UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
ý QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the thirteen week period ended ~~March~~June 2928, 2005 o TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THEEXCHANGE ACT

For the transition period from to

000-23739
Commission File Number:

STEAKHOUSE PARTNERS, INC. (Exact name of registrant as specified in its charter)

Delaware	94-3248672
(State or other jurisdiction ofIncorporation or organization)	(I.R.S. EmployerIdentification 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~~August 1312, 2005: 5,873,915 shares of common stock

FORM 10-Q
STEAKHOUSE PARTNERS, INC. AND SUBSIDIARIES

~~INDEX~~EXPLANATORY NOTE

		PageNumber
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

Our independent registered public accounting firm has informed us that they will be unable to complete their review of our interim financial statements for the quarterly period ended June 28, 2005 prior to the filing of this Form 10-Q. As a result, the interim financial statements contained in our quarterly report on Form 10-Q for the quarter eneded June 28, 2005 have not been reviewed by our independent registered public accounting firm as required pursuant to Rule 10.01(d) of Regulation S-X, and therefore, the filing of this Form 10-Q is considered to be incomplete. As soon as our independent registered public accounting firm completes their review of our second quarter 2005 financial statements, we will file an amended Form 10-Q/A.

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

ASSETS

		Page Number
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of June 28, 2005 and December 31, 2004	1-2
	Condensed Consolidated Statements of Operations for the thirteen weeks ended June 28, 2005 and thirteen weeks ended June 29, 2004	3
	Condensed Consolidated Statements of Operations for the twenty-six weeks ended June 28, 2005 and twenty-six weeks ended June 29, 2004	4
	Condensed Consolidated Statements of Cash Flows for the twenty-six weeks ended June 28, 2005 and the twenty-six weeks ended June 29, 2004	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	26
PART II OTHER INFORMATION
Item 1.	Legal Proceedings	26
Item 2.	Unregistered Sales of Equity Securities and use of Proceeds	27
Item 3.	Defaults Upon Senior Securities	27
Item 4.	Submission of Matters to a Vote of Security Holders	27
Item 5.	Other Information	27
Item 6.	Exhibits and Reports on Form 8-K	27
SIGNATURES		28
SECTION 302 CERTIFICATION
SECTION 906 CERTIFICATION

	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

STEAKHOUSE PARTNERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 28, 2005

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

	June 28, 2005		December 31, 2004
	(Unaudited)
Current assets
Cash and cash equivalents	$	—	$	715,666
Accounts receivable, net of allowance for doubtful accounts of $0 and $14,063		349,111		268,244
Inventories		836,556		906,577
Prepaid expenses and other current assets		716,106		707,748

Total current assets		1,901,773		2,598,235
Property, plant, and equipment, net		10,731,436		11,187,910
Liquor licenses		688,000		688,000
Deposits and other assets		199,632		199,609
Tradenames		13,921,000		13,921,000
Goodwill		2,879,316		2,879,316

Total assets	$	30,321,157	$	31,474,070

~~STEAKHOUSE~~The ~~PARTNERS,~~accompanying ~~INC.~~notes ~~AND~~are ~~SUBSIDIARIES~~an ~~CONDENSED~~integral ~~CONSOLIDATED~~part ~~BALANCE~~of ~~SHEETS~~these AScondensed OFconsolidated ~~MARCH~~financial ~~29, 2005~~ statements.

~~LIABILITIES AND STOCKHOLDERS’ EQUITY~~1

	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

STEAKHOUSE PARTNERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 28, 2005

~~The~~LIABILITIES ~~accompanying~~AND ~~notes~~STOCKHOLDERS’ ~~are an integral part of these condensed consolidated financial statements.~~EQUITY

	June 28, 2005			December 31, 2004
	(Unaudited)
Liabilities
Current liabilities
Current portion of long term debt	$	4,592,783		$	3,724,590
Current portion of capital lease		282,339			257,907
Accounts payable		2,250,234			3,204,501
Accrued expenses		542,550			1,384,141
Unearned revenue		1,194,062			1,646,023
Reserve for self insurance claims		84,660			123,687
Sales and property taxes payable		97,721			47,729
Accrued payroll costs		982,686			1,045,275

Total current liabilities		10,027,035			11,433,853
Long term debt, net of current portion		4,701,145			5,660,195
Long term capital lease		8,588,422			8,738,196
Deferred rent		189,456			131,416

Total liabilities		23,506,058			25,963,660

Stockholders’ equity (deficit)
Common stock, $0.001 par value 15,000,000 shares authorized and 5,873,915 shares and 4,500,000 shares issued and outstanding		5,874			4,500
Committed stock, $0.001 par value 500,000 shares issued		—			500
Additional paid-in capital		7,201,827			7,595,664
Deferred compensation		—			(1,454,952	)
Accumulated deficit		(392,602	)		(635,302	)

Total stockholders’ equity		6,815,099			5,510,410

Total liabilities and stockholders’ equity	$	30,321,157		$	31,474,070

~~STEAKHOUSE~~The ~~PARTNERS,~~accompanying ~~INC.~~notes ~~AND~~are ~~SUBSIDIARIESCONDENSED~~an ~~CONSOLIDATED~~integral ~~STATEMENTS~~part OFof ~~OPERATIONS~~these condensed consolidated financial statements.

	Thirteen weeksended March 29,2005			Thirteen weeksended 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~~STEAKHOUSE ~~accompanying~~PARTNERS, ~~notes~~INC. ~~are~~AND anSUBSIDIARIESCONDENSED ~~integral~~CONSOLIDATED ~~part~~STATEMENTS ofOF ~~these~~OPERATIONS ~~condensed consolidated financial statements.~~

	Thirteen weeks ended June 28, 2005			Thirteen weeks ended June 29, 2004
	(Unaudited)			(Unaudited)
Total Revenues, net	$	13,287,920		$	14,318,019

Cost of sales
Food and beverage		4,400,092			5,013,729
Payroll and payroll related costs		4,510,232			4,665,332
Direct operating costs		2,819,790			3,064,029
Depreciation and amortization		321,118			306,464

Total cost of sales		12,051,232			13,049,554
Gross profit		1,236,688			1,268,465
General and administrative		1,004,130			1,210,448

Income before other income (expense)		232,558			58,017
Other income (expense)
Miscellaneous income		63,494			10,745
Interest expense		(286,972	)		(343,686	)

Total other income (expense)		(223,478	)		(332,941	)
Income (loss) before reorganization items, provision for income taxes		9,080			(274,924	)

Reorganization items
Professional fees		(11,000	)		—
Fresh start adjustments		76,216			—

Total reorganization items		65,216			—
Income (loss) before provision for income taxes		74,296			(274,924	)
Provision for income taxes		21,000			18,000

Net Income/ (Loss)	$	53,296		$	(292,924	)

Earnings (loss) per share
Basic	$	0.01		$	(0.07	)

Diluted	$	0.01		$	(0.07	)

Weighted average shares
Basic		5,690,875			4,500,000

Diluted		5,721,701			4,500,000

~~STEAKHOUSE~~The ~~PARTNERS,~~accompanying ~~INC.~~notes ~~AND~~are ~~SUBSIDIARIESCONDENSED~~an ~~CONSOLIDATED~~integral ~~STATEMENTS~~part OFof ~~CASH~~these ~~FLOWS~~condensed consolidated financial statements.

	Thirteen weeksended March 29,2005			Thirteen weeksended 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

Non-cash Disclosures:

	Twenty-six weeks ended June 28, 2005			Twenty-six weeks ended June 29, 2004
	(Unaudited)			(Unaudited)
Revenues, net	$	26,591,296		$	27,932,075
Disposed restaurants		—			545,343

Revenues, net		26,591,296			28,477,418
Cost of sales
Food and beverage		8,690,586			9,726,512
Disposed restaurants		—			260,197
Payroll and payroll related costs		9,061,571			9,225,454
Disposed restaurants		—			374,031
Direct operating costs		5,533,598			5,663,104
Disposed restaurants		—			182,780
Depreciation and amortization		636,990			621,965
Disposed restaurants		—			10,094

Total cost of sales		23,922,745			26,064,137
Gross profit		2,668,551			2,413,281
General and administrative		2,097,594			2,225,877

Income before other income (expense)		570,957			187,404
Other income (expense)
Miscellaneous income		276,439			105,641
Interest expense		(618,912	)		(655,209	)

Total other income (expense)		(342,473	)		(549,568	)
Income (loss) before reorganization items, provision for income taxes		228,484			(362,164	)

Reorganization items
Professional fees		(22,000	)		—
Fresh start adjustments		76,217			—

Total reorganization items		54,217			—
Income (loss) before provision for income taxes		282,701			(362,164	)
Provision for income taxes		40,000			43,987

Net Income/ (Loss)	$	242,701		$	(406,151	)

Earnings (loss) per share
Basic	$	0.04		$	(0.09	)

Diluted	$	0.04		$	(0.09	)

Weighted average shares
Basic		5,690,875			4,500,000

Diluted		5,721,701			4,500,000

~~1. In~~The ~~the~~accompanying ~~thirteen-weeks~~notes ~~ended~~are ~~March~~an ~~29,~~integral ~~2005~~part ~~the~~of ~~Company~~these ~~financed~~condensed ~~$92,000~~consolidated offinancial ~~insurance premiums~~statements.

~~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.~~4

4STEAKHOUSE PARTNERS, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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

	Twenty-six weeks ended June 28, 2005			Twenety-six weeks ended June 29, 2004
	(Unaudited)			(Unaudited)
Cash flows from operating activities
Net income (loss)	$	242,701		$	(406,151	)
Depreciation and amortization		636,989			608,404
Amortization of stock options issued below fair market value to emplyees		—			124,617
Forgiveness of debt		(92,682	)		—
Increase in operating assets		372,016			43,417
Decrease in operating liabilities		(2,088,461	)		(2,382,211	)

Net cash used in operating activities		(929,437	)		(2,011,924	)
Cash flows from investing activities
Purchases of property, plant, and equipment		(173,016	)		(333,978	)
Proceeds from the sale of property, plant and equipment		—			615,956

Net cash provided by (used in) investing activities		(173,016	)		281,978
Cash flows from financing activities
Proceeds from stock issuance		861,987			—
Principal payments on debt and capital leases		(475,200	)		(475,275	)

Net cash provided by (used in) financing activities		386,787			(475,275	)
Net decrease in cash and cash equivalents		(715,666	)		(2,205,221	)
Cash and cash equivalents, beginning of the period		715,666			2,205,221

Cash and cash equivalents, end of period		—			—

~~NOTE~~The 1accompanying —notes ~~BASIS~~are OFan ~~PRESENTATION~~integral part of these condensed consolidated financial statements.

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 10Non-Qcash 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.Disclosures:

1. 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 thirteentwenty-~~week~~six ~~period~~weeks ended ~~March~~June 2928, 2005 ~~and~~ the ~~thirteen-week~~Company ~~period~~financed ~~ended March 30~~$391,242 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~~insurance ~~expected results for the full 2005 fiscal year or any future period~~premiums.

~~The~~2. In ~~Company~~the ~~reports~~twenty-six ~~results~~weeks ~~quarterly,~~ended ~~with~~June ~~four~~28, ~~quarters~~2005 ~~having~~the ~~thirteen~~Company ~~weeks.~~mutually ~~These~~retroactively ~~condensed~~rescinded ~~consolidated~~all ~~financial~~stock ~~statements~~options ~~should~~issued bein ~~read~~2004, in ~~conjunction~~turn ~~with~~deferred ~~the~~compensation ~~financial statements~~ and ~~related footnotes included~~ additional-paid-in ~~the Company’s Annual Report on Form 10~~-Kcapital ~~for~~were ~~the~~reduced ~~year~~by ~~ended December 31~~$1, ~~2004 filed with the SEC~~454,952.

~~The~~3. In ~~preparation of financial statements in conformity with accounting principles generally accepted in~~ the ~~United~~twenty-six ~~States~~weeks ofended ~~America~~June ~~requires~~28, ~~management~~2005 ~~to make estimates and assumptions that affect~~ the ~~reported~~Company ~~amounts~~converted ofdebt ~~assets and liabilities and disclosure~~ of ~~contingent~~$200,002 ~~assets~~to ~~and liabilities at the date of the financial statements~~173,915 ~~and~~shares ~~the reported amounts~~ of ~~revenues~~common ~~and expenses during the reporting period~~stock. 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.5

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

~~The~~NOTE ~~accompanying~~1 ~~condensed~~— ~~consolidated~~BASIS ~~financial~~OF ~~statements~~PRESENTATION 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

5The unaudited condensed consolidated financial statements of the Company as of June 28, 2005 and for the thirteen and twenty-six weeks ended June 28, 2005 and the thirteen and twenty-six weeks ended June 29, 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.

~~ended~~In ~~December~~the ~~31,~~opinion ~~2004~~of ~~filed with the SEC~~management, ~~during~~ the ~~years~~accompanying ~~ended~~unaudited ~~December~~condensed ~~31,~~consolidated ~~2004~~financial ~~and~~statements ~~December~~reflect 31all adjustments, ~~2003~~consisting ~~(Reorganized~~only ~~Company)~~of ~~and~~normal ~~December~~recurring 30adjustments, ~~2003~~necessary ~~(Predecessor~~to ~~Company,~~present ~~Debtor-in-Possession),~~fairly the ~~Company~~financial ~~maintained~~position aof ~~current~~the ~~ratio~~Company as of ~~0.23-to-1,~~June ~~0.31-to-1 and 0.25-to-1~~28, ~~respectively. In addition~~2005, ~~during~~and the ~~years~~results ~~ended~~of ~~December~~its ~~31,~~operations ~~2004~~for ~~and~~the ~~December~~thirteen ~~31,~~and ~~2003~~twenty-six ~~(Reorganized~~week ~~Company)~~period ~~and~~ended ~~December~~June 3028, ~~2003~~2005 ~~(Predecessor~~and ~~Company, Debtor-in-Possession),~~ the ~~Company~~thirteen ~~had~~and atwenty-six ~~working~~week ~~capital~~period ~~deficit~~ended ofJune ~~approximately $8~~29,~~800,000,~~ $92004,~~000,000~~ and ~~$12,400,000,~~its ~~respectively.~~cash Onflows ~~January~~for ~~19, 2005~~ the ~~Company~~twenty-six ~~successfully~~week ~~completed~~period ~~the~~ended ~~first~~June ~~phase~~28, ~~(minimum)~~2005 ofand athe ~~Private~~twenty-six ~~Placement~~week ~~Memorandum~~period ~~for~~ended $1June 29,~~050,000~~ 2004. The ~~maximum~~results ~~amount~~for ~~that~~the ~~can~~thirteen beand ~~raised~~twenty-six ~~per~~week ~~the~~period ~~Private~~ended ~~Placement~~June ~~Memorandum is $3~~28,~~000,000.~~ If2005 ~~the~~are ~~Company~~not isnecessarily ~~unable~~indicative toof ~~generate~~the ~~profits~~expected ~~and~~results ~~unable to obtain additional financing~~ for ~~its~~the ~~working~~full ~~capital~~2005 ~~requirements,~~fiscal ityear ~~may have to curtail its business sharply~~ or ~~cease~~any ~~business~~future ~~altogether~~period.

