, total minimum lease payments required under such operating lease agreements for the next twelve months are approximately $6.8 million. The Company is also a party to various agreements relating to services performed at its restaurants. Such agreements are generally for periods of one year or less and none of these agreements require payments that would be material to the Company’s financial position or results of operations.

OTHER

The Company is a party to legal proceedings arising in the ordinary course of business. In the opinion of management and based upon review with legal counsel, disposition of these matters will not materially affect the Company’s financial condition, results of operations or business.

The Company plans to open the two Company-owned restaurants under construction or development as of October 27, 2002 in fiscal year 2003. The Company expects that the average cash investment required to open these new restaurants in fiscal year 2003, excluding

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land and pre-opening costs, will be approximately $0.6 million per restaurant, or $1.2 million in the aggregate. It is expected that this amount will be funded by cash from operations.

On August 3, 2001, the Securities and Exchange Commission (“SEC”) informed the Company that it is conducting an informal investigation regarding the restatement of the Company’s audited financial statements for the fiscal years ended 2000 and 1999 and the first three fiscal quarters of fiscal 2001. The Company has cooperated fully with the SEC and will continue to do so.

(9) NEW ACCOUNTING STANDARDS

In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. Under these new standards, all acquisitions subsequent to June 30, 2001, must be accounted for using the purchase method of accounting, and goodwill is no longer amortized over its useful life. Rather, goodwill will be subject to an annual impairment test based on its fair value. Separable intangible assets that are determined to have a finite life will continue to be amortized over their useful lives. The Company implemented SFAS No. 141 effective June 30, 2001. The adoption of this statement had no impact on the Company’s financial position.

As of October 27, 2002, the Company had unamortized goodwill in the amount of $1,527,000, and unamortized identifiable intangible assets in the amount of $386,000, all of which are subject to the transition provisions of SFAS No. 142. In accordance with the new standards, no amortization expense related to goodwill was recorded for the twenty six weeks ended October 27, 2002. The amortization expense related to goodwill that was recorded in the thirteen and twenty six weeks ended October 28, 2001 was $33,000 and $67,000, respectively. Had the Company been subject to the provisions of SFAS No. 142 for the thirteen and twenty six weeks ended October 28, 2001, the Company’s net loss for the period would have been $8,943,000, or $0.92 per common share, and $11,103,000, or $1.15 per common share, respectively. In addition, as of October 27, 2002, the Company has performed an analysis of the realizability of its goodwill and determined that based on current estimates no impairment is presently required to be recognized.

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.” SFAS No. 144 retained substantially all of the requirements of SFAS No. 121 while resolving certain implementation issues. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. Management believes the impact of this pronouncement on its operations, if any, will not be material.

In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statement No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” Under Statement No. 4, all gains and losses from extinguishments of debt were required to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. This Statement eliminates Statement No. 4 and as a result, gains and losses from extinguishment of debt should be classified as extraordinary items only if they meet the criteria in Accounting Principles Board Opinion 30, “Reporting the Results of Operations –

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Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.” Additionally, this Statement amends SFAS No. 13, “Accounting for Leases,” such that lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in a similar manner as a sale-leaseback. This Statement is generally effective for financial statements issued on or after May 15, 2002. The impact of adopting SFAS No. 145 was not material.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and supercedes Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including certain costs incurred in a restructuring).” A liability for a cost associated with an exit or disposal activity shall be recognized and measured initially at its fair value in the period in which the liability is incurred, except for certain qualifying employee termination benefits. This Statement will be effective for exit or disposal activities initiated by the Company after December 31, 2002.

(10) NET LOSS PER COMMON SHARE (“EPS”)

Basic net earnings per share equals net earnings divided by the weighted average shares outstanding during the year. The computation of diluted net earnings per share includes dilutive common stock equivalents in the weighted average shares outstanding. The reconciliation between the computations is as follows (dollars in thousands except per share data):

Options to purchase 511,333 shares of common stock at a weighted average exercise price of $4.57 per share were outstanding during the thirteen weeks ended October 27, 2002 until such options were cancelled pursuant to the Confirmed Plan of Reorganization. These options were not included in the computation of diluted EPS because the Company recognized a loss during the quarter and including such options would result in antidilutive EPS.

