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**UNITED STATESSECURITIES AND EXCHANGE COMMISSION****WASHINGTON, D.C. 20549**

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**FORM 10-Q**

**(Mark One)**
| **ý** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934** |
|------------|----------------------------------------------------------------------------------------------|

** **

**For the quarterly period ended June 25, 2001**

**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 RestaurantGroup, Inc.**(Exact name of registrant as specified inits 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. |

 

Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.        Yes   ý             No   o

Thenumber of outstanding shares of the Company's Common Stock (one-cent par value)as of July 30, 2001 was 128,081.

**AMERICANRESTAURANT GROUP, INC.**

**INDEX**

|                                      |                                                                                        |
|-------------------------------------------|---------------------------------------------------------------------------------------------|
| **PART I.  FINANCIAL INFORMATION**   |
|                                      |                                                                                        |
| 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                                 |

** **

 

**PART I.**            **FINANCIAL INFORMATION**

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

AMERICANRESTAURANT GROUP, INC. AND SUBSIDIARIES

CONSOLIDATEDCONDENSED BALANCE SHEETS

DECEMBER25, 2000 AND JUNE 25, 2001

 

| ASSETS                      | December 25,  2000                    |       | June 25,  2001 |       |
|-----------------------------|---------------------------------------|------------|----------------|------------|
|                        |                                       |       |                |       |
|                        |                                  |       | (unaudited)    |       |
| CURRENT  ASSETS:            |                                  |       |           |       |
|                        | Cash                                  | $          | 8,532,000      |       | $ | 5,025,000 |   |
|                        | Accounts  and notes receivable        | 2,938,000  |           | 3,884,000  |   |
|                        | Inventories                           | 2,853,000  |           | 3,179,000  |   |
|                        | Prepaid  expenses                     | 2,803,000  |           | 5,749,000  |   |
|                        |                                  |            |           |            |   |
|                        | Total  current assets                 | 17,126,000 |           | 17,837,000 |   |
| PROPERTY AND  EQUIPMENT:    |                                       |       |                |       |
|                        | Land  and land improvements           | 2,629,000  |           | 2,629,000  |   |
|                        | Buildings  and leasehold improvements | 67,631,000 |           | 69,052,000 |   |
|                        | Fixtures  and equipment               | 48,629,000 |           | 48,989,000 |   |
|                        | Property  held under capital leases   | 7,480,000  |           | 7,293,000  |   |
|                        | Construction  in progress             | 2,816,000  |           | 1,247,000  |   |
|                        |                                  |            |           |            |   |
| Property  and Equipment     | 129,185,000                           |       | 129,210,000    |       |
|                        | Less  — Accumulated depreciation | 75,815,000 |           | 77,636,000 |   |
|                        |                                  |            |           |            |   |
| Net  Property and Equipment | 53,370,000                            |       | 51,574,000     |       |
|                        |                                       |       |                |       |
| OTHER  ASSETS — NET:   | 19,079,000                            |       | 17,665,000     |       |
|                        | Total  Assets                         | $          | 89,575,000     |       | $ | 87,076,000 |   |
|                        |                                  |            |           |            |   |
|                             |                                       |            |                |            |  |  |  |  |

 

Theaccompanying notes are an integral part of these consolidated condensedstatements.(consolidated condensed balance sheets continued on the following page)

 