The ~~condensed~~Company ~~consolidated~~reports ~~financial~~results ~~statements~~quarterly, dowith ~~not~~four ~~include~~quarters ~~any~~having ~~adjustments~~thirteen ~~relating~~weeks. toThese ~~the~~condensed ~~recoverability~~consolidated ~~and~~financial ~~classification~~statements ~~of liabilities that might be necessary~~ should ~~the Company~~ be ~~unable~~read toin ~~continue~~conjunction aswith athe ~~going~~financial ~~concern.~~statements 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~~related tofootnotes ~~attain~~included ~~annual~~in ~~profitability. Management has evaluated its current operations, and it has focused~~ the Company’s ~~efforts~~Annual ~~and~~Report ~~developed~~on ~~plans~~Form to10-K ~~generate~~for ~~operating~~the ~~income~~year toended ~~continue~~December ~~the~~31, ~~Company’s~~2004 ~~operations~~filed ~~through~~with the ~~year ending December 27, 2005~~SEC.

~~Management’s~~The ~~plans~~preparation ~~include~~of financial statements in conformity with accounting principles generally accepted in the ~~following:~~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.

~~1. Restructuring~~In February 2002, the Company and its ~~long-term~~wholly ~~debt~~owned ~~position~~subsidiary, Paragon Restaurants, Inc., filed voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. In July 2003, the Bankruptcy Court approved a DIP loan provided by the members of Steakhouse Investors and the general terms pursuant to which a plan of reorganization would be approved. 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. Upon confirmation of the Plan of Reorganization on the Effective Date, the entire balance of the DIP facility, including accrued interest, became due and payable to the members of Steakhouse Investors. Accordingly, the members of Steakhouse Investors received in the aggregate, 4.5 million or 90% of the new common stock of the Reorganized Company in exchange for a full and complete release of the Predecessor Company’s obligations under the DIP Credit Facility agreement other than interest. The members of Steakhouse Investors represent 100% new ownership of the Reorganized Company, as none of these investors were holders of record of the Predecessor

~~2. Improving the Company’s financial performance through local marketing sales generation, cost-reduction and restructuring of administrative overhead.~~ 6

3Company. ~~Raising~~ ~~money~~The ~~through~~outstanding ~~equity~~preferred orstock, ~~third~~common ~~party~~stock, ~~financing.~~stock options, and warrants of the Predecessor Company before confirmation were all canceled.

~~Currently,~~The ~~the~~events ~~Company~~which isoccurred ~~negotiating~~during ~~with~~fiscal ~~the~~year ~~trustee~~2003 ~~for~~relating ~~the unsecured creditors~~ to ~~extend~~ the ~~terms~~Chapter of11 ~~the short-term debt~~proceedings, ~~per~~ the ~~Plan~~securities ofissued ~~Reorganization,~~in toaccordance ~~more~~with ~~closely match~~ the ~~cash generated from operations. On January 19~~Plan, ~~2005,~~and ~~we completed~~ the ~~sale,~~“fresh ~~pursuant~~start” toaccounting ~~the~~adjustments ~~Private~~are ~~Placement~~described ~~Memorandum,~~in ofthe ~~700,000~~Company’s ~~shares~~Annual ofReport ~~Common~~on ~~Stock~~Form ~~and~~10-K ~~Warrants~~for tothe ~~purchase~~year ~~350,000~~ended ~~shares~~December ~~of common stock~~31, at2004 anfiled ~~initial~~with ~~exercise~~the ~~price of $2~~SEC.00 ~~per share, for an aggregate of $1,050,000 of gross proceeds.~~

~~NOTE~~Our 1independent —registered ~~EARNINGS~~public ~~PER~~accounting ~~SHARE~~firm has informed us that they will be unable to complete their review of our interim financial statements for the quarterly period ended June 28, 2005 prior to the filing of this Form 10-Q. As a result, the interim financial statements contained in our quarterly report on Form 10-Q for the quarter eneded June 28, 2005 have not been reviewed by our independent registered public accounting firm as required pursuant to Rule 10.01(d) of Regulation S-X, and therefore, the filing of this Form 10-Q is considered to be incomplete. As soon as our independent registered public accounting firm completes their review of our second quarter 2005 financial statements, we will file an amended Form 10-Q/A.

~~The~~GOING 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. CONCERN

~~NOTE~~The 2accompanying —condensed ~~CONTINGENCIES~~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. Through April 7, 2005 the Company successfully completed the first phase (minimum) of a private placement for $1,250,000. The maximum amount that can be raised per the private placement 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 ~~Company~~condensed isconsolidated ~~periodically~~financial astatements ~~defendant~~do innot ~~cases~~include ~~involving~~any ~~personal~~adjustments ~~injury~~relating to the recoverability and ~~other~~classification ~~matters~~of liabilities that ~~arise~~might inbe necessary should the ~~normal~~Company ~~course~~be ofunable ~~business~~to continue as a going concern. ~~While~~The ~~any~~Company’s ~~pending~~continuation oras ~~threatened~~a ~~litigation~~going ~~has~~concern anis ~~element~~dependent ofupon ~~uncertainty,~~its ~~the~~ability ~~Company~~to ~~believes~~generate ~~that~~sufficient ~~the~~cash ~~outcome~~flow ofto ~~any~~meet ~~pending~~its ~~lawsuits~~obligations oron ~~claims~~a timely basis, ~~individually~~to orrestructure ~~combined~~its current financing, ~~will~~to ~~not~~obtain ~~materially~~additional ~~affect~~financing, and ultimately to attain annual profitability. Management has evaluated its current operations, and it has focused the ~~financial~~Company’s ~~condition~~efforts orand ~~results~~developed ofplans to generate operating income to continue the Company’s operations through the year ending December 27, 2005.

6Management’s plans include the following:

~~NOTE~~1. Restructuring 3its —long-term ~~PROPERTY,~~debt ~~PLANT~~position. ~~AND EQUIPMENT~~

~~Property,~~2. Improving ~~plant,~~the ~~and~~Company’s ~~equipment,~~financial ~~including~~performance ~~leasehold~~through ~~improvements,~~local ~~are~~marketing ~~recorded~~sales atgeneration, cost,-reduction ~~less accumulated depreciation~~ and ~~amortization.~~restructuring ~~Depreciation is provided using the straight-line method over the estimated useful lives~~ of ~~the~~administrative ~~respective~~overhead. ~~assets as follows:~~

~~Buildings~~3. Raising 20money ~~years,~~through ~~Furniture,~~equity ~~fixtures,~~or ~~and~~third ~~equipment~~party ~~5 years~~financing.

~~Improvements~~Currently, tothe ~~leased~~Company ~~property~~is ~~are~~negotiating ~~amortized~~with ~~over~~ the ~~lesser~~trustee offor the ~~life~~unsecured ofcreditors ~~the~~to ~~lease~~extend or the ~~life~~terms of the ~~improvements.~~short-term ~~Amortization~~debt, ~~expense~~per onthe ~~assets~~Plan ~~acquired~~of ~~under~~Reorganization, ~~capital~~to ~~leases~~more isclosely ~~included~~match ~~with~~the ~~depreciation~~cash ~~and~~generated ~~amortization~~from ~~expense on owned assets~~operations.

~~Maintenance and minor replacements are charged to expense as incurred. Gains and losses on disposals are included in the results of operations.~~ 7

~~Impairment~~NOTE of1 ~~Long-Lived~~— ~~AssetsThe~~EARNINGS ~~Company~~PER 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:SHARE

A)The ~~Restaurants~~Company ~~sales~~utilizes ~~trends;B~~SFAS No. 128, “Earnings per Share.” Basic earnings (loss) ~~Local~~per ~~competition;C~~share is computed by dividing income (loss) ~~Changing~~available ~~demographic~~to ~~profiles;D~~common stockholders by the weighted-average number of common shares outstanding. Diluted earnings (loss) ~~Local~~per ~~economic~~share ~~conditions;E~~is computed similar to basic earnings (loss) ~~New~~per ~~laws~~share ~~and~~except ~~government~~that ~~regulations~~the denominator is increased to include the number of additional common shares that ~~adversely~~would ~~effect~~have ~~sales~~been outstanding if the potential common shares had been issued and ~~profits;~~if ~~andF)~~the ~~The~~additional ~~ability~~common shares were dilutive. Common equivalent shares are excluded from the computation if their effect is anti-dilutive. Pursuant to ~~recruit~~the Private Placement Memorandum the warrants to purchase 436,958 shares of common stock are anti-dilutive and ~~train~~therefore ~~skilled~~excluded ~~restaurant~~from ~~employees~~the dilutive weighted average shares outstanding used in the earnings per share calculation. The Company’s common share equivalents consist of warrants and options.

IfNOTE ~~the~~2 ~~assets~~— ~~are~~CONTINGENCIES ~~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~~The 4Company —is ~~INCOME~~periodically ~~TAXES~~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.

~~Steakhouse~~NOTE ~~Partners,~~3 ~~Inc.~~— ~~accounts for income taxes under the provisions of SFAS No. 109~~PROPERTY, ~~Accounting~~PLANT ~~for~~AND 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.EQUIPMENT

~~The~~Property, ~~reorganization~~plant, ofand ~~the~~equipment, ~~Company~~including ~~(see~~leasehold ~~the~~improvements, ~~Company’s~~are ~~Annual~~recorded ~~Report~~at ~~on Form 10-K for the year ended December 31~~cost, ~~2004~~less ~~filed~~accumulated ~~with~~depreciation ~~the~~and ~~SEC) constituted an ownership change under Section 382 of the Internal Revenue Code~~amortization. AnDepreciation ~~ownership~~is ~~change~~provided ~~generally~~using ~~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~~straight-~~year~~line ~~period~~method orover the ~~period~~estimated ~~beginning~~useful ~~the~~lives ~~day after the day~~ of the ~~last~~respective ~~ownership~~assets 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 offollows: ~~the date of the ownership change.~~

~~NOTE~~Buildings 520 —years, ~~EQUITY~~Furniture, ~~TRANSACTIONS~~fixtures, and equipment 5 years.

~~During~~Improvements ~~the~~to ~~thirteen~~leased ~~weeks~~property ~~ended~~are ~~March~~amortized ~~29,~~over ~~2005,~~the inlesser aof ~~transaction exempt from registration under~~ the ~~Securities~~life ~~Act~~ of ~~1933,~~the aslease ~~amended,~~or ~~pursuant~~the tolife ~~Section 4(2)~~ of ~~such~~the ~~Act~~improvements. ~~and~~Amortization ~~Regulation~~expense Don ~~promulgated~~assets ~~there~~acquired under, ~~Steakhouse~~capital ~~Partners,~~leases ~~Inc.~~is ~~completed~~included ~~an initial closing~~ with ~~respect~~depreciation ~~to the sale of 700,000 shares of common stock (the “Shares”)~~ and ~~Common~~amortization ~~Stock~~expense ~~purchase~~on ~~warrants~~owned ~~(the~~assets.

7Maintenance and minor replacements are charged to expense as incurred. Gains and losses on disposals are included in the results of operations.

~~“Warrants”)~~Impairment ~~to purchase 350,000 shares~~ of ~~common~~Long-Lived ~~stock~~AssetsThe ~~(the~~Company ~~“Warrant~~reviews ~~Shares”),~~its atlong-lived anassets ~~initial exercise price of $2.00 per share (the “Exercise Price”),~~ for animpairment ~~aggregate~~at ofleast ~~$1,050,000~~annually ofor ~~gross~~whenever ~~proceeds.~~events ~~Following~~or ~~the~~changes ~~delivery~~in ofcircumstances ~~our~~indicate ~~audited~~that ~~financial statements for~~ the ~~year~~carrying ~~ended~~amount ~~December~~of ~~27,~~an ~~2005~~asset (may ~~“Fiscal~~not ~~2005”),~~be ~~the~~recoverable. ~~Exercise~~Recoverability ~~Price~~ of ~~the~~assets ~~Warrants~~to ~~will~~ be ~~subject~~held ~~to increase or decrease based on our earnings from recurring operations before interest payments, income tax, depreciation~~ and ~~amortization~~used (is ~~“EBITDA”)~~measured ~~for~~by ~~Fiscal~~a ~~2005.~~comparison ~~The Exercise Price will be adjusted as follows upon the date~~ of ~~exercise: (i) increased by 5% (but in no event will~~ the ~~Exercise~~carrying ~~Price~~amount ~~exceed~~of ~~$2.50) for every $100,000 by which EBITDA for Fiscal 2005 exceeds $3.5 million (~~the ~~“EBITDA~~assets ~~Threshold”)~~to ~~and~~future ~~(ii)~~net ~~decreased by~~cash ~~10%~~flows ~~(but~~expected into ~~no event will the Exercise Price~~ be ~~less~~generated ~~than $1.00) for every $100,000~~ by ~~which Fiscal 2005 EBITDA is below~~ the ~~EBITDA Threshold~~assets. ~~The~~In ~~Warrants~~evaluating ~~also contain certain redemption and anti~~long-~~dilution~~lived ~~provisions.~~assets ~~The~~for ~~securities~~impairment, ~~were~~a ~~issued~~number ~~with~~of ~~restricted~~factors ~~security~~are ~~legends.~~considered:

~~During~~A) ~~the~~Restaurants ~~thirteen~~sales ~~weeks~~trends; 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~~B) ~~the~~Local ~~thirteen~~competition; 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 modelC) ~~associated~~Changing ~~with~~demographic ~~these~~profiles; ~~options unfairly adversely affected the Corporation and its ability to acquire capital.~~

~~During~~D) ~~the~~Local ~~thirteen~~economic ~~weeks~~conditions; 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.

8E) New laws and government regulations that adversely effect sales and profits; and

F) The ~~table~~ability ~~below represents a reconciliation of the Company’s pro forma net income giving effect~~ to ~~the~~recruit ~~estimated~~and ~~compensation~~train ~~expense~~skilled ~~related~~restaurant toemployees. ~~stock options that would have been reported if the Company utilized the fair value:~~

	ThirteenWeeks endedMarch 29, 2005(Unaudited)			ThirteenWeeks endedMarch 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	)

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 64 — ~~SUBSEQUENT~~INCOME ~~EVENTS~~TAXES

~~On May 6, 2005 the Board of Directors of~~ Steakhouse Partners, Inc. ~~resolved~~accounts tofor ~~terminate~~income ~~the~~taxes ~~stock~~under ~~option~~the ~~grant~~provisions of ~~April~~SFAS 1,No. ~~2004~~109, ~~effective~~Accounting ~~January~~for 1,Income ~~2005~~Taxes. ~~The~~Under ~~Board~~this ofmethod, ~~Directors~~deferred oftax ~~the~~assets ~~Company determined that the intrinsic~~ and ~~fair~~liabilities ~~market~~are ~~value~~established ~~placed~~for ~~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~~8

~~FORWARD-LOOKING~~the ~~STATEMENTS~~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.

