UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

(Amendment No. 1)

(Mark One)

For The Quarterly Period Ended April 18, 2004

OR

For The Transition Period From              To             

Commission file number 0-49916

RED ROBIN GOURMET BURGERS, INC.

(Exact name of registrant as specified in its charter)

(303) 846-6000

(Registrant’s telephone number, including area code)

________________________________________________________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

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.    x  Yes    ¨  No

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

As of May 18, 2004, there were 16,020,942 outstanding shares of the registrant’s common stock.

Explanatory Note

The purpose of this amendment on Form 10-Q/A to the Quarterly Report on Form 10-Q of Red Robin Gourmet Burgers, Inc. for the period ended April 18, 2004 is to restate our condensed consolidated financial statements as of April 18, 2004 and for the sixteen weeks ended April 18, 2004 and April 20, 2003, and related disclosures, as described in Note 2 to the condensed consolidated financial statements. Additional information about the decision to restate these financial statements can be found in our Current Report on Form 8-K, filed with the Securities and Exchange Commission (“SEC”) on March 1, 2005.

No attempt has been made in this Form 10-Q/A to update other disclosures presented in the original report on Form 10-Q, except as required to reflect the effects of the restatement. The Form 10-Q/A does not reflect events occurring after the filing of the Form 10-Q or modify or update those disclosures, including the exhibits to the Form 10-Q affected by subsequent events. Accordingly, this Form 10-Q/A should be read in conjunction with our filings made with the SEC subsequent to the filing of the original Form 10-Q, including any amendments to those filings. The following items have been amended as a result of the restatement:

Part I - Item 1 - Financial Statements

Part I - Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

Part I - Item 4 - Controls and Procedures

2

RED ROBIN GOURMET BURGERS, INC.

TABLE OF CONTENTS

3

PART I — FINANCIAL INFORMATION

RED ROBIN GOURMET BURGERS, INC.

Condensed Consolidated Balance Sheets

(In thousands, except share amounts)

(unaudited)

See Notes to Condensed Consolidated Financial Statements.

4

RED ROBIN GOURMET BURGERS, INC.

Condensed Consolidated Statements of Income

(In thousands, except per share data)

(Unaudited)

See Notes to Condensed Consolidated Financial Statements.

5

RED ROBIN GOURMET BURGERS, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

See Notes to Condensed Consolidated Financial Statements.

6

RED ROBIN GOURMET BURGERS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands)

(Unaudited)

See Notes to Condensed Consolidated Financial Statements.

7

RED ROBIN GOURMET BURGERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Red Robin Gourmet Burgers, Inc. and its subsidiaries (“Red Robin” or “the Company”), is a casual dining restaurant chain, which as of April 18, 2004 operated 122 company-owned restaurants located in 15 states from facilities that are owned or leased. The Company also sells franchises and receives royalties from the operation of franchised Red Robin^® restaurants. As of April 18, 2004, there were 110 additional restaurants operating under franchise or license agreements in 22 states and two Canadian provinces. Red Robin also owns and leases to third parties certain land, buildings and equipment.

The accompanying interim condensed consolidated financial statements are unaudited but, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair presentation of the results for such periods. The results of operations for any interim period are not necessarily indicative of results for the full year. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K.

The Company’s quarter which ended April 18, 2004 is referred to as first quarter 2004 or the sixteen weeks ended April 18, 2004, and its quarter which ended April 20, 2003 is referred to as first quarter 2003 or the sixteen weeks ended April 20, 2003. For fiscal year 2004 and 2003, the first quarters included 16 weeks and the second, third and fourth quarters will each include 12 weeks.

The condensed consolidated financial statements include the accounts of Red Robin and its wholly owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Some of the more significant estimates included in the preparation of the financial statements pertain to franchise receivables, allowances for doubtful accounts, fixed asset lives, valuation of long-lived assets, impairment of goodwill and other intangible assets, income taxes and self-insurance and workers’ compensation reserves. Actual results could differ from those estimates.

