UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~October~~April 418, ~~2009~~2010

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to ____________.

Commission file number 333-57925

Perkins & Marie Callender’s Inc.

(Exact name of registrant as specified in its charter)

Delaware	62-1254388
(State or other jurisdiction of incorporation or organization)	(I.R.S. employer identification no.)
6075 Poplar Avenue, Suite 800, Memphis, TN	38119
(Address of principal executive offices)	(Zip code)

(901) 766-6400
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes R No o 0

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o0 No o 0

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Check one:

Large accelerated filer £	Accelerated filer £
Non-accelerated filer R (Do not check if a smaller reporting company)	Smaller reporting company £

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes £ No R

Number of shares of common stock outstanding as of June ~~November 17~~4, ~~2009~~2010: 10,820.

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION	Page
Item 1. Financial Statements:
Consolidated Statements of Operations (Unaudited) – Quarter and Year-to-Date Periods Ended October 4, 2009 and October 5, 2008	2
Consolidated Statements of Operations (Unaudited) – Quarters Ended April 18, 2010 and April 19, 2009	2
Consolidated Balance Sheets – October 4, 2009 (Unaudited) and December 28, 2008	3
Consolidated Balance Sheets – April 18, 2010 (Unaudited) and December 27, 2009	3
Consolidated Statements of Cash Flows (Unaudited) – Year-to-Date Periods Ended October 4, 2009 and October 5, 2008	4
Consolidated Statements of Cash Flows (Unaudited) – Quarters Ended April 18, 2010 and April 19, 2009	4
Notes to Consolidated Financial Statements (Unaudited)	5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2420
Item 3. Quantitative and Qualitative Disclosures about Market Risk	4131
Item 4. Controls and Procedures	4231
PART II — OTHER INFORMATION
Item 1. Legal Proceedings	4332
Item 1A. Risk Factors	4332
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	4332
Item 3. Defaults Upon Senior Securities	4332
Item 4. Submission of Matters to a Vote of Security Holders	43
Item 4. Removed and Reserved	32
Item 5. Other Information	4332
Item 6. Exhibits	4332
SIGNATURE	4433
Ex-31.1 Section 302 Certification of the CEO
Ex-31.2 Section 302 Certification of the CFO
Ex-32.1 Section 906 Certification of the CEO
Ex-32.2 Section 906 Certification of the CFO

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PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PERKINS & MARIE CALLENDER’S INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands)

	Quarter			Quarter			~~Year-to-Date~~			~~Year-to-Date~~
	Ended			Ended			~~Ended~~			~~Ended~~
	October 4, 2009			October 5, 2008			October 4, 2009			October 5, 2008
	April 18, 2010			April 19, 2009
REVENUES:
Food sales	$	~~109~~147,~~086~~315			~~121~~160,~~210~~877			~~385,024~~			~~418,632~~
Franchise and other revenue		68,~~384~~490			68,~~691~~376			~~21,575~~			~~22,635~~
Total revenues		~~115~~155,~~470~~805			~~127~~169,~~901~~253			~~406,599~~			~~441,267~~
COSTS AND EXPENSES:
Cost of sales (excluding depreciation shown below):
Food cost		2837,~~058~~282			3542,~~867~~974			~~101,333~~			~~123,428~~
Labor and benefits		3953,~~474~~362			4155,~~417~~325			~~135,703~~			~~144,105~~
Operating expenses		3343,~~183~~735			3445,~~240~~701			~~110,956~~			~~115,361~~
General and administrative		1014,~~313~~106			1014,~~612~~089			~~34,531~~			~~35,727~~
Depreciation and amortization		56,~~498~~906			57,~~741~~356			~~18,411~~			~~19,111~~
Interest, net		1013,~~260~~565			813,~~568~~615			~~34,005~~			~~26,871~~
Asset impairments and closed store expenses		~~187~~1,665			61862			~~1,395~~			~~614~~
Goodwill impairment		-			20,202			-			20,202
Other, net		(218	)		(961	)
Loss on extinguishment of debt		-			2,952			-			2,952
Total costs and expenses		170,403			178,961
Other, net		(392	)		(27	)		(3,069	)		(117	)
Loss before income taxes		(14,598	)		(9,708	)
Total costs and expenses		126,581			159,633			433,265			488,254
Benefit from (provision for) income taxes		-			-
Loss before income taxes		(11,111	)		(31,732	)		(26,666	)		(46,987	)
Net loss		(14,598	)		(9,708	)
Benefit from (provision for) income taxes		(142	)		1,260			(142	)		938
Less: net earnings attributable to non-controlling interests		8			46
Net loss		(11,253	)		(30,472	)		(26,808	)		(46,049	)
Net loss attributable to Perkins & Marie Callender's Inc.	$	(14,606	)		(9,754	)
Less: net (loss) earnings attributable to
non-controlling interests		(5	)		5			74			81
Net loss attributable to Perkins & Marie
Callender's Inc.	$	(11,248	)		(30,477	)		(26,882	)		(46,130	)

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

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PERKINS & MARIE CALLENDER’S INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)

	October 4,			December 28,
	April 18,			December 27,
	2009			2008
	2010			2009
ASSETS	(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents	$	32,~~525~~290			4,~~613~~288
Restricted cash		7,~~303~~147			108,~~140~~110
Receivables, less allowances for doubtful accounts of $806 and $954 in 2009 and 2008, respectively		17,390			21,386
Receivables, less allowances for doubtful accounts of $807 and $829 in 2010 and 2009, respectively		14,908			18,125
Inventories		119,~~406~~860			1211,~~300~~062
Prepaid expenses and other current assets		43,~~470~~477			21,~~996~~864
Total current assets		4437,~~094~~682			5143,~~435~~449
PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization of $137,817 and $125,951 in 2009 and 2008, respectively		79,966			93,500
PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization of $158,049 and $156,898 in 2010 and 2009, respectively		68,222			75,219
INVESTMENT IN UNCONSOLIDATED PARTNERSHIP		2358			4850
GOODWILL		923,~~836~~100			923,~~836~~100
INTANGIBLE ASSETS		149,036			150,847
INTANGIBLE ASSETS, net of accumulated amortization of $20,795 and $20,179 in 2010 and 2009, respectively		146,397			147,013
OTHER ASSETS		1615,~~938~~359			1716,~~842~~074
TOTAL ASSETS	$	~~299~~290,~~893~~818			~~323~~304,~~508~~905
LIABILITIES AND DEFICIT
CURRENT LIABILITIES:
Accounts payable	$	1511,~~775~~038			1814,~~295~~657
Accrued expenses		3943,~~309~~676			4741,~~040~~605
Franchise advertising contributions		54,~~510~~783			54,~~316~~327
Current maturities of long-term debt and capital lease obligations		~~499~~419			~~382~~503
Total current liabilities		6159,~~093~~916			7161,~~033~~092
LONG-TERM DEBT, less current maturities		~~327~~326,~~478~~158			~~316~~326,~~534~~042
CAPITAL LEASE OBLIGATIONS, less current maturities		1110,~~169~~985			1311,~~715~~054
DEFERRED RENT		1617,~~549~~934			1517,~~343~~092
OTHER LIABILITIES		2023,~~306~~239			1722,~~741~~277
DEFERRED INCOME TAXES		45,457			45,457
DEFICIT:
Common stock, $.01 par value; 100,000 shares authorized;
10,820 issued and outstanding		1			1
Additional paid-in capital		150,870			~~149~~150,~~851~~870
Accumulated other comprehensive income (loss)		45			(4	)
Accumulated other comprehensive income		57			45
Accumulated deficit		(~~287~~343,~~803~~939	)		(~~260~~329,~~921~~333	)
Total PMCI stockholder's deficit		(~~136~~193,~~887~~011	)		(~~111~~178,~~073~~417	)
Noncontrolling interests		185			215
Non-controlling interests		140			308
Total deficit		(~~136~~192,~~702~~871	)		(~~110~~178,~~858~~109	)
TOTAL LIABILITIES AND DEFICIT	$	~~299~~290,~~893~~818			~~323~~304,~~508~~905

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

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PERKINS & MARIE CALLENDER’S INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Year-to-Date			Year-to-Date
	Quarter			Quarter
	Ended			Ended
	October 4, 2009			October 5, 2008
	April 18, 2010			April 19, 2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(2614,~~808~~598	)		(469,~~049~~708	)
Adjustments to reconcile net loss to net cash used in
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization		186,~~411~~906			197,~~111~~356
Asset impairments		~~571~~1,732			~~987~~202
Amortization of debt discount		~~1,184~~541			~~291~~474
Other non-cash income and expense items		(~~2,427~~167	)		(~~134~~709	)
Loss (gain) on disposition of assets		~~824~~(67	)		~~(373~~660	)
Goodwill impairment		-			20,202
Equity in net (income) loss of unconsolidated partnership		(8	)		10
Loss on extinguishment of debt		-			2,952
Net changes in operating assets and liabilities		5,766			3,399
Equity in net loss of unconsolidated partnership		25			17
Total adjustments		14,703			11,392
Net changes in operating assets and liabilities		3,383			(16,043	)
Net cash provided by operating activities		105			1,684
Total adjustments		21,971			27,010
Net cash used in operating activities		(4,837	)		(19,039	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(51,~~941~~354	)		(152,~~596~~474	)
Proceeds from sale of assets		~~494~~5			~~515~~476
Net cash used in investing activities		(51,~~447~~349	)		(151,~~081~~998	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from terminated revolver		-			53,000
Proceeds from revolving credit facilities		10,966			7,443
Repayment of terminated revolver		-			(73,000	)
Repayment of revolving credit facilities		(11,389	)		(8,128	)
Proceeds from Revolver		26,501			8,604
Repayment of capital lease obligations		(149	)		(128	)
Repayment of Revolver		(16,726	)		-
Repayment of other debt		(6	)		(6	)
Proceeds from Secured Notes, net of $7,537 discount		-			124,463
Debt financing costs		-			(127	)
Repayment of term loan		-			(98,750	)
Distributions to non-controlling interest holders		(176	)		(70	)
Repayment of capital lease obligations		(318	)		(330	)
Net cash used in financing activities		(754	)		(1,016	)
Repayment of other debt		(15	)		(15	)
NET DECREASE IN CASH AND CASH EQUIVALENTS		(1,998	)		(1,330	)
Debt financing costs		(142	)		(9,903	)
Lessor financing of new restaurants		-			2,286
Distributions to noncontrolling interest holders		(104	)		(258	)
Capital contributions		-			12,500
Repurchase of equity ownership units in P&MC's Holding LLC		-			(277	)
Net cash provided by financing activities		9,196			18,320
NET DECREASE IN CASH AND CASH EQUIVALENTS		(1,088	)		(15,800	)
CASH AND CASH EQUIVALENTS:
Balance, beginning of period		4,~~613~~288			194,~~032~~613
Balance, end of period	$	32,~~525~~290			3,~~232~~283

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

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PERKINS & MARIE CALLENDER’S INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) Organization

Perkins & Marie Callender’s Inc. (together with its consolidated subsidiaries collectively the “Company”, “PMCI”, “we” or “us”), is a wholly-owned subsidiary of:

·	Perkins & Marie Callender’s Holding Inc., which is a wholly-owned subsidiary of

·	P&MC’s Holding Corp, which is a wholly-owned subsidiary of

·	P&MC’s Real Estate Holding LLC, which is a wholly-owned subsidiary of

·	P&MC’s Holding LLC, which is principally owned by affiliates of Castle Harlan, Inc.

The Company is the sole equity holder of Wilshire Restaurant Group, LLC (“WRG”), which owns 100% of the outstanding common stock of Marie Callender Pie Shops, Inc. (“MCPSI”). MCPSI owns and operates restaurants and has granted franchises under the names Marie Callender’s and Marie Callender’s Grill. MCPSI also owns 100% of the outstanding common stock of M.C. Wholesalers, Inc., which operates a commissary that produces bakery goods. MCPSI also owns 100% of the outstanding common stock of FIV Corp., which owns and operates one restaurant under the name East Side Mario’s.

The Company operates two restaurant concepts: (1) full-service family dining restaurants located primarily in the Midwest, Florida and Pennsylvania under the name Perkins Restaurant and Bakery (“Perkins”) and (2) mid-priced, casual-dining restaurants, specializing in the sale of pies and other bakery items, located primarily in the western United States under the name Marie Callender’s Restaurant and Bakery (“Marie Callender’s”).

Through our bakery goods manufacturing segment (“Foxtail”), we also offer pies, muffin batters, cookie doughs, pancake mixes, and other food products for sale to our Perkins and Marie Callender’s Company-operated and franchised restaurants and to unaffiliated customers, such as food service distributors.

(2) Basis of Presentation

The consolidated interim financial statements included in this report have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America and have not been subject to audit. In the opinion of the Company’s management, all adjustments, including all normal recurring items, necessary for a fair presentation of the results of operations are reflected in these consolidated interim financial statements. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. The most significant estimates and assumptions underlying these financial statements and accompanying notes generally involve royalty revenue recognition and provisions for related uncollectible accounts, asset impairments, self-insurance accruals and valuation allowances for income taxes. ~~The Company has evaluated subsequent events through November 17, 2009, the issuance date of the accompanying consolidated financial statements.~~

The results of operations for the interim period ended ~~October~~April 418, ~~2009~~2010 are not necessarily indicative of operating results for the full year. The consolidated interim financial statements contained herein should be read in conjunction with the audited consolidated financial statements and notes contained in the Company’s ~~2008~~2009 ~~Annual Report on~~ Form 10-K/A, filed with the Securities and Exchange Commission on ~~March~~June 307, ~~2009~~2010.

(3) Accounting Reporting Period

Our financial reporting is based on thirteen four-week periods ending on the last Sunday in December. The first quarter each year includes four four-week periods, and the second, third and fourth quarters each typically include three four-week periods. The first, ~~second~~quarter of 2010 ended April 18 and ~~third~~the ~~quarters~~first quarter of 2009 ended on April 19. The second, ~~July~~third 12 and ~~October 4, respectively. The~~ fourth ~~quarter~~quarters of ~~2009~~2010 will end onJuly 11, October 3 and December 2726, respectively.

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(4) Operations, Financial Position and Liquidity

AtOur ~~October~~principal 4,sources ~~2009,~~of weliquidity ~~had~~include aunrestricted ~~negative~~cash, ~~working~~available ~~capital~~borrowings ~~balance~~under ofour $1626,~~999~~000,000 ~~and~~revolving acredit ~~total~~facility ~~stockholder’s~~(the ~~deficit~~"Revolver") ofand ~~$136,887,000~~cash generated by operations. ~~Furthermore,~~We athave ~~October~~periodically 4,received ~~2009,~~capital wecontributions ~~had~~from ~~$3,525,000~~our inparent ~~unrestricted~~company ~~cash~~ and ~~cash~~engaged ~~equivalents~~in ~~and~~other ~~$2,817,000~~capital transactions. Our principal uses of ~~borrowing~~liquidity ~~capacity~~are ~~under~~costs and expenses associated with our ~~revolving~~restaurant ~~credit~~and ~~facility~~manufacturing operations, debt service payments and capital expenditures.

~~Our~~At ~~principal~~April ~~sources~~18, ~~of liquidity include unrestricted cash~~2010, ~~available~~we ~~borrowings~~had ~~under~~a ~~our~~negative ~~revolving~~working ~~credit facility and cash generated by operations. We have also periodically received~~ capital ~~contributions~~balance ~~from~~of ~~our parent company, including a~~ $1222,~~500~~234,000 ~~capital contribution received in 2008,~~ and ~~have~~total ~~engaged~~PMCI instockholder’s ~~capital~~deficit ~~markets transactions. Our principal uses~~ of ~~liquidity are costs and expenses associated with our restaurant and manufacturing operations, debt service payments (including interest of which approximately~~ $9193,~~300~~011,000 ~~is due November 30, 2009), and capital expenditures~~. ~~Based~~Furthermore, onat ~~historical~~April ~~and~~18, ~~current sales trends~~2010, we ~~expect~~had ~~significant~~$2,290,000 ~~sales~~in ~~volumes~~unrestricted ~~during~~cash ~~the months of October~~ and ~~November~~cash ~~2009,~~equivalents ~~principally from our Thanksgiving pie~~ and ~~meal promotions~~$5,033,000 ~~that~~of ~~will~~borrowing ~~generate~~capacity ~~adequate~~under ~~liquidity for~~ our ~~November~~ ~~30 interest payment~~Revolver.

We have experienced adeclines ~~decline~~ in ~~same~~comparable ~~store~~restaurant sales and anprofitability ~~increase~~ in ~~net~~recent ~~losses~~periods, resulting in ~~recent~~additional ~~quarterly~~borrowings ~~periods~~under our Revolver. ~~The~~We ~~turmoil~~believe that the ongoing weakness in the economy, ~~the~~high ~~rising~~ unemployment ~~and~~levels, ~~the~~continued ~~spread~~depressed residential real estate values, especially in some of our larger markets, and the ~~H1N1~~level ~~influenza~~of ~~virus~~home foreclosures has adversely affected our guest counts and, in turn, our ~~net~~sales ~~loss~~ and ~~cash~~operating ~~flows from operations~~results. ~~The~~In ~~Company~~order ~~expects~~ to ~~incur~~improve athe ~~net~~short-term ~~loss~~cash ~~for~~flows ~~the~~in ~~full~~our ~~year~~business ~~2009. In~~and ~~order~~better toposition ~~improve~~ the ~~cash~~Company ~~flows~~for inthe ~~our~~future, ~~business~~among other things, we have introduced a new breakfast program at our Marie Callender’s restaurants, ~~implemented~~we ~~price~~are ~~increases,~~implementing ~~negotiated~~new ~~rent~~advertising ~~concessions~~and promotional programs at both restaurant brands, we have improved systems to more effectively manage our food and labor costs, we have upgraded our management staff and certain equipment in our Foxtail division to drive higher operating efficiencies, ~~reduced~~and ~~overall~~we ~~planned~~have lowered capital expenditures ~~for~~levels 2009 and eliminated several salaried positions. Management expects these initiatives together with the Company’s cash provided by operations and borrowing capacity will provide sufficient liquidity for ~~at least the next twelve months~~2010. ~~However, there can be no assurance as to whether these or other actions will enable us to generate sufficient cash flow to fund our operations and service our debt.~~

Management expects these initiatives, together with the Company’s cash provided by operations and borrowing capacity under the Revolver, to provide sufficient liquidity for at least the next twelve months. Our liquidity needs and sources are seasonal in nature. Available liquidity has historically been at its lowest point at the end of the third quarter as we ramp up for significant fourth quarter sales activity. Historically, we have generated a significant portion of our operating cash flow in the first and fourth quarters, with these two quarters in total contributing 60% and 63% of our annual operating cash flows in 2008 and 2009, respectively, thereby providing an important source of cash to fund our operations and service our debt during the following year. Therefore, our ability to fund our operations and service our debt through 2011 will depend, primarily, on our ability to generate strong operating cash flows during the remainder of 2010, particularly during the fourth quarter and the first quarter of 2011. We currently expect that our operating cash flow for the fourth quarter 2010 will exceed our fourth quarter 2009 cash flow and that our first quarter 2011 cash flow will at least equal our first quarter 2010 cash flow. However, if economic conditions and customer traffic do not improve, our operating results for these quarters may be less than our expectations. Furthermore, if we are unable to generate sufficient operating cash flows during these periods, there can be no assurance that we will have sufficient liquidity that will enable us to fund our operations and service our debt without accessing outside sources of additional liquidity. Alternate sources of liquidity may include additional borrowings or capital contributions. However, the Company currently has no such commitments or plans, and there can be no assurance that the Company will be able to access acceptable alternative financing.

