SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

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

For the fiscal year ended December 30, 2001          Commission File No. 0-19542


                               AVADO BRANDS, INC.
             (Exact name of registrant as specified in its charter)

        Georgia                                                  59-2778983
------------------------                                    --------------------
(State of Incorporation)                                     (I.R.S. Employer
                                                             Identification No.)

 Hancock at Washington
    Madison, Georgia                                               30650
------------------------                                    --------------------
(Address of Principal                                            (Zip Code)
  Executive Offices)

       Registrant's telephone number, including area code: (706) 342-4552

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

                                      None

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

                     Common Stock, par value $0.01 per share
                                (Title of Class)

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

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

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

     As of March 1, 2002, the aggregate  market value of the common stock of the
registrant held by non-affiliates  of the registrant,  as determined by the last
sales price on that day, was $7,873,786.

     As of March 1, 2002, the number of shares of common stock  outstanding  was
29,020,150.


                      DOCUMENTS INCORPORATED BY REFERENCE:

     Definitive  Proxy  Statement  for use in  connection  with the 2002  Annual
Meeting of Shareholders (Part III of Form 10-K).

<PAGE>
                                TABLE OF CONTENTS

                                     PART I

Item 1.           Business.....................................................3
Item 2.           Properties...................................................8
Item 3.           Legal Proceedings...........................................10
Item 4.           Submission of Matters to a Vote of Security Holders.........10


                                     PART II

Item 5.           Market for Registrant's Common Equity and Related
                  Stockholder Matters.........................................11
Item 6.           Selected Financial Data.....................................12
Item 7.           Management's Discussion and Analysis of Financial Condition
                  and Results of Operations...................................13
Item 7A.          Quantitative and Qualitative Disclosures About Market Risk..23
Item 8.           Financial Statements and Supplementary Data.................24
Item 9.           Changes in and Disagreements with Accountants on Accounting
                  and Financial Disclosure....................................49


                                    PART III

Item 10.          Directors and Executive Officers of the Registrant..........49
Item 11.          Executive Compensation......................................49
Item 12.          Security Ownership of Certain Beneficial Owners and
                  Management..................................................49
Item 13.          Certain Relationships and Related Transactions..............49


                                     PART IV

Item 14.          Exhibits, Financial Statement Schedules, and Reports
                  on Form 8-K.................................................51


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<PAGE>
                                     PART I

Item 1.  Business

                                     General

     Avado Brands,  Inc., including its wholly owned subsidiaries (the "Company"
or "Avado Brands"), is a leading full service, casual dining restaurant company,
which owns three decentralized, niche-leading restaurant brands. At December 30,
2001, the Company owned and operated  restaurants in 29 states including 131 Don
Pablo's  Mexican  Kitchen  restaurants,  74  Hops  Restaurant  o Bar  o  Brewery
restaurants  and 14  Canyon  Cafe  restaurants.  For the  52-week  period  ended
December 30,  2001,  total  restaurant  sales for these three brands were $507.6
million  compared to 2000  restaurant  sales for these brands of $523.4 million.
Total  restaurant  sales for the entire Company,  including sales related to the
McCormick & Schmick's  brand which was sold  during  2001,  were $623.5  million
compared  to 2000 sales of $685.8  million.  Each of the brands  functions  on a
decentralized basis with its own executive management,  purchasing,  recruiting,
training,  marketing and restaurant  operations.  This consumer-based  operating
philosophy  allows the Company to gain  competitive  advantage  by sharing  best
practices and centralizing non-brand critical processes such as human resources,
finance, treasury, accounting and capital formation.

     In 2001,  the Company  remained  committed to strategies of reducing  debt,
improving liquidity and increasing profitability. These strategies resulted in a
significant decrease in new restaurant  openings,  from 19 in 2000 to 3 in 2001,
and a focus on restaurant  operations and marketing strategy.  Nine unprofitable
restaurant  locations  were  closed in early  January  2001 and four  additional
restaurants  were  closed  in  March  2001.   Unprofitable  U.S.  joint  venture
investments  with  Belgo  Group PLC and  PizzaExpress  PLC were  also  exited in
February 2001. Also in 2001, the Company divested its 34 restaurant  McCormick &
Schmick's  brand for  $123.5  million in gross  proceeds.  The  majority  of the
proceeds were used to repay $95.8 million outstanding under the revolving credit
portion of the Company's  credit  facility.  The Company has also  finalized its
decision to divest its Canyon Cafe brand. At year end, the assets of Canyon Cafe
were classified as assets held for sale and stated at estimated fair value which
resulted in a 2001 asset impairment charge of $45.0 million. The Company expects
to complete the divestiture in 2002 with total consideration for the transaction
expected to approximate $5.0 to $6.0 million. The Company also received proceeds
of $12.0 million from the sale of other non-core assets during the year enabling
it to better focus on the operations of its core restaurants.  In addition,  the
Company continued to suspend the quarterly  dividend payments on its convertible
preferred securities.  These payments were suspended in December 2000 and may be
suspended for up to 20 consecutive quarters.


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<PAGE>
                        Avado Brands' Restaurant Concepts

                                   Don Pablo's

     The first Don Pablo's was opened in Lubbock, Texas in 1985. The restaurants
feature  traditional  Mexican  dishes served in a  distinctive,  festive  dining
atmosphere  reminiscent of a Mexican  village plaza.  Each restaurant is staffed
with a highly experienced management team that is visible in the dining area and
interacts with both customers and staff to ensure attentive customer service and
consistent  food quality.  Items are prepared  fresh on-site using  high-quality
ingredients at relatively low prices.  The diverse menu,  generous  portions and
attractive  price/value  relationship  appeal to a broad  customer base. The Don
Pablo's  mission  is to win every  guest  every  day by  delivering  real  guest
satisfaction through real people.

     Don  Pablo's  is  led  by  the  brand's  Chief  Executive  Officer,  Robert
Andreotolla.  Mr.  Andreotolla  has  over  twenty  years  of  experience  in the
restaurant  industry  and has been  with  Avado  Brands  since  1987.  Under his
direction  in  2001,  Don  Pablo's  received  the  Platinum  Award  at the  2001
"Restaurants  and  Institutions  Choice  In  Chains"  awards  and was  ranked by
consumers as the No. 1 casual dining  Mexican  restaurant in the United  States.
Don Pablo's  continued  to make strides to improve its  niche-leading  position,
including  the  addition  of several new  members to the senior  management  and
operational  teams. Other strides included the development and implementation of
new menu items,  implementation of an aggressive national advertising  campaign,
and an improved  focus on  operational  synergies,  including  improved  expense
category management.

     Menu.  The menu offers a wide variety of entrees  including  enchiladas and
tacos served with various sauces and homemade salsa plus mesquite-grilled  items
such as chicken  and beef  fajitas.  The menu also  includes  tortilla  soup,  a
selection of salads,  Mexican-style  appetizers  such as quesadillas  and unique
desserts.  During 2001, the price of a typical meal was $4.99 to $6.99 for lunch
and $7.99 to $11.99 for dinner.  In addition  to its regular  menu,  Don Pablo's
offers 19 lunch specials  priced from $4.99 each and a  lower-priced  children's
menu.  Full bar service is also  provided.  Alcoholic  beverages  accounted  for
approximately 18% of sales in 2001.

     Restaurant  Layout.  Distinctive  Mexican  architecture  and interior decor
provide a casual, fun, dining atmosphere. The restaurants have an open, spacious
feel, created with the use of sky-lights and a Mexican village plaza design, and
are  enhanced by an indoor  fountain and the use of stucco,  brick and tile,  as
well as plants, signs and artwork.  Homemade tortillas cooked in the dining area
underscore  the  commitment  to fresh,  authentic  Mexican  food.  Both one- and
two-story  building  designs  are  utilized.  The  two-story  design  features a
balcony,  which provides seating for bar patrons and dining customers waiting to
be seated.  The  one-story  design  incorporates  a smaller bar  adjacent to the
dining area. Both designs use high ceiling  architecture and have similar dining
capacities.  Restaurants  range in size from 6,000  square feet to 9,900  square
feet with the average restaurant containing approximately 8,000 square feet. The
restaurants  generally have dining room seating for  approximately 230 customers
and bar seating for approximately 70 additional customers.

     Unit Economics. Although no additional restaurants were opened in 2001, the
prototype for future  development  was designed.  The average cost of developing
and opening these  restaurants  will be  approximately  $1.4 million,  excluding
land,  capitalized costs and preopening expenses. The cost of land for new sites
is estimated at $1.0 million per opening.  Preopening expenses, which consist of
primarily wages and salaries,  hourly employee recruiting,  license fees, meals,
lodging,  and travel, plus the cost of hiring and training the management teams,
will average $150,000 per restaurant.

     Field  Management.  Management is shared by 18 directors of operations  who
report to two regional vice  presidents of  operations.  The strategy is to have
each director responsible for a limited number of restaurants, thus facilitating
a focus on guest satisfaction, operations and unit profitability. The management
staff of a typical  restaurant  consists of one general  manager,  an  assistant
general  manager and two to four assistant  managers,  depending on volume.  The
restaurant  management  staff is eligible to receive  bonuses based on achieving
budgeted PAC (profit after  controllables)  and sales as well as meeting several
internal quality assurance goals.

     Advertising and Marketing.  Don Pablo's  advertising and marketing strategy
combines the use of television and radio  advertising in core markets along with

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<PAGE>
a focus on local efforts and community  involvement at all  locations.  In 2001,
advertising  expense was 5.5% of sales.  Although Don Pablo's  typically  spends
approximately  3.5% to 4.0% of sales on advertising,  a new aggressive  national
advertising  strategy was  implemented  in the second half of 2000.  Advertising
expenditures  for 2002 are budgeted at 6.2% of sales,  reflecting a continuation
of this campaign that will focus on efforts  designed to increase traffic counts
and appeal to consumer desires for new and exciting tastes.


                         Hops Restaurant o Bar o Brewery

     The first Hops was opened in Clearwater,  Florida in 1989.  Each restaurant
offers a diverse menu of popular foods,  freshly  prepared in a display  kitchen
with a strict  commitment to quality and value.  Additionally,  each  restaurant
features an on-premises microbrewery. Hops is led by the brand's Chief Executive
Officer,  Ronald Magruder.  Mr. Magruder joined Hops in 2000,  bringing with him
nearly 30 years of experience in the  restaurant  industry.  He was formerly the
Chairman  of the  Board  of  the  National  Restaurant  Association,  the  Chief
Operating  Officer of CBRL Group's  Cracker Barrel Old Country  Store,  and Vice
Chairman of Darden Hospitality.

     Menu.  The  restaurants  feature an  American-style  menu that includes top
choice  steaks,  smoked baby back ribs,  fresh fish,  chicken and pasta  dishes,
deluxe  burgers and  sandwiches,  hand-tossed  salads with  homemade  dressings,
appetizers,  soups  and  desserts.  The  menu  offers  separate  selections  for
children. The price of a typical meal, including beverages, ranges from $6.00 to
$9.00 per person for lunch and  $13.00 to $16.00  per  person for  dinner.  Each
restaurant offers four distinctive lager-style beers and ales, plus a variety of
blends of these beers as well as seasonal beers, that are brewed on-premises. An
observation  microbrewery at each restaurant allows customers to view the entire
brewing  process.  Full  bar  service  is also  available  at  each  restaurant.
Alcoholic beverages accounted for approximately 15% of sales in 2001.

     Restaurant Layout.  Restaurants range in size from  approximately  5,000 to
7,300 square  feet.  With booth  seating  throughout  approximately  70% of each
restaurant,  guests enjoy the comfort of privacy and soft lighting  amongst wood
and  brick  surfaces  in a  somewhat  rustic  design.  The  ambiance  and  decor
complements the on-premise copper and stainless steel brewing equipment which is
visible  from both the bar and dining  room.  Customers  are invited to tour the
brewery,  which  occupies  from 450 to 750  square  feet,  with Hops' on premise
Brewmaster.

     Unit  Economics.  In 2001,  Hops  opened  one new  restaurant.  The cost of
developing and opening this restaurant was approximately $2.0 million, excluding
land and preopening costs but including  approximately  $165,000 in microbrewery
equipment.  Preopening  costs,  which consists of employee  recruiting,  license
fees, meals, travel and lodging as well as hiring and training management teams,
were $224,000.

     Field Management. Management is shared by five operating partners and seven
area  supervisors  who report to a regional  vice  president  who reports to the
brand's Chief Executive  Officer.  Each operating  partner or area supervisor is
ultimately responsible for five to eight restaurants,  thus facilitating a focus
on quality of  operations  and unit  profitability.  The  management  staff of a
typical  restaurant  consists of one general  manager,  one kitchen  manager and
three assistant managers.  General managers and kitchen managers are eligible to
receive bonuses equal to a percentage of their restaurant's controllable income,
subject to operating above a minimum operating margin.

     Advertising and Marketing.  Hops'  advertising  and marketing  strategy has
historically   focused   primarily  on  grassroots   efforts  utilizing  special
promotions  in local markets and special  event  equipment  designed to increase
customer  awareness  and name  recognition.  In recent  years,  advertising  and
marketing  efforts  were  expanded  to include  television  advertising  in core
markets as well as the continued use of radio  advertising,  outdoor  boards and
print media in regional editions of national publications.  These strategies are
expected to continue into 2002 with the  continued  use of television  and radio
advertising,  print  media,  limited  outdoor  advertising  as well  as  ongoing
grassroots programs. In 2001, advertising expense was 6.3% of sales. Advertising
expenditures for 2002 are budgeted at 5.5% of sales.


                                       5
<PAGE>
                                   Canyon Cafe

     Canyon Cafe  restaurants  operate under the names Canyon Cafe,  Desert Fire
and Sam's Cafe. The first  restaurant  was opened in Dallas,  Texas in 1989. The
Canyon  Cafe  concept  is  dedicated  to  delivering  the flavor and feel of the
American  Southwest  in a warm and  sophisticated  setting.  The brand is led by
Chief Executive Officer Doug Czufin. At December 30, 2001, the Canyon Cafe brand
is classified as held for sale.

     Menu. The menu offers a wide variety of unique items such as  Pecan-crusted
Crab Cakes,  Applewood  Smoked Pecan Salmon and Buffalo Short Ribs. A variety of
more  traditional  items  including  chicken tacos and grilled chicken salad are
also offered. During 2001, the price of a typical meal, including beverages, was
$11.00 to $14.00 for lunch and $16.00 to $21.00 for dinner.  Full bar service is
also provided.  Alcoholic  beverages accounted for approximately 21% of sales in
2001.

     Restaurant  Layout.  The restaurants are based on a Santa Fe design,  which
reflects a strong southwestern influence through the use of heavy ponderosa pine
timbers.  The walls,  floors and furniture reflect surfaces and colors native to
the American Southwest.  Restaurants are located in malls, in-line power centers
and as freestanding buildings.  In-line and mall sites average 7,000 square feet
with some  locations  featuring  an  additional  800-1,000  square  foot  patio.
Freestanding  buildings  have 6,700  square feet with a 1,050 square foot patio.
All locations  typically have a minimum of 190 interior dining seats, an average
of 26 bar seats and 45-50 patio seats.

     Unit Economics. No new restaurants were opened in 2001.

     Field Management.  Management is structured with a general manager,  two to
three assistant managers,  an executive chef and a sous chef. Regional Directors
are responsible for quality of operations and sales and  profitability of six to
seven  restaurants  and  report to the  brands'  Chief  Executive  Officer.  All
managers are eligible to receive bonuses based on their individual  restaurant's
operating performance.

     Advertising  and Marketing.  Advertising  and marketing  strategy relies on
grassroots  efforts  focused on  developing a strong  brand  identity and strong
core-customer  recommendations.  Advertising and marketing efforts include local
radio,  media appearances and event involvement as well as direct mail and other
print  media.  Additional  local  efforts,  such  as  system-wide   neighborhood
networking programs, are utilized to develop a direct relationship with targeted
customers. In 2001, advertising expense was 4.8% of sales.


                     Other Restaurant Operational Functions

     Quality Control. All levels of management are responsible for ensuring that
restaurants are operated in accordance with strict quality standards. Management
structure allows restaurant  general managers to spend a significant  portion of
their time in the dining area of the restaurant  supervising staff and providing
service to customers. Compliance with quality standards is monitored by periodic
on-site visits and formal periodic inspections by multi-unit  management as well
as brand executive management.

     Training.  Each brand requires  employees to participate in formal training
programs.  Management  training  programs  generally  last ten to 16  weeks  and
encompass  three  general  areas,  including  (i) all  service  positions,  (ii)
management accounting,  personnel management, and dining room and bar operations
and (iii)  kitchen  management.  Management  positions  at new  restaurants  are
typically  staffed  with  personnel  who  have  had  previous  experience  in  a
management  position  at  another  of the  respective  brands'  restaurants.  In
addition,  a highly experienced opening team assists in opening each restaurant.
Prior to opening,  all personnel  undergo  intensive  training  conducted by the
restaurant opening team.

     Purchasing.  Avado Brands strives to take advantage of purchasing synergies
in all operational areas. The national  marketing  strategies at Don Pablo's and
Hops have been greatly enhanced through combined media purchasing  efforts.  The
Company also  coordinates  its food and  beverage  purchasing  efforts  whenever
possible in order to obtain consistent  quality items at competitive prices from


                                       6
<PAGE>
reliable  sources for all of its brands.  The  Company  engages the  services of
EMPAD  Consulting,  Inc. to assist in the  coordination  of those  efforts.  The
Company  continually  researches  and  tests  various  products  in an effort to
maintain the highest quality products and to be responsive to changing  customer
tastes.  Overall,  purchasing is the responsibility of each brand, which use one
primary distributor for food products other than locally purchased produce.  All
food and  beverage  products are  available  on short  notice from  alternative,
qualified  suppliers.  The Company has not experienced any significant delays in
receiving food and beverage inventories, restaurant supplies or equipment.

     Restaurant   Reporting.   Financial   controls  are  maintained  through  a
centralized  accounting  system at each brands'  headquarters.  A  point-of-sale
reporting system is utilized in each restaurant.  Restaurant  management submits
to brand headquarters various daily and weekly reports of cash, deposits, sales,
labor costs,  etc. Physical  inventories of all food,  beverage and supply items
are taken at least  monthly.  Operating  results  compared to prior  periods and
budgets are closely monitored by both brand and corporate personnel.

                             Trademarks and Licenses

     Avado Brands has registered the principal trademarks and service marks used
by its restaurant brands with the United States Patent and Trademark Office. The
Company  believes  that its  trademarks  and  service  marks  are  integral  and
important  factors in establishing  the identity and marketing of its restaurant
brands.  Although the Company is aware of certain marks used by other persons in
certain  geographical  areas  which may be similar in  certain  respects  to the
Company's  marks, the Company believes that these other marks will not adversely
affect the Company or its business.

                             Governmental Regulation

     Alcoholic Beverage Regulation.  Each restaurant is subject to licensing and
regulation by a number of  governmental  authorities,  which  include  alcoholic
beverage control and health,  safety and fire agencies in the state,  county and
municipality  in which the  restaurant is located.  Difficulties  or failures in
obtaining the required  licenses or approvals could delay or prevent the opening
of a new restaurant in a particular area. Alcoholic beverage control regulations
require  restaurants to apply to a state  authority  and, in certain  locations,
county  or  municipal  authorities  for a license  or  permit to sell  alcoholic
beverages  on the  premises  and to provide  service for  extended  hours and on
Sundays.  Some  counties  prohibit the sale of  alcoholic  beverages on Sundays.
Typically,  licenses or permits  must be renewed  annually and may be revoked or
suspended for cause at any time.  Alcoholic beverage control  regulations relate
to  numerous  aspects of a  restaurant's  operations,  including  minimum age of
patrons and employees,  hours of operation,  advertising,  wholesale purchasing,
inventory control and handling, storage and dispensing of alcoholic beverages.

     The Company may be subject in certain states to "dram-shop"  statutes which
generally provide a person injured by an intoxicated patron the right to recover
damages from an establishment that wrongfully served alcoholic  beverages to the
intoxicated person. The Company carries liquor liability coverage as part of its
existing comprehensive general liability insurance coverage.

     Brewpub Regulation.  Hops is subject to additional  regulations as a result
of the on-premises microbrewery in each restaurant.  Historically, the alcoholic
beverage laws of most states  prohibited the manufacture and retail sale of beer
to consumers  by a single  person or entity or related  persons or entities.  At
present,  all 50 states  allow for the  limited  manufacture  and retail sale of
microbrewed  beer by restaurants and bars  classified as "brewpubs"  under state
law. The Hops restaurants are required to comply with such state brewpub laws in
order to obtain necessary state licenses and permits. Additionally,  many states
impose restrictions on the operations of brewpubs,  such as a prohibition on the
bottling  of beer,  a  prohibition  on the sale of beer for  consumption  off of
restaurant  premises,  and a limitation on the volume of beer that may be brewed
at any location, as well as certain geographic limitations. In addition, certain
states limit the number of brewpubs that may be owned by any person or entity or
a related  group of  entities.  The  Company's  ability to own and operate  Hops
restaurants  in any state is and will continue to be dependent  upon its ability
to operate within the regulatory scheme of such states.

     Other Regulation.  The Company's restaurant  operations are also subject to
federal  and  state  laws  governing  such  matters  as  minimum  wage,  working
conditions, overtime and tip credits.

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<PAGE>
                                   Competition

     The restaurant  industry in the U.S. is highly  competitive with respect to
price, service, location, and food type and quality, and competition is expected
to intensify. There are well-established  competitors with greater financial and
other  resources  than  Avado  Brands.  Some of these  competitors  have been in
existence for a substantially  longer period than Avado Brands and may be better
established  in  the  markets  where  the  Company's  restaurants  are or may be
located.  The  restaurant  business  is often  affected  by changes in  consumer
tastes,  national,  regional or local economic  conditions,  demographic trends,
traffic patterns, the availability and cost of suitable locations, and the type,
number and  location of  competing  restaurants.  The Company  also  experiences
competition in attracting and retaining  qualified  management  level  operating
personnel.  In addition,  factors such as inflation,  increased food,  labor and
benefits  costs,  and  difficulty in attracting  hourly  employees may adversely
affect the  restaurant  industry  generally  and Avado  Brands'  restaurants  in
particular.

                                    Employees

     As of  December  30,  2001,  Avado  Brands  employed  approximately  14,000
persons. Of those employees, approximately 200 held non-restaurant management or
administrative positions,  1,030 were involved in restaurant management, and the
remainder were engaged in the operation of restaurants. Management believes that
the Company's  continued success will depend to a large degree on its ability to
attract and retain quality management employees.  While the Company will have to
continually  address a level of  employee  attrition  normally  expected  in the
food-service  industry,  Avado  Brands  has  taken  steps  to  attract  and keep
qualified  management  personnel  through  the  implementation  of a variety  of
employee  benefit plans,  including an Employee Stock  Ownership  Plan, a 401(k)
Plan,  and an  incentive  stock option plan for its key  employees.  None of the
Company's employees is covered by a collective bargaining agreement. The Company
considers its employee relations to be good.


