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 29, 2002          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 whether the registrant is an  accelerated  filer (as
defined in Rule 12b-2 of the Act). YES [ ]  NO [X]

     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.
[ ]

     As of June 29, 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 $6,067,744.

     As of February 10, 2003,  the number of shares of common stock  outstanding
was 33,101,929.


                      DOCUMENTS INCORPORATED BY REFERENCE:

     The Definitive  Proxy  Statement for use in connection with the 2003 Annual
Meeting of Shareholders is  incorporated by reference,  to the extent  indicated
under Items 10, 11, and 12 into Part III of this Form 10-K.

<PAGE>


                                TABLE OF CONTENTS


                                     PART I

Item 1.  Business............................................................3
Item 2.  Properties..........................................................7
Item 3.  Legal Proceedings...................................................8
Item 4.  Submission of Matters to a Vote of Security Holders.................9


                                     PART II

Item 5.  Market for Registrant's Common Equity and Related
         Stockholder Matters................................................10
Item 6.  Selected Financial Data............................................11
Item 7.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations..........................................12
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.........27
Item 8.  Financial Statements and Supplementary Data........................28
Item 9.  Changes in and Disagreements with Accountants on Accounting
         and Financial Disclosure...........................................57


                                    PART III

Item 10. Directors and Executive Officers of the Registrant.................57
Item 11. Executive Compensation.............................................57
Item 12. Security Ownership of Certain Beneficial Owners and
         Management and Related Stockholder Matters.........................57
Item 13. Certain Relationships and Related Transactions.....................57
Item 14. Controls and Procedures............................................58


                                     PART IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...59


                                        2

<PAGE>
                                     PART I

Item 1.  Business

                                     General

     Avado Brands,  Inc., including its wholly owned subsidiaries (the "Company"
or "Avado Brands"), is a full service,  casual dining restaurant company,  which
owns three  decentralized  restaurant  brands. At December 29, 2002, the Company
owned and operated  restaurants in 29 states  including 120 Don Pablo's  Mexican
Kitchen  restaurants,  66 Hops  Restaurant o Bar o Brewery  restaurants and four
Canyon Cafe restaurants,  which were held for sale, effective December 30, 2001.
For the 52-week period ended December 29, 2002,  restaurant sales for continuing
operations  were $441.6 million  compared to $589.4 million in 2001.  Restaurant
sales for  discontinued  operations were $19.3 million compared to 2001 sales of
$28.8 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  2002,  the  Company  continued  to focus on its  stated  strategies  of
reducing  debt,   improving  liquidity  and  increasing   profitability.   These
strategies   resulted  in  the  execution  of  various  management   initiatives
including,  (i) the  completion of a $75.0  million  credit  facility,  (ii) the
closure of under-performing restaurants,  (iii) the divestiture of the Company's
Canyon Cafe brand,  (iv) the repurchase of  outstanding  public debt and (v) the
induced conversion of the Company's Convertible Preferred Securities. During the
first quarter of 2002, the Company  completed a $75.0 million credit facility to
replace its existing  credit  agreement and provide  additional  liquidity.  The
agreement provides a $35.0 million revolving credit facility and a $40.0 million
term loan  facility.  Nineteen  under-performing  Don Pablo's and Hops locations
were closed  during 2002 and 11 Canyon Cafe  restaurants  were either  closed or
divested.  Asset  revaluation  and  other  special  charges  of  $67.5  million,
including $22.1 million related to discontinued operations, were recorded during
2002 primarily as a result of restaurant  closures and a $35.0 million writedown
of goodwill  pursuant to the  Company's  annual test of  impairment  of goodwill
required by Statement of Financial  Accounting Standards ("SFAS") No. 142, which
the Company adopted  effective at the beginning of 2002. No new restaurants were
opened during 2002 and only three  restaurants  were opened during 2001 enabling
the  Company  to  focus  on the  operations  of its  existing  restaurants.  The
Company's debt reduction  strategies included the repurchase of $52.4 million in
face value of its outstanding  11.75% Senior  Subordinated Notes during 2002. In
addition  the  conversion  of  1,307,591  shares  of the  Company's  outstanding
Convertible  Preferred  Securities  into common stock  during 2002,  reduced the
Company's  outstanding  obligation  with  respect to those  securities  by $65.4
million.  The Company also received  proceeds of $13.0 million  (including  $3.9
million from discontinued operations) from the sale of other non-core assets and
closed restaurant locations during the year.

     In  October  2001,  the FASB  issued  SFAS  No.  144,  "Accounting  for the
Impairment or Disposal of Long-Lived Assets". SFAS 144, which was adopted by the
Company in the first quarter of 2002,  supersedes 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",  for the  disposal  of a  "Segment"  of a business as
defined in that  Opinion.  As a result of the  adoption of SFAS 144, the Company
has classified the revenues,  expenses and related assets and  liabilities of 11
Don Pablo's  restaurants and eight Hops  restaurants  which were closed in 2002,
plus one additional Don Pablo's restaurant which was under contract and held for
sale  at  December  29,  2002  and  subsequently   sold  in  February  2003,  as
discontinued   operations  for  all  periods   presented  in  the   accompanying
consolidated financial statements. The revenues, expenses and related assets and
liabilities  of Canyon  Cafe,  which was  substantially  divested  during  2002,
including the revenues, expenses and related assets and liabilities for the four
Canyon Cafe  locations  which continue to be held for sale at December 29, 2002,
the McCormick & Schmick's  brand,  which was divested in August 2001,  and eight
Don Pablo's and two Hops  restaurants  which were closed in 2001,  have not been
classified as discontinued operations in the accompanying consolidated financial
statements.  As the  decision to divest these  operations  was made prior to the
implementation of SFAS 144 and they did not meet the criteria for classification
as discontinued  operations under the provisions of APB Opinion No. 30, they are
required to be classified within  continuing  operations under the provisions of
SFAS 121.

                                       3

<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  President,  Robert  Andreotolla.  Mr.
Andreotolla  has over twenty years of experience in the restaurant  industry and
has been with Avado Brands since 1987.  In 2002,  Don Pablo's  continued to make
strides to improve its  niche-leading  position,  including  the addition of new
members to the  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 and  combination  plates,
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 2002, 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 lunch  specials  priced from $4.99 each and a
children's  menu.  Full  bar  service  is  also  provided.  Alcoholic  beverages
accounted for approximately 17.9% of sales in 2002.

     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.  In 2002, average unit volumes for the 120 restaurants that
were open for the full year were $2.1 million. In 2002, Don Pablo's did not open
any new  restaurants  and 11  under-performing  restaurants  were closed.  These
restaurants  were  generally in single unit markets or markets which the Company
no longer intends to develop and were not generating positive cash flow.

     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 and print  advertising in core markets,
along with a focus on local efforts and community  involvement  at all locations
designed to increase  traffic counts and appeal to consumer  desires for new and
exciting tastes. In 2002, advertising expense was 5.0% of sales.

                                       4

<PAGE>
                         Hops Restaurant-Bar-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  President,
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
$10.00 per person  for lunch and  $13.00 to $18.00 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 16.8% of sales in 2002.

     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 2002,  average unit volumes for the 66 restaurants that
were open for the full year were $2.5  million.  In 2002,  Hops did not open any
new  restaurants  and eight  under-performing  restaurants  were  closed.  These
restaurants  were  generally  in single  unit  markets  and were not  generating
positive cash flow.

     Field Management.  Management is shared by four operating  partners and six
area  supervisors  who report to two regional vice  presidents who report to the
brand's Chief Executive  Officer.  Each operating  partner or area supervisor is
ultimately  responsible for six to eight restaurants,  thus facilitating a focus
on quality of  operations  and unit  profitability.  The  management  staff of a
typical  restaurant  consists  of  one  managing  partner  and  three  assistant
managers.  Managing  Partners  are  eligible  to  receive  bonuses  equal  to  a
percentage of their restaurant's controllable income, subject to operating above
a minimum-operating  margin.  Assistant managers are eligible to receive bonuses
equal to a percentage of their budgeted controllable income achieved.

     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.  In 2002,  Hops
introduced an aggressive  coupon campaign  focused on offering value and driving
guest  count.  These  strategies  are  expected to  continue  into 2003 with the
continued use of television and radio advertising,  print media, limited outdoor
advertising,  as well as ongoing grassroots programs. Limited time coupon offers
will also be a part of the 2003 marketing efforts. In 2002,  advertising expense
was 4.4% 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.

                                       5

<PAGE>
    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.  Each new Don Pablo's and Hops manager also spends
an additional week at the respective  brand's  headquarters to complete training
on guest  service,  sales  building,  cost  controls and  employee  development.
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  Company  coordinates  its  food  and  beverage
purchasing efforts whenever possible in order to obtain consistent quality items
at  competitive  prices  from  reliable  sources  for its  brands.  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 the brands,  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 the  corporate  headquarters  which  includes
payroll,  accounts  payable,  general ledger,  treasury services and taxes. Each
brand  maintains  their  own  independent  operational  financial  analysis  and
support.  A  point-of-sale  reporting  system is  utilized  in each  restaurant.
Restaurant  management submits to corporate and 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

                                       6

<PAGE>
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.


                                   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  29,  2002,  Avado  Brands  employed  approximately  12,500
persons. Of those employees, approximately 150 held non-restaurant management or
administrative  positions,  850 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 retain
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.   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.

                                       7

<PAGE>
    As of February 10, 2003,  the Company  operated 119 Don Pablo's and 66 Hops
restaurants.  The Company leases the underlying  real estate on which 110 of the
restaurants are located and leases both the buildings and underlying real estate
for an additional 31 restaurants.  The remaining 44 restaurants and related real
estate are owned by the Company.  In addition,  the Company continues to operate
four Canyon Cafe  restaurants,  which are held for sale.  The Company leases the
underlying  real estate on which these  restaurants are located in the states of
Texas and Washington.

     The following table presents restaurant  locations by brand for Don Pablo's
and Hops:


                                 Don Pablo's         Hops          Total
   -------------------------   ---------------   ------------  -------------

   Florida                           16               31             47
   Ohio                              16                2             18
   Texas                             13                              13
   Indiana                           11                              11
   Virginia                           7                3             10
   Minnesota                          7                2              9
   Pennsylvania                       9                               9
   Michigan                           8                               8
   Colorado                                            7              7
   South Carolina                     3                4              7
   Maryland                           5                1              6
   Tennessee                          4                2              6
   Georgia                            1                4              5
   New York                           5                               5
   North Carolina                     1                4              5
   Kentucky                           4                               4
   Oklahoma                           4                               4
   Connecticut                                         3              3
   New Jersey                         2                               2
   Delaware                           1                               1
   Illinois                           1                               1
   Iowa                               1                               1
   Mississippi                                         1              1
   Missouri                                            1              1
   Rhode Island                                        1              1
   -------------------------   ---------------   ------------  -------------
   Totals                           119               66            185
   -------------------------   ---------------   ------------  -------------



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.  The plaintiffs have made a settlement offer of $2.5 million, which
has been  accepted  by the  Company's  insurer.  The Company  believes  that the
members of the class will give final consent to the insurer's  offer and, in the
near future, the case will be dismissed as settled, at no additional cost to the
Company.

                                       8

<PAGE>
     In  September  2002,  the Company was named as the  Defendant  in an action
filed in the U.S.  District  Court  for the  Middle  District  of  Georgia.  The
Plaintiff,  Bank of America  Securities,  LLC,  alleges that it is owed a fee of
approximately  $1.0 million,  relating to the Company's  sale of the McCormick &
Schmick's  brand. The Company believes that the allegations in the complaint are
without merit and plans to vigorously contest the complaint.  This litigation is
currently at a preliminary stage and no discovery has occurred.  Thus, it is not
possible for the Company to evaluate the likelihood of the plaintiff  prevailing
on its  claims.  Because  this  claim  is a suit on a  contract,  the  Company's
existing insurance  policies do not provide coverage.  There can be no assurance
that an  adverse  determination  in this  litigation  would not have a  material
adverse effect on the Company's financial condition or results of operations.

     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 29, 2002.

                                       9

<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 under the symbol "AVDOP".

Shareholder Information

     As of February 10, 2003,  there were  approximately  6,400  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
         ------------------------  ----------------  ---------------
         2002
         First Quarter                 $ 0.45            $ 0.16
         Second Quarter                $ 0.54            $ 0.19
         Third Quarter                 $ 0.34            $ 0.18
         Fourth Quarter                $ 0.39            $ 0.16

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



Dividends

     The Company has not paid any cash  dividends on its common stock during the
three year period ended December 29, 2002.


     Item 12 of Part III contains information  concerning  securities authorized
for issuance under the Company's equity compensation plans.

                                       10

<PAGE>
Item 6.  Selected Financial Data
<TABLE>
(In thousands, except per share data)
<CAPTION>
                                                            2002            2001            2000           1999         1998
-----------------------------------------------------  --------------  --------------  --------------  ------------  -----------
<S>                                                     <C>                 <C>           <C>             <C>           <C>
CONSOLIDATED STATEMENT OF EARNINGS DATA
Canyon Cafe                                             $     26,976         32,129         39,598         43,319         48,187
Don Pablo's                                             $    250,805        268,250        279,801        309,863        270,399
Hops                                                    $    163,807        173,125        168,512        144,488        106,329
McCormick & Schmick's                                   $          -        115,875        162,350        125,613        102,489
Applebee's                                              $          -              -              -         21,176        335,288
-----------------------------------------------------  --------------  --------------  --------------  ------------  ------------
Total restaurant sales                                  $    441,588        589,379        650,261        644,459        862,692
-----------------------------------------------------  --------------  --------------  --------------  ------------  ------------
Asset revaluation and other special charges             $     45,431         61,546         35,667          2,186          2,940
-----------------------------------------------------  --------------  --------------  --------------  ------------  ------------
Operating income (loss)                                 $    (38,458)       (26,154)       (27,227)        42,461         72,631
-----------------------------------------------------  --------------  --------------  --------------  ------------  ------------
Net earnings (loss) from continuing operations
   before cumulative effect of change in
   accounting principle                                 $    (38,311)       (86,405)       (56,321)         5,470         67,744
-----------------------------------------------------  --------------  --------------  --------------  ------------  ------------
PER SHARE DATA
Basic earnings (loss) per common share from
   continued operations, before cumulative effect
   of change in accounting principle                    $      (1.22)         (3.02)         (2.19)          0.20           1.85
Diluted earnings (loss) per common share from
   continued operations, before cumulative effect
   of change in accounting principle                    $      (1.22)         (3.02)         (2.19)          0.20           1.65
Cash dividends per common share                         $       0.00           0.00           0.00         0.0575         0.0475
-----------------------------------------------------   --------------  --------------  -------------   ------------   -----------
CONSOLIDATED BALANCE SHEET DATA
Total assets                                            $    301,295        398,556        609,681        656,596        670,597
Working capital (excluding assets held for sale)        $   (118,542)       (83,759)      (120,357)       (39,497)      (210,947)
Long-term debt (excluding current installments)         $    164,031        215,815        291,507        328,076        116,978
Convertible preferred securities                        $      3,179         68,559         72,865        115,000        115,000
Shareholders' equity (deficit)                          $        265         (2,746)        87,952        112,624        112,029
------------------------------------------------------  --------------  --------------  -------------   ------------   -----------
</TABLE>

     Consolidated  Statement of Earnings  Data and Per Share Data are  presented
for  continuing  operations  with the  exception of 1999 and 1998 which have not
been  restated  for the 12 Don  Pablo's  and eight  Hops  restaurants  which are
included  in  discontinued  operations  pursuant  to the  Company's  adoption of
Statement of Financial Accounting Standards ("SFAS") No. 144 (See Note 1 - Basis
of Presentation). The Company has also not restated 1999 and 1998 to reflect the
adoption  of EITF  01-9  "Accounting  for  Consideration  Given by a Vendor to a
Customer" as it was impractical to obtain the information.

     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".

                                       11

<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 29, 2002  ("2002"),  the 52 weeks ended  December 30, 2001 ("2001") and
the 52 weeks ended December 31, 2000 ("2000").


                          Consolidated Overview of 2002

     In  2002,  the  Company  continued  to focus on its  stated  strategies  of
reducing  debt,   improving  liquidity  and  increasing   profitability.   These
strategies   resulted  in  the  execution  of  various  management   initiatives
including,  (i) the  completion of a $75.0  million  credit  facility,  (ii) the
closure of under-performing restaurants,  (iii) the divestiture of the Company's
Canyon Cafe brand,  (iv) the repurchase of  outstanding  public debt and (v) the
induced conversion of the Company's Convertible Preferred Securities. During the
first quarter of 2002, the Company  completed a $75.0 million credit facility to
replace its existing  credit  agreement and provide  additional  liquidity.  The
agreement provides a $35.0 million revolving credit facility and a $40.0 million
term loan  facility.  Nineteen  under-performing  Don Pablo's and Hops locations
were closed  during 2002 and 11 Canyon Cafe  restaurants  were either  closed or
divested.  Asset  revaluation  and  other  special  charges  of  $67.5  million,
including $22.1 million related to discontinued operations, were recorded during
2002 primarily as a result of restaurant  closures and a $35.0 million writedown
of goodwill  pursuant to the  Company's  annual test of  impairment  of goodwill
required by Statement of Financial  Accounting Standards ("SFAS") No. 142, which
the Company adopted  effective at the beginning of 2002. No new restaurants were
opened during 2002 and only three  restaurants  were opened during 2001 enabling
the  Company  to  focus  on the  operations  of its  existing  restaurants.  The
Company's debt reduction  strategies included the repurchase of $52.4 million in
face value of its outstanding  11.75% Senior  Subordinated Notes during 2002. In
addition the 2002  conversion of 1,307,591  shares of the Company's  outstanding
Convertible  Preferred  Securities  into common stock  during 2002,  reduced the
Company's  outstanding  obligation  with  respect to those  securities  by $65.4
million.  The Company also received  proceeds of $13.0 million  (including  $3.9
million from discontinued operations) from the sale of other non-core assets and
closed restaurant locations during the year.

     In  October  2001,  the FASB  issued  SFAS  No.  144,  "Accounting  for the
Impairment or Disposal of Long-Lived Assets". SFAS 144, which was adopted by the
Company in the first quarter of 2002,  supersedes 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",  for the  disposal  of a  "Segment"  of a business as
defined in that  Opinion.  As a result of the  adoption of SFAS 144, the Company
has classified the revenues and expenses of 11 Don Pablo's restaurants and eight
Hops  restaurants  which were closed in 2002,  plus one  additional  Don Pablo's
restaurant  which was under  contract and held for sale at December 29, 2002 and
subsequently  sold in February 2003, as discontinued  operations for all periods
presented in the accompanying  consolidated financial statements.  The revenues,
expenses  and  related  assets  and  liabilities  of  Canyon  Cafe,   which  was
substantially divested during 2002, including the revenues, expenses and related
assets and  liabilities  for the four Canyon Cafe locations which continue to be
held for sale at December 29, 2002, the McCormick & Schmick's  brand,  which was
divested in August 2001,  and eight Don Pablo's and two Hops  restaurants  which
were closed in 2001, have not been classified as discontinued  operations in the
accompanying  consolidated financial statements. As the decision to divest these
operations  was made  prior to the  implementation  of SFAS 144 and they did not
meet the  criteria  for  classification  as  discontinued  operations  under the
provisions  of APB  Opinion No. 30, they are  required to be  classified  within
continuing operations under the provisions of SFAS 121.