On February 7, 2005, the Office of the Chief Accountant of the Securities and Exchange Commission (“SEC”) issued a letter to the American Institute of Certified Public Accountants expressing its views regarding certain operating lease-related accounting issues and their application under GAAP. In light of this letter, the Company’s management initiated a review of its lease accounting and determined that its previous methods of accounting for rent holidays and for leasehold improvements funded by landlord incentives or allowances under operating leases (“tenant improvement allowances”) were not in accordance with GAAP. As a result, the accompanying condensed consolidated financial statements as of April 18, 2004 and for the sixteen weeks ended April 18, 2004 and April 20, 2003 (“financial statements”) have been restated from the amounts previously reported.

Historically, when accounting for leases with renewal options, the Company recorded rent expense on a straight-line basis over the initial non-cancelable lease term, with the term commencing when rent payments began. In most instances, the period when rent payments began coincided with the date the Company’s restaurants opened. This generally had the effect of excluding the build-out period for restaurants from the calculation of the period over which rent was expensed, though the point where the Company became legally obligated for future rent payments had been reached. The Company generally depreciated its buildings, leasehold improvements and other long-lived assets on those properties over a period that included both the initial non-cancelable lease term and all option periods provided for in the lease (or the useful life of the assets if shorter) up to a maximum period of twenty years. However, in certain instances the Company amortized leasehold improvements over only the initial non-cancelable lease term. Further, the Company’s historical consolidated balance sheets had reflected the unamortized portion of tenant improvement allowances as a reduction of the related leasehold improvements and the subsequent

8

RED ROBIN GOURMET BURGERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

amortization of those tenant improvement allowances as a reduction of depreciation and amortization expense in its consolidated statements of income over the period that began when the allowances were received and ended at the end of the related lease term.

The Company has restated its financial statements to recognize rent expense on a straight-line basis over the expected lease term, including cancelable option periods where failure to exercise such options would result in an economic penalty. The lease term commences on the date that the Company becomes legally obligated for future rent payments, which coincides with the date on which the landlord delivers the property to the Company for development and the Company waives contract contingencies. The Company’s restated financial statements include rental expenses in pre-opening costs for the period from inception through the date each restaurant opens. This had the effect of increasing pre-opening costs and decreasing restaurant occupancy costs.

The Company also has restated its financial statements to recognize tenant improvement allowances as deferred rent which is amortized over the lease term as a reduction of rent expense. This had the effect of increasing property and equipment, net and deferred rent payable in the condensed consolidated balance sheet and increasing depreciation and amortization expense and decreasing restaurant occupancy costs in the condensed consolidated statements of income. In addition, the Company has restated depreciation and amortization expenses in the financial statements to correct instances where the period of amortization of leasehold improvements did not match the lease term (or the useful life of the assets if shorter) up to a maximum period of twenty years. This led to an increase in property and equipment, net and a decrease in depreciation and amortization expense in the financial statements.

In addition, the Company’s restated financial statements also reflect certain immaterial adjustments to reflect corrections to the condensed consolidated balance sheet classification of deferred tax assets and liabilities, accrued liabilities and other non-current liabilities and corrections to the condensed consolidated statements of income to reflect previously unrecorded activity related to a provision of the Company’s fountain beverage agreement.

Finally, the Company’s restated financial statements for the sixteen weeks ended April 18, 2004, include immaterial adjustments to increase depreciation and amortization expense and decrease property and equipment, net to correct errors for previously unrecorded depreciation that were identified by management during the fourth quarter of 2004.

The cumulative effect of this restatement resulted in a decrease in retained earnings of $1.5 million as of April 18, 2004, and decreases in net income of $259,000 and $114,000 for the sixteen weeks ended April 18, 2004 and April 20, 2003, respectively.