(5) Gift Cards

The Company issues gift cards and, prior to March 2005, also issued gift certificates (collectively, “gift cards”), ~~that~~both of which contain no expiration dates or inactivity fees. The Company recognizes revenue from gift cards when they are redeemed by the customer. The Company recognizes income from unredeemed gift cards (“gift card breakage”) when there is sufficient historical data to support an estimate, the likelihood of redemption is remote and there is no legal obligation to remit the unredeemed gift card balances to the state tax authorities under ~~their~~applicable escheat regulations. ~~The~~ Gift ~~gift~~ card breakage ~~rate~~ is determined based on historical redemption patterns and ~~gift card breakage is~~ included in ~~Other~~other, net in the ~~Consolidated~~consolidated ~~Statements~~statements of ~~Operations~~operations. Management concluded in the first quarter of 2009 that it had sufficient evidence to estimate the gift card breakage rate on Perkins gift cards and recorded $865,000 of gift card breakage. ~~Management~~For ~~concluded in~~ the ~~second fiscal~~ quarter ofended ~~2009~~April ~~that~~18, it2010, ~~had~~we ~~sufficient~~recorded ~~evidence~~$192,000 toof ~~estimate~~breakage ~~the~~income ~~gift~~for ~~card~~both ~~breakage~~our ~~rate~~Perkins onand Marie Callender’s gift cards. As ~~and~~of ~~recorded~~April $118,~~576,000~~ of2010 ~~gift~~and ~~card~~December ~~breakage. The~~27, ~~breakage~~2009, ~~recorded~~the inCompany ~~the~~had ~~first~~approximately ~~two~~$2,365,000 ~~fiscal~~and ~~quarters~~$3,324,000, respectively, of ~~2009~~net ~~represents~~gift ~~amounts~~card ~~related~~proceeds toreceived ~~gift~~from ~~cards~~Perkins’ ~~sold~~franchisees ~~since~~reflected ~~the~~as ~~inception of~~restricted ~~our~~cash ~~gift~~on ~~card~~its ~~programs~~consolidated inbalance ~~2005~~sheets.

For the fiscal quarter ended October 4, 2009, we recorded $119,000 of breakage income. As of October 4, 2009 and December 28, 2008, the Company recorded approximately $1,573,000 and $3,228,000, respectively, of net gift card proceeds received from Perkins’ franchisees as restricted cash and accrued expenses on its consolidated balance sheets. Gift card related operating expenses, which primarily consist of production costs of the cards and bank fees, are not significant.

(6) Commitments, Contingencies and Concentrations

We are a party to various legal proceedings in the ordinary course of business. We do not believe it is likely that these proceedings, either individually or in the aggregate, will have a material adverse effect on our consolidated financial statements.

The majority of our franchise revenues are generated from franchisees owning individually less than five percent (5%) of total franchised restaurants, and, therefore, the loss of any one of these franchisees would not have a material impact on our results of operations.

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AsThe majority of ~~October~~our 4,franchise ~~2009,~~revenues ~~three~~are ~~Perkins~~generated from franchisees ~~otherwise~~owning ~~unaffiliated~~individually ~~with~~less ~~the~~than ~~Company~~five ~~owned~~percent ~~88, or 28~~(5%,) of ~~the~~total ~~315~~ franchised ~~Perkins~~ restaurants, ~~consisting~~and, ~~of 40~~therefore, 27the ~~and~~loss 21of ~~restaurants,~~any ~~respectively. As~~one of ~~October 5, 2008,~~ these ~~same~~ franchisees ~~owned~~would ~~43,~~not 27have ~~and~~a 21material ~~restaurants,~~impact ~~respectively. The~~on ~~following~~our ~~table~~results ~~presents a summary~~ of ~~the royalty and license fees provided by these three franchisees:~~operations.

		Quarter		Quarter		Year-to-Date		Year-to-Date
# of		Ended		Ended		Ended		Ended
	Restaurants(2009)	October 4, 2009		October 5, 2008		October 4, 2009		October 5, 2008
	40	$	447,000		462,000		1,446,000		1,517,000
	27		337,000		348,000		1,100,000		1,131,000
	21		346,000		359,000		1,123,000		1,179,000

As of April 18, 2010, three Perkins franchisees otherwise unaffiliated with the Company owned 87, or 28%, of the 315 franchised Perkins restaurants, consisting of 39, 27 and 21 restaurants, respectively. As of April 19, 2009, these same franchisees owned 41, 27 and 21 restaurants, respectively. The following table presents a summary of the royalty and license fees provided by these three franchisees:

As of October 4, 2009, three Marie Callender’s franchisees otherwise unaffiliated with the Company owned 12, or 31%, of the 39 franchised Marie Callender’s restaurants, consisting of four restaurants each. As of October 5, 2008, these same franchisees owned five, four and four restaurants, respectively. The following table presents a summary of the royalty and license fees provided by these three franchisees:

# of		Quarter		# of		Quarter
Restaurants		Ended		Restaurants		Ended
(2010)		April 18, 2010		(2009)		April 19, 2009

	39	$	532,000		41	$	550,000
	27		439,000		27		426,000
	21		413,000		21		435,000

		Quarter		Quarter		Year-to-Date		Year-to-Date
# of		Ended		Ended		Ended		Ended
	Restaurants(2009)	October 4, 2009		October 5, 2008		October 4, 2009		October 5, 2008
	4	$	60,000		121,000		280,000		434,000
	4		78,000		101,000		279,000		369,000
	4		64,000		72,000		202,000		244,000

As of April 18, 2010, three Marie Callender’s franchisees otherwise unaffiliated with the Company owned 12, or 32%, of the 38 franchised Marie Callender’s restaurants, consisting of four restaurants each. As of April 19, 2009, these same franchisees owned five, four and four restaurants, respectively. The following table presents a summary of the royalty and license fees provided by these three franchisees:

The Company has three arrangements with different parties to whom territorial rights were granted. The Company makes specified payments to those parties based on a percentage of gross sales from certain Perkins restaurants and for new Perkins restaurants opened within those geographic regions. During the third quarters of 2009 and 2008, we paid an aggregate of $643,000 and $678,000, respectively, and during the year-to-date periods of 2009 and 2008, we paid an aggregate of $2,064,000 and $2,160,000, respectively, under such arrangements. Of these arrangements, one expires in the year 2075, one expires upon the death of the beneficiary and the remaining agreement remains in effect as long as we operate Perkins restaurants in certain states.

# of		Quarter		# of		Quarter
Restaurants		Ended		Restaurants		Ended
(2010)		April 18, 2010		(2009)		April 19, 2009

	4	$	110,000		5	$	150,000
	4		116,000		4		117,000
	4		82,000		4		81,000

The Company has three arrangements with different parties to whom territorial rights were granted. The Company makes specified payments to those parties based on a percentage of gross sales from certain Perkins restaurants and for new Perkins restaurants opened within those geographic regions. During the first quarters of 2010 and 2009, we paid an aggregate of $739,000 and $779,000, respectively, under such arrangements. Of these arrangements, one expires in the year 2075, one expires upon the death of the beneficiary and the remaining agreement remains in effect as long as we operate Perkins restaurants in certain states.

(7) Supplemental Cash Flow Information

The change in cash and cash equivalents due to changes in operating assets and liabilities in the statements of cash flows for the quarters ended April 18, 2010 and April 19, 2009 consisted of the following (in thousands):

	Quarter			Quarter
	Ended			Ended
	April 18, 2010			April 19, 2009
Decrease (increase) in:
Receivables	$	3,200			5,009
Inventories		1,202			866
Prepaid expenses and other current assets		(1,613	)		(1,418	)
Other assets		1,010			430

Increase (decrease) in:
Accounts payable		(3,619	)		(4,939	)
Accrued expenses and other current liabilities		3,782			1,755
Other liabilities		1,804			1,696
Net changes in operating assets and liabilities	$	5,766			3,399

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(7) Supplemental Cash Flow Information

The change in cash and cash equivalents due to changes in operating assets and liabilities in the statements of cash flows for the year-to-date periods ended October 4, 2009 and October 5, 2008 consisted of the following (in thousands):

	Year-to-Date			Year-to-Date
	Ended			Ended
	October 4, 2009			October 5, 2008
Decrease (increase) in:
Restricted cash	$	2,100			-
Receivables		3,900			(2,176	)
Inventories		894			(2,437	)
Prepaid expenses and other current assets		(1,474	)		(275	)
Other assets		1,055			2,071
Increase (decrease) in:
Accounts payable		(2,518	)		(1,538	)
Accrued expenses and other current liabilities		(4,345	)		(11,036	)
Other liabilities		3,771			(652	)
Net changes in operating assets and liabilities	$	3,383			(16,043	)

Other supplemental cash flow information for the year-to-date periods ended October 4, 2009 and October 5, 2008 consisted of the following (in thousands):

	Year-to-Date				Year-to-Date
	Ended				Ended
	October 4, 2009				October 5, 2008
Cash paid for interest		$	32,600			29,111
Income taxes paid (refunded)			(1,060	)		396

(8) Goodwill and Intangible Assets

Goodwill

Goodwill of $923,~~836~~100,000 at both ~~October~~April 418, ~~2009~~2010 and December 2827, ~~2008~~2009 was attributable solely to the restaurant operating segment.

Intangible Assets

The components of our identifiable intangible assets are as follows (in thousands):

	October 4, 2009			December 28, 2008
	April 18, 2010			December 27, 2009
Amortizing intangible assets:
Franchise agreements	$	35,000			35,000
Customer relationships		1310,~~300~~000			1310,~~300~~000
Acquired franchise rights		1110,~~076~~758			1110,~~076~~758
Design prototype		834			834
Subtotal		6056,~~210~~592			6056,~~210~~592
Less — accumulated amortization		(2120,~~774~~795	)		(1920,~~963~~179	)
Net amortizing intangible assets		3835,~~436~~797			4036,~~247~~413
Nonamortizing intangible asset:
Non-amortizing intangible asset:
Tradenames		110,600			110,600
Trade names		110,600			110,600
Total intangible assets	$	~~149~~146,~~036~~397			~~150~~147,~~847~~013

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(9) Accrued Expenses

Accrued expenses consisted of the following (in thousands):

	October 4, 2009			December 28, 2008
		April 18, 2010		December 27, 2009
Payroll and related benefits		$	1415,~~558~~246		15,~~017~~423
Interest			68,~~710~~043		96,~~634~~065
Gift cards and gift certificates			23,~~813~~363		75,~~446~~090
Property, real estate and sales taxes			56,~~077~~463		4,~~118~~267
Insurance			21,~~140~~888		12,~~874~~219
Advertising			~~1,037~~834		~~978~~792
Other			67,~~974~~839		7,~~973~~749
Total accrued expenses		$	3943,~~309~~676		4741,~~040~~605

(10) Segment Reporting

We have three reportable segments: restaurant operations;, franchise operations; and Foxtail. The restaurant operations include the operating results of Company-operated Perkins and Marie Callender’s restaurants. The franchise operations include revenues and expenses directly attributable to franchised Perkins and Marie Callender’s restaurants. Foxtail’s operations consist of three manufacturing plants: one in Corona, California and two in Cincinnati, Ohio.

Our restaurants operate principally in the U.S. within the family dining and casual dining industries, providing similar products to similar customers. Revenues from restaurant operations are derived principally from food and beverage sales to external customers. Revenues from franchise operations consist primarily of royalty income earned on the revenues generated at franchisees’ restaurants and initial franchise fees. Revenues from Foxtail are generated by the sale of food products to both Company-operated and franchised Perkins and Marie Callender’s restaurants as well as to unaffiliated customers. Foxtail’s sales to Company-operated restaurants are eliminated for reporting purposes. The revenues in the “other” segment are primarily licensing revenues.

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The following table presents revenues and other financial information by business segment (in thousands):

Quarter

~~Year-to-Date~~

Ended

~~Ended~~

Revenues

~~October~~April 418, ~~2009~~2010

~~October~~April 519, ~~2008~~2009

~~October 4, 2009~~

~~October 5, 2008~~

Restaurant operations

99139,~~781~~605

~~108~~149,~~374~~228

~~355,501~~

~~381,761~~

Franchise operations

56,~~259~~670

56,~~631~~944

~~17,507~~

~~18,800~~

Foxtail

13,~~362~~465

1617,~~133~~562

~~43,868~~

~~49,599~~

Intersegment revenue

(45,~~057~~755

)

(35,~~297~~913

)

~~(14,345~~

)

~~(12,728~~

)

Other

1,~~125~~820

1,~~060~~432

~~4,068~~

~~3,835~~

Total

~~115~~155,~~470~~805

~~127~~169,~~901~~253

~~406,599~~

~~441,267~~

Segment profit (loss)

Segment profit (loss) attributable to PMCI

Restaurant operations

25,~~252~~570

49,~~639~~076

~~16,664~~

~~18,244~~

Franchise operations

46,~~786~~125

~~(13~~6,~~411~~429

)

~~(a)~~

~~16,055~~

~~(1,327~~

)

~~(a)~~

Foxtail

~~903~~641

~~(2,901~~159

)

~~(a)~~

~~2,226~~

~~(4,786~~

)

~~(a)~~

Other

(1926,~~189~~942

)

(1825,~~804~~418

)

~~(61,827~~

)

~~(58,261~~

)

Total

(1114,~~248~~606

)

(309,~~477~~754

)

~~(a)~~

~~(26,882~~

)

~~(46,130~~

)

~~(a)~~

Segment assets

April 18, 2010

December 27, 2009

~~October 4, 2009~~

~~December 28, 2008~~

Restaurant operations

126,039

132,611

~~122,093~~

~~131,135~~

Franchise operations

101,591

101,672

~~102,199~~

~~102,719~~

Foxtail

29,336

31,754

~~30,310~~

~~37,575~~

Other

33,852

38,868

~~45,291~~

~~52,079~~

Total

290,818

304,905

~~299,893~~

~~323,508~~

(a) In the fiscal quarter ended October 5, 2008, the Company recorded a non-cash goodwill impairment charge of $20,202,000, of which $18,538,000 was charged to the franchise segment and $1,664,000 was charged to the Foxtail segment.9

The components of the other segment loss are as follows (in thousands):

	Quarter			Quarter			Year-to-Date			Year-to-Date
	Ended			Ended			Ended			Ended
	October 4, 2009			October 5, 2008			October 4, 2009			October 5, 2008
General and administrative expenses	$	9,271			8,711			30,500			29,812
Depreciation and amortization expenses		786			781			2,607			2,565
Interest expense, net		10,260			8,568			34,005			26,871
Loss (gain) on disposition of assets, net		48			(409	)		823			(373	)
Asset write-down		139			470			572			987
Loss on extinguishment of debt		-			2,952			-			2,952
Provision for (benefit from) income taxes		142			(1,260	)		142			(938	)
Net (loss) earnings attributable to noncontrolling interests		(5	)		5			74			81
Licensing revenue		(1,081	)		(1,006	)		(3,889	)		(3,626	)
Other		(371	)		(8	)		(3,007	)		(70	)
Total other segment loss	$	19,189			18,804			61,827			58,261

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The components of other segment loss are as follows (in thousands):

	Quarter			Quarter
	Ended			Ended
	April 18, 2010			April 19, 2009
General and administrative expenses	$	12,681			12,150
Depreciation and amortization expenses		957			1,037
Interest expense, net		13,565			13,615
Loss (gain) on disposition of assets, net		(67	)		660
Asset write-down		1,732			202
Provision for (benefit from) income taxes		-			-
Net earnings attributable to non-controlling interests		8			46
Licensing revenue		(1,732	)		(1,361	)
Other		(202	)		(931	)
Total other segment loss	$	26,942			25,418

(11) Long-Term Debt

Refinancing Transaction

On September 24, 2008, the Company issued $132,000,000 of 14% senior secured notes (the "Secured Notes") and entered into a new $26,000,000 revolving credit facility (the “Revolver”) in connection with the refinancing and termination of its then existing $100,000,000 term loan and $40,000,000 revolving credit facility.

Secured Notes and 10% Senior Notes

On September 24, 2008, the Company issued $132,000,000 of 14% senior secured notes (the "Secured Notes"). The Secured Notes were issued at a discount of $7,537,200, which is being accreted using the interest method over the term of the Secured Notes. The Secured Notes will mature on May 31, 2013, and interest is payable semi-annually on May 31 and November 30 of each year.

In September 2005, the Company issued $190,000,000 of 10% senior unsecured notes (the “10% Senior Notes”). The 10% Senior Notes were issued at a discount of $2,570,700, which is being accreted using the interest method over the term of the 10% Senior Notes. The 10% Senior Notes will mature on October 1, 2013, and interest is payable semi-annually on April 1 and October 1 of each year. All consolidated subsidiaries of the Company that are 100% owned provide joint and several, full and unconditional guarantee of the 10% Senior Notes. There are no significant restrictions on the Company’s ability to obtain funds from any of the guarantor subsidiaries in the form of a dividend or a loan. Additionally, there are no significant restrictions on a guarantor subsidiary’s ability to obtain funds from the Company or its direct or indirect subsidiaries.

The indentures for the Secured Notes and the 10% Senior Notes contain various customary events of default, including, without limitation: (i) nonpayment of principal or interest; (ii) cross-defaults with certain other indebtedness; (iii) certain bankruptcy related events; (iv) invalidity of guarantees; (v) monetary judgment defaults; and (vi) certain change of control events. In addition, any impairment of the security interest in the Secured Notes collateral will constitute an event of default under the indenture for the Secured Notes.

Revolver

On September 24, 2008, the Company entered into the Revolver. The Revolver, which matures on February 28, 2013, is guaranteed by Perkins & Marie Callender's Holding Inc. and certain of the Company's existing and future subsidiaries. The Revolver is secured by a first priority perfected security interest in all of the Company's property and assets, and the property and assets of each guarantor. Subject to the satisfaction of the conditions contained therein, up to $26,000,000 may be borrowed under the Revolver from time to time. The Revolver includes a sub-facility for letters of credit in an amount not to exceed $15,000,000.

Amounts outstanding under the Revolver bear interest, at the Company’s option, at a rate per annum equal to either: (i) the base rate, as defined in the Revolver, plus an applicable margin or (ii) a LIBOR-based equivalent, plus an applicable margin. For the foreseeable future, margins are expected to be 325 basis points for base rate loans and 425 basis points for LIBOR loans. As of ~~October~~April 418, ~~2009~~2010, the average annual interest rate on aggregate borrowings under the Revolver was 8.025%, and the Revolver permitted additional borrowings of approximately $25,~~817~~033,000 (after giving effect to $1210,~~959~~748,000 in borrowings and $10,~~224~~219,000 in letters of credit outstanding). The letters of credit are primarily utilized in conjunction with our workers’ compensation programs.

The Revolver contains various affirmative and negative covenants, including, but not limited to a financial covenant for the Company to maintain at least $30,000,000 of trailing 13-period EBITDA, as defined in the Revolver, and limits the Company’s capital expenditures.10

The average interest rate on aggregate borrowings of the Company’s long-term debt for the year-to-date period through October 4, 2009 was 11.6% compared to the average interest rate on aggregate borrowings for the year-to-date period through October 5, 2008 of 9.6%.

