10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended January 1, 2007

OR

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

For the transition period from               to

Commission File No. 1-16505

The Smith & Wollensky Restaurant Group, Inc.

(Exact name of registrant as specified in its charter)

Delaware	58 2350980
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
880 Third Avenue, New York, NY	10022
(Address of principal executive offices)	(Zip code)

212-838-2061

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, par value $.01 per share	The NASDAQ Stock Market LLC

Securities registered pursuant to section 12(b) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes o  No x

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o  No x

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 o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer o Non-accelerated filer x

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

As of July 3, 2006, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of voting and non-voting stock held by non-affiliates of the registrant was $ 32,856,417.

As of  April 2, 2007, the registrant had 8,599,043 shares of common stock, $.01 par value per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

(1)    In accordance with General Instruction G(3) of Form 10-K certain information required by Part III hereof will either be incorporated into this Form 10-K by reference to the registrant’s definitive proxy statement  for theregistrant’s 2007 Annual Meeting of Stockholders filed within 120 days of January 1, 2007 or will be included in an amendment to this Form 10-K filed within 120 days of January 1, 2007.

TABLE OF CONTENTS

		Page No.
PART I
Special Note Regarding Forward-Looking Statements			3
Item 1.	Business		4
Item 1A.	Risk Factors		21
Item 1B.	Unresolved Staff Comments		29
Item 2.	Properties		29
Item 3.	Legal Proceedings		31
Item 4.	Submission of Matters to a Vote of Security Holders		32
PART II
Item 5.	Market for the Registrant’s Common Equity, Related Stockholder  Matters and Issuer Purchases of Equity Securities		32
Item 6.	Selected Consolidated Financial Data		33
Item 7.	Management’s Discussion and Analysis of Financial Condition and  Results of Operations		36
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		55
Item 8.	Financial Statements and Supplementary Data		56
Item 9.	Changes in and Disagreements with Accountants on Accounting  and Financial Disclosure		56
Item 9A.	Controls and Procedures		56
Item 9B.	Other Information		56
PART III
Item 10.	Directors and Executive Officers of the Registrant		57
Item 11.	Executive Compensation		57
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		57
Item 13.	Certain Relationships and Related Transactions		57
Item 14.	Principal Accountant Fees and Services		57
PART IV
Item 15.	Exhibits and Financial Statement Schedules		58

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PART I

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

We may make statements in this Annual Report on Form 10-K regarding our assumptions, projections, expectations, targets, intentions or beliefs about future events. All statements other than statements of historical facts, included or incorporated by reference herein relating to management’s current expectations of future financial performance, continued growth and changes in economic conditions or capital markets are forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.

Words or phrases such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “targets,” “will,” “hopes,” or similar expressions identify forward looking statements. Forward-looking statements involve risks and uncertainties which could cause actual results or outcomes to differ materially from those expressed. We caution that while we make such statements in good faith and we believe such statements are based on reasonable assumptions, including without limitation, management’s examination of historical operating trends, data contained in records and other data available from third parties, we cannot assure you that our projections will be achieved. Factors that may cause such differences include: economic conditions generally and in each of the markets in which we are located, the amount of sales contributed by new and existing restaurants, labor costs for our personnel, fluctuations in the cost of food products, adverse weather conditions, changes in consumer preferences, the level of competition from existing or new competitors in the high-end segment of the restaurant industry and our success in implementing our growth strategy.

We have attempted to identify, in context, certain of the factors that we believe may cause actual future experience and results to differ materially from our current expectation regarding the relevant matter of subject area. In addition to the items specifically discussed above, our business, results of operations and financial position and your investment in our common stock are subject to the risks and uncertainties described in “Item 1A Risk Factors” of this Annual Report on Form 10-K.

From time to time, oral or written forward-looking statements are also included in our reports on Forms 10-K, 10-Q and 8-K, our Schedule 14A, our press releases and other statements released to the public. Although we believe that at the time made, the expectations reflected in all of these forward-looking statements are and will be reasonable, any or all of the forward-looking statements in this Annual Report on Form 10-K, our reports on Forms 10-Q and 8-K, our Schedule 14A and any other public statements that are made by us may prove to be incorrect. This may occur as a result of inaccurate assumptions or as a consequence of known or unknown risks and uncertainties. Many factors discussed in this Annual Report on Form 10-K, certain of which are beyond our control, will be important in determining our future performance. Consequently, actual results may differ materially from those that might be anticipated from forward-looking statements. In light of these and other uncertainties, you should not regard the inclusion of a forward-looking statement in this Annual Report on Form 10-K or other public communications that we might make as a representation by us that our plans and objectives will be achieved, and you should not place undue reliance on such forward-looking statements.

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. However, your attention is directed to any further disclosures made on related subjects in our subsequent periodic reports filed with the Securities and Exchange Commission on Forms 10-Q and 8-K and Schedule 14A.

Unless the context requires otherwise, references to “we,” “us,” “our,” “SWRG” and the “Company” refer specifically to The Smith & Wollensky Restaurant Group, Inc. and its subsidiaries and predecessor entities.

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Item 1.Business.

General

The Smith & Wollensky Restaurant Group, Inc. was incorporated in Delaware in October 1997. Prior to October 1997, our operations were conducted through The New York Restaurant Group, LLC (“NYRG”), our predecessor limited liability company. During October 1997, NYRG merged with SWRG.

We are a developer, owner and operator of high-end, high-volume restaurants in the United States. Our core concept is Smith & Wollensky, a classic American restaurant. Management believes Smith & Wollensky is a recognized brand name in the upscale segment of the restaurant industry. At January 1, 2007, we operated 14 restaurants, eleven of which were owned and three of which were managed. We own eight of the nine Smith & Wollensky restaurants we operate. In addition we own a Smith & Wollensky unit in New Orleans, Louisiana (“S&W of New Orleans”), which closed on  August 29, 2005 due to Hurricane Katrina and a Smith & Wollensky unit in Dallas, Texas (“S&W of Dallas”), which closed on December 31, 2006 because it was unable to achieve a level of income from operations that was in line with our expectations. At January 1, 2007, both S&W of New Orleans and S&W of Dallas were listed as available for sale. We are currently under contract to sell the property for the Smith & Wollensky in Dallas for $3.9 million, less commission and other expenses of approximately $250,000. We plan on closing on the sale of the Dallas property during the beginning of April 2007. We also own our new concept, Quality Meats, a contemporary American restaurant that is located in the space previously occupied by the Manhattan Ocean Club. We closed the Manhattan Ocean Club on January 1, 2006 and opened Quality Meats on April 10, 2006.

In 1977, the original Smith & Wollensky restaurant, which we manage, opened in New York City. Three years later, we developed The Post House, a distinctive steak and chop house with an American theme that we currently manage. In 1989, we opened Cité, a Parisian grand-café style restaurant. The Park Avenue Café concept, begun in 1992, combines seasonal new American cuisine in a café atmosphere, while Maloney & Porcelli, which we developed in 1996 and currently manage, presents updated classic American cuisine. Our owned and managed restaurants have received local and national dining awards, including the Distinguished Restaurants of North America “DiRoNA Award” and Wine Spectator’s “Grand Award.”

For the year ended January 1, 2007, the average sales for our nine owned Smith & Wollensky restaurants open for the entire period were $10.3 million per restaurant. Sales for the year ended January 1, 2007 for the managed Smith & Wollensky restaurant in New York were $26.7 million, for which we received $613,000 as a management fee. For the year ended January 1, 2007, average sales for all of our twelve consolidated restaurants open for the full period (which includes the sales for Maloney & Porcelli, a restaurant we manage) were $9.9 million per restaurant.

We believe that each of our restaurants offers distinctive high quality food, creative menus, an extensive wine selection and exceptional customer service accompanied by attractive design and decor. We believe that the Smith & Wollensky and Wollensky’s Grill restaurant concepts have broad national appeal and that, as a result, we have considerable opportunities to expand our business. We believe that we currently operate in one business segment.

Possible Acquisition of SWRG and Related Transactions

Proposed Merger with Patina Restaurant Group, LLC

On February 26, 2007, Patina Restaurant Group, LLC, a Delaware limited liability company (“Patina”), SWRG Holdings, Inc., a Delaware corporation and a wholly owned subsidiary of Patina (“Patina Sub”) and SWRG, entered into an agreement and plan of merger (the “Merger Agreement”). Under the terms of the Merger Agreement and subject to satisfaction or waiver of the conditions therein, Patina Sub will merge with and into SWRG, with SWRG surviving (the “Merger”). As a result of the

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Merger, SWRG would become a wholly-owned subsidiary of Patina (the “Surviving Corporation”). At the effective time of the Merger, each share of SWRG’s common stock, par value $0.01 per share (the “Common Stock”),  issued and outstanding immediately prior to the effective time of the Merger (other than any shares owned by stockholders who are entitled to and who properly exercise appraisal rights under Delaware law) shall be canceled and converted into the right to receive from the Surviving Corporation $9.25 in cash without interest less any required withholding tax. The board of directors of SWRG (the “Board”) approved the Merger Agreement following the unanimous recommendation of a committee of the Board comprised entirely of independent directors (the “Special Committee”). The consummation of the Merger is conditioned upon, among other things, the adoption of the Merger Agreement by the stockholders of SWRG, regulatory approvals and other customary closing conditions. Pursuant to Delaware General Corporation Law and SWRG’s charter, the Merger must be approved by the holders of a majority of the shares of the outstanding Common Stock. In addition, pursuant to the Merger Agreement, the Merger must be approved by the affirmative vote of the holders of a majority of the outstanding shares of Common Stock present or voting by proxy at the stockholder meeting relating to the Merger (not including any shares of Common Stock beneficially owned by Mr. Alan Stillman).

SWRG, Patina and Patina Sub have made customary representations, warranties and covenants in the Merger Agreement. Among other things, SWRG may not solicit competing proposals or, subject to exceptions that permit the Special Committee or the Board to comply with their fiduciary duties, participate in any discussions or negotiations regarding alternative proposals. The Merger Agreement may be terminated under certain circumstances, including if the Special Committee or the Board has determined that it intends to enter into a transaction with respect to a superior proposal and the Company otherwise complies with certain terms of the Merger Agreement. Upon the termination of the Merger Agreement, under specified circumstances, SWRG will be required to reimburse Patina for its transaction expenses up to $600,000 and, under specified circumstances, SWRG will be required to pay Patina a termination fee of $2.5 million.

The Common Stock is currently registered under the Exchange Act and is quoted on the Nasdaq National Market under the symbol “SWRG.” If the Merger is completed, the Common Stock will be delisted from the Nasdaq National Market and will be deregistered under the Exchange Act.

Proposed Transaction Between Patina and Alan N. Stillman, SWRG’s Chairman and Chief Executive Officer

As an inducement for Patina to enter into the Merger Agreement, Patina and Alan N. Stillman, the Company’s Chairman and Chief Executive Officer, entered into an agreement dated February 26, 2007 (the “Stillman Agreement”). Pursuant to the Stillman Agreement, immediately after the closing of the Merger, Mr. Stillman or his designees (the “Stillman Group”) will acquire certain assets from the Company consisting of real property owned by the Company in Dallas and New Orleans, the leases relating to three New York City restaurants (Quality Meats, Cité and Park Avenue Cafe), the management agreements relating to three New York City restaurants (Smith & Wollensky, Maloney & Porcelli and Post House), the lease of the Company’s headquarters in New York and all assets relating to the foregoing.

In consideration for such purchase, the Stillman Group will pay $5.3 million in cash and/or stock of the Company, plus assume numerous liabilities and contingent obligations of the Company, including the following: any sales, real property transfer or income taxes relating to the acquisition; mortgages on properties in New Orleans and Miami aggregating approximately $3.2 million; $800,000 of capital lease obligations; all expenses of the Company relating to the Merger, including legal, accounting, proxy fees, severance, change of control and other payments to employees of the Company estimated to exceed an aggregate of $4 million; contingent obligations under various lawsuits (in amounts which cannot presently be determined); certain capital improvements and other costs relating to the Smith & Wollensky

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restaurant in Las Vegas and to the Company generally; and all known and unknown obligations or liabilities relating to the assets to be acquired.

Voting Agreement

On February 26, 2007, in connection with the Merger, Alan N. Stillman, Stillman’s First, Inc., La Cite, Inc., White & Witkowksy, Inc., Thursdays Supper Pub, Inc., Alan N. Stillman Grantor Retained Annuity Trust and the Donna Stillman Trust entered into a voting agreement with Patina  (the “Voting Agreement”) pursuant to which such persons have agreed to vote all their shares of Common Stock in favor of the Merger and against any action or agreement that would result in a breach by the Company under the Merger Agreement or would impede or interfere with the Merger. The Voting Agreement will terminate upon termination of the Merger Agreement in accordance with its terms.

Amendment to License Agreement

As a condition to entering into the Merger Agreement, Patina required that St. James Associates, L.P. (“St. James”) agree to amend various provisions of the amended and restated sale and license agreement dated January 1, 2006 between St. James and SWRG (the “License Agreement”). Mr. Stillman and an unrelated party are the general partners of St. James. In order to effectuate this amendment, the consent of both general partners was required. On February 26, 2007, Patina and St. James entered into a letter agreement (the “Letter Agreement”) pursuant to which the License Agreement will be amended effective on the closing of the Merger to effectuate the following: Patina has agreed to open at least two new Smith & Wollensky restaurants and to open or make advance payments of additional royalty payments for two additional such restaurants within six years; St. James will eliminate the 1% royalty fee on all restaurant and non-restaurant sales at any steakhouse owned or operated by Patina or its affiliates if such restaurant does not use the Smith & Wollensky name and is located in specified countries in Asia, provided such royalty will continue to be payable until Patina has fulfilled its build-out obligations; St. James agreed to eliminate the posting by assignees of a letter of credit in connection with the assignment of the License Agreement; and St. James agreed to other technical amendments. Based on Patina’s representations to St. James that the principals of Parent are reputable restaurant operators that have managed high quality fine dining restaurants continuously for at least five years and that Patina is a nationally known reputable company active in the food service business, St. James acknowledged that the Merger Agreement is expressly permitted by the License Agreement. For additional information relating to the License Agreement, See “—Service Marks, Trademarks and License Agreements.”

Additional Bidder for SWRG

On Friday, March 16, 2007, the Company received an unsolicited proposal from Landry’s Restaurants, Inc. (“Landry’s”) to acquire the company at $9.75 per share. As of the date hereof, Landry’s has refused to execute a confidentiality and standstill agreement on the terms required by the Merger Agreement. As a result, the Company is unable to provide Landry’s with non-public information. The Special Committee of the Company’s Board is continuing to evaluate the terms and conditions of the proposal received from Landry’s, consistent with its fiduciary duties to the Company’s stockholders and the no-solicitation provisions of the Merger Agreement.

Recent Developments

Renewal of Lease at Park Avenue Café and Sale of Townhouse

On December 14, 2006, SWRG through its affiliate, Atlantic & Pacific Grill Associates, L.L.C. (“A&P”), entered into (i) a Third Modification and Renewal of Lease (the “Café Lease Renewal”) with Beekman Tenants Corporation (“Beekman”) for the Park Avenue Café restaurant (the “Café”) and (ii) a

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Contract of Sale Agreement with Beekman (the “Townhouse Sale Agreement”) with respect to the Park Avenue Café Townhouse, a location adjacent to the Café that is used to facilitate private dining events (the “Townhouse”). The Café Lease Renewal extends the term of the lease until January 15, 2017 and increases the fixed minimum rent to $500,000 for the first lease year, with annual increases as defined. In addition, the Café Lease Renewal requires us to make $300,000 of improvements to the leased space by September 30, 2007. In conjunction with the sale of the Townhouse, which is scheduled to close on or about September 30, 2007, we plan on entering into a Fourth Modification with Beekman whereby we would leaseback the Townhouse for an additional rent starting at $100,000 per annum, with annual increases as defined. Due to the Café Lease Renewal, the Café, which had been scheduled to close on January 1, 2007, will remain open.

Settlement of Litigation Relating to Cité; Closure of Cité

As of January 31, 2007, La Cité Associates, L.P. (“Cité Associates”), a subsidiary of SWRG, entered into a Settlement Agreement and certain related documents with Rockefeller Center North, Inc., the landlord (“Landlord”) of the restaurant space occupied by the Cité restaurant (“Cité”) in New York City. The Settlement Agreement, among things, settled the lawsuit in which the Landlord alleged that Cité Associates was obligated to pay, but had not paid, percentage rent since January 1, 2001, with the Landlord acknowledging that Cité Associates was not, and to the end of the original lease term ( i.e. , September 30, 2009) will not be, obligated to pay any percentage rent. In addition, unrelated to the lawsuit, on January 31, 2007, we adopted a plan to close Cité to the public on April 2, 2007 because it was unable to achieve a level of income from operations that was in line with our expectations. Pursuant to the Settlement Agreement, Cité is required to make a one-time settlement payment to the Landlord of $85,000 and will then receive its $100,000 letter of credit posted with the Landlord as a security deposit under the lease. Cité Associates also agreed to terminate its lease for Cite and vacate the premises by April 6, 2007.

Operating Strategy

We believe that the key to our future success is our Smith & Wollensky and Wollensky’s Grill restaurant concepts that are focused on the middle to high-end segment of the restaurant industry. To achieve our goal, we are pursuing the following operating and growth strategies and will continue to pursue them until the consummation of the Merger or we are otherwise acquired, if and when that occurs:

Pursue Disciplined Restaurant Growth in 2008 and Beyond

Although we do not have any leases signed other than leases relating to our existing locations, we plan to resume our growth in 2008 with the launch of our first free-standing Wollensky’s Grill (individually, a “Grill” and collectively, “Grills”). We plan to open a total of three to four Grills from 2008 to 2009. The menus and atmosphere of the Grills will be updated from the original Wollensky’s Grill, which opened in 1980, adjacent to the flagship Smith & Wollensky location in New York City. Although the growth focus will be on opening Grills, we will continue to evaluate opportunities to open Smith & Wollensky units.

Our cash investment for each of our owned Smith & Wollensky restaurants open as of December 31, 2006, net of landlord contributions, averaged approximately $6.8 million, excluding pre-opening costs, and our Smith and Wollensky restaurants averaged approximately 19,000 square feet. We expect that each new free-standing Grill will range between 7,000 and 9,000 square feet and will require a cash investment of approximately $2.5 million, net of landlord contributions and excluding pre-opening expenses. The estimate of the amount of our cash investment assumes that the property on which each new unit is located is being leased and is dependent on the size of the location and the amount of the landlord contribution.

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Focus on Locations

We believe that the locations of our restaurants are critical to our long-term success, and we devote significant time and resources to analyzing each prospective site. In general, we prefer to open our Smith & Wollensky restaurants on sites near central business districts within larger metropolitan areas. For our Grill concept, we plan on evaluating sites not only within larger metropolitan areas, but also within midsize communities. In addition to carefully analyzing demographic information for each prospective site, management considers factors such as visibility, traffic patterns, accessibility, adequacy of parking facilities, tourist volume, volume of business travelers, convention business, local competition, and proximity to shopping areas, office towers, parks and hotels.

Improve Operating Cash Flows

We will focus on increasing our cash position by improving our operating cash flows, while limiting our maintenance capital expenditures on existing Smith & Wollensky restaurants. We intend to further increase our operating cash flows from our mature and recently opened restaurants by adding per unit sales volume while maintaining effective cost controls in our mature restaurants and by getting the most recently opened restaurants to operate at cost levels consistent with our mature restaurants.

Commitment to Superior Quality Food and Wine

We believe that a primary element of our appeal to our customers is our reputation for quality menus, creative presentations of carefully prepared food and extensive wine selections. We employ a chef at each of our restaurants who ensures the high quality of the food served. Our restaurants feature USDA prime grade beef, dry-aged and butchered on the premises, top-quality seafood and high quality ingredients purchased daily in local marketplaces. Each of our restaurants bake some of their own bread on the premises and features highly trained pastry chefs who prepare a range of traditional desserts and specialty confections.

Our commitment to fine wines is evident in our extensive inventory. Our owned and managed restaurants have an aggregate of over 113,000 bottles of wine and average more than 500 wine listings per restaurant. Each restaurant has its own beverage and/or wine manager who is supported at the corporate management level by our wine department.

Capitalize on Brand Awareness and Customer Loyalty

We believe that our significant investment in marketing and advertising programs has contributed to what management believes is a national awareness of our Smith & Wollensky restaurants. Our marketing strategy is designed to build a loyal customer base, to enhance a strong identity and name recognition for our Smith & Wollensky restaurants, to generate positive word-of-mouth advertising and to create opportunities to cross-promote our restaurants. We have implemented this strategy through the use of advertising, promotional activity and cross-marketing of our restaurants. We run full-page advertisements in leading national publications, including The New York Times. We also employ an advertising strategy that focuses on national golf. In addition, we hold creative promotional events such as “Wine Week™”, a popular semi-annual event, restaurant opening galas and concierge dinners. We have enhanced our name recognition and brand awareness through our comprehensive merchandising strategy, which includes the sale of our sauces, salad dressings, knives and cookbooks. Our sauces, which include steak, barbecue and pepper, are now offered at over 4,000 wholesale and retail stores. On January 10, 2007, we entered into a Trademark License Agreement with Bryant Preserving Company (“Licensee”) to grant to Licensee the right to distribute and sell SWRG retail products, as defined (“Licensed Products”), through December 31, 2011, with an option for an additional five years. We will receive a six percent royalty on sales of the Licensed Products which are subject to guaranteed minimum net sales levels, as defined. In addition, the

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Licensee agreed to reimburse us for store slotting fees, as well as certain inventory, accounts receivable and accounts payable.

Provide Exceptional Customer Service

We are committed to providing our customers attentive and professional service through employees trained to exceed guests’ expectations. We believe that our brand recognition, high unit sales volume and high average checks enable us to attract talented managers, chefs and wait staff. Each restaurant is staffed with an experienced team of managers, kitchen personnel and wait staff, many of whom have a long tenure with us. Most of our general managers have at least 20 years of work experience in the restaurant industry. Restaurant personnel are instructed in various areas of restaurant management, including food quality and preparation, wine selection, customer service and beverage service. In addition, our ability to offer opportunities for promotion and training by experienced managers enhances our recruiting and training efforts.

Provide Experienced Management Support

Our senior executive team is comprised of Alan Stillman, our founder and Chief Executive Officer, Samuel Goldfinger, our Chief Financial Officer and Eugene Zuriff, our President. Alan Stillman has been with us for over 25 years, has opened numerous restaurants and is highly experienced in the creation and implementation of restaurant concepts and has been creating restaurant concepts, including T.G.I. Friday’s and other restaurant concepts, for over 30 years. Our restaurant general managers, most of whom are drawn from our restaurant personnel, have an average tenure with us of over 17 years, and most of them have worked in the restaurant industry for at least 20 years. In addition to our general managers, we currently employ approximately 190 restaurant management personnel and we believe they will be a substantial source of managerial talent as we expand.

The Smith & Wollensky and Wollensky’s Grill Concepts

The Smith & Wollensky concept, a dining experience that provides high quality selections in an upscale environment, was started in 1977 with the opening of the first Smith & Wollensky restaurant in New York City. The Wollensky’s Grill concept will be updated from the original Wollensky’s Grill, which opened in 1980, adjacent to the flagship Smith & Wollensky location New York City. The Smith & Wollensky restaurant in New York typifies our approach to the concept and has been described by Gourmet magazine as the “quintessential New York steakhouse.” The essential elements of the Smith & Wollensky and Wollensky’s Grill concepts are:

Critically Acclaimed Food

We strive to provide our customers with the best quality cuisine. Smith & Wollensky restaurants feature USDA prime grade beef served in generous portions. Unlike most other high-end restaurants, each Smith & Wollensky restaurant dry ages and butchers substantially all its beef on the premises. During this dry aging process, which takes three to four weeks to complete, the beef generally loses approximately 10% to 20% of its weight. Although the dry aging process is expensive and time consuming, we believe it produces a more flavorful and tender steak than alternative processes.

Our menu also offers the highest quality seafood, including three- to thirteen-pound lobsters, fish, veal, lamb, pork and poultry. Freshly baked bread is served as well. Complementing our substantial main courses, our dessert menu features traditional desserts such as cheesecake and chocolate cake, as well as other specialized confections prepared on location by our highly trained pastry chefs.

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Extensive Wine Selection

Fine wine is an integral part of the Smith & Wollensky dining experience. Smith & Wollensky restaurants boast an extensive wine inventory of over 87,000 bottles, and our Smith & Wollensky in New York, which has over 17,000 bottles of wine, received Wine Spectator’s “Grand Award” each year from 1987 through 1994, Wine Spectator’s “Award of Excellence” from 1995 through 2005, Wine Enthusiast “Award of Ultimate Distinction” in 2006, and Wine Spectator “Best of Award of Excellence” in 2007. The Great American Wine list features on average over 600 selections with a combination of the country’s most renowned wineries, alongside a selection of undiscovered gems, which are lesser known names of outstanding quality. Our nationally acclaimed wine programs, such as “Wine Week™,” have been written about extensively by The New York Times and Wine Spectator.

Distinctive Design and Decor

We believe that a unique decor is essential to the creation of a fine dining experience for the customer. Each of our Smith & Wollensky restaurants has a decor that features hardwood floors, polished brass and dark wood accents and authentic folk-art from 1900-1940 Americana. Menus are presented under glass in stained wooden frames, while blackboards located around the dining rooms display signature menu items and daily specials. Each restaurant’s exterior, complete with traditional awnings, incorporates Smith & Wollensky’s signature green and white colors. In addition to the distinctive decor, our Smith & Wollensky restaurants feature a design layout that creates small dining areas and enhances efficiency. Our large square footage is broken into small areas that create a more private dining experience while maintaining a large seating capacity. In order to ensure the hottest food and most efficient service, each Smith & Wollensky restaurant has kitchens located on each floor except for one of the four levels at our Boston location. This flexible design allows us to close off sections of our restaurants, and thus reduce operating costs, during non-peak hours or days.

We also offer customers a chance to view our chefs in action. Each Smith & Wollensky, other than the Philadelphia location, has either a “kitchen table” in a glass-enclosed area inside of the main kitchen or a table located just outside the kitchen with a view into the kitchen. Customers at these tables can eat, drink wine and watch our expert chefs prepare dinner. Additionally, most of our Smith & Wollensky locations offer some outdoor dining.

Wollensky’s Grill

Certain of our Smith & Wollensky’s incorporate a Wollensky’s Grill, a more informal alternative which offers menu selections similar to those offered at Smith & Wollensky in smaller, lower-priced portions, as well as hamburgers and sandwiches. Wollensky’s Grill provides flexibility for Smith & Wollensky, and the two dining areas have the ability to expand and contract relative to one another to accommodate customer demand. Wollensky’s Grill generally has a separate entrance and offers expanded late-night hours. A Wollensky’s Grill typically seats up to 125 customers. In some of our locations, Wollensky’s Grill and its menu are combined with the main dining space with no separate Wollensky’s Grill area.

We plan to resume our growth in 2008 with the launch of our first free-standing Wollensky’s Grill. We plan to open a total of three to four Grills from 2008 to 2009. The menus and atmosphere of the Grills will be updated from the original Wollensky’s Grill, which opened in 1980, adjacent to the flagship Smith & Wollensky in New York City. Although our growth focus will be on opening Grills, we will continue to evaluate opportunities to open Smith & Wollensky units. We will continue to pursue our growth strategy until the consummation of the Merger or we are otherwise acquired, if and when that occurs.

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Private Dining Facilities

All of our owned Smith & Wollensky restaurants have dedicated private dining facilities. These facilities host numerous events that generate higher per-person average checks than our restaurants. In addition to these dedicated private dining facilities, all of our Smith & Wollensky restaurants have the capacity to host private dining events and parties, and most of our Smith & Wollensky restaurant locations have separate private dining managers that coordinate these special events.

Locations of Smith & Wollensky Restaurants

The following table sets forth information with respect to our Smith & Wollensky restaurant locations, all of which are owned other than the location in New York:

Location	Opening Year		Approximate Seating Capacity
New York(1)		1977		480
Miami Beach		1997		670
Chicago		1998		610
New Orleans(2)		1998		375
Las Vegas		1998		675
Washington, D.C.		1999		510
Philadelphia		2000		290
Columbus, Ohio		2002		400
Dallas(3)		2003		400
Houston		2004		400
Boston		2004		450

(1)This location is managed not owned.

(2)This location was closed on  August 29, 2005 due to the damages caused by Hurricane Katrina. This location is currently listed as available for sale.

(3)This location was closed on December 31, 2006 because it was unable to achieve a level of income in line with our expectations. We are currently under contract to sell the property for the Smith & Wollensky in Dallas for $3.9 million, less commission and other expenses of approximately $250,000. We plan on closing on the sale of the Dallas property during the beginning of April 2007.

Growth Strategy

Our current objective is to increase sales from our existing restaurant operations as we build upon and increase what we believe is our reputation for providing an exceptional dining experience and high-quality food. At the same time, we plan to leverage our experience in developing and operating restaurants by introducing our Wollensky’s Grill restaurant concept into new markets in 2008 and beyond. We will continue to pursue our growth strategy until the consummation of the Merger or we are otherwise acquired, if and when that occurs.

Grow and Develop Existing Restaurants

Since December 1997, we have opened ten Smith & Wollensky restaurants. Our experience has shown that our restaurants take between 15 and 36 months to achieve expected company-wide targeted levels of performance. Some of our newer restaurants are currently in various stages of the ramp-up phase, and we believe incremental sales and restaurant level operating profitability can be realized from  restaurants as they continue to develop.

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Leverage Centralized Operations to Increase Profitability

We have established a central corporate infrastructure to manage our restaurants through which we seek to take advantage of volume discounts and the allocation of fixed costs over a larger revenue base. All of our restaurants report daily through a point-of-sale system that allows us to monitor our sales, costs, inventory and other operating statistics. As we continue our expansion, we will seek to take advantage of even greater volume discounts.

Expand Retail Offerings and Develop Branded Merchandise

We have developed a comprehensive merchandising strategy to reinforce and capitalize on what we believe is a distinctive upscale brand image built on the quality and name recognition of our Smith & Wollensky restaurants. At our Smith & Wollensky restaurants and on our website, selected products are offered for sale under the Smith & Wollensky brand name, including custom steak knives, steak, barbeque and pepper sauce, salad dressings and cookbooks. As discussed above, on January 10, 2007, we entered into a Trademark License Agreement with Bryant Preserving Company (“Licensee”) to grant the Licensee the right to distribute and sell SWRG retail products, as defined (“Licensed Products”), through December 31, 2011, with an option for an additional five years. We will receive a six percent royalty on sales of the Licensed Products which are subject to guaranteed minimum net sales levels, as defined. In addition, the Licensee agreed to reimburse us for store slotting fees, as well as certain inventory, accounts receivable and accounts payable.

Pursue Disciplined Restaurant Growth in New Markets in 2008 and Beyond

Although we currently do not have any leases signed other than leases relating to our existing locations, we plan to resume our growth in 2008 with the launch of our first free-standing Grill. We plan to open a total of three to four Grills from 2008 to 2009. The menus and atmosphere of the Grills will be updated from the original Wollensky’s Grill, which opened in 1980, adjacent to the flagship Smith & Wollensky location in New York City. Although the growth focus will be on opening Grills, we will continue to evaluate opportunities to open Smith & Wollensky units. We expect that each Grill restaurant will range between 7,000 and 9,000 square feet and will require a cash investment of approximately $2.5 million, net of landlord contributions and excluding pre-opening expenses. The estimate of the amount of our cash investment assumes that the property on which each new unit is located is being leased and is dependent on the size of the location and the amount of the landlord contribution. We will continue to pursue our growth strategy until the consummation of the Merger or we are otherwise acquired, if and when that occurs.

In general, we prefer to open our Smith & Wollensky restaurants on sites near central business districts within larger metropolitan areas. For our Grill concept, we plan on evaluating sites not only within larger metropolitan areas, but also within midsize communities. Typically, prior to opening a new restaurant our management team carefully analyzes demographic information for each prospective site and considers other factors. After reviewing all of the relevant information, management will rate a city’s appropriateness as a location for a Wollensky’s Grill.

We seek long-term leases providing for substantial development or rent contributions from landlords or real estate developers in exchange for a market based minimum annual rent and/or a percentage of annual gross sales above a stipulated minimum. We also evaluate opportunities to purchase or lease, and renovate existing restaurant sites that satisfy our selection criteria. Use of such sites can significantly reduce construction costs, shorten the time required to open a new restaurant and increase the return on investment.

We have developed a restaurant opening program and team designed to optimize the performance of our new restaurants. The team includes a general manager, training manager, purchasing manager,

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beverage manager and chef/kitchen manager. Restaurant managers typically complete a one to three month training program and we rotate certain of the senior managers of our established restaurants to a new restaurant during the course of the first three months it is in operation in order to ensure quality control.

Unit Economics

While we seek to develop high profile locations that create a distinctive dining experience, we are able to maintain unit operating margins due to high sales volumes coupled with effective cost controls. For the year ended January 1, 2007, the average sales for our nine owned Smith & Wollensky restaurants open for the full period were $10.3 million. Sales for the year ended January 1, 2007 for the managed Smith & Wollensky restaurant in New York were $26.7 million, for which we received $613,000 as a management fee. For the year ended January 1, 2007, average sales for all of our twelve consolidated restaurants open for the full period were $9.9 million per restaurant. Our average cash investment, net of landlord contributions, was approximately $6.8 million for the nine owned Smith & Wollensky restaurants open as of December 31, 2006, excluding pre-opening costs. We expect that each free-standing Grill restaurant, which will range between 7,000 and 9,000 square feet, will require a cash investment of approximately $2.5 million, net of landlord contributions and excluding pre-opening expenses. The estimate of the amount of our cash investment assumes that the property on which each new unit is located is being leased and is dependent on the size of the location and the amount of the landlord contribution. We will continue to pursue our growth strategy until the consummation of the Merger or we are otherwise acquired, if and when that occurs.

Our Other Restaurant Concepts

In addition to Smith & Wollensky, we have developed several other restaurant concepts.

The following table sets forth information with respect to our other restaurant concepts, which are located in New York City, except where noted:

Location	Opening Year		Approximate Seating Capacity
The Post House(1)		1980		175
Quality Meats(2)(3)		2006		190
Cité(2)(4)		1989		375
Park Avenue Café(2)		1992		210
Mrs. Parks Tavern(5)		1994		290
Maloney & Porcelli(6)		1996		410

(1)This restaurant is managed not owned.

(2)These restaurant assets are owned.

(3)This location, which was previously The Manhattan Ocean Club, which we closed on January 1, 2006. We reopened this location with our new concept, “Quality Meats”, on April 10, 2006 with a seating capacity of approximately 190.

(4)This location will be closing on April 2, 2007 because it was unable to achieve a level of income in-line with our expectations.

(5)This location is located in Chicago, Illinois. We currently only receive a fee for the right of its owner to use the name “Mrs. Parks Tavern”.

(6)This location is managed not owned, but the accounts and results of the entity that owns this location are consolidated pursuant to the adoption of FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities” (“FIN 46 (R)”). See Notes to Consolidated Financial Statements, Note 2.

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Marketing, Advertising and Promotions

For the past 20 years, the goal of our marketing strategy has been to build a loyal customer base, to enhance what we believe is the strong identity and name recognition of our restaurants, to generate positive word-of-mouth advertising and to create opportunities to cross-promote our restaurants. In order to attract new customers, we focus primarily on television advertising. We also employ limited radio and print advertising. We achieve national as well as local exposure through our print campaign.

We believe that our commitment to advertising sets us apart from other upscale restaurants, and that our advertising expenditures are substantially greater than that of comparable high-end restaurants. We also take advantage of opportunities to cross-promote our restaurants by publishing advertisements and marketing materials featuring all of our restaurants as a group.

Not only do we advertise directly to the general public, but we also offer specific customer services that have the potential for repeated referrals. Our restaurants host parties for the concierges of nearby hotels that are designed to enhance each restaurant’s name recognition and reputation for quality and service, thereby encouraging concierge recommendations. Additionally, our wait staff selectively provides complimentary food and drinks to customers, further developing customer loyalty.

We are continually strengthening our name recognition and brand identity, particularly in new markets. In conjunction with restaurant openings, we host dinners, lunches and cocktail parties for various civic, philanthropic and charitable organizations.

We also host Wine Week™, which we started in 1986. Wine Week™ has evolved into “National Wine Weeks™” which we hold twice a year, usually in March and September. Our restaurants sponsor wine tastings at lunch each day for the entire week and wine makers are invited to represent their wineries and to serve and discuss their wines with customers. We believe these events enhance our restaurants’ reputations for dedication to maintaining superior quality wine lists. Our other promotions include various tasting events as well as dinners hosted by nationally renowned chefs. We believe that our promotions build customer loyalty and increase future sales at our restaurants.

Restaurant Operations and Management

We believe that our high unit sales volume and portfolio of concepts allow us to attract, compensate and maintain high-quality, experienced restaurant management and personnel. We believe that we have a low rate of staff turnover for the restaurant industry. Professional, efficient and attentive service is integral to our overall success. Each of our restaurants is operated as an independent facility with each restaurant’s general manager exercising discretion and playing a key role in its success. The general managers in our restaurants have an average tenure with us of over 17 years. During training, restaurant personnel are instructed in various areas of restaurant management, including food quality and preparation, wine selection, customer service, beverage service, quality and cost controls and employee relations. Restaurant general managers are also provided with operations manuals relating to food and beverage preparation and operation of restaurants. These manuals are designed to ensure that we will provide uniform operations in each of our restaurants, high-quality products on a consistent basis and proper service.

We have developed a restaurant opening program and team designed to optimize the performance of our new restaurants. The team includes a general manager, training manager, purchasing manager, beverage manager and chef/kitchen manager. All of these employees currently fill functions within our organization, but will be available to open new restaurants when we do resume our growth. Restaurant managers typically complete a one to three month training program and we rotate certain of the senior managers of our established restaurants to a new restaurant during the course of the first three months it is in operation in order to ensure quality control. Management believes it is imperative for new managers to spend much of their training period side by side with managers in existing operations in order to gain

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critical insight into day-to-day operations and overall management philosophy. The director of operations and the local restaurant manager interview all staff on site. Chefs are brought to an established unit for training prior to an opening, and periodically are given the opportunity to work at other locations under the supervision of our critically acclaimed chefs. The director of management information systems typically stays at each new location until all accounting and management information systems are fully operational. We also coordinate our marketing, advertising and promotional program to support new restaurant openings while at the same time building national brand recognition.

New wait staff at our restaurants participate in training during which time they work under the close supervision of our corporate opening team. Wait staff are trained and tested on proper service technique, wine and food knowledge, customer satisfaction and point-of-sale system usage.

Purchasing

Our ability to maintain consistent quality throughout our restaurants depends in part upon our ability to acquire food products and related items from reliable sources in accordance with our specifications. To ensure continuity of pricing and quality throughout all of our restaurants, we maintain on-premise stewards at most of our restaurants who are supported by a corporate purchasing department.

We attempt to maintain a consistent food and beverage cost as a percentage of sales through a variety of means. We have gained a great knowledge of trends and fluctuations in the pricing of our key commodities based on over 25 years of experience. While we do not believe most market conditions warrant entering long-term pricing contracts on our primary items, we contract or lock into appropriate volume commitments. We lock pricing and volume availability on key items such as beef and shrimp, which represent a majority of our food cost, when we deem it beneficial. We have on occasion attempted modest hedges against volatility in the price of beef. Under extreme circumstances, such as the aftermath of the single case of mad cow disease reported in December 2003, we may experience significant cost volatility. Although we do not have a single source of supply for any particular food item and we believe that adequate alternative sources of supply are readily available, these alternative sources might not provide as favorable terms to us as our current suppliers when viewed on a long-term basis. In addition, we believe we are able to achieve cost savings through purchasing restaurant items such as glass, china, silver, utensils and similar items and equipment and some food items for all restaurants through Company wide agreements.

Each of our restaurants also has an in-store beverage manager and/or wine manager who is supported by our corporate wine department. The beverage manager or wine manager at each restaurant purchases the majority of the wine in the local markets for each restaurant. Although the beverage manager may tailor some of the wine selections to customer preferences, market availability and menu/wine pairing, our Great-American Wine List forms the core of our selections at the Smith & Wollensky locations.

We devote considerable attention to controlling food costs. We make use of information technology and each of our restaurants’ point-of-sale system, providing us with precise information on daily sales and inventory needs, thus reducing our need to carry large quantities of food inventory. This cost management system is complemented by our ability to obtain volume-based discounts. Additionally, as we open additional restaurants, we expect to be able to take further advantage of volume discounts and other cost savings.

Management Arrangements

Pursuant to our management arrangements, we provide new restaurant concept design, construction, staff training, menu development, administration, managerial and operating services to the restaurants we manage.

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Smith & Wollensky.   We manage the Smith & Wollensky restaurant in New York pursuant to a management agreement with St. James. The agreement continues until terminated by the parties in accordance with the terms of the agreement described below. Pursuant to the management agreement, we provide management services to the Smith & Wollensky restaurant in New York in exchange for a fee of 2.3% of all restaurant sales of the Smith & Wollensky restaurant in New York. Smith & Wollensky Operating Corp., an entity controlled by Mr. Stillman, is one of the two general partners of St. James. Mr. Stillman is also a limited partner of St. James. The other general partner of St. James may terminate the agreement if we fail to manage and market the restaurant in the same manner as has been done since the opening of the restaurant in 1977, and do not cure any failure to do so within 30 days after notice from the other general partner. In addition, the other general partner may terminate the agreement if we fail to prepare and deliver financial statements to St. James each month, and do not cure any failure to do so within three days after notice from the other general partner. Additionally, under the terms of the agreement, the other partner of St. James may terminate the agreement and replace us with any person, firm or corporation chosen by the other general partner, if we cease to be operated and directed by Mr. Stillman, whether by death, incapacity, retirement or otherwise and if within 60 days of receipt by St. James of financial statements indicating that restaurant sales, available funds or gross profit margins fall below defined levels. The levels for any quarter that are set by the agreement in that event are restaurant sales less than $5.3 million, available funds less than $1.4 million, or gross profit margins less than 70%. The levels for any trailing four quarters that are set by the agreement in that event are restaurant sales less than $25.0 million, available funds less than $7.0 million, or gross profit margins less than 72%. The other general partner of St. James can also terminate the agreement if there is a sale of the restaurant or of all of the partnership interests in St. James. These termination rights do not include the right to terminate the trade name license.

The Post House.   We manage The Post House in the Lowell Hotel in New York, and the food and beverage service for the Lowell Hotel, pursuant to a written restaurant management agreement. The agreement expired on January 23, 2007. We are currently in the process of amending the agreement. Pursuant to The Post House agreement, we provide operating services for The Post House in exchange for a fee of 6.0% of gross revenues of The Post House. We have verbally notified the owners of the Lowell Hotel of our intent to reduce the management fee from 6.0% to 5.0%. The Post House agreement may be terminated by either party upon one year’s notice. Additionally, The Post House agreement may be terminated by the owners of the Lowell Hotel under certain circumstances upon notice to us, including if we are adjudicated bankrupt or insolvent, upon 30 days notice to us if there is a sale of the restaurant, upon six months notice to us if the owners enter into a joint venture in the operation of the restaurant with a third party, or if the owners enter into certain financing arrangements. In addition, if we, or any of our successors, cease substantially to perform our duties and responsibilities (including maintaining the current general atmosphere and administering cost controls) under this agreement to the owners’ satisfaction in their sole and absolute discretion, or if we materially injure the owner’s reputation or business, the owners may terminate the agreement upon 30 days notice.

Maloney & Porcelli.   We manage Maloney & Porcelli in New York pursuant to a written restaurant management agreement (“Maloney Agreement”). We own the rights to the name Maloney & Porcelli and can use the name anywhere outside of a five-mile radius of the New York Maloney & Porcelli. We are not obligated to pay a royalty or fee outside of New York. We paid $1.5 million for the right to provide management services to Maloney & Porcelli, for which we receive a fee of 3.0% of all restaurant sales, plus a sum equal to the lesser of (i) 50% of net operating cash flow or (ii) cash flow minus sums to be retained by the owner of Maloney & Porcelli pursuant to the Maloney Agreement. The amounts to be retained by Maloney & Porcelli increased from $300,000 in 1999, to $360,000 in years 2000 through 2003 and to $480,000 in 2004 where it will remain until 2011. The Maloney Agreement grants us the right to manage Maloney & Porcelli so long as its owner occupies the premises for the operation of a restaurant. The Maloney Agreement may be terminated by the owner upon 30 days notice to us of certain defaults,

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including our failure to perform our duties and responsibilities under the agreement, gross negligence, reckless disregard of the interests of the owner, violations of law which materially injure the business of the restaurant or the reputation of the owner, or our failure to pay the amounts to be retained by the owner as described above. We had an option to purchase all of the assets of Maloney & Porcelli at any time before July 1, 2003, at a price of $9.5 million. This amount increased by $1.0 million on July 1, 2003 to $10.5 million. We could have exercised this option, at the $10.5 million purchase price, at any time between July 1, 2003 and June 30, 2004, subject to the owner’s right to preempt the purchase option by paying us an amount equal to the scheduled purchase price. We did not exercise the option as of June 30, 2004. Additionally, we have a right of first refusal, should the owner receive an offer to sell Maloney & Porcelli. In accordance with FIN 46(R), our consolidated financial statement results for the fiscal year ended January 1, 2007 and January 2, 2006, respectively, include the accounts and results of the entity that owns Maloney & Porcelli.

Park Avenue Café In Chicago.   Prior to December 2002, we operated the Park Avenue Café in Chicago, Mrs. Park’s Tavern and the other services of the food and beverage department of the Doubletree Hotel in Chicago (“Doubletree”) pursuant to a written sub-management agreement (“Doubletree Agreement”). We received a management fee equal to the sum of 1.5% of sales and a percentage of earnings, as defined. The Doubletree Agreement was to expire on the earlier of December 31, 2004 or the termination of the related hotel management agreement between Chicago HSR Limited Partnership (“HSR”), the owner of the Doubletree and Doubletree Partners, the manager of the Doubletree. During December 2002, HSR closed the Park Avenue Café restaurant in Chicago and discontinued our requirement to provide other food and beverage department service for the Doubletree. As a result, we are no longer receiving the fees described above. During the three-month period ended March 31, 2003, we reached an agreement with HSR. The agreement provides for the continued use by HSR of the name Mrs. Parks Tavern and required us to provide management services to support that location. In exchange for the use of the Mrs. Park’s Tavern name and related management support we received an annual fee of $50,000. During 2004, we agreed to reduce the annual fee to $12,000 for the continued use by HSR of the name Mrs. Parks Tavern, but no longer provide management services to support the location.

ONEc.p.s.   Pursuant to a management agreement with Plaza Operating Partners, Ltd. (the “Plaza Operating Partners”), we managed the ONEc.p.s. restaurant located in the Plaza Hotel, New York. The agreement was to expire on September 12, 2010. At the inception of the agreement we paid $500,000 for the right to provide these management services, for which we received a base management fee of 4% of the gross revenues recognized from the services provided at ONEc.p.s. plus an additional fee of 40% of the restaurant’s operating cash flows, if any, as reduced by the repayment of project costs and working capital contributions. After all the project costs and working capital contributions would have been repaid, the additional fee would have increased to 50% of the restaurant’s operating cash flows. The base management fee was payable on a current basis only to the extent there was sufficient cash flow after all operating expenses have been accrued. To the extent that there was not sufficient cash flow, payment of the base management fee would have carried forward without interest from one year to the next, but the owner of the restaurant had no liability for such non-payment. The ONEc.p.s. agreement could have been terminated by Plaza Operating Partners at any time immediately upon notice to us, due to the fact that pre-opening costs exceeded $5.25 million. In addition, since the funds in the working capital account had been expended, and insufficient funds existed to pay operating expenses, the agreement could have been terminated by either party upon notice. Plaza Operating Partners could also have terminated the agreement if we failed to achieve applicable performance goals, if we were subject to certain events of bankruptcy or insolvency, if the individual who directed the daily operations of the management company or has overall control and decision making authority of the management company was replaced other than in the ordinary course of business or in connection with the merger, consolidation or other transfer of any

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direct or indirect interest in the tenant, or at any time upon 90 days notice to us and the payment of a fee to us.

As of September 30, 2002, we had contributed $500,000 for the right to provide management services for the ONEc.p.s restaurant and had contributed, since the restaurant’s inception in September 2000, approximately $924,000 of additional funding for this restaurant. Based on the terms of our agreement, we anticipated being reimbursed from Plaza Operating Partners for the additional funding that we provided. We recorded a reserve of $300,000 in 2001 based on our determination that, at the time, part of the receivable might not be recoverable. During the quarter ended September 30, 2002, we determined that the carrying value of the management contract was impaired and the remaining unamortized investment of approximately $398,000 was written off. In the fourth quarter of 2002, we reached an agreement with Plaza Operating Partners and collected $300,000 as our share of the additional funding for operating losses. During the three months ended September 30, 2002, we recorded an additional write-off of $324,000 for the remaining portion of the receivable deemed no longer recoverable.

On December 31, 2003, we amended the agreement with Plaza Operating Partners. Effective January 1, 2004, Plaza Operating Partners agreed to pay us $50,000 per quarter as a minimum base management fee. The minimum base management fee was credited against any management fee that we earned under the agreement. This amendment also gave either party the right to fund or refuse to fund any necessary working capital requirements. Plaza Operating Partners agreed to fund the cash requirements of ONEc.p.s. until October 16, 2004, the date that we were notified by Plaza Operating Partners that it had sold the Plaza Hotel, the property in which the restaurant was located, and the date Plaza Operating Partners directed us to advise the employees of ONEc.p.s. of the closing. We funded the cash requirements of ONEc.p.s. until January 1, 2005, the date on which we were required to close the restaurant at the direction of the new owner. On November 1, 2004, we informed certain of our employees that ONEc.p.s. would close effective January 1, 2005. As a result, we no longer accrue quarterly management fees under our agreement with Plaza Operating Partners with respect to any periods following January 1, 2005. For information about litigation regarding ONEc.p.s. see “Item 3. Legal Proceedings”.

Management Information Systems

We initiate and record our financial information for each restaurant through centralized accounting and management information systems. We collect sales and related information daily from each restaurant and we provide restaurant managers with operating statements for their respective locations. We connect point-of-sale systems in individual restaurants via secured data network to a central data repository in the corporate office and have upgraded such point-of-sale systems to facilitate the on-line downloading and constant monitoring of financial information. We manage a central database of frequent customers and maintain our website, which includes the ability to sell all Smith & Wollensky branded products and cookbooks.

Competition

The restaurant industry is intensely competitive in all our markets. We compete on the basis of the taste, quality and price of food offered, customer service, ambience, location and overall dining experience. The restaurant business is often affected by changes in consumer tastes and discretionary spending patterns, national and regional economic conditions, demographic trends, adverse weather conditions, consumer confidence in the economy, traffic patterns, the cost and availability of raw material and labor, purchasing power, governmental regulations and local competitive factors. Although we believe we compete favorably with respect to each of these factors, some of our direct and indirect competitors are well-established national, regional or local chains and some have substantially greater financial, marketing, and other resources than we do. We also compete with many other restaurant and retail establishments for site locations and restaurant level employees.

