**UNITED STATES SECURITIES ANDEXCHANGE COMMISSION**

 

**WASHINGTON,D.C. 20549**

 

----

 

**FORM 10-Q/A**

 

**AmendmentNo. 2**

 

| **(Mark  One)**                                                                                                                                                    |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **ý**                                                                                                                                                         |   | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                                               |
|                                                                                                                                                               |   | **For  the quarterly period ended July 1, 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            ** |
|                                                                                                                                                               |
| **American  Restaurant Group, Inc.**                                                                                                                               |
| (Exact name of  registrant 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 checkmark whether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.

Yes    ý    No   o

 

The number ofoutstanding shares of the Company’s Common Stock (one cent par value) as ofAugust 5, 2002 was 128,081.

 

 

----

 

**AMERICANRESTAURANT GROUP, INC.**

 

**INDEX**

 
| **PART I.** | **FINANCIAL  INFORMATION**                                                                                                                                                                                                      |
|-------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |                                                                                                                                                                                                                            |
|        | PLEASE NOTE:  THESE INTERIM FINANCIAL STATEMENTS WERE  NOT REVIEWED BY OUR INDEPENDENT PUBLIC ACCOUNTANTS IN ACCORDANCE WITH THE  REQUIREMENT OF STATEMENT ON AUDITING STANDARDS #71, ALTHOUGH SUCH A REVIEW IS  REQUIRED. |
|        |                                                                                                                                                                                                                            |
| ITEM 1.     | FINANCIAL STATEMENTS:                                                                                                                                                                                                           |
|        |                                                                                                                                                                                                                            |
|        | Consolidated Condensed Balance Sheets                                                                                                                                                                                           |
|        |                                                                                                                                                                                                                            |
|        | Consolidated Statements of Operations                                                                                                                                                                                           |
|        |                                                                                                                                                                                                                            |
|        | Consolidated Statements of Cash Flows                                                                                                                                                                                           |
|        |                                                                                                                                                                                                                            |
|        | Notes to Consolidated Condensed Financial  Statements                                                                                                                                                                           |
|        |                                                                                                                                                                                                                            |
| ITEM 2.     | MANAGEMENT’S DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                                                                                                                     |
|        |                                                                                                                                                                                                                            |
| ITEM 3.     | QUANTITATIVE AND QUALITATIVE DISCLOSURES  ABOUT MARKET RISK                                                                                                                                                                     |
|        |                                                                                                                                                                                                                            |
| ITEM 4.     | SUBMISSION OF MATTERS TO A VOTE OF SECURITY  HOLDERS                                                                                                                                                                            |
|        |                                                                                                                                                                                                                            |
| ITEM 5.     | OTHER INFORMATION                                                                                                                                                                                                               |
|        |                                                                                                                                                                                                                            |
| ITEM 6.     | EXHIBITS AND REPORTS ON FORM 8-K                                                                                                                                                                                                |

 

----

 

**PARTI.****   FINANCIAL INFORMATION**

 

EXPLANATORYNOTE

 

ARTHUR ANDERSEN LLP PERFORMED THE AUDIT OF OUR FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001.  BECAUSE OF A CHANGE IN OUR INDEPENDENT AUDITORS, OUR NEW INDEPENDENT AUDITORS HAVE NOT YET COMPLETED A REAUDIT OF OUR FINANCIAL STATEMENTS FOR THAT YEAR.  CONSEQUENTLY, THEY WERE NOT ABLE TO PERFORM A REVIEW OF THE INTERIM FINANCIAL STATEMENTS INCLUDED IN THIS REPORT IN ACCORDANCE WITH THE REQUIREMENTS OF STATEMENT ON AUDITING STANDARDS NO. 71 (“SAS 71”), ALTHOUGH SUCH A REVIEW IS REQUIRED.

 

Rule 10-01(d) ofRegulation S-X requires interim financial statements included in quarterlyreports on Form 10-Q be reviewed by an independent public accountant. Becausethe accompanying financial statements were not reviewed to this standard, theCompany’s Chief Executive Officer and Chief Financial Officer are unable tomake the certifications required by Section 906 of the Sarbanes-Oxley Act,except as modified and conditioned by the disclosures made in this Report.  When such review is concluded by theCompany’s new independent accountants, accounting errors or inaccuracies mightbe discovered by such new auditors and require correction.

 

**ITEM 1.****   FINANCIAL STATEMENTS:**

 

We file this AmendmentNo. 2 to report that the restated interim financial statements included inAmendment No. 1 were not reviewed by our independent public accountants inaccordance with the requirement of SAS 71. We disclose this fact, and correspondingly condition the officercertifications. We also make grammatical corrections.  The figures previously reported in the unaudited interimfinancial statements included in Amendment No. 1 are not changed in thisfiling.

 

Amendment No.1 to Form 10-Q was filed to amend certain financialstatements and related disclosures in the Quarterly Report on Form 10-Q for theregistrant’s quarter ended July 1, 2002 originally filed on August 15, 2002(the “Original Filing”).  The Companychanged its policy for accounting for advertising costs in its interim periodsto conform to the accounting applied at its fiscal year end.  Management believes this accounting moreaccurately reflects the matching of costs and benefits during the interimperiods.  The financial statements forthe fiscal periods ending July 1, 2002 and June 24, 2001 are restated toreflect the change.  Advertising costsreported within the financial position and results of operations for the fiscalyear ended December 31, 2001 are unchanged. We also revised Note 8-Insurance to adjust the deductible andself-insured limits and made grammatical changes in this amended report.

 

As discussed in Note 2 to the financial statements, thereclassification affects the Company’s quarterly results.   This report continues to speak as of thedate of the Original Filing, and we have not updated the disclosures in thisreport to speak as of a later date.  Allinformation contained in this report and the Original Filing is subject toupdating and supplementing as provided in our periodic reports filed with theSecurities and Exchange Commission.