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~~Our~~The ~~debt~~Revolver ~~agreements~~contains ~~place~~various ~~restrictions~~affirmative ~~on the Company’s ability~~ and ~~the~~negative ~~ability~~covenants, ofincluding, ~~its~~but ~~subsidiaries~~not limited to: ~~(i)~~a ~~incur~~financial ~~additional~~covenant ~~indebtedness~~for orthe ~~issue~~Company ~~certain preferred stock; (ii) repay certain indebtedness prior~~ to ~~stated~~maintain ~~maturities;~~at ~~(iii)~~least ~~pay dividends or make other distributions on~~$30,000,000 ~~redeem or repurchase capital stock or subordinated indebtedness; (iv) make certain investments or other restricted payments; (v) enter into transactions with affiliates; (vi) issue stock~~ of ~~subsidiaries;~~trailing ~~(vii)~~13-period ~~transfer~~EBITDA, ~~sell~~as ordefined ~~consummate~~in athe ~~merger or consolidation of all~~Revolver, orand ~~substantially~~limits ~~all, of~~ the Company'’s assets; (viii) change lines of business; (ix) incur dividend or other payment restrictions with regard to restricted subsidiaries; (x) create or incur liens on assets to secure debt; (xi) dispose of assets; (xii) restrict distributions from subsidiaries; (xiii) make certain acquisitions; (xiv) make capital expenditures~~; or (xv) amend the terms of the Secured Notes and the 10% Senior Notes~~. ~~As of October 4, 2009, we were in compliance with the financial covenants contained in our debt agreements.~~

The ~~Company~~average ~~continues~~interest torate ~~manage~~on ~~its~~aggregate ~~business~~borrowings ~~during the current weak general economic environment through development and implementation~~ of ~~operating measures designed to reduce expenditures, conserve cash and generate incremental cash flow. Based on current projections, management anticipates that~~ the Company’s ~~will~~long-term bedebt infor ~~compliance with its financial covenants under~~ the ~~Revolver~~quarters through ~~the~~April ~~third~~18, ~~quarter of~~ 2010; ~~however, if the Company does not meet current projections~~ and~~/or~~ ifApril ~~the weak economic environment deteriorates further~~19, or2009 iswas ~~prolonged, and the Company’s actions to respond to these conditions are not sufficient, the Company could fail to comply with one or more of the financial covenants~~11.6%.

Our debt agreements place restrictions on the Company’s ability and the ability of its subsidiaries to: (12i) ~~Income~~incur ~~Tax~~additional indebtedness or issue certain preferred stock; (ii) repay certain indebtedness prior to stated maturities; (iii) pay dividends or make other distributions on, redeem or repurchase capital stock or subordinated indebtedness; (iv) make certain investments or other restricted payments; (v) enter into transactions with affiliates; (vi) issue stock of subsidiaries; (vii) transfer, sell or consummate a merger or consolidation of all, or substantially all, of the Company's assets; (viii) change lines of business; (ix) incur dividend or other payment restrictions with regard to restricted subsidiaries; (x) create or incur liens on assets to secure debt; (xi) dispose of assets; (xii) restrict distributions from subsidiaries; (xiii) make certain acquisitions; (xiv) make capital expenditures; or (xv) amend the terms of the Secured Notes and the 10% Senior Notes. As of April 18, 2010 we were in compliance with the covenants contained in our debt agreements.

~~The~~ (12) ~~effective~~Income income tax rates for the fiscal quarters ended October 4, 2009 and October 5, 2008 were -1.3% and 4.0%, respectively. Our rates differ from the statutory rate primarily due to a valuation allowance against deferred tax deductions, losses and credits. The effective income tax rate for the third quarter and year-to-date period ended October 4, 2009 reflects $55,000 of current federal tax expense and $157,000 of current state tax expense. In addition, the income tax rate reflects the federal tax benefit of $53,000 and federal interest benefit of $49,000 and state interest expense of $33,000 on uncertain tax positions.Taxes

AThe ~~reconciliation~~effective ofincome ~~the~~tax ~~change~~rates infor the ~~gross~~first ~~unrecognized~~quarters ~~tax~~ended ~~benefits~~April ~~from~~18, ~~December~~2010 29and April 19, ~~2008~~2009 were 0.0%. Our rates differ from the statutory rate primarily due to ~~October~~a 4,valuation ~~2009~~allowance isagainst asdeferred ~~follows~~tax ~~(in~~deductions, ~~thousands):~~losses and credits.

	2009
Unrecognized tax benefit - beginning of fiscal year	$	1,359
Additions for tax positions of prior years		-
Reductions for tax positions of prior years		-
Additions for tax positions of current year		-
Reductions due to settlements		(223	)
Reductions for lapse of statute of limitations		(166	)
Unrecognized tax benefit - as of October 4, 2009	$	970

A reconciliation of the change in the gross unrecognized tax benefits from December 28, 2009 to April 18, 2010 is as follows (in thousands):

As of October 4, 2009 and December 28, 2008 the Company had approximately $900,000 and $1,097,000, respectively of unrecognized tax benefits that, if recognized, would impact the Company’s effective tax rate except for approximately $160,000 and $303,000, respectively, which is subject to tax indemnification from the predecessor owner. As of both October 4, 2009 and December 28, 2008 the Company had $652,000 of unrecognized tax benefits reducing federal and state net operating loss carry forwards and federal credit carry forwards that, if recognized, would be subject to a valuation allowance. The Company expects that the total amount of its gross unrecognized tax benefits will decrease between $195,000 and $795,000 within the next 12 months due to federal and state settlements and expiration of statutes.

	2010
Unrecognized tax benefit - beginning of fiscal year	$	1,153
Additions for tax positions of prior years		-
Reductions for tax positions of prior years		-
Additions for tax positions of current year		-
Reductions due to settlements		-
Reductions for lapse of statute of limitations		-
Unrecognized tax benefit - as of April 18, 2010	$	1,153

As of April 18, 2010 and December 27, 2009 the Company had approximately $943,000 of unrecognized tax benefits, respectively, that, if recognized, would impact the Company’s effective tax rate except for approximately $160,000 which is subject to tax indemnification from the predecessor owner. As of April 18, 2010 and December 27, 2009 the Company had $805,000 of unrecognized tax benefits reducing Federal and state net operating loss carryforwards and Federal credit carryforwards that, if recognized, would be subject to a valuation allowance. The Company expects that the total amount of its gross unrecognized tax benefits will decrease between $32,000 and $432,000 within the next 12 months due to Federal and state settlements and expiration of statutes.

(13) P&MC’s Holding LLC Equity Plan and Other Related Party Transactions

Equity Plan

Effective April 1, 2007, P&MC’s Holding LLC established a management equity incentive plan (the “Equity Plan”) for the benefit of key Company employees. The Equity Plan provides the following two types of equity ownership in P&MC’s Holding LLC: (i) Strip Subscription Units, which consist of Class A Units and Class C Units and (ii) Incentive Units, which consist of time vesting Class C Units.

12Stock-based compensation expense for the quarters ended April 18, 2010 and April 19, 2009 was not material.

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~~Stock-based~~If an employee ~~compensation~~is ~~expense~~employed isas ~~charged~~of bythe date of the ~~Company~~occurrence ~~based~~of oncertain change in control events, as defined in the ~~recognition~~Equity ~~and~~Plan, ~~measurement~~the ~~provisions~~employee’s outstanding but unvested Incentive Units vest simultaneously with the consummation of ~~ASC~~the ~~718-10~~change ~~and~~in ~~related~~control ~~interpretations~~event. ~~Stock-based~~Upon ~~compensation~~termination ~~expense~~of ~~for~~employment, ~~the~~unvested ~~quarterly~~Incentive ~~and~~Units ~~year-to-date~~are ~~periods~~forfeited ~~ended~~and ~~October~~vested 4,Incentive ~~2009~~Units and ~~October~~Strip 5Subscription Units are subject to repurchase, ~~2008~~at ~~was~~a price not ~~material~~to exceed fair value, pursuant to the terms of P&MC’s Holding LLC’s unitholders agreement.

If the employee is employed as of the date of the occurrence of certain change in control events, as defined in the Equity Plan, the employee’s outstanding but unvested Incentive Units vest simultaneously with the consummation of the change in control event. Upon termination of employment, unvested Incentive Units are forfeited and vested Incentive Units and Strip Subscription Units are subject to repurchase, at a price not to exceed fair value, pursuant to the terms of P&MC’s Holding LLC’s unitholders agreement.

Other Related Party Transactions

In September 2009, P&MC’s Real Estate Holding LLC, the indirect parent of the Company, purchased a building in California that was being leased by the Company for the operation of a Marie Callender’s restaurant and assumed the tenant’s obligations under the related ground lease. In connection with the purchase of the building, the Company’s existing building lease was terminated~~; the Company had a capital lease obligation of approximately $2,112,000 and a net leasehold asset of approximately $1,093,000 related to its lease~~. P&MC’s Real Estate Holding LLC has agreed to allow the Company to use the building and defer collection of building rent at this time. The Company will continue to operate the Marie Callender’s restaurant in the building and will pay the underlying ground lease. As a result of these transactions, the Company has ~~eliminated its capital lease obligation and leasehold asset and, due to the related-party nature of the transaction, credited additional paid-in capital for $1,019,000. The Company has~~ imputed rent of $18,500 per period, based on the fair value of the building and local rental ~~rates~~rate, and ~~will~~is ~~accrue~~accruing this amount in ~~Deferred~~deferred ~~Rent~~rent on its ~~Consolidated~~consolidated ~~Balance~~balance ~~Sheets~~sheets.

(14) Recent Accounting ~~Pronouncements~~Developments

FASB Accounting Standards Codification

(Accounting Standards Update (“ASU”) 2009-01)

In June 2009, the Financial Accounting Standards Board (“FASB”) approved the FASB Accounting Standards Codification (the “Codification”) as the single source of authoritative nongovernmental generally accepted accounting principles (“GAAP”). All existing accounting standard documents, such as FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force and other related literature, excluding guidance from the Securities and Exchange Commission (“SEC”), have been superseded by the Codification. All other non-grandfathered, non-SEC accounting literature not included in the Codification has become nonauthoritative. The Codification did not change GAAP, but instead introduced a new structure that combines all authoritative standards into a comprehensive, topically organized online database. The Codification is effective for interim or annual periods ending after September 15, 2009, and impacts the Company’s financial statements as all future references to authoritative accounting literature will be referenced in accordance with the Codification. There have been no changes to the content of the Company’s financial statements or disclosures as a result of implementing the Codification during the quarter ended October 4, 2009.

As a result of the Company’s implementation of the Codification during the quarter ended October 4, 2009, previous references to new accounting standards and literature are no longer applicable. In the current quarter financial statements, the Company will provide reference to both new and old guidance to assist in understanding the impacts of recently adopted accounting literature, particularly for guidance adopted since the beginning of the current fiscal year but prior to the Codification.

The following are recent accounting standards adopted or issued that could have an impact on our Company:

Consolidation of Variable Interest Entities – Amended

(Included in Accounting Standards Codification (“ASC”) 810 “Consolidation”; previously SFAS No. 167 “Amendments to FASB Interpretation No. 46(R)”)

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In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R),” (“SFAS No. 167”) which amends the consolidation guidance that applies to variable interest entities under FIN 46(R). SFAS No. 167 changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. This statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2009. The Company is currently evaluating the provisions of this statement and does not currently anticipate that its implementation will have a material effect on its consolidated financial statements.

Subsequent Events

(Included in ASC 855 “Subsequent Events”~~; previously SFAS No. 165 “Subsequent Events”~~)

In May 2009, the FASB issued ~~SFAS~~ASC ~~No. 165~~855, “Subsequent Events,” which establishes general standards of accounting for and ~~disclosures~~disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. This ~~statement~~guidance is effective ~~prospectively~~ for interim and annual periods ending after June 15, 2009.

~~Determination~~In ofFebruary 2010, the ~~Useful~~FASB ~~Life~~issued ASU 2010-09, which amends ASC 855 to address certain implementation issues related to performing and disclosing subsequent events procedures. The Company included the requirements of ~~Intangible~~this ~~Assets~~guidance in the preparation of the accompanying financial statements.

~~(Included in ASC 350 “Intangibles — Goodwill and Other”; previously FSP SFAS No. 142-3 “Determination of the Useful Lives of Intangible Assets”)~~12

In April 2008, the FASB issued FASB Staff Position (“FSP”) FAS 142-3, “Determination of the Useful Life of Intangible Assets,” (“FSP FAS 142-3”) which amends the factors that should be considered in developing renewal or extension assumptions used in determining the useful life of a recognized intangible asset. The requirement for determining useful lives must be applied prospectively to intangible assets acquired after the effective date and the disclosure requirements require prospective application to all intangible assets recognized as of, and subsequent to, the effective date. FSP FAS 142-3 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008. The application of the requirements of this FSP did not have any effect on the accompanying consolidated financial statements.

Business Combinations

(Included in ASC 805 “Business Combinations”; previously SFAS No. 141(R) “Business Combinations”)

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,” (“SFAS No. 141(R)”). SFAS No. 141(R) establishes principles and requirements for how an acquiring entity in a business combination recognizes and measures the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and sets the disclosure requirements regarding the information needed to evaluate and understand the nature and financial effect of the business combination. This statement is effective for business combinations closing on or after the beginning of our 2009 fiscal year.

Noncontrolling Interests in Consolidated Financial Statements

(Included in ASC 810 “Consolidation”; previously SFAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements an amendment of ARB No. 51”)

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No. 51,” (“SFAS No. 160”). This statement clarifies that a noncontrolling (minority) interest in a subsidiary is an ownership interest in the entity that should be reported as equity in the consolidated financial statements. It also requires consolidated net income to include the amounts attributable to both the parent and noncontrolling interest, with disclosure on the face of the consolidated income statement of the amounts attributed to the parent and to the noncontrolling interest. This statement is effective for fiscal years beginning after December 15, 2008, with presentation and disclosure requirements applied retrospectively to comparative financial statements. The Company followed the requirements of this statement in the preparation of the accompanying financial statements, which resulted in the retrospective reclassification of minority interest to equity (deficit).

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~~Fair~~(15) ~~Value Measurement~~Deficit

~~(Included~~A summary of the changes in ~~ASC~~deficit ~~820~~for ~~“Fair~~the ~~Value~~quarters ~~Measurements~~ended April 18, 2010 and ~~Disclosures”;~~April ~~previously~~19, ~~SFAS~~2009 ~~No. 157~~is ~~“Fair~~provided ~~Value~~below ~~Measurements”~~(in thousands):

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” (“SFAS No. 157”) which provides a single definition of fair value, together with a framework for measuring it and requires additional disclosures about the use of fair value to measure assets and liabilities. It also emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels, which is determined by the lowest level input that is significant to the fair value measurement in its entirety. The adoption of SFAS No. 157 did not have an impact on the Company’s consolidated financial statements.

	Quarter Ended April 18, 2010
								Accumulated
			Additional					Other			Total PMCI
	Common		Paid-in		Accumulated			Comprehensive			Stockholder's			Non-controlling			Total
	Stock		Capital		Deficit			Income (Loss)			Deficit			Interests			Deficit

Balance, December 27, 2009	$	1		150,870		(329,333	)		45			(178,417	)		308			(178,109	)

Distributions to non-controlling interest holders		-		-		-			-			-			(176	)		(176	)

Net (loss) earnings		-		-		(14,606	)		-			(14,606	)		8			(14,598	)
Currency translation adjustment		-		-		-			12			12			-			12
Total comprehensive loss																		(14,586	)

Balance, April 18, 2010	$	1		150,870		(343,939	)		57			(193,011	)		140			(192,871	)


	Quarter Ended April 19, 2009
								Accumulated
			Additional					Other			Total PMCI
	Common		Paid-in		Accumulated			Comprehensive			Stockholder's			Non-controlling			Total
	Stock		Capital		Deficit			Income (Loss)			Deficit			Interests			Deficit

Balance, December 28, 2008	$	1		149,851		(293,114	)		(4	)		(143,266	)		215			(143,051	)

Distributions to non-controlling interest holders		-		-		-			-			-			(70	)		(70	)

Net (loss) earnings		-		-		(9,754	)		-			(9,754	)		46			(9,708	)
Currency translation adjustment		-		-		-			(5	)		(5	)		-			(5	)
Total comprehensive loss																		(9,713	)

Balance, April 19, 2009	$	1		149,851		(302,868	)		(9	)		(153,025	)		191			(152,834	)

~~(15) Equity (Deficit)~~13

A summary of the changes in equity (deficit) for the year-to-date periods ended October 4, 2009 and October 5, 2008 is provided below (in thousands):

	Year-to-Date Ended October 4, 2009									Year-to-Date Ended October 5, 2008
	Total PMCI									Total PMCI
	Stockholder's			Noncontrolling			Total			Stockholder's			Noncontrolling			Total
	Deficit			Interests			Deficit			Deficit			Interests			Deficit
Balance, beginning of period	$	(111,073	)		215			(110,858	)		(69,958	)		333			(69,625	)
Capital contributions		-			-			-			12,500			-			12,500
Lease termination by related party (non-cash)		1,019			-			1,019			-			-			-
Distribution of equity ownership units in P&MC's Holding LLC		-			-			-			(277	)		-			(277	)
Distributions to noncontrolling interest holders		-			(104	)		(104	)		-			(258	)		(258	)
Net (loss) earnings		(26,882	)		74			(26,808	)		(46,130	)		81			(46,049	)
Currency translation adjustment		49			-			49			(49	)		-			(49	)
Total comprehensive loss								(26,759	)								(46,098	)
Balance, end of period	$	(136,887	)		185			(136,702	)		(103,914	)		156			(103,758	)

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(16) Condensed Consolidated Financial Information

The 10% Senior Notes and Secured Notes were issued subject to a joint and several, full and unconditional guarantee by all of the Company’s 100% owned domestic subsidiaries. There are no significant restrictions on the Company’s ability to obtain funds from any of the guarantor subsidiaries in the form of a dividend or loan. Additionally, there are no significant restrictions on the guarantor subsidiaries’ ability to obtain funds from the Company or its direct or indirect subsidiaries.

The following consolidating statements of operations, balance sheets and statements of cash flows are provided for the parent company and all subsidiaries. The information has been presented as if the parent company accounted for its ownership of the guarantor and non-guarantor subsidiaries using the equity method of accounting.