~~This~~The ~~report~~reorganization onof ~~Form~~the ~~10-Q~~Company ~~may~~(see ~~contain forward-looking statements, within~~ the ~~meaning~~Company’s ofAnnual ~~the~~Report ~~Private~~on ~~Securities~~Form ~~Litigation~~10-K ~~Reform~~for ~~Act~~the ofyear ~~1995.~~ended ~~This~~December ~~Act~~31, ~~provides~~2004 afiled ~~“safe~~with ~~harbor”~~the ~~for~~SEC) ~~forward-looking~~constituted ~~statements~~an toownership ~~encourage~~change ~~companies~~under toSection ~~provide~~382 ~~prospective~~of ~~information~~the ~~about~~Internal ~~themselves~~Revenue soCode. ~~long~~An asownership ~~they~~change ~~identify~~generally ~~these~~occurs ~~statements~~if ascertain ~~forward~~persons ~~looking~~or ~~and~~groups ~~provide~~increase ~~meaningful~~their ~~cautionary~~aggregate ~~statements~~ownership ~~identifying~~percentage ~~important~~in ~~factors~~a ~~that~~corporation’s ~~could~~stock ~~cause~~by ~~actual~~more ~~results~~than to50 ~~differ~~percentage ~~from~~points in the ~~projected~~shorter ~~results.~~of ~~Risks~~any ~~and~~three-year ~~uncertainties~~period ~~that~~or ~~affect~~ the ~~Company~~period ~~include~~beginning the ~~strength~~day ofafter the ~~recovery~~day of the ~~U.S.~~last ~~economy,~~ownership ~~trends~~change. ~~affecting~~Section ~~the~~382 ~~Company’s~~may ~~financial~~apply ~~condition~~to orlimit ~~results of operations,~~ the Company’s ~~operating~~future ~~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~~any ~~adequate~~remaining ~~incentives~~NOL’s ~~to retain~~ and ~~attract~~tax ~~key~~credits ~~employees,~~generated before the ~~impact~~ownership ofchange ~~competitive products~~ and ~~pricing,~~certain ~~and~~subsequently ~~other~~recognized ~~risks which are detailed herein under the heading~~ “~~Risk Factors.~~built-in” ~~For~~losses ~~this~~and ~~purpose~~deductions, if any, ~~statement~~existing ~~contained~~as ~~herein~~of ~~that~~the isdate ~~not a statement~~ of ~~historical fact may be deemed to be a forward-looking statement. Without limiting~~ the ~~foregoing,~~ownership ~~the words “believes,”“anticipates,” “plans,” “expects,” and similar expressions are intended to identify forward-looking statements~~change. ~~The~~

9NOTE 5 — EQUITY TRANSACTIONS

~~Company’s~~During ~~actual~~the ~~results~~twenty-six ~~may~~weeks ~~differ~~ended ~~materially~~June 28, 2005, in a transaction exempt from ~~those~~registration ~~indicated~~under bythe Securities Act of 1933, as amended, pursuant to Section 4(2) of such ~~forward-looking~~Act and Regulation D promulgated there under, Steakhouse Partners, Inc. completed a closing with respect to the sale of 173,915 of common stock (the “Shares”) and Common Stock purchase warrants (the “Warrants”) to purchase 86,958 shares of common stock (the “Warrant Shares”), at an initial exercise price of $2.00 per share (the “Exercise Price”), for an aggregate of $200,000 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 ~~factors~~date ~~outlined~~of ~~above~~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.

~~The~~During ~~following~~the istwenty-six ~~management’s~~weeks ~~discussion~~ended June 28, 2005, in a transaction exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 4(2) of such Act and ~~analysis~~Regulation D promulgated there under, Steakhouse Partners, Inc. completed an initial closing with respect to the sale of ~~certain~~700,000 ~~significant~~shares ~~factors~~of common stock (the “Shares”) and Common Stock purchase warrants (the “Warrants”) to purchase 350,000 ~~which~~shares ~~have~~of ~~affected~~common stock (the ~~results~~“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 ~~should~~amortization (“EBITDA”) for Fiscal 2005. The Exercise Price will be ~~read~~adjusted as follows upon the date of exercise: (i) increased by 5% (but in ~~conjunction~~no ~~with~~event will the ~~accompanying~~Exercise ~~unaudited~~Price ~~condensed~~exceed ~~consolidated~~$2.50) ~~financial~~for ~~statements~~every $100,000 by which EBITDA for Fiscal 2005 exceeds $3.5 million (the “EBITDA Threshold”) and ~~notes~~(ii) ~~thereto~~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.

~~OVERVIEW~~During the twenty-six weeks ended June 28, 2005, the Company mutually retroactively rescinded all stock options previously granted to employees without consideration. The effective date is January 1, 2005.

~~BACKGROUND~~ 9

~~The~~During ~~Company~~the ~~currently operates 25 full~~twenty-~~service~~six ~~steakhouse~~weeks ~~restaurants~~ended ~~located~~June in28, ~~eight states. The Company’s restaurants specialize in complete steak and prime rib meals~~2005, ~~and~~the ~~also offer fresh fish and other lunch and dinner dishes. The~~ Company’s ~~average~~mutually ~~check~~retroactively isrescinded ~~$26.46~~all ~~(including~~stock ~~alcoholic~~options ~~beverages)~~previously ~~and~~granted itto ~~currently~~two ~~serves~~members ~~approximately 2.5 million meals annually. The Company operates principally under the brand names~~ of ~~Hungry~~its ~~Hunter,~~board ~~Hunter Steakhouse, Mountain Jack’s and Carvers. We believe that our restaurants are well positioned in a high quality, moderately priced segment~~ of ~~the~~directors ~~restaurant~~without ~~industry~~consideration. ~~Our~~The ~~Carvers~~effective ~~restaurants~~date ~~represent~~is anJanuary ~~upscale restaurant market specializing in complete steak~~1, ~~chop, prime rib and seafood meals~~2005. 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~~During OFthe ~~OPERATIONS~~twenty-six weeks ended June 28, 2005, the Company mutually retroactively rescinded all stock options previously granted to one of its stockholders for services to be rendered over a period of three years without consideration. The effective date is January 1, 2005.

~~RESULTS~~During OFthe ~~OPERATIONS~~twenty-six —weeks ~~SELECTED~~ended ~~ITEMS~~June AS28, A2005, ~~PERCENTAGE~~the OFCompany ~~NET~~granted ~~SALES~~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 ~~following~~ table ~~sets~~below ~~forth,~~represents as a ~~percentage~~reconciliation of the Company’s pro forma net ~~sales~~income ~~for~~giving ~~the~~effect 25to ~~comparable~~the ~~Paragon~~estimated ~~core~~compensation ~~restaurants~~expense ~~only,~~related ~~certain~~to ~~items~~stock inoptions ~~the~~that ~~Company’s~~would ~~condensed~~have ~~consolidated~~been ~~statements~~reported ofif ~~operations~~the ~~for~~Company utilized the ~~indicated~~fair ~~periods~~value:

			Thirteen Weeks Ended		Thirteen Weeks Ended
		ThirteenWeeks endedJune 28, 2005				ThirteenWeeks endedJune 29, 2004
			March 29,2005		March 30,2004
		(Unaudited)				(Unaudited)
	Revenue		100.0%		100.0%
Net Income (loss)
	Discounts		3.5%		4.7%
As reported		$	53,296			$	(292,924	)
	Net Revenues		96.5%		95.3%
Stock based employee compensation cost, net of related tax effects, included in reported net loss		$	—			$	102,000
	Cost of Sales
Stock 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			(833	)			(112,751	)
	Food & Liquor costs		32.3%		34.6%
PRO FORMA NET (LOSS) INCOME		$	52,463			$	(303,675	)
	Personnel Costs		34.2%		33.5%
Earnings per common share
	Direct Operating Cost		20.5%		19.1%
Basic and diluted — as reported		$	0.01			$	(0.07	)
	Depreciation		2.4%		2.3%
Stock based employee compensation cost, net of related tax effects, included in reported net loss		$	—			$	0.02
	Gross Margin		10.6%		10.5%
Stock based 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		$	—			$	(0.02	)
	General & Administrative		8.0%		7.5%
Proforma		$	0.01			$	(0.07	)
	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. 10

	Twenty-six Weeks ended June 28, 2005			Twenty-six Weeks ended June 29, 2004
	(Unaudited)			(Unaudited)
Net Income (loss)
As reported	$	282,701		$	(406,151	)
Stock based employee compensation cost, net of related tax effects, included in reported net loss	$	—		$	102,000
Stock 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		(1,250	)		(112,751	)

PRO FORMA NET (LOSS) INCOME	$	281,451		$	(416,902	)

Earnings per common share
Basic and diluted — as reported	$	0.04		$	(0.07	)
Stock based employee compensation cost, net of related tax effects, included in reported net loss	$	—		$	0.02
Stock based 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	$	—		$	(0.02	)
Proforma	$	0.04		$	(0.07	)

~~THIRTEEN~~NOTE ~~WEEKS~~6 ~~ENDED~~— ~~MARCH~~SUBSEQUENT ~~29,~~EVENTS ~~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.N/A

~~Food~~ITEM ~~and beverage costs for the thirteen-week period ended March 29, 2005 decreased $682,485 or 13~~2.7% ~~from~~MANAGEMENT’S ~~$4,972,980~~DISCUSSION ~~for~~AND ~~the~~ANALYSIS ~~thirteen-week~~OF ~~period~~FINANCIAL ~~ended~~CONDITION ~~March~~AND ~~30,~~RESULTS ~~2004~~OF 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. OPERATIONS

~~Payroll and payroll related costs for the thirteen~~FORWARD-~~week~~LOOKING ~~period~~STATEMENTS 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~~This ~~operating~~report ~~costs~~on ~~include~~Form ~~all~~10-Q ~~other~~may ~~unit~~contain forward-~~level~~looking ~~operating costs~~statements, within the ~~major~~meaning ~~components~~of the Private Securities Litigation Reform Act of ~~which~~1995. ~~are~~This ~~operating~~Act ~~supplies,~~provides ~~repairs~~a ~~and~~“safe ~~maintenance,~~harbor” ~~advertising~~for ~~expense,~~forward-looking ~~utilities,~~statements ~~and~~to ~~other~~encourage ~~occupancy~~companies ~~costs.~~to Aprovide ~~substantial~~prospective ~~portion~~information ofabout themselves so long as they identify these ~~expenses~~statements isas ~~fixed~~forward orlooking ~~indirectly~~and ~~variable.~~provide ~~Direct~~meaningful ~~operating~~cautionary ~~cost~~statements ~~for~~identifying ~~the~~important ~~thirteen-week~~factors ~~period~~that ~~ended~~could ~~March~~cause ~~29,~~actual ~~2005~~results ~~decreased~~to ~~$52,061~~differ orfrom 1the projected results.9% ~~from~~Risks ~~$2,781,855~~and ~~for~~uncertainties that affect the ~~thirteen-week~~Company ~~period~~include ~~ended~~the ~~March~~strength ~~30,~~of ~~2004~~the torecovery $2of the U.S. economy,~~729,794~~ ~~for~~trends affecting the ~~thirteen-week~~Company’s ~~period~~financial incondition ~~2005.~~or ~~The~~results ~~chief~~of ~~reason~~operations, ~~for~~the ~~this~~Company’s ~~decline~~operating isstrategy and growth strategy, potential acquisitions or joint ventures by the ~~disposal~~Company, oflitigation ~~three~~affecting ~~non-core~~the ~~restaurants~~Company, ~~that~~the ~~were~~timely ~~operated~~development and ~~sold~~market acceptance inof new products, the ~~first~~ability ~~quarter~~to ofprovide ~~2004.~~adequate ~~Direct~~incentives ~~operating~~to ~~costs~~retain asand aattract ~~percentage~~key employees, the impact of ~~restaurant~~competitive ~~revenues~~products ~~for~~and ~~the~~pricing, ~~core~~and ~~restaurants~~other ~~was~~risks ~~19.1%~~which ~~for~~are detailed herein under the ~~thirteen-week~~heading ~~period~~“Risk ~~ended~~Factors.” ~~March~~For 30this purpose, ~~2004~~any ~~compared~~statement tocontained ~~20.5%~~herein ~~for~~that ~~the~~is ~~same~~not ~~thirteen-week~~a ~~period~~statement inof ~~2005.~~historical Infact ~~absolute~~may ~~dollars~~be ~~the~~deemed ~~direct operating~~to ~~costs~~be ~~for~~a ~~core~~forward-looking ~~restaurants~~statement. ~~remained~~Without ~~relatively~~limiting ~~constant~~the foregoing, ~~however~~the ~~increase~~words in“believes,” ~~the~~anticipates,” ~~percentage~~“plans,” ~~relations~~“expects,” and similar expressions are intended to ~~revenue~~identify ~~was~~forward-looking ~~the~~statements. ~~direct~~The ~~result~~Company’s ofactual ~~the~~results ~~decrease~~may indiffer ~~revenue~~materially ~~between~~from ~~the~~those ~~quarter~~indicated ~~just~~by ~~ended~~such ~~March~~forward-looking ~~29,~~statements ~~2005~~based ~~and~~on the ~~same~~factors ~~quarter~~outlined ~~in 2004~~above.

~~Depreciation~~The ~~and~~following ~~amortization~~is ~~for~~management’s ~~the~~discussion ~~thirteen-week~~and ~~period~~analysis ~~ended~~of ~~March~~certain ~~29,~~significant ~~2005 decreased $9~~factors,~~723~~ orwhich ~~3.0%~~have ~~from~~affected ~~$325,595 for~~ the ~~thirteen-week~~results ~~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~~operations ~~non-core~~and ~~restaurants~~should ~~that~~be ~~were~~read ~~operated and sold~~ in ~~the~~conjunction ~~first~~with ~~quarter of 2004. Depreciation for~~ the ~~core~~accompanying ~~restaurants~~unaudited ~~remained~~condensed ~~relatively~~consolidated ~~constant~~financial ~~between~~statements ~~the quarter just ended March 29, 2005~~ and ~~same~~notes ~~period 2004~~thereto.

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 11

11OVERVIEW

~~professional~~BACKGROUND 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~~The ~~income~~Company ~~(expenses)~~currently ~~for~~operates ~~the~~25 ~~thirteen~~full-~~week~~service ~~period~~steakhouse ~~ended~~restaurants ~~March~~located ~~29,~~in ~~2005~~eight ~~decreased~~states. ~~$113~~The Company’s restaurants specialize in complete steak and prime rib meals,~~619~~ orand 52also offer fresh fish and other lunch and dinner dishes.4% ~~from~~The (Company’s average check is $~~216,627~~26.27 (including alcoholic beverages) ~~for~~and it currently serves approximately 2.2 million meals annually. The Company operates principally under the ~~thirteen-week~~brand ~~period~~names ~~ended~~of ~~March~~Hungry 30Hunter, ~~2004~~Hunter toSteakhouse, ~~($103~~Mountain Jack’s and Carvers. We believe that our restaurants are well positioned in a high quality,~~008)~~ ~~for~~moderately priced segment of the ~~same~~restaurant ~~period~~industry. Our Carvers restaurants represent an upscale restaurant market specializing in ~~2005~~complete steak, chop, prime rib and seafood meals. ~~The~~Our ~~chief~~growth ~~reason~~strategy ~~for~~is ~~this~~based ~~decrease~~on ~~was~~internal ~~the~~growth ~~California~~and ~~Workmen~~growth ~~Compensation~~through ~~refund~~acquisition. ~~for~~Internal ~~approximately~~growth ~~($220,000)~~focuses ~~for~~on improvement ~~the~~in ~~policy~~same ~~year-end~~store ~~May~~sales 1,and ~~2004~~construction ~~was~~of ~~much~~new ~~greater~~restaurant ~~than~~properties. ~~the~~Acquisition ~~refund~~growth ~~received~~focuses ~~for~~on conversion of acquired restaurant properties to our steakhouse brand names and the ~~previous~~targeted ~~policy~~acquisition ~~year~~of one or more large steakhouse chains.

