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 27, 1998
                                    
                                       OR

              TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                        for the transition period from to

                           Commission File No. 0-24502

                          ROCK BOTTOM RESTAURANTS, INC.
             (Exact name of registrant as specified in its charter)

                   Delaware                    84-1265838
          (State of incorporation) (I.R.S. Employer Identification No.)

          248 Centennial Parkway, Suite 100, Louisville, Colorado 80027
               (Address of principal executive offices)        (Zip code)

                                 (303) 664-4000
              (Registrant's telephone number, including area code)

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

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

                                (Title of Class)
                          Common Stock ($.01 par value)

         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 this Form 10-K [ ].

         At March 26, 1999, 8,045,796 shares of common stock were outstanding.

         At March  26,  1999,  the  aggregate  market  value of the  voting  and
non-voting common equity held by non-affiliates was approximately $49,230,000.





<PAGE>

<TABLE>
<CAPTION>

                                      INDEX

                                                                                    Page

                                     PART I
<S>      <C>                                                                       <C> 
Item 1.  Business                                                                     1
Item 2.  Properties                                                                  10
Item 3.  Legal Proceedings                                                           11
Item 4.  Submission of Matters to a Vote of Security Holders                         11

                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters       11
Item 6.  Selected Financial Data                                                     12
Item 7.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations                                                       13
Item 8.  Financial Statements and Supplementary Data                                 23
Item 9.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure                                                        42

                                    PART III

Item 10. Directors and Executive Officers of the Registrant                          42
Item 11. Executive Compensation                                                      42
Item 12. Security Ownership of Certain Beneficial Owners and Management              42
Item 13. Certain Relationships and Related Transactions                              42

                                     PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K            42

</TABLE>


<PAGE>



                                     PART I

ITEM 1:  Business

General

         Rock  Bottom  Restaurants,  Inc.  was  incorporated  in April  1994 and
currently operates 23 brewery  restaurants and 39 Old Chicago(R)  restaurants in
17 states and the  District  of  Columbia.  The  company's  brewery  restaurants
operate  under the names Rock Bottom  Restaurant & BrewerySM  (17  restaurants),
Walnut Brewery (two  restaurants)  and ChopHouse & Brewery (three  restaurants).
During 1998,  the company opened four brewery  restaurants  and closed three Old
Chicago  restaurants  and three  brewery  restaurants  for a net decrease of two
restaurants (see  "Management's  Discussion and Analysis of Financial  Condition
and Results of  Operations  Overview").  All of the  company's  restaurants  are
casual dining restaurants that feature high quality,  moderately priced food and
a distinctive selection of microbrewed and specialty beers. Two of the company's
brewery  restaurants also operate Sing Sing  nightclubs,  which emphasize comedy
shows performed by dueling pianists.

         The company also owned an indirect 50% equity  interest in Trolley Barn
Brewery,  Inc. which it sold during the fourth quarter of 1998 (see "Business --
Trolley Barn").  As of the date of sale,  Trolley Barn operated nine restaurants
in the southeastern United States.

         On March 18, 1999,  the company  entered into an Agreement  and Plan of
Merger  with RB Capital,  Inc.,  a newly  formed  corporation  organized  by the
company's Chairman of the Board,  President and Chief Executive Officer, and RBR
Acquisition Corp., a wholly-owned subsidiary of RB Capital,  whereby RB Capital,
through  RBR  Acquisition,  will  acquire  the company in a cash merger with the
company as the surviving  corporation.  The proposed merger requires approval by
the  holders of a majority  of all  outstanding  shares of the  company,  and is
expected to be voted upon by the  company's  stockholders  at a special  meeting
anticipated  be held during the third  quarter of 1999.  See also  "Management's
Discussion  and  Analysis of  Financial  Condition  and Results of  Operations -
Liquidity and Capital Resources".

Brewery Restaurants

         Design and Layout. The company's brewery restaurants generally range in
size from  7,400 to 11,500  square  feet and are  designed  to create a dramatic
visual impact on their customers.  Each restaurant features warm lighting,  high
ceilings and wood-finished interiors complemented by an array of stainless steel
brewing tanks and equipment.  The on-premises brewing equipment,  which consists
of  strategically  placed rows of stainless steel  fermenting  tanks and serving
vessels,  is an integral  aspect of the  restaurant's  design and  enhances  the
overall visual impact.  Television  sets throughout the bar area allow customers
to watch sporting and other special events.

         The dining and bar areas are spacious and the kitchens  feature partial
or complete exhibition style cooking. Total seats in the restaurants' dining and
bar areas  generally  range  between  200 and 375 and the  layout  is  flexible,
permitting tables to be rearranged to accommodate customer demand. To complement
the overall  design and dining  experience,  restaurants in nearly all locations
provide live music, outdoor patio seating or separate billiards areas.

         Menu and  Pricing.  The  brewery  restaurant  menu  typically  includes
approximately 45 bistro style items consisting of appetizers,  soups, meal-sized
salads, and other offerings featuring meat, fish, pastas and regional cuisine as
well as a range of desserts.  In  addition,  the menu is  supplemented  by daily
specials that are created at the  discretion of each culinary  trained chef. The
daily specials  typically include a pasta or meat dish, and a fresh fish entree.
The menu is designed  to offer a broad range of prices that convey  value to the
customer.  Entrees  typically  range in price  from  $7.95 to  $19.95  with most
entrees priced below $10.00.  Management  analyzes menu items for popularity and
profitability and often adapts new items to local market preferences.

         Hand-crafted Beer. All brewery  restaurants  feature  hand-crafted beer
brewed on-premises by each restaurant's head brewer, as well as a wide selection
of quality wines and a full range of cocktails.  Each restaurant  offers five to
seven different types of hand-crafted  beer ranging from a light golden ale to a
full bodied  stout,  as well as  cask-conditioned  or other  limited  production
seasonal beers,  such as  Rocktoberfest  Bier and Firechief Ale. The company has
received  several  local and national  awards for its beers,  including a silver
medal for its Devil's Back Stout (Oatmeal  Stout  category) in 1998 at the Great
American  Beer  FestivalSM.  Many of the  restaurants'  recipes  are  created to
complement the various hand-crafted beers. For example,  signature items such as
asiago cheese dip,  alder smoked salmon and stout  cheesecake  were developed to
increase their  compatibility  with beer. The hand-crafted beer selection ranges
in price  from  $3.25 to $3.75 per pint,  or $4.25 to $5.95 for a sampler  which
includes one four ounce taster of each beer brewed at the restaurant.
<PAGE>

         Customers.  The company  believes its brewery  restaurants  appeal to a
wide  range  of  customers  and  draw  their   clientele  from   throughout  the
metropolitan area in which each restaurant is located. Each restaurant generally
is open seven days a week from 11:00 a.m. and  typically  remains  active across
the lunch, happy hour, dinner and late-night time periods.

         Sales and Marketing.  The company strives to provide its customers with
dining experiences that encourage repeat business,  and has historically  relied
on word of mouth  advertising and local  restaurant  marketing and promotions to
attract new customers.  To supplement these marketing efforts, the company sells
a selection of Rock Bottom Restaurant & Brewery,  Walnut Brewery and ChopHouse &
Brewery  merchandise  including  T-shirts,  sweatshirts,  hats and  other  items
bearing  the  restaurant's  name and logo as well as the names of certain of the
restaurants'  more popular  hand-crafted  beers.  The  restaurants  also support
charitable  and civic  organizations  and  utilize a limited  amount of targeted
print advertising, cable television and radio.

     Site  Selection  and  Location.   The company currently operates 23 brewery
restaurants  in 17 states and the  District of  Columbia,  four of which  opened
during  1998,  and one of which  opened  during the first  quarter of 1999.  The
company seeks to locate its brewery  restaurants in visible,  high-traffic sites
in metropolitan or suburban areas that are recognized as established restaurant,
theater,  sporting and shopping destination locations.  Sixteen of the company's
restaurants are located near pedestrian  malls,  theaters,  convention  centers,
sports arenas,  or downtown  shopping  areas.  The other seven  restaurants  are
located in destination  restaurant and bar or shopping districts in Campbell and
Irvine,  California;   Englewood,   Colorado;  Des  Moines,  Iowa;  Warrenville,
Illinois; Bellevue, Washington (opened March, 1999) and Addison, Texas. Three of
the  company's  restaurants  located in Denver,  Colorado,  Washington  D.C. and
Cleveland,  Ohio  operate  under  the  names  "Denver  ChopHouse  &  BreweryTM",
"District   ChopHouse  &  Brewery"  and   "Cleveland   ChopHouse  &  BreweryTM",
respectively,  while  brewery  restaurants  in Boulder and  Englewood,  Colorado
operate under the name "Walnut  Brewery".  During the first quarter of 1998, the
company closed restaurants located in Houston,  Texas and Overland Park, Kansas,
and during the third  quarter of 1998,  closed a  restaurant  located in Fresno,
California. See "Management's Discussion and Analysis of Financial Condition and

Results of Operations - Overview".
         Restaurant Economics. During 1998, the 18 brewery restaurants operating
for the entire fiscal year  generated  average  revenues of  approximately  $4.2
million,  with per  restaurant  revenues  ranging from $2.2 million to more than
$7.0 million,  and average  earnings before  interest,  taxes,  depreciation and
amortization  ("EBITDA") of approximately  $883,000 (21.0% of average revenues).
Additionally,  the average cash  investment for the four  restaurants  opened in
1998 totaled  $2.4  million for  leasehold  improvements,  furniture,  fixtures,
restaurant  and  brewing  equipment  and  pre-opening  costs (see  "Management's
Discussion  and  Analysis of  Financial  Condition  and Results of  Operations -
Liquidity  and  Capital  Resources").  These  restaurant  economics  may  not be
maintained in the future.


Old Chicago Restaurants


         Design and Layout. Old Chicago restaurants typically range in size from
5,000 to 8,500 square feet.  Each  restaurant  is decorated to create a familiar
and  neighborly  atmosphere  for customers  that is unique to the locations they
serve,  and is  designed  to  separate  the dining  area from the bar area in an
effort to make all  customers  feel  comfortable  and welcome.  The  restaurants
feature a variety  of  Chicago  memorabilia,  a  prominent  display of rows of a
variety of bottled  beers,  a long row of colorful tap handles for draught beer,
and  televisions  placed  strategically  throughout  the  restaurant for viewing
sporting  or other  special  events.  The  table  layout at each  restaurant  is
flexible to accommodate groups and special seating requests, with total seats in
the dining and bar areas generally ranging from 180 to 340. Certain  restaurants
also feature outdoor patio seating and a limited number of pool tables.

         Menu and Pricing.  The menu at Old Chicago  restaurants  is designed to
appeal to a variety  of tastes  and  budgets  and  features  more than 50 items,
including  the company's  signature  Chicago-style  deep dish pizza,  thin-crust
pizza,  appetizers,  pastas,  burgers,  sandwiches,  large  salads,  and several
desserts.  Menu items are prepared daily with  high-quality,  fresh  ingredients
from  original  recipes.  Pizza  is a  featured  section  in the  menu  allowing
customers  to build  their own by  choosing  from a  selection  of 36  different
toppings, or to sample one of the specialty pizza combinations that include such
non-traditional  toppings as artichokes,  black beans, barbecued chicken, shrimp
or marinated sirloin steak. All new menu items and pizza combinations are tested
and selected  based on uniqueness,  sales  popularity,  ease of preparation  and
profitability.  Entrees  typically  range in price from $5.49 for a hamburger to
$18.99 for the most expensive specialty pizza that serves four.
<PAGE>

         Wide Beer Selection. Old Chicago restaurants provide a selection of 110
or more imported,  domestic and microbrewed beers. Bottled beers are prominently
displayed  in rows behind the bar along with an array of dozens of colorful  tap
handles for draught beer. Beer selectors at Old Chicago  restaurants  change the
beer selection on a regular  basis,  and strive to be the first in their area to
offer newly  introduced or hard to find beer  selections.  The beer selection in
each restaurant generally ranges in price from $2.25 for a domestic draught beer
to $3.95 for a microbrewed or imported beer.

         Customers.  Old  Chicago  restaurants  appeal  to  a  wide  variety  of
customers,  including regulars who frequent the restaurants several times a week
and those who visit  for the fun and  congenial  atmosphere,  as well as for the
frequent special events. Old Chicago restaurants are generally open seven days a
week from 11:00 a.m. and typically  remain active across the lunch,  happy hour,
dinner and late-night time periods.

         Sales and Marketing. The company's sales and marketing strategy for the
Old Chicago  restaurants  emphasizes  promotions  to encourage  repeat visits by
patrons.  One of the restaurants'  most effective  promotions has been the World
Beer TourSM,  established in 1984, which encourages exploration over time of 110
different brands of beer available at each Old Chicago  restaurant.  Patrons who
sample,  over the course of several visits,  110 beers are eligible for food and
bar  discounts  and prizes along the way and are then  inducted into the Hall of
FoamSM with their names listed on a large plaque  displayed  near the bar. Other
promotions  are  designed  to  promote  civic  and  charitable  events  in  each
restaurant's  local  community  and  include  such  local  restaurant  marketing
programs as Rolling  Stoves and Pizza  PalzSM.  The company also uses  extensive
print  advertising,  and  radio  advertising  to the  extent a  market  is media
efficient, for certain seasonal promotional events.

         Site  Selection and  Location.  The company  currently  operates 39 Old
Chicago  restaurants,  33 of which are  located  in  various  cities  throughout
Colorado,  Minnesota,  Kansas,  Oregon,  Nebraska  and  Idaho,  and one  each in
Addison,  Texas;  Madison,  Wisconsin;  Columbia,  Missouri;  Bettendorf,  Iowa;
Tucson, Arizona and Rockford, Illinois. In connection with the company's reduced
expansion  plans,  no new Old Chicago  restaurants  were opened during 1998 (see
"Business  - Expansion  Strategy").  The Old  Chicago  concept is  flexible  and
adaptable to a variety of markets and demographics  primarily because the design
and decor of each site is tailored to the specific  location,  thereby enhancing
its  neighborhood  appeal.  Old  Chicago  restaurants  have been  successful  in
downtown and suburban locations, in metropolitan areas and in smaller cities and
towns.  During the first  quarter of 1998,  the  company  closed the Old Chicago
restaurants located in Gladstone,  Missouri and Evergreen,  Colorado, and during
the third quarter of 1998 closed an additional Old Chicago restaurant located in
Salem, Oregon (see "Management's  Discussion and Analysis of Financial Condition
and Results of Operations - Overview").

         Restaurant   Economics.   During  1998,  the  Old  Chicago  restaurants
operating for the entire fiscal year generated average revenues of approximately
$1.9 million,  with per  restaurant  revenues  ranging from $1.3 million to $2.5
million,  and  average  EBITDA  of  approximately  $305,000  (16.1%  of  average
revenues).  These  restaurant  economics  may not be maintained in the future.

Trolley Barn

         During 1996,  the company  acquired an indirect 50% equity  interest in
Trolley  Barn in  exchange  for 452,073  shares of common  stock.  Trolley  Barn
operates nine casual  dining  restaurants  throughout  the  southeastern  United
States,  including four under the name Big River Grille & Brewing  Works(TM) and
two under the name Rock Bottom  Restaurant & Brewery.  During November 1998, the
company  executed an agreement with Trolley Barn to sell the company's  indirect
50% interest for cash of $7.0 million. In connection therewith,  the company was
released from its guarantee of Trolley Barn's debt, and Trolley Barn's rights to
develop  restaurants  throughout the  southeastern  United States under the Rock
Bottom Restaurant & Brewery and Old Chicago names were terminated.  However, the
company  granted  certain  rights to Trolley Barn so that it can continue to use
certain of the company's  licensed  trademarks and tradenames for two of Trolley
Barn's existing  restaurants  located in Atlanta,  Georgia and Charlotte,  North
Carolina for a specified period of time. These trademarks and tradenames include
Rock  Bottom  Restaurant  &  Brewery  and  Sing  Sing.  See  Note 5 of  Notes to
Consolidated  Financial Statements.  Proceeds from this transaction were used to
pay down the company's credit facility.
<PAGE>

Development Strategy

         From  January  1995  through   March  1999,   the  company   opened  49
restaurants,  including 28 Old Chicago  restaurants and 21 brewery  restaurants.
During 1998, the company closed three Old Chicago  restaurants and three brewery
restaurants  opened  previously  (see  "Management's  Discussion and Analysis of
Financial Condition and Results of Operations - Overview"),  and as of March 26,
1999,  the  company   operated  39  Old  Chicago   restaurants  and  23  brewery
restaurants.

         During  July  1997,  the  company  announced  a plan to reduce its 1998
restaurant  expansion  by opening  fewer  brewery  restaurants  than in previous
years,  and opening no new Old Chicago  restaurants.  This strategy  allowed the
company to focus on opening a fewer  number of total  restaurants  during  1998,
place greater  emphasis on improving the quality and standards of its management
training program, and address sales and profits concerns in certain restaurants,
particularly  the Old  Chicago  restaurants.  Management  believes  the  company
benefited from this strategy as indicated by the improved operating  performance
for the Old Chicago  restaurants during 1998 (see  "Management's  Discussion and
Analysis  of  Financial  Condition  and  Results of  Operations  -- Fiscal  1998
Compared to Fiscal 1997").

         During 1999, the company  anticipates  opening four brewery restaurants
and resuming  expansion  for the Old Chicago  concept with two new  restaurants.
Such  expansion  will focus on building out existing  markets for both concepts,
and  entering  Arizona  with  a  suburban  brewery  restaurant.  New  restaurant
locations  currently  planned for 1999 and the  estimated  opening  dates are as
follows:

                        1999 Planned Restaurant Openings

      Location                                  Estimated Opening Date
      --------                                  ----------------------
      Rock Bottom Restaurant & Brewery:
         Bellevue, WA (a)                        Opened March 8, 1999
         Phoenix, AZ (a)                         April 1999
         San Diego, CA (b)                       July 1999
         Arlington, VA                           August 1999

      Old Chicago:
         Omaha, NE                               July 1999
         Wheatridge, CO                          August 1999

         (a)  The  company  planned  to open both  restaurants  during the third
              quarter of 1998, however,  delays in the developers'  construction
              timeline resulted in rescheduling these openings to 1999.
         (b)  The company plans on opening an additional Sing Sing  nightclub to
              be operated by this restaurant during the fourth quarter of 1999.

          The company expects to complete its expansion during the third quarter
of 1999.  Thereafter,  since the brewery restaurant concept will undergo reduced
expansion  and a focus  on  quality  and  profitability,  the  company  does not
anticipate opening any new brewery  restaurants until the third quarter of 2000.
This strategy will provide  greater  management focus toward  improving  current
systems  and  procedures,  which  procedures  range  from  continued  efforts to
streamline  kitchen  labor as a  result  of the menu  reengineering  process  to
planning and developing sophisticated local restaurant marketing plans.

         The company is  evaluating  new markets for  possible  expansion in the
future,  and the brewery restaurant or Old Chicago restaurant concept may not be
successful outside their historical markets where regional tastes and restaurant
preferences  may be  different.  In  addition,  the  company  has  expanded  the
geographic  location  of its  restaurants,  and  may  not  be  able  to  operate
profitable restaurants dispersed in a larger geographic area.

         The company's ability to open additional restaurants will depend upon a
number of factors,  including,  among  others,  the  employment  and training of
restaurant management,  staff and other personnel,  the cost and availability of
suitable  locations,   regulatory  limitations  regarding  common  ownership  of
breweries and  restaurants in certain  states,  acceptable  leasing or financing
terms, cost effective and timely construction of restaurants (which construction
can be delayed due to, among other  factors,  labor  disputes,  delays from real
estate developers,  local zoning and licensing matters and weather  conditions),
securing  of  required  governmental  permits and  approvals  and the  company's
ability to generate funds from existing operations.  The company may not be able
to open its planned restaurants in a timely or cost effective manner, if at all.
<PAGE>

Restaurant Operations and Management

         The  company  seeks to attract  and retain  high  quality,  experienced
restaurant   managers  by  providing  them  with  responsibility  and  financial
incentives.  The management team of a typical restaurant consists of one general
manager, up to four department heads (service,  kitchen, bar and, if applicable,
brewing) and up to four assistant  managers.  Each restaurant also has either an
executive chef or  professional  kitchen manager and up to three assistant chefs
or  assistant  kitchen  managers.  The company  presently  employs a senior vice
president of operations for each restaurant division, five regional managers for
the brewery restaurant  division and seven regional managers for the Old Chicago
division.  The company  provides  financial  incentives  to general and regional
managers based on certain  performance  measures  including the profitability of
the  restaurant.   Restaurant   managers  are  also  reviewed  for  compensation
adjustments  and  promotions  based  on the  advancement  and  growth  of  their
subordinates,  restaurant  cleanliness and safety,  involvement in the community
and awareness of the market.

         The company strives to maintain  quality and consistency at each of its
restaurants  by assisting its personnel in achieving  higher levels of execution
in service,  food/beverage  preparation,  brewing quality assurance and facility
maintenance.  Through frequent sales meetings, department meetings, "brew-chats"
and employee  roundtable focus groups, the company involves each employee in the
evaluation  and  improvement  of  restaurant  operations.  The company  seeks to
continually refine its performance measurement system in order to provide better
feedback to its employees and to focus their  attention on improving  restaurant
performance and profitability.

         The company devotes  significant  resources to management  training and
development.  The company has established a team of full-time  professionals  to
manage the  recruitment  and training of management  personnel for the company's
restaurants,  including a vice president of training, a director of training and
two  recruiting  managers.  During  the  fourth  quarter  of 1998,  the  company
established  a program  for  training  all new  restaurant  management  for both
concepts  in  restaurants   designated  solely  as  training  restaurants.   Two
additional  managers are responsible for coordinating such training.  Management
believes  that this  program  increases  a  trainee's  knowledge  of their daily
responsibilities and the company's  expectations of performance,  resulting in a
more  consistent  execution of the concept and reduced  employee  turnover.  All
managers are also expected to complete a five-day management  leadership course,
and obtain  certification  from a nationally  recognized  agency with respect to
food safety and sanitation.

         In addition,  as the staff is a key factor in the company's operations,
substantial  resources  are devoted to  recruiting,  hiring and  training  these
individuals.  Employees are selected for employment on the basis of congeniality
and willingness to accept  responsibility for fulfilling customer  expectations.
Employees are then trained to make broad based  decisions at the customer level,
thereby  seeking to provide an exceptional  dining  experience and enhancing the
friendly atmosphere of the company's restaurants. Currently, the company employs
five training managers responsible for designing and implementing staff training
programs  such as "Train the  Trainer,"  which  ensures  that  trainers  at each
restaurant  are  communicating  a  correct  and  consistent  message,  and  "Big
Brother/Big  Sister,"  which  provides  all new staff  members with a designated
individual for answering questions or providing assistance.

         The company also maintains an alcohol  awareness  training  program for
all restaurant-level  company employees who interact with customers,  which must
be  completed  during the first 90 days of  employment.  The company  employs 30
accredited  trainers  who  educate  and  train  company  staff to serve  alcohol
responsibly.

Internal Controls

         The company  maintains  internal  controls for each of its  restaurants
through use of centralized  accounting and management  information systems. Each
restaurant has the ability to compile its sales and labor information on a daily
basis through  utilization of point-of-sale  terminals.  The brewery restaurants
also  have   sophisticated   computer  payroll  scheduling  systems  that  allow
management to more efficiently manage and control labor costs.  During 1997, the
company  implemented a new accounting and financial  reporting  software package
that  has,  among  other  things,   provided  the  ability  to  integrate  daily
information  generated by each  restaurant's  point-of-sale and labor scheduling
systems  with  the  central   accounting  system  and  to  prepare  more  easily
consolidated or other selected management reports.  Cash receipts are controlled
either  through daily  deposits of sales  proceeds into the company's  principal
depository  account,  maintained  in Colorado,  or through  daily  deposits into
centralized  depository  accounts  maintained  outside of Colorado.  Deposits in
out of  state  accounts  are  transferred  two to  three  times a week  into the
Colorado  depository   account.   Cash  disbursements  are  controlled  thorough
centralized purchasing and processing of payables.
<PAGE>

Brewing Operations

         The company's breweries are typically designed to produce between 1,600
and 3,000 barrels per year. Each system is custom designed to be integrated into
the restaurant  layout in the most efficient and aesthetic manner and emphasizes
ease of control,  use and flexibility.  Each brewery  restaurant  employs a head
brewer and in most cases one or more  apprentice  brewers.  Quality control over
the brewing  process in all  restaurants is performed by seven brewers,  five of
whom also serve as head  brewers.  The company  also  employs two  directors  of
brewing  operations  responsible for designing and installing brewing systems in
new restaurants and for developing and testing new beer recipes.

         All of the company's  brewers strive to ensure that every batch of beer
brewed is of high quality and consistent  with prior  batches.  Beer is produced
from malted barley, hops, yeast and water. Malted barley, the main ingredient of
beer, is produced when barley is moistened, allowed to germinate and then dried.
The  malted  barley  is then  crushed  and mixed  with hot  water and  strained,
producing a clear amber liquid called wort. Wort is boiled in brew tubs and hops
are added  which add  bitterness  and  flavor to the brew.  The  mixture is then
strained  and placed in a tank  where  yeast is added and the beer is allowed to
ferment.  When the fermentation process produces the desired result, the beer is
then  transferred  to aging  tanks  where the flavor is  developed.  The brewing
process from the conversion of raw materials to the serving of beer is typically
completed in seven to 14 days, depending on the type of beer being brewed.

Purchasing Operations

         The company's  management  negotiates  directly with  suppliers for key
food and beverage  products to assure uniform  quality and freshness of products
in its restaurants and to obtain competitive prices.  These products and certain
supplies used by the company's  restaurants  are purchased  from  specified food
producers,  independent  wholesale  distributors  and  manufacturers.  Food  and
beverage  products and supplies are shipped directly to the restaurants,  as the
company  does not  maintain a central  product  warehouse.  The  company has not
experienced any significant delays in receiving restaurant products, supplies or
equipment.

         During  the  second  quarter of 1998,  the  company  began a process to
re-bid its single largest food supplier  contract,  and in December 1998 awarded
this contract to Distributor  Marketing  Alliance,  Inc. ("DMA").  The change in
suppliers  is  expected  to  streamline  the number of  distribution  warehouses
thereby reducing freight costs, and improve overall menu quality through greater
adherence  to  the  company's  purchasing  specifications  and  guidelines.  The
agreement  with this  supplier is  terminable  within 30 days'  notice by either
party,  and the company  believes  that food and  beverage  products are readily
available from alternate suppliers. Prior to December 1998, the company's single
largest food supplier,  Nobel Sysco,  Inc.,  accounted for  approximately 81% of
food and certain supplies purchased in 1998 by the company.

Competition

          The   restaurant   industry  is  intensely   competitive.  The brewery
     restaurants  compete with other  casual  dining  restaurants,  brewpubs and
other  restaurants  primarily on the basis of service,  atmosphere  and quality,
among other factors.  Old Chicago  restaurants  compete with other casual dining
restaurants and with local, neighborhood taverns on the basis of the price-value
relationship,
service, location, quality, beer selection and atmosphere,  among other factors.
Many  competitors  for both of the company's  concepts are well  established and
have substantially greater financial and other resources than the company.
<PAGE>

         The restaurant  industry generally,  and the company in particular,  is
affected by changes in consumer  tastes,  national,  regional or local  economic
conditions,  weather conditions,  demographic  trends,  traffic patterns and the
type,  number and location of competing  restaurants.  The company  believes its
ability to compete effectively will continue to depend upon its ability to offer
superior   service  with  high  quality   menu  items  in   distinctive   dining
environments.

