THIS DOCUMENT IS A COPY OF THE FORM 10-K FILED AS OF APRIL 12, 2000
              PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION.


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K
            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 29, 1999
                         Commission File Number 1-13226

                         PHOENIX RESTAURANT GROUP, INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)


            Georgia                                      58-1861457
---------------------------------           ------------------------------------
  (State or other jurisdiction              (I.R.S. Employer Identification No.)
of incorporation or organization)

         7373 N. Scottsdale Road
       Suite D-120, Scottsdale, AZ                           85253
-----------------------------------------                  ---------
(Address of principal executive offices)                   (Zip Code)

       Registrant's telephone number, including area code: (480) 483-7055

           Securities Registered Pursuant to Section 12(b) of the Act:

    Title of each class                     Name of Exchange on Which Registered
----------------------------                ------------------------------------
Common Stock, $.10 par value                       American Stock Exchange

           Securities Registered Pursuant to Section 12(g) of the Act:
                                      None

     Indicate  by check mark  whether the  Registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
Registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

     Indicate by check mark 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 Registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. [ ]

     The aggregate  market value of the Common Stock of the  Registrant  held by
non-affiliates  of the  Registrant  (6,623,169)  shares  on March  31,  2000 was
$2,483,688.  The aggregate market value was computed by reference to the closing
price of the Common Stock on such date.  For purposes of this  computation,  all
directors,  executive officers,  and 10% beneficial owners of the registrant are
deemed to be affiliates.  Such  determination  should not be deemed an admission
that such directors,  executive officers, or 10% beneficial owners are, in fact,
affiliates of the registrant.

     Number  of  shares  of  Common  Stock  outstanding  as of March  31,  2000:
13,485,277 shares of Common Stock, $.10 par value.

     Documents incorporated by reference: None.
<PAGE>
                         PHOENIX RESTAURANT GROUP, INC.

                           ANNUAL REPORT ON FORM 10-K

                       FISCAL YEAR ENDED DECEMBER 29, 1999

                                TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----

                                     PART I

ITEM 1.    BUSINESS........................................................    1
ITEM 2.    PROPERTIES......................................................   17
ITEM 3.    LEGAL PROCEEDINGS...............................................   17
ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............   17

                                     PART II

ITEM 5.    MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
           STOCKHOLDER MATTERS.............................................   18
ITEM 6.    SELECTED FINANCIAL DATA.........................................   19
ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
           AND RESULTS OF OPERATIONS.......................................   20
ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK......   25
ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.....................   26
ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
           ACCOUNTING AND FINANCIAL DISCLOSURE.............................   26

                                    PART III

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..............   27
ITEM 11.   EXECUTIVE COMPENSATION..........................................   29
ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
           AND MANAGEMENT..................................................   34
ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................   35

                                     PART IV

ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
           FORM 8-K........................................................   36
SIGNATURES ................................................................   39

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.................................  F-1

                                   ----------

                 STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

THE  STATEMENTS  CONTAINED  IN THIS  REPORT  ON FORM  10-K  THAT ARE NOT  PURELY
HISTORICAL  ARE  FORWARD-LOOKING  STATEMENTS  WITHIN THE  MEANING OF  APPLICABLE
SECURITIES LAWS.  FORWARD-LOOKING  STATEMENTS INCLUDE  STATEMENTS  REGARDING OUR
"EXPECTATIONS,"   "ANTICIPATION,"   "INTENTIONS,"   "BELIEFS,"  OR  "STRATEGIES"
REGARDING  THE  FUTURE.   FORWARD-LOOKING  STATEMENTS  ALSO  INCLUDE  STATEMENTS
REGARDING REVENUE, MARGINS,  EXPENSES, AND EARNINGS ANALYSIS FOR FISCAL 2000 AND
THEREAFTER;  FUTURE  RESTAURANT  OPERATIONS AND NEW RESTAURANT  ACQUISITIONS  OR
DEVELOPMENT;  THE RESTAURANT INDUSTRY IN GENERAL;  AND LIQUIDITY AND ANTICIPATED
CASH NEEDS AND AVAILABILITY.  ALL  FORWARD-LOOKING  STATEMENTS  INCLUDED IN THIS
REPORT ARE BASED ON  INFORMATION  AVAILABLE  TO US AS OF THE FILING DATE OF THIS
REPORT,  AND  WE  ASSUME  NO  OBLIGATION  TO  UPDATE  ANY  SUCH  FORWARD-LOOKING
STATEMENTS.  OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE FORWARD-LOOKING
STATEMENTS.  AMONG  THE  FACTORS  THAT  COULD  CAUSE  ACTUAL  RESULTS  TO DIFFER
MATERIALLY ARE THE FACTORS DISCUSSED IN ITEM 1, "SPECIAL CONSIDERATIONS."

                                      -i-
<PAGE>
                                     PART I

ITEM 1. BUSINESS.

OUR COMPANY

         We currently operate 190 family-oriented,  full-service  restaurants in
20 states, primarily in the southwestern,  midwestern, western, and southeastern
United States.  Our restaurants  include 93 Black-eyed Pea restaurants,  located
primarily in Texas,  Arizona,  Oklahoma,  and the Washington,  D.C. area, and 97
Denny's restaurants,  which represents  approximately 5.4% of the Denny's system
and makes us the largest  Denny's  franchisee in terms of revenue and the number
of restaurants operated. We have sold or converted to the Denny's concept all of
the restaurants we previously operated under various other restaurant  concepts,
or "non-branded restaurants."

         We began  operations in 1986 through one or more  predecessor  entities
under common  control.  We  initially  pursued an  aggressive  program of growth
through acquisitions of Denny's and other restaurants and through development of
new Denny's  restaurants.  Our current company  resulted from the March 29, 1996
merger of Denwest  Restaurant  Corp., or DRC, and American  Family  Restaurants,
Inc., or AFR. We acquired Black-eyed Pea U.S.A.,  Inc., or BEP, in July 1996. In
July 1999 we changed  our  corporate  name from  "DenAmerica  Corp." to "Phoenix
Restaurant  Group,  Inc." to  reflect  the fact  that we  operate  more than one
restaurant  concept.  Our  principal  executive  offices  are located at 7373 N.
Scottsdale  Road,  Suite D-120,  Scottsdale,  Arizona  85253,  and our telephone
number is (480) 483-7055.

         The  table  below  sets  forth  information  regarding  the  number  of
restaurants that we have acquired, developed,  converted to the Denny's concept,
and sold or closed in each year since the  beginning of fiscal  1994,  including
restaurants developed, sold, or closed by BEP prior to the BEP acquisition.

           RESTAURANTS ACQUIRED, DEVELOPED, CONVERTED, SOLD, OR CLOSED

<TABLE>
<CAPTION>
                                          1994    1995    1996    1997    1998    1999
                                          ----    ----    ----    ----    ----    ----
<S>                                       <C>     <C>     <C>     <C>     <C>     <C>
BLACK-EYED PEA RESTAURANTS:
   Number open beginning of period ....     97     103     105      93     104     101
   Acquired ...........................      0       0       0       9       2       0
   Developed ..........................      6       5       0       4       0       8
   Sold or closed .....................      0      (3)    (12)     (2)     (5)    (16)
                                          ----    ----    ----    ----    ----    ----
   Number open at end of period .......    103     105      93     104     101      93
                                          ====    ====    ====    ====    ====    ====
DENNY'S RESTAURANTS:
   Number open beginning of period ....    102     148     168     182     174     100
   Acquired ...........................     40       3       0       0       0       0
   Developed ..........................      6       8       5       1       0       0
   Converted from other concept .......      1      10      15      10       0       0
   Sold or closed .....................     (1)     (1)     (6)    (19)    (74)     (3)
                                          ----    ----    ----    ----    ----    ----
   Number open at end of period .......    148     168     182     174     100      97
                                          ====    ====    ====    ====    ====    ====
NON-BRANDED RESTAURANTS:
   Number open beginning of period ....     59      56      82      20       3       0
   Acquired ...........................      1      36       0       0       0       0
   Converted ..........................     (1)    (10)    (15)    (10)      0       0
   Sold or closed .....................     (3)     (0)    (47)     (7)     (3)      0
                                          ----    ----    ----    ----    ----    ----
   Number open at end of period .......     56      82      20       3       0       0
                                          ====    ====    ====    ====    ====    ====
TOTAL NUMBER OF RESTAURANTS OPEN AT
END OF PERIOD .........................    307     355     295     283     201     190
                                          ====    ====    ====    ====    ====    ====
</TABLE>
<PAGE>
         The  following  table sets forth  number of  restaurants  in each state
where we conduct operations as of March 31, 2000.

                BLACK-EYED                                 BLACK-EYED
                   PEA        DENNY'S                         PEA        DENNY'S
                ----------    -------                      ----------    -------
Arizona......       9           12         Nebraska.......                   4
Arkansas.....                    1         Nevada.........                   1
Colorado.....                    7         New Mexico.....       2
Florida......                   19         Oklahoma.......       6           7
Idaho........                    5         Oregon.........                   1
Iowa.........                    4         South Dakota...                   1
Kansas.......       2            1         Texas..........      66          23
Louisiana....                    1         Utah...........                   8
Maryland.....       3                      Virginia.......       4
Missouri.....       1            1         Wisconsin......                   1
                                                             -----       -----
                                                Totals....      93          97
                                                             =====       =====

STRATEGY

         Our  business   strategy  is  to  (a)  concentrate  on  developing  the
Black-eyed Pea concept and brand identity; (b) focus on restaurants that achieve
operating efficiencies;  and (c) sell or close certain restaurants and refinance
existing indebtedness.

CONCENTRATE ON DEVELOPING THE BLACK-EYED PEA CONCEPT AND BRAND IDENTITY

         We have  determined  to  concentrate  our  efforts  on  developing  the
Black-eyed  Pea  restaurant  concept and brand  identity  because we believe the
concept provides unit economics and  opportunities  for  profitability  that are
more desirable than the Denny's concept.  We have committed to restructuring our
company to divest our remaining  Denny's  restaurants and to focus our resources
on enhancing the  profitability  of the Black-eyed Pea concept.  We opened eight
new Black-eyed Pea  restaurants  in 1999. We intend to pursue  opportunities  to
develop additional Black-eyed Pea restaurants as we identify favorable locations
and acceptable sources of financing for new restaurants.  We continue to enhance
and refine the Black-eyed  Pea  restaurant  concept in order to improve the unit
economics  of our  Black-eyed  Pea  restaurants.  We currently  are  emphasizing
refinements to our  "prototype"  Black-eyed  Pea restaurant  that is designed to
improve unit economics.  We also are exploring joint venture  opportunities  for
the Black-eyed Pea concept and we plan to explore  opportunities to franchise or
license the Black-eyed Pea concept to third parties in the future.

FOCUS ON RESTAURANTS THAT ACHIEVE OPERATING EFFICIENCIES

         We intend to focus on  operating  restaurants  in  selected  markets in
order to capitalize on certain operating  efficiencies  that such  concentration
generally provides.  Our experience indicates that operating multiple restaurant
locations  in targeted  markets  enables  each  restaurant  within the market to
achieve  increased  customer  recognition  and to obtain  greater  benefits from
advertising  and  marketing   expenditures   than  can  be  obtained  by  single
restaurants in isolated  markets.  In addition,  concentration of restaurants in
specific  markets  generally  produces  economies of scale and cost savings as a
result of lower overall  management costs,  lower cost of goods sold as a result
of lower  distribution  costs,  more efficient use of advertising  and marketing
programs, and other administrative savings.

SELL OR CLOSE UNDERPERFORMING RESTAURANTS AND REFINANCE EXISTING INDEBTEDNESS

         Over  the  last  two  years,  we have  sold or  closed  underperforming
restaurants,  refinanced certain of our debt obligations, and refinanced certain
assets in an effort to reduce our outstanding  indebtedness  and to better match
our cash flows from operations with our debt service obligations.  In June 1999,
we completed a financing transaction in which CNL APF Partners, LP purchased the
remaining indebtedness under our previous senior credit facility and advanced to
us an additional $5.4 million.

                                       2
<PAGE>
         In October 1999, we retained CNL Advisory  Services to act as our agent
in the sale of our remaining Denny's restaurants.  As of March 31, 2000, we have
received  letters of  interest  for the  proposed  sale of all of our  remaining
Denny's  restaurants.  These  proposals  are  subject  to  usual  and  customary
conditions  to closing,  including  the  buyers'  obtaining  financing  for such
transactions.  To the extent that we sell some or all of our  remaining  Denny's
restaurants,  we intend to apply a large portion of the proceeds to  permanently
reduce our outstanding indebtedness.

         We will continue to evaluate the operating  results of our  restaurants
remaining  after our currently  anticipated  sales. We will sell or close any of
those restaurants that do not meet our criteria for operating results.

BLACK-EYED PEA RESTAURANTS

CONCEPT

         We  currently  operate  93  Black-eyed  Pea  restaurants  in 8  states.
Black-eyed  Pea  restaurants  are  full-service,  casual  dining  establishments
featuring wholesome home-style meals. We believe that the emphasis of Black-eyed
Pea restaurants on quality food, comfortable  atmosphere,  friendly service, and
reasonable  prices attracts a broad range of customers,  including  families and
business  people.  Black-eyed Pea  restaurants  generally are open for lunch and
dinner seven days a week, typically from 11:00 a.m. to 10:00 p.m.

MENU

         Black-eyed Pea restaurants offer a variety of entrees  accompanied by a
broad selection of fresh vegetables and freshly baked breads,  large servings of
iced tea and soft drinks (with complimentary refills), and fruit cobblers, pies,
and other  freshly  prepared  desserts.  Entrees  include  chicken  fried steak,
grilled chicken, seasoned meat loaf, pot roast with gravy, and roast turkey with
dressing.  Black-eyed Pea restaurants  also offer a range of freshly made soups,
salads,  appetizers,  and  sandwiches.  In addition to its standard  menu items,
Black-eyed Pea  restaurants  offer regular daily  specials,  such as chicken pot
pie, fried fish, and chicken and dumplings. Vegetable offerings are an important
component of the Black-eyed  Pea restaurant  menu.  Each  restaurant  features a
dozen vegetables daily, from which customers can make two or three selections to
accompany their meals, as well as a vegetable plate entree, which consists of up
to five  vegetable  selections.  To  encourage  family  dining,  Black-eyed  Pea
restaurants  feature a children's menu, which offers smaller portions of regular
menu items as well as special items, such as peanut butter and jelly and grilled
cheese  sandwiches.  As of December 29, 1999,  the average check per customer at
the Company's  Black-eyed Pea  restaurants  was  approximately  $8.08. In fiscal
1999,  liquor  sales  accounted  for  approximately  2.0% of  total  revenue  of
Black-eyed Pea restaurants.

         Each Black-eyed Pea restaurant has a full-service kitchen,  which gives
it the  flexibility  to prepare  daily and  seasonal  specials  and to otherwise
expand  its  food  offerings.  We  regularly  review  and  revise  the  existing
Black-eyed Pea restaurant  menu and conduct  consumer tests of new menu items in
order to improve  the quality and  breadth of food  offerings  and to  encourage
repeat  business.  We maintain a test kitchen  facility,  which  includes a full
Black-eyed Pea restaurant cookline, for use in our product development efforts.

RESTAURANT LAYOUT

         Black-eyed  Pea  restaurants  feature a casual and  comfortable  dining
atmosphere  that appeals to a broad  customer  base,  including  families.  Most
Black-eyed Pea restaurants have booth and table seating as well as a small lunch
counter/bar  on one  side of the  dining  room,  which  also  provides  take-out
service.  Black-eyed Pea restaurants  generally range in size from approximately
4,000  square feet to 6,000  square feet and have dining room seating for 160 to
210 customers and counter/bar  seating for  approximately 10 additional  guests.
Our current prototype restaurant is approximately 4,900 to 5,400 square feet and
has dining room seating for  approximately  170 to 200 customers plus a take-out
service counter.

                                       3
<PAGE>
UNIT ECONOMICS

         We estimate  that our total costs of  developing a new  Black-eyed  Pea
restaurant  currently  ranges from  $400,000 to  $450,000,  exclusive  of annual
operating  costs and assuming that the land and  buildings are obtained  under a
lease  arrangement.  These costs include  approximately (i) $350,000 to $400,000
for furniture,  fixtures, and equipment, and (ii) $50,000 for pre-opening costs,
including  hiring and  training  costs,  employee  wages,  and  advertising.  We
currently plan to lease  substantially  all of our new Black-eyed Pea restaurant
sites.

DENNY'S RESTAURANTS

         We currently operate 97 Denny's restaurants in 17 states,  representing
approximately  5.4% of the Denny's system. We are the largest Denny's franchisee
in terms of revenue and the number of restaurants operated.

DENNY'S, INC.

         We operate our Denny's  restaurants  pursuant to  franchise  agreements
with  Denny's,  Inc.  Denny's,  Inc. is a wholly owned  subsidiary  of Advantica
Restaurant Group, Inc., which emerged from bankruptcy protection in late 1997 as
the  successor to Flagstar  Companies,  Inc.  Advantica  currently  conducts its
restaurant  operations through several principal chains, the largest of which is
Denny's. Denny's is the largest  family-oriented,  full-service restaurant chain
in the United States,  with more than 1,700  corporate-owned or franchised units
in 49 states and six foreign  countries.  Advantica  recently  announced that it
intends to sell its Coco's and Carrows  restaurants  and to  concentrate  on the
Denny's brand.

CONCEPT

         Denny's are family-oriented, full-service restaurants, featuring a wide
variety of traditional  family fare. The  restaurants  are designed to provide a
casual  dining  atmosphere  with  moderately  priced  food and quick,  efficient
service.  Denny's  restaurants  generally are open 24 hours a day,  seven days a
week.

MENU AND PRICING

         All Denny's restaurants throughout the United States have uniform menus
with some regional and seasonal variations. Denny's restaurants serve breakfast,
lunch,  and dinner  and also  feature a "late  night"  menu.  Breakfasts,  which
include Denny's popular breakfast combinations  consisting of a variety of eggs,
omelets,  pancakes,  waffles,  cereals,  and muffins, are served 24 hours a day.
Lunch  and  dinner  entrees  include  a broad  range  of  hamburgers  and  other
sandwiches, steaks, pork chops, and chicken pot pies. The restaurants also offer
a variety of soups, salads, sandwiches,  appetizers, side orders, beverages, and
desserts.  Appetizers  include  mozzarella  sticks,  buffalo wings,  chili,  and
chicken  strips.  Desserts  include  cakes,  pies, ice cream,  and sundaes.  The
restaurants  offer free  refills  on coffee,  soft  drinks,  lemonade,  and tea.
Special menus are available for senior citizens and children. As of December 29,
1999,   the  average  check  per  customer  at  our  Denny's   restaurants   was
approximately $5.62.

RESTAURANT DESIGN

         Our Denny's restaurants generally operate in freestanding  locations in
high-traffic  commercial areas. The restaurants  average  approximately 4,800 to
5,200  square  feet,  with  seating  capacity  ranging  from  90 to 210  people.
Generally,  the  dining  areas are fully  carpeted  and  informal  in design and
contain booths,  tables,  and counter seating.  The layout of each restaurant is
designed to easily  accommodate  both  smaller  groups of two to four as well as
large  groups of guests.  All guests are greeted and seated by a host or hostess
when they enter the restaurant.

UNIT ECONOMICS

         We estimate that our total cost of developing a new Denny's  restaurant
currently ranges from $290,000 to $390,000,  exclusive of annual operating costs
and assuming that the land and buildings are obtained under a

                                       4
<PAGE>
lease  arrangement.  These costs include  approximately (i) $230,000 to $330,000
for furniture,  fixtures,  and equipment;  (ii) $40,000 for  pre-opening  costs,
including hiring and training costs, employee wages, and advertising;  and (iii)
$20,000  for the  initial  franchise  fee.  We  lease  substantially  all of our
restaurant  sites in order to minimize the costs of acquiring and developing new
restaurants.

THE DENNY'S SYSTEM

         We operate  our  Denny's  restaurants  pursuant  to a  specific  system
developed by Denny's,  Inc.  Denny's,  Inc.  prepares and maintains the detailed
standards, policies, procedures, manuals, and other requirements that constitute
the Denny's system in order to facilitate  the consistent  operation and success
of all Denny's restaurants. The Denny's system includes

          *    distinctive interior and exterior designs, decors, color schemes,
               furnishings, and employee uniforms;

          *    uniform specifications and procedures for restaurant operations;

          *    standardized menus featuring unique recipes and menu items;

          *    procedures for inventory and management control;

          *    formal training and assistance programs;

          *    advertising and promotional programs; and

          *    special promotional items.

The Denny's system also includes established, detailed requirements regarding

          *    the quality and uniformity of products and services offered;

          *    the purchase or lease, from suppliers approved by Denny's,  Inc.,
               of   equipment,   fixtures,    furnishings,   signs,   inventory,
               ingredients,  and other  products and materials that conform with
               the standards and specifications of the Denny's system; and

          *    standards for the maintenance,  improvement, and modernization of
               restaurants, equipment, furnishings, and decor.

To ensure that the highest  degree of quality  and service is  maintained,  each
franchisee  must operate each Denny's  restaurant in strict  conformity with the
methods, standards, and specifications designated by Denny's, Inc.

DENNY'S FRANCHISE AGREEMENTS

         We are a party to a separate franchise agreement with Denny's, Inc. for
each of our Denny's  restaurants.  The franchise agreements generally require us
to pay an initial franchise fee, a royalty equal to 4% of weekly gross sales (as
defined in the franchise agreements),  and an advertising  contribution of 2% to
3% of weekly gross sales.  The franchise  agreements  generally have terms of 20
years or the  earlier  expiration  of the  relevant  building  lease,  including
options for  extensions.  We may terminate  franchise  agreements  only upon the
occurrence of a material breach by Denny's, Inc.

         The franchise  agreements  entitle us to use the "Denny's" name,  trade
symbols,  and intellectual  property,  including  menus,  symbols,  labels,  and
designs, to promote the restaurants and the Denny's affiliation.  Denny's,  Inc.
also furnishes  training and supervisory  materials for  maintaining  modern and
efficient  operation of the  restaurants  and helps fund a national  advertising
campaign. The franchise agreements require us to operate our Denny's restaurants
in compliance with the Denny's  system.  We are free to establish our own prices
at our Denny's  restaurants,  which may differ by location and are influenced by
geographic and other considerations.

         The franchise  agreements impose other restrictions on our business and
give  Denny's,  Inc.  the right to  terminate  those  agreements  under  certain
circumstances,  which could have a material adverse effect on our

                                       5
<PAGE>
business. See Item 1, "Special Considerations - The Denny's franchise agreements
impose restrictions and obligations on us."

EXPANSION OF OPERATIONS

         In prior years we have developed and acquired  restaurants in an effort
to achieve  cost  savings by taking  advantage  of  certain  economies  of scale
associated with administrative overhead and management personnel and systems. We
currently  are focusing our  resources  on selling our Denny's  restaurants  and
developing the Black-eyed Pea concept and brand identity. We developed eight new
Black-eyed  Pea  restaurants  in 1999  and we plan to  pursue  opportunities  to
develop new Black-eyed Pea restaurants as we identify such opportunities. In the
future, we may develop or acquire additional restaurants in order to

          *    enhance our presence in our target markets;

          *    establish the necessary base from which we can further  penetrate
               these markets; and

          *    capitalize    on     purchasing,     advertising,     managerial,
               administrative,  and  other  efficiencies  that  result  from the
               concentration of restaurants in specific markets.

