Worldwide Restaurant Concepts 10Q 2006 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10 – Q

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

For the quarterly period ended July 24, 2005

¨	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 1-10711

WORLDWIDE RESTAURANT CONCEPTS, INC.

(Exact Name of Registrant as specified in its Charter)


Delaware		95-4307254
(State or other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

15301 Ventura Blvd., Suite 300, Building B, Sherman Oaks, California 91403

(Address of Principal Executive Offices, including zip code)

(818) 662-9800

(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 x No ¨

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class		Outstanding at September 9, 2005
Common Stock $0.01 Par Value		27,883,531 shares

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

WORLDWIDE RESTAURANT CONCEPTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands)


	July 24, 2005		April 30, 2005
ASSETS
Current Assets:
Cash and cash equivalents	$	36,232	$	34,379
Restricted cash		5,341		5,330
Receivables, net of an allowance of $451 at July 24, 2005 and $437 at April 30, 2005		3,933		2,760
Inventories		5,477		5,670
Deferred income taxes		5,485		5,485
Prepaid expenses and other current assets		3,522		4,371
Assets related to restaurants held for sale		2,232		2,232

Total current assets		62,222		60,227

Property and equipment, net		67,190		68,729
Long-term notes receivable, net (including $151 related party receivables at July 24, 2005 and $160 at April 30, 2005)		1,426		1,460
Deferred income taxes		6,971		7,192
Goodwill		1,723		1,723
Intangible assets, net of accumulated amortization of $1,354 at July 24, 2005 and $1,322 at April 30, 2005		2,223		2,278
Other assets		536		925

Total assets	$	142,291	$	142,534

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

WORLDWIDE RESTAURANT CONCEPTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except par value)


	July 24, 2005			April 30, 2005
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Current portion of long-term debt	$	7,021		$	7,077
Accounts payable		17,590			16,426
Other current liabilities		27,849			29,630
Income taxes payable		3,831			4,327

Total current liabilities		56,291			57,460

Long-term debt, net of current portion		6,461			7,496
Deferred gains, rent and landlord incentives		18,602			18,917
Pension liability		13,668			13,817

Total liabilities		95,022			97,690

Minority interest		32,533			32,028
Commitments and contingencies
Stockholders’ Equity:
Preferred, authorized 1,000 shares, $5 par value; no shares issued or outstanding		—			—
Common, authorized 50,000 shares, $0.01 par value; issued and outstanding 29,880 and 27,880 shares and 29,880 and 27,880 shares at July 24, 2005 and April 30, 2005, respectively		299			299
Additional paid-in capital		256,238			256,066
Accumulated deficit		(224,176	)		(226,036	)
Treasury stock, 2,000 shares at July 24, 2005 and at April 30, 2005, at cost		(4,135	)		(4,135	)
Accumulated other comprehensive loss		(13,490	)		(13,378	)

Total stockholders’ equity		14,736			12,816

Total liabilities and stockholders’ equity	$	142,291		$	142,534

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

WORLDWIDE RESTAURANT CONCEPTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE TWELVE WEEKS ENDED JULY 24, 2005 AND JULY 25, 2004

(Unaudited)

(In thousands, except per share data)


	July 24, 2005		July 25, 2004
Revenues
Restaurant sales, net	$	84,038	$	79,874
Franchise revenues		2,292		2,078

Total revenues		86,330		81,952

Costs, expenses and other
Cost of sales (excluding depreciation and amortization reflected below)		28,768		27,618
Labor and related expenses		22,077		21,596
Other operating expenses		20,006		20,153
Depreciation and amortization		2,799		2,805
General and administrative expenses		8,184		7,077

Total operating costs, expenses and other		81,834		79,249

Operating income		4,496		2,703

Interest expense		292		734
Investment income, net		186		124

Income before income taxes and minority interest		4,390		2,093
Provision for income taxes		1,822		1,164
Minority interest expense		708		440

Net income	$	1,860	$	489

Basic earnings per share	$	0.07	$	0.02

Diluted earnings per share	$	0.06	$	0.02

Weighted average common shares outstanding:
Basic		27,880		27,485
Diluted		29,977		28,532

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

WORLDWIDE RESTAURANT CONCEPTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE TWELVE WEEKS ENDED JULY 24, 2005 AND JULY 25, 2004

(Unaudited)

(in thousands)


	July 24, 2005			July 25, 2004
OPERATING ACTIVITIES
Net income	$	1,860		$	489
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		2,799			2,805
Deferred income taxes		221			107
Allowance for bad debts		32			34
Loss on sale of assets		—			16
Amortization of deferred revenue		(396	)		(275	)
Asset write downs and retirements		39			138
Income attributable to minority interest		708			440
Other		(83	)		26
Changes in operating assets and liabilities:
Receivables		(1,801	)		59
Inventories		140			259
Prepaid expenses and other assets		1,776			138
Accounts payable and other current liabilities		1,691			1,880
Accrued liabilities		(2,151	)		(2,633	)
Income taxes payable		(436	)		(709	)

Net cash provided by operating activities		4,399			2,774

INVESTING ACTIVITIES
Additions to property and equipment		(1,302	)		(3,863	)
Proceeds from sale of assets		—			260
Increase in restricted cash		(11	)		(1,368	)
Other, net		95			83

Net cash used in investing activities		(1,218	)		(4,888	)

FINANCING ACTIVITIES
Repayment of long-term debt		(1,158	)		(4,475	)
Sale of equity in subsidiary		—			4,642
Distributions to minority partners		(53	)		—
Exercise of stock options		22			148

Net cash (used in) provided by financing activities		(1,189	)		315

Effect of foreign exchange on cash and cash equivalents		(139	)		(152	)

Net increase (decrease) in cash and cash equivalents		1,853			(1,951	)

Cash and cash equivalents at beginning of period		34,379			24,755

Cash and cash equivalents at end of period	$	36,232		$	22,804

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

WORLDWIDE RESTAURANT CONCEPTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED)

FOR THE TWELVE WEEKS ENDED JULY 24, 2005 AND JULY 25, 2004

(Unaudited)

(in thousands)


	July 24, 2005		July 25, 2004
Supplemental Cash Flow Disclosures
Cash paid during the period for:
Interest	$	188	$	597
Income taxes		2,172		1,744
Non-Cash Investing and Financing Transactions
Revaluation of Minority Interest	$	150	$	(13,251	)

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

WORLDWIDE RESTAURANT CONCEPTS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.	General:

The condensed consolidated financial statements include Worldwide Restaurant Concepts, Inc. and its subsidiaries (“WRC” or the “Company”). The financial statements include the Company’s worldwide operation of the Sizzler^{^®} family steakhouse concept, including Company-owned outlets and activities related to the development and operation of Sizzler^{^®} franchises, as well as the KFC^{^®} franchises operated by the Company in Queensland and New South Wales, Australia and the operations of Pat & Oscar’s^{^®} Company-owned outlets in the United States.