Item 2.  Properties

     The  Company  owns a  renovated  historic  building  in  Madison,  Georgia,
containing  approximately  19,000  square feet of office  space and an adjoining
building  containing  approximately  41,000 square feet of office  space.  These
office  buildings serve as the Company's  corporate  headquarters as well as the
headquarters  of Don  Pablo's  and Canyon  Cafe.  The  headquarters  for Hops is
located in approximately  15,000 square feet of leased space in Tampa,  Florida.
The Company  believes that its corporate and brand  headquarters  are sufficient
for its present needs.

     In  selecting  restaurant  sites,  the Company  attempts  to acquire  prime
locations in market areas to maximize both short- and long-term  revenues.  Site
selection is made by the Company's development department,  subject to executive
officer  approval  and final  approval by the  Company's  management  committee.
Within the target market areas,  the Company  evaluates  major retail and office
concentrations  and major  traffic  arteries to  determine  focal  points.  Site
specific factors include  visibility,  ease of ingress and egress,  proximity to
direct competition,  accessibility to utilities, local zoning regulations,  laws
regulating the sale of alcoholic beverages, and various other factors.


                                       8
<PAGE>
     As of March 1, 2002 the  Company  operated  219  restaurants.  The  Company
leases the underlying  real estate on which 130 of the  restaurants  are located
and leases both the  buildings and  underlying  real estate for an additional 33
restaurants.  The remaining 56 restaurants  and related real estate are owned by
the Company. The following table presents restaurant locations by brand:

                             Don                          Canyon
                           Pablo's         Hops            Cafe            Total
--------------------------------------------------------------------------------
Florida                       17            32                               49
Ohio                          16             4                               20
Texas                         14                             4               18
Indiana                       11                                             11
Colorado                                     8               2               10
Georgia                        4             5               1               10
Virginia                       7             3                               10
Minnesota                      7             2                                9
Pennsylvania                   9                                              9
Michigan                       8                                              8
Tennessee                      5             3                                8
North Carolina                 3             4                                7
South Carolina                 3             4                                7
Arizona                        3                              3               6
Maryland                       5             1                                6
New York                       5                                              5
Kentucky                       4                                              4
Oklahoma                       4                                              4
Connecticut                                  3                                3
Missouri                                     1                2               3
New Jersey                     2                                              2
Rhode Island                                 2                                2
Washington                                                    2               2
Alabama                        1                                              1
Delaware                       1                                              1
Illinois                       1                                              1
Iowa                           1                                              1
Louisiana                                    1                                1
Mississippi                                  1                                1
--------------------------------------------------------------------------------
    Totals                   131            74               14             219
================================================================================

                                       9
<PAGE>
Item 3.  Legal Proceedings

     In 1997, two lawsuits were filed by persons seeking to represent a class of
shareholders of the Company who purchased  shares of the Company's  common stock
between May 26, 1995 and September 24, 1996.  Each  plaintiff  named the Company
and certain of its officers and directors as defendants.  The complaints alleged
acts  of  fraudulent  misrepresentation  by the  defendants  which  induced  the
plaintiffs to purchase the Company's  common stock and alleged  illegal  insider
trading by certain of the defendants, each of which allegedly resulted in losses
to the  plaintiffs  and  similarly  situated  shareholders  of the Company.  The
complaints  each sought  damages and other relief.  In 1998,  one of these suits
(Artel Foam  Corporation  Pension  Trust,  et al. v. Apple South,  Inc., et al.,
Civil Action No. CV-97-6189) was dismissed.  An amended  complaint,  styled John
Bryant, et al. vs. Apple South, Inc., et al. consolidating  previous actions was
filed in January 1998. During 1999, the Company received a favorable ruling from
the 11th Circuit Court of Appeals relating to the remaining suit. As a result of
the ruling,  the District Court again considered the motion to dismiss the case,
and the  defendants  renewed  their motion to dismiss in December  1999. In June
2000,  the District  Court  dismissed  with  prejudice the remaining  suit.  The
plaintiffs  appealed the court's  final  decision.  Upon  hearing the appeal,  a
three-judge  panel  reversed the motion to dismiss and gave the  plaintiffs  the
opportunity  to amend  their  suit  and  state  with  more  particularity  their
allegations.  Although the ultimate  outcome of the suit cannot be determined at
this time, the Company  believes that the allegations  therein are without merit
and intends to continue  vigorously  defending  itself.

     The Company is involved in various other claims and legal  actions  arising
in the ordinary course of business.  In the opinion of management,  the ultimate
disposition  of these  matters  will not have a material  adverse  effect on the
Company's consolidated financial position or results of operations.


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

     The  Company  did not submit any matter to a vote of its  security  holders
during the fourth quarter of the fiscal year ended December 30, 2001.


                                       10
<PAGE>
                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

Corporate Headquarters                              Independent Auditors
Avado Brands, Inc.                                  KPMG LLP
Hancock at Washington                               303 Peachtree Street, N.E.
Madison, GA 30650                                   Suite 2000
Telephone:        (706) 342-4552                    Atlanta, GA 30308

Investor Relations                                  Transfer Agent and Registrar
Jillan Hatchett, Senior Investor Relations Analyst  SunTrust Bank, Atlanta
Hancock at Washington                               Corporate Trust Division
Madison, GA 30650                                   P.O. Box 4625
Telephone:        (706) 342-4552                    Atlanta, GA 30302
Facsimile:        (706) 343-2434
E-mail:  jhatchet@corp.avado.com

Investor Information

     The  Company's  common  stock  currently  trades  on  the  Over-The-Counter
Bulletin Board,  maintained by the National  Association of Securities  Dealers,
under the symbol  "AVDO".  The Company's  Convertible  Preferred  Securities are
traded on the over the counter market as well under the symbol "AVDOP".

Shareholder Information

     As of March 1, 2002, there were approximately  5,300 shareholders of record
of the Company's common stock.

Stock Price Performance

     A summary  of the high and low  sales  prices  per share for the  Company's
common stock is presented below:

                                             High               Low
  ---------------------------------- ------------------ -----------------
  2001
  First Quarter                             $ 0.88             $ 0.38
  Second Quarter                            $ 0.75             $ 0.35
  Third Quarter                             $ 0.79             $ 0.25
  Fourth Quarter                            $ 0.63             $ 0.08

  2000
  First Quarter                             $ 5.63             $ 1.75
  Second Quarter                            $ 2.53             $ 1.06
  Third Quarter                             $ 2.19             $ 0.75
  Fourth Quarter                            $ 1.06             $ 0.47
  ---------------------------------- ------------------ -----------------

Dividends
A summary of cash dividends declared per share on the Company's common stock is
presented below:

        Quarter ended                    2001            2000           1999
  -------------------------------- -------------- --------------- --------------
  March                                $  0.00            0.00         0.0125
  June                                 $  0.00            0.00         0.0150
  September                            $  0.00            0.00         0.0150
  December                             $  0.00            0.00         0.0150
  -------------------------------- -------------- --------------- --------------
        Total                          $  0.00            0.00         0.0575
  -------------------------------- -------------- --------------- --------------


                                       11
<PAGE>
Item 6.  Selected Financial Data
<TABLE>
(In thousands, except per share data)
<CAPTION>
                                                         2001         2000         1999         1998         1997
-------------------------------------------------------------------------------------------------------------------
<S>                                              <C>                 <C>          <C>          <C>         <C>
CONSOLIDATED STATEMENT OF EARNINGS DATA
Total restaurant sales                           $      623,501      685,795      644,459      862,692     808,320
Operating income before asset revaluation
     and other special charges                   $       18,887       28,594       44,647       75,571      74,823
Asset revaluation and other special charges      $       66,328       38,200        2,186        2,940           -
Net earnings (loss)                              $      (95,260)     (65,734)       5,470       66,283      28,448
-------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
Basic earnings (loss) per common share           $       (3.33)       (2.55)         0.20         1.81        0.74
Diluted earnings (loss) per common share         $       (3.33)       (2.55)         0.20         1.62        0.73
Cash dividends per common share                  $        0.00         0.00        0.0575       0.0475       0.038
-------------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET DATA
Total assets                                     $      396,221      609,681      656,596      670,597     804,289
Working capital (excluding assets held for sale) $      (81,803)    (120,357)     (39,497)    (210,947)    (33,989)
Long-term obligations                            $      215,815      291,507      328,076      116,978     381,843
Convertible preferred securities                 $       68,559       72,865      115,000      115,000     115,000
Shareholders' equity (deficit)                   $       (2,746)      87,952      112,624      112,029     220,782
-------------------------------------------------------------------------------------------------------------------
</TABLE>
     See  additional  discussion of financial  results at Item 7,  "Management's
Discussion and Analysis of Financial  Condition and Results of  Operations"  and
Item 8, "Financial Statements and Supplementary Data".


                                       12
<PAGE>
Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

     For an  understanding  of  the  significant  factors  that  influenced  the
performance of Avado Brands,  Inc. (the "Company")  during the past three fiscal
years,  the  following  discussion  should  be  read  in  conjunction  with  the
consolidated  financial  statements  appearing  elsewhere in this Form 10-K. The
Company's  fiscal year is a 52- or 53-week year ending on the Sunday  closest to
December 31.  Accordingly,  the  following  discussion is for the 52 weeks ended
December 30, 2001  ("2001"),  the 52 weeks ended  December 31, 2000 ("2000") and
the 52 weeks ended January 2, 2000 ("1999")

                          Consolidated Overview of 2001

     In 2001,  the Company  remained  committed to strategies of reducing  debt,
improving liquidity and increasing profitability. These strategies resulted in a
significant decrease in new restaurant  openings,  from 19 in 2000 to 3 in 2001,
and a focus on restaurant  operations and marketing strategy.  Nine unprofitable
restaurant  locations  were  closed in early  January  2001 and four  additional
restaurants  were closed on March 29,  2001.  Unprofitable  U.S.  joint  venture
investments  with  Belgo  Group PLC and  PizzaExpress  PLC were  also  exited in
February 2001. In the third quarter of 2001, the Company  divested its McCormick
& Schmick's  brand,  which included 34 restaurants,  for $123.5 million in gross
proceeds.  The  majority  of those  proceeds  were used to repay  $95.8  million
outstanding under the revolving credit portion of the Company's credit facility.
In addition, the Company continued to suspend the quarterly dividend payments on
its convertible preferred securities.  These payments were suspended in December
2000 and may be suspended for up to 20 consecutive quarters.

     Due to the continued  deterioration  of sales at the Company's  Canyon Cafe
brand  and  corresponding  lack of  operating  performance  improvement,  it was
determined that the carrying value of the Canyon Cafe assets exceeded the sum of
expected future cash flows  associated with those assets.  As a result,  a $45.0
million  impairment  loss,  related to the assets of Canyon  Cafe,  was recorded
during the year.  The Company has  finalized  the decision to divest Canyon Cafe
and expects to complete the divestiture in 2002 with total consideration for the
transaction  expected to  approximate  $5.0 to $6.0  million.  At year end,  the
assets of Canyon  Cafe were  classified  as assets  held for sale and  stated at
estimated fair value. The Company also completed the sale of an additional $12.0
million in other non-core  assets during the year enabling it to better focus on
the  operations  of its core  restaurant  brands.  For the  purposes  of further
discussion  "core"  restaurant  brands  will  include  Don  Pablo's and Hops and
"discontinued"  or  "non-core"  brands  will  include  Applebee's   (divestiture
completed in 1999),  McCormick & Schmick's  (divestiture  completed in 2001) and
Canyon Cafe (currently held for sale).


       Comparison of Historical Results - Fiscal Years 2001, 2000 and 1999

Restaurant Sales

     Consolidated  restaurant sales for 2001 decreased 9% to $623.5 million from
$685.8 million in 2000 reflecting decreased core brand sales, decreased sales at
Canyon  Cafe and a decline in revenue  associated  with the  divestiture  of the
Company's  McCormick & Schmick's  brand.  In core brands,  sales decreased 2% to
$475.5  million  from $483.8  million in 2000.  The  decrease in 2001 core brand
sales,  as well as Canyon Cafe sales,  was  attributable to a slight decrease in
operating  weeks as well as  declining  same-store-sales.  The  decrease in core
brand operating weeks was generated by the closure of 10 restaurants  during the
first quarter of 2001, which was partially offset by a full-year's sales from 12
restaurants  opened in 2000 and a partial year's sales from 1 restaurant  opened
in the first quarter of 2001. Canyon Cafe's operating weeks decreased by 15% due
to the closure of 3 restaurants  during 2001,  which was  partially  offset by a
full-year's sales from 1 restaurant opened in 2000. Same-store-sales comparisons
for 2001 (for  restaurants  open a full 18 months at the beginning of 2001) were
approximately  1% lower at Hops, 2% lower at Don Pablo's and 12% lower at Canyon
Cafe.  Sales  were  adversely  impacted  during the year by  continued  economic
uncertainty as well as the terrorist attacks on the United States.

     In 2000,  Avado Brands' sales were  generated by the  operations of its two
core brands along with two of its  discontinued  brands.  Core brand  restaurant
sales of $483.8  million  exceeded  1999 core  brand  sales by 6%.  Consolidated


                                       13
<PAGE>
restaurant  sales of $685.8  million in 2000  included  non-core  sales of $39.6
million from Canyon Cafe and $162.4  million from  McCormick & Schmick's.  Total
1999 restaurant sales of $644.5 million included non-core sales of $43.3 million
from Canyon Cafe,  $125.6  million from  McCormick & Schmick's and $21.2 million
from Applebee's, the divestiture of which was completed in 1999. The increase in
2000 core brand  sales was  primarily  attributable  to  new-unit  growth  which
increased core brand operating weeks by 9%. The increase in core brand operating
weeks was generated by a full-year's  sales from 33  restaurants  opened in 1999
and a partial-year's  sales from 12 restaurants opened in 2000.  Operating weeks
also  increased  in 2000 for  non-core  brands by 12% which was  generated  by a
full-year's sales from 4 restaurants  opened in 1999 and a partial-year's  sales
from 7 restaurants  opened in 2000.  Same-store-sales  comparisons for 2000 (for
restaurants  open a full 18 months at the beginning of 2000) were  approximately
7% higher at Hops,  3% higher at McCormick & Schmick's,  4% lower at Don Pablo's
and 9% lower at Canyon Cafe.  Increased marketing efforts during the second half
of 2000 contributed to sustaining  strong  same-store-sales  comparisons at Hops
and increased Don Pablo's  same-store-sales  comparisons from negative 8% in the
second  quarter of 2000 to slightly  positive  by the end of the third  quarter.
Positive results from increased  marketing were diminished in the fourth quarter
by  several  factors  including  economic   uncertainty,   political  indecision
generated  by  the  presidential   election,   unusually  harsh  winter  weather
conditions and negative publicity related to genetically  engineered yellow corn
which prompted Don Pablo's to switch to white corn products.

     For 2001, 2000, and 1999, sales from discontinued brands accounted for 24%,
29% and 29%, respectively, of consolidated restaurant sales.

Restaurant Operating Expenses

     Total  restaurant  operating  expenses  for 2001 were 91.8% of total  sales
compared to 90.3% of total sales in 2000.  The resulting  decrease in restaurant
operating margins was due to a 1.4% decline in margins at core brands and a 0.9%
decline  in  margins  at  discontinued  brands  (as a percent  of core brand and
discontinued brand sales, respectively).

     The following  discussion of restaurant  operating  expenses focuses on the
percentages  which certain items of expense bear to total  restaurant  sales for
(i) the  Company's  core brands which  include Don Pablo's and Hops and (ii) the
Company's brands which are considered to be discontinued  including  Applebee's,
McCormick & Schmick's and Canyon Cafe.

        Core Brands

     Fiscal                                     2001         2000         1999
     ---------------------------------------------------------------------------
     Restaurant sales:
        Don Pablo's                             59.9%        61.5%        68.2%
        Hops                                    40.1         38.5         31.8
     ---------------------------------------------------------------------------
           Total restaurant sales              100.0        100.0        100.0
     ---------------------------------------------------------------------------
     Restaurant operating expenses:
        Food and beverage                       28.1         28.8         28.1
        Payroll and benefits                    32.8         32.1         31.2
        Depreciation and amortization            3.9          4.2          3.8
        Other operating expenses                28.1         26.4         24.7
     ---------------------------------------------------------------------------
           Total restaurant operating expenses  92.9         91.5         87.8
     ---------------------------------------------------------------------------
     Income from restaurant operations           7.1%         8.5%        12.2%
     ---------------------------------------------------------------------------

     Core  brand  restaurant  operating  expenses  for 2001 were  92.9% of sales
compared to 91.5% in 2000. The resulting  decrease in 2001 restaurant  operating
margins was  primarily due to increases in operating  expenses  generated by (i)
ongoing advertising strategies designed to build sales volumes over time at Hops
and Don Pablo's which increased year-to-date advertising expenditures at Hops to
6.3% of sales compared to 5.5% in 2000 and was offset  slightly by a decrease in
Don Pablo's advertising  expenditures to 5.5% of sales compared to 5.6% in 2000,
(ii) an increase in rent expense,  due in part to a  sale-leaseback  transaction


                                       14
<PAGE>
completed in the fourth  quarter of 2000 that reduced debt and related  interest
expense as well as depreciation  expense,  (iii) higher payroll and benefits due
primarily to an increase in the number of  management  positions at Hops coupled
with the  restructuring  of management  bonus programs and an increase in hourly
labor as a percent of sales  resulting  from a decline in sales  volumes at Hops
and Don Pablo's,  (iv) an increase in utility costs affecting  substantially all
of the  Company's  restaurants  and (v) an  increase  in  training  costs at Don
Pablo's  related to a focus on customer  service  initiatives  and the timing of
new-manager training. Increased operating expenses were somewhat offset by (i) a
decrease  in food and  beverage  expenses  from  continuing  efforts to maximize
purchasing  synergies at Don Pablo's and Hops and (ii) a decrease in  preopening
expenses  resulting from only one new  restaurant  opened in 2001 compared to 12
restaurants  opened during 2000,  and (iii) a decrease in  depreciation  expense
related to the discontinuation of depreciation expense on the fixed assets of 10
underperforming restaurants closed in the first quarter of 2001.

     In 2000,  core  brand  restaurant  operating  expenses  were 91.5% of sales
compared to 87.8% in 1999. The resulting  decrease in 2000 restaurant  operating
margins was principally  due to (i) increased  marketing at Don Pablo's and Hops
which increased other operating expenses, (ii) increased food and beverage costs
at Don Pablo's  generated by the  implementation  of a new menu coupled with the
increased  marketing  initiatives  which  resulted  in a shift in  sales  mix to
lower-priced,  lower-margin items, (iii) additional  increases in food costs due
to higher beef  prices,  (iv) a decline in average  unit  volumes at Don Pablo's
which  resulted  in  decreased   leverage  on  fixed   management  labor  costs,
depreciation and amortization,  rent and other fixed operating  expenses and (v)
additional   increases  in  depreciation  expense  generated  primarily  by  the
installation of new point-of-sales  systems at Don Pablo's in the fourth quarter
of 1999.  Increased  operating  expenses were  somewhat  offset by a decrease in
preopening  expenses due to a decline in new restaurant  openings and increasing
average  unit  volumes  at Hops  which  improved  leverage  on  fixed  operating
expenses.

        Discontinued Brands

     Fiscal                                     2001         2000         1999
     ---------------------------------------------------------------------------
     Restaurant sales:
        Applebee's                                 -%           -%        11.1%
        Canyon Cafe                             21.7         19.6         22.8
        McCormick & Schmick's                   78.3         80.4         66.1
     ---------------------------------------------------------------------------
           Total restaurant sales              100.0        100.0        100.0
     ---------------------------------------------------------------------------
     Restaurant operating expenses:
        Food and beverage                       29.1         29.4         29.1
        Payroll and benefits                    32.7         31.8         31.1
        Depreciation and amortization            1.9          2.2          1.7
        Other operating expenses                24.6         23.9         23.7
     ---------------------------------------------------------------------------
           Total restaurant operating expenses  88.2         87.3         85.7
     ---------------------------------------------------------------------------
     Income from restaurant operations          11.8%        12.7%        14.3%
     ---------------------------------------------------------------------------

     Restaurant operating expenses as a percent of sales for discontinued brands
increased to 88.2% in 2001 from 87.3% in 2000 and 85.7% in 1999.  The  resulting
decrease  in 2001  restaurant  operating  margins is  principally  due to (i) an
increase  in  utility  costs  affecting   substantially  all  of  the  Company's
restaurants,  (ii) an increase in payroll and benefits due  primarily to efforts
to improve customer service and management  turnover rates including  management
base pay  increases  implemented  in the fourth  quarter of 2000 at  McCormick &
Schmick's,  and (iii) a decline in  average  unit  volumes at Canyon  Cafe which
resulted in decreased leverage on fixed management labor costs, depreciation and
amortization,  rent and other  fixed  operating  expenses.  Increased  operating
expenses were somewhat  offset by a decrease in depreciation  expense  resulting
from the  discontinuation,  beginning in June,  of  depreciation  related to the
McCormick & Schmick's assets which were sold during the third quarter of 2001 as
well as a reduction in depreciation  related to the Canyon Cafe assets which are
classified as held for sale. The closure of 3 Canyon Cafe restaurants during the
first quarter of 2001 also resulted in decreased depreciation expense.

     The 2000 decrease in restaurant  operating  margins was  principally due to
(i) a decline in average unit volumes at Canyon Cafe which resulted in decreased
leverage on fixed management labor costs,  depreciation and  amortization,  rent

                                    15
<PAGE>
and other fixed operating  expenses,  (ii) an increase in  depreciation  expense
generated  primarily  by  the  installation  of  new  point-of-sale  systems  at
McCormick & Schmick's in the fourth quarter of 1999. Due to the 1999  completion
of the  Applebee's  divestiture,  Canyon Cafe and McCormick & Schmick's food and
beverage  costs,  which are typically  higher than that of Applebee's,  were not
offset by Applebee's food and beverage costs in 2000. This resulted in increased
food and beverage costs as a percent of sales in 2000 for discontinued brands.

General and Administrative Expenses

     General  and  administrative  expenses  were  5.2% of  total  sales in 2001
compared to 5.6% in 2000 and 5.9% in 1999.  The  decrease in 2001 was  primarily
attributable to synergies  gained from the  consolidation of the Don Pablo's and
Canyon Cafe headquarters into the Madison,  Georgia corporate office facility in
the second quarter of 2000 and the elimination of certain  management  positions
in the first  quarter of 2001.  As a result,  decreasing  sales  volumes did not
generate a corresponding  increase in general and  administrative  expenses as a
percent of sales.  General and  administrative  expenses  related to core brands
were 5.7% of total core brand sales in 2001 compared to 6.1% in 2000 and 7.0% in
1999.