| LIABILITIES AND COMMON  STOCKHOLDERS’ DEFICIT   | December 25,  2000                                                                                                                                                                                                  |         | June 25,  2001 |         |
|------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|----------------|--------------|
|                                                 |                                                                                                                                                                                                                     |         |                |         |
|                                                 |                                                                                                                                                                                                                |         | (unaudited)    |         |
| CURRENT  LIABILITIES:                                |                                                                                                                                                                                                                |         |           |         |
|                                                 | Accounts  payable                                                                                                                                                                                                   | $            | 15,193,000     |         | $ | 15,645,000 |   |
|                                                 | Accrued  liabilities                                                                                                                                                                                                | 11,521,000   |           | 5,872,000    |   |
|                                                 | Accrued  insurance                                                                                                                                                                                                  | 2,373,000    |           | 2,236,000    |   |
|                                                 | Accrued  interest                                                                                                                                                                                                   | 6,251,000    |           | 6,256,000    |   |
|                                                 | Accrued  payroll costs                                                                                                                                                                                              | 7,069,000    |           | 5,030,000    |   |
|                                                 | Current  portion of obligations under capital leases                                                                                                                                                                | 713,000      |           | 753,000      |   |
|                                                 | Current  portion of long-term debt                                                                                                                                                                                  | 432,000      |           | 415,000      |   |
|                                                 | Current  liabilities from discontinued operations                                                                                                                                                                   | 2,945,000    |           | 1,407,000    |   |
|                                                 |                                                                                                                                                                                                                |              |           |              |   |
|                                                 | Total  current liabilities                                                                                                                                                                                          | 46,497,000   |           | 37,614,000   |   |
|                                                 |                                                                                                                                                                                                                |              |           |              |   |
| LONG-TERM  LIABILITIES, net of current portion:      |                                                                                                                                                                                                                |         |           |         |
|                                                 | Obligations  under capital leases                                                                                                                                                                                   | 2,588,000    |           | 2,208,000    |   |
|                                                 | Long-term  debt                                                                                                                                                                                                     | 144,066,000  |           | 143,883,000  |   |
|                                                 |                                                                                                                                                                                                                |              |           |              |   |
|                                                 | Total  long-term liabilities                                                                                                                                                                                        | 146,654,000  |           | 146,091,000  |   |
|                                                 |                                                                                                                                                                                                                |              |           |              |   |
| DEFERRED  GAIN                                       | 4,192,000                                                                                                                                                                                                           |         | 4,091,000      |         |
|                                                 |                                                                                                                                                                                                                     |         |                |         |
| COMMITMENTS  AND CONTINGENCIES                       |                                                                                                                                                                                                                |         |           |         |
| CUMULATIVE  PREFERRED STOCK, MANDATORILY REDEEMABLE: |                                                                                                                                                                                                                |         |           |         |
|                                                 | Senior  pay-in-kind exchangeable preferred stock, $0.01 par value; 160,000 shares  authorized; 50,953 shares issued and outstanding at December 25, 2000 and  54,775 shares issued and outstanding at June 25, 2001 | 49,891,000   |           | 53,912,000   |   |
|                                                 |                                                                                                                                                                                                                |              |           |              |   |
| COMMON  STOCKHOLDERS’ DEFICIT:                  |                                                                                                                                                                                                                |         |           |         |
|                                                 | Common  stock, $0.01 par value; 1,000,000 shares authorized; 128,081 shares issued  and outstanding at December 25, 2000 and June 25, 2001                                                                          | 1,000        |           | 1,000        |   |
|                                                 | Paid-in  capital                                                                                                                                                                                                    | 15,788,000   |           | 11,590,000   |   |
|                                                 | Accumulated  deficit                                                                                                                                                                                                | (173,448,000 | )              | (166,223,000 | ) |
|                                                 |                                                                                                                                                                                                                |              |           |              |   |
|                                                 | Total  common stockholders’ deficit                                                                                                                                                                            | (157,659,000 | )              | (154,632,000 | ) |
|                                                 |                                                                                                                                                                                                                |              |           |              |   |
|                                                 | Total  liabilities and common stockholders’ deficit                                                                                                                                                            | $            | 89,575,000     |         | $ | 87,076,000 |   |
|                                                 |                                                                                                                                                                                                                     |         |                |         |
|                                                      |                                                                                                                                                                                                                     |              |                |              |  |  |  |  |  |

 

Theaccompanying notes are an integral part of these consolidated condensedstatements.

 

AMERICANRESTAURANT GROUP, INC. AND SUBSIDIARIES

CONSOLIDATEDSTATEMENTS OF OPERATIONS

FORTHE THIRTEEN WEEKS AND THE TWENTY-SIX WEEKS ENDED JUNE 26, 2000 AND JUNE 25,2001

(UNAUDITED)