The information for the twelve weeks ended July 24, 2005 and July 25, 2004 has not been audited by independent registered public accountants, but includes all adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary for the fair presentation of the Company’s condensed consolidated financial statements. Certain information and footnote disclosure normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to the requirements of the Securities and Exchange Commission (“SEC”), although the Company believes that the disclosures included in these condensed consolidated financial statements are adequate to make the information not misleading. The results of operations for the periods presented should not necessarily be considered indicative of operations for the full year. The results of operations of restaurants that are held for sale have not been reflected as discontinued operations in the accompanying financial statements as it is contemplated that the substantial majority of such restaurants will be sold to existing or new franchisees. When a Company-owned restaurant converts to a franchise the Company receives a royalty income that is based on franchisee sales. The financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s April 30, 2005 Annual Report on Form 10-K as filed with the SEC.

Inventory consists of various foodstuffs and supplies used in the Company’s restaurant operations.

The Company uses a fifty-two, fifty-three week fiscal year ending on the Sunday nearest to April 30. In a fifty-two week fiscal year, the first, second and fourth fiscal quarters include 12 weeks of operations whereas the third fiscal quarter includes 16 weeks of operations. The prior and current fiscal years include fifty-two weeks.

2.	Merger Agreement:

On April 28, 2005, the Company announced that it had entered into a definitive merger agreement with affiliates of an Australian private equity firm, Pacific Equity Partners (“PEP”), pursuant to which the affiliates of PEP agreed to acquire all outstanding capital stock of Worldwide Restaurant Concepts, Inc. The actual per share merger consideration will be determined by the merger agreement formula using the U.S. dollar to Australian dollar exchange rate one business day before the closing date of the merger. The terms of the merger agreement provide that the per share consideration will vary from a floor of $6.65 if the U.S. dollar to Australian dollar exchange rate is 0.7339 or below to a high of $7.25 if the exchange rate is 0.8410 or above.

Upon completion of the transaction, the affiliates of PEP will own 100% of the outstanding capital stock of Worldwide Restaurant Concepts, Inc. and the stock of Worldwide Restaurant Concepts, Inc. will no longer be traded publicly. Members of the Australian Management Group (“AMG”) currently own shares of capital stock of Collins Foods Group (“CFG”), the Company’s Australian subsidiary managing the Sizzler^® and KFC^® restaurants in Australia. These persons have been offered an option to exchange such shares of CFG for a combination of shares of affiliates of PEP and cash.

The transaction is subject to the approval of the Company’s stockholders, as well as customary closing conditions, including receipt of regulatory approvals and certain third party consents, including, but not limited to, the approval by YUM! Brands, Inc. of the transfer of franchise agreements for the Company’s KFC^® restaurants in Australia, and receipt by PEP of debt financing required to complete the transaction. On August 22, 2005 the Company filed with the SEC its definitive proxy statement seeking stockholder approval for the merger. The Company has scheduled a special meeting of its stockholders at 10 a.m. on September 21, 2005 to vote on the merger. The Company anticipates the transaction will be completed in late September, assuming that stockholder approval is obtained. For additional information, refer to the definitive proxy statement filed with SEC on Form 14A on August 22, 2005.

The merger agreement provides for an $8.4 million termination fee that would be payable by the Company to PEP if the merger agreement is terminated under any of the following circumstances: 1) termination by WRC concurrently with its acceptance of a superior takeover proposal; 2) termination by either the Company or PEP following a vote of the Company’s stockholders in which the stockholders do not approve the merger; or 3) termination by PEP if the Company’s Board of Directors or any committee of the Board withdraws or adversely modifies the merger agreement. In addition, under certain other circumstances WRC would be required to reimburse PEP for its out-of-pocket expenses relating to the merger up to a maximum of $5.6 million. Under no circumstances will WRC be required to both pay a termination fee and reimburse PEP for its expenses.

3.	Stock-Based Compensation:

The Company uses the intrinsic value method of accounting for stock options granted to employees as prescribed by Accounting Principles Board (“APB”) Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to Employees,” and accordingly does not recognize compensation expense if the exercise price of the Company’s stock options is equal to or greater than the market price of the underlying stock on the date of the grant. Had the Company applied fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123 (“SFAS 123”), “Accounting for Stock-Based Compensation,” pro forma net income and pro forma earnings per share would have been as follows (in thousands, except per share data):


	Twelve weeks ended
	July 24, 2005			July 25, 2004
Net income	$	1,860		$	489
Add: Total stock-based employee compensation expense included in reported earnings, net of related tax effects		22			20
Deduct: Total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effects		(312	)		(558	)

Pro forma basic net income	$	1,570		$	(49	)

Deduct: Income attributed to AMG options dilution (see Note 9)		—			(4	)

Pro forma diluted net income	$	1,570		$	(53	)

Earnings per share:
Basic, as reported	$	0.07		$	0.02
Basic, pro forma	$	0.06		$	0.00
Diluted, as reported	$	0.06		$	0.02
Diluted, pro forma	$	0.05		$	0.00

4.	Segment Information:

Substantially all of the Company’s revenues result from the sale of menu items at restaurants operated by the Company or generated from franchise activity. The Company’s reportable segments are based on geographic area and product brand. Sizzler Domestic consists of all USA and Latin America Sizzler^® restaurant and franchise operations. Sizzler International consists of all other Sizzler^® restaurant and franchise operations. KFC consists of KFC^® franchise restaurants in Australia. Pat & Oscar’s consists of operations of the Pat & Oscar’s^® restaurant and related catering functions. Corporate and other includes any items not included in the reportable segments listed above. The effects of all inter-company transactions are eliminated when computing revenues, operating income (loss) and identifiable assets.

Operating income includes segment operating results before investment income, interest expense, income taxes, and allocated corporate overhead. The corporate and other components of operating income represent corporate selling and general and administrative expenses prior to being allocated to the operating segments.

Identifiable assets are those assets used in the operations of each segment. Corporate and other assets include cash, accounts receivable and various other assets. Long-lived assets principally include goodwill, property and equipment, net, identifiable intangibles, net and other assets.


	Twelve weeks ended
	July 24, 2005			July 25, 2004
Revenues (in thousands):
Sizzler - Domestic (including Latin America)	$	19,770		$	22,011
Pat & Oscar’s		11,757			11,867
Sizzler - International		15,260			12,825
KFC		39,543			35,249

Total revenues	$	86,330		$	81,952

Operating income (loss) (in thousands):
Sizzler - Domestic (including Latin America)	$	2,281		$	1,497
Pat & Oscar’s		(204	)		(1,080	)
Sizzler - International		709			116
KFC		4,794			3,598
Corporate and other		(3,084	)		(1,428	)

Total operating income	$	4,496		$	2,703

Reconciliation to net income (in thousands):
Total operating income	$	4,496		$	2,703
Interest expense		292			734
Investment income, net		186			124

Income before income taxes and minority interest		4,390			2,093
Provision for income taxes		1,822			1,164
Minority interest expense		708			440

Net income	$	1,860		$	489

The Company’s revenues from external customers and long-lived assets by geographic areas are as follows (in thousands):


	Twelve weeks ended
	July 24, 2005		July 25, 2004
Revenues from external customers:
Domestic (including Latin America)	$	31,527	$	33,878
International		54,803		48,074