Asset Revaluation and Other Special Charges

     Asset  revaluation and other special charges totaled $66.3 million in 2001.
These  charges,  which  were  predominately  noncash,  reflect  a $45.0  million
non-cash asset  impairment  charge at Canyon Cafe. A continued  deterioration of
sales and corresponding lack of operating performance  improvement resulted in a
carrying  amount of assets which exceeded the sum of expected  future cash flows
associated with such assets.  As a result, an impairment loss was recorded based
on the difference  between the estimated  fair value and the carrying  amount of
the Canyon Cafe assets.  At December  30,  2001,  the assets of Canyon Cafe have
been  classified as assets held for sale due to the pending  divestiture  of the
brand.  The Company  also  recorded an asset  impairment  charge of $8.4 million
related  primarily to  underperforming  restaurants  along with an $11.1 million
allowance  against the  ultimate  realization  of notes  receivable  from Tom E.
DuPree,  Jr., the Company's Chairman and Chief Executive Officer.  The allowance
on Mr. DuPree's notes was  established  based on the estimated fair value of the
underlying  collateral  which secures the notes.  The remaining  $1.8 million in
asset  revaluation  and other  special  charges was  attributable  primarily  to
employee severance and other payroll related costs.

     In 2000, asset revaluation and other special charges totaled $38.2 million.
These  charges,  which were  predominately  noncash,  reflect the fourth quarter
decision to close 13  underperforming  restaurants  including  four Don Pablo's,
three Canyon Cafes and two Hops  restaurants  which were closed in early January
2001 and four  additional  Don Pablo's which were closed in March 2001. In 2000,
these 13 locations  generated a combined  operating  loss of $3.2  million.  The
Company recorded a $22.3 million charge related to these closings which included
adjusting the underlying  fixed assets to estimated net realizable value as well
as accruals for lease  terminations and other related closing costs. The Company
also recorded an asset revaluation  charge of $11.1 million generated  primarily
by the lack of  significant  new  restaurant  development  planned  for the next
several years including the write off of costs associated with sites that are no
longer expected to be developed in addition to other related  development  costs
which are not anticipated to be fully  recoverable.  In addition,  in connection
with the  consolidation of the Don Pablo's and Canyon Cafe office facilities and
the conclusion of the strategic  alternatives  evaluation,  the Company recorded
charges in the second and third  quarters  of $3.2  million  related to employee
severance and other costs  associated  with the office  consolidations  and $1.6
million associated with the completion of the strategic alternatives evaluation.

     In 1999, the Company recorded special charges of $2.2 million. A portion of
the 1999 charges  reflected  fees paid in  conjunction  with the  evaluation  of
strategic  alternatives.  The  remainder  of the  1999  special  charge  related
primarily to programs  initiated at Don Pablo's,  Canyon Cafe and the  Company's
corporate  headquarters  to reorganize  management  and reduce  overhead  costs,
including payroll and employee termination and severance costs.

Interest and Other Expenses

     In 2001,  interest expense decreased to $35.3 million from $38.3 million in
2000.  The decrease was  predominately  attributable  to (i) the  divestiture of
McCormick & Schmick's,  the  proceeds of which were used to repay $95.8  million
outstanding under the Company's revolving credit facility on August 22, 2001 and
(ii) favorable  mark-to-market  adjustments under a  fixed-to-floating  interest
rate swap  agreement.  Decreases  in interest  expense were  somewhat  offset by
increased  interest  charges on  extended  payment  terms  related  to  accounts
payable.
                                       16
<PAGE>
     The  increase  in  interest  expense  from  $24.1  million in 1999 to $38.3
million in 2000 was  predominately  attributable  to (i) a full year's  interest
expense associated with the $100 million 11.75% senior subordinated notes issued
in the second quarter of 1999, (ii) an increase of 3.2% in the weighted  average
interest rate associated with revolving credit, plus the impact of payments made
under a fixed-to-floating  interest rate swap, net of mark-to-market adjustments
related to the adoption of Statement of Financial  Accounting Standards ("SFAS")
No. 133,  "Accounting for Derivative  Instruments and Hedging  Activities" which
was adopted at the  beginning  of the fourth  quarter of 2000,  (iii)  increased
amortization  of  deferred  loan  costs  associated  with the  revolving  credit
agreement  amendment finalized in the second quarter of 2000 and (iv) a decrease
in interest  income as a result of the collection of notes  receivable  from the
Applebee's divestiture.

     Distribution  expense on preferred  securities relates to the 1997 issuance
of 2,300,000, $3.50 term convertible securities with a liquidation preference of
$50 per security and convertible into 3.3801 shares of Avado Brands common stock
for each security (the "Convertible Preferred Securities"). Distribution expense
related to the Convertible Preferred Securities decreased in 2001 as a result of
the conversion of 86,128 of the  securities  into 291,115 shares of common stock
issued  from  treasury  stock  during  2001  coupled  with  842,692   additional
conversions  in 2000.  These  conversions,  which  were  made at the  option  of
holders,  coupled with 100,000  additional  conversions  in the first quarter of
2002, will result in a decrease in distribution  expense of  approximately  $3.6
million  annually.  In  addition,  the Company has the right to defer  quarterly
distribution  payments  on the  Convertible  Preferred  Securities  for up to 20
consecutive  quarters  and has  deferred all such  payments  beginning  with the
December 1, 2000 payment until  December 1, 2005. The Company may pay all or any
part of the interest accrued during the extension period at any time.

     A gain on disposal of assets of $12.4  million in 2001 reflects the sale of
McCormick &  Schmick's  which was  somewhat  offset by the write off of deferred
loan costs  associated  with the Company's  revolving  credit facility which was
repaid with  proceeds from the sales  transaction,  as well as the net result of
the sale of an office facility in Bedford,  Texas and the sale of various closed
restaurant  properties  and  miscellaneous  assets.  In  addition,  the  Company
recorded a gain of $6.9 million  generated  by a 2001  amendment to its fixed to
floating rate interest swap  agreement.  In 2000, the loss on disposal of assets
of $22.8 million primarily  reflects the sale of a 20-percent equity interest in
United Kingdom-based Belgo Group PLC for $8.5 million and the commitment to exit
unprofitable   U.S.  joint  venture   investments   with  Belgo  Group  PLC  and
PizzaExpress  PLC. In 2000, the Company also recorded  charges to adjust certain
assets  held for sale,  including  the office  facility in  Bedford,  Texas,  to
estimated net realizable value. In addition,  certain corporate assets which are
not  expected to have a future value were written off. The 1999 gain on disposal
of assets of $2.0 million reflects Applebee's  divestiture gains of $7.8 million
which were partially  offset by net losses  incurred on the divestiture of other
various assets.

     Other  expenses  relate  primarily  to  amortization  of  goodwill  and the
incurrence  of  various  tax  penalties  in  addition  to  other   miscellaneous
non-operating and typically  non-recurring  income and expenses.  These expenses
increased in 2001 primarily due to the incurrence of tax penalties.

Income Tax Expense

     Although the Company  incurred a loss before  income taxes of $84.1 million
for 2001,  the  Company  recorded  an income tax  expense  for the year of $11.2
million.  This was partly due to the sale of McCormick & Schmick's being treated
as an asset sale for tax purposes. For financial statement purposes, goodwill of
approximately  $49.6  million  relating to the assets sold  reduced the reported
gain on sale, but was not deductible  for tax purposes.  In addition,  the $45.0
million write down of Canyon Cafe assets included approximately $33.5 million of
goodwill that is non-deductible for tax purposes. Primarily as a result of these
significant  permanent book-tax basis  differences,  income tax expense for 2001
was $0.4  million,  before the  additional  tax expense of $10.8 million for the
increase in the valuation allowance for deferred tax assets.

                         Liquidity and Capital Resources

     The Company's  plans for growth through new restaurant  development and its
historical  preference  to own the real  estate  on which  its  restaurants  are
situated  typically  have  caused  it to be a net  user of  cash,  even  after a
significant  amount  of  expansion  financing  was  internally   generated  from

                                     17
<PAGE>
operations.  At the beginning of 2001,  the Company's  total  long-term debt was
$306.5 million.  During 2001, the Company continued its commitment to strategies
to reduce its leverage over time and by year end had reduced  long-term  debt to
$215.8  million.  Debt reduction  strategies in 2001 included the divestiture of
McCormick  &  Schmick's  which  resulted  in a $95.8  million  reduction  in the
Company's  revolving  credit  facility.  Other 2001 debt  reduction  initiatives
included the closure of 13 underperforming restaurants which generated operating
losses  of $3.2  million  in 2000  and the  exit  from  two  unprofitable  joint
ventures.  The proceeds from the sale of the related  assets enabled the Company
to further reduce debt.  The Company has also  suspended the quarterly  dividend
payment on its Convertible  Preferred  Securities  since December 1, 2000. These
payments  may be  suspended  for  20  consecutive  quarters.  In  addition,  new
restaurant  development  for 2001 and plans for the next several years have been
dramatically  reduced from historical levels; the leasing of new sites to reduce
initial  capital  investment  will  take  preference  over  ownership;   and  an
aggressive  program to realize cash from  various  operating  and  non-operating
assets has been implemented with proceeds from the sale of non-operating  assets
in 2001 totaling  $12.0  million.  Also,  during the fourth quarter of 2001, the
Company finalized its decision to divest Canyon Cafe and expects to complete the
divestiture in 2002 with total  consideration  for the  transaction  expected to
approximate $5.0 to $6.0 million.

     Generally,  the  Company  operates  with  negative  working  capital  since
substantially  all restaurant sales are for cash while payment terms on accounts
payable typically range from 0 to 45 days.  Fluctuations in accounts receivable,
inventories,  prepaid  expenses and other current assets,  accounts  payable and
accrued  liabilities  typically occur as a result of new restaurant openings and
the  timing  of  settlement  of  liabilities.  Decreases  in  current  asset and
liability  accounts  occurred  in 2001  primarily  as a  result  of the  sale of
McCormick &  Schmick's  and the  reclassification  of the Canyon Cafe assets and
liabilities to assets held for sale.  Additional  decreases in accounts  payable
during 2001  occurred as a result of a planned  reduction  in the number of days
payables were  outstanding  in addition to a reduction in capital  expenditures.
Increases  in accrued  liabilities,  which were more than  offset by the sale of
McCormick &  Schmick's,  occurred  primarily  as a result of  deferred  payments
related to sales,  use,  property  and other  taxes and the  suspended  payments
related to the Convertible Preferred Securities.

     At December  30, 2001,  the Company had one credit  facility in place which
was entered  into in 1999 with an initial  total credit  availability  of $125.0
million and maturing in June 2002. In 2001,  proceeds from the sale of McCormick
& Schmick's  were used to repay $95.8  million  outstanding  under the facility.
Subsequent  to  the  repayment,  future  borrowings  under  this  facility  were
prohibited.

     The primary uses of funds in 2001  included (i) net  repayment of revolving
credit  agreements of $90.8 million (ii) capital  expenditures  of $17.9 million
for the opening of one Hops and two McCormick & Schmick's restaurants as well as
maintenance capital for existing restaurants, (iii) payments of $10.0 million to
collateralize  letters of credit for the Company's  self-insurance  programs and
(iv) net  cash  used in  operations  of $7.3  million  which  included  interest
payments of $26.4 million and operating lease payments of $31.4 million.

     The following  table  summarizes  the  Company's  future  contractual  cash
obligations:
<TABLE>
<CAPTION>
    Contractual Cash Obligations          2002        2003         2004         2005         2006       Thereafter
-------------------------------------- ----------- ------------ ------------ ------------ ------------ -------------
<S>                                       <C>          <C>          <C>          <C>         <C>           <C>
Senior Notes - principal payment                -            -            -            -     $116,500             -
Senior Notes - interest payments          $11,359      $11,359      $11,359      $11,359        5,679             -
Senior Subordinated Notes -
     principal payment                          -            -            -            -            -      $100,000
Senior Subordinated Notes -
     interest payments                     11,750       11,750       11,750       11,750       11,750        29,375
Convertible Preferred Securities
     - principal payments                       -            -            -            -            -        68,559
Convertible Preferred Securities
     - distribution payments                    -            -            -       30,802        4,799        97,182
Minimum operating lease
     payments                              18,123       18,027       17,574       16,335       14,718        88,358
-------------------------------------- ----------- ------------ ------------ ------------ ------------ -------------
Total                                     $41,232      $41,136      $40,683      $70,246     $153,446      $383,474
====================================== =========== ============ ============ ============ ============ =============
</TABLE>
     The  preceding  schedule  summarizes  the  Company's   contractual  payment
obligations  as they existed at December 30,  2001.  Actual  payments may differ
from these  amounts due primarily to interest  payments on borrowings  under the
Company's  credit  agreement and  additional  operating  lease  payments for new

                                       18
<PAGE>
development  as well as extensions  of existing  leases.  In addition,  the 2005
distribution  payments  on the  Convertible  Preferred  Securities  reflect  the
Company's  right  to  defer  quarterly   distribution  payments  for  up  to  20
consecutive quarters. The Company has deferred all such payments, beginning with
the December 1, 2000 payment, until December 1, 2005. The Company may pay all or
any part of the interest accrued during the extension period at any time.

     On March 25, 2002, the Company completed a $75.0 million credit facility to
replace its existing credit agreement.  The facility, which matures on March 25,
2005,  limits total  borrowing  capacity at any given time to an amount equal to
two and one  quarter  times the  Company's  trailing 12 months  earnings  before
interest,  income taxes and depreciation and amortization (EBITDA) as defined in
the agreement.  At December 30, 2001,  EBITDA,  which excludes the operations of
McCormick & Schmick's,  totaled $30.7  million.  The agreement  provides a $35.0
million  revolving  credit  facility,  which may be used for working capital and
general  corporate  purposes,  and a $40.0 million term loan facility,  which is
limited to certain defined purposes,  excluding working capital and development.
In certain  circumstances,  borrowings under the term loan facility are required
to be repaid to the  lender  and any such  repayments  are not  available  to be
re-borrowed  by the Company.  Events  generating a required  repayment  include,
among other  things,  proceeds from asset  dispositions,  casualty  events,  tax
refunds  and excess  cash flow,  each as  defined  in the credit  agreement.  In
addition,  the lender reserves the right to impose certain  reserves against the
Company's  total borrowing  availability  under the facility which may limit the
Company's  availability  on  both  the  revolving  and  term  loans.  Additional
covenants contained in the agreement require the Company to, among other things,
(i) achieve  certain EBITDA targets,  (ii) maintain  defined net worth and fixed
charge  coverage  ratios,  (iii)  limit  the  incurrence  of  certain  liens  or
encumbrances and (iv) limit certain payments. Irrespective of future borrowings,
certain  obligations  will  exist  with  respect  to the  new  credit  agreement
including  anniversary  fees of $1.1  million  each year and an  additional  fee
payable at maturity of $5.1 million. The loan is secured by substantially all of
the Company's assets.

     In March 2002,  the Board of  Directors  approved a series of  transactions
whereby Tom E. DuPree, Jr., Chairman and Chief Executive Officer of the Company,
sold the real estate  collateral  which  secured one of his notes payable to the
Company  and with the  proceeds  purchased  $14.0  million  in face value of the
Company's  11.75% Senior  Subordinated  Notes,  maturing in June 2009. The notes
were pledged as collateral to secure  amounts owed by Mr. DuPree to the Company.
All  amounts  of  interest  and  principal  paid by the  Company  on the  Senior
Subordinated Notes owned by Mr. DuPree and pledged as collateral to the Company,
will be used to make payments to the Company on amounts due to the Company under
his current notes payable to the Company. Additional discussion of related party
transactions  is included  in Note 19 to the  Company's  Consolidated  Financial
Statements.

     The  Company  is also  exposed to certain  contingent  payments.  Under the
Company's insurance programs,  coverage is obtained for significant exposures as
well as  those  risks  required  to be  insured  by law or  contract.  It is the
Company's  preference to retain a significant portion of certain expected losses
related  primarily to workers'  compensation,  physical  loss to  property,  and
comprehensive  general  liability.  Provisions for losses  estimated under these
programs are recorded  based on estimates of the aggregate  liability for claims
incurred.  In 2001,  claims  paid under the  Company's  self-insurance  programs
totaled  $8.0  million.  In  addition,  at December  30,  2001,  the Company was
contingently  liable  for  letters  of credit  aggregating  approximately  $10.0
million which secure its insurance programs.

     The Company also remains contingently liable for lease obligations relating
to 86 Applebee's restaurants and nine Harrigan's restaurants which were divested
during 1998 and 1999. Assuming that each respective  purchaser became insolvent,
an event management believes to be remote, the Company could be liable for lease
payments  extending  through 2017 with minimum  lease  payments  totaling  $37.8
million.

     The  Company  also  incurs  various  capital  expenditures  related  to the
maintenance  of existing  restaurants  and  restaurant  equipment in addition to
capital  requirements  for developing new restaurants.  Capital  expenditures in
2001 were $17.9  million and provided for the opening of three new  restaurants,
as well as maintenance  capital for existing  restaurants.  In 2002, the Company
anticipates  opening six new  restaurants  including three Don Pablo's and three
Hops restaurants. Capital requirements for the construction of these restaurants
are  expected  to  approximate  $5 to $7 million  with  maintenance  capital for
existing restaurants  expected to be an additional $11 to $13 million.  Although
development  plans  include  the  opening of six new  restaurants  in 2002,  the
Company  does  not  currently  have any  material  capital  commitments  for new

                                       19
<PAGE>
restaurants  and will  evaluate the potential  new  restaurant  openings in 2002
based on projected return on investment and capital availability.

     The terms of the Company's  senior and  subordinated  notes,  interest rate
swap  agreement,  $30.0 million  master  equipment  lease and $28.4 million Hops
sale-leaseback  transaction also include various  provisions which,  among other
things,  require the  Company to (i)  maintain  defined  net worth and  coverage
ratios,  (ii) maintain defined  leverage  ratios,  (iii) limit the incurrence of
certain  liens or  encumbrances  in excess of  defined  amounts  and (iv)  limit
certain  payments.  In  conjunction  with the  March  25,  2002  closing  of the
Company's  refinanced credit facility,  the Company terminated its interest rate
swap  agreement  thereby  eliminating  any  aforementioned  restrictions  on the
Company  contained in that  agreement.  In  addition,  in March 2002 the Company
amended its master  equipment  lease  agreement to conform the  covenants to the
refinanced credit facility and also obtained an amendment of certain  provisions
contained  in its  sale-leaseback  agreement.  As  amended,  the  Company was in
compliance with the various provisions of its agreements at March 25, 2002.

                          Critical Accounting Policies

     Management's  Discussion  and Analysis  discusses the results of operations
and  financial  condition as reflected in the Company's  consolidated  financial
statements,  which have been prepared in accordance with  accounting  principles
generally accepted in the United States. As discussed in Note 1 to the Company's
Consolidated  Financial  Statements,  the preparation of financial statements in
conformity with accounting  principles  generally  accepted in the United States
requires  management to make estimates and assumptions  that affect the reported
amounts  of assets and  liabilities  and  disclosure  of  contingent  assets and
liabilities  at the date of the  financial  statements  and reported  amounts of
revenues  and  expenses  during  the  reporting  period.  On an  ongoing  basis,
management  evaluates its estimates and  judgments,  including  those related to
depreciation,  amortization and recoverability of long-lived  assets,  including
intangible assets, capitalization of development costs, self-insurance reserves,
and  income  taxes.   Management  bases  its  estimates  and  judgments  on  its
substantial  historical  experience and other relevant  factors,  the results of
which form the basis for making  judgments  about the carrying  values of assets
and  liabilities  that are not readily  apparent from other  sources.  While the
Company  believes that the historical  experience  and other factors  considered
provide  a  meaningful  basis  for  the  accounting   policies  applied  in  the
preparation  of  the  consolidated  financial  statements,  the  Company  cannot
guarantee  that its  estimates  and  assumptions  will be accurate,  which could
require the Company to make adjustments to these estimates in future periods.

     Premises and  Equipment.  The Company  records  premises  and  equipment at
historical cost and depreciates these assets on a straight-line basis over their
estimated  useful lives.  Costs  capitalized by the Company also include certain
direct costs  associated  with  acquiring land and leaseholds and developing new
restaurant  sites. In most instances,  the Company estimates the useful lives of
buildings to be 30 years and equipment to be 7 years. Leasehold improvements are
depreciated using the  straight-line  method over the shorter of the lease term,
including renewal periods, or the estimated useful life of the asset. Impairment
of assets is recorded in  accordance  with  Statement  of  Financial  Accounting
Standards ("SFAS") No. 121,  "Accounting for the Impairment of Long-Lived Assets
and  Long-Lived  Assets to be Disposed Of", which requires the Company to review
the carrying value of long-lived assets for impairment when events or changes in
circumstances  indicate  that  the  carrying  amount  of the  asset  may  not be
recoverable.  Beginning  in fiscal  2002,  the Company will be required to adopt
Statement of Financial  Accounting  Standards ("SFAS") No. 144,  "Accounting for
the Impairment or Disposal of Long-Lived Assets", which supersedes SFAS No. 121.
The  Company  has  not  yet  determined  the  effects  of  SFAS  No.  144 on its
consolidated  financial  position or results of  operations.  The Company can be
impacted by changes in the  estimated  useful lives of its assets or  impairment
resulting from assets being carried in excess of fair value.

     Intangible Assets. The 1997 acquisitions of Canyon Cafe, Hops and McCormick
& Schmick's generated significant goodwill balances  (representing the excess of
purchase  price over fair value of net assets  acquired).  Goodwill is amortized
over the  expected  period  to be  benefitted,  typically  40  years,  using the
straight-line  method.  Recoverability of this intangible asset is determined by
assessing  whether the  amortization of the goodwill  balance over its remaining
life could be recovered through  undiscounted future operating cash flows of the
acquired  operations.  The amount of  goodwill  impairment,  if any, is measured
based on projected  discounted future operating cash flows using a discount rate
reflecting the Company's  average cost of funds. In 2001, the Company recorded a
$45.0 million  impairment  charge at Canyon Cafe which  primarily  reflected the
impairment of the goodwill  associated with that acquisition.  In addition,  the
2001  divestiture  of McCormick & Schmick's  resulted in the  elimination of the


                                       20
<PAGE>
goodwill  generated by that  acquisition.  At December 30, 2001,  the  Company's
recorded goodwill balance of $34.9 million related solely to Hops.  Beginning in
fiscal 2002, the Company will adopt SFAS No. 142, "Goodwill and Other Intangible
Assets",  and will cease to  amortize  goodwill.  In lieu of  amortization,  the
Company  will  perform an initial  impairment  review of goodwill  and an annual
impairment review thereafter.  The Company cannot determine the future extent of
impairment,  if any,  until  such  reviews  are  completed  and  there can be no
assurance that a material  impairment charge will not be recorded in the future,
if the carrying value of the goodwill exceeds fair value.

     Insurance Programs.  Under the Company's  insurance  programs,  coverage is
obtained for significant exposures as well as those risks required to be insured
by law or  contract.  It is the  Company's  preference  to retain a  significant
portion of certain losses related primarily to workers'  compensation,  physical
loss to property,  and  comprehensive  general  liability.  Provision for losses
expected under these programs are recorded based upon estimates of the aggregate
liability for claims incurred. Such estimates are based on management judgements
and utilize the Company's  historical  experience,  information  provided by the
Company's third party  administrators and certain actuarial  assumptions used by
the  insurance  industry.  Management  continually  evaluates  the potential for
changes in loss estimates and the potential for future adverse loss developments
in these areas is highly uncertain.