Following is a summary of the significant effects of the restatement on the Company’s condensed consolidated balance sheet as of April 18, 2004 as well as the effects of these changes on the Company’s condensed consolidated statements of income for the sixteen weeks ended April 18, 2004 and April 20, 2003 (in thousands, except per share data):

9

RED ROBIN GOURMET BURGERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Employee Stock Purchase Plan—The Company maintains an Employee Stock Purchase Plan (“2002 ESPP”) under which eligible employees may voluntarily contribute up to 15% of their salary, subject to limitations, to purchase common stock at a price equal to 85% of the fair market value of a share of the Company’s common stock on the first day of each offering period, or 85% of the fair market value of a share of the Company’s common stock on the last day of each offering period, whichever amount is less. Generally, all of the Company’s officers and employees who have been employed by the Company for at least one year and who are regularly scheduled to work more than twenty hours per week are eligible to participate in the 2002 ESPP. The 2002 ESPP operates in successive six-month periods, or offering periods, commencing on each January 1 and July 1, which began on January 1, 2003. A total of 300,000 shares of common stock are currently reserved for issuance under the plan. During first quarter 2004, a total of 8,124 shares of common stock were issued in connection with the July 1 through December 31, 2003 offering period. As of April 18, 2004, a total of 282,614 remained available for future issuance under the plan.

Employee Stock Incentive Plans—During first quarter 2004, a total of 342,513 employee stock options were granted under the Company’s 2002 Stock Incentive Plan (“2002 Stock Plan”) at a weighted-average exercise price of $26.81 per share, which was equal to the closing market price on the date of grant. The weighted average fair value of options at their grant date during the first quarter ended April 18, 2004, was $11.37. The fair value of stock options granted was estimated using the Black-Scholes multiple option-pricing model with the following weighted average assumptions:

10

RED ROBIN GOURMET BURGERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company has adopted the disclosure provisions of Statement of Financial Accounting Standards (“SFAS”) No. 148, Accounting for Stock-Based Compensation -Transition and Disclosure, an amendment of Financial Accounting Standards Board Statement No. 123. The Statement requires prominent disclosures in both annual and interim financial statements regarding the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company accounts for stock-based compensation awards under the intrinsic method of Accounting Principles Board Opinion No. 25, which requires compensation cost to be recognized based on the excess, if any, between the quoted market price of the stock at the date of grant and the amount an employee must pay to acquire the stock. As a result, pre-tax compensation expense of $19,900 was recognized during the first quarter of each period presented for certain options granted during 2002 with intrinsic value on the date of grant. The following table illustrates the effect on net income and earnings per share if the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, had been applied (in thousands, except per share data):

Borrowings consist of the following (in thousands):

As of April 18, 2004, borrowings outstanding under the revolving credit agreement bore interest at approximately 3.2%.

11

RED ROBIN GOURMET BURGERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Results of franchise operations consist of the following (in thousands):

The Company presents both basic and diluted earnings per share amounts. Basic earnings per share amounts are calculated by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted earnings per share amounts are calculated based upon the weighted-average number of common and potentially dilutive common shares outstanding during the period. Potentially dilutive shares are excluded from the computation in periods in which they have an anti-dilutive effect. Diluted earnings per share reflect the potential dilution that could occur if holders of options exercised their holdings into common stock. During the sixteen weeks ended April 18, 2004 and April 20, 2003, respectively, a total of 74,700 and 336,200 weighted-average stock options outstanding were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive for the periods presented. The Company uses the treasury stock method to calculate the impact of outstanding stock options. The computations for basic and diluted earnings per share are as follows (in thousands, except share data):

Unvested shares issued upon early exercise, as described in Note 7, are not considered outstanding for purposes of computing basic earnings per share because the employee is not entitled to the rewards of ownership. However, these unvested shares are included as potentially dilutive for purposes of estimating diluted net income per share. Unvested shares issued upon early exercise totaled 22,989 as of April 18, 2004, and 103,448 as of April 20, 2003.