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Service Marks, Trademarks and License Agreements

We have registered with the United States Patent and Trademark Office the names “Maloney and Porcelli”  “Wine Week” and “National Wine Week.”  In addition, our subsidiary, La Cité Associates, L.L.C., has registered the names “Cité” and “Cité Grill,” and another of our subsidiaries, Atlantic & Pacific Grill Associates, LLC, has registered the names “Park Avenue Café,” “Park Avenue Café Swordfish Chop,” “Swordfish Chop,” and “Mrs. Park’s Tavern.” The Manhattan Ocean Club Associates, LLC, which is one of our subsidiaries, has registered the name “The Manhattan Ocean Club”, and “Quality Meats.” We have also registered trademarks in several foreign countries. Parade 59 Restaurant LLC, which is a subsidiary of ours, has registered the name “ONEc.p.s.” In addition, pursuant to our management agreement regarding Maloney & Porcelli discussed above, we are the exclusive owner of the name “Maloney & Porcelli” and may use that name without liability to any party anywhere outside a five-mile radius from the Maloney & Porcelli in New York. We are not aware of any infringing uses of our trademarks or service marks that we believe could materially affect our business. We believe that our trademarks and service marks are valuable to the operation of our restaurants and are important to our marketing strategy.

In August 1996, we acquired an exclusive license for the use of the names “Smith & Wollensky,” “Wollensky’s Grill,” and all associated service marks, trademarks, trade names and trade dress from St. James Associates for $2.5 million (the “Original License Agreement”). The Smith & Wollensky license grants us the exclusive right to use the licensed names throughout the United States and the world, subject to the limitations discussed below. We are aware of a restaurant located in South Africa, which is named “Smith & Wollensky.” We are not associated with this restaurant, and have not authorized the use of the name “Smith & Wollensky” to this restaurant under our license.

Under the Original License Agreement, St. James Associates had reserved the exclusive right to use the licensed names, subject to receiving our consent in specific circumstances, within a 100-mile radius of the Smith & Wollensky in New York, subject to our exclusive right to use the name within a 10-mile radius of City Hall in Philadelphia, Pennsylvania. Consequently, we may not open new Smith & Wollensky restaurants or pursue retailing or merchandising opportunities within such reserved territory. We have the right to sublicense all or any portion of our rights under the license agreement without the consent of St. James Associates to an affiliate or any other entity so long as we exercise and maintain managerial control over all restaurants owned by such entity in the manner that we currently exercise managerial control over the New York Smith & Wollensky restaurant. Each sublicense agreement that we execute must contain specific provisions set forth in the licensing agreement and declare that the sublicense will be deemed automatically assigned to St. James Associates upon any lawful termination of the license agreement. In all other circumstances, we must obtain the written consent of St. James Associates to sublicense our rights under the license agreement.

Under the Original License Agreement, we are required to pay a one-time fee to St. James Associates upon the opening of each new restaurant utilizing the licensed names. This fee is equal to the fee paid in the previous year (which in 2006 would have been $244,000 if we had opened a restaurant) increased by the lesser of the annual increase in the Consumer Price Index or 5% of the fee for the preceding year. In addition, we must pay a royalty of 2.0% of aggregate annual gross restaurant sales and non-restaurant sales (subject to an annual aggregate minimum of $800,000 to be paid in 2004 and each year thereafter). Additionally, the Smith & Wollensky license provides for a royalty fee of 1.0% of annual gross restaurant sales for any new steakhouses opened in the future by us not utilizing the licensed names. If we terminate or default on the Smith & Wollensky license, we are subject to a fee of $2.0 million upon termination or $2.5 million to be paid over four years. An entity controlled by Alan Stillman is a general partner and a limited partner of St. James Associates.

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On January 19, 2006 we (the “Licensee”), signed an Amended and Restated Sale and License Agreement, dated as of January 1, 2006 (the “License Agreement”), with St. James Associates, L.P. (the “Licensor”) which provides for, among other things, a reduced licensing fee only for the opening of Wollensky’s  Grills that are less than 9,000 square feet. Pursuant to the License Agreement, the one-time opening fee paid to the Licensee for each new additional Grill (“Grill Opening Fee”) will be at a rate equal to 50% of the fee due under the Original License Agreement. In addition, the annual royalty fee (“Grill Royalty Fee”) will be reduced from 2% to 1% for annual sales from Grills. Both the Grill Opening Fee and Grill Royalty Fee are subject to maximum average per-person checks that, if exceeded, could increase both the Grill Opening Fee and Grill Royalty Fee, but not to exceed the opening fee and royalty fee contained in the original Licensing Agreement. The terms of the amendment do not apply to the existing Wollensky’s Grills. For further information see “—Management Arrangements.”

Government Regulation

Our business is subject to extensive federal, state and local government regulations, including regulations relating to alcoholic beverage control, the preparation and sale of food, public health and safety, sanitation, building, zoning and fire codes. A significant percentage of the revenues of each of the restaurants we own or manage are attributable to the sale of alcoholic beverages. Each restaurant has appropriate licenses from regulatory authorities allowing it to serve liquor and/or beer and wine, and each restaurant has food service licenses from local health authorities. Our licenses to serve alcoholic beverages must be renewed annually and each restaurant is operated in accordance with standardized procedures designed to assure compliance with all applicable codes and regulations.

We are subject, in some states, to “dram shop” statutes which generally provide a person injured by an intoxicated person the right to recover damages from an establishment which wrongfully served alcoholic beverages to such person and we carry liquor liability coverage as part of our existing comprehensive general liability insurance. The development and construction of additional restaurants will be subject to compliance with applicable zoning, land use and environmental regulations.

We are also subject to the Fair Labor Standards Act, the Immigration Reform and Control Act of 1986 and various state laws governing such matters as minimum wages, overtime, tip credits and reporting and other working conditions. A significant number of our hourly personnel are paid at rates related to the federal minimum wage. In addition, the Federal Americans with Disabilities Act prohibits discrimination on the basis of disability in public accommodations and employment.

Seasonality

Our business is seasonal in nature depending on the region of the United States in which a particular restaurant is located, with revenues generally being less in the third quarter than in other quarters due to reduced summer volume and highest in the fourth quarter due to year-end and holiday events. As we expand in other locations as expected, the seasonality pattern may change.

Employees

As of January 1, 2007 we had 1,676 employees. Of these, 44 were employed in our office facilities. In our restaurants, we had 1,632 employees, including 285 management personnel and administrators at the restaurants. None of our employees are covered by collective bargaining agreements. Management believes our relationships with our employees are excellent.

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Financial and Geographic Information

For information relating to our revenues, profits and losses and assets, please see “Item 6. Selected Financial Data.” All of our revenues are attributable to our operations in the United States, and all of our long-lived assets are located in the United States.

Item 1A. Risk Factors.

The following are the most significant risk factors applicable to us:

RISKS RELATED TO OUR BUSINESS

Due to the ongoing interest in the acquisition of SWRG and the related diversion of our management’s attention to the operation of our business, our business and results of operations may be adversely affected.

As discussed in “Item 1. Business—Possible Acquisition of SWRG and Related Transactions,” we have entered into the Merger Agreement, which, subject to stockholder approval and various other conditions, would result in our being acquired by Patina and each of our stockholders receiving $9.25 in cash without interest less any required withholding tax for each share of Common Stock they own. Our stockholders would have no further interest in the Company if the Merger were to occur. As also noted above, we have received an unsolicited bid from Landry’s to acquire us for $9.75 per share.  As a result of the ongoing interest in SWRG, our management and the Special Committee have spent and will continue to spend a significant amount of time evaluating proposals of, and providing information to, parties that are interested in pursuing an acquisition of SWRG. In addition, management’s time and attention will be diverted in connection with the closing of any sale of the Company. Our business and operating results may suffer due to the diversion of management’s attention.

If the proposed Merger is not completed and we are not otherwise acquired, our business could be harmed and our stock price could decline.

The consummation of the Merger with Patina is, and any potential merger that we undertake with some other party will likely be, conditioned upon, among other things, the adoption of a merger agreement by our stockholders, regulatory approvals and other customary closing conditions. Therefore, any acquisition of SWRG may not be completed or may not be completed in a timely manner. If the Merger Agreement is terminated and there are no other bidders for SWRG, the market price of the Common Stock will likely decline, and, as noted above, our business may have been adversely affected due to the diversion of management’s attention from the operations of our business. Our stock price may decline as a result of the fact that we have incurred and will continue to incur significant expenses related to the Merger prior to its closing that will not be recovered if the Merger is not completed. In addition, our employees may be concerned due to the possibility that any party that acquires SWRG may make personnel changes or eliminate employees. This could result in our employees seeking opportunities with other employers. If we lose employees due to the fact that we may be acquired, we may have difficulty rehiring or replacing those workers if we are not acquired, which would aversely affect our operations.

Our unfamiliarity with new markets may present risks, which could have a material adverse effect on our future growth and profitability.

Our strategy depends on our ability to successfully expand our Wollensky’s Grill brand into new markets in which we have no operating experience. We began to open Smith & Wollensky restaurants outside of New York City in 1997. Historically, new Smith & Wollensky restaurants opened in expanded markets generally take about 15 to 36 months to achieve expected company-wide targeted levels of performance, and we expect our new free-standing Grills to have a similar ramp-up period. This is due to higher operating costs caused by temporary inefficiencies typically associated with expanding into new regions and opening new restaurants, such as lack of market awareness and acceptance and limited

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availability of experienced staff. As a result, our continued expansion may result in an increase in our operating costs. New markets may have different competitive conditions, consumer tastes and discretionary spending patterns than our existing markets, which may cause our restaurants in these new markets to be less successful than our restaurants in our existing markets. We cannot assure you that restaurants in new markets will be successful.

Our success in profitably pursuing our strategy of expansion will depend on our ability to open new restaurants efficiently. Our planned expansion involves a number of risks, which could delay or prevent the opening of new restaurants.

Our ability to open new restaurants efficiently is subject to a number of factors, including:

·Selection and availability of suitable restaurant sites;

·Negotiation of acceptable lease or purchase terms for such sites;

·Negotiation of reasonable construction contracts and adequate supervision of construction:

·Our ability to secure required governmental permits and approvals for both construction and operation;

·Availability of adequate capital;

·General economic conditions.

·Adverse weather conditions.

Our inability to effectively address those factors within our control, in addition to the factors listed above that are beyond our control, could adversely affect our ability to open our planned new restaurants on a timely basis, or at all. Delays in opening or failures to open planned new restaurants could cause our business, results of operations and financial condition to suffer.

Terrorism and war may have material adverse effect on our business.

Terrorist attacks, such as the attacks that occurred in New York and Washington, D.C. on September 11, 2001, and other acts of violence or war in the United States or abroad, such as the war in Iraq, may affect the markets in which we operate and our business, results of operations and financial conditions. The potential near-term and long-term effects these events may have on our business operations, our customers, the markets in which we operate and the economy is uncertain. Because the consequences of any terrorist attacks, or any armed conflicts are unpredictable, we may not be able to foresee events that could have an adverse effect on our markets or our business.

Our profitability is dependent in large measure on food, beverage and supply costs which are not within our control.

Our profitability is dependent in large measure on our ability to anticipate and react to changes in food, beverage and supply costs. Various factors beyond our control, including climatic changes and government regulations, may affect food and beverage costs. In 2004, we experienced a significant increase in the cost of beef after a single case of “mad cow disease” was reported in the United States. In addition, our dependence on frequent, timely deliveries of fresh beef, poultry, seafood and produce subjects us to the risks of possible shortages or interruptions in supply caused by adverse weather or other conditions, which could adversely affect the availability and cost of any such items. We cannot assure you that we will be able to anticipate or react to increasing food and supply costs in the future. The failure to react to these increases could materially and adversely affect our business, results of operations and financial condition.

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The restaurant industry is affected by changes in consumer preferences and discretionary spending patterns that could result in a reduction in our revenues.

Consumer preferences could be affected by health concerns about the consumption of beef, the primary item on our Smith & Wollensky restaurants’ menus, or by specific events such as the outbreak of or scare caused by “mad cow disease”, the popularity of the Atkins diet and the South Beach diet and changes in consumer preferences to a “carb consciousness”. If we were to have to modify the emphasis on beef in our restaurants’ menus, we may lose customers who would be less satisfied with a modified menu, and we may not be able to attract a new customer base to generate the necessary revenues to maintain our income from restaurant operations. A change in our menus may also result in us having different competitors. We may not be able to successfully compete against established competitors in the general restaurant market. Our success also depends on various factors affecting discretionary consumer spending, including economic conditions, disposable consumer income, consumer confidence and the United States participation in military activities. Adverse changes in these factors could reduce our customer base and spending patterns, either of which could reduce our revenues and results of operations.

The failure to enforce and maintain our trademarks and trade names could adversely affect our ability to establish and maintain brand awareness.

We license from St. James Associates the exclusive and perpetual right to use and sublicense the trademarks “Smith & Wollensky” and “Wollensky’s Grill” and any variations of such names throughout the United States and the world, except that St. James Associates has reserved the exclusive right to use the licensed names, subject to receiving our consent in specified circumstances, within a 100-mile radius of the Smith & Wollensky in New York, subject to our exclusive right to use the name within a 10-mile radius of City Hall in Philadelphia, Pennsylvania and to open one Wollensky’s Grill within the 100-mile radius of the Smith & Wollensky in New York, but outside of New York City. Consequently, we may not open new Smith & Wollensky restaurants or pursue retailing or merchandising opportunities within such reserved territory. St. James Associates has the right to terminate the license agreement due to specified defaults, including non-payment of amounts due under the agreement and certain events of bankruptcy or insolvency. St. James also has the right to terminate the agreement if we fail to perform any term, covenant or condition under the agreement, and we do not remedy such failure within 30 days after receiving notice of such failure. This does not include situations where a restaurant sells steak incidentally, continues to be operated under an original name, or is located outside of the reserved territory. If we terminate or default on the Smith & Wollensky license, we are subject to a fee of $2.0 million upon termination or $2.5 million to be paid over four years.

Our current operations and marketing strategy depend significantly on the strength of trademarks and service marks, especially Smith & Wollensky. The success of our growth strategy depends on our continued ability to use our existing trademarks and service marks to increase brand awareness and further develop our branded products. Although we are not aware of any infringing uses of any of the trademarks or service marks that we believe could materially affect us; we cannot assure you that we will be free from such infringements in the future. For example, we do not own or manage the restaurant located in South Africa, which is named “Smith & Wollensky.” Although the existence of this restaurant has not had any material impact on our operations to date, we cannot assure you that they will not have a negative impact on our future plans for growth or on our business, results of operations and financial condition.

The names “Smith & Wollensky” and “Wollensky’s Grill” represent our core concepts. The termination of our right to use these names or our failure to maintain any of our other existing trademarks could materially and adversely affect our growth and marketing strategies.

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Certain of our material agreements may be terminated if Alan Stillman is no longer our chief executive officer, if Mr. Stillman ceases to direct our business, or if Mr. Stillman’s ownership interests fall below certain levels.

Our success has been, and will continue to be, dependent on Alan Stillman, our Chief Executive Officer. The loss of Mr. Stillman’s services could materially and adversely affect our business, financial condition and development. Pursuant to our management agreement for the Smith & Wollensky restaurant in New York with St. James Associates, the agreement can be terminated if we cease to be operated and directed by Alan Stillman, whether by death, incapacity, retirement or otherwise and a notice of termination is sent to us within 60 days of receipt by St. James Associates of financial statements indicating that restaurant sales, available funds or gross profit margin fall below defined levels.

We entered into an employment agreement with Mr. Stillman that has a term ending in May 2011. However, this employment agreement can be terminated by Mr. Stillman at any time with 15 business days notice, or if we materially breach the agreement, remove Mr. Stillman as Chief Executive Officer, materially diminish Mr. Stillman’s responsibilities, or relocate Mr. Stillman outside of New York City.

Mr. Stillman’s duties to St. James Associates and MW Realty Associates on the one hand, and us on the other hand, may result in a conflict of interest.

An entity controlled by Mr. Stillman, is one of the two general partners of St. James Associates, which owns the Smith & Wollensky restaurant in New York and the rights to the trademarks “Smith & Wollensky” and “Wollensky’s Grill” and any variations of such names, and is one of the two general partners of MW Realty Associates, which owns the property on which the Smith & Wollensky restaurant in New York is located. As a result, in the event that a dispute arose between us on the one hand, and St. James Associates and/or MW Realty Associates on the other hand, it is possible that Mr. Stillman would have a conflict of interest as a result of his duties to all parties. Such a conflict of interest could make the resolution of any such dispute more difficult.

Because we maintain a small number of restaurants, the negative performance of a single restaurant could have a substantial impact on our operating results.

We currently operate 14 restaurants, 11 of which we own. Due to this relatively small number of restaurants, poor financial performance at any owned restaurant could have a significant negative impact on our profitability as a whole. In addition we own S&W of New Orleans, which was closed on August 29, 2005 due to Hurricane Katrina. We also own Dallas S&W, which was closed on December 31, 2006 because it was unable to achieve a level of income from operations that was in line with our expectations. At January 1, 2007, both S&W of New Orleans and S&W of Dallas were listed as available for sale. We are currently under contract to sell the property for the Smith & Wollensky in Dallas for $3.9 million, less commission and other expenses of approximately $250,000. We plan on closing on the sale of the Dallas property during the beginning of April 2007. In addition, we plan to close Cité on April 2, 2007 because it was unable to achieve a level of income from operations that was in line with our expectations. Future growth in sales and profits will depend to a substantial extent on our ability to increase sales and profits at our restaurants open less than fifteen months, to operate our existing restaurants at higher sales levels that generate higher operating profits and to increase the number of our restaurants. The results achieved to date by our relatively small restaurant base may not be indicative of the results of a larger number of restaurants in a more geographically dispersed area with varied demographic characteristics. We cannot assure you that we will be able to increase sales and profits at our restaurants open less than 15 months, operate our existing restaurants at higher sales levels that generate equal or higher operating profits or increase the number of our restaurants sufficiently to offset the impact of poor performance at any one restaurant.

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Our geographic concentration in New York City could have a material adverse effect on our business, results of operations and financial condition.

We currently operate five restaurants in New York City, three of which we own. As a result, we are particularly susceptible to adverse trends and economic conditions in New York City, including its labor market, which could have a negative impact on our profitability as a whole. In addition, given our geographic concentration, negative publicity regarding any of our restaurants in New York City could have a material adverse effect on our business, results of operations and financial condition, as could other regional occurrences such as acts of terrorism, local strikes, natural disasters or changes in laws or regulations.

We plan to incur substantial costs over the long-term in connection with our future expansion plans. We may need to seek additional financing sooner than we anticipate, which may not be available on acceptable terms or at all:

We may need to seek additional financing sooner than we anticipate as a result of any of the following factors:

·Changes in our operating plans;

·Acceleration of our expansion plans;

·Lower than anticipated sales;

·Increased costs of expansion, including construction costs;

·Increased food and/or operating costs; and

·Potential acquisitions.

Additional financing may not be available on acceptable terms or at all. If we fail to get additional financing as needed, our business, results of operations, financial conditions and expansion plans would likely suffer.

Our operating results may fluctuate significantly due to seasonality and other factors beyond our control.

Our business is subject to seasonal fluctuations, which may vary greatly depending upon the region of the United States in which a particular restaurant is located, with revenues generally being less in the third quarter than in other quarters due to reduced summer volume and highest in the fourth quarter due to year-end and holiday events. In addition to seasonality, our quarterly and annual operating results and comparable unit sales may fluctuate significantly as a result of a variety of factors, including:

·The amount of sales contributed by new and existing restaurants;

·The timing of new openings;

·Increases in the cost of key food or beverage products;

·Labor costs for our personnel;

·Our ability to achieve and sustain profitability on a quarterly or annual basis;

·Adverse weather;

·Consumer confidence and changes in consumer preferences;

·Health concerns, including adverse publicity concerning food-related illness;

·The level of competition from existing or new competitors in the high-end segment of the restaurant industry; and

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·Economic conditions generally and in each market in which we are located.

·Acceptance of a new or modified concept in each of the new markets in which we could be located.

These fluctuations make it difficult for us to predict and address in a timely manner factors that may have a negative impact on our business, results of operations and financial condition.

Our expansion may strain our infrastructure, which could slow restaurant development.

Our growth strategy may place a strain on our management systems, financial controls, and information systems. To manage our growth effectively, we must maintain the high level of quality and service at our existing and future restaurants. We must also continue to enhance our operational, information, financial and management systems and locate, hire, train and retain qualified personnel, particularly restaurant managers. We cannot predict whether we will be able to respond on a timely basis to all of the changing demands that our planned expansion will impose on management and those systems and controls. If we are not able to effectively manage any one or more of these or other aspects of our expansion, our business, results of operations and financial condition could be materially adversely affected.

We could face labor shortages, increased labor costs and other adverse effects of varying labor conditions.

The development and success of our restaurants depend, in large part, on the efforts, abilities, experience and reputations of the general managers and chefs at such restaurants. In addition, our success depends in part upon our ability to attract, motivate and retain a sufficient number of qualified employees, including restaurant managers, kitchen staff and wait staff, especially in light of our expansion schedule. Qualified individuals needed to fill these positions are in short supply and the inability to recruit and retain such individuals may delay the planned openings of new restaurants or result in high employee turnover in existing restaurants. A significant delay in finding qualified employees or high turnover of existing employees could materially and adversely affect our business, results of operations and financial condition. Also, competition for qualified employees could require us to pay higher wages to attract sufficient qualified employees, which could result in higher, labor costs. In addition, increases in the minimum hourly wage, employment tax rates and levies, related benefits costs, including health insurance, and similar matters over which we have no control may increase our operating costs.

The employees of two of our managed restaurants in New York, Smith & Wollensky and The Post House are members of a union. The terms of our collective bargaining agreements, as well as future collective bargaining agreements could result in increased labor costs. In addition, our failure to negotiate an agreement in a timely manner could result in an interruption of operations at these managed locations, which would materially and adversely affect our business, results of operations and financial condition.

Unanticipated costs or delays in the development or construction of future restaurants could prevent our timely and cost-effective opening of new restaurants.

We depend on contractors and real estate developers to construct our restaurants. Many factors may adversely affect the cost and time associated with the development and construction of our restaurants, including:

·Labor disputes;

·Shortages of materials or skilled labor;

·Adverse weather conditions;

·Unforeseen engineering problems;

·Environmental problems;

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·Construction or zoning problems;

·Local government regulations;

·Modifications in design; and

·Other unanticipated increases in costs.

Any of these factors could give rise to delays or cost overruns, which may prevent us from developing additional restaurants within our anticipated budgets or time periods or at all. Any such failure could cause our business, results of operations and financial condition to suffer.

We may not be able to obtain and maintain necessary federal, state and local permits which could delay or prevent the opening of future restaurants.

Our business is subject to extensive federal, state and local government regulations, including regulations relating to:

·Alcoholic beverage control;

·The purchase, preparation and sale of food;

·Public health and safety;

·Sanitation, building, zoning and fire codes; and

·Employment and related tax matters.

All these regulations impact not only our current operations but also our ability to open future restaurants. We will be required to comply with applicable state and local regulations in new locations into which we expand. Any difficulties, delays or failures in obtaining licenses, permits or approvals in such new locations could delay or prevent the opening of a restaurant in a particular area or reduce operations at an existing location, either of which would materially and adversely affect our business, results of operations and financial condition.

The restaurant industry is affected by litigation and publicity concerning food quality, health and other issues, which can cause guests to avoid our restaurants and result in liabilities.

Health concerns, including adverse publicity concerning food-related illness, although not specifically related to our restaurants, could cause guests to avoid our restaurants, which would have a negative impact on our sales. We may also be the subject of complaints or litigation from guests alleging food-related illness, injuries suffered on the premises or other food quality, health or operational concerns. A lawsuit or claim could result in an adverse decision against us that could have a material adverse effect on our business and results of operations. We may also be subject to litigation which, regardless of the outcome, could result in adverse publicity. Adverse publicity resulting from such allegations may materially adversely affect us and our restaurants, regardless of whether such allegations are true or whether we are ultimately held liable. Such litigation, adverse publicity or damages could have a material adverse effect on our competitive position, business, results of operations and financial condition and results of operations.

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We are currently, and may in the future be, involved in litigation relating to our management of a restaurant, which, if determined adversely to us, could have a material adverse affect on our results of operations.

As disclosed in “Item 3. Legal Proceedings,” we are currently involved in litigation relating to our management of ONEc.p.s., which, if determined adversely to us, could have a material adverse affect on our results of operations. We may be subject to similar litigation in the future. Even if we ultimately prevail, litigation can be expensive and diverts management attention from the operation of our business.

The covenants contained in the agreements governing our indebtedness may limit our ability to expand our business and our ability to comply with these covenants may be affected by events that are beyond our control.

The agreements governing our indebtedness contain financial and other covenants requiring us, among other things, to maintain financial ratios and meet financial tests, and restrict our ability to incur indebtedness and declare or pay dividends. A violation of any of these provisions could cause acceleration in the due date of our outstanding debt and limit our ability to expand our business. Our ability to comply with these covenants and restrictions may be affected by events beyond our control. In addition, certain of our lenders have security interests in certain of our personal property and fixtures and mortgages on several of our properties.

RISKS RELATED TO OUR COMMON STOCK

The large number of shares of our common stock eligible for public sale and the fact that a relatively small number of investors hold our publicly traded common stock could cause our stock price to fluctuate.

The market price of our common stock could fluctuate as a result of sales by our existing stockholders of a large number of shares of our common stock in the market or the perception that such sales could occur. A large number of shares of our unregistered stock is eligible for public sale and our registered common stock is concentrated in the hands of a small number of institutional investors and is thinly traded. An attempt to sell by a large holder could adversely affect the price of our stock. These sales or the perception that these sales might occur could also make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

Our certificate of incorporation and by-laws may delay or prevent a change of control transaction.

Delaware corporate law contains, and our Amended and Restated Certificate of Incorporation and By-laws contain, provisions that could have the effect of delaying, deferring or preventing our ability to experience a change in control on terms, which you may deem advantageous. These provisions include:

·Providing for a board of directors with staggered terms; and

·Establishing advance notice requirements for proposing matters to be acted upon by stockholders at a meeting.

These provisions could limit the price that investors might be willing to pay in the future for shares of our common stock.

Ownership of approximately 17.6% of our outstanding common stock by five stockholders will limit your ability to influence corporate matters.

A substantial majority of our capital stock is held by a limited number of stockholders. Five stockholders, including our officers and directors and parties affiliated with or related to such persons or to us, own approximately 17.6% of the shares of common stock outstanding, of which 17.1% is owned by our Chief Executive Officer. Accordingly, such stockholders will likely have a strong influence on major decisions of corporate policy, and the outcome of any major transaction or other matters submitted to our stockholders or board of directors, including potential mergers or acquisitions, and amendments to our Amended and Restated Certificate of Incorporation. Stockholders other than these principal stockholders are therefore likely to have little influence on decisions regarding such matters.

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The price of our common stock may fluctuate significantly.

The price at which our common stock will trade may fluctuate significantly. During the twelve month period ended March 29, 2007, the closing price of our Common Stock on the Nasdaq National Market has ranged from $4.25 to $10.23. The stock market has from time to time experienced significant price and volume fluctuations. The trading price of our common stock could be subject to wide fluctuations in response to a number of factors, including:

·Proposed acquisitions of SWRG;

·Fluctuations in quarterly or annual results of operations;

·Changes in published earnings estimates by analysts and whether our actual earnings meet or exceed such estimates;

·Additions or departures of key personnel; and

·Changes in overall stock market conditions, including the stock prices of other restaurant companies.

In the past, companies that have experienced extreme fluctuations in the market price of their stock have been the subject of securities class action litigation. If we were to be subject to such litigation, it could result in substantial costs and a diversion of our management’s attention and resources, which may have a material adverse effect on our business, results of operations, and financial condition.

Item 1B.Unresolved Staff Comments.

Not applicable.

Item 2.Properties.

We lease restaurant space, office facilities and real property under various operating leases. Restaurant space, office facilities and real property lease terms, including renewal options, range from 4 to 39 years through 2045. Our leases provide for renewal options for terms ranging from five to forty years. The restaurant leases provide for minimum annual rent and certain leases contain contingent rental provisions based upon the sales of the underlying restaurants. As of January 1, 2007, our future minimum lease payments of our headquarters and consolidated restaurants are as follows: 2007-$5.6 million; 2008-$5.5 million; 2009-$5.5 million and thereafter-$96.5 million.

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All of our consolidated restaurants, except for Maloney & Porcelli, are located in space leased or owned by us as set forth below:

Restaurant	Location	Approximate Square Footage		Year Of Expiration Of Initial Term		Year Of Expiration If All Options Exercised
Smith & Wollensky	1 Washington Avenue,
	Miami Beach, FL		23,700		2005		2025
	318 North State Street, Chicago, IL		23,500		2012		2022
	1009 Poydras Street,
	New Orleans, LA(1)(2)		16,700		—		—
	3767 Las Vegas Blvd.,
	Las Vegas, NV(3)		30,000		2045		—
	1112 19th Street, Washington, D.C.		20,000		2014		2024
	210 W. Rittenhouse Square,
	Philadelphia,PA		9,700		2010		2020
	4145 The Strand West, Easton
	Town Center, Columbus, OH		10,300		2012		2022
	18438 North Dallas Parkway,
	Dallas, TX(1)(6)		12,700		—		—
	4001 Westheimer, Highland Village
	Shopping Center,
	Houston, TX		15,200		2018		2028
	101 Arlington Street, Boston, MA		26,000		2018		2023
Park Avenue Café	100 E. 63rd Street, NY		11,000		2006		2017
Cité(7)	120 W. 51st Street, NY		13,000		2007		2007
Quality Meats(1)(4)	57 W. 58th Street, NY		12,000		2013		2013
Maloney & Porcelli(5)	37 East 50th Street, NY		14,000		2011		2011

(1)We own these restaurants.

(2)This location was closed on August 29, 2005 due to the damages caused by Hurricane Katrina. At this time, we are unable to determine when the restaurant will reopen and are currently evaluating our options.

(3)This location was owned, and the terms of the lease resulted from the sale and leaseback of the property. A  portion of the lease is treated as a capital lease and the remaining portion is treated as an operating lease.

(4)This location, which was previously occupied by The Manhattan Ocean Club, was closed on January 1, 2006 and  re-opened under the name “Quality Meats” on April 10, 2006 with a seating capacity of approximately 190.

(5)This location is a managed unit , but the accounts and results of the entity that owns this location are consolidated pursuant to the adoption of FIN 46 (R). See Notes to Consolidated Financial Statements, Note 2.

(6)This location was closed on December 31, 2006 because it was unable to achieve a level of income from operations that was in line with our expectations. We are currently under contract to sell the property for the Smith & Wollensky in Dallas for $3.9 million, less commission and other expenses of approximately $250,000. We plan on closing on the sale of the Dallas property during the beginning of April 2007.

(7)This location will close on April 2, 2007 because it was unable to achieve a level of income from operations that was in line with our expectations. The lease will be terminated on April 6, 2007.

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Item 3.Legal Proceedings.

On December 22, 2004, Parade 59, LLC (“Parade”), a wholly owned subsidiary of the Company that managed the ONEc.p.s. restaurant located in the Plaza Hotel in New York (the “Hotel”), filed suit against Plaza Operating Partners, Ltd.(“POP”), ELAD Properties, LLC and CPS1, LLC in the Supreme Court of the State of New York, County of New York (the “Litigation”) for breach of contract. Pursuant to a restaurant management agreement described above under the heading, “Item 1. Business—Management Agreements—ONEc.p.s.” (the “Agreement”), Parade managed ONEc.p.s. and The Smith & Wollensky Restaurant Group, Inc. guaranteed Parade’s obligations under the Agreement.  Parade alleged, among other things, that the defendants (1) failed to pay a base management fee to Parade as provided for in the Agreement, (2) failed to pay Hotel guest, room and credit account charges to Parade, and (3) failed to pay termination obligations to Parade in connection with the termination of the Agreement.  On February 28, 2005, POP served its answer and asserted a counterclaim for breach of contract seeking damages in excess of $500,000 and attorneys’ fees.  CPS 1 Realty and EL-AD Properties NY LLC (the “CPS 1 Defendants” and together with POP, collectively the “Defendants”) served their answers and counterclaims against Parade alleging, among other things, that Parade (1) failed to make payments, (2) breached a memorandum of understanding and other union agreements and (3) is liable for damages totaling no less than $3.5 million as well as attorneys’ fees and costs.  The CPS 1 Defendants subsequently served an amended answer with counterclaims on May 16, 2005 adding a counterclaim for a declaratory judgment that the Agreement was terminated as a result of Parade’s default under the Agreement and that Parade is solely liable for the termination obligations or, in the alternative, that the Agreement was terminated as a result of insufficient funds to pay operating expenses and that the CPS 1 Defendants are liable for only 50% of the termination obligations. Under the Agreement, depending on how it is terminated, there are three possible scenarios as to which party is responsible for the termination obligations: (i) the Defendants are solely responsible; (ii) Parade is solely responsible; or (iii) the parties share the termination obligations on a 50-50 basis. On September 30, 2005, the CPS1 Defendants served a motion for summary judgment seeking judgment on their claim that the Agreement was terminated as a result of Parade’s default (the “Motion”). While the Motion was pending, the parties asked the Court to defer deciding the Motion to permit the parties an opportunity to negotiate a settlement.  The parties are attempting to negotiate a settlement of this litigation.

There have been three arbitrations arising out of the closing of ONEc.p.s restaurant and the lay off of its employees. On January 20, 2005 the arbitrator of the Hotel Industry (the “Arbitrator”) issued a decision directing ONEc.p.s. to post a bond in the amount of $607,939 (the “Bond”) pursuant to the terms of the collective bargaining agreement with the NY Hotel and Motel Trades Council (the “Union”). The Union claims that this is to cover potential severance, overtime and Health Benefit Fund obligations owed by ONEc.p.s. ONEc.p.s. has refused to post the Bond and contends that the obligations are owed by the owners and operators of the Plaza Hotel. The Union has compelled the Plaza Hotel's owners and operators to post the Bond and has begun the process of obtaining arbitration awards for the overtime, severance and Health Fund obligations. On May 12, 2005, the Arbitrator issued an award ordering ONEc.p.s. to pay $119,103 to the Union for severance and Health Benefit Fund contributions. On February 28, 2006, the Arbitrator issued an award ordering ONEc.p.s to pay $139,914 to the Union on behalf of the Health Benefit Fund for delinquent contributions. On March 29, 2006, the Arbitrator issued an award ordering ONEc.p.s. to pay $41,577 to the Union for additional severance.  Pursuant to the arbitration awards the amounts, if not paid by ONEc.p.s., can be drawn down from the Bond and the Union has begun drawing down on the Bond.  The Union has asserted a claim for “unpaid benefit days” in the amount of $219,659, which is currently pending before the Arbitrator and the Union has indicated that it intends to pursue a claim for overtime pay. We estimate that the total amount of Union obligations is between $800,000 and $1,100,000. Any amounts owed to the Union with respect to the closing of ONEc.p.s. make up part of the counterclaims asserted by the CPS 1 Defendants in the Litigation.  It is a matter of contention as whether the Union claims are an obligation of ONEc.p.s. or an obligation of the

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owners and operators of the Plaza Hotel or both.  If Parade were to lose the counterclaims, however, our results of operations and cash flows could be adversely affected. As of March 27, 2007 there were no changes to the status of these claims or counterclaims. Due to the uncertainty as to which party is liable, no amount has been accrued for in the financial statements as of January 1, 2007.

We are involved in various other claims and legal actions arising in the ordinary course of business from time to time. Except as set forth above, in the opinion of management, there are currently no legal proceedings the ultimate disposition of which would have a material adverse effect on our consolidated financial position, results of operations or liquidity.

Item 4.Submission of Matters to a Vote of Security Holders.

None.

PART II

Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock began trading on the Nasdaq Global Market under the symbol SWRG on May 23, 2001. Prior to that time, there was no trading market for our common stock. The following table sets forth for the periods indicated the high and low sales price of our common stock on the Nasdaq Global Market. The values stated below include intra-day trading.

	High		Low
FISCAL YEAR ENDED JANUARY 1, 2007:
First Quarter	$	6.17	$	4.90
Second Quarter	$	5.99	$	4.54
Third Quarter	$	4.97	$	4.35
Fourth Quarter	$	5.34	$	4.25

	High		Low
FISCAL YEAR ENDED JANUARY 2, 2006:
First Quarter	$	5.60	$	4.60
Second Quarter	$	6.42	$	4.90
Third Quarter	$	6.75	$	5.80
Fourth Quarter	$	6.54	$	4.76

Since our initial public offering (“IPO”) in May 2001, we have not declared or paid any cash dividends on our common stock. Pursuant to the terms of our secured line of credit facility, we cannot declare or pay any dividends if any portion of this credit facility is outstanding. We currently intend to retain all earnings for the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. There were approximately 1,200 holders of record of our common stock at April 2, 2007.

On May 24, 2005, our Board of Directors authorized a stock repurchase program under which up to one million shares of our common stock may be acquired in the open market over the 18 months following such authorization at our discretion. This program expired in November 2006. We did not repurchase any of our equity securities during the fourth fiscal quarter of 2006. We did not sell any unregistered equity securities during the fourth fiscal quarter of 2006.

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Item 6.Selected Financial Data.

The Consolidated Statement of Operations Data for the years ended January 1, 2007, January 2, 2006 and January 3, 2005, the Balance Sheet Data as of January 1, 2007, January 2, 2006, and January 3, 2005 are derived from our Consolidated Financial Statements, which have been audited by BDO Seidman, LLP (“BDO”), our current independent registered public accounting firm. The Consolidated Statement of Operations Data for the year ended December 29, 2003 and the Balance Sheet data as of December 29, 2003 are derived from our Consolidated Financial Statements, which have been audited by KPMG LLP (“KPMG”), our former independent registered public accounting firm. The Consolidated Statement of Operations Data for the years ended December 30, 2002 and the Balance Sheet Data as of December 30, 2002 are derived from our unaudited Consolidated Financial Statements. The Selected Consolidated Financial Information should be read in conjunction with the Consolidated Financial Statements of the Company and the Notes to the Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

	FISCAL YEAR(1)
	2006(a)			2005(a)			2004(a)			2003			2002
Consolidated Statement of Operations Data:
Consolidated restaurant sales	$	124,820		$	125,447		$	123,132		$	93,326		$	77,310
Income from consolidated restaurant operations(2)	8,389			10,630			12,270			9,577			7,204
Management fee income	980			994			1,192			2,118			2,353
Income from consolidated and managed restaurants	9,369			11,624			13,462			11,695			8,835
Operating income (loss)	(2,142		)	(401		)	894			(343		)	(1,969		)
Net loss before income taxes	(2,690		)	(1,438		)	(617		)	(1,294		)	(2,027		)
Net loss	(4,233		)	(3,076		)	(2,040		)	(1,500		)	(2,196		)
Net loss applicable to common shares	$	(4,233	)	$	(3,076	)	$	(2,040	)	$	(1,500	)	$	(2,196	)
Net loss applicable to common shares, basic and diluted	$	(0.49	)	$	(0.33	)	$	(0.22	)	$	(0.16	)	$	(0.24	)
Weighted average shares used in computing net loss per share, basic and diluted	8,592,911			9,263,673			9,377,223			9,364,075			9,354,266
Consolidated Balance Sheet Data:
Cash	$	8,270		$	2,362		$	1,821		$	1,898		$	4,158
Total assets	86,753			90,606			99,128			88,454			78,958
Obligations under capital leases, including current portion	7,749			7,888			11,624			9,991			—
Long-term debt, including current portion	3,124			3,315			12,940			8,220			9,389
Total stockholders’ equity	39,160			43,499			50,751			52,663			54,010

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	FISCAL YEAR(1)
	2006(a)			2005(a)			2004(a)			2003			2002
Other Data:
Average consolidated restaurant sales for units open for entire period(3)	$	9,922		$	9,438		$	9,301		$	9,174		$	8,167
Number of consolidated restaurants at end of period	14			14			14			12			11
Number of managed restaurants at end of period(3)	2			2			2			4			4
Total of consolidated and managed restaurants at end of period(3)(4)	16			16			16			16			15
Comparable consolidated restaurants sales increase (decrease)(1)(3)(4)	1.8		%	1.1		%	5.9		%	12.3		%	4.2		%
Pro forma comparable consolidated restaurants sales increase (decrease)(4)(5)	—			—			——			11.0		%	4.0		%
EBITDA(6)	$	1,980		$	3,840		$	4,390		$	3,876		$	1,842
Cash flows provided by (used in):
Operating activities	$	9,427		$	2,338		$	8,966		$	4,123		$	4,422
Investing activities	(2,085		)	13,319			(14,435		)	(5,300		)	(12,149		)
Financing activities	(1,434		)	(15,116		)	5,392			(1,083		)	7,324
EBITDA Reconciliation(6):
Net loss	$	(4,233	)	$	(3,076	)	$	(2,040	)	$	(1,500	)	$	(2,196	)
Provision for income taxes	639			654			225			206			169
Interest expense, net	548			1,037			1,511			951			58
Depreciation and amortization-restaurant level	4,216			4,778			4,312			3,798			3,378
Depreciation and amortization-corporate level	810			447			382			421			433
EBITDA	$	1,980		$	3,840		$	4,390		$	3,876		$	1,842

(a)Fiscal 2006, 2005 and 2004 includes the accounts and results of the entity that owns Maloney & Porcelli. This location is managed not owned, but the accounts and results of the entity that owns this location are consolidated pursuant to the adoption of FIN 46 (R). See Notes to Consolidated Financial Statements, Note 2.

(1)Fiscal 2006 and 2005 consisted of a 52-week period. Fiscal 2004 consisted of a 53-week period. Consolidated restaurant sales for the 53rd week of fiscal 2004 were approximately $2.1 million. All other fiscal years consisted of 52-week periods. All numbers in tables and footnotes are presented in thousands, except share and per share/unit amounts. In calculating comparable restaurant sales, we introduce a restaurant into our comparable restaurant base once it has been in operation for 15 calendar months. Because 2004 was a 53-week fiscal year and 2006, 2005, 2003 and 2002 were 52-week fiscal years, the Company calculated comparable restaurant sales for those years on an average weekly basis.

(2)On August 29, 2005, Hurricane Katrina hit the Gulf Coast, causing damage to S&W New Orleans. We have insurance policies that cover certain losses relating to flood and wind damage and coverage for interruption of business for S&W of New Orleans. We have recorded impairment charges for certain assets of approximately $2.7 million and $750,000 for the years ended January 1, 2007 and January 2, 2006, respectively, which represent estimates of the

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maximum deductible which could be incurred under our insurance plan as well as an estimate of other impaired assets not believed to  be covered under our insurance plan. The impairment amount for the year ended January 2, 2006 is net of $100,000 of insurance proceeds we received that relates to content coverage. We have also written off approximately $160,000 in inventories that spoiled or were destroyed by Hurricane Katrina for the year ended January 2, 2006. We have received business interruption proceeds which is reflected in our statement of operation of $628,000 and $350,000  for the years ended January 1, 2007 and January 2, 2006, respectively. On December 31, 2006, we closed S&W Dallas and also determined that S&W Dallas’ net fixed assets were impaired. An impairment charge of $3.2 million was recorded for the year ended January 1, 2007. The Company decided to close S&W Dallas because it was unable to achieve a level of income from operations that was in line with the Company’s expectations. The Company has also decided to sell the land and building in which S&W Dallas is located. At January 1, 2007, our Smith & Wollensky units in New Orleans and Dallas were listed as available for sale. We are currently under contract to sell the property for the Smith & Wollensky in Dallas for $3.9 million, less commission and other expenses of approximately $250,000. We plan on closing on the sale of the Dallas property during the beginning of April 2007. On January 31, 2007, we adopted a plan to close Cité to the public on April 2, 2007. We decided to close Cité because it was unable to achieve a level of income from operations that was in line with our expectations. An impairment charge of $740,000 was recorded for the year ended January 1, 2007.

(3)‘Consolidated restaurant sales’, ‘comparable consolidated restaurant sales’ and ‘consolidated restaurants’ include the accounts and results of the entity that owns Maloney & Porcelli for fiscal 2006, 2005 and 2004. This location is managed not owned, but the accounts and results of the entity that owns this location are consolidated beginning fiscal 2004 and are being presented on a pro forma basis for fiscal 2003 and 2002, where indicated, pursuant to the adoption of FIN 46 (R).

(4)Pro forma comparable consolidated restaurant sales include the sales of the entity that owns Maloney & Porcelli for fiscal 2003 and  2002. This location is managed not owned, but the accounts and results of the entity that owns this location are consolidated for fiscal 2006, 2005 and 2004 and are being presented on a pro forma basis for fiscal 2003 and 2002, pursuant to the adoption of FIN 46 (R).

(5)Pro forma comparable consolidated restaurant sales do not include the sales of Smith & Wollensky in New Orleans, which was closed on August 29, 2005 due to Hurricane Katrina. At this time, our Smith & Wollensky unit in New Orleans is listed as available for sale.

(6)EBITDA represents net loss before provision for income taxes, net interest expense, restaurant level depreciation and amortization and corporate level depreciation and amortization. We believe EBITDA is useful to investors because EBITDA is commonly used in the restaurant industry to analyze companies on the basis of operating performance. We believe EBITDA allows a standardized comparison between companies in the industry, while minimizing the differences from depreciation policies, leverage and tax strategies. Covenants in the documents governing our indebtedness contain ratios based on EBITDA, as adjusted. EBITDA should not be construed as (a) an alternative to operating income (as determined in accordance with generally accepted accounting principles) as an indicator of our operating performance, or (b) an alternative to cash flows from operating activities (as determined in accordance with generally accepted accounting principals) as a measure of liquidity. EBITDA as calculated by us may be calculated differently than EBITDA for other companies. Management believes that EBITDA is a widely accepted financial indicator of a company’s ability to incur and service debt. EBITDA does not take into account our debt service requirements, capital expansion, and other commitments and, accordingly, is not necessarily indicative of amounts available for the payment of dividends, reinvestment, or other discretionary uses.

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Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunction with “Item 6. Selected Financial Data” and our consolidated financial statements and related notes contained in this Annual Report on Form 10-K. References contained herein to 2006, 2005 and 2004 mean the fiscal years ended January 1, 2007, January 2, 2006 and January 3, 2005, respectively. Wherever we refer to a particular year, we refer to our 52 or 53 week fiscal year ending on the Monday nearest December 31, unless otherwise noted. The fiscal years ended January 1, 2007, and January 2, 2006 each consisted of 52 week periods; the fiscal year ended January 3, 2005 consisted of 53 weeks .

General

During Fiscal 2006, we operated 14 high-end, high volume restaurants in the United States. We currently operate 13 restaurants due to the closure of the Smith & Wollensky unit in Dallas, Texas on December 31, 2006 because it was unable to achieve a level of income from operations that was in line with our expectations. In addition, a parcel of land that was the site of a Smith & Wollensky unit in New Orleans, Louisiana (“S&W of New Orleans”), closed on  August 29, 2005 due to Hurricane Katrina. At January 1, 2007, both S&W of New Orleans and S&W of Dallas were listed as available for sale. We are currently under contract to sell the property for the Smith & Wollensky in Dallas for $3.9 million, less commission and other expenses of approximately $250,000. We plan on closing on the sale of the Dallas property during the beginning of April 2007. We also own our new concept, Quality Meats, a Contemporary American restaurant that is located in the space previously occupied by the Manhattan Ocean Club and  opened on April 10, 2006. As of January 31, 2007, Cité Associates, a subsidiary of SWRG, entered into a Settlement Agreement and certain related documents with Rockefeller Center North, Inc., the landlord (“Landlord”) of the restaurant space occupied by Cité  in New York City. The Settlement Agreement, among things, settled the lawsuit in which the Landlord alleged that Cité Associates was obligated to pay, but had not paid, percentage rent since January 1, 2001, with the Landlord acknowledging that Cité Associates was not, and to the end of the original lease term ( i.e. , September 30, 2009) will not be, obligated to pay any percentage rent. In addition, unrelated to the lawsuit, on January 31, 2007, we adopted a plan to close Cité to the public on April 2, 2007 because it was unable to achieve a level of income from operations that was in line with our expectations. Pursuant to the Settlement Agreement, Cité is required to make a one-time settlement payment to the Landlord of $85,000 and will then receive its $100,000 letter of credit posted with the Landlord as a security deposit under the lease. Cité Associates also agreed to terminate its lease for Cite and vacate the premises by April 6, 2007. The Company estimates that the total cash charges for closing Cité will be between approximately $100,000 and $150,000 relating to employee severance and benefits. The Company incurred non-cash charges of approximately $740,000 relating the impairment of Cité’s net fixed assets at January 1, 2007. The total cash and non-cash charges relating to the closing of Cité is expected to be between approximately $850,000 and $900,000.

Although we do not have any leases signed other than leases relating to our existing locations, we plan to resume our growth in 2008 with the launch of our first free-standing  Grill. We plan to open a total of three to four Grills from 2008 to 2009. The menus and atmosphere of the Grills will be updated from the original Wollensky’s Grill, which opened in 1980, adjacent to the flagship Smith & Wollensky location in New York City. Although the growth focus will be on opening Grills, we will continue to evaluate opportunities to open Smith & Wollensky units. We will continue to pursue our growth strategy until the consummation of the Merger with Patina or we are otherwise acquired, if and when that occurs. See the discussions under the subheadings “Proposed Merger with Patina Restaurant Group, LLC, “Proposed Transaction Between Patina and Alan N. Stillman” and “Additional Bidder for SWRG” in Item 1. Business—Possible Acquisition of SWRG and Related Transactions.”

Our cash investment for each of our owned Smith & Wollensky restaurants open as of December 31, 2006, net of landlord contributions, averaged approximately $6.8 million, excluding pre-opening costs and

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our Smith & Wollensky restaurants averaged approximately 19,000 square feet. When we resume our growth in 2008, we expect that each free-standing Grill restaurant will range between 7,000 and 9,000 square feet and will require a cash investment of approximately $2.5 million, net of landlord contributions and excluding pre-opening expenses. The estimate of the amount of our cash investment assumes that the property on which each new unit is located is being leased and is dependent on the size of the location and the amount of the landlord contribution.

As a result of the timing of the opening of new restaurants and the closing of others, period-to-period comparisons of our financial results may not be meaningful. When a new restaurant opens, we typically incur higher than normal levels of food and labor costs as a percentage of sales during the first year of its operation. Average sales for our twelve consolidated units open for all of 2006 were $9.9 million per restaurant. In calculating comparable consolidated restaurant sales, we introduce a restaurant into our comparable consolidated restaurant base once it has been in operation for 15 months. Comparable consolidated restaurant sales do not include the sales for the Smith & Wollensky in New Orleans which was closed on August 29, 2005 due to Hurricane Katrina.

Pursuant to management contracts and arrangements, we operate, but do not own, the original Smith & Wollensky, Maloney & Porcelli, and The Post House restaurants in New York.