     Income Taxes.  Income taxes are accounted for under the asset and liability
method.  Deferred tax assets and  liabilities  are recognized for the future tax
consequences   attributable  to  differences  between  the  financial  statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
bases and operating loss and tax credit  carryforwards.  Deferred tax assets and
liabilities  are measured  using enacted tax rates  expected to apply to taxable
income in the years in which  those  temporary  differences  are  expected to be
recovered  or settled.  The effect on deferred tax assets and  liabilities  of a
change in tax rates is  recognized  in income in the period  that  includes  the
enactment  date.  In  assessing  the   realizability  of  deferred  tax  assets,
management considers whether it is more likely than not that some portion or all
of the  deferred tax assets will not be realized.  The ultimate  realization  of
deferred tax assets is dependent  upon the  generation of future  taxable income
during the  periods in which  those  temporary  differences  become  deductible.
Management  considers  the  scheduled  reversal  of  deferred  tax  liabilities,
projected  future  taxable  income,  and tax planning  strategies in making this
assessment. Based upon these factors, management believes it is more likely than
not the Company  will  realize the benefits of the  deductible  differences  for
which no valuation allowance is provided.

                               Effect of Inflation

     Management  believes  that  inflation  has not  had a  material  effect  on
earnings  during the past several years.  Inflationary  increases in the cost of
labor,  food and other  operating  costs could  adversely  affect the  Company's
restaurant  operating margins. In the past,  however,  the Company generally has
been able to modify its operations to offset increases in its operating costs.

     Various  federal  and state laws  increasing  minimum  wage rates have been
enacted over the past several years.  Such legislation,  however,  has typically
frozen  the wages of tipped  employees  at $2.13 per hour if the  difference  is
earned in tip income.  Although the Company has experienced  slight increases in
hourly labor costs in recent years, the effect of increases in minimum wage have
been  significantly  diluted due to the fact that the majority of the  Company's
hourly  employees  are  tipped  and  the  Company's  non-tipped  employees  have
historically earned wages greater than federal and state minimums.  As such, the
Company's  increases  in  hourly  labor  costs  have not been  proportionate  to
increases in minimum wage rates.

                          Forward-Looking Information

     Certain   information   contained  in  this  annual  report,   particularly
information  regarding the future economic performance and finances,  restaurant
development plans, capital requirements and objectives of management, is forward
looking.  In some cases,  information  regarding  certain important factors that
could cause actual results to differ  materially  from any such  forward-looking
statement  appear  together  with such  statement.  In addition,  the  following
factors,  in addition to other  possible  factors not listed,  could  affect the
Company's actual results and cause such results to differ  materially from those


                                       21
<PAGE>
expressed in  forward-looking  statements.  These  factors  include  competition
within the casual dining restaurant industry,  which remains intense; changes in
economic  conditions such as inflation or a recession;  consumer  perceptions of
food safety;  weather conditions;  changes in consumer tastes; labor and benefit
costs;  legal claims;  the continued  ability of the Company to obtain  suitable
locations and financing for new restaurant development;  government monetary and
fiscal  policies;  laws and regulations;  and  governmental  initiatives such as
minimum wage rates and taxes.  Other  factors  that may cause actual  results to
differ from the  forward-looking  statements  contained in this release and that
may affect the  Company's  prospects in general are described in Exhibit 99.1 to
the  Company's  Form 10-Q for the fiscal  quarter  ended April 2, 2000,  and the
Company's other filings with the Securities and Exchange Commission.

                          New Accounting Pronouncements

     In June 2001, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement  of  Financial   Accounting  Standards  ("SFAS")  No.  141,  "Business
Combinations",  which is effective for all business combinations initiated after
June  30,  2001.  SFAS  141  requires  companies  to  account  for all  business
combinations  using the  purchase  method of  accounting,  recognize  intangible
assets if certain  criteria are met, as well as provide  additional  disclosures
regarding  business  combinations  and allocation of purchase price. The Company
does not  anticipate  that  adoption  of the  statement  will have any  material
adverse effect on its consolidated financial position or results of operations.

     In June 2001, the FASB issued SFAS No. 142,  "Goodwill and Other Intangible
Assets",  which requires  nonamortization of goodwill and intangible assets that
have  indefinite  useful lives and annual tests of  impairments of those assets.
The statement also provides specific guidance about how to determine and measure
goodwill and intangible asset impairments, and requires additional disclosure of
information  about goodwill and other intangible  assets.  The provisions of the
statement are required to be applied  starting with fiscal years beginning after
December  15,  2001 and  applied to all  goodwill  and other  intangible  assets
recognized in financial  statements at the date. The Company will adopt SFAS 142
effective at the  beginning of its fiscal 2002 year. As a result of the adoption
of SFAS 142,  amortization  expense related to the Company's  intangible  assets
will  decrease  by  approximately  $1.0  million in 2002.  The  Company  will be
required  to  perform  an  assessment  of  whether  there  is an  indication  of
impairment  as of the date of adoption.  Although the Company does not currently
anticipate any significant impacts, the Company is assessing the impact, if any,
of transitional impairment losses.

     In July  2001,  the  FASB  issued  SFAS  No.  143,  "Accounting  for  Asset
Retirement Obligations",  which requires entities to recognize the fair value of
a  liability  for an asset  retirement  obligation  in the period in which it is
incurred.  The statement is effective for fiscal years  beginning after June 15,
2002.  The Company is assessing the impact of adoption of the  statementt on its
consolidated financial position and results of operations.

     In  August  2001,  the  FASB  issued  SFAS  No.  144,  "Accounting  for the
Impairment or Disposal of Long-Lived  Assets",  which  supersedes  both SFAS No.
121,  "Accounting  for the  Impairment of Long-Lived  Assets and for  Long-Lived
Assets to Be Disposed Of" and the  accounting  and  reporting  provisions of APB
Opinion No. 30,  "Reporting the Results of  Operations-Reporting  the Effects of
Disposal of a Segment of a business, and Extraordinary, Unusual and Infrequently
Occurring Events and  Transactions"  (Opinion 30), for the disposal of a segment
of a business.  SFAS No. 144 retains the fundamental  provisions in SFAS No. 121
for recognizing and measuring  impairment  losses on long-lived  assets held for
use and  long-lived  assets to be  disposed  of by sale,  while  also  resolving
significant  implementation  issues associated with SFAS No. 121.  Statement 144
retains  the basic  provisions  of  Opinion  30 on how to  present  discontinued
operations in the income  statement but broadens that  presentation to include a
component of an entity  (rather  than a segment of a business).  Unlike SFAS No.
121, an  impairment  assessment  of goodwill is not governed by  Statement  144.
Rather,  goodwill is evaluated for impairment under SFAS No. 142,  "Goodwill and
Other  Intangible  Assets".  The  Company  is  required  to adopt  SFAS No.  144
beginning in fiscal 2002 and does not anticipate  that adoption of the statement
will have any material adverse effect on its consolidated  financial position or
results of operations.


                                       22
<PAGE>
Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

     The  Company is exposed to market risk from  changes in interest  rates and
changes in commodity  prices.  Historically  the Company's  exposure to interest
rate risk has related  primarily to variable  U.S.-based rates and foreign-based
rate  obligations  on the Company's  revolving  credit  agreement and a fixed to
floating  interest  rate swap  agreement.  Interest  rate swap  agreements  have
historically  been utilized to manage overall  borrowing costs and balance fixed
and floating  interest  rate  obligations.  As of March 25, 2002 the Company has
terminated  the one such swap  agreement  it had in place  during  2001,  and no
further obligation remains after that date.

     The Company purchases certain commodities such as beef, chicken,  flour and
cooking  oil.  Purchases  of these  commodities  are  generally  based on vendor
agreements which often contain contractual features that limit the price paid by
establishing  price floors or caps. As commodity price aberrations are generally
short-term  in nature  and have not  historically  had a  significant  impact on
operating  performance,  financial  instruments  are not used to hedge commodity
price risk.


                                       23
<PAGE>
<TABLE>
Avado Brands, Inc.
Consolidated Statements of Earnings

(In thousands, except per share data)
<CAPTION>
Fiscal Year Ended                                                        2001           2000            1999
------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>                  <C>            <C>
Restaurant sales:
    Canyon Cafe                                                       $     32,129          39,598         43,319
    Don Pablo's                                                            284,695         297,347        309,863
    Hops                                                                   190,802         186,500        144,488
    McCormick & Schmick's                                                  115,875         162,350        125,613
    Applebee's                                                                   -               -         21,176
------------------------------------------------------------------------------------------------------------------
          Total restaurant sales                                           623,501         685,795        644,459
------------------------------------------------------------------------------------------------------------------

Restaurant operating expenses:
    Food and beverage                                                      176,709         198,527        182,896
    Payroll and benefits                                                   204,294         219,529        200,820
    Depreciation and amortization                                           21,355          24,865         20,519
    Other operating expenses                                               170,128         176,058        157,566
------------------------------------------------------------------------------------------------------------------
          Total restaurant operating expenses                              572,486         618,979        561,801
------------------------------------------------------------------------------------------------------------------

General and administrative expenses                                         32,128          38,222         38,011
Asset revaluation and other special charges                                 66,328          38,200          2,186
------------------------------------------------------------------------------------------------------------------
Operating income (loss)                                                    (47,441)         (9,606)        42,461
------------------------------------------------------------------------------------------------------------------

Other income (expense):
    Interest expense, net                                                  (35,305)        (38,262)       (24,073)
    Distribution expense on preferred securities                            (4,864)         (7,195)        (8,050)
    Gain (loss) on disposal of assets                                       12,436         (22,828)         1,972
    Other, including goodwill amortization                                  (8,936)         (7,188)        (4,390)
------------------------------------------------------------------------------------------------------------------
          Total other income (expense)                                     (36,669)        (75,473)       (34,541)
------------------------------------------------------------------------------------------------------------------

Earnings (loss) before income taxes and cumulative
    effect of change in accounting principle                               (84,110)        (85,079)         7,920
Income taxes                                                                11,150         (25,600)         2,450
------------------------------------------------------------------------------------------------------------------
Earnings (loss) before cumulative effect of change
    in accounting principle                                                (95,260)        (59,479)         5,470
------------------------------------------------------------------------------------------------------------------
Cumulative effect of change in accounting
    principle, net of tax benefit                                                -          (6,255)             -
------------------------------------------------------------------------------------------------------------------
Net earnings (loss)                                                   $    (95,260)        (65,734)         5,470
==================================================================================================================

Basic earnings (loss) per common share:
    Basic earnings (loss) before cumulative effect of
        change in accounting principle                                $      (3.33)          (2.31)          0.20
    Cumulative effect of change in accounting principle                          -           (0.24)             -
------------------------------------------------------------------------------------------------------------------
Basic earnings (loss) per common share                                $      (3.33)          (2.55)          0.20
==================================================================================================================

Diluted earnings (loss) per common share:
    Diluted earnings (loss) before cumulative effect of
        change in accounting principle                                $      (3.33)          (2.31)          0.20
    Cumulative effect of change in accounting principle                          -           (0.24)             -
------------------------------------------------------------------------------------------------------------------
Diluted earnings (loss) per common share                              $      (3.33)          (2.55)          0.20
==================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.

                                       24
<PAGE>
<TABLE>
Avado Brands, Inc.
Consolidated Balance Sheets


(In thousands, except share data)
<CAPTION>
Fiscal Year End                                                                      2001             2000
------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                 <C>
Assets
Current assets:
      Cash and cash equivalents                                                 $      716              402
      Restricted cash                                                                9,978                -
      Accounts receivable                                                           10,237            7,621
      Inventories                                                                    5,870            9,418
      Prepaid expenses and other                                                     2,878            3,535
      Assets held for sale                                                           7,781           13,855
------------------------------------------------------------------------------------------------------------
           Total current assets                                                     37,460           34,831

Premises and equipment, net                                                        285,813          379,938
Goodwill, net                                                                       34,920          132,012
Deferred income tax benefit                                                         11,620           18,900
Other assets                                                                        26,408           44,000
------------------------------------------------------------------------------------------------------------
                                                                                $  396,221          609,681
============================================================================================================

Liabilities and Shareholders' Equity
Current liabilities:
      Accounts payable                                                          $   14,516           31,568
      Accrued liabilities                                                           63,180           64,567
      Current installments of long-term debt                                            13           15,034
      Income taxes                                                                  33,773           30,164
------------------------------------------------------------------------------------------------------------
           Total current liabilities                                               111,482          141,333

Long-term debt                                                                     215,815          291,507
Other long-term liabilities                                                          3,111           16,024
------------------------------------------------------------------------------------------------------------
           Total liabilities                                                       330,408          448,864
------------------------------------------------------------------------------------------------------------

Company-obligated mandatorily redeemable preferred securities
       of Avado Financing I, a subsidiary holding solely Avado
       Brands, Inc. 7% convertible subordinated debentures
       due March 1, 2027                                                            68,559           72,865

Shareholders' equity (deficit):
      Preferred stock, $0.01 par value. Authorized 10,000,000 shares;
          none issued                                                                    -                -
      Common stock, $0.01 par value. Authorized - 75,000,000 shares;
          issued - 40,478,760 shares in 2001 and 2000;
          outstanding - 28,682,140 shares in 2001 and 28,206,673 in 2000               405              405
      Additional paid-in capital                                                   146,139          147,809
      Retained earnings                                                              5,311          100,571
      Treasury stock at cost; 11,796,620 shares in 2001 and 12,272,087 in 2000    (154,601)        (160,833)
------------------------------------------------------------------------------------------------------------
           Total shareholders' equity (deficit)                                     (2,746)          87,952
------------------------------------------------------------------------------------------------------------
                                                                                $  396,221          609,681
============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.

                                       25
<PAGE>
<TABLE>
Avado Brands, Inc.
Consolidated Statements of Shareholders' Equity (Deficit) and Comprehensive Income
<CAPTION>

                                                                                              Accumulated
                                                                     Additional                 Other                      Total
                                                    Common Stock       Paid-in    Retained   Comprehensive   Treasury  Shareholders'
(In thousands, except per share data)           Shares       Amount    Capital    Earnings      Income         Stock      Equity
------------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>          <C>       <C>        <C>            <C>        <C>          <C>
Balance at January 3, 1999                      40,479       $405      $63,431    $162,411        $24       $(114,242)   $112,029
------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
   Net earnings                                      -          -            -       5,470          -               -       5,470
   Foreign currency translation adjustment           -          -            -           -       (302)              -        (302)
------------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income                           -          -            -       5,470       (302)              -       5,168
------------------------------------------------------------------------------------------------------------------------------------
Purchase of common stock                             -          -            -           -          -         (85,538)    (85,538)
Common stock issued to benefit plans                 -          -         (368)          -          -           1,100         732
Settlement of equity forward contracts               -          -       81,809           -          -               -      81,809
Cash dividends ($0.0575 per share)                   -          -            -      (1,576)         -               -      (1,576)
------------------------------------------------------------------------------------------------------------------------------------
Balance at January 2, 2000                      40,479        405      144,872     166,305       (278)       (198,680)    112,624
------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
   Net earnings (loss)                               -          -            -     (65,734)         -               -     (65,734)
   Foreign currency translation adjustment           -          -            -           -        278               -         278
------------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income (loss)                    -          -            -     (65,734)       278               -     (65,456)
------------------------------------------------------------------------------------------------------------------------------------
Conversion of convertible preferred securities       -          -        3,366           -          -          37,335      40,701
Common stock issued to benefit plans                 -          -         (429)          -          -             512          83
------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000                    40,479        405      147,809     100,571          -        (160,833)     87,952
------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
     Net earnings (loss)                             -          -            -     (95,260)         -               -     (95,260)
------------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income (loss)                    -          -            -     (95,260)         -               -     (95,260)
------------------------------------------------------------------------------------------------------------------------------------
Conversion of convertible preferred securities       -          -          648           -          -           3,816       4,464
Common stock issued to benefit plans                 -          -       (2,318)          -          -           2,416          98
------------------------------------------------------------------------------------------------------------------------------------
Balance at December 30, 2001                    40,479       $405     $146,139      $5,311          -       $(154,601)    $(2,746)
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.

                                       26
<PAGE>
<TABLE>
Avado Brands, Inc.
Consolidated Statements of Cash Flows
<CAPTION>
(In thousands)
Fiscal Year Ended                                                                       2001          2000          1999
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>               <C>           <C>
Cash flows from operating activities:
      Net earnings (loss)                                                          $   (95,260)      (65,734)        5,470
      Adjustments to reconcile net earnings to net cash
           provided by operating activities:
               Depreciation and amortization                                            28,747        33,122        26,176
               Deferred income taxes                                                    10,530       (25,710)          743
               Asset revaluation and other special charges                              66,328        38,200         2,186
               Loss (gain) on disposal of assets                                       (12,436)       22,828        (1,972)
               Cumulative effect of change in accounting principle, net of taxes             -         6,255             -
               Increase (decrease) in value of interest rate swap                         (739)       (1,150)            -
               Loss (income) from investments carried at equity                              -            69           311
               (Increase) decrease in assets:
                    Accounts receivable                                                   (994)       (2,180)        1,863
                    Inventories                                                            960        (1,078)       (1,472)
                    Prepaid expenses and other                                          (2,997)          819            45
                Increase (decrease) in liabilities:
                     Accounts payable                                                   (4,938)       16,062        (7,511)
                     Accrued liabilities                                                 7,293         3,037       (11,720)
                     Income taxes                                                          359         3,622            68
                     Other long-term liabilities                                        (4,116)         (183)         (565)
---------------------------------------------------------------------------------------------------------------------------
                     Net cash provided by (used in) operating activities                (7,263)       27,979        13,622
---------------------------------------------------------------------------------------------------------------------------

Cash flows from investing activities:
      Capital expenditures                                                             (17,934)      (53,808)      (84,394)
      Proceeds from sale-leaseback                                                           -        28,371             -
      Proceeds from notes receivable and disposal of assets, net                       128,752        14,074        87,152
      Investments in and advances to unconsolidated affiliates                               -        (3,099)       (2,475)
      Additions to noncurrent assets                                                    (2,406)       (2,692)         (969)
---------------------------------------------------------------------------------------------------------------------------
                     Net cash provided by (used in) investing activities               108,412       (17,154)         (686)
---------------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities:
      Net repayment of revolving credit agreements                                     (90,831)      (21,667)      (27,920)
      Proceeds from issuance of long-term debt                                               -             -        95,467
      Principal payments on long-term debt                                                 (26)          (23)          (32)
      Payments to collateralize letters of credit                                       (9,978)            -             -
      Dividends declared and paid                                                            -             -        (1,576)
      Purchase of treasury stock                                                             -             -       (85,538)
      Net collateral payments on equity forward contracts                                    -             -        10,714
---------------------------------------------------------------------------------------------------------------------------
                     Net cash provided by (used in) financing activities              (100,835)      (21,690)       (8,885)
---------------------------------------------------------------------------------------------------------------------------

Net increase (decrease) in cash and cash equivalents                                       314       (10,865)        4,051
Cash and cash equivalents at the beginning of the period                                   402        11,267         7,216
---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the period                             $           716           402        11,267
===========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.

                                       27
<PAGE>
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies

     Avado  Brands,   Inc.,   including  its  wholly  owned   subsidiaries  (the
"Company"),   is  a  multi-concept   restaurant  company  owning  and  operating
restaurants  in 29 states.  At December 30, 2001,  the Company  operated 131 Don
Pablo's Mexican Kitchen restaurants ("Don Pablo's"),  74 Hops Restaurant o Bar o
Brewery restaurants ("Hops") and 14 Canyon Cafe restaurants ("Canyon Cafe"). All
of these brands are owned on a proprietary basis. As the Canyon Cafe restaurants
were classified at year end as assets held for sale, the Company's "core" brands
consist of Don Pablo's and Hops.

     Basis of Presentation - The consolidated  financial  statements include the
accounts of Avado Brands, Inc. and its wholly owned subsidiaries. Investments in
20%- to  50%-owned  affiliates  and  partnerships,  over which the  Company  has
limited or shared  control,  are  accounted  for using the equity  method  until
disposed of in 2001. All significant  intercompany accounts and transactions are
eliminated in consolidation.

     Use of Estimates - Preparation of financial  statements in conformity  with
accounting  principles  generally  accepted  in the  United  States  of  America
requires  management to make estimates and  assumptions  related to the reported
amount of assets and  liabilities  and the  disclosure of contingent  assets and
liabilities. Actual results may ultimately differ from estimates.

     Fiscal Year - The Company's  fiscal year is a 52- or 53-week year ending on
the Sunday closest to December 31.  Accordingly,  the accompanying  consolidated
financial  statements  are as of and for the 52 weeks  ended  December  30, 2001
("2001"),  the 52 weeks ended  December 31, 2000 ("2000") and the 52 weeks ended
January 2, 2000 ("1999"). All general references to years relate to fiscal years
unless otherwise noted.

     Cash Equivalents - Cash equivalents  include all highly liquid  investments
which have original maturities of three months or less.

     Inventories - Inventories consist primarily of food, beverages and supplies
and are stated at the lower of cost (using the  first-in,  first-out  method) or
market.

     Assets Held for Sale - Assets held for sale are stated at the lower of cost
or estimated net realizable value and include discontinued brands, non-operating
restaurants  and  undeveloped  real  estate.  In  accordance  with  Statement of
Financial  Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived  Assets and Long-Lived Assets to be Disposed Of", the Company does
not recognize  depreciation or  amortization  expense during the period in which
assets are classified as held for sale.

     Premises  and  Equipment  -  Premises  and  equipment  are  stated at cost.
Depreciation  of premises and  equipment is calculated  using the  straight-line
method over the estimated useful lives of the related assets, which approximates
30 years for buildings and seven years for equipment. Leasehold improvements are
depreciated using the  straight-line  method over the shorter of the lease term,
including  renewal periods,  or the estimated useful life of the asset (Note 4).
Impairment of assets has been recorded in accordance with Statement of Financial
Accounting  Standards  ("SFAS")  No.  121,  "Accounting  for the  Impairment  of
Long-Lived  Assets and Long-Lived  Assets to be Disposed Of", which requires the
Company to review the carrying value of long-lived  assets for  impairment  when
events or changes in  circumstances  indicate  that the  carrying  amount of the
asset may not be  recoverable.  Beginning  in fiscal  2002,  the Company will be
required to adopt Statement of Financial  Accounting Standards ("SFAS") No. 144,
"Accounting  for  the  Impairment  or  Disposal  of  Long-Lived  Assets",  which
supersedes  SFAS No. 121. The Company does not  anticipate  that adoption of the
statement will have any material  adverse effect on its  consolidated  financial
position or results of operations.

     Development  Costs - Certain  direct costs are  capitalized  in conjunction
with acquiring  land and  leaseholds  and  developing  new restaurant  sites and
amortized  over  the  life  of the  related  building.  Development  costs  were
capitalized  as follows:  $0.5  million in 2001,  $2.9  million in 2000 and $4.1
million in 1999.

