<PAGE>   1
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-K


[ X ]      Annual report pursuant to Section 13 or 15(d) of the Securities
           Exchange Act of 1934 (Fee required)

           For the fiscal year ended December 27, 1999

                                       or

[   ]      Transition report pursuant to Section 13 or 15(d) of the  Securities
           Exchange Act of 1934 (No fee required)

           For the transition period from _______________ to ________________

           Commission file number:   33-48183

                       American Restaurant Group, Inc.
--------------------------------------------------------------------------------
              Exact Name of Registrant as Specified in Its Charter


                 Delaware                                  33-0193602
----------------------------------------         -------------------------------
      (State or Other Jurisdiction of                  (I.R.S. Employer
       Incorporation or Organization)                  Identification No.)

        450 Newport Center Drive
       Newport Beach, California                             92660
----------------------------------------         -------------------------------
(Address of Principal Executive Offices)                  (Zip Code)

                                 (949) 721-8000
--------------------------------------------------------------------------------
              (Registrant's Telephone Number, Including Area Code)

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

<TABLE>
<CAPTION>
                                                    Name of Each Exchange
         Title of Each Class                         on Which Registered
         -------------------                        --------------------

<S>                                                 <C>
               None                                        None
</TABLE>

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

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

The number of outstanding shares of the Registrant's Common Stock (one cent par
value) as of February 28, 2000, was 128,081.


<PAGE>   2

                         AMERICAN RESTAURANT GROUP, INC.

                                      INDEX

<TABLE>
<CAPTION>
                                                                                                               PAGE
                                                                                                               ----

<S>               <C>                                                                                         <C>
PART I

ITEM 1.           BUSINESS................................................................................        1

ITEM 2.           PROPERTIES..............................................................................        5

ITEM 3.           LEGAL PROCEEDINGS.......................................................................        6

ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS......................................        6


PART II

ITEM 5.           MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
                  STOCKHOLDER MATTERS.....................................................................        6

ITEM 6.           SELECTED FINANCIAL DATA.................................................................        7

ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS.....................................................        8

ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.............................................       12

ITEM 9.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                  ACCOUNTING AND FINANCIAL DISCLOSURE.....................................................       12


PART III

ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT......................................       13

ITEM 11.          EXECUTIVE COMPENSATION..................................................................       15

ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
                  AND MANAGEMENT..........................................................................       17

ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..........................................       19


PART IV

ITEM 14.          EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES,
                  AND REPORTS ON FORM 8-K.................................................................       20
</TABLE>




                                        i


<PAGE>   3


                                     PART I

ITEM 1.                             BUSINESS

INTRODUCTION

American Restaurant Group, Inc., a Delaware corporation (the "Company"), through
its subsidiaries, competes predominately in the midscale segment of the United
States restaurant industry. The Company was formed on August 13, 1986, by Anwar
S. Soliman, Chairman of the Board and Chief Executive Officer of the Company,
and other members of current senior management, to acquire certain operations of
Saga Corporation, a wholly owned subsidiary of Marriott Corporation (the
"Acquisition"). The Acquisition was completed in February 1987. (Prior to the
completion of the Acquisition, the Company had no significant operations.) The
Company is a subsidiary of American Restaurant Group Holdings, Inc., a Delaware
corporation ("Holdings").

As of December 27, 1999, the Company operated 193 restaurants located in 15
states, principally California and Texas. The Company operates five restaurant
divisions: Black Angus (western-style steakhouses specializing in steak and
prime rib), Grandy's (family-oriented, quick-service restaurants specializing in
fried and grilled chicken, country-fried steak and country breakfasts), Spoons
(casual-style restaurants featuring fajitas, salads and hamburgers), Spectrum
(upscale Northern Italian, American and Mexican specialty restaurants) and
National Sports Grill (sports-theme restaurants featuring generous portions and
microbrewery beers). In addition, as of December 27, 1999, Grandy's franchised
63 restaurants in the southern United States.

DIVISION OVERVIEW

BLACK ANGUS

As of December 27, 1999, Black Angus operated 102 Stuart Anderson's Black Angus
and Stuart Anderson's Cattle Company steakhouses located primarily in
California, the Pacific Northwest and Arizona. The chain was founded in Seattle
in 1964 and is the Company's largest restaurant concept. Black Angus restaurants
are typically located in highly visible and heavily traveled areas in or near
retail and commercial businesses. The restaurants are generally freestanding and
range in size from 6,600 to 12,000 square feet, seating approximately 220 to 350
customers. Black Angus restaurants are distinctly Western in their design and
feature booth seating for dining. They are generally open for lunch from 11:30
a.m. to 4:00 p.m. and for dinner from 4:00 p.m. to 10:00 p.m.

As of December 28, 1992, Black Angus operated 66 in-restaurant lounges which
offered disc jockeys, dancing and a focus on the sale of alcoholic beverages
during the after-dinner and late-night time periods. While the late-night
entertainment business generated favorable profit margins in isolation,
management was concerned that this business negatively affected visits by its
core customers. Black Angus began limiting its late-night entertainment business
in 1992 and subsequently, between 1994 and 1999, phased out its late-night
entertainment business in 4 to 19 restaurants per year. By year-end 1999, Black
Angus had completed its plan to exit the late-night entertainment business. Most
of the dance floors and lounge areas in existing Black Angus restaurants have
been remodeled to include additional seating or an open waiting area.

Once the Company decided to phase out its late-night entertainment business, it
developed a new restaurant prototype eliminating the dance floor and the lounge
area. This new prototype is smaller, approximately 6,700 square feet, and offers
the same number of dining seats as the existing restaurants. The Company has
opened thirteen of the new prototype design since 1995, three in late 1999. The
Company intends to continue to expand the Black Angus division using the new
prototype in existing and adjacent markets.



                                       1
<PAGE>   4

GRANDY'S

As of December 27, 1999, Grandy's operated 56 family-oriented, quick-service
restaurants located primarily in Texas and Oklahoma and franchised an additional
63 restaurants primarily in the southern United States. The chain was founded in
Lewisville, Texas in 1973. Grandy's restaurants are generally freestanding and
are located near shopping malls or other highly visible, heavily traveled areas.
The restaurants range in size from 3,800 to 5,200 square feet and have dining
areas, which generally seat 130 to 220 customers. All restaurants offer
self-service beverages with free refills, and all but one restaurant have
drive-thru service. Grandy's restaurants are generally open from 6:00 a.m. to
10:00 p.m. and serve breakfast, lunch and dinner. Grandy's differentiates itself
from its competitors by offering complete home-style meals with limited service.
Approximately 51% of Grandy's 1999 revenues were for consumption in the dining
room as opposed to take- out.

Grandy's franchise agreements generally require initial fees of $15,000 to
$30,000 per restaurant, ongoing royalties of 3% to 5% of sales and advertising
expenditures of approximately 4% of sales. Grandy's provides certain support
functions for franchisees, including initial training and ongoing monitoring and
consultations. The Company generally does not provide financing for franchisees.

In July 1998, the Company announced a plan to convert a majority of its
company-owned Grandy's restaurants to franchised restaurants. The Company
intends to sell the property and equipment, including applicable lease rights,
and enter into franchise agreements with the purchasers. During 1999, the
Company converted twelve company-owned Grandy's restaurants to franchised
restaurants.

SPOONS

Spoons, founded in 1978, operated 17 casual-style restaurants as of December 27,
1999, all of which are located in California. Spoons restaurants are generally
freestanding, located in heavily traveled areas, ranging in size from 5,500 to
7,800 square feet and seating approximately 200 customers. These full-service
restaurants average a 40-minute table turnover and offer booth and table seating
in a casual, highly energetic atmosphere. In addition, each restaurant has a
lounge area which also serves food. Spoons restaurants are generally open from
11:00 a.m. to 12:00 midnight and feature the same menu all day. During 1999, the
Company converted one Spoons restaurant to a casual seafood concept, Crabby
Bob's, under a licensing arrangement.

SPECTRUM

Spectrum, founded in 1970, operated 12 unique, upscale, specialty restaurants as
of December 27, 1999, all of which are located in California. All restaurants
focus on "authentic" Northern Italian, contemporary American or Mexican cuisine.
The division includes four Prego restaurants, two Tutto Mare restaurants, two
MacArthur Park restaurants and four other restaurants which, although operated
under different names, generally concentrate on Northern Italian food. Spectrum
restaurants vary in size and physical type but are primarily located proximate
to concentrations of young professionals and other upper-income customers. The
restaurants are generally open from 11:00 a.m. to 12:00 midnight.

NATIONAL SPORTS GRILL

National Sports Grill, founded in 1993, operated six sports-theme restaurants as
of December 27, 1999, all of which are located in California. This concept
offers a menu featuring generous portions and microbrewery beers and provides
multiple video telecasts of national and regional sporting events as well as
interactive video games and other sporting-related games. National Sports Grill
restaurants are freestanding and generally range in size from 10,000 to 17,000
square feet, seating approximately 200 to 300 customers. The restaurants feature
a bar, a dining area, a billiards area and multiple video screens throughout.
National Sports Grill restaurants are typically open from 11:00 a.m. to
2:00 a.m.



                                       2
<PAGE>   5

RESTAURANT OPERATIONS

The Company has five distinct divisions. The Black Angus division is generally
managed separately from the other divisions and is organized functionally with
separate operations, marketing, finance, real estate and human resources
departments. Grandy's and the three smaller divisions are each run independently
but share among them certain support functions such as finance, administration
and human resources. In addition, the Company generally provides purchasing,
cash management, insurance and other treasury functions, and accounting and
legal services, on a centralized basis. The Company's corporate headquarters
provides strategic direction and approves major capital expenditures, annual
budgets and all salaries above a specified level.

The Company's cash management system is highly sophisticated with controls down
to the server level. Restaurants are required to make daily deposits of cash and
the Company uses a centralized cash concentration system which sweeps all of its
cash accounts on a daily basis. There is a central accounts payable and check
writing system with approximately 6,400 vendors profiled on the system.

The Company uses a combination of in-house and outside-contracted services for
its management information system needs. In-house systems include a
point-of-sale system for each restaurant and stand-alone computing at the
restaurant, division and corporate levels. The Company contracts for payroll
services and for mainframe-based data processing.

Each restaurant is staffed with a General Manager who is directly responsible
for the operation of the restaurant, including product quality, cleanliness,
service, inventory, cash control and the appearance and conduct of store
employees. Except for Grandy's, most restaurants also have one or two Managers
and a Chef. Managers and supervisory personnel train other restaurant employees
in accordance with detailed procedures and guidelines prescribed by each
division.

General Managers are supervised by District Managers, each of whom is
responsible for approximately ten restaurants. District Managers, General
Managers, Managers and Chefs are eligible for bonuses under each division's
extra compensation program, for which goals and objectives are established based
on the profitability, sales and other factors relating to the restaurants.

PURCHASING AND DISTRIBUTION

To ensure standards of quality and to maximize pricing efficiencies, a central
purchasing department coordinates the supply of almost all restaurant items. The
Company purchases products throughout the United States and abroad through
agreements with various food-service vendors. None of the Company's vendors
supply the Company exclusively and no material agreements exist. The Company
routinely uses public, cold-storage facilities and makes forward commitments in
order to establish the availability and price of key food items such as beef and
seafood. In order to achieve more favorable terms, the Company concentrates its
distribution among certain of its vendors but believes that it could replace any
of these distributors, if necessary, on a timely basis.

COMPETITION AND MARKETS

All aspects of the restaurant business are highly competitive. Price, restaurant
location, food quality, service and attractiveness of facilities are important
aspects of competition. The competitive environment is often affected by factors
beyond a particular restaurant management's control, including changes in the
public's taste and eating habits, population and traffic patterns and economic
conditions. The Company's restaurants compete with a wide variety of
restaurants, ranging from national and regional restaurant chains to locally
owned restaurants. Competition from other restaurant chains typically represents
the more important competitive influence, principally because of their
significant marketing and financial resources. Many of the Company's competitors
have substantially greater



                                       3
<PAGE>   6

financial, marketing, personnel and other resources than the Company. In
addition, competition is not limited to a particular segment of the restaurant
industry because fast-food restaurants, steakhouses and casual-dining
restaurants are all competing for the same consumer's dining dollars. The
Company believes that its principal competitive strengths lie in the distinctive
atmosphere and food presentation offered; the value, variety and quality of food
products served; the quality and training of its employees; the experience and
ability of its management; and the economies of scale enjoyed by the Company
because of its size and geographic concentration. The Company continually
monitors consumer tastes and adjusts and updates its menus accordingly.

EMPLOYEES

At December 27, 1999, the Company employed approximately 9,700 persons, of whom
approximately 8,900 were hourly employees in restaurants, approximately 650 were
salaried employees in restaurants (Managers and Chefs) and approximately 150
were hourly and salaried employees in divisional and corporate management and
administration. Approximately 63% of the hourly restaurant employees work on a
part-time basis (25 hours or less per week). None of the Company's facilities
are unionized. The Company believes it provides competitive compensation and
benefits to its employees and that its employee relations are good.

