SuccessorUNITED SuccessorSTATESSECURITIES |AND PredecessorEXCHANGE Company Company | Company June 29COMMISSIONWashington, DecemberD.C. 31, | December 30, 2004 2003 | 2003 ---- ---- | ---- (Unaudited) (Audited) | (Audited) Assets | Current assets: | Cash and cash equivalents $ - $2,205,221 | $ 2,205,221 Accounts receivable, net of allowance for doubtful | accounts of $133,234 264,521 67,909 | 67,909 Inventory, net of allowance for obsolete inventories | of $45,805 989,403 1,298,203 | 1,298,203 Prepaid expenses and other current assets 814,793 497,416 | 497,416 ------------ ------------ | ----------- Total current assets 2,068,717 4,068,749 | 4,068,749 | Property, plant and equipment, net 11,691,992 12,582,374 | 13,110,554 Liquor Licenses 688,000 688,000 | - Deposits and other assets 178,881 103,407 | 103,407 Cash - restricted under collateral agreements - - | 480,496 | Goodwill 18,788,006 18,881,786 | - | ------------ ------------ | ----------- Total Assets $ 33,415,596 $ 36,324,316 | $17,763,206 ============ ============ | ===========20549

SuccessorFORM Successor Predecessor Company Company Company June 29, December 31, December 30, 2004 2003 2003 ---- ---- ----- (Unaudited) (Audited) (Audited) Liabilities and Stockholders' Deficit: | Current liabilities: | Current portion of long term debt $ 2,053,769 $ 2,058,222 | $ 5,137,118 Current portion of capital lease 232,939 258,918 | - Accounts payable and other current liabilities 3,113,133 4,572,589 | 3,144,654 Accrued liabilities 5,034,388 4,779,828 | 6,693,183 Accrued payroll costs 973,210 1,473,853 | 1,473,853 ------------ ------------ | ------------ Total current liabilities 11,407,439 13,143,410 | 16,448,808 | Long-Term Debt 7,687,252 7,906,213 | 1,341,313 Long-Term capital leases 8,887,517 9,605,956 | - Deferred rent 69,367 113,182 | - Deferred tax liability - - | 119,411 ------------ ------------ | ------------ Total liabilities not subject to compromise 28,051,575 30,768,761 | 17,909,532 ------------ ------------ | ------------ Liabilities subject to compromise - - | 25,540,623 | | Stockholders' Equity (Deficit): | Predecessor Company preferred stock | $0.001 par value | 2,250,000 shares authorized | 0 shares issued and outstanding - - | - | Predecessor Company preferred stock | Series B, Convertible $0.001 par value | 1,000,000 shares authorized | 1,000,000 shares issued and outstanding - - | 1,000 | Predecessor Company preferred stock | Series C, Convertible $0.001 par value | 1,750,000 shares authorized | 1,750,000 shares issued and outstanding - - | 1,750 | Predecessor Company common stock | $0.001 par value | 10,000,000 shares authorized | 3,386,522 shares issued and outstanding - - | 33,865 | Successor Company preferred stock | $0.001 par value | 5,000,000 shares authorized | 0 shares issued and outstanding - - | - | Successor Company common stock | $0.001 par value | 15,000,000 shares authorized | 4,500,000 shares issued and outstanding 4,500 4,500 | - | Committed stock 555,555 555,555 | - | Predecessor Company treasury stock, 28,845 | shares, at cost - - | (175,000) | Predecessor Company additional paid-in-capital - - | 12,100,750 Successor Company additional paid-in- | capital 7,040,609 4,995,500 | - Deferred Compensation (1,830,492) | Accumulated deficit, since January 1, 2004 (406,151) - | (37,649,314) ------------ ------------ | ------------ Total Stockholder's Equity (deficit) 5,364,021 5,555,555 | (25,686,949) ------------ ------------ | ------------ | Total liabilities and stockholders' equity (deficit) $ 33,415,596 $ 36,324,316 | $ 17,763,206 ============ ============ ============Q

~~Successor Predecessor Company Company Thirteen Weeks Twelve Weeks ended June 29, ended June 10, 2004 2003 ----------------------------------~~ (~~Unaudited)~~Mark ~~(Unaudited~~One)ý ~~Core~~QUARTERLY ~~Restaurant~~REPORT ~~Revenue,~~UNDER ~~net~~SECTION 14,318,019 | 18,048,212 ----------- | ------------- Total Revenues, net 14,318,019 | 18,048,212 | Restaurant Costs of Sales | Food and beverage 5,013,729 | 6,495,161 Personnel costs 4,665,332 | 6,370,768 Direct operating costs 3,064,029 | 4,152,537 Depreciation & amortization 306,464 | 420,537 ----------- | ------------- Total Costs of Sales 13~~,049,554~~ |OR ~~17,439,003 Gross Profit 1,268,456 | 609,209 | General & Administrative 1,210,448 | 1,005,563 ----------- | ------------- Income~~ 15(~~loss~~D) ~~before~~OF ~~other~~THE ~~income~~SECURITIES ~~(expense)~~EXCHANGE ~~58,017~~ACT |OF (396,354) Other Income/(Expense) | Interest income 10,745 | (18,081) Interest expense (343,686) | (581,694) ----------- | ------------- Total other income (expense) (332,941) | (599,775) | Loss before reorganization items, and provision for | income taxes (274,924) | (996,129) | Reorganization items: | Gain on rejection and sale of property, plant | and equipment, net - | 1,089,804 Professional fees - | (226,101) ----------- | ------------- Total reorganization items - | 863,703 | Loss before provision of income taxes (274,924) | (132,426) Provision for income tax 18,000 | 30,000 ----------- | ------------- Net (Loss) (292,924) | (162,426) =========== | ============= | Basic and diluted earning (loss) per share (0.07) | (0.05) =========== | ============= Weighted average shares, basic and diluted 4,500,000 | 3,386,522 =========== | =============1934

~~Successor~~For ~~Predecessor~~the ~~Company~~thirteen ~~Company~~week Twenty-six Twenty-four Weeks Weeks ended June 29, ended June 10, December 31, 2004 2003 2003 ----------------------------------------------------- (Unaudited) (Unaudited) (Audited) Core Restaurant Revenue, net 27,932,075 | 37,929,477 - Revenues earned on restaurants disposed | During the period ended ~~June~~March 29, ~~2004,~~2005 ~~net~~o ~~545,343~~TRANSITION |REPORT -UNDER -SECTION ~~----------- | ------------- ----------- Total Revenues, net 28,477,418 | 37,929,477 - | Restaurant Costs of Sales | Food and beverage - core restaurants 9,726,512 |~~ 13~~,509,466~~ -OR Food and beverage - disposed restaurants 260,197 | - - Personnel costs - core restaurants 9,225,454 | 13,349,925 - Personnel costs - disposed restaurants 374,031 | - - Direct operating costs - core restaurants 5,663,104 | 8,749,854 - Direct operating costs - disposed restaurants 182,780 | - - Depreciation & amortization - core restaurants 621,965 | 915,240 - Depreciation & amortization - disposed restaurants 10,094 | - - ----------- | ------------- ----------- Total Costs of Sales 26,064,137 | 36,524,485 - Gross Profit 2,413,281 | 1,404,992 - | General & Administrative 2,225,877 | 2,444,730 - ----------- | ------------- ----------- Income 15(~~loss~~D) ~~before~~OF ~~other~~THEEXCHANGE income (expense) 187,404 | (1,039,738) - Other Income/(Expense) | Interest expense (655,209) | (1,227,893) - Other income 105,641 | 89,529 - ----------- | ------------- ----------- Total other income (expense) (549,568) | (1,138,364) - | Loss before reorganization items, provision for | income taxes, and discontinued operations (362,164) | (2,178,102) - | Reorganization items: | Reorganization gain/(loss), net - | - 6,645,343 Gain on rejection and sale of property, plant | and equipment, net - | 2,232,278 - Professional fees - | (335,181) - ----------- | ------------- ----------- Total reorganization items - | 1,897,097 6,645,343 | Loss before provision of income taxes and | discontinued operations (362,164) | (281,005) 6,645,343 Provision for income tax 43,987 | 60,000 - Income/(Loss) before discontinued operations (406,151) | (341,005) 6,645,343 Income from discontinued operations, net of | income taxes of $850 - | 1,057,463 - ----------- | ------------- ----------- Net (Income)/Loss (406,151) | 716,458 6,645,343 =========== | ============= =========== | ----------- | ------------- ----------- Basic and diluted earnings (loss) per share | | Earnings(Loss)from continuing operations $ (0.09) | $ (0.10) $ 1.56 | =========== | ============= =========== Earnings(Loss)from discontinued operations - | 0.31 - =========== | ============= =========== Basic and diluted earning (loss) per share (0.09) | 0.21 1.96 =========== | ============= =========== Weighted average shares, basic and diluted 4,500,000 | 3,386,522 3,386,522 =========== | ============= ===========ACT

