** **

**UNITED STATES SECURITIES AND EXCHANGECOMMISSION**

**WASHINGTON, D.C. 20549**

 

----

 

**FORM 10-Q/A**

 

#### **Amendment No. 2**

 

**(MarkOne)**
| **ý** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                        |
|------------|-------------------------------------------------------------------------------------------------------------------------------------|
|       |                                                                                                                                |
|       | **For the quarterly period ended September 30, 2002**                                                                               |
|       |                                                                                                                                |
| **OR**     |
|       |                                                                                                                                |
| **o**      | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                       |
|       |                                                                                                                                |
|       | **For  the transition period from                   to** |

 

**AmericanRestaurant Group, Inc.**

(Exact name ofregistrant as specified in its charter)

 

| **Delaware**                                                                       |   | **33-48183**              |   | **33-0193602**                        |
|------------------------------------------------------------------------------------|--------|---------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization)                   |   | (Commission File  Number) |   | (I.R.S. employer  identification no.) |
|                                                                               |   |                      |   |                                  |
| **4410 El Camino Real, Suite 201  Los Altos, CA  94022  (650) 949-6400**      |
| (Address and  telephone number of principal executive offices)                     |
|                                                                               |
| Former name,  former address and former fiscal year  if changed since last report. |

 

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.
|   | Yes   ý |   | No   o |
|--------|-----------------------------|--------|-----------------------|

 

Indicateby check mark whether the registrant is an accelerated filer (as defined inRule 12b-2 of the Act).
|   | Yes   ý |   | No   o |
|--------|-----------------------------|--------|-----------------------|

 

The number of outstanding shares of the Company’s Common Stock (onecent par value) as of November 4, 2002 was 128,081.

 

 

----

 

**AMERICAN RESTAURANT GROUP, INC.**

 

**INDEX**

 
| **PART I.**  |   | **FINANCIAL INFORMATION**                                                                   |   |   |
|--------------|--------|---------------------------------------------------------------------------------------------|--------|--------|
|         |   |                                                                                        |   |   |
| ITEM 1.      |   | FINANCIAL STATEMENTS:                                                                       |   | 3      |
|         |   |                                                                                        |   |   |
|         |   | Consolidated  Condensed Balance Sheets                                                      |   | 3      |
|         |   |                                                                                        |   |   |
|         |   | Consolidated  Condensed  Statements of Operations                                      |   | 5      |
|         |   |                                                                                        |   |   |
|         |   | Consolidated  Condensed Statements of Cash Flows                                            |   | 6      |
|         |   |                                                                                        |   |   |
|         |   | Notes  to Consolidated Condensed Financial Statements                                       |   | 7      |
|         |   |                                                                                        |   |   |
| ITEM 2.      |   | MANAGEMENT’S DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITION AND RESULTS OF OPERATIONS |   | 13     |
|         |   |                                                                                        |   |   |
| ITEM  3.     |   | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                 |   | 17     |
|         |   |                                                                                        |   |   |
| ITEM 4.      |   | CONTROLS AND  PROCEDURES                                                                    |   | 17     |
|         |   |                                                                                        |   |   |
| **PART II.** |   | **OTHER INFORMATION**                                                                       |   | 17     |
|         |   |                                                                                        |   |   |
| ITEM 6.      |   | EXHIBITS AND  REPORTS ON FORM 8-K                                                           |   | 17     |
|         |   |                                                                                        |   |   |

 

2

----

 

**PARTI. FINANCIAL INFORMATION**

 

EXPLANATORYNOTE

 

THIS AMENDMENT NO. 2 TO FORM 10-Q IS FILED TO AMEND CERTAIN FINANCIALSTATEMENTS AND RELATED DISCLOSURES IN THE QUARTERLY REPORT ON FORM 10-Q FOR THEREGISTRANT’S QUARTER ENDED SEPTEMBER 30, 2002. AMERICAN RESTAURANT GROUP, INC. (THE “COMPANY”) HAS RESTATED ITSCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDING SEPTEMBER 24, 2001,DECEMBER 31, 2001, AND SEPTEMBER 30, 2002. THE RESTATEMENT OF THE COMPANY’S FINANCIAL STATEMENTS FOR THE PERIODSENDING SEPTEMBER 24, 2001 AND SEPTEMBER 30, 2002 ARE DESCRIBED WITHIN NOTE 2,“RESTATEMENT OF QUARTERLY FINANCIAL STATEMENTS.”

 

WE HAVE REVISED THENARRATIVE TO REFLECT RELATED CORRECTIONS. EXCEPT AS EXPLAINED IN THE NOTES, THIS REPORT CONTINUES TO SPEAK AS OFTHE DATE OF THE ORIGINAL FILING.

 

**ITEM 1.       FINANCIALSTATEMENTS:**

 

 

AMERICANRESTAURANT GROUP, INC. AND SUBSIDIARIES

 

CONSOLIDATEDCONDENSED BALANCE SHEETS

 

DECEMBER 31, 2001AND SEPTEMBER 30, 2002

 
|                                  |   | **(Restated)  December 31,  2001** |       | **(Restated and unaudited)**

**September  30,  2002** |   |
|---------------------------------------|--------|------------------------------------|------------|--------------------------------------------------------|--------|
|                                  |   |                               |       |                                                   |   |
| ASSETS                                |   |                               |       |                                                   |   |
|                                  |   |                               |       |                                                   |   |
| CURRENT ASSETS:                       |   |                               |       |                                                   |   |
| Cash                                  |   | $                                  | 7,384,000  |                                                   | $      | 4,542,000 |   |
| Rebates and  other receivables, net   |   |                               | 2,985,000  |                                                   |   | 3,899,000 |   |
| Inventories                           |   |                               | 2,800,000  |                                                   |   | 2,624,000 |   |
| Prepaid expenses                      |   |                               | 3,002,000  |                                                   |   | 2,122,000 |   |
|                                  |   |                               |       |                                                   |   |
| Total current  assets                 |   |                               | 16,171,000 |                                                   |   | 13,187,000 |   |
|                                  |   |                               |       |                                                   |   |
| PROPERTY AND  EQUIPMENT, net:         |   |                               |       |                                                   |   |
| Land and land  improvements           |   |                               | 834,000    |                                                   |   | 742,000 |   |
| Buildings and  leasehold improvements |   |                               | 36,559,000 |                                                   |   | 36,176,000 |   |
| Fixtures and  equipment               |   |                               | 11,351,000 |                                                   |   | 10,834,000 |   |
| Property held  under capital leases   |   |                               | 1,060,000  |                                                   |   | 797,000 |   |
| Construction in  progress             |   |                               | 1,299,000  |                                                   |   | 641,000 |   |
|                                  |   |                               |       |                                                   |   |
| Net property and  equipment           |   |                               | 51,103,000 |                                                   |   | 49,190,000 |   |
|                                  |   |                               |       |                                                   |   |
| OTHER ASSETS,  NET:                   |   |                               | 17,450,000 |                                                   |   | 16,871,000 |   |
|                                  |   |                               |       |                                                   |   |
| Total assets                          |   | $                                  | 84,724,000 |                                                   | $      | 79,248,000 |   |

 

3

----

 

 
|                                                                                                                                                                                                                       |   | **(Restated)  December 31,  2001** |       | **(Restated and unaudited)**