Government Regulations

         General. The company's restaurants are subject to regulation by federal
agencies and to licensing and regulation by state and local health,  sanitation,
safety, fire and other departments  relating to the development and operation of
restaurants.  These  regulations  include  matters  relating  to  environmental,
building and zoning requirements, the preparation and sale of food and alcoholic
beverages,  designation of non-smoking  and smoking areas and  accessibility  of
restaurants to disabled  customers.  Various federal and state labor laws govern
the  company's   relationship   with  its  employees,   including  minimum  wage
requirements,   overtime,   working  conditions  and  immigration  requirements.
Significant  additional  government-imposed  increases  in minimum  wages,  paid
leaves of absence and mandated health  benefits,  or increased tax reporting and
tax payment  requirements  for employees who receive  gratuities,  could have an
adverse  effect on the company's  results of  operations.  Delays or failures in
obtaining the required construction and operating licenses, permits or approvals
could delay or prevent the opening of new restaurants.  Management  believes the
company  is  operating  in  substantial  compliance  with  applicable  laws  and
regulations governing its operations.

         Alcoholic  Beverage  Regulation.  Each of the company's  restaurants is
subject to licensing and regulation by a number of governmental authorities. The
company  operates its brewery  restaurants in compliance with federal  licensing
requirements  imposed by the Bureau of  Alcohol,  Tobacco  and  Firearms  of the
United States Department of the Treasury, as well as the licensing  requirements
of  states  where  its  restaurants  are  located.  Alcoholic  beverage  control
regulations  require  each of the  company's  restaurants  to  apply  to a state
authority  and, in certain  locations,  county or  municipal  authorities  for a
license  and  permit  to brew  and/or  sell  alcoholic  beverages  on  premises.
Typically, licenses must be renewed annually and may be revoked or suspended for
cause at any time.  Alcoholic  beverage control  regulations  relate to numerous
aspects of the daily operations of the company's restaurants,  including minimum
age of  patrons  and  employees,  hours  of  operation,  advertising,  wholesale
purchasing,  inventory control and brewing, and handling, storage and dispensing
of alcoholic  beverages.  The company  believes it has all  material  regulatory
permits and licenses necessary to operate its restaurants. The company's failure
to comply with  federal,  state or local  regulations  could cause the company's
licenses  to be  revoked  and  force  it to cease  the  brewing  and/or  sale of
alcoholic  beverages at its  restaurants.  In addition,  changes in legislation,
regulations or administrative interpretation of liquor laws after the opening of
restaurants in a jurisdiction  may prevent or hinder the company's  expansion or
operations in that  jurisdiction.  The failure to receive or retain, or delay in
obtaining,  a liquor or brewpub license in a particular location could adversely
affect the company's ability to obtain such a license elsewhere.

         Certain states have  restrictions on the number of barrels of beer that
can be brewed  annually  by a  brewpub.  These  various  state  liquor  laws are
continually changing, and the company may be hindered or prohibited from opening
brewery  restaurants  in certain  markets.  The company  does not  believe  that
federal or state liquor laws will have a material  adverse effect on the opening
or operation of the brewery restaurants planned for 1999.

         The United States federal government currently imposes an excise tax of
$18 per barrel on each barrel of beer produced for domestic  consumption  in the
United States.  However, each brewer with production under 2,000,000 barrels per
year is  granted a small  brewer's  excise  tax  credit in the amount of $11 per
barrel on its first 60,000 barrels produced  annually.  In 1998, the company was
able to take  advantage  of a  $335,291  credit  from the  production  of 30,481
barrels pursuant to this exemption. The company is not aware of any plans by the
federal government to reduce or eliminate the small brewer's credit.  Individual
states also impose excise taxes on alcoholic beverages in varying amounts, which
also are subject to change.  It is possible  that excise taxes will be increased
by both the  federal  government  and a number of the states.  Increased  excise
taxes on alcoholic  beverages  have been  considered by the U.S.  Congress as an
additional  source of tax revenue in connection with various proposals and could
be included in future legislation. Certain states also have special taxes on the
sale or production of alcoholic beverages. Increases in taxes on malt beverages,
if enacted, could have a material adverse effect on the company.

         The company is subject to  "dram-shop"  laws in most states in which it
currently  operates and will be subject to such statutes in certain other states
for  future  sites.  These  laws  generally  provide  a  person  injured  by  an
intoxicated  person the right to recover  damages  from an  establishment  which
wrongfully served alcoholic beverages to such person. The company carries liquor
liability  coverage  as part of its  existing  comprehensive  general  liability
insurance  which it  believes  is  consistent  with  coverage  carried  by other
entities in the restaurant  industry.  However,  a judgment  against the company
under a dram-shop  statute in excess of the company's  liability  coverage could
have a material adverse effect on the company.
<PAGE>

Employees

         As of December 27, 1998, the company had 4,766 employees,  of which 106
served in administrative  capacities (including home office,  administrative and
executive personnel),  362 served as restaurant  management  personnel,  and the
remainder of whom were hourly personnel.  No employee is covered by a collective
bargaining  agreement,  and the company has never  experienced an organized work
stoppage,  strike or labor dispute.  The company believes its working conditions
and  compensation  are  competitive  with those offered by its  competitors  and
considers relations with its employees to be excellent.

Intellectual Property

         The company  owns a number of  trademarks  and service  marks that have
been  registered with the United States Patent and Trademark  Office,  including
Old Chicago,  Rock Bottom  Restaurant & Brewery,  World Beer Tour, Hall of Foam,
Pizza Palz,  You've Hit Rock  Bottom,  and the Old  Chicago  Fresh Pasta & Pizza
design.  The  company  also  owns a  number  of  trademarks  and  service  marks
registered in certain  states  including  the "Denver  ChopHouse & BreweryTM" in
Colorado and the "Cleveland  ChopHouse & BreweryTM" in Ohio. The company regards
its Old Chicago and Rock Bottom  Restaurant  & Brewery and other marks as having
substantial  value and as being an important  factor in the marketing of its Old
Chicago restaurants and brewery  restaurants.  The company's policy is to pursue
registration  of its  marks  whenever  possible  and to  oppose  vigorously  any
infringement  of its  marks.  The  company  is  aware,  however,  of a use by an
unaffiliated third party of the name Old Chicago in California which could limit
the  ability  of the  company  to use  its Old  Chicago  mark  in  parts  of the
California  market, and of a use by an unaffiliated third party of the name Rock
Bottom in New  Hampshire  and  Nebraska  which  could  limit the  ability of the
company  to use its  Rock  Bottom  Restaurant  &  Brewery  mark in  parts of New
Hampshire and Nebraska.

ITEM 2:  Properties

         As of December 27, 1998, the company operated 61 restaurants, including
22 brewery restaurants and 39 Old Chicago restaurants.  The following table sets
forth the locations of these restaurants. See "Business-Expansion  Strategy" for
a discussion of planned restaurant openings in 1999:
<TABLE>
<CAPTION>

                               Existing Restaurant Locations as of December 27, 1998

                                  Brewery Restaurants        Old Chicago
                                                             Restaurants               Total
          <S>                             <C>                    <C>                   <C>   
           Arizona                          -                      1                     1
           California                       4                      -                     4
           Colorado                         4                     16                    20
           District of Columbia             1                      -                     1
           Idaho                            -                      2                     2
           Illinois                         2                      1                     3
           Indiana                          1                      -                     1
           Iowa                             1                      1                     2
           Kansas                           -                      3                     3
           Maryland                         1                      -                     1
           Minnesota                        1                      7                     8
           Missouri                         -                      1                     1
           Nebraska                         -                      3                     3
           Ohio                             3                      -                     3
           Oregon                           1                      2                     3
           Texas                            1                      1                     2
           Washington                       1                      -                     1
           Wisconsin                        1                      1                     2
                                           --                     --                    --
             Total restaurants             22                     39                    61
                                           ==                     ==                    ==
</TABLE>

           The company owns the furnishings, fixtures and equipment  in each  of
its restaurants.  Generally,  each building lease entered into by the company is
conditioned upon the ability of the company to obtain the permits  and  licenses
<PAGE>

necessary  to  operate  the  restaurant   identified  for  such  site.  Existing
restaurant  building  leases have  expiration  dates  ranging  from July 1999 to
January  2038  (excluding  existing  renewal  options).  The  company  does  not
anticipate  any  difficulties  in renewing its  existing  leases as they expire;
however,  the company may not be able to renew such leases. See Note 11 of Notes
to Consolidated Financial Statements for information regarding aggregate minimum
rentals paid by the company for recent  periods and  information  regarding  the
company's obligation to pay minimum rentals in future years.

         The company  owns the land and  building  for Old  Chicago  restaurants
located in Greeley,  Longmont and Grand Junction,  Colorado;  Addison, Texas and
Salem,  Oregon, and for Rock Bottom Restaurant & Brewery  restaurants located in
Chicago, Illinois;  Addison; Texas, Warrenville,  Illinois, and Phoenix, Arizona
(opening April 1999). The property owned in Chicago is encumbered by a long-term
mortgage (see Note 7 of Notes to Consolidated Financial Statements). The company
also leases  approximately  23,000  square feet of office  space in  Louisville,
Colorado. Subsequent to December 27, 1998, the company entered into negotiations
to sell the land and  building  located in  Colorado,  Oregon  and  Warrenville,
Illinois. All transactions, except for the sale of the Old Chicago restaurant in
Oregon,   would  involve  the  company  executing   long-term  lease  agreements
simultaneous with the closing of each transaction (see "Management's  Discussion
and Analysis of Financial  Condition  and Results of  Operations - Liquidity and
Capital Resources").

ITEM 3:  Legal Proceedings

         The  company is a party to  certain  legal  proceedings  arising in the
ordinary  course  of  its  business.  Management  believes  that  any  resulting
liability,  individually or in the aggregate,  will not have a material  adverse
effect on the company's financial condition, results of operations or liquidity.

         Additionally,  on  February  2,  1999,  an action  was  brought  in the
District Court,  County of Denver,  State of Colorado,  entitled Wohlman v. Day,
et. al., as a class action on behalf of the public  shareholders  of the company
against the company's  directors  individually  and the company.  The plaintiffs
alleged, among other things, a breach of fiduciary duties in connection with the
proposed  transactions  between  the company and RB Capital and sought to enjoin
any such transaction. In addition to injuctive relief, the action sought damages
in an unspecified amount. The company has reached an agreement in principle with
the  plaintiffs in the case, and  anticipates  that any settlement of this class
litigation  will not have a material  adverse effect on the company's  financial
condition, results of operations or liquidity.

ITEM 4:  Submission of Matters to a Vote of Security Holders

         Not applicable.
                                     PART II

ITEM 5:  Market for Registrant's Common Equity and Related Stockholder Matters

         The table  below  sets  forth for the  fiscal  quarters  indicated  the
reported high and low last sale prices per share of the company's  common stock,
as reported on The Nasdaq Stock Market SM. The last sale price of the  company's
common stock on March 26, 1999, was $8.75 per share.


                                                        High          Low


1997
         First quarter                                $ 12.00       $ 8.63
         Second quarter                                 12.00         9.25
         Third quarter                                  10.00         7.25
         Fourth quarter                                 11.75         5.75
1998
         First quarter                                 $ 6.63       $ 5.06
         Second quarter                                  7.56         5.50
         Third quarter                                   6.88         4.63
         Fourth quarter                                  6.50         4.88

         As of March 26, 1999,  there were 250 record  holders of common  stock,
although the company believes that the number of beneficial owners of its common
stock is substantially greater.

         The company  anticipates that for the foreseeable future, all earnings,
if any,  will be retained for the  operation  and  expansion of its business and
that it will not pay cash dividends.
<PAGE>

ITEM 6:  Selected Financial Data

         The selected  data  presented  below for, and as of the end of, each of
the years in the five-year  period ended December 27, 1998, are derived from the
Consolidated  Financial  Statements  of the company,  which have been audited by
Arthur  Andersen  LLP,  independent   accountants.   The  Selected  Consolidated
Financial Data should be read in  conjunction  with the  Consolidated  Financial
Statements and related notes thereto and  "Management's  Discussion and Analysis
of Financial  Condition and Results of  Operations"  included  elsewhere in this
Form 10-K.
<TABLE>
<CAPTION>
                                                                              Years Ended

                                               December 25,     December 31,    December 29,    December 28,     December 27,
                                                 1994              1995           1996             1997             1998
                                               --------          --------       --------         --------        ---------
                                                                  (In thousands, except per share data)
<S>                                            <C>               <C>            <C>              <C>           <C>    
Income Statement Data:
Revenues:
 Old Chicago restaurants                        $22,201           $40,499        $58,328          $ 73,117       $   74,131
 Brewery restaurants                             16,652            33,465         50,902            77,131           85,971
                                                -------           -------        -------           -------          -------
         Total revenues                          38,853            73,964        109,230           150,248          160,102
                                                -------           -------        -------           -------          -------

Operating Expenses:
  Cost of sales                                   9,785            18,509         27,100            37,672           40,625
  Restaurant salaries and benefits               12,727            24,739         35,552            51,086           53,632
  Operating expenses                              8,044            15,135         23,529            30,627           31,906
  Selling expenses                                1,272             2,855          4,272             5,773            5,099
  General and administrative                      2,468             4,577          5,620             9,073            9,818
  Depreciation and amortization                   1,325             4,200          7,802            12,136            8,615
  Start-up costs (1)                               --                --             --                --              1,809
  Restructuring charges and other, net             --                --             --               9,707             (138)
                                                -------           -------        -------           -------          -------
         Total operating expenses                35,621            70,015        103,875           156,074          151,366
                                                -------           -------        -------           -------          -------
Income (Loss) From Operations                     3,232             3,949          5,355            (5,826)           8,736
  Equity in joint venture earnings                   --                --            223               330              688
  Gain on sale of investment in joint venture        --                --             --                --              728
  Interest income (expense), net                   (106)              831            (74)           (1,763)          (2,378)
  Other income (expense), net                         8                40             (1)               --               --
                                                -------           -------        -------           -------          -------
Income (Loss) Before Taxes                        3,134             4,820          5,503            (7,259)           7,774
Income (Loss) Before Cumulative Effect
   of Accounting Change (1)                       1,924             3,270          4,025            (4,691)           5,248
Net Income (Loss) (1) (2)                      $  1,924          $  3,270       $  4,025        $   (4,691)        $  3,998
                                                =======           =======        =======           =======         =======

Diluted Net Income (Loss) Per Share:
  Income (loss) before cumulative effect of
    accounting change                         $     .47          $    .45       $    .52         $    (.58)         $  0.65
  Cumulative effect of accounting change             --                --             --                --            (0.15)
                                                -------           -------        -------           -------           ------
Diluted Net Income (Loss) per Share           $     .47         $     .45      $     .52         $    (.58)       $     .50
                                                =======           =======        =======           =======           ======
Diluted Weighted Average
    Shares Outstanding (3)                        4,072             7,264          7,725             8,027            8,056
                                                =======           =======        =======           =======           ======

Balance Sheet Data (at end of period):
  Working capital (deficit)                   $   1,113         $   9,335      $    (732)        $  (5,567)       $ (26,747)
  Total assets                                   26,359            64,169         84,948           107,413          102,497
  Long-term debt (including current
    portion)                                        706               641         11,564            28,940           21,425
  Obligations under capital leases
    (including current portion)                   1,794             1,667          1,372             2,079            2,481
  Stockholders' equity                           17,924            55,341         65,337            61,219           65,423
</TABLE>

(1)      The company  adopted  Statement of Position No. 98-5  "Reporting on the
         Costs of Start-up Activities"  effective December 29, 1997. Adoption of
         this standard resulted in a charge of approximately  $1.3 million,  net
         of taxes,  for the  cumulative  effect  of an  accounting  change.  See
         "Management's  Discussion  and  Analysis  of  Financial  Condition  and
         Results of Operations - Overview"  and Note 2 of Notes to  Consolidated
         Financial Statements.

(2)      The company was taxed as an S  corporation  through  July 10, 1994 and,
         therefore,  the income statement data includes  certain  adjustments to
         reflect  a  provision  for  income  taxes  through  that date as if the
         company had been taxed as a C Corporation.

(3)      Weighted average common shares  outstanding for the year ended December
         25,  1994  include  (a)  3,000,000  shares  of Common  Stock  issued to
         stockholders  of  certain  predecessor   corporations  and  (b)  62,375
         additional   shares  deemed  issued  at  December  26,  1993,  to  fund
         undistributed S corporation earnings at that date.
<PAGE>


ITEM 7:  Management's Discussion and Analysis of Financial Condition and Results
of Operations

         The following  discussion  of the results of  operations  and financial
condition should be read in conjunction with the company's audited  Consolidated
Financial Statements and notes thereto appearing in Item 8 in this Form 10-K.

Cautionary Statement Under "Safe Harbor" Provision of the
    Private Securities Litigation Reform Act of 1995

         Certain  statements  contained in this report are not historical facts,
and are  forward-looking  statements  that involve  known and unknown  risks and
uncertainties  which may cause actual  results or  performance of the company to
differ materially from such forward-looking  statements. Such statements include
statements regarding:
                
              -Restaurant expansion plans for 1999 and 2000; 
              -Estimated capital expenditures in 1999;
              -Estimated average  construction cost for new restaurants  opening
               during 1999; 
              -Ability of the company to improve operations in the brewery  
               restaurants;  
              -Ability of the  company to renew  existing leases;  
              -Ability  to  complete  timely transactions  for  the  sale  and
               subsequent lease of certain brewery and  Old Chicago  restaurants
               and realize related reductions in interest expense;
              -Anticipated  cost savings and quality improvement resulting from 
               the company's change in primary  food  supplier;   
              -Availability  of  food  and  beverage products  from  alternate 
               suppliers; 
              -Ability of the  company to compete  effectively within the
               restaurant  industry;  
              -Impact on operations of changes in federal  or  state  liquor  or
               tax laws;  
              -Impact  on  financial condition,   results  of  operations  or  
               liquidity from legal proceedings arising in the ordinary course 
               of business;
              -Estimated  amounts  accrued for restaurant closings;
              -Ability of the company to attain Year 2000 compliance;
              -Ability to generate  sufficient  cash from operations to complete
               financing of 1999 restaurant expansion;
              -Impact of SOP 98-5 on future quarterly earnings.

         Factors that could cause actual results to differ  materially  include,
among others:  availability of suitable  restaurant  locations;  availability of
financing on acceptable terms to fund future growth; increasing costs associated
with new  restaurant  construction and  developing a  significant  number of new
restaurants  over a  relatively  short  period of time;  delays in  opening  new
restaurants;  ability  to  hire  and  train  increasing  numbers  of  restaurant
management,  staff and other  personnel  for new  restaurants;  fluctuations  in
consumer  demand and tastes  including a decrease in consumers'  preference  for
higher  quality,  more flavorful  beer;  acceptance in new markets;  competitive
conditions  in the  company's  markets;  general  economic  conditions;  adverse
weather   conditions;   operating   restrictions   and  costs   associated  with
governmental  regulations;  regulatory limitations regarding common ownership of
breweries  and  restaurants  in certain  states;  greater  than  expected  costs
associated with closing  restaurants,  and other risks detailed in the company's
reports and other filings under the Securities Exchange Act of 1934. 

          In addition to the foregoing, certain  statements   contained in  this
report  with   respect  to  the  proposed   transaction   with  RB  Capital  are
forward-looking   statements   that   involve   known  and  unknown   risks  and
uncertainties  which may cause actual  results or  performance of the company to
differ materially.  Such statements include statements regarding the anticipated
date for the  stockholders  meeting,  settlement of any class action lawsuit and
its anticipated  impact,  and the impact on G&A expense during the first quarter
of 1999.  Factors that could cause actual results to differ materially  include,
among  others,  delays in receiving  required  regulatory  and other  approvals,
unsatisfactory  completion of the  plaintiffs'  discovery,  if any, in the class
action lawsuit or the failure to reach a court-approved settlement in such suit,
adverse  economic  or market  conditions,  the  ability  of RB Capital to obtain
funding  necessary  to  consummate  the  proposed  transaction,  and  failure of
stockholders to approve the merger.

          Due to the significant uncertainties  inherent in the  forward-looking
statements  included  herein,  the inclusion of such  information  should not be
regarded  as a  representation  by the  company  or any  other  person  that the
objectives and plans of the company will be achieved.  In addition,  the company
disclaims any intent or obligation to update these  forward-looking  statements,
whether as a result of new information, future events, or otherwise.
<PAGE>

Overview

          As of December 27, 1998, the company operated 22  brewery  restaurants
and 39 Old Chicago  restaurants,  a decrease of two restaurants  from the end of
the  preceding  fiscal year.  The following  table lists the quarterly  activity
relating to the number of restaurants operating during 1998:
<TABLE>
<CAPTION>

                                         Summary of Restaurants Operating


                                                               Qtr.        Qtr.       Qtr.       Qtr. 
                                                              Ended       Ended      Ended      Ended       Total
                                                             3/29/98     6/28/98    9/27/98   12/27/98      1998
     <S>                                                      <C>        <C>        <C>          <C>        <C>   

       Old Chicago restaurants
            Open at beginning of period                        42          40         40          39          42
            New openings during period                          -           -          -           -           -
            Restaurant closures during period                  (2)          -         (1)          -          (3)
                                                               --          --         --          --          --
            Open at end of period                              40          40         39          39          39
                                                               --          --         --          --          --
       Brewery  restaurants
            Open at beginning of period                        21          19         21          21          21
            New openings during period (a)                      -           2          1           1           4
            Restaurant closures during period                  (2)          -         (1)          -          (3)
                                                               --          --         --          --          --
            Open at end of period                              19          21         21          22          22
                                                               --          --         --          --          --
                Total restaurants                              59          61         60          61          61
                                                               ==          ==         ==          ==          ==
</TABLE>

         (a)  New  restaurants are located in La Jolla,  California;  Cleveland,
              Ohio; Irvine, California and Warrenville, Illinois, respectively.

          Restaurant  openings  planned   for  1999   include  four  Rock Bottom
Restaurant & Brewery restaurants (two of which were originally scheduled to open
during the fourth quarter of 1998) and two Old Chicago  restaurants.  All leases
for  these  new  restaurants  are  either  signed  or in  the  final  stages  of
negotiation. Due to the maturation of the company's existing restaurant base and
the  possible  effects of opening  additional  restaurants  in close  proximity,
revenues of certain of the company's  restaurants may be lower in future periods
than  previously  experienced.  Future  operating  results may also be adversely
affected by costs  associated  with developing a large number of new restaurants
over a relatively  short time period.  Additionally,  new restaurants  typically
incur  certain   increased  costs  in  the  process  of  achieving   operational
efficiencies  during the first several months of operation.  Restaurant salaries
and benefits and preopening costs are two examples of these increased costs.

         Restaurant  closures  during the first  quarter of 1998 were located in
Evergreen,  Colorado  and  Gladstone,  Missouri  for the Old  Chicago  group and
Houston,  Texas and  Overland  Park,  Kansas for the brewery  restaurant  group.
Estimated costs to close these four  restaurants were accrued as of December 28,
1997.  During the second quarter of 1998 the company executed a lease settlement
agreement with the owner of the Gladstone,  Missouri restaurant,  and during the
third  quarter of 1998  executed an agreement  with a new owner of the company's
leased property in Evergreen,  Colorado.  As a result of these two transactions,
the company has no further  obligations  under these  previously  executed lease
agreements and recognized  income of approximately  $171,000 during 1998. During
the third quarter of 1998, the company began  subleasing its brewery  restaurant
in Houston,  Texas.  The  sublease  term runs from July 1998 to June 2001,  with
renewal  options through August 2009.  Pursuant to this  agreement,  the company
revised its  previous  estimate of accrued  restructuring  costs and  recognized
additional  income during 1998 of approximately  $177,000.  Management  believes
that the remaining  accrued  restructuring  charges for the Houston and Overland
Park  restaurants are sufficient to cover the related costs  associated with the
ultimate  disposition of all assets and obligations related to these properties.
See Note 8 of Notes to Consolidated Financial Statements.

         During the third  quarter of 1998,  the company  closed two  additional
restaurants in Fresno,  California and Salem, Oregon.  Certain assets located at
the  California  brewery  restaurant,   including  substantially  all  leasehold
improvements,  furniture and  equipment,  were sold during the fourth quarter of
1998 to an unaffiliated  third party,  and the company's  rights and obligations
under the lease  were  assigned  to this  party for $2.1  million.  The  company
recognized a gain on sale from this  transaction of  approximately  $451,000 and
used net proceeds to pay down the company's  credit  facility.  During the first
quarter of 1999,  the  company  entered  into a letter of intent for sale of the
land,  building and certain equipment for the Old Chicago  restaurant located in
Salem, Oregon. Assets related to this property of approximately $1.2 million are
classified  as Assets  Held for  Disposition  in the  accompanying  Consolidated
Balance Sheet, and such amount approximates net realizable value.  See Note 6 of
Notes to Consolidated Financial Statements.

         During  the  fourth  quarter  of 1998,  the  company  made a change  in
accounting  principle by electing  early  adoption of the American  Institute of
Certified Public Accountants'  Statement of Position 98-5,  "Reporting the Costs
of  Start-Up  Activities"  ("SOP  98-5"), that requires  the  company to expense
start-up and  preopening  costs as they are  incurred.  Prior to adoption of SOP
98-5, the company, like most other casual dining restaurant companies,  deferred
these costs and amortized them over the 12 months  following the opening of each
restaurant.  Adoption of SOP 98-5 was made  retroactive  to the first quarter of
1998 which resulted in a one-time  cumulative  effect  (charge) of $1.3 million,
net of taxes, or $0.15 per share, to expense  preopening  costs incurred in 1997
but deferred into fiscal 1998.  Adoption of SOP 98-5 did not require restatement
of prior year fiscal periods.  Future  quarterly  earnings will fluctuate due to
the timing of new restaurant openings and the corresponding impact from adoption
of SOP 98-5.

         The  company  operates  on a 52 or 53 week  fiscal year ending the last
Sunday in December. Fiscal years 1996, 1997 and 1998 each contained 52 weeks.



<PAGE>


Results of Operations

         The  following  table  sets  forth,  for  the  periods  indicated,  the
percentage  relationship to restaurant revenues of certain income statement data
and certain restaurant data:
<TABLE>
<CAPTION>

                                                                                        Percentage of Revenues
                                                                                             Years Ended
                                                                              December 29,   December 28,    December 27,
                                                                                  1996           1997            1998
                                                                                  ----           ----            ----
<S>                                                                           <C>               <C>           <C>    
Income Statement Data:
Revenues:
 Old Chicago restaurants                                                          53.4%          48.7%           46.3%
 Brewery restaurants                                                              46.6           51.3            53.7
                                                                                 -----          -----           -----
         Total revenues                                                          100.0          100.0           100.0
                                                                                 -----          -----           -----
Operating Expenses:
  Cost of sales                                                                   24.8           25.1            25.4
  Restaurant salaries and benefits                                                32.6           34.0            33.5
  Operating expenses                                                              21.5           20.4            19.9
  Selling expenses                                                                 3.9            3.8             3.2
  General and administrative                                                       5.1            6.0             6.1
  Depreciation and amortization                                                    7.2            8.1             5.4
  Start-up costs                                                                    --             --             1.1
  Restructuring charges and other, net                                              --            6.4            (0.1)
                                                                                 -----          -----           -----
         Total operating expenses                                                 95.1          103.8            94.5
                                                                                 -----          -----           -----
Income (Loss) From Operations                                                      4.9           (3.8)            5.5
  Equity in joint venture earnings                                                 0.2            0.2             0.4
  Gain on sale of investment in joint venture                                       --             --             0.5
  Interest income                                                                  0.2             --             0.0
  Interest expense                                                                (0.3)          (1.2)           (1.5)
                                                                                 -----          -----           -----
Income (Loss) Before Taxes                                                         5.0           (4.8)            4.9
Income (Loss) Before Cumulative Effect
  of Accounting Change                                                             5.0           (4.8)            3.3
Net Income (Loss)                                                                  3.7%          (3.1)%           2.5%
                                                                                 =====           =====          =====
Restaurant Data:
  Restaurants open (end of period):
    Old Chicago restaurants                                                         35             42              39
    Brewery restaurants                                                             14             21              22
                                                                                   ---            ---             ---
         Total                                                                      49             63              61
                                                                                   ===            ===             ===
  Restaurant operating weeks:
    Old Chicago restaurants                                                      1,541          2,058           2,054
    Brewery restaurants                                                            588            949           1,081
                                                                                 -----          -----           -----
         Total                                                                   2,129          3,007           3,135
                                                                                 =====          =====           =====
  Average sales per restaurant (open for full period)
    (in thousands):
    Old Chicago restaurants                                                     $1,902         $1,834         $ 1,872
    Brewery restaurants                                                          4,466          4,393           4,247
</TABLE>

Fiscal 1998 Compared to Fiscal 1997

         Revenues.  Revenues  increased $9.9 million (6.6%) to $160.1 million in
fiscal  1998 from  $150.2  million in fiscal  1997.  Revenues  from the four new
restaurants  which opened during 1998 accounted for $7.3 million  (74.4%) of the
increase.  As comparable  restaurant  sales for the year ended December 27, 1998
were  flat,  the  balance  of  the  increase  primarily  resulted  from  the  14
restaurants opened during 1997 contributing a full year of sales in 1998, offset
by a decrease in sales  resulting from the six  restaurants  closed during 1998.
When computing  comparable  restaurant sales,  restaurants open for at least six
full quarters are compared from year to year.

