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

THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS, INCLUDING STATEMENTS REGARDING OUR BUSINESS STRATEGIES, OUR BUSINESS, AND THE INDUSTRY IN WHICH WE OPERATE. THESE FORWARD-LOOKING STATEMENTS ARE BASED PRIMARILY ON OUR EXPECTATIONS AND ARE SUBJECT TO A NUMBER OF RISKS AND UNCERTAINTIES, SOME OF WHICH ARE BEYOND OUR CONTROL. THESE FORWARD-LOOKING STATEMENTS INCLUDE THOSE REGARDING ANTICIPATED RESTAURANT OPENINGS, ANTICIPATED COSTS AND SIZES OF FUTURE RESTAURANTS, AND THE ADEQUACY OF ANTICIPATED SOURCES OF CASH TO FUND OUR FUTURE CAPITAL REQUIREMENTS. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE FORWARD-LOOKING STATEMENTS AS A RESULT OF NUMEROUS FACTORS, INCLUDING THOSE SET FORTH IN OUR FORM 10-K FOR THE YEAR ENDED DECEMBER 30, 2002, AS FILED WITH THE SECURITIES AND EXCHANGE

COMMISSION. WORDS SUCH AS "BELIEVES," "ANTICIPATES," "EXPECTS," "INTENDS," "PLANS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS, BUT ARE NOT THE EXCLUSIVE MEANS OF IDENTIFYING SUCH STATEMENTS.

OVERVIEW

As of March 31, 2003, we owned 56 and managed four T.G.I. Friday's restaurants, owned nine Bamboo Club restaurants, and owned five Redfish Bar and Grill restaurants. In addition, we own and operate one Alice Cooper'stown restaurant pursuant to a license agreement we entered into with Celebrity Restaurants, L.L.C., the owner of the exclusive rights to operate Alice Cooper'stown restaurants and which operates one such restaurant in Phoenix, Arizona.

T.G.I. Friday's restaurants are full-service, casual dining establishments featuring a wide selection of freshly prepared, popular foods and beverages served by well-trained, friendly employees in relaxed settings. Bamboo Club restaurants are full-service, fine dining, upscale restaurants that feature an extensive and diverse menu of innovative and tantalizing Pacific Rim cuisine. Redfish Seafood Bar and Grill restaurants are full-service, casual dining restaurants that feature a broad selection of New Orleans style fresh seafood, Creole and seafood cuisine, and traditional southern dishes, as well as a "Voodoo" style lounge, all under one roof. Alice Cooper'stown restaurants are rock and roll and sports themed restaurants and feature a connection to the music celebrity Alice Cooper.

Our strategy is to capitalize on the brand-name recognition and goodwill associated with T.G.I. Friday's restaurants and expand our restaurant operations through development of additional T.G.I. Friday's restaurants in our existing development territories and the development of additional Bamboo Club restaurants in major metropolitan areas throughout the United States.

CRITICAL ACCOUNTING POLICIES

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make a number of 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. Such estimates and assumptions affect the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates and assumptions based upon historical experience and various other factors and circumstances. We believe our estimates and assumptions are reasonable in the circumstances; however, actual results may differ from these estimates under different future conditions.

We believe that the estimates and assumptions that are most important to the portrayal of our financial condition and results of operations, in that they require us to make our most difficult, subjective, or complex judgments, form the basis for the accounting policies deemed to be most critical to our operations. These critical accounting policies relate to the valuation and amortizable lives of long-lived assets, asset write-offs or asset impairments, goodwill, and to other identifiable intangible assets, valuation of deferred tax assets, reserves related to self-insurance for workers' compensation and general liability, and recognition of stock-based employee compensation. For further information, refer to the consolidated financial statements and notes thereto for the fiscal year ended December 30, 2002, included in our Form 10-K. These policies are summarized as follows:

(1) We periodically perform asset impairment analysis of long-lived assets related to our restaurant locations, goodwill, and other identifiable intangible assets. We perform these tests whenever we experience a "triggering" event, such as a decision to close a location or major change in the location's operating environment, or other event that might impact our ability to recover our asset investment if the location was one that was acquired.

(2) Periodically we record (or reduce) the valuation allowance against our deferred tax assets to the amount that is more likely than not to be realized, based upon recent past financial performance, tax reporting positions and expectations of future taxable income.

(3) We use an actuarial-based methodology utilizing our historical experience factors to periodically adjust self-insurance reserves for workers' compensation and general liability claims and settlements. Estimated costs are accrued on a monthly basis and progress against this estimate is reevaluated based upon actual claim data received each quarter.

