Overview

In the following discussion, the term "same-store sales" refers to the sales of only those Company-owned units open 18 months as of the beginning of the current fiscal quarter and which remained open through the end of the fiscal quarter.

Fiscal Second Quarter 2009 Results

Net earnings for the second quarter of fiscal year 2009 were $2,253, or $0.08 per diluted share, contrasted to a net loss of ($2,810), or ($0.10) per diluted share in the second quarter of fiscal year 2008. Quarterly same-store sales increased 2.4% due to an increase in guest traffic of 7.8%, offset by a 5.4% contraction in the average guest check. Net sales decreased 0.7% from $189,272 to $187,975 in the current quarter because we operated 21 fewer Company-owned restaurants following the closure and refranchising of certain units after the same period in the previous year.

Fiscal Year 2009 Results (Year-to-date)

Year-to-date net loss through the second quarter of fiscal year 2009 was ($1,187), or ($0.04) per diluted share, contrasted to a net loss of ($3,997), or ($0.14) per diluted share for the same period a year ago. Year-to-date same-store sales increased 0.9%. Net sales decreased 1.9% from $324,768 to $318,694 in the current year because we operated 21 fewer Company-owned restaurants following the closure and refranchising of certain units after the same period in the previous year.

During the first two quarters of fiscal year 2009, we closed one Company-owned restaurant and refranchised seven Company-owned restaurants to franchisees, bringing the total number of Company-owned restaurants to 415. A franchisee also closed one restaurant, bringing the total number of franchised units to 74.

New management, during the fourth quarter of fiscal year 2008, enacted a change in strategic direction under which we began to operate in a manner designed to generate cash. Our long-term objective is to maximize intrinsic business value per share of the Company. (Intrinsic value is computed by taking all future cash flows into and out of the business and then discounting the resultant number at an appropriate interest rate.) Thus, our financial goal is to maximize free cash flow and return on invested capital. We regard capital allocation as immensely important to creating shareholder value.

Management's discussion and analysis of financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, expenses and related disclosure of contingent assets and liabilities. Critical accounting policies are those we believe are most important to portraying our financial condition and results of operations and also require the most subjective or complex judgments by management. Judgments and uncertainties regarding the application of these policies may result in materially different amounts being reported under various conditions or using different assumptions. On an ongoing basis, we evaluate our estimates and assumptions based on historical experience and other factors that are believed to be relevant under the circumstances. There have been no material changes to the critical accounting policies previously disclosed in our Annual Report on Form 10-K for the fiscal year ended September 24, 2008.

Results of Operations

The following table sets forth the percentage relationship to total revenues,
unless otherwise indicated, of items included in our condensed consolidated
Statements of Operations for the periods indicated:

                                               Sixteen Weeks Ended                 Twenty-Eight Weeks Ended
                                           April 8,           April 9,          April 8,              April 9,
                                             2009               2008              2009                  2008
Revenues:
Net sales                                        99.4 %            99.4 %             99.4 %                 99.4 %
Franchise fees                                    0.6 %             0.6 %              0.6 %                  0.6 %
Total revenues                                  100.0 %           100.0 %            100.0 %                100.0 %

Costs and Expenses:
Cost of sales (1)                                24.3 %            25.1 %             24.4 %                 24.7 %
Restaurant operating costs (1)                   54.0 %            55.0 %             55.3 %                 55.4 %
General and administrative                        5.7 %             7.4 %              6.1 %                  7.5 %
Depreciation and amortization                     5.0 %             5.5 %              5.3 %                  5.5 %
Marketing                                         5.2 %             5.4 %              5.4 %                  5.0 %
Interest                                          2.1 %             2.2 %              2.4 %                  2.3 %
Rent                                              2.5 %             2.4 %              2.6 %                  2.4 %
Pre-opening costs                                 0.0 %             0.4 %              0.0 %                  0.3 %
Asset impairments and provision for
  restaurant closing                              0.4 %             0.0 %              0.3 %                  0.0 %
Loss (gain) on disposal of property               0.0 %             0.2 %             (0.0 ) %                0.0 %
Other income, net                                (0.2 ) %          (0.3 ) %           (0.1 ) %               (0.3 ) %

Earnings (Loss) Before Income Taxes               1.4 %            (2.7 ) %           (1.1 ) %               (2.3 ) %

Income Taxes                                      0.2 %            (1.2 ) %           (0.7 ) %               (1.1 ) %

Net Earnings (Loss)                               1.2 %            (1.5 ) %           (0.4 ) %               (1.2 ) %

(1) Cost of sales and restaurant operating costs are expressed as a percentage of net sales.

