<PAGE>

                  UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                               WASHINGTON, D.C. 20549
                                   FORM 10-K

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 [NO FEE REQUIRED]

     For the fiscal year ended December 28, 1999

                                         OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

                           Commission file number 1-10725
                           FURR'S RESTAURANT GROUP, INC.
               (Exact name of Registrant as specified in its charter)

           DELAWARE                                              75-2350724
(State or other jurisdiction of                             (I.R.S. Employer
incorporation or organization)                              Identification No.)

3001 E. PRESIDENT GEORGE BUSH HIGHWAY, RICHARDSON, TX         75082
(Address of principal executive office)                      (Zip Code)

     Registrant's telephone number, including area code   (972) 808-2923

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

                                               Name of each exchange
Title of each class                            on which registered
-------------------                            -------------------
Common Stock, par value                         New York Stock Exchange
 $.01 per share

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

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

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

     The aggregate market value of the Voting Stock held by non-affiliates of
the Registrant, based upon the closing price of the registrant's Common Stock on
March 23, 2000, was $31,056,711.

     The number of shares outstanding of each of the registrant's classes of
stock as of the latest practicable date are as follows:

                                                  Shares Outstanding
          Class                                   as of March 23, 2000
          -----                                   --------------------
Common Stock, par value $.01 per share                 9,743,282

     Portions of the definitive proxy statement relating to the 2000 annual
meeting of stockholders are incorporated by reference in Part III.


                                      1
<PAGE>

                           FURR'S RESTAURANT GROUP, INC.
                                     FORM 10-K
                                   ANNUAL REPORT


                                 TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                              Page
                                                                              ----
<S>            <C>                                                            <C>

                                       PART I

Item 1.        Business. . . . . . . . . . . . . . . . . . . . . . . . . . .  3
Item 2.        Properties. . . . . . . . . . . . . . . . . . . . . . . . . .  6
Item 3.        Legal Proceedings . . . . . . . . . . . . . . . . . . . . . .  7
Item 4.        Submission of Matters to a Vote of Security Holders . . . . .  8

                                      PART II

Item 5.        Market for Registrant's Common Equity and
               Related Stockholder Matters . . . . . . . . . . . . . . . . .  8
Item 6.        Selected Financial Data . . . . . . . . . . . . . . . . . . .  9
Item 7.        Management's Discussion and Analysis of Financial
               Condition and Results of Operations . . . . . . . . . . . .   10
Item 8.        Financial Statements and Supplementary Data . . . . . . . .   15
Item 9.        Changes In and Disagreements With Accountants on
               Accounting and Financial Disclosure . . . . . . . . . . . .   17

                                      PART III

Item 10.       Directors and Executive Officers of the Registrant. . . . .   17
Item 11.       Executive Compensation. . . . . . . . . . . . . . . . . . .   17
Item 12.       Security Ownership of Certain Beneficial
               Owners and Management . . . . . . . . . . . . . . . . . . .   17
Item 13.       Certain Relationships and Related Transactions. . . . . . .   17

                                      PART IV

Item 14.       Exhibits, Financial Statement Schedule and Reports
               on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . .   17

Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   23

</TABLE>

                                        2

<PAGE>

                                       PART I

Item 1.        BUSINESS

GENERAL

     Furr's Restaurant Group, Inc. (the "Company" or "Furr's"), formerly
known as Furr's/Bishop's, Incorporated was incorporated in Delaware in 1991
and, through its subsidiaries, is one of the largest operators of
family-style cafeteria restaurants in the United States.  We believe that our
cafeterias and buffet, which are operated under the "Furr's" and "Bishop's"
names, are well recognized in their regional markets for their value,
convenience, food quality and friendly service.  Our 97 cafeterias and one
buffet are located in twelve states in the Southwest, West and Midwest.  In
addition, we operate Dynamic Foods, our food preparation, processing and
distribution division, in Lubbock, Texas.  Dynamic Foods provides in excess
of 85% of the food and supply requirements of our cafeteria and buffet
restaurants.  Dynamic Foods also sells bakery items and various prepared
foods to the restaurant, food service and retail markets.

FAMILY DINING DIVISION

     The Family Dining Division consists of 97 cafeterias and one
pay-at-the-door buffet-style restaurant operated by Cafeteria Operators,
L.P., an indirect wholly owned partnership subsidiary of Furr's ("Cafeteria
Operators").

     CAFETERIAS.  Cafeterias occupy a long standing niche in the food service
industry, providing the customer with a pleasant, moderately-priced
alternative to fast-food chains and conventional full-service restaurants.
Our cafeterias offer a wide variety of meals appealing to a broad range of
personal tastes, including chicken, beef, fish and pasta entrees; soup, salad
and vegetable choices; non-alcoholic beverages; and freshly baked pies and
cakes. The food is prepared for serving by the individual cafeteria.  The
Company's cafeterias are generally characterized by quick service and modest
prices per guest.  Guest tickets for the fiscal years ended December 28,
1999, December 29, 1998 and December 30, 1997 averaged approximately $5.91,
$5.79 and $5.62 respectively. Our cafeterias average approximately 10,000
square feet in size and have average seating capacity for approximately 300
guests.  Virtually all of our cafeterias feature "All-You-Can-Eat" at a fixed
price all day, every day, as well as the traditional "a la carte" pricing
alternative, which allows customers to choose the pricing and dining format
which they find the most attractive.

     Management believes that the "Furr's" and "Bishop's" names are widely
recognized in their regional markets.  Management's emphasis on consistent
food quality, variety, cleanliness and service has led to a loyal guest base.
 Our customer base consists principally of people over 45 years of age,
shoppers, working people and young families.

     BUFFET.  Our buffet-style restaurant features traditional American and
ethnic foods at a fixed price that entitles each guest to unlimited servings
of all menu items and beverages.  Food items are served in a "scatter bar"
format at buffet islands centrally located in the restaurant's food service
area. The "scatter-bar" buffet format emphasizes customer choice by allowing
customers to select at their own pace in self selected portions, thereby
improving the restaurant experience for the guest.  The buffet unit is
approximately 10,000 square feet in size and has seating capacity for
approximately 300 guests. Guest tickets for the fiscal years ended December
28, 1999, December 29, 1998 and December 30, 1997 averaged approximately
$6.06, $6.05 and $5.80, respectively.

MARKETING AND ADVERTISING

     Our marketing program utilizes a variety of media to attract customers
to our restaurants and to create a targeted image for our restaurants.  We
utilize point of sale advertising within our restaurants to focus customers
on the various food items and promotions being offered at the restaurant.
Television advertisements are used to enhance our image with respect to food
quality and value pricing. Also, billboard advertising, newspaper and direct
mail programs within the communities in which we have a large presence are
used to direct customers to our restaurants and to promote specific programs,
including the one-price "All-You-Can-Eat" concept.  We frequently use all of
our marketing tools together to promote the concept.  In addition, store
managers and other personnel are encouraged to participate in local public
relations and promotional efforts.

                                        3
<PAGE>

DYNAMIC FOODS

     We operate Dynamic Foods, a food purchasing, processing and distribution
facility in Lubbock, Texas that supplies in excess of 85% of the food and
supply requirements of our family dining restaurants, providing us with
uniform quality control and the ability to make volume purchases.  In
addition, management believes that there is significant potential for
utilizing the available excess capacity at Dynamic Foods by increasing sales
to third parties.  In fiscal 1999, third party sales by Dynamic Foods
aggregated $1.2 million.

     Dynamic Foods has approximately 140 separate food items available under
the "Dynamic Foods" label for distribution to our restaurants and for sale to
third parties.  Currently, approximately 97% of Dynamic Food's manufacturing
output is used at our restaurants and the remainder is sold to third parties.

RESTAURANT MANAGEMENT

     The success of each restaurant's operation is largely dependent upon the
quality of in-store management and mid-level supervisory management.
Experienced and well trained in-store management is important to assure good
service, quality food and the cleanliness of each restaurant, to control
costs, and to monitor local eating habits and traffic.

     Each cafeteria and buffet is operated under the supervision of a general
manager, an assistant general manager and one or two assistant managers.
Each cafeteria generally employs between 40 and 70 workers, of whom
approximately 20% are part-time workers.  The buffet-style restaurant
typically employs fewer persons as the "scatter-bar" concept reduces service
staffing requirements.

     The general managers of our family dining restaurants report to eleven
regional managers who, in turn, report to the Vice President of Operations.
The general managers have responsibility for day-to-day operations, including
food ordering, labor scheduling, menu planning, customer relations and
personnel hiring and supervision.  The regional managers visit each
restaurant regularly and work with the in-store managers to evaluate and
maintain overall operating standards.  They also make quality control checks,
train personnel in operating procedures and evaluate procedures developed by
cafeteria and buffet personnel for possible use in all company-owned family
dining units.

SERVICE MARKS AND TRADEMARKS

     We utilize and are dependent upon certain registered service marks,
including "Furr's Cafeterias," "Bishop's Buffets" and "Dynamic Foods," and a
stylized "F" trademarked by Furr's.  These and other trademarks are current
and are renewable on various dates through February 2008. We are not aware of
any party who could prevail in a contest of the validity of such service
marks and trademarks.

SEASONALITY

     Customer volume on a company-wide basis at most established restaurants
is generally somewhat lower in the winter months, due primarily to weather
conditions in certain of the markets for our restaurants.  As a consequence,
the first and fourth quarters of the year historically produce lower sales.
A harsh winter season has a negative effect on our revenues, results of
operations.

WORKING CAPITAL REQUIREMENTS

     Our restaurants are a cash business.  Funds available from cash sales
are not needed to finance receivables and are generally not needed
immediately to pay for food, supplies and certain other expenses of the
restaurants. Therefore, our business and operations have not historically
required proportionately large amounts of working capital, which is generally
common among similar restaurant companies.  Should Dynamic Foods expand its
sales to third parties, the accounts receivables and inventory related to
such sales could require it to maintain additional working capital. See "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."

                                        4
<PAGE>

COMPETITION

     The food service business is highly competitive in each of the markets
in which our restaurants operate and is often affected by changes in consumer
tastes, economic conditions and demographic and local traffic patterns. In
each area in which our restaurants operate, there is a large number of other
food service outlets including other cafeterias, buffets and fast-food and
limited-menu restaurants which compete directly and vigorously with our
restaurants in all aspects, including quality and variety of food, price,
customer service, location and the quality of the overall dining experience.

     Neither Furr's nor any of its competitors has a significant share of the
total food service market in any area in which we compete.  We believe that
our principal competitors are other cafeterias and buffets,
moderately-priced, conventional restaurants, fast-food outlets and
eat-at-home alternatives.  Many of our competitors, including our primary
cafeteria and buffet competitors, have greater financial resources and lower
total debt-to-equity ratios than Furr's. We compete with other food service
outlets for management personnel based on salary, opportunity for advancement
and stability of employment.  We believe we offer existing and prospective
management personnel an attractive compensation and benefits package with
opportunity for advancement in a stable segment of the food service industry.

     The food manufacturing and distribution business is highly competitive
and many of Dynamic Foods' competitors are large regional or national food
processors and distributors with significantly greater financial resources
than Furr's.  Accordingly, there can be no assurance that Dynamic Foods will
be able to generate significantly higher revenue or increase our
profitability.

CAPITAL EXPENDITURE PROGRAM

     During the fiscal years ended December 28, 1999, December 29, 1998 and
December 30, 1997, Furr's expended $19.9 million, $7.7 million and $5.6
million, respectively, principally to maintain and remodel existing
cafeterias, upgrade its computer and information systems, construct two new
units and improve the facility operated by Dynamic Foods. The increase in
capital expenditures in 1998 and 1999 was primarily due to a significant
reimaging program.  We expect to continue this program in the year 2000. Our
capital expenditure program is necessary to enable us and our subsidiaries to
increase our revenue and profitability.

     Subject to our ability to generate necessary funds from operations or to
obtain funds from other sources, we intend to pursue a program of remodeling
existing restaurants and opening new restaurants. We anticipate expending
approximately $10 million in fiscal year 2000 to remodel existing cafeterias,
open new restaurants and make other capital expenditures.  No assurance can
be given that we will generate sufficient funds from operations or obtain
alternative financing to enable us to fully implement the desired capital
expenditures.  Our ability to open new restaurants will also depend, among
other things, upon our ability to secure appropriate store locations on
favorable terms and to identify, hire and train personnel for expansion.  See
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."

EMPLOYEES

     As of March 7, 2000, we employed approximately 5,600 persons, of whom
approximately 4,600 were employed on a full-time basis.  We employed
approximately 340 persons as managers or assistant managers in restaurants,
11 persons as regional managers and approximately 65 persons in executive,
administrative or clerical positions in the corporate office.  None of our
employees is covered by collective bargaining agreements.  We believe we
maintain good relations with our employees.

     The majority of our restaurants pay average wages in excess of the
current minimum wage standards.  However, any future increase in the federal
minimum wage could have the effect of increasing our labor costs.  In recent
years, the market for those employees who have traditionally been employed in
the restaurant industry has become increasingly competitive due to fewer
persons entering this category of wage earner and the increased government
regulation of immigrants entering and working in the United States.  In
response to this decrease in the available labor pool, we have increased our
average hourly wage and expanded our hiring and training efforts.

                                        5
<PAGE>


REGULATION

     Our restaurants are subject to numerous federal, state and local laws
affecting health, sanitation, waste water, fire and safety standards.  We
believe that we are in substantial compliance with applicable laws and
regulations governing our operations.

     The Federal Americans With Disabilities Act, which became effective as
to public accommodations and employment in 1992, prohibits discrimination on
the basis of disability.  As we proceed with remodeling existing restaurants,
we could be required to expend funds to modify our restaurants in order to
provide service to, or make reasonable accommodations for the employment of,
disabled persons.

Item 2.   PROPERTIES

     RESTAURANT LOCATIONS.  The following table sets forth the number of
restaurants operated by the Company in certain states as of March 7, 2000.

<TABLE>
<CAPTION>
State                            Number of Restaurants
-----                            ---------------------
<S>                              <C>
Arizona                                         6
Arkansas                                        2
California                                      2
Colorado                                        8
Illinois                                        1
Iowa                                            5
Kansas                                          7
Missouri                                        2
Nevada                                          2
New Mexico                                     15
Oklahoma                                       10
Texas                                          38
                                               --
                                               98
                                               --
</TABLE>

     SITE SELECTION.  We generally intend to reposition existing restaurants
or open new restaurants in markets in which our restaurants are presently
located and in adjacent markets, in order to improve our competitive position
and increase operating margins by obtaining economies of scale in
merchandising, advertising, distribution, purchasing and supervision.  The
primary criteria considered in selecting new locations are a high level of
customer traffic, convenience to both lunch and dinner customers in
demographic groups that tend to favor our restaurants and the occupancy cost
of the proposed restaurant.  Our ability to open new restaurants depends on a
number of factors, including our ability to find suitable locations and
negotiate acceptable leases, our ability to attract and retain a sufficient
number of qualified restaurant managers and the availability of sufficient
financing.

     PROPERTIES.  Forty-four of our restaurants are leased from third
parties, another 34 are subleased under a master sublease agreement, 12 are
owned and are situated on land leased from third parties and nine are owned
in fee simple. Most of the leases have initial terms of from 10 to 20 years
and contain provisions permitting renewal for one or more specified terms at
specified rental rates.  Some leases provide for fixed annual rent plus rent
based on a percentage of sales.  The average restaurant contains
approximately 10,000 square feet and seats approximately 300 guests.

     Dynamic Foods' food manufacturing and distribution facility contains
approximately 175,000 square feet and is situated on approximately 24 acres
owned by Furr's in fee simple in Lubbock, Texas.  In addition, a grocery
warehouse of approximately 36,000 square feet and a truck terminal of
approximately 7,200 square feet are located adjacent to the distribution
facility.