 

AMERICANRESTAURANT GROUP, INC. AND SUBSIDIARIES

 

CONSOLIDATED CONDENSED BALANCESHEETS

 

#### DECEMBER31, 2001 AND JULY 1, 2002

(unaudited)

 
|                                  |   | **December  31,  2001** |       | **July 1,  2002**  |       |
|---------------------------------------|--------|-------------------------|------------|--------------------|------------|
|                                  |   |                    | ** ** | **(as  restated)** | ** ** |
| ASSETS                                |   |                    |       |               |       |
|                                  |   |                    |       |               |       |
| CURRENT  ASSETS:                      |   |                    |       |               |       |
| Cash                                  |   | $                       | 10,053,000 |               | $          | 7,225,000 |   |
| Accounts  and notes receivable, net   |   | 4,071,000               |       | 3,424,000          |       |
| Inventories                           |   | 3,040,000               |       | 2,966,000          |       |
| Prepaid  expenses                     |   | 3,002,000               |       | 2,056,000          |       |
|                                  |   |                    |       |               |       |
| Total  current assets                 |   | 20,166,000              |       | 15,671,000         |       |
|                                  |   |                    |       |               |       |
| PROPERTY  AND EQUIPMENT:              |   |                    |       |               |       |
| Land  and land improvements           |   | 2,598,000               |       | 2,598,000          |       |
| Buildings  and leasehold improvements |   | 69,858,000              |       | 72,426,000         |       |
| Fixtures  and equipment               |   | 48,914,000              |       | 49,890,000         |       |
| Property  held under capital leases   |   | 7,293,000               |       | 7,293,000          |       |
| Construction  in progress             |   | 2,517,000               |       | 810,000            |       |
|                                  |   |                    |       |               |       |
| Property  and Equipment               |   | 131,180,000             |       | 133,017,000        |       |
| Less  – Accumulated depreciation |   | 80,077,000              |       | 82,924,000         |       |
|                                  |   |                    |       |               |       |
| Net  property and equipment           |   | 51,103,000              |       | 50,093,000         |       |
|                                  |   |                    |       |               |       |
| OTHER  ASSETS, NET:                   |   | 18,435,000              |       | 17,686,000         |       |
|                                  |   |                    |       |               |       |
| Total  assets                         |   | $                       | 89,704,000 |               | $          | 83,450,000 |   |

 

The accompanying notes are an integral part of theseconsolidated condensed statements.

(consolidated condensed balance sheets continued onthe following page)

 

1

----

 
|                                                                                                                                                                                                                 |   | **December  31,  2001** |       | **July 1,  2002**  |       |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|------------|--------------------|------------|
|                                                                                                                                                                                                                 |   |                    |       | **(as  restated)** |       |
| LIABILITIES AND  COMMON STOCKHOLDERS’ DEFICIT                                                                                                                                                                   |   |                    | ** ** |               | ** ** |
|                                                                                                                                                                                                                 |   |                    | ** ** |               | ** ** |
| CURRENT  LIABILITIES:                                                                                                                                                                                                |   |                    |       |               |       |
| Accounts  payable                                                                                                                                                                                                    |   | $                       | 12,528,000 |               | $          | 10,254,000 |   |
| Accrued  liabilities                                                                                                                                                                                                 |   | 12,849,000              |       | 8,813,000          |       |
| Accrued  insurance                                                                                                                                                                                                   |   | 3,232,000               |       | 3,880,000          |       |
| Accrued  interest                                                                                                                                                                                                    |   | 3,447,000               |       | 3,385,000          |       |
| Accrued  payroll costs                                                                                                                                                                                               |   | 4,853,000               |       | 5,171,000          |       |
| Current  portion of obligations under capital leases                                                                                                                                                                 |   | 796,000                 |       | 842,000            |       |
| Current  portion of long-term debt                                                                                                                                                                                   |   | 402,000                 |       | 3,632,000          |       |
| Liabilities  from discontinued operations                                                                                                                                                                            |   | 525,000                 |       | 36,000             |       |
|                                                                                                                                                                                                                 |   |                    |       |               |       |
| Total  current liabilities                                                                                                                                                                                           |   | 38,632,000              |       | 36,013,000         |       |
|                                                                                                                                                                                                                 |   |                    |       |               |       |
| LONG-TERM  LIABILITIES, net of current portion:                                                                                                                                                                      |   |                    |       |               |       |
| Obligations  under capital leases                                                                                                                                                                                    |   | 1,799,000               |       | 1,366,000          |       |
| Long-term  debt, net of unamortized discount                                                                                                                                                                         |   | 157,272,000             |       | 154,780,000        |       |
|                                                                                                                                                                                                                 |   |                    |       |               |       |
| Total  long-term liabilities                                                                                                                                                                                         |   | 159,071,000             |       | 156,146,000        |       |
|                                                                                                                                                                                                                 |   |                    |       |               |       |
| DEFERRED  GAIN                                                                                                                                                                                                       |   | 3,990,000               |       | 3,889,000          |       |
|                                                                                                                                                                                                                 |   |                    |       |               |       |
| 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  63,299 shares outstanding and accrued at July 1, 2002 |   | 58,219,000              |       | 62,834,000         |       |
|                                                                                                                                                                                                                 |   |                    |       |               |       |
| 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 July 1, 2002                                                                            |   | 1,000                   |       | 1,000              |       |
| Paid-in  capital                                                                                                                                                                                                     |   | 7,279,000               |       | 2,664,000          |       |
| Accumulated  deficit                                                                                                                                                                                                 |   | (177,488,000            | )          | (178,097,000       | )          |
|                                                                                                                                                                                                                 |   |                    |       |               |       |
| Total  common stockholders’ deficit                                                                                                                                                                             |   | (170,208,000            | )          | (175,432,000       | )          |
|                                                                                                                                                                                                                 |   |                    |       |               |       |
| Total  liabilities and common stockholders’ deficit                                                                                                                                                             |   | $                       | 89,704,000 |               | $          | 83,450,000 |   |

 

The accompanyingnotes are an integral part of these consolidated condensed statements.