Consolidating Statement of Operations for the Quarter ended October 4, 2009 (unaudited; in thousands):
Consolidating Statement of Operations for the Quarter ended April 18, 2010 (unaudited; in thousands):
				Guarantor			Non-						Consolidated
	Issuer			WRG			Guarantors			Eliminations			PMCI
REVENUES:
Food sales	$	7092,~~456~~359			3347,~~602~~535			57,~~028~~421			-			~~109~~147,~~086~~315
Franchise and other revenue		45,~~570~~641			12,~~814~~848			-1			-			68,~~384~~490
Total revenues		7598,~~026~~000			3550,~~416~~383			57,~~028~~422			-			~~115~~155,~~470~~805
COSTS AND EXPENSES:
Cost of sales (excluding depreciation shown below):
Food cost		1822,~~074~~798			812,~~728~~518			1,~~256~~966			-			2837,~~058~~282
Labor and benefits		2432,~~080~~429			1318,~~428~~290			12,~~966~~643			-			3953,~~474~~362
Operating expenses		1925,~~784~~823			1115,~~368~~118			2,~~031~~794			-			3343,~~183~~735
General and administrative		812,~~805~~540			1,~~508~~566			-			-			1014,~~313~~106
Depreciation and amortization		35,~~995~~074			1,~~362~~608			~~141~~224			-			56,~~498~~906
Interest, net		1013,~~022~~482			~~238~~83			-			-			1013,~~260~~565
Asset impairments and closed store expenses		3825			~~191~~834			(76	)		-			~~187~~1,665
Other, net		(~~308~~126	)		(8492	)		-			-			(~~392~~218	)
Total costs and expenses		84112,~~455~~845			3649,~~739~~925			57,~~387~~633			-			~~126~~170,~~581~~403
Loss before income taxes		(9,429	)		(1,323	)		(359	)		-			(11,111	)
Profit (loss) before income taxes		(14,845	)		458			(211	)		-			(14,598	)
Provision for income taxes		(142	)		-			-			-			(142	)
Benefit from (provision for) income taxes		-			-			-			-			-
Net loss		(9,571	)		(1,323	)		(359	)		-			(11,253	)
Net profit (loss)		(14,845	)		458			(211	)		-			(14,598	)
Less: net loss attributable to noncontrolling interests		-			-			(5	)		-			(5	)
Less: net earnings attributable to non-controlling interests		-			-			8			-			8
Equity in (loss) earnings of subsidiaries		(1,682	)		-			-			1,682			-
Equity in earnings (loss) of subsidiaries		247			-			-			(247	)		-
Net (loss) income attributable to Perkins & Marie Callender's Inc.	$	(1114,~~253~~598	)		~~(1,323~~458	)		(~~354~~219	)		~~1,682~~(247	)		(1114,~~248~~606	)

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Consolidating Statement of Operations for the Quarter ended April 19, 2009 (unaudited; in thousands):

				Guarantor		Non-						Consolidated
	Issuer			WRG		Guarantors			Eliminations			PMCI

REVENUES:
Food sales	$	101,726			51,139		8,012			-			160,877
Franchise and other revenue		5,783			2,593		-			-			8,376
Total revenues		107,509			53,732		8,012			-			169,253

COSTS AND EXPENSES:
Cost of sales (excluding depreciation shown below):
Food cost		26,845			13,991		2,138			-			42,974
Labor and benefits		33,467			18,986		2,872			-			55,325
Operating expenses		27,371			15,466		2,864			-			45,701
General and administrative		12,348			1,741		-			-			14,089
Depreciation and amortization		5,436			1,728		192			-			7,356
Interest, net		13,381			234		-			-			13,615
Asset impairments and closed store expenses		761			21		80			-			862
Other, net		(962	)		1		-			-			(961	)
Total costs and expenses		118,647			52,168		8,146			-			178,961
Profit (loss) before income taxes		(11,138	)		1,564		(134	)		-			(9,708	)
Benefit from (provision for) income taxes		-			-		-			-			-
Net profit (loss)		(11,138	)		1,564		(134	)		-			(9,708	)
Less: net earnings attributable to non-controlling interests		-			-		46			-			46
Equity in earnings (loss) of subsidiaries		1,430			-		-			(1,430	)		-
Net (loss) income attributable to Perkins & Marie Callender's Inc.	$	(9,708	)		1,564		(180	)		(1,430	)		(9,754	)

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Consolidating Balance Sheet as of April 18, 2010 (unaudited; in thousands):

				Guarantor			Non-					Consolidated
	Issuer			WRG			Guarantors		Eliminations			PMCI
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	1,499			169			622		-			2,290
Restricted cash		7,147			-			-		-			7,147
Receivables, less allowances for doubtful accounts		10,580			4,322			6		-			14,908
Inventories		7,113			2,565			182		-			9,860
Prepaid expenses and other current assets		2,875			597			5		-			3,477
Total current assets		29,214			7,653			815		-			37,682

PROPERTY AND EQUIPMENT, net		47,332			18,611			2,279		-			68,222
INVESTMENT IN UNCONSOLIDATED PARTNERSHIP		-			49			9		-			58
GOODWILL		23,100			-			-		-			23,100
INTANGIBLE ASSETS		146,290			107			-		-			146,397
INVESTMENTS IN SUBSIDIARIES		(78,742	)		-			-		78,742			-
DUE FROM SUBSIDIARIES		78,824			-			-		(78,824	)		-
OTHER ASSETS		14,014			1,135			210		-			15,359
TOTAL ASSETS	$	260,032			27,555			3,313		(82	)		290,818

LIABILITIES AND EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable		6,660			3,999			379		-			11,038
Accrued expenses		34,170			8,299			1,207		-			43,676
Franchise advertising contributions		4,783			-			-		-			4,783
Current maturities of long-term debt and capital lease obligations		157			262			-		-			419
Total current liabilities		45,770			12,560			1,586		-			59,916

LONG-TERM DEBT, less current maturities		326,160			(2	)		-		-			326,158
CAPITAL LEASE OBLIGATIONS, less current maturities		8,066			2,919			-		-			10,985
DEFERRED RENT		13,111			4,762			61		-			17,934
OTHER LIABILITIES		14,479			8,760			-		-			23,239
DEFERRED INCOME TAXES		45,457			-			-		-			45,457
DUE TO PARENT		-			77,570			1,254		(78,824	)		-

EQUITY (DEFICIT):
Common stock		1			-			-		-			1
Preferred stock		-			64,296			-		(64,296	)		-
Capital in excess of par		-			9,338			-		(9,338	)		-
Additional paid-in capital		150,870			-			-		-			150,870
Treasury stock		-			(137	)		-		137			-
Accumulated other comprehensive income		57			-			-		-			57
Accumulated (deficit) earnings		(343,939	)		(152,511	)		272		152,239			(343,939	)
Total PMCI stockholder's (deficit) investment		(193,011	)		(79,014	)		272		78,742			(193,011	)
Non-controlling interests		-			-			140		-			140
Total (deficit) equity		(193,011	)		(79,014	)		412		78,742			(192,871	)
TOTAL LIABILITIES AND EQUITY (DEFICIT)	$	260,032			27,555			3,313		(82	)		290,818

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Consolidating Statement of Operations for the Quarter ended October 5, 2008 (unaudited; in thousands):
Consolidating Balance Sheet as of December 27, 2009 (in thousands):
				Guarantor			Non-						Consolidated
	Issuer			WRG			Guarantors			Eliminations			PMCI
REVENUES:
ASSETS
Food sales	$	78,655			37,068			5,487			-			121,210
CURRENT ASSETS:
Franchise and other revenue		4,867			1,824			-			-			6,691
Cash and cash equivalents	$	2,013			1,293			982			-			4,288
Total revenues		83,522			38,892			5,487			-			127,901
Restricted cash		8,110			-			-			-			8,110
COSTS AND EXPENSES:
Receivables, less allowances for doubtful accounts		11,070			7,048			7			-			18,125
Cost of sales (excluding depreciation shown below):
Inventories		8,038			2,793			231			-			11,062
Food cost		23,373			11,044			1,450			-			35,867
Prepaid expenses and other current assets		1,613			248			3			-			1,864
Labor and benefits		25,766			13,673			1,978			-			41,417
Total current assets		30,844			11,382			1,223			-			43,449
Operating expenses		20,994			11,112			2,134			-			34,240
PROPERTY AND EQUIPMENT, net		52,217			20,530			2,472			-			75,219
General and administrative		9,653			959			-			-			10,612
INVESTMENT IN UNCONSOLIDATED PARTNERSHIP		-			41			9			-			50
Depreciation and amortization		4,151			1,408			182			-			5,741
GOODWILL		23,100			-			-			-			23,100
Interest, net		8,328			240			-			-			8,568
INTANGIBLE ASSETS		146,889			124			-			-			147,013
Asset impairments and closed store expenses		(246	)		286			21			-			61
INVESTMENTS IN SUBSIDIARIES		(78,981	)		-			-			78,981			-
Goodwill impairment		20,202			-			-			-			20,202
DUE FROM SUBSIDIARIES		81,493			-			-			(81,493	)		-
Loss on extinguishment of debt		2,952			-			-			-			2,952
OTHER ASSETS		14,321			1,543			210			-			16,074
Other, net		(27	)		-			-			-			(27	)
TOTAL ASSETS	$	269,883			33,620			3,914			(2,512	)		304,905
Total costs and expenses		115,146			38,722			5,765			-			159,633
LIABILITIES AND EQUITY (DEFICIT)
Income (loss) before income taxes		(31,624	)		170			(278	)		-			(31,732	)
CURRENT LIABILITIES:
Benefit from income taxes		1,260			-			-			-			1,260
Accounts payable		7,946			6,074			637			-			14,657
Net (loss) income		(30,364	)		170			(278	)		-			(30,472	)
Accrued expenses		30,628			9,635			1,342			-			41,605
Less: net earnings attributable to noncontrolling interests		-			-			5			-			5
Franchise advertising contributions		4,327			-			-			-			4,327
Equity in (loss) earnings of subsidiaries		(108	)		-			-			108			-
Current maturities of long-term debt and capital lease obligations		186			317			-			-			503
Net (loss) income attributable to Perkins & Marie Callender's Inc.	$	(30,472	)		170			(283	)		108			(30,477	)
Total current liabilities		43,087			16,026			1,979			-			61,092
LONG-TERM DEBT, less current maturities		326,042			-			-			-			326,042
CAPITAL LEASE OBLIGATIONS, less current maturities		8,085			2,969			-			-			11,054
DEFERRED RENT		12,263			4,765			64			-			17,092
OTHER LIABILITIES		13,366			8,911			-			-			22,277
DEFERRED INCOME TAXES		45,457			-			-			-			45,457
DUE TO PARENT		-			80,421			1,072			(81,493	)		-
EQUITY (DEFICIT):
Common stock		1			-			-			-			1
Preferred stock		-			64,296			-			(64,296	)		-
Capital in excess of par		-			9,338			-			(9,338	)		-
Additional paid-in capital		150,870			-			-			-			150,870
Treasury stock		-			(137	)		-			137			-
Accumulated other comprehensive income		45			-			-			-			45
Accumulated (deficit) earnings		(329,333	)		(152,969	)		491			152,478			(329,333	)
Total PMCI stockholder's (deficit) investment		(178,417	)		(79,472	)		491			78,981			(178,417	)
Non-controlling interests		-			-			308			-			308
Total (deficit) equity		(178,417	)		(79,472	)		799			78,981			(178,109	)
TOTAL LIABILITIES AND EQUITY (DEFICIT)	$	269,883			33,620			3,914			(2,512	)		304,905

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Consolidating Statement of Operations for the Year-to-Date Period ended October 4, 2009 (unaudited; in thousands):
Consolidating Statement of Cash Flows for the Quarter ended April 18, 2010 (unaudited; in thousands):
				Guarantor			Non-						Consolidated
	Issuer			WRG			Guarantors			Eliminations			PMCI
REVENUES:
CASH FLOWS FROM OPERATING ACTIVITIES:
Food sales	$	244,047			122,183			18,794			-			385,024
Net (loss) income	$	(14,598	)		458			(211	)		(247	)		(14,598	)
Franchise and other revenue		14,961			6,614			-			-			21,575
Adjustments to reconcile net (loss) income to net cash
Total revenues		259,008			128,797			18,794			-			406,599
provided by (used in) operating activities:
COSTS AND EXPENSES:
Equity in (loss) earnings of subsidiaries		(247	)		-			-			247			-
Cost of sales (excluding depreciation shown below):
Depreciation and amortization		5,074			1,608			224			-			6,906
Food cost		63,837			32,612			4,884			-			101,333
Asset impairments		938			788			6			-			1,732
Labor and benefits		81,825			46,922			6,956			-			135,703
Amortization of debt discount		541			-			-			-			541
Operating expenses		65,562			38,344			7,050			-			110,956
Other non-cash income and expense items		(43	)		(124	)		-			-			(167	)
General and administrative		29,885			4,646			-			-			34,531
Loss (gain) on disposition of assets		(113	)		46			-			-			(67	)
Depreciation and amortization		13,449			4,492			470			-			18,411
Equity in net income of unconsolidated partnership		-			(8	)		-			-			(8	)
Interest, net		33,318			687			-			-			34,005
Net changes in operating assets and liabilities		6,548			(434	)		(348	)		-			5,766
Asset impairments and closed store expenses		827			486			82			-			1,395
Total adjustments		12,698			1,876			(118	)		247			14,703
Other, net		(1,409	)		(1,660	)		-			-			(3,069	)
Net cash (used in) provided by operating activities		(1,900	)		2,334			(329	)		-			105
Total costs and expenses		287,294			126,529			19,442			-			433,265
CASH FLOWS FROM INVESTING ACTIVITIES:
Income (loss) before income taxes		(28,286	)		2,268			(648	)		-			(26,666	)
Purchases of property and equipment		(812	)		(505	)		(37	)		-			(1,354	)
Provision for income taxes		(142	)		-			-			-			(142	)
Proceeds from sale of assets					5			-			-			5
Net (loss) income		(28,428	)		2,268			(648	)		-			(26,808	)
Net cash used in investing activities		(812	)		(500	)		(37	)		-			(1,349	)
Less: net earnings attributable to noncontrolling interests		-			-			74			-			74
CASH FLOWS FROM FINANCING ACTIVITIES:
Equity in earnings (loss) of subsidiaries		1,620			-			-			(1,620	)		-
Proceeds from revolving credit facilities		10,966			-			-			-			10,966
Net (loss) income attributable to Perkins & Marie Callender's Inc.	$	(26,808	)		2,268			(722	)		(1,620	)		(26,882	)
Repayment of revolving credit facilities		(11,389	)		-			-			-			(11,389	)
Repayment of capital lease obligations		(48	)		(101	)		-			-			(149	)
Repayment of other debt		-			(6	)		-			-			(6	)
Distributions to non-controlling interest holders		-			-			(176	)		-			(176	)
Intercompany financing		2,669			(2,851	)		182			-			-
Net cash provided by (used in) financing activities		2,198			(2,958	)		6			-			(754	)
NET DECREASE IN CASH AND CASH EQUIVALENTS		(514	)		(1,124	)		(360	)		-			(1,998	)
CASH AND CASH EQUIVALENTS:
Balance, beginning of period		2,013			1,293			982			-			4,288
Balance, end of period	$	1,499			169			622			-			2,290

Table of Contents

Consolidating Statement of Operations for the Year-to-Date Period ended October 5, 2008 (unaudited; in thousands):
Consolidating Statement of Cash Flows for the Quarter ended April 19, 2009 (unaudited; in thousands):
				Guarantor			Non-						Consolidated
	Issuer			WRG			Guarantors			Eliminations			PMCI
REVENUES:
CASH FLOWS FROM OPERATING ACTIVITIES:
Food sales	$	265,576			132,772			20,284			-			418,632
Net (loss) income	$	(9,708	)		1,564			(134	)		(1,430	)		(9,708	)
Franchise and other revenue		15,742			6,893			-			-			22,635
Adjustments to reconcile net (loss) income to net cash
Total revenues		281,318			139,665			20,284			-			441,267
provided by (used in) operating activities:
COSTS AND EXPENSES:
Equity in (loss) earnings of subsidiaries		(1,430	)		-			-			1,430			-
Cost of sales (excluding depreciation shown below):
Depreciation and amortization		5,436			1,728			192			-			7,356
Food cost		77,739			40,150			5,539			-			123,428
Asset impairments		71			51			80			-			202
Labor and benefits		88,779			48,194			7,132			-			144,105
Amortization of debt discount		474			-			-			-			474
Operating expenses		69,820			38,363			7,178			-			115,361
Other non-cash income and expense items		(935	)		226			-			-			(709	)
General and administrative		31,688			4,039			-			-			35,727
Loss (gain) on disposition of assets		690			(30	)		-			-			660
Depreciation and amortization		13,672			4,874			565			-			19,111
Equity in net loss of unconsolidated partnership		-			10			-			-			10
Interest, net		26,008			863			-			-			26,871
Net changes in operating assets and liabilities		3,976			(528	)		(49	)		-			3,399
Asset impairments and closed store expenses		73			490			51			-			614
Total adjustments		8,282			1,457			223			1,430			11,392
Goodwill impairment		20,202			-			-			-			20,202
Net cash (used in) provided by operating activities		(1,426	)		3,021			89			-			1,684
Loss on extinguishment of debt		2,952			-			-			-			2,952
CASH FLOWS FROM INVESTING ACTIVITIES:
Other, net		(117	)		-			-			-			(117	)
Purchases of property and equipment		(1,060	)		(952	)		(462	)		-			(2,474	)
Total costs and expenses		330,816			136,973			20,465			-			488,254
Proceeds from sale of assets		476						-			-			476
Income (loss) before income taxes		(49,498	)		2,692			(181	)		-			(46,987	)
Net cash used in investing activities		(584	)		(952	)		(462	)		-			(1,998	)
Benefit from income taxes		938			-			-			-			938
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (loss) income		(48,560	)		2,692			(181	)		-			(46,049	)
Proceeds from revolving credit facilities		7,443			-			-			-			7,443
Less: net earnings attributable to noncontrolling interests		-			-			81			-			81
Repayment of revolving credit facilities		(8,128	)		-			-			-			(8,128	)
Equity in earnings (loss) of subsidiaries		2,511			-			-			(2,511	)		-
Repayment of capital lease obligations		(52	)		(76	)		-			-			(128	)
Net (loss) income attributable to Perkins & Marie Callender's Inc.	$	(46,049	)		2,692			(262	)		(2,511	)		(46,130	)
Repayment of other debt		-			(6	)		-			-			(6	)
Debt financing costs		(127	)		-			-			-			(127	)
Distributions to non-controlling interest holders		-			-			(70	)		-			(70	)
Intercompany financing		2,566			(2,878	)		312			-			-
Net cash provided by (used in) financing activities		1,702			(2,960	)		242			-			(1,016	)
NET DECREASE IN CASH AND CASH EQUIVALENTS		(308	)		(891	)		(131	)		-			(1,330	)
CASH AND CASH EQUIVALENTS:
Balance, beginning of period		2,155			1,662			796			-			4,613
Balance, end of period	$	1,847			771			665			-			3,283