Total revenues	$	86,330	$	81,952


	July 24, 2005		April, 30 2005
Long-lived assets:
Domestic (including Latin America)	$	41,947	$	42,698
International		29,725		30,957

	$	71,672	$	73,655

5.	Goodwill and Intangible Assets:

The Company has established its reporting units based on its current reporting structure and all recognized assets, liabilities and goodwill have been assigned to these reporting units. Goodwill primarily relates to the Sizzler USA reporting unit. Goodwill is tested annually for impairment during the second quarter or more frequently as events may warrant. There was no impairment loss recorded during the quarters ended July 24, 2005 and July 25, 2004. The following sets forth the intangible assets by major asset class (in thousands):


	July 24, 2005			April 30, 2005			Weighted Average Amortization Period (years)
Franchise rights	$	1,863		$	1,895		12
Trademarks		1,663			1,654		30
Other intangibles		51			51		indefinite

Total intangibles		3,577			3,600
Accumulated amortization - franchise rights		(945	)		(933	)
Accumulated amortization - trademarks		(409	)		(389	)

Total accumulated amortization		(1,354	)		(1,322	)

Net intangibles	$	2,223		$	2,278

Trademarks consist of costs to register new trademarks and defend existing trademarks. Amortization expense related to intangible assets was $50,000 for the quarter ended July 24, 2005 and is expected to be approximately $190,000 in each of the next five fiscal years. Amortization expense related to intangible assets was $40,000 for the quarter ended July 25, 2004.

6.	Earnings Per Share:

The following table sets forth the computation of basic and diluted earnings per share (“EPS”):


	Twelve weeks ended
(In thousands, except EPS)	July 24, 2005		July 25, 2004
Numerator for basic EPS - Net income	$	1,860	$	489
Income attributed to AMG options dilution (see Note 9)		—		(4	)

Numerator for diluted EPS - Net income	$	1,860	$	485

Denominator for basic EPS - weighted average shares of common stock outstanding		27,880		27,485
Effect of dilutive stock options		2,097		1,047

Denominator for diluted EPS - adjusted weighted average shares outstanding		29,977		28,532

Basic earnings per share	$	0.07	$	0.02

Diluted earning per share	$	0.06	$	0.02

Antidilutive options not included in computation of diluted EPS		—		1,415

7.	Commitments and Contingencies:

The Company is subject to various commitments and contingencies as follows:

The Company self-insures a significant portion of its workers compensation, general liability and health insurance plans. The full extent of certain claims, in many cases, may not become fully determined for several years. The Company, therefore, estimates the potential obligation for liabilities that have been reported and those that have been incurred but not yet reported based upon historical data and experience, and uses an outside consulting firm to assist the Company in developing these estimates. Although management believes that the amounts accrued for these obligations are sufficient, any significant increase in either the number of claims or costs associated with claims made under these plans could have a material adverse effect on the Company’s financial results. The workers’ compensation and general liability policies require the Company to set aside cash reserves sufficient to fund existing and estimated future claims. As of July 24, 2005, the Company has letters of credit totaling $5.0 million for this purpose, which are secured by a corresponding amount of restricted cash.

The Company’s commodity price risk is attributable to fluctuations in the price of selected food products such as meat, poultry and produce used in the normal course of business. The Company contracts for certain amounts of these food

products in the future at a predetermined or fixed price. The Company has no purchase agreements longer than one year. The Company does not purchase futures contracts for trading purposes. The Company is unable to predict the possible impact of changes in commodity prices. However, in the past the Company has been able to address these changes by passing these costs along to its customers because these changes have generally impacted all restaurant companies.

In connection with its joint venture agreement with its Sizzler franchisee in Singapore the Company is party to a guarantee whereby it is obligated to provide financial support to the joint venture. The Company does not expect this guarantee to have a material adverse impact on its financial position, results of operations or cash flows.

Litigation

The Company is a party to certain litigation arising in the ordinary course of business which, in the opinion of management, will not have a material adverse effect upon the Company’s consolidated financial position, results of operations or cash flows. The following is a summary of the more significant cases pending against the Company:

A subsidiary of the Company remains as a defendant in a lawsuit arising out of an E.coli incident at a Sizzler^® franchised location in Milwaukee, Wisconsin in July 2000. The plaintiffs seek monetary damages for the death of a minor child who consumed allegedly contaminated food at the Sizzler^® restaurant. The Company’s former meat supplier, Excel Corporation (“Excel”) and the Company’s former franchisee, E&B Management Company, and E&B Management Company’s principals are named defendants in the case. The Company has filed cross-claims against its franchisee and Excel. The case has been referred back to the trial court in Milwaukee following Excel’s failed attempt to be dismissed as a defendant and depositions and written discovery have commenced. The Company believes that the resolution of all claims associated with the Milwaukee E.coli incident will not have a material adverse impact on the Company’s financial position, results of operations or cash flows.

On October 3, 2001, upon the petition of the Insurance Commissioner of the Commonwealth of Pennsylvania, Reliance Insurance Company (“Reliance”) was declared insolvent and became subject to Pennsylvania state law liquidation proceedings. Reliance was the Company’s primary general liability and workers’ compensation carrier, during the period May 1, 1997 through May 1, 1999, and was the Company’s first level excess general liability carrier with respect to claims against the Company arising out of the July 2000 E.coli incident in Milwaukee. As a result of the legal proceedings affecting Reliance, the Company’s ability to recover funds under its liability policies with this carrier, whether relating to the Milwaukee incident or otherwise, may be substantially limited. However, based on the amount of its primary general liability coverage under policies with other carriers, as well as anticipated results of the pending litigation in Milwaukee and other claims, the Company does not believe that Reliance’s liquidation

proceedings are likely to have a material adverse impact on the Company’s financial position, results of operations or cash flows.

On June 1, 2001, The Independent Insurance Co., the Company’s primary general liability insurance carrier in Australia for the period May 1, 2000 through April 30, 2001, commenced liquidation proceedings. Based upon an assessment of the pending and possible future claims, which may be filed over a five-year period, the Company’s ability to recover funds under its general liability policies with this carrier may be substantially limited. Nevertheless, the Company does not believe that The Independent Insurance Co.’s liquidation is likely to have a material impact on the Company’s financial position, results of operations or cash flows.

On October 7, 2003, the Company was notified by various health department officials that Pat & Oscar’s was the focal point of an investigation into an outbreak of E.coli at certain of its restaurants. Health officials focused their investigation on the lettuce that was supplied to the restaurants by Gold Coast and Family Tree. Out of approximately 45 claims, all but seven have been settled. The Company anticipates that all of the remaining claims will be settled in fiscal year 2006.