**September  30,  2002** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------|------------|--------------------------------------------------------|--------|
| LIABILITIES AND  COMMON STOCKHOLDERS’ DEFICIT                                                                                                                                                                         |   |                               |       |                                                   |   |
|                                                                                                                                                                                                                       |   |                               |       |                                                   |   |
| CURRENT  LIABILITIES:                                                                                                                                                                                                      |   |                               |       |                                                   |   |
| Accounts payable                                                                                                                                                                                                           |   | $                                  | 11,126,000 |                                                   | $      | 8,255,000 |   |
| Accrued  liabilities                                                                                                                                                                                                       |   | 4,585,000                          |       | 4,045,000                                              |   |
| Gift-certificate  liability                                                                                                                                                                                                |   | 6,755,000                          |       | 2,897,000                                              |   |
| Self-insurance  reserves                                                                                                                                                                                                   |   | 3,312,000                          |       | 3,773,000                                              |   |
| Accrued interest                                                                                                                                                                                                           |   | 3,447,000                          |       | 7,937,000                                              |   |
| Accrued  occupancy                                                                                                                                                                                                         |   | 3,998,000                          |       | 4,948,000                                              |   |
| Accrued employee  costs                                                                                                                                                                                                    |   | 4,207,000                          |       | 3,544,000                                              |   |
| Current portion  of obligations under capital leases                                                                                                                                                                       |   | 796,000                            |       | 773,000                                                |   |
| Current portion  of long-term debt                                                                                                                                                                                         |   | 402,000                            |       | 3,541,000                                              |   |
| Liabilities from  discontinued operations                                                                                                                                                                                  |   | 525,000                            |       | —                                                 |   |
|                                                                                                                                                                                                                       |   |                               |       |                                                   |   |
| Total current  liabilities                                                                                                                                                                                                 |   | 39,153,000                         |       | 39,713,000                                             |   |
|                                                                                                                                                                                                                       |   |                               |       |                                                   |   |
| LONG-TERM  LIABILITIES, net of current portion:                                                                                                                                                                            |   |                               |       |                                                   |   |
| Obligations  under capital leases                                                                                                                                                                                          |   | 1,799,000                          |       | 1,233,000                                              |   |
| Long-term debt,  net of unamortized discount                                                                                                                                                                               |   | 157,272,000                        |       | 155,239,000                                            |   |
|                                                                                                                                                                                                                       |   |                               |       |                                                   |   |
| Total long-term  liabilities                                                                                                                                                                                               |   | 159,071,000                        |       | 156,472,000                                            |   |
|                                                                                                                                                                                                                       |   |                               |       |                                                   |   |
| DEFERRED GAIN ON  SALE-LEASEBACK                                                                                                                                                                                           |   | 3,990,000                          |       | 3,839,000                                              |   |
|                                                                                                                                                                                                                       |   |                               |       |                                                   |   |
| COMMITMENTS AND  CONTINGENCIES                                                                                                                                                                                             |   |                               |       |                                                   |   |
|                                                                                                                                                                                                                       |   |                               |       |                                                   |   |
| CUMULATIVE  PREFERRED STOCK, MANDATORILY REDEEMABLE:                                                                                                                                                                       |   |                               |       |                                                   |   |
| Senior  pay-in-kind exchangeable preferred stock, $0.01 par value; 160,000 shares  authorized; 58,883 shares outstanding and accrued at December 31, 2001 and  65,631 shares outstanding and accrued at September 30, 2002 |   | 64,108,000                         |       | 71,828,000                                             |   |
|                                                                                                                                                                                                                       |   |                               |       |                                                   |   |
| COMMON  STOCKHOLDERS’ (DEFICIT):                                                                                                                                                                                      |   |                               |       |                                                   |   |
| Common stock,  $0.01 par value; 1,000,000 shares authorized; 128,081 shares issued and  outstanding at December 31, 2001 and September 30, 2002                                                                            |   | 1,000                              |       | 1,000                                                  |   |
| Paid-in capital                                                                                                                                                                                                            |   | 1,390,000                          |       | —                                                 |   |
| Accumulated  (deficit)                                                                                                                                                                                                     |   | (182,989,000                       | )          | (192,605,000                                           | )      |
|                                                                                                                                                                                                                       |   |                               |       |                                                   |   |
| Total common  stockholders’ (deficit)                                                                                                                                                                                 |   | (181,598,000                       | )          | (192,604,000                                           | )      |
|                                                                                                                                                                                                                       |   |                               |       |                                                   |   |
| Total  liabilities and common stockholders’ deficit                                                                                                                                                                   |   | $                                  | 84,724,000 |                                                   | $      | 79,248,000 |   |

 

The accompanying notesare an integral part of these consolidated condensed statements.

 

4

----

 

AMERICAN RESTAURANTGROUP, INC. AND SUBSIDIARIES

 

CONSOLIDATED CONDENSEDSTATEMENTS OF OPERATIONS

 

FORTHE THIRTEEN WEEKS AND THE THIRTY-NINE WEEKS ENDED SEPTEMBER 24, 2001

ANDSEPTEMBER 30, 2002

 

(UNAUDITED)

 

 
|                                             |   | **Thirteen  Weeks Ended**           |       | **Thirty-Nine  Weeks Ended**        |   |
|--------------------------------------------------|--------|-------------------------------------|------------|-------------------------------------|--------|
|                                             |   | **(Restated)  September 24,  2001** |       | **(Restated)  September 30,  2002** |   | **(Restated)  September 24,  2001** |   | **(Restated)  September 30,  2002** |   |
|                                             |   |                                |       |                                |   |   |   |   |   |
| REVENUES                                         |   | $                                   | 68,345,000 |                                | $      | 70,119,000 |   | $ | 226,696,000 |   | $ | 226,595,000 |   |
|                                             |   |                                |       |                                |   |   |   |   |   |
| RESTAURANT  COSTS:                               |   |                                |       |                                |   |   |   |   |   |
| Food and  beverage                               |   | 22,901,000                          |       | 23,267,000                          |   | 76,054,000 |   | 74,936,000 |   |
| Payroll                                          |   | 20,661,000                          |       | 21,651,000                          |   | 64,923,000 |   | 68,362,000 |   |
| Direct operating                                 |   | 15,659,000                          |       | 17,814,000                          |   | 56,248,000 |   | 56,891,000 |   |
| Depreciation and  amortization                   |   | 2,148,000                           |       | 1,864,000                           |   | 6,478,000 |   | 5,527,000 |   |
|                                             |   |                                |       |                                |   |   |   |   |   |
| GENERAL AND  ADMINISTRATIVE EXPENSES             |   | 2,434,000                           |       | 2,723,000                           |   | 7,217,000 |   | 7,557,000 |   |
|                                             |   |                                |       |                                |   |   |   |   |   |
| Operating profit                                 |   | 4,542,000                           |       | 2,800,000                           |   | 15,776,000 |   | 13,322,000 |   |
|                                             |   |                                |       |                                |   |   |   |   |   |
| INTEREST  EXPENSE, net                           |   | 4,325,000                           |       | 5,484,000                           |   | 12,804,000 |   | 16,316,000 |   |
|                                             |   |                                |       |                                |   |   |   |   |   |
| Income (Loss)  before provision for income taxes |   | 217,000                             |       | (2,684,000                          | )      | 2,972,000 |   | (2,994,000 | ) |
|                                             |   |                                |       |                                |   |   |   |   |   |
| PROVISION FOR  INCOME TAXES                      |   | 21,000                              |       | 9,000                               |   | 183,000 |   | 66,000 |   |
|                                             |   |                                |       |                                |   |   |   |   |   |
| Income / (Loss)  from continuing operations      |   | 196,000                             |       | (2,693,000                          | )      | 2,789,000 |   | (3,060,000 | ) |
|                                             |   |                                |       |                                |   |   |   |   |   |
| NET (LOSS) FROM  DISCONTINUED OPERATIONS         |   | —                              |       | (225,000                            | )      | — |   | (225,000 | ) |
|                                             |   |                                |       |                                |   |   |   |   |   |
| Net Income  (Loss)                               |   |                                | 196,000    |                                |   | (2,918,000 | ) |   | 2,789,000 |   |   | (3,285,000 | ) |
|                                             |   |                                |       |                                |   |   |   |   |   |   |   |   |   |
| Preferred stock  dividends,

issued and  accrued |   |                                | 2,319,000  |                                |   | 2,664,000 |   |   | 6,722,000 |   |   | 7,720,000 |   |
|                                             |   |                                |       |                                |   |   |   |   |   |   |   |   |   |
| Loss to common  stockholders                     |   | $                                   | (2,123,000 | )                                   | $      | (5,582,000 | ) | $ | (3,933,000 | ) | $ | (11,005,000 | ) |

 

 

The accompanying notesare an integral part of these consolidated condensed statements.