Consolidated restaurant sales include gross sales less sales taxes and other discounts. Cost of consolidated restaurant sales include food and beverage costs, salaries and related benefits, restaurant operating expenses, occupancy and related expenses, marketing and promotional expenses and restaurant level depreciation and amortization. Salaries and related benefits include components of restaurant labor, including direct hourly and management wages, bonuses, fringe benefits and related payroll taxes. Restaurant operating expenses include operating supplies, utilities, maintenance and repairs and other operating expenses. Occupancy and related expenses include rent, real estate taxes and other occupancy costs.

Management fee income relates to fees that we receive from our managed units. These fees are based on a percentage of sales from the managed units, ranging from 2.3% to 5.0%. Prior to December 2002, we operated Park Avenue Café in Chicago, Mrs. Park’s Tavern and the other services of the food and beverage department of Doubletree pursuant to the Doubletree Agreement. We received a management fee equal to the sum of 1.5% of sales and a percentage of earnings, as defined. The Doubletree Agreement was to expire on the earlier of December 31, 2004 or the termination of the related hotel management agreement between HSR, the owner of the Doubletree and Doubletree Partners, the manager of the Doubletree. During December 2002, HSR closed the Park Avenue Café restaurant in Chicago and discontinued our requirement to provide other food and beverage department service for the Doubletree. As a result, we no longer receive the fees described above. During the three-month period ended March 31, 2003, we reached an agreement with HSR. The agreement provides for the continued use by HSR of the name Mrs. Parks Tavern and required us to provide management services to support that location. In exchange for the use of the Mrs. Park’s Tavern name and related management support the Company received an annual fee of $50,000. During 2004, we agreed to reduce the annual fee to $12,000 for the continued use by HSR of the name Mrs. Parks Tavern, but no longer provide management services to support the location. We have a verbal agreement with the owners of The Post House to reduce the management fee under the Post House management agreement from 6.0% to 5.0%.

Management fee income also included fees received from ONEc.p.s. On December 31, 2003, we amended the agreement with Plaza Operating Partners. Effective January 1, 2004, Plaza Operating Partners agreed to pay us $50,000 per quarter as a minimum base management fee. The minimum base management fee was credited against any management fee that we earned under the agreement. This amendment also gave either party the right to fund or refuse to fund any necessary working capital requirements. If neither party was willing to fund the required additional working capital contributions, as

37

defined, then either party could have terminated the agreement. Plaza Operating Partners agreed to fund until October 16, 2004, the date that we were notified by Plaza Operating Partners that it had sold the Plaza Hotel, the property in which the restaurant was located, and the date Plaza Operating Partners directed us to advise the employees of ONEc.p.s. of the closing. We funded the cash requirements of ONEc.p.s. until January 1, 2005, the date on which we were required to close the restaurant at the direction of the new owner. On November 1, 2004, we informed certain of our employees that ONEc.p.s. would close effective January 1, 2005. As a result, we are no longer accruing additional quarterly management fees under our agreement with Plaza Operating Partners with respect to any periods following January 1, 2005.

General and administrative expenses include all corporate and administrative functions that support existing owned and managed operations and provide infrastructure to our organization. General and administrative expenses are comprised of management, supervisory and staff salaries and employee benefits, travel costs, information systems, training costs, corporate rent, corporate insurance and professional and consulting fees. Pre-opening costs incurred in connection with the opening of new restaurants are expensed as incurred and are included in general and administrative expenses. General and administrative expenses also include the depreciation of corporate-level property and equipment and the amortization of corporate intangible assets, such as licensing agreements and management contracts.

Royalty expense represents fees paid pursuant to a licensing agreement with St. James Associates, based upon 2.0% of sales, as defined, for restaurants utilizing the Smith & Wollensky name. On January 19, 2006, we (the “Licensee”), signed an Amended and Restated Sale and License Agreement, dated as of January 1, 2006 (the “License Agreement”), with St. James Associates, L.P. (the “Licensor”) which provides for, among other things, a reduced licensing fee only for the opening of Grills that are less than 9,000 square feet. Pursuant to the License Agreement, the one-time opening fee paid to the Licensor for each new additional Grill (“Grill Opening Fee”) will be at a rate equal to 50% of the fee due under the original licensing agreement. In addition, the annual royalty fee (“Grill Royalty Fee”) will be reduced from 2% to 1% for annual sales from Grills. Both the Grill Opening Fee and Grill Royalty Fee are subject to maximum average per-person checks that, if exceeded, could increase both the Grill Opening Fee and Grill Royalty Fee, but not to exceed the opening fee and royalty fee contained in the original licensing agreement. The terms of the amendment do not apply to the existing Wollensky’s Grills.

Effect of FIN 46(R)

FIN 46(R) addresses the consolidation by business enterprises of variable interest entities. All variable interest entities, regardless of when created, were required to be evaluated under FIN 46 (R) no later than the first period ending after March 15, 2004. An entity shall be subject to consolidation according to the provisions of this Interpretation if, by design, as a group the holders of the equity investment at risk lack any one of the following three characteristics of a controlling financial interest: (1) the direct or indirect ability to make decisions about an entity’s activities through voting rights or similar rights; (2) the obligation to absorb the expected losses of the entity if they occur; or (3) the right to receive the expected residual returns of the entity if they occur. We consolidated the accounts and results of the entity that owns Maloney & Porcelli because the holders of the equity investment lacked the right to receive the expected residual returns of the entity if they were to occur.

In connection with the adoption of FIN 46 (R), our net investment in the Maloney Agreement, previously classified under “Management contract, net” and management fees and miscellaneous charges receivable classified under “Accounts receivable”, have been eliminated in consolidation and, instead, the separable assets and liabilities of the entity that owns Maloney & Porcelli are presented. The consolidation of the entity that owns Maloney & Porcelli has increased our current assets by $253,000 and $183,000, increased non-current assets by $52,000 and $82,000, increased current liabilities by $457,000 and $555,000, and increased non-current liabilities by $359,000 and $401,000 at January 1, 2007 and January 2, 2006,

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respectively. The consolidation of the entity that owns Maloney & Porcelli increased consolidated sales by $11.6 million, $11.7 million and $11.5 million, and increased restaurant operating costs by $9.6 million, $9.7 million and $9.2 million for the fiscal years ended January 1, 2007, January 2, 2006 and January 3, 2005, respectively.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements require us to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.

On an on-going basis, we evaluate our estimates and assumptions, including those related to revenue recognition, allowance for doubtful accounts, valuation of inventories, valuation of long-lived assets, goodwill and other intangible assets, income taxes, gift certificate liability, lease accounting, income tax valuation allowances and legal proceedings. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that can not readily be determined from other sources. There can be no assurance that actual results will not differ from those estimates.

We believe the following is a summary of our critical accounting policies:

Revenue recognition.   Sales from consolidated restaurants are recognized as revenue at the point of the delivery of meals and services. Sales for branded merchandise are recognized as revenue at the point the orders are fulfilled. Management fee income is recognized as the related management fee is earned pursuant to the respective agreements.

Allowance for doubtful accounts.   Substantially all of our accounts receivable are due from credit card processing companies or individuals that have good historical track records of payment. Accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future. Such allowance is established through a charge to the provision for bad debt expenses. We decreased our allowance for doubtful accounts by $22,000 from $42,000 in 2005 to $20,000 in 2006. The net decrease in the allowance was determined by conducting a specific review of major account balances and by applying statistical experience factors to the various aging categories of receivable balances. We estimate an allowance for doubtful accounts based upon the actual payment history of each individual customer, as well as considering changes that occur in the financial condition or the local economy of a particular customer that could affect our bad debt expenses and allowance for doubtful accounts.

Long-lived assets.   We review long-lived assets to be held and used or to be disposed of for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through future undiscounted net cash flows to be generated by the assets. Recoverability of assets to be held and used is measured by restaurant comparing the carrying amount of the restaurant’s assets to undiscounted future net cash flows expected to be generated by such assets. We limit assumptions about such factors as sales and margin improvements to those that are supportable based upon our plans for the unit, its individual results and actual results at comparable restaurants. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Fair value would be calculated on a discounted cash flow basis.

Goodwill.   Goodwill represents the excess of fair value of reporting units acquired in the formation of the Company over the book value of those reporting units’ identifiable net assets. Goodwill is tested for

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impairment at least annually in accordance with the provisions of SFAS No. 142, Goodwill and Other Intangible Assets. As such, we compared the fair value of the single reporting entity to the total equity (carrying value) to determine if impairment exists. The fair value is calculated using various methods, including an analysis based on projected discounted future operating cash flows of the single reporting entity using a discount rate reflecting our weighted average cost of capital. We limit assumptions about such factors as sales and margin improvements to those that are supportable based upon our plans for the single reporting entity. The assessment of the recoverability of goodwill will be impacted if estimated future operating cash flows are negatively modified by us as a result of changes in economic conditions, significant events that occur or other factors arising after the preparation of any previous analysis. For 2004, the fair value of the single reporting entity is in excess of the recorded carrying value. The carrying value of goodwill as of January 1, 2007 and January 2, 2006 was $6.9 million.

Other intangible assets.   We review other intangible assets, which include costs attributable to a sale and licensing agreement and the cost of the acquisition of management contracts, for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Recoverability of our intangible assets will be assessed by comparing the carrying amount of the assets to the undiscounted expected net cash flows to be generated by such assets. An intangible asset would be considered impaired if the sum of undiscounted future cash flows is less than the book value of the assets generating those cash flows. We limit assumptions about such factors as sales and margin improvements to those that are supportable based upon our plans for the unit and actual results at comparable restaurants. If intangible assets are considered to be impaired, the impairment to be recognized will be measured by the amount by which the carrying amount of the asset exceeds the fair value of the assets. Fair value would be calculated on a discounted cash flow basis. The assessment of the recoverability of these intangible assets will be impacted if estimated future operating cash flows are negatively modified by us as a result of changes in economic conditions, significant events that occur or other factors arising after the preparation of any previous analysis. For our other intangible assets, the fair value is in excess of the recorded carrying value. The net carrying value of these intangible assets as of January 1, 2007 and January 2, 2006 was $3.0 million and $3.5 million, respectively.

Artwork.   We purchase artwork and antiques for display in our restaurants. We do not depreciate artwork and antiques since these assets have cultural, aesthetic or historical value that is worth preserving perpetually and we have the ability and intent to protect and preserve these assets. Such assets are recorded at cost and are included in other assets in the accompanying consolidated balance sheets. The net carrying value of our artwork as of both January 1, 2007 and January 2, 2006 was $1.9 million and $2.1 million, respectively.

Self-insurance liability.   We are self insured for our employee health program. We maintain stop loss insurance to limit our total exposure and individual claims. The liability associated with this program is based on our estimate of the ultimate costs to be incurred to settle known claims and claims incurred but not reported as of the balance sheet date. Our estimated liability is not discounted and is based on a number of assumptions and factors, including historical medical claim patterns and known economic conditions. If actual trends, including the severity or frequency of claims, differ from our estimates, our financial results could be impacted. However, we believe that a change in our current accrual requirement of 10% or less would cause a change of approximately $60,000, or less, to our financial results.

Gift certificate liability.   We record a gift certificate liability for gift certificates sold to customers to be redeemed at a future date. The liability is relieved and revenue is recognized when the gift certificates are redeemed. In April 2005, a new gift card tracking system was implemented to track the gift card liability. For gift cards issued prior to April 2005, we used our best estimate to establish a liability for gift certificates issued, but not redeemed prior to April 2005 (“Old Gift Certificates”). Based on the redemption of Old Gift Certificates during the year ended January 2, 2006, a change in estimate was deemed necessary. The impact of this change was related to adjusting the gift card liability as a result of promotional gift cards

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being misapplied to the deferred gift card account and was to increase marketing and promotional expense therefore increasing our net loss by $397,000 during the year ended January 2, 2006.

Lease accounting.We use the lease term plus any renewal period in determining the life of a lease. The renewal period is included in the life because we base our original willingness to invest in a new location on our plan to maximize our return on investment over the entire period available (which includes the renewal period). We only select locations where we can obtain long-term leases, including renewal options. If we gain access to the premise prior to the commencement of the lease, then this additional period is added to the original lease term. We amortize certain costs associated with the lease over the life of the lease plus the renewal period. These costs include, but are not limited to, the amortization of leasehold improvements and the amortization of deferred rent liability. We include tenant allowances received by us from the landlord as an increase to our deferred rent liability. The amortization period for deferred rent is over the life of the accounting lease, which includes, the date from which we obtain control over the premises to the ending date of the legal lease document, which includes the renewal period. Any rent or deferred rent expense incurred during the construction period was capitalized as a part of leasehold improvements and is being amortized on a straight-line basis from the date operations commence over the remaining life of the lease, which includes the renewal period. Starting with new leases entered into after September 15, 2005, we began expensing these costs in conjunction with the proposed FASB Staff Position FAS 13-1, “Accounting for Rental Costs Incurred during a Construction Period”.

FIN 46 (R).   FIN 46(R) addresses the consolidation by business enterprises of variable interest entities. All variable interest entities, regardless of when created, were required to be evaluated under FIN 46 (R) no later than the first period ending after March 15, 2004. An entity shall be subject to consolidation according to the provisions of this Interpretation if, by design, as a group the holders of the equity investment at risk lack any one of the following three characteristics of a controlling financial interest: (1) the direct or indirect ability to make decisions about an entity’s activities through voting rights or similar rights; (2) the obligation to absorb the expected losses of the entity if they occur; or (3) the right to receive the expected residual returns of the entity if they occur. We perform a detailed analysis of all of our management arrangements to determine if any of the equity investments lack one of the above characteristics. We consolidated the accounts and results of the entity that owns Maloney & Porcelli for the fiscal years ended January 1, 2007, January 2, 2006 and January 3, 2005 because the holders of the equity investment lacked one of the above characteristics.

Legal proceedings.   We are involved in various claims and legal actions, the outcomes of which are not within our complete control and may not be known for prolonged periods of time. In some actions, the claimants seek damages, which, if granted, would require significant expenditures. We record a liability in our consolidated financial statements when a loss is known or considered probable and the amount can be reasonably estimated. If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate, the minimum amount of the range is accrued. If a loss is not remote and can be reasonably estimated, a liability is recorded in the consolidated financial statements.

Income taxes and income tax valuation allowances.   We estimate certain components of our provision for income taxes. These estimates include, but are not limited to, effective state and local income tax rates, estimates related to depreciation expense allowable for tax purposes and estimates related to the ultimate realization of net operating losses and tax credit carryforwards and other deferred tax assets. Our estimates are made based on the best available information at the time that we prepare the provision. We usually file our income tax returns several months after our fiscal year-end. All tax returns are subject to audit by federal and state governments, usually years after the returns are filed and could be subject to differing interpretations of the tax laws.

As of January 1, 2007, we have a full valuation allowance against the net deferred tax asset of $12.4 million, due to the uncertainty of this benefit being realized in the future. These tax credit

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carryforwards exist in federal and certain state jurisdictions and have varying carryforward periods and restrictions on usage. The estimation of future taxable income for federal and state purposes and our resulting ability to utilize tax credit carryforwards can significantly change based on future events and operating results. Thus, recorded valuation allowances may be subject to material future changes.

Share-based compensation.   We adopted the provisions of SFAS 123R, on January 3, 2006. SFAS 123R requires us to measure and recognize in our consolidated statements of operations the expense associated with all share-based payment awards made to employees and directors based on estimated fair values of our stock options. Share-based compensation cost represents the measurement at the grant date, based on the estimated fair value of the award, and is recognized as expense over the requisite service period. We adopted the provisions of FAS123R using a modified prospective application. Under this method, compensation cost is recognized for all share-based payments granted, modified or settled after the date of adoption, as well as for any unvested awards that were granted prior to the date of adoption. Prior periods are not revised for comparative purposes. We previously adopted only the pro forma disclosure provisions of SFAS 123. The Company will recognize compensation cost relating to the unvested portion of awards granted prior to the date of adoption that vest in the current period as well as the vested portion of any new grants, using the same estimate of the grant-date fair value and the same attribution method used to determine the pro forma disclosures under SFAS 123, except that forfeitures rates will be estimated for all options, as required by FAS123R. The cumulative effect of applying the forfeiture rates is not material. FAS 123R requires that excess tax benefits related to stock option exercises be reflected as financing cash inflows instead of operating cash inflows.

The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model. Expected volatility is based on the historical volatility of the price of SWRG common stock. The risk-free interest rate is based on U.S. Treasury issues with a term equal to the expected life of the option. We use historical data to estimate expected dividend yield, expected life and forfeiture rates.

Based on these estimates the calculated compensation charge for the year ended January 1, 2007 was $222,000. If the assumptions to the inputs in the Black-Scholes model were different or if a different model was used, results could be different.

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Results of Operations

The following consolidated statement of operations data include the accounts and results of the entity that owns Maloney & Porcelli as a direct result of the adoption of FIN 46(R). Fiscal 2006 and fiscal 2005 represent 52 week periods, fiscal 2004 represents a 53 week period.

	Fiscal
	2006 Actual					2005 Actual					2004 Actual
	(Dollars in thousands)
Consolidated Statement of Operations Data:
Consolidated restaurant sales	$	124,820		100.0	%	$	125,447		100.0	%	$	123,132		100.0	%
Cost of consolidated restaurant sales:
Food and beverage costs	38,604			30.9		38,021			30.3		38,709			31.4
Salaries and related benefit expenses	34,422			27.6		37,112			29.6		35,915			29.2
Restaurant operating expenses	21,269			17.0		21,257			16.9		20,105			16.3
Occupancy and related expenses	8,541			6.9		7,609			6.1		6,489			5.3
Marketing and promotional expenses	3,981			3.2		4,976			4.0		5,332			4.3
Depreciation and amortization.	4,216			3.4		4,778			3.8		4,312			3.5
Impairment of assets	6,573			5.3		750			0.6		—			—
Insurance proceeds, net	(1,175		)	(1.0	)	—			—		—			—
Write down of renovated restaurant assets	—			—		314			0.3		—			—
Total cost of consolidated restaurant sales	116,431			93.3		114,817			91.6		110,862			90.0
Income from consolidated restaurant operations	8,389			6.7		10,630			8.4		12,270			10.0
Management fee income	980			0.8		994			0.8		1,192			0.9
Income from consolidated and managed restaurants	9,369			7.5		11,624			9.2		13,462			10.9
General and administrative expenses	9,625			7.7		10,195			8.1		10,786			8.8
Royalty expense	1,886			1.5		1,830			1.4		1,782			1.4
Operating income (loss)	(2,142		)	(1.7	)	(401		)	(0.3	)	894			0.7
Interest expense, net of interest income	(548		)	(0.5	)	(1,037		)	(0.8	)	(1,511		)	(1.2	)
Loss before provision for income taxes	(2,690		)	(2.2	)	(1,438		)	(1.1	)	(617		)	(0.5	)
Provision for income taxes	639			0.5		654			0.5		225			0.2
Loss before income of consolidated variable interest entity	(3,329		)	(2.7	)	(2,092		)	(1.6	)	(842		)	(0.7	)
Income of consolidated variable interest entity	(904		)	(0.7	)	(984		)	(0.8	)	(1,198		)	(1.0	)
Net loss	$	(4,233	)	(3.4	)%	$	(3,076	)	(2.4	)%	$	(2,040	)	(1.7	)%

2006 Compared To 2005

Consolidated Restaurant Sales.   Consolidated restaurant sales decreased $627,000, or 0.5%, to $124.8 million in 2006 from $125.4 million in 2005. The decrease in consolidated restaurant sales was related to a net decrease of $2.7 million at our non-comparable units and to a net increase of $2.1 million in our comparable units. Comparable consolidated restaurant sales include units that have been open for 15 calendar months. Comparable consolidated restaurant sales do not include the sales of the Smith & Wollensky unit in New Orleans, the Manhattan Ocean Club or Quality Meats.  The net decrease of

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$2.7 million at our non-comparable units relates to a decrease of $2.8 million relating to the continued closure of the Smith & Wollensky unit in New Orleans. We received an insurance recovery for business interruption, net of administrative fees, to partially offset the lost revenues from the closure of the Smith & Wollensky unit in New Orleans. This amount is included in a separate line item “Insurance Proceeds, Net.”  The decrease in non-comparable restaurant sales was offset by the sales from our new concept, Quality Meats which opened on April 10, 2006. The net increase in comparable consolidated restaurant sales was primarily due to a net increase of $2.6 million at our comparable consolidated Smith & Wollensky restaurants. The net increase in comparable consolidated sales was offset by the decrease in sales of $514,000 at our comparable consolidated restaurants in New York. The improvement in comparable consolidated sales is due primarily to an increase in private dining sales.

Food and Beverage Costs.   Food and beverage costs increased $583,000 to $38.6 million in 2006 from $38.0 million in 2005. The increase in food and beverage costs relates to a net increase of $1.1 million at our comparable units and a net decrease of $552,000 at our non-comparable units. The net increase of $1.1 million at our comparable units relates primarily to an increase in the cost of beef. The net decrease at our non-comparable units was primarily due to a decrease of $2.5 million relating to the continued closure of the Smith & Wollensky unit in New Orleans and the Manhattan Ocean Club. This decrease was offset by the increase in food and beverage cost for the new concept, Quality Meats, which opened on April 10, 2006. Quality Meats experienced higher than normal food and beverage costs as a percentage of sales as a result of initial startup inefficiencies and a lower revenue base. As Quality Meats matures, operating efficiencies are expected to continue to improve and the food and beverage costs as a percentage of sales for that unit are expected to decrease. Food and beverage costs as a percentage of consolidated restaurant sales increased to 30.9% in 2006 from 30.3% in 2005. The increase in food and beverage costs as a percentage of consolidated restaurant sales was primarily due to the increase in the cost of beef at our comparable units.

Salaries and Related Benefits.   Salaries and related benefits decreased $2.7 million to $34.4 million in 2006 from $37.1 million in 2005. The decrease in salaries and related benefits related to a net decrease of $1.8 million at our non-comparable units and to a net decrease of $900,000 at our comparable units. This net decrease at our non-comparable units was primarily due to the closures of our Smith & Wollensky unit in New Orleans and the Manhattan Ocean Club for the entire period. The net decrease relating to these two non-comparable units was $3.8 million. The net decrease is offset by an increase due to the additional staffing required at Quality Meats which opened on April 10, 2006. It is common for our new restaurants to experience increased costs for additional staffing in the first nine months of operations. Generally, as the unit matures, operating efficiency is expected to improve as we expect that staffing will be reduced through efficiencies and salaries and wages as a percentage of consolidated sales for that unit will decrease due to the lower staffing requirement and higher revenue base. Salaries and related benefits as a percentage of consolidated restaurant sales decreased to 27.6% in 2006 from 29.6% in 2005. The decrease in salaries and related benefits as a percentage of consolidated restaurant sales relates primarily to the concentrated efforts made by management in comparable units to reduce raw payroll and to a decrease in employee medical claims under our self insured health plan.

Restaurant Operating Expenses.   Restaurant operating expenses increased $12,000 to $21.3 million in 2006 from $21.3 million in 2005. The increase in restaurant operating expenses related to a net decrease of $206,000 at our non-comparable units and a net increase of $218,000 at our comparable units. The decrease in non-comparable units was primarily due to the closures of the Smith & Wollensky unit in New Orleans and the Manhattan Ocean Club, and offset by the restaurant operating expenses of our new concept, Quality Meats, which opened on April 10, 2006. The net increase of $218,000 at our comparable units was primarily due to increases in utilities and professional fees, partially offset by a decrease in operating supplies and repairs and maintenance. Restaurant operating expense as a percentage of consolidated sales increased to 17.0% on 2006 from 16.9% in 2005.

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Occupancy and Related Expenses.   Occupancy and related expenses increased $932,000 to $8.5 million in 2006 from $7.6 million in 2005. The increase in occupancy and related expenses related to an increase of $848,000 at our comparable units and a net increase of $113,000 at our non-comparable units. The net increase at our comparable units was due to the rent incurred at our unit in Las Vegas as a result of the lease-back transaction entered into on May 23, 2005, and higher percentage rent paid in our units in Miami Beach and Chicago. The change in classification of our new lease obligation in Las Vegas, to a capital lease and operating lease, resulted in the increase in occupancy and related expense offset by a decrease in interest expense. Occupancy and related expense as a percentage of consolidated restaurant sales increased to 6.8% in 2006 from 6.1% in 2005.

Marketing and Promotional Expenses.   Marketing and promotional expenses decreased $1.0 million to $4.0 million in 2006 from $5.0 million in 2005. The decrease in marketing and promotional expense related to a net decrease of $909,000 at our comparable units and a net decrease of $111,000 at our non-comparable units. The net decrease at our comparable units related directly to a decrease in advertising and discounts. The decrease at our non-comparable units was related primarily to the closure of the Smith & Wollensky unit in New Orleans and the Manhattan Ocean Club. This was offset by increased promotional costs for Quality Meats, which opened on April 10, 2006. Marketing and promotional expenses as a percent of consolidated restaurant sales decreased to 3.2% in 2006 from 4.0% in 2005.

Depreciation and Amortization.   Depreciation and amortization decreased $562,000 to $4.2 million in 2006 from $4.8 million in 2005. The decrease in depreciation and amortization related to a net decrease of $321,000 at our comparable units and a net decrease of $241,000 at our non-comparable units. The decrease at our comparable units related primarily due to the decrease in the leasehold basis for the Las Vegas property directly related to the sale and lease-back entered into May 23, 2005. The decrease at our non-comparable units related primarily to the impaired assets for the Smith & Wollensky unit in New Orleans, which is no longer being depreciated and is currently classified as available for sale. Depreciation and amortization as a percent of consolidated restaurant sales decreased to 3.4% in 2006 from 3.8% in 2005.

Impairment of Assets.   On August 29, 2005, Hurricane Katrina hit the Gulf Coast, causing damage to S&W New Orleans. We have insurance policies that cover certain losses relating to flood and wind damage and coverage for interruption of business for S&W of New Orleans. We have recorded impairment charges for certain assets of S&W of New Orleans of approximately $2.7 million and $750,000 for the years ended January 1, 2007 and January 2, 2006, respectively, which represent estimates of the maximum deductible which could be incurred under our insurance plan as well as an estimate of other impaired assets not believed to be covered under our insurance plan. The impairment amount for the year ended January 2, 2006 is net of $100,000 of insurance proceeds we have received that relates to content coverage. We have also written off approximately $160,000 in inventories that spoiled or were destroyed by Hurricane Katrina for the year ended January 2, 2006. We received business interruption proceeds which is reflected in our statement of operation of $628,000 and $350,000  for the years ended January 1, 2007 and January 2, 2006, respectively. On December 31, 2006, we closed our Smith & Wollensky restaurant in Dallas, Texas (“S&W Dallas”) and also determined that S&W Dallas’ net fixed assets were impaired. An impairment charge of $3.2 million was recorded for the year ended January 1, 2007. The Company decided to close S&W Dallas because it was unable to achieve a level of income from operations that was in line with the Company’s expectations. We are currently under contract to sell the property for the Smith & Wollensky in Dallas for $3.9 million, less commission and other expenses of approximately $250,000. We plan on closing on the sale of the Dallas property during the beginning of April 2007. On January 31, 2007, we adopted a plan to close Cité to the public on April 2, 2007 because it was unable to achieve a level of income from operations that was in line with our expectations. An impairment charge of $740,000 was recorded for the year ended January 1, 2007. The impairment charge for Cité was based on comparing the carrying amount of the assets with estimated future cash flows.

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Insurance proceeds, net.   On August 29, 2005, we closed our Smith & Wollensky restaurant in New Orleans due to damages that it sustained from Hurricane Katrina. In March 2006, we listed the property in New Orleans as available for sale. For the year ended January 1, 2007, we recorded a recovery for net insurance proceeds, net of administrative fees of $1.2 million, that included insurance recovery for business interruption.

Write-down of Renovated Restaurant Assets.   On January 1, 2006 we closed the Manhattan Ocean Club and began renovations for our new concept, Quality Meats, which opened on April 10, 2006. The write-down of the assets of the Manhattan Ocean Club no longer deemed to have a useful life was approximately $314,000.

Management Fee Income.   Management fee income decreased $14,000 to $980,000 in 2006 from $994,000 in 2005. The decrease related primarily to lower sales at our managed units in New York.

General and Administrative Expenses.   General and administrative expenses decreased $570,000 to $9.6 million in 2006 from $10.2 million in 2005. General and Administrative expense as a percent of consolidated restaurant sales decreased to 7.7% for 2006 from 8.1% for 2005. General and administrative expenses include corporate payroll and other expenditures that benefit both owned and managed units. General and administrative expenses include corporate payroll and other expenditures that benefit both owned and managed units. General and administrative expenses as a percentage of consolidated and managed restaurant sales decreased to 6.3% for 2006 from 6.5% for 2005. The decrease in general and administrative expenses was  due to a decrease in payroll expense, primarily related to a $336,000 compensation charge that was incurred in 2005 relating to the stock repurchase from James M. Dunn (the former President), and the aggregate amounts of separation payments that were owed to Mr. Dunn through April 2006. This decrease in payroll expense was partially offset by an increase in 2006 for the adoption of FAS 123R share-based compensation charge of approximately $222,000 and the write-off of the opening fee balances for the S&W units in New Orleans and Dallas. The decrease in general and administration expense was also due to a decrease in consulting and professional fees.

Royalty Expense.   Royalty expense increased $56,000 to $1.9 million for 2006. The increase was primarily due to the royalty expense incurred at our new concept Quality Meats.

Interest Expense—Net of Interest Income.   Interest expense, net of interest income, decreased $489,000 to $548,000 in 2006 from $1.0 million in 2005, primarily due to the reduction of interest expense as it relates to  our new lease obligation from the sale and leaseback transaction of our Las Vegas property. The change in classification of our new lease obligation in Las Vegas to a capital lease and operating lease, resulted in a decrease in interest and increase in rent expense. The decrease, to a lesser extent, was related to the payoff of approximately $9.2 million of debt and was impacted by the increase in interest income related to the investments being held during 2006.

Provision for Income Taxes.   We recorded a provision for income taxes during 2006 of approximately $639,000 which compares to a provision of approximately $654,000 in 2005. We utilized approximately $1.0 million of federal and state net operating loss carry forwards and approximately $1.2 million in other tax credits  in fiscal 2006 as compared to approximately $8.5 million in federal and state net operating losses in fiscal 2005. At January 1, 2007, we had a deferred tax asset of approximately $12.4 million, which was fully reserved. We believe that the realization of the deferred tax asset is not more likely than not based on the fact that we have not generated taxable income in fiscal 2006 and fiscal 2005.

Income of Consolidated Variable Interest Entity.   In accordance with our adoption of FIN 46 (R), the operating results of the entity that owns Maloney & Porcelli are now consolidated and the net income of this variable interest entity is presented as a separate item after the provision for income taxes.

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2005 Compared To 2004

Consolidated Restaurant Sales.   Consolidated restaurant sales increased $2.3 million, or 1.9%, to $125.4 million in 2005 from $123.1 million in 2004. The increase in consolidated restaurant sales was  primarily  due to a net  increase  of $4.9 million from our new Smith & Wollensky units in Houston, Texas, which opened in January 2004, and Boston, Massachusetts, which opened in September 2004. The increase in consolidated restaurant sales was offset by a decrease in consolidated restaurant sales of $1.8 million from the Smith & Wollensky unit in New Orleans that was closed on August 29, 2005 due to Hurricane Katrina. The increase in consolidated restaurant sales was also partially offset by a decrease in comparable consolidated restaurant sales of $842,000. The decrease in comparable consolidated restaurant sales was primarily due to a net decrease of $686,000 at our consolidated restaurants in New York, which includes the increase in sales of $236,000 from the entity that owns Maloney & Porcelli, which is being consolidated pursuant to our adoption of FIN 46(R). The decrease in comparable consolidated restaurant sales also includes a net decrease in sales of $155,000 from our Smith & Wollensky units open the entire period. Comparable consolidated restaurant sales include units that have been open for 15 calendar months. Comparable consolidated restaurant sales do not include the sales of our Smith & Wollensky unit in New Orleans, which was closed at the end of August 2005 due to Hurricane Katrina. Consolidated restaurant sales for 2005 were based on a 52 week period as compared to 2004, which was a 53 week period. Consolidated restaurant sales for the additional week in 2004 were approximately $2.1 million. When comparing the fiscal years on a weekly basis the increase in comparable consolidated restaurant sales was 1.1%. The improvement is due to an increase in the average check, related primarily to price increases and to a lesser extent an increase in tourism and banquet sales.

Food and Beverage Costs.   Food and beverage costs decreased $688,000 to $38.0 million in 2005 from $38.7 million in 2004. Food and beverage costs as a percentage of consolidated restaurant sales decreased to 30.3% in 2005 from 31.4% in 2004. The decrease in cost is related primarily to the $1.3 million decrease in the cost of food that we incurred during 2005 as compared to 2004, at our comparable units, relating primarily to a decrease in the cost of beef during 2005. The decrease in food and beverage costs was offset by the increase for the new Smith & Wollensky units in Houston, Texas, which opened in January 2004, and in Boston, Massachusetts, which opened in September 2004. The new Smith & Wollensky units in Houston and Boston experienced higher than normal food and beverage costs as a percentage of sales as a result of initial startup inefficiencies and a lower revenue base. As the Smith & Wollensky units in Houston and Boston mature, operating efficiencies are expected to continue to improve and the food and beverage costs as a percentage of sales for that unit are expected to decrease.

Salaries and Related Benefits.   Salaries and related benefits increased $1.2 million to $37.1 million in 2005 from $35.9 million in 2004. This net increase was primarily due to the fact that our new Smith & Wollensky units in Houston, Texas, which opened in January 2004, and in Boston Massachusetts, which opened in September 2004, were open the entire 2005 fiscal year and only part of the 2004 fiscal year. The net increase relating to these new units was $988,000. It is common for our new restaurants to experience increased costs for additional staffing in the first six months of operations. Generally, as the unit matures, operating efficiency is expected to improve as we expect that staffing will be reduced through efficiencies and salaries and wages as a percentage of consolidated sales for that unit will decrease due to the lower staffing requirement and higher revenue base. The net increase also related to an increase in comparable consolidated salaries and related benefits of $485,000. This increase was partially offset by a decrease of $276,000 relating to the closure of the Smith & Wollensky unit in New Orleans due to Hurricane Katrina. Salaries and related benefits as a percent of consolidated restaurant sales increased to 29.6% in 2005 from 29.2% in 2004. The increase in salaries and related benefits as a percentage of consolidated restaurant sales was primarily due to an increase in the minimum wage rate in certain states and increases  in  employer contributions for other payroll taxes.

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Restaurant Operating Expenses.   Restaurant operating expenses increased $1.2 million to $21.3 million in 2005 from $20.1 million in 2004. The increase was primarily due to the opening of the new Smith & Wollensky unit in Boston, Massachusetts, which opened in September 2004. Restaurant operating expenses as a percentage of consolidated restaurant sales increased to 16.9% for 2005 from 16.3% for 2004. This increase related primarily to an increase in utilities, repairs and maintenance and insurance expense in our mature units.

Occupancy and Related Expenses.   Occupancy and related expenses increased $1.1 million to $7.6 million in 2005 from $6.5 million in 2004, primarily  due to the  occupancy  and related  expenses  including real estate and occupancy taxes for the new Smith & Wollensky unit in Boston, Massachusetts, which opened in September 2004, and the rent incurred in Las Vegas as a result of the lease entered into on May 23, 2005. Occupancy and related expenses as a percentage of consolidated restaurant sales increased to 6.1% for 2005 from 5.3% for 2004.

Marketing and Promotional Expenses.   Marketing and promotional expenses decreased $356,000 to $4.9 million in 2005 from $5.3 million in 2004. The decrease was related primarily to a decrease in advertising in support of our owned New York restaurants combined partially by a decrease in other promotional expenditures for the period, offset by the increase in the marketing expense related to the opening of the Smith & Wollensky unit in Boston, Massachusetts, which opened in September 2004. Marketing and promotional expenses as a percent of consolidated restaurant sales decreased to 4.0% for 2005 from 4.3% for 2004.

Depreciation and Amortization.   Depreciation and amortization increased $466,000 to $4.8 million in 2005 from $4.3 million in 2004, primarily due to the increase relating to the property and equipment additions for the new Smith & Wollensky unit in Boston, Massachusetts, partially offset by a reduction in depreciation from items which became fully depreciated during 2005.

Impairment of Assets Impacted by Hurricane.   On August 29, 2005, we closed our Smith & Wollensky restaurant in New Orleans due to damages that it sustained from Hurricane Katrina. For the year ended January 2, 2006, we recorded an impairment of such assets of approximately $750,000 which represents an estimate of the maximum deductible which could be incurred under our insurance plan as well as an estimate of impaired assets not believed to be covered under our insurance plan. This estimate is net of $100,000 of insurance proceeds we had received that related to content coverage.

Write-down of Renovated Restaurant Assets.   On January 1, 2006 we closed the Manhattan Ocean Club and began renovations for our new concept, Quality Meats, which opened on April 10, 2006. The write-down of the assets of the Manhattan Ocean Club no longer deemed to have a useful life was approximately $314,000.

Management Fee Income.   Management fee income decreased $198,000 to $994,000 in 2005 from $1.2 million in 2004. The decrease related primarily to the closing of ONEc.p.s. at the end of 2004.

General and Administrative Expenses.   General and administrative expenses decreased $591,000 to $10.2 million in 2005 from $10.8 million in 2004. General and administrative expenses as a percent of consolidated restaurant sales decreased to 8.1% for 2005 from 8.8% for 2004 results. General and administrative expenses include corporate payroll and other expenditures that benefit both owned and managed units. General and administrative expenses as a percentage of consolidated and managed restaurant sales decreased to 6.5% for 2005 from 6.6% for 2004. The decrease in general and administrative expenses was primarily due to a decrease in travel expenditures directly related to not having any new restaurant openings in 2005. General and administrative expenses include approximately $49,000 in severance payments and approximately $336,000 in compensation expense, related to a buy back of common stock, to Mr. Dunn, our former President pursuant to the terms of his Separation Agreement, and approximately $79,000 in severance and approximately $72,000 in compensation expense to Mr. Mandel, our former Chief Financial Officer.

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Royalty Expense.   Royalty expense increased $48,000 to $1.8 million for 2005. The increase was primarily due to the net increase in sales of $4.9 million from our new Smith & Wollensky units in Houston, Texas, which opened in January 2004 and our newest unit in Boston, Massachusetts, which opened in September 2004. The increase in sales for the new units was partially offset from a decrease in sales of $1.8 million from our Smith & Wollensky unit in New Orleans and, to a lesser extent, a decrease in sales of  $155,000 from our Smith & Wollensky units open for the entire period.

Interest Expense—Net of Interest Income.   Interest expense, net of interest income, decreased $474,000 to $1.0 million in 2005 from $1.5 million in 2004, primarily due to the reduction of interest expense as it relates to  our new lease obligation from the sale and leaseback transaction of our Las Vegas property. A portion of the lease is treated as a capital lease and the remaining portion is treated as an operating lease and is included in occupancy and related expenses (See Notes to Consolidated Financial Statements, Note 12) and, to a lesser extent, the payoff of approximately $9.2 million of debt. Interest expense, net of interest income, was also impacted by the increase in interest income related to the investments, which had been invested in short and long term interest bearing investments during 2005.

Provision for Income Taxes.   The income tax provisions for 2005 and 2004 represent certain federal, state and local taxes.

Income of Consolidated Variable Interest Entity.   In accordance with our adoption of FIN 46 (R), the operating results of the entity that owns Maloney & Porcelli are now consolidated and the net (income) of this variable interest entity is presented as a separate item after the provision for income taxes

Risk Related to Certain Management Agreements

We are subject to various covenants and operating requirements contained in certain of our management agreements that, if not complied with or otherwise met, provide for the right of the other party to terminate these agreements.

With respect to management agreements, we were subject to the right of Plaza Operating Partners to terminate, at any time, the agreement relating to ONEc.p.s. We were notified by Plaza Operating Partners during October 2004 that it had sold the Plaza Hotel, the property in which ONEc.p.s, a restaurant we managed, was located. We were directed by the new owners to close the restaurant by January 1, 2005 and to advise the employees of ONEc.p.s. of the closing. On November 1, 2004, we informed certain of our employees that ONEc.p.s. would close effective January 1, 2005. As a result, we no longer accrue additional quarterly management fees under our agreement with Plaza Operating Partners with respect to any periods following January 1, 2005.

Liquidity and Capital Resources

Cash Flows

We have funded our capital requirements in recent years through cash flow from operations and third party financings. Net cash provided by (used in) operating activities amounted to  $9.4 million, $2.3 million and $9.0 million for the years ended January 1, 2007, January 2, 2006 and January 3, 2005, respectively. Net cash provided by operating activities for the year ended January 1, 2007 includes $6.6 million of impairment of assets relating to closures of the Smith and Wollensky units in New Orleans and Dallas and Cite. Net cash provided by operating activities for the year ended January 2, 2006 was used primarily to reduce outstanding payables. Net cash provided by operating activities for the year ended January 3, 2005 includes $2.4 million of tenant improvement allowances and $3.2 million of increased accounts payable and accrued expenses.

Net cash provided by / (used in) financing activities was ($1.4) million, ($15.1) million and $5.4 million for the years ended January 1, 2007, January 2, 2006, and January 3, 2005, respectively. Net cash used in financing activities for the year ended January 1, 2007 includes $330,000 principle payments on long term

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debt and capital lease obligations, $379,000 of treasury stock purchased under the stock repurchase program, net proceeds of $5,000 from the exercise of options and distributions of $730,000 to the minority interest in the consolidated variable interest entity. Net cash used in financing activities for the year ended January 2, 2006 includes $9.6 million in principal payments on long-term debt, $4.3 million of treasury stock purchased under the stock repurchase program, net proceeds of $64,000 from the exercise of options and distributions of $1.1 million to the minority interest in the consolidated variable interest entity. Net cash provided by financing activities for the year ended January 3, 2005 includes $4.0 million in proceeds from our line of credit facilities with Morgan Stanley Dean Witter Commercial Financial Services, Inc. (“Morgan Stanley”), $2.0 million in proceeds from the promissory note in favor of Hibernia National Bank (“Hibernia”), $1.5 million in proceeds from a sale and leaseback transaction, less $1.3 million of principal payments on long-term debt and distributions of $840,000 to the minority interest in the consolidated variable interest entity and there were no treasury stock purchases.

Net cash provided by / (used in) investing activities was $(2.1) million, $13.3 million, ($14.4) million for the years ended January 1, 2007, January 2, 2006 and January 3, 2005, respectively. During the fiscal year ended January 1, 2007 we used cash primarily to fund maintenance of capital expenditures of existing restaurants, complete the renovation cost of Quality Meats, and relocate our corporate offices. Cash provided by investing activities includes proceeds of $200,000 from the sale of nondepreciable assets that were held for sale and includes $1.2 million of net proceeds from the sale of investments. Net cash provided by investing activities for the fiscal year ended January 2, 2006 includes $19.3 million of net proceeds from the sale of the property of our Las Vegas restaurant. During the fiscal year ended January 3, 2005, we used cash primarily to fund the maintenance capital expenditures of existing restaurants and the completion of the Smith & Wollensky in Boston. Total capital expenditures were $3.5 million, $1.6 million, and $14.8 million in 2006, 2005, and 2004, respectively. Other cash provided by / (used in) in investing activities consisted  primarily of net  purchases of investments of ($4.4) million for the year ended January 2, 2006, and net proceeds from the sale of investments of $925,000 for the year ended January 3, 2005.

Capital Expenditures

Total capital expenditures are expected to be approximately $3.8 million in fiscal 2007 related to  maintenance capital expenditure in respect of existing restaurants, as well as approximately $300,000 of improvements required under the Third Modification and Renewal of Lease for the Park Ave Café restaurant. Although we do not have any leases signed other than leases relating to our existing locations, we plan to resume our growth in 2008 with the launch of our first free-standing Grill. We plan to open a total of three to four Grills from 2008 to 2009. The menus and atmosphere of the Grills will be updated from the original Wollensky’s Grill, which opened in 1980, adjacent to the flagship Smith & Wollensky location in New York City. Although the growth focus will be on opening Grills, we will continue to look at opportunities to open Smith & Wollensky units. We will continue to pursue our growth strategy until the consummation of the Merger with Patina or we are otherwise acquired, if and when that occurs. See “Item 1. Business—Possible Acquisition of SWRG and Related Transactions.”

Our cash investment for each of our owned Smith & Wollensky restaurants open as of December 31, 2006, net of landlord contributions, averaged approximately $6.8 million, excluding pre-opening costs and our Smith & Wollensky restaurants averaged approximately 19,000 square feet. We expect that each new free-standing Grill restaurant will range between 7,000 and 9,000 square feet, will require a cash investment of approximately $2.5 million, net of landlord contributions and excluding pre-opening expenses. The estimate of the amount of cash investment assumes that the property on which each new unit is located is being leased and is dependent on the size of the location and the amount of the landlord contribution.

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Indebtedness

In fiscal 1997, we assumed certain liabilities in connection with the acquisition of leasehold rights relating to our Smith & Wollensky Miami Beach location from two bankrupt corporations. Pursuant to the terms of the bankruptcy resolution, we assumed a mortgage on the property that requires monthly payments and bears interest at prime rate plus 1%. On April 30, 2004, a letter was signed by the financial institution that holds the mortgage for the property extending the term of the mortgage three additional years, with the final principal payment due in June 2007. The extension became effective June 2004. In fiscal 1997, we also assumed a loan payable to a financing institution that requires monthly payments through 2014, and bears interest at a fixed rate of 7.67% per year. The aggregate balance of the mortgage and loan payable was approximately $1.3 million and $1.4 million at January 1, 2007 and January 2, 2006, respectively.

On May 26, 2004, S&W New Orleans, L.L.C. (“New Orleans”), a wholly owned subsidiary of ours, signed a $2.0 million promissory note in favor of Hibernia. The $2.0 million was used by us for construction costs related to our Smith & Wollensky restaurant in Boston. The note bears interest at a fixed rate of 6.27% per annum. Principal payments for this note commenced June 26, 2004. Pursuant to the terms of the promissory note, New Orleans is obligated to make monthly payments of approximately $17,000 for this note over the term of the note with a balloon payment of approximately $1.5 million on May 26, 2009, the maturity date of the note. This note is secured by a first mortgage relating to the New Orleans property. At January 1, 2007, New Orleans was not in compliance with the financial covenant contained in the agreement. On March 27, 2006, a letter was signed by Hibernia waiving the covenants contained in our promissory note for the year ended January 1, 2007 and through December 31, 2007. We are currently in the process of amending the financial covenants contained in our promissory note with Hibernia. The balance of the promissory note was approximately $1.8 million and $1.9 million at January 1, 2007 and  January 2, 2006, respectively.

On December 23, 2004, Smith & Wollensky of Boston, LLC, Houston S&W, L.P. and Dallas S&W, L.P. (collectively, the “Lessees”), each a wholly-owned subsidiary of the Company, entered into a Master Lease Agreement and related schedules (the “Lease”) with General Electric Capital Corporation, which subsequently assigned its rights, interests and obligations under the Lease to Ameritech Credit Corporation, d/b/a SBC Capital Services (“SBC”), pursuant to which SBC acquired certain equipment and then leased such equipment to the Lessees. The transaction enabled the Lessees to finance approximately $1.5 million of existing equipment. Subject to adjustment in certain circumstances, the monthly rent payable under the Lease is $30,672. The Lessees are treating this transaction as a sale-leaseback transaction with the lease being classified as a capital lease and the gain recorded on the sale of approximately $151,000 was deferred and is being amortized over the life of the Lease. The $1.5 million was used for construction costs related to the Smith & Wollensky restaurant in Boston. The monthly payments were calculated using an annual interest rate of approximately 7.2%. In connection with the transaction, the Company entered into a corporate guaranty on December 23, 2004 to guarantee the Lessees’ obligations under the Lease. The Lessees may after 48 months, and after giving 30 days notice, purchase back all the equipment listed under the Lease at a cost of approximately $405,000. On January 11, 2007, we made a final payment of $211,000 to AT&T Capital Services (formerly SBC) (“AT&T”) for the portion of our capital lease that related to certain equipment of our S&W of Dallas location. The remaining balance of the capital lease obligation with AT&T for certain equipment in our Smith & Wollensky’s in Houston and Boston continues to be outstanding.

On January 27, 2006, we entered into a $5.0 million secured line of credit facility with Morgan Stanley (“Credit Agreement”). Under the Credit Agreement, we are the borrower and Dallas S&W, L.P., our subsidiary, and the Company are the Guarantors. The $5.0 million line can be used for general corporate purposes. We may at anytime repay advances on this line without penalty. The Credit Agreement provides for a maximum available borrowing capacity of $5.0 million and expires on January 27, 2009. Advances

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under this line of credit bear interest, at our election, at either a fixed rate of the one-month LIBOR plus 2.5% per annum or prime minus 0.5%, payable on a monthly basis. The line is guaranteed by a security interest in all of the personal property and fixtures of Dallas S&W L.P. and us. There was no balance outstanding under this Credit Agreement at January 1, 2007. We are currently under contract to sell the property for the Smith & Wollensky in Dallas for $3.9 million, less commission and other expenses of approximately $250,000. We plan on closing on the sale of the Dallas property during the beginning of April 2007. On March 23, 2007, we entered into an Amendment to Line of Credit Agreement with Morgan Stanley which released Dallas S&W, L.P. as the Guarantor as well as placing a restriction on us from drawing down on this line of credit until we are able to replace this collateral.

Pursuant to the terms of our secured line of credit facility, we cannot declare or pay any dividends if any portion of this loan is outstanding.

Sale Lease-back Transactions.

On March 23, 2005, S&W of Las Vegas,  LLC (the  “Borrower”)  entered into a contract of sale (the “Las Vegas Agreement”) with  Metroflag  SW,  LLC (the “Buyer”). Pursuant to the Las Vegas Agreement, on May 23, 2005, (i) the Borrower assigned  to the Buyer its  existing  ground  lease (the “Existing  Lease”) in respect of the property  located at 3767 Las Vegas Boulevard  South, Las Vegas, Nevada  (the “Las Vegas Property”),  (ii) the Buyer  purchased  the Las Vegas Property pursuant to an option  contained in the  Existing  Lease and (iii) the Borrower entered into a lease-back lease (the “New Lease”) pursuant to which the Borrower is leasing the Las Vegas Property. The transaction closed on May 23, 2005. The aggregate purchase price was  $30.0  million  and was paid out as follows: (a) approximately $10.4 million to the existing fee owner/ground lessor of the Las Vegas Property, and (b) the difference between $30.0 million and the amount  paid to the fee owner/ground  lessor of the Las Vegas  Property  to the Borrower  (approximately $19.6 million). The Borrower received net proceeds from the transactions equal to approximately $19.3 million (after legal and other miscellaneous cost, but before taxes) and used approximately $9.2 million of the net proceeds from the transactions to repay existing indebtedness. The net gain on this transaction of approximately $13.5 million is being deferred and recognized as a reduction in rent expense and interest expense over the life of the New Lease. At January 3, 2005, we had a deferred tax asset of $9.8 million, which was fully reserved and included net operating  loss and tax  credit carryforwards of  approximately  $4.2 million that was reversed during the three months ended July 4, 2005 and was utilized against the tax gain associated with the sale of the Las Vegas property on May 23, 2005. In addition, a deferred tax asset of approximately $5.1 million was recorded during the three months ended July 4, 2005 for the temporary difference on the deferred gain relating to the sale of the Las Vegas property.