On November 30, 2004, the Company filed a Form 8-K in which it announced it had entered into a Settlement Agreement and General Release with two of the lettuce suppliers involved in the 2003 E.coli incident and their insurers. Under the terms of the agreement, the two insurers paid to the Company a total of $5.0 million in exchange for an assumption by the Company of all liabilities of the two distributors for pending bodily injury claims that arose in connection with the E.coli incident, as well as an agreement by the Company to indemnify and defend the two distributors from any such claim subsequently arising out of this incident. The Company believes that the $5.0 million settlement amount will be sufficient to cover the Company’s liability relating to all pending bodily injury claims, including claims that have been paid by the Company to date, arising out of the E.coli incident, and any future claims, should they arise. Accordingly, the Company does not believe that the resolution of these cases or the claims of any other individuals who became ill as a result of the alleged E.coli incident at Pat & Oscar’s will have any material adverse impact on the Company’s financial position, results of operations or cash flows.

8.	Employee Benefit Plans

The Company’s terminated supplemental executive retirement plan (“SERP”) covers 11 former employees and is accounted for under SFAS No. 87 “Employers’ Accounting for Pensions.” The components of net periodic benefit cost for the twelve weeks ended July 24, 2005 and July 25, 2004, are as follows (in thousands):


	Twelve weeks ended
	July 24, 2005		July 25, 2004
Pension Plan:
Interest cost	$	146	$	154
Recognized net actuarial loss		56		51

Net periodic benefit cost	$	202	$	205

9.	Minority Interest and Australian Management Transaction

Minority interest liability is attributable to the collective ownership interests of the minority shareholders of the Company’s Pat & Oscars and Collins Foods Group subsidiaries.

In accordance with the Company’s stock option plan for its AMG, at the end of the first quarter of fiscal year 2005, 4,064,000 options representing 19.0 percent of common stock of CFG were exercised by the AMG. During the second quarter of fiscal year 2005, an additional 23,000 options were exercised and the remaining 49,000 options expired. During the third quarter of fiscal year 2005, the Company re-purchased 40,000 shares from certain AMG members and with this share repurchase and the expiration of certain options the AMG owns approximately 18.9 percent of CFG as of July 24, 2005. No changes in CFG ownership occurred in the fourth quarter of fiscal year 2005 and first quarter of fiscal year 2006. Net income for the first quarter of fiscal year 2006 reflects minority interest of $0.7 million compared to $0.4 million in the first quarter of fiscal year 2005.

The CFG options were considered in the computation of diluted earnings per share for the first quarter of fiscal year 2005. See Note 6 – Earnings Per Share, to the Condensed Consolidated Financial Statements.

member. In accordance with Emerging Issues Task Force (“EITF”) D-98, “Classification and Measurement of Redeemable Securities,” the Company has classified the CFG minority interest outside of stockholders’ equity at its fair value as of the balance sheet date. The fair market value per share of CFG shares on July 24, 2005 was estimated to be Australian $10.48 (U.S. $8.02 at July 24, 2005). As of July 24, 2005, approximately $4.5 million was received by the Company for exercised stock options. The difference between the fair value of the minority interest over its carrying value of $24.9 million is reflected as a reduction of additional paid-in capital. The following table sets forth the changes in carrying amount of minority interest for the quarter ended July 24, 2005 (in thousands):


Minority interest
CFG minority interest at April 30, 2005	$	2,372
Income attributable to minority interest		667
Foreign currency translation effect		(16	)

Total		3,023
Value of CFG put		29,450

Total CFG minority interest		32,473
Total Pat & Oscar’s minority interest		60

Total minority interest at July 24, 2005	$	32,533

10.	Restaurant Assets Held for Sale

Restaurant assets held for sale reflected on the Condensed Consolidated Balance Sheets as of July 24, 2005 include two New York area restaurants and three California restaurants. The results of operations of restaurants held for sale or sold have not been reflected as discontinued operations in the accompanying financial statements as it is contemplated that the restaurants will be sold to existing or new franchisees. When the Company-owned restaurant converts to a franchise, the Company receives royalty income that is based on franchise sales.

11.	Comprehensive Income:

Comprehensive income for the twelve weeks ended July 24, 2005 and July 25, 2004, is as follows (in thousands):


	Twelve weeks ended
	July 24, 2005			July 25, 2004
Net income	$	1,860		$	489
Foreign currency translation adjustments		(168	)		86
Change in fair value of derivative instrument, net of tax		—			5
Amortization of pension liability, net of tax		56			51

Total comprehensive income	$	1,748		$	631

12.	New Accounting Standards:

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), which replaces SFAS No. 123, “Accounting for Stock-Based Compensation,” (“SFAS 123”) and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair value. The pro forma disclosures previously permitted under SFAS 123 will no longer be an alternative to financial statement recognition. The Company is required to adopt SFAS 123R in the first quarter of fiscal 2007. Under SFAS 123R, the Company must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at the date of adoption. The transition methods include prospective and retroactive adoption options. The prospective method requires that compensation expense be recorded for all unvested stock options at the beginning of the first quarter of adoption of SFAS 123R, while the retroactive method would restate prior periods to record compensation expense for all unvested stock options beginning with the first period restated. The Company is evaluating the requirements of SFAS 123R and expects that the adoption of SFAS 123R will have a material impact on the Company’s consolidated results of operations and earnings per share. The Company has not yet determined the method of adoption or the effect of adopting SFAS 123R.

In March 2005, the FASB issued FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations” (“FIN 47”). FIN 47 clarifies the term “conditional asset retirement obligation” as used in SFAS No. 143, “Accounting for Asset Retirement Obligations.” Conditional asset retirement obligation refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and/or method of settlement. FIN 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005. The Company does not expect that the adoption of FIN 47 will have a material impact on its financial position, results of operations or cash flows.

all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. Consequently, the Company will adopt the provisions of SFAS 154 for the fiscal year beginning May 1, 2006. The Company currently believes that adoption of the provisions of SFAS No. 154 will not have a material impact on its financial position, results of operations or cash flows.

In June 2005, the FASB Emerging Issues Task Force reached a consensus on Issue No. 05-6, “Determining the Amortization Period for Leasehold Improvements” (“EITF 05-6”). The guidance requires that leasehold improvements acquired in a business combination or purchased subsequent to the inception of a lease be amortized over the lesser of the useful life of the assets or a term that includes renewals that are reasonably assured at the date of the business combination or purchase. The guidance is effective for periods beginning after June 29, 2005. As this is consistent with the Company’s current policy, the adoption of EITF 05-6 will not have an impact on its financial position, results of operations or cash flows.

WORLDWIDE RESTAURANT CONCEPTS, INC. AND SUBSIDIARIES

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

MERGER AGREEMENT

certain other circumstances WRC would be required to reimburse PEP for its out-of-pocket expenses relating to the merger up to a maximum of $5.6 million. Under no circumstances will WRC be required to both pay a termination fee and reimburse PEP for its expenses.

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated, the Condensed Consolidated Statements of Income, of the Company expressed as a percentage of total revenues. Percentages may not add due to rounding.