~~Net~~Our ~~income~~independent ~~for~~registered ~~the~~public ~~thirteen-week~~accounting ~~period~~firm ~~ended~~has ~~March~~informed ~~29,~~us ~~2005~~that ~~increased~~they ~~$302,632~~will ~~from~~be aunable ~~net~~to ~~loss~~complete their review of ~~$113,227~~our interim financial statements for the ~~thirteen-week~~quarterly period ended ~~March~~June 3028, ~~2004~~2005 prior to athe ~~net~~filing ~~income~~ of ~~$189,405~~this ~~for~~Form ~~the thirteen~~10-~~week period in 2005~~Q. ~~The~~As ~~net~~a ~~income~~result, ~~for~~ the ~~thirteen-week~~interim ~~period~~financial ~~ended~~statements ~~March~~contained ~~29,~~in ~~2005~~our ~~was~~quarterly ~~chiefly~~report ~~the~~on ~~result~~Form of10-Q ~~disposing~~for of the ~~three~~quarter ~~under~~eneded ~~performing~~June ~~restaurants~~28, in2005 ~~the~~have ~~first~~not ~~quarter~~been ofreviewed ~~2004.~~by ~~Those~~our ~~restaurants~~independent ~~contributed~~registered apublic ~~combined~~accounting ~~loss~~firm ofas ~~$281,759~~required pursuant to ~~the~~Rule ~~net~~10.01(d) ~~loss~~of ~~line~~Regulation ~~for the thirteen~~S-~~week~~X, ~~period~~and ~~ended March 30~~therefore, ~~2004.~~the ~~Also~~filing ~~contributing~~of tothis ~~the~~Form ~~gain~~10-Q ~~was~~is ~~the~~considered ~~menu~~to ~~price~~be ~~increase,~~incomplete. ~~prime~~As ~~rib~~soon ~~verbal~~as ~~contracts~~our ~~and~~independent ~~state~~registered ~~workmen~~public ~~compensation~~accounting ~~refund.~~firm ~~Partially~~completes ~~offsetting~~their ~~the~~review ~~income~~of ~~was~~our ~~higher~~second ~~production~~quarter ~~labor~~2005 ~~cost~~financial ~~and~~statements, ~~increases~~we inwill ~~legal~~file ~~and~~an ~~audit~~amended ~~fees.~~Form 10-Q/A.

~~LIQUIDITY~~RESULTS ~~AND~~OF ~~CAPITAL~~OPERATIONS ~~RESOURCES~~

~~The~~RESULTS ~~Company~~OF ~~had~~OPERATIONS a— ~~cash~~SELECTED ~~and~~ITEMS ~~cash~~AS ~~equivalents~~A ~~balance~~PERCENTAGE ofOF ~~$209,710~~NET 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. SALES

~~However,~~The tofollowing ~~the~~table ~~extent~~sets ~~the~~forth, ~~Company’s~~as ~~estimates~~a ~~and~~percentage ~~assumptions~~of ~~are~~net ~~inaccurate~~sales ~~the~~for ~~Company may not have sufficient cash reserves to maintain its operations and fund its obligations. In such event,~~ the ~~Company~~25 ~~may~~comparable ~~need~~Paragon tocore ~~seek~~restaurants ~~additional financing. Any required additional financing may not be available on terms favorable to us~~only, orcertain atitems ~~all.~~in ~~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.~~Company’s Ifcondensed weconsolidated ~~raise~~statements ~~additional funds by issuing equity securities, shareholders may experience dilution~~ of ~~their~~operations ~~ownership~~for ~~interest and~~ the ~~newly~~indicated ~~issued~~periods: ~~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.

	Thirteen Weeks Ended June 28, 2005			Thirteen Weeks Ended June 29, 2004			Twenty-six Weeks Ended June 28, 2005			Twenty-six Weeks Ended June 29, 2004
Revenue		100.0%			100.0%			100.0%			100.0%
Discounts		3.4%			2.3%			3.5%			2.6%
Net Revenues		96.6%			97.7%			96.5%			97.4%
Cost of Sales
Food & Liquor costs		33.1%			35.0%			32.7%			34.8%
Personnel Costs		33.9%			32.6%			34.1%			33.0%
Direct Operating Cost		21.1%			21.4%			20.8%			20.3%
Depreciation		2.4%			2.1%			2.4%			2.2%
Gross Margin		9.4%			8.9%			10.0%			9.6%
General & Administrative		7.6%			8.5%			7.9%			8.0%
Interest Expense		2.2%			2.4%			2.3%			2.3%
Other		(0.7%	)		0.0%			(1.1%	)		0.8%
Net Income (Loss)		0.4%			(2.0%	)		0.9%			(1.5%	)

~~IMPACT OF INFLATION~~ 12

~~The~~Factors ~~primary~~that ~~inflationary~~have ~~factors~~affected ~~affecting~~ the ~~Company’s~~results of operations ~~include~~for ~~food~~the ~~and~~first ~~labor~~quarter ~~costs.~~and ~~The~~first ~~Company’s~~thirteen ~~restaurant~~weeks ~~personnel~~of ~~are~~fiscal ~~paid~~2005 atfor the ~~federal~~Company ~~and~~as ~~state~~compared ~~established~~to ~~minimum~~the ~~wage~~first ~~levels~~period and ~~accordingly,~~first ~~changes~~thirteen inweeks ~~such~~of ~~wage~~fiscal ~~level~~2004 ~~affect~~for the Company’ sare ~~labor~~discussed ~~costs~~below. ~~As costs of food and labor increase, the Company will seek to offset those increases through economies of scale and/or~~

12THIRTEEN WEEKS ENDED JUNE 28, 2005 COMPARED TO THIRTEEN WEEKS ENDED JUNE 29, 2004

~~increases~~Net inRevenues ~~menu~~for ~~prices~~the thirteen-week period ended June 28, ~~although~~2005 ~~there~~decreased is$1,030,099 noor ~~assurance~~7.2% ~~that~~from ~~such~~$14,318,019 ~~offsets~~for ~~will~~the ~~continue~~thirteen-week period ended June 29, 2004 to $13,287,920 for the thirteen-week period in 2005. ToMost ~~date~~of ~~inflation~~this ~~has~~decline ~~not~~was ~~had~~the result of a ~~material~~decrease ~~impact~~in onsame-store ~~loss~~sales ~~from~~of ~~operations~~6.5% for the 25 comparable Paragon core units in 2005 versus the same thirteen-week period in 2004. Also contributing to the decline in net revenue was the increase in discounted sales to 3.4% in 2005 versus 2.3% for the same thirteen-week period in 2004 as the Company attempted to offset the decline in guest counts.

~~CRITICAL~~Food ~~ACCOUNTING~~and ~~POLICIES~~beverage costs for the thirteen-week period ended June 28, 2005 decreased $613,637 or 12.2% from $5,013,729 for the thirteen-week period ended June 29, 2004 to $4,400,092 for the thirteen-week period in 2005. Food and beverage costs as a percentage of restaurant revenues for the core restaurants was 35.0% for the thirteen-week period ended June 29, 2004 compared to 33.1% for the same thirteen-week period in 2005. The chief reason for this improvement is (starting at the end of the 2nd quarter 2004) the Company has reengineered its menu to provide increase perceived guest value while reducing some costs, and raising menu prices while overall beef prices are slightly lower in 2005 versus the same thirteen-week period in 2004.

~~The~~Payroll ~~following~~and ~~discussion~~payroll ~~addresses~~related ~~our~~costs ~~most~~for ~~critical~~the ~~accounting~~thirteen-week ~~policies~~period ended June 28, ~~which~~2005 ~~are~~decreased ~~those~~$155,100 ~~that~~or ~~are~~3.3% ~~most~~from ~~important~~$4,665,332 for the thirteen-week period ended June 29, 2004 to $4,510,232 for the ~~portrayal~~thirteen-week ofperiod ~~our~~in ~~financial~~2005. ~~condition~~Payroll and ~~results~~payroll related costs as a percentage of restaurant revenues for the core restaurants was 32.6% thirteen-week period ended June 29, ~~and~~2004 compared to 33.9% for the same thirteen-week period in 2005. The chief reason for this increase as a percentage relationship to revenue is that ~~require~~the ~~significant~~decrease ~~judgment~~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. Partially offsetting this increase, in six units they have reduced their total management team required as the existing team has become more efficient.

~~NEW~~Direct ~~ACCOUNTING~~operating ~~PRONOUNCEMENTS~~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 June 28, 2005 decreased $260,225 or 8.5% from $3,064,029 for the thirteen-week period ended June 29, 2004 to $2,803,804 for the thirteen-week period in 2005. Direct operating costs, as a percentage of restaurant revenues for the core restaurants was 21.4% for the thirteen-week period ended June 29, 2004 compared to 21.1% for the same thirteen-week period in 2005. In absolute dollars, the direct operating costs for core restaurants remained relatively proportionate to the decrease in revenue as the Company benefited from lower general liability insurance (renewed May 1, 2005), as well as, the efficient use of utilities, telephones and reductions in other controllable costs.

InDepreciation ~~December~~and ~~2004,~~amortization for the ~~FASB~~thirteen-week ~~issued~~period ~~Statement~~ended ofJune ~~Financial~~28, ~~Accounting~~2005 ~~Standards~~increased ~~No. 123R ( “SFAS123R”)~~$14,654 ~~Share-Based~~or ~~Payment, an amendment of FASB Statements Nos~~4.8% ~~123~~from ~~and~~$306,464 ~~95.~~for ~~SFAS 123R eliminates~~ the ~~ability to account for share~~thirteen-~~based~~week ~~compensation~~period ~~transactions~~ended ~~using~~June ~~APB~~29, 252004 ~~and~~to ~~would~~$321,118 ~~require that such transactions be accounted~~ for ~~using~~the asame ~~fair-value-based~~period ~~method and recognized as expenses~~ in ~~the statement of operations~~2005. ~~SFAS~~Depreciation ~~123R allows~~ for the ~~use~~core ofrestaurants aremained ~~modified~~relatively ~~version~~constant ofbetween ~~prospective application, which requires that~~ the ~~fair~~quarter ~~value~~just ofended ~~new~~June ~~awards granted after the effective date of SFAS 123R~~28, 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~~same ~~included~~period ~~in SFAS 123R will have on its consolidated financial statements~~2004.

~~SELF~~General and administrative expenses for the thirteen-~~INSURANCE~~week period ended June 28, 2005 decreased $206,318 or 17.0% from $1,210,448 for the thirteen-week period ended June 29, 2004 to $1,004,130 for the thirteen-week period in 2005. These costs as a percentage of core restaurants net revenues were 8.5% for the thirteen-week period ended June 29, 2004 compared to 7.6% for the same period in

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. 13

~~UNEARNED~~2005. ~~REVENUE~~The chief reason for the decrease in general and administrative expense is the elimination of the non-cash deferred compensation expense (stock option grant rescinded) of $124,000 and a reduction in headcount (a District Leader and a Corporate Accountant) partially offset by an increase in professional fees for change of outside accountants and finalizing “fresh-start” adjustments for year-end 2004.

~~The~~Other ~~Company~~income ~~sells~~(expenses) ~~gift~~for ~~cards~~the ~~and~~thirteen-week ~~recognizes~~period aended ~~liability~~June 28, ~~which~~2005 isdecreased ~~included~~$93,477 inor ~~unearned~~28.1% ~~revenue~~from ($332,941) for ~~gift cards/certificates outstanding until~~ the ~~gift~~thirteen-week ~~card/certificate~~period isended ~~redeemed~~June or29, ~~considered~~2004 to be($239,464) ~~unredeemable.~~for ~~The~~the ~~gift~~same ~~cards/certificates~~period doin ~~not~~2005. ~~carry~~The anchief ~~expiration~~reason ~~date~~for sothis ifdecline ~~all~~is ~~outstanding~~the ~~gift~~reduction ~~cards/certificates~~of ~~are~~interest ~~redeemed~~expense atas ~~once,~~the ~~our~~Company ~~financial~~pays ~~results~~down ~~(cash)~~the ~~would~~Priority beTax ~~impacted~~Note.

~~PROPERTY~~Net income for the thirteen-week period ended June 28, ~~FIXTURES~~2005 ~~AND~~increased ~~EQUIPMENT~~$346,220 from a net loss of $292,924 for the thirteen-week period ended June 29, 2004 to a net income of $53,296 for the thirteen-week period in 2005. The net income for the thirteen-week period ended June 28, 2005 was chiefly the result of menu price increase, slight reduction in beef costs, equipment and insurance refunds. Partially offsetting the income was higher production labor cost as a relationship to revenue and increases in legal and audit fees.

~~Property,~~TWENTY-SIX ~~fixtures~~WEEKS ~~and~~ENDED ~~equipment~~JUNE 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 $128,~~000.~~ ~~Depreciation~~2005 isCOMPARED ~~computed~~TO ~~on the straight~~TWENTY-~~line~~SIX ~~basis~~WEEKS ~~over~~ENDED ~~the~~JUNE ~~following~~29, ~~estimated~~2004 ~~useful lives:~~

~~Buildings~~Net Revenues for the twenty-six week period ended June 28, 2005 decreased $1,886,122 or 6.6% from $28,477,418 for the twenty-six week period ended June 29, 2004 to $26,591,296 for the twenty-six week period in 2005. A portion of this decline or $545,343 is associated with the disposal of three non-core restaurants that were operated and ~~building~~sold ~~improvements 20~~in ~~years~~the first half of 2004. The balance of the decline, same-store sales decreased 4.8% for the 25 comparable Paragon core units in 2005 versus the same twenty-six week period in 2004.

~~Furniture~~Food and ~~fixtures~~beverage costs for the twenty-six week period ended June 28, 2005 decreased $1,296,123 or 13.0% from $9,986,709 for the twenty-six week period ended June 29, 2004 to $8,690,586 for the twenty-six week period in 2005. A reason for this decline is the disposal of three non-core restaurants that were operated and ~~equipment 5~~sold ~~years~~in the first quarter of 2004. Food and beverage costs as a percentage of restaurant revenues for the core restaurants was 34.8% for the twenty-six week period ended June 29, 2004 compared to 32.7% for the same twenty-six 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, and raising menu prices while overall beef prices are slightly lower to the same twenty-six week period in 2004.

~~Our~~Payroll ~~accounting~~and ~~policies~~payroll ~~regarding~~related ~~property~~costs for the twenty-six week period ended June 28, ~~fixtures~~2005 ~~and~~decreased ~~equipment~~$537,914 ~~include~~or ~~certain~~5.6% ~~management~~from ~~judgments~~$9,599,485 ~~and~~for ~~projections~~the ~~regarding~~twenty-six week period ended March 30, 2004 to $9,061,571 for the ~~estimated~~twenty-six ~~useful~~week ~~lives~~period in 2005. A reason for this decline is the disposal of ~~these~~three ~~assets~~non-core ~~and~~restaurants ~~what~~that ~~constitutes~~were ~~increasing~~operated and sold in the ~~value~~first quarter of 2004. Payroll and ~~useful~~payroll ~~life~~related costs, as a percentage of ~~existing~~restaurant ~~assets~~revenues for the core restaurants was 33.0% ~~These~~twenty-six ~~estimates~~week period ended June 29, ~~judgments~~2004 ~~and~~compared ~~projections~~to ~~may~~34.1% ~~produce~~for ~~materially~~the ~~different~~same ~~amounts~~twenty-six ofweek ~~depreciation~~period ~~expense~~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 ~~would~~the beminimum ~~reported~~production ifstaffing ~~different~~that ~~assumptions~~is ~~were~~required ~~used~~per unit to maintain guest services and a positive dining experience. Partially offsetting this increase, in six units they have reduced their total management team required as the existing team has become more efficient.