In April 2002, the Company’s board of directors approved the early exercise of options to purchase up to 775,862 shares of common stock held by certain executive officers under the Company’s 2000 Stock Plan and the exercise of options to purchase an additional 146,552 shares of the Company’s common stock related to fully vested options held by certain executive officers under our 1990 and 1996 Stock Plans. These shares were issued in exchange for full recourse

12

RED ROBIN GOURMET BURGERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

notes totaling $5.4 million, bearing interest at 4.65% per annum with maturity dates ranging from June 26, 2006 to January 29, 2012, or earlier if employment terminates. Shares issued upon early exercise of options are subject to a right of repurchase by the Company at the lower of fair value or issuance price until vested. The notes are recorded as a reduction of stockholders’ equity and interest income of $81,200 and $77,100 has been recognized in the first quarters of 2004 and 2003, respectively. As of April 18, 2004 and December 28, 2003, the number of fully vested early exercised options totaled 752,873 and 741,379, respectively, and unvested early exercise options totaled 22,989 and 34,483, respectively.

During the first quarter of 2004, the Company’s chief financial officer repaid $51,300 of principal related to his $600,000 full recourse note and $12,300 of accrued interest thereon. There have been no other repayments related to these officer notes since their inception. As a result, the outstanding principal balance of the remaining full recourse notes as of April 18, 2004 was $5.3 million.

The Company’s chief executive officer has two $300,000 notes payable to the Company, collateralized by shares of the Company’s common stock. The notes were issued in June 2000 and May 2001 in connection with an employment agreement, and bear interest, compounded annually, of 6.62% and 5.07%, respectively. The notes mature in May 2005, at which time all principal and interest becomes due and payable to the Company. These notes, and the related interest thereon, are recorded as a reduction of stockholders’ equity. During the first quarter of 2004 and 2003, the Company recognized interest income of $13,100 and $12,900, respectively, on these notes.

The Company’s chief executive officer and its senior vice president of operations own 31.0% and 7.0%, respectively, of Mach Robin, LLC (“Mach Robin”), which operates Red Robin restaurants under a franchise agreement. The Company recognized royalty income from Mach Robin in the amounts of $280,300 and $279,200 in the first quarters of 2004 and 2003, respectively. Prior to January 2004, an entity controlled by Mach Robin had a 40.0% ownership interest in, and a right to share up to 60.0% of the profits of Red Robin Restaurants of Canada, Ltd (“RRRC”), which operated Red Robin restaurants in two Canadian provinces under franchise agreements. The Company recognized royalty income from RRRC of $278,100 and $227,900 in the first quarters of 2004 and 2003, respectively. In January 2004, an entity controlled by Mach Robin acquired the remaining 60% ownership interest in RRRC that it did not already hold after the Company rejected its right of first refusal. The franchise agreements held by RRRC remain in place and RRRC is now controlled entirely by Mach Robin, or its subsidiaries.

In December 2003, the FASB issued FASB Interpretation No. (“FIN”) 46R, Consolidation of Variable Interest Entities an Interpretation of ARB No. 51. This interpretation, which replaces FASB Interpretation No. 46, Consolidation of Variable Interest Entities, clarifies the application of Accounting Research Bulletin No. 51, Consolidated Financial Statements, to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. This interpretation is required in financial statements for periods ending after March 15, 2004 for those companies that have yet to adopt the provisions of FIN 46. The Company has no variable interest in variable interest entities and, therefore, no entities were consolidated with the Company’s financial statements as a result of adopting FIN 46R.

13

Organization of Information

Management’s Discussion and Analysis of Financial Condition and Results of Operations provides a narrative on our financial performance and condition that should be read in conjunction with the accompanying condensed consolidated financial statements. This discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain risk factors including, but not limited to, those discussed in “Risk Factors” under Item 1 and elsewhere in our annual report on Form 10-K. This section includes the following discussions:

Restatement of Previously Issued Financial Statements

As discussed in Note 2, the condensed consolidated financial statements included in this quarterly report on Form 10-Q/A have been restated. The accompanying Management’s Discussion and Analysis gives effect to the restatement.