	Twelve Weeks Ended
	July 24, 2005	July 25, 2004
	%	%
Revenues
Restaurant sales, net	97.3	97.5
Franchise revenues	2.7	2.5

Total revenues	100.0	100.0

Costs, expenses and other
Cost of sales (excluding depreciation and amortization reflected below)	33.3	33.7
Labor and related expenses	25.6	26.4
Other operating expenses	23.2	24.6
Depreciation and amortization	3.2	3.4
General and administrative expenses	9.5	8.6

Total operating costs, expenses and other	94.8	96.7

Operating income	5.2	3.3

Interest expense	0.3	0.9
Investment income	0.2	0.2

Income before income taxes and minority interest	5.1	2.7
Provision for income taxes	2.1	1.4
Minority interest expense	0.8	0.5

Net income	2.2	0.8

RESULTS OF OPERATIONS FOR THE TWELVE WEEKS ENDED JULY 24, 2005 VERSUS JULY 25, 2004

CONSOLIDATED OPERATIONS

Company-operated restaurant sales and franchised restaurant revenues, including franchise fees and royalties, represent the Company’s primary sources of revenue. Consolidated revenues for the quarter ended July 24, 2005 were $86.3 million compared to $82.0 million for the quarter ended July 25, 2004, an increase of $4.3 million or 5.3 percent. The increase is due to a $6.7 million increase in revenues from the international divisions partially offset by declines of approximately $2.3 million in the domestic divisions. The international division increase was due to an 8.0 percent increase in the average Australian dollar exchange rate that represents approximately $4.1 million in revenues, along with same store sales increases from KFC and Sizzler International. These increases were partially offset by a decrease in domestic revenues. Sizzler Domestic division revenues were lower due to having 11 fewer Company-owned restaurants open (of which seven were converted to franchise operations) partially offset by an increase in same store sales at Company-operated restaurants. Pat & Oscar’s revenues decreased due to having two fewer Pat & Oscar’s^{^®} restaurants open partially offset by increase in same store sales.

The following table shows the change from the prior year in same store sales for all restaurants open more than 15 months calculated in local currencies:


	FY 2005								FY 2006
	QTR 1		QTR 2		QTR 3		QTR 4		QTR 1
SIZZLER
Sizzler Domestic Company-owned	-2.2	%	-1.4	%	1.0	%	13.0	%	9.2	%
Sizzler International Company-owned	8.0	%	10.1	%	7.1	%	6.1	%	10.0	%
KFC	7.7	%	6.6	%	6.8	%	5.6	%	4.5	%
PAT & OSCAR’S	-12.1	%	-1.3	%	11.0	%	3.2	%	3.9	%

Consolidated operating expenses for the quarter ended July 24, 2005 were $81.8 million compared to $79.2 million for the quarter ended July 25, 2004, an increase of $2.6 million or 3.3 percent. The increase is primarily due to an 8.0 percent increase in the average Australian dollar exchange rate that represents $3.7 million of the increase and increased sales volumes from the Company’s international operations. The increase was partially offset due to having fewer restaurants operating domestically in the current quarter compared to the same period in the prior year.

Interest expense was $0.3 million for the quarter ended July 24, 2005 compared to $0.7 million for the quarter ended July 25, 2004, a decrease of $0.4 million or 60.2 percent due to lower debt balances. Interest expense includes interest on the Company’s debt with Westpac Banking Corporation in Australia (“Westpac”). Net investment income

was $0.2 million in the current quarter compared to $0.1 million in the same period of the prior year, an increase of $0.1 million primarily due to higher cash balances and increasing interest rates.

In the first quarter of fiscal year 2005, the AMG group exercised options to purchase 18.9 percent of the Company’s subsidiary, Collins Food Group (“CFG”). Minority interest of $0.7 million primarily represents their share of CFG’s net earnings (see Note 9 – Minority Interest and Australia Management Transaction, to the Condensed Consolidated Financial Statements). In addition, an amount of less than $0.1 million of minority interest expense represents the portion of the Company’s net earnings or losses that are attributable to the market or operating partnership equity interests of minority shareholders in the Company’s subsidiary, Pat & Oscar’s. Pat & Oscar’s has a partnership equity plan under which it may enter into partnership agreements with its regional managers or general managers. As of July 24, 2005, Pat & Oscar’s had one market partnership agreement with one regional manager covering 10 restaurants. There was one operating partnership agreement with one restaurant general manager.

The provision for income taxes has been computed based on management’s estimate of the annual effective income tax rate applied to income before taxes and was $1.8 million in the current quarter compared to $1.2 million in the same period of the prior year, an increase of $0.6 million. The increase is primarily due to higher income from the Company’s international division which does not benefit from the domestic net operating loss carryforward. The effective tax rate decreased to 41.5 percent from 55.6 percent compared to same period of the prior year. The decrease in the effective tax is the result of lower relative amount of pretax income being subject to tax during the fiscal quarter ended July 24, 2005.

DOMESTIC SIZZLER OPERATIONS

Total revenues for the quarter ended July 24, 2005 were $19.8 million compared to $22.0 million for the quarter ended July 25, 2004, a decrease of $2.2 million or 10.2 percent. Restaurant sales for the current quarter were $17.9 million compared to $20.3 million in the same period of the prior year. The restaurant sales decrease is due to a reduction of Company-owned locations when compared to the prior year partially offset by an increase in same store sales of 9.2 percent associated with successful promotions and newly remodeled facilities in several locations. The Company has several initiatives in place to continue increasing sales including television advertising programs, new menu items and a customer feedback system. There were 43 Company-operated Sizzler^® restaurants as of July 24, 2005 and 54 as of July 25, 2004. Since the first quarter of last year, the Company closed four locations due to unprofitable operations and sold seven locations to franchisees. From time to time, the Company may sell Company-operated restaurants to its franchisees or third parties, acquire restaurants from its franchisees, close existing restaurants or open new restaurants in accordance with the Company’s strategic objectives.

Franchise revenue was $1.9 million in the current quarter compared to $1.7 million in the same period of the prior year, an increase of $0.2 million or 7.5 percent. Franchise revenues were produced by 191 franchised Sizzler^® restaurants, including 16 in Latin America as of July 24, 2005 compared to 186 franchised Sizzler^® restaurants, including

15 in Latin America as of July 25, 2004. Since the first quarter of last year, three new franchise locations opened, seven Company-owned locations were converted to franchises and five locations were closed.

Prime costs, which include cost of sales (food) and labor, were $11.3 million in the current quarter compared to $13.2 million in the same period of the prior year, a decrease of $1.9 million. Prime costs decreased to 63.3 percent of net restaurant sales compared to 64.9 percent in the same period of the prior year. The decrease in prime cost percentage is primarily a result of lower labor percentages due to tighter operating controls and higher productivity resulting from higher same store sales.

Other operating expenses were $4.3 million for the current quarter compared to $5.5 million for the same period of the prior year, a decrease of $1.2 million or 20.8 percent. This decrease is primarily due to lower operating costs associated with operating fewer restaurants.

Management is continuing to implement its plan to enhance the Sizzler^® concept as an affordable, quick-casual dining concept offering a selection of grilled steak, chicken, seafood, pastas, sandwiches and specialty “Sizzling” platters as well as a salad bar with a selection of fresh fruit, soups and appetizers served in a casual dining environment at prices that are a good value. As part of the enhancement, the Company is continuing to test and implement various new entreès, side-dishes and re-designed menu boards that are accompanied by new marketing programs. The Company is substantially complete with its remodel program that includes an exterior upgrade featuring a stone portico, awnings and additional lighting. The new interior remodel features softer yellow and golden wood-tone finishes, contemporary lighting and a more open floor plan, cook line and order area. As of July 24, 2005, seven Company-operated locations were not remodeled.