~~Successor~~For | Predecessor Company | Company Twenty-six | Twenty-four weeks | weeks ended June 29, | ended June 10, December 31, 2004 | 2003 2003 ------------------ | ------------- -------------- (Unaudited) | (Unaudited) Unaudited) | | | Net income (loss) from continuing operations $ (406,151) | $716,458 $ 6,645,343 Net income from discontinued operations - | 1,057,463 - Adjustments to reconcile net income (loss) to net | cash provided by (used in) operating activities | Depreciation and amortization 608,404 | 915,240 - Gain on disposal of rejected leases - | (2,232,278) - Amortization of stock options issued below fair | market value to employees 124,617 | - - Non Cash reorganization item - | - (6,645,343) Net liabilities of discontinued operation forgiven in | Chapter 7 liquidation - | (1,057,463) - Decrease in operating assets 43,417 | 2,635,266 - | (Decrease) in liabilities subject to compromise - | (2,419,497) - (Decrease) in operating liabilities (2,382,207) | (2,109,165) - ----------- | ------------ ---------- Net cash (used in) continuing operating activities (2,011,920) | (2,493,976) - Net cash provided by (used in) discontinued operating | activities - | - - | Cash flows from investing activities | Proceeds from the ~~sale~~transition of P.P. & E 615,956 | - - Purchases of furniture & equipment (333,978) | (87,951) - ----------- | ------------ ---------- Net cash provided by (used in) continuing investing | activities 281,978 | (87,951) - | Cash flows from financing activities | Principal payments on debt and capital leases (475,275) | (363,548) - ----------- | ------------ ---------- Net cash (used in) continuing financing activities (475,275) | (363,548) - Net increase (decrease) in cash and cash equivalents (2,205,221) | (1,888,012) - Cash and cash equivalents, beginning of period ~~2,205,221 | 2,750,673 - ----------- | ------------ ---------- Cash and cash equivalents, end of period - | 862,661 - ----------- | ------------ ----------~~from to

Thirteen weeks Twelve weeks Ended Ended June 29, 2004 June 10, 2003 ---------------- --------------- Net Loss As reported $ (292,924) $ (162,426) Stock based employee compensation cost, net of related tax effects, included in reported net loss $ 102,000 $ -23739Commission ~~Stock~~File based employee compensation cost, net of related tax effects, that would have been included in the determination of net loss if the fair value method had been applied (112,751) (63,450) Pro Forma Net Loss $ (303,675) $ (225,876) Earnings per common share Basic and diluted- as reported $ (0.07) $ (0.05) Stock based employee compensation cost, net of related tax effects, included in reported net loss $ 0.02 $ -Number:

~~Successor~~STEAKHOUSE ~~Company Predecessor Company ----------------- ------------------- Thirteen Twenty-six Twelve Twenty-four Weeks Weeks Weeks Weeks ended June 29~~PARTNERS, ~~ended~~INC. ~~June 29, ended June 10, ended June 10, 2004 2004 2003 2003 ------------------------- -----------------------------~~ (~~Unaudited)~~Exact ~~(Unaudited)~~name ~~(Unaudited) (Unaudited) Core Restaurant Revenue, net 14,318,019 27,932,075 12,504,577 24,929,405 Restaurant Costs~~ of ~~Sales~~registrant ~~Food~~as ~~and~~specified ~~beverage~~in -its ~~core~~charter) restaurants 5,013,729 9,726,512 4,250,189 8,536,193 Personnel costs - core restaurants 4,665,332 9,225,454 4,102,362 8,221,476 Direct operating costs - core restaurants 3,064,029 5,663,104 2,534,103 5,081,480 Depreciation & amortization - core restaurants 306,464 621,965 313,149 606,798 ----------- --------- ----------- ---------- Total Costs of Sales 13,049,554 25,237,035 11,199,803 22,445,947 Gross Profit 1,268,456 2,695,040 1,304,774 2,483,458

Delaware	94-3248672
(State or other jurisdiction of Incorporation or organization)	(I.R.S. Employer Identification No.)

10200 Willow Creek Road, San Diego, CA 92131
(Address of principal executive offices)

(858) 689-2333
(Registrant’s telephone number)

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 ý No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 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 ý No o

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer’s classes of common stock, as of May 13, 2005: 5,873,915 shares of common stock

FORM 10-Q
STEAKHOUSE PARTNERS, INC. AND SUBSIDIARIES

INDEX

		Page Number
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of March 29, 2005 and December 31, 2004	1-2
	Condensed Consolidated Statements of Operations for the thirteen weeks ended March 29, 2005 and thirteen weeks ended March 30, 2004	3
	Condensed Consolidated Statements of Cash Flows for the thirteen weeks ended March 29, 2005 and the thirteen weeks ended March 30, 2004	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
Item 4. \	Controls and Procedures	23
PART II OTHER INFORMATION
Item 1.	Legal Proceedings	23
Item 2.	Unregistered Sales of Equity Securities and use of Proceeds	24
Item 3.	Defaults Upon Senior Securities	24
Item 4.	Submission of Matters to a Vote of Security Holders	24
Item 5.	Other Information	24
Item 6.	Exhibits and Reports on Form 8-K	24
SIGNATURES		25
SECTION 302 CERTIFICATION
SECTION 906 CERTIFICATION

STEAKHOUSE PARTNERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 29, 2005

ASSETS

	March 29, 2005		December 31, 2004
	(Unaudited)
Current assets
Cash and cash equivalents	$	209,710	$	715,666
Accounts receivable, net of allowance for doubtful accounts of $13,993 and $14,063		355,827		268,244
Inventories		837,685		906,577
Prepaid expenses and other current assets		748,383		707,748

Total current assets		2,151,605		2,598,235
Property, plant, and equipment, net		10,978,501		11,187,910
Liquor licenses		688,000		688,000
Deposits and other assets		199,608		199,609
Tradenames		13,921,000		13,921,000
Goodwill		2,879,316		2,879,316

Total assets	$	30,818,030	$	31,474,070

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

STEAKHOUSE PARTNERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 29, 2005

LIABILITIES AND STOCKHOLDERS’ EQUITY

	March 29, 2005			December 31, 2004
	(Unaudited)
Liabilities
Current liabilities
Current portion of long term debt	$	3,763,021		$	3,724,590
Current portion of capital lease		269,494			257,907
Accounts payable		2,262,756			3,204,501
Accrued expenses		903,209			1,384,141
Unearned revenue		1,275,255			1,646,023
Reserve for self insurance claims		62,659			123,687
Sales and property taxes payable		127,730			47,729
Accrued payroll costs		1,199,371			1,045,275

Total current liabilities		9,863,495			11,433,853
Long term debt, net of current portion		5,567,485			5,660,195
Long term capital lease		8,664,813			8,738,196
Deferred rent		160,436			131,416

Total liabilities		24,256,229			25,963,660

Stockholders’ equity (deficit)
Common stock, $0.001 par value 15,000,000 shares authorized and 5,200,000 shares and 4,500,000 shares issued and outstanding		5,200			4,500
Committed stock, $0.001 par value 500,000 shares issued		500			500
Additional paid-in capital		7,001,999			7,595,664
Deferred compensation		—			(1,454,952	)
Accumulated deficit		(445,898	)		(635,302	)

Total stockholders’ equity		6,561,801			5,510,410

Total liabilities and stockholders’ equity	$	30,818,030		$	31,474,070

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

STEAKHOUSE PARTNERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	Thirteen weeks ended March 29, 2005			Thirteen weeks ended March 30, 2004
	(Unaudited)			(Unaudited)
Revenues, net	$	13,303,376		$	13,614,056
Disposed restaurants		—			545,343

Revenues, net		13,303,376			14,159,399
Cost of sales
Food and beverage		4,290,495			4,712,783
Disposed restaurants		—			260,197
Payroll and payroll related costs		4,551,338			4,560,122
Disposed restaurants		—			374,031
Direct operating costs		2,729,794			2,599,075
Disposed restaurants		—			182,780
Depreciation and amortization		315,872			315,501
Disposed restaurants		—			10,094

Total cost of sales		11,887,499			13,014,583
Gross profit		1,415,877			1,144,816
General and administrative		1,065,052			1,015,429
Legal settlement		28,412			—

Income before other income (expense)		322,413			129,387
Other income (expense)
Miscellaneous income		228,932			104,015
Interest expense		(331,940	)		(320,642	)

Total other income (expense)		(103,008	)		(216,627	)
Income (loss) before reorganization items, provision for income taxes		219,405			(87,240	)

Reorganization items
Professional fees		(11,000	)		—

Total reorganization items		(11,000	)		—
Income (loss) before provision for income taxes		208,405			(87,240	)
Provision for income taxes		19,000			25,987