13Direct 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 twenty-six week period ended June 28, 2005 decreased $312,286 or 5.3% from $5,845,884 for the twenty-six week period ended June 29, 2004 to $5,533,598 for the twenty-six week period in 2005. The

~~IMPAIRMENT OF LONG LIVED ASSETS~~ 14

Wechief ~~assess~~reason ~~the~~for ~~potential~~this ~~impairment~~decline ofis ~~identifiable~~the ~~intangibles,~~disposal ~~long-lived~~of ~~assets~~three ~~and~~non-core ~~goodwill~~restaurants ~~whenever~~that ~~events~~were oroperated ~~changes~~and sold in ~~circumstances~~the ~~indicate~~first ~~that~~half ~~the~~of ~~carrying~~2004. ~~value~~Direct ~~may~~operating ~~not~~costs beas ~~recoverable.~~a ~~Recoverability~~percentage of ~~assets~~restaurant isrevenues ~~measured~~for bythe ~~comparing~~core ~~the~~restaurants ~~carrying~~was ~~value~~20.3% offor the ~~asset~~twenty-six toweek ~~the~~period ~~future~~ended ~~cash~~June ~~flows~~29, ~~expected~~2004 compared to be20.8% ~~generated~~for by the ~~asset~~same twenty-six week period in 2005. In ~~evaluating~~absolute ~~long-lived~~dollars ~~restaurant~~the ~~assets~~direct operating costs for ~~impairment~~core restaurants remained relatively constant however, weincrease ~~consider~~in athe ~~number~~percentage relations to revenue was the direct result of ~~factors~~the ~~such~~decrease ~~as:~~in revenue between the twenty-six weeks just ended June 28, 2005 and the same twenty-six weeks in 2004.

a)Depreciation ~~Restaurant~~and ~~sales~~amortization ~~trends;~~for b)the ~~Local~~twenty-six ~~competition;~~week c)period ~~Changing~~ended ~~demographic~~June ~~profiles;~~28, d)2005 ~~Local~~increased ~~economic~~$4,931 ~~conditions;~~or e)0.8% ~~New~~from ~~laws~~$632,059 ~~and~~for ~~government~~the ~~regulations~~twenty-six ~~that~~week ~~adversely~~period ~~affect~~ended ~~sales~~June ~~and~~29, ~~profits;~~2004 ~~and~~to f)$636,990 ~~The~~for ~~ability~~the tosame ~~recruit~~period in 2005. Depreciation for the core restaurants remained relatively constant between the twenty-six weeks just ended June 28, 2005 and ~~train~~the ~~skilled~~same ~~restaurant~~period ~~employees~~2004.

IfGeneral and administrative expenses for the ~~aforementioned~~twenty-six ~~factors~~week ~~indicate~~period ~~that~~ended weJune ~~should~~28, ~~review~~2005 ~~the~~decreased ~~carrying~~$128,283 ~~value~~or of5.8% afrom ~~restaurant’s~~$2,225,877 ~~long~~for the twenty-~~lived~~six ~~assets~~week period ended June 29, we2004 ~~perform~~to an$2,097,594 ~~impairment~~for ~~analysis.~~the ~~Identifiable~~twenty-six ~~cash~~week ~~flows~~period ~~that~~in ~~are~~2005. ~~largely~~These ~~independent~~costs as a percentage of ~~other~~core ~~assets~~restaurants ~~and~~net ~~liabilities~~revenues ~~typically~~were ~~exist~~8.0% for ~~land~~the ~~and~~twenty-six ~~buildings,~~week ~~and~~period ~~for~~ended ~~combined~~June ~~fixtures~~29, ~~equipment~~2004 ~~and~~compared ~~improvements~~to 7.9% for ~~each~~the ~~restaurant~~same period in 2005. IfIn absolute dollars the ~~total~~chief ~~future~~reason ~~cash~~for ~~flows~~the ~~are~~decrease ~~less~~in ~~than~~general ~~the~~and ~~carrying~~administrative ~~amount~~expense ofis the ~~asset,~~elimination of the ~~carrying~~non-cash ~~amount~~deferred iscompensation ~~written~~expense ~~down~~(stock tooption ~~the~~grant ~~estimated~~rescinded) ~~fair~~of ~~value~~$124,000 and a ~~loss~~reduction ~~resulting~~in ~~from~~headcount ~~value~~(a ~~impairment~~District isLeader ~~recognized~~and a Corporate Accountant) partially offset by aan ~~charge~~increase toin ~~earnings.~~professional fees for change of outside accountants and finalizing “fresh-start” adjustments for year-end 2004.

~~Judgments~~Other ~~and~~income ~~estimates~~(expenses) ~~made~~for bythe ustwenty-six ~~related~~week toperiod ~~the~~ended ~~expected~~June ~~useful~~28, ~~lives~~2005 ofdecreased ~~long-lived~~$207,095 ~~assets~~or ~~are~~37.7% ~~affected~~from by($549,568) ~~factors~~for ~~such~~the astwenty-six ~~changes~~week inperiod ~~economic~~ended ~~conditions~~June ~~and~~29, ~~changes~~2004 into ~~operating~~($342,473) ~~performance~~for the same period in 2005. AsThe wechief ~~assess~~reason for this decrease was the ~~ongoing~~California ~~expected~~Workmen ~~cash~~Compensation ~~flows~~refund ~~and~~for ~~carrying~~approximately ~~amounts~~$220,000 offor ~~our~~the ~~long~~policy year-~~lived~~end ~~assets~~May 1, ~~these~~2004 ~~factors~~was ~~could~~much ~~cause~~greater usthan tothe ~~realize~~refund areceived ~~material~~for ~~impairment~~the ~~charge~~previous policy year. Also for the twenty-six week period ended June 28, 2005, the Company received an equipment $36,000 and an insurance $55,000 refund that it did not receive in the same period 2004.

~~RISK~~Net ~~FACTORS~~income ~~THAT~~for ~~MAY~~the ~~AFFECT~~twenty-six ~~FUTURE~~week ~~RESULTS~~period ~~AND~~ended ~~FINANCIAL~~June ~~CONDITION~~28, 2005 increased $648,852 from a net loss of $406,151 for the twenty-six week period ended June 29, 2004 to a net income of $242,701 for the twenty-six week period in 2005. The net income for the twenty-six week period ended June 28, 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 twenty-six week period ended June 29, 2004. Also contributing to the gain was the menu price increase, lower beef prices and state workmen compensation refund. Partially offsetting the income was higher production labor cost as a relationship to revenue and increases in legal and audit fees.

~~The~~LIQUIDITY ~~following~~AND ~~risk~~CAPITAL ~~factors~~RESOURCES 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~~The ~~PRIOR~~Company ~~BANKRUPTCY~~had ~~COULD~~a ~~HINDER~~cash ~~OUR~~and ~~ABILITY~~cash TOequivalents ~~NEGOTIATE~~balance ~~EFFECTIVELY~~of ~~WITH~~$0 ~~THIRD~~at ~~PARTIES~~June ~~AND~~28, ~~COULD~~2005. ~~ADVERSELY~~Our ~~AFFECT~~operating ~~OUR~~activities ~~OPERATIONS~~for ~~GOING~~the ~~FORWARD~~twenty-six week period ended June 28, 2005 used almost $1.0 million. Through April 7, 2005, we completed the sale, pursuant to the Private Placement Memorandum, of 873,915 shares of Common Stock and Warrants to purchase 436,958 shares of common stock, at an initial exercise price of $2.00 per share, for an aggregate of $1,250,000 of gross proceed. The Company believes that the cash flow from operations plus the proceeds from the remainder of the private placement 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.

~~In February 2002~~However, ~~Steakhouse,~~to ~~along~~the ~~with~~extent ~~our~~the ~~wholly~~Company’s ~~owned~~estimates ~~subsidiary~~and ~~Paragon,~~assumptions ~~filed~~are ~~for~~inaccurate ~~voluntary reorganization under Chapter 11 of~~ the ~~Bankruptcy~~Company ~~Code.~~may Wenot ~~officially~~have ~~emerged~~sufficient ~~from~~cash ~~bankruptcy~~reserves onto ~~December~~maintain ~~31,~~its ~~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~~fund ~~trade~~its ~~creditors~~obligations. ~~This~~In ~~can~~such ~~increase our costs of doing business and can hinder our negotiating power with our lenders~~event, ~~certain~~the ~~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,~~ 15

14Company 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.

~~WHICH~~We ~~COULD~~had ~~ADVERSELY~~a ~~AFFECT~~cash ~~OUR~~and ~~FINANCIAL~~cash ~~CONDITION~~equivalents balance of $715,666 ~~RESULTS~~at OFDecember ~~OPERATIONS~~31, ~~AND~~2004. ~~PROSPECTS~~During Fiscal 2004 we maintained a current ratio of 0.23-to-1, which arose from a working capital deficit of $8,835,618, which included short-term debt resulting from the Plan.

~~Although~~IMPACT onOF 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.INFLATION

WEThe ~~HAVE~~primary ~~INCURRED~~inflationary ~~LOSSES~~factors ~~FROM~~affecting ~~INCEPTION~~the ~~AND~~Company’s ~~MAY~~operations ~~NEVER~~include ~~GENERATE~~food ~~SUBSTANTIAL~~and ~~PROFITS~~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.

WeCRITICAL ~~were~~ACCOUNTING 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. POLICIES

WEThe ~~WILL~~following ~~NEED~~discussion ~~ADDITIONAL~~addresses ~~CAPITAL~~our ~~FOR~~most ~~EXPANSION~~critical accounting policies, which are those that are most important to the portrayal of our financial condition and results, and that require significant judgment.

~~The~~NEW ~~development~~ACCOUNTING 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. PRONOUNCEMENTS

In ~~the~~December ~~future~~2004, wethe ~~may~~FASB ~~seek~~issued ~~additional~~Statement ~~equity~~of orFinancial ~~debt~~Accounting ~~financing~~Standards toNo. ~~provide~~123R ~~funds~~(“SFAS123R”), soShare-Based ~~that~~Payment, wean ~~can~~amendment ~~develop~~of orFASB ~~acquire~~Statements ~~additional~~Nos. ~~restaurants~~123 and 95. ~~Such~~SFAS ~~financing~~123R ~~may~~eliminates ~~not~~the beability ~~available~~to oraccount ~~may~~for ~~not~~share-based becompensation ~~available~~transactions onusing ~~satisfactory~~APB ~~terms.~~25 Ifand ~~financing~~would isrequire ~~not~~that ~~available~~such ontransactions ~~satisfactory~~be ~~terms,~~accounted wefor ~~may~~using bea ~~unable~~fair-value-based tomethod ~~expand~~and ~~our~~recognized ~~restaurant~~as expenses in the statement of operations. ~~While~~SFAS ~~debt~~123R ~~financing~~allows ~~will~~for ~~enable~~the ususe toof ~~add~~a ~~more~~modified ~~restaurants~~version ~~than~~of weprospective ~~otherwise~~application, ~~would~~which berequires ~~able~~that tothe ~~add,~~fair ~~debt~~value ~~financing~~of ~~increases~~new ~~expenses~~awards ~~and~~granted isafter ~~limited~~the aseffective todate ~~availability~~of ~~due~~SFAS to123R, ~~our~~plus ~~financial~~unvested ~~results~~awards ~~and~~at ~~bankruptcy~~the ~~history,~~date ~~and~~of weadoption, ~~must~~be ~~repay~~expensed over the ~~debt~~applicable ~~regardless~~vesting period. The provisions of ~~our~~SFAS ~~operating~~123R ~~results~~will be effective for interim and annual reporting periods beginning after December 15, 2005. ~~Future~~The ~~equity~~Company ~~financings~~is ~~could~~currently ~~result~~evaluating the impact the implementation guidance and revisions included in ~~dilution~~SFAS to123R ~~our~~will ~~stockholders~~have on its consolidated financial statements.

~~WE MAY NOT HAVE SUFFICIENT CASH RESERVES TO MAINTAIN AND FUND OUR OPERATIONS AND FUND OUR OBLIGATIONS.~~ SELF-INSURANCE

WeThe ~~may~~Company ~~not~~has ~~have~~maintained ~~sufficient~~general ~~cash~~liability ~~reserves to maintain our operations~~ and ~~fund~~related ~~our~~insurance ~~obligations.~~policies Inwith ~~such~~standard ~~event~~deductibles, wethereby ~~may~~“self-insuring” ~~need~~the toinitial ~~seek~~portion ~~additional~~of ~~financing~~the claim. ~~Any~~The ~~required~~Company ~~additional~~maintained ~~financing~~stop ~~may~~loss ~~not~~coverage bewith ~~available~~third onparty ~~terms~~insurers ~~favorable~~ to ~~us,~~limit orits attotal ~~all~~exposure. IfThe ~~adequate~~self-insurance ~~funds~~liability ~~are~~represents ~~not~~an ~~available~~estimate onof ~~acceptable~~the ~~terms,~~ultimate wecost ~~may~~of beold ~~unable~~general toliability ~~fund~~claims ~~our~~incurred ~~reorganization~~as ~~plan~~of ~~and~~the ~~may~~balance besheet ~~required~~date. toThe ~~sell~~estimated ~~core~~liability ~~assets~~is orbased ~~dissolve~~upon ~~the~~analysis ~~business.~~of Ifhistorical wedata ~~raise~~and ~~additional~~actuarial ~~funds~~estimates, byand ~~issuing~~is ~~equity~~reviewed ~~securities,~~by ~~shareholders~~the ~~may~~Company ~~experience~~on ~~dilution~~a ofquarterly ~~their~~basis ~~ownership~~to ~~interest~~ensure ~~and~~that the ~~newly~~liability ~~issued~~is ~~securities~~appropriate. ~~may~~If ~~have~~for aany ~~rights~~reason ~~superior~~in tothe ~~those~~final settlement of ~~the~~these ~~common~~old ~~stock.~~claims Ifthe weresults ~~issue~~differ orfrom ~~incur~~our ~~debt~~estimates, toour ~~raise~~financial ~~funds,~~results wecould ~~may~~ be ~~subject~~impacted up to ~~limitations~~the ondeductible ~~our~~under ~~operations.~~these insurance policies.

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

~~Our~~The ~~chief~~Company ~~executive~~sells ~~officer~~gift ~~was~~cards ~~hired~~and inrecognizes ~~July~~a ~~2003.~~liability, Ifwhich ~~our~~is ~~new~~included ~~management~~in ~~team~~unearned isrevenue, ~~unable~~for togift ~~develop~~cards/certificates ~~successful~~outstanding ~~business~~until ~~strategies,~~the ~~achieve~~gift ~~our~~card/certificate ~~business~~is ~~objectives~~redeemed or ~~maintain~~considered ~~effective~~to ~~relationships~~be ~~with~~

1516

~~employees,~~unredeemable. ~~suppliers,~~The ~~creditors~~gift ~~and~~cards/certificates ~~customers,~~do ~~our~~not ~~ability~~carry toan ~~grow~~expiration ~~our~~date ~~business~~so ~~and~~if ~~successfully~~all ~~meet~~outstanding ~~operational~~gift ~~challenges~~cards/certificates ~~could~~are redeemed at once, our financial results (cash) would be ~~impaired~~impacted.

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

~~Our~~Property, ~~ability~~fixtures ~~to maintain or enhance our competitive position will depend to a significant extent on the efforts~~ and ~~ability~~equipment ofare ~~our~~recorded ~~executive~~at ~~officers, particularly our chief executive officer~~cost. ~~Our~~We ~~future~~expense ~~success~~repair and ~~our~~maintenance ~~ability~~costs incurred to ~~manage~~maintain ~~future~~the ~~growth~~appearance ~~will~~and ~~depend~~functionality inof ~~large part upon~~ the ~~efforts~~restaurant ofthat ~~our~~do ~~management~~not ~~team~~extend ~~and~~the onuseful ~~our~~life ~~ability~~of toany ~~attract~~restaurant ~~and~~asset ~~retain~~or ~~other~~are ~~highly~~less ~~qualified~~than ~~personnel~~$1,000. ~~Competition~~Depreciation ~~for personnel~~ is ~~intense,~~computed ~~and~~on wethe ~~may~~straight-line ~~not~~basis beover ~~successful~~the infollowing ~~attracting~~estimated ~~and~~useful ~~retaining~~lives: 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.