 

5

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AMERICAN RESTAURANTGROUP, INC. AND SUBSIDIARIES

 

CONSOLIDATED CONDENSEDSTATEMENTS OF CASH FLOWS

 

FOR THE THIRTY-NINE WEEKSENDED SEPTEMBER 24, 2001 AND SEPTEMBER 30, 2002

 

(UNAUDITED)

### ** **

|                                                                                                                                       |   | **(Restated)  September 24,  2001** |        | **(Restated)  September 30,  2002** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------|-------------|-------------------------------------|--------|
| CASH FLOWS FROM  CONTINUING OPERATING ACTIVITIES:                                                                                          |   |                                |        |                                |   |
|                                                                                                                                       |   |                                |        |                                |   |
| Income (loss)  from continuing operations                                                                                                  |   | $                                   | 2,789,000   |                                | $      | (3,060,000 | ) |
| Adjustments to  reconcile net income (loss) from continuing operations to net cash provided by  (used in) continuing operating activities: |   |                                |        |                                |   |
| Depreciation and  amortization                                                                                                             |   | 6,478,000                           |        | 5,527,000                           |   |
| Amortization of  deferred gain                                                                                                             |   | (155,000                            | )           | (151,000                            | )      |
| Amortization of  non-cash interest expense                                                                                                 |   | —                              |        | 1,400,000                           |   |
| Decrease in  current assets                                                                                                                |   | 1,218,000                           |        | 142,000                             |   |
| (Decrease) in  current liabilities                                                                                                         |   | (13,549,000                         | )           | (2,032,000                          | )      |
|                                                                                                                                       |   |                                |        |                                |   |
| Net cash  provided by (used in) continuing operating activities                                                                            |   | (3,219,000                          | )           | 1,826,000                           |   |
|                                                                                                                                       |   |                                |        |                                |   |
|                                                                                                                                       |   |                                |        |                                |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                                                                                     |   |                                |        |                                |   |
| Capital expenditures                                                                                                                       |   | (1,876,000                          | )           | (2,491,000                          | )      |
| Proceeds from  disposition of assets                                                                                                       |   | 25,000                              |        | —                              |   |
| Net (increase)  decrease in other assets                                                                                                   |   | 14,000                              |        | (544,000                            | )      |
|                                                                                                                                       |   |                                |        |                                |   |
| Net cash (used  in) investing activities                                                                                                   |   | (1,837,000                          | )           | (3,035,000                          | )      |
|                                                                                                                                       |   |                                |        |                                |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                                                                                     |   |                                |        |                                |   |
| Borrowings  (Payments) on indebtedness                                                                                                     |   | 3,705,000                           |        | (294,000                            | )      |
| Payments on  capital-lease obligations                                                                                                     |   | (520,000                            | )           | (589,000                            | )      |
|                                                                                                                                       |   |                                |        |                                |   |
| Net cash  provided by (used in) financing activities                                                                                       |   | 3,185,000                           |        | (883,000                            | )      |
|                                                                                                                                       |   |                                |        |                                |   |
| NET (DECREASE)  FROM CONTINUING OPERATIONS                                                                                                 |   | (1,871,000                          | )           | (2,092,000                          | )      |
|                                                                                                                                       |   |                                |        |                                |   |
| NET (DECREASE)  FROM DISCONTINUED OPERATIONS                                                                                               |   | (2,067,000                          | )           | (750,000                            | )      |
|                                                                                                                                       |   |                                |        |                                |   |
| NET CHANGE IN  CASH, CURRENT PERIOD                                                                                                        |   | (3,938,000                          | )           | (2,842,000                          | )      |
|                                                                                                                                       |   |                                |        |                                |   |
| CASH, at  beginning of period                                                                                                              |   | 3,938,000                           |        | 7,384,000                           |   |
|                                                                                                                                       |   |                                |        |                                |   |
| CASH, at end of  period                                                                                                                    |   | $                                   | —      |                                | $      | 4,542,000 |   |
|                                                                                                                                       |   |                                |        |                                |   |   |   |
| Cash payments  during the period:                                                                                                          |   |                                |        |                                |   |
| Interest                                                                                                                                   |   | $                                   | (16,918,000 | )                                   | $      | (10,468,000 | ) |
| Income taxes                                                                                                                               |   | (33,000                             | )           | (9,000                              | )      |

 

The accompanying notesare an integral part of these consolidated condensed statements.

 

6

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AMERICAN RESTAURANTGROUP, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATEDCONDENSED FINANCIAL STATEMENTS

 

 
| 1.     |   | BASIS OF PRESENTATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |   | The Consolidated Condensed Financial Statements  included were prepared by American Restaurant Group, Inc. without audit, in  accordance with Securities and Exchange Commission Regulation S-X.  (References to “the Company,” “we,” “us,”  or “our” refer to American Restaurant Group, Inc.)  In the opinion of our management, these Consolidated Condensed  Financial Statements contain all adjustments necessary to state fairly our  financial position as of December 31, 2001 and September 30, 2002, and the  results of our operations for the thirteen weeks and thirty-nine weeks ended  September 24, 2001 and September 30, 2002 and our cash flows for the  thirty-nine weeks ended September 24, 2001 and September 30, 2002.  Our results for an interim period are not  necessarily indicative of the results that may be expected for the year. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |   | Although we believe that we included all adjustments  necessary for a fair presentation of the interim periods presented and that  the disclosures are adequate to make the information presented not  misleading, we suggest that these Consolidated Condensed Financial Statements  be read in conjunction with the Consolidated Financial Statements and related  notes included in our annual report on Form 10-K for the fiscal year ended  December 30, 2002, which restated the financial results for the fiscal year  ended December 31, 2001.                                                                                                                                                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 2.     |   | RESTATEMENT OF QUARTERLY FINANCIAL STATEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |   | The Company’s previously issued consolidated  financial statements as of and for the fiscal periods ended September 24,  2001, December 31, 2001, and September 30, 2002 are restated to correct the  accounting of certain items.   Significant items are noted below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |   | The Company’s previous liability for gift  certificates was understated. The Company corrected its accounting for its  gift-certificate liability and adjusted the liability on the balance sheet.  The cumulative adjustment to the balance sheet as of December 31, 2001 was an  increase to the gift-certificate liability of $2,408,000.  This adjustment increased the net income  for the thirteen weeks ended September 24, 2001 by $503,000 and decreased the  net loss for the thirteen weeks ended September 30, 2002 by $162,000.  This adjustment increased the net income  for the thirty-nine weeks ended September 24, 2001 by $855,000 and increased  the net loss for the thirty-nine weeks ended September 30, 2002 by $187,000.                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |   | In connection with the issuance of the Company’s  preferred stock in 1998, the Company did not properly record the accretion of  the redemption price due at maturity.   Accordingly, the Company has recorded an adjustment that increased the  carrying amount on the balance sheet for preferred stock and correspondingly  adjusted paid-in capital, accumulated deficit and loss to common  stockholders.  There was no impact to  net income or loss in 2001 or 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |   | Certain deposits, previously reported as other  assets at December 31, 2001 and earlier periods, no longer represented  recoverable assets as of December 27, 1999.   The cumulative adjustment to the balance sheet as of December 31, 2001  was a decrease to other assets of $985,000.   There was no impact to net income or loss in 2001 or 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |   | The Company improperly recorded certain credit-card  receivables and rebate receivables in 2001.   The Company reduced the carrying amount of the receivables on the  balance sheet.  The cumulative  adjustment to the balance sheet as of December 31, 2001 was a decrease to  rebates and other receivables of $1,086,000.   The adjustment decreased net income for the thirteen weeks ended  September 24, 2001 by $452,000.  There  was no impact to net loss in the thirteen weeks ended September 30,  2002.  This adjustment decreased net  income for the thirty-nine weeks ended September 24, 2001 by $634,000 and  decreased the net loss for the thirty-nine weeks ended September 30, 2002 by  $452,000.                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |   | The Company incorrectly reduced an insurance accrual  during the fiscal year ended December 25, 2000.  The Company adjusted the accrual accordingly.  The cumulative adjustment to the balance  sheet as of December 31, 2001 was an increase to accrued liabilities of  $352,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |   | The Company previously recorded in the fiscal year  ended December 31, 2001 certain interest income earned in the fiscal year  ended December 25, 2000.  The Company  adjusted the recognition of the interest income accordingly.  The cumulative adjustment to the balance  sheet as of December 31, 2001 was an increase to cash of $544,000. This  adjustment increased the net income for the thirteen weeks ended September  24, 2001 by $18,000 and had no impact on the net loss for the thirteen weeks  ended September 30, 2002. This adjustment increased the net income for the  thirty-nine weeks ended September 24, 2001 by $96,000 and had no impact on  the net loss for the thirty-nine weeks ended September 30, 2002.                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |   | The effects of the corrections to the Company’s  consolidated financial statements as of December 31, 2001 and for the periods  ended September 24, 2001 and September 30, 2002 are as follows (in  thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |

 