Table of Contents

Consolidating Balance Sheet as of October 4, 2009 (unaudited; in thousands):
				Guarantor			Non-						Consolidated
	Issuer			WRG			Guarantors			Eliminations			PMCI
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	1,565			1,361			599			-			3,525
Restricted cash		7,303			-			-			-			7,303
Receivables, less allowances for doubtful accounts		11,771			5,589			30			-			17,390
Inventories		8,495			2,718			193			-			11,406
Prepaid expenses and other current assets		3,504			959			7			-			4,470
Total current assets		32,638			10,627			829			-			44,094
PROPERTY AND EQUIPMENT, net		54,933			22,751			2,282			-			79,966
INVESTMENT IN UNCONSOLIDATED PARTNERSHIP		-			14			9			-			23
GOODWILL		9,836			-			-			-			9,836
INTANGIBLE ASSETS		148,913			123			-			-			149,036
INVESTMENTS IN SUBSIDIARIES		(82,789	)		-			-			82,789			-
DUE FROM SUBSIDIARIES		86,628			-			-			(86,628	)		-
OTHER ASSETS		15,178			1,550			210			-			16,938
TOTAL ASSETS	$	265,337			35,065			3,330			(3,839	)		299,893
LIABILITIES AND EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable	$	9,513			5,878			384			-			15,775
Accrued expenses		27,818			10,253			1,238			-			39,309
Franchise advertising contributions		5,510			-			-			-			5,510
Current maturities of long-term debt and capital lease obligations		182			317			-			-			499
Total current liabilities		43,023			16,448			1,622			-			61,093
LONG-TERM DEBT, less current maturities		327,475			3			-			-			327,478
CAPITAL LEASE OBLIGATIONS, less current maturities		8,128			3,041			-			-			11,169
DEFERRED RENT		11,721			4,761			67			-			16,549
OTHER LIABILITIES		11,877			8,429			-			-			20,306
DUE TO PARENT		-			85,166			1,462			(86,628	)		-
EQUITY (DEFICIT):
Common stock		1			-			-			-			1
Preferred stock		-			64,296			-			(64,296	)		-
Capital in excess of par		-			9,338			-			(9,338	)		-
Additional paid-in capital		150,870			-			-			-			150,870
Treasury stock		-			(137	)		-			137			-
Accumulated other comprehensive income		45			-			-			-			45
Accumulated (deficit) earnings		(287,803	)		(156,280	)		(6	)		156,286			(287,803	)
Total PMCI stockholder's (deficit) investment		(136,887	)		(82,783	)		(6	)		82,789			(136,887	)
Noncontrolling interests		-			-			185			-			185
Total equity (deficit)		(136,887	)		(82,783	)		179			82,789			(136,702	)
TOTAL LIABILITIES AND EQUITY (DEFICIT)	$	265,337			35,065			3,330			(3,839	)		299,893

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Consolidating Balance Sheet as of December 28, 2008 (in thousands):
				Guarantor			Non-					Consolidated
	Issuer			WRG			Guarantors		Eliminations			PMCI
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	2,155			1,662			796		-			4,613
Restricted cash		10,140			-			-		-			10,140
Receivables, less allowances for doubtful accounts		14,392			6,955			39		-			21,386
Inventories		8,145			3,893			262		-			12,300
Prepaid expenses and other current assets		2,721			269			6		-			2,996
Total current assets		37,553			12,779			1,103		-			51,435
PROPERTY AND EQUIPMENT, net		65,020			26,357			2,123		-			93,500
INVESTMENT IN UNCONSOLIDATED PARTNERSHIP		-			39			9		-			48
GOODWILL		9,836			-			-		-			9,836
INTANGIBLE ASSETS		150,676			171			-		-			150,847
INVESTMENTS IN SUBSIDIARIES		(85,354	)		-			-		85,354			-
DUE FROM SUBSIDIARIES		88,948			-			-		(88,948	)		-
OTHER ASSETS		16,195			1,437			210		-			17,842
TOTAL ASSETS	$	282,874			40,783			3,445		(3,594	)		323,508
LIABILITIES AND EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable	$	11,090			6,731			474		-			18,295
Accrued expenses		33,575			12,123			1,342		-			47,040
Franchise advertising contributions		5,316			-			-		-			5,316
Current maturities of long-term debt and capital lease obligations		169			213			-		-			382
Total current liabilities		50,150			19,067			1,816		-			71,033
LONG-TERM DEBT, less current maturities		316,516			18			-		-			316,534
CAPITAL LEASE OBLIGATIONS, less current maturities		8,270			5,445			-		-			13,715
DEFERRED RENT		10,180			5,089			74		-			15,343
OTHER LIABILITIES		8,831			8,910			-		-			17,741
DUE TO PARENT		-			88,324			624		(88,948	)		-
EQUITY (DEFICIT):
Common stock		1			-			-		-			1
Preferred stock		-			63,277			-		(63,277	)		-
Capital in excess of par		-			9,338			-		(9,338	)		-
Additional paid-in capital		149,851			-			-		-			149,851
Treasury stock		-			(137	)		-		137			-
Accumulated other comprehensive income		(4	)		-			-		-			(4	)
Accumulated (deficit) earnings		(260,921	)		(158,548	)		716		157,832			(260,921	)
Total PMCI stockholder's (deficit) investment		(111,073	)		(86,070	)		716		85,354			(111,073	)
Noncontrolling interests		-			-			215		-			215
Total equity (deficit)		(111,073	)		(86,070	)		931		85,354			(110,858	)
TOTAL LIABILITIES AND EQUITY (DEFICIT)	$	282,874			40,783			3,445		(3,594	)		323,508

Table of Contents

Consolidating Statement of Cash Flows for the Year-to-Date Period ended October 4, 2009 (unaudited; in thousands):
				Guarantor			Non-						Consolidated
	Issuer			WRG			Guarantors			Eliminations			PMCI
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(26,808	)		2,268			(648	)		(1,620	)		(26,808	)
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Equity in (loss) earnings of subsidiaries		(1,620	)		-			-			1,620			-
Depreciation and amortization		13,449			4,492			470			-			18,411
Asset impairments		137			352			82			-			571
Amortization of debt discount		1,184			-			-			-			1,184
Other non-cash income and expense items		(1,035	)		(1,392	)		-			-			(2,427	)
Loss on disposition of assets		690			134			-			-			824
Equity in net loss of unconsolidated partnership		-			25			-			-			25
Net changes in operating assets and liabilities		4,021			(514	)		(124	)		-			3,383
Total adjustments		16,826			3,097			428			1,620			21,971
Net cash (used in) provided by operating activities		(9,982	)		5,365			(220	)		-			(4,837	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(2,918	)		(2,312	)		(711	)		-			(5,941	)
Proceeds from sale of assets		487			7			-			-			494
Net cash used in investing activities		(2,431	)		(2,305	)		(711	)		-			(5,447	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Revolver		26,501			-			-			-			26,501
Repayment of Revolver		(16,726	)		-			-			-			(16,726	)
Repayment of capital lease obligations		(130	)		(188	)		-			-			(318	)
Repayment of other debt		-			(15	)		-			-			(15	)
Debt financing costs		(142	)		-			-			-			(142	)
Distributions to noncontrolling interest holders		-			-			(104	)		-			(104	)
Intercompany financing		2,320			(3,158	)		838			-			-
Net cash provided by (used in) financing activities		11,823			(3,361	)		734			-			9,196
NET DECREASE IN CASH AND CASH EQUIVALENTS		(590	)		(301	)		(197	)		-			(1,088	)
CASH AND CASH EQUIVALENTS:
Balance, beginning of period		2,155			1,662			796			-			4,613
Balance, end of period	$	1,565			1,361			599			-			3,525

Table of Contents

Consolidating Statement of Cash Flows for the Year-to-Date Period ended October 5, 2008 (unaudited; in thousands):
				Guarantor			Non-						Consolidated
	Issuer			WRG			Guarantors			Eliminations			PMCI
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(46,049	)		2,692			(181	)		(2,511	)		(46,049	)
Adjustments to reconcile net (loss) income to net cash
used in operating activities:
Equity in (loss) earnings of subsidiaries		(2,511	)		-			-			2,511			-
Depreciation and amortization		13,672			4,874			565			-			19,111
Asset impairments		445			491			51			-			987
Amortization of debt discount		291			-			-			-			291
Other non-cash income and expense items		(206	)		72			-			-			(134	)
Gain on disposition of assets		(372	)		(1	)		-			-			(373	)
Goodwill impairment		20,202			-			-			-			20,202
Loss on extinguishment of debt		2,952			-			-			-			2,952
Equity in net loss of unconsolidated partnership		-			17			-			-			17
Net changes in operating assets and liabilities		(6,421	)		(8,956	)		(666	)		-			(16,043	)
Total adjustments		28,052			(3,503	)		(50	)		2,511			27,010
Net cash used in operating activities		(17,997	)		(811	)		(231	)		-			(19,039	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(13,031	)		(2,343	)		(222	)		-			(15,596	)
Proceeds from sale of assets		515			-			-			-			515
Net cash used in investing activities		(12,516	)		(2,343	)		(222	)		-			(15,081	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from terminated revolver		53,000			-			-			-			53,000
Repayment of terminated revolver		(73,000	)		-			-			-			(73,000	)
Proceeds from Revolver		8,604			-			-			-			8,604
Proceeds from Secured Notes, net of $7,537 discount		124,463			-			-			-			124,463
Repayment of term loan		(98,750	)		-			-			-			(98,750	)
Repayment of capital lease obligations		(115	)		(215	)		-			-			(330	)
Repayment of other debt		-			(15	)		-			-			(15	)
Debt financing costs		(9,903	)		-			-			-			(9,903	)
Lessor financing of new restaurants		2,286			-			-			-			2,286
Distributions to noncontrolling interest holders		-			-			(258	)		-			(258	)
Intercompany financing		(5,271	)		10,001			(4,730	)		-			-
Capital contributions		12,500			-			-			-			12,500
Repurchase of equity ownership units in P&MC's Holding LLC		(277	)		-			-			-			(277	)
Net cash provided by (used in) financing activities		13,537			9,771			(4,988	)		-			18,320
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(16,976	)		6,617			(5,441	)		-			(15,800	)
CASH AND CASH EQUIVALENTS:
Balance, beginning of period		19,391			428			(787	)		-			19,032
Balance, end of period	$	2,415			7,045			(6,228	)		-			3,232

Table of Contents

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

GENERAL

The following discussion and analysis should be read in conjunction with and is qualified in its entirety by reference to the consolidated financial statements of the Company and accompanying notes included elsewhere in this Form 10-Q. Except for historical information, the discussions in this section contain forward-looking statements that involve risks and uncertainties. Future results could differ materially from those discussed below. See “Information Concerning Forward-Looking Statements.”

OUR COMPANY

References to the “Company,” “us” or “we” refer to Perkins & Marie Callender’s Inc. and its consolidated subsidiaries.

The Company operates two restaurant concepts: (1) full-service family dining restaurants located primarily in the Midwest, Florida and Pennsylvania under the name Perkins Restaurant and Bakery (“Perkins”); and (2) mid-priced, casual-dining restaurants, specializing in the sale of pies and other bakery items, located primarily in the western United States under the name Marie Callender’s Restaurant and Bakery (“Marie Callender’s”).

Perkins Restaurant & Bakery

Perkins, founded in 1958, serves a variety of demographically and geographically diverse customers for a wide range of dining occasions that are appropriate for the entire family. Perkins continually adapts its menu, product offerings and building décor to meet changing consumer preferences. As of ~~October~~April 418, ~~2009~~2010, Perkins offered a full menu of over 90 assorted breakfast, lunch, dinner, snack and dessert items ranging in price from $3.89 to $13.99, with an average guest check of $8.7996 at our Company-operated Perkins restaurants. Perkins’ signature menu items include our omelettes, secret-recipe real buttermilk pancakes, Mammoth Muffins, the Tremendous Twelve platter, salads, melt sandwiches and Butterball turkey entrees. Breakfast items, which are available throughout the day, account for approximately half of the entrees sold in our Perkins restaurants.

Perkins is a leading operator and franchisor of full-service family dining restaurants. As of ~~October~~April 418, ~~2009~~2010, we franchised 315 restaurants to ~~106~~109 franchisees in 31 states and 5 Canadian provinces, and we operated 163 restaurants. The footprint of our Company-operated Perkins restaurants extends over 13 states, with a significant number of restaurants in Minnesota and Florida. For the trailing fifty-two weeks ended ~~October~~April 418, ~~2009~~2010, our Company-operated Perkins restaurants generated average annual revenues of $1,~~742~~684,000 per restaurant.

Perkins’ franchised restaurants operate pursuant to license agreements generally having an initial term of 20 years and requiring both a royalty fee (4% of gross sales) and an advertising contribution (3% of gross sales). ~~Generally,~~Franchisees ~~franchisees~~ pay a non-refundable license fee of between $2025,000 and ~~a training fee of~~ $3050,000 ~~for~~per ~~each new~~ restaurant~~. The~~ ~~Company~~depending ~~has~~on ~~extended an incentive offer to existing Perkins franchisees in good standing with~~ the ~~Company~~number ~~for each new restaurant application approved by December 31, 2009, provided the new restaurant opens by December 31, 2011. The incentive offer provides reduced royalty fees~~ of 2%existing offranchises ~~gross sales for the first year of operations~~ and ~~3% of gross sales for~~ the ~~second~~level ~~year~~ of ~~operations.~~assistance ~~Royalty~~provided ~~fees~~by ~~for~~us ~~the~~in ~~third~~opening ~~and~~each ~~subsequent years are paid at the contractual 4% rate~~restaurant. Typically, franchisees may terminate license agreements upon a minimum of ~~twelve~~12 months prior notice and upon payment of specified liquidated damages. Franchisees do not typically have express renewal rights.

For the quarters ended ~~October~~April 418, ~~2009~~2010 and ~~October~~April 519, ~~2008~~2009, average royalties earned per franchised Perkins restaurant were approximately $1417,~~400~~700 and $1518,~~100~~300, respectively. The following numbers of Perkins’ license agreements have expiration dates in the following periods: ~~fourth quarter of 2009 — seven;~~ 2010 —~~seventeen~~nineteen; 2011 — thirteen; 2012 — ~~seven~~five; 2013 — ~~nine~~eight; and 2014 — ~~seventeen~~eighteen. Upon the expiration of their license agreements, franchisees typically apply for and receive new license agreements. Franchisees pay a license agreement renewal fee of $5,000 to $7,500 depending on the length of the renewal term.

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Table of Contents

Marie Callender’s Restaurant and Bakery

Marie Callender’s is a mid-priced casual dining concept. Founded in 1948, it has one of the longest operating histories within the full-service dining sector. Marie Callender’s is known for serving quality food in a warm, pleasant atmosphere and for its premium pies that are baked fresh daily. As of ~~October~~April 418, ~~2009~~2010, the Company offered a full menu of over 50 items ranging in price from $5.89 to $17.99. Marie Callender’s signature menu items include pot pies, quiches, a plentiful salad bar and Sunday brunch.

Marie Callender’s operates primarily in the western United States. As of ~~October~~April 418, ~~2009~~2010, we franchised 3938 restaurants to 25 franchisees located in four states and Mexico, and we operated 92 Marie Callender’s restaurants. The footprint of our Company-operated Marie Callender’s restaurants extends over nine states with 62 restaurants located in California. For the trailing fifty-two weeks ended ~~October~~April 418, ~~2009~~2010, our Company-operated Marie Callender’s restaurants generated average annual revenues of $2,~~104~~025,000 per restaurant.

The following table presents the concept name and number of Marie Callender’s restaurants operated by the Company and our franchisees:

	Company-
Restaurant Name	~~Operated~~operated		Partnerships		Franchised		Total
Marie Callender's		77		12		3837		~~127~~126
Marie Callender's Grill		-		-		1		1
Callender's Grill		2		-		-		2
East Side Mario's		1		-		-		1
Total		80		12		3938		~~131~~130

The Company has an ownership interest in the 12 Marie Callender’s restaurants under partnership agreements, with a ~~minority~~non-controlling interest in two of the partnership restaurants and a 57% to 95% ownership interest in the remaining ten locations.

Marie Callender’s franchised restaurants operate pursuant to franchise agreements generally having an initial term of 15 years and requiring both a royalty fee (normally 5% of gross sales) and, ~~advertising~~in most agreements, a specified level of marketing expenditures ~~equal~~(currently toat 1½.5% of gross sales). ~~Generally,~~Franchisees ~~franchisees~~ pay a non-refundable initial franchise fee of $25,000 and a training fee of $35,000 prior to opening a restaurant. Franchisees typically have the right to renew the franchise agreement for two terms of five years each.

For the quarters ended ~~October~~April 418, ~~2009~~2010 and ~~October~~April 519, ~~2008~~2009, average royalties earned per franchised restaurant were approximately $1726,~~500~~600 and $1827,~~200~~600, respectively. The following numbers of Marie Callender’s franchise agreements have expiration dates in the following periods: ~~fourth quarter of 2009 — none;~~ 2010 — two; 2011 — one; 2012 — ~~three~~four; 2013— one; and 2014 — none. Upon the expiration of their franchise agreements, franchisees typically apply for and receive new franchise agreements and pay a franchise agreement renewal fee of $2,500.

Manufacturing

Foxtail manufactures pies, pancake mixes, cookie doughs, muffin batters and other bakery products for both our in-store bakeries and unaffiliated customers. One manufacturing facility in Corona, California produces pies and other bakery products to primarily supply the Marie Callender’s restaurants, and two facilities in Cincinnati, Ohio produce pies, pancake mixes, cookie doughs, muffin batters and other bakery products for the Perkins restaurants and ~~unaffiliated~~various third-party customers.

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KEY FACTORS AFFECTING OUR RESULTS

The key factors that affect our operating results are general economic conditions, competition, our comparable restaurant sales, which are driven by our comparable customer counts and our guest check average, restaurant openings and closings, commodity prices, energy prices, our ability to manage operating expenses, such as food cost, labor and benefits, weather, and governmental legislation. Comparable restaurant sales and comparable customer counts are measures of the percentage increase or decrease of the sales and customer counts, respectively, of restaurants open at least ~~one~~fifteen ~~full~~months ~~fiscal year~~ prior to the start of the comparative year. We do not use new restaurants in our calculation of comparable restaurant sales until they are open for at least ~~one~~fifteen ~~full~~months ~~fiscal year~~ in order to allow a new restaurant’s operations time to stabilize and provide more ~~meaningful~~comparable results.

The results of the franchise operations are mainly impacted by the same factors as those impacting our restaurant segments, excluding the operating cost factors since franchise segment ~~income~~profit is earned primarily through royalty income.

Like much of the restaurant industry, we view comparable restaurant sales as a key performance metric at the individual restaurant level, within regions and throughout our Company. With our information systems, we monitor comparable restaurant sales on a daily, weekly and monthly basis on a restaurant-by-restaurant basis. The primary drivers of comparable restaurant sales performance are changes in the average guest check and changes in the number of customers, or customer count. Average guest check is primarily affected by menu price changes and changes in the mix of items purchased by our customers. We also monitor entree count, which we believe is indicative of overall customer traffic patterns. To increase restaurant sales, we focus marketing and promotional efforts on increasing customer visits and sales of particular products. Restaurant sales performance is also affected by other factors, such as food quality, the level and consistency of service within our restaurants and franchised restaurants, the attractiveness and physical condition of our restaurants and franchised restaurants, as well as local, regional and national competitive and economic factors.

Marie Callender’s food cost percentage is traditionally higher than Perkins food cost percentage primarily as a result of a greater portion of sales that are derived from lunch and dinner items, which typically carry higher food costs than breakfast items.

The operating results of Foxtail are impacted mainly by the following factors: sales of our Company-operated and franchise restaurants, orders from our external customer base, general economic conditions, labor and employee benefit expenses, production efficiency, commodity prices, energy prices, Perkins and Marie Callender’s restaurant openings and closings, governmental ~~legislation~~ regulation and food safety requirements.