	Buildings and building improvements		20 years (or the maximum number of year remaining on the base term of the respective lease)
	Furniture and fixtures and equipment		5 years

~~Even~~Our ifaccounting wepolicies ~~are~~regarding ~~able to successfully compete with other restaurant companies with similar concepts~~property, wefixtures ~~may~~and beequipment ~~forced~~include tocertain ~~make~~management ~~changes~~judgments inand ~~one~~projections orregarding ~~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~~estimated ofuseful ~~beef,~~lives ~~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~~these ~~cow~~assets ~~disease”~~and bywhat ~~the~~constitutes ~~Canadian~~increasing ~~government or “foot/mouth disease” which occurred in~~ the ~~United~~value ~~Kingdom.~~and Inuseful ~~addition,~~life ~~these events could reduce the available supply~~ of ~~beef~~existing ~~or significantly raise the price of beef~~assets. IfThese ~~we were to modify the emphasis on beef in our restaurant’s menus~~estimates, wejudgments ~~may lose additional customers who do not prefer the new concept~~ and ~~menu,~~projections ~~and we~~ may ~~not~~produce bematerially ~~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 oramounts ~~additional competitors for our intended customers as a result~~ of ~~such~~depreciation aexpense ~~concept~~than ~~change~~would ~~and may not~~ be ~~able~~reported toif ~~successfully~~different ~~compete~~assumptions ~~against~~were ~~such competitors~~used. 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.

WEIMPAIRMENT ~~FACE~~OF ~~RISKS~~LONG ~~ASSOCIATED~~LIVED ~~WITH CHANGES IN GENERAL ECONOMIC AND POLITICAL CONDITIONS THAT EFFECT CONSUMER SPENDING.~~ ASSETS

We ~~believe~~assess ~~that~~ the ~~weak~~potential ~~general~~impairment ~~economic~~of ~~conditions~~identifiable inintangibles, ~~effect~~long-lived inassets ~~the~~and ~~United~~goodwill ~~States~~whenever ~~will~~events ~~continue~~or ~~through~~changes ~~2005.~~in Ascircumstances ~~the~~indicate ~~economy struggles, we are concerned~~ that ~~our customers may become more apprehensive about~~ the ~~economy~~carrying ~~and~~value ~~reduce~~may ~~their~~not ~~level~~be ~~of discretionary spending~~recoverable. WeRecoverability ~~believe~~of ~~that~~assets ais ~~decrease~~measured inby ~~discretionary~~comparing ~~spending could impact~~ the ~~frequency~~carrying ~~with~~value ~~which~~of ~~our~~the ~~customers~~asset ~~choose~~ to ~~dine out or~~ the ~~amount~~future ~~they~~cash ~~spend~~flows onexpected ~~meals while dining out, thereby decreasing our revenues. Additionally, the continued military responses~~ to ~~terrorist~~be ~~attacks~~generated ~~and~~by ~~our military operations abroad may exacerbate current economic conditions and lead to further weakening in~~ the ~~economy~~asset. ~~Adverse~~In ~~economic~~evaluating ~~conditions~~long-lived ~~and~~restaurant ~~any~~assets ~~related~~for ~~decrease~~impairment, inwe ~~discretionary~~consider ~~spending~~a bynumber ~~our~~of ~~customers~~factors ~~could~~such ~~have~~as: ~~an adverse effect on our revenues and operating results.~~

16a) Restaurant sales trends;

~~OUR~~b) ~~PROFITABILITY~~Local IScompetition; ~~DEPENDENT IN LARGE MEASURE ON FOOD AND SUPPLY COSTS WHICH ARE NOT WITHIN OUR CONTROL.~~

~~Our~~c) ~~profitability~~Changing isdemographic ~~dependent~~profiles; 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~~d) ~~ABILITY~~Local TOeconomic ~~EXECUTE~~conditions; ~~OUR EXPANSION PLANS DEPENDS ON SECURING SUITABLE LOCATIONS AT FAVORABLE PRICES.~~

~~Our~~e) ~~strategy~~New ~~for~~laws ~~expansion~~and ofgovernment ~~our~~regulations ~~operations~~that ~~includes~~adversely ~~the~~affect ~~construction~~sales ~~of new restaurant properties~~ and~~/or~~ ~~acquisition~~profits; ~~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.~~

Iff) weThe ~~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~~recruit ~~as a going concern will be adversely affected. Even with a successful reorganization~~ and ~~sufficient~~train ~~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,~~restaurant ~~labor disputes, weather interference, environmental problems and construction or zoning problems~~employees.

WEIf ~~FACE~~the ~~RISKS~~aforementioned ~~ASSOCIATED~~factors ~~WITH~~indicate ~~THE~~that ~~EXPANSION~~we OFshould ~~OUR~~review ~~OPERATIONS~~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.

~~The~~Judgments ~~success~~and ofestimates ~~our~~made ~~business~~by ~~depends~~us onrelated ~~our ability~~ to ~~expand~~ the ~~number~~expected useful lives of ~~our~~long-lived ~~restaurants,~~assets ~~either~~are affected by ~~developing~~factors orsuch ~~acquiring~~as ~~additional~~changes ~~restaurants.~~in ~~Our~~economic ~~success~~conditions ~~also~~and ~~depends~~changes onin ~~our~~operating ~~ability~~performance. toAs ~~operate~~we ~~and~~assess ~~manage~~the ~~successfully~~ongoing ~~our~~expected ~~growing~~cash ~~operations.~~flows ~~Our~~and ~~ability~~carrying toamounts ~~expand~~of ~~successfully~~our ~~will~~long-lived ~~depend~~assets, ~~upon~~these afactors ~~number~~could ofcause ~~factors,~~us ~~including~~to ~~the~~realize ~~following:~~a material impairment charge.

~~• the~~RISK ~~availability~~FACTORS ~~and~~THAT ~~cost~~MAY ofAFFECT ~~suitable~~FUTURE ~~restaurant~~RESULTS ~~locations~~AND ~~for~~FINANCIAL ~~development;~~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 ~~availability~~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 ~~restaurant~~the ~~acquisition~~following ~~opportunities;~~risks actually occur, our business, financial condition and operating results could be materially adversely affected.

~~• the hiring, training, and retention of additional management and restaurant personnel;~~ 17

~~• the~~OUR ~~availability~~PRIOR ofBANKRUPTCY ~~adequate~~COULD ~~financing;~~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 ~~continued~~Bankruptcy ~~development~~Code. We officially emerged from bankruptcy on December 31, 2003. However, our Chapter 11 reorganization and ~~implementation~~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 ~~management~~doing ~~information~~business ~~systems;~~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.

~~• competitive~~IF ~~factors;~~WE ~~and~~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.

~~• general~~Through ~~economic~~April 7, 2005, we successfully raised $1,250,000 in a private placement of securities. We cannot be certain that additional financing will be available when and ~~business~~to ~~conditions~~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 Reorganization 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.

~~Increased~~WE ~~construction~~HAVE ~~costs~~INCURRED ~~and~~LOSSES ~~delays~~FROM ~~resulting~~INCEPTION ~~from~~AND ~~governmental~~MAY ~~regulatory~~NEVER ~~approvals,~~GENERATE ~~strikes,~~SUBSTANTIAL ~~or work stoppages, adverse weather conditions, and various acts of God may also affect the opening of new restaurants~~PROFITS. 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~~were ~~not~~organized ~~successfully~~in ~~achieve~~May ~~our~~1996, ~~expansion~~and ~~goals.~~have ~~Additional~~incurred ~~restaurants~~significant ~~that~~losses wesince ~~develop~~inception. orWe ~~acquire~~ may ~~not~~never begenerate ~~profitable~~annual profits. InWe ~~addition~~incurred a net loss of approximately $635,302 for the ~~opening~~fiscal year ended December 31, 2004; incurred a net loss of ~~additional~~approximately ~~restaurants~~$4,851,281 infor anthe ~~existing~~fiscal ~~market~~year ended December 30, 2003; and a net loss of approximately $6,582,559 for the fiscal year ended December 24, 2002.

17WE WILL NEED ADDITIONAL CAPITAL FOR EXPANSION.

~~may~~The ~~have~~development ~~the~~of ~~effect~~new restaurants requires funds for construction, tenant improvements, furniture, fixtures, equipment, training of ~~drawing~~employees, ~~customers~~permits, ~~from~~initial franchise fees, and ~~reducing~~other ~~the~~expenditures. ~~sales~~We ~~volume~~will ofrequire ~~our~~funds ~~existing~~to develop additional restaurants inand ~~those~~to ~~markets~~pursue any additional restaurant development or restaurant acquisition opportunities that may develop.

WEIn ~~DEPEND~~the ONfuture, ~~KEY~~we ~~FOOD~~may ~~PRODUCT~~seek ~~DISTRIBUTORS~~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 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. 18

WeWE ~~believe~~MAY ~~that~~NOT ~~all~~HAVE ~~essential~~SUFFICIENT ~~products~~CASH ~~are~~RESERVES ~~available~~TO ~~from~~MAINTAIN ~~other~~AND ~~national~~FUND ~~suppliers~~OUR asOPERATIONS ~~well~~AND asFUND ~~from~~OUR 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 supplyOBLIGATIONS.

WEWe ~~FACE~~may ~~COMMODITY~~not ~~PRICE~~have ~~AND~~sufficient ~~AVAILABILITY~~cash ~~RISK~~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.

WeBECAUSE ~~purchase~~WE ~~energy~~HAVE ~~and~~EXPERIENCED ~~agricultural~~SIGNIFICANT ~~products~~CHANGES ~~that~~IN ~~are~~OUR ~~subject~~SENIOR toMANAGEMENT ~~price volatility caused by weather~~TEAM, ~~market~~IT ~~conditions~~MAY ~~and~~BE ~~other~~DIFFICULT ~~factors~~FOR ~~that~~INVESTORS ~~are~~TO ~~not~~EVALUATE ~~predictable~~OUR orPROSPECTS ~~within~~FOR ~~our~~IMPROVED ~~control~~PERFORMANCE. 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~~Our INchief ~~FEDERAL~~executive ~~AND~~officer ~~STATE~~was ~~STATUTORY~~hired ~~MINIMUM~~in ~~WAGES~~July ~~COULD~~2003. ~~INCREASE~~If ~~OUR~~our ~~EXPENSES~~new management team is unable to develop successful business strategies, ~~WHICH~~achieve ~~COULD~~our ~~ADVERSELY~~business ~~AFFECT~~objectives ~~OUR~~or ~~RESULTS~~maintain OFeffective ~~OPERATIONS~~relationships with employees, suppliers, creditors and customers, our ability to grow our business and successfully meet operational challenges could be impaired.

~~Certain~~IF ~~states~~WE ~~have~~LOSE ~~each~~OR ~~increased~~ARE ~~their~~UNABLE ~~state~~TO ~~minimum~~OBTAIN ~~wages~~KEY 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 resultPERSONNEL, ~~legal~~OUR ~~factors~~ABILITY ~~could~~TO ~~require~~EFFECTIVELY usOPERATE toOUR ~~make~~BUSINESS ~~corresponding~~COULD ~~increases~~BE ~~in our employees’ wages~~HINDERED. ~~Increases in our wage rates increase our expenses, which could adversely affect our results of operations.~~

~~THE~~Our ~~FAILURE~~ability TOto ~~ENFORCE~~maintain ~~AND~~or ~~MAINTAIN~~enhance ~~OUR~~our ~~TRADEMARKS~~competitive ~~AND~~position ~~TRADE~~will ~~NAMES~~depend ~~COULD~~to ~~ADVERSELY~~a ~~AFFECT~~significant ~~OUR~~extent ~~ABILITY~~on TOthe ~~ESTABLISH~~efforts ~~AND~~and ~~MAINTAIN~~ability ~~BRAND~~of ~~AWARENESS~~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.

~~Our~~CHANGING ~~current~~CONSUMER ~~operations~~PREFERENCES ~~and~~AND ~~marketing~~DISCRETIONARY ~~strategy~~SPENDING ~~depend~~PATTERNS, ~~significantly~~POTENTIAL onOUTBREAKS ~~the~~OF ~~strength~~“MAD ofCOW ~~trademarks~~DISEASE” ~~and~~OR ~~service~~“FOOT/MOUTH ~~marks.~~DISEASE” ~~Our~~AND ~~wholly~~OTHER ~~owned~~FACTORS ~~subsidiary,~~AFFECTING ~~Paragon~~THE ofAVAILABILITY ~~Michigan,~~OF ~~Inc.,~~BEEF ~~has~~COULD ~~registered,~~FORCE ~~among~~US ~~others,~~TO ~~the~~MODIFY ~~names~~OUR ~~Hungry Hunter, Mountain Jack~~RESTAURANTS’s ~~and~~CONCEPT ~~Carvers.~~AND ~~The~~MENU ~~success~~AND ofCOULD ~~our~~RESULT ~~growth~~IN ~~strategy~~A ~~depends~~REDUCTION onIN ~~our~~OUR ~~continued ability to use our existing trademarks and service marks in order to increase brand awareness and further develop our branded products~~REVENUES. 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~~Even ~~names~~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” ~~and~~by the Canadian government or “~~Carvers~~foot/mouth disease” ~~represent~~which ~~our~~occurred ~~core~~in ~~concept~~the United Kingdom. ~~The~~In ~~termination~~addition, ofthese ~~our~~events ~~right~~could toreduce ~~use~~the ~~this~~available ~~name~~supply of beef or ~~our~~significantly ~~failure~~raise the price of beef. If we were to ~~maintain~~modify ~~any~~the ofemphasis on beef in our ~~other~~restaurant’s ~~existing~~menus, ~~trademarks~~we ~~could~~may ~~materially~~lose additional customers who do not prefer the new concept and ~~adversely~~menu, ~~affect~~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 ~~growth~~intended customers as a result of such a concept change and ~~marketing~~may ~~strategies~~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

1819

~~BECAUSE~~confidence. WEAdverse ~~MAINTAIN~~changes Ain ~~SMALL~~these ~~NUMBER~~factors OFcould ~~RESTAURANTS,~~reduce ~~THE~~guest ~~NEGATIVE~~traffic ~~PERFORMANCE~~or OFimpose Apractical ~~SINGLE~~limits ~~RESTAURANT~~on ~~COULD~~pricing, ~~HAVE~~either Aof ~~SUBSTANTIAL~~which ~~IMPACT~~could ONreduce ~~OUR~~revenues ~~OPERATING~~and ~~RESULTS~~operating income.

WeWE ~~currently~~FACE ~~own~~RISKS ~~and~~ASSOCIATED ~~operate~~WITH 25CHANGES ~~restaurants.~~IN ~~Due~~GENERAL toECONOMIC ~~this~~AND ~~relatively~~POLITICAL ~~small~~CONDITIONS ~~number~~THAT ofEFFECT ~~restaurants,~~CONSUMER ~~poor financial performance at any owned restaurant could have a significant negative impact on our profitability as a whole~~SPENDING. 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~~We ~~OPERATING~~believe ~~RESULTS~~that ~~MAY~~the ~~FLUCTUATE~~general ~~SIGNIFICANTLY~~economic ~~DUE~~conditions TOin ~~SEASONALITY~~effect ~~AND~~in ~~OTHER~~the ~~FACTORS~~United ~~BEYOND~~States ~~OUR~~will ~~CONTROL~~continue through 2005. If 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~~OUR ~~business~~PROFITABILITY isIS ~~subject~~DEPENDENT toIN ~~seasonal~~LARGE ~~fluctuations,~~MEASURE ~~which~~ON ~~may~~FOOD ~~vary~~AND ~~greatly~~SUPPLY ~~depending~~COSTS ~~upon~~WHICH ~~the~~ARE ~~region~~NOT ofWITHIN ~~the~~OUR ~~United States in which a particular restaurant is located~~CONTROL. ~~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:~~

• 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 ~~amount~~risks of ~~sales~~possible ~~contributed~~shortages or interruptions in supply caused by ~~new~~adverse weather or other conditions, which could adversely affect the availability and ~~existing~~cost ~~restaurants;~~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.