       Comparison of Historical Results - Fiscal Years 2002, 2001 and 2000

Restaurant Sales

     Restaurant  sales for 2002  decreased  25.1% to $441.6  million from $589.4
million in 2001.  Declining  revenues were primarily due to the  divestitures of
Canyon Cafe in 2002 and McCormick & Schmick's in 2001. For continuing operations

                                       12

<PAGE>
related to the Company's Don Pablo's and Hops brands,  restaurant sales for 2002
were $414.6 million compared to $441.4 million in 2001.  Declining revenues were
primarily a result of a decrease in same-store sales at Don Pablo's and Hops and
a decrease in operating  capacity  from the closure of eight Don Pablo's and two
Hops in 2001.  The revenues and expenses  related to 11 Don Pablo's  restaurants
and eight Hops  restaurants  which were closed during 2002,  plus one additional
Don Pablo's  restaurant  which is held for sale at December 29, 2002,  have been
included  in   discontinued   operations  for  all  periods   presented  in  the
accompanying  consolidated  statements  of earnings.  Same-store  sales for 2002
decreased by  approximately 6% at Don Pablo's and 5% at Hops as compared to 2001
(same-store sales comparisons  included all restaurants open for 18 months as of
the beginning of 2002).

     Restaurant  sales for 2001  decreased  9.4% to $589.4  million  from $650.3
million in 2000 reflecting decreased sales at Don Pablo's,  Hops and Canyon Cafe
coupled  with a  decline  in  revenue  associated  with the  divestiture  of the
Company's McCormick & Schmick's brand. For continuing  operations related to the
Company's  Don Pablo's and Hops  brands,  restaurant  sales for 2001 were $441.4
million compared to $448.3 million in 2000. The decrease in 2001 sales for these
brands,  as well as Canyon Cafe sales,  was attributable to a slight decrease in
operating  capacity as well as declining  same-store-sales.  The decrease in Don
Pablo's  and  Hops'  operating  capacity  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
capacity  decreased by 15% due to the closure of 3 restaurants  during the first
quarter  of 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
2% lower at Don  Pablo's  and 1% lower at Hops.  Sales were  adversely  impacted
during  the year by  continued  economic  uncertainty  as well as the  terrorist
attacks on the United States.


Operating Expenses

     The  following  table sets forth the  percentages  which  certain  items of
income and expense  bear to total  restaurant  sales for the  operations  of the
Company's restaurants for the years ended 2002, 2001 and 2000.

Fiscal                                             2002       2001       2000
-------------------------------------------------------------------------------
Restaurant sales:
  Canyon Cafe                                      6.1 %      5.5 %      6.1 %
  Don Pablo's                                     56.8       45.5       43.0
  Hops                                            37.1       29.4       25.9
  McCormick & Schmick's                              -       19.6       25.0
-------------------------------------------------------------------------------
    Total restaurant sales                       100.0      100.0      100.0
-------------------------------------------------------------------------------
Operating expenses:
  Food and beverage                               28.3       28.5       29.1
  Payroll and benefits                            33.8       32.4       31.8
  Depreciation and amortization                    3.4        3.3        3.6
  Other operating expenses                        26.8       26.6       25.0
  General and administrative expenses              6.0        5.3        5.7
  Loss (gain) on disposal of assets                0.1       (2.1)       3.5
  Asset revaluation and other special charges     10.3       10.4        5.5
-------------------------------------------------------------------------------
    Total operating expenses                     108.7      104.4      104.2
-------------------------------------------------------------------------------
Operating loss                                    (8.7)%     (4.4)      (4.2)%
-------------------------------------------------------------------------------


Food and Beverage Costs

     Food and beverage costs, as a percent of sales,  decreased 0.2% in 2002 due
primarily to the  divestiture  of McCormick & Schmick's in the third  quarter of
2001. Prior to divestiture,  food and beverage costs, as a percent of sales, for
the McCormick & Schmick's  brand were higher than the overall  Company  average.
For 2001,  food and beverage costs as a percent of sales  decreased by 0.6% as a
result of continued efforts to maximize purchasing  synergies at Don Pablo's and
Hops.

                                       13

<PAGE>
Payroll and Benefit Costs

     Payroll and benefit  costs,  as a percent of sales,  increased 1.4% in 2002
predominately  due to declining  sales volumes at each of the  Company's  brands
which generated an increase in the fixed component of payroll and benefits.  For
2001,  payroll and benefits costs,  as a percent of sales,  increased 0.6%. This
increase  was  primarily  a result of 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 Canyon Cafe, Don Pablo's and Hops.


Depreciation and Amortization

     Depreciation  and  amortization,  as a percent of sales,  increased 0.1% in
2002  primarily due to declining  sales volumes.  These  increases were somewhat
offset by the discontinuation of depreciation  expense on the fixed assets of 11
Don Pablo's and eight Hops  restaurants  which were closed  during the year.  In
2001,  a 0.3%  decrease  in  depreciation  expense,  as a percent of sales,  was
related to (i) the  discontinuation of depreciation  expense on the fixed assets
of 13  under-performing  restaurants  which were closed in the first  quarter of
2001, (ii) the  discontinuation,  beginning in June, of depreciation  related to
the  McCormick & Schmick's  assets  which were sold during the third  quarter of
2001, (iii) a reduction in depreciation  related to the Canyon Cafe assets which
were classified as held for sale at December 30, 2001 and (iv) the completion of
a sale-leaseback  transaction,  during the fourth quarter of 2000, which reduced
depreciation expense and increased rent expense.


Other Operating Expenses

     Other  operating  expenses,  as a percent of sales,  increased 0.2% in 2002
primarily as a result of declining  sales volumes which generated an increase in
the fixed component of other operating  expenses.  These increases were somewhat
offset  by (i)  decreases  in  utility  costs as a result of  unseasonably  warm
weather during the first quarter of 2002 and (ii) decreases in costs  associated
with new manager  training  at Don  Pablo's and Hops due to improved  management
retention.  In 2001, other operating expenses, as a percent of sales,  increased
1.6%.  This increase was a result of (i) increased  advertising  expenditures at
Hops,  (ii) an  increase  in  rent  expense,  due in  part  to a  sale-leaseback
transaction  completed  in the  fourth  quarter  of 2000 that  reduced  debt and
related interest expense as well as depreciation  expense,  (iii) an increase in
utility costs affecting  substantially all of the Company's restaurants and (iv)
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 a decrease in  preopening  expenses  resulting
from only one new restaurant  opened in 2001 compared to 12  restaurants  opened
during 2000.


General and Administrative Expenses

     General and administrative  expenses were 6.0% of sales in 2002 compared to
5.3% in 2001 and 5.7% in 2000.  The increase in 2002 over 2001 was primarily due
to a decline in sales  volumes.  The  decrease  in 2001 over 2000 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.


Loss (Gain) on Disposal of Assets

     Loss on disposal of assets of $0.6 million for 2002 reflects a $0.7 million
loss related to the divestiture of Canyon Cafe and $0.5 million in losses on the
sale of various restaurant  properties.  These losses were partially offset by a
$0.6  million  gain  related to an  adjustment  to amounts  receivable  from the
divestiture of McCormick & Schmick's.

     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

                                       14

<PAGE>
recorded a gain of $6.9 million  generated  by a 2001  amendment to its interest
rate 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
were not expected to have a future value, were written off.


Asset Revaluation and Other Special Charges

     Asset  revaluation and other special charges totaled $45.4 million in 2002.
These charges, which were predominately non-cash,  included a $7.0 million asset
impairment  charge related  primarily to  underperforming  restaurants and costs
associated  with  sites  that are no longer  expected  to be  developed,  a $3.2
million  reduction to the carrying  value of the Company's  assets held for sale
related  primarily  to Canyon  Cafe and a $35.0  million  write off of  goodwill
related to the Hops brand.  The  goodwill  impairment  charge was  recorded as a
result of the  Company's  annual test of impairment as required by SFAS No. 142,
"Goodwill  and Other  Intangible  Assets",  which was adopted  effective  at the
beginning of 2002. Under SFAS 142, the Company is required to evaluate  goodwill
for impairment by comparing the fair value of the related  reporting unit to the
reporting  unit's  carrying  value.   Beginning  in  fiscal  2002,  the  Company
determined  that Hops meets the  requirements  of a separate  reporting unit and
assessed  goodwill for possible  transition  impairment and concluded that there
was no impairment of goodwill.  At the beginning of the fourth  quarter of 2002,
the  Company  determined  the fair value of the Hops brand  based on an internal
valuation of its historical and projected  operating  performance and restaurant
development  plans.  Based  on  the  Company's  estimated  fair  value,  it  was
determined  that the fair value of Hops exceeded its carrying  value  indicating
potential  goodwill  impairment.  Under SFAS 142,  the  indication  of  goodwill
impairment  requires  the  completion  of an  additional  evaluation  whereby an
"implied" fair value of goodwill is identified. This implied value is determined
by  allocating  the fair  value of the  reporting  unit to all of the assets and
liabilities  of the  reporting  unit in a manner  similar  to a  purchase  price
allocation.  Any residual  fair value after this  allocation is the implied fair
value of the  reporting  unit  goodwill.  Using this  methodology,  the  Company
determined that the implied fair value of the Hops goodwill was $0. Accordingly,
an impairment charge was recorded to write off the full balance of Hops goodwill
as of December  29,  2002.  The  decrease in Hops' fair value and  corresponding
goodwill  impairment  charge was a result of a decline in the brand's 2002 sales
and   operating   performance   which   prompted  the  Company  to  close  eight
underperforming  locations and to halt new  restaurant  development  in the near
term. In addition,  the fair value of the brand was impacted by overall economic
uncertainty which has negatively impacted the Company's restaurants.

     In 2001, asset revaluation and other special charges totaled $61.5 million.
These  charges,  which were  predominately  non-cash,  included 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, under
the  provisions of SFAS No. 121,  "Accounting  for the  Impairment of Long-Lived
Assets and for  Long-Lived  Assets to Be Disposed Of",  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 29, 2002 and  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 $3.6  million
related  primarily to  under-performing  Don Pablo's and Hops 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 secured 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 $35.7 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.  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 $8.6 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

                                       15

<PAGE>
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.


Interest and Other Expenses

     Net interest  expense for 2002 was $31.1 million  compared to $35.3 million
in  2001.  Decreased  interest  expense  for  2002  was  primarily  due  to  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 during
the third quarter of 2001, and the Company's  $52.4 million  repurchase,  during
2002, of its 11.75% Senior Subordinated Notes due 2009, which resulted in a $3.1
million reduction in interest expense during 2002. Decreases in interest expense
were somewhat offset by unfavorable  mark-to-market  adjustments recorded during
the  first  quarter  of  2002  under  a  fixed-to-floating  interest  rate  swap
agreement,  which was  terminated on March 25, 2002,  and by increased  interest
charges incurred  primarily during the first quarter of 2002 related to past due
sales and use, property and other taxes.

     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.

     Distribution expense on preferred securities relates to the Company's $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 "TECONS").  Expenses related to these securities have decreased as
a result of the  conversion of 86,128 of the  securities  into 291,115 shares of
common stock during 2001, coupled with 1,307,591 additional  conversions in 2002
into  4,419,789  shares of common  stock all of which were issued from  treasury
stock. 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.

     In June 2002, the Company made a one-time  distribution  payment of accrued
interest, totaling $5.4 million or $4.25 per share, to holders of its TECONS. Of
the  1,307,591  shares  converted  during  2002,  1,200,391  were  converted  in
conjunction with this distribution  payment.  As a result of these  conversions,
annual  distribution  expense  on  the  remaining  TECONS  outstanding  will  be
approximately $0.2 million.

     During 2002, other income related  primarily to the abatement of previously
recorded sales, use and property tax penalties.  In 2001 and 2000, other expense
included  amortization  of goodwill.  As a result of the Company's first quarter
2002 adoption of SFAS 142, "Goodwill and Other Intangible  Assets",  no goodwill
amortization was recorded in 2002.

     Other expenses during 2001 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  compared  to 2000  primarily  due to the  incurrence  of tax
penalties.


Income Tax Expense

     Although  the  Company  incurred a loss from  continuing  and  discontinued
operations  before income taxes of $63.1 million for 2002, the Company  recorded
an income tax expense for the year of $0.4 million.  This was principally due to
the  write-down of the Hops goodwill of $35.0 million,  including  $20.8 million
that was not deductible for tax purposes. As a result of this permanent book-tax
basis  difference,  income tax  benefit for 2002 was $15.0  million,  before the
additional  tax  expense of $15.4  million  for the  increase  in the  valuation
allowance for deferred tax assets.

     In 2001,  the  Company  incurred a loss from  continuing  and  discontinued

                                       16

<PAGE>
operations before income taxes of $84.1 million,  however,  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.

     The Company's 1998 Federal  income tax returns are currently  being audited
by the Internal Revenue Service. The Company believes its recorded liability for
income  taxes of $35.0  million as of December 29, 2002 is adequate to cover its
exposure that may result from the ultimate resolution of the audit. Although the
ultimate  outcome of the audit cannot be  determined  at this time,  the Company
does  not  have  sufficient  liquidity  to pay any  significant  portion  of its
recorded  liability if resolution results in such amount being currently due and
payable.  Management does not currently expect that this will be the result,  or
that any  resolution  with  respect to audit  issues will be reached in the near
future.  Because the audit is in process,  and any amount that ultimately may be
payable  has not  been  determined  by the  IRS,  no  amounts  are  shown in the
Contractual Cash Obligations table.


Discontinued Operations

     As discussed  in Note 1 - Basis of  Presentation,  discontinued  operations
includes the revenues,  expenses and related  assets and  liabilities  of 11 Don
Pablo's and eight Hops  restaurants  which were  closed  during  2002,  plus one
additional Don Pablo's  restaurant which was under contract and held for sale at
December  29, 2002 and  subsequently  sold in  February  2003.  The  decision to
dispose  of these  20  locations  reflects  the  Company's  ongoing  process  of
evaluating the  performance and cash flows of its various  restaurant  locations
and its desire to use the proceeds from the sale of under performing restaurants
to reduce  debt.  The  Company  expects to  complete  the  divestiture  of these
locations in 2003.

     Net loss from  discontinued  operations  for 2002,  for which no taxes have
been allocated,  of $25.1 million  primarily  reflects non-cash asset impairment
charges  of  $22.1  million,  primarily  to  reduce  the  carrying  value of the
restaurant assets,  which are held for sale, to estimated fair value.  Operating
losses were $25.1 million for 2002, on total restaurant sales from  discontinued
operations of $19.3 million.

     Net loss from  discontinued  operations  for 2001,  for which no taxes have
been allocated,  of $8.9 million  primarily  reflects  non-cash asset impairment
charges  of  $4.8  million,  primarily  to  reduce  the  carrying  value  of the
restaurant  assets to estimated fair value.  Operating  losses were $8.9 million
for 2001,  on total  restaurant  sales  from  discontinued  operations  of $28.8
million.

     Net loss from  discontinued  operations  for 2000 of $3.2  million  (net of
income tax benefit of $2.1 million) primarily reflects non-cash asset impairment
charges  of  $2.5  million,  primarily  to  reduce  the  carrying  value  of the
restaurant  assets to estimated fair value.  Operating  losses were $5.2 million
for 2000,  on total  restaurant  sales  from  discontinued  operations  of $30.3
million.


                         Liquidity and Capital Resources

     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  restaurant  openings  and
closings  and the timing of  settlement  of  liabilities.  Decreases in accounts
payable  during  2002  occurred  as a result of a planned  reduction  in various
outstanding  obligations  with  borrowings  from  the  Company's  $75.0  million
refinanced  credit  facility.  Decreases  in accrued  liabilities  occurred as a
result of (i) a reduction  in accrued  interest due to the  retirement  of $52.4
million in outstanding debt related to the Company's 11.75% Senior  Subordinated
Notes,  (ii) a  reduction  in  accrued  interest  due to the  payment of accrued
interest and conversion of 1,307,591 shares, or $65.4 million,  of the Company's
Convertible  Preferred  Securities and (iii) the payment of previously  deferred
payments related to sales, use, property and other taxes.

                                       17

<PAGE>
     On March 25, 2002, the Company  completed a $75.0 million  credit  facility
(the "Credit  Facility") to replace its existing  credit  agreement.  The Credit
Facility 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 as determined for the
most recently completed four quarters ("Borrowing Base EBITDA"). The calculation
of Borrowing Base EBITDA  excludes the 2001 operations of McCormick & Schmick's,
gains and losses on the disposal of assets,  asset revaluation and other special
charges,  non-cash rent expense and preopening  costs. 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 capital
expenditures. 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
Facility.  In  addition,  the  lender has 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. The loan
is secured by substantially all of the Company's assets.

     In June 2002,  the Company  obtained an  amendment  to the Credit  Facility
which  allowed  the use of  proceeds  from the term  loan  facility  to make the
one-time  payment  of  accrued  interest  related  to the  Company's  $3.50 term
convertible securities,  due 2027. In the third quarter, the Company completed a
second  amendment  to the Credit  Facility  which  amended  certain  definitions
relating to the payment of delinquent taxes and made other technical corrections
to the  agreement.  During the fourth  quarter,  the  Company  completed a third
amendment,  dated  November 11, 2002, and fourth  amendment,  dated December 27,
2002, to the Credit  Facility.  The third  amendment made  additional  technical
corrections to the agreement.  Under the fourth  amendment,  the Credit Facility
lenders agreed to forbear from exercising their remedies until May 31, 2003 with
respect to certain  events of default  related to the Company's  failure to meet
its September 29, 2002 EBITDA target. The amendment  increased the interest rate
to 15.75% for  revolving  and term  borrowings  and to 7.5% for letter of credit
accommodations.  The fourth amendment also revised certain  financial  covenants
and added a new covenant  which  requires the Company to reduce its  obligations
(including cash borrowings and letter of credit  commitments) under the facility
to $0 by May 25, 2003 in accordance with the following schedule.

              Date                   Maximum Obligations
              ------------------     -------------------
              January 26, 2003       $50,000,000
              February 23, 2003      $41,000,000
              March 30, 2003         $31,000,000
              April 27, 2003         $15,000,000
              May 25, 2003           $0

     In connection with the fourth amendment,  the Company incurred an amendment
and waiver fee of $8.5 million.  The fee was  paid-in-kind by being added to the
principal balance of the Company's outstanding term borrowings.  Under the terms
of the fourth amendment,  $6.5 million of the waiver fee will be refunded by the
lender by reducing the principal  balance of the outstanding  term loans by $6.5
million if (i) by April 27, 2003 the  Company  has  reduced all cash  borrowings
(excluding  the  refundable  $6.5 million fee) to $0, (ii) by April 27, 2003 the
Company has  collateralized  its letter of credit  commitments  either with cash
collateral  of 105% or  through  back-up  letters of credit and (iii) by May 25,
2003 all letters of credit secured by the Credit  Facility have been returned to
the issuer  without being drawn.  Subsequent  to December 29, 2002,  the Company
successfully  reduced its  obligations  to comply  with the maximum  obligations
requirement for the periods ended January 26, 2003 and February 23, 3003.