                                        6
<PAGE>

     Our executive offices are located in approximately 28,000 square feet of
leased office space in Richardson, Texas.  We believe that the space will be
adequate to conduct our current operations for the foreseeable future.

     The Company leases eight properties under a master sublease, owns seven
buildings situated on land leased from third parties and owns two buildings
on land owned in fee simple, which are not used in the Company's restaurant
business and are leased to third parties or placed on the market for sale.

Item 3.        LEGAL PROCEEDINGS

     (1)  During 1999 we settled on favorable terms an outstanding dispute
with the Internal Revenue Service (the "Service") relating to the federal
income tax returns of certain subsidiaries of Furr's, including (i) Cavalcade
Holdings, Inc. ("Holdings") (for each of the tax years ended June 30, 1985
through June 30, 1990), (ii) Cavalcade Foods, Inc. ("Foods") as successor in
interest to Bishop Buffets, Inc. (for the tax period ended December 27,
1986), and (iii) Foods as successor in interest to Furr's Cafeterias, Inc.
(for the tax period ended December 27, 1986). We paid $125 thousand to settle
these claims, and recognized a tax benefit in the fourth quarter of 1999 of
$2.9 million relating to reserves that had previously been established with
respect to this dispute.

     (2)  In July 1998, we filed a declaratory judgment lawsuit in State
District Court in Lubbock, Texas, in which we ask the Court to find that we
are not obligated to make severance payments that have been demanded by
Theodore Papit, the former President and Chief Executive Officer of Furr's.
Mr. Papit resigned effective May 29, 1998, following the election at the
annual meeting of stockholders of Furr's of a slate of directors proposed by
Teacher's Insurance and Annuity Association of America ("TIAA"), our largest
stockholder at that time.  He subsequently demanded payment of more than
$500,000 of severance and other amounts that he claimed were owing to him
under a President and Chief Executive Officer Agreement dated March 23, 1998.
 This agreement was approved by a split vote of the Board of Directors after
TIAA had publicly announced that it might take action affecting the control
of the Company.  We have requested a jury trial and believe that there are a
number of grounds that will support the Court in granting the requested
relief, among them being that the Agreement is void as an interested party
transaction that did not receive the necessary approval of independent,
disinterested directors, the terms of the Agreement are not fair to Furr's
and the Agreement was entered into by Furr's without the benefit of full
disclosure by Mr. Papit and consideration by the Board of Directors of
material information regarding his management of the Company.

     (3)  Furr's and certain of our subsidiaries, the Cavalcade Pension Plan,
the Cavalcade Pension Plan Committee, Kmart Corporation and our pension plan
and Michael Levenson were defendants in a lawsuit brought against us in U.S.
District Court in Denver, Colorado by Robert H. Aull ("Plaintiff"), a former
employee of Furr's and a participant in the Cavalcade Pension Plan. The
Plaintiff's allegations (all of which were disputed by the defendants in the
case) included: (i) that accrued benefits under the Cavalcade Pension Plan
were improperly reduced during the period from 1988 to 1993, (ii) the
"freeze" of the Plan on June 30, 1989 was improper, (iii) an insufficient
amount of assets was transferred from the Kmart Corporation pension plan to
the Cavalcade Pension Plan in connection with the acquisition of Furr's from
Kmart effected by Mr. Levenson and his affiliates in 1988 and (iv) rent
concessions allowed to Furr's by Kmart commencing in 1993 constituted
prohibited transactions that bestowed illegal benefits upon Furr's and Mr.
Lewis.

     In 1998, Furr's, the Cavalcade Pension Plan, the members of the
Cavalcade Pension Plan Committee, Kmart Corporation and our pension plan
entered into a definitive settlement agreement (the "Agreement") with the
plaintiff and his counsel to resolve all outstanding claims among them. The
court hearing the case in December 1999 approved the settlement as "fair" to
all members of the plaintiff class by the court after notice to all purported
class members. Pursuant to the settlement, the litigation has been dismissed
with prejudice.

     As a result of the settlement of the Aull litigation and the concurrent
resolution of an IRS audit of the Plan that focused on substantially
identical issues, we recognized a special charge of $5.8 million in the
fourth quarter of 1998, of which $2.2 million related to resolution of the
IRS audit.  The anticipated cash impact of the settlement on Furr's includes
payment in 2000 of approximately $1.5 million of expenses for legal and
professional fees, with the remainder of the settlement to be paid to the
Plan in future years to fund increased benefit payments to former and current
employees.  The settlement is not expected to require any additional funding
payments to the Plan by Furr's

                                        7
<PAGE>

in 2000 based upon the current value of Plan assets, but may require
additional payments by Furr's to the Plan in future years. Pursuant to the
settlement, Kmart Corporation's pension plan transferred $700,000 to the
Cavalcade Pension Plan to fund a portion of the additional benefits required
by the Agreement. Management does not believe that payment of amounts
required of Furr's under the settlement will have a material adverse effect
on our planned operations.

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

               None.


                                      PART II

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

COMMON STOCK

     The Common Stock, par value $.01 per share ("Common Stock"), is traded
on the New York Stock Exchange ("NYSE") under the symbol "FRG."  As of March
23, 2000, there were 9,743,282 shares of Common Stock outstanding and
approximately 2,000 record holders.  The closing price of the Common Stock on
March 23, 2000 was $3.1875.

     As of March 23, 2000, no cash dividends had been declared on the Common
Stock.  The terms of the indebtedness of Cafeteria Operators limits its
ability to distribute funds to the Company for the payment of dividends on
the Common Stock.  The Company does not anticipate paying dividends in the
foreseeable future.

     The following table provides the high and low closing prices for each
quarter of the last two fiscal years:

<TABLE>
<CAPTION>
                                   1998                   1999
                             ----------------        ----------------
                             High         Low        High         Low
                             ----         ---        ----         ---
<S>                         <C>         <C>         <C>         <C>
    First Quarter           $5.00       $2.35       $7.19       $4.69
    Second Quarter           6.25        3.45        5.31        3.75
    Third Quarter            5.60        3.45        4.06        2.50
    Fourth Quarter           6.90        4.40        3.75        2.50
</TABLE>

     At March 23, 2000, the Company had warrants outstanding representing the
right to purchase an aggregate of 512,245 shares of Common Stock at an
exercise price pf $5.55 per share.  Such warrants are exercisable at any time
and expire on January 2, 2001.  Such warrants are not listed for trading on
any public exchange.

                                        8
<PAGE>


Item 6.   SELECTED FINANCIAL DATA  (in thousands, except per share data)

Fiscal Years Ended
-------------------------------------------------------------------------------
<TABLE>

                                       December 28,  December 29,   December 30,     December 31,    January 2,
                                          1999           1998            1997           1996            1996
                                       ------------  ------------   ------------     ------------    ----------
<S>                                    <C>           <C>            <C>              <C>             <C>
Sales (1)                              $ 188,060      $ 188,208       $ 193,530       $ 197,196      $ 209,769

Net Income (loss)                         31,262         (1,229)         (5,396)          8,363        (38,863)

Income (loss)
  per common share, diluted (2)
    Before extraordinary item               3.19          (0.13)          (0.55)           0.85          (4.00)
    Extraordinary item (3)                     -              -               -               -          17.50

Net income (loss)                           3.19          (0.13)          (0.55)           0.85          13.50

Total assets                              89,463         68,509          65,801          75,259         78,038

Long term obligations
  and redeemable preferred stock (4)      70,929         81,902          78,974          82,905         90,590

</TABLE>

(1)  The Company closed two restaurants in 1999, four restaurants in 1998, eight
     restaurants in 1997, five restaurants in 1996 and fourteen restaurants in
     1995.  The Company opened one restaurant in 1999 and one restaurant in
     1997.
(2)  All years based on Common Stock outstanding after giving effect to the
     reverse stock splits effected in 1999 and 1996.
(3)  Includes a net extraordinary gain of $170,239 from financial restructuring
     transactions in the fourth quarter of the fiscal year ended January 2,
     1996.
(4)  Includes $12,389, $17,882, $23,374, $28,867 and $33,413  of interest
     accrued to maturity on long-term debt in fiscal year ended December 28,
     1999, December 29, 1998, December 30, 1997, December 31, 1996 and January
     2, 1996, respectively.


                                       9
<PAGE>

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

     The Company's fiscal year is a 52-53 week year.  Each of the last three
fiscal years included 52 weeks.

The following table sets forth certain statement of operations data and
restaurant data for the fiscal years indicated (dollars in thousands, except
sales per unit):

<TABLE>

                                                                 1999              1998              1997
                                                                 ----              ----              ----
<S>                                                           <C>               <C>               <C>
Statement of operations data:
Sales                                                         $ 188,060         $ 188,208         $ 193,530
Costs and expenses:
     Cost of sales (excluding depreciation)                      56,036            55,801            58,292
     As a percent of sales                                        29.80%            29.65%            30.12%
     Selling, general and administrative                        113,327           114,706           118,979
     As a percent of sales                                        60.26%            60.95%            61.48%

     Depreciation and amortization                               10,335            10,097            10,889
     Special charges (credits)                                      566             8,583            10,477
                                                              ---------         ---------         ---------
     Total costs and expenses                                   180,264           189,187           198,637
                                                              ---------         ---------         ---------
Operating income (loss)                                           7,796              (979)           (5,107)
Interest expense                                                    349               250               289
                                                              ---------         ---------         ---------
Income (loss) before income taxes                                 7,447            (1,229)           (5,396)
Income tax benefit                                              (23,815)                -                 -
                                                              ---------         ---------         ---------
Net Income (loss)                                             $  31,262         $  (1,229)        $  (5,396)
                                                              ---------         ---------         ---------
                                                              ---------         ---------         ---------
Restaurant units in operation:
     Beginning of year                                               99               103               110
     Opened                                                           1                 -                 1
     Closed                                                          (2)               (4)               (8)
                                                              ---------         ---------         ---------
     End of year                                                     98                99               103
                                                              ---------         ---------         ---------
                                                              ---------         ---------         ---------
Year over year comparable store sales change
     (for units open at year end and which
     operated the full year)                                       1.98%             2.98%             0.31%
                                                              ---------         ---------         ---------
                                                              ---------         ---------         ---------
Average weekly sales per restaurant unit (for units
     open at year end and which operated the full year)       $  36,701         $  35,621         $  34,426
                                                              ---------         ---------         ---------
                                                              ---------         ---------         ---------

</TABLE>


                                           10
<PAGE>


FIFTY-TWO WEEKS ENDED DECEMBER 28, 1999 COMPARED TO FIFTY-TWO WEEKS ENDED
DECEMBER 29, 1998


     RESULTS OF OPERATIONS.  Sales for the fifty-two week fiscal year ended
December 28, 1999 were $188.1 million, a decrease of $.1 million from the fiscal
year ended December 29, 1998.  Comparable store sales increased by $3.4 million
or 1.98% in 1999 compared to 1998.

     Our net income was $31.3 million for fiscal 1999 comparing to a net loss of
$1.2 million for the prior year or net income of $3.19 per share compared to a
net loss of $0.13 per share, respectively.  The operating results for 1999 and
1998 included special charges aggregating $.6 million and $8.6 million,
respectively.  Before special charges, net income for fiscal 1999 was $31.8
million including a $2.9 million income tax benefit from the settlement of
Internal Revenue Service litigation resulting from the purchase of the Company
from K-Mart in 1986.  In addition, a net operating loss ("NOL") carry-forward of
approximately $121 million is available to Furr's to offset future taxable
earnings for the purposes of reducing our income tax payments.  However, the
benefit of this NOL could not be recognized until we determined that is "more
likely than not" we would realize the benefits through profitable operations.
As a result of eight consecutive quarters of comparable store sales growth,
positive results from our reimaging program and the settlement of the "Aull"
pension litigation, we believe it to be "more likely than not" we will recognize
a benefit from the NOL.  Accordingly, we recorded an income tax benefit in the
fourth quarter of 1999 of $20.8 million.

     Our pretax income excluding these items increased by 8.1% to $8.0 million
in 1999 compared to $7.4 million for 1998.

     SALES.  Restaurant sales in comparable units were 1.98% higher in fiscal
1999 than 1998.  Sales in 1999 were lower than the prior year by $.1 million.
Revenues in fiscal year 1999 included $1.2 million of Dynamic Foods sales to
third parties compared to $1.0 million in fiscal 1998.

     COST OF SALES.  Cost of sales was 29.8% of sales for fiscal year 1999
compared to 29.7% for fiscal year 1998.

     SELLING, GENERAL AND ADMINISTRATIVE.  Selling, general and administrative
expense was lower in the aggregate by $1.4 million in fiscal year 1999.  Of the
decrease, $3.0 million was due to fewer units being included in operating
results. SG&A expense includes increases of $1.7 million in labor and related
expense, $608 thousand in marketing expense and $421 thousand in rent expense.
SG&A expense includes decreases of $488 thousand in utility expense, $740
thousand in casualty insurance and $642 thousand in legal and professional
expenses.

     SPECIAL CREDITS AND CHARGES.  The operating results for fiscal 1999 include
a special charge of  $566 thousand for expenses related to the relocation of the
corporate offices from Lubbock, Texas to Richardson, Texas. The operating
results for fiscal 1998 include special charges aggregating $8.6 million.
Included in the total are charges of $6.2 million for the estimated costs of
litigation settlements, $1.5 million for expenses related to closed stores and
the write down of certain properties, $610 thousand related to the proxy contest
and the election of the Board of Directors and $291 thousand for the write off
of the deferred costs associated with warrants.

     DEPRECIATION AND AMORTIZATION.  Depreciation and amortization expense was
$238 thousand higher than the prior year, due to the depreciation on capital
expenditures in the prior and current year principally related to our on- going
remodeling program.

     INTEREST EXPENSE.  Interest expense was $349 thousand, which was higher
than the prior year by $99 thousand. As discussed in note 2 to the consolidated
financial statements, in accordance with SFAS 15, certain debt was recorded at
the sum of all future principal and interest payments and there is no
recognition of interest expense thereon.  Cash payments not recorded as expense
in 1999 and 1998 amounted to $5.5 million each year.

     INCOME TAX BENEFIT.  As discussed above and in note 6 to the consolidated
financial statements, in fiscal 1999 we recorded a deferred tax asset of $20.8
million, and a reduction of a prior year income tax liability related to an
Internal Revenue Service examination, which was settled in 1999, of $2.9
million.  No income tax benefit was recorded in fiscal 1998.

                                     11
<PAGE>


FIFTY-TWO WEEKS ENDED DECEMBER 29, 1998 COMPARED TO FIFTY-TWO WEEKS ENDED
DECEMBER 30, 1997

     RESULTS OF OPERATIONS.  Sales for the fifty-two week fiscal year ended
December 29, 1998 were $188.2 million, a decrease of $5.3 million from the
fiscal year ended December 30, 1997. The operating loss for the 1998 fiscal year
was $979 thousand compared to a loss of $5.1 million in fiscal year 1997.  The
operating results of fiscal 1998 included special charges of $8.6 million
compared to net special charges of $10.5 million in the prior year. The net loss
for fiscal 1998 was $1.2 million, compared to a net loss of $5.4 million for
fiscal 1997.

     SALES.  Restaurant sales in comparable units were 2.98% higher in fiscal
1998 than 1997.  Sales in 1998 were lower than the prior year by $9.7 million as
a result of the closure of four units in 1998 and eight units in 1997.  Revenues
in fiscal year 1998 included $1.0 million of Dynamic Foods sales to third
parties compared to $1.7 million in fiscal 1997.