Net Earnings (Loss)
We recorded net earnings of $2,253, or $0.08 per diluted share, for the current quarter as compared with a net loss of ($2,810) or ($0.10) per diluted share for the second quarter of fiscal year 2008.

Revenues
Net sales decreased 0.7% from $189,272 to $187,975 in the current quarter because we operated 21 fewer Company-owned restaurants following the closure and refranchising of certain units since the same period of the prior year. Second quarter same-store sales increased 2.4% compared with the same quarter in the prior year. The increase in same-store sales was driven by an increase in guest traffic of 7.8%, partially offset by a 5.4% contraction in average guest check.

Franchise fees decreased slightly in the current fiscal quarter due to a decrease in franchisee same store sales of 3.9%, which resulted in lower royalty fees accrued. The decrease in franchise fees was partially offset by the growth in the number of franchised units from 67 at the end of the second quarter of fiscal year 2008 to 74 at the end of the current quarter.

Costs and Expenses
Cost of sales was $45,611 or 24.3% of net sales, compared with $47,447 or 25.1% of net sales in the second quarter of fiscal year 2008 primarily due to favorable shifts in the sales mix.

Restaurant operating costs were $101,526 or 54.0% of net sales, compared with $104,039 or 55.0% of net sales in the second quarter of fiscal year 2008. Labor and benefit costs declined by $2,420 due primarily to improvements in productivity and wage and benefit management.

As part of our plan to reduce costs, general and administrative expenses decreased $3,273 (23.3%) to $10,799 and decreased as a percentage of total revenues from 7.4% to 5.7%. Wages, payroll taxes, and related benefits declined by approximately $1,380 due to reductions in staffing that occurred during the third and fourth quarters of fiscal year 2008. Legal and professional fees, travel, and outside services declined $1,540.

Marketing expense decreased $503 (4.8%) to $9,873 and decreased as a percentage of total revenues from 5.4% to 5.2%. The net decline was due to a prior year shift in the timing of advertising to the second quarter of fiscal year 2008.

Interest expense decreased slightly related primarily to a decrease in total outstanding borrowings.

Rent expense increased slightly primarily due to sale-leaseback transactions entered into during the second half of fiscal year 2008.

We did not incur pre-opening costs for the current quarter due to the fact that we did not open any new units in the current quarter, compared to five during the second quarter of fiscal year 2008.

Asset impairments and provision for restaurant closing was $741, or 0.4% of total revenues in the current quarter, which related primarily to the loss on disposal of held for sale assets and adjustments to the carrying value of held for sale properties we continue to own. No asset impairment charges were recorded for the second quarter of fiscal year 2008.

Comparison of Twenty-Eight Weeks Ended April 8, 2009 to Twenty-Eight Weeks Ended April 9, 2008

Net Loss
We recorded a net loss of ($1,187), or ($0.04) per diluted share, for the current year-to-date period as compared with a net loss of ($3,997) or ($0.14) per diluted share for the same period of fiscal year 2008.

Revenues
Net sales decreased 1.9% from $324,768 to $318,694 in the current year-to-date period because we operated 21 fewer Company-owned restaurants following the closure and refranchising of certain units since the same period of the prior year. Year-to-date same-store sales increased 0.9% compared with the same period of fiscal year 2008. The increase in same-store sales was driven by an increase in guest traffic of 4.2%, partially offset by a 3.3% contraction in average guest check.

Franchise fees decreased slightly in the current year-to-date period due to a decrease in franchisee same store sales of 3.5%, which resulted in lower royalty fees accrued. The decrease in franchise fees was partially offset by the growth in the number of franchised units from 67 at the end of the second quarter of fiscal year 2008 to 74 at the end of the current quarter.

Costs and Expenses
Year-to-date cost of sales was $77,642 or 24.4% of net sales, compared with $80,131 or 24.7% of net sales in the same period of fiscal year 2008 primarily due to favorable shifts in the sales mix.

Year-to-date restaurant operating costs were $176,208 or 55.3% of net sales, compared with $179,849 or 55.4% of net sales in the same period of fiscal year 2008. Labor and benefit costs declined by $2,980 due primarily to improvements in productivity and wage and benefit management.

As part of our plan to reduce costs, general and administrative expenses decreased $5,046 (20.6%) to $19,444 and decreased as a percentage of total revenues from 7.5% to 6.1%. Wages, payroll taxes, and related benefits declined by approximately $2,960 due to reductions in staffing that occurred during the third and fourth quarters of fiscal year 2008. Legal and professional fees, travel, and outside services declined $1,630.

Marketing expense increased $1,039 (6.3%) to $17,416 and increased as a percentage of total revenues from 5.0% to 5.4%. Management, by design, increased promotional expenditures in fiscal year 2009.