(4) We use the method of accounting for employee stock options allowed under APB Opinion 25 and have adopted the disclosure provisions of SFAS No. 123, which require pro forma disclosure of the impact of using the fair value at date of grant method of recording stock-based employee compensation.

We believe estimates and assumptions related to these critical accounting policies are appropriate under the circumstances; however, should future events or occurrences result in unanticipated consequences, there could be a material impact on our future financial condition or results of operations.

During the fourth quarter 2002, we accrued lease cancellation charges of $665,000 for three Bamboo Club locations that we elected not to open and $1,300,000 for one location where we decided to cancel a lease early. During the quarter ended March 31, 2003, we paid $165,000 of the accrued amount as settlement for one of those Bamboo Club locations. We did not accrue any additional amounts related to any of these locations during the quarter ended March 31, 2003.

In addition, there are two other locations being evaluated and negotiated for which there are no amounts accrued for termination fees. On May 13, 2003, we were notified that we have been named in a lawsuit for non-performance related to one of these locations. We are carefully evaluating this matter, and we intend to vigorously defend ourselves. No amounts have been accrued for either of these locations since we have been negotiating various options that we believed would be acceptable.

                                                 THREE MONTHS ENDED
                                           ------------------------------
                                           MARCH 31, 2003   APRIL 1, 2002
                                           --------------   -------------
Revenue                                         100.0%          100.0%

RESTAURANT OPERATING EXPENSES:
Cost of sales                                    27.5            27.4
Payroll and benefits                             30.8            31.0
Depreciation and amortization                     3.8             3.3
Other operating expenses                         29.6            28.6
                                                -----           -----
Total restaurant operating expenses              91.7            90.3
                                                -----           -----

Income from restaurant operations                 8.3             9.7

OTHER OPERATING EXPENSES:
Amortization of intangible assets                 0.3             0.2
General and administrative expenses               3.7             3.9
Preopening expenses                               0.3             0.8
New manager training expenses                     0.2             0.2
                                                -----           -----
Operating income                                  3.9             4.6
Interest expense and other, net                   2.0             1.8
                                                -----           -----
Net income before income taxes                    1.9             2.8
Income taxes                                       --             0.5
                                                -----           -----
Net income                                        1.9%            2.3%
                                                =====           =====

THREE MONTHS ENDED MARCH 31, 2003, COMPARED WITH THREE MONTHS ENDED APRIL 1,
2002

Revenues are exclusively derived from the sales of food and beverages at our restaurants. Revenues for the three months ended March 31, 2003, increased by 4.1% to $57,586,000 compared with $55,329,000 for the comparable quarter in 2002. The increase for the three months ended March 31, 2003, from the comparable quarter in 2002 resulted from the opening of seven new restaurants since the first quarter of 2002. Same-store sales decreased to 1.2% for the quarter compared with an increase of 2.4% for the comparable quarter in 2002. The same-store sales decline was a result of lower customer traffic due to soft economic conditions in our key markets and uncertainties surrounding the geopolitical environment.

Cost of sales includes the cost of food and beverages and as a percentage of revenue increased to 27.5% for the three months ended March 31, 2003, compared with 27.4% for the comparable quarter in 2002. The increase in cost of sales from the comparable period in 2002 was primarily a result of increased meat and seafood costs related to our T.G.I. Friday's promotions and higher beverage costs related to the introduction of a new wine list and various happy hour promotions during the quarter. These increases were offset by lower poultry, produce, and grocery costs resulting from product mix changes and overall supply chain purchasing efficiencies.

Payroll and benefit costs consist of restaurant management salaries, hourly payroll expenses and other payroll related benefits. Payroll and benefits expenses decreased as a percentage of revenue to 30.8% for the three months ended March 31, 2003, compared with 31.0% for the comparable quarter in 2002. These decreases were a result of lower labor costs related to improvements in labor efficiencies at the newer Bamboo Club restaurants. Labor costs of new restaurants are higher during the initial four to six months of operation.

Depreciation and amortization expense before income from restaurant operations includes depreciation of restaurant property and equipment and amortization of franchise fees and liquor licenses. Depreciation and amortization expense as a percentage of revenue was 3.8% for the three months ended March 31, 2003, compared with 3.3% for the comparable quarter in 2002. This increase was primarily a result of depreciation related to asset acquisitions for new stores and accelerated depreciation for a California location where the lease will not be renewed during 2003. These increases were offset partially by the reduction in depreciation as a result of asset impairments during the third and fourth quarters of 2002. This increase was also the result of higher amortization related to the higher cost of liquor licenses at some of our Bamboo Club restaurants.