The  specific  time frame in which we will  develop or  acquire  any  additional
restaurants will depend upon our ability to

          *    identify suitable sites;

          *    obtain  financing  for  restaurant  acquisitions,   construction,
               tenant improvements, furniture, fixtures, and equipment;

          *    negotiate acceptable lease or purchase terms;

          *    secure  the  appropriate   governmental  permits  and  approvals,
               including those relating to zoning,  environmental,  health,  and
               liquor licenses;

          *    manage restaurant construction; and

          *    recruit and train qualified personnel.

We  cannot  assure  you  that we will  open or  acquire  a  specific  number  of
restaurants or whether any such restaurants will be successful.  The development
of restaurants also may be affected by increased  construction  costs and delays
resulting from governmental regulatory approvals, strikes or work stoppages, and
adverse weather conditions.  Newly developed or acquired restaurants may operate
at a loss for a period  following  their  initial  opening or  acquisition.  The
length of this period will depend upon a number of factors,  including  the time
of year the facility is opened or  acquired,  sales  volume,  and our ability to
control costs. We have in the past franchised or licensed a number of Black-eyed
Pea restaurants to third parties. As part of our strategy to enhance and develop
the Black-eyed Pea brand, we plan to explore opportunities to resume franchising
or licensing activities in the future.

RESTAURANT OPERATIONS

RESTAURANT MANAGEMENT

         We believe that successful execution of basic restaurant  operations is
essential to achieve and maintain a high level of customer satisfaction in order
to enhance our  success  and future  growth.  Therefore,  we devote  significant
efforts to ensure that all of our restaurants offer quality food and service. We
maintain  standards  for the  preparation  and  service  of  quality  food,  the
maintenance and repair of restaurant facilitates, and the appearance and conduct
of employees.

         Once a  restaurant  is  integrated  into our  operations,  we provide a
variety of  corporate  services  and quality  assurance  procedures  designed to
assure the  operational  success of the restaurant and compliance with standards

                                       6
<PAGE>
that we require for all of our  restaurants and that Denny's,  Inc.  requires in
the case of our Denny's restaurants. Our executive management continually

          *    monitors restaurant operations,

          *    maintains management controls,

          *    inspects individual restaurants to assure the quality of products
               and services and the maintenance of facilities,

          *    develops  employee programs for efficient  staffing,  motivation,
               compensation, and career advancement,

          *    institutes procedures to enhance efficiency and reduce costs, and

          *    provides centralized support systems.

         We believe  that our quality  review  program and  executive  oversight
enhance  restaurant   operations,   reduce  operating  costs,  improve  customer
satisfaction,  and facilitate the highest level of compliance with our standards
and, in the case of our Denny's restaurants, those mandated by Denny's, Inc.

         The Black-eyed Pea restaurant  system has two regional vice presidents,
who report to our President.  Each regional vice  president is  responsible  for
eight districts, each of which is in turn supervised by a district manager. Most
district  managers are responsible for six or seven  restaurant  locations.  The
management  staff of a typical  Black-eyed Pea restaurant  consists of a general
manager, an assistant general manager,  and one or two assistant managers.  Each
Black-eyed Pea restaurant employs approximately 60 persons.

         Our vice president of operations  currently  administers the operations
of our  Denny's  restaurants.  The two  regional  vice  presidents  for  Denny's
restaurants  report to the vice president and are responsible for seven to eight
districts,  each of which is in turn supervised by a district manager.  District
managers are responsible for the six to eight restaurants within their district.
Restaurant  managers  are  responsible  for  day-to-day  operations,   including
customer  relations,  food  preparation  and service,  cost control,  restaurant
maintenance,  and personnel  relations.  As required by Denny's,  Inc., we staff
each of our Denny's  restaurants  with an on-site  general  manager,  one to two
assistant managers, and 20 to 50 full-time or part-time hourly employees.

TRAINING

         We seek to  attract  and  retain  high-quality  individuals  with prior
restaurant experience for restaurant  management positions.  We believe that the
training of our  management and other  restaurant  employees is important to our
ability to maintain the quality and  consistency  of our food and service and to
develop the  personnel  necessary to achieve our  expansion  plans.  Newly hired
employees  are reviewed at regular  intervals  during their first year,  and all
restaurant personnel receive annual performance reviews.

         We employ four full-time regional training managers to oversee training
for our  Black-eyed  Pea  restaurants.  We require  each  restaurant  management
employee  to   participate  in  a  training   program  at  designated   training
restaurants. The restaurant management training program utilizes manuals, tests,
and a scheduled  evaluation process. In addition,  we have developed  procedures
for coordinating and overseeing the opening of new Black-eyed Pea restaurants in
order to maintain quality and consistency of food and service.  Special training
teams are on hand at new  locations,  generally  for a period of one week before
and one week after each restaurant opens.

         We  maintain  a  comprehensive   training  program  that  provides  all
instructors,  facilities, and required training materials necessary to train our
Denny's  restaurant  managers and other  restaurant  management  personnel.  The
training  covers all aspects of  management  philosophy  and overall  restaurant
operations,  including  supervisory  skills,  customer  interaction,   operating
standards,  cost control techniques,  accounting procedures,  employee selection
and training,  risk  management,  and the skills  required to perform all duties
necessary for restaurant operations.  New managers work closely with experienced
managers  and district  managers to solidify  their  skills and  expertise.  The
Company designates certain experienced employees as "Certified Trainers" who are

                                       7
<PAGE>
responsible for training newly hired Denny's restaurant employees.  Our district
managers  and  general  managers  regularly  participate  in  on-going  training
efforts.

MAINTENANCE AND IMPROVEMENT OF RESTAURANTS

         We  maintain  our  Black-eyed  Pea  and  Denny's  restaurants  and  all
associated  fixtures,   furnishings,   and  equipment  in  conformity  with  the
Black-eyed  Pea and the  Denny's  system  concepts,  respectively.  We operate a
centralized  call-in  center  that  restaurant  managers  can  contact to report
maintenance or repair requirements. We then dispatch service technicians that we
employ or independent  contractors with which we have maintenance contracts.  We
also make necessary  additions,  alterations,  repairs,  and replacements to our
restaurants,  such as periodic  repainting  or  replacement  of obsolete  signs,
furnishings,  equipment, and decor, including those required by Denny's, Inc. in
the case of our  Denny's  restaurants.  We may be  required,  subject to certain
limitations,  to modernize our Denny's restaurants to the then-current standards
and specifications of Denny's, Inc.

MANAGEMENT INFORMATION SYSTEMS

         We maintain a centralized, computerized accounting system for financial
controls and  reporting  functions  for most of our  Black-eyed  Pea and Denny's
restaurants.  We generally have a point-of-sale  reporting system in each of our
Black-eyed Pea and Denny's  restaurants,  which provides sales mix  information,
labor scheduling  functions,  and weekly closeout  processes.  Our point-of-sale
compliance   center  at  our  headquarters  in  Scottsdale,   Arizona,   handles
point-of-sale  hardware,  software,  and training  issues.  Restaurant  managers
submit weekly reports on sales volume and mix, customer counts,  and labor costs
to our corporate  management.  Our  Black-eyed  Pea  restaurants  perform weekly
inventory  counts.  Each  of  our  Denny's  restaurants  maintains  "par  stock"
inventory  levels.  Our accounting  department  prepares monthly profit and loss
statements,  which  operational  managers  review and compare  with prior period
results.

SITE SELECTION

         When  evaluating  whether  and where to  develop a new  restaurant,  we
conduct an internal  screening  process to  determine a  restaurant's  estimated
profit potential. We consider the location of a restaurant to be one of the most
critical elements of the restaurant's long-term success.  Accordingly, we expend
significant  time and effort in selecting and  evaluating  potential  restaurant
sites. In conducting the site selection process, we primarily

          *    evaluate acquisition costs as well as site characteristics,  such
               as visibility, accessibility, and traffic volume,

          *    consider the restaurant's proximity to demand generators, such as
               shopping malls and other retail centers,  lodging,  entertainment
               centers, and office complexes,

          *    review potential competition, and

          *    analyze  detailed  demographic  information,  such as  population
               characteristics, density, and household income levels.

Our senior  management  evaluates  and approves  each  restaurant  site prior to
development.

FINANCING AND LEASING

         It is our  current  strategy to lease,  rather  than own,  the land and
buildings  associated with the operations of our restaurants.  Historically,  we
have entered into sale-leaseback  transactions under which the financing company
purchases the  identified  parcel of land and funds the costs of the  restaurant
construction,   excluding  the  initial  franchise  fee,  equipment  costs,  and
restaurant   pre-opening  expenses.   The  financing  company  then  leases  the
restaurant  property  back to us for up to 30 years,  including  renewal  option
periods,  under the terms of a triple-net  lease.  Our ability to effect our new
restaurant  development  strategy  depends on the  availability  of financing on
terms  and  conditions  that we  believe  are  appropriate  for the  risk of the
development.  Our inability to secure  sufficient  additional  sale-leaseback or
other financing in the future could have a significant  impact on our ability to
acquire or develop new restaurants.

                                       8
<PAGE>
         We took a number of steps  during  fiscal  1998 and 1999 to reduce  and
restructure our outstanding indebtedness in order to better match our cash flows
from operations  with our debt service  obligations.  See Item 7,  "Management's
Discussion  and  Analysis of  Financial  Condition  and Results of  Operations -
Liquidity  and  Capital  Resources."  Reference  is made to  Item  13,  "Certain
Relationships  and Related  Transactions" for additional  information  regarding
sale and lease transactions in connection with the acquisition of BEP.

EQUIPMENT, FOOD PRODUCTS, AND OTHER SUPPLIES

         A purchasing director coordinates  purchasing decisions with respect to
our  Black-eyed  Pea  restaurants.  We strive to obtain  supplies  of a high and
consistent  quality at competitive  prices from reliable  sources.  We negotiate
directly  with food  manufacturers  for the majority of our  purchases  and with
local suppliers for fresh produce,  dairy,  and meat products.  In addition,  we
contract  with  a  centralized   distribution   company  to  store  and  deliver
substantially  all of the products  and  supplies we purchase  (other than fresh
produce, meat and dairy products).

         Our  ability to  maintain  consistent  quality  throughout  our Denny's
restaurants  depends in part upon our ability to acquire from  reliable  sources
the equipment,  food products, and related items necessary to meet the standards
set by  Denny's,  Inc.  We  believe  the  maintenance  of  this  uniformity  and
consistency  enables  us to  capitalize  on the name  recognition  and  goodwill
associated  with  Denny's  restaurants.  As a result,  we lease or purchase  all
fixtures, furnishings, equipment, signs, food products, supplies, inventory, and
other products and materials  required for the  development and operation of our
Denny's  restaurants  from  suppliers  approved by Denny's,  Inc. In order to be
approved as a supplier, a prospective supplier must

          *    demonstrate to the reasonable  satisfaction of Denny's,  Inc. its
               ability to meet the then-current  standards and specifications of
               Denny's, Inc. for such items,

          *    possess adequate quality controls, and

          *    possess the capacity to provide supplies promptly and reliably.

Although  we are not  required  to acquire our  equipment  or supplies  from any
specified  supplier,  we must  obtain  the  approval  of  Denny's,  Inc.  before
purchasing or leasing any items from an unapproved supplier.

         Our Denny's  restaurants  operate on a par stock system,  which enables
restaurant  managers to place weekly  inventory orders based on historical sales
volumes,  thereby  focusing  on  customer  service  rather  than  on  purchasing
decisions.  We purchase most of our food  inventory for our Denny's  restaurants
from a single  supplier that  specializes  in providing food products to Denny's
franchisees. We believe that our purchases from this supplier enable us to

          *    maintain  a  high  level  of  quality   consistent  with  Denny's
               restaurants;

          *    realize  convenience  and  dependability  in the  receipt  of our
               supplies;

          *    avoid the costs of  maintaining  a large  purchasing  department,
               large inventories, and product warehouses; and

          *    attain cost advantages as a result of volume purchases.

We have a supply agreement with our primary supplier. We believe that food goods
could be readily purchased from a large number of vendors throughout our regions
of  operation in the event that we are unable to purchase  sufficient  inventory
from our primary  supplier.  Each of our Denny's  restaurants  purchases  dairy,
bakery, and produce goods from approved local vendors.

ADVERTISING AND MARKETING

         We use television,  radio, print advertising, and special promotions to
increase  the  traffic  and  sales  at  our  Black-eyed  Pea  restaurants.   Our
advertising campaigns are designed to communicate the distinctive aspects of the
Black-eyed  Pea concept  and are  targeted to appeal to our  customer  base.  We
employ a  full-time  vice  president  of

                                       9
<PAGE>
marketing who plans,  develops,  and  implements  advertising  campaigns for our
Black-eyed  Pea  restaurants.  We also use  full-service  advertising  agencies.
Expenditures for Black-eyed Pea advertising,  including local  promotions,  were
approximately  4.2% of Black-eyed  Pea  restaurant  sales during fiscal 1999. In
2000, we reallocated our marketing  resources to focus on local store marketing,
which  will  significantly  reduce  television  advertising  of  Black-eyed  Pea
restaurants.  Although we anticipate  that this will result in lower  same-store
sales, we expect that the decreased expenditures will result in overall improved
cash flows for our Black-eyed Pea restaurants. This change in marketing strategy
could,  however,  have an adverse  impact on our  Black-eyed  Pea  average  unit
volume.

         As  generally  required  under  the  terms  of  the  Denny's  franchise
agreements,  we  contribute  2% to 3% of  our  Denny's  restaurant  sales  to an
advertising and marketing fund controlled by Denny's,  Inc.  Denny's,  Inc. uses
this fund primarily to develop  system-wide  advertising,  sale promotions,  and
marketing  materials and programs.  The Denny's  franchise  agreements  prohibit
franchisees,  including us, from  conducting  any local,  regional,  or national
advertising  without the prior  written  consent of Denny's,  Inc.  From time to
time, Denny's, Inc. may establish advertising  cooperatives for geographic areas
not covered by existing advertising campaigns.

GOVERNMENT REGULATION

         Extensive  federal,  state, and local government  regulation affect the
development and operation of restaurants.  Each of our restaurants is subject to
licensing and regulation by state and local  departments  and bureaus of alcohol
control,  health,  sanitation,  and fire and to periodic review by the state and
municipal  authorities  for  areas in which  the  restaurants  are  located.  In
addition,  we are subject to local land use,  zoning,  building,  planning,  and
traffic  ordinances and regulations in the selection and acquisition of suitable
sites for  constructing  new  restaurants.  Delays in obtaining,  or denials of,
revocation of, or temporary suspension of, necessary licenses or approvals could
have a material adverse impact upon our  development,  acquisition or remodeling
of restaurants or our operations generally.

         We also are subject to regulation  under the Fair Labor  Standards Act,
which governs such matters as working  conditions and minimum wages. An increase
in the minimum wage rate, or changes in tip-credit provisions,  employee benefit
costs, overtime regulations, workers' compensation insurance rates, unemployment
and  other  taxes,  working  and  safety  condition   regulations,   citizenship
requirements or other costs associated with employees could adversely affect our
business.  In addition, we are subject to the Americans with Disabilities Act of
1990  that,  among  other  things,  may  require  certain  installations  in new
restaurants  or  renovations  to our  existing  restaurants  to  meet  federally
mandated requirements.

         During fiscal 1999,  sales of alcoholic  beverages  comprised less than
2.0%  of  restaurant  sales  in our  Black-eyed  Pea  restaurants  and  1.0%  of
restaurant sales in our Denny's restaurants.  The sale of alcoholic beverages is
subject to extensive  regulations.  We may be subject to  "dram-shop"  statutes,
which generally provide an individual injured by an intoxicated person the right
to recover  damages from the  establishment  that  wrongfully  served  alcoholic
beverages to that  person.  We carry  liquor  liability  coverage as part of our
existing  comprehensive  general  liability  insurance  and  have  never  been a
defendant in a lawsuit involving "dram-shop" statutes.

         We have in the past  franchised or licensed  Black-eyed Pea restaurants
to third parties and may in the future  resume our  franchising  efforts.  If we
resume franchising or licensing activities, we would be subject to Federal Trade
Commission  regulations  and  state  laws  that  regulate  the offer and sale of
restaurant  franchises,  as well as state laws that regulate substantive aspects
of the  franchisor-franchisee  relationship.  Certain  of  such  laws  also  may
restrict our ability to terminate the franchise  agreements  for our  franchised
restaurants.

TRADEMARKS AND SERVICE MARKS

         We have  registered  or have  applied for  registration  of a number of
service  marks,  including the names  "Black-eyed  Pea," "Dixie  House," and the
slogan  "Home  Cookin'  Worth Going Out For" with the United  States  Patent and
Trademark  Office and in various  states in connection  with our  Black-eyed Pea
operations.  We regard these service marks as having significant value and being
an important factor in the marketing of our restaurants.

                                       10
<PAGE>
We license the right to use the "Denny's" trademark directly from Denny's,  Inc.
We believe that the continued right to use the "Denny's"  trademark is important
to our success. We also own or license the right to use certain other trademarks
that we do not consider essential to our success.

COMPETITION

         Our Black-eyed  Pea  restaurants  compete in both the casual  mid-scale
dining segment and the family-dining segment.  Competitors of our Black-eyed Pea
restaurants  include  Applebee's  and Chili's.  As part of the nation's  largest
family-oriented,  full-service restaurant chain, our Denny's restaurants compete
primarily  with  regional  restaurant  chains  such as  International  House  of
Pancakes, Big Boy, Shoney's, Friendly's and Perkins.

         Our restaurants also compete with various types of food businesses,  as
well as other  businesses,  for  restaurant  locations.  We  believe  that  site
selection is one of the most crucial  decisions  required in connection with the
development of restaurants. As a result of the presence of competing restaurants
in our target  markets,  we devote great  attention to obtaining what we believe
will be premium  locations for new  restaurants,  although no assurances  can be
given that we will be successful in this regard.

INSURANCE

         We maintain  general  liability and property  insurance and an umbrella
and excess  liability  policy in amounts we consider  adequate and customary for
businesses of our kind. Future claims, however, may exceed insurance coverage.

EMPLOYEES

         At March  31,  2000,  we had  approximately  9,500  employees,  of whom
approximately  75 were corporate  personnel,  approximately  500 were restaurant
management  personnel,  and the remainder  were hourly  personnel.  We are not a
party to any collective bargaining  agreement.  We believe that our relationship
with our employees is good.

         Each of our typical Black-eyed Pea restaurants employs approximately 55
to 60 persons.  Each of our typical  Denny's  restaurants has  approximately  40
employees,   including   approximately  15  kitchen  personnel  and  25  service
personnel.  Many of our employees work part-time.  Restaurant  personnel,  other
than regional,  district and restaurant  managers,  are paid on an hourly basis.
Hourly rates vary according to  geographical  location,  generally  ranging from
$5.15 to $9.75 an hour for kitchen personnel. We generally pay service personnel
the applicable minimum wage plus tips.

                             SPECIAL CONSIDERATIONS

         THE FOLLOWING FACTORS, IN ADDITION TO THOSE DISCUSSED ELSEWHERE IN THIS
REPORT,  SHOULD BE  CAREFULLY  CONSIDERED  IN  EVALUATING  OUR  COMPANY  AND OUR
BUSINESS.

WE MAY NOT BE PROFITABLE AND OUR AUDITORS'  REPORT EXPRESSES  SUBSTANTIAL  DOUBT
REGARDING OUR ABILITY TO CONTINUE AS A GOING CONCERN.

         We have not been  profitable in the last three years and our operations
may not be profitable in the future.  Our ability to generate  operating profits
will depend upon

          *    our ability to refinance,  restructure,  or repay our outstanding
               debt;

          *    general economic and demographic conditions;

          *    our capital resources; and

          *    the   nature  and   extent  of  any   future   developments   and
               acquisitions.

                                       11
<PAGE>
         We cannot provide  assurance that we will be able to sell our remaining
Denny's  restaurants,  restructure  our debt, and improve the performance of our
Black-eyed Pea  restaurants  so as to achieve  profitability  in the future.  In
addition, the report by our independent auditors on our financial statements for
the year ended December 29, 1999,  states that the  uncertainty  relating to our
continuing  losses,  our  shareholders'   deficit,   the  sale  of  our  Denny's
restaurants,  and/or our ability to refinance our debt raises  substantial doubt
about our ability to continue as a going concern.  As of the filing date of this
Report,  we are in default on the payment of a $22.3 million  promissory note to
our  senior  lender.  See  Item 7,  "Management's  Discussion  and  Analysis  of
Financial   Conditions  and  Results  of  Operations  -  Liquidity  and  Capital
Reserves."

WE HAVE SIGNIFICANT INDEBTEDNESS.

         We have incurred  substantial  debt to develop and acquire  restaurants
and to operate our  business.  Our business  could be  materially  and adversely
affected  if our cash  flows  from  operations  are not  sufficient  to meet our
obligations  as they  become  due. We took a number of steps in 1998 and 1999 to
reduce and restructure our outstanding indebtedness.  We also intend to sell our
remaining  Denny's  restaurants  and to use a large portion of the proceeds from
those sales to retire our  existing  debt.  As of December  29,  1999,  we had a
working  capital  deficit of $4.1  million and total debt  obligations  of $80.6
million,  including  subordinated  notes of $16.7 million and obligations  under
capital leases aggregating $32.2 million.

         We may seek additional equity or debt financing in the future, however,
to provide funds to support our  operations or to develop or acquire  additional
restaurants. We, however, cannot provide assurance that

          *    such  financing  will  be  available  or  will  be  available  on
               satisfactory terms;

          *    we will be able to  develop  or  acquire  new  restaurants  or to
               otherwise expand our restaurant operations; or

          *    we will  be  able  to  refinance,  restructure,  or  satisfy  our
               obligations as they become due.

Any  additional  debt  financing  will  increase  expenses  and  must be  repaid
regardless of our operating  results.  Future equity  financings could result in
dilution to existing shareholders.

WE MAY HAVE SIGNIFICANT  CONTINGENT LIABILITIES ASSOCIATED WITH RESTAURANTS THAT
WE HAVE SOLD OR THAT WE SELL IN THE FUTURE.

         Since 1996, we have sold a total of 144  restaurants.  We have assigned
or subleased the real  property  leases and other  obligations  to the buyers of
these restaurants, but we generally remain liable under those obligations if the
buyers  default.  During 1999,  three buyers of restaurants  that we sold during
1997 and 1998 filed for bankruptcy or failed to perform on their  obligations to
third parties.  As a result,  we recorded  charges of $2.5 million for equipment
leases,  rents,  property  taxes,  and  other  obligations  for  which we remain
contingently  liable. As we sell our remaining Denny's restaurants and any other
underperforming   restaurants  that  we  sell  in  the  future,  we  may  remain
contingently  liable for obligations on those restaurants.  Any further defaults
by  buyers of  restaurants  that we have sold in the past or that we sell in the
future  could  have a  material  adverse  effect on our  operating  results  and
financial condition.

WE RELY ON DENNY'S, INC.