 

|                                                                  | Thirteen Weeks Ended           |       | Twenty-Six Weeks Ended |       |
|-----------------------------------------------------------------------|--------------------------------|------------|------------------------|------------|
|                                                                  |                                |       |                        |       |
|                                                                  | June 26,  2000                 |       | June 25,  2001         |       | June 26,  2000 |   | June 25,  2001 |   |
|                                                                  |                                |       |                        |       |  |   |  |   |
|                                                                  |                           |       |                   |       |   |   |   |   |
| REVENUES                                                              | $                              | 75,015,000 |                   | $          | 76,296,000 |   | $ | 153,605,000 |   | $ | 158,477,000 |   |
|                                                                  |                           |       |                   |       |   |   |   |   |
| RESTAURANT  COSTS:                                                    |                           |       |                   |       |   |   |   |   |
|                                                                  | Food  and beverage             | 25,288,000 |                   | 26,013,000 |   | 51,947,000 |   | 53,153,000 |   |
|                                                                  | Payroll                        | 20,274,000 |                   | 21,620,000 |   | 40,973,000 |   | 44,262,000 |   |
|                                                                  | Direct  operating              | 17,356,000 |                   | 17,728,000 |   | 35,128,000 |   | 36,083,000 |   |
|                                                                  | Depreciation  and amortization | 2,239,000  |                   | 2,178,000  |   | 5,147,000 |   | 4,330,000 |   |
|                                                                  |                           |       |                   |       |   |   |   |   |
| GENERAL  AND ADMINISTRATIVE EXPENSES                                  | 3,001,000                      |       | 2,304,000              |       | 5,922,000 |   | 4,770,000 |   |
|                                                                  |                                |       |                        |       |  |   |  |   |
|                                                                  | Operating  profit              | 6,857,000  |                   | 6,453,000  |   | 14,488,000 |   | 15,879,000 |   |
| INTEREST  EXPENSE, net                                                | 4,706,000                      |       | 4,247,000              |       | 9,520,000 |   | 8,491,000 |   |
|                                                                  |                                |       |                        |       |  |   |  |   |
| Income  before provision for income taxes and discontinued operations | 2,151,000                      |       | 2,206,000              |       | 4,968,000 |   | 7,388,000 |   |
|                                                                  |                           |       |                   |       |   |   |   |   |
| PROVISION  FOR INCOME TAXES                                           | 215,000                        |       | 44,000                 |       | 201,000 |   | 163,000 |   |
|                                                                  |                                |       |                        |       |  |   |  |   |
| Income  from continuing operations                                    | 1,936,000                      |       | 2,162,000              |       | 4,767,000 |   | 7,225,000 |   |
|                                                                  |                           |       |                   |       |   |   |   |   |
| NET  INCOME FROM DISCONTINUED OPERATIONS                              | 1,688,000                      |       | 0                      |       | 3,474,000 |   | 0 |   |
|                                                                  |                                |       |                        |       |  |   |  |   |
|                                                                  | Net  Income                    | $          | 3,624,000              |       | $ | 2,162,000 |   | $ | 8,241,000 |   | $ | 7,225,000 |   |
|                                                                  |                                |       |                        |       |  |   |  |   |

Theaccompanying notes are an integral part of these consolidated condensedstatements.

AMERICANRESTAURANT GROUP, INC. AND SUBSIDIARIES

CONSOLIDATEDSTATEMENTS OF CASH FLOWS

FORTHE TWENTY-SIX WEEKS ENDED JUNE 26, 2000 AND JUNE 25, 2001

(UNAUDITED)