     Due to the Company's  requirement to reduce the outstanding  balance of the
Credit  Facility to $0 by May 25, 2003,  the balance of the facility at December
29,  2002  has  been  classified  as a  current  liability  in the  accompanying
consolidated  balance  sheet.  At  December  29,  2002,  $11.6  million  of cash
borrowings were outstanding  under the revolving  portion of the Credit Facility
and $19.2  million  was  outstanding  under the term  portion  of the  facility,
including the $6.5 million  refundable  portion of the amendment and waiver fee.
In  addition  to the $11.6  million  of cash  borrowings  outstanding  under the
revolving facility,  an additional $15.3 million of the facility was utilized to
secure letters of credit.  Lender imposed  reserves  against the Company's total
borrowing availability,  as of December 29, 2002, were $5.8 million. At December
29, 2002, $7.8 million of the total facility remained unused and available.

                                       18

<PAGE>
     During the fourth  quarter of 2002,  Borrowing  Base  EBITDA  resulted in a
maximum borrowing capacity of $53.3 million. At December 29, 2002, the Company's
trailing  12 months  EBITDA  will  result  in the  Company's  maximum  borrowing
capacity being adjusted from $53.3 million to $49.3 million in conjunction  with
the  Company's  filing  of its  required  reports  with the  lender  on or about
February  27,  2003.  As a result of the  upcoming  reduction  in the  Company's
borrowing  base,  total  availability  on the  facility  will be reduced by $4.0
million on or about February 27, 2003,  however the  availability  cannot exceed
the maximum borrowing  obligations,  as amended, noted in the table above at the
respective  dates.  Subsequent to December 29, 2002,  the Company used revolving
loan  advances to make the  interest  payments  under its 9.75% Senior Notes due
2006   ("Senior   Notes")  and  11.75%  Senior   Subordinated   Notes  due  2009
("Subordinated  Notes")  of $5.7  million  and $2.8  million,  respectively.  In
addition to its currently outstanding  borrowings,  the Company will be required
to pay an anniversary fee of $1.1 million on March 25, 2003 and will be required
to pay a  termination  fee of $1.7 million if the Credit  Facility is terminated
prior to March 25,  2003.  This fee  escalates  to $3.6  million  if the  Credit
Facility termination occurs subsequent to March 25, 2003.

     The Company has suffered  from  recurring  losses from  operations,  has an
accumulated  deficit and has a secured credit facility which is due May 25, 2003
that raise  substantial doubt about the Company's ability to continue as a going
concern.  Sufficient  liquidity to make the scheduled debt reductions  under the
amended  Credit  Facility and other  required debt service and lease payments is
dependent primarily on the realization of proceeds from the sale of assets, cash
flow from operations and obtaining alternative  financing sources.  There can be
no assurance that these initiatives will be successful.

     In the event the Company is not able to meet its debt reduction obligations
or other  financial  covenant  targets  under the Credit  Facility,  an event of
default would occur. During the continuance of an event of default,  the Company
would be subject to a post-default interest rate under the Credit Facility which
increases the otherwise  effective interest rates by three percentage points. As
a result,  the  Company's  per annum  interest  rate on revolving and term loans
would be 18.75% and the rate on letter of credit accommodations would be 10.50%.
In addition to the right to declare all obligations immediately due and payable,
the Credit Facility lender also has additional  rights during the continuance of
an event of default  including,  among other  things,  the right to (i) make and
collect certain payments on the Company's  behalf,  (ii) require cash collateral
to  secure  letters  of  credit,  (iii)  make  certain  investigations  into the
Company's  activities,  (iv) receive reimbursement for certain expenses incurred
and (v) sell any of the collateral  securing the  obligations or settle,  on the
Company's behalf, any legal proceedings related to the collateral.  In addition,
in the  event  the  amounts  due  under the  Credit  Facility  are  accelerated,
cross-default  provisions  contained in the  indentures to the Company's  Senior
Notes and  Subordinated  Notes would be triggered,  creating an event of default
under those  agreements as well. At December 29, 2002, the outstanding  balances
of the Senior and  Subordinated  Notes were  $116.5  million  and $47.6  million
respectively.  An event of default under the Credit  Facility  would result in a
cross-default  under the  master  equipment  lease  but  would  not  result in a
cross-default  under the sale-leaseback  agreement.  In the event some or all of
the obligations under the Company's credit agreements become immediately due and
payable,  the Company does not currently  have  sufficient  liquidity to satisfy
these  obligations  and it is likely  that the  Company  would be forced to seek
protection from its creditors.

     The terms of the amended Credit  Facility,  the Company's  Senior Notes and
Subordinated Notes,  master equipment lease and Hops sale-leaseback  transaction
collectively  include various provisions which, among other things,  require the
Company to (i) achieve certain EBITDA targets,  (ii) maintain  defined net worth
and coverage ratios,  (iii) maintain  defined  leverage  ratios,  (iv) limit the
incurrence of certain liens or encumbrances in excess of defined amounts and (v)
limit certain payments.  In conjunction with the closing of the Credit Facility,
the Company terminated its interest rate swap agreement thereby  eliminating any
aforementioned  restrictions contained in that agreement.  In addition, in March
2002 the master equipment lease agreement was amended to  substantially  conform
the covenants to the Credit  Facility.  At December 29, 2002, the Company was in
compliance with the requirements  contained in the Credit Facility,  as amended.
The  Company  was also in  compliance  with the  terms of the  Senior  Notes and
Subordinated  Notes.  The  Company  was  not  in  compliance  with  a net  worth
requirement contained in its sale-leaseback  agreement. The lessor, however, has
waived this requirement until March 31, 2004 at which time the minimum net worth
requirement  will be $150.0 million.  The Company is also not in compliance with
certain financial  covenants  contained in the master equipment lease. Under the
master equipment lease, the failure to meet the financial  covenants  represents
an event of default  whereby the creditor has the right to, among other  things,
declare all obligations  under the agreement  immediately due and payable and to
repossess  the leased  equipment,  which is located  primarily in the  Company's
restaurants.  Although  the lessor has not notified the Company of its intent to
do so,  acceleration of the obligations  would have a material adverse effect on
the  Company.  At December  29,  2002,  remaining  obligations  under the master

                                       19

<PAGE>
equipment lease totaled $7.6 million.  The continuing event of default under the
master  equipment  lease does not result in  cross-defaults  under the Company's
Senior  Notes,  Subordinated  Notes or  sale-leaseback  agreement  and the cross
default under the Credit Agreement has been waived.  Although the lessor has not
notified the Company of any intent to accelerate its  obligations,  there can be
no assurances that the lessor will not exercise such remedies.

The following table summarizes the Company's future contractual cash
obligations:

<TABLE>
<CAPTION>
Contractual Cash Obligations                  2003          2004          2005          2006          2007    Thereafter
-------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>           <C>           <C>          <C>            <C>          <C>
Credit Facility - principal payment        $30,809             -             -             -             -             -
Credit Facility - interest payments          1,645             -             -             -             -             -
Credit Facility - anniversary fee            1,100             -             -             -             -             -
Credit Facility - termination fee            1,700             -             -             -             -             -
Senior Notes - principal payment                 -             -             -      $116,500             -             -
Senior Notes - interest payments            11,359       $11,359       $11,359         5,679             -             -
Subordinated Notes -
   principal payment                             -             -             -             -             -       $47,625
Subordinated Notes -
   interest payments                         5,596         5,596         5,596         5,596        $5,596         8,394
Convertible Preferred Securities
   - principal payments                          -             -             -             -             -         3,179
Convertible Preferred Securities
   - distribution payments                     223           223           531           223           223         4,283
Minimum operating lease
   payments                                 24,094        16,073        14,819        13,186        11,494        71,577
-------------------------------------------------------------------------------------------------------------------------
Total                                      $76,526       $33,251       $32,305      $141,184       $17,313      $135,058
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

     The  preceding  schedule  summarizes  the  Company's   contractual  payment
obligations  as they existed at December 29,  2002.  Actual  payments may differ
from these  amounts due  primarily  to interest  and  principal  payments on the
Credit  Facility and additional  operating lease payments for new development as
well as the  extension of existing  lease  agreements.  Further,  the  Company's
minimum lease payment obligations under its sale-leaseback  agreement,  included
above,  totaled  $69.5  million at December  29, 2002.  On March 31,  2004,  the
covenants  of such  agreement  will  require that the Company have a minimum net
worth, as defined,  of $150.0 million.  The approximate  amount of minimum lease
payments due at that date are $65.2 million.

     Interest payments on the Company's Senior Notes and Subordinated  Notes are
due semi-annually in each June and December.  Prior to the Company's  repurchase
of $52.4  million in face  value of its  outstanding  Subordinated  Notes in the
second and third quarters of 2002, the Company's  semi-annual  interest payments
totaled approximately $11.6 million. Subsequent to the repurchase, the Company's
semi-annual  interest payments will total approximately $8.5 million.  Under the
terms of the related  note  indentures,  the Company  has an  additional  30-day
period from the scheduled  interest  payment dates before an event of default is
incurred,  due to late  payment of  interest,  and the  Company  utilized  these
provisions with respect to its June and December 2002 interest  payments as well
as its June and December 2001 interest  payments.  The Company's ability to make
its June 2003 interest  payments is dependent on the outcome of its  initiatives
to sell assets and obtain alternative lending sources.

     Principal  financing sources in 2002 consisted of (i) term loan proceeds of
$19.2 million  including $8.5 million borrowed to pay the Credit Facility fourth
amendment fee, (ii) a $10.0 million refund of payments to collateralize  letters
of credit for the  Company's  self-insurance  programs,  (iii)  proceeds of $9.1
million  from  disposition  of  assets  related  primarily  to the  McCormick  &
Schmick's and Canyon Cafe divestitures, and (iv) revolving loan proceeds of $3.1
million,  net of  financing  costs of $8.5  million,  The primary  uses of funds
consisted of (i) net cash used in operations  of $26.0  million  which  included
interest  payments  of $29.4  million  primarily  related to the  Senior  Notes,
Subordinated  Notes and the one-time TECON payment,  a credit facility amendment
and waiver fee of $8.5 million,  and operating  lease payments of $24.6 million,
(ii) $8.5 million,  net of accrued interest of $2.2 million,  for the repurchase
of $52.4 million in face value of the Company's outstanding  Subordinated Notes,
(iii) capital  expenditures of $5.4 million, and (v) settlement of the Company's
interest rate swap agreement for $1.7 million.

                                       20

<PAGE>
     The  Company  incurs  various  capital  expenditures  related  to  existing
restaurants  and restaurant  equipment in addition to capital  requirements  for
developing  new   restaurants.   The  Company  does  not  have  any  contractual
obligations to open any new restaurants  during 2003.  Capital  expenditures for
existing  restaurants  are  expected to be  approximately  $4.5 million in 2003.
Capital  expenditures  of $5.4  million  for 2002  relate  primarily  to capital
spending for existing  restaurants.  Capital  expenditures  for during 2001 were
$17.6 million and provided for the opening of three new restaurants,  as well as
capital for existing restaurants.

     The Company is also exposed to certain contingent  payments.  In connection
with  the  Applebee's,  Harrigan's  and  Canyon  Cafe  divestiture  transactions
completed  during 2002, 1999 and 1998, the Company remains  contingently  liable
for lease  obligations  relating to 86 Applebee's  restaurants  eight Harrigan's
restaurants  and eight Canyon Cafe  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 $34.7 million.  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.
The  Company  has  increased  the  amounts  of  its   deductibles  for  workers'
compensation  and general  liability to $500,000  per claim in 2002  compared to
$250,000 per claim in 2001.  Losses in excess of these risk retention levels are
covered by insurance  which  management  considers as  adequate.  Provision  for
losses  expected  under these  programs are recorded based upon estimates of the
liability  for  claims  incurred.  Such  estimates  are  based  on  management's
evaluation of the nature and severity of claims and future  development based on
the Company's historical experience, information provided by the Company's third
party  administrators  and certain  actuarial  assumptions used by the insurance
industry.  For 2002,  claims paid under the  Company's  self-insurance  programs
totaled  $4.9  million.  In  addition,  at December  29,  2002,  the Company was
contingently  liable  for  letters  of credit  aggregating  approximately  $15.3
million, relating primarily to its insurance programs.  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

     The Company's 1998 Federal  income tax returns are currently  being audited
by the Internal Revenue Service. The Company believes its recorded liability for
income  taxes of $35.0  million as of December 29, 2002 is adequate to cover its
exposure that may result from the ultimate resolution of the audit. Although the
ultimate  outcome of the audit cannot be  determined  at this time,  the Company
does  not  have  sufficient  liquidity  to pay any  significant  portion  of its
recorded  liability  if  resolution  of the audit  results in such amount  being
currently due and payable.  Management does not currently  expect that this will
be the  result,  or that any  resolution  with  respect to audit  issues will be
reached in the near future. Because the audit is in process, and any amount that
ultimately  may be payable  has not been  determined  by the IRS, no amounts are
shown in the Contractual Cash Obligations table above.

     Management has taken steps to improve cash flow from operations,  including
changing  the  Company's  marketing  strategy  to be less  reliant on  expensive
broadcast  media,  reducing  overhead  through  consolidation  of functions  and
personnel reductions and adjusting supervisory management level personnel in its
restaurant operations. There is no assurance these efforts will be successful in
improving  cash flow from  operations  sufficiently  to enable  the  Company  to
continue  to meet  its  obligations,  including  scheduled  interest  and  other
required  payments under its debt and lease agreements and capital  expenditures
necessary  to  maintain  its  existing  restaurants.  During  2002,  the Company
realized $13.0 million from the sale of assets (including $3.9 from discontinued
operations),  which  supplemented its cash provided by financing  activities and
enabled the Company to meet its  obligations.  For the near term, cash flow from
operations  will need to be  supplemented  by asset  sales  and other  liquidity
improvement  initiatives including obtaining new financing sources.  There is no
assurance  the Company will be able to generate  proceeds  from these efforts in
sufficient amounts to supplement cash flow from operations, thereby enabling the
Company  to meet  its debt  and  lease  obligations.  In  addition,  there is no
assurance the Company will be able to comply with the financial covenants of its
debt and lease agreements.


                          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,

                                       21

<PAGE>
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.  144,  "Accounting  for the  Impairment  or Disposal of
Long-Lived Assets", which supersedes SFAS No. 121 "Accounting for the Impairment
of Long-Lived Assets and Long-Lived Assets to be Disposed Of". SFAS 144 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.  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.

     Discontinued  Operations.   Statement  of  Financial  Accounting  Standards
("SFAS")  No. 144,  "Accounting  for the  Impairment  or Disposal of  Long-Lived
Assets",  which  was  adopted  by the  Company  in the  first  quarter  of 2002,
supersedes 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", for the disposal of
a  "Segment"  of a  business  as  defined  in that  Opinion.  As a result of the
adoption of SFAS 144,  the Company has  classified  the  revenues,  expenses and
related  assets and  liabilities  of 11 Don Pablo's  restaurants  and eight Hops
restaurants  which  were  closed  in  2002,  plus  one  additional  Don  Pablo's
restaurant  which was under  contract and held for sale at December 29, 2002 and
subsequently  sold in February 2003, as discontinued  operations for all periods
presented in the accompanying  consolidated financial statements.  The revenues,
expenses and related  assets and  liabilities  of Canyon Cafe which is also held
for sale,  the McCormick & Schmick's  brand,  which was divested in August 2001,
and eight Don Pablo's and two Hops  restaurants  which were closed in 2001, have
not been classified as discontinued operations in the accompanying  consolidated
financial statements.  As the decision to divest these operations was made prior
to the  implementation  of SFAS  144 and they  did not  meet  the  criteria  for
classification  as discontinued  operations  under the provisions of APB Opinion
No. 30, they will continue to be classified within  continuing  operations under
the provisions of SFAS 121.

     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 was amortized
over the  expected  period  to be  benefited,  typically  40  years,  using  the
straight-line  method.  In 2001, in accordance  with the  provisions of SFAS No.
121, the Company recorded a $38.1 million impairment charge at Canyon Cafe which
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 goodwill generated by that acquisition.  At December 30, 2001
and during 2002 the Company's  recorded goodwill balance related solely to Hops.
Beginning in fiscal 2002, the Company adopted SFAS No. 142,  "Goodwill and Other
Intangible Assets", and ceased amortizing goodwill.  Under SFAS 142, the Company
is required to annually  evaluate  goodwill for impairment by comparing the fair
value of the related  reporting  unit to the reporting  unit's  carrying  value.
Beginning  in  fiscal  2002,  the  Company   determined   that  Hops  meets  the
requirements  of a separate  reporting  unit and assessed  goodwill for possible
transition impairment and concluded that there was no impairment of goodwill. At
the beginning of the fourth  quarter of 2002,  the Company  determined  the fair
value of the Hops brand based on an internal  valuation  of its  historical  and
projected operating  performance and restaurant  development plans. Based on the
Company's  estimated fair value,  it was determined  that the fair value of Hops
exceeded its carrying value indicating potential goodwill impairment. Under SFAS
142,  the  indication  of goodwill  impairment  requires  the  completion  of an
additional evaluation whereby an "implied" fair value of goodwill is identified.

                                       22

<PAGE>
This implied value is  determined by allocating  the fair value of the reporting
unit to all of the  assets and  liabilities  of the  reporting  unit in a manner
similar to a purchase  price  allocation.  Any  residual  fair value  after this
allocation is the implied fair value of the reporting unit goodwill.  Using this
methodology,  the Company  determined  that the  implied  fair value of the Hops
goodwill was $0. Accordingly, an impairment charge was recorded to write off the
full balance of Hops  goodwill as of December  29,  2002.  The decrease in Hops'
fair  value  and  corresponding  goodwill  impairment  charge  was a result of a
decline in the brand's 2002 sales and operating  performance  which prompted the
Company to close  eight  underperforming  locations  and to halt new  restaurant
development  in the near  term.  In  addition,  the fair  value of the brand was
impacted by overall  economic  uncertainty  which has  negatively  impacted  the
Company's restaurants.

     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. The Company has increased
the amounts of its deductibles for workers'  compensation and general  liability
to $500,000 per claim in 2002 compared to $250,000 per claim in 2001.  Losses in
excess of these risk retention  levels are covered by insurance which management
considers as adequate.  Provision for losses  expected  under these programs are
recorded  based  upon  estimates  of the  liability  for claims  incurred.  Such
estimates  are based on  management's  evaluation  of the nature and severity of
claims and future  development  based on 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.

     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

                                       23

<PAGE>
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
expressed in  forward-looking  statements.  These factors include the outcome of
the Company's discussion with its creditors concerning events of default; future
compliance  with debt  covenants;  the ability to meet  principal  and  interest
payments  as well as pay fees due in 2003;  the  outcome of the IRS audit of the
Company's 1998 Federal income tax returns,  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.


                        Recent Accounting Pronouncements

     In June 2001, the FASB issued  Statement of Financial  Accounting  Standard
("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 (see Note 2), 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 that date.  The Company  adopted SFAS 142
effective at the beginning of its fiscal 2002 year.