     COST OF SALES.  Cost of sales was 29.6% of sales for fiscal year 1998
compared to 30.1% for fiscal year 1997.  The decrease in the percentage of sales
was principally the result of lower product costs that were partially offset by
changes in the menu mix.

     SELLING, GENERAL AND ADMINISTRATIVE.  Selling, general and administrative
expense was lower in the aggregate by $4.3 million in fiscal year 1998.  Of the
decrease, $6.1 million was due to operating results including fewer units. SG&A
expense includes increases of $813 thousand in labor and related expense, $560
thousand in legal and professional expense, $452 thousand in marketing expense
and $308 thousand in rent expense.  SG&A expense includes a decrease of $355
thousand in utility expense.

     SPECIAL CREDITS AND CHARGES.  The operating results for fiscal 1998 include
special charges aggregating $8.6 million.  Included in the total are charges of
$6.2 million for the estimated costs of litigation settlements, $1.5 million for
expenses related to closed stores and the write down of certain properties, $610
thousand related to the proxy contest and the election of the Board of Directors
and $291 thousand for the write off of the deferred costs associated with
warrants. The operating results for fiscal 1997 include net special charges of
$10.5 million.  Included in the total are charges of $6.9 million of property,
plant and equipment write downs and closed store reserves and $4.9 million
related to the Levenson litigation and related indemnity, which were partially
offset by a credit of $1.3 million related to the settlement of a lawsuit.

     DEPRECIATION AND AMORTIZATION.  Depreciation and amortization expense was
$792 thousand lower than the prior year, due to an impairment charge which
reduced the carrying value of certain depreciable assets in fiscal 1997 which
was partially offset by the depreciation on fiscal 1998 capital expenditures.

     INTEREST EXPENSE.  Interest expense was $250 thousand, which was lower than
the prior year by $39 thousand.  Cash payments not recorded as expense in 1998
and 1997 due to the financial accounting treatment of restructured debt amounted
to $5.5 million.

NEW ACCOUNTING PRONOUNCEMENTS

     The Company is assessing the reporting and disclosure requirements of
SFAS No. 133, Accounting For Derivative Instruments and Hedging Activities.
This statement establishes accounting and reporting standards for derivative
instruments and hedging activities. This statement, as amended by SFAS No. 137,
is effective for financial statements for fiscal years beginning after June 15,
2000. The Company has not yet determined the impact SFAS No. 133 will have
on its financial statements. The Company will adopt the provisions of SFAS
No. 133 in the first quarter of Fiscal 2001.

LIQUIDITY AND CAPITAL RESOURCES:

     During fiscal 1999, cash provided from our operating activities was $16.2
million compared to $18.8 million in 1998.  Cash used for the payment of
interest was approximately $5.8 million in 1999 and $5.7 million 1998.  We made
capital expenditures of $19.9 million during 1999 compared to $7.7 million
during 1998.  Cash, temporary investments and marketable securities were $5.2
million at December 28, 1999 compared to $11.6 million at December 29, 1998.
The current ratio of the Company was .47:1 at December 28, 1999 compared to


                                     12
<PAGE>

 .70:1 at December 29, 1998.  Our total assets at December 28, 1999 aggregated
$89.5 million compared to $68.5 million at December 29, 1998.

     Our restaurants are a cash business.  Funds available from cash sales are
not needed to finance receivables and are not generally needed immediately to
pay for food, supplies and certain other expenses of the restaurants. Therefore,
our business and operations have not historically required proportionately large
amounts of working capital, which is generally common among similar restaurant
companies.  Should Dynamic Foods expand its sales to third parties, the accounts
receivable and inventory related to such sales could require us to maintain
additional working capital.

     Cafeteria Operators has outstanding $58.2 million of 12% Notes due December
31, 2001, including $12.4 million of accrued interest.  Under the terms of the
12% Notes, a semi-annual cash payment of approximately $2.7 million is due on
each March 31 and September 30.  The obligations of Cafeteria Operators under
the 12% Notes are secured by a security interest in and a lien on all of the
personal property of Cafeteria Operators and mortgages on all fee and
leasehold properties of Cafeteria Operators (to the extent such properties
are mortgageable).

     Cafeteria Operators has outstanding $2.6 million of 10.5% Notes due
December 31, 2001.  Under the terms of the 10.5% Notes, a semi-annual cash
payment of approximately $133 thousand is due on each June 30 and December 31.
These notes were issued as payment of a portion of the indemnification
obligation related to the Levenson litigation discussed in note 8 to the
consolidated financial statements.

     During the fiscal years ended December 28, 1999, December 29, 1998 and
December 30, 1997, Furr's expended $19.9 million, $7.7 million and $5.6 million,
respectively, principally to maintain and remodel existing cafeterias, upgrade
its computer and information systems, construct two new units and improve the
facility operated by Dynamic Foods. The increase in capital expenditures in 1998
and 1999 was primarily due to a significant reimaging program.  We expect to
continue this program in the year 2000. Our capital expenditure program is
necessary to enable us and our subsidiaries to increase our revenue and
profitability.

     Subject to our ability to generate necessary funds from operations or to
obtain funds from other sources, we intend to pursue a program of remodeling
existing restaurants and opening new restaurants. We anticipate expending
approximately $10 million in fiscal year 2000 to remodel existing cafeterias,
open new restaurants and make other capital expenditures.  No assurance can be
given that we will generate sufficient funds from operations or obtain
alternative financing to enable us to fully implement the desired capital
expenditures.  Our ability to open new restaurants will also depend, among other
things, upon our ability to secure appropriate store locations on favorable
terms and to identify, hire and train personnel for expansion.  See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."

     From time to time, we consider whether disposition of certain of our
assets, including our food processing and distribution operations, real estate
owned in fee simple and leasehold interests or potential acquisitions of assets
would be beneficial or appropriate for our long-term goals and in order to
increase stockholder value.

     In 1993, we entered into an amendment of a master sublease agreement
pursuant to which we leased 43 properties from Kmart Corporation ("Kmart").
Pursuant to the amendment, the aggregate monthly rent was reduced by 25 percent
for the period from the effective date of the amendment through and including
December 31, 1997, and by 20 percent following that date and until December 31,
2001.  The reductions in rent were made subject to termination by Kmart if Mr.
Kevin Lewis ceased to be Chairman of the Board of Directors of Furr's. Mr. Lewis
was not nominated for reelection at our Annual Meeting of Stockholders on May
28, 1998.  In June 1998, Kmart demanded that we pay increased rents, which we
have done while reserving our right to dispute Kmart's right to receive the
increased rental.  As a result of the increased rents, we will pay additional
rent of approximately $1.8 million through December 31, 2001, including $1.2
million additional rent paid in 1999.  Because we account for our rental
payments under the straight-line method, the purported increase in rent through
December 31, 1999 is being amortized over the remaining life of the leases,
which run through December 31, 2003, December 31, 2007, June 29, 2008 and
December 31, 2008. The increase in annual rent expense amounted to approximately
$288 thousand for fiscal 1999 and for the fiscal 2000 will amount to
approximately $288 thousand.

                                   13
<PAGE>


     Furr's and certain of our subsidiaries and other defendants entered into a
definitive settlement agreement that resolved all outstanding claims among us
related to the litigation and IRS audit involving our pension plan. The
calculations included in the agreement have been confirmed by an independent
actuary and the settlement approved as "fair" to all members of the plaintiff
class by the court.  The cash impact of the settlement on Furr's includes
payment in 2000 of $1.5 million of expenses for legal and professional fees,
with the remainder of the settlement to be paid to the Plan in future years to
fund increased benefit payments to former and current employees.  The settlement
will not require any funding payments to the Plan by Furr's in 2000 but is
expected to require payments by Furr's to the Plan of approximately $1.7 million
in 2001 and approximately $850 thousand in 2002, with additional funding
payments required in subsequent years in amounts that are expected to decline
over time, subject to the overall funding status of the Plan.

NEW YORK STOCK EXCHANGE LISTING

     In July 1999, the New York Stock Exchange (the "Exchange") notified Furr's
that it was not in compliance with its revised listing standards.  The Exchange
has accepted our proposed plan to attain compliance with the Exchange's revised
listing standards on or before July 31, 2000 and is allowing continued trading
of our common stock on the Exchange so long as interim objectives are realized.
There can be no assurance that we will meet our objectives as outlined in our
plan as submitted to the Exchange or that the common stock of Furr's will
continue to be traded on the Exchange.  If our common stock is delisted from the
Exchange, we plan to apply for listing on another exchange or to seek to
establish trading in another market.

YEAR 2000 DISCLOSURE

     As of the date of this Report, we have not experienced any significant
disruptions in our operations during the transition into the Year 2000 ("Y2K").
In the fourth quarter of 1999, we completed our assessment of Y2K risks and had
formulated contingency plans to mitigate potential adverse effects which might
have arisen from noncompliant systems or third parties who had not adequately
addressed the Y2K issue.  To date, we have not incurred any significant costs
related to Y2K issues.  We will continue to monitor our operations and systems
and address any date-related problems that may arise as the year progresses.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     We are exposed to market risk from changes in commodity prices. We purchase
certain commodities used in food preparation.  These commodities are generally
purchased based upon market prices established with vendors.  These purchase
arrangements may contain contractual features that limit the price paid by
establishing certain price floors or caps.  We do not use financial instruments
to hedge commodity prices because these purchase arrangements help control the
ultimate cost paid and any commodity price aberrations are generally short term
in nature.

     Our long term debt does not expose us to market risk as all interest
accrues at fixed rates.  We do not use derivative financial instruments to
manage overall borrowing costs.

     This market risk discussion contains forward-looking statements.  Actual
results may differ materially from this discussion based upon general market
conditions and changes in domestic and global financial markets.


                                  14
<PAGE>


Item 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The Company's fiscal year is a 52-53 week year.  Each of the 1999, 1998 and
1997 Fiscal years included 52 weeks.

Index to Consolidated Financial Statements and Financial Schedule

<TABLE>

                                                                       Page
                                                                        No.
                                                                       ----
<S>                                                                    <C>
Independent Auditors' Report                                           F-1

Consolidated Balance Sheets--
December 28, 1999 and December 29, 1998                                F-2

Consolidated Statements of Operations--
Years ended December 28, 1999, December 29, 1998 and December 30,      F-4
1997

Consolidated Statements of Changes in Stockholders' Deficit--
Years ended December 28, 1999, December 29, 1998 and December 30,      F-5
1997

Consolidated Statements of Cash Flows--
Years ended December 28, 1999, December 29, 1998 and December 30,      F-6
1997

Notes to Consolidated Financial Statements--
Years ended December 28, 1999, December 29, 1998 and December 30,      F-8
1997

Financial Statement Schedule--
     II Consolidated Valuation and Qualifying Accounts                  25
</TABLE>

                                      15
<PAGE>


                    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                       Comprising Item 8 of the Annual Report
                                on Form 10-K to the

                         SECURITIES AND EXCHANGE COMMISSION

                           FURR'S RESTAURANT GROUP, INC.
   Fiscal Years Ended December 28, 1999, December 29, 1998 and December 30, 1997





                                        16
<PAGE>


                          INDEPENDENT AUDITORS' REPORT


Board of Directors and Stockholders
Furr's Restaurant Group, Inc.:

We have audited the accompanying consolidated financial statements of Furr's
Restaurant Group, Inc. and subsidiaries as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we have
also audited the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Furr's Restaurant
Group, Inc. and subsidiaries as of December 28, 1999 and December 29, 1998 and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 28, 1999, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.



                                                     KPMG LLP

Dallas, Texas
February 25, 2000


                                   F-1
<PAGE>


FURR'S RESTAURANT GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 28, 1999 AND DECEMBER 29, 1998
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE AMOUNTS)

<TABLE>

                                                                          December 28,      December 29,
                                                                                  1999              1998
                                                                          ------------      ------------
<S>                                                                       <C>               <C>
ASSETS

CURRENT ASSETS:
         Cash and cash equivalents                                          $   5,172        $  11,571
         Accounts and notes receivable (net of allowance for doubtful
             accounts of $14 and $14, respectively)                               958              715
         Inventories                                                            6,544            7,014
         Prepaid expenses and other                                               861              441
                                                                          ------------      ------------

               Total current assets                                            13,535           19,741
                                                                          ------------      ------------
PROPERTY, PLANT AND EQUIPMENT:
         Land                                                                   7,322            9,119
         Buildings                                                             31,374           30,779
         Leasehold improvements                                                28,427           21,040
         Equipment                                                             42,515           40,433
         Construction in progress                                               4,024            2,144
                                                                          ------------      ------------
                                                                              113,662          103,515


         Less accumulated depreciation and amortization                       (59,076)         (55,195)
                                                                          ------------      ------------
               Property, plant and equipment, net                              54,586           48,320

DEFERRED TAX ASSET                                                             20,846
OTHER ASSETS                                                                      496              448
                                                                          ------------      ------------
               TOTAL ASSETS                                                 $  89,463        $  68,509
                                                                          ------------      ------------
                                                                          ------------      ------------
</TABLE>

                                                                     (Continued)


                                        F-2
<PAGE>


FURR'S RESTAURANT GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 28, 1999 AND DECEMBER 29, 1998
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE AMOUNTS)

<TABLE>

                                                                              December 28,       December 29,
                                                                                      1999               1998
                                                                              ------------       ------------
<S>                                                                           <C>                <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
         Current maturities of long-term debt                                   $  5,493           $  5,493
         Trade accounts payable                                                    5,306              3,990
         Other payables and accrued expenses                                      17,109             17,303
         Reserve for store closings, current                                         804              1,316
                                                                              ------------       ------------

                   Total current liabilities                                      28,712             28,102
                                                                              ------------       ------------
RESERVE FOR STORE CLOSINGS, NET OF CURRENT MATURITIES                              2,558              3,280

LONG-TERM DEBT, NET OF CURRENT PORTION                                            55,219             60,712

OTHER PAYABLES                                                                    10,217             15,697

EXCESS OF FUTURE LEASE PAYMENTS OVER FAIR VALUE,
         NET OF AMORTIZATION                                                       1,919              2,330

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIT:
         Preferred Stock, $.01 par value; 5,000,000 shares authorized,
                  none issued
         Common Stock, $.01 par value; 15,000,000 shares authorized,
                  9,757,918 and 9,747,321 issued and outstanding
                  in 1999 and 1998, respectively                                     488                487
         Additional paid-in capital                                               55,996             55,938
         Accumulated other comprehensive loss                                     (1,728)            (2,857)
         Accumulated deficit                                                     (63,918)           (95,180)
                                                                              ------------       ------------
                   Total stockholders' deficit                                    (9,162)           (41,612)
                                                                              ------------       ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                                     $ 89,463           $ 68,509
                                                                              ------------       ------------
                                                                              ------------       ------------

</TABLE>

See accompanying notes to consolidated financial statements.