|                                                                                                    | June 26,  2000                                                                                                                       |         | June 25,  2001 |         |
|---------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------|--------------|----------------|--------------|
|                                                                                                    |                                                                                                                                      |         |                |         |
|                                                                                                    |                                                                                                                                 |         |           |         |
| CASH  FLOWS FROM CONTINUING OPERATING ACTIVITIES:                                                       |                                                                                                                                 |         |           |         |
|                                                                                                    | Cash  received from customers                                                                                                        | $            | 136,415,000    |         | $ | 157,531,000 |   |
|                                                                                                    | Cash  paid to suppliers and employees                                                                                                | (134,669,000 | )              | (149,014,000 | ) |
|                                                                                                    | Interest  paid, net                                                                                                                  | (9,743,000   | )              | (8,486,000   | ) |
|                                                                                                    | Income  taxes paid                                                                                                                   | (201,000     | )              | (163,000     | ) |
|                                                                                                    |                                                                                                                                      |         |                |         |
|                                                                                                    | Net  cash (used in) continuing operating activities                                                                                  | (8,198,000   | )              | (132,000     | ) |
|                                                                                                    |                                                                                                                                 |         |           |         |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                                                  |                                                                                                                                 |         |           |         |
|                                                                                                    | Capital  expenditures                                                                                                                | (3,960,000   | )              | (1,171,000   | ) |
|                                                                                                    | Net  (increase) decrease in other assets                                                                                             | 76,000       |           | 51,000       |   |
|                                                                                                    | Proceeds  from disposition of assets                                                                                                 | (19,000      | )              | -            |   |
|                                                                                                    |                                                                                                                                 |              |           |              |   |
| Net  cash (used in) investing activities                                                                | (3,903,000                                                                                                                           | )            | (1,120,000     | )            |
|                                                                                                    |                                                                                                                                      |         |                |         |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                                                  |                                                                                                                                 |         |           |         |
|                                                                                                    | Payments  on indebtedness                                                                                                            | (118,000     | )              | (200,000     | ) |
|                                                                                                    | Payments  on capital-lease obligations                                                                                               | (310,000     | )              | (340,000     | ) |
|                                                                                                    |                                                                                                                                      |         |                |         |
|                                                                                                    | Net  cash provided by (used in) financing activities                                                                                 | (428,000     | )              | (540,000     | ) |
|                                                                                                    |                                                                                                                                      |         |                |         |
| NET  (DECREASE) FROM CONTINUING OPERATIONS                                                         | (12,529,000                                                                                                                          | )            | (1,792,000     | )            |
|                                                                                                    |                                                                                                                                 |         |           |         |
| NET  INCREASE / (DECREASE) FROM DISCONTINUED OPERATIONS                                                 | 19,574,000                                                                                                                           |         | (1,715,000     | )            |
|                                                                                                    |                                                                                                                                 |         |           |         |
| CASH,  at beginning of period                                                                           | 8,316,000                                                                                                                            |         | 8,532,000      |         |
|                                                                                                    |                                                                                                                                      |         |                |         |
| CASH,  at end of period                                                                                 | $                                                                                                                                    | 15,361,000   |           | $            | 5,025,000 |   |
|                                                                                                    |                                                                                                                                      |         |                |         |
| RECONCILIATION  OF NET INCOME FROM OPERATIONS TO NET CASH PROVIDED BY CONTINUING OPERATING  ACTIVITIES: |
|                                                                                                    |
|                                                                                                    | Net  income from continuing operations                                                                                               | $            | 4,767,000      |         | $ | 7,225,000 |   |
|                                                                                                    | Adjustments to  reconcile net income from continuing operations to net cash provided by  /(used in) continuing operating activities: |         |           |         |   |
|                                                                                                    |                                                                                                                                 |         |           |         |
|                                                                                                    | Depreciation  and amortization                                                                                                       | 5,147,000    |           | 4,330,000    |   |
|                                                                                                    | Amortization  of deferred gain                                                                                                       | (101,000     | )              | (101,000     | ) |
| (Increase)  decrease in current assets:                                                                 |                                                                                                                                 |         |           |         |
|                                                                                                    | Accounts  and notes receivable, net                                                                                                  | (17,190,000  | )              | (946,000     | ) |
|                                                                                                    | Inventories                                                                                                                          | (348,000     | )              | (326,000     | ) |
|                                                                                                    | Prepaid  expenses                                                                                                                    | 1,359,000    |           | (2,946,000   | ) |
| Increase  (decrease) in current liabilities:                                                            |                                                                                                                                 |         |           |         |
|                                                                                                    | Accounts  payable                                                                                                                    | (1,253,000   | )              | 452,000      |   |
|                                                                                                    | Accrued  liabilities                                                                                                                 | (2,663,000   | )              | (5,649,000   | ) |
|                                                                                                    | Accrued  insurance                                                                                                                   | 1,628,000    |           | (137,000     | ) |
|                                                                                                    | Accrued  interest                                                                                                                    | (223,000     | )              | 5,000        |   |
|                                                                                                    | Accrued  payroll                                                                                                                     | 679,000      |           | (2,039,000   | ) |
|                                                                                                    |                                                                                                                                      |         |                |         |
| Net  cash (used in) continuing operating activities                                                     | (8,198,000                                                                                                                           | )            | (132,000       | )            |
|                                                                                                    |                                                                                                                                      |         |                |         |
|                                                                                                         |                                                                                                                                      |              |                |              |  |  |  |  |  |

 

Theaccompanying notes are an integral part of these consolidated condensed statements.