Net Income/ (Loss)	$	189,405		$	(113,227	)

Earnings (loss) per share
Basic	$	0.03		$	(0.03	)

Diluted	$	0.03		$	(0.03	)

Weighted average shares
Basic		5,532,609			4,500,000

Diluted		5,584,812			4,500,000

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

STEAKHOUSE PARTNERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Thirteen weeks ended March 29, 2005			Thirteen weeks ended March 30, 2004
	(Unaudited)			(Unaudited)
Cash flows from operating activities
Net income (loss)	$	189,405		$	(113,227	)
Depreciation and amortization		315,872			320,000
Increase in operating assets		32,674			42,192
Decrease in operating liabilities		(1,591,356	)		(2,624,687	)

Net cash used in operating activities		(1,053,405	)		(2,375,722	)
Cash flows from investing activities
Purchases of property, plant, and equipment		(102,713	)		(177,846	)
Proceeds from the sale of property, plant and equipment		—			615,956

Net cash provided by (used in) investing activities		(102,713	)		438,110
Cash flows from financing activities
Proceeds from stock issuance		861,987			—
Principal payments on debt and capital leases		(211,825	)		(260,821	)

Net cash provided by (used in) financing activities		650,162			(260,821	)
Net decrease in cash and cash equivalents		(505,956	)		(2,198,433	)
Cash and cash equivalents, beginning of the period		715,666			2,205,221

Cash and cash equivalents, end of period		209,710			6,788

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

Non-cash Disclosures:

1. In the thirteen-weeks ended March 29, 2005 the Company financed $92,000 of insurance premiums.

2. In the thirteen-weeks ended March 29, 2005 the Company cancelled all stock options issued in 2004, in turn deferred compensation and additional-paid-in-capital were reduced by $1,454,952.

STEAKHOUSE PARTNERS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — BASIS OF PRESENTATION

The unaudited condensed consolidated financial statements of the Company as of March 29, 2005 and for the thirteen weeks ended March 29, 2005 and the thirteen weeks ended March 30, 2004 have been prepared in accordance with the instructions for Form 10-Q under the Securities Exchange Act of 1934, as amended, and Article 10 of Regulation S-X under the Securities Act of 1934, as amended. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations related to interim financial statements.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position of the Company as of March 29, 2005, and the results of its operations for the thirteen-week period ended March 29, 2005 and the thirteen-week period ended March 30, 2004, and its cash flows for the thirteen-week period ended March 29, 2005 and the thirteen-week period ended March 30, 2004. The results for the thirteen-week period ended March 29, 2005 are not necessarily indicative of the expected results for the full 2005 fiscal year or any future period.

The Company reports results quarterly, with four quarters having thirteen weeks. These condensed consolidated financial statements should be read in conjunction with the financial statements and related footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 filed with the SEC.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the 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 could differ from those estimates. Significant estimates embedded in the condensed consolidated financial statements for the periods presented concern the fair values of goodwill and the fixed assets and other intangible assets and the estimated useful lives of intangible assets.

In February 2002, the Company and its wholly owned subsidiary, Paragon Restaurants, Inc., filed voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. The Company’s plan of Reorganization ( “the Plan”) was confirmed on December 19, 2003, and became effective on the Effective Date. For financial reporting purposes, the Company used an effective date of December 30, 2003. References in prior financial statements to “Predecessor Company” refer to the Company prior to and including December 30, 2003. References to “Successor Company” refer to the Company on and after December 31, 2003, after giving effect to the cancellation of all outstanding securities of the Predecessor Company and the issuance of new securities of the Successor Company in accordance with the Plan and implementation of “fresh start” accounting. The events which occurred during fiscal year 2003 relating to the Chapter 11 proceedings, the securities issued in accordance with the Plan, and the “fresh start” accounting adjustments are described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 filed with the SEC.

GOING CONCERN

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the Company’s Annual Report on Form 10-K for the year

ended December 31, 2004 filed with the SEC, during the years ended December 31, 2004 and December 31, 2003 (Reorganized Company) and December 30, 2003 (Predecessor Company, Debtor-in-Possession), the Company maintained a current ratio of 0.23-to-1, 0.31-to-1 and 0.25-to-1, respectively. In addition, during the years ended December 31, 2004 and December 31, 2003 (Reorganized Company) and December 30, 2003 (Predecessor Company, Debtor-in-Possession), the Company had a working capital deficit of approximately $8,800,000, $9,000,000 and $12,400,000, respectively. On January 19, 2005 the Company successfully completed the first phase (minimum) of a Private Placement Memorandum for $1,050,000. The maximum amount that can be raised per the Private Placement Memorandum is $3,000,000. If the Company is unable to generate profits and unable to obtain additional financing for its working capital requirements, it may have to curtail its business sharply or cease business altogether.

The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, to restructure its current financing, to obtain additional financing, and ultimately to attain annual profitability. Management has evaluated its current operations, and it has focused the Company’s efforts and developed plans to generate operating income to continue the Company’s operations through the year ending December 27, 2005.

Management’s plans include the following:

1. Restructuring its long-term debt position.

2. Improving the Company’s financial performance through local marketing sales generation, cost-reduction and restructuring of administrative overhead.

3. Raising money through equity or third party financing.

Currently, the Company is negotiating with the trustee for the unsecured creditors to extend the terms of the short-term debt, per the Plan of Reorganization, to more closely match the cash generated from operations. On January 19, 2005, we completed the sale, pursuant to the Private Placement Memorandum, of 700,000 shares of Common Stock and Warrants to purchase 350,000 shares of common stock, at an initial exercise price of $2.00 per share, for an aggregate of $1,050,000 of gross proceeds.

NOTE 1 — EARNINGS PER SHARE

The Company utilizes SFAS No. 128, “Earnings per Share.” Basic earnings (loss) per share is computed by dividing income (loss) available to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Common equivalent shares are excluded from the computation if their effect is anti-dilutive. Pursuant to the Private Placement Memorandum the warrants to purchase 350,000 shares of common stock are anti-dilutive and therefore excluded from the dilutive weighted average shares outstanding used in the earnings per share calculation. The Company’s common share equivalents consist of warrants and options.

NOTE 2 — CONTINGENCIES

The Company is periodically a defendant in cases involving personal injury and other matters that arise in the normal course of business. While any pending or threatened litigation has an element of uncertainty, the Company believes that the outcome of any pending lawsuits or claims, individually or combined, will not materially affect the financial condition or results of operations.

NOTE 3 — PROPERTY, PLANT AND EQUIPMENT

Property, plant, and equipment, including leasehold improvements, are recorded at cost, less accumulated depreciation and amortization. Depreciation is provided using the straight-line method over the estimated useful lives of the respective assets as follows:

Buildings 20 years, Furniture, fixtures, and equipment 5 years.

Improvements to leased property are amortized over the lesser of the life of the lease or the life of the improvements. Amortization expense on assets acquired under capital leases is included with depreciation and amortization expense on owned assets.

Maintenance and minor replacements are charged to expense as incurred. Gains and losses on disposals are included in the results of operations.

Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment at least annually or 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 the assets to future net cash flows expected to be generated by the assets. In evaluating long-lived assets for impairment, a number of factors are considered:

A) Restaurants sales trends;
B) Local competition;
C) Changing demographic profiles;
D) Local economic conditions;
E) New laws and government regulations that adversely effect sales and profits; and
F) The ability to recruit and train skilled restaurant employees.

If the assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount exceeds the fair value of the assets.

NOTE 4 — INCOME TAXES

Steakhouse Partners, Inc. accounts for income taxes under the provisions of SFAS No. 109, Accounting for Income Taxes. Under this method, deferred tax assets and liabilities are established for the temporary difference between financial reporting basis and the tax basis of the Company’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. The Company provides a valuation allowance against net deferred tax assets unless, based upon the available evidence, it is more likely than not that the Company will be able to realize any portion of the deferred tax assets.

The reorganization of the Company (see the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 filed with the SEC) constituted an ownership change under Section 382 of the Internal Revenue Code. An ownership change generally occurs if certain persons or groups increase their aggregate ownership percentage in a corporation’s stock by more than 50 percentage points in the shorter of any three-year period or the period beginning the day after the day of the last ownership change. Section 382 may apply to limit the Company’s future ability to any remaining NOL’s and tax credits generated before the ownership change and certain subsequently recognized “built-in” losses and deductions, if any, existing as of the date of the ownership change.