PAT & OSCAR’S OPERATIONS

Pat & Oscar’s revenues were $11.8 million for the quarter ended July 24, 2005 compared to $11.9 million in the same period of the prior year, a decrease of $0.1 million or 0.9 percent. Sales reflect 21 restaurants operating during the current quarter compared to 23 restaurants in the same period of the prior year. The decrease in revenues is due to fewer restaurants operating in the current fiscal year compared to prior year partially offset by increased same store sales of 3.9 percent evidencing continued recovery from an E.coli incident that occurred in fiscal year 2004. The Company has several initiatives underway that are designed to increase brand awareness of the Pat & Oscar’s concept in new markets and grow customer counts in existing markets. The initiatives include cable television, print media and e-mail campaigns that offer coupons and discounts, local marketing programs and a catering sales force.

Prime costs, which include cost of sales (food and paper) and labor, were $7.1 million in the current quarter compared to $7.5 million in the same period of the prior year. Prime costs decreased to 60.0 percent of net sales compared to 63.6 percent in the same period of the prior year. The decrease in the prime cost percentage is due to lower food costs primarily associated with improved controls and increased sales of

higher margin products. Labor costs as a percentage of sales were also lower due to higher productivity resulting from higher same store sales.

Other operating expenses amounted to $3.5 million for the current quarter compared to $3.9 million for the same period in the prior year, a decrease of $0.4 million or 11.0 percent primarily due to changing to marketing initiatives that have a lower cost and to having two fewer restaurants operating.

INTERNATIONAL SIZZLER OPERATIONS

Total revenues for the quarter ended July 24, 2005 were $15.2 million compared to $12.8 million for the quarter ended July 25, 2004, an increase of $2.4 million or 19.0 percent. This increase was driven by an 10.0 percent increase in same store sales for company-owned restaurants and an 8.0 percent increase in the average Australian dollar exchange rate. The increase in same store sales is due to increased customer counts associated with successful marketing promotions and a higher average guest check due in part to a price increase. Restaurant sales for the current quarter were $14.8 million compared to $12.5 million in the same period of the prior year, produced by 29 restaurants operating during the current quarter and comparable prior year quarter. Franchise revenues were $0.4 million in the current quarter compared to $0.3 million in the same period of the prior year, an increase of $0.1 million or 24.2 percent primarily due to increased exchanged rates and to having more franchised locations. Franchise revenues were produced by two joint venture restaurants and 45 international franchised Sizzler^® locations, compared to two joint venture restaurants and 38 international franchised locations in the same period of the prior year. Since the first quarter of last year, the Company opened seven franchised locations. International franchised restaurants are located in Japan, Taiwan, Thailand, South Korea, Singapore and China.

Prime costs were $9.8 million in the current quarter compared to $8.2 million in the same period of the prior year. Prime costs, which include cost of sales (food) and labor, decreased to 66.0 percent of sales compared to 66.1 percent in the same period of the prior year. Prime costs as a percent of sales decreased due to lower food cost percentage resulting from menu price increases implemented since the first quarter of fiscal year 2005 that passed on to customers wage and certain commodity price increases. The decrease was partially offset by higher labor costs associated with higher hourly wages.

Other operating expenses were $3.4 million for the current quarter compared to $3.0 million for the same period of the prior year, an increase of $0.4 million or 14.7 percent primarily due to a higher average Australian dollar exchange rate and to costs necessary to support increased sales levels.

Management is continuing to reposition the Sizzler^® concept in Australia by implementing the upgraded food quality and cooking methods consistent with those implemented in the Company’s domestic operations. The Company has temporarily halted plans to roll out an interior remodel pending completion of the merger with PEP (see Note 2 – Merger Agreement, to the Condensed Consolidated Financial Statements).

KFC OPERATIONS

Revenues for the quarter ended July 24, 2005 were $39.5 million compared to $35.2 million for the quarter ended July 25, 2004, an increase of $4.3 million or 12.2 percent. This increase is due to a 4.5 percent increase in same store sales and an 8.0 percent increase in the average Australian dollar exchange rate. The same store sales increase was driven by successful marketing promotions featuring various snacks combined with family value offerings. The increase is also attributed to an increase in the average guest check due to menu price increases and customer trade-ups to large value meals. Sales reflect 112 restaurants operating during the current quarter and comparable prior year quarter.

Prime costs were $22.7 million in the current quarter compared to $20.3 million in the same period of the prior year. Prime costs, which include cost of sales (food and paper) and labor, decreased to 57.3 percent of sales compared to 57.5 percent for the same period of the prior year. The prime cost percent of sales decreased due to lower labor and food costs as a percent of sales, primarily resulting from menu price increases.

Other operating expenses were $9.2 million for the current quarter compared to $8.0 million for the same period of the prior year, an increase of $1.2 million or 13.9 percent. The increase was primarily due to a higher average Australian dollar exchange rate and costs necessary to support the increased sales levels.

Management is continuing its facilities upgrade program in accordance with the terms of the merger agreement with Pacific Equity Partners (“PEP”). During the current quarter, the Company completed two remodels. The timing and extent of future remodels are subject to the terms of the merger agreement (see Note 2 – Merger Agreement, to the Condensed Consolidated Financial Statements).

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management believes that the critical accounting policies discussed under the caption “Critical Accounting Policies and Estimates” in Item 7 of the Company’s Annual Report on Form 10-K for the year ended April 30, 2005, which discussion is hereby incorporated by reference herein, remain appropriate.

CONTRACTUAL OBLIGATIONS

Management believes that there have not been any material changes to the Company’s contractual obligations since those disclosed on the Company’s Annual Report on Form 10-K for the year ended April 30, 2005.

LIQUIDITY AND CAPITAL RESOURCES

Working Capital

The Company’s principal source of liquidity is cash flows from operations, which was $4.4 million for the first quarter of fiscal year 2006 compared to $2.8 million for the same period of the prior year. The increase is due to a net increase in net income adjusted for depreciation and amortization expense and other non-cash items of $1.4 million and to a net decrease in cash used by operating assets and liabilities of $0.2 million.

The Company’s working capital at July 24, 2005 was $5.9 million including cash, cash equivalents and restricted cash totaling $41.6 million, of which $13.8 million was held by the Company’s International division. In addition, the Company self-insures a significant portion of its workers’ compensation, general liability and health insurance plans. The workers’ compensation and general liability insurance policies require the Company to set aside cash reserves sufficient to fund existing and estimated future claims. As of July 24, 2005, the Company has letters of credit totaling $5.0 million for this purpose, which are supported by a corresponding amount of restricted cash. In addition, the Company has restricted cash related to employee benefits. At April 30, 2005, the Company had working capital of $2.8 million. The increase in working capital is primarily due to cash provided by operations partially offset by funds expended for remodel programs and pay down of debt. The Company’s current ratio was 1.1 at July 24, 2005 and 1.0 at April 30, 2005.