The New Lease has a 40 year term and requires the Borrower to pay a negotiated fixed minimum annual rent of $1.4 million for the first five years, increasing  by 5% every five years  thereafter,  subject to a contingent  rental provision based upon the sales of the underlying restaurant. The Las Vegas Agreement and the New Lease contain representations, warranties, covenants and indemnities that are typical for transactions of this kind. In accordance with FAS 13, because the New Lease involves both land and building and the fair value of the  land is  greater than 25% of the total fair values of the land and building, the land and building are considered  separate  elements for applying lease accounting criteria. The portion of the New Lease that relates to the building is being treated as a capital lease and the portion of the New Lease relating to the land is being treated as an operating lease.

For information relating to a sale-leaseback transaction involving Smith & Wollensky of Boston, LLC, Houston S&W, L.P. and Dallas S&W, L.P., each a wholly-owned subsidiary of the Company, see “—Liquidity and Capital Resources—Indebtedness” above.

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For information relating to a proposed sale-leaseback transaction involving our Park Avenue Café restaurant, see “Item 1. Business—Recent Developments—Renewal of Lease at Park Avenue Café and Sale of Townhouse.”

Future minimum capital lease payments at January 1, 2007 were as follows:

Fiscal year:	(in 000’s)
2007	$	605
2008	605
2009	605
2010	380
2011	330
Thereafter	19,287
Total future capital lease payments	21,812
Less: amount representing interest	(14,063		)
Present value of net minimum capital lease payments	7,749
Less: current portion	148
Long-term obligations under capital leases at January 1, 2007	$	7,601

The remainder of the fixed minimum annual rental payments is being treated as an operating lease. See Notes to Consolidated Financial Statements, Notes 12 and 13.

Liquidity

We believe that our cash, short-term and long-term investments on hand and projected cash flow from operations should be sufficient to finance our maintenance capital expenditures in respect of existing units and operations throughout 2007, as well as allow us to meet our debt service obligations under our loan agreements, including our approximately $1.8 million outstanding on our promissory note with Hibernia, and begin our planned expansion. Our cash resources, and therefore our liquidity, are dependent upon the level of internally generated cash from operations. Changes in our operating plans, lower than anticipated sales, increased expenses or other events could cause us to seek alternative financing or reschedule our maintenance capital expenditure and expansion plans. While we would seek to obtain additional funds through commercial borrowings or the private or public issuance of debt or equity securities, there can be no assurance that such funds would be available when needed or be available on terms acceptable to us.

Contractual Obligations

The following table discloses aggregate information as of January 1, 2007 about our contractual obligations and the periods in which payments in respect of the obligations are due:

Contractual Obligations:	Total		Less than 1 year			1-3 years			3-5 years			More than 5 years
Minimum royalty payments pursuant to the licensing agreement(1)	$	4,800		$	800		$	1,600		$	1,600	$	800	(1)
Minimum distributions pursuant to the management agreement(2)	$	2,400		$	480		$	960		$	960	—
Minimum payments on employment agreement(3)	$	2,650		$	600		$	1,200		$	850	$	—
Principal payments on long-term debt(3)	$	3,124		$	944		$	1,804		$	148	$	228
Interest payments on long-term debt(3)(4)	$	483		$	134		$	278		$	47	$	24
Payments under capital lease(3)(5)	$	21,812		$	605		$	1,210		$	710	$	19,287
Minimum annual rental commitments(1)(3)(6)	$	113,080		$	5,588		$	10,976		$	10,929	$	85,587
Total	$	148,349		$	9,151		$	18,028		$	15,244	$	105,926

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(1)The license agreement is irrevocable and perpetual unless terminated in accordance with the terms of the agreement. See Notes to the Consolidated Financial Statements, Note 7.

(2)See “Item 1. Business—Management Arrangements—Maloney & Porcelli.”

(3)Please refer to the discussion in the “Liquidity and Capital Resources” section above and the Notes to Consolidated Financial Statements for additional disclosures regarding these obligations.

(4)The average interest rate on long-term debt is approximately 7.2%.

(5)Payments under capital lease include the annual fixed rental payments of $20.7 million for the Las Vegas Property, as well as total principal and interest payments of $1.1 million under the Lease with SBC. See Notes to Consolidated Financial Statements, Note 12.

(6)Minimum annual rental commitments includes annual utility fees of $34,000 required by the lease of our corporate office.

Seasonality

Our business is seasonal in nature depending on the region of the United States in which a particular restaurant is located, with revenues generally being less in the third quarter than in other quarters due to reduced summer volume and highest in the fourth quarter due to year-end and holiday events. As we continue to expand in other locations, the seasonality pattern may change.

Inflation

Components of our operations subject to inflation include food, beverage, lease and labor costs. Our leases require us to pay taxes, maintenance, repairs, insurance, and utilities, all of which are subject to inflationary increases. We believe inflation has not had a material impact on our results of operations in recent years.

Effect of New Accounting Standards

In December 2004, the FASB issued SFAS No. 123R, “Share-Based Payments.” SFAS No. 123R revises SFAS No. 123, and generally requires the cost associated with employee services received in exchange for an award of equity instrument be measured based on the grant-date fair value of the award and recognized in the financial statements over the period during which employees are required to provide services in exchange for the award. SFAS No. 123R also provides guidance on how to determine the grant-date fair value for awards of equity instruments as well as alternative methods of adopting its requirements. SFAS No. 123R is effective for the beginning of the first annual reporting period after June 15, 2005 and applies to all outstanding and unvested share-based payment awards at a company’s adoption date. Accordingly, on January 3, 2006, we adopted the provisions of SFAS 123R using the modified prospective approach. As a result of the adoption, share-based awards expense incurred subsequent to January 2, 2006, is included in our unaudited consolidated statements of operations. The initial adoption of this standard resulted in the recognition of approximately $222,000 in 2006 of compensation expense related to stock options.

In February 2006, the FASB issued SFAS 155, Accounting for Hybrid Financial Instruments—an amendment of FASB Statements No. 133 and 140. SFAS 155 amends FAS 133, Accounting for Derivative Instruments and Hedging Activities, and SFAS 140, Accounting for Transfer and Servicing of Financial Assets and Extinguishments of Liabilities, to permit fair value re-measurement of any hybrid financial instrument that contains an embedded derivative that would otherwise require bifurcation. Additionally, FAS 155 seeks to clarify which interest-only strips and principle-only strips are not subject to the

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requirements of SFAS 133 and to clarify that concentrations of credit risk in the form of subordination are not embedded derivatives. This Statement is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. We do not believe the adoption of this standard will have a material impact on our financial condition or our results of operations.

On July 13, 2006, the Financial Accounting Standards Board issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). The requirements are effective for fiscal years beginning after December 15, 2006. The purpose of FIN 48 is to clarify and set forth consistent rules for accounting for uncertain tax positions in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes”. The cumulative effect of applying the provisions of this interpretation are required to be reported separately as an adjustment to the opening balance of retained earnings in the year of adoption. We have completed our initial evaluation of the impact of the adoption of FIN 48 and determined that such adoption is not expected to have a material impact on our financial position or results from operations.

In June 2006, the FASB ratified Emerging Issues Task Force (“EITF”) Issue No. 06-3, “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (that is, Gross versus Net Presentation)”, which allows companies to adopt a policy of presenting taxes in the income statement on either a gross or net basis. Taxes within the scope of this EITF would include taxes that are imposed on a revenue transaction between a seller and a customer. If such taxes are significant, the accounting policy should be disclosed as well as the amount of taxes included in the financial statements if presented on a gross basis. EITF 06-3 is effective for interim and annual reporting periods beginning after December 15, 2006. We have been accounting for sales tax as gross and are currently assessing the impact of presenting gross as opposed to net which will be disclosed at the beginning of Fiscal 2007.

In September 2006, The Securities and Exchange Commissions staff issued Staff Accounting Bulletin (“SAB”) No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. SAB 108 was issued to provide consistency between how registrants quantify financial statement misstatements. Historically, there have been two widely-used methods for quantifying the effects of financial statement misstatements. These methods are referred to as the “roll-over” and “iron curtain” methods. The roll-over method quantifies the amount by which the current year income statement is misstated. The iron curtain method quantifies the error as the cumulative amount by which the current year balance sheet is misstated. SAB 108 established an approach that requires quantification of financial statement misstatements based on the effects of the misstatement on each of the company’s financial statements and the related financial statement disclosures. This approach is commonly referred to as the “dual approach.”  SAB 108 allows registrants to initially apply the dual approach either by (1) retroactively adjusting prior financial statements as if the dual approach had always been used or by (2) recording the cumulative effect of initially applying the dual approach as adjustments to the carrying values of assets and liabilities as of January 3, 2006 with an offsetting adjustment recorded to the opening balance of retained earnings. Our adoption of SAB 108 using the cumulative effect transition method in connection with the preparation of our annual financial statements had no impact for the year ending January 1, 2007.

Item 7A.Quantitative and Qualitative Disclosure About Market Risk.

We are exposed to changing interest rates on our outstanding mortgage in relation to the Smith & Wollensky, Miami Beach property that bears interest at prime rate plus 1%. The interest cost of our mortgage is affected by changes in the prime rate. The table below provides information about our indebtedness that is sensitive to changes in interest rates as well as our fixed rate of indebtedness. The table presents cash flows with respect to principal on indebtedness and related weighted average interest

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rates by expected maturity dates. Weighted average rates are based on implied forward rates in the yield curve at January 1, 2007.

	Expected Maturity Date Fiscal Year Ended
Debt	2007		2008		2009		2010			2011			Thereafter			Total			Fair Value January 1, 2007
	(Dollars in thousands)
Long-term variable rate	$	788	$	—	$	—		—			—			—		$	788			$	788
Average interest rate																9.0		%
Long-term fixed rate	$	156	$	163	$	1,641		$	71		$	77		$	228	$	2,336			$	2,643
Average interest rate																6.6		%
Total Debt																$	3,124			$	3,431

We have no derivative financial or derivative commodity instruments. We do not hold or issue financial instruments for trading purposes.

Item 8.Financial Statements and Supplementary Data.

The financial statements required by this item and the reports of the independent accountants thereon appear on pages F-2 to F-45. See accompanying Index to the Consolidated Financial Statements on page F-1. The supplementary financial data required by Item 302 of Regulation S-K appears in Note 21 to the Consolidated Financial Statements.

Item 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

Not applicable

Item 9A.Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

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 Securities  Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Annual Report on Form 10-K was made under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer. In  connection with such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our “disclosure controls and procedures” were effective as of January 1, 2007.

Changes in Internal Controls

There was no change in our internal controls over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the fourth quarter of fiscal 2006 that has materially  affected, or is  reasonably  likely to  materially  affect,  our  internal  controls  over financial reporting.

Item 9B.Other Information.

None.

56

PART III

In accordance with General Instruction G(3) of Form 10-K certain information required by this Part III will either be incorporated into this Form 10-K by reference to our definitive proxy statement (our “2007 Proxy Statement”) for our 2007 Annual Meeting of Stockholders filed within 120 days of the January 1, 2007 or will be included in an amendment to this Form 10-K filed within 120 days of the January 1, 2007. To the extent such information is included in our 2007 Proxy Statement within 120 days of the January 1, 2007, it will be incorporated by reference to the sections of our 2007 Proxy Statement specified below.

Item 10.Directors and Executive Officers of the Registrant.

Identification of Directors and Executive Officers

The information under the headings “Proposal One Election of One Class III Director” and “Executive Officers,” in our 2007 Proxy Statement is incorporated herein by reference.

Section 16(a) Beneficial Ownership Reporting Compliance

The information under the heading “Section 16(a) Beneficial Ownership Reporting Compliance” in our 2007 Proxy Statement is incorporated herein by reference.

Code of Business Conduct and Ethics

Our Board of Directors has adopted the Smith & Wollensky Restaurant Group, Inc. Code of Business Conduct and Ethics, which applies to all of our employees and directors, including our Chief Executive Officer and our Chief Financial Officer, who is our principal financial officer and our principal accounting officer. The text of this code of ethics is posted in the Investor Relations section of our website located at http://www.smithandwollensky.com. To date, there have been no waivers under our Code of Business Conduct and Ethics. We will disclose any reportable waivers, if and when granted, of our Code of Business Conduct and Ethics in the Investor Relations section of our website located at www.smithandwollensky.com.

Item 11.Executive Compensation.

The information under the headings “Proposal One Election of One Class III Director—Director Compensation” and “Executive Compensation” in our 2007 Proxy Statement is incorporated herein by reference.

Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information under the headings “Executive Compensation—Equity Compensation Plan Information” and “Security Ownership of Certain Beneficial Owners and Management” in our 2007 Proxy Statement is incorporated herein by reference.

Item 13.Certain Relationships and Related Transactions, and Director Independence.

The information under the heading “Certain Relationships and Related Transactions” and Proposal One: Election of Three One Class III Directors—Board of Directors, Committees and Meetings” in our 2007 Proxy Statement is incorporated herein by reference.

Item 14.Principal Accountant Fees and Services.

The information under the heading “Proposal 2: Ratification of Appointment of Independent Registered Public Accounting Firm” in our 2007 Proxy Statement is incorporated herein by reference.

57

PART IV

Item 15.Exhibits and Financial Statement Schedules.

(a)           The following documents are filed as a part of this Annual Report on Form 10-K:

(1)Financial Statements.—See Index to Consolidated Financial Statements on page F-1 of this Form 10-K.

(2)   Financial Statement Schedules.

Schedule II—Valuation and Qualifying Accounts.

All other schedules called for under Regulation S-X are not submitted because they are not applicable or not required, or because the required information is included in the financial statements or notes thereto.

(3)Exhibits—See exhibits listed in the accompanying Index to Exhibits. We will furnish to any stockholder, upon written request, any exhibit listed in the accompanying Index to Exhibits upon payment by such stockholder of our reasonable expenses in furnishing any such exhibit.

58

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC.
By:	/s/ ALAN N. STILLMAN
	Name:	Alan N. Stillman
	Title:	Chief Executive Officer (Principal Executive Officer)
	Date:	April 2, 2007
By:	/s/ SAMUEL GOLDFINGER
	Name:	Samuel Goldfinger
	Title:	Chief Financial Officer (Principal Financial and Accounting Officer)
	Date:	April 2, 2007

59

POWER OF ATTORNEY

Each individual whose signature appears below constitutes and appoints Alan N. Stillman and Samuel Goldfinger, and each of them, his or her true and lawful attorneys-in-fact and agents with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this report on Form 10-K, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his, her or their substitute or substitutes, may lawfully do or cause to be done or by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

	Signature		Title		Date
/s/ ALAN N. STILLMAN		Chairman of the Board, Chief Executive Officer		April 2, 2007
		and Director (Principal Executive Officer)
/s/ SAMUEL GOLDFINGER		Chief Financial Officer, Executive Vice President of		April 2, 2007
		Finance, Secretary and Treasurer (Principal Financial
		and Accounting Officer)
/s/ EUGENE I. ZURIFF		President and Director		April 2, 2007
/s/ RICHARD A. MANDELL		Director		April 2, 2007
/s/ JACOB BERMAN		Director		April 2, 2007
/s/ ROBERT D. VILLENCY		Director		April 2, 2007
/s/ JOSEPH E. PORCELLI		Director		April 2, 2007

60

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC.
AND SUBSIDIARIES

Table of Contents

	Page
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of January 1, 2007 and January 2, 2006	F-3
Consolidated Statements of Operations for the fiscal years ended January 1, 2007, January 2, 2006 and January 3, 2005	F-4
Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss) for the fiscal years ended January 1, 2007, January 2, 2006 and January 3, 2005	F-5
Consolidated Statements of Cash Flows for the fiscal years ended January 1, 2007, January 2, 2006 and January 3, 2005	F-6
Notes to Consolidated Financial Statements	F-7-F-45
Schedule II. Valuation and Qualifying Accounts	S-1

F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
The Smith & Wollensky Restaurant Group, Inc.:

We have audited the accompanying consolidated balance sheets of The Smith & Wollensky Restaurant Group, Inc. and subsidiaries as of January 1, 2007 and January 2, 2006 and the related consolidated statements of operations, stockholders’ equity and comprehensive income (loss) and cash flows for the years ended January 1, 2007, January 2, 2006, and January 3, 2005. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Smith & Wollensky Restaurant Group, Inc. and subsidiaries as of January 1, 2007 and January 2, 2006 and the results of its operations and its cash flows for each of the three years in the period ended January 1, 2007, in conformity with accounting principles generally accepted in the United States. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As discussed in Note 3(q) to the consolidated financial statements, in 2006 the Company changed its method of accounting for stock-based compensation in accordance with Statement of Financial Accounting Standards No. 123(R), “Share-Based Payments”. In fiscal 2004, as required by FASB Interpretation No. 46 (R) as discussed in Note 2, the Company has consolidated in the operations of a managed restaurant that the Company does not own.

/s/ BDO Seidman, LLP

New York, New York

April 2, 2007

F-2

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
(dollar amounts in thousands, except share data)

	January 1, 2007				January 2, 2006
Assets
Current assets:
Cash and cash equivalents		$	8,270			$	2,362
Short-term investments		311				265
Accounts receivable, less allowance for doubtful accounts of $20 and $42 at January 1, 2007 and January 2, 2006, respectively		483				549
Credit card receivable, net.		2,217				1,990
Due from managed units		116				750
Merchandise inventory		4,961				4,589
Prepaid expenses and other current assets		1,365				1,486
Total current assets		17,723				11,991
Property and equipment, net		46,185				47,571
Assets held for sale, net of impairment charges		5,873				12,062
Goodwill		6,886				6,886
Licensing agreement, net		2,975				3,471
Long-term investments		3,175				4,417
Other assets		3,936				4,208
Total assets		$	86,753			$	90,606
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt		$	944			$	202
Current portion of obligations under capital lease		148				139
Current portion of deferred gain		367				365
Due to managed units		967				538
Accounts payable and accrued expenses		14,156				13,578
Total current liabilities		16,582				14,822
Obligations under capital leases		7,601				7,749
Deferred gain on sales leasebacks		12,604				12,958
Long-term debt, net of current portion		2,180				3,113
Deferred rent		9,120				9,133
Total liabilities		48,087				47,775
Interest in consolidated variable interest entity		(494		)		(668		)
Commitments and contingencies
Stockholders’ equity:
Common stock (par value $.01; authorized 40,000,000 shares; 8,590,643 and 8,663,519 shares issued and outstanding at January 1, 2007 and January 2, 2006, respectively)		94				94
Additional paid-in capital		70,293				70,066
Accumulated deficit		(26,736		)		(22,503		)
Accumulated other comprehensive income		189				143
Treasury stock, 1,001,173 and 927,114 shares at January 1, 2007 and January 2, 2006, respectively at cost		(4,680		)		(4,301		)
		39,160				43,499
Total liabilities and stockholders’ equity		$	86,753			$	90,606

See accompanying notes to consolidated financial statements.

F-3

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
(dollar amounts in thousands, except per share amounts)
Years ended January 1, 2007, January 2, 2006, and January 3, 2005

	January 1, 2007(a)			January 2, 2006(a)			January 3, 2005(a)
Consolidated restaurant sales	$	124,820		$	125,447		$	123,132
Cost of consolidated restaurant sales:
Food and beverage costs	38,604			38,021			38,709
Salaries and related benefit expenses	34,422			37,112			35,915
Restaurant operating expenses	21,269			21,257			20,105
Occupancy and related expenses	8,541			7,609			6,489
Marketing and promotional expenses	3,981			4,976			5,332
Depreciation and amortization expenses	4,216			4,778			4,312
Impairment of assets, net	6,573			750			—
Insurance proceeds, net	(1,175		)	—			—
Write-down of renovated restaurant assets	—			314			—
Total cost of consolidated restaurant sales	116,431			114,817			110,862
Income from consolidated restaurant operations	8,389			10,630			12,270
Management fee income	980			994			1,192
Income from consolidated and managed restaurants	9,369			11,624			13,462
General and administrative expenses	9,625			10,195			10,786
Royalty expense	1,886			1,830			1,782
Operating income (loss)	(2,142		)	(401		)	894
Interest expense	(639		)	(1,092		)	(1,401		)
Amortization of deferred debt financing costs	(42		)	(61		)	(112		)
Interest income	133			116			2
Interest expense net of interest income	(548		)	(1,037		)	(1,511		)
Loss before provision for income taxes	(2,690		)	(1,438		)	(617		)
Provision for income taxes	639			654			225
Loss before income of consolidated variable interest entity	(3,329		)	(2,092		)	(842		)
Income of consolidated variable interest entity	(904		)	(984		)	(1,198		)
Net loss	$	(4,233	)	$	(3,076	)	$	(2,040	)
Net loss per share—basic and diluted	$	(0.49	)	$	(0.33	)	$	(0.22	)
Weighted average common shares outstanding:
Basic and diluted	8,592,911			9,263,673			9,377,223

(a)Includes the accounts and results of the entity that owns Maloney & Porcelli (“M&P”) as a direct result of the adoption of Financial Accounting Standards Board (“FASB”) Interpretation No. 46 (R), “Consolidation of Variable Interest Entities” (“FIN46(R)”). See Note 2.

See accompanying notes to consolidated financial statements.

F-4

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC.
AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss)
(dollar amounts in thousands)
Years ended January 1, 2007, January 2, 2006, and January 3, 2005

	Common Stock					Additional paid-in			Accumulated				Accumulated Other compre- hensive income			Treasury stock					Stockholder’s
	Shares		Amount			capital			Deficit				(loss)			Shares	Amount				equity
Balance at December 29, 2003	9,376,249			$	94		$	69,940		$	(17,387	)		$	16	—		—				$	52,663
Stock options exercised, net of tax benefit	2,100			—			12			—				—		—		—				12
Stock based compensation	—			—			50			—				—		—		—				50
Comprehensive income on investments, net of tax effect	—			—			—			—				66		—		—				66
Net loss(a)	—			—			—			(2,040		)		—		—		—				(2,040		)
Total comprehensive loss(a)	—			—			—			—				—		—		—				(1,974		)
Balance at January 3, 2005(a)	9,378,349			$	94		$	70,002		$	(19,427	)		$	82	—		—				$	50,751
Stock options exercised, net of tax benefit	212,284			—			64			—				—		—		—				64
Treasury stock purchases(1)(2)(3).	(927,114	)		—			—			—				—		927,114		(4,301		)		(4,301		)
Comprehensive income on investments, net of tax effect	—			—			—			—				61		—		—				61
Net loss	—			—			—			(3,076		)		—		—		—				(3,076		)
Total comprehensive loss(a)	—			—			—			—				—		—		—				(3,015		)
Balance at January 2, 2006(a)	8,663,519			$	94		$	70,066		$	(22,503	)		$	143	927,114		$	(4,301	)		$	43,499
Stock options exercised, net of tax benefit	1,183			—			5			—				—		—		—				5
Treasury stock purchases(1).	(74,059	)		—			—			—				—		74,059		(379		)		(379		)
Share Based Compensation Charge FAS 123(R)							222															222
Comprehensive income on investments, net of tax effect	—			—			—			—				46		—		—				46
Net loss	—			—			—			(4,233		)		—		—		—				(4,233		)
Total comprehensive loss(a)	—			—			—			—				—		—		—				(4,187		)
Balance at January 1, 2007(a)	8,590,643			$	94		$	70,293		$	(26,736	)		$	189	1,001,173		$	(4,680	)		$	39,160

(a)Includes the accounts and results of the entity that owns M&P as a direct result of the adoption of FIN46(R). See Note 2

(1)On May 24, 2005, SWRG announced that the Board of Directors of the Company had authorized a stock repurchase program under which 1.0 million shares of the Company’s outstanding common stock were authorized to be acquired in the open market over the 18 months following such authorization at the direction of management.

(2)On August 30, 2005, SWRG signed a Separation Agreement with James M. Dunn, its former President and General Manager of the Smith & Wollensky in Boston. As part of the Separation Agreement SWRG agreed to purchase any shares of common stock that Mr. Dunn was to receive upon the exercise of his stock options at a price of $6.00 per share, less the exercise price of $3.88 per share. On August 30, 2005, SWRG purchased 158,667 shares of common stock from Mr. Dunn. This purchase resulted in a compensation expense of $336.

(3)On November 16, 2005, SWRG purchased 41,000 shares of common stock from Alan M. Mandel, its former Chief Financial Officer. This resulted in a compensation expense of $72.

See accompanying notes to consolidated financial statements.

F-5

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC.
AND SUBSIDIARIES

Consolidated Statements of Cash Flows
(dollar amounts in thousands)
Years ended January 1, 2007, January 2, 2006, and January 3, 2005

	January 1, 2007(a)				January 2, 2006(a)				January 3, 2005(a)
Cash flows from operating activities:
Net loss		$	(4,233	)		$	(3,076	)		$	(2,040	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		5,029				5,216				4,694
Amortization of debt discount		42				61				112
Impairment of assets		6,573				750				—
Write-down of renovated restaurant assets		—				314				—
Deferred gain on sale leaseback		(354		)		(227		)		—
Stock based compensation		222				—				50
Deferred rent		(13		)		220				140
Tenant improvement allowances		—				266				2,375
Accretive interest on capital lease obligation		—				51				133
Income of consolidated variable interest entity		904				984				1,198
Consolidation of variable interest entity		—				—				284
Changes in operating assets and liabilities:
Accounts receivable		479				(924		)		316
Merchandise inventory		(372		)		550				(390		)
Prepaid expenses and other current assets		121				(432		)		(258		)
Other assets		27				208				(812		)
Accounts payable and accrued expenses		1,002				(1,623		)		3,164
Net cash provided by operating activities		9,427				2,338				8,966
Cash flows from investing activities:
Purchase of property and equipment		(3,528		)		(1,578		)		(14,789		)
Purchase of nondepreciable assets		—				—				(114		)
Purchase of investments		—				(8,174		)		—
Proceeds from sale of nondepreciable assets		200				—				—
Proceeds from sale of investments		1,243				3,750				925
Proceeds from sale of property		—				19,321				—
Payments under licensing agreement		—				—				(457		)
Cash flows provided by (used in) in investing activities		(2,085		)		13,319				(14,435		)
Cash flows from financing activities:
Proceeds from issuance of long-term debt		—				—				4,000
Proceeds from issuance of short-term debt		—				—				2,000
Proceeds from capital lease obligations		—				—				1,500
Principal payments of long-term debt		(191		)		(9,625		)		(1,280		)
Principal payments of capital lease obligations		(139		)		(174		)		—
Net proceeds from exercise of options, net of tax benefit		5				64				12
Purchase of treasury stock		(379		)		(4,301		)		—
Distribution to owners of consolidated variable interest entity		(730		)		(1,080		)		(840		)
Cash flows provided by (used in) financing activities		(1,434		)		(15,116		)		5,392
Net change in cash and cash equivalents		5,908				541				(77		)
Cash and cash equivalents at beginning of year		2,362				1,821				1,898
Cash and cash equivalents at end of year		$	8,270			$	2,362			$	1,821
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest		$	577			$	1,151			$	1,315
Income Taxes		$	747			$	440			$	58
Noncash investing and financing activities:
Assets under capital lease		—				$	8,064			$	9,544
Obligations under capital lease		—				$	7,888			$	11,624
Capitalization of deferred rent		—				—				$	227

(a)Includes the accounts and results of the entity that owns M&P as a direct result of the adoption of FIN46(R). See Note 2

See accompanying notes to consolidated financial statements.

F-6

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements January 1, 2007 and January 2, 2006
(in thousands, except shares and per share/unit amounts)

(1) Organization and Description of Business

The Smith & Wollensky Restaurant Group, Inc. (formerly The New York Restaurant Group, Inc.) and subsidiaries (collectively, “SWRG” or the “Company”) operate in a single segment, which develops, owns, operates and manages a diversified portfolio of upscale tablecloth restaurants. At January 1, 2007, SWRG owned and operated eleven restaurants, including eight Smith & Wollensky restaurants, and managed three restaurants. In addition, SWRG owns the Smith & Wollensky unit in New Orleans, Louisiana, which was closed on August 29, 2005 due to Hurricane Katrina and the Smith & Wollensky unit in Dallas, Texas, which was closed on December 31, 2006 because it was unable to achieve a level of income from operations that was in line with Company’s expectations. At January 1, 2007, both S&W of New Orleans and S&W of Dallas were listed as available for sale. SWRG is currently under contract to sell the property for the Smith & Wollensky in Dallas for $3,900, less commission and other expenses of approximately $250. SWRG plans on closing on the sale of the Dallas property during the beginning of April 2007. In December 2006, the Company extended its lease for Park Avenue Café and in 2007 is doing a sales leaseback transaction with the adjacent townhouse that is used for private dining events. Due to the Café Lease Renewal, the Café, which had been scheduled to close on January 1, 2007, will remain open. The Townhouse has been listed as available for sale. SWRG also owns its new concept, Quality Meats, a contemporary American restaurant that is located in the space previously occupied by the Manhattan Ocean Club, a restaurant that we closed on January 1, 2006, and opened on April 10, 2006.  As of January 31, 2007, La Cité Associates, L.P. (“Cité Associates”), a subsidiary of SWRG, entered into a Settlement Agreement and certain related documents with Rockefeller Center North, Inc., the landlord (“Landlord”) of the restaurant space occupied by the Cité restaurant (“Cité”) in New York City. The Settlement Agreement, among things, settled the lawsuit in which the Landlord alleged that Cité Associates was obligated to pay, but had not paid, percentage rent since January 1, 2001, with the Landlord acknowledging that Cité Associates was not, and to the end of the original lease term ( i.e. , September 30, 2009) will not be, obligated to pay any percentage rent. In addition, unrelated to the lawsuit, on January 31, 2007, SWRG adopted a plan to close Cité to the public on April 2, 2007. SWRG decided to close Cité because it was unable to achieve a level of income from operations that was in line with its expectations. Pursuant to the Settlement Agreement, Cité is required to make a one-time settlement payment to the Landlord of $85 and will then receive its $100 letter of credit posted with the Landlord as a security deposit under the lease. Cité Associates also agreed to terminate its lease for Cite and vacate the premises by April 6, 2007.

SWRG was incorporated in Delaware in October 1997. Prior to October 1997, SWRG’s operations were conducted through The New York Restaurant Group, LLC (“NYRG”) its predecessor limited liability company. During October 1997, NYRG merged with SWRG. SWRG completed an initial public offering (“IPO”) of 5,295,972 shares of common stock in May 2001, of which SWRG sold 4,750,000 shares, at $8.50 per share. Proceeds of the IPO were used to redeem all of the outstanding debt under SWRG’s senior credit facility, a $10,000 senior subordinated note and a $1,000 senior revolving credit facility, including accrued interest and prepayment premiums, and to pay certain fees and expenses incurred relating to the IPO. All shares of convertible redeemable preferred stock outstanding automatically converted into 1,448,499 shares of common stock upon the closing of SWRG’s IPO.

On May 24, 2005, SWRG announced that the Board of Directors of the Company had authorized a stock repurchase program under which one million shares of the Company’s outstanding common stock were authorized to be acquired in the open market over the 18 months following such authorization at the

F-7

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements January 1, 2007 and January 2, 2006 (Continued)
(in thousands, except shares and per share/unit amounts)

direction of management. At January 1, 2007, SWRG had acquired 1,001,173 shares of Company common stock that have been recorded as treasury stock.

Possible Acquisition of SWRG and Related Transactions

Proposed Merger with Patina Restaurant Group, LLC

On February 26, 2007, Patina Restaurant Group, LLC, a Delaware limited liability company (“Patina”), SWRG Holdings, Inc., a Delaware corporation and a wholly owned subsidiary of Patina (“Patina Sub”) and SWRG, entered into an agreement and plan of merger (the “Merger Agreement”). Under the terms of the Merger Agreement and subject to satisfaction or waiver of the conditions therein, Patina Sub will merge with and into SWRG, with SWRG surviving (the “Merger”). As a result of the Merger, SWRG would become a wholly-owned subsidiary of Patina (the “Surviving Corporation”). At the effective time of the Merger, each share of SWRG’s common stock, par value $0.01 per share (the “Common Stock”),  issued and outstanding immediately prior to the effective time of the Merger (other than any shares owned by stockholders who are entitled to and who properly exercise appraisal rights under Delaware law) shall be canceled and converted into the right to receive from the Surviving Corporation $9.25 in cash without interest less any required withholding tax. The board of directors of SWRG (the “Board”) approved the Merger Agreement following the unanimous recommendation of a committee of the Board comprised entirely of independent directors (the “Special Committee”). The consummation of the Merger is conditioned upon, among other things, the adoption of the Merger Agreement by the stockholders of SWRG, regulatory approvals and other customary closing conditions. Pursuant to Delaware General Corporation Law and SWRG’s charter, the Merger must be approved by the holders of a majority of the shares of the outstanding Common Stock. In addition, pursuant to the Merger Agreement, the Merger must be approved by the affirmative vote of the holders of a majority of the outstanding shares of Common Stock present or voting by proxy at the stockholder meeting relating to the Merger (not including any shares of Common Stock beneficially owned by Mr. Alan Stillman).

SWRG, Patina and Patina Sub have made customary representations, warranties and covenants in the Merger Agreement. Among other things, SWRG may not solicit competing proposals or, subject to exceptions that permit the Special Committee or the Board to comply with their fiduciary duties, participate in any discussions or negotiations regarding alternative proposals. The Merger Agreement may be terminated under certain circumstances, including if the Special Committee or the Board has determined that it intends to enter into a transaction with respect to a superior proposal and the Company otherwise complies with certain terms of the Merger Agreement. Upon the termination of the Merger Agreement, under specified circumstances, SWRG will be required to reimburse Patina for its transaction expenses up to $600 and, under specified circumstances, SWRG will be required to pay Patina a termination fee of $2,465.

The Common Stock is currently registered under the Exchange Act and is quoted on the Nasdaq National Market under the symbol “SWRG.” If the Merger is completed, the Common Stock will be delisted from the Nasdaq National Market and will be deregistered under the Exchange Act.

Proposed Transaction Between Patina and Alan N. Stillman, SWRG’s Chairman and Chief Executive Officer

As an inducement for Patina to enter into the Merger Agreement, Patina and Alan N. Stillman, the Company’s Chairman and Chief Executive Officer, entered into an agreement dated February 26, 2007

F-8

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements January 1, 2007 and January 2, 2006 (Continued)
(in thousands, except shares and per share/unit amounts)

(the “Stillman Agreement”). Pursuant to the Stillman Agreement, immediately after the closing of the Merger, Mr. Stillman or his designees (the “Stillman Group”) will acquire certain assets from the Company consisting of real property owned by the Company in Dallas and New Orleans, the leases relating to three New York City restaurants (Quality Meats, Cité and Park Avenue Cafe), the management agreements relating to three New York City restaurants (Smith & Wollensky, Maloney & Porcelli and Post House), the lease of the Company’s headquarters in New York and all assets relating to the foregoing.

In consideration for such purchase, the Stillman Group will pay $5,302 in cash and/or stock of the Company, plus assume numerous liabilities and contingent obligations of the Company, including the following: any sales, real property transfer or income taxes relating to the acquisition; mortgages on properties in New Orleans and Miami aggregating approximately $3,200; $800 of capital lease obligations; all expenses of the Company relating to the Merger, including legal, accounting, proxy fees, severance, change of control and other payments to employees of the Company estimated to exceed an aggregate of $4,000; contingent obligations under various lawsuits (in amounts which cannot presently be determined); certain capital improvements and other costs relating to the Smith & Wollensky restaurant in Las Vegas and to the Company generally; and all known and unknown obligations or liabilities relating to the assets to be acquired.

Voting Agreement

On February 26, 2007, in connection with the Merger, Alan N. Stillman, Stillman’s First, Inc., La Cite, Inc., White & Witkowksy, Inc., Thursdays Supper Pub, Inc., Alan N. Stillman Grantor Retained Annuity Trust and the Donna Stillman Trust entered into a voting agreement with Patina  (the “Voting Agreement”) pursuant to which such persons have agreed to vote all their shares of Common Stock in favor of the Merger and against any action or agreement that would result in a breach by the Company under the Merger Agreement or would impede or interfere with the Merger. The Voting Agreement will terminate upon termination of the Merger Agreement in accordance with its terms.

Amendment to License Agreement

As a condition to entering into the Merger Agreement, Patina required that St. James Associates, L.P. (“St. James”) agree to amend various provisions of the amended and restated sale and license agreement dated January 1, 2006 between St. James and SWRG (the “License Agreement”). Mr. Stillman and an unrelated party are the general partners of St. James. In order to effectuate this amendment, the consent of both general partners was required. On February 26, 2007, Patina and St. James entered into a letter agreement (the “Letter Agreement”) pursuant to which the License Agreement will be amended effective on the closing of the Merger to effectuate the following: Patina has agreed to open at least two new Smith & Wollensky restaurants and to open or make advance payments of additional royalty payments for two additional such restaurants within six years; St. James will eliminate the 1% royalty fee on all restaurant and non-restaurant sales at any steakhouse owned or operated by Patina or its affiliates if such restaurant does not use the Smith & Wollensky name and is located in specified countries in Asia, provided such royalty will continue to be payable until Patina has fulfilled its build-out obligations; St. James agreed to eliminate the posting by assignees of a letter of credit in connection with the assignment of the License Agreement; and St. James agreed to other technical amendments. Based on Patina’s representations to St. James that the principals of Parent are reputable restaurant operators that have managed high quality fine dining restaurants continuously for at least five years and that Patina is a

F-9

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements January 1, 2007 and January 2, 2006 (Continued)
(in thousands, except shares and per share/unit amounts)

nationally known reputable company active in the food service business, St. James acknowledged that the Merger Agreement is expressly permitted by the License Agreement. For additional information relating to the License Agreement, See “—Service Marks, Trademarks and License Agreements.”

Additional Bidder for SWRG

On Friday, March 16, 2007, the Company received an unsolicited proposal from Landry’s Restaurants, Inc. (“Landry’s”) to acquire the company at $9.75 per share. As of the date hereof, Landry’s has refused to execute a confidentiality and standstill agreement on the terms required by the Merger Agreement. As a result, the Company is unable to provide Landry’s with non-public information. The Special Committee of the Company’s Board is continuing to evaluate the terms and conditions of the proposal received from Landry’s, consistent with its fiduciary duties to the Company’s stockholders and the no-solicitation provisions of the Merger Agreement.

(2) Effect of FIN 46(R) (unaudited)

In accordance with FIN 46(R), SWRG’s consolidated financial statements for the fiscal years ended January 1, 2007 and January 2, 2006 include the accounts and results of the entity that owns M&P. SWRG manages the operations of M&P pursuant to the terms of a restaurant management agreement (the “Maloney Agreement”). FIN 46(R) addresses the consolidation by business enterprises of variable interest entities. All variable interest entities, regardless of when created, were required to be evaluated under FIN 46(R) no later than the first period ending after March 15, 2004. An entity shall be subject to consolidation according to the provisions of FIN 46(R) if, by design, as a group, the holders of the equity investment at risk lack any one of the following three characteristics of a controlling financial interest: (1) the direct or indirect ability to make decisions about an entity’s activities through voting rights or similar rights; (2) the obligation to absorb the expected losses of the entity if they occur; or (3) the right to receive the expected residual returns of the entity if they occur. SWRG consolidated the accounts and results of the entity that owns M&P because the holders of the equity investment lacked the right to receive the expected residual returns of the entity if they were to occur.

In connection with the adoption of FIN 46(R), SWRG’s net investment in the Maloney Agreement, previously classified under “Management contract, net” and management fees and miscellaneous charges receivable classified under “Accounts receivable” have been eliminated in consolidation and, instead, the separable assets and liabilities of M&P are presented. The consolidation of the entity that owns M&P has changed SWRG’s current assets by $253 and $199, non-current assets by $52 and $82, current liabilities by $457 and $555, and non-current liabilities by $359 and $401 at January 1, 2007 and January 2, 2006, respectively. The consolidation of the entity that owns M&P increased consolidated sales by $11,570, $11,737 and $11,501 and increased restaurant operating costs by $9,584,$9,703 and $9,175 for the fiscal years ended January 1, 2007, January 2, 2006 and January 3, 2005 respectively.

(3) Summary of Significant Accounting Policies

(a) Reporting Period

SWRG utilizes a 52-or 53-week reporting period ending on the Monday nearest to December 31st. The fiscal year ended January 3, 2005 (fiscal 2004) consisted of 53-weeks and the fiscal years ended

F-10

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements January 1, 2007 and January 2, 2006 (Continued)
(in thousands, except shares and per share/unit amounts)

January 1, 2007, (fiscal 2006), and January 2, 2006 (fiscal 2005) each consisted of 52-week reporting periods.

(b) Principles of Consolidation

The accompanying consolidated financial statements include the accounts of SWRG after elimination of all material intercompany balances and transactions. In accordance with FIN 46(R), SWRG’s consolidated financial statements for the fiscal years ended January 1, 2007 and January 2, 2006 include the accounts and results of the entity that owns M&P.

(c) Cash and Cash Equivalents

SWRG had cash and cash equivalents of $8,270 and  $2,362 as of January 1, 2007 and January 2, 2006, consisting of cash and overnight repurchase agreements and certificates of deposit with an initial term of less than three months as of January 1, 2007 and January 2, 2006, respectively.

(d) Accounts Receivable

Accounts receivable consists primarily of bank credit card accounts receivable, management fees receivable and other miscellaneous receivables.

(e) Allowance for Doubtful Accounts

SWRG estimates an allowance for doubtful accounts based upon the actual payment history of each individual customer, as well as considering changes that occur in the financial condition or the local economy of a particular customer that could affect SWRG’s bad debt expenses and allowance for doubtful accounts. SWRG performs a specific review of major account balances and applies statistical experience factors to the various aging categories of receivable balances in establishing the allowance.

(f) Inventory

Merchandise inventory consists primarily of restaurant food and beverages and are stated at the lower of cost or market value. Cost is determined using the first-in, first-out method.

(g) Investment Securities

Investment securities consist of debt and equity securities. SWRG classifies its debt and equity securities as available for sale securities. The securities are recorded at fair value. Unrealized holding gains and losses, net of the related tax effect, on available for sale securities are excluded from earnings and are reported as ‘accumulated other comprehensive income’ as a separate component of stockholder’s equity until realized. There were no material unrealized holding gains or losses as of January 1, 2007 and January 2, 2006. Realized gains and losses from the sale of available for sale securities are determined on a specific identification basis.

F-11

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements January 1, 2007 and January 2, 2006 (Continued)
(in thousands, except shares and per share/unit amounts)

A decline in the market value of any available for sale security below cost that is deemed to be other than temporary results in a reduction in carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the security is established. To determine whether an impairment is other than temporary, SWRG considers whether it has the ability and intent to hold the investment until a market price recovery and considers whether evidence indicating the cost of the investment is recoverable outweighs evidence to the contrary. Evidence considered in this assessment includes the reasons for the impairment, changes in value subsequent to year-end and forecasted performance of the investee.

Premiums and discounts are amortized or accreted over the life of the related available for sale security as an adjustment to yield using the effective interest method. Dividend and interest income are recognized when earned.

(h) Property and Equipment

Property and equipment is stated at cost. Landlord allowances for leasehold improvements, furniture, fixtures and equipment are recorded as a liability and amortized as a reduction of rent expense. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets. Leasehold improvements and rights are amortized on the straight-line basis over the shorter of the lease term (assuming renewal options) or the estimated useful life of the asset. Any rent expense incurred during the construction period was capitalized as a part of leasehold improvements and is amortized on a straight-line basis from the date operations commence over the remaining life of the lease, which includes the renewal period. For any leases entered into after September 15, 2005, SWRG expenses these costs in conjunction with FASB Staff Position FAS 13-1, “Accounting for Rental Costs Incurred during a Construction Period”. The effect of this was not material to its financial position. The estimated useful lives are as follows:

Building and building improvements	30 years
Machinery and equipment	5 to 7 years
Furniture and fixtures	7 years
Leasehold improvements	Lesser of useful lives or length of lease
Leasehold rights	25 years

(i) Artwork

SWRG purchases artwork and antiques for display in its restaurants. SWRG does not depreciate artwork and antiques since these assets have cultural, aesthetic or historical value that is worth preserving perpetually and SWRG has the ability and intent to protect and preserve these assets. Such assets are recorded at cost and are included in other assets in the accompanying consolidated balance sheets.

(j) Goodwill

Goodwill represents the excess of fair value of the aggregate of certain reporting units acquired in the formation of SWRG over the aggregate book value of identifiable net assets for those reporting units. SWRG adopted the provisions of the Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS No. 142”), as of January 1, 2002. Goodwill and intangible assets determined to have an indefinite life are not subject to amortization but are tested at least annually for impairment in accordance with the provisions of SFAS No. 142. An impairment loss is recognized to the extent that the

F-12

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements January 1, 2007 and January 2, 2006 (Continued)
(in thousands, except shares and per share/unit amounts)

implied fair value of the aggregate of certain reporting units is less than their aggregate carrying amount. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment.

SWRG concluded that the Company operates as one single reporting entity for purposes of assessing goodwill. As such, SWRG compares the fair value of the single reporting entity, using the discounted cash flows method, to the total equity (carrying value) to determine if an impairment exists. The Company uses its year end date as its annual testing date.

For fiscal 2006, the fair value of the single reporting unit is in excess of the recorded carrying value.

(k) Long-Lived Assets

In accordance with SFAS No. 144, long-lived assets, such as property, plant, and equipment, and purchased intangibles subject to amortization, are reviewed for impairment on a restaurant-by-restaurant basis whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. SWRG recorded an impairment of $750, net of insurance proceeds for the assets of its Smith & Wollensky in New Orleans, which were damaged by Hurricane Katrina during the year ended January 2, 2006. SWRG also recorded a write down of $314 for the year ended January 2, 2006 for the assets of the Manhattan Ocean Club, a restaurant that was closed on December 31, 2005 and was renovated into a new concept, Quality Meats that opened on April 10, 2006. For the year ended January 1, 2007, an impairment charge was recorded for the assets of its Smith & Wollensky unit in New Orleans of $2,676, its Smith & Wollensky unit Dallas of $3,157, and its Cité restaurant in New York of $740. Impairment charges for the Smith & Wollensky units in New Orleans and Dallas were based on estimated sales prices for the two properties, less commissions and other expenses. Impairment charges for the Cité restaurant were based on comparing the carrying amount of the assets with estimated future cash flows. Assets to be disposed of are separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposed group classified as held for sale are presented separately in the appropriate asset and liability sections of the balance sheet. The remaining unimpaired balance for the Smith & Wollensky units in New Orleans and Dallas are being presented as available for sale. SWRG is currently under contract to sell the property for the Smith & Wollensky in Dallas for $3,900, less commission and other expenses of approximately $250. SWRG plans on closing on the sale of the Dallas property during the beginning of April 2007.

Costs attributable to a sale and licensing agreement (the “Licensing Agreement”) entered into in 1996 consisted of a $2,500 payment (plus any payments made upon the opening of additional units) and legal fees paid by SWRG to acquire the rights and license to use the names “Smith & Wollensky” and “Wollensky’s Grill” (collectively, the “Names”) as described in Note 7. The Licensing Agreement exists in perpetuity and the original $2,500 payment is being amortized over the thirty year estimated useful life of the Names, using the straight-line method. Any payments made upon the opening of additional units are being amortized over the lesser of the life of the lease, including the renewal period, or the remaining useful life of the Names, using the straight-line method. The net balance as of January 1, 2007 was $2,975.

F-13

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements January 1, 2007 and January 2, 2006 (Continued)
(in thousands, except shares and per share/unit amounts)

The cost of the acquisition of the management contract for the M&P restaurant in New York City amounting to $1,500 was being amortized over the fifteen-year period of the underlying operating lease, using the straight-line method. In connection with the adoption of FIN46 (R) during the fiscal year ended January 3, 2005, the $1,500 and related accumulated amortization were eliminated in the consolidation of M&P.

The cost of the acquisition of the management contract for the ONEc.p.s. restaurant amounted to $500 in 2000 and was being amortized over the ten year period of the underlying management contract, using the straight-line method. SWRG was notified by Plaza Operating Partners during October 2004 that it sold the Plaza Hotel, the property in which ONEc.p.s, a restaurant SWRG managed, was located. SWRG was directed by the new owners to close the restaurant by January 1, 2005 and to advise the employees of ONEc.p.s. of the closing. On November 1, 2004, SWRG informed certain of its employees that ONEc.p.s. would close effective January 1, 2005. As a result, SWRG no longer accrues additional quarterly management fees under its agreement with Plaza Operating Partners with respect to any periods following January 1, 2005.

Amortization expense of intangible assets aggregated $495, $176  and $185 in fiscal 2006, 2005 and 2004, respectively, and is included in general and administrative expenses in the accompanying consolidated statements of operations. Fiscal 2006 includes the write-off of the unamortized opening fees for the Smith & Wollensky units in New Orleans and Dallas.

(l) Deferred Rent

SWRG records rental expense on a straight-line basis from the date that SWRG takes control of the premises over the lease term, including renewal periods. Any difference between the calculated expense and the amounts actually paid are reflected as a deferred rent liability in the consolidated balance sheets. SWRG also includes in deferred rent liability landlord allowances for leasehold improvements, furniture, fixtures and equipment. These amounts are amortized on a straight-line basis from the date that SWRG takes control of the premise over the lease term, including renewal periods. Any rent expense incurred during the construction period was capitalized as a part of leasehold improvements and was amortized on a straight-line basis from the date operations commence over the remaining life of the lease, which included the renewal period. SWRG began expensing these costs starting in the first reporting period after September 15, 2005, SWRG will be expensing these costs in conjunction with FASB Staff Position FAS 13-1, “Accounting for Rental Costs Incurred during a Construction Period”.

(m)  Marketing and Promotional Expenses

Marketing and promotional expenses in the accompanying consolidated statements of operations include advertising expenses of  $1,235, $1,860 and $2,289 for fiscal 2006, 2005, and 2004, respectively. Marketing and promotional costs are recorded as expense over the period receiving the promotional benefit within the fiscal year.

(n) Pre-Opening Costs

Pre-opening costs incurred in connection with the opening of new restaurants are expensed as incurred and are included in general and administrative expenses in the accompanying consolidated statements of operations.

F-14

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements January 1, 2007 and January 2, 2006 (Continued)
(in thousands, except shares and per share/unit amounts)

(o) Debt Financing Costs

Deferred debt financing costs, which were included in other assets (see Note 9), relate to costs incurred in connection with bank borrowings and other long-term debt and are amortized over the term of the related borrowings. Amortization expense of deferred financing costs was $42, $61 and $112 in fiscal 2006, 2005 and  2004, respectively.

(p) Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

(q) Share - Based Compensation

The 2001 Stock Incentive Plan (“2001 Stock Incentive Plan”) provides for the granting of options to purchase shares of SWRG common stock and stock awards. Options may be incentive stock options, as defined in Section 422 of the Internal Revenue Code (the “Code”), granted only to SWRG employees (including officers who are also employees) or non-qualified stock options granted to our employees, directors, officers and consultants. Stock awards may be granted to employees of, and other key individuals engaged to provide services to, SWRG and its subsidiaries. The 2001 Stock Incentive Plan was adopted and approved by the directors of SWRG in March 2001 and our stockholders in April 2001.