NOTE 5 — EQUITY TRANSACTIONS

During the thirteen weeks ended March 29, 2005, in a transaction exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 4(2) of such Act and Regulation D promulgated there under, Steakhouse Partners, Inc. completed an initial closing with respect to the sale of 700,000 shares of common stock (the “Shares”) and Common Stock purchase warrants (the

“Warrants”) to purchase 350,000 shares of common stock (the “Warrant Shares”), at an initial exercise price of $2.00 per share (the “Exercise Price”), for an aggregate of $1,050,000 of gross proceeds. Following the delivery of our audited financial statements for the year ended December 27, 2005 ( “Fiscal 2005”), the Exercise Price of the Warrants will be subject to increase or decrease based on our earnings from recurring operations before interest payments, income tax, depreciation and amortization ( “EBITDA”) for Fiscal 2005. The Exercise Price will be adjusted as follows upon the date of exercise: (i) increased by 5% (but in no event will the Exercise Price exceed $2.50) for every $100,000 by which EBITDA for Fiscal 2005 exceeds $3.5 million (the “EBITDA Threshold”) and (ii) decreased by 10% (but in no event will the Exercise Price be less than $1.00) for every $100,000 by which Fiscal 2005 EBITDA is below the EBITDA Threshold. The Warrants also contain certain redemption and anti-dilution provisions. The securities were issued with restricted security legends.

During the thirteen weeks ended March 29, 2005, the Company cancelled all stock options previously granted to employees. The effective date of the termination of all stock options is January 1, 2005. The intrinsic value associated with these options unfairly adversely affected the Corporation and its ability to acquire capital.

During the thirteen weeks ended March 29, 2005, the Company cancelled all stock options previously granted to two members of its board of directors. The effective date of the termination of all stock options is January 1, 2005. The intrinsic value associated with these options unfairly adversely affected the Corporation and its ability to acquire capital.

During the thirteen weeks ended March 29, 2005, the Company cancelled all stock options previously granted to one of its stockholders for services to be rendered over a period of three years. The fair value (Black-Scholes option-pricing model) associated with these options unfairly adversely affected the Corporation and its ability to acquire capital.

During the thirteen weeks ended March 29, 2005, the Company granted options to purchase in the aggregate 25,000 shares of common stock to an employee with an exercise price of $1.11 per share. One-third of the options become exercisable on the last day of each year starting February 23, 2006. The Company did not record a deferred compensation charge in connection with the issuance as the exercise price of the stock options was equal to or greater than the fair market value of the Company’s stock price as of the date of grant.

The table below represents a reconciliation of the Company’s pro forma net income giving effect to the estimated compensation expense related to stock options that would have been reported if the Company utilized the fair value:

	Thirteen Weeks ended March 29, 2005 (Unaudited)			Thirteen Weeks ended March 30, 2004 (Unaudited)
Net Income (loss)
As reported	$	189,405		$	(113,227	)
Stock based employee compensation cost, net of related tax effects, included in reported net loss	$	—		$	—
Stockbased employee compensation cost, net of related tax effects, that would have been included in the determination of net loss if the fair value method had been applied		(417	)		—

PRO FORMA NET (LOSS) INCOME	$	188,988		$	(113,227	)

Earnings per common share
Basic and diluted — as reported	$	0.03		$	(0.03	)
Stock based employee compensation cost, net of related tax effects, included in reported net loss	$	—		$	—
Stockbased employee compensation cost, net of related tax effects, that would have been included in the determination of net income(loss) if the fair value method had been applied	$	—		$	—
Proforma	$	0.03		$	(0.03	)

NOTE 6 — SUBSEQUENT EVENTS

On May 6, 2005 the Board of Directors of Steakhouse Partners, Inc. resolved to terminate the stock option grant of April 1, 2004, effective January 1, 2005. The Board of Directors of the Company determined that the intrinsic and fair market value placed on the initial grants unfairly adversely affects the Corporation and its ability to acquire capital.

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

FORWARD-LOOKING STATEMENTS

This report on Form 10-Q may contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. This Act provides a “safe harbor” for forward-looking statements to encourage companies to provide prospective information about themselves so long as they identify these statements as forward looking and provide meaningful cautionary statements identifying important factors that could cause actual results to differ from the projected results. Risks and uncertainties that affect the Company include the strength of the recovery of the U.S. economy, trends affecting the Company’s financial condition or results of operations, the Company’s operating strategy and growth strategy, potential acquisitions or joint ventures by the Company, litigation affecting the Company, the timely development and market acceptance of new products, the ability to provide adequate incentives to retain and attract key employees, the impact of competitive products and pricing, and other risks which are detailed herein under the heading “Risk Factors.” For this purpose, any statement contained herein that is not a statement of historical fact may be deemed to be a forward-looking statement. Without limiting the foregoing, the words “believes,”“anticipates,” “plans,” “expects,” and similar expressions are intended to identify forward-looking statements. The

Company’s actual results may differ materially from those indicated by such forward-looking statements based on the factors outlined above.

The following is management’s discussion and analysis of certain significant factors, which have affected the results of operations and should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and notes thereto.

OVERVIEW

BACKGROUND

The Company currently operates 25 full-service steakhouse restaurants located in eight states. The Company’s restaurants specialize in complete steak and prime rib meals, and also offer fresh fish and other lunch and dinner dishes. The Company’s average check is $26.46 (including alcoholic beverages) and it currently serves approximately 2.5 million meals annually. The Company operates principally under the brand names of Hungry Hunter, Hunter Steakhouse, Mountain Jack’s and Carvers. We believe that our restaurants are well positioned in a high quality, moderately priced segment of the restaurant industry. Our Carvers restaurants represent an upscale restaurant market specializing in complete steak, chop, prime rib and seafood meals. Our growth strategy is based on internal growth and growth through acquisition. Internal growth focuses on improvement in same store sales and construction of new restaurant properties. Acquisition growth focuses on conversion of acquired restaurant properties to our steakhouse brand names and the targeted acquisition of one or more large steakhouse chains.

RESULTS OF OPERATIONS

RESULTS OF OPERATIONS — SELECTED ITEMS AS A PERCENTAGE OF NET SALES

The following table sets forth, as a percentage of net sales for the 25 comparable Paragon core restaurants only, certain items in the Company’s condensed consolidated statements of operations for the indicated periods:

	Thirteen Weeks Ended	Thirteen Weeks Ended
	March 29, 2005	March 30, 2004
Revenue	100.0%	100.0%
Discounts	3.5%	4.7%
Net Revenues	96.5%	95.3%
Cost of Sales
Food & Liquor costs	32.3%	34.6%
Personnel Costs	34.2%	33.5%
Direct Operating Cost	20.5%	19.1%
Depreciation	2.4%	2.3%
Gross Margin	10.6%	10.5%
General & Administrative	8.0%	7.5%
Interest Expense	2.5%	2.4%
Other	-1.3%	1.5%
Net Income (Loss)	1.4%	(0.8)%

Factors that have affected the results of operations for the first quarter and first thirteen weeks of fiscal 2005 for the Company as compared to the first period and first thirteen weeks of fiscal 2004 for the Company are discussed below.

THIRTEEN WEEKS ENDED MARCH 29, 2005 COMPARED TO THIRTEEN WEEKS ENDED MARCH 30, 2004

Net Revenues for the thirteen-week period ended March 29, 2005 decreased $856,023 or 6.1% from $14,159,399 for the thirteen-week period ended March 30, 2004 to $13,303,376 for the thirteen-week period in 2005. Most of this decline or $545,343 is associated with the disposal of three non-core restaurants that were operated and sold in the first quarter of 2004. Adding to the decline, same-store sales decreased 3.5% (partially the result of the Company reducing discounts by over 25%) for the 25 comparable Paragon core units in 2005 versus the same thirteen-week period in 2004.

Food and beverage costs for the thirteen-week period ended March 29, 2005 decreased $682,485 or 13.7% from $4,972,980 for the thirteen-week period ended March 30, 2004 to $4,290,495 for the thirteen-week period in 2005. The chief reason for this decline is the disposal of three non-core restaurants that were operated and sold in the first quarter of 2004. Food and beverage costs as a percentage of restaurant revenues for the core restaurants was 34.6% for the thirteen-week period ended March 30, 2004 compared to 32.3% for the same thirteen-week period in 2005. The chief reason for this improvement is the Company has reengineered its menu to provide increase perceived guest value while reducing some costs, raising menu prices and verbally committing to one-half of its prime rib at lower than market rates for the calendar year 2005.

Payroll and payroll related costs for the thirteen-week period ended March 29, 2005 decreased $382,815 or 7.8% from $4,934,153 for the thirteen-week period ended March 30, 2004 to $4,551,338 for the thirteen-week period in 2005. The chief reason for this decline is the disposal of three non-core restaurants that were operated and sold in the first quarter of 2004. Payroll and payroll related costs as a percentage of restaurant revenues for the core restaurants was 33.5% thirteen-week period ended March 30, 2004 compared to 34.2% for the same thirteen-week period in 2005. The chief reason for this increase as a percentage relationship to revenue is that the decrease in the restaurants’ net revenue was slightly greater than the minimum production staffing that is required per unit to maintain guest services and a positive dining experience. However, a number of units have reduced their total management team required as the existing team has become more efficient. On an annualized basis the Company anticipates saving (including benefits) approximately $200,000.