AMERICANRESTAURANT GROUP, INC. AND SUBSIDIARIES

NOTESTO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

1.          MANAGEMENT OPINION

TheConsolidated Condensed Financial Statements included were prepared by AmericanRestaurant Group, Inc. (the “Company”), without audit, in accordance withSecurities and Exchange Commission Regulation S-X.  In the opinion of the Company’s management, these ConsolidatedCondensed Financial Statements contain all adjustments (all of which are of anormal recurring nature except for the discontinued operations) necessary topresent fairly the Company's financial position as of December 25, 2000 andJune 25, 2001, and the results of its operations for the thirteen weeks andtwenty-six weeks ended June 26, 2000 and June 25, 2001 and its cash flows forthe twenty-six weeks ended June 26, 2000 and June 25, 2001.  The Company's results for an interim periodare not necessarily indicative of the results that may be expected for theyear.

Althoughthe Company believes that all adjustments necessary for a fair presentation ofthe interim periods presented are included and that the disclosures areadequate to make the information presented not misleading, the Company suggeststhat these Consolidated Condensed Financial Statements be read in conjunctionwith the Consolidated Financial Statements and related notes included in theCompany's annual report on Form 10-K, File No. 33-48183, for the year endedDecember 25, 2000.

2.          SALE OF STOCK TO SPECTRUM RESTAURANTGROUP

TheCompany sold all of the outstanding stock of four wholly owned subsidiaries(“Non-Black Angus Subsidiaries”) to Spectrum Restaurant Group, Inc. (formerlyknown as NBACo, Inc.) effective June 26, 2000. There was no gain or lossrecorded because of the related-party nature of the stock sale.  The Company received $17.0 million in cashon June 28, 2000, and transferred certain assets and liabilities to SpectrumRestaurant Group, Inc.  Concurrent withthe sale, advances between the Company and the Non-Black Angus Subsidiarieswere eliminated. Paid-in capital of $27.0 million was charged as a result ofthe sale. The Company retained the assets and liabilities associated withcertain closed restaurants as well as certain liabilities, estimated on June26, 2000 at $12.6 million, associated with the operating restaurants that weresold.  The amount of estimatedliabilities remaining at June 25, 2001 was approximately $1.4 million.

TheCompany is currently working to settle these liabilities.  Any adjustment to the recorded balance, as aresult of such settlement, will be recognized when the amount becomes known.

3.          OPERATIONS

TheCompany’s operations are affected by local and regional economic conditions,including competition in the restaurant industry.  Prior to the year ended December 25, 2000, the Companyexperienced recurring operating losses (before extraordinary gain (loss) onextinguishment of debt) after debt service. A recapitalization plan was consummated during 1998. This plansubstantially eliminated debt principal payments until the year 2003.

Managementbelieves the recapitalization will also allow it to effect changes in itsoperations and has already implemented measures to reduce overhead costs.  However, the Company does not expect togenerate sufficient cash flows from operations in the future to fully pay theprincipal on long-term debt upon maturity in the year 2003 and, accordingly, itexpects to refinance all or a portion of such debt, obtain new financing, orpossibly sell assets.

4.          INCOME TAXES

Thetax provision against the Company’s pre-tax income in 2001 and in 2000consisted of certain state income tax and estimated Federal income taxpayments.  The Company previouslyestablished a valuation allowance against net-operating-loss carryforwards.

5.          PREFERRED STOCK

Aspart of the recapitalization plan in February 1998, the Company issued 35,000preferred stock units (the “Units”) of the Company.  Each Unit consists of $1,000 initial liquidation preference of12% senior pay-in-kind exchangeable preferred stock and one common-stockpurchase warrant initially to purchase 2.66143 shares of the common stock at aninitial exercise price of one cent per share. The Company’s cumulative preferred stock is mandatorily redeemable onAugust 15, 2003 for cash at a price per share equal to 110% of thethen-applicable liquidation preference.

Astock dividend of 3,618 shares was made on February 15, 2001.  There were 54,775 shares outstanding at June25, 2001.

6.          SUBSIDIARY GUARANTORS

Separatefinancial statements of the Company's subsidiaries are not included in thisreport on Form 10-Q because the subsidiaries are fully, unconditionally,jointly, and severally liable for the obligations of the Company under theCompany's 111⁄2% Senior Secured Notes due 2003 (the “Notes”), and the aggregatenet assets, earnings, and equity of such subsidiary guarantors aresubstantially equivalent to the net assets, earnings, and equity of the Companyon a consolidated basis.