Other operating expenses include various restaurant-level costs. Other operating expenses increased as a percentage of revenue to 29.6% for the three months ended March 31, 2003, from 28.6% for the comparable quarter in 2002. The increased costs were principally due to increased marketing fees paid to Carlson's Restaurants Worldwide for T.G.I. Friday's advertising. We also experienced higher costs in workers' compensation and general liability insurance as a result of higher rates in 2003 and higher rent costs for our Bamboo Club locations.

Depreciation and amortization after income from restaurant operations includes depreciation of corporate property and equipment and amortization of bank financing fees and franchise area goodwill, as applicable. Depreciation and amortization increased as a percentage of revenue to 0.3% for the three months ended March 31, 2003, from 0.2% for the comparable quarter in 2002. This increase was primarily a result of additional depreciation related to new point-of-sale software we purchased in the third quarter of 2002 and the amortization of franchise area goodwill.

General and administrative expenses are expenses associated with corporate and administrative functions that support development and restaurant operations and provide infrastructure to support future growth. These costs consist primarily of management and staff salaries, employee benefits, travel, legal and professional fees, and technology. General and administrative expenses decreased as a percentage of revenue to 3.7% for the three months ended March 31, 2003, from 3.9% for the comparable quarter in 2002. The decreases were primarily due to a reduction in salaries, benefits, travel, and moving costs related to Bamboo Club restaurants resulting from the slow-down in our development schedule. These decreases were also the result of a focused cost-reduction effort implemented in the fourth quarter of 2002 in order to reduce costs in 2003. However, we anticipate higher costs later in the year related to compliance with the Sarbanes-Oxley Act and related new SEC regulations.

Preopening expenses are costs incurred prior to opening a new restaurant and consist primarily of manager salaries, and relocation and training costs. Historically, we have experienced variability in the amount and percentage of

revenues attributable to preopening expenses. We typically incur the most significant portion of preopening expenses associated with a given restaurant within the two months immediately preceding and in the month the restaurant opens. Preopening expenses decreased as a percentage of revenue to 0.3% for the three months ended March 31, 2003, from 0.8% for the comparable quarter in 2002. The decrease was a result of the timing of new store openings in 2003 compared to 2002. Expenses during the quarter ended March 31, 2003 were principally related to one Bamboo Club location (Aventura, Florida) opened in January and one Bamboo Club location (Novi, Michigan) opened in May 2003, versus expenses incurred during the comparable quarter in 2002 for four new store openings during the second quarter of that year.

New manager training expenses are those costs incurred in training newly hired or promoted managers. New manager training expenses remained constant at 0.2% of revenue for the three months ended March 31, 2003, and for the comparable quarter in 2002 as a result of expenses related to one store opening during the first quarter of 2003 and a second location opened in May 2003 as compared to expenses incurred during the comparable quarter in 2002 for four new stores opened during the second quarter of that year.

We manage four T.G.I. Friday's restaurants, under the management agreement, we are entitled to a management fee if certain cash flow levels are achieved. Based on the cash flow provisions of the management agreements, we did not record any management fee income for the quarter ended March 31, 2003.

Interest expense was 2.0% of revenue for the three months ended March 31, 2003, compared with 1.8% for the comparable quarter in 2002. Interest expense increases were attributable to the additional financing of $4,205,000 from Bank of America since April 1, 2002. This increase was partially offset by more favorable interest rates on our variable interest rate debt combined with refinancing of a portion of our higher rate debt.

We did not record an income tax provision during the period ended March 31, 2003, due to the utilization of operating losses and tax loss and credit carryforwards.

LIQUIDITY AND CAPITAL RESOURCES

Our current liabilities exceed our current assets due in part to cash expended on our development requirements and because the restaurant business receives substantially immediate payment for sales, while payables related to inventories and other current liabilities normally carry longer payment terms, usually 15 to 30 days. At March 31, 2003, we had a working capital deficit of approximately $14,647,000 and a cash balance of $4,031,000 compared to a working capital deficit of $15,028,000 and a cash balance of $5,621,000 at December 30, 2002.

Net cash flows from operating activities were $1,142,000 for the quarter ended March 31, 2003, compared with $30,000 for the comparable quarter in 2002.

We use cash primarily to fund operations and to develop and construct new restaurants. Net cash used in investing activities, which we used primarily to fund property and equipment purchases for our new restaurants, was $1,819,000 for the quarter ended March 31, 2003, compared with $4,816,000 for the comparable quarter in 2002.

We opened one new Bamboo Club restaurant in January 2003. Subsequent to the end of the quarter, we opened a second Bamboo Club location in Novi, Michigan. We have plans to open two additional restaurants during 2003, one T.G.I. Friday's at Desert Ridge Mall, Phoenix, Arizona and one new Bamboo Club in the same development. The stores under construction will be funded primarily from cash on hand and operating cash flow.