The ~~current~~latter ~~year~~half ~~has~~of ~~been~~Fiscal ~~challenging~~2008, ~~for~~Fiscal ~~our~~2009 ~~Foxtail~~and ~~segment~~the asfirst ~~well~~quarter asof Fiscal 2010 have been challenging for the family and casual dining segments of the restaurant industry. Largely as a result of the ~~current~~ongoing ~~general~~ economic downturn, ~~the rising unemployment, and the spread of H1N1 influenza,~~ we experienced a decrease in comparable ~~annual~~ sales for both Perkins and Marie Callender’s in the quarters ended April 18, 2010 and April 19, 2009. We believe that ~~decreases~~the ongoing turmoil in the economy, the high unemployment levels, continued depressed residential real estate ~~prices~~values, especially in some of our larger markets, and the ~~rise~~level inof ~~unemployment,~~home ~~and~~foreclosures ~~the~~has ~~consequent~~adversely ~~pressures~~affected onour ~~consumer~~guest ~~sentiment~~counts and, ~~spending~~in ~~have~~turn, ~~reduced~~our ~~household~~operating ~~discretionary~~results ~~spending,~~and ~~which~~cash ~~has~~flows ~~adversely~~from ~~affected~~operations. Consequently, ~~our~~we ~~revenues.~~have experienced declining profits. If the current economic conditions persist or worsen, our revenues are likely to continue to suffer and our losses could increase.

In comparison to the ~~third~~first ~~fiscal~~Fiscal quarter of ~~2008~~2009, ~~during~~ ~~the third quarter of 2009~~ comparable sales at Perkins’ Company-operated restaurants’ decreased by 7.5.7% and comparable sales at Marie Callender’s Company-operated restaurants’ decreased by 98.37%. These declines in comparable sales resulted primarily from decreases in comparable guest counts at both concepts. Management believes the decline in comparable guest counts for both concepts is attributable primarily to continuing adverse economic conditions that are impacting the restaurant industry~~, particularly in Florida for Perkins restaurants and in California for Marie Callender’s restaurants~~.

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OPERATIONS, FINANCIAL POSITION AND LIQUIDITY At October 4, 2009, we had a negative working capital balance of $16,999,000 and a total stockholder’s deficit of $136,887,000. Furthermore, at October 4, 2009, we had $3,525,000 in unrestricted cash and cash equivalents and $2,817,000 of borrowing capacity under our Revolver. Our principal sources of liquidity include unrestricted cash, available borrowings under our Revolver and cash generated by operations. We have periodically received capital contributions from our parent company, including a $12,500,000 capital contribution received in 2008, and engaged in capital markets transactions. Our principal uses of liquidity are costs and expenses associated with our restaurant and manufacturing operations, debt service payments (including interest of which approximately $9,300,000 is due November 30, 2009), and capital expenditures. Based on historical and current sales trends, we expect significant sales volumes during the months of October and November 2009, principally from our Thanksgiving pie and meal promotions, that will generate adequate liquidity for our November 30 interest payment.

AsOur ~~noted~~principal ~~above,~~sources weof ~~have~~liquidity ~~experienced~~include aunrestricted ~~decline in same store sales and an increase in net losses in recent quarterly periods. The turmoil in the economy~~cash, ~~the~~available ~~rising~~borrowings ~~unemployment~~under ~~and the spread of the H1N1 influenza virus has adversely affected~~ our ~~guest~~Revolver ~~counts~~ and, ~~in turn, our net loss and~~ cash ~~flows~~generated ~~from~~by operations. ~~The Company~~We ~~expects to incur a net loss in 2009. In order to improve the cash flows in our business, we~~ have ~~introduced~~periodically areceived ~~new~~capital ~~breakfast~~contributions ~~program~~from at our ~~Marie~~parent ~~Callender’s~~company ~~restaurants, implemented price increases, improved systems to more effectively manage our food~~ and ~~labor~~engaged ~~costs, upgraded our management staff and certain equipment~~ in ~~our~~other ~~Foxtail division to drive higher operating efficiencies, reduced overall planned~~ capital ~~expenditures for 2009 and eliminated several salaried overhead positions~~transactions. ~~Management expects~~Our ~~these~~principal ~~initiatives~~uses ~~together~~of ~~with~~liquidity ~~the~~are ~~Company’s~~costs ~~cash provided by operations~~ and ~~borrowing~~expenses ~~capacity~~associated ~~will~~with ~~provide~~our ~~sufficient~~restaurant ~~liquidity~~and ~~for~~manufacturing ~~at least the next twelve months. However~~operations, ~~there~~debt ~~can~~service bepayments ~~no assurance as to whether these or other actions will enable us to generate sufficient cash flow to fund our operations~~ and ~~service~~capital ~~our debt~~expenditures.

At April 18, 2010, we had a negative working capital balance of $22,234,000 and total PMCI stockholder’s deficit of $193,011,000. Furthermore, at April 18, 2010, we had $2,290,000 in unrestricted cash and cash equivalents and $5,033,000 of borrowing capacity under our Revolver.

We have experienced declines in comparable restaurant sales and profitability in recent periods, resulting in additional borrowings under our Revolver. We believe that the ongoing weakness in the economy, high unemployment levels, continued depressed residential real estate values, especially in some of our larger markets, and the level of home foreclosures has adversely affected our guest counts and, in turn, our sales and operating results. In order to improve the short-term cash flows in our business and better position the Company for the future, among other things, we have introduced a new breakfast program at our Marie Callender’s restaurants, we are implementing new advertising and promotional programs at both restaurant brands, we have improved systems to more effectively manage our food and labor costs, we have upgraded our management staff and certain equipment in our Foxtail division to drive higher operating efficiencies and we have lowered capital expenditures levels for 2010.

RESULTS OF OPERATIONS

Seasonality

Sales fluctuate seasonally and the Company’s fiscal quarters do not all have the same time duration. Specifically, the first quarter has an extra four weeks compared to the other quarters of the fiscal year. Historically, our average weekly sales are highest in the fourth quarter (approximately October through December), resulting primarily from holiday pie sales at both Perkins and Marie Callender’s restaurants and Thanksgiving feast sales at Marie Callender’s restaurants. Therefore, the quarterly results are not necessarily indicative of results that may be achieved for the full fiscal year. Factors influencing relative sales variability, in addition to the holiday impact noted above, include the frequency and popularity of advertising and promotions, the relative sales levels of new and closed restaurants, other holidays and weather.

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Quarter Ended ~~October~~April 418, ~~2009~~2010 Compared to the Quarter Ended ~~October~~April 519, ~~2008~~2009

The following table reflects certain data for the quarter ended ~~October~~April 418, ~~2009~~2010 compared to the quarter ended ~~October~~April 519, ~~2008~~2009. The consolidated information is derived from the accompanying consolidated statements of operations. Data from the Company’s segments – restaurant operations; franchise operations; Foxtail and other – is included for comparison. The ratios presented reflect the underlying dollar values expressed as a percentage of the applicable revenue amount (food cost as a percentage of food sales; labor and benefits and operating expenses as a percentage of total revenues in the restaurant operations and franchise operations segments and as a percentage of food sales in the Foxtail segment). The food cost ratio in the consolidated results reflects the elimination of intersegment food cost of $45,~~057~~755,000 and $35,~~297~~913,000 in the ~~third~~first quarters of ~~2009~~2010 and ~~2008~~2009, respectively.

	Consolidated Results							Restaurant Operations	~~Restaurant Operations~~							Franchise Operations	~~Franchise Operations~~
	Quarter Ended							Quarter Ended	~~Quarter Ended~~							Quarter Ended	~~Quarter Ended~~
	October 4, 2009			October 5, 2008					October 4, 2009				October 5, 2008				October 4, 2009				October 5, 2008
	April 18, 2010			April 19, 2009				April 18, 2010				April 19, 2009				April 18, 2010				April 19, 2009
Food sales	$	~~113~~153,~~143~~070			~~124~~166,~~507~~790				139,605	~~99,781~~			149,228	~~108,374~~			-	-			-	-
Franchise and other revenue		68,~~384~~490			68,~~691~~376				-	-			-	-			6,670	~~5,259~~			6,944	~~5,631~~
Intersegment revenue		(45,~~057~~755	)		(35,~~297~~913	)			-	-			-	-			-	-			-	-
Total revenues		~~115~~155,~~470~~805			~~127~~169,~~901~~253				139,605	~~99,781~~			149,228	~~108,374~~			6,670	~~5,259~~			6,944	~~5,631~~
Food cost		25.73	%		2926.67	%			25.7	~~24.4~~%	%		26.0	~~26.2~~%	%		0.0	~~0.0~~%	%		0.0	~~0.0~~%	%
Labor and benefits		34.2	%		32.47	%			36.8	~~37.8~~%	%		35.4	~~36.1~~%	%		0.0	~~0.0~~%	%		0.0	~~0.0~~%	%
Operating expenses		28.71	%		2627.80	%			29.7	~~31.3~~%	%		28.8	~~29.3~~%	%		8.2	~~9.0~~%	%		7.4	~~9.0~~%	%
Segment (loss) profit	$	(1114,~~248~~606	)		(309,~~477~~754	)	~~(c)~~		5,570	~~2,252~~			9,076	~~4,639~~			6,125	~~4,786~~			6,429	~~(13,411~~	)	~~(c)~~
	Foxtail (a)							Other (b)	~~Other (b)~~
	Quarter Ended							Quarter Ended	~~Quarter Ended~~
	October 4, 2009			October 5, 2008					October 4, 2009				October 5, 2008
	April 18, 2010			April 19, 2009				April 18, 2010				April 19, 2009
Food sales	$	13,~~362~~465			1617,~~133~~562				-	-			-	-
Franchise and other revenue		-			-				1,820	~~1,125~~			1,432	~~1,060~~
Intersegment revenue		(45,~~057~~755	)		(35,~~297~~913	)			-	-			-	-
Total revenues		97,~~305~~710			1211,~~836~~649				1,820	~~1,125~~			1,432	~~1,060~~
Food cost		5753.96	%		6657.7	%			0.0	~~0.0~~%	%		0.0	~~0.0~~%	%
Labor and benefits		1213.59	%		14.0	%			5.6	~~6.0~~%	%		7.2	~~7.0~~%	%
Operating expenses		1112.43	%		12.67	%			0.0	~~0.0~~%	%		0.0	~~0.0~~%	%
Segment (loss) profit	$	~~903~~641			~~(2,901~~159	)	~~(c)~~		(26,942	~~(19,189~~)	)		(25,418	~~(18,804~~)	)

(a) InThe ~~the Foxtail segment, the~~ percentages for food cost, labor and benefits and operating expenses, as presented above, represent manufacturing costs ~~only~~at Foxtail. ~~Selling~~Foxtail’s selling, general and administrative expenses ~~incurred in the Foxtail segment~~ are included in ~~the segment (loss) profit presented above, but are included in~~ general and administrative expenses in the consolidated statements of operations and in the Foxtail segment profit or loss presented above.

(b) Licensing revenue of $1,~~081~~732,000 and $1,~~006~~361,000 for the ~~third~~first quarters of ~~2009~~2010 and ~~2008~~2009, respectively, is included in the other segment revenues. The other segment loss includes corporate general and administrative expenses, interest expense and other non-operational expenses. For details of the other segment loss, see Note 10, “Segment Reporting” in the ~~notes~~Notes to ~~consolidated~~Consolidated ~~financial~~Financial ~~statements~~Statements.

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(c) The Company reviews the carrying amounts of goodwill at the reporting unit level. At December 30, 2007, the Company had $30,038,000 of goodwill, of which $9,836,000 was attributable to restaurant operations, $18,538,000 was attributable to franchise operations and $1,664,000 was attributable to the Foxtail segment. The goodwill originated from the acquisition of the Company by affiliates of Castle Harlan, Inc. in September 2005. Due to the decrease in the Company’s operating results during 2008 and the decline in general economic conditions impacting the restaurant industry, management conducted an interim goodwill impairment evaluation during the quarter ended October 5, 2008. Fair values of the reporting units were calculated using discounted future cash flows and market-based comparative values. Because the carrying values of the reporting units in both the franchise and Foxtail segments exceeded their respective fair values, the Company completed step two of the goodwill test and concluded that goodwill was impaired as of October 5, 2008. Accordingly, in the quarter ended October 5, 2008, the Company recorded a non-cash goodwill impairment charge of $20,202,000, of which $18,538,000 was charged to the franchise segment and $1,664,000 was charged to the Foxtail segment.Overview

Our revenues are derived primarily from restaurant operations, franchise royalties and the sale of bakery products produced by Foxtail. Sales from Foxtail to Company-operated restaurants are eliminated in the accompanying consolidated statements of operations. Segment ~~Overview~~revenues as a percentage of total revenues were as follows:

Our revenues are derived primarily from restaurant operations, franchise royalties and the sale of bakery products produced by Foxtail. Sales from Foxtail to Company-operated restaurants are eliminated in the accompanying statements of operations. Segment revenues as a percentage of total revenues were as follows:

	Percentage of Total Revenues
	Quarter			Quarter
	Ended			Ended
	April 18, 2010			April 19, 2009

Restaurant operations		89.6	%		88.2	%
Franchise operations		4.3	%		4.1	%
Foxtail		4.9	%		6.9	%
Other		1.2	%		0.8	%
Total revenues		100.0	%		100.0	%

	Percentage of Total Revenues
	Quarter			Quarter
	Ended			Ended
	October 4, 2009			October 5, 2008
Restaurant operations		86.4	%		84.8	%
Franchise operations		4.6	%		4.4	%
Foxtail		8.1	%		10.0	%
Other		0.9	%		0.8	%
Total revenues		100.0	%		100.0	%

Restaurant Operations Segment

The operating results of the restaurant segment are impacted mainly by the following factors: general economic conditions, competition, our comparable store sales, which are driven by our comparable customer counts and our guest check average, restaurant openings and closings, commodity prices, energy prices, our ability to manage operating expenses such as food cost and labor and benefits, weather and governmental legislation.

Total restaurant segment revenues decreased by approximately $89,~~593~~623,000 in the ~~third~~first quarter of ~~2009~~2010 as compared to the ~~third~~first quarter of ~~2008~~2009, due primarily to lower comparable restaurant sales. Comparable sales for the ~~third~~first quarter of ~~2009~~2010 decreased by 7.5.7% at Company-operated Perkins restaurants and 98.37% at Company-operated Marie Callender’s restaurants. These declines in comparable sales resulted primarily from a decrease in comparable guest counts due to ~~unfavorable~~ macro-economic conditions. Since the ~~third~~end of the first quarter of ~~2008~~2009, the Company has ~~closed~~purchased one ~~Perkins restaurant and has acquired one~~ Marie Callender’s restaurant from a franchisee.

Restaurant segment ~~income~~profit decreased by $23,~~387~~506,000 in the ~~third~~first quarter of ~~2009~~2010 compared to the ~~third~~first quarter of ~~2008~~2009. ~~Segment~~The ~~profit~~decrease ~~margins,~~was asprimarily adue ~~percentage of total revenues, decreased~~ to ~~2.3%~~the indecrease ~~2009 from 4.3%~~ in ~~2008 due primarily to lower~~ comparable ~~restaurant~~ sales, ~~which led to increases in labor and benefits and operating expenses as percentages of total revenues. These increases were~~ partially offset by lower food cost ~~resulting from lower commodity costs and improved store-level controls~~.

Franchise Operations Segment

The operating results of franchise operations are mainly impacted by the same factors as those impacting the Company’s restaurant segment, excluding the operating cost factors since franchise segment ~~income~~profit is earned primarily through royalty income.

29Franchise revenues decreased approximately $274,000 in the first quarter of 2010 compared to the first quarter of 2009. During the first quarter of 2010, royalty revenue decreased by $328,000 due to a decline in comparable customer counts resulting from macro-economic conditions. This decrease in royalty revenues was partially offset by a $54,000 increase in franchise fees and renewal fees during the first quarter of 2010.

~~Table~~Franchise segment profit decreased by $304,000 in the first quarter of ~~Contents~~2010 compared to the prior year due primarily to the decrease in royalty revenues.

~~Franchise~~Since ~~revenues~~the ~~decreased~~end byof ~~$372,000 in~~ the ~~third~~first quarter of 2009, ~~compared~~Perkins’ tofranchisees ~~the~~have ~~third~~opened ~~quarter~~two ofrestaurants ~~2008.~~and ~~During~~closed ~~the~~three ~~third~~restaurants. Over ~~quarter~~the ofsame ~~2009~~time period, ~~royalty~~a ~~revenue~~Marie ~~decreased~~Callender’s byfranchisee ~~$322,000~~sold ~~due~~one restaurant to athe ~~decline in comparable customer counts~~Company, and ~~franchise~~three ~~fees~~franchised ~~and~~Marie ~~renewal~~Callender’s ~~fees~~restaurants ~~decreased~~have ~~by $50,000~~closed.

Franchise segment profit increased by $18,197,000 in the third quarter of 2009 compared to the prior year due primarily to a prior year non-cash goodwill impairment charge of $18,538,000. Excluding the prior year charge, segment profit decreased by $341,000 due primarily to the decline in franchise royalty revenues.

Since the end of the third quarter of 2008, Perkins’ franchisees have opened one restaurant and closed three restaurants. Over the same time period, a Marie Callender’s franchisee sold one restaurant to the Company, and two franchised restaurants have closed.

Foxtail Segment

The operating results of Foxtail are impacted mainly by the following factors: orders from our external customer base, general economic conditions, labor and employee benefit expenses, production efficiency, commodity prices, energy prices, Perkins and Marie Callender’s restaurant openings and closings, governmental legislation and food safety requirements.

Foxtail’s revenues, net of intercompany sales, decreased by $3,531,000 compared to the third quarter of 2008 due primarily to decreased customer demand offset partially by price increases. The segment had a net profit of $903,000 in the third quarter of 2009 compared to a $2,901,000 net loss in the third quarter of 2008. Excluding the impact of a non-cash goodwill impairment charge of $1,664,000 in 2008, the improvement resulted primarily from increased sales prices, lower commodity costs, particularly eggs and dairy products, and operational improvements.25

Revenues

Total revenues decreased by $12,431,000 in the third quarter of 2009 compared to the third quarter of 2008. The decrease was due to decreases in sales of $8,593,000 in the restaurant segment, decreases in franchise revenues of $372,000 in the franchise segment and a $3,531,000 decrease in sales in the Foxtail segment. These decreases were partially offset by a $66,000 increase in licensing and other revenues.

Restaurant segment revenues decreased to $99,781,000 in the third quarter of 2009 from $108,374,000 in the third quarter of 2008, resulting primarily from an overall 8.2% decrease in comparable sales at Company-operated Perkins and Marie Callender’s restaurants. However, restaurant segment revenues increased, as a percentage of total revenues, to 86.4% from 84.8% in the third quarters of 2009 and 2008, respectively.

Franchise segment revenues of $5,259,000 and $5,631,000 in the third quarters of 2009 and 2008, respectively, accounted for 4.6% and 4.4% of total revenues, respectively. During the third quarter of 2009, royalty revenue decreased $322,000 due to a decline in comparable customer counts at franchised restaurants, and franchise fees and renewal fees decreased $50,000.

Foxtail revenues, net of intercompany sales, of $9,305,000 and $12,836,000 in the third quarters of 2009 and 2008, respectively, accounted for 8.1% and 10.0% of total revenues, respectively. The decline in revenues was primarily due to decreased customer demand resulting from continued unfavorable economic conditions, partially offset by product price increases.

Costs and Expenses

Food Cost

Consolidated food cost was 25.7% and 29.6% of food sales in the third quarters of 2009 and 2008, respectively. This decrease of 3.9% was due primarily to lower commodity costs that impacted both the restaurant and Foxtail segments.