7.          INSURANCE

TheCompany self-insures certain risks up to varying limits including medical,workers’ compensation, property, and general liability. Deductible andself-insured limits have varied historically, ranging from $0 to $500,000 perincident depending on the type of risk. The policy deductibles are $100,000 forits annual medical and dental benefits per person. Reserves for losses areestablished based upon currently estimated obligations for the claim over timeand the deductible or self-insured retention in place at the time of the loss.

8          FORWARD-LOOKING STATEMENTS

Certainstatements contained herein are forward-looking regarding cash flows fromoperations, restaurant openings, capital requirements, and other matters. Theseforward-looking statements involve risks and uncertainties and, consequently,could be affected by general business conditions, the impact of competition,governmental regulations, and inflation.

 

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

 

Thefollowing discussion and analysis of the Company’s financial condition andresults of operations should be read in conjunction with the historicalfinancial information included in the Consolidated Condensed FinancialStatements.

**Results of ContinuingOperations**

*Thirteen weeks ended June 26,2000 and June 25, 2001:*

*Revenues.*  Total revenues from continuing operationsincreased to $76.3 million in the second quarter of 2001 from $75.0 million inthe second quarter of 2000. Same-store-sales decreased 1.1%. There were 105 Black Angus restaurantsoperating as of June 25, 2001 and 102 Black Angus restaurants operating as ofJune 26, 2000.

*Food and Beverage Costs.*  As a percentage of revenues, food andbeverage costs from continuing operations increased to 34.1% in the secondquarter of 2001 from 33.7% in the second quarter of 2000.  The increase relates primarily to the highercost of red meat.

*Payroll Costs.*  As a percentage of revenues, labor costsfrom continuing operations increased to 28.3% in the second quarter of 2001from 27.0% in the second quarter of 2000. The increase is primarily a result of an increase in the federal andstate minimum-wage rates, and a reduction in the number of assigned tables forfood servers to improve customer service.

*Direct Operating Costs.*  Direct operating costs consist of occupancy,advertising, and other expenses incurred by individual restaurants.  As a percentage of revenues, these costsfrom continuing operations increased to 23.2% in the second quarter of 2001from 23.1% in the second quarter of 2000. The increase relates to revisions of the Company’s estimate ofunredeemed gift certificates, which were offset by a reduction in theadvertising expense through a relocation of media in 2001.

*Depreciation and Amortization.*  Depreciation and amortization consists ofdepreciation of fixed assets as well as amortization of intangible assets.  As a percentage of revenues, depreciationand amortization from continuing operations decreased to 2.9% in the secondquarter of 2001 from 3.0% in the second quarter of 2000.  The decrease relates primarily to corporateassets not retained by the Company pursuant to the stock sale.

*General and Administrative Expenses.*  General and administrative expenses fromcontinuing operations decreased to $2.3 million in the second quarter of 2001from $3.0 million in the second quarter of 2000.  The decrease relates to the reduction of corporate expenses as aresult of the stock sale and reduction of other overhead expenses.

*Operating Profit.*  As a result of the above items, profit fromcontinuing operations decreased to $6.5 million in the second quarter of 2001from $6.9 million in the second quarter of 2000.  As a percentage of revenues, profit from continuing operationsdecreased to 8.5% in the second quarter of 2001 compared to 9.1% in the secondquarter of 2000.

*Interest Expense – Net.*  The interest expense decreased to $4.2million in the second quarter of 2001 from $4.7 million in the second quarterof 2000. The decrease resulted from paying down $16 million of principal on theNotes in December 2000.

***Net Incomefrom Discontinued Operations****.*Effective June 26, 2000, the Company sold all of the outstanding stock of theNon-Black Angus Subsidiaries.