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Options to purchase 680,896 shares of common stock at a weighted average exercise price of $5.04 per share were outstanding during the thirteen weeks ended October 28, 2001. These options were not included in the computation of diluted EPS because the Company recognized a loss during the quarter and including such options would result in antidilutive EPS. Additionally, all outstanding stock options were cancelled under the Confirmed Plan of Reorganization.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This report contains “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements concern expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. Statements preceded by, followed by, or that include the words “believes,” “expects,” “anticipates,” or similar expressions are generally considered to be forward-looking statements. Specifically, this report contains forward-looking statements on, without limitation, the following matters:

	•		the Company’s implementation of the roadhouse-style dining concept;
	•		anticipated trends in the economy and the restaurant industry;
	•		the Company’s strategies, plans, objectives and expectations concerning the Company’s future market position, operations, cash flow, margins, revenue, profitability, restaurant-level economics, liquidity and capital resources;
	•		the impact of the Company’s reorganization under Chapter 11 of the Bankruptcy Code;
	•		the Company’s ability to manage its debt and comply with its debt instruments;
	•		the Company’s ability to maintain financial and accounting controls, management controls, reporting systems and procedures;
	•		the Company’s ability to identify suitable restaurant locations;
	•		the Company’s ability to recruit, train and retain management personnel;
	•		the Company’s ability to manage labor, food costs and other operating expenses and to operate its restaurants on a profitable basis; and
	•		costs associated with opening, or completing construction on, new restaurants.

The forward-looking statements reflect the Company’s current view about future events and are subject to risks, uncertainties and assumptions. The Company wishes to caution readers that certain important factors may have affected and could in the future affect its actual results and could cause actual results to differ significantly from those expressed in any forward-looking statement. The following important factors, in addition to factors the Company discusses elsewhere in this report and in the Company’s Annual Report on Form 10-K for the fiscal year ended April 28, 2002, could prevent the Company from achieving its goals, and cause the assumptions underlying the forward-looking statements and the actual results to differ materially from those expressed in or implied by those forward-looking statements:

	•		the Company’s ability to make future debt, capital lease, and operating lease payments;
	•		the Company’s ability to comply with its debt instruments in the future;
	•		availability of additional financing;
	•		relisting of the Company’s stock;
	•		outcome of the SEC inquiry;
	•		net losses;
	•		the Company’s ability to identify suitable locations and open new restaurants;

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	•		the Company’s ability to acquire adequate food supply and to obtain favorable food costs;
	•		changes in consumer preferences, tastes and eating habits;
	•		the availability of qualified labor and the Company’s ability to control its labor costs effectively;
	•		competition from other restaurants;
	•		construction delays;
	•		increases in interest rates; and
	•		national, regional and local economic and weather conditions.

GENERAL

The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto, included elsewhere in this Form 10-Q.

The Company operates, franchises and licenses high-quality, full-service, casual dining restaurants under the name “Roadhouse Grill.” The Company was founded in 1992 and opened its first restaurant in 1993. As of October 27, 2002, there were 69 Company owned Roadhouse Grill restaurants located in Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, New York, North Carolina, Ohio, and South Carolina. Of these, 34 are located in Florida. The Company also has three franchised locations in Malaysia, one franchised location in Brasilia, Brazil, one franchised location in Las Vegas, Nevada and one joint venture location in Italy. Another joint venture location was opened in Rome, Italy in November 2002 and one franchised location in Ohio was opened in December 2002. Also, the Company had two additional franchised locations in Las Vegas, Nevada which are currently closed (see Note 8 to the accompanying Consolidated Financial Statements). Please see the Company’s Annual Report on Form 10-K for the year ended April 28, 2002, for a complete discussion of the franchise and joint venture arrangements.