         We currently operate 97 Denny's restaurants as a Denny's franchisee. As
a result of the nature of franchising and our franchise agreements with Denny's,
Inc., for so long as we operate  Denny's  restaurants the success of our company
depends, to a significant extent, on

          *    the continued  vitality of the Denny's restaurant concept and the
               overall success of the Denny's system;

          *    the ability of Denny's,  Inc. to identify and react to new trends
               in the restaurant industry,  including the development of popular
               menu items;

                                       12
<PAGE>
          *    the  ability of Denny's,  Inc. to develop and pursue  appropriate
               marketing  strategies  in order to maintain  and enhance the name
               recognition,   reputation,   and  market  perception  of  Denny's
               restaurants;

          *    the goodwill associated with the Denny's trademark;

          *    the quality,  consistency,  and management of the overall Denny's
               system; and

          *    the successful operation of Denny's restaurants owned by Denny's,
               Inc. and other Denny's franchisees.

         Any financial  reversals or illiquidity  on the part of Advantica,  the
parent of Denny's,  Inc., could have a material adverse effect on Denny's,  Inc.
We have no control over the  management  or operation of Denny's,  Inc. or other
Denny's franchisees.  A variety of factors affecting Denny's,  Inc. could have a
material adverse effect on our company, including the following:

          *    any business reversals that may be encountered by Denny's, Inc.;

          *    a failure  by  Denny's,  Inc.  to  promote  the  Denny's  name or
               restaurant concept;

          *    the  inability  or  failure  of  Denny's,  Inc.  to  support  its
               franchisees, including our company;

          *    the failure to operate  successfully the Denny's restaurants that
               Denny's, Inc. itself owns; or

          *    negative  publicity with respect to Denny's,  Inc. or the Denny's
               name.

THE DENNY'S FRANCHISE AGREEMENTS IMPOSE RESTRICTIONS AND OBLIGATIONS ON US.

         So long as we operate  Denny's  restaurants,  the  cancellation  of the
Denny's  franchise  agreements,  which  include the right to what we believe are
favorable franchise  arrangements and the right to use the "Denny's"  trademarks
and trade styles,  would have a material  adverse  effect on our  business.  The
Denny's franchise  agreements impose a number of restrictions and obligations on
us.  We must  pay to  Denny's,  Inc.  or  accrue  royalties  and an  advertising
contribution  regardless of the  profitability of our Denny's  restaurants.  The
Denny's franchise  agreements also require us to operate our Denny's restaurants
in accordance with the requirements and  specifications  established by Denny's,
Inc.  In  addition,  Denny's,  Inc.  has the right to  require  us to modify our
restaurants to conform to the then-existing Denny's restaurant format.  Denny's,
Inc.  has  retained  the  right to open on its own  behalf  or to grant to other
franchisees  the  right  to open  other  Denny's  restaurants  in the  immediate
vicinity of our Denny's restaurants.

         An agreement between us and Denny's, Inc. gives Denny's, Inc. the right
to terminate  substantially all of the Denny's franchise agreements in the event
that CNL, as the successor to our previous senior lender,  takes certain actions
while we are in default  under the terms of our credit  facility with CNL. If we
fail to satisfy the requirements  described above or otherwise default under the
Denny's  franchise  agreements,  we could be subject to  potential  damages  for
breach of contract and could lose our rights under those agreements.

         The Denny's  franchise  agreements  also provide  that, in the event we
assign our rights under any of those  agreements,  Denny's,  Inc.  will have the
option to purchase the  interest  being  transferred.  An  assignment  under the
Denny's  franchise  agreements  will be  deemed  to have  occurred  if a person,
entity,  or group of persons (other than a group including any of Jack M. Lloyd,
William J. Howard,  and William G. Cox,  each of whom is an officer and director
of our company, or BancBoston Ventures,  Inc., a significant  shareholder of our
company) acquires voting control of our Board of Directors.

         Without the consent of Denny's, Inc., we may not directly or indirectly
own,  operate,  control,  or have any  financial  interest in any coffee shop or
family-style  restaurant  business or any other business that would compete with
the  business  of any  Denny's  restaurant,  Denny's,  Inc.,  or any  affiliate,
franchisee,  or subsidiary of Denny's, Inc., other than restaurants we currently
operate.  For two  years  after  the  expiration  or  termination  of a  Denny's
franchise agreement,  we will not be permitted,  without the consent of Denny's,
Inc.,  directly or indirectly to own,  operate,  control,  or have any financial
interest in any coffee shop or family-style restaurant

                                       13
<PAGE>
substantially  similar to a Denny's located within a 15-mile radius of a Denny's
restaurant  subject to the expired or terminated  agreement.  These restrictions
will not apply to the operation of another  Denny's  restaurant or the ownership
of less than 5% of the publicly traded stock of any other company.

WE FACE CERTAIN RISKS AFFECTING THE RESTAURANT INDUSTRY.

         The ownership and operation of restaurants may be affected by a variety
of factors over which we have no control. These factors include the following:

          *    adverse changes in national,       *    changing consumer tastes,
               regional, or local economic             habits, and spending
               or market conditions;                   priorities;

          *    increased costs of labor or        *    management problems;
               food products;
                                                  *    uninsured losses;
          *    fuel shortages and price
               increases;                         *    limited alternative uses
                                                       for properties and
          *    the number, density, and                equipment;
               location of competitors;
                                                  *    changes in government
          *    changing demographics;                  regulation; and

          *    changing traffic patterns;         *    weather conditions.

Third parties may file  lawsuits  against us based on  discrimination,  personal
injury,  claims for injuries or damages caused by serving alcoholic beverages to
an intoxicated person or to a minor, or other claims. As a multi-unit restaurant
operator, we can be adversely affected by publicity about food quality, illness,
injury,  or  other  health  and  safety  concerns  or  operating  issues  at one
restaurant  or a limited  number of  restaurants  operated  under the same name,
whether or not we actually own the  restaurants  in question.  We cannot predict
any of these  factors  with any  degree of  certainty.  Any one or more of these
factors could have a material adverse effect on our business.

WE FACE RISKS ASSOCIATED WITH COMPETITION.

         The restaurant industry is intensely competitive with respect to price,
service,  location,  personnel,  and type and  quality  of  food.  In  addition,
restaurants  compete for  desirable  restaurant  sites and the  availability  of
restaurant personnel and managers.  We have many  well-established  competitors,
including national restaurant chains and franchised  restaurant  systems,  which
have  financial and other  resources that are  substantially  greater than ours.
Certain  competitors  have been in existence for a  substantially  longer period
than we have and may be better  established in markets where our restaurants are
or may be located. The restaurant business often is affected by

          *    changes in consumer tastes or the purchasing power of consumers;

          *    national, regional, or local economic conditions;

          *    demographic trends;

          *    traffic patterns; and

          *    the type, number and location of competing restaurants.

Changes in these factors could have a material  adverse  effect on our business.
Our success will depend, in part, on our ability (and Denny's,  Inc. in the case
of our Denny's  restaurants) to identify and respond  appropriately  to changing
conditions. In addition,  factors such as inflation,  increased food, labor, and
benefit  costs,  and the  availability  of  experienced  management  and  hourly
employees,  which may adversely affect the restaurant industry in general, would
affect our restaurants.

                                       14
<PAGE>
WE WILL FACE RISKS IF WE EXPAND OUR OPERATIONS.

         We  currently  are  focusing  our  resources on selling our Denny's and
underperforming  Black-eyed Pea  restaurants  and are not planning to develop or
acquire a significant  number of restaurants  in the near future.  To the extent
that  we  develop  or  acquire   restaurants,   however,   unforeseen  expenses,
difficulties,  and delays  frequently  encountered in connection  with the rapid
expansion of operations  could hinder us from  executing an expansion  strategy.
Expanding  our  operations  also  would be  likely to cause us to  increase  our
borrowings,  which could adversely impact our operating results.  The magnitude,
timing,  and nature of future  restaurant  developments  and  acquisitions  will
depend upon various  factors,  many of which will be beyond our  control.  These
factors include our ability to:

          *    locate  and  acquire   suitable   restaurant  sites  or  existing
               restaurants;

          *    obtain adequate financing on acceptable terms;

          *    negotiate acceptable leases or terms of purchase;

          *    obtain any required consents or approvals;

          *    secure licenses and regulatory approvals;

          *    recruit and train qualified management and other personnel; and

          *    manage  successfully  the  rate of  expansion  and  our  expanded
               operations.

         We cannot provide assurance that

          *    we will be successful in developing new  restaurants or acquiring
               existing restaurants on acceptable terms and conditions;

          *    any  additional   restaurants  we  develop  or  acquire  will  be
               effectively  and  profitably  managed  and  integrated  into  our
               operations; or

          *    any   restaurants   that  we  develop  or  acquire  will  operate
               profitably.

CERTAIN  SHAREHOLDERS  MAY CONTROL OUR COMPANY AND CERTAIN OF OUR  DIRECTORS MAY
HAVE CONFLICTS OF INTEREST.

         The directors and officers of our company  currently own  approximately
35.1% of our outstanding  common stock. Jack M. Lloyd, the Chairman of the Board
and Chief  Executive  Officer of our company,  and William J. Howard,  Executive
Vice  President and a director of our company,  also hold warrants to acquire an
additional  439,834  shares of  common  stock at an  exercise  price of $.01 per
share.  In addition,  BancBoston,  a former  shareholder of DRC,  currently owns
approximately  15.8%  of  our  outstanding  common  stock.   Accordingly,   such
shareholders  collectively  have the  power to elect all of the  members  of our
Board of Directors and thereby control the business and policies of our company.

         Messrs.  Lloyd and Howard currently hold an aggregate of $16,794,000 in
principal  amount of the  Company's  Series B Notes in addition to their  common
stock and warrants. As a result of such shareholders' ability, together with our
other directors and officers, to direct the policies of our company, an inherent
conflict of interest may arise in connection with decisions regarding the timing
of and the  allocation  of assets of our  company  for the  purposes of interest
payments on, or  redemption  of, the Series B Notes.  In addition,  the Series B
Notes contain restrictive covenants relating to the operation of our company and
the maintenance of certain financial ratios and tests. A default not waived by a
majority  of the  holders  of the Series B Notes  could have a material  adverse
effect on the  holders  of our  common  stock.  Messrs.  Lloyd and  Howard  have
deferred certain payments of interest due on the Series B Notes.

                                       15
<PAGE>
WE DEPEND UPON KEY PERSONNEL.

         Our success  depends,  in large part,  upon the  services of our senior
management.  We currently have employment agreements with certain members of our
senior management.  The loss of the services of our senior management team could
have a material adverse effect on our business.

WE MUST COMPLY WITH VARIOUS GOVERNMENT REGULATIONS.

         Various federal,  state, and local laws affect our business.  The delay
or  failure  to obtain  or  maintain  any  licenses  or  permits  necessary  for
operations could have a material adverse effect on our business. In addition, an
increase  in the  minimum  wage rate,  employee  benefit  costs,  or other costs
associated with employees could adversely affect our business.

         We also are  subject to the  Americans  with  Disabilities  Act of 1990
that,  among other things,  may require the  installation of certain fixtures or
accommodations in new restaurants or renovations to our existing  restaurants to
meet federally mandated requirements. In the event that we resume franchising or
licensing  Black-eyed Pea restaurants or any other restaurants in the future, we
will be  subject to  regulation  by the  Federal  Trade  Commission  and will be
required  to comply with  certain  state laws  governing  the offer,  sale,  and
termination of franchises and the refusal to renew franchises.

OUR STOCK IS THINLY TRADED AND MAY EXPERIENCE PRICE VOLATILITY.

         The  market  price  of our  common  stock  could  be  subject  to  wide
fluctuations as a result of a variety of factors, including the following:

          *    quarterly  variations in the operating  results of our company or
               other restaurant companies;

          *    changes  in  analysts'   estimates  of  our  company's  financial
               performance;

          *    changes  in  national  and  regional  economic  conditions,   the
               financial markets, or the restaurant industry;

          *    natural disasters; or

          *    other  developments  affecting  our  company or other  restaurant
               companies.

The trading  volume of our company's  common stock has been  limited,  which may
increase the volatility of the market price for such stock.  We currently do not
meet the requirements for continued  listing on the American Stock Exchange.  In
the event that our common stock is delisted by the American  Stock  Exchange and
we are unable to have our stock  listed on another  well-recognized  exchange or
trading  market,  the  market  for our stock may become  more  illiquid  than it
currently is.

SALES OF LARGE NUMBERS OF SHARES COULD ADVERSELY  AFFECT THE PRICE OF OUR COMMON
STOCK.

         Sales of substantial  amounts of common stock in the public market,  or
even the potential for such sales,  could  adversely  affect  prevailing  market
prices  for our common  stock and could  adversely  affect our  ability to raise
capital.  As of March 31, 2000, there were outstanding  13,485,277 shares of our
common stock. Of these shares,  6,285,462 shares are freely transferable without
restriction  under the securities laws,  unless they are held by "affiliates" of
our company,  as that term is defined in the securities  laws or unless transfer
of certain  shares is restricted  as a result of  contractual  obligations.  The
remaining 7,199,815 shares of common stock currently outstanding are "restricted
securities," as that term is defined in Rule 144 under the securities  laws, and
may be sold only in compliance with Rule 144, pursuant to registration under the
securities laws, or pursuant to an exemption from registration.  Affiliates also
are subject to certain of the resale limitations of Rule 144.  Generally,  under
Rule 144, each person who beneficially  owns restricted  securities with respect
to which at least one year has  elapsed  since the later of the date the  shares
were acquired  from our company or an affiliate of our company may,  every three
months, sell in ordinary brokerage transactions or to market makers an amount of
shares equal to the greater of 1% of our company's then-outstanding common stock
or the average  weekly  trading  volume for the four weeks prior to the proposed
sale of such shares.

                                       16
<PAGE>
         The 6,937,500 shares of common stock issued to the former  shareholders
of DRC in  connection  with  the  merger  of DRC and AFR  generally  are  freely
tradeable  under Rule 145 under the Securities Act, unless held by an affiliate,
in which  case such  shares  will be  subject  to the  volume and manner of sale
restrictions under Rule 144. The former  shareholders of DRC have certain rights
with respect to  registration of the shares of common stock issued in connection
with the merger or upon exercise of the warrants  issued in connection  with the
merger.

WE DO NOT ANTICIPATE THAT WE WILL PAY DIVIDENDS.

         We have  never  paid  any  dividends  on our  common  stock  and do not
anticipate  that we will pay dividends in the foreseeable  future.  We intend to
apply  any  earnings  to the  expansion  and  development  of our  business.  In
addition,  the terms of our credit  facility  and the  indenture  governing  our
Series B Notes limit our ability to pay dividends on our common stock.

CHANGE IN CONTROL PROVISIONS MAY ADVERSELY AFFECT EXISTING SHAREHOLDERS.

         Our Articles of Incorporation,  Bylaws,  and certain  provisions of the
Georgia Business Corporation Code contain provisions that may have the effect of
making more  difficult or delaying  attempts by others to obtain  control of our
company, even when these attempts may be in the best interests of shareholders.

ITEM 2. PROPERTIES.

         We lease for a term  expiring in September  2001  approximately  20,000
square feet of office space in  Scottsdale,  Arizona,  for use as our  principal
corporate  offices.  We currently believe that these facilities are adequate for
our reasonably  anticipated needs. We also lease approximately 3,000 square feet
of office space in Dallas,  Texas, on a month-to-month basis. We use this office
for regional operations and facilities maintenance operations.

         Our  restaurants  generally  are  located  in  one-story,  freestanding
buildings  with  a  capacity  of  between  90  and  210   customers.   We  lease
substantially all the land and buildings for our restaurants.  The initial lease
terms range from 10 to 20 years and include  renewal options for up to 30 years.
Substantially  all of our current leases have remaining initial terms or renewal
options that extend for more than five years from the date of this  Report.  The
leases  generally  provide  for a  minimum  annual  rent and  additional  rental
payments if restaurant sales volume exceeds specified amounts. In addition,  the
leases  generally  require  us to pay real  estate  taxes,  insurance  premiums,
maintenance  costs,  and  certain  other  of  the  landlords'  operating  costs.
Contingent  rentals have represented less than 5% of total rent expense for each
of fiscal 1997, 1998, and 1999.  Annual base rent for each location ranges up to
approximately $245,000 a year.

ITEM 3. LEGAL PROCEEDINGS.

         There are no legal  proceedings to which we are a party or to which any
of our  properties  are subject  other than routine  litigation  incident to our
business which is covered by insurance or an indemnity, or which is not expected
to have a material adverse effect on our operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

         Not applicable.

                                       17
<PAGE>
                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

         Our common stock is traded on the  American  Stock  Exchange,  or AMEX,
under the symbol  "PRG." The  following  table sets forth the high and low sales
prices per share of our common  stock as reported  on the AMEX for the  calendar
periods indicated.

                                                      COMMON STOCK
                                                     ---------------
                                                     HIGH        LOW
                                                     ----        ---
           1997
           ----
           First Quarter.........................    $3.63      $3.00
           Second Quarter .......................     3.25       2.19
           Third Quarter.........................     2.69       1.63
           Fourth Quarter........................     3.25       1.81

           1998
           ----
           First Quarter.........................    $2.75      $1.81
           Second Quarter .......................     3.38       2.13
           Third Quarter.........................     3.50       1.75
           Fourth Quarter........................     2.38       0.88

           1999
           ----
           First Quarter.........................    $1.31      $0.88
           Second Quarter .......................     1.06       0.81
           Third Quarter.........................     1.13       0.56
           Fourth Quarter........................     0.75       0.44

           2000
           ----
           First Quarter.........................    $0.69      $0.25

         As of March 31,  2000,  there  were 91  holders of record of our common
stock.  On March 31,  2000,  the closing  sales price of our common stock on the
AMEX was $0.375 per share.

         We have  never  declared  or paid any  dividends.  We  intend to retain
earnings,  if any,  to fund the  growth of our  business  and do not  anticipate
paying any cash dividends in the foreseeable future. In addition, the payment of
dividends on our common stock is prohibited  under our credit  facility with CNL
and other outstanding debt obligations.

                                       18
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.

         The following selected  historical  consolidated  financial data of our
company for each of the fiscal years in the three-year period ended December 29,
1999  have  been  derived  from  and  should  be read in  conjunction  with  the
consolidated  financial  statements and related notes thereto included elsewhere
herein. The selected historical summary  consolidated  financial data for fiscal
1995 and 1996 are derived  from  historical  financial  statements  that are not
included elsewhere herein. See Item 7, "Management's  Discussion and Analysis of
Financial  Condition and Results of Operations - Basis of Presentation" and Note
1 to the consolidated financial statements.

<TABLE>
<CAPTION>
                                                                    AS OF AND FOR FISCAL YEAR(1)
                                                    --------------------------------------------------------
                                                      1995       1996        1997        1998         1999
                                                    --------   --------    --------    --------     --------
                                                                     (DOLLARS IN THOUSANDS)
<S>                                                 <C>         <C>          <C>          <C>           <C>
STATEMENT OF OPERATIONS DATA(2):
Restaurant sales .................................  $74,683    $241,480    $300,579    $255,956     $238,673
Charge for impaired assets .......................      523          --      14,100          --       19,264
Restaurant operating income (loss) ...............    6,643      22,137       9,101      18,116       (3,148)
Administrative expenses ..........................    3,380      10,303      13,684      12,423       12,105
Operating income (loss) ..........................    3,263      11,834      (4,583)      5,693      (15,253)
Interest expense, net ............................   (2,467)     (9,605)    (13,655)    (12,635)     (13,495)
Net income (loss) ................................      200       1,118     (20,977)     (4,657)     (25,902)

OTHER DATA:
EBITDA(3) ........................................  $ 6,722    $ 18,834    $ 18,884    $ 13,283     $ 10,096
Cash interest expense ............................    2,397       8,904      10,033       8,221        9,988
Cash provided by (used in) operating activities...    7,486       9,664      (1,458)     (1,357)         762
Cash (used in) provided by investing activities...   (8,736)     (9,393)     (6,316)     22,622       (4,345)
Cash provided by (used in) financing activities...    2,273       1,157       6,432     (20,202)       2,744
Capital expenditures .............................    7,003       9,879       8,147       2,891        4,732
Depreciation and amortization ....................    2,936       7,000       9,367       7,590        6,085
Ratio of earnings to fixed charges(4) ............     1.10        1.14          --          --           --
Number of restaurants, end of period .............      355         295         283         201          190

BALANCE SHEET DATA:
Working capital (deficit) ........................  $(9,406)   $(33,029)   $(36,417)   $(44,838)    $ (4,070)
Total assets .....................................   53,785     179,189     170,264     134,507       98,367
Long-term debt, less current portion .............   10,371      69,903      39,022      39,666       41,538
Obligations under capital leases,
  less current obligations .......................   19,881      24,229      39,396      32,828       13,370
Redeemable convertible preferred stock ...........    7,501          --          --          --           --
Shareholders' equity (deficit) ...................      564      22,128       1,248      (3,334)     (29,236)
</TABLE>

----------
(1)  Our fiscal years 1995  through 1999 ended on December 27, 1995,  January 1,
     1997,  December  31,  1997,  December  30,  1998,  and  December  29, 1999,
     respectively.
(2)  From fiscal 1995 through 1999, we consummated various acquisitions,  opened
     new restaurants, and closed or sold certain restaurants.  Revenue increases
     in each  year  from 1994  through  1997  arose  primarily  from  restaurant
     acquisitions  and openings in each year.  We sold or closed an aggregate of
     82 and 19  restaurants  during  fiscal 1998 and 1999,  respectively,  which
     contributed  to the  overall  revenue  decreases  in these years from prior
     years.
(3)  EBITDA   represents   operating  income  (loss)  before   depreciation  and
     amortization plus the charge for impaired assets. EBITDA is not intended to
     represent  cash flows from  operations  as  defined by  generally  accepted
     accounting principles and should not be considered as an alternative to net
     income  (loss) as an indication  of our  operating  performance  or to cash
     flows from operations as a measure of liquidity. EBITDA is included in this
     Report   because  it  is  a  basis  upon  which  we  assess  our  financial
     performance.
(4)  Earnings  consist of pre-tax  income after  minority  interests  plus fixed
     charges,  excluding capitalized interest.  Our fixed charges consist of (a)
     interest,  whether  expensed  or  capitalized;  (b)  amortization  of  debt
     expense, including any discount or premium whether expensed or capitalized;
     and (c) a portion  of rental  expense  representing  the  interest  factor.
     Earnings   were   inadequate   to  cover  fixed   charges  in  fiscal  1997
     ($17,719,000), fiscal 1998 ($6,942,000), and fiscal 1999 ($28,748,000).

                                       19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS.

GENERAL

         Our fiscal 1997 and 1998 results of operations were materially impacted
by the sale of over 100  restaurants.  During these  years,  revenue and related
expenses decreased significantly over prior years primarily as a result of these
divestitures. During 1999 we

          *    sold or closed a total of 3 Denny's restaurants;

          *    sold or closed 16 Black-eyed Pea restaurants; and

          *    opened eight new Black-eyed Pea restaurants.

These transactions follow our strategy of focusing on the Black-eyed Pea concept
as well as closing or selling underperforming restaurants that failed to achieve
certain  operational and financial  goals. As a result of the  construction  and
dispositions of restaurants during past fiscal periods, operating results during
a  particular  year are not  comparable  to those of  other  fiscal  years.  The
following  discussion  and  analysis  should  be read in  conjunction  with  the
information  set  forth  under  Item  6,  "Selected   Financial  Data"  and  the
consolidated financial statements and notes thereto included elsewhere herein.