The 2001 Stock Incentive Plan may be administered by SWRG’s Board of Directors or by its Compensation Committee, either of which may decide who will receive stock option or stock awards, the amount of the awards, and the terms and conditions associated with the awards. These include the price at which stock options may be exercised, the conditions for vesting or accelerated vesting, acceptable methods for paying for shares, the effect of corporate transactions or changes in control, and the events triggering expiration or forfeiture of a participant’s rights. The maximum term for stock options may not exceed ten years, provided that no incentive stock options may be granted to any employee who owns ten percent or more of SWRG with a term exceeding five years. Options that have been granted under the 2001 Stock Incentive Plan vest over a five year period.

Effective January 3, 2006, SWRG adopted the provisions of SFAS No. 123R. Under FAS123R, share-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the requisite service period. SWRG adopted the provisions of FAS123R using a modified prospective application. Under this method, compensation cost is recognized for all share-based payments granted, modified or settled after the date of adoption, as well as for any unvested awards that were granted prior to the date of adoption that vest in the current period as well as the vested portion of any new grant. Prior periods are not revised for comparative purposes. Because SWRG previously adopted only the pro forma disclosure provisions of SFAS 123, it will recognize compensation cost relating to the unvested portion of awards granted prior to the date of adoption, using the same estimate of the grant-date fair value and the same attribution method used to determine the pro forma disclosures under SFAS 123, except that forfeitures rates will be estimated for all options, as required by

F-15

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements January 1, 2007 and January 2, 2006 (Continued)
(in thousands, except shares and per share/unit amounts)

FAS123R. The cumulative effect of applying the forfeiture rates to the old options is not material therefore not requiring an adjustment. FAS 123R requires that excess tax benefits related to stock options exercises be reflected as financing cash inflows instead of operating cash inflows.

The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model. Expected volatility is based on the historical volatility of the price of SWRG stock using weekly historical data for five years. The risk-free interest rate is based on U.S. Treasury issues with a term equal to the expected life of the option, as provided under the short-cut method. SWRG uses historical data to estimate expected dividend yield, expected life and forfeiture rates. The fair values of the options granted, were estimated based on the following weighted average assumptions:

	2006		2005		2004
Expected volatility	31.2%		32.1%		50.0%
Risk-free interest rate	4.9%		3.9%		4.6%
Expected dividend yield	0.0%		0.0%		0.0%
Expected life	7.5 years		5 years		7 years
Estimated fair value per option granted	$	5.06	$	6.07	$	5.12

On May 23, 2006, SWRG granted options to purchase 135,000 shares of common stock under the 2001 Stock Incentive Plan. The weighted average exercise price of the options granted was $5.14 per share, the fair market value of the underlying common shares at the date of grant was $5.06 per share. Each option granted in May 2006 will vest over a period of five years.

Stock option activity for the year ended January 1, 2007, is as follows:

							Weighted
				Weighted			Average
				Average			Remaining		Aggregate
	Number of			Exercise			Contracted		intrinsic
	options			price			term (years)		value
Outstanding at January 2, 2006		610,039			$	5.23
Options granted		135,000			5.14
Options exercised		(1,183	)		4.47
Options forfeited		(115,673	)		5.89
Options outstanding at January 1, 2007		628,183			$	5.03		6.79		$	221
Options exercisable at January 1, 2007		383,003			$	4.78		5.60		$	219

The aggregate intrinsic value of options exercised during the three years ended January 1, 2007, January 2, 2006 and January 3, 2005 was approximately $1, $418, and $2, respectively.

F-16

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements January 1, 2007 and January 2, 2006 (Continued)
(in thousands, except shares and per share/unit amounts)

The impact on SWRG’s results of operations of recording share-based compensation for the year ended January 1, 2007 was to increase general and administrative expenses by approximately $222 and increased the net loss per share by $0.03 per basic and diluted share. This charge relates to the compensation charge on both the vested portion of awards issued prior to the adoption of FAS 123R and the vested portion of the options granted during the year ended January 1, 2007. The per share weighted average value of stock options granted during 2006, 2005 and 2004 was $5.14, $6.12, and $5.70, respectively.

As of January 1, 2007, there was approximately $451 of total unrecognized stock-based compensation cost related to options granted under the 2001 Stock Incentive Plan that will be recognized over the next five years.

A summary of our non-vested shares as of January 1, 2007 and changes during the year ended January 1, 2007 is presented below:

			Weighted average
			grant date
	Shares		fair value
Nonvested at January 2, 2006	288,316			$	5.66
Granted	135,000			5.14
Vested	(81,897	)		5.20
Forfeited	(96,239	)		6.02
Nonvested at January 1, 2007	245,180			$	5.41

Prior to the adoption of FAS 123R, SWRG applied the intrinsic value-based method of accounting prescribed by Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations including FASB Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation an interpretation of APB Opinion No.  25  issued in March 2000 (“FIN 44”), to account for its fixed plan stock options. Under this method, compensation expense was recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. SFAS No. 123, Accounting for Stock-Based Compensation established accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans. In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation Transition and Disclosure, an amendment of FASB Statement No.  123. This Statement amended FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. Options given to a board member who was also a consultant of SWRG became variable options under FIN 44. The change in fair value of these options for the year ended January 2, 2006 resulted in an immaterial compensation expense and a compensation expense of $50 for the year ended January 2, 2005.

F-17

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements January 1, 2007 and January 2, 2006 (Continued)
(in thousands, except shares and per share/unit amounts)

The following table illustrates the effect on the net loss as if SWRG had applied the fair value recognition provisions of SFAS No. 123 to stock based compensation:

	January 2, 2006				January 3, 2005
Net loss		$	(3,076	)		$	(2,040	)
Add stock-based employee compensation expense (recovery) included in reported net income		—				(38		)
Add (deduct) total stock-based employee compensation expense determined under fair value based method for all awards, net of Tax		(335		)		(335		)
Pro forma net loss		$	(3,411	)		$	(2,413	)
Basic and diluted		$	(0.37	)		$	(0.26	)
Weighted average common shares outstanding:
Basic and Diluted		9,263,673				9,377,223

(r) Use of Estimates

The preparation of the consolidated financial statements in conformity with generally accepted accounting principles 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 revenue and expenses during the reporting period. Actual results could differ from those estimates.

(s) Fair Value of Financial Instruments

The carrying value of SWRG’s accounts receivable and accounts payable approximate their fair values based on the short-term nature of such items. The carrying value of the mortgage included in long-term debt approximates fair value since the interest rate is variable at terms currently available to SWRG. The fair value of the term loans and promissory notes was estimated using a discounted cash flow analysis based on SWRG’s incremental borrowing rate. The fair value of the term loans and promissory note at January 1, 2007 was approximately $3,431. Fair value of investments is determined by the most recently traded price of each security at the balance sheet date. Net realized gains or losses are determined on the specific identification cost method.

(t) Revenue Recognition

Sales from consolidated restaurants are recognized as revenue at the point of the delivery of meals and services. Management fee income is recognized as the related management fee is earned, pursuant to the respective agreements.

(u) Gift Certificate Liability

We record a gift certificate liability for gift certificates sold to customers to be redeemed at a future date. The liability is relieved and revenue is recognized when the gift certificates are redeemed.

F-18

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements January 1, 2007 and January 2, 2006 (Continued)
(in thousands, except shares and per share/unit amounts)

(v) Concentration of Credit Risk

Financial instruments which potentially subject SWRG to concentration of credit risks consist principally of cash and accounts receivable. SWRG maintains its cash in commercial banks insured by the FDIC. At times, such cash in banks exceeds the FDIC insurance limit. SWRG has established as allowance for doubtful accounts based upon factors surrounding the credit risk of special customers, historical trends and other information.

(w) Effect of New Accounting Standards

In February 2006, the FASB issued SFAS 155, Accounting for Hybrid Financial Instruments—an amendment of FASB Statements No. 133 and 140. SFAS 155 amends FAS 133, Accounting for Derivative Instruments and Hedging Activities, and SFAS 140, Accounting for Transfer and Servicing of Financial Assets and Extinguishments of Liabilities, to permit fair value re-measurement of any hybrid financial instrument that contains an embedded derivative that would otherwise require bifurcation. Additionally, FAS 155 seeks to clarify which interest-only strips and principle-only strips are not subject to the requirements of SFAS 133 and to clarify that concentrations of credit risk in the form of subordination are not embedded derivatives. This Statement is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. We do not believe the adoption of this standard will have a material impact on our financial condition or our results of operations.

On July 13, 2006, the Financial Accounting Standards Board issued Interpretation No.48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). The requirements are effective for fiscal years beginning after December 15, 2006. The purpose of FIN 48 is to clarify and set forth consistent rules for accounting for uncertain tax positions in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes”. The cumulative effect of applying the provisions of this interpretation are required to be reported separately as an adjustment to the opening balance of retained earnings in the year of adoption. We have completed our initial evaluation of the impact of the adoption of FIN 48 and determined that such adoption is not expected to have a material impact on its financial position or results from operations.

In June 2006, the FASB ratified Emerging Issues Task Force (“EITF”) Issue No. 06-3, “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (that is, Gross versus Net Presentation)”, which allows companies to adopt a policy of presenting taxes in the income statement on either a gross or net basis. Taxes within the scope of this EITF would include taxes that are imposed on a revenue transaction between a seller and a customer. If such taxes are significant, the accounting policy should be disclosed as well as the amount of taxes included in the financial statements if presented on a gross basis. EITF 06-3 is effective for interim and annual reporting periods beginning after December 15, 2006. The Company has been accounting for sales tax as gross and is currently assessing the impact of presenting gross as opposed to net which will be disclosed at the beginning of Fiscal 2007.

In September 2006, The Securities and Exchange Commissions staff issued Staff Accounting Bulletin (“SAB”) No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. SAB 108 was issued to provide consistency between how registrants quantify financial statement misstatements. Historically, there have been two widely-used methods for

F-19

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements January 1, 2007 and January 2, 2006 (Continued)
(in thousands, except shares and per share/unit amounts)

quantifying the effects of financial statement misstatements. These methods are referred to as the “roll-over” and “iron curtain” methods. The roll-over method quantifies the amount by which the current year income statement is misstated. The iron curtain method quantifies the error as the cumulative amount by which the current year balance sheet is misstated. SAB 108 established an approach that requires quantification of financial statement misstatements based on the effects of the misstatement on each of the company’s financial statements and the related financial statement disclosures. This approach is commonly referred to as the “dual approach.”  SAB 108 allows registrants to initially apply the dual approach either by (1) retroactively adjusting prior financial statements as if the dual approach had always been used or by (2) recording the cumulative effect of initially applying the dual approach as adjustments to the carrying values of assets and liabilities as of January 3, 2006 with an offsetting adjustment recorded to the opening balance of retained earnings. The Company’s adoption of SAB 108 using the cumulative effect transition method in connection with the preparation of its annual financial statements had no impact for the year ending January 1, 2007.

(x) Reclassifications

Certain reclassifications have been made to the prior period consolidated financial statements to conform them to current presentation. There have been certain assets determined to be held for sale in fiscal 2006 that have been reclassed as such in fiscal 2005 for comparison (see Note 6).

(4) Net Loss Per Common Share

SWRG calculates earnings (loss) per common share in accordance with SFAS No. 128, Earnings Per Share. Basic earnings (loss) per common share are computed by dividing the net loss applicable to common shares by the weighted average number of common shares outstanding. Diluted earnings (loss) per common share assumes the conversion of the convertible redeemable preferred shares as of the beginning of the year and the exercise of stock options and warrants using the treasury stock method, if dilutive. Dilutive net loss per common share for fiscal 2006, fiscal 2005, and fiscal 2004 are the same as basic net loss per common share due to the antidilutive effect of the exercise of stock options. Such options amounted to 41,928, 55,461 and 128,941 shares for fiscal 2006, fiscal 2005 and fiscal 2004, respectively.

F-20

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements January 1, 2007 and January 2, 2006 (Continued)
(in thousands, except shares and per share/unit amounts)

The following table sets forth the calculation for earnings per share on a weighted average basis:

	January 1, 2007(a)				January 2, 2006(a)				January 3, 2005(a)
Numerator:
Net loss available to common stockholders		$	(4,233	)		$	(3,076	)		$	(2,040	)

	Total Shares		Weighted Average Shares			Weighted Average Shares			Weighted Average Shares
Denominator:
Conversion of Preferred Stock on May 23, 2001	1,448,499		1,448,499			1,448,499			1,448,499
Beginning Common Shares	3,083,930		3,083,930			3,083,930			3,083,930
Initial Public Offering on May 23, 2001	4,750,000		4,750,000			4,750,000			4,750,000
Warrants exercised on June 14, 2001	71,837		71,837			71,837			71,837
Weighted average common shares outstanding:
Options exercised during 2003	21,983		21,983			21,983			21,983
Options exercised during 2004	2,100		2,100			2,100			974
Options exercised during 2005	212,284		212,284			66,710			—
Options exercised during 2006	1,183		975
Treasury Stock purchases during 2005(1)(2)(3).	(927,114	)	(927,114		)	(181,386		)	—
Treasury Stock purchased during 2006 (1)	(74,059	)	(71,583		)
Basic and diluted(4)			8,592,911			9,263,673			9,377,223
Per common share—basic and diluted:
Net loss available to common stockholders			$	(0.49	)	$	(0.33	)	$	(0.22	)

(a)Includes the accounts and results of the entity that owns M&P as a direct result of the adoption of FIN46(R). See Note 2

(1)On May 24, 2005, SWRG announced that the Board of Directors of the Company had authorized a stock repurchase program under which 1.0 million shares of the Company’s outstanding common stock were authorized to be acquired in the open market over the 18 months following such authorization at the direction of management.

(2)On August 30, 2005, SWRG signed a Separation Agreement with James M. Dunn, the former President and General Manager of the Smith & Wollensky in Boston. As part of the Separation Agreement,  SWRG agreed to purchase any shares of common stock that Mr. Dunn was to receive upon the exercise of his stock options at a price of $6.00 per share, less the exercise price of $3.88 per share. On August 30, 2005, SWRG purchased 158,667 shares of common stock from Mr. Dunn. This purchase resulted in a compensation expense of $336.

(3)On November 16, 2005, SWRG purchased 41,000 shares of common stock from Alan M. Mandel, its former Chief Financial Officer. This resulted in a compensation expense of $72.

(4)Dilutive shares and basic shares are the same due to the antidilutive effect of the exercise of stock options.

F-21

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements January 1, 2007 and January 2, 2006 (Continued)
(in thousands, except shares and per share/unit amounts)

SWRG  excluded  options to purchase  approximately 41,928, 55,461 and 128,941 shares of common stock, for the fiscal years ended January 1, 2007, January 2, 2006 and January 3, 2005, respectively, because they are  considered anti-dilutive.

(5) Investment Securities

The amortized cost, gross unrealized holding gains, gross unrealized holding losses, and fair value of available for sale debt and equity securities by major security type and class of security at January 1, 2007 and January 2, 2006 were as follows:

	Amortized Cost			Gross unrealized holding gains		Gross unrealized holding losses			Fair value
At January 1, 2007:
Available for sale-short-term:
Equity securities		$	118		193		—			$	311
		$	118		193		—			$	311
At January 1, 2007:
Available for sale long-term:
Corporate debt securities		$	3,175		—		—			$	3,175
		$	3,175							$	3,175
At January 2, 2006:
Available for sale-short-term:
Equity securities		$	118		147		—			$	265
		$	118		147		—			$	265
At January 2, 2006:
Available for sale long-term:
Corporate debt securities		$	4,175		—		—			$	4,175
Equity securities		250			—		(8	)		$	242
		$	4,425				(8	)		$	4,417

Maturities of debt securities classified as available for sale were as follows at January 1, 2007:

	Amortized Cost			Fair value
Available for sale:
Due after one year through five years		$	—		$	—
Due after five years through thirty years		3,175			3,175
Equity securities		—			—
		$	3,175		$	3,175

Proceeds from the sale of investment securities available for sale were $1,243, $3,750 and $925 in fiscal 2006, fiscal 2005 and fiscal 2004, respectively and gross realized gains (losses) included in general and administrative expenses in fiscal 2004 were $20.

F-22

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements January 1, 2007 and January 2, 2006 (Continued)
(in thousands, except shares and per share/unit amounts)

(6) Property and Equipment

Property and equipment consists of the following:

	Jan.1 , 2007				Jan. 2, 2006
Land		$	—			$	—
Building and building improvements		—				—
Machinery and equipment		13,808				12,506
Furniture and fixtures		7,797				7,522
Leasehold improvements		50,853				49,943
Leasehold rights		3,376				3,376
Construction-in-progress		113				181
		75,947				73,528
Less accumulated depreciation and amortization		(29,762		)		(25,957		)
		$	46,185			$	47,571

Leasehold improvements include $6,564 of assets under capital lease and machinery and equipment includes $1,500 of assets under capital lease as of January 1, 2007. Depreciation and amortization expense of property and equipment was $4,530, $5,036 and $4,509 in fiscal 2006, 2005 and 2004, respectively. SWRG capitalizes interest cost as a component of the cost of construction in progress. There was no interest capitalized in 2006 and 2005.

On August 29, 2005, Hurricane Katrina hit the Gulf Coast, causing damage to S&W New Orleans. SWRG has insurance policies that cover certain losses relating to flood and wind damage and coverage for interruption of business for S&W of New Orleans. SWRG recorded impairment charges for certain assets of approximately $2,676 and $750 for the years ended January 1, 2007 and January 2, 2006, respectively, which represent estimates of the maximum deductible which could be incurred under its insurance plan as well as an estimate of other impaired assets not believed to  be covered under its insurance plan. The impairment amount for the year ended January 2, 2006 is net of $100 of insurance proceeds SWRG has received that relates to content coverage. SWRG has also written off approximately $160 in inventories that spoiled or were destroyed by Hurricane Katrina for the year ended January 2, 2006. SWRG has received business interruption proceeds which are reflected in its statement of operation of $628 and $350 for the years ended January 1, 2007 and January 2, 2006, respectively.

On December 31, 2006, SWRG closed its Smith & Wollensky restaurant in Dallas, Texas (“S&W Dallas”) and also determined that S&W Dallas’ net fixed assets were impaired. An impairment charge of $3,157 was recorded for the year ended January 1, 2007. SWRG decided to close S&W Dallas because it was unable to achieve a level of income from operations that was in line with the Company’s expectations. SWRG has also decided to sell the land and building in which S&W Dallas is located. SWRG is currently under contract to sell the property for the Smith & Wollensky in Dallas for $3,900, less commission and other expenses of approximately $250. SWRG plans on closing on the sale of the Dallas property during the beginning of April 2007.

F-23

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements January 1, 2007 and January 2, 2006 (Continued)
(in thousands, except shares and per share/unit amounts)

On January 31, 2007, SWRG adopted a plan to close Cité to the public on April 2, 2007 because Cité  was unable to achieve a level of income from operations that was in line with its expectations. An impairment charge of $740 was recorded for the year ended January 1, 2007.

Assets available for sale consists of the following:

	Jan. 1, 2007				Jan. 2, 2006
Land		$	3,218			$	3,218
Building and building improvements		3,022				6,256
Machinery and equipment		1,243				1,569
Furniture and fixtures		573				825
Leasehold improvements		1,425				3,319
Leasehold rights		—				—
Construction-in-progress		—				—
		9,399				15,187
Less accumulated depreciation and amortization		(3,526		)		(3,125		)
		$	5,873			$	12,062

On January 1, 2006 SWRG closed the Manhattan Ocean Club and began renovations for its new concept, Quality Meats, which opened in the second quarter of fiscal 2006. The write-down of the impaired net property and equipment of MOC was approximately $302 for the fiscal year ended January 2, 2006.

(7) License Agreement

On August 16, 1996, SWRG entered into a License Agreement (the “Original License Agreement”) with St. James Associates (“St. James”), the owner of the Smith & Wollensky restaurant in New York. St. James is an entity related through common management and ownership (see Note 19).

The Original License Agreement provides SWRG with the exclusive right to utilize the Names throughout the United States and internationally, with the exception of a reserved territory, as defined. Consequently, SWRG may not open additional Smith & Wollensky restaurants or otherwise utilize the Names in the reserved territory. The Original License Agreement requires SWRG to make additional payments to St. James as follows: (i) $200 for each new restaurant opened (increasing annually commencing in 1999 by the lesser of the annual increase in the Consumer Price Index or a 5% increase of the fee required in the preceding year), (ii) a royalty fee of 2% based upon annual gross sales for each restaurant utilizing the Names, as defined, subject to certain annual minimums, and (iii) a royalty fee of 1% of annual gross sales for any steakhouses opened in the future by SWRG that does not utilize the Names. In addition, should SWRG terminate or default on the license, as defined, it is subject to a fee of $2,000 upon termination or $2,500 to be paid over four years.

On January 19, 2006, SWRG (the “Licensee”), signed an Amended and Restated Sale and License Agreement, dated as of January 1, 2006 (the “License Agreement”), with St. James Associates, L.P. (the “Licensor”), which provides for, among other things, a reduced licensing fee only for the opening of Grills that are less than 9,000 square feet. Pursuant to the License Agreement, the one-time opening fee paid to the Licensee for each new additional Wollensky’s Grill (“Grill Opening Fee”) will be at a rate equal to 50% of the fee due under the Original License Agreement. In addition, the annual royalty fee (“Grill

F-24

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements January 1, 2007 and January 2, 2006 (Continued)
(in thousands, except shares and per share/unit amounts)

Royalty Fee”) will be reduced from 2% to 1% for annual sales from Wollensky’s Grills. Both the Grill Opening Fee and Grill Royalty Fee are subject to maximum average per-person checks that, if exceeded, could increase both the Grill Opening Fee and Grill Royalty Fee, but not to exceed the opening fee and royalty fee contained in the original licensing agreement. The terms of the amendment do not apply to the existing Wollensky’s Grills.

There are future minimum royalty payments relating to clauses (ii) and (iii) of the second paragraph of this Note 7, which are as follows:

Fiscal year:
2007	$	800
2008	800
2009	800
2010	800
2011	800
2012 and each year thereafter	800

During fiscal 2006, in connection with closing the Smith & Wollensky units in New Orleans and Dallas, SWRG wrote off the remaining opening fee balances of $332. Amortization expense for licensing agreements was $410, $166 and $158 in fiscal 2006, 2005 and 2004, respectively.

(8) Management Agreements

SWRG manages the Smith & Wollensky restaurant in New York City and receives annual management fees of 2.3% of restaurant sales. An unrelated general partner of St. James has the right to terminate the management agreement if SWRG’s Chairman no longer directs the delivery of the management services and if certain financial thresholds are not met.

Pursuant to the terms of a restaurant management agreement (the “Post House Agreement”) dated October 29, 1996, as amended, SWRG manages the Post House Restaurant in the Lowell Hotel and the food and beverage service for the Lowell Hotel. SWRG receives a management fee of 6% of gross revenue, as defined. The Post Agreement expired on January 23, 2007 and is subject to cancellation by either party under specified conditions. SWRG has a verbal agreement with the owners of The Post House to reduce the management fee under the Post House Agreement from 6.0% to 5.0%.

SWRG manages the operations of M&P pursuant to the terms of a restaurant management agreement (the “Maloney Agreement”) dated April 18, 1996. SWRG paid $1,500 for the right to provide these management services. Under the provisions of the Maloney Agreement, SWRG will receive a management fee equal to the sum of 3% of restaurant sales and a percentage of net cash flows, as defined. The Maloney Agreement can be terminated by either party for cause. The Maloney Agreement expires on December 31, 2011.

F-25

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements January 1, 2007 and January 2, 2006 (Continued)
(in thousands, except shares and per share/unit amounts)

The Maloney Agreement requires that SWRG make the following minimum distributions to the restaurant owner, after payment of SWRG’s management fee:

Fiscal year:
2007	$	480
2008	480
2009	480
2010	480
2011	480

SWRG managed the operations of the ONEc.p.s. restaurant, located in the Plaza Hotel, New York, pursuant to the terms of a restaurant management agreement between Plaza Operating Partners, Ltd. (“Owner”) and Parade 59 Restaurant, LLC (“Manager”), an entity SWRG controls, dated September 7, 2000 (the “ONEc.p.s. Agreement”). SWRG paid $500 for the right to provide these management services.

Under the provisions of the ONEc.p.s. Agreement, SWRG was to receive a management fee equal to the sum of 4% of the gross revenues recognized from services provided at ONEc.p.s plus an additional fee, as set forth in the ONEc.p.s. agreement. The ONEc.p.s. Agreement would have expired on September 12, 2010 and could have been terminated by the restaurant owner (i) if SWRG failed to meet the agreement’s performance goals, (ii) at any time, upon 90 days’ notice to SWRG and the payment of a fee, determined by a formula in the ONEc.p.s. Agreement, which allows for a maximum payment to SWRG of four years of additional management fees or (iii) at any time, if the person who controls SWRG’s day-to-day operations or has overall control and decision making authority, is replaced by means other than in the ordinary course of SWRG’s business operations. The ONEc.p.s. Agreement could have been terminated by Plaza Operating Partners, Ltd. at any time immediately upon notice to us, due to the fact that pre-opening costs, as defined, exceeded $5,250.

As of September 30, 2002, SWRG had contributed $500 for the right to provide management services for the ONEc.p.s restaurant and had contributed, since the restaurants inception in September 2000, approximately $924 of additional funding for this restaurant. Under the terms of the agreement, SWRG was to be repaid for the additional funding it had provided. SWRG recorded a reserve of $300 in 2001 based on its determination that, at the time, part of the receivable might not be recoverable. During the third quarter ended September 30, 2002, SWRG determined that the carrying value of the management contract was impaired and the remaining investment of $398 was written off. In the fourth quarter of 2002, SWRG reached an agreement with Plaza Operating Partners, Ltd. in October 2002 and collected $300 as its share of the additional funding for operating losses. During the three months ended September 30, 2002, SWRG recorded an additional write-off of $324 for the remaining portion of the receivable.

On December 22, 2004, Parade 59, LLC (“Parade”), a wholly owned subsidiary of the Company that managed the ONEc.p.s. restaurant located in the Plaza Hotel in New York (the “Hotel”), filed suit against Plaza Operating Partners, Ltd.(“POP”), ELAD Properties, LLC and CPS1, LLC in the Supreme Court of the State of New York, County of New York (the “Litigation”) for breach of contract. Pursuant to a restaurant management agreement described above under the heading, “Item 1. Business—Management Agreements—ONEc.p.s.” (the “Agreement”), Parade managed ONEc.p.s. and The Smith & Wollensky Restaurant Group, Inc. guaranteed Parade’s obligations under the Agreement.  Parade alleged, among other things, that the defendants (1) failed to pay a base management fee to Parade as provided for in the

F-26

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements January 1, 2007 and January 2, 2006 (Continued)
(in thousands, except shares and per share/unit amounts)

Agreement, (2) failed to pay Hotel guest, room and credit account charges to Parade, and (3) failed to pay termination obligations to Parade in connection with the termination of the Agreement.  On February 28, 2005, POP served its answer and asserted a counterclaim for breach of contract seeking damages in excess of $500 and attorneys’ fees.  CPS 1 Realty and EL-AD Properties NY LLC (the “CPS 1 Defendants” and together with POP, collectively the “Defendants”) served their answers and counterclaims against Parade alleging, among other things, that Parade (1) failed to make payments, (2) breached a memorandum of understanding and other union agreements and (3) is liable for damages totaling no less than $3,500 as well as attorneys’ fees and costs.  The CPS 1 Defendants subsequently served an amended answer with counterclaims on May 16, 2005 adding a counterclaim for a declaratory judgment that the Agreement was terminated as a result of Parade’s default under the Agreement and that Parade is solely liable for the termination obligations or, in the alternative, that the Agreement was terminated as a result of insufficient funds to pay operating expenses and that the CPS 1 Defendants are liable for only 50% of the termination obligations. Under the Agreement, depending on how it is terminated, there are three possible scenarios as to which party is responsible for the termination obligations: (i) the Defendants are solely responsible; (ii) Parade is solely responsible; or (iii) the parties share the termination obligations on a 50-50 basis. On September 30, 2005, the CPS1 Defendants served a motion for summary judgment seeking judgment on their claim that the Agreement was terminated as a result of Parade’s default (the “Motion”). While the Motion was pending, the parties asked the Court to defer deciding the Motion to permit the parties an opportunity to negotiate a settlement.  The parties are attempting to negotiate a settlement of this litigation.

There have been three arbitrations arising out of the closing of ONEc.p.s restaurant and the lay off of its employees. On January 20, 2005 the arbitrator of the Hotel Industry (the “Arbitrator”) issued a decision directing ONEc.p.s. to post a bond in the amount of $608 (the “Bond”) pursuant to the terms of the collective bargaining agreement with the NY Hotel and Motel Trades Council (the “Union”). The Union claims that this is to cover potential severance, overtime and Health Benefit Fund obligations owed by ONEc.p.s. ONEc.p.s. has refused to post the Bond and contends that the obligations are owed by the owners and operators of the Plaza Hotel. The Union has compelled the Plaza Hotel's owners and operators to post the Bond and has begun the process of obtaining arbitration awards for the overtime, severance and Health Fund obligations. On May 12, 2005, the Arbitrator issued an award ordering ONEc.p.s. to pay $119 to the Union for severance and Health Benefit Fund contributions. On February 28, 2006, the Arbitrator issued an award ordering ONEc.p.s to pay $140 to the Union on behalf of the Health Benefit Fund for delinquent contributions. On March 29, 2006, the Arbitrator issued an award ordering ONEc.p.s. to pay $42 to the Union for additional severance.  Pursuant to the arbitration awards the amounts, if not paid by ONEc.p.s., can be drawn down from the Bond and the Union has begun drawing down on the Bond.  The Union has asserted a claim for “unpaid benefit days” in the amount of $220, which is currently pending before the Arbitrator and the Union has indicated that it intends to pursue a claim for overtime pay. SWRG estimates that the total amount of Union obligations is between $800 and $1,100. Any amounts owed to the Union with respect to the closing of ONEc.p.s. make up part of the counterclaims asserted by the CPS 1 Defendants in the Litigation.  It is a matter of contention as whether the Union claims are an obligation of ONEc.p.s. or an obligation of the owners and operators of the Plaza Hotel or both.  If Parade were to lose the counterclaims, however, SWRG’s results of operations and cash flows could be adversely affected. As of March 27, 2007 there were no changes to the status of these claims or counterclaims. Due to the uncertainty as to which party is liable, no amount has been accrued for in the financial statements as of January 1, 2007.

F-27

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements January 1, 2007 and January 2, 2006 (Continued)
(in thousands, except shares and per share/unit amounts)

SWRG is involved in various other claims and legal actions arising in the ordinary course of business from time to time. Except as set forth above, in the opinion of management, there are currently no legal proceedings the ultimate disposition of which would have a material adverse effect on SWRG’s consolidated financial position, results of operations or liquidity.

(9) Other Assets

Other assets consist of the following:

	Jan. 1, 2007(a)		Jan. 2, 2006(a)
Artwork—nondepreciable assets(d)	$	1,801	$	2,122
Smallwares(b)	1,121		1,076
Deferred debt financing costs(c)	91		51
Deposits	627		659
Other	296		300
	$	3,936	$	4,208

(a)Includes the accounts and results of the entity that owns M&P as a direct result of adoption of FIN46(R). See Note 2

(b)Smallwares consist of tableware, supplies and other miscellaneous items on-hand in inventory.

(c)Deferred debt financing costs are being amortized over the term of the appropriate agreements.

(d)During fiscal 2006, approximately $200 of nondepreciable assets were sold.

(10) Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following:

	Jan. 1, 2007(a)		Jan. 2, 2006(a)
Accounts payable	$	4,539	$	4,997
Accrued rent and real estate taxes	1,154		1,024
Accrued advertising	82		136
Accrued income taxes payable	690		519
Accrued professional fees	486		325
Sales taxes payable	916		787
Accrued payroll and payroll taxes	3,033		2,713
Gift certificates payable	1,304		1,363
Medical insurance claims payable	661		600
Litigation settlement payable	49		30
Other accrued expenses	1,242		1,084
	$	14,156	$	13,578

(a)Includes the accounts and results of the entity that owns M&P as a direct result of adoption of FIN46(R). See Note 2

F-28

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements January 1, 2007 and January 2, 2006 (Continued)
(in thousands, except shares and per share/unit amounts)

(11) Long-Term Debt

Long-term debt consists of the following:

	Jan. 1, 2007		Jan. 2, 2006
Mortgage and loan payable(a)	$	1,349	$	1,448
Promissory note(b)	1,775		1,867
Total debt	3,124		3,315
Less current portion	944		202
Long-term debt	$	2,180	$	3,113

(a)In fiscal 1997, SWRG assumed certain liabilities in connection with the acquisition of leasehold rights relating to its Smith & Wollensky Miami Beach location from two bankrupt corporations. Pursuant to the terms of the bankruptcy resolution, SWRG was obligated to make quarterly and annual payments over a six-year period. These obligations generally bore interest at rates ranging from 9% to 12%. The final payment for these obligations was made in 2003. In addition, SWRG assumed a mortgage on the property that requires monthly payments and bears interest at prime rate plus 1%. On April 30, 2004, a letter was signed by the financial institution that holds the mortgage for the property extending the term of the mortgage three additional years, with the final principal payment due in June 2007. The extension became effective June 2004. In fiscal 1997, SWRG also assumed a loan payable to a financing institution that requires monthly payments through 2014, and bears interest at a fixed rate of 7.67% per year.

(b)On May 26, 2004, S&W New Orleans, L.L.C. (“New Orleans”), a wholly owned subsidiary of SWRG, signed a $2.0 million promissory note in favor of Hibernia National Bank (“Hibernia”). The $2.0 million was used by SWRG for construction costs related to the new Smith & Wollensky restaurant in Boston. The note bears interest at a fixed rate of 6.27% per annum. Principal payments for this note commenced June 26, 2004. Pursuant to the terms of the promissory note, New Orleans is obligated to make monthly payments of $17 for this note over the term of the note with a balloon payment of approximately $1,548 on May 26, 2009, the maturity date of the note. This note is secured by a first mortgage relating to the New Orleans property. At January 1, 2007, New Orleans was not in compliance with the financial covenants contained in the agreement. On January 24, 2007, a letter was signed by Hibernia waiving the financial covenants contained in our promissory note for the year ended January 1, 2007 and through December 31, 2007. SWRG is currently in the process of amending the financial covenants contained in its promissory note with Hibernia.

(c)On January 27, 2006, SWRG entered into a $5.0 million secured line of credit facility with Morgan Stanley (“Credit Agreement”). Under the Credit Agreement, SWRG is the borrower and Dallas S&W, L.P., a subsidiary of the borrower, along with SWRG are the Guarantors. The $5.0 million line can be used for general corporate purposes. SWRG may at anytime repay advances on this line without penalty. The Credit Agreement provides for a maximum available borrowing capacity of $5.0 million and expires on January 27, 2009. Advances under this line of credit bear interest, at SWRG’s election, at either a fixed rate of the one-month LIBOR plus 2.5% per annum or prime minus 0.5%, payable on a monthly basis. The line is guaranteed by a security interest in all of the personal property and fixtures of Dallas S&W L.P. and the Borrower. SWRG was in compliance with

F-29

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements January 1, 2007 and January 2, 2006 (Continued)
(in thousands, except shares and per share/unit amounts)

all financial covenants with this Credit Agreement at January 1, 2007. There was no balance outstanding under this Credit Agreement at January 1, 2007. SWRG is currently under contract to sell the property for the Smith & Wollensky in Dallas for $3,900, less commission and other expenses of approximately $250. SWRG plans on closing on the sale of the Dallas property during the beginning of April 2007. On March 23, 2007, SWRG entered into an Amendment to Line of Credit Agreement with Morgan Stanley which released Dallas S&W, L.P. as the Guarantor as well as placing a restriction on SWRG from drawing down on this line of credit until SWRG is able to replace the collateral.

The weighted average interest rate of SWRG’s total debt was approximately 7.2% at January 1, 2007.

Principal payments on long-term debt are as follows:

Fiscal year:
2007	$	944
2008	163
2009	1,640
2010	71
2011	77
Thereafter	229
	$	3,124

(12) Capital Lease Obligation

On March 23, 2005, S&W of Las Vegas, LLC (the “Borrower”) entered into a Contract of Sale (the “Las Vegas Agreement”) with Metroflag SW, LLC (the “Buyer”). Pursuant to the Las Vegas Agreement, on May 23, 2005, (i) the Borrower assigned to the Buyer its existing ground lease (the “Existing Lease”) in respect of the property located at 3767 Las Vegas Boulevard South, Las Vegas, Nevada (the “Las Vegas Property”), (ii) the Buyer purchased the Las Vegas Property pursuant to an option contained in the Existing Lease and (iii) the Borrower entered into a lease-back lease (the “New Lease”) pursuant to which the Borrower is leasing the Las Vegas Property. This transaction closed on May 23, 2005. The aggregate purchase price was $30,000 and was paid out as follows: (a) approximately $10,444 to the existing fee owner/ground lessor of the Las Vegas Property, and (b) the difference between $30,000 and the amount paid to the fee owner/ground lessor of the Las Vegas Property to the Borrower (approximately $19,556). The Borrower received net proceeds from the transaction equal to approximately $19,300 (after legal and other miscellaneous cost, but before taxes) and used approximately $9,200 of the net proceeds from the transactions to repay existing indebtedness. The net gain on this  transaction of approximately $13,500 is being deferred and recognized as a reduction in rent expense and interest expense over the life of the New Lease. At January 3, 2005, SWRG had a deferred tax asset of $9.8 million, which was fully reserved and included net operating loss and tax credit carryforwards of approximately $4.2 million that was reversed during the three months ended July 4, 2005 and was utilized against the tax gain associated with the sale of the Las Vegas property on May 23, 2005. In addition, a deferred tax asset of approximately $5.1 million was recorded during the three months ended July 4, 2005 for the temporary difference on the deferred gain relating to the sale of the Las Vegas property. At January 1, 2007, SWRG recorded a full valuation allowance against the total deferred tax asset of $12.4 million, due to the uncertainty of this benefit being realized in the future.

F-30

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements January 1, 2007 and January 2, 2006 (Continued)
(in thousands, except shares and per share/unit amounts)

The New Lease has a 40 year term and requires the Borrower to pay a negotiated fixed minimum annual rent of $1,400 for the first five years, increasing by 5% every five years thereafter, subject to a contingent rental provision based upon the sales of the underlying restaurant. The Las Vegas Agreement and the New Lease contain representations, warranties, covenants and indemnities that are typical for transactions of this kind. In accordance with FAS 13, because the New Lease involves both land and building and the fair value of the land is greater than 25% of the total fair value of the land and building, the land and building are considered separate elements for applying lease accounting criteria. The portion of the New Lease that relates to the building is being treated as a capital lease and the portion of the New Lease relating to the land is being treated as an operating lease.

On December 23, 2004, Smith & Wollensky of Boston, LLC, Houston S&W, L.P. and Dallas S&W, L.P. (collectively, the “Lessees”), each a wholly-owned subsidiary of SWRG, entered into a Master Lease Agreement and related schedules (the “Lease”) with General Electric Capital Corporation, which subsequently assigned its rights, interests and obligations under the Lease to Ameritech Credit Corporation, d/b/a SBC Capital Services (“SBC”), pursuant to which SBC acquired certain equipment and then leased such equipment to the Lessees. The transaction enabled the Lessees to finance approximately $1,500 of existing equipment. Subject to adjustment in certain circumstances, the monthly rent payable under the Lease is $31. The Lessees are treating this transaction as a sale-leaseback transaction with the lease being classified as a capital lease. The gain recorded on the sale of approximately $151 was deferred and is being recognized over the life of the Lease. The $1,500 was used for construction costs related to the Smith & Wollensky restaurant in Boston. The monthly payments were calculated using an annual interest rate of approximately 7.2%. In connection with the transaction, SWRG entered into a corporate guaranty on December 23, 2004 to guarantee the Lessees’ obligations under the Lease. The Lessees may after 48 months, and after giving 30 days notice, purchase back all the equipment listed under the Lease at a cost of approximately $405. On January 11, 2007, SWRG made a final payment of $211 to AT&T Capital Services (formerly SBC) (“AT&T”) for the portion of its capital lease that related to certain equipment of the S&W of Dallas location. The remaining balance of the capital lease obligation with AT&T for certain equipment in the Smith & Wollensky’s in Houston and Boston continues to be outstanding.

Future minimum capital lease payments at January 1, 2007 are as follows:

Fiscal year:
2007	$	605
2008	605
2009	605
2010	380
2011	330
Thereafter	19,287
Total future capital lease payments	21,812
Less: amount representing interest	(14,063		)
Present value of net minimum capital lease payments	7,749
Less: current portion	148
Long-term obligations under capital leases at January 1, 2007	$	7,601

F-31

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements January 1, 2007 and January 2, 2006 (Continued)
(in thousands, except shares and per share/unit amounts)

The remainder of the fixed minimum annual rental payments is being treated as an operating lease (see Note 13).

(13) Commitments and Contingencies

Operating Lease Commitments

All of SWRG’s consolidated restaurants operate in leased premises, with the exception of the Smith & Wollensky locations in New Orleans and Dallas, which are owned properties. Remaining lease terms range from approximately 4 to 39 years, including anticipated renewal options. The leases generally provide for minimum annual rental payments and are subject to escalations based upon increases in the Consumer Price Index, real estate taxes and other costs. In addition, certain leases contain contingent rental provisions based upon the sales of the underlying restaurants. Certain leases also provide for rent deferral during the initial term of such leases and/or scheduled minimum rent increases during the terms of the leases. Any rent expense incurred during the construction period was capitalized as a part of leasehold improvements and is being amortized on a straight-line basis from the date operations commence over the remaining life of the lease, which includes the renewal period. For any leases entered into after September 15, 2005, SWRG expenses these costs in conjunction with the FASB Staff Position FAS 13-1, “Accounting for Rental Costs Incurred during a Construction Period”. Accordingly, included in long-term liabilities in the accompanying consolidated balance sheets at January 1, 2007 and January 2, 2006 are accruals related to such rent deferrals and the pro rata portion of scheduled rent increases of approximately $9,120 and $9,133, respectively.

Future minimum annual rental commitments under all operating leases are as follows:

Fiscal year:
2007	$	5,588
2008	5,459
2009	5,517
2010	5,646
2011	5,282
Thereafter	85,587
	$	113,079

On October 6, 2005, SWRG signed a lease agreement for its new corporate offices with Vandergard Properties Co., L.P. The lease term began on October 6, 2005 and expires in February 2016 and contains a fixed minimum rent of $362 per annum, plus electricity, with annual increases of $34 commencing in March 2011. The Company took possession of the location December 1, 2005 to begin the buildout phase, therefore began deferring rent and reflecting rent expense for this period.

SWRG is contingently liable under letters of credit aggregating $151 at January 1, 2007 and January 2, 2006, respectively, for deposits with the landlord of one of its restaurants and the corporate office.

F-32

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements January 1, 2007 and January 2, 2006 (Continued)
(in thousands, except shares and per share/unit amounts)

Rental expense consists of the following:

	Fiscal
	2006(a)		2005(a)		2004
Minimum rentals	$	5,240	$	4,935	$	4,179
Contingent rentals	1,819		1,772		1,272
	$	7,059	$	6,707	$	5,451

(a)Includes the accounts and results of the entity that owns M&P as a direct result of adoption of FIN46(R). See Note 2

On December 14, 2006, SWRG through its affiliate, Atlantic & Pacific Grill Associates, L.L.C. (“A&P”), entered into (i) a Third Modification and Renewal of Lease (the “Café Lease Renewal”) with Beekman Tenants Corporation (“Beekman”) for the Park Avenue Café restaurant (the “Café”) and (ii) a Contract of Sale Agreement with Beekman (the “Townhouse Sale Agreement”) with respect to the Park Avenue Café Townhouse, a location adjacent to the Café that is used to facilitate private dining events (the “Townhouse”). The Café Lease Renewal extends the term of the lease until January 15, 2017 and increases the fixed minimum rent to $500 for the first lease year, with annual increases as defined. In addition, the Café Lease Renewal requires SWRG to make $300 of improvements to the leased space by September 30, 2007. In conjunction with the sale of the Townhouse, which is expected to close on or about September 30, 2007, SWRG plans on entering into a Fourth Modification with Beekman whereby it would leaseback the Townhouse for an additional rent starting at $100 per annum, with annual increases as defined. Due to the Café Lease Renewal, the Café, which had been scheduled to close on January 1, 2007, will remain open.

Legal Matters

On December 22, 2004, Parade 59, LLC (“Parade”), a wholly owned subsidiary of the Company that managed the ONEc.p.s. restaurant located in the Plaza Hotel in New York (the “Hotel”), filed suit against Plaza Operating Partners, Ltd.(“POP”), ELAD Properties, LLC and CPS1, LLC in the Supreme Court of the State of New York, County of New York (the “Litigation”) for breach of contract. Pursuant to a restaurant management agreement described above under the heading, “Item 1. Business—Management Agreements—ONEc.p.s.” (the “Agreement”), Parade managed ONEc.p.s. and The Smith & Wollensky Restaurant Group, Inc. guaranteed Parade’s obligations under the Agreement.  Parade alleged, among other things, that the defendants (1) failed to pay a base management fee to Parade as provided for in the Agreement, (2) failed to pay Hotel guest, room and credit account charges to Parade, and (3) failed to pay termination obligations to Parade in connection with the termination of the Agreement.  On February 28, 2005, POP served its answer and asserted a counterclaim for breach of contract seeking damages in excess of $500 and attorneys’ fees.  CPS 1 Realty and EL-AD Properties NY LLC (the “CPS 1 Defendants” and together with POP, collectively the “Defendants”) served their answers and counterclaims against Parade alleging, among other things, that Parade (1) failed to make payments, (2) breached a memorandum of understanding and other union agreements and (3) is liable for damages totaling no less than $3,500 as well as attorneys’ fees and costs.  The CPS 1 Defendants subsequently served an amended answer with counterclaims on May 16, 2005 adding a counterclaim for a declaratory judgment that the Agreement was terminated as a result of Parade’s default under the Agreement and that Parade is solely liable for the termination obligations or, in the alternative, that the Agreement was terminated as a result of insufficient funds to pay operating expenses and that the CPS 1 Defendants are liable for only 50% of the termination

F-33

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements January 1, 2007 and January 2, 2006 (Continued)
(in thousands, except shares and per share/unit amounts)

obligations. Under the Agreement, depending on how it is terminated, there are three possible scenarios as to which party is responsible for the termination obligations: (i) the Defendants are solely responsible; (ii) Parade is solely responsible; or (iii) the parties share the termination obligations on a 50-50 basis. On September 30, 2005, the CPS1 Defendants served a motion for summary judgment seeking judgment on their claim that the Agreement was terminated as a result of Parade’s default (the “Motion”). While the Motion was pending, the parties asked the Court to defer deciding the Motion to permit the parties an opportunity to negotiate a settlement.  The parties are attempting to negotiate a settlement of this litigation.

There have been three arbitrations arising out of the closing of ONEc.p.s restaurant and the lay off of its employees. On January 20, 2005 the arbitrator of the Hotel Industry (the “Arbitrator”) issued a decision directing ONEc.p.s. to post a bond in the amount of $608 (the “Bond”) pursuant to the terms of the collective bargaining agreement with the NY Hotel and Motel Trades Council (the “Union”). The Union claims that this is to cover potential severance, overtime and Health Benefit Fund obligations owed by ONEc.p.s. ONEc.p.s. has refused to post the Bond and contends that the obligations are owed by the owners and operators of the Plaza Hotel. The Union has compelled the Plaza Hotel's owners and operators to post the Bond and has begun the process of obtaining arbitration awards for the overtime, severance and Health Fund obligations. On May 12, 2005, the Arbitrator issued an award ordering ONEc.p.s. to pay $119 to the Union for severance and Health Benefit Fund contributions. On February 28, 2006, the Arbitrator issued an award ordering ONEc.p.s to pay $140 to the Union on behalf of the Health Benefit Fund for delinquent contributions. On March 29, 2006, the Arbitrator issued an award ordering ONEc.p.s. to pay $42 to the Union for additional severance.  Pursuant to the arbitration awards the amounts, if not paid by ONEc.p.s., can be drawn down from the Bond and the Union has begun drawing down on the Bond.  The Union has asserted a claim for “unpaid benefit days” in the amount of $220, which is currently pending before the Arbitrator and the Union has indicated that it intends to pursue a claim for overtime pay. SWRG estimates that the total amount of Union obligations is between $800 and $1,100. Any amounts owed to the Union with respect to the closing of ONEc.p.s. make up part of the counterclaims asserted by the CPS 1 Defendants in the Litigation.  It is a matter of contention as whether the Union claims are an obligation of ONEc.p.s. or an obligation of the owners and operators of the Plaza Hotel or both.  If Parade were to lose the counterclaims, however, SWRG’s results of operations and cash flows could be adversely affected. As of March 27, 2007 there were no changes to the status of these claims or counterclaims. Due to the uncertainty as to which party is liable, no amount has been accrued for in the financial statements as of January 1, 2007.

SWRG is involved in various other claims and legal actions arising in the ordinary course of business from time to time. Except as set forth above, in the opinion of management, there are currently no legal proceedings the ultimate disposition of which would have a material adverse effect on SWRG’s consolidated financial position, results of operations or liquidity.

Employment and Non-Competition Agreements

SWRG has an employment agreement with the Company’s Chief Executive Officer expiring in May 2011. The agreement entitles the Company’s Chief Executive Officer to a minimum salary, as well as an annual bonus based on targets set by its Board of Directors.

F-34

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements January 1, 2007 and January 2, 2006 (Continued)
(in thousands, except shares and per share/unit amounts)

Future minimum commitments under all employment agreements are as follows:

Fiscal year:
2007	$	600
2008	600
2009	600
2010	600
2011	250
	$	2,650

SWRG has a non-competition agreement with the Company’s Chief Executive Officer expiring in May 2007. In consideration of this, SWRG made quarterly payments of $37 in fiscal 2004, fiscal 2003 and fiscal 2002 to the Company’s Chief Executive Officer. No additional payments are required under the non-competition agreement.

Other Commitments and Contingencies

On May 4, 2005, the Board of Directors (“Board”) of SWRG adopted a Management Retention Plan (“2005 Plan”). The Board adopted the plan in recognition of the importance to SWRG and its stockholders of assuring that SWRG has the continued dedication and full attention of certain key employees notwithstanding the possibility, threat or occurrence of a change in control, as defined in the 2005 Plan, that SWRG’s Board has not approved (“Unapproved Change of  Control”). Participants in the 2005 Plan will include SWRG’s executive officers, as well as certain other employees. Severance benefits, as defined in the 2005 Plan, would be provided upon qualifying terminations of employment in connection with or within 18 months following an Unapproved Change in Control.

On August 30, 2005, SWRG signed a Separation Agreement with James M. Dunn, its former President and General Manager of the Smith & Wollensky in Boston. In exchange for Mr. Dunn’s execution of the Separation Agreement, SWRG is obligated to pay Mr. Dunn $10 per month from August 1, 2005 until April 30, 2006. SWRG expensed the entire obligation to Mr. Dunn in fiscal 2005. In addition, SWRG agreed to purchase any shares of common stock that Mr. Dunn was to receive upon the exercise of his stock options at a price of $6.00 per share, less the exercise price of $3.88 per share. On August 30, 2005, SWRG purchased 158,667 shares of common stock from Mr. Dunn. This purchase resulted in a compensation expense to SWRG of $336.