     The following table discloses the Company's  consolidated losses,  assuming
it excluded goodwill amortization for the periods ended:

<TABLE>
<CAPTION>
                                                        2002            2001         2000
--------------------------------------------------------------------------------------------
<S>                                                  <C>              <C>          <C>
Net loss                                             $ (63,429)       (95,260)     (65,734)
Add back:
  Goodwill amortization, net of income taxes                 -          2,194        2,581
  Trademark amortization, net of income taxes                -             14           14
--------------------------------------------------------------------------------------------
   Adjusted net loss                                 $ (63,429)       (93,052)     (63,139)
--------------------------------------------------------------------------------------------
Basic loss per share                                 $   (2.02)         (3.33)       (2.55)
Add back:
   Goodwill amortization, net of income taxes                -           0.08         0.10
   Trademark amortization, net of income taxes               -              -            -
--------------------------------------------------------------------------------------------
   Adjusted basic loss per share                     $   (2.02)         (3.25)       (2.45)
--------------------------------------------------------------------------------------------
Diluted loss per share                               $   (2.02)         (3.33)       (2.55)
Add back:
  Goodwill amortization, net of income taxes                 -           0.08         0.10
  Trademark amortization, net of income taxes                -              -            -
--------------------------------------------------------------------------------------------
   Adjusted diluted loss per share                   $   (2.02)         (3.25)       (2.45)
--------------------------------------------------------------------------------------------
</TABLE>

     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  will adopt SFAS 143 in the first  quarter of fiscal 2003 and
does not expect the adoption of this  standard to have a material  impact on its
results of operations or financial position.

                                       24

<PAGE>
     In  October  2001,  the FASB  issued  SFAS  No.  144,  "Accounting  for the
Impairment or Disposal of Long-Lived Assets". SFAS 144, which was adopted by the
Company in the first quarter of 2002,  supersedes 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",  for the  disposal  of a  "Segment"  of a business as
defined in that  Opinion.  As a result of the  adoption of SFAS 144, the Company
has classified the revenues and expenses of 11 Don Pablo's restaurants and eight
Hops  restaurants  which were closed in 2002,  plus one  additional  Don Pablo's
restaurant  which  was held for  sale at  December  29,  2002,  as  discontinued
operations for all periods presented in the accompanying  consolidated financial
statements.  The  revenues  and  expenses  of Canyon Cafe which is also held for
sale,  the McCormick & Schmick's  brand,  which was divested in August 2001, and
eight Don Pablo's and two Hops  restaurants  which were closed in 2001, have not
been  classified as  discontinued  operations in the  accompanying  consolidated
financial statements.  As the decision to divest these operations was made prior
to the  implementation  of SFAS  144 and they  did not  meet  the  criteria  for
classification  as discontinued  operations  under the provisions of APB Opinion
No. 30, they are required to be classified  within  continuing  operations under
the provisions of SFAS 121.

     In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No.  4,  44,  and  64,  Amendment  of  FASB  Statement  No.  13,  and  Technical
Corrections",  which  eliminates  the  requirement  to report  gains and  losses
related to  extinguishments  of debt as extraordinary  items. The statement also
included  other  amendments  and  technical  corrections,  which will not have a
material impact on the Company.  The provisions of the statement  related to the
treatment  of debt  extinguishments  are  required to be applied in fiscal years
beginning  after May 15,  2002.  The  Company  elected  to adopt SFAS 145 in the
second quarter of 2002. As a result of the  application  of the  statement,  for
fiscal 2002,  the Company's  $41.4 million  gain,  related to the  repurchase of
$52.4 million of its  Subordinated  Notes is not  presented as an  extraordinary
item in the  accompanying  Consolidated  Statements of Loss. The Company has not
reported any  extraordinary  items in prior periods and,  accordingly,  no prior
period reclassifications were required.

     In June  2002,  the  FASB  issued  SFAS  No.  146,  "Accounting  for  Costs
Associated  with Exit or  Disposal  Activities".  SFAS 146  supersedes  Emerging
Issues  Task Force  ("EITF")  Issue  94-3,  "Liability  Recognition  for Certain
Employee  Termination  Benefits  and Other Costs to Exit an Activity  (Including
Certain Costs Incurred in a Restructuring)".  SFAS 146 eliminates the provisions
of EITF 94-3 that  required a liability  to be  recognized  for certain  exit or
disposal  activities at the date an entity  committed to an exit plan.  SFAS 146
requires a liability for costs  associated with an exit or disposal  activity to
be recognized when the liability is incurred.  SFAS 146 is effective for exit or
disposal  activities  that are initiated  after December 31, 2002.  Although the
Company  does not  expect  the  adoption  of this  statement  to have a material
adverse impact on its results of operations or financial position, it may impact
the  timing of expense  recognition  as the  Company  continues  to execute  its
strategy of reducing debt with proceeds from the sale of assets.

     In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure". SFAS 148 amends SFAS 123, "Accounting
for Stock-Based  Compensation," to provide alternative methods of transition for
a voluntary  change to the fair value based method of accounting for stock-based
employee  compensation.   In  addition,  the  statement  amends  the  disclosure
requirements  of SFAS 123 to require  prominent  disclosure  in both  annual and
interim  financial  statements  about the method of accounting  for  stock-based
employee compensation and the effect of the method used on reported results. The
provisions of the statement  are effective for financial  statements  for fiscal
years ending after  December 15, 2002. As the Company  accounts for  stock-based
compensation  using  the  intrinsic  value  method  prescribed  in APB  No.  25,
"Accounting  for Stock  Issued to  Employee's",  the adoption of SFAS 148 has no
impact on the Company's financial condition or results of operations.

     In November 2001,  the EITF reached a consensus on Issue 01-9,  "Accounting
for  Consideration  Given by a Vendor to a Customer".  EITF 01-9  addresses  the
recognition,   measurement  and  income  statement   classification   for  sales
incentives offered to customers.  Sales incentives  include discounts,  coupons,
free  products and generally any other offers that entitle a customer to receive
a reduction  in the price of a product.  Under EITF 01-9,  the  reduction in the
selling  price of the  product  resulting  from any sales  incentives  should be
classified  as a reduction of revenue.  The Company  adopted EITF 01-9 in fiscal
2002.  Prior to  adopting  this  pronouncement,  the  Company  recognized  sales
incentives as restaurant operating expenses.  As a result of adopting EITF 01-9,
sales  incentives  were  reclassified  as a  reduction  of sales for all periods
presented. Amounts reclassified were $7.1 million, $5.4 million and $5.2 million
in 2002, 2001 and 2000, respectively.

                                       25

<PAGE>
     In  November  2002,  the FASB issued  FASB  Interpretation  ("FIN") No. 45,
"Guarantor's  Accounting and Disclosure  Requirements for Guarantees,  Including
Indirect  Guarantees of Indebtedness  of Others".  FIN 45 expands the disclosure
requirements  to be made by a  guarantor  in its  interim  and annual  financial
statements  about its obligations  under certain  guarantees that it has issued.
The Interpretation also clarifies that a guarantor is required to recognize,  at
the inception of a guarantee,  a liability for the fair value of the  obligation
undertaken  in issuing  the  guarantee.  Certain  guarantees,  including  (i) an
original  lessee's  guarantee  of the lease  payments  when that lessee  remains
secondarily  liable in  conjunction  with being  relieved from being the primary
obligor and (ii) a parent's  guarantee of a subsidiary's  debt to a third party,
and a subsidiary's  guarantee of debt owed to a third party by either its parent
or another  subsidiary of that parent,  are excluded from the provisions related
to  liability  recognition.  These  guarantees,  however,  are  subject  to  the
disclosure  requirements  of  the  Interpretation.   The  liability  recognition
provisions of FIN 45 are  applicable to  guarantee's  issued after  December 31,
2002.  The  disclosure  requirements  of the  Interpretation  are  effective for
financial  statements of interim and annual  periods  ending after  December 15,
2002.  Historically,  the only guarantees  issued by the Company relate to lease
guarantees  where the  Company is no longer the primary  obligor and  guarantees
between Avado Brands,  Inc. and its  wholly-owned  subsidiaries  related to debt
owed to third parties.  Currently  under such  guarantees,  the Company could be
liable for lease  payments  extending  through 2017 with minimum lease  payments
totaling $34.7 million.  The Company does not anticipate issuing any guarantee's
which would be required to be recognized as a liability  under the provisions of
FIN 45 and thus does not expect the  adoption of this  Interpretation  to have a
material impact on its results of operations or financial position.  The Company
has adopted the  disclosure  requirements  of FIN 45  effective  for fiscal year
ended December 29, 2002.

                                       26

<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
terminated the one such swap agreement it had in place 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.

                                       27

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

(In thousands, except per share data)
<CAPTION>
Fiscal Year Ended                                                             2002        2001       2000
------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>               <C>         <C>
Restaurant sales:
    Canyon Cafe                                                       $       26,976     32,129      39,598
    Don Pablo's                                                              250,805    268,250     279,801
    Hops                                                                     163,807    173,125     168,512
    McCormick & Schmick's                                                          -    115,875     162,350
------------------------------------------------------------------------------------------------------------
          Total restaurant sales                                             441,588    589,379     650,261
------------------------------------------------------------------------------------------------------------

Operating expenses:
    Food and beverage                                                        125,190    168,222     189,363
    Payroll and benefits                                                     149,140    191,034     207,091
    Depreciation and amortization                                             14,861     19,639      23,140
    Other operating expenses                                                 118,281    156,517     162,433
    General and administrative expenses                                       26,580     31,011      36,976
    Loss (gain) on disposal of assets                                            563    (12,436)     22,818
    Asset revaluation and other special charges (including goodwill
       write offs of $35.0 million in 2002 and $38.1 million in 2001)         45,431     61,546      35,667
------------------------------------------------------------------------------------------------------------
Operating loss                                                               (38,458)   (26,154)    (27,227)
------------------------------------------------------------------------------------------------------------

Other income (expense):
    Interest expense, net                                                    (31,050)   (35,305)    (38,262)
    Credit facility amendment and waiver fee                                  (8,500)         -           -
    Distribution expense on preferred securities                              (2,033)    (4,864)     (7,195)
    Gain on debt extinguishment                                               41,412          -           -
    Other, net                                                                   693     (8,932)     (7,165)
------------------------------------------------------------------------------------------------------------
          Total other income (expense)                                           522    (49,101)    (52,622)
------------------------------------------------------------------------------------------------------------

Loss from continuing operations before income taxes
   and cumulative effect of change in accounting principle                   (37,936)   (75,255)    (79,849)
Income tax expense (benefit)                                                     375     11,150     (23,528)
------------------------------------------------------------------------------------------------------------
Loss from continuing operations before
   cumulative effect of change in accounting principle                       (38,311)   (86,405)    (56,321)
------------------------------------------------------------------------------------------------------------
Loss from discontinued operations, net of tax in 2000                        (25,118)    (8,855)     (3,158)
------------------------------------------------------------------------------------------------------------
Loss before cumulative effect of change in
   accounting principle                                                      (63,429)   (95,260)    (59,479)
------------------------------------------------------------------------------------------------------------
Cumulative effect of change in accounting principle,
   net of tax benefit                                                              -          -      (6,255)
------------------------------------------------------------------------------------------------------------

Net loss                                                               $     (63,429)   (95,260)    (65,734)
============================================================================================================

Basic loss per common share:
    Basic loss from continuing operations before
       cumulative effect of change in accounting principle             $       (1.22)     (3.02)      (2.19)
    Basic loss from discontinued operations                                    (0.80)     (0.31)      (0.12)
    Cumulative effect of change in accounting principle                            -          -       (0.24)
------------------------------------------------------------------------------------------------------------
Basic loss per common share                                            $       (2.02)     (3.33)      (2.55)
============================================================================================================

Diluted loss per common share:
    Diluted loss from continuing operations before
       cumulative effect of change in accounting principle             $       (1.22)     (3.02)      (2.19)
    Diluted loss from discontinued operations                                  (0.80)     (0.31)      (0.12)
    Cumulative effect of change in accounting principle                            -          -       (0.24)
------------------------------------------------------------------------------------------------------------
Diluted loss per common share                                          $       (2.02)     (3.33)      (2.55)
============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.

                                       28

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

(In thousands, except share data)
<CAPTION>
Fiscal Year End                                                                          2002             2001
--------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>                     <C>
Assets
Current assets:
      Cash and cash equivalents                                                    $           636              559
      Restricted cash                                                                            -            9,978
      Accounts receivable                                                                    5,087           10,723
      Inventories                                                                            5,283            5,870
      Prepaid expenses and other                                                             2,129            2,928
      Assets held for sale                                                                  10,920            9,737
--------------------------------------------------------------------------------------------------------------------
           Total current assets                                                             24,055           39,795

Premises and equipment, net                                                                236,950          283,028
Goodwill, net                                                                                    -           34,920
Deferred income tax benefit                                                                 11,620           11,620
Other assets                                                                                28,670           29,193
--------------------------------------------------------------------------------------------------------------------
                                                                                   $       301,295          398,556
====================================================================================================================

Liabilities and Shareholders' Equity
Current liabilities:
      Accounts payable                                                             $        11,509           15,766
      Accrued liabilities                                                                   54,292           64,265
      Current installments of long-term debt                                                30,838               13
      Income taxes                                                                          35,038           33,773
--------------------------------------------------------------------------------------------------------------------
           Total current liabilities                                                       131,677          113,817

Long-term debt                                                                             164,031          215,815
Other long-term liabilities                                                                  2,143            3,111
--------------------------------------------------------------------------------------------------------------------
           Total liabilities                                                               297,851          332,743
--------------------------------------------------------------------------------------------------------------------

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                                                                     3,179           68,559

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 2002 and 2001;
          outstanding - 33,101,929 shares in 2002 and 28,682,140 in 2001                       405              405
      Additional paid-in capital                                                           154,637          146,139
      Retained earnings (accumulated deficit)                                              (58,118)           5,311
      Treasury stock at cost; 7,376,831 shares in 2002 and 11,796,620 in 2001              (96,659)        (154,601)
--------------------------------------------------------------------------------------------------------------------
           Total shareholders' equity (deficit)                                                265           (2,746)
--------------------------------------------------------------------------------------------------------------------
                                                                                   $       301,295          398,556
====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.

                                       29

<PAGE>
<TABLE>
Avado Brands, Inc.
Consolidated Statements of Shareholders' Equity (Deficit) and Comprehensive Loss
<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 (Deficit)
----------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>        <C>    <C>         <C>           <C>      <C>             <C>
Balance at January 2, 2000                      40,479     $405   $144,872    $166,305      $(278)   $(198,680)      $112,624
----------------------------------------------------------------------------------------------------------------------------------
Comprehensive loss:
     Net loss                                        -        -          -     (65,734)         -            -        (65,734)
     Foreign currency translation adjustment         -        -          -           -        278            -            278
----------------------------------------------------------------------------------------------------------------------------------
Total comprehensive 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 loss:
     Net loss                                        -        -          -     (95,260)         -            -        (95,260)
----------------------------------------------------------------------------------------------------------------------------------
Total comprehensive 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)
----------------------------------------------------------------------------------------------------------------------------------
Comprehensive loss:
     Net loss                                        -        -          -     (63,429)         -            -        (63,429)
----------------------------------------------------------------------------------------------------------------------------------
Total comprehensive loss                             -        -          -     (63,429)         -            -        (63,429)
----------------------------------------------------------------------------------------------------------------------------------
Conversion of convertible preferred securities       -        -      8,498           -          -       57,942         66,440
----------------------------------------------------------------------------------------------------------------------------------
Balance at December 29, 2002                    40,479     $405   $154,637    $(58,118)         -     $(96,659)          $265
==================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.

                                    Page 30

<PAGE>
<TABLE>
Avado Brands, Inc.
Consolidated Statements of Cash Flows
<CAPTION>
(In thousands)                                                                        2002           2001          2000
-------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>               <C>            <C>
Cash flows from operating activities:
     Net loss                                                                   $    (63,429)      (95,260)      (65,734)
     Adjustments to reconcile net loss to net cash
          provided by operating activities:
              Depreciation and amortization                                           21,010        27,032        31,397
              Deferred income taxes                                                        -        10,530       (25,710)
              Gain on debt extinguishment                                            (41,412)            -             -
              Asset revaluation and other special charges                             45,431        61,546        35,667
              Loss (gain) on disposal of assets                                          563       (12,436)       22,818
              Loss from discontinued operations                                       25,118         8,855         3,158
              Cumulative effect of change in accounting principle, net of taxes            -             -         6,255
              Mark-to-market adjustment on interest rate swap                            861          (739)       (1,150)
              Loss from investments carried at equity                                      -             -            69
              (Increase) decrease in assets:
                   Accounts receivable                                                   773          (994)       (2,313)
                   Inventories                                                           115         1,170        (1,102)
                   Prepaid expenses and other                                            756        (2,942)          682
              Increase (decrease) in liabilities:
                   Accounts payable                                                   (4,006)       (4,946)       16,091
                   Accrued liabilities                                               (12,898)        5,913         4,103
                   Income taxes                                                        1,265           359         3,622
                   Other long-term liabilities                                          (183)       (4,273)         (183)
---------------------------------------------------------------------------------------------------------------------------
                             Net cash provided by (used in) operating activities     (26,036)       (6,185)       27,670
---------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
       Capital expenditures                                                           (5,426)      (17,595)      (46,945)
       Proceeds from sale-leaseback                                                        -             -        28,371
       Proceeds from disposal of assets and notes receivable, net                      9,111       128,752        14,074
       Investments in and advances to unconsolidated affiliates                            -             -        (3,099)
       Other, net                                                                       (430)       (2,402)       (2,700)
---------------------------------------------------------------------------------------------------------------------------
                             Net cash provided by (used in) investing activities       3,255       108,755       (10,299)
---------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
       Proceeds from (repayment of) revolving credit agreements                       11,563       (90,831)      (21,667)
       Proceeds from term credit agreement                                            19,236             -             -
       Payment of financing costs                                                     (8,502)            -             -
       Purchase of long-term debt, net                                                (8,489)            -             -
       Principal payments on long-term debt                                              (28)          (26)          (23)
       Settlement of interest rate swap agreement                                     (1,704)            -             -
       Reduction in (payments of) letter of credit collateral                          9,978        (9,978)            -
---------------------------------------------------------------------------------------------------------------------------
                             Net cash provided by (used in) financing activities      22,054      (100,835)      (21,690)
---------------------------------------------------------------------------------------------------------------------------
Cash provided by (used in) discontinued operations                                       804        (1,578)       (6,546)
---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                                      77           157       (10,865)
Cash and cash equivalents at the beginning of the period                                 559           402        11,267
---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the period                              $        636           559           402
===========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements

                                    Page 31

<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 29, 2002,  the Company  operated 120 Don
Pablo's  Mexican Kitchen  restaurants  ("Don  Pablo's"),  66 Hops Restaurant Bar
Brewery restaurants  ("Hops") and four Canyon Cafe restaurants  ("Canyon Cafe"),
which were held for sale  effective  December 30, 2001.  All of these brands are
owned on a proprietary basis.