         We  currently  operate  93  Black-eyed  Pea  restaurants  in 8  states,
including 81 Black-eyed Pea  restaurants in Texas,  Oklahoma,  and Arizona.  The
average unit sales for all Black-eyed Pea  restaurants  was $1.4 million in each
of fiscal 1998 and 1999 as compared  with average unit sales at  restaurants  in
Texas  and  Oklahoma  of $1.6 and $1.5  million  during  fiscal  1998 and  1999,
respectively.  Through December 29, 1999,  comparable same-store sales decreased
2.5% for all of our  Black-eyed Pea  restaurants,  while  comparable  same-store
sales  decreased by 2.0% for Black-eyed  Pea  restaurants in Texas and Oklahoma.
The guest check  average at our  Black-eyed  Pea  restaurants  is  approximately
$8.08.   At  our   Black-eyed  Pea   restaurants,   alcohol  sales  account  for
approximately 2.0% of sales, and carryout sales account for approximately  11.7%
of sales.

         As of December  29,  1999,  we operated  97 Denny's  restaurants  in 17
states. Our Denny's restaurants that were open for a 12-month period had average
restaurant sales of $1.1 million in fiscal 1999 as compared with $1.0 million in
fiscal 1998. Comparable store sales increased  approximately 1.4% in fiscal 1999
and the average guest check was approximately $5.62.

                                       20
<PAGE>
COMPARISON OF RESULTS OF OPERATIONS

         The following table presents, for the periods indicated,  certain items
in the historical consolidated statements of operations as a percentage of total
restaurant sales.

                                                          FISCAL YEAR
                                                --------------------------------
                                                 1997        1998        1999
                                                ------      ------      ------
Restaurant sales:
   Black-eyed Pea restaurants ..............      43.4%       54.6%       56.6%
   Denny's restaurants .....................      54.9        45.2        43.4
   Other restaurants .......................       1.7         0.2          --
                                                ------      ------      ------
     Total restaurant sales ................     100.0%      100.0%      100.0%
                                                ------      ------      ------
Restaurant operating expenses:
   Food and beverage costs .................      27.4        27.4        27.1
   Payroll and payroll related costs .......      34.4        34.4        34.7
   Other operating expenses ................      27.4        28.1        28.9
   Depreciation and amortization ...........       3.1         3.0         2.5
Charge for impaired assets .................       4.7          --         8.1
                                                ------      ------      ------
     Total restaurant operating expenses ...      97.0        92.9       101.3
                                                ------      ------      ------
Restaurant operating income (loss) .........       3.0         7.1        (1.3)
Administrative expenses ....................       4.6         4.9         5.1
                                                ------      ------      ------
Operating income (loss) ....................      (1.6)        2.2        (6.4)
Interest expense, net ......................      (4.5)       (4.9)       (5.7)
Minority interest in joint ventures ........       0.2          --          --
                                                ------      ------      ------
Income (loss) before income taxes and
  extraordinary item .......................      (5.9)       (2.7)      (12.1)
Income tax provision (benefit) .............       1.1        (0.4)       (1.8)
                                                ------      ------      ------
Income (loss) before extraordinary item ....      (7.0)       (2.3)      (10.3)
Extraordinary gain (loss) ..................        --         0.5        (0.6)
                                                ------      ------      ------
Net income (loss) ..........................      (7.0)%      (1.8)%     (10.9)%
                                                ======      ======      ======

FISCAL 1999 COMPARED WITH FISCAL 1998

         RESTAURANT SALES.  Restaurant sales decreased 6.8% to $238.7 million in
fiscal 1999 as compared with restaurant  sales of $256.0 million in fiscal 1998.
This decrease was primarily  attributable to the sale of 71 restaurants in March
1998.

         FOOD AND BEVERAGE COSTS.  Food and beverage costs decreased to 27.1% of
restaurant  sales in fiscal 1999 as compared with 27.4% of  restaurant  sales in
fiscal 1998. This decrease was attributable to (a) efforts by our Black-eyed Pea
research and development and purchasing departments to renegotiate contracts and
achieve cost savings through use of current food technology,  and (b) lower food
costs at our Denny's restaurants.

         PAYROLL AND PAYROLL  RELATED COSTS.  Payroll and payroll  related costs
were  34.7% of  restaurant  sales  in  fiscal  1999 as  compared  with  34.4% of
restaurant  sales in fiscal  1998.  This  increase  was  attributable  to higher
unemployment rates and increased workers' compensation costs.

         OTHER  OPERATING  EXPENSES.  Other  operating  expenses  were  28.9% of
restaurant  sales in fiscal 1999 as compared with 28.1% of  restaurant  sales in
fiscal 1998. The increase of $3.1 million was primarily attributable to start-up
costs  associated with the eight new Black-eyed Pea restaurants  opened in 1999.
Due to an  accounting  change in 1999,  we now expense  these costs  immediately
instead of amortizing them over 12 months as we did in prior years.

         DEPRECIATION  AND   AMORTIZATION.   Depreciation  and  amortization  of
restaurant  equipment  and  leasehold   improvements,   intangible  assets,  and
pre-opening  costs totaled $6.1 million,  or 2.5% of restaurant sales, in fiscal
1999 as compared with $7.6 million, or 3.0% of restaurant sales, in fiscal 1998.
The decrease of $1.5 million was attributable to the  reclassification of assets
as being held for sale. In  accordance  with SFAS No. 121,

                                       21
<PAGE>
we ceased  depreciation of the assets associated with our Denny's restaurants at
the end of September 1999 after we determined to sell all of those restaurants.

         CHARGE FOR IMPAIRED ASSETS.  During 1999, we recorded total charges for
impaired  assets of $19.3 million.  These charges  consisted of (a) $2.9 million
related to 16 Black-eyed  Pea  restaurants  that we closed during the year,  (b)
$1.5  million  to  reflect  increased   estimates  of  liabilities   related  to
restaurants closed in prior periods where we determined that the cost and timing
of subleasing those properties will exceed previous estimates,  (c) $4.8 million
related to 68 Denny's and 19  non-branded  restaurants  that we sold in 1997 and
1998 where we remain contingently liable for equipment leases,  rents,  property
taxes,  and other  obligations  on which three  buyers filed for  bankruptcy  or
failed to perform their  obligations to third parties,  (d) $8.9 million related
to the  write  down of  goodwill  and  intangible  assets  associated  with  our
remaining  Denny's  restaurants,  which we decided to sell during 1999,  and (e)
$1.2 million related to the write down of a Black-eyed Pea investment in a joint
venture.

         RESTAURANT  OPERATING  INCOME (LOSS).  Restaurant  operating  income of
$18.1 million in fiscal 1998  decreased by $21.2 million to an operating loss of
$3.1 million in fiscal  1999.  This  decrease  was  primarily as a result of the
$19.3 million charge for impaired assets described above.

         ADMINISTRATIVE  EXPENSES.  Administrative expenses increased to 5.1% of
restaurant  sales in fiscal 1999 as compared  with 4.9% of  restaurant  sales in
fiscal 1998.  This increase was primarily the result of increased legal expenses
associated with EEOC claims.

         INTEREST EXPENSE-NET.  Net interest expense increased to $13.5 million,
or 5.7% of restaurant  sales, in fiscal 1999 as compared with $12.6 million,  or
4.9% of restaurant  sales, in fiscal 1998. This increase was  attributable to an
increase in long term debt of $5.4  million and an increase in  amortization  of
deferred financing costs of $409,000.

         INCOME  TAXES.  The benefit  from income tax was $4.3 million in fiscal
1999 as compared  with the benefit  from income tax of $914,000 in fiscal  1998.
The  benefit  from  income  tax in fiscal  1999  resulted  from the tax  benefit
associated with the charge for impaired assets.

         EXTRAORDINARY  LOSS.  The  extraordinary  loss in fiscal 1999  resulted
primarily from the expensing of certain deferred financing costs associated with
the early payoff of certain debt obligations.

FISCAL 1998 COMPARED WITH FISCAL 1997

         RESTAURANT SALES.  Restaurant sales decreased $44.6 million,  or 14.8%,
to $256.0  million in fiscal 1998 as compared  with  restaurant  sales of $300.6
million in fiscal 1997. This decrease was primarily  attributable to the sale of
Denny's  restaurants in March 1998 and an approximately $1.1 million decrease in
Black-eyed  Pea franchise  revenue.  In 1998,  the  Black-eyed  Pea  restaurants
accounted  for 54.6% of total sales as compared  with 42.9% in fiscal  1997.  We
expect this percentage to continue to increase.

         FOOD  AND  BEVERAGE  COSTS.  Food  and  beverage  costs  were  27.4% of
restaurant  sales in each of fiscal  1998 and 1997.  Food  costs at our  Denny's
restaurants  decreased from 26.6% of restaurant sales in fiscal 1997 to 26.0% in
fiscal  1998,  primarily  due to the sale of lower volume  restaurants  and same
store sales increases. Food costs attributable to the Black-eyed Pea restaurants
decreased from 28.8% of restaurant sales in fiscal 1997 to 28.6% in fiscal 1998,
as a result of lower commodity prices and improved operational controls.

         PAYROLL AND PAYROLL  RELATED COSTS.  Payroll and payroll  related costs
were 34.4% of restaurant  sales in each of fiscal 1998 and fiscal 1997.  Payroll
and payroll  related costs at our Denny's  restaurants  decreased  from 35.3% of
restaurant  sales in  fiscal  1997 to 34.5% in fiscal  1998.  This  decrease  is
attributable  to the sale of lower  volume  restaurants  and  same  store  sales
increases.  Payroll and payroll related costs attributable to the Black-eyed Pea
restaurants  increased from 32.9% of restaurant sales in fiscal 1997 to 33.8% in
fiscal 1998 due principally to increased fringe benefits.

                                       22
<PAGE>
         OTHER  OPERATING  EXPENSES.  Other  operating  expenses  were  28.1% of
restaurant  sales in fiscal 1998 as compared with 27.4% of  restaurant  sales in
fiscal  1997.  This  increase was  attributable  to (a) an increase in occupancy
costs as a percentage of restaurant sales associated with our remaining  Denny's
restaurants  subsequent  to the sale of  restaurants  in March 1998,  and (b) an
increase in costs  associated with Denny's  promotional  items,  offset by (c) a
decrease in utility costs.

         DEPRECIATION  AND   AMORTIZATION.   Depreciation  and  amortization  of
restaurant  equipment  and  leasehold   improvements,   intangible  assets,  and
pre-opening  costs totaled $7.6 million,  or 3.0% of restaurant sales, in fiscal
1998 as compared with $9.4 million, or 3.1% of restaurant sales, in fiscal 1997.
The $1.8  million  decrease  was  attributable  to the reduced  amortization  of
goodwill  associated  with the sale of  restaurants  in March  1998 and  reduced
amortization of pre-opening  costs related to restaurants  opened in 1997. These
decreases were partially  offset by increased  depreciation  associated with the
acquisition of certain Black-eyed Pea restaurants in September 1997.

         RESTAURANT OPERATING INCOME. Restaurant operating income increased $9.0
million to $18.1  million in fiscal 1998 as compared with $9.1 million in fiscal
1997. This increase was principally the result of the charge for impaired assets
of $14.1 million in fiscal 1997, offset by the factors described above.

         ADMINISTRATIVE EXPENSES. Administrative expenses decreased $1.3 million
to $12.4  million in fiscal 1998 as compared  with $13.7 million in fiscal 1997.
This  decrease  is  attributable  to a  reduction  in the  administrative  costs
associated  with the  restaurants  sold in March 1998 and various cost reduction
initiatives  implemented  in  1997,  offset  by the  costs  associated  with the
proposed merger and a reduction in overall restaurant sales.

         INTEREST  EXPENSE-NET.  Net interest expense  decreased $1.1 million to
$12.6 million in fiscal 1998 from $13.7  million in fiscal 1997.  Expressed as a
percentage of restaurant  sales,  interest expense increased from 4.5% in fiscal
1997 to 4.9% in fiscal 1998.  This increase is the result of reduced  restaurant
sales in fiscal 1998.

         INCOME  TAXES.  The income tax benefit was $0.9 million for fiscal 1998
as compared  with an income tax  provision of $3.3 million in fiscal 1997.  This
change was the result of a non-deductible expense associated with the charge for
impaired assets in fiscal 1997 as compared with the tax benefit  associated with
the net loss in fiscal 1998.

         EXTRAORDINARY GAIN. The extraordinary gain in fiscal 1998 resulted from
the discount associated with the repayment of a promissory note in March 1998.

LIQUIDITY AND CAPITAL RESOURCES

         In order to provide us with the flexibility to

          *    refinance certain debt obligations to better match operating cash
               flows with debt amortization,

          *    improve our portfolio of operating restaurants, and

          *    position our company for growth,

we have pursued a strategy to repay our senior debt obligations. During 1999, we
reduced our total liabilities from $137.8 million to $127.6 million. Included in
this $10.2  million  reduction  was a decrease in  long-term  debt  obligations,
including current portion,  of $12.7 million.  This decrease in indebtedness was
primarily  attributable  to the  reclassification  of $17.9  million  of capital
leases to assets  held for  sale.  The  following  paragraphs  describe  certain
transactions  we completed in fiscal 1999 that affect our  liquidity and capital
resources.

         On June 30, 1999, we  consummated a $20.1 million  financing  agreement
with CNL APF  Partners,  LP whereby  CNL  purchased  the  remaining  outstanding
indebtedness   under  our  existing  senior  credit  facility  and  advanced  an
additional $5.4 million to us. As a result of our decision to sell our remaining
Denny's restaurants, we and CNL have

                                       23
<PAGE>
agreed to modify the financing agreement. In August 1999, this debt was modified
to be interest  only through  January 31, 2000. As of December 29, 1999, we were
in compliance with the terms and conditions of our various debt  agreements.  As
of January 31,  2000,  the entire  principal  balance  was due. As no  principal
payments  have  been  made we are  currently  in  default  on the  note.  We are
currently  negotiating  with CNL to modify  the  payment  terms of the note.  We
cannot provide assurance, however, that we and CNL will agree to an extension or
other revisions of the payment terms of the note that will be acceptable to us.

         In conjunction with the aforementioned  transaction, we entered into an
agreement with Denny's,  Inc. whereby  approximately $2.6 million of royalty and
advertising  obligations  were  converted  into  notes  payable.   Approximately
$800,000 of these notes payable were  satisfied  through the  cancellation  of a
Denny's  development  rights  agreement  and the transfer or assignment of three
restaurant leasehold properties from our company to Denny's,  Inc. The remaining
note payable of $1.8 million bears interest at 11%, is due in November 2000, and
is secured by the leasehold interests and equipment in four Denny's restaurants.
The consideration we received in connection with these transactions approximated
our carrying  value.  We anticipate that the $1.8 million note will be paid upon
the sale of the Denny's restaurants.

         In connection with the CNL transaction  described above, as of June 30,
1999, we wrote off  approximately  $2.0 million of deferred  financing costs. We
have included the $2.0 million before-tax amount as an extraordinary item in the
accompanying financial statements.

         In October 1999, we retained CNL Advisory  Services to act as our agent
in the disposition of our remaining 97 Denny's restaurants. We intend to use the
proceeds from the sale of these  restaurants to reduce our outstanding  debt and
for other corporate  purposes.  We believe that these steps will better position
our company for profitability and enhanced  shareholder value. We cannot provide
assurance,  however,  that  we  will be  able  to  sell  our  remaining  Denny's
restaurants, restructure our debt, and improve the performance of our Black-eyed
Pea restaurants so as to achieve  profitability in the future. In addition,  the
report by our  independent  auditors on our  financial  statements  for the year
ended December 29, 1999, states that the uncertainty  relating to our continuing
losses, our shareholders'  deficit, the sale of our Denny's restaurants,  and/or
our ability to refinance our debt raises  substantial doubt about our ability to
continue as a going concern.

         We, and the restaurant  industry  generally,  operate  principally on a
cash basis with a relatively small amount of receivables.  Therefore,  like many
other  companies in the restaurant  industry,  we operate with a working capital
deficit.  Our working capital deficit was $44.8 million at December 30, 1998 and
$4.1 million at December 29, 1999. We expect that we will operate with a working
capital deficit in the future.

         Historically, we have satisfied our capital requirements through credit
facilities  and   sale-leaseback   financings.   We  currently  require  capital
principally for the development of new restaurants and maintenance  expenditures
on  existing  restaurants.  Expenditures  for  property  and  equipment  totaled
approximately  $8.1 million for fiscal 1997,  $2.9 million for fiscal 1998,  and
$4.7  million  for fiscal  1999.  We intend to pursue  opportunities  to develop
additional  Black-eyed Pea  restaurants as we identify  favorable  locations and
acceptable  sources of financing for new restaurants.  The following  paragraphs
describe our cash flow activities during fiscal 1999.

         Net cash from operating  activities increased from $1.4 million used in
fiscal 1998 to $762,000 provided by operations in fiscal 1999. Net cash provided
by operating  activities  in 1999  included an increase of accounts  payable and
accrued  liabilities of $2.2 million in fiscal 1999. This increase was primarily
attributable to certain liabilities associated with restaurants sold or closed.

         Net  cash  from  investing  activities  decreased  from  $22.6  million
provided in fiscal 1998 to $4.3 million used in fiscal 1999.  In fiscal 1999, we
opened eight new Black-eyed Pea  restaurants.  In 1998, we had proceeds of $26.0
million from the sale of assets,  primarily the sale of 71  restaurants in March
1998.

         Net cash from financing  activities  changed from $20.2 million used by
financing  activities  in fiscal  1998 to $2.7  million  provided  by  financing
activities  in fiscal 1999. In fiscal 1998, we used the majority of the proceeds
from sale of assets to reduce our long term debt obligations. In fiscal 1999, we
used construction lease financing to build eight new Black-eyed Pea restaurants.

         In March 1998,  we sold 63 Denny's  restaurants  and eight  non-branded
restaurants to Olajuwon Holdings,  Inc. ("OHI").  The restaurants were subleased
under a master sublease agreement (the "Sublease Agreement").  Subsequent to the
consummation  of the  transaction,  OHI defaulted on its  obligations  under the
Sublease Agreement.  As a result of the default, we took legal action to protect
our interest in the underlying leased properties.  On January 7, 2000, OHI filed
for protection under Chapter 11 of the bankruptcy code. In February 2000, we and
OHI  entered  into a  mediated  settlement  agreement.  Under  the  terms of the
settlement  agreement,  the  Sublease  Agreement  has been amended to reduce the
number of restaurants  subject to the Sublease Agreement by 22. All right, title
and interest to the 22 subleases and associated  property will be transferred to
us.  We will  have sole  responsibility  to  negotiate  the  termination  or the
continuation of the 22 subleases.  OHI and its lender will place $1.5 million in
escrow to be released to us upon termination of the 22 subleases. As a result of
the  settlement,  we recorded an allowance  against the entire $1.8 million note
receivable from OHI.

                                       24
<PAGE>
SEASONALITY

         Our operating  results fluctuate from quarter to quarter as a result of
the seasonal nature of the restaurant industry and other factors. Our restaurant
sales are  generally  greater  in the second and third  fiscal  quarters  (April
through September) than in the first and fourth fiscal quarters (October through
March).  Occupancy and other operating costs, which remain relatively  constant,
have a  disproportionately  negative effect on operating results during quarters
with lower  restaurant  sales. Our working capital  requirements  also fluctuate
seasonally,  with our  greatest  needs  occurring  during  our first and  fourth
quarters.

INFLATION

         We do not believe that inflation has had a material effect on operating
results in past years.  Although  increases in labor,  food, or other  operating
costs could  adversely  affect our  operations,  we generally  have been able to
modify our operating procedures or to increase prices to offset increases in our
operating costs.

YEAR 2000 COMPLIANCE

         Prior to  January 1, 2000,  we  engaged an outside  consulting  firm to
address our  internal  Year 2000  issues and to convert or upgrade our  internal
accounting system and  restaurant-level  point-of-sale and accounting systems to
ensure Year 2000 compliance.  As of the filing date of this Report,  we have not
experienced and are not aware of any material  disruption to our operations as a
result of any failure of any of our  systems to function  properly as of January
1, 2000. We also have not experienced  any Year 2000 failures  related to any of
our third-party  vendors. To date we have not received any notification from any
of our  key  vendors  of any  year  2000  problems  or  disruptions.  Year  2000
compliance has many elements and potential  consequences,  some of which may not
be foreseeable  or may be realized in future  periods.  In addition,  unforeseen
circumstances  may arise,  and we may not in the future  identify  equipment  or
systems that are not Year 2000 compliant.

NEW ACCOUNTING STANDARDS

         In April 1998,  the  Accounting  Standards  Executive  Committee of the
American  Institute of Certified Public Accountants issued Statement of Position
No.  98-5,  or SOP 98-5,  "Reporting  on the Costs of Start-up  Activities."  We
elected  early  adoption  of SOP 98-5 in fiscal 1998 and now expense as incurred
all pre-opening  costs. The effect of this change did not have a material impact
on our financial statements.

         In June 1998,  the FASB issued SFAS No. 133,  ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING Activities.  This standard, as amended, is effective for
fiscal years beginning after June 15, 2000. SFAS No. 133 establishes  accounting
and reporting standards for derivative instruments,  including those imbedded in
other contracts,  and for hedging activities.  It requires all derivatives to be
recognized  as either  assets  or  liabilities  in the  statement  of  financial
position  and  measured  at fair  value.  We have not  completed  the process of
evaluating  the impact  that will  result  from  adopting  SFAS No.  133. We are
therefore  unable to disclose the impact that adopting SFAS No. 133 will have on
our financial position and results of operations when such statement is adopted.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

         At  December  29,  1999,  we did  not  participate  in  any  derivative
financial  instruments or other  financial and commodity  instruments  for which
fair value disclosure would be required under Statement of Financial  Accounting
Standards  No.  107. We do not hold  investment  securities  that would  require
disclosure  of market risk and we do not engage in currency  speculation  or use
derivative instruments to hedge against known or forecasted market exposures.

                                       25
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         Reference is made to the financial statements,  the report thereon, and
the  notes  thereto  commencing  at page  F-1 of this  report,  which  financial
statements, report, and notes are incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

         Not applicable.

                                       26
<PAGE>
                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

         The following table sets forth certain information with respect to each
of our directors and executive officers.

        NAME              AGE                 POSITION
        ----              ---                 --------
Jack M. Lloyd..........   50   Chairman of the Board and Chief Executive Officer

William G. Cox.........   51   President, Chief Operating Officer, and Director

William J. Howard......   55   Executive Vice President, Secretary, and Director

Robert J. Gentz........   50   Executive Vice President and Director

Brian S. McAlpine......   38   Acting Chief Financial Officer

Fred W. Martin.........   69   Director

Robert H. Manschot.....   56   Director

         JACK M. LLOYD has  served as our  Chairman  of the Board  since July 9,
1996 and as Chief  Executive  Officer and a director of our company  since March
29, 1996.  Mr. Lloyd served as our President from March 1996 until October 1999.
Mr.  Lloyd  served as Chairman of the Board and Chief  Executive  Officer of DRC
from 1987  until  March  1996 and  served as  President  of DRC from 1987  until
November  1994.  Mr. Lloyd engaged in  commercial  and  residential  real estate
development and property  management as President of First Federated  Investment
Corporation during the early and mid-1980s. Mr. Lloyd also currently serves as a
director of Action Performance Companies,  Inc. and Star Buffet, Inc., which are
publicly held companies.