REGULATIONS

Each restaurant is subject to licensing and regulation by state and local
health, sanitation, safety, fire and other departments. In addition, each
restaurant (except for Grandy's) is subject to licensing with respect to the
sale of alcoholic beverages. The loss of licenses or permits by the Company's
restaurants to sell alcohol would interrupt or terminate the Company's ability
to serve alcoholic beverages at those restaurants and, if a significant number
of restaurants were affected, could have a material adverse effect on the
Company. The Company believes it has good relations with the various alcoholic
beverage authorities.

The Company is subject to the Fair Labor Standards Act and various state laws
governing such matters as minimum wages, overtime and other working conditions.
Substantially all of the Company's restaurant employees are paid at rates
related to the Federal and state minimum wage, and, accordingly, increases in
the minimum wage increase the Company's labor costs.

SERVICE MARKS

The Company regards its service marks and trademarks as important to the
identification of its restaurants and believes they have significant value in
the conduct of its business. The Company has registered various service marks
and trademarks with the United States Patent and Trademark Office. In addition,
certain marks have been registered in the state of California, in various other
states and in certain foreign countries.

SEASONALITY

The Company's restaurant revenues and profitability are not subject to
significant seasonal fluctuations.



                                       4
<PAGE>   7


ITEM 2.                            PROPERTIES

The following table sets forth, as of December 27, 1999, the number of
properties owned or leased by the Company:

<TABLE>
<CAPTION>
                                            Own Land            Lease Land            Lease Land
                                              and                 and Own                 and
                                            Building              Building              Building             Total
                                            --------            ----------            ----------             -----

<S>                                        <C>                   <C>                  <C>                  <C>
Operated by the Company                        1                     72                   120                  193
Subleased to Franchisees                      --                     10                     2                   12
Subleased to Third Parties                    --                      1                     4                    5
Closed                                         5                      5                    13                   23
                                              --                     --                   ---                  ---
                                               6                     88                   139                  233
                                              ==                     ==                   ===                  ===
</TABLE>

Most of the Company's restaurants are freestanding and range from approximately
4,000 square feet for a Grandy's restaurant to as much as 17,000 square feet for
the Company's other restaurants. Most of the Company's leases provide for the
payment of the greater of a set base rental or a percentage rental of up to 6%
of gross revenues, plus real estate taxes, insurance and other expenses.

In addition, the Company owns the land and building for the Grandy's
headquarters in Lewisville, Texas, and leases office space for its other
divisions and corporate headquarters in Los Altos and Newport Beach, California.

The following table sets forth, as of December 27, 1999, the number of
Company-operated restaurants by division and state of operation:

<TABLE>
<CAPTION>
                                                          Division
                                ---------------------------------------------------------------
                                                                                       National            Total
State                           Black                                                   Sports          Number of
                                Angus        Grandy's      Spoons      Spectrum          Grill         Restaurants
                                -----        --------      ------      --------        --------        -----------

<S>                             <C>          <C>            <C>        <C>             <C>             <C>
California                        55            --          17             12              6              90
Texas                             --            43          --             --             --              43
Oklahoma                          --            11          --             --             --              11
Washington                        10            --          --             --             --              10
Arizona                           10            --          --             --             --              10
Minnesota                          6            --          --             --             --               6
Colorado                           5            --          --             --             --               5
Oregon                             4            --          --             --             --               4
Indiana                            3            --          --             --             --               3
Utah                               3            --          --             --             --               3
Hawaii                             2            --          --             --             --               2
Nevada                             2            --          --             --             --               2
New Mexico                         1             1          --             --             --               2
Alaska                             1            --          --             --             --               1
Florida                           --             1          --             --             --               1
                                ----           ---         ---            ---             --            ----

Total                            102            56          17             12              6             193
                                ====           ===         ===            ===             ==            ====
</TABLE>



                                       5
<PAGE>   8


ITEM 3.                        LEGAL PROCEEDINGS

The Company is involved in various litigation incidental to its business,
including claims arising out of personal injuries, employment practices,
worker's compensation cases and contract lawsuits, the claims for which
sometimes involve substantial damages. Based on information presently available,
management does not believe that the outcome of such litigation will have a
material adverse effect on the Company's financial position, business or results
of operations.


ITEM 4.         SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

No matters were submitted to a vote of the stockholders of the Company in the
fourth quarter of 1999.


                                     PART II

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

COMMON STOCK

As of February 28, 2000, there were six record holders of the 128,081
outstanding shares of the Company's common stock. The Company has never paid
dividends to its common stockholders and currently has no plans to do so. There
is currently no market for the Company's common stock, nor is such anticipated
in the near future.

CUMULATIVE PREFERRED STOCK, MANDATORILY REDEEMABLE

As of February 28, 2000, there were six record holders of the 44,083 outstanding
shares of the Company's cumulative preferred stock. Dividends accrue at a rate
of 12% per annum, payable semiannually on February 15 and August 15 of each
year. The Company may, at its option, pay dividends in cash or in additional
shares of cumulative preferred stock. Stock dividends of 2,360 and 2,499 shares
were paid on August 15, 1999 and February 15, 2000, respectively. There is
currently no market for the Company's cumulative preferred stock, nor is such
anticipated in the near future.



                                       6
<PAGE>   9

ITEM 6.                      SELECTED FINANCIAL DATA

The following selected historical consolidated financial data for each of the
five periods ended December 27, 1999, has been derived from the consolidated
financial statements of the Company which have been audited by Arthur Andersen
LLP, independent public accountants, and should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the consolidated financial statements and notes thereto
included elsewhere in this Form 10-K.

<TABLE>
<CAPTION>
                                                                   Year ended (1)
                                                 ---------------------------------------------------------------------
                                                 Dec. 25,       Dec. 30,        Dec. 29,       Dec. 28,       Dec. 27,
                                                   1995         1996(2)           1997           1998          1999
                                                 --------       --------        --------       --------       --------
                                                                 (dollars in thousands)
<S>                                              <C>            <C>             <C>            <C>            <C>
INCOME STATEMENT DATA:
REVENUES:
  Black Angus.................................   $243,624       $254,946        $264,175       $265,536       $263,561
  Grandy's....................................    101,839         90,962          78,832         70,799         58,055
  Other concepts..............................    100,503         99,516          97,032         90,593         86,369
                                                 --------       --------        --------       --------       --------
        Total revenues........................    445,966        445,424         440,039        426,928        407,985

RESTAURANT COSTS:
  Food and beverage...........................    138,270        141,032         140,015        135,873        128,267
  Payroll.....................................    134,532        137,104         133,732        130,242        124,827
  Direct operating............................    110,399        114,589         110,502        106,449        101,748
  Depreciation and
    amortization..............................     22,819         20,386          19,627         14,638         13,451
                                                 --------       --------        --------       --------       --------
      Total restaurant costs..................    406,020        413,111         403,876        387,202        368,293

General and administrative
  expenses....................................     31,360         28,086          29,360         22,357         23,757

Non-cash charge for impairment
  of long-lived assets........................     20,178         13,205           3,047          1,415          1,499

Grandy's Franchise Conversion:
  Gain on sale of assets......................      --             --              --             --               619
  Non-cash charge for assets to
    be disposed...............................      --             --              --             5,034          1,203

Operating profit (loss).......................    (11,592)        (8,978)          3,756         10,920         13,852

Interest expense, net.........................     28,004         27,714          23,985         20,269         19,450

Net loss before
  extraordinary gain (loss)...................    (39,662)       (36,773)        (20,292)        (9,416)        (5,668)

Extraordinary gain (loss) on
  extinguishment of debt......................      --            (1,688)          --             9,559          --

Net income (loss).............................   $(39,662)      $(38,461)       $(20,292)      $    143       $ (5,668)


BALANCE SHEET DATA:
Plant and equipment, net......................   $171,030       $101,169        $ 92,322       $ 90,565       $ 87,500
Total assets..................................    249,053        172,129         152,011        150,459        142,729
Long-term obligations,
  including current portion...................    233,011        182,137         181,399        167,443        167,340
Cumulative preferred stock,
  mandatorily redeemable......................      --             --              --            36,801         41,914
Redeemable cumulative
  preferred stock.............................      --             --              --             --              --
Common stockholders'
  equity (deficit)............................    (60,099)       (91,446)       (111,738)      (119,175)      (129,957)
</TABLE>



                                       7
<PAGE>   10

-------------------

(1)      The Company's obligations under its 11.5% senior secured notes (the
         "Notes") due 2003 are guaranteed by each of its direct subsidiaries
         (the "Subsidiary Guarantors"). Separate financial statements of the
         Subsidiary Guarantors are not included in this Form 10-K because the
         Subsidiary Guarantors are unconditionally jointly and severally liable
         for the obligations of the Company under the Notes pursuant to such
         guarantees. The aggregate net assets, earnings and equity of such
         Subsidiary Guarantors are substantially equivalent to the net assets,
         earnings and equity of the Company on a consolidated basis.

(2)      The year ended December 30, 1996, included 53 weeks.


ITEM 7.                MANAGEMENT'S DISCUSSION AND ANALYSIS
                           OF FINANCIAL CONDITION AND
                              RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Years Ended December 29, 1997, December 28, 1998 and December 27, 1999:

Revenues. Total revenues decreased 3.0% from $440.0 million in 1997 to $426.9
million in 1998 followed by a 4.4% decrease to $408.0 million in 1999.
Same-store-sales for 1999 decreased 1.2% from 1998. Four new restaurant openings
during 1999 were offset by the closure of 23 restaurants and by the conversion
of 12 Grandy's restaurants to franchised restaurants. There were 231, 224 and
193 restaurants operating at the end of 1997, 1998 and 1999, respectively.

Black Angus revenues increased 0.5% from $264.2 million in 1997 to $265.5
million in 1998 and then decreased 0.7% to $263.6 million in 1999. The decrease
in 1999 was primarily due to a $3.9 million decrease from three restaurants
which closed at the end of the leases and a $3.7 million decrease due to the
closure of late-night entertainment at four restaurants. This decrease was
partially offset by a $2.1 million increase in same-store-sales (excluding
late-night entertainment) and a $3.6 million increase resulting from the
addition of three new restaurants in the second half of 1999. Same-store-sales
increased 0.9% (decreased 0.5% including late-night entertainment) in 1999.

Grandy's revenues decreased 10.2% from $78.8 million in 1997 to $70.8 million in
1998 followed by a 18.0% decrease to $58.1 million in 1999. The decrease in 1999
resulted from a $6.1 decrease due to the conversion of 12 company-owned
restaurants to franchised restaurants during 1999, a $4.4 million decrease due
to the closure of 21 restaurants during 1998 and 1999 and a $2.6 million, or a
5.6%, decline in same-store-sales. Franchise income increased $0.4 million due
to franchise fees related to the conversions. Franchise revenues were $2.6
million, $1.8 million and $2.2 million in 1997, 1998 and 1999, respectively.

Revenues from other concepts (Spoons, Spectrum and National Sports Grill)
decreased 6.6% from $97.0 million in 1997 to $90.6 million in 1998 and then
decreased 4.7% to $86.4 million in 1999. Revenues declined $4.5 million due to
the closure of seven restaurants in 1998 and 1999 and a $0.5 million decrease in
same-store-sales. The decrease was partially offset by $0.8 million related to
the opening of one new restaurant in 1999.

Food and Beverage Costs. As a percentage of revenues, food and beverage costs
remained constant at 31.8% in 1997 and 1998 and decreased to 31.4% in 1999. The
decrease is due primarily to lower produce costs.

Payroll Costs. As a percentage of revenues, labor costs increased from 30.4% in
1997 to 30.5% in 1998 and then increased to 30.6% in 1999. The increase relates
primarily to higher restaurant management costs at Black Angus due to an
increase in the average number of managers per restaurant.



                                       8
<PAGE>   11

Direct Operating Costs. Direct operating costs consist of occupancy, advertising
and other expenses incurred by individual restaurants. As a percentage of
revenues, these costs decreased from 25.1% in 1997 to 24.9% in 1998 and remained
constant at 24.9% in 1999. The decrease in 1998 was primarily a result of lower
occupancy costs related to the ending of certain equipment leases and
disposition of closed units as well as lower general liability expenses.

Depreciation and Amortization. Depreciation and amortization consists of
depreciation of fixed assets used by individual restaurants, division and
corporate offices, as well as amortization of intangible assets. As a percentage
of revenues, depreciation and amortization decreased from 4.5% in 1997 to 3.4%
in 1998 and then decreased slightly to 3.3% in 1999. The decrease in 1998 was
primarily due to the reduction in amortization of deferred debt costs related to
the refinancing of the Company's debt in February 1998.