     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  had
limited or shared  control,  were  accounted  for using the equity  method until
disposed of in 2001. All significant  intercompany accounts and transactions are
eliminated  in  consolidation.  As a result  of the  adoption  of  Statement  of
Financial  Accounting Standard ("SFAS") No. 144,  "Accounting for the Impairment
or Disposal of  Long-Lived  Assets",  the Company has  classified  the revenues,
expenses and related assets and  liabilities of 11 Don Pablo's  restaurants  and
eight  Hops  restaurants  which were  closed in 2002,  plus one  additional  Don
Pablo's  restaurant  which was under  contract and held for sale at December 29,
2002 and subsequently sold in February 2003, as discontinued  operations for all
periods presented in the accompanying  consolidated  financial  statements.  The
revenues,  expenses and related  assets and  liabilities of Canyon Cafe which is
also held for sale,  the  McCormick &  Schmick's  brand,  which was  divested in
August 2001, and eight Don Pablo's and two Hops restaurants which were closed in
2001, have not been classified as  discontinued  operations in the  accompanying
consolidated  financial  statements.  As the decision to divest these operations
was  made  prior  to the  implementation  of SFAS  144 and they did not meet the
criteria for  classification as discontinued  operations under the 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",  they  are  required  to be
classified  within  continuing  operations  under the provisions of Statement of
Financial  Accounting Standard ("SFAS") No. 121,  "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".

     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  29, 2002
("2002"),  the 52 weeks ended  December 30, 2001 ("2001") and the 52 weeks ended
December 31, 2000  ("2000").  All general  references  to years relate to fiscal
years unless otherwise noted.

     Revenue  Recognition - The Company  records  revenue from the sale of food,
beverage and alcohol as products are sold.  Proceeds from the sale of gift cards
are recorded as a current  liability  and  recognized as income when redeemed by
the holder.

     The Company  adopted EITF 01-9,  "Accounting for  Consideration  Given by a
Vendor to a Customer"  in fiscal  2002.  EITF 01-9  addresses  the  recognition,
measurement and income statement  classification for sales incentives offered to
customers.  Sales  incentives  include  discounts,  coupons,  free  products and
generally any other offers that entitle a customer to receive a reduction in the
price of a product.  Under EITF 01-9,  the reduction in the selling price of the
product  resulting from any sales incentives should be classified as a reduction
of revenue.  Prior to adopting this pronouncement,  the Company recognized sales
incentives as restaurant operating expenses.  As a result of adopting EITF 01-9,
sales  incentives  were  reclassified  as a  reduction  of sales for all periods
presented. Amounts reclassified were $7.1 million, $5.4 million and $5.2 million
in 2002, 2001 and 2000, respectively.

     Cash Equivalents - Cash equivalents  include all highly liquid  investments
which have  original  maturities  of three months or less. At December 30, 2001,
$10.0  million in restricted  cash was held as  collateral to secure  letters of
credit which secured the Company's insurance  programs.  The restricted cash was
released in 2002 in conjunction  with the completion of the Company's new credit
facility which provided revolving loan capacity to secure the letters of credit.

                                       32

<PAGE>
     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   restaurants,
non-operating  restaurants and undeveloped real estate.  The Company  classifies
long-lived assets as held for sale in the period in which all of the criteria of
SFAS 144,  "Accounting for the Impairment or Disposal of Long-Lived Assets", are
met.  Accordingly,  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 6).
Beginning in 2002,  impairment of assets has been  recorded in  accordance  with
SFAS 144,  "Accounting  for the  Impairment or Disposal of  Long-Lived  Assets",
which supersedes SFAS 121,  "Accounting for the Impairment of Long-Lived  Assets
and for Long-Lived  Assets to Be Disposed Of". SFAS No. 144 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.

     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 and $2.9  million  in 2000.  No
development costs were capitalized in 2002.

     Goodwill - The Company adopted Statement of Financial  Accounting  Standard
("SFAS")  No. 142,  "Goodwill  and Other  Intangible  Assets",  effective at the
beginning of its fiscal 2002 year. SFAS 142 requires nonamortization of goodwill
and  intangible  assets that have  indefinite  useful  lives and annual tests of
impairments  of those assets.  As of December 29, 2002,  the Company had written
off all of its recorded goodwill (see Note 2).

     Goodwill  represented  the excess of purchase  price over fair value of net
assets  acquired and,  prior to the adoption of SFAS No. 142, was amortized over
the expected period to be benefited, typically 40 years, using the straight-line
method.  Recoverability  of this  intangible  asset,  prior to SFAS No. 142, was
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, 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 and $12.9
million at December 31, 2000.  Amortization expense was $2.6 million in 2001 and
$3.6  million in 2000 and has been  recorded as other,  net in the  accompanying
consolidated statements of loss.

     The following table discloses the Company's  consolidated losses,  assuming
it excluded goodwill amortization for the periods ended:
<TABLE>
<CAPTION>
                                                        2002            2001         2000
--------------------------------------------------------------------------------------------
<S>                                                  <C>              <C>          <C>
Net loss                                             $ (63,429)       (95,260)     (65,734)
Add back:
  Goodwill amortization, net of income taxes                 -          2,194        2,581
  Trademark amortization, net of income taxes                -             14           14
--------------------------------------------------------------------------------------------
   Adjusted net loss                                 $ (63,429)       (93,052)     (63,139)
--------------------------------------------------------------------------------------------
Basic loss per share                                 $   (2.02)         (3.33)       (2.55)
Add back:
   Goodwill amortization, net of income taxes                -           0.08         0.10
   Trademark amortization, net of income taxes               -              -            -
--------------------------------------------------------------------------------------------
   Adjusted basic loss per share                     $   (2.02)         (3.25)       (2.45)
--------------------------------------------------------------------------------------------
Diluted loss per share                               $   (2.02)         (3.33)       (2.55)
Add back:
  Goodwill amortization, net of income taxes                 -           0.08         0.10
  Trademark amortization, net of income taxes                -              -            -
--------------------------------------------------------------------------------------------
   Adjusted diluted loss per share                   $   (2.02)         (3.25)       (2.45)
--------------------------------------------------------------------------------------------
</TABLE>
                                       33

<PAGE>
     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. The Company has increased
the amounts of its deductible for workers' compensation and general liability to
$500,000  per claim in 2002  compared to $250,000  per claim in 2001.  Losses in
excess of these risk retention  levels are covered by insurance which management
considers as adequate.  Provision for losses  expected  under these programs are
recorded  based  upon  estimates  of the  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 8 and 10).  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 11). Deferred
lease costs are  amortized on a  straight-line  basis over the lease terms (Note
7).

     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
$20.8 million in 2002, $27.5 million in 2001 and $29.1 million in 2000.

     Rent - Rent is expensed using the straight-line method over the lease term.
Total rent expense  included in other  operating  expenses was $24.0  million in
2002, $33.4 million in 2001 and $31.6 million in 2000.

     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.  No  compensation
expense has been recognized for the Company's stock-based compensation plans.

     The following  table  illustrates the effect on net loss and loss per share
if the Company had applied the fair value recognition provisions of Statement of
Financial  Accounting  Standards  ("SFAS") No. 123,  "Accounting for Stock-Based
Compensation," to stock-based employee compensation during 2002, 2001 and 2000.
<TABLE>
<CAPTION>
                                                            2002            2001           2000
-------------------------------------------------------------------------------------------------
<S>                                                      <C>             <C>            <C>
Net loss, as reported                                    $(63,429)       $(95,260)      $(65,734)
Deduct: Total stock-based employee compensation
   expense determined under fair value based
   method for all awards, net of related tax effects          300          (1,296)          (251)
 ------------------------------------------------------------------------------------------------
Pro forma net loss                                       $(63,729)       $(93,964)      $(65,483)
-------------------------------------------------------------------------------------------------

Loss per share:
   Basic - as reported                                   $  (2.02)       $  (3.33)      $  (2.55)
-------------------------------------------------------------------------------------------------
   Basic - pro forma                                     $  (2.03)       $  (3.29)      $  (2.55)
-------------------------------------------------------------------------------------------------
   Diluted - as reported                                 $  (2.02)       $  (3.33)      $  (2.55)
-------------------------------------------------------------------------------------------------
   Diluted - pro forma                                   $  (2.03)       $  (3.29)      $  (2.55)
-------------------------------------------------------------------------------------------------
</TABLE>

     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 2002 is estimated as
$0.14 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 3.0%, and an expected life of 6.5 years.

                                       34

<PAGE>
     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  had one  fixed-to-floating  interest  rate swap
transaction  which  was  impacted  by  the  adoption  of  SFAS  133.  This  swap
transaction  represented  a  diversification  of  the  Company's  interest  rate
exposures but did not qualify for fair value hedge accounting under SFAS 133. As
such,  changes in fair value of the instrument were recognized as a component of
interest  expense  as they  occurred.  The  Company  recognized  a $0.9  million
increase to interest expense generated by changes in the instrument's fair value
in 2002, a $0.7 million reduction to interest expense in 2001 and a $1.1 million
reduction to interest  expense in the fourth quarter of 2000. In March 2002, the
Company terminated its fixed-to-floating interest rate swap.

     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 15).

     Reclassifications - Certain accounts have been reclassified in the 2000 and
2001 financial statements to conform with the 2002 classifications.


Note 2 - Asset Revaluation and Other Special Charges

     Asset  revaluation and other special charges totaled $45.4 million in 2002.
These charges, which were predominately non-cash,  included a $7.0 million asset
impairment  charge related  primarily to  underperforming  restaurants and costs
associated  with  sites  that are no longer  expected  to be  developed,  a $3.2
million  reduction to the carrying  value of the Company's  assets held for sale
related  primarily  to Canyon  Cafe and a $35.0  million  write off of  goodwill
related to the Hops brand.  The  goodwill  impairment  charge was  recorded as a
result of the  Company's  annual test of impairment as required by SFAS No. 142,
"Goodwill  and Other  Intangible  Assets",  which was adopted  effective  at the
beginning of 2002. Under SFAS 142, the Company is required to evaluate  goodwill
for impairment by comparing the fair value of the related  reporting unit to the
reporting  unit's  carrying  value.   Beginning  in  fiscal  2002,  the  Company
determined  that Hops meets the  requirements  of a separate  reporting unit and
assessed  goodwill for possible  transition  impairment and concluded that there
was no impairment of goodwill.  At the beginning of the fourth  quarter of 2002,
the  Company  determined  the fair value of the Hops brand  based on an internal
valuation of its historical and projected  operating  performance and restaurant
development  plans.  Based  on  the  Company's  estimated  fair  value,  it  was
determined  that the fair value of Hops exceeded its carrying  value  indicating
potential  goodwill  impairment.  Under SFAS 142,  the  indication  of  goodwill
impairment  requires  the  completion  of an  additional  evaluation  whereby an
"implied" fair value of goodwill is identified. This implied value is determined
by  allocating  the fair  value of the  reporting  unit to all of the assets and
liabilities  of the  reporting  unit in a manner  similar  to a  purchase  price
allocation.  Any residual  fair value after this  allocation is the implied fair
value of the  reporting  unit  goodwill.  Using this  methodology,  the  Company
determined that the implied fair value of the Hops goodwill was $0. Accordingly,
an impairment charge was recorded to write off the full balance of Hops goodwill
as of December  29,  2002.  The  decrease in Hops' fair value and  corresponding
goodwill  impairment  charge was a result of a decline in the brand's 2002 sales
and   operating   performance   which   prompted  the  Company  to  close  eight
underperforming  locations and to halt new  restaurant  development  in the near
term. In addition,  the fair value of the brand was impacted by overall economic
uncertainty which has negatively impacted the Company's restaurants.

     In 2001, asset revaluation and other special charges totaled $61.5 million.
These  charges,  which were  predominately  non-cash,  included a $45.0  million
non-cash asset  impairment  charge at Canyon Cafe. A continued  deterioration of

                                       35

<PAGE>
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, under
the  provisions of SFAS No. 121,  "Accounting  for the  Impairment of Long-Lived
Assets and for  Long-Lived  Assets to Be Disposed Of",  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 29, 2002 and  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 $3.6  million
related  primarily to  under-performing  Don Pablo's and Hops 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 secured 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 $35.7 million.
These  charges,  which were  predominately  noncash,  reflect the fourth quarter
decision to close 13  under-performing  restaurants  including four Don Pablo's,
three Canyon Cafe's and two Hops restaurants  which were closed in early January
2001 and four  additional  Don  Pablo's  which were  closed in March  2001.  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 $8.6 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.

     The major components of asset  revaluation and other special charges follow
(amounts in thousands):
<TABLE>
<CAPTION>
                                                            2002          2001          2000
----------------------------------------------------------------------------------------------
<S>                                                      <C>             <C>           <C>
Write down of premises and equipment
  of assets held for sale, to net realizable value       $  3,171         6,190        16,499
Impairment of Canyon Cafe goodwill                              -        38,059             -
Impairment of Hops goodwill                                35,028             -             -
Accruals for lease termination and other closing costs          -           776         5,776
Allowance against realization of officer notes                  -        11,076             -
Asset revaluation                                           6,999         3,654         8,543
Office consolidation expenses                                 188             -         1,919
Strategic alternative evaluation expenses                       -             -         1,645
Severance and other payroll related costs                      45         1,649         1,285
Other                                                           -           142             -
----------------------------------------------------------------------------------------------
Total asset revaluation and other special charges        $ 45,431        61,546        35,667
----------------------------------------------------------------------------------------------
</TABLE>

Note 3 - Gain on Debt Extinguishment

     For the year ended December 29, 2002, gain on debt extinguishment  reflects
the  retirement  of $52.4 million in face value of  Subordinated  Notes for $8.5
million plus $2.2 million in accrued  interest.  After a $2.5 million  write-off
primarily of deferred loan costs and  unamortized  initial issue  discount,  the
Company  recorded a gain on  extinguishment  during 2002, of $41.4 million.  The
gain was recorded in operating  income in  accordance  with SFAS No. 145,  which
rescinded SFAS No. 4,  "Reporting  Gains and Losses from the  Extinguishment  of
Debt".


Note 4 - Discontinued Operations

     As discussed  in Note 1 - Basis of  Presentation,  discontinued  operations
includes the revenues,  expenses and related  assets and  liabilities  of 11 Don
Pablo's and eight Hops  restaurants  which were closed in during 2002,  plus one

                                       36

<PAGE>
additional Don Pablo's  restaurant which was under contract and held for sale at
December  29, 2002 and  subsequently  sold in  February  2003.  The  decision to
dispose  of these  20  locations  reflects  the  Company's  ongoing  process  of
evaluating the  performance and cash flows of its various  restaurant  locations
and its desire to use the proceeds from the sale of under-performing restaurants
to reduce  debt.  The  Company  expects to  complete  the  divestiture  of these
locations in 2003.

     Net loss from  discontinued  operations  for 2002,  for which no taxes have
been allocated,  of $25.1 million  primarily  reflects non-cash asset impairment
charges  of  $22.1  million,  primarily  to  reduce  the  carrying  value of the
restaurant assets,  which are held for sale, to estimated fair value.  Operating
losses were $25.1 million for 2002, on total restaurant sales from  discontinued
operations of $19.3 million.

     Net loss from  discontinued  operations  for 2001,  for which no taxes have
been allocated,  of $8.9 million  primarily  reflects  non-cash asset impairment
charges  of  $4.8  million,  primarily  to  reduce  the  carrying  value  of the
restaurant  assets to estimated fair value.  Operating  losses were $8.9 million
for 2001,  on total  restaurant  sales  from  discontinued  operations  of $28.8
million.

     Net loss from  discontinued  operations  for 2000 of $3.2  million  (net of
income tax benefit of $2.1 million) primarily reflects non-cash asset impairment
charges  of  $2.5  million,  primarily  to  reduce  the  carrying  value  of the
restaurant  assets to estimated fair value.  Operating  losses were $5.2 million
for 2000,  on total  restaurant  sales  from  discontinued  operations  of $30.3
million.


Note 5 - 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 "Loss  (gain) on disposal of assets" in the
accompanying 2000 consolidated statement of loss.

     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 6 - Premises and Equipment

     A summary of premises  and  equipment at December 29, 2002 and December 30,
2001 follows (amounts in thousands):

                                                      2002          2001
--------------------------------------------------------------------------
Land                                              $  38,750        47,110
Buildings                                            64,226        84,287
Buildings subject to ground leases                  134,094       139,198
Equipment                                            91,087        97,428
Leasehold improvements                                8,854         5,688
Construction in progress                                722         1,997
--------------------------------------------------------------------------
Total premises and equipment                        337,733       375,708
Less accumulated depreciation and amortization      100,783        92,680
--------------------------------------------------------------------------
Premises and equipment, net                       $ 236,950       283,028
--------------------------------------------------------------------------

                                       37

<PAGE>
Note 7 - Other Assets

     A summary of other  assets at  December  29,  2002 and  December  30,  2001
follows (amounts in thousands):

                                                  2002         2001
---------------------------------------------------------------------
Deferred loan and lease costs                 $ 13,107        12,264
Officer notes receivable, net of reserve         2,650         2,854
Prepaid rent                                     8,689         9,146
Liquor licenses                                  1,909         1,931
Long-term portion of notes receivable              301         1,123
Other                                            2,014         1,875
---------------------------------------------------------------------
Total other assets                            $ 28,670        29,193
---------------------------------------------------------------------


Note 8 - Long-Term Debt

     Long-term  debt at December 29, 2002 and December 30, 2001 consisted of the
following (amounts in thousands):

                                                         2002         2001
-----------------------------------------------------------------------------
Senior secured credit facility
(15.75% at December 29, 2002)                         $  30,809            -
9.75% Senior Notes, unsecured                           116,500      116,500
11.75% Senior Subordinated Notes, unsecured              47,179       98,921
Other                                                       381          407
-----------------------------------------------------------------------------
Total long-term debt                                    194,869      215,828
Less current installments                                30,838           13
-----------------------------------------------------------------------------
Total long-term debt, excluding current installments  $ 164,031      215,815
-----------------------------------------------------------------------------

     On March 25, 2002, the Company  completed a $75.0 million  credit  facility
(the "Credit  Facility") to replace its existing  credit  agreement.  The Credit
Facility 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 as determined for the
most recently completed four quarters ("Borrowing Base EBITDA"). The calculation
of Borrowing Base EBITDA  excludes the 2001 operations of McCormick & Schmick's,
gains and losses on the disposal of assets,  asset revaluation and other special
charges,  non-cash rent expense and preopening  costs. 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 capital
expenditures. 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
Facility.  In  addition,  the  lender has 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. The loan
is secured by substantially all of the Company's assets.

     In June 2002,  the Company  obtained an  amendment  to the Credit  Facility
which  allowed  the use of  proceeds  from the term  loan  facility  to make the
one-time  payment  of  accrued  interest  related  to the  Company's  $3.50 term
convertible securities,  due 2027. In the third quarter, the Company completed a
second  amendment  to the Credit  Facility  which  amended  certain  definitions
relating to the payment of delinquent taxes and made other technical corrections
to the  agreement.  During the fourth  quarter,  the  Company  completed a third
amendment,  dated  November 11, 2002, and fourth  amendment,  dated December 27,
2002, to the Credit  Facility.  The third  amendment made  additional  technical
corrections to the agreement.  Under the fourth  amendment,  the Credit Facility
lenders agreed to forbear from exercising their remedies until May 31, 2003 with
respect to certain  events of default  related to the Company's  failure to meet
its September 29, 2002 EBITDA target. The amendment  increased the interest rate
to 15.75% for  revolving  and term  borrowings  and to 7.5% for letter of credit
accommodations. The amendment also revised certain financial covenants and added
a new covenant which requires the Company to reduce its obligations

                                       38

<PAGE>
(including cash borrowings and letter of credit commitments) under the facility
to $0 by May 25, 2003 in accordance with the following schedule.