Based on current operations and anticipated sales and franchise growth, management believes that cash and cash equivalents and cash flow from operations will be sufficient to meet all of the Company’s current debt service requirements, capital expenditure requirements and working capital needs for at least the next 12 months. Changes in operating plans, changes in expansion plans, lower than anticipated sales, increased expenses, non-compliance with debt covenants, economic deterioration or other events may cause the Company to seek additional financing sooner than anticipated. Additional financing may not be available on acceptable terms, or at all. Failure to obtain additional financing as needed could have a material adverse effect on the Company’s business, financial position and results of operations.

Capital Expenditures

Capital expenditures were $1.3 million for the quarter ended July 24, 2005, which were for remodels and improvements of existing restaurants and improvements across all divisions.

On April 28, 2005, the Company announced that it had entered into a definitive merger agreement with affiliates of an Australian private equity firm, PEP, pursuant to which PEP and its affiliates agreed to acquire all of the outstanding capital stock of the Company. See Note 2 – Merger Agreement, to the Condensed Consolidated Financial Statements. As part of the merger agreement, the Company has committed to limit capital expenditures, excepting certain remodels of KFC^® restaurants, to $0.5 million during the pendency of this transaction; therefore all plans to expand the Company’s operations through additional capital investment are in abeyance pending the outcome of the transaction.

Debt

The Company has a credit facility (“Credit Facility”) with Westpac Banking Corporation in Australia (“Westpac”). The Credit Facility is subject to certain financial covenants and restrictions such as interest coverage ratios, profitability ratios and others which management believes are customary for a loan of this type. The maximum principal commitment under the Credit Facility is $30.6 million ($40.0 million in Australian dollars) and was drawn down in full in fiscal year 2004. The debt is collateralized by the Company’s Australian subsidiaries’ assets, undertakings, intellectual property, unlimited cross-guarantees and certain negative pledge agreements. The Credit Facility provides for a five-year term expiring July 31, 2008 at an interest rate equal to the Australia inter-bank borrowing bid rate (5.6 percent at July 24, 2005), plus a 2.3 percent margin. At July 24, 2005, the Company’s unpaid principal balance on the Credit Facility was approximately $8.2 million ($10.7 million in Australian dollars).

Capital lease and mortgage obligations were $5.3 million at July 24, 2005.

The Company is in compliance with all debt covenants and restrictions as of July 24, 2005 and expects to be in compliance for the foreseeable future.

Australian Management Options

In accordance with the Company’s stock option plan for its Australian Management Group (“AMG”), at the end of the first quarter of fiscal year 2005, 4,064,000 options representing 19.0 percent of common stock of CFG were exercised by the AMG. During the second quarter of fiscal year 2005, an additional 23,000 options were exercised and the remaining 49,000 options expired. During the third quarter of fiscal year 2005, the Company re-purchased 40,000 shares from certain AMG members and with this share repurchase and the expiration of certain options the AMG owns approximately 18.9 percent of Collins Food Group (“CFG”) as of July 24, 2005. No changes in CFG ownership occurred in the fourth quarter of fiscal year 2005 and first quarter of fiscal year 2006. Net income for the first quarter of fiscal year 2006 reflects minority interest of $0.7 million compared to $0.4 million in the first quarter of fiscal year 2005.

The AMG shareholder’s agreement includes a put option whereby the AMG members may sell their CFG shares back to the Company at fair market value on a cumulative basis at the rate of 1/6^th of the shares per year commencing August 20, 2003. The agreement further provides that the AMG members may sell or transfer their shares of CFG among themselves, subject to a first right of refusal, held by WRC, to purchase 1/3^rd of any such shares traded. In addition, WRC will have the right to buy the AMG shares from any terminated AMG member. In accordance with Emerging Issues Task Force (“EITF”) D-98, “Classification and Measurement of Redeemable Securities,” the Company has classified the CFG minority interest outside of stockholders’ equity at its fair value as of the balance sheet date. The fair market value per share of CFG shares on July 24, 2005 was estimated to be Australian $10.48 (U.S. $8.02 at July 24, 2005). As of July 24, 2005, approximately $4.5 million was received by the Company for exercised stock options. The difference between the fair value of the minority interest over its carrying value of $24.9 million is reflected as a reduction of additional paid-in capital.

Consolidated Variable Interest Entities

The Company consolidates the results of four domestic Sizzler cooperative advertising funds that are variable interest entities (“VIE’s”). The cooperative advertising funds consist of the Sizzler National Advertising Fund and three local advertising cooperative funds. The advertising funds create and administer the Company’s advertising programs for domestic Company-operated and franchised restaurants. Each of the funds is a separate non-profit association with all the proceeds segregated and managed by a third-party bookkeeping company. The group of funds has been reported in the Company’s condensed consolidated balance sheets as of July 24, 2005 and April 30, 2005, on a net basis, and is included within current assets and current liabilities. The funds are reported as of the latest practicable date, which is July 24, 2005. The advertising funds administer and disburse funds for creative and marketing media for the domestic Company-operated and franchised restaurants. The VIE’s had no impact on the Company’s Condensed Consolidated Statements of Income. There are no cooperative advertising funds for the Sizzler International division.

New Accounting Standards

clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005. The Company does not expect that the adoption of FIN 47 will have a material impact on its financial position, results of operations or cash flows.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB Statement No. 3” (“SFAS 154”). This Statement replaces APB Opinion No. 20, “Accounting Changes,” and FASB Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements,” and changes the requirements for the accounting for and reporting of a change in accounting principle. This Statement applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. Consequently, the Company will adopt the provisions of SFAS 154 for the fiscal year beginning May 1, 2006. The Company currently believes that adoption of the provisions of SFAS No. 154 will not have a material impact on its financial position, results of operations or cash flows.

ITEM 3:

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to the following market risks: interest rate risk, foreign currency exchange rate risk and commodity price risk. Management believes that the market risk associated with our market risk sensitive instruments as of July 24, 2005 is the same as described Item 7A of the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2005, which description is hereby incorporated by reference herein, except as follows:

Interest rate risk

The Company has a credit facility (“Credit Facility”) with Westpac Banking Corporation in Australia (“Westpac”). The Credit Facility is subject to certain financial covenants and restrictions such as interest coverage ratios, profitability ratios and others which management believes are customary for a loan of this type. The maximum principal commitment under the Credit Facility is $30.6 million ($40.0 million in Australian dollars) and was drawn down in full in fiscal year 2004. The debt is collateralized by the Company’s Australian subsidiaries’ assets, undertakings, intellectual property, unlimited cross-guarantees and certain negative pledge agreements. The Credit Facility provides for a five-year term expiring July 31, 2008 at an interest rate equal to the Australia inter-bank borrowing bid rate (5.6 percent at July 24, 2005), plus a 2.3 percent margin. At July 24, 2005 the Company’s unpaid principal balance on the Credit Facility was approximately $8.2 million ($10.7 million in Australian dollars).