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~~Restaurant~~Foxtail’s ~~segment food cost~~revenues, asnet ~~a percentage~~ of ~~food~~intercompany sales, ~~was~~decreased ~~24.4%~~by in$3,939,000 compared to the ~~third~~first quarter of ~~2009~~2010 ~~compared~~due primarily to ~~26.2%~~discontinued insales ~~the~~to ~~third~~two ~~quarter~~external ofcustomers, ~~2008. The~~whose ~~improvement~~purchases ~~was~~typically ~~primarily~~resulted ~~due~~in lower-than-average margins to ~~lower~~Foxtail. The ~~commodity~~segment ~~costs~~had ~~and~~a ~~improved~~net ~~store-level~~profit ~~controls. In~~of $641,000 in the ~~Foxtail~~first ~~segment,~~quarter ~~food~~of ~~cost~~2010 ~~decreased~~compared to ~~57.9%~~a ~~from~~$159,000 ~~66.7%~~net ofprofit ~~food sales~~ in the ~~third~~first ~~quarters~~quarter of 2009. The ~~and~~improvement ~~2008,~~resulted ~~respectively,~~ primarily asfrom ~~a result of~~ higher sales ~~prices~~margins and lower ~~commodity~~manufacturing ~~costs,~~and ~~particularly~~administrative onexpenses, ~~eggs~~which ~~and~~offset ~~dairy~~lower ~~products~~external sales.

Labor and Benefits Expenses

Consolidated labor and benefits expenses were 34.2% and 32.4% of total revenues in the third quarters of 2009 and 2008, respectively. Restaurant segment labor and benefits, as a percentage of total revenues, increased by 1.7% in 2009 due to the decline in comparable sales and due to higher medical insurance costs. In the Foxtail segment, labor and benefits, as a percentage of food sales, decreased to 12.5% from 14.0% for the third quarters of 2009 and 2008, respectively, due primarily to the impact of better scheduling and operational improvements in the current year.

Operating Expenses

Total operating expenses of $33,183,000 in the third quarter of 2009 decreased by $1,057,000 as compared to the third quarter of 2008. However, due to the decrease in total revenues, total operating expenses increased, as a percentage of total revenues, to 28.7% from 26.8% in the third quarters of 2009 and 2008, respectively. Approximately 94.0% and 92.6% of total operating expenses in the third quarters of 2009 and 2008, respectively, were incurred in the restaurant segment. The most significant components of operating expenses were occupancy costs, utilities, advertising and restaurant paper supplies. In the restaurant segment, operating expenses, as a percentage of total revenues, increased from 29.3% to 31.3% due to higher advertising, maintenance and insurance costs and also due to the decrease in comparable sales relative to occupancy costs. Operating expenses in the Foxtail segment decreased by 1.2% of total revenues due primarily to lower repairs and maintenance, transportation and warehouse costs.

General and Administrative Expenses

The most significant components of general and administrative (“G&A”) expenses were corporate labor and benefits, occupancy costs, audit fees and legal fees. G&A expenses, which decreased $299,000, were 8.9% and 8.3% of total revenues in the third quarters of 2009 and 2008, respectively. The percentage increase is primarily due to the $12,431,000 decrease in total revenues relative to this largely fixed-cost category.

Depreciation and Amortization

Depreciation and amortization expense was $5,498,000 and $5,741,000 in the third quarters of 2009 and 2008, respectively.

Interest, net

Interest, net was $10,260,000 (8.9% of total revenues) in the third quarter of 2009, compared to $8,568,000 (6.7% of total revenues) in the third quarter of 2008. This increase was primarily due to an increase in the average effective interest rate to 11.6% from 9.8% and an approximate $17,500,000 increase in the average debt outstanding during the third quarter of 2009 as compared to the third quarter of 2008.

Other, net

Other, net was income of $392,000 in the third quarter of 2009 compared to $27,000 in the third quarter of 2008. The increase in 2009 primarily represents gains on invested deferred compensation assets and income from unredeemed gift cards (“gift card breakage”).

Taxes

The effective income tax rates for the quarters ended October 4, 2009 and October 5, 2008 were -1.3% and 4.0%, respectively. Our rates differ from the statutory rate primarily due to a valuation allowance against deferred tax deductions, losses and credits.

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Year-to-Date Period Ended October 4, 2009 Compared to the Year-to-Date Period Ended October 5, 2008

The following table reflects certain data for the year-to-date period ended October 4, 2009 compared to the year-to-date period ended October 5, 2008. The consolidated information is derived from the accompanying consolidated statements of operations. Data from the Company’s segments – restaurant operations; franchise operations; Foxtail and other – is included for comparison. The ratios presented reflect the underlying dollar values expressed as a percentage of the applicable revenue amount (food cost as a percentage of food sales; labor and benefits and operating expenses as a percentage of total revenues in the restaurant operations and franchise operations segments and as a percentage of food sales in the Foxtail segment). The food cost ratio in the consolidated results reflects the elimination of intersegment food cost of $14,345,000 and $12,728,000 in the year-to-date periods of 2009 and 2008, respectively.

	Consolidated Results							Restaurant Operations						Franchise Operations
	Year-to-Date Ended							Year-to-Date Ended						Year-to-Date Ended
	October 4, 2009			October 5, 2008				October 4, 2009			October 5, 2008			October 4, 2009			October 5, 2008
Food sales	$	399,369			431,360				355,501			381,761			-			-
Franchise and other revenue		21,575			22,635				-			-			17,507			18,800
Intersegment revenue		(14,345	)		(12,728	)			-			-			-			-
Total revenues		406,599			441,267				355,501			381,761			17,507			18,800
Food cost		26.3	%		29.5	%			25.3	%		26.9	%		0.0	%		0.0	%
Labor and benefits		33.4	%		32.7	%			36.5	%		35.9	%		0.0	%		0.0	%
Operating expenses		27.3	%		26.1	%			29.5	%		28.4	%		8.3	%		8.5	%
Segment (loss) profit	$	(26,882	)		(46,130	)	(c)		16,664			18,244			16,055			(1,327	)	(c)
	Foxtail (a)							Other (b)
	Year-to-Date Ended							Year-to-Date Ended
	October 4, 2009			October 5, 2008				October 4, 2009			October 5, 2008
Food sales	$	43,868			49,599				-			-
Franchise and other revenue		-			-				4,068			3,835
Intersegment revenue		(14,345	)		(12,728	)			-			-
Total revenues		29,523			36,871				4,068			3,835
Food cost		58.5	%		67.3	%			0.0	%		0.0	%
Labor and benefits		13.1	%		13.4	%			5.9	%		6.7	%
Operating expenses		10.4	%		11.0	%			0.0	%		0.0	%
Segment (loss) profit	$	2,226			(4,786	)	(c)		(61,827	)		(58,261	)

(a) In the Foxtail segment, the percentages for food cost, labor and benefits and operating expenses, as presented above, represent manufacturing costs only. Selling, general and administrative expenses incurred in the Foxtail segment are included in the segment (loss) profit presented above, but are included in general and administrative expenses in the consolidated statements of operations.

(b) Licensing revenue of $3,889,000 and $3,626,000 for the year-to-date periods of 2009 and 2008, respectively, is included in the other segment revenues. The other segment loss includes corporate general and administrative expenses, interest expense and other non-operational expenses. For details of the other segment loss, see Note 10, “Segment Reporting” in the notes to consolidated financial statements.

(c) As discussed above, due to the decrease in the Company’s operating results during 2008 and the decline in general economic conditions impacting the restaurant industry, management conducted an interim goodwill impairment evaluation during the quarter ended October 5, 2008. Fair values of the reporting units were calculated using discounted future cash flows and market-based comparative values. Because the carrying values of the reporting units in both the franchise and Foxtail segments exceeded their respective fair values, the Company completed step two of the goodwill test and concluded that goodwill was impaired as of October 5, 2008. Accordingly, in the fiscal quarter ended October 5, 2008, the Company recorded a non-cash goodwill impairment charge of $20,202,000, of which $18,538,000 was charged to the franchise segment and $1,664,000 was charged to the Foxtail segment.

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Segment Overview

Our revenues are derived primarily from restaurant operations, franchise royalties and the sale of bakery products produced by Foxtail. Sales from Foxtail to Company-operated restaurants are eliminated in the accompanying statements of operations. Segment revenues as a percentage of total revenues were as follows:

	Percentage of Total Revenues
	Year-to-Date			Year-to-Date
	Ended			Ended
	October 4, 2009			October 5, 2008
Restaurant operations		87.4	%		86.5	%
Franchise operations		4.3	%		4.3	%
Foxtail		7.3	%		8.3	%
Other		1.0	%		0.9	%
Total revenues		100.0	%		100.0	%

Restaurant Operations Segment

Total restaurant segment revenues decreased by approximately $26,260,000 in the year-to-date period ended October 4, 2009 as compared to the fiscal year-to-date period ended October 5, 2008, due primarily to lower comparable restaurant sales. Comparable sales for the year-to-date period of 2009 decreased by 6.7% at Company-operated Perkins restaurants and 7.1% at Company-operated Marie Callender’s restaurants. These declines in comparable sales resulted primarily from a decrease in comparable guest counts due to unfavorable economic conditions. Since the third quarter of 2008, the Company has closed one Company-operated Perkins restaurant and has acquired one Marie Callender’s restaurant from a franchisee.

Restaurant segment income decreased by $1,580,000 in the year-to-date period of 2009 compared to a year ago, primarily due to the decrease in revenues offset partially by the decrease in food cost, utilities and operating expenses. Segment profit margins, as a percentage of total revenues, decreased slightly to 4.7% in 2009 from 4.8% in 2008.

Franchise Operations Segment

Franchise revenues decreased by $1,293,000 in the fiscal year-to-date period ended October 4, 2009, compared to the same period in the prior year. During the fiscal year-to-date period ended October 4, 2009, royalty revenue decreased by $1,238,000 due to a decline in comparable customer counts, and franchise fees and renewal fees decreased by $55,000.

Franchise segment profit increased by $17,382,000 in the fiscal year-to-date period ended October 4, 2009, compared to the prior year due primarily to a prior year non-cash goodwill impairment charge of $18,538,000. Excluding the prior year charge, segment profit decreased by $1,156,000 due primarily to the decline in franchise royalty revenues.

Since the end of the third fiscal quarter of 2008, Perkins’ franchisees have opened one restaurant and closed three restaurants. Over the same time period, a Marie Callender’s franchisee sold one restaurant to the Company, and two franchised restaurants have closed.

Foxtail Segment

Foxtail’s revenues, net of intercompany sales, decreased by $7,348,000 in the fiscal year-to-date period ended October 4, 2009 compared to the same period in the prior year due primarily to decreased customer demand, offset partially by price increases. The segment had a net profit of $2,226,000 in the fiscal year-to-date period ended October 4, 2009 compared to a $4,786,000 net loss in the same period of 2008. The improvement resulted primarily from increased sales prices, lower commodity costs, particularly eggs and dairy products, and operational improvements. In addition, this segment incurred a non-cash goodwill impairment charge of $1,664,000 in the year-to-date period ended October 5, 2008.

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Revenues

~~Total~~Consolidated total revenues decreased by $3413,~~668~~448,000 in the ~~fiscal~~first ~~year-to-date~~quarter ~~period~~of ~~ended~~2010 ~~October 4, 2009~~ compared to the ~~fiscal~~first ~~year-to-date~~quarter ~~period~~of ~~ended October 5, 2008~~2009. The decrease was due to decreases in sales of $269,~~260~~623,000 in the restaurant segment, decreases in franchise revenues of $1274,~~293,~~000 in the franchise segment and a $73,~~348~~939,000 decrease in sales in the Foxtail segment. These decreases were partially offset by a $~~233~~388,000 increase in licensing and other revenues. Total revenues of approximately $155,805,000 in the first quarter of 2010 were 7.9% lower than total revenues of approximately $169,253,000 in the first quarter of 2009.

Restaurant segment ~~revenues~~sales ~~decreased~~of to $~~355~~139,~~501~~605,000 inand ~~the fiscal year-to-date period ended October 4, 2009 from~~ $~~381~~149,~~761~~228,000 in the ~~fiscal~~first ~~year-to-date~~quarters ~~period~~of ~~ended~~2010 ~~October~~and 52009, ~~2008~~respectively, ~~resulting~~accounted ~~primarily~~for ~~from~~89.6% anand ~~overall 6~~88.82% ~~decrease~~of intotal ~~comparable~~revenues, ~~sales~~respectively. Due atto ~~Company-operated~~the ~~Perkins~~decline ~~and~~in ~~Marie~~total ~~Callender’s restaurants. However~~revenues, total restaurant segment ~~revenues~~sales increased as a percentage of total revenues, todespite ~~87.4%~~an ~~from~~overall 866.59% decrease in ~~the~~comparable ~~year-to-date~~sales ~~periods~~at ofCompany-operated ~~2009~~Perkins and ~~2008,~~Marie ~~respectively~~Callender’s restaurants.

Franchise segment revenues of $176,~~507~~670,000 and $186,~~800~~944,000 in the ~~fiscal~~first ~~year-to-date~~quarters ~~periods~~ of ~~2009~~2010 and ~~2008~~2009, respectively, ~~remained~~accounted ~~constant~~for at 4.3% and 4.1% of total revenues, respectively. During the ~~fiscal~~first ~~year-to-date~~quarter ~~period~~of ~~ended October 4~~2010, ~~2009,~~ royalty revenue decreased $1328,~~238,~~000 due to a decline in comparable customer counts at franchised restaurants, ~~and~~while franchise fees and renewal fees ~~decreased~~increased by $5554,000 ~~compared to the same period of 2008~~.

Foxtail revenues, net of intercompany sales, of $297,~~523~~710,000 and $3611,~~871~~649,000 in ~~2009~~the first quarters of 2010 and ~~2008~~2009, respectively, accounted for 74.39% and 86.39% of total revenues, respectively. The decline in revenues was primarily due to ~~decreased~~discontinued ~~customer~~sales ~~demand~~to ~~resulting~~two ~~from~~external ~~continued~~customers, ~~unfavorable~~whose ~~economic~~purchases ~~conditions,~~typically ~~partially~~resulted ~~offset~~in bylower-than-average ~~product~~margins ~~price increases~~to Foxtail.

Costs and Expenses

Food Cost

Consolidated food cost was 2625.3% and 2926.57% of food sales in the ~~fiscal~~first ~~year-to-date~~quarters ~~periods~~of 2010 and 2009, respectively. Restaurant segment food cost was 25.7% and 26.0% of food sales in the first quarters of 2010 and 2009, respectively, while food cost in the Foxtail segment was 53.6% and ~~2008~~57.7% of food sales in the first quarters of 2010 and 2009, respectively. ~~This~~The decrease of 30.2%3 ~~was~~percentage ~~due~~points in the restaurant segment is primarily due to lower commodity costs, ~~that~~particularly ~~impacted~~red ~~both~~meat, ~~the~~poultry, ~~restaurant~~dry goods, produce and dairy products. The decrease of 4.1 percentage points in the Foxtail ~~segments~~segment is primarily due to higher sales margins and improved pie manufacturing efficiencies.

Restaurant segment food cost, as a percentage of food sales, was 25.3% in the fiscal year-to-date period ended October 4, 2009 compared to 26.9% in the same period for 2008. The improvement was primarily due to decreased commodity costs and improved store-level controls. In the Foxtail segment, food cost decreased to 58.5% from 67.3% of food sales in 2009 and 2008, respectively, primarily as a result of higher sales prices and lower commodity costs, particularly on eggs and dairy products.

Labor and Benefits Expenses

Consolidated labor and benefits expenses were 3334.42% and 32.7% of total revenues in the ~~fiscal~~first ~~year-to-date~~quarters ~~periods~~ of ~~2009~~2010 and ~~2008~~2009, respectively. Restaurant segment labor and benefits, ~~decreased~~as bya ~~approximately~~percentage $7of total revenues,~~000,000,~~ ~~but~~increased ~~due~~by to1.4 ~~the~~percentage ~~decline~~points in ~~segment~~the ~~revenues,~~first ~~increased~~quarter asof 2010 due to a ~~percentage~~greater ofimpact ~~revenues~~from byfixed ~~0.6%~~store inmanagement ~~2009~~costs and higher employee insurance costs. In the Foxtail segment, labor and benefits ~~decreased by approximately $918~~,~~000,~~ ~~and~~ as a percentage of ~~segment~~ food sales, decreased byslightly 0to 13.39% infrom 14.0% for the first quarters of 2010 and 2009, respectively.

Operating Expenses

Total operating expenses of $~~110~~43,~~956~~735,000 in the ~~fiscal~~first ~~year-to-date~~quarter ~~period~~of ~~ended~~2010 ~~October 4, 2009~~ decreased by $41,~~405~~966,000 as compared to the ~~same~~first ~~fiscal~~quarter ~~year-to-date period~~ of ~~2008~~2009. ~~However,~~The ~~due~~most tosignificant ~~the~~components ~~decrease~~of inoperating ~~total~~expenses ~~revenues~~were rent, ~~operating~~utilities and advertising expenses. ~~increased~~Total operating expenses, as a percentage of total ~~revenues~~sales, towere 2728.31% ~~from~~and 2627.10% in the ~~year-to-date~~first ~~periods~~ quarters of ~~2009~~2010 and ~~2008~~2009, respectively. Approximately 9495.60% and 9394.90% of total operating expenses in the ~~year-to-date~~first ~~periods~~quarters of ~~2009~~2010 and ~~2008~~2009, respectively, were incurred in the restaurant segment. In the restaurant segment, operating expenses ~~decreased by $3~~,~~409,000,~~ ~~but~~ as a percentage of ~~restaurant~~total ~~food~~revenues, ~~sales~~ increased byfrom 128.18% ~~in the year-~~to~~-date~~ ~~period of 2009~~29. ~~The~~7% ~~percentage increase was~~ primarily due to ~~increases in advertising expenses for increased regional marketing efforts, partially offset by lower operating expenses and utilities costs and also due to~~ the ~~decrease~~decline in ~~comparable sales relative to occupancy costs~~revenues. Operating expenses in the Foxtail segment decreased by ~~approximately~~0.4 ~~$859,000~~percentage points due primarily to lower ~~repairs~~non-production labor and maintenance, ~~transportation and warehouse~~ costs.

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General and Administrative Expenses

The most significant components of general and administrative (“G&A”) expenses were corporate labor and benefits, occupancy costs, audit fees, ~~legal fees~~ and ~~outside~~legal ~~services~~fees. Consolidated G&A expenses, ~~which~~represented ~~decreased by $1,196,000, were 8~~9.51% and 8.13% of total revenues in the ~~fiscal~~first ~~year-to-date~~quarters ~~periods~~ of ~~2009~~2010 and ~~2008~~2009, respectively. The percentage increase ~~was~~is primarily due to the ~~$34,668,000~~ decrease in total revenues, ~~relative~~as tooverall ~~this~~G&A ~~largely~~expenses ~~fixed-cost~~essentially ~~category~~remained flat during the first quarter of 2010.

Depreciation and Amortization

Depreciation and amortization expense was $186,~~411~~906,000 and $197,~~111~~356,000 in the ~~fiscal~~first ~~year-to-date~~quarters ~~periods~~ of ~~2009~~2010 and ~~2008~~2009, respectively.

Interest, net

Interest, net was $3413,~~005~~565,000 (8.47% of total revenues) in the ~~year-to-date~~first ~~period~~quarter of ~~2009~~2010, compared to $2613,~~871~~615,000 (68.10% of total revenues) in the ~~year-to-date~~first ~~period~~quarter of ~~2008~~2009. This increase was primarily due to an ~~increase in the average effective interest rate to 11.6% from 9.6% and an~~ approximate $165,~~800~~439,000 increase in the average debt outstanding during the ~~year-to-date~~first ~~period~~quarter of ~~2009~~2010 as compared to the ~~year-to-date~~first ~~period~~quarter of ~~2008~~2009.