 

2

----

 

AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTSOF OPERATIONS

 

FOR THE THIRTEEN WEEKS AND THE TWENTY-SIX WEEKS  ENDED JUNE 25, 2001 AND JULY 1, 2002 

 

(UNAUDITED AND RESTATED)

 
|                                             |   | **Thirteen  Weeks Ended** |       | **Twenty-Six  Weeks Ended** |   |
|--------------------------------------------------|--------|---------------------------|------------|-----------------------------|--------|
|                                             |   | **June 25,  2001**        |       | **July 1,  2002**           |   | **June 25,  2001** |   | **July 1,  2002** |   |
|                                             |   |                      |       |                        |   |   |   |   |   |
| REVENUES                                         |   | $                         | 76,296,000 |                        | $      | 74,626,000 |   | $ | 158,477,000 |   | $ | 156,471,000 |   |
|                                             |   |                      |       |                        |   |   |   |   |   |
| RESTAURANT  COSTS:                               |   |                      |       |                        |   |   |   |   |   |
| Food  and beverage                               |   | 26,013,000                |       | 24,612,000                  |   | 53,153,000 |   | 52,121,000 |   |
| Payroll                                          |   | 21,620,000                |       | 22,104,000                  |   | 44,262,000 |   | 46,711,000 |   |
| Direct  operating                                |   | 19,910,000                |       | 18,525,000                  |   | 40,307,000 |   | 38,801,000 |   |
| Depreciation  and amortization                   |   | 2,178,000                 |       | 1,754,000                   |   | 4,330,000 |   | 3,663,000 |   |
|                                             |   |                      |       |                        |   |   |   |   |   |
| GENERAL  AND ADMINISTRATIVE EXPENSES             |   | 2,304,000                 |       | 2,485,000                   |   | 4,770,000 |   | 4,820,000 |   |
|                                             |   |                      |       |                        |   |   |   |   |   |
| Operating  profit                                |   | 4,271,000                 |       | 5,146,000                   |   | 11,655,000 |   | 10,355,000 |   |
|                                             |   |                      |       |                        |   |   |   |   |   |
| INTEREST  EXPENSE, net                           |   | 4,247,000                 |       | 5,518,000                   |   | 8,491,000 |   | 10,907,000 |   |
|                                             |   |                      |       |                        |   |   |   |   |   |
| Income  (loss) before provision For income taxes |   | 24,000                    |       | (372,000                    | )      | 3,164,000 |   | (552,000 | ) |
|                                             |   |                      |       |                        |   |   |   |   |   |
| PROVISION  FOR INCOME TAXES                      |   | 44,000                    |       | 33,000                      |   | 163,000 |   | 57,000 |   |
|                                             |   |                      |       |                        |   |   |   |   |   |
| Net  income (loss)                               |   | $                         | (20,000    | )                           | $      | (405,000 | ) | $ | 3,001,000 |   | $ | (609,000 | ) |

 

The accompanying notes are an integral part of theseconsolidated condensed statements.

 

3

----

 

AMERICAN RESTAURANTGROUP, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTSOF CASH FLOWS

 

FOR THE TWENTY-SIX WEEKSENDED JUNE 25, 2001 AND JULY 1, 2002

 

(UNAUDITED ANDRESTATED)