         WILLIAM G. COX has served as our Chief Operating Officer and a director
of our company since March 29, 1996 and as our President since October 1999. Mr.
Cox served as Vice President - Operations for Denny's, Inc. from June 1993 until
November 1995, with  responsibility  for  approximately  590  company-owned  and
franchised  Denny's  restaurants  located  throughout the United States. Mr. Cox
served as a Senior Vice President of Flagstar and as Chief Operating  Officer of
Flagstar's  "Quincy's"  restaurant  chain  from May 1992 to June  1993.  Mr. Cox
served as Vice President of Eastern Operations of Denny's,  Inc. from March 1991
to May 1992 and as a Regional Manager and Division Leader for Denny's, Inc. from
1981 to March 1991. Mr. Cox joined  Denny's,  Inc. as a  Manager-in-Training  in
September 1977 and had advanced to the position of Regional Manager by 1981.

         WILLIAM J. HOWARD has served as Executive Vice President of our company
since July 9, 1996 and as  Secretary  and a director of our company  since March
29, 1996.  Mr. Howard  served as a Vice  President of our company from March 29,
1996 until July 9, 1996.  Mr.  Howard  served as President of DRC from  November
1994 until March 1996 and as a director  of DRC from 1990 until March 1996.  Mr.
Howard  served as Vice  President  of DRC from 1990 until  November  1994 and as
Chief  Financial  Officer of DRC from 1990 until August  1994.  Prior to joining
DRC, Mr.  Howard held numerous  senior  management  positions  with Citicorp and
Citibank,  including  Senior  Vice  President  and Senior  Credit  Officer  with
Citicorp Mortgage, Inc.

         ROBERT  J.  GENTZ has  served as our  Executive  Vice  President  since
January  1997 and as a director  of our company  since  October  1999.  Prior to
joining our company,  Mr. Gentz spent nine years as Executive Vice President for
CNL Group, Inc., a diversified  investment company that specializes in providing
financing  to the  restaurant  industry.  Mr.  Gentz also  served as Director of
Development for Wendy's International, Inc. from 1982 through 1987, where he was
responsible for company-owned and franchised restaurants in various regions.

                                       27
<PAGE>
         BRIAN S.  MCALPINE  has served as our Acting  Chief  Financial  Officer
since  October  1999.  Mr.  McAlpine  served as Vice  President - Finance of our
company from October 1997 to October 1999,  and as our Director of Planning from
July 1996 until October  1997.  Mr.  McAlpine  served as Manager of Planning for
Denny's,  Inc. from April 1993 to July 1996 and as Senior Financial Analyst from
June 1991 to April 1993.

         FRED W. MARTIN has served as a director of our company  since March 29,
1996.  Mr.  Martin  served as a director of DRC from  November  1994 until March
1996. Mr. Martin served as Western  Regional  Director of Franchise  Development
with  Denny's,  Inc.  from  1985 to 1994,  during  which  time he  approved  and
developed 400 franchise and company locations for Denny's,  Inc.  throughout the
western United States.  Mr. Martin served as Western Real Estate  Representative
with Denny's, Inc. from 1979 until 1985.

         ROBERT H.  MANSCHOT  has  served as a  director  of our  company  since
January  1999.  Mr.  Manschot  currently  serves as the  Managing  Director  and
Chairman of Manschot  Investment Group L.L.C., an investment fund that is in the
business  of  identifying  and  investing  in  companies  that have  significant
potential for growth; as Chairman of Silicon Entertainment, Inc., which develops
entertainment  centers that employ  interactive  virtual-reality  technology for
simulated stock car racing;  as Chairman and Chief Executive Officer of Seceurop
Security  Services and GeldNet,  which are  privately  held  emergency  services
companies  operating in Europe; as Chairman of RHEM  International  Enterprises,
Inc.,  which  engages  in  business  consulting  services  and  venture  capital
activities; and as Chairman of Motorsports Promotions,  Inc. Mr. Manschot served
as President and Chief Executive Officer of Rural/Metro Corporation,  a publicly
held provider of ambulance and fire protection services, from October 1988 until
March 1995. Mr.  Manschot  joined  Rural/Metro in October 1987 as Executive Vice
President,  Chief Operating Officer, and a member of its Board of Directors. Mr.
Manschot was with the Hay Group,  an  international  consulting  firm, from 1978
until October 1987,  serving as Vice President and a partner from 1984, where he
led  strategic  consulting  practices in Europe,  Asia,  and the western  United
States. Prior to joining the Hay Group, Mr. Manschot spent 10 years with several
leading  international hotel chains in senior operating positions in Europe, the
Middle East,  Africa,  and the United States. Mr. Manschot currently serves as a
director of Action Performance  Companies,  Inc., a publicly traded company, and
as a director of Thomas Pride  Development,  Inc., First Wave, Inc.,  TouchScape
Corporation,  WAM Interactive UK, and Sports  Southwest,  Inc., all of which are
privately held companies.

         All of our  directors  hold  office  until our next  annual  meeting of
shareholders or the election and qualification of their  successors.  The former
shareholders of DRC collectively own a sufficient number of shares of our common
stock  to elect  all of the  members  of our  Board  of  Directors.  There is no
agreement or understanding  between us and any of the persons who constitute our
Board of Directors as to their serving on our Board of Directors in the future.

         Our Board of Directors  maintains an Audit  Committee,  a  Compensation
Committee,  a 1992 Stock  Option Plan  Committee,  and a 1995  Directors'  Stock
Option  Plan  Committee.   During  fiscal  1999,  Messrs.  Martin  and  Manschot
constituted the Audit Committee,  the Compensation Committee, and the 1992 Stock
Option  Plan  Committee;  and  Messrs.  Lloyd and  Howard  constituted  the 1995
Directors' Stock Option Plan Committee.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section  16(a) of the  Securities  Exchange  Act of 1934,  as  amended,
requires our  directors,  executive  officers,  and persons who own more than 10
percent  of a  registered  class of our  equity  securities  to file  reports of
ownership and changes in ownership with the Securities and Exchange  Commission.
Directors,  executive  officers,  and greater than 10 percent  shareholders  are
required by SEC regulations to furnish us with copies of all Section 16(a) forms
they file.  Based solely upon our review of the copies of such forms received by
us during the fiscal year ended December 29, 1999,  and written  representations
that no other  reports  were  required,  we believe that each person who, at any
time during such fiscal year, was a director,  officer,  or beneficial  owner of
more than 10 percent of our common stock  complied with all Section 16(a) filing
requirements during such fiscal year, except that Brian S. McAlpine filed a late
Form 5 to report his beneficial  ownership of our securities as of the date that
he became subject to the reporting requirements of Section 16.

                                       28
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.

         The following table sets forth information  concerning the compensation
of  our  Chief  Executive  Officer  and  each  of the  four  other  most  highly
compensated  executive  officers whose cash salary and bonuses exceeded $100,000
during the fiscal year ended December 29, 1999.

                           SUMMARY COMPENSATION TABLE

                                                                     LONG-TERM
                                                                    COMPENSATION
                                                                    ------------
                                                                       AWARDS
                                                                    ------------
                                           ANNUAL COMPENSATION       SECURITIES
                                 FISCAL   ----------------------     UNDERLYING
NAME AND PRINCIPAL POSITION       YEAR    SALARY$(1)    BONUS($)      OPTIONS(#)
---------------------------       ----    ----------    --------    ------------
Jack M. Lloyd, Chairman of the    1999    $520,000      $    --             --
Board and Chief Executive         1998     520,000           --             --
Officer                           1997     520,000           --             --

William G. Cox, President and     1999    $220,000      $    --             --
Chief Operating Officer           1998     220,000       50,000             --
                                  1997     220,000           --             --

William J. Howard, Executive      1999    $260,000      $    --             --
Vice President and Secretary      1998     260,000           --             --
                                  1997     260,000           --             --

Robert J. Gentz, Executive        1999    $175,000      $    --             --
Vice President                    1998     175,000       50,000             --
                                  1997     166,027(3)        --        100,000

Todd S. Brown, Senior Vice        1999    $145,384      $    --             --
President, Chief Financial        1998     160,000       50,000             --
Officer, and Treasurer(2)         1997     127,372           --             --

----------
(1)  Each of officers listed received  certain  perquisites,  the value of which
     did not exceed 10% of their salary during fiscal 1999.

(2)  Mr. Brown  resigned as an executive  officer and director of our company in
     October 1999.

(3)  Represents  amounts  accrued or paid beginning on January 6, 1997, the date
     of Mr. Gentz's employment with the Company.

OPTION GRANTS

         We did not grant any stock  options to the officers  listed  during the
fiscal year ended December 29, 1999.

                                       29
<PAGE>
OPTION HOLDINGS

         The following  table sets forth  information  concerning the number and
value of all options held at December 29, 1999, by the officers listed.  None of
the officers listed exercised any options during fiscal 1999.

                             YEAR-END OPTION VALUES

                           NUMBER OF SECURITIES         VALUE OF UNEXERCISED
                          UNDERLYING UNEXERCISED        IN-THE-MONEY OPTIONS
                        OPTIONS AT FISCAL YEAR-END    AT FISCAL YEAR-END ($)(1)
                       ---------------------------    --------------------------
      NAME             EXERCISABLE   UNEXERCISABLE    EXERCISABLE  UNEXERCISABLE
      ----             -----------   -------------    -----------  -------------
Jack M. Lloyd..........       --            --             N/A           N/A
William G. Cox.........  240,000        60,000            $  0          $  0
William J. Howard......       --            --              --            --
Robert J. Gentz........  100,000            --            $  0          $  0
Todd S. Brown(2).......       --            --             N/A           N/A

----------
(1)  The exercise prices of all options held by the officers listed were greater
     than the closing  price of our common  stock of $0.50 per share on December
     29, 1999.

(2)  Options held by Mr. Brown  expired  pursuant to their terms  following  his
     resignation as an officer and director of our company.

401(k) PLAN

         In April 1998, we  established a defined  contribution  plan, or 401(k)
Plan,  that  qualifies as a cash or deferred  profit sharing plan under Sections
401(a) and 401(k) of the Internal  Revenue Code of 1986,  as amended.  Under the
401(k) Plan,  participating  employees may defer from 1% to 15% of their pre-tax
compensation,  subject to the maximum  dollar amount  allowed under the Internal
Revenue  Code.  In  addition,   the  401(k)  Plan  provides  that  we  may  make
discretionary contributions to participating employees in such amounts as may be
determined  by our  Board of  Directors.  Highly  compensated  employees  of our
company,  including executive  officers,  are not eligible to participate in the
401(k) Plan.

EMPLOYMENT AGREEMENTS

GENERAL

         We currently are a party to employment  agreements  with William G. Cox
and Robert J. Gentz. In addition to the provisions of the individual  employment
agreements as described below, the employment agreements generally require us to

          *    provide  each person  with  certain  medical  and life  insurance
               benefits;

          *    reimburse them for all travel, entertainment,  and other ordinary
               and necessary  expenses  incurred in connection with our business
               and their duties under their  respective  employment  agreements;
               and

          *    provide  such  other  fringe  benefits  that  we  make  generally
               available to all of our employees on a non-discriminatory basis.

The employment  agreements with Messrs. Cox and Gentz require us to provide each
such officer with an  automobile  for use in connection  with our  business.  In
addition,  in the event of a "change of control" of our  company,  as defined in
employment agreements,  we will be required to pay each of Messrs. Cox and Gentz
a lump sum equal to their  respective fixed salaries for the greater of one year
or the  balance of the  then-current  term of  employment  under the  applicable
agreement, and all of Messrs. Cox's and Gentz's unvested stock options, if

                                       30
<PAGE>
any, will immediately  vest and become  exercisable in full. The agreements also
contain provisions that prohibit the respective officer from

          *    competing with us,

          *    taking  certain  actions  intended  to solicit  other  persons to
               terminate their business relationship with us or to terminate his
               or her employment relationship with us, and

          *    making  unauthorized  use  or  disclosure  of  our  trade  names,
               fictitious names, or confidential information.

WILLIAM G. COX

         In December 1995, we entered into an employment  agreement with William
G. Cox, which became  effective upon  consummation of the merger of AFR and DRC.
Effective January 1, 1998, we amended the original employment agreement with Mr.
Cox.  Pursuant to his agreement  with us, Mr. Cox serves as our Chief  Operating
Officer at a base salary of $220,000 per year.  The agreement also provides that
Mr. Cox will be eligible  to receive an annual  bonus of up to 50% of his annual
base salary pursuant to a bonus pool plan to be established by and  administered
in the sole discretion of our company.  Pursuant to the agreement, we granted to
Mr. Cox  options to  purchase  300,000  shares of our common  stock.  Mr.  Cox's
agreement,  as  amended,  continues  until  December  31,  2000 and  will  renew
automatically  from  year to year  thereafter,  unless  and until  either  party
terminates by giving the other party written  notice not less than 60 days prior
to the end of the  then-current  term. We may  terminate the agreement  only for
cause, as defined in the agreement.

ROBERT J. GENTZ

         In January 1997, we entered into an employment agreement with Robert J.
Gentz  pursuant to which Mr. Gentz serves as our Executive Vice  President.  The
employment  agreement  provides  for a base  salary of  $175,000  per  year.  In
addition,  the agreement  provides that Mr. Gentz will be eligible to receive an
annual  bonus of up to $50,000 per year based upon  standards  to be agreed upon
between Mr. Gentz and us. Pursuant to the agreement, we reimbursed Mr. Gentz for
certain relocation expenses and granted to Mr. Gentz options to purchase 100,000
shares of our common  stock.  Mr.  Gentz'  agreement  expires  in January  2001,
subject to extension for additional  one-year  periods under mutually  agreeable
terms and conditions.

STOCK OPTION PLANS

1996 STOCK OPTION PLAN

         On December  10, 1996,  our Board of  Directors  adopted our 1996 Stock
Option Plan. Our  shareholders  approved the 1996 Plan on June 26, 1997. A total
of 500,000  shares of our common stock have been reserved for issuance under the
1996 Plan.  The 1996 Plan is intended to promote the interests of our company by
encouraging  key persons  associated  with our company to acquire,  or otherwise
increase,  their proprietary  interest in our company and an increased  personal
interest in our continued success and progress. The 1996 Plan provides for

          *    the grant of options to acquire our common stock,

          *    the direct grant of awards of common stock,

          *    the grant of stock appreciation rights, or SARs, and

          *    the grant of other cash awards.

       If any option or SAR terminates or expires  without having been exercised
in full,  stock not issued under such option or SAR will again be available  for
the  purposes  of the 1996 Plan.  The 1996 Plan is  intended to comply with Rule
16b-3 as promulgated  under the Exchange Act with respect to persons  subject to
Section 16 of the  Exchange  Act. As of March 29, 2000,  there were  outstanding
options to acquire  20,000 shares of common stock under the 1996 Plan.  The 1996
Plan will remain in effect until December 9, 2006.

                                       31
<PAGE>
         Options  and awards may be  granted  pursuant  to the 1996 Plan only to
persons who at the time of grant are either

          *    key personnel  (including officers and directors) of our company,
               or

          *    consultants  or  independent  contractors  who  provide  valuable
               services to our company.

Options  granted  pursuant to the 1996 Plan may be  incentive  stock  options or
non-qualified  stock  options.  Options that are incentive  stock options may be
granted only to our key personnel who are also employees of our company.  To the
extent  that  granted  options  are  incentive  stock  options,  the  terms  and
conditions  of  those  options  must  be  consistent   with  the   qualification
requirements  set forth in the  Internal  Revenue  Code.  The maximum  number of
shares of stock with  respect  to which  options or awards may be granted to any
employee  during  the term of the 1996  Plan may not  exceed 50  percent  of the
shares of common stock covered by the 1996 Plan.

         The  exercise  price of any option  intended to be an  incentive  stock
option may not be less than 100 percent of the fair  market  value of our common
stock at the time of the grant (110 percent if the option is granted to a person
who at the time the option is granted owns stock possessing more than 10 percent
of the total combined voting power of all classes of our stock).  Options may be
granted  for  terms of up to 10 years and will vest and  become  exercisable  in
whole  or in one or more  installments  as may be  determined  at the  time  the
options are granted. To exercise an option, the optionholder will be required to
deliver to our company full  payment of the exercise  price for the shares as to
which the option is being  exercised.  Generally,  options can be  exercised  by
delivery of cash, check, or shares of our common stock.

         SARs will  entitle  the  recipient  to  receive a payment  equal to the
appreciation  in market value of a stated  number of shares of common stock from
the price on the date the SAR was  granted  or became  effective  to the  market
value of the common  stock on the date the SARs are  exercised  or  surrendered.
Stock  awards will entitle the  recipient to receive  shares of our common stock
directly.  Cash awards will entitle the recipient to receive direct  payments of
cash  depending on the market value or the  appreciation  of the common stock or
other  securities of our company.  The plan  administrators  may determine  such
other terms, conditions, or limitations,  if any, on any awards granted pursuant
to the 1996 Plan.

AMENDED AND RESTATED 1992 STOCK OPTION PLAN

         A total of 1,000,000  shares of our common stock have been reserved for
issuance  under our Amended and Restated  1992 Stock Option Plan.  The 1992 Plan
limits the persons  eligible to receive options to directors,  consultants,  and
key employees, including officers, of our company or a subsidiary of our company
and "key persons" who are not employees  but have  provided  valuable  services,
have incurred  financial risk on behalf of our company,  or have extended credit
to our company or our subsidiaries.  The 1992 Plan provides that options granted
to employees may be incentive stock options or non-qualified options pursuant to
the Internal  Revenue  Code.  Key persons who are not  employees are eligible to
receive  only  non-qualified  options.  The 1992 Plan is intended to comply with
Rule 16b-3 as promulgated under the Exchange Act with respect to persons subject
to Section 16 of the Exchange Act. As of March 29, 2000, we have issued  217,833
shares of common stock and there were outstanding  options to acquire a total of
501,500  shares of common  stock under the 1992 Plan.  An  aggregate  of 280,667
shares of common stock remains  available for option grants under the 1992 Plan.
The 1992 Plan terminates on April 1, 2002.

         Incentive  stock  options may not have an exercise  price less than the
fair market  value of our common stock on the grant date,  except  that,  in the
case of an incentive  stock option granted to any participant who owns more than
10% of our outstanding  voting shares,  the exercise price must be at least 110%
of the fair market  value of our common  stock on the date of grant and the term
of the option may be no longer than five years.  Options that are not  incentive
stock  options  may not have an  exercise  price  less than the  greater  of the
minimum   price   required  by   applicable   state  law,  by  our  Articles  of
Incorporation,  or the par value of our common stock.  Options  generally may be
exercised by delivery of any combination of cash, shares of our common stock, or
by  delivering  to us a promissory  note upon such terms and  conditions  as our
Board of Directors may determine.

                                       32
<PAGE>
1995 DIRECTORS STOCK OPTION PLAN

         A total of  300,000  shares of common  stock  have  been  reserved  for
issuance  under our 1995  Directors  Stock Option Plan.  The purpose of the 1995
Plan  is to  promote  the  interests  of our  company  and our  shareholders  by
strengthening  our ability to attract and retain the services of experienced and
knowledgeable  non-employee  directors  and by  encouraging  such  directors  to
acquire an increased  proprietary interest in our company. As of March 31, 1999,
there were  outstanding  options  to acquire a total of 43,068  shares of common
stock under the 1995 Plan. The 1995 Plan terminates on January 16, 2005.

         Options to purchase  10,000  shares of common  stock are  automatically
granted to each of our non-employee  directors on the date of his or her initial
election to our Board of Directors or  re-election  at an annual  meeting of our
shareholders.  Directors  who are first  elected  or  appointed  to our Board of
Directors on a date other than an annual meeting date are automatically  granted
options to purchase the number of shares of common stock equal to the product of
10,000  multiplied  by a fraction,  the numerator of which is the number of days
during  the  period  beginning  on such grant date and ending on the date of the
next  annual  meeting,  and the  denominator  of which is 365.  If no meeting is
scheduled  at a time a director is first  elected or  appointed  to our Board of
Directors,  the date of the next annual meeting is deemed to be the 120th day of
the fiscal year next  following  the interim grant date.  The exercise  price of
each option is the fair market  value of our common  stock on the  business  day
preceding  the date of grant,  and the term of each  option  may not  exceed ten
years.  One-half of the options  granted vest and become  exercisable  after the
first year of continuous  service as a director  following  the automatic  grant
date,  and the  remainder  vest  and  become  exercisable  after  two  years  of
continuous service on our Board of Directors.

DIRECTOR COMPENSATION

         Employees  of our  company do not receive  compensation  for serving as
members  of our  Board  of  Directors.  Non-employee  members  of our  Board  of
Directors  receive  cash  compensation  in the  amount  of  $10,000  per  annum.
Non-employee  directors receive automatic grants of stock options under the 1995
Directors Stock Option Plan.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         Fred W.  Martin  and  Robert  H.  Manschot  served  as  members  of the
Compensation  Committee of our Board of Directors  during  fiscal 1999.  None of
such  individuals  had any  contractual  or other  relationships  with us during
fiscal 1999 except as directors.

INDEMNIFICATION AND LIMITATION OF PERSONAL LIABILITY OF DIRECTORS

         Our Bylaws  require us to indemnify our directors and officers  against
liabilities  that they may incur while serving in such  capacities,  to the full
extent permitted and in the manner required by the Georgia Business  Corporation
Code, or GBCC. Pursuant to these provisions, we will indemnify our directors and
officers against any losses incurred in connection with any threatened, pending,
or completed action, suit or proceeding, whether civil, criminal, administrative
or  investigative,  by reason of the fact that he or she is or was a director or
officer of our company or served with another  corporation,  partnership,  joint
venture,  trust or other enterprise at our request. In addition, we will advance
expenses incurred in defending any such action, suit, or proceeding upon receipt
of an  undertaking  by or on behalf of such  director  or  officer to repay such
advances  if it is  ultimately  determined  that  he or she is not  entitled  to
indemnification  by us. We have entered  into  indemnification  agreements  with
certain of our  directors  and  executive  officers  pursuant  to the  foregoing
provisions of our Bylaws.

         As  permitted  by the  GBCC,  our  Articles  of  Incorporation  contain
provisions  that  eliminate  the personal  liability  of directors  for monetary
damages to our company or our  shareholders for breach of their fiduciary duties
as directors.  In accordance  with the GBCC,  these  provisions do not limit the
liability of a director for

          *    any  appropriation  of a business  opportunity  of our company in
               violation of the director's duty,

                                       33
<PAGE>
          *    acts  or  omissions  that  involve  intentional  misconduct  or a
               knowing violation of law,

          *    any dividend  payment,  stock  repurchase,  stock  redemption  or
               distribution in liquidation that is prohibited under Georgia law,
               or

          *    any merger from which the director  derived an improper  personal
               benefit.

These  provisions  do not limit or  eliminate  our  rights or the  rights of any
shareholder to seek an injunction or any other non-monetary  relief in the event
of a breach of a director's fiduciary duty. In addition,  these provisions apply
only to claims  against a director  arising out of his or her role as a director
and do not relieve a director from  liability for  violations of statutory  law,
such as certain  liabilities  imposed on a director under the federal securities
laws.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         The following table sets forth certain information regarding the shares
of the our common stock  beneficially  owned as of March 31, 2000 by each of our
directors and executive  officers,  all directors and executive  officers of our
company as a group, and each person known by us to be the beneficial owner of 5%
or more of the our common stock.