We estimate that our total cost of opening a new T.G.I. Friday's restaurant currently ranges from $2,475,000 to $2,825,000, exclusive of annual operating expenses and assuming that we obtain the underlying real estate under a lease arrangement. These costs include approximately (a) $1,650,000 to $2,000,000 for building, improvements, and permits, including liquor licenses, (b) $600,000 for furniture, fixtures, and equipment, (c) $175,000 in pre-opening expenses, including hiring expenses, wages for managers and hourly employees, and supplies, and (d) $50,000 for the initial franchise fee. Actual costs, however, may vary significantly depending upon a variety of factors, including the site and size of the restaurant and conditions in the local real estate and employment markets.

We estimate our total cost of opening a new Bamboo Club restaurant ranges from $1,625,000 to $1,800,000, exclusive of annual operating expenses. These costs include approximately (a) $900,000 to $1,000,000, net of a reduction for landlord's contribution, for building improvements and permits, including liquor licenses, (b) $550,000 to $600,000 for furniture, fixtures, and equipment, and
(c) $175,000 to $200,000 in pre-opening expenses, including hiring expenses,

wages for managers and hourly employees, and supplies. We are currently developing plans for a free-standing Bamboo Club restaurant and anticipate that this cost will be in excess of the preceding averages. Actual costs for future openings may vary significantly, depending on a variety of factors.

Net cash used in financing activities was $913,000 for the quarter ended March 31, 2003, compared with net cash provided by financing of $3,427,000 for the comparable quarter in 2002. Financing activities for the three months ended March 31, 2003, represented the normal principal amortization of debt. Financing activities for the three months ended April 1, 2002 consisted principally of long-term borrowing and proceeds received for the exercise of employee stock options, offset by the repayment of debt.

As of March 31, 2003, we had long-term debt of $54,587,000, including a current portion of $3,712,000.

In October 2002, we secured a $15 million financing commitment through GE Franchise Finance. The terms include $6 million for financing of equipment and leasehold improvements for the seven Bamboo Clubs already open and approximately $9 million for new Bamboo Club development. At March 31, 2003, there were no amounts borrowed under this commitment.

We are currently in negotiations with Bank of America to finance the T.G.I. Friday's location being built at Desert Ridge Mall, Arizona.

All of our loan agreements contain various financial covenants that are measured at the end of each quarter. At March 31, 2003, we met all of the financial covenants for all debt agreements. If economic trends worsen, the new restaurant development planned in 2003 and any resulting borrowings to finance the cost of building these new restaurants could result in our violation of one or more of these covenants with any one of our lenders at the end of the second quarter of 2003. We believe we will remain in compliance with our current debt agreements or will receive the necessary modifications, if needed, to our debt covenants.

Our recent operations have been negatively impacted by the economic slow-down, and resulting same-store sales declines, and the uncertainties surrounding the geopolitical environment, including the Iraqi war. As a result, we have reduced new store development, and cancelled certain leases on locations where construction has not yet begun to reduce the need for capital. During the fourth quarter 2002, we accrued lease cancellation charges of $665,000 for three Bamboo Club locations that we elected not to open and $1,300,000 for one location where we decided to cancel a lease early. During the quarter ended March 31, 2003, we paid $165,000 of the accrued amount as settlement for one of those Bamboo Club locations. We did not accrue any additional amounts related to any of these locations during the quarter ended March 31, 2003.

We recently opened two new Bamboo Club restaurants, one in Aventura, Florida in January 2003, and a second location in Novi, Michigan on May 7, 2003; we plan to open an additional Bamboo Club restaurant during the fourth quarter of 2003. Other than the one T.G.I. Friday's we currently have under construction (Desert Ridge Mall, Arizona), we do not anticipate building additional T.G.I. Friday's during 2003. Our development agreement, however, requires us to develop five T.G.I. Friday's locations in 2003. We believe, however, based on amendments and waivers received in prior years, that we will receive the appropriate waivers for 2003.

Based on limitations as a result of our debt covenants, at March 31, 2003, we had no significant borrowing capabilities under any of our debt agreements. We believe, however, that our current cash resources, the new financing commitment through GE Capital Franchise Finance, and expected cash flows from operations will be sufficient to fund our planned development during the next 12 months. We may need to obtain capital to fund additional growth beyond 2003. Potential sources of such capital include bank financing, strategic alliances, sales of certain assets and additional offerings of our equity or debt securities. We cannot provide assurance that such capital will be available from these or other potential sources. Continued depressed economic conditions could prevent us from having the cash availability to fund new restaurant development, which could have a material adverse effect on our business.