Direct operating costs include all other unit-level operating costs, the major components of which are operating supplies, repairs and maintenance, advertising expense, utilities, and other occupancy costs. A substantial portion of these expenses is fixed or indirectly variable. Direct operating cost for the thirteen-week period ended March 29, 2005 decreased $52,061 or 1.9% from $2,781,855 for the thirteen-week period ended March 30, 2004 to $2,729,794 for the thirteen-week period in 2005. The chief reason for this decline is the disposal of three non-core restaurants that were operated and sold in the first quarter of 2004. Direct operating costs as a percentage of restaurant revenues for the core restaurants was 19.1% for the thirteen-week period ended March 30, 2004 compared to 20.5% for the same thirteen-week period in 2005. In absolute dollars the direct operating costs for core restaurants remained relatively constant, however increase in the percentage relations to revenue was the direct result of the decrease in revenue between the quarter just ended March 29, 2005 and the same quarter in 2004.

Depreciation and amortization for the thirteen-week period ended March 29, 2005 decreased $9,723 or 3.0% from $325,595 for the thirteen-week period ended March 30, 2004 to $315,872 for the same period in 2005. The chief reason for this decline is the disposal of three non-core restaurants that were operated and sold in the first quarter of 2004. Depreciation for the core restaurants remained relatively constant between the quarter just ended March 29, 2005 and same period 2004.

General and administrative expenses for the thirteen-week period ended March 29, 2005 increased $49,623 or 4.9% from $1,015,429 for the thirteen-week period ended March 30, 2004 to $1,065,052 for the thirteen-week period in 2005. These costs as a percentage of core restaurants net revenues were 7.5% for the thirteen-week period ended March 30, 2004 compared to 8.0% for the same period in 2005. The chief reason for the increase in general and administrative expense is the increase in

professional fees ($120,000) for change of outside accountants and finalizing all “fresh-start” adjustments for year-end 2004 partially offset by the annual general managers meeting being rescheduled for the second quarter. During the thirteen-week period ended March 29, 2005, the Company eliminated a district leader and an accounting position while also reducing expenses for services that on an annualized basis is expected to reduce costs by over a $200,000.

Other income (expenses) for the thirteen-week period ended March 29, 2005 decreased $113,619 or 52.4% from ($216,627) for the thirteen-week period ended March 30, 2004 to ($103,008) for the same period in 2005. The chief reason for this decrease was the California Workmen Compensation refund for approximately ($220,000) for the policy year-end May 1, 2004 was much greater than the refund received for the previous policy year.

Net income for the thirteen-week period ended March 29, 2005 increased $302,632 from a net loss of $113,227 for the thirteen-week period ended March 30, 2004 to a net income of $189,405 for the thirteen-week period in 2005. The net income for the thirteen-week period ended March 29, 2005 was chiefly the result of disposing of the three under performing restaurants in the first quarter of 2004. Those restaurants contributed a combined loss of $281,759 to the net loss line for the thirteen-week period ended March 30, 2004. Also contributing to the gain was the menu price increase, prime rib verbal contracts and state workmen compensation refund. Partially offsetting the income was higher production labor cost and increases in legal and audit fees.

LIQUIDITY AND CAPITAL RESOURCES

The Company had a cash and cash equivalents balance of $209,710 at March 29, 2005. Our operating activities for the thirteen weeks ended March 29, 2005 used almost $1.2 million. On January 19, 2005, we completed the sale, pursuant to the Private Placement Memorandum, of 700,000 shares of Common Stock and Warrants to purchase 350,000 shares of common stock, at an initial exercise price of $2.00 per share, for an aggregate of $1,050,000 of gross proceed. The Company believes that the cash flow from operations plus the proceeds from the remainder of the Memorandum should be more than sufficient to fund its operations at current levels and fund its repayment obligations pursuant to the Plan during the remainder of fiscal 2005. However, the Company cannot provide assurance they will actually receive any additional proceeds from the memorandum. The Company’s highest cash generation quarters from operations are the second and fourth quarters.

However, to the extent the Company’s estimates and assumptions are inaccurate the Company may not have sufficient cash reserves to maintain its operations and fund its obligations. In such event, the Company may need to seek additional financing. Any required additional financing may not be available on terms favorable to us, or at all. If adequate funds are not available on acceptable terms, we may be unable to fund our reorganization plan and may be required to sell core assets or dissolve the business. If we raise additional funds by issuing equity securities, shareholders may experience dilution of their ownership interest and the newly issued securities may have rights superior to those of the common stock. If we issue or incur debt to raise funds, we may be subject to limitations on our operations.

We had a cash and cash equivalents balance of $715,666 at December 31, 2004. During Fiscal 2004 we maintained a current ratio of 0.23-to-1, which arose from a working capital decit of $8,835,618, which included short-term debt resulting from the Plan.

IMPACT OF INFLATION

The primary inflationary factors affecting the Company’s operations include food and labor costs. The Company’s restaurant personnel are paid at the federal and state established minimum wage levels and accordingly, changes in such wage level affect the Company’ s labor costs. As costs of food and labor increase, the Company will seek to offset those increases through economies of scale and/or

increases in menu prices, although there is no assurance that such offsets will continue. To date inflation has not had a material impact on loss from operations.

CRITICAL ACCOUNTING POLICIES

The following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results, and that require significant judgment.

NEW ACCOUNTING PRONOUNCEMENTS

In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123R ( “SFAS123R”), Share-Based Payment, an amendment of FASB Statements Nos. 123 and 95. SFAS 123R eliminates the ability to account for share-based compensation transactions using APB 25 and would require that such transactions be accounted for using a fair-value-based method and recognized as expenses in the statement of operations. SFAS 123R allows for the use of a modified version of prospective application, which requires that the fair value of new awards granted after the effective date of SFAS 123R, plus unvested awards at the date of adoption, be expensed over the applicable vesting period. The provisions of SFAS 123R will be effective for interim and annual reporting periods beginning after December 15, 2005. The Company is currently evaluating the impact the implementation guidance and revisions included in SFAS 123R will have on its consolidated financial statements.

SELF-INSURANCE

In the past the Company was self-insured for certain losses related to general liability and workers’ compensation. The Company maintained stop loss coverage with third party insurers to limit its total exposure. The self-insurance liability represents an estimate of the ultimate cost of old claims incurred as of the balance sheet date. The estimated liability is based upon analysis of historical data and actuarial estimates, and is reviewed by the Company on a quarterly basis to ensure that the liability is appropriate. If for any reason in the final settlement of these old claims the results differ from our estimates, our financial results could be impacted.

UNEARNED REVENUE

The Company sells gift cards and recognizes a liability, which is included in unearned revenue, for gift cards/certificates outstanding until the gift card/certificate is redeemed or considered to be unredeemable. The gift cards/certificates do not carry an expiration date so if all outstanding gift cards/certificates are redeemed at once, our financial results (cash) would be impacted.

PROPERTY, FIXTURES AND EQUIPMENT

Property, fixtures and equipment are recorded at cost. We expense repair and maintenance costs incurred to maintain the appearance and functionality of the restaurant that do not extend the useful life of any restaurant asset or are less than $1,000. Depreciation is computed on the straight-line basis over the following estimated useful lives:

Buildings and building improvements 20 years

Furniture and fixtures and equipment 5 years

Our accounting policies regarding property, fixtures and equipment include certain management judgments and projections regarding the estimated useful lives of these assets and what constitutes increasing the value and useful life of existing assets. These estimates, judgments and projections may produce materially different amounts of depreciation expense than would be reported if different assumptions were used.

IMPAIRMENT OF LONG LIVED ASSETS

We assess the potential impairment of identifiable intangibles, long-lived assets and goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Recoverability of assets is measured by comparing the carrying value of the asset to the future cash flows expected to be generated by the asset. In evaluating long-lived restaurant assets for impairment, we consider a number of factors such as:

a) Restaurant sales trends;
b) Local competition;
c) Changing demographic profiles;
d) Local economic conditions;
e) New laws and government regulations that adversely affect sales and profits; and
f) The ability to recruit and train skilled restaurant employees.

If the aforementioned factors indicate that we should review the carrying value of a restaurant’s long-lived assets, we perform an impairment analysis. Identifiable cash flows that are largely independent of other assets and liabilities typically exist for land and buildings, and for combined fixtures, equipment and improvements for each restaurant. If the total future cash flows are less than the carrying amount of the asset, the carrying amount is written down to the estimated fair value, and a loss resulting from value impairment is recognized by a charge to earnings.