7

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|                                                        |   | **As of  December 31, 2001** |   | **(Unaudited)  September 30,202** |   |
|-------------------------------------------------------------|--------|------------------------------|--------|-----------------------------------|--------|
| **(in thousands)**                                          |   | **As Previously**            |   | **As**                            |   | **As Previously** |   | **As** |   |
|                                                        |   | **Reported**                 |   | **Restated**                      |   | **Reported** |   | **Restated** |   |
| ASSETS                                                      |   | (1)                          |   |                              |   | (1) |   |   |   |
| CURRENT ASSETS:                                             |   |                         |   |                              |   |   |   |   |   |
| Cash                                                        |   | $                            | 7,814  |                              | $      | 7,384 |   | $ | 4,833 |   | $ | 4,542 |   |
| Rebates and  Other receivables, net                         |   | 4,071                        |   | 2,985                             |   | 4,533 |   | 3,899 |   |
| Inventories                                                 |   | 3,040                        |   | 2,800                             |   | 2,864 |   | 2,624 |   |
| Prepaid expenses                                            |   | 3,002                        |   | 3,002                             |   | 2,122 |   | 2,122 |   |
| Total current  assets                                       |   | 17,927                       |   | 16,171                            |   | 14,352 |   | 13,187 |   |
|                                                        |   |                         |   |                              |   |   |   |   |   |
| Net Property  & Equipment                               |   | 51,103                       |   | 51,103                            |   | 49,190 |   | 49,190 |   |
| Net Other Assets                                            |   | 18,435                       |   | 17,450                            |   | 17,856 |   | 16,871 |   |
| Total assets                                                |   | $                            | 87,465 |                              | $      | 84,724 |   | $ | 81,398 |   | $ | 79,248 |   |
|                                                        |   |                         |   |                              |   |   |   |   |   |
| LIABILITIES AND  COMMON STOCKHOLDERS’ (DEFICIT)        |   |                         |   |                              |   |   |   |   |   |
|                                                        |   |                         |   |                              |   |   |   |   |   |
| CURRENT  LIABILITIES:                                       |   |                         |   |                              |   |   |   |   |   |
| Accounts payable                                            |   | $                            | 11,126 |                              | $      | 11,126 |   | $ | 8,255 |   | $ | 8,255 |   |
| Other current  liabilities                                  |   | 25,267                       |   | 28,027                            |   | 28,511 |   | 31,458 |   |
| Total current  liabilities                                  |   | 36,393                       |   | 39,153                            |   | 36,766 |   | 39,713 |   |
|                                                        |   |                         |   |                              |   |   |   |   |   |
| LONG-TERM LIABILITIES,  net of current portion:             |   | 159,071                      |   | 159,071                           |   | 156,472 |   | 156,472 |   |
|                                                        |   |                         |   |                              |   |   |   |   |   |
| DEFERRED GAIN ON  SALE-LEASEBACK                            |   | 3,990                        |   | 3,990                             |   | 3,839 |   | 3,839 |   |
|                                                        |   |                         |   |                              |   |   |   |   |   |
| CUMULATIVE  PREFERRED STOCK                                 |   | 58,219                       |   | 64,108                            |   | 65,265 |   | 71,828 |   |
|                                                        |   |                         |   |                              |   |   |   |   |   |
| COMMON STOCKHOLDERS’  (DEFICIT):                       |   |                         |   |                              |   |   |   |   |   |
| Common Stock                                                |   | 1                            |   | 1                                 |   | 1 |   | 1 |   |
| Paid-in capital                                             |   | 7,279                        |   | 1,390                             |   | 233 |   | — |   |
| Accumulated  (deficit)                                      |   | (177,488                     | )      | (182,989                          | )      | (181,178 | ) | (192,605 | ) |
| Total common  stockholders’ (deficit)                  |   | (170,208                     | )      | (181,598                          | )      | (180,944 | ) | (192,604 | ) |
|                                                        |   |                         |   |                              |   |   |   |   |   |
| Total  liabilities and common stockholders’

(deficit) |   | $                            | 87,465 |                              | $      | 84,724 |   | $ | 81,398 |   | $ | 79,248 |   |

 

----

(1)Certain accounts have been reclassified to conform with the current period’spresentation.

 

8

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|                                              |   | **(Unaudited)**           |   | **(Unaudited)**           |   |
|---------------------------------------------------|--------|---------------------------|--------|---------------------------|--------|
|                                              |   | **Thirteen  Weeks Ended** |   | **Thirteen  Weeks Ended** |   |
|                                              |   | **September  24, 2001**   |   | **September  30, 2002**   |   |
|                                              |   | **As  Previously**        |   | **As**                    |   | **As  Previously** |   | **As** |   |
| **(in  thousands)**                               |   | **Reported**              |   | **Restated**              |   | **Reported** |   | **Restated** |   |
|                                              |   | **(1)**                   |   |                      |   | **(1)** |   |   |   |
|                                              |   |                      |   |                      |   |   |   |   |   |
| REVENUES                                          |   | $                         | 68,331 |                      | $      | 68,345 |   | $ | 70,051 |   | $ | 70,119 |   |
|                                              |   |                      |   |                      |   |   |   |   |   |
| RESTAURANT  COSTS:                                |   |                      |   |                      |   |   |   |   |   |
| Food and  beverage                                |   | 22,449                    |   | 22,901                    |   | 23,267 |   | 23,267 |   |
| Payroll                                           |   | 20,661                    |   | 20,661                    |   | 21,651 |   | 21,651 |   |
| Direct operating                                  |   | 16,187                    |   | 15,659                    |   | 17,947 |   | 17,814 |   |
| Depreciation and  amortization                    |   | 2,148                     |   | 2,148                     |   | 1,864 |   | 1,864 |   |
|                                              |   |                      |   |                      |   |   |   |   |   |
| GENERAL AND  ADMIN. EXPENSES                      |   | 2,428                     |   | 2,434                     |   | 2,717 |   | 2,723 |   |
|                                              |   |                      |   |                      |   |   |   |   |   |
| Operating profit  from Continuing operations      |   | 4,458                     |   | 4,542                     |   | 2,605 |   | 2,800 |   |
|                                              |   |                      |   |                      |   |   |   |   |   |
|                                              |   |                      |   |                      |   |   |   |   |   |
| INTEREST  EXPENSE, net                            |   | 4,310                     |   | 4,325                     |   | 5,451 |   | 5,484 |   |
|                                              |   |                      |   |                      |   |   |   |   |   |
| Income /(Loss)  before Provision for income taxes |   | 148                       |   | 217                       |   | (2,846 | ) | (2,684 | ) |
|                                              |   |                      |   |                      |   |   |   |   |   |
| PROVISION FOR  INCOME TAXES                       |   | 21                        |   | 21                        |   | 9 |   | 9 |   |
|                                              |   |                      |   |                      |   |   |   |   |   |
| Income/(Loss)  from Continuing operations         |   | 127                       |   | 196                       |   | (2,855 | ) | (2,693 | ) |
|                                              |   |                      |   |                      |   |   |   |   |   |
| Income/(Loss)  from Discontinued operations       |   | —                    |   | —                    |   | (225 | ) | (225 | ) |
|                                              |   |                      |   |                      |   |   |   |   |   |
| Net  Income/(Loss)                                |   |                      | 127    |                      |   | 196 |   |   | (3,080 | ) |   | (2,918 | ) |
| Preferred stock  dividends  issued and accrued    |   | 2,117                     |   | 2,319                     |   | 2,431 |   | 2,664 |   |
|                                              |   |                      |   |                      |   |   |   |   |   |
| Loss to common stockholders                       |   | $                         | (1,990 | )                         | $      | (2,123 | ) | $ | (5,511 | ) | $ | (5,582 | ) |
|                                                   |        |                           |        |                           |        |  |  |  |  |  |  |  |  |  |

 

----

(1)Certain accounts have been reclassified to conform with the current period’spresentation.

 