                                       F-3
<PAGE>


FURR'S RESTAURANT GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEARS ENDED DECEMBER 28, 1999, DECEMBER 29, 1998 AND DECEMBER 30, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                  Year Ended
                                                         -------------------------------------------------------------
                                                         December 28, 1999     December 29, 1998     December 30, 1997
                                                         -----------------     -----------------     -----------------
<S>                                                      <C>                   <C>                   <C>
Sales                                                      $   188,060           $   188,208           $   193,530
Costs and expenses:
         Cost of sales (excluding depreciation)                 56,036                55,801                58,292
         Selling, general and administrative                   113,327               114,706               118,979
         Depreciation and amortization                          10,335                10,097                10,889
         Special charges                                           566                 8,583                10,477
                                                         -----------------     -----------------     -----------------
                                                               180,264               189,187               198,637
                                                         -----------------     -----------------     -----------------
Operating income (loss)                                          7,796                  (979)               (5,107)

         Interest expense                                          349                   250                   289
                                                         -----------------     -----------------     -----------------
Income (loss) before income taxes                                7,447                (1,229)               (5,396)

         Income tax benefit                                    (23,815)                    -                     -
                                                         -----------------     -----------------     -----------------
Net income (loss)                                          $    31,262           $    (1,229)          $    (5,396)
                                                         =================     =================     =================

Income (loss) per common share:
         Basic:
                   Net income (loss)                       $      3.20           $     (0.13)          $     (0.55)
                                                         =================     =================     =================
                   Weighted average shares                   9,757,123             9,735,805             9,734,827
                                                         =================     =================     =================
         Diluted:
                   Net income (loss)                       $      3.19           $     (0.13)          $     (0.55)
                                                         =================     =================     =================
                   Weighted average shares                   9,800,549             9,735,805             9,734,827
                                                         =================     =================     =================
</TABLE>

See accompanying notes to consolidated financial statements.


                                      F-4
<PAGE>


FURR'S RESTAURANT GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FISCAL YEARS ENDED DECEMBER 28, 1999, DECEMBER 29, 1998 AND DECEMBER 30, 1997
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                         Accumulated
                                                                          Additional         Other
                                                   Preferred   Common       Paid-In      Comprehensive  Accumulated
                                                     Stock      Stock       Capital      Income (loss)    Deficit         Total
                                                   ---------  --------    ----------     -------------  -----------     --------
<S>                                                <C>        <C>         <C>            <C>            <C>             <C>
BALANCE, DECEMBER 31, 1996                         $          $    487      $ 55,866      $ (2,854)      $(88,555)      $(35,056)


Warrants exercised                                                                 4                                           4

Comprehensive income (loss):
    Net loss                                                                                               (5,396)        (5,396)
    Pension liability adjustment                                                               350                           350
                                                                                                                        --------
  Total comprehensive loss                                                                                                (5,046)
                                                   ---------  --------    ----------     -------------  -----------     --------
BALANCE, DECEMBER 30, 1997                                         487        55,870        (2,504)       (93,951)       (40,098)


Warrants exercised                                                                68                                          68

Comprehensive loss
  Net loss                                                                                                 (1,229)        (1,229)
  Pension liability adjustment                                                                (353)                         (353)
                                                                                                                        --------
  Total comprehensive loss                                                                                                (1,582)
                                                   ---------  --------    ----------     -------------  -----------     --------
BALANCE, DECEMBER 29, 1998                                         487        55,938        (2,857)       (95,180)       (41,612)


Warrants exercised                                                   1            58                                          59

Comprehensive income
  Net income                                                                                               31,262         31,262
  Pension liability adjustment                                                               1,129                         1,129
                                                                                                                        --------
  Total comprehensive income                                                                                              32,391
                                                   ---------  --------    ----------     -------------  -----------     --------
BALANCE, DECEMBER 28, 1999                         $          $    488      $ 55,996      $ (1,728)      $(63,918)      $ (9,162)
                                                   =========  ========    ==========     =============  ===========     ========

</TABLE>

See accompanying notes to consolidated financial statements.


                                       F-5
<PAGE>

FURR'S RESTAURANT GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED DECEMBER 28, 1999, DECEMBER 29, 1998 AND DECEMBER 30, 1997
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                           December 28, 1999      December 29, 1998      December 30, 1997
                                                           -----------------      -----------------      -----------------
<S>                                                       <C>                    <C>                    <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income (loss)                                        $        31,262        $        (1,229)       $        (5,396)
    Adjustments to reconcile net income
         to net cash provided by
         operating activities:
              Depreciation and amortization                           10,335                 10,097                 10,889
              Deferred tax benefit                                   (20,846)                     -                      -
              Loss (gain) on sale of property,
                 plant and equipment and other assets                    125                    (50)                    75
              Special charges                                              -                  7,867                  5,567
              Deferred charges (credits)                                   -                    (48)                   495

    Changes in operating assets and liabilities:
         Accounts and notes receivable                                  (243)                   167                    304
         Inventories                                                     470                   (976)                  (316)
         Prepaid expenses and other                                     (420)                   681                   (741)
         Trade accounts payable                                        1,316                   (297)                (1,211)
         Other payables and accrued expenses                            (194)                 2,177                    241
         Reserve for store closings                                   (1,234)                (1,086)                  (832)
         Other liabilities including accrued pension
           costs and IRS settlement                                   (4,351)                 1,545                    142
                                                             ---------------        ---------------        ---------------
         Net cash provided by operating
            activities                                                16,220                 18,848                  9,217
                                                             ---------------        ---------------        ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchases of property, plant and equipment                       (19,850)                (7,718)                (5,638)
    Proceeds from the sale of property, plant and
            equipment and other assets                                 2,776                  1,205                    199
    Other, net                                                          (111)                    16                     15
                    Net cash used in investing               ---------------        ---------------        ---------------
                     activities                                      (17,185)                (6,497)                (5,424)
                                                             ---------------        ---------------        ---------------
</TABLE>

                                                                   (Continued)
                                      F-6
<PAGE>

FURR'S RESTAURANT GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED DECEMBER 28, 1999, DECEMBER 29, 1998 AND DECEMBER 30, 1997
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                           December 28, 1999       December 29, 1998       December 30, 1997
                                                           -----------------       -----------------       -----------------
<S>                                                       <C>                     <C>                     <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
      Payment of indebtedness                                $        (5,493)        $        (5,493)        $        (5,493)
      Issuance of indebtedness                                             -                       -                   2,551
      Other, net                                                          59                     197                     (31)
                                                             ----------------        ----------------        ----------------
             Net cash used in financing activities                    (5,434)                 (5,296)                 (2,973)
                                                             ----------------        ----------------        ----------------
INCREASE IN CASH AND CASH EQUIVALENTS                                 (6,399)                  7,055                     820

CASH AND CASH EQUIVALENTS
      AT BEGINNING OF YEAR                                            11,571                   4,516                   3,696
                                                             ----------------        ----------------        ----------------
CASH AND CASH EQUIVALENTS AT END OF YEAR                     $         5,172         $        11,571         $         4,516
                                                             ================        ================        ================

SUPPLEMENTAL DISCLOSURE OF
  CASH FLOW INFORMATION:
  Interest paid, including $5,493
      of interest classified as payment of
      indebtedness during the fiscal years
      ended December 28, 1999, December 29, 1998
      and December 30, 1997 respectively                     $         5,842        $          5,736        $          5,500
                                                             ================        ================        ================
      Income tax paid (refunded)                             $             -        $              -        $            (60)
                                                             ================        ================        ================

      Pension liability adjustment                           $         1,129        $            353        $           (350)
                                                             ================        ================        ================
      Non-cash investing activity:
             Note receivable for sale of asset               $           125        $              -        $              -
                                                             ================        ================        ================
</TABLE>

See accompanying notes to consolidated financial statements.


                                      F-7

<PAGE>

FURR'S RESTAURANT GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 28, 1999, DECEMBER 29, 1998 AND DECEMBER 30, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION - Furr's Restaurant Group, Inc. (the "Company"), a
Delaware corporation, operates cafeterias and a buffet through its subsidiary
Cafeteria Operators, L.P., a Delaware limited partnership (together with its
subsidiaries, the "Partnership"). The financial statements presented herein are
the consolidated financial statements of Furr's Restaurant Group, Inc. and its
majority owned subsidiaries. All material intercompany transactions and account
balances have been eliminated in consolidation.

The financial statements reflect the results of a series of transactions
relating to the financial restructuring of the Company on January 2, 1996, as
described in Note 2.

FISCAL YEAR - The Company operates on a 52-53 week fiscal year ending on the
Tuesday nearest December 31. Each of the fiscal years presented represents a
52-week year.

BUSINESS SEGMENTS - The Company operates in two vertically integrated operating
segments, namely the operation of food purchasing, processing, warehousing and
distribution of products and the operation of cafeterias, including food
preparation and retail sales, in twelve states in the Southwest, West and
Midwest areas of the United States.

CASH AND CASH EQUIVALENTS - The Company has a cash management program which
provides for the investment of excess cash balances in short-term investments.
These investments have original or remaining maturities of three months or less
at date of acquisition, are highly liquid and are considered to be cash
equivalents for purposes of the consolidated balance sheets and consolidated
statements of cash flows.

INVENTORIES - Inventories are stated at the lower of cost (first-in, first-out
method) or market.

PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment is generally
recorded at cost, while certain assets considered to be impaired are recorded at
estimated fair value. All property, plant and equipment is depreciated at annual
rates based upon the estimated useful lives of the assets using the
straight-line method. Restaurant equipment is generally depreciated over a
period of 1 to 5 years, while the useful life of manufacturing equipment is
considered to be 5 to 10 years. Buildings are depreciated over a 30 year useful
life, while improvements to owned buildings have estimated useful lives of 3 to
5 years. Provisions for amortization of leasehold improvements are made at
annual rates based upon the estimated useful lives of the assets or terms of the
leases, whichever is shorter.

VALUATION OF LONG-LIVED ASSETS - Long-lived assets and certain identifiable
intangibles are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company groups and evaluates its assets for impairment at the
individual restaurant level. The Company considers a restaurant's assets to be
impaired if a forecast of undiscounted future cash flows directly related to the
assets, including disposal value, if any, is less than the carrying amount.
Charges of $392 for the year ended December 28, 1999, $419 for the year ended
December 29, 1998 and $2,139 for the year ended December 30, 1997 were recorded
to recognize the write-down of certain property, plant and equipment to
estimated fair value, based on expected future cash flows.

START-UP AND CLOSING COST OF RESTAURANTS - Start-up and preopening costs
incurred in connection with a new restaurant becoming operational are expensed
as incurred.

When the decision to close a restaurant is made, the present value of all fixed
and determinable costs to be incurred after operations cease is accrued. These
fixed and determinable costs consist primarily of obligations defined in lease
agreements such as rent and common area maintenance, reduced by sublease income,
if any.


                                 F-8
<PAGE>


ADVERTISING COSTS - Advertising costs are expensed as incurred. Total
advertising expense was $4,257, $3,777 and $3,455 for the years ended December
28, 1999, December 29, 1998 and December 30, 1997, respectively.

STOCK-BASED COMPENSATION - The Company has adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123") which permits the recognition as expense over the vesting period the fair
value of all stock based awards on the date of grant. Alternatively, under the
provisions of SFAS 123, the Company is allowed to continue accounting for such
compensation as provided by Accounting Principles Board ("APB") Opinion No. 25.
The Company has elected to continue to apply the provisions of APB Opinion No.
25 and provide proforma disclosure provisions of SFAS 123.

UNFAVORABLE LEASES - For leases acquired through purchase, the net excess of
future lease payments over the fair value of these payments is being amortized
over the terms of the leases to which the differences relate.

INCOME TAXES - The Company accounts for income taxes 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. 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.

INCOME PER SHARE - Basic earnings per share is computed by dividing earnings
available to common stockholders by the weighted average number of shares
outstanding during the year. Diluted earnings per share is computed by dividing
earnings available to common stockholders by the weighted average number of
shares outstanding plus the number of additional shares that would have been
outstanding if potentially dilutive securities had been issued. The following
table reconciles the denominators of basic and diluted earnings per share for
the fiscal years ended December 28, 1999, December 29, 1998 and December 30,
1997.

<TABLE>
<CAPTION>
                              December 28, 1999  December 29, 1998  December 30, 1997
                              -----------------  -----------------  -----------------
<S>                           <C>                <C>                <C>
Weighted average common
      shares outstanding          9,757,123          9,735,805          9,734,827
Options                              43,426                  -                  -
Warrants                                  -                  -                  -
                                  ---------          ---------          ---------
Total shares                      9,800,549          9,735,805          9,734,827
                                  ---------          ---------          ---------
                                  ---------          ---------          ---------
</TABLE>

For fiscal year 1999, 382,415 options and 512,246 warrants were not included
in the computation of diluted earnings per share because their exercise price
was greater than the average market price of the common shares and therefore,
the effect would be anti-dilutive.

For fiscal years 1998 and 1997, outstanding options totaling 515,665 and
10,666, respectively, and outstanding warrants totaling 523,382 and 535,130,
respectively, were not included in the computation of diluted earnings per
share due to their antidilutive effect as a result of the Company's net loss
in each of those years.

USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of certain assets, liabilities,
revenues and expenses as of and for the reporting periods and actual results may
differ from such estimates.

RECLASSIFICATION - Certain amounts in the prior year financial statements have
been reclassified to conform with current year classification.

2.   RESTRUCTURING

On January 25, 1995, the Company announced that it had entered into an Agreement
in Principle dated as of January 24, 1995 (the "Agreement in Principle") among
the Company, its subsidiaries, the holders of the 11% Notes of the Partnership
(the "11% Noteholders"), the holder of the 9% Note of Cavalcade Foods (both as
defined below), the Trustees of General Electric Pension Trust ("GEPT"), and
Kmart Corporation ("Kmart").

The Agreement in Principle provided for (i) the exchange of an aggregate of
approximately $249,344 of debt of the Partnership for the issuance of $40,000
principal amount of new senior secured notes of the Partnership due 2001
pursuant to a new indenture and 95% of the limited partner interest of the
Partnership, (ii) the exchange of warrants to purchase an aggregate of
approximately 21.5% of the Company's common stock for options to acquire an
aggregate of 95% of a new class of common stock of the Company ("Common Stock")
and new five year warrants to purchase an aggregate of 1% of the fully diluted
Common Stock, (iii) the exchange of $6,117 of other obligations of the
Partnership for the issuance of $1,700 principal amount of new senior secured
notes of the Partnership due 2001 pursuant to a new indenture, (iv) the exchange
of $11,737 of debt of Cavalcade Foods, Inc., an indirect


                                   F-9
<PAGE>


subsidiary of the Company ("Foods"), for options to acquire 2.5% of the
Common Stock and an interest in certain land owned by a subsidiary of the
Company and (v) the exchange of the Company's outstanding shares of Class A
Common, Class B Common and Convertible Preferred Stock for an aggregate of
2.5% of the Common Stock and five year warrants to purchase an aggregate of
4% of the fully diluted Common Stock (together, the "Restructuring").

On March 2, 1995, the Company announced that the Independent Committee of the
Board and the full Board of Directors had unanimously determined to recommend
the following allocation of the aggregate consideration offered to existing
equity holders in the Agreement in Principle: (i) Holders of Convertible
Preferred Stock would receive 1.15 shares of Common Stock (representing a 39%
premium to the conversion ratio for the Convertible Preferred Stock) and 2.04
warrants to purchase Common Stock for each share of Convertible Preferred
Stock held by them; (ii) holders of Class A Common Stock would receive 1.00
share of Common Stock and 1.78 warrants to purchase Common Stock for each
share of Class A Common Stock held by them; and (iii) holders of Class B
Common Stock would receive 0.95 shares of Common Stock (representing a 5%
discount to the conversion ratio for the Class B Common Stock) and 1.69
warrants to purchase Common Stock for each share of Class B Common Stock held
by them. All dividend arrearages on the Convertible Preferred Stock and the
self tender offer obligation would be eliminated in the proposed restructuring.
The Board members also informed the Company that they intended to vote their
shares in favor of the proposed restructuring. The proposed restructuring was
subject to, among other things, the approvals of the Company's Board of
Directors, stockholders and creditors and the negotiation and execution of
definitive documentation.

The Restructuring became effective upon approval of the stockholders at a
meeting held January 2, 1996.