Judgments and estimates made by us related to the expected useful lives of long-lived assets are affected by factors such as changes in economic conditions and changes in operating performance. As we assess the ongoing expected cash flows and carrying amounts of our long-lived assets, these factors could cause us to realize a material impairment charge.

RISK FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION

The following risk factors and other information included in this Interim Report should be carefully considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks actually occur, our business, nancial condition and operating results could be materially adversely affected.

OUR PRIOR BANKRUPTCY COULD HINDER OUR ABILITY TO NEGOTIATE EFFECTIVELY WITH THIRD PARTIES AND COULD ADVERSELY AFFECT OUR OPERATIONS GOING FORWARD.

In February 2002, Steakhouse, along with our wholly owned subsidiary Paragon, filed for voluntary reorganization under Chapter 11 of the Bankruptcy Code. We officially emerged from bankruptcy on December 31, 2003. However, our Chapter 11 reorganization and financial condition and performance could adversely affect our operations going forward. Our bankruptcy filings had an adverse affect on our credit standing with our lenders, certain suppliers and other trade creditors. This can increase our costs of doing business and can hinder our negotiating power with our lenders, certain suppliers and other trade creditors. The failure to negotiate favorable terms could adversely affect our financial performance.

IF WE ARE UNABLE TO OBTAIN ADDITIONAL FUNDS IN A TIMELY MANNER OR ON ACCEPTABLE TERMS OR THE PLAN OF REORGANIZATION IS UNSUCCESSFUL, WE MAY HAVE TO CURTAIL OR SUSPEND CERTAIN OR ALL OF OUR OPERATIONS,

WHICH COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION, RESULTS OF OPERATIONS AND PROSPECTS.

Although on January 19, 2005, we successfully raised $1,050,000 in a private placement of securities, we cannot be certain that additional financing will be available when and to the extent required or that, if available, it will be on acceptable terms. If we are unable to obtain additional funds in a timely manner or on acceptable terms to fund our deferred capital expense, it will seriously effect our ability to meet our Plan of Organization objectives, and we may have to curtail or suspend the expansion of our operations and possibly terminate existing operations, which could lead to overall lower revenues and adversely affect our financial results and prospects. If adequate funds are not available on acceptable terms, we may not be able to fund our expansion or respond to competitive pressures, which could lead to our inability to continue as a going concern.

WE HAVE INCURRED LOSSES FROM INCEPTION AND MAY NEVER GENERATE SUBSTANTIAL PROFITS.

We were organized in May 1996, and have incurred significant losses since inception. We may never generate annual prots. We incurred a net loss of approximately $635,302 for the fiscal year ended December 31, 2004; incurred a net loss of approximately $4,851,281 for the fiscal year ended December 30, 2003; and a net loss of approximately $6,582,559 for the fiscal year ended December 24, 2002.

WE WILL NEED ADDITIONAL CAPITAL FOR EXPANSION.

The development of new restaurants requires funds for construction, tenant improvements, furniture, fixtures, equipment, training of employees, permits, initial franchise fees, and other expenditures. We will require funds to develop additional restaurants and to pursue any additional restaurant development or restaurant acquisition opportunities that may develop.

In the future, we may seek additional equity or debt financing to provide funds so that we can develop or acquire additional restaurants. Such financing may not be available or may not be available on satisfactory terms. If financing is not available on satisfactory terms, we may be unable to expand our restaurant operations. While debt financing will enable us to add more restaurants than we otherwise would be able to add, debt financing increases expenses and is limited as to availability due to our financial results and bankruptcy history, and we must repay the debt regardless of our operating results. Future equity financings could result in dilution to our stockholders.

WE MAY NOT HAVE SUFFICIENT CASH RESERVES TO MAINTAIN AND FUND OUR OPERATIONS AND FUND OUR OBLIGATIONS.

We may not have sufficient cash reserves to maintain our operations and fund our obligations. In such event, we may need to seek additional financing. Any required additional financing may not be available on terms favorable to us, or at all. If adequate funds are not available on acceptable terms, we may be unable to fund our reorganization plan and may be required to sell core assets or dissolve the business. If we raise additional funds by issuing equity securities, shareholders may experience dilution of their ownership interest and the newly issued securities may have a rights superior to those of the common stock. If we issue or incur debt to raise funds, we may be subject to limitations on our operations.

BECAUSE WE HAVE EXPERIENCED SIGNIFICANT CHANGES IN OUR SENIOR MANAGEMENT TEAM, IT MAY BE DIFFICULT FOR INVESTORS TO EVALUATE OUR PROSPECTS FOR IMPROVED PERFORMANCE.

Our chief executive officer was hired in July 2003. If our new management team is unable to develop successful business strategies, achieve our business objectives or maintain effective relationships with

employees, suppliers, creditors and customers, our ability to grow our business and successfully meet operational challenges could be impaired.

IF WE LOSE OR ARE UNABLE TO OBTAIN KEY PERSONNEL, OUR ABILITY TO EFFECTIVELY OPERATE OUR BUSINESS COULD BE HINDERED.

Our ability to maintain or enhance our competitive position will depend to a significant extent on the efforts and ability of our executive officers, particularly our chief executive officer. Our future success and our ability to manage future growth will depend in large part upon the efforts of our management team and on our ability to attract and retain other highly qualified personnel. Competition for personnel is intense, and we may not be successful in attracting and retaining our personnel. Our inability to retain our current management team and attract and retain other highly qualified personnel could adversely affect our results of operations and hinder our ability to effectively manage our business.

CHANGING CONSUMER PREFERENCES AND DISCRETIONARY SPENDING PATTERNS, POTENTIAL OUTBREAKS OF “MAD COW DISEASE” OR “FOOT/MOUTH DISEASE” AND OTHER FACTORS AFFECTING THE AVAILABILITY OF BEEF COULD FORCE US TO MODIFY OUR RESTAURANTS’ CONCEPT AND MENU AND COULD RESULT IN A REDUCTION IN OUR REVENUES.

Even if we are able to successfully compete with other restaurant companies with similar concepts, we may be forced to make changes in one or more of our concepts in order to respond to changes in consumer tastes or dining patterns. Consumer preferences could be affected by health concerns about the consumption of beef, the primary item on our Hungry Hunter, Hunter Steakhouse, Mountain Jack’s, Carvers restaurants’ menus, or by specific events such as the recently confirmed cases of “mad cow disease” by the Canadian government or “foot/mouth disease” which occurred in the United Kingdom. In addition, these events could reduce the available supply of beef or significantly raise the price of beef. If we were to modify the emphasis on beef in our restaurant’s menus, we may lose additional customers who do not prefer the new concept and menu, and we may not be able to attract a sufficient new customer base to generate the necessary revenues needed to make the restaurant profitable. In addition, we may have different or additional competitors for our intended customers as a result of such a concept change and may not be able to successfully compete against such competitors. Our success also depends on numerous factors affecting discretionary consumer spending, including economic conditions, the cost of gasoline, disposable consumer income and consumer confidence. Adverse changes in these factors could reduce guest traffic or impose practical limits on pricing, either of which could reduce revenues and operating income.

WE FACE RISKS ASSOCIATED WITH CHANGES IN GENERAL ECONOMIC AND POLITICAL CONDITIONS THAT EFFECT CONSUMER SPENDING.

We believe that the weak general economic conditions in effect in the United States will continue through 2005. As the economy struggles, we are concerned that our customers may become more apprehensive about the economy and reduce their level of discretionary spending. We believe that a decrease in discretionary spending could impact the frequency with which our customers choose to dine out or the amount they spend on meals while dining out, thereby decreasing our revenues. Additionally, the continued military responses to terrorist attacks and our military operations abroad may exacerbate current economic conditions and lead to further weakening in the economy. Adverse economic conditions and any related decrease in discretionary spending by our customers could have an adverse effect on our revenues and operating results.

OUR PROFITABILITY IS DEPENDENT IN LARGE MEASURE ON FOOD AND SUPPLY COSTS WHICH ARE NOT WITHIN OUR CONTROL.

Our profitability is dependent in large measure on our ability to anticipate and react to changes in food and supply costs. Various factors beyond our control, including climatic changes and government regulations, may affect food costs. Specifically, our dependence on frequent, timely deliveries of fresh beef, poultry, seafood and produce subjects us to the risks of possible shortages or interruptions in supply caused by adverse weather or other conditions, which could adversely affect the availability and cost of any such items. We cannot assure you that we will be able to anticipate or react to increasing food and supply costs in the future. The failure to react to these increases could materially and adversely affect our business and result of operations.

OUR ABILITY TO EXECUTE OUR EXPANSION PLANS DEPENDS ON SECURING SUITABLE LOCATIONS AT FAVORABLE PRICES.