Other, net

Other, net was income of $3,069,000 in 2009 compared to $117,000 in 2008. The income in 2009 primarily represents total gift card breakage of $2,595,000 at Company-operated restaurants and gains of $334,000 on invested deferred compensation assets. The breakage income consists substantially of the initial recognition of breakage on gift card programs that commenced in 2005.

Taxes

The effective income tax ~~rates~~rate for the ~~fiscal~~quarters ~~year-to-date periods~~ ended ~~October~~April 418, ~~2009~~2010 and ~~October~~April 519, ~~2008~~2009 ~~were~~was -0.~~5% and 2.~~0%~~, respectively~~. Our rates differ from the statutory rate primarily due to a valuation allowance against deferred tax deductions, losses and credits.

CAPITAL RESOURCES AND LIQUIDITY

Our principal liquidity requirements are to service our debt and meet our working capital and capital expenditure needs. At ~~October~~April 418, ~~2009~~2010, we had $32,~~525~~290,000 in unrestricted cash and cash equivalents and $25,~~817~~033,000 of borrowing capacity under our Revolver.

Secured Notes and 10% Senior Notes

On September 24, 2008, the Company issued $132,000,000 of 14% senior secured notes (the "Secured Notes"). The ~~and~~Secured ~~entered~~Notes ~~into~~were issued at a discount of $267,~~000~~537,~~000~~200, ~~Revolver~~which inis ~~connection~~being ~~with~~accreted using the ~~refinancing~~interest ~~and~~method ~~termination~~over the term of ~~its~~the ~~then~~Secured ~~existing~~Notes. The ~~$100~~Secured Notes will mature on May 31,~~000~~ 2013,~~000~~ ~~term~~and ~~loan~~interest is payable semi-annually on May 31 and ~~$40,000,000~~November ~~revolver~~30 of each year.

The Secured Notes were issued at a discount of $7,537,200, which is being accreted using the interest method over the term of the Secured Notes. The Secured Notes will mature on May 31, 2013, and interest is payable semi-annually on May 31 and November 30 of each year.

In September 2005, the Company issued $190,000,000 of unsecured 10% Senior Notes. The 10% Senior Notes were issued at a discount of $2,570,700, which is accreted using the interest method over the term of the 10% Senior Notes. The 10% Senior Notes will mature on October 1, 2013, and interest is payable semi-annually on April 1 and October 1 of each year. All consolidated subsidiaries of the Company that are 100% owned provide joint and several, full and unconditional guarantee of the 10% Senior Notes. There are no significant restrictions on the Company’s ability to obtain funds from any of the guarantor subsidiaries in the form of a dividend or a loan. Additionally, there are no significant restrictions on a guarantor subsidiary’s ability to obtain funds from the Company or its direct or indirect subsidiaries.

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The indentures for the Secured Notes and the 10% Senior Notes contain various customary events of default, including, without limitation: (i) nonpayment of principal or interest; (ii) cross-defaults with certain other indebtedness; (iii) certain bankruptcy related events; (iv) invalidity of guarantees; (v) monetary judgment defaults; and (vi) certain change of control events. In addition, any impairment of the security interest in the Secured Notes collateral shall constitute an event of default under the Secured Notes indenture.

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Revolver

The Revolver contains various affirmative and negative covenants, including, but not limited to a financial covenant to maintain at least $30,000,000 of trailing 13-period EBITDA, as defined in the Revolver, and limits the Company’s capital expenditures.

The average interest rate on aggregate borrowings of the Company’s long-term debt ~~through October 4, 2009~~ was 11.6% ~~compared~~for to the ~~average~~first ~~interest~~quarters ~~rate~~of on2010 ~~aggregate~~and ~~borrowings through October 5, 2008 of 9~~2009.~~6%.~~

Our debt agreements place restrictions on the Company’s ability and the ability of its subsidiaries to: (i) incur additional indebtedness or issue certain preferred stock; (ii) repay certain indebtedness prior to stated maturities; (iii) pay dividends or make other distributions on, redeem or repurchase capital stock or subordinated indebtedness; (iv) make certain investments or other restricted payments; (v) enter into transactions with affiliates; (vi) issue stock of subsidiaries; (vii) transfer, sell or consummate a merger or consolidation of all, or substantially all, of the Company's assets; (viii) change lines of business; (ix) incur dividend or other payment restrictions with regard to restricted subsidiaries; (x) create or incur liens on assets to secure debt; (xi) dispose of assets; (xii) restrict distributions from subsidiaries; (xiii) make certain acquisitions; (xiv) make capital expenditures; or (xv) amend the terms of the Secured Notes and the 10% Senior Notes. As of ~~October~~April 418, ~~2009~~2010, we were in compliance with the ~~financial~~ covenants contained in our debt agreements.

Based on current projections, management anticipates that the Company will be in compliance with its financial covenants under the Revolver through the third quarter of 2010; however, if the Company does not meet current projections and/or if the weak economic environment deteriorates further, or is prolonged, and the Company’s actions to respond to these conditions are not sufficient, the Company could fail to comply with one or more of the financial covenants.

Working Capital and Cash Flows

At ~~October~~April 418, ~~2009~~2010, we had a negative working capital balance of $1722,234,000.0 ~~million.~~ Like many other restaurant companies, the Company is able to, and does more often than not, operate with negative working capital. We are able to operate with a substantial working capital deficit because (1) restaurant revenues are received primarily on a cash or near-cash basis with a low level of accounts receivable, (2) rapid turnover results in a limited investment in inventories and (3) accounts payable for food and beverages usually become due after the receipt of cash from the related sales.

36The following table sets forth summary cash flow data for the year-to-date periods ended April 18, 2010 and April 19, 2009 (in thousands):

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	Quarter Ended April 18, 2010			Quarter Ended April 19, 2009
Cash flows provided by operating activities	$	105			1,684
Cash flows used in investing activities		(1,349	)		(1,998	)
Cash flows used in financing activities		( 754	)		(1,016	)

The following table sets forth summary cash flow data for the year-to-date periods ended October 4, 2009 and October 5, 2008 (in thousands):

	Year-to-Date Ended October 4, 2009			Year-to-Date Ended October 5, 2008
Cash flows used in operating activities	$	(4,837	)		(19,039	)
Cash flows used in investing activities		(5,447	)		(15,081	)
Cash flows provided by financing activities		9,196			18,320

Operating Activities

Cash flows ~~used~~provided inby operating activities ~~improved~~ decreased by $141,~~202~~579,000 for the ~~year-to-date~~quarter ~~period~~ ended ~~October~~April 418, ~~2009~~2010 compared to the ~~year-to-date~~quarter ~~period~~ ended ~~October~~April 519, ~~2008~~2009. This ~~improvement~~ decrease was primarily ~~due~~driven toby ~~favorable~~the ~~changes~~impact of a higher net loss resulting from lower comparable sales in ~~operating~~the ~~assets~~first ~~and~~quarter ~~liabilities~~of ~~partially~~2010 ~~offset~~compared byto ~~non-cash~~the ~~income~~first ~~and~~quarter ~~expense~~of ~~items~~2009.

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Investing Activities

Cash flows used in investing activities for the ~~year-to-date~~quarter ~~period~~ ended ~~October~~April 418, ~~2009~~2010 were $51,~~447~~349,000 compared to $151,~~081~~998,000 for the ~~year-to-date~~quarter ~~period~~ ended ~~October~~April 519, ~~2008~~2009. Substantially all cash flows used in investing activities were used for capital expenditures.

Capital expenditures consisted primarily of restaurant improvements, restaurant remodels, and equipment packages for new restaurants. The following table summarizes capital expenditures for each ~~year-to-date~~quarter ~~period~~ presented (in thousands):

	Year-to-Date Ended October 4, 2009		Year-to-Date Ended October 5, 2008
	Quarter Ended April 18, 2010		Quarter Ended April 19, 2009
New restaurants	$	~~156~~-		~~2,208~~1
Restaurant improvements		~~3,559~~917		51,~~455~~176
Restaurant remodeling and reimaging		~~1,227~~218		~~2,556~~993
Manufacturing plant improvements		~~560~~147		~~4,237~~130
Other		~~439~~72		~~1,140~~174
Total capital expenditures	$	51,~~941~~354		152,~~596~~474

Our capital expenditure forecast for the full year of ~~2009~~2010 is approximately $84,~~000~~200,000 and does not include plans to open any new Company-operated Perkins or Marie Callender’s restaurants. The ~~sources~~principal source of funding for 2010’s capital expenditures ~~are~~is expected to be cash provided by operations and borrowings under our Revolver.

Financing Activities

Cash flows ~~provided~~used byin financing activities for the ~~year-to-date~~quarter ~~period~~ ended ~~October~~April 418, ~~2009~~2010 were $9754,~~196,~~000 compared to cash flows ~~provided~~used byin financing activities of $181,~~320~~016,000 for the ~~year-to-date~~quarter ~~period~~ ended ~~October~~April 519, ~~2008~~2009. The primary cash flows for financing activities in the ~~year-to-date~~first ~~period~~quarters of 2010 and 2009 represent net ~~borrowings~~ repayments on the Company’s Revolver. During the year-to-date period of 2008, the Company received a $12,500,000 capital contribution from its sole shareholder that was offset by $9,903,000 in debt financing costs related to the refinancing transaction. The remaining $15,723,000 of cash flows provided by financing activities in 2008 essentially represents net borrowing proceeds from the Company’s various credit facilities.

IMPACT OF INFLATION

We do not believe that our operations are affected by inflation to a greater extent than others within the restaurant industry. Certain significant items that are historically subject to price fluctuations are beef, pork, poultry, dairy products, wheat products, corn products and coffee. In most cases, we historically have been able to pass through a substantial portion of the increased commodity costs by adjusting menu pricing.

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CASH CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS

Cash Contractual Obligations

Our cash contractual obligations presented in the Company’s ~~2008~~2009 ~~Annual Report on~~ Form 10-K/A have not changed ~~significantly~~materially ~~except for the net proceeds of $9,775,000 on our Revolver~~ during the ~~year-to-date~~quarter ~~period~~ ended ~~October~~April 418, ~~2009~~2010. ~~Borrowings on our Revolver are due February 28, 2013.~~

RECENT ACCOUNTING PRONOUNCEMENTS

~~FASB~~Information ~~Accounting~~regarding ~~Standards~~new ~~Codification~~accounting pronouncements is included in Note 14 of the Notes to Consolidated Financial Statements.

(Accounting Standards Update (“ASU”) 2009-01)

The following are recent accounting standards adopted or issued that could have an impact on our Company:

Consolidation of Variable Interest Entities – Amended

(Included in Accounting Standards Codification (“ASC”) 810 “Consolidation”; previously SFAS No. 167 “Amendments to FASB Interpretation No. 46(R)”)

Subsequent Events

(Included in ASC 855 “Subsequent Events”; previously SFAS No. 165 “Subsequent Events”)

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events,” which establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. This statement is effective prospectively for interim and annual periods ending after June 15, 2009.

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Determination of the Useful Life of Intangible Assets

(Included in ASC 350 “Intangibles — Goodwill and Other”; previously FSP SFAS No. 142-3 “Determination of the Useful Lives of Intangible Assets”)

Business Combinations

(Included in ASC 805 “Business Combinations”; previously SFAS No. 141(R) “Business Combinations”)

Noncontrolling Interests in Consolidated Financial Statements

(Included in ASC 810 “Consolidation”; previously SFAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements an amendment of ARB No. 51”)

Fair Value Measurement

(Included in ASC 820 “Fair Value Measurements and Disclosures”; previously SFAS No. 157 “Fair Value Measurements”)

INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements, written, oral or otherwise made, may be identified by the use of forward-looking terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “should” or “will,” or the negative thereof or other variations thereon or comparable terminology.

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We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond our control. These and other important factors may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors affecting these forward-looking statements include, among others, the following:

• ~~the~~general ~~current U.S.~~ economic ~~recession~~conditions, consumer preferences and demographic patterns, either nationally or in particular regions in which we operate;

•

our substantial indebtedness;

•

our liquidity and capital resources;

•

competitive pressures and trends in the restaurant industry;

• prevailing prices and availability of ~~energy~~food, labor, raw materials, ~~food,~~ supplies and ~~labor~~energy;

•

a failure to obtain timely deliveries from our suppliers or other supplier issues;

•

our ability to successfully implement our business strategy;

• relationships with franchisees and the financial health of franchisees;

•

legal proceedings and regulatory matters; and

•

our development and expansion plans.

Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in this Form 10-Q are made only as of the date hereof. We do not undertake and specifically decline any obligation to update any such statements or to publicly announce the results of any revisions to any of such statements to reflect future events or developments.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are subject to changes in interest rates, foreign currency exchange rates and certain commodity prices.

Interest Rate Risk

Our primary market risk is interest rate exposure with respect to our floating rate debt. As of ~~October~~April 418, ~~2009~~2010, our Revolver permitted additional borrowings of approximately $25,~~817~~033,000 (after giving effect to $1210,~~959~~748,000 in borrowings and $10,~~224~~219,000 in letters of credit outstanding). Borrowings under the Revolver are subject to variable interest rates. A 100 basis point change in interest rates (assuming $26,000,000 was outstanding under the Revolver) would impact us by approximately $260,000. In the future, we may decide to employ a hedging strategy through derivative financial instruments to reduce the impact of adverse changes in interest rates. We do not plan to hold or issue derivative instruments for trading purposes.

Foreign Currency Exchange Rate Risk

We conduct foreign operations in Canada and Mexico. As a result, we are subject to risk from changes in foreign exchange rates. These changes result in cumulative translation adjustments, which are included in accumulated and other comprehensive income (loss). As of ~~October~~April 418, ~~2009~~2010, we do not consider the potential loss resulting from a hypothetical 10% adverse change in quoted foreign currency exchange rates to be material.

Commodity Price Risk

Many of the food products and other operating essentials purchased by us are affected by commodity pricing and are, therefore, subject to price volatility caused by weather, changes in global demand, production problems, delivery difficulties and other factors that are beyond our control. Our supplies and raw materials are available from several sources, and we are not dependent upon any single source for these items. If any existing suppliers fail or are unable to deliver in quantities required by us, we believe that there are sufficient other quality suppliers in the marketplace such that our sources of supply can be replaced as necessary. At times, we enter into purchase contracts of one year or less or purchase bulk quantities for future use of certain items in order to control commodity-pricing risks. Certain significant items that are historically subject to price fluctuations are beef, pork, poultry, dairy products, wheat products, corn products and coffee. In most cases, we historically have been able to pass ~~through~~ a substantial portion of the increased commodity costs to our customers through periodic menu price adjustments. We do not hedge against fluctuations in commodity prices. We do not use hedging agreements or alternative instruments to manage the risks associated with securing sufficient supplies or raw materials.

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ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures. Our principal executive officer and principal financial officer have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of October 4, 2009. Based on such evaluation, they have concluded that as of such date, our disclosure controls and procedures are effective and designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

~~Changes~~We inhave ~~Internal~~established ~~Control~~disclosure ~~over~~controls ~~Financial~~and ~~Reporting. There~~procedures ~~have~~to ~~not~~ensure ~~been~~that ~~any~~information ~~changes~~required to be disclosed in ~~our~~reports ~~internal~~filed ~~control~~under ~~over~~the ~~financial~~Securities ~~reporting~~Exchange (Act of 1934, as ~~defined~~amended in(the “Exchange Act”), ~~Rules~~is ~~13a-15(f))~~recorded, ~~that~~processed, ~~occurred~~summarized ~~during~~and reported within time periods specified in the ~~third~~Securities ~~fiscal~~and ~~quarter~~Exchange ofCommission ~~2009~~rules and forms and that ~~have~~information ~~materially~~required ~~affected,~~ to be disclosed by us in the reports we file or ~~are~~submit ~~reasonably~~under ~~likely~~the Exchange Act is accumulated and communicated to ~~materially~~the ~~affect,~~officers who certify our ~~internal~~financial ~~control~~reports ~~over~~and ~~financial~~to ~~reporting~~other members of senior management and the board of directors to allow timely decisions regarding required disclosure.

42In connection with the restatement of our prior financial results, which is more fully described in Note 19 to our Consolidated Financial Statements in our Form 10-K/A filed on June 7, 2010, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we reevaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of April 18, 2010. Based upon that reevaluation and particularly in light of the restatement of our financial results, we identified a material weakness in our internal control over financial reporting with respect to the determination and review of differences between the income tax bases and financial reporting bases of certain assets and liabilities. Solely as a result of this material weakness, we concluded that our disclosure controls and procedures were not effective as of April 18, 2010.

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We are in the process of designing and implementing improvements in our internal control over financial reporting to address the material weakness in accounting for income taxes. These improvements include, among other things, improved documentation and analysis regarding the determination and periodic review of deferred income tax amounts and enhancing the documentation around conclusions reached in the implementation of the applicable generally accepted accounting principles.

Changes in Internal Control over Financial Reporting. There have not been any changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)) that occurred during the first fiscal quarter of 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1. Legal Proceedings

As reported in the Company’s Form 10-K for the fiscal year ended December 2827, ~~2008~~2009, we are party to various legal proceedings in the ordinary course of business. There have been no material developments with regard to these proceedings, either individually or in the aggregate, that are likely to have a material adverse effect on the Company’s financial position or results of operations.

ITEM 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Form 10-K for the fiscal year ended December 2827, ~~2008~~2009, which could materially affect our business, financial condition or future results. The risks described in this report and in our Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.

The Further Spread of H1N1 Influenza May Adversely Affect Our Business

During April 2009, the World Health Organization issued a warning for the H1N1 virus. The further spread of H1N1 influenza, which is more commonly known as “swine flu,” may adversely affect our business. We could be adversely affected if one or more jurisdictions in which we operate restaurants impose mandatory restaurant closures or seek voluntary closures. Furthermore, the current outbreak of H1N1 influenza may reduce traffic in our restaurants as diners may seek to avoid crowded locations. H1N1 influenza also could adversely affect our ability to adequately staff our restaurants, receive deliveries on a timely basis, manufacture our baked goods and/or perform functions at the corporate level. Even if H1N1 influenza does not spread significantly or does not result in a significant number of additional fatalities, the perceived risk of infection or significant health risk may adversely affect our business.

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

None.

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. ~~Submission~~Removed ofand ~~Matters to a Vote of Security Holders~~Reserved

Not applicable.

ITEM 5. Other Information

None.

ITEM 6. Exhibits

31.1	Chief Executive Officer Certification Pursuant to Sarbanes-Oxley Act of 2002, Section 302.
31.2	Chief Financial Officer Certification Pursuant to Sarbanes-Oxley Act of 2002, Section 302.
32.1	Chief Executive Officer Certification Pursuant to Sarbanes-Oxley Act of 2002, Section 906.
32.2	Chief Financial Officer Certification Pursuant to Sarbanes-Oxley Act of 2002, Section 906.

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SIGNATURE

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.

	PERKINS & MARIE CALLENDER’S INC.
DATE: November 17, 2009	BY: /s/ Fred T. Grant, Jr.
DATE: June 7, 2010	BY: /s/ Fred T. Grant, Jr.
	Fred T. Grant, Jr.
	Chief Financial Officer

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