                                                      NUMBER         PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL HOLDER(1)           OF SHARES(2)     OWNERSHIP(2)
----------------------------------------           ------------     ------------

DIRECTORS AND EXECUTIVE OFFICERS
--------------------------------
Jack M. Lloyd                                      3,469,727(3)         25.2%
William G. Cox                                       301,000(4)          2.2%
William J. Howard                                  1,700,363(5)         12.5%
Robert J. Gentz                                      100,000(6)           *
Brian S. McAlpine                                      3,500(7)           *
Fred W. Martin                                        37,000(8)           *
Robert H. Manschot                                    11,534(9)           *
All directors and executive officers as a
  group (seven persons)                            5,623,124            39.1%

NON-MANAGEMENT 5% SHAREHOLDER
-----------------------------
BancBoston Ventures, Inc.(10)                      2,124,352            15.8%

----------
*    Less than 1.0% of the outstanding shares of common stock.

(1)  Except as  otherwise  indicated,  each  person  named in the table has sole
     voting and investment  power with respect to all common stock  beneficially
     owned by him,  subject to  applicable  community  property  law.  Except as
     otherwise indicated, each of such persons may be reached through us at 7373
     N. Scottsdale Road, Suite D-120, Scottsdale, Arizona 85253.
(2)  The  numbers  and  percentages  shown  include  the shares of common  stock
     actually  owned as of March 31,  2000 and the shares of common  stock which
     the person or group had the right to  acquire  within 60 days of such date.
     In  calculating  the  percentage of  ownership,  all shares of common stock
     which the  identified  person or group had the right to  acquire  within 60
     days of March 31, 1999 upon the  exercise of options or warrants are deemed
     to be outstanding for the purpose of computing the percentage of the shares
     of common  stock  owned by such  person or group,  but are not deemed to be
     outstanding  for the purpose of computing  the  percentage of the shares of
     common stock owned by any other person.
(3)  Represents  3,176,504  shares of common stock and 293,223  shares  issuable
     upon exercise of Series B warrants.
(4)  Represents  1,000 shares of common stock and 300,000 shares of common stock
     issuable upon the exercise of vested options.

                                       34
<PAGE>
(5)  Represents  1,553,752  shares of common stock and 146,611  shares  issuable
     upon exercise of Series B warrants.
(6)  Represents  100,000 shares of common stock issuable upon exercise of vested
     options.
(7)  Represents  500 shares of common stock and 3,000 shares  issuable  upon the
     exercise of vested options.
(8)  Represents  7,000 shares of common stock held by Mr.  Martin and his spouse
     and 30,000 shares issuable upon the exercise of vested options.
(9)  Represents  11,534  shares of common  stock  issuable  upon the exercise of
     vested options.
(10) BancBoston  Ventures,  Inc. is a subsidiary  of Fleet  Boston  Corporation,
     which may be deemed to be the beneficial owner of such shares.  The address
     of BancBoston  Ventures,  Inc. and Fleet Boston Corporation are 100 Federal
     Street, Boston, Massachusetts 02110.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         In connection  with the financing of our acquisition of BEP, LH Leasing
Company,  Inc.,  a  corporation  owned by Jack M. Lloyd and  William J.  Howard,
purchased from us for cash in the amount of $14.25 million the equipment located
at 62 Black-eyed Pea restaurants leased by BEP, our wholly owned subsidiary,  or
Texas BEP, L.P., a limited  partnership in which BEP is the general  partner and
in which a wholly owned subsidiary of BEP is the limited  partner.  Concurrently
with the sale of the equipment to LH Leasing, LH Leasing leased the equipment to
us and we subleased the equipment to BEP or Texas BEP. The equipment lease has a
term of five years and grants us an option to purchase the equipment at its fair
market  value  upon the  expiration  of the  lease.  The terms of the  subleases
between us and each of BEP and Texas BEP are consistent with the terms set forth
in the  equipment  lease  between us and LH  Leasing.  Messrs.  Lloyd and Howard
formed LH Leasing as an accommodation to us to enable our company to satisfy the
requirements  of our  senior  lenders.  Messrs.  Lloyd and  Howard  received  no
material compensation for the transactions involving us and LH Leasing.

         In order to finance its sale and lease  transaction with us, LH Leasing
borrowed cash in the amount of $14.25 million from Franchise Finance Corporation
of America, or FFCA. Messrs.  Lloyd and Howard jointly and severally  guaranteed
the repayment of the loan. In addition,  Messrs.  Lloyd and Howard pledged their
stock in LH Leasing to FFCA as additional collateral for the loan.

         In  addition  to the loan from FFCA to LH Leasing as  described  above,
Jack M. Lloyd and William J. Howard each have personally  guaranteed  certain of
our indebtedness and other obligations under leases and franchise agreements.

         Jack M. Lloyd holds  $11,196,000  in  principal  amount of our Series B
notes,  and William J. Howard holds $5,598,000 in principal amount of our Series
B notes.  Mr. Lloyd and Mr.  Howard have  deferred  interest due on the Series B
notes as of each of September  30, 1997,  March 31,  1998,  September  30, 1998,
March 31, 1999,  and  September  30, 1999.  As of December 29, 1999,  we were in
technical default of certain financial covenants in the Series B notes, owed Mr.
Lloyd deferred interest totaling approximately  $4,556,672,  and owed Mr. Howard
deferred interest totaling approximately $2,321,012.

                                       35
<PAGE>
                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a)  FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES:

     (1)  Financial Statements are listed in the Index to Consolidated Financial
          Statements on page F-1 of this Report.

     (2)  No Financial  Statement  Schedules  are included  because they are not
          applicable or are not required or the  information  required to be set
          forth therein is included in the consolidated  financial statements or
          notes thereto.

(b)  REPORTS ON FORM 8-K.

     Not applicable.

(c)  EXHIBITS - INDEX OF EXHIBITS

EXHIBIT NO.                        DESCRIPTION OF EXHIBIT
-----------                        ----------------------
   3.1          Articles of  Restatement  of the  Articles of  Incorporation  of
                American  Family  Restaurants,  Inc.  and  Articles of Amendment
                thereto.(1)
   3.1A         Articles  of  Amendment  to the  Articles  of  Incorporation  of
                DenAmerica Corp., as filed on July 2, 1997.(2)
   3.2          Amended  and  Restated  Bylaws of American  Family  Restaurants,
                Inc.(3)
   3.3          Certificate of Merger of Denwest  Restaurant Corp. into American
                Family Restaurants, Inc.(4)
   4.2          Form of Indenture between DenAmerica Corp. and State Street Bank
                and Trust  Company,  as trustee,  relating to the Series B Notes
                (including the Form of Series B Note).(4)
   4.4          Form of Series B Common Stock Purchase Warrant.(5)
   4.5          Common Stock  Purchase  Warrant dated March 29, 1996,  issued to
                Banque Paribas.(4)
   4.6          Supplemental Indenture (Series B Notes) between DenAmerica Corp.
                and State Street Bank and Trust Company, as trustee(6)
   4.8          Common  Stock  Purchase  Warrant  dated July 3, 1996,  issued to
                Banque Paribas(6)
   10.1         American Family Restaurants, Inc. 1992 Stock Option Plan.(1)
   10.1A        American  Family  Restaurants,  Inc.  Amended and Restated  1992
                Stock Option Plan.(1)
   10.2         American  Family   Restaurants,   Inc.  Directors  Stock  Option
                Plan.(1)
   10.60        Form of Franchise Agreement between American Family Restaurants,
                Inc. and Denny's, Inc.(1)
   10.60A       Letter Agreement between American Family  Restaurants,  Inc. and
                Denny's,  Inc.,  dated September 13, 1994,  regarding  change of
                control provisions.(1)
   10.60B       Letter Agreement between American Family  Restaurants,  Inc. and
                Denny's,  Inc., dated September 13, 1994, regarding  non-compete
                provisions.(1)
   10.60A       Schedule of  franchise  agreements  substantially  identical  to
                Exhibit 10.60.(1)
   10.73        Employment  Agreement  dated  December 8, 1995 between  American
                Family Restaurants, Inc. and William G. Cox.(5)
   10.73A       Amendment  Agreement  dated  as  of  January  1,  1998,  between
                DenAmerica  Corp.  and William G. Cox,  amending the  Employment
                Agreement  dated  December  8,  1995,  between  American  Family
                Restaurants, Inc. and William G. Cox.(7)
   10.78        Amendment  to  American  Family  Restaurants,  Inc.  Amended and
                Restated 1992 Stock Option Plan.(5)
   10.79        Letter Agreement,  dated December 20, 1995, from American Family
                Restaurants,  Inc.  to  Denny's,  Inc.  and  Denwest  Restaurant
                Corp.(5)
   10.80        Form of Registration Rights Agreement to be entered into between
                American  Family  Restaurants,  Inc. and certain of the existing
                shareholders of Denwest Restaurant Corp.(5)

                                       36
<PAGE>
   10.90        Intercreditor  Agreement among DenAmerica Corp., certain holders
                of DenAmerica's  Series B Notes, and State Street Bank and Trust
                Company.(4)
   10.95        Stock Option Agreement dated March 29, 1996,  between DenAmerica
                Corp. and William G. Cox.(4)
   10.98        Intercreditor  Agreement among DenAmerica Corp., certain holders
                of DenAmerica's  Series B Notes, and State Street Bank and Trust
                Company.(6)
   10.99        Sale  and  Lease  Agreement  dated  July  3,  1996,  among  FFCA
                Acquisition Corporation,  Black-eyed Pea U.S.A., Inc., and Texas
                BEP, L.P.(6)
   10.100       Form of Lease dated July 3, 1996, between FFCA Acquisition Corp.
                and DenAmerica Corp.(6)
   10.101       Form of Sublease dated July 3, 1996,  between  DenAmerica  Corp.
                and Black-eyed Pea U.S.A., Inc.(6)
   10.102       Form of Sublease dated July 3, 1996,  between  DenAmerica  Corp.
                and Texas BEP, L.P.(6)
   10.103       Equipment  Purchase  Agreement  and Bill of Sale  dated  July 3,
                1996,  between LH  Leasing  Company,  Inc.  and  Black-eyed  Pea
                U.S.A., Inc.(6)
   10.104       Equipment  Purchase  Agreement  and Bill of Sale  dated  July 3,
                1996, between LH Leasing Company, Inc. and Texas BEP, L.P.(6)
   10.105       Equipment Lease dated July 3, 1996,  between LH Leasing Company,
                Inc. and DenAmerica Corp.(6)
   10.106       Equipment  Sublease dated July 3, 1996, between DenAmerica Corp.
                and Black-eyed Pea, U.S.A., Inc.(6)
   10.107       Equipment  Sublease dated July 3, 1996, between DenAmerica Corp.
                and Texas BEP, L.P.(6)
   10.110       DenAmerica Corp. 1996 Stock Option Plan.(8)
   10.111       Loan and Security  Agreement  dated as of September  30, 1997 by
                and among DenAmerica Corp., CNL Growth Corp.,  Midsouth Foods I,
                Ltd., and Midsouth Foods II, Ltd.(2)
   10.112       5-Year 5% Convertible  Redeemable  Debenture dated September 30,
                1997 in the principal amount of $4,400,000.(2)
   10.113       Subordinated  Promissory  Note dated  September  30, 1997 in the
                principal amount of $7,700,000.(2)
   10.114       Registration  Rights  Agreement  dated as of September  30, 1997
                between DenAmerica Corp., and CNL Growth Corp.(2)
   10.115       Agreement dated as of September 30, 1997 by and among DenAmerica
                Corp., Beck Holdings, Inc. and Unigate Holdings, NV.(2)
   10.116       Asset  Purchase   Agreement   dated  January  27,  1998,   among
                DenAmerica   Corp.,   Olajuwon   Holdings,   Inc.,  and  Akinola
                Olajuwon.(9)
   10.117       First Amendment to Asset Purchase Agreement dated March 16, 1998
                between DenAmerica Corp.,  Olajuwon Holdings,  Inc., and Akinola
                Olajuwon.(9)
   10.118       Promissory  Note dated March 25, 1998,  from Olajuwon  Holdings,
                Inc.  to   DenAmerica   Corp.   in  the   principal   amount  of
                $1,800,000.(9)
   10.119       Negative  Working  Capital  Note  dated  March  25,  1998,  from
                Olajuwon  Holdings,  Inc. to  DenAmerica  Corp. in the principal
                amount of $1,700,000.(9)
   10.121       Commitment  Letter dated April 13, 1999, from CNL Fund Advisors,
                Inc. to DenAmerica Corp.  regarding  $3,000,000 of new equipment
                financing and  modification and  consolidation  with $15,400,000
                existing equipment financing.(10)
   10.122       Commitment  Letter  dated  April  13,  1999  from CNL  Financial
                Services,  Inc. to DenAmerica  Corp.  regarding total cumulative
                loan not to exceed $17,100,000.(10)
   12.1         DenAmerica Corp. Ratio of Income to Fixed Charges.
   21.2         List of Subsidiaries of DenAmerica Corp.(10)
   23.1         Consent of Deloitte & Touche LLP.
   25.2         Form T-1 statement of  eligibility  and  qualification  of State
                Street Bank and Trust Company relating to the Series B Notes.(5)
   27.1         Financial Data Schedule.

----------

                                       37
<PAGE>
(1)  Incorporated by reference to the Exhibits to the Registrant's  Registration
     Statement on Form S-1, File No. 33-80550, and Amendments 1-3 thereto, filed
     on June 22, 1994,  September  16, 1994,  October 13, 1994,  and October 17,
     1994, respectively.
(2)  Incorporated  by reference to the  Exhibits to the  Registrant's  Quarterly
     Report on Form 10-Q for the  quarter  ended  October 1,  1997,  as filed on
     November 17, 1997.
(3)  Incorporated  by reference to the  Exhibits to the  Registrant's  Quarterly
     Report on Form 10-Q for the quarter  ended March 27, 1996,  as filed on May
     16, 1996.
(4)  Incorporated  by  reference  to the  Exhibits to the  Registrant's  Current
     Report on Form 8-K as filed on April 15, 1996,  as amended by Form 8-K/A as
     filed on June 12, 1996.
(5)  Incorporated by reference to the Exhibits to the Registrant's  Registration
     Statement on Form S-4, No. 333-00216, and Amendment No. 1 thereto, as filed
     on January 10, 1996 and February 1, 1996, respectively.
(6)  Incorporated  by  reference  to the  Exhibits to the  Registrant's  Current
     Report on Form 8-K as filed on July 18,  1996,  as amended by Form 8-K/A as
     filed on September 16, 1996,  Form 8-K/A as filed on November 1, 1996,  and
     Form 8-K/A as filed on November 6, 1996.
(7)  Incorporated  by reference to the  Exhibits to the  Registrant's  Quarterly
     Report on Form 10-Q for the quarter  ended  April 1, 1998,  as filed on May
     15, 1998.
(8)  Incorporated by reference to the Exhibits to the Registrant's Annual Report
     on Form 10-K for the year  ended  January  1,  1997,  as filed on March 31,
     1997.
(9)  Incorporated  by  reference  to the  Exhibits to the  Registrant's  Current
     Report on Form 8-K as filed on April 9, 1998.
(10) Incorporated by reference to the Exhibits to the Registrant's Annual Report
     on Form 10-K for the year ended  December 30,  1998,  as filed on April 14,
     1999.

                                       38
<PAGE>
                                   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,  on this 11th day of
April, 2000.

                                       DenAmerica Corp.


                                       By: /s/ Jack M. Lloyd
                                           -------------------------------------
                                           Jack M. Lloyd
                                           Chairman of the Board and
                                           Chief Executive Officer

         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 in the capacities and on the dates indicated.

      SIGNATURE                      TITLE                             DATE
      ---------                      -----                             ----

/s/ Jack M. Lloyd           Chairman of the Board and             April 11, 2000
------------------------    Chief Executive Officer
Jack M. Lloyd               (Principal Executive Officer)


/s/ William G. Cox          President, Chief Operating            April 11, 2000
------------------------    Officer, and Director
William G. Cox


/s/ William J. Howard       Executive Vice President,             April 11, 2000
------------------------    Secretary, and Director
William J. Howard


/s/ Robert J. Gentz         Executive Vice President and          April 11, 2000
------------------------    Director
Robert J. Gentz


/s/ Brian S. McAlpine       Acting Chief Financial Officer        April 11, 2000
------------------------    (Principal Financial and
Brian S. McAlpine           Accounting Officer)


/s/ Fred W. Martin          Director                              April 11, 2000
------------------------
Fred W. Martin


/s/ Robert H. Manschot      Director                              April 11, 2000
------------------------
Robert H. Manschot

                                       39
<PAGE>
                         PHOENIX RESTAURANT GROUP, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                            Page
                                                                            ----
Independent Auditors' Report.................................................F-2

Consolidated Balance Sheets as of December 31, 1998 and 1999.................F-3

Consolidated Statements of Operations for each of three years
  in the period ended December 31, 1999......................................F-4

Consolidated Statements of Changes in Shareholders' (Deficit)
  Equity for each of the three years in the period ended
  December 31, 1999..........................................................F-5

Consolidated Statements of Cash Flows for each of the three
  years in the period ended December 31, 1999................................F-6

Notes to Consolidated Financial Statements...................................F-8

                                       F-1
<PAGE>
                     [LETTERHEAD OF DELOITTE & TOUCHE LLP]

INDEPENDENT AUDITORS' REPORT

Board of Directors and Shareholders
Phoenix Restaurant Group, Inc.
Scottsdale, Arizona

We have audited the  consolidated  balance sheets of Phoenix  Restaurant  Group,
Inc. (formerly DenAmerica Corp.) and subsidiaries (the "Company") as of December
31,  1998 and 1999,  and the  related  consolidated  statements  of  operations,
shareholders'  equity  (deficit),  and cash  flows for each of the three  fiscal
years in the period  ended  December  31,  1999.  These  consolidated  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
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,  such consolidated  financial  statements present fairly, in all
material  respects,  the financial position of Phoenix Restaurant Group, Inc. at
December 31, 1998 and 1999,  and the results of their  operations and their cash
flows for each of the three years in the period  ended  December  31,  1999,  in
conformity with generally accepted accounting principles.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated  financial  statements,  the uncertainty  relating to the Company's
continuing losses,  shareholders'  deficit,  the sale of its Denny's restaurants
and/or ability to refinance its debt raises  substantial doubt about its ability
to continue as a going concern. Management's plan concerning this matter is also
described in Note 1. The  consolidated  financial  statements do not include any
adjustments that might result from the outcome of this uncertainty.

/s/ DELOITTE & TOUCHE LLP
Phoenix, Arizona

April 11, 2000

                                       F-2
<PAGE>
PHOENIX RESTAURANT GROUP, INC
AND SUBSIDIARIES
(Formerly DenAmerica Corp.)

CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
--------------------------------------------------------------------------------

                                                              December 31,
                                                         ----------------------
ASSETS                                                     1998         1999
                                                         ---------    ---------
CURRENT ASSETS:
  Cash and cash equivalents                              $   2,330    $   1,491
  Receivables                                                2,636        2,244
  Inventories                                                2,917        1,087
  Deferred income taxes                                        838       11,700
  Other current assets                                       4,695        4,761
  Net assets held for sale                                               42,128
                                                         ---------    ---------
          Total current assets                              13,416       63,411
PROPERTY AND EQUIPMENT - Net                                55,648       20,619
INTANGIBLE ASSETS - Net                                     50,580       11,117
DEFERRED INCOME TAXES                                        5,578
OTHER ASSETS                                                 9,285        3,220
                                                         ---------    ---------
TOTAL                                                    $ 134,507    $  98,367
                                                         =========    =========

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
  Accounts payable                                       $  18,026    $  17,778
  Accrued compensation                                       5,402        5,237
  Accrued taxes                                              5,089        4,733
  Other current liabilities                                  8,946       14,082
  Current debt obligations                                  20,791       25,651
                                                         ---------    ---------
          Total current liabilities                         58,254       67,481
LONG-TERM DEBT OBLIGATIONS - Less current portion           72,494       54,908
OTHER LONG-TERM LIABILITIES                                  7,093        5,214
                                                         ---------    ---------
          Total liabilities                                137,841      127,603
                                                         ---------    ---------
COMMITMENTS AND CONTINGENCIES (notes 9, 11, and 15)

SHAREHOLDERS' DEFICIT:
  Preferred stock, $.01 par value; authorized,
    5,000,000 shares; issued and outstanding, none
  Common stock, $.10 par value; authorized,
    40,000,000 shares; issued and outstanding,
    13,485,277 shares                                        1,349        1,349
  Additional paid-in capital                                35,869       35,869
  Accumulated deficit                                      (40,552)     (66,454)
                                                         ---------    ---------
          Total shareholders' deficit                       (3,334)     (29,236)
                                                         ---------    ---------
TOTAL                                                    $ 134,507    $  98,367
                                                         =========    =========

See notes to consolidated financial statements.

                                       F-3
<PAGE>
PHOENIX RESTAURANT GROUP, INC.
AND SUBSIDIARIES
(Formerly DenAmerica Corp.)

CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands Except for Per Share Data)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                    --------------------------------------------
                                                        1997            1998            1999
                                                    ------------    ------------    ------------
<S>                                                 <C>             <C>             <C>
RESTAURANT SALES                                    $    300,579    $    255,956    $    238,673
                                                    ------------    ------------    ------------
RESTAURANT OPERATING EXPENSES:
  Food and beverage costs                                 82,255          70,046          64,740
  Payroll and payroll related costs                      103,451          88,118          82,725
  Other operating expenses                                82,305          72,086          69,007
  Depreciation and amortization                            9,367           7,590           6,085
  Charge for impaired assets                              14,100                          19,264
                                                    ------------    ------------    ------------
          Total operating expenses                       291,478         237,840         241,821
                                                    ------------    ------------    ------------
RESTAURANT OPERATING INCOME (LOSS)                         9,101          18,116          (3,148)
ADMINISTRATIVE EXPENSES                                   13,684          12,423          12,105
                                                    ------------    ------------    ------------
OPERATING INCOME (LOSS)                                   (4,583)          5,693         (15,253)
INTEREST EXPENSE - Net                                    13,655          12,635          13,495
MINORITY INTEREST IN JOINT VENTURES                         (519)
                                                    ------------    ------------    ------------

(LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM        (17,719)         (6,942)        (28,748)
INCOME TAX PROVISION (BENEFIT)                             3,258            (914)         (4,291)
                                                    ------------    ------------    ------------
(LOSS) BEFORE EXTRAORDINARY ITEM                         (20,977)         (6,028)        (24,457)
EXTRAORDINARY LOSS (GAIN) - Net of tax
  of $(914) and $963, respectively                                        (1,371)          1,445
                                                    ------------    ------------    ------------
NET (LOSS)                                          $    (20,977)   $     (4,657)   $    (25,902)
                                                    ============    ============    ============

BASIC AND DILUTED (LOSS) PER SHARE:
  Before extraordinary item                         $      (1.56)   $       (.45)   $      (1.81)
                                                    ============    ============    ============
  Applicable to common shareholders                 $      (1.56)   $       (.35)   $      (1.92)
                                                    ============    ============    ============
BASIC AND DILUTED WEIGHTED AVERAGE
  SHARES OUTSTANDING:
    Basic                                             13,437,000      13,485,000      13,485,000
                                                    ============    ============    ============
    Diluted                                           13,437,000      13,485,000      13,485,000
                                                    ============    ============    ============
</TABLE>

See notes to consolidated financial statements.