         Revenues from the  company's  brewery  restaurants,  as a percentage of
total  revenues,  increased to 53.7% in 1998 from 51.3% in 1997 because four new
brewery  restaurants  were  opened  during  the  year  (and no new  Old  Chicago

<PAGE>

restaurants were opened) and brewery restaurants generate greater average weekly
sales.  The company  expects that the percentage of revenues  contributed by the
brewery restaurants will continue to increase as the company anticipates opening
more brewery restaurants than Old Chicago restaurants in fiscal 1999.

         Average weekly sales for the Old Chicago  restaurants  during 1998 were
$36,091 as compared to $35,528 during fiscal 1997 (an increase of 1.6%).  During
1998 and  1997,  alcoholic  beverages  accounted  for  approximately  43% of Old
Chicago restaurant sales, with beer constituting  approximately 78% of alcoholic
beverage sales according to company estimates.  Comparable  restaurant sales for
the Old Chicago  restaurants  were also up 1.6% for the year ended  December 27,
1998.  During the third  quarter of 1997,  the  company  began  implementing  an
extensive analysis of its Old Chicago restaurants to direct management's efforts
towards  improving  overall  execution in each restaurant by increasing  average
weekly  sales  in  certain   restaurants   while   achieving   more   consistent
profitability.  This  analysis  covered  essentially  all aspects of  operations
including  hiring  and  training  of  new  staff,   restaurant  maintenance  and
cleanliness, local restaurant marketing promotions, menu merchandising,  service
standards  and food  quality and  consistency.  The company has begun to realize
some  benefits  from  focusing on these areas as  indicated  by the  increase in
average  weekly sales and  comparable  restaurant  sales  trends  during 1998 as
compared to 1997.

         Average  weekly  sales for the  brewery  restaurants  during  1998 were
$79,529  as  compared  to  $81,277  during  fiscal  1997 (a  decrease  of 2.2%).
Alcoholic  beverages accounted for approximately 39% of brewery restaurant sales
during 1998 as compared to 41% during 1997, with beer constituting approximately
58% of total  alcoholic  beverage  sales  during  1998 as compared to 61% during
1997.  Comparable restaurant sales for the brewery restaurants decreased by 2.6%
for the year ended  December 27, 1998.  Although down from 1997,  average weekly
sales and comparable  restaurant sales trends improved later in fiscal 1998. The
decline in sales measurements reflect the increasingly competitive conditions in
some of the company's key markets,  and difficulties  retaining market share due
to poor  execution of the concept in some other  markets.  Efforts being made to
improve  sales  trends  include  ongoing  menu  revisions  as part of the  "best
practices"  initiative  (see "Cost of Sales"),  reassessing  the beer program to
capitalize  on  consumers'  interest in  microbrewed  beers,  and  completing an
in-depth  evaluation  of  the  concept's  positioning  using  focus  groups  and
quantitative  data  gathering  methods.  As part of its effort to achieve  these
goals,  management  anticipates  deferring  continued  expansion  of the brewery
restaurant concept until the third quarter of 2000.

         Cost of Sales.  Cost of sales,  which  consists of food,  beverage  and
merchandise costs, increased $3.0 million (7.8%) to $40.6 million in fiscal 1998
from $37.7  million in fiscal 1997.  Cost of sales as a  percentage  of revenues
increased to 25.4% in fiscal 1998 from 25.1% in fiscal 1997 primarily due to two
factors.  First,  during  the  first  quarter  of  1998,  the  company  utilized
assistance  from an outside  consultant  to perform an  assessment  of operating
policies  and  procedures  in  the  company's  kitchens.  The  "best  practices"
developed  from this  assessment  were  implemented  during the second and third
quarters of 1998 and focused on  streamlining  food  preparation  procedures and
introducing  higher  margin menu items in both  concepts.  During  this  period,
several new menu items were added, and  substantially  all other menu items were
reengineered.  As this  process  resulted  in changes to numerous  recipes,  the
related  inefficiencies in yields and waste resulted in a temporary  increase in
food costs during the first nine months of 1998.  The second  primary  factor is
due to greater food sales as a percentage  of total sales.  As the cost of sales
for food is greater than the cost of sales for beverage alcohol,  an increase in
the food portion of the sales mix results in an increase in cost of sales. Other
increases  in 1998 as  compared  to 1997  resulted  from  certain  non-recurring
purchasing  benefits  received  during  the  third  quarter  of  1997,  and from
increased  costs in  cheese  during  the third and  fourth  quarters  of 1998 as
compared to 1997.

         Restaurant  Salaries and  Benefits.  Restaurant  salaries and benefits,
which consist of restaurant management and hourly employee wages, payroll taxes,
and group health  insurance,  increased  $2.5 million (5.0%) to $53.6 million in
fiscal 1998 from $51.1 million in fiscal 1997.  Restaurant salaries and benefits
as a  percentage  of  revenues  decreased  to 33.5% in 1998 from  34.0% in 1997,
primarily  due to  lower  kitchen  and  floor  labor  costs  in both  restaurant
concepts.  This  decrease is partially due to a reduction in kitchen labor hours
as a result of the company's best practices initiative.  Additional decreases in
labor  costs were due to the brewery  restaurants  opened in the prior 18 months
achieving operational  efficiencies.  Cost savings in these areas were offset by
increased  training costs  associated with the company's  efforts to improve the
quality and standards of its management training program.

         Although  the company did not  experience  an increase to minimum  wage
rates during 1998 as a result of federal legislation,  certain state legislation
increased  the  minimum  wage  rates in Oregon and  California  during the first
quarter of 1998. Laws in these states do not provide for the Federal tip credit,

<PAGE>

therefore such legislation  increased the minimum wage paid to tipped employees.
Although  the company did not  implement a menu price  increase to  specifically
offset these increased wage rates,  the introduction of higher margin menu items
as a result of the company's best practices  initiative  mitigated the effect of
such increased costs.

         Operating Expenses.  Operating expenses, which include occupancy costs,
utilities,  repairs,  maintenance  and linen,  increased  $1.3 million (4.2%) to
$31.9 million in fiscal 1998 from $30.6 million for fiscal 1997. As a percentage
of revenues,  such expenses  decreased to 19.9% in 1998 from 20.4% in 1997.  The
decrease in operating  expenses as a percentage  of revenues is due primarily to
lower overall  operating  costs  resulting from  management's  focus on its best
practices  initiative.  Additional  costs savings are due to a reduction in 1998
insurance premium rates,  particularly workmen's compensation  insurance.  These
cost  savings  were  offset by  greater  expenses  during  the third and  fourth
quarters of 1998 for repairs and  maintenance  as the company has  undertaken  a
comprehensive  program to repair and upgrade existing  assets.  Such program may
result in slight increases to operating expenses during 1999.

         Selling  Expenses.  Selling expenses  decreased $0.7 million (11.7%) to
$5.1 million in fiscal 1998 from $5.8  million for fiscal 1997.  As a percentage
of revenues,  such  expenses  decreased to 3.2% in 1998 from 3.8% in 1997.  This
decrease is  primarily  due to a reduction  in the amount of food and  beverages
discounted to customers.  Although  discounting is one of the company's  primary
forms of word-of-mouth advertising,  increased staff training and education have
reduced use of this program to more appropriate levels. Additional decreases are
due to an increased use of lower cost local restaurant  marketing  promotions as
compared to more expensive  company wide promotions that utilize extensive radio
and print media.

         General and Administrative ("G&A"). G&A expenses increased $0.7 million
(8.2%) to $9.8  million in fiscal  1998 from $9.1  million in fiscal  1997,  and
increased as a percentage of revenues from 6.0% in fiscal 1997 to 6.1% in fiscal
1998.  Excluding  approximately $1.3 million for certain  non-recurring  charges
incurred  during the fourth  quarter of 1997,  1998 G&A expense  increased  $2.0
million as compared  to fiscal  1997.  Due to the  company's  reduced  expansion
plans,  less G&A costs  were  allocated  to the  company's  development  program
resulting  in an increase to G&A  expense.  Additionally,  the company  incurred
increased  spending  during  1998  related  to its  best  practices  initiative,
additional   personnel  in  the  training,   accounting,   human  resources  and
information systems  departments,  and costs associated with attaining Year 2000
compliance.

         On January 27, 1999,  the company  announced that it had received three
separate indications of interest to acquire the company, including a proposal by
RB Capital (see "Proposed Transaction with RB Capital"). The company appointed a
Special Committee of independent directors to, among other things, evaluate such
proposals as well future third-party indications of interest. As a result of the
Special  Committee's  activities,  the  company  expects G&A expense to increase
significantly during the first quarter of 1999.

         Depreciation  and  Amortization,   and  Start-up  Costs.  Depreciation,
amortization and start-up costs, decreased $1.7 million (14.1%) to $10.4 million
for fiscal 1998 from $12.1  million in fiscal 1997. As a percentage of revenues,
depreciation   expense  and  amortization  of  intangible  assets,   other  than
amortization  of preopening  costs,  was 5.4% during 1998 as compared to 5.1% in
1997.  Such  increase  is due  primarily  to a decrease  in AWS for the  brewery
restaurants,  greater  depreciation  expense  for  the Old  Chicago  restaurants
resulting from a significant investment for restaurant remodels over the last 12
months, and increased  depreciation  expense associated with a greater number of
corporate assets.

         Amortization  of  preopening  costs and start-up  costs was 1.1% during
1998  as  compared  to  2.9%  during  1997.  Preopening  expense  incurred  as a
percentage of revenues  fluctuates  with the number and type of restaurant  (Old
     Chicago  or  brewery  restaurant)  opened in any given  period.  Due to the
company's reduced expansion plans in fiscal 1998, preopening costs were incurred
for fewer restaurants than in fiscal 1997.

         Restructuring  Charges and Other,  net. The company  incurred a pre-tax
restructuring charge during 1997 of approximately $9.7 million related primarily
to write-downs of certain  assets to their net  realizable  value,  and accruing
estimated  costs  associated  with  closing  four  restaurants  during the first
quarter of 1998.  During 1998, the company either settled its lease  obligations
or subleased the related property for three of these four restaurants  resulting
in an adjustment  of  previously  accrued  restructuring  charges,  or income of
approximately   $348,000  (see  Note  8  of  Notes  to  Consolidated   Financial
Statements).  Additionally,  the  company's  gain  associated  with  closing its
restaurant in Fresno,  California  during the fourth quarter of 1998 resulted in
additional income of approximately $451,000.  Income from these transactions was
offset by costs  relating to the  disposition of other  operating  fixed assets.
<PAGE>

         Equity in Joint Venture Earnings.  The equity in joint venture earnings
represents  the  company's  50% equity  interest  in net  after-tax  earnings of
Trolley Barn. The increase is due to an increase in Trolley's Barn's revenues as
the total  number of  restaurants  operated by Trolley Barn  increased  from six
restaurants operating at the end of fiscal 1997 to nine restaurants operating at
the end of fiscal 1998. In November  1998, the company closed on the sale of its
investment in Trolley Barn, and recognized a pre-tax gain of approximately  $0.7
million. See Note 5 of Notes to Consolidated Financial Statements

         Interest Expense / Interest Income. Interest expense for the year ended
December 27, 1998  increased  $0.6 million  from 1997,  excluding  approximately
$274,000 of interest expense  capitalized to construction costs. The increase in
interest  expense  is  primarily  due  to an  increase  in the  average  balance
outstanding  under the company's  credit facility to $26.6 million during fiscal
1998 from $22.0 million during fiscal 1997. As of December 27, 1998,  borrowings
outstanding under the company's credit facility were reduced to $19.1 million as
a result of repayments  with proceeds from the sale of certain assets  including
the  investment in Trolley Barn (see Note 7 of Notes to  Consolidated  Financial
Statements). As the company anticipates closing on several real estate financing
transactions during the second quarter of 1999, interest expense should decrease
beginning  in the  third  quarter  of 1999  (see  "Management's  Discussion  and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources").

         Income Tax Expense  (Benefit).  The effective tax rate  associated with
the income tax provision in 1998 was 32.5% as compared to the effective tax rate
for the income tax  benefit in 1997 of 35.4%.  The  difference  between  the two
rates is primarily due to income tax credits  generated  during each fiscal year
net of any related valuation allowance.  Such net credits are used to reduce the
effective  combined  federal  and  state tax rate.  Due to  improved  restaurant
operating  performance  during  fiscal  1998,  the company  recorded a valuation
allowance for 22% of the FICA tax credits generated,  as compared to fiscal 1997
when the company recorded a valuation  allowance for  approximately  100% of tax
credits  generated.  Such  reduction in the company's  1998  effective  rate was
offset by additional  taxes associated with the company's sale of its investment
in Trolley Barn. See Note 9 of Notes to Consolidated Financial Statements.

Fiscal 1997 Compared to Fiscal 1996

         Revenues. Revenues increased $41.0 million (37.6%) to $150.2 million in
fiscal  1997 from  $109.2  million  in  fiscal  1996.  Revenues  from the 14 new
restaurants  which opened during 1997 accounted for $24.5 million (22.4%) of the
increase. The balance of the increase primarily resulted from the 16 restaurants
opened  during  1996  contributing  a full  year of sales  in  1997.  Comparable
restaurant  sales for the year ended  December 28, 1997 were down  slightly more
than one percent. When computing comparable  restaurant sales,  restaurants open
for at least six full quarters are compared from year to year.

         Revenues from the  company's  brewery  restaurants,  as a percentage of
total  revenues,  increased  significantly  to 51.3% in 1997 from 46.6% in 1996.
Although the company  opened  seven  brewery  restaurants  and seven Old Chicago
restaurants during the last 12 months, the brewery restaurants  generate greater
average weekly sales ("AWS") resulting in the increase to this percentage.

         AWS for  the Old  Chicago  restaurants  during  1997  were  $35,528  as
compared  to  $37,850  during  fiscal  1996 (a  decrease  of  6.1%).  Comparable
restaurant  sales for the Old  Chicago  restaurants  were down 2.6% for the year
ended  December  28,  1997.  These  decreasing  trends  in  AWS  and  comparable
restaurant  sales  for the Old  Chicago  restaurants  continue  to  reflect  the
ever-increasing  competitive nature of the restaurant industry.  Management also
believes that the uneven sales  performance  among its Old Chicago  restaurants,
which have fiscal  1997 AWS  currently  ranging  from  approximately  $28,000 to
$49,000,  indicates  inconsistent execution of the concept at certain locations.
During the third quarter of 1997,  the company began  implementing  an extensive
analysis of its Old Chicago restaurants to direct  management's  efforts towards
improving  overall  execution in each  restaurant by  increasing  AWS in certain
restaurants while achieving more consistent profitability.  Such analysis covers
all aspects of operations including hiring and training of new staff, restaurant
maintenance  and  cleanliness,   local  restaurant  marketing  promotions,  menu
merchandising,  service standards and food quality and consistency.  The company
began to see some benefits from focusing on these areas  including  improved AWS
and  comparable  restaurant  sales trends  during the fourth  quarter of 1997 as
compared to the fourth quarter of 1996.
<PAGE>

         AWS for the brewery restaurants during 1997 were $81,277 as compared to
$86,568 during fiscal 1996 (a decrease of 6.5%). Comparable restaurant sales for
the brewery  restaurants  were flat for the year ended  December 28,  1997.  The
company  anticipated  the  decrease  in AWS as most of the  brewery  restaurants
opened  during 1997 were designed to operate at a slightly  lower  capacity than
the  company's  previous  restaurants.   AWS  during  1997  for  this  group  of
restaurants  were  approximately  $71,000  as  compared  to  $84,000  for the 14
restaurants opened prior to 1997.

         Cost of Sales.  Cost of sales,  which  consists of food,  beverage  and
merchandise  costs,  increased  $10.6 million (39.0%) to $37.7 million in fiscal
1997 from  $27.1  million in fiscal  1996,  and  increased  as a  percentage  of
revenues to 25.1% in fiscal 1997 from 24.8% in fiscal 1996. The increase in cost
of sales as a percentage of revenues was due primarily to new menus  implemented
in both  concepts  in late  third  quarter  and early  fourth  quarter  of 1997.
Additionally,   although  the  company   benefited   from   greater   purchasing
efficiencies during 1997, including certain non-recurring  benefits in the third
quarter of 1997,  these cost savings were offset by greater than  expected  food
costs during 1997 for the seven brewery  restaurants opened during the year. New
brewery restaurants typically incur significantly higher food costs during their
first several months of operation due to complexity of the menu items.

         Restaurant  Salaries and  Benefits.  Restaurant  salaries and benefits,
which consist of restaurant management and hourly employee wages, payroll taxes,
and group health insurance,  increased $15.5 million (43.7%) to $51.1 million in
fiscal 1997 from $35.6 million in fiscal 1996.  Restaurant salaries and benefits
as a percentage of revenues  increased to 34.0% in 1997 from 32.6% in 1996.  The
increase in labor costs as a percentage  of revenues is primarily  attributed to
two  factors:  significantly  higher labor costs  associated  with the seven new
brewery restaurants opened during 1997, and decreases in AWS for the Old Chicago
restaurants.

         Although   labor  costs  as  a  percentage   of  revenues  for  brewery
restaurants  opened prior to 1997  decreased  during  fiscal 1997 as compared to
fiscal 1996, labor costs in the new brewery  restaurants,  most of which operate
in higher cost labor markets, more than offset this savings.  Labor costs in the
new brewery restaurants improved significantly during the fourth quarter of 1997
from the third quarter of 1997, and additional cost savings are anticipated over
the next several months as these  restaurants  achieve  operational  efficiency.
Other  increases in labor are due to greater  costs for  management  and kitchen
labor in the Old Chicago  restaurants.  As the majority of these labor costs are
fixed,  the  decrease  in AWS  resulted  in an  increase  to  these  costs  as a
percentage of revenues.

         Federal  legislation  effective September 1, 1997 increased the minimum
wage rate $.40 per hour to $5.15 per hour. This legislation also provided for an
additional  increase to the Federal tip credit by the same  amount,  so that the
federal  minimum wage paid to tipped  employees did not increase.  Additionally,
certain states passed  minimum wage  legislation to increase rates to amounts in
excess of the  Federal  minimum  wage.  Although  a  majority  of the  company's
restaurants  operate in states that have wage laws  consistent  with the Federal
minimum  wage  laws,   the  company   implemented  a  menu  price   increase  of
approximately  2% in both  restaurant  concepts late during the third quarter of
1997 to help mitigate the anticipated impact of such legislation.

         Operating Expenses.  Operating expenses, which include occupancy costs,
utilities,  repairs,  maintenance  and linen,  increased $7.1 million (30.2%) to
$30.6 million in fiscal 1997 from $23.5 million for fiscal 1996. As a percentage
of revenues,  such expenses  decreased to 20.4% in 1997 from 21.5% in 1996. This
decrease was  principally  due to a reduction in 1997  insurance  premium rates,
particularly workmen's compensation  insurance,  as well as a continued emphasis
on cost control measures in numerous areas of restaurant operations.

         General and Administrative ("G&A"). G&A expenses increased $3.5 million
(61.5%) to $9.1  million in fiscal 1997 from $5.6  million in fiscal  1996,  and
increased as a percentage of revenues from 5.1% in fiscal 1996 to 6.0% in fiscal
1997.  The  significant  increase in dollars is primarily  due to (1)  personnel
additions in the areas of marketing, training, information systems, supervision,
accounting and finance, and senior management necessary to support the company's
expansion program,  and (2) approximately $1.3 million in non-recurring  charges
incurred during the fourth quarter of 1997 for executive severance pay and costs
associated with the company's exploration of strategic alternatives.
<PAGE>

         Depreciation and Amortization. Depreciation and amortization, including
amortization  of preopening  expenses,  increased $4.3 million  (55.5%) to $12.1
million for fiscal 1997 from $7.8  million in fiscal 1996.  As a  percentage  of
revenues, depreciation expense and amortization of intangible assets, other than
preopening  costs,  was  5.1%  during  1997 as  compared  to 4.4% in  1996,  and
preopening expense amortization was 3.0% in 1997 as compared to 2.8% in 1996.

         The increase in  depreciation  expense and  amortization  of intangible
assets as a percentage of revenues is due primarily to decreases in AWS for both
concepts,  increased  depreciation  expense  associated with a greater number of
corporate assets resulting from the company's  expansion program,  and increased
amortization  of  intangible  assets  including  goodwill  associated  with  the
company's  investment in Trolley Barn.  Amortization of preopening  expense as a
percentage of revenues  fluctuates  with the number and type of restaurant  (Old
Chicago  or  brewery  restaurant)  opened  in any  given  period.  During  1997,
preopening expense was amortized for a larger number of brewery restaurants than
in 1996,  resulting  in the increase to  preopening  expense  amortization  as a
percentage of revenues.

         Restructuring  Charges and Other, net.  The  company incurred a pre-tax
restructuring  charge  during 1997 of  approximately  $9.7 million ($5.2 million
during the third quarter of 1997 and $4.5 million  during the fourth  quarter of
1997) related primarily to write-downs of certain assets to their net realizable
value,  costs  associated  with downsizing the corporate  office,  and estimated
costs associated with closing four restaurants  during 1998. See Note 8 of Notes
to Consolidated Financial Statements.

         Equity in Joint Venture Earnings.  The equity in joint venture earnings
represents  the  company's  50% equity  interest  in net  after-tax  earnings of
Trolley Barn (see Note 5 of Notes to  Consolidated  Financial  Statements).  The
increase from 1996 of approximately  $107,000 is due to the company  recording a
full year of  earnings  during  1997 as  compared to only six months of earnings
during 1996. Additionally, although Trolley Barn operated six restaurants at the
end of 1997  as  compared  to four  restaurants  at the end of  1996,  increased
earnings   from  these   restaurants   were   offset  by  greater   general  and
administrative expenses associated with Trolley Barn's expansion program.

         Interest Expense / Interest Income. Interest expense for the year ended
December 28, 1997  increased  $1.5 million  from 1996,  excluding  approximately
$378,000 of interest expense  capitalized to construction costs. The increase in
interest expense is primarily attributable to an increase in long-term debt from
the end of 1996,  principally  additional  net borrowings of $17.9 million under
the  company's  line of credit.  See Note 7 of Notes to  Consolidated  Financial
Statements. Interest income during 1996 primarily represents amounts earned from
the temporary  investment of cash proceeds from the company's follow-on offering
in the first quarter of 1995.

         Net Income (Loss) and Diluted Net Income (Loss) Per Share. Net loss and
diluted net loss per share for the year ended December 28, 1997 was $4.7 million
and $.58,  respectively.  Net income and diluted net income per share, exclusive
of the restructuring  charge and certain other  non-recurring  G&A expenses,  is
summarized as follows:
<TABLE>
<CAPTION>
        <S>                                                            <C>    
         Pre-tax loss                                                   $ (7,258,894)
         Add:   Restructuring charge                                       9,706,554
                Non-recurring  G&A expenses                                1,300,000
                                                                           --------- 
         Pro forma pre-tax income,excluding non-recurring charges          3,747,660 
         Allocable income tax expense                                     (1,305,154)
                                                                           ---------  
         Pro forma net income                                           $  2,442,506
                                                                           =========  
         Pro forma diluted net income per share                          $        .30
</TABLE>

         Income Tax Expense  (Benefit).  The effective tax rate  associated with
the income tax benefit in 1997 was 35.4% as compared to the  effective  tax rate
for income tax expense in 1996 of 26.9%. The difference between the two rates is
primarily due to income tax credits generated during each fiscal year net of any
related valuation  allowance.  Such net credits are used to reduce the effective
combined federal and state tax rate. Due to alternative  minimum tax limitations
and the relatively  volatile  nature of the restaurant  industry,  during fiscal
1997 the company recorded a valuation allowance for 100% of the FICA tax credits
generated,  as compared  to fiscal  1996 when the  company  recorded a valuation
allowance for approximately 30% of tax credits generated. See Note 9 of Notes to
Consolidated Financial Statements.


<PAGE>


Liquidity and Capital Resources

         The  company  requires  capital  principally  for the  development  and
construction  of new  restaurants  and  for  capital  expenditures  at  existing
restaurants.  The company has financed its  expansion  over the last three years
principally  through  cash flow from  operations,  borrowings  under its  credit
facility and capital lease obligations. As is common in the restaurant industry,
the company has generally  operated with negative working capital as it receives
trade credit based upon negotiated  terms for purchasing food and supplies,  and
does not have significant receivables or inventory. The following table presents
a summary of the company's cash flows for fiscal year 1996, 1997, and 1998:
<TABLE>
<CAPTION>

                                                                             Fiscal Year Ended
                                                             ----------------- ---------------- ---------------
                                                               December 29,     December 28,     December 27,
                                                                   1996             1997             1998
                                                             ----------------- ---------------- ---------------
         <S>                                                 <C>               <C>              <C>   
          Net cash provided by operating activities           $  6,827,645      $ 13,275,857     $ 14,968,349
          Net cash used in investing activities                (21,525,687)      (29,831,473)      (9,027,608)
          Net  cash   provided   by  (used  in)   financing     11,142,701        18,178,153       (7,113,782)
          activities
          (Decrease) increase in cash and cash equivalents      (3,555,341)        1,622,537       (1,173,041)
</TABLE>


         Net  cash  used in  investing  activities  during  1996,  1997 and 1998
included capital expenditures of $29.0 million, $30.6 million and $19.1 million,
respectively, for the construction of new restaurants,  routine expenditures and
remodels of existing  restaurants,  and  leasehold  improvements,  furniture and
equipment in the corporate office.  The decrease in capital spending during 1998
was a result of the company opening only four restaurants  during this period as
compared to 14  restaurants  during 1997 and 16  restaurants  during  1996.  The
average  cash  investment  for  leasehold  improvements,   furniture,  fixtures,
restaurant  equipment,  brewing  equipment and preopening  costs for restaurants
opened during these periods is as follows: 
<TABLE>
<CAPTION>
                                      Average Cash Investment per Restaurant

                                         1996                          1997                         1998
                              --------------------------    --------------------------   ------------------------
                                  #of                          #of                         #of
                              restaurants      Average      restaurants       Average    restaurants     Average
                                opened       Investment       opened        Investment     opened      Investment
<S>                              <C>           <C>            <C>            <C>           <C>        <C>
Old Chicago restaurants            12        $1,017,000          7          $1,025,000        --               --
Brewery restaurants                 4        $2,900,000          7          $2,633,000         4       $2,422,000
     
</TABLE>

         In   certain    instances,    the   company   has   received   landlord
contributions  in the form of tenant  finish  allowances,  reducing  the cost of
opening a new restaurant,  however,  landlord contributions may not be available
in the future.  Net cash used in investing  activities during 1998 also includes
$7.0 million received from the company's sale of its investment in Trolley Barn,
and $2.1 million received from the sale of  substantially  all assets located at
the brewery restaurant in Fresno, California.