Our strategy for expansion of our operations includes the construction of new restaurant properties and/or acquisition of existing properties. Our ability to open additional restaurants will depend upon our ability to identify and acquire available new construction sites or restaurant conversions at favorable prices. We must also have sufficient available funds from operations or otherwise to support this expansion.

If we cannot successfully construct new restaurant properties or convert acquired restaurant properties to our established brands within projected budgets or time periods, our business and our ability to continue as a going concern will be adversely affected. Even with a successful reorganization and sufficient funds, plans to expand our business may fail due to construction delays or cost overruns, which could be caused by numerous factors, such as shortages of materials and skilled labor, labor disputes, weather interference, environmental problems and construction or zoning problems.

WE FACE RISKS ASSOCIATED WITH THE EXPANSION OF OUR OPERATIONS.

The success of our business depends on our ability to expand the number of our restaurants, either by developing or acquiring additional restaurants. Our success also depends on our ability to operate and manage successfully our growing operations. Our ability to expand successfully will depend upon a number of factors, including the following:

• the availability and cost of suitable restaurant locations for development;

• the availability of restaurant acquisition opportunities;

• the hiring, training, and retention of additional management and restaurant personnel;

• the availability of adequate financing;

• the continued development and implementation of management information systems;

• competitive factors; and

• general economic and business conditions.

Increased construction costs and delays resulting from governmental regulatory approvals, strikes, or work stoppages, adverse weather conditions, and various acts of God may also affect the opening of new restaurants. Newly opened restaurants may operate at a loss for a period following their initial opening. The length of this period will depend upon a number of factors, including the time of the year the restaurant is opened, the sales volume, and our ability to control costs.

We may not successfully achieve our expansion goals. Additional restaurants that we develop or acquire may not be profitable. In addition, the opening of additional restaurants in an existing market

may have the effect of drawing customers from and reducing the sales volume of our existing restaurants in those markets.

WE DEPEND ON KEY FOOD PRODUCT DISTRIBUTORS.

We currently rely chiefly on two food product distributors: Southwest Traders on the West Coast and and Van Eerden in the Mid-West. If either Southwest Traders or Van Eerden is unable to continue providing us with a high level of quality and dependability in the receipt of our supplies, at the cost advantages resulting from our volume purchases, this could have a material impact on our business.

We believe that all essential products are available from other national suppliers as well as from local suppliers in the cities in which our restaurants are located in the event we must purchase our products from other suppliers; however, there can be no assurance that we will be able to match quality, price or dependability of supply.

WE FACE COMMODITY PRICE AND AVAILABILITY RISK.

We purchase energy and agricultural products that are subject to price volatility caused by weather, market conditions and other factors that are not predictable or within our control. Increases in commodity prices could result in lower restaurant-level operating margins for our restaurant concepts. Occasionally, the availability of commodities can be limited due to circumstances beyond our control. If we are unable to obtain such commodities, we may be unable to offer related products, which would have a negative impact on our profitability.

INCREASES IN FEDERAL AND STATE STATUTORY MINIMUM WAGES COULD INCREASE OUR EXPENSES, WHICH COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.

Certain states have each increased their state minimum wages to a level that significantly exceeded the federal minimum wage. These recent increases in the state statutory minimum wage and any future federal or state minimum wage increases could raise minimum wages above the current wages of some of our employees. As a result, legal factors could require us to make corresponding increases in our employees’ wages. Increases in our wage rates increase our expenses, which could adversely affect our results of operations.

THE FAILURE TO ENFORCE AND MAINTAIN OUR TRADEMARKS AND TRADE NAMES COULD ADVERSELY AFFECT OUR ABILITY TO ESTABLISH AND MAINTAIN BRAND AWARENESS.

Our current operations and marketing strategy depend significantly on the strength of trademarks and service marks. Our wholly owned subsidiary, Paragon of Michigan, Inc., has registered, among others, the names Hungry Hunter, Mountain Jack’s and Carvers. The success of our growth strategy depends on our continued ability to use our existing trademarks and service marks in order to increase brand awareness and further develop our branded products. Although we are not aware of any infringing uses of any of the trademarks or service marks that we believe could materially affect us; we cannot assure you that we will be free from such infringements in the future.

The names “Hungry Hunter,” “Mountain Jack’s” and “Carvers” represent our core concept. The termination of our right to use this name or our failure to maintain any of our other existing trademarks could materially and adversely affect our growth and marketing strategies.

BECAUSE WE MAINTAIN A SMALL NUMBER OF RESTAURANTS, THE NEGATIVE PERFORMANCE OF A SINGLE RESTAURANT COULD HAVE A SUBSTANTIAL IMPACT ON OUR OPERATING RESULTS.

We currently own and operate 25 restaurants. Due to this relatively small number of restaurants, poor financial performance at any owned restaurant could have a significant negative impact on our profitability as a whole. The results achieved to date by our small restaurant base may not be indicative of the results of a larger number of restaurants in a more geographically dispersed area with varied demographic characteristics. We cannot assure you that we will be able to operate our existing restaurants at higher sales levels that generate equal or higher operating profits or increase the number of our restaurants sufficiently to offset the impact of poor performance at any one restaurant.

OUR OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY DUE TO SEASONALITY AND OTHER FACTORS BEYOND OUR CONTROL.

Our business is subject to seasonal fluctuations, which may vary greatly depending upon the region of the United States in which a particular restaurant is located. In addition to seasonality, our quarterly and annual operating results and comparable unit sales may fluctuate significantly as a result of a variety of factors, including:

• the amount of sales contributed by new and existing restaurants;

• the timing of new openings;

• increases in the cost of key food or beverage products;

• labor costs for our personnel;

• our ability to achieve and sustain profitability on a quarterly or annual basis;

• consumer confidence and changes in consumer preferences;

• health concerns, including adverse publicity concerning food-related illness;

• the level of competition from existing or new competitors in our segment of the restaurant industry; and

• economic conditions generally and in each of the market in which we are located.

These fluctuations make it difficult for us to predict and address in a timely manner factors that may have a negative impact on our results of operations.

WE COULD FACE LABOR SHORTAGES, INCREASED LABOR COSTS AND OTHER ADVERSE EFFECTS OF VARYING LABOR CONDITIONS.

The development and success of our restaurants depend, in large part, on the efforts, abilities, experience and reputations of the general managers and chefs at such restaurants. In addition, our success depends in part upon our ability to attract, motivate and retain a sufficient number of qualified employees, including restaurant managers, kitchen staff, and wait staff. Qualified individuals needed to fill these positions are in short supply and the inability to recruit and retain such individuals may delay the planned openings of new restaurants or result in high employee turnover in existing restaurants. A significant delay in finding qualified employees or high turnover of existing employees could materially and adversely affect our results of operations or business. Also, competition for qualified employees could require us to pay higher wages to attract sufficient qualified employees, which could result in higher, labor costs. In addition, increases in the minimum hourly wage, employment tax rates and levies, related benefits costs, including health insurance, and similar matters over which we have no control may increase our operating costs.

THE RESTAURANT INDUSTRY IS AFFECTED BY LITIGATION AND PUBLICITY CONCERNING FOOD QUALITY, HEALTH AND OTHER ISSUES, WHICH CAN CAUSE GUESTS TO AVOID OUR RESTAURANTS AND RESULT IN LIABILITIES.

Health concerns, including adverse publicity concerning food-related illness, although not specifically related to our restaurants, could cause guests to avoid our restaurants, which would have a negative impact on our sales. We may also be the subject of complaints or litigation from guests alleging food-related illness, injuries suffered on the premises or other food quality, health or operational concerns. A lawsuit or claim could result in an adverse decision against us that could have a material adverse effect on our business and results of operations. We may also be subject to litigation, which, regardless of the outcome, could result in adverse publicity. Adverse publicity resulting from such allegations may materially adversely affect our restaurants, regardless of whether such allegations are true or whether we are ultimately held liable. Such litigation, adverse publicity or damages could have a material adverse effect on our business, competitive position and results of operations.

COMPLIANCE WITH ENVIRONMENTAL LAWS MAY AFFECT OUR FINANCIAL CONDITION.

We are subject to various federal, state and local environmental laws. These laws govern discharges to air and water, as well as handling and disposal practices for solid and hazardous wastes. These laws may also impose liability for damages from and the costs of cleaning up sites of spills, disposals or other releases of hazardous materials. We may be responsible for environmental conditions or contamination relating to our restaurants and the land on which our restaurants are located, regardless of whether we lease or own the restaurant or land in question and regardless of whether such environmental conditions were created by us or by a prior owner or tenant. The costs of any cleanup could be significant and have a material adverse effect on our financial position and results of operations.

WE FACE INCREASED EXPENDITURES OF TIME AND MONEY ASSOCIATED WITH COMPLIANCE WITH CHANGING REGULATION OF CORPORATE GOVERNANCE AND PUBLIC DISCLOSURE.