                                       F-4
<PAGE>
PHOENIX RESTAURANT GROUP, INC.
AND SUBSIDIARIES
(Formerly DenAmerica Corp.)

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(Dollars in Thousands)
--------------------------------------------------------------------------------

                                                         Additional
                                  Common     Paid-in    Accumulated
                                  Stock      Capital      Deficit       Total
                                 --------    --------     --------     --------
BALANCE, DECEMBER 31, 1996       $  1,340    $ 35,706     $(14,918)    $ 22,128

  Stock options exercised               4          93                        97

  Net loss                                                 (20,977)    (20,977)
                                 --------    --------     --------     --------

BALANCE, DECEMBER 31, 1997          1,344      35,799      (35,895)       1,248

  Stock options exercised               5          70                        75

  Net loss                                                  (4,657)     (4,657)
                                 --------    --------     --------     --------

BALANCE, DECEMBER 31, 1998          1,349      35,869      (40,552)      (3,334)

  Net loss                                                 (25,902)     (25,902)
                                 --------    --------     --------     --------

BALANCE, DECEMBER 31, 1999       $  1,349    $ 35,869     $(66,454)    $(29,236)
                                 ========    ========     ========     ========

See notes to consolidated financial statements.

                                       F-5
<PAGE>
PHOENIX RESTAURANT GROUP, INC.
AND SUBSIDIARIES
(Formerly DenAmerica Corp.)

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
                                                                --------------------------------
                                                                  1997        1998        1999
                                                                --------    --------    --------
<S>                                                             <C>         <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                      $(20,977)   $ (4,657)   $(25,902)
  Adjustments to reconcile net loss to net cash
    provided by (used in) operating activities:
      Extraordinary item                                                      (1,371)      1,445
      Depreciation and amortization                                9,367       7,590       6,085
      Amortization of deferred financing costs                       763         983       1,392
      Charge for impaired assets                                  14,100                  19,264
      Deferred income taxes                                        3,221        (927)     (4,291)
      Deferred rent                                                  645         279         598
      Other - net                                                 (1,368)       (505)       (229)
      Changes in operating assets and liabilities:
        Receivables                                                  910         113        (304)
        Inventories                                                 (439)        184         101
        Other current assets                                        (727)        309         367
        Accounts payable and accrued liabilities                  (6,953)     (3,355)      2,236
                                                                --------    --------    --------
          Net cash provided by (used in) operating activities     (1,458)     (1,357)        762
                                                                --------    --------    --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property and equipment                              (8,147)     (2,891)     (4,732)
  Purchase of intangibles                                         (2,302)       (479)
  Proceeds from sale of assets                                     4,133      25,992         387
                                                                --------    --------    --------
          Net cash (used in) provided by investing activities     (6,316)     22,622      (4,345)
                                                                --------    --------    --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Note receivable collections                                                  2,258         941
  Principal reductions of long-term debt                         (25,018)    (28,908)     (3,679)
  Proceeds from borrowings                                        31,353       6,373       5,482
  Other                                                               97          75
                                                                --------    --------    --------
          Net cash provided by (used in) financing activities      6,432     (20,202)      2,744
                                                                --------    --------    --------
NET (DECREASE) INCREASE IN CASH AND
  CASH EQUIVALENTS                                                (1,342)      1,063        (839)
CASH AND CASH EQUIVALENTS, BEGINNING  OF YEAR                      2,609       1,267       2,330
                                                                --------    --------    --------
CASH AND CASH EQUIVALENTS, END OF YEAR                          $  1,267    $  2,330    $  1,491
                                                                ========    ========    ========
</TABLE>

                                                                     (Continued)

                                       F-6
<PAGE>
PHOENIX RESTAURANT GROUP, INC.
AND SUBSIDIARIES
(FORMERLY DENAMERICA CORP.)

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
--------------------------------------------------------------------------------

                                                       Year Ended December 31,
                                                     ---------------------------
                                                      1997      1998      1999
                                                     -------   -------   -------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
  INFORMATION:
    Cash paid for:
      Interest                                       $10,033   $ 8,221   $ 9,988
                                                     =======   =======   =======
      Income taxes                                   $    37   $    96   $    42
                                                     =======   =======   =======
SUPPLEMENTAL SCHEDULE OF NONCASH
  INVESTING AND FINANCING ACTIVITIES:
    Capital expenditures financed through increase
      in obligations under capital leases            $ 2,409
                                                     =======
    Purchase of BEP and Franchisees financed
      through sale/leaseback transactions            $ 5,440
                                                     =======

See notes to consolidated financial statements.                      (Concluded)

                                       F-7
<PAGE>
PHOENIX RESTAURANT GROUP, INC.
AND SUBSIDIARIES
(Formerly DenAmerica Corp.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE FISCAL YEARS IN THE PERIOD ENDED DECEMBER 31, 1999
(In Thousands Except for Share and Per Share Data)
--------------------------------------------------------------------------------

1.   BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     BASIS OF PRESENTATION - On March 29, 1996, Denwest Restaurant Corp. ("DRC")
     merged with and into American Family Restaurants ("AFR") with AFR being the
     surviving corporation (the "Merger").  Upon consummation of the Merger, AFR
     changed its name to DenAmerica Corp. In July 1999, DenAmerica Corp. changed
     its name to Phoenix Restaurant Group, Inc. (the "Company").  The Company is
     a  multi-concept  restaurant  company,  which  operates  restaurants  in 20
     states. At December 31, 1999, the Company operated 93 Black-eyed Pea and 97
     Denny's restaurants. The Company owns its Black-eyed Pea brand and operates
     the Denny's restaurants under the terms of franchise  agreements whereby it
     is obligated to remit advertising and royalty fees to the franchisor.

     The accompanying financial statements have been prepared on a going concern
     basis, which contemplates the realization of assets and the satisfaction of
     liabilities  in the normal  course of business.  As shown in the  financial
     statements,  over the past three  years the  Company  has  experienced  net
     losses aggregating  approximately  $51,536, which includes asset impairment
     losses of $33,364.  As a result, as of December 31, 1999, the Company had a
     shareholders'  deficit of $29,236 and its current liabilities  exceeded its
     current assets by $4,070.  These factors,  among others,  may indicate that
     the Company will be unable to continue as a going  concern for a reasonable
     period of time.

     The  financial  statements do not include any  adjustments  relating to the
     recoverability  and classification of recorded asset amounts or the amounts
     and  classification  of  liabilities  that  might be  necessary  should the
     Company  be  unable  to  continue  as  a  going   concern.   The  Company's
     continuation  as a going  concern  depends  upon its  ability  to  generate
     sufficient  cash flow to meet its  obligations on a timely basis, to comply
     with the  terms  and  covenants  of its  financing  agreements,  to  obtain
     additional  financing or refinancing as may be required,  and ultimately to
     attain  successful  operations.  The Company is  continuing  its efforts to
     obtain  additional  funds so that the Company can meet its  obligations and
     sustain  operations.  There can be no assurance that  additional  financing
     will be available to the Company or available on satisfactory terms.

     The Company has pursued a strategy to repay its senior debt  obligations in
     order to provide  the  Company  with the  flexibility  to (i) better  match
     operating cash flows with debt amortization,  (ii) improve its portfolio of
     operating restaurants,  and (iii) position it to grow. The Company has also
     retained  CNL  Advisory  Services  to act as its  agent  in the sale of its
     remaining  Denny's  restaurants and has received  letters of  interest from
     potential  buyers for such sale.  These  proposals are subject to usual and
     customary conditions to closing,  including the potential buyers' obtaining
     financing  for  such  transactions.  To the  extent  the  transactions  are
     completed, the Company plans to use the estimated proceeds of approximately
     $60,000 to (i) repay  existing  senior debt,  (ii) pay certain  liabilities
     related to the Denny's restaurants, and (iii) use the balance as follows:

                                       F-8
<PAGE>
          *    fund Black-eyed Pea new store growth;

          *    close underperforming restaurants;

          *    increase advertising for Black-eyed Pea restaurants; and

          *    fund seasonal variations in cash flow.

     At December 31, 1999, the Company was in compliance with certain  financial
     debt covenants under its senior credit facility.  These financial covenants
     were  modified  in June  1999  and  state  that  the note is due in full on
     January 31,  2000.  The  Company  has  begun  discussions  with  its senior
     lender and is  currently  negotiating  an  extension on the maturity of the
     debt to September 2000.

     The  consolidated  financial  statements  include  the  accounts of Phoenix
     Restaurant Group, Inc. and its wholly-owned subsidiaries.  All intercompany
     balances and  transactions are eliminated in these  consolidated  financial
     statements.

     SIGNIFICANT  ACCOUNTING  POLICIES  - A summary  of  significant  accounting
     policies is as follows:

     a.   FISCAL YEARS - The  Company's  fiscal year is the 52 or 53 week period
          ending  the   Wednesday   closest  to  December  31.  For  clarity  of
          presentation,  the Company's 1997,  1998 and 1999 fiscal years,  which
          represent  the 52 week period ended  December  31,  1997,  the 52 week
          period ended  December 30, 1998 and the 52 week period ended  December
          29, 1999 have been described in the financial  statements as the years
          ended December 31, 1997, 1998 and 1999.

     b.   CASH AND CASH EQUIVALENTS consist of cash held in bank demand deposits
          and highly liquid  investments  purchased  with initial  maturities of
          three months or less.

     c.   INVENTORIES consist primarily of food and beverages in restaurants and
          are carried at the lower of cost or market. Cost is determined under a
          method which approximates the last-in, first-out ("LIFO") method.

     d.   NET ASSETS HELD FOR SALE are stated at the lower of cost or  estimated
          net  realizable  value  and  include  certain   property,   equipment,
          franchise costs and goodwill less  capitalized  lease  obligations and
          deferred rent liabilities.

     e.   PROPERTY AND EQUIPMENT are recorded at cost.  Depreciation is computed
          under the straight-line  depreciation method over the estimated useful
          lives  of  the  assets.   Leased  properties  consist  of  capitalized
          buildings and equipment and leasehold  improvements.  Amortization  is
          recorded  principally on the  straight-line  method over the lesser of
          the estimated useful lives or the lives of the leases.

     f.   FRANCHISE  RIGHTS  - The  Denny's  franchise  agreements  require  the
          Company  to pay a  franchise  fee for each unit  opened.  The fees are
          capitalized and amortized using the  straight-line  method over the 20
          year  terms  of  the  franchise  agreements.  Upon  expiration  of the
          franchise  agreements,  the franchisor may grant the Company the right
          to extend the term of the franchise  agreement.  Also, at termination,
          the  franchisor  has  the  right,  at  its  option,  to  purchase  the
          restaurant  equipment at the lesser of the Company's cost (as defined)
          or fair value.

     g.   FRANCHISE  REVENUE - During  1998,  the  Company  acquired  all of the
          remaining  Black-eyed Pea franchised  restaurants.  Royalty  revenues,
          which are included in restaurant  revenues,  were approximately $1,142
          and $45 during fiscal years 1997 and 1998, respectively.

                                       F-9
<PAGE>
     h.   GOODWILL AND INTANGIBLE  ASSETS.  Deferred costs and intangible assets
          are recorded at cost.  Goodwill  represents  the excess of the cost of
          restaurants acquired over the fair value of the net assets at the date
          of acquisition.  Goodwill is amortized using the straight-line  method
          ranging  from 12 to 40  years.  The  Company  evaluates  the  possible
          impairment  of goodwill  and  intangible  assets based on estimates of
          future  undiscounted cash flows allocated on an individual  restaurant
          basis.

     i.   DEFERRED  FINANCING  COSTS  are  included  in  other  assets  and  are
          amortized  using the effective  interest  method over the terms of the
          related loans. Deferred financing costs, net of amortization,  totaled
          $3,670 and $186 at December 31, 1998 and 1999, respectively.

     j.   DEFERRED RENT represents the accrual  resulting from recording  rental
          expense on a  straight-line  basis.  As of December 31, 1998 and 1999,
          deferred rent totaled $2,487 and $2,965, respectively, and is included
          in  other  liabilities  in 1998 and in other  liabilities  ($810)  and
          assets held for sale ($2,155) in 1999 in the accompanying consolidated
          balance sheets.

     k.   EARNINGS PER SHARE - Basic earnings per share is calculated  utilizing
          weighted  average  common shares  outstanding  during the period.  The
          Company has no  dilutive  potential  common  shares  outstanding,  and
          therefore, only basic earnings per share is presented.

     l.   STOCK-BASED  COMPENSATION - The Company applies Accounting  Principles
          Board Opinion No. 25 and related interpretations in accounting for its
          stock  option  plans.  Accordingly,  no  compensation  cost  has  been
          recognized  for  its  stock  option  plans.   Pro  forma   information
          reflecting the fair value method is presented in Note 12.

     m.   USE  OF  ESTIMATES  -  The  preparation  of  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  at the  date  of the  financial
          statements  and the reported  amounts of revenues and expenses  during
          the  reporting   period.   Actual  results  could  differ  from  those
          estimates.

     n.   FAIR VALUE - The fair value of notes receivable,  payables and accrued
          liabilities  approximates  carrying value due to the short-term nature
          of the  instruments.  The fair value of debt obligations is determined
          based on current borrowings and repayment transactions. The fair value
          of the warrants were determined using the Black-Scholes option pricing
          model.

     o.   NEW ACCOUNTING  STANDARDS - During 1998, the Company adopted Financial
          Accounting  Standards Board ("FASB") Statement of Financial Accounting
          Standards ("SFAS") No. 130, REPORTING  COMPREHENSIVE  INCOME, No. 131,
          DISCLOSURES  ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED  INFORMATION,
          and American  Institute of Certified Public  Accountants  Statement of
          Position  ("SOP")  No.  98-5,  Reporting  on  the  Costs  of  Start-Up
          Activities.  SFAS No. 130  changed  the  reporting  of  certain  items
          reported in the shareholders'  equity section of the balance sheet and
          requires that  comprehensive  income and its components be prominently
          displayed  in the  financial  statements.  There  were no items  which
          qualified for treatment as components of comprehensive  income for the
          periods  presented.  SFAS No. 131 requires public  companies to report
          certain  information  about  operating  segments  in  their  financial
          statements,  and establishes  related  disclosures  about products and
          services,   geographic   areas  and  major   customers.   The  Company
          early-adopted  SOP 98-5 at the  beginning  of fiscal year 1998 and now
          expenses all preopening  costs as incurred.  This change in accounting
          principal did not have a material  effect on the  Company's  financial
          statements.

          In June 1998, the FASB issued SFAS No. 133,  ACCOUNTING FOR DERIVATIVE
          INSTRUMENTS  AND HEDGING  ACTIVITIES.  This  standard  as amended,  is
          effective for fiscal years beginning after June 15, 2000. SFAS No. 133
          establishes   accounting   and  reporting   standards  for  derivative
          instruments,

                                      F-10
<PAGE>
          including   those   imbedded  in  other   contracts  and  for  hedging
          activities.  It requires all  derivatives  to be  recognized as either
          assets or  liabilities  in the  statement  of  financial  position and
          measured at fair value.  The Company has not  completed the process of
          evaluating the impact that will result from adopting SFAS No. 133. The
          Company is therefore  unable to disclose the impact that adopting SFAS
          No. 133 will have on its financial  position and results of operations
          when such statement is adopted.

     p.   RECLASSIFICATIONS  - Certain  reclassifications  have been made to the
          1997  and  1998   financial   statements   to   conform  to  the  1999
          presentation.

2.   ACQUISITIONS AND DIVESTITURES

     During  1997,  the  Company  implemented  a  strategy  of  focusing  on the
     Black-eyed  Pea concept as well as those Denny's  restaurants  that achieve
     certain  operational and geographic  efficiencies by completing a series of
     transactions.  The Company converted 10 non-branded restaurants to Denny's,
     sold or closed 28  restaurants,  developed five new  restaurants,  acquired
     nine  Black-eyed  Pea  restaurants  from  franchisees,  and entered into an
     agreement to sell 63 Denny's and eight non-branded restaurants. The sale of
     the restaurants in 1997 resulted in a gain of approximately  $850, which is
     included as a reduction of other operating  expenses.  The Company included
     in  its  1997  financial   statements  a  charge  for  impaired  assets  of
     approximately  $14,100  associated  with  the  sale  of the 71  restaurants
     described above, which the Company completed in March 1998.

     In connection with the closing of the acquisition of franchised  Black-eyed
     Pea  restaurants  in 1997, the Company and one of the  franchisees  settled
     threatened  litigation and CNL Group, Inc. and affiliates  ("CNL") acquired
     certain  assets  directly  from the  franchisees  and entered  into capital
     leases with the  Company.  The value of the leases  exceeded  the  purchase
     price, resulting in the Company receiving approximately $2,700 in cash that
     has been recorded as a deferred gain which is being amortized over the life
     of the leases.

     During 1997,  the Company also entered into a series of  transactions  with
     CNL,  including the purchase of CNL's 50% interest in three joint ventures,
     which  operated  a  total  of 16  Denny's  restaurants,  and the  land  and
     buildings for nine of the restaurants that were previously leased from CNL.
     No gain or loss  was  recognized  on  these  transactions  and the  Company
     utilized the proceeds, which totaled approximately $25,000, to repay senior
     debt obligations of the Company.

     In  March  1998,  the  Company  completed  the sale of 71  restaurants,  as
     described  above,  for gross  proceeds  of  $28,700.  Net cash  proceeds of
     $25,200 were used to (i) repay  indebtedness  of the  Company,  including a
     note  at a  $2,400  discount  from  its  outstanding  principal  amount  of
     approximately   $15,285,   (ii)  cancel  outstanding  warrants  to  acquire
     approximately 1,000,000 shares of the Company's common stock at an exercise
     price of $1.90 per share,  which were issued in connection  with the repaid
     note, (iii) permanently reduce the Company's  outstanding  borrowings under
     the term loan  portion of its  credit  facility  to $1,500,  and (iv) repay
     certain equipment operating leases associated with restaurants sold.

     Subsequent to the  consummation  of the  transaction,  OHI defaulted on its
     obligations under the Sublease Agreement.  As a result of the default,  the
     Company took legal action to protect its interest in the underlying  leased
     properties.  On January 7, 2000, OHI filed for protection  under Chapter 11
     of the bankruptcy  code. In February 2000, the Company and OHI entered into
     a  mediated  settlement  agreement.  Under  the  terms  of  the  settlement
     agreement,  the Sublease Agreement has been amended to reduce the number of
     restaurants  subject to the Sublease  Agreement by 22. All right, title and
     interest to the 22 subleases and associated property will be transferred to
     the Company.  The Company will have sole  responsibility  to negotiate  the
     termination  or the  continuation  of the 22 subleases.  OHI and its lender
     will place $1,500 in escrow to be released to the Company upon  termination
     of the 22 subleases. As a result of the settlement, the Company recorded an
     allowance against the entire $1,800 note receivable from OHI.

     In a separate  transaction  completed in March 1998,  the Company sold five
     Denny's restaurants for cash of $700 plus a note in the principal amount of
     $400.  The  Company  used  the  cash  proceeds  from  this  transaction  to
     permanently  reduce its outstanding  borrowings under the term loan portion
     of its credit facility.

     During 1999, the Company sold or closed three Denny's and 16 Black-eyed Pea
     restaurants.   All  of   these   restaurants   were   underperforming   and
     geographically  undesirable.  The  Company  believes  that these  sales and
     closures have improved its restaurant portfolio.

                                      F-11
<PAGE>
     During 1999,  the Company  decided to sell all of its Denny's  restaurants.
     The Company  determined  that the carrying  value of the assets exceeds the
     undiscounted  future cash flows  attributable to these  restaurants and has
     recorded a charge for impaired goodwill and intangible assets of $8,900, in
     the accompanying financial statements.

     Additionally  during  1999,  the  Company  recorded  charges  of (1) $2,900
     related  to 16  Black-eyed  Pea  restaurants,  and (2)  $1,500  to  reflect
     increased  estimates of liabilities  related to restaurants closed in prior
     periods  because  the  Company  determined  that  the cost  and  timing  of
     subleasing  those  properties will exceed previous  estimates.  The Company
     recorded  an  additional  charge of $4,800  related  to 68  Denny's  and 19
     non-branded restaurants sold during 1997 and 1998 where the Company remains
     contingently  liable for equipment  leases,  rents, and property taxes as a
     result of a pending  bankruptcy filing by one buyer and  non-performance by
     the other  buyer.  Finally,  the Company  also  recorded a charge of $1,200
     related  to the  write-down  of  Black-eyed  Pea's  investment  in a  Joint
     Venture.

3.   NET ASSETS HELD FOR SALE

     Net assets held for sale at December 31, 1999 consist of the following:

     Cash on hand                                                      $    127
     Food inventory                                                       1,534
     Property and equipment                                              34,376
     Intangible assets                                                   26,661
                                                                       --------

     Total assets held for sale                                          62,698
                                                                       --------

     Accrued liabilities                                                   (362)
     Deferred rent and other                                             (2,356)
     Capital lease obligations                                          (17,852)
                                                                       --------

     Total liabilities                                                  (20,570)

     Net assets held for sale                                          $ 42,128
                                                                       ========

                                      F-12
<PAGE>
4.    PROPERTY AND EQUIPMENT

     Property and equipment  including assets under capitalized leases as of the
     fiscal years ended consist of the following:

<TABLE>
<CAPTION>
                                                        ESTIMATED
                                                       USEFUL LIVES     1998       1999
                                                       ------------    -------    -------
<S>                                                   <C>              <C>        <C>
     Buildings                                         5 - 20 years    $34,641    $14,088
     Restaurant equipment                              3 - 11 years     22,353      7,549
     Leasehold improvements                           Life of lease     12,538      3,646
     Other                                              3 - 7 years      3,346      1,393
                                                                       -------    -------
     Total                                                              72,878     26,676
     Less accumulated depreciation and amortization                     17,230      6,057
                                                                       -------    -------
     Equipment and leasehold improvement - net                         $55,648    $20,619
                                                                       =======    =======
</TABLE>

     Assets  recorded  under capital leases as of the fiscal years ended consist
     of the following:

                                                              1998        1999
                                                             -------     -------
     Buildings                                               $32,878     $14,088
     Other                                                     6,440       2,277
                                                             -------     -------
     Total                                                    39,318      16,365
     Less accumulated amortization                             7,325       3,300
                                                             -------     -------
     Total                                                   $31,993     $13,065
                                                             =======     =======

     Depreciation and amortization expense was $5,324, $5,598 and $4,677 for the
     fiscal years ended 1997, 1998 and 1999, respectively.

5.   INTANGIBLE ASSETS

     Intangible assets as of the fiscal years ended consist of the following:

                                                              1998        1999
                                                             -------     -------
     Goodwill                                                $52,879     $12,001
     Franchise rights                                          2,989
     Favorable lease arrangements                                883
                                                             -------     -------
     Total                                                    56,751      12,001
     Less accumulated amortization                             6,171         884
                                                             -------     -------
     Intangible assets - net                                 $50,580     $11,117
                                                             =======     =======

     Amortization  expense  was $4,043,  $1,992 and $1,408 for the fiscal  years
     ended 1997, 1998 and 1999, respectively.