The Restructuring has been accounted for in accordance with Statement of
Financial Accounting Standards No. 15 "Accounting by Debtors and Creditors for
Troubled Debt Restructurings" ("SFAS 15"), under which the transactions include
both a partial settlement and modification of terms. The fair value of the
Common Stock and warrants issued in connection with the Restructuring was
estimated based upon discounted cash flows anticipated from the reorganized
business and was recorded as partial settlement of the indebtedness. The
remaining indebtedness was recorded at the sum of all future principal and
interest payments and, accordingly, interest expense is no longer recognized on
the restructured debt. The amounts of indebtedness subject to modification in
excess of the amount recorded in accordance with SFAS 15 was recorded in the
1995 fiscal year as an extraordinary gain, net of all expenses associated with
the Restructuring.

The amount of par value that was previously recorded for the Class A Common
Stock, Class B Common Stock and Convertible Preferred Stock was reclassified to
additional paid-in capital and the Common Stock issued upon conversion of such
shares was recorded at their aggregate par value. The Company's obligation to
make the $8,000 self tender offer was eliminated and this amount was
reclassified to additional paid-in capital.

As of the consummation of the Restructuring, the Company owned less than 50% of
the limited partnership interests of the Partnership at January 2, 1996, and as
a result, the Partnership would no longer be included in the Company's
consolidated financial statements. However, subsequent to year end, the holders
of the limited partnership interests exercised their put option and, on March
28, 1996, exchanged their limited partnership interests for Common Stock of the
Company. On March 22, 1996, the Company effected a 15-to-1 reverse stock split.
As a result of the materiality of this series of financial restructuring
transactions, the Partnership is included in the consolidated financial
statements for all years presented.


                                   F-10
<PAGE>


3.   OTHER PAYABLES AND ACCRUED EXPENSES

Included in other payables and accrued expenses are the following:

<TABLE>
<CAPTION>
                                                December 28,     December 29,
                                                   1999              1998
                                                ------------     ------------
     <S>                                        <C>              <C>
     Taxes other than income taxes                $ 3,556          $ 4,065
     Salaries, wages and commissions                4,472            4,048
     Insurance                                      3,777            3,980
     Legal and accounting expenses                  1,535            2,040
     Rent                                             988            1,056
     Gift certificates outstanding                  1,077            1,031
     Utilities                                        870              534
     Other payables and accrued expenses              834              549
                                                ------------     ------------
                                                  $17,109          $17,303
                                                ------------     ------------
                                                ------------     ------------
</TABLE>

4.   LONG-TERM DEBT

Effective January 2, 1996, as part of the series of financial restructuring
transactions described in Note 2, the Partnership issued $41,700 of 12% Senior
Secured Notes, due December 31, 2001 (the "12% Notes"), to replace $40,000 of
11% Senior Secured Notes, due June 30, 1998 (the "11% Notes") and the interest
accrued thereon and to terminate a $5,408 judgment and the interest accrued
thereon. In January 1996, the Partnership also issued $4,073 of 12% Notes as
payment in kind for all interest accrued as of January 23, 1996. All of the
assets of the Partnership are pledged as collateral security on behalf of the
holders of the 12% Notes. The Partnership also issued limited partner interests
equal to 95% of the outstanding partnership interests in exchange for and in
full satisfaction of the remaining $152,854 of 11% Notes, together with all
interest accrued thereon.

Payments of interest on the 12% Notes are due each March 31 and September 30.
However, for financial accounting reporting purposes, no interest expense will
be recorded under SFAS 15, as all of the interest through maturity has been
recorded as a liability.

Effective January 2, 1996, as part of the Restructuring, Foods issued a 10%
Non-recourse Note in the amount of $2,000, due December 31, 2001 (the
"Non-recourse Note"), a $6,100 note payable (the "Option Note") and a $1,500
note payable (the "Remaining Note") to Wells Fargo Bank in exchange for and in
full satisfaction of the $9,599 outstanding under the 9% Note, due June 30, 1998
(the "9% Note") together with all interest accrued thereon. Certain land pledged
as collateral on the Non-recourse Note was sold during 1996 and the proceeds
were used to retire the Non-recourse Note. An option to purchase 2.5% of the
Common Stock of the Company was pledged as collateral on the Option Note. Wells
Fargo foreclosed on the Option Note and exercised its option to purchase 2.5% of
the Common Stock of the Company by transferring the Remaining Note to the
Company as payment.

Effective December 30, 1997, as part of the payment of the cost of
indemnification related to the litigation described in Note 8, the Partnership
recorded $2,551 of 10.5% Notes, due December 31, 2001. Payments of interest on
these notes are due each June 30 and December 31.


                                    F-11
<PAGE>


Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                               Stated
                                                              Maturity       December 28,       December 29,
                                                                Date                 1999               1998
                                                              --------       ------------       ------------
     <S>                                                      <C>            <C>                <C>
     12% Notes, including interest accrued through
     maturity of $12,389 and $17,882, respectively              2001           $ 58,161           $ 63,654
     10.5% Notes                                                2001              2,551              2,551
                                                                               --------           --------
                                                                                 60,712             66,205

     Current maturities of long-term debt                                        (5,493)            (5,493)
                                                                               --------           --------
     Long-term debt                                                            $ 55,219           $ 60,712
                                                                               --------           --------
                                                                               --------
</TABLE>

At December 28, 1999, the scheduled aggregate amount of all maturities of
long-term debt and interest classified as long-term debt are as follows:

<TABLE>
<CAPTION>
                                          <S>      <C>
                                          2000     $  5,493
                                          2001       55,219
                                                   --------
                                                   $ 60,712
                                                   --------
                                                   --------
</TABLE>

5.   STOCKHOLDERS' EQUITY

COMMON STOCK WARRANTS - At December 28, 1999, warrants to purchase 512,245
shares of Common Stock at $5.55 per share were outstanding, including warrants
to purchase shares held by Kmart.

THE 1995 STOCK OPTION PLAN - The Board of Directors adopted, and on January 2,
1996, the stockholders approved the 1995 Stock Option Plan (the "1995 Option
Plan"). The number of shares reserved under the 1995 Option Plan, after
equitable adjustment for the reverse stock splits approved by stockholders on
May 20, 1999 and March 14, 1996 is 780,544. A Committee of the Board of
Directors administers the 1995 Option Plan, including determining the employees
to whom awards will be made, the size of such awards and the specific terms and
conditions applicable to awards, such as vesting periods, circumstances of
forfeiture and the form and timing of payment. Grants including stock options,
stock appreciation rights and restricted stock may be made to selected employees
of the Company and its subsidiaries and non-employee directors of the Company.

Pursuant to the provisions of the 1995 Option Plan adjusted for the reverse
stock splits, on November 22, 1996, May 30, 1997 and May 28, 1998, options to
purchase 1,333 shares of Common Stock were issued to each non-employee director
of the Company and on June 18, 1998, options to purchase 20,000 shares of Common
Stock were issued to each non-employee director of the Company. On September 27,
1998, options to purchase 150,000 shares of Common Stock were issued to Phillip
Ratner, President and Chief Executive Officer of the Company. On December 8,
1998, options to purchase 211,000 shares of Common Stock were issued to 139
employees. On February 23, 1999, options to purchase 40,000 shares of Common
Stock were issued to newly appointed non-employee directors of the Company. On
March 15, 1999, options to purchase 5,000 shares of Common Stock were issued to
4 employees. On June 18, 1999, options to purchase 13,000 shares of Common Stock
were issued to 12 employees. On July 28, 1999 options to purchase 50,000 shares
of Common Stock were issued to Paul G. Hargett, Executive Vice President and
Chief Financial Officer of the Company. On December 24, 1999, options to
purchase 52,000 shares of Common Stock were issued to 146 employees.


                                   F-12
<PAGE>

Following is a summary of activity in the 1995 Option Plan for the three years
ended December 28, 1999:

<TABLE>
<CAPTION>
                                      Weighted Average
                                     Exercise Price Per           Options            Options
                                  Share-option Outstanding      Outstanding        Exercisable
                                  ------------------------      -----------        -----------
<S>                               <C>                           <C>                <C>
Balance at December 31, 1996                $5.00                   7,999
     Granted                                 6.81                 105,333
     Became exercisable                         -                       -              2,666
     Canceled or expired                     6.85                (102,666)              (889)
                                  ------------------------      -----------        -----------
Balance at December 30, 1997                 5.11                  10,666              1,777
     Granted                                 4.79                 610,332                  -
     Became exercisable                         -                       -              3,555
     Canceled or expired                     6.69                (105,333)            (2,666)
                                  ------------------------      -----------        -----------
Balance at December 29, 1998                 5.02                 515,665              2,666
     Granted                                 3.87                 160,000                  -
     Became exercisable                         -                       -            162,555
     Canceled or expired                     8.86                 (29,000)                 -
                                  ------------------------      -----------        -----------
Balance at December 28, 1999                 4.70                 646,665            165,221
                                  ========================      ===========        ===========
</TABLE>

Exercise prices for options outstanding as of December 28, 1999, ranged from
$3.00 to $5.94 per share and the weighted average remaining life of the stock
options was 9 years. The options exercisable as of December 28, 1999 have a
weighted average exercise price of $4.96 per share.

The Company has elected to follow APB 25, "Accounting for Stock Issued to
Employees." Since options are granted to employees at the market price on the
date of grant, no compensation expense is recognized. However, SFAS No. 123
requires presentation of pro forma net income and earnings per share as if the
Company had accounted for stock options granted to employees under the fair
value method of that statement. Had the Company determined compensation cost
based on the fair value at the grant date for its stock options issued in
1999 and 1998 under SFAS No. 123, the Company's net profit (loss) would have
been changed to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                          December 28, 1999                       December 29, 1998
                                                    ------------------------------          -------------------------------
                                                        As                 Pro                  As                   Pro
                                                     reported             forma              reported               forma
                                                    ----------          ----------          ----------           ----------
<S>                                                 <C>                 <C>                 <C>                  <C>
Net income (loss)                                   $   31,262          $   30,403          $   (1,229)          $   (1,460)
Net income (loss) per basic common share            $     3.20          $     3.12          $    (0.13)          $    (0.15)
Net income (loss) per diluted common share          $     3.19          $     3.10          $    (0.13)          $    (0.15)

</TABLE>

The impact on net income of options issued in 1997 is not material to the
Company's consolidated results of operations.

                                    F-13
<PAGE>

The weighted average fair value of the individual options granted during 1999
and 1998 is estimated at approximately $4.03 and $2.60, respectively, per
share on the date of grant.

The fair values of options issued during 1999 and 1998 were determined using a
Black-Scholes option pricing model with the following assumptions applicable for
the date of grant:

<TABLE>
<CAPTION>
                                     1999                             1998
                                     ----                             ----
<S>                              <C>                             <C>
Dividend yield                         -                               -
Volatility                         97% to 139%                   105% to 127%
Risk-free interest rate          4.75% to 6.08%                  4.65% to 5.61%
Expected life                      3 years                          3 years

</TABLE>

6.   INCOME TAXES

Following is a reconciliation of the expected tax expense (benefit) at the
statutory tax rate of 35% to the actual tax expense (benefit) for the fiscal
years ended December 28, 1999, December 29, 1998 and December 30, 1997:

<TABLE>
<CAPTION>
                                                          December 31,       December 29,      December 30,
                                                             1999               1998               1997
                                                          ------------       ------------      ------------
<S>                                                       <C>                <C>               <C>
Expected tax (benefit) at the statutory tax rate          $  2,606           $   (430)          $ (1,889)
Reduction in prior year's income tax liability(A)           (2,969)
Earnings from subsidiary sold in 1997                                                               (501)
Interest expense recorded as debt reduction per
     SFAS 15                                                (1,922)            (1,922)            (1,922)
Increase (decrease) in valuation allowance                 (21,546)             2,344              4,179
Other                                                           16                  8                133
                                                          ------------       ------------      ------------
Actual tax (benefit)                                      $(23,815)          $      -           $      -
                                                          ============       ============      ============

</TABLE>

(A) During fiscal 1999, the company settled a prior year Internal Revenue
Service examination and reversed an income tax liability of $2.9 million
which had been previously recorded for issues related to the examination.

                                  F-14
<PAGE>

Following is a summary of the types and amounts of existing temporary
differences and net operating loss carry forwards at the statutory tax rate of
35%, and tax credits:

<TABLE>
<CAPTION>
                                                                 December 28, 1999                    December 29, 1998
                                                                    Deferred Tax                         Deferred Tax
                                                              ---------------------------          ---------------------------
                                                              Assets          Liabilities           Assets         Liabilities
                                                              --------        -----------          --------        -----------
<S>                                                           <C>             <C>                  <C>             <C>
Net operating loss carryforward                               $ 42,426                             $ 41,392
Tax credits carryforward                                         1,377                                1,377
Reserve for store closing for
         financial statement purposes
         and not for tax purposes                                1,177                                1,608
Other reserves                                                   1,944                                3,101
Excess of future lease payments over fair
         values, net of amortization                               381                                  566
Property, plant and equipment, net                               8,652                                8,522
Other temporary differences                                                      $  -                 3,005            $  -
                                                              --------        -----------          --------        -----------
Deferred tax assets and liabilities                             58,871           $  -                59,571            $  -
                                                                              ===========                          ===========
Valuation allowance                                            (38,025)                             (59,571)
                                                              --------                             --------
Deferred tax asset, net                                       $ 20,846                             $      -
                                                              ========                             ========
</TABLE>

As of December 28, 1999, the Company has consolidated net operating loss
carryforwards of approximately $121,217 for income tax reporting purposes that
expire from 2000 through 2014. Prior to fiscal 1999, the income tax benefit
associated with the loss carryforwards had not been recognized since, in the
opinion of management, there was not sufficient positive evidence of future
taxable income to justify recognition of a benefit. During 1999, management
again evaluated all evidence, both positive and negative, in determining whether
a valuation allowance to reduce the carrying value of deferred tax assets was
still needed and concluded the company more likely than not will realize a
partial benefit from the loss carryforwards. Accordingly, the Company recorded a
deferred tax asset of $20,846 in fiscal 1999. Approximately $3,700 and $11,400
of the operating loss carryforwards for income tax reporting purposes, which are
subject to limited use, relate to the subsidiary operations of Cavalcade
Holdings, Inc. ("Holdings") and its subsidiary, Cavalcade Foods, Inc. ("Foods"),
respectively, for periods prior to their inclusion in this Company-affiliated
group.

Current tax laws and regulations relating to specified changes in ownership
limit the availability of the Company's utilization of Holdings' and Foods' net
operating loss and tax credit carryforwards (collectively, tax attributes). A
change in ownership of greater than 50% of a corporation within a three-year
period causes such annual limitations to be placed into effect. Such a change in
ownership is deemed to have occurred on June 24, 1993, when KL Group acquired
1,119,151 Class B Common shares and an option to purchase nearly all of the
remaining Class B Common shares of the Company. This ownership change limits the
utilization of the Company-affiliated group tax attributes incurred during the
period March 28, 1991 through June 24, 1993 to approximately $1,200 annually.
Additionally, a second change of ownership is deemed to have occurred on March
28, 1996, when the holders of 95% of the limited partner interest of the
Partnership exchanged such interest for 95% of the outstanding Common Stock of
the Company. As a result, net operating losses of $53,000 incurred during the
period June 25, 1993 through March 28, 1996 will be limited to approximately
$4,900 annually. As of December 28, 1999, the Company-affiliated group tax
attributes not subject to limitation are approximately $27,556.

As of December 28, 1999, the Company has general business credit carryforwards
of approximately $1,377 which have expiration dates through 2010. Approximately
$74 of the general business credit carryforwards relate to Foods for periods
prior to its inclusion in the Company-affiliated group. These credits are
subject to limited use.