 
|                                                                                                                                |   | **June 25,  2001** |        | **July 1,  2002** |       |
|-------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|-------------|-------------------|------------|
|                                                                                                                                |   |               | ** **  |              | ** ** |
| CASH  FLOWS FROM CONTINUING OPERATING ACTIVITIES:                                                                                   |   |               |        |              |       |
| Cash  received from customers                                                                                                       |   | $                  | 157,531,000 |              | $          | 157,118,000 |   |
| Cash  paid to suppliers and employees                                                                                               |   | (149,014,000       | )           | (146,878,000      | )          |
| Interest  paid, net                                                                                                                 |   | (8,486,000         | )           | (10,036,000       | )          |
| Income  tax paid, net                                                                                                               |   | (163,000           | )           | (57,000           | )          |
| Net  cash provided by (used in) continuing operating activities                                                                     |   | (132,000           | )           | 147,000           |       |
|                                                                                                                                |   |               |        |              |       |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                                                                              |   |               |        |              |       |
| Capital  expenditures                                                                                                               |   | (1,171,000         | )           | (1,902,000        | )          |
| Net  (increase) decrease in other assets                                                                                            |   | 51,000             |        | (2,000            | )          |
| Net  cash (used in) investing activities                                                                                            |   | (1,120,000         | )           | (1,904,000        | )          |
|                                                                                                                                |   |               |        |              |       |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                                                                              |   |               |        |              |       |
| Payments  on indebtedness                                                                                                           |   | (200,000           | )           | (195,000          | )          |
| Payments  on capital-lease obligations                                                                                              |   | (340,000           | )           | (387,000          | )          |
| Net  cash (used in) financing activities                                                                                            |   | (540,000           | )           | (582,000          | )          |
|                                                                                                                                |   |               |        |              |       |
| NET  (DECREASE) FROM CONTINUING OPERATIONS                                                                                          |   | (1,792,000         | )           | (2,339,000        | )          |
|                                                                                                                                |   |               |        |              |       |
| NET  (DECREASE) FROM DISCONTINUED OPERATIONS                                                                                        |   | (1,715,000         | )           | (489,000          | )          |
|                                                                                                                                |   |               |        |              |       |
| NET  CHANGE IN CASH, CURRENT PERIOD                                                                                                 |   | (3,507,000         | )           | (2,828,000        | )          |
|                                                                                                                                |   |               |        |              |       |
| CASH,  at beginning of period                                                                                                       |   | 8,532,000          |        | 10,053,000        |       |
|                                                                                                                                |   |               |        |              |       |
| CASH,  at end of period                                                                                                             |   | $                  | 5,025,000   |              | $          | 7,225,000 |   |
|                                                                                                                                |   |               |        |              |       |
| RECONCILIATION  OF NET INCOME (LOSS) FROM CONTINUING OPERATIONS TO NET CASH PROVIDED BY (USED  IN) CONTINUING OPERATING ACTIVITIES: |   |               |        |              |       |
|                                                                                                                                |   |               |        |              |       |
| Net  income (loss)                                                                                                                  |   | $                  | 3,001,000   |              | $          | (609,000 | ) |
| Adjustments  to reconcile net income (loss) to net cash provided by (used in) continuing  operating activities:                     |   |               |        |              |       |
|                                                                                                                                |   |               |        |              |       |
| Depreciation  and amortization                                                                                                      |   | 4,330,000          |        | 3,663,000         |       |
| Amortization  of deferred gain                                                                                                      |   | (101,000           | )           | (101,000          | )          |
| Amortization  of non-cash interest expense                                                                                          |   | —             |        | 933,000           |       |
| (Increase)  decrease in current assets:                                                                                             |   |               |        |              |       |
| Accounts  and notes receivable, net                                                                                                 |   | (946,000           | )           | 647,000           |       |
| Inventories                                                                                                                         |   | (326,000           | )           | 74,000            |       |
| Prepaid  expenses                                                                                                                   |   | 1,044,000          |        | 946,000           |       |
| Increase  (decrease) in current liabilities:                                                                                        |   |               |        |              |       |
| Accounts  payable                                                                                                                   |   | 452,000            |        | (2,274,000        | )          |
| Accrued  liabilities                                                                                                                |   | (5,415,000         | )           | (4,036,000        | )          |
| Accrued  insurance                                                                                                                  |   | (137,000           | )           | 648,000           |       |
| Accrued  interest                                                                                                                   |   | 5,000              |        | (62,000           | )          |
| Accrued  payroll                                                                                                                    |   | (2,039,000         | )           | 318,000           |       |
|                                                                                                                                |   |               |        |              |       |
| Net  cash provided by (used in) continuing operating activities                                                                     |   | (132,000           | )           | 147,000           |       |

 

The accompanying notes are an integral part of theseconsolidated condensed statements.

 

4

----

 

AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES

 

NOTESTO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

 

PLEASE NOTE:  THESE INTERIM FINANCIAL STATEMENTS WERE NOTREVIEWED BY OUR INDEPENDENT PUBLIC ACCOUNTANTS IN ACCORDANCE WITH THEREQUIREMENT OF STATEMENT ON AUDITING STANDARDS #71, ALTHOUGH SUCH A REVIEW ISREQUIRED.

 

1.                                      MANAGEMENT’SOPINION

 

The Consolidated Condensed Financial Statementsincluded were prepared by American Restaurant Group, Inc. without audit, inaccordance with Securities and Exchange Commission Regulation S-X, except withrespect to the fact that a review was not performed by our independent publicaccountants in accordance with the requirement of SAS 71, although such areview is required.  (References to “theCompany,” “we,” “us,” or “our” refer to American Restaurant Group, Inc.)  In the opinion of our management, theseConsolidated Condensed Financial Statements contain all adjustments necessaryto present fairly our financial position as of December 31, 2001 and July 1,2002, and the results of our operations for the thirteen weeks and twenty-sixweeks ended June 25, 2001 and July 1, 2002 and our cash flows for thetwenty-six weeks ended June 25, 2001 and July 1, 2002.  Our results for an interim period are notnecessarily indicative of the results that may be expected for the year.

 

Although we believe that we included all adjustmentsnecessary for a fair presentation of the interim periods presented and that thedisclosures are adequate to make the information presented not misleading, wesuggest that these Consolidated Condensed Financial Statements be read inconjunction with the Consolidated Financial Statements and related notesincluded in the our annual report on Form 10-K, File No. 33-48183, for thefiscal year ended December 31, 2001.

 

2.                                      RESTATEMENTOF QUARTERLY FINANCIAL STATEMENTS

 

The Company changed its policy for accounting foradvertising costs in its interim periods to conform to the accounting appliedat its fiscal year end.  Managementbelieves this accounting more accurately reflects the matching of costs andbenefits during the interim periods. The financial statements for the fiscal periods ending July 1, 2002 andJune 24, 2001 are restated to reflect the change.  Advertising costs reported within the financial position andresults of operations for the fiscal year ended December 31, 2001 areunchanged.

 

3.                                      OPERATIONS

 

The Company’soperations are affected by local and regional economic conditions, includingcompetition in the restaurant industry.

 

On October 31,2001, we completed an exchange offer (the “Exchange”) in which we offered toexchange our 111⁄2% Senior Secured Notes due 2006 (the “New Notes”) for all ofour $142,600,000 outstanding 111⁄2% Senior Secured Notes due 2003 (the “OldNotes”).  We simultaneously completed anoffering (the “Offering”) of $30,000,000 aggregate principal amount of NewNotes.  After the consummation of theExchange, the Offering, and related transactions (collectively, the“Refinancing”), we have no further payment obligations with respect to over97.6% of the outstanding Old Notes (constituting all but $3,410,000 aggregateprincipal amount of the Old Notes) and assumed payment obligations equivalentto $161,774,000 of the New Notes. The Refinancing substantially eliminates debtprincipal payments until November 2006.

 

Managementbelieves the Refinancing will also allow it to continue to effect changes inits operations and has implemented measures to reduce overhead costs. We donot, however, expect to generate sufficient cash flows from operations in thefuture to pay fully the principal of the senior indebtedness upon maturity in2006 and, accordingly, we expect to refinance all or a portion of such debt,obtain new financing, or possibly sell assets.