         Although the company has  historically  leased its  facilities,  during
1997  and  1998,  the  company  purchased   undeveloped  land  for  the  brewery
restaurants in Englewood, Colorado, Des Moines, Iowa, Warrenville,  Illinois and
Phoenix, Arizona (opening April 1999), and constructed build-to-suit restaurants
using the company's  prototype  design.  The company sold the land and buildings
for the Englewood,  Colorado restaurant during the third quarter of 1997 and the
Des Moines restaurant during the first quarter of 1998 to a partnership in which
one of the Company's  directors has a beneficial  interest.  The properties were
then  leased  back by the  Company.  Proceeds  allocable  to the  land  for each
transaction  were  reported as a sale and included in cash flows from  investing
activities for the respective periods.  Proceeds allocable to the buildings were
accounted for as a financing.  Cash flows from financing activities include $1.2
million and $1.1 million for 1997 and 1998, respectively,  which are reported as
long-term obligations.  The company expects to complete a similar sale and lease
transaction  for the  Warrenville  and  Phoenix  restaurants  during  the second
quarter  of 1999,  and using the net  proceeds  from such  sales to pay down the
credit facility.
<PAGE>

         Subsequent  to December 27, 1998,  the company  began  negotiations  to
execute sale-leaseback transactions for three Old Chicago restaurants located in
Greeley,  Longmont and Grand Junction,  Colorado, and entered into a contract to
sell the owned  property  located  in Salem,  Oregon.  The  company  anticipates
closing on these  transactions  during the second quarter of 1999, and using the
net proceeds from such sale transactions to pay down the credit facility.

         Cash flows from financing activities primarily represent borrowings and
repayments  under the company's $40 million bank revolving  credit facility (the
"Credit Facility"),  as amended through June 1998, and financing obligations for
two prototype brewery  restaurants  opened  during  1997.  As  of  December  27,
1998, $19.1 million was outstanding  under the amended Credit  Facility,  and is
included in current liabilities in the accompanying  Consolidated  Balance Sheet
as the Credit  Facility  matures on July 27, 1999.  During the first  quarter of
1999, the company began negotiations with the Credit Facility lender to exercise
its right to extend  the  maturity  date for a period of one year to July  2000.
Although  approval by the lender is required prior to receiving this  extension,
management is not aware of any  circumstances  or conditions  that would warrant
such approval not being granted.

         The  company  estimates  that  total  capital  expenditures  for  1999,
excluding  preopening costs and excluding proceeds from the sale of the land and
building for the  Warrenville  and Phoenix  properties  , will be  approximately
$17.9 million. This estimate includes $12.4 million in estimated total costs for
the four new brewery restaurants,  one of which will be a prototype and three of
which will be converted from existing properties,  and $1.5 million in estimated
costs for the two new Old  Chicago  restaurants.  The  decrease  in the  average
investment  cost for new Old Chicago  restaurants in 1999 as compared to 1997 is
due primarily to the  redeployment  of certain assets from the three Old Chicago
restaurants closed during 1998. These estimated capital  expenditures may not be
sufficient  for completion of current  development  plans or may increase in the
future.

Proposed Transaction with RB Capital

         On March 19, 1999,  the company  announced  that it had entered into an
Agreement and Plan of Merger, dated as of March 18, 1999, with RB Capital, Inc.,
a Delaware corporation, and RBR Acquisition Corp., a Delaware corporation, and a
wholly-owned  subsidiary of RB Capital ("Merger Sub"),  providing for the merger
of Merger Sub with and into the company,  with the company  being the  surviving
corporation,  subject  to the  terms  and  conditions  set  forth in the  merger
agreement.  RB Capital is a newly-formed  corporation  organized by Mr. Frank B.
Day, the company's Chairman of the Board, President and Chief Executive Officer,
who is also one of the company's co-founders and is a significant stockholder of
the company. Concurrent with the execution of the merger agreement, the company,
RB Capital, Merger Sub, Mr. Day and Messrs. Robert D. Greenlee,  Arthur Wong and
David M. Lux,  each a  stockholder  and a director  of the  company,  executed a
Voting  Agreement,  dated as of March 18, 1999,  pursuant to which,  among other
things,  RB  Capital,  Merger Sub and such  stockholders  agree to vote  certain
shares of common  stock,  of the company  beneficially  owned by such persons in
favor of the  merger  and each of the  other  transactions  contemplated  by the
merger agreement at any meeting of the company's stockholders in connection with
the merger (or otherwise to consent in writing thereto, as the case may be). The
company  expects to close  such  transaction  during the third  quarter of 1999.
Closing of the proposed transaction, however, is subject to stockholder approval
at a special  meeting  anticipated  to be held during the third quarter of 1999,
the receipt by RB Capital of funding  sufficient to consummate  the merger,  and
other customary conditions and regulatory approvals.

Year 2000 Compliance

         The Year 2000 will have an impact on the abilities of certain  computer
systems to accurately process  information.  This impact is a result of computer
programs  being  written  using  two  digits  rather  than  four to  define  the
applicable year,  therefore  time-sensitive  software may recognize a date using
"00" as the year 1900 rather than the year 2000.

         During  1997,  the company  began a review of its  computer  systems to
identify  the systems  that could be affected by the "Year 2000"  issue.  As the
company's  information  technology  ("IT") systems  primarily  consist of either
third-party software programs purchased by the company or use of outside vendors
to process  financial  information,  the company is relying on the  abilities of
these  third  parties to attain Year 2000  compliance  with their  systems.  The
company has obtained  representation  of Year 2000  compliance  from vendors for
approximately  40% of these systems,  including the accounting and point-of-sale

<PAGE>

systems.  For the remaining 60% of the IT systems,  the company anticipates that
it will either  receive  representation  from such  vendors that the systems are
Year 2000  compliant,  upgrade or modify the systems  with Year 2000  compatible
programs,  or seek replacement  systems. The company is currently in the process
of evaluating its various  options for its  non-compliant  Year 2000 IT systems,
and expects to  complete  such  evaluation  by the second  quarter of 1999.  The
company believes it has identified its mission-critical  systems, and has either
received  representation from vendors that such systems are Year 2000 compliant,
or is taking the appropriate  action  necessary to achieve Year 2000 compliance.
Additionally,  the company has completed its assessment and  remediation for all
office computer hardware in the restaurants and the corporate office.

         The  company  has also begun an  investigation  and  assessment  of its
non-IT systems (i.e.  embedded  technology  such as  microprocessors  in kitchen
equipment,  elevators,  etc.),  and of the Year 2000  readiness  of its critical
suppliers. For non-IT systems, the company expects to complete the assessment by
the second quarter of 1999, and then to make a  determination  as to the process
for testing,  verifying and remedying any non-compliant  systems.  To assess the
readiness  of  its  suppliers,   the  company  is  in  the  process  of  sending
informational  questionnaires to critical vendors,  and will review responses to
obtain  assurance that such vendors have achieved Year 2000  readiness,  or have
developed plans to do so. To the extent that these vendors are unable to provide
sufficient  evidence of Year 2000  compliance by the second quarter of 1999, the
company will seek to obtain replacement vendors.

         Costs incurred to date related to Year 2000  compliance  have not had a
material impact on the company's  financial  condition or results of operations.
Management  does not have an estimate  for future  costs that may be incurred to
achieve Year 2000 compliance.  Management expects, but makes no assurance,  that
future Year 2000 costs will not have a material  adverse effect on the company's
financial condition or results of operations. Such expectation does not consider
any costs  that may be  incurred  by the  company  for  failure  of  third-party
software  vendors,  suppliers,  or other third parties,  including  providers of
public  utilities  or  services,  to achieve  Year 2000  compliance  in a timely
manner.

         Although certain systems have been identified that can be remedied with
manual processes,  a comprehensive  contingency plan has not yet been formulated
in the event that  non-compliant IT and non-IT systems (or their  replacements),
critical suppliers or other third parties do not become year 2000 compliant. The
company  plans to  formulate  a  contingency  plan  during  the first and second
quarters of 1999 to address the possibility that its non-compliant IT and non-IT
systems may not achieve Year 2000  compliance,  and anticipates  that such steps
will mitigate the risk of business  interruption.  Such contingency plan may not
eliminate  all risks of  business  interruption.  Additionally,  the  company is
unable to predict with certainty  whether the  consequences  associated with the
failure of its suppliers,  third-party  software vendors, or other third parties
to  achieve  Year 2000  readiness  will have a  material  adverse  impact on its
financial condition, results of operations or liquidity.


Seasonality  and  Quarterly Results

         The company's sales and earnings  fluctuate  seasonally.  Historically,
the company's  highest  earnings have occurred in the second and third quarters,
and are more  susceptible to adverse weather  conditions in the first and fourth
quarters. In addition, quarterly results have been and, in the future are likely
to be, substantially affected by the timing of new restaurant openings.  Because
of the  seasonality  of the company's  business and the impact of new restaurant
openings,  results for any quarter are not necessarily indicative of the results
that may be  achieved  for a full  fiscal  year and  cannot be used to  indicate
financial  performance for the entire year. See Note 13 of Notes to Consolidated
Financial Statements.

Impact of Inflation

         Although the company does not believe inflation has materially affected
operating  results  during the past three years,  inflationary  pressures  could
result in  substantial  increases  in costs  and  expenses,  particularly  food,
supplies,  labor and operating expenses.  Additionally,  increasing minimum wage
rates have the potential to impact all aspects of the company's  business due to
higher labor rates  experienced by its suppliers and vendors.  These labor rates
could  translate  into  higher  costs for goods and  services  purchased  by the
company.  All such  increases  in costs and  expenses  could have a  significant
impact on the  company's  operating  results to the extent  that such  increases
cannot be passed along to customers.
<PAGE>

New Accounting Pronouncements

         In June 1997, the Financial Accounting Standards Board issued Statement
of Financial  Accounting  Standards No. 131,  "Disclosures  about Segments of an
Enterprise and Related  Information"  ("SFAS 131"). SFAS 131 requires disclosure
of operating segments,  which as defined,  are components of an enterprise about
which separate financial  information is available and is evaluated regularly by
the chief operating decision makers in deciding how to allocate resources and in
assessing   performance.   See  Note  12  of  Notes  to  Consolidated  Financial
Statements.

          In the first  quarter  of 1998,  the  company  adopted  Statement   of
Financial  Accounting  Standards  ("SFAS")  No.  130,  "Reporting  Comprehensive
Income."  SFAS No.  130  establishes  standards  for  reporting  and  displaying
comprehensive  income  and  its  components  in a full  set  of  general-purpose
financial statements.  The company's net income equaled its comprehensive income
during  the  1996,  1997 and  1998  fiscal  years,  therefore  adoption  of this
statement had no impact.

         In March 1998, the American  Institute of Certified Public  Accountants
issued  Statement of Position No.  98-1,  "Accounting  for the Costs of Computer
Software  Developed or Obtained for Internal Use" ("SOP 98-1"),  which  provides
guidance on accounting for the cost of such software.  SOP 98-1 is effective for
fiscal years beginning after December 15, 1998. The company does not expect that
the adoption of SOP 98-1 during fiscal 1999 will have a material  adverse effect
on its financial condition or results of operations.



<PAGE>



ITEM 8:  Financial Statements and Supplementary Data
<TABLE>
<CAPTION>
                 ROCK BOTTOM RESTAURANTS, INC. AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                                    Page

<S>                                                                                  <C>    
Report of Independent  Public  Accountants                                           24
Consolidated  Balance Sheets as of December 28, 1997 and December 27, 1998           25 
Consolidated  Statements of Operations for the Years Ended December 29, 1996,
   December 28,  1997,  and December 27, 1998                                        26
Consolidated  Statements of Stockholders' Equity for the Years Ended
   December 29, 1996, December 28,  1997,  and December 27, 1998                     27
Consolidated  Statements of Cash  Flows  for the  Years Ended December 29, 1996,
   December 28,  1997,  and December 27, 1998                                        28
Notes to Consolidated Financial Statements                                           29
</TABLE>

All financial  statement schedules are omitted as they are not applicable to the
Company.



<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of
  Rock Bottom  Restaurants, Inc. and Subsidiaries:

         We have audited the  accompanying  consolidated  balance sheets of ROCK
BOTTOM  RESTAURANTS,  INC. and SUBSIDIARIES as of December 28, 1997 and December
27, 1998 and the related  consolidated  statements of operations,  stockholders'
equity and cash flows for each of the three years in the period  ended  December
27, 1998.  These 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,  the  financial  statements  referred to above  present
fairly, in all material  respects,  the consolidated  financial position of Rock
Bottom  Restaurants,  Inc. and Subsidiaries as of December 28, 1997 and December
27, 1998 and the  consolidated  results of their operations and their cash flows
for each of the three years in the period ended  December 27, 1998 in conformity
with generally accepted accounting principles.



                                             ARTHUR ANDERSEN LLP

Denver, Colorado,
    February 11, 1999 (except with respect to the matters
      discussed  in Note 1, as to  which  the  date  is March 18, 1999).



<PAGE>

<TABLE>
<CAPTION>

                            ROCK BOTTOM RESTAURANTS,
                              INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS

                                     ASSETS
                                                                                           December 28 and 27,
                                                                                        1997                1998
                                                                                      ---------           ---------
<S>                                                                              <C>                  <C> 
CURRENT ASSETS:
  Cash and cash equivalents                                                      $    1,622,537      $      449,496
  Accounts receivable                                                                   938,932             605,823
  Accounts receivable--affiliates                                                       116,543                  --
  Income taxes receivable                                                               869,810              89,392
  Preopening costs, net (Note 2)                                                      1,520,253                  --
  Inventories                                                                         2,726,983           2,532,074
  Prepaids and other current assets                                                     743,564             740,516
  Current deferred income taxes, net (Note 9)                                           219,214             689,744
                                                                                    -----------         -----------
     Total current assets                                                             8,757,836           5,107,045

PROPERTY AND EQUIPMENT, net (Notes 2 and 4)                                          90,032,182          94,432,216
INVESTMENT IN JOINT VENTURE, net (Note 5)                                             5,552,632                  --
ASSETS HELD FOR DISPOSITION (Note 6)                                                         --           1,542,127
OTHER ASSETS                                                                            735,936             210,139
DEFERRED INCOME TAXES, net (Note 9)                                                   2,334,809           1,205,334
                                                                                    -----------         -----------
TOTAL ASSETS                                                                     $  107,413,395      $  102,496,861
                                                                                    ===========         ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable:
     Trade                                                                       $    4,341,074      $    4,187,581
     Construction projects                                                            1,023,151           1,551,036
  Accrued payroll and payroll taxes                                                   2,311,990           2,451,729
  Accrued taxes other than income tax                                                 1,023,893             819,628
  Other accrued expenses                                                              2,534,299           2,958,702
  Current portion of accrued restructuring charges (Note 8)                           2,447,260             430,978
  Current portion of long-term debt (Note 7)                                            115,308             179,184
  Current portion of obligations under capital leases (Note 7)                          527,396             224,825
  Revolving line of credit (Note 7)                                                          --          19,050,000
                                                                                     ----------          ----------
     Total current liabilities                                                       14,324,371          31,853,663

REVOLVING LINE OF CREDIT (Note 7)                                                    26,450,000                  --
LONG-TERM DEBT (Note 7)                                                               2,374,533           2,195,349
OBLIGATIONS UNDER CAPITAL LEASES (Note 7)                                             1,551,808           2,255,905
ACCRUED RESTRUCTURING CHARGES (Note 8)                                                1,493,610             769,227
                                                                                     ----------          ----------
     Total liabilities                                                               46,194,322          37,074,144
                                                                                     ----------          ----------
COMMITMENTS AND CONTINGENCIES (Notes 1, 8 and 11)
STOCKHOLDERS' EQUITY (Note 10):
  Preferred stock--$.01 par value, 5,000,000 shares authorized,
    no shares issued and outstanding                                                         --                  --
  Common stock--$.01 par value, 15,000,000 shares authorized,
    8,059,506 and 8,056,085 shares issued and outstanding, respectively                  80,595              80,560
  Additional paid-in capital                                                         58,320,330          58,287,943
  Retained earnings                                                                   3,791,586           7,789,248
  Deferred compensation                                                                (973,438)           (735,034)
                                                                                     ----------          ----------
Total stockholders' equity                                                           61,219,073          65,422,717
                                                                                     ----------          ----------
                 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                      $  107,413,395      $  102,496,861
                                                                                    ===========         ===========
</TABLE>

                            The  accompanying  notes to  consolidated  financial
                            statements   are   an   integral   part   of   these
                            consolidated balance sheets.


<PAGE>


<TABLE>
<CAPTION>

                                  ROCK BOTTOM RESTAURANTS, INC. AND SUBSIDIARIES
                                       CONSOLIDATED STATEMENTS OF OPERATIONS

                                                                                    For the Years Ended
                                                                                  December 29, 28 and 27,
                                                                          1996              1997             1998
                                                                          ----              ----             ----
<S>                                                                  <C>              <C>               <C>  
REVENUES:
   Old Chicago restaurants                                            $ 58,328,162     $ 73,116,613      $ 74,131,129
   Brewery restaurants                                                  50,901,983       77,131,617        85,970,461
                                                                       -----------      -----------       -----------
     Total revenues                                                    109,230,145      150,248,230       160,101,590
                                                                       -----------      -----------       -----------

OPERATING EXPENSES:
   Cost of sales                                                        27,099,911       37,671,802        40,624,728
   Restaurant salaries and benefits                                     35,552,068       51,085,653        53,632,285
   Operating expenses                                                   23,529,265       30,627,422        31,906,221
   Selling expenses                                                      4,272,132        5,773,094         5,098,896
   General and administrative                                            5,619,612        9,073,514         9,818,376
   Depreciation and amortization (Note 2)                                7,802,033       12,136,018         8,615,070
   Start-up costs (Note 2)                                                      --               --         1,808,496
   Restructuring charges and other, net (Note 8)                             1,364        9,706,536          (138,441)
                                                                       -----------      -----------       -----------            
     Total operating expenses                                          103,876,385      156,074,039       151,365,631
                                                                       -----------      -----------       -----------

INCOME (LOSS) FROM OPERATIONS                                            5,353,760       (5,825,809)        8,735,959
   Equity in joint venture earnings (Note 5)                               222,941          330,000           688,064
   Gain on sale of investment in joint venture (Note 5)                         --               --           728,194
   Interest income                                                         227,235            9,507            26,717
   Interest expense                                                       (300,544)      (1,772,592)       (2,404,714)
                                                                       -----------      -----------       -----------

INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE EFFECT
OF ACCOUNTING CHANGE                                                     5,503,392       (7,258,894)        7,774,220
Income tax expense (benefit)                                             1,478,309       (2,567,550)        2,526,521
                                                                       -----------      -----------       -----------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE              4,025,083       (4,691,344)        5,247,699
Cumulative  effect of change in accounting  for start-up
costs, net of income taxes of $764,532 (Note 2)                                 --               --        (1,250,037)
                                                                       -----------      -----------       -----------
                                                                      $  4,025,083     $ (4,691,344)     $  3,997,662
                                                                       ===========      ===========       ===========

BASIC NET INCOME (LOSS) PER SHARE:
Income  (loss)  before  cumulative  effect of accounting
change                                                                $        .53     $       (.58)     $        .65
Cumulative effect of accounting change                                          --               --              (.15)
                                                                       -----------      -----------       -----------
Basic net income (loss) per share                                     $        .53     $       (.58)     $        .50
                                                                       ===========      ===========       =========== 

BASIC WEIGHTED AVERAGE SHARES OUTSTANDING                                7,626,000        8,027,000         8,056,085
                                                                       ===========      ===========       ===========

DILUTED NET INCOME (LOSS) PER SHARE:
Income  (loss)  before  cumulative  effect of accounting
change                                                                $        .52     $       (.58)     $        .65  
Cumulative effect of accounting change                                          --               --              (.15)
                                                                       -----------      -----------       -----------
Diluted net income (loss) per share                                   $        .52     $       (.58)     $        .50
                                                                       ===========      ===========       ===========
                                                                             
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING                              7,725,000        8,027,000         8,056,085
                                                                       ===========      ===========       ===========
</TABLE>

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

<PAGE>


                                   STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                             Common Stock
                                       -----------------------
                                                                    Additional                                       Total
                                        Number of                    Paid-in        Retained        Deferred      Sockholders'
                                         Shares         Amount       Capital        Earnings      Compensation       Equity
                                        --------       -------      ---------       --------       -----------     ---------
<S>                                  <C>          <C>             <C>             <C>            <C>              <C>
BALANCES, December 31, 1995            7,345,482  $     73,455   $ 50,809,742    $  4,457,847    $          --  $ 55,341,044
  Proceeds from exercise of stock
    options                              107,896         1,079        864,589              --               --       865,668
  Issuance of common stock in
    exchange for joint venture
    interest (Note 5)                    452,073         4,521      4,995,479              --               --     5,000,000
  Tax benefit resulting from the
    exercise of stock options                 --            --        104,937              --               --       104,937
  Net income                                  --            --             --       4,025,083               --     4,025,083
                                      ----------    ----------     ----------     -----------      -----------   -----------
BALANCES, December 29, 1996            7,905,451        79,055     56,774,747       8,482,930               --    65,336,732
  Proceeds from exercise of stock
    options                               39,333           393        317,997              --               --       318,390
  Issuance of restricted stock
    (Note 10)                            169,145         1,691      1,762,815              --       (1,764,506)           --
  Amortization of deferred
    compensation on restricted stock          --            --             --              --          321,235       321,235
  Cancellation of restricted stock       (54,423)         (544)      (569,456)             --          469,833      (100,167)
  Tax benefit resulting from the
    exercise of stock options                 --            --         34,227              --               --        34,227
  Net loss                                    --            --             --      (4,691,344)              --    (4,691,344)
                                      ----------    ----------     ----------     -----------      -----------    ----------
BALANCES, December 28, 1997            8,059,506        80,595     58,320,330       3,791,586         (973,438)   61,219,073
  Issuance of restricted stock             2,038            20         19,555              --               --        19,575
  Amortization of deferred
    compensation on restricted stock          --            --             --              --          203,740       203,740
  Cancellation of restricted stock        (5,459)          (55)       (51,942)             --           34,664       (17,333)
  Net income                                  --            --             --       3,997,662               --     3,997,662
                                      ----------     ---------     ----------      ----------       ----------    ---------- 
BALANCES, December 27, 1998            8,056,085  $     80,560   $ 58,287,943    $  7,789,248     $   (735,034) $ 65,422,717
                                      ==========     =========     ==========      ==========       ==========    ==========
                                                                        
</TABLE>



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



<PAGE>


                                  ROCK BOTTOM RESTAURANTS, INC. AND SUBSIDIARIES
                                       CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                                 For the Years Ended

                                                                               December 29, 28 and 27,             
                                                                 ----------------------------------------------------
                                                                     1996                  1997                1998 
                                                                 ------------         ------------         -----------
<S>                                                              <C>                  <C>                 <C>  
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                                                $  4,025,083         $ (4,691,344)       $  3,997,662
  Adjustments to reconcile net income (loss)
      to net cash provided by operating activities--
       Cumulative effect of accounting change                              --                   --           2,014,569
       Equity in joint venture earnings                              (222,941)            (330,000)           (688,064)
       Depreciation and amortization                                7,802,033           12,136,018           8,615,070
       Amortization of deferred compensation, net of cancellations         --              221,068             186,407
       Deferred income tax expense (benefit)                          218,732           (3,425,765)            658,945
       Tax benefit from exercise of stock options                     104,937               34,227                  --
       Gain on sale of investment in joint venture                         --                   --            (728,194)
       Net gain on disposition of assets                                   --                   --                (684)
       Non-cash portion of restructuring charge                            --            9,409,879            (348,056)
       (Increase) decrease in accounts receivable                    (266,304)            (191,170)            333,109
       (Increase) decrease in income taxes receivable                  74,353             (570,189)            780,418
       Expenditures for capitalized preopening costs               (3,522,152)          (3,430,442)                 --
       (Increase) decrease in inventories                            (727,566)            (630,708)            194,909
       (Increase) decrease in prepaids and other assets              (608,312)            (695,740)             50,092
       (Decrease) increase in accounts payable                       (806,114)           3,167,154             374,392
       Increase in accrued expenses                                   755,896            2,272,869             359,877
       Decrease in accrued restructuring charges                           --                  --             (832,103)
                                                                  -----------          -----------         -----------
          Net cash provided by operating activities                 6,827,645           13,275,857          14,968,349
                                                                  -----------          -----------         -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Additions to property and equipment                             (29,046,644)         (30,582,096)        (19,131,972)
  Proceeds from sale of investment in joint venture                        --                   --           6,974,068
  Proceeds from sale of property and equipment                             --              775,307           3,129,149
  (Advances) repayments to/from officers and affiliates, net          (77,357)             (24,684)              1,147
  Sales of short-term investments, net                              7,790,442                   --                  --
  Joint venture acquisition costs                                    (192,128)                  --                  --
                                                                  -----------          -----------         -----------
         Net cash used in investing activities                    (21,525,687)         (29,831,473)         (9,027,608)
                                                                  -----------          -----------         -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Borrowings under line of credit                                   8,500,000           59,000,000          29,050,000
  Repayments of line of credit                                             --          (41,050,000)        (36,450,000)
  Borrowings under long-term debt                                   2,500,000                   --                  --
  Repayments of long-term debt                                        (77,095)            (573,778)           (115,308)
  Borrowings under other financing (Note 7)                                --            1,200,000           1,100,000
  Repayments of capital lease and other financing obligations        (645,872)            (716,459)           (698,474)
  Issuance of common stock                                            865,668              318,390                  --
                                                                  -----------          -----------         -----------
         Net cash provided by (used in) financing activities       11,142,701           18,178,153          (7,113,782)
                                                                  -----------          -----------         -----------

(DECREASE) INCREASE IN CASH
  AND CASH EQUIVALENTS                                             (3,555,341)           1,622,537          (1,173,041)
CASH AND CASH EQUIVALENTS, beginning of year                        3,555,341                   --           1,622,537
                                                                  -----------          -----------         -----------
CASH AND CASH EQUIVALENTS, end of year                           $         --         $  1,622,537        $    449,496
                                                                  ===========          ===========         ===========

SUPPLEMENTAL CASH FLOW DISCLOSURES:  See Note 2.
</TABLE>

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

<PAGE>

                 ROCK BOTTOM RESTAURANTS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


           DECEMBER 29, 1996, DECEMBER 28, 1997 AND DECEMBER 27, 1998
                                     

(1)  ORGANIZATION AND NATURE OF BUSINESS

         Rock  Bottom  Restaurants,  Inc.  ("Rock  Bottom"  or the  "Company") 
is a Delaware corporation incorporated in April 1994.