9

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|                                              |   | **(Unaudited)  Thirty-Nine Weeks** |    | **(Unaudited)  Thirty-Nine Weeks** |   |
|---------------------------------------------------|--------|------------------------------------|---------|------------------------------------|--------|
|                                              |   | **September  24, 2001**            |    | **September  30, 2002**            |   |
|                                              |   | **As  Previously**                 |    | **As**                             |   | **As  Previously** |   | **As** |   |
| **(in  thousands)**                               |   | **Reported**                       |    | **Restated**                       |   | **Reported** |   | **Restated** |   |
|                                              |   | **(1)**                            |    |                               |   | **(1)** |   |   |   |
| REVENUES                                          |   | $                                  | 226,808 |                               | $      | 226,696 |   | $ | 226,522 |   | $ | 226,595 |   |
|                                              |   |                               |    |                               |   |   |   |   |   |
| RESTAURANT  COSTS:                                |   |                               |    |                               |   |   |   |   |   |
| Food and  beverage                                |   | 75,602                             |    | 76,054                             |   | 75,388 |   | 74,936 |   |
| Payroll                                           |   | 64,923                             |    | 64,923                             |   | 68,362 |   | 68,362 |   |
| Direct operating                                  |   | 56,495                             |    | 56,248                             |   | 56,748 |   | 56,891 |   |
| Depreciation and  amortization                    |   | 6,478                              |    | 6,478                              |   | 5,527 |   | 5,527 |   |
|                                              |   |                               |    |                               |   |   |   |   |   |
| GENERAL AND  ADMIN. EXPENSES                      |   | 7,198                              |    | 7,217                              |   | 7,538 |   | 7,557 |   |
|                                              |   |                               |    |                               |   |   |   |   |   |
| Operating profit  from continuing operations      |   | 16,112                             |    | 15,776                             |   | 12,959 |   | 13,322 |   |
|                                              |   |                               |    |                               |   |   |   |   |   |
|                                              |   |                               |    |                               |   |   |   |   |   |
| INTEREST  EXPENSE, net                            |   | 12,801                             |    | 12,804                             |   | 16,358 |   | 16,316 |   |
|                                              |   |                               |    |                               |   |   |   |   |   |
| Income /(loss)  before provision for income taxes |   | 3,311                              |    | 2,972                              |   | (3,399 | ) | (2,994 | ) |
|                                              |   |                               |    |                               |   |   |   |   |   |
| PROVISION FOR  INCOME TAXES                       |   | 183                                |    | 183                                |   | 66 |   | 66 |   |
|                                              |   |                               |    |                               |   |   |   |   |   |
| Income/(Loss)  from continuing operations         |   | 3,128                              |    | 2,789                              |   | (3,465 | ) | (3,060 | ) |
|                                              |   |                               |    |                               |   |   |   |   |   |
| Income/(Loss)  from discontinued operations       |   | —                             |    | —                             |   | (225 | ) | (225 | ) |
|                                              |   |                               |    |                               |   |   |   |   |   |
| Net  Income/(Loss)                                |   |                               | 3,128   |                               |   | 2,789 |   |   | (3,690 | ) |   | (3,285 | ) |
| Preferred stock  dividends,  issued and accrued   |   | 6,138                              |    | 6,722                              |   | 7,047 |   | 7,720 |   |
|                                              |   |                               |    |                               |   |   |   |   |   |   |   |   |   |
| Loss to common  stockholders                      |   | $                                  | (3,010  | )                                  | $      | (3,933 | ) | $ | (10,737 | ) | $ | (11,005 | ) |

 

----

(1) Certain accounts havebeen reclassified to conform with the current period’s presentation.

 

 

3.             OPERATIONSAND REFINANCING

 

The Company’s operations are affected bylocal and regional economic conditions, including competition in the restaurantindustry.

 

On October 31, 2001, we completed anexchange offer (the “Exchange”) in which we offered to exchange our 111⁄2% SeniorSecured Notes due 2006 (the “New Notes”) for all of our $142,600,000outstanding 111⁄2% Senior Secured Notes due 2003 (the “Old Notes”).  We simultaneously completed an offering (the“Offering”) of $30,000,000 aggregate principal amount of New Notes.  After the consummation of the Exchange, theOffering, and related transactions (collectively, the “Refinancing”), we haveno further payment obligations with respect to over 97.6% of the outstandingOld Notes (constituting all but $3,410,000 aggregate principal amount of theOld Notes) and assumed payment obligations equivalent to $161,774,000 of theNew Notes. The Refinancing substantially eliminates debt principal paymentsuntil November 2006.

 

10

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We do not, however, expect to generatesufficient cash flows from operations in the future to pay fully the principalof the senior indebtedness upon maturity in 2006 and, accordingly, we expect torefinance all or a portion of such debt, obtain new financing, or possibly sellassets.

 

4.             SALEOF STOCK TO A RELATED PARTY

 

In June 2000, the Companysold all of the outstanding stock of four wholly owned subsidiaries (“Non-BlackAngus Subsidiaries”) to Spectrum Restaurant Group, Inc. (formerly known asNBACo, Inc.).  The operations of thesold subsidiaries are accounted for as discontinued operations and the resultsfor all periods are classified in accordance with Accounting Principles BoardOpinion No. 30.

 

For the thirteen weeksended September 30, 2002, the Company recognized $225,000 as a loss fromdiscontinued operations for the expenses paid beyond the $12.6 millionliability limitation agreed to with Spectrum Restaurant Group, Inc.  We believe these costs paid, as well as anyfuture costs paid related to these retained assets and liabilities, are theresponsibility of Spectrum Restaurant Group, Inc.  Until a settlement is reached, additional payments will also tobe charged as a loss from discontinued operations as incurred.

 

5.             INCOMETAXES

 

The tax provision againstthe pre-tax income in 2002 and in 2001 consisted of certain state income taxesand estimated Federal income tax.  Weestablished a valuation allowance against net-operating-loss carryforwards.

 

6.             PREFERREDSTOCK

 

As part of therecapitalization plan in February 1998, we issued 35,000 preferred stock units(the “Units”) of the Company.  Each Unitconsists of $1,000 initial liquidation preference of 12% senior pay-in-kindexchangeable preferred stock and one common-stock purchase warrant initially topurchase 2.66143 shares of the common stock at an initial exercise price of onecent per share.  Our preferred stock ismandatorily redeemable on August 15, 2003. If on August 15, 2003 we do not redeem our preferred stock for cash at aprice per share equal to 110% of the then-applicable liquidation preference,our preferred stock will be automatically redeemed for shares of our commonstock at that time and all rights of the preferred stock will terminate.  Management believes that the preferred stockwill convert to common stock.

 

We issued preferred stockdividends of 4,495 shares on August 15, 2002. At September 30, 2002, we had 65,631 preferred shares outstanding andaccrued.

 

7.             SUBSIDIARYGUARANTORS

 

Separatefinancial statements of our subsidiaries are not included in this report onForm 10-Q.  The subsidiaries are fully,unconditionally, jointly, and severally liable for our obligations under theCompany’s Old Notes and New Notes, and the aggregate net assets, earnings, andequity of such subsidiary guarantors are substantially equivalent to the netassets, earnings, and equity of the Company (issuer) on a consolidated basis,as the Company has no significant operations.

 

8.             INSURANCE

 

The Company self-insurescertain risks, including medical, workers’ compensation, property, and generalliability, up to varying limits. Deductible and self-insured limits have variedhistorically, ranging from $0 to $1,000,000 per incident depending on the typeof risk. The policy deductibles are $125,000 for annual medical and dentalbenefits per person. Reserves for losses are established based upon presentlyestimated obligations for the claim over time and the deductible orself-insured retention in place at the time of the loss.

 

11

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9.****            GOODWILLAND INTANGIBLES

 

TheCompany adopted Statement of Financial Accounting Standards (“SFAS”) No. 141and SFAS No. 142 on January 1, 2002, and is no longer amortizing goodwill,thereby eliminating annual goodwill amortization of approximately $331,000,based on anticipated amortization for fiscal year 2002 that would have beenincurred under the prior accounting standard. The adoption reduced amortizationexpense by approximately $83,000 and $248,000 for the thirteen weeks andthirty-nine weeks ended September 30, 2002. In accordance with SFAS No. 142,the Company reclassified $501,000 net from intangible assets to goodwillrelating to acquisition costs connected with the 1987 acquisition of StuartAnderson’s from Saga Corporation. The Company completed the first step of thetransitional goodwill-impairment test in the first quarter of 2002 anddetermined that no potential impairment existed. However, no assurances can begiven that future evaluations of goodwill will not result in charges as aresult of future impairment. The Company will evaluate goodwill at least on anannual basis and whenever events and changes in circumstances suggest that thecarrying amount may not be recoverable from its estimated future cashflow.  The Company will continue toamortize the identified intangibles. The amortization expense is estimated tobe $1.5 million for fiscal 2002 and estimated thereafter to be $1.5 millioneach for fiscal years 2003, 2004, and 2005. Amortization of intangibles for thethirty-nine weeks ended September 30, 2002 was approximately $1.1 million.

 

10.****          NEWACCOUNTING PRONOUNCEMENTS

 

In April 2002, the Financial Accounting StandardsBoard (“FASB”) issued SFAS No. 145, “Rescission of FAS Nos. 4, 44, and 64,Amendment of FAS 13, and Technical Corrections” (“SFAS 145”).  SFAS 145 rescinds FASB Statement No. 4,Reporting Gains and Losses from Extinguishment of Debt, and an amendment ofthat Statement, FASB Statement No. 64, “Extinguishments of Debt Made to SatisfySinking-Fund Requirements,” as well as FASB Statement No. 44, “Accounting forIntangible Assets of Motor Carriers.” This Statement amends FASB Statement No.  13, “Accounting for Leases,” to eliminate an inconsistencybetween the required accounting for sale-leaseback transactions and therequired accounting for certain lease modifications that have economic effectsthat are similar to sale-leaseback transactions.  This Statement also amends other existing authoritativepronouncements to make various technical corrections, clarify meanings, ordescribe their applicability under changed conditions.  The provisions of SFAS 145 will be adoptedduring fiscal year 2003. We do not anticipate that adoption of this statementwill have a material impact on our consolidated balance sheets or consolidatedstatements of operations.