On November 16, 2005, SWRG purchased 41,000 shares of common stock from Alan M. Mandel, its former Chief Financial Officer. This resulted in a compensation expense of $72. SWRG also paid approximately $79 in severance to Mr. Mandel.

F-35

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements January 1, 2007 and January 2, 2006 (Continued)
(in thousands, except shares and per share/unit amounts)

(14) Income Taxes

The income tax provision for Fiscal 2006, 2005 and 2004 represents certain federal, state and local taxes. The provision for income taxes consists of the following:

	Fiscal
	2006(a)			2005(a)			2004
Federal:
Current		$	—		$	103	$	—
State and local:
Current		639			551		225
		$	639		$	654	$	225

(a)Includes the accounts and results of the entity that owns M&P as a direct result of adoption of FIN46(R). See Note 2

Income tax expense differed from the amounts computed by applying the U.S. Federal income tax rate of 34% to pretax loss as a result of the following:

	Fiscal 2006(a)			Fiscal 2005(a)			Fiscal 2004
Computed “expected” tax benefit	$	(922	)	$	(481	)	$	(209	)
Increase (reduction) in income taxes resulting from:
Change in the beginning of the year valuation allowance for deferred tax assets	1,357			1,149			1,494
State and local income taxes, net of federal income tax benefit	422			364			149
Tax credits	(523		)	(602		)	(1,351		)
Nondeductible expenses	139			104			213
Other, net	166			120			(71		)
	$	639		$	654		$	225

(a)Includes the accounts and results of the entity that owns M&P as a direct result of adoption of FIN46(R). See Note 2

F-36

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements January 1, 2007 and January 2, 2006 (Continued)
(in thousands, except shares and per share/unit amounts)

The tax effects of temporary differences that give rise to significant components of deferred tax assets and liabilities are presented below:

	Jan. 1, 2007(a)		Jan. 2, 2006(a)
Deferred tax assets:
AMT credit carryforward	$	206	$	309
Deferred rent	3,080		1,346
Accrued expenses	365		1,300
Historic rehabilitation and enterprise zone credits	924		924
FICA tax credits	3,527		4,286
Deferred gain on sale-leaseback	3,439		5,012
Property and equipment principally due to difference in depreciation and amortization	811		—
	12,352		13,177
Less valuation allowance	12,352		10,995
Deferred tax liabilities:	—		2,182
Property and equipment principally due to difference in depreciation and amortization	—		(2,182		)
Net deferred tax assets	$	—	$	—

(a)Includes the accounts and results of the entity that owns M&P as a direct result of adoption of FIN46(R). See Note 2

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible and net operating losses and tax credits can be carried forward. Management considers projected future taxable income and tax planning strategies in making this assessment. After consideration of SWRG’s operating losses in recent years and projections for future taxable income over the period, against which the deferred tax assets are deductible, a full valuation allowance has been established against SWRG’s net deferred tax assets.

At January 3, 2005, SWRG had a deferred tax asset of $9,848, which was fully reserved and included net operating loss and tax credit  carryforwards  of approximately $4,200 that was reversed during the three months ended July 4, 2005 and was utilized  against the tax gain  associated  with the sale of the Las Vegas  property  on May 23,  2005. In addition, a deferred tax asset of approximately $5,100 was recorded during the three months ended July 4, 2005 for the temporary difference on the deferred gain relating to the sale of the Las Vegas property. As of January 1, 2007, SWRG has a full valuation allowance against the net deferred tax asset of $12,352, due to the uncertainty of this benefit being realized in the future. These tax credit carryforwards exist in federal and certain state jurisdictions and have varying carryforward periods and restrictions on usage. The estimation of future taxable income for federal and state purposes and SWRG’s resulting ability to utilize tax credit carryforwards can significantly change based on future events and operating results. Thus, recorded valuation allowances may be subject to material future changes.

F-37

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements January 1, 2007 and January 2, 2006 (Continued)
(in thousands, except shares and per share/unit amounts)

(15) Common Stock

The 2001 Stock Incentive Plan (“2001 Stock Incentive Plan”) provides for the granting of options to purchase shares of our common stock and stock awards. Options may be incentive stock options, as defined in Section 422 of the Internal Revenue Code (the “Code”), granted only to our employees (including officers who are also employees) or non-qualified stock options granted to our employees, directors, officers and consultants. Stock awards may be granted to employees of, and other key individuals engaged to provide services to, SWRG and its subsidiaries. The 2001 Stock Incentive Plan was adopted and approved by our directors in March 2001 and our stockholders in April 2001.

The 2001 Stock Incentive Plan may be administered by our Board of Directors or by our Compensation Committee, either of which may decide who will receive stock option or stock awards, the amount of the awards, and the terms and conditions associated with the awards. These include the price at which stock options may be exercised, the conditions for vesting or accelerated vesting, acceptable methods for paying for shares, the effect of corporate transactions or changes in control, and the events triggering expiration or forfeiture of a participant’s rights. The maximum term for stock options may not exceed ten years, provided that no incentive stock options may be granted to any employee who owns ten percent or more of SWRG with a term exceeding five years.

The maximum number of shares of common stock available for issuance under the 2001 Stock Incentive Plan is 583,333 shares, increased by 4% of the total number of issued and outstanding shares of common stock (including shares held in treasury) as of the close of business on December 31 of the preceding year on each January 1, beginning with January 1, 2002, during the term of the 2001 Stock Incentive Plan. However, the number of shares available for all grants under the 2001 Stock Incentive Plan is limited to 11% of SWRG’s issued and outstanding shares of capital stock on a fully-diluted basis. Accordingly, the maximum number of options to purchase shares of common stock available for issuance in 2006 was approximately 191,000 shares. In addition, options may not be granted to any individual with respect to more than 500,000 total shares of common stock in any single taxable year (taking into account options that were terminated, repriced, or otherwise adjusted during such taxable year).

The 2001 Stock Incentive Plan provides that proportionate adjustments will be made to the number of authorized shares which may be granted under the 2001 Stock Incentive Plan and as to which outstanding options, or portions of outstanding options, then unexercised will be exercisable as a result of increases or decreases in SWRG’s outstanding shares of common stock due to reorganization, merger, consolidation, recapitalization, reclassification, stock split-up, combination of shares, or dividends payable in capital stock, such that the proportionate interest of the option holder will be maintained as before the occurrence of such event. Upon the sale or conveyance to another entity of all or substantially all of the property and assets of SWRG, including by way of a merger or consolidation or a Change in Control of SWRG, as defined in the 2001 Stock Incentive Plan, our Board of Directors will have the power and the right to accelerate the exercisability of any options.

Unless sooner terminated by our Board of Directors, the 2001 Stock Incentive Plan will terminate on April 30, 2011, ten years from the date on which the 2001 Stock Incentive Plan was adopted by our Board of Directors. All options granted under the 2001 Stock Incentive Plan will terminate immediately prior to the dissolution or liquidation of SWRG; provided, that prior to such dissolution or liquidation, the vesting of any option will automatically accelerate as if such dissolution or liquidation is deemed a Change of Control, as defined in the 2001 Stock Incentive Plan.

F-38

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements January 1, 2007 and January 2, 2006 (Continued)
(in thousands, except shares and per share/unit amounts)

On September 5, 2002, SWRG granted options pursuant to an option exchange program (the “Option Exchange Program”) that SWRG initiated in February 2002 in order to allow employees, officers and directors to cancel all or some stock options to purchase its common stock having an exercise price greater than $5.70 per share granted under its 1996 Stock Option Plan, its 1997 Stock Option Plan and its 2001 Stock Incentive Plan in exchange for new options granted under the 2001 Stock Incentive Plan. Under the Option Exchange Program, the new options were issued on September 5, 2002 with an exercise price of $3.88. The exercise price of each option received under the exchange program equaled 100% of the price of SWRG’s common stock on the date of grant of the new options, determined in accordance with the terms of the 2001 Stock Incentive Plan. An employee received options under the exchange program with an exercise price of $4.27, or 110% of the fair market value of SWRG’s common stock on the date of grant. The new options vest over periods ranging from four months to five years, in accordance with the vesting schedule of the cancelled options. SWRG structured the Option Exchange Program in a manner that did not result in any additional compensation charges or variable award accounting.

In June and July 2003, SWRG granted options to purchase 127,000 shares of common stock under the 2001 Stock Incentive Plan. The weighted average exercise price of the options granted was $5.05 per share, the estimated fair market value of the underlying common shares at the date of grant. Each option granted in June and July 2003 will vest over a period of five years.

In August 2004, SWRG granted options to purchase 83,500 shares of common stock under the 2001 Stock Incentive Plan. The weighted average exercise price of the options granted was $5.70 per share, the fair market value of the underlying common shares at the date of grant. Each option granted in August 2004 will vest over a period of five years. An employee received options under this grant with an exercise price of $6.27, or 110% of the fair market value of SWRG’s common stock on the date of grant.

In July 2005, SWRG granted options to purchase 149,000 shares of common stock under the 2001 Stock Incentive Plan. The weighted average exercise price of the options granted was $6.12 per share, the fair market value of the underlying common shares at the date of grant. Each option granted in July 2005 will vest over a period of five years.

On May 23, 2006, SWRG granted options to purchase 135,000 shares of common stock under the 2001 Stock Incentive Plan. The weighted average exercise price of the options granted was $5.14 per share, the fair market value of the underlying common shares at the date of grant was $5.06 per share. Each option granted in May 2006 will vest over a period of five years.

As of January 1, 2007, options to purchase 628,183 shares of common stock were outstanding under the 2001 Stock Incentive Plan.

F-39

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements January 1, 2007 and January 2, 2006 (Continued)
(in thousands, except shares and per share/unit amounts)

Activity relating to SWRG’s option plans was as follows:

	Number of options		Weighted average exercise price per share of common stock
Options outstanding at December 29, 2003	757,783			4.56
Options forfeited during Fiscal 2004	(30,347	)		5.28
Options granted during Fiscal 2004	83,500			5.70
Options exercised during Fiscal 2004	(2,100	)		5.61
Options outstanding at January 3, 2005	808,836			4.64
Options forfeited during Fiscal 2005	(135,513	)		4.70
Options granted during Fiscal 2005	149,000			6.12
Options exercised during Fiscal 2005	(212,284	)		3.96
Options outstanding at January 2, 2006	610,039			$	5.23
Options forfeited during Fiscal 2006	(115,673	)		5.89
Options granted during Fiscal 2006	135,000			5.14
Options exercised during Fiscal 2006	(1,183	)		4.47
Options outstanding at January 1, 2007	628,183			$	5.03

As of January 1, 2007, the weighted average remaining contractual life of options outstanding was five years. As of January 1, 2007, the following options were exercisable at the following exercise prices:

Number of options		Weighted Average Exercise price			Weighted Average Remaining contractual life (in years)
	81,320		$	3.88		5.7
	100,000		4.27			5.7
	35,900		5.04			6.5
	6,000		5.12			6.6
	147,683		5.70			5.3
	12,100		6.12			8.5
	383,003		$	4.78		5.6

(16) Treasury Stock

On May 24,  2005,  SWRG  announced  that the Board of Directors of SWRG had authorized a stock  repurchase  program under which up to one million  shares of its common stock were authorized to be acquired in the open market over the 18 months following such authorization at the discretion of management.

The shares were purchased from time to time at prevailing market price through open market or unsolicited negotiated transactions, depending on market conditions. Under  the  program, the purchases were funded from available working capital, and the repurchased shares are held in treasury or used for ongoing stock issuances.

F-40

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements January 1, 2007 and January 2, 2006 (Continued)
(in thousands, except shares and per share/unit amounts)

Treasury stock is recorded at net acquisition cost. Gains and losses on disposition are recorded as increases or decreases to additional paid-in capital with losses in excess of previously recorded gains charged directly to retained earnings.

During the fiscal year ended January 2, 2006, SWRG reacquired 927,114 shares of common stock pursuant to an approved, open market repurchase plan. Of the 927,114 shares of common stock acquired, pursuant to the  approved plan, 158,667 shares were acquired from James M. Dunn, the former President and General Manager of the Smith & Wollensky in Boston and 41,000 shares were acquired from Alan M. Mandel, the former Chief Financial Officer. SWRG recorded a compensation expense of $408 in conjunction with these purchases. The shares acquired through open market purchases have not been formally retired and, accordingly, are carried as treasury stock. During the fiscal year ended January 1, 2007, SWRG reacquired 74,059 shares of common stock pursuant to the open market repurchase plan.

(17) Impairment of Assets

On August 29, 2005, Hurricane Katrina hit the Gulf Coast, causing damage to S&W New Orleans. SWRG has insurance policies that cover certain losses relating to flood and wind damage and coverage for interruption of business for S&W of New Orleans. SWRG recorded impairment charges for certain assets of approximately $2,676 and $750 for the years ended January 1, 2007 and January 2, 2006, respectively, which represent estimates of the maximum deductible which could be incurred under its insurance plan as well as an estimate of other impaired assets not believed to  be covered under its insurance plan. The impairment amount for the year ended January 2, 2006 is net of $100 of insurance proceeds SWRG has received that relates to content coverage. SWRG has also written off approximately $160 in inventories that spoiled or were destroyed by Hurricane Katrina for the year ended January 2, 2006. SWRG has received business interruption proceeds which are reflected in its statement of operation of $628 and $350 for the years ended January 1, 2001 and January 2, 2006, respectively.

On December 31, 2006, SWRG closed its Smith & Wollensky restaurant in Dallas, Texas (“S&W Dallas”) and also determined that S&W Dallas’ net fixed assets were impaired. An impairment charge of $3,157 was recorded for the year ended January 1, 2007. SWRG decided to close S&W Dallas because it was unable to achieve a level of income from operations that was in line with the Company’s expectations. SWRG has also decided to sell the land and building in which S&W Dallas is located. SWRG is currently under contract to sell the property for the Smith & Wollensky in Dallas for $3,900, less commission and other expenses of $250. SWRG plans on closing on the sale of the Dallas property during the beginning of April 2007. On March 23, 2007, SWRG entered into an Amendment to Line of Credit Agreement with Morgan Stanley released Dallas S&W, L.P. as the Guarantor as well as placing a restriction on SWRG from drawing down on this line of credit until the collateral is replaced. Impairment charges for the Smith & Wollensky units in New Orleans and Dallas were based on estimated sale prices for the properties, less commission and other expenses.

F-41

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements January 1, 2007 and January 2, 2006 (Continued)
(in thousands, except shares and per share/unit amounts)

On January 31, 2007, SWRG adopted a plan to close Cité to the public on April 2, 2007 because Cité was unable to achieve a level of income from operations that was in line with its expectations. An impairment charge of $740 was recorded for the year ended January 1, 2007. The impairment charge for Cité was based on comparing the carrying amount of the assets with estimated future cash flows.

(18) Gift Card Liability

In April 2005, a new gift card tracking system was implemented to track the gift card liability. For gift cards issued prior to April 2005, SWRG used its best estimate to establish a liability for gift certificates issued , but not redeemed prior to April 2005 (“Old Gift Certificates”). Based on the redemption of Old Gift Certificates during the year ended January 2, 2006, a change in estimate was deemed necessary. The impact of this change was related to adjusting the gift card liability as a result of promotional gift cards being misapplied to the deferred gift card account and was to increase marketing and promotional expense therefore increasing SWRG’s net loss by $397 during the year ended January 2, 2006.

(19) Related Party Transactions

SWRG manages the Smith & Wollensky restaurant in New York City, and receives annual management fees of 2.3% of restaurant sales. An affiliate of the Company’s Chairman is a general and limited partner of St. James, which owns the Smith & Wollensky restaurant in New York and the Names in the reserved territory, as well as a general and limited partner of MW Realty Associates, which owns the property on which the New York Smith & Wollensky restaurant is located. Management fee revenue relating to this agreement amounted to approximately $613, $609 and $609 for fiscal 2006, 2005 and 2004, respectively.

Pursuant to the Original License Agreement with St. James, SWRG obtained the rights and license to use the Names for $2,500. The Original License Agreement also provides for additional payments to St. James relating to new restaurant openings and also contains a provision for the payment of a specified termination fee. SWRG must pay a royalty fee of 2% based upon annual gross sales for each restaurant utilizing the Names, subject to certain annual minimums. During fiscal 2006, 2005 and 2004, SWRG paid royalty fees of $1,886, $1,830 and $1,782, respectively.

On January 19, 2006, SWRG (the “Licensee”), signed an Amended and Restated Sale and License Agreement, dated as of January 1, 2006 (the “License Agreement”), with St. James Associates, L.P. (the “Licensor”) that provides for, among other things, a reduced licensing fee only for the opening of Wollensky’s Grills that are less than 9,000 square feet. Pursuant to the License Agreement, the one-time opening fee paid to the Licensee for each new additional Wollensky’s Grill (“Grill Opening Fee”) will be at a rate equal to 50% of the fee due under the Original License Agreement (see Note 7). In addition, the annual royalty fee (“Grill Royalty Fee”) will be reduced from 2% to 1% for annual sales from Wollensky’s Grills. Both the Grill Opening Fee and Grill Royalty Fee are subject to maximum average per-person checks that, if exceeded, could increase both the Grill Opening Fee and Grill Royalty Fee, but not to exceed the opening fee and royalty fee contained in the Original License Agreement. The terms of the amendment do not apply to the existing Wollensky’s Grills.

One of SWRG’s directors has also provided consulting services to SWRG since 1997 on an at-will basis for which he receives $500 per day plus reimbursement for out-of-pocket expenses. In fiscal 2004 the

F-42

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements January 1, 2007 and January 2, 2006 (Continued)
(in thousands, except shares and per share/unit amounts)

Company paid an aggregate of  $185 for such consulting services. Effective January 4, 2005, this director became an employee of SWRG.

(20) Benefit Plan

SWRG offers a 401(k) retirement savings plan to all full-time employees age 21 or older upon completing six-months of service (500 hours in any 6-month period). Employees may contribute a percentage of their gross salaries as defined in the plan, subject to limits prescribed by the IRS. SWRG contributions are at the discretion of the Board of Directors. Participant’s contributions and earnings are fully vested, SWRG contributions and earnings vest ratably over five years. For fiscal 2006, 2005 and 2004, SWRG contributions to the plan amounted to approximately $81, $102 and $105, respectively.

(21) Quarterly Results of Operations (Unaudited)

The following is a summary of the unaudited quarterly results of operations:

	April 3, 2006		July 3, 2006		October 2, 2006(a)			January 1, 2007(a)
Consolidated restaurant sales	$	30,812	$	30,242	$	27,557		$	36,209
Management fee income	238		234		217			291
Operating income (loss)	923		1,060		(1,615		)	(2,510		)
Net income (loss) applicable to common shares	$	508	$	572	$	(1,853	)	$	(3,460	)
Net income (loss) per common shares:
Basic	$	0.06	$	0.07	$	(0.22	)	$	(0.40	)
Diluted	$	0.06	$	0.07	$	(0.22	)	$	(0.40	)
Weighted average shares used in computing net loss per share:
Basic	8,599,713		8,590,643		8,590,643			8,590,643
Diluted	8,643,359		8,653,060		8,590,643			8,590,643

	April 4, 2005		July 4, 2005		October 3, 2005			January 2, 2006(b)
Consolidated restaurant sales	$	32,994	$	31,971	$	26,813		$	33,669
Management fee income	251		248		216			279
Operating income (loss)	1,247		654		(2,930		)	628
Net income (loss) applicable to common shares	$	447	$	104	$	(3,230	)	$	(397	)
Net income (loss) per common shares:
Basic	$	0.05	$	0.01	$	(0.35	)	$	(0.04	)
Diluted	$	0.05	$	0.01	$	(0.35	)	$	(0.04	)
Weighted average shares used in computing net loss per share:
Basic	9,378,415		9,375,371		9,342,232			8,958,679
Diluted	9,841,596		10,007,183		9,342,232			8,958,679

F-43

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements January 1, 2007 and January 2, 2006 (Continued)
(in thousands, except shares and per share/unit amounts)

(a)During the third quarter ended October 2, 2006, SWRG recorded an impairment of $828 for New Orleans. This expense became estimatable and determinable during the third quarter ended October 2, 2006. During the fourth quarter ended January 1, 2007, SWRG recorded an additional impairment of $1,848 for New Orleans based on revised estimated sales prices for the property and an impairment of $3,157 for Dallas was recorded as it was determined in the fourth quarter of 2006 to close this location. Furthermore, subsequent to year end the Company announced it was closing Cité, which resulted in an impairment in the  fourth quarter of 2006 of $740.

(b)During the fourth quarter ended January 2, 2006, SWRG recorded an impairment of $750, net of $100 insurance proceeds, and a write down of renovated restaurant assets of $314. Both of these expenses became estimatable and determinable during the fourth quarter ended January 2, 2006.

(22) Subsequent Events

On January 10, 2007, SWRG entered into a Trademark License Agreement with Bryant Preserving Company (“Licensee”) to grant to Licensee the right to distribute and sell SWRG retail products, as defined (“Licensed Products”), through December 31, 2011, with an option for an additional five years. SWRG will receive a six percent royalty on sales of the Licensed Products and is subject to guaranteed minimum net sales levels, as defined. In addition, the Licensee agreed to reimburse SWRG for store slotting fees, as well as certain inventory, accounts receivable and accounts payable.

On January 11, 2007, SWRG made a final payment of $211 to AT&T Capital Services (formerly SBC) (“AT&T”) for the portion of its capital lease that related to certain equipment of the S&W of Dallas location. The remaining balance of the capital lease obligation with AT&T for certain equipment in the Smith & Wollensky’s in Houston and Boston continues to be outstanding.

As of January 31, 2007, La Cité Associates, L.P. (“Cité Associates”), a subsidiary of SWRG, entered into a Settlement Agreement and certain related documents with Rockefeller Center North, Inc., the landlord (“Landlord”) of the restaurant space occupied by the Cité restaurant (“Cité”) in New York City. The Settlement Agreement, among things, settled the lawsuit in which the Landlord alleged that Cité Associates was obligated to pay, but had not paid, percentage rent since January 1, 2001, with the Landlord acknowledging that Cité Associates was not, and to the end of the original lease term of September 30, 2009 will not be obligated to pay any percentage rent. In addition, unrelated to the lawsuit, on January 31, 2007, SWRG adopted a plan to close Cité to the public on April 2, 2007. We decided to close Cité because it was unable to achieve a level of income from operations that was in line with our expectations. Pursuant to the Settlement Agreement, Cité is required to make a one-time settlement payment to the Landlord of $85 and will then receive its $100 letter of credit posted with the Landlord as a security deposit under the lease. Cité Associates also agreed to terminate its lease for Cité and vacate the premises by April 6, 2007. An impairment charge of $740 was recorded for the year ended January 1, 2007.

On February 26, 2007, Patina Restaurant Group, LLC, a Delaware limited liability company (“Patina”), SWRG Holdings, Inc., a Delaware corporation and a wholly owned subsidiary of Patina (“Patina Sub”) and SWRG, entered into an agreement and plan of merger (the “Merger Agreement”). Under the terms of the Merger Agreement and subject to satisfaction or waiver of the conditions therein, Patina Sub will merge with and into SWRG, with SWRG surviving (the “Merger”). As a result of the Merger, SWRG will become a wholly-owned subsidiary of Patina (the “Surviving Corporation”). At the

F-44

THE SMITH & WOLLENSKY RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements January 1, 2007 and January 2, 2006 (Continued)
(in thousands, except shares and per share/unit amounts)

effective time of the Merger, each share of SWRG’s common stock, par value $0.01 per share (the “Common Stock”),  issued and outstanding immediately prior to the effective time of the Merger (other than any shares owned by stockholders who are entitled to and who properly exercise appraisal rights under Delaware law) shall be canceled and converted into the right to receive from the Surviving Corporation $9.25 in cash. The board of directors of SWRG (the “Board”) approved the Merger Agreement following the unanimous recommendation of a committee of the Board comprised entirely of independent directors (the “Special Committee”). The consummation of the Merger is conditioned upon, among other things, the adoption of the Merger Agreement by the stockholders of SWRG, regulatory approvals and other customary closing conditions. Pursuant to Delaware General Corporation Law and SWRG’s charter, the Merger must be approved by the holders of a majority of the shares of the outstanding Common Stock. In addition, pursuant to the Merger Agreement, the Merger must be approved by the affirmative vote of the holders of a majority of the outstanding shares of Common Stock present or voting by proxy at the stockholder meeting relating to the Merger (not including any shares of Common Stock beneficially owned by Mr. Alan Stillman), . SWRG, Patina and Patina Sub have made customary representations, warranties and covenants in the Merger Agreement. Among other things, SWRG may not solicit competing proposals or, subject to exceptions that permit the Special Committee or the Board to comply with their fiduciary duties, participate in any discussions or negotiations regarding alternative proposals. The Merger Agreement may be terminated under certain circumstances, including if the Special Committee or the Board has determined in good faith that it has received a superior proposal and complies with certain terms of the Merger Agreement. Upon the termination of the Merger Agreement, under specified circumstances, SWRG will be required to reimburse Patina for its transaction expenses up to $600 and, under specified circumstances, SWRG will be required to pay Patina a termination fee of $2,465.

SWRG is currently under contract to sell the property for the Smith & Wollensky in Dallas for $3,900, less commission and other expenses of $250. SWRG plans on closing on the sale of the Dallas property during the beginning of April 2007. On March 23, 2007, SWRG entered into an Amendment to Line of Credit Agreement with Morgan Stanley released Dallas S&W, L.P. as the Guarantor as well as placing a restriction on SWRG from drawing down on this line of credit until the collateral is replaced.

F-45

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
(thousands of dollars)

Allowance for Doubtful Accounts Receivable Deducted in the Balance Sheet from Accounts Receivable

Description	Balance at Beginning of Period			Additions Charged to Costs, Provisions and Expenses			Deductions				Balance at End of Period
Year ended January 1, 2007
Allowance for doubtful accounts		$	42		$	180		$	(202	)		$	20
Year ended January 2, 2006
Allowance for doubtful accounts		$	78		$	41		$	(77	)		$	42
Year ended January 3, 2005
Allowance for doubtful accounts		$	95		$	46		$	(63	)		$	78

Deferred Income Tax Asset Valuation Allowance Deducted in the Balance Sheet
from Deferred Income Tax Assets

	Balance at			Provisions							Balance at
	Beginning			Charged to							End of
Period Ended	of Period			Operations		Other			Deductions		Period
Year ended January 1, 2007		$	10,995		—	$	1,357	(a)		—		$	12,352
Year ended January 2, 2006		$	9,848		—	$	1,147	(b)		—		$	10,995
Year ended January 3, 2005		$	8,354		—	$	1,494	(c)		—		$	9,848

p

(a)Other adjustments to the deferred income tax valuation allowance during the year ended January 1, 2007 include a $5,838 impairment charge.

(b)Other adjustments to the deferred income tax valuation allowance during the year ended January 2, 2006 include a $5,012 deferred gain on sale leaseback, partially offset by utilization of $3,493 in NOL carryovers.

(c)Other adjustments to the deferred income tax valuation allowance during the year ended January 3, 2005 include a $1,044 increase related to tenant improvement allowances and $402 in increases in gift card sales.

S-1

INDEX TO EXHIBITS

Exhibit No.	Description of Document
2.1	Agreement and Plan of Merger, dated February 26, 2007, by and among Patina Restaurant Group, LLC, a Delaware limited liability company (“Parent”); SWRG Holdings, Inc., a Delaware corporation and a wholly owned subsidiary of Parent; and The Smith & Wollensky Restaurant Group, Inc., a Delaware corporation(21)(22)
3.1	Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Registrant(2)
3.2	Form of Amended and Restated Certificate of Incorporation of the Registrant(2)
3.3	Form of Amended and Restated Bylaws of the Registrant(2)
4.1	Reference is made to Exhibit Nos. 3.1, 3.2 and 3.3
10.1	Lease by and between Holrod Associates and Thursday’s Supper Pub, Inc. assigned to Manhattan Ocean Club Associates, dated August 31, 1983, including all amendments thereto(2)
10.2	Letter regarding amendment to lease by and between Holrod Associates and Thursday’s Supper Pub, Inc. assigned to Manhattan Ocean Club Associates, dated April 27, 2001(2)
10.3	Lease by and between Beekman Tenants Corporation and White & Witkowsky, Inc., dated November 1, 1991(2)
10.4	Lease by and between Rockefeller Center North, Inc. and White & Witkowsky, Inc., dated June 21, 1988(2)
10.5	Lease by and between the City of Miami Beach and Specialty Restaurants Corporation, dated February 8, 1985, including all addenda thereto(2)
10.6	Lease by and between Marina City Hotel Enterprises, L.L.C. and S&W Chicago, L.L.C., dated July 31, 1997(2)
10.7	Lease with an option to purchase by and between The Somphone Limited Partnership and S&W of Las Vegas, L.L.C., dated February 9, 1998, including amendments, guaranty and exhibits thereto(2)
10.8	Specific Assignment, Subordination and Attornment Agreement by and among S&W D.C., L.L.C., 1112 Nineteenth Street Associates and Aid Associates for Lutherans, dated September 18, 1998(2)
10.9	Lease Agreement by and between 1112 Nineteenth Street Associates and S&W D.C., L.L.C., dated July 8, 1998, including amendments, guaranty and exhibits thereto(2)
10.10	Lease Agreement by and between Pennsylvania Plaza Associates and M.O.C. of Miami, L.L.C., dated April 7, 1999, including exhibits thereto(2)
10.11	Lease Agreement by and between The Rittenhouse Development Company and S&W of Philadelphia, LLC, dated February 18, 2000(2)
10.12	Lease Agreement by and between Saunstar Operating Co., LLC and S&W of Boston LLC, dated April 6, 2000, including amendments thereto(2)
10.13	Management Agreement by and between 37 East 50th Street Corporation and Restaurant Group Management Services, L.L.C., dated April 18, 1996(2)
10.14	Sale and License Agreement by and between St. James Associates and The New York Restaurant Group, LLC, dated August 16, 1996(2)
10.15	Letter Agreement by and between St. James Associates and The Smith & Wollensky Restaurant Group, Inc., dated April 26, 2001(2)

10.16	First Amended and Restated Agreement of Limited Partnership of St. James Associates, L.P., dated December 1, 1999(2)
10.17	Management Agreement dated February 26, 1991, among Stillman’s First and Nabil Chartouni and Fouad Chartouni, the owners of The Post House, including amendments thereto(2)
10.18	Seventh Amendment to Restaurant Management Agreement by and between Post Investors, L.P. and the New York Restaurant Group, Inc., dated November 24, 2004(15)
10.19	Letter Agreement by an between Post House Investors, L.P. and the Smith & Wollensky Restaurant Group, Inc., dated April 20, 2001(2)
10.20	Sub-management Agreement dated June 9, 1995 between Mrs. Parks Management Company, L.L.C., our wholly owned subsidiary, and Doubletree Partners, the manager of the Doubletree Hotel(2)
10.21	Management Agreement dated September 7, 2000, between Plaza Operating Partners, Ltd. and Parade 59 Restaurant, LLC(2)
10.22	$15,000,000 Loan Agreement between The New York Restaurant Group, Inc. and Fleet Bank, N.A., dated September 1, 1998(2)
10.23	First Amendment to Loan Agreement among The New York Restaurant Group, Inc. and Fleet Bank, N.A., dated June 8, 1999(2)
10.24	Second Amendment to Loan Agreement among The New York Restaurant Group, Inc. and Fleet Bank, N.A., dated June 29, 1999(2)
10.25	Third Amendment to Loan Agreement among The Smith & Wollensky Restaurant Group, Inc. and Fleet Bank, N.A., dated February 29, 2000(2)
10.26	Fourth Amendment to Loan Agreement among The Smith & Wollensky Restaurant Group, Inc. and Fleet Bank, N.A., dated March 23, 2000(2)
10.27	$10,000,000 Senior Subordinated Note Purchase Agreement between The New York Restaurant Group, Inc. and Magnetite Asset Investors, L.L.C., dated June 29, 1999(2)
10.28	Waiver Agreement and First Amendment to Senior Subordinated Note Purchase Agreement by and between The Smith & Wollensky Restaurant Group, Inc. and Magnetite Asset Investors, L.L.C., dated March 21, 2001(2)
10.29	Registration Rights Agreement by and among The New York Restaurant Group, L.L.C., affiliates of the Thomas H. Lee Company, certain affiliates of Alan N. Stillman, listed on Schedule A thereto and certain holders of the Company’s Common Shares, dated January 1, 1996(2)
10.30	Amended and Restated Shareholders’ Agreement by and among The New York Restaurant Group, Inc., Alan Stillman, Thomas H. Lee Equity Partners, L.P., Thomas H. Lee Investors, Limited Partnership and persons listed as shareholders on the counterpart signature pages thereto, dated as of April 27, 2001(2)
10.31*	Amended and Restated Employment Agreement by and between The Smith & Wollensky Restaurant Group, Inc. and Alan N. Stillman, dated as of May 1, 2001(2)
10.32*	Non-Competition Agreement by and between The Smith & Wollensky Restaurant Group, Inc. and Alan N. Stillman, dated as of May 1, 2001(2)
10.33*	Separation and General Release by and between The Smith & Wollensky Restaurant Group, Inc. and James M. Dunn dated August 30, 2005(17)
10.34*	The Smith & Wollensky Restaurant Group, Inc. 1996 Stock Option Plan (formerly known as The New York Restaurant Group, L.L.C. 1995 Option Plan)(2)

10.35*	Amendment Number 1 to The Smith & Wollensky Restaurant Group, Inc. 1996 Stock Option Plan (formerly known as The New York Restaurant Group, L.L.C. 1995 Option Plan)(2)
10.36*	The New York Restaurant Group, Inc. 1997 Stock Option Plan(2)
10.37*	The Smith & Wollensky Restaurant Group, Inc. 2001 Stock Incentive Plan(2)
10.38*	The Smith & Wollensky Restaurant Group, Inc. 2001 Employee Stock Purchase Plan(2)
10.39*	Schedule TO (Rule 13e-4) Tender Offer Statement Under Section 14(d)(1) or 13(e)(1) of the Securities Exchange Act of 1934(3)
10.40*	Schedule TO/A—(Rule 13e-4) Tender Offer Statement Under Section 14(d)(1) or 13(e)(1) of the Securities Exchange Act of 1934 (Amendment No. 1)(4)
10.41*	Schedule TO/A—(Rule 13e-4) Tender Offer Statement Under Section 14(d)(1) or 13(e)(1) of the Securities Exchange Act of 1934 (Amendment No. 2)(4)
10.42	Lease Agreement by and between Easton Town Center LLC and Smith &Wollensky Ohio LLC, dated October 31, 2001, including, guaranty and exhibits thereto(5)
10.43	Term Loan Agreement by and between S&W of Las Vegas L.L.C. as “Borrower”, The Smith & Wollensky Restaurant Group, Inc. as “Guarantor” and Morgan Stanley Dean Witter Commercial Financial Services, Inc. as the “Lender” dated as of August 23, 2002, including schedules and exhibits thereto(6)
10.44	Promissory Note by and between S&W of Las Vegas L.L.C. as the “Borrower” and Morgan Stanley Dean Witter Commercial Financial Services, Inc. as the “Lender” dated as of August 23, 2002(6)
10.45	Leasehold Deed of Trust by and between S&W of Las Vegas L.L.C. as the “Grantor” to First American Title Company of Nevada, Inc. as “Trustee” for the benefit of Morgan Stanley Dean Witter Commercial Financial Services, Inc. as the “Beneficiary” and exhibits thereto dated as of August 23, 2002(6)
10.46	Guaranty of Payment by and between The Smith & Wollensky Restaurant Group, Inc. as “Guarantor” for S&W of Las Vegas L.L.C. as the “Borrower” for the “Loan” with Morgan Stanley Dean Witter Commercial Financial Services, Inc. as the “Lender” and exhibits thereto dated as of August 23, 2002(6)
10.47	Security Agreement by and between S&W of Las Vegas L.L.C. as the “Grantor” to Morgan Stanley Dean Witter Commercial Financial Services, Inc. as the “Lender” and schedules thereto dated as of August 23, 2002(6)
10.48	Absolute Assignment of Leases and Rents Agreement by and between S&W of Las Vegas L.L.C. as the “Assignor” and Morgan Stanley Dean Witter Commercial Financial Services, Inc. as the “Assignee” and exhibits thereto dated as of August 23, 2002(6)
10.49	Hazardous Material Guaranty and Indemnification Agreement by and between S&W of Las Vegas L.L.C. as the “Borrower” and Morgan Stanley Dean Witter Commercial Financial Services, Inc. as the “Lender” and exhibits thereto dated as of August 23, 2002(6)
10.50	Contract for Sale by and among Tollroad Texas Land Co., L.P., Tollway 76, L.P. and The Smith & Wollensky Restaurant Group, Inc., and exhibits thereto dated as of July 19, 2002(7)
10.50-1	First Amendment to the Contract for Sale by and among Tollroad Texas Land Co., L.P., Tollway 76, L.P. and The Smith & Wollensky Restaurant Group, Inc. dated as of August 12, 2002(7)

10.50-2	Second Amendment to the Contract for Sale by and among Tollroad Texas Land Co., L.P., Tollway 76, L.P. and The Smith & Wollensky Restaurant Group, Inc. dated as of September 17, 2002(7)
10.50-3	Third Amendment to the Contract for Sale by and among Tollroad Texas Land Co., L.P., Tollway 76, L.P. and The Smith & Wollensky Restaurant Group, Inc., and exhibits thereto, dated as of September 19, 2002(7)
10.50-4	Fourth Amendment to the Contract for Sale by and among Tollroad Texas Land Co., L.P., Tollway 76, L.P. and The Smith & Wollensky Restaurant Group, Inc. dated as of October 7, 2002(7)
10.51	Special Warranty Deed by and among Tollroad Texas Land Co., L.P., Grantor and Dallas S&W, L.P., and exhibits thereto, dated as of October 4, 2002(7)
10.52	Bill of Sale and Assignment pursuant to the Contract for Sale by and among Tollway 76, L.P. and The Smith & Wollensky Restaurant Group, Inc. and exhibits thereto, dated as of October 9, 2002(7)
10.53	Promissory Note by and among Dallas S&W, L.P. and Tollroad Texas Land Co., L.P., dated as of October 9, 2002(7)
10.54	Deed of Trust by and among Dallas S&W, L.P. and Tollroad Texas Land Co., L.P., and exhibits thereto, dated as of October 9, 2002(7)
10.55	Consent to Subordinate Lien by and among Tollroad Texas Land Co., L.P., Grantor and Dallas S&W, L.P., and exhibits thereto, dated as of October 4, 2002(7)
10.56	Term Loan Agreement by and between S&W of Las Vegas L.L.C. as “Borrower”, The Smith & Wollensky Restaurant Group, Inc. and Dallas S&W, L.P., as “Guarantors” and Morgan Stanley Dean Witter Commercial Financial Services, Inc. as the “Lender” dated as of December 17, 2002, including schedules and exhibits thereto(7)
10.57	Promissory Note by and between S&W of Las Vegas L.L.C. as the “Borrower” and Morgan Stanley Dean Witter Commercial Financial Services, Inc. as the “Lender” dated as of December 17, 2002(7)
10.58	Second Leasehold Deed of Trust by and between Dallas S&W, L.P., as the “Grantor” to Christopher Mayrose, as “Trustee” for the benefit of Morgan Stanley Dean Witter Commercial Financial Services, Inc. as the “Beneficiary” and exhibits thereto dated as of December 17, 2002(7)
10.59	Leasehold Deed of Trust by and between S&W of Las Vegas L.L.C. as the “Grantor” to First American Title Company of Nevada, Inc. as “Trustee” for the benefit of Morgan Stanley Dean Witter Commercial Financial Services, Inc. as the “Beneficiary” and exhibits thereto dated as of December 19, 2002(7)
10.60	Security Agreement by and between Dallas S&W, L.P. as the “Grantor” to Morgan Stanley Dean Witter Commercial Financial Services, Inc. as the “Lender” and schedules thereto dated as of December 19, 2002(7)
10.61	Absolute Assignment of Leases and Rents Agreement by and between S&W of Las Vegas L.L.C. as the “Assignor” and Morgan Stanley Dean Witter Commercial Financial Services, Inc. as the “Assignee” and exhibits thereto dated as of December 17, 2002(7)
10.62	Hazardous Material Guaranty and Indemnification Agreement by and between S&W of Las Vegas L.L.C. as the “Borrower” and Morgan Stanley Dean Witter Commercial Financial Services, Inc. as the “Lender” and exhibits thereto dated as of December 17, 2002(7)

10.63	Guaranty of Payment by and between S&W of Las Vegas L.L.C. as the “Borrower” and Morgan Stanley Dean Witter Commercial Financial Services, Inc. as the “Lender” and exhibits thereto dated as of December 17, 2002(7)
10.64	Lease Agreement by and between Highland Village Holding, Inc. “Landlord”, and Houston S&W, L.P, “Tenant”, and The Smith & Wollensky Restaurant Group, Inc. “Guarantor”, dated January 30, 2003, including, riders, guaranty and exhibits thereto(7)
10.65	Lease Termination Agreement by and between Pennsylvania Plaza Associates as “Landlord” and M.O.C. of Miami, LLC as “Tenant” dated January 31, 2002(7)
10.66	Letter between the Somphone Limited Partnership and S & W of Las Vegas, L.L.C. dated as of February 6, 2003(7)
10.67	Second Amendment to Lease Agreement with an Option to Purchase dated April 29, 2003, by and between The Somphone Limited Partnership, a Nevada limited partnership, and S & W of Las Vegas, L.L.C., a Delaware limited liability company(8)
10.68	Letter from Morgan Stanley Dean Witter Commercial Services, Inc. dated May 14, 2003(8)
10.69	Modification of Lease Agreement between and among Beekman Tenants Corporation and Atlantic and Pacific Grill Associates, LLC(9)
10.70	Modification of the Sub-Management Agreement between and among Doubletree Hotel in Chicago and Mrs. Park’s Management Company(9)
10.71	Amendment No. 3 to Lease Dated April 6, 2000 by and between Saunstar Operating Co., LLC and S&W of Boston, LLC(10)
10.72	Amendment to Term Loan Agreement by and between S&W of Las Vegas, L.L.C. as “Borrower” and Morgan Stanley Dean Witter Commercial Financial Services, Inc. as the “Lender” dated as of October 25, 2002(10)
10.73	Second Amendment to Term Loan Agreement by and between S&W of Las Vegas, L.L.C. as “Borrower” and Morgan Stanley Dean Witter Commercial Financial Services, Inc. as the “Lender” dated as of December 24, 2002(10)
10.74	Amendment to Term Loan Agreements by and between S&W of Las Vegas, L.L.C. as “Borrower”, The Smith & Wollensky Restaurant Group, Inc. and Dallas S&W, L.P. as “Guarantors” and Morgan Stanley Dean Witter Commercial Financial Services, Inc. as the “Lender” dated as of August 20, 2003(10)
10.75	Amendment to Term Loan Agreements by and between S&W of Las Vegas, L.L.C. as “Borrower”, The Smith & Wollensky Restaurant Group, Inc. and Dallas S&W, L.P. as “Guarantors” and Morgan Stanley Dean Witter Commercial Financial Services, Inc. as the “Lender” dated as of September 28, 2003(10)
10.76	Letter between Plaza Operating Partners, Ltd. and Parade 59 Restaurant LLC dated December 31, 2003(11)
10.77	Line of Credit Agreement by and between S&W of Las Vegas L.L.C. as “Borrower”, The Smith & Wollensky Restaurant Group, Inc. as “Guarantor” and Morgan Stanley Dean Witter Commercial Financial Services, Inc. as the “Lender” dated as of January 30, 2004, including schedules and exhibits thereto(11)
10.78	Covenants Agreement and Amendment to Term Loan Agreements by and between S&W of Las Vegas L.L.C. as “Borrower”, The Smith & Wollensky Restaurant Group, Inc. and Dallas S&W, L.P., as “Guarantors” and Morgan Stanley Dean Witter Commercial Financial Services, Inc. as the “Lender” dated as of January 30, 2004, including schedules and exhibits thereto(11)

10.79	Guaranty of Payment by and between S&W of Las Vegas L.L.C. as the “Borrower” and Morgan Stanley Dean Witter Commercial Financial Services, Inc. as the “Lender” and exhibits thereto dated as of January 30, 2004(11)
10.80	Leasehold Deed of Trust by and between S&W of Las Vegas L.L.C. as the “Grantor” to First American Title Company of Nevada, Inc. as “Trustee” for the benefit of Morgan Stanley Dean Witter Commercial Financial Services, Inc. as the “Beneficiary” and exhibits thereto dated as of January 30, 2004(11)
10.81	Absolute Assignment of Leases and Rents Agreement by and between S&W of Las Vegas L.L.C. as the “Assignor” and Morgan Stanley Dean Witter Commercial Financial Services, Inc. as the “Assignee” and exhibits thereto dated as of January 30, 2004(11)
10.82	Hazardous Material Guaranty and Indemnification Agreement by and between S&W of Las Vegas L.L.C. as the “Borrower” and Morgan Stanley Dean Witter Commercial Financial Services, Inc. as the “Lender” and exhibits thereto dated as of January 30, 2004(11)
10.83	Promissory Note by and between S&W of Las Vegas L.L.C. as the “Borrower” and Morgan Stanley Dean Witter Commercial Financial Services, Inc. as the “Lender” dated as of January 30, 2004(11)
10.84	First amendment to covenants agreement by and between S&W of Las Vegas L.L.C. as the “Borrower”, the Smith & Wollensky Restaurant Group, Inc. and Dallas S&W, L.P. as “Guarantors” and Morgan Stanley Dean Witter Commercial Financial Services, Inc. as the “Lender” dated as of March 17, 2004(11)
10.85*	Employment Agreement by and between The Smith & Wollensky Restaurant Group, Inc. and James M. Dunn, dated as of April 30, 2004(12)
10.86	Business Loan Agreement by and between S&W New Orleans, L.L.C. as “Borrower” and Hibernia National Bank as “Lender” dated as of May 26, 2004(13)
10.87	Multiple Indebtedness Mortgage by and between S&W New Orleans, L.L.C. as “Mortgagor” and Hibernia National Bank as “Mortgagee” dated as of May 26, 2004(13)
10.88	Promissory Note by and between S&W New Orleans, L.L.C. as “Borrower” and Hibernia National Bank as “Lender” dated as of May 26, 2004(13)
10.89	Commercial Guaranty by and between S&W New Orleans, L.L.C. as “Borrower”, The Smith & Wollensky Restaurant Group, Inc. as “Guarantor” and Hibernia National Bank as “Lender” dated as of May 26, 2004(13)
10.90	Line of Credit Agreement by and between S&W of Las Vegas L.L.C. as “Borrower”, The Smith & Wollensky Restaurant Group, Inc. as “Guarantor” and Morgan Stanley Dean Witter Commercial Financial Services, Inc. as the “Lender” dated as of July 21, 2004, including schedules and exhibits thereto(13)
10.91	Guaranty of Payment by and between S&W of Las Vegas L.L.C. as the “Borrower” and Morgan Stanley Dean Witter Commercial Financial Services, Inc. as the “Lender” and exhibits thereto dated as of July 21, 2004(13)
10.92	Leasehold Deed of Trust by and between S&W of Las Vegas L.L.C. as the “Grantor” to First American Title Company of Nevada, Inc. as “Trustee” for the benefit of Morgan Stanley Dean Witter Commercial Financial Services, Inc. as the “Beneficiary” and exhibits thereto dated as of July 21, 2004(13)
10.93	Absolute Assignment of Leases and Rents Agreement by and between S&W of Las Vegas L.L.C. as the “Assignor” and Morgan Stanley Dean Witter Commercial Financial Services, Inc. as the “Assignee” and exhibits thereto dated as of July 21, 2004(13)

10.94	Hazardous Material Guaranty and Indemnification Agreement by and between S&W of Las Vegas L.L.C. as the “Borrower” and Morgan Stanley Dean Witter Commercial Financial Services, Inc. as the “Lender” and exhibits thereto dated as of July 21, 2004(13)
10.95	Promissory Note by and between S&W of Las Vegas L.L.C. as the “Borrower” and Morgan Stanley Dean Witter Commercial Financial Services, Inc. as the “Lender” dated as of July 21, 2004(13)
10.96	Letter from The Smith & Wollensky Restaurant Group, Inc. to Morgan Stanley Dean Witter dated November 3, 2004(14)
10.97	First Amendment to Covenants Agreement by and between S&W of Las Vegas, L.L.C. as “Borrower”, The Smith & Wollensky Restaurant Group, Inc. and Dallas S&W, L.P. as “Guarantors” and Morgan Stanley Dean Witter Commercial Financial Services, Inc. as the “Lender” dated as of September 26, 2004(14)
10.98	Master Lease Agreement by and between S&W of Boston, LLC, Houston S&W, L.P., Dallas S&W, L.P. as the “Lessee” and Ameritech Credit Corporation d/b/a SBC Capital Services as the “Lessor” dated as of December 23, 2004(15)
10.99	Contract of Sale by and between S&W of Las Vegas, L.L.C. as the “Seller” and Metroflag SW, LLC as the “Buyer” dated as of March 21, 2005(15)
10.100	Letter from The Smith & Wollensky Restaurant Group, Inc. to Morgan Stanley Dean Witter dated April 26, 2005(15)
10.101*	Letter from The Smith & Wollensky Restaurant Group, Inc. to Alan M. Mandel dated as of June 20, 2000(15)
10.102	Lease by and between The Smith & Wollensky Restaurant Group, Inc. and Vanguard Properties Co., L.P. dated October 21, 2005.(16)
10.103	Line of Credit Agreement dated as of January 27, 2006 between The Smith & Wollensky Restaurant Group, Inc., as borrower, and Dallas S&W, L.P., as guarantor, and Morgan Stanley Dean Witter Commercial Financial Services, Inc., as lender(20)
10.104	Guaranty of Payment by Dallas S&W, L.P. in favor of Morgan Stanley Dean Witter Commercial Financial Services, Inc., dated as of January 27, 2006(20)
10.105	Joint and Several Hazardous Material Guaranty and Indemnification Agreement by The Smith & Wollensky Restaurant Group, Inc., and Dallas S&W, L.P. dated as of January 27, 2006(20)
10.106	Deed of Trust dated as of January 27, 2006 by Dallas S&W, L.P. for the benefit of Morgan Stanley Dean Witter Commercial Financial Services, Inc.(20)
10.107	Promissory Note by The Smith & Wollensky Restaurant Group, Inc. in favor of Morgan Stanley Dean Witter Commercial Financial Services, Inc., dated as of January 27, 2006(20)
10.108*	The Smith & Wollensky Group, Inc. 2005 Management Retention Plan, adopted May 4, 2005(18).
10.109	Letter     to the Smith & Wollensky Restaurant Group from Hibernia National Bank dated January 24, 2007.(1)
10.110*	Consulting Arrangement with Alan M. Mandel(19)
10.111	Agreement, dated February 26, 2007, between Patina Restaurant Group, LLC and Alan Stillman relating to the transfer of SWRG assets to Mr. Stillman(21)
10.112	Voting Agreement, dated February 26, 2007, among Patina Restaurant Group, LLC and certain holders of Common Stock of The Smith & Wollensky Restaurant Group, Inc.(21)

10.113	Amended and Restated Sale and License Agreement between The Smith & Wollensky Restaurant Group, Inc. and St. James Associates, L.P., dated as of January 1, 2006(23)
10.114	Letter Agreement, dated February 26, 2007, relating to proposed amendments to Amended and Restated Sale and License Agreement dated as of January 1, 2006, by and between St. James Associates, L.P. and The Smith & Wollensky Restaurant Group, Inc.(21)
10.115	Letter Agreement dated February 26, 2007, between St. James Associates, L.P. and The Smith & Wollensky Restaurant Group, Inc. relating to royalty payments for Quality Meats(21)
10.116	Third Modification and Renewal of Lease with Beekman Tenants Corporation for Park Avenue Café restaurant(1)
10.117	Contract of Sale Agreement with Beekman for Park Avenue Café Townhouse(1)
10.118*	Amended and Restated Executive Employment Agreement between the Company and Mr. Alan N. Stillman, dated May 23, 2006(24)
10.119*	Compensation Arrangements with Named Executive Officers other than Mr. Stillman(1)
10.120	Contract of Sale between Dallas S&W, L.P. and Relentless Properties, LLC dated February 27, 2007(1)
10.121	Amendment to Line of Credit Agreement dated as of March 23, 2007 between The Smith & Wollensky Restaurant Group, Inc., as borrower, and Dallas S&W, L.P., as guarantor, and Morgan Stanley Dean Witter Commercial Financial Services, Inc., as lender(1)
21.1	Subsidiaries of the Registrant(1)
23.1	Consent of Independent Registered Public Accounting Firm(1)
24	Power of attorney (see signature page to this Form 10-K).
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(1)
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(1)
32.1**	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(1)

(1)Filed herewith.