To hedge the Company’s exposure to interest rate increases on this loan, the Company is party to an interest rate cap contract that prevents the Company’s interest rate (excluding margin) from exceeding 5.7 percent, in which case the Company would receive the difference between the contract rate and the actual interest rate. At July 24, 2005, the notional amount of the interest rate cap was approximately $1.8 million ($2.3 million in Australian dollars), which covered approximately 21.9 percent of the loan principal outstanding and expires on January 1, 2006. At July 24, 2005 the fair value of the interest rate cap contract is zero.

In addition, the Company is party to an interest rate swap contract to convert part of its variable interest exposure to a fixed rate of 5.7 percent (excluding margin). At July 24, 2005, the notional amount of the interest rate swap covered was approximately $1.8 million ($2.3 million in Australian dollars), which covered approximately 21.9 percent of the loan principal outstanding and expires on January 1, 2006. At July 24, 2005 the fair value of the interest rate cap contract is zero.

The Company calculated that a hypothetical 10.0 percent change in interest rates, as defined above, in the near-term would change interest expense by less than $0.1 million for a one-year period.

Foreign Currency Exchange Rate Risk

The Company’s foreign currency exchange rate risk primarily relates to its investment in its Australian operations whereby changes in the exchange rate impact the Company’s

net investment. The Company has mitigated the risk through a bank loan payable in Australian dollars, which reduces the Company’s exposure by decreasing its net investment.

ITEM 4:

CONTROLS AND PROCEDURES

a) Evaluation of Disclosure Controls and Procedures

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

In connection with the preparation of this Quarterly Report on Form 10-Q, as of July 24, 2005, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based on that evaluation our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this Form 10-Q report to ensure that the 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 the Securities and Exchange Commission’s rules and forms, and to ensure that the information required to be disclosed by us in reports that we file or submit under the Exchange Act 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.

(b) Changes in Internal Control and Remediation of Material Weaknesses

As reported in Item 9A of our Annual Report on Form 10-K as of April 30, 2005, the Company concluded that its internal controls over financial reporting were not effective as of the end of the period covered by that report. That conclusion resulted from the existence of deficiencies in our internal control associated with the Company’s control environment, its evaluation, documentation and application of accounting policies and procedures, the identification and accounting for non-routine transactions, income tax accounting, self-insurance accruals, commitments and contingencies, preparation of account analyses, account summaries and account reconciliations, inventory and payroll costs. These deficiencies constituted material weaknesses in the Company’s internal control.

The above internal control weaknesses were not remediated in the first quarter of fiscal year 2006 because the Company anticipates that the planned merger with Pacific Equity Partners (“PEP”) will be consummated no later than September 30, 2005. Furthermore, PEP has indicated its intention to substantially change the financial reporting process, internal controls, and structure of the Company after the merger is completed, including relocating the company’s headquarters to Australia, reforming it as an Australian-based company, adopting international accounting principles and de-listing the Company from the New York Stock Exchange. Accordingly, the Company would no longer be subject to the requirements of the Sarbanes-Oxley Act. However, the Company intends to add additional technical and accounting resources during the second fiscal quarter of 2006 to assist in remediating the material weaknesses discussed previously, in the event that the merger is not completed as planned.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this document may constitute forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. Such statements are based upon information, expectations, estimates, and projections regarding the Company, and the industry and markets in which the Company operates, and management’s assumptions and beliefs relating thereto. Words such as “will,” “plan,” “expect,” “anticipated,” “remain,” “intend,” “estimate,” “approximate,” variations thereof, and similar expressions are intended to identify such statements as forward-looking statements. These statements speak only as of the date on which they are made, are not guarantees of future performance, and involve certain risks, uncertainties and assumptions that are difficult to predict or verify. Therefore, actual outcomes and results could materially differ from what is expressed, implied or forecast in such forward-looking statements. These statements may include, but are not limited to, statements regarding: (a) anticipated consummation of planed merger with PEP; (b) the continuing of the repositioning program to a quick casual concept to enhance the Sizzler^{^®} brand in the U.S.; (c) the possibility that six Sizzler^® locations in the United States will either be closed or sold to franchisees or third parties; (d) the continuing of the repositioning of the Sizzler^® concept in Australia; (e) the absence of a material adverse impact on the Company or its financial position, results of operations or cash flows from any of the legal and/or other contingencies reported herein; (f) the absence of a long-term material adverse impact on the Company’s financial position, results of operations or cash flows arising from the San Diego area E.coli incident; (g) the sufficiency of the Company’s cash flow from operations to meet its debt service and working capital requirements; and (h) estimates of the Company future capital expenditures and whether any future borrowings will be required.

The Company cautions that these statements are qualified by important factors that could cause results to differ materially from those reflected in the forward-looking statements contained herein. Such factors include, but are not limited to: (a) the Company’s ability to satisfy the stockholder approval and other conditions to closing the planned merger with PEP; (b) the extent to which the Company continues to consider new U.S. Sizzler^{^®} marketing and menu programs to be a successful means of repositioning the concept to quick casual while increasing sales and improving customer service; (c) the Company’s ability to implement upgraded food quality and

cooking methods in Sizzler^® restaurants in Australia; (d) Pat & Oscar’s ability to reverse the sale declines in its Pat & Oscar’s^® restaurants attributable to the San Diego area E.coli incident; (e) the Company’s ability to manage effectively its costs and expenses and legal contingencies and meet all of its debt service requirements and working capital needs; and (f) other risks and factors as detailed from time to time in the Company’s SEC reports, including Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and Annual Reports on Form 10-K. Readers should take these factors into account in evaluating any such forward-looking statements. The Company undertakes no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, unless required to do so by applicable securities laws.

WORLDWIDE RESTAURANT CONCEPTS, INC. AND SUBSIDIARIES

PART II - OTHER INFORMATION

ITEM 1:

LEGAL PROCEEDINGS

ITEM 6:

EXHIBITS


		Exhibits:

3.1		Bylaws of Registrant, as amended April 23, 2003, incorporated herein by reference to Exhibit 3.3 to the Registrant’s Form 10-K report for fiscal year ended April 30, 2003.

31.1		Certification by Charles L. Boppell, President and Chief Executive Officer of the Registrant, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification by A. Keith Wall, Vice President and Chief Financial Officer of the Registrant, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		**Certification by Charles L. Boppell, President and Chief Executive Officer of the Registrant, pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		**Certification by A. Keith Wall, Vice President and Chief Financial Officer of the Registrant, pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

These certifications are not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to liability under that section. These certifications will not be deemed to be incorporated by reference in any filings under the Securities Act of 1933 or the Securities Act of 1934, except to the extent that the registrants specifically incorporates them by reference.

SIGNATURES

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


				Worldwide Restaurant Concepts, Inc. Registrant

Date: September 16, 2005				/s/ Charles L. Boppell
				Charles L. Boppell
				President, Chief Executive Officer and Director

Date: September 16, 2005				/s/ A. Keith Wall
				A. Keith Wall
				Vice President and Chief Financial Officer (principal financial and chief accounting officer)

Date: September 16, 2005				/s/ Mary E. Arnold
				Mary E. Arnold
				Vice President and Controller

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Worldwide Restaurant Concepts (SZ) Inactive 10-Q2006 Q1 Quarterly report

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