General and Administrative Expenses. General and administrative expenses as a
percentage of revenues were 6.7% in 1997, 5.2% in 1998 and 5.8% in 1999. The
increase in 1999 was primarily due to a $1.8 million increase in non-cash
charges related to future lease-related costs associated with restaurants closed
during 1999 and higher legal expenses partially offset by lower corporate
overhead expenses. The decrease in 1998 was primarily due to a $3.5 million
decrease in corporate overhead resulting from the implementation of the
Company's strategy to reduce overhead expenses and a $3.4 million decrease in
non-cash charges for costs associated with closed units.

Non-Cash Charge for Impairment of Long-Lived Assets. During 1999 certain assets,
including fixed assets and certain related intangible assets, were valued at
less than their historic costs and resulted in a non-cash charge of $1.5
million. This non-cash charge was 0.4% of revenues. Similar non-cash charges of
$3.0 million and $1.4 million were recorded in 1997 and 1998, respectively.

Grandy's Franchise Conversion Program. In conjunction with the plan announced in
July 1998 to convert a majority of company-owned Grandy's restaurants to
franchised restaurants, the Company recognized a $0.6 million gain on the sale
of the property and equipment, including applicable lease rights and certain
intangible assets, during 1999. The Company also recorded a $1.2 million
non-cash charge related to fixed assets and certain intangible assets valued at
less than their historical costs. A similar non-cash charge of $5.0 million was
recorded in 1998.

Operating Profit. As a result of the items discussed above, operating profit of
$3.8 million in 1997 improved to $10.9 million in 1998 and then improved to
$13.9 million in 1999. The Company's divisions are not uniform in revenues, size
or profitability. For example, for the fiscal year ended 1999, operating profit,
excluding non-cash charges and certain corporate general and administrative
expenses, at Black Angus was $22.1 million, Grandy's, $4.2 million and the Other
Concepts, $2.2 million.

Interest Expense - Net. Interest expense decreased from $24.0 million in 1997 to
$20.3 million in 1998 and then decreased to $19.4 million in 1999. The average
interest rate on Company borrowings was 12.3%, 11.7% and 11.3% for 1997, 1998
and 1999, respectively. Average borrowings (excluding capitalized lease
obligations) decreased from $171.7 million in 1997 to $161.6 million in 1998 and
then increased to $162.0 million in 1999.

Income Taxes. Income taxes increased from a provision of $63,000 in 1997 to
$67,000 in 1998 and then increased to $70,000 in 1999. The provisions represent
amounts provided for certain minimum state income taxes.

Extraordinary Gain. The Company recognized an extraordinary gain of $9.6 million
on the extinguishment of debt in 1998. This gain resulted from the refinancing
of the Company's debt in February 1998. There were no extraordinary gains in
1997 or 1999.



                                       9
<PAGE>   12


LIQUIDITY AND CAPITAL RESOURCES

The Company's primary sources of liquidity are cash flow from operations and
borrowings under its credit facilities. The Company requires capital principally
for the acquisition and construction of new restaurants, the remodeling of
existing restaurants and the purchase of new equipment and leasehold
improvements. As of December 27, 1999, the Company had cash of approximately
$9.2 million.

In general, restaurant businesses do not have significant accounts receivable
because sales are made for cash or by credit card vouchers which are ordinarily
paid within three to five days, and do not maintain substantial inventory as a
result of the relatively brief shelf life and frequent turnover of food
products. Additionally, restaurants generally are able to obtain trade credit in
purchasing food and restaurant supplies. As a result, restaurants are frequently
able to operate with working capital deficits, i.e., current liabilities exceed
current assets. At December 27, 1999, the Company had a working capital deficit
of $37.8 million.

In conjunction with the Company's plan to convert a majority of its
company-owned Grandy's restaurants to franchised restaurants, the Company
received proceeds of $4.7 million related to the conversion of restaurants in
1999. Since December 27, 1999, the Company has received proceeds of $0.9 million
for conversions during the first two months of 2000. The Company continues to
market its Grandy's restaurants for franchising; however, the timing and amount
of proceeds from the conversion of other restaurants cannot be determined. The
Company is required to reinvest the net proceeds as capital expenditures or to
pay down outstanding debt.

The Company estimates that capital expenditures of $6.0 million to $8.0 million
are required annually to maintain and refurbish its existing restaurants. In
addition, the Company spends approximately $10.0 to $12.0 million annually for
repairs and maintenance which are expensed as incurred. Other capital
expenditures, which are generally discretionary, are primarily for the
construction of new restaurants and for expanding, reformatting and extending
the capabilities of existing restaurants and for general corporate purposes.
Total capital expenditures were $4.6 million in 1997, $12.3 million in 1998, and
$12.2 million in 1999. New store capital expenditures included in these amounts
were $0.4 million, $1.9 million and $1.5 million for 1997, 1998 and 1999,
respectively. The Company estimates that capital expenditures in 2000 will be
approximately $10.0 million. The Company intends to open new restaurants with
small capital outlays and to finance most of the expenditures through operating
leases.

As a result of the 11.5% senior secured notes issued by the Company in February
1998, the Company is obligated to make semiannual interest payments on February
15 and August 15 through February 2003. Accordingly, the Company made total
interest payments of $18.2 million during 1999.

Substantially all assets of the Company are pledged to its senior lenders. In
addition, the Subsidiary Guarantors guaranteed the indebtedness owed by the
Company and such guarantees are secured by substantially all of the assets of
the subsidiaries. In connection with such indebtedness, contingent and mandatory
prepayments may be required under certain specified conditions and events. There
are no compensating balance requirements.

Although the Company is highly leveraged, based upon current levels of
operations and anticipated growth, the Company expects that cash flows generated
from operations together with its other available sources of liquidity will be
adequate to make required payments of principal and interest on its
indebtedness, to make anticipated capital expenditures and to finance working
capital requirements for the next several years. However, the Company does not
expect to generate sufficient cash flow from operations in the future to pay the
Notes upon maturity and, accordingly, it expects to refinance all or a portion
of such debt, obtain new financing or possibly sell assets.



                                       10
<PAGE>   13

YEAR 2000 COMPLIANCE

In 1997, the Company began assessing the Year 2000 issues that might affect it.
The Year 2000 issues the Company addressed included ensuring (i) its information
technology systems (hardware and software) enabled it to manage and operate its
business and (ii) its non-information technology systems (including heating, air
conditioning and security systems) will continue to operate. The Company
completed its schedule for Year 2000 compliance in late 1999 and did not believe
it had material potential liability to third parties if its systems were not
Year 2000 compliant.

The Company received written responses from third parties with which it had
material relationships. All of the responses received indicated the suppliers
had timely resolved their Year 2000 issues.

The Company's costs of compliance with the Year 2000 requirements were
immaterial because it was in the process of upgrading or establishing systems in
the normal course of business.

The Company has not, to date, experienced any significant problems with its
systems or third party relationships as a result of the January 1, 2000 date
change. There has been no material adverse effect on its business, results of
operations or financial position as a result of Year 2000 issues.

RECENT ACCOUNTING PRONOUNCEMENTS

Statement of Position ("SOP") Number 98-5, "Reporting on the Costs of Start-up
Activities" issued in April 1998 was adopted by the Company effective December
28, 1998. SOP No. 98-5 requires costs of start-up activities and organization
costs to be expensed as incurred. The Company has historically accumulated costs
incurred in connection with opening a new restaurant and amortized these costs
over the initial year of operations. Any previously deferred preopening costs
were expensed as of the end of fiscal year 1998. New restaurant openings are
typically staggered throughout the year and, therefore, the Company does not
anticipate the requirements of SOP No. 98-5 to materially affect the Company's
financial position or results of operations. Preopening expenses were $2.1
million, $0.6 million, and $0.8 million in 1997, 1998 and 1999, respectively.

Statement of Financial Accounting Standards ("SFAS") Number 133, "Accounting for
Derivative Instruments and Hedging Activities," issued in June 1998, establishes
accounting and reporting standards for derivative instruments and hedging
activities. SFAS No. 137, "Accounting for Derivative and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133," issued in
June 1999, defers the effective date of SFAS No. 133, until the Company's first
quarter financial statements in fiscal 2001. The Company is currently not
involved in derivative instruments or hedging activities and will measure the
impact of this statement as it becomes appropriate.

MARKET RISK EXPOSURE

The Company is generally not exposed to market risks related to fluctuations in
interest rates on its debt because all of the Company's debt is at fixed rates.
Changes in interest rates affect the fair market value of fixed rate debt, but
not the Company's earnings or cash flows. The Company generally cannot prepay
fixed rate debt prior to maturity; therefore, interest rate risk and changes in
fair market value would not have a significant impact on its fixed rate debt
until the Company refinances such debt.

The Company is exposed to market risks related to fluctuations in interest rates
on short-term borrowings on its revolving credit facility. Although the Company
may borrow on its revolver from time to time, no amounts were outstanding at
year end. Even if the entire revolving credit facility were outstanding for the
entire year, a one percentage point increase in interest rates would only result
in an increase in interest expense of approximately $114,000.

The Company does not utilize interest rate swaps, forward or option contracts on
foreign currencies or commodities, or other types of derivative financial
instruments. For all these reasons, the Company does not believe future market
rate risks will have a material impact on the Company or the results of its
future operations.



                                       11
<PAGE>   14


IMPACT OF INFLATION

Although inflationary increases in food, labor or operating costs could
adversely affect operations, the Company has generally been able to offset
increases in cost through price increases, labor scheduling and other management
actions.

FORWARD-LOOKING STATEMENTS

Certain statements contained herein are forward-looking regarding cash flow from
operations, restaurant openings, capital requirements and other matters. These
forward-looking statements involve risks and uncertainties and, consequently,
could be affected by general business conditions, the impact of competition,
governmental regulations and inflation.

ITEM 8.            FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See the Index to Consolidated Financial Statements on page F-1.


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


None.



                                       12
<PAGE>   15

                                    PART III

ITEM 10.         DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information about the Company's current
directors and each of its executive officers and key management personnel:

<TABLE>
<CAPTION>
              NAME                               AGE                 POSITION WITH COMPANY
     ------------------------                    ---        --------------------------------------------------

<S>                                               <C>       <C>
     Anwar S. Soliman                             62        Chairman, Chief Executive Officer,
                                                            Director
     Ralph S. Roberts                             57        President, Chief Operating Officer,
                                                            Director
     William J. McCaffrey, Jr.                    53        Vice President
     Patrick J. Kelvie, Esq.                      48        Vice President, Secretary and General Counsel
     Ken A. Di Lillo                              45        Vice President - Finance, Treasurer and  Assistant
                                                            Secretary
     Robert D. Beyer                              40        Director
     George G. Golleher                           52        Director
     M. Brent Stevens                             39        Director
</TABLE>

Officers are elected by the Board of Directors and serve at the discretion of
the Board.

Anwar S. Soliman. Mr. Soliman has served as Chairman, Chief Executive Officer
and a Director of the Company since its organization in 1986. Prior to joining
the Company, Mr. Soliman was Executive Vice President of W. R. Grace & Co.
("Grace") and Group Executive of the Grace Restaurant Group, which he started in
1977. Mr. Soliman spent 22 years with Grace in various executive positions. He
is also a trustee of the Orange County Museum of Art and a member of the Board
Council of Boys Hope of California. Mr. Soliman received both a B. Commerce and
an M.B.A. from Alexandria University and a Ph.D. from New York University.

Ralph S. Roberts. Mr. Roberts has served as a Director of the Company since 1991
and has served as the President and Chief Operating Officer of the Company since
1986. Mr. Roberts has over 30 years of experience in the restaurant industry and
before joining the Company was Deputy Group Executive of Operations of the Grace
Restaurant Group and Vice President of Grace. Prior to joining Grace in 1980, he
was Vice President of the Stouffer Restaurant Division and President and
co-founder of the Rusty Scupper restaurants. Mr. Roberts received a B.A. from
Princeton University.

William J. McCaffrey, Jr. Mr. McCaffrey has served as Vice President since 1986
and as Chief Financial Officer of Black Angus since June 1998. Mr. McCaffrey
served as a Director of the Company from 1991 to 1998 and as the Chief Financial
Officer, Treasurer and Assistant Secretary of the Company from 1986 to 1998.
Prior thereto he was Chief Financial Officer of the Grace Restaurant Group,
having spent 12 years with Grace. For eight years, Mr. McCaffrey was assistant
to the Chief Executive Officer of Grace. He received a B.S., M.E. from the
University of Notre Dame and an M.B.A. from Harvard University.

Patrick J. Kelvie. Mr. Kelvie has served as General Counsel of the Company since
1987 and Secretary of the Company since 1989. Mr. Kelvie was elected as Vice
President of the Company in 1998. From 1987 to 1989, Mr. Kelvie was an Assistant
Secretary of the Company. Between 1978 and 1987, Mr. Kelvie held various legal
counsel positions for Saga Corporation. Mr. Kelvie received a B.A. from the
University of California at Berkeley and a J.D. from Harvard Law School.