Interest expense increased slightly as a percentage of total revenues due primarily to the $506 prepayment penalty related to the $4,471 principal prepayment on our Senior Note Agreement and Private Shelf Facility (the "Senior Note Agreement") that we amended during the first quarter of fiscal year 2009. The increase was partially offset by lower interest expense related primarily to a decrease in total outstanding borrowings.

We did not incur pre-opening costs during fiscal year 2009 due to the fact that we did not open any new units in the current year, compared to nine during the year-to-date period of fiscal year 2008.

Asset impairments and provision for restaurant closing was $917, or 0.3% of total revenues in the current year-to-date period, which related primarily to the loss on disposal of held for sale assets and adjustments to the carrying value of held for sale properties we continue to own. No asset impairment charges were recorded for the same period of fiscal year 2008.

Income Taxes
Our effective income tax rate increased to 64.8% from 46.9% compared with the same year-to-date period in the prior year. This change is primarily due to the impact of the significant decrease in the Company's pre-tax loss and the related proportionate increase of federal income tax credits as a percentage of the total pre-tax loss. While the amount of our federal income tax credits for the current year-to-date period remained relatively consistent with the prior year-to-date period, the lower pre-tax loss in the current year-to-date period results in a higher effective income tax rate when compared to the prior year-to-date period.

Liquidity and Capital Resources

We generated $25,803 in cash flows from operations during the twenty-eight weeks ended April 8, 2009 as compared to $13,887 during the twenty-eight weeks ended April 9, 2008. The increase resulted primarily from $11,608 related to income tax refunds, net of the year-to-date provision.

Net cash provided by investing activities of $3,978 during the twenty-eight weeks ended April 8, 2009 resulted primarily from proceeds of $6,590 related to the sale of three parcels of land, one restaurant property, and the transfer of two Company-owned buildings to a franchisee. We closed one Company-owned restaurant and refranchised seven Company-owned restaurants to a franchisee during the current year-to-date period.

Net cash used in investing activities of $13,986 during the twenty-eight weeks ended April 9, 2008 resulted primarily from capital expenditures of $23,858. During that year-to-date period, we opened nine new Company-owned restaurants and refranchised eight Company-owned restaurants to franchisees. We received proceeds of $9,872 from the sale of six parcels of land and from the transfer of three Company-owned buildings and various equipment to franchisees during the same period of fiscal year 2008.

Capital expenditures for the remainder of fiscal year 2009 will be limited principally to maintenance capital expenditures. We intend to meet our working capital needs and fund capital expenditures by using existing cash, anticipated cash flows from operations, net operating loss carryback tax refunds, existing credit facilities, and the sale of excess properties. We continually review available financing alternatives. In addition, we may consider, on an opportunistic basis, strategic decisions to create value and improve operating performance.

Revolving Credit Facility
As amended on November 21, 2008, our Revolving Credit Facility ("Facility") allows us to borrow from time to time up to $25,000, bears interest based on the One Month LIBOR plus 350 basis points, and expires January 30, 2010. At April 8, 2009, outstanding borrowings under the Facility were $17,000 at an interest rate of 4.0%.

We had outstanding borrowings under the Senior Note Agreement of $11,957 at a weighted average fixed rate of 9.0% as of April 8, 2009. Effective September 29, 2008, we can no longer make any new borrowings under the Senior Note Agreement.

Our Senior Note Agreement and Facility contain restrictions and covenants customary for credit agreements of these types which, among other things, require us to maintain certain financial ratios. The amendments executed on November 21, 2008 include revised financial covenants. For the quarter ended April 8, 2009, these covenants include, among others, requirements to limit the ratio of total liabilities to tangible net worth (as defined in the amendments) to a maximum of 1.10 and to maintain a minimum fixed charge coverage ratio (as defined in the amendments) of 1.10. On April 8, 2009, our ratio of total liabilities to tangible net worth was 0.86 and our fixed charge coverage ratio was 1.86. We were in compliance with all covenants under the amended agreements as of April 8, 2009.

The Senior Note Agreement and the Facility are secured with the deposit accounts, accounts receivable, inventory, equipment, general intangibles, fixtures, and all other personal property. The Senior Note Agreement and Facility also prohibit us from making cash dividends or repurchasing our common stock. As of November 21, 2008, the amendment to the Senior Note Agreement also relieves us of the requirement to secure the borrowings with certain real estate assets if the principal balance under the Senior Note Agreement is less than $5,000 on March 31, 2010.

We also have one note in the amount of $77 outstanding as of April 8, 2009.