Overview

Red Robin is a casual dining restaurant chain focused on serving an imaginative selection of high quality gourmet burgers in a family-friendly atmosphere. We currently own and operate 122 casual dining restaurants under the name “Red Robin^® America’s Gourmet Burgers & Spirits^®” in 15 states and have 112 additional restaurants operating under franchise or license agreements in 24 states and two Canadian provinces.

During first quarter 2004, we opened seven new company-owned restaurants and our franchisees opened seven new restaurants.

Our fiscal years ended December 26, 2004 and December 28, 2003 are referred to as 2004 and 2003, respectively.

Comparable Restaurant Sales

Our company-owned comparable restaurant sales for first quarter 2004 increased 8.4% over first quarter 2003. We reflect restaurants as comparable in the first period following five full quarters of operations.

14

Results of Operations

Our operating results for each fiscal year presented below are expressed as a percentage of total revenues below, except for the components of restaurant operating costs, which are expressed as a percentage of restaurant revenues:

First Quarter 2004 (Sixteen Weeks) compared to First Quarter 2003 (Sixteen Weeks)

Total revenues. Total revenues increased by $23.8 million, or 25.7%, to $116.7 million, from $92.9 million, due primarily to a $23.1 million increase in restaurant revenues. The increase in restaurant revenues was due to $12.3 million in additional revenues from the non-comparable restaurants that we opened in 2002 and 2003, $7.1 million from comparable restaurant sales increases of 8.4%, $3.0 million of revenues from seven new restaurants opened during first quarter 2004, and $682,000 of additional revenues from the restaurant we assumed operations of during April 2003. The increase in comparable restaurant sales was driven by an increase in guest counts of 7.1% and an increase in the average guest check of 1.3%.

Franchise royalties and fees increased $723,600, or 28.0%, to $3.3 million from $2.6 million. Franchise royalties increased $548,800, or 21.8%, to $3.1 million, from $2.5 million, due primarily to an increase in royalties generated from the 17 franchise restaurants opened in 2003 and 2004. Overall, our franchisees reported that comparable sales for U.S. and Canadian franchise restaurants increased 5.6% and 4.5%, respectively. Franchise fees increased $174,800, or 72.2%, to $242,100, from $67,300, due to the fact that seven franchise restaurants were opened in first quarter 2004 compared to two in first quarter 2003.

Cost of sales. Cost of sales increased by $5.8 million, or 27.5%, to $26.8 million, from $21.0 million, due primarily to more restaurants being operated during first quarter 2004. Cost of sales as a percentage of restaurant revenues increased 0.4%, to 23.7%, from 23.3%. Overall, the increase as a percentage of restaurant revenues was attributable to increases in certain food costs that we experienced in the second half of 2003.

15

Labor. Labor expenses increased by $8.3 million, or 25.9%, to $40.1 million, from $31.8 million, due primarily to more restaurants being operated in first quarter 2004. Overall, labor expense as a percentage of restaurant revenues increased 0.1%, to 35.4%, from 35.3%. Labor as a percentage of restaurant revenues was 33.9% at our comparable restaurants and 35.8% at our non-comparable restaurants. Total wages as a percentage of restaurant revenues decreased 1.3% during first quarter 2004, due primarily to improvements in controllable labor at our restaurants. However, these improvements were offset by an increase of 0.6% for bonus expenses, 0.4% for self-insured workers’ compensation expenses, and 0.3% for payroll tax expenses. The increase in bonus expenses was primarily due to higher bonuses earned as a result of improved comparable restaurant sales. Our workers’ compensation expense increased to 1.0% of restaurant sales during first quarter 2004 compared to 0.6% a year ago. In general, our workers’ compensation costs have been trending upwards since second quarter 2003 and we cannot predict with certainty whether or not our workers’ compensation expense will continue to increase during the remainder of 2004.