     Goodwill  - For 1999  through  2001,  goodwill  represented  the  excess of
purchase price over fair value of net assets acquired and was amortized over the
expected period to be benefitted,  typically 40 years,  using the  straight-line
method.  Recoverability  of this  intangible  asset was  determined by assessing

                                       28
<PAGE>
whether the  amortization of the goodwill  balance over its remaining life could
be recovered  through  undiscounted  future operating cash flows of the acquired
operations.  The amount of goodwill  impairment,  if any, was measured  based on
projected   discounted  future  operating  cash  flows  using  a  discount  rate
reflecting  the Company's  average cost of funds.  Accumulated  amortization  of
goodwill  amounted  to $4.4  million at  December  30,  2001,  $12.9  million at
December 31, 2000 and $9.4 million at January 2, 2000.  Amortization expense was
$2.6 million in 2001,  $3.6 million in 2000 and $3.5 million in 1999.  Beginning
in fiscal  2002,  the  Company  will adopt  SFAS No.  142,  "Goodwill  and Other
Intangible Assets",  which ceases amortization of goodwill and intangible assets
that have  indefinite  useful lives and requires  annual tests of  impairment of
those assets.

     Insurance Programs - Under the Company's  insurance  programs,  coverage is
obtained for significant exposures as well as those risks required to be insured
by law or  contract.  It is the  Company's  preference  to retain a  significant
portion of certain losses related primarily to workers'  compensation,  physical
loss to property,  and  comprehensive  general  liability.  Provision for losses
expected under these programs are recorded based upon estimates of the aggregate
liability for claims incurred. Such estimates are based on management judgements
and utilize the Company's  historical  experience,  information  provided by the
Company's third party administrators and certain actuarial  assumptions followed
in the insurance industry.

     Deferred  Loan and Lease  Costs -  Deferred  loan costs  include  the costs
associated  with  obtaining  revolving  credit  commitments  and the issuance of
public debt  instruments  and the  Company's  Convertible  Preferred  Securities
(Notes 6 and 8).  These costs are  amortized on a  straight-line  basis over the
term of the related security.  Deferred lease costs are related to the Company's
master equipment lease and 2000  sale-leaseback  transaction  (Note 9). Deferred
lease costs are  amortized  on a  straight-line  basis over the base lease terms
(Note 5).

     Preopening  Costs - Preopening  costs  consist of costs  incurred  prior to
opening a restaurant  location  including  wages and salaries,  hourly  employee
recruiting and training, initial license fees, advertising,  preopening parties,
lease expense, food cost, utilities, meals, lodging, and travel plus the cost of
hiring and training the management teams. The costs of such start-up  activities
are expensed as incurred.

     Advertising - Advertising  is expensed in the period covered by the related
promotions.  Total advertising  expense included in other operating expenses was
$33.2  million  in 2001,  $34.6  million in 2000 and $28.7  million in 1999,  in
addition to amounts paid to the franchisor of Applebee's in 1999.

     Rent - Rent is  expensed  using the  straight  line method over the initial
term of the lease.  Total rent expense included in other operating  expenses was
$34.6 million in 2001, $32.6 million in 2000 and $27.9 million in 1999.

     Stock-Based Compensation - Stock-based compensation is determined using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting  for  Stock  Issued  to  Employees",  and  related  interpretations.
Accordingly,  compensation  cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's  stock at the date of the grant
over the amount an employee must pay to acquire the stock (Note 15).

     Derivative  Financial  Instruments  - As of the  beginning  of  the  fourth
quarter of 2000, the Company adopted Statement of Financial Accounting Standards
("SFAS")  No.  133,   "Accounting   for  Derivative   Instruments   and  Hedging
Activities",  and its  amendments  SFAS  No.  137,  "Accounting  for  Derivative
Instruments and Hedging  Activities - Deferral of the Effective Date of SFAS No.
133" and SFAS No.  138,  "Accounting  for  Derivative  Instruments  and  Certain
Hedging Activities",  (collectively  referred to as SFAS 133). SFAS 133 requires
all  derivative  financial  instruments  to be  recognized  in the  consolidated
financial  statements  at fair  value  regardless  of the  purpose or intent for
holding the  instrument.  The  adoption of SFAS 133 was recorded as a cumulative
effect of change  in  accounting  principle  and  resulted  in a charge of $10.0
million ($6.3 million net of tax benefit) in 2000.

     Accounting  for the  changes  in the  fair  value of  derivative  financial
instruments under SFAS 133 is dependent on whether the instrument  qualifies for
hedge  accounting.  The Company  has one  fixed-to-floating  interest  rate swap
transaction  which  was  impacted  by  the  adoption  of  SFAS  133.  This  swap
transaction   represents  a  diversification  of  the  Company's  interest  rate
exposures but does not qualify for fair value hedge  accounting  under SFAS 133.
As such,  changes in fair value of the  instrument are recognized as a component
of  interest  expense as they  occur.  The  Company  recognized  a $0.7  million
reduction  to interest  expense  generated by changes in the  instrument's  fair
value in 2001 and a $1.1  million  reduction  to interest  expense in the fourth
quarter  of  2000.  In  March  2002,   the  Company   terminated   its  existing
fixed-to-floating interest rate swap.


                                       29
<PAGE>
     Income Taxes - Income taxes are accounted for under the asset and liability
method.  Deferred tax assets and  liabilities  are recognized for the future tax
consequences   attributable  to  differences  between  the  financial  statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
bases and operating loss and tax credit  carryforwards.  Deferred tax assets and
liabilities  are measured  using enacted tax rates  expected to apply to taxable
income in the years in which  those  temporary  differences  are  expected to be
recovered  or settled.  The effect on deferred tax assets and  liabilities  of a
change in tax rates is  recognized  in income in the period  that  includes  the
enactment date (Note 13).

     Reclassifications - Certain accounts have been reclassified in the 2000 and
1999 financial statements to conform with the 2001 classifications.


Note 2 - Asset Revaluation and Other Special Charges

     Asset  revaluation and other special charges totaled $66.3 million in 2001.
These  charges,  which  were  predominately  noncash,  include  a $45.0  million
non-cash asset  impairment  charge at Canyon Cafe. A continued  deterioration of
sales and corresponding lack of operating performance  improvement resulted in a
carrying  amount of assets which exceeded the sum of expected  future cash flows
associated with such assets.  As a result, an impairment loss was recorded based
on the difference  between the estimated  fair value and the carrying  amount of
the Canyon Cafe assets. During the fourth quarter of 2001, the Company finalized
its decision to divest the Canyon Cafe brand.  At December 30, 2001,  the assets
and liabilities of Canyon Cafe have been classified as assets held for sale. The
Company  also  recorded  an asset  impairment  charge  of $8.4  million  related
primarily to  underperforming  restaurants along with an $11.1 million allowance
against the ultimate  realization of notes  receivable from Tom E. DuPree,  Jr.,
the  Company's  Chairman  and Chief  Executive  Officer.  The  allowance  on Mr.
DuPree's  notes  was  established  based  on the  estimated  fair  value  of the
underlying  collateral  which secures the notes.  The remaining  $1.8 million in
asset  revaluation  and other  special  charges was  attributable  primarily  to
employee severance and other payroll related costs.

     In 2000, asset revaluation and other special charges totaled $38.2 million.
These  charges,  which were  predominately  noncash,  reflect the fourth quarter
decision to close 13  underperforming  restaurants  including  four Don Pablo's,
three Canyon Cafes and two Hops  restaurants  which were closed in early January
2001 and four  additional  Don Pablo's which were closed in March 2001. In 2000,
these 13 locations  generated a combined  operating  loss of $3.2  million.  The
Company recorded a $22.3 million charge related to these closings which included
adjusting the underlying  fixed assets to estimated net realizable value as well
as accruals for lease  terminations and other related closing costs. The Company
also recorded an asset revaluation  charge of $11.1 million generated  primarily
by the lack of  significant  new  restaurant  development  planned  for the next
several years including the write off of costs associated with sites that are no
longer expected to be developed in addition to other related  development  costs
which are not anticipated to be fully  recoverable.  In addition,  in connection
with the  consolidation of the Don Pablo's and Canyon Cafe office facilities and
the conclusion of the strategic  alternatives  evaluation,  the Company recorded
charges in the second and third  quarters  of $3.2  million  related to employee
severance and other costs  associated  with the office  consolidations  and $1.6
million associated with the completion of the strategic alternatives evaluation.

     In 1999, the Company recorded special charges of $2.2 million. A portion of
the 1999 charges  reflected  fees paid in  conjunction  with the  evaluation  of
strategic  alternatives.  The  remainder  of the  1999  special  charge  related
primarily to programs  initiated at Don Pablo's,  Canyon Cafe and the  Company's
corporate  headquarters  to reorganize  management  and reduce  overhead  costs,
including payroll and employee  termination and severance costs. At December 30,
2001, all amounts related to the 1999 charges had been paid.


                                       30
<PAGE>
     The major components of asset  revaluation and other special charges follow
(amounts in thousands):
<TABLE>
<CAPTION>
                                                                2001            2000           1999
-----------------------------------------------------------------------------------------------------
<S>                                                        <C>              <C>              <C>
Write down of premises and equipment
   of assets held for sale, to net realizable value        $   6,190        16,499               -
Impairment of Canyon Cafe goodwill                            38,059             -               -
Accruals for lease termination and other closing costs           776         5,776               -
Allowance against realization of officer notes                11,076             -               -
Asset revaluation                                              8,436        11,076               -
Office consolidation expenses                                      -         1,919               -
Strategic alternatives evaluation expenses                         -         1,645             776
Severance and other payroll related costs                      1,649         1,285           1,410
Other                                                            142             -               -
-----------------------------------------------------------------------------------------------------
Total asset revaluation and other special charges          $  66,328        38,200           2,186
-----------------------------------------------------------------------------------------------------
</TABLE>
Note 3 - Equity and Joint Venture Investments

     During 1998, the Company acquired a 20-percent interest in Belgo Group PLC,
a public restaurant company based in the United Kingdom.  The Company invested a
total of $15.2 million to acquire and maintain its 20-percent  interest.  In the
fourth quarter of 2000, the Company sold its interest for total proceeds of $8.5
million. The transaction,  including the write off of undistributed earnings and
the  recognition  of foreign  currency  translation  losses,  resulted in a $9.1
million  loss which is  included  in "Gain  (loss) on disposal of assets" in the
accompanying 2000 consolidated statement of earnings.

     In the first quarter of 2001, the Company completed its fourth quarter 2000
commitment to exit from its two unprofitable U.S. joint-venture investments with
Belgo Group PLC and PizzaExpress PLC, respectively. The venture with Belgo Group
PLC  operated  one Belgo  restaurant  in New York city  while the  venture  with
PizzaExpress  PLC operated two San Marzano  restaurants  located in Philadelphia
and Washington,  D.C. The Belgo  restaurant was closed and the Company also sold
its  interest  in the two San  Marzano  restaurants,  to  PizzaExpress  for $0.4
million.  The commitment to exit these businesses resulted in a loss on disposal
of assets of $3.6 million in 2000.

Note 4 - Premises and Equipment

     A summary of premises  and  equipment at December 30, 2001 and December 31,
2000 follows (amounts in thousands):


                                                          2001            2000
     ---------------------------------------------------------------------------
     Land                                           $    47,110          48,547
     Buildings                                           84,287          85,123
     Buildings subject to ground leases                 139,198         145,275
     Equipment                                           97,428         124,440
     Leasehold improvements                               8,506          56,942
     Construction in progress                             1,997          12,135
     ---------------------------------------------------------------------------
     Total premises and equipment                       378,526         472,462
     Less accumulated depreciation and amortization      92,713          92,524
     ---------------------------------------------------------------------------
     Premises and equipment, net                    $   285,813         379,938
     ---------------------------------------------------------------------------


                                       31
<PAGE>
Note 5 - Other Assets

     A summary of other  assets at  December  30,  2001 and  December  31,  2000
follows (amounts in thousands):

                                                          2001            2000
     ---------------------------------------------------------------------------
     Deferred loan and lease costs                  $    12,264          16,010
     Officer notes receivable, net of reserve in 2001     2,854          11,000
     Deferred loss on sale-leaseback                      6,361           6,828
     Liquor licenses                                      1,931           2,906
     Long-term portion of notes receivable                1,123           3,210
     Other                                                1,875           4,046
     ---------------------------------------------------------------------------
     Total other assets                             $    26,408          44,000
     ---------------------------------------------------------------------------


Note 6 - Long-Term Debt

     Long-term  debt at December 30, 2001 and December 31, 2000 consisted of the
following (amounts in thousands):

                                                          2001            2000
     ---------------------------------------------------------------------------
     Revolving credit agreement, secured
        with variable rate interest
        (11.5% at December 31, 2000)                $         -          90,832
     Senior Notes, unsecured                            116,500         116,500
     Senior Subordinated Notes, unsecured                98,921          98,777
     Other                                                  407             432
     ---------------------------------------------------------------------------
     Total long-term debt                               215,828         306,541
     Less current installments                               13          15,034
     ---------------------------------------------------------------------------
     Total long-term debt, excluding
        current installments                        $   215,815         291,507
     ---------------------------------------------------------------------------

     At December 30, 2001, the Company's  revolving credit facility,  with total
credit availability of $125.0 million and maturing in June 2002, had been repaid
with  proceeds  from  the  sale of  McCormick  &  Schmick's.  Subsequent  to the
repayment,  future  borrowings under this facility were  prohibited.  The credit
facility was secured by substantially all of the Company's assets.

     In 1999, the Company  issued $100.0  million of 11.75% Senior  Subordinated
Notes  priced to yield 12.0% and due in June 2009.  In 1996,  $125.0  million of
9.75% Senior Notes were issued under a $200.0 million shelf registration and are
due in June 2006. In 1998, the Company  repurchased $8.5 million of these notes.
Interest on both note issues are payable semi-annually in June and December.

     At December 30, 2001, the aggregate  estimated fair value, based on trading
prices,  of the unsecured Senior Notes and Senior  Subordinated  Notes was $96.3
million  compared to the carrying value of $215.4 million.  The Company believes
the fair value of its current assets and  liabilities  along with its refinanced
revolving credit facility,  will approximate book value since the current assets
and  liabilities  are short-term in nature and the revolving  credit facility is
secured by substantially all assets of the Company.

     The aggregate annual  maturities of long-term debt for the years subsequent
to  December  30,  2001 are as  follows:  2006 - $116.5  million,  2009 - $100.0
million and $0.4 million thereafter.


Note 7 - Liquidity

     The Company's  plans for growth through new restaurant  development and its
historical  preference  to own the real  estate  on which  its  restaurants  are
situated  typically  have  caused  it to be a net  user of  cash,  even  after a
significant  amount  of  expansion  financing  was  internally   generated  from
operations.  At the beginning of 2001,  the Company's  total  long-term debt was


                                       32
<PAGE>
$306.5 million.  During 2001, the Company continued its commitment to strategies
to reduce its leverage over time and by year end had reduced  long-term  debt to
$215.8  million.  Debt reduction  strategies in 2001 included the divestiture of
McCormick  &  Schmick's  which  resulted  in a $95.8  million  reduction  in the
Company's  revolving  credit  facility.  Other 2001 debt  reduction  initiatives
included the closure of 13 underperforming restaurants which generated operating
losses  of $3.2  million  in 2000  and the  exit  from  two  unprofitable  joint
ventures.  The proceeds from the sale of the related  assets enabled the Company
to further reduce debt.  The Company has also  suspended the quarterly  dividend
payment on its Convertible  Preferred  Securities  since December 1, 2000. These
payments  may be  suspended  for  20  consecutive  quarters.  In  addition,  new
restaurant  development  for 2001 and plans for the next several years have been
dramatically  reduced from historical levels; the leasing of new sites to reduce
initial  capital  investment  will  take  preference  over  ownership;   and  an
aggressive  program to realize cash from  various  operating  and  non-operating
assets has been implemented with proceeds from the sale of non-operating  assets
in 2001 totaling  $12.0  million.  Also,  during the fourth quarter of 2001, the
Company finalized its decision to divest Canyon Cafe and expects to complete the
divestiture in 2002 with total  consideration  for the  transaction  expected to
approximate $5.0 to $6.0 million.

     Generally,  the  Company  operates  with  negative  working  capital  since
substantially  all restaurant sales are for cash while payment terms on accounts
payable typically range from 0 to 45 days.  Fluctuations in accounts receivable,
inventories,  prepaid  expenses and other current assets,  accounts  payable and
accrued  liabilities  typically occur as a result of new restaurant openings and
the  timing  of  settlement  of  liabilities.  Decreases  in  current  asset and
liability  accounts  occurred  in 2001  primarily  as a  result  of the  sale of
McCormick &  Schmick's  and the  reclassification  of the Canyon Cafe assets and
liabilities to assets held for sale.  Additional  decreases in accounts  payable
during 2001  occurred as a result of a planned  reduction  in the number of days
payables were  outstanding  in addition to a reduction in capital  expenditures.
Increases  in accrued  liabilities,  which were more than  offset by the sale of
McCormick &  Schmick's,  occurred  primarily  as a result of  deferred  payments
related to sales,  use,  property  and other  taxes and the  suspended  payments
related to the Convertible Preferred Securities.

     At December  30, 2001,  the Company had one credit  facility in place which
was entered  into in 1999 with an initial  total credit  availability  of $125.0
million and maturing in June 2002. In 2001,  proceeds from the sale of McCormick
& Schmick's  were used to repay $95.8  million  outstanding  under the facility.
Subsequent  to  the  repayment,  future  borrowings  under  this  facility  were
prohibited.

     The primary uses of funds in 2001  included (i) net  repayment of revolving
credit  agreements of $90.8 million (ii) capital  expenditures  of $17.9 million
for the opening of one Hops and two McCormick & Schmick's restaurants as well as
maintenance capital for existing restaurants, (iii) payments of $10.0 million to
collateralize  letters of credit for the Company's  self-insurance  programs and
(iv) net  cash  used in  operations  of $7.3  million  which  included  interest
payments of $26.4 million and operating lease payments of $31.4 million.

The following table summarizes the Company's future contractual cash
obligations:
<TABLE>
<CAPTION>
    Contractual Cash Obligations          2002        2003         2004         2005         2006       Thereafter
-------------------------------------- ----------- ------------ ------------ ------------ ------------ -------------
<S>                                       <C>          <C>          <C>          <C>         <C>           <C>
Senior Notes - principal payment                -            -            -            -     $116,500             -
Senior Notes - interest payments          $11,359      $11,359      $11,359      $11,359        5,679             -
Senior Subordinated Notes -
     principal payment                          -            -            -            -            -      $100,000
Senior Subordinated Notes -
     interest payments                     11,750       11,750       11,750       11,750       11,750        29,375
Convertible Preferred Securities
     - principal payments                       -            -            -            -            -        68,559
Convertible Preferred Securities
     - distribution payments                    -            -            -       30,802        4,799        97,182
Minimum operating lease
     payments                              18,123       18,027       17,574       16,335       14,718        88,358
-------------------------------------- ----------- ------------ ------------ ------------ ------------ -------------
Total                                     $41,232      $41,136      $40,683      $70,246     $153,446      $383,474
====================================== =========== ============ ============ ============ ============ =============
</TABLE>

     The  preceding  schedule  summarizes  the  Company's   contractual  payment
obligations  as they existed at December 30,  2001.  Actual  payments may differ
from these  amounts due primarily to interest  payments on borrowings  under the
Company's  credit  agreement and  additional  operating  lease  payments for new
development  as well as extensions  of existing  leases.  In addition,  the 2005


                                       33
<PAGE>
distribution  payments  on the  Convertible  Preferred  Securities  reflect  the
Company's  right  to  defer  quarterly   distribution  payments  for  up  to  20
consecutive quarters. The Company has deferred all such payments, beginning with
the December 1, 2000 payment, until December 1, 2005. The Company may pay all or
any part of the interest accrued during the extension period at any time.

     On March 25, 2002, the Company completed a $75.0 million credit facility to
replace its existing credit agreement.  The facility, which matures on March 25,
2005,  limits total  borrowing  capacity at any given time to an amount equal to
two and one  quarter  times the  Company's  trailing 12 months  earnings  before
interest,  income taxes and depreciation and amortization (EBITDA) as defined in
the agreement.  At December 30, 2001,  EBITDA,  which excludes the operations of
McCormick & Schmick's,  totaled $30.7  million.  The agreement  provides a $35.0
million  revolving  credit  facility,  which may be used for working capital and
general  corporate  purposes,  and a $40.0 million term loan facility,  which is
limited to certain defined purposes,  excluding working capital and development.
In certain  circumstances,  borrowings under the term loan facility are required
to be repaid to the  lender  and any such  repayments  are not  available  to be
re-borrowed  by the Company.  Events  generating a required  repayment  include,
among other  things,  proceeds from asset  dispositions,  casualty  events,  tax
refunds  and excess  cash flow,  each as  defined  in the credit  agreement.  In
addition,  the lender reserves the right to impose certain  reserves against the
Company's  total borrowing  availability  under the facility which may limit the
Company's  availability  on  both  the  revolving  and  term  loans.  Additional
covenants contained in the agreement require the Company to, among other things,
(i) achieve  certain EBITDA targets,  (ii) maintain  defined net worth and fixed
charge  coverage  ratios,  (iii)  limit  the  incurrence  of  certain  liens  or
encumbrances and (iv) limit certain payments. Irrespective of future borrowings,
certain  obligations  will  exist  with  respect  to the  new  credit  agreement
including  anniversary  fees of $1.1  million  each year and an  additional  fee
payable at maturity of $5.1 million. The loan is secured by substantially all of
the Company's assets.

     In March 2002,  the Board of  Directors  approved a series of  transactions
whereby Tom E. DuPree, Jr., Chairman and Chief Executive Officer of the Company,
sold the real estate  collateral  which  secured one of his notes payable to the
Company  and with the  proceeds  purchased  $14.0  million  in face value of the
Company's  11.75% Senior  Subordinated  Notes,  maturing in June 2009. The notes
were pledged as collateral to secure  amounts owed by Mr. DuPree to the Company.
All  amounts  of  interest  and  principal  paid by the  Company  on the  Senior
Subordinated Notes owned by Mr. DuPree and pledged as collateral to the Company,
will be used to make payments to the Company on amounts due to the Company under
his current notes payable to the Company.

     The  Company  is also  exposed to certain  contingent  payments.  Under the
Company's insurance programs,  coverage is obtained for significant exposures as
well as  those  risks  required  to be  insured  by law or  contract.  It is the
Company's  preference to retain a significant portion of certain expected losses
related  primarily to workers'  compensation,  physical  loss to  property,  and
comprehensive  general  liability.  Provisions for losses  estimated under these
programs are recorded  based on estimates of the aggregate  liability for claims
incurred.  In 2001,  claims  paid under the  Company's  self-insurance  programs
totaled  $8.0  million.  In  addition,  at December  30,  2001,  the Company was
contingently  liable  for  letters  of credit  aggregating  approximately  $10.0
million which secure its insurance programs.

     The Company also remains contingently liable for lease obligations relating
to 86 Applebee's restaurants and nine Harrigan's restaurants which were divested
during 1998 and 1999. Assuming that each respective  purchaser became insolvent,
an event management believes to be remote, the Company could be liable for lease
payments  extending  through 2017 with minimum  lease  payments  totaling  $37.8
million.