~~• the~~OUR ~~timing~~ABILITY ofTO ~~new~~EXECUTE ~~openings;~~OUR EXPANSION PLANS DEPENDS ON SECURING SUITABLE LOCATIONS AT FAVORABLE PRICES.

~~• increases~~Our instrategy for expansion of our operations includes the ~~cost~~construction of ~~key~~new ~~food~~restaurant properties and/or ~~beverage~~acquisition ~~products;~~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.

~~• labor~~If ~~costs~~we ~~for~~cannot successfully construct new restaurant properties or convert acquired restaurant properties to our ~~personnel;~~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.

~~• our~~WE ~~ability~~FACE toRISKS ~~achieve~~ASSOCIATED ~~and~~WITH ~~sustain~~THE ~~profitability~~EXPANSION onOF aOUR ~~quarterly or annual basis;~~ OPERATIONS.

~~• consumer~~The ~~confidence~~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 ~~changes~~manage insuccessfully ~~consumer~~our ~~preferences;~~growing operations. Our ability to expand successfully will depend upon a number of factors, including the following:

• ~~health~~the ~~concerns,~~availability ~~including~~and ~~adverse~~cost ~~publicity~~of ~~concerning~~suitable ~~food-related~~restaurant ~~illness~~locations for development;

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

• ~~economic~~the ~~conditions~~hiring, ~~generally~~training, and inretention ~~each~~ of ~~the~~additional ~~market~~management inand ~~which~~restaurant wepersonnel; ~~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.~~ 20

WE• the ~~COULD~~availability ~~FACE~~of ~~LABOR~~adequate ~~SHORTAGES,~~financing; ~~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,~~continued ~~abilities,~~development ~~experience~~ and ~~reputations~~implementation of ~~the~~management ~~general~~information ~~managers~~systems; 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.

19• competitive factors; and

~~THE~~• general ~~RESTAURANT~~economic ~~INDUSTRY~~and ISbusiness ~~AFFECTED BY LITIGATION AND PUBLICITY CONCERNING FOOD QUALITY, HEALTH AND OTHER ISSUES, WHICH CAN CAUSE GUESTS TO AVOID OUR RESTAURANTS AND RESULT IN LIABILITIES~~conditions.

~~Health~~Increased ~~concerns,~~construction ~~including~~costs ~~adverse~~and ~~publicity~~delays ~~concerning~~resulting ~~food-related~~from ~~illness,~~governmental ~~although~~regulatory ~~not~~approvals, ~~specifically~~strikes, ~~related~~or towork ~~our restaurants~~stoppages, ~~could~~adverse ~~cause~~weather ~~guests to avoid our restaurants~~conditions, ~~which~~and ~~would~~various ~~have~~acts aof ~~negative~~God ~~impact on our sales. We~~ may also beaffect the ~~subject~~opening of ~~complaints~~new orrestaurants. ~~litigation~~Newly ~~from~~opened ~~guests~~restaurants ~~alleging~~may ~~food-related~~operate ~~illness,~~at ~~injuries~~a ~~suffered~~loss onfor ~~the~~a ~~premises~~period orfollowing ~~other~~their ~~food~~initial ~~quality, health or operational concerns~~opening. AThe ~~lawsuit~~length orof ~~claim~~this ~~could~~period ~~result~~will independ anupon ~~adverse decision against us that could have~~ a ~~material~~number ~~adverse effect on our business and results~~ of ~~operations. We may also be subject to litigation~~factors, ~~which,~~including ~~regardless~~the time of the ~~outcome,~~year ~~could~~the ~~result~~restaurant inis ~~adverse publicity. Adverse publicity resulting from such allegations may materially adversely affect our restaurants~~opened, ~~regardless~~the ofsales ~~whether such allegations are true or whether we are ultimately held liable. Such litigation~~volume, ~~adverse~~ ~~publicity~~and ~~or damages could have a material adverse effect on~~ our ~~business,~~ability ~~competitive~~to ~~position~~control ~~and results of operations~~costs.

~~COMPLIANCE~~We ~~WITH~~may ~~ENVIRONMENTAL~~not ~~LAWS~~successfully ~~MAY~~achieve ~~AFFECT~~our ~~OUR~~expansion ~~FINANCIAL~~goals. ~~CONDITION~~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.

WeWE ~~are~~DEPEND ~~subject~~ON toKEY ~~various~~FOOD ~~federal,~~PRODUCT ~~state and local environmental laws~~DISTRIBUTORS. 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.

WEWe ~~FACE~~currently ~~INCREASED~~rely ~~EXPENDITURES~~chiefly OFon ~~TIME~~two ~~AND~~food ~~MONEY~~product ~~ASSOCIATED~~distributors: ~~WITH~~Southwest ~~COMPLIANCE~~Traders ~~WITH~~on ~~CHANGING~~the ~~REGULATION~~West OFCoast ~~CORPORATE~~and ~~GOVERNANCE~~U.S. ~~AND~~Foodservice ~~PUBLIC~~in ~~DISCLOSURE~~the Mid-West. If either Southwest Traders or U.S. Foodservice 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.

~~Keeping~~We ~~abreast~~believe ~~of,~~that ~~and~~all inessential ~~compliance~~products ~~with,~~are ~~changing~~available ~~laws,~~from ~~regulations,~~other ~~and~~national ~~standards~~suppliers ~~relating~~as towell ~~corporate~~as ~~governance~~from ~~and~~local ~~public~~suppliers ~~disclosure,~~in ~~including~~ the ~~Sarbanes-Oxley~~cities ~~Act~~in ofwhich ~~2002,~~our ~~and~~restaurants ~~new~~are ~~SEC~~located ~~regulations,~~in ~~has~~the ~~required~~event anwe ~~increased~~must ~~amount~~purchase ofour ~~management~~products ~~attention~~from ~~and~~other ~~external~~suppliers; ~~resources.~~however, Wethere ~~remain~~can ~~committed~~be tono ~~maintaining~~assurance ~~high~~that ~~standards of corporate governance and public disclosure. As a result,~~ we ~~intend~~will tobe ~~invest~~able ~~all reasonably necessary resources~~ to ~~comply~~match ~~with evolving standards~~quality, ~~and~~price ~~this~~or ~~investment~~dependability ~~may result in increased general and administrative expenses and a diversion~~ of ~~management time and attention from revenue generating activities to compliance activities~~supply.

~~RISKS~~WE ~~RELATED~~FACE TOCOMMODITY ~~OUR~~PRICE ~~COMMON~~AND ~~STOCK~~AVAILABILITY RISK.

~~SINCE~~We ~~OUR~~purchase ~~SHARES~~energy ~~ARE~~and ~~THINLY~~agricultural ~~TRADED~~products that are subject to price volatility caused by weather, ~~AND~~market ~~TRADING~~conditions ONand ~~THE~~other ~~PINK~~factors ~~SHEETS~~that ~~MAY~~are BEnot ~~SPORADIC~~predictable ~~BECAUSE~~or ITwithin ISour ~~NOT~~control. ANIncreases ~~EXCHANGE~~in commodity prices could result in lower restaurant-level operating margins for our restaurant concepts. Occasionally, ~~STOCKHOLDERS~~the ~~MAY~~availability ~~HAVE~~of ~~DIFFICULTY~~commodities ~~RESELLING~~can ~~THEIR~~be ~~SHARES~~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.

~~Our~~INCREASES ~~common~~IN ~~stock~~FEDERAL isAND ~~currently~~STATE ~~quoted~~STATUTORY onMINIMUM ~~the~~WAGES ~~Pink~~COULD ~~Sheets.~~INCREASE ~~The~~OUR ~~fact that our common stock is not listed is likely to make trading more difficult for broker-dealers~~EXPENSES, ~~shareholders~~WHICH ~~and~~COULD ~~investors,~~ADVERSELY ~~potentially~~AFFECT ~~leading~~OUR toRESULTS ~~further~~OF ~~declines in share price~~OPERATIONS. ~~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.~~

20Certain 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 PRICE OF OUR COMMON STOCK MAY FLUCTUATE SIGNIFICANTLY.~~ 21

~~The~~THE ~~market~~FAILURE ~~price~~TO ofENFORCE ~~our~~AND ~~common~~MAINTAIN ~~stock~~OUR ~~could~~TRADEMARKS ~~fluctuate~~AND ~~substantially~~TRADE ~~due~~NAMES toCOULD aADVERSELY ~~variety~~AFFECT ofOUR ~~factors,~~ABILITY ~~including~~TO ~~market~~ESTABLISH ~~perception~~AND ofMAINTAIN ~~our~~BRAND 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 usAWARENESS. 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.

InOur current operations and marketing strategy depend significantly on the ~~past,~~strength ~~following~~of ~~periods~~trademarks and service marks. Our wholly owned subsidiary, Paragon of ~~volatility~~Michigan, inInc., has registered, among others, the ~~market~~names ~~price~~Hungry ofHunter, aMountain ~~company~~Jack’s ~~securities,~~and ~~securities~~Carvers. ~~class-action~~The ~~litigation~~success ~~has~~of ~~often~~our ~~been~~growth ~~instituted.~~strategy ~~Such~~depends ~~litigation,~~on ifour ~~initiated,~~continued ~~could~~ability ~~result~~to inuse ~~substantial~~our ~~costs,~~existing atrademarks ~~material~~and ~~adverse~~service ~~effect,~~marks in order to increase brand awareness and afurther ~~diversion~~develop our branded products. Although we are not aware of ~~management’s~~any ~~attention~~infringing ~~and~~uses ~~resources~~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.

~~FAILURE~~The OFnames ~~OUR~~“Hungry ~~COMMON~~Hunter,” ~~STOCK~~“Mountain TOJack’s” ~~APPRECIATE~~and IN“Carvers” ~~VALUE~~represent ~~COULD~~our ~~AFFECT~~core ~~OUR~~concept. ~~ABILITY~~The TOtermination ~~RAISE~~of ~~WORKING~~our ~~CAPITAL~~right ~~AND~~to ~~ADVERSELY~~use ~~IMPACT~~this ~~OUR~~name ~~ABILITY~~or TOour ~~CONTINUE~~failure ~~OUR~~to ~~NORMAL~~maintain ~~OPERATIONS~~any of our other existing trademarks could materially and adversely affect our growth and marketing strategies.

ABECAUSE ~~prolonged~~WE ~~period~~MAINTAIN inA ~~which~~SMALL ~~our~~NUMBER ~~common~~OF ~~stock trades at current levels could result in our inability to raise capital and may force us to reallocate funds from other planned uses~~RESTAURANTS, ~~which~~THE ~~would~~NEGATIVE ~~have~~PERFORMANCE aOF ~~significant~~A ~~negative~~SINGLE ~~effect~~RESTAURANT onCOULD ~~our~~HAVE ~~business~~A ~~plans~~SUBSTANTIAL ~~and~~IMPACT ~~operations.~~ON IfOUR ~~our~~OPERATING ~~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~~RESULTS. ~~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~~We ~~LARGE~~currently ~~NUMBER~~own OFand ~~SHARES~~operate OF25 ~~OUR~~restaurants. ~~COMMON~~Due ~~STOCK~~to ~~ELIGIBLE~~this ~~FOR~~relatively ~~PUBLIC~~small ~~SALE~~number ~~AND~~of ~~THE~~restaurants, ~~FACT~~poor ~~THAT~~financial Aperformance ~~RELATIVELY~~at ~~SMALL~~any ~~NUMBER~~owned OFrestaurant ~~INVESTORS~~could ~~HOLD~~have ~~OUR~~a ~~PUBLICLY~~significant ~~TRADED~~negative ~~COMMON~~impact ~~STOCK~~on ~~COULD~~our ~~CAUSE~~profitability ~~OUR~~as ~~STOCK~~a ~~PRICE~~whole. TOThe ~~FLUCTUATE~~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.

~~The~~OUR ~~market~~OPERATING ~~price~~RESULTS ofMAY ~~our~~FLUCTUATE ~~common~~SIGNIFICANTLY ~~stock~~DUE ~~could~~TO ~~fluctuate~~SEASONALITY asAND aOTHER ~~result~~FACTORS ofBEYOND ~~sales~~OUR ~~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~~CONTROL. 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~~Our OFbusiness ~~OUR~~is ~~STOCK~~subject ~~MAY~~to BEseasonal ~~RESTRICTED~~fluctuations, BYwhich ~~THE~~may ~~SEC’S~~vary ~~PENNY~~greatly ~~STOCK~~depending ~~REGULATIONS,~~upon ~~WHICH~~the ~~MAY~~region ~~LIMIT~~of Athe ~~STOCKHOLDER’S~~United ~~ABILITY~~States TOin ~~BUY~~which ~~AND~~a ~~SELL~~particular ~~OUR~~restaurant ~~STOCK~~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~~• the ~~SEC~~amount ~~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~~contributed 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~~new ~~SEC, which provides information about penny stocks~~ and ~~the~~existing ~~nature~~restaurants; 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

21• the timing of new openings;

~~statements~~• increases ~~showing~~in the ~~market~~cost ~~value~~ of ~~each~~key ~~penny~~food ~~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 inbeverage ~~writing~~products; 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~~• labor ~~SALES~~costs ~~PRACTICE~~for ~~REQUIREMENTS~~our ~~MAY~~personnel; ~~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~~achieve and ~~sell~~sustain ~~our~~profitability ~~stock and have an adverse effect~~ on ~~the~~a ~~market~~quarterly ~~for~~or ~~our~~annual ~~shares.~~basis;

We• consumer doconfidence ~~not expect to declare or pay any dividends. We have not declared or paid any dividends on our common stock since our inception,~~ and wechanges doin ~~not~~consumer ~~anticipate~~preferences; ~~paying any such dividends for the foreseeable future.~~

~~ANTI~~• health concerns, including adverse publicity concerning food-~~TAKEOVER~~related ~~PROVISIONS.~~illness;

We• the dolevel ~~not~~of ~~currently~~competition ~~have~~from aexisting ~~shareholder rights plan~~ or ~~any~~new ~~anti-takeover~~competitors ~~provisions~~ in our ~~by-laws.~~segment ~~Without any anti-takeover provisions, there is no deterrent for a take-over~~ of ~~our~~the ~~company,~~restaurant ~~which~~industry; ~~may result in a change in our management~~ and ~~directors.~~

~~OWNERSHIP~~• economic OFconditions ~~APPROXIMATELY~~generally ~~38%~~and OFin ~~OUR~~each ~~OUTSTANDING~~of ~~COMMON~~the ~~STOCK~~markets BYin ~~FIVE~~which ~~STOCKHOLDERS~~we ~~WILL~~are ~~LIMIT YOUR ABILITY TO INFLUENCE CORPORATE MATTERS~~located.