              Date                  Maximum Obligations
              -----------------     --------------------
              January 26, 2003      $50,000,000
              February 23, 2003     $41,000,000
              March 30, 2003        $31,000,000
              April 27, 2003        $15,000,000
              May 25, 2003          $0

     In connection with the fourth amendment,  the Company incurred an amendment
and waiver fee of $8.5 million.  The fee was  paid-in-kind by being added to the
principal balance of the Company's outstanding term borrowings.  Under the terms
of the fourth amendment,  $6.5 million of the waiver fee will be refunded by the
lender by reducing the principal  balance of the outstanding  term loans by $6.5
million if (i) by April 27, 2003 the  Company  has  reduced all cash  borrowings
(excluding  the  refundable  $6.5 million fee) to $0, (ii) by April 27, 2003 the
Company has  collateralized  its letter of credit  commitments  either with cash
collateral  of 105% or  through  back-up  letters of credit and (iii) by May 25,
2003 all letters of credit secured by the Credit  Facility have been returned to
the issuer  without being drawn.  Subsequent  to December 29, 2002,  the Company
successfully  reduced its  obligations  to comply  with the maximum  obligations
requirement for the periods ended January 26, 2003 and February 23, 2003.

     Due to the Company's  requirement to reduce the outstanding  balance of the
Credit  Facility to $0 by May 25, 2003,  the balance of the facility at December
29,  2002  has  been  classified  as a  current  liability  in the  accompanying
consolidated  balance  sheet.  At  December  29,  2002,  $11.6  million  of cash
borrowings were outstanding  under the revolving  portion of the Credit Facility
and $19.2  million  was  outstanding  under the term  portion  of the  facility,
including the $6.5 million  refundable  portion of the amendment and waiver fee.
In  addition  to the $11.6  million  of cash  borrowings  outstanding  under the
revolving facility,  an additional $15.3 million of the facility was utilized to
secure letters of credit.  Lender imposed  reserves  against the Company's total
borrowing availability,  as of December 29, 2002, were $5.8 million. At December
29, 2002, $7.8 million of the total facility remained unused and available.

     During the fourth  quarter of 2002,  Borrowing  Base  EBITDA  resulted in a
maximum borrowing capacity of $53.3 million. At December 29, 2002, the Company's
trailing  12 months  EBITDA  will  result  in the  Company's  maximum  borrowing
capacity being adjusted from $53.3 million to $49.3 million in conjunction  with
the  Company's  filing  of its  required  reports  with the  lender  on or about
February  27,  2003.  As a result of the  upcoming  reduction  in the  Company's
borrowing  base,  total  availability  on the  facility  will be reduced by $4.0
million on or about February 27, 2003,  however the  availability  cannot exceed
the maximum borrowing  obligations,  as amended, noted in the table above at the
respective  dates.  Subsequent to December 29, 2002,  the Company used revolving
loan  advances  to make  the  interest  payments  under  its  Senior  Notes  and
Subordinated Notes of $5.7 million and $2.8 million,  respectively.  In addition
to its currently outstanding borrowings,  the Company will be required to pay an
anniversary  fee of $1.1 million on March 25, 2003 and will be required to pay a
termination  fee of $1.7 million if the Credit  Facility is terminated  prior to
March 25,  2003.  This fee  escalates  to $3.6  million if the  Credit  Facility
termination occurs subsequent to March 25, 2003.

     In 1999, the Company  issued $100.0  million of 11.75% Senior  Subordinated
Notes due June 2009  ("Subordinated  Notes") and priced to yield 12.0%. In 2002,
the Company  repurchased  $52.4 million of these notes and  recognized a gain on
extinguishment  of $41.4 million.  In 1996, $125.0 million of 9.75% Senior Notes
due  June  2006  ("Senior  Notes")  were  issued  under a $200.0  million  shelf
registration.  In 1998,  the Company  repurchased  $8.5  million of these notes.
Interest on both note issues are payable semi-annually in June and December.

     Interest payments on the Company's Senior Notes and Subordinated  Notes are
due semi-annually in each June and December.  Prior to the Company's  repurchase
of $52.4  million in face  value of its  outstanding  Subordinated  Notes in the
second and third quarters of 2002, the Company's  semi-annual  interest payments
totaled approximately $11.6 million. Subsequent to the repurchase, the Company's
semi-annual  interest payments will total approximately $8.5 million.  Under the
terms of the related  note  indentures,  the Company  has an  additional  30-day
period from the scheduled  interest  payment dates before an event of default is
incurred,  due to late  payment of  interest,  and the  Company  utilized  these
provisions with respect to its June and December 2002 interest  payments as well
as its June and December 2001 interest  payments.  The Company's ability to make
its June 2003 interest  payments is dependent on the outcome of its  initiatives
to sell assets and obtain alternative  lending sources.

                                       39

<PAGE>
     The  Company's  unsecured  Senior  Notes  and  Subordinated  Notes  are not
actively  traded and the  determination  of the estimated fair value is based on
trades dating back to June 2002. At December 29, 2002,  the aggregate  estimated
fair value of the Senior Notes and Subordinated Notes was $47.5 million compared
to the carrying value of $163.7 million.  The Company believes the fair value of
its current assets and liabilities  along with its refinanced  revolving  credit
facility,  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  29,  2002  are as  follows:  2003 - $30.8  million,  2006 - $116.5
million, 2009 - $47.2 million and $0.4 million thereafter.


Note 9 - Liquidity

     The Company has suffered  from  recurring  losses from  operations,  has an
accumulated  deficit and has a secured credit facility which is due May 25, 2003
that raise  substantial doubt about the Company's ability to continue as a going
concern.  Sufficient  liquidity to make the scheduled debt reductions  under the
amended  Credit  Facility and other  required debt service and lease payments is
dependent primarily on the realization of proceeds from the sale of assets, cash
flow from operations and obtaining alternative  financing sources.  There can be
no assurance that these initiatives will be successful.

     In the event the Company is not able to meet its debt reduction obligations
or other  financial  covenant  targets  under the Credit  Facility,  an event of
default would occur. During the continuance of an event of default,  the Company
would be subject to a post-default interest rate under the Credit Facility which
increases the otherwise  effective interest rates by three percentage points. As
a result,  the  Company's  per annum  interest  rate on revolving and term loans
would be 18.75% and the rate on letter of credit accommodations would be 10.50%.
In addition to the right to declare all obligations immediately due and payable,
the Credit Facility lender also has additional  rights during the continuance of
an event of default  including,  among other  things,  the right to (i) make and
collect certain payments on the Company's  behalf,  (ii) require cash collateral
to  secure  letters  of  credit,  (iii)  make  certain  investigations  into the
Company's  activities,  (iv) receive reimbursement for certain expenses incurred
and (v) sell any of the collateral  securing the  obligations or settle,  on the
Company's behalf, any legal proceedings related to the collateral.  In addition,
in the  event  the  amounts  due  under the  Credit  Facility  are  accelerated,
cross-default  provisions  contained in the  indentures to the Company's  Senior
Notes and  Subordinated  Notes would be triggered,  creating an event of default
under those  agreements as well. At December 29, 2002, the outstanding  balances
of the Senior and  Subordinated  Notes were  $116.5  million  and $47.6  million
respectively.  An event of default under the Credit  Facility  would result in a
cross-default  under the  master  equipment  lease  but  would  not  result in a
cross-default  under the sale-leaseback  agreement.  In the event some or all of
the obligations under the Company's credit agreements become immediately due and
payable,  the Company does not currently  have  sufficient  liquidity to satisfy
these  obligations  and it is likely  that the  Company  would be forced to seek
protection from its creditors.

     The terms of the amended Credit  Facility,  the Company's  Senior Notes and
Subordinated Notes,  master equipment lease and Hops sale-leaseback  transaction
collectively  include various provisions which, among other things,  require the
Company to (i) achieve certain EBITDA targets,  (ii) maintain  defined net worth
and coverage ratios,  (iii) maintain  defined  leverage  ratios,  (iv) limit the
incurrence of certain liens or encumbrances in excess of defined amounts and (v)
limit certain payments.  In conjunction with the closing of the Credit Facility,
the Company terminated its interest rate swap agreement thereby  eliminating any
aforementioned  restrictions contained in that agreement.  In addition, in March
2002 the master equipment lease agreement was amended to  substantially  conform
the covenants to the Credit  Facility.  At December 29, 2002, the Company was in
compliance with the requirements  contained in the Credit Facility,  as amended.
The  Company  was also in  compliance  with the  terms of the  Senior  Notes and
Subordinated  Notes.  The  Company  was  not  in  compliance  with  a net  worth
requirement contained in its sale-leaseback  agreement. The lessor, however, has
waived this requirement until March 31, 2004 at which time the minimum net worth
requirement  will be $150.0 million.  The Company is also not in compliance with
certain financial  covenants  contained in the master equipment lease. Under the
master equipment lease, the failure to meet the financial  covenants  represents
an event of default  whereby the creditor has the right to, among other  things,
declare all obligations  under the agreement  immediately due and payable and to
repossess  the leased  equipment,  which is located  primarily in the  Company's
restaurants.  Although  the lessor has not notified the Company of its intent to
do so,  acceleration of the obligations  would have a material adverse effect on
the  Company.  At December  29,  2002,  remaining  obligations  under the master
equipment lease totaled $7.6 million.  The continuing event of default under the
master  equipment  lease does not result in  cross-defaults  under the Company's
Senior  Notes,  Subordinated  Notes or  sale-leaseback  agreement  and the cross
default under the Credit Agreement has been waived.  Although the lessor has not

                                       40

<PAGE>
notified the Company of any intent to accelerate its  obligations,  there can be
no assurances that the lessor will not exercise such remedies.

     The Company is also exposed to certain contingent  payments.  In connection
with  the  Applebee's,  Harrigan's  and  Canyon  Cafe  divestiture  transactions
completed  during 2002, 1999 and 1998, the Company remains  contingently  liable
for lease  obligations  relating to 86 Applebee's  restaurants  eight Harrigan's
restaurants  and eight Canyon Cafe  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 $34.7 million.  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.
The  Company  has  increased  the  amounts  of  its   deductibles  for  workers'
compensation  and general  liability to $500,000  per claim in 2002  compared to
$250,000 per claim in 2001.  Losses in excess of these risk retention levels are
covered by insurance  which  management  considers as adequate.  Provisions  for
losses  estimated  under these  programs are recorded  based on estimates of the
aggregate   liability  for  claims   incurred.   Such  estimates  are  based  on
management's  evaluation  of the  nature  and  severity  of  claims  and  future
development based on the Company's historical  experience,  information provided
by the Company's third party  administrators  and certain actuarial  assumptions
used by the insurance industry.  In addition,  at December 29, 2002, the Company
was contingently  liable for letters of credit aggregating  approximately  $15.3
million, relating primarily to its insurance programs.  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.

     The Company's 1998 Federal  income tax returns are currently  being audited
by the Internal Revenue Service. The Company believes its recorded liability for
income  taxes of $35.0  million as of December 29, 2002 is adequate to cover its
exposure that may result from the ultimate resolution of the audit. Although the
ultimate  outcome of the audit cannot be  determined  at this time,  the Company
does  not  have  sufficient  liquidity  to pay any  significant  portion  of its
recorded  liability  if  resolution  of the audit  results in such amount  being
currently due and payable.  Management does not currently  expect that this will
be the  result,  or that any  resolution  with  respect to audit  issues will be
reached in the near future.

     Management has taken steps to improve cash flow from operations,  including
changing  the  Company's  marketing  strategy  to be less  reliant on  expensive
broadcast  media,  reducing  overhead  through  consolidation  of functions  and
personnel reductions and adjusting supervisory management level personnel in its
restaurant operations. There is no assurance these efforts will be successful in
improving  cash flow from  operations  sufficiently  to enable  the  Company  to
continue  to meet  its  obligations,  including  scheduled  interest  and  other
required  payments under its debt and lease agreements and capital  expenditures
necessary  to  maintain  its  existing  restaurants.  During  2002,  the Company
realized $13.0 million from the sale of assets (including $3.9 from discontinued
operations),  which  supplemented its cash provided by financing  activities and
enabled the Company to meet its  obligations.  For the near term, cash flow from
operations  will need to be  supplemented  by asset  sales  and other  liquidity
improvement  initiatives including obtaining new financing sources.  There is no
assurance  the Company will be able to generate  proceeds  from these efforts in
sufficient amounts to supplement cash flow from operations, thereby enabling the
Company  to meet  its debt  and  lease  obligations.  In  addition,  there is no
assurance the Company will be able to comply with the financial covenants of its
debt and lease agreements.


Note 10 - 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 "TECONS"),
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

                                       41

<PAGE>
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.

     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 2002 and 2001quarterly  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 2002,  2001 and 2000 were $0.3 million,  $4.9 million and
$2.3  million  respectively  and are  included  in  accrued  liabilities  in the
accompanying balance sheets.

     The  decrease  in  deferred  payments  for 2002 is a result  of a  one-time
payment of accrued interest, equal to $4.25 per share, which was paid to holders
of the Company's TECONS in 2002. The payment was conditional upon the holders of
at least 90% of the outstanding TECONS agreeing to convert their securities into
shares of  common  stock of the  Company  pursuant  to the terms of the  TECONS.
During the second quarter of 2002, holders representing approximately 95% of the
outstanding  securities agreed to the terms of the offer and, in connection with
the $5.4 million payment,  1,200,391 TECONS were converted into 4,057,442 shares
of the Company's common stock,  which were issued from treasury.  As a result of
this  transaction,  the  outstanding  balance of the TECONS was reduced by $60.0
million.  A total of 1,307,591 TECONS were converted during 2002, which resulted
in a decrease to distribution  expense.  As of December 29, 2002,  63,589 TECONS
remained outstanding.

     Distribution  expense related to the Convertible  Preferred Securities also
decreased  in 2001 and  2000 as a  result  of the  conversion,  at the  holders'
option,  of 86,128 and  842,692 of the  securities,  respectively,  into  common
stock.


Note 11 - 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
both  2002 and 2001 was $3.4  million  and  escalates  by 1.2%  each  year.  The
transaction,  which has been  accounted for as an operating  lease,  resulted in
prepaid rent,  which is being  amortized over the lease term as additional  rent
expense.

     The Company also has a fully  utilized  master  equipment  lease  agreement
under which $23.9 million of equipment  (original cost) 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.

     The terms of the  sale-leaseback  transaction  and master  equipment  lease
collectively  include various  provisions which among other things,  require the
Company to (i) achieve certain EBITDA targets,  (ii) maintain  defined net worth
and coverage ratios and (iii) maintain defined leverage ratios.  At December 29,
2002, the company was not in compliance with a net worth  requirement  contained
in  its  sale-leaseback   agreement.   The  lessor,  however,  has  waived  this
requirement until March 31, 2004 at which time the minimum net worth requirement
will be $150.0  million.  The Company was also not in  compliance  with  certain
financial  covenants  contained in the master equipment lease.  Under the master
equipment lease, the failure to meet the financial covenants represents an event
of default  whereby the creditor has the right to, among other  things,  declare
all obligations under the agreement immediately due and payable and to repossess
the leased equipment,  which is located primarily in the Company's  restaurants.
The  lessor  has not  notified  the  Company  of its  intent to  accelerate  the
obligations.

                                       42

<PAGE>
     Future  minimum  lease  payments  under  noncancellable  operating  leases,
including the  sale-leaseback  transaction,  at December 29, 2002 are as follows
(amounts in thousands):

                  2003                    $  24,094
                  2004                       16,073
                  2005                       14,819
                  2006                       13,186
                  2007                       11,494
                  Later years                71,577
                  ----------------------------------
                  Total minimum payments  $ 151,243
                  ----------------------------------

     Future  minimum  lease  payments  do  not  include   amounts   payable  for
maintenance  costs, real estate taxes,  insurance 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 $24.0  million in 2002,  $33.4  million in 2001 and $ 31.6
million in 2000. Rental expense included  contingent  rentals of $0.1 million in
2002, $0.9 million in 2001 and $3.1 million in 2000.


Note 12 - Accrued Liabilities

     A summary of accrued liabilities at December 29, 2002 and December 30, 2001
follows (amounts in thousands):

                                             2002         2001
  ---------------------------------------------------------------
  Payroll and related benefits            $ 10,013       12,269
  Taxes other than payroll and income        7,377       15,734
  Restaurant closings and divestitures       4,397        2,237
  Insurance                                  7,889        6,710
  Gift certificates                          2,678        2,841
  Interest                                  12,499       14,106
  Accrued rent                               4,245        3,642
  Other                                      5,194        6,726
  ---------------------------------------------------------------
  Total accrued liabilities               $ 54,292       64,265
  ---------------------------------------------------------------

                                       43

<PAGE>
Note 13 - 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>
                                                                     2002            2001          2000
----------------------------------------------------------------------------------------------------------
<S>                                                               <C>              <C>           <C>
Average number of common shares used in basic calculation            31,331         28,568        25,729
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          31,331          28,568       25,729
----------------------------------------------------------------------------------------------------------

Net loss from continuing operations                               $ (38,311)        (86,405)     (56,321)
Net loss from discontinued operations                               (25,118)         (8,855)      (3,158)
Cumulative effect of change in accounting principle, net of tax           -               -       (6,255)
----------------------------------------------------------------------------------------------------------
Net loss                                                            (63,429)        (95,260)     (65,734)
Distribution savings on assumed conversion of Convertible
   Preferred Securities, net of income taxes                              -*              -*           -*
----------------------------------------------------------------------------------------------------------
Net loss for computation of diluted loss per common share         $ (63,429)        (95,260)     (65,734)
==========================================================================================================

Basic loss per common share from continuing operations            $   (1.22)          (3.02)       (2.19)
Basic loss per common share from discontinued operations              (0.80)          (0.31)       (0.12)
Cumulative effect of change in accounting principle                       -               -        (0.24)
----------------------------------------------------------------------------------------------------------
Basic loss per common share                                       $   (2.02)          (3.33)       (2.55)
----------------------------------------------------------------------------------------------------------

Diluted loss per common share from continuing operations          $   (1.22)          (3.02)       (2.19)
Diluted loss per common share from discontinued operations            (0.80)          (0.31)       (0.12)
Cumulative effect of change in accounting principle                       -               -        (0.24)
----------------------------------------------------------------------------------------------------------
Diluted loss per common share                                     $   (2.02)          (3.33)       (2.55)
----------------------------------------------------------------------------------------------------------
</TABLE>
     * Inclusion of 734,138  shares  issuable  pursuant to employee stock option
plans  results in an increase to earnings  (loss) per share  ("EPS") in 2002. As
those shares are antidilutive, they are excluded from the computation of diluted
EPS.  Inclusion  of  1,986,084  shares  in 2002,  4,696,931  shares  in 2001 and
7,384,844 shares in 2000 related to the Convertible Preferred Securities results
in an increase to EPS in each respective year. As those shares are antidilutive,
they are excluded from the computation of diluted EPS.