The following is a summary of the netincome from discontinued operations for the thirteen weeks ended June 26, 2000and June 25, 2001.  There was noactivity in 2001.

| ($000)                         | June  26, 2000                 |   | June  25, 2001 |   |
|--------------------------------|--------------------------------|--------|----------------|--------|
| Revenues                       | $                              | 32,545 |           | $      | 0 |   |
| Food and Beverage  Costs       | 8,605                          |   | 0              |   |
| Payroll Costs                  | 10,514                         |   | 0              |   |
| Direct Operating Costs         | 8,886                          |   | 0              |   |
| Depreciation and  Amortization | 993                            |   | 0              |   |
| General and  Administrative    | 1,628                          |   | 0              |   |
| Loss on Impairment of  Assets  | 112                            |   | 0              |   |
|                           |                                |   |                |   |
| Grandy’s Conversion:      |                           |   |           |   |
|                           | (Gain)/Loss on Sale of  Assets | 119    |           | 0      |   |
| Operating Profit               | 1,688                          |   | 0              |   |
| Interest Expense               | 0                              |   | 0              |   |
|                           |                                |   |                |   |
| Income Before Taxes            | 1,688                          |   | 0              |   |
| Provision for Income  Taxes    | 0                              |   | 0              |   |
|                           |                                |   |                |   |
| Net Income from                |                           |   |           |   |
|                           | Discontinued  Operations       | $      | 1,688          |   | $ | 0 |   |
|                           |                                |   |                |   |
|                                |                                |        |                |        |  |  |  |  |

 

*Twenty-six weeks ended June26, 2000 and June 25, 2001:*

*Revenues.*  Total revenues from continuing operationsincreased to $158.5 million in the first half of 2001 from $153.6 million inthe first half of 2000. Same-store-sales increased 0.2%. There were 105 Black Angus restaurantsoperating as of June 25, 2001 and 102 Black Angus restaurants operating as ofJune 26, 2000.

*Food and Beverage Costs.*  As a percentage of revenues, food andbeverage costs from continuing operations decreased to 33.5% in the first halfof 2001 from 33.8% in the first half of 2000. The decrease relates primarily to savings from the cutting of steaks at therestaurant, which resulted in lower food costs in the first quarter, thatoffset the higher cost of red meat in the second quarter.

*Payroll Costs.*  As a percentage of revenues, labor costsfrom continuing operations increased to 27.9% in the first half of 2001 from26.7% in the first half of 2000.  Theincrease is primarily a result of an increase in the federal and stateminimum-wage rates, and a reduction in the number of assigned tables for foodservers to improve customer service.

*Direct Operating Costs.*  Direct operating costs consist of occupancy,advertising, and other expenses incurred by individual restaurants.  As a percentage of revenues, these costsfrom continuing operations decreased to 22.8% in the first half of 2001 from22.9% in the first half of 2000.  Thedecrease relates primarily to a reduction in advertising expense by arelocation of media in 2001, which offset revisions to the Company’s estimateof unredeemed gift certificates.

*Depreciation and Amortization.*  Depreciation and amortization consists ofdepreciation of fixed assets as well as amortization of intangible assets.  As a percentage of revenues, depreciationand amortization from continuing operations decreased to 2.7% in the first halfof 2001 from 3.4% in the first half of 2000. The decrease relates primarily to corporate assets not retained by theCompany pursuant to the stock sale.

*General and Administrative Expenses.*  General and administrative expenses fromcontinuing operations decreased to $4.8 million in the first half of 2001 from$5.9 million in the first half of 2000. The decrease relates to the reduction of corporate expenses as a resultof the stock sale and reduction of other overhead expenses.

*Operating Profit.*  As a result of the above items, profit fromcontinuing operations increased to $15.9 million in the first half of 2001 from$14.5 million in first half of 2000.  Asa percentage of revenues, profit from continuing operations increased to 10.0%in the first half of 2001 from 9.4% in the first half of 2000.

*Interest Expense – Net.*  The interest expense decreased to $8.5million in the first half of 2001 from $9.5 million in the first half of2000.  The decrease resulted from payingdown $16 million of principal on the Notes in December 2000.

***Net Income fromDiscontinued Operations****.*Effective June 26, 2000, the Company sold all of the outstanding stock of theNon-Black Angus Subsidiaries.