         As of December 27, 1998,  the Company owned and operated 39 Old Chicago
restaurants and 22 "Brewery" restaurants, comprised of 17 Rock Bottom Restaurant
& Brewery  restaurants,  two Walnut Brewery  restaurants  and three  ChopHouse &
Brewery  restaurants,  as well as two Sing Sing piano bars which are operated by
two separate Brewery  restaurants.  Old Chicago  restaurants feature "deep-dish"
Chicago-style  pizza,  burgers and sandwiches,  pasta specialties,  salads and a
full bar  emphasizing  a selection of 110 or more  different  types of beer from
around the world.  Brewery  restaurants  feature  eclectic menus and on-premises
microbrewed beer. The Company's restaurants are located in Arizona,  California,
Colorado, Idaho, Illinois, Indiana, Iowa, Kansas, Maryland, Minnesota, Missouri,
Nebraska,  Ohio,  Oregon,  Texas,  Washington,  Wisconsin  and the  District  of
Columbia.

         On March 18, 1999,  the company  entered into an Agreement  and Plan of
Merger  with RB Capital,  Inc.,  a newly  formed  corporation  organized  by the
company's Chairman of the Board,  President and Chief Executive Officer, and RBR
Acquisition Corp., a wholly-owned subsidiary of RB Capital,  whereby RB Capital,
through  RBR  Acquisition,  will  acquire  the company in a cash merger with the
company as the surviving  corporation.  The proposed merger requires approval by
the  holders of a majority  of all  outstanding  shares of the  company,  and is
expected to be voted upon by the  company's  stockholders  at a special  meeting
anticipated  be held during the third  quarter of 1999.  Closing of the proposed
transaction,  however,  is subject to stockholder  approval at a special meeting
anticipated  to be held  during  the third  quarter of 1999,  the  receipt by RB
Capital of funding  sufficient to  consummate  the merger,  and other  customary
conditions and regulatory approvals.

         Additionally,  on  February  2,  1999,  an action  was  brought  in the
District Court,  County of Denver,  State of Colorado,  entitled Wohlman v. Day,
et. al., as a class action on behalf of the public  shareholders  of the company
against the company's  directors  individually  and the company.  The plaintiffs
alleged, among other things, a breach of fiduciary duties in connection with the
proposed  transactions  between  the company and RB Capital and sought to enjoin
any such transaction. In addition to injuctive relief, the action sought damages
in an unspecified amount. The company has reached an agreement in principle with
the  plaintiffs in the case, and  anticipates  that any settlement of this class
litigation  will not have a material  adverse effect on the company's  financial
condition, results of operations or liquidity.

(2)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Principles of Consolidation and Accounting Period

         The  accompanying   consolidated  financial  statements  represent  the
consolidation of Rock Bottom and its eight wholly-owned  subsidiaries.  Although
intercompany  transactions are minimal,  all material  intercompany amounts have
been eliminated in consolidation.

         The  Company  operates  on a 52 or 53 week  fiscal year ending the last
Sunday in December. Fiscal years 1996, 1997 and 1998 each contain 52 weeks.


Cash and Cash Equivalents

         Cash and cash  equivalents  include cash and investments  with original
maturities of three months or less and which are not subject to significant risk
from changes in interest rates.
<PAGE>


Preopening and Start-Up Costs

         During the fourth quarter of 1998,  the Company  elected to adopt early
the provisions of a new  accounting  standard,  AICPA  Statement of Position No.
98-5,  "Reporting  on the Costs of  Start-up  Activities"  ("SOP  98-5"),  which
requires the Company to expense  preopening  and other  start-up  expenses  when
incurred.  The adoption of SOP 98-5 was required to be made  retroactive  to the
beginning of fiscal 1998, with a $2,014,569 (excluding income taxes of $764,532)
write-off of previously  capitalized  preopening  costs of $1,520,253  and other
capitalized start-up costs of $494,316.  The impact from this write-off is shown
as the cumulative effect of accounting  change in the accompanying  consolidated
statement of operations  for the year ended  December 27, 1998. SOP 98-5 did not
require restatement of prior fiscal periods.

         Prior to fiscal 1998,  direct  incremental  costs incurred prior to the
opening of new restaurants  were  capitalized and amortized over a period of one
year after the restaurant commenced operations.  These costs consisted primarily
of payroll,  employee  recruiting and training,  and initial  opening  expenses.
Related  amortization  expense of  $2,989,251  and  $4,421,666 in 1996 and 1997,
respectively,  is included in depreciation  and amortization in the accompanying
consolidated statements of operations.

         As a result of the change, net income for fiscal 1998 was approximately
 $1.0 million (or $.12 per  diluted share) lower than it would have been had the
change not been made.


Inventories

         Inventories,   which  consist  of  restaurant  food  items,   alcoholic
beverages,  clothing  emblazoned  with restaurant  names and logos,  and related
paper  supplies  are  valued at the  lower of  first-in,  first-out  cost or net
realizable value.


Property and Equipment

         Property and equipment  additions are  capitalized  at cost and include
acquisitions  of property and equipment,  costs incurred in the  development and
construction of new restaurants, and major renewals and improvements to existing
restaurants' property and equipment.  Repairs and maintenance costs which do not
improve or extend the life of the  respective  assets  are  expensed  currently.
Depreciation  and  amortization  is  provided  over the lesser of the  estimated
useful lives of the assets or the remaining lease terms using the  straight-line
method. Estimated useful lives are as follows:

       Buildings and leasehold improvements            10-30 years
       Furniture, fixtures and equipment                3-20 years


Income Taxes

         The Company  records  income  taxes  pursuant to Statement of Financial
Accounting  Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under
SFAS  109,  deferred  tax  assets  or  liabilities  are  computed  based  on the
difference  between the  financial  statement and income tax basis of assets and
liabilities and carryforwards using enacted tax laws.  Valuation  allowances are
established,  if  necessary,  to reduce  deferred  tax assets to the amount that
will, more likely than not, be realized.


Supplemental Disclosures of Cash Flow Information

         Cash  paid  during  the  year  for   interest,   including  the  amount
capitalized,  was $385,540,  $2,150,629 and  $2,727,044 in 1996,  1997 and 1998,
respectively,  and cash paid for income  taxes was  $1,485,458,  $1,787,885  and
$301,519 in 1996, 1997 and 1998, respectively. The Company acquired equipment of
$350,536  and  $169,711  in 1996 and 1997,  respectively,  under  capital  lease

<PAGE>

obligations,  and issued  452,073 shares of common stock in 1996 in exchange for
an indirect 50% equity  interest in a joint venture (see Note 5). During 1998, a
portion of accrued  restructuring  charges  established in 1997 (see Note 8) was
utilized to write-off  property and equipment in an amount equal to  $1,560,506,
as a result of disposing of certain assets located at closed restaurants.


Use of Estimates in the Preparation of Financial Statements

         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  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements,  and the  reported  amounts  of  revenues  and  expenses  during the
reporting period. Actual results could differ from those estimates.


Fair value of Financial Instruments

         Financial  instruments  include  cash  and cash  equivalents,  accounts
receivable, accounts payable, accrued liabilities,  revolving line of credit and
long-term  debt. The carrying  amounts for cash and cash  equivalents,  accounts
receivable,  accounts  payable and accrued  liabilities  approximate  fair value
because of the short maturity of those  instruments.  The carrying amount of the
revolving  line of credit  and  long-term  debt  approximates  fair value as the
pricing  and terms of those  instruments  are  indicative  of current  rates and
credit risk.


Asset Impairment

         The  Company  reviews  its assets  for  impairment  whenever  events or
changes in  circumstances  indicate that the carrying amount of an asset may not
be  recoverable.  For assets  which are held and used in  operations,  the asset
would be impaired if the undiscounted future cash flows related to the asset did
not exceed the net book value.  During 1997 and 1998, asset  impairment  charges
totaling $5.5 million and $100,000,  respectively, are included in restructuring
charges and other in the accompanying  consolidated statement of operations (see
Note 8).


Stock-Based Compensation Plans

         The  Company  accounts  for its  stock-based  compensation  plans under
Accounting  Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to
Employees"  ("APB No.  25").  The Company has adopted the  disclosure  option of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 requires that companies which do not choose
to account for  stock-based  compensation  as prescribed by the statement  shall
disclose the pro forma effects on net income and net income per share as if SFAS
123 had been adopted. Additionally,  certain other disclosures are required with
respect to stock  compensation  and the  assumptions  used to determine  the pro
forma effects of SFAS 123.


Restricted Stock

         Restricted  stock grants are recorded as equity on the date of issuance
with  a  corresponding  amount  recorded  as  deferred  compensation.   Deferred
compensation  is equal to the fair value of the related common stock on the date
of issuance, and is amortized over the related restricted stock vesting period.


Earnings Per Share

         Net income (loss) per share is  calculated in accordance  with SFAS No.
128,  "Earnings Per Share" ("SFAS 128"). Under the provisions of SFAS 128, basic
net income (loss) per share is computed by dividing net income (loss)  available
to common  shareholders  for the period by the weighted average number of common
shares  outstanding  for the  period.  Diluted  net  income  (loss) per share is
computed  by  dividing  the net income  (loss)  for the  period by the  weighted
average number of common shares and potential common shares  outstanding  during
the period if the effect of the potential  common shares is dilutive  (utilizing
the treasury stock method).  The Company's only potentially dilutive security is
stock options. During 1996, 1997 and 1998, options totaling 475,895, 973,819 and
1,010,559,  respectively,  were  excluded  from the  calculation  of diluted net
income (loss) per share since the result would have been anti-dilutive.


Comprehensive Income

         Effective  at the  beginning of fiscal  1998,  the Company  adopted the
provisions of SFAS No. 130, "Reporting  Comprehensive Income" ("SFAS 130"). SFAS
130 establishes standards for reporting  comprehensive income and its components
in financial statements.  Comprehensive income, as defined, includes all changes
in equity (net assets)  during a period from non-owner  sources.  For the fiscal
years ended 1996,  1997 and 1998,  the Company's  net income (loss)  equaled its
comprehensive income (loss).
<PAGE>


Recently Issued Accounting Standards

         In March 1998, the American  Institute of Certified Public  Accountants
issued  Statement of Position No.  98-1,  "Accounting  for the Costs of Computer
Software  Developed or Obtained for Internal Use" ("SOP 98-1"),  which  provides
guidance on accounting for the cost of such software.  SOP 98-1 is effective for
fiscal years beginning after December 15, 1998. The Company does not expect that
the adoption of SOP 98-1 during  fiscal 1999 will have a material  effect on its
financial statements.


 (3)  RELATED PARTY TRANSACTIONS


         The Company  leases  land and  building  space and  certain  equipment,
furniture and  improvements for four Old Chicago restaurants,  and three Brewery
restaurants  located in  Englewood,  Colorado,  Des  Moines,  Iowa and  Boulder,
Colorado  from   partnerships  or  corporations  in  which  certain   directors,
stockholders or the President of the Company, or their affiliates,  have partial
or complete  ownership  interests.  Certain  leases also include  provisions for
additional rent based on the difference between base rent and 6% of gross retail
revenues.  The  Company  incurred  related  expense of  $603,695,  $634,332  and
$1,100,254,  which included additional rents of $153,845,  $95,686 and $134,530,
during 1996, 1997 and 1998, respectively. Management believes these terms are no
less favorable to the Company than could be obtained from third parties.

         Prior  to  August  1996,  the  Company  obtained  its  employee  health
insurance  coverage with Concept  Restaurants,  Inc.  ("Concept"),  a restaurant
management  company wholly owned by two  stockholders of the Company,  including
the President of Company,  who in turn  contracted  with a third party insurance
company.  Premiums paid were determined by the insurance  company and were based
on total number of employees.  Included in restaurant salaries and benefits were
premiums paid to Concept of $231,011  during 1996.  Premiums paid to Concept for
health insurance  coverage of administrative and supervisory staff were included
in general and  administrative  expenses,  and totaled  $96,528  during 1996. In
August 1996, the Company began administering its own self-funded employee health
insurance plan (see Note 11).

         During 1996 and 1997, the Company paid $100,000 to a corporation  owned
by a  stockholder,  also a director and current  President  of the Company,  for
consulting  services  performed  relating to site  selection  and design for the
Company's new restaurants. Management believes all such payments were reasonable
based on the services  received  and were no less  favorable to the Company than
could be obtained from an unrelated party.

         During 1996,  1997 and 1998, the Company paid  approximately  $601,000,
$464,000 and $132,000, respectively, to a company owned by a stockholder, also a
director and current President of the Company, for certain food products used in
the Company's restaurants. Management believes all such payments were reasonable
and no less  favorable to the Company  than could be obtained  from an unrelated
party.

         During 1996 and 1997, two separate companies,  each wholly-owned by two
different directors of the Company,  provided strategic planning and development
consulting  services to Rock Bottom,  and  advertising  and marketing  services,
respectively,  to the Old  Chicago  and  Brewery  restaurants.  Fees paid to the
former  company  totaling  $71,688 and  $24,413,  respectively,  are included in
general and administrative expenses and fees paid to the latter totaling $13,996
and $816,  respectively,  are included in selling  expenses in the  accompanying
consolidated statements of operations.


(4)  PROPERTY AND EQUIPMENT


         Property and equipment as of December 28, 1997 and December 27, 1998 is
as follows:
<TABLE>
<CAPTION>

                                                                                          1997              1998
                                                                                       ----------        ----------

        <S>                                                                          <C>              <C>    
         Land                                                                         $ 5,885,711      $  5,527,087
         Buildings and leasehold improvements                                          54,903,150        60,318,706
         Furniture, fixtures and equipment                                             43,919,404        47,101,540
         Construction-in-progress                                                       2,719,135         5,624,740
         Less:  Accumulated depreciation and amortization                             (17,395,218)      (24,139,857)
                                                                                       ----------        ----------
                                                                                      $90,032,182       $94,432,216
                                                                                       ==========        ==========
</TABLE>
<PAGE>


(5)  INVESTMENT IN JOINT VENTURE

         In July 1996, the Company  acquired an indirect 50% equity  interest in
Trolley Barn Brewery,  Inc.  ("Trolley  Barn") in exchange for 452,073 shares of
the Company's common stock. The Company  accounted for its investment in Trolley
Barn under the equity  method.  At  closing,  the  investment  in joint  venture
carrying amount exceeded the Company's  equity in Trolley Barn's  underlying net
assets by  approximately  $4.5 million,  representing  goodwill  which was being
amortized over 35 years.

         In  connection  with the  acquisition,  the  Company  agreed to certain
licensing and development  arrangements whereby Trolley Barn was able to develop
restaurants  throughout  the  southeastern  United  States  under the names Rock
Bottom Restaurant & Brewery, Sing Sing and Old Chicago.

         During  November 1998, the Company sold its equity  interest in Trolley
Barn to Trolley Barn for $7 million.  In connection  therewith,  Trolley  Barn's
rights to develop  restaurants  throughout the  southeastern  United States were
terminated  and the Company was released  from its  guarantee of Trolley  Barn's
debt.  However,  the Company did grant  certain  license  rights to Trolley Barn
whereby  Trolley  Barn can  continue  to use  certain  licensed  trademarks  and
tradenames owned by the Company for two existing restaurant locations,  such use
limited to the duration of the remaining lease terms,  including  option renewal
periods.

         Goodwill amortization expense of $66,340,  $135,139 and $110,218 during
1996, 1997 and 1998, respectively, is netted against the investment balance.

         The  Company  recorded a  $728,194  gain on sale of its  investment  in
Trolley Barn during the year ended December 27, 1998, based on the excess of the
selling price over the Company's recorded investment  balance,  less transaction
and certain other costs.

(6)  ASSETS HELD FOR DISPOSITION

         Assets held for  disposition  represents the net book value of property
and equipment  held for sale or  disposition  and no longer used in  operations.
Included in this amount is $1,234,482 related to land, building and improvements
for the Old Chicago restaurant in Salem,  Oregon,  which was closed in July 1998
and is under contract for sale. Additionally,  $307,645 is included for an owned
parking lot located in Houston,  Texas,  currently listed for sale. The net book
value  of all  assets  held  for  disposition  approximates  the  estimated  net
realizable value.

         In October 1998,  the Company sold certain  assets  located at its Rock
Bottom  Restaurant & Brewery  restaurant in Fresno,  California (which commenced
operations during 1997),  including  substantially  all leasehold  improvements,
furniture and  equipment,  and assigned to the buyer its rights and  obligations
under the  lease.  The  Company  received  proceeds  of $2.1  million  from this
transaction and recorded a gain on sale of $451,055,  included in  restructuring
charges and other for the year ended December 27, 1998.

         The Company  recorded  income (loss) from operations for the restaurant
located in Salem of $68,144, $59,116 and $18,663 and Fresno of $0, $(58,093) and
$(33,523) during fiscal 1996, 1997 and 1998, respectively.
<PAGE>

(7)  LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES

         Long-term  debt as of  December  28, 1997 and  December  27, 1998 is as
follows:
<TABLE>
<CAPTION>

                                                                                         1997              1998
                                                                                      ----------       -----------   
       <S>                                                                          <C>               <C>       
         Mortgage note  payable to a bank,  interest at 9%,  secured by land and
           building in Chicago, Illinois,  assignment of rents thereon and other
           assets,  principal and interest  payable in monthly  installments  of
           $25,615, balloon payment of $2,015,320 due at maturity in July 2001.      $ 2,381,866       $ 2,288,790
         Note payable to landlord, interest at 12.5%, principal and interest 
           payable in quarterly installments, fully prepaid in January 1999.             107,975            85,743
                                                                                      ----------        ----------
                                                                                       2,489,841         2,374,533
         Less--current portion                                                          (115,308)         (179,184)
                                                                                      ----------        ----------
                                                                                     $ 2,374,533       $ 2,195,349
                                                                                      ==========        ==========
</TABLE>

         The  Company has a $40  million  bank  revolving  credit  facility,  as
amended  (the "Credit  Facility"),  secured by  substantially  all assets of the
Company,  which  matures  on  July 27, 1999.  Interest accrues  on  the  average
outstanding  balance at either the prime rate or at the Company's  election,  at
LIBOR plus 1.5% to 2.5%,  and is paid  quarterly  in arrears  (weighted  average
interest  rate of 7.48% and 8.07%  during  1997 and  1998,  respectively,  and a
weighted  average  rate of 7.58% and 7.76% at December 28, 1997 and December 27,
1998,  respectively).  These  interest  rates are  adjustable  depending  on the
Company's ratio of total debt to cash flow, as defined. A commitment fee of .25%
on the unused  availability is due quarterly during the revolving credit period.
Under the terms of this agreement,  the Company is subject to certain  financial
covenants and ratios,  restrictions  on investments and  acquisitions  and other
restrictions.  During the first quarter of 1999, the Company began  negotiations
with the lender to extend the Credit Facility maturity date to July 2000.

         The  minimum  and  maximum  borrowings  outstanding  under  the  Credit
Facility  during 1997 were $8.5  million and $27.7  million,  respectively,  and
during 1998 were $18.6 million and $29.1 million, respectively.

         During  1996,  1997  and  1998,   interest   expense  of  approximately
$195,000,  $378,000  and  $274,000,   respectively,  was  capitalized  in  total
construction costs of new restaurants.

         Principal payments due on the outstanding balance of long-term debt and
the Credit  Facility as of December 27, 1998,  including  the  prepayment of the
note payable to landlord during January 1999, are as follows:

         1999                                 $ 19,237,710
         2000                                      110,708
         2001                                    2,076,115
                                                ----------
        Total                                 $ 21,424,533
                                                ==========

         The  Company  has  entered  into  capital  lease  and  other  financing
obligations  for land,  buildings  and  improvements,  and for certain  computer
hardware  and  software  used in the  corporate  office.  Future  minimum  lease
payments  required under these  obligations,  together with the present value of
the net minimum lease  payments at discount rates ranging from 8% to 18%, are as
follows as of December 27, 1998:

         1999                                           $   501,452
         2000                                               312,792
         2001                                               312,792
         2002                                               328,080
         2003                                               371,396
         Thereafter                                       3,382,531
                                                         ----------
         Minimum lease payments                           5,209,043
         Less: Amount representing interest              (2,728,313)
                                                         ----------
         Present value of net minimum lease payments      2,480,730
         Less: Current portion                             (224,825)
                                                         ----------
                                                        $ 2,255,905
                                                         ==========
<PAGE>

         The  Company  sold the land and buildings for the  Englewood,  Colorado
restaurant during the third quarter of 1997 and the Des Moines,  Iowa restaurant
during the first  quarter of 1998 to two separate  partnerships  in which one of
the Company's  directors has a beneficial  interest.  The  properties  were then
leased back by the Company.  Proceeds allocable to the land for each transaction
were reported as a sale and included in cash flows from investing activities for
the respective  periods.  Proceeds allocable to the buildings were accounted for
as a financing.  Cash flows from financing  activities  include $1.2 million and
$1.1  million for 1997 and 1998,  respectively,  which are reported as long-term
obligations.  Rental  payments  made  are  allocated  to  interest  expense  and
reduction of these  obligations.  The table of future minimum lease  commitments
above includes  payments related to the long-term  obligations.  The cost of the
buildings remains in property, plant and equipment and is being depreciated over
the terms of the leases.  As of December 28, 1997 and  December  27,  1998,  the
related  amount  recorded  as  financing  totaled  $1,196,370  and   $2,283,355,
respectively.

(8)  RESTRUCTURING CHARGES

         During 1997,  the  Company  approved  a   plan   to  reduce  restaurant
expansion, suspend development of new Old Chicago restaurants and close two Rock
Bottom Restaurant & Brewery  restaurants and two Old Chicago  restaurants during
early 1998. Such steps were part of an overall  restructuring  effort to improve
restaurant  operating  profit.  As a result  of  these  decisions,  the  Company
incurred a pre-tax  restructuring  charge of  approximately  $9.7 million.  Such
charge included the estimated  costs accrued to close these four  restaurants of
approximately  $3.9  million,   write-downs  of  certain  assets  to  their  net
realizable value totaling  approximately  $5.5 million,  and expenses related to
the elimination of certain  corporate office overhead in response to the planned
reduction in future growth totaling approximately $272,000.

         During  early  1998,  the Company  closed the Old  Chicago  restaurants
located in  Evergreen,  Colorado and  Gladstone,  Missouri,  and the Rock Bottom
Restaurant & Brewery  restaurants  located in Houston,  Texas and Overland Park,
Kansas. The four restaurants  incurred losses from operations  totaling $862,000
and $1.0 million during fiscal 1996 and 1997, respectively.

         During  the second  quarter  of 1998,  the  Company  settled  its lease
obligation for the Old Chicago restaurant located in Gladstone,  Missouri, which
was closed in January 1998, and has no further  obligations  under the Gladstone
lease.  As the cost of this  settlement  together  with all other exit costs was
less than the previously  accrued  amount,  income of  approximately  $14,000 is
included  in  restructuring   charges  and  other  in  the   accompanying   1998
consolidated statement of operations.

         During  the third  quarter  of 1998,  the  Company  executed a sublease
agreement for its Rock Bottom Restaurant & Brewery restaurant in Houston, Texas,
which was closed in February 1998. The sublease term runs from July 1998 to June
2001,  with  renewal  options  through  August  2009.  Substantially  all  other
provisions of the sublease  agreement  are similar to the Company's  obligations
under its existing lease agreement,  which lease agreement  expires August 2009.
The Company  also  conveyed  certain  assets to the  sub-lessee  in exchange for
$100,000.  Based  on the  terms  of this  agreement,  the  Company  revised  its
estimated  costs to close this  restaurant.  As such  estimate was less than the
previously  accrued  restructuring  charge  liability,  income of  approximately
$177,000 is included in restructuring charges and other in the accompanying 1998
consolidated statement of operations.

         During the fourth  quarter of 1998,  the Company  executed an agreement
with the new owner  ("Owner") of the property  leased by the Company for its Old
Chicago  restaurant in Evergreen,  Colorado.  The agreement  provided for a full
release of the Company's  obligations  under the existing lease agreement,  with
certain assets owned by the Company  conveyed to the Owner.  As the cost of this
settlement  together  will all other  exit  costs  was less than the  previously
accrued amount,  income of  approximately  $157,000 is included in restructuring
charges and other in the accompanying consolidated statement of operations.

         Management  believes that the remaining accrued  restructuring  charges
applicable to restaurants closed during the first quarter of 1998 are sufficient
to cover the related  costs  associated  with the  ultimate  disposition  of all
assets and obligations related to these locations.
<PAGE>

(9)  INCOME TAXES

         Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
                                                                      1996                1997              1998
                                                                   ----------         -----------        ----------
         <S>                                                     <C>                <C>                 <C>  
         Federal                                                  $ 1,197,386        $ (2,118,577)      $ 2,005,357
         State                                                        280,923            (448,973)          521,164
                                                                    ---------          ----------         ---------
                                                                    1,478,309          (2,567,550)        2,526,521
         Cumulative effect item                                            --                  --          (764,532)
                                                                    ---------          ----------         ---------
                  Total                                           $ 1,478,309         $(2,567,550)      $ 1,761,989
                                                                    =========          ==========         =========

         Current                                                  $ 1,259,577         $   895,208       $ 1,103,044
         Deferred                                                     218,732          (3,462,758)        1,423,477
                                                                    ---------          ----------         ---------
                                                                    1,478,309          (2,567,550)        2,526,521
         Cumulative effect item (all deferred)                             --                  --          (764,532)
                                                                    ---------          ----------         ---------
                  Total                                           $ 1,478,309         $(2,567,550)      $ 1,761,989
                                                                    =========          ==========         =========
</TABLE>


Deferred tax assets and liabilities as of December 28, 1997 
and December 27, 1998 consist of the following primary components:
<TABLE>
<CAPTION>

                                                                                           1997              1998
                                                                                          ------           -------
<S>                                                                                   <C>               <C>     
         Current deferred tax assets (liabilities):
           Preopening costs                                                           $  (448,490)     $        --
           Accrued restructuring costs                                                    332,281           51,328
           Deferred insurance and self-insurance                                           68,773          284,279
           Capitalized inventory costs and other                                          266,650          354,137
                                                                                          -------          -------
         Net current deferred tax assets                                              $   219,214      $   689,744
                                                                                          =======          =======

         Long-term deferred tax assets (liabilities):
           FICA and rehabilitation tax credits                                        $ 2,478,765      $ 3,519,188
           Valuation allowance against tax credits                                     (1,254,257)      (1,549,564)
           AMT tax credit                                                                 277,774          466,282
           Accrued restructuring costs                                                    566,974          292,000
           Property, equipment and other                                                  220,406       (1,671,426)
           Restricted stock                                                                45,147          148,854
                                                                                       ----------        ---------
         Net long-term deferred tax assets                                            $ 2,334,809      $ 1,205,334
                                                                                       ==========        =========
</TABLE>

         At December 27, 1998,  the Company had federal FICA and  rehabilitation
tax credit  carryforwards of $3,519,188.  The carryforwards will begin to expire
in  2009.  The  valuation  allowance  relates  to a  portion  of the tax  credit
carryforwards.  It is the opinion of management that due to alternative  minimum
tax limitations and the relatively  volatile nature of the restaurant  industry,
it is more likely than not that a portion of these tax credit carryforwards will
expire before the Company is able to realize their benefit.  If the  acquisition
transaction (see Note 1) is completed,  the Company's  utilization of tax credit
carryforwards existing immediately prior to the acquisition  transaction will be
subject to certain limitations.

          The following table  reconciles the federal  statutory income tax rate
to the Company's  effective  income tax rate  applicable to income (loss) before
income taxes and cumulative effect of accounting change:
<TABLE>
<CAPTION>
                                                                            1996          1997         1998
                                                                            ----          ----         ----
   <S>                                                                     <C>           <C>           <C> 
    Provision (benefit) for income taxes at federal statutory rate          34.0%        (34.0)%       34.0%
    Permanent differences and other                                          2.9           2.2          3.3
    Tax credits                                                            (20.4)        (12.7)       (17.4)
    Valuation allowance against tax credits                                  6.0          12.7          3.8
    Tax vs. book difference in basis of investment in joint venture at sale   --            --          4.1
    State income taxes, net of federal benefit                               4.4          (3.6)         4.7
                                                                            ----          ----         ----
Effective income tax rate                                                   26.9%        (35.4)%       32.5%
                                                                            ====          ====         ====
</TABLE>
<PAGE>

 (10)  STOCKHOLDERS' EQUITY

Executive Bonus Plans

         In April 1996, the Company adopted an Executive  Bonus Plan.  Under the
plan, certain executive officers received a bonus equal to a percentage of their
yearly salary,  the majority of which was paid in restricted  common stock.  The
bonus was awarded based on achieving  certain  annual  financial  goals,  and in
February 1997 the Company  issued 65,145 shares of restricted  stock pursuant to
this plan. The restricted  common stock shall vest, and trading  restrictions on
those shares shall  lapse,  three years from the date of issuance,  provided the
executive  continues to be an employee of the Company.  In the event of a change
of control, all restrictions on these shares lapse.