 

4.             SALE OF STOCK TO SPECTRUMRESTAURANT GROUP

 

In June 2000, wesold all of the outstanding stock of four wholly owned subsidiaries (“Non-BlackAngus Subsidiaries”) to Spectrum Restaurant Group, Inc. (formerly known asNBACo, Inc.) effective June 26, 2000 (the “Stock Sale”). There was no gain orloss recorded because of the related-party nature of the Stock Sale. Wereceived $17.0 million in cash on June 28, 2000, and transferred certain assets

 

5

----

 

and liabilities toSpectrum Restaurant Group, Inc. Concurrent with the Stock Sale, advances between the Company and theNon-Black Angus Subsidiaries were eliminated. Paid-in capital of $27.0 millionwas charged as a result of the Stock Sale. We retained the assets andliabilities associated with certain closed restaurants as well as certainliabilities, estimated on June 26, 2000 at approximately $12.6 million,associated with the operating restaurants that were sold.  The amount of estimated liabilities relatedto the Stock Sale remaining at July 1, 2002 was approximately $36,000.

 

We are currentlyworking to settle these liabilities. Any adjustment to the recorded balance, as a result of such settlement,will be recognized when the amount becomes known.  Until a settlement is reached, additional payments will becharged to direct operating expenses as incurred.  Management believes such amount, if any, will not be material toour financial position or results of operations.

 

5.             INCOME TAXES

 

The tax provision against the pre-tax income in 2002and in 2001 consisted of certain state income taxes and estimated Federalincome tax.  We established a valuationallowance against net-operating-loss carryforwards.

 

6.             PREFERRED STOCK

 

As part of the recapitalization plan in February 1998,we issued 35,000 preferred stock units (the “Units”) of the Company.  Each Unit consists of $1,000 initialliquidation preference of 12% senior pay-in-kind exchangeable preferred stockand one common-stock purchase warrant initially to purchase 2.66143 shares ofthe common stock at an initial exercise price of one cent per share.  Our preferred stock is mandatorilyredeemable on August 15, 2003.  If onAugust 15, 2003 we do not redeem our preferred stock for cash at a price pershare equal to 110% of the then-applicable liquidation preference, ourpreferred stock will be automatically redeemed for shares of our common stockat that time and all rights of the preferred stock will terminate.  Management believes that the preferred stockwill convert to common stock.

 

We issued preferred stock dividends of 4,181 shares onFebruary 15, 2002.  At July 1, 2002, wehad 63,299 preferred shares outstanding and accrued.

 

7.             SUBSIDIARY GUARANTORS

 

Separate financial statements of our subsidiaries arenot included in this report on Form 10-Q because 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 on a consolidated basis.

 

8.                                      INSURANCE

 

We self-insure certain risks, including medical,workers’ compensation, property, and general liability, up to varying limits.Deductible and self-insured limits have varied historically, ranging from $0 to$1,000,000 per incident depending on the type of risk. The policy deductiblesare $120,000 for annual medical and dental benefits per person. Reserves forlosses are established based upon presently estimated obligations for the claimover time and the deductible or self-insured retention in place at the time ofthe loss.

 

9.                                      FORWARD-LOOKINGSTATEMENTS

 

Certain statements contained in this Form 10-Q areforward-looking regarding cash flows from operations, restaurant openings,capital requirements, and other matters. These forward-looking statementsinvolve risks and uncertainties and, consequently, could be affected by generalbusiness conditions, the impact of competition, governmental regulations, andinflation.

 

10.                                NEWACCOUNTING PRONOUNCEMENTS

 

In June 2001, the Financial Accounting Standards Boardissued Statements of Financial Accounting Standards (SFAS) No. 141, “BusinessCombinations” and SFAS No. 142, “Goodwill and Other Intangible Assets.”  These new standards are effective for fiscalyears beginning after December 15, 2001. Under the new standards, goodwill is no longer amortized, but is subjectto an annual impairment test.  Thestandards also promulgate new requirements for accounting for other intangibleassets.  The impact of the new standardson our financial position and results of operations is not material.

 

In August 2001, the Financial Accounting StandardsBoard issued Statement of Financial Accounting Standard No. 144, “Accountingfor the Impairment or Disposal of Long-Lived Assets.”  FASB Statement No. 144 retains FASB Statement No. 121’s“Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assetsto be Disposed,” fundamental provisions for the: (1) recognition andmeasurement of impairment of long-lived assets to be held and used; and (2)measurement of long-lived assets to be disposed of by sale.  FASB Statement No. 144 has not had amaterial impact on our financial position or results of operations, although itmay in future periods.  Statement No.144 is effective for fiscal years beginning after December 15, 2001.

 

6

----

 

 

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

 

The following discussion and analysis of our financialcondition and results of operations should be read in conjunction with thehistorical financial information included in the Consolidated CondensedFinancial Statements.

 

**Results of Operations**

 

*Thirteen weeks ended June 25, 2001and July 1, 2002:*

 

*Revenues. *Total revenues decreased slightly to $74.6million in the first quarter of 2002 from $76.3 million in the first quarter of2001.  In the 103 base stores, salesdecreased by 5.1% in the second quarter of 2002 compared to the second quarterof 2001.  There were 109 Black Angusrestaurants operating as of July 1, 2002 and 105 Black Angus restaurantsoperating as of June 25, 2001.

 

*Food and Beverage Costs.*  As a percentage of revenues, food and beveragecosts decreased to 33.0% in the second quarter of 2002 from 34.1% in the secondquarter of 2001.  The decrease relatesprimarily to favorable raw material costs.

 

*Payroll Costs.*  As a percentage of revenues, labor costsincreased to 29.6% in the second quarter of 2002 from 28.3% in the secondquarter of 2001.  The increase isprimarily from the minimum-wage rate increase in 2002 and increased managementexpense for four new units.