In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" ("SFAS 157"), which defines fair value, establishes a formal framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is only applicable to existing accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. As originally issued, SFAS 157 was to be effective as of the beginning of our fiscal year 2009. With the issuance in February 2008 of FSP 157-2, "Effective Date of FASB Statement No. 157," the FASB approved a one-year deferral to the beginning of our fiscal year 2010 for the implementation of SFAS 157 with regard to non-financial assets and liabilities that are not recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The FASB has also excluded leases from the scope of SFAS 157 with the issuance of FSP 157-1, "Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements that Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13." The adoption of SFAS 157 with regard to financial assets and liabilities as of September 25, 2008 did not materially impact our financial statements. See Note 13 for information regarding the partial implementation of SFAS 157. We are in the process of determining the effect, if any, that the adoption of SFAS 157 with regard to non-financial assets and liabilities will have on our financial statements in fiscal year 2010.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" ("SFAS 159"). SFAS 159 provides companies with an option to report selected financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings at each subsequent reporting date. SFAS 159 is effective for fiscal years beginning after November 15, 2007, our fiscal year 2009. We have determined not to elect the fair value measurement option under SFAS 159.

In December 2007, the FASB issued SFAS No. 141(R), "Business Combinations" ("SFAS 141(R)"), which replaces SFAS 141. SFAS 141(R) requires that the fair value of the purchase price of an acquisition including the issuance of equity securities be determined on the acquisition date; requires that all assets, liabilities, noncontrolling interests, contingent consideration, contingencies, and in-process research and development costs of an acquired business be recorded at fair value at the acquisition date; requires that acquisition costs generally be expensed as incurred; requires that restructuring costs generally be expensed in periods subsequent to the acquisition date; and requires that changes in deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period impact income tax expense. SFAS 141(R) also broadens the definition of a business combination and expands disclosures related to business combinations. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008, our fiscal year 2010, except that business combinations consummated prior to the effective date must apply SFAS 141(R) income tax requirements immediately upon adoption. We are in the process of determining the effect, if any, that the adoption of SFAS 141(R) will have on our financial statements.

In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51" ("SFAS 160"). SFAS 160 clarifies the accounting for noncontrolling interests and establishes accounting and reporting standards for the noncontrolling interest in a subsidiary, including classification as a component of equity. SFAS 160 is effective for fiscal years beginning after December 15, 2008, our fiscal year 2010. We are in the process of determining the effect, if any, that the adoption of SFAS 160 will have on our financial statements.

Effects of Governmental Regulations and Inflation

Most of our employees are paid hourly rates related to federal and state minimum wage laws. Any increase in the legal minimum wage would directly increase our operating costs, and the federal minimum wage is scheduled to increase beginning on July 24, 2009. We are also subject to various federal, state and local laws related to zoning, land use, safety standards, working conditions, and accessibility standards. Any changes in these laws that require improvements to our restaurants would increase operating costs. In addition, we are subject to franchise registration requirements and certain related federal and state laws regarding franchise operations. Any changes in these laws could affect our ability to attract and retain franchisees.

Inflation in food, labor, fringe benefits, energy costs, transportation costs, and other operating costs directly affects our operations.

Certain statements contained in this report represent forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In general, forward-looking statements include estimates of future revenues, cash flows, capital expenditures or other financial items, as well as assumptions underlying any of the foregoing. Forward-looking statements reflect management's current expectations regarding future events and use words such as "anticipate," "believe," "expect," "may" and other similar terminology. A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. Investors should not place undue reliance on the forward-looking statements, which speak only as of the date of this report. These forward-looking statements are based on currently available operating, financial and competitive information and are subject to various risks and uncertainties.
Our actual future results and trends may differ materially depending on a variety of factors, many beyond our control, including, but not limited to:

· the success of our plan to increase store traffic on a profitable basis;

· competition in the restaurant industry for guests, staff, locations, and new products;

· disruptions in the overall economy and the financial markets;

· our ability to comply with the restrictions and covenants to our debt agreements;

· declines in the market price of our common stock, which could adversely affect our goodwill impairment analysis;

· the potential to recognize additional impairment charges on our long-lived assets;

· fluctuations in food commodity and energy prices and the availability of food commodities;

· the ability of our franchisees to operate profitable restaurants;

· the poor performance or closing of even a small number of restaurants;

· changes in guest preferences, tastes, and dietary habits;

· changes in minimum wage rates and the availability and cost of qualified personnel;

· harsh weather conditions or losses due to casualties;

· unfavorable publicity relating to food safety or food-borne illness;

· exposure to liabilities related to the ownership and leasing of significant amounts of real estate;

· our ability to comply with existing and future governmental regulations;

· our ability to adequately protect our trademarks, service marks, and other components of our brand; and

· other risks identified in the periodic reports we file with the Securities and Exchange Commission.

Refer to our Annual Report on Form 10-K for the fiscal year ended September 24, 2008 for a detailed discussion of each of the risks identified above.

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