Note 14 - Supplemental Cash Flow Information

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

                                                   2002      2001      2000
-----------------------------------------------------------------------------
Interest paid (net of amounts capitalized)     $  24,026    26,376    35,849
Distribution on preferred securities           $   5,371         -     6,308
Credit facility amendment and waiver fee       $   8,500         -         -
Income taxes paid (refunded)                   $    (499)      261    (3,512)
-----------------------------------------------------------------------------

     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.

                                       44

<PAGE>
Note 15 - Income Taxes

     The  components  of the  provision  for  income  taxes for the years  ended
December  29,  2002,  December  30,  2001 and  December  31, 2000 are as follows
(amounts in thousands):

                                       Current      Deferred       Total
   -----------------------------------------------------------------------
   2002:
    Federal                                -              -            -
    State                           $    375              -          375
   -----------------------------------------------------------------------
     Total                          $    375              -          375
   -----------------------------------------------------------------------
   2001:
    Federal                         $    221          9,542        9,763
    State                                399            988        1,387
   -----------------------------------------------------------------------
     Total                          $    620         10,530       11,150
   -----------------------------------------------------------------------
   2000:
    Federal                         $ (3,806)       (17,707)     (21,513)
    State                                166         (2,181)      (2,015)
   -----------------------------------------------------------------------
     Total                          $ (3,640)       (19,888)     (23,528)
   -----------------------------------------------------------------------


     A reconciliation of the Federal statutory income tax expense (benefit) rate
to the  effective  income tax rate  applied to loss before  income  taxes in the
accompanying  consolidated  statements of loss for the years ended  December 29,
2002, December 30, 2001 and December 31, 2000 follows:
<TABLE>
<CAPTION>
                                                           2002        2001       2000
-----------------------------------------------------------------------------------------
<S>                                                       <C>         <C>        <C>
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)      (2.6)
  FICA tip and target jobs tax credit                      (2.4)       (2.7)      (2.8)
Valuation allowance for deferred tax assets                24.4        12.8        8.5
Nondeductible goodwill and basis difference in goodwill    12.4        38.0        1.3
Other, net                                                  3.8         2.8        1.1
-----------------------------------------------------------------------------------------
Effective tax (benefit) rate                                0.6%       13.3%     (29.5)%
-----------------------------------------------------------------------------------------
</TABLE>

     The tax  effects of  temporary  differences  that give rise to  significant
portions of the deferred tax assets and deferred tax liabilities at December 29,
2002 and December 30, 2001 are presented below (amounts in thousands):
<TABLE>
<CAPTION>
                                                                       2002          2001
--------------------------------------------------------------------------------------------
<S>                                                                <C>             <C>
FICA tip credits not yet taken for federal tax purposes            $  20,691        18,303
Asset impairment charges recorded for financial statement
  purposes but not yet taken for tax purposes                         25,688        16,348
Net operating loss carryforwards not yet taken for tax purposes       20,344        19,292
Other                                                                  8,803         7,468
--------------------------------------------------------------------------------------------
Total deferred tax assets                                             75,526        61,411
 Less: Valuation allowance for deferred tax assets                   (32,989)      (17,605)
--------------------------------------------------------------------------------------------
Net deferred tax assets                                               42,537        43,806
--------------------------------------------------------------------------------------------
Depreciation and amortization taken for tax purposes in excess
 of amounts taken for financial reporting purposes                   (27,629)      (28,457)
Other                                                                 (3,288)       (3,729)
--------------------------------------------------------------------------------------------
Total deferred tax liabilities                                       (30,917)      (32,186)
--------------------------------------------------------------------------------------------
Net deferred tax asset (liability)                                 $  11,620        11,620
--------------------------------------------------------------------------------------------
</TABLE>

     The valuation  allowance for deferred tax assets increased by $15.4 million
for the year ended  December 29,  2002,  adding to the $17.6  million  valuation
allowance  balance as of December 30, 2001.  In assessing the  realizability  of

                                       45

<PAGE>
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 $51.8  million of net  operating  loss  carryforwards  for
federal  income tax  purposes as of December  29, 2002 that will expire in 2020.
The Company has $20.7 million of FICA tip tax credit  carryforwards  for federal
income tax  purposes as of December  29, 2002 that will expire  between 2017 and
2022.

     The Company's 1998 Federal  income tax returns are currently  being audited
by the Internal Revenue Service. The Company believes its recorded liability for
income  taxes of $35.0  million as of December 29, 2002 is adequate to cover its
exposure that may result from the ultimate resolution of the audit. Although the
ultimate  outcome of the audit cannot be  determined  at this time,  the Company
does  not  have  sufficient  liquidity  to pay any  significant  portion  of its
recorded  liability  if  resolution  of the audit  results in such amount  being
currently due and payable.  Management does not currently  expect that this will
be the  result,  or that any  resolution  with  respect to audit  issues will be
reached in the near future.


Note 16 - 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):

                                       2002         2001         2000
   -------------------------------------------------------------------
   Interest cost capitalized      $       -         155           924
   Interest cost expensed            31,050      35,305        38,262
   -------------------------------------------------------------------
   Total                          $  31,050      35,460        39,186
   -------------------------------------------------------------------


Note 17 - 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.

Information relating to total options is as follows:
                                                                    Options
                                                     Average      Exercisable
                                       Shares         Price       At Year End
-------------------------------------------------------------------------------
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
-------------------------------------------------------------------------------
Granted in 2002                       2,069,580         0.20
Exercised in 2002                             -            -
Canceled in 2002                       (786,799)        5.77
-------------------------------------------------------------------------------
Outstanding at December 29, 2002      3,979,606       $ 2.53       1,870,759
-------------------------------------------------------------------------------

                                       46

<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   3,471,590     7.98    $  0.73         1,515,037   $  1.00
$ 5.01 - $10.00     194,794     6.02       8.94           194,794      8.94
$10.01 - $15.00      61,685     4.44      13.28            29,867     13.34
$15.01 - $20.00     216,240     3.04      19.22           108,514     19.21
$20.01 - $25.00      26,647     3.01      21.34            18,222     21.42
$25.01 - $30.00       8,650     3.43      25.63             4,325     25.63
---------------------------------------------------    ------------------------
Total             3,979,606     7.50    $  2.53         1,870,759   $  3.33
---------------------------------------------------    ------------------------


     The Company  calculates  stock-based  compensation  by 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.  No  compensation
expense has been recognized for the Company's stock-based compensation plans.


Note 18 - 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
$0.5  million  in 2002,  $0.4  million  in 2001 and $0.5  million  in 2000.  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 $0 in
2002, $97,000 in 2001 and $47,000 in 2000.

     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. There
was  no  contribution  expense  related  to the  ESOP  Plan  in  2002  or  2000.
Contribution expense related to the ESOP Plan was $0.1 million in 2001.


Note 19 - 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. The Company has increased
the amounts of its deductibles for workers'  compensation and general  liability
to $500,000 per claim in 2002 compared to $250,000 per claim in 2001.  Losses in
excess of these risk retention  levels are covered by insurance which management
considers as adequate.  Provisions for losses  expected under these programs are
recorded based on estimates of the liability for claims incurred. Such estimates

                                       47

<PAGE>
are based on  management's  evaluation  of the nature and severity of claims and
future  development based on the Company's  historical  experience,  information
provided by the  Company's  third  party  administrators  and certain  actuarial
assumptions  used by the insurance  industry.  At December 29, 2002, the Company
was contingently  liable for letters of credit aggregating  approximately  $15.3
million related primarily to its insurance programs.

     In connection with the Applebee's,  Harrigan's and Canyon Cafe  divestiture
transactions   completed  during  2002,  1999  and  1998,  the  Company  remains
contingently liable for lease obligations relating to 86 Applebee's  restaurants
eight Harrigan's  restaurants and eight Canyon Cafe  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 $34.7 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. The plaintiffs have made a settlement demand of $2.5 million, which
has been  accepted  by the  Company's  insurer.  The Company  believes  that the
members of the class will give final consent to the insurer's  offer and, in the
near future, the case will be dismissed as settled, at no additional cost to the
Company.

     In  September  2002,  the Company was named as the  Defendant  in an action
filed in the U.S.  District  Court  for the  Middle  District  of  Georgia.  The
Plaintiff,  Bank of America  Securities,  LLC,  alleges that it is owed a fee of
approximately  $1.0 million,  relating to the Company's  sale of the McCormick &
Schmick's  brand. The Company believes that the allegations in the complaint are
without merit and plans to vigorously contest the complaint.  This litigation is
currently at a preliminary stage and no discovery has occurred.  Thus, it is not
possible for the Company to evaluate the likelihood of the plaintiff  prevailing
on its  claims.  Because  this  claim  is a suit on a  contract,  the  Company's
existing insurance  policies do not provide coverage.  There can be no assurance
that an  adverse  determination  in this  litigation  would not have a  material
adverse effect on the Company's financial condition or results of operations.

     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 20 - 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 30, 2001,  the due date of the Chairman Notes was June
30, 2002 with an interest rate of 11.5% 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.

                                       48

<PAGE>
     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, due June 2009
(the "Subordinated Notes"). The Subordinated 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
Subordinated Notes. All amounts of interest and principal paid by the Company on
the  Subordinated  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.

     In  conjunction  with the  Company's  July 10, 2002 payment of  semi-annual
interest  due  to  holders  of  its  Subordinated  Notes,  the  Chairman  made a
simultaneous  payment of principal  and interest  under the New Chairman Note in
the  amount of $0.8  million.  As a result,  the  principal  balance  of the New
Chairman Note was reduced to $13.7  million at year-end.  The balance of the New
Chairman  Note at  December  29,  2002 was $2.7  million,  net of the  valuation
allowance  established in 2001.  Subsequent to year-end, in conjunction with the
Company's  January 9, 2003  payment of  semi-annual  interest  to holders of its
Subordinated Notes, the Chairman made a simultaneous  payment of interest in the
amount of $0.8 million.


Note 21 - Shareholder Rights Plan

     On August 6, 2002, the Company's  Board of Directors  adopted a Shareholder
Rights Plan.  Under the plan,  Rights will be  distributed  as a dividend at the
rate of one Right for each  share of common  stock,  par value  $0.01 per share,
held by shareholders of record as of the close of business on September 4, 2002.
The Rights Plan was not adopted in response to any effort to acquire  control of
the Company.

     The Rights Plan is designed to deter coercive takeover  tactics,  including
the  accumulation of shares in the open market or through  private  transactions
and to prevent an acquirer from gaining control of the Company without  offering
a fair and adequate  price and terms to all of the Company's  shareholders.  The
Rights will expire on September 4, 2007.

     Each Right  initially will entitle  stockholders to buy one unit of a share
of a  series  of  preferred  stock  for  $9.50.  The  Rights  generally  will be
exercisable  only if a person or group acquires  beneficial  ownership of 15% or
more of the Company's  common stock or commences a tender or exchange offer upon
consummation of which such person or group would beneficially own 15% or more of
the Company's common stock.

                                       49

<PAGE>
Note 22 - Quarterly Financial Data (unaudited)
<TABLE>
<CAPTION>
                                                First         Second       Third       Fourth      Total
                                               Quarter        Quarter      Quarter     Quarter      Year
------------------------------------------------------------------------------------------------------------
<S>                                          <C>              <C>          <C>         <C>         <C>
2002:
Restaurant sales                             $   118,788      115,540      104,809     102,451     441,588
Net earnings (loss) from continued
   operations                                $   (4,666)       19,209        7,780     (60,634)    (38,311)
Net loss from discontinued operations        $   (1,052)       (4,613)      (9,713)     (9,740)    (25,118)
Net loss                                     $   (5,718)       14,596       (1,933)    (70,374)    (63,429)

Basic earnings (loss) per share
   from continued operations                 $    (0.16)         0.64         0.23       (1.83)      (1.22)
Basic loss per share from
   discontinued operations                   $    (0.04)        (0.16)       (0.29)      (0.30)      (0.80)
Basic earnings (loss) per share              $    (0.20)         0.48        (0.06)      (2.13)      (2.02)

Diluted earnings (loss) per share
   from continued operations                 $    (0.16)         0.58         0.23       (1.83)      (1.22)
Diluted loss per share from
   discontinued operations                   $    (0.04)        (0.13)       (0.29)      (0.30)      (0.80)
Diluted earnings (loss) per share            $    (0.20)         0.45        (0.06)      (2.13)      (2.02)

2001:
Restaurant sales                             $  167,828       168,052      141,519     111,978     589,379
Net loss from continued operations           $     (407)       (3,854)     (63,093)    (19,047)    (86,405)
Net loss from discontinued operations        $     (638)         (995)      (1,279)     (5,947)     (8,855)
Net loss                                     $   (1,045)       (4,849)     (64,372)    (24,994)    (95,260)

Basic loss per share from continued
   operations                                $    (0.02)        (0.13)       (2.20)      (0.66)      (3.02)
Basic loss per share from discontinued
   operations                                $    (0.02)        (0.04)       (0.04)      (0.21)      (0.31)
Basic loss per share                         $    (0.04)        (0.17)       (2.24)      (0.87)      (3.33)

Diluted loss per share from continued
   operations                                $    (0.02)        (0.13)       (2.20)      (0.66)      (3.02)
Diluted loss per share from discontinued
   operations                                $    (0.02)        (0.04)       (0.04)      (0.21)      (0.31)
Diluted loss per share                       $    (0.04)        (0.17)       (2.24)      (0.87)      (3.33)
------------------------------------------------------------------------------------------------------------
</TABLE>
     Diluted loss per share ("EPS") for all quarters in 2002 and 2001  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.

                                       50

<PAGE>
Note 23 - Guarantor Subsidiaries

     The   Company's   Senior   Notes  and   Credit   Facility   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 29, 2002 and December 30, 2001, these partnerships in the non-guarantor
subsidiaries operated 19 and 20, respectively,  of the Company's restaurants. At
December 31, 2000 these partnerships  operated 61 of the Company's  restaurants.
Accordingly,  condensed  consolidated balance sheets as of December 29, 2002 and
December 30, 2001,  and condensed  consolidated  statements of earnings and cash
flows for the fiscal  years  ended  December  29,  2002,  December  30, 2001 and
December   31,  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.

<TABLE>
Condensed Consolidated Statement of Earnings (Loss)
Fiscal Year Ended 2002
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                                Guarantor       Non-Guarantor
(In thousands)                                               Subsidiaries        Subsidiaries   Eliminations   Consolidated
----------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>                            <C>                 <C>       <C>
Restaurant Sales                                       $          391,309             50,279              -         441,588
Operating expenses                                                361,946             45,526              -         407,472
General and administrative expenses                                24,313              2,267              -          26,580
Loss (gain) on disposal of assets                                     563                  -              -             563
Asset revaluation and other special charges                        45,431                  -              -          45,431
----------------------------------------------------------------------------------------------------------------------------
Operating income (loss)                                           (40,944)             2,486              -         (38,458)
----------------------------------------------------------------------------------------------------------------------------
Other income (expense)                                                522                  -              -             522
Earnings (loss) before income taxes
   for continuing operations                                      (40,422)             2,486              -         (37,936)
Income taxes                                                          361                 14              -             375
----------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) from continuing operations                    (40,783)             2,472              -         (38,311)
----------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) from discontinued operations                  (24,960)              (158)             -         (25,118)
----------------------------------------------------------------------------------------------------------------------------
Net earnings (loss)                                    $          (65,743)             2,314              -         (63,429)
============================================================================================================================
</TABLE>

<TABLE>
Condensed Consolidated Statement of Earnings (Loss)
Fiscal Year Ended 2001
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                                Guarantor       Non-Guarantor
(In thousands)                                               Subsidiaries        Subsidiaries   Eliminations   Consolidated
----------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>                            <C>                 <C>       <C>
Restaurant Sales                                       $          536,528             52,851              -         589,379
Operating expenses                                                488,251             47,161              -         535,412
General and administrative expenses                                28,636              2,375              -          31,011
Loss (gain) on disposal of assets                                 (12,436)                 -              -         (12,436)
Asset revaluation and other special charges                        61,546                  -              -          61,546
----------------------------------------------------------------------------------------------------------------------------
Operating income (loss)                                           (29,469)             3,315              -         (26,154)
----------------------------------------------------------------------------------------------------------------------------
Other income (expense)                                            (48,942)              (159)             -         (49,101)
Earnings before income taxes
   for continuing operations                                      (78,411)             3,156              -         (75,255)
Income taxes                                                       10,127              1,023              -          11,150
----------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) from continuing operations                    (88,538)             2,133              -         (86,405)
----------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) from discontinued operations                   (8,622)              (233)             -          (8,855)
----------------------------------------------------------------------------------------------------------------------------
Net earnings (loss)                                    $          (97,160)             1,900              -         (95,260)
============================================================================================================================
</TABLE>

                                       51

<PAGE>
<TABLE>
Condensed Consolidated Statement of Loss
Fiscal Year Ended 2000
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                                Guarantor       Non-Guarantor
(In thousands)                                               Subsidiaries        Subsidiaries   Eliminations   Consolidated
-------------------------------------------------------------------- ------------------- -----------------------------------
<S>                                                    <C>                           <C>                  <C>       <C>
Restaurant Sales                                       $          505,239            145,022              -         650,261
Operating expenses                                                449,777            132,250              -         582,027
General and administrative expenses                                30,452              6,524              -          36,976
Loss (gain) on disposal of assets                                  22,818                  -              -          22,818
Asset revaluation and other special charges                        28,215              7,452              -          35,667
----------------------------------------------------------------------------------------------------------------------------
Operating loss                                                    (26,023)            (1,204)             -         (27,227)
----------------------------------------------------------------------------------------------------------------------------
Other income (expense)                                            (50,833)            (1,789)             -         (52,622)
Loss before income taxes
   from continuing operations                                     (76,856)            (2,993)             -         (79,849)
Income taxes                                                      (21,603)            (1,925)             -         (23,528)
----------------------------------------------------------------------------------------------------------------------------
Net loss from continuing operations                               (55,253)            (1,068)             -         (56,321)
Net loss from discontinued operations                              (2,967)              (191)             -          (3,158)
Cumulative effect of change in accounting
   principle, net of tax benefit                                   (6,255)                 -              -          (6,255)
----------------------------------------------------------------------------------------------------------------------------
Net loss                                               $          (64,475)            (1,259)             -         (65,734)
============================================================================================================================
</TABLE>

<TABLE>
Condensed Consolidated Balance Sheet
Fiscal Year Ended 2002
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                                Guarantor       Non-Guarantor
(In thousands)                                               Subsidiaries        Subsidiaries   Eliminations   Consolidated
----------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>                            <C>          <C>              <C>
ASSETS
Current assets                                         $           23,255                800              -          24,055
Premises and equipment, net                                       213,130             23,820              -         236,950
Deferred income tax benefit                                        11,620                  -              -          11,620
Other assets                                                       28,652                 18              -          28,670
Intercompany advances                                              12,370                  -       (12,370)               -
Intercompany investments                                           12,131                  -       (12,131)               -
----------------------------------------------------------------------------------------------------------------------------
                                                       $          301,158             24,638       (24,501)         301,295
============================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities                                    $          131,540                137              -         131,677
Long-term liabilities                                             166,174                  -              -         166,174
Intercompany payables                                                   -             12,370       (12,370)               -
Convertible preferred securities                                    3,179                  -              -           3,179
Shareholders' equity (deficit)                                        265             12,131       (12,131)             265
----------------------------------------------------------------------------------------------------------------------------
                                                       $          301,158             24,638       (24,501)         301,295
============================================================================================================================
</TABLE>