 

*Direct Operating Costs (restated):*  Direct operating costs consist of occupancy,advertising, and other expenses incurred by individual restaurants.  As a percentage of revenues, these costsdecreased to at 24.8% in the second quarter of 2002 from 26.1% in the secondquarter of 2001.The decrease is from lower advertising costs in 2002.

 

*Depreciationand Amortization.* Depreciation and amortization consists of depreciation of fixed assetsused by individual restaurants and at the Black Angus and corporate offices, aswell as amortization of intangible assets. As a percentage of revenues, depreciation and amortization decreased to2.4% in the second quarter of 2002 from 2.9% in the second quarter of 2001. Thedecrease primarily relates to the reduction of amortization of the deferreddebt costs for Old Notes purchased as part of the Refinancing in the fourthquarter of 2001 and the discontinued amortization of goodwill in 2002.

 

*Generaland Administrative Expenses.* General and administrative expenses increased to $2.5 million in thesecond quarter of 2002 from $2.3 million in the second quarter of 2001,primarily because of an increase in management-training expense.

 

*OperatingProfit.*  As a resultof the above items, operating profit increased to $4.9 million in the secondquarter of 2002 from $4.3 million in the second quarter of 2001.  As a percentage of revenues, operatingprofit decreased to 6.5% in the second quarter of 2002 compared to 5.6% in thesecond quarter of 2001.

 

*InterestExpense – Net.* Our interest expense increased to $5.5 millionin the second quarter of 2002 from $4.2 million in the first quarter of 2001.The increase is from refinancing the senior notes in the fourth quarter of2001.  The face value of senior notesincreased by $22.6 million ($165.2 million face value) compared to the secondquarter of 2001 ($142.6 million face value) at the same interest rate (11.5%).

 

7

----

 

*Twenty-six weeks ended June 25, 2001and July 1, 2002:*

 

*Revenues. *Total revenue decreased to $156.5 million inthe first half of 2002 from $158.5 million in the first half of 2001. In the103 base stores, sales decreased by 4.1% in the first half of 2002 compared tothe first half of 2001. Significantly, of this unfavorable variance, customercounts accounted for only 0.1%; the introduction of more casual “value” itemson the dinner menu, which caused the average check to decline, accounted forthe balance of the decrease. There were 109 Black Angus restaurants operatingas of July 1, 2002 and 105 Black Angus restaurants operating as of June 25,2001.

 

*Food and Beverage Costs.*  As a percentage of revenues, food andbeverage costs decreased slightly to 33.3% in the first half of 2001 from 33.5%in the first half of 2001.  Thisdecrease reflects lower raw-material costs.

 

*Payroll Costs*.  As of percentage of revenues, labor costsincreased to 29.9% in the first half of 2002 from 27.9% in the first half of2001. The increase is primarily from higher labor-related costs for vacation,medical/dental, employee incentives, and minimum wage rate increases in 2002.

 

*Direct Operating Costs (restated):*  Direct operating costs consist of occupancy,advertising, and other expenses incurred by individual restaurants.  As a percentage of revenues, these costsdecreased to 24.8% in the first half of 2002 from 25.4% in the first half of2001.  The savings relate toenergy-conservation measures and general liability costs from the first quarterof 2002 and decreased advertising costs in the second quarter of 2002.

 

*Depreciation and Amortization.*  Depreciation and amoritzation 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 2.3% in the first half of 2002 from 2.7% in thefirst half of 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.

 

*General and Administrative Expense.*  General and administrative expenses wereflat at $4.8 million in the first half of each of 2002 and 2001.

 

*Operating Profit.*  As a result of the above items, operatingprofit decreased to $10.4 million in the first half of 2002 from $11.7 millionin the first half of 2001.  As apercentage of revenues, operating profit decreased to 6.6% in the first half of2002 compared to 7.4% in the first half of 2001.

 

*Interest Expense — Net.*  Our interest expense increased to $10.9million in the first half of 2002 from $8.5 million in the first half of2001.  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 first half of 2001 ($142.6 million facevalue) at the same interest rate (11.5%)

 

8

----

 

**Liquidity and Capital Resources**

 

Our primary sources of liquidity are cash flows from operations andborrowings under our revolving credit facilities.  We require capital principally for the acquisition andconstruction of new restaurants, the remodeling of existing restaurants, thepurchase of new equipment and leasehold improvements, and working capital. Asof July 1, 2002, we had approximately $7.2 million of cash.

 

In general, restaurant businesses do not have significant accountsreceivable because sales are made for cash or by credit-card vouchers, whichare ordinarily paid within three to five days. The restaurants do not maintain substantial inventory as a result of therelatively brief shelf life and frequent turnover of food products.Additionally, restaurants generally are able to obtain trade credit inpurchasing food and restaurant supplies. As a result, restaurants are frequently able to operate withworking-capital deficits, i.e., current liabilities exceed current assets.  At July 1, 2002, our working-capital deficitwas $20.3 million.

 

We estimate that capital expenditures of $3.0 million to $6.0 millionare required annually to maintain and refurbish our existing restaurants.  Other capital expenditures, which aregenerally discretionary, are primarily for the construction of new restaurantsand for expanding, reformatting, and extending the capabilities of existingrestaurants and for general corporate purposes.  Total capital expenditures for continuing operations wereapproximately $1.9 million through the first half of 2002 and $1.2 millionthrough the first half of 2001.  Weestimate that capital expenditures in 2002 will be approximately $5.0million.  We intend to open newrestaurants with small capital outlays and to finance most of the expendituresthrough leases.