The Company’s revenues are derived primarily from the sale of food and beverages. In the thirteen and twenty six weeks ended October 27, 2002, restaurant sales generated from lunch and dinner amounted to approximately 26% and 74%, respectively, of restaurant sales. Restaurant sales of food and beverages accounted for approximately 90% and 10%, respectively, of total restaurant sales during the thirteen and twenty six weeks ended October 27, 2002. Franchise and management fees during this period accounted for less than 1% of the Company’s total revenues.

Restaurant operating expenses include food and beverage, labor, direct operating and occupancy costs. Direct operating costs consist primarily of costs of expendable supplies, marketing and advertising expense, maintenance, utilities and restaurant general and administrative expenses. Occupancy costs include rent, real estate and personal property taxes and insurance. Certain elements of the Company’s restaurant operating expenses, including direct operating and occupancy costs and to a lesser extent labor costs, are relatively fixed.

The Company’s new restaurants can be expected to generate above-average sales during the initial weeks that the restaurant is open, commonly referred to as the “honeymoon” period. As the restaurant is open longer, sales generally decline after initial trial by guests. There is no assurance that a new Roadhouse Grill restaurant will attain profitable operations. Furthermore, costs during the first several months of operation can be expected to be higher

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than the Company’s average costs, primarily cost of food and beverage sales and labor costs. There is no assurance that these costs will decline to more normalized levels as the restaurant matures.

During the second and fourth quarters of fiscal 2002, the Company recognized impairment losses and restructuring charges of $5.8 million and $6.8 million, respectively, for the write-down of assets at 18 Company-owned restaurants at which operations had ceased or at which operations are currently being closed. During the second quarter of fiscal 2003, the Company recognized an additional asset impairment of $4.8 million relating to certain restaurants that are not performing as expected and fixtures and equipment owned or relating to capital leases at certain of the closed restaurants. The Company also recognized during the second quarter of fiscal 2003 a restructuring charge of $0.1 million relating primarily to finalizing the estimated lease commitment for a closed restaurant. The Company closed 13 of the restaurants by the end of fiscal year 2002, and four restaurants were closed during the thirteen weeks ended July 28, 2002. The remaining restaurant is expected to be closed by the end of fiscal 2003.

CRITICAL ACCOUNTING POLICIES

The attached Consolidated Financial Statements and the Company’s Annual Report on Form 10-K for the year ended April 28, 2002 include a summary of the significant accounting policies and methods used in the preparation of the financial statements. Management believes the following critical accounting policies affect the significant judgments and estimates used in the preparation of the financial statements.

PROPERTY AND EQUIPMENT

The Company accounts for long-lived assets in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. This Statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

INTANGIBLE ASSETS

The Company accounts for intangible assets in accordance with SFAS No. 142, Goodwill and Other Intangible Assets. As of October 27, 2002, the Company had unamortized goodwill in the amount of $1.5 million and unamortized identifiable intangible assets in the amount of $0.4 million. In accordance with SFAS No. 142, goodwill is subject to an annual impairment test based on its fair value and no amortization of goodwill is recorded. The intangible assets, which have been determined to have a finite life, are being amortized over their useful lives.

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USE OF ESTIMATES

The preparation of the Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results, particularly with respect to matters impacted by the proceedings under Chapter 11, could differ materially from those estimates.

In addition, asset impairment charges, restructuring charges, and the reserve for restructuring are predominantly based on estimates of the market value of assets of which the Company plans to dispose and the amount of future cash flows estimated to be realized relating to impaired assets that are anticipated to be utilized in the Company operations in the future. Such estimates will also be affected by the time interval required to dispose of those assets to be sold. Actual results could be materially different.

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RESULTS OF OPERATIONS

The following table sets forth for the periods indicated the percentage relationship to total revenues of certain statements of operations data.