                                       13
<PAGE>   16

Ken A. Di Lillo. Mr. Di Lillo was elected as the Treasurer and Assistant
Secretary of the Company in 1998. Mr. Di Lillo has served as the Vice President
- Finance of the Company since June 1998 and as Corporate Controller since 1989.
Prior thereto, he was Corporate Manager - Financial Reporting at Nissan Motor
Acceptance Corporation ("NMAC"), having spent six years with NMAC. Mr. Di Lillo
received a B.B.A. from Cleveland State University and is a Certified Public
Accountant registered by the Accountancy Board of Ohio.

Robert D. Beyer. Mr. Beyer was elected as a Director of the Company in 1998. Mr.
Beyer has served as Group Managing Director of Trust Company of the West ("TCW")
since 1995. Mr. Beyer was Co-Chief Executive Officer of Cresent Capital
Corporation, a registered investment advisor, from 1991 until its acquisition by
TCW in 1995. From 1986 to 1991, Mr. Beyer was a member of the Investment Banking
Department of Drexel Burnham Lambert, Incorporated. From 1983 to 1986, Mr. Beyer
was a member of the Investment Banking Department of Bear, Stearns & Co., Inc.
Mr. Beyer is also a Director of The Kroger Co. and a commissioner of the Los
Angeles City Employees Retirement System.

George G. Golleher. Mr. Golleher was elected as a Director of the Company in
1998. Mr. Golleher was President and Chief Operating Officer of Fred Meyer,
Inc., from March 1998 until his retirement in July 1999. Mr. Golleher was Chief
Executive Officer of Ralphs Grocery Company ("Ralphs") from January 1996 to
March 1998 and was Vice Chairman from June 1995 to January 1996. Mr. Golleher
was a Director of F4L Supermarkets since its inception in 1989 and was the
President and Chief Operating Officer of F4L Supermarkets from January 1990
until its merger with Ralphs. From 1986 through 1989, Mr. Golleher served as
Senior Vice President - Finance and Administration of the Boys Markets, Inc. Mr.
Golleher served as a Director of Dominick's Finer Foods, Inc. from March 1995
until October 1996 and currently serves as a Director of Prandium, Inc., Cyrk,
Inc., and Checkout.com.

M. Brent Stevens. Mr. Stevens was elected as a Director of the Company in 1999.
Mr. Stevens has served as Managing Director of Jefferies & Company, Inc. since
1997. From 1993 to 1996, Mr. Stevens was Senior Vice President at Jefferies &
Company, Inc.



                                       14
<PAGE>   17

ITEM 11.                     EXECUTIVE COMPENSATION

The following table sets forth the cash compensation for services rendered in
all capacities which the Company paid to or accrued for the Chief Executive
Officer and each of the other four most highly compensated executive officers.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                 LONG-TERM COMPENSATION
                                                                           ----------------------------------
                       ANNUAL COMPENSATION                                       AWARDS               PAYOUTS
------------------------------------------------------------------------   -----------------------    -------
                                                                 OTHER                     NUMBER                    ALL
                                                                 ANNUAL    RESTRICTED        OF                     OTHER
      NAME AND                                                  COMPEN-      STOCK        OPTIONS/     LTIP        COMPEN-
PRINCIPAL POSITION             YEAR      SALARY      BONUS      SATION(a)   AWARD(S)        SARS      PAYOUTS     SATION(b)
------------------             ----      ------      -----      ---------  ----------     --------    -------     ---------

<S>                            <C>     <C>          <C>         <C>        <C>            <C>         <C>         <C>
ANWAR S. SOLIMAN               1999    $  740,188   $    0       $293,831      --            --         --        $29,646
(CHAIRMAN AND CEO)             1998       740,188        0        105,626      --            --         --         37,907
                               1997       945,793        0         99,975      --            --         --         24,300

RALPH S. ROBERTS               1999       422,961        0        119,315      --            --         --         10,620
(PRESIDENT AND COO)            1998       422,961        0         53,073      --            --         --         13,050
                               1997       558,181        0         50,360      --            --         --         13,050

WILLIAM J. MCCAFFREY, JR.      1999       195,000        0          3,702      --            --         --          9,620
(VICE PRESIDENT)               1998       195,000   39,012          3,850      --            --         --         16,931
                               1997       252,500        0          3,850      --            --         --         17,525

PATRICK J. KELVIE              1999       195,000        0             0       --            --         --          1,318
(VICE PRESIDENT,               1998       195,000        0             0       --            --         --          1,512
SECRETARY AND                  1997       188,077   30,000             0       --            --         --          1,312
GENERAL COUNSEL)

KEN A. DI LILLO                1999       171,538   30,000             0       --            --         --          1,278
(V.P. FINANCE, TREASURER       1998       160,000        0             0       --            --         --          1,426
AND ASST.SECRETARY)            1997       158,077   30,000             0       --            --         --          1,180
</TABLE>


-----------------------

(a)  Amounts shown are for reimbursement during the fiscal year for the payment
     of premiums and income taxes thereon relating to executive life and
     disability plans. In addition, the Company maintains key man life insurance
     policies for the benefit of the Company on Mr. Soliman.

(b)  Amounts shown in this column for the last fiscal year include the
     following: group term life insurance premiums of $29,646, $10,620, and
     $8,307 for Messrs. Soliman, Roberts, and McCaffrey, respectively; Company
     matching contributions to a 401(k) plan of $1,313, $1,318 and $1,278 for
     Messrs. McCaffrey, Kelvie and Di Lillo, respectively.



                                       15
<PAGE>   18

EMPLOYMENT AGREEMENTS

The following table sets forth, with respect to each executive officer who has
entered into an employment agreement with the Company, the base salary for such
officer provided for therein together with the termination date of such
agreement:

<TABLE>
<CAPTION>
                                                                                              BASE  TERMINATION
NAME OF INDIVIDUAL              CAPACITY IN WHICH SERVED                                    SALARY           DATE
------------------              ------------------------                                    ------           ----

<S>                             <C>                                                       <C>              <C>
Anwar S. Soliman                Chairman and Chief Executive Officer                      $  740,188       12/31/00
Ralph S. Roberts                President and Chief Operating Officer                        422,961       12/31/00
</TABLE>

Each of the agreements provides, among other things, for adjustments to the base
salaries and automatic extensions of the termination date. The agreements also
provide for certain other benefits, including, in the case of Mr. Soliman, one
year's pay equal to his then salary in the event of disability or death; in the
case of Mr. Roberts, one year's pay in the event of death and salary for the
remainder of the calendar year in the event of disability. The employment
agreements of Mr. Soliman and Mr. Roberts each provide six months' pay if either
executive terminates his employment for cause. None of the Company's employment
agreements provides for any salary obligations in the event of termination by
the Company for cause.

SAVINGS PLAN

The Company currently has the American Restaurant Group Savings and Investment
Plan (the "Savings Plan"), which is a 401(k) plan established for the benefit of
employees who have satisfied certain requirements. These requirements include
completion of one year of service with a minimum of 1,000 hours worked. Subject
to applicable limits imposed on tax-qualified plans, eligible employees may
elect pre-tax contributions up to 18.5% of a participant's total earnings for a
calendar year (but not in excess of $10,000 for 1999). The Company makes
matching contributions to the Savings Plan equal to 25% of the participant's
contributions up to 6% of the participant's earnings. A participant is entitled
to a distribution from the Savings Plan upon termination of employment and any
such distribution will be in a lump sum form. Distributable benefits are based
on the value of the participant's individual account balance which is invested
at the direction of the participant in one or a combination of six investment
funds, none of which include investments in the Company. Under certain
circumstances, a participant may borrow amounts held in his account under the
Savings Plan. Based upon the Savings Plan vesting schedule, as of 1999, 100% of
the Company matching contributions were vested for Messrs. McCaffrey, Kelvie and
Di Lillo.



                                       16
<PAGE>   19

ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
                                 AND MANAGEMENT

The following table sets forth certain information regarding the beneficial
ownership of the Company's common stock (as if the Warrants and any other
outstanding warrants were exercised), as of February 28, 2000, by (i) each of
the Company's directors, (ii) the Chief Executive Officer and certain other
highly compensated executive officers of the Company, (iii) all executive
officers and directors as a group and (iv) each person believed by the Company
to own beneficially more than 5% of the Company's outstanding common stock.
Pursuant to the Voting Trust Agreement, Anwar S. Soliman controls Holdings and,
accordingly, together with his direct ownership of common stock and the New
Voting Trust Agreement (as described below), effectively controls the voting of
all (without giving effect to the exercise of Warrants and any other outstanding
warrants) the outstanding common stock, subject to the terms of the
Securityholders Agreement as described below.

<TABLE>
<CAPTION>
                                            Amount and Nature of             Percent of                  Percent of
Name and Address                            Beneficial Ownership          Outstanding Class           Diluted Class (1)
----------------                            --------------------          -----------------           -----------------

<S>                                         <C>                            <C>                        <C>
Anwar S. Soliman                              19,990 (2)                        15.6%                        8.6%
Roberts Family Limited
  Partnership                                  9,702                             7.6                         4.2
William J. McCaffrey, Jr.                      2,426                             1.9                         1.0
Patrick J. Kelvie                                387                             0.3                         0.2
Ken A. Di Lillo                                 --                               --                          --
Robert D. Beyer (3)                             --                               --                          --
George G. Golleher (4)                          --                               --                          --
M. Brent Stevens (5)                            --                               --                          --
American Restaurant Group
Holdings, Inc. (6)                            93,150                            72.7                        40.0
All directors and officers
  of the company as a group (8
  persons)                                    32,505                            25.4                        14.0
TCW Investors (7)                             55,558 (8)                          -                         23.9
</TABLE>


(1)  Gives effect to the exercise of all outstanding warrants.

(2)  Does not include 14,941 shares of the common stock which Mr. Soliman is
     deemed to be the owner of pursuant to the New Voting Trust Agreement.

(3)  Does not include shares deemed to be beneficially owned by the TCW
     Investors (as defined herein). Robert D. Beyer is a Group Managing Director
     of TCW, of which TCW Group (see footnote (8) below) and the TCW Investors
     are affiliates. Mr. Beyer shares investment power for the following TCW
     Investors: TCW Shared Opportunity Fund II L.P., TCW Leveraged Income Trust,
     L.P. and TCW Shared Opportunity Fund IIB, LLC. See footnote (7) below.

(4)  George G. Golleher was elected Director of the Company, as nominee of the
     TCW Investors.

(5)  Does not include shares deemed to be beneficially owned by Jefferies &
     Company, Inc.

(6)  Anwar S. Soliman owns 228,577 shares of Holdings common stock, representing
     46.4% of the outstanding common stock of Holdings. In addition, Mr. Soliman
     is deemed to be the owner, pursuant to the Voting Trust Agreement, of an
     additional 175,963 shares of Holdings common stock.

(7)  TCW Shared Opportunity Fund II., L.P., TCW Leveraged Income Trust, L.P.,
     Brown University and TCW Shared Opportunity Fund IIB, LLC.



                                       17
<PAGE>   20

(8)  Represents warrants which are immediately exercisable at a nominal price
     per share. Includes warrants beneficially owned by the TCW Investors and of
     which TCW Asset Management Company and certain affiliates which control
     voting and investment power in their capacity as general partner,
     investment manager or manager of the TCW Investors (the "TCW Group"),
     disclaims beneficial ownership.

All of the Company's Management Stockholders have entered into a voting trust
agreement (the "New Voting Trust Agreement") dated February 25, 1998 in
accordance with which Anwar S. Soliman, Chairman and Chief Executive Officer of
the Company, exercises, as voting trustee, all voting and substantially all
other rights to which such shareholders would otherwise be entitled until the
earlier of August 15, 2005 or the earlier termination of the New Voting Trust
Agreement. As a result, Mr. Soliman is considered the beneficial owner of
approximately 86.9% of the outstanding shares of Company's common stock
(approximately 47.8% on a diluted basis). In addition, the Management
Stockholders have entered into other agreements pursuant to which such holders
were granted registration rights substantially identical to the rights granted
to the holders of the Warrants pursuant to the Securityholders' Agreement. Each
of the Management Stockholders is also party to a subscription agreement with
Holdings which provides such stockholder certain rights with respect to shares
of Holdings common stock held by such stockholder.

As of February 28, 2000, holders of the Company's preferred stock held warrants
for 41% of the common stock on a diluted basis.


STOCK OPTION PLANS

In August 1999, the Company approved increasing the stock ownership by certain
management shareholders to 30% of the fully diluted number of shares of common
stock or 49,902 shares. The shares are to be awarded to the management
shareholders upon the Company meeting specified goals. The shares will be
allocated based on the ownership of each shareholder in relation to the total
common stock ownership at the time of distribution.