 

In June 2002, the FASB issued SFAS No. 146,“Accounting for Exit or Disposal Activities” (“SFAS 146”). SFAS 146 addresses significant issues regarding therecognition, measurement, and reporting of costs that are associated with exitand disposal activities, including restructuring activities that are currentlyaccounted for under EITF No. 94-3, “Liability Recognition for Certain EmployeeTermination Benefits and Other Costs to Exit an Activity (including CertainCosts Incurred in a Restructuring).” The scope of SFAS 146 also includes costs related to terminating acontract that is not a capital lease and termination benefits that employeeswho are involuntarily terminated receive under the terms of a one-time benefitarrangement that is not an ongoing benefit arrangement or an individualdeferred-compensation contract. SFAS 146 will be effective for exit or disposalactivities that are initiated after December 31, 2002 and early application isencouraged. The provisions of EITF No. 94-3 shall continue to apply for an exitactivity initiated under an exit plan that met the criteria of EITF No. 94-3prior to the adoption of SFAS 146. We do not anticipate that adoption of thisstatement will have a material impact on our consolidated balance sheets orconsolidated statements of operations.

 

11.                COMMITMENTSAND CONTINGENCIES

 

The Company is obligatedunder an employment agreement with an officer. The obligation under theagreement is $500,000 per year and expires in 2002 unless extended.

 

The Company has been named as defendantin various lawsuits.  Management’sopinion is that the outcome of such litigation will not materially affect theCompany's financial position, results of operations, or cash flows. 

12

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| **ITEM 2.** |   | **MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS** |
|-------------|--------|-------------------------------------------------------------------------------------------------|

 

Management’sDiscussion and Analysis of Financial Condition and Results of Operationspresented below reflects certain restatements to our previously reportedconsolidated financial statements as of December 31, 2001 and for the periodsended September 24, 2001 and September 30, 2002. (See “Restatement of FinancialStatements” below.) The information set forth below should be read togetherwith the Company’s consolidated financial statements and related notesappearing elsewhere in this report.

 

Certain statements contained in this Form10-Q are forward-looking regarding cash flows from operations, restaurantopenings, capital requirements, and other matters. These forward-lookingstatements involve risks and uncertainties and, consequently, could be affectedby general business conditions, the impact of competition, governmentalregulations, and inflation.

 

The following discussion and analysis ofour financial condition and results of operations should be read in conjunctionwith the historical financial information included in the ConsolidatedCondensed Financial Statements.

 

**Resultsof Operations**

 

*Thirteenweeks ended September 24, 2001 and September 30, 2002:*

 

*Revenues. *Total revenues increased to $70.1 million in the thirdquarter of 2002 from $68.3 million in the third quarter of 2001. The revenueincrease is from the four additional stores opened in 2001. In the 103 basestores, sales decreased by 0.4% in the third quarter of 2002 compared to thethird quarter of 2001. Lunch counts were positive 3.3% and dinner counts werepositive 1.5%; this is offset, however, by a lower average check from the saleof “more casual” lower-priced items on the menu. There were 109 Black Angusrestaurants operating as of September 30, 2002 and 105 Black Angus restaurantsoperating as of September 24, 2001.

 

*Foodand Beverage Costs.*  As a percentage of revenues, food andbeverage costs decreased to 33.2% in the third quarter of 2002 from 33.5% inthe third quarter of 2001.  The decreasein 2002 relates to favorable purchasing conditions.

 

*PayrollCosts.*  As a percentage of revenues, labor costsincreased to 30.9% in the third quarter of 2002 from 30.2% in the third quarterof 2001.  The increase is primarily fromthe minimum-wage rate increase in 2002.

 

*DirectOperating Costs.*  Direct operating costs consist of occupancy,advertising, and other expenses incurred by individual restaurants.  As a percentage of revenues, these costsincreased to 25.4% in the third quarter of 2002 from 22.9% in the third quarterof 2001.  The increase is largely fromhigher rental expense for the additional four new restaurants operating duringthe third quarter.

 

*Depreciationand Amortization.*  Depreciation and amortization consists ofdepreciation of fixed assets used by individual restaurants and at the BlackAngus and corporate offices, as well as amortization of intangible assets.  As a percentage of revenues, depreciationand amortization decreased to 2.7% in the third quarter of 2002 from 3.1% inthe third quarter of 2001. The decrease primarily relates to the reduction ofamortization of the deferred debt costs for Old Notes purchased as part of theRefinancing in the fourth quarter of 2001 and the discontinued amortization ofgoodwill in 2002.

 

*Generaland Administrative Expenses.*  General andadministrative expenses increased to $2.7 million in the third quarter of 2002from $2.4 million in the third quarter of 2001, primarily because of anincrease in management-training expense.

 

*OperatingProfit.*  As a result of the above items, operatingprofit decreased to $2.8 million in the third quarter of 2002 from $4.5 millionin the third quarter of 2001. As a percentage of revenues, operating profitdecreased to 4.0% in the third quarter of 2002 compared to 6.6% in the thirdquarter of 2001.

 

*InterestExpense - Net.*Our interest expense increased to $5.5 million in the third quarter of 2002from $4.3 million in the third quarter of 2001. The increase is from refinancingthe senior notes in the fourth quarter of 2001.  The face value of senior notes increased by $22.6 million ($165.2million face value) compared to the third quarter of 2001 ($142.6 million facevalue) at the same interest rate (11.5%).

 

*Lossfrom Discontinued Operations.*  This accountconsists of the payments made pursuant to the Stock Sale that are above theliability ceiling, primarily rent for properties of former restaurants of theNon-Black Angus Subsidiaries sold to Spectrum Restaurant Group, Inc. The amountfor the third quarter of 2002 is $225,000. There was no such expense in the third quarter of 2001.

 

*Thirty-nineweeks ended September 24, 2001 and September 30, 2002:*

 

*Revenues. *Total revenues decreased slightly to $226.6 million in2002 from $226.7 million in 2001. In the 103 base stores, sales decreased by3.0% in 2002 compared to 2001. Although lunch sales are positive 1.6%, dinnersales decreased from a decline in dinner counts.  Average check also declined with the introduction of more casual“value” items on the dinner menu. There were 109 Black Angus restaurantsoperating as of September 30, 2002 and 105 Black Angus restaurants operating asof September 24, 2001.

 

13

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*Foodand Beverage Costs.*  As a percentage of revenues, food andbeverage costs decreased to 33.1% in 2002 from 33.5% in 2001.  The decrease is related to favorablepurchasing conditions.

 

*PayrollCosts.*  As a percentage of revenues, labor costsincreased to 30.2% in 2002 from 28.6% in 2001. The increase is primarily from higher labor-related costs for vacation,employee incentives, and minimum-wage rate increases in 2002.

 

*DirectOperating Costs.*  Direct operating costs consist of occupancy,advertising, and other expenses incurred by individual restaurants.  As a percentage of revenues, these costsincreased slightly to 25.1% in 2002 from 24.8% in 2001. The savings related toenergy-conservation measures and general liability costs were offset by anincrease in rental expense for the additional restaurants operating in 2002.

 

*Depreciationand Amortization.*  Depreciation and amortization consists ofdepreciation of fixed assets used by individual restaurants and at the BlackAngus and corporate offices, as well as amortization of intangible assets.  As a percentage of revenues, depreciationand amortization decreased to 2.4% in 2002 from 2.9% in 2001. The decreaseprimarily relates to the reduction of amortization of the deferred debt costsfor Old Notes purchased as part of the Refinancing in the fourth quarter of2001 and the discontinued amortization of goodwill in 2002.

 

*Generaland Administrative Expenses.*  General andadministrative expenses increased slightly to $7.6 million in 2002 from $7.2million in 2001, primarily because of an increase in management-trainingexpense.

 

*OperatingProfit.*  As a result of the above items, operatingprofit decreased to $13.3 million in 2002 from $15.8 million in 2001.  As a percentage of revenues, operatingprofit decreased to 5.9% in 2002 compared to 7.0% in 2001.

 

*InterestExpense - Net.*Our interest expense increased to $16.3 million in 2002 from $12.8 million in2001. The increase is from refinancing the senior notes in the fourth quarterof 2001.  The face value of senior notesincreased by $22.6 million ($165.2 million face value) compared to 2001 ($142.6million face value) at the same interest rate (11.5%).

 

*Lossfrom Discontinued Operations.*  This accountconsists of the payments made pursuant to the Stock Sale that are above theliability ceiling, primarily rent for properties of former restaurants of theNon-Black Angus Subsidiaries sold to Spectrum Restaurant Group, Inc. The amountfor 2002 is $225,000.  There was no suchexpense in 2001.