                                       52

<PAGE>
<TABLE>
Condensed Consolidated Balance Sheet
Fiscal Year Ended 2001
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                                Guarantor       Non-Guarantor
(In thousands)                                               Subsidiaries        Subsidiaries   Eliminations   Consolidated
----------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>                            <C>           <C>             <C>
ASSETS
Current assets                                         $           38,927                868              -          39,795
Premises and equipment, net                                       258,172             24,856              -         283,028
Goodwill, net                                                      34,920                  -              -          34,920
Deferred income tax benefit                                        11,620                  -              -          11,620
Other assets                                                       29,175                 18              -          29,193
Intercompany advances                                              12,370                  -        (12,370)              -
Intercompany investments                                           12,647                  -        (12,647)              -
----------------------------------------------------------------------------------------------------------------------------
                                                       $          397,831             25,742        (25,017)        398,556
============================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities                                    $          113,092                725              -         113,817
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)
----------------------------------------------------------------------------------------------------------------------------
                                                       $          397,831             25,742        (25,017)        398,556
============================================================================================================================
</TABLE>

<TABLE>
Condensed Consolidated Statement of Cash Flows
Fiscal Year Ended 2002
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                                 Guarantor      Non-Guarantor
(In thousands)                                                Subsidiaries       Subsidiaries   Eliminations   Consolidated
----------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>                           <C>                 <C>       <C>
Net cash provided by (used in) operating activities     $          (29,948)            3,912              -         (26,036)
----------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
  Capital expenditures                                              (4,832)             (594)             -          (5,426)
  Proceeds from disposal of assets, net                              9,111                 -              -           9,111
  Other investing activities                                          (430)                -              -            (430)
----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities                  3,849              (594)             -           3,255
 ---------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
  Proceeds from revolving credit agreements                         11,563                 -              -          11,563
  Proceeds from term credit agreement                               19,236                 -              -          19,236
  Payment of financing costs                                        (8,502)                -              -          (8,502)
  Payment of long-term debt                                         (8,489)                -              -          (8,489)
  Principal payments on long-term debt                                 (28)                -              -             (28)
  Reduction in letter of credit collateral                           9,978                 -              -           9,978
  Proceeds from (payment of) intercompany
     advances                                                        3,158            (3,158)             -               -
  Settlement of interest rate swap agreement                        (1,704)                -              -          (1,704)
----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities                 25,212            (3,158)             -          22,054
----------------------------------------------------------------------------------------------------------------------------
Cash provided by (used in) discontinued operations                     962              (158)             -             804
----------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents                               75                 2              -              77
Cash and equivalents at the beginning of the period                    532                27              -             559
----------------------------------------------------------------------------------------------------------------------------
Cash and equivalents at the end of the period           $              607                29              -             636
============================================================================================================================
</TABLE>

                                       53

<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 (used in) operating activities      $         (11,343)            5,158              -          (6,185)
----------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
  Capital expenditures                                             (17,084)             (511)             -         (17,595)
  Proceeds from disposal of assets, net                            128,752                 -              -         128,752
  Other investing activities                                        (2,402)                -              -          (2,402)
----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities                109,266              (511)             -         108,755
----------------------------------------------------------------------------------------------------------------------------
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)
----------------------------------------------------------------------------------------------------------------------------
Cash provided by (used in) discontinued operations                  (1,345)             (233)             -          (1,578)
----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                   158                (1)             -             157
Cash and equivalents at the beginning of the period                    372                30              -             402
----------------------------------------------------------------------------------------------------------------------------
Cash and equivalents at the end of the period            $             530                29              -             559
============================================================================================================================
</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 (used in) operating activities      $          23,938             3,732              -          27,670
----------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
  Capital expenditures                                             (45,752)           (1,193)             -         (46,945)
  Proceeds from sale-leaseback                                       8,055            20,316              -          28,371
  Proceeds from disposal of assets, net                             14,074                 -              -          14,074
  Other investing activities                                        (5,548)             (251)             -          (5,799)
----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities                (29,171)           18,872              -         (10,299)
----------------------------------------------------------------------------------------------------------------------------
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)
----------------------------------------------------------------------------------------------------------------------------
Cash provided by (used in) discontinued operations                  (6,355)             (191)             -          (6,546)
----------------------------------------------------------------------------------------------------------------------------
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>

                                       54

<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 Board of Directors of the Company, upon the recommendation of the Audit
Committee,  appointed the firm of KPMG LLP to serve as  independent  auditors of
the Company for the fiscal year ending  December 29, 2002, and that  appointment
was  ratified  by the  Company's  shareholders.  The Audit  Committee,  which is
composed  solely of  independent  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 Report
of the Audit Committee will appear in the Company's Proxy Statement for its 2003
Annual Meeting of Shareholders.

     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 29, 2002,
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  29,  2002,  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

Louis J. Profumo
Chief Financial Officer and Treasurer

                                       55

<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 29, 2002 and December 30, 2001, and
the related consolidated statements of loss,  shareholders' equity (deficit) and
comprehensive  loss,  and cash  flows  for each of the  years in the  three-year
period ended December 29, 2002. 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 as of December 29, 2002 and December 30, 2001, and
the  results of their  operations  and their cash flows for each of the years in
the  three-year  period ended December 29, 2002, in conformity  with  accounting
principles generally accepted in the United States of America.

     The  accompanying  consolidated  financial  statements  have been  prepared
assuming that the Company will continue as a going concern. As discussed in Note
9 to the consolidated  financial statements,  the Company has suffered recurring
losses from operations,  has a working capital deficit, an accumulated  deficit,
and a secured credit  facility which is due May 25, 2003 that raise  substantial
doubt about the Company's  ability to continue as a going concern.  Management's
plans in regard to these matters are also described in Note 9. The  consolidated
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.

     As discussed in Note 1 to the consolidated financial statements,  effective
December  31,  2001,  the Company  adopted  Statement  of  Financial  Accounting
Standards  ("SFAS") No. 142, "Goodwill and Other Intangible Assets" and SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets".

KPMG LLP

Atlanta, Georgia
February 27, 2003

                                       56

<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 2003 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 2003
Annual  Meeting of  Shareholders  to be filed with the  Securities  and Exchange
Commission.  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 and
         Related Stockholder Matters

     Information  in response to this item is  incorporated  by reference to the
information  contained  under the  headings  "Voting  Securities  and  Principal
Holders  Thereof" and "Equity  Compensation  Plans" in the Company's  definitive
Proxy  Statement  for  use  in  connection  with  the  2003  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 30, 2001,  the due date of the Chairman Notes was June
30, 2002 with an interest rate of 11.5% 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, due June 2009
(the "Subordinated Notes"). The Subordinated 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
Subordinated Notes. All amounts of interest and principal paid by the Company on
the  Subordinated  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.

                                       57

<PAGE>
     In  conjunction  with the  Company's  July 10, 2002 payment of  semi-annual
interest  due  to  holders  of  its  Subordinated  Notes,  the  Chairman  made a
simultaneous  payment of principal  and interest  under the New Chairman Note in
the  amount of $0.8  million.  As a result,  the  principal  balance  of the New
Chairman Note was reduced to $13.7  million at year-end.  The balance of the New
Chairman  Note at  December  29,  2002 was $2.7  million,  net of the  valuation
allowance  established in 2001.  Subsequent to year-end, in conjunction with the
Company's  January 9, 2003  payment of  semi-annual  interest  to holders of its
Subordinated Notes, the Chairman made a simultaneous  payment of interest in the
amount of $0.8 million.


Item 14.  Controls and Procedures

     Within the 90-day period prior to the filing of this report,  an evaluation
was  carried  out  under  the  supervision  and  with the  participation  of the
Company's management,  including the Chief Executive Officer and Chief Financial
Officer,  of the  effectiveness  of the design and  operation  of the  Company's
disclosure  controls and  procedures.  Based on that  evaluation,  the Company's
Chief  Executive  Officer and Chief  Financial  Officer have  concluded that the
Company's  disclosure  controls and  procedures  are  effective in ensuring that
information required to be disclosed in Company reports filed or submitted under
the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange  Commission's  rules and forms.
However,  the design of any  system of  controls  is based in part upon  certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving  its stated goals under all  potential
future conditions, regardless of how remote.

     There have been no significant  changes in the Company's  internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of the evaluation. 67

                                       58

<PAGE>
                                     Part IV

Item 15.  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 Loss for the years ended  December  29,  2002,
     December 30, 2001 and December 31, 2000

     Consolidated Balance Sheets as of December 29, 2002 and December 30, 2001

     Consolidated Statements of Shareholders' Equity (Deficit) and Comprehensive
     Loss for the years ended December 29, 2002,  December 30, 2001 and December
     31, 2000

     Consolidated Statements of Cash Flows for the years ended December 29,
     2002, December 30, 2001 and December 31, 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).

                                       59

<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)

                                       60

<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)

     10.29 Second Amended and Restated  Credit  Agreement  dates as of March 20,
2002 by and among Avado Brands, Inc., as Borrower, the lenders signatory hereto,
Foothill Capital Corporation,  as Administrative  Agent, and Ableco Finance LLC,
as Collateral Agent. (20)

     10.30  First  amendment,  dated as of June 4, 2002,  to Second  Amended and
Restated  Credit  Agreement,  dated as of March,  20,  2002 by and  among  Avado
Brands,  Inc., as Borrower,  the lenders  signatory  thereto,  Foothill  Capital
Corporation,  as  Administrative  Agent,  and Ableco  Finance LLC, as Collateral
Agent. (21)

                                       61

<PAGE>
     10.31  Eighth  amendment,  dated as of March  25,  2002,  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. (21)

     10.32 Second  amendment,  dated as of September 23, 2002, to Second Amended
and  Restated  Credit  Agreement  dated as of March 20,  2002 by and among Avado
Brands,  Inc., as Borrower,  the lenders  signatory  thereto,  Foothill  Capital
Corporation,  as  Administrative  Agent,  and Ableco  Finance LLC, as Collateral
Agent. (22)

     10.33 Third amendment, dated as of November 11, 2002, to Second Amended and
Restated Credit  Agreement dated as of March 20, 2002 by and among Avado Brands,
Inc., as Borrower, the lenders signatory thereto,  Foothill Capital Corporation,
as Administrative Agent, and Ableco Finance LLC, as Collateral Agent. (22)

     10.34 Fourth  amendment,  dated as of December 27, 2002, to Second  Amended
and  Restated  Credit  Agreement  dated as of March 20,  2002 by and among Avado
Brands,  Inc., as Borrower,  the lenders  signatory  thereto,  Foothill  Capital
Corporation,  as  Administrative  Agent,  and Ableco  Finance LLC, as Collateral
Agent. (23)

     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)

     99.2  Certification  of Corporate  Officers  pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002

     (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 registrant'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.

                                       62

<PAGE>
     (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.

     (20)  Incorporated by reference to the Company's  Quarterly  Report on Form
10-Q for the quarter  ended  March 31,  2002,  as amended on Form  10-Q/A  dated
December 10, 2002.

     (21)  Incorporated by reference to the Company's  Quarterly  Report on Form
10-Q for the  quarter  ended June 30,  2002,  as amended  on Form  10-Q/A  dated
December 10, 2002.

     (22)  Incorporated by reference to the Company's  Quarterly  Report on Form
10-Q for the quarter ended September 29, 2002.

     (23)  Incorporated by reference to the registrant's  Current Report on Form
8-K dated December 27, 2002.

     (b) Reports on Form 8-K

     The Company filed a Current Report on Form 8-K, dated August 6, 2002, which
     disclosed,  pursuant to Item 5, the  Company's  adoption of a  shareholders
     rights plan pursuant to a Rights Agreement.

     The Company filed a Current  Report on Form 8-K,  dated  December 27, 2002,
     which  disclosed,  pursuant to Item 5, the Company's  execution of a fourth
     amendment,  dated  December  27, 2002,  to its Second  Amended and Restated
     Credit  Agreement  dated as of March 20,  2002 by and among  Avado  Brands,
     Inc.,  as  Borrower,  the  lenders  signatory  thereto,   Foothill  Capital
     Corporation, as Administrative Agent, and Ableco Finance LLC, as Collateral
     Agent.

                                       63

<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/ Louis J. Profumo
                                        -----------------------
                                        Louis J. Profumo
                                        Chief Financial Officer and Treasurer

February 28, 2003
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

/s/ Tom E. DuPree, Jr.    Chairman of the Board of Directors  February 28, 2003
------------------------  and Chief Executive Officer
Tom E. DuPree, Jr.        (principal executive officer)


/s/ Louis J. Profumo      Chief Financial Officer and         February 28, 2003
------------------------  Treasurer (principal financial
Louis J. Profumo          officer)


/s/ Margaret E. Waldrep   Director and Chief Administrative   February 28, 2003
------------------------  Officer
Margaret E. Waldrep


/s/ Percy V. Williams     Secretary                           February 28, 2003
------------------------
Percy V. Williams


/s/ Emilio Alvarez-Recio  Director                            February 28, 2003
------------------------
Emilio Alvarez-Recio


/s/ Jerome A. Atkinson    Director                            February 28, 2003
------------------------
Jerome A. Atkinson


/s/ William V. Lapham     Director                            February 28, 2003
------------------------
William V. Lapham


/s/ Robert Sroka          Director                            February 28, 2003
------------------------
Robert Sroka

                                       64


<PAGE>
                                 CERTIFICATIONS

     I, Tom E. DuPree, Jr., certify that:

     1. I have reviewed this annual report on Form 10-K of Avado Brands, Inc.,

     2. Based on my  knowledge,  this annual  report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

     3. Based on my knowledge,  the financial  statements,  and other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

     4. The  registrant's  other  certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a. designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others  within those  entities,  particularly  during the
period  in  which  this  annual  report  is being  prepared.

     b. evaluated the effectiveness of the registrant's  disclosure controls and
procedures  as of a date  within 90 days prior to the filing date of this annual
report (the  "Evaluation  Date");  and

     c. presented in this annual report our conclusions  about the effectiveness
of the  disclosure  controls and  procedures  based on our  evaluation as of the
Evaluation Date;

     5. The registrant's other certifying  officers and I have disclosed,  based
on our most  recent  evaluation,  to the  registrant's  auditors  and the  audit
committee of registrant's board of directors:

     a. all  significant  deficiencies  in the design or  operation  of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's  auditors any material weaknesses in internal controls;  and

     b. any fraud,  whether or not material,  that involves  management or other
employees who have a significant role in the registrant's internal controls; and

     6. The registrant's  other certifying  officer and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.



Date:   February 28, 2003                 /s/ Tom E. DuPree, Jr.
                                          -------------------------
                                          Tom E. DuPree, Jr.
                                          Chairman of the Board and
                                          Chief Executive Officer

                                       65

<PAGE>
                                 CERTIFICATIONS

     I, Louis J. Profumo, certify that:

     1. I have reviewed this annual report on Form 10-K of Avado Brands, Inc.,

     2. Based on my  knowledge,  this annual  report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

     3. Based on my knowledge,  the financial  statements,  and other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

     4. The  registrant's  other  certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a. designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others  within those  entities,  particularly  during the
period  in  which  this  annual  report  is being  prepared.

     b. evaluated the effectiveness of the registrant's  disclosure controls and
procedures  as of a date  within 90 days prior to the filing date of this annual
report (the  "Evaluation  Date");  and

     c. presented in this annual report our conclusions  about the effectiveness
of the  disclosure  controls and  procedures  based on our  evaluation as of the
Evaluation Date;

     5. The registrant's other certifying  officers and I have disclosed,  based
on our most  recent  evaluation,  to the  registrant's  auditors  and the  audit
committee of registrant's board of directors:

     a. all  significant  deficiencies  in the design or  operation  of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's  auditors any material weaknesses in internal controls;  and

     b. any fraud,  whether or not material,  that involves  management or other
employees who have a significant role in the registrant's internal controls; and

     6. The registrant's  other certifying  officer and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.



Date:   February 28, 2003                /s/ Louis J. Profumo
                                         ---------------------------
                                         Louis J. Profumo
                                         Chief Financial Officer and
                                         Treasurer

                                       66

<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)

     10.29 Second Amended and Restated  Credit  Agreement  dates as of March 20,
2002 by and among Avado Brands, Inc., as Borrower, the lenders signatory hereto,
Foothill Capital Corporation,  as Administrative  Agent, and Ableco Finance LLC,
as Collateral Agent. (20)

     10.30  First  amendment,  dated as of June 4, 2002,  to Second  Amended and
Restated  Credit  Agreement,  dated as of March,  20,  2002 by and  among  Avado
Brands,  Inc., as Borrower,  the lenders  signatory  thereto,  Foothill  Capital
Corporation,  as  Administrative  Agent,  and Ableco  Finance LLC, as Collateral
Agent. (21)

     10.31  Eighth  amendment,  dated as of March  25,  2002,  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. (21)

     10.32 Second  amendment,  dated as of September 23, 2002, to Second Amended
and  Restated  Credit  Agreement  dated as of March 20,  2002 by and among Avado
Brands,  Inc., as Borrower,  the lenders  signatory  thereto,  Foothill  Capital
Corporation,  as  Administrative  Agent,  and Ableco  Finance LLC, as Collateral
Agent. (22)

     10.33 Third amendment, dated as of November 11, 2002, to Second Amended and
Restated Credit  Agreement dated as of March 20, 2002 by and among Avado Brands,
Inc., as Borrower, the lenders signatory thereto,  Foothill Capital Corporation,
as Administrative Agent, and Ableco Finance LLC, as Collateral Agent. (22)

     10.34 Fourth  amendment,  dated as of December 27, 2002, to Second  Amended
and  Restated  Credit  Agreement  dated as of March 20,  2002 by and among Avado
Brands,  Inc., as Borrower,  the lenders  signatory  thereto,  Foothill  Capital
Corporation,  as  Administrative  Agent,  and Ableco  Finance LLC, as Collateral
Agent. (23)

     21.1 Subsidiaries of the Registrant.
<PAGE>

     23.1 Consent of KPMG LLP.

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

     99.2  Certification  of Corporate  Officers  pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002

     (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 registrant'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.

<PAGE>

     (20)  Incorporated by reference to the Company's  Quarterly  Report on Form
10-Q for the quarter  ended  March 31,  2002,  as amended on Form  10-Q/A  dated
December 10, 2002.

     (21)  Incorporated by reference to the Company's  Quarterly  Report on Form
10-Q for the  quarter  ended June 30,  2002,  as amended  on Form  10-Q/A  dated
December 10, 2002.

     (22)  Incorporated by reference to the Company's  Quarterly  Report on Form
10-Q for the quarter ended September 29, 2002.

     (23)  Incorporated by reference to the registrant's  Current Report on Form
8-K dated December 27, 2002.