         In April 1997, certain executive officers executed long-term  incentive
agreements  with the  Company as a  component  of their 1997 total  compensation
package.  The agreements  provided for restricted  common stock grants  totaling
104,000 shares,  all of which vest on December 31, 2006,  provided the executive
continues to be an employee of the Company. The vesting of such stock grants may
be accelerated to December 31, 2000 if specified cumulative earnings targets are
met as of  that  date.  In  the  event  of a  change  of  control,  as  defined,
restrictions on 50% of these shares will lapse immediately.

         During 1997,  1998 and  subsequent  to year end,  the Company  canceled
54,423, 5,459 and 10,289 restricted shares,  respectively,  issued to executives
pursuant to these bonus plans as such  individuals  were no longer  employees of
the Company.

Stock Option Plans

         Rock Bottom adopted an Equity  Incentive Plan (the  "Employees'  Plan")
effective July 21, 1994. The Employees'  Plan was amended in June 1996, May 1997
and May 1998,  to increase  the total number of shares of the  Company's  common
stock  authorized  for  issuance  from  1,000,000  shares to  1,800,000  shares.
Additionally,  the Employees' Plan provides for an automatic  increase each year
in the number of shares of common  stock  authorized  equal to  one-half  of one
percent  of the then  outstanding  shares.  As of  December  27,  1998,  155,752
additional  shares of common  stock  were  authorized  for  issuance  under this
provision.

         The Employees' Plan provides for the granting of both "incentive  stock
options"  (as  defined  in  Section  422  of  the  Internal  Revenue  Code)  and
nonstatutory stock options,  as well as restricted stock grants, and is designed
to serve as an  incentive  for  hiring and  retaining  qualified  and  competent
employees.  The  Compensation  Committee  of  the  Board  ("Committee"),  or its
designee,  administers and interprets the Employees'  Plan.  Options are granted
under the Employees'  Plan on such terms and at such prices as determined by the
Committee,  except that the per share exercise price of incentive  stock options
cannot be less than the fair  market  value of the  common  stock on the date of
grant.  Options granted under this plan vest annually over three years from date
of grant.

         On January  23,  1998,  the Company  exchanged  508,868  newly  granted
options for 616,817 of its then 853,785 outstanding options under the Employees'
Plan,  with all new options  priced at a $7.00 exercise  price.  All other terms
(vesting,  expiration,  etc.) of the exchanged  options were unchanged.  Options
received from the exchange were  cancelled and had exercise  prices ranging from
$8.00 to  $25.75.  The  quantity  of newly  granted  options  was  based on each
participant  maintaining the total fair value (based on the Black-Scholes option
pricing model using  assumptions  existing at the exchange date) of options held
immediately before the exchange.  Options not exchanged pertained to individuals
no longer employed by the Company.
<PAGE>

         A summary of the status of the Employees' Plan as of December 29, 1996,
December 28, 1997 and December 27,1998,  and the changes during those periods is
as follows:
<TABLE>
<CAPTION>

                                                             1996              1997               1998
                                                             ----              ----               ----
          <S>                                               <C>               <C>               <C>  

           Outstanding at beginning of period                936,218           860,154           897,319
             Granted for exchange                                 --                --           508,868
             Other grants                                    155,200           224,650           305,162
             Exercised                                      (100,396)          (39,333)               --
             Canceled for exchange                                --                --          (616,817)
             Forfeited                                      (130,868)         (148,152)         (161,000)
                                                             -------           -------           -------
           Outstanding at end of period                      860,154           897,319           933,532
                                                             =======           =======           =======

           Exercisable at end of period                      319,041           487,548           480,271
                                                             =======           =======           =======

           Range of exercise prices, at end of period    $8.00-$30.47     $8.00-$25.75       $7.00 - $20.55
                                                         ============     =============      ==============

           Weighted average exercise prices:
             At beginning of period                         $ 12.35           $ 12.70         $  11.88
             At end of period                                 12.70             11.88             7.67
             Exercisable at end of period                     11.88             11.39             8.28
             Options granted (exchange & other)               11.78             10.93             7.00
             Options exercised                                 8.02              8.09              N/A
             Options canceled                                   N/A               N/A            12.15
             Options forfeited                                12.73             16.22            10.08

           Weighted average end of period
             remaining contractual life (in years)             8.14              7.62             7.43

           Weighted average fair value of options            $ 6.20            $ 4.97            $3.99
             granted during the period

</TABLE>

<PAGE>


         The  following  summary  shows,  for the  price  range  indicated,  the
weighted average exercise price,  weighted average price of options  exercisable
and the remaining contractual life of options granted under the Employees' Plan:
<TABLE>
<CAPTION>

                                                     1996                 1997                 1998
                                                     ----                 ----                 ----
      
                                                 Shares     Price     Shares     Price     Shares     Price
                                                 ------     -----     ------     -----     ------     -----
           <S>                                  <C>       <C>       <C>        <C>       <C>       <C>
           Range of exercise prices
           ------------------------
           Weighted average exercise price
             for options outstanding:

                $ 5.00-$ 7.99                        N/A      N/A         N/A      N/A     784,198   $ 7.00
                $ 8.00-$ 9.99                    304,288   $ 8.03     264,955   $ 8.02     106,002     8.00
                $10.00-$13.99                    369,300    12.88     504,466    12.29         N/A      N/A
                $14.00-$17.99                     78,566    15.36      66,566    15.31         N/A      N/A
                $18.00-$25.75                    108,000   $23.30      61,332   $21.35      43,332   $20.55


           Weighted average exercise price for options exercisable:

                $ 5.00-$ 7.99                        N/A      N/A         N/A      N/A     330,937   $ 7.00
                $ 8.00-$ 9.99                    173,544   $ 8.03     264,955   $ 8.02     106,002     8.00
                $10.00-$13.99                     87,878    13.68     128,871    12.86         N/A      N/A
                $14.00-$17.99                     19,619    15.57      37,390    15.38         N/A      N/A
                $18.00-$25.75                     38,000   $23.43      56,332   $21.23      43,332   $20.55

           Weighted average remaining
             contractual life (in years):          Shares    Life      Shares      Life     Shares      Life
                                                   ------    ----      ------      ----     ------      ----
                $ 5.00-$ 7.99                        N/A      N/A         N/A       N/A    784,198      7.77
                $ 8.00-$ 9.99                    304,288     7.56     264,955      6.56    106,002      5.56
                $10.00-$13.99                    369,300     9.05     504,466      8.40        N/A       N/A
                $14.00-$17.99                     78,566     7.37      66,566      6.14        N/A       N/A
                $18.00-$25.75                    108,000     7.25      61,332      7.37     43,332      6.34
</TABLE>

         The  weighted  average  fair  value  of each  option  grant  (including
exchanges)  has been  estimated as of the date of grant using the  Black-Scholes
option-pricing model and the following assumptions:
<TABLE>
<CAPTION>

                                                  1996                    1997                  1998
                                                  ----                    ----                  ----
          <S>                                 <C>                     <C>                     <C> 
           Dividend rate                           0 %                     0 %                     0 %
           Expected volatility                    73 %                    54 %                    66 %
           Risk-free interest rate              5.85 %                  5.85 %                  4.55 %
           Expected life (in years):
                $ 5.00-$ 7.99                      N/A                      N/A                 1.5-3
                $ 8.00-$ 9.99                      3.5                      N/A                     3
                $10.00-$13.99                      4.0                        5                   N/A
                $14.00-$17.99                      4.5                      N/A                   N/A
                $18.00-$30.47                      N/A                      N/A                     3
</TABLE>

         Rock Bottom has also adopted the  Non-employee  Directors' Stock Option
Plan (the  "Directors'  Plan").  The Directors'  Plan was amended in May 1997 to
increase  the number of shares of common  stock  authorized  for  issuance  from
75,000  shares to 100,000  shares.  All stock  options  granted  pursuant to the
Directors'  Plan vest  equally  over a one to  two-year  period from the date of
grant.

         On January 23, 1998, the Company exchanged 62,027 newly granted options
for all of the 76,500  outstanding  options under the Directors'  Plan, with all
new  options  priced  at a $7.00  exercise  price.  All  other  terms  (vesting,
expiration, etc.) of the exchanged options were unchanged. Options received from
the  exchange  were  cancelled  and had exercise  prices  ranging from $8.875 to
$25.75.  The  quantity of newly  granted  options was based on each  participant
maintaining  the total fair value  (based on the  Black-Scholes  option  pricing
model  using  assumptions  existing  at  the  exchange  date)  of  options  held
immediately before the exchange.


<PAGE>


         A summary of the status of the Company's Directors' Plan as of December
29, 1996,  December 28, 1997 and December 27, 1998, and the changes during those
periods is as follows.
<TABLE>
<CAPTION>

                                                          1996                1997               1998
                                                          ----                ----               ----
          <S>                                         <C>                <C>               <C>    

           Outstanding at beginning of period            39,000              58,500             76,500
               Granted for exchange                          --                  --             62,027
               Other grants                              27,000              18,000             15,000
               Exercised                                 (7,500)                 --                 --
               Cancelled for exchange                        --                  --            (76,500)
                                                         ------              ------             ------
           Outstanding at end of period                  58,500              76,500             77,027
                                                         ======              ======             ======

           Exercisable at end of period                  27,750              51,000             62,027
                                                         ======              ======             ======

           Range of exercise prices, at end
           of period                                 $8.88 - $25.75      $8.88 - $25.75       $5.23-$7.00
                                                     ==============      ==============       ===========

           Weighted average exercise prices:
             At beginning of period                      $13.89              $13.74             $12.79
             At end of period                             13.74               12.79               6.79
             Exercisable at end of period                 14.58               14.07               7.00
             Options granted (exchange & other)           11.92                9.71               6.79
             Options exercised                             8.00                 N/A                N/A
             Options cancelled                              N/A                 N/A              12.79

           Weighted average end of period

             remaining contractual life (in years)         8.10                7.67               7.10

           Weighted average fair value of options
             granted during the period                   $ 6.11              $ 3.93             $ 3.24
</TABLE>


         The  following  summary  shows,  for the  price  range  indicated,  the
weighted average exercise price,  weighted average price of options  exercisable
and the remaining contractual life of options granted under the Directors' Plan:

<TABLE>
<CAPTION>

                                                       1996                      1997                    1998
                                                       ----                      ----                    ----

                                                Shares        Price       Shares      Price       Shares      Price
                                                ------        -----       ------      -----       ------      -----
          <S>                                  <C>          <C>        <C>         <C>           <C>         <C>          
           Range of exercise prices
           ------------------------
           Weighted  average exercise 
           price for options outstanding:

           $   5.00 - $ 7.99                        N/A         N/A         N/A         N/A       77,027       $6.79
           $   8.00 - $ 9.99                       7,500      $ 8.88      19,500      $ 9.12         N/A         N/A
           $  10.00 - $13.99                      27,000       11.14      33,000       11.04         N/A         N/A
           $  14.00 - $17.99                      13,500       15.16      13,500       15.16         N/A         N/A
           $  18.00 - $25.75                      10,500       22.04      10,500       22.04         N/A         N/A

<PAGE>

           Weighted average exercise 
           price for options exercisable:

           $   5.00 - $ 7.99                         N/A         N/A         N/A         N/A      62,027       $7.00
           $   8.00 - $ 9.99                         N/A         N/A       3,750      $ 8.88         N/A         N/A
           $  10.00 - $13.99                      15,000       10.08      27,000       11.14         N/A         N/A
           $  14.00 - $17.99                       6,000       16.52       9,750       15.58         N/A         N/A
           $  18.00 - $25.75                       6,750       22.86      10,500       22.04         N/A         N/A

           Weighted average remaining
           contractual life (in years):           Shares       Life       Shares       Life       Shares       Life
                                                  ------       ----       ------       ----       ------       ----
           $   5.00 - $ 7.99                         N/A         N/A         N/A         N/A      77,027        7.10
           $   8.00 - $ 9.99                       7,500        9.16      19,500        9.08         N/A         N/A
           $  10.00 - $13.99                      27,000        8.54      33,000        7.85         N/A         N/A
           $  14.00 - $17.99                      13,500        6.41      13,500        5.41         N/A         N/A
           $  18.00 - $25.75                      10,500        8.37      10,500        7.37         N/A         N/A

</TABLE>

         The  weighted  average  fair  value  of each  option  grant  (including
exchanges)  has been  estimated as of the date of grant using the  Black-Scholes
option-pricing model and the following assumptions:

<TABLE>
<CAPTION>

                                                                      1996          1997         1998
                                                                      ----          ----         ----
          <S>                                                     <C>              <C>         <C>    
           Dividend rate                                                0 %           0 %           0 %
           Expected volatility                                         73 %          54 %          66 %
           Risk-free interest rate                                   5.85 %        5.85 %        5.85 %
           Expected life (in years):
                $ 5.00 - $  7.99                                        N/A           N/A       1.5-3.0
                $ 8.00 - $  9.99                                  3.0 - 4.0           3.0           N/A
                $10.00 - $ 13.99                                  3.0 - 4.0           3.0           N/A
                $14.00 - $ 17.99                                  3.0 - 4.0           N/A           N/A
                $18.00 - $ 25.75                                  3.0 - 4.0           N/A           N/A

</TABLE>


Stock-Based Compensation Plans

         The Company accounts for its stock-based  compensation  plans under APB
25, under which no  compensation  expense is recognized as all options have been
granted at an exercise  price equal to or greater  than the fair market value of
the  Company's  common  stock on the date of grant.  The Company has adopted the
disclosure  option of SFAS 123  whereby  pro forma net income and net income per
share  information  must  be  disclosed  as if  compensation  expense  had  been
recognized  over the vesting  period of stock options.  Cumulative  compensation
cost  recognized  in pro forma net  income  with  respect  to  options  that are
forfeited prior to vesting is adjusted as a reduction of pro forma  compensation
expense in the period of  forfeiture.  For SFAS 123 purposes,  the fair value of
each  option  grant  has  been  estimated  as of the  date of  grant  using  the
Black-Scholes option-pricing model and assumptions described above.

         Using these assumptions, the fair value of the stock options granted in
1996, 1997 and 1998 was estimated to be approximately $1,128,000, $1,188,000 and
$1,785,542,   respectively,   which  under  SFAS  123  would  be   amortized  as
compensation  expense over the vesting period of the options.  Had  compensation
cost been recorded  consistent with SFAS 123 utilizing the assumptions  detailed
above,  the  Company's pro forma net income (loss) and diluted net income (loss)
per share  would have been as follows  for the years ended  December  29,  1996,
December 28, 1997 and December 27, 1998:

<TABLE>
<CAPTION>

                                                                 1996              1997             1998
                                                                 ----              ----             ----
          <S>                                                <C>             <C>               <C>    
           Net income (loss):
             As reported                                      $ 4,025,083     $ (4,691,344)     $3,997,662
             Pro forma                                        $ 2,745,745     $ (5,739,389)     $2,862,255

           Basic net income (loss) per share:
             As reported                                      $       .53     $       (.58)     $      .50
             Pro forma                                        $       .36     $       (.72)     $      .36

           Diluted net income (loss)  per share:              $       .52     $       (.58)     $      .50
             As reported                                      $       .36     $       (.72)     $      .36
             Pro forma
</TABLE>
<PAGE>


         Because  the SFAS 123  method of  accounting  has not been  applied  to
options granted prior to December 25, 1994, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.

Shareholder Rights Plan

         In December 1997, the Company's Board adopted a Rights  Agreement under
which the Common  Stock  holders of record as of December  12,  1997  received a
dividend in the form of Preferred Stock Purchase Rights  ("Rights").  The Rights
permit  the  holder  to  purchase  one-hundredth  of a share of  Series A Junior
Participating Preferred Stock ("a unit") at an initial exercise price of $50 per
unit under certain  circumstances.  The purchase  price,  the number of units of
Preferred Stock and the type of securities  issuable upon exercise of the Rights
are subject to adjustment  from time to time.  The Rights expire on December 12,
2007,  unless  earlier  redeemed or exchanged.  Until a Right is exercised,  the
holder has no rights as a  stockholder  of the Company,  including  the right to
vote  or  receive  dividends.   The  Rights  are  exercisable  only  in  certain
situations,  as defined in the Rights Plan,  including  (i) the  acquisition  of
beneficial  ownership of 15 percent or more of the Company's  outstanding common
stock by a person  other than the  company's  Chairman of the Board,  and (ii) a
change in the composition of the Board over a period of 18 consecutive months or
less such that 50% or more of the members of the Board who were directors at the
beginning of such 18-month  period cease to be directors  during such period and
are  replaced by  directors  that were not  unanimously  elected or nominated by
persons that were directors at the  commencement  of such 18-month  period.  The
Company  will  generally  be entitled to redeem the Rights at $.001 per Right at
any time prior to such time as a person or group has acquired 15 percent or more
of the  Company's  common  stock.  

         On March 18, 1999,  the company,  pursuant to  resolutions  adopted  by
the Board of Directors on such date, gave its prior approval to RB Capital,  RBR
Acquisition  Corp.  and certain  affiliates  of the company for  purposes of the
Rights Plan,  in  connection  with the execution and delivery by the company and
such  persons  of  the  merger  agreement  and  the  voting  agreement  and  the
consummation of the transactions contemplated thereby.

(11)  COMMITMENTS AND CONTINGENCIES

  Lease Commitments

         The  Company  has  entered  into  various  operating  leases  for land,
buildings and equipment,  most of which contain  renewal  options and provisions
for payments of real estate taxes, insurance and maintenance costs. In addition,
certain  leases  contain  contingent  rentals  based  on a  percentage  of gross
revenues,  as defined.  Total rent  expense  was  $5,387,774,  $  7,602,314  and
$7,476,149 in 1996, 1997 and 1998,  respectively,  including  additional rent of
$1,080,911, $1,267,431 and $1,316,030, respectively.

         Aggregate  future minimum lease payments  required under  noncancelable
operating  leases at  December  27,  1998 (which  include  commitments  for four
restaurants opening in 1999) are as follows:

                                                                        Total
                                                                      ---------
           1999                                                    $  7,086,135
           2000                                                       7,201,414
           2001                                                       7,077,506
           2002                                                       7,209,627
           2003                                                       7,352,389
           Thereafter                                                52,526,598
                                                                     ----------
               Total future minimum lease payments required        $ 88,453,669
                                                                     ==========

         The above amounts include the commitment for the Houston property,  for
which the Company has entered into a noncancelable  sublease agreement (see Note
8) which provides for future minimum sublease payments of $214,500, $224,252 and
$130,813 during fiscal 1999, 2000 and 2001, respectively.

Self-Funded Employee Health Insurance Plan

         Beginning  August  1996,  the  Company  began   administering  its  own
self-funded employee health insurance plan (the "Plan"). Employees contribute to
the Plan based on pre-determined  premium amounts and certain  co-payment terms.
The Company is then  responsible for the remaining  payment of covered claims up
to  $35,000  per person per  annum,  not to exceed an annual  aggregate  payment
limitation  ($1,041,650 for the plan year ended July 31, 1998, with an estimated
similar  limitation  for the 1999 plan year),  after which a third party insurer
provides "stop loss"  insurance  protection to the Plan for payment of claims of
any covered  individual  in excess of $35,000,  but not to exceed $1 million per

<PAGE>

employee  per  lifetime.  The Company  records  insurance  expense  equal to the
estimated  costs  expected  to result from  incurred  claims plus an estimate of
claims  incurred  but not  reported  based  on the best  available  information.
However,  the  nature of these  claims is such that  actual  development  of the
claims  may vary  significantly  from the  estimated  expenses.  All  changes in
expense  estimates are  accounted  for on a  prospective  basis and could have a
significant impact on the Company's financial position or results of operations.

Litigation

         The Company is a party in certain  legal  proceedings  that have arisen
out of the ordinary course of business. Based upon advice of the Company's legal
counsel,  management  believes that the costs of defending  and resolving  these
legal matters will not have a material adverse effect on the Company.

(12)  SEGMENT INFORMATION

         In June 1997, the Financial Accounting Standards Board issued Statement
of Financial  Accounting  Standards No. 131,  "Disclosures  about Segments of an
Enterprise and Related  Information"  ("SFAS 131"). SFAS 131 requires disclosure
of operating segments,  which as defined,  are components of an enterprise about
which separate financial  information is available and is evaluated regularly by
the chief operating decision makers in deciding how to allocate resources and in
assessing performance.

         The  Company  operates  in  two  segments:   Brewery  and  Old  Chicago
restaurant segments.  Management has chosen to organize the Company around these
segments  based on differences in the menus,  production  element  (micro-brewed
beer)  associated with the Brewery,  operating  margins,  and expected return on
investment.

         The  Company's  accounting  policies for segments are the same as those
described in Note 2. Management  evaluates segment  performance based on segment
sales and net operating contribution.  The following provides information on the
Company's  segments  as of and for each of the three  years in the period  ended
December 27, 1998:
<TABLE>
<CAPTION>

                                                        1996                         1997                        1998
                                             --------------------------- ---------------------------- ---------------------------
                                               Brewery      Old Chicago      Brewery     Old Chicago     Brewery     Old Chicago
                                             ------------- ------------- -------------- ------------- ------------ --------------
<S>                                         <C>           <C>             <C>           <C>          <C>            <C>
Sales                                        $ 50,901,983   $ 58,328,162   $ 77,131,618  $ 73,116,612 $ 85,970,461  $ 74,131,129
Start up costs (Note 2)                      $         --   $         --   $         --  $         -- $  1,808,496  $         --
Depreciation and amortization                $  3,889,987   $  3,661,900   $  6,750,959  $  4,899,944 $  4,338,659  $  3,580,194
Restructuring charges and other,
net (Note 8)                                 $         --   $         --   $  8,522,646  $    701,607 $   (212,829) $     74,388
Net operating contribution                   $  4,855,516   $  6,368,002   $ (1,869,464) $  6,084,585 $ 10,959,970  $  8,290,582
Expenditures for property and equipment      $ 13,600,905   $ 14,848,720   $ 20,599,507  $  8,459,154 $ 16,571,823  $  1,844,589
Identifiable assets                          $ 43,027,299   $ 32,117,312   $ 55,910,797  $ 37,052,266 $ 61,864,568  $ 33,359,907

</TABLE>

         Net  operating  contribution  represents  sales  less  all  direct  and
indirect  operating  expenses,   including  depreciation  and  amortization  and
excluding corporate overhead and corporate activities.

         The  following  is  a   reconciliation   of  segment   information   to
consolidated information:
<TABLE>
<CAPTION>
                                                  1996            1997               1998
                                               -----------   ------------        -----------
<S>                                           <C>            <C>                <C>                                 
Segment depreciation and amortization         $ 7,551,887    $ 11,650,903       $  7,918,853
Corporate depreciation and amortization           250,146         485,115            696,217
                                               ----------      ----------         ----------
Consolidated depreciation and amortization    $ 7,802,033    $ 12,136,018       $  8,615,070
                                               ==========      ==========         ==========

Segment restructuring charges and other, net  $        --    $  9,224,253       $   (138,441)
Corporate restructuring charges and other, net      1,364         482,283                 --
                                               ----------      ----------         ----------
Consolidated restructuring charges and other,
net                                           $     1,364    $  9,706,536       $   (138,441)       
                                               ==========      ==========         ==========

Segment net operating contribution            $11,223,518    $  4,215,121       $ 19,250,552
Corporate depreciation and amortization          (250,146)       (485,115)          (696,217)
Corporate general and administrative           (5,619,612)     (9,073,514)        (9,818,376)
Corporate restructuring charges and other, net         --        (482,301)                --
                                               ----------      ----------         ----------
Consolidated income (loss) from operations    $ 5,353,760    $ (5,825,809)      $  8,735,959
                                               ==========      ==========         ==========
<PAGE> 

Segment expenditures for property and                
equipment                                     $28,449,625    $ 29,058,661       $ 18,416,412
Corporate expenditures for property and
equipment                                         597,019       1,523,435            715,560
                                               ----------      ----------         ----------                                        
Consolidated expenditures for property and         
equipment                                     $29,046,644    $ 30,582,096       $ 19,131,972
                                               ==========      ==========         ==========
                                       

Segment identifiable assets                   $75,144,611    $ 92,963,063       $ 95,224,475
Corporate assets                                9,803,328    $ 14,450,332       $  7,272,386
                                               ----------     -----------        -----------
Consolidated total assets                     $84,947,939    $107,413,395       $102,496,861
                                               ==========     ===========        ===========

</TABLE>

         From July 1996 to November 1998, the Company had an indirect 50% equity
interest in Trolley Barn  accounted  for under the equity  method of  accounting
(see Note 5).  During the years ended  December 29, 1996,  December 28, 1997 and
December  27,  1998,  the Company  recorded  $221,941,  $330,000 and $688,064 of
equity in earnings of Trolley Barn. The Company recorded amortization expense of
$66,340,  $135,139  and  $110,218  during the years  ended  December  29,  1996,
December 28, 1997 and December 27, 1998, respectively,  included in depreciation
and  amortization  in the  accompanying  consolidated  statements of operations.
Also,  the Company  recorded a gain on sale of its investment in Trolley Barn of
$728,194 during the year ended December 27, 1998.

(13)  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
         The following table presents selected 1997 and 1998 quarterly financial
data:

1997                                                 March 30             June 29      September 28       December 28
----                                               -----------          ----------     ------------       -----------
<S>                                               <C>                <C>              <C>                <C>  
Revenues                                           $32,692,139         $37,431,711     $40,730,974        $39,393,406
Income (loss) from operations                        1,391,645           1,647,482      (3,100,475)        (5,764,479)
Income (loss) before taxes                           1,212,982           1,330,247      (3,489,154)        (6,312,969)
Net income (loss)                                      860,208             941,817      (2,239,317)        (4,254,052)
Diluted net income per share                       $       .11         $       .12     $      (.28)       $      (.52)

1998                                                 March 28             June 28       September 27       December 27
----                                               -----------          ----------      ------------       -----------

Revenues                                            $38,594,255         $40,043,577     $41,228,910       $40,234,848
Income from operations                                1,807,981           2,305,002       2,400,201         2,222,775
Income before taxes and cumulative effect             1,399,861           1,704,885       2,042,261         2,627,213
Cumulative effect of accounting change                1,250,037                  --              --                --
Net (loss) income                                      (305,131)          1,150,797       1,378,526         1,773,470
Diluted net (loss) income per share                 $      (.04)         $      .14      $      .17       $       .22
</TABLE>

         Loss from operations  during the fourth quarter of 1997 was impacted by
a restructuring charge of $4.5 million (see Note 8), and incremental general and
administrative  expenses  totaling $1.3 million for executive  severance pay and
costs associated with the Company's exploration of strategic alternatives.