 

 

## **Liquidity and CapitalResources**

 

Our primary sources of liquidity are cashflows from operations and borrowings under our revolving creditfacilities.  We require capitalprincipally for the acquisition and construction of new restaurants, theremodeling of existing restaurants, the purchase of new equipment and leaseholdimprovements, and working capital. As of September 30, 2002, we hadapproximately $4.5 million of cash.

 

In general, restaurant businesses do nothave significant accounts receivable because sales are made for cash or by credit-cardvouchers, which are ordinarily paid within three to five days.  The restaurants do not maintain substantialinventory as a result of the relatively brief shelf life and frequent turnoverof food products. Additionally, restaurants generally are able to obtain tradecredit in purchasing food and restaurant supplies.  As a result, restaurants are frequently able to operate withworking-capital deficits, i.e., current liabilities exceed current assets.  At September 30, 2002, our working-capitaldeficit was $26.5 million.

 

We estimate that capital expenditures of$2.0 million to $5.0 million are required annually to maintain and refurbishour existing restaurants.  Other capitalexpenditures, which are generally discretionary, are primarily for the constructionof new restaurants and for expanding, reformatting, and extending thecapabilities of existing restaurants and for general corporate purposes.  Total capital expenditures for continuingoperations were approximately $2.5 million through the third quarter of 2002and $1.9 million through the third quarter of 2001.  We estimate that capital expenditures in 2002 will beapproximately $3.8 million.  We intendto open new restaurants with small capital outlays and to finance most of theexpenditures through leases.

 

On October 31, 2001, we completed anexchange offer (the “Exchange”) in which we offered to exchange our 111⁄2% SeniorSecured Notes due 2006 (the “New Notes”) for all of our $142,600,000outstanding 111⁄2% Senior Secured Notes due 2003 (the “Old Notes”).  We simultaneously completed an offering (the“Offering”) of $30,000,000 aggregate principal amount of New Notes.  After the consummation of the Exchange, theOffering, and related transactions (collectively, the “Refinancing”), we haveno further payment obligations with respect to over 97.6% of the outstandingOld Notes (constituting all but $3,410,000 aggregate principal amount of theOld Notes) and assumed payment obligations equivalent to $161,774,000 of theNew Notes. The Refinancing substantially eliminates debt principal paymentsuntil November 2006.

 

14

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The principal elements of the Refinancing were: (a) the Exchange(approximately $124 million aggregate principal amount of Old Notes were exchangedfor approximately $132 million aggregate principal amount New Notes); (b) theOffering (the issuance of $30 million aggregate principal amount of New Notes);(c) the consent of the holders of our outstanding preferred stock to amend theterms of the preferred stock to provide that if we do not redeem the preferredstock for cash on August 15, 2003 in accordance with its terms, then thepreferred stock will automatically be redeemed for shares of our common stockat that time and all the rights of the preferred stock will terminate,including any rights of acceleration; to eliminate provisions that allow theholders to exchange preferred stock for new subordinate debt; and to amend thecovenants of the preferred stock so that they are substantially similar to thecovenants under the New Notes; and, (d) the consent of the lender under ourformer revolving credit facility (“Old Credit Facility”) to permit the issuanceof the New Notes and any other aspects of the Refinancing requiring thelender’s consent.

 

$3,410,000 of the Old Notes were outstanding at September 30,2002.  Under the Old Notes, we areobligated to make semiannual interest payments on February 15 and August 15through February 2003.  Accordingly, wemade an interest payment of $196,075 on August 15, 2002.

 

Under the New Notes, we are obligated to make semiannual interestpayments on May 1 and November 1 through November 2006. Accordingly, we made aninterest payment of $9,302,005 on November 1, 2002.

 

We have an additional $2.3 million in long-term debt that relates tomortgages and capital leases for improvements and equipment.

 

On December 17, 2001, we entered into a loan agreement for a revolvingcredit facility (“New Credit Facility”) with Foothill Capital Corporation toreplace the Old Credit Facility.  OurNew Credit Facility presently provides for up to $15 million in borrowings,including support for letters of credit. As of September 30, 2002, we hadapproximately $7.7 million of letters of credit outstanding and no borrowings,leaving approximately $7.3 million remaining under the New Credit Facility. TheNew Credit Facility expires in December 2005. An amendment to the Company’s NewCredit Facility effective November 13, 2002 is disclosed in our Form 8-K filedNovember 14, 2002.

 

The Company and its subsidiaries do notguaranty the debt of any other parties outside the consolidated group.

 

The Company’s contractual obligations canbe summarized as follows (in thousands):

 
| **Contractual  Oligations**              |   | **Paid in  Q1, 2, & 3 2002** |   | **Remainder of  Fiscal 2002** |   | **Fiscal  Years 2003&2004** |   | **Fiscal  Years 2005&2006** |   | **Fiscal  Years Beyond 2006** |   | **Total  Remaining** |   |
|------------------------------------------|--------|----------------------------------|--------|-------------------------------|--------|---------------------------------|--------|---------------------------------|--------|-------------------------------|--------|----------------------|--------|
| Long-Term Debt –  Interest on Notes |   | $                                | 9,694  |                          | $      | 9,354                           |   | $                               | 37,404 |                          | $      | 37,208               |   | $ | — |   | $ | 93,660 |   |
| Long-Term Debt –  Other             |   | 294                              |   | 108                           |   | 3,476                           |   | 161,867                         |   | 949                           |   | 166,694              |   |
| Capital Leases                           |   | 589                              |   | 488                           |   | 1,092                           |   | 464                             |   | 1,115                         |   | 3,748                |   |
| Operating Leases                         |   | 14,512                           |   | 4,932                         |   | 34,189                          |   | 28,528                          |   | 180,276                       |   | 262,437              |   |
| Employment  Agreements                   |   | —                           |   | 500                           |   | —                          |   | —                          |   | —                        |   | 500                  |   |
| Total  Contractual Cash                  |   | $                                | 25,089 |                          | $      | 15,382                          |   | $                               | 76,161 |                          | $      | 228,067              |   | $ | 182,340 |   | $ | 527,039 |   |

 

Preferredstock dividends of 4,181 and 4,495 shares were issued on February 15, 2002 andAugust 15, 2002 respectively.  Therewere 65,631 shares of preferred stock outstanding and accrued at September 30,2002. Our preferred stock is mandatorily redeemable on August 15, 2003. If wedo not redeem our preferred stock for cash at a price per share equal to 110%of the then-applicable liquidation preference, our preferred stock will beautomatically redeemed for shares of our common stock at that time and all ofthe rights of the preferred stock will terminate. Management believes that thepreferred stock will convert to common stock.

 

Substantiallyall our assets are pledged to our senior lenders.  In addition, our direct subsidiaries guarantee most of ourindebtedness and such guarantees are secured by substantially all of the assetsof the subsidiaries. In connection with such indebtedness, contingent andmandatory prepayments may be required under certain specified conditions andevents.  There are no compensatingbalance requirements.

 

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Although we are highly leveraged, basedupon current levels of operations and anticipated growth, we expect that cashflows generated from operations together with our other available sources ofliquidity will be adequate to make required payments of principal and intereston our indebtedness, to make anticipated capital expenditures, and to financeworking-capital requirements for at least the next twelve months. We do not,however, expect to generate sufficient cash flows from operations in the futureto pay fully the principal of the senior indebtedness upon maturity in 2006and, accordingly, we expect to refinance all or a portion of such debt, obtainnew financing, or possibly sell assets.

 

**CriticalAccounting Policies**

 

*RevenueRecognition.*Werecord revenue from the sale of food, beverage, and alcohol as products aresold.   We record proceeds from the saleof a gift card of gift certificate in current liabilities and recognize incomewhen a holder redeems a gift card of gift certificate.  We recognize unredeemed gift cards andcertificates as revenue only after such a period of time indicates, based onthe Company’s historical experience, the likelihood of redemption is remote

 

*Use ofEstimates. *The preparation of financial statementsin conformity with generally accepted accounting principles in the UnitedStates requires our management to make estimates and assumptions that affectthe reported amounts of assets and liabilities, the disclosure of contingentassets and liabilities, and the reported amounts of revenues and expenses.Actual results could differ from those estimates.

 

We believe that our financial statementsare a reasonable representation of the realizable values of our assets, thelevel of our liabilities, and the amounts of revenues and expenses incurred inany given period.  There are estimatesinherent in these amounts.  We may notbe able to recover the assumed value of all of our assets, such as property andequipment or intangible assets, if circumstances cause us to close restaurantsor we experience a decline in revenues. Our actual liabilities for matters, such as self-insurance ordiscontinued operations, could possibly be significantly higher or lower thanour estimates if actual conditions are ultimately different than theassumptions used in determining the estimates.