SECURITYHOLDERS AGREEMENT

In connection with the February 1998 recapitalization plan, each of Holdings,
the Management Stockholders, Jefferies & Company, Inc. (the "Initial Purchaser"
of the Notes), and TCW Shared Opportunity Fund II, L.P., TCW Leveraged Income
Trust, L.P., Brown University and TCW Shared Opportunity Fund IIB, LLC
(collectively, the "TCW Investors") and TCW Asset Management Company entered
into a securityholders' agreement concerning the Company (the "Securityholders
Agreement"). The Securityholders Agreement provides that the parties will agree
to vote all of their shares of the Company's equity securities so that the
composition of the Company's Board of Directors consists of five members, two of
whom will be management nominees, two of whom will be nominees of the TCW
Investors and one of whom, the Remaining Director, will be an independent
director designated by the Initial Purchaser; provided that after the date that
is 45 days after the date upon which underwritten primary public offerings of
common stock of the Company pursuant to effective registration statements under
the Securities Act have resulted in 35% of the Company's common stock (measured
on a fully diluted basis after giving effect to such offerings) being sold to
the public and in the Company's common stock being listed for trading on any of
the New York Stock Exchange, the NASDAQ National Market or the American Stock
Exchange (the "Public Company Date") the TCW Investors and management will
mutually choose the Remaining Director and the Initial Purchaser will no longer
have any right to designate a director. The Securityholders Agreement does not
limit the rights of the holders of the preferred stock under the Certificate of
Designation to elect additional directors to serve on the Company's Board of
Directors in certain circumstances.



                                       18
<PAGE>   21

The Securityholders Agreement also provides that (i) in the event that Holdings
sells or transfers any of its shares of Company equity securities, directly or
indirectly, TCW Investors will have the option to include its Company equity
securities in such sale or transfer on the same terms as Holdings' sale or
transfer, (ii) TCW investors will have a right of first refusal with respect to
any sale of equity securities by the Company or a party to the Securityholders
Agreement (other than Management Stockholders) to purchase the equity securities
being sold; and (iii) TCW Investors have the nontransferable right to approve
certain major corporate transactions concerning the Company, including mergers
and consolidations, sales of any capital stock of the Company's Subsidiaries, a
sale of a material amount of the assets and properties of the Company,
transactions with affiliates and amendments to the Company's Certificate of
Incorporation and Bylaws. In addition, the Securityholders Agreement provides
that certain of the TCW Investors' purchasers will receive payments from the
Company with respect to withholding obligations as a result of their ownership
of the preferred stock, which amount shall not exceed $125,000 per year. None of
the rights under the Securityholders Agreement are transferable by TCW
Investors.



ITEM 13.         CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.



                                       19
<PAGE>   22


                                     PART IV

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

(a)  Consolidated Financial Statements. See the Index to Consolidated Financial
     Statements on page F-1.

(c)  List of Exhibits


       Exhibit No.                            Description

         2.1            Purchase Agreement dated as of September 11, 1996 by and
                        between ARG Property Management Corporation and ARG
                        Enterprises, Inc. and ARG Properties I, LLC.***

         2.2            Master lease dated September 11, 1996 between ARG
                        Properties I, LLC, as Landlord and ARG Enterprises, Inc.
                        as Tenant.***

         2.3            Lease #06152 dated September 11, 1996 between Captec Net
                        Lease Realty, Inc. and ARG Enterprises, Inc. as Tenant
                        for Bloomington, Minnesota.***

         2.4            Lease #06153 dated September 11, 1996 between Captec Net
                        Lease Realty, Inc. and ARG Enterprises, Inc. as Tenant
                        for Fridley, Minnesota.***

         2.5            Lease #06154 dated September 11, 1996 between Captec Net
                        Lease Realty, Inc. and ARG Enterprises, Inc. as Tenant
                        for Minnetonka, Minnesota.***

         2.6            Lease #06155 dated September 11, 1996 between Captec Net
                        Lease Realty, Inc. and ARG Enterprises, Inc. as Tenant
                        for Roseville, Minnesota.***

         2.7            Lease dated September 11, 1996 between Safeway Inc. as
                        Landlord and ARG Enterprises, Inc. as Tenant.***

         2.8            Guaranty of Lease dated September 11, 1996 by ARG
                        Enterprises, Inc. as Tenant to ARG Properties I, LLC as
                        Landlord.***

         2.9            A Guaranty of Lease dated September 11, 1996 by ARG
                        Enterprises, Inc. as Tenant to Captec Net Lease Realty,
                        Inc. as Landlord for each of four Minnesota
                        restaurants.***

         2.10           Guaranty of Lease dated September 11, 1996 by ARG
                        Enterprises, Inc. as Tenant and Safeway Inc. as
                        Landlord.***

         3.1            Amended and Restated Certificate of Incorporation of the
                        Company filed with the Secretary of State of Delaware on
                        July 23, 1991.*

         3.2            Certificate of Amendment to Amended and Restated
                        Certificate of Incorporation of the Company filed with
                        the Secretary of State of Delaware on March 21, 1992. *



                                       20
<PAGE>   23

       Exhibit No.                            Description

         3.3            Amended and Restated Certificate of Incorporation of the
                        Company filed with the Secretary of State of Delaware on
                        February 23, 1998. ****

         3.4            By-Laws of the Company. *

         4.1            Indenture dated as of February 25, 1998 between the
                        Company and U.S. Trust Company of California, N.A., as
                        Trustee (including specimen certificate of 11.5% Senior
                        Secured Note due 2003). ****

         4.2            Warrant Agreement dated as of February 25, 1998 between
                        the Company and U.S. Trust Company of California, N.A.,
                        as warrant agent (including specimen certificate of
                        Warrant). ****

         4.3            Registration Rights Agreement dated as of February 25,
                        1998 between the Company and Jefferies & Company, Inc.
                        ****

         4.4            Securityholders' and Registration Right Agreement dated
                        as of February 25, 1998 between the Company and
                        Jefferies & Company, Inc., as purchaser. ****

         4.5            Management Registration Right Agreement dated as of
                        February 28, 1998 between the Company and the Management
                        Stockholders. ****

         4.6            Certificate of Designation filed with the Secretary of
                        State of Delaware on February 24, 1998. ****

         4.7            Certificate of Correction to the Certificate of
                        Designation filed with the Secretary of State of
                        Delaware on February 25, 1998. ****

         4.8            Form of Indenture relating to the 12% Senior
                        Subordinated Debentures to be entered into between the
                        Company and a trustee (including specimen certificate of
                        12% Senior Subordinated Debenture due 2003). *****

         9.1            Common Stock Voting Trust and Transfer Agreement dated
                        as of February 24, 1998 among the Company and the
                        stockholders parties thereto and Anwar S. Soliman, as
                        voting trustee. ****

         9.2            Securityholders Agreement dated as of February 25, 1998
                        among the Company, American Restaurant Group Holdings,
                        Inc., Jefferies & Company, Inc., TCW Asset Management
                        Company and the Management Stockholders. ****

         10.1           Amended and Restated Employment Agreement dated as of
                        December 14, 1993 between the Company and Anwar S.
                        Soliman. **

         10.2           Amended and Restated Employment Agreement dated as of
                        December 14, 1993 between the Company and Ralph S.
                        Roberts. **

         21.1           Subsidiaries of the Company. **


         27             Financial Data Schedule



                                       21
<PAGE>   24

---------------------------

         *              Incorporated by reference to the Registrant's
                        Registration Statement No. 33-48183 on Form S-4 filed
                        with the Securities and Exchange Commission on May 28,
                        1992 as amended with Amendment No. 1 filed on September
                        11, 1992.

         **             Incorporated by reference to the Registrant's
                        Registration Statement No. 33-74010 on Form S-4 filed
                        with the Securities and Exchange Commission on January
                        12, 1994.

         ***            Incorporated by reference to the Registrant's Current
                        Report on Form 8-K dated September 13, 1996 filed with
                        the Securities and Exchange Commission on September 30,
                        1996.

         ****           Incorporated by reference to the Registrant's Annual
                        Report on Form 10-K dated December 29, 1997 filed with
                        the Securities and Exchange Commission on March 30,
                        1998.

         *****          Incorporated by reference to the Registrant's
                        Registration Statement No. 333-55861 on Amendment No. 1
                        to Form S-4 filed with the Securities and Exchange
                        Commission on July 29, 1998.



                                       22
<PAGE>   25


                                    SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.




                                         AMERICAN RESTAURANT GROUP, INC.

                                         By:   /s/ ANWAR S. SOLIMAN
                                              ---------------------------------
                                                   Anwar S. Soliman
                                               Chairman, Chief Executive
                                                 Officer and Director





Pursuant to the requirements of the Securities 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>
<S>                                     <C>                                                <C>
/s/ ANWAR S. SOLIMAN                      Chairman, Chief Executive                         March 16, 2000
----------------------                      Officer and Director
  Anwar S. Soliman                      (Principal Executive Officer)



/s/ KEN A. DI LILLO                             Treasurer and                               March 16, 2000
----------------------                      Assistant Secretary
  Ken A. Di Lillo                          (Principal Financial
                                          and Accounting Officer)



/s/ RALPH S. ROBERTS                     President, Chief Operating                         March 16, 2000
----------------------                      Officer and Director
  Ralph S. Roberts



/s/ ROBERT D. BEYER                               Director                                  March 16, 2000
----------------------
  Robert D. Beyer



/s/ GEORGE G. GOLLEHER                            Director                                  March 16, 2000
----------------------
  George G. Golleher



/s/ M. BRENT STEVENS                              Director                                  March 16, 2000
----------------------
  M. Brent Stevens
</TABLE>


<PAGE>   26


                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



<TABLE>
<CAPTION>
                                                                                                                   PAGE
                                                                                                                   ----

<S>                                                                                                              <C>
Report of Independent Public Accountants..................................................................         F-2

Consolidated Balance Sheets as of December 28, 1998
         and December 27, 1999............................................................................         F-3

Consolidated Statements of Operations for the Years Ended
         December 29, 1997, December 28, 1998
         and December 27, 1999............................................................................         F-5

Consolidated Statements of Common Stockholders'
         Equity for the Years Ended December 29, 1997,
         December 28, 1998 and December 27, 1999..........................................................         F-6

Consolidated Statements of Cash Flows for the Years
         Ended December 29, 1997, December 28, 1998
         and December 27, 1999............................................................................         F-7

Notes to Consolidated Financial Statements................................................................         F-8
</TABLE>



                                      F-1
<PAGE>   27

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Board of Directors of
  American Restaurant Group, Inc.:

We have audited the accompanying consolidated balance sheets of AMERICAN
RESTAURANT GROUP, INC. (a Delaware corporation) AND SUBSIDIARIES as of December
28, 1998 and December 27, 1999, and the related consolidated statements of
operations, common stockholders' equity (deficit) and cash flows for the years
ended December 29, 1997, December 28, 1998 and December 27, 1999. 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. 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 financial position of American Restaurant Group, Inc.
and subsidiaries as of December 28, 1998 and December 27, 1999, and the results
of their operations and their cash flows for the years ended December 29, 1997,
December 28, 1998 and December 27, 1999, in conformity with accounting
principles generally accepted in the United States.






                                        ARTHUR ANDERSEN LLP


Orange County, California
February 28, 2000



                                      F-2
<PAGE>   28


                AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                     DECEMBER 28, 1998 AND DECEMBER 27, 1999



ASSETS
<TABLE>
<CAPTION>
                                                                December 28,              December 27,
                                                                    1998                      1999
                                                               -------------             -------------

<S>                                                            <C>                       <C>
         CURRENT ASSETS:
           Cash                                                $   8,832,000             $   9,217,000
           Accounts receivable, net of
             reserve of $602,000 and
             $494,000 at December 28, 1998
             and December 27, 1999,
             respectively                                          4,504,000                 4,144,000
           Notes receivable                                          300,000                     --
           Inventories                                             5,716,000                 5,203,000
           Prepaid expenses                                        3,108,000                 4,103,000
                                                               -------------             -------------

                  Total current assets                            22,460,000                22,667,000
                                                               -------------             -------------

         PROPERTY AND EQUIPMENT:
           Land and land improvements                              5,485,000                 5,482,000
           Buildings and leasehold
             improvements                                        112,280,000               109,333,000
           Fixtures and equipment                                 84,774,000                77,780,000
           Property held under capital
             leases                                               11,634,000                11,508,000
           Construction in progress                                2,250,000                 4,334,000
                                                               -------------             -------------

                                                                 216,423,000               208,437,000
           Less -- Accumulated depreciation                      125,858,000               120,937,000
                                                               -------------             -------------

                                                                  90,565,000                87,500,000

         OTHER ASSETS:
           Intangible assets                                      11,334,000                10,695,000
           Deferred debt costs                                    10,818,000                11,061,000
           Leasehold interests                                     9,518,000                 8,660,000
           Franchise rights                                        3,945,000                 3,945,000
           Liquor licenses and other                               6,447,000                 6,469,000
           Cost in excess of net assets
             acquired                                             11,219,000                10,502,000
                                                               -------------             -------------

                                                                  53,281,000                51,332,000
           Less -- Accumulated amortization                       15,847,000                18,770,000
                                                               -------------             -------------

                                                                  37,434,000                32,562,000
                                                               -------------             -------------

                  Total assets                                 $ 150,459,000             $ 142,729,000
                                                               =============             =============
</TABLE>