6.   OTHER CURRENT LIABILITIES

     Other  current  liabilities  as of the fiscal  years  ended  consist of the
     following:

                                      F-13
<PAGE>
                                                              1998        1999
                                                             -------     -------
     Accrued insurance                                       $ 1,125     $   769
     Estimated closed restaurant obligations                   1,570       3,465
     Interest                                                  4,432       7,647
     Other                                                     1,819       2,201
                                                             -------     -------
     Total accrued liabilities                               $ 8,946     $14,082
                                                             =======     =======

     The  majority of the accrued  interest  relates to the deferral of interest
     payments on the Company's Series B 13% Subordinated  Notes,  which are held
     by related parties (see Notes 8 and 14).

7.   RESERVES FOR STORE CLOSINGS

     In 1998 and 1999, other long-term  liabilities  includes long-term reserves
     of $1,737 and $1,951,  respectively,  for estimated  obligations for closed
     restaurants. The following is a summary of store closing reserves:

                                                     1997       1998       1999
                                                    ------     ------     ------
     Beginning Balance                              $6,971     $4,491     $3,307
     Additions                                                  1,208      6,900
     Less charges                                    2,480      2,392      4,791
                                                    ------     ------     ------
     Ending Balance                                 $4,491     $3,307     $5,416
                                                    ======     ======     ======

8.   DEBT OBLIGATIONS

     Debt obligations as of the fiscal years ended consist of the following:

                                                               1998       1999
                                                              -------    -------
     LONG-TERM DEBT OBLIGATIONS:
       CNL obligations                                        $22,873    $22,618
       Series B 13% Subordinated Notes (face value $18,250)    16,176     16,661
       Other notes payable                                        617      2,259
       Capital lease obligations (Note 8)                      32,828     13,370
                                                              -------    -------
       Total long-term obligations                            $72,494    $54,908
                                                              =======    =======
     CURRENT PORTION OF LONG-TERM DEBT OBLIGATIONS:
       Obligations under credit facility                      $14,772
       CNL obligations                                          4,205    $24,595
       Other notes payable                                         85         62
       Capital lease obligations (Note 8)                       1,729        994
                                                              -------    -------
       Total current obligations                              $20,791    $25,651
                                                              =======    =======

     A summary of the Company's debt obligations is as follows:

                                      F-14
<PAGE>
     (a)  CNL OBLIGATIONS

          In October 1997 and November 1998,  the Company  entered into a series
          of transactions with CNL. As a result, the Company is obligated to CNL
          under  certain  promissory  notes  totaling  $20,900.  The notes  bear
          interest at rates from 9% to 10% payable monthly and quarterly, mature
          in November  2004 and  September  2007,  and are  collateralized  with
          certain  equipment  assets  located  in  54  Denny's  restaurants.  At
          December 31, 1999, the fair value of the promissory notes  approximate
          carrying  value as the  interest  rate  approximates  borrowing  rates
          currently  available to the Company.

          The Company had a credit facility  agreement with Banque  Paribas,  as
          agent, and the Company's other senior lenders (the "Credit Facility").
          In  June  1999,  the  Company  entered  into a new  $22,300  financing
          agreement  with CNL whereby CNL purchased  the  remaining  outstanding
          indebtedness  under  the  Credit  Facility  of  $14,700,  advanced  an
          additional  $5,400 to the Company and consolidated  certain other debt
          held by CNL  prior to June  1999 of  $2,200.  A  portion  of the note,
          $17,100,  bears  interest at 11.5%,  and the  remaining  $5,200  bears
          interest  at 10.5%.  The note,  as  amended,  requires  interest  only
          payments which are due monthly through January 31, 2000, at which time
          the entire principal balance is due and payable. As of April 11, 2000,
          no principal  payments  have been made on the note.  As a result,  the
          Company  is in  default  under the terms of the note.  Therefore,  the
          principal  balance  has been  included in current  liabilities  on the
          Company's  balance  sheet.  The Company is currently in the process of
          negotiating with CNL to modify the payment terms of the note.

          The  Company  is also  obligated  to CNL  under a  $4,400  face  value
          convertible  redeemable debenture bearing interest at 5%, recorded net
          of a $406  discount at December 31, 1999,  with  interest only payable
          quarterly  and  maturing  in  September  2002.  The fair  value of the
          convertible redeemable debenture is $4,400.

     (b)  SERIES B 13% SUBORDINATED NOTES

          The Series B 13%  Subordinated  Notes ("Series B Notes") bear interest
          at 13% and mature in March 2003.  In  connection  with the issuance of
          the  Series B Notes,  the  Company  issued  warrants  to  purchase  an
          aggregate  of  478,000  shares  of the  Company's  common  stock at an
          exercise price of $0.01 per share. The warrants became  exercisable on
          March  29,  1999.  Certain  holders  of the  Series  B Notes  have not
          received  interest  payments  since March 31, 1997. As of December 31,
          1999,  accrued and unpaid interest due to these holders totals $7,493.
          The  Company  has  not  received   waivers  from  these   holders  for
          noncompliance  of  certain  of the debt  covenants  under the Series B
          Notes.  The fair value of the Series B Notes at  December  31, 1999 is
          $18,250.

          The aggregate annual  maturities of long-term debt,  excluding capital
          lease  obligations,  for the years subsequent to December 31, 1999 are
          as follows:

          2000                                                           $24,657
          2001                                                             4,344
          2002                                                             7,255
          2003                                                            19,919
          2004                                                             3,571
          Thereafter                                                       6,449
                                                                         -------
          Total                                                          $66,195
                                                                         =======

                                      F-15
<PAGE>
9.   LEASES

     The Company's operations utilize leased property, facilities and equipment.
     At December 31, 1999,  substantially  all of the Company's  restaurants are
     operated under lease  arrangements which provide for a fixed base rent and,
     in some  instances,  contingent  rentals  based  on a  percentage  of gross
     revenues. Initial terms of the leases generally are not less than 15 years,
     exclusive of options to renew.  The leases have  expiration  dates  through
     2036 and contain various renewal and purchase options. Future minimum lease
     payments do not  include  amounts  payable by the  Company for  maintenance
     costs,  real  estate  taxes  or  contingent  rentals  payable  based  on  a
     percentage of sales in excess of stipulated  amounts of the leases.  Future
     minimum lease payments under noncancelable operating leases and the present
     value of future minimum  capital lease payments,  including  certain leases
     relating  to  restaurants  sold as of  December  31,  1999  consist  of the
     following:

<TABLE>
<CAPTION>
                                                                                    Operating Leases
                                                                                  --------------------
                                                                                  Minimum     Minimum
                                                                      Capital      Lease      Sublease
                                                                       Leases     Payments    Payments
                                                                      --------    --------    --------
<S>                                                                   <C>         <C>         <C>
     2000                                                             $  5,487    $ 25,372    $  5,626
     2001                                                                5,326      22,811       5,537
     2002                                                                5,333      19,444       5,298
     2003                                                                5,156      18,108       4,979
     2004                                                                4,721      15,637       4,734
     Subsequent years                                                   38,308     117,241      32,076
                                                                      --------    --------    --------

     Total                                                              64,331    $218,613    $ 58,250
                                                                                  ========    ========
     Less imputed interest - interest rates ranging from 10% to 15%    (32,115)
     Less capital leasess included in assets held for sale             (17,852)
                                                                      --------

     Present value of minimum capital lease obligation                  14,364
     Less current portion of capital lease obligation                      994
                                                                      --------

     Long-term portion of capital lease obligation                    $ 13,370
                                                                      ========
</TABLE>

     Obligations  under operating  leases related to restaurants  sold which are
     being paid directly by the purchaser but for which the Company continues to
     be contingently  liable are included in minimum sublease payments (see Note
     2).

     Included in minimum  operating lease payments are payments  attributable to
     equipment  leases which have remaining terms of one to three years.  Annual
     payments attributable to these leases are: $4,659 (2000), $2,704 (2001) and
     $14  (2002) and none  thereafter.  These  payments  are  included  in other
     operating expenses in the accompanying financial statements.

     The following is a summary of rental expense,  excluding  sublease amounts,
     under all operating leases for the fiscal years ended:

                                                  1997        1998        1999
                                                 -------     -------     -------
     Minimum rentals                             $19,060     $16,881     $16,863
     Contingent rentals                              510         513         381
                                                 -------     -------     -------
     Total rent expense                          $19,570     $17,394     $17,244
                                                 =======     =======     =======

                                      F-16
<PAGE>
10.  INCOME TAXES

     The income tax provision (benefit) as of the fiscal years ended consists of
     the following:

                                                 1997        1998        1999
                                                -------     -------     -------
     Current:
       Federal                                  $    37     $    13
     Deferred:
       Federal                                    2,727        (621)    $(3,782)
       State                                        494        (306)       (509)
                                                -------     -------     -------
     Total deferred                               3,221        (927)     (4,291)
                                                -------     -------     -------
     Total income tax provision (benefit)       $ 3,258     $  (914)    $(4,291)
                                                =======     =======     =======

     A  reconciliation  of the  provision  (benefit)  for  income  taxes and the
     amounts that would be computed  using  federal  statutory tax rates for the
     fiscal years ended are as follows:

<TABLE>
<CAPTION>
                                                     1997        1998        1999
                                                   --------    --------    --------
<S>                                                <C>         <C>         <C>
     Computed expected tax expense (benefit)       $ (6,205)   $ (2,430)   $(10,066)
     State income taxes - net of federal benefit       (886)       (347)     (1,438)
     Nondeductible expenses (primarily goodwill)     11,191         323       1,249
     FICA tip credits and other                        (842)       (595)       (555)
     Change in valuation allowance                                2,135       6,519
                                                   --------    --------    --------
     Total                                         $  3,258    $   (914)   $ (4,291)
                                                   ========    ========    ========
</TABLE>

     Deferred income tax assets for the fiscal years ended are as follows:

                                                              1998       1999
                                                            --------   --------
     Current deferred income tax assets:
       Assets held for sale                                            $  1,805
       Accrued self insurance and contingent losses         $    478        323
       Other accrued expenses                                    360      1,580
     Receivables Reserve                                                    756
     Net operating loss carryforward                                      7,236
                                                            --------   --------
     Total current deferred income tax assets included
       in other current assets                              $    838   $ 11,700
                                                            ========   ========

     Noncurrent deferred income tax assets (liabilities):
       Store closing                                        $    695   $    780
       Intangibles                                            (4,546)    (3,882)
       Net operating loss carryforward                         9,296     10,488
       Valuation allowance                                    (4,924)   (11,443)
       Various tax credit carryforward                         2,891      3,448
       Depreciation, capitalized leases and deferred gain      1,173        299
       Impairment of assets
       Other                                                     993        310
                                                            --------   --------
     Net noncurrent deferred income tax assets              $  5,578   $     --
                                                            ========   ========

     As of December  31,  1999,  the Company  has  approximately  $44,758 of net
     operating loss  carryforwards that expire beginning in 2004 and alternative
     minimum tax credit carryforwards of approximately

                                      F-17
<PAGE>
     $3,448.  The  Company  has a  valuation  allowance  of $11,443  relating to
     certain net operating loss carryforwards.

11.  COMMITMENTS AND CONTINGENCIES

     In November 1996, the Company  entered into a self-insured  program whereby
     the Company was obligated for the first $100 of individual health insurance
     claims.  On December  1, 1999,  the Company  converted  to a fully  insured
     health insurance plan whereby the Company is obligated to share in the cost
     of health insurance premiums.

     The Company is involved in various legal matters that management  considers
     to be in the  normal  course of  business.  In  management's  opinion,  all
     matters will be settled without material effect on the Company's  financial
     position or results of operations.

12.  STOCK OPTIONS

     The Company has three stock  option  plans,  the 1992,  1995 and 1996 plans
     under which 1,000,000,  300,000, and 500,000,  respectively,  shares of the
     Company's  common stock have been  reserved for issuance.  Options  granted
     under these plans expire up to ten years after the date of grant.

     A summary of changes in stock options is as follows:

                                                                        Weighted
                                                                        Average
                                                          Option         Option
                                                          Shares         Price
                                                        ----------      -------
     Outstanding at December 31, 1996                    1,211,300      $  4.13
       Granted                                             100,000         3.44
       Exercised                                           (48,500)        2.00
                                                        ----------      -------
     Outstanding at December 31, 1997                    1,262,800         4.21
       Granted                                              30,000         3.06
       Exercised                                           (37,500)        2.00
       Canceled                                           (239,000)        4.26
                                                        ----------      -------
     Outstanding at December 31, 1998                    1,016,300         4.06
       Granted                                              33,068         1.07
       Exercised
       Canceled                                           (184,800)        4.30
                                                        ----------      -------
     Outstanding at December 31, 1999                      864,568         3.89
                                                        ==========      =======

     The following table summarizes  information about stock options outstanding
     at December 31, 1999:

                                      F-18
<PAGE>
<TABLE>
<S>                                                                    <C>              <C>
     Range of exercise prices                                          $0.94 - $4.00    $4.75 - $6.00
     Shares outstanding                                                      697,068          167,500
     Weighted-average exercise price                                   $        3.55    $        5.31
     Weighted-average remaining contractural life                               6.18             4.41
     Shares currently exercisable                                            588,000          151,500
     Weighted-average exercise price of shares currently exercisable   $        3.60    $        5.35
</TABLE>

     Had compensation  cost for the Company's stock option plans been determined
     based on the fair  value at the  grant  dates  for  awards  under the plans
     consistent with the method of SFAS No. 123, the Company's net income (loss)
     applicable  to common  shareholders  and net income  (loss)  applicable  to
     common  shareholders  per share for the years ended December 31, 1997, 1998
     and 1999 would have been adjusted to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                1997           1998          1999
                                              ----------    ----------    ----------
<S>                                           <C>           <C>           <C>
     Net income (loss) applicable to common
       shareholders - as reported             $  (20,977)   $   (4,657)   $  (25,902)
                                              ==========    ==========    ==========
     Net income (loss) applicable to common
       shareholders - pro forma               $  (21,239)   $   (4,974)   $  (26,189)
                                              ==========    ==========    ==========
     Basic and diluted income (loss)
       per share - as reported                $    (1.56)   $    (0.35)   $    (1.92)
                                              ==========    ==========    ==========
     Basic and diluted income (loss)
       per share - pro forma                  $    (1.58)   $    (0.37)   $    (1.94)
                                              ==========    ==========    ==========
</TABLE>

     The fair value of each option grant is estimated on the date of grant using
     the Black-Scholes option pricing model with the following  assumptions used
     for grants:  no  dividend  yield;  expected  volatility  of 88%;  risk free
     interest rate of 6%; and expected lives of two to five years.

13.  EARNINGS PER SHARE

     Earnings per share is calculated as follows:

                                      F-19
<PAGE>
<TABLE>
<CAPTION>
                                                      1997        1998        1999
                                                    --------    --------    --------
<S>                                                 <C>         <C>         <C>
     (Loss) before extraordinary item               $(20,977)   $ (6,028)   $(24,457)
     Extraordinary loss (gain)                                    (1,371)      1,445
     Preferred stock dividend and accretion
                                                    --------    --------    --------
     Net (loss) applicable to common shareholders   $(20,977)   $ (7,399)   $(25,902)
                                                    ========    ========    ========

     Shares - basic income (loss) per share           13,437      13,485      13,485
     Dilutive effect of common stock equivalents
                                                    --------    --------    --------
     Shares - diluted income (loss) per share         13,437      13,485      13,485
                                                    ========    ========    ========
     Basic and diluted loss per share:
       Before extraordinary item                    $  (1.56)   $   (.45)   $  (1.81)
                                                    ========    ========    ========
       Applicable to common shareholders            $  (1.56)   $   (.55)   $  (1.92)
                                                    ========    ========    ========
</TABLE>

14.  RELATED PARTY TRANSACTIONS

     During  fiscal years ended  December 31, 1997,  1998 and 1999,  the Company
     entered into a number of transactions with officers and/or  shareholders of
     the  Company  or  affiliated  companies.  Advances  due from  officers  are
     included in  receivables  in the  accompanying  financial  statements.  The
     following  summarizes  the  related  party  transactions  as of and for the
     fiscal years then ended:

                                                      1997      1998      1999
                                                     -------   -------   -------
     Advances due from officers and shareholders     $   378   $   802   $   802
                                                     =======   =======   =======
     Note receivable from shareholders               $ 2,600   $ 2,600   $ 2,473
                                                     =======   =======   =======
     LH Leasing (described below)                    $ 3,804   $ 3,804   $ 3,804
                                                     =======   =======   =======
     Lease expense paid to shareholders              $    35   $    --   $    --
                                                     =======   =======   =======

     In  connection  with  the  financing  of the BEP  Acquisition,  LH  Leasing
     Company,  Inc. ("LH  Leasing"),  a  corporation  owned by Jack M. Lloyd and
     William J.  Howard,  purchased  from the  Company for cash in the amount of
     $14,250 the equipment  located at 62 Black-eyed Pea  restaurants  leased by
     BEP, a wholly-owned  subsidiary of the Company,  or Texas BEP, L.P. ("Texas
     BEP"),  a limited  partnership  in which BEP is the general  partner and in
     which a wholly-owned subsidiary of BEP is the limited partner. Concurrently
     with the  sale of the  equipment  to LH  Leasing,  LH  Leasing  leased  the
     equipment to the Company and the Company  subleased the equipment to BEP or
     Texas  BEP.  The  equipment  lease has a term of five  years and grants the
     Company an option to purchase  the  equipment at its fair market value upon
     the expiration of the lease. The terms of the subleases between the Company
     and each of BEP and  Texas BEP are  consistent  with the terms set forth in
     the equipment lease between the Company and LH Leasing.  Messrs.  Lloyd and
     Howard formed LH Leasing as an accommodation to the Company to enable it to
     satisfy the requirements of the Company's senior lenders. Messrs. Lloyd and
     Howard received no material compensation for the transactions involving the
     Company and LH Leasing.

     A note  receivable  from  shareholder,  which is included in other  current
     assets at December 31, 1999,  bears  interest at 6%. The note is secured by
     Series B Notes with a face amount of approximately

                                      F-20
<PAGE>
     $1,500 and  approximately  403,000 shares of the Company's common stock. At
     December  31,  1999,  the Company has entered  into an  agreement  with the
     holder of the note whereby the securities  collateralizing the note will be
     used to redeem the receivable.  This transaction closed in fiscal 2000. The
     Company recorded an extraordinary loss of $127 in 1999 as the result of the
     transaction.

     Related  parties of the  Company are the holders of $18,250 of the Series B
     Notes (discussed in Note 8).

15.  EMPLOYEE BENEFIT PLANS

     In 1998,  the Company  adopted a defined  contribution  plan under  Section
     401(k) of the Internal  Revenue Code covering all eligible  employees  (the
     "401(k)  Plan").  Eligible  participants  may contribute up to 15% of their
     total  compensation.  The Company  provides  matching  contributions to the
     401(k) Plan in amounts  determined by the Board of Directors.  Participants
     will be  immediately  vested  in their  personal  contributions  and over a
     five-year  graded  schedule for amounts  contributed  by the  Company.  The
     Company did not make any matching  contributions to the 401(k) Plan in 1998
     and 1999.


                                      F-21
<PAGE>
16.  BUSINESS SEGMENTS

     The  Company  adopted  SFAS  No.  131,  DISCLOSURES  ABOUT  SEGMENTS  OF AN
     ENTERPRISE AND RELATED  INFORMATION  effective January 1, 1998. The Company
     operates  family-oriented,  full-service  restaurants  primarily  under two
     separate  concepts,  the Black-eyed  Pea and Denny's.  The Company owns the
     Black-eyed Pea brand and operates the Denny's  restaurants  under the terms
     of franchise  agreements.  The accounting policies for each concept are the
     same as those described in Note 1. During fiscal 1997 and 1998, the Company
     also operated several  non-branded  restaurants.  During 1998 all remaining
     non-branded  restaurants  were closed or converted to the Black-eyed Pea or
     Denny's concept.

     The concept  distribution of the Company's revenues,  restaurant  operating
     income,  depreciation  and  amortization  and  identifiable  assets for the
     three-year period ended December 31 is as follows:

<TABLE>
<S>                                             <C>          <C>          <C>
     REVENUES:
                                                   1997        1998         1999
                                                ---------    ---------    ---------
       Black-eyed Pea                           $ 130,304    $ 139,699    $ 135,159
       Denny's                                    165,167      115,787      103,514
       Non-branded                                  5,108          470
                                                ---------    ---------    ---------
     Total revenues                             $ 300,579    $ 255,956    $ 238,673
                                                =========    =========    =========

     RESTAURANT OPERATING INCOME (LOSS):
       Black-eyed Pea                           $  14,444    $  10,684    $   4,088
       Denny's                                     (4,886)       7,583       (7,236)
       Non-branded                                   (457)        (151)
                                                ---------    ---------    ---------
     Total restaurant operating income (loss)       9,101       18,116       (3,148)
       Administrative expenses                     13,684       12,423       12,105
     Total operating income (loss)              $  (4,583)   $   5,693    $ (15,253)
                                                =========    =========    =========

     DEPRECIATION AND AMORTIZATION:
       Black-eyed Pea                           $   1,009    $   2,780    $   2,416
       Denny's                                      8,321        4,808        3,669
       Non-branded                                     37            2
                                                ---------    ---------    ---------
     Total depreciation and amortization        $   9,367    $   7,590    $   6,085
                                                =========    =========    =========

     IDENTIFIABLE ASSETS:
       Black-eyed Pea                           $  41,670    $  40,784    $  59,542
       Denny's                                    124,736       93,723       38,825
       Non-branded                                  3,858            0            0
                                                ---------    ---------    ---------
     Total identifiable assets                  $ 170,264    $ 134,507    $  98,367
                                                =========    =========    =========
</TABLE>

     Administrative   expenses,  which  are  not  allocated  to  the  individual
     concepts,  are shown as a  reconciling  item to calculate  total  operating
     income (loss) for the periods presented.

                                      F-22
<PAGE>
17.  QUARTERLY DATA (UNAUDITED)

     The following table presents selected unaudited quarterly operating results
     for the two-year period ended December 31, 1999. The Company  believes that
     all necessary  adjustments have been included in the amounts shown below to
     present fairly the related quarterly results.

<TABLE>
<CAPTION>
                                                                       1999
                                                   --------------------------------------------
                                                   1st Qtr.    2nd Qtr.    3rd Qtr.    4th Qtr.
                                                  (13 weeks)  (13 weeks)  (13 weeks)  (13 weeks)
                                                   --------    --------    --------    --------
<S>                                                <C>         <C>         <C>         <C>
     Restaurant sales                              $ 60,941    $ 61,801    $ 60,078    $ 55,853
     Operating income (loss)                          2,272      (1,366)    (14,189)     (1,970)
     Net loss applicable to common
       shareholders                                    (199)     (5,432)    (17,451)     (2,820)
     Basic and diluted loss per share applicable
       to common shareholders                      $  (0.02)   $  (0.39)   $  (1.29)   $  (0.22)

                                                                       1998
                                                   --------------------------------------------
                                                   1st Qtr.    2nd Qtr.    3rd Qtr.    4th Qtr.
                                                  (13 weeks)  (13 weeks)  (13 weeks)  (13 weeks)
                                                   --------    --------    --------    --------
     Restaurant sales                              $ 72,880    $ 62,066    $ 62,231    $ 58,779
     Operating income (loss)                          3,378       1,574         904        (163)
     Net income (loss) applicable to common
       shareholders                                   1,340      (1,061)     (1,183)     (3,753)
     Basic and diluted income (loss) per share
       applicable to common shareholders           $   0.10    $  (0.08)   $  (0.09)   $  (0.28)
</TABLE>
                                   * * * * * *

                                      F-23