Keeping abreast of, and in compliance with, changing laws, regulations, and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, and new SEC regulations, has required an increased amount of management attention and external resources. We remain committed to maintaining high standards of corporate governance and public disclosure. As a result, we intend to invest all reasonably necessary resources to comply with evolving standards, and this investment may result in increased general and administrative expenses and a diversion of management time and attention from revenue generating activities to compliance activities.

RISKS RELATED TO OUR COMMON STOCK

SINCE OUR SHARES ARE THINLY TRADED, AND TRADING ON THE PINK SHEETS MAY BE SPORADIC BECAUSE IT IS NOT AN EXCHANGE, STOCKHOLDERS MAY HAVE DIFFICULTY RESELLING THEIR SHARES.

Our common stock is currently quoted on the Pink Sheets. The fact that our common stock is not listed is likely to make trading more difficult for broker-dealers, shareholders and investors, potentially leading to further declines in share price. An investor may find it more difficult to sell our common stock or to obtain accurate quotations of the share price of its common stock.

THE PRICE OF OUR COMMON STOCK MAY FLUCTUATE SIGNIFICANTLY.

The market price of our common stock could fluctuate substantially due to a variety of factors, including market perception of our ability to achieve our planned growth, quarterly operating results of other companies, trading volume in our common stock, dilution systemic to financing operations, changes in general conditions in the economy and the financial markets or other developments affecting our competitors or us. In addition, the stock market is subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their operating performance and could have the same effect on our common stock.

In the past, following periods of volatility in the market price of a company’s securities, securities class-action litigation has often been instituted. Such litigation, if initiated, could result in substantial costs, a material adverse effect, and a diversion of management’s attention and resources.

FAILURE OF OUR COMMON STOCK TO APPRECIATE IN VALUE COULD AFFECT OUR ABILITY TO RAISE WORKING CAPITAL AND ADVERSELY IMPACT OUR ABILITY TO CONTINUE OUR NORMAL OPERATIONS.

A prolonged period in which our common stock trades at current levels could result in our inability to raise capital and may force us to reallocate funds from other planned uses, which would have a significant negative effect on our business plans and operations. If our stock price does not recover from its current levels, there can be no assurance that we can raise additional capital or generate funds from operations sufficient to meet our obligations. If we are unable to raise sufficient capital in the future, we may not be able to have the resources to continue our normal operations.

THE LARGE NUMBER OF SHARES OF OUR COMMON STOCK ELIGIBLE FOR PUBLIC SALE AND THE FACT THAT A RELATIVELY SMALL NUMBER OF INVESTORS HOLD OUR PUBLICLY TRADED COMMON STOCK COULD CAUSE OUR STOCK PRICE TO FLUCTUATE.

The market price of our common stock could fluctuate as a result of sales by our existing stockholders of a large number of shares of our common stock in the market or the perception that such sales could occur. A large number of shares of our stock is eligible for public sale and our common stock is concentrated in the hands of a small number of investors and is thinly traded. An attempt to sell by a large holder could adversely affect the price of our common stock. These sales or the perception that these sales might occur could also make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

TRADING OF OUR STOCK MAY BE RESTRICTED BY THE SEC’S PENNY STOCK REGULATIONS, WHICH MAY LIMIT A STOCKHOLDER’S ABILITY TO BUY AND SELL OUR STOCK.

The SEC has adopted regulations which generally define “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC, which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account

statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.

NASD SALES PRACTICE REQUIREMENTS MAY ALSO LIMIT A STOCKHOLDER’S ABILITY TO BUY AND SELL OUR STOCK.

In addition to the “penny stock” rules described above, the NASD, Inc. ( “NASD”) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, the NASD believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The NASD requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.

We do not expect to declare or pay any dividends. We have not declared or paid any dividends on our common stock since our inception, and we do not anticipate paying any such dividends for the foreseeable future.

ANTI-TAKEOVER PROVISIONS.

We do not currently have a shareholder rights plan or any anti-takeover provisions in our by-laws. Without any anti-takeover provisions, there is no deterrent for a take-over of our company, which may result in a change in our management and directors.

OWNERSHIP OF APPROXIMATELY 38% OF OUR OUTSTANDING COMMON STOCK BY FIVE STOCKHOLDERS WILL LIMIT YOUR ABILITY TO INFLUENCE CORPORATE MATTERS.

A substantial majority of our capital stock is held by a limited number of stockholders. Five stockholders, including our officers and directors and parties affiliated with or related to such persons or to us, own approximately 38% of the shares of common stock outstanding. Accordingly, such stockholders will likely have a strong influence on major decisions of corporate policy, and the outcome of any major transaction or other matters submitted to our stockholders or board of directors, including potential mergers or acquisitions, and amendments to our Amended and Restated Certificate of Incorporation. Stockholders other than these principal stockholders are therefore likely to have little influence on decisions regarding such matters.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Market Risk. The Company’s exposure to market risk is principally confined to cash in the bank, money market accounts, and notes payable, which have short maturities and, therefore, minimal and immaterial market risk.

Interest Rate Sensitivity. As of March 29, 2005, the Company had cash in checking and money market accounts. Because of the short maturities of these instruments, a sudden change in market interest rates would not have a material impact on the fair market value of these assets.

Foreign Currency Exchange Risk. The Company does not have any foreign currency exposure because it currently does not transact business in foreign currencies.

ITEM 4. CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports required to be filed under the Securities Exchange Act of 1934, as amended is recorded, processed, summarized and reported within. The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports required to be filed under the Securities Exchange Act of 1934, as amended is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Within 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on the foregoing, the Company’s President, who serves as the Company’s principal executive officer concluded that the Company’s disclosure controls, and procedures were effective.

There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect the internal controls subsequent to the date the Company completed its evaluation.

Notwithstanding the foregoing, there can be no assurance that the Company’s disclosure controls and procedures will detect or uncover all failures of persons within the Company and its subsidiaries to disclose material information otherwise required to be set forth in the Company’s periodic reports.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

As a consequence of the bankruptcy filings, all pending litigation and claims against the Company through December 30, 2003 were stayed, and no party could take action to realize its pre-petition claims, except pursuant to order of the Bankruptcy Court. All pre-petition claims have been treated within the Plan.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On January 19, 2005, in a transaction exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 4(2) of such Act and Regulation D promulgated thereunder, we completed an initial closing with respect to the sale, pursuant to the Memorandum, of 700,000 shares of Common Stock and Common Stock purchase warrants (the “Warrants”) to purchase 350,000 shares of common stock, at an initial exercise price of $2.00 per share (the “Exercise Price”), for an aggregate of $1,050,000 of gross proceeds (the “Private Placement”). Following the delivery of our audited financial statements for the year ended December 27, 2005 ( “Fiscal 2005”), the Exercise Price of the Warrants will be subject to increase or decrease based on our earnings from recurring operations before interest payments, income tax, depreciation and amortization ( “EBITDA”) for Fiscal 2005. The Exercise Price will be adjusted as follows upon the date of exercise: (i) increased by 5% (but in no event will the Exercise Price exceed $2.50) for every $100,000 by which EBITDA for Fiscal 2005 exceeds $3.5 million (the “EBITDA Threshold”) and (ii) decreased by 10% (but in no event will the Exercise Price be less than $1.00) for every $100,000 by which Fiscal 2005 EBITDA is below the EBITDA Threshold.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS AND REPORTS

(a) Exhibits.

31.1		Certification of Principal Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002
31.2		Certification of Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002
32.1		Certification of Principal Executive Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002
32.2		Certification of Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002

1. Form 14-C dated January 5, 2005 reporting the Company’s 2004 Stock Incentive Plan was approved without a meeting by less than unanimous written consent of stockholders, in lieu of a special meeting of the Company’s stockholders.

2. Form 8-K dated January 24, 2005 reporting that on January 19, 2005 the Company completed an initial closing of the sale of 700,000 shares of common stock and common stock purchase warrants for $1,050,000 in a transaction exempt from registration.

3. Form 8-K and 8-K/A dated January 24, 2005 reporting that the Company has changed accountants. There was no dissatisfaction or disagreements with the previous accountants. The Company engaged Mayer Hoffman McCann P.C. as their independent auditors for the period ending December 31, 2004.

4. Form 8-K dated March 1, 2005 reporting that the Company has appointed Susan Schulze-Claasen, as Executive Vice-President, Chief Administrative Officer and General Counsel. The Board of Directors of the Company approved this appointment.

SIGNATURES

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

STEAKHOUSE PARTNERS, INC.
/S/ A. STONE DOUGLASS		/S/ JOSEPH L. WULKOWICZ

A. STONE DOUGLASS		JOSEPH L. WULKOWICZ
President, Secretary and Director (Serving as principal executive officer)		Vice President and Chief Financial Officer (Serving as principal financial and accounting officer)

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