            (consolidated balance sheets continued on following page)

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




                                      F-3
<PAGE>   29

LIABILITIES AND COMMON STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                     December 28,              December 27,
                                                                         1998                      1999
                                                                    --------------            --------------

<S>                                                                 <C>                       <C>
         CURRENT LIABILITIES:
           Accounts payable                                         $   22,937,000            $   20,792,000
           Accrued liabilities                                          18,299,000                19,557,000
           Accrued insurance                                             4,243,000                 4,196,000
           Accrued interest                                              7,033,000                 7,010,000
           Accrued payroll costs                                         8,194,000                 7,482,000
           Current portion of obligations
             under capital leases                                          950,000                   967,000
           Current portion of long-term debt                               421,000                   477,000
                                                                    --------------            --------------

                  Total current liabilities                             62,077,000                60,481,000
                                                                    --------------            --------------


         LONG-TERM LIABILITIES, net of current portion:
           Obligations under capital leases                              6,566,000                 5,599,000
           Long-term debt                                              159,506,000               160,297,000
                                                                    --------------            --------------

                  Total long-term
                    liabilities                                        166,072,000               165,896,000
                                                                    --------------            --------------

         DEFERRED GAIN                                                   4,684,000                 4,395,000
                                                                    --------------            --------------


         COMMITMENTS AND CONTINGENCIES


         CUMULATIVE PREFERRED STOCK,
           MANDATORILY REDEEMABLE                                       36,801,000                41,914,000
                                                                    --------------            --------------


         COMMON STOCKHOLDERS' EQUITY:
           Common stock                                                      1,000                     1,000
           Paid-in capital                                              55,666,000                50,552,000
           Accumulated deficit                                        (174,842,000)             (180,510,000)
                                                                    --------------            --------------

                  Total common stockholders'
                    deficit                                           (119,175,000)             (129,957,000)
                                                                    --------------            --------------

                  Total liabilities and
                    common stockholders'
                    equity                                          $  150,459,000            $  142,729,000
                                                                    ==============            ==============
</TABLE>



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



                                      F-4
<PAGE>   30

                AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES


                     CONSOLIDATED STATEMENTS OF OPERATIONS

            FOR THE YEARS ENDED DECEMBER 29, 1997, DECEMBER 28, 1998

                             AND DECEMBER 27, 1999



<TABLE>
<CAPTION>
                                                                                 Year ended
                                                          -------------------------------------------------------
                                                          December 29,          December 28,         December 27,
                                                              1997                  1998                 1999
                                                         -------------         -------------         ------------

<S>                                                      <C>                   <C>                  <C>
REVENUES                                                 $ 440,039,000         $ 426,928,000        $ 407,985,000
                                                         -------------         -------------         ------------

RESTAURANT COSTS:
  Food and beverage                                        140,015,000           135,873,000          128,267,000
  Payroll                                                  133,732,000           130,242,000          124,827,000
  Direct operating                                         110,502,000           106,449,000          101,748,000
  Depreciation and amortization                             19,627,000            14,638,000           13,451,000

GENERAL AND ADMINISTRATIVE EXPENSES                         29,360,000            22,357,000           23,757,000

NON-CASH CHARGE FOR IMPAIRMENT
  OF LONG-LIVED ASSETS                                       3,047,000             1,415,000            1,499,000

GRANDY'S FRANCHISE CONVERSION
  PROGRAM:
  Gain on sale of assets                                        --                    --                  619,000
  Non-cash charge for assets to
    be disposed                                                 --                 5,034,000            1,203,000
                                                         -------------         -------------         ------------

  Operating profit                                           3,756,000            10,920,000           13,852,000


INTEREST EXPENSE, net                                       23,985,000            20,269,000           19,450,000
                                                         -------------         -------------         ------------

  Loss before provision
    for income taxes and
    extraordinary gain                                     (20,229,000)           (9,349,000)          (5,598,000)

PROVISION FOR INCOME TAXES                                      63,000                67,000               70,000

  Loss before extraordinary item                           (20,292,000)           (9,416,000)          (5,668,000)

EXTRAORDINARY GAIN ON
  EXTINGUISHMENT OF DEBT                                        --                 9,559,000               --
                                                         -------------         -------------         ------------

  Net income (loss)                                      $ (20,292,000)        $     143,000         $ (5,668,000)
                                                         =============         =============         ============
</TABLE>




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



                                      F-5
<PAGE>   31

                AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES


             CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY

            FOR THE YEARS ENDED DECEMBER 29, 1997, DECEMBER 28, 1998

                              AND DECEMBER 27, 1999



<TABLE>
<CAPTION>
                                   Common            Paid-in           Accumulated
                                    Stock            Capital             Deficit             Total
                                -------------     -------------      --------------      -------------

<S>                             <C>               <C>                <C>                 <C>
BALANCE, December 30, 1996      $       1,000     $  63,246,000      $ (154,693,000)     $ (91,446,000)

  Net loss                                 --                --         (20,292,000)       (20,292,000)
                                -------------     -------------      --------------      -------------

BALANCE, December 29, 1997              1,000        63,246,000        (174,985,000)      (111,738,000)

  Net income                               --                --             143,000            143,000
  Amortization of cost
    related to the issuance
    of preferred stock                     --          (332,000)                 --           (332,000)
  Dividends payable,
    preferred stock                        --        (3,648,000)                 --         (3,648,000)
  Non-cash distribution to
    parent                                 --        (3,600,000)                 --         (3,600,000)
                                -------------     -------------      --------------      -------------

BALANCE, December 28, 1998              1,000        55,666,000        (174,842,000)      (119,175,000)
                                -------------     -------------      --------------      -------------

  Net loss                                 --                --          (5,668,000)        (5,668,000)
  Amortization of cost
    related to the issuance
    of preferred stock                     --          (399,000)                 --           (399,000)
  Dividends payable,
    preferred stock                        --        (4,715,000)                 --         (4,715,000)
                                -------------     -------------      --------------      -------------

BALANCE, December 27, 1999      $       1,000     $  50,552,000      $ (180,510,000)     $(129,957,000)
                                =============     =============      ==============      =============
</TABLE>



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



                                      F-6
<PAGE>   32


                AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

            FOR THE YEARS ENDED DECEMBER 29, 1997, DECEMBER 28, 1998

                              AND DECEMBER 27, 1999


<TABLE>
<CAPTION>
                                                                             Year ended

                                                     December 29,          December 28,     December 27,
                                                         1997                  1998             1999
                                                    -------------      -------------      -------------

<S>                                                <C>                 <C>                <C>
  CASH FLOWS FROM OPERATING ACTIVITIES:
    Cash received from customers                    $ 440,695,000      $ 428,403,000      $ 408,517,000

    Cash paid to suppliers and
      employees                                      (417,714,000)      (403,321,000)      (380,648,000)
    Interest paid, net                                (17,358,000)       (20,729,000)       (19,473,000)
    Income taxes paid                                     (30,000)          (144,000)           (96,000)
                                                    -------------      -------------      -------------

      Net cash provided by
        operating activities                            5,593,000          4,209,000          8,300,000
                                                    -------------      -------------      -------------

  CASH FLOWS FROM INVESTING ACTIVITIES:
    Capital expenditures                               (4,650,000)       (12,316,000)       (12,237,000)
    Net (increase) decrease in other
      assets                                             (945,000)           155,000           (518,000)
    Proceeds from disposition of assets                   620,000              9,000            471,000
    Proceeds from sale of Grandy's
      conversion assets                                        --                 --          4,715,000
                                                    -------------      -------------      -------------

      Net cash used in
        investing activities                           (4,975,000)       (12,152,000)        (7,569,000)
                                                    -------------      -------------      -------------

  CASH FLOWS FROM FINANCING ACTIVITIES:
    Payments on indebtedness                           (1,334,000)      (163,117,000)       (15,376,000)
    Borrowings on indebtedness                            186,000        162,215,000         16,223,000
    Net increase in deferred debt costs                  (324,000)       (10,818,000)          (243,000)
    Cost included in extraordinary gain
      on extinguishment of debt                                --         (1,686,000)                --
    Issuance of cumulative
      preferred stock                                          --         35,000,000                 --
    Cost related to issuance of
      cumulative preferred stock                               --         (2,179,000)                --
    Payment on insurance related
      financing                                                --         (7,450,000)                --
    Payments on capital lease
      obligations                                        (902,000)          (927,000)          (950,000)
                                                    -------------      -------------      -------------

      Net cash provided by (used in)
        financing activities                           (2,374,000)        11,038,000           (346,000)
                                                    -------------      -------------      -------------

  NET INCREASE (DECREASE) IN CASH                      (1,756,000)         3,095,000            385,000

  CASH, at beginning of period                          7,493,000          5,737,000          8,832,000
                                                    -------------      -------------      -------------

  CASH, at end of period                            $   5,737,000      $   8,832,000      $   9,217,000
                                                    =============      =============      =============

RECONCILIATION OF NET INCOME
  (LOSS) TO NET
CASH PROVIDED BY
OPERATING ACTIVITIES:
  Net income (loss)                                 $ (20,292,000)     $     143,000      $  (5,668,000)
  Adjustments to reconcile net income
    (loss) to net cash provided by
    operating activities:
      Extraordinary gain on
        extinguishment of debt                                 --         (9,559,000)                --
      Loss on impairment of long-lived
        assets                                          3,047,000          1,415,000          1,499,000
      Non-cash charge for Grandy's
        assets to be disposed                                  --          5,034,000          1,203,000
      Depreciation and amortization                    19,627,000         14,638,000         13,451,000
      Loss on disposition of assets                     4,806,000          1,529,000          2,912,000
      Amortization of deferred gain                      (523,000)          (599,000)          (289,000)
      Accretion on indebtedness                           110,000             21,000                 --
    (Increase) decrease in current assets:
        Accounts receivable, net                        1,656,000            775,000            232,000
        Notes receivable                               (1,000,000)           700,000            300,000
        Inventories                                       925,000            177,000            513,000
        Prepaid expenses                                 (766,000)            (8,000)          (995,000)
    Increase (decrease) in current liabilities:
        Accounts payable                               (3,974,000)        (6,483,000)        (2,145,000)
        Accrued liabilities                               255,000           (868,000)        (1,931,000)
        Accrued insurance                              (4,597,000)           442,000            (47,000)
        Accrued interest                                6,517,000           (481,000)           (23,000)
        Accrued payroll costs                            (198,000)        (2,667,000)          (712,000)
                                                    -------------      -------------      -------------

          Net cash provided by
            operating activities                    $   5,593,000      $   4,209,000      $   8,300,000
                                                    =============      =============      =============
</TABLE>


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



                                      F-7
<PAGE>   33

                AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

           DECEMBER 29, 1997, DECEMBER 28, 1998 AND DECEMBER 27, 1999


1.       Background and Summary of Significant Accounting Policies

     a.  Company

         American Restaurant Group, Inc. (the "Company"), a Delaware
         corporation, through its subsidiaries, operates middle and upper price
         full-service restaurants, casual-style restaurants and quick-service
         restaurants primarily in California and Texas. The Company is a
         subsidiary of American Restaurant Group Holdings, Inc. ("Holdings"),
         also a Delaware corporation. At year end 1997, 1998 and 1999, the
         Company and its subsidiaries, collectively referred to herein as the
         Company, operated 231, 224 and 193 restaurants, respectively.

     b.  Operations

         The Company's operations are affected by local and regional economic
         conditions, including competition in the restaurant industry. The
         Company has had recurring operating losses in recent years. A
         recapitalization plan was consummated during 1998 (see Note 5,
         "Long-Term Debt"). This plan substantially eliminated debt principal
         payments until the year 2003.

         Management believes the recapitalization will also allow it to effect
         changes in its operations and has already implemented measures to
         reduce overhead costs. However, the Company does not expect to generate
         sufficient cash flow from operations in the future to make principal
         payments on long-term debt upon maturity in the year 2003 and,
         accordingly, it expects to refinance all or a portion of such debt,
         obtain new financing or possibly sell assets.

     c.  Principles of Consolidation

         The consolidated financial statements include the accounts of the
         Company and its wholly owned subsidiaries. All significant intercompany
         accounts and transactions have been eliminated.

     d.  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 which affect the reported amounts of assets and
         liabilities, the disclosure of contingent assets and liabilities and
         the reported amounts of revenues and expenses. Actual results could
         differ from those estimates.

     e.  Inventories and Prepaid Expenses

         Inventories consist primarily of food, beverages and supplies and are
         valued at the lower of cost (first-in, first-out method) or market
         value. When a restaurant is opened, the initial purchase of expendable
         equipment, such as china, glassware and silverware, is recorded as
         prepaid supplies and is not depreciated; however, all replacements are
         expensed.