(2)Previously filed and incorporated by reference herein from the Registrant’s Registration Statement on Form S-1 (No. 33-57518).

(3)Previously filed and incorporated by reference herein from the Registrant’s Form SC TO-I dated February 4, 2002.

(4)Previously filed and incorporated by reference herein from the Registrant’s Form SC TO-I/A dated March 7, 2002.

(5)Previously filed and incorporated by reference herein from the Registrant’s Form 10-Q for the quarter ended April 1, 2002.

(6)Previously filed and incorporated by reference herein from the Registrant’s Form 10-Q for the quarter ended September 30, 2002.

(7)Previously filed and incorporated by reference herein from the Registrant’s Form 10-K for the year ended December 30, 2002.

(8)Previously filed and incorporated by reference herein from the Registrant’s Form 10-Q for the quarter ended March 31, 2003.

(9)Previously filed and incorporated by reference herein from the Registrant’s Form 10-Q for the quarter ended June 30, 2003.

(10)Previously filed and incorporated by reference herein from the Registrant’s Form 10-Q for the quarter ended September 30, 2003.

(11)Previously filed and incorporated by reference herein from the Registrant’s Form 10-K for the year ended December 29, 2003.

(12)Previously filed and incorporated by reference herein from the Registrant’s Form 10-Q for the quarter ended March 29, 2004.

(13)Previously filed and incorporated by reference herein from the Registrant’s Form 10-Q for the quarter ended June 28, 2004.

(14)Previously filed and incorporated by reference herein from the Registrant’s Form 10-Q for the quarter ended September 27, 2004.

(15)Previously filed and incorporated by reference herein from the Registrant’s Form Form 10-K for the year ended January 5, 2005.

(16)Previously filed and incorporated by reference herein from the Registrant’s Form 10-Q for the quarter ended October 3, 2005.

(17)Previously filed and incorporated by reference herein from the Registrant’s form 8-K filed on September 1, 2005.

(18)Previously filed and incorporated by reference herein from the Registrant’s form 8-K filed on May 9, 2005.

(19)The description of this arrangement has been previously filed and is incorporated by reference herein from the first paragraph of Item 5.02 of the Registrant’s form 8-K filed on July 29, 2005.

(20)Previously filed and incorporated by reference herein from Registrant’s Form 8-K filed on January 27, 2006.

(21)Previously filed and incorporated by reference herein from Registrant’s Form 8-K filed on February 28, 2007.

(22)Schedules and exhibits omitted pursuant to Item 601(b)(2) of Regulation S-K. The Registrant agrees to furnish supplementally a copy of any omitted schedule or exhibit to the SEC upon request.

(23)Previously filed and incorporated by reference herein from Registrant’s Form 8-K filed on January 24, 2006.

(24)Previously filed and incorporated by reference herein from Registrant’s Form 8-K filed on May 30, 2006.

*Management contract or compensatory plan or arrangement.

**Pursuant to Commission Release No. 33-8212, this certification will be treated as “accompanying” this Annual Report on Form 10-K and not “filed” as part of such report for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of Section 18 of the Exchange Act and this certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

EX-10.109

Exhibit 10.109

January 24, 2007

Sam Goldfinger
The Smith & Wollensky Restaurant Group, Inc.
1114 First Avenue
New York, NY 10021

Re:  S&W New Orleans, LLC

Dear Mr. Goldfinger:

As a condition of the approval of the $2,000,000.00 loan made to S&W New Orleans, LLC on May 26, 2004 to Hibernia National Bank (now known as Capital One, N.A.), a Business Loan Agreement was executed of even date containing numerous Events of Default. One such event is as follows:

DEBT SERVICE COVERAGE COVENANT.  Borrower covenants and agrees with Lender that as long as this Note is in effect, Borrower shall maintain, at all times, a Debt Service Coverage of no less than 1.10X, where “Debt Service Coverage” is the result of the following formula: Cash Flow divided by Debt Service, where Cash Flow means the net income (loss) of Borrower for a period, plus any interest expense, plus any tax expense, plus any depreciation or amortization expense, recorded in that same period. Debt Service means, for a period, the sum of all scheduled principal and interest payments on debt (including any capitalized leases) during the period, including that portion of any long term debt that is due within the period. The determination of Net Income, the expense items, and debt payments shall be based on the Borrower’s financial statements, prepared in accordance with Generally Accepted Accounting Principles (GAAP), submitted to Lender with the degree of diligence and timeliness as required herein or in any loan or other agreement relating to or governing repayment hereunder. Failure to comply with this provision shall constitute a default hereunder, and shall entitle Lender to exercise all remedies provided herein.

In conjunction with the continued closure of the Smith & Wollensky restaurant located in New Orleans on Poydras Street, as a direct result of Hurricane Katrina and the aftermath thereof, which hit the New Orleans area on or around August 30, 2005, the above Debt Service Coverage Covenant is hereby waived for the above referenced loan to S&W New Orleans, LLC for Fiscal Yearend 2007.

The above waived covenant applies only to the period specified and does not apply to any other listed covenants in the Business Loan Agreement or any other financial periods of time.

In addition, it is understood that The Smith & Wollensky Restaurant Group, Inc. will continue to seek a buyer for the location, at which time the loan would be retired in full.

Should you have any questions, please do not hesitate to call me at the number listed below.

Sincerely,

/s/ Michael L. Galloway

Michael L. Galloway

Senior Vice President

DFW-Metro Business Banking

CAPITAL ONE, N.A.               4245 N CENTRAL EXPWY, SUITE 245          DALLAS, TEXAS 75205                  972-364-6327

EX-10.116

Exhibit 10.116

THIRD MODIFICATION AND RENEWAL OF LEASE

AGREEMENT (hereafter “this Agreement”) made as of the      day of December, 2006 (the “Effective Date”) between BEEKMAN TENANTS CORPORATION, a New York corporation having an address at 575 Park Avenue, New York, New York 10021 (hereinafter referred to as “Landlord”) and ATLANTIC & PACIFIC GRILL ASSOCIATES, L.L.C., a New York limited liability company having an address c/o The Smith & Wollensky Restaurant Group, Inc., 880 Third Avenue, New York, New York 10022 (hereinafter referred to as “Tenant”).

WITNESSETH:

WHEREAS, Landlord and White & Witkowsky, Inc. (“W&W”) entered into a lease dated November 1, 1991 (the “Original Lease”) of a portion of the ground floor and basement space in the building (the “Building”) located at 575 Park Avenue, New York, New York as more particularly described in the Lease (the “Demised Premises”); and

WHEREAS, W&W assigned its interest in the Lease to Atlantic & Pacific Grill Associates, L.P. (“A&P”) pursuant to an Assignment and Assumption of Lease dated September 9, 1992;

WHEREAS, A&P, on January 12, 1996 in accordance with the provisions of Section 1006 of the New York Limited Liability Company Law, converted from a limited partnership to Tenant;

WHEREAS, (i) as of December 3, 2001, Landlord and Tenant entered into a Modification of Lease (the “First Modification”) which modified the Original Lease as more particularly described therein and (ii) as of September 30, 2006, Landlord and Tenant entered into an Extension of Lease (the “Extension”) which extended the term of the Original Lease to January 8, 2007 (the Original Lease, as modified by the First Modification and extended by the Extension, hereinafter the “Lease”); and

WHEREAS, in connection with Tenant’s right to exercise its renewal option as set forth in Article 87 of the Lease, Landlord and Tenant desire to extend the term of the Lease and modify and amend certain terms and provisions of the Lease in the manner hereinafter set forth; and

NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration the receipt and sufficiency of which are hereby conclusively acknowledged, Landlord and Tenant hereby agree as follows:

1.Effective as of the Effective Date, the Lease is amended as follows:

(a)The term of the Lease is hereby extended for ten (10) years and seven (7) days commencing on January 8, 2007 through and including January 15, 2017 (the “Extended Term”), upon all of the same terms, covenants and conditions set forth in the Lease, as hereby amended, except that: (i) the Fixed Rent shall be as follows:

Period (Dates Inclusive)	Fixed Annual Rent		Monthly Installment
January 9, 2007 – December 31, 2007	$	500,000.00	$	41,666.66
January 1, 2008 – December 31, 2008	$	510,000.00	$	42,500.00
January 1, 2009 – December 31, 2009	$	520,200.00	$	43,350.00
January 1, 2010 – December 31, 2010	$	530,604.00	$	44,217.00
January 1, 2011 – December 31, 2011	$	541,216.08	$	45,101.34
January 1, 2012 – December 31, 2012	$	552,040.40	$	46,003.37
January 1, 2013 – December 31, 2013	$	563,081.21	$	46,923.43
January 1, 2014 – December 31, 2014	$	574,342.83	$	47,861.90
January 1, 2015 – December 31, 2015	$	585,829.69	$	48,819.14
January 1, 2016 – December 31, 2016	$	597,546.28	$	49,795.52
January 1, 2017 – January 15, 2017	$	597,546.28	$	49,795.52

(ii) the Expiration Date shall be deemed to be January 15, 2017 (the “Expiration Date”), unless sooner terminated in accordance with the provisions of the Lease; (iii) the first sentence of Article 63 (Real Estate Taxes) of the Lease stating: “the amount of such real estate taxes for the fiscal year commencing July 1, 1991 and ending June 30, 1992”, shall be deleted and replaced with the following language:  “the amount of such real estate taxes for the calendar year 2007”; and (iv) Article 87 (Renewal Option) of the Lease shall be deemed deleted in its entirety and be of no further force or effect so that the Tenant shall have no further option to renew or extend the Lease or the term thereof.

(b)At any time after July 15, 2009, Landlord and Tenant shall each have the right to terminate this Lease prior to the Expiration Date by giving not less than six (6) months’ and not more than nine (9) months’ prior written notice to the other party of the exercise of its right to so terminate, stating the date (the “Accelerated Termination Date”) upon which the Extended Term of this Lease shall then terminate, provided however, in no event shall the Accelerated Termination Date be a date that occurs between November 15th and January 15th.  Provided such notice is delivered in compliance with the provisions of this paragraph 1(b), this Lease shall terminate as of 11:59 p.m. on the Accelerated Termination Date as if it were the Expiration Date as set forth herein.

(c)Article 13 of the Lease shall be revised to permit Landlord access to the Demised Premises, during non-holiday business days before 11:00 a.m., for the purpose of showing the same to prospective tenants throughout the Extended Term of the Lease, upon reasonable notice to Tenant, provided that such access does not otherwise unreasonably interfere with Tenant’s use or conduct of business in the Demised Premises.

2.As a material consideration and inducement to Landlord to enter into this Agreement, Tenant has agreed to spend at least Three Hundred Thousand ($300,000) Dollars to refurbish, repair or otherwise make improvements to the Demised Premises by September 30, 2007, in compliance with the applicable terms and provisions of the Lease, including, without limitation, Articles 3 and 50 (the “New Alterations”).  Tenant shall produce paid bills and other proofs of payment reasonably satisfactory to Landlord to establish such expenditures by October 15, 2007.  To the extent such expenditures are not made by September 30, 2007, the portion of

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said funds not spent or contractually committed to items on which delivery is delayed, shall be payable to Landlord as additional rent hereunder in twelve (12) equal monthly installments commencing on December 1, 2007 and thereafter on the first day of the next eleven (11) months.  Such payments shall be deemed additional rent.  Tenant shall, within thirty (30) days after written demand from Landlord, reimburse Landlord for all reasonable fees, costs and expenses (including architects’ and engineers’ fees) if any, reasonably incurred by Landlord in connection with the New Alterations, provided that Tenant shall not be obligated to reimburse Landlord for any such amounts which are in excess of $2,000 in the aggregate.  Tenant hereby agrees, at its sole cost and expense, upon the Expiration Date (or earlier termination of the Lease), to remove all of the kitchen equipment and kitchen fixtures installed by Tenant as part of the New Alterations.

3.Landlord hereby acknowledges delivery of (a) an original executed ratification and confirmation of the Guaranty by The Smith & Wollensky Restaurant Group, Inc. (the “Ratification”) in the form of Exhibit A annexed hereto and made a part hereof, and (b) an original amendment to the Letter of Credit No. 3330001230 (the “Letter of Credit”) issued by North Fork Bank (the “Bank”).  The Letter of Credit shall (i) have an expiration date no earlier than the first anniversary of the date of issuance thereof and shall provide that it shall be automatically renewed from year to year until February 28, 2017, (ii) be maintained by Tenant in effect at all times during the Extended Term by the Bank or another major banking institution reasonably approved by Landlord, provided that such bank has its principal place of business or its duly licensed branch in the City and County of New York at which the letter of credit may be presented for payment (an “Approved Bank”) and (iii) otherwise be in compliance with the applicable terms of the Lease.  Promptly upon Landlord’s receipt of a notice of non-renewal from the Bank, if any, Landlord shall provide written notice thereof to Tenant and Tenant shall have the right to procure a substitute letter of credit from another Approved Bank which complies with the terms of the Lease within twenty (20) days prior to the expiration date of the Letter of Credit.  Landlord shall have the right to draw down upon the Letter of Credit upon Tenant’s failure to deliver such substitute letter of credit as required herein.  The Letter of Credit shall be returned to Tenant upon the date which is twenty (20) days following the earlier to occur of (i) the Expiration Date, (ii) Accelerated Termination Date, or (iii) earlier termination of this Lease, provided that Tenant has complied with the terms and conditions of this Lease.

4.Simultaneously with the execution of this Agreement, Landlord and Tenant have entered into a contract of sale (the “Townhouse Contract”) whereby Tenant has agreed to convey to Landlord, and Landlord has agreed to purchase the proprietary lease for and 188 shares of Beekman Tenants Corporation appurtenant to the space known as the Park Avenue Café Townhouse (the “Townhouse Space”), for a purchase price of $850,000.  Landlord and Tenant hereby agree that simultaneously with the closing as contemplated in the Townhouse Contract, Landlord and Tenant shall enter into an amendment of the Lease (the “Townhouse Lease Amendment”) in the form attached as Exhibit B.

5.Notwithstanding anything contained in Section 48 to the contrary, Sections 48(b) and 48(e) of the Lease shall not apply to a transfer or assignment of the Lease to (a) any person, firm or entity in connection with the acquisition by said person, firm or entity or an Affiliate (as defined herein) thereof, of all or substantially all of the assets or stock of The

3

Smith & Wollensky Restaurant Group, Inc. in a single transaction or a series of related transactions, provided that Alan N. Stillman or Michael Stillman continue to manage the day-to-day operations at the Demised Premises after such acquisition and throughout the Extended Term of the Lease or (b) any of the following individuals or to any Affiliate of or a firm or entity controlled (as defined herein) by either Alan N. Stillman or Michael Stillman.  As used in this paragraph 5, the term “Affiliate” means a proprietorship, corporation, partnership, unincorporated association or other person or entity “controlling”, “controlled” by or under common “control” with such Tenant entity.  The words “controlling”, “controlled” and “control” shall have the meanings given them under the Securities Exchange Act of 1934, as amended.

6.Any notice, demand or communication which, under the terms of this Lease or under any statute or municipal regulation must or may be given or made by the parties hereto, shall be in writing and given or made by (i) hand delivery, (ii) mailing the same by registered or certified mail, return receipt requested, or (iii) by nationally recognized overnight courier service (e.g., Federal Express) addressed to the party for whom intended at its address as set forth in this Agreement.  A copy of all notices to Landlord shall be sent in like manner to Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New York 10038, Attention: Richard Siegler, Esq., and a copy of all notices to Tenant shall be sent in like manner to Pryor Cashman Sherman & Flynn LLP, 410 Park Avenue, 10th Floor, New York, New York 10022, Attention: Thomas J. Malmud, Esq.  Either party, however, may designate such new or other address to which such notices, demands or communications thereafter shall be given, made or mailed by notice given in the manner prescribed herein.  Any such notice, demand or communication shall be deemed given or served, as the case may be, (i) when delivered by hand, (ii) three (3) business days after the date of the mailing, or (iii) one (1) business day after the delivery to such overnight courier service for next business day delivery.

7.Landlord and Tenant represent and warrant to the other that it has dealt with no broker in connection with this Agreement other than Douglas Elliman, LLC and Landlord and Tenant hereby agree to indemnify and hold the other party harmless of and from any and all loss, costs, damage or expense (including, without limitation, attorneys’ fees and disbursements) incurred by such party by reason of any claim of or liability to any broker, finder or like agent (other than Douglas Elliman, LLC), who shall claim to have dealt with such party in connection with this Agreement.  Landlord shall pay any commission due Douglas Elliman, LLC in connection with this Agreement pursuant to the terms of a separate agreement between Landlord and Douglas Elliman LLC.

8.As expressly modified or amended by this Agreement, all of the terms, covenants and conditions of the Lease are hereby ratified and confirmed.  All terms not otherwise defined herein shall have the meanings respectively ascribed to them in the Lease.

[SIGNATURE PAGE TO FOLLOW]

4

IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Agreement as of the date first above written.

BEEKMAN TENANTS CORPORATION
By:	/s/ MICHAEL CRAMES
	Michael Crames, President
ATLANTIC & PACIFIC GRILL ASSOCIATES, L.L.C.
By:	The Smith & Wollensky Restaurant Group, Inc.,
	its sole member
By:	/s/ EUGENE ZURIFF

f

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EXHIBIT A

Ratification and Confirmation of Guaranty

RATIFICATION AND CONFIRMATION OF GUARANTY dated as of December      , 2006 between THE SMITH & WOLLENSKY RESTAURANT GROUP, INC., a Delaware corporate having an address at 1114 First Avenue, New York, New York 10021 (“Guarantor”) and BEEKMAN TENANTS CORPORATION, a New York corporation having an office at 575 Park Avenue, New York, New York 10021 (“Landlord”), ratifying and confirming that certain Guaranty dated as of December 3, 2001 (as the same has been and may from time to time hereafter be amended, modified and confirmed, the “Guaranty”) by Guarantor in favor of Landlord (a copy of which is attached).

1.The Guarantor hereby acknowledges receipt of a copy of the Modification of Lease (the “Amendment”) dated as of even date herewith with respect to the Lease (as defined in the Guaranty).

2.The Guarantor hereby ratifies, confirms and agrees that the Guaranty remains in full force and effect notwithstanding the Amendment and is extended to guarantee the obligations of Atlantic & Pacific Grill Associates, L.L.C. pursuant to the Lease, as amended by the Amendment, with the same force and effect as though the terms contained in the Amendment had originally been included in the Lease.

IN WITNESS WHEREOF, the undersigned have executed this Confirmation of Guaranty as of the date first written above.

GUARANTOR:	THE SMITH & WOLLENSKY RESTAURANT GROUP, INC.
	By:
		Name:
		Title:

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EX-10.117

Exhibit 10.117

Contract of Sale – Cooperative Apartment

This Contract is made as of December     , 2006 between the “Seller” and the “Purchaser” identified below.

1 Certain Definitions and Information

1.1 The “Parties” are:

1.1.1. “Seller”:

 Atlantic & Pacific Grill Associates, L.L. C.,
a New York Limited Company

Prior names used by Seller:

Address:

c/o Smith & Wollensky Restaurant Group,
Inc., 880 Third Avenue

New York, New York 10022

S.S. No.:

1.1.2 “Purchaser”:

Beekman Tenants Corporation, or its Affiliate of Wholly-Owned Subsidiary

Address:

575 Park Avenue

New York, New York, 10021

S.S. No.:

1.2 The “Attorneys” are (name, address and telephone, fax):

1.2.1. “Seller’s Attorney”

Thomas Malmud, Esq.

Pryor Cashman Sherman & Flynn LLP

410 Park Avenue, NY, NY 10022

Tel: 212-421-4100/Fax: 212-326-0806

1.2.2. “Purchaser’s Attorney”

Richard Siegler, Esq.

Stroock & Stroock & Lavan LLP

180 Maiden Lane, NY, NY  10038

Tel: 212-806-5464/Fax: 212-806-1264

1.3 The “Escrowee” is the [Seller’s] Attorney

Pryor Cashman Sherman & Flynn LLP

410 Park Avenue, NY, NY 10022

Tel: 212-421-4100/Fax: 212-326-0806

1.4 The Managing Agent is (name, address and telephone, fax):

Beekman Tenants Corporation

575 Park Avenue, NY, NY  10021

Tel: 212-838-4900/Fax: 212-980-5264

1.5 The real estate “Broker(s)” (see ¶12) is/are:

NONE

Company Name:

1.6 The name of the cooperative housing corporation (“Corporation”) is:

Beekman Tenants Corporation

1.7 The “Unit” number is:  Park Avenue Café Townhouse

1.8 The Unit is located in “Premises” known as:

575 Park Avenue, New York, New York

1.9 The “Shares” are the 188 shares of the Corporation allocated to the Unit.

1.10 The “Lease” is the Corporation’s proprietary lease or occupancy agreement for the Unit, given by the Corporation which expires on 3/31/2046

1.11 “Personalty” is the following personal property, to the extent existing in the Unit on the date hereof: the refrigerators, freezers, ranges, ovens, built-in microwave ovens, dishwashers, garbage disposal units, cabinets and counters, lighting fixtures, wall-to-wall carpeting, plumbing and heating fixtures, central air-conditioning and/or window or sleeve units, washing machines, dryers, screens and storm windows, window treatments, switch plates, door hardware, built-ins not excluded in ¶ 1.12 to the extent presently existing, if at all and

1.12 Specifically excluded from this sale is all personal property not included in ¶ 1.11 and:

1.13 The sale does not include Seller’s interest in [Storage]/[Servant’s Rm]/[Parking Space] (“Included Interests”)

1.14 The “Closing” is the transfer of ownership of the Shares and Lease.

1.15 The date scheduled for Closing is 3/30/2007 or upon Purchaser’s election only, prior to such date upon five (5) days notice to Seller (“Scheduled Closing Date”) at 10A.M. (See ¶¶ 9 and 10)

1.16 The “Purchase Price” is: $850,000.00

1.16.1 The “Contract Deposit” is: $42,500.00.

1.16.2 The “Balance” of the Purchase Price due at Closing is: $807,500.00 (See ¶ 2.2.2)

1.17 The monthly “Maintenance” charge is $2,324.71 (See ¶ 4)

1.18 The “Assessment”, if any, payable to the Corporation, at the date of this Contract is $    N/A, payable as follows:

1.19 Intentionally left blank

1.20 Financing Options (Delete two of the following ¶¶ 1.20.1, 1.20.2 or 1.20.3)

1.20.1 [Intentionally Left Blank]

1.20.2 Purchaser may apply for financing in connection with this sale but Purchaser’s obligation to purchase under this Contract is not contingent upon issuance of a Loan Commitment Letter.

1.20.3 [Intentionally Left Blank]

1.21 If ¶ 1.20.1 or 1.20.2 applies, the “Financing Terms” for ¶ 18 are:

a loan of $    for a term of     years or such lesser amount or shorter term as applied for or acceptable to Purchaser; and the “Loan Commitment Date” for ¶ 18 is       calendar days after the Delivery Date.

1.22 The “Delivery Date” of this Contract is the date on which a fully executed counterpart of this Contract is deemed given to and received by Purchaser or Purchaser’s Attorney as provided in ¶ 17.3.

1.23 [Intentionally Left Blank]

1.23.1 [Intentionally Left Blank]

1.23.2 [Intentionally Left Blank]

1.24 The Contract Deposit shall be held in a non- IOLA escrow account. If the account is a non-IOLA account then interest shall be paid to the Party entitled to the Contract Deposit. The Party receiving the interest shall pay any income taxes thereon. The escrow account shall be a segregated bank account at

Depository:

Address:

(See ¶ 27)

1.25 This Contact is continued on attached rider(s).

2 Agreement to Sell and Purchase; Purchase Price; Escrow

2.1 Seller agrees to sell to Purchaser, and Purchaser agrees to purchase from Seller, the Seller’s Shares, Lease, Personalty and any Included Interests and all other items included in this sale, for the Purchase Price and upon the terms and conditions set forth in this Contract.

2.2 the Purchase Price is payable to Seller by Purchaser as follows:

2.2.1 the Contract Deposit at the time of signing this Contract, by Purchaser’s good check to the order of Escrowee; and

2.2.2 the Balance at Closing, only by cashier’s or official bank check or certified check of Purchaser payable to the direct order of Seller or at the election of Seller, upon prior Notice by Seller, by wire transfer. The check(s) shall be drawn on and payable by a branch of a commercial or savings bank, savings and loan association or trust company located in the same City or County as the Unit. Seller may direct, on reasonable Notice (defined in ¶ 17) prior to Closing, that all or a portion of the Balance shall be made payable to persons other than Seller (see ¶ 17.7).

3 Personalty

3.1 Subject to any rights of the Corporation or any holder of a mortgage to which the Lease is subordinate, this sale includes all of the Seller’s interests, if any, in the Personalty and the Included Interests.

3.2 No consideration is being paid for the Personalty or for the Included Interest; nothing shall be sold to Purchaser if the Closing does not occur.

3.3 [Intentionally Left Blank]

4 Representations and Covenants

4.1 Subject to any matter affecting title to the Premises (as to which Seller makes no representations or covenants), Seller represents and covenants that:

4.1.1 Seller is, and shall at Closing be, the sole owner of the Shares, Lease, Personalty and Included Interests, with the full right, power and authority to sell and assign them and consummate the transaction contemplated by and in accordance with the terms of this Contract. Seller shall make timely provision to satisfy

existing security interests(s) in the Shares and Lease and have the same delivered at Closing (See ¶ 10.1);

4.1.2 the Shares were duly issued, fully paid for and are non-assessable;

4.1.3 the Lease is, and will at Closing be, in full force and effect and no notice of default under the Lease is now or will at Closing be in effect;

4.1.4 the Maintenance and Assessments payable as of the date hereof are specified in ¶ 1.17 and 1.18;

4.1.5 [Intentionally Left Blank]

4.1.6 Seller has not made any material alterations or additions to the Unit without any required consent of the Corporation or, to Seller’s actual knowledge, without compliance with all applicable law. This provision shall not survive Closing.

4.1.7 Seller has not entered into, shall not enter into, and has no actual knowledge of any agreement (other than the Lease) affecting title to the Unit or its use and/or occupancy after Closing, or which would be binding on or adversely affect Purchaser after Closing (e.g. a sublease or alteration agreement);

4.1.8 Seller has been known by no other name for the past 10 years except as set forth in ¶ 1.1.1.

4.1.9 at Closing in accordance with ¶ 15.2:

4.1.9.1 there shall be no judgments outstanding against Seller which have not been bonded against collection out of the Unit (“Judgments”);

4.1.9.2 the Shares, Lease, Personalty and any Included Interests shall be free and clear of liens (other than the Corporation’s general lien on the Shares for which no monies shall be owed), encumbrances and adverse interests (“Liens”);

4.1.9.3 all sums due to the Corporation shall be fully paid by Seller to the end of the payment period immediately preceding the date of Closing;

4.1.9.4 Seller shall not be indebted for labor or material which might give rise to the filing of a notice of mechanic’s lien against the Unit or the Premises; and

4.1.9.5 no violations shall be of record which the owner of the Shares and Lease would be obligated to remedy under the Lease.

4.2 Purchaser represents and covenants that:

4.2.1 [Intentionally Left Blank]

4.2.2 Purchaser is not, and within the past 7 years has not been, the subject of a bankruptcy proceeding;

4.2.3 [Intentionally Left Blank]

4.2.4 [Intentionally Left Blank]

4.2.5 Purchaser shall not make any representations to the Corporation contrary to the foregoing and shall provide all documents in support thereof required by the Corporation in connection with Purchaser’s application for approval of this transaction; and

4.2.6 there are not now and shall not be at Closing any unpaid tax liens or monetary judgments against Purchaser.

4.3 Each Party covenants that its representations and covenants contained in ¶ 4 shall be true and complete at Closing and, except for ¶ 4.1.6, shall survive Closing but any action based thereon must be instituted within one year after Closing.

5 Corporate Documents

Purchaser has examined and is satisfied with, or (except as to any matter represented in this Contract by Seller) accepts and assumes the risk of not having examined, the Lease, the Corporation’s Certificate of Incorporation, By-laws, House Rules, minutes of shareholders’ and directors’ meetings, most recent audited financial statement and most recent statement of tax deductions available to the Corporation’s shareholders under Internal Revenue Code (“IRC”) §216 (or any successor statute).

6 Required Approval and References

6.1 [Intentionally Left Blank]

6.2 [Intentionally Left Blank]

6.2.1 [Intentionally Left Blank]

6.2.2 [Intentionally Left Blank]

6.2.3 [Intentionally Left Blank]

6.3 [Intentionally Left Blank]

6.4 [Intentionally Left Blank]

7 Condition of Unit and Personalty; Possession

7.1 Seller makes no representation as to the physical condition or state of repair of the Unit, the Personalty, the Included Interest or the premises. Purchaser has inspected or waived inspection of the Unit, the Personalty and the Included Interests and shall take the same “as is”, as of the date of this Contract, except for reasonable wear and tear. However, at the time of Closing, required smoke detector(s) shall be installed and operable.

7.2 [Intentionally Left Blank]

8 Risk of Loss

8.1 The provisions of General Obligations Law Section 5-1311, as modified herein, shall apply to this transaction as if it were a sale of realty. For purposes of this paragraph, the term “Unit” includes built-in Personalty.

8.2 Destruction shall be deemed “material” under GOL5-1311, if the reasonably estimated cost to restore the Unit shall exceed $150,000.00

8.3 In the event of any destruction of the Unit or the Premises, when neither legal title nor the possession of the Unit has been transferred to Purchaser, Seller shall give Notice of the loss to Purchaser (“Loss Notice”) by the earlier of the date of Closing or 7 business days after the date of the loss.

8.4 If there is material destruction of the Unit without fault of Purchaser, this Contract shall be deemed canceled in accordance with ¶ 16.3, unless Purchaser elects by Notice to Seller to complete the purchase with an abatement of the Purchase Price; or

8.5 [Intentionally Left Blank]

8.6 Purchaser’s Notice pursuant to ¶ 8.4 shall be given within 7 business days following the giving of the Loss Notice except that if Seller does not give a Loss Notice, Purchaser’s Notice may be given at any time at or prior to Closing.

8.7 In the event of any destruction of the Unit, Purchaser shall not be entitled to an abatement of the Purchase Price (i) that exceeds the reasonably estimated cost of repair and restoration or (ii) for any loss that the Corporation is obliged to repair or restore; but Seller shall assign to Purchaser, without recourse, Seller’s claim if any, against the Corporation with respect to such loss.

9 Closing Location

The Closing shall be held at the location designated by the Corporation or, if no such designation is made, at the office of Seller’s Attorney.

10 Closing

10.1 At Closing, Seller shall deliver or cause to be delivered:

10.1.1 Seller’s certificate for the Shares duly endorsed for transfer to Purchaser or accompanied by a separate duly executed stock power to Purchaser, and in either case, with any guarantee of Seller’s signature required by the Corporation;

10.1.2 Seller’s counterpart original of the Lease, all assignments and assumptions in the chain of title and a duly executed assignment thereof to Purchaser in the form required by the Corporation;

10.1.3 FIRPTA documents required by ¶ 25;

10.1.4 [Intentionally Left Blank]

10.1.5 if requested, an assignment to Purchaser of Seller’s interest in the Personalty and Included Interests;

10.1.6 any documents and payments to comply with ¶ 15.2

10.1.7 If Seller is unable to deliver the documents required in ¶ 10.1.1 or 10.1.2 then Seller shall deliver or cause to be delivered all documents and payments required by the Corporation for the issuance of a new certificate for the Shares or a new Lease.

10.2 At Closing, Purchaser shall:

10.2.1 pay the Balance in accordance with ¶ 2.2.2;

10.2.2 execute and deliver to Seller and the Corporation an agreement assuming the Lease, in the form required by the Corporation; and

10.2.3 if requested by the Corporation, execute and deliver counterparts of a new lease substantially the same as the Lease, for the balance of the Lease term, in which case the Lease shall be canceled and surrendered to the Corporation together with Seller’s assignment thereof to Purchaser.

10.3 At Closing, the Parties shall complete and execute all documents necessary:

10.3.1 for Internal Revenue Service (“IRS”) form 1099-S or other similar requirements;

10.3.2 to comply with smoke detector requirements and any applicable transfer tax filings; and

10.3.3 to transfer Seller’s interest, if any, in and to the Personalty and Included Interests.

10.4 Purchaser shall not be obligated to close unless, at Closing, the Corporation delivers:

10.4.1 to Purchaser a new certificate for the Shares in the name of Purchaser; and

10.4.2 a written statement by an officer or authorized agent of the Corporation setting forth the amounts of and payment status of all sums owed by Seller to the Corporation, including Maintenance and any Assessments, and the dates to which each has been paid.

11 Closing Fees, Taxes and Apportionments

11.1 At or prior to Closing,

11.1.1 Seller shall pay, if applicable:

11.1.1.1 the cost of stock transfer stamps; and

11.1.1.2 transfer taxes, except as set forth in ¶ 11.1.2.2

11.1.2 Purchaser shall pay, if applicable:

11.1.2.1 any fee imposed by the Corporation relating to Purchaser’s financing; and

11.1.2.2 transfer taxes imposed by statute primarily on Purchaser (e.g., the “mansion tax”).

11.2 The Flip Tax, if any, shall be paid by the Party specified in ¶ 1.19.

11.3 Any fee customarily imposed by the Corporation and not specified in this Contract shall be paid by the Party upon whom such fee is customarily imposed by the Corporation.

11.4 The Parties shall apportion as of 11:59 P.M. of the day preceding the Closing, the Maintenance, and any other periodic charges due the Corporation (other than Assessments) and STAR Tax Exemption (if the Unit is the beneficiary of same), based on the number of the days in the month of Closing.

11.5 Assessments, whether payable in a lump sum or installments, shall not be apportioned, but shall be paid by the Party who is the owner of the Shares on the date specified by the Corporation for payment. Purchaser shall pay any installments payable after Closing provided Seller had the right and elected to pay the Assessment in installments.

11.6 Each Party shall timely pay any transfer taxes for which it is primarily liable pursuant to law by cashier’s, official bank, certified, or attorney’s escrow check. This ¶ 11.6 shall survive Closing.

11.7 Any computational errors or omissions shall be corrected within 6 months after Closing. This ¶ 11.7 shall survive Closing.

12 Broker

12.1 Each Party represents that such Party has not dealt with any person acting as a broker, whether licensed or unlicensed, in connection with this transaction other than the Broker(s) named in ¶ 1.5.

12.2 The Broker(s) shall not be deemed to be a third-party beneficiary of this Contract.

12.3 This ¶ 12 shall survive Closing, cancellation or termination of this Contract.

13 Defaults, Remedies and Indemnities

13.1 In the event of a default or misrepresentation by Purchaser, Seller’s sole and exclusive remedies shall be to cancel this Contract, retain the Contract Deposit as liquidated damages and, if applicable, Seller may enforce the indemnity in ¶ 13.3 as to brokerage commission or sue under ¶ 13.4. Purchaser prefers to limit Purchaser’s exposure for actual damages to the amount of the Contract Deposit, which Purchaser agrees constitutes a fair and reasonable amount of compensation for Seller’s damages under the circumstances and is not a penalty. The principles of real property law shall apply to this liquidated damages provision.

13.2 In the event of a default or misrepresentation by Seller, Purchaser shall have such remedies as Purchaser is entitled to at law or in equity, including specific performance, because the Unit and possession thereof cannot be duplicated.

13.3 Subject to the provisions of ¶ 4.3, each Party indemnifies and holds harmless the other against and from any claim, judgment, loss, liability, cost or expense resulting from the indemnitor’s breach of any of its representations or covenants stated to survive Closing, cancellation or termination of this Contract. Purchaser indemnifies and holds harmless Seller against and from any claim, judgment, loss, liability, cost or expense resulting from the Lease

obligations accruing from and after the Closing. Each indemnity includes, without limitation, reasonable attorneys’ fees and disbursements, court costs and litigation expenses arising from the defense of any claim and enforcement or collection of a judgment under this indemnity, provided the indemnitee is given Notice and opportunity to defend the claim. This ¶ 13.3 shall survive Closing, cancellation or termination of this Contract.

13.4 In the event any instrument for the payment of the Contract Deposit fails of collection, Seller shall have the right to sue on the uncollected instrument. In addition, such failure of collection shall be a default under this Contract, provided Seller gives Purchaser Notice of such failure of collection and, within 3 business days after Notice is given, Escrowee does not receive from Purchaser an unendorsed good certified check, bank check or immediately available funds in the amount of the uncollected funds. Failure to cure such default shall entitle Seller to the remedies set forth in ¶ 13.1 and to retain all sums as may be collected and/or recovered.

14 Entire Agreement; Modification

14.1 All prior oral or written representations, understandings and agreements had between the Parties with respect to the subject matter of this Contract, and with the Escrowee as to ¶ 27, are merged in this Contract, which alone fully and completely expresses the Parties’ and Escrowee’s agreement.

14.2 The Attorneys may extend in writing any of the time limitations stated in this Contract. Any other provision of this Contract may be changed or waived only in writing signed by the Party or Escrowee to be charged.

15 Removal of Liens and Judgments

15.1 Purchaser shall deliver or cause to be delivered to Seller or Seller’s Attorney, not less than 10 calendar days prior to the Scheduled Closing Date a Lien and Judgment search, except that Liens or Judgments first disclosed in a continuation search shall be reported to Seller within 2 business days after receipt thereof, but not later than the Closing. Seller shall have the right to adjourn the Closing pursuant to ¶ 16 to remove any such Liens and Judgments. Failure by Purchaser to timely deliver such search or continuation search shall not constitute a waiver of Seller’s covenants in ¶ 4 as to Liens and Judgments. However, if the Closing is adjourned solely by reason of untimely delivery of the Lien and Judgment search, the apportionments under ¶ 11.3 shall be made as of 11:59 P.M. of the day preceding the Scheduled Closing Date in ¶ 1.15.

15.2 Seller, at Seller’s expense, shall obtain and deliver to the Purchaser the documents and payments necessary to secure the release, satisfaction, termination and discharge or removal of record of any Liens and Judgments. Seller may use any portion of the Purchase Price for such purposes.

15.3 This ¶ 15 shall survive Closing.

16 Seller’s Inability

16.1 If Seller shall be unable to transfer the items set forth in ¶ 2.1 in accordance with this Contract for any reason other than Seller’s failure to make a required payment or other willful act or omission, then Seller shall have the right to adjourn the Closing for periods not exceeding 60 calendar days in the aggregate, but not extending beyond the expiration of Purchaser’s Loan Commitment Letter, if ¶ 1.20.1 or 1.20.2 applies.

16.2 If Seller does not elect to adjourn the Closing or (if adjourned) on the adjourned date of Closing Seller is still unable to perform, then unless Purchaser elects to proceed with the Closing without abatement of the Purchase Price, either Party may cancel this Contract on Notice to the other Party given at any time thereafter.

16.3 In the event of such cancellation, the sole liability of Seller shall be to cause the Contract Deposit to be refunded to Purchaser and to reimburse Purchaser for the actual costs incurred for Purchase’s lien and title search, if any.

17 Notices and Contract Delivery

17.1 Any notice or demand (“Notice”) shall be in writing and delivered either by hand, overnight delivery or certified or registered mail, return receipt requested, or via facsimile transmission to the Party and simultaneously, in like manner, to such Party’s Attorney, if any, and to Escrowee at their respective addresses or to such other address as shall hereafter be designated by Notice given pursuant to this ¶ 17.

17.2 The Contract may be delivered as provided in ¶ 17.1 or by ordinary mail.

17.3 The Contract or each Notice shall be deemed given and received:

17.3.1 on the day delivered by hand;

17.3.2 on the business day following the date sent by overnight delivery;

17.3.3 on the 5th business day following the date sent by certified or registered mail; or

17.3.4 as to the Contract only, 3 business days following the date of ordinary mailing.

17.4 A Notice to Escrowee shall be deemed given only upon actual receipt by Escrowee.

17.5 The Attorneys are authorized to give and receive any Notice on behalf of their respective clients.

17.6 Failure or refusal to accept a Notice shall not invalidate the Notice.

17.7 Notice pursuant to ¶¶ 2.2.2 and 13.4 may be delivered by confirmed facsimile to the Party’s Attorney and shall be deemed given when transmission is confirmed by sender’s facsimile machine.

18 Financing Provisions

18.1 The provisions of ¶¶ 18.1 and 18.2 are applicable only if ¶ 1.20.1 or 1.20.2 applies.

18.1.1 An “Institutional Lender” is any of the following that is authorized under Federal or New York State law to issue a loan secured by the Shares and Lease and is currently extending similarly secured loan commitments in the county in which the Unit is located: a bank, savings bank, savings and loan association, trust company, credit union of which Purchaser is a member, mortgage banker, insurance company or governmental entity.

18.1.2 A “Loan Commitment Letter” is a written offer from an Institutional Lender to make a loan on the Financing Terms (see ¶ 1.21) at prevailing fixed or adjustable interest rates and on other customary terms generally being offered by Institutional Lenders making cooperative share loans. An offer to make a loan conditional upon obtaining an appraisal satisfactory to the Institutional Lender shall not become a Loan Commitment Letter unless and until such condition is met. An offer conditional upon any factor concerning Purchaser (e.g. sale of current home, payment of outstanding debt, no material adverse change in Purchaser’s financial condition, etc.) is a Loan Commitment Letter whether or not such condition is met. Purchaser accepts the risk that, and cannot cancel this Contract if, any condition concerning Purchaser is not met.

18.2 Purchaser, directly or through a mortgage broker registered pursuant to Article 12-D of the Banking Law, shall diligently and in good faith:

18.2.1 apply only to an Institutional Lender for a loan on the Financing Terms (see ¶ 1.21) on the form required by the Institutional Lender containing truthful and complete information, and submit such application together with such documents as the Institutional Lender requires, and pay the applicable fees and charges of the Institutional Lender, all of which shall be performed within 5 business days after the Delivery Date;

18.2.2 promptly submit to the Institutional Lender such further references, data and documents requested by the Institutional Lender; and

18.2.3 accept a Loan Commitment Letter meeting the Financing Terms and comply with all requirements of such Loan Commitment Letter (or any other loan commitment letter accepted by Purchaser) and of the Institutional Lender in order to close the loan; and

18.2.4 furnish Seller with a copy of the Loan Commitment Letter promptly after Purchaser’s receipt thereof.

18.2.5 Purchaser is not required to apply to more than one Institutional Lender.

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19 Singular/Plural and Joint/Several

The use of the singular shall be deemed to include the plural and vice versa, whenever the context so requires. If more than one person constitutes Seller or Purchaser, their obligations as such Party shall be joint and several.

20 No Survival

No representation and/or covenant contained herein shall survive Closing except as expressly

provided. Payment of the Balance shall constitute a discharge and release by Purchaser of all Seller’s obligations hereunder except those expressly stated to survive Closing.

21 Inspections

Purchaser and Purchaser’s representatives shall have the right to inspect the Unit within 48 hours prior to Closing, and at other reasonable times upon reasonable request to Seller.

22 Governing Law and Venue

This Contract shall be governed by the laws of the State of New York without regard to principles of conflict of laws. Any action or proceeding arising out of this Contract shall be brought in the county or Federal district where the Unit is located and the Parties hereby consent to said venue.

23 No Assignment by Purchaser; Death of Purchaser

23.1 Purchaser may not assign this Contract or any of Purchaser’s rights hereunder. Any such purported assignment shall be null and void.

23.2 This Contract shall terminate upon the death of all persons comprising Purchaser and the Contract Deposit shall be refunded to the Purchaser. Upon making such refund and reimbursement, neither Party shall have any further liability or claim against the other hereunder, except as set forth in Par. 12.

24 Cooperation of Parties

24.1 The Parties shall each cooperate with the other, the Corporation and Purchaser’s Institutional Lender and title company, if any, and obtain, execute and deliver such documents as are reasonably necessary to consummate this sale.

24.2 The Parties shall timely file all required documents in connection with all governmental filings that are required by law. Each Party represents to the other that its statements in such filings shall be true and complete. This ¶ 24.2 shall survive Closing.

25 FIRPTA

The Parties shall comply with IRC §§ 897, 1445 and the regulations thereunder as same may be amended (“FIRPTA”). If applicable, Seller shall execute and deliver to purchaser at Closing a Certification of Non-Foreign Status (“CNS”) or deliver a Withholding Certificate from the IRS. If Seller fails to deliver a CNS or a Withholding Certificate, Purchaser shall withhold from the Balance, and remit to the IRS, such sum as may be required by law. Seller hereby waives any right of action against Purchaser on account of such withholding and remittance. This ¶ 25 shall survive Closing.

26 Additional Requirements

26.1 [Intentionally Left Blank]

26.1.1 [Intentionally Left Blank]

26.1.2 [Intentionally Left Blank]

26.1.3 [Intentionally Left Blank]

26.2 [Intentionally Left Blank]

27 Escrow Terms

27.1 The Contract Deposit shall be deposited by Escrowee in an escrow account as set forth in ¶ 1.24 and the proceeds held and disbursed in accordance with the terms of this Contract. At Closing, the Contract Deposit shall be paid by Escrowee to Seller. If the Closing does not occur and either Party gives Notice to Escrowee demanding payment of the Contract Deposit, Escrowee shall give prompt Notice to the other Party of such demand. If Escrowee does not receive a Notice of objection to the proposed payment from such other Party within 10 business days after the giving of Escrowee’s Notice, Escrowee is hereby authorized and directed to make such payment to the demanding party. If Escrowee does receive such a Notice of objection within said period, or if for any reason Escrowee in good faith elects not to make such payment, Escrowee may continue to hold the Contract Deposit until otherwise directed by a joint Notice by the Parties or a final, non-appealable judgment, order or decree of a court of competent jurisdiction. However, Escrowee shall have the right at any time to deposit the Contract Deposit and the interest thereon, if any, with the clerk of a court in the county as set forth in ¶ 22 and shall give Notice of such deposit to each Party. Upon disposition of the Contract Deposit and interest thereon, if any, in accordance with this ¶27, Escrowee shall be released and discharged of all escrow obligations and liabilities.

27.2 The Party whose Attorney is Escrowee shall be liable for loss of the Contract Deposit. If the Escrowee is Seller’s attorney, then Purchaser shall be credited with the amount of the contract Deposit at Closing.

27.3 Escrowee will serve without compensation. Escrowee is acting solely as a stakeholder at the Parties’ request and for their convenience. Escrowee shall not be liable to either Party for any act or omission unless it involves bad faith,

willful disregard of this Contract or gross negligence. In the event of any dispute, Seller and Purchaser shall jointly and severally (with right of contribution) defend (by attorneys selected by Escrowee), indemnify and hold harmless Escrowee from and against any claim, judgment, loss, liability, cost and expenses incurred in connection with the performance of Escrowee’s acts or omissions not involving bad faith, willful disregard of this Contract or gross negligence. This indemnity includes, without limitation, reasonable attorneys’ fees either paid to retain attorneys or representing the fair value of legal services rendered by Escrowee to itself and disbursements, court costs and litigation expenses.

27.4 Escrowee acknowledges receipt of the Contract Deposit, by check subject to collection.

27.5 Escrowee agrees to the provisions of this ¶ 27.

27.6 If Escrowee is the Attorney for a Party, Escrowee shall be permitted to represent such Party in any dispute or lawsuit.

27.7 This ¶ 27 shall survive Closing, cancellation or termination of this Contract.

28 Margin Headings

The margin headings do not constitute part of the text of this Contract.

29 Miscellaneous

This contract shall not be binding unless and until Seller delivers a fully executed counterpart of this Contract o Purchaser (or Purchaser’s Attorney) pursuant to ¶ 17.2 and 17.3. This Contract shall bind and inure to the benefit of the Parties hereto and their respective heirs, personal and legal representatives and successors in interest.

30 Lead Paint

If applicable, the complete and fully executed Disclosure of Information on Lead Based Paint and or Lead-Based Paint Hazards is attached hereto and made a part hereof.

THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK.

31.The acceptance of the shares and the assumption of the Lease by Purchaser shall be deemed to be full performance and discharge of every agreement and obligation to be performed by Seller pursuant to the terms of this Contract, except those expressly stated to survive the Closing.

32.[Intentionally Left Blank]

33.To the best of Seller’s knowledge, there are no claims, actions, suits or legal proceedings of any kind pending, or threatened, which affect Seller’s ownership of the Unit or which may cause a lien of any kind to be imposed against the Seller, except as set forth in Para. 4.1.7 as modified by Para.. 39 hereof.

34.Seller represents and warrants that the Seller has no knowledge of any agreements of any nature whatsoever between the Seller and any other party, which would be binding upon the Purchaser after the Purchaser becomes the owner of the Shares and the Lease, other than as set forth in the Proprietary Lease and the Corporation’s By-laws. This representation and warranty shall survive the Closing.

35.This Contract may be executed by facsimile and/or in one or more counterparts, each of which when so executed and delivered shall be deemed an original, but all of which taken together shall constitute but one and the same original.

36.Superceding Paragraph 7.2, Seller and Purchaser acknowledge and agree that the parties intend to enter into a separate leasing arrangement which would permit Seller to continue to occupy the Unit after the closing pursuant to the provisions of such lease. However, the parties agree that other than Seller’s right to continue to occupy the Unit pursuant to such leasing arrangement, the Unit shall be delivered, at Closing, free of any other occupants and rights of possession.