 

*Leases*. We lease equipment and operating facilities under both capital andoperating leases.  In future periods,leases for similar equipment or facilities may not qualify for the accountingapplied historically because of changes in terms or our credit status. Thiswould mean that we may be required to recognize more leases as capital leasesin the future than we have in the past, causing a corresponding increase in ourassets and liabilities, and the associated depreciation and interestexpense.  Conversely, if many leases inthe future were classified as operating leases, rental expense would increase.

 

*ValuationAllowance for Deferred Tax Assets. *We provided a valuation allowance of$34.1 million and $34.8 million against the entire amount of our deferred taxassets as of the fiscal year ended 2001 and as of the fiscal quarter ended September30, 2002, respectively. The Company fully reserves both the net-operating-lossand general-business-credit carryforwards because sufficient doubt existsregarding the Company’s ability to use the carryforwards before expiration.

 

*Long-LivedAssets.*TheCompany periodically reviews for impairment the carrying value of itslong-lived assets.  The Company assessesthe recoverability of the assets based on the estimated undiscounted cash flowsof the assets.  If impairment isindicated, the Company writes down the assets to fair market value based ondiscounted cash flows.

 

*Advertising Costs.*  Advertising costs are expensed either asincurred or the first time the advertising takes place, in accordance withStatement of Position 93-7 *“Reporting on Advertising Costs.”*

 

*Reclassification. *Certain accounts have been reclassified to conformwith the current year’s presentation.

 

*Self-InsuranceReserves*. TheCompany self-insures certain risks, including medical, workers’ compensation,property, and general liability, up to varying limits. Deductible andself-insured limits have varied historically, ranging from $0 to $1,000,000 perincident depending on the type of risk. The policy deductibles are $125,000 forannual medical and dental benefits per person. Reserves for losses areestablished on a claims-made basis plus an actuarially determined provision forincurred-but-not-reported claims and the deductible or self-insured retentionin place at the time of the loss.  The self-insuredreserves are reported on the balance sheet under Self-insurance reserves.

16

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**ITEM3.  QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

 

The market risk of our financialinstruments as of September 30, 2002 has not materially changed since December31, 2001.  The market risk profile onDecember 31, 2001 is disclosed in our annual report on Form 10-K, File No.33-48183, for the fiscal year ended December 31, 2001.

 

**ITEM4.  CONTROLS AND PROCEDURES**

 

The Company’smanagement has designed and periodically reviews and internally audits theeffectiveness of the design and operation of the Company’s disclosure controlsand procedures.  Based on those periodicreviews, the Company’s management, including the CEO and CFO, concluded thatthe Company’s disclosure controls and procedures were effective as of December30, 2002.  There have been nosignificant changes in the Company’s internal controls or in other factors thatcould significantly affect internal controls subsequent to December 30, 2002.

 

 

**PARTII.                OTHER INFORMATION**

## ** **

**ITEM 6.                 EXHIBITSAND REPORTS ON FORM 8-K**

 
| (a)    |   | List of Exhibits                                                                                                               |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                           |   |   |
|   |   | Exhibit No.                                                                                                                    |   | Description |
|   |   |                                                                                                                           |   |   |
|   |   | 99.1                                                                                                                           |   | Certificate of Chief Executive Officer and Chief  Financial Officer |
|   |   |                                                                                                                           |   |   |
| (b)    |   | Form 8-K filed on August 9, 2002 - regarding change  of independent accountants and amendment to our revolving credit facility |
|   |   |                                                                                                                           |   |   |
| (c)    |   | Form 8-K filed on September 4, 2002 - regarding  change of independent accountants                                             |

 

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**SIGNATURE**

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 

 
|                       |   | AMERICAN  RESTAURANT GROUP, INC. |
|----------------------------|--------|----------------------------------|
|                       |   | (Registrant)                     |
|                       |   |                             |   |
|                       |   |                             |   |
| Date:  March 28, 2003 |   | By:                              | /s/ Ralph S.  Roberts |
|                       |   |                             |   |
|                       |   |                             | Ralph S. Roberts |
|                       |   |                             | Chief Executive  Officer and President |
|                       |   |                             |   |
|                       |   |                             |   |
| Date:  March 28, 2003 |   | By:                              | /s/ William G.  Taves |
|                       |   |                             |   |
|                       |   |                             | William G. Taves |
|                       |   |                             | Chief Financial  Officer |

 

 

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CERTIFICATION

 

I, Ralph S. Roberts, certify that:

 

1.                                       I have reviewed this quarterly report onForm 10-Q/A of American Restaurant Group, Inc;

 

2.                                       Based on my knowledge, this quarterlyreport does not contain any untrue statement of a material fact or omit tostate a material fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading withrespect to the period covered by this quarterly report;

 

3.                                       Based on my knowledge, the financialstatements, and other financial information included in this quarterly report,fairly present in all material respects the financial condition, results ofoperations and cash flows of the registrant as of, and for, the periodspresented in this quarterly report;

 

4.                                       The registrant’s other certifyingofficers and I are responsible for establishing and maintaining disclosurecontrols and procedures (as defined in Exchange Act Rules 13a-14 and15d-14) for the registrant and wehave:

 

a)                                      designed such disclosure controls andprocedures to ensure that material information relating to the registrant,including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this quarterly reportis being prepared;

 

b)                                     evaluated the effectiveness of theregistrant’s disclosure controls and procedures as of a date within 90 daysprior to the filing date of this quarterly report (the “Evaluation Date”); and

 

c)                                      presented in this quarterly report ourconclusions about the effectiveness of the disclosure controls and proceduresbased on our evaluation as of the Evaluation Date;

 

5.                                       The registrant’s other certifyingofficers and I have disclosed, based on our most recent evaluation, to theregistrant’s auditors and the audit committee of registrant’s board ofdirectors (or persons performing the equivalent functions):

 

a)                                      all significant deficiencies in thedesign or operation of internal controls which could adversely affect theregistrant’s ability to record, process, summarize and report financial dataand have identified for the registrant’s auditors any material weaknesses ininternal controls; and

 

b)                                     any fraud, whether or not material, thatinvolves management or other employees who have a significant role in theregistrant’s internal controls; and

 

6.                                       The registrant’s other certifyingofficers and I have indicated in this quarterly report whether or not therewere significant changes in internal controls or in other factors that couldsignificantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 
| Date:       March 28, 2003 |                    |
|-----------------------------------------------------|-------------------------|
|                                                |                    |
|                                                | /s/ Ralph S. Roberts    |
|                                                | Ralph S. Roberts        |
|                                                | Chief Executive Officer |

 

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CERTIFICATION

 

I, William G. Taves, certify that:

 

1.                                       I have reviewed this quarterly report onForm 10-Q/A of American Restaurant Group, Inc;

 

2.                                       Based on my knowledge, this quarterlyreport does not contain any untrue statement of a material fact or omit tostate a material fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading withrespect to the period covered by this quarterly report;

 

3.                                       Based on my knowledge, the financialstatements, and other financial information included in this quarterly report,fairly present in all material respects the financial condition, results ofoperations and cash flows of the registrant as of, and for, the periodspresented in this quarterly report;

 

4.                                       The registrant’s other certifyingofficers and I are responsible for establishing and maintaining disclosurecontrols and procedures (as defined in Exchange Act Rules 13a-14 and15d-14) for the registrant and wehave:

 

a)                                      designed such disclosure controls and proceduresto ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this quarterly report is beingprepared;

 

b)                                     evaluated the effectiveness of theregistrant’s disclosure controls and procedures as of a date within 90 daysprior to the filing date of this quarterly report (the “Evaluation Date”); and

 

c)                                      presented in this quarterly report ourconclusions about the effectiveness of the disclosure controls and proceduresbased on our evaluation as of the Evaluation Date;

 

5.                                       The registrant’s other certifyingofficers and I have disclosed, based on our most recent evaluation, to theregistrant’s auditors and the audit committee of registrant’s board ofdirectors (or persons performing the equivalent functions):

 

a)                                      all significant deficiencies in thedesign or operation of internal controls which could adversely affect theregistrant’s ability to record, process, summarize and report financial dataand have identified for the registrant’s auditors any material weaknesses ininternal controls; and

 

b)                                     any fraud, whether or not material, thatinvolves management or other employees who have a significant role in theregistrant’s internal controls; and

 

6.                                       The registrant’s other certifyingofficers and I have indicated in this quarterly report whether or not therewere significant changes in internal controls or in other factors that couldsignificantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 
| Date:      March 28, 2003 |                    |
|----------------------------------------------------|-------------------------|
|                                               |                    |
|                                               | /s/ William G. Taves    |
|                                               | William G. Taves        |
|                                               | Chief Financial Officer |

 

 

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