While the Restructuring transactions were intended to result in no income tax
expense to the Company, the transactions result in a substantial restriction on
the ability of the Company to utilize certain net operating loss carryforwards.
In addition, no assurance can be given that the Internal Revenue Service will
not successfully assert that the Recapitalization results in a substantial
reduction of certain tax attributes (such as the net operating losses and tax
basis of property) of the Company and the other partners of the partnership.

                                  F-15
<PAGE>


7.   EMPLOYEE BENEFIT PLANS

The Company has a noncontributory defined benefit pension plan for which benefit
accruals were frozen effective June 30, 1989. The funding policy is to make the
minimum annual contribution required by applicable regulations.

The Company is subject to the additional minimum liability requirements of
Statement of Financial Accounting Standards No. 87, "Employers' Accounting
for Pensions" ("SFAS 87"). SFAS 87 requires the recognition of an additional
pension liability in the amount of the Partnership's unfunded accumulated
benefit obligation in excess of accrued pension cost with an equal amount to
be recognized as either an intangible asset or a reduction of equity. Based
upon plan actuarial and asset information as of December 28, 1999, December
29, 1998 and December 30, 1997, the Company recorded a decrease of $1,129 in
1999, an increase of $353 in 1998 and a decrease of $350 in 1997 to the
noncurrent pension liability with corresponding charges or credits to other
comprehensive income (loss).

                                     F-16
<PAGE>


The funded status of the plan amounts recognized in the balance sheets and major
assumptions used to determine these amounts are as follows:

<TABLE>
<CAPTION>
                                                                                          Years Ended
                                                                      ----------------------------------------------------
                                                                      December 28,        December 29,        December 30,
                                                                              1999                1998                1997
                                                                      ------------        ------------        ------------
<S>                                                                   <C>                 <C>                 <C>
Accumulated benefit obligation at end of year                             $ 16,218            $ 18,207            $ 12,603
                                                                      ------------        ------------        ------------
                                                                      ------------        ------------        ------------
Change in benefit obligation
         Benefit obligation at beginning of year                          $ 18,207            $ 12,603            $ 11,948
         Service cost                                                            -                   -                   -
         Interest cost                                                       1,066                 832                 859
         Actuarial (gain) loss                                              (2,099)              1,027                 891
         Benefits paid                                                      (1,031)             (1,170)             (1,095)
         Cost of IRS and litigation settlements                                 75               4,915
                                                                      ------------        ------------        ------------
         Benefit obligation at end of year                                  16,218              18,207              12,603
                                                                      ------------        ------------        ------------
Change in plan assets
         Fair value of plan assets at beginning of year                     12,795              11,808              10,803
         Actual return on plan assets                                          (39)              1,407               1,848
         Employer contribution                                                   -                  50                 251
         Kmart contribution to IRS and
            litigation settlement                                               75                 700                   -
         Benefits paid                                                      (1,031)             (1,170)             (1,094)
                                                                      ------------        ------------        ------------
         Fair value of plan assets at end of year                           11,800              12,795              11,808
                                                                      ------------        ------------        ------------
Funded status                                                               (4,418)             (5,412)               (795)

Unrecognized net loss from past experience different
     from that assumed and effects of changes in
     assumptions                                                             1,728               2,857               2,504

Unrecognized prior service cost                                                  -                   -                   -
                                                                      ------------        ------------        ------------
Net amount recognized                                                     $ (2,690)           $ (2,555)           $  1,709
                                                                      ------------        ------------        ------------
                                                                      ------------        ------------        ------------
Amounts recognized in the consolidated balance sheet consist of:
         Accrued benefit cost                                             $ (4,418)           $ (5,412)           $   (795)
         Accumulated other comprehensive loss                                1,728               2,857               2,504
                                                                      ------------        ------------        ------------
         Net amount recognized                                            $ (2,690)           $ (2,555)           $  1,709
                                                                      ------------        ------------        ------------
                                                                      ------------        ------------        ------------

Major assumptions:

Discount rate                                                                 7.25%               6.50%               7.00%
Expected long-term rate of return on plan assets                              9.00%               9.00%               9.00%

</TABLE>


                                           F-17
<PAGE>


The components of net periodic pension cost for the years ended December 28,
1999, December 29, 1998 and December 30, 1997 are as follows:

<TABLE>
<CAPTION>
                                                                 1999              1998              1997
                                                                 ----              ----              ----
     <S>                                                       <C>               <C>               <C>
     Service cost - benefits earned during the period          $     -           $     -           $     -
     Interest cost on projected benefit obligation               1,066               832               859
     Expected return on plan assets                             (1,035)             (886)             (806)
     Amortization of prior service cost                              -                 -                 -
     Amortization of transition asset                                -                 -                 -
     Recognized actuarial loss                                     125               150               197
                                                               -------           -------           -------
     Net periodic pension cost                                     156                96               250
     Cost of IRS and litigation settlements
              (net of Kmart contribution)                            -             4,215                 -
                                                               -------           -------           -------
     Total pension cost                                        $   156           $ 4,311           $   250
                                                               -------           -------           -------
                                                               -------           -------           -------
</TABLE>

The Company also has a voluntary savings plan (the "401(k) plan") covering all
eligible employees of the Company and its subsidiaries through which it may
contribute discretionary amounts as approved by the Board of Directors.
Administrative expenses paid by the Company for the years ended December 28,
1999, December 29, 1998 and December 30, 1997 amounted to $19, $8 and $8,
respectively.

8.   COMMITMENTS AND CONTINGENCIES

The Partnership leases restaurant properties under various noncancelable
operating lease agreements which expire on various dates through 2015 and
require various minimum annual rentals. Certain leases contain escalation
clauses. Further, many leases have renewal options ranging from one five-year
period to ten five-year periods. Certain of the leases also require the payment
of property taxes, maintenance charges, advertising charges, insurance and
parking lot charges, and additional rentals based on percentages of sales in
excess of specified amounts.

In 1993, the Company entered into an amendment of a master sublease agreement
pursuant to which it leased 43 properties from Kmart Corporation ("Kmart").
Pursuant to the amendment, the aggregate monthly rent was reduced by 25 percent
for the period from the effective date of the amendment through and including
December 31, 1997, and by 20 percent following that date and until December 31,
2001. The reductions in rent were made subject to termination by Kmart if Mr.
Kevin Lewis ceased to be Chairman of the Board of Directors of the Company.
Mr. Lewis was not nominated for reelection at the Company's Annual Meeting of
Stockholders on May 28, 1998. In June 1998, Kmart demanded that the Company
pay increased rents, which the Company has done while reserving its right to
dispute Kmart's right to receive the increased rental. As a result of the
increased rents, the Company will pay additional rent of approximately $1,800
through December 31, 2001, including $1,200 additional rent paid in 1999.
Because the Company accounts for its rental payments under the straight-line
method, the purported increase in rent through December 31, 1999 is being
amortized over the remaining life of the leases, which run through December
31, 2003, December 31, 2007, June 29, 2008 and December 31, 2008. The
increase in annual rent expense amounted to approximately $288 for fiscal
1999 and for the fiscal 2000 will amount to approximately $288. In
consideration for these lease term modifications, the Company granted Kmart
warrants to purchase 1.7 million shares of Class A Common Stock of the
Company on or before September 1, 2003, at $0.75 per share. As a part of the
Restructuring, effective January 2, 1996, these warrants were terminated and
replaced with warrants to purchase 8,108,159 shares of Common Stock on or
before January 2, 2001, at $0.074 per share, and following the reverse stock
splits in 1996 and 1999, Kmart retained warrants to purchase 108,109 shares
at $5.55 per share.

                                   F-18
<PAGE>


The total minimum annual rental commitment and future minimum sublease rental
income under noncancelable operating leases are as follows as of December 28,
1999:

<TABLE>
<CAPTION>
                                                Minimum                   Sublease
                                                Rent                      Income
                                                -------                   --------
<S>                                             <C>                       <C>
                 2000                           $10,771                      $927
                 2001                            10,262                       850
                 2002                             9,832                       650
                 2003                             7,423                       501
                 2004                             6,992                       492
For the remaining terms of the leases            26,559                     1,238

</TABLE>

         Total rental expense included in the statements of operations is
$10,881, $10,659 and $11,036, which includes $980, $1,075 and $1,029 of
additional rent based on net sales, for the years ended December 28, 1999,
December 29, 1998 and December 30, 1997, respectively. The results of operations
include sublease rent income of $904, $899 and $800 for the years ended December
28, 1999, December 29, 1998 and December 30, 1997, respectively.

         The Company, in the ordinary course of business, is a party to various
legal actions. In the opinion of management, these actions ultimately will be
disposed of in a manner which will not have a material adverse effect upon the
Company's equity, results of operations, and liquidity and capital resources
after consideration of the applicable amounts previously accrued.

         On August 11, 1995, a complaint was filed in the District Court of
Travis County, Texas by the former Chairman of the Board of the Company, Michael
J. Levenson, both individually and on behalf of his minor son Jonathan Jacob
Levenson, James Rich Levenson, Benjamin Aaron Levenson, S.D. Levenson, General
Consulting Group, Inc. and Cerros Morado. The complaint named as defendants the
Company, the Partnership, Furr's/Bishop's Cafeterias, L.P., Cavalcade & Co.,
Inc. ("Cavalcade"), individual members of the Board of Directors, Houlihan,
Lokey, Howard & Zukin, Inc., KL Park Associates, L.P. ("KL Park"), KL Group,
Inc. ("KL Group"), Skadden, Arps, Slate, Meagher & Flom, certain of the then
current and former 11% Noteholders, Deloitte & Touche LLP, Kmart and certain
partners and employees of the foregoing, alleging, among other things, that the
Company and certain defendants conspired to wrest control of the Company away
from the Levensons by fraudulently inducing them to transfer their working
control of the Company through a series of transactions in which the Levensons
transferred Class B Common Stock and stock options in the Company to KL Park and
KL Group.

         In July 1997, the Company reached a settlement of the litigation, in
which all settling defendants, including its current and former directors and
officers, the Partnership, Furr's/Bishop's Cafeterias, L.P. and Cavalcade,
received mutual releases with respect to all matters alleged in the litigation
and the Partnership made a payment to the plaintiffs of a net amount of
approximately $275.

         The Company was required to indemnify certain of the defendants
originally named in the Levensons' complaint, including the individual members
of the Board of Directors and certain of their affiliated entities, pursuant to
the Company's Certificate of Incorporation and otherwise, for any and all
damages resulting from such complaint. As part of the restructuring of the 11%
Notes, the Company also agreed to indemnify certain parties named as defendants
in the Levensons' complaint, including the holders of the 11% Notes, KL Group,
KL Park and Kmart, from and against all claims, actions, suits and other legal
proceedings, damages, costs, interest, charges, counsel fees and other expenses
and penalties which such entity may sustain or incur to any person whatsoever
(excluding judgments in the case of KL Group and KL Park) by reason of or
arising out of the Levenson litigation. Under no circumstances was the Company
to be obligated to indemnify any party for any liability resulting from such
party's willful misconduct or bad faith. During 1997, the Company recorded
special charges against results of operations aggregating $4,900 to recognize
the estimated cost of such indemnification. The Company negotiated agreements
with each of the parties whose indemnity claim was outstanding at the end of
1997 and during fiscal 1998 either made cash payments or issued 10.5% unsecured
notes (see Note 4) in satisfaction of such claims.

         The Company and certain of its subsidiaries, the Cavalcade Pension
Plan, the Cavalcade Pension Plan Committee, Kmart Corporation and its pension
plan and Michael Levenson have since 1996 been defendants in a lawsuit brought
against them in U.S. District Court in Denver, Colorado by Robert H. Aull
("Plaintiff"), a former employee of the Company and a participant in the
Cavalcade Pension Plan. The Plaintiff's allegations (all of which are disputed
by the defendants in the case) included: (i) that accrued


                                  F-19
<PAGE>

benefits under the Cavalcade Pension Plan were improperly reduced during the
period from 1988 to 1993, (ii) the "freeze" of the Plan on June 30, 1989 was
improper, (iii) an insufficient amount of assets was transferred from the
Kmart Corporation pension plan to the Cavalcade Pension Plan in connection
with the acquisition of the Company from Kmart effected by Mr. Levenson and
his affiliates in 1988 and (iv) rent concessions allowed to the Company by
Kmart commencing in 1993 constituted prohibited transactions that bestowed
illegal benefits upon the Company and Mr. Lewis.

         In 1998 the Company, the Cavalcade Pension Plan, the members of the
Cavalcade Pension Plan Committee, Kmart Corporation and its pension plan agreed
to settle the litigation (the "Settlement"). In December 1999 the Settlement was
approved by the court as "fair" to all members of the plaintiff class after
notice to all purported class members, and the litigation was dismissed with
prejudice.

         As a result of the settlement of the Aull litigation and the concurrent
resolution of an IRS audit of the Plan that focused on substantially identical
issues, the Company recognized a special charge of $5,786 in the fourth quarter
of 1998, of which approximately $2,200 related to resolution of the IRS audit.

         The anticipated cash impact of the settlement on the Company includes
payment in 2000 of approximately $1,500 of expenses for legal and professional
fees, with the remainder of the settlement to be paid to the Plan in future
years to fund increased benefit payments to former and current employees. The
settlement will not require any funding payments to the Plan by the Company in
2000 but is expected to require payments by the Company to the Plan of
approximately $1,700 in 2001 and approximately $850 in 2002, with additional
funding payments required in subsequent years in amounts that are expected to
decline over time, subject to the overall funding status of the Plan. Kmart
Corporation's pension plan has transferred $700 to the Cavalcade Pension Plan to
fund a portion of the additional benefits required by the Agreement. Management
does not believe that payment of these amounts in 2000 and subsequent years will
have a material adverse effect on the Company's planned operations.

         The Company, in July 1998, filed a declaratory judgment lawsuit in
State District Court in Lubbock, Texas, in which it asks the Court to find that
the Company is not obligated to make severance payments that have been demanded
by Theodore Papit, the former President and Chief Executive Officer of the
Company. Mr. Papit resigned effective May 29, 1998, following the election at
the Company's annual meeting of stockholders of a slate of directors proposed by
Teacher's Insurance and Annuity Association of America ("TIAA"), the Company's
largest stockholder at that time. He subsequently demanded payment of more than
$500 of severance and other amounts that he claimed were owing to him under a
President and Chief Executive Officer Agreement dated March 23, 1998. This
agreement was approved by a split vote of the Board of Directors after TIAA had
publicly announced that it might take action affecting the control of the
Company. The Company has requested a jury trial and believes that there are a
number of grounds that will support the Court in granting the requested relief,
among them being that the Agreement is void as an interested party transaction
that did not receive the necessary approval of independent, disinterested
directors, the terms of the Agreement are not fair to the Company and the
Agreement was entered into by the Company without the benefit of full disclosure
by Mr. Papit and consideration by the Board of Directors of material information
regarding his management of the Company.