IN WITNESS WHEREOF, the Parties hereto have duly executed this Contract as of the date first above written.

	Atlantic & Pacific Grill Associates, L.L.C., Seller
By:	/s/ EUGENE ZURIFF
	Beekman Tenants Corporation, Purchaser
By:	/s/ MICHAEL CRAMES
	Michael Crames, President

Second Rider to Contract of Sale between

Atlantic & Pacific Grill Associates, L.L.C., as Seller,

and Beekman Tenants Corporation, as Purchaser for the Park Avenue Café Townhouse Unit

at Premises Known as 575 Park Avenue, New York, New York

Dated             , 2006

37.In the event of any conflict between this Second Rider and the provisions of the printed form of the Contract or the rider to which this Second Rider is annexed, the provisions of this Second Rider will control. Any reference to “the Contract” or “this Contract” in the printed form of contract or the rider annexed to the printed form of Contract will be deemed to include the provisions set forth in the printed form of Contract, the rider and this Second Rider.

38.Seller makes no representation that the Maintenance amount set forth in Par. 1.17 of this Contract or the Assessment amount, if any, or the nonexistence thereof, as set forth in Para. 1.18 of this Contract, shall be the same amounts attributable to the Unit at Closing.

39.Para 4.1.7 is hereby modified to add to the end thereof the following language:

except that certain Modification of lease between Purchaser herein as Landlord and Seller herein as Tenant (the “Modification of Lease”) (i) extending the term of that certain lease, dated November 1, 1992, between the parties for certain space on the ground floor and basement space of the Building as more particularly described therein (said lease as heretofore modified and extended, the “Space Lease”) and (ii) the leaseback of the Unit to Seller by Purchaser upon the terms and conditions more particularly described in the Townhouse Lease Amendment (as such term is defined in the Modification of Lease).

40.Par. 4.2 is hereby supplemented by adding to it subpara. 4.2.7 as follows:

Purchaser has the full right, power and authority to purchase the Shares and the Lease and consummate the transaction contemplated by and in accordance with, the terms of this Contract (the “Transaction”).

41.Seller shall deliver to Purchaser at the Closing keys to the Unit.

42.Para. 11.2 is hereby deleted in its entirety and replaced by the following language:

The parties acknowledge and agree that Seller shall not be obligated to pay any flip tax or transfer fee (the “Flip Tax”) which may be imposed by the Corporation upon this Transaction.

43.Supplementing Par. 15, Seller shall not be required to spend more than $150,000 to remove any Liens or Judgments and if such Lien or Judgment exists and Seller elects not to remove same, Seller shall be deemed unable to transfer the Shares and Lease in accordance with this Contract, and the provisions of Para. 16 shall apply. Notwithstanding the foregoing, Seller shall be required to remove any Lien created by a pledge of the Shares and the Lease.

44.Para. 17.3 is hereby supplemented by adding to it a subpara. 17.3.5 as follows:

17.3.5 on the next business day following the date sent via facsimile transmission.

45.The parties acknowledge and agree that it shall be a condition precedent to the obligations of Seller and Purchaser to close hereunder that at or prior to the Closing the parties deliver to each other (i) a fully executed and binding original of the Modification of Lease; and (ii), a fully executed and binding original of the Townhouse Lease Amendment.

46.Notwithstanding anything to the contrary contained in this Contract and except as otherwise provided in the Lease (as such term is defined in the Townhouse Lease Amendment), Seller is not obligated to install or remove any equipment or appliances in the Unit or make any repairs, improvements or decorations to the Unit or its equipment, appliances, utility systems, and fixtures, except as otherwise specifically stated herein. Purchaser acknowledges that the floors, doors, walls, utility systems, ceilings and other surfaces of the Unit are being sold in their “as is” condition and Purchaser agrees that Seller shall not be required to repaint or refinish any surfaces in the Unit.

47.The failure of either party to insist upon the performance of any obligation to be performed by the other party shall not be deemed to be a waiver thereof or of any preceding or succeeding breach thereof or of any other obligation. No provision of this Contract may be waived except by a writing signed by the party waiving any provision hereof. The waiver of any breach of this Contract shall not be deemed a waiver of any preceding or subsequent breach of the same obligation, or of any other obligation to be performed hereunder. No extensions of time for the performance of any obligations or acts shall be deemed or construed as an extension of the time for the performance of any other obligations or acts.

48.Notwithstanding the provisions of Para. 27, nothing therein shall affect the liability of a defaulting party to the other party for reimbursement for any amount paid to Escrowee pursuant to such Paragraph.

49.Each party represents that such Party has not dealt with any person acting as a broker, whether licensed or unlicensed, in connection with the transaction contemplated by the Modification of Lease other than Douglas Elliman, LLC (the “Leasing Broker”) and agrees to indemnify and hold the other party harmless from and against any claim incurred by such party by reason of any claim alleged to be due or payable to any broker (other than Leasing Broker) in connection with this Contract. Only to the extent Douglas Elliman LLC has earned any commission in connection with the Transaction and/or through the transactions contemplated by the Modification of Lease or the Townhouse Lease Amendment, Purchaser shall pay any such commission as may be due to Douglas Elliman LLC.

50.Seller and Purchaser acknowledge to each other that the fulfillment of the condition precedent in Para. 45 is a material inducement for the parties to enter into this Contract and to close this Transaction. The failure of a party to meet the said condition precedent will be a material breach on the part of such party under this Contract.

IN WITNESS WHEREOF, the parties have executed this Second Rider on the date first above written.

	Atlantic & Pacific Grill Associates, L.L.C., Seller
By:	The Smith & Wollensky Restaurant Group, Inc.,
	its sole member
By:	/s/ EUGENE ZURIFF
	Beekman Tenants Corporation, Purchaser
By:	/s/ MICHAEL CRAMES
	Michael Crames, President

EX-10.119

Exhibit 10.119

Compensation Arrangements with Named Executive Officers other than Mr. Stillman

In the first week of January 2007, the following bonuses were paid to the Company’s named executive officers for their services rendered to the Company during 2006:

Executive Officer	Title	Bonus Amount
Eugene I. Zuriff	President and a Director	$	60,000
Samuel Goldfinger	Financial Officer, Executive Vice President of Finance, Treasurer and Sec	$	50,000

In addition, Mr. Goldfinger’s salary was increased from $170,000 to $190,000 commencing on January 2, 2007.  Mr. Zuriff’s salary remained at $165,000.

EX-10.120

Exhibit 10.120

CONTRACT OF SALE

This Contract of Sale (the “Contract”) is entered into by and between (i) DALLAS S & W, L.P., a Texas limited partnership (“Seller”) and  RELENTLESS PROPERTIES, LLC (“Purchaser”).

W I T N E S S E T H :

FOR AND IN CONSIDERATION of the promises, undertakings, and mutual covenants of the parties herein set forth, Seller hereby agrees to sell and Purchaser hereby agrees to purchase and pay for all that certain property hereinafter described in accordance with the following terms and conditions:

ARTICLE I

PROPERTY

The conveyance by Seller to Purchaser shall include the following:

(a)that certain tract or parcel of land situated in Dallas, Texas, containing approximately 2.557 acres, said tract being more particularly described on Exhibit A attached hereto and made a part hereof, together with all and singular the rights and appurtenances pertaining to such property, including any right, title and interest of Seller in and to adjacent strips or gores, streets, alleys or rights-of-way and all rights of ingress and egress thereto (the property described in this clause is herein referred to collectively as the “Land”);

(b)the buildings and other improvements on the Land, including specifically, without limitation, a restaurant building consisting of approximately 12,141 square feet, and being currently operated as a “Smith & Wollensky” restaurant, including all heating, ventilation and air conditioning systems and equipment, carpeting, draperies and curtains (the property described in this clause is herein referred to collectively as the “Improvements”);

(c)Except for the Excluded Assets, all equipment, furniture, fixtures, and appliances located within the Improvements (the “FF&E”).  Notwithstanding the foregoing sentence, Seller does not sell or assign the property described on Exhibit “B” attached hereto the (“Excluded Assets”); and

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(d)all of Seller’s right, title and interest in and to all assignable warranties and guaranties (express or implied) issued to Seller in connection with the Improvements or the FF&E (the property described in this clause is sometimes herein referred to collectively as the “Warranties”).

The Land, the Improvements, the FF&E, and the Warranties are hereinafter sometimes referred to collectively as the “Subject Property.”

ARTICLE II

PURCHASE PRICE

The purchase price to be paid by Purchaser to Seller for the Subject Property shall be the sum of Four Million and No/100 Dollars ($4,000,000.00), which shall be paid in immediately available funds at the closing.

ARTICLE III

EARNEST MONEY

Within five business days after the full execution of this Contract, Purchaser shall deposit the sum of Fifty Thousand and No/100 Dollars ($50,000.00) (the “Earnest Money”) with Republic Title of Texas, Inc., 2626 Howell Street, 10th Floor, Dallas, Texas 75204 (Attention: Jeanne Ragland) (the “Title Company”). The Title Company shall deposit the Earnest Money in an interest bearing account, the earnings from which shall form a part of the Earnest Money.

In the event that this Contract is closed, then all Earnest Money shall be applied in partial satisfaction of the purchase price.  In the event that this Contract is not closed, then the Earnest Money shall be disbursed in the manner provided for elsewhere herein.  Notwithstanding the foregoing or anything to the contrary contained elsewhere in this Contract, it is understood and agreed that One Hundred Dollars ($100.00) of the Earnest Money shall in all events be delivered to Seller as valuable consideration for the Inspection Period described in Article VI hereinbelow and the execution of this Contract by Seller.

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ARTICLE IV

PRE-CLOSING OBLIGATIONS OF SELLER

Within three business days after effective date of the Contract, Seller shall furnish to Purchaser, at Seller’s sole cost and expense, each of the following (collectively, the “Due Diligence Items”):

a.The most current as-built survey of the Subject Property in Seller’s possession;

b.All site plans, drawings, and plans and specifications pertaining to the Land or Improvements in Seller’s possession;

c.A list of all service contracts, warranties, management, maintenance, or other agreements affecting the Subject Property, if any, together with copies of same.  Seller agrees not to enter into any additional contracts, warranties, or agreements prior to closing which would be binding on Purchaser and which cannot be cancelled by Purchaser upon thirty (30) days written notice without cost, penalty, or obligation unless such service contracts or other agreements are approved in writing by Purchaser, which approval shall not be unreasonably withheld or delayed;

d.Copies of all licenses, permits, applications, authorizations, certificates of occupancy, governmental approvals and other entitlements relating to the Subject Property and the operation thereof, if any;

e.All roof, environmental, hydrological, engineering, percolation, mechanical, electrical, structural, soils and similar reports and/or audits relating to the Subject Property in the possession of Seller; and

f.A schedule of FF&E.

Notwithstanding anything to the contrary contained herein, Purchaser hereby agrees that, in the event Purchaser terminates this Contract for any reason, then Purchaser shall return to Seller all Due Diligence Items which have been delivered by Seller to Purchaser in connection with Purchaser’s inspection of the Subject Property.  This provision shall survive the termination of this Contract.  Seller makes no representation or warranty as to the accuracy of the matters set forth in the Due

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Diligence Documents, except that such documents which are provided to Purchaser will be faithful reproductions of such documents in the possession of Seller.

ARTICLE V

TITLE INSPECTION PERIOD

No later than 10 days after the date hereof, Seller shall provide to Purchaser a current commitment (the “Title Commitment”) for the issuance of an owner’s policy of title insurance to the Purchaser from the Title Company in the amount of the purchase price, together with good and legible copies of all documents constituting exceptions to Seller’s title as reflected in the Title Commitment.  Seller shall also provide to Purchaser any updates to the Title Commitment subsequently issued by the Title Company.    The Title Commitment shall be sufficient to provide to Seller, upon closing, a standard Texas owner’s form of title insurance policy (the “Title Policy”) issued by the Title Company and insuring Purchaser in the amount of the Purchase Price that Purchaser has acquired good and indefeasible title to the Subject Property, subject only to the Permitted Exceptions.  The standard Texas Title Policy shall be at the sole cost and expense of the Seller.  Purchaser shall also be entitled to request the Title Company to provide, at Purchaser’s sole cost and expense, such other extended coverage and endorsements (or amendments) to the Title Policy (including the modification of the standard survey exception so that it is limited to “shortages in area”) as Purchaser may reasonable require, so long as such endorsements or amendments are at no cost to Seller nor impose additional liability on Seller or delay the Closing (the endorsements herein are not a condition precedent to Closing).  Purchaser acknowledges and agrees that the Title Policy may be actually delivered at a reasonable time following the closing so long as Purchaser has received at closing a current and binding Title Commitment obligating the Title Company to deliver the Title Policy.

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No later than twenty days after the date hereof, Purchaser, at its sole cost and expense, shall obtain an updated as-built survey (the “Survey”) prepared by a licensed professional engineer or surveyor acceptable to Purchaser, which Survey shall:  (a) include a metes and bounds legal description of the Land; (b) accurately show all improvements, encroachments and uses and accurately show all easements and encumbrances visible or listed on the Title Commitment (identifying each by recording reference if applicable); (c) recite the number of square feet included within the Land and the dimensions of the surface perimeter of all Improvements; (d) state whether the Land (or any portion thereof) lies within a flood zone or flood prone area; (e) state the number of parking spaces situated on the Land; (f) contain a certificate verifying that the survey was made on the ground, that the survey is correct, that there are no improvements, encroachments, easements, uses or encumbrances except as shown on the survey plat, that the area represented for the Land and the Improvements has been certified by the surveyor as being correct and that the Land does not lie within any flood zone or flood prone area, except as indicated thereon,  and that the Land has access to public streets as indicated thereon; and (g) otherwise be in form satisfactory to Purchaser.

Purchaser shall have a period of time expiring five days after it receives the later of (i) the Survey, or (ii) the items described in the first sentence of this Article  V above (the “Title Review Period”) to review said items; provided, however, that such period shall expire no later than 25 days after the effective date of this Contract.   If the information provided therein or any subsequent update to the Title Commitment issued by the Title Company, reflects or discloses any defect, exception or other matter affecting the Subject Property (“Title Defects”) that is unacceptable to Purchaser, then prior to the expiration of the Title Review Period Purchaser shall provide Seller with written notice of Purchaser’s objections.  Seller may, at its sole option, elect to cure or remove the objections raised by Purchaser; provided, however, that Seller shall have no obligation to do so.

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Should Seller elect to attempt to cure or remove the objections, Seller shall have five days from the date of Purchaser’s written notice of objections (the “Cure Period”) in which to notify Purchaser that Seller intends to cure or not cure the Title Defects.  In the event Seller either (i) elects not to cure or remove the Title Defects or fails to respond to Purchaser’s notice of Title Defects within the Cure Period, or (ii) having elected to attempt to cure said Title Defects, is unable to accomplish the cure prior to the closing, then Purchaser shall be entitled, as Purchaser’s sole and exclusive remedies, either to (a) terminate this Contract by providing written notice of termination to Seller within five (5) days from the date on which Purchaser receives Seller’s no-cure notice, in which case all Earnest Money (less $100.00) shall be immediately returned to Purchaser by the Title Company, Purchaser shall return to Seller all of the Due Diligence Items provided by Seller, and thereafter neither Seller nor Purchaser shall have any continuing obligations one unto the other, or (b) waive the objections and close this transaction as otherwise contemplated herein.  If Purchaser shall fail to notify Seller in writing of any objections to the state of Seller’s title to the Subject Property as shown by the Survey and Title Commitment, then Purchaser shall be deemed to have no objections to the state of Seller’s title to the Subject Property as shown by the Survey and Title Commitment, and any exceptions to Seller’s title which have not been objected to by Purchaser and which are shown on the Survey or described in the Title Commitment shall be considered to be “Permitted Exceptions.”  If Seller fails to respond to Purchaser’s notice of Title Defects within the Cure Period, Seller shall be deemed to have elected not to attempt to cure said Title Defects.  It is understood and agreed that any Title Defects which have been objected to by Purchaser and which are subsequently waived by Purchaser shall be Permitted Exceptions.

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ARTICLE VI

INSPECTION PERIOD

Purchaser, at Purchaser’s sole expense, shall have the right to conduct a feasibility, environmental, engineering and physical study of the Subject Property for a period of time commencing on the date hereof and expiring  35 days after the effective date of this Contract (such period is referred to herein as the “Inspection Period”).  Upon 24 hours advance notice to Seller, Purchaser and Purchaser’s duly authorized agents or representatives shall be permitted to enter upon the Subject Property during the Inspection Period in order to conduct engineering studies, soil tests and any other inspections and/or tests that Purchaser may deem necessary or advisable; provided, however, that no drilling or other ground penetrations or physical sampling in any building shall be done without Seller’s prior written consent.  Purchaser further agrees to indemnify and hold Seller harmless from any claims or damages, including reasonable attorneys’ fees, resulting from Purchaser’s inspection of the Subject Property, which indemnity shall survive the cancellation or termination of this Contract.  In the event that the review and/or inspection conducted by this paragraph shows any fact, matter or condition to exist with respect to the Subject Property that is unacceptable to Purchaser, in Purchaser’s sole discretion, or if for any reason Purchaser determines that purchase of the Subject Property is not feasible, then Purchaser shall be entitled, as Purchaser’s sole remedy, to cancel this Contract by providing written notice of cancellation to Seller prior to the expiration of the Inspection Period, in which case this Contract shall be cancelled and all Earnest Money (less $100.00) shall be immediately returned to Purchaser by the Title Company, Purchaser shall return to Seller all of the Due Diligence Items provided by Seller, and thereafter neither Seller nor Purchaser shall have any continuing obligations one unto the other.  If Purchaser fails to terminate this Contract on or prior to the expiration of the Inspection Period, Purchaser’s right to

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terminate the Contract under this Article VI shall be deemed to have been waived and this Contract shall remain in full force and effect and the Earnest Money shall thereafter be non-refundable (but applicable to the purchase price), except for (i) a default by Seller, or (ii) Seller’s failure to cure Title Defects in the event Seller has agreed to attempt to cure said Title Defects as set forth in Article V hereof.

ARTICLE VII

REPRESENTATIONS, WARRANTIES, AND COVENANTS

Seller represents and warrants to Purchaser that on or before the date of Closing hereunder, Seller will either pay in full or otherwise retire any indebtedness owing to lenders or contractors payment of which is secured by a lien against the Subject Property so that at closing Seller will be able to convey the Subject Property to Purchaser free and clear of any such liens.

Seller covenants and agrees with Purchaser that, from the date hereof until the closing, Seller shall not, without the written consent of Purchaser, sell, assign, lease, or convey any right, title, or interest whatsoever in or to the Subject Property, or create any monetary lien, security interest, easement, encumbrance, or charge affecting the Subject Property without promptly discharging the same prior to closing.

Except as otherwise disclosed in writing to Purchaser, Seller hereby further represents and warrants to Purchaser as follows:

a.From the date of execution of this Contract through the date of closing, Seller shall continue to maintain the Subject Property in its present condition, subject to ordinary wear, and Seller shall not remove any fixtures, equipment, furnishings or other personal property from the Subject Property except for those items which shall remain the property of Seller as set forth in the attached Exhibit “B”, nor shall Seller unreasonably neglect the Subject Property;

b.Seller currently has in place the public liability, casualty and other insurance coverage with respect to the Subject Property. Each of such policies is in full force and effect, and all premiums due and payable thereunder have been, and at closing will be, fully

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paid when due.  No notice of cancellation has been received or threatened with respect thereto.  No insurance company insuring the Improvements has delivered to Seller oral or written notice (i) that any insurance policy now in effect would not be renewed or (ii) that Seller has failed to comply with insurance requirements or (iii) that defects or inadequacies exist in the Subject Property, or in any part thereof, which could adversely affect the insurability thereof or the cost of such insurance.  At all times from the date hereof through the date of closing, Seller shall cause to be maintained in force fire and extended coverage insurance upon the Subject Property, and public liability insurance with respect to damage or injury to person or property occurring on the Subject Property in at least such amounts as are maintained by Seller on the date hereof;

c.That, at closing, there will be no unpaid bills, claims, or liens in connection with any construction or repair of the Subject Property;

d.The Subject Property is not subject to any outstanding agreements of sale or any options, liens, or other rights of third parties to acquire any interest therein, except as described in this Contract;

e.Except as disclosed in Title Commitment, the Subject Property is free and clear of all mechanic’s liens, liens, mortgages or similar financial encumbrances of any nature;

f.To the best of Seller’s knowledge, there is no action, suit, proceeding or claim presently pending in any court or before any federal, state, county or municipal department, commission, board, bureau or agency or other governmental instrumentality or before any arbitration tribunal or panel, (i) affecting the Subject Property, or any portion thereof, or Seller’s use, operation or ownership of the Subject Property, or (ii) affecting Seller’s ability to perform its obligations under this Contract, nor, to the best knowledge and belief of Seller, is any such action, suit, proceeding or claim threatened;

g.There are no attachments, executions, assignments for the benefit of creditors, or voluntary or involuntary bankruptcy proceedings, or proceedings under any debtor relief laws, pending, or to the best of Seller’s actual knowledge, threatened against Seller or the Subject Property;

h.No condemnation, eminent domain or similar proceedings have been instituted or, to the best of Seller’s actual knowledge, threatened against the Subject Property;

i.To the best of Seller’s knowledge, except for the list of service contracts, warranties, management, maintenance or other agreements to be delivered to Purchaser pursuant to Article IV hereinabove, there are no contracts of construction, employment, management, service or supply which would affect the Subject Property or operation of the Subject Property after closing;

j.To the best of Seller’s knowledge, Seller has not released any hazardous substance upon the Subject Property in violation of any Environmental Law, and neither

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Seller nor the Subject Property is subject to any pending or threatened litigation or inquiry by any governmental authority or to any remedial action or obligations under any Environmental Law.  As used herein, the term “Environmental Law” will mean any law, statute, ordinance, rule, regulation, order or determination of any governmental authority or agency affecting the Subject Property and pertaining to health or the environment including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act of 1982 and the Resource Conservation and Recovery Act of 1986.  Prior to Closing, Seller agrees to promptly notify Purchaser of any fact of which Seller has knowledge which would cause this representation to become false and of any written notice that Seller receives regarding the matters set forth in this Section; and

k.Seller is not a “foreign person” or “foreign trust” within the meaning of the United States Foreign Investment and Real Property Tax Act of 1980 and the Internal Revenue Code of 1986, as subsequently amended.

All of the foregoing representations and warranties of Seller are made both as of the date hereof and as of the date of the closing hereunder, but shall not survive the closing hereunder.

EXCEPT FOR SELLER’S REPRESENTATIONS AND WARRANTIES SET FORTH HEREIN AND THE WARRANTY OF TITLE SET FORTH IN THE SPECIAL WARRANTY DEED TO BE DELIVERED AT CLOSING, IT IS UNDERSTOOD AND AGREED THAT SELLER IS NOT MAKING AND SPECIFICALLY DISCLAIMS ANY WARRANTIES OR REPRESENTATIONS OF ANY KIND OR CHARACTER, EXPRESS OR IMPLIED, WITH RESPECT TO THE SUBJECT PROPERTY, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OR REPRESENTATIONS AS TO MATTERS OF TITLE, ZONING, TAX CONSEQUENCES, PHYSICAL OR ENVIRONMENTAL CONDITIONS, AVAILABILITY OF ACCESS, INGRESS OR EGRESS, PROFITABILITY, OPERATING HISTORY OR PROJECTIONS WITH RESPECT TO THE SUBJECT PROPERTY, VALUATION, GOVERNMENTAL APPROVALS, GOVERNMENTAL REGULATIONS OR ANY OTHER MATTER OR THING RELATING TO OR AFFECTING THE SUBJECT PROPERTY, INCLUDING, WITHOUT LIMITATION, (i) THE VALUE, CONDITION,

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MERCHANTABILITY, MARKETABILITY, PROFITABILITY, SUITABILITY, HABITABILITY, OR FITNESS FOR A PARTICULAR USE OR PURPOSE OF THE SUBJECT PROPERTY, OR (ii) THE MANNER OR QUALITY OF THE SUBJECT PROPERTY.  EXCEPT FOR ANY REPRESENTATION AND WARRANTY OF SELLER EXPRESSLY SET FORTH IN THIS CONTRACT OR THE SPECIAL WARRANTY DEED, PURCHASER HAS NOT RELIED UPON AND WILL NOT RELY UPON, EITHER DIRECTLY OR INDIRECTLY, ANY REPRESENTATION OR WARRANTY OF SELLER OR ANY AGENT OF SELLER.  PURCHASER REPRESENTS THAT PURCHASER IS A KNOWLEDGEABLE PURCHASER OF REAL ESTATE AND THAT PURCHASER IS RELYING SOLELY ON PURCHASER’S OWN EXPERTISE AND THAT OF PURCHASER’S CONSULTANTS IN PURCHASING THE SUBJECT PROPERTY.  PURCHASER WILL CONDUCT SUCH INSPECTIONS AND INVESTIGATIONS OF THE SUBJECT PROPERTY AS PURCHASER DEEMS NECESSARY, INCLUDING, BUT NOT LIMITED TO, THE PHYSICAL AND ENVIRONMENTAL CONDITIONS THEREOF, AND SHALL RELY UPON SAME.  UPON CLOSING, PURCHASER SHALL BE DEEMED TO HAVE RELEASED SELLER FROM AND TO HAVE ASSUMED THE RISK THAT ADVERSE MATTERS, INCLUDING, BUT NOT LIMITED TO, ADVERSE PHYSICAL AND ENVIRONMENTAL CONDITIONS, MAY NOT HAVE BEEN REVEALED BY PURCHASER’S INSPECTIONS AND INVESTIGATIONS. SUBJECT TO THE REPRESENTATIONS AND WARRANTIES CONTAINED HEREIN, PURCHASER ACKNOWLEDGES AND AGREES THAT UPON CLOSING, SELLER SHALL SELL AND CONVEY TO PURCHASER AND PURCHASER SHALL ACCEPT THE SUBJECT PROPERTY “AS IS, WHERE IS,” WITH ALL FAULTS.  PURCHASER FURTHER

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ACKNOWLEDGES AND AGREES THAT THERE ARE NO ORAL AGREEMENTS, WARRANTIES OR REPRESENTATIONS, COLLATERAL TO OR AFFECTING THE SUBJECT PROPERTY BY SELLER, ANY AGENT OF SELLER OR ANY THIRD PARTY.  THE TERMS AND CONDITIONS OF THIS PARAGRAPH SHALL EXPRESSLY SURVIVE THE CLOSING AND SHALL NOT MERGE WITH THE PROVISIONS OF ANY CLOSING DOCUMENTS.  SELLER IS NOT LIABLE OR BOUND IN ANY MANNER BY ANY ORAL OR WRITTEN STATEMENTS, REPRESENTATIONS, OR INFORMATION PERTAINING TO THE SUBJECT PROPERTY FURNISHED BY ANY REAL ESTATE BROKER, AGENT, EMPLOYEE, SERVANT OR OTHER PERSON, UNLESS THE SAME ARE SPECIFICALLY SET FORTH OR REFERRED TO HEREIN.  PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT THE PROVISIONS OF THIS PARAGRAPH WERE A MATERIAL FACTOR IN THE DETERMINATION OF THE PURCHASE PRICE FOR THE SUBJECT PROPERTY.

ARTICLE VIII

CLOSING

The closing hereunder shall take place at the offices of the Title Company.  The closing shall occur on the last day of the Inspection Period.

ARTICLE IX

SELLER’S OBLIGATIONS AT CLOSING

At the closing, Seller shall do the following:

a.Deliver to Purchaser a special warranty deed covering the Subject Property, duly signed and acknowledged by Seller, which deed shall be in form reasonably acceptable to Purchaser for recording and shall convey to Purchaser good and insurable fee simple title to the Land and the Improvements free and clear of all liens, rights-of-way, easements and other matters affecting title to the Subject Property, except for the Permitted Exceptions.

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b.Deliver to Purchaser a bill of sale, duly executed and acknowledged by  Seller, conveying and/or assigning to Purchaser the FF&E and the Warranties.

c.Deliver such evidence or other documents that may be reasonably required by the Title Company evidencing the status and capacity of Seller and the authority of the person or persons who are executing the various documents on behalf of Seller in connection with the sale of the Subject Property.

d.Deliver a non-withholding statement that will satisfy the requirements of Section 1445 of the Internal Revenue Code so that Purchaser is not required to withhold any portion of the purchase price for payment to the Internal Revenue Service.

e.Deliver to Purchaser all keys to all buildings and other improvements located on the Subject Property, combinations to any safes thereon, and security devices therein in Seller’s possession.

f.Deliver to Purchaser any other documents or items necessary or convenient in the reasonable judgment of Purchaser to carry out the intent of the parties under this Contract.

ARTICLE X

PURCHASER’S OBLIGATIONS AT CLOSING

At the closing, Purchaser shall:

a.Deliver to Seller, in immediately available funds, the purchase price.

b.Deliver such evidence or other documents that may be reasonably required by the Title Company evidencing the status and capacity of Purchaser and the authority of the person or persons who are executing the various documents on behalf of Purchaser in connection with the purchase of the Subject Property.

c.Deliver to Purchaser any other documents or items necessary or convenient in the reasonable judgment of Seller to carry out the intent of the parties under this Contract.

ARTICLE XI

COSTS AND ADJUSTMENTS

At closing, the following items shall be adjusted or prorated between Seller and Purchaser:

a.Seller shall pay and Purchaser shall receive a credit of up to $3,000 for any costs incurred by Purchaser with respect to the Survey;

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b.Real estate and personal property ad valorem taxes for the Subject Property for the current calendar year shall be prorated, and Seller shall pay to Purchaser, as a credit against the purchase price, Seller’s pro rata portion of such taxes.  Seller’s pro rata portion of such taxes shall be based upon taxes actually assessed for the current calendar year or, if for any reason such taxes for the Subject Property have not been actually assessed, such pro ration shall be based upon the amount of such taxes for the immediately preceding calendar year, which proration shall be final and binding upon the parties and shall not be further adjusted;

c.Seller shall pay for Purchaser’s owners title policy as set forth in Article V;

d.Recording fees and escrow fees shall be divided equally by Seller and Purchaser; and

e.Seller and Purchaser shall each be responsible for the fees and expenses of their respective attorneys.

ARTICLE XII

DAMAGE OR DESTRUCTION PRIOR TO CLOSING

In the event that the Subject Property should be damaged by any casualty prior to closing, then if the cost of repairing such damage, as estimated by an architect or contractor retained pursuant to the mutual agreement of Seller and Purchaser, is:

a.Less than Two Hundred Thousand Dollars ($200,000.00), then at Purchaser’s option, either (i) Seller shall repair such damage as promptly as is reasonably possible, restoring the damaged property at least to its condition immediately prior to such damage; and, in the event such repairs have not been completed prior to closing, then the closing shall nevertheless proceed as scheduled, and Purchaser may have the Title Company withhold from Seller the funds necessary to make such repairs until Seller has repaired such damage pursuant to the provisions hereof, at which time such funds shall be distributed to Seller or (ii) Purchaser may take an assignment of Seller’s proceeds and a credit for Seller’s deductible under its applicable insurance policy (as described in paragraph [b] below) and repair such damage;

or if said cost is:

b.greater than Two Hundred Thousand Dollars ($200,000.00), then, at Purchaser’s election, Seller shall pay to Purchaser, at closing, all insurance proceeds payable for such damage, and the sale shall be closed without Seller’s repairing such damage but with Purchaser receiving a credit for the amount of any deductible provided for in the applicable

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insurance policy, or, if Purchaser does not elect to accept such insurance proceeds, then Purchaser may elect to terminate this Contract.

ARTICLE XIII

CONDEMNATION

Seller shall give Purchaser written notice of any condemnation or eminent domain proceeding with respect to the Subject Property within five (5) business days after Seller receives notice of such condemnation or eminent domain.  If prior to the closing any portion or all of the Subject Property shall be taken or threatened to be taken by condemnation, eminent domain or deed in lieu thereof and such taking is material, then in such event Purchaser may cancel this Contract by sending written notice thereof to Seller within fifteen (15) days after Purchaser’s receipt of written notice of such actual or threatened condemnation, eminent domain, or other taking, in which event the Title Company shall return the Earnest Money to Purchaser and thereupon neither party shall have any further liability or obligations to the other except for obligations which expressly survive the closing.  If this Contract is not so canceled then Purchaser shall accept title to the Subject Property subject to such condemnation, eminent domain, or taking, in which event on the closing date the proceeds of the award or payment shall be assigned by Seller to Purchaser and the monies theretofore received by Seller in connection with such condemnation, eminent domain, or taking shall be paid over to Purchaser or allowed as a credit against the purchase price hereunder.

ARTICLE XIV

POSSESSION OF PROPERTY

Possession of the Subject Property shall be delivered to Purchaser at closing.

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ARTICLE XV

NOTICES

All notices, demands, or other communications of any type given by the Seller to the Purchaser, or by the Purchaser to the Seller, whether required by this Contract or in any way related to the transaction contracted for herein, shall be void and of no effect unless given in accordance with the provisions of this paragraph.  All notices shall be in writing and delivered to the person to whom the notice is directed, either in person, by facsimile transmission, or by United States Mail, as a registered or certified item, return receipt requested.  All such notices shall be deemed given when received or refused by the party to be noticed, and shall be addressed as follows:

Seller:	Dallas S&W, L.P.
	c/o The Smith & Wollensky Restaurant Group, Inc.
	880 Third Avenue
	New York, New York 10022
	Attn: Gene Zuriff
	Telephone No.: (212) 838-2061
	Facsimile No.: (212) 758-6028
With Required Copy to:	Hallett & Perrin, P.C.
	2001 Bryan Tower, Suite 3900
	Dallas, Texas 75201
	Attn: Fielder F. Nelms, Esq.
	Telephone No.: (214) 922-4109
	Facsimile No.: (214) 922-4193
Purchaser:	Relentless Properties, LLC
	Dallas, Texas
	Telephone No.:
	Facsimile No.:
	Email:

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ARTICLE XVI

REMEDIES

In the event that Seller fails to timely comply with all conditions, covenants and obligations of Seller hereunder, it shall be an event of default and Purchaser shall have the option (i) to terminate this Contract by providing written notice thereof to Seller, in which event the Earnest Money (less $100.00) shall be returned immediately to Purchaser by the Title Company and the parties hereto shall have no further liabilities or obligations one unto the other; (ii) to waive any defect or requirement and close this Contract; or (iii) sue Seller for specific performance.

In the event that Purchaser fails to timely comply with all conditions, covenants, and obligations Purchaser has hereunder, such failure shall be an event of default, and Seller’s sole remedy shall be to receive the Earnest Money.  The Earnest Money is agreed upon by and between the Seller and Purchaser as liquidated damages due to the difficulty and inconvenience of ascertaining and measuring actual damages, and the uncertainty thereof, and no other damages, rights, or remedies shall in any case be collectible, enforceable, or available to the Seller other than in this paragraph defined, and Seller shall accept the Earnest Money as Seller’s total damages and relief.

ARTICLE XVII

ASSIGNMENT

Purchaser may not assign its rights under this Contract to anyone other than a Permitted Assignee without first obtaining Seller’s prior written approval.  Purchaser may assign its rights under this Contract to a Permitted Assignee without prior written consent of Seller.  For purposes of this Contract, a “Permitted Assignee” shall mean any partnership, corporation, limited liability company or other business entity owned or controlled by Purchaser.  Any assignment made by

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Purchaser shall (a) not have the affect of extending the Inspection Period hereunder or the closing date; (b) be pursuant to a written assignment, a copy of which will be provided to Seller; and (c) shall not release Purchaser from any of its obligations hereunder.

ARTICLE XVIII

MISCELLANEOUS

1.This Contract shall be construed and interpreted in accordance with the laws of the State of Texas.  Where required for proper interpretation, words in the singular shall include the plural; the masculine gender shall include the neuter and the feminine, and vice versa.  The terms “successors and assigns” shall include the heirs, administrators, executors, successors, and assigns, as applicable, of any party hereto.

2.This Contract may not be modified or amended, except by an agreement in writing signed by the Seller and the Purchaser.  The parties may waive any of the conditions contained herein or any of the obligations of the other party hereunder, but any such waiver shall be effective only if in writing and signed by the party waiving such conditions and obligations.

3.Each person executing this Contract warrants and represents that he is fully authorized to do so.

4.In the event it becomes necessary for either party to file a suit to enforce this Contract or any provisions contained herein, the prevailing party shall be entitled to recover, in addition to all other remedies or damages, reasonable attorneys’ fees and costs of court incurred in such suit.

5.The descriptive headings of the several paragraphs contained in this Contract are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof.

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6.This Contract (and the items to be furnished in accordance herewith) constitutes the entire agreement between the parties pertaining to the subject matter hereof and supersedes all prior and contemporaneous agreements and understandings of the parties in connection therewith.  No representation, warranty, covenant, agreement, or condition not expressed in this Contract shall be binding upon the parties hereto or shall affect or be effective to interpret, change, or restrict the provisions of this Contract.

7.This Contract may be executed in multiple counterparts, and the counterparts together shall constitute the single binding agreement of the parties.

8.Purchaser represents and agrees that in the event that this Agreement is not consummated, Purchaser will promptly upon Seller’s request return to Seller all Due Diligence Items furnished to Purchaser, whether furnished before or after the date of this Agreement, without retaining copies thereof.

9.Time is of the essence with respect to all deadlines and time periods set forth herein.

10.For a period of seven (7) days after the closing, Seller shall have the right to access the Subject Property to remove the Excluded Assets from the Subject Property.

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ARTICLE XIX

REAL ESTATE COMMISSION

Staubach Retail Services Southwest, Ltd. (“Staubach”)represents both Seller and Purchaser.  Provided that the sale hereunder does in fact close, Seller shall pay a brokerage commission to of six percent (6%) of the purchase price, which represents the total commission payable by Seller and Purchaser with regard to this transaction. Seller represents and warrants to Purchaser that Seller has not contacted or entered into any agreement with any other real estate broker, agent, finder, or any other party in connection with this transaction, and that Seller has not taken any action which would result in any other real estate broker’s, finder’s, or other fees or commissions being due and payable to any other party with respect to the transaction contemplated hereby.  Purchaser hereby represents and warrants to Seller that Purchaser has not contracted or entered into any agreement with any real estate broker, agent, finder, or any other party in connection with this transaction other than Staubach, and that Purchaser has not taken any other action which would result in any real estate broker’s, finder’s, or other fees or commissions being due or payable to any other party with respect to the transaction contemplated hereby, except as set forth in the second sentence above.  Seller hereby indemnifies and agrees to hold Purchaser harmless for any fees or commissions of Staubach, as set forth in the second sentence hereof.  Additionally, each party hereby indemnifies and agrees to hold the other party harmless from any loss, liability, damage, cost, or expense (including reasonable attorneys’ fees) resulting to the other party by reason of a breach of the representation and warranty made by such party herein.  Notwithstanding anything to the contrary contained herein, the indemnities set forth in this Article XIX shall survive the closing.

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EXECUTED on this the 26th day of February, 2007.

SELLER:
DALLAS S&W,  L.P., a Texas limited partnership
By: S&W of Dallas LLC,
	a Delaware limited liability company,
	its General Partner
By:	/s/ EUGENE ZURIFF
Name:			Eugene Zuriff
Its:		President

EXECUTED on this the 24th day of February, 2007.

PURCHASER:
Relentless Properties, LLC
By:	/s/ CHRISTIE R. RENIGER
Name:			Christie R. Reniger
Its:		Agent

RECEIPT OF EARNEST MONEY AND ONE (1) EXECUTED COUNTERPART OF THIS CONTRACT IS HEREBY ACKNOWLEDGED:

TITLE COMPANY:

REPUBLIC TITLE OF TEXAS, INC.

By:

Name:

Its:

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EXHIBIT “A”

Lot 8, Block C of Greenway Addition, an addition to the City of Dallas, Collin County, Texas, according to the plat thereof recorded in Volume J, Page 599, Map Records, Collin County, Texas.

EXHIBIT “B”

Schedule of Excluded Assets

1.Signage.

2.The intellectual property owned by Seller or The Smith & Wollensky Restaurant Group, Inc., including, but not limited to,  (i) the name “Smith & Wollensky”, (ii) any marks or logos. associated with the words “Smith & Wollensky”,  and (ii) such other marks, words, logos or images that are proprietary to Seller, The Smith & Wollensky Restaurant Group, Inc.,  or affiliates thereof.

3.All books and records, including invoices, purchase orders, cancelled checks and other accounting documents.

4.Inventory of wine and liquor.

FIRST AMENDMENT TO
CONTRACT OF SALE

This FIRST AMENDMENT TO CONTRACT OF SALE (this “Amendment”) is executed as of March 26, 2007, by and between DALLAS S & W, L.P., a Texas limited partnership (“Seller”) and RELENTLESS PROPERTIES, LLC, a Texas limited liability company (“Purchaser”).

WHEREAS, Seller and Purchaser have executed that certain Contract of Sale dated February 26, 2007 (the “Contract”), wherein Seller agreed to sell to Purchaser certain real and personal property located in Dallas, Dallas County, Texas, as more particularly described therein; and

WHEREAS, Seller and Purchaser wish to amend the Contract as provided herein.

NOW, THEREFORE, for and in consideration of the sum of Ten Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and confessed, Seller and Purchaser hereby agree as follows:

1.     The second sentence of Article VIII is hereby deleted in its entirety and the following is substituted in lieu thereof: “The closing shall occur on Monday, April 2, 2007.”

2.     Except as amended hereby, the Contract remains unmodified and in full force and effect.

3.     Capitalized terms used herein which are not otherwise defined herein shall have the meaning ascribed to them in the Contract.

4.     This Amendment may be executed in multiple counterparts, each of which when taken together shall constitute one and the same instrument. This Amendment may further be executed and delivered by facsimile.

IN WITNESS WHEREOF, Seller and Purchaser have executed this First Amendment to Contract of Sale to be effective as of the date first written above.

SELLER:			PURCHASER:
DALLAS S & W, L.P., a Texas			RELENTLESS PROPERTIES, LLC, a
		limited partnership	Texas limited liability company
By:	S&W of Dallas, LLC, a Delaware
	limited liability company, its sole		By:	/s/ CHRISTIE R RENIGER
	general partner			Christie R. Reniger, sole member
	By:	/s/ EUGENE ZURIFF
	Name:	Eugene Zuriff
	Title:	President

EX-10.121

Exhibit 10.121

AMENDMENT TO LINE OF CREDIT AGREEMENT

This AMENDMENT TO LINE OF CREDIT AGREEMENT, dated as of March 23, 2007 (this “Agreement”) amends that certain Line of Credit Agreement dated as of January 27, 2006, by and among THE SMITH & WOLLENSKY RESTAURANT GROUP, INC., a Delaware corporation (the “Borrower”), DALLAS S&W LP, a Texas limited partnership (the “Guarantor”), and MORGAN STANLEY COMMERCIAL FINANCIAL SERVICES, INC. (formerly known as Morgan Stanley Dean Witter Commercial Financial Services, Inc.), a Delaware corporation (the “Lender”)

W I T N E S S E T H:

WHEREAS, the Borrower, the Guarantor and the Lender have entered into that certain Line of Credit Agreement dated as of January 27, 2006 (the “Loan Agreement”) (Capitalized terms not defined herein are used herein as defined in the Loan Agreement.)

WHEREAS, the Borrower and the Guarantor have requested that the Lender consent to the sale of the property located at 18438 North Dallas Parkway, Dallas, Texas 75287 (“Trust Property”) owned by the Guarantor, and that the Lender (i) release the Guarantor from its obligations under the Guaranty, the Loan Agreement and the other Loan Documents and (ii) release the Deed of Trust  from the Trust Property;

WHEREAS, no Advance has been made under the Loan Agreement and there is no outstanding principal balance under the Loan Agreement or the Note as of this date; and

WHEREAS, subject to the terms and conditions of this Agreement, the Lender is willing to permit the sale of the Trust Property and to release the Guarantor from the Guaranty, the Loan Agreement and the other Loan Documents and the Lender’s interest in the Trust Property.

NOW, THEREFORE, in consideration of the premises and the agreements hereinafter contained, the parties hereto agree as follows:

1.Advances; Replacement Collateral.  It shall be a condition to any Advance under the Loan Agreement that the Borrower shall have granted the Lender additional collateral in place of the Trust Property in form and having a value acceptable to the Lender in its sole discretion.  The Lender’s interest in such collateral shall be granted pursuant to an agreement or agreements, and such other documentation as shall be acceptable to the Lender in its sole discretion.

2.Release of Guarantor.   Effective on the date on which all of conditions set forth in paragraph 3 below have occurred, the Lender releases the Guarantor as a Loan Party under the Loan Agreement and terminates the Guaranty.  Notwithstanding the foregoing, the Environmental Guaranty shall survive the release of the Deed of Trust, and by signing this Agreement where indicated below, the Guarantor confirms that the terms and provisions of the Environmental Guaranty shall survive the release of the Deed of Trust and shall remain in full force and effect.

3.Conditions.  This Agreement shall not be effective until the Lender shall have received counterparts of this Agreement duly executed by the Borrower, plus all reasonable fees and expenses of the Lender, including, without limitation, the reasonable legal fees and expenses incurred by the Lender in connection with the preparation, negotiation, execution and delivery and review of this Agreement.

4.Full Force and Effect.  Except as expressly modified by this Agreement, all of the terms and conditions of the Loan Agreement shall continue in full force and effect, and all parties hereto shall be entitled to the benefits thereof.  This Agreement is limited as written and shall not be deemed (a) to be an amendment of or a consent under or waiver of any other term or condition of

the Loan Agreement, or (b) to prejudice any right or rights which the Lender now has or may have in the future under or in connection with the Loan Agreement or the other Loan Documents.

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IN WITNESS WHEREOF, the Lender, the Borrower and the Guarantor have executed this Agreement as of the day and year first above written.

THE SMITH & WOLLENSKY RESTAURANT GROUP INC.
By:	/s/ EUGENE ZURIFF
	Name:
	Title:     President

STATE OF NEW YORK	)
	ss.:
COUNTY OF NEW YORK	)

On the 27th day of March in the year 2007 before me, the undersigned, a Notary Public in and for said State, personally appeared Eugene Zuriff, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.

/s/ MARIA A. CHANG
Notary Public
DALLAS S&W, L.P.
By: S&W of Dallas LLC, general partner
By: The Smith and Wollensky Restaurant Group, Inc., Sole Member
By:	/s/ EUGENE ZURIFF
	Name:
	Title:

STATE OF NEW YORK	)
	ss.:
COUNTY OF NEW YORK	)

On the 27th day of March in the year 2007 before me, the undersigned, a Notary Public in and for said State, personally appeared Eugene Zuriff, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.

/s/ MARIA A. CHANG

Notary Public

3

MORGAN STANLEY COMMERCIAL
FINANCIAL SERVICES, INC.
By:	/s/ BRIAN TWOMEY
	Name:  Brian Twomey
	Title:    Vice President

4

EX-21.1

Exhibit 21.1

Subsidiary	Ownership	Jurisdiction of Incorporation
The Manhattan Ocean Club Associates, L.L.C.	SWRG 100% member	New York
Atlantic & Pacific Grill Associates, L.L.C.	SWRG 100% member	New York
La Cite Associates, L.L.C.	SWRG 100% member	Delaware
New York RGI Sub, L.L.C.	SWRG 100% member	Delaware
Mrs. Parks Sub, L.L.C.	SWRG 100% member	Delaware
Restaurant Group Management Services, L.L.C.	SWRG 100% member	New York
S&W of Miami, L.L.C.(1)	SWRG 100% member	Delaware
S&W Chicago, L.L.C.	SWRG 100% member	Delaware
S&W New Orleans, L.L.C.	SWRG 100% member	Delaware
S&W of Las Vegas, L.L.C.	SWRG 100% member	Delaware
S&W D.C., L.L.C.	SWRG 100% member	Delaware
M.O.C. D.C., L.L.C.	SWRG 100% member	Delaware
M.O.C. of Miami, L.L.C.	SWRG 100% member	Delaware
S&W of Philadelphia, L.L.C.	SWRG 100% member	Delaware
Parade 59 Restaurant, L.L.C.	SWRG 100% member	Delaware
Smith &Wollensky of Boston, L.L.C.	SWRG 100% member	Delaware
Smith & Wollensky of Ohio, L.L.C.	SWRG 100% member	Delaware
S&W of Dallas, L.L.C.	SWRG 100% member	Delaware
Dallas S&W, L.P.	S&W of Dallas, L.L.C. 1% GP S&W of America, L.L.C. 99% L.P.	Texas
Smith & Wollensky of Houston, L.L.C.	SWRG 100% member	Delaware
Houston S&W, L.P.	S&W of Houston, L.L.C. 1% GP S&W of America 99% L.P.	Texas
Wollensky’s Beverage, Inc.	SWRG 100% stockholder	Texas
Smith & Wollensky of America, L.L.C.	SWRG 100% member	Delaware

(1)S&W of Miami, L.L.C. is the 100% owner of “South Pointe Hospitality Inc.” and “1 Washington Ave Corp”, which is the operating company for Smith & Wollensky in South Beach

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

Board of Directors and Stockholders
The Smith & Wollensky Restaurant Group, Inc.,

We consent to incorporation by reference in the registration statement (No. 333-100573) on Form S-8 of The Smith & Wollensky Restaurant Group, Inc. of our report dated April 2, 2007, relating to the consolidated balance sheets of The Smith & Wollensky Restaurant Group, Inc. and subsidiaries as of January 1, 2007, and January 2, 2006, and results of their operations and their cash flows, and changes in stockholders’ equity and comprehensive income (loss) for the years ended January 1, 2007, January 2, 2006 and January 3, 2005, which report appears in the January 1, 2007 annual report on Form 10-K of The Smith & Wollensky Restaurant Group, Inc.

	/s/ BDO SEIDMAN, LLP
New York, New York
April 2, 2007

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, Alan N. Stillman, Chairman of the Board and Chief Executive Officer of The Smith & Wollensky Restaurant Group, Inc., certify that:

1.I have reviewed this annual report of The Smith & Wollensky Restaurant Group, Inc. (the “registrant”) on Form 10-K for the period ended January 1, 2007;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

April 2, 2007

/s/ ALAN N. STILLMAN

Alan N. Stillman

Chairman of the Board and

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, Samuel Goldfinger, Chief Financial Officer, Secretary and Treasurer of The Smith & Wollensky Restaurant Group, Inc., certify that:

1.I have reviewed this annual report of The Smith & Wollensky Restaurant Group, Inc. (the “registrant”) on Form 10-K for the period ended January 1, 2007;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

April 2, 2007

/s/ Samuel Goldfinger

Samuel Goldfinger

Chief Financial Officer, Secretary

and Treasurer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of The Smith & Wollensky Restaurant Group, Inc. (the “Company”) on Form 10-K for the period ending January 1, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Alan Stillman, Chief Executive Officer of the Company, and Samuel Goldfinger, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to 906 of the Sarbanes - Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respect, the financial condition and results of operations of the Company.

Date April 2 , 2007	By:	/s/ ALAN N. STILLMAN
		Alan N. Stillman
		Chairman of the Board, Chief
		Executive Officer and Director
Date April 2, 2007	By:	/s/ SAMUEL GOLDFINGER
		Samuel Goldfinger
		Chief Financial Officer, Secretary
		and Treasurer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.