                                      F-8
<PAGE>   34

     f.  Advertising Costs

         Advertising costs are accrued as a percentage of sales and expensed
         during the year. Production costs are allocated to the related
         advertisements. At year end, production costs for advertisements which
         have not been aired are included in prepaid expenses. Prepaid
         advertising costs of $1,199,000 and $1,698,000 were included in prepaid
         expenses at December 28, 1998 and December 27, 1999, respectively.
         Advertising expenses included in net income (loss) were $16,995,000,
         $17,254,000 and $16,174,000 in fiscal years 1997, 1998 and 1999,
         respectively.

     g.  Preopening Costs

         Effective December 28, 1998, the Company adopted Statement of Position
         ("SOP") Number 98-5, "Reporting on the Costs of Start-up Activities"
         which was issued in April 1998. SOP 98-5 requires costs of start-up
         activities and organization costs to be expensed as incurred. The
         Company has historically accumulated costs incurred in connection with
         opening a new restaurant and amortized these costs over the initial
         year of operations. Although not material to the Company's financial
         position or results of operations, any previously deferred preopening
         costs were expensed as of the end of fiscal year 1998. Preopening
         expense was $2,077,000, $582,000 and $815,000 in 1997, 1998 and 1999,
         respectively.

     h.  Property and Equipment

         Property and equipment is carried at the lower of cost or, if impaired,
         at the estimated fair value of the asset (see Note 2, "Impairment of
         Long-Lived Assets"). The Company provides for depreciation and
         amortization based upon the estimated useful lives of depreciable
         assets using the straight-line method. Estimated useful lives are as
         follows:

<TABLE>
<S>                                                       <C>
               Land improvements                                20 years
               Buildings                                  30 to 35 years
               Leasehold improvements                      Life of lease
               Fixtures and equipment                      3 to 10 years
               Property held under capital leases          Life of lease
</TABLE>

         Substantially all of the Company's assets, including property and
         equipment, are pledged as collateral on the senior debt of the Company.

     i.  Interest Costs

         Interest costs incurred during the construction period of restaurants
         are capitalized. The Company capitalized approximately $90,000, $68,000
         and $44,000 for the years ended 1997, 1998 and 1999, respectively.

     j.  Other Assets

         Other assets include intangible assets, leasehold interests, franchise
         rights, liquor licenses and cost in excess of net assets acquired.
         These costs are amortized using the straight-line method over the
         periods estimated to be benefited, not greater than 40 years.



                                      F-9
<PAGE>   35

         Deferred debt costs are amortized using the effective interest method
over the related debt term.

         Estimated useful lives are as follows:

<TABLE>
<S>                                                         <C>
              Intangible assets                             3 to 40 years
              Deferred debt costs                            Term of debt
              Leasehold interests                           Life of lease
              Franchise rights                                   35 years
              Liquor licenses                                    40 years
              Cost in excess of net assets acquired              40 years
</TABLE>

         The following table details the components of intangible assets
         included in the accompanying consolidated balance sheets (in
         thousands):

<TABLE>
<CAPTION>
                                                    December 28,  December 27,
                                                        1998          1999
                                                    ------------  ------------

<S>                                                   <C>          <C>
                         Assembled workforce          $  4,513     $  4,213
                         Goodwill                        2,944        2,741
                         Trademarks/service marks        2,390        2,372
                         Acquisition costs               1,048          982
                         Other                             439          387
                                                      --------     --------

                         Total                        $ 11,334     $ 10,695
                                                      ========     ========
</TABLE>

     k.  Insurance

         The Company self-insures the first $100,000 of its annual medical and
         dental benefits per family. The Company also self-insures up to the
         first $350,000 per incident for property and casualty risks inherent in
         its operations. Reserves for losses are established based upon
         currently estimated obligations.

     l.  Fair Value of Financial Instruments

         The Company's financial instruments consist primarily of cash, accounts
         receivable and payable and debt instruments. The carrying values of all
         financial instruments, other than debt instruments, are representative
         of their fair value due to their short-term maturity. The fair value of
         the Company's long-term debt instruments is estimated based on the
         current rates offered to the Company.

     m.  Franchise Income

         The Company franchises Grandy's quick-service restaurants. Franchise
         fees are recognized as income as services are rendered in accordance
         with Statement of Financial Accounting Standards ("SFAS") Number 45,
         "Accounting for Franchise Fee Revenue". Franchise royalties based upon
         a percentage of the franchisees' gross sales are accrued currently.
         Revenues include franchise royalties and franchise fees of $2,586,000,
         $1,800,000, and $2,169,000, respectively, for the years ended 1997,
         1998 and 1999. There were 61, 57 and 63 franchised restaurants at year
         end 1997, 1998 and 1999, respectively.

     n.  Accounting Period

         The Company's fiscal year ends on the last Monday in December.



                                      F-10
<PAGE>   36

     o.  Reclassifications

         Certain prior year accounts have been reclassified to conform with the
current year presentation.

2.   Impairment of Long-Lived Assets

     The Company follows the provisions of SFAS No. 121, "Accounting for the
     Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
     of". This statement changed the method of evaluating the impairment of the
     Company's long-lived assets, including intangible assets. Various
     assumptions and estimates are used to determine fair value. The calculation
     of the impairment loss is based on estimated future cash flows. The
     estimates used to determine the impairment adjustment can change in the
     near term as the economy and operations of specific restaurants change. The
     adoption of SFAS 121, together with the effects of continuing adverse
     operations of certain restaurants, resulted in pre-tax non-cash charges,
     excluding non-cash charges related to the Grandy's franchise conversion
     program, of $3,047,000, $1,415,000 and $1,499,000 for the years ended 1997,
     1998 and 1999, respectively.

3.   Grandy's Franchise Conversion Program

     In 1998, the Company announced a plan to convert a majority of its
     company-owned Grandy's restaurants to franchised restaurants. During 1999,
     the Company recorded a gain of $619,000 on the sale of property and
     equipment, including applicable leasehold rights and certain intangible
     assets, related to the conversion program.

     The Company has reviewed the value of the recorded assets, including an
     allocation of intangible assets, for each restaurant to be converted. A
     write-down has been recorded for each restaurant where the carrying amount
     of the tangible and intangible assets exceeds the anticipated net proceeds.
     Write-downs of $4,789,000 and $955,000 were recorded in 1998 and 1999,
     respectively. The Company also recorded a provision of $245,000 in 1998 and
     $248,000 in 1999 for other costs, including severance, associated with the
     conversion program. The restaurants will remain in operation pending their
     conversion to franchised restaurants; therefore, the Company will continue
     to depreciate the remaining assets.

4.   Lease Obligations

     The Company leases certain of its operating facilities under terms ranging
     up to 40 years. These leases are classified as both operating and capital
     leases. Certain of the leases contain provisions calling for additional
     rentals based on sales or other provisions obligating the Company to pay
     related property taxes and certain other expenses.



                                      F-11
<PAGE>   37

     The following is a summary of property held under leases that have been
     capitalized and included in the accompanying consolidated balance sheets
     (in thousands):

<TABLE>
<CAPTION>
                                                    December 28,    December 27,
                                                        1998            1999
                                                    ------------    ------------

<S>                                                   <C>            <C>
              Property                                $ 11,634       $ 11,508
              Less -- Accumulated depreciation           7,580          8,045
                                                      --------       --------

                                                      $  4,054       $  3,463
                                                      ========       ========
</TABLE>

     The following represents the minimum lease payments remaining under
     noncancelable operating leases and capitalized leases as of December 27,
     1999 (in thousands):

<TABLE>
<CAPTION>
                                                             Operating       Capitalized
     Fiscal years ending                                       Leases           Leases
                                                             ---------       -----------

<S>                                                         <C>             <C>
               2000                                          $  26,076       $   1,694
               2001                                             24,701           1,694
               2002                                             22,728           1,612
               2003                                             21,214           1,177
               2004                                             20,220             563
               Thereafter                                      207,672           3,286
                                                             ---------       ---------

               Total minimum lease payments                  $ 322,611          10,026
                                                             =========       == ======

               Less -- Imputed interest
                 (8.75% to 15.5%)                                                3,460
                                                                             ---------

               Present value of minimum lease payments                           6,566
               Less-- Current portion                                              967
                                                                             ---------

               Long-term portion                                             $   5,599
                                                                             =========
</TABLE>

     Rental expense (including $802,000, $733,000 and $684,000, respectively,
     for contingent rents under operating leases) was $30,676,000, $28,656,000
     and $27,594,000 during 1997, 1998 and 1999, respectively.



                                      F-12
<PAGE>   38

     5.  Long-Term Debt

     Long-term debt is summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                                     December 28,          December 27,
                                                                         1998                  1999
                                                                     ------------          ------------

<S>                                                                   <C>                   <C>
     Senior secured notes, interest only due semi-annually
         beginning August 15, 1998 at 11.5%, principal
         due February 15, 2003                                         $ 158,600             $ 158,600

     Other                                                                 1,327                 2,174
                                                                       ---------             ---------

                                                                         159,927               160,774
     Less-- Current portion                                                  421                   477
                                                                       ---------             ---------

     Long-term portion                                                 $ 159,506             $ 160,297
                                                                       =========             =========
</TABLE>

     Maturities of the remaining long-term debt during each of the five fiscal
     years subsequent to year end 1999 are $477,000, $336,000, $335,000,
     $158,627,000 and $30,000.

     In February, 1998, the Company completed a recapitalization plan (the
     "Recapitalization Plan") which included, among other things, the issuance
     by the Company of $155,000,000 of 11.5% senior secured notes (the "Notes")
     due 2003.

     Also, as part of the Recapitalization Plan, the Company concurrently (a)
     redeemed at par senior secured notes of $126,381,000 together with interest
     thereon and repaid certain other interest-bearing short-term liabilities,
     (b) repurchased its existing 10.25% subordinated notes at 65% of the par
     amount of $45,000,000 together with interest thereon, and canceled the
     related warrants to purchase common stock of Holdings, and (c) established
     a $15,000,000 revolving credit facility to include letters of credit. A
     quarterly fee of 0.5% per annum is payable on the unused portion of the
     letter of credit facility and a quarterly fee of 2.5% per annum is payable
     on outstanding letters of credit. At year end 1998 and 1999, the Company
     had outstanding letters of credit primarily related to its self-insurance
     programs of approximately $4,316,000 and $3,597,000, respectively.

     The revolving credit facility contains certain covenants, the most
     restrictive of which requires the Company to maintain a certain ratio of
     cash flows to total debt. As of December 27, 1999, the Company was in
     compliance with all covenants.

     As an additional component of the Recapitalization Plan, Holdings extended
     the accretion period on its senior discount debentures due 2005 (the
     "Holdings Debentures") from June 15, 1999 to maturity on December 15, 2005,
     and amended certain provisions of the Holdings Debentures. The Holdings
     Debentures will accrete at a rate of 14.25%, compounded semi-annually. In
     addition, holders of the Holdings Debentures with an accreted value of
     approximately $10,757,000 surrendered such debentures for cancellation and
     received $3,600,000 principal amount of the Notes which was in addition to
     the $155,000,000 of Notes sold in connection with the Recapitalization
     Plan. The Notes issued in lieu of Holdings Debentures were recorded as a
     non-cash distribution to Holdings by the Company.

     Substantially all assets of the Company are pledged to its senior lenders.
     In addition, the direct subsidiaries guaranteed the indebtedness owed by
     the Company and such guarantees are secured by substantially all of the
     assets of the subsidiaries. In connection with such indebtedness,
     contingent and mandatory prepayments may be required under certain
     specified conditions and events. There are no compensating balance
     requirements.




                                      F-13
<PAGE>   39



6.   Income Taxes

     The Company's state income tax provision, all of which was current, was
     $63,000, $67,000 and $70,000 in 1997, 1998 and 1999, respectively. No
     provision for Federal income taxes was required in any year.

     The income tax effects of temporary differences that give rise to
     significant portions of the Company's deferred income tax assets and
     liabilities are as follows (in thousands):

<TABLE>
<CAPTION>
                                                               Year ended
                                                      -----------------------------------
                                                      December 28,           December 27,
                                                          1998                   1999
                                                      ------------           ------------
<S>                                                     <C>                    <C>
     Deferred income tax asset:
       Reserves and other accrued
         expenses not currently deductible
         for tax purposes                               $  2,147               $  2,178
       Long-lived asset impairment not
         recognized on tax return                          9,219                  9,988
       Tax gain on sale/leaseback
         transactions, net                                 3,342                  3,096
       Net operating loss carryforward                    42,743                 45,161
                                                        --------               --------

         Deferred income tax asset                        57,451                 60,423
                                                        --------               --------

     Deferred income tax liability:
       Tax depreciation greater than
         depreciation for financial
         reporting purposes                               (7,879)                (8,422)
       Costs capitalized for financial
         reporting purposes and
         expensed on tax return                           (4,150)                (4,055)
       Other, net                                         (1,789)                (1,837)
                                                        --------               --------

         Deferred income tax liability                   (13,818)               (14,314)
                                                        --------               --------

     Deferred asset, net of deferred
       liability                                          43,633                 46,109
     Valuation allowance                                 (43,633)               (46,109)
                                                        --------               --------

     Net deferred income tax asset                      $     --               $     --
                                                        ========               ========
</TABLE>

     The effective tax rate differs from the Federal statutory rate of 34
     percent as a result of the following items (in thousands):

<TABLE>
<CAPTION>
                                                                       Year ended
                                                  --------------------------------------------------------
                                                  December 29,         December 28,          December 27,
                                                      1997                 1998                  1999
                                                  ------------         ------------          ------------

<S>                                                <C>                    <C>                   <C>
     Federal income tax provision
       (benefit) at statutory rates                $ (6,878)              $    71               $ (1,903)
     State income tax provision
       for which no Federal
       benefit was recorded                              42                    22                      1
     Losses for which no Federal
       benefit was recorded                           6,125                 3,792                  1,195
     Nondeductible items, principally
       intangible amortization                          774                   964                    777
     Cancellation of debt income                         --                (4,782)                    --
                                                   --------               -------               --------

     Provision for income taxes                    $     63               $    67               $     70
                                                   ========               =======               ========
</TABLE>




                                      F-14
<PAGE>   40
     As a result of the Recapitalization Plan (see Note 5, "Long-Term Debt")
     the Company no longer files consolidated income tax returns with Holdings.