The following is a summary of the netincome from discontinued operations for the twenty-six weeks ended June 26,2000 and June 25, 2001.  There was noactivity in 2001.

| ($000)                         | June  26, 2000                 |   | June  25, 2001 |   |
|--------------------------------|--------------------------------|--------|----------------|--------|
| Revenues                       | $                              | 65,111 |           | $      | 0 |   |
| Food and Beverage  Costs       | 17,123                         |   | 0              |   |
| Payroll Costs                  | 21,605                         |   | 0              |   |
| Direct Operating Costs         | 16,888                         |   | 0              |   |
| Depreciation and  Amortization | 2,003                          |   | 0              |   |
| General and  Administrative    | 3,137                          |   | 0              |   |
| Loss on Impairment of  Assets  | 112                            |   | 0              |   |
|                           |                                |   |                |   |
| Grandy’s Conversion:      |                           |   |           |   |
|                           | (Gain)/Loss on Sale of  Assets | 752    |           | 0      |   |
| Operating Profit               | 3,491                          |   | 0              |   |
| Interest Expense               | 0                              |   | 0              |   |
|                           |                                |   |                |   |
| Income Before Taxes            | 3,491                          |   | 0              |   |
| Provision for Income  Taxes    | 17                             |   | 0              |   |
|                           |                                |   |                |   |
| Net Income from                |                           |   |           |   |
|                           | Discontinued  Operations       | $      | 3,474          |   | $ | 0 |   |
|                           |                                |   |                |   |
|                                |                                |        |                |        |  |  |  |  |

 

**Liquidityand Capital Resources**

TheCompany's primary sources of liquidity are cash flows from operations andborrowings under its credit facilities. The Company requires capital principally for the acquisition andconstruction of new restaurants, the remodeling of existing restaurants, andthe purchase of new equipment and leasehold improvements. As of June 25, 2001,the Company had cash of approximately $5.0 million.

Ingeneral, restaurant businesses do not have significant accounts receivablebecause sales are made for cash or by credit-card vouchers, which areordinarily 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 June 25, 2001, the Company had aworking-capital deficit of $19.8 million.

TheCompany estimates that capital expenditures of $3.0 million to $6.0 million arerequired annually to maintain and refurbish its 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 $1.2 million in the first half of 2001 and $4.0 million in thefirst half of 2000.  The Companyestimates that capital expenditures in 2001 will be approximately $6.0million.  The Company intends to opennew restaurants with small capital outlays and to finance most of theexpenditures through mortgages on capital equipment.

Asa result of the Notes, the Company is obligated to make semiannual interestpayments on February 15 and August 15 through February 2003.  Accordingly, the Company made an interestpayment of $8.2 million in February 2001.

OnJune 28, 2000, the Company amended the terms of its revolving credit facilityto reduce the aggregate commitment of the lenders from $15 million to $12million, to reduce the amount available for issuances of letters of credit from$10 million to $7 million, and to extend the maturity date from February 25,2001 to June 30, 2002. On June 25, 2001, letters of credit were the onlydrawing under the credit facility, with $6.7 million remaining under the creditfacility.

Substantiallyall assets of the Company are pledged to its senior lenders.  In addition, the Company’s directsubsidiaries guarantee the indebtedness owed by the Company and such guaranteesare secured by substantially all of the assets of the subsidiaries. Inconnection with such indebtedness, contingent and mandatory prepayments may berequired under certain specified conditions and events.  There are no compensating balancerequirements.

Althoughthe Company is highly leveraged, based upon current levels of operations andanticipated growth, the Company expects that cash flows generated fromoperations together with its other available sources of liquidity will beadequate to make required payments of principal and interest on itsindebtedness, to make anticipated capital expenditures, and to finance workingcapital requirements for the next several years. However, the Company does notexpect to generate sufficient cash flows from operations in the future to fullypay the Notes upon maturity and, accordingly, it expects to refinance all or aportion of such debt, obtain new financing, or possibly sell assets.

**ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK**

The market risk of the Company’sfinancial instruments as of June 25, 2001 has not materially changed sinceDecember 25, 2000.  The market riskprofile on December 25, 2000 is disclosed in the Company’s annual report onForm 10-K, File No. 33-48183, for the year ended December 25, 2000.

**PARTII.**           **OTHER INFORMATION**

NotApplicable

**SIGNATURE**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

|   |                                                 | AMERICAN RESTAURANT GROUP, INC. |
|--------|------------------------------------------------------|---------------------------------|
|   |                                                 |                                 |
|   |                                                 | (Registrant)                    |
|   |                                                 |                            |
|   |                                                 |                            |
| Date:  |         August 8, 2000 | By:                             |        /s/ Ralph S. Roberts |
|   |                                                      |                            |  |
|   |                                                 |                            | Ralph S. Roberts |
|   |                                                 |                            | Chief Executive Officer and President |