         During the fourth quarter of 1998,  the Company  adopted the provisions
of SOP 98-5  effective the beginning of fiscal 1998 (see Note 2).  Consequently,
the results of operations  for the first three quarters of 1998 reported on Form
10-Q have been  restated to reflect the  adoption of SOP 98-5 as if occurring in
the first quarter of 1998. As a result,  income from  operations  and net income
have been restated from the previously  reported  amounts for the first,  second
and third quarters of 1998 as follows:

<TABLE>
<CAPTION>

                                                      March 28                June 28              September 27
                                                      --------                -------              ------------
<S>                                                 <C>                <C>                         <C> 
Income (loss) from operations:
   Previously reported                              $ 1,182,877            $ 2,273,516             $ 2,448,506
   Restated                                           1,807,981              2,305,002               2,400,201
                                                     ----------             ----------              ----------
     Change                                         $   625,104            $    31,486             $   (48,305)
                                                     ==========             ==========              ==========
Net income (loss):
   Previously reported                              $   522,976            $ 1,129,552             $ 1,411,151
   Restated                                            (305,131)             1,150,797               1,378,526
                                                     ----------             ----------              ----------
     Change                                         $  (828,107)           $    21,245             $   (32,625)
                                                     ==========             ==========              ==========
Income (loss) per diluted share: 
   Previously reported                              $       .06            $       .14             $       .18
   Restated                                                (.04)                   .14                     .17
                                                           ----                   ----                    ----
     Change                                         $      (.10)           $        --             $      (.01)
                                                           ====                  =====                    ====

</TABLE>

<PAGE>


ITEM 9:  Changes in and Disagreements With Accountants on Accounting and 
         Financial Disclosure

         None

                                                              PART III

ITEM 10:  Directors and Executive Officers of the Registrant

         The  following  table sets forth the names,  ages and  positions of the
company's directors and executive officers:
<TABLE>
<CAPTION>   

                                                                                               Class and Year
                                                                                                in Which Term
     Name                     Age                           Position                             Will Expire
     ----                     ---                           --------                            ------------
<S>                            <C>      <C>                                                     <C>
Frank B. Day                   66       Chairman of the Board, President and Chief Executive    Class III/2001
                                        Officer
Duncan H. Cocroft              55       Director                                                Class III/2001
Robert D. Greenlee             57       Director and Secretary                                  Class II/2000
Mary C. Hacking                51       Director                                                Class I/1999
Gerald A. Hornbeck             52       Director                                                Class I/1999
David M. Lux                   48       Director                                                Class II/2000
Arthur Wong                    66       Director                                                Class II/2000
William S. Hoppe               54       Executive Vice President,  Chief Financial Officer,     N/A
                                        and Chief Administrative Officer
Ned R. Lidvall                 45       Executive Vice President and Chief Operating Officer    N/A
Theresa D. Shelton             36       Vice President - Finance , Treasurer and Assistant      N/A
                                        Secretary
----------------------
</TABLE>

         All executive  officers  hold office at the  discretion of the Board of
Directors.

         Frank B. Day.  Mr. Day  created the  Rock Bottom  Restaurant  & Brewery
and Old Chicago  concepts and has  supervised the operation of the company since
the opening of the first Old Chicago  restaurant  in Boulder,  Colorado in 1976.
Mr. Day has served as the  company's  Chairman of the Board since the  company's
inception.  In  December  1997,  Mr.  Day was  re-elected  President  and  Chief
Executive Officer,  having previously served as Chief Executive Officer from the
company's  inception  to  December  1995.  Mr.  Day has  more  than 25  years of
entrepreneurial  experience  in the  restaurant  and  hospitality  industry.  In
addition to the company's 62 restaurants,  Mr. Day has ownership interests in 14
restaurants,  two hotels  and two  casinos.  Mr.  Day  serves as a director  and
officer of Black Hawk Gaming and  Development,  Inc.  ("Black  Hawk"),  a public
company that operates a casino in Black Hawk, Colorado. Mr. Day holds a B.A. and
an M.B.A. from Harvard University.

         Duncan H. Cocroft.  Mr.  Cocroft  has  been  a  director of the company
since February 1996. Since September 1997, Mr. Cocroft has served as Senior Vice
President and Chief  Administrative  Officer of Kos  Pharmaceuticals,  Inc. From
1990 to 1997,  Mr.  Cocroft was Vice  President  of Finance and Chief  Financial
Officer of International Multifoods Corporation.  From 1987 to 1990, Mr. Cocroft
was Vice President and Treasurer of Smithkline Beckman (now Smithkline Beecham),
a large  pharmaceutical  company.  Mr. Cocroft received a B.S. in economics from
the University of Pennsylvania, Wharton School of Finance and Commerce.

         Robert D. Greenlee.  Mr.  Greenlee has been Secretary and a director of
the company since inception,  and served as the Mayor of Boulder,  Colorado from
November  1997 to  September  1998.  Since  1988,  Mr.  Greenlee  has  served as
President  of  Centennial  Investment  &  Management  Company,  Inc.,  a private
investment  and  consulting  firm and, since 1991, has served as Chairman of the
Board,  Chief Executive  Officer and President of Black Hawk. From 1975 to 1988,
Mr. Greenlee owned and was Chief Executive Officer of Centennial Wireless, Inc.,
operator of KBCO (FM), Boulder, Colorado. Mr. Greenlee holds a B.A. in radio and
television  broadcasting and an M.A. in journalism and mass  communications from
Iowa State University, and was a candidate in November 1998 for the U.S.
Congress in Colorado's Second District.
<PAGE>

         Mary C.  Hacking.  Ms.  Hacking has been a  director   of  the  company
since September 1994.  Since March 1995, Ms. Hacking has served as President and
owner of Think Marketing,  L.L.C.,  a full service  marketing firm.  Ms. Hacking
served as President of Barnhart  Advertising,  Marketing  and Public  Relations,
Inc.  from 1990 to  February  1995.  From  1984 to 1990,  Ms.  Hacking  was Vice
President Marketing for VICORP  Restaurants,  Inc. Ms. Hacking holds a B.A. from
the University of Wisconsin (Madison) and an M.A. from Fordham University.

         Gerald A.  Hornbeck.  Mr.  Hornbeck  has been a director of the company
since September  1994. Mr.  Hornbeck has over 25 years of restaurant  management
experience,  including the  responsibility  for and opening of over 70 specialty
restaurants. Mr. Hornbeck founded Concept Management, Inc., a strategic planning
and  organizational  development  consulting  company  in 1990 and serves as its
President.  In 1984,  Mr.  Hornbeck  founded the Cooker  Restaurant  concept and
served as  Executive  Vice  President  and  director of Cooker  Corporation,  an
operator of casual dining restaurants, from 1984 to 1989.

         David M. Lux.  Mr. Lux is a founder and  developer,  with  Mr. Day,  of
the Old Chicago concept, and has been a director of the company since inception.
Since  1982,  Mr.  Lux has been a  director  and  executive  officer  of Concept
Restaurant  Management C.S., Inc., a restaurant management services company that
operates three restaurants in Colorado Springs,  Colorado.  Mr. Lux holds a B.S.
in business administration from the University of Colorado.

         Arthur  Wong.  Mr. Wong  was one of the  founders of the  company,  and
has  been a  director  of the  company  since  April  1995.  Mr.  Wong is also a
principal  in numerous  private  companies,  which  include  computer  software,
hospitality,   real  estate,  health  care,  retail,  recreation  and  financial
services. He received his B.A. from Ripon College.

         William S. Hoppe.   Mr.   Hoppe  was  elected   Chief    Administrative
Officer  in  December  1997 in  addition  to his  positions  of  Executive  Vice
President and Chief Financial Officer.  Mr. Hoppe joined the company in May 1996
as Chief Financial Officer,  Vice President and Treasurer,  and was subsequently
named  Executive Vice  President in November 1996.  From 1993 to 1996, Mr. Hoppe
was Executive  Vice  President  and Chief  Financial  Officer for ZuZu,  Inc., a
restaurant chain  specializing in quick service mexican food. From 1983 to 1993,
Mr.  Hoppe was founder and managing  partner of Hoppe,  Watson,  and Company,  a
certified  public  accounting and consulting  firm.  During that time, Mr. Hoppe
served as  President  of  Chili's  Beverage  Company,  a  Brinker  International
affiliate,  and  President of Sfuzzi  Beverage  Company.  Previously,  Mr. Hoppe
served  as  Controller  and  Chief  Accounting  Officer  for Hunt  International
Resources Corporation, then franchisor of Shakey's Pizza Parlors. Mr. Hoppe is a
Certified  Public  Accountant  and  holds a B.S.  in  accounting  from  Southern
Illinois University and an M.B.A from Pepperdine University. Mr. Hoppe serves on
the  Executive  Committee of the Board of  Directors of the Colorado  Restaurant
Association.

         Ned R.  Lidvall.  Mr.  Lidvall  was  elected  Executive  Vice President
and Chief  Operating  Officer in December  1997. Mr. Lidvall served as Executive
Vice  President - Brewery  Operations  from November 1996 to November  1997, and
from October 1995 to October 1996,  Mr.  Lidvall  served as the  company's  Vice
President - Operations. From May 1994 until September 1995, Mr. Lidvall was Vice
President  of  Operations  for On the Border  Cafes  Corporation,  a division of
Brinker  International.  From  September  1991 until April 1994, Mr. Lidvall was
President and Chief Operating Officer of On The Border Cafes Corporation,  which
was sold to Brinker  International  in May 1994.  From January 1991 to September
1991,  Mr.  Lidvall served as Vice President of Food & Beverage / Purchasing for
Chi-Chi's Mexican Restaurants. From 1988 to 1991, Mr. Lidvall was Vice President
of Operations at Western Sizzlin, Inc. From 1980 to 1988, Mr. Lidvall moved from
Mid-Atlantic  Director of Service and  Beverage to Vice  President  of Franchise
Operations  for  Chi-Chi's  Mexican   Restaurants.   Mr.  Lidvall  attended  the
University of Kentucky.

         Theresa D.  Shelton.  Ms.  Shelton was elected  Treasurer  in  December
1997 in  addition to her  positions  of Vice  President - Finance and  Assistant
Secretary. Ms. Shelton joined the company in October 1994 as Controller, and was
elected Vice President - Finance in June 1996.  From September 1985 to September
1994,  Ms.  Shelton was an audit  manager with Arthur  Andersen  LLP,  where she
specialized  in the  hospitality,  real estate and oil and gas  industries.  Ms.
Shelton is a Certified  Public  Accountant  and holds a B.S. in accounting  from
Colorado  State  University.  She is a  member  of  the  American  Institute  of
Certified  Public  Accountants  and the  Colorado  Society of  Certified  Public
Accountants.
<PAGE>

Compliance with Section 16(a) of the Securities and Exchange Act of 1934

         Section  16(a) of the  Securities  Exchange  Act of 1934,  as  amended,
requires  the   Company's   directors,   executive   officers  and  persons  who
beneficially  own greater than 10% of a registered class of the Company's equity
securities to file initial  reports of ownership  and changes in ownership  with
the  Commission and The Nasdaq Stock  MarketSM.  Based solely upon its review of
copies of the Section 16(a) reports and the written  representations the Company
has received,  the Company  believes that during its fiscal year ended  December
27,  1998,  all of its  directors,  executive  officers  and  greater  than  10%
beneficial owners were in compliance with their filing requirements,  except for
the  following.  A Form 5  report  was  filed  late  by  each  of the  following
individuals  relating  to options  granted to them by the  company  and  options
repriced by the company  during the fiscal year ended  December  27,  1998:  Mr.
David Lux, Ms. Mary C. Hacking,  Mr. Gerald A. Hornbeck,  Mr. Duncan H. Cocroft,
Mr. Frank B. Day, Mr. Arthur Wong,  Mr. Ned R. Lidvall,  Ms. Theresa D. Shelton,
Mr. Robert D. Greenlee, and Mr. William S. Hoppe.

<PAGE>


ITEM 11:  Executive Compensation

         The following table sets forth the compensation  paid by the company to
its Chief  Executive  Officer  and the four most  highly  compensated  executive
officers,  other than the Chief Executive  Officer,  whose individual salary and
bonus exceeded $100,000 during the fiscal year ended December 27, 1998.
<TABLE>
<CAPTION>

                                                    Summary Compensation Table

                                                                                                Long Term
                                                       Annual Compensation                 Compensation Awards
                                            -----------------------------------------    -----------------------
                                                                             Other         Restricted   Securities
                                                                             Annual          Stock      Underlying   All Other
                                                                          Compensation     Award(s)      Options     Compen-
Name and Principal Position          Year   Salary($)          Bonus($)       ($)(1)     ($)(2)(3)(4)    (#)(5)      sation 
---------------------------          ----   ---------         --------        ------      ---------      ------       ----
<S>                                  <C>     <C>               <C>            <C>          <C>           <C>       <C>
Frank B. Day ..................      1998    200,000    (6)        ---           ---            ---      64,420        ---
  President, Chief Executive         1997    100,000    (6)        ---           ---            ---      23,000        ---
  Officer, and Chairman of the       1996    100,000    (6)        ---           ---         97,116      32,500        ---
  Board

William S. Hoppe .............       1998    155,000               ---           ---            ---      62,270        ---
  Executive Vice President, Chief    1997    145,000               ---           ---        253,000      20,000        ---
  Financial Officer and Chief        1996     83,077               ---        56,967        101,289      40,000        ---
  Administrative Officer

Ned R. Lidvall ................      1998    155,000               ---           ---            ---      58,100        ---
  Executive Vice President and       1997    130,000               ---        43,287        253,000      20,000        ---
  Chief Operating Officer            1996    135,000               ---           ---         98,430         ---        ---

Theresa D. Shelton ............      1998    114,159            13,606           ---            ---      37,759        ---
 Vice President Finance, Treasurer   1997     96,000            24,625           ---            ---       5,000        ---
 and Assistant Secretary             1996     89,712             5,750           ---            ---      15,000        ---

William R. Edmiston(7).........      1998    155,000               ---           ---            ---      73,402    183,000
  Executive Vice President and       1997    145,000               ---           ---        253,000      20,000        ---
  Chief Development Officer          1996    135,000               ---           ---         95,173         ---        ---
</TABLE>

---------------------------
(1)  Other   Annual   Compensation   includes    $47,425    and    $29,219   for
     reimbursement  of Mr.  Hoppe's  and Mr.  Lidvall's   relocation   expenses,
     respectively, and $12,390 for Mr. Lidvall's car allowance.

(2)  Fiscal 1997 includes  restricted  stock awards made pursuant to a Long Term
     Incentive  Plan  agreement  (see  below):  Mr. Hoppe - 23,000  shares,  Mr.
     Lidvall - 23,000 shares and Mr. Edmiston - 23,000 shares.  The closing sale
     price  for a share of  Common  Stock on the date of grant  was  $11.00  per
     share.

(3)  Fiscal 1996  includes  restricted  stock  awards made in February  1997 but
     earned in 1996 pursuant to the 1996 Executive  Bonus Plan (see below):  Mr.
     Day - 10,499 shares,  Mr. Hoppe - 9,921 shares,  Mr. Lidvall - 9,554 shares
     and Mr.  Edmiston - 10,289  shares.  The closing  sale price for a share of
     Common Stock on the date of grant was $9.25 per share.

(4)  The total  number of  restricted  stock  awards  outstanding,  valued as of
     December 27,  1998,  was: Mr. Day - 10,499  shares  valued at $56,432,  Mr.
     Hoppe - 32,921  shares  valued at  $176,950,  Mr.  Lidvall - 32,554  shares
     valued at $174,978  and Mr.  Edmiston - 33,289  shares  valued at $178,928.
     Holders of restricted stock are eligible to receive dividends, if any.

(5)  Fiscal  1998   includes   stock  options  issued  in  exchange for  options
     with a higher  exercise price (see below):  Mr. Day - 44,420  options,  Mr.
     Hoppe - 52,270 options,  Mr. Lidvall - 48,100 options, Ms. Shelton - 30,259
     options and Mr. Edmiston - 63,402 options.

(6)  Amounts  represent   payments  to  FBD  Management  Corp.   for  consulting
     services  during 1996 and 1997, and  for compensation  as  chief  executive
     officer during 1998.

(7)  All Other Compensation includes severance amount payable  to  Mr.  Edmiston
     who  resigned  his positions with the company effective January 15, 1999.
<PAGE>


Restricted Stock Awards

         The company's  1996 bonus program for  executive  officers  ("Executive
Bonus Plan") was designed to provide direct financial  incentives in the form of
restricted  stock to executives to achieve  specified  company goals.  Under the
Executive Bonus Plan, the Compensation Committee,  based on recommendations from
the Chief Executive  Officer,  established  target  financial goals. The company
achieved the target  financial  goals during 1996,  and in February 1997 awarded
40,263  shares  of  restricted  stock  to  the  named  executive  officers.  The
restricted  common stock shall vest,  and trading  restrictions  on those shares
shall  lapse,  three years from the date of  issuance,  provided  the  executive
continues to be an employee of the company.  Restricted  shares  granted to  Mr.
Edmiston totaling 10,289 were cancelled effective with his resignation.

         During 1997, the company executed  Long-Term  Incentive Plan agreements
with Messrs.  Hoppe and Lidvall.  The agreements  provide for  restricted  stock
grants as an incentive to continually  improve the financial  performance of the
company.  The restricted shares vest on December 31, 2006 provided the executive
continues  to be an  employee  of the  company.  Vesting  on such  shares may be
accelerated to December 31, 1999 if cumulative  target  financial  goals for the
three years ending  December 31, 1999 are achieved.  The company also executed a
Long-Term  Incentive Plan agreement with Mr.  Edmiston which  terminates on July
15,  1999,  as a  result  of his  resignation  (see  "Executive  Compensation  -
Severance Agreement").

          In the event of a change of control,  as defined by the  provisions in
the respective restricted stock agreements,  restrictions on 100% and 50% of the
shares awarded pursuant to the Executive Bonus Plan and the Long-Term  Incentive
Plan,  respectively,  shall lapse  immediately.  Additionally,  the transactions
contemplated  by the merger with RB Capital are deemed to be a change of control
pursuant to the terms of the merger agreement (see "Management's  Discussion and
Analysis of Financial Condition and Results of Operations - Proposed Merger with
RB Capital").

Management Employment Agreements

         The company  has  management  employment  agreements  (the  "Management
Agreements") with Messrs.  Hoppe and Lidvall that were entered into in July 1997
and amended in January 1998. The Management  Agreements provide for, among other
things, initial base salaries,  plus such salary increases approved by the Board
of Directors  or the  Compensation  Committee,  and annual cash  bonuses.  If an
employee is terminated  without cause,  as defined,  the  Management  Agreements
provide for continued base salary payments for twelve months.  If an employee is
terminated  following a change of control, as defined, the number of periods for
which base salary continues  increases to 18 months.  The Management  Agreements
expire  on June 30,  1998,  unless  terminated  earlier,  and are  automatically
renewed  for  successive  one-year  periods  unless the  employee or the company
notifies the other party in writing. The transactions contemplated by the merger
with RB Capital  are deemed to be a change of control  pursuant  to the terms of
the merger  agreement  (see  "Management's  Discussion and Analysis of Financial
Condition  and Results of Operations - Proposed  Merger with RB  Capital").  The
company also had a Management  Agreement  with Mr.  Edmiston  that was cancelled
effective  with  his  resignation  (see  "Executive   Compensation  -  Severance
Agreement").

Severance Agreement

         Effective  January 15, 1999, Mr.  Edmiston  resigned his positions with
the company. In connection with his resignation, Mr. Edmiston is deemed to be an
employee through July 15, 1999 but with no specific duties or  responsibilities.
He is also  eligible  for  certain  other  fringe  benefits  during  this period
including  continued vesting of his stock options and rights to 23,000 shares of
restricted stock granted pursuant to the Long-Term Incentive Plan agreement. Mr.
Edmiston forfeited his rights to 10,289 shares of restricted stock, and received
the right to severance payments totaling $183,000.

Equity Incentive Plan

         The purpose of the Rock Bottom Restaurants, Inc., Equity Incentive Plan
is to enable the company to attract,  retain and motivate its  employees  and to
enable  employees  to  participate  in the  long-term  growth of the  company by
providing for or increasing  the  proprietary  interest of such employees in the
company.  Grants to  executive  officers  under the Equity Plan are  designed to
align a portion of the executive's  compensation with the long-term interests of
the company's  stockholders.  The Equity Plan became effective upon consummation
of the company's  initial public  offering in July 1994 and  terminates  June 3,
2004. The Equity Plan currently provides for the issuance of 1,955,752 shares of
common stock. The Equity Plan also provides that the number of shares authorized
for issuance  automatically  increase each year by an amount equal to the number
of shares  equal to  one-half of one  percent of the  company's  then issued and
outstanding  shares  (cumulative  increases  of  155,752  shares as of March 26,
1999).
<PAGE>

         The Equity Plan is  administered  by the  Compensation  Committee  with
respect to grants to executive  officers,  and by Mr. Day for all other  grants.
Subject to the terms of the Equity Plan, the  Compensation  Committee or Mr. Day
determines  the persons to whom awards are granted,  the type of award  granted,
the number of shares granted, the vesting schedule, the type of consideration to
be paid to the company upon exercise of options and the terms of any option. The
Equity Plan also provides that in the event of a change of control,  as defined,
options  outstanding under the Equity Plan become fully vested. The transactions
contemplated  by the merger with RB Capital are deemed to be a change of control
pursuant to the terms of the merger agreement

         Under the  restricted  stock  component of the Equity Plan, the company
may, in selected cases,  issue to a plan participant a given number of shares of
restricted  stock.  Restricted  stock  under the  Equity  Plan is  Common  Stock
restricted  as to  sale,  pending  fulfillment  of  such  vesting  schedule  and
employment  requirements as the Compensation Committee determines.  Prior to the
lapsing  of  the   restrictions,   the   participant   is  entitled  to  receive
distributions  in  liquidation  and dividends on, and to vote the shares of, the
restricted stock.

         In January 1998,  the Board of Directors,  upon  recommendation  of the
Compensation  Committee,   offered  all  current  employees  and  directors  the
opportunity to exchange all of their outstanding  options for a lesser number of
new options with a $7.00 exercise price. The value of the new options obtainable
in the exchange was the same as the value of the outstanding  options based on a
Black-Sholes option valuation model. Thus, each option holder had the ability to
obtain  a  reduced  number  of  options  with  the  same  value,  based  on  the
Black-Sholes  model,  in exchange for all of the holder's  outstanding  options.
Substantially  all option holders agreed to exchange their options and to forego
exercising any options for six months. The Compensation  Committee and the Board
believed  the offer to  exchange  options  was  necessary  to serve  the  plans'
objectives in light of average option  exercise prices  significantly  exceeding
market  prices,  and that the offer to  exchange  options  of equal  value  with
previously  granted  options  was in the best  interests  of the company and its
stockholders.

         On March 18, 1999, the company executed an amendment to the Equity Plan
providing  for the ability of the  Compensation  Committee  to exercise  certain
discretionary authority in the event of a change of control.

<PAGE>


         The  following  table sets forth  information  as to the stock  options
granted to the named  executive  officers  during the 1998 fiscal year. No stock
appreciation rights were awarded during fiscal 1998.
<TABLE>
<CAPTION>

                                         Option Grants in Last Fiscal Year

                                                                                 
                                                                                    
                                Number of       Percentage of                                    Potential Realized Value
                                Securities      Total Options                                        at Assumed Annual
                                Underlying        Granted to       Exercise                        Rates of Stock Price           
                                 Options        Employees in        Price      Expiration           Appreciation ($)(1)
     Name                       Granted(#)       Fiscal Year     ($ / share)      Date               for Option Term     
 -----------                    ----------      ------------     -----------      ----             -----------------       
                                                                                                      5%        10% 
                                                                                                     ---        ---  
<S>                             <C>                    <C>           <C>        <C>                 <C>       <C>
Frank B. Day                    20,000 (2)             2.4%          7.00       3/18/2003           57,520    174,517
                                18,773 (3)             2.2%          7.00       6/24/2001            7,203     31,080
                                 5,830 (3)             0.7%          7.00       7/22/2001            2,398     10,022
                                 2,766 (3)             0.3%          7.00       7/28/2002            2,180      7,208
                                17,051 (3)             2.0%          7.00       4/28/2007           48,079    138,238

William S. Hoppe                10,000 (2)             1.2%          7.00       3/18/2008           28,760     87,259
                                 9,936 (3)             1.2%          7.00       4/10/2006           23,147     66,268
                                24,839 (3)             3.0%          7.00       4/10/2006           57,866    165,665
                                 8,684 (3)             1.0%          7.00       12/28/2006          23,118     66,324
                                 8,811 (3)             1.0%          7.00       4/28/2007           24,844     71,434

Ned R. Lidvall                  10,000 (2)             1.2%          7.00       3/18/2008           28,760     87,259
                                14,121 (3)             1.7%          7.00       12/26/2005          31,061     88,960
                                16,484 (3)             2.0%          7.00       12/26/2005          36,258    103,846
                                 8,684 (3)             1.0%          7.00       12/28/2006          23,118     66,324
                                 8,811 (3)             1.0%          7.00       4/28/2007           24,844     71,434

Theresa D. Shelton               7,500 (2)             0.9%          7.00       3/18/2008           21,570     65,444
                                11,667 (3)             1.4%          7.00       9/30/2004           19,383     56,261
                                 1,445 (3)             0.2%          7.00       10/3/2005           3,030       8,686
                                 6,574 (3)             0.8%          7.00       8/7/2006           16,298      46,682
                                 6,231 (3)             0.7%          7.00       8/7/2006           15,448      44,246
                                 4,342 (3)             0.5%          7.00       12/28/2006         11,559      33,162

William R. Edmiston          10,000 (2)(4)             1.2%          7.00       3/18/2008           28,760     87,259
                             16,484 (3)(4)             2.0%          7.00       12/26/2005          36,258    103,846
                             29,423 (3)(4)             3.5%          7.00       12/26/2005          64,719    185,360
                              8,684 (3)(4)             1.0%          7.00       12/28/2006          23,118     66,324
                              8,811 (3)(4)             1.0%          7.00       4/28/2007           24,844     71,434
--------------
</TABLE>


 (1) Assumed annual  appreciation  rates are set by the Commission and are not a
     forecast of future  appreciation.  The amounts shown are pre-tax and assume
     the options will be held throughout the entire term.  Actual gains, if any,
     are dependent  upon the future  performance  of the Common Stock as well as
     continued employment of the option holder through the vesting period.

 (2) Options  granted  are  exercisable  in three equal  annual  installments. 
     All  options  have a 10 year term, except for Mr. Day's options which have
     a five year term.

 (3) Options granted were pursuant to an option exchange  program  approved by 
     the Company's Board in January 1998 (see "Equity Incentive Plan").

 (4) Mr. Edmiston  resigned his positions with the company effective January 15,
     1998. Pursuant to Mr. Edmiston's severance agreement,  all unvested options
     continue  to vest under  their  existing  schedules  until July 15, 1999 at
     which time any remaining  unvested options are immediately  cancelled.  All
     vested options remain exercisable for 90 days beginning July 16, 1999.


<PAGE>

         The following  information  is furnished for the company's  1998 fiscal
year with respect to the named  executive  officers  for stock option  exercises
which occurred during fiscal 1998:
<TABLE>
<CAPTION>

                                        Aggregated Option Exercises In Last
                                    Fiscal Year and Fiscal Year-End Option Values

                                                           Number of Securities          Value of Unexercised In-
                              Shares                      Underlying Unexercised           the-Money Options at
                           Acquired on      Value      Options at Fiscal Year End(#)         Fiscal Year-End($)(1)
Name                         Exercise    Realized($)   Exercisable     Unexercisable     Exercisable   Unexercisable
----                        ---------    -----------   ------------   --------------    ------------   -------------
<S>                                 <C>          <C>       <C>              <C>                  <C>             <C>
Frank B. Day                        0            0         26,796           37,624               0               0
William S. Hoppe                    0            0         29,016           33,254               0               0
Ned R. Lidvall                      0            0         26,236           31,864               0               0
Theresa D. Shelton                  0            0         23,097           14,662               0               0
William R. Edmiston (2)             0            0         36,438           39,964               0               0
                                                           
-----------------
</TABLE>

(1)  Based on the difference  between the option  exercise price ($7.00) and the
     closing  sale price  ($5.375) of a share of Common Stock as reported on the
     The Nasdaq Stock Market on December 24, 1998, the last trading day prior to
     the close of the company's 1998 fiscal year.