Operating. Operating expenses increased by $2.5 million, or 18.4%, to $16.5 million, from $14.0 million, due primarily to more restaurants being operated in first quarter 2004. Operating expenses as a percentage of restaurant revenues improved 0.9%, to 14.6%, from 15.5%. The improvement as a percentage of restaurant revenues was due in part to our 8.4% increase in comparable restaurant sales and the discontinuance of one of our marketing funds midway through first quarter 2003, for which we had previously contributed 0.3% of restaurant revenues.

Occupancy. Occupancy expenses increased by $1.1 million, or 17.3%, to $7.3 million, from $6.2 million, due primarily to more restaurants being operated in first quarter 2004. Occupancy expense as a percentage of restaurant revenues improved 0.5%, to 6.4%, from 6.9%. Our occupancy expenses as a percentage of restaurant revenues improved as a result of our comparable restaurant sales increase. In addition, the percentage of free-standing restaurants that we own or have ground leases on has increased compared to a year ago, and free-standing units generally have lower occupancy costs than in-line units.

Depreciation and amortization. Depreciation and amortization increased $1.3 million, or 27.3%, to $5.9 million, from $4.6 million. The increase was primarily due to the addition of 25 new restaurants opened in 2003 and 2004. Depreciation and amortization expense as a percentage of total revenues increased 0.1%, to 5.1%, from 5.0%.

General and administrative. General and administrative expenses increased by $1.3 million, or 18.4%, to $8.2 million, from $6.9 million, primarily due to additional headcount and related costs attributable to operating more company-owned restaurants. These increases were in part offset by lower marketing expenses. General and administrative expenses as a percentage of total revenues improved 0.4%, to 7.0%, from 7.4%. The improvement in general and administrative expenses as a percentage of total revenues was primarily attributable to leverage from our 8.4% increase in comparable restaurant sales as well as higher franchise royalties and fees.

Franchise development. Our franchisees opened seven new restaurants in first quarter 2004 compared to two in the prior year period. Overall, franchise development expenses increased $927,900, or 66.4%, to $2.3 million, from $1.4 million, due in part to additional headcount and related costs attributable to franchise operations. Approximately half of this increase was attributable to our annual conference, which takes place in the first quarter of each year. Costs for the 2004 conference were higher than a year ago due to the fact that there were more attendees and because we held the 2004 conference in a more expensive location. Franchise development expenses as a percentage of total revenues increased 0.5%, to 2.0%, from 1.5%. We substantially increased the size of our franchise development and support teams during the second half of 2003.

Pre-opening costs. Pre-opening costs increased $451,700, or 45.3%, to $1.4 million, from $996,900, due primarily to the fact that there were seven company-owned restaurants opened during first quarter 2004, compared to five in the prior year period. Overall, pre-opening costs for the restaurants we opened in first quarter 2004 averaged $221,400 per restaurant compared to an average of $209,600 per restaurant in first quarter 2003.

Interest expense. Interest expense decreased by $106,800, or 11.4%, to $832,100, from $938,900. Our interest expense was lower in first quarter 2004 because we used proceeds from our secondary offering in November 2003 to repay $18.0 million of borrowings outstanding under our revolving credit agreement. In addition, interest expense in first quarter 2004 was lower due to the early payoff of various real estate and equipment loans during 2003 that bore significantly higher interest rates than borrowings under our revolving credit agreement.

16

Interest income. Interest income was $99,300 in first quarter 2004, compared to $96,400 in first quarter 2003. Primarily all of the interest income we recorded in both periods was attributable to related party receivables from officer/stockholder notes.

Other. Other expense was $37,900 in first quarter 2004, compared to other income of $18,700 in first quarter 2003. The first quarter 2003 results included a one-time gain of $34,300, which offset various other expenses. Other expense in first quarter 2004 related primarily to participant expenses related to our employee deferred compensation plan.

Income before income taxes. As a result of the above, income before income taxes increased $2.3 million, or 45.1%, to $7.4 million, from $5.1 million.