     The  Company  also  incurs  various  capital  expenditures  related  to the
maintenance  of existing  restaurants  and  restaurant  equipment in addition to
capital  requirements  for developing new restaurants.  Capital  expenditures in
2001 were $17.9  million and provided for the opening of three new  restaurants,
as well as maintenance  capital for existing  restaurants.  In 2002, the Company
anticipates  opening six new  restaurants  including three Don Pablo's and three
Hops restaurants. Capital requirements for the construction of these restaurants
are  expected  to  approximate  $5 to $7 million  with  maintenance  capital for
existing restaurants  expected to be an additional $11 to $13 million.  Although
development  plans  include  the  opening of six new  restaurants  in 2002,  the
Company  does  not  currently  have any  material  capital  commitments  for new
restaurants  and will  evaluate the potential  new  restaurant  openings in 2002
based on projected return on investment and capital availability.

     The terms of the Company's  senior and  subordinated  notes,  interest rate
swap  agreement,  $30.0 million  master  equipment  lease and $28.4 million Hops
sale-leaseback  transaction also include various  provisions which,  among other
things,  require the  Company to (i)  maintain  defined  net worth and  coverage
ratios,  (ii) maintain defined  leverage  ratios,  (iii) limit the incurrence of
certain  liens or  encumbrances  in excess of  defined  amounts  and (iv)  limit


                                       34
<PAGE>
certain  payments.  In  conjunction  with the  March  25,  2002  closing  of the
Company's  refinanced credit facility,  the Company terminated its interest rate
swap  agreement  thereby  eliminating  any  aforementioned  restrictions  on the
Company  contained in that  agreement.  In  addition,  in March 2002 the Company
amended its master  equipment  lease  agreement to conform the  covenants to the
refinanced credit facility and also obtained an amendment of certain  provisions
contained  in its  sale-leaseback  agreement.  As  amended,  the  Company was in
compliance with the various provisions of its agreements at March 25, 2002.


Note 8 - Convertible Preferred Securities

     In 1997, Avado Financing I (formerly Apple South Financing I) (the "Trust")
issued 2,300,000, $3.50 term convertible securities,  Series A (the "Convertible
Preferred Securities"), having a liquidation preference of $50 per security. The
Trust, a statutory business trust, is a wholly owned, consolidated subsidiary of
the Company with its sole asset being $115.0 million aggregate  principal amount
of 7%  convertible  subordinated  debentures  due March 1, 2027 of Avado Brands,
Inc. (the "Convertible  Debentures").  Proceeds,  after deducting  underwriters'
fees and other  offering  expenses of  approximately  $3.7 million,  were $111.3
million.

     The  Convertible  Preferred  Securities  are  convertible  until 2027 at an
initial  rate of 3.3801  shares of Avado Brands  common stock for each  security
(equivalent  to a conversion  price of $14.793 per share).  A guarantee has been
executed by Avado Brands with regard to the  Convertible  Preferred  Securities.
The guarantee,  when taken together with the  obligations  under the Convertible
Debentures,  the indenture  pursuant to which the  Convertible  Debentures  were
issued,  and the  declaration of trust of Avado Financing I, provides a full and
unconditional   guarantee  of  amounts  due  under  the  Convertible   Preferred
Securities.

     Distribution  expense  related  to  the  Convertible  Preferred  Securities
decreased  in 2001 as a result of the  conversion,  at the holders'  option,  of
86,128 of the  securities  into 291,115 shares of common stock which were issued
from treasury.  An additional  100,000 of the  securities  were converted in the
first quarter of 2002. The Company, consistent with its right to defer quarterly
distribution  payments  on the  Convertible  Preferred  Securities  for up to 20
consecutive quarters,  deferred each of its 2001 quarterly distribution payments
as well as its December 2000  distribution  payment.  The Company may pay all or
any part of the interest  accrued during the extension period at any time. Total
deferred  payments  for  2001 and  2000  were  $4.9  million  and  $2.3  million
respectively and are included in accrued liabilities in the accompanying balance
sheets.


Note 9 - Leases

     Various  leases are  utilized  for land,  buildings,  equipment  and office
facilities.  Land and building lease terms  typically range from 10 to 20 years,
with  renewal  options  ranging  from five to 20 years.  Equipment  lease  terms
generally range from four to eight years. In the normal course of business, some
leases are expected to be renewed or replaced by leases on other properties.

     In  October  2000,  the  Company  completed  a  sale-leaseback  transaction
involving 20 Hops restaurant  properties.  The transaction  included the sale of
the land and  buildings  for total  consideration  of $28.4  million.  The lease
covers an  initial  term of 20 years  with  options to extend the lease for four
periods of five years each.  Rent expense related to the  sale-leaseback  during
2001 was $3.4  million  and will  escalate  by 1.2%  each year  thereafter.  The
transaction,  which has been accounted for as an operating lease,  resulted in a
$6.8 million loss which is being  amortized over the initial 20 year term of the
lease as additional rent  expense.

     The Company also has a fully  utilized  master  equipment  lease  agreement
under which  approximately  $23.9 million of equipment is currently leased.  The
agreement  provides  for the  rental of  restaurant  equipment  for a  five-year
period.  This  agreement  has  been  accounted  for as an  operating  lease  for
financial reporting purposes.


                                       35
<PAGE>
     Future  minimum  lease  payments  under  noncancellable  operating  leases,
including the  sale-leaseback  transaction,  at December 30, 2001 are as follows
(amounts in thousands):

          2002                                                      $   18,123
          2003                                                          18,027
          2004                                                          17,574
          2005                                                          16,335
          2006                                                          14,718
          Later years                                                   88,358
          ---------------------------------------------------------------------
          Total minimum payments                                    $  173,135
          ---------------------------------------------------------------------

     Future  minimum  lease  payments  do  not  include   amounts   payable  for
maintenance  costs, real estate taxes,  insurance,  etc., or contingent  rentals
payable  based on a  percentage  of sales in excess of  stipulated  amounts  for
restaurant   facilities.   Total  rental  expense   related  to  cancelable  and
noncancellable operating leases was $34.6 million in 2001, $32.6 million in 2000
and $ 27.9 million in 1999. Rental expense included  contingent  rentals of $0.9
million in 2001, $3.1 million in 2000 and $2.1 million in 1999.


Note 10 - Accrued Liabilities

     A summary of accrued liabilities at December 30, 2001 and December 31, 2000
follows (amounts in thousands):

                                                          2001            2000
     ---------------------------------------------------------------------------
     Payroll and related benefits                      $ 12,269          14,490
     Taxes other than payroll and income                 15,734          15,817
     Restaurant closings and divestitures                 1,152           7,257
     Insurance                                            6,710           5,813
     Gift certificates                                    2,841           5,584
     Interest                                            14,106           4,708
     Other                                               10,368          10,898
     ---------------------------------------------------------------------------
     Total accrued liabilities                         $ 63,180          64,567
     ---------------------------------------------------------------------------


                                       36
<PAGE>
Note 11 - Earnings Per Share Information

     The following table presents a  reconciliation  of weighted  average shares
and earnings per share amounts (amounts in thousands, except per share data):
<TABLE>
<CAPTION>
                                                                                2001           2000            1999
--------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>                <C>              <C>
Average number of common shares used in basic calculation                     28,568         25,729          27,576
Additional shares issuable pursuant to employee stock
   option plans at period-end market price                                         -              -               -
Shares issuable on assumed conversion of
Convertible Preferred Securities                                                   - *             -*             - *
--------------------------------------------------------------------------------------------------------------------
Average number of common shares used in diluted calculation                   28,568         25,729          27,576
--------------------------------------------------------------------------------------------------------------------
Earnings (loss) before cumulative effect of change in
   accounting principle                                                  $   (95,260)       (59,479)          5,470
Cumulative effect of change in accounting principle, net of tax                    -         (6,255)              -
--------------------------------------------------------------------------------------------------------------------
Net earnings (loss)                                                          (95,260)       (65,734)          5,470
Distribution savings on assumed conversion of Convertible
   Preferred Securities, net of income taxes                                       -*             -*              -*
--------------------------------------------------------------------------------------------------------------------
Net earnings (loss) for computation of diluted earnings
   per common share                                                      $   (95,260)       (65,734)          5,470
--------------------------------------------------------------------------------------------------------------------

Basic earnings (loss) before cumulative effect of change in
   accounting principle                                                  $     (3.33)         (2.31)           0.20
Cumulative effect of change in accounting principle                                -          (0.24)              -
--------------------------------------------------------------------------------------------------------------------
Basic earnings (loss) per common share                                   $     (3.33)         (2.55)           0.20
--------------------------------------------------------------------------------------------------------------------

Diluted earnings (loss) before cumulative effect of change in
   accounting principle                                                  $     (3.33)         (2.31)           0.20
Cumulative effect of change in accounting principle                                -          (0.24)              -
--------------------------------------------------------------------------------------------------------------------
Diluted earnings (loss) per common share                                 $     (3.33)         (2.55)           0.20
--------------------------------------------------------------------------------------------------------------------
</TABLE>
     * Inclusion of the shares related to the Convertible  Preferred  Securities
results in an increase to earnings  (loss) per share  ("EPS") in 2001,  2000 and
1999. As those shares are  antidilutive,  they are excluded from the computation
of diluted EPS.

Note 12 - Supplemental Cash Flow Information

     The  following  supplements  the  consolidated  statements  of  cash  flows
(amounts in thousands):

                                                   2001       2000       1999
--------------------------------------------------------------------------------
Interest paid (net of amounts capitalized)    $   26,376     35,849     23,322
Distributions on preferred securities         $        -      6,038      8,050
Income taxes paid (refunded)                  $      261     (3,512)     1,639
--------------------------------------------------------------------------------

     During 2001, the Company sold its McCormick & Schmick's  brand,  consisting
of 34 restaurants. The 2001 consolidated balance sheet reflects changes in asset
and  liability  accounts  related to the  divestiture  of these  restaurants  as
follows:  decrease  in total  current  assets of $6.1  million,  decrease in non
current  assets of $141.6  million,  decrease  in current  liabilities  of $24.0
million and a decrease in long term liabilities of $1.0 million.


                                       37
<PAGE>
Note 13 - Income Taxes

     The  components  of the  provision  for  income  taxes for the years  ended
December 30, 2001, December 31, 2000 and January 2, 2000 are as follows (amounts
in thousands):

                                         Current        Deferred         Total
--------------------------------------------------------------------------------
2001:
  Federal                             $     221           9,542          9,763
  State                                     399             988          1,387
--------------------------------------------------------------------------------
    Total                             $     620          10,530         11,150
--------------------------------------------------------------------------------
2000:
  Federal                             $  (3,806)        (19,238)       (23,044)
  State                                     166          (2,722)        (2,556)
--------------------------------------------------------------------------------
    Total                             $  (3,640)        (21,960)       (25,600)
--------------------------------------------------------------------------------
1999:
  Federal                             $   1,346             596          1,942
  State                                     361             147            508
--------------------------------------------------------------------------------
    Total                             $   1,707             743          2,450
--------------------------------------------------------------------------------

     A reconciliation of the Federal statutory income tax expense (benefit) rate
to the effective  income tax rate applied to earnings (loss) before income taxes
in the  accompanying  consolidated  statements  of earnings  for the years ended
December 30, 2001, December 31, 2000 and January 2, 2000 follows:

                                                   2001        2000        1999
--------------------------------------------------------------------------------
Tax (benefit) at federal statutory rate           (35.0)%     (35.0)%      35.0%
Increase (decrease) in taxes due to:
   State income tax, net of federal benefit        (2.6)       (2.6)        2.8
   FICA tip and targeted jobs tax credits          (2.7)       (2.8)      (25.7)
Valuation allowance for deferred tax assets        12.8         8.0           -
Nondeductible goodwill and basis difference
  in goodwill                                      38.0         1.2        13.5
Other, net                                          2.8         1.1         5.3
--------------------------------------------------------------------------------
Effective tax (benefit) rate                       13.3%      (30.1)%      30.9%
--------------------------------------------------------------------------------


     The tax  effects of  temporary  differences  that give rise to  significant
portions of the deferred tax assets and deferred tax liabilities at December 30,
2001 and December 31, 2000 are presented below (amounts in thousands):

                                                               2001       2000
--------------------------------------------------------------------------------
FICA tip credits not yet taken for federal tax purposes     $ 18,303     24,554
Asset impairment charges recorded for financial statement
  purposes but not yet taken for tax purposes                 16,348     18,760
Net operating loss carryforwards not yet taken for tax
  purposes                                                    19,292      8,628
Other                                                          7,468      7,912
Valuation allowance for deferred tax assets                  (17,605)    (6,821)
--------------------------------------------------------------------------------
Total deferred tax assets                                     43,806     53,033
--------------------------------------------------------------------------------
Depreciation and amortization taken for tax purposes in
  excess of amounts taken for financial reporting purposes   (28,457)   (29,790)
Other                                                         (3,729)    (4,343)
--------------------------------------------------------------------------------
Deferred tax asset (liability)                              $ 11,620     18,900
--------------------------------------------------------------------------------

     The valuation  allowance for deferred tax assets increased by $10.8 million
for the year ended  December  30,  2001,  adding to the $6.8  million  valuation
allowance  initially recorded for the year ended December 31, 2000. In assessing


                                       38
<PAGE>
the  realizability of deferred tax assets,  management  considers  whether it is
more likely than not that some  portion or all of the  deferred  tax assets will
not be realized.  The ultimate  realization  of deferred tax assets is dependent
upon the  generation of future  taxable income during the periods in which those
temporary  differences  become  deductible.  Management  considers the scheduled
reversal of deferred tax liabilities,  projected future taxable income,  and tax
planning  strategies  in making  this  assessment.  Based  upon  these  factors,
management  believes it is more likely  than not the  Company  will  realize the
benefits of the  deductible  differences  for which no  valuation  allowance  is
provided.

     The Company  has $49.5  million of net  operating  loss  carryforwards  for
federal  income tax  purposes as of December  30, 2001 that will expire in 2020.
The Company has $18.3 million of FICA tip tax credit  carryforwards  for federal
income tax  purposes as of December  30, 2001 that will expire  between 2017 and
2021.

Note 14 - Interest Expense

     Following  is a  summary  of  interest  cost  incurred  and  interest  cost
capitalized as a component of the cost of construction  in progress  (amounts in
thousands):

                                           2001             2000           1999
--------------------------------------------------------------------------------
Interest cost capitalized              $    155              924          1,374
Interest cost expensed                   35,305           38,262         24,073
--------------------------------------------------------------------------------
Total                                  $ 35,460           39,186         25,447
--------------------------------------------------------------------------------

Note 15 - Stock Option Plans

     The 1988 stock option plan (the "Stock  Option Plan") and the 1993 and 1995
Stock Incentive Plans (the "Stock Incentive  Plans") provide for the granting of
nonqualified and incentive  options for up to 1,974,375  shares,  450,000 shares
and  3,600,000  shares,  respectively,  of common  stock of the  Company  to key
officers,  directors and employees.  Generally,  options awarded under the Stock
Option Plan and Stock  Incentive  Plans are  granted at prices  which equal fair
market value on the date of the grant,  are exercisable  over three to 10 years,
and expire 10 years subsequent to grant.

     The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees,"  and related  Interpretations  in accounting for
its stock option plans. Accordingly, no compensation expense has been recognized
for its stock-based  compensation plans. Had compensation cost for the Company's
stock  option  plans  been  determined  based  upon the fair  value  methodology
prescribed under Statement of Financial  Accounting  Standards ("SFAS") No. 123,
"Accounting  for Stock-Based  Compensation,"  the Company's net loss and diluted
loss per share would have been decreased by approximately $1.5 million, or $0.05
per share in 2001 and by $0.4  million,  or $0.01  per  share in 2000  while net
earnings in 1999 would have been decreased by $2.3 million,  or $0.08 per share.
The effects of either recognizing or disclosing compensation cost under SFAS 123
may not be  representative  of the effects on reported  net  earnings for future
years.  The fair value of the options  granted during 2001 is estimated as $0.45
on the date of grant  using  the  Black-Scholes  option-pricing  model  with the
following  assumptions:  dividend  yield of zero,  volatility of 70%,  risk-free
interest rate of 4.8%, and an expected life of 6.5 years.

Further information relating to total options is as follows:
                                                                       Options
                                                        Average      Exercisable
                                           Shares        Price       at Year End
--------------------------------------------------------------------------------
Outstanding at January 3, 1999           2,015,790     $ 16.60         191,075
--------------------------------------------------------------------------------
Granted in 1999                          1,486,105        9.16
Exercised in 1999                                -           -
Canceled in 1999                          (418,721)      15.65
--------------------------------------------------------------------------------
Outstanding at January 2, 2000           3,083,174       13.15         194,371
--------------------------------------------------------------------------------
Granted in 2000                          1,511,121        2.00
Exercised in 2000                                -           -
Canceled in 2000                        (1,559,811)      11.78
--------------------------------------------------------------------------------
Outstanding at December 31, 2000         3,034,484        7.95         390,994
--------------------------------------------------------------------------------
Granted in 2001                            902,539        0.66
Exercised in 2001                                -           -
Canceled in 2001                        (1,240,198)       8.49
--------------------------------------------------------------------------------
Outstanding at December 30, 2001         2,696,825     $  5.26         809,133
--------------------------------------------------------------------------------


                                       39
<PAGE>
The following table summarizes information concerning currently outstanding and
exercisable options:

                       Options Outstanding                   Options Exercisable
                  ---------------------------------------   --------------------
                                               Average                   Average
    Exercise                     Average      Exercise                  Exercise
  Price Range      Shares          Life         Price        Shares       Price
--------------------------------------------------------------------------------
$ 0.00 -  $5.00   1,891,661       8.61         $ 1.48        387,126     $ 2.00
$ 5.01 - $10.00     355,792       7.02           8.94        238,301       8.94
$10.01 - $15.00     102,585       5.47          13.42         21,213      13.34
$15.01 - $20.00     296,615       3.96          19.29        132,909      19.60
$20.01 - $25.00      41,522       3.97          21.46         25,259      21.52
$25.01 - $30.00       8,650       4.43          25.63          4,325      25.63
--------------------------------------------------------------------------------
Total             2,696,825       7.68         $ 5.26        809,133     $ 7.97
--------------------------------------------------------------------------------

Note 16 - Employee Benefit Plans

     The Avado  Brands,  Inc.  Profit  Sharing  Plan and Trust,  established  in
accordance with Section 401(k) of the Internal Revenue Code (the "401(k) Plan"),
allows eligible  participating  employees to defer receipt of a portion of their
compensation  and  contribute  such  amount  to one or  more  investment  funds.
Effective  January 1, 2001, the Company changed the vesting  schedule for all of
its employee benefit plans.  Beginning in 2001,  participants  become 20% vested
after one year of service escalating 20% each year thereafter.  In addition, the
maximum  Company   matching   contribution   related  to  the  401(k)  Plan  and
Supplemental  Plan  was  increased  from  2% to 3%.  Under  the  new  structure,
participants  are matched  dollar for dollar for the first 2% of the  employee's
income deferred plus an additional  $0.25 on the dollar up to 6% of compensation
for a potential total match of 3%. Company contributions to the 401(k) Plan were
$0.4 million in 2001, $0.5 million in 2000 and $0.5 million in 1999.

     The  Supplemental   Deferred   Compensation  Plan  ("Supplemental   Plan"),
effective  January  1,  1999,  is a  nonqualified  plan  which  allows  eligible
employees to defer  receipt of a portion of their  compensation  and  contribute
such amounts to one or more investment funds or to invest their contributions in
shares of Avado Brands common stock. The maximum aggregate amount deferred under
the  Supplemental  Plan and the 401(k) Plan may not exceed 15% of  compensation.
Company matching  contributions  to the  Supplemental  Plan may not exceed 2% of
compensation. The Company, in its discretion, may make matching contributions to
the  Supplemental   Plan  in  the  form  of  Company  stock.   Company  matching
contributions were $97,000 in 2001, $47,000 in 2000 and $0 in 1999.

     A  noncontributory  Employee Stock  Ownership Plan (the "ESOP Plan") covers
substantially all full-time employees.  In accordance with the terms of the ESOP
Plan, the Company may make  contributions  in amounts as determined by the Board
of Directors. Participants become 20% vested in their accounts after one year of
service,  escalating  20% each year  thereafter  until  they are  fully  vested.
Contribution  expense  related to the ESOP Plan was $0.1 million in 2001.  There
was no contribution expense related to the ESOP Plan in 2000 or 1999.

Note 17 - Shareholders' Equity

     The  Board  of  Directors,  from  time  to time  and  depending  on  market
conditions,  authorizes the Company to purchase  shares of its common stock.  In
connection  with these programs,  during 1999 the Company  purchased 6.3 million
shares  of its  common  stock  for  $85.5  million.  The  Company  made no share
repurchases in 2001 or 2000.

Note 18 -  Commitments  and  Contingencies

     Under  the  Company's   insurance   programs,   coverage  is  obtained  for
significant  exposures  as well as those risks  required to be insured by law or
contract.  It is the Company's  preference  to retain a  significant  portion of
certain  expected losses related  primarily to workers'  compensation,  physical
loss to property,  and comprehensive  general  liability.  Provisions for losses
expected  under these  programs are recorded based on estimates of the aggregate
liability  for  claims   incurred.   At  December  30,  2001,  the  Company  was


                                       40
<PAGE>
contingently  liable  for  letters  of credit  aggregating  approximately  $10.0
million  related  primarily  to its  insurance  programs.  At December 30, 2001,
amounts shown as restricted cash in the  accompanying  balance sheet are pledged
as collateral to secure these letters of credit.

     In connection with the Applebee's and Harrigan's  divestiture  transactions
completed  during 1999 and 1998,  the Company  remains  contingently  liable for
lease  obligations  relating to 86 Applebee's  restaurants  and nine  Harrigan's
restaurants.  Assuming that each respective purchaser became insolvent, an event
management believes to be remote, the Company could be liable for lease payments
extending  through 2017 with minimum  lease  payments  totaling  $37.8  million.
Management   believes  that  the  ultimate   disposition  of  these   contingent
liabilities   will  not  have  a  material   adverse  effect  on  the  Company's
consolidated financial position or results of operations.

     In 1997, two lawsuits were filed by persons seeking to represent a class of
shareholders of the Company who purchased  shares of the Company's  common stock
between May 26, 1995 and September 24, 1996.  Each  plaintiff  named the Company
and certain of its officers and directors as defendants.  The complaints alleged
acts  of  fraudulent  misrepresentation  by the  defendants  which  induced  the
plaintiffs to purchase the Company's  common stock and alleged  illegal  insider
trading by certain of the defendants, each of which allegedly resulted in losses
to the  plaintiffs  and  similarly  situated  shareholders  of the Company.  The
complaints  each sought  damages and other relief.  In 1998,  one of these suits
(Artel Foam  Corporation  Pension  Trust,  et al. v. Apple South,  Inc., et al.,
Civil Action No. CV-97-6189) was dismissed.  An amended  complaint,  styled John
Bryant, et al. vs. Apple South, Inc., et al. consolidating  previous actions was
filed in January 1998. During 1999, the Company received a favorable ruling from
the 11th Circuit Court of Appeals relating to the remaining suit. As a result of
the ruling,  the District Court again considered the motion to dismiss the case,
and the  defendants  renewed  their motion to dismiss in December  1999. In June
2000,  the District  Court  dismissed  with  prejudice the remaining  suit.  The
plaintiffs  appealed the court's  final  decision.  Upon  hearing the appeal,  a
three-judge  panel  reversed the motion to dismiss and gave the  plaintiffs  the
opportunity  to amend  their  suit  and  state  with  more  particularity  their
allegations.  Although the ultimate  outcome of the suit cannot be determined at
this time, the Company  believes that the allegations  therein are without merit
and intends to continue vigorously defending itself.