     At December 27, 1999, the Company had available net operating loss
     carryforwards for Federal income tax purposes of $133,000,000 expiring in
     2004 to 2014, and Federal general business credit carryforwards of
     $13,200,000, expiring in 2004 to 2014.

7.   Commitments and Contingencies

     The Company is obligated under employment agreements with certain officers
     and employees. Obligations under the agreements are $1,163,000, provide for
     periodic increases and expire in 2000 unless extended.

     The Company has been named as defendant in various lawsuits. It is the
     opinion of management that the outcome of such litigation will not
     materially affect the Company's financial position or results of
     operations.

8.   Cumulative Preferred Stock, Mandatorily Redeemable

     As part of the Recapitalization Plan in February, 1998, the Company issued
     35,000 preferred stock units (the "Units") of the Company. Each Unit
     consists of $1,000 initial liquidation preference of 12% senior pay-in-kind
     exchangeable preferred stock and one common stock purchase warrant
     initially to purchase 2.66143 shares of the common stock at an initial
     exercise price of one cent per share. The Company's cumulative preferred
     stock is mandatorily redeemable on August 15, 2003, for cash at a price per
     share equal to 110% of the then applicable liquidation preference.

9.   Redeemable Cumulative Senior and Junior Preferred Stock

     At year end 1998 and 1999, there were 1,400,000 authorized shares of senior
     preferred stock (one cent par value). There were no issued or outstanding
     shares.

     At year end 1998 and 1999, there were 100,000 authorized shares of junior
     preferred stock (one cent par value). There were no issued or outstanding
     shares.

10.Common Stock

     Common stock (one cent par value) authorized, issued and outstanding is as
follows:

<TABLE>
<CAPTION>
                                                       December 28,               December 27,
                                                           1998                       1999
                                                       ------------               ------------

<S>                                                     <C>                        <C>
              Shares authorized                         1,000,000                  1,000,000
              Shares issued                               128,081                    128,081
              Shares outstanding                          128,081                    128,081
</TABLE>



                                      F-15
<PAGE>   41

     As of December 29, 1997, all of the Company's common stock was owned by
     American Restaurant Group Holdings, Inc. The Chairman and certain other
     members of the Company's management owned all outstanding shares of
     Holdings common stock other than shares of Holdings common stock issued to
     holders of the debenture units and rights to acquire shares of Holdings
     common stock issuable upon exercise of options and warrants.

     In conjunction with the Recapitalization Plan, the Company issued shares of
     common stock to certain members of the Company's management (the
     "Management Stockholders") in an aggregate amount equal to 15% of the
     common stock on a fully diluted basis. Such Management Stockholders have
     entered into a voting trust agreement in accordance with which the Chairman
     and Chief Executive Officer of the Company will exercise all voting and
     substantially all other rights to which such Management Stockholders would
     otherwise be entitled until August 15, 2005, or the earlier termination of
     the agreement. The Management Stockholders also entered into a
     stockholders' agreement with the remaining Company stockholders, which
     provides that the parties will agree to vote all of their shares of the
     Company's equity securities so that the Board of Directors of the Company
     consists of five directors, with two directors designated by TCW Asset
     Management Company, two by the Management Stockholders, with the remaining
     director being an independent director initially designated by the initial
     purchaser of the Notes.

11.  Savings Plan

     The American Restaurant Group Savings and Investment Plan (the "Savings
     Plan") is a 401(k) plan established for the benefit of employees who have
     satisfied certain requirements. These requirements include completion of
     one year of service with a minimum of 1,000 hours worked. Subject to
     applicable limits imposed on tax qualified plans, eligible employees may
     elect pre-tax contributions up to 18.5% of a participant's total earnings
     for a calendar year (but not in excess of $10,000 for 1999). The Company
     makes matching contributions to the Savings Plan equal to 25% of the
     participant's contributions up to 6% of the participant's earnings. During
     fiscal 1997, 1998 and 1999, the Company contributed approximately $200,000,
     $174,000 and $225,000 to the Savings Plan, respectively. At December 27,
     1999, there were approximately 850 participants in the plan.

12.  Segment Reporting

     The Company follows the provisions of SFAS No. 131 "Disclosures about
     Segments of an Enterprise and Related Information". SFAS No. 131
     established standards for reporting information about operating segments in
     annual financial statements and requires selected information about
     operating segments in interim financial reports issued to stockholders. It
     also established standards for related disclosures about products and
     services, and geographic areas. Operating segments are defined as
     components of an enterprise about which separate financial information is
     available that is evaluated regularly by the chief operating decision
     maker, or decision making group, in deciding how to allocate resources and
     in assessing performance.

     The Company's reportable operating segments include Black Angus, Grandy's,
     and the Other Concepts (Spoons, Spectrum, National Sports Grill, and the
     former Velvet Turtle, none of which individually meet the separate
     disclosure requirements of SFAS 131).



                                      F-16
<PAGE>   42

     The applicable line items for the Company's reportable segments reconciled
     to the consolidated financial statements for the years 1997, 1998 and 1999
     are as follows (in thousands, except for number of restaurants):

<TABLE>
<CAPTION>
                                                December 29,          December 28,          December 27,
Number of restaurants                               1997                  1998                  1999
                                                ------------          ------------          -------------

<S>                                             <C>                   <C>                   <C>
       Black Angus                                     102                   101                   102
       Grandy's                                         89                    85                    56
       Other Concepts                                   40                    38                    35
                                                 ---------             ---------             ---------
         Total Consolidated                            231                   224                   193
                                                 =========             =========             =========


     Revenues  (a)
       Black Angus                               $ 264,175             $ 265,536             $ 263,561
       Grandy's                                     78,832                70,799                58,055
       Other Concepts                               97,032                90,593                86,369
                                                 ---------             ---------             ---------
         Total Consolidated                      $ 440,039             $ 426,928             $ 407,985
                                                 =========             =========             =========

     Gross profit (b)
       Black Angus                               $  36,237             $  37,832             $  37,303
       Grandy's                                     10,086                 8,322                 6,238
       Other Concepts                                9,467                 8,210                 9,602
                                                 ---------             ---------             ---------
         Total Consolidated                      $  55,790             $  54,364             $  53,143
                                                 =========             =========             =========


     Depreciation and amortization
       Black Angus                               $   9,143             $   6,967             $   6,661
       Grandy's                                      3,085                 2,954                 2,238
       Other Concepts                                2,005                 2,141                 2,167
       Corporate                                     5,394                 2,576                 2,385
                                                 ---------             ---------             ---------
         Total Consolidated                      $  19,627             $  14,638             $  13,451
                                                 =========             =========             =========


     Non-cash charge for impairment
     of long-lived assets
       Black Angus                               $     964             $     149             $     459
       Grandy's                                      1,468                     2                    --
       Other Concepts                                  615                 1,264                 1,040
       Corporate                                        --                    --                    --
                                                 ---------             ---------             ---------
         Total Consolidated                      $   3,047             $   1,415             $   1,499
                                                 =========             =========             =========


     Grandy's franchise conversion
       program (c)
       Black Angus                               $      --             $      --             $      --
       Grandy's                                         --                 5,034                   584
       Other Concepts                                   --                    --                    --
                                                 ---------             ---------             ---------
         Total Consolidated                      $      --             $   5,034             $     584
                                                 =========             =========             =========
</TABLE>



                                      F-17
<PAGE>   43

<TABLE>
<CAPTION>
                                              December 29,         December 28,            December 27,
                                                  1997                 1998                    1999
                                              ------------         ------------            ------------

<S>                                            <C>                    <C>                    <C>
     Interest expense, net
       Black Angus                             $  12,254             $  10,992              $  10,587
       Grandy's                                    1,249                   796                    999
       Other Concepts                              3,867                 4,109                  3,849
       Corporate                                   6,615                 4,372                  4,015
                                               ---------             ---------              ---------
         Total Consolidated                    $  23,985             $  20,269              $  19,450
                                               =========             =========              =========

     Provision for income taxes
       Black Angus                             $   2,928             $   4,976              $   4,606
       Grandy's                                       19                    15                     17
       Other Concepts                                465                   (47)                   (20)
       Corporate                                      63                    67                     70
       Eliminations                               (3,412)               (4,944)                (4,603)
                                               ---------             ---------              ---------
         Total Consolidated                    $      63             $      67              $      70
                                               =========             =========              =========

     Extraordinary gain (loss) on
     extinquishment of debt
       Black Angus                             $      --             $      --              $      --
       Grandy's                                       --                    --                     --
       Other Concepts                                 --                    --                     --
       Corporate                                      --                 9,559                     --
                                               ---------             ---------              ---------
         Total Consolidated                    $      --             $   9,559              $      --
                                               =========             =========              =========


     Net income (loss) without
     corporate overhead charges
     to segments (d)
       Black Angus                             $   4,373             $   8,123              $   7,553
       Grandy's                                   (5,473)               (6,887)                (4,970)
       Other Concepts                               (153)               (1,958)                  (320)
       Corporate                                 (22,451)               (4,079)               (12,534)
       Eliminations                                3,412                 4,944                  4,603
                                               ---------             ---------              ---------
         Total Consolidated                    $ (20,292)            $     143              $  (5,668)
                                               =========             =========              =========

     Net income (loss) with
     corporate overhead charges
     to segments (d)
       Black Angus                                                   $   7,434              $  6,881
       Grandy's                                                         (7,166)               (5,228)
       Other Concepts                                                   (3,226)               (1,590)
       Corporate                                                        (1,843)              (10,334)
       Eliminations                                                      4,944                 4,603
                                                                     ---------              ---------
         Total Consolidated                                          $     143              $ (5,668)
                                                                     =========              =========
</TABLE>



                                      F-18
<PAGE>   44


<TABLE>
<CAPTION>
                                              December 29,         December 28,            December 27,
                                                  1997                 1998                    1999
                                              ------------         ------------            ------------

<S>                                            <C>                    <C>                    <C>
     Total assets
       Black Angus                             $  93,094               $  96,211               $ 102,979
       Grandy's                                   38,446                  31,741                  25,401
       Other Concepts                             28,593                  27,593                  28,394
       Corporate                                  12,937                  18,504                  16,665
       Eliminations                              (21,059)                (23,590)                (30,710)
                                               ---------               ---------               ---------
         Total Consolidated                    $ 152,011               $ 150,459               $ 142,729
                                               =========               =========               =========


     Capital Expenditures
       Black Angus                             $   2,480               $   7,876               $   6,149
       Grandy's                                      995                   1,413                   1,430
       Other Concepts                              1,138                   3,007                   4,559
       Corporate                                      37                      20                      99
                                               ---------               ---------               ---------
         Total Consolidated                    $   4,650               $  12,316               $  12,237
                                               =========               =========               =========
</TABLE>


     (a)     Reflects sales and revenues from external customers. Intersegment
             sales and revenues are not applicable.

     (b)     Gross profit is defined as revenues less food and beverage, payroll
             and direct operating costs.

     (c)     Fiscal year 1999 includes $1,203,000 non-cash charge for assets to
             be disposed offset by $619,000 gain on sale of assets. Fiscal year
             1998 includes $5,034,000 non-cash charge for assets to be disposed.

     (d)     In 1998, the Company began charging certain corporate overhead
             general and administrative expenses to the divisions. Because it is
             not practicable to restate prior years, the Company has presented
             1998 and 1999 net income (loss) without the corporate changes for
             comparisons to 1997. Net income (loss) with the inclusion of
             corporate overhead expenses is presented for 1998 and 1999 but is
             not comparable to 1997.






                                      F-19
<PAGE>   45


                                 EXHIBIT INDEX


<TABLE>
<CAPTION>
       Exhibit No.                      Description
       -----------                      -----------

<S>                               <C>

         27                       Financial Data Schedule
</TABLE>