AThese ~~substantial~~fluctuations ~~majority~~make ofit ~~our~~difficult ~~capital~~for ~~stock~~us isto ~~held~~predict ~~by a limited number of stockholders. Five stockholders, including our officers~~ and ~~directors~~address ~~and~~in ~~parties~~a ~~affiliated~~timely ~~with~~manner orfactors ~~related~~that tomay ~~such persons or to us, own approximately 38% of the shares of common stock outstanding. Accordingly, such stockholders will likely~~ have a ~~strong~~negative ~~influence~~impact on ~~major decisions of corporate policy, and the outcome of any major transaction or other matters submitted to~~ our ~~stockholders~~results ~~or board~~ of ~~directors, including potential mergers or acquisitions, and amendments to our Amended and Restated Certificate of Incorporation~~operations. ~~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~~22

~~Market~~WE ~~Risk.~~COULD ~~The~~FACE ~~Company’s~~LABOR ~~exposure to market risk is principally confined to cash in the bank~~SHORTAGES, ~~money~~INCREASED ~~market~~LABOR ~~accounts,~~COSTS ~~and~~AND ~~notes~~OTHER ~~payable,~~ADVERSE ~~which~~EFFECTS ~~have~~OF ~~short~~VARYING ~~maturities~~LABOR ~~and, therefore, minimal and immaterial market risk~~CONDITIONS.

22The 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.

~~Interest~~THE ~~Rate~~RESTAURANT ~~Sensitivity.~~INDUSTRY AsIS ofAFFECTED ~~March~~BY ~~29,~~LITIGATION ~~2005,~~AND ~~the~~PUBLICITY ~~Company~~CONCERNING ~~had~~FOOD ~~cash~~QUALITY, inHEALTH ~~checking~~AND ~~and~~OTHER ~~money market accounts. Because of the short maturities of these instruments~~ISSUES, aWHICH ~~sudden~~CAN ~~change~~CAUSE inGUESTS ~~market~~TO ~~interest~~AVOID ~~rates~~OUR ~~would~~RESTAURANTS ~~not~~AND ~~have~~RESULT aIN ~~material impact on the fair market value of these assets~~LIABILITIES.

~~Foreign~~Health ~~Currency~~concerns, ~~Exchange~~including ~~Risk.~~adverse ~~The~~publicity ~~Company~~concerning ~~does~~food-related illness, although not specifically related to our restaurants, could cause guests to avoid our restaurants, which would have ~~any~~a ~~foreign~~negative ~~currency~~impact ~~exposure~~on ~~because~~our itsales. ~~currently~~We ~~does~~may ~~not~~also ~~transact~~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 ~~foreign~~adverse ~~currencies~~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.

~~ITEM~~COMPLIANCE 4.WITH ~~CONTROLS~~ENVIRONMENTAL ~~AND~~LAWS ~~PROCEDURES~~MAY AFFECT OUR FINANCIAL CONDITION.

~~The~~We ~~Company maintains disclosure controls and procedures that~~ are ~~designed~~subject to ~~ensure~~various ~~that~~federal, ~~information~~state ~~required~~and tolocal beenvironmental ~~disclosed~~laws. inThese ~~the~~laws ~~Company’s~~govern ~~reports~~discharges ~~required~~ to beair ~~filed~~and ~~under the Securities Exchange Act of 1934~~water, as ~~amended~~well isas ~~recorded,~~handling ~~processed, summarized~~ and ~~reported~~disposal ~~within.~~practices ~~The~~for ~~Company~~solid ~~maintains disclosure controls~~ and ~~procedures~~hazardous ~~that~~wastes. ~~are~~These ~~designed~~laws tomay ~~ensure~~also ~~that~~impose ~~information~~liability ~~required~~for todamages befrom ~~disclosed~~and in the ~~Company’s~~costs ~~reports~~of ~~required~~cleaning toup besites ~~filed under the Securities Exchange Act~~ of ~~1934~~spills, asdisposals ~~amended~~or isother ~~recorded,~~releases ~~processed,~~of ~~summarized~~hazardous ~~and~~materials. ~~reported~~We ~~within~~may ~~the~~be ~~time~~responsible ~~periods~~for ~~specified~~environmental inconditions ~~the~~or ~~Securities~~contamination ~~and~~relating ~~Exchange~~to ~~Commission’s~~our ~~rules~~restaurants and ~~forms, and that such information is accumulated and communicated to~~ the ~~Company’s~~land ~~management,~~on ~~including~~which ~~its~~our ~~Chief~~restaurants ~~Executive~~are ~~Officer and Chief Financial Officer~~located, asregardless ~~appropriate,~~of towhether ~~allow~~we ~~timely~~lease ~~decisions regarding~~or ~~required~~own ~~disclosure.~~the Inrestaurant ~~designing~~or ~~and~~land ~~evaluating~~in ~~the~~question ~~disclosure controls~~ and ~~procedures,~~regardless ~~management~~of ~~recognizes~~whether ~~that~~such ~~any~~environmental ~~controls~~conditions ~~and~~were ~~procedures,~~created noby ~~matter~~us ~~how~~or ~~well~~by ~~designed~~a ~~and~~prior ~~operated,~~owner ~~can~~or ~~provide~~tenant. ~~only~~The ~~reasonable~~costs ~~assurance~~ of ~~achieving~~any ~~the~~cleanup ~~desired~~could ~~control~~be ~~objectives,~~significant and ~~management~~have ~~necessarily~~a ismaterial ~~required~~adverse toeffect ~~apply~~on ~~its~~our ~~judgment~~financial inposition ~~evaluating~~and ~~the~~results ~~cost-benefit relationship~~ of ~~possible controls and procedures~~operations.

~~Within~~WE 90FACE ~~days~~INCREASED ~~prior~~EXPENDITURES toOF ~~the~~TIME ~~date~~AND ofMONEY ~~this~~ASSOCIATED ~~report,~~WITH ~~the~~COMPLIANCE ~~Company~~WITH ~~carried~~CHANGING ~~out~~REGULATION anOF ~~evaluation,~~CORPORATE ~~under~~GOVERNANCE ~~the~~AND ~~supervision~~PUBLIC 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 proceduresDISCLOSURE. ~~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~~Keeping ~~have~~abreast ~~been~~of, noand ~~significant~~in ~~changes~~compliance inwith, ~~the~~changing ~~Company’s~~laws, ~~internal~~regulations, ~~controls~~and orstandards inrelating ~~other~~to ~~factors~~corporate ~~that~~governance ~~could~~and ~~significantly~~public ~~affect~~disclosure, including the ~~internal~~Sarbanes-Oxley ~~controls~~Act ~~subsequent~~of 2002, and new SEC regulations, has required an increased amount of management attention and external resources. We remain committed to ~~the~~maintaining ~~date~~high ~~the~~standards ~~Company~~of ~~completed~~corporate ~~its~~governance ~~evaluation~~and public disclosure. As a result, we intend to invest all reasonably necessary resources to comply with evolving standards, and

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. 23

~~PART~~this ~~II.~~investment ~~OTHER~~may ~~INFORMATION~~result in increased general and administrative expenses and a diversion of management time and attention from revenue generating activities to compliance activities.

~~ITEM~~RISKS 1.RELATED ~~LEGAL~~TO ~~PROCEEDINGS~~OUR COMMON STOCK

AsSINCE aOUR ~~consequence~~SHARES ofARE ~~the~~THINLY ~~bankruptcy filings~~TRADED, ~~all~~AND ~~pending~~TRADING ~~litigation~~ON ~~and~~THE ~~claims~~PINK ~~against~~SHEETS ~~the~~MAY ~~Company~~BE ~~through~~SPORADIC ~~December~~BECAUSE ~~30,~~IT ~~2003~~IS ~~were~~NOT ~~stayed,~~AN ~~and no party could take action to realize its pre-petition claims~~EXCHANGE, ~~except~~STOCKHOLDERS ~~pursuant~~MAY toHAVE ~~order~~DIFFICULTY ofRESELLING ~~the~~THEIR ~~Bankruptcy Court~~SHARES. ~~All pre-petition claims have been treated within the Plan.~~

~~The~~Our ~~Company~~common stock is ~~periodically~~currently aquoted ~~defendant~~on inthe ~~cases~~Pink ~~involving~~Sheets. ~~personal~~The ~~injury~~fact ~~and~~that ~~other~~our ~~matters~~common ~~that~~stock ~~arise~~is innot ~~the~~listed ~~normal~~is ~~course~~likely ofto ~~business.~~make ~~While~~trading ~~any~~more ~~pending~~difficult orfor ~~threatened~~broker-dealers, ~~litigation~~shareholders ~~has~~and aninvestors, ~~element~~potentially ofleading ~~uncertainty,~~to ~~the~~further ~~Company~~declines ~~believes~~in ~~that~~share ~~the~~price. ~~outcome~~An ofinvestor ~~any~~may ~~pending~~find ~~lawsuits~~it ormore ~~claims,~~difficult ~~individually~~to sell our common stock or ~~combined,~~to ~~will~~obtain ~~not~~accurate ~~materially~~quotations ~~affect~~of the ~~financial~~share ~~condition~~price orof ~~results~~its ofcommon ~~operation~~stock.

23THE PRICE OF OUR COMMON STOCK MAY FLUCTUATE SIGNIFICANTLY.

~~ITEM~~The 2market 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. ~~UNREGISTERED~~In ~~SALES~~addition, OFthe ~~EQUITY~~stock ~~SECURITIES~~market ~~AND~~is ~~USE~~subject OFto ~~PROCEEDS~~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.

OnIn ~~January 19, 2005, in a transaction exempt from registration under~~ the ~~Securities Act of 1933~~past, asfollowing ~~amended,~~periods ~~pursuant to Section 4(2)~~ of ~~such~~volatility ~~Act~~in ~~and Regulation D promulgated thereunder, we completed an initial closing with respect to~~ the ~~sale,~~market ~~pursuant~~price ~~to the Memorandum,~~ of ~~700,000~~a ~~shares~~company’s ~~of Common Stock and Common Stock purchase warrants (the “Warrants”) to purchase 350~~securities,~~000~~ ~~shares~~securities ofclass-action ~~common~~litigation ~~stock,~~has atoften anbeen ~~initial exercise price of $2~~instituted.00 ~~per~~Such ~~share (the “Exercise Price”)~~litigation, ~~for~~if ~~an aggregate of $1~~initiated,~~050,000~~ ofcould ~~gross~~result ~~proceeds~~in ~~(the~~substantial ~~“Private Placement”). Following the delivery of our audited financial statements for the year ended December 27~~costs, ~~2005~~a (material ~~“Fiscal~~adverse ~~2005”)~~effect, ~~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~~a (diversion ~~“EBITDA”) for Fiscal 2005. The Exercise Price will be adjusted as follows upon the date~~ of ~~exercise:~~management’s ~~(i)~~attention ~~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~~resources.~~00)~~ ~~for every $100,000 by which Fiscal 2005 EBITDA is below the EBITDA Threshold.~~

~~ITEM~~FAILURE 3.OF ~~DEFAULTS~~OUR ~~UPON~~COMMON ~~SENIOR~~STOCK ~~SECURITIES~~TO APPRECIATE IN VALUE COULD AFFECT OUR ABILITY TO RAISE WORKING CAPITAL AND ADVERSELY IMPACT OUR ABILITY TO CONTINUE OUR NORMAL OPERATIONS.

~~None~~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.

~~ITEM~~THE 4.LARGE ~~SUBMISSION~~NUMBER OF ~~MATTERS~~SHARES TOOF OUR COMMON STOCK ELIGIBLE FOR PUBLIC SALE AND THE FACT THAT A ~~VOTE~~RELATIVELY SMALL NUMBER OF ~~SECURITY~~INVESTORS ~~HOLDERS~~HOLD OUR PUBLICLY TRADED COMMON STOCK COULD CAUSE OUR STOCK PRICE TO FLUCTUATE.

~~None~~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.

~~ITEM 5. OTHER INFORMATION~~24

~~None~~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.

~~ITEM~~The 6SEC has adopted regulations which generally define “penny stock” to be any equity security that has a market price (as defined) less than $5.00 ~~EXHIBITS~~per ~~AND~~share ~~REPORTS~~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.

~~(a)~~NASD ~~Exhibits.~~SALES PRACTICE REQUIREMENTS MAY ALSO LIMIT A STOCKHOLDER’S ABILITY TO BUY AND SELL OUR STOCK

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

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.

1.We ~~Form~~do ~~14-C~~not ~~dated~~expect ~~January~~to 5,declare ~~2005~~or ~~reporting~~pay ~~the~~any ~~Company’s~~dividends. ~~2004~~We ~~Stock~~have ~~Incentive~~not ~~Plan~~declared ~~was~~or ~~approved~~paid ~~without~~any adividends ~~meeting~~on byour ~~less~~common ~~than~~stock ~~unanimous~~since ~~written~~our ~~consent~~inception, ofand ~~stockholders,~~we indo ~~lieu~~not ofanticipate apaying ~~special~~any ~~meeting~~such ofdividends for the ~~Company’s~~foreseeable ~~stockholders~~future.

~~2. Form 8~~ANTI-KTAKEOVER 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 registrationPROVISIONS.

3.We ~~Form~~do ~~8-K~~not ~~and~~currently ~~8-K/A~~have ~~dated~~a ~~January~~shareholder ~~24,~~rights ~~2005~~plan ~~reporting~~or ~~that~~any ~~the~~anti-takeover ~~Company~~provisions ~~has~~in ~~changed~~our ~~accountants~~by-laws. ~~There~~Without ~~was~~any noanti-takeover ~~dissatisfaction~~provisions, orthere ~~disagreements~~is ~~with~~no ~~the~~deterrent ~~previous~~for ~~accountants.~~a ~~The~~take-over ~~Company~~of ~~engaged~~our ~~Mayer~~company, ~~Hoffman~~which ~~McCann~~may ~~P.C.~~result asin ~~their~~a ~~independent~~change ~~auditors~~in ~~for~~our ~~the~~management ~~period~~and ~~ending December 31, 2004~~directors.

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.25

24OWNERSHIP OF APPROXIMATELY 40% OF OUR OUTSTANDING COMMON STOCK BY FIVE STOCKHOLDERS WILL LIMIT YOUR ABILITY TO INFLUENCE CORPORATE MATTERS.

~~SIGNATURES~~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 40% 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.

~~Pursuant~~ITEM to3. ~~the~~QUANTITATIVE ~~requirements~~AND ofQUALITATIVE ~~the~~DISCLOSURE ~~Securities~~ABOUT ~~Exchange~~MARKET ~~Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.~~ RISK

~~STEAKHOUSE~~Market ~~PARTNERS, INC~~Risk. ~~/S/~~The A.Company’s ~~STONE~~exposure ~~DOUGLASS~~to ~~/S/~~market ~~JOSEPH~~risk L.is ~~WULKOWICZ~~principally A.confined ~~STONE~~to ~~DOUGLASS~~cash ~~JOSEPH~~in L.the ~~WULKOWICZ President~~bank, ~~Secretary~~money ~~and~~market ~~Director(Serving~~accounts, asand ~~principal~~notes ~~executive~~payable, ~~officer)~~which ~~Vice~~have ~~President~~short maturities and, ~~Chief~~therefore, ~~Financial~~minimal ~~Officer(Serving~~and asimmaterial ~~principal~~market ~~financial~~risk. ~~and accounting officer)~~

25Interest Rate Sensitivity. As of June 28, 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.

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.

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 operation.

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

On April 7, 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 a closing with respect to the sale of 173,915 of common stock (the “Shares”) and Common Stock purchase warrants (the “Warrants”) to purchase 86,958 shares of common stock (the “Warrant Shares”), at an initial exercise price of $2.00 per share (the “Exercise Price”), for an aggregate of $200,000 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.

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 there under, 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. The securities were issued with restricted security legends.

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 and established the effective date of the Plan as of the close of business January 27, 2005.

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.

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)

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

STEAKHOUSE PARTNERS, INC. (Exact name of registrant as specified in its charter)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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