     The Company is involved in various other claims and legal  actions  arising
in the ordinary course of business.  In the opinion of management,  the ultimate
disposition  of these  matters  will not have a material  adverse  effect on the
Company's consolidated financial position or results of operations.

Note 19 - Related Party Transactions

     At December 31, 2000,  the Company held several  notes  receivable,  one of
which was secured by real estate, from Tom E. DuPree, Jr., Chairman of the Board
and Chief  Executive  Officer  of the  Company  (the  "Chairman  Notes"  and the
"Chairman").  At December 31,  2000,  total  amounts owed were $10.9  million in
principal  and $1.6  million  in accrued  interest.  During  2000,  the Board of
Directors  extended the due date of the Chairman  Notes to June 30, 2002 and the
interest  rate was  increased  from  7.0% to 11.5%,  with  interest  payable  at
maturity.

     At December 30, 2001,  total amounts owed to the Company under the Chairman
Notes were $10.9 million in principal and $3.0 million in accrued  interest.  At
that time, the Company recorded an allowance against the ultimate realization of
amounts due totaling $11.1 million,  yielding a net balance of $2.8 million, the
fair value of the real estate collateral held by the Company.

     In March 2002,  The Board of  Directors  approved a series of  transactions
whereby  the  Chairman  sold  the real  estate  collateral  securing  one of the
Chairman Notes and, with the $2.8 million in proceeds,  purchased  $14.0 million
in face  value of the  Company's  11.75%  Senior  Subordinated  Notes  (the "Sub
Notes"),  maturing in June 2009. The Sub Notes were pledged as collateral by the
Chairman to secure amounts owed by him to the Company under the Chairman Notes.

     On March 6, 2002 the  principal  and interest  due on the several  Chairman
Notes were  consolidated into one note with a principal balance of $14.1 million
(the "New Chairman Note"), and the interest payment terms, interest rate and due
date of the note were  changed to match the terms and due date of the Sub Notes.
All amounts of interest and principal paid by the Company on the Sub Notes owned
by the Chairman and pledged as collateral  to the Company,  will be used to make
simultaneous payments to the Company on amounts due to the Company under the New
Chairman Note.

     The Company also holds a note  receivable  from Margaret E. Waldrep,  Chief
Administrative Officer,  totaling $41,500. This note is due on June 30, 2002 and
bears interest at 11.5%.


                                       41
<PAGE>
Note 20 - Quarterly Financial Data (unaudited)
<TABLE>
<CAPTION>
                                              First       Second        Third       Fourth        Total
                                             Quarter      Quarter      Quarter      Quarter        Year
--------------------------------------------------------------------------------------------------------
<S>                                         <C>           <C>          <C>          <C>          <C>
2001:
Restaurant sales                            $177,383      176,586      149,656      119,876      623,501
Gross profit*                               $ 70,053       69,276       57,446       45,723      242,498
Net earnings (loss)                         $ (1,045)      (4,849)     (64,372)     (24,994)     (95,260)
Basic earnings (loss) per share             $  (0.04)       (0.17)       (2.24)       (0.87)       (3.33)
Diluted earnings (loss) per share**         $  (0.04)       (0.17)       (2.24)       (0.87)       (3.33)

2000:
Restaurant sales                            $167,020      174,479      174,079      170,217      685,795
Gross profit*                               $ 66,636       70,055       66,813       64,235      267,739
Earnings (loss) before cumulative
   effect of change in accounting principle $   (537)      (1,665)      (8,266)     (49,011)     (59,479)
Net earnings (loss)                         $   (537)      (1,665)      (8,266)     (55,266)     (65,734)
Basic earnings (loss) per share before
   cumulative effect of change in
   accounting principle                     $  (0.02)       (0.07)       (0.33)       (1.82)       (2.31)
Basic earnings (loss) per share             $  (0.02)       (0.07)       (0.33)       (2.05)       (2.55)

Diluted earnings (loss) per share
   before cumulative effect of change in
   accounting principle**                   $  (0.02)       (0.07)       (0.33)       (1.82)       (2.31)
Diluted earnings (loss) per share**         $  (0.02)       (0.07)       (0.33)       (2.05)       (2.55)
----------------------------------------------------------------------------------------------------------
</TABLE>

     * The Company defines gross profit as total  restaurant sales less the cost
of food and  beverage  and  payroll and  benefits.  These  costs  represent  the
expenses associated directly with providing the Company's products and services.

     ** Diluted  earnings  (loss) per share ("EPS") for all quarters in 2001 and
2000 increases  when the  Convertible  Preferred  Securities are included in the
calculation.  As those  shares  are  antidilutive,  they are  excluded  from the
computation of diluted EPS.

Note 21 - Guarantor Subsidiaries

     The Company's  senior notes and revolving  credit  facilities are fully and
unconditionally  guaranteed on a joint and several basis by substantially all of
its wholly owned subsidiaries.  The Company's  indebtedness is not guaranteed by
its non-wholly owned subsidiaries.  These non-guarantor  subsidiaries  primarily
include  certain  partnerships of which the Company is typically a 90% owner. At
December 30, 2001 and December 31, 2000, these partnerships in the non-guarantor
subsidiaries  operated 20 and 61,  respectively,  of the Company's  restaurants.
Accordingly,  condensed  consolidated balance sheets as of December 30, 2001 and
December 31, 2000,  and condensed  consolidated  statements of earnings and cash
flows for the fiscal  years  ended  December  30,  2001,  December  31, 2000 and
January 2, 2000 are provided for such guarantor and non-guarantor  subsidiaries.
Separate financial statements and other disclosures concerning the guarantor and
non-guarantor  subsidiaries are not presented because  management has determined
that they are not material to investors.  There are no contractual  restrictions
on the  ability  of the  guarantor  subsidiaries  to make  distributions  to the
Company.


                                       42
<PAGE>
<TABLE>
Condensed Consolidated Statement of Earnings
Fiscal Year Ended 2001
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
                                                     Guarantor       Non-Guarantor
(In thousands)                                      Subsidiaries      Subsidiaries     Eliminations    Consolidated
--------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>                     <C>                  <C>        <C>
Restaurant sales                                    $    569,064            54,437               -          623,501
Restaurant operating expenses                            523,577            48,909               -          572,486
General and administrative expenses                       29,682             2,446               -           32,128
Asset revaluation and other special charges               66,328                 -               -           66,328
--------------------------------------------------------------------------------------------------------------------
Operating income (loss)                                  (50,523)            3,082               -          (47,441)
--------------------------------------------------------------------------------------------------------------------
Other income (expense)                                   (36,510)             (159)              -          (36,669)
Earnings before income taxes                             (87,033)            2,923               -          (84,110)
Income taxes                                              10,127             1,023               -           11,150
--------------------------------------------------------------------------------------------------------------------
Net earnings (loss)                                 $    (97,160)            1,900               -          (95,260)
====================================================================================================================
</TABLE>

<TABLE>
Condensed Consolidated Statement of Earnings
Fiscal Year Ended 2000
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
                                                     Guarantor       Non-Guarantor
(In thousands)                                      Subsidiaries      Subsidiaries     Eliminations     onsolidated
--------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>                    <C>                   <C>        <C>
Restaurant sales                                    $    539,852           145,943               -          685,795
Restaurant operating expenses                            485,539           133,440               -          618,979
General and administrative expenses                       31,651             6,571               -           38,222
Asset revaluation and other special charges               30,748             7,452               -           38,200
--------------------------------------------------------------------------------------------------------------------
Operating income (loss)                                   (8,086)           (1,520)              -           (9,606)
--------------------------------------------------------------------------------------------------------------------
Other income (expense)                                   (73,684)           (1,789)              -          (75,473)
Earnings (loss) before income taxes and
cumulative
  effect of change in accounting principle               (81,770)           (3,309)              -          (85,079)
Income taxes                                             (23,550)           (2,050)              -          (25,600)
--------------------------------------------------------------------------------------------------------------------
Earnings (loss) before cumulative effect of
change
  in accounting principle                                (58,220)           (1,259)              -          (59,479)
Cumulative effect of change in accounting
  principle, net of tax benefit                           (6,255)                -               -           (6,255)
--------------------------------------------------------------------------------------------------------------------
Net earnings (loss)                                 $    (64,475)           (1,259)              -          (65,734)
====================================================================================================================
</TABLE>

<TABLE>
Condensed Consolidated Statement of Earnings
Fiscal Year Ended 1999
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
                                                     Guarantor       Non-Guarantor
(In thousands)                                      Subsidiaries      Subsidiaries     Eliminations    Consolidated
--------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>                    <C>                   <C>        <C>
Restaurant sales                                    $    535,691           108,768               -          644,459
Restaurant operating expenses                            465,712            96,089               -          561,801
General and administrative expenses                       32,649             5,362               -           38,011
Asset revaluation and other special charges                2,186                 -               -            2,186
--------------------------------------------------------------------------------------------------------------------
Operating income                                          35,144             7,317               -           42,461
--------------------------------------------------------------------------------------------------------------------
Other income (expense)                                   (32,091)           (2,450)              -          (34,541)
Earnings before income taxes                               3,053             4,867               -            7,920
Income taxes                                                 950             1,500               -            2,450
--------------------------------------------------------------------------------------------------------------------
Net earnings                                        $      2,103             3,367               -            5,470
====================================================================================================================
</TABLE>

                                       43
<PAGE>
<TABLE>
Condensed Consolidated Balance Sheet
Fiscal Year End 2001
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
                                                     Guarantor       Non-Guarantor
(In thousands)                                      Subsidiaries      Subsidiaries     Eliminations    Consolidated
--------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>                     <C>            <C>              <C>
ASSETS
Current assets                                      $     36,592               868               -           37,460
Premises and equipment, net                              260,957            24,856               -          285,813
Goodwill, net                                             34,920                 -               -           34,920
Deferred income tax benefit                               11,620                 -               -           11,620
Other assets                                              26,390                18               -           26,408
Intercompany investments                                  12,370                 -         (12,370)               -
Intercompany advances                                     12,647                 -         (12,647)               -
--------------------------------------------------------------------------------------------------------------------
                                                    $    395,496            25,742         (25,017)         396,221
====================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities                                 $    110,757               725               -          111,482
Long-term liabilities                                    218,926                 -               -          218,926
Intercompany payables                                          -            12,370         (12,370)               -
Convertible preferred securities                          68,559                 -               -           68,559
Shareholders' equity (deficit)                            (2,746)           12,647         (12,647)          (2,746)
--------------------------------------------------------------------------------------------------------------------
                                                    $    395,496            25,742         (25,017)         396,221
====================================================================================================================
</TABLE>

<TABLE>
Condensed Consolidated Balance Sheet
Fiscal Year End 2000
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
                                                     Guarantor       Non-Guarantor
(In thousands)                                      Subsidiaries      Subsidiaries     Eliminations    Consolidated
--------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>                     <C>           <C>               <C>
ASSETS
Current assets                                      $     32,449             2,382               -           34,831
Premises and equipment, net                              347,646            32,292               -          379,938
Goodwill, net                                            110,164            21,848               -          132,012
Deferred income tax benefit                               18,900                 -               -           18,900
Other assets                                              38,419             5,581               -           44,000
Intercompany investments                                  46,525                 -        (46,525)                -
Intercompany advances                                     12,010                 -        (12,010)                -
--------------------------------------------------------------------------------------------------------------------
                                                    $    606,113            62,103        (58,535)          609,681
====================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities                                 $    138,011             3,322               -          141,333
Long-term liabilities                                    307,285               246               -          307,531
Intercompany payables                                          -            12,010         (12,010)               -
Convertible preferred securities                          72,865                 -               -           72,865
Shareholders' equity                                      87,952            46,525         (46,525)          87,952
--------------------------------------------------------------------------------------------------------------------
                                                    $    606,113            62,103         (58,535)         609,681
====================================================================================================================
</TABLE>

                                       44
<PAGE>
<TABLE>
Condensed Consolidated Statement of Cash Flows
Fiscal Year Ended 2001
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
                                                      Guarantor      Non-Guarantor
(In thousands)                                      Subsidiaries      Subsidiaries     Eliminations    Consolidated
--------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>                      <C>                 <C>       <C>
Net cash provided by operating activities           $    (12,188)            4,925               -           (7,263)
--------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
   Capital expenditures                                  (17,423)             (511)              -          (17,934)
   Proceeds from disposal of assets, net                 128,752                 -               -          128,752
   Other investing activities                             (2,406)                -               -           (2,406)
--------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities      108,923              (511)              -          108,412
--------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
   Net repayment of revolving credit agreements          (90,831)                -               -          (90,831)
   Proceeds from (payment of) intercompany  advances       4,415            (4,415)              -                -
   Payments to collateralize letters of credit            (9,978)                -               -           (9,978)
   Other financing activities                                (26)                -               -              (26)
--------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities      (96,420)           (4,415)              -         (100,835)
--------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents                    315                (1)              -              314
Cash and equivalents at the beginning of the period          372                30               -              402
--------------------------------------------------------------------------------------------------------------------
Cash and equivalents at the end of the period        $       687                29               -              716
====================================================================================================================
</TABLE>

<TABLE>
Condensed Consolidated Statement of Cash Flows
Fiscal Year Ended 2000
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
                                                       Guarantor     Non-Guarantor
(In thousands)                                      Subsidiaries      Subsidiaries     Eliminations    Consolidated
--------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>                     <C>                  <C>        <C>
Net cash provided by operating activities           $     24,438             3,541               -           27,979
--------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
     Capital expenditures                                (52,615)           (1,193)              -          (53,808)
     Proceeds from sale-leaseback                          8,055            20,316               -           28,371
     Proceeds from disposal of assets, net                14,074                 -               -           14,074
     Other investing activities                           (5,540)             (251)              -           (5,791)
--------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities      (36,026)           18,872               -          (17,154)
--------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
     Net repayment of revolving credit agreements        (21,667)                -               -          (21,667)
     Proceeds from (payment of) intercompany advances     22,398           (22,398)              -                -
     Other financing activities                              (23)                -               -              (23)
--------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities          708           (22,398)              -          (21,690)
--------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents     (10,880)               15               -          (10,865)
Cash and equivalents at the beginning of the period       11,190                77               -           11,267
--------------------------------------------------------------------------------------------------------------------
Cash and equivalents at the end of the period       $        310                92               -              402
====================================================================================================================
</TABLE>

                                       45
<PAGE>
<TABLE>
Condensed Consolidated Statement of Cash Flows
Fiscal Year Ended 1999
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
                                                      Guarantor      Non-Guarantor
(In thousands)                                      Subsidiaries      Subsidiaries     Eliminations    Consolidated
--------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>                    <C>                  <C>        <C>
Net cash provided by operating activities           $      5,426             8,196               -           13,622
--------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
     Capital expenditures                                (75,572)           (8,822)              -          (84,394)
     Proceeds from disposal of assets, net                87,152                 -               -           87,152
     Other investing activities                           (2,788)             (656)              -           (3,444)
--------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities        8,792            (9,478)              -             (686)
--------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
     Net repayment of revolving credit agreements        (27,920)                -               -          (27,920)
     Proceeds from issuance of long-term debt             95,467                 -               -           95,467
     Purchase of treasury stock                          (74,824)                -               -          (74,824)
     Proceeds from (payment of) intercompany advances     (1,305)            1,305               -                -
     Other financing activities                           (1,608)                -               -           (1,608)
--------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities      (10,190)            1,305               -           (8,885)
--------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents       4,028                23               -            4,051
Cash and equivalents at the beginning of the period        7,162                54               -            7,216
--------------------------------------------------------------------------------------------------------------------
Cash and equivalents at the end of the period       $     11,190                77               -           11,267
====================================================================================================================
</TABLE>

                                       46
<PAGE>
                              Report of Management

     The  management  of  Avado  Brands,  Inc.  has  prepared  the  consolidated
financial statements and all other financial  information appearing in this Form
10-K  and  is  responsible  for  their  integrity.  The  consolidated  financial
statements  were  prepared in  conformity  with  generally  accepted  accounting
principles and, accordingly,  include certain amounts based on management's best
judgments and estimates.

     Management   maintains  a  system  of  internal   accounting  controls  and
procedures  designed  to  provide  reasonable   assurance,   at  an  appropriate
cost/benefit   relationship,   regarding  the   reliability   of  the  published
consolidated  financial  statements  and  the  safeguarding  of  assets  against
unauthorized acquisition, use or disposition.

     The independent auditors, KPMG LLP, were recommended by the Audit Committee
of the Board of Directors, and that recommendation was ratified by the Company's
shareholders. The Audit Committee, which is composed solely of directors who are
not officers of the Company,  meets  periodically with the independent  auditors
and  management  to ensure that they are  fulfilling  their  obligations  and to
discuss internal accounting controls,  auditing and financial reporting matters.
The Audit  Committee  also reviews with the  independent  auditors the scope and
results of the audit effort.  The independent  auditors  periodically meet alone
with the  Audit  Committee  and have full and  unrestricted  access to the Audit
Committee at any time.

     The recommendations of the independent auditors are reviewed by management.
Control procedures have been implemented or revised as appropriate to respond to
these  recommendations.  No material  weaknesses in internal  controls have been
brought to the attention of management.

     The Company  assessed its internal  control system as of December 30, 2001,
in relation to criteria for effective internal control over financial  reporting
described in "Internal Control Integrated  Framework" issued by the Committee of
Sponsoring  Organizations of the Treadway  Commission.  Based on its assessment,
the Company  believes  that,  as of December  30,  2001,  its system of internal
control  over  financial  reporting  and over  safeguarding  of  assets  against
unauthorized acquisition, use or disposition, met those criteria.


Tom E. DuPree, Jr.
Chairman of the Board and Chief Executive Officer

Timothy R. Ligon
Vice President and Corporate Controller



                                       47
<PAGE>
                          Independent Auditors' Report

The Board of Directors
Avado Brands, Inc.

     We have  audited  the  accompanying  consolidated  balance  sheets of Avado
Brands, Inc. and subsidiaries as of December 30, 2001 and December 31, 2000, and
the related consolidated statements of earnings,  shareholders' equity (deficit)
and comprehensive  income and cash flows for each of the years in the three-year
period ended December 30, 2001. These consolidated  financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

     We conducted our audits in accordance  with  auditing  standards  generally
accepted in the United States of America.  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 consolidated  financial  statements  referred to above
present  fairly,  in all  material  respects,  the  financial  position of Avado
Brands,  Inc. and  subsidiaries  at December 30, 2001 and December 31, 2000, and
the  results of their  operations  and their cash flows for each of the years in
the  three-year  period ended December 30, 2001, in conformity  with  accounting
principles generally accepted in the United States of America.


KPMG LLP

Atlanta, Georgia
March 25, 2002




                                       48
<PAGE>
Item 9.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure

         Not applicable.

                                    Part III

Item 10.  Directors and Executive Officers of the Registrant

     Information  in response to this item is  incorporated  by reference to the
information  contained  under the headings  "Nominees for  Director",  Executive
Officers",  and "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Company's  definitive Proxy Statement for use in connection with the 2002 Annual
Meeting of Shareholders.

Item 11.  Executive Compensation

     Information  in response to this item is  incorporated  by reference to the
information  contained under the heading "Compensation of Executive Officers" in
the Company's  definitive  Proxy  Statement for use in connection  with the 2002
Annual Meeting of Shareholders.  In no event shall the information  contained in
the Proxy  Statement  under the  heading  "Comparison  of  Five-Year  Cumulative
Shareholder Return" be deemed incorporated herein by such reference.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

     Information  in response to this item is  incorporated  by reference to the
information contained under the heading "Voting Securities and Principal Holders
Thereof" in the Company's  definitive Proxy Statement for use in connection with
the 2002 Annual Meeting of Shareholders.

Item 13.  Certain Relationships and Related Transactions

     At December 31, 2000,  the Company held several  notes  receivable,  one of
which was secured by real estate, from Tom E. DuPree, Jr., Chairman of the Board
and Chief  Executive  Officer  of the  Company  (the  "Chairman  Notes"  and the
"Chairman").  At December 31,  2000,  total  amounts owed were $10.9  million in
principal  and $1.6  million  in accrued  interest.  During  2000,  the Board of
Directors  extended the due date of the Chairman  Notes to June 30, 2002 and the
interest  rate was  increased  from  7.0% to 11.5%,  with  interest  payable  at
maturity.

     At December 30, 2001,  total amounts owed to the Company under the Chairman
Notes were $10.9 million in principal and $3.0 million in accrued  interest.  At
that time, the Company recorded an allowance against the ultimate realization of
amounts due totaling $11.1 million,  yielding a net balance of $2.8 million, the
fair value of the real estate collateral held by the Company.

     In March 2002,  The Board of  Directors  approved a series of  transactions
whereby  the  Chairman  sold  the real  estate  collateral  securing  one of the
Chairman Notes and, with the $2.8 million in proceeds,  purchased  $14.0 million
in face  value of the  Company's  11.75%  Senior  Subordinated  Notes  (the "Sub
Notes"),  maturing in June 2009. The Sub Notes were pledged as collateral by the
Chairman to secure amounts owed by him to the Company under the Chairman Notes.

     On March 6, 2002 the  principal  and interest  due on the several  Chairman
Notes were  consolidated into one note with a principal balance of $14.1 million
(the "New Chairman Note"), and the interest payment terms, interest rate and due
date of the note were  changed to match the terms and due date of the Sub Notes.


                                       49
<PAGE>
All amounts of interest and principal paid by the Company on the Sub Notes owned
by the Chairman and pledged as collateral  to the Company,  will be used to make
simultaneous payments to the Company on amounts due to the Company under the New
Chairman Note.

     The Company also holds a note  receivable  from Margaret E. Waldrep,  Chief
Administrative Officer,  totaling $41,500. This note is due on June 30, 2002 and
bears interest at 11.5%.