 

On October 31, 2001, we completed an exchange offer (the “Exchange”) inwhich we offered to exchange our 111⁄2% Senior Secured Notes due 2006 (the “NewNotes”) for all of our $142,600,000 outstanding 111⁄2% Senior Secured Notes due2003 (the “Old Notes”).  We simultaneouslycompleted an offering (the “Offering”) of $30,000,000 aggregate principalamount of New Notes.  After theconsummation of the Exchange, the Offering, and related transactions(collectively, the “Refinancing”), we have no further payment obligations withrespect to over 97.6% of the outstanding Old Notes (constituting all but$3,410,000 aggregate principal amount of the Old Notes) and assumed paymentobligations equivalent to $161,774,000 of the New Notes. The Refinancingsubstantially eliminates debt principal payments until November 2006.

 

The principal elements ofthe Refinancing were: (a) the Exchange (approximately $124 million aggregateprincipal amount of Old Notes were exchanged for approximately $132 millionaggregate principal amount New Notes); (b) the Offering (the issuance of $30 millionaggregate principal amount of New Notes); (c) the consent of the holders of ouroutstanding preferred stock to amend the terms of the preferred stock toprovide that if we do not redeem the preferred stock for cash on August 15,2003 in accordance with its terms, then the preferred stock will automaticallybe redeemed for shares of our common stock at that time and all the rights ofthe preferred stock will terminate, including any rights of acceleration; toeliminate provisions that allow the holders to exchange preferred stock for newsubordinate debt; and to amend the covenants of the preferred stock so thatthey are substantially similar to the covenants under the New Notes,; and, (d)the consent of the lender under our former revolving credit facility (“OldCredit Facility”) to permit the issuance of the New Notes and any other aspectsof the Refinancing requiring the lender’s consent.

 

$3,410,000 of the OldNotes were outstanding at July 1, 2002. Under the Old Notes, we are obligated to make semiannual interestpayments on February 15 and August 15 through February 2003.  Accordingly, we made an interest payment of$196,075 on February 15, 2002.

 

Under the New Notes, weare obligated to make semiannual interest payments on May 1 and November 1 throughNovember 2006. Accordingly, we made an interest payment of $9,353,683 on May 1,2002.

 

We have an additional$2.5 million in long-term debt that relates to mortgages and capital leases forimprovements and equipment.

 

9

----

 

On December 17,2001, we entered into a loan agreement for a revolving credit facility (“NewCredit Facility”) with Foothill Capital Corporation to replace the Old CreditFacility.  Our New Credit Facilitypresently provides for up to $15 million in borrowings, including support forletters of credit. As of July 1, 2002, we had approximately $7.7 million ofletters of credit outstanding and no borrowings, leaving approximately $7.3million remaining under the New Credit Facility. The New Credit Facilityexpires in December 2005.

 

The Company and itsdirect subsidiaries do not guaranty the debt of any other parties.

 

The Company’s contractualobligations can be summarized as follows (in thousands):

 
| **Contractual  Obligations**                |   | **Paid in  Q1&2–  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** |   | $                                 | 9,550  |                            | 9,498  |                            | 37,404 |                             | 37,208  |                            | 0       |                 | $      | 93,660 |   |
| **Long-Term  Debt –Other**             |   | $                                 | 195    |                            | 207    |                            | 3,476  |                             | 161,867 |                            | 949     |                 | $      | 166,694 |   |
| **Capital  Leases**                         |   | $                                 | 387    |                            | 690    |                            | 1,092  |                             | 464     |                            | 1,115   |                 | $      | 3,748 |   |
| **Operating  Leases**                       |   | $                                 | 9,595  |                            | 9,595  |                            | 34,189 |                             | 28,528  |                            | 180,276 |                 | $      | 262,183 |   |
| **Employment  Agreements**                  |   | $                                 | 0      |                            | 500    |                            | 0      |                             | 0       |                            | 0       |                 | $      | 500 |   |
| **Total  Contractual Cash**                 |   | $                                 | 19,727 |                            | $      | 20,490                          |   | $                                | 76,161  |                            | $       | 228,067              |   | $ | 182,340 |   | $ | 526,785 |   |
|                                             |        |                                   |        |                                 |        |                                 |        |                                  |         |                                 |         |                      |        |  |  |  |  |  |  |

 

Preferred stock dividends of 4,181 shares were issued on February 15,2002.  There were 63.299 shares ofpreferred stock outstanding and accrued at July 1, 2002. Our preferred stock ismandatorily redeemable on August 15, 2003. If we do not redeem our preferred stock for cash at a price per shareequal to 110% of the then-applicable liquidation preference, our preferredstock will be automatically redeemed for shares of our common stock at that timeand all of the rights of the preferred stock will terminate. Managementbelieves that the preferred stock will convert to common stock.

 

Substantially all ourassets are pledged to our senior lenders. In addition, our direct subsidiaries guarantee most of our indebtednessand such guarantees are secured by substantially all of the assets of thesubsidiaries. In connection with such indebtedness, contingent and mandatoryprepayments may be required under certain specified conditions and events.  There are no compensating balancerequirements.

 

Although we are highlyleveraged, based upon current levels of operations and anticipated growth, weexpect that cash flows generated from operations together with our otheravailable sources of liquidity will be adequate to make required payments ofprincipal and interest on our indebtedness, to make anticipated capitalexpenditures, and to finance working-capital requirements for the next severalyears. We do not, however, expect to generate sufficient cash flows fromoperations in the future to pay fully the

 

10

----

 

principal of the seniorindebtedness upon maturity in 2006 and, accordingly, we expect to refinance allor a portion of such debt, obtain new financing, or possibly sell assets.

 

**RecentAccounting Pronouncements**

In June 2001, the Financial Accounting Standards Board issuedStatements of Financial Accounting Standards (SFAS) No. 141, “BusinessCombinations” and SFAS No. 142, “Goodwill and Other Intangible Assets.”  These new standards are effective for fiscalyears beginning after December 15, 2001. Under the new standards, goodwill is no longer amortized, but is subjectto an annual impairment test.  Thestandards also promulgate new requirements for accounting for other intangibleassets.  The impact of the new standardson our financial position and results of operations is not material.