Provision for income taxes. The provision for income taxes increased $810,000, or 48.1%, to $2.5 million, from $1.7 million. The increase was due primarily to increased pre-tax earnings and an increase in our estimated effective income tax rate. Our effective income tax rate for first quarter 2004 was 33.7%, compared to 33.0% for first quarter 2003.

Net income. As a result of the above, net income increased by $1.5 million, or 43.7%, to $4.9 million, from $3.4 million.

Liquidity and Capital Resources

Cash and cash equivalents were $4.7 million as of April 18, 2004, compared to $4.9 million at the end of fiscal 2003. We attempt to keep only enough cash on hand to satisfy our working capital requirements, which can vary substantially as a result of seasonality, construction and other corporate needs. All available cash in excess of our estimated working capital needs is generally used to repay borrowings under our revolving credit agreement. The change in cash and cash equivalents were as follows (in thousands):

Operating Activities

Cash provided by operations in first quarter 2004 increased $4.9 million, or 40.6%, to $16.8 million, compared to $11.9 million in first quarter 2003, reflecting increased cash flow from restaurant and franchise operations, lower cash payments for interest and taxes, and increased cash flow from changes in operating assets and liabilities. These improvements were offset in part by increased non-cash adjustments to net income.

Investing Activities

Cash used in investing activities during first quarter 2004 increased $6.5 million, or 48.3%, to $20.1 million, compared to $13.5 million in first quarter 2003. Our investing activities consist primarily of purchases of property and equipment related to the construction of new restaurants and remodels and capital improvements of our existing company-owned restaurants. Our cash inflows from investing activities generally relate to proceeds from the sale of real estate, property and equipment.

Capital Expenditures. In first quarter 2004, we spent $20.1 million for new restaurant construction, remodels, capital improvements and various corporate initiatives. During first quarter 2003, we spent $13.5 million for new restaurant construction, remodels, capital improvements, corporate initiatives and a lease buy-out on a property previously under capital lease.

During 2004, we expect to open 21 to 22 new company-owned restaurants for a total cost of $50.0 million to $52.0 million and we plan to spend $6.3 million to $6.6 million on restaurant remodels and capital improvements of our existing

17

restaurants. In addition, we expect to invest $2.7 million to $2.8 million for corporate initiatives, including information systems, computer equipment and our corporate headquarters relocation that occurred in March 2004.

Proceeds from Investing Activities. Proceeds, which related to sales of property and equipment, were negligible for both periods presented.

Financing Activities

Cash provided by financing activities during first quarter 2004 increased $1.0 million. Our financing activities consist primarily of borrowings used to fund restaurant construction and other corporate needs in excess of cash provided by operations and proceeds we receive from sales of common stock. Cash used in financing activities is primarily related to the repayment of various borrowings. During the remainder of 2004, we expect our primary source of cash provided by financing activities will be obtained from additional borrowings under our revolving credit agreement.

Proceeds from the Issuance of Stock. During first quarter 2004, proceeds of $343,400 were received as a result of the exercise of employee stock options and $134,800 was recognized upon issuance of common stock to participants of our employee stock purchase plan.

Borrowings. We maintain an $85.0 million amended revolving credit agreement that will expire in May 2006, which is in place to fund the construction and acquisition of new restaurants, to refinance existing indebtedness and for general corporate purposes, including working capital. The amended revolving credit agreement is secured by a first priority pledge of all of the outstanding capital stock of our subsidiaries and a first priority lien on substantially all of our tangible and intangible assets. We are currently in compliance with all covenants related to the revolving credit agreement.

During first quarter 2004, our borrowings of long-term debt totaled $6.0 million and our payments of long-term debt and capital lease obligations totaled $3.5 million. Debt outstanding during first quarter 2004 had stated interest rates ranging from 2.1% to 13.4% and maturities ranging from 2004 through 2021. Our borrowing activity in first quarter 2004 was as follows (in thousands):