(2)  Mr. Edmiston  resigned his positions with the company effective January 15,
     1998. Pursuant to Mr. Edmiston's severance agreement,  all unvested options
     continue  to vest under  their  existing  schedules  until July 15, 1999 at
     which time any remaining  unvested options are immediately  cancelled.  All
     vested options remain exercisable for 90 days beginning July 16, 1999.

Compensation of Directors

         The company has adopted  compensation  and  incentive  benefit plans to
enhance  its  ability to continue  to  attract,  retain and  motivate  qualified
persons to serve as  nonemployee  directors of the company.  The company has six
nonemployee  directors.  The company pays its nonemployee  directors  $1,000 for
each meeting  attended and reimburses each  nonemployee  director for reasonable
expenses in attending company meetings.  Under the Nonemployee  Directors' Stock
Option  Plan (the  "Directors'  Plan"),  nonemployee  directors  of the  company
receive stock options.  Only directors who are not also employees of the company
or any of its subsidiaries are eligible to participate in the Directors' Plan.

         The  Directors'  Plan  provides for an automatic  grant of an option to
purchase  7,500  shares  of Common  Stock to each  nonemployee  director  at the
commencement  of his or her initial  term of service on the Board,  which option
will become exercisable at the rate of 3,750 shares on the first anniversary and
3,750  shares  on the  second  anniversary  of the  initial  date of  grant.  In
addition, each nonemployee director will receive an automatic grant of an option
to purchase 3,000 shares of Common Stock on each anniversary of the commencement
of his or her initial term of service on the Board,  which options vest one year
from the date of grant.  Upon the termination of a director's status following a
change in control of the company,  options outstanding under the Directors' Plan
will  immediately  become  fully  vested and  exercisable  for a period of three
months.

         Each option  granted under the  Directors'  Plan expires ten years from
the date of grant.  The option  exercise price must be equal to 100% of the fair
market  value of the Common  Stock on the date of grant of the  option.  Options
granted to directors under the Directors' Plan will be treated as  non-statutory
stock options under the Internal  Revenue Code of 1986, as amended.  As of March
26, 1999,  the company had granted  options to purchase  80,027 shares of Common
Stock under the Directors'  Plan at a weighted  average  exercise price of $6.85
per share.

         The Board of Directors may amend the Directors' Plan at any time or may
terminate  such  plan  without  the  approval  of  the  stockholders.   However,
stockholder  approval is required for any amendment which  materially  increases
the  number of shares  for which  options  may be  granted,  or  changes  in any
material respect the benefits accruing to participants or the requirements as to
eligibility in the plan.
<PAGE>


Compensation Committee Interlocks and Insider Participation

         The company's Compensation Committee comprises David M. Lux, Duncan H.
Cocroft, and Arthur Wong.

         The company leases the Old Chicago  restaurants located on Tejon Street
and Commerce Drive in Colorado Springs, Colorado from partnerships owned in part
by Mr. Lux. The company also leases the Old Chicago restaurants in Fort Collins,
Colorado,  and  Bettendorf,  Iowa,  and the brewery  restaurants  in  Englewood,
Colorado  and Des  Moines,  Iowa,  from  corporations  owned in part by Mr. Wong
and/or his affiliates.  Pursuant to these leases,  the company paid $296,123 and
$517,319,  respectively,  in the year ended  December  27,  1998.  See  "Certain
Relationships And Related Transactions - Affiliated Leases".


ITEM 12:  Security Ownership of Certain Beneficial Owners and Management

         The  following  table  sets  forth  information   regarding  beneficial
ownership  the  company's  of  common  stock as of March  26,  1999,  except  as
otherwise indicated: (i) by each person known by the company to own beneficially
5% or more of the  outstanding  shares of  common  stock,  (ii)  each  executive
officer named in the Summary Compensation Table and each director, and (iii) all
directors and executive officers of the company as a group.
<TABLE>
<CAPTION>

                                                                           Number of            Percentage of
                           Name                                              Shares             Common Stock (%)
<S>                                                                        <C>                       <C>   
ICM Asset Management, Inc. (1)............................                   952,350                 11.8%
601 W. Main Ave., Suite 600
Spokane, WA  99201
Dimensional Fund Advisors (1).............................                   466,500                  5.8%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA  90401
Frank B. Day (2)(3).......................................                 1,372,919                 17.0%
Duncan H. Cocroft (4).....................................                    12,564                   *
Robert D. Greenlee (2)(4).................................                   533,041                  6.6%
Mary C. Hacking (4).......................................                    13,591                   *
Gerald A. Hornbeck (4)....................................                    30,022                   *
David M. Lux (2)(5).......................................                   187,871                  2.3%
Arthur Wong (2)(4)........................................                   228,976                  2.8%
William S. Hoppe (4)(6)...................................                    83,646                  1.0%
Ned R. Lidvall (4)(6).....................................                    79,244                  1.0%
Theresa D. Shelton (4)....................................                    29,244                   *
William R. Edmiston (4)(6)................................                    83,905                  1.0%
All directors and executive officers as a group                            2,655,023                 31.8%
(11 persons) (7)..........................................
--------------------------
</TABLE>

*Amount is less than one percent.

(1) Ownership interests are as of December 31, 1998.

(2)  The Voting Agreement  executed by Messrs.  Day,  Greenlee,  Lux and Wong in
     connection  with the  proposed  merger with RB Capital  granted the Special
     Committee, on behalf of the company, an  irrevocable  proxy  to  vote  such
     shares.  By virtue of the Voting Agreement, each of Messrs. Day,  Greenlee,
     Lux and Wong, together with RB Capital,  have  joined  in  the  filing of a
     Schedule  13-D  which indicates  shared  voting  power over an aggregate of
     2,354,080 shares.

(3)  Includes 680,635 shares held in trusts of which Mr. Day is trustee,  10,499
     shares of  restricted  stock and 39,147  shares  subject  to stock  options
     exercisable currently or within 60 days

(4)  Includes shares subject to stock options exercisable currently or within 60
     days: Mr. Cocroft - 12,564 shares, Mr. Greenlee- 13,905 shares, Ms. Hacking
     - 13,591 shares,  Mr.  Hornbeck - 30,022 shares,  Mr. Wong - 12,776 shares,
     Mr. Hoppe - 49,773 shares, Mr. Lidvall - 45,603 shares, Ms. Shelton- 27,044
     shares and Mr. Edmiston - 60,905 shares.

(5)  Includes 8,850 shares held in the David M. Lux Irrevocable Grantor Trust of
     which Mr. Lux is trustee, 3,000 shares held by DT Lux Ltd. of which Mr. Lux
     is  the  general  partner,  and  6,806  shares  subject  to  stock  options
     exercisable currently or within 60 days.

(6)   Includes the following restricted stock awards: Mr. Hoppe - 32,921 shares,
      Mr. Lidvall -32,554 shares and Mr. Edmiston - 23,000 shares.

(7)   Includes a total of 246,294  shares  subject to stock options  exercisable
      currently or within 60 days,  and 98,974 shares of restricted stock.



<PAGE>


Change of Control

         The Company entered into an  Agreement  and  Plan  of  Merger  with  RB
Capital, a newly-formed corporation organized by Mr. Frank B. Day, the company's
Chairman of the Board, President and Chief Executive Officer, whereby RB Capital
will acquire the company in a cash merger.  Concurrent with the execution of the
merger agreement, Mr. Day and Messrs. Greenlee, Wong and Lux, each a stockholder
and a director of the company,  executed a Voting  Agreement,  dated as of March
18, 1999.  The parties  agreed,  among other things,  to vote certain  shares of
common stock of the company  beneficially  owned by such persons in favor of the
merger and each of the other  transactions  contemplated by the merger agreement
at any meeting of the company's  stockholders  in connection with the merger (or
otherwise to consent in writing thereto,  as the case may be). See "Management's
Discussion  and  Analysis of  Financial  Condition  and Results of  Operations -
Liquidity and Capital Resources."



ITEM 13:  Certain Relationships and Related Transactions

         Set forth below is a description  of  transactions  entered into during
the last  fiscal year  between  the  company  and  certain of its  stockholders,
officers and directors,  and corporations or other organizations affiliated with
such stockholders, officers and directors.

Affiliated Leases

         The company leases the Old Chicago restaurant in Fort Collins, Colorado
from  C.  B.  Partnership,  a  partnership  that  is 50%  owned  by 141  College
Partnership.  Messrs. Wong and Day own 12% and 10%, respectively, of 141 College
Partnership.  The lease  term was  renewed  in June 1997 and will  expire in May
2012. The annual base rent for 1998 was $97,400 and increases  $2,400  annually.
The company pays additional  rent based on the difference  between the base rent
and 6% of gross sales.  Pursuant to this lease, the company paid $136,849 (which
included additional rent of $39,449) in the year ended December 27, 1998.

         The company  subleases  the Old  Chicago  restaurant  on Tejon  Street,
Colorado   Springs,   Colorado  from  Old  Chicago   Colorado   Springs  Limited
Partnership,  a partnership  owned by Messrs.  Day, Wong and Lux. The restaurant
sublease,  which was renewed on April 1, 1995 and amended on  September 1, 1997,
expires in March 2005.  The initial  base rent for years one through  four under
the sublease, as amended, is $147,600,  and increases to $158,352 for years five
through ten of the  sublease.  The  company  pays  additional  rent based on the
difference between the base rent and 6% of gross sales.  Pursuant to this lease,
the company paid $156,363 (which included additional rent of $8,763) in the year
ended December 27, 1998.

         The company leases the Old Chicago  restaurant on Commerce Center Drive
in Colorado Springs, Colorado from Lux/Day Northport Ltd., a partnership that is
94% owned by Messrs.  Day and Lux. The lease term commenced in 1986,  terminates
in 2006 and provides for a monthly payment of $11,000 or 6% of sales,  whichever
is higher.  Pursuant to this lease,  the company paid $139,760  (which  included
additional rent of $7,760) in the year ended December 27, 1998.

         The company leases the Old Chicago restaurant in Bettendorf, Iowa, from
Dulcet,  LLC, an Iowa limited  liability  corporation  in which Mr. Wong and his
wife have a 33% ownership interest. The lease commenced in June 1996, terminates
in 2011 and  provides  for a monthly  payment of  $6,250.  The  monthly  payment
increases  to $7,078 in years six through ten and to $8,016 in years ten through
fifteen.  Pursuant to this lease,  the  company  paid  $75,000 in the year ended
December 27, 1998.

         The company leases the brewery  restaurant in Boulder,  Colorado,  from
The 1123 Walnut  Corporation,  a corporation owned by Messrs.  Greenlee and Day.
The lease will expire in 1999 and  provides  for an annual base rent of $84,000.
The company also pays additional  rent based on the difference  between the base
rent and 6% of gross restaurant  sales.  Pursuant to the lease, the company paid
$160,958 (which included  additional rent of $76,958) in the year ended December
27, 1998.

         The company leases the brewery restaurant in Englewood,  Colorado, from
Zymotic,  LLC, a Colorado limited liability company in which Mr. Wong and/or his
affiliates  own 34%. The lease  commenced in July 1997,  and  terminates in June
2012,  with the option to renew for four terms of 60 months  each.  The  initial
base rent for years one through five under the lease is  $230,775,  increases to
$261,353 for years six through  ten, and  increases to $295,982 for years eleven
through  fifteen.  Pursuant to this lease, the company paid $230,775 in the year
ended December 27, 1998.

         The company  leases the  brewery  restaurant  in Des Moines,  Iowa from
B.W.C.  Farms, Inc., an Iowa corporation in which Mr. Wong and/or his affiliates
own 12.5%.  The lease  commenced in February  1998,  and  terminates in February
2013,  with the option to renew for four terms of 60 months  each.  The  initial
base rent for years one through five under the lease is  $230,775,  increases to
$261,353 for years six through  ten, and  increases to $295,982 for years eleven
through  fifteen.  Pursuant to this lease, the company paid $211,544 in the year
ended December 27, 1998.
<PAGE>

         Management  believes the terms of these leases are no less favorable to
the company than those that could be obtained from  unaffiliated  third parties.
All transactions  with affiliated  lessors or any other affiliate are subject to
the approval of the company's  disinterested directors and are on terms believed
by such  directors to be no less  favorable to the company than those  available
from unaffiliated third parties.

Other Arrangements with Affiliates

         The company  purchases  certain of its pasta  products  used in the Old
Chicago restaurants from Pasta Fresca Inc., a Colorado  corporation owned 39% by
Mr. Day.  During 1998, the company paid  approximately  $132,000 to this company
for such products.

         Additionally, RB Capital, an  organization  formed by Mr. Frank B. Day,
and its  wholly-owned  subsidiary,  has entered into a merger agreement with the
company.  See "Management's  Discussion and Analysis of Financial  Condition and
Results of Operations - Liquidity and Capital Resources."

Conflicts of Interest

         Certain  of the above  transactions  will  continue  in effect  and may
result in conflicts  of interest  between the company and such  individuals.  In
addition,  Mr. Day, the company's  President and Chief Executive  Officer,  owns
interests in 14 other casual dining restaurants,  two hotels and two casinos and
serves in various  capacities with other  companies.  Mr. Lux, a director of the
company,  owns interests in several of the  restaurants in which Mr. Day owns an
interest.  The  restaurants  in which Mssrs.  Day and Lux own  interests  may be
considered to compete with the company's restaurants. The company's conflicts of
interest  policy,  revised  in May 1997,  requires  that all  directors  who are
presented  with an  opportunity  that is in the same line of business as that of
the company may pursue such opportunity only after it is offered to the company,
and the disinterested directors conclude that the company should not pursue such
opportunity.  Although  Messrs.  Day and Lux may  owe  fiduciary  duties  to the
company and its  stockholders,  conflicts of interest may not always be resolved
in a manner favorable to the company. In addition,  under certain circumstances,
the company is obligated to indemnify its officers and directors.


                                     PART IV

ITEM 14:  Exhibits, Financial Statement Schedules, and Reports on Form 8-K

         (a)  Documents filed as part of this report:

              1.  Financial Statements.

                    Report of Independent Public Accountants

                    Consolidated Balance Sheets as of December 28, 1997 and 
                    December 27, 1998

                    Consolidated   Statements  of  Operations  for  the  Years 
                    Ended  December 29, 1996, December 28, 1997, and 
                    December 27, 1998

                    Consolidated  Statements of Stockholders' Equity for
                    the Years Ended  December  29,  1996,  December  28,
                    1997, and December 27, 1998

                    Consolidated  Statements of Cash Flows for the Years
                    Ended  December  29, 1996,  December  28, 1997,  and
                    December 27, 1998

                    Notes to Consolidated Financial Statements

              2.  Financial Statement Schedules.

                    All  financial  statement  schedules  are omitted as
                    they are not applicable to the company.

              3.  Exhibits.
<PAGE>

<TABLE>
<CAPTION>

   Exhibit
     No.                                             Description of Exhibit

<S>      <C>       <C>    
 2       --        Form of Share Exchange  Agreement and Amendment  among the company and the  Shareholders  of the
                   Predecessor  Subsidiaries,  filed as Exhibit No. 2 to the  company's  Registration  Statement on
                   Form S-1 (Registration No. 33-79898) and incorporated herein by reference.

 2.1     --        Agreement and Plan of Merger, dated as of March 18, 1999, by and among Rock Bottom Restaurants
                   Inc., RB Capital, Inc. and RBR Acquisition Corp., filed as Exhibit No. 2.1 to the company's Form
                   8-K dated March 18, 1999, and incorporated herein by reference.

 3(i)    --        Amended and Restated  Certificate of  Incorporation of the  company,   filed  as  Exhibit  
                   No.  3(i)  to  the   company's Registration   Statement  on  Form  S-1   (Registration   No.
                   33-79898) and incorporated herein by reference.

 3(ii)   --        Bylaws of the company, as amended, filed as Exhibit No. 3(ii).

4.1      --        Form of Rights  Agreement,  dated as of  December  12,  1997,  by and  between  the  company  and
                   American  Securities  Transfer & Trust,  Incorporated,  which includes the form of Certificate of
                   Designations for the Series A Junior  Participating  Preferred Stock as Exhibit A and the form of
                   Right  Certificate  as  Exhibit  B,  filed  as  Exhibit  No.  4.1 to the  company's  Registration
                   Statement on Form 8-A, and incorporated herein by reference.

4.2      --        Voting Agreement, dated as of March 18, 1999, by and among Rock Bottom Restaurants, Inc., RB Capital, 
                   Inc., RBR Acquisition Corp. and certain stockholders of Rock Bottom Restaurants, Inc. signatory thereto,
                   filed as Exhibit No. 4.1 to the company's Form 8-K dated March 18, 1999, and incorporated herein by
                   reference.

10.1     --        Amendment to Rock Bottom Restaurants, Inc. Equity Incentive Plan, dated March 18, 1999, filed as 
                   Exhibit No. 10.1, and Rock Bottom Restaurants, Inc. Equity Incentive Plan, as amended through 
                   January 23, 1998, filed as Appendix B to the company's 1998 Proxy Statement pursuant to Section
                   14(a), and incorporated herein by reference.

10.2     --        Rock Bottom  Restaurants,  Inc.  Nonemployee  Directors' Stock Option Plan, filed as Exhibit No.
                   4.2 to the  company's  Registration  Statement  on Form  S-8  (Registration  No.  33-94256)  and
                   incorporated herein by reference.

10.3     --        Lease  Agreement,  dated  September  1, 1978,  between the company and  Madeline  Day,  filed as 
                   Exhibit No. 10.3 to the company's  Registration  Statement on Form S-1  (Registration No. 33-79898) 
                   and incorporated herein by reference.

10.4     --        Lease  Agreement,  dated  March 15,  1986, as amended on June 21, 1995,  between the company and
                   Lux/Day  Northport, Ltd.,  filed as Exhibit No. 10.4 to the company's Annual Report on Form 10-K
                   for the fiscal year ended December 31, 1995, and incorporated herein by reference.

10.5     --        Lease Agreement,  dated June 8,  1989, between the company and Robert Greenlee,  and Assignment,
                   dated March 23,  1990, by Robert Greenlee to the 1123 Walnut  Corporation,  filed as Exhibit No.
                   10.5 to the  company's  Registration  Statement  on Form S-1  (Registration  No.  33-79898)  and
                   incorporated herein by reference.

10.6     --        Lease  Agreement,  dated August 29,  1990,  between the company and C.B.  Partnership,  filed as
                   Exhibit  No.  10.6 to the  company's  Registration  Statement  on  Form  S-1  (Registration  No.
                   33-79898) and incorporated herein by reference.

10.7     --        Lease  Agreement,  dated May 9, 1995,  between  the company  and Old  Chicago  Colorado  Springs
                   Limited  Partnership,  filed as Exhibit No. 10.7 to the company's Annual Report on Form 10-K for
                   the fiscal year ended December 31, 1995, and incorporated herein by reference.

10.8     --        Amended and Restated  Executive Bonus Plan, filed as Exhibit No. 10.2 to the company's Form 10-Q
                   for the quarterly period ended March 29, 1998, and incorporated herein by reference.

10.9     --        Real Estate Mortgage,  dated June 27, 1996, between the company and Lakeside Bank, together with
                   Promissory  Note,  filed as Exhibit  No. 10 to the  company's  Form 10-Q,  as  amended,  for the
                   quarterly period ended September 29, 1996, and incorporated herein by reference.

<PAGE>


   Exhibit
     No.                                             Description of Exhibit

10.10    --        Loan Agreement for  $20,000,000  Revolving  Line of Credit from Norwest Bank Colorado,  National
                   Association,  First  Security  Bank of  Idaho,  N.A.,  and West One Bank,  Idaho to Rock  Bottom
                   Restaurants,  Inc., dated July 2, 1996, filed as Exhibit No. 2.1 to the company's Form 8-K dated
                   July 2, 1996, and incorporated herein by reference.

10.11    --        Amendment to Loan Agreement between Norwest Bank Colorado, National Association,  First Security
                   Bank of Idaho, N.A., and West one Bank, Idaho to Rock Bottom  Restaurants,  Inc., dated February
                   24, 1997,  filed as Exhibit No. 10.1 to the company's  Form 10-Q for the Quarterly  period ended
                   March 30, 1997, and incorporated herein by reference.

10.12    --        Second  Amendment to Loan Agreement for  $40,000,000  Revolving Line of Credit from Norwest Bank
                   Colorado, National Association,  First Security Bank, N.A., U.S. Bank and Suntrust Bank, Central
                   Florida,  N.A. to Rock Bottom Restaurants,  Inc., dated July 28, 1997, filed as Exhibit No. 10.1
                   to the company's Form 10-Q for the quarterly  period ended September 28, 1997, and  incorporated
                   herein by reference.

10.13    --        Third  Amendment to Loan  Agreement for  $40,000,000  Revolving Line of Credit from Norwest Bank
                   Colorado, National Association,  First Security Bank, N.A., U.S. Bank and Suntrust Bank, Central
                   Florida, N.A. to Rock Bottom Restaurants,  Inc., dated June 29, 1998, filed as Exhibit No. 10 to
                   the company's  Form 10-Q for the quarterly  period ended  September 27, 1998,  and  incorporated
                   herein by reference.

10.14    --        Stock Purchase Agreement,  dated June 4, 1996, between Rock Bottom,  Restaurants,  Inc., Trolley
                   Barn, TBB Acquisition  Group,  Inc., TBB Holding  company,  and the TBB  Shareholders,  filed as
                   Exhibit  No.  2.2 to the  company's  Form 8-K dated  July 2, 1996,  and  incorporated  herein by
                   reference.

10.15    --        Lease Agreement,  dated June 25, 1996, between the company and Dulcet L.L.C., Elaine C. Wong and
                   Eugene B. Weisman,  filed as Exhibit No. 10.12 to the  company's  Annual Report on Form 10-K for
                   the fiscal year ended December 29, 1996, and incorporated herein by reference.
 
10.16    --       Lease Agreement,  dated September 26, 1997,  between Rock Bottom  Restaurants,  Inc. and Zymotic,
                  LLC,  filed as  Exhibit  No.  10.2 to the  company's  Form 10-Q for the  quarterly  period  ended
                  September 28, 1997, and incorporated herein by reference.

10.17    --       Form of Management  Employment  Agreement,  filed as Exhibit No. 10.1 to the company's  Form 10-Q
                  for the quarterly period ended June 29, 1997, and incorporated herein by reference.

10.18    --       Form  of  Amendment  to  Management  Employment  Agreement,  filed  as  Exhibit  No.  10.3 to the
                  company's  Form 10-Q for the quarterly  period ended March 29, 1998, and  incorporated  herein by
                  reference.

10.19    --       Form of Management Compensation Agreement, filed as Exhibit No. 10.2 to the company's  Form 10-Q 
                  for the quarterly  period ended June 29, 1997, and incorporated herein by reference.

10.20    --       Form of Long Term Incentive Agreement, filed as Exhibit No. 10.3 to the company's Form 10-Q for 
                  the quarterly period ended  June 29, 1997, and incorporated herein by reference.

10.21    --       Form of Amendment to Long Term  Incentive  Agreement,  filed as Exhibit No. 10.4 to the company's
                  Form 10-Q for the quarterly period ended March 29, 1998, and incorporated herein by reference.

10.22    --       Consulting  Agreement,  dated  January 1, 1997,  between  Rock Bottom  Restaurants,  Inc. and FBD
                  Management Corp., filed as Exhibit No. 10.19, and incorporated herein by reference.
<PAGE>
   Exhibit
     No.                                  Description of Exhibit

10.23    --       Service and Consulting  Agreement,  dated January 1, 1997, between Rock Bottom Restaurants,  Inc.
                  and Concept Management, Inc., filed as Exhibit No. 10.20, and incorporated herein by reference.

10.24    --       License Agreement,  dated July 12, 1997, by and between Rock Bottom Restaurants,  Inc., and Frank
                  B. Day, filed as Exhibit No. 10.21, and incorporated herein by reference.

10.25    --       Lease  Agreement,  dated  February 9, 1998,  between  Rock Bottom  Restaurants,  Inc.  and B.W.C.
                  Farms,  Inc.,  filed as Exhibit  No. 10.1 to the  company's  Form 10-Q for the  quarterly  period
                  ended March 29, 1998, and incorporated herein by reference.

21       --       Subsidiaries of the company:
                     Old Chicago of Colorado, Inc., a Colorado corporation;  
                     Old Chicago of Westminster,  Inc., a Colorado corporation;
                     Old Chicago of Kansas, Inc., a Kansas corporation. 
                     Rock Bottom of Minneapolis,  Inc., a Colorado corporation;
                     Rock Bottom of Texas, Inc., a Texas corporation; 
                     Wadsworth Old Chicago, Inc.,  a Colorado  corporation;  
                     Walnut  Brewery,  Inc.,  a Colorado corporation; 
                     Old Chicago Franchising, Inc.

23.1              Consent of Arthur Andersen LLP

27                Financial Data Schedule, filed as Exhibit No. 27

         (b)      Reports on Form 8-K.

                  A current report on Form 8-K, dated November 17, 1998, was filed to announce the company's sale
                  of its 50% joint venture interest in Trolley Barn Brewery, Inc.


         (c)      Exhibits.

                  See Item 14(a)(3) above.

         (d)      Financial Statement Schedules.

                  All financial statement schedules are omitted as they are not
                  applicable to the company.

</TABLE>


<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,  in the  City of
Louisville, State of Colorado.

                                    ROCK BOTTOM RESTAURANTS, INC.


Date:  March 26, 1999               By:      /s/  FRANK B. DAY
                                                     Frank B. Day
                                                     President 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 and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>

           Signatures                                      Title                                 Date
<S>                                         <C>                                             <C>    
/s/  FRANK B. DAY
         Frank B. Day                       Chairman of the Board, President,                March 26, 1999
                                            Chief Executive Officer, and Director
                                            (Principal Executive Officer)

/s/  WILLIAM S. HOPPE
         William S. Hoppe                   Executive Vice President, Chief                  March 26, 1999
                                            Financial Officer, and Chief Administrative
                                            Officer
                                            (Principal Financial Officer)

/s/  THERESA D. SHELTON
         Theresa D. Shelton                 Vice President Finance, Treasurer and            March 26, 1999
                                            Assistant Secretary
                                            (Principal Accounting Officer)

/s/  ROBERT D. GREENLEE
         Robert D. Greenlee                 Secretary and Director                           March 26, 1999

/s/  DAVID M. LUX
         David M. Lux                       Director                                         March 26, 1999

/s/  GERALD A. HORNBECK
         Gerald A. Hornbeck                 Director                                         March 26, 1999

/s/  MARY C. HACKING
         Mary C. Hacking                    Director                                         March 26, 1999

/s/  ARTHUR WONG
         Arthur Wong                        Director                                         March 26, 1999

/s/  DUNCAN H. COCROFT
         Duncan H. Cocroft                  Director                                         March 26, 1999

</TABLE>


<PAGE>





                                                   EXHIBIT INDEX
<TABLE>
<CAPTION>


   Exhibit
     No.                                    Description of Exhibit
    -----                                   ----------------------
<S>      <C>      <C>   
3(ii)    --       Bylaws of the company, as amended, filed as Exhibit No. 3(ii).

10.1     --       Amendment to Rock Bottom Restaurants,  Inc. Equity Incentive Plan, dated March 18, 1999.

23.1              Consent of Arthur Andersen LLP

27                Financial Data Schedule
</TABLE>