 

In August 2001, the Financial Accounting Standards Board issuedStatement of Financial Accounting Standard No. 144, “Accounting for theImpairment or Disposal of Long-Lived Assets.” FASB Statement No. 144 retains FASB Statement No. 121’s “Accounting forthe Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed,” fundamentalprovisions for the: (1) recognition and measurement of impairment of long-livedassets to be held and used; and (2) measurement of long-lived assets to bedisposed of by sale.  FASB Statement No.144 has not had a material impact on our financial position or results ofoperations, although it may in future periods. Statement No. 144 is effective for fiscal years beginning after December15, 2001.

 

**Critical Accounting Policies**

*RevenueRecognition. *Werecognize revenue based upon sales to customers in our restaurants at the timethat meals and related services are provided. No revenue is recognized in advance of services being provided.  Because of the nature of our business,refunds on services provided are minimal and infrequent.  The majority of sales are paid for in cashor by major credit card and, therefore, collection risk for unpaid amounts isconsidered to be low.  We sell giftcertificates for use in our restaurants, but only recognize revenue at the timethe services are actually rendered.  Wedo not believe that there are other acceptable methods of accounting for ourrevenue that would cause revenue recognized in any particular period to bematerially different than the amounts that we have reported.

 

*Use ofEstimates.  T*hepreparation of financial statements in conformity with generally acceptedaccounting principles in the United States requires our management to makeestimates and assumptions that affect the reported amounts of assets andliabilities, the disclosure of contingent assets and liabilities, and thereported amounts of revenues and expenses. Actual results could differ fromthose estimates.

 

We believe that our financial statements are a reasonablerepresentation of the  realizable valuesof our assets, the level of our liabilities, and the amounts of revenues andexpenses incurred in any given period. There are estimates inherent in these amounts.  We may not be able to recover the assumed value of all of ourassets, such as property and equipment or intangible assets, if circumstancescause us to close restaurants or we experience a decline in revenues.  Our actual liabilities for matters, such asself-insurance or discontinued operations, could possibly be significantlyhigher or lower than our estimates if actual conditions are ultimatelydifferent than the assumptions used in determining the estimates.

 

*Leases*.  We lease equipment and operating facilitiesunder both capital and operating leases. In future periods, leases for similar equipment or facilities may notqualify for the accounting applied historically because of changes in terms orour credit status. This would mean that we may be required to recognize moreleases as capital leases in the future than we have in the past, causing acorresponding increase in our assets and liabilities, and the associateddepreciation and interest expense. Conversely, if many leases in the future were classified as operatingleases, rental expense would increase.

 

*Valuation Allowance for Deferred TaxAssets. *We provided avaluation allowance of $34.1 million and $33.7 million against the entireamount of our deferred tax assets as of the fiscal year ended 2001 and as ofthe fiscal quarter ended July 1, 2002, respectively.  The valuation allowance was recorded given the losses we haveincurred historically and uncertainties regarding future operatingprofitability and taxable income.  Hadwe assumed that our deferred tax assets were fully realizable, a deferred taxbenefit $1,036,000 would have been recognized in the statement of operationsfor fiscal year ended 2001.

 

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

 

11

----

 

**ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKETRISK**

 

The market risk of our financial instruments as of July 1, 2002 has notmaterially changed since December 31, 2001. The market risk profile on December 31, 2001 is disclosed in our annualreport on Form 10-K, File No. 33-48183, for the fiscal year ended December 31,2001.

 

**PART II.                OTHER INFORMATION**

 

 

**ITEM 4.****                  SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS**

 

N/A

 

**ITEM 5****.                  OTHERINFORMATION**

 

N/A

 

**ITEM 6.****                  EXHIBITS AND REPORTS ON FORM8-K**

 

(a)             List of Exhibits

 

Exhibit No.                     Description

 

99.1                                                                                                   Certificateof Chief Executive Officer and Chief Financial Officer

 

12

----

 

**SIGNATURE**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 
|   |              | AMERICAN RESTAURANT  GROUP, INC.       |                    |
|--------|-------------------|----------------------------------------|-------------------------|
|   |              | (Registrant)                           |                    |
|   |              |                                   |                    |
|   |              |                                   |
| Date:  | November 15, 2002 | By:                                    |                    | /s/ Ralph S. Roberts |   |
|   |              |                                   | Ralph S. Roberts        |   |
|   |              | Chief Executive Officer  and President |                    |
|   |              |                                   |                    |
|   |              |                                   |                    |
| Date:  | November 15, 2002 | By:                                    |                    | /s/ William G. Taves |   |
|   |              |                                   | William G. Taves        |   |
|   |              |                                   | Chief Financial Officer |   |
|        |                   |                                        |                         |  |  |  |  |  |

 

13

----

 

**CERTIFICATION**

 

I, Ralph S. Roberts, certify that:

 

1.             I have reviewedthis quarterly report on Form 10-Q/A of American Restaurant Group, Inc;

 

2.                                       Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport;

 

3.                                       Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this quarterly report;

 

Date: November 15, 2002

 

 
|   | /s/ Ralph S. Roberts    |   |
|--------|-------------------------|--------|
|   | Ralph S. Roberts        |
|   | Chief Executive Officer |

 

14

----

 

**CERTIFICATION**

 

I, William G. Taves, certify that:

 

1.             I have reviewedthis quarterly report on Form 10-Q/A of American Restaurant Group, Inc;

 

2.                                       Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport;

 

3.                                       Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this quarterly report;

 

Date: November 15, 2002

 

 
|   | /s/ William G. Taves    |   |
|--------|-------------------------|--------|
|   | William G. Taves        |
|   | Chief Financial Officer |

 

15

----