                                    F-20
<PAGE>


9.    QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                                                   Thirteen Weeks Ended
                                             -------------------------------------------------------------
                                             March 30          June 29       September 28      December 28
                                             --------          -------       ------------      -----------
<S>                                          <C>               <C>           <C>               <C>
Year ended December 28, 1999:
         Sales                                $46,003          $47,196          $47,788          $47,073
         Gross profit (1)                      32,103           33,008           33,000           32,938
         Net income (2)                         1,306            1,231            2,339           26,386
         Net income per common share             0.13             0.13             0.24             2.70

</TABLE>

<TABLE>
<CAPTION>
                                                                  Thirteen Weeks Ended
                                             -------------------------------------------------------------
                                              March 31         June 30       September 29      December 29
                                              --------         -------       ------------      -----------
<S>                                           <C>              <C>           <C>               <C>
Year ended December 29, 1998:
Sales                                         $46,212          $48,032          $48,011          $45,953
Gross profit (1)                               32,461           33,606           33,655           31,847
Net income (loss) (2)                           2,024            1,519            2,003           (6,775)
Net income (loss) per common share               0.20             0.14             0.19            (0.70)

</TABLE>

         (1)      Gross profit is computed using cost of sales including
                  depreciation expense.
         (2)      See Note 13 Special Charges and Credits

10.      OTHER RELATED PARTY TRANSACTIONS

         On June 7, 1996, the Company, Cafeteria Operators, L.P. and Kevin E.
Lewis entered into the Consulting and Indemnity Agreement and General Release
(the "Consulting Agreement") pursuant to which, among other things, Mr. Lewis
would resign as President and Chief Executive Officer effective September 30,
1996 and would resign his position as Chairman of the Board on December 31,
1996, unless requested by the Board of Directors to continue until December 31,
1997. In September 1996, at the request of the Board of Directors, Mr. Lewis
agreed to remain President and Chief Executive Officer beyond September 30, 1996
with no change to the financial terms of the Consulting Agreement. Mr. Lewis
subsequently resigned as President and Chief Executive Office effective December
31, 1996 and the Board requested Mr. Lewis to continue as Chairman of the Board
into 1997. After his resignation as President and Chief Executive Officer, Mr.
Lewis served as a consultant to the Company until December 31, 1997. In October
1997, Mr. Lewis agreed to remain Chairman of the Board beyond December 31, 1997
until at least May 31, 1998 and in November 1997, Mr. Lewis was paid $50 in
consideration for his agreement to remain Chairman of the Board through at least
May 31, 1998. In addition, the Company agreed to pay Mr. Lewis $7.5 per month
during the period after December 31, 1997 that he acted as Chairman of the
Board. At the request of Mr. Lewis, this payment was reduced to $2.5 per month
effective April 1, 1998.

         Effective January 1, 1997, Kenneth Reimer, a director of the Company
from January 1996 to May 1998, assumed the duties of President and Chief
Executive Officer of the Company on an interim basis. Mr. Reimer received $100
for serving in this capacity until March 27, 1997, at which time the Board named
Theodore J. Papit as his permanent replacement.

         In 1996 and 1997, Cactus Enterprises, Inc., a company wholly owned by
Kenneth Reimer, performed certain management consulting services for the Board.
Total fees and expenses paid were approximately $8, $4 and $68 in 1998, 1997 and
1996, respectively.

         Pursuant to an Interim Manager Agreement, as amended, (the "Hopgood
Agreement") effective June 1, 1998, between Suzanne Hopgood, Chairman of the
Board of Directors, and the Company, Ms. Hopgood agreed to serve as Interim
Chief Executive Officer. Ms. Hopgood received $90 during 1999 and $320 in
1988 for serving in this capacity until September 27, 1998 and providing
other management consulting services relating to management transition, real
estate and finance matters through December 29, 1998.

         In settlement of the Company's indemnification obligations to the
persons listed below (the "Affiliated Indemnitees") with respect to the
Affiliated Indemnitees' Levenson litigation expenses, the Company entered into
release agreements with, and made the additional payments noted below to, each
of the Affiliated Indemnities. The Company (i) delivered to Teachers Insurance
and


                                     F-21
<PAGE>


Annuity Association of America as payee a promissory note dated January 14,
1998 in the principal sum of $756, (ii) delivered to The Northwestern Mutual
Life Insurance Company as payee a promissory note dated February 24, 1998 in the
principal sum of $488 and made a cash payment to The Northwestern Mutual Life
Insurance Company of $6, (iii) delivered to John Hancock Mutual Life Insurance
Company as payee a promissory note dated March 4, 1998 in the principal sum of
$476, (iv) made a cash payment to the Mutual Life Insurance Company of New York
of $218, (v) made a cash payment to Principal Mutual Life Insurance Company of
$175 and (vi) delivered to the Equitable Life Assurance Society of the United
States ("Equitable") as payee a promissory note dated March 23, 1998 in the
principal sum of $830. Each of the promissory notes is due on December 31, 2001
and bears interest at the rate of 10.5% per annum. Except for Equitable, each of
the Affiliated Indemnitees owned more than five percent of the Common Stock at
the time the agreements were signed. Equitable is an affiliate of EQ Asset Trust
1993, a business trust that owns more than five percent of the outstanding
Common Stock.


11.      FAIR VALUE OF FINANCIAL INSTRUMENTS

         The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107, "Disclosures About Fair Value of
Financial Instruments" ("SFAS 107"). The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies. However, considerable judgment is necessarily required
in interpreting market data to develop the estimates of fair value. Accordingly,
the estimates presented herein are not necessarily indicative of the amounts
that the Company could realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.

         At December 28, 1999 and December 29, 1998, the carrying amount and the
fair value of the Company's financial instruments, as determined under SFAS 107,
were as follows:

<TABLE>
<CAPTION>
                                                                             December 28,          December 29,
                                                                                 1999                  1998
                                                                             ------------          ------------
<S>                                                                          <C>                   <C>
Long-term debt, including current portion
and Interest accrued through maturity:
         Carrying amount                                                        $60,712               $66,205
         Estimated fair value                                                    48,324                48,324

</TABLE>

The Company's long-term debt is held by a limited number of holders and is not
actively traded, and as a result, market quotes are not readily available. The
fair value of the long-term debt at December 28, 1999 and December 29, 1998 is
based upon the face amount of the debt resulting from the Restructuring
described in Note 2, as management believes that this is most indicative of the
fair value. The carrying values of accounts receivable and accounts payable
approximate fair value due to the short maturity of these financial instruments.

12.      BUSINESS SEGMENTS

The Company has two reportable segments: the operation of cafeterias, including
food preparation and retail sales, and the operation of Dynamic Foods, which
purchases, processes, warehouses and distributes food products and supplies to
the cafeterias and external customers. These reportable segments are vertically
integrated business units that offer different products and services.

The accounting policies of the segments are the same as those in the summary of
significant accounting policies. The Company evaluates performance based on
profit or loss from operations before non-recurring special charges or credits
and before income tax provisions.


                                    F-22
<PAGE>


Following is a summary of segment information of the Company for the fiscal
years ended December 28, 1999, December 29, 1998 and December 30, 1997:

<TABLE>
<CAPTION>
                                                                 Cafeterias         Dynamic Foods             Total
                                                                 ----------         -------------           --------
<S>                                                              <C>                <C>                     <C>
1999:
External revenues                                                 $186,866             $  1,194             $188,060
         Intersegment revenues                                           -               59,731               59,731
         Depreciation and amortization                               9,360                  975               10,335
         Segment profit                                              7,518                  844                8,362
         Segment assets                                             75,793               13,670               89,463
         Expenditures for segment assets                            19,164                  686               19,850


1998:
         External revenues                                         187,162                1,046              188,208
         Intersegment revenues                                           -               58,380               58,380
         Depreciation and amortization                               9,260                  837               10,097
         Segment profit                                              6,315                1,289                7,604
         Segment assets                                             54,457               14,052               68,509
         Expenditures for segment assets                             6,839                  879                7,718

1997:
         External revenues                                         191,783                1,747              193,530
         Intersegment revenues                                           -               58,877               58,877
         Depreciation and amortization                               9,870                1,019               10,889
         Segment profit                                              4,619                  751                5,370
         Segment assets                                             52,781               13,020               65,801
         Expenditures for segment assets                             5,466                  172                5,638

</TABLE>

Following is a reconciliation of reportable segments to the Company's
consolidated totals for the fiscal years ended December 28, 1999, December 29,
1998 and December 30, 1997:

<TABLE>
<CAPTION>
                                                              December 28,         December 29,       December 30,
                                                                  1999                1998                1997
                                                              ------------         ------------       ------------
<S>                                                           <C>                  <C>                <C>
Revenues
         Total revenues of reportable segments                  $ 247,791           $ 246,588           $ 252,407
         Elimination of inter-segment revenue                     (59,731)            (58,380)            (58,877)
                                                              ------------         ------------       ------------
                           Total consolidated revenues          $ 188,060           $ 188,208           $ 193,530
                                                              ------------         ------------       ------------
                                                              ------------         ------------       ------------
Profit
         Total profit of reportable segments                    $   8,362           $   7,604           $   5,370
         Elimination of inter-segment profit                            -                   -                   -
                                                              ------------         ------------       ------------
                           Total consolidated profit            $   8,362           $   7,604           $   5,370
                                                              ------------         ------------       ------------
                                                              ------------         ------------       ------------
Assets
         Total assets of reportable segments                    $  89,463           $  68,509           $  65,801
         Elimination of inter-segment assets                            -                   -                   -
                                                              ------------         ------------       ------------
                           Total consolidated assets            $  89,463           $  68,509           $  65,801
                                                              ------------         ------------       ------------
                                                              ------------         ------------       ------------
</TABLE>


                                               F-23
<PAGE>


13.      SPECIAL CHARGES AND CREDITS

         The operating results for fiscal 1999 include a special charge of
$566 thousand for expenses related to the relocation of the corporate offices
from Lubbock, Texas to Richardson, Texas. The operating results for fiscal
1998 include special charges aggregating $8,600, including charges of $6,200
for the estimated costs of litigation settlements, $1,500 for expenses
related to closed stores and the write down of certain properties, $610
related to the proxy contest and the election of the Board of Directors and
$291 for the write off of deferred costs associated with warrants. The
operating results for fiscal 1997 include net special charges of $10,500.
Included in the total are charges of $6,900 of property, plant and equipment
write downs and closed store reserves and $4,900 related to the Levenson
litigation and related indemnity, which were partially offset by a credit of
$1,300 related to the settlement of a lawsuit.

                                   * * * * * *


                                      F-24
<PAGE>


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

     None.


                                      PART III


Item 10.       DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Pursuant to General Instruction G(3) of Form 10-K, information required
by this item is furnished by incorporation by reference of information in the
definitive Proxy Statement for the 2000 Annual Meeting of Stockholders of
Furr's under the captions "Proposal 1 - Election of Directors," "Section 16(a)
Beneficial Ownership Reporting Compliance" and "Executive Officers."

Item 11.       EXECUTIVE COMPENSATION

     Pursuant to General Instruction G(3) of Form 10-K, information required
by this item is furnished by incorporation by reference of information found
in the Definitive Proxy Statement for the 2000 Annual Meeting of Stockholders
of Furr's under the caption "Executive Compensation," subcaptions "Summary
Compensation Table," "Option Plan," "Option Grants," "Director Options,"
"Director Fees," "Employment Contracts and Termination of Employment and
Change of Common Agreements," "Compensation Committee Interlocks," "Board
Compensation Committee Report on Executive Compensation" and "Comparison of
Cumulative Total Return of Company Stock, Industry Index and Broad Market."

Item 12.       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Pursuant to General Instruction G(3) of Form 10-K, information required
by this item is furnished by incorporation by reference of all information
under the caption "Executive Compensation," subcaption "Transactions with
Management and Others" in the Definitive Proxy Statement for the 2000 Annual
Meeting of Stockholders of Furr's.

Item 13.       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Pursuant to General Instruction G(3) of Form 10-K, information required
by this item is furnished by incorporation by reference of all information
under the caption "Executive Compensation," subcaption "Transactions with
Management and Others" in the Definitive Proxy Statement for the 2000 Annual
Meeting of Stockholders of Furr's.


                                      PART IV


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

     (a)   The following documents are filed as a part of this Annual Report on
Form 10-K:

          (1)  Financial Statements

               The financial statements filed as part of this report are listed
               in the "Index to Consolidated Financial Statements" at Item 8.

          (2)  FINANCIAL STATEMENT SCHEDULE
               Furr's Restaurant Group, Inc.


                                       17
<PAGE>

<TABLE>
<CAPTION>
                                                                         Page
Schedule       Description                                                No.
---------      --------------                                           -------
<S>            <C>                                                      <C>
II-            Consolidated Valuation and Qualifying Accounts             25
</TABLE>

     Schedules not listed above have been omitted because they are either not
applicable, not material or the required information has been given in the
financial statements or in notes to the financial statements.

(b)       REPORTS ON FORM 8-K

          No reports on Form 8-K were filed during fiscal 1999 ended December
          28, 1999.

(c)       EXHIBITS

<TABLE>
<CAPTION>

Exhibit No.         Description
<C>       <S>
3.1       Amended and Restated Certificate of Incorporation of Furr's/Bishop's,
          Incorporated,  incorporated by reference from the Registrant's
          Registration Statement on Form S-4 (File No. 33-38978).

3.2       By-laws of Furr's/Bishop's, Incorporated, as amended December 3, 1997,
          incorporated  by reference from the Registrant's Registration
          Statement on Form S-1 (amended on Form S-3) (File No. 333-4576).

3.3       Certificate of Amendment to the Amended and Restated Certificate of
          Incorporation of Furr's/Bishop's, Incorporated, incorporated by
          reference from the Registrant's Registration Statement on Form S-4
          (File No. 33-92236).

3.4       Second Certificate of Amendment to the Amended and Restated
          Certificate of Incorporation of Furr's/Bishop's, Incorporated,
          incorporated by reference from the Registrant's Form 10-K for the year
          ended January 2, 1996.

3.5       Third Certificate of Amendment to the Amended and Restated Certificate
          of Incorporation of Furr's/Bishop's Incorporated as filed with the
          Secretary of State of Delaware on December 10, 1999.

3.6       Fourth Certificate of Amendment to the Amended and Restated
          Certificate of Incorporation of Furr's/Bishop's Incorporated as filed
          with the Secretary of State of Delaware on December 10, 1999.

3.7       Certificate of Ownership and Merger of Subsidiary into parent, as
          filed with the Secretary of State of Delaware on February 10, 2000.

4.1       Amended and Restated Indenture, dated as of November 15, 1995, between
          Cafeteria  Operators, L.P. and Fleet National Bank of Massachusetts
          (f/k/a Shawmut Bank, N.A.), incorporated by reference from the
          Registration Statement on Form S-1 of Cafeteria Operators, L.P. (File
          No. 333-4578).

4.2       First Supplemental Indenture, dated as of January 24, 1996, between
          Cafeteria Operators, L.P. and Fleet National Bank of Massachusetts
          (f/k/a Shawmut Bank, N.A.), incorporated by reference from the
          Registrant's Form 10-K for the year ended January 2, 1996.

4.3       General Security Agreement, dated as of March 27, 1992, between
          Cafeteria Operators, L.P. and Fleet National Bank of Massachusetts
          (f/k/a Shawmut Bank, N.A.), incorporated by reference from the
          Registration Statement on Form S-1 of Cafeteria Operators, L.P.
          (File No. 333-4578).
</TABLE>

                                       18
<PAGE>

<TABLE>
<C>       <S>

4.4       Security Agreement, dated as of March 27, 1992, between Cafeteria
          Operators, L.P. and Fleet National Bank of Massachusetts (f/k/a
          Shawmut Bank, N.A.), incorporated by reference from the Registration
          Statement  on Form S-1 of Cafeteria Operators, L.P.
          (File No. 333-4578).

4.5       Form of Assignment and Security Agreements relating to deposits at
          Amarillo National Bank and Carlsbad National Bank, dated as of March
          27, 1992, between Cafeteria Operators, L.P. and Fleet National Bank of
          Massachusetts (f/k/a Shawmut Bank, N.A.), incorporated by reference
          from the Registration Statement on Form S-1 of Cafeteria Operators,
          L.P. (File No. 333-4578).

4.6       General Security Agreement, dated as of March 27, 1992, between
          Furr's/Bishop's Specialty Group, L.P. and Fleet National Bank of
          Massachusetts (f/k/a Shawmut Bank, N.A.), incorporated by reference
          from the Registration Statement on Form S-1 of Cafeteria Operators,
          L.P. (File No. 333-4578).