                                       50
<PAGE>
                                     Part IV

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

(a)   The following documents are filed as part of this Report:

   1.  Financial Statements

    Consolidated  Statements of Earnings for the years ended December 30, 2001,
    December 31, 2000 and January 2, 2000

    Consolidated Balance Sheets as of December 30, 2001 and December 31, 2000

    Consolidated Statements of Shareholders' Equity (deficit)and  Comprehensive
    Income for the years ended  December 30, 2001,  December 31, 2000 and
    January 2, 2000

    Consolidated  Statements  of Cash Flows for the years  ended  December  30,
    2001, December 31, 2000 and January 2, 2000

    Notes to Consolidated Financial Statements

    Report of Management

    Independent Auditors' Report

   2.  Financial Statement Schedules

         None

   3. Exhibits

     2.1 Asset Purchase  Agreement dated June 7, 2001 by and among Avado Brands,
Inc., McCormick & Schmick Holding Corp., each of the McCormick & Schmick Holding
Corp. subsidiaries and McCormick & Schmick Acquisition Corp. (18)

     3.1 Amended and  Restated  Articles of  Incorporation  of the  Company,  as
amended October 13, 1998. (3)

     3.2 By-laws of the Company. (1)

     4.1 See Exhibits 3.1 and 3.2 for  provisions in the  Company's  Amended and
Restated Articles of Incorporation and by-laws defining the rights of holders of
the Company's Common Stock. (1) (3)

     4.2 Trust  Agreement  of Apple South  Financing I, dated as of February 18,
1997,  among Apple South,  Inc.,  First Union National Bank of Georgia and First
Union Bank of Delaware. (5)

     4.3 Amended and Restated  Declaration of Trust of Apple South  Financing I,
dated as of March 11, 1997,  among Apple South,  Inc.,  as Sponsor,  First Union
National  Bank  of  Georgia,  as  Institutional  Trustee,  First  Union  Bank of
Delaware, as Delaware Trustee, and the Regular Trustees named therein. (5)

     4.4 Indenture for the 7% Convertible Subordinated  Debentures,  dated as of
March 6, 1997,  between  Apple  South,  Inc.  and First Union  National  Bank of
Georgia, as Trustee. (5)

     4.5 Form of $3.50 Term Convertible Security,  Series A (included in Exhibit
4.3).

     4.6 Form of 7%  Convertible  Subordinated  Debenture  (included  in Exhibit
4.4).


                                       51
<PAGE>
     4.7 Preferred Securities  Guarantee Agreement,  dated as of March 11, 1997,
between  Apple South,  Inc.,  as  Guarantor,  and First Union  National  Bank of
Georgia, as Preferred Guarantee Trustee. (5)

     4.8 Registration  Rights Agreement,  dated as of March 11, 1997 among Apple
South,  Inc., Apple South Financing I, J.P. Morgan  Securities,  Inc., and Smith
Barney, Inc. (5)

     4.9  Solicitation of Consents to Proposed  Amendments to 9.75% Senior Notes
due 2006 of Apple South, Inc. (8)

     4.10  Indenture,  dated as of June 22,  1999,  among the  Company,  certain
guaranteeing  subsidiaries and SunTrust Bank, Atlanta, as Trustee (including the
form of Note). (9)

     4.11 Registration  Rights  Agreement,  dated as of June 22, 1999, among the
Company,  certain  guaranteeing  subsidiaries and the initial  purchasers of the
Notes. (9)

     4.12 The Hops Grill & Bar, Inc. MP Equity Investment Plan (14)

     10.1 Apple South, Inc. 1988 Stock Option Plan. (1)

     10.2 Form of Stock Option Agreement under the Apple South,  Inc. 1988 Stock
Option Plan. (1) (4)

     10.3  Form  of  Apple  South,  Inc.  Director's  Indemnification  Agreement
executed by and  between the Company and each member of its Board of  Directors.
(1)

     10.4 Form of Apple South, Inc. Officer's Indemnification Agreement executed
between the Company and each of its executive officers. (1)

     10.5 Apple South, Inc. Employee Stock Ownership Plan and Trust. (1) (4)

     10.6 Apple South, Inc. Profit Sharing Plan and Trust. (1) (4)

     10.7 Amendment No. 2 to the Apple South, Inc. Employee Stock Ownership Plan
and Trust, dated November 22, 1993. (2)

     10.8 Apple  South,  Inc.  [Restated]  Profit  Sharing  Plan and Trust dated
October 26, 1993. (2)

     10.9  Amended form of Stock Option  Agreement  under the Apple South,  Inc.
1988 Stock Option Plan. (2)

     10.10 Apple South, Inc. 1993 Stock Incentive Plan. (2)

     10.11 Form of Stock Option Agreement under the Apple South, Inc. 1993 Stock
Incentive Plan. (2)

     10.12 Avado Brands, Inc. Employee Stock Purchase Plan. (19)

     10.13 Participation Agreement (Apple South Trust No. 97-1), dated September
24, 1997,  among Apple South,  Inc., as lessee,  First Security  Bank,  National
Association, as lessor, SunTrust Bank, Atlanta, as administrative agent, and the
holders and lenders signatory thereto. (6)

     10.14  First  amendment,  dated  as of March  27,  1998,  to  Participation
Agreement  (Apple South Trust No. 97-1),  dated September 24, 1997,  among Apple
South, Inc., as lessee,  First Security Bank, National  Association,  as lessor,
SunTrust Bank,  Atlanta,  as  administrative  agent, and the holders and lenders
signatory thereto. (7)

     10.15  Second  amendment,  dated as of August 14,  1998,  to  Participation
Agreement  (Apple South Trust No. 97-1),  dated September 24, 1997,  among Apple
South, Inc., as lessee,  First Security Bank, National  Association,  as lessor,
SunTrust Bank,  Atlanta,  as  administrative  agent, and the holders and lenders
signatory thereto. (11)


                                       52
<PAGE>
     10.16 Third  amendment,  dated as of November  13, 1998,  to  Participation
Agreement  (Apple South Trust No. 97-1),  dated September 24, 1997,  among Apple
South, Inc., as lessee,  First Security Bank, National  Association,  as lessor,
SunTrust Bank,  Atlanta,  as  administrative  agent, and the holders and lenders
signatory thereto. (11)

     10.17 Fourth  amendment,  dated as of February 22, 1999,  to  Participation
Agreement  (Apple South Trust No. 97-1),  dated September 24, 1997,  among Apple
South, Inc., as lessee,  First Security Bank, National  Association,  as lessor,
SunTrust Bank,  Atlanta,  as  administrative  agent, and the holders and lenders
signatory thereto. (11)

     10.18  Fifth  amendment,  dated as of August  24,  1999,  to  Participation
Agreement  (Apple South Trust No. 97-1),  dated September 24, 1997,  among Apple
South, Inc., as lessee,  First Security Bank, National  Association,  as lessor,
SunTrust Bank,  Atlanta,  as  administrative  agent, and the holders and lenders
signatory thereto. (16)

     10.19 Sixth  amendment,  dated as of December  20, 2000,  to  Participation
Agreement  (Apple South Trust No. 97-1),  dated September 24, 1997,  among Apple
South, Inc., as lessee,  First Security Bank, National  Association,  as lessor,
SunTrust Bank,  Atlanta,  as  administrative  agent, and the holders and lenders
signatory thereto. (16)

     10.20  Seventh  amendment,  dated  as of April 2,  2001,  to  Participation
Agreement  (Apple South Trust No. 97-1),  dated September 24, 1997,  among Avado
Brands, Inc., as lessee, First Security Bank, National  Association,  as lessor,
SunTrust Bank,  Atlanta,  as  administrative  agent, and the holders and lenders
signatory thereto. (17)

     10.21 $125 million Credit Agreement, dated as of June 22, 1999, among Avado
Brands, Inc. as borrower and Wachovia Bank, National Association and BankBoston,
N.A. (10)

     10.22 First  amendment to $125 million Credit  Agreement,  dated as of June
22, 1999,  among Avado  Brands,  Inc. as borrower and  Wachovia  Bank,  National
Association and BankBoston, N.A. (15)

     10.23 Second amendment to $125 million Credit  Agreement,  dated as of June
22, 1999,  among Avado  Brands,  Inc. as borrower and  Wachovia  Bank,  National
Association and BankBoston, N.A. (15)

     10.24 Third  amendment to $125 million Credit  Agreement,  dated as of June
22, 1999,  among Avado  Brands,  Inc. as borrower and  Wachovia  Bank,  National
Association and BankBoston, N.A. (15)

     10.25 Fourth amendment to $125 million Credit  Agreement,  dated as of June
22, 1999,  among Avado  Brands,  Inc. as borrower and  Wachovia  Bank,  National
Association and BankBoston, N.A. (13)

     10.26 Amended and Restated Credit Agreement Dated as of April 2, 2001 among
Avado Brands, Inc. as borrower,  Wachovia Bank,  National  Association and Fleet
National Bank. (17)

     10.27 Master lease agreement,  dated as of October 19, 2000, by and between
Pubs Property, LLC and Hops Grill & Bar, Inc. (16)

     10.28 Sale-leaseback agreement,  dated as of October 19, 2000, by and among
Pubs Property, LLC, Avado Brands, Inc. and Hops Grill & Bar Inc. (16)

     21.1 Subsidiaries of the Registrant.

     23.1 Consent of KPMG LLP.

     99.1 Safe harbor  under the  Private  Securities  Litigation  Reform Act of
1995. (12)

                                       53
<PAGE>
     (1)  Incorporated  by reference to the  corresponding  exhibit number filed
with the registrant's Registration Statement on Form S-1, File No. 33-42662.

     (2)  Incorporated  by reference to the  registrant's  Annual Report on Form
10-K for its fiscal year ended December 31, 1993.

     (3)  Incorporated by reference to the  registrant's  Current Report on Form
8-K dated October 13, 1998.

     (4)  Incorporated  by reference to the  registrant's  Annual Report on Form
10-K for the fiscal year ended December 31, 1995.

     (5) Incorporated by reference to the registrants's  registration  statement
on Form S-3, File No. 333-25205.

     (6)  Incorporated  by reference to the  registrant's  Annual Report on form
10-K for the fiscal year ended December 28, 1997.

     (7) Incorporated by reference to the registrant's  Quarterly Report on Form
10-Q for its fiscal quarter ended March 29, 1998.

     (8) Incorporated by reference to the registrant's  Quarterly Report on Form
10-Q for its fiscal quarter ended June 28, 1998.

     (9)  Incorporated by reference to the Company's  Registration  Statement on
Form S-4, File No. 333-82345, filed on July 6, 1999.

     (10)  Incorporated by reference to the Company's  Quarterly  Report on Form
10-Q for the quarter ended July 4, 1999

     (11)  Incorporated by reference to the  registrant's  Annual Report on form
10-K for the fiscal year ended January 3, 1999.

     (12)  Incorporated by reference to the Company's  Quarterly  Report on Form
10-Q for the quarter ended April 2, 2000.

     (13)  Incorporated by reference to the Company's  Quarterly  Report on Form
10-Q for the quarter ended October 1, 2000.

     (14) Incorporated by reference to the Company's  Registration  Statement on
Form S-8, File No. 333-56138, filed on February 23, 2001.

     (15)  Incorporated by reference to the  registrant's  Annual Report on form
10-K for the fiscal year ended January 2, 2000.

     (16)  Incorporated by reference to the  registrant's  Annual Report on form
10-K for the fiscal year ended December 31, 2000.

     (17)  Incorporated by reference to the Company's  Quarterly  Report on Form
10-Q for the quarter ended April 1, 2001.

     (18)  Incorporated by reference to the registrant's  Current Report on Form
8-K dated June 7, 2001.

     (19) Incorporated by reference to the Company's  Registration  Statement on
Form S-8, File No. 333-74422, filed on December 3, 2001.


(b)   Reports on Form 8-K

         None


                                       54
<PAGE>
     SIGNATURES

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


                                                   AVADO BRANDS, INC.

                                                  By:/s/ Tom E. DuPree, Jr.
                                                     ---------------------------
                                                     Tom E. DuPree, Jr.
                                                     Chief Executive Officer and
                                                     Chairman of the Board
April 1, 2002
Atlanta, Georgia

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


     Signature                   Title                                  Date

                        Chairman of the Board of Directors and     April 1, 2002
/s/Tom E. DuPree, Jr.   Chief Executive Officer (principal
----------------------  executive, financial and accounting officer)
Tom E. DuPree, Jr.

/s/Margaret E. Waldrep  Director and Chief Administrative Officer  April 1, 2002
----------------------
Margaret E. Waldrep

/s/Percy V. Williams    Secretary                                  April 1, 2002
----------------------
Percy V. Williams

/s/Timothy R. Ligon     Vice President and Corporate Controller    April 1, 2002
----------------------
Timothy R. Ligon

/s/Jerome A. Atkinson   Director                                   April 1, 2002
----------------------
Jerome A. Atkinson

/s/William V. Lapham    Director                                   April 1, 2002
----------------------
William V. Lapham

/s/Emilio Alvarez-Recio Director                                   April 1, 2002
----------------------
Emilio Alvarez-Recio
                        Director                                   April 1, 2002
/s/Robert Sroka
----------------------
Robert Sroka


                                       55
<PAGE>

                                EXHIBIT INDEX

     2.1 Asset Purchase  Agreement dated June 7, 2001 by and among Avado Brands,
Inc., McCormick & Schmick Holding Corp., each of the McCormick & Schmick Holding
Corp. subsidiaries and McCormick & Schmick Acquisition Corp. (18)

     3.1 Amended and  Restated  Articles of  Incorporation  of the  Company,  as
amended October 13, 1998. (3)

     3.2 By-laws of the Company. (1)

     4.1 See Exhibits 3.1 and 3.2 for  provisions in the  Company's  Amended and
Restated Articles of Incorporation and by-laws defining the rights of holders of
the Company's Common Stock. (1) (3)

     4.2 Trust  Agreement  of Apple South  Financing I, dated as of February 18,
1997,  among Apple South,  Inc.,  First Union National Bank of Georgia and First
Union Bank of Delaware. (5)

     4.3 Amended and Restated  Declaration of Trust of Apple South  Financing I,
dated as of March 11, 1997,  among Apple South,  Inc.,  as Sponsor,  First Union
National  Bank  of  Georgia,  as  Institutional  Trustee,  First  Union  Bank of
Delaware, as Delaware Trustee, and the Regular Trustees named therein. (5)

     4.4 Indenture for the 7% Convertible Subordinated  Debentures,  dated as of
March 6, 1997,  between  Apple  South,  Inc.  and First Union  National  Bank of
Georgia, as Trustee. (5)

     4.5 Form of $3.50 Term Convertible Security,  Series A (included in Exhibit
4.3).

     4.6 Form of 7%  Convertible  Subordinated  Debenture  (included  in Exhibit
4.4).

     4.7 Preferred Securities  Guarantee Agreement,  dated as of March 11, 1997,
between  Apple South,  Inc.,  as  Guarantor,  and First Union  National  Bank of
Georgia, as Preferred Guarantee Trustee. (5)

     4.8 Registration  Rights Agreement,  dated as of March 11, 1997 among Apple
South,  Inc., Apple South Financing I, J.P. Morgan  Securities,  Inc., and Smith
Barney, Inc. (5)

     4.9  Solicitation of Consents to Proposed  Amendments to 9.75% Senior Notes
due 2006 of Apple South, Inc. (8)

     4.10  Indenture,  dated as of June 22,  1999,  among the  Company,  certain
guaranteeing  subsidiaries and SunTrust Bank, Atlanta, as Trustee (including the
form of Note). (9)

     4.11 Registration  Rights  Agreement,  dated as of June 22, 1999, among the
Company,  certain  guaranteeing  subsidiaries and the initial  purchasers of the
Notes. (9)

     4.12 The Hops Grill & Bar, Inc. MP Equity Investment Plan (14)

     10.1 Apple South, Inc. 1988 Stock Option Plan. (1)

     10.2 Form of Stock Option Agreement under the Apple South,  Inc. 1988 Stock
Option Plan. (1) (4)

     10.3  Form  of  Apple  South,  Inc.  Director's  Indemnification  Agreement
executed by and  between the Company and each member of its Board of  Directors.
(1)

     10.4 Form of Apple South, Inc. Officer's Indemnification Agreement executed
between the Company and each of its executive officers. (1)



<PAGE>
     10.5 Apple South, Inc. Employee Stock Ownership Plan and Trust. (1) (4)

     10.6 Apple South, Inc. Profit Sharing Plan and Trust. (1) (4)

     10.7 Amendment No. 2 to the Apple South, Inc. Employee Stock Ownership Plan
and Trust, dated November 22, 1993. (2)

     10.8 Apple  South,  Inc.  [Restated]  Profit  Sharing  Plan and Trust dated
October 26, 1993. (2)

     10.9  Amended form of Stock Option  Agreement  under the Apple South,  Inc.
1988 Stock Option Plan. (2)

     10.10 Apple South, Inc. 1993 Stock Incentive Plan. (2)

     10.11 Form of Stock Option Agreement under the Apple South, Inc. 1993 Stock
Incentive Plan. (2)

     10.12 Avado Brands, Inc. Employee Stock Purchase Plan. (19)

     10.13 Participation Agreement (Apple South Trust No. 97-1), dated September
24, 1997,  among Apple South,  Inc., as lessee,  First Security  Bank,  National
Association, as lessor, SunTrust Bank, Atlanta, as administrative agent, and the
holders and lenders signatory thereto. (6)

     10.14  First  amendment,  dated  as of March  27,  1998,  to  Participation
Agreement  (Apple South Trust No. 97-1),  dated September 24, 1997,  among Apple
South, Inc., as lessee,  First Security Bank, National  Association,  as lessor,
SunTrust Bank,  Atlanta,  as  administrative  agent, and the holders and lenders
signatory thereto. (7)

     10.15  Second  amendment,  dated as of August 14,  1998,  to  Participation
Agreement  (Apple South Trust No. 97-1),  dated September 24, 1997,  among Apple
South, Inc., as lessee,  First Security Bank, National  Association,  as lessor,
SunTrust Bank,  Atlanta,  as  administrative  agent, and the holders and lenders
signatory thereto. (11)

     10.16 Third  amendment,  dated as of November  13, 1998,  to  Participation
Agreement  (Apple South Trust No. 97-1),  dated September 24, 1997,  among Apple
South, Inc., as lessee,  First Security Bank, National  Association,  as lessor,
SunTrust Bank,  Atlanta,  as  administrative  agent, and the holders and lenders
signatory thereto. (11)

     10.17 Fourth  amendment,  dated as of February 22, 1999,  to  Participation
Agreement  (Apple South Trust No. 97-1),  dated September 24, 1997,  among Apple
South, Inc., as lessee,  First Security Bank, National  Association,  as lessor,
SunTrust Bank,  Atlanta,  as  administrative  agent, and the holders and lenders
signatory thereto. (11)

     10.18  Fifth  amendment,  dated as of August  24,  1999,  to  Participation
Agreement  (Apple South Trust No. 97-1),  dated September 24, 1997,  among Apple
South, Inc., as lessee,  First Security Bank, National  Association,  as lessor,
SunTrust Bank,  Atlanta,  as  administrative  agent, and the holders and lenders
signatory thereto. (16)

     10.19 Sixth  amendment,  dated as of December  20, 2000,  to  Participation
Agreement  (Apple South Trust No. 97-1),  dated September 24, 1997,  among Apple
South, Inc., as lessee,  First Security Bank, National  Association,  as lessor,
SunTrust Bank,  Atlanta,  as  administrative  agent, and the holders and lenders
signatory thereto. (16)

     10.20  Seventh  amendment,  dated  as of April 2,  2001,  to  Participation
Agreement  (Apple South Trust No. 97-1),  dated September 24, 1997,  among Avado
Brands, Inc., as lessee, First Security Bank, National  Association,  as lessor,
SunTrust Bank,  Atlanta,  as  administrative  agent, and the holders and lenders
signatory thereto. (17)


<PAGE>
     10.21 $125 million Credit Agreement, dated as of June 22, 1999, among Avado
Brands, Inc. as borrower and Wachovia Bank, National Association and BankBoston,
N.A. (10)

     10.22 First  amendment to $125 million Credit  Agreement,  dated as of June
22, 1999,  among Avado  Brands,  Inc. as borrower and  Wachovia  Bank,  National
Association and BankBoston, N.A. (15)

     10.23 Second amendment to $125 million Credit  Agreement,  dated as of June
22, 1999,  among Avado  Brands,  Inc. as borrower and  Wachovia  Bank,  National
Association and BankBoston, N.A. (15)

     10.24 Third  amendment to $125 million Credit  Agreement,  dated as of June
22, 1999,  among Avado  Brands,  Inc. as borrower and  Wachovia  Bank,  National
Association and BankBoston, N.A. (15)

     10.25 Fourth amendment to $125 million Credit  Agreement,  dated as of June
22, 1999,  among Avado  Brands,  Inc. as borrower and  Wachovia  Bank,  National
Association and BankBoston, N.A. (13)

     10.26 Amended and Restated Credit Agreement Dated as of April 2, 2001 among
Avado Brands, Inc. as borrower,  Wachovia Bank,  National  Association and Fleet
National Bank. (17)

     10.27 Master lease agreement,  dated as of October 19, 2000, by and between
Pubs Property, LLC and Hops Grill & Bar, Inc. (16)

     10.28 Sale-leaseback agreement,  dated as of October 19, 2000, by and among
Pubs Property, LLC, Avado Brands, Inc. and Hops Grill & Bar Inc. (16)

     21.1 Subsidiaries of the Registrant.

     23.1 Consent of KPMG LLP.

     99.1 Safe harbor  under the  Private  Securities  Litigation  Reform Act of
1995. (12)

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

     (1)  Incorporated  by reference to the  corresponding  exhibit number filed
with the registrant's Registration Statement on Form S-1, File No. 33-42662.

     (2)  Incorporated  by reference to the  registrant's  Annual Report on Form
10-K for its fiscal year ended December 31, 1993.

     (3)  Incorporated by reference to the  registrant's  Current Report on Form
8-K dated October 13, 1998.

     (4)  Incorporated  by reference to the  registrant's  Annual Report on Form
10-K for the fiscal year ended December 31, 1995.

     (5) Incorporated by reference to the registrants's  registration  statement
on Form S-3, File No. 333-25205.

     (6)  Incorporated  by reference to the  registrant's  Annual Report on form
10-K for the fiscal year ended December 28, 1997.

     (7) Incorporated by reference to the registrant's  Quarterly Report on Form
10-Q for its fiscal quarter ended March 29, 1998.

     (8) Incorporated by reference to the registrant's  Quarterly Report on Form
10-Q for its fiscal quarter ended June 28, 1998.

     (9)  Incorporated by reference to the Company's  Registration  Statement on
Form S-4, File No. 333-82345, filed on July 6, 1999.



<PAGE>
     (10)  Incorporated by reference to the Company's  Quarterly  Report on Form
10-Q for the quarter ended July 4, 1999

     (11)  Incorporated by reference to the  registrant's  Annual Report on form
10-K for the fiscal year ended January 3, 1999.

     (12)  Incorporated by reference to the Company's  Quarterly  Report on Form
10-Q for the quarter ended April 2, 2000.

     (13)  Incorporated by reference to the Company's  Quarterly  Report on Form
10-Q for the quarter ended October 1, 2000.

     (14) Incorporated by reference to the Company's  Registration  Statement on
Form S-8, File No. 333-56138, filed on February 23, 2001.

     (15)  Incorporated by reference to the  registrant's  Annual Report on form
10-K for the fiscal year ended January 2, 2000.

     (16)  Incorporated by reference to the  registrant's  Annual Report on form
10-K for the fiscal year ended December 31, 2000.

     (17)  Incorporated by reference to the Company's  Quarterly  Report on Form
10-Q for the quarter ended April 1, 2001.

     (18)  Incorporated by reference to the registrant's  Current Report on Form
8-K dated June 7, 2001.

     (19) Incorporated by reference to the Company's  Registration  Statement on
Form S-8, File No. 333-74422, filed on December 3, 2001.