4.7       Assignment for Security (Trademarks), dated as of March 27, 1992, by
          Cafeteria  operators, L.P., filed with the Patent and Trademark
          Office, incorporated by reference from the Registration Statement on
          Form S-1 of Cafeteria Operators, L.P. (File No. 333-4578).

4.8       Assignment for Security (Trademarks), dated as of December 28, 1995,
          by Cafeteria Operators, L.P., filed with the Patent and Trademark
          Office, incorporated by reference from the registration Statement on
          Form S-1 of Cafeteria Operators, L.P. (File No. 333-4578).

4.9       Assignment for Security (Trademarks), dated as of December 28, 1995,
          by  Furr's/Bishop's Specialty Group, L.P., filed with the Patent and
          Trademark Office, incorporated by reference from the Registration
          Statement on Form S-1 of Cafeteria Operators, L.P.
          (File No. 333-4578).

4.10      Amended and Restated Security Agreement and Mortgage-Trademarks and
          Patents, dated as of December 31, 1995, among Cafeteria Operators,
          L.P., Furr's/Bishop's Specialty Group, L.P. and Fleet National Bank of
          Massachusetts (f/k/a Shawmut Bank, N.A.), incorporated by reference
          from the Registration Statement on Form S-1 of Cafeteria Operators,
          L.P.  (File No. 333-4578).

4.11      Special Power of Attorney, dated as of March 27, 1992, by Cafeteria
          Operators, L.P., incorporated by reference from the Registration
          Statement on Form S-1 of Cafeteria Operators, L.P.
          (File No. 333-4578).

4.12      Special Power of Attorney, dated as of December 28, 1995, by Cafeteria
          Operators, L.P., incorporated by reference from the Registration
          Statement on Form S-1 of Cafeteria Operators, L.P.
          (File No. 333-4578).

4.13      Special Power of Attorney, dated as of December 28, 1995, by
          Furr's/Bishop's Specialty Group, L.P., incorporated by reference from
          the Registration Statement on Form S-1 of Cafeteria Operators, L.P.
          (File No. 333-4578).

4.14      Omnibus Agreement, dated as of November 15, 1995, among Cafeteria
          Operators, L.P., Furr's/Bishop's Specialty Group, L.P. and Fleet
          National Bank of Massachusetts (f/k/a Shawmut Bank, N.A.) (included as
          Exhibit E to the Exchange Agreement filed as Exhibit 10.1) and
          incorporate by reference from the Registrant's Registration Statement
          on Form S-4 (File No. 33-92236).

4.15      First Amendment to Deed of Trust, dated as of November 15, 1995,
          between Cafeteria Operators, L.P. and Fleet National Bank of
          Massachusetts (f/k/a Shawmut Bank, N.A.) for premises located at Pima
          County, Arizona, incorporated by reference from the Registration
          Statement on Form S-1 of Cafeteria Operators, L.P.
          (File No. 333-4578).

</TABLE>

                                       19
<PAGE>

<TABLE>
<C>       <S>

4.16      First Amendment to Deed of Trust, dated as of November 15, 1995,
          between Cafeteria Operators, L.P. and Fleet National Bank of
          Massachusetts (f/k/a Shawmut Bank, N.A.) for premises located at
          Jefferson County, Colorado, incorporated by reference from the
          Registration Statement on Form S-1 of Cafeteria Operators, L.P.
          (File No. 333-4578).

4.17      First Amendment to Deed of Trust, dated as of November 15, 1995,
          between Cafeteria Operators, L.P. and Fleet National Bank of
          Massachusetts (f/k/a Shawmut Bank, N.A.) for premises locate at Clark
          County, Nevada, incorporated by reference from the Registration
          Statement on Form S-1 of Cafeteria Operators, L.P.
          (File No. 333-4578).

4.18      First Amendment to Deed of Trust, Security Agreement, Financing
          Statement, Fixture Filing and assignment of Rents and Leases, dated as
          of November 15, 1995, between Cafeteria Operators, L.P. and Fleet
          National Bank of Massachusetts (f/k/a Shawmut Bank, N.A.) for premises
          located at San Bernardino County, California, incorporated by
          reference from the Registration Statement on Form S-1 of Cafeteria
          Operators, L.P.  (File No. 333-4578).

4.18      First Amendment to Mortgage, Security Agreement and Assignment of
          Leases and Rents, dated as of November 15, 1995, between Cafeteria
          Operators, L.P. and Fleet National Bank of Massachusetts (f/k/a
          Shawmut Bank, N.A.) for premises located at Johnson County, Kansas,
          incorporated by reference from the Registration Statement on Form S-1
          of Cafeteria Operators, L.P. (File No. 333-4578).

4.19      First Amendment to Deed of Trust, Security Agreement and Assignment of
          Leases and Rents, dated as of November 15, 1995, between Cafeteria
          Operators, L.P. and Fleet National Bank of Massachusetts (f/k/a
          Shawmut Bank, N.A.) for premises located at St. Louis County,
          Missouri, incorporated by reference from the Registration Statement on
          Form S-1 of Cafeteria Operators, L.P. (File No. 333-4578).

4.20      First Amendment to New Mexico Deed of Trust, dated as of November 15,
          1995, between Cafeteria Operators, L.P. and Fleet National Bank of
          Massachusetts (f/k/a Shawmut Bank, N.A.). for premises located at
          Bernalillo County, New Mexico, incorporated by reference from the
          Registration Statement on Form S-1 of Cafeteria Operators, L.P.
          (File No. 333-4578).

4.21      First Amendment to Mortgage with Power of Sale, dated as of November
          15, 1995, between  Cafeteria Operators, L.P. and Fleet National Bank
          of Massachusetts (f/k/a Shawmut Bank, N.A.) for premises located at
          Tulsa County, Oklahoma, incorporated by reference from the
          Registration Statement on Form S-1 of Cafeteria Operators, L.P.
          (File No. 333-4578).

4.22      First Amendment to Deed of Trust, Security Agreement and Assignment of
          Leases, dated as of November 15, 1995, between Cafeteria Operators,
          L.P. and Fleet National Bank of Massachusetts (f/k/a Shawmut Bank,
          N.A.) for premises located at Taylor County, Texas, incorporated by
          reference from the Registration Statement on Form S-1 of Cafeteria
          Operators, L.P. (File No. 333-4578).

4.23      First Amendment to Deed of Trust, Security Agreement and Assignment of
          Leases, dated as of November 15, 1995, between Cafeteria Operators,
          L.P. and Fleet National Bank of Massachusetts (f/k/a Shawmut Bank,
          N.A.) for premises located at Cameron County, Texas, incorporated by
          reference from the Registration Statement on Form S-1 of Cafeteria
          Operators, L.P.  (File No. 333-4578).

4.24      First Amendment to Deed of Trust, Security Agreement and Assignment of
          Leases, dated as of November 15, 1995, between Cafeteria Operators,
          L.P. and Fleet National Bank of Massachusetts (f/k/a Shawmut Bank,
          N.A.) for premises located at Dallas County, Texas, incorporated by
          reference from the Registration Statement on Form S-1 of Cafeteria
          Operators, L.P.  (File No. 333-4578).

</TABLE>

                                       20
<PAGE>

<TABLE>
<C>       <S>

4.25      First Amendment to Deed of Trust, Security Agreement and Assignment of
          Leases, dated as of November 15, 1995, between Cafeteria Operators,
          L.P. and Fleet National Bank of Massachusetts (f/k/a Shawmut Bank,
          N.A.) for premises located at Lubbock County, Texas, incorporated by
          reference from the Registration Statement on Form S-1 of Cafeteria
          Operators, L.P.  (File No. 333-4578).

4.26      First Amendment to Deed of Trust, Security Agreement and Assignment of
          Leases, dated as of November 15,1995, between Cafeteria Operators,
          L.P. and Fleet National Bank of Massachusetts (f/k/a Shawmut Bank,
          N.A.) for premises located at Grayson County, Texas, incorporated by
          reference from the Registration Statement on Form S-1 of Cafeteria
          Operators, L.P.  (File No. 333-4578).

4.27      First Amendment to Deed of Trust, Security Agreement and Assignment of
          Leases, dated as of November 15, 1995, between Cafeteria Operators,
          L.P. and Fleet National Bank of Massachusetts (f/k/a Shawmut Bank,
          N.A.) for premises located at Hopkins County, Texas, incorporated by
          reference from the Registration Statement on Form S-1 of Cafeteria
          Operators, L.P.   (File No. 333-4578).

10.1      Exchange Agreement, dated as of November 15, 1995, among
          Furr's/Bishop's, Incorporated, Cafeteria Operators, L.P. and holders
          of 11% Senior Secured Notes, incorporated by reference from the
          Registrant's Registration Statement on Form S-4 (File No. 33-92236).

10.2      Warrant Agreement dated as of July 10, 1995, between Furr's Restaurant
          Group, Inc. and Chemical Bank, incorporated by reference from the
          Registrant's Registration Statement on Form S-4 (File No. 33-92236).

10.3      General Release, entered into as of December 31, 1997, among Kevin E.
          Lewis, Cafeteria Operators, L.P. and Furr's Restaurant Group, Inc.,
          incorporated by reference from the Registration Statement on Form S-1
          of Cafeteria Operators, L.P. (File No. 333-4578).

10.4      Master Sublease Agreement, dated as of December 1, 1986, between Kmart
          Corporation and Cafeteria Operators, L.P. (as successor in interest to
          Furr's Cafeterias, Inc.), incorporated by reference from the
          Registration Statement on Form S-1 of Cavalcade Foods, Inc., Furr's
          Cafeterias, Inc. and Bishop Buffets, Inc. (File No. 33-11842).

10.5      Amendment, with respect to the Master Sublease Agreement, dated as of
          December 1, 1993, between Kmart Corporation and Cafeteria Operators,
          L.P., incorporated by reference from the registrant's Form 8-K dated
          November 15, 1993.

10.6      1995 Stock Option Plan of Furr's Restaurant Group, Inc., incorporated
          by reference from Annex B of the Prospectus included in the
          Registrant's Registration Statement on Form S-4 (File No. 33-92236).

10.7      President and Chief Executive Officer Agreement, effective as of
          March, 1998, between Theodore J. Papit and Furr's Restaurant Group,
          Inc..

10.8      Chairman of the Board Extension Agreement, effective January 1, 1998,
          among Kevin E. Lewis, Cafeteria Operators, L.P. and Furr's Restaurant
          Group, Inc., incorporated by reference from the Registration Statement
          on Form S-1 of Cafeteria Operators, L.P. (File No. 333-4578).

10.9      Interim Manager Agreement, effective as of June 1, 1998, between
          Suzanne Hopgood and Furr's Restaurant Group, Inc., incorporated by
          reference from Furr's Restaurant Group, Inc.'s Form 10-Q for the
          fiscal quarter ended June 30, 1998.

10.10     First Amendment to 1995 Stock Option Plan, dated as of June 18, 1998,
          incorporated by reference from Furr's Restaurant Group, Inc.'s Form
          10-Q for the fiscal quarter ended June 30, 1998.
</TABLE>

                                       21
<PAGE>

<TABLE>
<C>       <S>

10.11     Employment Agreement, dated as of September 27, 1998, between Phillip
          Ratner and Furr's Restaurant Group, Inc., incorporated by reference
          from Furr's Restaurant Group, Inc.'s Form 8-K dated October 2, 1998.

10.12     Indemnification Agreement, dated as of September 27, 1998, between
          Phillip Ratner and Furr's Restaurant Group, Inc., incorporated by
          reference from Furr's Restaurant Group, Inc.'s Form 8-K dated
          October 2, 1998.

10.13     Nonqualified Stock Option Agreement, effective as of September 16,
          1998, between Phillip Ratner and Furr's Restaurant Group, Inc.,
          incorporated by reference from Furr's Restaurant Group, Inc.'s
          Form 8-K dated October 2, 1998.

21.0      Subsidiaries of the Registrant.

23.1      Consent of KPMG LLP, as independent certified public accountants.

27.0      Financial Data Schedule.

</TABLE>

                                       22

<PAGE>

SIGNATURES

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

                                        FURR'S RESTAURANT GROUP, INC.

DATE:   March 21, 2000                  /s/ PHILLIP RATNER
                                        ---------------------------------------
                                        Phillip Ratner
                                        President and
                                        Chief Executive Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Furr's
Restaurant Group, Inc. and on the dates indicated.


DATE:   March 21, 2000                   /s/ Suzanne Hopgood
                                        ---------------------------------------
                                        Suzanne Hopgood
                                        Director, Chairman of
                                        the Board

DATE:   March 21, 2000                  /s/ Jacob C. Baum
                                        ---------------------------------------
                                        Jacob C. Baum
                                        Director


DATE:   March 21, 2000                  /s/ Ben Evans
                                        ---------------------------------------
                                        Ben Evans
                                        Director


DATE:   March 21, 2000                  /s/ Margaret Bertelsen Hampton
                                        ---------------------------------------
                                        Margaret Bertelsen Hampton
                                        Director


DATE:   March 21, 2000                   /s/ Damien Kovary
                                        ---------------------------------------
                                        Damien Kovary
                                        Director


DATE:   March 21, 2000                  /s/ William J. Nightingale
                                        ---------------------------------------
                                        William J Nightingale
                                        Director


DATE:   March 21, 2000                  /s/ Gilbert C. Osnos
                                        ---------------------------------------
                                        Gilbert C. Osnos
                                        Director


                                      23
<PAGE>

DATE:   March 21, 2000                  /s/ Max Pine
                                        ---------------------------------------
                                        Max Pine
                                        Director


DATE:   March 21, 2000                  /s/ Barry W. Ridings
                                        ---------------------------------------
                                        Barry W. Ridings
                                        Director


DATE:   March 21, 2000                  /s/ Paul G. Hargett
                                        ---------------------------------------
                                        Paul G. Hargett
                                        Chief Financial Officer


                                          24
<PAGE>

                                                                    SCHEDULE II

FURR'S RESTAURANT GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                Additions
                                                      -----------------------------
                                   Balance at         Charged to         Charged to                          Balance at
                                   Beginning          Costs and          Other                               End of
Description                        of Period          Expenses           Accounts        Deductions          Period
-----------                        ---------          --------           --------        ----------          ------
<S>                                <C>                <C>                <C>             <C>                 <C>
YEAR ENDED DECEMBER 31, 1999:
Reserve for store closing          $   4,596          $     41           $      -        $    1,275          $   3,362
                                   =========          ========           ========        ==========          =========
Allowance for doubtful
Accounts receivable                 $     14          $      -           $      -        $        -          $      14
                                   =========          ========           ========        ==========          =========

YEAR ENDED DECEMBER 29, 1998:
Reserve for store closing           $  4,675          $  1,292           $      -        $    1,371(1)       $   4,596
                                   =========          ========           ========        ==========          =========
Allowance for doubtful
Accounts receivable                 $     29              $ (9)(2)       $      -        $        6(3)       $      14
                                   =========          ========           ========        ==========          =========

YEAR ENDED DECEMBER 30, 1997:
Reserve for store closing           $  3,548          $  2,150           $    117        $    1,140(1)       $   4,675
                                   =========          ========           ========        ==========          =========
Allowance for doubtful
Accounts receivable                 $     20          $     12           $      -        $        3(3)       $      29
                                   =========          ========           ========        ==========          =========
</TABLE>

(1)  Includes costs and expenses incurred during the year on closed units and
     severance payments.
(2)  Net adjustments reflects $9 reversal of expense in 1998.
(3)  Related asset account was written off.


                                      25